ALLIANCEBERNSTEIN HOLDING L.P. - FORM 10-Q - EX-99.1 - EXHIBIT 99.1 ALLIANCEBERNSTEIN L.P. - July 23, 2020

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10-Q - 10-Q ALLIANCEBERNSTEIN HOLDING L.P. - ALLIANCEBERNSTEIN HOLDING L.P.ab-20200630x10q.htm
EX-32.2 - EXHIBIT 32.2 SECTION 906 CFO CERTIFICATION - ALLIANCEBERNSTEIN HOLDING L.P.ab-20200630xex322.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CEO CERTIFICATION - ALLIANCEBERNSTEIN HOLDING L.P.ab-20200630xex321.htm
EX-31.2 - EXHIBIT 31.2 SECTION 302 CFO CERTIFICATION - ALLIANCEBERNSTEIN HOLDING L.P.ab-20200630xex312.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CEO CERTIFICATION - ALLIANCEBERNSTEIN HOLDING L.P.ab-20200630xex311.htm

Exhibit 99.1
Part I
FINANCIAL INFORMATION
Item 1. Financial Statements
ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(in thousands, except unit amounts)
(unaudited)
 
June 30,
2020
 
December 31,
2019
ASSETS
Cash and cash equivalents
$
824,837

 
$
679,738

Cash and securities segregated, at fair value (cost: $1,877,798 and $1,090,443)
1,882,188

 
1,094,866

Receivables, net:
 

 
 

Brokers and dealers
165,776

 
97,966

Brokerage clients
1,563,333

 
1,536,674

AB funds fees
200,233

 
261,588

Other fees
134,645

 
148,744

Investments:
 

 
 

Long-term incentive compensation-related
53,611

 
50,902

Other
241,055

 
215,892

Assets of consolidated company-sponsored investment funds:
 
 
 
   Cash and cash equivalents
33,076

 
11,433

   Investments
234,096

 
581,004

   Other assets
7,897

 
19,810

Furniture, equipment and leasehold improvements, net
131,633

 
145,251

Goodwill
3,082,778

 
3,076,926

Intangible assets, net
54,489

 
55,366

Deferred sales commissions, net
58,583

 
36,296

Right-of-use assets
317,723

 
362,693

Other assets
341,821

 
330,943

Total assets
$
9,327,774

 
$
8,706,092

 
 
 
 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
Liabilities:
 

 
 

Payables:
 

 
 

Brokers and dealers
$
280,019

 
$
201,778

Securities sold not yet purchased
15,920

 
30,157

Brokerage clients
3,203,222

 
2,531,946

AB mutual funds
65,879

 
71,142

Accounts payable and accrued expenses
209,431

 
192,110

Lease liabilities
416,477

 
468,451

Liabilities of consolidated company-sponsored investment funds
26,422

 
31,017

Accrued compensation and benefits
479,717

 
276,829

Debt
685,000

 
560,000

Total liabilities
5,382,087

 
4,363,430

 
 
 
 

1

 
June 30,
2020
 
December 31,
2019
Commitments and contingencies (See Note 12)
 
 
 
Redeemable non-controlling interest
51,081

 
325,561

Capital:
 

 
 

General Partner
38,647

 
41,225

Limited partners: 268,620,187 and 270,380,314 units issued and outstanding
4,066,211

 
4,174,201

Receivables from affiliates
(9,167
)
 
(9,011
)
AB Holding Units held for long-term incentive compensation plans
(73,726
)
 
(76,310
)
Accumulated other comprehensive loss
(127,359
)
 
(113,004
)
Partners’ capital attributable to AB Unitholders
3,894,606

 
4,017,101

Total liabilities, redeemable non-controlling interest and capital
$
9,327,774

 
$
8,706,092

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

2

ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except per unit amounts)
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
 
Investment advisory and services fees
 
$
578,203

 
$
596,364

 
$
1,199,928

 
$
1,152,958

Bernstein research services
 
113,609

 
105,991

 
242,832

 
196,226

Distribution revenues
 
120,099

 
108,347

 
250,956

 
208,856

Dividend and interest income
 
12,692

 
27,654

 
33,157

 
55,000

Investment gains (losses)
 
24,189

 
10,949

 
(20,117
)
 
26,684

Other revenues
 
26,092

 
24,796

 
51,603

 
47,002

Total revenues
 
874,884

 
874,101

 
1,758,359

 
1,686,726

Less: Interest expense
 
3,435

 
16,302

 
12,754

 
33,465

Net revenues
 
871,449

 
857,799

 
1,745,605

 
1,653,261

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

Employee compensation and benefits
 
349,638

 
363,702

 
711,910

 
703,011

Promotion and servicing:
 
 
 
 
 
 

 
 

Distribution-related payments
 
125,678

 
116,254

 
265,823

 
222,247

Amortization of deferred sales commissions
 
6,622

 
3,241

 
12,148

 
6,743

Trade execution, marketing, T&E and other
 
44,288

 
57,550

 
99,898

 
107,198

General and administrative:
 
 
 
 
 
 

 
 

General and administrative
 
121,424

 
120,180

 
243,691

 
238,028

Real estate charges
 
5,526

 
548

 
5,526

 
548

Contingent payment arrangements
 
807

 
829

 
1,600

 
883

Interest on borrowings
 
1,096

 
3,990

 
3,930

 
7,973

Amortization of intangible assets
 
6,723

 
7,285

 
13,209

 
14,259

Total expenses
 
661,802

 
673,579

 
1,357,735

 
1,300,890

 
 
 
 
 
 
 
 
 
Operating income
 
209,647

 
184,220

 
387,870

 
352,371

 
 
 
 
 
 
 
 
 
Income taxes
 
11,386

 
10,211

 
20,860

 
19,132

 
 
 
 
 
 
 
 
 
Net income
 
198,261

 
174,009

 
367,010

 
333,239

 
 
 
 
 
 
 
 
 
Net income (loss) of consolidated entities attributable to non-controlling interests
 
20,940

 
7,757

 
(4,631
)
 
17,873

 
 
 
 
 
 
 
 
 
Net income attributable to AB Unitholders
 
$
177,321

 
$
166,252

 
$
371,641

 
$
315,366

 
 
 
 
 
 
 
 
 
Net income per AB Unit:
 
 

 
 

 
 

 
 

Basic
 
$
0.65

 
$
0.61

 
$
1.36

 
$
1.17

Diluted
 
$
0.65

 
$
0.61

 
$
1.36

 
$
1.17


See Accompanying Notes to Condensed Consolidated Financial Statements.

