Goldman Sachs 2013 Annual Report Download - page 135

Notes to Consolidated Financial Statements
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 private
equity, credit, real estate and hedge funds where the firm
co-invests with third-party investors.
Private equity funds primarily invest in a broad range of
industries worldwide in a variety of situations, including
leveraged buyouts, recapitalizations, growth investments
and distressed investments. Credit 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. Real estate funds invest
globally, primarily in real estate companies, loan portfolios,
debt recapitalizations and property. The private equity,
credit 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.
The firm also invests in hedge funds, 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. These 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; however,
these investments also include interests where the
underlying assets are illiquid in nature, and proceeds from
redemptions will not be distributed until the underlying
assets are liquidated.
Many of the funds described above are “covered funds” as
defined by the Volcker Rule of the U.S. Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank
Act) which has a conformance period that ends in July 2015
subject to possible extensions through 2017.
The firm continues to manage its existing funds, taking into
account the transition periods under the Volcker Rule. The
firm is currently redeeming certain of its interests in hedge
funds to comply with the Volcker Rule. Since March 2012,
the firm has redeemed approximately $2.21 billion of these
interests in hedge funds, including approximately
$1.15 billion during 2013 and $1.06 billion during 2012.
For certain of the firm’s covered funds, in order to be
compliant with the Volcker Rule by the prescribed
compliance date, to the extent that the underlying
investments of the particular funds are not sold, the firm
may be required to sell its investments in such funds. If that
occurs, the firm could receive a value for its investments
that is less than the then carrying value, as there could be a
limited secondary market for these investments and the firm
may be unable to sell them in orderly transactions.
The tables below present the fair value of the firm’s
investments in, and unfunded commitments to, funds that
calculate NAV.
As of December 2013
in millions
Fair Value of
Investments
Unfunded
Commitments
Private equity funds $ 7,446 $2,575
Credit funds 3,624 2,515
Hedge funds 1,394 —
Real estate funds 1,908 471
Total $14,372 $5,561
As of December 2012
in millions
Fair Value of
Investments Unfunded Commitments
Private equity funds $ 7,680 $2,778
Credit funds 3,927 2,843
Hedge funds 2,167 —
Real estate funds 2,006 870
Total $15,780 $6,491
Goldman Sachs 2013 Annual Report 133