Document
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
 Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-34516
Cowen Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
27-0423711
(I.R.S. Employer
Identification No.)
599 Lexington Avenue
New York, New York
(Address of Principal Executive Offices)
10022
(Zip Code)
(646) 562-1000
(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 Q    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  Q  No o 
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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
 
Accelerated filer Q
 
Non-accelerated filer o
(Do not check if a smaller
reporting company)
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No Q
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 28, 2016 there were 107,314,244 shares of the registrant's common stock outstanding.
 



Table of Contents

Item No.
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





2




Special Note Regarding Forward-Looking Statements
We have made statements in this Quarterly Report on Form 10-Q (including in “Management's Discussion and Analysis of Financial Condition and Results of Operations”) that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking terms such as “may,” “might,” “will,” “would,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “possible,” “potential,” “intend,” “seek” or “continue,” the negative of these terms and other comparable terminology or similar expressions. In addition, our management may make forward-looking statements to analysts, representatives of the media and others. These forward-looking statements represent only the Company's beliefs regarding future events (many of which, by their nature, are inherently uncertain and beyond our control) and are predictions only, based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the risks contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 as well as Item 1A of this periodic report on Form 10-Q for the quarterly period ended September 30, 2016.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update any of these forward-looking statements after the date of this filing to conform our prior statements to actual results or revised expectations.
Unaudited Condensed Consolidated Financial Statements are presented for the three and nine months ended September 30, 2016 and 2015. The Consolidated Financial Statements as of December 31, 2015 were audited.




3

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Cowen Group, Inc.
Condensed Consolidated Statements of Financial Condition
(dollars in thousands, except share and per share data)
(unaudited)
 
As of September 30, 2016
 
As of December 31, 2015
Assets
 
 
 
Cash and cash equivalents
$
76,925

 
$
158,485

Cash collateral pledged
13,783

 
10,085

Securities owned, at fair value
544,644

 
610,234

Receivable on derivative contracts, at fair value
27,428

 
39,618

Other investments
167,450

 
140,647

Receivable from brokers
77,631

 
117,757

Fees receivable, net of allowance
45,787

 
34,413

Due from related parties
32,539

 
39,659

Fixed assets, net of accumulated depreciation and amortization of $24,170 and $29,953, respectively
43,463

 
27,231

Goodwill
60,678

 
58,361

Intangible assets, net of accumulated amortization of $28,114 and $28,301, respectively
27,073

 
25,663

Deferred tax asset, net
151,237

 
143,560

Other assets
53,081

 
71,531

Consolidated Funds
 
 
 
Cash and cash equivalents
10,370

 
13,934

Securities owned, at fair value
71,456

 
32,000

Receivable on derivative contracts, at fair value
429

 

Other investments
391,872

 
263,818

Receivable from brokers
5,333

 

Other assets
999

 
663

Total Assets
$
1,802,178

 
$
1,787,659

Liabilities and Stockholders' Equity
 
 
 
Liabilities
 
 
 
Securities sold, not yet purchased, at fair value
$
212,183

 
$
257,159

Payable for derivative contracts, at fair value
17,021

 
21,183

Payable to brokers
127,216

 
131,789

Compensation payable
59,103

 
150,403

Notes payable and other debt
78,357

 
68,565

Convertible debt
128,065

 
122,401

Fees payable
6,637

 
5,638

Due to related parties
257

 
329

Accounts payable, accrued expenses and other liabilities
62,496

 
52,233

Consolidated Funds
 
 
 
Due to related parties

 
3

Contributions received in advance

 
850

Securities sold, not yet purchased, at fair value
1,540

 

Payable to brokers
3,132

 

Payable for derivative contracts, at fair value
276

 

Capital withdrawals payable
2,378

 
78

Accounts payable, accrued expenses and other liabilities
410

 
124

Total Liabilities
699,071

 
810,755

Commitments and Contingencies (Note 12)

 

Redeemable non-controlling interests
331,883

 
186,911

Stockholders' equity
 
 
 
Preferred stock, par value $0.01 per share: 10,000,000 shares authorized, 120,750 shares issued and outstanding as of September 30, 2016 (aggregate liquidation preference of $120,750,000) and 120,750 shares issued and outstanding as of as of December 31, 2015 (aggregate liquidation preference of $120,750,000), respectively
1

 
1

Class A common stock, par value $0.01 per share: 250,000,000 shares authorized, 146,131,829 shares issued and 107,314,157 outstanding as of September 30, 2016 and 140,120,392 shares issued and 105,604,658 outstanding as of December 31, 2015, respectively (including 648,704 and 497,570 restricted shares, respectively)
1,167

 
1,167

Class B common stock, par value $0.01 per share: 250,000,000 authorized, no shares issued and outstanding

 

Additional paid-in capital
921,062

 
902,554

(Accumulated deficit) retained earnings
1,160

 
23,627

Accumulated other comprehensive income (loss)
(3
)
 

Less: Class A common stock held in treasury, at cost, 38,817,672 and 34,515,734 shares, respectively
(152,163
)
 
(137,356
)
Total Stockholders' Equity
771,224

 
789,993

Total Liabilities and Stockholders' Equity
$
1,802,178

 
$
1,787,659

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


Table of Contents

Cowen Group, Inc.
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Investment banking
$
36,722

 
$
53,012

 
$
98,156

 
$
186,763

Brokerage
49,605

 
41,085

 
147,640

 
111,496

Management fees
10,272

 
10,519

 
31,951

 
31,169

Incentive income
1,284

 
93

 
2,823

 
365

Interest and dividends
3,906

 
3,604

 
11,664

 
9,846

Reimbursement from affiliates
2,140

 
3,355

 
8,268

 
10,499

Aircraft lease revenue
1,089

 

 
3,071

 

Other revenues
25,112

 
1,312

 
41,183

 
2,684

Consolidated Funds
 
 
 
 
 
 
 
Interest and dividends
904

 
245

 
3,518

 
685

Other revenues
(7
)
 
29

 
1,023

 
449

Total revenues
131,027

 
113,254

 
349,297

 
353,956

Expenses
 
 
 
 
 
 
 
Employee compensation and benefits
98,501

 
56,401

 
217,309

 
227,593

Floor brokerage and trade execution
8,224

 
6,415

 
23,887

 
18,418

Interest and dividends
7,612

 
7,367

 
21,866

 
19,241

Professional, advisory and other fees
5,305

 
6,392

 
16,585

 
16,874

Service fees
2,075

 
1,778

 
6,334

 
5,338

Communications
4,619

 
3,478

 
13,287

 
10,313

Occupancy and equipment
8,033

 
7,286

 
23,911

 
21,024

Depreciation and amortization
3,174

 
2,301

 
9,654

 
6,584

Client services and business development
6,349

 
5,132

 
20,335

 
18,316

Other expenses
11,898

 
3,783

 
32,328

 
11,442

Consolidated Funds
 
 
 
 
 
 
 
Interest and dividends
1,665

 
366

 
4,292

 
858

Professional, advisory and other fees
337

 
174

 
959

 
476

Floor brokerage and trade execution
173

 
(20
)
 
306

 
46

Other expenses
294

 
114

 
871

 
246

Total expenses
158,259

 
100,967

 
391,924

 
356,769

Other income (loss)
 
 
 
 
 
 
 
Net gains (losses) on securities, derivatives and other investments
26,153

 
(23,612
)
 
9,123

 
24,449

Consolidated Funds
 
 
 
 
 
 
 
Net realized and unrealized gains (losses) on investments and other transactions
19,755

 
333

 
(6,543
)
 
8,073

Net realized and unrealized gains (losses) on derivatives
5,368

 
(78
)
 
13,525

 
(404
)
Net gains (losses) on foreign currency transactions
(26
)
 
(13
)
 
72

 
(45
)
Total other income (loss)
51,250

 
(23,370
)
 
16,177

 
32,073

Income (loss) before income taxes
24,018

 
(11,083
)
 
(26,450
)
 
29,260

Income tax expense (benefit)
8,759

 
(5,081
)
 
(6,553
)
 
5,212

Net income (loss)
15,259

 
(6,002
)
 
(19,897
)
 
24,048

Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds
18,478

 
4,344

 
(2,524
)
 
10,980

Net income (loss) attributable to Cowen Group, Inc.
(3,219
)
 
(10,346
)
 
(17,373
)
 
13,068

Preferred stock dividends
1,698

 
1,603

 
5,094

 
2,358

Net income (loss) attributable to Cowen Group, Inc. common stockholders
$
(4,917
)
 
$
(11,949
)
 
$
(22,467
)
 
$
10,710

Weighted average common shares outstanding:
 

 
 

 
 
 
 

Basic
107,974

 
109,191

 
107,272

 
111,050

Diluted
107,974

 
109,191

 
107,272

 
117,249

Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.05
)
 
$
(0.11
)
 
$
(0.21
)
 
$
0.10

Diluted
$
(0.05
)
 
$
(0.11
)
 
$
(0.21
)
 
$
0.09

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


Table of Contents


Cowen Group, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(dollars in thousands)
(unaudited)





 
Nine Months Ended September 30, 2016
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
 
 
$
(19,897
)
 
 
 
 
 
$
24,048

   Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
 
(3
)
 
 
 
