Fair Value Measurements for Operating Entities and Consolidated Funds (Tables)

6 Months Ended

Jun. 30, 2014

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

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 June 30, 2014 and December 31, 2013:

Operating Entities



	Assets at Fair Value as of June 30, 2014
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned and derivatives
US Government securities	$	2,509	$	—	$	—	$	2,509
Preferred stock	—		—		2,324		2,324
Common stocks	331,034		12,414		419		343,867
Convertible bonds	—		9,533		1,750		11,283
Corporate bonds	—		199,985		—		199,985
Warrants and rights	885		—		3,346		4,231
Mutual funds	16,764		—		—		16,764
Receivable on derivative contracts, at fair value
Futures	92		—		—		92
Equity swaps	—		55		—		55
Options	7,238		—		37,658		44,896
Other investments
Portfolio Funds	—		21,280		62,687		83,967
Real estate investments	—		—		2,262		2,262
Lehman claim	—		—		418		418
	$	358,522	$	243,267	$	110,864	$	712,653



	Liabilities at Fair Value as of June 30, 2014
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Securities sold, not yet purchased and derivatives
Common stocks	$	235,534	$	—	$	—	$	235,534
Corporate bonds	—		58		—		58
Payable for derivative contracts, at fair value
Futures	11		—		—		11
Currency forwards	—		156		—		156
Equity and credit default swaps	—		2,280		—		2,280
Options	13,248		—		37,658		50,906
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (a)	$	—	$	—	$	6,783	$	6,783
	$	248,793	$	2,494	$	44,441	$	295,728

(a) In accordance with the terms of purchase agreements for acquisitions that closed during 2012, the Company is required to pay to the sellers a portion of future net income of the acquired businesses, if certain revenue targets are achieved through the period ending October 2016. The Company estimated the contingent consideration liability using the income approach (discounted cash flow method) which requires the Company to make estimates and assumptions regarding the future cash flows and profits. Changes in these estimates and assumptions could have a significant impact on the amounts recognized. The undiscounted amounts as of June 30, 2014 can range from $1.6 million to $12.9 million.



	Assets at Fair Value as of December 31, 2013
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned and derivatives
US Government securities	$	9	$	—	$	—	$	9
Preferred stock	—		—		324		324
Common stocks	171,277		2,103		3,559		176,939
Convertible bonds	—		4,008		1,950		5,958
Corporate bonds	—		121,372		—		121,372
Warrants and rights	107		—		5,805		5,912
Mutual funds	525		—		—		525
Receivable on derivative contracts, at fair value
Futures	285		—		—		285
Currency forwards	—		22		—		22
Equity swaps	—		70		—		70
Options	9,698		—		—		9,698
Other investments
Portfolio Funds	—		19,402		51,649		71,051
Real estate investments	—		—		2,088		2,088
Lehman claim	—		—		378		378
	$	181,901	$	146,977	$	65,753	$	394,631



	Liabilities at Fair Value as of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Securities sold, not yet purchased and derivatives
Common stocks	$	130,899	$	—	$	—	$	130,899
Corporate bonds	—		55		—		55
Payable for derivative contracts, at fair value
Futures	275		—		—		275
Currency forwards	—		301		—		301
Equity swaps	—		525		—		525
Options	6,573		—		—		6,573
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (a)	—		—		6,937		6,937
	$	137,747	$	881	$	6,937	$	145,565

Consolidated Funds' investments



	Assets at Fair Value as of June 30, 2014
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Other investments
Portfolio Funds	$	—	$	49,103	$	145,371	$	194,474
Lehman claims	—		—		4,090		4,090
	$	—	$	49,103	$	149,461	$	198,564



	Assets at Fair Value as of December 31, 2013
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Other investments
Portfolio Funds	—		26,964		155,674		182,638
Lehman claims	—		—		4,842		4,842
	$	—	$	26,964	$	160,516	$	187,480

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The following table includes a rollforward of the amounts for the three and six months ended June 30, 2014 and 2013, 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 June 30, 2014
	Balance at March 31, 2014		Transfers in		Transfers out		Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains (losses)			Balance at June 30, 2014		Change in unrealized gains/(losses) relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	324	$	—	$	—	$	2,000	$	—		$	—		$	2,324	$	—
Common stocks	410		—		—		9		—			—			419		—
Convertible bonds	1,950		—		—		—		(200		)	—			1,750		—
Options, asset	42,856		—		—		—		—			(5,198		)	37,658		(5,198		)
Options, liability	42,856		—		—		—		—			(5,198		)	37,658		(5,198		)
Warrants and Rights	3,268		—		—		—		—			78			3,346		108
Portfolio Funds	58,583		—		—		5,050		(1,778		)	832			62,687		(187		)
Real estate	42,283		—		—		10,000		(50,000		)	(21		)	2,262		(21		)
Lehman claim	390		—		—		—		(76		)	104			418		104
Contingent consideration liability	6,861		—		—		—		(78		)	—			6,783		—
Consolidated Funds
Portfolio Funds	143,059		—		—		—		(86		)	2,398			145,371		2,398
Lehman claim	3,776		—		—		—		—			314			4,090		314