3

ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
Net income
 
$
198,261

 
$
174,009

 
$
367,010

 
$
333,239

Other comprehensive income (loss):
 
 

 
 

 
 
 
 
Foreign currency translation adjustments, before tax
 
6,317

 
(2,178
)
 
(15,079
)
 
452

Income tax benefit (expense)
 
67

 
(73
)
 
140

 
(150
)
Foreign currency translation adjustments, net of tax
 
6,384

 
(2,251
)
 
(14,939
)
 
302

Changes in employee benefit related items:
 
 

 
 

 
 
 
 
Amortization of prior service cost
 
6

 
6

 
12

 
12

Recognized actuarial gain
 
325

 
285

 
650

 
552

Changes in employee benefit related items
 
331

 
291

 
662

 
564

Income tax (expense) benefit
 
(1
)
 
25

 
(78
)
 
35

Employee benefit related items, net of tax
 
330

 
316

 
584

 
599

Other comprehensive income (loss)
 
6,714

 
(1,935
)
 
(14,355
)
 
901

Less: Comprehensive income (loss) in consolidated entities attributable to non-controlling interests
 
20,940

 
7,774

 
(4,631
)
 
17,870

Comprehensive income attributable to AB Unitholders
 
$
184,035

 
$
164,300

 
$
357,286

 
$
316,270

 
See Accompanying Notes to Condensed Consolidated Financial Statements.


4

ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Partners' Capital
(in thousands)
(unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
General Partner’s Capital
 
 
 
 
 
 
 
Balance, beginning of period
$
40,571

 
$
39,403

 
$
41,225

 
$
40,240

Net income
1,774

 
1,663

 
3,717

 
3,154

Cash distributions to General Partner
(3,396
)
 
(1,521
)
 
(5,938
)
 
(3,438
)
Long-term incentive compensation plans activity
3

 
12

 
5

 
185

(Retirement) issuance of AB Units, net
(305
)
 
459

 
(362
)
 
(125
)
Balance, end of period
38,647

 
40,016

 
38,647

 
40,016

Limited Partners' Capital
 
 
 
 
 
 
 
Balance, beginning of period
4,109,946

 
3,992,590

 
4,174,201

 
4,075,306

Net income
175,547

 
164,589

 
367,924

 
312,212

Cash distributions to Unitholders
(189,425
)
 
(150,465
)
 
(440,686
)
 
(340,033
)
Long-term incentive compensation plans activity
293

 
1,270

 
628

 
18,255

(Retirement) issuance of AB Units, net
(30,150
)
 
45,376

 
(35,856
)
 
(12,380
)
Balance, end of period
4,066,211

 
4,053,360

 
4,066,211

 
4,053,360

Receivables from Affiliates
 
 
 
 
 
 
 
Balance, beginning of period
(9,279
)
 
(11,666
)
 
(9,011
)
 
(11,430
)
Long-term incentive compensation awards expense
209

 
227

 
393

 
692

Capital contributions from AB Holding
(97
)
 
1,600

 
(549
)
 
899

Balance, end of period
(9,167
)
 
(9,839
)
 
(9,167
)
 
(9,839
)
AB Holding Units held for Long-term Incentive Compensation Plans
 
 
 
 
 
 
 
Balance, beginning of period
(81,314
)
 
(69,503
)
 
(76,310
)
 
(77,990
)
Purchases of AB Holding Units to fund long-term compensation plans, net
(29,665
)
 
94

 
(47,415
)
 
(58,358
)
Retirement (issuance) of AB Units, net
30,455

 
(45,860
)
 
36,218

 
12,480

Long-term incentive compensation awards expense
7,268

 
8,011

 
14,675

 
26,615

Re-valuation of AB Holding Units held in rabbi trust
(473
)
 
113

 
(909
)
 
(9,892
)
Other
3

 
6,692

 
15

 
6,692

Balance, end of period
(73,726
)
 
(100,453
)
 
(73,726
)
 
(100,453
)
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
Balance, beginning of period
(134,073
)
 
(108,012
)
 
(113,004
)
 
(110,866
)
Foreign currency translation adjustment, net of tax
6,384

 
(2,267
)
 
(14,939
)
 
304

Changes in employee benefit related items, net of tax
330

 
316

 
584

 
599

Balance, end of period
(127,359
)
 
(109,963
)
 
(127,359
)
 
(109,963
)

5

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Total Partners' Capital attributable to AB Unitholders
3,894,606

 
3,873,121

 
3,894,606

 
3,873,121

Non-redeemable Non-controlling Interests in Consolidated Entities
 

 
 

 
 
 
 

Balance, beginning of period
—

 
945

 
—

 
949

Net income
—

 
58

 
—

 
74

Foreign currency translation adjustment
—

 
17

 
—

 
(3
)
Balance, end of period
—

 
1,020

 
—

 
1,020

Total Capital
$
3,894,606

 
$
3,874,141

 
$
3,894,606

 
$
3,874,141

See Accompanying Notes to Condensed Consolidated Financial Statements.

