Fair Value Measurements for Operating Entities and Consolidated Funds

9 Months Ended

Sep. 30, 2021

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 condensed consolidated statements of financial condition by caption and by level within the valuation hierarchy as of September 30, 2021 and December 31, 2020:

	Assets at Fair Value as of September 30, 2021
	Level 1		Level 2		Level 3		Netting (c)		Total
			(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds	$	21,936	$	—	$	—	$	—	$	21,936
Preferred stock	11,674		—		106,248		—		117,922
Common stock	3,592,861		79		41,350		—		3,634,290
Convertible bonds	—		—		7,363		—		7,363
Corporate bonds	—		120,307		83		—		120,390
Trade claims	—		—		5,681		—		5,681
Term loan	—		—		12,578		—		12,578
Warrants and rights	21,337		—		13,056		—		34,393
Private investments	—		—		361		—		361
Receivable on derivative contracts, at fair value
Currency forwards	—		1,241		—		—		1,241
Equity swaps	—		320,825		—		(154,015)		166,810
Options	44,132		—		238		—		44,370
Consolidated Funds
Securities owned, at fair value
Common stock	2,951		—		—		—		2,951
	$	3,694,891	$	442,452	$	186,958	$	(154,015)	$	4,170,286
Portfolio funds measured at net asset value (a)									138,023
Consolidated Funds' portfolio funds measured at net asset value (a)									100,252
Carried interest (a)									84,312
Equity method investments (a)									40,096
Total investments									$	4,532,969

	Liabilities at Fair Value as of September 30, 2021
	Level 1		Level 2		Level 3		Netting (c)		Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
Common stock	$	1,352,771	$	—	$	—	$	—	$	1,352,771
Corporate bonds	—		40		—		—		40
Preferred stock	6,624		—		—		—		6,624
Warrants and rights	2,288		—		—		—		2,288
Payable for derivative contracts, at fair value
Futures	261		—		—				261
Currency forwards	—		22		—		—		22
Equity swaps	—		146,837		—		(141,280)		5,557
Interest rate swaps	—		518		—		—		518
Options	37,180		—		3,334		—		40,514
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—		—		29,053		—		29,053
	$	1,399,124	$	147,417	$	32,387	$	(141,280)	$	1,437,648

(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 condensed 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, completed during the first quarter of 2019, and the MHT acquisition, completed during the fourth quarter of 2020, 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 $25.0 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 2f for further information on offsetting of derivative financial instruments.

	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		23,786		—		1,770,301
Convertible bonds	—		—		6,040		—		6,040
Corporate bonds	—		86,368		135		—		86,503
Trade claims	—		—		8,713		—		8,713
Term loan	—		—		12,623		—		12,623
Private investments	—		—		642		—		642
Warrants and rights	21,154		—		6,547		—		27,701
Receivable on derivative contracts, at fair value
Currency forwards	—		15		—		—		15
Equity 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
US Government securities	$	—	$	—	$	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
Equity 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 condensed 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, completed during the first quarter of 2019, and the MHT acquisition, completed during the fourth quarter of 2020, 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 2f for further information on offsetting of derivative financial instruments.

The following table includes a roll forward of the amounts for the three and nine months ended September 30, 2021 and 2020 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, 2021
	Balance at June 30, 2021		Transfers in		Transfers out			Purchases/(covers)		(Sales)/shorts		Realized and Unrealized gains/losses		Balance at September 30, 2021		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	105,470	$	—	$	(1,531)	(b)	$	5,880	$	(1,000)	$	(2,571)	$	106,248	$	(2,771)
Common stock	41,600		—		(4)		(b)	5,500		(2,928)		(2,818)		41,350		2,289
Convertible bonds	9,712		—		—			2,000		(4,025)		(324)		7,363		(1,174)
Corporate bonds	107		—		—			—		—		(24)		83		(2)
Options, asset	244		—		—			—		—		(6)		238		(6)
Options, liability	3,619		—		—			—		—		(285)		3,334		(285)
Term Loan	12,563		—		—			315		—		(300)		12,578		(300)
Warrants and rights	11,631		—		—			3,519		—		(2,094)		13,056		(147)
Trade claims	5,719		—		—			865		(950)		47		5,681		—
Private investments	666		—		—			14		(509)		190		361		(1)
Contingent consideration liability	24,810		—		—			—		—		4,243		29,053		4,243