 
 
(4
)
 
 
   Total other comprehensive income (loss), net of tax
 
 
 
 
(3
)
 
 
 
 
 
(4
)
Comprehensive income (loss)
 
 
 
 
$
(19,900
)
 
 
 
 
 
$
24,044


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Table of Contents

Cowen Group, Inc.
Condensed Consolidated Statements of Changes in Equity
(dollars in thousands, except share data)
(unaudited)

 
Common Shares Outstanding
 
Common Stock
 
Preferred Shares Outstanding
 
Preferred Stock
 
Treasury Stock
 
Additional
Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings/ (Accumulated deficit)
 
Total Stockholders' Equity
 
Redeemable Non-controlling Interest
Balance, December 31, 2015
105,604,658

 
$
1,167

 
120,750

 
$
1

 
$
(137,356
)
 
$
902,554

 
$

 
$
23,627

 
$
789,993

 
$
186,911

Net income (loss)

 

 

 

 

 

 

 
(17,373
)
 
(17,373
)
 
(2,524
)
Foreign currency translation

 

 

 

 

 

 
(3
)
 

 
(3
)
 

Capital contributions

 

 

 

 

 

 

 

 

 
236,720

Capital withdrawals

 

 

 

 

 

 

 

 

 
(16,182
)
Deconsolidation of entity

 

 

 

 

 

 

 

 

 
(73,042
)
Restricted stock awards issued
6,011,437

 

 

 

 

 

 

 

 

 

Purchase of treasury stock, at cost
(4,301,938
)
 

 

 

 
(14,807
)
 

 

 

 
(14,807
)
 

Preferred stock dividends (See Note 14)

 

 

 

 

 

 

 
(5,094
)
 
(5,094
)
 

Income tax effect from share based compensation

 

 

 

 

 
(763
)
 

 

 
(763
)
 

Amortization of share based compensation

 

 

 

 

 
19,271

 

 

 
19,271

 

Balance, September 30, 2016
107,314,157

 
$
1,167

 
120,750

 
$
1

 
$
(152,163
)
 
$
921,062

 
$
(3
)
 
$
1,160

 
$
771,224

 
$
331,883

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Shares Outstanding
 
Common Stock
 
Preferred Shares Outstanding
 
Preferred Stock
 
Treasury Stock
 
Additional
Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings/ (Accumulated deficit)
 
Total Stockholders' Equity
 
Redeemable Non-controlling Interest
Balance, December 31, 2014
111,691,199

 
$
1,160

 

 
$

 
$
(79,771
)
 
$
772,296

 
$
17

 
$
(16,027
)
 
$
677,675

 
$
86,076

Net income (loss)

 

 

 

 

 

 

 
13,068

 
13,068

 
10,980

Foreign currency translation

 

 

 

 

 

 
(4
)
 

 
(4
)
 

Capital contributions

 

 

 

 

 

 

 

 

 
88,740

Capital withdrawals

 

 

 

 

 

 

 

 

 
(14,551
)
Restricted stock awards issued
4,027,405

 

 

 

 

 

 

 

 

 

Purchase of treasury stock, at cost
(9,269,163
)
 

 

 

 
(50,253
)
 

 

 

 
(50,253
)
 

Preferred stock issuance, net of issuance costs (See Note 14)

 

 
120,750

 
1

 

 
117,194

 

 

 
117,195

 

Preferred stock dividends (See Note 14)

 

 

 

 

 

 

 
(2,358
)
 
(2,358
)
 

Common stock issued upon acquisition (See Note 2)
548,625

 
6

 

 

 

 
3,002

 

 

 
3,008

 

Capped call option transaction (See Note 14)

 

 

 

 

 
(15,878
)
 

 

 
(15,878
)
 

Income tax effect from share based compensation

 

 

 

 

 
3,714

 

 

 
3,714

 

Stock options exercised (see Note 10)
100,002

 
1

 

 

 

 
394

 

 

 
395

 
 
Amortization of share based compensation

 

 

 

 

 
16,211

 

 

 
16,211

 

Balance, September 30, 2015
107,098,068

 
$
1,167

 
120,750

 
$
1

 
$
(130,024
)

$
896,933


$
13


$
(5,317
)
 
$
762,773

 
$
171,245


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Table of Contents

Cowen Group, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(19,897
)
 
$
24,048

Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities:
 
 
 
Depreciation and amortization
9,654

 
6,584

Net gain on sale of divested business
(15,638
)
 

Amortization of debt issuance costs
894

 

Amortization of debt discount
5,107

 
4,674

Tax benefit (expense) from share-based payment arrangements
(764
)
 
3,714

Share-based compensation
19,271

 
16,211

Deferred tax benefit
(6,913
)
 
(2,050
)
Deferred rent obligations
(634
)
 
(2,113
)
Net loss on disposal of fixed assets

 
54

Contingent liability adjustment
2,139

 

Purchases of securities owned, at fair value
(3,050,670
)
 
(4,650,626
)
Proceeds from sales of securities owned, at fair value
3,173,147

 
4,556,647

Proceeds from sales of securities sold, not yet purchased, at fair value
2,343,063

 
2,003,879

Payments to cover securities sold, not yet purchased, at fair value
(2,442,968
)
 
(1,940,343
)
Net (gains) losses on securities, derivatives and other investments
(23,706
)
 
(32,719
)
Consolidated Funds
 
 
 
Purchases of securities owned, at fair value
(60,187
)
 
(12,000
)
Proceeds from sales of securities owned, at fair value
27,010

 

Proceeds from sales of securities sold, not yet purchased, at fair value
2,226

 

Payments to cover securities sold, not yet purchased, at fair value
(1,098
)
 

Purchases of other investments
(221,897
)
 
(78,491
)
Proceeds from sales of other investments
14,086

 
18,722

Net realized and unrealized (gains) losses on investments and other transactions
(4,505
)
 
(6,749
)
(Increase) decrease in operating assets:
 
 
 
Cash collateral pledged
(3,698
)
 
(823
)
Securities owned, at fair value, held at broker-dealer
(26,048
)
 
20,696

Receivable on derivative contracts, at fair value
12,191

 
8,290

Securities borrowed

 
676,100

Receivable from brokers
40,126

 
(26,744
)
Fees receivable, net of allowance
(12,536
)
 
(6,952
)
Due from related parties
6,914

 
106

Other assets
(23,446
)
 
(919
)
Consolidated Funds
 
 
 
Cash and cash equivalents
3,564

 
(16,124
)
Receivable on derivative contracts, at fair value
(429
)
 

Receivable from brokers
(5,333
)
 

Other assets
(336
)
 
780

Increase (decrease) in operating liabilities:
 
 
 
Securities sold, not yet purchased, at fair value, held at broker-dealer
21,954

 
(7,134
)
Payable for derivative contracts, at fair value
(4,162
)
 
(15,252
)
Securities loaned

 
(682,493
)
Payable to brokers
(4,573
)
 
(7,010
)
Compensation payable
(99,217
)
 
(41,628
)
Fees payable
999

 
12,965

Due to related parties
(72
)
 
(154
)
Accounts payable, accrued expenses and other liabilities
3,863

 
(7,746
)
Consolidated Funds
 
 
 
Contributions received in advance
(850
)
 
5,000

Payable to brokers
3,131

 

Payable for derivative contracts, at fair value
276

 

Due to related parties
264

 
1,000

Accounts payable, accrued expenses and other liabilities
286

 
67

Net cash provided by / (used in) operating activities
$
(339,412
)
 
$
(178,533
)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Table of Contents

Cowen Group, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
 
 
 
 
 
Nine Months Ended September 30,
(continued)
2016
 
2015
Cash flows from investing activities:
 
 
 
Purchases of other investments
$
(25,689
)
 
$
(10,259
)
Purchase of business, net of cash acquired (Note 2)
(6,258
)
 
(14,936
)
Proceeds from sales of other investments
29,814

 
37,368

Proceeds from loans held for investment
41,600

 

Proceeds from divested business, net of cash divested
17,303

 

Purchase of fixed assets
(14,913
)
 
(5,191
)
Net cash provided by / (used in) investing activities
41,857

 
6,982

Cash flows from financing activities:
 
 
 
Proceeds from issuance of preferred stock, net of issuance costs

 
117,194

Capped call option transaction

 
(15,879
)
Borrowings on notes and other debt
30,638

 
2,140

Repayments on notes and other debt
(28,345
)
 
(2,655
)
Income tax effect from share-based payment arrangements
(764
)
 
3,714

Proceeds from stock options exercised

 
395

Purchase of treasury stock
(6,014
)
 
(41,697
)
Cash paid to acquire net assets (contingent liability payment)
(2,358
)
 
(1,725
)
Capital contributions by redeemable non-controlling interests in operating entities

 
5,644

Capital withdrawals to redeemable non-controlling interests in operating entities
(6,995
)
 
(8,203
)
Consolidated Funds
 
 
 
Capital contributions by redeemable non-controlling interests in Consolidated Funds
236,720

 
83,097

Capital withdrawals to redeemable non-controlling interests in Consolidated Funds
(6,887
)
 
(7,129
)
Net cash provided by / (used in) financing activities
215,995

 
134,896

Change in cash and cash equivalents
(81,560
)
 
