Baker Hughes 2014 Annual Report Download - page 99

Baker Hughes Incorporated
Notes to Consolidated Financial Statements
74
The majority of investments are held in the form of units of funds. The funds hold underlying securities and are
redeemable as of the measurement date. Investments in equities and fixed-income funds are generally measured
at fair value based on daily closing prices provided by active exchanges or on the basis of observable, market-
based inputs. Investments in hedge funds are generally measured at fair value on the basis of their net asset
values, which are provided by the investment sponsor or third party administrator. The fair values of private equity
investments and real estate funds are based on appraised values developed using comparable market transactions
or discounted cash flows.
U.S. Pension Plan
The investment policy of the U.S. Pension Plan was developed after examining the historical relationships of
risk and return among asset classes and the relationship between the expected behavior of the U.S. Plan’s assets
and liabilities. The investment policy of the U.S. Plan is designed to provide the greatest probability of meeting or
exceeding the U.S. Plan’s objectives at the lowest possible risk. In evaluating risk, the investment committee for the
U.S. Pension Plan (“U.S. Committee”) reviews the long-term characteristics of various asset classes, focusing on
balancing risk with expected return. Accordingly, the U.S. Committee selected the following six asset classes as
allowable investments for the assets of the U.S. Pension Plan: U.S. equities, non-U.S. equities, global fixed-income
securities, real estate, hedge funds and private equity.
The fair value of the assets in our U.S. Pension Plan at December 31, 2014 and 2013, by asset category, are
presented below and were determined based on valuation techniques categorized as follows:
• Level One: The use of quoted prices in active markets for identical financial instruments.
• Level Two: The use of quoted prices for similar instruments in active markets or quoted prices for identical
or similar instruments in markets that are not active or other inputs that are observable in the market or can
be corroborated by observable market data.
• Level Three: The use of significantly unobservable inputs that typically require the use of management's
estimates of assumptions that market participants would use in pricing.
2014 2013
Asset Category
Total
Asset
Value Level One Level Two Level Three
Total
Asset
Value Level One Level Two Level Three
Cash and Cash Equivalents $3$ — $ 3 $ — $ 5 $ 4 $ 1 $ —
Fixed Income (1) 125 — 125 — 111 — 111 —
Non-U.S. Equity (2) 148 30 118 — 132 — 132 —
U.S. Equity (3) 169 — 169 — 148 — 148 —
Hedge Funds (4) 164 — — 164 190 — — 190
Real Estate Funds (5) 10 — — 10 9 — — 9
Real Estate Investment Trust Equity 8— 8 — 6 — 6 —
Private Equity Fund (6) 21 — — 21 16 — — 16
Total $ 648 $ 30 $ 423 $ 195 $ 617 $ 4 $ 398 $ 215
(1) A multi-manager strategy investing in fixed income securities and funds. The current allocation includes:
39% in unconstrained bond funds; 30% in government bonds; 11% in corporate bonds; 10% in government
mortgage-backed securities; 6% in government agencies; 2% in asset-backed securities; and 2% in cash
and other securities.
(2) Multi-manager strategy investing in common stocks of non-U.S. listed companies using both value and
growth approaches.
(3) Multi-manager strategy investing in common stocks of U.S. listed companies using value and growth
approaches.
(4) Strategies taking long and short positions in equities, fixed income securities, currencies and derivative
contracts.