	Three Months Ended September 30, 2020
	Balance at June 30, 2020		Transfers in			Transfers out			Purchases/(covers)		(Sales)/shorts		Realized and Unrealized gains/losses		Balance at September 30, 2020		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	51,480	$	—		$	(7,744)	(g)	$	5,282	$	(3,770)	$	8,170	$	53,418	$	2,926
Common stock	14,816		—			(3)		(f)	4,000		—		643		19,456		562
Convertible bonds	5,081		—			—			—		—		—		5,081		—
Corporate bonds	758		—			(312)		(g)	72		—		2		520		22
Options, asset	337		—			—			—		—		14		351		14
Options, liability	2,177		—			—			—		—		777		2,954		777
Term Loan	11,359		—			—			245		—		507		12,111		506
Warrants and rights	4,625		3		(f)	—			—		—		355		4,983		337
Trade claims	7,155		—			—			2,516		(648)		(18)		9,005		(18)
Private investments	432		—			—			174		—		(221)		385		(221)
Corporate bond, liability	800		—			—			—		—		—		800		—
Government bonds, liability	1,500		—			—			—		—		—		1,500		—
Contingent consideration liability	27,001		—			—			—		—		3,023		30,024		3,023
Consolidated Funds
Common stock	102,951		—			—			—		—		—		102,951		—
Warrants and rights	5,858		—			—			—		—		46		5,904		46
Convertible bonds	—		—			—			75,000		—		538		75,538		538

	Nine Months Ended September 30, 2021
	Balance at December 31, 2020		Transfers in			Transfers out			Purchases/(covers)		(Sales)/shorts		Realized and Unrealized gains/losses		Balance at September 30, 2021		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	59,967	$	—		$	(1,531)	(b)	$	54,539	$	(5,651)	$	(1,076)	$	106,248	$	(2,107)
Common stock	23,786		3,409		(e)	(5,358)		(b)	14,972		(9,401)		13,942		41,350		13,680
Convertible bonds	6,040		—			—			7,827		(10,955)		4,451		7,363		3,771
Corporate bond	135		—			—			82		(103)		(31)		83		(31)
Options, asset	251		—			—			—		—		(13)		238		(13)
Options, liability	3,915		—			—			—		—		(581)		3,334		(581)
Term loan	12,623		—			—			638		—		(683)		12,578		(683)
Warrants and rights	6,548		2,928		(e)	—			6,925		(1,610)		(1,735)		13,056		(452)
Trade claims	8,713		—						3,056		(5,254)		(834)		5,681		(1,902)
Private investments	642		—			—			457		(929)		191		361		(1)
Corporate bond, liability	704		—			—			—		(399)		(305)		—		—
Government bonds, liability	1,500		—			—			—		(1,569)		69		—		—
Contingent consideration liability	37,952		—			—			—		(11,312)		2,413		29,053		2,413
Consolidated Funds
Common stock	2,951		(4,000)		(e)	—			—		—		1,049		—		—
Warrants and rights	5,806		—			—			—		(4,447)		(1,359)		—		—

