Annual report pursuant to Section 13 and 15(d)

Investments and Fair Value Measurements

v3.22.4
Investments and Fair Value Measurements
12 Months Ended
Dec. 31, 2022
Fair Value Disclosures [Abstract]  
Investments and Fair Value Measurements

4. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Investments include $146 and $1,588 as of December 31, 2022 and 2021, respectively, representing the Company’s equity method investments in affiliated investment funds which have been established and managed by the Company and its affiliates. The Company’s financial interest in these funds can range up to 2%. Despite the Company’s insignificant financial interest, the Company exercises significant influence over these funds as the Company typically serves as the general partner, managing member or equivalent for these funds. During 2007, the Silvercrest Funds granted rights to the unaffiliated investors in each respective fund to provide that a simple majority of the fund’s unaffiliated investors will have the right, without cause, to remove the general partner or equivalent of that fund or to accelerate the liquidation date of that fund in accordance with certain procedures. At December 31, 2022 and 2021, the Company determined that none of the Silvercrest Funds were required to be consolidated. The Company’s involvement with these entities began on the dates that they were formed, which range from July 2003 to July 2014.

Fair Value Measurements

GAAP establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment, the characteristics specific to the investment and the state of the marketplace including the existence and transparency of transactions between market participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in an orderly market generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Level I: Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments in Level I include listed equities and listed derivatives.
Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments which are generally included in Level II include corporate bonds and loans, less liquid and restricted equity securities, certain over-the counter derivatives, and certain fund of hedge funds investments in which the Company has the ability to redeem its investment at net asset value at, or within three months of, the reporting date.
Level III: Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.

At December 31, 2022 and 2021, the Company did not have any financial assets or liabilities that are recorded at fair value on a recurring basis, with the exception of the contingent consideration related to the acquisition earnouts.

Contingent Consideration

For business acquisitions, the Company recognizes the fair value of goodwill and other acquired intangible assets, and estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on unobservable (Level 3) inputs.

The following table represents changes in the fair value of estimated contingent consideration for the years ended December 31, 2022 and 2021:

 

Balance at January 1, 2021

 

 

16,402

 

Additions to estimated contingent consideration

 

 

 

Payments of contingent consideration

 

 

(3,744

)

Non-cash changes in fair value of estimated contingent consideration

 

 

5,305

 

Balance at December 31, 2021

 

$

17,963

 

Additions to estimated contingent consideration

 

 

 

Payments of contingent consideration

 

 

(5,717

)

Non-cash changes in fair value of estimated contingent consideration

 

 

(12,080

)

Balance at December 31, 2022

 

$

166

 

 

 

Estimated contingent consideration is included in accounts payable and accrued expenses in the Consolidated Statements of Financial Condition. Payments of contingent consideration are included in earn-outs paid related to acquisitions completed on or after January 1, 2009 in financing activities in the Consolidated Statements of Cash Flows.

In determining fair value of the estimated contingent consideration, the acquired business’ future performance is estimated using financial projections for the acquired business. These financial projections, as well as alternative scenarios of financial performance, are measured against the performance targets specified in each respective acquisition agreement. In addition, discount rates are established based on the cost of debt and the cost of equity. The Company uses the Monte Carlo Simulation Model to determine the fair value of the Company’s estimated contingent consideration.

The significant unobservable inputs used in the fair value measurement of the Company’s estimated contingent consideration are the forecasted growth rates over the measurement period and discount rates. Significant increases or decreases in the Company’s forecasted growth rates over the measurement period or discount rates would result in a higher or lower fair value measurement.

Inputs used in the fair value measurement of estimated contingent consideration at December 31, 2022 and 2021 are summarized below:

 

Monte Carlo Simulation Model

 

December 31,
2022

 

 

December 31,
2021

 

 

Fair Value
Hierarchy

Fair Value

 

$

166

 

 

$

17,963

 

 

Level 3

Forecasted growth rate

 

 

1.20

%

 

 

16.70

%

 

 

Discount rate

 

 

14.80

%

 

 

10.74

%

 

 

 

Please refer to Note 3. Acquisitions for more details on contingent consideration related to acquisition earnouts.

At December 31, 2022 and December 31, 2021, financial instruments that are not held at fair value are categorized in the table below:

 

 

 

December 31, 2022

 

 

December 31, 2021

 

 

 

 

 

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

 

Fair Value
Hierarchy

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

77,432

 

 

$

77,432

 

 

$

85,744

 

 

$

85,744

 

 

Level I (1)

Investments

 

$

146

 

 

$

146

 

 

$

1,588

 

 

$

1,588

 

 

N/A (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under credit facility

 

$

6,300

 

 

$

6,300

 

 

$

9,000

 

 

$

9,000

 

 

Level II (3)

 

(1)
Includes $1,416 and $1,398 of cash equivalents at December 31, 2022 and 2021, respectively, that fall under Level I in the fair value hierarchy.
(2)
Investments consist of the Company’s equity method investments in affiliated investment funds which have been established and managed by the Company and its affiliates. Fair value of investments is based on the net asset value of the affiliated investment funds which is a practical expedient for fair value, which is not included in the fair value hierarchy under GAAP.
(3)
The carrying value of borrowings under the revolving credit agreement and the contingent consideration related to acquisition earnouts approximate fair value, which is determined based on interest rates currently available to the Company for similar debt and the weighted average cost of capital of the Company.