Edgar Filing: COWEN GROUP, INC.

10Q 6/30/2015

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 June 30, 2015
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 July 31, 2015 there were 109,998,505 shares of the registrant's common stock outstanding.

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		78
PART II. OTHER INFORMATION			78
	1. Legal Proceedings		78
	1A. Risk Factors		79
	2. Unregistered Sales of Equity Securities and Use of Proceeds		79
	3. Defaults Upon Senior Securities		80
	4. Mine Safety Disclosures		80
	5. Other Information		80
	6. Exhibits		80
SIGNATURES			81
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, 2014 as well as Item 1A of this periodic report on Form 10-Q for the quarterly period ended June 30, 2015.

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 six months ended June 30, 2015 and 2014. The Consolidated Financial Statements as of December 31, 2014 were audited.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

Cowen Group, Inc.

Condensed Consolidated Statements of Financial Condition

(dollars in thousands, except share and per share data)

(unaudited)



	As of June 30, 2015			As of December 31, 2014
Assets
Cash and cash equivalents	$	145,707		$	129,509
Cash collateral pledged	9,250			8,306
Securities owned, at fair value	818,274			792,206
Receivable on derivative contracts, at fair value	80,101			49,877
Securities borrowed	—			676,100
Other investments	157,654			167,464
Receivable from brokers	70,366			84,679
Fees receivable, net of allowance	70,587			46,498
Due from related parties	27,721			26,315
Fixed assets, net of accumulated depreciation and amortization of $29,355 and $25,968, respectively	24,471			26,388
Goodwill	34,906			34,906
Intangible assets, net of accumulated amortization of $26,552 and $25,581, respectively	7,512			8,483
Deferred tax asset, net	123,055			129,400
Other assets	36,497			34,230
Consolidated Funds
Cash and cash equivalents	977			501
Other investments	267,443			189,377
Other assets	452			1,437
Total Assets	$	1,874,973		$	2,405,676
Liabilities and Stockholders' Equity
Liabilities
Securities sold, not yet purchased, at fair value	$	168,952		$	207,875
Payable for derivative contracts, at fair value	67,096			41,330
Securities loaned	—			682,493
Payable to brokers	369,657			335,822
Compensation payable	86,232			134,289
Notes payable and other debt	67,447			67,144
Convertible debt	121,556			118,475
Fees payable	6,713			6,331
Due to related parties	359			474
Accounts payable, accrued expenses and other liabilities	38,670			46,606
Consolidated Funds
Capital withdrawals payable	229			864
Accounts payable, accrued expenses and other liabilities	344			222
Total Liabilities	927,255			1,641,925
Commitments and Contingencies (Note 12)
Redeemable non-controlling interests	162,082			86,076
Stockholders' equity
Preferred stock, par value $0.01 per share: 10,000,000 shares authorized, 120,750 shares issued and outstanding as of June 30, 2015 (aggregate liquidation preference of $120,750,000) and no shares issued and outstanding as of December 31, 2014, respectively	1			—
Class A common stock, par value $0.01 per share: 250,000,000 shares authorized, 139,205,799 shares issued and 109,993,262 outstanding as of June 30, 2015 and 135,198,855 shares issued and 111,691,199 outstanding as of December 31, 2014, respectively (including 582,100 and 424,479 restricted shares, respectively)	1,161			1,160
Class B common stock, par value $0.01 per share: 250,000,000 authorized, no shares issued and outstanding	—			—
Additional paid-in capital	888,686			772,296
(Accumulated deficit) retained earnings	6,632			(16,027		)
Accumulated other comprehensive income (loss)	16			17
Less: Class A common stock held in treasury, at cost, 29,212,537 and 23,507,656 shares, respectively	(110,860		)	(79,771		)
Total Stockholders' Equity	785,636			677,675
Total Liabilities and Stockholders' Equity	$	1,874,973		$	2,405,676

The accompanying notes are an integral part of these unaudited 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 June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenues
Investment banking	$	68,518		$	30,292		$	133,751		$	79,854
Brokerage	34,957			33,311			70,411			66,141
Management fees	10,266			9,692			20,650			18,616
Incentive income	(2,100		)	2,724			272			5,222
Interest and dividends	3,159			12,460			6,242			21,712
Reimbursement from affiliates	3,502			3,018			7,144			4,918
Other revenues	704			752			1,372			1,307
Consolidated Funds
Interest and dividends	196			655			440			1,141
Other revenues	406			(2		)	420			668
Total revenues	119,608			92,902			240,702			199,579
Expenses
Employee compensation and benefits	75,328			64,404			171,192			131,965
Floor brokerage and trade execution	6,100			5,858			12,003			11,513
Interest and dividends	6,095			10,193			11,874			17,265
Professional, advisory and other fees	5,354			4,374			10,482			7,975
Service fees	1,674			2,086			3,560			4,228
Communications	3,193			3,022			6,835			6,268
Occupancy and equipment	6,910			6,324			13,738			12,721
Depreciation and amortization	2,145			2,382			4,283			4,762
Client services and business development	6,714			5,635			13,184			10,149
Other expenses	2,849			3,228			7,659			6,386
Consolidated Funds
Interest and dividends	283			189			492			299
Professional, advisory and other fees	212			140			302			274
Floor brokerage and trade execution	56			4			66			6
Other expenses	83			65			132			121
Total expenses	116,996			107,904			255,802			213,932
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	9,070			23,037			48,061			34,391
Consolidated Funds
Net realized and unrealized gains (losses) on investments and other transactions	3,020			5,778			7,740			7,942
Net realized and unrealized gains (losses) on derivatives	(723		)	(190		)	(326		)	(211		)
Net gains (losses) on foreign currency transactions	(1		)	21			(32		)	(19		)
Total other income (loss)	11,366			28,646			55,443			42,103
Income (loss) before income taxes	13,978			13,644			40,343			27,750
Income tax expense (benefit)	3,346			46			10,293			125
Net income (loss)	10,632			13,598			30,050			27,625
Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds	3,916			5,216			6,636			9,403
Net income (loss) attributable to Cowen Group, Inc.	6,716			8,382			23,414			18,222
Preferred stock dividends	755			—			755			—
Net income (loss) attributable to Cowen Group, Inc. common stockholders	$	5,961		$	8,382		$	22,659		$	18,222
Weighted average common shares outstanding:
Basic	111,915			115,569			111,987			115,626
Diluted	118,226			120,199			118,316			120,635
Earnings (loss) per share:
Basic	$	0.05		$	0.07		$	0.20		$	0.16
Diluted	$	0.05		$	0.07		$	0.19		$	0.15

