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EX-32.1 - EXHIBIT 32.1, DATED MAY 6, 2011 - GAMCO INVESTORS, INC. ET ALex32_10033111.htm
EX-31.1 - EXHIBIT 31.1, DATED MAY 6, 2011 - GAMCO INVESTORS, INC. ET ALex31_10033111.htm
EX-31.2 - EXHIBIT 31.2, DATED MAY 6, 2011 - GAMCO INVESTORS, INC. ET ALex31_20033111.htm
EX-32.2 - EXHIBIT 32.2, DATED MAY 6, 2011 - GAMCO INVESTORS, INC. ET ALex32_20033111.htm
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011
or

[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File No. 1-106

GAMCO INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
       
New York
   
13-4007862
(State of other jurisdiction of incorporation or organization)
   
(I.R.S. Employer Identification No.)
   
     
One Corporate Center, Rye, NY
   
10580-1422
(Address of principle executive offices)
   
(Zip Code)
       
(914) 921-3700
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yeso    Noo
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer", "accelerated filer", and "smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
 
Accelerated filer x
 
       
Non-accelerated filer o
 
Smaller reporting company o
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
x
 
Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.
Class
 
Outstanding at April 30, 2011
 
Class A Common Stock, .001 par value
 
6,860,757
 
Class B Common Stock, .001 par value
 
20,190,140
 
 
 
 
 

 

 
INDEX
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
   
   
PART I.
FINANCIAL INFORMATION
 
   
   
Item 1.
Unaudited Condensed Consolidated Financial Statements
   
 
Condensed Consolidated Statements of Income:
 
-    Three months ended March 31, 2011 and 2010
   
   
   
 
Condensed Consolidated Statements of Financial Condition:
 
-    March 31, 2011
 
-    December 31, 2010
 
-    March 31, 2010
   
 
Condensed Consolidated Statements of Equity and Comprehensive Income:
 
-    Three months ended March 31, 2011 and 2010
   
 
Condensed Consolidated Statements of Cash Flows:
 
-    Three months ended March 31, 2011 and 2010
   
 
Notes to Unaudited Condensed Consolidated Financial Statements
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk (Included in Item 2)
   
Item 4.
Controls and Procedures
   
PART II.
OTHER INFORMATION
 
   
Item 1.
Legal Proceedings
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
Item 6.
Exhibits
   
SIGNATURES
 
   
 
 
 
2

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in thousands, except per share data)
             
             
   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
Revenues
           
  Investment advisory and incentive fees
  $ 62,911     $ 49,342  
  Institutional research services
    3,649       3,424  
  Distribution fees and other income
    10,345       7,232  
Total revenues
    76,905       59,998  
Expenses
               
  Compensation
    33,417       26,213  
  Management fee
    3,113       2,448  
  Distribution costs
    13,429       7,031  
  Other operating expenses
    6,186       4,936  
Total expenses (a)
    56,145       40,628  
                 
Operating income
    20,760       19,370  
Other income (expense)
               
  Net gain from investments
    8,740       5,232  
  Interest and dividend income
    1,936       815  
  Interest and other expense
    (2,867 )     (3,292 )
Total other income (expense), net
    7,809       2,755  
Income before income taxes
    28,569       22,125  
Income tax provision
    10,288       8,294  
Net income
    18,281       13,831  
Net income attributable to noncontrolling interests
    638       105  
Net income attributable to GAMCO Investors, Inc.'s shareholders
  $ 17,643     $ 13,726  
                 
Net income attributable to GAMCO Investors, Inc.'s shareholders
               
  per share:
               
Basic
  $ 0.66     $ 0.50  
                 
Diluted
  $ 0.65     $ 0.50  
                 
Weighted average shares outstanding:
               
Basic
    26,901       27,184  
                 
Diluted
    27,008       28,148  
                 
Dividends declared:
  $ 0.03     $ 0.03  
(a) First quarter 2011 includes $5.6 million in costs directly related to the launch of a new closed-end fund.
         
                 
See accompanying notes.
               
