Fair Value Measurements

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

5. FAIR VALUE MEASUREMENTS

Lazard categorizes its investments and certain other assets and liabilities recorded at fair value into a three-level fair value hierarchy as follows:

Level 1. Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Lazard has the ability to access.

Level 2. Assets and liabilities whose values are based on (i) quoted prices for similar assets or liabilities in an active market, or quoted prices for identical or similar assets or liabilities in non-active markets, (ii) assets valued based on net asset value (“NAV”) or its equivalent redeemable at the measurement date or within the near term without redemption restrictions, or (iii) inputs other than quoted prices that are directly observable or derived principally from, or corroborated by, market data.

Level 3. Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our own assumptions about the assumptions a market participant would use in pricing the asset or liability. Items included in Level 3 include securities or other financial assets whose trading volume and level of activity have significantly decreased when compared with normal market activity and there is no longer sufficient frequency or volume to provide pricing information on an ongoing basis, as well as assets valued based on NAV or its equivalent, but not redeemable within the near term as a result of redemption restrictions.

The Company’s investments in non-U.S. Government and other debt securities are classified as Level 1 when their respective fair values are based on unadjusted quoted prices in active markets and are classified as Level 2 when their fair values are primarily based on prices as provided by external pricing services.

The fair value of equities is classified as Level 1 or Level 3 as follows: marketable equity securities are classified as Level 1 and are valued based on the last trade price on the primary exchange for that security as provided by external pricing services; equity securities in private companies are generally classified as Level 3.

The fair value of investments in alternative investment funds is classified as Level 2 and is valued at NAV or its equivalent, which is primarily determined based on information provided by external fund administrators. Such investments are redeemable within the near term.

The fair value of investments in debt funds is classified as Level 1 when the fair values are primarily based on the publicly reported closing price for the fund, and classified as Level 2 when the fair values are primarily based on NAV or its equivalent and are redeemable within the near term.

The fair value of investments in equity funds is classified as Level 1 or 2 as follows: publicly traded asset management funds are classified as Level 1 and are valued based on the reported closing price for the fund; and investments in asset management funds redeemable in the near term are classified as Level 2 and are valued at NAV or its equivalent, which is primarily determined based on information provided by external fund administrators.

The fair value of investments in private equity funds is classified as Level 3, and is primarily based on NAV or its equivalent. Such investments are not redeemable within the near term.

The fair values of derivatives entered into by the Company are classified as Level 2 and are based on the values of the related underlying assets, indices or reference rates as follows - the fair value of forward foreign currency exchange rate contracts is a function of the spot rate and the interest rate differential of the two currencies from the trade date to settlement date; the fair value of total return swaps is based on the change in fair values of the related underlying equity security, financial instrument or index and a specified notional holding; the fair value of interest rate swaps is based on the interest rate yield curve; and the fair value of derivative liabilities related to LFI and other similar deferred compensation arrangements is based on the value of the underlying investments, adjusted for forfeitures. See Note 6 of Notes to Condensed Consolidated Financial Statements.

Where reported information regarding an investment is based on data received from external fund administrators or pricing services, the Company reviews such information and classifies the investment at the relevant level within the fair value hierarchy.

The following tables present the classification of investments and certain other assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013 within the fair value hierarchy:

	June 30, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Debt (excluding interest-bearing deposits)	$	1,161	$	4,767	$	–	$	5,928
Equities		68,781		–		1,370		70,151
Funds:
Alternative investments		–		36,421		–		36,421
Debt		85,017		4		–		85,021
Equity		215,929		43		–		215,972
Private equity		–		–		116,895		116,895
Derivatives		–		40		–		40
Total	$	370,888	$	41,275	$	118,265	$	530,428
Liabilities:
Securities sold, not yet purchased	$	8,098	$	–	$	–	$	8,098
Derivatives		–		222,318		–		222,318
Total	$	8,098	$	222,318	$	–	$	230,416

	December 31, 2013
	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Debt (excluding interest-bearing deposits)	$	1,681	$	6,332	$	–	$	8,013
Equities		58,054		–		1,340		59,394
Funds:
Alternative investments		–		37,030		–		37,030
Debt		58,765		4		–		58,769
Equity		190,660		42		–		190,702
Private equity		–		–		114,193		114,193
Derivatives		–		682		–		682
Total	$	309,160	$	44,090	$	115,533	$	468,783
Liabilities:
Securities sold, not yet purchased	$	4,045	$	–	$	–	$	4,045
Derivatives		–		164,001		–		164,001
Total	$	4,045	$	164,001	$	–	$	168,046

The following tables provide a summary of changes in fair value of the Company’s Level 3 assets for the three month and six month periods ended June 30, 2014 and 2013:

	Three Months Ended June 30, 2014
	Beginning Balance		Net  Unrealized/ Realized Gains (Losses) Included In Revenue- Other (a)		Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments			Ending Balance
Investments:
Equities	$	1,337	$	12	$	–	$	–		$	21		$	1,370
Private equity funds		115,537		1,254		864		(416	)		(344	)		116,895
Total Level 3 Assets	$	116,874	$	1,266	$	864	$	(416	)	$	(323	)	$	118,265

	Six Months Ended June 30, 2014
	Beginning Balance		Net  Unrealized/ Realized Gains (Losses) Included In Revenue- Other (a)		Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments			Ending Balance
Investments:
Equities	$	1,340	$	14	$	–	$	–		$	16		$	1,370
Private equity funds		114,193		6,836		1,211		(5,085	)		(260	)		116,895
Total Level 3 Assets	$	115,533	$	6,850	$	1,211	$	(5,085	)	$	(244	)	$	118,265

