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COWN Cowen

Filed: 3 May 21, 7:31am

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
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) 562-1010
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading SymbolName of Exchange on Which Registered
Class A Common Stock, par value $0.01 per share COWNThe Nasdaq Global Market
7.75% Senior Notes due 2033COWNLThe Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
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     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).   Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth 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
 
Accelerated filer
 
Non-accelerated filer

 Smaller reporting company ☐Emerging growth company ☐
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes     No 
As of April 30, 2021, there were 26,866,951 shares of the registrant's common stock outstanding.







2


Special Note Regarding Forward-Looking Statements
We have made statements in this Quarterly Report on Form 10-Q (including in "Management's Discussion and Analysis of Financial Condition and Results of Operations") that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking terms such as "may," "might," "will," "would," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "project," "possible," "potential," "intend," "seek" or "continue," the negative of these terms and other comparable terminology or similar expressions. In addition, our management may make forward-looking statements to analysts, representatives of the media and others. These forward-looking statements represent only the Company's beliefs regarding future events (many of which, by their nature, are inherently uncertain and beyond our control) and are predictions only, based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the risks contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and the risks contained in Item 1A of this periodic report on Form 10-Q for the three months ended March 31, 2021.
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 months ended March 31, 2021 and 2020. The Consolidated Financial Statements as of December 31, 2020 were audited.



3

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)
AssetsAs of March 31, 2021As of December 31, 2020
Cash and cash equivalents$1,147,531 $645,169 
Cash collateral pledged110,303 110,743 
Segregated cash168,942 185,141 
Securities owned, at fair value ($2,042,776 and $1,218,947 were pledged to various parties)3,156,100 2,001,602 
Securities purchased under agreements to resell191 
Receivable on derivative contracts, at fair value95,536 51,482 
Securities borrowed1,996,757 1,908,187 
Other investments ($151,933 and $133,454 at fair value, respectively)366,783 255,027 
Deposits with clearing organizations, brokers and banks82,078 104,952 
Receivable from brokers, dealers and clearing organizations, net of allowance of $640 and $885, respectively1,920,753 1,729,744 
Receivable from customers, net of allowance of $758 and $530, respectively199,668 103,963 
Fees receivable, net of allowance of $2,982 and $3,348, respectively208,898 160,349 
Due from related parties20,921 21,068 
Fixed assets, net of accumulated depreciation and amortization of $42,681 and $40,670, respectively31,424 33,023 
Operating lease right-of-use assets77,268 78,241 
Goodwill147,084 147,084 
Intangible assets, net of accumulated amortization of $27,073 and $37,884, respectively28,116 24,403 
Deferred tax asset, net1,757 9,030 
Other assets76,921 54,884 
Consolidated Funds  
Cash and cash equivalents935 417 
Securities owned, at fair value8,940 10,622 
Other investments100,035 192,670 
Other assets46 207 
Total Assets$9,946,796 $7,828,199 
Liabilities, Temporary Equity and Permanent Equity  
Liabilities
Securities sold, not yet purchased, at fair value$931,082 $728,115 
Securities sold under agreements to repurchase2,546 5,036 
Payable for derivative contracts, at fair value52,125 76,160 
Securities loaned3,083,945 2,476,414 
Payable to brokers, dealers and clearing organizations488,471 415,143 
Payable to customers2,657,600 1,680,326 
Commission management payable139,621 116,987 
Compensation payable361,793 373,339 
Operating lease liabilities81,400 82,735 
Notes payable and other debt542,519 383,067 
Convertible debt81,682 80,808 
Fees payable42,915 43,833 
Due to related parties99 51 
Accounts payable, accrued expenses and other liabilities240,790 196,479 
Consolidated Funds 
Due to related parties
Accounts payable, accrued expenses and other liabilities219 578 
Total Liabilities$8,706,816 $6,659,078 
4

Cowen Inc.
Condensed Consolidated Statements of Financial Condition
(dollars in thousands, except share and per share data)
(unaudited)
As of March 31, 2021As of December 31, 2020
(continued)
Commitments and Contingencies (Note 17)00
Temporary Equity
Redeemable non-controlling interests$0 $0 
Permanent Equity
Cowen Inc. stockholders' equity
Preferred stock, par value $0.01 per share: 10,000,000 shares authorized, 120,750 shares issued and outstanding as of March 31, 2021 (aggregate liquidation preference of $120,750) and 10,000,000 shares authorized, 120,750 shares issued and outstanding as of December 31, 2020 (aggregate liquidation preference of $120,750), respectively$$
Class A common stock, par value $0.01 per share: 62,500,000 shares authorized, 50,227,804 shares issued and 26,852,331 outstanding as of March 31, 2021 and 62,500,000 shares authorized, 49,465,491 shares issued and 26,845,628 outstanding as of December 31, 2020, respectively (including 292,968 and 334,230 restricted shares, respectively)334 334 
Class B common stock, par value $0.01 per share: 62,500,000 authorized, 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
Additional paid-in capital1,151,377 1,130,138 
(Accumulated deficit) retained earnings328,930 185,901 
Accumulated other comprehensive income (loss)(3)(7)
Less: Class A common stock held in treasury, at cost, 23,375,473 and 22,619,863 shares as of March 31, 2021 and December 31, 2020, respectively(373,774)(346,870)
Total Cowen Inc. Stockholders' Equity1,106,865 969,497 
Nonredeemable non-controlling interests133,115 199,624 
Total Permanent Equity$1,239,980 $1,169,121 
Total Liabilities, Temporary Equity and Permanent Equity$9,946,796 $7,828,199 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


Cowen Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31,
 20212020
Revenues 
Investment banking$304,834 $105,028 
Brokerage173,737 141,377 
Investment income (loss)
Securities principal transactions, net63,965(31,045)
Portfolio fund principal transactions, net15,403(2,818)
Carried interest allocations96,769(11,544)
Total investment income (loss)176,137 (45,407)
Management fees25,742 11,604 
Incentive income2,258 
Interest and dividends59,388 42,077 
Reimbursement from affiliates288 261 
Insurance and reinsurance premiums7,117 10,471 
Other revenues8,169 1,321 
Consolidated Funds 
Principal transactions, net(3,349)(73,143)
Interest and dividends2,525 
Other revenues609 
Total revenues754,323 196,723 
Interest and dividends expense57,641 38,792 
Total net revenues696,682 157,931 
Expenses 
Employee compensation and benefits388,196 124,428 
Brokerage and trade execution costs45,656 32,886 
Underwriting expenses6,915 3,640 
Professional, advisory and other fees15,460 11,039 
Service fees5,731 6,837 
Communications9,267 8,176 
Occupancy and equipment9,540 9,530 
Depreciation and amortization4,354 5,442 
Client services and business development6,848 11,803 
Insurance and reinsurance claims, commissions and amortization of deferred acquisition costs6,455 10,430 
Other expenses3,457 4,228 
Consolidated Funds 
Interest and dividends1,252 
Professional, advisory and other fees110 990 
Brokerage and trade execution costs20 
Other expenses161 452 
Total expenses502,150 231,153 
Other income (loss) 
Net gains (losses) on other investments12,645 (62)
Bargain purchase gain, net of tax3,855 
Gain/(loss) on debt extinguishment(4,538)
Total other income (loss)11,962 (62)
Income (loss) before income taxes206,494 (73,284)
Income tax expense (benefit)54,428 (1,173)
Net income (loss)152,066 (72,111)
6

Cowen Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31,
 20212020
(continued)
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds4,562 (62,188)
Net income (loss) attributable to Cowen Inc.147,504 (9,923)
Preferred stock dividends1,698 1,698 
Net income (loss) attributable to Cowen Inc. common stockholders$145,806 $(11,621)
Weighted average common shares outstanding: 
Basic27,359 28,598 
Diluted33,565 28,598 
Earnings (loss) per share:  
Basic$5.33 $(0.41)
Diluted$4.34 $(0.41)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


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





 Three Months Ended March 31,
20212020
Net income (loss)$152,066 $(72,111)
   Other comprehensive income (loss), net of tax:
Foreign currency translation
   Total other comprehensive income (loss), net of tax
Comprehensive income (loss)$152,070 $(72,111)
    Less: Comprehensive income attributable to non-controlling interests4,562 (62,188)
Comprehensive income (loss) attributable to Cowen Inc.$147,508 $(9,923)

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



8

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

Common Shares OutstandingCommon StockPreferred Shares OutstandingPreferred StockTreasury StockAdditional
Paid-in Capital
Accumulated Other Comprehensive Income (Loss)Retained Earnings/ (Accumulated deficit)Total Cowen Inc. Stockholders' EquityNonredeemable Non-controlling InterestsTotal Permanent EquityRedeemable Non-controlling Interest
Balance, December 31, 202026,845,628 $334 120,750 $1 $(346,870)$1,130,138 $(7)$185,901 $969,497 $199,624 $1,169,121 $0 
Net income (loss) attributable to Cowen Inc.— — — — — — — 147,504 147,504 — 147,504 — 
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and funds— — — — — — — — — 4,562 4,562 
Foreign currency translation— — — — — — — — — 
Capital contributions— — — — — — — — — 22,515 22,515 
Capital withdrawals— — — — — — — — — (18,773)(18,773)
Deconsolidation of entity— — — — — — — — — (74,813)(74,813)
Common stock issuance related to 2019 acquisition56,801 — — — 2,202 — — 2,202 — 2,202 — 
Restricted stock awards issued705,512 — — — — — — — — — — — 
Purchase of treasury stock, at cost(755,610)— — — (26,904)— — — (26,904)— (26,904)— 
Preferred stock dividends (See Note 19)— — — — — — — (1,698)(1,698)— (1,698)— 
Cash dividends to common stockholders (See Note 19)— — — — — — — (2,777)(2,777)— (2,777)— 
Amortization of share-based awards— — — — — 19,037 — — 19,037 — 19,037 — 
Balance, March 31, 202126,852,331 $334 120,750 $1 $(373,774)$1,151,377 $(3)$328,930 $1,106,865 $133,115 $1,239,980 $0 
Common Shares OutstandingCommon StockPreferred Shares OutstandingPreferred StockTreasury StockAdditional
Paid-in Capital
Accumulated Other Comprehensive Income (Loss)Retained Earnings/ (Accumulated deficit)Total Cowen Inc. Stockholders' EquityNonredeemable Non-controlling InterestsTotal Permanent EquityRedeemable Non-controlling Interest
Balance, December 31, 201928,610,357 $334 120,750 $1 $(284,301)$1,110,635 $(5)$(16,809)$809,855 $94,320 $904,175 $391,275 
Cumulative effect of the adoption of the new current expected credit loss standard (See Note 2d)— — — — — — — (10)(10)— (10)— 
Net income (loss) attributable to Cowen Inc.— — — — — — — (9,923)(9,923)— (9,923)— 
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and funds— — — — — — — — — (1,198)(1,198)(60,990)
Capital contributions— — — — — — — — — 88,682 88,682 118,866 
Capital withdrawals— — — — — — — — — (43,563)(43,563)(131,150)
Common stock issuance related to 2019 acquisition41,262 — — — 618 — — 618 — 618 — 
Restricted stock awards issued591,763 — — — — — — — — — — — 
Purchase of treasury stock, at cost(1,615,265)— — — (20,891)— — — (20,891)— (20,891)— 
Preferred stock dividends (See Note 19)— — — — — — — (1,698)(1,698)— (1,698)— 
Cash dividends to common stockholders (See Note 19)— — — — — — — (1,429)(1,429)— (1,429)— 
Amortization of share-based awards— — — — — 8,281 — — 8,281 — 8,281 — 
Balance, March 31, 202027,628,117 $334 120,750 $1 $(305,192)$1,119,534 $(5)$(29,869)$784,803 $138,241 $923,044 $318,001 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9


Cowen Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
 Three Months Ended March 31,
 20212020
Cash flows from operating activities:  
Net income (loss)$152,066 $(72,111)
Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities:
Bargain purchase gain, net of tax(3,855)
Depreciation and amortization4,354 5,442 
Amortization of debt issuance costs480 334 
Amortization of debt discount (premium)776 1,109 
Noncash lease expense(362)(1,200)
(Gain) / loss on extinguishment of debt3,890 
Share-based compensation19,037 8,281 
Change in deferred taxes5,913 (1,682)
Contingent liability adjustment(614)
Purchases of securities owned, at fair value(269,073)(749,807)
Proceeds from sales of securities owned, at fair value271,314 845,779 
Proceeds from sales of securities sold, not yet purchased, at fair value63,511 416,453 
Payments to cover securities sold, not yet purchased, at fair value(58,346)(334,068)
Proceeds from other investments16,995 15,693 
Investment Income (loss) principal transactions, net(158,833)38,039 
Consolidated Funds 
Purchases of securities owned, at fair value(1,024,733)
Proceeds from sales of securities owned, at fair value2,687 991,096 
Purchases of other investments(1,240)
Proceeds from other investments14,130 6,669 
Investment Income (loss) principal transactions, net3,143 74,071 
(Increase) decrease in operating assets: 
Securities owned, at fair value, held at broker-dealer(1,112,154)713,313 
Receivable on derivative contracts, at fair value(44,054)(20,889)
Securities borrowed(88,570)(216,989)
Deposits with clearing organizations, brokers and banks22,874 (40,193)
Receivable from brokers, dealers and clearing organizations(191,009)(91,622)
Receivable from customers, net of allowance(95,705)(87,362)
Fees receivable, net of allowance(46,170)(30,723)
Due from related parties440 1,947 
Other assets(9,344)(6,919)
Consolidated Funds 
Cash and cash equivalents(6,138)(8,847)
Receivable on derivative contracts, at fair value(2,917)(11,459)
Receivable from brokers5,296 
Other assets13 (94)
Increase (decrease) in operating liabilities: 
Securities sold, not yet purchased, at fair value, held at broker-dealer187,749 15,925 
Securities sold under agreement to repurchase(2,490)34,176 
Payable for derivative contracts, at fair value(24,035)11,624 
Securities loaned607,531 (604,072)
Payable to brokers, dealers and clearing organizations73,328 59,078 
Payable to customers977,274 58,590 
Commission management payable22,634 41,068 
Compensation payable(17,809)(156,333)
Fees payable(918)(378)
Due to related parties48 
Accounts payable, accrued expenses and other liabilities41,793 23,974 
Consolidated Funds 
Contributions received in advance150 
Payable to brokers399 
Payable for derivative contracts, at fair value13,297 
10

Cowen Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
 Three Months Ended March 31,
 20212020
(continued)
Due to related parties(581)
Accounts payable, accrued expenses and other liabilities(359)382 
Net cash provided by / (used in) operating activities359,225 (79,117)
Cash flows from investing activities: 
Securities purchased under agreement to resell191 
Purchases of other investments(29,117)(17,650)
Purchase of business (See Note 3)2,109 
Proceeds from sales of other investments31,267 12,059 
Purchase of fixed assets and intangibles(1,643)(2,485)
Net cash provided by / (used in) investing activities2,807 (8,076)
Cash flows from financing activities:  
Deferred debt issuance cost(6,467)
Borrowings on notes and other debt301,490 62,812 
Repayments on notes and other debt(139,737)(933)
Purchase of treasury stock(20,629)(18,018)
Cash dividends paid(2,313)(1,168)
Preferred dividends paid(1,698)(1,698)
Contingent liability payment(10,698)(782)
Capital contributions by non-controlling interests in operating entities3,498 286 
Capital withdrawals to non-controlling interests in operating entities(2,348)(462)
Consolidated Funds 
Capital contributions by non-controlling interests in Consolidated Funds19,017 207,263 
Capital withdrawals to non-controlling interests in Consolidated Funds(16,424)(166,238)
Net cash provided by / (used in) financing activities123,691 81,062 
Change in cash and cash equivalents485,723 (6,131)
Cash and cash equivalents, including cash collateral pledged and segregated cash, beginning of period941,053 415,014 
Cash and equivalents at end of period:
    Cash and cash equivalents1,147,531 270,079 
    Cash collateral pledged110,303 7,538 
    Segregated cash168,942 131,266 
Cash and cash equivalents, including cash collateral pledged and segregated cash, end of period$1,426,776 $408,883 
Supplemental information   
Cash paid during the year for interest$65,259 $29,560 
Cash paid during the year for taxes$8,087 $950 
Supplemental non-cash information  
Purchase of treasury stock, at cost, through net settlement (See Note 19)$6,245 $2,825 
Preferred stock dividends declared (See Note 19)1,698 1,698 
Cash dividends declared (See Note 19)2,777 1,429 
Net assets (liabilities) acquired upon acquisition (net of cash)3,107 
Net decrease in non-controlling interests in Consolidated Fund due to deconsolidation of Consolidated Fund (See Note 2)74,813 
Common stock issuance in relation to acquisition (See Note 3)2,202 618 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
11


Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Index

12

Cowen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Business
Cowen Inc., a Delaware corporation formed in 2009, is a diversified financial services firm that, together with its consolidated subsidiaries (collectively, "Cowen" or the "Company"), provides investment banking, research, sales and trading, prime brokerage, global clearing, securities financing, commission management services and investment management through its 2 business segments: the Operating Company ("Op Co") and the Asset Company ("Asset Co").
The Op Co segment consists of 4 divisions: the Investment Banking division, the Markets division, the Research division and the Cowen Investment Management ("CIM") division. The Company refers to the Investment Banking division, the Markets division and the Research division combined as its investment banking businesses. Op Co's investment banking businesses offer advisory and global capital markets origination, domain knowledge-driven research, sales and trading platforms for institutional investors, global clearing, commission management services and also a comprehensive suite of prime brokerage service. Sectors covered by Op Co's investment banking business include healthcare, technology, media and telecommunications, consumer, industrials, technology enabled services, and energy. Op Co’s CIM division includes advisers to investment funds (including private equity structures and privately placed hedge funds) and registered funds. The Company has also invested capital in its insurance and reinsurance businesses.
The Asset Co segment consists of certain of the Company's private investments, private real estate investments and other legacy investment strategies. The focus of Asset Co is to drive future monetization of the invested capital of the segment.
2. 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 ("US GAAP") as promulgated by the Financial Accounting Standards Board ("FASB") through Accounting Standards Codification (the "Accounting Standards") 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 investment funds that are consolidated in these accompanying condensed consolidated financial statements, as further discussed below, are not subject to the consolidation provisions with respect to their own controlled investments pursuant to specialized industry accounting.
The accompanying condensed financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). Certain footnote disclosures included in the 2020 Form 10-K have been condensed or omitted from the accompanying condensed financial statements as they are not required for interim reporting under US GAAP or are insignificant to the interim reporting period.
During the first quarter of 2021, the Company changed the presentation of certain income streams on its condensed consolidated statements of operations by moving the income streams from Other income - net gains (losses) on securities, derivatives and other investments to Revenues. Additionally, the Company moved proprietary trading gains and losses generated by the Company’s broker dealer entities from Brokerage revenue to Investment income (loss) – securities principal transactions, net. The specified presentation changes included the following:
13