(36,655
)
Cash and cash equivalents at beginning of period
158,485

 
129,509

Cash and cash equivalents at end of period
$
76,925

 
$
92,854

 
 
 
 
Supplemental non-cash information
 
 
 
Purchase of treasury stock, at cost, through net settlement (see Note 14)
$
8,793

 
$
8,556

Notes payable increase through asset acquisition
$
7,164

 
$

Preferred stock dividends declared (See Note 14)
$
5,094

 
$
2,358

Net assets (liabilities) acquired upon acquisition (net of cash) (See Note 2)
$

 
$
11,688

Common stock issuance upon close of acquisition (see Note 2)
$

 
$
3,008










The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

9


Table of Contents

Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Business
Cowen Group, Inc., a Delaware corporation formed in 2009, is a diversified financial services firm and, together with its consolidated subsidiaries (collectively, “Cowen,” “Cowen Group” or the “Company”), provides alternative investment management, investment banking, research, sales and trading and prime brokerage services through its two business segments: alternative investment and broker-dealer. The Company's alternative investment segment, includes hedge funds, private equity structures, registered investment companies and listed vehicles. The Company's broker-dealer segment offers research, sales and trading, prime brokerage and investment banking services to companies and primarily institutional investor clients. Our primary target sectors are healthcare, technology, media and telecommunications, information and technology services, consumer, aerospace and defense, industrials, and energy and transportation sectors.
2. Acquisitions and Divestitures
Acquisitions
Low Country
On April 22, 2016, Cowen Aviation Finance Holdings Inc. ("Cowen Aviation Finance") entered into a transaction whereby Cowen Aviation Finance acquired Low Country III, LLC, which is comprised of a portfolio of four specialized aircraft currently on lease in exchange for an immaterial upfront payment and a minority equity interest in Cowen Aviation Finance. As part of the transaction Cowen Aviation Finance also acquired the associated debt financing and lease contracts for each aircraft. Separate from the transaction, Cowen Aviation Finance entered into services agreements with Tempus Applied Solutions, Inc., a related party through common directors, which, among other services, will provide marketing, maintenance, and lease administration services for Cowen Aviation Finance's current aircraft fleet. This acquisition was accounted for as an asset acquisition in accordance with accounting principles generally accepted in the United States of America ("US GAAP") because, upon separation from the seller, the acquired assets do not meet the definition of a business.
CRT business
On May 6, 2016, the Company completed its previously announced acquisition of the credit products, credit research, special situations and emerging markets units from CRT Capital Group LLC (“CRT”). The acquisition was completed for a combination of cash of $6.3 million and contingent consideration payable annually based on future revenues exceeding specific targets. In the aggregate, the purchase price, assets acquired and liabilities assumed were not significant and the near term impact to the Company and its consolidated results of operations and cash flows is not expected to be significant. Following the acquisition, the businesses acquired from CRT are included in the broker-dealer segment.
In accordance with the terms of the purchase agreement, the Company is required to pay to the sellers a portion of future revenue of the business exceeding specified targets over the period through June 2018. The Company estimated the contingent consideration using the income approach (discounted cash flow method) which requires the Company to make estimates and assumptions regarding the future cash flows and profits. Changes in these estimates and assumptions could have a significant impact on the amount recognized. On the acquisition date, the undiscounted amount ranged from zero to $8.0 million.
The acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As such, the results of operations of the businesses acquired are included in the accompanying condensed consolidated statements of operations since the date of the acquisition and the assets acquired, liabilities assumed and the resulting goodwill were recorded at their fair values within their respective line items on the accompanying condensed consolidated statement of financial condition (see Note 8).
The Company is currently in the process of finalizing the valuation for certain acquired assets of CRT; therefore, the fair value measurements as of September 30, 2016 and goodwill are preliminary and subject to adjustments.
The Company recognized approximately $0.4 million of acquisition-related costs, including legal, accounting, and valuation services. These costs are included in professional, advisory and other fees in the accompanying condensed consolidated statements of operations. The Company also assumed contractual obligations toward certain employees which will vest over a 12 month period. These obligations are recorded as compensation expense on a straight line basis.
The results of operations of the businesses acquired from CRT for the period from May 6, 2016 through September 30, 2016 are integrated with the broker-dealer business and are included within respective line items. Included in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2016 are

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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

revenues of $9.7 million and $13.1 million, respectively and net income of $1.4 million and $1.9 million, respectively (excluding corporate allocated expenses) related to the businesses acquired from CRT.
Concept and Conifer
During the year ended December 31, 2015, the Company completed two acquisitions. On September 1, 2015, the Company completed its acquisition of all of the outstanding interests in Concept Capital Markets, LLC ("Concept") offering prime brokerage services and outsourced trading. On October 1, 2015 the Company completed its acquisition of all of the outstanding interests in Conifer Securities, LLC ("Conifer") representing the prime brokerage services division of Conifer Financial Services LLC. Following the acquisitions, Concept was renamed Cowen Prime Services LLC ("Cowen Prime") and Conifer was renamed Cowen Prime Services Trading LLC ("Cowen Prime Trading"). Both were registered broker-dealers (members Financial Industry Regulatory Authority "FINRA" and Securities Industry Protection Corporation "SIPC"). Following the acquisitions, Conifer and Concept were integrated. During the second quarter of 2016, Cowen Prime Trading's broker-dealer withdrawal request, filed with FINRA, became effective and the business was combined into Cowen Prime.
The acquisitions were accounted for under the acquisition method of accounting in accordance with US GAAP. As such, the results of operations for Concept and Conifer are included in the accompanying condensed consolidated statements of operations since the dates of the respective acquisitions and the assets acquired, liabilities assumed and the resulting goodwill were recorded at their fair values within their respective line items on the accompanying condensed consolidated statement of financial condition.
The Company is currently in the process of finalizing the valuation for certain acquired assets of Concept and Conifer; therefore, the fair value measurements and goodwill are preliminary and subject to measurement period adjustments. The allocation of the purchase price to the net assets acquired will be finalized as necessary, up to one year after the acquisitions' respective closing dates, as the information becomes available. Both of the acquisitions were not deemed material individually but were material in the aggregate.
Included in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2016 are revenues of $8.6 million and $30.7 million and net income of $0.4 million and $2.8 million, respectively (excluding corporate allocated expenses) related to the Concept and Conifer combined results of operations.
The following unaudited supplemental pro forma information presents consolidated financial results for the nine months ended September 30, 2015 as if the acquisitions were completed as of the beginning of that period. This supplemental pro forma information has been prepared for comparative purposes only and is not intended to be indicative of what the Company's results would have been had the acquisitions been completed on January 1, 2015, nor does it purport to be indicative of any future results.
 
For the nine months ended September 30, 2015
 
(dollars in thousands, 
except per share data)
 
(unaudited)
Revenues
$
385,932

Net income (loss) attributable to Cowen Group, Inc. common stockholders
10,672

 
 
Net income per common share:
 
  Basic
$
0.10

  Diluted
$
0.09

Divestitures
On September 23, 2016, the Company and the portfolio managers of Ramius Alternative Solutions LLC ("RASL") completed the sale of their respective ownership interests in RASL, an investment advisor, and RASL was deconsolidated as of that date. RASL offered a range of customized hedge fund investment solutions with approximately $2.5 billion in client assets. In accordance with the terms of the agreement, the Company was only required to transfer an immaterial target working capital balance on the closing date. The net consideration received by the Company was approximately $17.3 million. Along with the target working capital transferred at closing, the Company also allocated a portion of goodwill associated with the alternative investment segment to the sale price which is shown net in other revenues in the accompanying consolidated statements of operations.

