DERIVATIVES AND HEDGING

6 Months Ended

Jun. 30, 2017

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.

When the Company enters into a derivative contract, the Company may elect to designate the derivative as a hedging instrument and apply hedge accounting as part of its overall risk management strategy. In other situations, when a derivative does not qualify for hedge accounting or when the derivative and the hedged item are both recorded in current-period earnings and thus deemed to be economic hedges, hedge accounting is not applied. Freestanding derivatives are financial instruments that the Company enters into as part of its overall risk management strategy but does not utilize hedge accounting. These financial instruments may include foreign-currency exchange contracts, interest-rate swaps and other derivative contracts.

As of June 30, 2017, there were no derivatives outstanding that were designated as hedging instruments for accounting purposes. As of December 31, 2016, the Company had one interest-rate swap outstanding, which expired in January 2017, that was designated to hedge the interest-rate risk of the $150.0 million outstanding principal balance remaining under the $250.0 million variable-rate bank term loan. 

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

As of June 30, 2017:	Contract  Amount in Local Currency	Contract  Amount in U.S. Dollars		Market  Value in U.S. Dollars		Net Unrealized Appreciation (Depreciation)
Euro, expiring 7/10/17-6/29/18	270,700	$	301,904	$	312,802	$	(10,898	)
USD (buy GBP), expiring 7/31/17-6/29/18	63,920	63,920		63,088		832
CHF, expiring 12/29/17	5,300	5,418		5,590		(172		)
Japanese Yen, expiring 9/29/17-11/30/17	6,145,000	55,307		54,863		444
Total		$	426,549	$	436,343	$	(9,794	)
As of December 31, 2016:
Euro, expiring 1/9/17-12/29/17	242,100	$	271,848	$	257,652	$	14,196
USD (buy GBP), expiring 1/31/17-12/29/17	72,565	72,565		78,143		(5,578		)
Japanese Yen, expiring 1/31/17-2/28/17	6,150,000	52,511		52,792		(281		)
Total		$	396,924	$	388,587	$	8,337

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	2017			2016			2017			2016
Investment income	$	(8,455	)	$	6,530		$	(9,328	)	$	(2,371	)
General and administrative expense (1)	(6,268		)	(8,221		)	(8,951		)	(18,112		)
Total	$	(14,723	)	$	(1,691	)	$	(18,279	)	$	(20,483	)

(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.

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,
	2017						2016
	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	$	(569	)	$	(96	)	$	(298	)	$	849
Total-return and interest-rate swaps	(722		)	(237		)	(907		)	222
Options and futures	29			76			(764		)	60
Total	$	(1,262	)	$	(257	)	$	(1,969	)	$	1,131

	Six Months Ended June 30,
	2017						2016
	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	$	(390	)	$	(410	)	$	(500	)	$	457
Total-return and interest-rate swaps	(1,468		)	998			(890		)	(1,396		)
Options and futures	(2,015		)	266			(849		)	(83		)
Total	$	(3,873	)	$	854		$	(2,239	)	$	(1,022	)

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, 2017:				Derivative Assets (Liabilities)			Cash Collateral Received (Pledged)
Derivative Assets:
Foreign-currency forward contracts	$	3,102		$	3,102		$	—		$	—
Derivative assets of consolidated funds:
Foreign-currency forward contracts	117			117			—			—
Total-return and interest-rate swaps	361			26			—			335
Subtotal	478			143			—			335
Total	$	3,580		$	3,245		$	—		$	335
Derivative Liabilities:
Foreign-currency forward contracts	$	(12,896	)	$	(3,102	)	$	—		$	(9,794	)
Derivative liabilities of consolidated funds:
Foreign-currency forward contracts	(735		)	(117		)	—			(618		)
Total-return and interest-rate swaps	(37		)	(26		)	(11		)	—
Subtotal	(772		)	(143		)	(11		)	(618		)
Total	$	(13,668	)	$	(3,245	)	$	(11	)	$	(10,412	)

	Gross and Net Amounts of Assets (Liabilities) Presented			Gross Amounts Not Offset in Statements of Financial Condition						Net Amount
As of December 31, 2016:				Derivative Assets (Liabilities)			Cash Collateral Received (Pledged)
Derivative Assets:
Foreign-currency forward contracts	$	16,142		$	7,805		$	—		$	8,337
Derivative assets of consolidated funds:
Foreign-currency forward contracts	216			4			—			212
Total-return and interest-rate swaps	141			141			—			—
Subtotal	357			145			—			212
Total	$	16,499		$	7,950		$	—		$	8,549
Derivative Liabilities:
Foreign-currency forward contracts	$	(7,805	)	$	(7,805	)	$	—		$	—
Interest-rate swaps	(60		)				—			(60		)
Subtotal	(7,865		)	(7,805		)	—			(60		)
Derivative liabilities of consolidated funds:
Foreign-currency forward contracts	(4		)	(4		)	—			—
Total-return and interest-rate swaps	(1,082		)	(141		)	(941		)	—
Subtotal	(1,086		)	(145		)	(941		)	—
Total	$	(8,951	)	$	(7,950	)	$	(941	)	$	(60	)