Goldman Sachs 2003 Annual Report Download - page 51

Management’s Discussion and Analysis
GOLDMAN SACHS 2003 ANNUAL REPORT 49
The following table sets forth our net asset (outflows)/inflows by asset class:
NET ASSET (OUTFLOWS)/INFLOWS BY ASSET CLASS
YEAR ENDED NOVEMBER 30
(IN BILLIONS) 2003(1)(2) 2002 2001
Money markets $(19) $(13) $52
Fixed income and currency 10 18 7
Equity (1) 63
Alternative investments 6(2) 5
Total non-money markets 15 22 15
Total net asset (outflows)/inflows $ (4) $ 9 $67
(1) Includes $4 billion in non-money market assets acquired in our combination with Ayco.
(2) Includes $16 billion in non-money market net asset outflows resulting from British Coal Pension Schemes’ planned program of diversification
among its asset managers.
2003 versus 2002 – Net revenues in Asset Management
and Securities Services of $2.86 billion for 2003 increased
14% compared with 2002. Asset Management net rev-
enues of $1.85 billion increased 12% compared with last
year, primarily reflecting an increase in average assets
under management, the contribution from Ayco and
increased incentive income. During 2003, assets under
management increased 7% to $373 billion, reflecting
market appreciation of $29 billion in equity, fixed income
and alternative investment assets. Net asset outflows for
the year were $4 billion, primarily reflecting net outflows
in money market assets, partially offset by net inflows in
fixed income assets and alternative investments. Net asset
outflows for the year included $16 billion in net outflows
related to British Coal Pension Schemes’ planned pro-
gram of diversification among its asset managers and
$4 billion in inflows acquired from Ayco. Securities
Services net revenues of $1.01 billion for 2003 increased
17% compared with 2002, primarily reflecting higher
customer balances in our securities lending and margin
lending businesses.
Operating expenses were $1.89 billion in 2003, 21%
higher than 2002, primarily due to increased compensa-
tion and benefits expenses resulting from higher discre-
tionary compensation. Operating expenses also increased
due to our combination with Ayco, higher professional
services and other expenses, and increased occupancy
expenses, primarily related to exit costs associated with
reductions in our global office space. Pre-tax earnings of
$968 million in 2003 increased 2% compared with 2002.
2002 versus 2001 – Net revenues in Asset Management
and Securities Services of $2.51 billion for 2002 increased
4% compared with 2001. Asset Management net rev-
enues of $1.65 billion increased 12% compared with
2001, primarily reflecting an 8% increase in average
assets under management and increased incentive
income. Assets under management were $348 billion at
the end of 2002, essentially flat compared with the end of
2001. Market depreciation of $12 billion, primarily in
equity assets, was partially offset by net asset inflows of
$9 billion, primarily in fixed income and equity assets.
The decline in net asset inflows compared with 2001 was
primarily due to a reduction in money market net
inflows, which were particularly strong in 2001.
Securities Services net revenues of $856 million for 2002
decreased 8% compared with 2001, primarily reflecting
lower net revenues in our margin lending business.
Operating expenses were $1.56 billion in 2002, 18%
higher than 2001, primarily due to increased compensa-
tion and benefits expenses, higher professional services
and other, occupancy and depreciation and amortization
expenses, partially offset by the elimination of goodwill
amortization. Pre-tax earnings of $947 million in 2002
decreased 12% compared with 2001.
Geographic Data
For a summary of the net revenues, pre-tax earnings and
identifiable assets of Goldman Sachs by geographic region,
see Note 15 to the consolidated financial statements.