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

As the Company will continue to offer its alternative investment platform to institutional and retail investors, the sale was not presented as discontinued operations. The overall impact on the consolidated financial position, results of operations and cash flows is not expected to be significant.
3. Significant Accounting Policies
a. Basis of Presentation
These unaudited condensed consolidated financial statements are prepared in accordance with US GAAP as promulgated by the Financial Accounting Standards Board ("FASB") through Accounting Standards Codification as the source of authoritative accounting principles in the preparation of financial statements, and include the accounts of the Company, its operating and other subsidiaries, and entities in which the Company has a controlling financial interest or a general partner interest. All material intercompany transactions and balances have been eliminated on consolidation. Certain fund entities that are consolidated in these accompanying condensed consolidated financial statements, as further discussed below, are not subject to the consolidation provisions with respect to their own controlled investments pursuant to their specialized accounting.
The Company serves as the managing member/general partner and/or investment manager to affiliated fund entities which it sponsors and manages. Funds in which the Company has a controlling financial interest are consolidated with the Company pursuant to US GAAP as described below. Consequently, the Company's condensed consolidated financial statements reflect the assets, liabilities, income and expenses of these funds on a gross basis. The ownership interests in these funds that are not owned by the Company are reflected as redeemable non-controlling interests in consolidated subsidiaries in the accompanying condensed consolidated financial statements. The management fees and incentive income earned by the Company from these funds are eliminated in consolidation.
The year-end condensed balance sheet data was derived from the audited financial statements, but does not include all disclosures included in the audited financial statements.
b.
Principles of consolidation
The Company consolidates all entities that it controls through a majority voting interest or otherwise, including those funds in which the Company either directly or indirectly has a controlling financial interest. In addition, the Company consolidates all variable interest entities for which it is the primary beneficiary.
The Company adopted the new accounting pronouncement regarding consolidation accounting using the modified retrospective method with an effective adoption date of January 1, 2016. The modified retrospective method did not require the restatement of prior year periods. The adoption of the new accounting pronouncement also resulted in a reclassification of certain entities which were previously considered voting interest entities and are considered variable interest entities.
In accordance with these standards, the Company presently consolidates six funds for which it acts as the general partner and investment manager. As of September 30, 2016 the Company consolidated the following funds: Ramius Enterprise LP (“Enterprise LP”), Ramius Merger Fund LLC (the "Merger Fund"), Cowen Private Investments LP ("Cowen Private"), Ramius Archview Credit and Distressed Fund ("Archview Feeder Fund"), Ramius Archview Credit and Distressed Master Fund ("Archview Master Fund"), (as of May 1, 2016) Caerus Select Fund LP ("Caerus LP") and (as of July 11, 2016) Ramius Merger Arbitrage UCITS Fund ("UCITS Fund") (collectively the "Consolidated Funds").
The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting operating entity ("VOE") or a variable interest entity ("VIE") under US GAAP.
Voting Operating EntitiesVOEs are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders at risk have the obligation to absorb losses, the right to receive residual returns and the right to direct the activities of the entity that most significantly impact the entity's economic performance.
Under US GAAP, the usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. Accordingly, the Company consolidates all VOEs in which it owns a majority of the entity's voting shares or units.
In connection with the adoption, the Company reevaluated all of its investment products for consolidation. As of January 1, 2016, the Company deconsolidated Quadratic Fund LLC ("Quadratic LLC") as the Company did not hold a significant voting interest in the fund. The adoption of the new accounting pronouncement also resulted in a reclassification of certain entities for which the Company was presumed to have control and will now be VIEs.
Variable Interest Entities—VIEs are entities that lack one or more of the characteristics of a VOE. In accordance with US GAAP, an enterprise must consolidate all VIEs of which it is the primary beneficiary. Under the US GAAP consolidation

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

model for VIEs, an enterprise that (1) has the power to direct the activities of a VIE that most significantly impacts the VIE's economic performance, and (2) has an obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE, is considered to be the primary beneficiary of the VIE and thus is required to consolidate it.
The Company reconsiders whether it is the primary beneficiary of a VIE by performing a periodic qualitative and/or quantitative analysis of the VIE that includes a review of, among other things, its capital structure, contractual agreements between the Company and the VIE, the economic interests that create or absorb variability, related party relationships and the design of the VIE. As of September 30, 2016 and December 31, 2015, the total net assets of the consolidated VIEs were $452.0 million and $1.5 million, respectively. The VIEs act as investment managers and/or investment companies that may be managed by the Company or the Company may have equity interest in those investment companies. The VIEs are financed through their operations and/or loan agreements with the Company.
As of September 30, 2016 the Company holds variable interests in Ramius Enterprise Master Fund Ltd (“Enterprise Master”), Ramius Merger Master Fund Ltd ("Merger Master") and Caerus Select Master Fund Ltd ("Caerus Master") (collectively the “Unconsolidated Master Funds”) through the Consolidated Funds. Investment companies, which account for their investments under the specialized industry accounting guidance for investment companies prescribed under US GAAP, are not subject to the consolidation provisions for their investments. Therefore, the Company has not consolidated the Unconsolidated Master Funds.
In the ordinary course of business, the Company also sponsors various other entities that it has determined to be VIEs. These VIEs are primarily funds and real estate entities for which the Company serves as the general partner, managing member and/or investment manager with decision-making rights.
The Company does not consolidate the Unconsolidated Master Funds or real estate entities that are VIEs as it has concluded that it is not the primary beneficiary in each instance. Fund investors are entitled to all of the economics of these VIEs with the exception of the management fee and incentive income, if any, earned by the Company. The Company's involvement with funds and real estate entities that are unconsolidated VIEs is limited to providing investment management services in exchange for management fees and incentive income. Although the Company may advance amounts and pay certain expenses on behalf of the funds and real estate entities that it considers to be VIEs, it does not provide, nor is it required to provide, any type of substantive financial support to these entities outside of regular investment management services (see Note 5 for additional disclosures on VIEs).
Equity Method InvestmentsFor operating entities over which the Company exercises significant influence but which do not meet the requirements for consolidation as outlined above, the Company uses the equity method of accounting. The Company's investments in equity method investees are recorded in other investments in the accompanying condensed consolidated statements of financial condition. The Company's share of earnings or losses from equity method investees is included in net gains (losses) on securities, derivatives and other investments in the accompanying condensed consolidated statements of operations.
The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment charge when the loss in value is deemed other than temporary.
OtherIf the Company does not consolidate an entity, apply the equity method of accounting or account for an investment under the cost method, the Company accounts for such entities (primarily, all securities of such entity which are bought and held principally for the purpose of selling them in the near term as trading securities) in accordance with US GAAP, at fair value with unrealized gains (losses) resulting from changes in fair value reflected within net gains (losses) on securities, derivatives and other investments in the accompanying condensed consolidated statements of operations.
Retention of Specialized AccountingThe Consolidated Funds and certain other consolidated companies are investment companies and apply specialized industry accounting for investment companies. The Company has retained this specialized accounting for these funds pursuant to US GAAP. The Company reports its investments on the condensed consolidated statements of financial condition at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected within net realized and unrealized gains (losses) on investments and other transactions. Accordingly, the accompanying condensed consolidated financial statements reflect different accounting policies for investments depending on whether or not they are held through a consolidated investment company. In addition, the Company's broker-dealer subsidiaries, Cowen and Company, LLC ("Cowen and Company"), ATM Execution LLC ("ATM Execution"), Cowen International Limited

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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

("CIL"), Ramius UK Ltd. ("Ramius UK") and Cowen Prime apply the specialized industry accounting for brokers and dealers in securities also prescribed under US GAAP. The Company also retains specialized accounting in consolidation.
c.
Use of estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with US GAAP requires the management of the Company to make estimates and assumptions that affect the fair value of securities and other investments, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the accompanying condensed consolidated financial statements, the accounting for goodwill and identifiable intangible assets and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
d.
Valuation of investments and derivative contracts
US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has
the ability to access at the measurement date;

Level 2     Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including
inputs in markets that are not considered to be active; and

Level 3 Fair value is determined based on pricing inputs that are unobservable and includes situations where there is little,
if any, market activity for the asset or liability. The determination of fair value for assets and liabilities in this
category requires significant management judgment or estimation.
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company. The Company considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Company's perceived risk of that instrument.
The Company and its operating subsidiaries act as the manager for the Consolidated Funds. Both the Company and the Consolidated Funds hold certain investments which are valued by the Company, acting as the investment manager. The fair value of these investments is generally estimated based on proprietary models developed by the Company, which include discounted cash flow analysis, public market comparables, and other techniques and may be based, at least in part, on independently sourced market information. The material estimates and assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount rates used, and, in some cases, the ability to execute, timing of, and estimated proceeds from expected financings. Significant judgment and estimation goes into the selection of an appropriate valuation methodology as well as the assumptions used in these models, and the timing and actual values realized with respect to investments could be materially different from values derived based on the use of those estimates. The valuation methodologies applied impact the reported value of the Company's investments and the investments held by the Consolidated Funds in the consolidated financial statements. Certain of the Company's investments are relatively illiquid or thinly traded and may not be immediately liquidated on demand if needed. Fair values assigned to these investments may differ significantly from the fair values that would have been used had a ready market for the investments existed and such differences could be material.
The Company primarily uses the “market approach” to value its financial instruments measured at fair value. In determining an instrument's level within the hierarchy, the Company categorizes the Company's financial instruments into three categories: securities, derivative contracts and other investments. To the extent applicable, each of these categories can further be divided between those held long or sold short.
The Company has the option to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The election is made on an instrument by instrument basis at initial recognition of

