Edgar Filing: COWEN INC.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
Q	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
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 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,” “smaller reporting company,” and "emerging growth 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	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 August 4, 2017, there were 31,074,071 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	6
		Condensed Consolidated Statements of Comprehensive Income (Loss)	7
		Condensed Consolidated Statements of Changes in Equity	8
		Condensed Consolidated Statements of Cash Flows	9
		Notes to Condensed Consolidated Financial Statements	11
	2. Management's Discussion and Analysis of Financial Condition and Results of Operations		59
	3. Quantitative and Qualitative Disclosures About Market Risk		93
	4. Controls and Procedures		93
PART II. OTHER INFORMATION			93
	1. Legal Proceedings		93
	1A. Risk Factors		94
	2. Unregistered Sales of Equity Securities and Use of Proceeds		96
	3. Defaults Upon Senior Securities		97
	4. Mine Safety Disclosures		97
	5. Other Information		97
	6. Exhibits		97
SIGNATURES			98
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, 2016 as well as Item 1A of this periodic report on Form 10-Q for the quarterly period ended June 30, 2017.

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, 2017 and 2016. The Consolidated Financial Statements as of December 31, 2016 were audited.

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PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements



Cowen Inc. Condensed Consolidated Statements of Financial Condition (dollars in thousands, except share and per share data) (unaudited)
Assets	As of June 30, 2017		As of December 31, 2016
Cash and cash equivalents	$	165,474	$	110,990
Cash collateral pledged	15,473		13,342
Segregated cash	87,145		1,024
Securities owned, at fair value	696,543		700,876
Receivable on derivative contracts, at fair value	30,829		22,901
Securities borrowed	100,845		—
Other investments	136,360		157,279
Deposits with clearing organizations, brokers and banks	79,209		8,939
Receivable from brokers, dealers and clearing organizations	145,385		78,898
Receivable from customers	64,195		—
Fees receivable, net of allowance of $1,120	116,330		45,883
Due from related parties	40,252		39,629
Fixed assets, net of accumulated depreciation and amortization of $26,612 and $23,867, respectively	42,341		42,408
Goodwill	60,678		60,678
Intangible assets, net of accumulated amortization of $29,643 and $29,418, respectively	33,393		25,769
Deferred tax asset, net	160,453		165,656
Other assets	69,065		38,406
Consolidated Funds
Cash and cash equivalents	34,407		17,761
Securities owned, at fair value	94,674		79,237
Receivable on derivative contracts, at fair value	1,015		893
Other investments	404,490		401,465
Receivable from brokers	9,710		5,978
Other assets	352		511
Total Assets	$	2,588,618	$	2,018,523
Liabilities and Stockholders' Equity
Liabilities
Securities sold, not yet purchased, at fair value	$	254,077	$	266,090
Payable for derivative contracts, at fair value	25,941		20,762
Securities loaned	142,434		—
Payables to brokers, dealers and clearing organizations	267,934		210,309
Payable to customers	114,449		—
Commission management payable	88,894		3,590
Compensation payable	68,924		98,084
Notes payable and other debt	107,119		77,030
Convertible debt	134,100		130,029
Fees payable	10,685		3,272
Due to related parties	574		573
Accounts payable, accrued expenses and other liabilities	110,163		47,525
Consolidated Funds
Securities sold, not yet purchased, at fair value	—		883
Payable for derivative contracts, at fair value	620		572
Payable to brokers	8,269		3,700
Contributions received in advance	—		2,000
Capital withdrawals payable	2,181		1,408
Accounts payable, accrued expenses and other liabilities	340		841
Total Liabilities	1,336,704		866,668

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Cowen Inc. Condensed Consolidated Statements of Financial Condition (dollars in thousands, except share and per share data) (unaudited)
	As of June 30, 2017			As of December 31, 2016
(continued)
Commitments and Contingencies (Note 16)
Redeemable non-controlling interests	418,009			379,205

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, 2017 (aggregate liquidation preference of $120,750,000) and 120,750 shares issued and outstanding as of as of December 31, 2016 (aggregate liquidation preference of $120,750,000), respectively	1			1
Class A common stock, par value $0.01 per share: 62,500,000 shares authorized, 41,665,691 shares issued and 31,074,071 outstanding as of June 30, 2017 and 36,542,091 shares issued and 26,731,289 outstanding as of December 31, 2016, respectively (including 191,962 and 162,176 restricted shares, respectively)	324			292
Class B common stock, par value $0.01 per share: 62,500,000 authorized, no shares issued and outstanding	—			—
Additional paid-in capital	994,126			928,646
(Accumulated deficit) retained earnings	4,586			(2,442		)
Accumulated other comprehensive income (loss)	(8		)	(2		)
Less: Class A common stock held in treasury, at cost, 10,593,191 and 9,810,802 shares, respectively	(165,124		)	(153,845		)
Total Stockholders' Equity	833,905			772,650
Total Liabilities and Stockholders' Equity	$	2,588,618		$	2,018,523

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

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Cowen Inc. Condensed Consolidated Statements of Operations (dollars in thousands, except per share data) (unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues
Investment banking	$	64,146		$	35,287		$	100,699		$	61,434
Brokerage	63,845			47,100			114,379			98,035
Management fees	8,656			10,649			17,364			21,679
Incentive income	3,726			428			4,272			1,539
Interest and dividends	7,917			4,105			13,006			7,758
Reimbursement from affiliates	495			2,241			2,147			6,128
Aircraft lease revenue	1,043			1,588			2,102			1,982
Reinsurance premiums	7,682			13,328			14,771			14,338
Other revenues	1,345			412			2,745			1,733
Consolidated Funds
Interest and dividends	1,388			1,538			3,382			2,614
Other revenues	287			555			634			1,030
Total revenues	160,530			117,231			275,501			218,270
Expenses
Employee compensation and benefits	102,111			55,627			178,784			118,808
Floor brokerage and trade execution	14,078			7,872			22,401			15,663
Interest and dividends	12,211			6,944			22,141			14,254
Professional, advisory and other fees	10,527			5,686			16,343			11,280
Service fees	3,328			2,075			5,944			4,259
Communications	6,003			4,529			10,763			8,668
Occupancy and equipment	8,533			7,873			15,596			15,878
Depreciation and amortization	3,132			3,413			6,160			6,480
Client services and business development	7,192			6,946			14,954			13,986
Reinsurance claims, commissions and amortization of deferred acquisition costs	7,275			11,766			13,453			12,329
Restructuring costs	8,541			—			8,541			—
Other expenses	4,329			2,852			7,590			8,101
Consolidated Funds
Interest and dividends	2,108			1,507			6,091			2,627
Professional, advisory and other fees	304			320			696			622
Floor brokerage and trade execution	105			111			214			133
Other expenses	231			205			710			577
Total expenses	190,008			117,726			330,381			233,665
Other income (loss)
Net gains (losses) on securities, derivatives and other investments	18,719			(20,218		)	44,775			(17,030		)
Bargain purchase gain, net of tax	7,946			—			7,946			—
Consolidated Funds
Net realized and unrealized gains (losses) on investments and other transactions	29,503			(23,606		)	39,081			(26,298		)
Net realized and unrealized gains (losses) on derivatives	1,320			5,055			5,185			8,157
Net gains (losses) on foreign currency transactions	(210		)	111			(307		)	98
Total other income (loss)	57,278			(38,658		)	96,680			(35,073		)
Income (loss) before income taxes	27,800			(39,153		)	41,800			(50,468		)
Income tax expense (benefit)	(785		)	(11,992		)	1,126			(15,312		)
Net income (loss)	28,585			(27,161		)	40,674			(35,156		)
Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds	21,145			(16,705		)	30,250			(21,002		)
Net income (loss) attributable to Cowen Inc.	7,440			(10,456		)	10,424			(14,154		)
Preferred stock dividends	1,698			1,698			3,396			3,396
Net income (loss) attributable to Cowen Inc. common stockholders	$	5,742		$	(12,154	)	$	7,028		$	(17,550	)

