Fair Values of Assets and Liabilities

9 Months Ended

Dec. 31, 2012

Investments and Fair Values of Assets and Liabilities Disclosure [Abstract]

Fair Values of Assets and Liabilities

3. Fair Values of Assets and Liabilities

The disclosures below include details of Legg Mason's assets and liabilities that are measured at fair value, excluding the assets and liabilities of CIVs. See Note 12, Variable Interest Entities and Consolidation of Investment Vehicles, for information related to the assets and liabilities of CIVs that are measured at fair value.

The fair values of financial assets and (liabilities) of the Company were determined using the following categories of inputs:

	As of December 31, 2012
	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:
Cash equivalents(1):
Money market funds	$	513,113		$	—	$	—	$	513,113
Time deposits and other	—			124,978		—		124,978
Total cash equivalents	513,113			124,978		—		638,091
Current investments:
Trading investments relating to long-term incentive compensation plans(2)	100,396			—		—		100,396
Trading proprietary fund products and other investments(3)	104,261			102,680		—		206,941
Equity method investments relating to long-term incentive compensation plans, proprietary fund products and other investments(4)(5)	12,685			26,294		—		38,979
Total current investments	217,342			128,974		—		346,316
Available-for-sale investment securities(6)	2,031			10,367		12		12,410
Investments in partnerships, LLCs and other(6)	986			2,696		27,464		31,146
Equity method investments in partnerships and LLCs(4)(6)	1,361			—		63,236		64,597
Derivative assets:
Currency and market hedges	317			—		—		317
Other investments(6)	—			—		107		107
	$	735,150		$	267,015	$	90,819	$	1,092,984
Liabilities:
Derivative liabilities:
Currency and market hedges	$	(744	)	$	—	$	—	$	(744	)

	As of March 31, 2012
	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:
Cash equivalents(1):
Money market funds	$	893,738		$	—	$	—	$	893,738
Time deposits	—			88,289		—		88,289
Total cash equivalents	893,738			88,289		—		982,027
Current investments:
Trading investments relating to long-term incentive compensation plans(2)	111,257			—		—		111,257
Trading proprietary fund products and other investments(3)	143,002			79,583		—		222,585
Equity method investments relating to long-term incentive compensation plans, proprietary fund products and other investments(4)(5)	11,565			54,934		11,778		78,277
Total current investments	265,824			134,517		11,778		412,119
Available-for-sale investment securities(6)	2,091			9,810		12		11,913
Investments in partnerships, LLCs and other(6)	851			5,351		28,763		34,965
Equity method investments in partnerships and LLCs(4)(6)	1,415			1,348		166,438		169,201
Derivative assets:
Currency and market hedges	84			—		—		84
Other investments(6)	—			—		112		112
	$	1,164,003		$	239,315	$	207,103	$	1,610,421
Liabilities:
Derivative liabilities:
Currency and market hedges	$	(886	)	$	—	$	—	$	(886	)

(1) Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at net asset value ("NAV") and are classified as Level 1.  Cash investments in time deposits and other are measured at amortized cost, which approximates fair value because of the short time between the purchase of the instrument and its expected realization, and are classified as Level 2.

(2) Primarily mutual funds where there is minimal market risk to the Company as any change in value is primarily offset by an adjustment to compensation expense and related deferred compensation liability.

(3) Trading proprietary fund products and other investments primarily represent mutual funds that are invested approximately 47% and 53% in equity and debt securities as of December 31, 2012, respectively, and were invested approximately 52% and 48% in equity and debt securities as of March 31, 2012, respectively.

(4) Substantially all of Legg Mason's equity method investments are investment companies which record their underlying investments at fair value.  Fair value is measured using Legg Mason's share of the investee's underlying net income or loss, which is predominately representative of fair value adjustments in the investments held by the equity method investee.

(5) Includes investments under the equity method (which approximates fair value) relating to long-term incentive compensation plans of $26,294 and $54,934 as of December 31, 2012 and March 31, 2012, respectively, and proprietary fund products and other investments of $12,685 and $23,343 as of December 31, 2012 and March 31, 2012, respectively, which are classified as Investment securities on the Consolidated Balance Sheets.

(6) Amounts are included in Other non-current assets on the Consolidated Balance Sheets for each of the periods presented.

Substantially all of the above financial instruments where valuation methods rely on other than observable market inputs as a significant input utilize the equity method, the cost method, or NAV practical expedient, such that measurement uncertainty has little relevance.

