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Variable Interest Entities and Consolidation of Investment Vehicles
 9 Months Ended
Dec. 31, 2017
Variable Interest Entities and Consolidation of Investment Vehicles [Abstract]  
Consolidated Investment Vehicles and Other Variable Interest Entities Disclosure [Text Block]
13. Variable Interest Entities and Consolidated Investment Vehicles

In accordance with financial accounting standards, Legg Mason consolidates certain sponsored investment products, some of which are designated as CIVs. As presented in the table below, as of December 31, 2017, March 31, 2017, and December 31, 2016, Legg Mason concluded it was the primary beneficiary of certain VIEs because it held significant financial interests in the funds. In addition, during the nine months ended December 31, 2017, Legg Mason entered into various total return swap arrangements with financial intermediaries with respect to two Legg Mason sponsored exchange traded funds ("ETFs"). Under the terms of the total return swaps, Legg Mason absorbs all gains and losses on the underlying ETF investments of these financial intermediaries, and therefore has variable interests in each of the two ETFs, and is deemed to be the primary beneficiary of each ETF. Because it was determined to be the primary beneficiary of these VIEs, Legg Mason consolidated and designated the following funds as CIVs in the Consolidated Balance Sheets as of December 31, 2017, March 31, 2017, and December 31, 2016:
 
December 31, 2017
 
March 31, 2017
 
December 31, 2016
 
Number of Consolidated Funds
 
Legg Mason Investment in Funds(1)
 
Number of Consolidated Funds
 
Legg Mason Investment in Funds(1)
 
Number of Consolidated Funds
 
Legg Mason Investment in Funds(1)
Sponsored investment funds
2
 
$
16,537

 
2
 
$
16,424

 
2
 
$
15,807

Foreign mutual funds
3
 
10,114

 
3
 
7,964

 
4
 
12,397

Employee-owned funds
2
 
7,107

 
1
 
3,912

 
1
 
3,575

ETFs(2)
2
 
7,790

 
n/a
 
—

 
n/a
 
—

Total
 
 
$
41,548

 
 
 
$
28,300

 
 
 
$
31,779

n/a - not applicable
(1) Represents Legg Mason's maximum risk of loss, excluding uncollected advisory fees.
(2)
Under the total return swap arrangements, Legg Mason receives the related investment gains and losses on notional amounts totaling $51,066. See Note 12 for additional information regarding total return swaps.

The assets of these CIVs are primarily comprised of investment securities. Investors and creditors of these CIVs have no recourse to the general credit or assets of Legg Mason beyond its investment in these funds.

Legg Mason also consolidates certain VRE products with seed capital investments where Legg Mason maintains a controlling financial interest in the product.

See Notes 2 and 4 for additional information regarding VIEs, VREs, and the consolidation of investment products.

The following tables reflect the impact of CIVs and other consolidated sponsored investment products in the Consolidated Balance Sheets as of December 31, 2017 and March 31, 2017 and the Consolidated Statements of Income for the three and nine months ended December 31, 2017 and 2016:
Consolidating Balance Sheets
 
 
December 31, 2017
 
March 31, 2017
 
 
Balance Before Consolidation of CIVs and Other(1)
 
CIVs and Other(1)
 
Eliminations
 
Consolidated Totals
 
Balance Before Consolidation of CIVs and Other(1)
 
CIVs and Other(1)
 
Eliminations
 
Consolidated Totals
Current Assets
 
$
1,740,655

 
$
146,657

 
$
(38,554
)
 
$
1,848,758

 
$
1,749,959

 
$
77,406

 
$
(25,618
)
 
$
1,801,747

Non-current assets
 
6,220,230

 
9,172

 
(2,994
)
 
6,226,408

 
6,481,376

 
9,987

 
(2,695
)
 
6,488,668

Total Assets
 
$
7,960,885

 
$
155,829

 
$
(41,548
)
 
$
8,075,166

 
$
8,231,335

 
$
87,393

 
$
(28,313
)
 