6


ALLIANCEBERNSTEIN L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Six Months Ended June 30,
 
2020
 
2019
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
367,010

 
$
333,239

 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Amortization of deferred sales commissions
12,148

 
6,743

Non-cash long-term incentive compensation expense
15,068

 
27,307

Depreciation and other amortization
72,034

 
83,997

Unrealized losses (gains) on investments
13,637

 
(16,724
)
Unrealized losses (gains) on investments of consolidated company-sponsored investment funds
11,938

 
(32,173
)
Other, net
154

 
11,537

Changes in assets and liabilities:
 

 
 

(Increase) decrease in securities, segregated
(787,322
)
 
59,965

(Increase) decrease in receivables
(145,247
)
 
43,325

(Increase) decrease in investments
(42,626
)
 
506,061

Decrease (increase) in investments of consolidated company-sponsored investment funds
334,970

 
(86,566
)
(Increase) in deferred sales commissions
(34,435
)
 
(10,309
)
Decrease (increase) in right-of-use assets
5,278

 
(1,150
)
(Increase) in other assets
(9,909
)
 
(4,515
)
Increase in other assets and liabilities of consolidated company-sponsored investment funds, net
7,318

 
7,194

Increase (decrease) in payables
851,419

 
(440,029
)
(Decrease) in lease liabilities
(49,946
)
 
(59,924
)
Increase (decrease) in accounts payable and accrued expenses
(2,295
)
 
(61,705
)
Increase in accrued compensation and benefits
202,893

 
180,701

Net cash provided by operating activities
822,087

 
546,974

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchases of furniture, equipment and leasehold improvements
(6,531
)
 
(11,276
)
Acquisition of businesses, net of cash acquired
(13,552
)
 
5,255

Net cash used in investing activities
(20,083
)
 
(6,021
)
 
 
 
 

7

 
Six Months Ended June 30,
 
2020
 
2019
Cash flows from financing activities:
 

 
 

(Repayment) of commercial paper, net
—

 
(85,888
)
Proceeds of EQH Facility
125,000

 
—

(Repayment) of bank loans
—

 
(25,000
)
Increase (decrease) in overdrafts payable
16,570

 
(19,144
)
Distributions to General Partner and Unitholders
(446,624
)
 
(343,471
)
(Redemptions) subscriptions of non-controlling interest in consolidated company-sponsored investment funds, net
(269,849
)
 
49,026

Capital contributions (to) from affiliates
(971
)
 
495

Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units
147

 
8,951

Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net
(47,415
)
 
(58,358
)
Other
(958
)
 
291

Net cash (used in) financing activities
(624,100
)
 
(473,098
)
Effect of exchange rate changes on cash and cash equivalents
(11,162
)
 
(179
)
Net increase (decrease) in cash and cash equivalents
166,742

 
67,676

Cash and cash equivalents as of beginning of the period
691,171

 
653,324

Cash and cash equivalents as of end of the period
$
857,913

 
$
721,000

 
 
 
 
Non-cash investing activities:
 
 
 
Fair value of assets acquired (excluding cash acquired of $0.6 million and $11.8 million, respectively)
$
18,389

 
$
28,966

Fair value of liabilities assumed
$
437

 
$
16,837

 
 
 
 
Non-cash financing activities:
 
 
 
Payables recorded under contingent payment arrangements
$
4,400

 
$
17,384


See Accompanying Notes to Condensed Consolidated Financial Statements.

8

ALLIANCEBERNSTEIN L.P.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(unaudited)

The words “we” and “our” refer collectively to AllianceBernstein L.P. and its subsidiaries (“AB”), or to their officers and employees. Similarly, the word “company” refers to AB. These statements should be read in conjunction with AB’s audited consolidated financial statements included in AB’s Form 10-K for the year ended December 31, 2019.

1. Business Description Organization and Basis of Presentation

Business Description

We provide diversified investment management, research and related services globally to a broad range of clients. Our principal services include:

•
Institutional Services – servicing our institutional clients, including private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and affiliates such as Equitable Holdings, Inc. ("EQH") and its subsidiaries, by means of separately-managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles.

•
Retail Services – servicing our retail clients, primarily by means of retail mutual funds sponsored by AB or an affiliated company, sub-advisory relationships with mutual funds sponsored by third parties, separately-managed account programs sponsored by financial intermediaries worldwide and other investment vehicles.

•
Private Wealth Management Services – servicing our private clients, including high-net-worth individuals and families, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities, by means of separately-managed accounts, hedge funds, mutual funds and other investment vehicles.

•
Bernstein Research Services – servicing institutional investors, such as pension fund, hedge fund and mutual fund managers, seeking high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options.

We also provide distribution, shareholder servicing, transfer agency services and administrative services to the mutual funds we sponsor.
 
Our high-quality, in-depth research is the foundation of our business.  Our research disciplines include economic, fundamental equity, fixed income and quantitative research.  In addition, we have experts focused on multi-asset strategies, wealth management and alternative investments.

We provide a broad range of investment services with expertise in:

•
Actively-managed equity strategies, with global and regional portfolios across capitalization ranges, concentration ranges and investment strategies, including value, growth and core equities;

•Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;

•Passive management, including index and enhanced index strategies;

•
Alternative investments, including hedge funds, fund of funds, direct lending and private equity; and

•Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds.

Our services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term (e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging markets, regional and local), in major markets around the world.

9


Organization

During the second quarter of 2018, AXA S.A. ("AXA") completed the sale of a minority stake in EQH through an initial public offering ("IPO"). Since then, AXA has completed additional offerings and taken other steps, most recently during the fourth quarter of 2019. As a result, AXA owned less than 10% of the outstanding common stock of EQH as of June 30, 2020.

