Consolidation

Consolidated Sponsored Investment Products

As of September 30, 2016 and December 31, 2015, the Company consolidated 18 and 12 sponsored investment products, respectively. During the nine months ended September 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 Company has one consolidated sponsored investment product that 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 September 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, after intercompany eliminations, were reflected in the Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015:



	As of
	September 30, 2016						December 31, 2015
	VOEs			VIE			VOEs			VIE
($ in thousands)
Total cash and cash equivalents	$	1,961		$	132		$	11,408		$	458
Total investments	95,452			41,688			291,247			32,088
All other assets	1,943			617			8,281			268
Total liabilities	(2,538		)	(392		)	(14,948		)	(439		)
Redeemable noncontrolling interests	(8,816		)	(21,485		)	(61,236		)	(12,628		)
The Company’s net interests in consolidated sponsored investment products	$	88,002		$	20,560		$	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 September 30, 2016 and December 31, 2015 by fair value hierarchy level were as follows:

As of September 30, 2016



	Level 1		Level 2		Level 3		Total
($ in thousands)
Assets
Debt securities	$	—	$	98,727	$	146	$	98,873
Equity securities	33,524		4,743		—		38,267
Derivatives	—		6		—		6
Total Assets Measured at Fair Value	$	33,524	$	103,476	$	146	$	137,146
Liabilities
Derivatives	$	—	$	188	$	—	$	188
Short sales	522		—		—		522
Total Liabilities Measured at Fair Value	$	522	$	188	$	—	$	710

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.

For the nine months ended September 30, 2016 and 2015, securities held by consolidated sponsored investment products with an end of period value of $0.3 million and $8.9 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 nine months ended September 30, 2016 and 2015, securities held by consolidated sponsored investment products with an end of period value of 0.5 million and $0.3 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.

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.



	Nine Months Ended September 30,
($ in thousands)	2016			2015
Level 3 Debt securities (a)
Balance at beginning of period	$	1,397		$	1,065
Realized losses, net	(356		)	—
Purchases	163			135
Paydowns	(5		)	(14		)
Sales	(1,461		)	(13		)
Transferred to Level 2	—			(126		)
Transfers from Level 2	58			—
Change in unrealized gain, net	350			(121		)
Balance at end of period	$	146		$	926


(a)	None of the securities reflected in the table were internally fair valued at September 30, 2016 or September 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.

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 September 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

Overview

The Company's consolidated investment product is a collateralized loan obligation ("CLO") in which the Company has a beneficial interest. The term CLO generally refers to a special purpose vehicle that owns a portfolio of investments and issues various tranches of debt and subordinated note securities to finance the purchase of those investments. The investment activities of a CLO are governed by investment guidelines, generally contained within a CLO’s “indenture” and other governing documents which limit, among other things, the CLO’s exposure to any single industry or obligor and provide that the CLO’s assets satisfy certain ratings requirements. Most CLOs have a defined investment period during which they are allowed to make investments and reinvest capital as it becomes available. The CLOs are considered variable interest entities (VIE). The assets of each of the CLOs, including cash and cash equivalents, are held solely as collateral to satisfy the obligations of the CLOs. The Company does not own and has no right to the benefits from, nor does it bear the risks associated with, the assets held by the CLOs, beyond its direct investments in, and investment advisory fees generated from, the CLOs. If the Company were to liquidate, the assets of the CLOs would not be available to its general creditors, and as a result, the Company does not consider these assets available for the benefit of its investors. Additionally, the investors in the CLOs have no recourse to the Company’s general assets for the debt issued by the CLOs. Therefore, this debt is not the Company’s obligation. The Company consolidates entities when it is determined to be the primary beneficiary under current VIE accounting guidance.

On June 9, 2016, the Company issued a CLO with a par value of $356.3 million consisting of six classes of senior secured floating rate notes payable 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 warehouse debt of $152.6 million was repaid and the Company redeemed its preference shares while simultaneously making a $36.3 million investment in the CLO's subordinated notes.

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 it 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 elected the measurement alternative for its consolidated investment product and 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's earnings from the consolidated investment product will reflect changes in value of the Company's beneficial interest in the consolidated investment product. The fair value of the Company’s beneficial interest, which is eliminated in consolidation, is determined primarily based on an income approach. The income approach is driven by current information such as market yields and projected cash flows expected to be received from the portfolio of collateral assets based on forecasted default and recovery rates that a market participant would use in determining the current fair value of the interest. The Company utilizes unadjusted third party pricing information in determining the fair value of its beneficial interest.

