| Cash Instruments |
Cash Instruments
Note 6.
Cash Instruments
Cash instruments include U.S. government and federal agency
obligations, non-U.S. government obligations, bank loans and bridge loans, corporate debt securities, equities and convertible debentures, and other non-derivative financial instruments owned and financial instruments sold, but not yet purchased.
See below for the types of cash instruments included in each level of the fair value hierarchy and the valuation techniques and significant inputs used to determine their fair values. See Note 5 for an overview of the firm’s fair value
measurement policies.
Level 1 Cash Instruments
Level 1 cash instruments include U.S. government obligations and most non-U.S. government obligations, actively traded listed equities and certain money market instruments. These instruments are valued
using quoted prices for identical unrestricted instruments in active markets.
The firm defines active markets for equity
instruments based on the average daily trading volume both in absolute terms and relative to the market capitalization for the instrument. The firm defines active markets for debt instruments based on both the average daily trading volume and the
number of days with trading activity.
The fair value of a level 1 instrument is calculated as quantity held multiplied by
quoted market price. U.S. GAAP prohibits valuation adjustments being applied to level 1 instruments even in situations where the firm holds a large position and a sale could impact the quoted price.
Level 2 Cash Instruments
Level 2 cash instruments include commercial paper, certificates of deposit, time deposits, most government agency obligations, most
corporate debt securities, commodities, certain mortgage-backed loans and securities, certain bank loans and bridge loans, restricted or less liquid publicly listed equities, most state and municipal obligations and certain money market instruments
and lending commitments.
Valuations of level 2 cash instruments can be verified to quoted prices, recent trading activity for
identical or similar instruments, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of
recent market activity to the prices provided from alternative pricing sources.
Valuation adjustments are typically made to
level 2 cash instruments (i) if the cash instrument is subject to transfer restrictions and/or (ii) for other premiums and liquidity discounts that a market participant would require to arrive at fair value. Valuation adjustments are
generally based on market evidence.
Level 3 Cash Instruments
Level 3 cash instruments have one or more significant valuation inputs that are not observable. Absent evidence to the contrary, level 3 cash instruments are initially valued at transaction price, which
is considered to be the best initial estimate of fair value. Subsequently, the firm uses other methodologies to determine fair value, which vary based on the type of instrument. Valuation inputs and assumptions are changed when corroborated by
substantive observable evidence, including values realized on sales of level 3 financial assets.
The table below presents the
valuation techniques and the nature of significant inputs generally used to determine the fair values of each class of level 3 cash instrument.
| |
|
|
| Level 3 Cash Instrument |
|
Valuation Techniques and Significant Inputs |
|
Loans and securities backed by commercial real estate
Ÿ
Collateralized by a single commercial real estate property or a portfolio of properties
Ÿ
May include tranches of varying levels of subordination
|
|
Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.
Significant inputs for these valuations include:
Ÿ Transaction prices in both the underlying collateral and instruments with the same or similar underlying
collateral
Ÿ Current levels and changes in market indices such as the CMBX (an index that tracks the performance of
commercial mortgage bonds)
Ÿ
Market yields implied by transactions of similar or related assets
Ÿ
Current performance of the underlying collateral
Ÿ
Capitalization rates and multiples
Ÿ
Amount and timing of future cash flows
|
|
Loans and securities backed by residential real estate
Ÿ
Collateralized by portfolios of residential real estate
Ÿ
May include tranches of varying levels of subordination
|
|
Valuation techniques vary by instrument, but are generally based on relative value analyses, discounted cash flow techniques or a combination thereof.
Significant inputs are determined based on relative
value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices such as the ABX (an index that tracks the performance of subprime residential mortgage bonds). Significant inputs
include:
Ÿ Home price projections, residential property liquidation timelines and related costs
Ÿ Underlying loan prepayment, default and cumulative loss expectations
Ÿ Transaction prices in both the underlying collateral and instruments with the same or similar underlying
collateral
Ÿ Market yields implied by transactions of similar or related assets
|
|
Bank loans and bridge loans
Corporate debt securities
State and municipal obligations
Other debt obligations
|
|
Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.
Significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit
default swaps that reference the same or similar underlying credit risk and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include:
Ÿ Amount and timing of expected future cash flows
Ÿ Current levels and trends of market indices such as CDX, LCDX and MCDX (indices that track the performance of
corporate credit, loans and municipal obligations, respectively)
Ÿ Market yields implied by transactions of similar or
related assets
Ÿ Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related
cash instrument, the cost of borrowing the underlying reference obligation
|
|
Equities and convertible debentures
Ÿ Private equity investments
|
|
Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as
appropriate and available:
Ÿ Transactions in similar instruments
Ÿ Discounted cash flow techniques
Ÿ
Third-party appraisals
Ÿ
Industry multiples and public comparables
Evidence includes recent or pending reorganizations (e.g., merger proposals, tender offers, debt restructurings) and significant changes in financial metrics, such as:
Ÿ Current financial performance as compared to projected performance
Ÿ Capitalization rates and multiples
Ÿ Market yields implied by transactions of similar or related assets
|
Fair Value of Cash Instruments by Level
The tables below present, by level within the fair value hierarchy, cash instrument assets
and liabilities, at fair value. Cash instrument assets and liabilities are included in
“Financial instruments owned, at fair value” and “Financial instruments sold, but not yet purchased, at fair value,” respectively.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash Instrument Assets at Fair Value as of December 2011 |
|
| in millions |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Commercial paper, certificates of deposit, time deposits and other
money market instruments
|
|
$ |
3,255 |
|
|
$ |
10,185 |
|
|
$ |
— |
|
|
$ |
13,440 |
|
|
U.S. government and federal agency obligations
|
|
|
29,263 |
|
|
|
57,777 |
|
|
|
— |
|
|
|
87,040 |
|
|
Non-U.S. government obligations
|
|
|
42,854 |
|
|
|
6,203 |
|
|
|
148 |
|
|
|
49,205 |
|
|
Mortgage and other asset-backed loans and securities
1:
Loans and securities backed by commercial real estate
|
|
|
— |
|
|
|
3,353 |
|
|
|
3,346 |
|
|
|
6,699 |
|
|
Loans and securities backed by residential real estate
|
|
|
— |
|
|
|
5,883 |
|
|
|
1,709 |
|
|
|
7,592 |
|
|
Bank loans and bridge loans
|
|
|
— |
|
|
|
8,460 |
|
|
|
11,285 |
|
|
|
19,745 |
|
|
Corporate debt
securities 2
|
|
|
133 |
|
|
|
19,518 |
|
|
|
2,480 |
|
|
|
22,131 |
|
|
State and municipal obligations
|
|
|
— |
|
|
|
2,490 |
|
|
|
599 |
|
|
|
3,089 |
|
|
Other debt
obligations 2
|
|
|
— |
|
|
|
2,911 |
|
|
|
1,451 |
|
|
|
4,362 |
|
|
Equities and convertible debentures
|
|
|
39,955 |
3 |
|
|
11,491 |
4 |
|
|
13,667 |
5 |
|
|
65,113 |
|
|
Commodities
|
|
|
— |
|
|
|
5,762 |
|
|
|
— |
|
|
|
5,762 |
|
|
Total
|
|
$ |
115,460 |
|
|
$ |
134,033 |
|
|
$ |
34,685 |
|
|
$ |
284,178 |
|
| |
|
| |
|
Cash Instrument Liabilities at Fair Value as of December 2011 |
|
| in millions |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
U.S. government and federal agency obligations
|
|
$ |
20,940 |
|
|
$ |
66 |
|
|
$ |
— |
|
|
$ |
21,006 |
|
|
Non-U.S. government obligations
|
|
|
34,339 |
|
|
|
547 |
|
|
|
— |
|
|
|
34,886 |
|
|
Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate
|
|
|
— |
|
|
|
27 |
|
|
|
— |
|
|
|
27 |
|
|
Loans and securities backed by residential real estate
|
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
|
Bank loans and bridge loans
|
|
|
— |
|
|
|
1,891 |
|
|
|
865 |
|
|
|
2,756 |
|
|
Corporate debt
securities 6
|
|
|
— |
|
|
|
6,522 |
|
|
|
31 |
|
|
|
6,553 |
|
|
State and municipal obligations
|
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
|
Equities and convertible debentures
|
|
|
20,069 |
3 |
|
|
1,248 |
4 |
|
|
9 |
|
|
|
21,326 |
|
|
Total
|
|
$ |
75,348 |
|
|
$ |
10,307 |
|
|
$ |
905 |
|
|
$ |
86,560 |
|
| 1. |
Includes $213 million and $595 million of collateralized debt obligations (CDOs) backed by real estate in level 2 and level 3, respectively.
|
| 2. |
Includes $403 million and $1.19 billion of CDOs and collateralized loan obligations (CLOs) backed by corporate obligations in level 2 and level 3,
respectively.
|
| 3. |
Consists of publicly listed equity securities.
|
| 4. |
Principally consists of restricted or less liquid publicly listed securities.
|
| 5. |
Includes $12.07 billion of private equity investments, $1.10 billion of real estate investments and $497 million of convertible debentures.
|
| 6. |
Includes $27 million of CDOs and CLOs backed by corporate obligations in level 3.
