Investments in Partnerships, Offshore Funds and Variable Interest Entities

9 Months Ended

Sep. 30, 2012

Investments in Partnerships, Offshore Funds and Variable Interests [Abstract]

Investments in Partnerships, Offshore Funds and Variable Interests

C. Investments in Partnerships, Offshore Funds and Variable Interest Entities ("VIEs")

The Company is general partner or co-general partner of various sponsored limited partnerships and the investment manager of various sponsored offshore funds, in which the Company has investments totaling $88.3 million, $86.9 million and $80.2 million at September 30, 2012, December 31, 2011 and September 30, 2011, respectively, and whose underlying assets consist primarily of marketable securities (the "affiliated entities").  We also have investments in unaffiliated partnerships, offshore funds and other entities of $14.3 million, $14.0 million and $18.1 million at September 30, 2012, December 31, 2011 and September 30, 2011, respectively (the "unaffiliated entities").  We evaluate each entity for the appropriate accounting treatment and disclosure.  Certain of the affiliated entities are consolidated.  In addition, our statement of financial condition caption "Investments in partnerships" includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting, as well as certain investments that the feeder funds hold that are carried at fair value, as described in Note D.  The Company reflects the equity in earnings of these equity method investees and the change in fair value of the consolidated feeder funds under the caption "Net gain/(loss) from investments" on the condensed consolidated statements of income.

The following table highlights the number of entities, including voting interest entities ("VOEs"), that we consolidate as well as under which accounting guidance they are consolidated, including consolidated feeder funds ("CFFs"), which retain their specialized investment company accounting, partnerships and offshore funds.

Entities consolidated
	CFFs				Partnerships					Offshore Funds					Total
	VIEs		VOEs		VIEs		VOEs			VIEs			VOEs		VIEs			VOEs
Entities consolidated at December 31, 2010		1		2		-		2			1			-		2			4
Additional consolidated entities		-		-		-		-			-			1		-			1
Deconsolidated entities		-		-		-		(1	)		-			-		-			(1	)
Entities consolidated at September 30, 2011		1		2		-		1			1			1		2			4
Additional consolidated entities		-		-		-		-			-			-		-			-
Deconsolidated entities		-		-		-		-			(1	)		-		(1	)		-
Entities consolidated at December 31, 2011		1		2		-		1			-			1		1			4
Additional consolidated entities		-		-		-		-			-			-		-			-
Deconsolidated entities		-		-		-		-			-			-		-			-
Entities consolidated at September 30, 2012		1		2		-		1			-			1		1			4

On January 1, 2011, upon analysis of several factors, including the additional contribution of capital from unrelated third parties into a partnership that we consolidated for the year ended and as of December 31, 2010, we determined that the Company was no longer deemed to control one particular partnership, resulting in the deconsolidation of this partnership, effective January 1, 2011.  The deconsolidation did not result in the recognition of any gain or loss.  The Company continues to serve as the general partner and earn fees for this role, and it also maintains an investment in the deconsolidated partnership which is included in investments in partnerships on the condensed consolidated statements of financial condition and is accounted for under the equity method (which approximates fair value).

The following table includes the net impact by line item on the condensed consolidated statements of financial condition for each category of entity consolidated (in thousands):

