Fair Value Measurements for Operating Entities and Consolidated Funds

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements for Operating Entities and Consolidated Funds

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 consolidated statements of financial condition by caption and by level within the valuation hierarchy as of December 31, 2019 and 2018:

	Assets at Fair Value as of December 31, 2019
	Level 1			Level 2			Level 3			Total
				(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds	$	15,916		$	—		$	—		$	15,916
Preferred stock	4,821			—			7,835			12,656
Common stock	1,527,769			1,249			17,466			1,546,484
Convertible bonds	—			—			2,500			2,500
Corporate bonds	—			23,079			2,421			25,500
Trade claims	—			—			7,320			7,320
Term loan	—			1,067			—			1,067
Warrants and rights	21,515			—			594			22,109
Receivable on derivative contracts, at fair value
Swaps	—			2,911			—			2,911
Options	59,730			—			336			60,066
Consolidated Funds
Securities owned, at fair value
Government bonds	161,607			—			—			161,607
Preferred stock	—			—			4,393			4,393
Common stock	200,306			—			—			200,306
Corporate bonds	—			3,405			—			3,405
Warrants and rights	—			—			5,567			5,567
Receivable on derivative contracts, at fair value
Currency forwards	—			3,302			—			3,302
Equity swaps	—			927			—			927
Options	1,604			—			—			1,604
	$	1,993,268		$	35,940		$	48,432		$	2,077,640
Percentage of total assets measured at fair value on a recurring basis	95.9		%	1.7		%	2.3		%
Portfolio Funds measured at net asset value (a)										114,504
Carried interest (a)										30,360
Consolidated Funds' Portfolio Funds measured at net asset value (a)										175,769
Equity method investments										40,858
Total investments										$	2,439,131

	Liabilities at Fair Value as of December 31, 2019
	Level 1			Level 2			Level 3			Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
Government bonds	$	—		$	—		$	1,950		$	1,950
Common stock	425,448			—			—			425,448
Corporate bonds	—			4,933			1,000			5,933
Preferred stock	3,686			—			—			3,686
Warrants and rights	14,819			—			—			14,819
Payable for derivative contracts, at fair value
Futures	217			—			—			217
Currency forwards	—			851			—			851
Swaps	—			23,169			—			23,169
Options	33,604			—			2,920			36,524
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—			—			30,896			30,896
Consolidated Funds
Payable for derivative contracts, at fair value
Currency forwards	—			88			—			88
Options	750			—			—			750
Equity swaps	—			3,931			—			3,931
	$	478,524		$	32,972		$	36,766		$	548,262
Percentage of total liabilities measured at fair value	87.3		%	6.0		%	6.7		%

(a) In accordance with US GAAP, certain investments are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient. 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 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 31, 2019 and December 31, 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 December 31, 2019 can range from $1.3 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)										124,741
Carried interest (a)										17,995
Consolidated Funds' Portfolio Funds measured at net asset value (a)										186,395
Equity method investments										38,671
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		%

(a) In accordance with US GAAP, certain investments are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient. 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 consolidated statement of financial condition.

(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 31, 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 years ended December 31, 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.

	Year Ended December 31, 2019
	Balance at December 31, 2018		Transfers in			Transfers out			Purchases/(covers)		(Sales)/shorts		Realized and Unrealized gains/losses		Balance at December 31, 2019		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	5,168	$	—		$	(1,000)	(e)	$	3,513	$	(1,270)	$	1,424	$	7,835	$	2,285
Common stock	9,850		10,242		(d)(g)	(3)		(f)	11,477		(11,002)		(3,098)		17,466		(3,098)
Convertible bonds	3,000		—			(4,826)		(b) (e)	11,354		(7,072)		44		2,500		(25)
Corporate bond	—		4		(d)	—			2,811		(533)		139		2,421		140
Options, asset	—		330		(g)	—			—		—		6		336		6
Options, liability	2,096		—			—			—		(4)		828		2,920		828
Warrants and rights	1,666		—			—			—		(189)		(883)		594		31
Trade claims	5,543		—			—			7,205		(5,506)		78		7,320		76
Corporate bond, liability	—		2,525		(d)	—			—		—		(1,525)		1,000		(1,525)
Government bonds, liability	—		4,681		(d)	—			—		—		(2,731)		1,950		(2,731)
Contingent consideration liability	3,070		—			—			27,700		(1,234)		1,360		30,896		1,360
Consolidated Funds
Preferred stock	24,314		—			(19,929)		(e)	—		—		8		4,393		—
Common stock	94		—			(94)		(e)	407		(958)		551		—		—
Warrants and rights	$	5,279	$	—		$	—		$	—	$	(1,758)	$	2,046	$	5,567	$	289

