Morgan Stanley 2014 Annual Report Download - page 87

2014 Compared with 2013.
Investment Banking. The Company’s Investment Management business segment generates investment
banking revenues primarily from the placement of investments in real estate and merchant banking funds.
Trading. See “Business Segments—Net Revenues” herein for information about the composition of Trading
revenues.
The Company recognized a loss of $19 million in 2014 compared with a gain of $41 million in 2013, which
primarily reflected losses and gains, respectively, related to certain consolidated real estate funds sponsored by
the Company.
Investments. Real estate and private equity investments generally are held for long-term appreciation and
generally subject to significant sales restrictions. Estimates of the fair value of the investments involve
significant judgment and may fluctuate significantly over time in light of business, market, economic and
financial conditions generally or in relation to specific transactions.
The Company recorded net investment gains of $587 million in 2014 compared with gains of $1,056 million in
2013. The decrease in 2014 primarily related to lower net investment gains and the non-recurrence of carried
interest in the Company’s Merchant Banking and Real Estate Investing businesses and lower gains from
investments in the Company’s employee deferred compensation and co-investment plans. 2014 results were also
negatively impacted by the deconsolidation in the second quarter of 2014 of certain legal entities associated with
a real estate fund sponsored by the Company.
Asset Management, Distribution and Administration Fees. “See Business Segments—Net Revenues” herein
for information about the composition of Asset management, distribution and administration fees.
Asset management, distribution and administration fees increased 7% from 2013 to $2,049 million in 2014. The
increase primarily reflected higher management and administration revenues, as a result of higher average assets
under management.
The Company’s assets under management increased $26 billion from $377 billion at December 31, 2013 to
$403 billion at December 31, 2014, reflecting positive net flows and market appreciation. The Company recorded
net inflows of $24 billion in 2014, reflecting net customer inflows in liquidity, fixed income and alternatives
funds, partially offset by outflows in equity and managed futures. The Company recorded net customer inflows
of $12 billion in 2013, primarily in liquidity funds.
Other. Other revenues were $106 million in 2014 as compared with $32 million in 2013. The results in 2014
included higher revenues associated with the Company’s minority investment in certain third-party investment
managers and a $17 million gain on sale of a retail property space.
Non-interest Expenses. Non-interest expenses of $2,048 million in 2014 were essentially unchanged from
2013. Compensation and benefits expenses increased 2% in 2014 due to the reduction in deferral rates for
incentive-based compensation, an increase in amortization due to accelerated vesting of certain awards and
increases in salaries partially offset by a decrease in the fair value of deferred compensation plan referenced
investments (see also “Business Segments— Compensation Expense—Discretionary Incentive Compensation”
herein). Non-compensation expenses decreased 3% in 2014, primarily due to an impairment expense related to
certain intangible assets (management contracts) associated with alternative investments funds in the prior-year
period and the result of lower consumption taxes in the European Union.
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