4. Investments and Fair Value of Assets and Liabilities

The disclosures below include details of Legg Mason's financial assets and financial liabilities that are measured at fair value, excluding the financial assets and financial liabilities of CIVs. See Note 13 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 September 30, 2015
	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	$	347,545		$	—		$	—		$	347,545
Time deposits and other	—			36,584			—			36,584
Total cash equivalents	347,545			36,584			—			384,129
Current investments:
Trading investments relating to long-term incentive compensation plans⁽²⁾	103,418			655			—			104,073
Trading investments of proprietary fund products and other trading investments⁽³⁾	218,146			103,541			164			321,851
Equity method investments relating to long-term incentive compensation plans, proprietary fund products and other investments⁽⁴⁾⁽⁵⁾	2,047			12,855			—			14,902
Total current investments	323,611			117,051			164			440,826
Investments in partnerships, LLCs and other⁽⁶⁾	—			—			11,290			11,290
Equity method investments in partnerships and LLCs⁽⁴⁾⁽⁶⁾	—			—			39,619			39,619
Derivative assets⁽⁷⁾	2,732			7,259			—			9,991
Other investments⁽⁶⁾	—			—			77			77
Total	$	673,888		$	160,894		$	51,150		$	885,932
Liabilities:
Long-term debt⁽⁸⁾	$	—		$	(257,259	)	$	—		$	(257,259	)
Contingent consideration liabilities⁽⁹⁾	—			—			(90,219		)	(90,219		)
Derivative liabilities⁽⁷⁾	(14,562		)	—			—			(14,562		)
Total	$	(14,562	)	$	(257,259	)	$	(90,219	)	$	(362,040	)



	As of March 31, 2015
	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	$	353,265		$	—		$	—		$	353,265
Time deposits and other	—			47,035			—			47,035
Total cash equivalents	353,265			47,035			—			400,300
Current investments:
Trading investments relating to long-term incentive compensation plans⁽²⁾	80,529			—			—			80,529
Trading investments of proprietary fund products and other trading investments⁽³⁾	269,647			88,201			186			358,034
Equity method investments relating to long-term incentive compensation plans, proprietary fund products and other investments⁽⁴⁾⁽⁵⁾	2,148			14,024			—			16,172
Total current investments	352,324			102,225			186			454,735
Investments in partnerships, LLCs and other⁽⁶⁾	—			—			14,511			14,511
Equity method investments in partnerships and LLCs⁽⁴⁾⁽⁶⁾	—			—			48,344			48,344
Derivative assets⁽⁷⁾	580			5,462			—			6,042
Other investments⁽⁶⁾	—			—			77			77
Total	$	706,169		$	154,722		$	63,118		$	924,009
Liabilities:
Long-term debt⁽⁸⁾	$	—		$	(255,462	)	$	—		$	(255,462	)
Contingent consideration liability⁽⁹⁾	—			—			(110,784		)	(110,784		)
Derivative liabilities⁽⁷⁾	(8,665		)	—			—			(8,665		)
Total	$	(8,665	)	$	(255,462	)	$	(110,784	)	$	(374,911	)

(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 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 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 investments of proprietary fund products and other trading investments consist of approximately 67% and 33% in equity and debt securities, respectively, as of September 30, 2015, and approximately 63% and 37% in equity and debt securities, respectively, as of March 31, 2015.


(4)	Substantially all of Legg Mason's equity method investments are investment companies which record 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 approximate fair value) relating to long-term incentive compensation plans of $7,935 and $8,728 as of September 30, 2015 and March 31, 2015, respectively, and proprietary fund products and other investments of $6,967 and $7,444 as of September 30, 2015 and March 31, 2015, respectively, which are classified as Investment securities in the Consolidated Balance Sheets.


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


(7)	See Note 12.


(8)	Long-term debt is the sum of the amortized cost of long-term debt and the fair value of an interest rate swap contract designated as a fair value hedge. See Note 7.


(9)	See Note 3.

The net realized and unrealized gain (loss) for investment securities classified as trading was $(31,460) and $(8,515) for the three months ended September 30, 2015 and 2014, respectively, and $(27,431) and $1,923 for the six months ended September 30, 2015 and 2014, respectively.

The net unrealized losses relating to trading investments still held as of September 30, 2015 and 2014, were $32,755 and $17,612 for the three months ended September 30, 2015 and 2014, respectively, and $43,165 and $18,266 for the six months ended September 30, 2015 and 2014, respectively.

Proprietary fund products include seed capital investments made by Legg Mason to fund new investment strategies and products. Legg Mason had investments in proprietary fund products, which totaled $326,449 and $392,039, as of September 30, 2015 and March 31, 2015, respectively, which are substantially comprised of investments in 47 funds and 52 funds, respectively, that are individually greater than $1,000, with minimal third-party investment, and together comprise over 90% of the total seed capital investments at each period end.

See Notes 2 and 13 for information regarding the determination of whether investments in proprietary fund products represent VIEs and consolidation.

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 discussed below, such that measurement uncertainty has little relevance.