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

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Cowen Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)



	Six Months Ended June 30, 2015						Six Months Ended June 30, 2014

Net income (loss)				$	30,050					$	27,625
Other comprehensive income (loss), net of tax:
Foreign currency translation		(1	)					(231	)
Defined benefit pension plan:
Net gain/(loss) arising during the period	—						92
Add: amortization of prior service cost included in net periodic pension cost	—	—					—	92
Total other comprehensive income, net of tax				(1		)				(139		)
Comprehensive income (loss)				$	30,049					$	27,486

The accompanying notes are an integral part of these unaudited 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		Preferred Shares Outstanding		Preferred Stock		Treasury Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings/ (Accumulated deficit)			Total Stockholders' Equity			Redeemable Non-controlling Interest
Balance, December 31, 2014	111,691,199		$	1,160	—		$	—	$	(79,771	)	$	772,296		$	17		$	(16,027	)	$	677,675		$	86,076
Net income (loss)	—		—		—		—		—			—			—			23,414			23,414			6,636
Foreign currency translation	—		—		—		—		—			—			(1		)	—			(1		)	—
Capital contributions	—		—		—		—		—			—			—			—			—			76,846
Capital withdrawals	—		—		—		—		—			—			—			—			—			(7,476		)
Restricted stock awards issued	3,906,942		—		—		—					—			—			—			—			—
Purchase of treasury stock, at cost	(5,704,881	)	—		—		—		(31,089		)	—			—			—			(31,089		)	—
Preferred stock issuance, net of issuance costs (See Note 14)	—		—		120,750		1		—			117,309			—			—			117,310			—
Preferred stock dividends (See Note 14)	—		—		—		—		—			—			—			(755		)	(755		)	—
Capped call option transaction (See Note 14)	—		—		—		—		—			(15,878		)	—			—			(15,878		)	—
Income tax effect from share based compensation	—		—		—		—		—			3,695			—			—			3,695			—
Stock options exercised (see Note 9)	100,002		1		—		—		—			394			—			—			395			—
Amortization of share based compensation	—		—		—		—		—			10,870			—			—			10,870			—
Balance, June 30, 2015	109,993,262		$	1,161	120,750		$	1	$	(110,860	)	$	888,686		$	16		$	6,632		$	785,636		$	162,082


	Common Shares Outstanding		Common Stock		Preferred Shares Outstanding		Preferred Stock		Treasury Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings/ (Accumulated deficit)			Total Stockholders' Equity			Redeemable Non-controlling Interest
Balance, December 31, 2013	115,026,633		$	1,160	$	—	$	—	$	(48,084	)	$	737,341		$	592		$	(183,243	)	$	507,766		$	85,814
Net income (loss)	—		—		—		—		—			—			—			18,222			18,222			9,403
Defined benefit plan	—		—		—		—		—			—			92			—			92			—
Foreign currency translation	—		—		—		—		—			—			(231		)	—			(231		)	—
Capital contributions	—		—		—		—		—			—			—			—			—			10,140
Capital withdrawals	—		—		—		—		—			—			—			—			—			(12,422		)
Restricted stock awards issued	3,995,022		—		—		—		—			—			—			—			—			—
Purchase of treasury stock, at cost	(4,088,186	)	—		—		—		(16,648		)	—			—			—			(16,648		)	—
Warrants issued (see Note 4)	—		—		—		—		—			15,218			—			—			15,218			—
Stock options exercised (see Note 9)	33,334		—		—		—		—			116			—			—			116			—
Amortization of share based compensation	—		—		—		—		—			10,477			—			—			10,477			—
Balance, June 30, 2014	114,966,803		$	1,160	$	—	$	—	$	(64,732	)	$	763,152		$	453		$	(165,021	)	$	535,012		$	92,935

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

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

	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities:
Net income (loss)	$	30,050		$	27,625
Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities:
Depreciation and amortization	4,283			4,762
Amortization of debt discount	3,081			1,759
Tax benefits from share-based payment arrangements	3,694			—
Share-based compensation	10,870			10,477
Deferred tax benefit	2,651			—
Deferred rent obligations	(1,453		)	(977		)
Net loss on disposal of fixed assets	31			218
Purchases of securities owned, at fair value	(2,614,177		)	(2,118,048		)
Proceeds from sales of securities owned, at fair value	2,634,224			1,864,592
Proceeds from sales of securities sold, not yet purchased, at fair value	1,106,836			802,640
Payments to cover securities sold, not yet purchased, at fair value	(1,152,202		)	(713,115		)
Net (gains) losses on securities, derivatives and other investments	(54,401		)	(36,627		)
Consolidated Funds
Purchases of other investments	(76,201		)	(19,535		)
Proceeds from sales of other investments	5,111			17,116
Net realized and unrealized (gains) losses on investments and other transactions	(6,975		)	(8,665		)
(Increase) decrease in operating assets:
Cash collateral pledged	(944		)	2,178
Securities owned, at fair value, held at broker dealer	(1,357		)	6,033
Receivable on derivative contracts, at fair value	(30,224		)	742
Securities borrowed	676,100			(1,324,748		)
Receivable from brokers	14,313			(54,893		)
Fees receivable, net of allowance	(24,089		)	(1,563		)
Due from related parties	(1,406		)	(2,908		)
Other assets	(2,324		)	(525		)
Consolidated Funds
Cash and cash equivalents	(477		)	1,711
Other assets	985			4,930
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased, at fair value, held at broker dealer	(1,648		)	9,944
Payable for derivative contracts, at fair value	25,766			9,968
Securities loaned	(682,493		)	1,331,985
Payable to brokers	33,835			109,854
Compensation payable	(56,577		)	(17,609		)
Fees payable	382			2,685
Due to related parties	(115		)	(5		)
Accounts payable, accrued expenses and other liabilities	(5,458		)	2,752
Consolidated Funds
Accounts payable, accrued expenses and other liabilities	122			(487		)
Net cash provided by / (used in) operating activities	$	(160,187	)	$	(87,734	)