	September 30, 2012
	Prior to
	Consolidation		CFFs			Partnerships			Offshore Funds			As Reported
Assets
Cash and cash equivalents	$	287,806	$	-		$	879		$	-		$	288,685
Investments in securities		222,489		-			6,908			6,048			235,445
Investments in sponsored registered investment companies		64,223		-			-			-			64,223
Investments in partnerships		109,801		1,540			(8,737	)		-			102,604
Receivable from brokers		27,597		-			1,255			26,307			55,159
Investment advisory fees receivable		29,182		6			(1	)		-			29,187
Other assets		23,047		9			-			212			23,268
Total assets	$	764,145	$	1,555		$	304		$	32,567		$	798,571
Liabilities and equity
Securities sold, not yet purchased	$	3,879	$	-		$	-		$	(23	)	$	3,856
Accrued expenses and other liabilities		100,774		68			30			14,123			114,995
Total debt		216,118		-			-			-			216,118
Redeemable noncontrolling interests		-		1,487			274			18,467			20,228
Total equity		443,374		-			-			-			443,374
Total liabilities and equity	$	764,145	$	1,555		$	304		$	32,567		$	798,571
	December 31, 2011
	Prior to
	Consolidation		CFFs			Partnerships			Offshore Funds			As Reported
Assets
Cash and cash equivalents	$	259,531	$	15,000		$	1,809		$	-		$	276,340
Investments in securities		225,599		-			6,211			6,523			238,333
Investments in sponsored registered investment companies		59,197		-			17			-			59,214
Investments in partnerships		107,981		933			(8,021	)		-			100,893
Receivable from brokers		17,593		-			270			3,050			20,913
Investment advisory fees receivable		32,157		1			(2	)		-			32,156
Other assets		43,889		(14,989	)		-			-			28,900
Total assets	$	745,947	$	945		$	284		$	9,573		$	756,749
Liabilities and equity
Securities sold, not yet purchased	$	5,488	$	-		$	-		$	-		$	5,488
Accrued expenses and other liabilities		69,929		51			28			4,652			74,660
Total debt		263,119		-			-			-			263,119
Redeemable noncontrolling interests		-		894			256			4,921			6,071
Total equity		407,411		-			-			-			407,411
Total liabilities and equity	$	745,947	$	945		$	284		$	9,573		$	756,749
	September 30, 2011
	Prior to
	Consolidation		CFFs			Partnerships			Offshore Funds			As Reported
Assets
Cash and cash equivalents	$	333,230	$	-		$	2,175		$	251		$	335,656
Investments in securities		164,916		-			5,616			44,227			214,759
Investments in sponsored registered investment companies		55,540		-			24			-			55,564
Investments in partnerships		158,432		1,007			(7,703	)		(53,450	)		98,286
Receivable from brokers		16,846		-			158			50,060			67,064
Investment advisory fees receivable		23,524		12			(1	)		(84	)		23,451
Other assets		26,029		11			-			70			26,110
Total assets	$	778,517	$	1,030		$	269		$	41,074		$	820,890
Liabilities and equity
Securities sold, not yet purchased	$	2,957	$	-		$	-		$	3,786		$	6,743
Accrued expenses and other liabilities		105,887		109			35			393			106,424
Total debt		261,973		-			-			-			261,973
Redeemable noncontrolling interests		-		921			234			36,895			38,050
Total equity		407,700		-			-			-			407,700
Total liabilities and equity	$	778,517	$	1,030		$	269		$	41,074		$	820,890

The following table includes the net impact by line item on the condensed consolidated statements of income for each category of entity consolidated (in thousands):

	Three Months Ended September 30, 2012
	Prior to
	Consolidation			CFFs			Partnerships			Offshore Funds			As Reported
Total revenues	$	82,489		$	(2	)	$	(1	)	$	(255	)	$	82,231
Total expenses		52,976			28			11			204			53,219
Operating income		29,513			(30	)		(12	)		(459	)		29,012
Total other income (expense), net		(2,032	)		78			34			474			(1,446	)
Income before income taxes		27,481			48			22			15			27,566
Income tax provision		8,467			-			-			-			8,467
Net income		19,014			48			22			15			19,099
Net loss attributable to noncontrolling interests		10			48			22			15			95
Net income attributable to GAMCO	$	19,004		$	-		$	-		$	-		$	19,004
	Three Months Ended September 30, 2011
	Prior to
	Consolidation			CFFs			Partnerships			Offshore Funds			As Reported
Total revenues	$	80,237		$	(1	)	$	(1	)	$	(84	)	$	80,151
Total expenses		49,463			38			7			(18	)		49,490
Operating income		30,774			(39	)		(8	)		(66	)		30,661
Total other income (expense), net		(18,299	)		(109	)		66			(405	)		(18,747	)
Income before income taxes		12,475			(148	)		58			(471	)		11,914
Income tax provision		4,745			-			-			-			4,745
Net income		7,730			(148	)		58			(471	)		7,169
Net income/(loss) attributable to noncontrolling interests		31			(148	)		58			(471	)		(530	)
Net income attributable to GAMCO	$	7,699		$	-		$	-		$	-		$	7,699
	Nine Months Ended September 30, 2012
	Prior to
	Consolidation			CFFs			Partnerships			Offshore Funds			As Reported
Total revenues	$	245,771		$	(4	)	$	(2	)	$	(761	)	$	245,004
Total expenses		158,146			76			30			361			158,613
Operating income		87,625			(80	)		(32	)		(1,122	)		86,391
Total other income, net		1,151			175			51			1,069			2,446
Income before income taxes		88,776			95			19			(53	)		88,837
Income tax provision		30,909			-			-			-			30,909
Net income		57,867			95			19			(53	)		57,928
Net income/(loss) attributable to noncontrolling interests		(78	)		95			19			(53	)		(17	)
Net income attributable to GAMCO	$	57,945		$	-		$	-		$	-		$	57,945
	Nine Months Ended September 30, 2011
	Prior to
	Consolidation			CFFs			Partnerships			Offshore Funds			As Reported
Total revenues	$	242,357		$	(5	)	$	(2	)	$	(213	)	$	242,137
Total expenses		159,869			97			30			223			160,219
Operating income		82,488			(102	)		(32	)		(436	)		81,918
Total other income (expense), net		(9,400	)		70			2			517			(8,811	)
Income before income taxes		73,088			(32	)		(30	)		81			73,107
Income tax provision		26,978			-			-			-			26,978
Net income		46,110			(32	)		(30	)		81			46,129
Net income/(loss) attributable to noncontrolling interests		121			(32	)		(30	)		81			140
Net income attributable to GAMCO	$	45,989		$	-		$	-		$	-		$	45,989