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
FromToIncome Streams
Other income - net gains (losses) on securities, derivatives and other investmentsInvestment income (loss) – securities principal transactions, netproprietary trading gains and losses generated outside of the Company’s broker-dealer entities
Other income - net gains (losses) on securities, derivatives and other investmentsInvestment income (loss) – portfolio fund principal transactions, netgains and losses from portfolio funds
Other income - net gains (losses) on securities, derivatives and other investmentsInvestment income (loss) – carried interest allocationscarried interest allocations
Other income - net gains (losses) on securities, derivatives and other investmentsOther revenuenet gains and losses on foreign currency transactions
Brokerage revenueInvestment income (loss) – securities principal transactions, netproprietary trading gains and losses generated by the Company’s broker-dealer entities
Other income – Consolidated Funds – net realized and unrealized gains (losses) on investments and other transactions and other income – Consolidated Funds – net realized and unrealized gains (losses) on derivativesConsolidated Funds – principal transactions, netproprietary trading gains and losses generated from the Consolidated Funds
Other income – Consolidated Funds – net gains (losses) on foreign currency transactionsConsolidated Funds – other revenuenet gains and losses on foreign currency transactions generated by the Consolidated Funds
The Company believes that these presentation changes provide a better representation of the Company’s operating results as it is used by management to monitor the Company’s financial performance and is consistent with industry practice. The changes in presentation have no impact on net income and prior period amounts have been recast to reflect such changes in presentation.
b.    Principles of consolidation
The Company consolidates all entities that it controls through a majority voting interest or otherwise, including those investment funds in which the Company either directly or indirectly has a controlling financial interest. In addition, the Company consolidates all variable interest entities for which it is the primary beneficiary.
The Company consolidates 2 and 3 investment funds for which it acts as the managing member/general partner and investment manager as of March 31, 2021 and December 31, 2020, respectively. At March 31, 2021, the Company consolidated the following investment funds: Ramius Enterprise LP (“Enterprise LP”) and Cowen Private Investments LP ("Cowen Private"). At December 31, 2020, the Company consolidated the following investment funds: Enterprise LP, Cowen Private, and Cowen Sustainable Investments I LP ("CSI I LP"). These funds are referred to as each a "Consolidated Fund" and collectively the "Consolidated Funds".
During the first quarter of 2021, the Company deconsolidated CSI I LP due the Company's portion being diluted through a capital equalization event. During the second quarter of 2020, the Company deconsolidated Ramius Merger Fund LLC (the "Merger Fund") and UCITS Fund ("UCITS Fund") due to a partial redemption of the Company’s direct portfolio fund investment in Merger Fund and a partial termination of the notional value of UCITS Fund units referenced in a total return swap with a third party. The Company continues to hold a direct retained portfolio fund investment in the Merger Fund and CSI I LP and continues to have economic exposure to the returns of UCITS Fund through a total return swap with a third party. Merger Fund, CSI I LP and UCITS Fund continue to be related parties of the Company after deconsolidation. CSI I Golden Holdco LP ("Golden HoldCo") and CSI I Prodigy Holdco LP ("Prodigy HoldCo") were consolidated through November 2020 when the Company raised additional capital within the sustainable investing strategy that diluted the Company's direct and indirect ownership. As a result, the Company's direct and indirect ownership in Golden Holdco and Prodigy Holdco is no longer expected to be significant to either entity and the entities were deconsolidated.
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.
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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
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, (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 and (iii) voting rights of equity holders are proportionate to their obligation to absorb losses or the right to receive returns.
Under US GAAP consolidation requirements, 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 determines whether it is the primary beneficiary of a VIE upon its initial involvement with the VIE and reassesses whether it is the primary beneficiary on an ongoing basis as long as it has any continuing involvement with the 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 March 31, 2021, the total assets and total liabilities of the consolidated VIEs were $243.3 million and $8.0 million, respectively. As of December 31, 2020, the total assets and total liabilities of the consolidated VIEs were $325.5 million and $10.1 million, respectively. The deconsolidation of one Consolidated Fund decreased the overall VIEs net assets. 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.
In the ordinary course of business, the Company also sponsors various other entities that it has determined to be VIEs. These VIEs are primarily investment funds 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 real estate funds that are VIEs due to the Company's conclusion that it is not the primary beneficiary of these funds in each instance. Investment fund investors are entitled to all of the economics of these VIEs with the exception of the management fee and incentive income, if any, earned by the Company. The Company has equity interests in the funds as both a general partner and a limited partner. In these instances the Company has concluded that the variable interests are not potentially significant to the VIE. Although the Company may advance amounts and pay certain expenses on behalf of the investment funds 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 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 or apply the equity method of accounting, 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), at fair value with unrealized gains (losses) resulting from changes in fair value reflected within Investment income (loss) - Securities principal transactions, net or Investment income (loss) - portfolio fund investment income (loss) 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. The Company reports its investments on the consolidated statements of financial condition at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected within Consolidated Funds - Principal transactions, net in the accompanying condensed consolidated statements of operations.
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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
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.
Certain portfolio fund investments qualify as equity method investments and are investment companies that apply specialized industry accounting. In applying equity method accounting guidance, the Company retains the specialized accounting of the investees and 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 Investment Income - portfolio fund principal transactions, net in the accompanying condensed consolidated statements of operations.
In addition, the Company's broker-dealer subsidiaries, Cowen and Company, LLC ("Cowen and Company"), Westminster Research Associates LLC ("Westminster"), Cowen Execution Services Limited ("Cowen Execution Ltd"), ATM Execution LLC ("ATM Execution"), Cowen International Limited ("Cowen International Ltd"), and Cowen Prime Services LLC ("Cowen Prime") apply the specialized industry accounting for brokers and dealers in securities, which the Company retains 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, and the disclosure of contingent assets and liabilities at the date of the accompanying condensed consolidated financial statements, as well as 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 credit losses
The Company measures the allowance for credit losses in accordance with adopted ASC Topic 326, Financial Instruments – Credit Losses (“ASC 326”), which. ASC 326 impacts the prescribes the impairment model for certain financial assets measured at amortized cost by requiring a current expected credit loss ("CECL") methodology to estimate expected credit losses over the entire life of the financial asset, recorded at inception or purchase. Under the accounting update guidance, the Company has the ability to determine there are no expected credit losses in certain circumstances (e.g., based on collateral arrangements or based on the credit quality of the borrower or issuer).
The Company applies the guidance in ASC 326 to securities borrowed and fees and other receivables carried at amortized cost (including, but not limited to, receivables related to securities transactions, corporate finance and syndicate receivables, management fees and incentive fees receivable).
The allowance for credit losses is based on the Company's expectation of the collectability of financial instruments carried at amortized cost, including securities borrowed and fees and other receivables utilizing the CECL framework. The Company considers factors such as historical experience, credit quality, age of balances and current and future economic conditions that may affect the Company’s expectation of the collectability in determining the allowance for credit losses. The Company’s expectation is that the credit risk associated with fees and other receivables is not significant until they are 90 days past due based on the contractual arrangement and expectation of collection in accordance with industry standards.
For securities borrowed, the Company applies a practical expedient to measure the allowance for credit losses based on the fair value of the collateral. If the fair value of the collateral held exceeds the amortized cost and the borrower is expected to continue to replenish the collateral as needed, the Company will not recognize an allowance. If the fair value of collateral is less than amortized cost and the borrower is expected to continue to replenish the collateral as needed, the Company applies the CECL model, utilizing a probability and loss given default methodology, only to the extent of the shortfall between the fair value of the collateral and amortized cost.
The credit loss expense related to the allowance for credit losses as well as any recoveries of amounts previously charged is reflected in other expenses in the accompanying condensed consolidated statements of operations.
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 1Inputs 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
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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Level 2Inputs 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 3Fair 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. Inputs reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
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 based on their proportional rights of the underlying portfolio company, and 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 impact 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 primarily include active listed equities, certain U.S. government and sovereign obligations, Exchange Traded Funds ("ETFs"), mutual funds and certain money market securities.
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
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
generic forwards, swaps and options, are classified as level 2 when their inputs can be corroborated by market data. OTC derivatives, such as swaps and options, with significant inputs that cannot be corroborated by readily available or observable market data are classified as level 3.
Other Investments—Other investments consist primarily of portfolio funds, real estate investments, carried interest and equity method investments, which are valued as follows:
i.    Portfolio Funds—Portfolio funds include interests in private investment partnerships, foreign investment companies and other collective investment vehicles which may be managed by the Company or its affiliates. The Company applies the practical expedient provided by the US GAAP fair value measurements and disclosures guidance relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The practical expedient permits an entity holding investments in certain entities that either are investment companies or have attributes similar to an investment company, and calculate NAV 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. Investments which are valued using NAV per share as a practical expedient are not categorized within the fair value hierarchy.
ii. Carried Interest—For the private equity and debt fund products the Company offers, the Company is allocated incentive income by the investment funds based on the extent by which the investment funds performance exceeds predetermined thresholds. Carried interest allocations are generally structured from a legal standpoint as an allocation of capital in the Company’s capital account. The Company accounts for carried interest allocations by applying an equity ownership model. Accordingly, the Company accrues performance allocations quarterly based on the fair value of the underlying investments assuming hypothetical liquidation at book value.
iii. 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 applies 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 other investments in the accompanying condensed consolidated statements of operations.
See Notes 6 and 7 for further information regarding the Company's investments, including equity method investments and fair value measurements.
f.    Offsetting of derivative contracts
To reduce credit exposures on derivatives, the Company may enter into master netting agreements with counterparties that permit the Company the right, in the event of a default by a counterparty, to offset the counterparty’s rights and obligations under the agreement and to liquidate and offset any collateral against any net amount owed by the counterparty. Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) in the condensed consolidated statements of financial condition when a legal right of offset exists under an enforceable netting agreement. Additionally, derivatives are reported net of cash collateral received and posted under enforceable credit support agreements in the condensed consolidated statements of financial position, provided a legal right of offset exists. See Notes 6 for further information about offsetting of derivative financial instruments.
g.    Receivable from and payable to brokers
Receivable from brokers, dealers, and clearing organizations includes amounts receivable for securities failed to deliver by the Company to a purchaser by the settlement date, amounts receivable from broker-dealers and clearing organizations, commissions receivable from broker-dealers, and interest receivable from securities financing arrangements and are reported net of an allowance for credit losses.
Payable to brokers, dealers and clearing organizations includes amounts payable for securities failed to receive by the Company from a seller by the settlement date, amounts payable to broker-dealers and clearing organizations for unsettled trades, interest payable for securities financing arrangements, and payables of deposits held in proprietary account of brokers and dealers.
Pursuant to the master netting agreements the Company has entered into with its brokers, dealers and clearing organizations, receivables and payables arising from unsettled trade are presented net (assets less liabilities) across balances with the same counterparty. The Company's receivable from and payable to brokers, dealers and clearing organizations balances are held at multiple financial institutions.

