Edgar Filing: COWEN GROUP, INC.

10Q 9/30/13

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, 2013
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 November 6, 2013 there were 117,849,034 shares of the registrant's common stock outstanding.

Table of Contents

TABLE OF CONTENTS



Item No.			Page No.
PART I. FINANCIAL INFORMATION			4
	1. Unaudited Condensed Consolidated Financial Statements		4
		Condensed Consolidated Statements of Financial Condition	4
		Condensed Consolidated Statements of Operations	5
		Condensed Consolidated Statements of Comprehensive Income (Loss)	6
		Condensed Consolidated Statements of Changes in Equity	7
		Condensed Consolidated Statements of Cash Flows	8
		Notes to Condensed Consolidated Financial Statements	9
	2. Management's Discussion and Analysis of Financial Condition and Results of Operations		48
	3. Quantitative and Qualitative Disclosures About Market Risk		77
	4. Controls and Procedures		77
PART II. OTHER INFORMATION			77
	1. Legal Proceedings		77
	1A. Risk Factors		78
	2. Unregistered Sales of Equity Securities and Use of Proceeds		78
	3. Defaults Upon Senior Securities		79
	4. Mine Safety Disclosures		79
	5. Other Information		79
	6. Exhibits		79
SIGNATURES			80
EXHIBIT INDEX			E- 1

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, 2012.

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, 2013 and 2012. The Consolidated Financial Statements as of December 31, 2012 were audited.

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,			As of December 31,
	2013			2012
Assets
Cash and cash equivalents	$	39,217		$	83,538
Cash collateral pledged	10,899			9,160
Securities owned, at fair value	380,599			624,127
Securities borrowed	902,572			408,096
Other investments	98,162			84,930
Receivable from brokers	67,966			71,306
Fees receivable, net of allowance	39,174			34,707
Due from related parties	26,658			21,022
Fixed assets, net of accumulated depreciation and amortization of $34,556 and $30,003, respectively	28,580			32,202
Goodwill	36,207			28,545
Intangible assets, net of accumulated amortization of $25,784 and $22,945, respectively	12,920			12,984
Other assets	29,158			16,278
Consolidated Funds
Cash and cash equivalents	1,488			3,559
Securities owned, at fair value	—			3,525
Other investments, at fair value	200,210			204,205
Other assets	458			292
Total Assets	$	1,874,268		$	1,638,476
Liabilities and Stockholders' Equity
Liabilities
Securities sold, not yet purchased, at fair value	$	131,129		$	177,937
Securities sold under agreement to repurchase	6,311			165,945
Securities loaned	894,790			410,441
Payable to brokers	149,276			188,788
Compensation payable	30,061			45,752
Short-term borrowings and other debt	3,369			4,132
Fees payable	8,210			5,277
Due to related parties	466			662
Accounts payable, accrued expenses and other liabilities	49,017			55,425
Consolidated Funds
Capital withdrawals payable	—			2,891
Accounts payable, accrued expenses and other liabilities	154			414
Total Liabilities	1,272,783			1,057,664
Commitments and Contingencies (Note 13)
Redeemable non-controlling interests	90,179			85,703
Stockholders' equity
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized, no shares issued and outstanding	—			—
Class A common stock, par value $0.01 per share: 250,000,000 shares authorized, 130,567,432 shares issued and 117,411,528 outstanding as of September 30, 2013 and 123,740,112 shares issued and 112,447,892 outstanding as of December 31, 2012, respectively (including 482,522 and 336,895 restricted shares, respectively)	1,160			1,135
Class B common stock, par value $0.01 per share: 250,000,000 authorized, no shares issued and outstanding	—			—
Additional paid-in capital	733,286			713,211
(Accumulated deficit) retained earnings	(185,762		)	(187,865		)
Accumulated other comprehensive income (loss)	139			356
Less: Class A common stock held in treasury, at cost, 13,131,160 and 11,292,220 shares as of September 30, 2013 and December 31, 2012, respectively.	(37,517		)	(31,728		)
Total Stockholders' Equity	511,306			495,109
Total Liabilities and Stockholders' Equity	$	1,874,268		$	1,638,476

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

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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,
	2013			2012			2013		2012
Revenues
Investment banking	$	27,694		$	18,666		$	70,431	$	50,550
Brokerage	28,462			22,701			86,583		71,282
Management fees	9,327			8,866			28,518		28,515
Incentive income	2,521			1,416			7,086		2,687
Interest and dividends	10,969			3,605			30,905		14,845
Reimbursement from affiliates	1,386			1,370			4,085		3,796
Other revenues	556			701			1,519		2,398
Consolidated Funds
Interest and dividends	255			24			414		115
Other revenues	190			249			267		359
Total revenues	81,360			57,598			229,808		174,547
Expenses
Employee compensation and benefits	53,614			47,322			145,344		137,102
Floor brokerage and trade execution	4,033			3,058			13,479		10,992
Interest and dividends	6,133			2,056			20,287		7,107
Professional, advisory and other fees	4,022			3,534			10,878		11,158
Service fees	2,351			2,807			7,615		8,198
Communications	4,670			4,522			13,423		11,775
Occupancy and equipment	6,752			5,808			19,019		16,594
Depreciation and amortization	2,624			2,427			7,786		6,945
Client services and business development	3,493			3,510			12,251		11,089
Other expenses	3,595			3,680			10,142		10,919
Consolidated Funds
Interest and dividends	96			2			157		22
Professional, advisory and other fees	230			263			717		1,112
Floor brokerage and trade execution	91			—			196		—
Other expenses	33			65			167		205
Total expenses	91,737			79,054			261,461		233,218
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	15,469			12,510			32,873		41,969
Consolidated Funds
Net realized and unrealized gains (losses) on investments and other transactions	3,096			(2,730		)	11,274		817
Net realized and unrealized gains (losses) on derivatives	(32		)	212			430		626
Net gains (losses) on foreign currency transactions	168			9			1		(6		)
Total other income (loss)	18,701			10,001			44,578		43,406
Income (loss) before income taxes	8,324			(11,455		)	12,925		(15,265		)
Income tax expense (benefit)	(46		)	163			288		496
Net income (loss)	8,370			(11,618		)	12,637		(15,761		)
Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries	4,759			(1,033		)	10,509		(1,225		)
Net income (loss) attributable to Cowen Group, Inc. stockholders	$	3,611		$	(10,585	)	$	2,128	$	(14,536	)
Weighted average common shares outstanding:
Basic	118,359			114,989			116,012		114,587
Diluted	122,708			114,989			119,891		114,587
Earnings (loss) per share:
Basic	$	0.03		$	(0.09	)	$	0.02	$	(0.13	)
Diluted	$	0.03		$	(0.09	)	$	0.02	$	(0.13	)

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

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Cowen Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)



	Nine Months Ended September 30, 2013							Nine Months Ended September 30, 2012

Net income (loss)					$	12,637				$	(15,761	)
Other comprehensive income (loss), net of tax:
Foreign currency translation			(10	)					126
Defined benefit pension plans:
Net gain/(loss) arising during the period	(223	)						235
Add: amortization of prior service cost included in net periodic pension cost	16		(207	)				15	250
Total other comprehensive income, net of tax					(217		)			376
Comprehensive income (loss)					$	12,420				$	(15,385	)

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

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Cowen Group, Inc.