(continued)
Weighted average common shares outstanding:
Basic (a)	28,634			26,867			27,852			26,729
Diluted (a)	29,474			26,867			28,860			26,729
Earnings (loss) per share:
Basic (a)	$	0.20		$	(0.45	)	$	0.25		$	(0.66	)
Diluted (a)	$	0.19		$	(0.45	)	$	0.24		$	(0.66	)

(a) Share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016.

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

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Cowen Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)



	Three Months Ended June 30,										Six Months Ended June 30,
	2017					2016					2017					2016
Net income (loss)			$	28,585				$	(27,161	)			$	40,674				$	(35,156	)
Other comprehensive income (loss), net of tax:
Foreign currency translation	(4	)				(2	)				(6	)				(5	)
Total other comprehensive income (loss), net of tax			(4		)			(2		)			(6		)			(5		)
Comprehensive income (loss)			$	28,581				$	(27,163	)			$	40,668				$	(35,161	)

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

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Cowen 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, 2016	26,731,289		$	292	120,750	$	1	$	(153,845	)	$	928,646		$	(2	)	$	(2,442	)	$	772,650		$	379,205
Net income (loss) attributable to Cowen Inc.	—		—		—	—		—			—			—			10,424			10,424			—
Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds	—		—		—	—		—			—			—			—			—			30,250
Foreign currency translation	—		—		—	—		—			—			(6		)	—			(6		)	—
Capital contributions	—		—		—	—		—			—			—			—			—			35,150
Capital withdrawals	—		—		—	—		—			—			—			—			—			(26,596		)
Common stock issuance upon acquisition (See Note 2)	3,162,278		32		—	—		—			47,575			—			—			47,607			—
Restricted stock awards issued	1,962,893		—		—	—		—			—			—			—			—			—
Purchase of treasury stock, at cost	(782,389	)	—		—	—		(11,279		)	—			—			—			(11,279		)	—
Preferred stock dividends (See Note 18)	—		—		—	—		—			—			—			(3,396		)	(3,396		)	—
Amortization of share based compensation	—		—		—	—		—			17,905			—			—			17,905			—
Balance, June 30, 2017	31,074,071		$	324	120,750	$	1	$	(165,124	)	$	994,126		$	(8	)	$	4,586		$	833,905		$	418,009

	Common Shares Outstanding		Common Stock		Preferred Shares Outstanding	Preferred Stock		Treasury Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings/ (Accumulated deficit)			Total Stockholders' Equity			Redeemable Non-controlling Interest
Balance, December 31, 2015	26,401,163		$	292	120,750	$	1	$	(137,356	)	$	903,429		$	—		$	23,627		$	789,993		$	186,911
Net income (loss) attributable to Cowen Inc.	—		—		—	—		—			—			—			(14,154		)	(14,154		)
Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds																							(21,002		)
Foreign currency translation	—		—		—	—		—			—			(5		)	—			(5		)	—
Capital contributions	—		—		—	—		—			—			—			—			—			231,871
Capital withdrawals	—		—		—	—		—			—			—			—			—			(9,615		)
Deconsolidation of entities	—		—		—	—		—			—			—			—			—			(73,042		)
Restricted stock awards issued	1,459,003		—		—	—		—			—			—			—			—			—
Purchase of treasury stock, at cost	(1,058,511	)	—		—	—		(14,576		)	—			—			—			(14,576		)	—
Preferred stock dividends (See Note 18)	—		—		—	—		—			—			—			(3,396		)	(3,396		)	—
Income tax effect from share based compensation	—		—		—	—		—			(744		)	—			—			(744		)	—
Amortization of share based compensation	—		—		—	—		—			13,036			—			—			13,036			—
Balance, June 30, 2016	26,801,655		$	292	120,750	$	1	$	(151,932	)	$	915,721		$	(5	)	$	6,077		$	770,154		$	315,123

