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

9 Months Ended

Sep. 30, 2016

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 September 30, 2016 and December 31, 2015:



	Assets at Fair Value as of September 30, 2016
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned
US Government securities	$	3,776		$	—		$	—		$	3,776
Preferred stock	—			—			12,964			12,964
Common stocks	490,854			1,638			11,601			504,093
Convertible bonds	—			—			250			250
Corporate bonds	—			17,574			220			17,794
Warrants and rights	2,205			—			3,557			5,762
Mutual funds	5			—			—			5
Receivable on derivative contracts, at fair value
Futures	704			—			—			704
Currency forwards	—			17			—			17
Equity swaps	—			1,442			—			1,442
Options	9,484			2,820			12,961			25,265
Other investments
Lehman claim	—			—			283			283
Consolidated funds
Securities owned
US Government securities	3,999			—			—			3,999
Preferred stock	—			352			36,891			37,243
Common stocks	14,306			8,644			—			22,950
Corporate Bonds	—			5,452			—			5,452
Warrants and rights	—			—			3			3
Term Loan	—			1,809			—			1,809
Receivable on derivative contracts, at fair value
Currency forwards	—			1			—			1
Futures	—			366			—			366
Options	57			5			—			62
	$	525,390		$	40,120		$	78,730		$	644,240
Percentage of total assets measured at fair value	81.6		%	6.2		%	12.2		%
Portfolio funds measured at net asset value (a)										115,682
Consolidated funds' portfolio funds measured at net asset value (a)										391,872
Equity method investments										51,485
Total investments										$	1,203,279



	Liabilities at Fair Value as of September 30, 2016
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased
Common stocks	$	208,478		$	13		$	—		$	208,491
Corporate bonds	—			3,653			—			3,653
Warrants and rights	39			—			—			39
Payable for derivative contracts, at fair value
Futures	1,235			—			—			1,235
Currency forwards	—			37			—			37
Options	2,788			—			12,961			15,749
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			7,201			7,201
Consolidated funds
Securities sold, not yet purchased
Common stocks	395			—			—			395
Corporate bonds	—			1,145			—			1,145
Payable for derivative contracts, at fair value
Options	30			—			—			30
Futures	—			246			—			246
	$	212,965		$	5,094		$	20,162		$	238,221
Percentage of total liabilities measured at fair value	89.4		%	2.1		%	8.5		%

(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 and fourth quarter of 2015 and the second quarter of 2016, 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, December 2018, December 2020, and June 2018, 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, 2016 can range from $0.1 million to $16.3 million.



	Assets at Fair Value as of December 31, 2015
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned
US Government securities	$	3,016		$	—		$	—		$	3,016
Preferred stock	7,891			4,800			12,872			25,563
Common stocks	505,303			7,527			3,278			516,108
Convertible bonds	—			—			819			819
Corporate bonds	—			47,192			—			47,192
Warrants and rights	487			—			2,572			3,059
Mutual funds	14,477			—			—			14,477
Receivable on derivative contracts, at fair value
Futures	189			—			—			189
Currency forwards	—			659			—			659
Equity swaps	—			2,327			—			2,327
Options	11,895			6,354			18,194			36,443
Other investments
Lehman claim	—			—			299			299
Consolidated funds
Preferred stock	—			—			32,000			32,000
	$	543,258		$	68,859		$	70,034		$	682,151
Percentage of total assets measured at fair value	79.6		%	10.1		%	10.3		%
Portfolio funds measured at net asset value (a)										113,281
Consolidated funds' portfolio funds measured at net asset value (a)										263,818
Equity method investments										27,067
Total investments										$	1,086,317



	Liabilities at Fair Value as of December 31, 2015
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Securities sold, not yet purchased
Common stocks	$	257,101		$	—		$	—		$	257,101
Corporate bonds	—			58			—			58
Payable for derivative contracts, at fair value
Futures	101			—			—			101
Currency forwards	—			463			—			463
Equity and credit default swaps	—			71			—			71
Options	2,354			—			18,194			20,548
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			6,158			6,158
	$	259,556		$	592		$	24,352		$	284,500
Percentage of total liabilities measured at fair value	91.2		%	0.2		%	8.6		%

(b) In accordance with the terms of the purchase agreements for acquisitions that closed during 2012 and the third and fourth 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, December 2018, 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 December 31, 2015 can range from $0.1 million to $10.0 million.