	Year Ended December 31, 2018
	Balance at December 31, 2017		Transfers in		Transfers out			Purchases/(covers)		(Sales)/shorts		Realized and Unrealized gains/losses		Balance at December 31, 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)	$	(2,526)	$	5,168	$	860
Common stock	7,570		—		(569)			3,324		(1,416)		941		9,850		1,797
Convertible bonds	282		—		—			3,000		(307)		25		3,000		—
Options, asset	1,455		—		—			—		(1,455)		—		—		—
Options, liability	22,401		—		(28,973)		(c)	—		(259)		8,927		2,096		8,927
Warrants and rights	2,517		—		—			—		(143)		(708)		1,666		(850)
Trade claim	5,950		—		—			44		(536)		85		5,543		—
Lehman claim	301		—		—			—		(234)		(67)		—		—
Contingent consideration liability	3,440		—		—			427		(797)		—		3,070		—
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)	$	3,071	$	5,279	$	1,730

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

        (a) The Company deconsolidated an investment fund.

        (b) The investments were converted to common stock. 

(c) On June 26, 2018, the Company received shareholder approval which allows the Company to settle its convertible note (see Note 23) 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 24).

(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.

(f) Shares of common stock were exchanged for liquid warrants and rights of an acquired company.

(g) The holding Company which held common stock and options was liquidated.

All realized and unrealized gains (losses) in the table above are reflected in other income (loss) in the accompanying 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.

The following table includes quantitative information as of December 31, 2019 and 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 December 31, 2019		Valuation Techniques	Unobservable Inputs	Range	Weighted Average
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	10,876	Discounted cash flows Guideline companies	Discount rate Market Multiples	8% - 11.25% 6.5x - 7x	10.4% 6.75x
Options	336		Discounted cash flows Guideline companies	Discount rate Market Multiples	9.75% - 11.25% 6.5x - 7x	10.5% 6.75x
Trade claims	24		Discounted cash flows	Discount rate	20%	20%
Warrants and rights	6,162		Model based Discounted cash flows	Volatility Discount rate	30% 6% to 7%	0% 6.1%
Corporate and convertible bonds	311		Discounted cash flows Recovery	Discount rate Probability of recovery	20% 1% to 3%	20% 2.3%
Other level 3 assets (a)	30,723
Total level 3 assets	$	48,432
Level 3 Liabilities
Options	2,920		Option pricing models	Volatility	35% to 40%	35%
Contingent consideration liability	30,896		Discounted cash flows Monte Carlo simulation	Discount rate Volatility	15%-22% 17%	15% 17%
Other level 3 liabilities (a)	2,950
Total level 3 liabilities	$	36,766

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at December 31, 2018		Valuation Techniques	Unobservable Inputs	Range	Weighted Average
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	4,323	Discounted cash flows / Guideline companies	Discount rate Market multiples	8%-14% 6.5x to 7x	8% 6.75x
Trade claims	25		Discounted cash flows	Discount rate	20%	20%
Warrants and rights	1,666		Model based Discounted cash flows	Discount rate	7% to 9%	7.8%
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%	35%
Contingent consideration liability	3,070		Discounted cash flows	Projected cash flow and discount rate	21% to 23%	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 December 31, 2019 and 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 2f).

	December 31, 2019						December 31, 2018						Fair Value Hierarchy
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
				(dollars in thousands)
Financial Assets
Operating companies
Cash and cash equivalents	$	301,123		$	301,123		$	259,148		$	259,148		Level 1
Cash collateral pledged	6,563			6,563			6,318			6,318			Level 2
Segregated cash	107,328			107,328			176,647			176,647			Level 1
Securities borrowed	754,441			754,441			407,795			407,795			Level 2
Loans receivable	42,830			42,830		(d)	36,021			36,021		(d)	Level 3
Consolidated Funds
Cash and cash equivalents	30,874			30,874			38,118			38,118			Level 1
Financial Liabilities
Securities sold under agreements to repurchase	23,244			27,384			—			—			Level 2
Securities loaned	1,601,866			1,601,866			414,852			414,852			Level 2
Convertible debt	118,688		(a)	148,786		(b)	134,489		(a)	157,433		(b)	Level 2
Notes payable and other debt	345,451		(e)	372,591		(c)	262,965			258,546		(c)	Level 2

(a)The carrying amount of the convertible debt includes an unamortized discount of $14.9 million and $19.5 million as of December 31, 2019 and 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.