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

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Cowen Inc. Condensed Consolidated Statements of Cash Flows (dollars in thousands) (unaudited)
	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	40,674		$	(35,156	)
Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities:
Bargain purchase gain	(7,946		)	—
Depreciation and amortization	6,160			6,480
Amortization of debt issuance costs	608			587
Amortization of debt discount	3,699			3,366
Tax benefit (expense) from share-based payment arrangements	—			(744		)
Share-based compensation	17,905			13,036
Deferred tax benefit	5,201			(13,982		)
Deferred rent obligations	(175		)	(402		)
Net loss on disposal of fixed assets	55			—
Contingent liability adjustment	—			2,135
Purchases of securities owned, at fair value	(2,432,174		)	(2,085,486		)
Proceeds from sales of securities owned, at fair value	2,628,293			2,219,623
Proceeds from sales of securities sold, not yet purchased, at fair value	1,316,612			1,856,801
Payments to cover securities sold, not yet purchased, at fair value	(1,430,940		)	(1,841,743		)
Net (gains) losses on securities, derivatives and other investments	(50,070		)	7,731
Consolidated Funds
Purchases of securities owned, at fair value	(137,781		)	(22,056		)
Proceeds from sales of securities owned, at fair value	130,550			1,517
Proceeds from sales of securities sold, not yet purchased, at fair value	217			2,226
Payments to cover securities sold, not yet purchased, at fair value	(899		)	(947		)
Purchases of other investments	(8,628		)	(221,506		)
Proceeds from sales of other investments	31,478			12,431
Net realized and unrealized (gains) losses on investments and other transactions	(34,282		)	19,100
(Increase) decrease in operating assets:
Cash acquired through acquisition	96,197			—
Cash collateral pledged	(2,131		)	(3,687		)
Segregated Cash	(22,731		)	356
Securities owned, at fair value, held at broker-dealer	(131,681		)	870
Receivable on derivative contracts, at fair value	(7,928		)	14,647
Securities borrowed	157,476			—
Deposits with clearing organizations, brokers and banks	(26,612		)	(2,037		)
Receivable from brokers, dealers and clearing organizations	5,435			2,888
Receivable from customers	(20,726		)	—
Fees receivable, net of allowance	(34,215		)	(10,939		)
Due from related parties	(623		)	4,134
Other assets	(25,591		)	(22,173		)
Consolidated Funds
Cash and cash equivalents	(16,646		)	5,992
Receivable on derivative contracts, at fair value	(122		)	(60		)
Receivable from brokers	(3,732		)	—
Other assets	159			(584		)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased, at fair value, held at broker-dealer	77,783			(2,029		)
Payable for derivative contracts, at fair value	5,179			(6,327		)
Securities loaned	(143,925		)	—
Payable to brokers, dealers and clearing organizations	(16,659		)	(122,493		)
Payable to customers	102,648			—
Commission management payable	6,176			318
Compensation payable	(60,243		)	(145,817		)
Fees payable	1,999			(3,114		)
Due to related parties	1			(65		)
Accounts payable, accrued expenses and other liabilities	22,578			8,513

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Cowen Inc. Condensed Consolidated Statements of Cash Flows (dollars in thousands) (unaudited)
	Six Months Ended June 30,
	2017			2016
(continued)
Consolidated Funds
Contributions received in advance	(2,000		)	(850		)
Payable to brokers	4,569			731
Payable for derivative contracts, at fair value	48			—
Due to related parties	(189		)	264
Accounts payable, accrued expenses and other liabilities	(312		)	198
Net cash provided by / (used in) operating activities	$	42,739		$	(358,253	)
Cash flows from investing activities:
Purchases of other investments	$	(60,367	)	$	(24,956	)
Purchase of business (Note 2)	(54,017		)	(6,258		)
Proceeds from sales of other investments	99,127			22,680
Proceeds from loans held for investment	2,400			40,400
Purchase of fixed assets	(2,175		)	(14,694		)
Net cash provided by / (used in) investing activities	(15,032		)	17,172
Cash flows from financing activities:
Borrowings on notes and other debt	31,737			30,709
Repayments on notes and other debt	(2,740		)	(1,901		)
Income tax effect from share-based payment arrangements	—			(744		)
Purchase of treasury stock	(11,279		)	(6,014		)
Cash paid to acquire net assets (contingent liability payment)	(267		)	(3,493		)
Capital withdrawals to redeemable non-controlling interests in operating entities	(3,778		)	(5,144		)
Consolidated Funds
Capital contributions by redeemable non-controlling interests in Consolidated Funds	35,149			231,871
Capital withdrawals to redeemable non-controlling interests in Consolidated Funds	(22,045		)	(4,549		)
Net cash provided by / (used in) financing activities	26,777			240,735
Change in cash and cash equivalents	54,484			(100,346		)
Total cash beginning of period	110,990			157,232
Total cash at end of period	165,474			56,886

Supplemental non-cash information
Purchase of treasury stock, at cost, through net settlement (See Note 18)	$	11,279		$	8,562
Preferred stock dividends declared (See Note 18)	$	3,396		$	3,396
Net assets (liabilities) acquired upon acquisition (net of cash) (See Note 2)	$	10,220		$	—
Common stock issuance upon close of acquisition (see Note 2)	$	47,607		$	—
Notes payable increase through asset acquisition	$	—		$	7,164
Net assets of deconsolidated entities	$	—		$	73,042

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

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Business

Cowen Inc. (formerly Cowen Group, Inc.), a Delaware corporation formed in 2009, is a diversified financial services firm and, together with its consolidated subsidiaries (collectively, “Cowen,” or the “Company”), provides investment management, investment banking, research, sales and trading, prime brokerage, global clearing and commission management services through its two business segments: investment management and broker-dealer. The Company's investment management segment, includes private investment funds, managed accounts, commodity pools, real estate funds, private equity structures, registered investment companies and listed vehicles. The Company's broker-dealer segment offers investment banking, research, sales and trading, prime brokerage, global clearing and commission management services to companies and primarily institutional investor clients. Our primary target sectors are healthcare, technology, media and telecommunications, information and technology services, consumer, aerospace and defense, industrials, energy and transportation.

On December 5, 2016, the Company effected a one-for-four reverse stock split of the Company's common stock. Except where the context indicates otherwise, all share and per share information has been retroactively adjusted to reflect the reverse stock split.

2. Acquisition

On April 2, 2017, the Company, through its wholly owned subsidiary Cowen CV Acquisition LLC, entered into a securities purchase agreement with, among others, Convergex Holdings LLC to acquire all the outstanding interests in Convergex Group, LLC ("Convergex Group") (subsequently renamed to Cowen Execution Holdco LLC), a provider of agency based execution services and trading technology to middle market institutional investors and broker-dealers. Convergex Group's operations were primarily conducted through two U.S. Securities Exchange Commission ("SEC") registered broker-dealers, Convergex Execution Services LLC (subsequently renamed to Cowen Execution Services LLC) ("Cowen Execution") and Westminster Research Associates LLC ("Westminster Research") and also Convergex Limited (subsequently renamed to Cowen Execution Services Limited) ("Cowen Execution Ltd"), which is based in the United Kingdom and regulated by the Financial Conduct Authority ("FCA"). The purchase price was paid approximately 50% in cash and 50% in Cowen Inc. Class A common stock.

The acquisition was consummated effective as of June 1, 2017. The adjusted aggregate estimated purchase price was $96.2 million, which was determined based on closing date tangible book value of Convergex Group, less certain closing adjustments. A portion of the preliminary purchase price was deposited into escrow as a reserve for any future claims against the sellers of Convergex Group. On closing, the Company paid cash of $48.6 million and issued 3,162,278 of the Company’s Class A common stock determined based on the 30-day volume-weighted average price per share of $15.05 as of May 30, 2017.

The acquisition was accounted for under the acquisition method in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). As such, results of operations for Convergex Group are included in the accompanying condensed consolidated statements of operations since the date of acquisition, and the assets acquired and liabilities assumed were recorded at their fair value as at the acquisition date. Subsequent to the acquisition, the operations of Convergex Group were integrated within the Company's existing businesses.

