4. Investment Securities

Investment securities at December 31, 2018 and 2017 are as follows:


	December 31,		December 31,
	2018		2017
		(in thousands)
Available for sale securities:
Certificates of deposit	$	5,001	12,999
Commercial paper		7,970	34,978
Corporate bonds		218,121	197,442
U.S. Treasury bills		19,672	19,779
Total available for sale securities		250,764	265,198
Trading debt securities:
Certificates of deposit		—	1,999
Commercial paper		1,993	—
Corporate bonds		77,250	55,414
U.S. Treasury bills		5,884	4,929
Mortgage-backed securities		7	10
Consolidated sponsored funds		33,088	62,038
Total trading securities		118,222	124,390
Equity securities:
Common stock		21,204	116
Sponsored funds(1)		153,548	137,857
Sponsored privately offered funds		678	695
Consolidated sponsored funds		24,879	77,048
Total equity securities		200,309	215,716
Equity method securities:
Sponsored funds		47,840	95,188
Total securities	$	617,135	700,492

(1)

Includes $124.0 million of investments at December 31, 2017, that were previously reported as available for sale securities prior to the adoption of ASU 2016-01 on January 1, 2018. Refer to Note 2 – New Accounting Guidance - Accounting Guidance Adopted During Fiscal Year 2018.

Certificates of deposit, commercial paper, corporate bonds and U.S. Treasury bills accounted for as available for sale and held as of December 31, 2018 mature as follows:


		Amortized
		cost	Fair value
		(in thousands)
Within one year	$	97,196	96,726
After one year but within five years		154,614	154,038
	$	251,810	250,764

Commercial paper, corporate bonds, U.S. Treasury bills and mortgage-backed securities accounted for as trading and held as of December 31, 2018 mature as follows:


		Fair value
		(in thousands)
Within one year	$	30,929
After one year but within five years		49,660
After five years but within 10 years		4,545
	$	85,134

The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2018:


	Amortized		Unrealized	Unrealized
	cost		gains	losses	Fair value
	(in thousands)
Available for sale securities:
Certificates of deposit	$	5,000	1	—	5,001
Commercial paper		7,902	68	—	7,970
Corporate bonds		219,236	254	(1,369)	218,121
U.S. Treasury bills		19,672	—	—	19,672
	$	251,810	323	(1,369)	250,764

The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2017:


	Amortized		Unrealized	Unrealized
	cost		gains	losses	Fair value
	(in thousands)
Available for sale securities:
Certificates of deposit	$	13,000	1	(2)	12,999
Commercial paper		34,836	142	—	34,978
Corporate bonds		198,404	33	(995)	197,442
U.S. Treasury bills		20,019	—	(240)	19,779
	$	266,259	176	(1,237)	265,198

Investment securities with fair values of $84.5 million, $237.2 million and $234.4 million were sold or redeemed during 2018, 2017 and 2016, respectively. During 2018, net realized gains of $0.3 million, less than $0.1 million and $12.8 million were recognized from the sale of $8.3 million in equity securities, the sale of $1.2 million in equity method securities and the redemption of $75.1 million in consolidated traded securities, respectively. During 2017, net realized gains of $0.9 million, $6.9 million and $1.5 million were recognized from the sale of $86.9 million in available for sale securities, the sale of $73.2 million in equity method securities, and the sale of $57.1 million in consolidated traded securities, respectively, and net realized losses of $0.5 million were recognized from the sale of $19.8 million in trading securities. 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.

A summary of available for sale sponsored funds with fair values below carrying values at December 31, 2018 is as follows:

Less than 12 months

12 months or longer

Total

Unrealized

December 31, 2018

Fair value

losses

Fair value

losses

Fair value

losses

(in thousands)

Corporate bonds

36,302

(160)

119,480

(1,209)

155,782

(1,369)

A summary of available for sale sponsored funds with fair values below carrying values at December 31, 2017 is as follows:


	Less than 12 months			12 months or longer		Total
			Unrealized		Unrealized		Unrealized
December 31, 2017	Fair value		losses	Fair value	losses	Fair value	losses
	(in thousands)
Certificates of deposit	$	2,998	(2)	—	—	2,998	(2)
Corporate bonds		192,409	(995)	—	—	192,409	(995)
U.S. Treasury bills		19,779	(240)	—	—	19,779	(240)
	$	215,186	(1,237)	—	—	215,186	(1,237)

The Company’s investment portfolio included 44 securities which were in an unrealized loss position at December 31, 2018.

During 2018 and 2017, we recorded pre-tax charges of $0.3 million and $1.3 million, respectively, to reflect the “other than temporary” decline in value of certain of the Company’s available for sale investments with fair value below amortized cost. These charges were recorded due to either an intent to sell prior to recovery of the amortized cost or the investment in an unrealized loss position for an extended period of time where the losses were expected to become realized. These charges are recorded in investment and other income (loss) in the consolidated statement of operations for 2018 and 2017.

The Company evaluated all of the other available for sale securities in an unrealized loss position at December 31, 2018 and concluded no additional other-than-temporary impairment existed at December 31, 2018. The unrealized losses in the Company’s investment portfolio at December 31, 2018 were primarily caused by changes in interest rates. At this time, the Company does not intend to sell, and does not believe it will be required to sell these securities before recovery of their amortized cost, with the exception of the securities mentioned above for which a charge was recorded.

