Derivative Financial Instruments

9 Months Ended

Sep. 30, 2016

Derivative Financial Instruments

Derivative Financial Instruments

5.Derivative Financial Instruments

In January 2016, the Company implemented an economic hedge program that uses total return swap contracts to hedge market risk with its investments in certain sponsored funds.  As of September 30, 2016, we had 100% of our investments in sponsored funds, excluding our available for sale portfolio, hedged, 87% of which were hedged with total return swap contracts.  Certain of the consolidated sponsored funds may utilize derivative financial instruments within their portfolios in pursuit of their stated investment objectives.  We do not hedge for speculative purposes.

As of September 30, 2016, excluding derivative financial instruments held in certain consolidated sponsored funds, the Company was party to three total return swap contracts with a combined notional value of $160.5 million. These derivative instruments are not designated as hedges for accounting purposes.  Changes in fair value of the total return swap contracts are recognized in investment and other income (loss), net on the Company’s consolidated statement of income. 

The Company posted $7.0 million in cash collateral with the counterparties of the total return swap contracts as of September 30, 2016.  The cash collateral is included in customers and other receivables on the Company’s consolidated balance sheet.  The Company does not record its fair value in derivative transactions against the posted collateral.

The following table presents the fair value of the derivative financial instruments, excluding derivative financial instruments held in certain consolidated sponsored funds as of September 30, 2016:

	September 30, 2016
	Balance sheet
	location	Fair value
		(in thousands)
Total return swap contracts	Other current liabilities	$	404

The following is a summary of net losses recognized in income for the three and nine months ended September 30, 2016:

	Income statement	Three months ended		Nine months ended
	location	September 30, 2016		September 30, 2016
		(in thousands)		(in thousands)
Total return swap contracts	Investment and other income (loss)	$	(8,837)	$	(30,767)