Note 4. Equity Investments in Unconsolidated Subsidiaries

Our equity investments in unconsolidated subsidiaries as of December 31, 2012 consist solely of our carried interest in CTOPI, a fund sponsored and managed by CTIMCO. Historically, this balance has also included our co-investments in investment management vehicles that were sponsored and managed by CTIMCO. As further described in Note 1, we sold two such co-investments to an affiliate of Blackstone in December 2012 in conjunction with our Investment Management Business Sale, however we retained 100% of our carried interest in CTOPI.

Activity relating to our equity investments in unconsolidated subsidiaries for the year ended December 31, 2012 was as follows (in thousands):

	CTOPI Co-investment			CTOPI Carried Interest			HG II Co-investment			Total
Total as of December 31, 2011		$10,399			$—			$—			$10,399
Contributions		1,241			—			2,789			4,030
Distributions (1)		(1,566	)		(1,374	)		—			(2,940	)
Income from equity investments in unconsolidated subsidiaries		1,591			—			190			1,781
Incentive income allocation (2)		—			14,680			—			14,680
Sale of co-investments (3)		(11,665	)		—			(2,979	)		(14,644	)
Total as of December 31, 2012		$—			$13,306			$—			$13,306


(1)	Includes a $1.4 million advance distribution of incentive compensation to satisfy our income tax obligation related to the allocation of taxable income in respect of our carried interest in CTOPI.
(2)	We have deferred the recognition of incentive income allocated to us from CTOPI in respect of our carried interest in CTOPI, and recorded an offsetting liability as a component of accounts payable and other liabilities on our consolidated balance sheet.
(3)	These co-investments were sold in conjunction with our Investment Management Business Sale, as further described in Note 1.

Our carried interest in CTOPI entitles us to earn incentive compensation in an amount equal to 17.7% of the fund’s profits, after a 9% preferred return and 100% return of capital to the CTOPI partners. As of December 31, 2012, we have been allocated $14.7 million of incentive compensation from CTOPI based on a hypothetical liquidation of the fund at its net asset value. Accordingly, we have recognized this allocation as an equity investment in CTOPI on our consolidated balance sheet; however, we have deferred the recognition of income until cash is collected or appropriate contingencies have been eliminated.

The CTOPI partnership agreement provides for advance distributions in respect of our incentive compensation to allow us to pay any income taxes owed on phantom taxable income allocated to us from the partnership. We refer to these distributions as CTOPI Tax Advances. During 2012, we received one such CTOPI Tax Advance of $1.4 million. In the event the performance of CTOPI does not ultimately result in a sufficient allocation of incentive compensation to us, we would be required to return these CTOPI Tax Advances to the fund.

As of December 31, 2012, our maximum exposure to loss from CTOPI was $1.4 million, the amount of CTOPI Tax Advances we have received from CTOPI.

CTOPI Incentive Management Fee Grants

In January 2011, we created a management compensation pool for employees equal to 45% of the CTOPI incentive management fee received by us. As of December 31, 2012, we had granted 96% of the pool to our former employees, and the remainder remains unallocated. If any awards remain unallocated at the time incentive management fees are received by us, any amounts otherwise payable to the unallocated awards will be distributed pro-rata to the plan participants then employed by an affiliate of our Manager.

Approximately 96% of these grants have the following vesting schedule, which is contingent on continued employment with an affiliate of our Manager : (i) one-third on the date of grant, (ii) one-third on September 13, 2012, and (iii) the remainder vests upon our receipt of incentive management fees from CTOPI. The remaining 4% of these grants vest solely upon our receipt of incentive management fees from CTOPI or the disposition of certain investments owned by CTOPI.

CT High Grade II

In April 2012, we purchased a 0.44% interest in CT High Grade Partners II, LLC, or CT High Grade II, from an existing investor for $2.8 million, representing our initial co-investment in CT High Grade II. This co-investment was sold to an affiliate of Blackstone as part of our Investment Management Business Sale described in Note 1.