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash Instrument Assets at Fair Value as of December 2010 |
|
| in millions |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Commercial paper, certificates of deposit, time deposits and
other
money market instruments
|
|
$ |
4,344 |
|
|
$ |
6,918 |
|
|
$ |
— |
|
|
$ |
11,262 |
|
|
U.S. government and federal agency obligations
|
|
|
36,184 |
|
|
|
48,744 |
|
|
|
— |
|
|
|
84,928 |
|
|
Non-U.S. government obligations
|
|
|
35,504 |
|
|
|
5,171 |
|
|
|
— |
|
|
|
40,675 |
|
|
Mortgage and other asset-backed loans and securities
1:
Loans and securities backed by
commercial real estate
|
|
|
— |
|
|
|
3,534 |
|
|
|
3,976 |
|
|
|
7,510 |
|
|
Loans and securities backed by residential real estate
|
|
|
— |
|
|
|
7,031 |
|
|
|
2,501 |
|
|
|
9,532 |
|
|
Bank loans and bridge loans
|
|
|
— |
|
|
|
8,134 |
|
|
|
9,905 |
|
|
|
18,039 |
|
|
Corporate debt
securities 2
|
|
|
108 |
|
|
|
21,874 |
|
|
|
2,737 |
|
|
|
24,719 |
|
|
State and municipal obligations
|
|
|
— |
|
|
|
2,038 |
|
|
|
754 |
|
|
|
2,792 |
|
|
Other debt obligations
|
|
|
— |
|
|
|
1,958 |
|
|
|
1,274 |
|
|
|
3,232 |
|
|
Equities and convertible debentures
|
|
|
41,660 |
3 |
|
|
15,113 |
4 |
|
|
11,060 |
5 |
|
|
67,833 |
|
|
Commodities
|
|
|
— |
|
|
|
13,138 |
|
|
|
— |
|
|
|
13,138 |
|
|
Total
|
|
$ |
117,800 |
|
|
$ |
133,653 |
|
|
$ |
32,207 |
|
|
$ |
283,660 |
|
| |
|
| |
|
Cash Instrument Liabilities at Fair Value as of December 2010 |
|
| in millions |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
U.S. government and federal agency obligations
|
|
$ |
23,191 |
|
|
$ |
73 |
|
|
$ |
— |
|
|
$ |
23,264 |
|
|
Non-U.S. government obligations
|
|
|
28,168 |
|
|
|
841 |
|
|
|
— |
|
|
|
29,009 |
|
|
Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
|
Loans and securities backed by residential real estate
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
|
Bank loans and bridge loans
|
|
|
— |
|
|
|
1,107 |
|
|
|
380 |
|
|
|
1,487 |
|
|
Corporate debt
securities 6
|
|
|
26 |
|
|
|
7,133 |
|
|
|
60 |
|
|
|
7,219 |
|
|
Equities and convertible debentures
|
|
|
24,283
|
3 |
|
|
699
|
4 |
|
|
6 |
|
|
|
24,988 |
|
|
Commodities
|
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
|
9 |
|
|
Total
|
|
$ |
75,668 |
|
|
$ |
9,873 |
|
|
$ |
446 |
|
|
$ |
85,987 |
|
| 1. |
Includes $212 million and $565 million of CDOs backed by real estate in level 2 and level 3, respectively.
|
| 2. |
Includes $368 million and $1.07 billion of CDOs and CLOs backed by corporate obligations in level 2 and level 3, respectively.
|
| 3. |
Consists of publicly listed equity securities.
|
| 4. |
Substantially all consists of restricted or less liquid publicly listed securities.
|
| 5. |
Includes $10.03 billion of private equity investments, $874 million of real estate investments and $156 million of convertible debentures.
|
| 6. |
Includes $35 million of CDOs and CLOs backed by corporate obligations in level 3.
|
Level 3 Rollforward
If a cash instrument asset or liability was transferred to level 3 during a reporting
period, its entire gain or loss for the period is included in level 3. Transfers between levels are reported at the beginning of the reporting period in which they occur.