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



	As of
	September 30, 2016			December 31, 2015
($ in thousands)
Total cash equivalents	$	12,703		$	8,297
Total investments	360,210			199,485
Other assets	4,628			1,467
Debt	—			(152,597		)
Notes payable	(323,852		)	—
Securities purchased payable and other liabilities	(25,704		)	(18,487		)
The Company’s net interests in the consolidated investment product	$	27,985		$	38,165

Total Investments of Consolidated Investment Product

Total investments represent bank loan investments of $360.2 million at September 30, 2016, which comprise the majority of the CLO portfolio asset collateral, are senior secured corporate loans from a variety of industries. Bank loan investments mature at various dates between 2017 and 2024, 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 September 30, 2016, the fair value of the senior bank loans exceeded the unpaid principal balance by approximately $0.1 million. No collateral assets were in default as of September 30, 2016.

Notes Payable of Consolidated Investment Product

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 Company’s beneficial interests and maximum exposure to loss related to the consolidated investment product is limited to (i) ownership in the subordinated notes and related participations in management fees of the CLOs and (ii) accrued management fees. The secured notes of the CLO have contractual recourse only to the related assets of the CLO and are classified as financial liabilities. Although these beneficial interests are eliminated upon consolidation, the application of the measurement alternative, as adopted on January 1, 2016, prescribed by ASU 2014-13, results in the net amount of the consolidated investment product shown above to be equivalent to the beneficial interests retained by the Company at September 30, 2016 as shown in the table below:



	As of
Beneficial Interests	September 30, 2016
($ in thousands)
Subordinated notes	$	27,443
Accrued investment management fees	542
Total Beneficial Interests	$	27,985

The following table represents revenue and expenses of the consolidated investment product included in the Company’s Consolidated Statements of Operations for the periods indicated:



	Three Months Ended September 30,		Nine Months Ended September 30,
($ in thousands)	2016		2016
Income:
Realized and unrealized gain, net	$	144	$	2,960
Interest Income	4,047		8,835
Total Revenue	$	4,191	$	11,795

Expenses:
Other operating expenses	24		3,921
Interest expense	3,788		10,188
Total Expense	$	3,812	$	14,109

Net Income (loss) attributable to consolidated investment product	$	379	$	(2,314	)

As summarized in the table below, the application of the measurement alternative as prescribed by ASU 2014-13 results in the consolidated net income summarized above to be equivalent to the Company’s own economic interests in the consolidated investment product which are eliminated upon consolidation:



Economic Interests	Three Months Ended September 30,			Nine Months Ended September 30,
($ in thousands)	2016			2016
Distributions received and unrealized losses on the subordinated notes held by the Company	$	(58	)	$	(2,857	)
Investment management fees	437			543
Total Economic Interests	$	379		$	(2,314	)

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 September 30, 2016:



	Level 1		Level 2		Level 3		Total
($ in thousands)
Assets
Cash equivalents	$	12,703	$	—	$	—	$	12,703
Bank loans	—		360,210		—		360,210
Total Assets Measured at Fair Value	$	12,703	$	360,210	$	—	$	372,913
Liabilities
Notes payable	$	—	$	323,852	$	—	$	323,852
Total Liabilities Measured at Fair Value	$	—	$	323,852	$	—	$	323,852

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 generally at the average mid-point of bid and ask quotations obtained from a third-party pricing service. Fair value may also be based upon valuations obtained from independent third-party brokers or dealers utilizing matrix pricing models that consider information regarding securities with similar characteristics. In certain instances, fair value has been determined utilizing discounted cash flow analyses or single broker non-binding quotes. Depending on the nature of the inputs, these assets are classified as Level 1, 2 or 3 within the fair value measurement hierarchy.

Notes payable represent notes issued by the CLO and are measured using the measurement alternative in ASU 2014-13. Accordingly, the fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (a) the fair value of the beneficial interests held by the Company and (b) the carrying value of any beneficial interests that represent compensation for services.

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 September 30, 2016 and December 31, 2015 approximated fair value due to the short-term nature of the instruments.

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 September 30, 2016, the carrying value and maximum risk of loss related to these VIEs was $8.1 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.