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

	Six Months Ended June 30,
(continued)	2015			2014
Cash flows from investing activities:
Purchases of other investments	$	(8,560	)	$	(61,974	)
Cash convertible note economic hedge transaction	—			(35,710		)
Proceeds from sales of other investments	36,106			65,093
Tenant allowance	—			1,240
Purchase of fixed assets	(1,426		)	(5,857		)
Net cash provided by / (used in) investing activities	26,120			(37,208		)
Cash flows from financing activities:
Securities sold under agreement to repurchase	—			(3,657		)
Proceeds from issuance of convertible debt	—			149,500
Proceeds from issuance of preferred stock, net of issuance costs	117,310			—
Capped call option transaction	(15,879		)	—
Deferred debt issuance cost	—			(3,720		)
Proceeds from sale of warrant	—			15,218
Borrowings on notes and other debt	2,140			6,217
Repayments on notes and other debt	(1,836		)	(2,023		)
Tax benefits from share-based payment arrangements	3,694			—
Proceeds from stock options exercised	395			116
Purchase of treasury stock	(22,569		)	(11,298		)
Cash paid to acquire net assets (contingent liability payment)	(1,725		)	(154		)
Capital contributions by redeemable non-controlling interests in operating entities	5,644			605
Capital withdrawals to redeemable non-controlling interests in operating entities	(5,723		)	(3,931		)
Consolidated Funds
Capital contributions by redeemable non-controlling interests in Consolidated Funds	71,202			9,535
Capital withdrawals to redeemable non-controlling interests in Consolidated Funds	(2,388		)	(11,174		)
Net cash provided by / (used in) financing activities	150,265			145,234
Change in cash and cash equivalents	16,198			20,292
Cash and cash equivalents at beginning of period	129,509			54,720
Cash and cash equivalents at end of period	$	145,707		$	75,012

Supplemental non-cash information
Purchase of treasury stock, at cost, through net settlement (see Note 14)	$	8,520		$	5,350
Preferred stock dividends declared (See Note 14)	$	755		$	—
Cash conversion option (see Note 4)	$	—		$	35,710

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

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Cowen Group, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Business

Cowen Group, Inc., a Delaware corporation formed in 2009, is a diversified financial services firm and, together with its consolidated subsidiaries (collectively, “Cowen,” “Cowen Group” or the “Company”), provides alternative investment management, investment banking, research, and brokerage (including market-making and sales and trading) through its two business segments: alternative investment and broker-dealer. The Company's alternative investment segment, includes hedge funds, replication products, liquid alternative risk premia products, customized solutions, mutual funds, commodity pools, managed futures funds, fund of funds, real estate and healthcare royalty funds. The Company's broker-dealer segment offers research, brokerage and investment banking services to companies and institutional investor clients primarily in the healthcare, technology, media and telecommunications, information and technology services, consumer, aerospace and defense, industrials, real estate investment trusts ("REITs"), clean technology, energy, metals and mining, transportation, chemicals and agriculture sectors.

2. Significant Accounting Policies

a. Basis of Presentation

These unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America ("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, 2014 and 2013 and for the years ended December 31, 2014, 2013, and 2012, included in the Form 10-K of Cowen Group as filed with the SEC on February 26, 2015 and amended on March 30, 2015. 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 balance sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP.

These condensed consolidated financial statements include the accounts of the Company, its operating and other subsidiaries, and entities in which the Company has a controlling financial interest or a substantive controlling general partner interest.

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 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.

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

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Cowen Group, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

has the right to remove the general partner without cause or to terminate the partnership. In accordance with these standards, the Company presently consolidates three entities deemed to be VOEs for which it acts as the general partner and investment manager.

As of June 30, 2015 and December 31, 2014 and during the three and six month periods ended June 30, 2015 and June 30, 2014, the Company consolidated the following funds: Ramius Enterprise LP (“Enterprise LP”) and Ramius Merger Fund LLC (the "Merger Fund") and as of May 1, 2015, the date that the entity began operations, the Company also consolidates Quadratic Fund LLC ("Quadratic LLC") (collectively the "Consolidated Funds").

RCG Linkem II LLC, an investment company, is consolidated during the period ending June 30, 2015. It was formed to make an investment in a wireless broadband communication provider in Italy. Cowen AV Investment LLC, an investment company, was consolidated up through the first quarter of 2015 when it was liquidated. It was formed to make an investment in a biotechnology company focused on developing gene therapies for certain medical needs. Ramius Co-Investment I LLC and Ramius Co-Investment II LLC, both investment companies, were formed to invest in biomedical companies that develop gene therapies for severe genetic disorders. Ramius Co-Investment I LLC was consolidated as of December 31, 2013 but was deconsolidated during the first quarter of 2014 when it was liquidated. Ramius Co-Investment II LLC was consolidated but was liquidated during the quarter ended September 30, 2014. The Company determined that all four investment companies are (or were) VOE's due to the Company's 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 Financial Accounting Standards Board ("FASB") has deferred the application of the revised consolidation model for VIEs that meet the following conditions (see "recently issued accounting pronouncements"): (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 design of the VIE. As of June 30, 2015 and December 31, 2014, the Company consolidated two VIEs. As of June 30, 2015 and December 31, 2014, the total net assets of the consolidated VIEs were $0.1 million and $2.0 million, respectively. 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 June 30, 2015 and December 31, 2014, the Company holds variable interests in Ramius Enterprise Master Fund Ltd (“Enterprise Master”), Ramius Merger Master Fund Ltd ("Merger Master") and, as of May 1, 2015, Quadratic Master Fund LTD (Quadratic Master Fund") (collectively the “Unconsolidated Master Funds”) through the Consolidated Funds. Investment companies, which account for their investments under the specialized industry accounting guidance for investment companies prescribed under US GAAP, are not subject to the consolidation provisions for their investments. Therefore, the Company has not consolidated the Unconsolidated Master Funds.

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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 4 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 accompanying consolidated statements of financial condition. The Company's share of earnings or losses from equity method investees is included in net gains (losses) on securities, derivatives and other investments in the accompanying 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 such entities (primarily, all securities of such entity which are bought and held principally for the purpose of selling them in the near term as trading securities) in accordance with US GAAP, at fair value with unrealized gains (losses) resulting from changes in fair value reflected within net gains (losses) on securities, derivatives and other investments in the accompanying 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 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, ATM Execution LLC ("ATM Execution"), and ATM USA, LLC ("ATM USA") and Cowen Equity Finance LP ("Cowen Equity Finance") (both liquidated during Q1 2015), apply the specialized industry accounting for brokers and dealers in securities also prescribed under US GAAP. The Company also retains specialized accounting in consolidation.


c.	Use of estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with US GAAP requires the management of the Company to make estimates and assumptions that affect the fair value of securities and other investments, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the accompanying condensed consolidated financial statements, the accounting for goodwill and identifiable intangible assets and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.


d.	Valuation of investments and derivative contracts

US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has

the ability to access at the measurement date;

Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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.