 
 
 
3

 

 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(Dollars in thousands, except per share data)
                   
   
March 31,
   
December 31,
   
March 31,
 
   
2011
   
2010
   
2010
 
ASSETS
                 
Cash and cash equivalents, including restricted cash of $0, $0 and $62,265, respectively
  $ 164,671     $ 169,601     $ 411,365  
Investments in securities
    345,616       305,486       177,001  
Investments in partnerships
    94,584       82,871       70,744  
Receivable from brokers
    43,308       46,621       25,368  
Investment advisory fees receivable
    24,992       44,660       18,858  
Income tax receivable and deferred tax assets
    302       325       -  
Other assets
    24,030       23,172       21,289  
  Total assets
  $ 697,503     $ 672,736     $ 724,625  
                         
LIABILITIES AND EQUITY
                       
Payable to brokers
  $ 7,998     $ 1,554     $ 4,394  
Income taxes payable and deferred tax liabilities
    25,035       23,225       7,548  
Capital lease obligation
    5,151       5,182       5,239  
Compensation payable
    22,883       23,771       21,335  
Securities sold, not yet purchased
    15,550       19,299       9,063  
Mandatorily redeemable noncontrolling interests
    1,466       1,444       1,636  
Accrued expenses and other liabilities
    28,351       23,089       23,333  
  Sub-total
    106,434       97,564       72,548  
                         
5.5% Senior notes (due May 15, 2013)
    99,000       99,000       99,000  
6% Convertible note (due August 14, 2011; repaid September 30, 2010)
    -       -       39,873  
6.5% Convertible note (due October 2, 2018; repaid October 13, 2010)
    -       -       60,000  
Zero coupon subordinated debentures, Face value: $86.4 million (due December 31, 2015)
    60,697       59,580       -  
  Total liabilities
    266,131       256,144       271,421  
                         
Redeemable noncontrolling interests
    28,884       26,984       1,464  
Commitments and contingencies (Note J)
                       
Equity
                       
  GAMCO Investors, Inc. stockholders' equity
                       
    Class A Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
      13,526,203, 13,255,503 and 13,119,776 issued, respectively; 6,872,333,
                       
      6,763,221 and 7,131,297 outstanding, respectively
    13       13       13  
    Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
      24,000,000 shares issued; 20,190,140, 20,290,140 and 20,292,917 shares
                       
      outstanding, respectively
    20       20       20  
    Additional paid-in capital
    262,686       262,108       252,987  
    Retained earnings
    387,101       370,272       423,374  
    Accumulated comprehensive income
    27,900       25,389       20,871  
    Treasury stock, at cost (6,653,870, 6,492,282 and 5,988,479 shares, respectively)
    (278,870 )     (271,773 )     (249,604 )
  Total GAMCO Investors, Inc. stockholders' equity
    398,850       386,029       447,661  
Noncontrolling interests
    3,638       3,579       4,079  
Total equity
    402,488       389,608       451,740  
                         
Total liabilities and equity
  $ 697,503     $ 672,736     $ 724,625  
                         
See accompanying notes.
                       
 
 
 
4

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
UNAUDITED
(In thousands)
                                                       
For the three months ended March 31, 2011
         
GAMCO Investors, Inc. shareholders
             
               
Additional
         
Accumulated
               
Redeemable
       
   
Noncontrolling
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
         
Noncontrolling
   
Comprehensive
 
   
Interests
   
Stock
   
Capital
   
Earnings
   
Income
   
Stock
   
Total
   
Interests
   
Income
 
Balance at December 31, 2010
  $ 3,579     $ 33     $ 262,108     $ 370,272     $ 25,389     $ (271,773 )   $ 389,608     $ 26,984     $ -  
Redemptions of redeemable
                                                                       
 noncontrolling interests
    -       -       -       -       -       -       -       (839 )     -  
Contributions from redeemable
                                                                       
 noncontrolling interests
    -       -       -       -       -       -       -       6,263       -  
Deconsolidation of
                                                                       
