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

9 Months Ended

Sep. 30, 2018

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, 2018 and December 31, 2017:



	Assets at Fair Value as of September 30, 2018
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned
US Government securities	$	2,842		$	—		$	—		$	2,842
Preferred stock	1,308			—			5,158			6,466
Common stock	564,140			6,906			5,674			576,720
Corporate bonds	—			30,992			—			30,992
Trade claims	—			—			5,746			5,746
Warrants and rights	19,821			—			1,582			21,403
Receivable on derivative contracts, at fair value
Currency forwards	—			1,088			—			1,088
Swaps	—			1,203			—			1,203
Options	29,330			—			—			29,330
Pay to hold	—			608			—			608
Consolidated Funds
Securities owned
US Government securities	20,446			—			—			20,446
Preferred stock	—			—			24,314			24,314
Common stock	55,441			—			94			55,535
Corporate bonds	—			3,758			—			3,758
Warrants and rights	—			—			4,848			4,848
Receivable on derivative contracts, at fair value
Currency forwards	—			27			—			27
Equity swaps	—			1,584			—			1,584
Options	300			—			—			300
	$	693,628		$	46,166		$	47,416		$	787,210
Percentage of total assets measured at fair value on a recurring basis	88.1		%	5.9		%	6.0		%
Portfolio funds measured at net asset value (a)										125,107
Consolidated funds' portfolio funds measured at net asset value (a)										183,290
Equity method investments										42,321
Total investments										$	1,137,928



	Liabilities at Fair Value as of September 30, 2018
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased
Common stock	$	353,113		$	—		$	—		$	353,113
Corporate bonds	—			20,309			—			20,309
Preferred stock	836			—			—			836
Warrants and rights	260			—			—			260
Payable for derivative contracts, at fair value
Futures	71			—			—			71
Currency forwards	—			4			—			4
Swaps	—			2,743			—			2,743
Options	24,637			—			2,547			27,184
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			2,643			2,643
Consolidated Funds
Payable for derivative contracts, at fair value
Currency forwards	—			539			—			539
Options	60			—			—			60
Equity swaps	—			1,590			—			1,590
	$	378,977		$	25,185		$	5,190		$	409,352
Percentage of total liabilities measured at fair value	92.6		%	6.2		%	1.3		%

(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, 2018 can range from $0.1 million to $7.0 million.



	Assets at Fair Value as of December 31, 2017
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned
US Government securities	$	2,807		$	—		$	—		$	2,807
Preferred stock	571			918			8,115			9,604
Common stock	627,011			5,484			7,570			640,065
Convertible bonds	—			—			282			282
Corporate bonds	—			4,909			—			4,909
Trade claims	—			—			5,950			5,950
Warrants and rights	7,087			—			2,517			9,604
Receivable on derivative contracts, at fair value
Futures	58			—			—			58
Currency forwards	—			5			—			5
Swaps	—			10,942			—			10,942
Options	56,717			—			1,455			58,172
Other investments
Lehman claim	—			—			301			301
Consolidated Funds
Securities owned
US Government securities	30,552			3,649			—			34,201
Preferred stock	—			—			50,445			50,445
Common stock	77,652			—			50			77,702
Warrants and rights	—			—			3,568			3,568
Receivable on derivative contracts, at fair value
Currency forwards	—			524			—			524
Equity swaps	—			1,754			—			1,754
Options	242			—			—			242
	$	802,697		$	28,185		$	80,253		$	911,135
Percentage of total assets measured at fair value on a recurring basis	88.1		%	3.1		%	8.8		%
Portfolio funds measured at net asset value (a)										100,148
Consolidated funds' portfolio funds measured at net asset value (a)										374,111
Equity method investments										41,099
Total investments										$	1,426,493



	Liabilities at Fair Value as of December 31, 2017
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased
Common stock	$	342,328		$	—		$	—		$	342,328
Corporate bonds	—			122			—			122
Preferred stock	77			—			—			77
Payable for derivative contracts, at fair value
Futures	242			—			—			242
Currency forwards	—			874			—			874
Swaps	—			71			—			71
Options	19,162			—			22,401			41,563
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			3,440			3,440
Consolidated Funds
Payable for derivative contracts, at fair value
Currency forwards	—			11			—			11
Options	77			—			—			77
Equity swaps	—			7,042			—			7,042
	$	361,886		$	8,120		$	25,841		$	395,847
Percentage of total liabilities measured at fair value	91.4		%	2.1		%	6.5		%

(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 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, 2017 can range from $0.1 million to $15.0 million.

