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

6 Months Ended

Jun. 30, 2019

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, 2019 and December 31, 2018:



	Assets at Fair Value as of June 30, 2019
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds	$	12,892		$	—		$	—		$	12,892
Preferred stock	2,371			—			7,401			9,772
Common stock	811,041			2,834			11,006			824,881
Convertible bonds	—			—			6,318			6,318
Corporate bonds	—			23,850			775			24,625
Trade claims	—			—			10,488			10,488
Term Loan	—			1,496			—			1,496
Warrants and rights	9,279			—			595			9,874
Receivable on derivative contracts, at fair value
Currency forwards	—			279			—			279
Swaps	—			9,440			—			9,440
Options	22,501			—			—			22,501
Consolidated Funds
Securities owned, at fair value
Preferred stock	—			—			24,322			24,322
Common stock	235,049			—			1,017			236,066
Corporate bonds	—			78,630			—			78,630
Warrants and rights	—			—			6,274			6,274
Receivable on derivative contracts, at fair value
Currency forwards	—			379			—			379
Equity swaps	—			1,273			—			1,273
Options	2,802			—			—			2,802
	$	1,095,935		$	118,181		$	68,196		$	1,282,312
Percentage of total assets measured at fair value on a recurring basis	85.5		%	9.2		%	5.3		%
Portfolio Funds measured at net asset value (a)										146,133
Consolidated Funds' Portfolio Funds measured at net asset value (a)										177,828
Equity method investments										54,164
Total investments										$	1,660,437



	Liabilities at Fair Value as of June 30, 2019
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
Government bonds	$	—		$	4,681		$	—		$	4,681
Common stock	409,034			—			—			409,034
Corporate bonds	—			2,581			—			2,581
Preferred stock	2,088			—			—			2,088
Warrants and rights	20,200			—			—			20,200
Payable for derivative contracts, at fair value
Futures	434			—			—			434
Currency forwards	—			1			—			1
Swaps	—			2,231			—			2,231
Options	17,000			—			2,779			19,779
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			29,536			29,536
Consolidated Funds
Payable for derivative contracts, at fair value
Currency forwards	—			103			—			103
Options	108			—			—			108
Equity swaps	—			2,405			—			2,405
	$	448,864		$	12,002		$	32,315		$	493,181
Percentage of total liabilities measured at fair value	91.0		%	2.4		%	6.6		%

(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 second quarter of 2016 and the first quarter of 2019, 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 2019 and December 2023, respectively. For the acquisition closed during 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. For the acquisition that closed during 2019, the Company estimated the contingent consideration liability using the present value of the monte carlo simulated revenue. Changes in these estimates and assumptions could have a significant impact on the amounts recognized. The undiscounted amounts as of June 30, 2019 can range from $1.6 million to $40.0 million.



	Assets at Fair Value as of December 31, 2018
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds	$	13,398		$	—		$	—		$	13,398
Preferred stock	449			—			5,168			5,617
Common stock	459,601			2,848			9,850			472,299
Convertible bonds	—			—			3,000			3,000
Corporate bonds	—			13,041			—			13,041
Trade claims	—			—			5,543			5,543
Warrants and rights	6,324			—			1,666			7,990
Receivable on derivative contracts, at fair value
Futures	334			—			—			334
Currency forwards	—			1			—			1
Swaps	—			917			—			917
Options	23,130			—			—			23,130
Pay to hold	—			743			—			743
Consolidated Funds
Securities owned, at fair value
Government bonds	38,377			—			—			38,377
Preferred stock	—			—			24,314			24,314
Common stock	95,471			—			94			95,565
Corporate bonds	—			24,098			—			24,098
Warrants and rights	—			—			5,279			5,279
Receivable on derivative contracts, at fair value
Currency forwards	—			186			—			186
Equity swaps	—			2,477			—			2,477
Options	1,753			—			—			1,753
	$	638,837		$	44,311		$	54,914		$	738,062
Percentage of total assets measured at fair value on a recurring basis	86.6		%	6.0		%	7.4		%
Portfolio Funds measured at net asset value (a)										141,236
Consolidated Funds' Portfolio Funds measured at net asset value (a)										186,395
Equity method investments										40,171
Total investments										$	1,105,864



