4. Investments and Fair Values 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 June 30, 2017
	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Investments measured at NAV		Total
Assets:
Cash equivalents:⁽¹⁾
Money market funds	$	225,358		$	—	$	—		$	—	$	225,358
Time deposits and other	—			16,586		—			—		16,586
Total cash equivalents	225,358			16,586		—			—		241,944
Trading investments of proprietary fund products and other trading investments:⁽²⁾
Seed capital investments	119,998			64,161		—			3,389		187,548
Other⁽³⁾	21,542			2,474		—			11		24,027
Trading investments relating to long-term incentive compensation plans⁽⁴⁾	175,036			—		—			105		175,141
Equity method investments relating to long-term incentive compensation plans⁽⁵⁾	—			—		1,349			6,895		8,244
Total current investments⁽⁶⁾	316,576			66,635		1,349			10,400		394,960
Equity method investments in partnerships and LLCs:⁽⁵⁾⁽⁷⁾
Seed capital investments⁽⁶⁾	—			—		813			22,658		23,471
Seed capital investments in real estate funds	—			—		27,182			—		27,182
Other proprietary fund products	—			—		1,646			13,969		15,615
Investments in partnerships and LLCs:⁽⁷⁾
Seed capital investments	—			—		—			3,277		3,277
Investments related to long-term incentive compensation plans	—			—		9,367			—		9,367
Other proprietary fund products	—			99		1,818			—		1,917
Derivative assets⁽⁷⁾⁽⁸⁾	3,083			—		—			—		3,083
Other investments⁽⁷⁾	—			—		112			—		112
Total	$	545,017		$	83,320	$	42,287		$	50,304	$	720,928
Liabilities:
Contingent consideration liabilities⁽⁹⁾	$	—		$	—	$	(20,697	)	$	—	$	(20,697	)
Derivative liabilities⁽⁸⁾	(274		)	—		—			—		(274		)
Total	$	(274	)	$	—	$	(20,697	)	$	—	$	(20,971	)



	As of March 31, 2017
	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Investments measured at NAV		Total
Assets:
Cash equivalents:⁽¹⁾
Money market funds	$	403,585		$	—	$	—		$	—	$	403,585
Time deposits and other	—			35,835		—			—		35,835
Total cash equivalents	403,585			35,835		—			—		439,420
Trading investments of proprietary fund products and other trading investments:⁽²⁾
Seed capital investments	141,025			75,275		—			4,373		220,673
Other⁽³⁾	39,177			2,724		—			11		41,912
Trading investments relating to long-term incentive compensation plans⁽⁴⁾	150,576			—		—			327		150,903
Equity method investments relating to proprietary fund products and long-term incentive compensation plans:⁽⁵⁾
Seed capital investments	—			2,502		—			—		2,502
Investments related to long-term incentive compensation plans	—			—		1,337			6,292		7,629
Total current investments⁽⁶⁾	330,778			80,501		1,337			11,003		423,619
Equity method investments in partnerships and LLCs:⁽⁵⁾⁽⁷⁾
Seed capital investments⁽⁶⁾	—			—		752			22,712		23,464
Seed capital investments in real estate funds	—			—		26,909			—		26,909
Other proprietary fund products	—			—		1,646			15,617		17,263
Investments in partnerships and LLCs:⁽⁷⁾
Seed capital investments	—			—		—			3,440		3,440
Investments related to long-term incentive compensation plans	—			—		9,315			—		9,315
Other proprietary fund products	—			99		1,825			—		1,924
Derivative assets⁽⁷⁾⁽⁸⁾	2,718			—		—			—		2,718
Other investments⁽⁷⁾	—			—		113			—		113
Total	$	737,081		$	116,435	$	41,897		$	52,772	$	948,185
Liabilities:
Contingent consideration liabilities⁽⁹⁾	$	—		$	—	$	(36,810	)	$	—	$	(36,810	)
Derivative liabilities⁽⁸⁾	(4,522		)	—		—			—		(4,522		)
Total	$	(4,522	)	$	—	$	(36,810	)	$	—	$	(41,332	)

(1)

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds 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)	Trading investments of proprietary fund products and other trading investments consist of approximately 75% and 25% equity and debt securities, respectively, as of June 30, 2017, and approximately 79% and 21% equity and debt securities, respectively, as of March 31, 2017.


(3)	Includes $12,691 and $26,854 in noncontrolling interests associated with consolidated seed investment products as of June 30, 2017 and March 31, 2017, respectively.


(4)	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.

(5)

Certain of Legg Mason's equity method investments are investment companies that record underlying investments at fair value. Therefore, the fair value of these investments 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. Other equity method investments not measured at fair value on a recurring basis are excluded from the tables above.


(6)	Excludes $36,026 and $28,300 of seed capital as of June 30, 2017, and March 31, 2017, respectively, which is related to Legg Mason's investments in CIVs. See Note 13.


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


(8)	See Note 12.


(9)	See Note 3 and Note 9.