	Nine Months Ended September 30, 2020
	Balance at December 31, 2019		Transfers in			Transfers out			Purchases/(covers)		(Sales)/shorts		Realized and Unrealized gains/losses		Balance at September 30, 2020		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	7,835	$	45,530	(c)	$	(7,744)	(g)	$	5,647	$	(5,870)	$	8,020	$	53,418	$	5,337
Common stock	17,466		—			(29)		(a)(f)	5,798		(3,712)		(67)		19,456		(1,023)
Convertible bonds	2,500		—			—			2,581		—		—		5,081		—
Corporate Bond, asset	2,421		—			(312)		(g)	592		(1,938)		(243)		520		(180)
Options, asset	336		—			—			—		—		15		351		15
Options, liability	2,920		—			—			—		—		34		2,954		35
Warrants and rights	594		3,636		(a)(c)	—			—		—		753		4,983		753
Term Loan	—		11,149		(c)	—			245		—		717		12,111		717
Trade claim	7,083		1,044		(a)(f)	—			4,231		(2,863)		(490)		9,005		(511)
Private investments	237		—			—			432		—		(284)		385		(284)
Corporate bond, liability	1,000		—			—			—		—		(200)		800		(200)
Government bonds, liability	1,950		—			—			—		—		(450)		1,500		(450)
Contingent consideration liability	30,896		—			—			—		(5,653)		4,781		30,024		4,781
Consolidated Funds
Preferred stock	4,393		—			(4,000)		(d)	—		—		(393)		—		—
Common stock	—		4,000		(d)	—			100,000		—		(1,049)		102,951		(1,049)
Warrants and rights	5,567		—			—			—		—		337		5,904		337
Convertible bonds	—		—			—			75,000		—		538		75,538		538

(1) Unrealized gains/losses are reported in Investment income - Securities principal transactions, net in the accompanying condensed consolidated statements of operations.

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

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

(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) Fair market value derived using models and private transaction levels.

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

(g) The investments were converted to common stock.

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 September 30, 2021 and December 31, 2020 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, 2021		Valuation Techniques	Unobservable Inputs	Range	Weighted Average
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	64,414	Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	12% - 20% 6.25x - 6.75x	12.5% 6.5x
Options	238		Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	10% - 13% 6.25x - 6.75x	12.5% 6.5x
Trade claims	2,639		Discounted cash flows	Discount rate	20%	20%
Warrants and rights	4,512		Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	12% - 13% 6.25x - 6.75x	12.5% 6.5x
Corporate, convertible bonds and term loan	12,578		Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	12% - 13% 6.25x - 6.75x	12.5% 6.5x
Other level 3 assets (a)	102,577
Total level 3 assets	$	186,958
Level 3 Liabilities
Options	3,334		Option pricing models	Volatility	35%	35%
Contingent consideration liability	29,053		Discounted cash flows Monte Carlo simulation	Discount rate Volatility	7% - 15% 19% - 20%	13% 20%
Total level 3 liabilities	$	32,387

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at 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
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% 6.5x
Options	251		Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	10% - 12% 6.25x - 6.75x	11% 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

(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. 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, 2021 and December 31, 2020, 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 2e).

	September 30, 2021						December 31, 2020						Fair Value Hierarchy
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
				(dollars in thousands)
Financial Assets
Operating companies
Cash and cash equivalents	$	1,057,123		$	1,057,123		$	645,169		$	645,169		Level 1
Cash collateral pledged	48,996			48,996			110,743			110,743			Level 2
Segregated cash	177,693			177,693			185,141			185,141			Level 1
Securities purchased under agreements to resell	—			—			191			204			Level 2
Securities borrowed	2,169,056			2,169,056			1,908,187			1,908,187			Level 2
Loans receivable	3,479			3,479		(d)	7,682			7,682		(d)	Level 3
Consolidated Funds
Cash and cash equivalents	426			426			417			417			Level 1
Financial Liabilities
Securities sold under agreements to repurchase	53,839			56,121			5,036			5,544			Level 2
Securities loaned	3,352,456			3,352,456			2,476,414			2,476,414			Level 2
Convertible debt	—			—			80,808		(a)	135,444		(b)	Level 2
Notes payable and other debt	479,503		(e)	515,708		(c)	383,067		(e)	405,840		(c)	Level 2

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

(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 discount and unamortized premium of $1.4 million and $0.3 million as of September 30, 2021, respectively and unamortized premium of $0.4 million as of December 31, 2020.