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, and (iii) excludes certain other acquisition-related and/or reorganization expenses (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 accompanying 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 June 30, 2013
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	25,571		$	25,571		$	—		$	—			$	25,571
Brokerage	—			33,300			33,300			—			(1,779		)	(e)	31,521
Management fees	14,606			—			14,606			(286		)	(4,622		)	(a)	9,698
Incentive income	3,765			—			3,765			—			(1,811		)	(a)	1,954
Investment Income	3,834			(271		)	3,563			—			(3,563		)	(c)	—
Interest and dividends	—			—			—			—			10,521			(c)	10,521
Reimbursement from affiliates	—			—			—			(196		)	1,410			(b)	1,214
Other revenue	114			164			278			—			207			(c)	485
Consolidated Funds revenues	—			—			—			243			—				243
Total revenues	22,319			58,764			81,083			(239		)	363				81,207
Expenses
Employee compensation and benefits	10,411			37,303			47,714			—			(207		)		47,507
Interest and dividends	50			22			72			—			7,168			(c)	7,240
Non-compensation expenses—Fixed	8,471			15,312			23,783			—			(23,783		)	(c)(d)	—
Non-compensation expenses—Variable	1,139			7,423			8,562			—			(8,562		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			31,380			(c)(d)	31,380
Reimbursement from affiliates	(1,411		)	—			(1,411		)	—			1,411			(b)	—
Consolidated Funds expenses	—			—			—			485			—				485
Total expenses	18,660			60,060			78,720			485			7,407				86,612
Other income (loss)
Net gain (loss) on securities, derivatives and other investments	—			—			—			—			4,994			(c)	4,994
Consolidated Funds net gains (losses)	—			—			—			1,378			2,539				3,917
Total other income (loss)	—			—			—			1,378			7,533				8,911
Income (loss) before income taxes and non-controlling interests	3,659			(1,296		)	2,363			654			489				3,506
Income taxes expense / (benefit)	—			—			—			—			158			(b)	158
Economic Income (Loss) / Net income (loss) before non-controlling interests	3,659			(1,296		)	2,363			654			331				3,348
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(893		)	—			(893		)	(654		)	(708		)		(2,255		)
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	2,766		$	(1,296	)	$	1,470		$	—		$	(377	)		$	1,093

(1) For the three months ended June 30, 2013, the Company has reflected $0.3 million of investment income and related compensation expense of $0.1 million within the broker-dealer segment in proportion to its capital.



	Three Months Ended June 30, 2012
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	16,254		$	16,254		$	—		$	—			$	16,254
Brokerage	—			24,568			24,568			—			—				24,568
Management fees	14,586			—			14,586			(394		)	(4,260		)	(a)	9,932
Incentive income	2,583			—			2,583			—			(2,003		)	(a)	580
Investment Income	6,694			1,592			8,286			—			(8,286		)	(c)	—
Interest and dividends	—			—			—			—			5,868			(c)	5,868
Reimbursement from affiliates	—			—			—			(54		)	1,435			(b)	1,381
Other revenue	216			(287		)	(71		)	—			902			(c)	831
Consolidated Funds revenues	—			—			—			56			—				56
Total revenues	24,079			42,127			66,206			(392		)	(6,344		)		59,470
Expenses
Employee compensation and benefits	13,500			28,145			41,645			—			1,452				43,097
Interest and dividends	12			47			59			—			3,148			(c)	3,207
Non-compensation expenses—Fixed	8,560			15,929			24,489			—			(24,489		)	(c)(d)	—
Non-compensation expenses—Variable	1,138			6,000			7,138			—			(7,138		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			30,486			(c)(d)	30,486
Reimbursement from affiliates	(1,435		)	—			(1,435		)	—			1,435			(b)	—
Consolidated Funds expenses	—			—			—			635			—				635
Total expenses	21,775			50,121			71,896			635			4,894				77,425
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—			—			—			9,787			(c)	9,787
Consolidated Funds net gains (losses)	—			—			—			(1,707		)	(314		)		(2,021		)
Total other income (loss)	—			—			—			(1,707		)	9,473				7,766
Income (loss) before income taxes and non-controlling interests	2,304			(7,994		)	(5,690		)	(2,734		)	(1,765		)		(10,189		)
Income taxes expense / (benefit)	—			—			—			—			191			(b)	191
Economic Income (Loss) / Net income (loss) before non-controlling interests	2,304			(7,994		)	(5,690		)	(2,734		)	(1,956		)		(10,380		)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(300		)	—			(300		)	2,734			—				2,434
Economic Income (Loss) / Net income (loss) attributable to Cowen Group, Inc. stockholders	$	2,004		$	(7,994	)	$	(5,990	)	$	—		$	(1,956	)		$	(7,946	)

(1) For the three months ended June 30, 2012, the Company has reflected $1.7 million of investment income and related compensation expense of $0.6 million within the broker-dealer segment in proportion to its capital.



