Fair Value Measurements

3 Months Ended

Jan. 31, 2013

Fair Value Measurements Disclosure [Abstract]

Fair Value Measurements

6. Fair Value Measurements

The following tables summarize financial assets and liabilities measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy at January 31, 2013 and October 31, 2012:

January 31, 2013
(in thousands)		Level 1		Level 2		Level 3			Other Assets Not Held at Fair Value		Total
Financial assets:
Cash equivalents	$	3,248	$	39,491	$	-		$	-	$	42,739
Investments:
Investment securities, trading – debt		5,835		46,047			-		-		51,882
Investment securities, trading – equity		115,127		48,225			-		-		163,352
Investment securities, available-for-sale		18,282		4,790		-			-		23,072
Investment in non-consolidated CLO
entity(1)		-		-		-			398		398
Investments in equity method investees(2)		-		-		-			236,095		236,095
Investments, other(3)		-		60		-			7,470		7,530
Derivative instruments		-		1,138		-			-		1,138
Assets of consolidated CLO entity:
Cash equivalents		47,422		-		-			-		47,422
Bank loans and other investments		-		378,014		2,658			-		380,672
Total financial assets	$	189,914	$	517,765	$	2,658		$	243,963	$	954,300
Financial liabilities:
Derivative instruments	$	-	$	8,492	$	-		$	-	$	8,492
Securities sold, not yet purchased		-		3,187		-			-		3,187
Liabilities of consolidated CLO entity:
Senior and subordinated note obligations		-		2,659		408,924			-		411,583
Total financial liabilities	$	-	$	14,338	$	408,924		$	-	$	423,262

October 31, 2012
(in thousands)			Level 1		Level 2		Level 3			Other Assets Not Held at Fair Value		Total
Financial assets:
Cash equivalents		$	16,390	$	139,469	$	-		$	-	$	155,859
Investments:
Investment securities, trading – debt			4,512		66,293			-		-		70,805
Investment securities, trading – equity			87,991		31,457			-		-		119,448
Investment securities, available-for-sale			26,736		4,412		-			-		31,148
Investment in non-consolidated CLO
entity(1)			-		-		-			350		350
Investments in equity method investees(2)			-		-		-			257,652		257,652
Investments, other(3)			-		60		-			7,470		7,530
Derivative instruments			-		2,229		-			-		2,229
Assets of consolidated CLO entity:
Cash equivalents			34,561		-		-			-		34,561
Bank loans and other investments			98		428,282		2,203			-		430,583
Total financial assets		$	170,288	$	672,202	$	2,203		$	265,472	$	1,110,165
Financial liabilities:
Derivative instruments		$	-	$	788	$	-		$	-	$	788
Securities sold, not yet purchased			-		26,142		-			-		26,142
Liabilities of consolidated CLO entity:
Senior and subordinated note obligations			-		2,659		443,946			-		446,605
Total financial liabilities		$	-	$	29,589	$	443,946		$	-	$	473,535
(1)	The Company’s investment in this CLO entity is measured at fair value on a non-recurring basis using Level 3 inputs.
	The investment is carried at amortized cost unless facts and circumstances indicate that the investment has been
	impaired, at which time the investment is written down to fair value. There was no re-measurement of this asset during
	the three month period ended January 31, 2013 or the twelve month period ended October 31, 2012.
(2)	Investments in equity method investees are not measured at fair value in accordance with GAAP.
(3)	Investments, other, include investments carried at cost that are not measured at fair value in accordance with GAAP.

Valuation methodologies

The following is a description of the valuation methodologies used for financial assets and liabilities measured at fair value on a recurring basis as well as the general classification of those assets and liabilities pursuant to the valuation hierarchy:

Cash equivalents

Cash equivalents consist of investments in money market funds and agency securities. Money market funds are valued using published net asset values and are classified as Level 1 within the valuation hierarchy. Agency securities are valued based upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active, and inputs other than quoted prices that are observable or corroborated by observable market data. Depending on the nature of the inputs, these assets are generally classified as Level 1 or 2 within the valuation hierarchy.

