Fair Value Measurements for Operating Entities and Consolidated Funds

12 Months Ended

Dec. 31, 2022

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, 2022 and 2021:

	Assets at Fair Value as of December 31, 2022
	Level 1		Level 2		Level 3		Netting (c)		Total
			(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds	$	113,529	$	—	$	—	$	—	$	113,529
Preferred stock	7		3,496		193,304		—		196,807
Common stock	1,775,689		1,566		24,827		—		1,802,082
Convertible bonds	—		1,511		11,968		—		13,479
Corporate bonds	—		215,907		3,409		—		219,316
Trade claims	—		—		5,440		—		5,440
Term loan	—		2,502		9,966		—		12,468
Warrants and rights	32,114		—		26,937		—		59,051
Private investments	—		884		1,138		—		2,022
Receivable on derivative contracts, at fair value
Currency forwards	—		44		—		—		44
Equity swaps	—		644,033		879		(181,650)		463,262
Options	30,781		461		143		—		31,385
	$	1,952,120	$	870,404	$	278,011	$	(181,650)	$	2,918,885
Portfolio funds measured at net asset value (a)									132,285
Consolidated Funds' portfolio funds measured at net asset value (a)									49,832
Carried interest (a)									65,892
Equity method investments (a)									27,006
Total investments									$	3,193,900

	Liabilities at Fair Value as of December 31, 2022
	Level 1		Level 2		Level 3		Netting (c)		Total
	(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
Common stock	$	910,458	$	—	$	—	$	—	$	910,458
Corporate bonds	—		31		—		—		31
Preferred stock	4		3,081		—		—		3,085
Warrants and rights	—		—		—		—		—
Payable for derivative contracts, at fair value
Currency forwards	—		2,915		—		—		2,915
Equity swaps	—		218,747		—		(161,681)		57,066
Interest rate swaps	—		218		—		—		218
Options	8,746		—		720		—		9,466
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—		—		38,648		—		38,648
	$	919,208	$	224,992	$	39,368	$	(161,681)	$	1,021,887

(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 (the acquisition of Quarton International AG "Quarton"), the fourth quarter of 2020 (the acquisition of MHT Partners, LP "MHT") and the fourth quarter of 2021 (the acquisition of Portico Capital Advisors "Portico"), 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 through December 31, 2024. For all acquisitions 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 $12.5 million to $14.9 million. The undiscounted amounts for the MHT acquisition have no minimum or maximum as it is calculated based on revenue. The undiscounted amounts for the Portico acquisition can range from zero to $58.0 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 2f for further information on offsetting of derivative financial instruments.

	Assets at Fair Value as of December 31, 2021
	Level 1		Level 2		Level 3		Netting (c)		Total
			(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds	$	16,002	$	—	$	—	$	—	$	16,002
Preferred stock	12,299		—		125,458		—		137,757
Common stock	2,396,041		121		29,831		—		2,425,993
Convertible bonds	—		—		5,250		—		5,250
Corporate bonds	—		19,049		2,419		—		21,468
Trade claims	—		—		2,988		—		2,988
Term loan	—		4,121		—		—		4,121
Private investments	—		—		704		—		704
Warrants and rights	31,056		—		15,403		—		46,459
Receivable on derivative contracts, at fair value
Currency forwards	—		80		—		—		80
Equity swaps	—		305,370		—		(81,742)		223,628
Options	60,985		—		234		—		61,219
Interest rate swap	—		1,208		—		—		1,208
	$	2,516,383	$	329,949	$	182,287	$	(81,742)	$	2,946,877
Portfolio funds measured at net asset value (a)									137,986
Consolidated Funds' portfolio funds measured at net asset value (a)									99,067
Carried interest (a)									88,925
Equity method investments (a)									47,200
Total investments									$	3,320,055