	Six Months Ended June 30, 2013
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	42,737		$	42,737		$	—		$	—			$	42,737
Brokerage	—			61,317			61,317			—			(3,196		)	(e)	58,121
Management fees	28,750			—			28,750			(597		)	(8,962		)	(a)	19,191
Incentive income	8,892			—			8,892			—			(4,327		)	(a)	4,565
Investment Income	12,138			2,298			14,436			—			(14,436		)	(c)	—
Interest and dividends	—			—			—			—			19,842			(c)	19,842
Reimbursement from affiliates	—			—			—			(131		)	2,830			(b)	2,699
Other revenue	226			(389		)	(163		)	—			1,126			(c)	963
Consolidated Funds revenues	—			—			—			330			—				330
Total revenues	50,006			105,963			155,969			(398		)	(7,123		)		148,448
Expenses
Employee compensation and benefits	24,324			67,911			92,235			—			(505		)		91,730
Interest and dividends	131			65			196			—			13,462			(c)	13,658
Non-compensation expenses—Fixed	17,609			29,952			47,561			—			(47,561		)	(c)(d)	—
Non-compensation expenses—Variable	2,145			13,768			15,913			—			(15,913		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			63,417			(c)(d)	63,417
Reimbursement from affiliates	(2,830		)	—			(2,830		)	—			2,830			(b)	—
Consolidated Funds expenses	—			—			—			919			—				919
Total expenses	41,379			111,696			153,075			919			15,730				169,724
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—			—			—			16,801			(c)	16,801
Consolidated Funds net gains (losses)	—			—			—			3,671			5,405				9,076
Total other income (loss)	—			—			—			3,671			22,206				25,877
Income (loss) before income taxes and non-controlling interests	8,627			(5,733		)	2,894			2,354			(647		)		4,601
Income taxes expense / (benefit)	—			—			—			—			334			(b)	334
Economic Income (Loss) / Net income (loss) before non-controlling interests	8,627			(5,733		)	2,894			2,354			(981		)		4,267
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(2,692		)	—			(2,692		)	(2,354		)	(704		)		(5,750		)
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	5,935		$	(5,733	)	$	202		$	—		$	(1,685	)		$	(1,483	)

(1) For the six months ended June 30, 2013, the Company has reflected $2.6 million of investment income and related compensation expense of $0.9 million within the broker-dealer segment in proportion to its capital.



	Six Months Ended June 30, 2012
										Adjustments
	Alternative Investment			Broker-Dealer (1)			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	—		$	31,884		$	31,884		$	—		$	—			$	31,884
Brokerage	—			48,581			48,581			—			—				48,581
Management fees	28,606			—			28,606			(787		)	(8,170		)	(a)	19,649
Incentive income	6,605			—			6,605			—			(5,334		)	(a)	1,271
Investment Income	23,496			5,895			29,391			—			(29,391		)	(c)	—
Interest and dividends	—			—			—			—			11,240			(c)	11,240
Reimbursement from affiliates	—			—			—			(125		)	2,551			(b)	2,426
Other revenue	340			(27		)	313			—			1,385			(c)	1,698
Consolidated Funds revenues	—			—			—			200			—				200
Total revenues	59,047			86,333			145,380			(712		)	(27,719		)		116,949
Expenses
Employee compensation and benefits	30,946			56,608			87,554			—			2,226				89,780
Interest and dividends	30			117			147			—			4,784			(c)	4,931
Non-compensation expenses—Fixed	15,529			30,203			45,732			—			(45,732		)	(c)(d)	—
Non-compensation expenses—Variable	2,447			11,566			14,013			—			(14,013		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			58,444			(c)(d)	58,444
Reimbursement from affiliates	(2,551		)	—			(2,551		)	—			2,551			(b)	—
Consolidated Funds expenses	—			—			—			1,009			—				1,009
Total expenses	46,401			98,494			144,895			1,009			8,260				154,164
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	—			—			—			—			29,458			(c)	29,458
Consolidated Funds net gains (losses)	—			—			—			934			3,012				3,946
Total other income (loss)	—			—			—			934			32,470				33,404
Income (loss) before income taxes and non-controlling interests	12,646			(12,161		)	485			(787		)	(3,509		)		(3,811		)
Income taxes expense / (benefit)	—			—			—			—			333			(b)	333
Economic Income (Loss) / Net income (loss) before non-controlling interests	12,646			(12,161		)	485			(787		)	(3,842		)		(4,144		)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(600		)	—			(600		)	787			6				193
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	12,046		$	(12,161	)	$	(115	)	$	—		$	(3,836	)		$	(3,951	)

(1) For the six months ended June 30, 2012, the Company has reflected $5.9 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 (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 and 2011 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 (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue.

For the three and six months ended June 30, 2013 and 2012, 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 six months ended June 30, 2013 and 2012. There were no revenues earned from related parties by the broker dealer segment in the three and six months ended June 30, 2013 and 2012.