| Fair Value | Fair Value See Note 14, Consolidated Company-Sponsored Investment Funds , for disclosure of fair value of our consolidated company-sponsored investment funds. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability ( i.e. , the “exit price”) in an orderly transaction between market participants at the measurement date. The three broad levels of fair value hierarchy are as follows: • Level 1 – Quoted prices in active markets are available for identical assets or liabilities as of the reported date. • Level 2 – Quoted prices in markets that are not active or other pricing inputs that are either directly or indirectly observable as of the reported date. • Level 3 – Prices or valuation techniques that are both significant to the fair value measurement and unobservable as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Assets and Liabilities Measured at Fair Value on a Recurring Basis Valuation of our financial instruments by pricing observability levels as of June 30, 2022 and December 31, 2021 was as follows (in thousands): Level 1 Level 2 Level 3 NAV Expedient (1) Other Total June 30, 2022: Money markets $ 125,126 $ — $ — $ — $ — $ 125,126 Securities segregated (U.S. Treasury Bills) — 1,746,873 — — — 1,746,873 Derivatives 1,724 25,623 — — — 27,347 Investments: Equity securities 110,348 30,783 119 131 — 141,381 Long exchange-traded options 59 — — — — 59 Limited partnership hedge funds (2) — — — — 43,797 43,797 Time deposits (3) — — — — 20,210 20,210 Other investments 6,514 — — — 4,502 11,016 Total investments 116,921 30,783 119 131 68,509 216,463 Total assets measured at fair value $ 243,771 $ 1,803,279 $ 119 $ 131 $ 68,509 $ 2,115,809 Securities sold not yet purchased: Short equities – corporate $ — $ — $ — $ — $ — $ — Short exchange-traded options — — — — — — Derivatives 348 12,176 — — — 12,524 Contingent payment arrangements — — 42,436 — — 42,436 Total liabilities measured at fair value $ 348 $ 12,176 $ 42,436 $ — $ — $ 54,960 Level 1 Level 2 Level 3 NAV Expedient (1) Other Total December 31, 2021: Money markets $ 151,156 $ — $ — $ — $ — $ 151,156 Securities segregated (U.S. Treasury Bills) — 1,503,828 — — — 1,503,828 Derivatives 392 15,030 — — — 15,422 Investments: Equity securities 144,917 39,284 126 145 — 184,472 Long exchange-traded options 1,893 — — — — 1,893 Limited partnership hedge funds (2) — — — — 50,920 50,920 Time deposits (3) — — — — 21,024 21,024 Other investments 9,094 — — — 6,015 15,109 Total investments 155,904 39,284 126 145 77,959 273,418 Total assets measured at fair value $ 307,452 $ 1,558,142 $ 126 $ 145 $ 77,959 $ 1,943,824 Securities sold not yet purchased: Short equities – corporate $ 1,054 $ — $ — $ — $ — $ 1,054 Short exchange-traded options 2,774 — — — — 2,774 Derivatives 1,186 15,737 — — — 16,923 Contingent payment arrangements — — 38,260 — — 38,260 Total liabilities measured at fair value $ 5,014 $ 15,737 $ 38,260 $ — $ — $ 59,011 (1) Investments measured at fair value using NAV (or its equivalent) as a practical expedient. (2) Investments in equity method investees that are not measured at fair value in accordance with GAAP. (3) Investments carried at amortized cost that are not measured at fair value in accordance with GAAP. Other investments included in Level 1 of the fair value hierarchy include our investment in a mutual fund measured at fair value ($6.5 million and $9.1 million as of June 30, 2022 and December 31, 2021, respectively). Other investments not measured at fair value include (i) investment in a start-up company that does not have a readily available fair value (this investment was $0.3 million as of both June 30, 2022 and December 31, 2021), (ii) investment in equity method investees that are not measured at fair value in accordance with GAAP ($1.5 million and $2.9 million as of June 30, 2022 and December 31, 2021, respectively), and (iii) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($2.7 million and $2.8 million as of June 30, 2022 and December 31, 2021, respectively). We provide below a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy: • Money markets : We invest excess cash in various money market funds that are valued based on quoted prices in active markets; these are included in Level 1 of the valuation hierarchy. • Treasury Bills : We hold U.S. Treasury Bills, which are primarily segregated in a special reserve bank custody account as required by Rule 15c3-3 of the Exchange Act. These securities are valued based on quoted yields in secondary markets and are included in Level 2 of the valuation hierarchy. • Equity securities : Our equity securities consist principally of company-sponsored mutual funds with NAVs and various separately-managed portfolios consisting primarily of equity and fixed income mutual funds with quoted prices in active markets, which are included in Level 1 of the valuation hierarchy. In addition, some securities are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy. • Derivatives : We hold exchange-traded futures with counterparties that are included in Level 1 of the valuation hierarchy. In addition, we also hold currency forward contracts, interest rate swaps, credit default swaps, option swaps and total return swaps with counterparties that are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy. • Options : We hold long exchange-traded options that are included in Level 1 of the valuation hierarchy. • Securities sold not yet purchased : Securities sold not yet purchased, primarily reflecting short positions in equities and exchange-traded options, are included in Level 1 of the valuation hierarchy. • Contingent payment arrangements : Contingent payment arrangements relate to contingent payment liabilities associated with various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy. During the six months ended June 30, 2022 there were no transfers between Level 2 and Level 3 securities. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as equity securities, is as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands) Balance as of beginning of period $ 119 $ 124 $ 126 $ 125 Purchases — — — — Sales — — — — Realized gains (losses), net — — — — Unrealized gains (losses), net — 2 (7) 1 Balance as of end of period $ 119 $ 126 $ 119 $ 126 Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the condensed consolidated statements of income. As part of acquisitions made by the Company, we may enter into contingent consideration arrangements as part of the purchase price. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment arrangements, is as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands) Balance as of beginning of period $ 39,098 $ 36,073 $ 38,260 $ 27,750 Addition 2,500 274 2,500 7,800 Accretion 838 837 1,676 1,634 Payments — — — — Balance as of end of period $ 42,436 $ 37,184 $ 42,436 $ 37,184 The liabilities were valued using expected revenue growth rates and discount rates. As of June 30, 2022, the expected revenue growth rates range from 2.0% to 83.9%, with a weighted average of 7.9%, calculated using cumulative revenues and range of revenue growth rates (excluding revenue growth from additional AUM contributed in year of acquisition). The discount rates ranged from 1.9% to 10.4%, with a weighted average of 7.0%, calculated using total contingent liabilities and range of discount rates. As of June 30, 2021, the expected revenue growth rates ranged from 2.0% to 83.9%, with a weighted average of 13.0%, calculated using cumulative revenues and a range of revenue growth rates (excluding revenue growth from additional AUM contributed from existing clients). The discount rates ranged from 1.9% to 10.4%, with a weighted average of 6.6%, calculated using total contingent liabilities and range of discount rates. |