Condensed Consolidated Statements of Changes in Equity

(dollars in thousands, except share data)

(unaudited)



	Common Shares Outstanding		Common 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, 2012	112,447,892		$	1,135	$	(31,728	)	$	713,211	$	356		$	(187,865	)	$	495,109		$	85,703
Net income (loss)	—		—		—			—		—			2,128			2,128			10,509
Defined benefit plans	—		—		—			—		(207		)	—			(207		)	—
Foreign currency translation	—		—		—			—		(10		)	—			(10		)	—
Capital contributions	—		—		—			—		—			—			—			11,656
Capital withdrawals	—		—		—			—		—			—			—			(17,689		)
Restricted stock awards issued	4,288,108		—		—			—		—			—			—			—
Common stock issued upon acquisition (See Note 2)	2,514,468		25		—			6,272		—			—			6,297			—
Purchase of treasury stock, at cost	(1,863,684	)	—		(5,879		)	—		—			—			(5,879		)	—
Treasury stock re-issuance	24,744		—		90			—		—			(25		)	65			—
Amortization of share based compensation	—		—		—			13,803		—			—			13,803			—
Balance, September 30, 2013	117,411,528		$	1,160	$	(37,517	)	$	733,286	$	139		$	(185,762	)	$	511,306		$	90,179


	Common Shares Outstanding		Common 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, 2011	114,047,637		$	1,135	$	(16,902	)	$	688,427	$	(215	)	$	(163,980	)	$	508,465		$	104,587
Net income (loss)	—		—		—			—		—			(14,536		)	(14,536		)	(1,225		)
Defined benefit plans	—		—		—			—		250			—			250			—
Foreign currency translation	—		—		—			—		126			—			126			—
Deconsolidation of funds	—		—		—			—		—						—			(17,104		)
Consolidation of funds	—		—		—			—		—			—			—			18,521
Capital withdrawals	—		—		—			—		—			—			—			(17,268		)
Capital contributions	—		—		—			—		—			—			—			500
Restricted stock awards issued	4,189,400		—		—			—		—			—			—			—
Purchase of treasury stock, at cost	(4,274,148	)	—		(10,904		)	—		—			—			(10,904		)	—
Amortization of share based compensation	—		—		—			20,578		—			—			20,578			—
Balance, September 30, 2012	113,962,889		$	1,135	$	(27,806	)	$	709,005	$	161		$	(178,516	)	$	503,979		$	88,011

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

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Cowen Group, Inc. Condensed Consolidated Statements of Cash Flows (dollars in thousands) (unaudited)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net income (loss)	$	12,637		$	(15,761	)
Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities:
Depreciation and amortization	7,786			6,945
Share-based compensation	13,803			20,578
Deferred rent obligations	(2,195		)	(1,316		)
Net loss on disposal of fixed assets	350			—
Purchases of securities owned, at fair value	(6,000,365		)	(4,776,378		)
Proceeds from sales of securities owned, at fair value	6,224,311			4,818,865
Proceeds from sales of securities sold, not yet purchased, at fair value	2,442,760			3,487,601
Payments to cover securities sold, not yet purchased, at fair value	(2,472,108		)	(3,582,578		)
Net (gains) losses on securities, derivatives and other investments	(30,003		)	(33,576		)
Consolidated Funds
Purchases of securities owned, at fair value	(298,220		)	(249,731		)
Proceeds from sales of securities owned, at fair value	287,412			252,966
Proceeds from sales of securities sold, not yet purchased, at fair value	42,701			—
Payments to cover securities sold, not yet purchased, at fair value	(42,387		)	—
Purchases of other investments	(973		)	(8,273		)
Proceeds from sales of other investments	39,195			33,795
Net realized and unrealized (gains) losses on investments and other transactions	(12,729		)	(2,718		)
(Increase) decrease in operating assets:
Cash acquired upon transaction	10,747			—
Cash collateral pledged	143			516
Securities owned, at fair value, held at broker dealer	13,144			56,796
Securities borrowed	(494,476		)	—
Receivable from brokers	4,628			(41,779		)
Fees receivable, net of allowance	(4,237		)	934
Due from related parties	(5,636		)	188
Other assets	(11,207		)	4,158
Consolidated Funds
Cash and cash equivalents	2,071			(659		)
Other assets	(362		)	1,290
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased, at fair value, held at broker dealer	(8,480		)	(13,086		)
Securities loaned	484,349			—
Payable to brokers	(39,512		)	(10,110		)
Compensation payable	(34,020		)	(46,323		)
Fees payable	2,933			(587		)
Due to related parties	(196		)	(1,268		)
Accounts payable, accrued expenses and other liabilities	(10,392		)	(4,487		)
Consolidated Funds
Payable to brokers	1,030			—
Due to related parties	—			25
Accounts payable, accrued expenses and other liabilities	(249		)	777
Net cash provided by / (used in) operating activities	$	122,253		$	(103,196	)

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






	Nine Months Ended September 30,
(continued)	2013			2012
Cash flows from investing activities:
Securities purchased under agreement to resell	$	—		$	166,260
Purchases of other investments	(19,406		)	(4,291		)
Proceeds from sales of other investments	25,668			9,036
Purchase of business, net of cash acquired (Note 2)	—			(10,063		)
Cash paid to acquire net assets (contingent payable)	(73		)	—
Purchase of fixed assets	(784		)	(1,695		)
Net cash provided by / (used in) investing activities	5,405			159,247
Cash flows from financing activities:
Securities sold under agreement to repurchase	(159,634		)	(104,944		)
Borrowings on short-term borrowings and other debt	2,044			—
Repayments on short-term borrowings and other debt	(2,807		)	(1,134		)
Purchase of treasury stock	(2,658		)	(8,252		)
Capital contributions by non-controlling interests in operating entities	501			—
Capital withdrawals to non-controlling interests in operating entities	(2,282		)	(2,717		)
Consolidated Funds
Capital contributions by non-controlling interests in Consolidated Funds	11,155			—
Capital withdrawals to non-controlling interests in Consolidated Funds	(18,298		)	(12,103		)
Net cash provided by / (used in) financing activities	(171,979		)	(129,150		)
Change in cash and cash equivalents	(44,321		)	(73,099		)
Cash and cash equivalents at beginning of period	83,538			128,875
Cash and cash equivalents at end of period	$	39,217		$	55,776

Supplemental non-cash information
Non compete agreements and covenants with limiting conditions acquired (see Note 2)	$	460		$	—
Common stock issuance upon close of acquisition (see Note 2)	$	6,297		$	—
Purchase of treasury stock, at cost, through net settlement (see Note 15)	$	3,156		$	2,652
Re-issuance of treasury stock for services provided	$	65		$	—
Net assets transferred to Merger Master (see Note 5)	$	22,152		$	—
Net assets of consolidated entities	$	—		$	18,521
Net assets of deconsolidated entities	$	—		$	17,104

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

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Cowen Group, Inc.

Notes to 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, market-making and sales and trading services through its two business segments: alternative investment and broker-dealer. The Company's alternative investment segment includes hedge funds, replication products, mutual funds, managed futures funds, funds of funds, real estate and healthcare royalty funds, offered primarily under the Ramius name. The broker-dealer segment offers research, brokerage and investment banking services to companies and institutional investor clients primarily in the healthcare, technology, media and telecommunications, consumer, aerospace and defense, industrials, real estate investment trusts ("REITs"), clean technology, energy, metals and mining, transportation, chemicals and agriculture sectors, primarily under the Cowen name.

2. Acquisitions

On March 11, 2013, the Company completed its acquisition of Dahlman Rose & Company, LLC, a privately-held investment bank specializing in the energy, metals and mining, transportation, chemicals and agriculture sectors. This acquisition was an all-stock transaction. 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. Dahlman Rose & Company, LLC was subsequently renamed to Cowen Securities LLC ("Cowen Securities"). Post acquisition, Cowen Securities is included in the broker-dealer segment (See Note 17).