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

The following table includes a roll forward of the amounts for the three and nine months ended September 30, 2018 and 2017 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, 2018
	Balance at June 30, 2018		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2018		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	7,422	$	—	$	(1,141	)	(c)	$	—	$	—		$	(1,123	)	$	5,158	$	(1,124	)
Common stock	5,848		—		—				—		—			(174		)	5,674		(174		)
Options, liability	301		—		—				—		—			2,246			2,547		2,246
Warrants and rights	1,544		—		—				—		—			38			1,582		38
Trade claims	5,699		—		—				44		—			3			5,746		3
Lehman claim	295		—		—				—		(234		)	(61		)	—		—
Contingent consideration liability	2,870		—		—				—		(227		)	—			2,643		—
Consolidated Funds
Preferred stock	24,314		—		—				—		—			—			24,314		—
Common stock	94		—		—				—		—			—			94		—
Warrants and rights	4,738		—		—				—		—			110			4,848		110




	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 stock	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 stock	848		—		—		—		(848		)	—			—		—
Warrants and rights	3,369		—		—		—		—			9			3,378		9
Term Loan	202		—		—		—		(200		)	(2		)	—		—



	Nine Months Ended September 30, 2018
	Balance at December 31, 2017		Transfers in		Transfers out				Purchases/(covers)			(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2018		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	8,115	$	—	$	(1,141	)	(c)	$	1,415		$	(695	)	$	(2,536	)	$	5,158	$	(2,301	)
Common stock	7,570		—		—				531			(1,333		)	(1,094		)	5,674		(1,128		)
Convertible bonds	282		—		—				—			(307		)	25			—		—
Options, asset	1,455		—		—				—			(1,455		)	—			—		—
Options, liability	22,401		—		(28,973		)	(e)	—			(259		)	9,378			2,547		9,378
Warrants and rights	2,517		—		—				—			(143		)	(792		)	1,582		(933		)
Trade claims	5,950		—		—				44			(334		)	86			5,746		23
Lehman claim	301		—		—				—			(234		)	(67		)	—		—
Contingent consideration liability	3,440		—		—				—			(797		)	—			2,643		—
Consolidated Funds
Preferred stock	50,445		—		(38,552		)	(a)	3,066			—			9,355			24,314		9,355
Common stock	50		—		—				—			—			44			94		44
Warrants and rights	3,568		—		(20		)	(a)	(1,340		)	—			2,640			4,848		1,300



	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	)	(c)	$	9,000	$	(31	)	$	(3,319	)	$	17,989	$	(1,006	)
Common stock	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 claim	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		)	(c)	467		(11,853		)	7,069			18,943		2,958
Common stock	295		—			—				476		(848		)	77			—		—
Warrants and rights	3		—			—				—		—			3,375			3,378		3,375
Term Loan	657		—			—				202		(1,021		)	162			—		—

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

(a) The Company deconsolidated a fund (See note 3)

(b) The Company received warrants as consideration as part of an investment banking 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.

(e) On June 26, 2018, the Company received shareholder approval which will allow the Company to settle its

convertible note (see Note 17) entirely in class A common shares. Upon receiving shareholder approval, the

Company reclassified the embedded conversion option, associated with the convertible debt, to equity. (See Note

18)

Fair Value Inputs, Assets, Quantitative Information

The following table includes quantitative information as of September 30, 2018 and December 31, 2017 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, 2018		Valuation Techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	2,508	Guideline companies/Discounted cash flows	Discount rate Market multiples	50% 4.5x to 9x
Trade claims	25		Discounted cash flows	Discount rate	20%
Warrants and rights	1,582		Model based Discounted cash flows	Discount rate	7% to 9%
Other level 3 assets (a)	43,301
Total level 3 assets	$	47,416
Level 3 Liabilities
Options	2,547		Option pricing models	Volatility	30% to 35%
Contingent consideration liability	2,643		Discounted cash flows	Projected cash flow and discount rate	23%
Total level 3 liabilities	$	5,190



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at December 31, 2017		Valuation Techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	5,642	Guideline companies/transaction price	Market multiples	4.8x to 8.5x
Trade claims	70		Discounted cash flows	Discount rate	20%
Warrants and rights	2,516		Model based Discounted cash flows	Volatility Discount rate	61% 22%
Options	1,455		Option pricing models	Volatility	28%
Other level 3 assets (a)	70,570
Total level 3 assets	$	80,253
Level 3 Liabilities
Options	22,401		Option pricing models	Volatility	28%
Contingent consideration liability	3,440		Discounted cash flows	Projected cash flow and discount rate	8% to 23% (weighted average 22%)
Total level 3 liabilities	$	25,841


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

Fair Value Measurements, Nonrecurring

The following table presents the carrying values and fair values, at September 30, 2018 and December 31, 2017, 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, 2018						December 31, 2017						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	$	193,066		$	193,066		$	130,052		$	130,052		Level 1
Cash collateral pledged	16,092			16,092			17,888			17,888			Level 2
Segregated cash	154,191			154,191			116,268			116,268			Level 1
Securities borrowed	713,288			$	684,569		443,148			414,763			Level 2
Loans receivable	36,009			36,009		(d)	37,993			37,993		(d)	Level 3
Consolidated funds
Cash and cash equivalents	18,747			18,747			21,988			21,988			Level 1
Financial Liabilities
Securities loaned	548,629			531,984			456,831			440,162			Level 2
Convertible debt	133,126		(a)	173,246		(b)	141,502		(a)	172,709		(b)	Level 2
Notes payable and other debt	271,082			284,021		(c)	173,458			182,352		(c)	Level 2


(a)	The carrying amount of the convertible debt includes an unamortized discount of $24.9 million and $25.6 million as of September 30, 2018 and December 31, 2017, respectively.


(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.