Level 3 cash instruments are frequently economically hedged with level 1 and level 2 cash instruments and/or level 1, level 2 or level 3 derivatives. Accordingly, gains or losses that are reported in
level 3 can be partially offset by
gains or losses attributable to level 1 or level 2 cash instruments and/or level 1, level 2 or level 3 derivatives. As a result, gains or losses included in the level 3 rollforward below do not
necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources.
The tables
below present changes in fair value for all cash instrument assets and liabilities categorized as level 3 as of the end of the year.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Cash Instrument Assets at Fair Value for the Year Ended December 2011 |
|
| in millions |
|
Balance,
beginning
of year |
|
|
Net
realized
gains/
(losses) |
|
|
Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end
|
|
|
Purchases 1 |
|
|
Sales |
|
|
Settlements |
|
|
Net
transfers
in and/or
(out) of
level 3 |
|
|
Balance,
end of
year |
|
|
Non-U.S. government obligations
|
|
$ |
— |
|
|
$ |
25 |
|
|
$ |
(63 |
) |
|
$ |
27 |
|
|
$ |
(123 |
) |
|
$ |
(8 |
) |
|
$ |
290 |
|
|
$ |
148 |
|
|
Mortgage and other asset-backed loans
and securities:
Loans and securities backed by commercial real estate
|
|
|
3,976 |
|
|
|
222 |
|
|
|
80 |
|
|
|
1,099 |
|
|
|
(1,124 |
) |
|
|
(831 |
) |
|
|
(76 |
) |
|
|
3,346 |
|
|
Loans and securities backed by residential real estate
|
|
|
2,501 |
|
|
|
253 |
|
|
|
(81 |
) |
|
|
768 |
|
|
|
(702 |
) |
|
|
(456 |
) |
|
|
(574 |
) |
|
|
1,709 |
|
|
Bank loans and bridge loans
|
|
|
9,905 |
|
|
|
540 |
|
|
|
(216 |
) |
|
|
6,725 |
|
|
|
(2,329 |
) |
|
|
(1,554 |
) |
|
|
(1,786 |
) |
|
|
11,285 |
|
|
Corporate debt securities
|
|
|
2,737 |
|
|
|
391 |
|
|
|
(132 |
) |
|
|
1,319 |
|
|
|
(1,137 |
) |
|
|
(697 |
) |
|
|
(1 |
) |
|
|
2,480 |
|
|
State and municipal obligations
|
|
|
754 |
|
|
|
12 |
|
|
|
(1 |
) |
|
|
448 |
|
|
|
(591 |
) |
|
|
(13 |
) |
|
|
(10 |
) |
|
|
599 |
|
|
Other debt obligations
|
|
|
1,274 |
|
|
|
124 |
|
|
|
(17 |
) |
|
|
560 |
|
|
|
(388 |
) |
|
|
(212 |
) |
|
|
110 |
|
|
|
1,451 |
|
|
Equities and convertible debentures
|
|
|
11,060 |
|
|
|
240 |
|
|
|
338 |
|
|
|
2,731 |
|
|
|
(1,196 |
) |
|
|
(855 |
) |
|
|
1,349 |
|
|
|
13,667 |
|
|
Total
|
|
$ |
32,207 |
|
|
$ |
1,807 |
2 |
|
$ |
(92 |
) 2 |
|
$ |
13,677 |
|
|
$ |
(7,590 |
) |
|
$ |
(4,626 |
) |
|
$ |
(698 |
) |
|
$ |
34,685 |
|
| |
|
| |
|
Level 3 Cash Instrument Liabilities at Fair Value for the Year Ended December 2011 |
|
| in millions |
|
Balance,
beginning
of year |
|
|
Net
realized
(gains)/
losses |
|
|
Net unrealized
(gains)/losses
relating to
instruments
still held at
year-end |
|
|
Purchases |
|
|
Sales |
|
|
Settlements |
|
|
Net
transfers
in and/or
(out)
of
level 3
|
|
|
Balance,
end of
year |
|
|
Total
|
|
$ |
446 |
|
|
$ |
(27 |
) |
|
$ |
218 |
|
|
$ |
(491 |
) |
|
$ |
475 |
|
|
$ |
272 |
|
|
$ |
12 |
|
|
$ |
905 |
|
| 1. |
Includes both originations and secondary market purchases.
|
| 2. |
The aggregate amounts include approximately $(202) million, $623 million and $1.29 billion reported in “Market making,” “Other principal
transactions” and “Interest income,” respectively.
|
The net unrealized loss on level 3 cash instrument assets and liabilities of $310 million
for the year ended December 2011 primarily consisted of losses on bank loans and bridge loans and corporate debt securities, primarily reflecting the impact of unfavorable credit markets and losses on relationship lending. These losses were
partially offset by gains in private equity investments, where prices were generally corroborated through market transactions in similar financial instruments during the year.