As of June 30, 2020, EQH owned approximately 4.2% of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in AllianceBernstein Holding L.P. (“AB Holding Units”). AllianceBernstein Corporation (an indirect wholly-owned subsidiary of EQH, “General Partner”) is the general partner of both AllianceBernstein Holding L.P. (“AB Holding”) and AB. AllianceBernstein Corporation owns 100,000 general partnership units in AB Holding and a 1% general partnership interest in AB.

As of June 30, 2020, the ownership structure of AB, including limited partnership units outstanding as well as the general partner's 1% interest, was as follows:

EQH and its subsidiaries
63.7
%
AB Holding
35.5

Unaffiliated holders
0.8

 
100.0
%

Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate 65.2% economic interest in AB as of June 30, 2020.

Basis of Presentation

The interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the interim results, have been made. The preparation of the condensed consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the interim reporting periods. Actual results could differ from those estimates. The condensed consolidated statement of financial condition as of December 31, 2019 was derived from audited financial statements, but it does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The condensed consolidated financial statements include AB and its majority-owned and/or controlled subsidiaries, and the consolidated entities that are considered to be variable interest entities (“VIEs”) and voting interest entities (“VOEs”) in which AB has a controlling financial interest. Non-controlling interests on the condensed consolidated statements of financial condition include the portion of consolidated company-sponsored investment funds in which we do not have direct equity ownership. All significant inter-company transactions and balances among the consolidated entities have been eliminated.

Reclassifications

During 2020, prior period amounts for the changes in right-of-use assets and lease liabilities previously presented with amounts related to the adoption of ASC 842 in our Condensed Consolidated Statement of Cash Flows are now presented net of the adoption impact of ASU 842 to conform to the current period's presentation.


10


2.
Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This new guidance relates to the accounting for credit losses on financial instruments and introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which had required a hypothetical purchase price allocation. As a result of the revised guidance, a goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendment modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements that currently exist in GAAP for capitalizing implementation costs incurred to develop or obtain internal-use software. Implementation costs would either be capitalized or expensed as incurred depending on the project stage. All costs in the preliminary and post-implementation project stages are expensed as incurred, while certain costs within the application development stage are capitalized. We adopted this standard prospectively on January 1, 2020. The adoption of this standard did not have a material impact on our financial condition or results of operations.

Accounting Pronouncements Not Yet Adopted in 2020

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20). The amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The revised guidance is effective for financial statements issued for fiscal years beginning after December 15, 2020, with early adoption permitted. The revised guidance will not have a material impact on our financial condition or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The revised guidance is effective for financial statements issued for fiscal years beginning after December 15, 2020, with early adoption permitted. The revised guidance will not have a material impact on our financial condition or results of operations.

Goodwill

Goodwill is tested annually, as of September 30, for impairment. Throughout the year, the carrying value of goodwill is also reviewed for impairment if certain events or changes in circumstances occur, and trigger whether an interim impairment test may be required. Such changes in circumstances may be, but not limited to, sustained decrease in AB Holding Unit price or declines in market capitalization that would suggest that the fair value of the reporting unit is less than the carrying amount; significant and unanticipated declines in assets under management, revenues, or lower than expected earnings in the current quarter, next quarter or year. Any of these changes in circumstances could suggest the possibility that goodwill is impaired, however, none of these events or circumstances by itself would indicate that it is more likely than not that goodwill is impaired, they are merely recognized as triggering events for the consideration of impairment and must be viewed in combination with any mitigating or positive factors. A holistic evaluation of all events since the most recent quantitative impairment test must be done to determine whether it is more likely than not that the reporting unit is impaired.

11


As of January 1, 2020, we adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which had required a hypothetical purchase price allocation. As a result of the revised guidance, a goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Under this guidance, the goodwill impairment test no longer includes a determination by management of whether a decline in fair value is temporary; however, it is important to consider how the severity and anticipated duration of the current market conditions is reflected in management's determination of fair value. We have determined that AB has only one reporting segment and reporting unit.

3. Revenue Recognition

Revenues for the three and six months ended June 30, 2020 and 2019 consisted of the following:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
(in thousands)
Subject to contracts with customers:
 
 
 
 
 
 
 
 
    Investment advisory and services fees
 
 
 
 
 
 
 
 
        Base fees
 
$
569,296

 
$
585,077

 
$
1,182,883

 
$
1,137,307

        Performance-based fees
 
8,907

 
11,287

 
17,045

 
15,651

    Bernstein research services
 
113,609

 
105,991

 
242,832

 
196,226

    Distribution revenues
 
 
 
 
 
 
 
 
        All-in-management fees
 
75,828

 
68,494

 
162,185

 
130,267

        12b-1 fees
 
17,830

 
20,182

 
37,283

 
39,768

        Other
 
26,441

 
19,671

 
51,488

 
38,821

    Other revenues
 
 
 
 
 
 
 
 
        Shareholder servicing fees
 
19,694

 
19,563

 
40,537

 
37,393

        Other
 
5,790

 
4,496

 
10,462

 
8,514

 
 
837,395

 
834,761

 
1,744,715

 
1,603,947

Not subject to contracts with customers:
 
 
 
 
 
 
 
 
    Dividend and interest income, net of interest expense
 
9,257

 
11,352

 
20,403

 
21,535

    Investment (losses) gains
 
24,189

 
10,949

 
(20,117
)
 
26,684

    Other revenues
 
608

 
737

 
604

 
1,095

 
 
34,054

 
23,038

 
890

 
49,314

 
 
 
 
 
 
 
 
 
Total net revenues
 
$
871,449

 
$
857,799

 
$
1,745,605

 
$
1,653,261


4.
Long-term Incentive Compensation Plans

We maintain several unfunded, non-qualified long-term incentive compensation plans, under which we grant annual awards to employees, generally in the fourth quarter, and to members of the Board of Directors of the General Partner, who are not employed by our company or by any of our affiliates (“Eligible Directors”).

