Financial assets and financial liabilities carried at fair value on a recurring basis include financial instruments for which the fair value option was elected, but exclude financial assets under the NAV practical expedient. Fair value is categorized into a three tier hierarchy that is prioritized based upon the level of transparency in inputs used in the valuation techniques, as follows.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in non-active markets, or valuation techniques utilizing inputs that are derived principally from or corroborated by observable data directly or indirectly for substantially the full term of the financial instrument.

Marketable equity securities with long positions of $166.0 million at March 31, 2023 and $155.9 million at December 31, 2022, included within equity investments of Corporate and Other (Note 4), and short positions of $45.6 million at March 31, 2023 and $40.9 million at December 31, 2022, included in other liabilities (Note 7), consist of

publicly traded equity securities held predominantly by sponsored liquid strategy funds consolidated by the Company. The equity securities of the consolidated funds comprise listed stocks primarily in the U.S. and to a lesser extent, in Europe, and primarily in the technology, media and telecommunications sectors. These marketable equity securities are valued based upon listed prices in active markets and classified as Level 1 of the fair value hierarchy.

A consolidated credit fund has equity interest in a pooling entity, invested alongside other affiliated managed funds, that holds a portfolio of loans. The fund's equity interest in the pooling entity had a fair value of $62.5 million at March 31, 2023 and $46.8 million at December 31, 2022, classified as Level 3 of the fair value hierarchy. Fair value of the fund's equity interest in the pooling entity is based upon its share of expected cash flows from the loan assets held by the pooling entity. In estimating the fair value of its underlying loans, the pooling entity considered the prevailing market yields at which a third party might expect to receive on equivalent loans with similar credit risk. Based upon the comparison to market yields, it was determined that the transacted price on the loans held by the pooling entity approximate their fair value at March 31, 2023 and at December 31, 2022.

The Company's derivative instruments generally consist of: (i) foreign currency put options, forward contracts and costless collars to hedge the foreign currency exposure of certain foreign-denominated investments or investments in foreign subsidiaries (in GBP and EUR), with notional amounts and termination dates based upon the anticipated return of capital from these investments; and (ii) interest rate caps and swaps to limit the exposure to changes in interest rates on various floating rate debt obligations (indexed to LIBOR or Euribor). These derivative contracts may be designated as qualifying hedge accounting relationships, specifically as net investment hedges and cash flow hedges, respectively.

The derivative instruments are subject to master netting arrangements with counterparties that allow the Company to offset the settlement of derivative assets and liabilities in the same currency by instrument type or, in the event of default by the counterparty, to offset all derivative assets and liabilities with the same counterparty. Notwithstanding the conditions for right of offset may have been met, the Company presents derivative assets and liabilities with the same counterparty on a gross basis on the consolidated balance sheets.

The Company had no outstanding derivatives at March 31, 2023. At December 31, 2022, the fair value of derivative assets was $11.8 million, included in other assets, and there were no derivatives in a liability position. All derivative positions were non-designated hedges. Derivative notional amounts for foreign exchange contracts aggregated to the equivalent of $321.1 million at December 31, 2022, and there were no outstanding interest rate contracts.


	Three Months Ended March 31,
(In thousands)	2023		2022
Foreign currency contracts:




Realized and unrealized gain in earnings on non-designated contracts (1)	$	4,053	$	1,510
Interest rate contracts:




Realized and unrealized gain in earnings on non-designated contracts	—		61

The Company's foreign currency and interest rate contracts are generally traded over-the-counter, and are valued using a third-party service provider. Quotations on over-the-counter derivatives are not adjusted and are generally valued using observable inputs such as contractual cash flows, yield curve, foreign currency rates and credit spreads, and are classified as Level 2 of the fair value hierarchy. Although credit valuation adjustments, such as the risk of default, rely on Level 3 inputs, these inputs are not significant to the overall valuation of the derivatives. As a result, derivative valuations in their entirety are classified as Level 2 of the fair value hierarchy.

As discussed in Note 10, the Company had issued five warrants to Wafra in July 2020. Each warrant entitles Wafra to purchase up to 1,338,000 shares of the Company's class A common stock at staggered strike prices between $9.72 and $24.00 each, exercisable through July 17, 2026. No warrants have been exercised to-date.

The warrants are carried at fair value effective May 2022 when they were reclassified from equity to liability, with subsequent changes in fair value recorded in other gain (loss) on the consolidated statements of operations. The warrants were valued at $22.2 million at March 31, 2023 and $17.7 million at December 31, 2022 using a Black-Scholes option pricing model, applying the following inputs: (a) estimated volatility for DBRG's class A common stock of 44.4% (40.8% at December 31, 2022); (b) closing stock price of DBRG's class A common stock on the last trading day of the quarter; (c) the strike price for each warrant; (d) remaining term to expiration of the warrants; and (e) risk free rate of 3.78% per annum (4.16% per annum at December 31, 2022), derived from the daily U.S. Treasury yield curve rates to correspond to the remaining term to expiration of the warrants. Fair value of the warrant liability, classified as Level 3 fair value, increased $4.5 million during the three months ended March 31, 2023.