The Company is in discussions with the sellers regarding certain closing date balance sheet adjustments, resolution of which will potentially impact the purchase price, assets and liabilities recognized and the resulting goodwill. The Company does not believe the impact of these adjustments will be material. The preliminary purchase price allocation of Cowen Securities is based upon all information available to us at the present time, and is based upon management's preliminary estimates of the fair values using valuation techniques including income, cost and market approaches. As of September 30, 2013, the purchase price allocation is preliminary pending the final resolution of the closing date balance sheet adjustments, which the Company expects will occur within twelve months following the acquisition. Upon the completion of the final purchase price allocation, any reallocation of fair values to the assets acquired and liabilities assumed in the acquisitions could have an impact on the amounts recognized on the condensed consolidated statements of financial condition.

The acquisition was accounted for under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). As such, results of operations for the Cowen Securities 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.

3. Significant Accounting Policies


a.	Basis of presentation

These unaudited condensed consolidated financial statements and related notes have been prepared in accordance with US GAAP and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to interim financial statements. Results for interim periods should not be considered indicative of results for any other interim period or for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011, and 2010, included in the Form 10-K of Cowen Group as filed with the SEC on March 7, 2013. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are necessary for a fair presentation of the results for the interim periods. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP. All material intercompany transactions and balances have been eliminated in consolidation. Certain fund entities that are consolidated in these condensed consolidated financial statements, as further discussed below, are not subject to these consolidation provisions with respect to their own 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

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

condensed consolidated financial statements. The management fees and incentive income earned by the Company from these funds are eliminated in consolidation.


b.	Principles of consolidation

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 Entities—VOEs 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. VOEs are consolidated in accordance with US GAAP.

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 VOEs in which it owns a majority of the entity's voting shares or units. US GAAP also provides that a general partner of a limited partnership (or a managing member, in the case of a limited liability company) is presumed to control the partnership, and thus should consolidate it, unless a simple majority of the limited partners has the right to remove the general partner without cause or to terminate the partnership. In accordance with these standards, the Company presently consolidates eight entities deemed to be VOEs for which it acts as the general partner and investment manager.

As of September 30, 2013 and December 31, 2012, the Company consolidates the following funds: Ramius Enterprise LP (“Enterprise LP”), Ramius Multi‑Strategy Master FOF LP (“Multi‑Strat Master FOF”), Ramius Vintage Multi‑Strategy Master FOF LP (“Vintage Master FOF”), Ramius Levered Multi‑Strategy FOF LP (“Levered FOF”), and (effective May 1, 2013) Ramius Merger Fund LLC (the "Merger Fund") (collectively the "Consolidated Funds"). RTS Global 3X was consolidated as of December 31, 2012 but was liquidated on March 31, 2013.

The Company also consolidates three investment companies; RCG Linkem II LLC, formed to make an investment in a wireless broadband communication provider in Italy, Ramius Co-Investment I LLC (formerly known as Cowen Bluebird LLC) and Ramius Co-Investment II LLC (formerly known as RCG Ultragenex Holdings LLC), which were both formed to make investments in biomedical companies that develop innovative gene therapies for severe genetic disorders. The Company determined that RCG Linkem II, LLC, Ramius Co-Investment I LLC and Ramius Co-Investment II LLC are VOE's due to its controlling equity interests held through the managing member and/or affiliates and control exercised by the managing member who is not subject to substantive removal rights.

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 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.

However, the FASB has deferred the application of the revised consolidation model for VIEs that meet the following conditions: (a) the entity has all the attributes of an investment company as defined under AICPA Audit and Accounting Guide, Investment Companies, or does not have all the attributes of an investment company but is an entity for which it is acceptable based on industry practice to apply measurement principles that are consistent with investment companies, (b) the reporting entity does not have explicit or implicit obligations to fund any losses of the entity that could potentially be significant to the entity, and (c) the entity is not a securitization entity, asset‑backed financing entity or an entity that was formerly considered a qualifying special‑purpose entity. The Company's involvement with its funds is such that all three of the above conditions are met for substantially all of the funds managed by the Company. Where the VIEs have qualified for the deferral, the analysis is based on previous consolidation rules. These rules require an analysis to (a) determine whether an entity in which the Company holds a variable interest is a variable interest entity and (b) whether the Company's involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance related fees), would be expected to absorb a majority of the VIE's expected losses, receive a majority of the VIEs expected residual returns, or both. If these conditions are met, the Company 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

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Notes to Condensed Consolidated Financial Statements (Continued)

design of the VIE. As of September 30, 2013 the Company consolidates three VIEs and as of December 31, 2012 the Company does not consolidate any VIEs. As of September 30, 2013, the total net assets of the consolidated VIEs are $7.1 million. The VIEs act as managing members/general partners and/or investment managers to affiliated fund entities which they sponsor and/or manage. The VIEs are financed through their operations and/or loan agreements with the Company.

As of September 30, 2013 and December 31, 2012, the Company holds a variable interest in Ramius Enterprise Master Fund Ltd (“Enterprise Master”) (the “Unconsolidated Master Fund”) through one of its Consolidated Funds, Enterprise LP. 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 Fund.

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 any of these 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 Investments—For 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 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 condensed consolidated statements of operations.

The Company evaluates for impairment its equity method investments 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.

Other—If 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 all securities 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 condensed consolidated statements of operations.

Retention of Specialized Accounting—The Consolidated Funds 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 (formerly known as Cowen Capital LLC), ATM USA, LLC, and Cowen Equity Finance LP, 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

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Notes to Condensed Consolidated Financial Statements (Continued)

estimates. Certain reclassifications have been made to prior period amounts in order to conform with current period presentation.


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 condensed 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 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 its investments through Ramius Co-Investment I LLC (formerly known as Cowen Bluebird LLC), Ramius Co-Investment II LLC (formerly known as RCG Ultragenex Holdings LLC) and certain investments it holds though 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.

Securities—Securities whose values are based on quoted market prices in active markets for identical assets, and are therefore classified in level 1 of the fair value hierarchy, include active listed equities, certain U.S. government and sovereign

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Notes to Condensed Consolidated Financial Statements (Continued)

obligations, ETF's 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, are stated at fair value and classified within level 2. 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 contracts—Derivative 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. Futures and currency forwards are included within other assets on the accompanying condensed consolidated statements of financial condition and all other derivatives are included within securities owned, at fair value on the accompanying condensed consolidated statements of financial condition.

Other investments—Other investments consist primarily of portfolio funds, real estate investments and equity method investments, which are valued as follows:

Portfolio funds—Portfolio funds (“Portfolio Funds”) include interests in funds and investment companies 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.

The Company categorizes its investments in Portfolio Funds within the fair value hierarchy dependent on its ability to redeem the investment. If the Company has the ability to redeem its investment at NAV at the measurement date or within the near term, the Portfolio Fund is categorized as a level 2 investment within the fair value hierarchy. If the Company does not know when it will have the ability to redeem its investment or cannot do so in the near term, the Portfolio Fund is categorized as a level 3 investment within the fair value hierarchy. See Notes 5 and 6 for further details of the Company's investments in Portfolio Funds.

ii.

Real estate investments—Real estate 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.

The Company also reflects its real estate equity investments net of investment level financing. Valuation adjustments attributable to underlying financing arrangements are considered in the real estate equity valuation based on amounts at which the financing liabilities could be transferred to market participants at the measurement date.

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

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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 a level 3 investment within the fair value hierarchy as management uses significant unobservable inputs in determining their estimated fair value.