We fund our restricted AB Holding Unit awards either by purchasing AB Holding Units on the open market or purchasing newly-issued AB Holding Units from AB Holding, and then keeping these AB Holding Units in a consolidated rabbi trust until delivering them or retiring them. In accordance with the Amended and Restated Agreement of Limited Partnership of AB (“AB Partnership Agreement”), when AB purchases newly-issued AB Holding Units from AB Holding, AB Holding is required to use the proceeds it receives from AB to purchase the equivalent number of newly-issued AB Units, thus increasing its percentage ownership interest in AB. AB Holding Units held in the consolidated rabbi trust are corporate assets in the name of the trust and are available to the general creditors of AB.


12

Repurchases of AB Holding Units for the three and six months ended June 30, 2020 and 2019 consisted of the following:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
(in millions)
Total amount of AB Holding Units Purchased (1)
 
1.3

 
—

 
2.2

 
2.0

Total Cash Paid for AB Holding Units Purchased (1)
 
$
27.8

 
$
—

 
$
47.6

 
$
58.6

Open Market Purchases of AB Holding Units Purchased (2)
 
1.3

 
—

 
2.2

 
1.9

Total Cash Paid for Open Market Purchases of AB Holding Units (2)
 
$
27.8

 
$
—

 
$
45.1

 
$
55.2

(1) Purchased on a trade date basis. 
(2) The remainder related to purchases of AB Holding Units from employees to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation award. 
Purchases of AB Holding Units reflected on the condensed consolidated statements of cash flows are net of AB Holding Unit purchases by employees as part of a distribution reinvestment election.

Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended ("Exchange Act"). A plan of this type allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it possesses material non-public information. Each broker we select has the authority under the terms and limitations specified in the plan to repurchase AB Holding Units on our behalf in accordance with the terms of the plan. Repurchases are subject to regulations promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the second quarter of 2020 expired at the close of business on July 22, 2020. We may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program and for other corporate purposes.

During the first six months of 2020 and 2019, we granted to employees and Eligible Directors 0.2 million and 1.7 million restricted AB Holding Unit awards, respectively. We used AB Holding Units repurchased during the applicable period and newly-issued AB Holding Units to fund these awards.

During the first six months of 2020 and 2019, AB Holding issued 5,182 and 0.4 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $0.1 million and $9.0 million, respectively, received from award recipients as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.


13

5.
Net Income per Unit

Basic net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99% by the basic weighted average number of limited partnership units outstanding for each period. Diluted net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99% by the total of the diluted weighted average number of limited partnership units outstanding for each period.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
(in thousands, except per unit amounts)
Net income attributable to AB Unitholders
 
$
177,321

 
$
166,252

 
$
371,641

 
$
315,366

 
 
 
 
 
 
 
 
 
Weighted average limited partnership units outstanding – basic
 
269,081

 
268,475

 
269,789

 
267,909

Dilutive effect of compensatory options to buy AB Holding Units
 
9

 
48

 
22

 
60

Weighted average limited partnership units outstanding – diluted
 
269,090

 
268,523

 
269,811

 
267,969

Basic net income per AB Unit
 
$
0.65

 
$
0.61

 
$
1.36

 
$
1.17

Diluted net income per AB Unit
 
$
0.65

 
$
0.61

 
$
1.36

 
$
1.17


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
(amounts as shown)
Anti-dilutive options excluded from diluted net income
 
44,877

 
29,056

 
44,877

 
29,056


6. Cash Distributions

AB is required to distribute all of its Available Cash Flow, as defined in the AB Partnership Agreement, to its Unitholders and to the General Partner. Available Cash Flow can be summarized as the cash flow received by AB from operations minus such amounts as the General Partner determines, in its sole discretion, should be retained by AB for use in its business, or plus such amounts as the General Partner determines, in its sole discretion, should be released from previously retained cash flow.

Typically, Available Cash Flow has been the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available Cash Flow will be based on adjusted diluted net income per unit, unless management determines, with the concurrence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation.

On July 23, 2020, the General Partner declared a distribution of $0.68 per AB Unit, representing a distribution of Available Cash Flow for the three months ended June 30, 2020. The General Partner, as a result of its 1% general partnership interest, is entitled to receive 1% of each distribution. The distribution is payable on August 20, 2020 to holders of record on August 3, 2020.

7.
Cash and Securities Segregated Under Federal Regulations and Other Requirements

As of June 30, 2020 and December 31, 2019, $1.9 billion and $1.1 billion, respectively, of U.S. Treasury Bills were segregated in a special reserve bank custody account for the exclusive benefit of our brokerage customers under Rule 15c3-3 of the Exchange Act.


14

8.
Investments

Investments consist of:
 
June 30,
2020
 
December 31,
2019
 
(in thousands)
Equity securities:
 
 
 
    Long-term incentive compensation-related
$
30,064

 
$
36,665

    Seed capital
128,363

 
70,464

    Other
53,117

 
73,202

Exchange-traded options
12,151

 
6,931

Investments in limited partnership hedge funds:
 

 
 

Long-term incentive compensation-related
23,547

 
14,237

Seed capital
16,463

 
33,124

Time deposits
17,418

 
18,281

Other
13,543

 
13,890

Total investments
$
294,666

 
$
266,794


Total investments related to long-term incentive compensation obligations of $53.6 million and $50.9 million as of June 30, 2020 and December 31, 2019, respectively, consist of company-sponsored mutual funds and hedge funds. For long-term incentive compensation awards granted before 2009, we typically made investments in company-sponsored mutual funds and hedge funds that were notionally elected by plan participants and maintained them (and continue to maintain them) in a consolidated rabbi trust or separate custodial account. The rabbi trust and custodial account enable us to hold such investments separate from our other assets for the purpose of settling our obligations to participants. The investments held in the rabbi trust and custodial account remain available to the general creditors of AB.