Securities—Securities with values based on quoted market prices in active markets for identical assets are classified within level 1 of the fair value hierarchy. These securities include active listed equities, certain U.S. government and sovereign obligations, ETF's, mutual funds and certain money market securities. The Company does not adjust the quoted price for such instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Certain positions for which trading activity may not be readily visible, consisting primarily of convertible debt, corporate debt and loans and restricted equities, are stated at fair value and classified within level 2 of the fair value hierarchy. The estimated fair values assigned by management are determined in good faith and are based on available information considering, trading activity, broker quotes, quotations provided by published pricing services, counterparties and other market participants, and pricing models using quoted inputs, and do not necessarily represent the amounts which might ultimately be realized. As level 2 investments include positions that are not always traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability.

Derivative 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. OTC derivatives, such as swaps and options where market data is not readily available or observable are classified as level 3.

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

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Portfolio funds—Portfolio funds (“Portfolio Funds”) include interests in funds and investment companies which may be managed by the Company or its affiliates. The Company follows US GAAP regarding fair value measurements and disclosures relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The guidance permits, as a practical expedient, an entity holding investments in certain entities that either are investment companies as defined by the AICPA Audit and Accounting Guide, Investment Companies, or have attributes similar to an investment company, and calculate net asset value per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. In accordance with US GAAP, investments which are valued using NAV per share as a practical expedient shall not be categorized within the fair value hierarchy.

ii.

Real estate investments—Real estate debt and equity investments are valued at fair value. The fair value of real estate investments are estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace participants at the measurement date. Real estate investments without a public market are valued based on assumptions and valuation techniques used by the Company. Such valuation techniques may include discounted cash flow analysis, prevailing market capitalization rates or earnings multiples applied to earnings from the investment, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties, consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence, as well as independent external appraisals. In general, the Company considers several valuation techniques when measuring the fair value of a real estate investment. However, in certain circumstances, a single valuation technique may be appropriate. Real estate investments are reviewed on a quarterly basis by the Company for significant changes at the property level or a significant change in the overall market which would impact the value of the real estate investment resulting in unrealized appreciation or depreciation.

Real estate and capital markets are cyclical in nature. Property and investment values are affected by, among other things, the availability of capital, occupancy rates, rental rates and interest and inflation rates. In addition, the Company invests in real estate and real estate related investments for which no liquid market exists. The market prices for such investments may be volatile and may not be readily ascertainable. Amounts ultimately realized by the Company from investments sold may differ from the fair values presented, and the differences could be material.

The Company's real estate investments are typically categorized as a level 3 investment within the fair value hierarchy as management uses significant unobservable inputs in determining their estimated fair value.

See Notes 4 and 5 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 on a gross basis. 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. Securities borrowed and loaned may also result in credit exposures for the Company in an event that the counterparties are unable to fulfill their contractual obligations. The Company minimizes its credit risk by continuously monitoring its credit exposure and collateral values by demanding additional or returning excess collateral in accordance with the netting provisions available in the master securities lending contracts in place with the counterparties.

Fees and interest received or paid are recorded in interest and dividend income and interest expense, respectively, on an accrual basis. In cases 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. During the fourth quarter of 2014, the Company made a decision to wind down the operations of its securities lending business. At December 31, 2014 the Company did not have any securities lending transactions for which fair value basis of accounting was elected.


f.	Debt

Long-term debt is carried at the principal amount borrowed net of any discount/premium. The discount is accreted to interest expense using the effective interest method over the remaining life of the underlying debt obligations. Accrued but

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

unpaid coupon interest is included in accrued expenses and other liabilities in the accompanying consolidated statements of financial condition.

g. Deferred rent

Deferred rent primarily consists of step rent, allowances from landlords and valuing the Company's lease properties in accordance with US GAAP. Step rent represents the difference between actual operating lease payments due and straight-line rent expense, which is recorded by the Company over the term of the lease, including the build-out period. This amount is recorded as deferred rent in the early years of the lease, when cash payments are generally lower than straight-line rent expense, and reduced in the later years of the lease when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised of amounts received and/or promised to the Company by landlords and may be received in the form of cash or free rent. These allowances are part of the negotiated terms of the lease. The Company records a receivable from the landlord and a deferred rent liability when the allowances are earned. This deferred rent is amortized into income (through lower rent expense) over the term (including the pre-opening build-out period) of the applicable lease, and the receivable is reduced as amounts are received from the landlord. Liabilities resulting from valuing the Company's leased properties acquired through business combinations are quantified by comparing the current fair value of the leased space to the current rental payments on the date of acquisition. Deferred rent, included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated statements of financial condition, as of June 30, 2015 and December 31, 2014 is $11.6 million and $13.1 million, respectively.

h. Recently issued accounting pronouncements

In May 2015, the FASB amended the guidance for fair value measurement and issued the amendment which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share as practical expedient. The amendment also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share as practical expedient. For public companies, the guidance is effective retrospectively for the reporting periods beginning after December 15, 2015 and early adoption is permitted. During the quarter ended June 30, 2015, the Company early adopted the guidance and excluded the investments measured at fair value using the net asset value per share as practical expedient from the fair value hierarchy. The adoption did not result in any impact on the Company’s financial condition, result of operations and cash flows. See Note 5 which reflects the impact of adopting this guidance and further information.

In April 2015, the FASB issued a new accounting pronouncement simplifying the presentation of debt issuance costs. The accounting guidance requires that debt issuance costs related to a recognized debt liability be reported on the Consolidated Statements of Financial Condition as a direct deduction from the carrying amount of that debt liability. The guidance is effective retrospectively for reporting periods beginning after December 15, 2015 and early adoption is permitted. The adoption of this accounting guidance is not expected to have a material impact on the Company’s financial condition.