	Liabilities at Fair Value as of December 31, 2018
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
Common stock	$	194,305		$	—		$	—		$	194,305
Corporate bonds	—			750			—			750
Preferred stock	199			—			—			199
Warrants and rights	53			—			—			53
Payable for derivative contracts, at fair value
Currency forwards	—			709			—			709
Swaps	—			2,162			—			2,162
Options	11,115			—			2,096			13,211
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			3,070			3,070
Consolidated Funds
Payable for derivative contracts, at fair value
Currency forwards	—			96			—			96
Options	854			—			—			854
Equity swaps	—			713			—			713
	$	206,526		$	4,430		$	5,166		$	216,122
Percentage of total liabilities measured at fair value	95.6		%	2.0		%	2.4		%

(b) In accordance with the terms of the purchase agreements for the acquisition that closed during 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 business, if certain targets are achieved through the periods ended December 2020. 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, 2018 can range from $2.8 million to $3.4 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 six months ended June 30, 2019 and 2018 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, 2019
	Balance at March 31, 2019		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at June 30, 2019		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	7,157	$	—	$	—			$	1,243	$	(1,000	)	$	1		$	7,401	$	1
Common stock	4,951		—		—				12,896		(6,519		)	(322		)	11,006		(325		)
Convertible bonds	5,000				(2,025		)	(b)	9,971		(6,692		)	64			6,318		64
Corporate bond	261		—		—				514		—			—			775		—
Options, liability	1,733		—		—				—		—			1,046			2,779		1,046
Warrants and rights	454		—		—				—		—			141			595		141
Trade claims	5,487		—		—				5,095		(96		)	2			10,488		—
Contingent consideration liability	29,536		—		—				—		—			—			29,536		—
Consolidated Funds
Preferred stock	24,322		—		—				—		—			—			24,322		—
Common stock	1,017		—		—				—		—			—			1,017		—
Warrants and rights	4,708		—		—				—		—			1,566			6,274		1,566




	Three Months Ended June 30, 2018
	Balance at March 31, 2018		Transfers in		Transfers out				Purchases/(covers)			(Sales)/shorts			Realized and Unrealized gains/losses			Balance at June 30, 2018		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	8,817	$	—	$	—			$	—		$	(217	)	$	(1,178	)	$	7,422	$	(1,817	)
Common stock	7,400		—		—				221			(1,200		)	(572		)	5,849		(547		)
Options, liability	21,395		—		(28,973		)	(c)	—			(259		)	8,138			301		8,138
Warrants and rights	1,702		—		(374		)	(b)	—			(143		)	71			1,256		(1,176		)
Trade claims	5,955		—		—				—			(334		)	78			5,699		14
Lehman claim	312		—		—				—			—			(17		)	295		(18		)
Contingent consideration liability	3,440		—		—				—			(570		)	—			2,870		—
Consolidated Funds
Preferred stock	11,893		—		—				3,066			—			9,355			24,314		9,356
Common stock	50		—		—				—			—			44			94		43
Warrants and rights	5,254		—		—				(1,340		)	—			824			4,738		(516		)



	Six Months Ended June 30, 2019
	Balance at December 31, 2018		Transfers in		Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at June 30, 2019		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	5,168	$	—	$	—			$	3,243	$	(1,000	)	$	(10	)	$	7,401	$	(10	)
Common stock	9,850		—		—				14,158		(12,472		)	(530		)	11,006		(332		)
Convertible bonds	3,000		—		(2,025		)	(b)	14,971		(9,692		)	64			6,318		64
Corporate bond	—		—		—				775		—			—			775		—
Options, liability	2,096		—		—				—		(4		)	687			2,779		687
Warrants and rights	1,666		—		—				—		(116		)	(955		)	595		32
Trade claims	5,543		—		—				5,095		(152		)	2			10,488		—
Contingent consideration liability	3,070		—		—				27,700		(1,234		)	—			29,536		—
Consolidated Funds
Preferred stock	24,314		—		—				—		—			8			24,322		8
Common stock	94		—		—				407		—			516			1,017		516
Warrants and rights	5,279		—		—				—		(1,088		)	2,083			6,274		995