Sponsored Privately Offered Funds

The Company holds a voting interests in a sponsored privately offered fund that is structured as an investment company in the legal form of an LLC. The Company held an investment in this fund totaling $0.7 million as of December 31, 2018 and December 31, 2017, which is the maximum loss exposure.

Consolidated Sponsored Funds

The following table details the balances related to consolidated sponsored funds at December 31, 2018 and 2017, as well as the Company’s net interest in these funds:


	December 31,		December 31,
	2018		2017
	(in thousands)
Cash	$	4,285	8,472
Investments		57,967	139,086
Other assets		872	1,588
Other liabilities		(79)	(1,040)
Redeemable noncontrolling interests		(11,463)	(14,509)
Net interest in consolidated sponsored funds	$	51,582	133,597

During the year ended December 31, 2018, we consolidated one sponsored privately offered fund, Ivy Funds, IGI Funds and Ivy NextShares in which we provided initial seed capital at the time of the funds’ formation. When we no longer have a controlling financial interest in a sponsored fund, it is deconsolidated from our consolidated financial statements. During 2018, we liquidated and redeemed our investment in the sponsored privately offered fund and the majority of our investment in the remaining IGI Funds, which resulted in a decrease in investments in the consolidated sponsored funds. One Ivy Fund, the IGI Funds and the Ivy Nextshares funds remain consolidated as of December 31, 2018. There was no impact to the consolidated statement of income as a result of the sponsored privately offered fund or IGI liquidation, as the funds were carried at fair value.

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 carrying amounts of certificates of deposit and commercial paper are measured at amortized cost, which approximates fair value due to the short-time between purchase and expected maturity of the investments. Depending on the nature of the inputs, these investments are generally classified as Level 1 or 2 within the fair value hierarchy. U.S. Treasury bills are valued upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active and inputs other than quoted prices that are observable or corroborated by observable market data. 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.

The following tables summarize our investment securities as of December 31, 2018 and 2017 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, 2018 or 2017.


December 31, 2018	Level 1		Level 2	Level 3	Other Assets Held at Net Asset Value	Total
	(in thousands)
Cash equivalents: (1)
Money market funds	$	121,759	—	—	—	121,759
U.S. government sponsored enterprise note		—	895	—	—	895
Commercial paper		—	74,277	—	—	74,277
Total cash equivalents	$	121,759	75,172	—	—	196,931
Available for sale securities:
Certificates of deposit	$	—	5,001	—	—	5,001
Commercial paper		—	7,970	—	—	7,970
Corporate bonds		—	218,121	—	—	218,121
U.S. Treasury bills		—	19,672	—	—	19,672
Trading debt securities:
Commercial paper		—	1,993	—	—	1,993
Corporate bonds		—	77,250	—		77,250
U.S. Treasury bills		—	5,884	—	—	5,884
Mortgage-backed securities		—	7	—	—	7
Consolidated sponsored funds		—	33,088	—	—	33,088
Equity securities:
Common stock		21,192	—	12	—	21,204
Sponsored funds		153,548	—	—	—	153,548
Sponsored privately offered funds measured at net asset value (2)		—	—	—	678	678
Consolidated sponsored funds		24,879	—	—	—	24,879
Equity method securities: (3)
Sponsored funds		47,840	—	—	—	47,840
Total	$	247,459	368,986	12	678	617,135


December 31, 2017	Level 1		Level 2	Level 3	Other Assets Held at Net Asset Value	Total
	(in thousands)
Cash equivalents: (1)
Money market funds	$	145,785	—	—	—	145,785
Commercial paper		—	11,064	—	—	11,064
Total cash equivalents	$	145,785	11,064	—	—	156,849
Available for sale securities:
Certificates of deposit	$	—	12,999	—	—	12,999
Commercial paper		—	34,978	—	—	34,978
Corporate bonds		—	197,442	—	—	197,442
U.S. Treasury bills		—	19,779	—	—	19,779
Trading debt securities:
Certificates of deposit		—	1,999	—	—	1,999
Corporate bonds		—	55,414	—		55,414
U.S. Treasury bills		—	4,929	—	—	4,929
Mortgage-backed securities		—	10	—	—	10
Consolidated sponsored funds		—	62,038	—	—	62,038
Equity securities:
Common stock		116	—	—	—	116
Sponsored funds		137,857	—	—	—	137,857
Sponsored privately offered funds measured at net asset value (2)		—	—	—	695	695
Consolidated sponsored funds		77,048	—	—	—	77,048
Equity method securities: (3)
Sponsored funds		95,188	—	—	—	95,188
Total	$	310,209	389,588	—	695	700,492

(1)

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at NAV and are classified as Level 1. Cash investments in commercial paper are measured at cost, which approximates fair value because of the short time between purchase of the instrument and its expected realization, and are classified as Level 2.

(2)

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.

(3)

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

The following table summarizes the activity of investments categorized as Level 3 for the year ended December 31, 2018:


		For the year ended
	December 31, 2018
	(in thousands)
Level 3 assets at December 31, 2017	$	—
Additions		359
Valuation change		5
Redemptions		(352)
Level 3 assets at December 31, 2018	$	12