Significant transfers
in or out of level 3 cash instrument assets during the year ended December 2011 included:
| Ÿ |
|
Bank loans and bridge loans: net transfer out of level 3 of $1.79 billion, primarily due to transfers to level 2 of certain loans due to improved
transparency of market prices as a result of market transactions in these or similar loans, partially offset by transfers to level 3 of other loans primarily due to reduced transparency of market prices as a result of less market activity in these
loans.
|
| Ÿ |
|
Equities and convertible debentures: net transfer into level 3 of $1.35 billion, primarily due to transfers to level 3 of certain private equity
investments due to reduced transparency of market prices as a result of less market activity in these financial instruments, partially offset by transfers to level 2 of other private equity investments due to improved transparency of market prices
as a result of market transactions in these financial instruments.
|
| Ÿ |
|
Loans and securities backed by residential real estate: net transfer out of level 3 of $574 million, principally due to transfers to level 2 of
certain loans due to improved transparency of market prices used to value these loans, as well as unobservable inputs no longer being significant to the valuation of these loans.
|
There were no significant transfers in or out of level 3 cash instrument liabilities during the year ended December 2011.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Cash Instrument Assets at Fair Value for the Year Ended December 2010 |
|
| in millions |
|
Balance,
beginning
of year |
|
|
Net
realized
gains/
(losses) |
|
|
Net unrealized
gains/(losses)
relating
to
instruments
still held at
year-end
|
|
|
Net
purchases,
sales and
settlements |
|
|
Net
transfers
in and/or
(out) of
level 3 |
|
|
Balance,
end of
year |
|
|
Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate
|
|
$ |
5,794 |
|
|
$ |
239 |
|
|
$ |
108 |
|
|
$ |
(1,335 |
) |
|
$ |
(830 |
) |
|
$ |
3,976 |
|
|
Loans and securities backed by residential real estate
|
|
|
2,070 |
|
|
|
178 |
|
|
|
37 |
|
|
|
163 |
|
|
|
53 |
|
|
|
2,501 |
|
|
Bank loans and bridge loans
|
|
|
9,560 |
|
|
|
687 |
|
|
|
482 |
|
|
|
(735 |
) |
|
|
(89 |
) |
|
|
9,905 |
|
|
Corporate debt securities
|
|
|
2,235 |
|
|
|
239 |
|
|
|
348 |
|
|
|
488 |
|
|
|
(573 |
) |
|
|
2,737 |
|
|
State and municipal obligations
|
|
|
1,114 |
|
|
|
1 |
|
|
|
(25 |
) |
|
|
(393 |
) |
|
|
57 |
|
|
|
754 |
|
|
Other debt obligations
|
|
|
2,235 |
|
|
|
4 |
|
|
|
159 |
|
|
|
(263 |
) |
|
|
(861 |
) |
|
|
1,274 |
|
|
Equities and convertible debentures
|
|
|
11,871 |
|
|
|
119 |
|
|
|
548 |
|
|
|
(847 |
) |
|
|
(631 |
) |
|
|
11,060 |
|
|
Total
|
|
$ |
34,879 |
|
|
$
|
1,467
|
1 |
|
$
|
1,657
|
1 |
|
$ |
(2,922 |
) |
|
$ |
(2,874 |
) |
|
$ |
32,207 |
|
| |
|
| |
|
Level 3 Cash Instrument Liabilities at Fair Value for the Year
Ended December 2010 |
|
| in millions |
|
Balance,
beginning
of year |
|
|
Net
realized
(gains)/
losses |
|
|
Net unrealized
(gains)/losses
relating
to
instruments
still held at
year-end
|
|
|
Net
purchases,
sales and
settlements |
|
|
Net
transfers
in and/or
(out) of
level 3 |
|
|
Balance,
end of
year |
|
|
Total
|
|
$ |
572 |
|
|
$ |
5 |
|
|
$ |
(17 |
) |
|
$ |
(97 |
) |
|
$ |
(17 |
) |
|
$ |
446 |
|
| 1. |
The aggregate amounts include approximately $836 million, $1.03 billion and $1.26 billion reported in “Market making,” “Other principal
transactions” and “Interest income,” respectively.
|
The net unrealized gain on level 3 cash instrument assets and liabilities of $1.67 billion
for the year ended December 2010 primarily consisted of unrealized gains on private equity investments, bank loans and bridge loans and corporate debt securities, where prices were generally corroborated through sales and partial sales of similar
assets in these asset classes during the period.
