Derivatives and Hedging

9 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

12. Derivatives and Hedging

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, euro, Singapore dollar, and Brazilian real. 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, Legg Mason has one ISDA Master Agreement with each of the significant counterparties, which covers transactions with that counterparty. Each of the respective ISDA agreements provides 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 December 31, 2016 and March 31, 2016, were $836 and $8,650, respectively. Other liabilities recorded in the Consolidated Balance Sheets as of December 31, 2016 and March 31, 2016, were $7,047 and $18,079, 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.

As further discussed in Note 7, in April 2016, Legg Mason executed a 4.67-year, amortizing interest rate swap, which was terminated in August 2016. Also, in April 2016, Legg Mason terminated another previously existing interest rate swap.

With the exception of the two interest rate swap contracts discussed in Note 7, Legg Mason has not designated any derivatives as hedging instruments for accounting purposes during the periods ended December 31, 2016, March 31, 2016, or December 31, 2015. As of December 31, 2016, Legg Mason had open currency forward contracts with aggregate notional amounts totaling $152,768 and open futures contracts relating to seed capital investments with aggregate notional values totaling $121,723. These amounts are representative of the level of non-hedge designation derivative activity throughout the nine months ended December 31, 2016. As of December 31, 2016, the weighted-average remaining contract terms for both currency forward contracts and futures contracts relating to seed capital investments were four months.

The following table presents the derivative assets and related offsets, if any, as of December 31, 2016:

	Gross amounts of recognized assets		Gross amounts offset in the Balance Sheet			Net amount of derivative assets presented in the Balance Sheet		Gross amounts not offset in the Balance Sheet
								Financial instruments		Cash collateral		Net amount as of December 31, 2016
Derivative instruments not designated as hedging instruments
Currency forward contracts	$	113	$	(14	)	$	99	$	—	$	—	$	99
Futures contracts relating to seed capital investments	—		—			—		737		4,376		5,113
Total derivative instruments not designated as hedging instruments	$	113	$	(14	)	$	99	$	737	$	4,376	$	5,212

The following table presents the derivative liabilities and related offsets, if any, as of December 31, 2016:

	Gross amounts of recognized liabilities			Gross amounts offset in the Balance Sheet		Net amount of derivative liabilities presented in the Balance Sheet			Gross amounts not offset in the Balance Sheet
									Financial instruments		Cash collateral		Net amount as of December 31, 2016
Derivative instruments not designated as hedging instruments
Currency forward contracts	$	(8,460	)	$	1,413	$	(7,047	)	$	—	$	—	$	(7,047	)

The following table presents the derivative assets and related offsets, if any, as of March 31, 2016:

	Gross amounts of recognized assets		Gross amounts offset in the Balance Sheet			Net amount of derivative assets presented in the Balance Sheet		Gross amounts not offset in the Balance Sheet
								Financial instruments		Cash collateral		Net amount as of March 31, 2016
Derivative instruments designated as hedging instruments (See Note 7)
Interest rate swap	$	—	$	—		$	—	$	7,599	$	—	$	7,599
Derivative instruments not designated as hedging instruments
Currency forward contracts	1,933		(963		)	970		—		—		970
Futures contracts relating to seed capital investments	—		—			—		81		1,840		1,921
Total derivative instruments not designated as hedging instruments	1,933		(963		)	970		81		1,840		2,891
Total derivative instruments	$	1,933	$	(963	)	$	970	$	7,680	$	1,840	$	10,490

The following table presents the derivative liabilities and related offsets, if any, as of March 31, 2016:

	Gross amounts of recognized liabilities			Gross amounts offset in the Balance Sheet		Net amount of derivative liabilities presented in the Balance Sheet			Gross amounts not offset in the Balance Sheet
									Financial instruments			Cash collateral		Net amount as of March 31, 2016
Derivative instruments not designated as hedging instruments
Currency forward contracts	$	(16,364	)	$	280	$	(16,084	)	$	—		$	—	$	(16,084	)
Futures contracts relating to seed capital investments	—			—		—			(1,995		)	5,920		3,925
Total derivative instruments not designated as hedging instruments	$	(16,364	)	$	280	$	(16,084	)	$	(1,995	)	$	5,920	$	(12,159	)

The following table presents gains (losses) recognized in the Consolidated Statements of Income (Loss) 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. In connection with entering into the agreement to acquire RARE Infrastructure in August 2015, Legg Mason executed a U.S. dollar - Australian dollar currency forward contract to economically hedge against currency changes affecting the Australian dollar denominated purchase price. The acquisition was completed (and the hedge terminated) in October 2015.

		Three Months Ended December 31,
		2016					2015
	Income Statement Classification	Gains		Losses			Gains		Losses
Derivatives not designated as hedging instruments
Currency forward contracts for:
Operating activities	Other expense	$	1,368	$	(6,199	)	$	2,868	$	(3,894	)
Seed capital investments	Other non-operating income (expense)	1,932		(837		)	932		(213		)
Other non-operating activities(1)	Other non-operating income (expense)	—		—			8,100		(1,529		)
Futures and forward contracts for seed capital investments	Other non-operating income (expense)	1,965		(3,514		)	112		(5,494		)
Total gain (loss) from derivatives not designated as hedging instruments		5,265		(10,550		)	12,012		(11,130		)
Derivative designated as a fair value hedge (See Note 7)
Interest rate swap	Interest expense	—		—			—		(1,177		)
Total		$	5,265	$	(10,550	)	$	12,012	$	(12,307	)

		Nine Months Ended December 31,
		2016					2015
	Income Statement Classification	Gains		Losses			Gains		Losses
Derivatives not designated as hedging instruments
Currency forward contracts for:
Operating activities	Other expense	$	11,148	$	(13,085	)	$	4,447	$	(7,086	)
Seed capital investments	Other non-operating income (expense)	2,943		(1,752		)	1,034		(391		)
Other non-operating activities(1)	Other non-operating income (expense)	—		—			—		(4,493		)
Futures and forward contracts for seed capital investments	Other non-operating income (expense)	2,676		(11,184		)	9,603		(6,113		)
Total gain (loss) from derivatives not designated as hedging instruments		16,767		(26,021		)	15,084		(18,083		)
Derivative designated as a fair value hedge (See Note 7)
Interest rate swap	Interest expense	—		—			620		—
Derivative designated as a cash flow hedge (See Note 7)
Interest rate swap (termination)	Other non-operating income (expense)	—		(3,662		)	—		—
Interest rate swap	Interest expense	—		(764		)	—		—
Total		$	16,767	$	(30,447	)	$	15,704	$	(18,083	)

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