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Consolidated Sponsored Investment Products | 9 Months Ended
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Sep. 30, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Consolidated Sponsored Investment Products | 12. Consolidated Sponsored Investment Products Sponsored Investment Products In the normal course of its business, the Company sponsors various types of investment products. The Company consolidates an investment product when it owns a majority of the voting interest in the entity or it is the primary beneficiary of an investment product that is a VIE. The consolidation and deconsolidation of these investment products has no impact on net income attributable to stockholders. The Company’s risk with respect to these investments is limited to its investment in these products. The Company has no right to the benefits from, and does not bear the risks associated with, these investment products, beyond the Company’s investments in, and fees generated from these products. If the Company were to liquidate, these investments would not be available to the general creditors of the Company. The Company does not consider cash and investments held by consolidated sponsored investment products to be assets of the Company other than its direct investment in these products. As of September 30, 2014 and December 31, 2013, the Company consolidated twelve and eight sponsored investment products, respectively. During the nine months ended September 30, 2014, the Company consolidated five additional sponsored investment products and deconsolidated one sponsored investment product because it no longer had a majority voting interest. The following table presents the balances of the consolidated sponsored investment products that were reflected in the Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013:
|  | As of |
|  | September 30, 2014 |  |  | December 31, 2013 |
($ in thousands) |  |  |  |  |  |
Total cash |  | $ | 13,547 |  |  | $ | 531 |
Total investments |  |  | 241,107 |  |  |  | 139,054 |
All other assets |  |  | 8,756 |  |  |  | 9,595 |
Total liabilities |  |  | (23,838 | ) |  |  | (8,435 | )
Redeemable noncontrolling interests |  |  | (22,265 | ) |  |  | (42,186 | )
The Company’s net interests in consolidated sponsored investment products |  | $ | 217,307 |  |  | $ | 98,559 |
Consolidation The following tables reflect the impact of the consolidated sponsored investment products in the Condensed Consolidated Balance Sheets as of September, 30, 2014 and December 31, 2013, respectively: As of September 30, 2014
|  | Balance Before Consolidation of Investment Products |  |  | Consolidated Sponsored Investment Products |  |  | Eliminations and Adjustments (a) |  |  | Balances as Reported in Condensed Consolidated Balance Sheet |
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Total cash |  | $ | 172,709 |  |  | $ | 13,547 |  |  | $ | — |  |  | $ | 186,256 |
Total investments |  |  | 280,953 |  |  |  | 241,107 |  |  |  | (217,294 | ) |  |  | 304,766 |
All other assets |  |  | 196,236 |  |  |  | 8,756 |  |  |  | (13 | ) |  |  | 204,979 |
Total assets |  | $ | 649,898 |  |  | $ | 263,410 |  |  | $ | (217,307 | ) |  | $ | 696,001 |
Total liabilities |  | $ | 89,468 |  |  | $ | 23,851 |  |  | $ | (13 | ) |  | $ | 113,306 |
Redeemable noncontrolling interests |  |  | — |  |  |  | — |  |  |  | 22,265 |  |  |  | 22,265 |
Equity attributable to stockholders of the Company |  |  | 560,576 |  |  |  | 239,559 |  |  |  | (239,559 | ) |  |  | 560,576 |
Non-redeemable noncontrolling interests |  |  | (146 | ) |  |  | — |  |  |  | — |  |  |  | (146 | )
Total liabilities and equity |  | $ | 649,898 |  |  | $ | 263,410 |  |  | $ | (217,307 | ) |  | $ | 696,001 |
(a) | Adjustments include the elimination of intercompany transactions between the Company and its consolidated sponsored investment products, primarily the elimination of the investments and equity and recording of any noncontrolling interest.
