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Fair Value Measurements
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements

Fair value is the price that would be received to sell an asset or the price that would be paid to transfer a liability as of the measurement date. A fair-value reporting hierarchy exists for disclosure of fair value measurements based on the observability of the inputs to the valuation of financial assets and liabilities. The levels are:
 
Level 1 – Quoted prices for identical instruments in active markets. Level 1 assets may include equity and debt securities that are traded in an active exchange market, including shares of mutual funds.
 
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 assets and liabilities may include debt and equity securities, purchased loans and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable market data inputs.
 
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active markets.
 
NAV Practical Expedient – Investments that calculate NAV per share (or its equivalent) as a practical expedient. These investments have been excluded from the fair value hierarchy.

(a) Fair Value Measurements on a Recurring Basis

The following table presents fair value measurements for classes of Federated's financial assets and liabilities measured at fair value on a recurring basis:
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
NAV Practical Expedient
 
Total
June 30, 2018
 
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
 
$
375,172

 
$
0

 
$
0

 
$
0

 
$
375,172

Investments—Consolidated Investment Companies
 
 
 
 
 
 
 
 
 
 
Equity Securities
 
1,586

 
751

 
0

 
0

 
2,337

Debt Securities
 
0

 
31,266

 
0

 
0

 
31,266

Investments—Affiliates and Other
 
 
 
 
 
 
 
 
 
 
Equity Securities
 
5,563

 
0

 
0

 
285

 
5,848

Debt Securities
 
0

 
2,938

 
0

 
0

 
2,938

Other1
 
583

 
0

 
452

 
0

 
1,035

Total Financial Assets
 
$
382,904

 
$
34,955

 
$
452

 
$
285

 
$
418,596

 
 
 
 
 
 
 
 
 
 
 
Financial Liabilities
 
 
 
 
 
 
 
 
 
 
Derivative Liabilities
 
$
0

 
$
28,978

 
$
0

 
$
0

 
$
28,978

Other2
 
12

 
273

 
928

 
0

 
1,213

Total Financial Liabilities
 
$
12

 
$
29,251

 
$
928

 
$
0

 
$
30,191

 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
 
$
205,364

 
$
0

 
$
0

 
$
110,900

 
$
316,264

Investments—Consolidated Investment Companies
 
 
 
 
 
 
 
 
 
 
Equity Securities
 
5,424

 
746

 
0

 
0

 
6,170

Debt Securities
 
0

 
39,241

 
0

 
0

 
39,241

Investments—Affiliates and Other
 
 
 
 
 
 
 
 
 
 
Equity Securities
 
4,564

 
0

 
0

 
302

 
4,866

Debt Securities
 
0

 
2,997

 
0

 
0

 
2,997

Other1
 
123

 
357

 
760

 
0

 
1,240

Total Financial Assets
 
$
215,475

 
$
43,341

 
$
760

 
$
111,202

 
$
370,778

 
 
 
 
 
 
 
 
 
 
 
Total Financial Liabilities2
 
$
0

 
$
0

 
$
1,203

 
$
0

 
$
1,203

1
Amounts include restricted cash, structured trade finance loans held by Federated as well as futures contracts and/or foreign currency forward contracts held within certain consolidated Federated Funds.
2
Amounts include acquisition-related future contingent consideration liabilities as well as certain liabilities attributable to structured trade finance loans held by Federated and may include foreign currency forward contracts and/or futures contracts held within certain consolidated Federated Funds.

The following is a description of the valuation methodologies used for financial assets and liabilities measured at fair value on a recurring basis. Federated did not hold any nonfinancial assets or liabilities measured at fair value on a recurring basis at June 30, 2018 or December 31, 2017.

Cash and Cash Equivalents
Cash and Cash Equivalents include deposits with banks and investments in money market funds. Investments in money market Federated Funds totaled $23.6 million and $309.1 million at June 30, 2018 and December 31, 2017, respectively. Cash investments in publicly available money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the NAV of the funds, and are classified within Level 1 of the valuation hierarchy. For an investment in a money market Federated Fund that is not publicly available but for which the NAV is calculated daily and for which there are no redemption restrictions, the security is valued using NAV as a practical expedient and is excluded from the fair value hierarchy. This investment is included in the NAV Practical Expedient column in the December 31, 2017 table above.
Investments—Consolidated Investment Companies—Equity Securities
Investments—Consolidated Investment Companies—Equity Securities represent equity securities held by consolidated Federated Funds. For publicly traded equity securities available in an active market, the fair value of these securities is classified as Level 1 when the fair value is based on quoted market prices. The fair value of certain equity securities traded principally in foreign markets and held by consolidated Federated Funds are determined by a third-party pricing service (Level 2).
Investments—Consolidated Investment Companies—Debt Securities
Investments—Consolidated Investment Companies—Debt Securities primarily represent domestic and foreign bonds held by consolidated Federated Funds. The fair value of these securities may include observable market data such as valuations provided by independent pricing services after considering factors such as the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions (Level 2).
Investments—Affiliates and Other—Equity Securities
Investments—Affiliates and Other—Equity Securities primarily represent equity investments held in Separate Accounts as well as investments in fluctuating-value Federated Funds. For publicly traded equity securities available in an active market, the fair value of these securities is classified as Level 1 when the fair value is based on quoted market prices. For investments in Federated Funds that are publicly available, the securities are valued under the market approach through the use of quoted market prices available in an active market, which is the NAV of the funds, and are classified within Level 1 of the valuation hierarchy. For certain investments in Federated Funds and/or Separate Accounts that are not publicly available but for which the NAV is calculated daily and for which there are no redemption restrictions, the securities are valued using NAV as a practical expedient and are excluded from the fair value hierarchy. These investments are included in the NAV Practical Expedient column in the table above.
Investments—Affiliates and Other—Debt Securities
Investments—Affiliates and Other—Debt Securities primarily represent domestic bonds held by Separate Accounts. The fair value of these securities may include observable market data such as valuations provided by independent pricing services after considering factors such as the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions (Level 2).
Derivative Liabilities
During the second quarter of 2018, Federated entered into foreign currency forward derivative financial instrument transactions (see Note (10) for additional information). These derivatives are valued using contract terms and observable British Pound Sterling currency exchange rates in active markets (Level 2). The derivatives are short-term in nature.

(b) Fair Value Measurements on a Nonrecurring Basis

Federated did not hold any assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2018.

(c) Fair Value Measurements of Other Financial Instruments

The fair value of Federated's debt is estimated by management using observable market data (Level 2). Based on this fair value
estimate, the carrying value of debt appearing on the Consolidated Balance Sheets approximates fair value.