Fair Value Measurements for Operating Entities and Consolidated Funds

3 Months Ended

Mar. 31, 2013

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 condensed consolidated statements of financial condition by caption and by level within the valuation hierarchy as of March 31, 2013 and 2012:

Operating Entities

	Assets at Fair Value as of March 31, 2013
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned and derivatives
US Government securities	$	134	$	—	$	—	$	134
Preferred stock	—		—		2,332		2,332
Common stocks	288,686		2,103		2,278		293,067
Convertible bonds	—		8,615		—		8,615
Corporate bonds	—		143,446		—		143,446
Futures	1		—		—		1
Currency forwards	—		248		—		248
Options	18,808		100		—		18,908
Warrants and rights	100		—		3,243		3,343
Mutual funds	2,953		—		—		2,953
Other investments
Portfolio Funds	—		31,990		25,559		57,549
Real estate investments	—		—		1,875		1,875
Lehman claim	—		—		660		660
	$	310,682	$	186,502	$	35,947	$	533,131

	Liabilities at Fair Value as of March 31, 2013
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Securities sold, not yet purchased and derivatives
Common stocks	$	215,863	$	—	$	—	$	215,863
Corporate bonds	—		60		—		60
Futures	173		—		—		173
Currency forwards	—		70		—		70
Options	12,756		151		—		12,907
Warrants and rights	—		—		3		3
	$	228,792	$	281	$	3	$	229,076

	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

Consolidated Funds' investments

	Assets at Fair Value as of March 31, 2013
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Other investments
Portfolio Funds	$	—	$	—	$	178,357	$	178,357
Lehman claims	—		—		15,140		15,140
	$	—	$	—	$	193,497	$	193,497

	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

The following table includes a rollforward of the amounts for the three months endedMarch 31, 2013 and 2012 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.

	Balance at December 31, 2012		Transfers in			Transfers out		Purchases/(covers)		(Sales)/short buys			Realized gains (losses)			Unrealized gains (losses)			Balance at March 31, 2013
	(dollars in thousands)
Operating Entities
Preferred stock	$	2,332	$	—		$	—	$	—	$	—		$	—		$	—		$	2,332
Common stocks	2,549		—			—		—		(265		)	260			(266		)	2,278
Corporate Bond	515		—			—		2,735		(3,346		)	(914		)	1,010			—
Warrants and Rights	1,713		290		(c)	—		166		(110		)	—			1,184			3,243
Warrants and Rights, sold not yet purchased	3		—			—		—		—			—			—			3
Portfolio Funds	25,670		—			—		3,590		(3,876		)	8			167			25,559
Real estate	1,864		—			—				—			—			11			1,875
Lehman claim	706		—			—		—		—			—			(46		)	660
Consolidated Funds
Portfolio Funds	182,920		—			—		—		(7,031		)	222			2,246			178,357
Lehman claim	14,124		—			—		—		(1,449		)	1,360			1,105			15,140

	Balance at December 31, 2011		Transfers in			Transfers out				Purchases/(covers)			(Sales)/short buys			Realized gains (losses)			Unrealized gains (losses)			Balance at March 31, 2012
	(dollars in thousands)
Operating Entities
Preferred stock	$	250	$	—		$	—			$	—		$	—		$	—		$	2		$	252
Common stocks	819		—			—				—			(6		)	6			8			827
Warrants and Rights	1,534		—			(88		)	(b)	257			(65		)	56			1,622			3,316
Warrants and Rights, sold not yet purchased	—		—			(1,004		)		(302		)	973			(35		)	368			—
Portfolio Funds	16,919		—			—				1,622			(529		)	6			995			19,013
Real estate	2,353		—			—				152			—			—			74			2,579
Lehman claim	553		—			—				—			—			—			21			574
Consolidated Funds
Portfolio Funds	213,402		16,769		(a)	(17,151		)	(a)	415			(2,888		)	214			5,596			216,357
Lehman claim	7,340		—			—				—			(2,291		)	1,914			(1,617		)	5,346

(a) Change in consolidated funds.

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

(c) The security was acquired through an acquisition (See Note 2).

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.

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 months endedMarch 31, 2013 and 2012, there were no transfers between level 1 and level 2 assets and liabilities.

The following table includes quantitative information as of March 31, 2013 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 March 31, 2013		Valuation techniques	Unobservable Inputs	Range
Common and preferred stocks	$	4,610	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
Warrants and rights, net	3,240		Model based	Volatility	Volatility: 20% to 150%
Lehman claim	660		Discounted cash flows, transactions, and market quotes.	Projected cash flows and DCF discount rate.	DCF discount rates: 0% - 15%
	$	8,510
Other level 3 assets and liabilities (a)	220,931
Total level 3 assets and liabilities	$	229,441

(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.