Derivatives and Hedging

6 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

12. Derivatives and Hedging

The disclosures below detail Legg Mason’s derivatives and hedging activities excluding the derivatives and hedging activities of CIVs. See Note 13, Variable Interest Entities and Consolidated Investment Vehicles, for information related to the derivatives and hedging of CIVs.

Legg Mason uses currency forwards to economically hedge the risk of movements in exchange rates, primarily between the U.S. dollar, Australian dollar, British pound, Singapore dollar, euro, and Japanese yen. All derivative transactions for which Legg Mason has certain legally enforceable rights of setoff are governed by International Swaps and Derivative Association ("ISDA") Master Agreements. For these derivative transactions, we have one ISDA Master Agreement with each of the significant counterparties, which cover our transactions with that counterparty. Each of the respective ISDA agreements provide for settlement netting and close-out netting between Legg Mason and that counterparty, which are legally enforceable rights to setoff. Other assets recorded in the Consolidated Balance Sheets as of September 30, 2015 and March 31, 2015, were $9,991 and $6,042, respectively. Other liabilities recorded in the Consolidated Balance Sheets as of September 30, 2015 and March 31, 2015, were $14,562 and $8,665, respectively.

Legg Mason also uses market hedges on certain seed capital investments by entering into futures contracts to sell index funds that benchmark the hedged seed capital investments.

With the exception of the interest rate swap contract and reverse treasury rate lock contract discussed in Note 7, Legg Mason has not designated any derivatives as hedging instruments for accounting purposes during the periods ended September 30, 2015, March 31, 2015, or September 30, 2014. As of September 30, 2015, Legg Mason had open currency forward contracts with aggregate notional amounts totaling $364,777 and open futures and forwards contracts relating to seed capital investments with aggregate notional values totaling $114,228. As of September 30, 2015, the aggregate notional values of open currency forward contracts included $218,022 related to a U.S. dollar - Australian dollar contract executed in August 2015 and closed in October 2015 in connection with the acquisition of RARE Infrastructure, as further described in Note 14. As of September 30, 2015, the weighted-average remaining contract terms for currency forward contracts and futures and forward contracts relating to seed capital investments were four months and three months, respectively.

The following table presents the derivative assets and related offsets, if any, as of September 30, 2015:

								Gross amounts not offset in the Balance Sheet
	Gross amounts of recognized assets		Gross amounts offset in the Balance Sheet			Net amount of derivative assets presented in the Balance Sheet		Financial instruments		Cash collateral		Net amount as of September 30, 2015
Derivative instruments designated as hedging instruments (See Note 7)
Interest rate swap	$	—	$	—		$	—	$	7,259	$	—	$	7,259
Derivative instruments not designated as hedging instruments
Currency forward contracts	655		(21		)	634		—		—		634
Futures and forward contracts relating to seed capital investments	—		—			—		2,098		3,332		5,430
Total derivative instruments not designated as hedging instruments	655		(21		)	634		2,098		3,332		6,064
Total derivative instruments	$	655	$	(21	)	$	634	$	9,357	$	3,332	$	13,323

The following table presents the derivative liabilities and related offsets, if any, as of September 30, 2015:

									Gross amounts not offset in the Balance Sheet
	Gross amounts of recognized liabilities			Gross amounts offset in the Balance Sheet		Net amount of derivative liabilities presented in the Balance Sheet			Financial instruments		Cash collateral		Net amount as of September 30, 2015
Derivative instruments not designated as hedging instruments
Currency forward contracts	$	(15,858	)	$	1,296	$	(14,562	)	$	—	$	—	$	(14,562	)

The following table presents the derivative assets and related offsets, if any, as of March 31, 2015:

								Gross amounts not offset in the Balance Sheet
	Gross amounts of recognized assets		Gross amounts offset in the Balance Sheet			Net amount of derivative assets presented in the Balance Sheet		Financial instruments		Cash collateral		Net amount as of March 31, 2015
Derivative instruments designated as hedging instruments (See Note 7)
Interest rate swap	$	—	$	—		$	—	$	5,462	$	—	$	5,462
Derivative instruments not designated as hedging instruments
Currency forward contracts	781		(259		)	522		—		—		522
Futures and forward contracts relating to seed capital investments	75		(17		)	58		—		—		58
Total derivative instruments not designated as hedging instruments	856		(276		)	580		—		—		580
Total derivative instruments	$	856	$	(276	)	$	580	$	5,462	$	—	$	6,042

The following table presents the derivative liabilities and related offsets, if any, as of March 31, 2015:

									Gross amounts not offset in the Balance Sheet
	Gross amounts of recognized liabilities			Gross amounts offset in the Balance Sheet		Net amount of derivative liabilities presented in the Balance Sheet			Financial instruments			Cash collateral		Net amount as of March 31, 2015
Derivative instruments not designated as hedging instruments
Currency forward contracts	$	(8,623	)	$	2,327	$	(6,296	)	$	—		$	—	$	(6,296	)
Futures and forward contracts relating to seed capital investments	—			—		—			(2,369		)	8,343		5,974
Total derivative instruments not designated as hedging instruments	$	(8,623	)	$	2,327	$	(6,296	)	$	(2,369	)	$	8,343	$	(322	)

The following table presents gains (losses) recognized in the Consolidated Statements of Income on derivative instruments. As described above, the currency forward contracts and futures and forward contracts for seed capital investments included below are economic hedges of interest rate and market risk of certain operating and investing activities of Legg Mason, including foreign exchange risk on acquisition contingent consideration. Gains and losses on these derivative instruments substantially offset gains and losses of the economically hedged items.

		Three Months Ended September 30,
		2015					2014
	Income Statement Classification	Gains		Losses			Gains		Losses
Derivatives not designated as hedging instruments
Currency forward contracts for:
Operating activities	Other expense	$	1,404	$	(6,722	)	$	1,568	$	(6,938	)
Seed capital investments	Other non-operating income (expense)	546		(55		)	881		(23		)
Other non-operating activities(1)	Other non-operating income (expense)	—		(11,064		)	—		—
Futures and forward contracts for seed capital investments	Other non-operating income (expense)	10,033		—			5,540		(2,266		)
Total gain (loss) from derivatives not designated as hedging instruments		11,983		(17,841		)	7,989		(9,227		)
Derivative designated as a fair value hedge (See Note 7)
Interest rate swap	Interest expense	2,772		—			—		(1,296		)
Reverse treasury rate lock	Other non-operating income (expense)	—		—			638		—
Total		$	14,755	$	(17,841	)	$	8,627	$	(10,523	)

		Six Months Ended September 30,
		2015					2014
	Income Statement Classification	Gains		Losses			Gains		Losses
Derivatives not designated as hedging instruments
Currency forward contracts for:
Operating activities	Other expense	$	4,209	$	(5,822	)	$	2,219	$	(5,165	)
Seed capital investments	Other non-operating income (expense)	326		(402		)	749		(211		)
Other non-operating activities (1)	Other non-operating income (expense)	—		(11,064		)	—		—
Futures and forward contracts for seed capital investments	Other non-operating income (expense)	11,524		(2,652		)	5,560		(6,922		)
Total gain (loss) from derivatives not designated as hedging instruments		16,059		(19,940		)	8,528		(12,298		)
Derivative designated as a fair value hedge (See Note 7)
Interest rate swap	Interest expense	1,797		—			—		(549		)
Reverse treasury rate lock	Other non-operating income (expense)	—		—			638		—
Total		$	17,856	$	(19,940	)	$	9,166	$	(12,847	)

(1) Relates to a currency forward executed in August 2015 in connection with the October 2015 acquisition of RARE Infrastructure.