Goldman Sachs 2013 Annual Report Download - page 129

Notes to Consolidated Financial Statements
Significant Unobservable Inputs
The tables below present the ranges of significant
unobservable inputs used to value the firm’s level 3 cash
instruments. These ranges represent the significant
unobservable inputs that were used in the valuation of each
type of cash instrument. Weighted averages in the tables
below are calculated by weighting each input by the relative
fair value of the respective financial instruments. The
ranges and weighted averages of these inputs are not
representative of the appropriate inputs to use when
calculating the fair value of any one cash instrument. For
example, the highest multiple presented in the tables below
for private equity investments is appropriate for valuing a
specific private equity investment but may not be
appropriate for valuing any other private equity
investment. Accordingly, the ranges of inputs presented
below do not represent uncertainty in, or possible ranges of,
fair value measurements of the firm’s level 3
cash instruments.
Level 3 Cash Instruments
Level 3 Assets
as of December 2013
(in millions)
Valuation Techniques and
Significant Unobservable Inputs
Range of Significant Unobservable
Inputs (Weighted Average)
as of December 2013
Loans and securities backed by commercial
real estate
‰Collateralized by a single commercial real estate
property or a portfolio of properties
‰May include tranches of varying levels
of subordination
$2,692 Discounted cash flows:
‰Yield 2.7% to 29.1% (10.1%)
‰Recovery rate 26.2% to 88.1% (74.4%)
‰Duration (years) 0.6 to 5.7 (2.0)
‰Basis (9) points to 20 points (5 points)
Loans and securities backed by residential real estate
‰Collateralized by portfolios of residential real estate
‰May include tranches of varying levels
of subordination
$1,961 Discounted cash flows:
‰Yield 2.6% to 25.8% (10.1%)
‰Cumulative loss rate 9.8% to 56.6% (24.9%)
‰Duration (years) 1.4 to 16.7 (3.6)
Bank loans and bridge loans $9,324 Discounted cash flows:
‰Yield 1.0% to 39.6% (9.3%)
‰Recovery rate 40.0% to 85.0% (54.9%)
‰Duration (years) 0.5 to 5.3 (2.1)
Non-U.S. government and agency obligations
Corporate debt securities
State and municipal obligations
Other debt obligations
$3,977 Discounted cash flows:
‰Yield 1.5% to 40.2% (8.9%)
‰Recovery rate 0.0% to 70.0% (61.9%)
‰Duration (years) 0.6 to 16.1 (4.2)
Equities and convertible debentures (including
private equity investments and investments in real
estate entities)
$14,685 1Comparable multiples:
‰Multiples 0.6x to 18.8x (6.9x)
Discounted cash flows:
‰Discount rate/yield 6.0% to 29.1% (14.6%)
‰Long-term growth rate/
compound annual growth rate
1.0% to 19.0% (8.1%)
‰Capitalization rate 4.6% to 11.3% (7.1%)
1. The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparables and discounted cash flows may be
used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques.
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