Investments

We have investments in Jefferies Finance, Jefferies LoanCore LLC (“Jefferies LoanCore”) and KCG Holdings, Inc. (“KCG”). Our investments in Jefferies Finance and Jefferies LoanCore are accounted for under the equity method and are included in Loans to and investments in related parties on the Consolidated Statements of Financial Condition with our share of the investees’ earnings recognized in Other revenues in the Consolidated Statements of Earnings. Our investment in KCG is accounted for at fair value by electing the fair value option available under U.S. GAAP and is included in Financial instruments owned, at fair value - Corporate equity securities on the Consolidated Statements of Financial Condition with changes in fair value recognized in Principal transaction revenues on the Consolidated Statements of Earnings. We have limited partnership interests of 11% and 50% in Jefferies Capital Partners V L.P. and the SBI USA Fund L.P. (together, “JCP Fund V”), respectively, which are private equity funds managed by a team led by Brian P. Friedman, one of our directors and our Chairman of the Executive Committee.

Jefferies Finance

On October 7, 2004, we entered into an agreement with Massachusetts Mutual Life Insurance Company (“MassMutual”) and Babson Capital Management LLC (which is now Barings, LLC) to form Jefferies Finance, a joint venture entity. Jefferies Finance is a commercial finance company whose primary focus is the origination and syndication of senior secured debt to middle market and growth companies in the form of term and revolving loans. Loans are originated primarily through the investment banking efforts of Jefferies. Jefferies Finance may also originate other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. Jefferies Finance also purchases syndicated loans in the secondary market.

At November 30, 2016, we and MassMutual each have equity commitments to Jefferies Finance of $600.0 million for a combined total commitment of $1.2 billion. At November 30, 2016, we have funded $493.9 million of our $600.0 million commitment, leaving $106.1 million unfunded. The investment commitment is scheduled to expire on March 1, 2017 with automatic one year extensions absent a 60 day termination notice by either party.

Jefferies Finance has executed a Secured Revolving Credit Facility with us and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance. The Secured Revolving Credit Facility bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total Secured Revolving Credit Facility is a committed amount of $500.0 million, at November 30, 2016. Advances are shared equally between us and MassMutual. The facility is scheduled to mature on March 1, 2017 with automatic one year extensions absent a 60 day termination notice by either party. At November 30, 2016 and 2015, we have funded $0.0 and $19.3 million, respectively, of each of our $250.0 million and $250.0 million commitments, respectively. During the years ended November 30, 2016, 2015 and 2014, we earned interest income of $0.1 million, $0.9 million, $2.0 million, respectively, and unfunded commitment fees of $1.2 million, $1.6 million and $1.9 million, respectively, which are included in the Consolidated Statements of Earnings related to the Secured Revolving Credit Facility.

The following is a summary of selected financial information for Jefferies Finance (in millions):



	November 30,
	2016		2015
Total assets	$	7,277.3	$	7,292.1
Total liabilities	6,336.3		6,297.3
Total equity	941.1		994.8
Our total equity balance	470.5		497.4

Separate financial statements for Jefferies Finance are included in this Annual Report on Form 10-K. The results of Jefferies Finance were a net loss of $(19.6) million for the year ended November 30, 2016, and net earnings of $83.4 million and $138.6 million for the years ended November 30, 2015 and 2014, respectively.

We engage in debt capital markets transactions with Jefferies Finance related to the originations of loans by Jefferies Finance. In connection with such transactions, we earned fees of $112.6 million, $122.7 million and $199.5 million, during the years ended November 30, 2016, 2015 and 2014, respectively, which are recognized in Investment banking revenues in the Consolidated Statements of Earnings. In addition, we paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance of $0.5 million, $5.9 million and $10.6 million during the years ended November 30, 2016, 2015 and 2014, respectively, which are recognized as Business development expenses in the Consolidated Statements of Earnings.

We acted as placement agent in connection with several CLOs managed by Jefferies Finance, for which we recognized fees of $2.6 million, $6.2 million and $4.6 million during the years ended November 30, 2016, 2015 and 2014, respectively, which are included in Investment banking revenues on the Consolidated Statement of Earnings. At November 30, 2016 and 2015, we held securities issued by CLOs managed by Jefferies Finance, which are included within Financial instruments owned, and provided a guarantee whereby we are required to make certain payments to a CLO in the event that Jefferies Finance is unable to meet its obligations to the CLO. Additionally, we have entered into participation agreements and derivative contracts with Jefferies Finance based on certain securities issued by the CLO.

We acted as underwriter in connection with senior notes issued by Jefferies Finance, for which we recognized underwriting fees of $1.3 million and $7.7 million during the years ended November 30, 2015 and 2014, respectively.

Under a service agreement, we charged Jefferies Finance $46.1 million, $51.7 million, and $41.6 million for services provided during the years ended November 30, 2016, 2015 and 2014, respectively. At November 30, 2016, we had a payable to Jefferies Finance, included within Accrued expenses and other liabilities on the Consolidated Statements of Financial Condition, of $5.8 million. At November 30, 2015 we had a receivable from Jefferies Finance, included within Other assets on the Consolidated Statements of Financial Condition, of $7.8 million.