The underlying investments of the hedge funds in which we invest include long and short positions in equity securities, fixed income securities (including various agency and non-agency asset-based securities), currencies, commodities and derivatives (including various swaps and forward contracts). These investments are valued at quoted market prices or, where quoted market prices are not available, are fair valued based on the pricing policies and procedures of the underlying funds.

We allocate seed capital to our investment teams to help develop new products and services for our clients. A portion of our seed capital investments are equity and fixed income products, primarily in the form of separately-managed account portfolios, U.S. mutual funds, Luxembourg funds, Japanese investment trust management funds or Delaware business trusts. We also may allocate seed capital to investments in private equity funds. In regard to our seed capital investments, the amounts above reflect those funds in which we are not the primary beneficiary of a VIE or hold a controlling financial interest in a VOE. See Note 14, Consolidated Company-Sponsored Investment Funds, for a description of the seed capital investments that we consolidate. As of June 30, 2020 and December 31, 2019, our total seed capital investments were $342.0 million and $358.1 million, respectively. Seed capital investments in unconsolidated company-sponsored investment funds are valued using published net asset values or non-published net asset values if they are not listed on an active exchange but have net asset values that are comparable to funds with published net asset values and have no redemption restrictions.

In addition, we also have long positions in corporate equities and long exchange-traded options traded through our options desk.


15

The portion of unrealized gains (losses) related to equity securities, as defined by ASC 321-10, held as of June 30, 2020 and 2019 were as follows:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
(in thousands)
Net gains (losses) recognized during the period
 
$
14,386

 
$
7,586

 
$
(7,600
)
 
$
21,580

Less: net gains recognized during the period on equity securities sold during the period
 
7,471

 
1,409

 
6,076

 
4,541

Unrealized gains (losses) recognized during the period on equity securities held
 
$
6,915

 
$
6,177

 
$
(13,676
)
 
$
17,039


9.
Derivative Instruments

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of derivative instruments held by our consolidated company-sponsored investment funds.

We implement various futures, forwards, options and swaps to economically hedge certain seed capital investments.  Also, we have currency forwards that help us to economically hedge certain balance sheet exposures. In addition, our options desk trades long and short exchange-traded equity options. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging.

The notional value and fair value as of June 30, 2020 and December 31, 2019 for derivative instruments (excluding derivative instruments relating to our options desk trading activities discussed below) not designated as hedging instruments were as follows:

 
 
 
Fair Value
 
Notional Value
 
Derivative Assets
 
Derivative Liabilities
 
(in thousands)
June 30, 2020:
 
 
 
 
 
Exchange-traded futures
$
173,988

 
$
113

 
$
1,126

Currency forwards
87,263

 
8,339

 
7,873

Interest rate swaps
79,327

 
2,512

 
3,328

Credit default swaps
217,575

 
11,957

 
10,793

Total return swaps
86,431

 
599

 
2,143

Option swaps
2,466

 
704

 
1,363

Total derivatives
$
647,050

 
$
24,224

 
$
26,626

 
 
 
 
 
 
December 31, 2019:
 
 
 
 
 
Exchange-traded futures
$
171,112

 
$
939

 
$
871

Currency forwards
60,809

 
8,545

 
8,633

Interest rate swaps
92,756

 
1,746

 
2,254

Credit default swaps
168,303

 
2,151

 
5,611

Total return swaps
91,201

 
110

 
1,764

Option swaps
354

 
—

 
126

Total derivatives
$
584,535

 
$
13,491

 
$
19,259


As of June 30, 2020 and December 31, 2019, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our condensed consolidated statements of financial condition.


16

The gains and losses for derivative instruments (excluding our options desk trading activities discussed below) for the three and six months ended June 30, 2020 and 2019 recognized in investment gains (losses) in the condensed consolidated statements of income were as follows:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
Exchange-traded futures
$
(5,818
)
 
$
(3,436
)
 
$
(4,812
)
 
$
(8,551
)
Currency forwards
(212
)
 
(75
)
 
446

 
(115
)
Interest rate swaps
225

 
(331
)
 
(387
)
 
(645
)
Credit default swaps
(4,311
)
 
(1,465
)
 
7,790

 
(3,805
)
Total return swaps
(18,966
)
 
(3,810
)
 
(3,851
)
 
(15,766
)
Option swaps
(1,831
)
 
—

 
(533
)
 
—

Net (losses) on derivative instruments
$
(30,913
)
 
$
(9,117
)
 
$
(1,347
)
 
$
(28,882
)

We may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. We minimize our counterparty exposure through a credit review and approval process. In addition, we have executed various collateral arrangements with counterparties to the over-the-counter derivative transactions that require both pledging and accepting collateral in the form of cash. As of June 30, 2020 and December 31, 2019, we held $0.8 million and $0.3 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in payables to brokers and dealers in our condensed consolidated statements of financial condition.

Although notional amount is the most commonly used measure of volume in the derivative market, it is not used as a measure of credit risk. Generally, the current credit exposure of our derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received. A derivative with positive value (a derivative asset) indicates existence of credit risk because the counterparty would owe us if the contract were closed. Alternatively, a derivative contract with negative value (a derivative liability) indicates we would owe money to the counterparty if the contract were closed. Generally, if there is more than one derivative transaction with a single counterparty, a master netting arrangement exists with respect to derivative transactions with that counterparty to provide for aggregate net settlement.