The Company is currently in the process of finalizing its purchase price allocation of Convergex Group; therefore, the purchase price adjustments as of June 30, 2017 are preliminary and subject to measurement period adjustments. The allocation of the purchase price to the net assets acquired will be finalized as necessary, up to one year after the acquisition's closing date, as the information becomes available.

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The table below summarizes the preliminary purchase price allocation of net tangible and intangible assets acquired and liabilities assumed as of June 1, 2017:



	(dollars in thousands)
Cash and cash equivalents	$	96,197
Segregated cash	63,390
Securities owned, at fair value	3,417
Securities borrowed	258,321
Deposits from clearing organizations	52,596
Receivable from brokers	62,983
Receivable from customers	43,469
Fees receivable	36,232
Fixed assets, net	1,325
Intangible assets, net	10,270
Other assets	7,528
Securities sold, not yet purchased, at fair value	(71		)
Securities loaned	(286,359		)
Payable to brokers	(74,284		)
Payable to customers	(11,801		)
Commission management payable	(82,718		)
Compensation payable	(31,083		)
Notes payable and other debt	(857		)
Fees payable	(5,414		)
Accounts payable, accrued expenses and other liabilities	(33,570		)
Total identifiable net assets acquired and liabilities assumed	109,571
Goodwill/(Bargain purchase gain)	(13,343		)
Total estimated purchase price	$	96,228

The Company believes that all of the acquired receivables and contractual amounts receivable as reflected above in the allocation of the purchase price are recorded at fair value. See Note 16 for further information on legal matters relating to the acquisition.

As of the acquisition date, the estimated fair value of the Company's intangible assets, as acquired through the acquisition, was $10.3 million. The allocation of the intangible assets is shown within the following table.



	Estimated intangible assets acquired		Estimated average remaining useful lives
	(dollars in thousands)		(in years)
Intangible asset class
Trade name	$	760	0.6 - 2.6
Intellectual property	1,790		5
Customer relationships	7,720		9
Total intangible assets	$	10,270

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Amortization expense for the three and six months ended June 30, 2017, respectively, is $0.2 million and is included in depreciation and amortization in the accompanying condensed consolidated statements of operations. The estimated amortization expense related to these intangible assets in future periods is as follows:



	(dollars in thousands)
2017	$	1,203
2018	1,258
2019	1,239
2020	1,216
2021	1,216
Thereafter	3,938
	$	10,070

Based on the June 1, 2017 estimated purchase price allocation, the fair value of the net identifiable assets acquired and liabilities assumed of $109.6 million exceeded the estimated purchase price of $96.2 million. As a result, the Company has recognized a bargain purchase gain of $13.3 million related to the acquisition. The bargain purchase gain is shown net of $5.4 million of associated tax in the accompanying condensed consolidated statements of operations.

In addition to the purchase price consideration, the Company incurred acquisition related expenses of $4.7 million, including financial advisory, legal and valuation services, which are included in professional, advisory and other fees in the condensed consolidated statements of operations for the three and six months ended June 30, 2017. Subsequent to the acquisition, certain of Convergex Group's businesses were integrated within the broker-dealer businesses of the Company and therefore they are included within their respective line items in the accompanying condensed consolidated statements of operations from June 1, 2017 through June 30, 2017. The following table provides unaudited supplemental pro forma financial information for the six months ended June 30, 2017 and 2016, as if the acquisition were completed as of January 1, 2016. This supplemental pro forma information has been prepared for comparative purposes only and is not intended to be indicative of what the Company's financial results would have been had the acquisition been completed on January 1, 2016, nor does it purport to be indicative of any future results.



	Six Months Ended June 30,
	2017			2016
	(dollars in thousands, except per share data)
	(unaudited)
Revenues	$	350,464		$	326,371
Net income (loss) attributable to Cowen Inc. stockholders	(9,318		)	(29,645		)

Net income (loss) per common share:
Basic (a)	$	(0.30	)	$	(0.99	)
Diluted (a)	(0.30		)	(0.99		)

(a) Share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016.

In conjunction with the integration of the acquired businesses of Convergex Group, the Company evaluated the combined broker-dealer businesses and operations and incurred approximately $8.5 million of integration and restructuring costs which primarily related to exit and disposal costs, discontinuation of redundant technology services and severance costs.

3. Significant Accounting Policies

a. Basis of Presentation

These unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Financial Accounting Standards Board ("FASB") through Accounting Standards Codification as the source of authoritative accounting principles in the preparation of financial statements, and include the accounts of the Company, its operating and other subsidiaries, and entities in which the Company has a controlling financial interest or a general partner interest. All material intercompany transactions and balances have been eliminated on consolidation. Certain fund entities that are consolidated in these accompanying condensed consolidated financial

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

statements, as further discussed below, are not subject to the consolidation provisions with respect to their own controlled investments pursuant to their specialized accounting.

The Company serves as the managing member/general partner and/or investment manager to affiliated fund entities which it sponsors and manages. Funds in which the Company has a controlling financial interest are consolidated with the Company pursuant to US GAAP as described below. Consequently, the Company's condensed consolidated financial statements reflect the assets, liabilities, income and expenses of these funds on a gross basis. The ownership interests in these funds that are not owned by the Company are reflected as redeemable non-controlling interests in consolidated subsidiaries in the accompanying condensed consolidated financial statements. The management fees and incentive income earned by the Company from these funds are eliminated in consolidation.

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

The year-end condensed balance sheet data was derived from the audited financial statements, but does not include all disclosures included in the audited financial statements.


b.	Principles of consolidation

The Company consolidates all entities that it controls through a majority voting interest or otherwise, including those funds in which the Company either directly or indirectly has a controlling financial interest. In addition, the Company consolidates all variable interest entities for which it is the primary beneficiary.

In accordance with these standards, the Company presently consolidates six funds for which it acts as the general partner and investment manager. As of June 30, 2017 the Company consolidated the following funds: Ramius Enterprise LP (“Enterprise LP”), Ramius Merger Fund LLC (the "Merger Fund"), Cowen Private Investments LP ("Cowen Private"), Caerus Select Fund LP ("Caerus LP") (between May 1, 2016 through March 1, 2017 when the fund was liquidated), Ramius Archview Credit and Distressed Master Fund ("Archview Master Fund") and Ramius Merger Arbitrage UCITS Fund ("UCITS Fund") (collectively the "Consolidated Funds").

The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting operating entity ("VOE") or a variable interest entity ("VIE") under US GAAP.

Voting Operating 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 all VOEs in which it owns a majority of the entity's voting shares or units.

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.

