Edgar Filing: GAMCO INVESTORS, INC. ET AL

form10q033111.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

[ ]	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

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

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

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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

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

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		Sales			Level 3		Balance
Financial
instruments owned:
Trading - Common
stocks	$	147	$	21	$	-	$	-	$	21	$	400	$	-		$	-	$	568
Trading - Other		278		126		-		-		126		-		(48	)		-		356
Total	$	425	$	147	$	-	$	-	$	147	$	400	$	(48	)	$	-	$	924

There were no transfers between any levels during the three months ended March 31, 2011.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2010 (in thousands)

Total