	Three Months Ended June 30, 2013
	Beginning Balance		Net  Unrealized/ Realized Gains (Losses) Included In Revenue- Other (a)		Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments		Ending Balance
Investments:
Equities	$	184	$	6	$	445	$	–		$	2	$	637
Alternative investment funds		1,304		34		–		(1,327	)		–		11
Private equity funds		110,496		3,056		3,259		(4,612	)		634		112,833
Total Level 3 Assets	$	111,984	$	3,096	$	3,704	$	(5,939	)	$	636	$	113,481

	Six Months Ended June 30, 2013
	Beginning Balance		Net  Unrealized/ Realized Gains (Losses) Included In Revenue- Other (a)		Purchases/ Acquisitions		Sales/ Dispositions			Foreign Currency Translation Adjustments			Ending Balance
Investments:
Equities	$	190	$	6	$	445	$	–		$	(4	)	$	637
Alternative investment funds		3,457		128		–		(3,574	)		–			11
Equity funds		10		–		–		(10	)		–			–
Private equity funds		112,444		3,738		3,259		(5,868	)		(740	)		112,833
Total Level 3 Assets	$	116,101	$	3,872	$	3,704	$	(9,452	)	$	(744	)	$	113,481

(a) Earnings for the three month and six month periods ended June 30, 2014 and the three month and six month periods ended June 30, 2013 include net unrealized gains of $1,123, $5,536, $2,657 and $3,327, respectively.

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy during the three month and six month periods ended June 30, 2014 and 2013.

Fair Value of Certain Investments Based on NAV—The Company’s Level 2 and Level 3 investments at June 30, 2014 and December 31, 2013 include certain investments that are valued using NAV or its equivalent as a practical expedient in determining fair value. Information with respect thereto was as follows:

	June 30, 2014
					% of Fair Value Not Redeemable	Estimated Liquidation Period of Investments Not Redeemable			Investments Redeemable
	Fair value		Unfunded Commitments			% Next 5 Years	% 5-10 Years	% Thereafter	Redemption Frequency		Redemption Notice Period
Alternative investment funds:
Hedge funds	$	32,388	$	–	NA	NA	NA	NA		(a)	<30-60 days
Funds of funds		476		–	NA	NA	NA	NA		(b)	<30-90 days
Other		3,557		–	NA	NA	NA	NA		(c)	<30-60 days
Debt funds		4		–	NA	NA	NA	NA		(d)	30 days
Equity funds		43		–	NA	NA	NA	NA		(e)	30-90 days
Private equity funds:
Equity growth		72,457		26,441	100%	13%	62%	25%		NA	NA
Mezzanine debt		44,438		–	100%	–%	–%	100%		NA	NA
Total	$	153,363	$	26,441

(a) weekly (17%), monthly (64%) and quarterly (19%)

(b) monthly (98%) and quarterly (2%)

(c) daily (10%), weekly (2%) and monthly (88%)

(d) daily (100%)

(e) daily (14%), monthly (58%) and quarterly (28%)

	December 31, 2013
					% of Fair Value Not Redeemable	Estimated Liquidation Period of Investments Not Redeemable			Investments Redeemable
	Fair value		Unfunded Commitments			% Next 5 Years	% 5-10 Years	% Thereafter	Redemption Frequency		Redemption Notice Period
Alternative investment funds:
Hedge funds	$	31,837	$	–	NA	NA	NA	NA		(a)	<30-90 days
Funds of funds		475		–	NA	NA	NA	NA		(b)	<30-90 days
Other		4,718		–	NA	NA	NA	NA		(c)	<30-60 days
Debt funds		4		–	NA	NA	NA	NA		(d)	30 days
Equity funds		42		–	NA	NA	NA	NA		(e)	30-90 days
Private equity funds:
Equity growth		70,054		27,135	100%	17%	60%	23%		NA	NA
Mezzanine debt		44,139		–	100%	–%	–%	100%		NA	NA
Total	$	151,269	$	27,135

(a) weekly (17%), monthly (65%) and quarterly (18%)

(b) monthly (95%) and quarterly (5%)

(c) daily (7%), weekly (1%) and monthly (92%)

(d) daily (100%)

(e) daily (13%), monthly (58%) and quarterly (29%)

See Note 4 of Notes to Condensed Consolidated Financial Statements for discussion of significant investment strategies for investments with value based on NAV.

Investment Capital Funding Commitments—At June 30, 2014, the Company’s maximum unfunded commitments for capital contributions to investment funds arose from (i) commitments to CP II, which amounted to $1,782 for potential “follow-on investments” and/or for fund expenses through the earlier of February 25, 2017 or the liquidation of the fund, (ii) commitments to EGCP III, which amounted to $17,686, through the earlier of October 12, 2016 (i.e., the end of the investment period) for investments and/or expenses (with a portion of the undrawn amount of such commitments as of that date remaining committed until October 12, 2023 in respect of “follow-on investments” and/or fund expenses) or the liquidation of the fund and (iii) commitments to COF2, which amounted to $6,973, through the earlier of November 11, 2016 (i.e., the end of the investment period) for investments and/or fund expenses (with a portion of the undrawn amount of such commitments as of that date remaining committed until November 11, 2019 in respect of “follow-on investments” and/or fund expenses) or the liquidation of the fund.