FAIR VALUE OF ASSETS AND LIABILITIES

The carrying value and fair value of financial instruments are presented in the below summary table. The fair value of financial instruments held by CSIP and CIP is presented in Note 12, "Consolidated Sponsored Investment Products" and Note 13, "Consolidated Investment Products," respectively.



		September 30, 2015				December 31, 2014
$ in millions	Footnote Reference	Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and cash equivalents		1,590.7		1,590.7		1,514.2		1,514.2
Available-for-sale investments	3	233.9		233.9		255.9		255.9
Trading investments	3	347.5		347.5		263.2		263.2
Foreign time deposits *	3	27.7		27.7		29.6		29.6
Assets held for policyholders		5,500.5		5,500.5		1,697.9		1,697.9
Policyholder payables *		(5,500.5	)	(5,500.5	)	(1,697.9	)	(1,697.9	)
Put option contracts		1.6		1.6		—		—
UIT-related financial instruments sold, not yet purchased		(6.3	)	(6.3	)	(1.4	)	(1.4	)
Contingent consideration liability		(96.3	)	(96.3	)	—		—
Long-term debt *	4	(1,689.3	)	(1,749.8	)	(1,589.3	)	(1,695.8	)

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*	These financial instruments are not measured at fair value on a recurring basis. See the indicated footnotes or most recently filed Form 10-K for additional information about the carrying and fair values of these financial instruments. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value, and are accordingly classified as Level 2 securities.

A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:


•	Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

An asset or liability's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

There are three types of valuation approaches: a market approach, which uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities; an income approach, which uses valuation techniques to convert future amounts to a single, discounted present value amount; and a cost approach, which is based on the amount that currently would be required to replace the service capacity of an asset.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Cash equivalents

Cash investments in money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the net asset value of the underlying funds, and are classified within level 1 of the valuation hierarchy.

Available-for-sale investments

Seed money is valued under the market approach through the use of quoted market prices available in an active market and is classified within level 1 of the valuation hierarchy; there is no modeling or additional information needed to arrive at the fair values of these investments. CLO assets are valued based on price quotations provided by an independent third-party pricing source or using an income approach through the use of certain observable and unobservable inputs. At September 30, 2015 and December 31, 2014, investments in CLOs were valued using third-party pricing information. Due to liquidity constraints within the market for CLO products that require the use of unobservable inputs, these investments are classified within level 3 of the valuation hierarchy. Other debt securities are valued using a cost valuation technique due to the lack of available cash flow and market data and are accordingly also classified within level 3 of the valuation hierarchy.

Trading investments

•Investments related to deferred compensation plans

Investments related to deferred compensation plans are valued under the market approach through the use of quoted prices in an active market and are classified within level 1 of the valuation hierarchy.

•Seed money

•Other equity securities

These securities are valued under the market approach through the use of quoted prices in an active market. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.

•UIT-related equity and debt securities

The company invests in UIT-related equity and debt securities consisting of investments in corporate equities, UITs, and municipal securities. Each is discussed more fully below.

Corporate equities

The company temporarily holds investments in corporate equities for purposes of creating a UIT. Corporate equities are valued under the market approach through use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.

UITs

The company may hold units of its sponsored UITs at period-end for sale in the primary market or secondary market. Equity UITs are valued under the market approach through use of quoted prices on an exchange. Fixed income UITs are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.

Municipal securities

Municipal securities are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.

Put option contracts

The company has purchased several put option contracts to hedge economically foreign currency risk on the translation of a portion of its pound sterling-denominated earnings into U.S. dollars (purchases of zero and $9.2 million in the three and nine months ended September 30, 2015, respectively). These were the only contracts entered into during the period to hedge economically foreign currency risk and provide coverage through March 31, 2016. The economic hedge is predominantly triggered upon the impact of a significant decline in the pound sterling/U.S. dollar foreign exchange rate, which could arise as a result of European economic uncertainty. Open put option contracts are marked-to-market through earnings, which are recorded in the company's Condensed Consolidated Statements of Income in other gains and losses. These derivative contracts are valued using option valuation models and are included in other assets in the company's Condensed Consolidated Balance Sheets. The significant inputs in these models (volatility, forward points and swap curves) are readily available in public markets or can be derived from observable market transactions for substantially the full terms of the contracts and are classified within level 2 of the valuation hierarchy. The company recognized a gain of $0.2 million and a loss of $7.6 million in the three and nine months ended September 30, 2015, respectively (three and nine months ended September 30, 2014: none) related to the change in market value of these put option contracts.

Assets held for policyholders

Assets held for policyholders are measured at fair value under the market approach based on the quoted prices of the underlying funds in an active market and are classified within level 1 of the valuation hierarchy. The policyholder payables are indexed to the value of the assets held for policyholders and are therefore not included in the tables below.

UIT-related financial instruments sold, not yet purchased, and derivative instruments

The company uses U.S. Treasury futures, which are types of derivative financial instruments, to hedge economically fixed income UIT inventory and securities in order to mitigate market risk. Open futures contracts are marked-to-market daily through earnings, which are recorded in the company’s Condensed Consolidated Statements of Income in other revenue, along with the mark-to-market on the underlying trading securities held. Fair values of derivative contracts in an asset position are included in other assets in the company’s Condensed Consolidated Balance Sheets. Fair values of derivative contracts in a liability position are included in other liabilities in the company’s Condensed Consolidated Balance Sheets. These derivative contracts are valued under the market approach through use of quoted prices in an active market and are classified within level 1 of the valuation hierarchy. At September 30, 2015 there were 23 futures contracts with a notional value of $3.2 million (December 31, 2014: 6 open futures contracts with a notional value of $0.8 million). Additionally, to hedge economically the market risk associated with equity and debt securities and UITs temporarily held as trading investments, the company will hold short corporate equities, exchange-traded funds, or U.S. treasury security positions. These transactions are recorded as financial instruments sold, not yet purchased and are included in accounts payable and accrued expenses in the company’s Condensed Consolidated Balance Sheets. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.

