Morgan Stanley 2009 Annual Report Download - page 153

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(2) Amounts represent unrealized gains (losses) for the one month ended December 31, 2008 related to assets and liabilities still outstanding
at December 31, 2008.
(3) Net derivative and other contracts represent Financial instruments owned—derivative and other contracts net of Financial instruments
sold, not yet purchased—derivative and other contracts. For further information on derivative instruments and hedging activities, see
Note 10.
Financial instruments owned—Net derivative and other contracts. The net losses in Net derivative and other
contracts were primarily driven by tightening of credit spreads on underlying reference entities of certain basket
credit default swaps, single name credit default swaps and corporate tranche-indexed credit default swaps.
The Company reclassified certain Net derivative contracts from Level 3 to Level 2. The reclassifications were
primarily related to corporate tranche-indexed credit default swaps. The reclassifications were due to an increase
in transaction data, available broker quotes and/or available consensus pricing, such that significant inputs for the
fair value measurement were observable.
Fair Value of Investments that Calculate Net Asset Value.
The following table presents information about the Company’s investments in private equity funds, real estate
funds and hedge funds measured at fair value based on NAV as of December 31, 2009.
Fair Value
Unfunded
Commitment
(dollars in millions)
Private equity funds ............................................ $1,728 $1,251
Real estate funds ............................................... 823 674
Hedge funds(1):
Long-short equity hedge funds ................................ 1,597 —
Fixed income/credit-related hedge funds ........................ 407 —
Event-driven hedge funds .................................... 146 —
Multi-strategy hedge funds ................................... 235 —
Total ........................................................ $4,936 $1,925
(1) Fixed income/credit-related hedge funds, event-driven hedge funds, and multi-strategy hedge funds are redeemable at least on a quarterly
basis with a notice period of ninety days or less. Approximately 36% of the fair value amount of long-short equity hedge funds is
redeemable at least quarterly, 15% is redeemable every six months and 49% of these funds have a redemption frequency of greater than
six months. The notice period for long-short equity hedge funds is primarily ninety days or less.
Private Equity Funds. Amount includes several private equity funds that pursue multiple strategies including
leveraged buyouts, venture and infrastructure growth capital, distressed investments, and mezzanine capital. In
addition, the funds may be structured with a focus on specific domestic or foreign geographic regions. These
investments are generally not redeemable with the funds. Instead, the nature of the investments in this category is
that distributions are received through the liquidation of the underlying assets of the fund. It is estimated that
32% of fair value of the funds will be liquidated within the next five years, another 29% of the fair value of the
funds will be liquidated between five to ten years and the remaining 39% of the fair value of the funds have a
remaining life of greater than ten years.
Real Estate Funds. Amount includes several real estate funds that invest in real estate assets such as commercial
office buildings, retail properties, multi-family residential properties, developments, or hotels. In addition, the funds
may be structured with a focus on specific geographic domestic or foreign regions. These investments are generally
not redeemable with the funds. Distributions from each fund will be received as the underlying investments of the
funds are liquidated. It is estimated that a majority of real estate funds have a remaining life of greater than 10 years.
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