$
8,290,415

Current Liabilities
 
$
932,101

 
$
487

 
$
—

 
$
932,588

 
$
808,664

 
$
736

 
$
(13
)
 
$
809,387

Non-current liabilities
 
2,581,380

 
—

 
—

 
2,581,380

 
2,792,084

 
—

 
—

 
2,792,084

Total Liabilities
 
3,513,481

 
487

 
—

 
3,513,968

 
3,600,748

 
736

 
(13
)
 
3,601,471

Redeemable Non-controlling interests
 
613,912

 
13,696

 
100,098

 
727,706

 
619,302

 
26,853

 
31,617

 
677,772

Total Stockholders’ Equity
 
3,833,492

 
141,646

 
(141,646
)
 
3,833,492

 
4,011,285

 
59,804

 
(59,917
)
 
4,011,172

Total Liabilities and Equity
 
$
7,960,885

 
$
155,829

 
$
(41,548
)
 
$
8,075,166

 
$
8,231,335

 
$
87,393

 
$
(28,313
)
 
$
8,290,415


(1)
Other represents consolidated sponsored investment products (VREs) that are not designated as CIVs.


Consolidating Statements of Income
 
 
Three Months Ended
 
 
December 31, 2017
 
December 31, 2016
 
 
Balance Before
Consolidation of CIVs and Other(1)
 
CIVs and Other(1)
 
Eliminations
 
Consolidated Totals
 
Balance Before
Consolidation of CIVs and Other(1)
 
CIVs and Other(1)
 
Eliminations
 
Consolidated Totals
Total Operating Revenues
 
$
793,373

 
$
—

 
$
(283
)
 
$
793,090

 
$
715,601

 
$
—

 
$
(360
)
 
$
715,241

Total Operating Expenses
 
819,984

 
555

 
(116
)
 
820,423

 
604,075

 
383

 
(383
)
 
604,075

Operating Income (Loss)
 
(26,611
)
 
(555
)
 
(167
)
 
(27,333
)
 
111,526

 
(383
)
 
23

 
111,166

Total Non-Operating Income (Expense)
 
(19,970
)
 
7,940

 
(1,487
)
 
(13,517
)
 
(20,545
)
 
793

 
(446
)
 
(20,198
)
Income (Loss) Before Income Tax Provision (Benefit)
 
(46,581
)
 
7,385

 
(1,654
)
 
(40,850
)
 
90,981

 
410

 
(423
)
 
90,968

Income tax provision (benefit)
 
(209,396
)
 
—

 
—

 
(209,396
)
 
26,441

 
—

 
—

 
26,441

Net Income
 
162,815

 
7,385

 
(1,654
)
 
168,546

 
64,540

 
410

 
(423
)
 
64,527

Less:  Net income (loss) attributable to noncontrolling interests
 
13,593

 
(285
)
 
6,016

 
19,324

 
13,101

 
(4
)
 
(9
)
 
13,088

Net Income Attributable to Legg Mason, Inc.
 
$
149,222

 
$
7,670

 
$
(7,670
)
 
$
149,222

 
$
51,439

 
$
414

 
$
(414
)
 
$
51,439

(1)
Other represents consolidated sponsored investment products (VREs) that are not designated as CIVs.
 
 
Nine Months Ended
 
 
December 31, 2017
 
December 31, 2016
 
 
Balance Before
Consolidation of CIVs and Other(1)
 
CIVs and Other(1)
 
Eliminations
 
Consolidated Totals
 
Balance Before
Consolidation of CIVs and Other(1)
 
CIVs and Other(1)
 
Eliminations
 
Consolidated Totals
Total Operating Revenues
 
$
2,355,620

 
$
—

 
$
(350
)
 
$
2,355,270

 
$
2,164,162

 
$
—

 
$
(386
)
 
$
2,163,776

Total Operating Expenses
 
2,130,412

 
749

 
(182
)
 
2,130,979

 
1,851,199

 
606

 
(383
)
 
1,851,422

Operating Income (Loss)
 
225,208

 
(749
)
 
(168
)
 
224,291

 
312,963

 
(606
)
 
