Fair Values of Assets and Liabilities

12 Months Ended

Mar. 31, 2013

Investments and Fair Values of Assets and Liabilities Disclosure [Abstract]

Fair Values of Assets and Liabilities

3. INVESTMENTS AND FAIR VALUES OF ASSETS AND LIABILITIES

The disclosures below include details of Legg Mason's assets and liabilities that are measured at fair value, excluding the assets and liabilities of CIVs. See Note 17, Variable Interest Entities and Consolidation of Investment Vehicles, for information related to the assets and liabilities of CIVs that are measured at fair value.

Legg Mason has investments in debt and equity securities that are generally classified as trading as described in Note 1. Investments as of March 31, 2013 and 2012, are as follows:

	2013		2012
Investment securities:
Current investments	$	371,080	$	412,119
Available-for-sale	12,400		11,913
Other(1)	99		112
Total	$	383,579	$	424,144

(1) Includes investments in private equity securities that do not have readily determinable fair values.

The net unrealized and realized gain (loss) for investment securities classified as trading was $18,260, $(6,063) and $28,355 for fiscal 2013, 2012 and 2011, respectively.

Legg Mason's available-for-sale investments consist of mortgage backed securities, U.S. government and agency securities and equity securities. Gross unrealized gains and (losses) for investments classified as available-for-sale were $230 and $(188), respectively, as of March 31, 2013, and $551 and $(184), respectively, as of March 31, 2012.

Legg Mason uses the specific identification method to determine the cost of a security sold and the amount reclassified from accumulated other comprehensive income into earnings. The proceeds and gross realized gains and losses from sales and maturities of available-for-sale investments are as follows:

	Years Ended March 31,
	2013			2012			2011
Available-for-sale:
Proceeds	$	5,272		$	6,197		$	4,012
Gross realized gains	22			6			7
Gross realized losses	(43		)	(25		)	(19		)

Legg Mason had no investments classified as held-to-maturity as of March 31, 2013 and 2012.

The fair values of financial assets and (liabilities) of the Company were determined using the following categories of inputs:

	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Value as of March 31, 2013
Assets:
Cash equivalents(1):
Money market funds	$	485,776		$	—	$	—	$	485,776
Time deposits and other	—			177,471		—		177,471
Total cash equivalents	485,776			177,471		—		663,247
Current investments:
Trading investments relating to long-term incentive compensation plans(2)	86,583			—		—		86,583
Trading proprietary fund products and other investments(3)	158,846			69,064		246		228,156
Equity method investments relating to long-term incentive compensation plans, proprietary fund products and other investments(4)(5)	12,600			43,741		—		56,341
Total current investments	258,029			112,805		246		371,080
Available-for-sale investment securities(6)	2,034			10,354		12		12,400
Investments in partnerships, LLCs and other(6)	761			2,620		27,762		31,143
Equity method investments in partnerships and LLCs(4)(6)	1,518			924		66,338		68,780
Derivative assets:
Currency and market hedges	1,939			—		—		1,939
Other investments(6)	—			—		99		99
	$	750,057		$	304,174	$	94,457	$	1,148,688
Liabilities:
Derivative liabilities:
Currency and market hedges	$	(781	)	$	—	$	—	$	(781	)

	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Value as of March 31, 2012
Assets:
Cash equivalents(1):
Money market funds	$	893,738		$	—	$	—	$	893,738
Time deposits	—			88,289		—		88,289
Total cash equivalents	893,738			88,289		—		982,027
Current investments:
Trading investments relating to long-term incentive compensation plans(2)	111,257			—		—		111,257
Trading proprietary fund products and other investments(3)	143,002			79,583		—		222,585
Equity method investments relating to long-term incentive compensation plans, proprietary fund products and other investments(4)(5)	11,565			54,934		11,778		78,277
Total current investments	265,824			134,517		11,778		412,119
Available-for-sale investment securities(6)	2,091			9,810		12		11,913
Investments in partnerships, LLCs and other(6)	851			5,351		28,763		34,965
Equity method investments in partnerships and LLCs(4)(6)	1,415			1,348		166,438		169,201
Derivative assets:
Currency and market hedges	84			—		—		84
Other investments(6)	—			—		112		112
	$	1,164,003		$	239,315	$	207,103	$	1,610,421
Liabilities:
Derivative liabilities:
Currency and market hedges	$	(886	)	$	—	$	—	$	(886	)

(1) Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at NAV and are classified as Level 1.  Cash investments in time deposits and other are measured at amortized cost, which approximates fair value because of the short time between the purchase of the instrument and its expected realization, and are classified as Level 2.

(2) Primarily mutual funds where there is minimal market risk to the Company as any change in value is primarily offset by an adjustment to compensation expense and related deferred compensation liability.

(3) Trading proprietary fund products and other investments primarily represent mutual funds that are invested approximately 49% and 51% in equity and debt securities, respectively, as of March 31, 2013, and were invested approximately 52% and 48% in equity and debt securities, respectively, as of March 31, 2012.

