4. Investments and Fair Values of Assets and Liabilities

The disclosures below include details of Legg Mason's financial assets and financial liabilities that are measured at fair value and NAV, excluding the financial assets and financial liabilities of CIVs. See Note 13, Variable Interest Entities and Consolidation of Investment Vehicles, for information related to the assets and liabilities of CIVs that are measured at fair value.

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



	As of September 30, 2017
	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Investments measured at NAV		Total
Assets:
Cash equivalents:⁽¹⁾
Money market funds	$	322,454		$	—	$	—		$	—	$	322,454
Time deposits and other	—			12,179		—			—		12,179
Total cash equivalents	322,454			12,179		—			—		334,633
Trading investments of proprietary fund products and other trading investments:⁽²⁾
Seed capital investments	110,637			69,475		—			4,166		184,278
Other⁽³⁾	19,434			2,581		—			11		22,026
Trading investments relating to long-term incentive compensation plans⁽⁴⁾	179,821			—		—			103		179,924
Equity method investments relating to long-term incentive compensation plans⁽⁵⁾	—			—		1,393			7,208		8,601
Total current investments⁽⁶⁾	309,892			72,056		1,393			11,488		394,829
Equity method investments in partnerships and LLCs:⁽⁵⁾⁽⁷⁾
Seed capital investments⁽⁶⁾	—			—		851			22,646		23,497
Seed capital investments in real estate funds	—			—		27,382			—		27,382
Other	—			—		—			13,598		13,598
Investments in partnerships and LLCs:⁽⁷⁾
Seed capital investments	—			—		—			3,371		3,371
Investments related to long-term incentive compensation plans	—			—		9,367			—		9,367
Other	—			99		485			—		584
Derivative assets⁽⁷⁾⁽⁸⁾	5,109			—		—			—		5,109
Other investments⁽⁷⁾	—			—		114			—		114
Total	$	637,455		$	84,334	$	39,592		$	51,103	$	812,484
Liabilities:
Contingent consideration liabilities⁽⁹⁾	$	—		$	—	$	(21,162	)	$	—	$	(21,162	)
Derivative liabilities⁽⁸⁾	(3,167		)	—		—			—		(3,167		)
Total	$	(3,167	)	$	—	$	(21,162	)	$	—	$	(24,329	)



	As of March 31, 2017
	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Investments measured at NAV		Total
Assets:
Cash equivalents:⁽¹⁾
Money market funds	$	403,585		$	—	$	—		$	—	$	403,585
Time deposits and other	—			35,835		—			—		35,835
Total cash equivalents	403,585			35,835		—			—		439,420
Trading investments of proprietary fund products and other trading investments:⁽²⁾
Seed capital investments	141,025			75,275		—			4,373		220,673
Other⁽³⁾	39,177			2,724		—			11		41,912
Trading investments relating to long-term incentive compensation plans⁽⁴⁾	150,576			—		—			327		150,903
Equity method investments relating to proprietary fund products and long-term incentive compensation plans:⁽⁵⁾
Seed capital investments	—			2,502		—			—		2,502
Investments related to long-term incentive compensation plans	—			—		1,337			6,292		7,629
Total current investments⁽⁶⁾	330,778			80,501		1,337			11,003		423,619
Equity method investments in partnerships and LLCs:⁽⁵⁾⁽⁷⁾
Seed capital investments⁽⁶⁾	—			—		752			22,712		23,464
Seed capital investments in real estate funds	—			—		26,909			—		26,909
Other	—			—		1,646			15,617		17,263
Investments in partnerships and LLCs:⁽⁷⁾
Seed capital investments	—			—		—			3,440		3,440
Investments related to long-term incentive compensation plans	—			—		9,315			—		9,315
Other	—			99		1,825			—		1,924
Derivative assets⁽⁷⁾⁽⁸⁾	2,718			—		—			—		2,718
Other investments⁽⁷⁾	—			—		113			—		113
Total	$	737,081		$	116,435	$	41,897		$	52,772	$	948,185
Liabilities:
Contingent consideration liabilities⁽⁹⁾	$	—		$	—	$	(36,810	)	$	—	$	(36,810	)
Derivative liabilities⁽⁸⁾	(4,522		)	—		—			—		(4,522		)
Total	$	(4,522	)	$	—	$	(36,810	)	$	—	$	(41,332	)

(1)

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds 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 purchase of the instrument and its expected realization, and are classified as Level 2.


