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 (including the discontinued operations of LaBranche) and (iv) excludes the bargain purchase gain which resulted from the LaBranche acquisition (See Note 2). 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 (Loss) 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 condensed consolidated statements of operations. This pro rata share has no effect on the overall financial performance for the alternative investment segment, as ultimately, this income or loss is not income or loss for the alternative investment 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 September 30, 2012
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	18,666		$	18,666		$	—		$	—			$	18,666
Brokerage	—			22,701			22,701			—			—				22,701
Management fees	13,426			—			13,426			(362		)	(4,198		)	(a)	8,866
Incentive income	1,699			—			1,699			—			(283		)	(a)	1,416
Investment Income	6,864			2,288			9,152			—			(9,152		)	(c)	—
Interest and dividends	—			—			—			—			3,605			(c)	3,605
Reimbursement from affiliates	—			—			—			(97		)	1,467			(b)	1,370
Other revenue	168			213			381			—			320			(c)	701
Consolidated Funds revenues	—			—			—			273			—				273
Total revenues	22,157			43,868			66,025			(186		)	(8,241		)		57,598
Expenses
Employee compensation and benefits	11,759			34,490			46,249			—			1,073				47,322
Interest and dividends	93			38			131			—			1,826			(c)	1,957
Non-compensation expenses—Fixed	8,564			15,452			24,016			—			(24,016		)	(c)(d)	—
Non-compensation expenses—Variable	1,433			4,287			5,720			—			(5,720		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			29,445			(c)(d)	29,445
Reimbursement from affiliates	(1,467		)	—			(1,467		)	—			1,467			(b)	—
Consolidated Funds expenses	—			—			—			330			—				330
Total expenses	20,382			54,267			74,649			330			4,075				79,054
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—			—			—			12,510			(c)	12,510
Consolidated Funds net gains (losses)	—			—			—			(815		)	(1,694		)		(2,509		)
Total other income (loss)	—			—			—			(815		)	10,816				10,001
Income (loss) before income taxes and non-controlling interests	1,775			(10,399		)	(8,624		)	(1,331		)	(1,500		)		(11,455		)
Income taxes expense / (benefit)	—			—			—			—			163			(b)	163
Economic Income (Loss) / Net income (loss) before non-controlling interests	1,775			(10,399		)	(8,624		)	(1,331		)	(1,663		)		(11,618		)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(301		)	—			(301		)	1,331			3				1,033
Economic Income (Loss) / Net income (loss) attributable to Cowen Group, Inc. stockholders	$	1,474		$	(10,399	)	$	(8,925	)	$	—		$	(1,660	)		$	(10,585	)

(1) For the three months ended September 30, 2012 the Company has reflected $2.3 million of investment income and related compensation expense of $0.8 million within the broker-dealer segment in proportion to its capital.



	Three Months Ended September 30, 2011
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	10,816		$	10,816		$	—		$	—			$	10,816
Brokerage	306			25,364			25,670			—			—				25,670
Management fees	18,476			—			18,476			(428		)	(3,270		)	(a)	14,778
Incentive income	(643		)	—			(643		)	—			(1,180		)	(a)	(1,823		)
Investment Income	(13,795		)	(3,233		)	(17,028		)	—			17,028			(c)	—
Interest and dividends	—			—			—			—			10,930			(c)	10,930
Reimbursement from affiliates	—			—			—			(49		)	1,027			(b)	978
Other revenue	41			(128		)	(87		)	—			396			(c)	309
Consolidated Funds revenues	—			—			—			301			—				301
Total revenues	4,385			32,819			37,204			(176		)	24,931				61,959
Expenses
Employee compensation and benefits	10,724			31,474			42,198			—			1,453				43,651
Interest and dividends	52			130			182			—			1,722			(c)	1,904
Non-compensation expenses—Fixed	7,445			18,367			25,812			—			(25,812		)	(c)(d)	—
Non-compensation expenses—Variable	4,315			5,610			9,925			—			(9,925		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			34,340			(c)(d)	34,340
Reimbursement from affiliates	(1,028		)	—			(1,028		)	—			1,028			(b)	—
Consolidated Funds expenses	—			—			—			1,135			—				1,135
Total expenses	21,508			55,581			77,089			1,135			2,806				81,030
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—			—			—			(21,989		)	(c)	(21,989		)
Consolidated Funds net gains (losses)	—			—			—			(619		)	(2,179		)		(2,798		)
Total other income (loss)	—			—			—			(619		)	(24,168		)		(24,787		)
Income (loss) before income taxes and non-controlling interests	(17,123		)	(22,762		)	(39,885		)	(1,930		)	(2,043		)		(43,858		)
Income taxes expense / (benefit)	—			—			—			—			72			(b)	72
Economic Income (Loss) / Net income (loss) before non-controlling interests	(17,123		)	(22,762		)	(39,885		)	(1,930		)	(2,115		)		(43,930		)
Net income (loss) from discontinued operations, net of tax	—			—			—			—			(5,087		)	(f)	(5,087		)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(810		)	—			(810		)	1,930			(337		)		783
Economic Income (Loss) / Net income (loss) attributable to Cowen Group, Inc. stockholders	$	(17,933	)	$	(22,762	)	$	(40,695	)	$	—		$	(7,539	)		$	(48,234	)

(1) For the three months ended September 30, 2011, the Company has reflected an adjustment of $5.1 million of investment income and related compensation expense of $1.7 million out of the broker-dealer segment in proportion to its capital.