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

The following table includes a rollforward of the amounts for the three and nine months ended September 30, 2016 and 2015, 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, 2016
	Balance at June 30, 2016		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2016		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	13,242	$	—	$	—			$	250	$	—		$	(528	)	$	12,964	$	(508	)
Common stocks	7,427		—		—				3,716		—			458			11,601		458
Convertible bonds	250		—		—				—		—			—			250		—
Corporate bond	319		—		—				—		(179		)	80			220		45
Options, asset	8,547		—		—				—		—			4,414			12,961		4,414
Options, liability	8,547		—		—				—		—			4,414			12,961		4,414
Warrants and rights	3,303		—		—				—		—			254			3,557		252
Lehman claim	270		—		—				—		—			13			283		13
Contingent consideration liability	7,197		—		—				—		—			4			7,201		4
Consolidated Funds
Preferred stock	41,000		—		(7,000		)	(a)	467		—			2,424			36,891		2,424
Warrants and rights	—		—		—				—		—			3			3		3



	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
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		)	—		—



	Nine Months Ended September 30, 2016
	Balance at December 31, 2015		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2016		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	12,872	$	—	$	(1,000	)	(a)	$	450	$	(218	)	$	860		$	12,964	$	452
Common stocks	3,278		—		—				5,710		(135		)	2,748			11,601		2,750
Convertible bonds	819		—		—				—		(569		)	—			250		—
Corporate bond	—		—		—				279		(179		)	120			220		85
Options, asset	18,194		—		—				—		—			(5,233		)	12,961		(5,233		)
Options, liability	18,194		—		—				—		—			(5,233		)	12,961		(5,233		)
Warrants and Rights	2,572		—		—				1,914		(817		)	(112		)	3,557		(87		)
Lehman claim	299		—		—				—		—			(16		)	283		(16		)
Contingent consideration liability	6,158		—		—				2,397		(3,493		)	2,139			7,201		2,139
Consolidated Funds
Preferred stock	32,000				(11,000		)	(a)	13,467		—			2,424			36,891		2,424
Warrants and rights	—		—		—				—		—			3			3		3



	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, asset	1,322		—		—				26		(71		)	1,717			2,994		1,757
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			—		250

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

statements of operations.

(a) The investment was converted to equity.

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

Fair Value Inputs, Assets, Quantitative Information

The following table includes quantitative information as of September 30, 2016 and December 31, 2015 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, 2016		Valuation techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	8,803	Market/transaction price and option pricing method Illiquidity discount, discounted cash flow	Volatility Market multiples Discount Discount rate	35% 4x to 9.5x 90% 9.5%
Corporate bonds	188		Discounted cash flows illiquidity discount	Discount rate Discount	20% 10%
Warrants and rights, net	3,649		Model based	Volatility	18% to 85% (weighted average 75%)
Options	12,961		Option pricing models	Volatility	40%
Other level 3 assets (a)	53,129
Total level 3 assets	78,730
Level 3 Liabilities
Options	12,961		Option pricing models	Volatility	40%
Contingent consideration	7,201		Discounted cash flows	Projected cash flow and discount rate	0% - 31% (weighted average 21%)
Total level 3 liabilities	$	20,162



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at December 31, 2015		Valuation techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	2,569	Market multiples and option pricing method	Volatility Market multiples	34% 1x to 4.75x
Convertible bonds	819		Recovery analysis	Recovery rate	50%
Warrants and rights, net	2,572		Model based	Volatility	18% to 61% (weighted average 43%)
Options	18,194		Option pricing models	Volatility Credit spreads	38%
Other level 3 assets (a)	45,880
Total level 3 assets	70,034
Level 3 Liabilities
Options	18,194		Option pricing models	Volatility Credit spreads	38%
Contingent consideration	6,158		Discounted cash flows	Projected cash flow and discount rate	6.6% - 24.5% (weighted average 16.4%)
Total level 3 liabilities	$	24,352


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

Fair Value Measurements, Nonrecurring

The following table presents the carrying values and fair values, at September 30, 2016 and December 31, 2015, 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, 2016						December 31, 2015						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	$	76,925		$	76,925		$	158,485		$	158,485		Level 1
Cash collateral pledged	13,783			13,783			10,085			10,085			Level 2
Consolidated funds
Cash and cash equivalents	10,370			10,370			13,934			13,934			Level 1
Financial Liabilities
Convertible debt	128,065		(a)	145,676		(b)	122,401		(a)	144,946		(b)	Level 2
Notes payable and other debt	78,357			84,257			68,565			71,945			Level 2


(a)	The carrying amount of the convertible debt includes an unamortized discount of $19.6 million and $24.7 million as of September 30, 2016 and December 31, 2015.


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