Fair Value Measurements for Operating Entities and Consolidated Funds

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements for Operating Entities and Consolidated Funds

Fair Value Measurements for Operating Entities and Consolidated Funds

The following table presents the assets and liabilities that are measured at fair value on a recurring basis on the condensed consolidated statements of financial condition by caption and by level within the valuation hierarchy as of September 30, 2012 and December 31, 2011:

Operating Entities

	Assets at Fair Value as of September 30, 2012
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned and derivatives
US Government securities	$	95,038	$	—	$	—	$	95,038
Common stocks	297,987		43		2,960		300,990
Convertible bonds	—		50,854		—		50,854
Corporate bonds	—		168,021		—		168,021
Futures	653		—		—		653
Currency forwards	—		418		—		418
Options	23,298		3,245		—		26,543
Warrants and rights	374		—		4,062		4,436
Mutual funds	2,890		—		—		2,890
Other investments
Portfolio Funds	—		26,794		20,493		47,287
Real estate investments	—		—		2,102		2,102
Lehman claim	—		—		761		761
	$	420,240	$	249,375	$	30,378	$	699,993

	Liabilities at Fair Value as of September 30, 2012
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Securities sold, not yet purchased and derivatives
US Government securities	$	8	$	—	$	—	$	8
Common stocks	195,911		—		—		195,911
Corporate bonds	—		61		—		61
Futures	101		—		—		101
Currency forwards	—		21		—		21
Options	14,725		—		—		14,725
	$	210,745	$	82	$	—	$	210,827

	Assets at Fair Value as of December 31, 2011
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned and derivatives
US Government securities	$	182,868	$	—	$	—	$	182,868
Common stocks	248,598		713		1,069		250,380
Convertible bonds	—		18,130		—		18,130
Corporate bonds	—		231,864		—		231,864
Futures	172		—		—		172
Equity swaps	—		635		—		635
Options	55,530		169		—		55,699
Warrants and rights	1,225		—		1,534		2,759
Mutual funds	3,214		—		—		3,214
Other investments
Portfolio Funds	—		23,431		16,919		40,350
Real estate investments	—		—		2,353		2,353
Lehman claim	—		—		553		553
	$	491,607	$	274,942	$	22,428	$	788,977

	Liabilities at Fair Value as of December 31, 2011
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Securities sold, not yet purchased and derivatives
US Government securities	$	165,197	$	—	$	—	$	165,197
Common stocks	123,875		2		—		123,877
Corporate bonds	—		1,529		—		1,529
Futures	617		—		—		617
Equity swaps—short exposure	—		140		—		140
Options	43,648		—		—		43,648
	$	333,337	$	1,671	$	—	$	335,008

Consolidated Funds' investments

	Assets at Fair Value as of September 30, 2012
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned
US Government securities	$	1,501	$	—	$	—	$	1,501
Commercial paper	—		1,594		—		1,594
Other investments
Portfolio Funds	—		10,438		187,797		198,235
Lehman claims	—		—		6,860		6,860
	$	1,501	$	12,032	$	194,657	$	208,190

	Assets at Fair Value as of December 31, 2011
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned
US Government securities	$	2,006	$	—	$	—	$	2,006
Commercial paper	—		3,927		—		3,927
Corporate bonds	—		401		—		401
Other investments
Portfolio Funds	—		8,078		213,402		221,480
Lehman claims	—		—		7,340		7,340
	$	2,006	$	12,406	$	220,742	$	235,154

The following table includes a rollforward of the amounts for the three and nine months endedSeptember 30, 2012 and 2011 for financial instruments classified within level 3. The classification of a financial instrument within level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement.