	Nine Months Ended September 30, 2012
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	50,550		$	50,550		$	—		$	—			$	50,550
Brokerage	—			71,282			71,282			—			—				71,282
Management fees	42,032			—			42,032			(1,150		)	(12,367		)	(a)	28,515
Incentive income	8,303			—			8,303			—			(5,616		)	(a)	2,687
Investment Income	30,361			8,182			38,543			—			(38,543		)	(c)	—
Interest and dividends	—			—			—			—			14,845			(c)	14,845
Reimbursement from affiliates	—			—			—			(222		)	4,018			(b)	3,796
Other revenue	508			186			694			—			1,704			(c)	2,398
Consolidated Funds revenues	—			—			—			474			—				474
Total revenues	81,204			130,200			211,404			(898		)	(35,959		)		174,547
Expenses
Employee compensation and benefits	42,705			91,098			133,803			—			3,299				137,102
Interest and dividends	123			155			278			—			6,610			(c)	6,888
Non-compensation expenses—Fixed	24,093			45,655			69,748			—			(69,748		)	(c)(d)	—
Non-compensation expenses—Variable	3,881			15,852			19,733			—			(19,733		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			87,889			(c)(d)	87,889
Reimbursement from affiliates	(4,018		)	—			(4,018		)	—			4,018			(b)	—
Consolidated Funds expenses	—			—			—			1,339			—				1,339
Total expenses	66,784			152,760			219,544			1,339			12,335				233,218
Other income (loss)
Net gain (loss) on securities, derivatives and other investments	—			—			—			—			41,969			(c)	41,969
Consolidated Funds net gains (losses)	—			—			—			119			1,318				1,437
Total other income (loss)	—			—			—			119			43,287				43,406
Income (loss) before income taxes and non-controlling interests	14,420			(22,560		)	(8,140		)	(2,118		)	(5,007		)		(15,265		)
Income taxes expense / (benefit)	—			—			—			—			496			(b)	496
Economic Income (Loss) / Net income (loss) before non-controlling interests	14,420			(22,560		)	(8,140		)	(2,118		)	(5,503		)		(15,761		)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(900		)	—			(900		)	2,118			7				1,225
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	13,520		$	(22,560	)	$	(9,040	)	$	—		$	(5,496	)		$	(14,536	)

(1) For the nine months ended September 30, 2012, the Company has reflected $8.2 million of investment income and related compensation expense of $2.7 million within the broker-dealer segment in proportion to its capital.



	Nine Months Ended September 30, 2011
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	39,841		$	39,841		$	—		$	—			$	39,841
Brokerage	380			77,488			77,868			—			—				77,868
Management fees	48,062			—			48,062			(1,407		)	(8,856		)	(a)	37,799
Incentive income	10,217			—			10,217			—			(6,984		)	(a)	3,233
Investment Income	20,027			2,854			22,881			—			(22,881		)	(c)	—
Interest and dividends	—			—			—			—			21,330			(c)	21,330
Reimbursement from affiliates	—			—			—			(217		)	3,185			(b)	2,968
Other revenue	1,015			(529		)	486			—			744			(c)	1,230
Consolidated Funds revenues	—			—			—			614			—				614
Total revenues	79,701			119,654			199,355			(1,010		)	(13,462		)		184,883
Expenses
Employee compensation and benefits	41,595			85,707			127,302			—			5,011				132,313
Interest and dividends	157			460			617			—			7,010			(c)	7,627
Non-compensation expenses—Fixed	23,163			50,512			73,675			—			(73,675		)	(c)(d)	—
Non-compensation expenses—Variable	13,002			18,377			31,379			—			(31,379		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			101,911			(c)(d)	101,911
Reimbursement from affiliates	(3,186		)	—			(3,186		)	—			3,186			(b)	—
Consolidated Funds expenses	—			—			—			2,635			—				2,635
Total expenses	74,731			155,056			229,787			2,635			12,064				244,486
Other income (loss)
Net gain (loss) on securities, derivatives and other investments	—			—			—			—			(4,631		)	(c)	(4,631		)
Bargain purchase gain	—			—			—			—			22,244			(e)	22,244
Consolidated Funds net gains (losses)	—			—			—			3,031			686				3,717
Total other income (loss)	—			—			—			3,031			18,299				21,330
Income (loss) before income taxes and non-controlling interests	4,970			(35,402		)	(30,432		)	(614		)	(7,227		)		(38,273		)
Income taxes expense / (benefit)	—			—			—			—			(17,720		)	(b)	(17,720		)
Economic Income (Loss) / Net income (loss) before non-controlling interests	4,970			(35,402		)	(30,432		)	(614		)	10,493				(20,553		)
Net income (loss) from discontinued operations, net of tax	—			—			—			—			(5,087		)	(f)	(5,087		)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(2,750		)	—			(2,750		)	614			(337		)		(2,473		)
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	2,220		$	(35,402	)	$	(33,182	)	$	—		$	5,069			$	(28,113	)

(1) For the nine months ended September 30, 2011, the Company has reflected $1.3 million of investment income and related compensation expense of $0.2 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 (Loss):

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 (loss) 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.

(e) Economic Income excludes the bargain purchase gain which resulted from the LaBranche acquisition.

(f) Economic Income (Loss) excludes discontinued operations.

For the three and nine months ended September 30, 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 and nine months ended September 30, 2012 and 2011. There were no revenues earned from related parties by the broker dealer segment in the three and nine months ended September 30, 2012 and 2011.