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument.  The Company has elected the fair value option for certain of its investments held by its operating companies.  This option has been elected because the Company believes that it is consistent with the manner in which the business is managed as well as the way that financial instruments in other parts of the business are recorded. 
SecuritiesSecurities with values based on quoted market prices in active markets for identical assets are classified within level 1 of the fair value hierarchy. These securities include active listed equities, certain U.S. government and sovereign obligations, ETF's, mutual funds and certain money market securities. The Company does not adjust the quoted price for such instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
Certain positions for which trading activity may not be readily visible, consisting primarily of convertible debt, corporate debt and loans and restricted equities, are stated at fair value and classified within level 2 of the fair value hierarchy. The estimated fair values assigned by management are determined in good faith and are based on available information considering, trading activity, broker quotes, quotations provided by published pricing services, counterparties and other market participants, and pricing models using quoted inputs, and do not necessarily represent the amounts which might ultimately be realized. As level 2 investments include positions that are not always traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability.
Derivative contractsDerivative contracts can be exchange-traded or privately negotiated over-the-counter (“OTC”). Exchange-traded derivatives, such as futures contracts and exchange-traded option contracts, are typically classified within level 1 or level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. OTC derivatives, such as generic forwards, swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within level 2. OTC derivatives, such as swaps and options where market data is not readily available or observable are classified as level 3.
Other investmentsOther investments consist primarily of portfolio funds, real estate investments and equity method investments, which are valued as follows:
i.
Portfolio funds—Portfolio funds (“Portfolio Funds”) include interests in funds and investment companies which may be managed by the Company or its affiliates. The Company follows US GAAP regarding fair value measurements and disclosures relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The guidance permits, as a practical expedient, an entity holding investments in certain entities that either are investment companies as defined by the AICPA Audit and Accounting Guide, Investment Companies, or have attributes similar to an investment company, and calculate net asset value per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. In accordance with US GAAP, investments which are valued using NAV per share as a practical expedient are not categorized within the fair value hierarchy.
ii.
Real estate investments—Real estate debt and equity investments are valued at fair value. The fair value of real estate investments are estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace participants at the measurement date. Real estate investments without a public market are valued based on assumptions and valuation techniques used by the Company. Such valuation techniques may include discounted cash flow analysis, prevailing market capitalization rates or earnings multiples applied to earnings from the investment, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties, consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence, as well as independent external appraisals. In general, the Company considers several valuation techniques when measuring the fair value of a real estate investment. However, in certain circumstances, a single valuation technique may be appropriate. Real estate investments are reviewed on a quarterly basis by the Company for significant changes at the property level or a significant change in the overall market which would impact the value of the real estate investment resulting in unrealized appreciation or depreciation.
Real estate and capital markets are cyclical in nature. Property and investment values are affected by, among other things, the availability of capital, occupancy rates, rental rates and interest and inflation rates. In addition, the Company invests in real estate and real estate related investments for which no liquid market exists. The market prices for such investments may be volatile and may not be readily ascertainable. Amounts ultimately realized by the Company from investments sold may differ from the fair values presented, and the differences could be material.
The Company's real estate investments are typically categorized as level 3 investments within the fair value hierarchy as management uses significant unobservable inputs in determining their estimated fair value.

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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

See Notes 5 and 6 for further information regarding the Company's investments, including equity method investments, and fair value measurements.
e.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation or amortization. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or lease term. When the Company commits to a plan to abandon fixed assets or leasehold improvements before the end of its original useful life, the estimated depreciation or amortization period is revised to reflect the shortened useful life of the asset. Other fixed assets are depreciated on a straight-line basis over their estimated useful lives.
Aircraft and related equipment, which are leased out under operating leases, are carried at cost less accumulated depreciation and are depreciated to estimated residual value using the straight-line method over the lease term or estimated useful life of the asset. Any assets received at the end of the lease are marked to the lower of cost or fair value with the adjustment recorded in other income.
Asset
Depreciable Lives
 
Principal Method
Telephone and computer equipment
3-8 years
 
Straight-line
Computer software
3-7 years
 
Straight-line
Furniture and fixtures
5-8 years
 
Straight-line
Leasehold improvements
5-15 years
 
Straight-line
Capitalized lease asset
5 years
 
Straight-line
Aircraft and related equipment
10-20 years
 
Straight-line
Modifications to aircraft
4-10 years
 
Straight-line
f.
Debt
Long-term debt is carried at the principal amount borrowed net of any discount/premium. The discount is accreted to interest expense using the effective interest method over the remaining life of the underlying debt obligations. Accrued but unpaid coupon interest is included in accrued expenses and other liabilities in the accompanying condensed consolidated statements of financial condition. The Company adopted a new accounting pronouncement, during the first quarter of 2016, which reclassified the unamortized debt issuance costs in our previously reported condensed consolidated statements of financial condition from other assets to a direct reduction from the carrying amount of the debt. Notes payable and other debt and convertible debt as of December 31, 2015 was previously presented as $195.7 million. Due to the retrospective application notes payable and other debt and convertible debt is now presented as $191.0 million as of December 31, 2015.
g.    Deferred rent
Deferred rent primarily consists of step rent, allowances from landlords and valuing the Company's lease properties in accordance with US GAAP. Step rent represents the difference between actual operating lease payments due and straight-line rent expense, which is recorded by the Company over the term of the lease, including the build-out period. This amount is recorded as deferred rent in the early years of the lease, when cash payments are generally lower than straight-line rent expense, and reduced in the later years of the lease when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised of amounts received and/or promised to the Company by landlords and may be received in the form of cash or free rent. These allowances are part of the negotiated terms of the lease. The Company records a receivable from the landlord and a deferred rent liability when the allowances are earned. This deferred rent is amortized into income (through lower rent expense) over the term (including the pre-opening build-out period) of the applicable lease, and the receivable is reduced as amounts are received from the landlord. Liabilities resulting from valuing the Company's leased properties acquired through business combinations are quantified by comparing the current fair value of the leased space to the current rental payments on the date of acquisition. Deferred rent, included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated statements of financial condition, as of September 30, 2016 and December 31, 2015 is $10.4 million and $12.0 million, respectively. Deferred rent asset, included in other assets in the accompanying condensed consolidated statements of financial condition, as of September 30, 2016 and December 31, 2015 is $0.1 million and $0.3 million, respectively.
h.     Insurance-related contracts
Premiums for insurance-related contracts are earned over the coverage period. In most cases, premiums are recognized as revenues ratably over the term of the contract with unearned premiums computed on a monthly basis. For each of its contracts, the Company determines if the contract provides indemnification against loss or liability relating to insurance risk, in

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

accordance with US GAAP. If the Company determines that a contract does not expose it to a reasonable possibility of a significant loss from insurance risk, the Company records the contract under the deposit method of accounting with any net amount receivable reflected as an asset in other assets, and any net amount payable reflected as a liability within accounts payable, accrued expenses and other liabilities on the condensed consolidated statements of financial condition.
The liabilities for losses and loss adjustment expenses are recorded at the estimated ultimate payment amounts, including reported losses.  Estimated ultimate payment amounts are based upon (1) reports of losses from policyholders, (2) individual case estimates and (3) estimates of incurred but not reported losses.
Provisions for losses and loss adjustment expenses are charged to earnings after deducting amounts recovered and estimates of recoverable amounts and are included in other expenses on the condensed consolidated statements of operations.
Costs of acquiring new policies, which vary with and are directly related to the production of new policies, have been deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. Such costs include commissions and allowances as well as certain costs of policy issuance and underwriting and are included within other assets on the condensed consolidated statements of financial condition.
Included in other revenues, in the accompanying condensed consolidated statements of operations, for the three and nine months ended September 30, 2016 is $8.9 million and $23.2 million, respectively, related to premiums earned from the Company’s insurance and reinsurance business. Included in other expenses, in the accompanying condensed consolidated statements of operations, for the three and nine months ended September 30, 2016 is $8.6 million and $20.9 million, respectively, are insurance and reinsurance business loss and claim reserves, acquisition costs and other expenses.
i.    Revenue recognition
Lease revenue
Lease revenue under operating leases is recognized on a straight-line basis over the term of the lease.
j.    Recently issued accounting pronouncements
In August 2016, the FASB issued guidance which reduces the diversity in practice as to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance addresses eight specific cash flow issues with the objective of reducing the existing and potential future diversity in practice. The amendments in this guidance are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance on the Company’s cash flows presentation.
In March 2016, as part of its simplification initiative, the FASB issued a new accounting pronouncement which simplified the requirements for share based payments. The guidance among other things covers the income tax consequences and classification of excess tax benefit and tax withholding on the statement of cash flows. For public business entities, the guidance is effective for reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of this guidance on the Company’s financial condition, results of operations and cash flows.
In May 2014, the FASB issued guidance which amends and supersedes the revenue recognition requirements and most industry-specific guidance and creates a single source of revenue guidance.  The new guidance outlines the principles an entity must apply to measure and recognize revenue and related cash flows.  The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets. The guidance is effective for reporting periods beginning after December 15, 2017.  In July 2015, the FASB confirmed a deferral of the effective date by one year, with early adoption on the original effective date permitted.  In 2016, the FASB issued various new guidance to clarify the implementation guidance on principal versus agent considerations, revenue from contracts with customers and identifying performance obligations and licensing implementation.  The Company is currently evaluating the impact of this guidance on the Company’s financial condition, results of operations and cash flows.
In March 2016, as part of its simplification initiative, the FASB issued a new accounting pronouncement which eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The guidance is effective prospectively for reporting