	Three Months Ended September 30, 2012 and 2011
	Operating Entities																						Consolidated Funds
	Common stocks			Common stocks, sold not yet purchased		Restricted Common Stock			Warrants and Rights			Warrants and Rights, sold not yet purchased			Portfolio Funds			Real estate			Lehman claim		Portfolio Funds			Lehman claim
	(dollars in thousands)
Balance at June 30, 2012	$	959		$	—	$	—		$	2,844		$	3		$	19,876		$	2,079		$	731	$	209,507		$	6,538
Transfers in	—			—		—			—			—			—			—			—		—			—
Transfers out	—			—		—			—			—			—			—			—		—			—
Purchases/(covers)	2,000			—		—			341			—			320			—			—		—			—
(Sales)/short buys	—			—		—			—			—			(361		)	—			—		(19,233		)	—
Realized gains (losses)	—			—		—			—			(3		)	(48		)	—			—		182			—
Unrealized gains (losses)	1			—		—			877			—			706			23			30		(2,659		)	322
Balance at September 30, 2012	$	2,960		$	—	$	—		$	4,062		$	—		$	20,493		$	2,102		$	761	$	187,797		$	6,860
Balance at June 30, 2011	$	953		$	—	$	5,000		$	3,534		$	—		$	17,744		$	2,289		$	501	$	239,588		$	7,320
Transfers in	—			—		—			—			—			—			—			—		—			—
Transfers out	—			—		—			—			—			—			—			—		—			—
Purchases/(covers)	19			—		—			40			—			7,356			17			—		1			—
(Sales)/short buys	(135		)	—		(4,857		)	(36		)	—			(11,648		)	(1		)	—		(16,320		)	—
Realized gains (losses)	135			—		(143		)	—			—			1			—			—		68			—
Unrealized gains (losses)	(160		)	—		—			(2,184		)	—			456			2			—		(4,181		)	(125		)
Balance at September 30, 2011	$	812		$	—	$	—		$	1,354		$	—		$	13,909		$	2,307		$	501	$	219,156		$	7,195

	Nine Months Ended September 30, 2012 and 2011
	Operating Entities																									Consolidated Funds
	Common stocks			Common stocks, sold not yet purchased			Restricted Common Stock			Warrants and Rights				Warrants and Rights, sold not yet purchased				Portfolio Funds			Real estate			Lehman claim		Portfolio Funds				Lehman claim
	(dollars in thousands)
Balance at December 31, 2011	$	1,069		$	—		$	—		$	1,534			$	—			$	16,919		$	2,353		$	553	$	213,402			$	7,340
Transfers in	—			—			—			—				—				—			—			—		16,227			(a)	—
Transfers out	—			—			—			(88		)	(b)	(1,004		)	(c)	—			—			—		(17,151		)	(a)	—
Purchases/(covers)	2,000			—			—			623				(306		)		3,171			152			—		434				—
(Sales)/short buys	(6		)	—			—			(65		)		982				(1,175		)	(501		)	—		(24,259		)		(2,291		)
Realized gains (losses)	6			—			—			56				(38		)		(41		)	—			—		(1,510		)		1,914
Unrealized gains (losses)	(109		)	—			—			2,002				366				1,619			98			208		654				(103		)
Balance at September 30, 2012	$	2,960		$	—		$	—		$	4,062			$	—			$	20,493		$	2,102		$	761	$	187,797			$	6,860
Balance at December 31, 2010	$	334		$	—		$	5,000		$	1,977			$	—			$	17,081		$	1,882		$	313	$	311,242			$	6,243
Transfers in	—			—			—			—				—				—			—			—		—				—
Transfers out	—			—			—			—				—				—			—			—		—				—
Purchases/(covers)	678			(978		)	—			105				—				43,929			254			—		2				—
(Sales)/short buys	(544		)	833			(4,857		)	(84		)		—				(48,377		)	(6		)	—		(97,244		)		—
Realized gains (losses)	135			145			(143		)	48				—				108			—			—		2,444				—
Unrealized gains (losses)	209			—			—			(692		)		—				1,168			177			188		2,712				952
Balance at September 30, 2011	$	812		$	—		$	—		$	1,354			$	—			$	13,909		$	2,307		$	501	$	219,156			$	7,195

(a) Change in consolidated funds (see Note 3b).

(b) The security was listed on an exchange subsequent to a private funding.

(c) The security began trading on an exchange due to a business combination.

All realized and unrealized gains (losses) in the table above are reflected in other income (loss) in the accompanying condensed consolidated statements of operations.

Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. These include assets such as goodwill and intangibles.