(4) Substantially all of Legg Mason's equity method investments are investment companies which record their underlying investments at fair value.  Fair value is measured using Legg Mason's share of the investee's underlying net income or loss, which is predominately representative of fair value adjustments in the investments held by the equity method investee.

(5) Includes investments under the equity method (which approximates fair value) relating to long-term incentive compensation plans of $43,741 and $54,934 as of March 31, 2013 and March 31, 2012, respectively, and proprietary fund products and other investments of $12,600 and $23,343 as of March 31, 2013 and March 31, 2012, respectively, which are classified as Investment securities on the Consolidated Balance Sheets.

(6) Amounts are included in Other non-current assets on the Consolidated Balance Sheets for each of the periods presented.

Substantially all of the above financial instruments where valuation methods rely on other than observable market inputs as a significant input utilize the equity method, the cost method, or NAV practical expedient discussed below, such that measurement uncertainty has little relevance.

The changes in financial assets measured at fair value using significant unobservable inputs (Level 3) for the years ended March 31, 2013 and 2012, are presented in the tables below:

	Value as of March 31, 2012		Purchases		Sales			Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of March 31, 2013
Assets:
Trading proprietary fund products and other investments	$	—	$	246	$	—		$	—		$	—	$	—		$	246
Equity method investments in proprietary fund products	11,778		—		—			(11,705		)	—		(73		)	—
Investments in partnerships, LLCs and other	28,763		—		(970		)	(1,014		)	—		983			27,762
Equity method investments in partnerships and LLCs	166,438		2,827		(2,268		)	(117,411		)	—		16,752			66,338
Other investments	124		—		—			—			—		(13		)	111
	$	207,103	$	3,073	$	(3,238	)	$	(130,130	)	$	—	$	17,649		$	94,457

	Value as of March 31, 2011		Purchases		Sales			Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of March 31, 2012
Assets:
Trading proprietary fund products and other investments	$	11,378	$	—	$	(11,906	)	$	—		$	—	$	528		$	—
Equity method investments in proprietary fund products	12,167		—		—			—			—		(389		)	11,778
Investments in partnerships, LLCs and other	22,167		6,932		—			(578		)	—		242			28,763
Equity method investments in partnerships and LLCs	153,931		25,883		(6,387		)	(14,168		)	—		7,179			166,438
Other investments	282		—		—			(159		)	—		1			124
	$	199,925	$	32,815	$	(18,293	)	$	(14,905	)	$	—	$	7,561		$	207,103

Realized and unrealized gains and losses recorded for Level 3 investments are included in Other Non-Operating Income (Expense) on the Consolidated Statements of Income (Loss). The change in unrealized gains (losses) for Level 3 investments still held at the reporting date was $(1,229) and $5,495 for the years ended March 31, 2013 and 2012, respectively.

There were no significant transfers between Level 1 and Level 2 during the years ended March 31, 2013 and 2012.

As a practical expedient, Legg Mason relies on the NAV of certain investments as their fair value.  The NAVs that have been provided by the investees have been derived from the fair values of the underlying investments as of the respective reporting dates.  The following table summarizes, as of March 31, 2013, the nature of these investments and any related liquidation restrictions or other factors which may impact the ultimate value realized:

		Fair Value Determined Using NAV						As of March 31, 2013
Category of Investment	Investment Strategy	March 31, 2013			March 31, 2012			Unfunded Commitments		Remaining Term
Funds-of-hedge funds	Global macro, fixed income, long/short equity, natural resources, systematic, emerging market, European hedge	$	38,811	(1)	$	51,251	(2)	n/a		n/a
Hedge funds	Fixed income - developed market, event driven, fixed income - hedge, relative value arbitrage, European hedge	24,716			25,460			$	20,000	n/a
Private equity funds	Long/short equity	23,763		(3)	27,927		(3)	5,235		Up to 7 years
Private fund(4)	Fixed income, residential and commercial mortgage-backed securities	—			89,323			n/a		n/a
Other	Various	2,408			2,450			n/a		Various (5)
Total		$	89,698	(6)	$	196,411	(6)	$	25,235

n/a-not applicable

(1) 49% monthly redemption; 51% quarterly redemption, of which 38% is subject to two-year lock-up, which expires in June 2013.

(2) 63% monthly redemption; 37% quarterly redemption, of which 36% is subject to two-year lock-up, which expires in June 2013.

(3)    Liquidations are expected over the remaining term.

(4) Legg Mason's investment was fully redeemed in the quarter ended December 31, 2012 upon liquidation of the fund.

(5) Of this balance, 4% has a remaining term of less than one year and 96% has a remaining term of 20 years.

(6) Comprised of approximately 32% and 68% of Level 2 and Level 3 assets, respectively, as of March 31, 2013 and 13% and 87% of Level 2 and Level 3 assets, respectively, as of March 31, 2012.

There are no current plans to sell any of these investments held as of March 31, 2013.