Significant transfers in or out of level 3 cash instrument assets during the
year ended December 2010 included:
| Ÿ |
|
Loans and securities backed by commercial real estate: net transfer out of level 3 of $830 million, principally due to transfers to level 2 of
certain loans due to improved transparency of market prices as a result of partial sales.
|
| Ÿ |
|
Corporate debt securities: net transfer out of level 3 of $573 million, principally due to a reduction in financial instruments as a result of the
consolidation of a VIE which holds intangible assets.
|
| Ÿ |
|
Other debt obligations: net transfer out of level 3 of $861 million, principally due to a reduction in financial instruments as a result of the
consolidation of a VIE. The VIE holds real estate assets which are included in “Other assets.”
|
| Ÿ |
|
Equities and convertible debentures: net transfer out of level 3 of $631 million, principally due to transfers to level 2 of certain private equity
investments due to improved transparency of market prices as a result of partial sales and initial public offerings.
|
Investments in Funds That Calculate Net
Asset
Value Per Share
Cash instruments at fair value include investments in funds that are valued based on the
net asset value per share (NAV) of the investment fund. The firm uses NAV as its measure of fair value for fund investments when (i) the fund investment does not have a readily determinable fair value and (ii) the NAV of the investment
fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the underlying investments at fair value.
The firm’s investments in funds that calculate NAV primarily consist of investments in firm-sponsored funds where the firm co-invests with third-party investors. The private equity, private debt and
real estate funds are primarily closed-end funds in which the firm’s investments are not eligible for redemption. Distributions will be received from these funds as the underlying assets are
liquidated and it is estimated that substantially all of the underlying assets of existing funds will be liquidated over the next 10 years. The firm continues to manage its existing private
equity funds taking into account the transition periods under the Volcker Rule of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), although the rules have not yet been finalized.
The firm’s investments in hedge funds are generally redeemable on a quarterly basis with 91 days’ notice, subject to a maximum
redemption level of 25% of the firm’s initial investments at any quarter-end. The firm currently plans to comply with the Volcker Rule by redeeming certain of its interests in hedge funds.
The table below presents the fair value of the firm’s investments in, and unfunded commitments to, funds that calculate NAV.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 2011 |
|
|
|
|
As of December 2010 |
|
| in millions |
|
Fair Value of
Investments |
|
|
Unfunded
Commitments |
|
|
|
|
Fair Value of
Investments |
|
|
Unfunded
Commitments |
|
|
Private equity
funds 1
|
|
|
$ 8,074 |
|
|
|
$3,514 |
|
|
|
|
|
$ 7,911 |
|
|
|
$ 4,816 |
|
|
Private debt
funds 2
|
|
|
3,596 |
|
|
|
3,568 |
|
|
|
|
|
4,267 |
|
|
|
3,721 |
|
|
Hedge
funds 3
|
|
|
3,165 |
|
|
|
— |
|
|
|
|
|
3,169 |
|
|
|
— |
|
|
Real estate and other
funds 4
|
|
|
1,531 |
|
|
|
1,613 |
|
|
|
|
|
1,424 |
|
|
|
1,931 |
|
|
Total
|
|
|
$16,366 |
|
|
|
$8,695 |
|
|
|
|
|
$16,771 |
|
|
|
$10,468 |
|
| 1. |
These funds primarily invest in a broad range of industries worldwide in a variety of situations, including leveraged buyouts, recapitalizations and growth
investments.
|
| 2. |
These funds generally invest in loans and other fixed income instruments and are focused on providing private high-yield capital for mid- to large-sized
leveraged and management buyout transactions, recapitalizations, financings, refinancings, acquisitions and restructurings for private equity firms, private family companies and corporate issuers.
|
| 3. |
These funds are primarily multi-disciplinary hedge funds that employ a fundamental bottom-up investment approach across various asset classes and strategies
including long/short equity, credit, convertibles, risk arbitrage, special situations and capital structure arbitrage.
|
| 4. |
These funds invest globally, primarily in real estate companies, loan portfolios, debt recapitalizations and direct property.
|
|