Derivative Financial Instruments

3 Months Ended

Mar. 31, 2017

Derivative Financial Instruments

Derivative Financial Instruments

4.Derivative Financial Instruments

In 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 March 31, 2017, we had 97% of our investments in sponsored funds, excluding our available for sale portfolio, hedged, 83% 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.

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 $153.1 million and $160.2 million as of March 31, 2017 and December 31, 2016, respectively. These derivative financial 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 $5.4 million and $7.1 million in cash collateral with the counterparties of the total return swap contracts as of March 31, 2017 and December 31, 2016, respectively.  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 March 31, 2017 and December 31, 2016:

			March 31,	December 31,
			2017	2016
	Balance sheet
	location	Fair value		Fair value
		(in thousands)
Total return swap contracts	Other current liabilities	$	476	475

The following is a summary of net losses recognized in income for the three months ended March 31, 2017 and March 31, 2016:

	Income statement	Three months ended		Three months ended
	location	March 31, 2017		March 31, 2016
		(in thousands)
Total return swap contracts	Investment and other income (loss)	$	(11,045)	(15,222)