(3
)
 
312,354

Total Non-Operating Income (Expense)
 
(55,892
)
 
11,310

 
(2,470
)
 
(47,052
)
 
(53,063
)
 
10,444

 
(1,682
)
 
(44,301
)
Income Before Income Tax Provision (Benefit)
 
169,316

 
10,561

 
(2,638
)
 
177,239

 
259,900

 
9,838

 
(1,685
)
 
268,053

Income tax provision (benefit)
 
(142,468
)
 
—

 
—

 
(142,468
)
 
71,654

 
—

 
—

 
71,654

Net Income
 
311,784

 
10,561

 
(2,638
)
 
319,707

 
188,246

 
9,838

 
(1,685
)
 
196,399

Less:  Net income (loss) attributable to noncontrolling interests
 
35,978

 
(5
)
 
7,928

 
43,901

 
36,914

 
552

 
7,601

 
45,067

Net Income Attributable to Legg Mason, Inc.
 
$
275,806

 
$
10,566

 
$
(10,566
)
 
$
275,806

 
$
151,332

 
$
9,286

 
$
(9,286
)
 
$
151,332


(1)    Other represents consolidated sponsored investment products (VREs) that are not designated as CIVs.
 
 

Non-Operating Income (Expense) includes interest income, interest expense, and net gains (losses) on investments.

The consolidation of CIVs has no impact on Net Income Attributable to Legg Mason, Inc.

As of December 31, 2017 and March 31, 2017, financial assets of CIVs carried at fair value totaling $114,807 and $33,991, respectively, were valued using Level 1 inputs, and totaling $21,106 and $24,734, respectively, were valued using NAV as a practical expedient. Legg Mason had no financial liabilities of CIVs carried at fair value as of December 31, 2017 or March 31, 2017.
 
 
 
 
 
 
 


There were no transfers between Level 1 and Level 2 during either of the three and nine months ended December 31, 2017 and 2016.

The NAVs used as a practical expedient by CIVs have been provided by the investees and have been derived from the fair values of the underlying investments as of the respective reporting dates. The following table summarizes, as of December 31, 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 December 31, 2017
Category of Investment
 
Investment Strategy
 
December 31, 2017
 
March 31, 2017
 
Unfunded Commitments
 
Remaining Term
Hedge funds
 
Global macro, fixed income, long/short equity, systematic, emerging market, U.S. and European hedge
 
$
21,106

(1) 
$
24,734

 
n/a
 
n/a
n/a - not applicable
(1)
Redemption restrictions: 5% daily redemption; 8% monthly redemption; 49% quarterly redemption; and 38% are subject to three to five-year lock-up or side pocket provisions.

As of December 31, 2017 and March 31, 2017, for VIEs in which Legg Mason holds a variable interest, but for which it was not the primary beneficiary, Legg Mason's carrying value and maximum risk of loss were as follows:
 
 
As of December 31, 2017
 
As of March 31, 2017
 
 
Equity Interests on the Consolidated Balance Sheet (1)
 
Maximum Risk of Loss (2)
 
Equity Interests on the Consolidated Balance Sheet (1)
 
Maximum Risk of Loss (2)
Real Estate Investment Trusts
 
$
12,361

 
$
14,099

 
$
11,660

 
$
15,763

Other investment funds
 
29,239

 
47,737

 
47,063

 
73,710

Total
 
$
41,600

 
$
61,836

 
$
58,723

 
$
89,473


(1)
Amounts are related to investments in proprietary and other fund products.
(2)
Includes equity investments the Company has made or is required to make and any earned but uncollected management fees.

The Company's total AUM of unconsolidated VIEs was $30,508,623 and $26,735,285 as of December 31, 2017 and March 31, 2017, respectively.

The assets of these VIEs are primarily comprised of cash and cash equivalents and investment securities, and the liabilities are primarily comprised of various expense accruals. These VIEs were not consolidated because Legg Mason does not have both the power to direct significant economic activities of the entity and rights/obligations associated with benefits/losses that could be significant to the entity.