The changes in financial assets measured at fair value using significant unobservable inputs (Level 3) for the three and nine months ended December 31, 2012 and 2011, are presented in the tables below:

	Value as of September 30, 2012		Purchases		Sales			Redemptions/Settlements/ Other			Transfers Out			Realized and unrealized gains/(losses), net			Value as of December 31, 2012
Assets:
Equity method investments in proprietary fund products	$	11,705	$	—	$	—		$	—		$	(11,705	)	$	—		$	—
Investments in partnerships, LLCs and other	28,041		—		(182		)	(46		)	—			(349		)	27,464
Equity method investments in partnerships and LLCs	129,294		911		(1,183		)	(64,513		)	—			(1,273		)	63,236
Other investments	131		—		—			—			—			(12		)	119
	$	169,171	$	911	$	(1,365	)	$	(64,559	)	$	(11,705	)	$	(1,634	)	$	90,819

	Value as of September 30, 2011		Purchases		Sales			Redemptions/Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of December 31, 2011
Assets:
Trading proprietary fund products and other investments	$	179	$	—	$	(165	)	$	—		$	—	$	(14	)	$	—
Equity method investments in proprietary fund products	11,605		—		—			—			—		(545		)	11,060
Investments in partnerships, LLCs and other	28,469		—		—			(10		)	—		(219		)	28,240
Equity method investments in partnerships and LLCs	160,662		660		(1,869		)	(1,370		)	—		(7,781		)	150,302
Other investments	133		—		—			—			—		—			133
	$	201,048	$	660	$	(2,034	)	$	(1,380	)	$	—	$	(8,559	)	$	189,735

	Value as of March 31, 2012		Purchases		Sales			Redemptions/ Settlements/ Other			Transfers Out			Realized and unrealized gains/(losses), net			Value as of December 31, 2012
Assets:
Equity method investments in proprietary fund products	$	11,778	$	—	$	—		$	—		$	(11,705	)	$	(73	)	$	—
Investments in partnerships, LLCs and other	28,763		—		(970		)	(612		)	—			283			27,464
Equity method investments in partnerships and LLCs	166,438		1,123		(2,025		)	(116,579		)	—			14,279			63,236
Other investments	124		—		—			—			—			(5		)	119
	$	207,103	$	1,123	$	(2,995	)	$	(117,191	)	$	(11,705	)	$	14,484		$	90,819

	Value as of March 31, 2011		Purchases		Sales			Redemptions/Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of December 31, 2011
Assets:
Trading proprietary fund products and other investments	$	11,378	$	—	$	(11,906	)	$	—		$	—	$	528		$	—
Equity method investments in proprietary fund products	12,167		—		—			—			—		(1,107		)	11,060
Investments in partnerships, LLCs and other	22,167		6,932		—			(119		)	—		(740		)	28,240
Equity method investments in partnerships and LLCs	153,931		26,164		(5,162		)	(14,067		)	—		(10,564		)	150,302
Other investments	282		—		—			(159		)	—		10			133
	$	199,925	$	33,096	$	(17,068	)	$	(14,345	)	$	—	$	(11,873	)	$	189,735

Realized and unrealized gains and losses recorded for Level 3 investments are included in Other Non-Operating Income (Expense) on the Consolidated Statements of Income (Loss). Total unrealized losses for Level 3 investments relating only to those assets still held at the reporting date were $1,632 and $8,521 for the three months ended December 31, 2012 and 2011, respectively. Total unrealized losses for Level 3 investments relating only to those assets still held at the reporting date were $4,150 and $13,940 for the nine months ended December 31, 2012 and 2011, respectively.

There were no material transfers between Level 1 and Level 2 during the three or nine months ended December 31, 2012 and 2011.

As a practical expedient, Legg Mason relies on the NAV of certain investments as their fair value.  The NAVs that have been provided by the investees have been derived from the fair values of the underlying investments as of the reporting date.  The following table summarizes, as of December 31, 2012, the nature of these investments and any related liquidation restrictions or other factors which may impact the ultimate value realized:

		Fair Value Determined Using NAV								As of December 31, 2012
Category of Investment	Investment Strategy	December 31, 2012				March 31, 2012				Unfunded Commitments		Remaining Term
Funds-of-hedge funds	Global macro, fixed income, long/short equity, natural resources, systematic, emerging market, European hedge	$	45,481	(1)		$	51,251	(2)		n/a		n/a
Hedge funds	Fixed income - developed market, event driven, fixed income - hedge, relative value arbitrage, European hedge	24,073				25,460				$	20,000	n/a
Private equity funds	Long/short equity	25,591		(3)		27,927		(3)		5,218		Up to 7 years
Private fund(4)	Fixed income, residential and commercial mortgage-backed securities	—				89,323				n/a		n/a
Other	Various	2,164				2,450				n/a		Various (5)
Total		$	97,309	(6	)	$	196,411	(6	)	$	25,218

n/a-not applicable

(1) 58% monthly redemption; 42% quarterly redemption, of which 38% is subject to two-year lock-up, which expires in June 2013.

(2) 63% monthly redemption; 37% quarterly redemption, of which 36% is subject to two-year lock-up, which expires in June 2013.

(3)    Liquidations are expected over the remaining term.

(4) Legg Mason's investment was fully redeemed in the quarter ended December 31, 2012 upon liquidation of the fund.

(5) Of this balance, 3% has a remaining term of less than one year and 97% has a remaining term of 20 years.

(6) Comprised of approximately 37% and 63% of Level 2 and Level 3 assets, respectively, as of December 31, 2012 and 13% and 87% of Level 2 and Level 3 assets, respectively, as of March 31, 2012.

There are no current plans to sell any of these investments held as of December 31, 2012.