Fair Value Of Assets And Liabilities

6 Months Ended

Jun. 30, 2020

The fair value of financial instruments are presented in the below summary table. The fair value of financial instruments held by CIP is presented in Note 14, "Consolidated Investment Products". See the company’s most recently filed Form 10-K for additional disclosures on valuation methodology and fair value.



	June 30, 2020		December 31, 2019
$ in millions	Fair Value		Fair Value
Cash and cash equivalents	987.1		1,049.0
Equity investments	314.8		432.5
Foreign time deposits⁽¹⁾	27.3		32.0
Assets held for policyholders	8,020.9		10,835.6
Policyholder payables⁽¹⁾	(8,020.9	)	(10,835.6	)
Contingent consideration liability	(29.3	)	(60.2	)

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(1)	These financial instruments are not recorded on the balance sheet at fair value on a recurring basis. See the 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.

The following table presents, by hierarchy levels, 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 Sheets as of June 30, 2020 and December 31, 2019, respectively:



	As of June 30, 2020
$ 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	575.3		575.3	—	—
Investments⁽¹⁾:
Equity investments:
Seed money	142.4		142.4	—	—
Investments related to deferred compensation plans	167.7		167.7	—	—
Other equity securities	4.7		4.7	—	—
Assets held for policyholders	8,020.9		8,020.9	—	—
Total	8,911.0		8,911.0	—	—
Liabilities:
Contingent consideration liability	(29.3	)	—	—	(29.3	)
Total	(29.3	)	—	—	(29.3	)



	As of December 31, 2019
$ 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	620.9		620.9	—	—
Investments⁽¹⁾:
Equity investments:
Seed money	235.5		235.5	—	—
Investments related to deferred compensation plans	192.4		192.4	—	—
Other equity securities	4.6		4.6	—	—
Assets held for policyholders	10,835.6		10,835.6	—	—
Total	11,889.0		11,889.0	—	—
Liabilities:
Contingent consideration liability	(60.2	)	—	—	(60.2	)
Total	(60.2	)	—	—	(60.2	)

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(1)	Foreign time deposits of $27.3 million (December 31, 2019: $32.0 million) are excluded from this table. Equity method and other investments of $355.1 million and $11.9 million, respectively, (December 31, 2019: $350.8 million and $14.2 million, respectively) are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

The following tables show a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the three months ended June 30, 2020 and June 30, 2019, which are valued using significant unobservable inputs:



	Contingent Consideration Liability
$ in millions	Three months ended June 30, 2020		Six months ended June 30, 2020
Beginning balance	(33.6	)	(60.2	)
Revision to purchase price allocation	—		5.5
Net unrealized gains and losses included in other gains and losses, net⁽¹⁾	3.2		11.4
Disposition/settlements	1.1		14.0
Ending balance	(29.3	)	(29.3	)



	Contingent Consideration Liability
$ in millions	Three months ended June 30, 2019		Six months ended June 30, 2019
Beginning balance	(38.4	)	(40.9	)
Purchases/acquisitions	(15.5	)	(15.5	)
Net unrealized gains and losses included in other gains and losses, net⁽¹⁾	0.5		(1.0	)
Disposition/settlements	3.6		7.6
Ending balance	(49.8	)	(49.8	)

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

Total Return Swaps

In addition to holding equity investments, the company has a total return swap (TRS) to economically hedge certain deferred compensation liabilities. The notional value of the total return swap at June 30, 2020 was $256.5 million. During the six months ended June 30, 2020, market valuation losses of $1.3 million were recognized in other gains and losses, net.

Contingent Consideration Liability

Contingent consideration liabilities represent expected future obligations of the company. Changes in fair value of the company’s contingent consideration liabilities are recorded in other gains and losses, net in the period incurred. An increase in forecasted AUM levels or projected revenue and a decrease in the discount rate would increase the fair value of the company’s contingent consideration liabilities while a decrease in forecasted AUM or projected revenue and an increase in the discount rate would decrease the liabilities.

The contingent consideration liability related to the investment management contracts acquired from Deutsche Bank 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. At June 30, 2020 inputs used in the model to determine the liability related to the pre-existing contingent consideration arrangement, which currently assumes no growth rates in forecasted AUM.

In connection with the OppenheimerFunds acquisition (see Note 2, "Business Combinations"), Invesco acquired a contingent consideration liability related to a historical OppenheimerFunds transaction valued at $9.9 million as of June 30, 2020. As of June 30, 2020, inputs used to determine the liability related to these arrangements assumed no growth rate in management fees and a discount rate of 10.7%.

In 2019, the company made other digital wealth acquisitions, which has resulted in a contingent consideration liability of $7.0 million as of June 30, 2020. The liability is contingent upon the attainment of certain sales growth targets during 2020, 2021 and 2022.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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