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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
h.    Receivable from and payable to customers
Receivable from customers includes amounts owed by customers on cash and margin transactions, recorded on a settlement-date basis and prepaid research, net of allowance for credit losses. For prepaid research, a prepaid research asset is established for research and related services disbursed in advance of anticipated client commission volumes.
Payable to customers primarily consists of amounts owed to customers relating to securities transactions not completed on settlement date, recorded on a settlement-date basis on the statement of financial condition, and other miscellaneous customer payables.
Securities owned by customers, including those that collateralize margin, are not reflected as assets of the Company on the statement of financial condition. The Company holds these securities with the intention of settlement against customer orders and are held as collateral for customer receivables.
i.    Fees receivable
Fees related to security transactions are reported net of an allowance for credit losses. 
Management and incentive fees are earned as the managing member, general partner and/or investment manager to the Company's investment funds and are recognized in accordance with appropriate revenue recognition guidance (see Note 2n).
j.    Securities financing arrangements
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 and dividends income and interest and dividends expense. Securities borrowed transactions require the Company to deposit cash collateral with the lender. With respect to securities loaned, the Company receives cash or securities as collateral from the borrower. When the Company receives securities as collateral, and has concluded it (i) is the transferor and (ii) can pledge the securities to third parties, the Company recognizes the securities received as collateral at fair value in Securities owned, at fair value with the corresponding obligation to return the securities received as collateral at fair value in Securities sold, not yet purchased, at fair value. Securities received as collateral are not recognized when the Company either (i) is not the transferor or (ii) cannot pledge the securities to third parties. The initial collateral advanced or received approximates or is greater than the market value of securities borrowed or loaned. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or returned, as necessary. Securities borrowed and loaned may also result in credit exposures for the Company in an event that the counterparties are unable to fulfill their contractual obligations. See Note 2d for further information.
Fees and interest received or paid are recorded in interest and dividends income and interest and dividends expense, respectively, on an accrual basis in the accompanying condensed consolidated statements of operations. In cases where the fair value basis of accounting is elected, any resulting change in fair value would be reported in Investment Income - Securities principal transactions, net in the accompanying condensed consolidated statements of operations. Accrued interest income and expense are recorded in receivable from brokers, dealers and clearing organizations and payable to brokers, dealers and clearing organizations, respectively, on an accrual basis in the accompanying condensed consolidated statements of financial condition. At March 31, 2021 and December 31, 2020, the Company did not have any securities lending transactions for which fair value basis of accounting was elected.
k.     Securities sold under agreements to repurchase
Securities purchased under agreement to resell and securities sold under agreements to repurchase ("repurchase agreements") are accounted for as collateralized financing transactions and are recorded at their contracted resale or repurchase amount plus accrued interest. A repo is a transaction in which a firm buys or sells financial instruments from/to a counterparty, typically in exchange for cash, and simultaneously enters into an agreement to resell or repurchase the same or substantially the same financial instruments to/from such counterparty at a stated price plus accrued interest at a future date. When the Company receives securities as collateral, and has concluded it (i) is the transferor and (ii) can pledge the securities to third parties, the Company recognizes the securities received as collateral at fair value in Securities owned, at fair value with the corresponding obligation to return the securities received as collateral at fair value in Securities sold, not yet purchased, at fair value. Securities received as collateral are not recognized when the Company either (i) is not the transferor or (ii) cannot pledge the securities to third parties. The initial collateral advanced approximates or is greater than the market value of securities purchased or sold in the transaction. The Company typically enters into repurchase transactions with counterparties that prefer repurchase transactions to securities borrowed and securities loaned transactions. The Company has executed master repurchase agreements with such counterparties and utilizes such counterparties to finance its own positions, or replace a securities lending transaction with a repurchase for matched book purposes. The Company monitors the market value of repurchases on a daily basis, with additional collateral obtained or returned, as necessary. Repurchases may also result in credit exposures for the Company in an event that the
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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
counterparties are unable to fulfill their contractual obligations. The Company mitigates its credit risk by continuously monitoring its credit exposure and collateral values by demanding additional collateral or returning excess collateral in accordance with the netting provisions available in the master repurchase contracts in place with the counterparties.
Interest paid is recorded in interest and dividends expense in accordance with US GAAP and market convention for the imputation of interest on repurchase agreement transactions on an accrual basis in the accompanying condensed consolidated statements of operations. In cases where the fair value basis of accounting is elected, any resulting change in fair value would be reported in Investment Income - Securities principal transactions, net in the accompanying condensed consolidated statements of operations. At March 31, 2021 and December 31, 2020, the Company did not have any repurchase agreements for which fair value basis of accounting was elected.
l.    Goodwill and intangible assets
Goodwill
Goodwill represents the excess of the purchase price consideration of acquired companies over the estimated fair value assigned to the individual assets acquired and liabilities assumed. Goodwill is allocated to the Company's reporting units at the date the goodwill is initially recorded. Once goodwill has been allocated to the reporting units, it generally no longer retains its identification with a particular acquisition but instead becomes identifiable with the reporting unit. As a result, all of the fair value of each reporting unit is available to support the value of goodwill allocated to the unit.
In accordance with US GAAP requirements for testing for impairment of goodwill, the Company tests goodwill for impairment on an annual basis or at an interim period if events or changed circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances led to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that fair value exceeds its carrying amount, then performing a quantitative impairment test is not necessary. If the Company concludes otherwise, the Company is required to perform a quantitative impairment test that requires a comparison of the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying value, the related goodwill is not considered impaired and no further analysis is required. If the carrying value of the reporting unit exceeds its fair value, then the Company recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
Intangible assets
Intangible assets with finite lives are amortized over their estimated average useful lives. Intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that an asset or asset group's carrying value may not be fully recoverable. An impairment loss, calculated as the difference between the estimated fair value and the carrying value of an asset or asset group, is recognized in the accompanying condensed consolidated statements of operations if the sum of the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value. The Company continually monitors the estimated average useful lives of existing intangible assets.
m.    Non-controlling interests in consolidated subsidiaries
Non-controlling interests represent the pro rata share of the income or loss of the non-wholly owned consolidated entities attributable to the other owners of such entities. When non-controlling interest holders have redemption features that can be exercised at the option of the holder currently or contingent upon the occurrence of future events, their ownership has been classified as temporary equity. Ownership which has been classified in permanent equity are non-controlling interests which are either not redeemable at the option of the holder or the holder does not have the unilateral right to redeem its ownership interests.
n.    Revenue recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), which requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company follows a five-step model to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, the Company includes variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved. Significant judgments are required in the application of the five-step model including; when determining whether performance obligations are satisfied at a point in time or over time; how to allocate transaction prices where multiple performance obligations
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
are identified; when to recognize revenue based on the appropriate measure of the Company's progress under the contract; and whether constraints on variable consideration should be applied due to uncertain future events.
The Company's principal sources of revenue are generated within two segments. The Op Co segment generates revenue through five principal sources: investment banking revenue, brokerage revenue, management fees, investment income (loss) and incentive income. Investment income is excluded from ASC Topic 606. The Asset Co segment generates revenue through investment income (loss), management fees and incentive income. Investment income is excluded from ASC Topic 606. Revenue from contracts with customers includes management fees, incentive income, investment banking revenue and brokerage services revenue excluding principal transactions. ASC Topic 606 does not apply to revenue associated with financial instruments, interest income and expense, leasing and insurance contracts. The following is a description of principal activities, from which the Company generates its revenue. For more detailed information about reportable segments, see Note 22.
Investment banking
The Company earns investment banking revenue primarily from fees associated with public and private capital raising transactions and providing strategic advisory services. Investment banking revenues are derived primarily from public and private small- and mid-capitalization companies within the Company's sectors.     
Investment banking revenue consists of underwriting fees, strategic/financial advisory fees, expenses reimbursed from clients and placement and sales agent fees.    
Underwriting fees. The Company earns underwriting fees in securities offerings in which the Company acts as an underwriter, such as initial public offerings, follow-on equity offerings, debt offerings, and convertible securities offerings. Fee revenue relating to underwriting commitments is recorded at the point in time when all significant items relating to the underwriting process have been completed and the amount of the underwriting revenue has been determined. This generally is the point at which all of the following have occurred: (i) the issuer's registration statement has become effective with the SEC or the other offering documents are finalized; (ii) the Company has made a firm commitment for the purchase of securities from the issuer; (iii) the Company has been informed of the number of securities that it has been allotted; and (iv) the issuer obtains control and benefits of the offering; which generally occurs on trade date.
Underwriting fees are recognized gross of transaction-related expenses, and such amounts are adjusted to reflect actual expenses in the period in which the Company receives the final settlement, typically within 90 days following the closing of the transaction.
Strategic/financial advisory fees. The Company's strategic advisory revenue includes success fees earned in connection with advising companies, principally in mergers, acquisitions and restructuring transactions. The Company also earns fees for related advisory work such as providing fairness opinions. A significant portion of the Company's advisory revenue (i.e., success-related advisory fees) is considered variable consideration and recognized when it is probable that the variable consideration will not be reversed in a future period. The variable consideration is constrained until satisfaction of the performance obligation. The Company records strategic advisory revenues at the point in time, gross of related expenses, when the services for the transactions are completed or the contract is canceled under the terms of each assignment or engagement.
Placement and sales agent fees. The Company earns placement agency fees and sales agent commissions in non-underwritten transactions, such as private placements of loans and debt and equity securities, including private investment in public equity transactions ("PIPEs"), and as sales agent in at-the-market offerings of equity securities. The Company records placement revenues (which may be in cash and/or securities) at the point in time when the services for the transactions are completed under the terms of each assignment or engagement. The Company records sales agent commissions on a trade-date basis.
Expense reimbursements from clients.  Investment banking revenue includes expense reimbursements for transaction-related expenses, primarily consisting of legal, travel and other costs directly associated with the transaction.  Expense reimbursements associated with investment banking engagements are recognized in revenue at the point in time when the Company is contractually entitled to reimbursement. The related expenses are presented gross within their respective expense category in the accompanying condensed consolidated statements of operations.
Brokerage
Brokerage revenue consists of commissions, principal transactions, equity research fees and trade conversion revenue.
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Commissions. Commission revenue includes fees from executing and clearing client transactions and commission sharing arrangements. Trade execution and clearing services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing services on a standalone basis, are recognized at a point in time on trade-date. Commission revenues are generally paid on settlement date and the Company records a receivable between trade-date and payment on settlement date. The Company permits institutional customers to allocate a portion of their commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as "soft dollar arrangements". The Company also offers institutional clients the ability to allocate a portion of their gross commissions incurred on trades executed with various brokers to pay for research products and other services provided by third parties by entering into commission sharing arrangements. The Company acts as an agent in the soft dollar and commission sharing arrangements as the customer controls the use of the soft dollars and directs payments to third-party service providers on its behalf. Accordingly, amounts allocated to soft dollar arrangements are netted against commission revenues and recorded on trade date. Commissions on soft dollar brokerage are recorded net of the related expenditures. The costs of commission sharing arrangements are recorded for each eligible trade and shown net of commission revenue.
Equity research fees. Equity research fees are paid to the Company for providing access to equity research. In the US, revenue is recognized once an arrangement exists, access to research has been provided and the customer has benefited from the research. As part of MiFID II, the international customers of the Company's broker-dealers have executed equity research contracts with its clients. The contracts either contain a fixed price for providing access to research or a price at the discretion of the customer with a contract minimum. Fixed equity research fees are recognized over the contract period as the customer is benefiting from the research throughout the contract term. When the equity research fees are based on the customer’s discretion with a contract minimum, the Company recognizes the contract minimum over the life of the contract as the customer benefits from the research provided and adjusts the revenue when the Company can estimate the amount of equity research fees over the contract minimum. Additionally, the Company earns variable consideration for attending client conferences and events. Revenue is recognized when the Company attends a client conference or event.
Trade conversion revenue. Trade conversion revenue includes fees earned from converting foreign securities into an American Depository Receipt ("ADR") and fees earned from converting an ADR into foreign securities on behalf of customers, and margins earned from facilitating customer foreign exchange transactions. Trade conversion revenue is recognized on a trade-date basis.
Investment Income
Investment income (loss) consists of securities principal transactions, net, portfolio fund principal transactions, net and carried interest allocations. Investment income is excluded from ASC Topic 606
Securities principal transactions, net. Principal transactions, net includes realized gains and losses from transactions in financial instruments and unrealized gains and losses from ongoing changes in the fair value of the Company’s positions.
Principal transactions, net generated by the Company's broker-dealers include net trading gains and losses from the Company's market-making activities in over-the-counter equity and fixed income securities, trading of convertible securities, and trading gains and losses on inventory and other Company positions, which include securities previously received as part of investment banking transactions. In certain cases, the Company provides liquidity to clients by buying or selling blocks of shares of listed stocks without previously identifying the other side of the trade at execution, which subjects the Company to market risk. These positions are typically held for a short duration.
With respects to the Company's proprietary trading strategies, purchases and sales of securities, net of commissions, derivative contracts, and the related revenues and expenses are recorded on a trade-date basis with net trading gains and losses included as a component of Investment income - Securities principal transactions, net, in the accompanying condensed consolidated statements of operations.
Portfolio Fund principal transactions, net. Portfolio funds include interests in private investment partnerships, foreign investment companies and other collective investment vehicles which may be managed by the Company or its affiliates. The Company applies the practical expedient provided by the US GAAP fair value measurements and disclosures guidance relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The practical expedient permits an entity holding investments in certain entities that either are investment companies or have attributes similar to an investment company, and calculate NAV per share or its equivalent for which the fair value
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
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. Investments which are valued using NAV per share as a practical expedient are not categorized within the fair value hierarchy. Realized and unrealized gains (losses) resulting from changes in NAV per share are reflected within Investment income – portfolio fund principal transactions, net in the accompanying condensed consolidated statements of operations.
Carried interest allocations. The Company is allocated carried interest based on net profits (as defined in the respective investment management or partnership agreement) related to certain of the Company's private equity investment funds. For the private equity and debt fund products the Company offers, the carried interest earned is typically up to 30% of the distributions made to investors after return of their contributed capital and generally a preferred return. The Company recognizes carried interest allocated to the Company under an equity ownership model as investment income - carried interest allocations in the accompanying condensed consolidated statements of operations accordance with ASC Topic 323. Under the equity method of accounting the Company recognizes its allocations of incentive income or carried interest within Investment Income - Carried interest allocations in the accompanying condensed consolidated statements of operations along with the allocations proportionate to the Company's ownership interests in the investment funds.
Generally, carried interest is earned after the investor has received a full return of its invested capital, plus a preferred return. However, for certain private equity structures, the Company is entitled to receive incentive fees earlier, provided that the investors have received their preferred return on a current basis or on an investor by investor basis. These private equity structures are generally subject to a potential clawback of these incentive fees upon the liquidation of the private equity structure if the investor has not received a full return of its invested capital plus the preferred return thereon.
Management fees
The Company earns management fees from investment funds and certain managed accounts for which it serves as the investment manager; such fees earned are typically based on committed and invested capital. The Company has determined that the primary drivers of management fees are committed and invested capital relating to private equity funds. The management fees are earned as the investment management services are provided and are not subject to reversals. The performance obligation related to the transfer of these services is satisfied over time because the customer is receiving and consuming the benefits as they are provided by the Company.
Management fees are generally paid on a quarterly basis and are prorated for capital inflows (or commitments) and redemptions (or distributions) and are recognized as revenue at that time as they relate specifically to the services provided in that period, which are distinct from the services provided in other periods. While some investors may have separately negotiated fees, in general the management fees are as follows:
Private equity funds. Management fees for the Company's private equity or debt funds are generally charged at an annual rate of 1% to 2% of committed capital during the investment period (as defined in the relevant partnership agreement). After the investment period, management fees for these private equity funds are generally charged at an annual rate of 1% to 2% of the net asset value or the aggregate cost basis of the unrealized investments held by the private equity funds.  For certain other private equity funds (and managed accounts), the management fees range from 0.2% to 1% and there is no adjustment based on the investment period.  Management fees for the Company's private equity funds are generally paid on a quarterly basis.
Hedge funds. Management fees for the Company's hedge funds are generally charged at an annual rate of up to 2% of utilized invested capital, committed capital or notional trading level. Management fees are generally calculated monthly at the end of each month.
Cowen trading strategies. Advisory fees for the Company's collateral management advisory business are typically paid quarterly based on utilized invested capital or committed capital, generally subject to a minimum fee.
Incentive income
The Company earns incentive income based on net profits (as defined in the respective investment management or partnership agreement) related to certain of the Company's investment funds and managed accounts.  The incentive income is charged to the investment funds in accordance with their corresponding investment management or partnership agreement. For the hedge funds the Company offers, incentive income earned is typically up to 20% (in certain cases on performance in excess of a benchmark) of the net profits earned for the full year that are attributable to each fee-paying investor. 
The Company recognizes incentive income charged to the Company's hedge funds based on the net profits of the hedge funds. The Company recognizes such incentive income when the fees are no longer subject to reversal or are crystallized. For
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
certain  hedge funds, the incentive fee crystallizes annually when the high-water mark for such hedge funds is reset, which delays recognition of the incentive fee until year end. In periods following a period of a net loss attributable to an investor, the Company generally does not earn incentive income on any future profits attributable to such investor until the accumulated net loss from prior periods is recovered, an arrangement commonly referred to as a "high-water mark." Generally, incentive income is earned after the investor has received a full return of its invested capital, plus a preferred return.
Consolidated Funds – principal transaction, net
Purchases and sales of securities, net of commissions, derivative contracts, and the related revenues and expenses are recorded on a trade-date basis with net trading gains and losses included as a component of Consolidated Funds - Principal transactions, net in the accompanying condensed consolidated statements of operations.
Certain of the Companies Consolidated Funds invest in other investment funds for which the Company applies the practical expedient provided by the US GAAP fair value measurements and disclosures guidance relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The practical expedient permits an entity holding investments in certain entities that either are investment companies or have attributes similar to an investment company, and calculate NAV 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. Investments which are valued using NAV per share as a practical expedient are not categorized within the fair value hierarchy. Realized and unrealized gains (losses) resulting from changes in NAV per share are reflected within Consolidated Funds – Principal transaction, net.
Interest and dividends
Interest and dividends are earned by the Company from various sources. The Company receives interest and dividends primarily from securities finance activities and securities held by the Company for purposes of investing capital, investments held by its Consolidated Funds and its brokerage balances. Interest is recognized in accordance with US GAAP and market convention for the imputation of interest of the host financial instrument. Interest income is recognized on the debt of those issuers that is deemed collectible. Interest income and expense includes premiums and discounts amortized and accreted on debt investments based on criteria determined by the Company using the effective yield method, which assumes the reinvestment of all interest payments. Dividends are recognized on the ex-dividend date.
Reimbursement from affiliates
The Company allocates, at its discretion, certain expenses incurred on behalf of its investment management businesses. These expenses relate to the administration of such subsidiaries and assets that the Company manages for its investment funds. In addition, pursuant to the investment funds' offering documents, the Company charges certain allowable expenses to the investment funds, including charges and personnel costs for legal, compliance, accounting, tax compliance, risk and technology expenses that directly relate to administering the assets of the investment funds. Such expenses that have been reimbursed at their actual costs are included in the accompanying condensed consolidated statements of operations as employee compensation and benefits, professional, advisory and other fees, communications, occupancy and equipment, client services and business development and other expenses.
Insurance and reinsurance
    Premiums for insurance and reinsurance contracts are earned over the coverage period. In most cases, premiums are recognized as revenues ratably over the term of the contract with unearned premiums computed on a monthly basis. For each of its contracts, the Company determines if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with US GAAP. If the Company determines that a contract does not expose it to a reasonable possibility of a significant loss from insurance risk, the Company records the contract under the deposit method of accounting with any net amount receivable reflected as an asset in other assets, and any net amount payable reflected as a liability within accounts payable, accrued expenses and other liabilities on the condensed consolidated statements of financial condition.
The liabilities for losses and loss adjustment expenses are recorded at the estimated ultimate payment amounts, including reported losses.  Estimated ultimate payment amounts are based upon (1) reports of losses from policyholders, (2) individual case estimates and (3) estimates of incurred but unreported losses.
Provisions for losses and loss adjustment expenses are charged to earnings after deducting amounts recovered and estimates of recoverable amounts and are included in other expenses on the condensed consolidated statements of operations.
Costs of acquiring new policies, which vary with and are directly related to the production of new policies, have been deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. Such costs include
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
commissions and allowances as well as certain costs of policy issuance and underwriting and are included within other assets in the condensed consolidated statements of financial condition.
All of the items above are reported net of any Outward Reinsurance (see Note 14), which is determined as the portion of the Company’s premiums, liabilities for losses and loss adjustment expenses, provisions for losses and loss adjustment expenses, and costs of acquiring new policies that are ceded to providers of such Outward Reinsurance pursuant to their terms and conditions. These ceded amounts are calculated based on the same principles outlined above.
Interest and dividends expense
Interest and dividends expense relates primarily to securities finance activities, trading activity with respect to the Company's investments and interest expense on debt.
o.    Income taxes
The Company accounts for income taxes in accordance with US GAAP which requires the recognition of tax benefits or expenses based on the estimated future tax effects of temporary differences between the financial statement and tax basis of its assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date. Valuation allowances are established to reduce deferred tax assets to an amount that is more likely than not to be realized. The Company evaluates its deferred tax assets for recoverability considering negative and positive evidence, including its historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, and tax planning strategies. The Company records a valuation allowance against its deferred tax assets to bring them to a level that it is more likely than not to be utilized.
US GAAP clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements, requiring the Company to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company recognizes accrued interest and penalties related to its uncertain tax positions as a component of income tax expense.
In accordance with federal and state tax laws, the Company and its subsidiaries file consolidated federal, state, and local income tax returns as well as stand-alone state and local tax returns. The Company also has subsidiaries that are residents in foreign countries where tax filings have to be submitted on a stand-alone or combined basis. These subsidiaries are subject to taxes in their respective countries and the Company is responsible for and therefore reports all taxes incurred by these subsidiaries in the condensed consolidated statements of operations. The foreign jurisdictions where the Company owns subsidiaries and has tax filing obligations are the United Kingdom, Luxembourg, Malta, Gibraltar, Germany, Switzerland, South Africa, Canada and Hong Kong.
p.    Recent pronouncements
In August 2020, the FASB issued guidance simplifying an issuer’s accounting for convertible instruments by eliminating two of the three models in ASC 470-20 that require separate accounting for embedded conversion features; separate accounting is still required in certain cases. The guidance also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification. The guidance requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement (if the effect is more dilutive) for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. The guidance requires new disclosures about events that occur during the reporting period and cause conversion contingencies to be met and about the fair value of a public business entity’s convertible debt at the instrument level. For public business entities, the guidance is effective for reporting periods beginning after December 15, 2021 and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact of the new guidance.
In August 2018, the FASB issued guidance prescribing targeted improvements to financial services – insurance industry accounting guidance for long-duration contracts. The new guidance (i) prescribes the discount rate to be used in measuring the liability for future policy benefits for traditional and limited payment long-duration contracts, and requires assumptions for those liability valuations to be updated after contract inception, (ii) requires more market-based product guarantees on certain separate account and other account balance long-duration contracts to be accounted for at fair value, (iii) simplifies the amortization of deferred acquisition costs for virtually all long-duration contracts, and (iv) introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. For all entities, the guidance is effective for reporting periods beginning after December 15, 2022 and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact of the new guidance.
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
3. Acquisition
Malta Holdings
On February 26, 2021 (the "Malta Holdings Acquisition Date"), the Company, through its indirect wholly owned subsidiary, Cowen Malta Holdings Ltd. (“Malta Holdings”), completed the acquisition of all of the outstanding equity interest of Axeria Insurance Limited (the “Acquisition"), an insurance company organized under the laws of Malta whose principal business activity is to provide insurance coverage to third parties (See Note 14). Axeria Insurance Limited was renamed Cowen Insurance Company Ltd (“Cowen Insurance Co”) upon acquisition. The Acquisition was completed for a combination of cash and deferred consideration. In the aggregate, the purchase price, assets acquired, and liabilities assumed were not significant and near-term impact to the Company and its consolidated results of operations and cash flows is not expected to be significant.
The aggregate estimated purchase price of the Acquisition was $12.7 million. On the Malta Holdings Acquisition Date, the Company paid upfront consideration of $12.5 million, with additional deferred consideration of $0.2 million. The deferred consideration liability is included within accounts payable, accrued expenses and other liabilities on the consolidated statements of financial condition.
The Acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As such, the results of operations of the business acquired is included in the accompanying condensed consolidated statements of operations since the date of the Acquisition and the assets acquired, liabilities assumed recorded at their fair values within their respective line items on the accompanying condensed consolidated statement of financial condition. The Company has recognized a bargain purchase gain of $5.2 million related to the Acquisition and is shown net of associated tax of $1.3 million in the consolidated statement of operations. The bargain purchase gain is primarily driven by the recognition of the customer relationships intangible asset and a contractual discount on the closing equity balance at the Malta Holdings Acquisition Date. Additionally, following the Acquisition, the business acquired is included in the Cowen Investment Management reporting unit within the Operating Company segment.
The table below summarizes the preliminary purchase price allocation of net tangible and intangible assets acquired and liabilities assumed as of February 26, 2021:
(dollars in thousands)
Cash$14,844 
Securities owned, at fair value1,571 
Fixed assets30 
Intangible assets4,794 
Other assets12,828 
Compensation payable(17)
Other liabilities(16,099)
Total net identifiable assets acquired and liabilities assumed17,951 
Bargain purchase gain(5,216)
Total estimated purchase price$12,735 
As of the Malta Holdings Acquisition Date, the estimated fair value of the Company's intangible assets, which are primarily broker relationships, was $4.6 million and had a weighted average useful life of 10 years. The licenses of $0.2 million has indefinite life. Amortization expense for the three months ended March 31, 2021 was insignificant.
As of March 31, 2021, the estimated amortization expense related to these intangible assets in future periods is as follows:
 (dollars in thousands)
2021$343 
2022458 
2023458 
2024458 
2025458 
Thereafter2,365 
$4,540 
In addition to the purchase price consideration, for the three months ended March 31, 2021, the Company had incurred acquisition-related expenses of $0.2 million, including financial advisory, legal and valuation services, which are included in professional, advisory and other fees in the accompanying condensed consolidated statements of operations.
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
4. Cash Collateral Pledged    
As of March 31, 2021 and December 31, 2020, the Company pledged cash collateral in the amount of $3.5 million and $4.0 million respectively, which relates to letters of credit issued to the landlords of the Company's premises in New York City, Boston and San Francisco. The Company also has pledged cash collateral for reinsurance agreements which amounted to $106.8 million, as of March 31, 2021, and $106.8 million, as of December 31, 2020, which are expected to be released periodically as per the terms of the reinsurance policy between June 30, 2021 and March 31, 2024 (see Notes 14 and 18).
As of March 31, 2021, the Company has the following irrevocable letters of credit, related to leased office space, for which there is cash collateral pledged, which the Company pays a fee on the stated amount of the letter of credit.
LocationAmountMaturity
 (dollars in thousands)
New York$215 April 2022
New York$1,424 October 2022
New York$1,252 November 2021
Boston$194 March 2028
San Francisco$458 October 2025
$3,543 
To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of March 31, 2021 and December 31, 2020 there were 0 amounts due related to these letters of credit.
5. Segregated Cash
As of March 31, 2021 and December 31, 2020, cash segregated in compliance with federal regulations and other restricted deposits of $168.9 million and $185.1 million, respectively, consisted of cash deposited in Special Reserve Bank Accounts for the exclusive benefit of customers under SEC Rule 15c3-3 and cash deposited in Special Reserve Bank Accounts for the exclusive benefit of Proprietary Accounts of Broker-Dealers ("PAB") under SEC Rule 15c3-3.
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, which are not part of the Company's self-clearing securities finance activities, are pledged to external clearing brokers under terms which permit the external clearing broker to sell or re-pledge the securities to others subject to certain limitations.
As of March 31, 2021 and December 31, 2020, securities owned, at fair value consisted of the following:
As of March 31, 2021As of December 31, 2020
 (dollars in thousands)
Common stock$2,934,604 $1,770,301 
Preferred stock66,853 69,358 
Warrants and rights30,961 27,701 
Government bonds19,671 19,721 
Corporate bonds81,460 86,503 
Convertible bonds3,137 6,040 
Term loan (*)12,424 12,623 
Trade claims (*)5,905 8,713 
Private investments1,085 642 
$3,156,100 $2,001,602 
(*)The Company has elected the fair value option for securities owned, at fair value with a fair value of $5.9 million and $8.8 million, respectively, at March 31, 2021 and December 31, 2020.
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Receivable on and Payable for derivative contracts, at fair value
The Company predominantly enters into derivative transactions to satisfy client needs and to manage its own exposure to market and credit risks resulting from its trading activities. The Company’s direct exposure to derivative financial instruments includes futures, currency forwards, equity swaps, credit default swaps and options.. The Company's derivatives trading activities expose the Company to certain risks, such as price and interest rate fluctuations, volatility risk, credit risk, counterparty risk, foreign currency movements and changes in the liquidity of markets.
The Company's long and short exposure to derivatives is as follows:
Receivable on derivative contractsAs of March 31, 2021As of December 31, 2020
 Number of contracts / Notional ValueFair valueNumber of contracts / Notional ValueFair value
 (dollars in thousands)
Currency forwards$132,960 $384 $4,902 $15 
Swaps$1,746,919 142,266 $944,544 64,634 
Options other (a)163,622 42,124 371,188 49,102 
Netting - swaps (b)(89,238)(62,269)
$95,536 $51,482 

Payable for derivative contractsAs of March 31, 2021As of December 31, 2020
 Number of contracts / Notional ValueFair valueNumber of contracts / Notional ValueFair value
 (dollars in thousands)
Currency forwards$1,990 $16 $123,346 $3,067 
Swaps$1,603,710 82,391 $896,863 43,560 
Options other (a)130,627 31,524 198,320 66,566 
Netting - swap (b)(61,806)(37,033)
$52,125 $76,160 
(a) Includes the volume of contracts for index, equity, commodity future and cash conversion options.
(b) Derivatives are reported on a net basis, by counterparty, when a legal right of offset exists under an enforceable netting agreement as well as net of cash collateral received or posted under enforceable credit support agreements. See Note 2f for further information on offsetting of derivative financial instruments.
The following tables present the gross and net derivative positions and the related offsetting amount, as of March 31, 2021 and December 31, 2020. This table does not include the impact of over-collateralization.
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition (a)Net amounts included on the Condensed Consolidated Statements of Financial ConditionGross amounts not offset in the Condensed Consolidated Statements of Financial Condition
Gross amounts recognizedFinancial instruments (a)Cash Collateral pledged (a)Net amounts
(dollars in thousands)
As of March 31, 2021
Receivable on derivative contracts, at fair value$184,774 $89,238 $95,536 $2,694 $48,448 $44,394 
Payable for derivative contracts, at fair value113,931 61,806 52,125 2,694 1,124 48,307 
As of December 31, 2020
Receivable on derivative contracts, at fair value$113,751 $62,269 $51,482 $691 $169 $50,622 
Payable for derivative contracts, at fair value113,193 37,033 76,160 691 3,174 72,295 
(a)Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the extent an event of default has occurred.
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The realized and unrealized gains/(losses) related to derivatives trading activities were $35.5 million and $28.8 million for the three months ended March 31, 2021 and 2020, respectively, and are included in Investment income - Securities principal transactions, net in the accompanying condensed consolidated statements of operations. The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising the Company's business activities and are calculated before consideration of economic hedging transactions, which generally offset the net gains (losses) included above.
Pursuant to the various derivatives transactions discussed above, except for exchange traded derivatives and certain options, the Company is required to post/receive collateral. These amounts are recognized in receivable from brokers, dealers and clearing organizations and payable to brokers, dealers and clearing organizations respectively. As of March 31, 2021 and December 31, 2020, all derivative contracts were with major financial institutions.
Other investments
As of March 31, 2021 and December 31, 2020, other investments included the following:
As of March 31, 2021As of December 31, 2020
 (dollars in thousands)
Portfolio funds, at fair value (1)$151,933 $133,454 
Carried interest (2)180,352 82,892 
Equity method investments (3)34,498 38,681 
$366,783 $255,027 
(1) Portfolio funds, at fair value
The portfolio funds, at fair value as of March 31, 2021 and December 31, 2020, included the following:
As of March 31, 2021As of December 31, 2020
(dollars in thousands)
Starboard Value and Opportunity Fund LP (c)(*)$46,008 $42,519 
Formation8 Partners Fund I, L.P. (f)33,408 31,894 
Cowen Healthcare Investments II LP (i) (*)26,733 26,186 
Lagunita Biosciences, LLC (d)3,785 3,850 
Eclipse Ventures Fund I, L.P. (b)4,804 4,457 
HealthCare Royalty Partners II LP (a)(*)1,605 1,588 
HealthCare Royalty Partners LP (a)(*)1,035 1,072 
Starboard Leaders Fund LP (e)(*)2,328 2,020 
Eclipse SPV I, LP (j)(*)1,809 1,708 
Ramius Merger Fund LLC (m)(*)2,252 2,197 
TriArtisan ES Partners LLC (k)(*)1,848 1,657 
Cowen Healthcare Investments III LP (i)(*)7,717 5,714 
TriArtisan PFC Partners LLC (l)(*)760 691 
Starboard Value and Opportunity Fund Ltd (c) (*)2,556 2,364 
Eclipse Ventures Fund II, L.P. (b)1,910 1,733 
Eclipse Continuity Fund I, L.P. (b)1,252 1,101 
Cowen Sustainable Investments I LP (i)(*)9,299 
Difesa Partners, LP (h)985 848 
BDC Fund I Coinvest 1, L.P. (n)1,250 1,250 
Other private investment (o)(*)311 326 
Other affiliated funds (p)(*)278 279 
$151,933 $133,454 
* 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 17.
(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.
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(b)Each of Eclipse Ventures Fund I, L.P., Eclipse Ventures Fund II, L.P. and Eclipse Continuity Fund I, L.P. are venture capital funds which invests in early stage and growth stage hardware companies. Distributions will be made when the underlying investments are liquidated.
(c)Starboard Value and Opportunity Fund LP and Starboard Value and Opportunity Fund Ltd permits quarterly withdrawals upon 90 days' notice.
(d)Lagunita Biosciences, LLC, is 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.
(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 investor's 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)RCG Longview Debt Fund V, L.P. is a real estate private equity structures. The timing of distributions depends on the nature of the underlying investments and therefore will be made either quarterly or when the underlying investments are liquidated.
(h)Difesa Partners, LP permits semi-annual withdrawals occurring on or after the anniversary of initial contribution upon 90 days written notice.
(i)Cowen Healthcare Investments II LP, Cowen Healthcare Investments III LP and Cowen Sustainable Investments I LP are private equity funds.  Distributions are made from the fund when cash flows or securities are received from the underlying investments. Investors do not have redemption rights.
(j)Eclipse SPV I, L.P. is a co-investment vehicle organized to invest in a private company focused on software-driven automation projects.  Distributions will be made when the underlying investments are liquidated.
(k)TriArtisan ES Partners LLC is a co-investment vehicle organized to invest in a privately held nuclear services company. Distributions will be made when the underlying investment is liquidated.
(l)TriArtisan PFC Partners LLC is a co-investment vehicle organized to invest in a privately held casual dining restaurant chain. Distributions will be made when the underlying investment in liquidated.
(m)Ramius Merger Fund LLC permits monthly withdrawals on 45 days prior notice.
(n)BDC Fund I Coinvest 1, L.P. is a private equity fund focused on investing in growth companies in industries disrupted by digitization. Distributions will be made when the underlying investments are liquidated.
(o)Other private investment represents the Company's closed end investment in a portfolio fund that invests in a wireless broadband communication provider in Italy.
(p)The majority of these investment funds are affiliates of the Company or are managed by the Company and the investors can redeem from these funds as investments are liquidated.
(2)Carried interest
The Company applies an accounting policy election to recognize incentive income allocated to the Company under an equity ownership model in other investments in the accompanying condensed consolidated statements of financial condition (see Note 2n). Carried interest allocated to the Company from certain portfolio funds represents Cowen's general partner capital accounts from those funds. These balances are subject to change upon cash distributions, additional allocations or reallocations back to limited partners within the respective funds. All carried interest balances are earned from affiliates of the Company.
A portion of the Company's carried interest is granted to employees through profit sharing awards designed to more closely align compensation with the overall realized performance of the Company. These arrangements enable certain employees to earn compensation based on performance revenue earned by the Company and are recorded within compensation payable in the accompanying condensed consolidated statements of financial condition and employee compensation and benefits expense in the accompanying condensed consolidated statements of operation based on the probable and estimable payments under the terms of the awards. 
30