Certain of our standardized contracts for over-the-counter derivative transactions (“ISDA Master Agreements”) contain credit risk related contingent provisions pertaining to each counterparty’s credit rating. In some ISDA Master Agreements, if the counterparty’s credit rating, or in some agreements, our assets under management (“AUM”), falls below a specified threshold, a termination event permitting us or the counterparty to terminate the ISDA Master Agreement would be triggered. In all agreements that provide for collateralization, various levels of collateralization of net liability positions are applicable, depending on the credit rating of the counterparty. As of June 30, 2020 and December 31, 2019, we delivered $5.9 million and $4.3 million, respectively, of cash collateral into brokerage accounts. We report this cash collateral in cash and cash equivalents in our condensed consolidated statements of financial condition.

As of June 30, 2020 and December 31, 2019, we held $12.2 million and $6.9 million, respectively, of long exchange-traded equity options, which are included in other investments on our condensed consolidated statements of financial condition. In addition, as of June 30, 2020 and December 31, 2019, we held $9.4 million and $12.3 million, respectively, of short exchange-traded equity options, which are included in securities sold not yet purchased on our condensed consolidated statements of financial condition. Our options desk provides our clients with equity derivative strategies and execution for exchange-traded options on single stocks, exchange-traded funds and indices. While predominately agency-based, the options desk may commit capital to facilitate a client’s transaction. Our options desk hedges the risks associated with this activity by taking offsetting positions in equities. For the three and six months ended June 30, 2020, we recognized losses of $18.5 million and $0.1 million, respectively, on equity option activity. For the three and six months ended June 30, 2019, we recognized losses of $3.5 million and $11.1 million, respectively, on equity option activity. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income.

17

10.
Offsetting Assets and Liabilities

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of offsetting assets and liabilities of our consolidated company-sponsored investment funds.

Offsetting of assets as of June 30, 2020 and December 31, 2019 was as follows:
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Condition
 
Net Amounts of Assets Presented in the Statement of Financial Condition
 
Financial
Instruments
 
Cash Collateral
Received
 
Net
Amount
 
(in thousands)
June 30, 2020:
 
 
 
 
 
 
 
 
 
 
 
Securities borrowed
$
18,109

 
$
—

 
$
18,109

 
$
(17,539
)
 
$
—

 
$
570

Derivatives
$
24,224

 
$
—

 
$
24,224

 
$
—

 
$
(810
)
 
$
23,414

Long exchange-traded options
$
12,151

 
$
—

 
$
12,151

 
$
—

 
$
—

 
$
12,151

December 31, 2019:
 

 
 

 
 

 
 

 
 

 
 

Securities borrowed
$
38,993

 
$
—

 
$
38,993

 
$
(38,993
)
 
$
—

 
$
—

Derivatives
$
13,491

 
$
—

 
$
13,491

 
$
—

 
$
(251
)
 
$
13,240

Long exchange-traded options
$
6,931

 
$
—

 
$
6,931

 
$
—

 
$
—

 
$
6,931

       
Offsetting of liabilities as of June 30, 2020 and December 31, 2019 was as follows:
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Condition
 
Net Amounts of Liabilities Presented in the Statement of Financial Condition
 
Financial
Instruments
 
Cash Collateral
Pledged
 
Net Amount
 
(in thousands)
June 30, 2020:
 
 
 
 
 
 
 
 
 
 
 
Securities loaned
$
16,369

 
$
—

 
$
16,369

 
$
(16,155
)
 
$
—

 
$
214

Derivatives
$
26,626

 
$
—

 
$
26,626

 
$
—

 
$
(5,884
)
 
$
20,742

Short exchange-traded options
$
9,379

 
$
—

 
$
9,379

 
$
—

 
$
—

 
$
9,379

December 31, 2019:
 

 
 

 
 

 
 

 
 

 
 

Derivatives
$
19,259

 
$
—

 
$
19,259

 
$
—

 
$
(4,276
)
 
$
14,983

Short exchange-traded options
$
12,348

 
$
—

 
$
12,348

 
$
—

 
$
—

 
$
12,348


Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty.

18

11.
Fair Value

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of fair value of our consolidated company-sponsored investment funds.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The three broad levels of fair value hierarchy are as follows:

•    Level 1 – Quoted prices in active markets are available for identical assets or liabilities as of the reported date.

•
Level 2 – Quoted prices in markets that are not active or other pricing inputs that are either directly or indirectly observable as of the reported date.

•
Level 3 –  Prices or valuation techniques that are both significant to the fair value measurement and unobservable as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
Assets and Liabilities Measured at Fair Value on a Recurring Basis

Valuation of our financial instruments by pricing observability levels as of June 30, 2020 and December 31, 2019 was as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
NAV Expedient(1)
 
Other
 
Total
June 30, 2020:
 
 
 
 
 
 
 
 
 
 
 
Money markets
$
126,249

 
$
—

 
$
—

 
$
—

 
$
—

 
$
126,249

Securities segregated (U.S. Treasury Bills)
—

 
1,882,188

 
—

 
—

 
—

 
1,882,188

Derivatives
113

 
24,111

 
—

 
—

 
—

 
24,224

Investments
 
 
 
 
 
 
 
 
 
 
 
  Equity securities
191,831

 
19,425

 
114

 
174

 
—

 
211,544

Long exchange-traded options
12,151

 
—

 
—

 
—

 
—

 
12,151

   Limited partnership hedge funds(2)
—

 
—

 
—

 
—

 
40,010

 
40,010

   Time deposits(3)
—

 
—

 
—

 
—

 
17,418

 
17,418

   Other investments
5,675

 
—

 
—

 
—

 
7,868

 
13,543

Total investments
209,657

 
19,425

 
114

 
174

 
65,296

 
294,666

Total assets measured at fair value
$
336,019

 
$
1,925,724

 
$
114

 
$
174

 
$
65,296

 
$
2,327,327

 
 