 Partnership
    -       -       -       -       -       -       -       (4,103 )     -  
Net income
    59       -       -       17,643       -       -       17,702       579       18,281  
Net unrealized gains on
                                                                       
 securities available for sale,
                                                                       
 net of income tax ($1,460)
    -       -       -       -       2,487       -       2,487       -       2,487  
Foreign currency translation
    -       -       -       -       24       -       24       -       24  
Dividends declared ($0.03 per
                                                                       
 share)
    -       -       -       (814 )     -       -       (814 )     -       -  
Stock based compensation
                                                                       
 expense
    -       -       578       -       -       -       578       -       -  
Purchase of treasury stock
    -       -       -       -       -       (7,097 )     (7,097 )     -       -  
Balance at March 31, 2011
  $ 3,638     $ 33     $ 262,686     $ 387,101     $ 27,900     $ (278,870 )   $ 402,488     $ 28,884     $ 20,792  
Comprehensive income attributable
                                                                 
 to noncontrolling interest
                                                                    (638 )
Total comprehensive income
                                                                       
attributable to GAMCO Investors, Inc.
                                                            $ 20,154  
                                                                         
See accompanying notes.
                                                                       
 
 
 
5

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
UNAUDITED
(In thousands)
                                                       
For the three months ended March 31, 2010
         
GAMCO Investors, Inc. shareholders
               
               
Additional
         
Accumulated
               
Redeemable
       
   
Noncontrolling
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
         
Noncontrolling
   
Comprehensive
 
   
Interests
   
Stock
   
Capital
   
Earnings
   
Income
   
Stock
   
Total
   
Interests
   
Income
 
Balance at December 31, 2009
  $ 4,043     $ 33     $ 251,591     $ 410,473     $ 19,088     $ (241,567 )   $ 443,661     $ 1,464     $ -  
Redemptions of redeemable
                                                                       
 noncontrolling interests
    -       -       -       -       -       -       -       (475 )     -  
Contributions from redeemable
                                                                       
 noncontrolling interests
    -       -       -       -       -       -       -       406       -  
Net income
    36       -       -       13,726       -       -       13,762       69       13,831  
Net unrealized gains on
                                                                       
 securities available for sale,
                                                                       
 net of income tax ($1,067)
    -       -       -       -       1,816       -       1,816       -       1,816  
Foreign currency translation
    -       -       -       -       (33 )     -       (33 )     -       (33 )
Dividends declared ($0.03 per
                                                                       
 share)
    -       -       -       (825 )     -       -       (825 )     -       -  
Stock based compensation
                                                                       
 expense
    -       -       1,383       -       -       -       1,383       -       -  
Exercise of stock options
                                                                       
 including tax benefit
    -       -       13       -       -       -       13       -       -  
Purchase of treasury stock
    -       -       -       -       -       (8,037 )     (8,037 )     -       -  
Balance at March 31, 2010
  $ 4,079     $ 33     $ 252,987     $ 423,374     $ 20,871     $ (249,604 )   $ 451,740     $ 1,464     $ 15,614  
Comprehensive income attributable
                                                                 
 to noncontrolling interest
                                                                    (105 )
Total comprehensive income
                                                                       
attributable to GAMCO Investors, Inc.
                                                            $ 15,509  
                                                                         
See accompanying notes.
                                                                       
 
 
 
6

 

 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
             
   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
Operating activities
           
Net income
  $ 18,281     $ 13,831  
 Adjustments to reconcile net income to net cash (used in) provided by operating activities:
               
  Equity in net gains from partnerships and affiliates
    (2,977 )     (2,352 )
  Depreciation and amortization
    274       171  
  Stock based compensation expense
    578       1,383  
  Deferred income taxes
    1,649       277  
  Tax benefit from exercise of stock options
    -       5  
  Foreign currency translation gain/(loss)
    24       (33 )
  Fair value of donated securities
    -       77  
  (Gains) on sales of available for sale securities
    (101 )     -  
  Amortization of discount on convertible debt
    -       22  
  Accretion of zero coupon debentures
    1,117       -  
(Increase) decrease in assets:
               
  Investments in trading securities
    (44,589 )     (17,980 )
  Investments in partnerships:
               
    Contributions to partnerships
    (6,583 )     (11,129 )
    Distributions from partnerships
    3,026       5,391  
  Receivable from brokers
    (2,373 )     4,704  
  Investment advisory fees receivable
    19,798       16,827  
  Income tax receivable and deferred tax assets
    23       -  
  Other assets
    (1,129 )     (6 )
Increase (decrease) in liabilities:
               
