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 September 30, 2017 and December 31, 2016:



	Assets at Fair Value as of September 30, 2017
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned
US Government securities	$	2,793		$	—		$	—		$	2,793
Preferred stock	—			—			17,989			17,989
Common stocks	602,781			5,908			12,090			620,779
Convertible bonds	—			—			282			282
Corporate bonds	—			2,655			—			2,655
Trade claims	—			—			5,946			5,946
Warrants and rights	6,932			—			2,396			9,328
Receivable on derivative contracts, at fair value
Futures	15			—			—			15
Currency forwards	—			186			—			186
Swaps	—			4,923			—			4,923
Options	16,398			224			10,359			26,981
Other investments
Lehman claim	—			—			319			319
Consolidated Funds
Securities owned
US Government securities	21,968			—			—			21,968
Preferred stock	—			—			18,943			18,943
Common stocks	54,261			19,080			—			73,341
Warrants and rights	—			—			3,378			3,378
Receivable on derivative contracts, at fair value
Currency forwards	—			3			—			3
Equity swaps	—			809			—			809
Options	230			—			—			230
	$	705,378		$	33,788		$	71,702		$	810,868
Percentage of total assets measured at fair value	87.0		%	4.2		%	8.8		%
Portfolio funds measured at net asset value (a)										98,491
Consolidated funds' portfolio funds measured at net asset value (a)										401,348
Equity method investments										42,370
Total investments										$	1,353,077



	Liabilities at Fair Value as of September 30, 2017
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased
Common stocks	$	305,022		$	—		$	—		$	305,022
Corporate bonds	—			59			—			59
Warrants and rights	186			—			—			186
Payable for derivative contracts, at fair value
Futures	175			—			—			175
Currency forwards	—			18			—			18
Swaps	—			1,693			—			1,693
Options	14,072			—			10,359			24,431
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			5,049			5,049
Consolidated Funds
Payable for derivative contracts, at fair value
Currency forwards	—			551			—			551
Options	64			—			—			64
Equity swaps	—			1,132			—			1,132
	$	319,519		$	3,453		$	15,408		$	338,380
Percentage of total liabilities measured at fair value	94.4		%	1.0		%	4.6		%

(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 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 and/or revenues of the acquired businesses, if certain targets are achieved through the periods ended 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, 2017 can range from $0.1 million to $15.0 million.



	Assets at Fair Value as of December 31, 2016
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned
US Government securities	$	3,780		$	—		$	—		$	3,780
Preferred stock	—			—			15,811			15,811
Common stocks	658,179			1,355			10,121			669,655
Convertible bonds	—			—			250			250
Corporate bonds	—			2,477			—			2,477
Trade claims	—			—			562			562
Warrants and rights	4,616			—			3,719			8,335
Mutual funds	6			—			—			6
Receivable on derivative contracts, at fair value
Futures	104			—			—			104
Currency forwards	—			592			—			592
Swaps	—			468			—			468
Options	6,662			322			14,753			21,737
Other investments
Lehman claim	—			—			265			265
Consolidated Funds
Securities owned
US Government securities	6,994			—			—			6,994
Preferred stock	—			415			36,928			37,343
Common stocks	19,467			8,712			295			28,474
Corporate bonds	—			4,214			—			4,214
Warrants and rights	—			—			3			3
Term loan	—			1,552			657			2,209
Receivable on derivative contracts, at fair value
Currency forwards	—			18			—			18
Equity swaps	—			731			—			731
Options	132			12			—			144
	$	699,940		$	20,868		$	83,364		$	804,172
Percentage of total assets measured at fair value	87.0		%	2.6		%	10.4		%
Portfolio funds measured at net asset value (a)										120,023
Consolidated funds' portfolio funds measured at net asset value (a)										401,465
Equity method investments										36,991
Total investments										$	1,362,651



	Liabilities at Fair Value as of December 31, 2016
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased
Common stocks	$	263,460		$	—		$	—		$	263,460
Corporate bonds	—			2,591			—			2,591
Warrants and rights	39			—			—			39
Payable for derivative contracts, at fair value
Futures	642			—			—			642
Swaps	—			181			—			181
Options	5,186			—			14,753			19,939
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			5,997			5,997
Consolidated Funds
Securities sold, not yet purchased
Common stocks	211			—			—			211
Corporate bonds	—			672			—			672
Payable for derivative contracts, at fair value
Currency forwards	—			10			—			10
Options	67			—			—			67
Equity swaps	—			495			—			495
	$	269,605		$	3,949		$	20,750		$	294,304
Percentage of total liabilities measured at fair value	91.6		%	1.3		%	7.1		%

(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 and/or revenues of the acquired businesses, if certain targets are achieved through the periods ended 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, 2016 can range from $0.1 million to $15.1 million.

