Morgan Stanley 2010 Annual Report Download - page 77

real estate funds sponsored by the Company and net investment gains in the merchant banking and core
businesses, including certain investments associated with the Company’s employee deferred compensation and
co-investment plans. The results in 2009 primarily related to net investment losses associated with the
Company’s real estate investments and losses related to certain investments associated with the Company’s
employee deferred compensation and co-investment plans, partially offset by net investment gains associated
with the Company’s alternatives business.
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 increased 4% in 2010, primarily reflecting higher fund
management and administration fees, partially offset by lower performance fees. The higher fund management
and administration fees reflected an increase in average assets under management. The Company’s assets under
management increased $13 billion from December 31, 2009 to December 31, 2010 reflecting market
appreciation, partially offset by net customer outflows, primarily in the Company’s money market funds. The
Company recorded net customer outflows of $5.7 billion in 2010 compared with net outflows of $41.1 billion in
2009.
Other. Other revenues increased $118 million in 2010 compared with 2009. The results in 2010 included a
pre-tax gain of approximately $96 million from the sale of the Company’s investment in Invesco (see Notes 5
and 19 to the consolidated financial statements). See “Introduction—Overview of 2010 Financial Results” herein
for further information. The increase in 2010 also reflected gains associated with the reduction of a lending
facility to a real estate fund sponsored by the Company and higher revenues associated with the Company’s
minority stake investments in Avenue Capital Group, a New York-based investment manager, and Lansdowne
Partners (“Lansdowne”), a London-based investment manager. These increases were partially offset by
impairment charges of $126 million related to FrontPoint (see Note 28 to the consolidated financial statements).
Non-interest Expenses. Non-interest expenses increased 1% in 2010 compared with 2009. The results in 2010
primarily reflected an increase in Compensation and benefits expense, partially offset by a decrease in
Non-compensation expenses. Compensation and benefits expenses increased 2% in 2010 due to certain
international tax equalization payments and principal investment gains in the current year related to employee
deferred compensation and co-investment plans. Non-compensation expenses for 2010 included intangible asset
impairment charges of $67 million related to certain investment management contracts.
2009 Compared with Fiscal 2008.
Investment banking revenues decreased 62% in 2009 from fiscal 2008, primarily reflecting lower revenues from
real estate products.
In 2009, the Company recognized Principal transaction—Trading losses of $68 million compared with losses of
$331 million in fiscal 2008. Trading results in 2009 included mark-to-market losses related to a lending facility
to a real estate fund sponsored by the Company and losses from hedges on certain investments and long-term
debt. Losses in 2009 were partially offset by net gains of $164 million related to securities issued by SIVs
compared with losses of $470 million in fiscal 2008.
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