(2)	Trading investments of proprietary fund products and other trading investments consist of approximately 72% and 28% equity and debt securities, respectively, as of September 30, 2017, and approximately 79% and 21% equity and debt securities, respectively, as of March 31, 2017.


(3)	Includes $6,753 and $26,854 in noncontrolling interests associated with consolidated seed investment products as of September 30, 2017 and March 31, 2017, respectively.


(4)	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.

(5)

Certain of Legg Mason's equity method investments are investment companies that record underlying investments at fair value. Therefore, the fair value of these investments 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. Other equity method investments not measured at fair value on a recurring basis are excluded from the tables above.


(6)	Excludes $40,775 and $28,300 of seed capital as of September 30, 2017, and March 31, 2017, respectively, which is related to Legg Mason's investments in CIVs. See Note 13.


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


(8)	See Note 12.


(9)	See Note 3 and Note 9.

Proprietary fund products include seed capital investments made by Legg Mason to fund new investment strategies and products. Legg Mason had seed capital investments in proprietary fund products, which totaled $279,303 and $305,288, as of September 30, 2017 and March 31, 2017, respectively, which are substantially comprised of investments in 54 funds and 57 funds, respectively, that are individually greater than $1,000, and together comprise over 90% of the total seed capital investments at each period end.

As further discussed in Notes 2, 12, and 13, on July 26, 2017, Legg Mason entered into four total return swap arrangements with financial intermediaries with respect to one Legg Mason sponsored ETF for an aggregate notional amount of $23,096 which resulted in the investment in the ETF by each of these financial intermediaries. Similarly, on June 6, 2017, Legg Mason entered into four total return swap arrangements with financial intermediaries with respect to another Legg Mason sponsored ETF for an aggregate notional amount of $20,253 which resulted in the investment in that ETF by each of those financial intermediaries. Under the terms of the total return swap arrangements, Legg Mason receives all the investment gains and losses on the underlying investments and therefore is required to consolidate each of the sponsored investment funds, which were designated as CIVs.

See Notes 2 for information regarding the determination of whether investments in proprietary fund products represent VIEs and consolidation.

The net realized and unrealized gain for investment securities classified as trading was $12,633, and $15,765 for the three months ended September 30, 2017 and 2016, respectively, and $22,802, and $25,352 for the six months ended September 30, 2017 and 2016, respectively.

The net unrealized gains relating to trading investments still held as of the reporting dates were $8,072 and $13,017 for the three months ended September 30, 2017 and 2016, respectively, and $10,140 and $17,156 for the six months ended September 30, 2017 and 2016, respectively.

The changes in financial assets and (liabilities) measured at fair value using significant unobservable inputs (Level 3) for three and the six months ended September 30, 2017 and 2016, are presented in the tables below:



	Balance as of June 30, 2017			Purchases		Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Balance as of September 30, 2017
Assets:
Equity method investments relating to long-term incentive compensation plans	$	1,349		$	11	$	—	$	(11	)	$	—	$	44		$	1,393
Equity method investments in partnerships and LLCs:
Seed capital investments	813			—		—		—			—		38			851
Seed capital investments in real estate funds	27,182			1,756		—		(2,131		)	—		575			27,382
Other proprietary fund products	1,646			—		—		(1,646		)	—		—			—
Investments in partnerships and LLCs:
Investments related to long-term incentive compensation plans	9,367			—		—		—			—		—			9,367
Other proprietary fund products	1,818			—		—		(1,398		)	—		65			485
Other investments	112			—		—		—			—		2			114
	$	42,287		$	1,767	$	—	$	(5,186	)	$	—	$	724		$	39,592
Liabilities:
Contingent consideration liabilities	$	(20,697	)	$	—	n/a		$	—		n/a		$	(465	)	$	(21,162	)

n/a - not applicable



	Balance as of June 30, 2016			Purchases			Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Balance as of September 30, 2016
Assets:
Equity method investments relating to long-term incentive compensation plans	$	2,587		$	406		$	—	$	(406	)	$	—	$	66		$	2,653
Equity method investments in partnerships and LLCs:
Seed capital investments	644			—			—		—			—		(92		)	552
Seed capital investments in real estate funds	24,513			1,036			—		(307		)	—		480			25,722
Investments in partnerships and LLCs:
Investments related to long-term incentive compensation plans	7,501			—			—		—			—		—			7,501
Other proprietary fund products	3,810			—			—		—			—		17			3,827
Other investments	90			—			—		—			—		155			245
	$	39,145		$	1,442		$	—	$	(713	)	$	—	$	626		$	40,500
Liabilities:
Contingent consideration liabilities	$	(62,923	)	$	(2,000	)	n/a		$	6,587		n/a		$	6,283		$	(52,053	)

