Consolidation

Consolidated Sponsored Investment Products

As of June 30, 2016 and December 31, 2015, the Company consolidated 18 and 12 sponsored investment products, respectively. During the six months ended June 30, 2016, the Company consolidated 11 additional sponsored investment products and deconsolidated five sponsored investment products in which it no longer held a majority voting interest.

Consolidated sponsored investment products that are voting interest entities ("VOEs") are funds in which the Company has a controlling financial interest. Consolidated sponsored investment products are typically consolidated when the Company makes an initial investment in a newly launched fund as the Company typically owns a majority of the voting interest and are deconsolidated when the Company redeems its investment or its voting interests decrease to a minority percentage.

The consolidated sponsored investment product is a global fund that is considered a variable interest entity ("VIE") for which the Company is the primary beneficiary. The Company determined that it is the primary beneficiary of the VIE as the Company has the power to direct the activities that most significantly impact the economic performance of the entity and has the obligation to absorb losses, or the rights to receive benefits from, the VIE that could potentially be significant to the VIE. As of June 30, 2016, the Company consolidated one sponsored investment product that was a VIE.

The following table presents the balances of the consolidated sponsored investment products that were reflected in the Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015:



	As of
	June 30, 2016						December 31, 2015
	VOEs			VIE			VOEs			VIE
($ in thousands)
Total cash and cash equivalents	$	1,209		$	891		$	11,408		$	458
Total investments	91,669			38,727			291,247			32,088
All other assets	2,244			350			8,281			268
Total liabilities	(2,753		)	(320		)	(14,948		)	(439		)
Redeemable noncontrolling interests	(7,825		)	(19,320		)	(61,236		)	(12,628		)
The Company’s net interests in consolidated sponsored investment products	$	84,544		$	20,328		$	234,752		$	19,747

Fair Value Measurements

The assets and liabilities of the consolidated sponsored investment products measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 by fair value hierarchy level were as follows:

As of June 30, 2016



	Level 1		Level 2		Level 3		Total
($ in thousands)
Assets
Debt securities	$	—	$	94,996	$	89	$	95,085
Equity securities	26,931		8,380		—		35,311
Derivatives	—		—		—		—
Total Assets Measured at Fair Value	$	26,931	$	103,376	$	89	$	130,396
Liabilities
Derivatives	$	—	$	136	$	—	$	136
Short sales	715		—		—		715
Total Liabilities Measured at Fair Value	$	715	$	136	$	—	$	851

As of December 31, 2015



	Level 1		Level 2		Level 3		Total
($ in thousands)
Assets
Debt securities	$	—	$	151,156	$	1,397	$	152,553
Equity securities	162,986		7,796		—		170,782
Derivatives	33		738		—		771
Total Assets Measured at Fair Value	$	163,019	$	159,690	$	1,397	$	324,106
Liabilities
Derivatives	$	128	$	844	$	—	$	972
Short sales	5,334		75		—		5,409
Total Liabilities Measured at Fair Value	$	5,462	$	919	$	—	$	6,381

The following is a discussion of the valuation methodologies used for the assets and liabilities of the Company’s consolidated sponsored investment products measured at fair value.

Investments of consolidated sponsored investment products represent the underlying debt, equity and other securities held in sponsored products which are consolidated by the Company. Equity securities are valued at the official closing price on the exchange on which the securities are traded and are categorized within Level 1. Level 2 investments include most debt securities, which are valued based on quotations received from independent pricing services or from dealers who make markets in such securities and certain equity securities, including non-US securities, for which closing prices are not readily available or are deemed to not reflect readily available market prices and are valued using an independent pricing service. Pricing services do not provide pricing for all securities, and therefore indicative bids from dealers are utilized, which are based on pricing models used by market makers in the security and are also included within Level 2. Level 3 investments include debt securities that are not widely traded, are illiquid or are priced by dealers based on pricing models used by market makers in the security.

The following table is a reconciliation of assets of consolidated sponsored investment products for Level 3 investments for which significant unobservable inputs were used to determine fair value.