See Notes 5 and 6 for further information regarding the Company's investments, including equity method investments, and fair value measurements.


e.	Securities borrowed and securities loaned

Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced or received. The related rebates are recorded in the statement of operations as interest income and interest expense. Securities borrowed transactions require the Company to deposit cash collateral with the lender. With respect to securities loaned, the Company receives cash collateral from the borrower. The initial collateral advanced or received approximates or is greater than the market value of securities borrowed or loaned. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or returned, as necessary.


f.	Securities purchased under agreements to resell and securities sold under agreements to repurchase

The Company uses securities purchased under agreements to resell and securities sold under agreements to repurchase (“Repurchase Agreements”) as part of its liquidity management activities and to support its trading and risk management activities. In particular, securities purchased and sold under Repurchase Agreements are used for short-term liquidity purposes. As of September 30, 2013 and December 31, 2012, Repurchase Agreements are secured predominantly by liquid corporate credit and/or government issued securities. The use of Repurchase Agreements will fluctuate with the Company's need to fund short term credit or obtain competitive short term credit financing. The Company's securities purchased under agreements to resell and securities sold under agreements to repurchase were transacted pursuant to agreements with one counterparty as of September 30, 2013 and multiple counterparties as of December 31, 2012.

Collateral is valued daily and the Company and its counterparties may adjust the collateral or require additional collateral to be deposited when appropriate. Collateral held by counterparties may be sold or re-hypothecated by such counterparties, subject to certain limitations sometimes imposed by the Company and in accordance with the master netting agreements in place with the counter party. Collateralized Repurchase Agreements may result in credit exposure in the event the counterparties to the transactions are unable to fulfill their contractual obligations. The Company minimizes the credit risk associated with this activity by monitoring credit exposure and collateral values, and by requiring additional collateral to be promptly deposited with or returned to the Company when deemed necessary.

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 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, 2013 and December 31, 2012 is $16.2 million and $13.8 million, respectively.

h. New accounting pronouncements

Recently issued accounting pronouncements

In July 2013, the FASB issued guidance which was directed to eliminate the disparity in practice for the financial statement presentation of an unrecognized tax benefit when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exist. The guidance requires an entity to present the unrecognized tax benefit as a reduction to the deferred tax

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Notes to Condensed Consolidated Financial Statements (Continued)

asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward with certain exceptions. The guidance is effective prospectively for reporting periods beginning after December 15, 2013 for all unrecognized tax benefits that exist at the effective date. Early adoption and retrospective application is also permitted. The Company is currently evaluating the impact of this guidance on the Company's financial condition and results of operations.

In June 2013, the FASB issued guidance which amended the scope, measurement and disclosure requirements for Financial Services - Investment Companies. The guidance among other things changed the definition and criteria used for the investment company assessment. The guidance also require investment companies to measure non-controlling ownership interest in other investment companies at fair value rather than using equity method of accounting and requires certain additional disclosures. The guidance is effective for reporting periods beginning after December 15, 2013. The Company is currently evaluating the impact of this guidance on the Company's financial condition and results of operations.

In April 2013, the FASB issued guidance which improved and clarified the requirements as to when an entity should apply the liquidation basis of accounting and provides principles for the recognition and measurement of assets and liabilities. The guidance requires an entity to prepare its financial statements using liquidation basis of accounting when the liquidation is imminent and to present relevant information about entity's resources by measuring and presenting assets and liabilities at the amount of expected cash proceeds and / or settlement amounts. The guidance is effective prospectively for reporting periods beginning after December 15, 2013. The Company is currently evaluating the impact of this guidance on the Company's financial condition and the results of operations and its applicability on certain of its affiliated entities.

4. Cash collateral pledged

As of September 30, 2013 and December 31, 2012, the Company pledged cash collateral in the amount of $10.9 million and $9.2 million, respectively, which relates to letters of credit issued to the landlords of the Company's premises in New York City and San Francisco (see Note 14).

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 and options are pledged to the clearing broker under terms which permit the clearing broker to sell or re-pledge the securities to others subject to certain limitations.

As of September 30, 2013 and December 31, 2012, securities owned, at fair value consisted of the following:



	As of September 30, 2013		As of December 31, 2012
	(dollars in thousands)
U.S. Government securities (a)	$	3,506	$	137,478
Preferred stock	333		2,332
Common stocks	223,527		259,292
Convertible bonds (b)	4,129		6,202
Corporate bonds (c)	134,827		193,078
Options	10,974		20,546
Warrants and rights	2,778		2,354
Mutual funds	525		2,845
	$	380,599	$	624,127


(a)	As of September 30, 2013, maturities ranged from October 2013 to April 2016 and interest rates ranged between 0.02% and 5.95%. As of December 31, 2012, maturities ranged from November 2013 to November 2022 and interest rates ranged between 0.25% and 5.95%.


(b)	As of September 30, 2013, the maturity was July 2014 with an interest rate of 5.00%. As of December 31, 2012, maturities ranged from May 2014 to July 2014 with an interest rate of 5.00%.


(c)	As of September 30, 2013, maturities ranged from December 2013 to February 2046 and interest rates ranged between 2.58% and 11.75%. As of December 31, 2012, maturities ranged from January 2013 to February 2041 and interest rates ranged between 3.09% and 12.50%.

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Notes to Condensed Consolidated Financial Statements (Continued)

The Company's direct involvement with derivative financial instruments includes futures, currency forwards, equity swaps and warrants and rights. Open equity positions in futures transactions are recorded as receivables from and payables to broker-dealers or clearing brokers, as applicable. 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. The Company's overall exposure to financial derivatives is limited. The Company's long exposure to futures, currency forwards and equity swaps, at fair value, as of September 30, 2013 and December 31, 2012 of $0.6 million and $0.2 million, respectively, is included in other assets in the accompanying condensed consolidated statements of financial condition. The Company's short exposure to futures, currency forwards and equity swaps, at fair value, as of September 30, 2013 and December 31, 2012 of $0.3 million and $1.0 million, respectively, is included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated statements of financial condition. The realized and unrealized gains/(losses) related to derivatives trading activities for the three months ended September 30, 2013, and 2012, were $0.8 million, and $3.0 million, respectively, and was $3.1 million and $5.0 million for the nine months ended September 30, 2013 and 2012, respectively, and are included in other income in the accompanying condensed consolidated statements of operations.

Pursuant to the various derivatives transactions discussed above, the Company is required to post collateral for its obligations or potential obligations. As of September 30, 2013 and December 31, 2012, collateral consisting of $8.9 million and $6.7 million of cash, respectively, is included in receivable from brokers on the accompanying condensed consolidated statements of financial condition. As of September 30, 2013 and December 31, 2012 all derivative contracts were with multiple major financial institutions.

Other investments

As of September 30, 2013 and December 31, 2012, other investments consisted of the following:



	As of September 30, 2013		As of December 31, 2012
	(dollars in thousands)
(1) Portfolio Funds, at fair value	$	70,813	$	55,898
(2) Real estate investments, at fair value	2,127		1,864
(3) Equity method investments	24,664		26,462
(4) Lehman claims, at fair value	558		706
	$	98,162	$	84,930


(1)	Portfolio Funds, at fair value

The Portfolio Funds, at fair value as of September 30, 2013 and December 31, 2012, included the following:



	As of September 30, 2013		As of December 31, 2012
	(dollars in thousands)
HealthCare Royalty Partners (a)(*)	$	10,204	$	7,866
HealthCare Royalty Partners II (a)(*)	4,510		6,415
Orchard Square Partners Credit Fund LP (formerly known as Ramius Global Credit Fund LP) (b)(*)	12,417		14,196
Tapestry Investment Co PCC Ltd (c)	86		194
Starboard Value and Opportunity Fund LP (d)(*)	17,242		15,706
Formation 8 Partners Fund I (e)	2,802		1,500
RCG LV Park Lane LLC (f)	685		708
RCGL 12E13th LLC (g)	400		—
RCG Longview Debt Fund V, L.P. (g)	11,679		—
Other private investment (h)	8,004		7,826
Other affiliated funds (i)(*)	2,784		1,487
	$	70,813	$	55,898

* 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 13.