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, 2017 and December 31, 2016, the total net assets of the consolidated VIEs were $479.9 million and $461.6 million, respectively. The VIEs act as investment managers and/or investment companies that may be managed by the Company or the Company may have equity interest in those investment companies. The VIEs are financed through their operations and/or loan agreements with the Company.

As of June 30, 2017 the Company holds variable interests in Ramius Enterprise Master Fund Ltd (“Enterprise Master”) and Ramius Merger Master Fund Ltd ("Merger Master") (collectively the “Unconsolidated Master Funds”) through the Consolidated Funds. Investment companies, which account for their investments under the specialized industry accounting guidance for investment companies prescribed under US GAAP, are not subject to the consolidation provisions for their investments. Therefore, the Company has not consolidated the Unconsolidated Master Funds.

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Cowen Inc.

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 the Unconsolidated Master Funds or real estate entities that are VIEs as it has concluded that it is not the primary beneficiary in each instance. Fund investors are entitled to all of their 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 6 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 condensed consolidated statements of financial condition. The Company's share of earnings or losses from equity method investees is included in net gains (losses) on securities, derivatives and other investments in the accompanying condensed consolidated statements of operations.

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment charge when the loss in value is deemed other than temporary.

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 condensed consolidated statements of operations.

Retention of Specialized Accounting—The Consolidated Funds and certain other consolidated companies are investment companies and apply specialized industry accounting for investment companies. The Company has retained this specialized accounting for these funds pursuant to US GAAP. The Company reports its investments on the condensed consolidated statements of financial condition at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected within net realized and unrealized gains (losses) on investments and other transactions. Accordingly, the accompanying condensed consolidated financial statements reflect different accounting policies for investments depending on whether or not they are held through a consolidated investment company. In addition, the Company's broker-dealer subsidiaries, Cowen and Company, LLC ("Cowen and Company"), Cowen Execution, Westminster Research, Cowen Execution Ltd, ATM Execution LLC ("ATM Execution"), Cowen International Limited ("CIL"), Ramius UK Ltd. ("Ramius UK") and Cowen Prime Services LLC ("Cowen Prime") apply the specialized industry accounting for brokers and dealers in securities also prescribed under US GAAP. The Company also retains specialized accounting upon 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.	Allowance for doubtful accounts

The allowance for doubtful accounts is based on the Company’s assessment of the collectability of receivables related to securities transactions, prepaid research and other receivables. The Company considers factors such as historical experience, credit quality, age of balances and current economic conditions that may affect collectability in determining the allowance for doubtful accounts. Specifically for prepaid research, the Company reviews clients' historical, current and forecasted trading activity in determining the allowance for doubtful accounts. Expense related to the allowance for doubtful accounts as well as any recoveries of amounts previously charged is reflected in other expenses in the accompanying condensed consolidated statements of operations.

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


e.	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 certain of its investments held by its operating companies. This option has been elected because the Company believes that it is consistent with the manner in which the business is managed as well as the way that financial instruments in other parts of the business are recorded.

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.

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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:

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

ii.

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

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

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

See Notes 6 and 7 for further information regarding the Company's investments, including equity method investments, and fair value measurements.


f.	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 accompanying condensed consolidated statements 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

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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. At June 30, 2017, the Company did not have any securities lending transactions for which fair value basis of accounting was elected.


g.	Fixed Assets

Fixed assets are stated at cost less accumulated depreciation or amortization. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or lease term. When the Company commits to a plan to abandon fixed assets or leasehold improvements before the end of its original useful life, the estimated depreciation or amortization period is revised to reflect the shortened useful life of the asset. Other fixed assets are depreciated on a straight-line basis over their estimated useful lives.

Aircraft and related equipment, which are leased out under operating leases, are carried at cost less accumulated depreciation and are depreciated to estimated residual value using the straight-line method over the lease term or estimated useful life of the asset. Any assets received at the end of the lease are marked to the lower of cost or fair value with the adjustment recorded in other income.



Asset	Depreciable Lives	Principal Method
Telephone and computer equipment	3-5 years	Straight-line
Computer software	3-8 years	Straight-line
Furniture and fixtures	5 years	Straight-line
Leasehold improvements	2-15 years	Straight-line
Capitalized lease asset	5 years	Straight-line
Aircraft and related equipment	10-20 years	Straight-line
Modifications to aircraft	4-10 years	Straight-line


h.	Debt

Long-term debt is carried at the principal amount borrowed net of any discount/premium. The discount is accreted to interest expense using the effective interest method over the remaining life of the underlying debt obligations. Accrued but unpaid coupon interest is included in accrued expenses and other liabilities in the accompanying condensed consolidated statements of financial condition. The Company adopted a new accounting pronouncement, during the first quarter of 2016, which reclassified the unamortized debt issuance costs in the Company's previously reported condensed consolidated statements of financial condition from other assets to a direct reduction from the carrying amount of the debt.

i. Deferred rent

Deferred rent primarily consists of step rent, allowances from landlords and valuing the Company's lease properties in accordance with US GAAP. Step rent represents the difference between actual operating lease payments due and straight-line rent expense, which is recorded by the Company over the term of the lease, including the build-out period. This amount is recorded as deferred rent in the early years of the lease, when cash payments are generally lower than straight-line rent expense, and reduced in the later years of the lease when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised of amounts received and/or promised to the Company by landlords and may be received in the form of cash or free rent. These allowances are part of the negotiated terms of the lease. The Company records a receivable from the landlord and a deferred rent liability when the allowances are earned. This deferred rent is amortized into income (through lower rent expense) over the term (including the pre-opening build-out period) of the applicable lease, and the receivable is reduced as amounts are received from the landlord. Liabilities resulting from valuing the Company's leased properties acquired through business combinations are quantified by comparing the current fair value of the leased space to the current rental payments on the date of acquisition. Deferred rent, included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated statements of financial condition, as of June 30, 2017 and December 31, 2016 is $14.6 million and $10.3 million, respectively.

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

j. Recently issued accounting pronouncements

In May 2017, the FASB issued guidance to clarify the application of modification accounting for stock compensation. The guidance was issued to reduce the diversity in practice under the current guidance. The new guidance requires an entity to apply modification accounting when there is a change in the fair value of the modified award and the original award, vesting conditions and the classification of the original awards. The amendments in this guidance are effective prospectively for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance and will consider the new guidance for any modifications on or after the adoption date.

In March 2017, the FASB issued guidance to amend the amortization period for certain purchased callable debt securities held at a premium. Under current guidance, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The new guidance shortened the amortization period for the premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this guidance are effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements and does not expect this guidance to have a material impact on its condensed statement of financial condition or its condensed statement of operations as the Company does not hold any material callable debt securities.

