Investment Securities

12 Months Ended

Dec. 31, 2020

Investment Securities.

Investment Securities

Note 6 — Investment Securities

Our investment securities as of December 31, 2020 and 2019, are summarized as follows (in millions):

	December 31,		December 31,
	2020		2019
Seeded investment products:
Consolidated VIEs	$	214.6	$	924.8
Consolidated VREs		29.3		29.9
Unconsolidated VIEs and VREs		73.2		31.4
Separate accounts		63.5		60.8
Pooled investment funds		0.1		0.1
Total seeded investment products		380.7		1,047.0
Investments related to deferred compensation plans		96.5		125.9
Other investments		5.5		5.4
Total investment securities	$	482.7	$	1,178.3

Trading Securities

Net unrealized gains (losses) on investment securities held by us as of December 31, 2020, 2019 and 2018, are summarized as follows (in millions):

	Year ended
	December 31,
	2020		2019		2018
Unrealized gains (losses) on investment securities held at period end	$	69.8	$	19.2	$	(40.6)

Derivative Instruments

We maintain an economic hedge program that uses derivative instruments to mitigate against market volatility of certain seeded investments by using index and commodity futures (“futures”), index swaps, total return swaps (“TRSs”) and credit default swaps. Foreign currency exposures associated with our seeded investment products are also hedged by using foreign currency forward contracts. We also have a net investment hedge related to foreign currency translation on hedged seed investments denominated in currencies other than our functional currency.

We were a party to the following derivative instruments as of December 31, 2020 and 2019 (in millions):

	Notional value
	December 31, 2020		December 31, 2019
Futures	$	164.5	$	222.9
Credit default swaps		166.2		143.0
Total return swaps		35.6		46.3
Foreign currency forward contracts		205.0		327.8

The derivative instruments are not designated as hedges for accounting purposes, with the exception of certain foreign currency forward contracts used for net investment hedging. Changes in fair value of the futures, index swaps, TRSs and credit default swaps are recognized in investment gains (losses), net in our Consolidated Statements of Comprehensive Income. Changes in the fair value of the foreign currency forward contracts designated as hedges for accounting purposes are recognized in other comprehensive income (loss), net of tax on our Consolidated Statements of Comprehensive Income.

Derivative assets and liabilities are generally recognized on a gross basis and included in other current assets or accounts payable and accrued liabilities on the Consolidated Balance Sheets. As of December 31, 2020, derivative assets and liabilities were $9.1 million and $10.8 million, respectively.

We recognized the following foreign currency translation gains (losses) on hedged seed investments denominated in currencies other than our functional currency and gains (losses) associated with foreign currency forward contracts under net investment hedge accounting for the years ended December 31, 2020, 2019 and 2018 (in millions):

	Year ended December 31,
	2020		2019		2018
Foreign currency translation	$	3.7	$	(1.1)	$	(6.8)
Foreign currency forward contracts		(3.7)		1.1		6.8
Total	$	—	$	—	$	—

In addition to using derivative instruments to mitigate against market volatility of certain seeded investments, we also occasionally engage in short sales of securities. As of December 31, 2020, the fair value of securities sold but not yet purchased was $7.9 million. The cash received from the short sale and the obligation to repurchase the shares are classified in other current assets and accounts payable and accrued liabilities on our Consolidated Balance Sheets, respectively. Fair value adjustments are recognized in investment gains (losses), net on our Consolidated Statements of Comprehensive Income.

In January of 2021, we implemented a balance sheet foreign currency hedging program (the “Program”) with the objective of taking reasonable measures to minimize the effects of foreign currency remeasurement of monetary balance sheet accounts on the income statement. The program is not designed to eliminate all impacts of foreign currency risk, rather it is designed to reduce income statement volatility. The Program will utilize foreign currency forward contracts to achieve its objectives and it will be considered an economic hedge for accounting purposes.

Derivative Instruments in Consolidated Seeded Investment Products

Certain of our consolidated seeded investment products utilize derivative instruments to contribute to the achievement of defined investment objectives. These derivative instruments are classified within other current assets or accounts payable and accrued liabilities on our Consolidated Balance Sheets. Gains and losses on these derivative instruments are classified within investment gains (losses), net in our Consolidated Statements of Comprehensive Income.

Our consolidated seeded investment products were party to the following derivative instruments as of December 31, 2020 and 2019 (in millions):

	Notional Value
	December 31, 2020		December 31, 2019
Futures	$	57.0	$	88.3
Contracts for differences		—		15.5
Credit default swaps		1.5		0.1
Total return swaps		—		0.1
Interest rate swaps		75.0		19.4
Options		0.5		1.0
Foreign currency forward contracts		56.1		167.5

Investment Gains (Losses), Net

Investment gains (losses), net on our Consolidated Statements of Comprehensive Income included the following for the years ended December 31, 2020, 2019 and 2018 (in millions):

	Year ended December 31,
	2020		2019		2018
Seeded investment products and hedges, net	$	26.6	$	3.5	$	(17.3)
Third-party ownership interests in seeded investment products		20.1		17.2		(25.3)
Long Tail Alpha equity method investment		6.0		1.5		2.0
Deferred equity plan		2.1		9.5		(0.1)
Other		2.7		2.5		(0.2)
Investment gains (losses), net	$	57.5	$	34.2	$	(40.9)

Cash Flows

Cash flows related to our investment securities for the years ended December 31, 2020, 2019 and 2018, are summarized as follows (in millions):

	Year ended December 31,
	2020				2019				2018
			Sales,				Sales,				Sales,
	Purchases		settlements		Purchases		settlements		Purchases		settlements
	and		and		and		and		and		and
	settlements		maturities		settlements		maturities		settlements		maturities
Investment securities by consolidated seeded investment products	$	(103.9)	$	83.7	$	(903.3)	$	582.5	$	(596.4)	$	632.9
Investment securities		(120.4)		255.2		(192.5)		194.0		(29.9)		64.2