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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

periods beginning after December 15, 2016. The Company is currently evaluating the impact of this guidance on the Company’s financial condition, results of operations and cash flows.
In March 2016, the FASB issued two amendments relating to Derivatives and Hedging. The amendments clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The Second amendment relates to Contingent Put and call option in a debt instrument and clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts when assessed under the current guidance. For public business entities the guidance is effective for reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of this guidance on the Company’s financial condition and its disclosures.
In February 2016, the FASB issued guidance which amends and supersedes its previous guidance regarding leases. The new guidance requires the lessee to recognize the right to use assets and lease liabilities that arise from leases and present them in its statement of financial condition. The recognition of these lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the statement of financial condition. For public business entities the guidance is effective for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on the Company’s financial condition and its disclosures.
In January 2016, as a joint project with International Accounting Standards Board (IASB), the FASB issued a new accounting pronouncement to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments in the update made improvements to US GAAP for equity investments and investments carried at amortized cost. The guidance also simplifies the impairment assessment for equity investments and clarifies the need for valuation allowance on deferred tax asset related to available for sale securities. For public business entities the guidance is effective for reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of this guidance on the Company’s financial condition and its disclosures.   
4. Cash Collateral Pledged
As of September 30, 2016 and December 31, 2015, the Company pledged cash collateral in the amount of $8.3 million and $10.1 million, respectively, which relates to letters of credit issued to the landlords of the Company's premises in New York City, Boston and San Francisco. The Company also has a letter of credit, in the amount of $5.5 million, due March 2017, for which cash is pledged as collateral under a reinsurance agreement. (See Note 13).
5. Investments of Operating Entities and Consolidated Funds
a.
Operating Entities
Securities owned, at fair value
Securities owned, at fair value are held by the Company and are considered held for trading. Substantially all equity securities are pledged to the clearing brokers under terms which permit the clearing broker to sell or re-pledge the securities to others subject to certain limitations.
As of September 30, 2016 and December 31, 2015, securities owned, at fair value consisted of the following:
 
As of September 30, 2016
 
As of December 31, 2015
 
(dollars in thousands)
U.S. Government securities (a)
$
3,776

 
$
3,016

Preferred stock (b)
12,964

 
25,563

Common stocks (b)
504,093

 
516,108

Convertible bonds (c)
250

 
819

Corporate bonds (d)
17,794

 
47,192

Warrants and rights
5,762

 
3,059

Mutual funds (e)
5

 
14,477

 
$
544,644

 
$
610,234


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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(a)
As of September 30, 2016, maturities ranged from December 2016 to August 2017 with an interest rate of 0%. As of December 31, 2015, maturities ranged from January 2016 to August 2016 with interest rates ranged between 0% to 5.95%.
(b)
Included in preferred stocks are investments in securities for which the Company has elected the fair value option with the fair value of $4.2 million at September 30, 2016 and preferred and common stock of $7.7 million and $7.4 million, respectively, at December 31, 2015. These investments were acquired in connection with merchant banking transactions.
(c)
As of September 30, 2016, the maturity was March 2018 with an interest rate of 8%. As of December 31, 2015, maturities ranged from July 2016 to March 2018 with interest rates ranged between 8% to 10.00%.
(d)
As of September 30, 2016, maturities ranged from October 2016 to February 2046 and interest rates ranged between 3.25% to 13.00%. As of December 31, 2015, maturities ranged from March 2016 to February 2046 and interest rates ranged between 3.25% to 9.00%.
(e)
Included in this amount as of December 31, 2015, are investments in affiliated funds of $13.4 million all of which was liquidated during the three months ended March 31, 2016.
Receivable on and Payable for derivative contracts, at fair value
The Company's direct involvement with derivative financial instruments includes futures, currency forwards, equity swaps, credit default swaps and options. The Company's derivatives trading activities exposes the Company to certain risks, such as price and interest rate fluctuations, volatility risk, credit risk, counterparty risk, foreign currency movements and changes in the liquidity of markets.
Upon issuance of the Company's cash convertible unsecured senior notes ("Convertible Notes") (See Note 13), the Company recognized the embedded cash conversion option at fair value of $35.7 million which is valued as of September 30, 2016 at $13.0 million and is included in payable for derivative contracts in the accompanying condensed consolidated statement of financial condition. Also, on the date of issuance of the Convertible Notes, the Company entered into a separate cash convertible note economic hedge transaction (the "Hedge Transaction") with a counterparty (the “Option Counterparty”) whereby, the Company purchased a cash settled option contract with terms identical to the conversion option embedded in the Convertible Notes and simultaneously sold an equity settled warrant with a higher strike price. The Hedge Transaction is expected to reduce the Company’s exposure to potential cash payments in excess of the principal amount of converted notes that the Company may be required to make upon conversion of the Convertible Notes. The Company paid a premium of $35.7 million for the option under the Hedge Transaction and received a premium of $15.2 million for the equity settled warrant transaction, for a net cost of $20.5 million. The Hedge Transaction is valued at $13.0 million as of September 30, 2016 and is included in receivable on derivative contracts in the accompanying condensed consolidated statement of financial condition. Aside from the initial premium paid, the Company will not be required to make any cash payments under the Hedge Transaction and could be entitled to receive an amount of cash from the Option Counterparty generally equal to the amount by which the market price per share of common stock exceeds the strike price of the Hedge Transaction during the relevant valuation period. The warrants cover 28,048,786 shares of the Company's Class A common stock and have an initial exercise price of $7.18 per share. The warrants expire over a period of 80 trading days beginning on November 14, 2018. The warrant transaction could have a dilutive effect to the extent that the market value per share of the Company’s Class A common stock exceeds the applicable strike price of the warrants.
The Company's long and short exposure to derivatives is as follows:
Receivable on derivative contracts
As of September 30, 2016
 
As of December 31, 2015
 
Number of contracts / Notional Value
 
Fair value
 
Number of contracts / Notional Value
 
Fair value
 
(dollars in thousands)
Futures
$
13,935

 
$
704

 
$
9,416

 
$
189

Currency forwards
$
59,902

 
17

 
$
67,862

 
659

Equity swaps
$
67,059

 
1,442

 
$
118,488

 
2,327

Options other (a)
242,968

 
22,941

 
289,433

 
31,456

Foreign currency options
$
245,700

 
2,324

 
$
283,797

 
4,987

 
 
 
$
27,428

 
 
 
$
39,618

(a) Includes index, equity, commodity future and cash conversion options.

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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Payable for derivative contracts
As of September 30, 2016
 
As of December 31, 2015
 
Number of contracts / Notional Value
 
Fair value
 
Number of contracts / Notional Value
 
Fair value
 
(dollars in thousands)
Futures
$
42,736

 
$
1,235

 
$
11,995

 
$
101

Currency forwards
$
24,650

 
37

 
$
44,156

 
463

Equity and credit default swaps
$

 

 
$
7,605

 
71

Options other (a)
11,235

 
15,749

 
16,632

 
20,548

 
 
 
$
17,021

 
 
 
$
21,183

(a) Includes index, equity, commodity future and cash conversion options.
The following tables present the gross and net derivative positions and the related offsetting amount, as of September 30, 2016 and December 31, 2015.
 
 
 
 
 
 
 
Gross amounts not offset in the Condensed Consolidated Statement of Financial Condition
 
 
 
Gross amounts recognized
 
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition (a)
 
Net amounts included on the Condensed Consolidated Statements of Financial Condition
 
Financial instruments
 
Cash Collateral pledged (b)
 
Net amounts
 
(dollars in thousands)
As of September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Receivable on derivative contracts, at fair value
$
27,428

 
$

 
$
27,428

 
$

 
$
4,278

 
$
23,150

Payable for derivative contracts, at fair value
17,021

 

 
17,021

 

 
37

 
16,984

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Receivable on derivative contracts, at fair value
39,618

 

 
39,618

 

 
9,339

 
30,279

Payable for derivative contracts, at fair value
21,183

 

 
21,183

 

 
534

 
20,649

(a)
Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the extent an event of default has occurred.
(b)
Includes the amount of collateral held or posted.
The realized and unrealized gains/(losses) related to derivatives trading activities were $(2.8) million and $(0.2) million for the three months ended September 30, 2016 and 2015 and $(10.4) million and $(5.6) million for the nine months ended September 30, 2016 and 2015, respectively, and are included in other income in the accompanying condensed consolidated statements of operations.
Pursuant to the various derivatives transactions discussed above, except for the cash convertible note hedge (see Note 13) and exchange traded derivatives, the Company is required to post/receive collateral. As of September 30, 2016 and December 31, 2015, collateral consisting of $23.1 million and $27.1 million of cash, respectively, is included in receivable from brokers and payable to brokers on the accompanying condensed consolidated statements of financial condition. As of September 30, 2016 and December 31, 2015 all derivative contracts were with multiple major financial institutions.





