DERIVATIVES AND HEDGING

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES AND HEDGING

DERIVATIVES AND HEDGING

The Company enters into derivatives as part of its overall risk management strategy or to facilitate its investment management activities. Risks associated with fluctuations in interest rates and foreign-currency exchange rates in the normal course of business are addressed as part of the Company’s overall risk management strategy that may include the use of derivatives to economically hedge or reduce these exposures. From time to time, the Company may enter into (a) foreign-currency option and forward contracts to reduce earnings and cash-flow volatility associated with changes in foreign-currency exchange rates, and (b) interest-rate swaps to manage all or a portion of the interest-rate risk associated with its variable-rate borrowings. As a result of the use of these or other derivative contracts, the Company is exposed to the risk that counterparties will fail to fulfill their contractual obligations. The Company attempts to mitigate this counterparty risk by entering into derivative contracts only with major financial institutions that have investment-grade credit ratings. Counterparty credit risk is evaluated in determining the fair value of derivatives.

As of June 30, 2016, the Company had one interest-rate swap outstanding, expiring in January 2017, that was designated to hedge the interest-rate risk covering up to $162.5 million of the $250.0 million variable-rate bank term loan.  As of June 30, 2016, the hedge continued to be effective. As of December 31, 2015, the Company had an additional interest-rate swap that expired in January 2016 and was designated to hedge the interest-rate risk covering up to $150.0 million of the same bank term loan.

Freestanding derivatives are financial instruments that the Company enters into as part of its overall risk management strategy but does not designate as hedging instruments for accounting purposes. These financial instruments may include foreign-currency exchange contracts, interest-rate swaps and other derivative contracts.

The fair value of foreign-currency forward sell contracts consisted of the following:

As of June 30, 2016	Contract  Amount in Local Currency	Contract  Amount in U.S. Dollars		Market  Value in U.S. Dollars		Net Unrealized Appreciation (Depreciation)
Euro, expiring 7/8/16-9/29/17	273,050	$	307,020	$	304,905	$	2,115
USD (buy GBP), expiring 7/29/16-7/31/17	92,963	92,963		102,697		(9,734		)
Japanese Yen, expiring 9/30/16	6,051,400	56,130		58,778		(2,648		)
Total		$	456,113	$	466,380	$	(10,267	)
As of December 31, 2015
Euro, expiring 1/8/16-12/30/16	246,850	$	274,135	$	269,603	$	4,532
USD (buy GBP), expiring 1/8/16-10/31/16	70,594	70,594		72,476		(1,882		)
Japanese Yen, expiring 1/29/16-9/30/16	5,840,300	48,631		48,692		(61		)
Total		$	393,360	$	390,771	$	2,589

Realized and unrealized gains and losses arising from freestanding derivative instruments were recorded in the condensed consolidated statements of operations as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
Foreign-currency Forward Contracts	2016			2015			2016			2015
Investment income	$	6,530		$	—		$	(2,371	)	$	—
General and administrative expense (1)	(8,221		)	(1,114		)	(18,112		)	22,841
Total	$	(1,691	)	$	(1,114	)	$	(20,483	)	$	22,841

(1) To the extent that the Company’s freestanding derivatives are utilized to hedge its foreign-currency exposure to investment income and management fees earned from consolidated funds, the related hedged items are eliminated in consolidation, with the derivative impact (a positive number reflects a reduction in expenses) reflected in consolidated general and administrative expense.

As of June 30, 2016 and December 31, 2015, the Company had not designated any derivatives as fair-value hedges or hedges of net investments in foreign operations.

Derivatives Held By Consolidated Funds

Certain consolidated funds utilize derivatives in their ongoing investment operations. These derivatives primarily consist of foreign-currency forward contracts and options utilized to manage currency risk, interest-rate swaps to hedge interest-rate risk, options and futures used to hedge certain exposures for specific securities, and total-return swaps utilized mainly to obtain exposure to leveraged loans or to participate in foreign markets not readily accessible. The primary risk exposure for options and futures is price, while the primary risk exposure for total-return swaps is credit. None of the derivative instruments is accounted for as a hedging instrument utilizing hedge accounting.