The Company recognizes all transfers at the beginning of the reporting period and related unrealized gain (loss) is also transferred at the beginning of the reporting period.

Transfers between level 1 and 2 generally relate to whether the principal market for the security becomes active or inactive. Transfers between level 2 and 3 generally relate to whether significant relevant observable inputs are available for the fair value measurements or due to change in liquidity restrictions for the investments.

During the three and nine months endedSeptember 30, 2012 and 2011, there were no transfers between level 1 and level 2 assets and liabilities.

The following table includes quantitative information as of September 30, 2012 for financial instruments classified within level 3. The table below quantifies information about the significant unobservable inputs used in the fair value measurement of the Company's level 3 financial instruments.

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at September 30, 2012		Valuation techniques	Unobservable Inputs	Range (weighted average)
Common stocks	$	2,960	Discounted cash flows, market multiples, recent transactions, bid levels, and comparable transactions.	Market multiples, valuation metric weights, and DCF discount rate.	Valuation metric: 25%-100%. DCF discount rates: 15%-25%, Market multiples: 9x-10x
Warrants and rights	4,062		Model based	Volatility	Volatility: 20% to 40%
Real estate	275		Market approach, income approach, and replacement cost.	Capital rate, DCF discount rate, net operating income, and replacement cost assumptions.	Capital rate: 4.99% to 8.75%
Lehman claim	761		Discounted cash flows and market quotes.	Projected cash flows and DCF discount rate.	Timing of projected cash flow: 9 months. DCF discount rate: 15%
	$	8,058
Other level 3 assets and liabilities (a)	216,977
Total level 3 assets and liabilities	$	225,035

(a) Quantitative disclosures of unobservable inputs and assumptions are not required for investments for which NAV per share is used as a practical expedient to determine fair value, as their redemption features rather than observability of inputs cause them to be classified as a level 3 type asset within the fair value hierarchy. In addition, the fair value of the Consolidated Funds' investments are determined based on net asset value and therefore quantitative disclosures are not included in the table above.

The Company has established valuation policies and procedures and an internal control infrastructure over its fair value measurement of financial instruments which includes ongoing oversight by the valuation committee as well as periodic audits performed by the Company's internal audit group. The valuation committee is comprised of senior management, including non-investment professionals, who are responsible for overseeing and monitoring the pricing of the Company's investments, including the review of the results of the independent price verification process, approval of new trading asset classes and use of applicable pricing models and approaches.

The US GAAP fair value leveling hierarchy is designated and monitored on an ongoing basis. In determining the designation, the Company takes into consideration a number of factors including the observability of inputs, liquidity of the investment and the significance of a particular input to the fair value measurement. Designations, models, pricing vendors, third party valuation providers and inputs used to derive fair market value are subject to review by the valuation committee and the internal audit group. The Company reviews its valuation policy guidelines on an ongoing basis and may adjust them in light of, improved valuation metrics and models, the availability of reliable inputs and information, and prevailing market conditions. The Company reviews a daily profit and loss report, as well as other periodic reports, and analyzes material changes from period-to-period in the valuation of its investments as part of its control procedures. The Company also performs back testing on a regular basis by comparing prices observed in executed transactions to previous valuations.

The fair market value for level 3 securities may be highly sensitive to the use of industry standard models, unobservable inputs and subjective assumptions. The degree of fair market value sensitivity is also contingent upon the subjective weight given to specific inputs and valuation metrics. The Company holds various equity and debt instruments where different weight may be applied to industry standard models representing standard valuation metrics such as: discounted cash flows, market multiples, comparative transactions, capital rates, recovery rates and timing, and bid levels. Generally, changes in the weights ascribed to the various valuation metrics and the significant unobservable inputs in isolation may result in significantly lower or higher fair value measurements. Volatility levels for warrants and options are not readily observable and subject to interpretation. Changes in capital rates, discount rates and replacement costs could significantly increase or decrease the valuation of the real estate investments. The interrelationship between unobservable inputs may vary significantly amongst level 3 securities as they are generally highly idiosyncratic. Significant increases (decreases) in any of those inputs in isolation can result in a significantly lower (higher) fair value measurement.