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, 2019 and December 31, 2018:



	Assets at Fair Value as of September 30, 2019
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds	$	2,905		$	—		$	—		$	2,905
Preferred stock	8,750			—			7,835			16,585
Common stock	840,473			—			13,313			853,786
Convertible bonds	—			—			2,541			2,541
Corporate bonds	—			16,293			2,073			18,366
Trade claims	—			—			7,062			7,062
Term Loan	—			1,054			—			1,054
Warrants and rights	19,281			—			584			19,865
Receivable on derivative contracts, at fair value
Futures	103			—			—			103
Currency forwards	—			640			—			640
Swaps	—			4,242			—			4,242
Options	34,769			—			—			34,769
Consolidated Funds
Securities owned, at fair value
Government bonds	100,724			—			—			100,724
Preferred stock	41,875			—			4,393			46,268
Common stock	202,017			—			—			202,017
Corporate bonds	—			14,717			—			14,717
Warrants and rights	—			—			5,465			5,465
Receivable on derivative contracts, at fair value
Currency forwards	—			31			—			31
Equity swaps	—			1,296			—			1,296
Options	2,558			—			—			2,558
	$	1,253,455		$	38,273		$	43,266		$	1,334,994
Percentage of total assets measured at fair value on a recurring basis	93.9		%	2.9		%	3.2		%
Portfolio Funds measured at net asset value (a)										131,740
Carried interest (a)										25,186
Consolidated Funds' Portfolio Funds measured at net asset value (a)										171,186
Equity method investments										47,242
Total investments										$	1,710,348



	Liabilities at Fair Value as of September 30, 2019
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
Government bonds	$	—		$	—		$	2,250		$	2,250
Common stock	349,408			—			—			349,408
Corporate bonds	—			81			1,200			1,281
Preferred stock	4,394			—			—			4,394
Warrants and rights	7,409			—			—			7,409
Payable for derivative contracts, at fair value
Currency forwards	—			91			—			91
Swaps	—			6,502			—			6,502
Options	23,662			—			2,500			26,162
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			29,834			29,834
Consolidated Funds
Payable for derivative contracts, at fair value
Currency forwards	—			2,341			—			2,341
Options	415			—			—			415
Equity swaps	—			5,022			—			5,022
	$	385,288		$	14,037		$	35,784		$	435,109
Percentage of total liabilities measured at fair value	88.5		%	3.2		%	8.2		%

(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 and carried interest in portfolio funds 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 that 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 September 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)										123,241
Carried interest (a)										17,995
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.

The following table includes a roll forward of the amounts for the three and nine months ended September 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 September 30, 2019
	Balance at June 30, 2019		Transfers in			Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2019		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	7,401	$	—		$	(1,000	)	(e)	$	—	$	—		$	1,434		$	7,835	$	2,295
Common stock	11,006		—			—				2,579		(480		)	208			13,313		210
Convertible bonds	6,318					(2,801		)	(e)	1,049		(2,072		)	47			2,541		4
Corporate bond	775		20		(d)	—				1,117		—			161			2,073		161
Options, liability	2,779		—			—				—		—			(279		)	2,500		(279		)
Warrants and rights	595		—			—				—		(72		)	61			584		(12		)
Trade claims	10,488		—			—				1,871		(5,354		)	57			7,062		57
Corporate bond, liability	—		2,525		(d)	—				—		—			(1,325		)	1,200		(1,325		)
Government bonds, liability	—		4,681		(d)	—				—		—			(2,431		)	2,250		(2,431		)
Contingent consideration liability	29,536		—			—				—		—			298			29,834		298
Consolidated Funds
Preferred stock	24,322		—			(19,929		)	(e)	—		—			—			4,393		—
Common stock	1,017		—			(94		)	(e)	—		(957		)	34			—		—
Warrants and rights	6,274		—			—				—		(670		)	(139		)	5,465		(809		)