In May 2014, the FASB issued guidance which amends and supersedes the revenue recognition requirements and most industry-specific guidance and creates a single source of revenue guidance. The new guidance outlines the principles an entity must apply to measure and recognize revenue and related cash flows. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets. The guidance is effective for reporting periods beginning after December 15, 2017. In July 2015, the FASB confirmed a deferral of the effective date by one year, with early adoption on the original effective date permitted. The Company is currently evaluating the impact of this guidance on the Company’s financial condition, results of operations and cash flows.

In February 2015, the FASB issued an accounting pronouncement which amends and updates its previous guidance regarding consolidation analysis. The amendment eliminates the deferral of certain consolidation standards for entities considered to be investment companies and modifies the consolidation analysis performed on certain types of legal entities. The guidance is effective for reporting periods beginning after December 15, 2015. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.

In January 2015, the FASB issued a new accounting pronouncement regarding extraordinary items. The guidance eliminates the concept and presentation requirements for extraordinary items and issuers are no longer required to evaluate and present separately any transaction which is unusual and infrequent. The guidance is effective for reporting periods beginning after December 15, 2015. The Company does not expect this guidance to have any impact on its financial position and results of operations.

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

3. Cash Collateral Pledged

As of June 30, 2015 and December 31, 2014, the Company pledged cash collateral in the amount of $9.3 million and $8.3 million, respectively, which relates to letters of credit issued to the landlords of the Company's premises in New York City, Boston and San Francisco (See Note 13).

4. Investments of Operating Entities and Consolidated Funds


a.	Operating Entities

Securities owned, at fair value

Securities owned, at fair value are held by the Company and are considered held for trading. Substantially all equity securities are pledged to the clearing broker under terms which permit the clearing broker to sell or re-pledge the securities to others subject to certain limitations.

As of June 30, 2015 and December 31, 2014, securities owned, at fair value consisted of the following:



	As of June 30, 2015		As of December 31, 2014
	(dollars in thousands)
U.S. Government securities (a)	$	2,511	$	2,010
Preferred stock	46,649		15,070
Common stocks	623,121		597,476
Convertible bonds (b)	879		900
Corporate bonds (c)	125,266		159,557
Warrants and rights	3,585		1,417
Mutual funds	16,263		15,776
	$	818,274	$	792,206


(a)	As of June 30, 2015, maturities ranged from August 2015 to June 2016 with interest rates ranged between 0% to 5.95%. As of December 31, 2014, maturities ranged from May 2015 to April 2016 with interest rates ranged between 0% to 5.95%.


(b)	As of June 30, 2015, the maturity was July 2016 with an interest rate of 10.00%. As of December 31, 2014, the maturity was February 2015 with an interest rate of 10.00%.


(c)	As of June 30, 2015, maturities ranged from immediately due on demand to February 2046 and interest rates ranged between 0.00% to 11.97%. As of December 31, 2014, maturities ranged from February 2015 to February 2046 and interest rates ranged between 5.63% to 11.54%.

Receivable on and Payable for derivative contracts, at fair value

The Company's direct involvement with derivative financial instruments includes futures, currency forwards, equity swaps, and options. The Company's derivatives trading activities exposes the Company to certain risks, such as price and interest rate fluctuations, volatility risk, credit risk, counterparty risk, foreign currency movements and changes in the liquidity of markets.

Upon issuance of the Company's cash convertible unsecured senior notes ("Convertible Notes") (See Note 13), the Company recognized the embedded cash conversion option at fair value of $35.7 million which is valued as of June 30, 2015 at $62.7 million and is included in payable for derivative contracts in the accompanying consolidated statement of financial condition. Also, on the date of issuance of the Convertible Notes, the Company entered into a separate cash convertible note economic hedge transaction (the "Hedge Transaction") with a counterparty (the “Option Counterparty”) whereby, the Company purchased a cash settled option contract with terms identical to the conversion option embedded in the Convertible Notes and simultaneously sold an equity settled warrant with a higher strike price. The Hedge Transaction is expected to reduce the Company’s exposure to potential cash payments in excess of the principal amount of converted notes that the Company may be required to make upon conversion of the Convertible Notes. The Company paid a premium of $35.7 million for the option under the Hedge Transaction and received a premium of $15.2 million for the equity settled warrant transaction, for a net cost of $20.5 million. The Hedge Transaction is valued at $62.7 million as of June 30, 2015 and is included in receivable on derivative contracts in the accompanying consolidated statement of financial condition. Aside from the initial premium paid, the Company will not be required to make any cash payments under the Hedge Transaction and could be entitled to receive an

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

amount of cash from the Option Counterparty generally equal to the amount by which the market price per share of common stock exceeds the strike price of the Hedge Transaction during the relevant valuation period. The warrants cover 28,048,786 shares of the Company's Class A common stock and have an initial exercise price of $7.18 per share. The warrants expire over a period of 80 trading days beginning on November 14, 2018. The warrant transaction could have a dilutive effect to the extent that the market value per share of the Company’s Class A common stock exceeds the applicable strike price of the warrants.

The Company's long and short exposure to derivatives is as follows:



Receivable on derivative contracts	As of June 30, 2015				As of December 31, 2014
	Number of contracts / Notional Value		Fair value		Number of contracts / Notional Value		Fair value
	(dollars in thousands)
Futures	$	18,774	$	42	$	3,041	$	75
Currency forwards	$	44,764	126		$	23,961	310
Equity swaps	$	30,509	1,945		$	12,904	251
Options other (a)	414,877		74,775		367,441		48,201
Foreign currency options	$	220,142	3,213		$	32,200	1,040
			$	80,101			$	49,877

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



Payable for derivative contracts	As of June 30, 2015				As of December 31, 2014
	Number of contracts / Notional Value		Fair value		Number of contracts / Notional Value		Fair value
	(dollars in thousands)
Futures	$	34,190	$	444	$	2,213	$	33
Currency forwards	$	14,582	144		$	—	—
Equity and credit default swaps	$	51,145	4,379		$	18,352	1,603
Options other (a)	14,220		62,129		22,043		39,694
			$	67,096			$	41,330

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

The following tables present the gross and net derivative positions and the related offsetting amount, as of June 30, 2015 and December 31, 2014.