  Payable to brokers
    6,444       3,999  
  Income taxes payable and deferred tax liabilities
    (1,035)       (2,320 )
  Compensation payable
    (891 )     8,035  
  Mandatorily redeemable noncontrolling interests
    23       14  
  Accrued expenses and other liabilities
    6,531       (1,791 )
Total adjustments
    (20,191 )     5,294  
Net cash (used in) provided by operating activities
  $ (1,910 )   $ 19,125  

 
7

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (continued)
(In thousands)
             
   
Three Months Ended
 
   
March 31,
       
   
2011
   
2010
 
Investing activities
           
Purchases of available for sale securities
  $ (4 )   $ (4 )
Proceeds from sales of available for sale securities
    101       -  
Return of capital on available for sale securities
    631       686  
Increase in restricted cash
    -       (7 )
Net cash provided by investing activities
    728       675  
                 
Financing activities
               
Contributions from redeemable noncontrolling interests
    6,263       -  
Redemptions of redeemable noncontrolling interests
    (839 )     (69 )
Proceeds from exercise of stock options
    -       8  
Dividends paid
    (814 )     (825 )
Purchase of treasury stock
    (7,097 )     (8,037 )
Net cash used in financing activities
    (2,487 )     (8,923 )
Effect of exchange rates on cash and cash equivalents
    (10 )     (48 )
Net (decrease) increase in cash and cash equivalents
    (3,679 )     10,829  
Cash and cash equivalents at beginning of period
    169,601       338,270  
Decrease in cash from deconsolidation of partnership
    (1,251 )     -  
Cash and cash equivalents at end of period
  $ 164,671     $ 349,099  
Supplemental disclosures of cash flow information:
               
Cash paid for interest
  $ 271     $ 3,447  
Cash paid for taxes
  $ 9,167     $ 9,969  
                 
Non-cash activity:
               
- On January 1, 2011, GAMCO Investors, Inc. was no longer determined to have control over one partnership which
 
resulted in the deconsolidation of that partnership, and decreases of approximately $1,251 of cash and cash
 
    equivalents, $2,852 of net assets and $4,103 of noncontrolling interests.
               
- For the three months ended March 31, 2011 and March 31, 2010, the Company accrued RSA dividends of $7
 
    and $10, respectively.
               
See accompanying notes.
               

 
8

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
A.  Significant Accounting Policies

Basis of Presentation
 
Unless we have indicated otherwise, or the context otherwise requires, references in this report to “GAMCO Investors, Inc.,” “GAMCO,” “the Company,” “GBL,” “we,” “us” and “our” or similar terms are to GAMCO Investors, Inc., its predecessors and its subsidiaries.
 
The unaudited interim condensed consolidated financial statements of GAMCO included herein have been prepared in conformity with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.  In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of GAMCO for the interim periods presented and are not necessarily indicative of a full year’s results.
 
The condensed consolidated financial statements include the accounts of GAMCO and its subsidiaries.  Intercompany accounts and transactions are eliminated.
 
These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 from which the accompanying condensed consolidated financial statements were derived.

Certain items previously reported have been reclassified to conform to the current period’s condensed consolidated financial statements presentation.

Subsequent to the issuance of the Company’s second quarter 2010 Form 10-Q, filed with the SEC on August 5, 2010, the Company determined that pursuant to ASC 810, Consolidation, it should have presented the amount of comprehensive income attributable to noncontrolling interests and comprehensive income attributable to GAMCO in its consolidated statement of equity and comprehensive income.  The affected period includes the period ended March 31, 2010.  The accompanying consolidated statement of equity and comprehensive income for the period ended March 31, 2010 has been corrected to also include such information.  The Company believes this correction was not material to the consolidated financial statements taken as a whole.
  
Use of Estimates
 
The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

Recent Accounting Developments

In January 2010, the FASB issued guidance to improve disclosures about fair value measurements.  The guidance affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurements.  The guidance requires new disclosures regarding purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  The guidance is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The Company adopted the applicable portions of this guidance on January 1, 2011 without a material impact to the consolidated financial statement disclosures.
 