	Six Months Ended June 30,
($ in thousands)	2016			2015
Level 3 Debt securities (a)
Balance at beginning of period	$	1,397		$	1,065
Realized losses, net	(356		)	—
Purchases	151			—
Paydowns	(5		)	(3		)
Sales	(1,449		)	—
Transferred to Level 2	—			(162		)
Transfers from Level 2	1			—
Change in unrealized gain, net	350			(48		)
Balance at end of period	$	89		$	852


(a)	None of the securities reflected in the table were internally fair valued at June 30, 2016 or June 30, 2015. The investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs.

For the six months ended June 30, 2016 and 2015, securities held by consolidated sponsored investment products with an end of period value of $0.1 million and $14.6 million, respectively, were transferred from Level 2 to Level 1 because certain non-U.S. securities quoted market prices were no longer adjusted based on third-party factors derived from model-based valuation techniques for which the significant assumptions were observable in the market. For the six months ended June 30, 2016 and 2015, securities held by consolidated sponsored investment products with an end of period value of $4.1 million and $0.0 million, respectively, were transferred from Level 1 to Level 2 because certain non-U.S. securities quoted market prices were adjusted based on third-party factors derived from model-based valuation techniques for which the significant assumptions were observable in the market.

Derivatives

The Company has certain consolidated sponsored investment products which include derivative instruments as part of their investment strategies. These derivatives may include futures contracts, options contracts and forward contracts. Derivative instruments in an asset position are classified as other assets of consolidated sponsored investment products in the Condensed Consolidated Balance Sheets. Derivative instruments in a liability position are classified as liabilities of consolidated sponsored investment products within the Condensed Consolidated Balance Sheets. The change in fair value of such derivatives is recorded in realized and unrealized gain (loss) on investments of consolidated sponsored investment products, net, in the Condensed Consolidated Statements of Operations. In connection with entering into these derivative contracts, these funds may be required to pledge to the broker an amount of cash equal to the “initial margin” requirements that varies based on the type of derivative. The cash pledged or on deposit is recorded in the Condensed Consolidated Balance Sheets of the Company as cash pledged or on deposit of consolidated sponsored investment products. The fair value of such derivatives at June 30, 2016 and 2015 was immaterial.

Short Sales

Some of the Company’s consolidated sponsored investment products may engage in short sales, which are transactions in which a security is sold which is not owned or is owned but there is no intention to deliver, in anticipation that the price of the security will decline. Short sales are recorded in the Condensed Consolidated Balance Sheets within other liabilities of consolidated sponsored investment products.

Consolidated Investment Product

During 2015, the Company contributed $40.0 million in the form of preference shares to a special purpose entity ("SPE") that was created specifically to accumulate bank loan assets for securitization as a CLO to be managed by its Newfleet affiliate. During the warehouse phase of the CLO, the SPE entered into a $160.0 million three-year term financing transaction with a bank lending counterparty (the “Financing Facility”). At December 31, 2015, $152.6 million was outstanding under the Financing Facility. The warehouse debt was paid off in June 2016 in connection with the launch of the Newfleet CLO 2016-1 (the "CLO") discussed below.

On June 9, 2016, the SPE issued the CLO with a par value of $356.3 million consisting of six classes of senior secured floating rate notes loans with a par value of $320.0 million and subordinated notes with a par value of $36.3 million. Upon the launch of the CLO, the warehousing debt was repaid by the SPE and the Company redeemed its preference shares while simultaneously making a $36.3 million investment in the CLO's subordinated notes at par.

Bank loan investments of $344.9 million, which comprise the majority of the CLO portfolio collateral, are senior secured corporate loans from a variety of industries. Bank loan investments mature at various dates between 2018 and 2023, pay interest at LIBOR plus a spread of up to 7.5%, and typically range in S&P credit rating categories from BBB to CCC+. At June 30, 2016, the unpaid principal balance exceeded the fair value of the senior bank loans by approximately $3.8 million. No collateral assets were in default as of June 30, 2016.