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The carried interest as of March 31, 2021 and December 31, 2020, included the following:
As of March 31, 2021As of December 31, 2020
(dollars in thousands)
Cowen Healthcare Investments II LP$73,415 $62,112 
Cowen Healthcare Investments III LP31,034 11,520 
Cowen Sustainable Investments I LP13,581 
Cowen Sustainable Investments Offshore I LP17,944 
CSI I Prodigy Co-Investment LP6,617 
CSI PRTA Co- Investment LP26,242 
TriArtisan TGIF Partners LLC3,689 3,361 
TriArtisan ES Partners LLC4,514 3,152 
TriArtisan PFC Partners LLC2,329 1,455 
Ramius Multi-Strategy Fund LP638 734 
Ramius Merger Fund LLC162 368 
RCG IO Renergys Sarl187 190 
$180,352 $82,892 

(3) Equity method investments
Equity method investments include investments held by the Company in several operating companies whose operations primarily include the day-to-day management of a number of real estate funds, including the portfolio management and administrative services related to the acquisition, disposition, and active monitoring of the real estate funds' underlying debt and equity investments. The Company's ownership interests in these equity method investments range from 15% to 55%. The Company holds a majority of the outstanding ownership interest (i.e., more than 50%) in RCG Longview Partners II, LLC and 40% in Surf House Ocean Views Holdings, LLC (which is a joint venture in a real estate development project). 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 investment funds and related managed accounts.
The Company completed assessments of the recoverability of the Company's equity method investments and determined that the carrying value of the investment in Surf House Ocean View Holdings, LLC exceeded the estimated fair value of the Company's interest, which was other than temporary. There were 0 impairment charges for the three months ended March 31, 2021. An other than temporary impairment charge of $7.3 million for the three months ended March 31, 2020 was recognized to reduce the carrying value of the investment to fair value, which was subsequently completely impaired at the end of 2020. Impairment charges are included in net gains (losses) on other investments on the accompanying condensed consolidated statements of operations.
The Company elected to use the cumulative earnings approach for the distributions it receives from its equity method investments. Under the cumulative earnings approach, any distributions received up to the amount of cumulative earnings are treated as return on investment and classified in operating activities within the cash flows. Any excess distributions would be considered as return of investments and classified in investing activities.
31

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes equity method investments held by the Company:
As of March 31, 2021As of December 31, 2020
(dollars in thousands)
Starboard Value LP$27,769 $31,528 
HealthCare Royalty GP III, LLC2,221 2,213 
RCG Longview Management, LLC268 268 
HealthCare Royalty GP, LLC442 920 
HealthCare Royalty GP II, LLC272 269 
RCG Longview Debt Fund IV Management, LLC331 331 
RCG Longview Equity Management, LLC105 105 
HCR Stafford Fund GP, LLC1,159 1,025 
Liberty Harbor North222 222 
Other1,709 1,800 
$34,498 $38,681 
The Company's income (loss) from equity method investments was income of $12.6 million and a loss of $0.06 million for the three months ended March 31, 2021 and 2020, respectively, and is included in net gains (losses) on 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. As of March 31, 2021 and December 31, 2020, securities sold, not yet purchased, at fair value consisted of the following:
 As of March 31, 2021As of December 31, 2020
 (dollars in thousands)
Common stock$918,021 $699,894 
Corporate bonds453 11,358 
Government bonds522 1,500 
Preferred stock7,567 6,589 
Warrants and rights4,519 8,774 
$931,082 $728,115 
Securities purchased under agreements to resell/securities sold under agreements to repurchase and securities lending and borrowing transactions
The following tables present the contractual gross and net securities borrowing and lending agreements and securities sold under agreements to repurchase and the related offsetting amount as of March 31, 2021 and December 31, 2020.
32

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, net of allowanceGross amounts offset on the Condensed Consolidated Statements of Financial Condition (a)Net amounts included on the Condensed Consolidated Statements of Financial ConditionAdditional Amounts AvailableFinancial instrumentsCash Collateral pledged (b)Net amounts
(dollars in thousands)
As of March 31, 2021
Securities borrowed$1,996,757 $$1,996,757 $$1,970,665 $$26,092 
Securities loaned3,083,945 3,083,945 3,100,800 (16,855)
Securities sold under agreements to repurchase2,546 2,546 2,759 (213)
As of December 31, 2020
Securities borrowed$1,908,187 $$1,908,187 $$1,809,399 $$98,788 
Securities loaned2,476,414 2,476,414 2,383,342 93,072 
Securities purchased under agreements to resell191 191 204 (13)
Securities sold under agreements to repurchase5,036 5,036 5,544 (508)
(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 and securities sold under agreements to repurchase by remaining contractual maturity and class of collateral pledged as of March 31, 2021 and December 31, 2020:
Open and OvernightUp to 30 days31 - 90 daysGreater than 90 daysTotal
(dollars in thousands)
As of March 31, 2021
Securities loaned
    Common stock$2,827,291 $$$$2,827,291 
    Corporate bonds256,654 256,654 
Securities sold under agreements to repurchase
    Corporate bonds2,546 2,546 
As of December 31, 2020
Securities loaned
    Common stock2,232,687 2,232,687 
    Corporate bonds243,726 243,726 
Securities sold under agreements to repurchase
Corporate bonds$$$5,036 $$5,036 
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 $8.9 billion and $1.2 billion as of March 31, 2021 and $8.0 billion and $1.3 billion as of December 31, 2020, respectively. The carrying value of the Company's exposure to loss for these variable interest entities as of March 31, 2021 was $236.4 million, and as of December 31, 2020 was $210.7 million, all of which is included in other investments, at fair value in the accompanying condensed consolidated statements of financial condition. Additionally, the Company's maximum exposure to loss for the variable interest entities noted above as of March 31, 2021 and December 31, 2020, was $364.9 million and $326.0 million, respectively.  The maximum exposure to loss often differs from the
33

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
carrying value of exposure to loss of the variable interests. The maximum exposure to loss is dependent on the nature of the variable interests in the VIEs and is limited to the notional amounts of certain commitments and guarantees.
b.    Consolidated Funds
Securities owned, at fair value
As of March 31, 2021 and December 31, 2020, securities owned, at fair value, held by the Consolidated Funds consisted of the following:
As of March 31, 2021As of December 31, 2020
 (dollars in thousands)
     Common stock$3,611 $4,816 
     Warrants and rights5,329 5,806 
$8,940 $10,622 
Other investments, at fair value
Investments in portfolio funds, at fair value
As of March 31, 2021 and December 31, 2020, investments in portfolio funds, at fair value, included the following:
As of March 31, 2021As of December 31, 2020
(dollars in thousands)
Investments of Enterprise LP$100,035 $104,475 
Investments of Cowen Sustainable Investments I LP88,195 
$100,035 $192,670 
Consolidated portfolio fund investments of Enterprise LP    
On May 12, 2010, the Company announced its intention to close Enterprise Master. Enterprise LP operated under a "master-feeder" structure up until January 1, 2019, when Enterprise Master distributed its capital to each feeder and was liquidated. As of March 31, 2021 and December 31, 2020, the consolidated investments in portfolio funds include Enterprise LP's investment in RCG Special Opportunities Fund, Ltd which is a portfolio fund that invests in a limited number of private equity investments directly as well as through affiliated portfolio funds.
Consolidated portfolio fund investments of Cowen Sustainable Investments I LP
Cowen Sustainable Investments I LP ("CSI I LP") is a private investment fund making debt and equity investments in companies and real assets that are accelerating the global transition to a sustainable economy. The fund primarily focuses its investments around four themes: (i) renewable energy and battery storage; (ii) clean transportation; (iii) sustainable agriculture and food production; and (iv) resource and industrial efficiency. CSI I LP has made investments in ecoATM, LLC, a manufacturer and owner of automated kiosks that allow consumers to sell back unwanted smart phones, and Proterra, Inc, a designer and manufacturer of zero-emission electric transit vehicles and electric vehicle technology solutions for commercial applications. CSI I LP is a private equity-style vehicle that does not permit redemptions; proceeds realized from the fund’s investments are expected to be distributed after the end of the fund’s investment period. CSI I LP was deconsolidated during the first quarter of 2021 (See Note 2).
Indirect Concentration of the Underlying Investments Held by Consolidated Funds
From time to time, either directly held by the Company, indirectly through the Company's consolidated entities or indirectly through its investments in the Consolidated Funds, the Company may maintain exposure to a particular issue or issuer (both long and/or short) which may account for 5% or more of the Company's equity. Based on information that is available to the Company as of March 31, 2021 and December 31, 2020, the Company assessed whether or not its interests in an issuer for which the Company's pro-rata share exceeds 5% of the Company's equity. There was one indirect concentration that exceeded 5% of the Company's equity as of March 31, 2021 and December 31, 2020, respectively.
Through its investments in a Consolidated Fund and combined with direct Company investments, the Company maintained exposure to a particular investment which accounted for 5% or more of the Company's equity.
34

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Investment's percentage of the Company's stockholders' equity
IssuerSecurity TypeCountryIndustryPercentage of Stockholders' EquityMarket Value
(dollars in thousands)
As of March 31, 2021Linkem S.p.A.Equity, loans and warrantsItalyWireless Broadband7.62 %$84,324 
As of December 31, 2020Linkem S.p.A.Equity, loans and warrantsItalyWireless Broadband9.07 %$87,944 

7. Fair Value Measurements for Operating Entities and Consolidated Funds
The following table presents the assets and liabilities that are measured at fair value on a recurring basis on the accompanying condensed consolidated statements of financial condition by caption and by level within the valuation hierarchy as of March 31, 2021 and December 31, 2020:
 Assets at Fair Value as of March 31, 2021
 Level 1Level 2Level 3Netting (c)Total
  (dollars in thousands) 
Operating Entities
    Securities owned, at fair value 
Government bonds$19,671 $$$— $19,671 
Preferred stock10,376 56,477 — 66,853 
Common stock2,911,824 74 22,706 — 2,934,604 
Convertible bonds3,137 — 3,137 
Corporate bonds81,324 136 — 81,460 
Trade claims5,905 — 5,905 
Term loan12,424 — 12,424 
Warrants and rights23,037 7,924 — 30,961 
Private investments1,085 — 1,085 
    Receivable on derivative contracts, at fair value
Currency forwards384 — 384 
Swaps142,266 (89,238)53,028 
Options41,883 241 — 42,124 
Consolidated Funds
    Securities owned, at fair value
Common stock660 2,951 — 3,611 
Warrants and rights5,329 — 5,329 
$3,007,451 $224,048 $118,315 $(89,238)$3,260,576 
Portfolio funds measured at net asset value (a)151,933 
Consolidated Funds' portfolio funds measured at net asset value (a)100,035 
Carried interest (a)180,352 
Equity method investments (a)34,498 
Total investments$3,727,394 

35

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
 Liabilities at Fair Value as of March 31, 2021
 Level 1Level 2Level 3Netting (c)Total
 (dollars in thousands)
Operating Entities
     Securities sold, not yet purchased, at fair value    
Government bonds$$$522 $— $522 
Common stock918,021 — 918,021 
Corporate bonds38 415 — 453 
Preferred stock7,567 — 7,567 
Warrants and rights4,519 — 4,519 
    Payable for derivative contracts, at fair value
Currency forwards16 — 16 
Swaps82,391 (61,806)20,585 
Options28,227 3,297 — 31,524 
Accounts payable, accrued expenses and other liabilities
          Contingent consideration liability (b)19,579 — 19,579 
$958,334 $82,445 $23,813 $(61,806)$1,002,786 
(a) In accordance with US GAAP, portfolio funds are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not classified in the fair value hierarchy. Carried interest and equity method investments presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated statement of financial condition.
(b) In accordance with the terms of the purchase agreements for acquisitions that closed during the first quarter of 2019 and the fourth quarter of 2020, the Company is required to pay to the sellers a portion of future net income and/or revenues of the acquired businesses, if certain targets are achieved through the periods ended December 31, 2020 and December 31, 2023. For both the Quarton Acquisition and the MHT Acquisition, the Company estimated the contingent consideration liabilities using a combination of Monte Carlo and Discounted Cash Flow methods which require the Company to make estimates and assumptions regarding the future cash flows and profits. Changes in these estimates and assumptions could have a significant impact on the amounts recognized. The undiscounted amounts for the Quarton Acquisition can range from $10.1 million to $25.0 million. The undiscounted amounts for the MHT Acquisition have no minimum or maximum as it is calculated based on revenue.
(c) Derivatives are reported on a net basis, by counterparty, when a legal right of offset exists under an enforceable netting agreement as well as net of cash collateral received or posted under enforceable credit support agreements. See Note 2f for further information on offsetting of derivative financial instruments.
36

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
 Assets at Fair Value as of December 31, 2020
 Level 1Level 2Level 3Netting (c)Total
  (dollars in thousands) 
Operating Entities
    Securities owned, at fair value    
Government bonds$19,721 $$$— $19,721 
Preferred stock9,391 59,967 — 69,358 
Common stock1,746,407 108 23,786 — 1,770,301 
Convertible bonds6,040 — 6,040 
Corporate bonds86,368 135 — 86,503 
Trade claims8,713 — 8,713 
Term loan12,623 — 12,623 
Private investments642 — 642 
Warrants and rights21,154 6,547 — 27,701 
    Receivable on derivative contracts, at fair value
Currency forwards15 — 15 
Swaps64,634 (62,269)2,365 
Options48,851 251 — 49,102 
Consolidated Funds
    Securities owned, at fair value
Common stock1,865 2,951 — 4,816 
Warrants and rights5,806 — 5,806 
$1,847,389 $151,125 $127,461 $(62,269)$2,063,706 
Portfolio funds measured at net asset value (a)133,454 
Consolidated Funds' portfolio funds measured at net asset value (a)192,670 
Carried interest (a)82,892 
Equity method investments (a)38,681 
Total investments$2,511,403 

 Liabilities at Fair Value as of December 31, 2020
 Level 1Level 2Level 3Netting (c)Total
 (dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value    
US Government securities$$$1,500 $— $1,500 
Common stock699,894 — 699,894 
Corporate bonds10,654 704 — 11,358 
Preferred stock6,589 — 6,589 
Warrants and rights8,774 — 8,774 
Payable for derivative contracts, at fair value
Currency forwards3,067 — 3,067 
Swaps43,560 (37,033)6,527 
Options62,651 3,915 — 66,566 
Accounts payable, accrued expenses and other liabilities
          Contingent consideration liability (b)36,718 — 36,718 
$777,908 $57,281 $42,837 $(37,033)$840,993 
(a) In accordance with US GAAP, portfolio funds are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not classified in the fair value hierarchy. Carried interest and equity method investments presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated statement of financial condition.
37

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(b) In accordance with the terms of the purchase agreements for acquisitions that closed during the first quarter of 2019 and the fourth quarter of 2020, the Company is required to pay to the sellers a portion of future net income and/or revenues of the acquired businesses, if certain targets are achieved through the periods ended December 31, 2020 and December 31, 2023. For both the Quarton Acquisition and the MHT Acquisition, the Company estimated the contingent consideration liabilities using a combination of Monte Carlo and Discounted Cash Flow methods which require the Company to make estimates and assumptions regarding the future cash flows and profits. Changes in these estimates and assumptions could have a significant impact on the amounts recognized. The undiscounted amounts for the Quarton Acquisition can range from $10.1 million to $35.1 million. The undiscounted amounts for the MHT Acquisition have no minimum or maximum as it is calculated based on revenue.
(c) Derivatives are reported on a net basis, by counterparty, when a legal right of offset exists under an enforceable netting agreement as well as net of cash collateral received or posted under enforceable credit support agreements. See Note 2f for further information on offsetting of derivative financial instruments.
The following table includes a roll forward of the amounts for the three months ended March 31, 2021 and 2020 for financial instruments classified within level 3. The classification of a financial instrument within level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement.


Three Months Ended March 31, 2021
Balance at December 31, 2020Transfers inTransfers outPurchases/(covers)(Sales)/shortsRealized and Unrealized gains/lossesBalance at March 31, 2021Change in unrealized gains/losses relating to instruments still held (1)
(dollars in thousands)
Operating Entities
Preferred stock$59,967 $$$1,859 $(4,651)$(698)$56,477 $(698)
Common stock23,786 (5,353)(b)3,226 (1,387)2,434 22,706 1,679 
Convertible bonds6,040 1,050 (3,930)(23)3,137 (23)
Corporate bond135 70 (49)(20)136 (49)
Options, asset251 (10)241 (10)
Options, liability3,915 (618)3,297 (618)
Term loan12,623 322 (521)12,424 (521)
Warrants and rights6,547 3,406 (1,206)(823)7,924 (895)
Trade claims8,713 01,378 (4,216)30 5,905 (1,021)
Private investments642 443 1,085 
Corporate bond, liability704 (289)415 
Government bonds, liability1,500 (1,278)300 522 87 
Contingent consideration liability37,952 (11,312)(7,061)19,579 (7,061)
Consolidated Funds
Common stock2,951 2,951 
Warrants and rights5,806 (670)193 5,329 (477)

38

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Three Months Ended March 31, 2020
Balance at December 31, 2019Transfers inTransfers outPurchases/(covers)(Sales)/shortsRealized and Unrealized gains/lossesBalance at March 31, 2020Change in unrealized gains/losses relating to instruments still held (1)
(dollars in thousands)
Operating Entities
Preferred stock$7,835 $$$365 $$$8,200 $
Common stock17,466 1,798 (593)(1,161)17,510 (1,257)
Convertible bonds2,500 286 2,786 
Corporate Bond, asset2,421 422 (24)(7)2,812 12 
Options, asset336 (4)332 (4)
Options, liability2,920 (1,118)1,802 (1,118)
Warrants and rights594 598 
Trade claim7,083 1,044 (a)1,166 (110)9,183 (110)
Private investments237 233 (5)465 (5)
Corporate bond, liability1,000 (200)800 (200)
Government bonds, liability1,950 (450)1,500 (450)
Contingent consideration liability30,896 (1,400)(838)28,658 (838)
Consolidated Funds
Preferred stock4,393 4,393 
Common stock100,000 100,000 
Warrants and rights$5,567 $$$$$44 $5,611 $44 
(1) Unrealized gains/losses are reported in Investment income - Securities principal transactions, net in the accompanying condensed consolidated statements of operations.
(a) The security stopped trading on an open market.
(b) The entity in which the Company is invested completed an initial public offering.
Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above.
The Company recognizes all transfers and the related unrealized gain (loss) at the beginning of the reporting period.
Transfers between level 2 and 3 generally relate to whether significant relevant observable inputs are available for the fair value measurements or due to change in liquidity restrictions for the investments.
The following table includes quantitative information as of March 31, 2021 and December 31, 2020 for financial instruments classified within level 3. The table below quantifies information about the significant unobservable inputs used in the fair value measurement of the Company's level 3 financial instruments.
39