 
 
9

 

 
 B.  Investment in Securities

Investments in securities at March 31, 2011, December 31, 2010 and March 31, 2010 consisted of the following:
 
   
March 31, 2011
   
December 31, 2010
   
March 31, 2010
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
   
(In thousands)
 
Trading securities:
                                   
  Government obligations
  $ 12,069     $ 12,076     $ 27,327     $ 27,288     $ 1,388     $ 1,348  
  Common stocks
    210,956       225,589       158,455       170,374       68,071       74,573  
  Mutual funds
    1,205       1,654       1,205       1,554       1,194       1,379  
  Convertible bonds
    163       175       574       620       637       749  
  Preferred stocks
    -       -       1,783       1,973       -       11  
  Other investments
    465       476       1,559       1,350       367       142  
Total trading securities
    224,858       239,970       190,903       203,159       71,657       78,202  
                                                 
Available for sale securities:
                                               
  Common stocks
    16,835       37,408       16,835       37,139       17,063       34,655  
  Mutual funds
    43,080       68,238       43,707       65,188       48,773       64,144  
Total available for sale securities
    59,915       105,646       60,542       102,327       65,836       98,799  
                                                 
Total investments in securities
  $ 284,773     $ 345,616     $ 251,445     $ 305,486     $ 137,493     $ 177,001  

Securities sold, not yet purchased at March 31, 2011, December 31, 2010 and March 31, 2010 consisted of the following:
 
   
March 31, 2011
   
December 31, 2010
   
March 31, 2010
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Trading securities:
 
(In thousands)
 
  Common stocks
  $ 14,044     $ 15,550     $ 19,071     $ 19,299     $ 9,268     $ 9,052  
  Other
    -       -       -       -       10       11  
Total securities sold, not yet purchased
  $ 14,044     $ 15,550     $ 19,071     $ 19,299     $ 9,278     $ 9,063  

Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.  Investments in United States Treasury Bills and Notes with maturities of greater than three months at the time of purchase are classified as investments in securities, and those with maturities of three months or less at time of purchase are classified as cash equivalents.  A substantial portion of investments in securities are held for resale in anticipation of short-term market movements and therefore are classified as trading securities.  Trading securities are stated at fair value, with any unrealized gains or losses, reported in current period earnings.  Available for sale (“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of equity except for losses deemed to be other than temporary which are recorded as unrealized losses in the condensed consolidated statements of income.  There was no impairment of AFS securities for the three month periods ended March 31, 2011 and 2010.
 
The Company recognizes all derivatives as either assets or liabilities measured at fair value and includes them in either investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition.  From time to time, the Company and/or the partnerships and offshore funds that the Company consolidates will enter into hedging transactions to manage their exposure to foreign currencies and equity prices related to their proprietary investments.  For the three months ended March 31, 2011 and 2010, the Company had derivative transactions in equity derivatives which resulted in net losses of $0 and $61,000, respectively.  At December 31, 2010 and March 31, 2010, we held derivative contracts on 403,000 equity shares and 6,000 equity shares, respectively, and the fair value was $1.0 million and $29,000, respectively; these are included in investments in securities in the condensed consolidated statements of financial condition.  At March 31, 2011, the Company did not hold any derivatives.  These transactions are not designated as hedges for accounting purposes, and therefore changes in fair values of these derivatives are included in net gain from investments in the condensed consolidated statements of income. 

 
 
10

 
 
 
At March 31, 2011, December 31, 2010 and March 31, 2010, the fair value of common stock investments available for sale was $37.4 million, $37.1 million and $34.7 million, respectively.  The total unrealized gains for common stock investments available for sale securities with unrealized gains was $20.6 million, $20.3 million and $17.6 million at March 31, 2011, December 31, 2010 and March 31, 2010, respectively.  There were no unrealized losses for common stock investments available for sale at March 31, 2011, December 31, 2010 or March 31, 2010.  At March 31, 2011, December 31, 2010 and March 31, 2010, the fair value of mutual fund investments available for sale with unrealized gains was $68.2 million, $65.2 million and $62.2 million, respectively.  At March 31, 2011 and December 31, 2010, there were no unrealized losses for mutual fund investments available for sale.  At March 31, 2010, the fair value of mutual fund investments available for sale with unrealized losses was $1.9 million.  The total unrealized gains for mutual fund investments available for sale securities with unrealized gains at March 31, 2011, December 31, 2010 and March 31, 2010 was $25.0 million, $21.5 million and $15.4 million, respectively.  The total unrealized losses for available for sale securities with unrealized losses was $0.1 million at March 31, 2010.