The CLO has note obligations that bear interest at variable rates based on LIBOR plus a pre-defined spread ranging from 1.0% to 8.75%. The principal amounts outstanding of the note obligations issued by the CLO mature in April 2028. The CLO may elect to reinvest any prepayments received on bank loan investments prior to April 2020. Any subsequent prepayments received must be used to pay down the note obligations.

The CLO is a VIE and the Company consolidates the CLO's assets and liabilities as a consolidated investment product within its financial statements as it is the primary beneficiary of the VIE. The Company has determined that the Company is the primary beneficiary of the VIE as it has the power to direct the activities that most significantly impact the economic performance of the entity and has the obligation to absorb losses, or the rights to receive benefits from, the VIE that could potentially be significant to the VIE.

As discussed in Note 2, the Company adopted ASU 2014-13 effective January 1, 2016. This guidance requires reporting entities to use the more observable of the fair value of the financial assets or the financial liabilities to measure the financial assets and the financial liabilities of a CFE when a CFE is initially consolidated. The Company has determined that the fair value of the financial assets of the CFE is more observable than the fair value of the financial liabilities of the CFE. The Company has elected the measurement alternative for its consolidated investment product, and the Company's subsequent earnings from the consolidated investment product will reflect changes in value of the Company's own economic interest in the consolidated investment product.

The following table presents the balances of the consolidated investment product that were reflected in the Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015:



	As of
	June 30, 2016			December 31, 2015
($ in thousands)
Total cash equivalents	$	91,044		$	8,297
Total investments	344,886			199,485
Other assets	6,078			1,467
Debt	—			(152,597		)
Notes payable	(319,716		)	—
Securities purchased payable and other liabilities	(94,790		)	(18,487		)
The Company’s net interests in the consolidated investment product	$	27,502		$	38,165

Fair Value Measurements of Consolidated Investment Product

The assets and liabilities of the consolidated investment product measured at fair value on a recurring basis by fair value hierarchy level were as follows:

As of June 30, 2016:



	Level 1		Level 2		Level 3		Total
($ in thousands)
Assets
Cash equivalents	$	91,044	$	—	$	—	$	91,044
Bank loans	—		344,886		—		344,886
Total Assets Measured at Fair Value	$	91,044	$	344,886	$	—	$	435,930
Liabilities
Notes payable	$	—	$	319,716	$	—	$	319,716
Total Liabilities Measured at Fair Value	$	—	$	319,716	$	—	$	319,716

As of December 31, 2015:



	Level 1		Level 2		Level 3		Total
($ in thousands)
Assets
Cash equivalents	$	8,297	$	—	$	—	$	8,297
Bank loans	—		199,485		—		199,485
Total Assets Measured at Fair Value	$	8,297	$	199,485	$	—	$	207,782

The following is a discussion of the valuation methodologies used for the assets and liabilities of the Company’s consolidated investment product measured at fair value:

Cash equivalents represent investments in money market funds. Cash investments in actively traded money market funds are valued using published net asset values and are classified as Level 1.

Bank loans represent the underlying debt securities held in the sponsored product which are consolidated by the Company. Bank loan investments include debt securities, which are valued based on quotations received from an independent pricing service. Pricing services do not provide pricing for all securities, and therefore indicative bids from dealers are utilized, which are based on pricing models used by market makers in the security and are also included within Level 2.

Notes payable represents notes issued by the CLO and are measured using the measurement alternative in ASU 2014-13.

The estimated fair value of debt at December 31, 2015, which had a variable interest rate, approximated its carrying value. The securities purchase payable at June 30, 2016 and December 31, 2015 approximated fair value due to the short-term nature of the instruments.