 
 
 
 
 
 
 
 
 
 
Securities sold not yet purchased
 

 
 

 
 

 
 
 
 
 
 

Short equities – corporate
$
6,541

 
$
—

 
$
—

 
$
—

 
$
—

 
$
6,541

Short exchange-traded options
9,379

 
—

 
—

 
—

 
—

 
9,379

Derivatives
1,126

 
25,500

 
—

 
—

 
—

 
26,626

Contingent payment arrangements
—

 
—

 
28,910

 
—

 
—

 
28,910

Total liabilities measured at fair value
$
17,046

 
$
25,500

 
$
28,910

 
$
—

 
$
—

 
$
71,456

 
 
 
 
 
 
 
 
 
 
 
 

19

 
Level 1
 
Level 2
 
Level 3
 
NAV Expedient(1)
 
Other
 
Total
December 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
Money markets
$
126,401

 
$
—

 
$
—

 
$
—

 
$
—

 
$
126,401

Securities segregated (U.S. Treasury Bills)
—

 
1,094,866

 
—

 
—

 
—

 
1,094,866

Derivatives
939

 
12,552

 
—

 
—

 
—

 
13,491

Investments
 
 
 
 
 
 
 
 
 
 
 
  Equity securities
170,946

 
8,952

 
119

 
314

 
—

 
180,331

  Long exchange-traded options
6,931

 
—

 
—

 
—

 
—

 
6,931

    Limited partnership hedge funds(2)
—

 
—

 
—

 
—

 
47,361

 
47,361

    Time deposits(3)
—

 
—

 
—

 
—

 
18,281

 
18,281

    Other investments
5,883

 
—

 
—

 
—

 
8,007

 
13,890

Total investments
183,760

 
8,952

 
119

 
314

 
73,649

 
266,794

Total assets measured at fair value
$
311,100

 
$
1,116,370

 
$
119

 
$
314

 
$
73,649

 
$
1,501,552

 
 
 
 
 
 
 
 
 
 
 
 
Securities sold not yet purchased
 

 
 

 
 

 
 
 
 
 
 

Short equities – corporate
$
17,809

 
$
—

 
$
—

 
$
—

 
$
—

 
$
17,809

Short exchange-traded options
12,348

 
—

 
—

 
—

 
—

 
12,348

Derivatives
871

 
18,388

 
—

 
—

 
—

 
19,259

Contingent payment arrangements
—

 
—

 
22,911

 
—

 
—

 
22,911

Total liabilities measured at fair value
$
31,028

 
$
18,388

 
$
22,911

 
$
—

 
$
—

 
$
72,327


(1) Investments measured at fair value using NAV (or its equivalent) as a practical expedient.
(2) Investments in equity method investees that are not measured at fair value in accordance with GAAP.
(3) Investments carried at amortized cost that are not measured at fair value in accordance with GAAP.

Other investments include (i) an investment in a software publishing company that does not have a readily available fair value ($2.0 million and $1.0 million as of June 30, 2020 and December 31, 2019, respectively), (ii) an investment in a start-up company that does not have a readily available fair value (this investment was zero as of June 30, 2020 and was $0.9 million as of December 31, 2019), (iii) an investment in an equity method investee that is not measured at fair value in accordance with GAAP ($2.7 million as of June 30, 2020 and $2.9 million as of December 31, 2019), and (iv) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($3.2 million as of both June 30, 2020 and December 31, 2019).
We provide below a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

•
Money markets: We invest excess cash in various money market funds that are valued based on quoted prices in active markets; these are included in Level 1 of the valuation hierarchy.

•
Treasury Bills: We hold U.S. Treasury Bills, which are primarily segregated in a special reserve bank custody account as required by Rule 15c3-3 of the Exchange Act. These securities are valued based on quoted yields in secondary markets and are included in Level 2 of the valuation hierarchy.

•
Equity securities: Our equity securities consist principally of company-sponsored mutual funds with NAVs and various separately-managed portfolios consisting primarily of equity and fixed income mutual funds with quoted prices in active markets, which are included in Level 1 of the valuation hierarchy. In addition, some securities are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.

•
Derivatives: We hold exchange-traded futures with counterparties that are included in Level 1 of the valuation hierarchy. In addition, we also hold currency forward contracts, interest rate swaps, credit default swaps, option swaps and total return swaps with counterparties that are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.

20


•    Options: We hold long exchange-traded options that are included in Level 1 of the valuation hierarchy.

•
Securities sold not yet purchased: Securities sold not yet purchased, primarily reflecting short positions in equities and exchange-traded options, are included in Level 1 of the valuation hierarchy.

•
Contingent payment arrangements: Contingent payment arrangements relate to contingent payment liabilities associated with various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.
During the six months ended June 30, 2020 there were no transfers between Level 2 and Level 3 securities.
The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as private equity and equity securities, is as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
(in thousands)
Balance as of beginning of period
 
$
118

 
$
115

 
$
119

 
$
142

Purchases
 
—

 
—

 
—

 
—

Sales
 
—

 
—

 
—

 
—

Realized gains (losses), net
 
—

 
—

 
—

 
—

Unrealized gains (losses), net
 
(4
)
 
2

 
(5
)
 
(25
)
Balance as of end of period
 
$
114

 
$
117

 
$
114

 
$
117


Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the condensed consolidated statements of income.
As part of acquisitions made by the Company, we may enter into contingent consideration arrangements as part of the purchase price. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment arrangements, is as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
(in thousands)
Balance as of beginning of period
 
$
23,704

 
$
7,390

 
$