The changes in financial assets and (liabilities) measured at fair value using significant unobservable inputs (Level 3) for the three and six months ended September 30, 2015 and 2014, are presented in the tables below:



	Value as of June 30, 2015			Purchases		Sales			Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of September 30, 2015
Assets:
Trading investments of proprietary fund products and other trading investments	$	191		$	—	$	(35	)	$	—		$	—	$	8		$	164
Investments in partnerships, LLCs and other	11,907			—		—			(2		)	—		(615		)	11,290
Equity method investments in partnerships and LLCs	41,562			650		(345		)	(1,653		)	—		(595		)	39,619
Other investments	76			—		—			—			—		1			77
	$	53,736		$	650	$	(380	)	$	(1,655	)	$	—	$	(1,201	)	$	51,150
Liabilities:
Contingent consideration liabilities	$	(92,744	)	$	—	n/a			$	—		n/a		$	2,525		$	(90,219	)

n/a - not applicable



	Value as of June 30, 2014			Purchases		Sales			Redemptions/Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of September 30, 2014
Assets:
Trading investments of proprietary fund products and other trading investments	$	179		$	—	$	(9	)	$	—		$	—	$	—		$	170
Investments in partnerships, LLCs and other	21,654			—		(24		)	(3,443		)	—		(505		)	17,682
Equity method investments in partnerships and LLCs	57,621			78		(990		)	(363		)	—		(489		)	55,857
Other investments	92			—		—			—			—		(7		)	85
	$	79,546		$	78	$	(1,023	)	$	(3,806	)	$	—	$	(1,001	)	$	73,794
Liabilities:
Contingent consideration liability	$	(43,984	)	$	—	n/a			$	—		n/a		$	1,331		$	(42,653	)

n/a - not applicable



	Value as of March 31, 2015			Purchases		Sales			Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of September 30, 2015
Assets:
Trading investments of proprietary fund products and other trading investments	$	186		$	—	$	(42	)	$	—		$	—	$	20		$	164
Investments in partnerships, LLCs and other	14,511			—		—			(2,530		)	—		(691		)	11,290
Equity method investments in partnerships and LLCs	48,344			1,893		(6,515		)	(4,085		)	—		(18		)	39,619
Other investments	77			—		—			—			—		—			77
	$	63,118		$	1,893	$	(6,557	)	$	(6,615	)	$	—	$	(689	)	$	51,150
Liabilities:
Contingent consideration liabilities	$	(110,784	)	$	—	n/a			$	22,765		n/a		$	(2,200	)	$	(90,219	)

n/a - not applicable



	Value as of March 31, 2014			Purchases			Sales			Redemptions/Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of September 30, 2014
Assets:
Trading investments of proprietary fund products and other trading investments	$	190		$	—		$	(19	)	$	—		$	—	$	(1	)	$	170
Investments in partnerships, LLCs and other	21,586			—			(24		)	(3,443		)	—		(437		)	17,682
Equity method investments in partnerships and LLCs	62,973			1,046			(6,838		)	(927		)	—		(397		)	55,857
Other investments	90			—			—			—			—		(5		)	85
	$	84,839		$	1,046		$	(6,881	)	$	(4,370	)	$	—	$	(840	)	$	73,794
Liabilities:
Contingent consideration liability	$	(29,553	)	$	(13,370	)	n/a			$	—		n/a		$	270		$	(42,653	)

n/a - not applicable

Realized and unrealized gains and losses recorded for Level 3 investments are primarily included in Other Non-Operating Income (Expense) in the Consolidated Statements of Income. The change in unrealized gains for Level 3 investments and liabilities still held at the reporting date was $1,218 and $131 for the three months ended September 30, 2015 and 2014, respectively. The change in unrealized losses for Level 3 investments and liabilities still held at the reporting date was $2,822 and $1,200 for the six months ended September 30, 2015 and 2014, respectively.

There were no significant transfers between Level 1 and Level 2 during the three and six months ended September 30, 2015 and 2014.

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 respective reporting dates. The following table summarizes, as of September 30, 2015 and March 31, 2015, 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 September 30, 2015
Category of Investment	Investment Strategy	September 30, 2015			March 31, 2015			Unfunded Commitments		Remaining Term
Funds-of-hedge funds	Global macro, fixed income, long/short equity, natural resources, systematic, emerging market, European hedge	$	21,667	(1)	$	23,787		n/a		n/a
Hedge funds	Fixed income - developed market, event driven, fixed income - hedge, relative value arbitrage, European hedge	12,426			14,515			$	20,000	n/a
Private equity funds	Long/short equity	21,850		(2)	23,563			8,419		Up to 10 years
Other	Various	1,034			1,129			n/a		Various ⁽³⁾
Total		$	56,977	(4)	$	62,994	(4)	$	28,419

n/a-not applicable


(1)	Liquidation restrictions: 2% daily redemption, 10% monthly redemption and 88% quarterly redemption as of September 30, 2015.


(2)	Liquidations are expected over the remaining term.


(3)	Of this balance, 23% has a remaining term of less than one year and 77% has a remaining term of 17 years.


(4)	Comprised of 1%, 37%, and 62% of Level 1, Level 2, and Level 3 assets, respectively, as of September 30, 2015 and 38% and 62% of Level 2 and Level 3 assets, respectively, as of March 31, 2015.

There are no current plans to sell any of these investments held as of September 30, 2015.