Consolidating Financial Data

The following tables reflect the impact of the consolidated sponsored investment products and consolidated investment product in the Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015:

As of June 30, 2016



	Balance Before Consolidation of Investment Products			Consolidated Sponsored Investment Products-VOEs		Consolidated Sponsored Investment Product-VIE		Consolidated Investment Product - VIE		Eliminations and Adjustments (a)			Balances as Reported in Condensed Consolidated Balance Sheet
($ in thousands)
Total cash and cash equivalents	$	155,532		$	1,209	$	891	$	91,044	$	—		$	248,676
Total investments	223,994			91,669		38,727		344,886		(132,258		)	567,018
All other assets	150,860			2,245		350		6,077		(223		)	159,309
Total assets	$	530,386		$	95,123	$	39,968	$	442,007	$	(132,481	)	$	975,003
Total liabilities	$	64,280		$	2,814	$	374	$	442,007	$	(27,723	)	$	481,752
Redeemable noncontrolling interest	—			—		—		—		27,145			27,145
Equity attributable to stockholders of the Company	466,273			92,309		39,594		—		(131,903		)	466,273
Non-redeemable noncontrolling interest	(167		)	—		—		—		—			(167		)
Total liabilities and equity	$	530,386		$	95,123	$	39,968	$	442,007	$	(132,481	)	$	975,003

As of December 31, 2015



	Balance Before Consolidation of Investment Products			Consolidated Sponsored Investment Products-VOEs		Consolidated Sponsored Investment Product-VIE		Consolidated Investment Product - VIE		Eliminations and Adjustments (a)			Balances as Reported in Condensed Consolidated Balance Sheet
($ in thousands)
Total cash and cash equivalents	$	87,574		$	11,408	$	458	$	8,297	$	—		$	107,737
Total investments	349,147			291,247		32,088		199,485		(292,409		)	579,558
All other assets	162,673			8,281		268		1,467		(255		)	172,434
Total assets	$	599,394		$	310,936	$	32,814	$	209,249	$	(292,664	)	$	859,729
Total liabilities	$	89,937		$	15,181	$	461	$	171,084	$	(255	)	$	276,408
Redeemable noncontrolling interest	—			—		—		—		73,864			73,864
Equity attributable to stockholders of the Company	509,624			295,755		32,353		38,165		(366,273		)	509,624
Non-redeemable noncontrolling interest	(167		)	—		—		—		—			(167		)
Total liabilities and equity	$	599,394		$	310,936	$	32,814	$	209,249	$	(292,664	)	$	859,729


(a)	Adjustments include the elimination of intercompany transactions between the Company, its consolidated sponsored investment products and consolidated investment product, consisting primarily of the elimination of the Company's investments held in the consolidated sponsored investment product or consolidated investment product and the recording of any noncontrolling interest.

The following table reflects the impact of the consolidated sponsored investment products and consolidated investment products in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2016 and 2015:

For the Three Months Ended June 30, 2016



	Balance Before Consolidation of Investment Products		Consolidated Sponsored Investment Products-VOEs			Consolidated Sponsored Investment Product-VIE			Consolidated Investment Product - VIE			Eliminations and Adjustments (a)			Balances as Reported in Condensed Consolidated Statement of Operations
($ in thousands)
Total operating revenues	$	80,058	$	—		$	—		$	—		$	27		$	80,085
Total operating expenses	66,723		556			89			3,947			27			71,342
Operating income (loss)	13,335		(556		)	(89		)	(3,947		)	—			8,743
Total other non-operating income, net	840		3,947			845			3,947			(3,535		)	6,044
Income before income taxes	14,175		3,391			756			—			(3,535		)	14,787
Income taxes	6,087		—			—			—			—			6,087
Net income	8,088		3,391			756			—			(3,535		)	8,700
Noncontrolling interests	—		—			—			—			(612		)	(612		)
Net income attributable to common stockholders	$	8,088	$	3,391		$	756		$	—		$	(4,147	)	$	8,088

For the Three Months Ended June 30, 2015



	Balance Before Consolidation of Investment Products			Consolidated Sponsored Investment Products-VOEs			Consolidated Sponsored Investment Product-VIE			Consolidated Investment Product - VIE		Eliminations and Adjustments (a)			Balances as Reported in Condensed Consolidated Statement of Operations
($ in thousands)
Total operating revenues	$	100,052		$	—		$	—		$	—	$	(396	)	$	99,656
Total operating expenses	82,491			43			1,310			—		(396		)	83,448
Operating income (loss)	17,561			(43		)	(1,310		)	—		—			16,208
Total other non-operating income, net	(127		)	101			(245		)	—		898			627
Income (loss) before income taxes	17,434			58			(1,555		)	—		898			16,835
Income taxes	7,823			—			—			—		—			7,823
Net income (loss)	9,611			58			(1,555		)	—		898			9,012
Noncontrolling interests	166			—			—			—		599			765
Net income (loss) attributable to common stockholders	$	9,777		$	58		$	(1,555	)	$	—	$	1,497		$	9,777


