Segment Reporting

The Company conducts its operations through two segments: the alternative investment segment and the broker‑dealer segment. These activities are conducted primarily in the United States and substantially all of its revenues are generated domestically. The performance measure for these segments is Economic Income (Loss), which management uses to evaluate the financial performance of and make operating decisions for the segments including determining appropriate compensation levels.

In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds, (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction, (iii) excludes certain other acquisition-related and/or reorganization expenses and (iv) excludes goodwill impairment. In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities and the Company's investment in the Value and Opportunity business. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

As further stated below, one major difference between Economic Income (Loss) and US GAAP net income (Loss) is that Economic Income (Loss) presents the segments' results of operations without the impact resulting from the full consolidation of any of the Consolidated Funds. Consolidation of these funds results in including in income the pro rata share of the income or loss attributable to other owners of such entities which is reflected in net income (loss) attributable to redeemable non-controlling interest in consolidated subsidiaries in the consolidated statements of operations. This pro rata share has no effect on the overall financial performance for the alternative investment management segment, as ultimately, this income or loss is not income or loss for the alternative investment management segment itself. Included in Economic Income (Loss) is the actual pro rata share of the income or loss attributable to the Company as an investor in such entities, which is relevant in management making operating decisions and evaluating financial performance.

The following tables set forth operating results for the Company's alternative investment and broker dealer segments and related adjustments necessary to reconcile the Company's Economic Income (Loss) measure to arrive at the Company's consolidated US GAAP net income (loss):



	Three Months Ended March 31, 2012
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	15,630		$	15,630		$	—		$	—			$	15,630
Brokerage	—			24,013			24,013			—			—				24,013
Management fees	14,020			—			14,020			(393		)	(3,910		)	(a)	9,717
Incentive income	4,022			—			4,022			—			(3,331		)	(a)	691
Investment Income	16,803			4,302			21,105			—			(21,105		)	(c)	—
Interest and dividends	—			—			—			—			5,372			(c)	5,372
Reimbursement from affiliates	—			—			—			(71		)	1,116			(b)	1,045
Other revenue	124			260			384			—			483			(c)	867
Consolidated Funds revenues	—			—			—			145			—				145
Total revenues	34,969			44,205			79,174			(319		)	(21,375		)		57,480
Expenses
Employee compensation and benefits	17,446			28,463			45,909			—			774				46,683
Interest and dividends	19			69			88			—			1,636			(c)	1,724
Non-compensation expenses—Fixed	6,969			14,274			21,243			—			(21,243		)	(c)(d)	—
Non-compensation expenses—Variable	1,309			5,566			6,875			—			(6,875		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			27,957			(c)(d)	27,957
Reimbursement from affiliates	(1,116		)	—			(1,116		)	—			1,116			(b)	—
Consolidated Funds expenses	—			—			—			375			—				375
Total expenses	24,627			48,372			72,999			375			3,365				76,739
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—			—			—			19,671			(c)	19,671
Consolidated Funds net gains (losses)	—			—			—			2,641			3,325				5,966
Total other income (loss)	—			—			—			2,641			22,996				25,637
Income (loss) before income taxes and non-controlling interests	10,342			(4,167		)	6,175			1,947			(1,744		)		6,378
Income taxes expense / (benefit)	—			—			—			—			142			(b)	142
Economic Income (Loss) / Net income (loss) before non-controlling interests	10,342			(4,167		)	6,175			1,947			(1,886		)		6,236
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(300		)	—			(300		)	(1,947		)	6				(2,241		)
Economic Income (Loss) / Net income (loss) attributable to Cowen Group, Inc. stockholders	$	10,042		$	(4,167	)	$	5,875		$	—		$	(1,880	)		$	3,995

(1) For the three months ended March 31, 2012 the Company has reflected $4.2 million of investment income and related compensation expense of $1.4 million within the broker-dealer segment in proportion to its capital.



	Three Months Ended March 31, 2011
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	14,682		$	14,682		$	—		$	—			$	14,682
Brokerage	63			27,528			27,591			—			—				27,591
Management fees	14,047			—			14,047			(514		)	(2,369		)	(a)	11,164
Incentive income	5,163			—			5,163			—			(782		)	(a)	4,381
Investment Income	11,033			6,176			17,209			—			(17,209		)	(c)	—
Interest and dividends	—			—			—			—			4,559			(c)	4,559
Reimbursement from affiliates	—			—			—			(159		)	1,168			(b)	1,009
Other revenue	1,252			(198		)	1,054			—			(364		)	(c)	690
Consolidated Funds revenues	—			—			—			169			—				169
Total revenues	31,558			48,188			79,746			(504		)	(14,997		)		64,245
Expenses
Employee compensation and benefits	15,834			26,903			42,737			—			2,350				45,087
Interest and dividends	56			161			217			—			2,392			(c)	2,609
Non-compensation expenses—Fixed	6,994			14,593			21,587			—			(21,587		)	(c)(d)	—
Non-compensation expenses—Variable	2,096			6,852			8,948			—			(8,948		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			33,907			(c)(d)	33,907
Reimbursement from affiliates	(1,169		)	—			(1,169		)	—			1,169			(b)	—
Consolidated Funds expenses	—			—			—			628			—				628
Total expenses	23,811			48,509			72,320			628			9,283				82,231
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—			—			—			17,283			(c)	17,283
Consolidated Funds net gains (losses)	—			—			—			1,455			291				1,746
Total other income (loss)	—			—			—			1,455			17,574				19,029
Income (loss) before income taxes and non-controlling interests	7,747			(321		)	7,426			323			(6,706		)		1,043
Income taxes expense / (benefit)	—			—			—			—			163			(b)	163
Economic Income (Loss) / Net income (loss) before non-controlling interests	7,747			(321		)	7,426			323			(6,869		)		880
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(475		)	—			(475		)	(323		)	—				(798		)
Economic Income (Loss) / Net income (loss) attributable to Cowen Group, Inc. stockholders	$	7,272		$	(321	)	$	6,951		$	—		$	(6,869	)		$	82

(1) For the three months ended March 31, 2011, the Company has reflected $6.4 million of investment income and related compensation expense of $1.9 million within the broker-dealer segment in proportion to its capital.

The following is a summary of the adjustments made to US GAAP net income (loss) for the segment to arrive at

Economic Income:

Funds Consolidation: The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income (Loss). Adjustments to reconcile to US GAAP net income include elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

Other Adjustments:

(a) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share

of management and incentive fees of certain real estate operating entities and the activist business (2012 only).

(b) Economic Income (Loss) excludes income taxes as management does not consider this item when evaluating the

performance of the segment. Also, reimbursement from affiliates is shown as a reduction of Economic Income

expenses, but is included as a part of revenues under US GAAP.

(d) Economic Income (Loss) recognizes the Company's proportionate share of expenses for certain real estate and other

operating entities for which the investments are recorded under the equity method of accounting for investments.

For the three months ended March 31, 2012 and 2011, there was no one fund or other customer which represented more than 10% of the Company's total revenues. Primarily all of the revenues earned by the alternative investment segment were from related parties for the three months ended March 31, 2012 and 2011. There were no revenues earned from related parties by the broker dealer segment in the three months ended March 31, 2012 and 2011.