Variable Interest Entities

We also have sponsored a number of investment vehicles where we are the general partner or investment manager.  These vehicles are VIEs, and we are not the primary beneficiary because we do not absorb a majority of the entities' expected losses or expected returns.  The Company has not provided any financial or other support to these entities.  The total assets of these entities at September 30, 2012, December 31, 2011 and September 30, 2011 were $78.6 million, $73.7 million and $29.5 million, respectively.  Our maximum exposure to loss as a result of our involvement with the VIEs is limited to the investment in one VIE and the deferred carried interest that we have in another.  On September 30, 2012 and December 31, 2011, we had an investment in one of the VIE offshore funds of approximately $8.2 million and $5.0 million, respectively, which was included in investments in partnerships on the condensed consolidated statements of financial condition.  On September 30, 2012, December 31, 2011 and September 30, 2011, we had a deferred carried interest in one of the VIE offshore funds of approximately $42,000, $47,000 and $47,000, respectively, which was included in investments in partnerships on the condensed consolidated statements of financial condition.  Additionally, as the general partner or investment manager to these VIEs the Company earns fees in relation to these roles, which given a decline in AUMs of the VIEs would result in lower fee revenues earned by the Company which would be reflected on the condensed consolidated statements of income, condensed consolidated statements of financial condition and condensed consolidated statements of cash flows.

Prior to January 1, 2011, we were consolidating two VIEs since we had determined that we were the primary beneficiary of each because we had equity interests and absorbed a majority of each entity's expected losses; therefore they were consolidated in the financial statements.  Effective October 1, 2011, we deconsolidated one of the VIEs upon analysis of several factors, including the redemption of $49.2 million of proprietary capital from this VIE by which, we determined that the Company was no longer deemed to be the primary beneficiary of the VIE.  The deconsolidation did not result in the recognition of any gain or loss.  The Company has not provided any financial support to these VIEs but does continue to serve as the investment manager and earn fees for this role, and it also maintains an investment in the deconsolidated VIE, which is included in investments in partnerships on the condensed consolidated statements of financial condition and is accounted for under the equity method (which approximates fair value).  The assets of these VIEs may only be used to satisfy obligations of the VIEs.  The following table presents the balances related to these VIEs that are consolidated and were included on the condensed consolidated statements of financial condition as well as GAMCO's net interest in these VIEs.  Only one VIE is consolidated at September 30, 2012 and December 31, 2011 and two are consolidated at September 30, 2011:

	September 30,			December 31,			September 30,
	2012			2011			2011
(In thousands)
Cash and cash equivalents	$	-		$	15,000		$	251
Investments in securities		-			-			44,227
Investments in partnerships		23,086			1,433			1,489
Receivable from brokers		-			-			50,060
Other assets		-			-			70
Securities sold, not yet purchased		-			-			(3,786	)
Accrued expenses and other liabilities		(15	)		(15,006	)		(525	)
Redeemable noncontrolling interests		(962	)		(381	)		(37,289	)
GAMCO's net interests in consolidated VIEs	$	22,109		$	1,046		$	54,497