Morgan Stanley 2009 Annual Report Download - page 66

the Company’s real estate investments and losses associated with certain investments for the benefit of the
Company’s employee deferred compensation and co-investment plans. Losses in 2009 were partially offset by
net investment gains associated with the Company’s alternatives business.
The results for 2009 also included operating losses of certain consolidated real estate funds sponsored by the
Company. The Company consolidated the funds during 2009 after providing them with financial assistance and
in light of the continued deterioration of equity in the funds. Earnings of these funds related to the limited
partnership interests not owned by the Company are reported in Net income (loss) applicable to non-controlling
interests on the consolidated statements of income.
The results in fiscal 2008 were primarily related to net investment losses associated with the Company’s
merchant banking business, including real estate and private equity investments, and losses associated with
certain investments for the benefit of the Company’s employee deferred compensation and co-investment
plans. Included in the net investment losses in fiscal 2008 were writedowns of approximately $250 million on
Crescent prior to its consolidation.
Asset Management, Distribution and Administration Fees. Asset management, distribution and administration
fees include revenues generated from the management and supervision of assets, performance-based fees relating to
certain funds, and separately managed accounts and fees relating to the distribution of certain open-ended mutual
funds. Asset management fees arise from investment management services the Company provides to investment
vehicles pursuant to various contractual arrangements. The Company receives fees primarily based upon mutual
fund daily average net assets or based on monthly or quarterly invested equity for other vehicles. Performance-
based fees are earned on certain funds as a percentage of appreciation earned by those funds and, in certain cases,
are based upon the achievement of performance criteria. These fees are normally earned annually and are
recognized on a monthly or quarterly basis.
Asset management, distribution and administration fees decreased 25% in 2009 compared with fiscal 2008. The
decrease in 2009 primarily reflected lower fund management and administration fees reflecting a decrease in
average assets under management.
Net flows in 2009 were associated with negative outflows across all asset classes. The Company’s decline in
assets under management from December 31, 2008 to December 31, 2009 included net customer outflows of
$41.1 billion, primarily in the Company’s money market, long-term fixed income and equity funds.
Other. Other revenues decreased 71% in 2009 compared with fiscal 2008. The results in 2009 reflected lower
revenues associated with Lansdowne Partners (“Lansdowne”), a London-based investment manager, in which the
Company has a non-controlling interest, and lower revenues associated with the Company’s repurchase of debt
(see “Certain Factors Affecting Results of Operations—Morgan Stanley Debt”, herein).
Non-interest Expenses. Non-interest expenses increased 2% in 2009 compared with fiscal 2008. The results in
2009 primarily reflected an increase in compensation and benefits expense. Compensation and benefits expense
increased 17% in 2009, primarily reflecting higher net revenues. Non-compensation expenses decreased 12% in
2009. Brokerage, clearing and exchange fees decreased 44% in 2009, primarily due to lower fee sharing
expenses. Marketing and business development expense decreased 40% in 2009, primarily due to lower levels of
business activity. Professional services expense decreased 20% in 2009, primarily due to lower consulting and
legal fees.
Fiscal 2008 Compared with Fiscal 2007
Investment banking revenues decreased 88% in fiscal 2008, primarily reflecting lower revenues from real estate
products.
62