In January 2017, the FASB issued guidance that simplifies the subsequent measurement of goodwill. The new guidance eliminated Step 2 from the goodwill impairment test which was required in computing the implied fair value of goodwill. Instead, under the new amendments, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. If applicable, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The amendments in this guidance are effective for public business entities for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019 with early adoption permitted after January 1, 2017. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements. The Company expects this guidance to simplify its goodwill impairment analysis.

In January 2017, the FASB issued guidance which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current guidance, there are three elements of a business-inputs, processes, and outputs. While an integrated set of assets and activities (collectively, a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes. The new guidance provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. For public business entities, the guidance is effective prospectively for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements and may use the new definition for its future business combination activities.

In November 2016, the FASB issued guidance which reduces the diversity in practice as to how changes in restricted cash are presented and classified in the statement of cash flows. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance does not provide a definition of restricted cash or restricted cash equivalents. For public business entities, the guidance is effective prospectively for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company currently presents its restricted cash and changes in its restricted cash, separately on its condensed consolidated statements of financial condition and condensed consolidated statements of cash flows respectively. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements. Since the guidance only affects the presentation of restricted cash on the statement of cash flows, the Company does not expect this guidance to have any impact on its condensed consolidated financial statements.

In August 2016, the FASB issued guidance which reduces the diversity in practice as to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance addresses eight specific cash flow issues

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

with the objective of reducing the existing and potential future diversity in practice. The amendments in this guidance are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance on the Company’s cash flows presentation. Since the guidance only affects the presentation of statement of cash flows, the Company does not expect this guidance to have any impact on condensed consolidated financial statements. The Company notes that its current presentation is already in line with most of the specific cash flow issues identified in the guidance.

In May 2014, the FASB issued guidance which amends and supersedes the revenue recognition requirements and most industry-specific guidance and creates a single source of revenue guidance. The new guidance outlines the principles an entity must apply to measure and recognize revenue and related cash flows. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets. The guidance is effective for reporting periods beginning after December 15, 2017. In July 2015, the FASB confirmed a deferral of the effective date by one year, with early adoption on the original effective date permitted. In 2016, the FASB issued various new guidance to clarify the implementation guidance on principal versus agent considerations, revenue from contracts with customers and identifying performance obligations and licensing implementation. The Company is currently evaluating the impact of this guidance on the Company’s financial condition, results of operations and cash flows.

In February 2016, the FASB issued guidance which amends and supersedes its previous guidance regarding leases. The new guidance requires the lessee to recognize the right to use assets and lease liabilities that arise from leases and present them in its statement of financial condition. The recognition of these lease assets and lease liabilities represents a change from previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the statement of financial condition. For public business entities the guidance is effective for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on the Company’s financial condition and its disclosures. The Company notes that a significant majority of the Company’s leases represent operating real estate leases for its respective offices and will require the gross up on its statement of financial conditions.

In January 2016, as a joint project with International Accounting Standards Board (IASB), the FASB issued a new accounting pronouncement to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments in the update made improvements to US GAAP for equity investments and investments carried at amortized cost. The guidance also simplifies the impairment assessment for equity investments and clarifies the need for valuation allowance on deferred tax asset related to available for sale securities. For public business entities the guidance is effective for reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of this guidance on the Company’s financial condition and its disclosure and does not expect the guidance to have a material impact as the Company does not own any significant investments carried at amortized cost.

4. Cash Collateral Pledged

As of June 30, 2017 and December 31, 2016, the Company pledged cash collateral in the amount of $6.6 million and $7.8 million, respectively, which relates to letters of credit issued to the landlords of the Company's premises in New York City, Boston, Stamford and San Francisco. The Company also has pledged as collateral, $8.9 million, as of June 30, 2017, and $5.5 million, as of December 31, 2016, due between March 2018 and December 2019, for reinsurance agreements (See Note 17).

5. Segregated Cash

As of June 30, 2017 and December 31, 2016, cash segregated in compliance with federal regulations and other restricted deposits of $87.1 million and $1.0 million, respectively, consisted of cash deposited in special bank accounts for the benefit of customers under SEC Rule 15c3-3 and cash held in accounts designated as Special Reserve Bank Accounts for Proprietary Accounts of Broker-Dealers (PAB).

6. Investments of Operating Entities and Consolidated Funds


a.	Operating Entities

Securities owned, at fair value

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

As of June 30, 2017 and December 31, 2016, securities owned, at fair value consisted of the following:



	As of June 30, 2017		As of December 31, 2016
	(dollars in thousands)
Common stocks (b)	$	602,650	$	669,655
Preferred stock (b)	18,576		15,811
Warrants and rights	11,786		8,335
U.S. Government securities (a)	3,800		3,780
Corporate bonds (d)	54,801		2,477
Convertible bonds (c)	282		250
Trade claims	4,648		562
Mutual funds (b)	—		6
	$	696,543	$	700,876


(a)	As of June 30, 2017, maturities ranged from August 2017 to June 2018 with an interest rate of 0%. As of December 31, 2016, maturities ranged from February 2017 to December 2017 with an interest rate of 0%.


(b)	The Company has elected the fair value option for investments in securities of preferred and common stocks with a fair value of $4.5 million and $4.9 million, respectively, at June 30, 2017 and $7.0 million and $5.2 million, respectively at, December 31, 2016. At December 31, 2016 the Company elected the fair value option for investments in mutual funds with a fair value of $0.1 million.


(c)	As of June 30, 2017, maturities ranged from February 2018 to March 2018 and interest rates ranged from 5% to 8%. As of December 31, 2016, the maturity was March 2018 with an interest rate of 8%.


(d)	As of June 30, 2017, maturities ranged from July 2018 to February 2046 and interest rates ranged from 3.25% to 9.00%. As of December 31, 2016, maturities ranged from January 2017 to January 2036 and interest rates ranged from 6.25% to 13.00%.