In connection with the acquisition of InfraBridge, contingent consideration is payable if prescribed fundraising targets for InfraBridge's new global infrastructure funds are met. In measuring the contingent consideration, the Company applied a probability-weighted approach to the likelihood of meeting various fundraising targets and discounted the estimated future contingent consideration payment at 4.9% to derive a present value amount. The contingent consideration of $10.9 million at March 31, 2023 is classified as Level 3 of the fair value hierarchy, with changes in fair value recorded in other gain (loss).

Loans receivable are carried at fair value under the fair value option, which consisted of two unsecured promissory notes, one in connection with the 2022 sale of the Company's Wellness Infrastructure business (Note 2) and one held by DataBank, presented within Corporate and Other and in the Operating segment, respectively. Both loans receivable have a bullet repayment of principal and accrue PIK interest. Accrued interest forms part of the fair value of loans receivable and is recorded in other income. Changes in fair value of loans receivable are recorded in other gain (loss).

At March 31, 2023, fair value of loans receivable was $6.8 million ($137.9 million at December 31, 2022), with unpaid principal balance, inclusive of PIK interest, of $168.8 million ($167.8 million at December 31, 2022), classified as Level 3 in the fair value hierarchy. At March 31, 2023, the Wellness Infrastructure note was fully written down, taking into consideration an impending foreclosure of certain assets within the Wellness Infrastructure portfolio by its mezzanine lender. The DataBank note was carried at par plus accrued PIK interest as it was fully repaid in April 2023. At December 31, 2022, loan fair values were based upon a discounted cash flow projection of principal and interest expected to be collected, applying discount rates of 10.0% and 10.5%.

The following table presents changes in recurring Level 3 fair value assets held for investment. Realized and unrealized gains (losses) are included in other gain (loss).


	Fair Value Option		Equity Investment of Consolidated Fund
(In thousands)	Loans Receivable









Fair value at December 31, 2021	$	82,930		$	—
Originations and drawdowns	360,990			—
Paydowns	(112,500)			—
Change in accrued interest and capitalization of paid-in-kind interest	(650)			—
Unrealized gain (loss) in earnings, net	(2,815)			—
Fair value at March 31, 2022	$	327,955		$	—

Net unrealized gain (loss) in earnings on instruments held at March 31, 2022	$	(2,815)		$	—

Fair value at December 31, 2022	$	137,945		$	46,770
Contributions	—			9,627
Change in consolidated fund's share of equity investment (1)	—			6,125
Paydowns of underlying loan assets held by equity investment of consolidated fund	—			(25)
Change in accrued interest and capitalization of paid-in-kind interest	545			—
Unrealized gain (loss) in earnings, net (2)	(131,686)			11
Fair value at March 31, 2023	$	6,804		$	62,508

Net unrealized gain (loss) in earnings on instruments held at March 31, 2023	$	(131,686)		$	11

__________

The Company holds an investment in a non-traded healthcare REIT, valued at $34.5 million at March 31, 2023 and at December 31, 2022, presented within Corporate and Other in Note 4. The Company has no commitment for any further investment in the non-traded REIT in the future. The investment is valued based upon NAV beginning October 2021 when the investee, a healthcare real estate investor/manager, was acquired in conjunction with a merger of its co-sponsored non-traded REITs. The transaction diluted the Company's equity interest in the investee, which was previously accounted for as an equity method investment. Redemption of the Company's partnership interest in the non-traded healthcare REIT is restricted until the earliest of (1) the second anniversary of the issuance to the Company of such partnership units, (2) change in control of the general partner, and (3) initial public offering of the equity of the non-traded healthcare REIT, which may be subject to further restriction on redemption by the underwriters.

The Company measures fair value of certain assets on a nonrecurring basis: (i) on the acquisition date for business combinations; and (ii) when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for disposition or otherwise, write-down of asset values due to impairment.

Fair value of financial instruments reported at amortized cost, excluding those held for disposition, are presented below.


	Fair Value Measurements								Carrying Value
(In thousands)	Level 1		Level 2		Level 3		Total
March 31, 2023
Liabilities
Corporate debt
Secured fund fee revenue notes	$	—	$	250,547	$	—	$	250,547	$	292,695
Convertible and exchangeable senior notes	325,098		—		—		325,098		277,076
Non-recourse investment-level debt	—		4,134,916		363,488		4,498,404		4,752,050


December 31, 2022
Liabilities
Corporate debt
Secured fund fee revenue notes	$	—	$	250,547	$	—	$	250,547	$	292,171
Convertible and exchangeable senior notes	304,513		—		—		304,513		276,741
Non-recourse investment-level debt	—		3,268,508		944,984		4,213,492		4,587,228

Debt—Senior notes and secured fund fee revenue notes were valued using their last traded price. Fair value of investment-level debt were estimated by either discounting expected future cash outlays at interest rates available to the respective borrower subsidiaries for similar instruments or for securitized debt, based upon indicative bond prices quoted by brokers in the secondary market.

Other—The carrying values of cash and cash equivalents, accounts receivable, due from and to affiliates, interest payable and accounts payable generally approximate fair value due to their short term nature, and credit risk, if any, is negligible.