							Gross amounts not offset in the Statement of Financial Condition
	Gross amounts recognized		Gross amounts offset on the Consolidated Statements of Financial Condition (a)		Net amounts included on the Consolidated Statements of Financial Condition		Financial instruments		Cash Collateral pledged (b)		Net amounts
	(dollars in thousands)
As of June 30, 2015
Receivable on derivative contracts, at fair value	$	80,101	$	—	$	80,101	$	—	$	7,794	$	72,307
Payable for derivative contracts, at fair value	67,096		—		67,096		—		4,523		62,573

As of December 31, 2014
Receivable on derivative contracts, at fair value	49,877		—		49,877		—		2,588		47,289
Payable for derivative contracts, at fair value	41,330		—		41,330		—		1,603		39,727


(a)	Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the extent an event of default has occurred.

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


(b)	Includes the amount of collateral held or posted.

The realized and unrealized gains/(losses) related to derivatives trading activities were $(7.5) million and$(1.8) million for the three months ended June 30, 2015 and 2014 and $(5.4) million and $(3.7) million for the six months ended June 30, 2015 and 2014, respectively, and are included in other income in the accompanying consolidated statements of operations.

Pursuant to the various derivatives transactions discussed above, except for the cash convertible note hedge (see Note 13) and exchange traded derivatives, the Company is required to post/receive collateral. As of June 30, 2015 and December 31, 2014, collateral consisting of $22.1 million and $5.5 million of cash, respectively, is included in receivable from brokers and payable to brokers on the accompanying consolidated statements of financial condition. As of June 30, 2015 and December 31, 2014 all derivative contracts were with multiple major financial institutions.

Other investments

As of June 30, 2015 and December 31, 2014, other investments included the following:



	As of June 30, 2015		As of December 31, 2014
	(dollars in thousands)
(1) Portfolio Funds, at fair value	$	107,507	$	103,466
(2) Real estate investments, at fair value	1,987		2,175
(3) Equity method investments	47,813		61,443
(4) Lehman claims, at fair value	347		380
	$	157,654	$	167,464


(1)	Portfolio Funds, at fair value

The Portfolio Funds, at fair value as of June 30, 2015 and December 31, 2014, included the following:



	As of June 30, 2015		As of December 31, 2014
	(dollars in thousands)
HealthCare Royalty Partners (a)(*)	$	10,391	$	11,935
HealthCare Royalty Partners II (a)(*)	7,371		6,648
Orchard Square Partners Credit Fund LP (b)	4,667		11,532
Starboard Value and Opportunity Fund LP (c)(*)	22,688		21,792
Starboard Partners Fund LP (d)(*)	14,451		14,652
Starboard Leaders Fund LP (e)(*)	1,336		1,367
Formation 8 Partners Fund I (f)	16,791		11,283
RCG LV Park Lane LLC (g) (*)	1,256		642
RCGL 12E13th LLC (h) (*)	669		638
RCG Longview Debt Fund V, L.P. (h) (*)	14,757		12,876
RCG LPP SME Co-Invest, L.P. (i) (*)	2,469		—
Other private investment (j)	6,723		7,324
Other affiliated funds (k)(*)	3,938		2,777
	$	107,507	$	103,466

* These portfolio funds are affiliates of the Company.

The Company has no unfunded commitments regarding the portfolio funds held by the Company except as noted in Note 12.


(a)	HealthCare Royalty Partners, L.P. and HealthCare Royalty Partners II, L.P. are private equity funds and therefore distributions will be made when cash flows are received from the underlying investments, typically on a quarterly basis.


(b)	Orchard Square Partners Credit Fund LP has a quarterly redemption policy with a 60 day notice period and a 4% penalty on redemptions of investments of less than a year in duration.


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

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(d)	Starboard Partners Fund LP permits redemptions on a semi-annual basis on 180 days prior written notice subsequent to an initial two year lock up.


(e)	Starboard Leaders Fund LP does not permit withdrawals, but instead allows terminations with respect to capital commitments upon 30 days prior written notice at any time following the first anniversary of an investors initial capital contribution.


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


(g)	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.


(h)	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.


(i)	RCG LPP SME Co-Invest, L.P. is a single purpose entity formed to participate in a joint venture which acquired two fully entitled residential development sites in the New York City metro area. RCG LPP SME Co-Invest, L.P. is a private equity structure and therefore distributions will be made when the underlying investments are liquidated.


(j)	Other private investment represents the Company's closed end investment in a portfolio fund that invests in a wireless broadband communication provider in Italy.


(k)	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 June 30, 2015 and December 31, 2014 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 $2.0 million and $2.2 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 RCG Longview Partners II, LLC. The operating agreement that governs the management of day-to-day operations and affairs of this entity stipulates that certain decisions require support and approval from other members in addition to the support and approval of the Company. As a result, all operating decisions made in this entity requires the support of both the Company and an affirmative vote of a majority of the other managing members who are not affiliates of the Company. As the Company does not possess control over any of this entity, the presumption of consolidation has been overcome pursuant to current accounting standards and the Company accounts for these investments under the equity method of accounting. Also included in equity method investments are the investments in (a) HealthCare Royalty Partners General Partners (b) an investment in the CBOE (Chicago Board Options Exchange) Stock Exchange LLC ("CBOE SE") representing a 7.2% 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 (and certain related parties) which serves as an operating company whose operations primarily include the day to day management (including portfolio management) of several activist hedge funds and related managed accounts. The Company recorded no impairment charges in relation to its equity method investments for the three and six months ended June 30, 2015 and 2014.

The Starboard Value entities were formed to provide a full range of investment advisory and management services and act as a general partner, investment advisor and pension advisor or in similar capacity to clients. In accordance with the respective offering documents of the underlying funds, Starboard Value entities are entitled to fixed percentages of management fees and performance fees. The Company holds a minority interest in the Starboard Value entities.

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Cowen Group, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The following table summarizes equity method investments held by the Company:



	As of June 30, 2015		As of December 31, 2014
	(dollars in thousands)
RCG Longview Debt Fund IV Management, LLC	$	535	$	676
RCG Longview Debt Fund V Partners, LLC	3,507		2,684
HealthCare Royalty GP, LLC	847		973
HealthCare Royalty GP II, LLC	1,248		1,125
HealthCare Royalty GP III, LLC	68		62
CBOE Stock Exchange, LLC	547		611
Starboard Value LP	35,672		48,772
RCG Longview Partners, LLC	237		237
RCG Longview Management, LLC	1,230		1,117
RCG Urban American, LLC	122		422
RCG Urban American Management, LLC	379		379
RCG Longview Equity Management, LLC	272		316
Urban American Real Estate Fund II, LLC	1,973		2,329
RCG Kennedy House, LLC	365		509
Other	811		1,231
	$	47,813	$	61,443

As of June 30, 2015 and December 31, 2014, 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 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 $(5.0) million and $3.7 million for the three months ended June 30, 2015 and 2014 and $9.2 million and $10.2 million for the six months ended June 30, 2015 and 2014, respectively, and is included in net gains (losses) on securities, derivatives and other investments on the accompanying condensed consolidated statements of operations.


