Fair Value Measurements for Operating Entities and Consolidated Funds

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements for Operating Entities and Consolidated Funds

Fair Value Measurements for Operating Entities and Consolidated FundsThe 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, 2020 and 2019:

	Assets at Fair Value as of December 31, 2020
	Level 1		Level 2		Level 3		Netting (c)		Total
			(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds	$	19,721	$	—	$	—	$	—	$	19,721
Preferred stock	9,391		—		59,967		—		69,358
Common stock	1,746,407		108		23,936		—		1,770,451
Convertible bonds	—		—		6,040		—		6,040
Corporate bonds	—		86,368		135		—		86,503
Trade claims	—		—		9,205		—		9,205
Term loan	—		—		12,623		—		12,623
Warrants and rights	21,154		—		6,547		—		27,701
Receivable on derivative contracts, at fair value
Currency forwards	—		15		—		—		15
Swaps	—		64,634		—		(62,269)		2,365
Options	48,851		—		251		—		49,102
Consolidated Funds
Securities owned, at fair value
Common stock	1,865		—		2,951		—		4,816
Warrants and rights	—		—		5,806		—		5,806
	$	1,847,389	$	151,125	$	127,461	$	(62,269)	$	2,063,706
Portfolio Funds measured at net asset value (a)									133,454
Consolidated Funds' Portfolio Funds measured at net asset value (a)									192,670
Carried interest (a)									82,892
Equity method investments (a)									38,681
Total investments									$	2,511,403

	Liabilities at Fair Value as of December 31, 2020
	Level 1		Level 2		Level 3		Netting (c)		Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
Government bonds	$	—	$	—	$	1,500	$	—	$	1,500
Common stock	699,894		—		—		—		699,894
Corporate bonds	—		10,654		704		—		11,358
Preferred stock	6,589		—		—		—		6,589
Warrants and rights	8,774		—		—		—		8,774
Payable for derivative contracts, at fair value
Currency forwards	—		3,067		—		—		3,067
Swaps	—		43,560		—		(37,033)		6,527
Options	62,651		—		3,915		—		66,566
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—		—		36,718		—		36,718
	$	777,908	$	57,281	$	42,837	$	(37,033)	$	840,993

(a) In accordance with US GAAP, portfolio funds are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not classified in the fair value hierarchy. Carried interest and equity method investments presented in the table above 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 first quarter of 2019 and the fourth quarter of 2020, 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, 2020 and December 31, 2023. For both the Quarton Acquisition and the MHT Acquisition, the Company estimated the contingent consideration liabilities using a combination of Monte Carlo and Discounted Cash Flow methods which require 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 for the Quarton Acquisition can range from $10.1 million to $35.1 million. The undiscounted amounts for the MHT Acquisition have no minimum or maximum as it is calculated based on revenue.

(c) Derivatives are reported on a net basis, by counterparty, when a legal right of offset exists under an enforceable netting agreement as well as net of cash collateral received or posted under enforceable credit support agreements. See Note 2g for further information on offsetting of derivative financial instruments.

	Assets at Fair Value as of December 31, 2019
	Level 1		Level 2		Level 3		Netting (c)		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	—		6,151		—		(3,240)		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	$	39,180	$	48,432	$	(3,240)	$	2,077,640
Portfolio Funds measured at net asset value (a)									114,504
Consolidated Funds' Portfolio Funds measured at net asset value (a)									175,769
Carried interest (a)									30,360
Equity method investments (a)									40,858
Total investments									$	2,439,131

	Liabilities at Fair Value as of December 31, 2019
	Level 1		Level 2		Level 3		Netting (c)		Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
US Government securities	$	—	$	—	$	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	—		26,409		—		(3,240)		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	$	36,212	$	36,766	$	(3,240)	$	548,262

(a) In accordance with US GAAP, portfolio funds are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not classified in the fair value hierarchy. Carried interest and equity method investments presented in the table above 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.

(c) Derivatives are reported on a net basis, by counterparty, when a legal right of offset exists under an enforceable netting agreement as well as net of cash collateral received or posted under enforceable credit support agreements. See Note 2g for further information on offsetting of derivative financial instruments.

The following table includes a roll forward of the amounts for the years ended December 31, 2020 and 2019 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, 2020
	Balance at December 31, 2019		Transfers in			Transfers out			Purchases/(covers)			(Sales)/shorts		Realized and Unrealized gains/losses		Balance at December 31, 2020		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	7,835	$	45,530	(c)	$	(1,653)	(b)	$	5,891		$	(4,993)	$	7,357	$	59,967	$	10,846
Common stock	17,466		102		(l)	(29)		(a)(e)	7,288			(3,818)		2,927		23,936		1,990
Convertible bonds	2,500		—			—			3,787			(1,050)		803		6,040		803
Corporate bond	2,421		—			(312)		(b)	666			(2,432)		(208)		135		(180)
Options, asset	336		—			(102)		(l)	—			—		17		251		(1)
Options, liability	2,920		—			—			—			—		995		3,915		995
Term loan	—		11,149		(c)	—			245			—		1,229		12,623		1,229
Warrants and rights	594		4,528		(a)(c)	—			—			—		1,425		6,547		1,425
Trade claims	7,320		1,044		(a)(e)	—			4,774			(2,944)		(989)		9,205		(1,013)
Corporate bond, liability	1,000		—			—			—			—		(296)		704		(248)
Government bonds, liability	1,950		—			—			—			—		(450)		1,500		(450)
Contingent consideration liability	30,896		—			(1,235)		(k)	4,218		(m)	(5,653)		8,492		36,718		8,492
Consolidated Funds
Preferred stock	4,393		—			(4,000)		(d)	—			—		(393)		—		—
Common stock	—		4,000		(d)	(100,000)		(j)	100,000			—		(1,049)		2,951		(1,049)
Warrants and rights	5,567		—			—			—			—		239		5,806		239
Convertible bonds	$	—	$	—		$	(76,114)	(j)	$	75,000		$	—	$	1,114	$	—	$	—