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Notes to Condensed Consolidated Financial Statements (Continued)


(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 (formerly known as Ramius Global 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)	Tapestry Investment Company PCC Ltd is in the process of liquidation and redemptions will be made periodically at the investment managers' decision as the underlying investments are liquidated.


(d)	Starboard Value and Opportunity Fund LP permits quarterly withdrawals upon 90 days notice.


(e)	Formation 8 Partners Fund I is a private equity fund which invests in equity of early stage and growth transformational information and energy technology companies. Distributions will be made when the underlying investments are liquidated.


(f)	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 structure and therefore distributions will be made when the underlying investments are liquidated.


(g)	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.


(h)	Other private investment represents the Company's closed end investment in a wireless broadband communication provider in Italy.


(i)	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)	Real estate investments, at fair value

Real estate investments as of September 30, 2013 and December 31, 2012 are carried at fair value and include real estate equity investments held by RCG RE Manager, LLC (“RE Manager”), a real estate operating subsidiary of the Company, of $2.1 million and $1.9 million, respectively.


(3)	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 three of these entities: RCG Longview Debt Fund IV Management, LLC, RCG Longview Debt Fund IV Partners, LLC and RCG Longview Partners II, LLC. The operating agreements that govern the management of day-to-day operations and affairs of each of these three entities stipulate 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 these three entities require 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) the three HealthCare Royalty Partners General Partners, which serve as the general partners for the Healthcare Royalty Funds, (b) an investment in the CBOE (Chicago Board Options Exchange) Stock Exchange LLC representing a 9.6% stake in the exchange service provider for which the Company exercises significant influence over through representation on the CBOE Board of Directors, and (c) Starboard Value LP (and certain related parties) which serves as an operating company whose operations primarily include the day to day management (including portfolio management) of a deep value small cap hedge fund and related managed accounts. The following table summarizes equity method investments held by the Company:

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Notes to Condensed Consolidated Financial Statements (Continued)



	As of September 30, 2013		As of December 31, 2012
	(dollars in thousands)
RCG Longview Debt Fund IV Management, LLC	$	1,594	$	1,954
RCG Longview Debt Fund V Partners, LLC	1,010		—
HealthCare Royalty GP, LLC	832		642
HealthCare Royalty GP II, LLC	764		1,086
HealthCare Royalty GP III, LLC	47		—
CBOE Stock Exchange, LLC	1,810		2,058
Starboard Value LP	11,692		12,757
RCG Longview Partners, LLC	2,016		1,535
RCG Longview Louisiana Manager, LLC	1,327		1,866
RCG Urban American, LLC	281		1,380
RCG Urban American Management, LLC	141		545
RCG Longview Equity Management, LLC	230		285
Urban American Real Estate Fund II, LLC	1,612		1,636
RCG Kennedy House, LLC	428		377
Other	880		341
	$	24,664	$	26,462

As of September 30, 2013 and December 31, 2012, 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 $5.2 million and $1.5 million, for the three months ended September 30, 2013 and 2012, respectively, and was $12.6 million and $9.4 million for the nine months ended September 30, 2013 and 2012, respectively, and is included in net gains (losses) on securities, derivatives and other investments on the accompanying condensed consolidated statements of operations. In addition, the Company recorded no impairment charges in relation to its equity method investments for the three and nine months ended September 30, 2013 and 2012, respectively.

For the period ended September 30, 2013, certain of the Company's equity method investments have met the significance criteria as defined under SEC guidance. As such, the Company is required to present summarized income statement information for the significant investees for the three and nine months ended September 30, 2013 and 2012. The summarized income statement information for the Company's investments in the individually significant investees is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(dollars in thousands)
Revenues	$	6,821		$	3,909		$	17,746		$	16,190
Expenses	(2,266		)	(2,785		)	(6,945		)	(7,850		)
Net realized and unrealized gains (losses)	(16		)	26			(116		)	135
Net Income	$	4,539		$	1,150		$	10,685		$	8,475


(4)	Lehman Claims, at fair value

Lehman Brothers International (Europe) (“LBIE”), through certain affiliates, was a prime broker to the Company, and the Company held cash and cash equivalent balances with LBIE. On September 15, 2008, LBIE was placed into administration (the “Administration”) in the United Kingdom and, as a result, the assets held by the Company in its LBIE accounts were frozen at LBIE. The status and ultimate resolution of the assets under LBIE's Administration proceedings is uncertain. The assets which the Company believed were held at LBIE at the time of Administration (the “Total Net Equity Claim”) consisted

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

of $1.0 million, which the Company believed would represent an unsecured claim against LBIE. On November 2, 2012, the Company executed a Claims Determination Deed with respect to this claim. By entering into this deed, the Company and LBIE reached agreement on the amount of the Company's unsecured claim, which was agreed to be approximately $0.9 million. As a result of entering into this deed, the Company is entitled to participate in dividends to unsecured creditors of LBIE and at the end of November 2012 the Company received its first dividend in an amount equal to 25.2% of its agreed claim, or approximately $0.2 million and at the end of June 2013 the Company received its second dividend in an amount equal to 43.3% of its agreed claim, or approximately $0.4 million. This does not include claims held by the Company against LBIE through its investment in Enterprise Master discussed in Note 5b(2). The Company does not know the timing with respect to future dividends to unsecured creditors or the ultimate value that will be received, although in October 2013 LBIE announced its intention to pay a third interim dividend before the end of 2013. The amount of the dividend has not yet been determined.

Given the fact that LBIE has begun to make distributions to unsecured creditors and the increased trading levels for unsecured claims of LBIE, the Company decided to record the estimated fair value of the Total Net Equity Claim at 127.5% as of September 30, 2013 and at par as of December 31, 2012, which represented management's best estimate at the respective dates of the value that ultimately may be recovered with respect to the Total Net Equity Claim (the “Estimated Recoverable Lehman Claim”). The Estimated Recoverable Lehman Claim was recorded at estimated fair value considering a number of factors including the status of the assets under U.K. insolvency laws and the trading levels of LBIE unsecured debt. In determining the estimated value of the Total Net Equity Claim, the Company was required to use considerable judgment and is based on the facts currently available. As additional information on the LBIE proceeding becomes available, the Company may need to adjust the valuation of the Estimated Recoverable Lehman Claim. The actual recovery that may ultimately be received by the Company with respect to the pending LBIE claim is not known and could be different from the estimated value assigned by the Company. (See Note 5b(2)).

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 condensed 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 clearing broker to sell or re-pledge the securities to others subject to certain limitations. As of September 30, 2013 and December 31, 2012 securities sold, not yet purchased, at fair value consisted of the following:



	As of September 30, 2013		As of December 31, 2012
	(dollars in thousands)
Common stocks	$	122,211	$	168,797
Corporate bonds (a)	56		61
Options	8,862		9,076
Warrants and rights	—		3
	$	131,129	$	177,937


(a)	As of September 30, 2013 and December 31, 2012, the maturity was January 2026 with an interest rate of 5.55%.