Investment securities, trading– debt

Investment securities, trading– debt, consist of debt obligations held in the portfolios of consolidated sponsored funds and separately managed accounts. Debt obligations (including short-term obligations with a remaining maturity of more than sixty days) are generally valued on the basis of valuations provided by third-party pricing services, as derived from such services' pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker-dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. Short-term obligations purchased with a remaining maturity of sixty days or less (excluding those that are non-U.S. denominated, which typically are valued by a third-party pricing service or dealer quotes) are generally valued at amortized cost, which approximates market value. Depending upon the nature of the inputs, investment securities, trading – debt, are generally classified as Level 1 or 2 within the valuation hierarchy.

Investment securities, trading – equity

Investment securities, trading – equity, consist of foreign and domestic equity securities held in the portfolios of consolidated sponsored funds and separately managed accounts. Equity securities listed on a U.S. securities exchange generally are valued at the last sale or closing price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and asked prices on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing prices or closing quotations are not available are valued at the mean between the latest available bid and asked prices. The daily valuation of exchange-traded foreign securities generally is determined as of the close of trading on the principal exchange on which such securities trade. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair values as of the close of regular trading on the New York Stock Exchange. Depending upon the nature of the inputs, investment securities, trading – equity are generally classified as Level 1 or 2 within the valuation hierarchy.

Investment securities, available-for-sale

Investment securities, available-for-sale, consist of investments in sponsored mutual funds and privately offered equity funds. Sponsored mutual funds that are listed on an active exchange are valued using published net asset values and are classified as Level 1 within the valuation hierarchy. Investments in sponsored privately offered equity funds and portfolios that are not listed on an active exchange but have net asset values that are comparable to mutual funds and have no redemption restrictions are classified as Level 2 within the valuation hierarchy.

Derivative instruments

Derivative instruments, which include foreign exchange contracts, stock index futures contracts and commodity futures contracts, are recorded as either other assets or other liabilities on the Company's Consolidated Balance Sheets. Foreign exchange contracts are valued by interpolating a value using the spot foreign exchange rate and forward points, which are based on spot rate and currency interest rate differentials. Index futures contracts and commodity futures contracts are valued using a third-party pricing service that determines fair value based on bid and ask prices. Derivative instruments are generally classified as Level 2 within the valuation hierarchy.

Assets of consolidated CLO entity

Assets of the consolidated CLO entity include investments in money market funds, equity securities, debt securities, bank loans and warrants. Fair value is determined utilizing unadjusted quoted market prices when available. Interests in senior floating-rate loans for which reliable market quotations are readily available are valued generally at the average mid-point of bid and ask quotations obtained from a third-party pricing service. Fair value may also be based upon valuations obtained from independent third-party brokers or dealers utilizing matrix pricing models that consider information regarding securities with similar characteristics. In certain instances, fair value has been determined utilizing discounted cash flow analyses or single broker non-binding quotes. Depending on the nature of the inputs, these assets are classified as Level 1, 2 or 3 within the valuation hierarchy.

Securities sold, not yet purchased

Securities sold, not yet purchased, are recorded as other liabilities on the Company's Consolidated Balance Sheets and are valued by a third-party pricing service that determines fair value based on bid and ask prices. Securities sold, not yet purchased, are generally classified as Level 2 within the valuation hierarchy.

Liabilities of consolidated CLO entity

Liabilities of the consolidated CLO entity include debt securities and senior and subordinated note obligations of the consolidated CLO entity. The debt securities are valued based upon quoted prices for identical or similar liabilities that are not activeand inputs other than quoted prices that are observable or corroborated by observable market data. The senior and subordinated notes are valued based upon model-based valuation techniques in which one or more significant inputs are unobservable in the market. Depending on the nature of the inputs, these liabilities are classified as Level 2 or 3 within the valuation hierarchy.

Transfers in and/or out of Levels

The following table summarizes fair value transfers between Level 1 and Level 2 for the three months ended January 31, 2013:

		Three Months Ended
(in thousands)		January 31, 2013
Transfers from Level 1 into Level 2		$	-
Transfers from Level 2 into Level 1(1)			1,611
(1)	Transfers from Level 2 into Level 1 primarily represent debt and equity securities due to the availability
	of unadjusted quoted market prices in active markets.

There were no significant transfers between Level 1 and Level 2 during the three months ended January 31, 2012.

