Final CNS AR 2020 - Flipbook - Page 56
this analysis, we consider the legal structure of the entity, management fees earned by the Company and the nature of the
ownership interest and rights of interest holders in the entity, including the Company. If we determine that the entity is a VIE,
we must then assess whether the Company absorbs a majority of the VIEs expected variability in which case it is deemed to
be the primary beneficiary of the VIE. The Company consolidates VIEs for which it is deemed to be the primary beneficiary.
The Company consolidates VOEs if we own a majority of the voting interest in the entity or when the Company is the general
partner of the fund and the limited partners do not have substantive kick-out or participating rights. Amounts attributable to
third parties in the funds that we consolidate are recorded in redeemable noncontrolling interests on the consolidated
statements of financial condition and net (income) loss attributable to redeemable noncontrolling interests on the consolidated
statements of operations.
Our investments are classified as equity investments at fair value, trading investments, held-to-maturity investments or
equity method investments at the time of purchase and re-evaluated on an ongoing basis and at the date of each consolidated
statement of financial condition. Investments classified as equity investments at fair value represent equity securities held
within the consolidated Company-sponsored funds, individual equity securities held directly for the purposes of establishing
performance track records and seed investments in Company-sponsored open-end funds where the Company has neither
control nor the ability to exercise significant influence. Investments classified as trading investments represent debt securities
held within the consolidated Company-sponsored funds and individual debt securities held directly for the purposes of
establishing performance track records. Held-to-maturity investments represent corporate investments in U.S. Treasury
securities recorded at amortized cost. Equity method investments represent seed investments in Company-sponsored funds in
which the Company owns between 20-50% of the outstanding voting interests or when it is determined that the Company is
able to exercise significant influence but not control over the investments.
The majority of our investments are carried at fair value or amounts that approximate fair value on our consolidated
statement of financial condition with the periodic mark-to-market included directly in earnings. Fair value is the price that
would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the
measurement date. Assets and liabilities reported at fair value are classified and disclosed in a fair value hierarchy based on
whether the inputs to the valuation techniques are observable or unobservable. The classification within the hierarchy is
determined based on the lowest level of input that is significant to the fair value measurement:
Level 1 - Unadjusted quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are
Level 3 - Valuations derived from valuation techniques in which significant inputs or significant value drivers are
We operate globally through our subsidiaries and therefore must allocate our income, expenses, and earnings taking
into account various laws and regulations. Our tax provision represents an estimate of the total liability that we have incurred
as a result of our operations. Each year we file tax returns and settle our tax liabilities which may be subject to audit by the
taxing authorities. The determination of our annual provision is subject to judgments and estimates and the actual results may
vary from the amounts reported in our consolidated financial statements. Accordingly, we recognize additions to, or
reductions of, income tax expense during reporting periods that may pertain to prior period provisions as our estimated
liabilities are revised and actual tax returns and audits, if any, are settled. Such adjustments are recognized in the discrete
quarterly period in which they are determined.
In addition, we record current and deferred tax consequences of all transactions that have been recognized in the
consolidated financial statements in accordance with the provisions of the enacted tax laws. Deferred tax assets are
recognized for temporary differences that will result in deductible amounts in future years at tax rates that are expected to
apply in those years. Deferred tax liabilities are recognized for temporary differences that will result in taxable income in
future years at tax rates that are expected to apply in those years. We record a valuation allowance, when necessary, to reduce
deferred tax assets to an amount that more likely than not will be realized.
The calculation of our tax liabilities involves uncertainties in the application of complex tax laws and regulations in
several jurisdictions across our global operations. In accordance with Accounting Standards Codification Topic 740, Income