Unrealized changes to fair value, net of taxes, for the three months ended March 31, 2011 and 2010 of $2.5 million in gains and $1.8 million in gains, respectively, have been included in other comprehensive income, a component of equity, at March 31, 2011 and March 31, 2010.  Return of capital on available for sale securities for the three months ended March 31, 2011 and 2010 was $0.6 million and $0.7 million, respectively.  Proceeds from sales of investments available for sale were approximately $101,000 for the three month period ended March 31, 2011.  For the three months ended March 31, 2011, gross gains on the sale of investments available for sale amounted to $101,000; there were no gross losses on the sale of investments available for sale.  There were no sales of investments available for sale for the three months ended March 31, 2010.

Investments classified as available for sale that are in an unrealized loss position for which other-than-temporary impairment has not been recognized consisted of the following:
 
   
March 31, 2011
   
December 31, 2010
   
March 31, 2010
 
         
Unrealized
               
Unrealized
               
Unrealized
       
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
 
(in thousands)
                                                     
Mutual Funds
  $ -     $ -     $ -     $ -     $ -     $ -     $ 2,002     $ (55 )   $ 1,947  

At March 31, 2010, there were two holdings in loss positions which were not deemed to be other-than-temporarily impaired because they passed scrutiny in our evaluation of the length of time that they had been in a loss position and our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at March 31, 2010 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries.  One holding was impaired for four consecutive months, and one holding was impaired for twelve consecutive months.  The fair value of these holdings at March 31, 2010 was $1.9 million.

C. Investments in Partnerships
 
The Company is general partner or co-general partner of various sponsored limited partnerships and the investment manager of various sponsored offshore funds whose underlying assets consist primarily of marketable securities (the “affiliated entities”).  We also have investments in unaffiliated partnerships, offshore funds and other entities.  Certain of the affiliated entities are consolidated, generally because a majority of the equity is owned by the Company.  Other investment partnerships for which we serve as the general partner but have only a minority ownership interest are not consolidated because the limited partners have substantive rights to replace the Company as general partner.  Our balance sheet caption “investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting and certain investments in consolidated feeder funds that the Company accounts for at fair value, as described below.  The Company reflects the equity in earnings of these equity method investees and the change in fair value of the consolidated feeder funds under the caption net gain from investments on the condensed consolidated statements of income.

We also have sponsored a number of investment vehicles where we are the investment manager in which we do not have an equity investment.  These vehicles are considered VIEs, and we are not the primary beneficiary because we do not absorb a majority of the entities’ expected losses or expected returns.  The Company has not provided any financial or other support to these entities.  The total assets of these entities at March 31, 2011, December 31, 2010 and March 31, 2010 were $9.8 million, $13.3 million and $10.5 million, respectively.  Our maximum exposure to loss as a result of our involvement with the VIEs is limited to the deferred carried interest that we have in one of the VIEs.  On March 31, 2011, December 31, 2010 and March 31, 2010, we had a deferred carried interest in one of the VIE offshore funds of approximately $48,000, $325,000 and $287,000, respectively, and it was included in investments in partnerships on the condensed consolidated statements of financial condition.  Additionally, as the general partner or investment manager to these VIEs, the Company earns fees for performing these roles.  These revenues are dependent upon the AUM levels in the VIEs and would vary depending on these AUMs and which would be reflected in the condensed consolidated statements of income, condensed consolidated statements of financial condition and condensed consolidated statements of cash flows.
 