	Three Months Ended June 30, 2013
	Balance at March 31, 2013		Transfers in		Transfers out			Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains (losses)			Balance at June 30, 2013		Change in unrealized gains/(losses) relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	2,332	$	—	$	(2,000	)	$	—	$	—		$	1		$	333	$	1
Common stocks	2,278		—		—			—		(8		)	3			2,273		2
Warrants and Rights	3,243		—		—			—		—			(1,107		)	2,136		(998		)
Warrants and Rights, sold not yet purchased	3		—		—			—		—			(3		)	—		—
Portfolio Funds	25,559		—		—			8,981		(2,857		)	1,149			32,832		1,437
Real estate	1,875		—		—			—		—			283			2,158		283
Lehman claim	660		—		—			—		(382		)	—			278		—
Contingent consideration liability	8,116		—		—			—		(188		)	—			7,928		—
Consolidated Funds
Portfolio Funds	178,357		—		—			—		(2,918		)	2,429			177,848		2,312
Lehman claim	15,140		—		—			—		—			294			15,434		293



	Six Months Ended June 30, 2014
	Balance at December 31, 2013		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains (losses)			Balance at June 30, 2014		Change in unrealized gains/(losses) relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	324	$	—	$	—			$	2,000	$	—		$	—		$	2,324	$	—
Common stocks	3,559		—		(3,150		)	(b)	9		—			1			419		1
Convertible bonds	1,950		—		—				—		(200		)	—			1,750		—
Options, asset	—		—		—				35,710		—			1,948			37,658		1,948
Options, liability	—		—		—				35,710		—			1,948			37,658		1,948
Warrants and Rights	5,805		—		—				—		(1,328		)	(1,131		)	3,346		244
Portfolio Funds	51,649		—		—				9,435		(3,020		)	4,623			62,687		3,212
Real estate	2,088		—		—				50,000		(50,027		)	201			2,262		201
Lehman claim	378		—		—				—		(76		)	116			418		116
Contingent consideration liability	6,937		—		—				—		(154		)	—			6,783		—
Consolidated Funds
Portfolio Funds	155,674		—		—				—		(16,030		)	5,727			145,371		5,727
Lehman claim	4,842		—		—				—		(980		)	228			4,090		228



	Six Months Ended June 30, 2013
	Balance at December 31, 2012		Transfers in			Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains (losses)			Balance at June 30, 2013		Change in unrealized gains/(losses) relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	2,332	$	—		$	(2,000	)	(b)	$	—	$	—		$	1		$	333	$	1
Common stocks	2,549		—			—				—		(273		)	(3		)	2,273		(263		)
Corporate Bond	515		—			—				2,735		(3,346		)	96			—		—
Warrants and Rights, asset	1,713		290		(a)	—				166		(110		)	77			2,136		270
Warrants and Rights, liability	3		—			—				—		—			(3		)	—		—
Portfolio Funds	25,670		—			—				12,571		(6,733		)	1,324			32,832		1,604
Real estate	1,864		—			—				—		—			294			2,158		294
Lehman claim	706		—			—				—		(382		)	(46		)	278		(46		)
Contingent consideration liability	8,116		—			—				—		(188		)	—			7,928		—
Consolidated Funds
Portfolio Funds	182,920		—			—				—		(9,949		)	4,877			177,848		4,557
Lehman claim	14,124		—			—				—		(1,449		)	2,759			15,434		1,399

(1) Unrealized gains/losses are reported in other income (loss) in the accompanying condensed consolidated statements of

operations.

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

(b) The company completed an initial public offering.

Fair Value Inputs, Assets, Quantitative Information

The following table includes quantitative information as of June 30, 2014 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 June 30, 2014		Valuation techniques	Unobservable Inputs	Range

Level 3 Assets
Common and preferred stocks	$	324	Market multiples and option pricing method	Volatility Market multiples	45% 2x to 3x
Warrants and rights, net	3,346		Model based	Volatility	20% to 100% (weighted average 37%)
Options	37,658		Option pricing models, credit valuation adjustment, debt valuation adjustment	Volatility Credit spreads	30% to 45% 600bps - 750 bps
Other level 3 assets (a)	218,997
Total level 3 assets	260,325
Level 3 Liabilities
Options	37,658		Option pricing models, credit valuation adjustment, debt valuation adjustment	Volatility Credit spreads	30% to 45% 600bps - 750 bps
Contingent consideration	6,783		Discounted cash flows	Projected cash flow and discount rate	6% to 9%
Total level 3 liabilities	$	44,441

(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 quantitative disclosures also exclude financial instruments for which the determination of fair value is based on prices from prior transactions.

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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