Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis

3 Months Ended

Jan. 31, 2017

Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis Disclosure [Abstract]

Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis

7. Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis

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, 2017 and October 31, 2016:

January 31, 2017
(in thousands)		Level 1		Level 2		Level 3		Other Assets Not Held at Fair Value		Total
Financial assets:
Cash equivalents	$	17,923	$	31,086	$	-	$	-	$	49,009
Investments:
Investment securities, trading:
Short-term debt securities		-		68,915		-		-		68,915
Other debt securities		24,470		229,484		-		-		253,954
Equity securities		161,567		44,102		-		-		205,669
Investment securities, available-
for-sale		7,755		2,393		-		-		10,148
Investments in non-consolidated
CLO entities⁽¹⁾		-		-		-		3,927		3,927
Investments in equity method
investees⁽²⁾		-		-		-		143,430		143,430
Investments, other⁽³⁾		-		120		-		19,034		19,154
Derivative instruments		-		329		-		-		329
Total financial assets	$	211,715	$	376,429	$	-	$	166,391	$	754,535

Financial liabilities:
Derivative instruments	$	-	$	3,951	$	-	$	-	$	3,951
Total financial liabilities	$	-	$	3,951	$	-	$	-	$	3,951

October 31, 2016
(in thousands)		Level 1		Level 2		Level 3		Other Assets Not Held at Fair Value		Total
Financial assets:
Cash equivalents	$	21,875	$	35,913	$	-	$	-	$	57,788
Investments:
Investment securities, trading:
Short-term debt securities		-		85,822		-		-		85,822
Other debt securities		18,757		172,931		-		-		191,688
Equity securities		93,491		42,540		-		-		136,031
Investment securities, available-
for-sale		11,051		2,261		-		-		13,312
Investments in non-consolidated
CLO entities⁽¹⁾		-		-		-		3,837		3,837
Investments in equity method
investees⁽²⁾		-		-		-		139,929		139,929
Investments, other⁽³⁾		-		120		-		19,034		19,154
Derivative instruments		-		2,072		-		-		2,072
Total financial assets	$	145,174	$	341,659	$	-	$	162,800	$	649,633

Financial liabilities:
Derivative instruments	$	-	$	815	$	-	$	-	$	815
Total financial liabilities	$	-	$	815	$	-	$	-	$	815

⁽¹⁾ The Company’s investments in these CLO entities are measured at fair value on a non-recurring basis using Level 3 inputs.
⁽¹⁾ The investments are carried at amortized cost unless facts and circumstances indicate that the investments have been
⁽¹⁾ impaired, at which time the investments are written down to fair value. The Company did not recognize any impairment
⁽¹⁾ losses on investments in non-consolidated CLO entities during the three months ended January 31, 2017 or 2016.
⁽²⁾ Investments in equity method investees are not measured at fair value in accordance with U.S. GAAP.
⁽³⁾ Investments, other, include investments carried at cost that are not measured at fair value in accordance with U.S. GAAP.

Valuation methodologies

Cash equivalents

Cash equivalents include investments in money market funds, government agency securities, certificates of deposit and commercial paper with original maturities of less than three months. Cash investments in actively traded money market funds are valued using published net asset values and are classified as Level 1 within the fair value measurement hierarchy. Government 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. The carrying amounts of certificates of deposit and commercial paper are measured at amortized cost, which approximates fair value due to the short time between the purchase and expected maturity of the investments. Depending on the nature of the inputs, these assets are generally classified as Level 1 or 2 within the fair value measurement hierarchy.

Investment securities, trading – short-term debt

Short-term debt securities include certificates of deposit, commercial paper and corporate debt obligations with remaining maturities from three months to 12 months. Short-term debt securities held 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 ask 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. Depending on the nature of the inputs, these assets are generally classified as Level 1 or 2 within the fair value measurement hierarchy.

Investment securities, trading – other debt

Other debt securities classified as trading include debt obligations held in the portfolios of consolidated sponsored funds and separately managed accounts. Other debt securities held are generally valued on the basis of valuations provided by third-party pricing services as described above for investment securities, trading – short-term debt. Other debt securities purchased with a remaining maturity of 60 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 fair value. Depending upon the nature of the inputs, these assets are generally classified as Level 1 or 2 within the fair value measurement hierarchy.

Investment securities, trading – equity

Equity securities classified as trading include foreign and domestic equity securities held in the portfolios of consolidated sponsored funds and separately managed accounts. Equity securities are valued at the last sale, official close or, if there are no reported sales on the valuation date, at the mean between the latest available bid and ask prices on the primary exchange on which they are traded. When valuing foreign equity securities that meet certain criteria, the portfolios use a fair value service that values such securities to reflect market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities. In addition, the Company performs its own independent back test review of fair values versus the subsequent local market opening prices when available. Depending upon the nature of the inputs, these assets generally are classified as Level 1 or 2 within the fair value measurement hierarchy.

Investment securities, available-for-sale

Investment securities classified as available-for-sale include investments in sponsored mutual funds and privately offered equity funds. Sponsored mutual funds are valued using published net asset values and are classified as Level 1 within the fair value measurement hierarchy. Investments in sponsored privately offered equity funds 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 fair value measurement hierarchy.

Derivative instruments

Derivative instruments, which include stock index futures contracts, foreign exchange contracts and total return swap contracts, are recorded as either other assets or other liabilities on the Company's Consolidated Balance Sheets. Stock index futures contracts and total return swap contracts are valued using a third-party pricing service that determines fair value based on bid and ask prices. 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. Derivative instruments generally are classified as Level 2 within the fair value measurement hierarchy.

Transfers in and out of Levels

The following table summarizes fair value transfers between Level 1 and Level 2 of the fair value measurement hierarchy for the three months ended January 31, 2017 and 2016:

	Three Months Ended
	January 31,
(in thousands)		2017		2016
Transfers from Level 1 into Level 2⁽¹⁾	$	356	$	44
Transfers from Level 2 into Level 1⁽²⁾		4		19

⁽¹⁾ Transfers from Level 1 into Level 2 represent securities for which unadjusted quoted market prices in active markets
⁽¹⁾ became unavailable.
⁽²⁾ Transfers from Level 2 into Level 1 represent securities for which unadjusted quoted market prices in active markets
⁽²⁾ became available.

Level 3 assets and liabilities

The Company did not hold any assets or liabilities valued on a recurring basis and classified as Level 3 within the fair value measurement hierarchy during the three months ended January 31, 2017. The following table shows a reconciliation of the beginning and ending fair value measurements of assets and liabilities valued on a recurring basis and classified as Level 3 within the fair value measurement hierarchy for the three months ended January 31, 2016:

	Three Months Ended
	January 31, 2016
(in thousands)		Bank Loan Investments of Eaton Vance CLO 2015-1		Senior and Subordinated Note Obligations of Eaton Vance CLO 2015-1
Beginning balance	$	-	$	-
Transfers into Level 3⁽¹⁾		700		390,654
Ending balance	$	700	$	390,654
Change in unrealized gains (losses) included in net
income relating to assets and liabilities held	$	-	$	-

⁽¹⁾ Transfers into Level 3 were the result of a reduction in the availability of significant observable inputs used in
⁽¹⁾ determining the fair value of certain instruments.

As discussed more fully in Note 6, the Company deconsolidated Eaton Vance CLO 2015-1 on September 21, 2016.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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