	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)	(f)	$	3,513	$	(1,270)	$	1,424	$	7,835	$	2,285
Common stock	9,850		10,242		(g)(h)	(3)		(i)	11,477		(11,002)		(3,098)		17,466		(3,098)
Convertible bonds	3,000		—			(4,826)		(b)(f)	11,354		(7,072)		44		2,500		(25)
Corporate bond	—		4		(g)	—			2,811		(533)		139		2,421		140
Options, asset	—		330		(h)	—			—		—		6		336		6
Options, liability	2,096		—			—			—		(4)		828		2,920		828
Warrants and rights	1,666		—			—			—		(189)		(883)		594		31
Trade claim	5,543		—			—			7,205		(5,506)		78		7,320		76
Corporate bond, liability	—		2,525		(g)	—			—		—		(1,525)		1,000		(1,525)
Government bonds, liability	—		4,681		(g)	—			—		—		(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)		(f)	—		—		8		4,393		—
Common stock	94		—			(94)		(f)	407		(958)		551		—		—
Warrants and rights	$	5,279	$	—		$	—		$	—	$	(1,758)	$	2,046	$	5,567	$	289

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

(a) The security stopped trading on an open market.

(b) The investments were converted to common stock.

(c) The Company consolidated an operating entity which holds preferred stock, loans and warrants.

(d) The investment was involved in a reverse merger and preferred stock was converted to common shares.

(e) The transfers between level 1 and level 3 are due to the change in the availability of observable inputs.

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

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

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

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

(j) The Company deconsolidated an investment fund.

(k) The contingent liability reached the end of its earnout period and is now valued based on actual cash payout.

(l) The options expired and converted into common stock.

(m) See Note 3 (MHT Acquisition) for contingent consideration recorded.

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 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, 2020 and 2019 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, 2020		Valuation Techniques	Unobservable Inputs	Range	Weighted Average
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	65,735	Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	10% - 12% 6.25x - 6.75x	11% 6.5x
Options	251		Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	10% - 12% 6.25x - 6.75x	11% 6.5x
Trade claims	3,500		Discounted cash flows	Discount rate	15%	15%
Warrants and rights	11,217		Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	4% - 11% 6.25x - 6.75x	7.0% 6.5x
Corporate, convertible bonds and term loan	12,623		Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	10% - 12% 6.25x - 6.75x	11% 6.5x
Other level 3 assets (a)	34,135
Total level 3 assets	$	127,461
Level 3 Liabilities
Options	3,915		Option pricing models	Volatility	35%	35%
Contingent consideration liability	36,718		Discounted cash flows Monte Carlo simulation	Discount rate Volatility	9% - 16% 22% - 24%	15% 22%
Other level 3 liabilities (a)	2,204
Total level 3 liabilities	$	42,837

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at 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 EBITDA Market Multiples	8% - 11.25% 6.5x - 7x	10.4% 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% - 7%	—% 6.1%
Options	336		Option pricing models	Discount rate EBITDA Market Multiples	9.75% - 11.25% 6.5x - 7x	10.5% 6.75x
Corporate and convertible bonds	311		Discounted cash flows Recovery	Discount rate Probability of recovery	20% 1% - 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

(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, procedures and internal control infrastructure over the fair value measurement of financial instruments. In the event that observable inputs are not available, the control processes are designed to ensure that the valuation approach utilized is applicable, reasonable and consistently applied. Where a pricing model is used to determine fair value, these control processes include reviews of the methodology and inputs for both reasonableness and applicability. Consistent with best practices, recently executed comparable transactions and other observable market data are used for the purposes of validating both the model and the assumptions used to calculate fair value. Independent of trading and valuation functions, the Company’s Valuation Committee in conjunction with its Price Verification team, plays an important role in determining that financial instruments are appropriately valued and that fair value measurements are both reasonable and reliable. This is particularly important where prices or valuations that require inputs are less observable. 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.

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 regularly reviews a 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, 2020 and 2019, 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 2g).

	December 31, 2020						December 31, 2019						Fair Value Hierarchy
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
				(dollars in thousands)
Financial Assets
Operating companies
Cash and cash equivalents	$	645,169		$	645,169		$	301,123		$	301,123		Level 1
Cash collateral pledged	110,743			110,743			6,563			6,563			Level 2
Segregated cash	185,141			185,141			107,328			107,328			Level 1
Securities purchased under agreements to resell	191			204			—			—			Level 2
Securities borrowed	1,908,187			1,908,187			754,441			754,441			Level 2
Loans receivable	7,682			7,682		(d)	42,830			42,830		(d)	Level 3
Consolidated Funds
Cash and cash equivalents	417			417			30,874			30,874			Level 1
Financial Liabilities
Securities sold under agreements to repurchase	5,036			5,544			23,244			27,384			Level 2
Securities loaned	2,476,414			2,476,414			1,601,866			1,601,866			Level 2
Convertible debt	80,808		(a)	135,444		(b)	118,688		(a)	148,786		(b)	Level 2
Notes payable and other debt	383,067		(e)	405,840		(c)	345,451		(e)	372,591		(c)	Level 2

(a)The carrying amount of the convertible debt includes an unamortized discount of $6.7 million and $14.9 million as of December 31, 2020 and 2019, 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.

(e)The carrying amount of the notes payable and other debt includes an unamortized premium of $0.4 million and $0.5 million as of December 31, 2020 and 2019, respectively.