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 September 30, 2015 and December 31, 2014:



	Assets at Fair Value as of September 30, 2015
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned
US Government securities	$	3,015		$	—		$	—		$	3,015
Preferred stock	—			—			15,771			15,771
Common stocks	689,252			22,920			317			712,489
Convertible bonds	—			—			1,129			1,129
Corporate bonds	—			113,585			—			113,585
Warrants and rights	877			—			2,994			3,871
Mutual funds	14,825			—			—			14,825
Receivable on derivative contracts, at fair value										—
Futures	68			—			—			68
Currency forwards	—			105			—			105
Equity swaps	—			470			—			470
Options	10,277			9,076			21,591			40,944
Other investments
Real estate investments	—			—			1,916			1,916
Lehman claim	—			—			335			335
Consolidated funds
Preferred stock	—			—			19,000			19,000
	$	718,314		$	146,156		$	63,053		$	927,523
Percentage of total assets measured at fair value	77.4		%	15.8		%	6.8		%
Portfolio funds measured at net asset value (a)										108,509
Consolidated funds' portfolio funds measured at net asset value (a)										255,896
Equity method investments										42,574
Total investments										$	1,334,502



	Liabilities at Fair Value as of September 30, 2015
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Securities sold, not yet purchased
Common stocks	$	250,680		$	—		$	—		$	250,680
Corporate bonds	—			59			—			59
Payable for derivative contracts, at fair value
Futures	381			—			—			381
Currency forwards				107			—			107
Equity and credit default swaps				2,615			—			2,615
Options	1,384			—			21,591			22,975
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			5,458			5,458
	$	252,445		$	2,781		$	27,049		$	282,275
Percentage of total liabilities measured at fair value	89.4		%	1.0		%	9.6		%

(a) In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated statement of financial condition.

(b) In accordance with the terms of the purchase agreements for acquisitions that closed during 2012 and the third quarter of 2015, 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 periods ended August 2016 and December 2020, respectively. 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 September 30, 2015 can range from zero to $6.7 million.



	Assets at Fair Value as of December 31, 2014
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned
US Government securities	$	2,010		$	—		$	—		$	2,010
Preferred stock	—			2,553			12,517			15,070
Common stocks	578,934			18,130			412			597,476
Convertible bonds	—			—			900			900
Corporate bonds	—			159,557			—			159,557
Warrants and rights	95			—			1,322			1,417
Mutual funds	15,776			—			—			15,776
Receivable on derivative contracts, at fair value
Futures	75			—			—			75
Currency forwards	—			310			—			310
Equity swaps	—			251			—			251
Options	10,462			1,972			36,807			49,241
Other investments
Real estate investments	—			—			2,175			2,175
Lehman claim	—			—			380			380
Consolidated funds
Lehman claim	—			—			493			493
	$	607,352		$	182,773		$	55,006		$	845,131
Percentage of total assets measured at fair value	71.9		%	21.6		%	6.5		%
Portfolio funds measured at net asset value (a)										103,466
Consolidated funds' portfolio funds measured at net asset value (a)										188,884
Equity method investments										61,443
Total investments										$	1,198,924



	Liabilities at Fair Value as of December 31, 2014
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Securities sold, not yet purchased
Common stocks	$	207,815		$	—		$	—		$	207,815
Corporate bonds	—			60			—			60
Payable for derivative contracts, at fair value
Futures	33			—			—			33
Equity and credit default swaps	—			1,603			—			1,603
Options	2,887			—			36,807			39,694
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			4,083			4,083
	$	210,735		$	1,663		$	40,890		$	253,288
Percentage of total liabilities measured at fair value	83.2		%	0.7		%	16.1		%

(b) In accordance with the terms of a purchase agreement for an 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 ended August 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 can range from $0.9 million to $7.1 million.

The following table includes a rollforward of the amounts for the three and nine months ended September 30, 2015 and 2014, 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 September 30, 2015
	Balance at June 30, 2015		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2015		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	23,462	$	—	$	(9,000	)	(a) (b)	$	3,500	$	(6,665	)	$	4,474		$	15,771	$	1,200
Common stocks	404		—		—				104		(89		)	(102		)	317		(87		)
Convertible bonds	879		—		—				250		—			—			1,129		—
Options, asset	58,576		—		—				—		—			(36,985		)	21,591		(36,985		)
Options, liability	58,576		—		—				—		—			(36,985		)	21,591		(36,985		)
Warrants and rights	2,316		—		—				—		—			678			2,994		878
Real estate	1,987		—		—				—		(70		)	(1		)	1,916		(1		)
Lehman claim	347		—		—				—		—			(12		)	335		(12		)
Contingent consideration liability	2,358		—		—				3,100		—			—			5,458		—
Consolidated Funds
Preferred stock	—		—		7,000			(b)	12,000		—			—			19,000		—
Lehman claim	744		—		—				—		(739		)	(5		)	—		—



	Three Months Ended September 30, 2014
	Balance at June 30, 2014		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2014		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	2,574	$	—	$	(2,000	)	(a)	$	—	$	—		$	—		$	574	$	—
Common stocks	419		—		—				—		(1		)	(128		)	290		(14		)
Convertible bonds	1,750		—		—				—		—			—			1,750		—
Options, asset	37,658		—		—				—		—			(8,873		)	28,785		(8,873		)
Options, liability	37,658		—		—				—		—			(8,873		)	28,785		(8,873		)
Warrants and rights	3,346		—		—				57		(57		)	(738		)	2,608		(434		)
Real estate	2,262		—		—				—		—			23			2,285		23
Lehman claim	418		—		—				—		—			(58		)	360		(58		)
Contingent consideration liability	6,783		—		—				—		(364		)	—			6,419		—
Consolidated Funds
Lehman claim	4,090		—		—				—		(3,731		)	2			361		2