Receivable on and Payable for derivative contracts, at fair value

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

Upon issuance of the Company's cash convertible unsecured senior notes ("Convertible Notes") (See Note 17), the Company recognized the embedded cash conversion option at fair value of $35.7 million which is valued as of June 30, 2017 at

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

$9.9 million and is included in payable for derivative contracts in the accompanying condensed consolidated statement of financial condition. Also, on the date of issuance of the Convertible Notes, the Company entered into a separate cash convertible note economic hedge transaction (the "Hedge Transaction") with a counterparty (the “Option Counterparty”) whereby, the Company purchased a cash settled option contract with terms identical to the conversion option embedded in the Convertible Notes and simultaneously sold an equity settled warrant with a higher strike price. The Hedge Transaction is expected to reduce the Company’s exposure to potential cash payments in excess of the principal amount of converted notes that the Company may be required to make upon conversion of the Convertible Notes. The Company paid a premium of $35.7 million for the option under the Hedge Transaction and received a premium of $15.2 million for the equity settled warrant transaction, for a net cost of $20.5 million. The Hedge Transaction is valued at $9.9 million as of June 30, 2017 and is included in receivable on derivative contracts in the accompanying condensed consolidated statement of financial condition. Aside from the initial premium paid, the Company will not be required to make any cash payments under the Hedge Transaction and could be entitled to receive an amount of cash from the Option Counterparty generally equal to the amount by which the market price per share of common stock exceeds the strike price of the Hedge Transaction during the relevant valuation period. The warrants cover 7,012,196 shares of the Company's Class A common stock and have an initial exercise price of $28.72 per share (share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016). 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, 2017				As of December 31, 2016
	Number of contracts / Notional Value		Fair value		Number of contracts / Notional Value		Fair value
	(dollars in thousands)
Futures	$	6,525	$	35	$	12,421	$	104
Currency forwards	$	52,217	77		$	80,608	592
Swaps	$	140,388	4,803		$	46,462	468
Options other (a)	279,002		25,824		256,097		21,539
Foreign currency options	$	44,201	90		$	57,051	198
			$	30,829			$	22,901

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



Payable for derivative contracts	As of June 30, 2017				As of December 31, 2016
	Number of contracts / Notional Value		Fair value		Number of contracts / Notional Value		Fair value
	(dollars in thousands)
Futures	$	6,590	$	133	$	38,345	$	642
Currency forwards	$	21,590	214		$	—	—
Swaps	$	83,355	925		$	9,533	181
Options other (a)	67,551		24,669		23,726		19,939
			$	25,941			$	20,762

(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, 2017 and December 31, 2016. This table does not include the impact of over collateralization.

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



							Gross amounts not offset in the Condensed Consolidated Statement of Financial Condition
	Gross amounts recognized		Gross amounts offset on the Condensed Consolidated Statements of Financial Condition (a)		Net amounts included on the Condensed Consolidated Statements of Financial Condition		Financial instruments		Cash Collateral pledged (b)		Net amounts
	(dollars in thousands)
As of June 30, 2017
Receivable on derivative contracts, at fair value	$	30,829	$	—	$	30,829	$	—	$	5,033	$	25,796
Payable for derivative contracts, at fair value	25,941		—		25,941		—		1,139		24,802

As of December 31, 2016
Receivable on derivative contracts, at fair value	22,901		—		22,901		—		1,382		21,519
Payable for derivative contracts, at fair value	20,762		—		20,762		—		181		20,581


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


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

The realized and unrealized gains/(losses) related to derivatives trading activities were $3.1 million and $(9.9) million for the three months ended June 30, 2017 and 2016, and $(5.4) million and $(7.5) million for the six months ended June 30, 2017 and 2016, respectively, and are included in other income in the accompanying condensed consolidated statements of operations.

Pursuant to the various derivatives transactions discussed above, except for the cash convertible note hedge (see Note 17) and exchange traded derivatives, the Company is required to post/receive collateral. As of June 30, 2017 and December 31, 2016, collateral consisting of $36.9 million and $17.1 million of cash, respectively, is included in receivable from brokers, dealers and clearing organizations and payable to brokers, dealers and clearing organizations on the accompanying condensed consolidated statements of financial condition. As of June 30, 2017 and December 31, 2016 all derivative contracts were with multiple major financial institutions.

Other investments

As of June 30, 2017 and December 31, 2016, other investments included the following:



	As of June 30, 2017		As of December 31, 2016
	(dollars in thousands)
Portfolio Funds, at fair value (1)	$	94,092	$	120,023
Equity method investments (2)	41,959		36,991
Lehman claims, at fair value	309		265
	$	136,360	$	157,279

(1) Portfolio Funds, at fair value

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The Portfolio Funds, at fair value as of June 30, 2017 and December 31, 2016, included the following:



	As of June 30, 2017		As of December 31, 2016
	(dollars in thousands)
Starboard Value and Opportunity Fund LP (c)(*)	$	30,150	$	27,424
Formation8 Partners Fund I, L.P. (f)	21,144		22,234
RCG Longview Debt Fund V, L.P. (i) (*)	11,413		16,187
Green Energy Metals Fund, LP (h)	—		6,241
HealthCare Royalty Partners LP (a)(*)	6,557		7,147
RCG LPP2 PNW5 Co-Invest, L.P. (j) (*)	1,966		3,152
HealthCare Royalty Partners II LP (a)(*)	1,974		2,091
Eclipse Ventures Fund I, L.P. (g)	3,017		1,790
Lagunita Biosciences, LLC (n)	2,159		1,698
Starboard Leaders Fund LP (e)(*)	1,178		1,231
Quadratic Fund LLC (k) (*)	938		6,729
RCGL 12E13th LLC (i) (*)	289		348
Starboard Partners Fund LP (d)(*)	—		5,067
Orchard Square Partners Credit Fund LP (b)	—		4,327
Other private investment (l) (*)	9,601		8,548
Other affiliated funds (m)(*)	3,706		5,809
	$	94,092	$	120,023

* 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 16.


(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 had a quarterly redemption policy with a 60 day notice period and a 4% penalty on redemptions of investments of less than a year in duration.


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


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


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


(f)	Formation8 Partners Fund I, L.P. is a private equity fund which invests in early stage and growth transformational information and energy technology companies. Distributions will be made when the underlying investments are liquidated.


(g)	Eclipse Ventures Fund I, L.P. is a private equity fund which invests in early stage and growth hardware companies. Distributions will be made when the underlying investments are liquidated.

(h)

The Green Energy Metals Fund, LP invested the vast majority of its capital in physical off-exchange traded minor metals that are crucial to the production and sustainability of clean energy, emerging technology and energy efficiency. The Company was invested in a managed account specifically targeting cobalt. The Green Energy Metals Fund, LP is a private equity structure and therefore distributions were made when the underlying investments were liquidated.


(i)	RCGL 12E13th LLC and RCG Longview Debt Fund V, L.P. are real estate private equity structures and therefore distributions will be made when the underlying investments are liquidated.


(j)	RCG LPP2 PNW5 Co-Invest, L.P. is a single purpose entity formed to participate in a joint venture which acquired five multi-unit residential rental properties located in the Pacific Northwest. RCG LPP2 PNW5 Co-Invest, L.P. is a private equity structure and therefore distributions will be made when the underlying investments are liquidated.

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


(k)	Quadratic Fund LLC permits redemptions on a 30 day prior written notice.