(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 assets which the Company believed were held at LBIE at the time of Administration (the “Total Net Equity Claim”) consisted of $1.0 million, which represented an unsecured claim against LBIE. The total amounts received to date in respect of the Company’s unsecured claim against LBIE are approximately $1.0 million, representing 100.0% of its agreed claim. The Company may receive further distributions in respect of its claim, but the amount and timing of these distributions remains uncertain. The Company does not expect future distributions to be material. The claim described above does not include claims held by the Company against LBIE through its investment in Enterprise Master discussed in Note 4b(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 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 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

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Cowen Group, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

sell or re-pledge the securities to others subject to certain limitations. As of June 30, 2015 and December 31, 2014, securities sold, not yet purchased, at fair value consisted of the following:



	As of June 30, 2015		As of December 31, 2014
	(dollars in thousands)
Common stocks	$	168,894	$	207,815
Corporate bonds (a)	58		60
	$	168,952	$	207,875


(a)	As of June 30, 2015 and December 31, 2014, the maturity was January 2026 with an interest rate of 5.55%.

Securities lending and borrowing transactions

The following tables present the contractual gross and net securities borrowing and lending agreements and the related offsetting amount, as of December 31, 2014. As of June 30, 2015 this business has been completely liquidated.



				Gross amounts not offset in the Statement of Financial Condition
	Gross amounts recognized	Gross amounts offset on the Consolidated Statements of Financial Condition (a)	Net amounts included on the Consolidated Statements of Financial Condition	Additional Amounts Available		Financial instruments		Cash Collateral pledged (b)	Net amounts
	(dollars in thousands)
As of December 31, 2014
Securities borrowed	676,100	—	676,100	(15,655	)	(660,445	)	—	—
Securities loaned	682,493	—	682,493	(2,441	)	(680,052	)	—	—


(a)	Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the extent an event of default has occurred.


(b)	Includes the amount of cash collateral held/posted.

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 $3.1 billion and $444.6 million as of June 30, 2015 and $3.0 billion and $499.2 million as of December 31, 2014, respectively. In addition, the maximum exposure relating to these variable interest entities as of June 30, 2015 was $326.4 million, and as of December 31, 2014 was $260.9 million, all of which is included in other investments, at fair value in the accompanying consolidated statements of financial condition. The exposure to loss primarily relates to the Consolidated Feeder Funds' investment in their Unconsolidated Master Funds as of June 30, 2015 and December 31, 2014.


b.	Consolidated Funds

Other investments, at fair value

As of June 30, 2015 and December 31, 2014 other investments, at fair value, held by the Consolidated Funds are comprised of:



	As of June 30, 2015		As of December 31, 2014
	(dollars in thousands)
(1) Portfolio Funds	$	266,699	$	188,884
(2) Lehman claims	744		493
	$	267,443	$	189,377

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Cowen Group, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


(1)	Investments in Portfolio Funds, at fair value

As of June 30, 2015 and December 31, 2014, investments in Portfolio Funds, at fair value, included the following:



	As of June 30, 2015		As of December 31, 2014
	(dollars in thousands)
Investments of Enterprise LP	$	135,253	$	138,253
Investments of Merger Fund	59,594		50,631
Investments of Quadratic LLC	71,852		—
	$	266,699	$	188,884

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 $135.3 million and $138.3 million in Enterprise Master as of June 30, 2015 and December 31, 2014, respectively. On May 12, 2010, the Company announced its intention to close Enterprise Master. Prior to this announcement, strategies utilized by Enterprise Master included merger arbitrage and activist investing, investments in distressed securities, convertible hedging, capital structure arbitrage, equity market neutral, investments in private placements of convertible securities, proprietary mortgages, structured credit investments, investments in mortgage backed securities and other structured finance products, investments in real estate and real property interests, structured private placements and other relative value strategies. Enterprise Master had broad investment powers and maximum flexibility in seeking to achieve its investment objective. Enterprise Master was permitted to invest in equity securities, debt instruments, options, futures, swaps, credit default swaps and other derivatives. As Enterprise Master winds down its positions, it will return capital to its investors. There are no unfunded commitments at Enterprise LP.

Consolidated investments of Merger Fund

The Merger Fund operates under a “master-feeder” structure, whereby Ramius Merger Master Ltd's ("Merger Master") shareholders are Merger Fund and Ramius Merger Fund Ltd. The consolidated investments in Portfolio Funds include Merger Fund's investment of $59.6 million and $50.6 million in Merger Master as of June 30, 2015 and December 31, 2014, respectively. The Merger Master’s investment objective is to achieve consistent absolute returns while emphasizing the preservation of investor capital. The Merger Master seeks to achieve these objectives by taking a fundamental, research-driven approach to investing, primarily in the securities of issuers engaged in, or subject to, announced (or unannounced but otherwise anticipated) extraordinary corporate transactions, which may include, but are not limited to, mergers, acquisitions, leveraged buyouts, tender offers, hostile takeover bids, sale processes, exchange offers, and recapitalizations. Merger Master invests in the securities of one or more issuers engaged in or subject to such extraordinary corporate transactions. Merger Master typically seeks to derive a profit by realizing the price differential, or “spread,” between the market price of securities purchased or sold short and the market price or value of securities realized in connection with the completion or termination of the extraordinary corporate transaction, or in connection with the adjustment of market prices in anticipation thereof, while seeking to minimize the market risk associated with the aforementioned investment activities. Merger Master will, depending on markets conditions, generally focus the majority of its investment program on announced transactions. If the investment manager of Merger Master considers it necessary, it may either alone or as part of a group, also initiate shareholder actions seeking to maximize value. Such shareholder actions may include, but are not limited to, re-orienting management’s focus or initiating the sale of the company (or one or more of its divisions) to a third party. There are no unfunded commitments at Merger Fund.