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Quantitative Information about Level 3 Fair Value Measurements
Fair Value
March 31, 2021
Valuation TechniquesUnobservable InputsRangeWeighted Average
Level 3 Assets(dollars in thousands)
Common and preferred stocks$70,935 
Discounted cash flows
Guideline companies
Probability of Success
Discount rate
EBITDA Market Multiples
Probability of Success
11% - 20%
6.25x - 6.75x
70%
12%
6.5x
70%
Options241 
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
11% - 12%
6.25x - 6.75x
12%
6.5x
Trade claims3,713 Discounted cash flowsDiscount rate20%20%
Warrants and rights10,394 
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
4% - 12%
6.25x - 6.75x
7.0%
6.5x
Corporate, convertible bonds and term loan12,424 
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
11% - 12%
6.25x - 6.75x
12%
6.5x
Other level 3 assets (a)20,608 
Total level 3 assets$118,315 
Level 3 Liabilities
Options3,297 Option pricing modelsVolatility35%35%
Contingent consideration liability19,579 
Discounted cash flows
Monte Carlo simulation
Discount rate
Volatility
7% - 15%
18% - 20%
13%
18%
Other level 3 liabilities (a)937 
Total level 3 liabilities$23,813 

Quantitative Information about Level 3 Fair Value Measurements
Fair Value at December 31, 2020Valuation TechniquesUnobservable InputsRangeWeighted Average
Level 3 Assets(dollars in thousands)
Common and preferred stocks$65,735 
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
10% - 12%
6.25x - 6.75x
11%
6.5x
Trade claims3,500 Discounted cash flowsDiscount rate15%15%
Warrants and rights11,217 
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
4% - 11%
6.25x - 6.75x
7%
6.5x
Options251 
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
10% - 12%
6.25x - 6.75x
11%
6.5x
Corporate, convertible bonds and term loan12,623 
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
10% - 12%
6.25x - 6.75x
11%
6.5x
Other level 3 assets (a)34,135 
Total level 3 assets$127,461 
Level 3 Liabilities
Options3,915 Option pricing modelsVolatility35%35%
Contingent consideration liability36,718 
Discounted cash flows
Monte Carlo simulation
Discount rate
Volatility
9% - 16%
22% - 24%
15%
22%
Other level 3 liabilities (a)2,204 
Total level 3 liabilities$42,837 
(a)The quantitative disclosures exclude financial instruments for which the determination of fair value is based on prices from recent transactions.
The Company has established valuation policies, procedures and internal control infrastructure over the fair value measurement of financial instruments. In the event that observable inputs are not available, the control processes are designed to ensure that the valuation approach utilized is applicable, reasonable and consistently applied. Where a pricing model is used to determine fair value, these control processes include reviews of the methodology and inputs for both reasonableness and applicability. Consistent with best practices, recently executed comparable transactions and other observable market data are used
40

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
for the purposes of validating both the model and the assumptions used to calculate fair value. Independent of trading and valuation functions, the Company’s Valuation Committee in conjunction with its Price Verification team, plays an important role in determining that financial instruments are appropriately valued and that fair value measurements are both reasonable and reliable. This is particularly important where prices or valuations that require inputs are less observable. The Valuation Committee is comprised of senior management, including non-investment professionals, who are responsible for overseeing and monitoring the pricing of the Company's investments.
The US GAAP fair value leveling hierarchy is designated and monitored on an ongoing basis. In determining the designation, the Company takes into consideration a number of factors including the observability of inputs, liquidity of the investment and the significance of a particular input to the fair value measurement. Designations, models, pricing vendors, third party valuation providers and inputs used to derive fair market value are subject to review by the valuation committee and the internal audit group. The Company reviews its valuation policy guidelines on an ongoing basis and may adjust them in light of improved valuation metrics and models, the availability of reliable inputs and information, and prevailing market conditions. The Company regularly reviews a profit and loss report, as well as other periodic reports, and analyzes material changes from period to period in the valuation of its investments as part of its control procedures. The Company also performs back testing on a regular basis by comparing prices observed in executed transactions to previous valuations.
The fair market value for level 3 securities may be highly sensitive to the use of industry-standard models, unobservable inputs and subjective assumptions. The degree of fair market value sensitivity is also contingent upon the subjective weight given to specific inputs and valuation metrics. The Company holds various equity and debt instruments where different weight may be applied to industry-standard models representing standard valuation metrics such as: discounted cash flows, market multiples, comparative transactions, capital rates, recovery rates and timing, and bid levels. Generally, changes in the weights ascribed to the various valuation metrics and the significant unobservable inputs in isolation may result in significantly lower or higher fair value measurements. Volatility levels for warrants and options are not readily observable and subject to interpretation. Changes in capital rates, discount rates and replacement costs could significantly increase or decrease the valuation of the real estate investments. The interrelationship between unobservable inputs may vary significantly amongst level 3 securities as they are generally highly idiosyncratic. Significant increases (decreases) in any of those inputs in isolation can result in a significantly lower (higher) fair value measurement.
Other financial assets and liabilities
The following table presents the carrying values and fair values, at March 31, 2021 and December 31, 2020, of financial assets and liabilities and information on their classification within the fair value hierarchy which are not measured at fair value on a recurring basis. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value (see Note 2e).
 March 31, 2021December 31, 2020Fair Value Hierarchy
 Carrying AmountFair ValueCarrying AmountFair Value
  (dollars in thousands) 
Financial Assets 
Operating companies
Cash and cash equivalents$1,147,531 $1,147,531 $645,169 $645,169 Level 1
Cash collateral pledged110,303 110,303 110,743 110,743 Level 2
Segregated cash168,942 168,942 185,141 185,141 Level 1
Securities purchased under agreements to resell191 204 Level 2
Securities borrowed1,996,757 1,996,757 1,908,187 1,908,187 Level 2
Loans receivable4,467 4,467 (d)7,682 7,682 (d)Level 3
Consolidated Funds
Cash and cash equivalents935 935 417 417 Level 1
Financial Liabilities
Securities sold under agreements to repurchase2,546 2,759 5,036 5,544 Level 2
Securities loaned3,083,945 3,083,945 2,476,414 2,476,414 Level 2
Convertible debt81,682 (a)181,597 (b)80,808 (a)135,444 (b)Level 2
Notes payable and other debt542,519 (e)568,212 (c)383,067 (e)405,840 (c)Level 2
(a)The carrying amount of the convertible debt includes an unamortized discount of $5.8 million and $6.7 million as of March 31, 2021 and December 31, 2020, respectively.
(b)The convertible debt includes the conversion option and is based on the last broker quote available.
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(c)Notes payable and other debt are based on the last broker quote available.
(d)The fair market value of level 3 loans is calculated using discounted cash flows where applicable.
(e)The carrying amount of the notes payable and other debt includes an unamortized discount and unamortized premium of $1.5 million and $0.3 million as of March 31, 2021, respectively and unamortized premium of $0.4 million as of December 31, 2020.
8. Deposits with Clearing Organizations, Brokers and Banks
Under the terms of agreements between the Company and some of its clearing organizations, brokers and banks, balances owed are collateralized by certain of the Company's cash and securities balances. As of March 31, 2021 and December 31, 2020, the Company had a total of $82.1 million and $105.0 million, respectively, in deposit accounts with clearing organizations, brokers and banks that could be used as collateral to offset losses incurred by the clearing organizations, brokers and banks, on behalf of the Company's activities, if such losses were to occur.
9. Receivable From and Payable To Brokers, Dealers and Clearing Organizations
Receivable from and payable to brokers, dealers and clearing organizations includes cash held at the clearing brokers, amounts receivable or payable for unsettled transactions, monies borrowed and proceeds from short sales equal to the fair value of securities sold, not yet purchased, at fair value, which are restricted until the Company purchases the securities sold short. Pursuant to the master netting agreements the Company entered into with its brokers, dealers and clearing organizations, these balances are presented net (assets less liabilities) across balances with the same counterparty. The Company's receivable from and payable to brokers, dealers and clearing organizations balances are held at multiple financial institutions.
As of March 31, 2021 and December 31, 2020, amounts receivable from brokers, dealers and clearing organizations include:
As of March 31, 2021As of December 31, 2020
 (dollars in thousands)
Broker-dealers$1,753,510 $1,608,273 
Securities failed to deliver76,127 55,655 
Clearing organizations79,833 41,795 
Securities borrowed/loaned interest receivable11,283 24,021 
$1,920,753 $1,729,744 

As of March 31, 2021 and December 31, 2020, amounts payable to brokers, dealers and clearing organizations include:
As of March 31, 2021As of December 31, 2020
 (dollars in thousands)
Broker-dealers$326,231 $286,011 
Securities failed to receive100,528 68,036 
Clearing organizations48,466 33,732 
Securities borrowed/loaned interest payable13,246 27,364 
$488,471 $415,143 

10. Receivable From and Payable To Customers
As of March 31, 2021 and December 31, 2020, receivable from customers of $199.7 million and $104.0 million, respectively, consist of amounts owed by customers relating to securities transactions not completed on settlement date and receivables arising from prepaid research.
As of March 31, 2021 and December 31, 2020, payable to customers of $2.7 billion and $1.7 billion, respectively, include amounts due on cash and margin transactions to the Company's clients, some of which have their assets held by a Company omnibus account, which are included within receivables from brokers, dealers and clearing organizations in the accompanying condensed consolidated statements of financial condition. In the omnibus structure, positions that are owned by Cowen International Ltd are fully cross collateralized by client funds, meaning that the Company, for all intents and purposes, has no market risk. Additionally, Cowen International Ltd has no obligation to settle any trade that it deems inappropriate from a risk perspective, adding an important market and counterparty risk mitigating factor.
42

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
11. Commission Management Payable
The Company receives a gross commission from various brokers, which is then used to fund commission sharing and recapture arrangements, less the portion retained as income to the Company. Accrued commission sharing and commission recapture payable of $139.6 million and $117.0 million, as of March 31, 2021 and December 31, 2020, respectively, are classified as commission management payable in the accompanying condensed consolidated statements of financial condition.
12. Non-Controlling Interests in Consolidated Subsidiaries and Investment Funds
Redeemable and nonredeemable non-controlling interests in consolidated subsidiaries and investment funds and the related net income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds are comprised as follows:
 As of March 31, 2021As of December 31, 2020
 (dollars in thousands)
Nonredeemable non-controlling interests in consolidated subsidiaries and investment funds
Operating companies92,629 83,818 
Consolidated Funds40,486 115,806 
$133,115 $199,624 

Three Months Ended March 31,
20212020
(dollars in thousands)
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds  
Operating companies$7,661 $127 
Consolidated Funds(3,099)(62,315)
$4,562 $(62,188)

43

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
13. Revenue from Contracts with Customers
For the three months ended March 31, 2021 and 2020, the following tables presents revenues from contracts with customers disaggregated by fee type and segment.
Three Months Ended March 31,
20212020
(dollars in thousands)
Revenue from contracts with customersOperating Company
Investment banking
     Underwriting fees$154,304 $63,270 
     Strategic/financial advisory fees73,555 21,996 
     Placement and sales agent fees72,544 17,596 
     Expense reimbursements from clients4,431 2,166 
Total investment banking revenue304,834 105,028 
Brokerage
     Commissions161,792 132,208 
     Trade conversion revenue4,130 4,639 
     Equity research fees4,593 4,005 
Total brokerage revenue from customers170,515 140,852 
Management fees25,499 11,346 
Incentive income2,258 
Total revenue from contracts with customers - Op Co$503,106 $257,226 
Asset Company
Management fees243 258 
Incentive income
Total revenue from contracts with customers - Asset Co243 258 
Total revenue from contracts with customers$503,349 $257,484 


14. Insurance and reinsurance
The Company completed the acquisition of Cowen Insurance Co on February 26, 2021. (See Note 3). Cowen Insurance Co is an insurance company that reinsures a significant proportion of its portfolio (“Outward Reinsurance”). The Company's wholly owned Luxembourg subsidiary, Hollenfels Re SA ("Hollenfels") provides reinsurance to third party insurance and reinsurance companies (“Inward Reinsurance”). Cowen Insurance Co’s and Hollenfels' share of claims incurred and paid during the periods below, as well as the change in claims outstanding and claims incurred but not reported ("IBNR") during these periods, net of reinsurance, were as follows:
Three Months Ended March 31,
20212020
(dollars in thousands)
Incurred and paid claims
Insurance (net of Outward Reinsurance)$744 $
Inward Reinsurance3,904 4,235 
Total$4,648 $4,235 
Change in claims outstanding and claims IBNR
Insurance (net of Outward Reinsurance)$(136)$
Inward Reinsurance(559)17,293 
Total$(695)$17,293 

Cowen Insurance Co and Hollenfels utilizes several methods to determine its claims IBNR. Cowen Insurance Co and Hollenfels generally employ an estimation methodology whereby historical average claims ratios over a period of up to 10 years are utilized, based on availability of data. In cases where current claims development contradicts historical results, Cowen
44

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Insurance Co and Hollenfels employ a method to average claims ratios derived through different actuarial calculation methods. If an event occurs that may give rise to significant future claims in excess of the amount calculated using the above-mentioned methodologies, the impact of such an event is calculated using existing claims data and actuarial estimation methods to adjust Cowen Insurance Co's and Hollenfels's IBNR provision. During the three months ended March 31, 2021, claims liability and claim adjustment expenses were calculated using the above-mentioned methods consistent with prior years.
Whilst Cowen Insurance Co and Hollenfels typically settles its premiums and claim payments on a quarterly basis, the frequency of claims in the underlying policies is impractical for Cowen Insurance Co and Hollenfels to obtain. Certain contracts Cowen Insurance Co and Hollenfels has written are on a quota-share basis while the rest of the policies provide aggregate loss protection, rendering the collection of information for all underlying contracts impracticable. Cowen Insurance Co and Hollenfels did not discount any of its reserves and did not cede any portion of its exposures during the three months ended March 31, 2021 and 2020.
From time to time, Cowen Insurance Co and Hollenfels may enter into insurance and reinsurance agreements that require it to post collateral of cash or U.S. government bonds to cover certain exposures as defined in the respective insurance and reinsurance agreements. As of March 31, 2021, Hollenfels pledged $120.5 million of collateral towards such reinsurance obligations, of which $106.8 million was cash and $13.7 million was U.S. government bonds. These are the same amounts that had been pledged at December 31, 2020. Hollenfels expects $101.2 million of the cash collateral pledged to be released on September 30, 2023. The remaining cash collateral of $5.6 million and all of the U.S. government bonds are expected to be released periodically between June 30, 2021 and March 31, 2024 in accordance with the terms of the underlying insurance and reinsurance agreements.
15. Share-Based Payments, Deferred Compensation and Employee Ownership Plans
The Company has issued share-based compensation under the 2010 and 2020 Equity and Incentive Plan (the "Equity Plans"). The Equity Plans permit the grant of options, restricted shares, restricted stock units, and other equity-based awards to the Company's employees and directors. Stock options granted generally vest over two to five-year periods and expire seven years from the date of grant. Restricted shares and restricted share units issued, both of which are eligible to accrue dividend equivalents, may be immediately vested or may generally vest over a two-to five-year period. Awards are subject to the risk of forfeiture, inclusive of accrued dividend equivalents. As of March 31, 2021, there were 0.8 million shares available for future issuance under the Equity Plans.
Under the Equity Plans, the Company awarded $34.1 million of deferred cash awards to its employees during the three months ended March 31, 2021. These awards vest over a four-year period and accrue interest at 0.70% per year. As of March 31, 2021, the Company had unrecognized compensation expense related to the Equity Plans' deferred cash awards of $90.5 million.
The Company measures compensation cost for share-based awards according to the equity method. In accordance with the expense recognition provisions of those standards, the Company amortizes unearned compensation associated with share-based awards on a straight-line basis over the vesting period of the option or award, net of estimated forfeitures. In relation to awards under the Equity Plan, the Company recognized compensation expense of $28.2 million and $8.3 million for the three months ended March 31, 2021 and 2020, respectively. The income tax effect recognized for the Equity Plans was a benefit of $10.8 million and $1.8 million for the three months ended March 31, 2021 and 2020, respectively.
Restricted Stock Units Granted to Employees
Restricted shares and restricted stock units are referred to collectively as restricted stock. The following table summarizes the Company's restricted share and restricted stock unit activity for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Nonvested Restricted Class A Common Shares and Class A Common Restricted Stock UnitsWeighted-Average
Grant Date
Fair Value
Nonvested Restricted Class A Common Shares and Class A Common Restricted Stock UnitsWeighted-Average
Grant Date
Fair Value
Beginning balance outstanding5,450,191 $17.56 5,364,486 $16.67 
Granted1,593,941 34.85 2,140,932 17.39 
Vested(291,062)16.11 (640,084)14.63 
Canceled(87,348)14.80 
Forfeited(8,134)20.22 (30,562)15.86 
Ending balance outstanding6,744,936 $21.71 6,747,424 $17.12 

45

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Included in the restricted share and restricted stock unit activity are performance-linked restricted stock units of 1,603,630 which were awarded in March 2016, April 2019, July 2020 and February 2021. Certain of the awards granted have the ability to be cash settled when the attained award exceeds a certain percentage of granted amount. The cash portion of the award has been bifurcated from the equity component and recorded as a compensation payable in the accompanying condensed consolidated statement of financial condition. Of the awards granted, 379,319 have vested and 320,681 have been canceled, as they did not meet the performance criteria, through March 31, 2021. Included in vested shares are 233,333 shares that had an attainable value of 420,000, due to reaching certain performance goals, and were delivered in March 2021. Of this attainable value 350,000 shares were settled in the issuance of restricted stock units and were delivered in March 2021 with the remaining 70,000 shares being settled in cash at the volume weighted average price on settlement date. The remaining awards, included in the outstanding balance as of March 31, 2021, vest between December 2021 and December 2023 and will be earned only to the extent that the Company attains specified market conditions relating to its volume-weighted average share price and total shareholder return in relation to certain benchmark indices and performance goals relating to aggregate net income and average return on shareholder equity. The actual number of RSUs ultimately earned could vary from 0, if performance goals are not met, to as much as 200% of the targeted award. Each RSU is equal to the one share of the Company's Class A common stock. Compensation expense is recognized to the extent that it is probable that the Company will attain the performance goals.
The fair value of restricted stock (excluding certain performance-linked units with market conditions which are valued using the Monte Carlo valuation model) is determined based on the number of shares granted and the quoted price of the Company's common stock on the date of grant.
As of March 31, 2021, there was $118.1 million of unrecognized compensation expense related to the Company's grant of nonvested restricted shares and restricted stock units to employees. Unrecognized compensation expense related to nonvested restricted shares and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 2.13 years.
Restricted Shares and Restricted Stock Units Granted to Non-Employee Board Members
There were 0 restricted stock units awarded or delivered to non-employee board members during the three months ended March 31, 2021 and 2020. As of March 31, 2021 and December 31, 2020, there were 259,536 restricted stock units outstanding for non-employee board members.
Other Share Based Payments
In certain circumstances, the Company grants carried interest in consolidated managing member/general partner subsidiaries to third parties through the grant of equity awards in exchange for professional, advisory and other services. The equity awards are recorded within additional paid in capital in the accompanying condensed consolidated statements of financial condition and professional, advisory and other fees expense in the accompanying condensed consolidated statements of operations based on the fair value of the award granted and expensed over the terms of the award. In addition, the equity awards provide the third parties profit points aligned to the allocated carried interest distributions. Upon vesting of the awards, the third parties' allocation of carried interest is determined by applying an equity ownership model. Accordingly, the Company accrues carried interest allocations based on the fair value of the underlying investments assuming hypothetical liquidation at book value upon vesting as nonredeemable non-controlling interest.
16. Income Taxes
The taxable results of the Company’s U.S. operations are included in the consolidated income tax returns of Cowen, Inc. as well as stand-alone state and local tax returns. The Company has subsidiaries that are resident in foreign countries where tax filings are submitted on a stand‑alone basis. These subsidiaries are subject to tax in their respective countries and the Company is responsible for and, thus, reports all taxes incurred by these subsidiaries. The countries where the Company owns subsidiaries that file tax returns are United Kingdom, Luxembourg, Malta, Gibraltar, Germany, Switzerland, South Africa, Canada and Hong Kong.
The Company calculates its U.S. tax provision using the estimated annual effective tax rate methodology. The tax expense or benefit caused by an unusual or infrequent item is recorded in the quarter in which it occurs. To the extent that information is not available for the Company to fully determine the full year estimated impact of an item of income or tax adjustment, the Company calculates the tax impact of such item discretely. Accordingly, the Company uses the discrete methodology to calculate the income tax provision for its foreign subsidiaries and the tax impact of income attributable to redeemable non-controlling interests in consolidated subsidiaries and investment funds. Based on these methodologies, the Company’s effective income tax rate was 26.36% for the three months ended March 31, 2021. During the three months ended March 31, 2021, the items whose tax impact were recorded discretely related primarily to foreign taxes, as well as stock compensation. The Company's effective tax rate was 1.60% for the three months ended March 31, 2020.
46