	Six Months Ended June 30, 2018
	Balance at December 31, 2017		Transfers in		Transfers out				Purchases/(covers)			(Sales)/shorts			Realized and Unrealized gains/losses			Balance at June 30, 2018		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	8,115	$	—	$	—			$	1,415		$	(695	)	$	(1,413	)	$	7,422	$	(1,331	)
Common stock	7,570		—		—				531			(1,333		)	(919		)	5,849		(959		)
Convertible bonds	282		—		—				—			(307		)	25			—		—
Options, asset	1,455		—		—				—			(1,455		)	—			—		—
Options, liability	22,401		—		(28,973		)	(c)	—			(259		)	7,132			301		7,132
Warrants and rights	2,517		—		(374		)	(b)	—			(143		)	(744		)	1,256		(666		)
Trade claim	5,950		—		—				—			(334		)	83			5,699		20
Lehman claim	301		—		—				—			—			(6		)	295		(6		)
Contingent consideration liability	3,440		—		—				—			(570		)	—			2,870		—
Consolidated Funds
Preferred stock	50,445		—		(38,552		)	(a)	3,066			—			9,355			24,314		9,356
Common stock	50		—		—				—			—			44			94		43
Warrants and rights	3,568		—		(20		)	(a)	(1,340		)	—			2,530			4,738		1,190

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

(a) The Company deconsolidated an investment fund.

(b) The investments were converted to common stock.

convertible note (see Note 18) 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 19).

Fair Value Inputs, Assets, Quantitative Information

The following table includes quantitative information as of June 30, 2019 and December 31, 2018 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, 2019		Valuation Techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	325	Discounted cash flows	Discount rate	8%
Trade claims	27		Discounted cash flows	Discount rate	20%
Warrants and rights	6,865		Model based Discounted cash flows	Volatility Discount rate	30% 6% to 7%
Corporate and convertible bonds	514		Discounted cash flows Recovery	Discount rate Probability of recovery	20% 15% to 70%
Other level 3 assets (a)	60,465
Total level 3 assets	$	68,196
Level 3 Liabilities
Options	2,779		Option pricing models	Volatility	35% to 40%
Contingent consideration liability	29,536		Discounted cash flows Monte Carlo simulation	Discount rate Volatility	14%-23% 14%-20%
Total level 3 liabilities	$	32,315



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at December 31, 2018		Valuation Techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	4,323	Guideline companies/Discounted cash flows	Discount rate Market multiples	8%-14% 6.5x to 7x
Trade claims	25		Discounted cash flows	Discount rate	20%
Warrants and rights	1,666		Model based Discounted cash flows	Discount rate	7% to 9%
Other level 3 assets (a)	48,900
Total level 3 assets	$	54,914
Level 3 Liabilities
Options	2,096		Option pricing models	Volatility	35% to 40%
Contingent consideration liability	3,070		Discounted cash flows	Projected cash flow and discount rate	23%
Total level 3 liabilities	$	5,166


(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 June 30, 2019 and December 31, 2018, 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 2.



	June 30, 2019						December 31, 2018						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	$	182,400		$	182,400		$	259,148		$	259,148		Level 1
Cash collateral pledged	7,097			7,097			6,318			6,318			Level 2
Segregated cash	139,070			139,070			176,647			176,647			Level 1
Securities borrowed	1,390,366			1,343,751			407,795			383,593			Level 2
Loans receivable	36,190			36,190		(d)	36,021			36,021		(d)	Level 3
Consolidated Funds
Cash and cash equivalents	3,357			3,357			38,118			38,118			Level 1
Financial Liabilities
Securities loaned	1,492,986			1,445,362			414,852			391,310			Level 2
Convertible debt	116,273		(a)	157,386		(b)	134,489		(a)	157,433		(b)	Level 2
Notes payable and other debt	315,290			330,848		(c)	262,965			258,546		(c)	Level 2


(a)	The carrying amount of the convertible debt includes an unamortized discount of $17.1 million and $19.5 million as of June 30, 2019 and December 31, 2018, 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.