Securities purchased under agreements to resell and securities sold under agreements to repurchase

The following table represents the Company's securities purchased under agreements to resell and securities sold under agreements to repurchase as of September 30, 2013 and December 31, 2012:



	As of September 30, 2013
	(dollars in thousands)
Securities sold under agreements to repurchase
Agreements with Royal Bank of Canada bearing interest of 1.75% due June 2015 to January 2016	$	6,311
	$	6,311

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)



	As of December 31, 2012
	(dollars in thousands)
Securities sold under agreements to repurchase
Agreements with Royal Bank of Canada bearing interest of 2.12% - 2.2% due January 31, 2013 to June 25, 2013	$	29,039
Agreements with Barclays Capital Inc bearing interest of (0.05%) - 0.23% due January 1, 2013	136,906
	$	165,945

For all of the Company's holdings of repurchase agreements as of September 30, 2013, the repurchase dates are open and the agreement can be terminated by either party at any time. The agreements rolls over on a day-to-day basis.

Transactions involving the sale of securities under repurchase agreements are carried at their contract value, which approximates fair value, and are accounted for as collateralized financings. In connection with these financings, as of September 30, 2013 and December 31, 2012, the Company had pledged collateral, consisting of government and corporate bonds, in the amount of $7.7 million and $173.7 million, respectively, which is included in securities owned, at fair value in the accompanying condensed consolidated statements of financial condition.

Securities lending and borrowing transactions

Fees and interest received or paid are recorded in interest and dividend income and interest expense, respectively, on an accrual basis. In the case where the fair value basis of accounting is elected, any resulting change in fair value is reported in trading revenues. Accrued interest income and expense are recorded in the same manner as under the accrual method. At September 30, 2013 and December 31, 2012, the Company does not have any securities lending transactions for which fair value basis of accounting was elected.

As of September 30, 2013, the Company has loaned to brokers and dealers, securities having a market value of $856.3 million. In addition, as of September 30, 2013, the Company has borrowed from brokers and dealers, securities having a market value of $866.7 million.

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 $1.6 billion and $228.3 million as of September 30, 2013 and $1.4 billion and $22.8 million as of December 31, 2012, respectively. In addition, the maximum exposure relating to these variable interest entities as of September 30, 2013 was $205.8 million, and as of December 31, 2012 was $220.9 million, all of which is included in other investments, at fair value in the Company's condensed consolidated statements of financial condition. The exposure to loss primarily relates to the Consolidated Feeder Funds' investment in their Unconsolidated Master Funds as of September 30, 2013 and December 31, 2012.


b.	Consolidated Funds

Securities owned, at fair value

As of September 30, 2013 the Company held no securities owned, at fair value, held by the Consolidated Funds. As of December 31, 2012 securities owned, at fair value, held by the Consolidated Funds are comprised of:



	As of December 31, 2012
	(dollars in thousands)
Government sponsored securities (a)	$	1,911
Commercial paper (b)	1,614
	$	3,525

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)


(a)	As of December 31, 2012, maturities ranged from August 2013 to December 2014 and interest rates ranged between 0.28% and 4.00%.


(b)	As of December 31, 2012, commercial paper was purchased at a discount and matures on January 2, 2013.

Other investments, at fair value

As of September 30, 2013 and December 31, 2012 other investments, at fair value, held by the Consolidated Funds are comprised of:



	As of September 30, 2013		As of December 31, 2012
	(dollars in thousands)
(1) Portfolio Funds	$	183,727	$	190,081
(2) Lehman claims	16,483		14,124
	$	200,210	$	204,205


(1)	Investments in Portfolio Funds, at fair value

As of September 30, 2013 and December 31, 2012, investments in Portfolio Funds, at fair value, included the following:



	As of September 30, 2013		As of December 31, 2012
	(dollars in thousands)
Investments of Enterprise LP	$	154,363	$	173,348
Investments of Merger Fund	22,641		—
Investments of consolidated fund of funds	6,723		16,733
	$	183,727	$	190,081

Consolidated 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 $154.4 million and $173.3 million in Enterprise Master as of September 30, 2013 and December 31, 2012, 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. Enterprise Master has been selling, and will continue to sell, its positions and return capital to its investors. There are no unfunded commitments at Enterprise LP.

Consolidated investments of Merger Fund

Effective August 1, 2013, 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 $22.6 million in Merger Master as of September 30, 2013. 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 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 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 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

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

Investments of consolidated fund of funds investment companies

The investments of the consolidated fund of funds investment companies are $6.7 million and $16.7 million as of September 30, 2013 and December 31, 2012, respectively. These investments include the investments of Levered FOF, Multi-Strat Master FOF and Vintage Master FOF, all of which are investment companies managed by Ramius Alternative Solutions LLC and RTS Global 3X, which was managed by Ramius Trading Strategies LLC. Multi-Strat Master FOF's investment objective is to invest discrete pools of their capital among portfolio managers that invest through Portfolio Funds, forming a multi-strategy, diversified investment portfolio designed to achieve returns with low to moderate volatility. Levered FOF had a similar strategy, but on a levered basis, prior to the fund winding down. Levered FOF is no longer levered. Vintage Master FOF's investment objective is to allocate its capital among portfolio managers that invest through investment pools or managed accounts thereby forming concentrated investments in high conviction managers designed to achieve attractive risk adjusted returns with moderate relative volatility. Levered FOF, Multi-Strat Master FOF and Vintage Master FOF are all in liquidation. RTS Global 3X was consolidated as of December 31, 2012 but was liquidated on March 31, 2013. As such it holds no investments as of September 30, 2013. RTS Global 3X's investment objective was to achieve attractive investment returns on a risk-adjusted basis that are non-correlated with the traditional equity and bond markets by investing substantially all of its capital in managed futures and global macro‑based investment strategies. RTS Global 3X sought to achieve its objective through a multi‑advisor investment approach by allocating its capital among third‑party trading advisors that are unaffiliated with RTS Global 3X. However, unlike a traditional “fund of funds” that invests with advisors through entities controlled by third‑parties, RTS Global 3X allocated its capital among a number of different trading accounts organized and managed by the general partner.

The following is a summary of the investments held by the consolidated fund of funds, at fair value, as of September 30, 2013 and December 31, 2012:



		Fair Value as of September 30, 2013
	Strategy	Ramius Levered Multi-Strategy FOF LP		Ramius Multi-Strategy Master FOF LP		Ramius Vintage Multi-Strategy Master FOF LP		Total
		(dollars in thousands)
Tapestry Pooled Account V LLC*	Credit-Based	$	254	$	524	$	559	$	1,337	(a)
Externally Managed Portfolio Funds	Event Driven	1,015		1,522		2,145		4,682		(c)
Externally Managed Portfolio Funds	Hedged Equity	—		—		704		704		(d)
		$	1,269	$	2,046	$	3,408	$	6,723



		Fair value as of December 31, 2012
	Strategy	Ramius Levered Multi-Strategy FOF LP		Ramius Multi-Strategy Master FOF LP		Ramius Vintage Multi-Strategy Master FOF LP		RTS Global 3X Fund LP		Total
		(dollars in thousands)
Tapestry Pooled Account V LLC*	Credit-Based	$	315	$	649	$	693	$	—	$	1,657	(a)
Independently Advised Portfolio Funds*	Futures & Global Macro	—		—		—		7,161		7,161		(b)
Externally Managed Portfolio Funds	Event Driven	1,545		2,316		3,264		—		7,125		(c)
Externally Managed Portfolio Funds	Hedged Equity	—		—		790		—		790		(d)
		$	1,860	$	2,965	$	4,747	$	7,161	$	16,733

* These Portfolio Funds are affiliates of the Company.

As of September 30, 2013, the Company has no unfunded commitments regarding investments held by the three consolidated fund of funds.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(a)

The Credit-Based strategy aims to generate returns via positions in the credit sensitive sphere of the fixed income markets. The strategy generally involves the purchase of corporate bonds with hedging of the interest exposure. The investments held in Tapestry Pooled Account V LLC, a related fund, are held solely in a credit based fund which the underlying fund's manager has placed in a side-pocket. The remaining amount of the investments within this category represents an investment in a fund that is in the process of liquidating. Distributions from this fund will be received as underlying investments are liquidated.