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
For the three months ended March 31, 2021, the effective tax rate differs from the statutory rate of 21% primarily due to income attributable to non-controlling interests in consolidated subsidiaries and investment funds, global intangible low-taxes income, stock compensation, as well as other nondeductible expenses. For the three months ended March 31, 2020, the effective tax rate differs from the statutory rate of 21% primarily due to losses attributable to non-controlling interests in consolidated subsidiaries and funds, foreign taxes, as well as other nondeductible expenses.
As a result of the enactment of the American Rescue Plan Act signed on March 11, 2021, the Company is required to assess the tax impact of the Act in the quarter the law was enacted. Based on management analysis, there was no material impact on the Company's financial statements as of March 31, 2021.
The Company maintained an uncertain tax position liability of $0.3 million as of March 31, 2021 and December 31, 2020 related to New York State tax matters.
The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating or capital loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that, in management's view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. As of March 31, 2021, the Company recorded a valuation allowance against deferred tax assets related to its foreign tax credits and foreign net operating losses.
The Company is subject to examination by the United States Internal Revenue Service as well as state, local and foreign tax authorities in jurisdictions where the Company has significant business operations, such as New York, United Kingdom, Luxembourg, Malta, Germany and Switzerland. Currently, the Company is under audit by New York State for the 2013 to 2017 tax years. Management is not expecting a material tax liability from these audits.
The Company continues to permanently reinvest the capital and accumulated earnings of its subsidiaries in the United Kingdom, Malta, Germany, Switzerland, Canada, South Africa and Hong Kong.
17. Commitments and Contingencies
Operating Lease Obligations
The Company has entered into leases for real estate and other facilities. These leases contain rent escalation clauses and options to extend the lease term. The Company does not include renewal options in the lease term for calculating the Company's lease liability as the renewal options allow the Company operational flexibility and the Company is not reasonably certain to exercise these renewal options at this time. The Company records the expenses related to occupancy and equipment on a straight-line basis over the lease term and these expenses are included in occupancy and equipment expense and client services and business development expense in the accompanying condensed consolidated statements of operations.
For the three months ended March 31, 2021 and 2020, quantitative information regarding the Company's operating lease obligations reflected in the accompanying condensed consolidated statements of operations were as follows:
Three Months Ended March 31,
20212020
(dollars in thousands)
Lease cost
Operating lease cost$5,770 $5,685 
Short-term lease cost33 146 
Variable lease cost906 788 
Sublease income(160)(216)
Total lease costs$6,549 $6,403 

47

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes the supplemental cash flow information and certain other information related to operating leases for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
20212020
(dollars in thousands)
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$6,748 $8,578 
Weighted average remaining lease term - operating leases (in years)4.565.11
Weighted average discount rate - operating leases4.10 %4.14 %
As of March 31, 2021, maturities of the outstanding operating lease liabilities for the Company were as follows:
Equipment Leases (operating)Real Estate and Other Facility Rental (a) (b)
 (dollars in thousands)
2021$207 $19,065 
2022150 22,612 
202311 19,123 
202415,883 
20255,446 
Thereafter7,862 
Total operating leases368 89,991 
Less discount21 8,927 
Less short-term leases11 
Total lease liability$347 $81,053 
(a)The Company has entered into various agreements to sublease certain of its premises.
(b)During the three months ended March 31, 2021, the Company recognized an increase of $5.3 million of operating right-of-use assets and leases liabilities related to for facility leases.
See Note 18 for further information on the finance lease minimum payments.
Other Commitments
As of March 31, 2021, future minimum annual service payments for the Company were as follows:
Service Payments
 (dollars in thousands)
2021$17,854 
202216,739 
20238,934 
20245,254 
20253,366 
Thereafter10,594 
Total service payment commitments$62,741 






48

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Unfunded Commitments
The following table summarizes unfunded commitments as of March 31, 2021:
EntityUnfunded CommitmentsCommitment Term
(dollars in thousands)
HealthCare Royalty Partners funds (a)$7,333 3.80 years
Eclipse Ventures Fund I, L.P.$28 3.80 years
Eclipse Fund II, L.P.$95 4.80 years
Eclipse Continuity Fund I, L.P.$41 5.80 years
Cowen Healthcare Investments III LP$4,126 5.80 years
Cowen Sustainable Investments I LP$15,709 8.80 years
(a) The Company is a limited partner of the HealthCare Royalty Partners funds (which are managed by Healthcare Royalty Management) and is a member of HealthCare Royalty Partners General Partners. The Company will make its pro-rata investment in the HealthCare Royalty Partners funds along with the other limited partners.
Litigation
In the ordinary course of business, the Company and its affiliates, subsidiaries and current and former officers, directors and employees (the "Company and Related Parties") are named as defendants in, or as parties to, various legal actions and proceedings. Certain of these actions and proceedings assert claims or seek relief in connection with alleged violations of securities, banking, anti-fraud, anti-money laundering, employment and other statutory and common laws. Certain of these actual or threatened legal actions and proceedings include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief.
In the ordinary course of business, the Company and Related Parties are also subject to governmental and regulatory examinations, information gathering requests (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Certain of the Company's affiliates and subsidiaries are registered broker-dealers, futures commission merchants, investment advisers or other regulated entities and, in those capacities, are subject to regulation by various U.S., state and foreign securities, commodity futures and other regulators. In connection with formal and informal inquiries by these regulators, the Company receives requests and orders seeking documents and other information in connection with various aspects of the Company's regulated activities.
Due to the global scope of the Company's operations, and its presence in countries around the world, the Company and Related Parties may be subject to litigation, governmental and regulatory examinations, information gathering requests, investigations and proceedings (both formal and informal), in multiple jurisdictions with legal and regulatory regimes that may differ substantially, and present substantially different risks, from those to which the Company and Related Parties are subject in the United States.
The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best interests of the Company and its shareholders, and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter.
In accordance with US GAAP, the Company establishes reserves for contingencies when the Company believes that it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. The Company discloses a contingency if there is at least a reasonable possibility that a loss may have been incurred and there is no reserve for the loss because the conditions above are not met. The Company's disclosure includes an estimate of the reasonably possible loss or range of loss for those matters, for which an estimate can be made. Neither a reserve nor disclosure is required for losses that are deemed remote.
The Company appropriately reserves for certain matters where, in the opinion of management, the likelihood of liability is probable and the extent of such liability is reasonably estimable. Such amounts are included within accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated statements of financial condition. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel, the Company's defenses and its experience in similar cases or proceedings as well as its assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. The Company may increase or decrease its legal reserves in the future, on a matter-by-matter basis, to account for developments in such matters. The Company accrues legal fees as incurred.


49

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
18. Convertible Debt and Notes Payable
As of March 31, 2021 and December 31, 2020, the Company's outstanding debt was as follows:
 As of March 31, 2021As of December 31, 2020
 (dollars in thousands)
Convertible debt$81,682 $80,808 
Notes payable173,656 307,653 
Term loan291,303 
Other notes payable74,982 72,505 
Finance lease obligations2,578 2,909 
$624,201 $463,875 
Convertible Debt
December 2022 Convertible Notes
The Company, on December 14, 2017, issued $135.0 million aggregate principal amount of 3.00% convertible senior notes due December 2022 (the “December 2022 Convertible Notes”). The December 2022 Convertible Notes are due on December 15, 2022 unless earlier repurchased by the Company or converted by the holder in accordance with their terms prior to such date. The interest on the December 2022 Convertible Notes is payable semi-annually on December 15 and June 15 of each year. The December 2022 Convertible Notes are senior unsecured obligations of Cowen. The December 2022 Convertible Notes were issued with an initial conversion price of $17.375 per share of Cowen's Class A common stock.
On June 26, 2018, the Company received shareholder approval for the Company to settle the December 2022 Convertible Notes entirely in Class A common stock. Upon receiving shareholder approval, the Company reclassified the separately recognized conversion option from a derivative liability to equity. Pursuant to the indenture governing the December 2022 Convertible Notes, conversions of the December 2022 Convertible Notes will be settled by the delivery and/or payment, as the case may be, of Cowen’s Class A Common Stock, cash, or a combination thereof, at the Company's election.
The Company recognized the embedded cash conversion option at issuance date fair value, which also represents the initial unamortized discount on the December 2022 Convertible Notes of $23.4 million and is shown net in convertible debt in the accompanying condensed consolidated statements of financial condition. Amortization on the discount, included within interest and dividends expense in the accompanying condensed consolidated statements of operations is $0.8 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively, based on an effective interest rate of 7.13%. The Company capitalized the debt issuance costs in the amount of $2.2 million, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the December 2022 Convertible Notes in interest and dividends expense in the accompanying condensed consolidated statements of operations. The Company recorded interest expense of $0.7 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively.
During December 2020, the Company repurchased and extinguished $46.9 million of the outstanding principal amount of the December 2022 Convertible Notes for cash consideration of $70.5 million. In conjunction with the partial extinguishment of the December 2022 Convertible Notes, the Company accelerated the pro rata unamortized discount of $3.6 million and capitalized debt issuance costs of $0.4 million. The Company allocated $29.6 million of the cash consideration paid to the extinguishment of the equity component of the December 2022 Convertible Notes. The Company recognized $2.7 million of gain on debt extinguishment. As of March 31, 2021, the outstanding principal amount of the December 2022 Convertible Notes was $88.1 million.
On March 24, 2021, the Company issued a redemption notice announcing that the Company will redeem all of the December 2022 Convertible Notes. The redemption date is June 24, 2021 ("Redemption Date"). The redemption price is 100.00% of the principal amount thereof plus accrued and unpaid interest on such principal amount, to, but not including the Redemption Date of the December 2022 Convertible Notes. As a result of the Company’s call for redemption of the December 2022 Convertible Notes, the December 2022 Convertible Notes are convertible, at the option of the holder at any time prior to June 22, 2021, the second business day prior to the December 2022 Convertible Notes' Redemption Date. The settlement method for the December 2022 Convertible Notes surrendered for conversion will be cash settlement up to the principal amount of the December 2022 Convertible Notes surrendered for conversion and share settlement through the delivery of shares of the Company’s Class A common stock for the remainder of the conversion obligation, if any, in excess of the principal amount. The conversion rate of the December 2022 Convertible Notes on March 24, 2021 was 58.3324 shares of the Company’s Class A common stock per $1,000 principal amount of December 2022 Convertible Notes converted.(see Note 19)
50

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Notes Payable
May 2024 Notes
On May 7, 2019, the Company completed its private placement of $53.0 million aggregate principal amount of 7.25% senior notes due May 2024 (the "May 2024 Notes") with certain institutional investors. On September 30, 2019, the Company issued an additional $25.0 million of the same series of notes. The additional May 2024 Notes were purchased at a premium of $0.5 million, which is shown net in notes payable in the accompanying condensed consolidated statement of financial condition. To date the May 2024 Notes have maintained their initial private rating, and the interest rate has remained unchanged. Interest on the May 2024 Notes is payable semi-annually in arrears on May 6 and November 6. The Company recorded interest expense of $1.4 million and $1.4 million for the three months ended March 31, 2021 and 2020, respectively. The Company capitalized debt issuance costs of approximately $1.5 million in May 2019 and $0.6 million in September 2019, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the May 2024 Notes in interest and dividends expense in the accompanying condensed consolidated statements of operations.
June 2033 Notes
On June 11, 2018, the Company completed its public offering of $90.0 million of 7.75% senior notes due June 2033 (the "June 2033 Notes") and subsequently the underwriters exercised in full their option to purchase an additional $10.0 million principal amount of the June 2033 Notes. Interest on the June 2033 Notes is payable quarterly in arrears on March 15, June 15, September 15 and December 15. The Company recorded interest expense of $1.9 million and $1.9 million for the three months ended March 31, 2021 and 2020, respectively. The Company capitalized debt issuance costs of approximately $3.6 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the June 2033 Notes in interest and dividends expense in the accompanying condensed consolidated statements of operations.
December 2027 Notes
On December 8, 2017, the Company completed its public offering of $120.0 million of 7.35% senior notes due December 2027 (the "December 2027 Notes") and subsequently the underwriters exercised in full their option to purchase an additional $18.0 million principal amount of the December 2027 Notes. Interest on the December 2027 Notes is payable quarterly in arrears on March 15, June 15, September 15 and December 15. The Company recorded interest expense of $2.5 million for the three months ended March 31, 2021 and 2020, respectively. The Company capitalized debt issuance costs of approximately $5.0 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the December 2027 Notes in interest and dividends expense in the accompanying condensed consolidated statements of operations. The net proceeds of the offering, after deducting the underwriting discount and estimated offering expenses payable by the Company were used to redeem all of its 8.25% senior notes due October 2021 and for general corporate purposes.
On March 24, 2021, the Company delivered payment of and discharged all $138.0 million outstanding aggregate principal of the December 2027 Notes plus accrued and unpaid interest through the effective redemption date of April 23, 2021. In conjunction with the extinguishment of the December 2027 Notes , the Company accelerated the pro-rata capitalized debt issuance costs. During the three months ended March 31, 2021, the Company recognized $4.4 million of loss on debt extinguishment.
Term Loan
March 2028 Term Loan
On March 24, 2021, the Company borrowed $300 million of first lien term loan due March 24, 2028 (the “March 2028 Term Loan”). The interest on the March 2028 Term Loan is payable at the option of the Company on a monthly, quarterly or bi-annual rate equal to London Inter-bank Offered Rate ("LIBOR") (of no less than the floor of 0.75%) plus a margin of 3.25%. The Company is required to pay 1.00% per annum of the original principal amount of the March 2028 Term Loan. The obligations of the Company for the March 2028 Term Loan are guaranteed by certain of the Company’s wholly-owned domestic subsidiaries (excluding its broker-dealer subsidiaries) (the “Guarantors”) and secured by substantially all of the assets of the Company and the Guarantors, subject in each case to certain customary exceptions. The terms of the March 2028 Term Loan contain customary affirmative and negative covenants, including standard leverage and financial incurrence covenants. Proceeds from the term loan were or will be used to (i) satisfy and discharge and redeem the Company’s 2027 Senior Notes, (ii) redeem the Company’s December 2022 Convertible Notes that remain outstanding as of March 31, 2021 and pay the cash settlement amount in connection with the conversion of December 2022 Convertible Notes prior to that redemption date, and (iii) for the payment of fees, commissions, premiums, expenses and other transaction costs (including original issue discount or upfront fees) payable in connection with the transactions related thereto. As of March 31, 2021, the outstanding principal amount of the March 2028 Term Loan was $299.3 million.
51

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Interest expense for the March 2028 Term Loan for the three months ended March 31, 2021 was $0.2 million, based on an effective interest rate of 4.46%. The Company capitalized debt issuance costs of approximately $6.4 million and initial unamortized discount of $1.5 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the March 2028 Term loan in interest and dividends expense in the accompanying condensed consolidated statements of operations.
June 2020 Term Loan
On June 30, 2017, a subsidiary of the Company borrowed $28.2 million to fund general corporate purposes. In July 2019, the subsidiary of the Company borrowed separately, from the same lender, $4.0 million to fund general corporate purposes. Each loan was secured by the value of the Company's limited partnership interests in two affiliated investment funds. The Company had provided a guarantee for these loans. Both loans had an effective interest rate of LIBOR plus 3.75% with a lump sum payment of the entire combined principal amount due (as amended) on June 26, 2020 when they were both fully repaid. The Company recorded interest expense of $0.4 million for the three months ended March 31, 2020.
Other Notes Payable
During January 2021, the Company borrowed $3.0 million to fund insurance premium payments. This note had an effective interest rate of 2.01% and was due in December 2021, with monthly payment requirements of $0.3 million. As of March 31, 2021, the outstanding balance on this note was $2.4 million. Interest expense for the three months ended March 31, 2021 was insignificant.
During November 2019, the Company borrowed $2.6 million to fund general corporate capital expenditures. This note had an effective interest rate of 6% and is due in November 2024, with monthly payment requirements of $0.1 million. As of March 31, 2021, the outstanding balance on this note was $1.9 million. Interest expense for the three months ended March 31, 2021 and 2020 was insignificant.
On September 30, 2020, the Company borrowed $72.0 million from Purple Protected Asset S-81 ("PPA S-81"), a Luxembourg entity unrelated to Cowen. The loan is payable on September 30, 2023, had an initial interest rate of 1.4 times the Secured Overnight Financing Rate ("SOFR") plus 6.07% until December 31, 2020 and 1.4 times the SOFR plus 5.8% thereafter with quarterly interest payments. The loan obligation, as well as a loan issued by The Military Mutual Ltd (a United Kingdom company unrelated to Cowen) with principal of $28.4 million that was sold by Hollenfels to PPA S-81 at fair value for no gain or loss on September 30, 2020, are fully cash collateralized through a reinsurance policy provided by Hollenfels which is reflected in cash collateral pledged in the condensed consolidated statements of financial condition as of December 31, 2020 (see Notes 4 and 14). The Company capitalized debt issuance costs of approximately $1.7 million which is a direct deduction from the carrying value of the loan and will be amortized over the life of the loan in interest and dividends expense shown in the accompanying condensed consolidated statements of operations. The Company recorded interest expense of $1.1 million for the three months ended March 31, 2021 related to its loan payable to PPA S-81.
Spike Line
Pursuant to an amendment in May 2020, Cowen and Company replaced Cowen Execution Services LLC ("Cowen Execution") as the borrower and accepted, reaffirmed and assumed all of Cowen Execution’s rights, duties, obligations and liabilities under the spike line facility and the related loan documents. In August 2020, Cowen and Company renewed a one-year committed spike line facility to cover short term increases in National Securities Clearing Corporation margin deposit requirements. The spike line facility has a capacity of $70 million. This facility has (i) an effective interest rate equal to the Federal Funds rate plus 2.50% on any money drawn from the liquidity facility and (ii) a commitment or unused line fee that is 50 basis points on the undrawn amount. All amounts outstanding under this facility were fully repaid during the second quarter of 2020. Interest expense for the three months ended March 31, 2021 was $0.1 million.
Revolving Credit Facility
In December 2019, the Company entered into a two-year committed corporate credit facility with a capacity of $25.0 million. This credit facility has (i) an effective interest rate equal to LIBOR plus 3.25% on any money drawn from the credit facility and (ii) a commitment or unused line fee that is 50 basis points on the undrawn amount. All amounts outstanding under this credit facility were fully repaid during the second quarter of 2020. Interest expense for the three months ended March 31, 2020 was $0.2 million.
52

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Finance Lease Obligations
The Company has entered into various finance leases for computer equipment. These finance lease obligations are included in notes payable and other debt in the accompanying condensed consolidated statements of financial condition.
For the three months ended March 31, 2021 and 2020, quantitative information regarding the Company's finance lease obligations reflected in the accompanying condensed consolidated statements of operations, the supplemental cash flow information and certain other information related to finance leases were as follows:
Three Months Ended March 31,
20212020
(dollars in thousands)
Lease cost
Finance lease cost:
    Amortization of finance lease right-of-use assets$309 $308 
    Interest on lease liabilities$34 $49 
Other information
Cash paid for amounts included in the measurement of lease liabilities:
    Operating cash flows from finance leases$34 $49 
    Financing cash flows from finance leases$332 $314 
Weighted average remaining lease term - operating leases (in years)2.012.97
Weighted average discount rate - operating leases4.89 %4.88 %
Annual scheduled maturities of debt and minimum payments (of principal and interest) for all debt outstanding as of March 31, 2021, are as follows:
Convertible DebtNotes PayableTerm LoanOther Notes PayableFinance Lease
Obligation
 (dollars in thousands)
2021$2,644 $11,468 $11,205 $7,207 $1,117 
202290,763 13,405 14,835 593 1,168 
202313,405 14,715 72,593 411 
202488,578 14,595 543 11 
20257,750 14,475 
Thereafter158,125 310,163 
Subtotal93,407 292,731 379,988 80,936 2,707 
Less (a)(11,725)(119,075)(88,685)(5,954)(129)
Total$81,682 $173,656 $291,303 $74,982 $2,578 
(a)Amount necessary to reduce net minimum payments to present value calculated at the Company's implicit rate at inception. This amount also includes capitalized debt costs and the unamortized discount on the Company's convertible debt.
Letters of Credit
As of March 31, 2021, the Company has six irrevocable letters of credit, related to leased office space, for which there is cash collateral pledged, which the Company pays a fee on the stated amount of the letter of credit. The Company also has pledged cash collateral for reinsurance agreements (See Note 4).
To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of March 31, 2021 and December 31, 2020, there were no amounts due related to these letters of credit.
53

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
19. Stockholder's Equity
The Company is authorized to issue 125,000,000 shares of common stock, which shall consist of 62,500,000 shares of Class A common stock, par value $0.01 per share, and 62,500,000 shares of Class B common stock, par value $0.01 per share. The Company is also authorized to issue 10,000,000 shares of preferred stock, par value $0.01 per share. Subject to the rights of holders of any outstanding preferred stock, the number of authorized shares of common stock or preferred stock may be increased or decreased by the affirmative vote of the holders of a majority of the shares entitled to vote on such matters, but in no instance can the number of authorized shares be reduced below the number of shares then outstanding.
Common stock
The certificate of incorporation of the Company provides for 2 classes of common stock, and for the conversion of each class into the other, to provide a mechanism by which holders of Class A common stock of the Company who may be limited in the amount of voting common stock of the Company they can hold pursuant to federal, state or foreign bank laws, to convert their shares into non-voting Class B common stock to prevent being in violation of such laws. Each holder of Class A common stock is entitled to one vote per share in connection with the election of directors and on all other matters submitted to a stockholder vote, provided, however, that, except as otherwise required by law, holders of Class A common stock are not entitled to vote on any amendment to the Company's amended and restated certificate of incorporation that relates solely to the terms of one or more outstanding series of the Company's preferred stock, if holders of the preferred stock series are entitled to vote on the amendment under the Company's certificate of incorporation or Delaware law. No holder of Class A common stock may accumulate votes in voting for directors of the Company.
No holder of Class B common stock is entitled to vote except as otherwise provided by law, provided however that the Company must obtain the consent of a majority of the holders of Class B common stock to effect any amendment, alteration or repeal of any provision of the Company's amended and restated certificate of incorporation or amended and restated by-laws that would adversely affect the voting powers, preferences or rights of holders of Class B common stock. Except as otherwise provided by law, Class B common stock shares will not be counted as shares held by stockholders for purposes of determining whether a vote or consent has been approved or given by the requisite percentage of shares.
Each share of Class A common stock is convertible at the option of the holder and at no cost into one share of Class B common stock, and each share of Class B common stock is convertible at the option of the holder and at no cost into one share of Class A common stock. The conversion ratios will be adjusted proportionally to reflect any stock split, stock dividend, merger, reorganization, recapitalization or other change in the Class A common stock and Class B common stock. Upon conversion, converted shares resume the status of authorized and unissued shares.
Subject to the preferences of the holders of any of the Company's preferred stock that may be outstanding from time to time, each share of Class A common stock and Class B common stock will have an equal and ratable right to receive dividends and other distributions in cash, property or shares of stock as may be declared by the Company's board of directors out of assets or funds legally available for the payment of dividends and other distributions.
In the event of the liquidation, dissolution or winding up of the Company, subject to the preferences of the holders of any preferred stock of the Company that may be outstanding from time to time, holders of Class A common stock and Class B common stock will be entitled to share equally and ratably in the assets available for distribution to the Company's stockholders. There are no redemption or sinking fund provisions applicable to the Class A or the Class B common stock.
Preferred Stock
The Company's amended and restated certificate of incorporation permits the Company to issue up to 10,000,000 shares of preferred stock in one or more series with such designations, titles, voting powers, preferences and rights and such qualifications, limitations and restrictions as may be fixed by the board of directors of the Company without any further action by the Company's stockholders. The Company's board of directors may increase or decrease the number of shares of any series of preferred stock following the issuance of that series of preferred stock, but in no instance can the number of shares of a series of preferred stock be reduced below the number of shares of the series then outstanding.
Preferred Stock and Purchase of Capped Call Option
On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's 5.625% Series A cumulative perpetual convertible preferred stock ("Series A Convertible Preferred Stock") that provided $117.2 million of proceeds, net of underwriting fees and issuance costs of $3.6 million. Each share of the Series A Convertible Preferred Stock is entitled to dividends at a rate of 5.625% per annum, which will be payable, when and if declared by the board of directors of the Company, quarterly, in arrears, on February 15, May 15, August 15 and November 15 of each year. The Company may, at its option, pay
54

