Goldman Sachs 2007 Annual Report Download - page 61

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Management’s Discussion and Analysis
Assets under management typically generate fees as a percentage
of asset value, which is affected by investment performance
and by inflows or redemptions. The fees that we charge vary by
asset class, as do our related expenses. In certain circumstances,
we are also entitled to receive incentive fees based on a percentage
of a fund’s return or when the return on assets under management
exceeds specified benchmark returns or other performance targets.
Incentive fees are recognized when the performance period
ends and they are no longer subject to adjustment. We have
numerous incentive fee arrangements, many of which have
annual performance periods that end on December 31. For
that reason, incentive fees have been seasonally weighted to
our first quarter.
Asset Management and Securities Services
Our Asset Management and Securities Services segment is
divided into two components:
■ ASSET MANAGEMENT. Asset Management provides investment
advisory and financial planning services and offers investment
products (primarily through separately managed accounts
and commingled vehicles, such as mutual funds and private
investment funds) across all major asset classes to a diverse
group of institutions and individuals worldwide and
primarily generates revenues in the form of management
and incentive fees.
■ SECURITIES SERVICES. Securities Services provides prime
brokerage services, financing services and securities lending
services to institutional clients, including hedge funds, mutual
funds, pension funds and foundations, and to high-net-worth
individuals worldwide, and generates revenues primarily in
the form of interest rate spreads or fees.
The following table sets forth the operating results of our Asset Management and Securities Services segment:
Asset Management and Securities Services Operating Results
Year Ended November
(in millions) 2007 2006 2005
Management and other fees $4,303 $3,332 $2,629
Incentive fees 187 962 327
Total Asset Management 4,490 4,294 2,956
Securities Services 2,716 2,180 1,793
Total net revenues 7,206 6,474 4,749
Operating expenses 5,363 4,036 3,070
Pre-tax earnings $1,843 $2,438 $1,679
Assets under management include our mutual funds, alternative investment funds and separately managed accounts for institutional
and individual investors. Substantially all assets under management are valued as of calendar month end. Assets under management
do not include assets in brokerage accounts that generate commissions, mark-ups and spreads based on transactional activity,
or our own investments in funds that we manage.
The following table sets forth our assets under management by asset class:
Assets Under Management by Asset Class
As of November 30
(in billions) 2007 2006 2005
Alternative investments
(1)
$151 $145 $110
Equity 255 215 167
Fixed income 256 198 154
Total non-money market assets 662 558 431
Money markets 206 118 101
Total assets under management $868 $676 $532
(1) Primarily includes hedge funds, private equity, real estate, currencies, commodities and asset allocation strategies.
59Goldman Sachs 2007 Annual Report