(b)

The Futures and Global Macro strategy was comprised of several portfolio accounts, each of which was advised independently by a commodity trading advisor implementing primarily managed futures or global macro-based investment strategies. The trading advisors (through their respective portfolio accounts) traded independently of each other and, as a group, employed a wide variety of systematic, relative value and discretionary trading programs in the global currency, fixed income, commodities and equity futures markets. In implementing their trading programs, the trading advisors traded primarily in the futures and forward markets (as well as in related options). Although certain trading advisors were permitted to use total return swaps and trade other financial instruments from time to time on an interim basis, the primary focus was on the futures and forward markets. Redemption frequency of these portfolio accounts were monthly (and intra month for a $10,000 fee) and the notification period for redemptions was 5 business days (or 3 business days for intra month redemptions).


(c)	The Event Driven strategy is generally implemented through various combinations and permutations of merger arbitrage, restructuring and distressed instruments. The investments in this category are primarily in a side pocket or suspended with undetermined payout dates.


(d)	The Hedged Equity strategy focuses on equity strategies with some directional market exposure. The strategy attempts to profit from market efficiencies and direction. The investee fund manager has side-pocketed investments.


(2)	Lehman Claims, at fair value

With respect to the aforementioned Lehman claims, the Total Net Equity Claim of Enterprise Master based on the value of assets at the time of Lehman's insolvency held directly by Enterprise Master and through Enterprise Master's ownership interest in affiliated funds consisted of $24.3 million. Included in this claim were assets with a value of $9.5 million at the time LBIE entered Administration that were returned to Enterprise Master and its affiliated funds in June 2010. Enterprise Master and its affiliated funds sold the returned assets for an aggregate $10.7 million, and distributed this amount to Enterprise Master's investors in July 2010. In December 2011, Enterprise Master received an aggregate of approximately $2.4 million relating to securities, interest and dividends earned with respect to securities held by LBIE on behalf of Enterprise Master Master and its affiliated funds. A distribution of $2.9 million occurred in February of 2012. After giving effect of these distributions, the remaining Net Equity Claim for Enterprise Master held directly and through its ownership interest in affiliated funds is $12.4 million. On November 2, 2012, Enterprise Master executed a Claims Determination Deed with respect to the unsecured portion of its direct claim against LBIE. By entering into this deed, Enterprise Master and LBIE reached agreement on the amount of Enterprise Master's unsecured claim, which was agreed to be approximately $1.3 million. As a result of entering into this deed, Enterprise Master is entitled to participate in dividends to unsecured creditors of LBIE and at the end of November 2012 Enterprise Master received its first dividend in an amount equal to 25.2% of its agreed claim, or approximately $0.3 million. In February 2013, Enterprise Master sold its unsecured claim, including the amount received in connection with the first dividend, for $1.3 million, or par. Enterprise Master distributed the proceeds of the sale to the Company in March 2013. Enterprise Master is valuing the $11.7 million claim at $20.7 million as of September 30, 2013. Of the $20.7 million current valuation of Enterprise Master's claim, $16.5 million was attributable to Enterprise LP based on its ownership percentage in Enterprise Master at the time of the Administration. Of the $11.7 million net equity claim, $10.6 million represents claims to trust assets that the Company believes were held by LBIE through Lehman Brothers, Inc. (“LBI”). LBIE has made a corresponding claim for these assets and other trust assets held at LBI by LBIE on behalf of other prime brokerage clients pursuant to an omnibus customer claim (the “LBIE Omnibus Customer Claim”). LBIE was only going to be able to return trust assets held at LBI to Enterprise Master once LBIE received a distribution from LBI in respect of the LBIE Omnibus Customer Claim. In February 2013, LBIE, Lehman Brothers Holdings, Inc. and LBI announced that they entered into two separate agreements settling all intercompany claims between LBI on the one part, and LBHI and LBIE on the other part. The settlement agreements were subject to the approval by the U.S. Bankruptcy Judge in the LBI Securities Investor Protection Act (SIPA) proceeding and, in the case of the agreement between LBI and LBIE, an order of the English High Court. The U.S. Banking Judge approved the settlement agreement in April 2013 and the English High Court issued an order approving the settlement in May 2013. The settlements allowed the trustee appointed under SIPA (the “SIPA Trustee”) to proceed with plans to allocate and distribute sufficient cash and securities to LBI's customer claimants, including LBIE with respect to the LBIE Omnibus Customer Claim, to enable the SIPA Trustee to satisfy valid customer claims in full. In March 2013, LBIE made a

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

consensual proposal to the clients holding trust assets pursuant to the LBIE Omnibus Customer Claim to facilitate the return of the amounts recovered from LBI with respect to the LBIE Omnibus Customer Claim. Under the consensual proposal, LBIE indicated that it intended to liquidate any securities received from LBI with respect to the LBIE Omnibus Customer Claim and then allocate the value received from LBI among all of the LBIE clients who had trust assets held at LBI under the LBIE Omnibus Customer Claim. In allocating the amounts received from LBI, LBIE indicated that it intended to allow clients to determine their entitlements on a portfolio basis based on the higher of (i) the market value of the portfolio as of September 19, 2008 or (ii) the market value of the portfolio together with accrued income thereon as of November 30, 2012 (the “Best Claim”). LBIE's purpose in seeking a consensual arrangement with its clients relating to the liquidation and allocation described above was to ensure that a distribution could be made without having to seek UK court direction on these issues, which would otherwise have substantially delayed any distribution. On April 2, 2013, LBIE announced that the consensual proposal had been accepted by a sufficient number of clients to satisfy the acceptance threshold and would therefore become effective. The settlement agreement between LBI and LBIE also became effective and LBIE announced in June 2013 that it had recovered the majority of the cash and securities from LBI and that it has liquidated approximately 90% of the aggregate value of securities received or to be received from LBI and that it intends to make its first distribution to trust asset claimants at the end of September 2013. On September 26, 2013, LBIE announced that it had made a first interim distribution to trust claimants of 100% of the claimant's Best Claim amount. As previously announced by LBIE, LBIE has requested guidance from the US Internal Revenue Service ("IRS") with regard to the character and source of the settlement payments. In order to balance LBIE's objective of making a significant distribution to claimants with the requirement to pay the appropriate US withholding tax in respect of distributions, as an interim solution LBIE deposited 30% of the gross distribution to claimants with the IRS as a reserve, except with respect to claimants who provided LBIE with validly executed Form W-9. Once the appropriate US withholding tax treatment of the distributions is finally determined by the IRS, LBIE expects to be in a position to promptly receive back funds and release any excess reserves back to the appropriate claimants. The amount of the distribution received by Enterprise Master on September 26, 2013 was $14.9 million, with $1 million reserved by LBIE in respect of the withholding described above. As of September 30, 2013, after giving effect to the receipt of the distribution described above, the Company is valuing Enterprise Master's remaining trust asset claim at 105% of its Best Claim, or $0.8 million.

In addition to Enterprise Master's claims against LBIE, LBI was a prime broker to Enterprise Master and Enterprise Master held cash balances of $4.9 million at LBI. These are not part of the LBIE Omnibus Customer Claim. On September 19, 2008, LBI was placed in a Securities Investor Protection Corporation (“SIPC”) liquidation proceeding after the filing for bankruptcy of its parent Lehman Brothers Holdings, Inc. The settlement agreements between LBI, LBHI and LBIE discussed above have permitted the trustee appointed under the Securities Investor Protection Act (the “SIPA Trustee”) to make distributions to LBI customers and the SIPA Trustee announced that it expected to be able to make 100% distributions to its customers. In July 2013, Enterprise Master received a distribution of $4.9 million from LBI in respect of this claim.