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
dividends in cash, common stock or a combination thereof. The Company declared and accrued a cash dividend in respect of the Series A Convertible Preferred Stock of $1.7 million and $1.7 million for the three months ended March 31, 2021 and 2020, respectively.
Each share of Series A Convertible Preferred Stock is non-voting and has a liquidity preference over the Company's Class A common stock and ranks senior to all classes or series of the Company's Class A common stock, but junior to all of the Company's existing and future indebtedness with respect to dividend rights and rights upon the Company's involuntary liquidation, dissolution or winding down.
Each share of Series A Convertible Preferred Stock is convertible, at the option of the holder, into a number of shares of the Company's Class A common stock equal to the liquidation preference of $1,000 divided by the conversion rate. The initial conversion rate (subsequent to the December 5, 2016 reverse stock split) is 38.0619 shares (which equates to $26.27 per share) of the Company's Class A common stock for each share of the Series A Convertible Preferred Stock. At any time on or after May 20, 2020, when the Company's capped call option expired, the Company may elect to convert all outstanding shares of the Series A Convertible Preferred Stock into shares of the Company's Class A common stock, cash or a combination thereof, at the Company's election, in each case, based on the then-applicable conversion rate (which at December 31, 2020 was 38.488), if the last reported sale price of the Company's Class A common stock equals or exceeds 150% of the then-current conversion price on at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days (including on the last trading day of such period) immediately prior to such election. At the time of conversion, the conversion rate may be adjusted based on certain events, including but not limited to the issuance of cash dividends or Class A common stock as dividends to the Company's Class A common shareholders or a share split or combination. The Company has the intent and ability to settle the preferred shares in cash and, as a result, the preferred shares do not have an impact on the Company's diluted earnings per share calculation (See Note 21).
Embedded Cash Conversion Option on the December 2022 Convertible Notes
Upon issuance of the December 2022 Convertible Notes (see Note 18), the Company recognized the embedded cash conversion option at fair value of $23.4 million which was valued as of June 26, 2018 at $29.0 million. On June 26, 2018, the Company received shareholder approval for the Company to settle the December 2022 Convertible Notes entirely in Class A common stock. Upon receiving shareholder approval, the Company reclassified the separately recognized conversion option from a derivative liability to equity. The Company allocated $29.6 million of the cash consideration paid on the December 2020 partial extinguishment of the Convertible Notes (see Note 18) to this equity component.
Cash Dividends to Common Stockholders
During the first quarter of 2020, the Company began the declaration of a quarterly cash dividend payable on its common stock. During March 2021, the Company's Board of Directors declared a cash dividend of $0.08 per share of Class A common stock. Dividends are payable on all outstanding shares of Class A common stock and on granted but unvested shares of Class A common stock under the Equity Plans on the date of record (See Note 15). During the three months ended March 31, 2021, the Company paid $2.3 million of cash dividends to its holders of Class A common stock.
Treasury Stock
Treasury stock of $373.8 million as of March 31, 2021, compared to $346.9 million as of December 31, 2020, resulted from $6.2 million acquired through repurchases of shares to cover employee minimum tax withholding obligations related to stock compensation vesting events under the Equity Plans or other similar transactions, $0.03 million received from an escrow account established to satisfy the Company's indemnification claims arising under the terms of the purchase agreement entered into in connection with the Company's acquisition of Convergex Group, LLC and $20.6 million purchased in connection with a share repurchase program.
The following represents the activity relating to the treasury stock held by the Company during the three months ended March 31, 2021:
Treasury Stock SharesCost
(dollars in thousands)
Average Cost per Share
Balance outstanding at December 31, 202022,619,863 $346,870 $15.33 
Shares purchased for minimum tax withholding under the 2010 and 2020 Equity Plans or other similar transactions148,752 6,246 41.99 
Shares of stock received in respect of indemnification claims1,155 29 25.33 
Purchase of treasury stock605,703 20,629 34.06 
Balance outstanding at March 31, 202123,375,473 $373,774 $15.99 

55

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
20. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income includes the after tax change in Other revenues in the accompanying condensed consolidated statement of operations. During the periods presented, the Company did not have material reclassifications out of other comprehensive income.
Three Months Ended March 31,
20212020
(dollars in thousands)
Beginning balance$(7)$(5)
Foreign currency translation
Ending balance$(3)$(5)

21. Earnings Per Share
Basic earnings per share is calculated by dividing net income attributable to the Company's common stockholders by the weighted average number of shares of Class A common stock outstanding for the period. As of March 31, 2021, there were 26,852,331 shares of Class A common stock outstanding. As of March 31, 2021, the Company has included 259,536 fully vested, unissued restricted stock units and restricted shares in its calculation of basic earnings per share. As of December 31, 2020, there were 26,845,628 shares of Class A common stock outstanding. As of December 31, 2020, the Company has included 334,230 fully vested, unissued restricted stock units in its calculation of basic earnings per share.
Diluted earnings per common share are calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive items. The Company uses the treasury stock method to reflect the potential dilutive effect of the unvested restricted shares, restricted stock units and, during the first quarter of 2021, the remainder of the conversion obligation in excess of the principal amount of the December 2022 Convertible Notes which will be share settled. (see Note 18) In calculating the number of dilutive shares outstanding, the shares of common stock underlying unvested restricted shares and restricted stock units are assumed to have been delivered, and options (including the conversion option of the December 2022 Convertible Notes) and warrants are assumed to have been exercised, for the entire period being presented. The number of performance-linked unvested restricted stock units that are included in the calculation are at the amount that could be earned using current payout rates. The assumed proceeds from the assumed vesting, delivery and exercising were calculated as the amount of compensation cost attributed to future services and not yet recognized.
The Company previously concluded that it had the intent and ability to settle the December 2022 Convertible Notes in cash and, as a result, the convertible notes did not have an impact on the Company's diluted earnings per share calculation. On March 24, 2021, the Company issued a redemption notice announcing that the Company will redeem all of the December 2022 Convertible Notes (See Note 18). As a result of the Company’s call for redemption of the December 2022 Convertible Notes, they are convertible, at the option of the holder at any time prior to June 22, 2021, the second business day prior to the 2022 Convertible Notes' Redemption Date. The settlement method for the December 2022 Convertible Notes surrendered for conversion will be cash settlement up to the principal amount of the December 2022 Convertible Notes surrendered for conversion and share settlement through the delivery of shares of the Company’s Class A common stock for the remainder of the conversion obligation, if any, in excess of the principal amount. The conversion rate of the December 2022 Convertible Notes on March 24, 2021 was 58.3324 shares of the Company’s Class A common stock per $1,000 principal amount of December 2022 Convertible Notes converted. The Company has applied the if-converted method to the portion of the December 2022 notes above the principal amount that will be settled in shares upon a conversion.
The Company can elect to settle the Series A Convertible Preferred Stock in shares, cash, or a combination of both. The Company's intent is to settle in cash and, based on current and projected liquidity needs, the Company has the ability to do so.
56

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The computation of earnings per share is as follows:
 Three Months Ended March 31,
 20212020
 (dollars and share data in thousands, except per share data)
Net income (loss)$152,066 (72,111)
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds4,562 (62,188)
Net income (loss) attributable to Cowen Inc.147,504 (9,923)
Preferred stock dividends1,698 1,698 
Net income (loss) attributable to Cowen Inc. common stockholders$145,806 $(11,621)
Shares for basic and diluted calculations: 
Weighted average shares used in basic computation27,359 28,598 
Performance based restricted stock445 
December 2022 Convertible Notes2,659 
Restricted stock3,102 
Weighted average shares used in diluted computation33,565 28,598 
Earnings (loss) per share: 
Basic$5.33 $(0.41)
Diluted$4.34 $(0.41)

22. Segment Reporting
The Company has 2 reportable business segments: Op Co and Asset Co. The Op Co segment consists of Cowen Investment Management ("CIM"), Investment Banking, Markets and Research. The Asset Co segment consists of the Company's private investments, private real estate investments and other legacy investment strategies.
Segment Measures
The measure of profit or loss for these segments is Economic Income (Loss), which management uses to evaluate the financial performance of and make operating decisions for the segments including determining appropriate compensation levels. Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors.
In general, Economic Income (Loss) is an after tax measure, which excludes the impact of deferred taxes and (i) includes management reclassifications which the Company believes provides additional insight into the performance of the Company’s core businesses and divisions (ii) eliminates the impact of consolidation for Consolidated Funds and (iii) excludes (1) goodwill and certain other impairments (2) certain other transaction-related adjustments and/or reorganization expenses and (3) certain costs associated with debt.
The Company does not disclose total asset information for its business segments as the information is not reviewed by the Chief Operating Decision Maker ("CODM"). The Op Co and Asset Co segments do not conduct inter-segment transactions.
The following table sets forth operating results for the Company's consolidated US GAAP net income (loss) and related reclassifications and adjustments necessary to reconcile to the Company's Economic Income (Loss) measure which represents the Company's Op Co and Asset Co segments' results:
57

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

 Three Months Ended March 31,
 20212020
 (dollars in thousands)
Economic Income
Op Co143,858 3,650 
Asset Co(1,476)(16,229)
Adjustments made to arrive at Income (loss) before income taxes
Non-controlling Interest4,562 (62,188)
Preferred stock dividends1,698 1,698 
Amortization of (discount)/premium on convertible debt(776)(1,110)
Acquisition related amounts(238)
Contingent liability adjustments6,798 895 
Debt extinguishment gain (loss)(4,538)
Bargain purchase gain3,855 
Net Income tax effect(1,677)1,173 
Net income (loss)152,066 (72,111)
Economic Income (Loss) information provided and reviewed by the CODM includes (i) non-interest revenue, (ii) interest revenue, (iii) interest expense, (iv) depreciation and amortization expense and (v) income taxes (subsequent to 2020 after all available net operating losses were utilized) presented on an Economic Income (Loss) basis by Segment. The following table sets forth the included segment information on a US GAAP basis with reconciliations to consolidated amounts.
58

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
 Three Months Ended March 31,
 20212020
 (dollars in thousands)
Op Co
     Non-Interest Revenue704,682 173,123 
     Interest Revenue51,104 33,666 
     Interest Revenue, Consolidated funds577 
           Total Revenues755,786 207,366 
     Interest Expense53,803 33,639 
     Interest Expense, Consolidated funds1,061 
     Depreciation and Amortization4,349 5,436 
     Income Taxes55,085 — 
Asset Co
     Non-Interest Revenue(1,668)(10,695)
     Interest Revenue203 50 
     Interest Revenue, Consolidated funds
           Total Revenues(1,463)(10,643)
     Interest Expense1,275 1,689 
     Interest Expense, Consolidated funds
     Depreciation and Amortization
     Income Taxes(657)— 
Total Segment
     Non-Interest Revenue *703,014 162,428 
     Interest Revenue51,307 33,716 
     Interest Revenue, Consolidated funds579 
           Total Revenues754,323 196,723 
Interest and Dividend Expense (includes dividend expense of $2.6 million, and $3.5 million for the three months ended March 31, 2021 and 2020, respectively)57,641 38,792 
Interest and Dividend Expense, Consolidated funds (includes dividend expense of $0.2 million for the three months ended March 31, 2020)1,252 
Depreciation and Amortization4,354 5,442 
Income Taxes54,428 — 
* Includes dividend revenue of $8.1 million and $8.3 million for the three months ended March 31, 2021 and 2020, respectively. In addition, includes dividend revenue, consolidated funds, of $2.6 million and $3.5 million for the three months ended March 31, 2021 and 2020, respectively.
23. Regulatory Requirements
As registered broker-dealers, Cowen and Company, ATM Execution, Cowen Prime and Westminster are subject to the SEC's Uniform Net Capital Rule 15c3-1 ("SEC Rule 15c3-1"), which requires the maintenance of minimum net capital. Each registered broker-dealer has elected to compute net capital under the alternative method permitted by that rule. Under the alternative method, Cowen and Company's minimum net capital requirement, as defined in (a)(4) of SEC Rule 15c3-1, is equal to the greater of $1.0 million or 2% of aggregate debits arising from customer transactions. ATM Execution, Cowen Prime and Westminster are required to maintain minimum net capital, as defined in (a)(1)(ii) of SEC Rule 15c3-1, equal to the greater of $250,000 or 2% of aggregate debits arising from customer transactions. Advances to affiliates, repayment of borrowings, distributions, dividend payments, and other equity withdrawals are subject to certain notification and other provisions of SEC Rule 15c3-1 and other regulatory bodies. Cowen Prime is registered with the SEC as an investment advisor under Advisers Act.
Cowen Prime is also subject to Commodity Futures Trading Commission ("CFTC") Regulation 1.17 ("Regulation 1.17"). Regulation 1.17 requires net capital equal to or in excess of $45,000 or the amount of net capital required by SEC Rule 15c3-1, whichever is greater. Cowen and Company is also subject to Options Clearing Corporation ("OCC") Rule 302. OCC Rule 302 requires maintenance of net capital equal to the greater of $2.0 million or 2% of aggregate debit items. At March 31, 2021, Cowen and Company had $325.9 million of net capital in excess of this minimum requirement.
Cowen International Ltd and Cowen Execution Ltd are subject to the capital requirements of the U.K. Financial Conduct Authority ("FCA"), as defined, and must exceed the minimum capital requirement set forth by the FCA.
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Cowen Asia, a previously established entity, was re-registered with regulatory approval on May 17, 2019. Cowen Asia is subject to the financial resources requirements of the Securities and Futures Commission ("SFC") of Hong Kong. Financial Resources must exceed the Total Financial Resources requirement of the SFC.
As of March 31, 2021, these regulated broker-dealers had regulatory net capital or financial resources, regulatory net capital requirements or minimum FCA or SFC requirement and excess as follows:
SubsidiaryNet CapitalMinimum Net Capital RequirementExcess Net Capital
 (dollars in thousands)
Cowen and Company$332,197 $6,289 $325,908 
ATM Execution$4,951 $250 $4,701 
Cowen Prime$22,722 $250 $22,472 
Westminster$31,116 $250 $30,866 
Cowen International Ltd$39,812 $25,444 $14,368 
Cowen Execution Ltd$13,205 $3,418 $9,787 
Cowen Asia$2,272 $386 $1,886 
The Company's U.S. broker-dealers must also comply with SEC Rule 15c3-3 or claim an exemption pursuant to subparagraphs (k)(2)(i) or (k)(2)(ii) of that rule. Firms can rely on more than one exemption. Cowen Prime and ATM Execution claim the (k)(2)(ii) exemption with regard to all of their customer accounts and transactions that are introduced on a fully-disclosed basis to their clearing agents for clearing, settlement and custody. Cowen Prime and Westminster claim the (k)(2)(i) exemption with regards to customer transactions and balances that are cleared, settled and custodied in bank accounts designated as Special Accounts for the Exclusive Benefit of Customers ("Special Bank Accounts"). Westminster also claims exemption for other business activities that are not covered under (k)(2)(i) contemplated by Footnote 74 of the SEC Release No. 34-70073 adopting amendments to 17 C.F.R. § 240.17a-5 for receiving transaction-based compensation in return for providing commission management services.
In accordance with the requirements of SEC Rule 15c3-3, Cowen and Company may be required to deposit in a Special Reserve Account cash or acceptable qualified securities for the exclusive benefit of customers. As of March 31, 2021, Cowen and Company had segregated approximately $13.7 million of cash, while it had 0 required deposit.
As a clearing broker-dealer, Cowen and Company is required to compute a reserve requirement for proprietary accounts of broker-dealers ("PAB"), as defined in SEC Rule 15c3-3. Cowen and Company conducts PAB reserve computations in order to determine the amount it is required to deposit in its PAB Reserve Bank Accounts pursuant to SEC Rule 15c3-3. This allows each correspondent firm that uses Cowen and Company as its clearing broker-dealer to classify its PAB account assets held at Cowen and Company as allowable assets in the correspondent's net capital calculation. At March 31, 2021, Cowen and Company had $30.3 million of cash on deposit in PAB Reserve Bank Accounts, which was more than its required deposit of $19.1 million. Cowen and Company, ATM Execution, and Cowen Prime also maintain certain assets in PAB accounts held at their respective clearing brokers. Each treats its assets held in those PAB accounts at the respective clearing brokers as allowable assets for net capital purposes.
Cowen Insurance Co and Hollenfels are individually required to maintain a solvency capital ratio as calculated by relevant European Commission directives and local regulatory rules in Malta and Luxembourg, respectively. Each company's individual solvency capital ratio calculated as of December 31 of each year must exceed a minimum requirement. As of, December 31, 2020 (the last testing date), the solvency capital ratios of both Cowen Insurance Co and Hollenfels were in excess of the minimum requirement.
Based on minimum capital and surplus requirements pursuant to the laws of the state of New York that apply to captive insurance companies, RCG Insurance Company, Cowen's captive insurance company incorporated and licensed in the state of New York, was required to maintain capital and surplus of approximately $0.3 million as of March 31, 2021. RCG Insurance Company’s capital and surplus as of March 31, 2021 totaled approximately $6.4 million.