	Nine Months Ended September 30, 2015
	Balance at December 31, 2014		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2015		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	12,517	$	—	$	(15,823	)	(a) (b)	$	21,750	$	(6,665	)	$	3,992		$	15,771	$	717
Common stocks	412		—		—				104		(120		)	(79		)	317		(74		)
Convertible bonds	900		—		—				250		—			(21		)	1,129		(21		)
Options, asset	36,807		—		—				—		—			(15,216		)	21,591		(15,216		)
Options, liability	36,807		—		—				—		—			(15,216		)	21,591		(15,216		)
Warrants and Rights	1,322		—		—				26		(71		)	1,717			2,994		1,757
Real estate	2,175		—		—				—		(377		)	118			1,916		118
Lehman claim	380		—		—				—		—			(45		)	335		(45		)
Contingent consideration liability	4,083		—		—				3,100		(1,725		)	—			5,458		—
Consolidated Funds
Preferred stock	—		—		7,000			(b)	12,000		—			—			19,000		—
Lehman claim	493		—		—				—		(739		)	246			—		—



	Nine Months Ended September 30, 2014
	Balance at December 31, 2013		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2014		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	324	$	—	$	(2,000	)	(a)	$	2,250	$	—		$	—		$	574	$	—
Common stocks	3,559		—		(3,150		)	(a)	9		(1		)	(127		)	290		(13		)
Convertible bonds	1,950		—		—				—		(200		)	—			1,750		—
Options, asset	—		—		—				35,710		—			(6,925		)	28,785		(6,925		)
Options, liability	—		—		—				35,710		—			(6,925		)	28,785		(6,925		)
Warrants and Rights, asset	5,805		—		—				57		(1,385		)	(1,869		)	2,608		(432		)
Real estate	2,088		—		—				50,000		(50,027		)	224			2,285		224
Lehman claim	378		—		—				—		(76		)	58			360		58
Contingent consideration liability	6,937		—		—				—		(518		)	—			6,419		—
Consolidated Funds
Lehman claim	4,842		—		—				—		(4,711		)	230			361		230

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

operations.

(a) The company completed an initial public offering.

(b) The company transferred investments to a consolidated fund.

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.

The Company recognizes all transfers and the related unrealized gain (loss) 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 and nine months ended September 30, 2015 and 2014, there were no transfers between level 1 and level 2 assets and liabilities.

The following table includes quantitative information as of September 30, 2015 and December 31, 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 September 30, 2015		Valuation techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	3,110	Market/transaction multiples and option pricing method	Volatility Market multiples	42% 1x to 5.25x
Convertible bonds	1,129		Recovery analysis	Recovery rate	50%
Warrants and rights, net	2,994		Model based	Volatility	17% to 60% (weighted average 29%)
Options	21,591		Option pricing models	Volatility	29%
Other level 3 assets (a)	34,229
Total level 3 assets	63,053
Level 3 Liabilities
Options	21,591		Option pricing models	Volatility	29%
Contingent consideration	5,458		Discounted cash flows	Projected cash flow and discount rate	9% - 24.5% (weighted average 18%)
Total level 3 liabilities	$	27,049



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at December 31, 2014		Valuation techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	12,269	Market multiples and option pricing method	Volatility Market multiples	45% 1x to 6x
Convertible bonds	900		Recovery analysis	Recovery rate	50%
Warrants and rights, net	1,322		Model based	Volatility	20% to 60% (weighted average 34%)
Options	36,807		Option pricing models	Volatility Credit spreads	30% to 40% 500bps - 750 bps
Other level 3 assets (a)	3,708
Total level 3 assets	55,006
Level 3 Liabilities
Options	36,807		Option pricing models	Volatility Credit spreads	30% to 40% 500bps - 750 bps
Contingent consideration	4,083		Discounted cash flows	Projected cash flow and discount rate	9%
Total level 3 liabilities	$	40,890


(a)	The quantitative disclosures exclude financial instruments for which the determination of fair value is based on prices from prior transactions and investments for which NAV per share is used as a practical expedient to determine fair value.

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.

Other financial assets and liabilities at fair value

The following table presents the carrying values and fair values, at September 30, 2015 and December 31, 2014, of financial assets and liabilities and information on their classification within the fair value hierarchy which are not measured at fair value on a recurring basis. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value see Note 3.



	September 30, 2015						December 31, 2014						Fair Value Hierarchy
	Carrying Amount			Fair Value			Carrying Amount			Fair Value			Fair Value Hierarchy
				(dollars in thousands)
Financial Assets
Operating companies
Cash and cash equivalents	$	92,854		$	92,854		$	129,509		$	129,509		Level 1
Cash collateral pledged	9,129			9,129			8,306			8,306			Level 2
Securities borrowed	—			—			676,100			660,445			Level 1
Consolidated funds
Cash and cash equivalents	16,625			16,625			501			501			Level 1
Financial Liabilities
Securities loaned	—			—			682,493			661,533			Level 1
Convertible debt	123,149		(a)	158,470		(b)	118,475		(a)	160,713		(b)	Level 2
Notes payable and other debt	66,628			69,436			67,144			69,548			Level 2


(a)	The carrying amount of the convertible debt includes an unamortized discount of $26.4 million and $31.0 million as of September 30, 2015 and December 31, 2014.


(b)	The convertible debt include the conversion option and is based on the last broker quote available.