The following table includes a rollforward of the amounts for the three and nine months ended September 30, 2017 and 2016, 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, 2017
	Balance at June 30, 2017		Transfers in		Transfers out		Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2017		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	18,576	$	—	$	—	$	—	$	—		$	(587	)	$	17,989	$	(587	)
Common stocks	10,588		—		—		3,151		(1,946		)	297			12,090		297
Convertible bonds	282		—		—		250		—			(250		)	282		—
Options, asset	9,860		—		—		—		—			499			10,359		499
Options, liability	9,860		—		—		—		—			499			10,359		499
Warrants and rights	3,409		—		—		—		—			(1,013		)	2,396		187
Trade claims	4,648		—		—		1,925		(630		)	3			5,946		3
Lehman claim	309		—		—		—		—			10			319		10
Contingent consideration liability	5,174		—		—		—		(125		)	—			5,049		—
Consolidated Funds
Preferred stock	18,224		—		—		467		—			252			18,943		252
Common stocks	848		—		—		—		(848		)	—			—		—
Warrants and rights	3,369		—		—		—		—			9			3,378		9
Term Loan	202		—		—		—		(200		)	(2		)	—		—



	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	5,927		—		—				3,716		—			719			10,362		458
Convertible bonds	250		—		—				—		—			—			250		—
Corporate bonds	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



	Nine Months Ended September 30, 2017
	Balance at December 31, 2016		Transfers in			Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2017		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	15,811	$	—		$	(3,472	)	(a)	$	9,000	$	(31	)	$	(3,319	)	$	17,989	$	(1,006	)
Common stocks	10,121		—			—				3,182		(2,121		)	908			12,090		908
Convertible bonds	250		—			—				282		—			(250		)	282		—
Options, asset	14,753		—			—				—		—			(4,394		)	10,359		(4,394		)
Options, liability	14,753		—			—				—		—			(4,394		)	10,359		(4,394		)
Warrants and rights	3,719		3,192		(b) (d)	—				—		(4,367		)	(148		)	2,396		510
Trade claims	562		—			—				5,865		(700		)	219			5,946		198
Lehman claim	265		—			—				—		—			54			319		54
Contingent consideration liability	5,997		—			—				—		(392		)	(556		)	5,049		(556		)
Consolidated Funds
Preferred stock	36,928		—			(13,668		)	(a)	467		(11,853		)	7,069			18,943		2,958
Common stocks	295		—			—				476		(848		)	77			—		—
Warrants and rights	3		—			—				—		—			3,375			3,378		3,375
Term Loan	657		—			—				202		(1,021		)	162			—		—



	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	)	(c)	$	450	$	(218	)	$	860		$	12,964	$	452
Common stocks	2,278		—		—				5,210		(135		)	3,009			10,362		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

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

(a) The investments were converted to common stock.

(b) The Company received warrants as part of a transaction.

(d) As part of the preferred stock sale, the sellers received contingent value rights to be paid in the event certain

milestones are reached.

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 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 nine months ended September 30, 2017 and 2016, there were no transfers between level 1 and level 2 assets and liabilities.

The following table includes quantitative information as of September 30, 2017 and December 31, 2016 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, 2017		Valuation techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	3,447	Guideline companies/transaction price discounted cash flow	Market multiples Discount rate	4.8x to 9.3x 9.5%
Trade claims	70		Discounted cash flows	Discount rate	20%
Warrants and rights	2,395		Model based Discounted cash flows	Volatility Discount rate	53% to 60% (weighted average 55%) 22%
Options	10,359		Option pricing models	Volatility	30%
Other level 3 assets (a)	55,431
Total level 3 assets	71,702
Level 3 Liabilities
Options	10,359		Option pricing models	Volatility	30%
Contingent consideration liability	5,049		Discounted cash flows	Projected cash flow and discount rate	7% - 24% (weighted average 22%)
Total level 3 liabilities	$	15,408



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at December 31, 2016		Valuation techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	10,917	Guideline companies/transaction price Option pricing method, discounted cash flow	Volatility Market multiples Discount rate	37% 0.8x to 9.3x 9.5% to 10%
Trade claims	520		Discounted cash flows	Market multiples Discount rate	6x 20%
Warrants and rights	3,719		Model based	Volatility	30% to 85% (weighted average 73%)
Options	14,753		Option pricing models	Volatility	40%
Other level 3 assets (a)	53,455
Total level 3 assets	83,364
Level 3 Liabilities
Options	14,753		Option pricing models	Volatility	40%
Contingent consideration liability	5,997		Discounted cash flows	Projected cash flow and discount rate	8% - 25% (weighted average 23%)
Total level 3 liabilities	$	20,750


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

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

The following table presents the carrying values and fair values, at September 30, 2017 and December 31, 2016, 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, 2017						December 31, 2016						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	$	117,824		$	117,824		$	110,990		$	110,990		Level 1
Cash collateral pledged	16,995			16,995			13,342			13,342			Level 2
Segregated cash	140,656			140,656			1,024			1,024			Level 1
Securities borrowed	371,367			358,673			—			—			Level 2
Loans receivable	23,007			23,007		(d)	31,088			31,088		(d)	Level 3
Consolidated funds
Cash and cash equivalents	11,156			11,156			17,761			17,761			Level 1
Financial Liabilities
Securities loaned	414,957			407,706			—			—			Level 2
Convertible debt	136,189		(a)	157,522		(b)	130,029		(a)	149,545		(b)	Level 2
Notes payable and other debt	101,267			107,119		(c)	77,030			80,817		(c)	Level 2


(a)	The carrying amount of the convertible debt includes an unamortized discount of $12.2 million and $17.8 million as of September 30, 2017 and December 31, 2016.


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


(c)	Notes payable and other debt are based on the last broker quote available.


(d)	The fair market value of level 3 loans is calculated using discounted cash flows.