Morgan Stanley 2009 Annual Report Download - page 154

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Hedge Funds. Investments in hedge funds may be subject to initial period lock-up restrictions or gates. A hedge
fund lock-up provision is a provision which provides that, during a certain initial period, an investor may not
make a withdrawal from the fund. The purpose of a gate is to restrict the level of redemptions that an investor in
a particular hedge fund can demand on any redemption date.
•Long-short Equity Hedge Funds. Amount includes investments in hedge funds that invest, long/short, in
equities. Equity value and growth hedge funds purchase stocks perceived to be undervalued and sell
stocks perceived to be overvalued. Investments representing approximately 38% of the fair value of the
investments in this category cannot be redeemed currently because the investments include certain initial
period lock-up restrictions. The remaining restriction period for 45% of investments subject to lock-up
restrictions ranged from one to three years at December 31, 2009. The remaining restriction period for the
other 55% of investments subject to lock-up restrictions was estimated to be greater than three years at
December 31, 2009. Investments representing approximately 50% of the fair value of the investments in
long-short equity hedge funds cannot be redeemed currently because an exit restriction has been imposed
by the hedge fund manager. The restriction period for 86% of investments subject to an exit restriction is
expected to be less than a year at December 31, 2009.
•Fixed Income/Credit-Related Hedge Funds. Amount includes investments in hedge funds that invest in
long-short, distressed, and relative value securities in order to benefit from undervalued or over-valued
securities that are primarily debt or credit related. Investments representing approximately 95% of the fair
value of the investments in fixed income/credit-related hedge funds cannot be redeemed currently
because the investments include certain initial period lock-up restrictions. The remaining restriction
period for these investments was three years or less at December 31, 2009.
•Event-Driven Hedge Funds. Amount includes investments in hedge funds that invest in event-driven
situations such as mergers, hostile takeovers, reorganizations, or leveraged buyouts. This may involve the
simultaneous purchase of stock in companies being acquired, and the sale of stock in its acquirer, hoping
to profit from the spread between the current market price and the ultimate purchase price of the target
company. Investments representing approximately 100% of the value of the investments in this category
cannot be redeemed currently because the investments include certain initial period lock-up restrictions.
The remaining restriction period for these investments was three years or less at December 31, 2009.
•Multi-strategy Hedge Funds. Amount includes investments in hedge funds that pursue multiple
strategies to realize short and long-term gains. Management of the hedge funds has the ability to
overweight or underweight different strategies to best capitalize on current investment opportunities.
Investments representing approximately 44% of the fair value of the investments in this category cannot
be redeemed currently because the investments include certain initial period lock-up restrictions. The
remaining restriction period for 63% of investments subject to lock-ups was three years or less at
December 31, 2009. In addition, investments representing approximately 27% of the fair value of the
investments in this category cannot be redeemed currently because an exit restriction has been imposed
by the hedge fund manager. The redemption restriction for all investments subject to an exit restriction
has been in place for less than two years at December 31, 2009 and the time at which the redemption
restriction may lapse cannot be estimated.
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