	Liabilities at Fair Value as of December 31, 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	$	1,192,396	$	—	$	—	$	—	$	1,192,396
Corporate bonds	—		37		—		—		37
Preferred stock	9,009		—		—		—		9,009
Warrants and rights	6		—		—		—		6
Payable for derivative contracts, at fair value
Futures	266		—		—		—		266
Currency forwards	—		1,346		—		—		1,346
Equity swaps	—		114,689		—		(92,330)		22,359
Options	32,773		—		3,419		—		36,192
Accounts payable, accrued expenses and other liabilities
Contingent consideration liability (b)	—		—		62,223		—		62,223
	$	1,234,450	$	116,072	$	65,642	$	(92,330)	$	1,323,834

(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 (the Quarton acquisition), the fourth quarter of 2020 (the MHT acquisition) and the fourth quarter of 2021 (the Portico acquisition), 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 through December 31, 2024. For all acquisitions 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. The undiscounted amounts for the Portico acquisition can range from zero  to $58.0 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 2f for further information on offsetting of derivative financial instruments.

The following table includes a roll forward of the amounts for the year ended December 31, 2022 and 2021 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, 2022
	Balance at December 31, 2021		Transfers in			Transfers out			Purchases/(covers)		(Sales)/shorts		Realized and Unrealized gains/losses		Balance at December 31, 2022		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	125,458	$	—		$	—		$	26,164	$	(1,347)	$	43,029	$	193,304	$	43,029
Common stock	29,831		893		(c)	—			5,031		(950)		(9,978)		24,827		(13,736)
Convertible bonds	5,250		—			—			6,636		—		82		11,968		—
Corporate bond	2,419		1,082		(c)	—			620		(460)		(252)		3,409		64
Options, asset	234		—			—			—		—		(91)		143		(90)
Options, liability	3,419		—			—			—		—		(2,699)		720		(2,699)
Equity swap	—		—			—			—		—		879		879		879
Term loan	—		—			—			9,700		—		266		9,966		267
Warrants and rights	15,403		—			(719)		(a)(c)	2,274		(1,212)		11,191		26,937		14,614
Trade claims	2,988		—			—			4,304		(647)		(1,205)		5,440		(1,561)
Private investments	704		—			—			8,311		(8,978)		1,101		1,138		405
Contingent consideration liability	62,223		—			—			—		(29,169)		5,594		38,648		5,594

	Year Ended December 31, 2021
	Balance at December 31, 2020		Transfers in			Transfers out			Purchases/(covers)		(Sales)/shorts		Realized and Unrealized gains/losses		Balance at December 31, 2021		Change in unrealized gains/losses relating to instruments still held (1)
	(dollars in thousands)
Operating Entities
Preferred stock	$	59,967	$	—		$	(1,531)	(a)	$	78,389	$	(9,828)	$	(1,539)	$	125,458	$	(2,570)
Common stock	23,786		3,409		(b)	(7,357)		(a)(d)	16,245		(13,582)		7,330		29,831		5,517
Convertible bonds	6,040		—			(4,031)		(d)	11,802		(11,159)		2,598		5,250		(975)
Corporate Bond, asset	135		—			—			2,414		(103)		(27)		2,419		6
Options, asset	251		—			—			—		—		(17)		234		(17)
Options, liability	3,915		—			—			—		—		(496)		3,419		(496)
Warrants and rights	6,547		3,806		(b) (c)	—			10,706		(1,610)		(4,046)		15,403		(2,812)
Term Loan	12,623		—			—			638		(12,162)		(1,099)		—		—
Trade claim	8,713		—			(2,145)		(c)	3,056		(4,946)		(1,690)		2,988		(2,757)
Private investments	642		543		(c)	—			707		(1,462)		274		704		—
Corporate bond, liability	704		—			—			—		(399)		(305)		—		—
Government bonds, liability	1,500		—			—			—		(1,569)		69		—		—
Contingent consideration liability	36,718		—			—			20,729		(10,077)		14,853		62,223		14,853
Consolidated Funds
Common stock	2,951		(4,000)		(b)	—			—		—		1,049		—		—
Warrants and rights	5,806		—			—			—		(4,447)		(1,359)		—		—

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

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

(b) Fair market value derived using models and private transactions.

(c) The transfers between level 1, level 2 and level 3 are due to the change in the availability of observable inputs.