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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Other investments
As of September 30, 2016 and December 31, 2015, other investments included the following:
 
As of September 30, 2016
 
As of December 31, 2015
 
(dollars in thousands)
Portfolio Funds, at fair value (1)
$
115,682

 
$
113,281

Equity method investments (2)
51,485

 
27,067

Lehman claims, at fair value
283

 
299

 
$
167,450

 
$
140,647

(1) Portfolio Funds, at fair value
The Portfolio Funds, at fair value as of September 30, 2016 and December 31, 2015, included the following:

As of September 30, 2016
 
As of December 31, 2015

(dollars in thousands)
HealthCare Royalty Partners (a)(*)
$
9,058

 
$
12,127

HealthCare Royalty Partners II (a)(*)
4,885

 
6,006

Orchard Square Partners Credit Fund LP (b)
4,241

 
4,170

Starboard Value and Opportunity Fund LP (c)(*)
27,984

 
20,369

Starboard Partners Fund LP (d)(*)
3,969

 
14,036

Starboard Leaders Fund LP (e)(*)
1,147

 
1,080

Formation8 Partners Fund I, L.P. (f)
21,784

 
19,454

Eclipse Ventures Fund I, L.P. (formerly Formation8 Partners Hardware Fund I, L.P.) (g)
1,705

 
1,101

RCG LV Park Lane LLC (h) (*)
971

 
809

RCGL 12E13th LLC (i) (*)
402

 
609

RCG Longview Debt Fund V, L.P. (i) (*)
16,325

 
18,147

RCG LPP2 PNW5 Co-Invest, L.P. (j) (*)
2,468

 
2,468

Quadratic Fund LLC (k) (*)
6,684

 

Other private investment (l) (*)
8,241

 
6,909

Other affiliated funds (m)(*)
5,818

 
5,996

 
$
115,682

 
$
113,281

* These portfolio funds are affiliates of the Company.
The Company has no unfunded commitments regarding the portfolio funds held by the Company except as noted in Note 12.
(a)
HealthCare Royalty Partners, L.P. and HealthCare Royalty Partners II, L.P. are private equity funds and therefore distributions will be made when cash flows are received from the underlying investments, typically on a quarterly basis.
(b)
Orchard Square Partners Credit Fund LP has a quarterly redemption policy with a 60 day notice period and a 4% penalty on redemptions of investments of less than a year in duration.
(c)
Starboard Value and Opportunity Fund LP permits quarterly withdrawals upon 90 days notice.
(d)
Starboard Partners Fund LP permits redemptions on a semi-annual basis on 180 days prior written notice subsequent to an initial two year lock up.
(e)
Starboard Leaders Fund LP does not permit withdrawals, but instead allows terminations with respect to capital commitments upon 30 days prior written notice at any time following the first anniversary of an investors initial capital contribution.
(f)
Formation8 Partners Fund I, L.P. is a private equity fund which invests in early stage and growth transformational information and energy technology companies. Distributions will be made when the underlying investments are liquidated.

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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(g)
Eclipse Ventures Fund I, L.P. (Formerly Formation8 Partners Hardware Fund I, L.P.) is a private equity fund which invests in early stage and growth hardware companies. Distributions will be made when the underlying investments are liquidated.
(h)
RCG LV Park Lane LLC is a single purpose entity formed to participate in a joint venture which acquired, at a discount, the mortgage notes on a portfolio of multifamily real estate properties located in Birmingham, Alabama.  RCG LV Park Lane LLC is a private equity fund and therefore distributions will be made when the underlying investments are liquidated.
(i)
RCGL 12E13th LLC and RCG Longview Debt Fund V, L.P. are real estate private equity structures and therefore distributions will be made when the underlying investments are liquidated.
(j)
RCG LPP2 PNW5 Co-Invest, L.P. is a single purpose entity formed to participate in a joint venture which acquired five multi-unit residential rental properties located in the Pacific Northwest. RCG LPP2 PNW5 Co-Invest, L.P. is a private equity structure and therefore distributions will be made when the underlying investments are liquidated.
(k)
Quadratic Fund LLC permits redemptions on a 30 days prior written notice.
(l)
Other private investment represents the Company's closed end investment in a portfolio fund that invests in a wireless broadband communication provider in Italy.
(m)
The majority of these funds are affiliates of the Company or are managed by the Company and the investors can redeem from these funds as investments are liquidated.
(2)
Equity method investments
Equity method investments include investments held by the Company in several operating companies whose operations primarily include the day to day management of a number of real estate funds, including the portfolio management and administrative services related to the acquisition, disposition, and active monitoring of the real estate funds' underlying debt and equity investments. The Company's ownership interests in these equity method investments range from 20% to 55%. The Company holds a majority of the outstanding ownership interest (i.e., more than 50%) in RCG Longview Partners II, LLC. The operating agreement that governs the management of day-to-day operations and affairs of this entity stipulates that certain decisions require support and approval from other members in addition to the support and approval of the Company. As a result, all operating decisions made in this entity requires the support of both the Company and an affirmative vote of a majority of the other managing members who are not affiliates of the Company. As the Company does not possess control over any of these entities, the presumption of consolidation has been overcome pursuant to current accounting standards and the Company accounts for these investments under the equity method of accounting. Also included in equity method investments are the investments in (a) HealthCare Royalty Partners General Partners and (b) Starboard Value (and certain related parties) which serves as an operating company whose operations primarily include the day to day management (including portfolio management) of several activist hedge funds and related managed accounts and c) Surf House Ocean Views Holdings, LLC which is a joint venture in a real estate development project. The Company recorded no impairment charges in relation to its equity method investments for the nine months ended September 30, 2016 and 2015.

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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The following table summarizes equity method investments held by the Company:
 
As of September 30, 2016
 
As of December 31, 2015
 
(dollars in thousands)
RCG Longview Debt Fund IV Management, LLC
$
331

 
$
331

RCG Longview Debt Fund V Partners, LLC
6,594

 
4,655

HealthCare Royalty GP, LLC
739

 
989

HealthCare Royalty GP II, LLC
827

 
1,017

HealthCare Royalty GP III, LLC
197

 
88

HealthCare Overflow Fund GP, LLC
101

 

Surf House Ocean Views Holdings, LLC
13,383

 

Starboard Value LP
25,529

 
15,769

RCG Longview Management, LLC
714

 
656

RCG Urban American, LLC
107

 
120

RCG Urban American Management, LLC
379

 
379

RCG Longview Equity Management, LLC
114

 
114

Urban American Real Estate Fund II, LLC
1,311

 
1,211

RCG Kennedy House, LLC
227

 
304

Other
932

 
1,434

 
$
51,485

 
$
27,067


For the period ended September 30, 2016, one equity method investment held by the Company has met the significance criteria as defined under SEC guidance. As such, the Company is required to present summarized financial information for the significant investee for the three and nine months ended September 30, 2016 and 2015 and such information is as follows.
Other equity method investment
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(dollars in thousands)
Revenues
$
9,005

 
$
(8,686
)
 
$
9,747

 
$
(5,182
)
Expenses

 

 

 

Net realized and unrealized gains (losses)
37

 
(132
)
 
92

 
(67
)
Net Income
$
9,042

 
$
(8,818
)
 
$
9,839

 
$
(5,249
)
As of September 30, 2016 and December 31, 2015, the Company's share of losses in its equity method investment in RCG Longview Partners II, LLC has exceeded the carrying amount recorded in this investee. These amounts are included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated statements of financial condition. RCG Longview Partners II, LLC, as general partner to a real estate fund, has reversed previously recorded incentive income allocations and has recorded a current clawback obligation to the limited partners in the fund. This obligation is due to a change in unrealized value of the fund on which there have previously been distributed carried interest realizations; however, the settlement of a potential obligation is not due until the end of the life of the respective fund. As the Company is obligated to return previous distributions it received from RCG Longview Partners II, LLC, it has continued to record its share of gains/losses in the investee including reflecting its share of the clawback obligation in the amount of $6.2 million.
The Company's income (loss) from equity method investments was a loss of $0.1 million and $5.9 million for the three months ended September 30, 2016 and 2015 and a gain of $16.0 million and $3.4 million for the nine months ended September 30, 2016 and 2015, respectively, and is included in net gains (losses) on securities, derivatives and other investments on the accompanying condensed consolidated statements of operations.
Securities sold, not yet purchased, at fair value
Securities sold, not yet purchased, at fair value represent obligations of the Company to deliver a specified security at a contracted price and, thereby, create a liability to purchase that security at prevailing prices. The Company's liability for securities to be delivered is measured at their fair value as of the date of the consolidated financial statements. However, these transactions result in off-balance sheet risk, as the Company's ultimate cost to satisfy the delivery of securities sold, not yet purchased, at fair value may exceed the amount reflected in the accompanying condensed consolidated statements of financial condition. Substantially all equity securities and options are pledged to the clearing broker under terms which permit the

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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

clearing broker to sell or re-pledge the securities to others subject to certain limitations. As of September 30, 2016 and December 31, 2015, securities sold, not yet purchased, at fair value consisted of the following:
 
As of September 30, 2016
 
As of December 31, 2015
 
(dollars in thousands)
Common stocks
$
208,491

 
$
257,101

Corporate bonds (a)
3,653

 
58

Warrants and rights
39

 

 
$
212,183

 
$
257,159

(a)
As of September 30, 2016 and December 31, 2015, the maturities ranged from June 2017 to January 2026 with interest rates ranged between 3.25% to 6.88%.
Variable Interest Entities
The total assets and liabilities of the variable interest entities for which the Company has concluded that it holds a variable interest, but for which it is not the primary beneficiary, are $5.1 billion and $0.7 billion as of September 30, 2016 and $3.1 billion and $473.3 million as of December 31, 2015, respectively. In addition, the maximum exposure relating to these variable interest entities as of September 30, 2016 was $483.9 million, and as of December 31, 2015 was $327.8 million, all of which is included in other investments, at fair value in the accompanying condensed consolidated statements of financial condition. The exposure to loss primarily relates to the Consolidated Feeder Funds' investment in their Unconsolidated Master Funds and the Company's investment in unconsolidated investment companies.
b.
Consolidated Funds
Securities owned, at fair value
As of September 30, 2016 and December 31, 2015, securities owned, at fair value, held by the Consolidated Funds consisted of the following:
 
As of September 30, 2016
 
As of December 31, 2015
 
(dollars in thousands)
     U.S. Government securities (a)
$
3,999

 
$

     Preferred stock
37,243

 
32,000

     Common stocks
22,950

 

     Corporate bonds (b)
5,452

 

     Warrants and rights
3

 

     Term Loan
1,809

 

 
$
71,456

 
$
32,000

(a) As of September 30, 2016, maturity was December 2016 with an interest rate of 0%.
(b) As of September 30, 2016, maturities ranged from October 2017 to May 2049 and interest rates ranged between 5.88% and 14.37%.
Securities sold, not yet purchased, at fair value
As of September 30, 2016, securities sold, not yet purchased, at fair value, held by the Consolidated Funds consisted of the following:
 
As of September 30, 2016
 
(dollars in thousands)
     Common stocks
$
395

     Corporate bonds (a)
1,145

 
$
1,540

(a) As of September 30, 2016, maturities ranged from September 2019 to March 2025 and interest rates ranged between 4.38% and 9.25%.