 
 
11

 

 
In the case of two VIEs, we are determined to be the primary beneficiary of each because we absorb a majority of each entity’s expected losses and therefore they are consolidated in the financial statements.  The Company has an investment in these VIEs of $54.6 million.  The Company has not provided any financial or other support to these VIEs but does earn fees as the investment manager.  These VIEs have total assets of $96.9 million at March 31, 2011; $2.0 million is included in cash and cash equivalents, $77.0 million is included in investments in securities, $1.6 million is included in investments in partnerships and $16.3 million is included in receivable from brokers on the condensed consolidated statements of financial condition.  These assets may only be used to satisfy the obligations of the VIEs which include $12.3 million included in securities sold, not yet purchased, $2.2 million included in accrued expenses and other liabilities and $28.0 million included in redeemable noncontrolling interest.

On January 1, 2011, upon analysis of several factors, including the additional contribution of capital from unrelated third parties into a partnership that we consolidated for the year ended and as of December 31, 2010, we determined that the Company was no longer deemed to control the partnership, resulting in the deconsolidation of this partnership, effective January 1, 2011.  The deconsolidation did not result in the recognition of any gain or loss.  The Company continues to serve as the general partner and earns fees for this role, and it also maintains an investment in the deconsolidated partnership which is included in investments in partnerships on the condensed consolidated statements of financial condition and is accounted for under the equity method (which approximates fair value).

At March 31, 2011, December 31, 2010 and March 31, 2010, and for the three months ended March 31, 2011 and March 31, 2010, the Company consolidated two limited partnerships and one offshore fund (the “consolidated feeder funds”), that owned 100% of their offshore master funds.  The Company retained the specialized investment company accounting of the consolidated feeder funds in the Company’s consolidated financial statements.  Included in the investment in partnerships on the Company’s consolidated statement of financial condition as of March 31, 2011, December 31, 2010 and March 31, 2010, are $28.5 million $27.7 million, and $26.2 million, respectively, which represent the consolidated feeder fund’s proportionate investment in the master funds carried at fair value, at those dates. 

D. Fair Value

All of the instruments within cash and cash equivalents, investments in securities and securities sold, not yet purchased are measured at fair value.  Certain investments in partnerships are also measured at fair value.

The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the FASB’s guidance on fair value measurement.  The levels of the fair value hierarchy and their applicability to the Company are described below:

-  
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.  Level 1 assets include cash equivalents, government obligations, open and closed end funds and equities.
-  
Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals.  Assets that generally are included in this category may include certain limited partnership interests in private funds in which the valuations for substantially all of the investments within the fund are based upon Level 1 or Level 2 inputs and over the counter derivatives that have inputs to the valuations that can generally be corroborated by observable market data.
-  
Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.  Assets included in this category generally include equities that trade infrequently and direct private equity investments held within consolidated partnerships.
 
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.  Investments are transferred into or out of any level at their beginning period values.
 
 
 
12

 
 
 
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction.  To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3.

In the absence of a closing price, an average of the bid and ask price is used.  Bid prices reflect the highest price that the market is willing to pay for an asset.  Ask prices represent the lowest price that the market is willing to accept for an asset.

Cash equivalents – Cash equivalents primarily consist of an affiliated money market mutual fund which is invested solely in U.S. Treasuries.  U.S. Treasury Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents.  Cash equivalents are valued using quoted market prices.

Investments in securities and securities sold, not yet purchased – Investments in securities and securities sold, not yet purchased are generally valued based on quoted prices from an exchange.  To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in Level 1 of the fair value hierarchy.  Securities categorized in Level 2 investments are valued using other observable inputs.  Nonpublic and infrequently traded investments are included in Level 3 of the fair value hierarchy because significant inputs to measure fair value are unobservable.

Investments in Partnerships – The Company’s investments include limited partner investments in consolidated feeder funds.  The Company considers the net asset value of the consolidated feeder fund to be the best estimate of fair value.  Investments in private funds that are redeemable at the measurement date or within the near term, are categorized in Level 2 of the fair value hierarchy.  These funds primarily invest in long and short investments in debt and equity securities that are traded in public and over-the-counter exchanges in the United States and are classified as Level 1 assets or liabilities in the funds’ financial statements.  We may redeem our investments in these funds monthly with 30 days’ notice.