The remaining components of the LBIE claims included within the $20.7 million value as of September 30, 2013 consist of several components valued as follows: (a) the trust assets that the Company was informed were within the control of LBIE and were expected to be returned in the relatively near term were valued at market less a 1% discount that corresponds to the fee to be charged under the Claim Resolution Agreement (“CRA”) and (b) the foreign denominated trust assets that are not within the control of LBIE (which the Company does not believe are held through LBI), were valued at $4.7 million, which represents the market value of those assets less a 1% discount that corresponds to the fee charged under the CRA, which represented the Company's estimate of potential recovery rates. The estimated final recoverable amount by Enterprise Master may differ from the actual recoverable amount of the pending LBIE and LBI claims, and the differences may be significant.

As a result of Enterprise Master and certain of the funds managed by the Company having assets held at LBIE frozen in their LBIE prime brokerage account and the degree of uncertainty as to the status of those assets and the process and prospects of the return of those assets, Enterprise Master and the funds managed by the Company decided that only the investors who were invested at the time of the Administration should participate in any profit or loss relating to the Estimated Recoverable Lehman Claim. As a result, Enterprise Master and certain of the funds managed by the Company with assets held at LBIE granted a 100% participation in the Estimated Recoverable Lehman Claims to Special Purpose Vehicles (the “SPVs” or “Lehman Segregated Funds”) incorporated under the laws of the Cayman Islands on September 29, 2008, whose shares were distributed to each of their investor funds. Fully redeeming investors of Enterprise LP will not be paid out on the balance invested in the SPV until the claim with LBIE is settled and assets are returned by LBIE.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Indirect Concentration of the Underlying Investments Held by Consolidated Funds

From time to time, through its investments in the Consolidated Funds, the Company may indirectly maintain exposure to a particular issue or issuer (both long and/or short) which may account for 5% or more of the Consolidated Funds' net assets (on an aggregated basis). Based on information that is available to the Company as of September 30, 2013 and December 31, 2012, the Company assessed whether or not its Consolidated Funds had interests in an issuer for which the Company's pro-rata share exceeds 5% of the Consolidated Funds' net assets (on an aggregated basis). There were no indirect concentrations that exceed 5% of the Consolidated Funds' net assets held by the Company as of September 30, 2013 or December 31, 2012.

Underlying Investments of Unconsolidated Funds Held by Consolidated Funds

Enterprise 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. The following tables present summarized investment information for the underlying investments and derivatives held by Enterprise Master as of September 30, 2013 and December 31, 2012:

Securities owned and securities sold, but not yet purchased by Enterprise Master, at fair value



	As of September 30, 2013		As of December 31, 2012
	(dollars in thousands)
Bank debt	$	5	$	79
Common stock	2,703		2,680
Preferred stock	997		997
Private equity	309		297
Restricted stock	137		26
Rights	2,455		1,714
Trade claims	128		128
Warrants	—		2
	$	6,734	$	5,923

Derivative contracts, at fair value, owned by Enterprise Master, net



	As of September 30, 2013			As of December 31, 2012
Description	(dollars in thousands)
Currency forwards	$	(7	)	$	6
	$	(7	)	$	6

Portfolio Funds, owned by Enterprise Master, at fair value



		As of September 30, 2013		As of December 31, 2012
	Strategy	(dollars in thousands)
RCG Longview Equity Fund, LP*	Real Estate	$	10,599	$	11,027
RCG Longview II, LP*	Real Estate	819		970
RCG Longview Debt Fund IV, LP*	Real Estate	18,362		30,572
RCG Longview, LP*	Real Estate	332		265
RCG Soundview, LLC*	Real Estate	446		2,374
RCG Urban American Real Estate Fund, L.P.*	Real Estate	1,936		1,987
RCG International Sarl*	Multi-Strategy	1,700		752
RCG Special Opportunities Fund, Ltd*	Multi-Strategy	83,418		80,166
RCG Endeavour, LLC*	Multi-Strategy	32		43
RCG Energy, LLC *	Energy	3,363		14,239
RCG Renergys, LLC*	Energy	1		1
Other Private Investments	Various	12,396		12,430
Real Estate Investments	Real Estate	14,970		12,321
		$	148,374	$	167,147


*	These Portfolio Funds are affiliates of the Company.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Merger Master

Securities owned and securities sold, but not yet purchased by Merger Master, at fair value



	As of September 30, 2013
	(dollars in thousands)
Common stocks	$	29,408
Corporate bond (a)	9,580
Options	376
	$	39,364


(a)	As of September 30, 2013, maturities ranged from October 2018 to October 2020 and interest rates ranged between 7.75% and 8.13% .

Derivative contracts, at fair value, owned by Merger Master, net



	As of September 30, 2013
Description	(dollars in thousands)
Equity swap	$	43
Cross rate	(3		)
	$	40

RTS Global 3X Fund LP's Portfolio Fund investments

RTS Global 3X invested over half of its equity in six externally managed portfolio funds which primarily concentrated on futures and global macro strategies. RTS Global 3X's investments in the portfolio funds represented its proportionate share of the portfolio funds net assets; as a result, the portfolio funds' investments reflected below may exceed the net investment which RTS Global 3X had recorded. RTS Global 3X was consolidated as of December 31, 2012 but was liquidated on March 31, 2013. As such it holds no investments as of September 30, 2013. The following table presents the summarized investment information, which primarily consisted of receivables/(payables) on derivatives, for the underlying Portfolio Funds held by RTS Global 3X, at fair value, as of December 31, 2012:



	As of December 31, 2012
	(dollars in thousands)
Bond futures	$	489
Commodity forwards	(659		)
Commodity futures	47
Currency forwards	202
Currency futures	264
Energy futures	239
Equity future	(27		)
Index futures	(257		)
Interest rate futures	40
	$	338

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

6. Fair Value Measurements for Operating Entities and Consolidated Funds

The following table presents the assets and liabilities that are measured at fair value on a recurring basis on the accompanying condensed consolidated statements of financial condition by caption and by level within the valuation hierarchy as of September 30, 2013 and 2012:

Operating Entities



	Assets at Fair Value as of September 30, 2013
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Securities owned and derivatives
US Government securities	$	3,506	$	—	$	—	$	3,506
Preferred stock	—		—		333		333
Common stocks	219,315		2,103		2,109		223,527
Convertible bonds	—		4,129		—		4,129
Corporate bonds	—		134,827		—		134,827
Futures	263		—		—		263
Currency forwards	—		49		—		49
Equity swaps	—		276		—		276
Options	10,965		9		—		10,974
Warrants and rights	111		—		2,667		2,778
Mutual funds	525		—		—		525
Other investments
Portfolio Funds	—		19,110		51,703		70,813
Real estate investments	—		—		2,127		2,127
Lehman claim	—		—		558		558
	$	234,685	$	160,503	$	59,497	$	454,685



	Liabilities at Fair Value as of September 30, 2013
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Securities sold, not yet purchased and derivatives
Common stocks	$	122,211	$	—	$	—	$	122,211
Corporate bonds	—		56		—		56
Futures	160		—		—		160
Currency forwards	—		105		—		105
Equity swaps	—		4		—		4
Options	8,603		259		—		8,862
	$	130,974	$	424	$	—	$	131,398

Table of Contents

Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Assets at Fair Value as of December 31, 2012

Level 1

Level 2

Level 3

Total

(dollars in thousands)