As of December 31, 2013
|  | Balance Before Consolidation of Investment Products |  |  | Consolidated Sponsored Investment Products |  |  | Eliminations and Adjustments (a) |  |  | Balances as Reported in Condensed Consolidated Balance Sheet |
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Total cash |  | $ | 271,014 |  |  | $ | 531 |  |  | $ | — |  |  | $ | 271,545 |
Total investments |  |  | 135,692 |  |  |  | 139,054 |  |  |  | (98,434 | ) |  |  | 176,312 |
All other assets |  |  | 187,627 |  |  |  | 9,595 |  |  |  | (125 | ) |  |  | 197,097 |
Total assets |  | $ | 594,333 |  |  | $ | 149,180 |  |  | $ | (98,559 | ) |  | $ | 644,954 |
Total liabilities |  | $ | 101,465 |  |  | $ | 8,560 |  |  | $ | (125 | ) |  | $ | 109,900 |
Redeemable noncontrolling interests |  |  | — |  |  |  | — |  |  |  | 42,186 |  |  |  | 42,186 |
Equity attributable to stockholders of the Company |  |  | 492,930 |  |  |  | 140,620 |  |  |  | (140,620 | ) |  |  | 492,930 |
Non-redeemable noncontrolling interests |  |  | (62 | ) |  |  | — |  |  |  | — |  |  |  | (62 | )
Total liabilities and equity |  | $ | 594,333 |  |  | $ | 149,180 |  |  | $ | (98,559 | ) |  | $ | 644,954 |
(a) | Adjustments include the elimination of intercompany transactions between the Company and its consolidated sponsored investment products, primarily the elimination of the investments and equity and recording of any noncontrolling interest.
The following table reflects the impact of the consolidated sponsored investment products in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2014 and 2013, respectively: For the Three Months Ended September 30, 2014
|  | Balance Before Consolidation of Investment Products |  |  | Consolidated Sponsored Investment Products |  |  | Eliminations and Adjustments (a) |  |  | Balances as Reported in Condensed Consolidated Statement of Operations |
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Total operating revenues |  | $ | 117,808 |  |  | $ | — |  |  | $ | 33 |  |  | $ | 117,841 |
Total operating expenses |  |  | 77,668 |  |  |  | 1,213 |  |  |  | 33 |  |  |  | 78,914 |
Operating income (loss) |  |  | 40,140 |  |  |  | (1,213 | ) |  |  | — |  |  |  | 38,927 |
Total other non-operating (loss) income |  |  | (4,649 | ) |  |  | (3,109 | ) |  |  | 4,021 |  |  |  | (3,737 | )
Income (loss) before income tax expense |  |  | 35,491 |  |  |  | (4,322 | ) |  |  | 4,021 |  |  |  | 35,190 |
Income tax benefit |  |  | (1,805 | ) |  |  | — |  |  |  | — |  |  |  | (1,805 | )
Net income (loss) |  |  | 37,296 |  |  |  | (4,322 | ) |  |  | 4,021 |  |  |  | 36,995 |
Noncontrolling interests |  |  | 44 |  |  |  | — |  |  |  | 301 |  |  |  | 345 |
Net income (loss) attributable to common stockholders |  | $ | 37,340 |  |  | $ | (4,322 | ) |  | $ | 4,322 |  |  | $ | 37,340 |
(a) | Adjustments include the elimination of intercompany transactions between the Company and its consolidated sponsored investment products, primarily the elimination of the investments and equity and recording of any noncontrolling interest.
For the Three Months Ended September 30, 2013
|  | Balance Before Consolidation of Investment Products |  |  | Consolidated Investment Products |  |  | Eliminations and Adjustments (a) |  |  | Balances as Reported in Condensed Consolidated Statement of Operations |
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Total operating revenues |  | $ | 100,319 |  |  | $ | — |  |  | $ | 90 |  |  | $ | 100,409 |
Total operating expenses |  |  | 68,547 |  |  |  | 142 |  |  |  | 90 |  |  |  | 68,779 |
Operating income (loss) |  |  | 31,772 |  |  |  | (142 | ) |  |  | — |  |  |  | 31,630 |
Total other non-operating income (expense) |  |  | 1,870 |  |  |  | 923 |  |  |  | (554 | ) |  |  | 2,239 |
Income (loss) before income tax expense |  |  | 33,642 |  |  |  | 781 |  |  |  | (554 | ) |  |  | 33,869 |
Income tax expense |  |  | 12,567 |  |  |  | — |  |  |  | — |  |  |  | 12,567 |
Net income (loss) |  |  | 21,075 |  |  |  | 781 |  |  |  | (554 | ) |  |  | 21,302 |
Noncontrolling interests |  |  | 14 |  |  |  | — |  |  |  | (227 | ) |  |  | (213 | )
Net income (loss) attributable to common stockholders |  | $ | 21,089 |  |  | $ | 781 |  |  | $ | (781 | ) |  | $ | 21,089 |
(a) | Adjustments include the elimination of intercompany transactions between the Company and its consolidated sponsored investment products, primarily the elimination of the investments and equity and recording of any noncontrolling interest.