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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Receivable on derivative contracts
As of September 30, 2016, receivable on derivative contracts, at fair value, held by the Consolidated Funds are comprised of:
 
As of September 30, 2016
 
(dollars in thousands)
Currency forwards
$
1

Equity swaps
366

Options
62

 
$
429

Payable for derivative contracts
As of September 30, 2016, receivable on derivative contracts, at fair value, held by the Consolidated Funds are comprised of:
 
As of September 30, 2016
 
(dollars in thousands)
Futures
$
246

Options
30

 
$
276

Other investments, at fair value
Investments in Portfolio Funds, at fair value
As of September 30, 2016 and December 31, 2015, investments in Portfolio Funds, at fair value, included the following:

As of September 30, 2016
 
As of December 31, 2015

(dollars in thousands)
Investments of Enterprise LP
$
110,290

 
$
111,075

Investments of Merger Fund
275,407

 
74,348

Investments of Caerus Select Fund Ltd
6,175

 

Investments of Quadratic LLC

 
78,395


$
391,872

 
$
263,818

Consolidated portfolio fund investments of Enterprise LP    
Enterprise LP operates under a “master-feeder” structure, whereby Enterprise Master's shareholders are Enterprise LP and RCG II Intermediate Fund, L.P. The consolidated investments in Portfolio Funds include Enterprise LP's investment of $110.3 million and $111.1 million in Enterprise Master as of September 30, 2016 and December 31, 2015, respectively. On May 12, 2010, the Company announced its intention to close Enterprise Master. Prior to this announcement, strategies utilized by Enterprise Master included merger arbitrage and activist investing, investments in distressed securities, convertible hedging, capital structure arbitrage, equity market neutral, investments in private placements of convertible securities, proprietary mortgages, structured credit investments, investments in mortgage backed securities and other structured finance products, investments in real estate and real property interests, structured private placements and other relative value strategies. Enterprise Master had broad investment powers and maximum flexibility in seeking to achieve its investment objective. Enterprise Master was permitted to invest in equity securities, debt instruments, options, futures, swaps, credit default swaps and other derivatives. As Enterprise Master winds down its positions, it will return capital to its investors. There are no unfunded commitments at Enterprise LP.
Consolidated portfolio fund investments of Merger Fund    
The Merger Fund operates under a “master-feeder” structure, whereby Ramius Merger Master Ltd's ("Merger Master") shareholders are Merger Fund and Ramius Merger Fund Ltd. The consolidated investments in Portfolio Funds include Merger Fund's investment of $275.4 million and $74.3 million in Merger Master as of September 30, 2016 and December 31, 2015, respectively. The Merger Master’s investment objective is to achieve consistent absolute returns while emphasizing the preservation of investor capital. The Merger Master seeks to achieve these objectives by taking a fundamental, research-driven

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Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

approach to investing, primarily in the securities of issuers engaged in, or subject to, announced (or unannounced but otherwise anticipated) extraordinary corporate transactions, which may include, but are not limited to, mergers, acquisitions, leveraged buyouts, tender offers, hostile takeover bids, sale processes, exchange offers, and recapitalizations. Merger Master invests in the securities of one or more issuers engaged in or subject to such extraordinary corporate transactions. Merger Master typically seeks to derive a profit by realizing the price differential, or “spread,” between the market price of securities purchased or sold short and the market price or value of securities realized in connection with the completion or termination of the extraordinary corporate transaction, or in connection with the adjustment of market prices in anticipation thereof, while seeking to minimize the market risk associated with the aforementioned investment activities. Merger Master will, depending on markets conditions, generally focus the majority of its investment program on announced transactions. If the investment manager of Merger Master considers it necessary, it may either alone or as part of a group, also initiate shareholder actions seeking to maximize value. Such shareholder actions may include, but are not limited to, re-orienting management’s focus or initiating the sale of the company (or one or more of its divisions) to a third party. There are no unfunded commitments at Merger Fund.
Consolidated portfolio fund investments of Caerus LP    
Caerus LP operates under a “master-feeder” structure, whereby Caerus Select Master Fund Ltd's ("Caerus Master") shareholder is Caerus LP. The consolidated investments in Portfolio Funds include Caerus LP's investment of $6.2 million in Caerus Master as of September 30, 2016. Caerus Master’s investment objective is to achieve superior risk-adjusted rates of return that bear little correlation to the overall market.  Caerus Master seeks to achieve this objective by utilizing a long/short investment strategy, investing primarily in equities and options on equities that trade on major global market exchanges. Caerus Master focuses on investments in the global consumer sector, including, but not limited to, securities in sub-sectors such as retail, apparel and footwear, restaurants, gaming and lodging, consumer products, food and beverage, consumer technology, media, transportation and homebuilding and building materials. There are no unfunded commitments at Caerus LP.
Consolidated portfolio fund investments of Quadratic Fund LLC     
Quadratic LLC operates under a “master-feeder” structure, whereby Quadratic Master Fund Ltd's ("Quadratic Master") shareholders are Quadratic Fund LLC and Quadratic Fund Ltd. The consolidated investments in Portfolio Funds include Quadratic Fund LLC's investment of $78.4 million in Quadratic Master as of December 31, 2015. Quadratic LLC was deconsolidated on January 1, 2016 (See Note 3). The Quadratic Master’s investment objective is to achieve attractive, risk-adjusted rates of return through the use of proprietary fundamental global macro and options/swaptions based strategies. Quadratic Master’s strategy is primarily executed via options and swaptions.
Indirect Concentration of the Underlying Investments Held by Consolidated Funds
From time to time, either directly or indirectly through its investments in the Consolidated Funds, the Company may maintain exposure to a particular issue or issuer (both long and/or short) which may account for 5% or more of the Company's equity. Based on information that is available to the Company as of September 30, 2016 and December 31, 2015, the Company assessed whether or not its interests in an issuer for which the Company's pro-rata share exceeds 5% of the Company's equity. There were no indirect concentrations that exceeded 5% of the Company's equity as of September 30, 2016 and December 31, 2015.
Underlying Investments of Unconsolidated Funds Held by Consolidated Funds
Enterprise Master and Merger Master
Enterprise LP's investment in Enterprise Master represents Enterprise LP's proportionate share of Enterprise Master's net assets; as a result, the investment balances of Enterprise Master reflected below may exceed the net investment which Enterprise LP has recorded. Merger Fund's investment in Merger Master represents Merger Fund's proportionate share of Merger Master's net assets; as a result, the investment balances of Merger Master reflected below may exceed the net investment which Merger Fund has recorded. The following tables present summarized investment information for the underlying investments and derivatives held by Enterprise Master and Merger Master as of September 30, 2016 and December 31, 2015:

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Table of Contents
Cowen Group, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Securities owned by Enterprise Master, at fair value
 
As of September 30, 2016
 
As of December 31, 2015
 
(dollars in thousands)
Common stock
835

 
724

Preferred stock
1,587

 
1,484

Restricted stock
124

 
124

Rights

 
321

Trade claims

 
128

 
$
2,546

 
$
2,781

Receivable/(Payable) on derivative contracts, at fair value, owned by Enterprise Master
 
As of September 30, 2016
 
As of December 31, 2015
Description
(dollars in thousands)
Currency forwards
$

 
$
(4
)
 
$

 
$
(4
)
Portfolio Funds, owned by Enterprise Master, at fair value
 
 
 
As of September 30, 2016
 
As of December 31, 2015
 
Strategy
 
(dollars in thousands)
RCG Longview Equity Fund, LP*
Real Estate
 
$
4,847

 
$
7,635

RCG Longview II, LP*
Real Estate
 
742

 
698

RCG Longview Debt Fund IV, LP*
Real Estate
 
1,841

 
3,577

RCG Soundview, LLC*
Real Estate
 
452

 
452

RCG Urban American Real Estate Fund, L.P.*
Real Estate
 
307

 
312

RCG Special Opportunities Fund, Ltd*
Multi-Strategy
 
95,023

 
81,544

RCG Energy, LLC *
Energy
 

 
1,189

RCG Renergys, LLC*
Energy
 
1

 
1

Other Private Investments
Various
 
9,164

 
10,515

Other Real Estate Investments *
Real Estate
 
4,779

 
5,753

 
 
 
$
117,156

 
$
111,676