Contingent Consideration Liability

During the first quarter of 2015, the company acquired certain investment management contracts from a third party. Indefinite-lived intangible assets were valued at $119.3 million. This transaction was a non-cash investing activity during the period. The purchase price was comprised solely of contingent consideration payable in future periods, and is linked to future revenues generated from the contracts. The contingent consideration liability was recorded at fair value as of the date of acquisition using a discounted cash flow model, and is categorized within level 3 of the valuation hierarchy. Anticipated future cash flows were determined using forecast AUM levels and discounted back to the valuation date using a discount rate of 3.4%. Assumed growth rates in AUM ranged from 0% to 5% (weighted average growth rate of 2.89%). The company reassesses significant unobservable inputs during each reporting period. Changes in fair value are recorded in Other gains and losses, net in the Condensed Consolidated Statements of Income in the period incurred. An increase in AUM levels and a decrease in the discount rate would increase the fair value of the contingent consideration liability while a decrease in forecasted AUM and an increase in the discount rate would decrease the liability.

The following table presents, for each of the hierarchy levels described above, the carrying value of the company's assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the company's Condensed Consolidated Balance Sheet as of September 30, 2015:



	As of September 30, 2015
$ in millions	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	238.4		238.4		—	—
Investments:*
Available-for-sale:
Seed money	226.9		226.9		—	—
CLOs	1.1		—		—	1.1
Other debt securities	5.9		—		—	5.9
Trading investments:
Investments related to deferred compensation plans	159.6		159.6		—	—
Seed money	127.7		127.7		—	—
Other equity securities	48.9		48.9		—	—
UIT-related equity and debt securities:
Corporate equities	1.2		1.2		—	—
UITs	6.9		6.9		—	—
Municipal securities	3.2		—		3.2	—
Assets held for policyholders	5,500.5		5,500.5		—	—
Put option contracts	1.6		—		1.6	—
Total	6,321.9		6,310.1		4.8	7.0
Liabilities:
UIT-related financial instruments sold, not yet purchased:
Corporate equities	(6.2	)	(6.2	)	—	—
UITs	(0.1	)	(0.1	)	—	—
Contingent consideration liability	(96.3	)	—		—	(96.3	)
Total	(102.6	)	(6.3	)	—	(96.3	)

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*	Foreign time deposits of $27.7 million are excluded from this table. Equity method and other investments of $323.2 million and $6.6 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.



	As of December 31, 2014
$ in millions	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	474.9		474.9		—	—
Investments:*
Available-for-sale:
Seed money	246.2		246.2		—	—
CLOs	3.4		—		—	3.4
Other debt securities	6.3		—		—	6.3
Trading investments:
Investments related to deferred compensation plans	162.6		162.6		—	—
Seed Money	68.2		68.2		—	—
Other equity securities	29.0		29.0		—	—
UIT-related equity and debt securities:
Corporate equities	1.4		1.4		—	—
UITs	1.6		1.6		—	—
Municipal securities	0.4		—		0.4	—
Assets held for policyholders	1,697.9		1,697.9		—	—
Total	2,691.9		2,681.8		0.4	9.7
Liabilities:
UIT-related financial instruments sold, not yet purchased:
Corporate equities	(1.4	)	(1.4	)	—	—
Total	(1.4	)	(1.4	)	—	—

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*	Foreign time deposits of $29.6 million are excluded from this table. Equity method and other investments of $332.1 million and $4.6 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the three and nine months ended September 30, 2015 and September 30, 2014, which are valued using significant unobservable inputs:



	Three months ended September 30, 2015						Nine months ended September 30, 2015
$ in millions	Contingent Consideration Liability		CLOs		Other Debt Securities		Contingent Consideration Liability		CLOs		Other Debt Securities
Beginning balance	(118.7	)	1.3		6.3		—		3.4		6.3
Acquisition	—		—		—		(119.3	)	—		—
Returns of capital	—		—		(0.4	)	—		(0.1	)	(0.4	)
Net unrealized gains and losses included in other gains and losses	18.4		—		—		18.4		—		—
Net unrealized gains and losses included in accumulated other comprehensive income/(loss)*	—		(0.2	)	—		—		(0.2	)	—
Disposition/settlements	4.0		—		—		4.6		(2.0	)	—
Ending balance	(96.3	)	1.1		5.9		(96.3	)	1.1		5.9



	Three months ended September 30, 2014			Nine months ended September 30, 2014
$ in millions	CLOs		Other Debt Securities	CLOs		Other Debt Securities
Beginning balance	4.1		6.3	4.0		6.3
Returns of capital	(0.1	)	—	(0.3	)	—
Net unrealized gains and losses included in accumulated other comprehensive income/(loss)*	0.1		—	0.4		—
Ending balance	4.1		6.3	4.1		6.3

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*	These unrealized gains and losses are attributable to balances still held at the respective period ends.