For the Nine Months Ended September 30, 2014
|  | Balance Before Consolidation of Investment Products |  |  | Consolidated Sponsored Investment Products |  |  | Eliminations and Adjustments (a) |  |  | Balances as Reported in Condensed Consolidated Statement of Operations |
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Total operating revenues |  | $ | 338,534 |  |  | $ | — |  |  | $ | (73 | ) |  | $ | 338,461 |
Total operating expenses |  |  | 242,032 |  |  |  | 2,447 |  |  |  | (73 | ) |  |  | 244,406 |
Operating income (loss) |  |  | 96,502 |  |  |  | (2,447 | ) |  |  | — |  |  |  | 94,055 |
Total other non-operating income (expense) |  |  | 6,545 |  |  |  | 5,883 |  |  |  | (3,618 | ) |  |  | 8,810 |
Income (loss) before income tax expense |  |  | 103,047 |  |  |  | 3,436 |  |  |  | (3,618 | ) |  |  | 102,865 |
Income tax expense |  |  | 24,311 |  |  |  | — |  |  |  | — |  |  |  | 24,311 |
Net income (loss) |  |  | 78,736 |  |  |  | 3,436 |  |  |  | (3,618 | ) |  |  | 78,554 |
Noncontrolling interests |  |  | 85 |  |  |  | — |  |  |  | 182 |  |  |  | 267 |
Net income (loss) attributable to common stockholders |  | $ | 78,821 |  |  | $ | 3,436 |  |  | $ | (3,436 | ) |  | $ | 78,821 |
(a) | Adjustments include the elimination of intercompany transactions between the Company and its consolidated sponsored investment products, primarily the elimination of the investments and equity and recording of any noncontrolling interest.
For the Nine Months Ended September 30, 2013
|  | Balance Before Consolidation of Investment Products |  |  | Consolidated Investment Products |  |  | Eliminations and Adjustments (a) |  |  | Balances as Reported in Condensed Consolidated Statement of Operations |
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Total operating revenues |  | $ | 282,575 |  |  | $ | — |  |  | $ | 142 |  |  | $ | 282,717 |
Total operating expenses |  |  | 202,557 |  |  |  | 406 |  |  |  | 142 |  |  |  | 203,105 |
Operating income (loss) |  |  | 80,018 |  |  |  | (406 | ) |  |  | — |  |  |  | 79,612 |
Total other non-operating income (expense) |  |  | 705 |  |  |  | (768 | ) |  |  | 1,056 |  |  |  | 993 |
Income (loss) before income tax expense |  |  | 80,723 |  |  |  | (1,174 | ) |  |  | 1,056 |  |  |  | 80,605 |
Income tax expense |  |  | 30,335 |  |  |  | — |  |  |  | — |  |  |  | 30,335 |
Net income (loss) |  |  | 50,388 |  |  |  | (1,174 | ) |  |  | 1,056 |  |  |  | 50,270 |
Noncontrolling interests |  |  | 46 |  |  |  | — |  |  |  | 118 |  |  |  | 164 |
Net income (loss) attributable to common stockholders |  | $ | 50,434 |  |  | $ | (1,174 | ) |  | $ | 1,174 |  |  | $ | 50,434 |
(a) | Adjustments include the elimination of intercompany transactions between the Company and its consolidated sponsored investment products, primarily the elimination of the investments and equity and recording of any noncontrolling interest.