Proprietary fund products include seed capital investments made by Legg Mason to fund new investment strategies and products. Legg Mason had seed capital investments in proprietary fund products, which totaled $277,504 and $305,288, as of June 30, 2017 and March 31, 2017, respectively, which are substantially comprised of investments in 55 funds and 57 funds, respectively, that are individually greater than $1,000, and together comprise over 90% of the total seed capital investments at each period end.

As further discussed in Notes 2, 12, and 13, on June 6, 2017, Legg Mason entered into four total return swap arrangements with financial intermediaries with respect to one Legg Mason sponsored ETF for an aggregate notional amount of $20,253 which resulted in the investment in the ETF by each of the financial intermediaries. Under the terms of the total return swap arrangements, Legg Mason receives all the investment gains and losses on the underlying investments and therefore is required to consolidate the sponsored investment fund, which was designated as a CIV.

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

The net realized and unrealized gain for investment securities classified as trading was $10,169, and $9,587 for the three months ended June 30, 2017 and 2016, respectively.

The net unrealized gains relating to trading investments still held as of the reporting dates were $2,068 and $4,139 for the three months ended June 30, 2017 and 2016, respectively.

The changes in financial assets and (liabilities) measured at fair value using significant unobservable inputs (Level 3) for the three months ended June 30, 2017 and 2016, are presented in the tables below:



	Balance as of March 31, 2017			Purchases		Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Balance as of June 30, 2017
Assets:
Equity method investments relating to long-term incentive compensation plans	$	1,337		$	11	$	—	$	(11	)	$	—	$	12		$	1,349
Equity method investments in partnerships and LLCs:
Seed capital investments	752			—		—		—			—		61			813
Seed capital investments in real estate funds	26,909			439		—		(619		)	—		453			27,182
Other proprietary fund products	1,646			—		—		—			—		—			1,646
Investments in partnerships and LLCs:
Investments related to long-term incentive compensation plans	9,315			52		—		—			—		—			9,367
Other proprietary fund products	1,825			—		—		(7		)	—		—			1,818
Other investments	113			—		—		—			—		(1		)	112
	$	41,897		$	502	$	—	$	(637	)	$	—	$	525		$	42,287
Liabilities:
Contingent consideration liabilities	$	(36,810	)	$	—	n/a		$	—		n/a		$	16,113		$	(20,697	)

n/a - not applicable



	Balance as of March 31, 2016			Purchases		Sales		Redemptions/Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net		Balance as of June 30, 2016
Assets:
Trading investments of seed capital investments in proprietary fund products	$	3		$	—	$	—	$	(3	)	$	—	$	—	$	—
Equity method investments relating to long-term incentive compensation plans	—			2,553		—		(22		)	—		56		2,587
Equity method investments in partnerships and LLCs:
Seed capital investments in real estate funds	—			24,263		—		(132		)	—		382		24,513
Seed capital investments	627			—		—		—			—		17		644
Investments in partnerships and LLCs:
Investments related to long-term incentive compensation plans	7,501			—		—		—			—		—		7,501
Other proprietary fund products	4,807			—		—		(1,000		)	—		3		3,810
Other investments	83			—		—		—			—		7		90
	$	13,021		$	26,816	$	—	$	(1,157	)	$	—	$	465	$	39,145
Liabilities:
Contingent consideration liabilities	$	(84,585	)	$	—	n/a		$	—		n/a		$	21,662	$	(62,923	)

n/a - not applicable

Realized and unrealized gains and losses recorded for Level 3 investments are primarily included in Other non-operating income (expense), net, in the Consolidated Statements of Income. The change in unrealized gains for Level 3 investments and liabilities still held at the reporting date was $16,638, and $22,126 for the three months ended June 30, 2017, and 2016, respectively.

There were no significant transfers between Level 1 and Level 2 during the three months ended June 30, 2017 and 2016.

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 June 30, 2017 and March 31, 2017, 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 June 30, 2017
Category of Investment	Investment Strategy	June 30, 2017			March 31, 2017		Unfunded Commitments		Remaining Term
Funds-of-hedge funds	Global macro, fixed income, long/short equity, natural resources, systematic, emerging market, European hedge	$	17,962	(1)	$	18,537	n/a		n/a
Hedge funds	Fixed income - developed market, event driven, fixed income - hedge, relative value arbitrage, European hedge	9,367			10,107		$	20,000	n/a
Private equity funds	Long/short equity	15,907		(2)	17,612		7,071		Up to 12 years
Equity method	Long/short fixed income	6,895			6,292		n/a		n/a
Other	Various	173			224		n/a		Various ⁽³⁾
Total		$	50,304		$	52,772	$	27,071

n/a - not applicable


(1)	Liquidation restrictions: 1% daily redemption, 12% monthly redemption, 10% quarterly redemption, and 77% are not subject to redemption or are not currently redeemable.


(2)	Liquidations are expected over the remaining term.


(3)	Of this balance, 34% has a remaining term of less than one year and 66% has a remaining term of 15 years.

There are no current plans to sell any of these investments held as of June 30, 2017.