Fair Value Measurements for Operating Entities and Consolidated Funds

12 Months Ended

Dec. 31, 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 accompanying consolidated statements of financial condition by caption and by level within the valuation hierarchy as of December 31, 2012 and 2011:

Operating Entities

	Assets at Fair Value as of December 31, 2012
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned and derivatives
US Government securities	$	137,478	$	—	$	—	$	137,478
Preferred stock	—		—		2,332		2,332
Common stocks	254,606		2,137		2,549		259,292
Convertible bonds	—		6,202		—		6,202
Corporate bonds	—		192,563		515		193,078
Currency forwards	—		202		—		202
Options	18,273		2,273		—		20,546
Warrants and rights	641		—		1,713		2,354
Mutual funds	2,845		—		—		2,845
Other investments
Portfolio Funds	—		30,228		25,670		55,898
Real estate investments	—		—		1,864		1,864
Lehman claim	—		—		706		706
	$	413,843	$	233,605	$	35,349	$	682,797

	Liabilities at Fair Value as of December 31, 2012
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Securities sold, not yet purchased and derivatives
Common stocks	$	168,797	$	—	$	—	$	168,797
Corporate bonds	—		61		—		61
Futures	370		—		—		370
Currency forwards	—		603		—		603
Options	8,990		86		—		9,076
Warrants and rights	—		—		3		3
	$	178,157	$	750	$	3	$	178,910

	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
Preferred stock	—		—		250		250
Common stocks	248,598		713		819		250,130
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 December 31, 2012
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned
US Government securities	$	1,911	$	—	$	—	$	1,911
Commercial paper	—		1,614		—		1,614
Other investments
Portfolio Funds	—		7,161		182,920		190,081
Lehman claims	—		—		14,124		14,124
	$	1,911	$	8,775	$	197,044	$	207,730

	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 years endedDecember 31, 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

	Years ended December 31, 2012 and 2011
	Operating Entities																																Consolidated Funds
	Preferred stock		Common stocks			Common stocks, sold not yet purchased			Restricted common stock			Corporate Bond			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, 2010	$	—	$	334		$	—		$	5,000		$	—		$	1,977			$	—			$	17,081			$	1,882		$	313		$	311,242			$	6,243
Transfers in	—		—			—			—			—			—				—				566			(b)	—			—			—				—
Transfers out	—		—			—			—			—			—				—				—				—			—			—				—
Purchases/(covers)	250		437			(978		)	—			—			111				—				45,925				330			—			2				—
(Sales)/short buys	—		(568		)	833			(4,857		)	—			(84		)		—				(48,835		)		(10		)	—			(104,243		)		—
Realized gains (losses)	—		159			145			(143		)	—			48				—				157				—			—			2,508				—
Unrealized gains (losses)	—		457			—			—			—			(518		)		—				2,025				151			240			3,893				1,097
Balance at December 31, 2011	$	250	$	819		$	—		$	—		$	—		$	1,534			$	—			$	16,919			$	2,353		$	553		$	213,402			$	7,340
Transfers in	—		—			—			—			—							—				—				—			—			16,227			(a)	—
Transfers out	—		—			—			—			—			(89		)	(c)	(1,004		)	(d)	—				—			—			(17,151		)	(a)	—
Purchases/(covers)	2,000		1,789			—			—			4,600			632				(297		)		10,116				153			—			434				—
(Sales)/short buys	—		(6		)	—			—			(3,050		)	(212		)		977				(3,482		)		(781		)	(234		)	(28,892		)		(2,292		)
Realized gains (losses)	—		6			—			—			—			56				(37		)		(41		)		—			—			(3,823		)		1,914
Unrealized gains (losses)	82		(59		)	—			—			(1,035		)	(208		)		364				2,158				139			387			2,723				7,162
Balance at December 31, 2012	$	2,332	$	2,549		$	—		$	—		$	515		$	1,713			$	3			$	25,670			$	1,864		$	706		$	182,920			$	14,124

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

(b) Changes in the observability of inputs in the valuation of such assets.

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

(d) 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 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 (see Note 10), which were written down to fair value during the twelve months ended December 31, 2011, as a result of an impairment.

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 years endedDecember 31, 2012 and 2011, there were no transfers between level 1 and level 2 assets and liabilities.

The following table includes quantitative information as of December 31, 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 December 31, 2012		Valuation techniques	Unobservable Inputs	Range (weighted average)
Common and preferred stocks	$	4,881	Discounted cash flows, market multiples, recent transactions, bid levels, and comparable transactions	Market multiples and DCF discount rate	DCF discount rates: 15%-25%, Market multiples: 9x-10x
Corporate Bonds	515		Broker dealer quotes, trading activity and recovery analysis	Liquidity discount, discount rate and timing to recovery	Liquidation discount: 35%
Warrants and rights, net	1,710		Model based	Volatility	Volatility: 20% to 40%
Lehman claim	706		Discounted cash flows, transactions, and market quotes.	Projected cash flows and DCF discount rate.	DCF discount rates: 0% - 15%
	$	7,812
Other level 3 assets and liabilities (a)	224,578
Total level 3 assets and liabilities	$	232,390

(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.