n/a - not applicable



	Balance as of March 31, 2017			Purchases		Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net		Balance as of September 30, 2017
Assets:
Equity method investments relating to long-term incentive compensation plans	$	1,337		$	22	$	—	$	(22	)	$	—	$	56	$	1,393
Equity method investments in partnerships and LLCs:
Seed capital investments	752			—		—		—			—		99		851
Seed capital investments in real estate funds	26,909			2,195		—		(2,750		)	—		1,028		27,382
Other proprietary fund products	1,646			—		—		(1,646		)	—		—		—
Investments in partnerships and LLCs:
Investments related to long-term incentive compensation plans	9,315			52		—		—			—		—		9,367
Other proprietary fund products	1,825			—		—		(1,405		)	—		65		485
Other investments	113			—		—		—			—		1		114
	$	41,897		$	2,269	$	—	$	(5,823	)	$	—	$	1,249	$	39,592
Liabilities:
Contingent consideration liabilities	$	(36,810	)	$	—	n/a		$	—		n/a		$	15,648	$	(21,162	)

n/a - not applicable



	Balance as of March 31, 2016			Purchases			Sales		Redemptions/Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Balance as of September 30, 2016
Assets:
Trading investments of seed capital investments in proprietary fund products	$	3		$	—		$	—	$	(3	)	$	—	$	—		$	—
Equity method investments relating to long-term incentive compensation plans	—			2,959			—		(428		)	—		122			2,653
Equity method investments in partnerships and LLCs:
Seed capital investments	627			—			—		—			—		(75		)	552
Seed capital investments in real estate funds	—			25,299			—		(439		)	—		862			25,722
Investments in partnerships and LLCs:
Investments related to long-term incentive compensation plans	7,501			—			—		—			—		—			7,501
Other proprietary fund products	4,807			—			—		(1,000		)	—		20			3,827
Other investments	83			—			—		—			—		162			245
	$	13,021		$	28,258		$	—	$	(1,870	)	$	—	$	1,091		$	40,500
Liabilities:
Contingent consideration liabilities	$	(84,585	)	$	(2,000	)	n/a		$	6,587		n/a		$	27,945		$	(52,053	)

n/a - not applicable

Realized and unrealized gains and losses recorded for Level 3 investments are primarily included in Other non-operating income (expense), net, in the Consolidated Statements of Income. The change in unrealized gains for Level 3 investments and liabilities still held at the reporting date was $259 and $7,062 for the three months ended September 30, 2017, and 2016, respectively, and $16,897, and $29,188 for the six months ended September 30, 2017, and 2016, respectively.

There were no significant transfers between Level 1 and Level 2 during the three and six months ended September 30, 2017 and 2016.

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 September 30, 2017 and March 31, 2017, 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 September 30, 2017
Category of Investment	Investment Strategy	September 30, 2017			March 31, 2017		Unfunded Commitments		Remaining Term
Funds-of-hedge funds	Global macro, fixed income, long/short equity, natural resources, systematic, emerging market, European hedge	$	17,738	(1)	$	18,537	n/a		n/a
Hedge funds	Fixed income - developed market, event driven, fixed income - hedge, relative value arbitrage, European hedge	10,215			10,107		$	20,000	n/a
Private equity funds	Long/short equity	15,799		(2)	17,612		6,899		Up to 12 years
Equity method	Long/short fixed income	7,208			6,292		n/a		n/a
Other	Various	143			224		n/a		Various ⁽³⁾
Total		$	51,103		$	52,772	$	26,899

n/a - not applicable


(1)	Liquidation restrictions: 1% daily redemption, 12% monthly redemption, 9% quarterly redemption, and 78% are not subject to redemption or are not currently redeemable.


(2)	Liquidations are expected over the remaining term.


(3)	Of this balance, 32% has a remaining term of less than one year and 68% has a remaining term of 15 years.

There are no current plans to sell any of these investments held as of September 30, 2017.