The impact of derivatives held by the consolidated funds in the condensed consolidated statements of operations was as follows:

	Three Months Ended June 30,
	2016					2015
	Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments		Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments
Foreign-currency forward contracts	$	(298	)	$	849	$	175,334		$	(339,448	)
Total-return and interest-rate swaps	(907		)	222		(2,248		)	(56,008		)
Options and futures	(764		)	60		(21,778		)	(5,150		)
Swaptions	—			—		(1,187		)	1,191
Total	$	(1,969	)	$	1,131	$	150,121		$	(399,415	)

	Six Months Ended June 30,
	2016						2015
	Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments			Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments
Foreign-currency forward contracts	$	(500	)	$	457		$	471,310		$	(319,064	)
Total-return and interest-rate swaps	(890		)	(1,396		)	(7,174		)	(116,226		)
Options and futures	(849		)	(83		)	(3,977		)	(16,299		)
Swaptions	—			—			(3,007		)	2,342
Total	$	(2,239	)	$	(1,022	)	$	457,152		$	(449,247	)

Balance Sheet Offsetting

The Company recognizes all derivatives as assets or liabilities at fair value in its condensed consolidated statements of financial condition. In connection with its derivative activities, the Company generally enters into agreements subject to enforceable master netting arrangements that allow the Company to offset derivative assets and liabilities in the same currency by specific derivative type or, in the event of default by the counterparty, to offset derivative assets and liabilities with the same counterparty. While these derivatives are eligible to be offset in accordance with applicable accounting guidance, the Company has elected to present derivative assets and liabilities based on gross fair value in its condensed consolidated statements of financial condition. The table below sets forth the setoff rights and related arrangements associated with derivatives held by the Company. The “gross amounts not offset in statements of financial condition” columns represent derivatives that management has elected not to offset in the consolidated statements of financial condition even though they are eligible to be offset in accordance with applicable accounting guidance.

	Gross and Net Amounts of Assets (Liabilities) Presented			Gross Amounts Not Offset in Statements of Financial Condition						Net Amount
As of June 30, 2016				Derivative Assets (Liabilities)			Cash Collateral Received (Pledged)
Derivative Assets:
Foreign-currency forward contracts	$	4,649		$	4,289		$	—		$	360
Derivative assets of consolidated funds:
Foreign-currency forward contracts	416			11			—			405
Options and futures	4			—			—			4
Subtotal	420			11			—			409
Total	$	5,069		$	4,300		$	—		$	769
Derivative Liabilities:
Foreign-currency forward contracts	$	(14,916	)	$	(4,289	)	$	—		$	(10,627	)
Interest-rate swaps	(712		)	—			—			(712		)
Subtotal	(15,628		)	(4,289		)	—			(11,339		)
Derivative liabilities of consolidated funds:
Foreign-currency forward contracts	(11		)	(11		)	—			—
Total-return and interest-rate swaps	(921		)	—			(921		)	—
Options and futures	(443		)	—			(443		)	—
Subtotal	(1,375		)	(11		)	(1,364		)	—
Total	$	(17,003	)	$	(4,300	)	$	(1,364	)	$	(11,339	)

	Gross and Net Amounts of Assets (Liabilities) Presented			Gross Amounts Not Offset in Statements of Financial Condition						Net Amount
As of December 31, 2015				Derivative Assets (Liabilities)			Cash Collateral Received (Pledged)
Derivative Assets:
Foreign-currency forward contracts	$	5,875		$	2,047		$	—		$	3,828
Derivative assets of consolidated funds:
Foreign-currency forward contracts	156,234			38,033			—			118,201
Total-return and interest-rate swaps	16,544			4,526			—			12,018
Options and futures	25,559			5,665			—			19,894
Swaptions	14			14			—			—
Subtotal	198,351			48,238			—			150,113
Total	$	204,226		$	50,285		$	—		$	153,941
Derivative Liabilities:
Foreign-currency forward contracts	$	(3,286	)	$	(2,047	)	$	—		$	(1,239	)
Interest-rate swaps	(943		)	—			—			(943		)
Subtotal	(4,229		)	(2,047		)	—			(2,182		)
Derivative liabilities of consolidated funds:
Foreign-currency forward contracts	(64,364		)	(38,788		)	—			(25,576		)
Total-return and interest-rate swaps	(231,610		)	(5,304		)	(202,677		)	(23,629		)
Options and futures	(4,234		)	(4,146		)	(88		)	—
Subtotal	(300,208		)	(48,238		)	(202,765		)	(49,205		)
Total	$	(304,437	)	$	(50,285	)	$	(202,765	)	$	(51,387	)