Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

4. Fair Value Measurements

The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. ASC 820, Fair Value Measurements, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:

Level 1	–	Quoted prices for identical instruments in active markets.
Level 2	–	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3	–	Instruments whose significant drivers are unobservable.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may

fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the three months ended March 31, 2020 and 2019, there were no transfers between Levels 2 and 3.

	March 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	3,885	$	3,885	$	—	$	—
Securities owned, at fair value		20,261		20,261		—		—
Total	$	24,146	$	24,146	$	—	$	—
Non-recurring fair value measurements:
AdvisorEngine, Inc. – Financial interests(1)	$	8,500	$	—	$	—	$	8,500
Total	$	8,500	$	—	$	—	$	8,500
Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 11)	$	175,300	$	—	$	—	$	175,300
Securities sold, but not yet purchased		469		469		—		—
Total	$	175,769	$	469	$	—	$	175,300

(1) Fair value determined on March 31, 2020 (Note 7).

	December 31, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	317	$	317	$	—	$	—
Securities owned, at fair value		17,319		17,319		—		—
Total	$	17,636	$	17,636	$	—	$	—
Non-recurring fair value measurements:
AdvisorEngine, Inc. – Financial interests(2)	$	28,172	$	—	$	—	$	28,172
Total	$	28,172	$	—	$	—	$	28,172
Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 11)	$	173,024	$	—	$	—	$	173,024
Securities sold, but not yet purchased		582		582		—		—
Total	$	173,606	$	582	$	—	$	173,024

(2) Fair value determined on December 31, 2019.

Recurring Fair Value Measurements – Methodology

Cash Equivalents (Note 3) – These financial assets represent cash invested in highly liquid investments with original maturities of less than 90 days. These investments are valued at par, which approximates fair value, and are considered Level 1.

Securities Owned/Sold but Not Yet Purchased (Note 5) – Securities owned and sold, but not yet purchased are investments in ETFs. ETFs are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 in the fair value hierarchy.

Deferred Consideration – Deferred consideration represents the present value of an obligation to pay gold into perpetuity and was measured at March 31, 2020 using forward-looking gold prices ranging from $1,597 per ounce to $2,275 per ounce (weighted average of $1,775 per ounce) which are extrapolated from the last observable price (beyond 2025), discounted at a rate of 10% and includes a perpetual growth rate of 1.5%. Forward-looking gold prices ranged from $1,535 per ounce to $2,328 per ounce (weighted

average of $1,757 per ounce) at December 31, 2019. The weighted-average price per ounce was derived from the relative present values of the annual payment obligations. This obligation is classified as Level 3 as the discount rate, perpetual growth rate and extrapolated forward-looking gold prices are significant unobservable inputs. An increase in forward-looking gold prices and the perpetual growth rate would result in an increase in deferred consideration, whereas an increase in the discount rate would reduce the fair value. See Note 11 for additional information.

The following table presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level 3:

	Three Months Ended March 31,
	2020			2019
Deferred consideration (Note 11)
Beginning balance	$	173,024		$	161,540
Net realized losses(1)		3,760			3,098
Net unrealized losses/(gains)(2)		2,208			(4,404	)
Settlements		(3,692	)		(3,087	)
Ending balance	$	175,300		$	157,147

(1) Recorded as contractual gold payments expense on the Company’s Consolidated Statements of Operations.

(2) Recorded as (loss)/gain on revaluation of deferred consideration – gold payments on the Company’s Consolidated Statements of Operations.