Fair Value Measurements of Consolidated Sponsored Investment Products The assets and liabilities of the consolidated sponsored investment products measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 by fair value hierarchy level were as follows: September 30, 2014
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities |  | $ | — |  |  | $ | 146,245 |  |  | $ | 447 |  |  | $ | 146,692 |
Equity securities |  |  | 94,219 |  |  |  | 196 |  |  |  | — |  |  |  | 94,415 |
Derivatives |  |  | 140 |  |  |  | 148 |  |  |  | — |  |  |  | 288 |
Total Assets Measured at Fair Value |  | $ | 94,359 |  |  | $ | 146,589 |  |  | $ | 447 |  |  | $ | 241,395 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short sales |  | $ | 10,249 |  |  | $ | 485 |  |  | $ | — |  |  | $ | 10,734 |
Total Liabilities Measured at Fair Value |  | $ | 10,249 |  |  | $ | 485 |  |  | $ | — |  |  | $ | 10,734 |
December 31, 2013
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities |  | $ | — |  |  | $ | 47,114 |  |  | $ | — |  |  | $ | 47,114 |
Equity securities |  |  | 91,940 |  |  |  | — |  |  |  | — |  |  |  | 91,940 |
Total Assets Measured at Fair Value |  | $ | 91,940 |  |  | $ | 47,114 |  |  | $ | — |  |  | $ | 139,054 |
The following is a discussion of the valuation methodologies used for the assets and liabilities of the Company’s consolidated sponsored investment products measured at fair value. Investments of consolidated sponsored investment products represent the underlying debt and equity securities held in sponsored products which are consolidated by the Company. Equity securities are valued at the official closing price on the exchange on which the securities are traded and are categorized within Level 1. Level 2 investments include certain equity securities for which closing prices are not readily available or are deemed to not reflect readily available market prices and are valued using an independent pricing service as well as most debt securities, which are valued based on quotations received from independent pricing services or from dealers who make markets in such securities. Pricing services do not provide pricing for all securities, and therefore indicative bids from dealers are utilized, which are based on pricing models used by market makers in the security and are also included within Level 2. Level 3 investments include debt securities that are not widely traded, are illiquid and are priced by dealers based on pricing models used by market makers in the security. The following table is a reconciliation of assets of consolidated sponsored investment products for Level 3 investments for which significant unobservable inputs were used to determine fair value.
|  | Level 3 Debt securities (a) |
Balance at December 31, 2013 |  | $ | — |
Purchases |  |  | 450 |
Sales |  |  | — |
Paydowns |  |  | (2 | )
Change in unrealized gain/loss |  |  | (1 | )
Balance at September 30, 2014 |  | $ | 447 |
(a) | None of the securities in the above table are internally fair valued at September 30, 2014.
There were no transfers between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2014. Securities held by the consolidated sponsored investment products, with an end-of-period value of $5.2 million, were transferred from Level 2 to Level 1 during the nine months ended September 30, 2013 due to the availability of unadjusted quoted market prices in active markets. Derivatives Beginning in the second quarter of 2014, the Company consolidated investment products which include derivative instruments as part of their investment strategies. These derivatives may include futures contracts, options contracts and forward contracts. The fair value of such derivatives at September 30, 2014 was immaterial. The change in fair value of such derivatives, which is recorded in realized and unrealized gain (loss) on investments of consolidated sponsored investment products, net, was immaterial for the three and nine months ended September 30, 2014. In connection with entering into these derivative contracts, these funds may be required to pledge to the broker an amount of cash equal to the “initial margin” requirements that varies based on the type of derivative. The cash pledged or on deposit is recorded in the Condensed Consolidated Balance Sheet of the Company as Cash pledged or on deposit of consolidated sponsored investment products. Short Sales Some of the Company’s consolidated sponsored investment products may engage in short sales, which are transactions in which a fund sells a security that it does not own (or that it owns but does not intend to deliver) in anticipation that the price of the security will decline. Short sales are recorded in the Condensed Consolidated Balance Sheet within Other liabilities of consolidated sponsored investment products.

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