5. Derivative Financial Instruments

The Company has in place an economic hedge program that uses total return swap contracts to hedge market risk related to its investments in certain sponsored funds. 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 five total return swap contracts with a combined notional value of $194.4 million and six total return swap contracts with a combined notional value of $213.9 million as of December 31, 2018 and 2017, respectively. 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) on the Company’s consolidated statement of income.

The Company posted $5.2 million and $9.7 million in cash collateral with the counterparties of the total return swap contracts as of December 31, 2018 and 2017, 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 December 31, 2018 and 2017 calculated based on Level 2 inputs:


			December 31,		December 31,
			2018		2017
	Balance sheet
	location	Fair value		Fair value
		(in thousands)
Total return swap contracts	Prepaid expenses and other current assets	$	4,968		—
Total return swap contracts	Other current liabilities		—		1,093
Total		$	4,968		1,093

The following is a summary of net gains (losses) recognized in income for the years ended December 31, 2018 and 2017:


		Year ended
	Income statement	December 31,
	location		2018	2017
		(in thousands)
Total return swap contracts	Investment and other income (loss)	$	15,163	(36,368)