Consolidated investments of Quadratic LLC

Quadratic LLC operates under a “master-feeder” structure, whereby Quadratic Master Fund Ltd's ("Quadratic Master") shareholders are Quadratic LLC and Quadratic Fund Ltd. The consolidated investments in Portfolio Funds include Quadratic LLC's investment of $71.9 million in Quadratic Master as of June 30, 2015. The Quadratic Master’s investment objective is to achieve attractive, risk-adjusted rates of return through the use of proprietary fundamental global macro and options/swaptions based strategies. Quadratic Master’s strategy is primarily executed via options and swaptions. Quadratic Master will pursue absolute returns in all market environments. Occasionally, Quadratic Master may use dividend swaps, credit default swaps, interest rate swaps, inflation swaps, futures, foreign currency forwards, tranches and other delta one products as a hedge against existing options positions or when the investment manager believes that the payoff possibilities thereof are sufficiently asymmetric as to exhibit option-like qualities. There are no unfunded commitments at Quadratic Fund.

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Cowen Group, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


(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. As of June 30, 2015, Enterprise Master has received distributions totaling approximately $37.2 million in respect of its claim, including a distribution of $1.0 million that was received on June 25, 2015 in respect of its then remaining $0.7 million Net Equity Claim. The distribution received on June 25, 2015 was the final distribution Enterprise Master expects to receive from LBIE.

Indirect Concentration of the Underlying Investments Held by Consolidated Funds

From time to time, either directly or indirectly through its investments in the Consolidated Funds, the Company may maintain exposure to a particular issue or issuer (both long and/or short) which may account for 5% or more of the Company's equity. Based on information that is available to the Company as of June 30, 2015 and December 31, 2014, the Company assessed whether or not its interests in an issuer for which the Company's pro-rata share exceeds 5% of the Company's equity. There were no indirect concentrations that exceed 5% of the Company's equity as of June 30, 2015 or December 31, 2014.

Underlying Investments of Unconsolidated Funds Held by Consolidated Funds

Enterprise Master and Merger Master

Enterprise LP's investment in Enterprise Master represents Enterprise LP's proportionate share of Enterprise Master's net assets; as a result, the investment balances of Enterprise Master reflected below may exceed the net investment which Enterprise LP has recorded. Merger Fund's investment in Merger Master represents Merger Fund's proportionate share of Merger Master's net assets; as a result, the investment balances of Merger Master reflected below may exceed the net investment which Merger Fund has recorded. The following tables present summarized investment information for the underlying investments and derivatives held by Enterprise Master and Merger Master as of June 30, 2015 and December 31, 2014:

Securities owned by Enterprise Master, at fair value



	As of June 30, 2015		As of December 31, 2014
	(dollars in thousands)
Bank debt	$	—	$	20
Common stock	1,739		1,659
Preferred stock	582		576
Private equity	—		587
Restricted stock	124		124
Rights	2,642		2,802
Trade claims	128		128
	$	5,215	$	5,896

Receivable on derivative contracts, at fair value, owned by Enterprise Master



	As of June 30, 2015		As of December 31, 2014
Description	(dollars in thousands)
Currency forwards	$	8	$	64
	$	8	$	64

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Cowen Group, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Portfolio Funds, owned by Enterprise Master, at fair value



		As of June 30, 2015		As of December 31, 2014
	Strategy	(dollars in thousands)
RCG Longview Equity Fund, LP*	Real Estate	$	7,907	$	9,090
RCG Longview II, LP*	Real Estate	760		747
RCG Longview Debt Fund IV, LP*	Real Estate	5,198		5,348
RCG Longview, LP*	Real Estate	40		40
RCG Soundview, LLC*	Real Estate	452		452
RCG Urban American Real Estate Fund, L.P.*	Real Estate	1,174		1,161
RCG International Sarl*	Multi-Strategy	1,217		2,113
RCG Special Opportunities Fund, Ltd*	Multi-Strategy	93,676		92,405
RCG Energy, LLC *	Energy	2,029		2,294
RCG Renergys, LLC*	Energy	1		1
Other Private Investments	Various	11,024		12,057
Other Real Estate Investments (*)	Real Estate	9,067		10,138
		$	132,545	$	135,846


*	Affiliates of the Company.

Merger Master

Securities owned by Merger Master, at fair value



	As of June 30, 2015		As of December 31, 2014
	(dollars in thousands)
Common stocks	$	155,030	$	133,510
Corporate bonds (a)	—		3,383
	$	155,030	$	136,893


(a)	As of December 31, 2014, maturities ranged from February 2017 to June 2019 and interest rates ranged between 8.50% and 9.75%.

Securities sold, not yet purchased, by Merger Master, at fair value

As of June 30, 2015 and December 31, 2014, Merger Master held common stock, sold not yet purchased, of $32.1 million and $39.9 million, respectively.

Receivable on derivative contracts, at fair value, owned by Merger Master



	As of June 30, 2015		As of December 31, 2014
Description	(dollars in thousands)
Options	$	1,190	$	541
Currency Forwards	7		—
Equity swaps	695		76
	$	1,892	$	617

Payable for derivative contracts, at fair value, owned by Merger Master



	As of June 30, 2015		As of December 31, 2014
Description	(dollars in thousands)
Options	$	285	$	238
Equity swaps	1,495		56
	$	1,780	$	294

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Cowen Group, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Quadratic Master

As of June 30, 2015, Quadratic Master held U.S. treasury bills, securities owned, of $69.6 million with maturities ranging from July 2015 to September 2015 and interest rate of 0%. As of June 30, 2015, Quadratic Master held options, receivable on derivative, of $8.3 million, and options, payable for derivative, of $0.2 million.

5. 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 consolidated statements of financial condition by caption and by level within the valuation hierarchy as of June 30, 2015 and December 31, 2014:

Operating Entities



	Assets at Fair Value as of June 30, 2015
	Level 1		Level 2		Level 3		Total
			(dollars in thousands)
Operating Entities
Securities owned
US Government securities	$	2,511	$	—	$	—	$	2,511
Preferred stock	10,899		12,288		23,462		46,649
Common stocks	620,938		1,779		404		623,121
Convertible bonds	—		—		879		879
Corporate bonds	—		125,266		—		125,266
Warrants and rights	1,269		—		2,316		3,585
Mutual funds	16,263		—		—		16,263
Receivable on derivative contracts, at fair value							—
Futures	42		—		—		42
Currency forwards	—		126		—		126
Equity swaps	—		1,945		—		1,945
Options	13,688		5,724		58,576		77,988
Other investments
Real estate investments	—		—		1,987