Level 3 assets and liabilities

The following table shows a reconciliation of the beginning and ending fair value measurements of assets and liabilities that are valued on a recurring basis and classified as Level 3 for the three months ended January 31, 2013 and 2012:

				Three Months Ended				Three Months Ended
				January 31, 2013				January 31, 2012
(in thousands)				Bank loans and other investments of consolidated CLO entity		Senior and subordinated note obligations of consolidated CLO entity		Bank loans and other investments of consolidated CLO entity		Senior and subordinated note obligations of consolidated CLO entity
Beginning balance			$	2,203	$	443,946	$	5,910	$	477,699
Net gains (losses) on investments and
	note obligations included in net
	income(1)			(36)		3,585		(40)		2,646
Principal paydown				0		(38,607)		0		-
Transfers into Level 3(2)				491		-		-		-
Net transfers out of Level 3(3)				-		-		(1,142)		-
Ending balance			$	2,658	$	408,924	$	4,728	$	480,345
Change in unrealized (losses) gains
	includedin net income relating to
	assets and liabilities held		$	(36)	$	3,585	$	(40)	$	2,646
(1)		Substantially all net gains and losses on investments and note obligations attributable to the assets and borrowings of the Company's
		consolidated CLO entity are allocated to non-controlling and other beneficial interests on the Company's Consolidated Statements of Income.
(2)		Transfers into Level 3 were the result of a reduction in the availability of significant observable inputs used in determining the fair value
		of the securities including a loan that utilized a discount applied to the demanded yield.
(3)		Transfers out of Level 3 into Level 2 were due to an increase in the observability of the inputs used in determining the fair value of certain
		instruments.

The following table shows the valuation technique and significant unobservable inputs utilized in the fair value measurement ofLevel 3 liabilities at January 31, 2013and October 31, 2012:

January 31, 2013			Valuation	Unobservable
($ in thousands)		Fair Value	Technique	Inputs(1)	Range
Liabilities of consolidated CLO entity:
				Prepayment rate	30 percent
				Recovery rate	70 percent
Senior and subordinated				Default rate	200 bps
note obligations	$	408,924	Income approach	Discount rate	120-550 bps

	October 31, 2012			Valuation	Unobservable
	($ in thousands)		Fair Value	Technique	Inputs(1)	Range
	Liabilities of consolidated CLO entity:
					Prepayment rate	30 percent
					Recovery rate	70 percent
	Senior and subordinated				Default rate	200 bps
	note obligations	$	443,946	Income approach	Discount rate	135-700 bps
(1)	Discount rate refers to spread over LIBOR. Lower spreads relate to the more senior tranches in the CLO note structure;
	higher spreads relate to the less senior tranches. The default rate refers to the constant annual default rate. Prepayment rate
	is the rate at which the underlying collateral is expected to repay principal. Recovery rate is the expected recovery of defaulted
	amounts received through asset sale or recovery through bankruptcy restructuring or other settlement processes.

Valuation process

The Company elected the fair value option for both the collateral assets held and senior and subordinated notes issued by its consolidated CLO entity upon consolidation to mitigate any accounting inconsistencies between the carrying value of the assets held to provide cash flows for the note obligations and the carrying value of those note obligations.

Senior and subordinated note obligations issued by the Company's consolidated CLO entity are issued in various tranches with different risk profiles. The notes are valued on a quarterly basis by the Company's bank loan investment team utilizing an income approach that projects the cash flows of the collateral assets using the team's projected default rate, prepayment rate, recovery rate and discount rate as well as observable assumptions about market yields, collateral reimbursement assumptions, callabilityand other market factors that vary based on the nature of the investments in the underlying collateral pool. Once the undiscounted cash flows of the collateral assets have been determined, the bank loan team applies appropriate discount rates that it believes a reasonable market participant would use to determine the discounted cash flow valuation of the notes. The bank loan team routinely monitors market conditions and model inputs for cyclical and secular changes in order to identify any material factors that could influence the Company's valuation method and they report directly to the Chief Income Investment Officer.

Sensitivity to changes in significant unobservable inputs

For senior and subordinated notes issued by the Company's consolidated CLO entity, a change in the assumption used for the probability of default is generally accompanied by a directionally similar change in the assumption used for discount rates. Significant increases in either of these inputs would result in a significantly lower measurement of fair value.

Although the Company believes the valuation methods described above are appropriate, the use of different methodologies or assumptions to determine fair value could result in a different estimate of fair value at the reporting date.