Jefferies LoanCore

On February 23, 2011, we entered into a joint venture agreement with the Government of Singapore Investment Corporation (“GIC”) and LoanCore, LLC and formed Jefferies LoanCore, a commercial real estate finance company. In March 2016, the Canada Pension Plan Investment Board acquired a 24% equity interest in Jefferies LoanCore through a direct acquisition from the GIC. Jefferies LoanCore originates and purchases commercial real estate loans throughout the U.S. with the support of the investment banking and securitization capabilities of Jefferies and the real estate and mortgage investment expertise of the GIC and LoanCore, LLC. During the year ended November 30, 2016, Jefferies LoanCore’s aggregate equity commitments were reduced from $600.0 million to $400.0 million. At November 30, 2016 and 2015, we had funded $70.1 million and $207.4 million, respectively, of each of our $194.0 million and $291.0 million equity commitments, respectively, and have a 48.5% voting interest in Jefferies LoanCore.

The following is a summary of selected financial information for Jefferies LoanCore (in millions):



	November 30,
	2016		2015
Total assets	$	1,827.2	$	2,069.1
Total liabilities	1,505.0		1,469.8
Total equity	322.2		599.3
Our total equity balance	156.3		290.7

Separate financial statements for Jefferies LoanCore are included in this Annual Report on Form 10-K. The net earnings of Jefferies LoanCore were $71.8 million, $79.0 million and $38.7 million for the years ended November 30, 2016, 2015 and 2014, respectively.

Under a service agreement, we charged Jefferies LoanCore $0.2 million, $0.2 million and $0.1 million during the years ended November 30, 2016, 2015 and 2014, respectively, for administrative services. Receivables from Jefferies LoanCore, included within Other assets on the Consolidated Statements of Financial Condition, were $16,000 and $16,000 at November 30, 2016 and 2015, respectively.

In connection with the securitization of commercial real estate loans originated by Jefferies LoanCore, we earned placement fees of $0.1 million, $1.6 million and $1.6 million during the years ended November 30, 2016, 2015 and 2014, respectively.

JCP Fund V

The amount of our investments in JCP Fund V included within Investments in managed funds on the Consolidated Statements of Financial Condition was $29.1 million and $29.7 million at November 30, 2016 and 2015, respectively. We account for these investments at fair value based on the NAV of the funds provided by the fund managers (see Note 2, Summary of Significant Accounting Policies). Losses from these investments were $1.1 million, $24.3 million and $10.3 million for the years ended November 30, 2016, 2015 and 2014, respectively, and are included in Asset management fees and investment income (loss) from managed funds in the Consolidated Statements of Earnings.

At November 30, 2016 and 2015, we were committed to invest equity of up to $85.0 million in JCP Fund V. At November 30, 2016, our unfunded commitment relating to JCP Fund V was $11.3 million.

The following is a summary of selected financial information for 100.0% of JCP Fund V, in which we own effectively 35.2% of the combined equity interests (in thousands):



	September 30, 2016 (1)		December 31, 2015 (1)
Total assets	$	82,869	$	76,555
Total liabilities	73		99
Total partners’ capital	82,616		76,456



	Nine Months Ended September 30, 2016 (1)		Three Months Ended December 31, 2015 (1)			Nine Months Ended September 30, 2015 (1)			Three Months Ended December 31, 2014 (1)			Nine Months Ended September 30, 2014 (1)			Three Months Ended December 31, 2013 (1)
Net increase (decrease) in net assets resulting from operations	$	6,159	$	(7,886	)	$	(1,751	)	$	(65,700	)	$	(24,239	)	$	(2,947	)


(1)	Financial information for JCP Fund V within our financial position and results of operations at November 30, 2016 and 2015 and for the years ended November 30, 2016, 2015 and 2014 is included based on the presented periods.

KCG

At November 30, 2016, we owned approximately 24% of the outstanding common stock of KCG. We elected to record our investment in KCG at fair value under the fair value option as the investment was acquired as part of our capital markets activities. The valuation of our investment at November 30, 2016 is based on the closing exchange price of KCG and included within Level 1 of the fair value hierarchy. Changes in the fair value of our investment in KCG were $19.6 million, $49.1 million and $(14.7) million for the years ended November 30, 2016, 2015 and 2014, respectively, and are recognized in Principal transactions revenues on the Consolidated Statements of Earnings.

The following is a summary of selected financial information for KCG at December 31, 2016 and 2015, the most recently available public financial information for the company (in millions):



	December 31,
	2016		2015
Total assets	$	6,260.8	$	6,040.5
Total liabilities	4,903.5		4,596.4
Total equity	1,357.3		1,444.1

For the years ended December 31, 2016, 2015 and 2014, KCG reported net income of $255.7 million, $249.1 million and $61.1 million, respectively.

In connection with a KCG shares and warrants exchange transaction, we earned advisory fees of $2.9 million during the year ended November 30, 2016.

We have separately entered into securities lending transactions with KCG in the normal course of our capital markets activities. The balances of securities borrowed and securities loaned were $9.2 million and $9.2 million, respectively, at November 30, 2016, and $6.3 million and $16.5 million, respectively, at November 30, 2015.