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Fair Value Of Assets And Liabilities

12 Months Ended

Dec. 31, 2020

The fair value of financial instruments are presented in the below summary table. The fair value of financial instruments held by CIP are presented in Note 21, "Consolidated Investment Products."


	December 31, 2020	December 31, 2019
$ in millions	Fair Value	Fair Value
Cash and cash equivalents	1,408.4	1,049.0
Restricted cash (2)	129.2	—
Equity investments	360.3	432.5

Foreign time deposits (1)	29.9	32.0
Assets held for policyholders	7,582.1	10,835.6
Policyholder payables (1)	(7,582.1)	(10,835.6)
Contingent consideration liability	(18.6)	(60.2)

____________

(1)These financial instruments are not measured at fair value on a recurring basis. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value, and are accordingly classified as Level 2 securities. Policyholder payables are indexed to the value of the assets held for policyholders.

(2)Restricted cash is recorded in Other assets on the Consolidated Balance Sheet

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.

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 Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019, respectively:


	As of December 31, 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	947.3	947.3	—	—
Investments:(1)
Equity investments:
Seed money	153.5	153.5	—	—
Investments related to deferred compensation plans	202.7	202.7	—	—
Other equity securities	4.1	4.1	—	—



Assets held for policyholders	7,582.1	7,582.1	—	—
Total	8,889.7	8,889.7	—	—
Liabilities:
Contingent consideration liability	(18.6)	—	—	(18.6)
Total	(18.6)	—	—	(18.6)


	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)

(1)Foreign time deposits of $29.9 million (December 31, 2019: $32.0 million) are excluded from this table. Equity method and other investments of $426.1 million and $10.5 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.

Put option contracts

The company's put option contract to hedge economically foreign currency risk on the translation of a portion of its Pound Sterling-denominated earnings into U.S. Dollars expired on June 30, 2020. There were no purchases during the year ended December 31, 2020 (2019: $3.9 million). The company recognized a gain of $0.1 million related to the put option contracts in the year ended December 31, 2020 (2019: $4.8 million loss).

Total return swap

In addition to holding equity investments, the company has a total return swap (TRS) to hedge economically certain deferred compensation liabilities. The notional value of the total return swap at December 31, 2020 was $279.3 million, and the fair value of the TRS was an asset of $5.1 million. During the year ended December 31, 2020, market valuation gains of $39.8 million were recognized in other gains and losses, net (December 31, 2019: net gains of $16.8 million).

In 2020, the company also had total return swaps with respect to certain ETFs, which were settled as of February 29, 2020 (December 31, 2019: aggregate notional value of the total return swaps was $145.9 million). Under the terms of each total return swap, the company received the related market gains or losses on the underlying investments and paid a floating rate to the respective counterparty. For the year ended December 31, 2020, market valuation gains of $0.8 million were recognized in other gains and losses (December 31, 2019: gains of $9.9 million).

The fair value of the total return swaps was determined under the market approach using quoted prices of the underlying investments and, as such, is classified as level 2 of the valuation hierarchy. The total return swaps are not designated for hedge accounting.

Contingent Consideration Liability

Contingent consideration liabilities represent expected future obligations of the company, are recorded at fair value as of the date of acquisition using a discounted cash flow model and are categorized within level 3 of the valuation hierarchy. 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 valued at $5.9 million as of December 31, 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 $8.4 million as of December 31, 2020. As of December 31, 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%.

The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the year ended December 31, 2020 and December 31, 2019, which are valued using significant unobservable inputs:


	For the year ended December 31, 2020	For the year ended December 31, 2019
$ in millions	Contingent Consideration Liability		Contingent Consideration Liability
Beginning balance	(60.2)		(40.9)
Revision to purchase price allocation	5.5		(31.5)

Net unrealized gains and losses included in other gains and losses	13.8		(7.8)

Disposition/settlements	22.3		20.0




Ending balance	(18.6)		(60.2)

- 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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