3. Investment Securities

Investment securities at December 31, 2016 and 2015 are as follows:


	December 31,		December 31,
	2016		2015
		(in thousands)
Available for sale securities:
Sponsored funds	$	122,806	40,552
Sponsored privately offered funds		570	825
Total available for sale securities		123,376	41,377
Trading securities:
Mortgage-backed securities		13	20
Corporate bond		—	5
Common stock		101	87
Consolidated sponsored funds		145,710	—
Sponsored funds		29,541	29,701
Total trading securities		175,365	29,813
Equity method securities:
Sponsored funds		26,775	217,380
Sponsored privately offered funds		3,234	3,173
Total equity method securities		30,009	220,553
Total securities	$	328,750	291,743

The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2016:


	Amortized		Unrealized	Unrealized
	cost		gains	losses	Fair value
	(in thousands)
Available for sale securities:
Sponsored funds	$	129,427	828	(7,449)	122,806
Sponsored privately offered funds		265	305	—	570
	$	129,692	1,133	(7,449)	123,376

The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2015:


	Amortized		Unrealized	Unrealized
	cost		gains	losses	Fair value
	(in thousands)
Available for sale securities:
Sponsored funds	$	46,800	434	(6,682)	40,552
Sponsored privately offered funds		500	325	—	825
	$	47,300	759	(6,682)	41,377

Mortgage-backed securities, accounted for as trading, and held as of December 31, 2016 mature in 2022.

Investment securities with fair values of $234.4 million, $102.2 million and $301.0 million were sold during 2016, 2015 and 2014, respectively. During 2016, net realized gains of $3.6 million were recognized from the sale of $98.2 million in available for sale securities and net realized losses of $2.3 million were recognized from the sale of $58.7 million in equity method securities. During 2015, net realized gains of $3.0 million and $0.6 million were recognized from the sale of $31.6 million in available for sale securities and the sale of $65.9 million in trading securities, respectively, and net realized losses of $0.5 million were recognized from the sale of $5.3 million in equity method securities. During 2014, net realized gains of $5.1 million and $4.1 million were recognized from the sale of $149.8 million in available for sale securities and the sale of $151.2 million in trading securities, respectively.

Sponsored Privately Offered Funds

The Company holds voting interests in certain sponsored privately offered funds that are structured as investment companies in the legal form of LLCs. The Company held investments in these funds totaling $3.8 million and $4.0 million as of December 31, 2016 and December 31, 2015, respectively, which is our maximum loss exposure.

Consolidated Sponsored Funds

There were no consolidated sponsored funds at December 31, 2015. The following table details the balances related to consolidated sponsored funds at December 31, 2016, as well as the Company’s net interest in these funds:


	December 31, 2016
	(in thousands)
Cash	$	6,885
Investments		145,710
Other assets		763
Other liabilities		(390)
Redeemable noncontrolling interests		(10,653)
Net interest in consolidated sponsored funds	$	142,315

During the year ended December 31, 2016, we consolidated certain of the 1940 Act Mutual Funds and the IGI Funds in which we provided initial seed capital at the time of the fund’s formation. When we no longer have a controlling financial interest in a sponsored fund, it is deconsolidated from our consolidated financial statements. We deconsolidated $44.2 million of these investments from our consolidated balance sheet during the year ended 2016. There was no impact to the consolidated statement of income as a result of this deconsolidation.

Fair Value

Accounting standards establish a framework for measuring fair value and a three‑level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of the asset. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset. An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs that are significant to the overall valuation. The three‑level hierarchy of inputs is summarized as follows:

Level 1 – Investments are valued using quoted prices in active markets for identical securities.

Level 2 – Investments are valued using other significant observable inputs, including quoted prices in active markets for similar securities.

Level 3 – Investments are valued using significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments.

Assets classified as Level 2 can have a variety of observable inputs. These observable inputs are collected and utilized, primarily by an independent pricing service, in different evaluated pricing approaches depending upon the specific asset to determine a value. The fair value of municipal bonds is measured based on pricing models that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid‑wants lists, offerings, market movements, the callability of the bond, state of issuance and benchmark yield curves. The fair value of corporate bonds is measured using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads and fundamental data relating to the issuer. The fair value of equity derivatives is measured based on active market broker quotes, evaluated broker quotes and evaluated prices from vendors.

Securities’ values classified as Level 3 are primarily determined through the use of a single quote (or multiple quotes) from dealers in the securities using proprietary valuation models. These quotes involve significant unobservable inputs, and thus, the related securities are classified as Level 3 securities.

The following tables summarize our investment securities as of December 31, 2016 and 2015 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs. There were no transfers between levels for the years ended December 31, 2016 or 2015.


December 31, 2016	Level 1		Level 2	Level 3	Other Assets Not Held at Fair Value	Total
	(in thousands)
Available for sale securities:
Sponsored funds	$	122,806	—	—	—	122,806
Sponsored privately offered funds measured at net asset value (1)		—	—	—	570	570
Trading securities:
Mortgage-backed securities		—	13	—	—	13
Common stock		101	—	—	—	101
Consolidated sponsored funds		100,847	44,863	—	—	145,710
Sponsored funds		29,541	—	—	—	29,541
Equity method securities: (2)
Sponsored funds		26,775	—	—	—	26,775
Sponsored privately offered funds measured at net asset value (1)		—	—	—	3,234	3,234
Total	$	280,070	44,876	—	3,804	328,750


December 31, 2015	Level 1		Level 2	Level 3	Other Assets Not Held at Fair Value	Total
	(in thousands)
Available for sale securities:
Sponsored funds	$	40,552	—	—	—	40,552
Sponsored privately offered funds measured at net asset value (1)		—	—	—	825	825
Trading securities:
Mortgage-backed securities		—	20	—	—	20
Corporate bonds		—	5	—	—	5
Common stock		87	—	—	—	87
Sponsored funds		29,701	—	—	—	29,701
Equity method securities: (2)
Sponsored funds		217,380	—	—	—	217,380
Sponsored privately offered funds measured at net asset value (1)		—	—	—	3,173	3,173
Total	$	287,720	25	—	3,998	291,743

(1)

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

(2)

Substantially all of the Company’s equity method investments are investment companies that record their underlying investments at fair value.