(d) The Company deconsolidated an investment fund.

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, 2022 and 2021 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, 2022		Valuation Techniques	Unobservable Inputs	Range	Weighted Average
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	61,807	Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	11.5% - 12.5% 3.7x - 9.5x	12% 7.55x
Options	1,022		Discounted cash flows Guideline companies Option pricing model	Discount rate EBITDA Market Multiples Volatility	11.5% - 12.5% 7.25x - 7.75x 45%	12% 7.5x 45%
Trade claims	1,876		Discounted cash flows	Discount rate	54%	54%
Warrants and rights	10,351		Discounted cash flows Guideline companies Option pricing model	Discount rate EBITDA Market Multiples Volatility	11.5% - 12.5% 7.25x - 7.75x 45% - 170%	12.0% 7.5x 71.1%
Corporate, convertible bonds and term loan	4,570		Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	11.5% - 12.5% 7.25x - 7.75x	12% 7.5x
Other level 3 assets (a)	198,385
Total level 3 assets	$	278,011
Level 3 Liabilities
Options	720		Option pricing model	Discount rate Volatility	4.01% 35%	4.01% 35%
Contingent consideration liability	38,648		Discounted cash flows Monte Carlo simulation	Discount rate Volatility	6.8% - 18.5% 21% - 24%	11% 22%
Total level 3 liabilities	$	39,368

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at December 31, 2021		Valuation Techniques	Unobservable Inputs	Range	Weighted Average
Level 3 Assets	(dollars in thousands)
Common and preferred stocks	$	76,491	Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	12.5% - 20% 6.25x - 6.75x	13% 6.5x
Trade claims	2,376		Discounted cash flows	Discount rate	40%	40%
Warrants and rights	4,483		Discounted cash flows Guideline companies Option pricing model	Discount rate EBITDA Market Multiples Volatility	12.5% - 13.5% 6.25x - 6.75x 90% - 100%	13% 6.5x 95%
Options	234		Discounted cash flows Guideline companies	Discount rate EBITDA Market Multiples	12.5% - 13.5% 6.25x - 6.75x	13% 6.5x
Other level 3 assets (a)	98,703
Total level 3 assets	$	182,287
Level 3 Liabilities
Options	3,419		Option pricing model	Volatility	35%	35%
Contingent consideration liability	62,223		Discounted cash flows Monte Carlo simulation	Discount rate Volatility	7% - 15% 20% - 24%	12% 22%
Total level 3 liabilities	$	65,642

(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. 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, consideration for rounds of financing, capital rates, the premium ascribed to a controlling financial interest, selected equity volatilities, 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 December 31, 2022 and 2021, 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, 2022						December 31, 2021						Fair Value Hierarchy
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
				(dollars in thousands)
Financial Assets
Operating companies
Cash and cash equivalents	$	1,139,652		$	1,139,652		$	914,343		$	914,343		Level 1
Cash collateral pledged	122,687			122,687			47,494			47,494			Level 2
Segregated cash	185,872			185,872			194,701			194,701			Level 1
Securities purchased under agreements to resell	121,718			121,718			—			—			Level 2
Securities borrowed	1,298,056			1,298,056			1,704,603			1,704,603			Level 2
Loans receivable	5,254			5,254		(b)	4,858			4,858		(b)	Level 3
Consolidated Funds
Cash and cash equivalents	30			30			296			296			Level 1
Financial Liabilities
Securities sold under agreements to repurchase	133,130			133,130			63,469			63,469			Level 2
Securities loaned	1,199,838			1,199,838			1,586,572			1,586,572			Level 2
Notes payable and other debt	620,161		(c)	642,701		(a)	623,371		(c)	655,229		(a)	Level 2

(a)Notes payable and other debt are based on the last broker quote available.

(b)The fair market value of level 3 loans is calculated using discounted cash flows where applicable.

(c)The carrying amount of the notes payable and other debt includes an unamortized discount and unamortized premium of $2.4 million and $0.2 million as of December 31, 2022, respectively, and unamortized discount and unamortized premium of $2.8 million and $0.3 million as of December 31, 2021, respectively.