Goldman Sachs 2015 Annual Report Download - page 144

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Significant Unobservable Inputs
The table below presents the ranges and weighted averages
of significant unobservable inputs used to value the firm’s
level 3 cash instruments. In the table below:
‰Ranges represent the significant unobservable inputs that
were used in the valuation of each type of cash
instrument.
‰Weighted averages are calculated by weighting each input
by the relative fair value of the 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.
‰Increases in yield, discount rate, capitalization rate,
duration or cumulative loss rate used in the valuation of
the firm’s level 3 cash instruments would result in a lower
fair value measurement, while increases in recovery rate,
basis, multiples, long-term growth rate or compound
annual growth rate would result in a higher fair value
measurement. Due to the distinctive nature of each of the
firm’s level 3 cash instruments, the interrelationship of
inputs is not necessarily uniform within each product
type.
‰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.
Level 3 Cash Instruments
Valuation Techniques and
Significant Unobservable Inputs
Range of Significant Unobservable Inputs (Weighted Average)
As of December 2015 As of December 2014
Loans and securities backed by commercial real
estate
‰Directly or indirectly collateralized by a single
commercial real estate property or a portfolio of
properties
‰May include tranches of varying levels of
subordination
($1.92 billion and $3.28 billion of level 3 assets as
of December 2015 and December 2014,
respectively)
Discounted cash flows:
‰Yield 3.5% to 22.0% (11.8%) 3.2% to 20.0% (10.5%)
‰Recovery rate 19.6% to 96.5% (59.4%) 24.9% to 100.0% (68.3%)
‰Duration (years) 0.3 to 5.3 (2.3) 0.3 to 4.7 (2.0)
‰Basis (11) points to 4 points ((2) points) (8) points to 13 points (2 points)
Loans and securities backed by residential real
estate
‰Directly or indirectly collateralized by portfolios of
residential real estate
‰May include tranches of varying levels of
subordination
($1.77 billion and $2.55 billion of level 3 assets as
of December 2015 and December 2014,
respectively)
Discounted cash flows:
‰Yield 3.2% to 17.0% (7.9%) 1.9% to 17.5% (7.6%)
‰Cumulative loss rate 4.6% to 44.2% (27.3%) 0.0% to 95.1% (24.4%)
‰Duration (years) 1.5 to 13.8 (7.0) 0.5 to 13.0 (4.3)
Bank loans and bridge loans
($3.15 billion and $6.97 billion of level 3 assets as
of December 2015 and December 2014,
respectively)
Discounted cash flows:
‰Yield 1.9% to 36.6% (10.2%) 1.4% to 29.5% (8.7%)
‰Recovery rate 14.5% to 85.6% (51.2%) 26.6% to 92.5% (60.6%)
‰Duration (years) 0.7 to 6.1 (2.2) 0.3 to 7.8 (2.5)
Non-U.S. government and agency obligations
Corporate debt securities
State and municipal obligations
Other debt obligations
($2.74 billion and $4.75 billion of level 3 assets as
of December 2015 and December 2014,
respectively)
Discounted cash flows:
‰Yield 0.9% to 25.6% (10.9%) 0.9% to 24.4% (9.2%)
‰Recovery rate 0.0% to 70.0% (59.7%) 0.0% to 71.9% (59.2%)
‰Duration (years) 1.1 to 11.4 (4.5) 0.5 to 19.6 (3.7)
Equities and convertible debentures (including
private equity investments and investments in real
estate entities)
($8.55 billion and $11.11 billion of level 3 assets as
of December 2015 and December 2014,
respectively)
Market comparables and
discounted cash flows:
‰Multiples 0.7x to 21.4x (6.4x) 0.8x to 16.6x (6.5x)
‰Discount rate/yield 7.1% to 20.0% (14.8%) 3.7% to 30.0% (14.4%)
‰Long-term growth rate/
compound annual growth rate
3.0% to 5.2% (4.5%) 1.0% to 10.0% (6.0%)
‰Capitalization rate 5.5% to 12.5% (7.6%) 3.8% to 13.0% (7.6%)
132 Goldman Sachs 2015 Form 10-K