The following table presents information about the Company’s assets and liabilities by major categories measured at fair value on a recurring basis as of March 31, 2011, December 31, 2010 and March 31, 2010 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2011 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
March 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2011
 
Cash equivalents
  $ 161,946     $ -     $ -     $ 161,946  
Investments in partnerships
    -       28,473       -       28,473  
Investments in securities:
                               
  AFS - Common stocks
    37,408       -       -       37,408  
  AFS - Mutual funds
    68,238       -       -       68,238  
  Trading - Gov't obligations
    12,076       -       -       12,076  
  Trading - Common stocks
    225,008       13       568       225,589  
  Trading - Mutual funds
    1,654       -       -       1,654  
  Trading - Convertible bonds
    175       -       -       175  
  Trading - Other
    120       -       356       476  
Total investments in securities
    344,679       13       924       345,616  
Total investments
    344,679       28,486       924       374,089  
Total assets at fair value
  $ 506,625     $ 28,486     $ 924     $ 536,035  
Liabilities
                               
  Trading - Common stocks
  $ 15,550     $ -     $ -     $ 15,550  
Securities sold, not yet purchased
  $ 15,550     $ -     $ -     $ 15,550  
 
 
 
13

 
 
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2010 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
December 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2010
 
Cash equivalents
  $ 167,548     $ -     $ -     $ 167,548  
Investments in partnerships
    -       27,690       -       27,690  
Investments in securities:
                               
  AFS - Common stocks
    37,139       -       -       37,139  
  AFS - Mutual funds
    65,188       -       -       65,188  
  Trading - Gov't obligations
    27,288       -       -       27,288  
  Trading - Common stocks
    170,204       23       147       170,374  
  Trading - Mutual funds
    1,554       -       -       1,554  
  Trading - Convertible bonds
    620       -       -       620  
  Trading - Preferred stocks
    1,973       -       -       1,973  
  Trading - Other
    72       1,000       278       1,350  
Total investments in securities
    304,038       1,023       425       305,486  
Total investments
    304,038       28,713       425       333,176  
Total assets at fair value
  $ 471,586     $ 28,713     $ 425     $ 500,724  
Liabilities
                               
  Trading - Common stocks
  $ 19,299     $ -     $ -     $ 19,299  
Securities sold, not yet purchased
  $ 19,299     $ -     $ -     $ 19,299  
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2010 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
March 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2010
 
Cash equivalents
  $ 410,798     $ -     $ -     $ 410,798  
Investments in partnerships
    -       26,202       -       26,202  
Investments in securities:
                               
  AFS - Common stocks
    34,655       -       -       34,655  
  AFS - Mutual funds
    64,144       -       -       64,144  
  Trading - Gov't obligations
    1,348       -       -       1,348  
  Trading - Common stocks
    74,227       113       233       74,573  
  Trading - Mutual funds
    1,379       -       -       1,379  
  Trading - Convertible bonds
    749       -       -       749  
  Trading - Preferred stocks
    -       -       11       11  
  Trading - Other
    12       40       90       142  
Total investments in securities
    176,514       153       334       177,001  
Total investments
    176,514       26,355       334       203,203  
Total assets at fair value
  $ 587,312     $ 26,355     $ 334     $ 614,001  
Liabilities
                               
  Trading - Common stocks
  $ 9,052     $ -     $ -     $ 9,052  
  Trading - Other
    -       11       -       11  
Securities sold, not yet purchased
  $ 9,052     $ 11     $ -     $ 9,063  

 
 
14

 
 
 
The following tables present additional information about assets and liabilities by major categories measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2011 (in thousands)
 
                     
Total
                               
                     
Unrealized
                               
                     
Gains or
   
Total
                         
         
Total Realized and
   
(Losses)
   
Realized
               
 
       
   
December
   
Unrealized Gains or
   
Included in
   
and
               
Transfers
       
     31, 2010    
(Losses) in Income
   
Other
   
Unrealized
               
In and/or
       
   
Beginning
         
AFS
   
Comprehensive
   
Gains or
               
(Out) of
   
Ending
 
Asset
 
Balance
   
Trading
   
Investments
 
Income
   
(Losses)
   
Purchases
   </