Fair Value Of Assets And Liabilities

9 Months Ended

Sep. 30, 2019

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.



	September 30, 2019		December 31, 2018
$ in millions	Fair Value		Fair Value
Cash and cash equivalents	1,048.6		1,147.7
Equity investments	466.3		283.2
Foreign time deposits ⁽¹⁾	26.5		28.1
Assets held for policyholders	10,442.4		11,384.8
Policyholder payables ⁽¹⁾	(10,442.4	)	(11,384.8	)
Contingent consideration liability	(49.9	)	(40.9	)
Long-term debt ^{(1) (2)}	(2,490.2	)	(2,418.2	)

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(1)	These financial instruments are not measured 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.

(2) All assets and liabilities are carried at fair value except debt which has a carrying value of $2,296.6 million as of September 30, 2019. (December 31, 2018: $2,408.8 million)

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 September 30, 2019 and December 31, 2018, respectively:



	As of September 30, 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	610.4		610.4	—	—
Investments:*
Equity investments:
Seed money	253.5		253.5	—	—
Investments related to deferred compensation plans	209.7		209.7	—	—
Other equity securities	3.1		3.1	—	—
Assets held for policyholders	10,442.4		10,442.4	—	—
Total	11,519.1		11,519.1	—	—
Liabilities:
Contingent consideration liability	(49.9	)	—	—	(49.9	)
Total	(49.9	)	—	—	(49.9	)



	As of December 31, 2018
$ 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	367.6		367.6	—	—
Investments:*
Equity investments:
Seed money	202.8		202.8	—	—
Investments related to deferred compensation plans	78.6		78.6	—	—
Other equity securities	1.8		1.8	—	—
Assets held for policyholders	11,384.8		11,384.8	—	—
Total	12,035.6		12,035.6	—	—
Liabilities:
Contingent consideration liability	(40.9	)	—	—	(40.9	)
Total	(40.9	)	—	—	(40.9	)

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*	Foreign time deposits of $26.5 million (December 31, 2018: 28.1 million) are excluded from this table. Equity method and other investments of $338.2 million and $16.0 million, respectively, (December 31, 2018: $296.3 million and $5.9 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, 2019 and September 30, 2018, which are valued using significant unobservable inputs:



	Three months ended September 30, 2019		Nine months ended September 30, 2019
$ in millions	Contingent Consideration Liability		Contingent Consideration Liability
Beginning balance	(49.8	)	(40.9	)
Contingent consideration liability acquired in business combination	—		(15.5	)
Net unrealized gains and losses included in other gains and losses, net*	(3.2	)	(4.2	)
Disposition/settlements	3.1		10.7
Ending balance	(49.9	)	(49.9	)



	Three months ended September 30, 2018		Nine months ended September 30, 2018
$ in millions	Contingent Consideration Liability		Contingent Consideration Liability		Other Debt Securities
Beginning balance	(50.1	)	(57.4	)	9.9
Net unrealized gains and losses included in other gains and losses, net*	0.4		0.6		—
Disposition/settlements	4.3		11.4		(9.9	)
Ending balance	(45.4	)	(45.4	)	—

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

Put option contracts

The company purchased an additional put option contract for $3.9 million in the nine months ended September 30, 2019 to hedge economically foreign currency risk on the translation of a portion of its Pound Sterling-denominated earnings into U.S. Dollars, providing coverage through June 30, 2020.

Total Return Swaps

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 September 30, 2019 was $127.9 million. During the three and nine months ended September 30, 2019, market valuation losses of $0.4 million and gains of $11.1 million, respectively were recognized in other gains and losses, net.

The company also has total return swaps with respect to certain ETFs. Under the terms of each total return swap, the company receives the related market gains or losses on the underlying investments and pays a floating rate to the respective counterparty. At September 30, 2019, the aggregate notional value of the total return swaps was $162.5 million. For the three and nine months ended September 30, 2019, market valuation gains of $1.6 million and $9.7 million, respectively were recognized in other gains and losses, net.

Contingent Consideration Liability

At September 30, 2019 inputs used in the model to determine the liability related to the pre-existing contingent consideration arrangement included assumed growth rates in forecasted AUM ranging from (9.44)% to 5.73% (weighted average growth rate of (0.54)%) and a discount rate of 3.54%. An increase in AUM levels and/or a decrease in the discount rate would increase the fair value of the contingent consideration liability, while a decrease in forecasted AUM and/or an increase in the discount rate would decrease the liability. Changes in fair value are recorded in other gains and losses, net in the period incurred.

In connection with the OppenheimerFunds acquisition (see Note 2, “Business Combinations”), Invesco acquired a $13.6 million contingent consideration liability related to a historical OppenheimerFunds transaction. The liability is contingent upon the attainment of certain revenue growth objectives during 2019 and 2020. As of September 30, 2019, inputs used to determine the liability related to these arrangements primarily include assumed growth rates in management fees ranging from 28% to 33% and a discount rate of 10.7%.

- 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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