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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
24. Related Party Transactions
The Company and its affiliated entities are the managing member, general partner and/or investment manager to the Company's investment funds and certain managed accounts. Management fees and incentive income are primarily earned from affiliated entities. As of March 31, 2021 and December 31, 2020, $29.3 million and $28.4 million, respectively, included in fees receivable, are earned from related parties. The Company may, at its discretion, reimburse certain fees charged to the investment funds that it manages to avoid duplication of fees when such funds have an underlying investment in another affiliated investment fund. For the three months ended March 31, 2021 and 2020, the amounts which the Company reimbursed the investment funds it manages were immaterial. Fees receivable and fees payable are recorded at carrying value, which approximates fair value.
The Company may also make loans to employees or other affiliates, excluding executive officers of the Company. These loans are interest bearing and settle pursuant to the agreed-upon terms with such employees or affiliates, and are included in due from related parties in the accompanying condensed consolidated statements of financial condition. As of March 31, 2021 and December 31, 2020, loans to employees of $11.3 million and $9.5 million, respectively, were included in due from related parties on the accompanying condensed consolidated statements of financial condition. Of these amounts $6.7 million and $4.6 million, respectively, are related to forgivable loans. These forgivable loans provide for a cash payment up-front to employees, with the amount due back to the Company forgiven over a vesting period.  An employee that voluntarily ceases employment, or is terminated with cause, is generally required to pay back to the Company any unvested forgivable loans granted to them.  The forgivable loans are recorded as an asset to the Company on the date of grant and payment, and then amortized to compensation expense on a straight-line basis over the vesting period.  The vesting period on forgivable loans is generally one to three years. The Company recorded compensation expense of $1.2 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively. This expense is included in employee compensation and benefits in the accompanying condensed consolidated statements of operations. For the three months ended March 31, 2021 and 2020, the interest income was $0.1 million for these related party loans and advances, and are included in interest and dividends in the accompanying condensed consolidated statements of operations.
As of December 31, 2020, included in due from related parties is $3.6 million, which is related to the sales of portions of the Company's ownership interest in the activist business of Starboard Value to the Starboard principals. It is being financed through the profits of the relevant Starboard entities over a five-year period and earns interest at 5.0% per annum. As of March 31, 2021, the balance had been repaid in full. The interest income for the three months ended March 31, 2021 was insignificant and the interest income for the three months ended March 31, 2020 was $0.1 million.
The remaining balance included in due from related parties of $9.6 million and $7.9 million as of March 31, 2021 and December 31, 2020, respectively, relates to amounts due to the Company from affiliated investment funds and real estate entities due to expenses paid on their behalf. Included in due to related parties is approximately $0.2 million and $0.2 million as of March 31, 2021 and December 31, 2020, respectively, related to a subordination agreement with an investor in certain real estate funds. This total is based on a hypothetical liquidation of the real estate funds as of the balance sheet date.
Employees and certain other related parties invest on a discretionary basis within consolidated entities. These investments generally are subject to preferential management fee and performance fee arrangements. As of March 31, 2021 and December 31, 2020, such investments aggregated $34.8 million and $84.3 million, respectively, were included in non-controlling interests on the accompanying condensed consolidated statements of financial condition. Their share of the net income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds aggregated $10.1 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively.
The Company may, at times, have unfunded commitment amounts pertaining to related parties. See Note 17 for amounts committed as of March 31, 2021.
25. Guarantees and Off-Balance Sheet Arrangements
Guarantees
US GAAP requires the Company to disclose information about its obligations under certain guarantee arrangements. Those standards define guarantees as contracts and indemnification agreements that contingently require a guarantor to make payments to the guaranteed party based on changes in an underlying security (such as an interest or foreign exchange rate, security or commodity price, an index or the occurrence or nonoccurrence of a specified event) related to an asset, liability or equity security of a guaranteed party. Those standards also define guarantees as contracts that contingently require the guarantor to make
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
payments to the guaranteed party based on another entity's failure to perform under an agreement as well as indirect guarantees of the indebtedness of others.
In the normal course of its operations, the Company enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Company's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects the risk of loss to be remote.
The Company indemnifies and guarantees certain service providers, such as clearing and custody agents, trustees and administrators, against specified potential losses in connection with their acting as an agent of, or providing services to, the Company or its affiliates. The Company also indemnifies some clients against potential losses incurred in the event specified third-party service providers, including sub-custodians and third-party brokers, improperly execute transactions. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make significant payments under these arrangements and has not recorded any contingent liability in the condensed consolidated financial statements for these indemnifications.
The Company also provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. The Company may also provide standard indemnifications to some counterparties to protect them in the event additional taxes are owed or payments are withheld, due either to a change in or adverse application of certain tax laws. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the accompanying condensed consolidated financial statements for these indemnifications.
The Company may maintain cash and cash equivalents at financial institutions in excess of federally insured limits. The Company has not experienced any material losses in such accounts and does not believe it is exposed to significant credit risks in relation to such accounts.
Off-Balance Sheet Arrangements
The Company has no material off-balance sheet arrangements, which have not been disclosed, as of March 31, 2021 and December 31, 2020. Through indemnification provisions in clearing agreements with clients, customer activities may expose the Company to off-balance-sheet credit risk. Pursuant to the clearing agreement, the Company is required to reimburse the Company's clearing broker, without limit, for any losses incurred due to a counterparty's failure to satisfy its contractual obligations. However, these transactions are collateralized by the underlying security, thereby reducing the associated risk to changes in the market value of the security through the settlement date.
The Company's customer securities activities are transacted on a delivery versus payment, cash or margin basis. In delivery versus payment transactions, the Company is exposed to risk of loss in the event of the customers' or brokers' inability to meet the terms of their contracts.
In margin transactions, the Company extends credit to clients collateralized by cash and securities in their account. In the event the customers or brokers fail to satisfy their obligations, the Company may be required to purchase or sell securities at prevailing market prices in order to fulfill the obligations.
The Company's exposure to credit risk can be directly impacted by volatile securities markets, which may impair the ability of counterparties to satisfy their contractual obligations. The Company seeks to control its credit risk through a variety of reporting and control procedures, including establishing credit limits based upon a review of the customers' financial condition and credit ratings. The Company seeks to control the risk associated with its customer margin transactions by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company also monitors required margin levels daily and, pursuant to its guidelines, requires customers to deposit additional collateral, or reduce positions, when necessary.
In addition, during the normal course of business, the Company has exposure to a number of risks including market risk, currency risk, credit risk, operational risk, liquidity risk and legal risk. As part of the Company's risk management process, these risks are monitored on a regular basis throughout the course of the year.
The Company enters into secured and unsecured borrowing agreements to obtain funding necessary to cover daily securities settlements with clearing corporations. At times, funding is required for unsettled customer delivery versus payment and riskless principal transactions, as well as to meet deposit requirements with clearing organizations. Secured arrangements are
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Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
collateralized by the securities. The Company maintains uncommitted financing arrangements with large financial institutions, the details of which are summarized below as of March 31, 2021.
LenderContractual AmountAvailable AmountMaturity DateDescription
Pledge Lines(dollars in thousands)
BMO Harris Bank$75,000 $75,000 NoneSecured Tri-Party Pledge Facility
BMO Harris Bank150,000 150,000 NoneSecured Depository Trust Company Pledge Line
       Total225,000 225,000 
Spike Line
BMO Harris Bank
Canadian Imperial Bank
of Commerce
Texas Capital Bank, in syndication
70,000 70,000 August 20, 2021Unsecured committed spike line facility to cover short term increases in National Securities Clearing Corporation margin deposit requirements
Revolving Credit Facility
Morgan Stanley25,000 25,000 March 24, 2026Unsecured Corporate Revolver
Total Credit Lines$320,000 $320,000 

26. Subsequent Events
On April 27, 2021 the Board of Directors declared a quarterly cash dividend payable on its common stock of $0.10 per common share, payable on June 15, 2021, to stockholders of record on June 1, 2021. During the same meeting, the Board of Directors also approved a $25.0 million increase in the Company's share repurchase program (see Note 19) bringing the total remaining shares available for repurchase to $50.0 million.
The Company has evaluated events that have occurred after the balance sheet date but before the financial statements are issued and has determined that there were no other subsequent events requiring adjustment or disclosure in the condensed consolidated financial statements.




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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
         The discussion contains forward-looking statements, which involve numerous risks and uncertainties, including, but not limited to, those described in the sections titled “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K") and in Item 1A of this Quarterly Report on Form 10-Q, many of which risks are currently elevated by, and may or will continue to be elevated by, the COVID-19 pandemic. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements and related notes of Cowen Inc. included elsewhere in this quarterly report. Actual results may differ materially from those contained in any forward-looking statements.
Overview
Cowen Inc., a Delaware corporation formed in 2009, is a diversified financial services firm that, together with its consolidated subsidiaries (collectively, "Cowen" or the "Company"), provides investment banking, research, sales and trading, prime brokerage, global clearing, securities financing, commission management services and investment management through its two business segments: the Operating Company ("Op Co") and the Asset Company ("Asset Co").
Operating Company
The Op Co segment consists of four divisions: the Cowen Investment Management ("CIM") division, the Investment Banking division, the Markets division (which includes sales and trading, prime brokerage, global clearing, securities financing and commission management services) and the Research division. The Company refers to the Investment Banking division, the Markets division and the Research division collectively as its investment banking businesses. Op Co's CIM division includes advisers to investment funds (including private equity structures and privately placed hedge funds), and registered funds. Op Co's investment banking businesses offer industry focused investment banking for growth-oriented companies including advisory and global capital markets origination, domain knowledge-driven research, sales and trading platforms for institutional investors, global clearing, commission management services and also a comprehensive suite of prime brokerage services.
The CIM division is the Company's investment management business, which operates primarily under the Cowen Investment Management name. CIM offers innovative investment products and solutions across the liquidity spectrum to institutional and private clients. The predecessor to this business was founded in 1994 and, through one of its subsidiaries, has been registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act") since 1997. The Company's investment management business offers investors access to a number of strategies to meet their specific needs including private healthcare investing, private sustainable investing, healthcare royalties, activism and merger arbitrage. A portion of the Company’s capital is invested alongside the Company's investment management clients. The Company has also invested capital in its insurance and reinsurance businesses.
Op Co's investment banking businesses include investment banking, research, sales and trading, prime brokerage, global clearing and commission management services provided primarily to companies and institutional investor clients. Sectors covered by Op Co's investment banking business include healthcare, technology, media and telecommunications, consumer, industrials, information and technology services, and energy. We provide research and brokerage services to over 6,000 domestic and international clients seeking to trade securities and other financial instruments, principally in our sectors. The investment banking businesses also offer a full-service suite of introduced prime brokerage services targeting emerging private fund managers. Historically, we have focused our investment banking efforts on small to mid-capitalization public companies as well as private companies. From time to time, the Company invests in private capital raising transactions of its investment banking clients.
Asset Company
The Asset Co segment consists of the Company's private investments, private real estate investments and other legacy investment strategies. The focus of Asset Co is to drive future monetization of the invested capital of the segment.
Certain Factors Impacting Our Business
Our Company's businesses and results of operations are impacted by the following factors:
Underwriting, private placement and strategic/financial advisory fees.  Our revenues from investment banking are directly linked to the underwriting fees we earn in equity and debt securities offerings in which the Company acts as an underwriter, private placement fees earned in non-underwritten transactions, sales commissions earned in at-the-market offerings and success fees earned in connection with advising both buyers and sellers, principally in mergers and acquisitions. As a result, the future performance of our investment banking business will depend on, among other things, our ability to secure lead manager and co-manager roles in clients' capital raising transactions as well as our ability to secure mandates as a client's strategic financial advisor.
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Liquidity.  As a clearing broker-dealer in the U.S., we are subject to cash deposit requirements with clearing organizations, brokers and banks that may be large in relation to our total liquid assets.
Equity research fees.  Equity research fees are paid to the Company for providing access to equity research. The Company also permits institutional customers to allocate a portion of their commissions to pay for research products and other services provided by third parties. Our ability to generate revenues relating to our equity research depends on the quality of our research and its relevance to our institutional customers and other clients.
Principal transactions. Principal transactions revenue includes net trading gains and losses from the Company's market-making activities and net trading gains and losses on inventory and other Company positions. Commissions associated with these transactions are also included herein. In certain cases, the Company provides liquidity to clients buying or selling blocks of shares of listed stocks without previously identifying the other side of the trade at execution, which subjects the Company to market risk.
Commissions.  Our commission revenues depend for the most part on our customers' trading volumes and on the notional value of the non-U.S. securities traded by our customers.
Investment performance.  Our revenues from incentive income and carried interest allocations are linked to the performance of the investment funds and accounts that we manage. Performance also affects assets under management because it influences investors' decisions to invest assets in, or withdraw assets from, the investment funds and accounts managed by us.
Fee and allocation rates.  Our management fee revenues are linked to the management fee rates we charge as a percentage of contributed and invested capital. Our incentive income revenues are linked to the rates we charge as a percentage of performance-driven asset growth. Our incentive allocations are generally subject to "high-water marks," whereby incentive income is generally earned by us only to the extent that the net asset value of an investment fund at the end of a measurement period exceeds the highest net asset value as of the end of the earlier measurement period for which we earned incentive income. Our incentive allocations, in some cases, are subject to performance hurdles. Additionally, our revenues from management fees are directly linked to assets under management. Positive performance in our legacy funds increases assets under management which results in higher management fees.
Investment performance of our own capital.  We invest our own capital and the performance of such invested capital affects our revenues.  Investment income in the investment bank business includes gains and losses generated by the capital the Company invests in private capital raising transactions of its investment banking clients.  Our revenues from investment income are linked to the performance of the underlying investments.
External Factors Impacting Our Business
Our financial performance is highly dependent on the environment in which our businesses operate. We believe a favorable business environment is characterized by many factors, including a stable geopolitical climate, transparent financial markets, low inflation, low interest rates, low unemployment, strong business profitability and high business and investor confidence. Unfavorable or uncertain economic or market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability (or increases in the cost of) credit and capital, increases in inflation or interest rates, exchange rate volatility, unfavorable global asset allocation trends, outbreaks of hostilities or other geopolitical instability, corporate, political or other scandals that reduce investor confidence in the capital markets, global health crisis, such as the ongoing COVID-19 pandemic, or a combination of these or other factors. Until the COVID-19 pandemic subsides, we could experience reduced levels in certain of our investment banking activities, reduced revenues from incentive income in our investment management business and reduced investment income. Our businesses and profitability have been and may continue to be adversely affected by market conditions in many ways, including the following:
Our investment bank business has been, and may continue to be, adversely affected by market conditions. Increased competition continues to affect our investment banking and capital markets businesses. The same factors also affect trading volumes in secondary financial markets, which affect our brokerage business. Commission rates, market volatility, increased competition from larger financial firms and other factors also affect our brokerage revenues and may cause these revenues to vary from period to period.
Our investment management business can be adversely affected by unanticipated levels of requested redemptions. We experienced significant levels of requested redemptions during the 2008 financial crisis and, while the environment for investing in investment management products has since improved, it is possible that we could intermittently experience redemptions above historical levels, regardless of investment fund performance.
Our investment bank business focuses primarily on small to mid-capitalization and private companies in specific industry sectors. These sectors may experience growth or downturns independent of general economic and market conditions, or may face market conditions that are disproportionately better or worse than those impacting the economy and markets
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generally. In addition, increased government regulation has had, and may continue to have, a disproportionate effect on capital formation by smaller companies. Therefore, our investment bank business could be affected differently than overall market trends.
Our businesses, by their nature, do not produce predictable earnings. Our results in any period can be materially affected by conditions in global financial markets and economic conditions generally. We are also subject to various legal and regulatory actions that impact our business and financial results.
Basis of Presentation
The unaudited condensed financial statements of the Company in this Form 10-Q are prepared in accordance with Generally Accepted Accounting Principles in the United States ("US GAAP") as promulgated by the Financial Accounting Standards Board ("FASB") through Accounting Standards Codification (the "Accounting Standards") as the source of authoritative accounting principles in the preparation of financial statements and include the accounts of the Company, its subsidiaries, and entities in which the Company has a controlling financial interest or a substantive, controlling general partner interest. All material intercompany transactions and balances have been eliminated in consolidation. Certain fund entities that are consolidated in the condensed consolidated financial statements, are not subject to these consolidation provisions with respect to their own investments pursuant to their specialized accounting.
The Company serves as the managing member/general partner and/or investment manager to affiliated fund entities which it sponsors and manages. Certain of these funds in which the Company has a substantive, controlling general partner interest are consolidated with the Company pursuant to US GAAP as described below (the "Consolidated Funds"). 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 which are not owned by the Company are reflected as redeemable and non-redeemable non-controlling interests in consolidated subsidiaries in the condensed consolidated financial statements appearing elsewhere in this Form 10-Q. The management fees and incentive income earned by the Company from these funds are eliminated in consolidation.
During the first quarter of 2021, the Company changed the presentation of certain income streams on its condensed consolidated statements of operations by moving the income streams from Other income - net gains (losses) on securities, derivatives and other investments to Revenues. Additionally, the Company moved proprietary trading gains and losses generated by the Company’s broker dealer entities from Brokerage revenue to Investment income (loss) – securities principal transactions, net.
The Company believes that these presentation changes provide a better representation of the Company’s operating results as it is used by management to monitor the Company’s financial performance and is consistent with industry practice. The changes in presentation have no impact on net income and prior period amounts have been recast to reflect such changes in presentation.
Acquisition
On February 26, 2021, the Company, through its indirect wholly owned subsidiary, Cowen Malta Holdings Ltd., completed the acquisition of all of the outstanding equity interest of Axeria Insurance Limited, an insurance company organized under the laws of Malta whose principal business activity is to provide insurance coverage to third parties Axeria Insurance Limited was renamed Cowen Insurance Company Ltd upon acquisition.
Expenses
The Company's expenses consist of compensation and benefits, insurance and reinsurance costs, general, administrative and other, and Consolidated Funds expenses.
Compensation and Benefits.  Compensation and benefits is comprised of salaries, benefits, discretionary cash bonuses and equity-based compensation. Annual incentive compensation is variable, and the amount paid is generally based on a combination of employees' performance, their contribution to their business segment, and the Company's performance. Generally, compensation and benefits comprise a significant portion of total expenses, with annual incentive compensation comprising a significant portion of total compensation and benefits expenses.
Insurance and Reinsurance claims, commissions and amortization of deferred acquisition costs. Insurance and reinsurance-related expenses reflect loss and claim reserves, acquisition costs and other expenses incurred with respect to our insurance and reinsurance operations.
Operating, General and Administrative.  General, administrative and other expenses are primarily related to professional services, occupancy and equipment, business development expenses, communications, expenses associated with our reinsurance business and other miscellaneous expenses. These expenses may also include certain one-time charges and non-cash expenses.
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Depreciation and Amortization.  Depreciation and amortization is comprised of depreciation expense for tangible assets and the amortization of intangible assets. The depreciation of assets capitalized under finance leases is included in depreciation and amortization expenses as well.
Consolidated Funds Expenses.  The Company's condensed consolidated financial statements reflect the expenses of the Consolidated Funds and the portion attributable to other investors is allocated to a non-controlling interest.
Income Taxes
The taxable results of the Company’s U.S. operations are subject to U.S. federal, state and local taxation as a corporation. The Company is also subject to foreign taxation on income it generates in certain countries.
The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating or capital loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that, in management’s view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. Deferred tax liabilities that cannot be realized in a similar future time period and thus that cannot offset the Company’s deferred tax assets are not taken into account when calculating the Company’s net deferred tax assets.
Non-Controlling Interests
Non-controlling interests represent the pro rata share of the income or loss of the non-wholly owned consolidated entities attributable to the other owners of such entities. When non-controlling interest holders have redemption features that can be exercised at the option of the holder currently or contingent upon the occurrence of future events, their ownership has been classified as temporary equity. Ownership which has been classified in permanent equity are non-controlling interests which are either not redeemable at the option of the holder or the holder does not have the unilateral right to redeem its ownership interests.
Investment Fund Performance and Assets Under Management
For the three months ended March 31, 2021, the Company's activist and merger arbitrage investment strategies (including the merger arbitrage-focused UCITS Fund) had positive results. The Company's healthcare royalty strategy is now making allocations from the strategy's fourth fund. Our private healthcare strategy is now deploying capital from its third fund, having made twenty three investments by the end of the three months ended March 31, 2021, with a pipeline of opportunities ahead. Finally, our sustainable investing strategy had its final closing and is now deploying capital, with two investments made as of March 31, 2021, with a pipeline of opportunities ahead. The liquidation of certain multi-strategy hedge funds advised by the Company also continues.
As of March 31, 2021, the Company had assets under management of $14 billion.
CapabilityPrivate Healthcare InvestmentsHealthcare RoyaltiesActivismMerger ArbitrageSustainabilityOther (a)
(dollars in millions)
AUM$946$3,653$6,871$345$1,476$739
Team
Private Equityüüü
Hedge Fundüü
Managed Accountüüüü
UCITSü
Otherü
(a) Other capabilities include private equity funds, legacy funds, and other trading strategies.
The Company's Invested Capital
The Company invests a significant portion of its capital base to help drive results and facilitate the growth of the Op Co and Asset Co business segments. Within Op Co, management allocates capital to three primary investment categories: (i) broker-dealer capital and related trading strategies; (ii) liquid alternative trading strategies; and (iii) public and private healthcare strategies. Broker-dealer capital and related trading strategies include capital investments in the Company's broker-dealers as well as securities finance and special purpose acquisition company trading strategies to grow liquidity and returns within operating businesses.  Much of the Company's public and private healthcare strategies and liquid alternative trading strategies portfolios are invested alongside the Company's investment management clients. The Company's liquid alternative trading strategies include
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merger arbitrage and activist fund strategies. In addition, from time to time, the Company makes investments in private capital raising transactions of its investment banking clients.
The Company allocates capital to Asset Co's private investments. Asset Co's private investments include the Company's investment in Italian wireless broadband provider Linkem, private equity funds Formation8 and Eclipse and legacy real estate investments.
As of March 31, 2021, the Company's invested capital amounted to a net value of $928.5 million (supporting a long market value of $1,028.4 million), representing approximately 84% of Cowen's stockholders' equity presented in accordance with US GAAP. The table below presents the Company's invested equity capital by strategy and as a percentage of Cowen's stockholders' equity as of March 31, 2021. The total net values presented in the table below do not tie to Cowen's condensed consolidated statement of financial condition as of March 31, 2021 because they represent only some of the line items in the accompanying condensed consolidated statement of financial condition.
StrategyNet Value% of Stockholders' Equity
(dollars in millions)
Op Co
     Broker-dealer capital and related trading$642.9 58%
     Public and Private Healthcare68.0 6%
     Liquid Alternative Trading79.8 7%
     Other9.3 1%
Asset Co
     Private Investments128.5 12%
Total928.5 84%
Cowen Inc. Stockholders' Equity$1,106.9 
The allocations shown in the table above will change over time.
Results of Operations
To provide comparative information of the Company's operating results for the periods presented, a discussion of Economic Income (Loss) (which is a non-GAAP measure) of our Op Co and Asset Co segments follows the discussion of our total consolidated US GAAP results.
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Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020
Condensed Consolidated Statements of Operations
 Three Months Ended March 31,Period to Period
 20212020$ Change% Change
 (dollars in thousands)
Revenues    
Investment banking$304,834 $105,028 $199,806 190 %
Brokerage173,737 141,377 32,360 23 %
Investment income (loss)
Securities principal transactions, net63,965(31,045)95,010(306)%
Portfolio fund principal transactions, net15,403(2,818)18,221(647)%
Carried interest allocations96,769(11,544)108,313(938)%
Total investment income (loss)176,137 (45,407)221,544 (488)%
Management fees25,742 11,604 14,138 122 %
Incentive income2,258 — 2,258 #DIV/0!
Interest and dividends59,388 42,077 17,311 41 %
Reimbursement from affiliates288 261 27 10 %
Insurance and reinsurance premiums7,117 10,471 (3,354)(32)%
Other revenues8,169