(a)	Adjustments include the elimination of intercompany transactions between the Company, its consolidated sponsored investment products and consolidated investment product, consisting primarily of the elimination of the Company's investments held in the consolidated sponsored investment product or consolidated investment product and the recording of any noncontrolling interest.

For the Six Months Ended June 30, 2016



	Balance Before Consolidation of Investment Products		Consolidated Sponsored Investment Products-VOEs			Consolidated Sponsored Investment Product-VIE			Consolidated Investment Product - VIE			Eliminations and Adjustments (a)			Balances as Reported in Condensed Consolidated Statement of Operations
($ in thousands)
Total operating revenues	$	160,562	$	—		$	—		$	—		$	(182	)	$	160,380
Total operating expenses	133,080		1,822			164			4,003			(182		)	138,887
Operating income (loss)	27,482		(1,822		)	(164		)	(4,003		)	—			21,493
Total other non-operating income, net	6,612		6,678			1,370			6,508			(8,448		)	12,720
Income before income taxes	34,094		4,856			1,206			2,505			(8,448		)	34,213
Income taxes	13,643		—			—			—			—			13,643
Net income	20,451		4,856			1,206			2,505			(8,448		)	20,570
Noncontrolling interests	—		—			—			—			(119		)	(119		)
Net income attributable to common stockholders	$	20,451	$	4,856		$	1,206		$	2,505		$	(8,567	)	$	20,451

For the Six Months Ended June 30, 2015



	Balance Before Consolidation of Investment Products		Consolidated Sponsored Investment Products-VOEs			Consolidated Sponsored Investment Product-VIE			Consolidated Investment Product - VIE		Eliminations and Adjustments (a)			Balances as Reported in Condensed Consolidated Statement of Operations
($ in thousands)
Total operating revenues	$	204,284	$	—		$	—		$	—	$	(797	)	$	203,487
Total operating expenses	160,962		80			2,492			—		(797		)	162,737
Operating income (loss)	43,322		(80		)	(2,492		)	—		—			40,750
Total other non-operating income, net	4,288		363			4,407			—		(2,380		)	6,678
Income before income taxes	47,610		283			1,915			—		(2,380		)	47,428
Income taxes	18,691		—			—			—		—			18,691
Net income	28,919		283			1,915			—		(2,380		)	28,737
Noncontrolling interests	200		—			—			—		182			382
Net income attributable to common stockholders	$	29,119	$	283		$	1,915		$	—	$	(2,198	)	$	29,119


(a)	Adjustments include the elimination of intercompany transactions between the Company, its consolidated sponsored investment products and consolidated investment product, consisting primarily of the elimination of the Company's investments held in the consolidated sponsored investment product or consolidated investment product and the recording of any noncontrolling interest.

Nonconsolidated VIEs

The Company has interests in certain entities that are VIEs that the Company does not consolidate as it is not the primary beneficiary of those entities. The Company is not the primary beneficiary as its interest in the entities does not provide the Company with the power to direct the activities that most significantly impact the entities economic performance. At June 30, 2016, the carrying value and maximum risk of loss related to these VIEs was $6.1 million.

Certain of the Company’s affiliates serve as the collateral manager for other collateralized loan and

collateralized bond obligations (collectively, “CDOs”). The assets and liabilities of these CDOs reside in bankruptcy remote, special purpose entities in which the Company has no ownership in, nor holds any notes issued by, the CDOs and provides neither recourse nor guarantees. Accordingly, the Company’s financial exposure to these CDOs is limited only to the collateral investment management fees it earns which the Company has concluded are "at-market" fees. These CDOs are not consolidated as the Company does not have a variable interest in these CDOs.