	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	)	(b)	$	—	$	—		$	(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



	Nine Months Ended September 30, 2019
	Balance at December 31, 2018		Transfers in			Transfers out				Purchases/(covers)		(Sales)/shorts			Realized and Unrealized gains/losses			Balance at September 30, 2019		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	5,168	$	—		$	(1,000	)	(e)	$	3,243	$	(1,000	)	$	1,424		$	7,835	$	2,285
Common stock	9,850		—			—				16,737		(12,952		)	(322		)	13,313		(122		)
Convertible bonds	3,000		—			(4,826		)	(b) (e)	16,021		(11,764		)	110			2,541		41
Corporate bond	—		20		(d)	—				1,892		—			161			2,073		161
Options, liability	2,096		—			—				—		(4		)	408			2,500		408
Warrants and rights	1,666		—			—				—		(188		)	(894		)	584		20
Trade claims	5,543		—			—				6,965		(5,506		)	60			7,062		57
Corporate Bond, liability	—		2,525		(d)	—				—		—			(1,325		)	1,200		(1,325		)
Government bonds, liability	—		4,681		(d)	—				—		—			(2,431		)	2,250		(2,431		)
Contingent consideration liability	3,070		—			—				27,700		(1,234		)	298			29,834		298
Consolidated Funds
Preferred stock	24,314		—			(19,929		)	(e)	—		—			8			4,393		8
Common stock	94		—			(94		)	(e)	407		(958		)	551			—		—
Warrants and rights	5,279		—			—				—		(1,758		)	1,944			5,465		190



	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	)	(b)	$	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		)	(c)	—			(259		)	9,378			2,547		9,378
Warrants and rights	2,517		—		—				—			(143		)	(792		)	1,582		(933		)
Trade claim	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

(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).

(d) The investments had a change of valuation methodology due to increased activity in foreign market.

(e) The entity in which the Company is invested completed an initial public offering.

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, 2019 and 2018, there were no transfers between level 1 and level 2 assets and liabilities.

The following table includes quantitative information as of September 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 September 30, 2019		Valuation Techniques	Unobservable Inputs	Range
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	314	Discounted cash flows	Discount rate	8%
Trade claims	28		Discounted cash flows	Discount rate	20%
Warrants and rights	6,048		Model based Discounted cash flows	Volatility Discount rate	30% 6% to 7%
Corporate and convertible bonds	533		Discounted cash flows Recovery	Discount rate Probability of recovery	20% 15% to 70%
Other level 3 assets (a)	36,343
Total level 3 assets	$	43,266
Level 3 Liabilities
Options	2,500		Option pricing models	Volatility	35% to 40%
Contingent consideration liability	29,834		Discounted cash flows Monte Carlo simulation	Discount rate Volatility	14%-23% 14%-20%
Other level 3 liabilities (a)	3,450
Total level 3 liabilities	$	35,784



	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.

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, 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.



	September 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	$	260,994		$	260,994		$	259,148		$	259,148		Level 1
Cash collateral pledged	18,609			18,609			6,318			6,318			Level 2
Segregated cash	128,782			128,782			176,647			176,647			Level 1
Securities borrowed	1,228,036			1,209,672			407,795			383,593			Level 2
Loans receivable	38,121			38,121		(d)	36,021			36,021		(d)	Level 3
Consolidated Funds
Cash and cash equivalents	3,364			3,364			38,118			38,118			Level 1
Financial Liabilities
Securities sold under agreements to repurchase	23,772			25,635			—			—			Level 2
Securities loaned	1,339,647			1,282,340			414,852			391,310			Level 2
Convertible debt	117,469		(a)	148,509		(b)	134,489		(a)	157,433		(b)	Level 2
Notes payable and other debt	343,286			363,777		(c)	262,965			258,546		(c)	Level 2


(a)	The carrying amount of the convertible debt includes an unamortized discount of $16.0 million and $19.5 million as of September 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 where applicable.