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


(m)	The majority of these funds are affiliates of the Company or are managed by the Company and the investors can redeem from these funds as investments are liquidated.


(n)	Lagunita Biosciences, LLC, a healthcare investment company that creates and grows early stage companies to commercialize impactful translational science that addresses significant clinical needs, is a private equity structure and therefore distributions will be made when the underlying investments are liquidated.


(2)	Equity method investments

Equity method investments include investments held by the Company in several operating companies whose operations primarily include the day to day management of a number of real estate funds, including the portfolio management and administrative services related to the acquisition, disposition, and active monitoring of the real estate funds' underlying debt and equity investments. The Company's ownership interests in these equity method investments range from 20% to 57%. The Company holds a majority of the outstanding ownership interest (i.e., more than 50%) in RCG Longview Partners II, LLC and in Surf House Ocean Views Holdings, LLC. The operating agreement that governs the management of day-to-day operations and affairs of these entities 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 these entities requires the support of both the Company and an affirmative vote of a majority of the other managing members who are not affiliates of the Company. As the Company does not possess control over any of these entities, the presumption of consolidation has been overcome pursuant to current accounting standards and the Company accounts for these investments under the equity method of accounting. Also included in equity method investments are the investments in (a) HealthCare Royalty Partners General Partners and (b) Starboard Value (and certain related parties) which serves as an operating company whose operations primarily include the day to day management (including portfolio management) of several activist private funds and related managed accounts and c) Surf House Ocean Views Holdings, LLC which is a joint venture in a real estate development project. As part of its equity method investment in operating companies, the Company incurs certain expenses on behalf of its equity method investees. These expenses reflect direct and indirect costs associated with the respective business and are included in their respective line items in the accompanying condensed consolidated statements of operations. For the three months ended June 30, 2017 and June 30, 2016, the Company incurred $1.4 million and $1.8 million of these costs, respectively. For the six months ended June 30, 2017 and June 30, 2016, the Company incurred $2.6 million and $5.1 million of these costs, respectively. The Company recorded no impairment charges in relation to its equity method investments for the six months ended June 30, 2017 and 2016.

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



	As of June 30, 2017		As of December 31, 2016
	(dollars in thousands)
Surf House Ocean Views Holdings, LLC	$	14,179	$	13,522
Starboard Value LP	15,131		12,501
RCG Longview Debt Fund V Partners, LLC	8,008		7,256
RCG Longview Management, LLC	859		656
HealthCare Royalty GP, LLC	535		583
HealthCare Royalty GP II, LLC	334		354
RCG Longview Debt Fund IV Management, LLC	331		331
HealthCare Royalty GP III, LLC	1,252		208
RCG Kennedy House, LLC	136		183
RCG Longview Equity Management, LLC	114		114
HealthCare Overflow Fund GP, LLC	67		68
Other	1,013		1,215
	$	41,959	$	36,991

For the period ended June 30, 2017, one equity method investment has met the significance criteria as defined under Regulation S-X Rule 4-08(g) of the SEC guidance. As such, the Company is presenting the following summarized financial information for the significant investee for the three and six months ended June 30, 2017 and 2016, and such information is as follows:

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
	(dollars in thousands)
Revenues	$	14,498	$	(1,178	)	$	17,912	$	2,727
Expenses	—		—			—		—
Net realized and unrealized gains (losses)	73		13			75		173
Net Income	$	14,571	$	(1,165	)	$	17,987	$	2,900

As of June 30, 2017 and December 31, 2016, 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 $4.9 million and $0.2 million for the three months ended June 30, 2017 and 2016, and $8.1 million and $4.9 million, for the six months ended June 30, 2017 and 2016, respectively, and is included in net gains (losses) on securities, derivatives and other investments on the accompanying condensed consolidated statements of operations.

Securities sold, not yet purchased, at fair value

Securities sold, not yet purchased, at fair value represent obligations of the Company to deliver a specified security at a contracted price and, thereby, create a liability to purchase that security at prevailing prices. The Company's liability for securities to be delivered is measured at their fair value as of the date of the 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 June 30, 2017 and December 31, 2016, securities sold, not yet purchased, at fair value consisted of the following:



	As of June 30, 2017		As of December 31, 2016
	(dollars in thousands)
Common stocks	$	201,692	$	263,460
Corporate bonds (a)	51,689		2,591
Warrants and rights	696		39
	$	254,077	$	266,090


(a)	As of June 30, 2017, the maturities ranged from April 2017 to October 2026 with interest rates ranged from 2.38% to 5.55%. As of December 31, 2016, the maturities ranged from April 2021 to January 2036 with interest rates ranged from 5.50% to 6.25%.

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 June 30, 2017.

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Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



							Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition
	Gross amounts recognized		Gross amounts offset on the Condensed Consolidated Statements of Financial Condition (a)		Net amounts included on the Condensed Consolidated Statements of Financial Condition		Additional Amounts Available			Financial instruments			Cash Collateral pledged (b)		Net amounts
	(dollars in thousands)
As of June 30, 2017
Securities borrowed	$	100,845	$	—	$	100,845	$	(3,934	)	$	(96,911	)	$	—	$	—
Securities loaned	142,434		—		142,434		(6,605		)	(135,829		)	—		—


(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.

The following tables present gross obligations for securities loaned transactions by remaining contractual maturity and class of collateral pledged as of June 30, 2017:



	Open and Overnight		Up to 30 days		31 - 90 days		Greater than 90 days		Total
	(dollars in thousands)
As of June 30, 2017
Stocks	$	142,434	$	—	$	—	$	—	$	142,434

Variable Interest Entities

The total assets and liabilities of the variable interest entities for which the Company has concluded that it holds a variable interest, but for which it is not the primary beneficiary, are $5.0 billion and $0.4 billion as of June 30, 2017 and $5.3 billion and $1.0 billion as of December 31, 2016, respectively. In addition, the maximum exposure relating to these variable interest entities as of June 30, 2017 was $500.0 million, and as of December 31, 2016 was $508.1 million, all of which is included in other investments, at fair value in the accompanying condensed consolidated statements of financial condition. The exposure to loss primarily relates to the Consolidated Feeder Funds' investment in their Unconsolidated Master Funds and the Company's investment in unconsolidated investment companies.


b.	Consolidated Funds

Securities owned, at fair value

As of June 30, 2017 and December 31, 2016, securities owned, at fair value, held by the Consolidated Funds consisted of the following:



	As of June 30, 2017		As of December 31, 2016
	(dollars in thousands)
Preferred stock	$	18,431	$	37,343
Common stocks	61,856		28,474
U.S. Government securities (a)	7,487