Prudential 2011 Annual Report Download - page 130

Asset Management Subsidiaries
Our asset management businesses, which include real estate, public and private fixed income and public equity asset management, as
well as commercial mortgage origination and servicing, and retail investment products, such as mutual funds and other retail services, are
largely unregulated from the standpoint of dividends and distributions. Our asset management subsidiaries through which we conduct these
businesses generally do not have restrictions on the amount of distributions they can make, and the fee-based asset management business
can provide a relatively stable source of cash flow to Prudential Financial.
The principal sources of liquidity for our fee-based asset management businesses include asset management fees and commercial
mortgage servicing fees. The principal uses of liquidity include general and administrative expenses and distribution of dividends and
returns of capital to Prudential Financial. The primary liquidity risks for our fee-based asset management businesses relate to their
profitability, which is impacted by market conditions and our investment management performance. We believe the cash flows from our
fee-based asset management businesses are adequate to satisfy the current liquidity requirements of these operations, as well as
requirements that could arise under reasonably foreseeable stress scenarios, which are monitored through the use of internal measures.
The principal sources of liquidity for our strategic investments and interim loans held in our asset management businesses are cash
flows from investments, the ability to liquidate investments, and available borrowing lines from internal sources, including Prudential
Funding and Prudential Financial. The primary liquidity risks include the inability to sell assets in a timely manner, declines in the value of
assets and credit defaults.
In April 2009, our commercial mortgage origination and servicing business received approval to participate in a Fannie Mae
alternative delivery program known as ASAP Plus (“As Soon as Pooled” delivery). Our approval limit for outstanding balances on ASAP
Plus is presently $150 million. This program allows us to assign a qualified Fannie Mae loan trade commitment to Fannie Mae as early as
the next business day after a loan closes, and receive 99% of the loan purchase price from Fannie Mae. The program does not eliminate the
need to provide temporary warehouse financing, but does significantly reduce the duration of funding requirements for eligible Fannie Mae
originated loans from the normal delivery cycle of two to four weeks down to as little as one to two days. There was no balance outstanding
on this program as of December 31, 2011.
Certain real estate funds under management are held for the benefit of clients in insurance company separate accounts sponsored by
Prudential Insurance. In the normal course of business, Prudential Insurance, on behalf of these separate accounts, may contractually agree
to various funding commitments which may include, among other things, commitments to purchase real estate, to invest in real estate
partnerships (both existing and to-be-formed) to acquire or develop real estate, and/or to fund additional construction or other expenditures
on previously-acquired real estate investments. Certain commitments to purchase real estate are contingent on the developer’s development
of the property according to plans and specifications outlined in a pre-sale agreement or the completed property achieving a certain level of
leasing. These contractual commitments are typically entered into by Prudential Insurance on behalf of the particular separate account. Real
estate investments that are acquired for a separate account are titled either in the name of Prudential Insurance or an LLC subsidiary
specifically formed to hold title. In certain cases, the commitments specify that Prudential Insurance’s recourse liability for the obligation is
limited to the assets of the separate account.
At December 31, 2011 and 2010, total outstanding purchase commitments related to such separate account activity were $3.4 billion
and $5.3 billion, respectively, which amounts include both off- and on-balance sheet commitments. The decrease in total outstanding
purchase commitments during the last twelve months was primarily driven by the satisfaction of outstanding debt commitments, which
were funded from investor capital contributions and property sales. The following is a summary of the outstanding purchase commitments
for these separate account portfolios as of December 31, 2011. Off-balance sheet commitments include capital commitments and
commitments with respect to properties that have not yet substantially satisfied pre-conditions and are considered contingent liabilities.
On-balance sheet commitments represent obligations which have substantially satisfied conditions to funding of the commitments.
Contractual Maturity Date
2012 2013 After 2013 Total
(in millions)
Off-Balance Sheet Commitments:
Recourse to Prudential Insurance ............................................................. $ 380 $ 17 $ 0 $ 397
Recourse limited to assets of separate accounts .................................................. 525 196 0 721
Total Off-Balance Sheet Commitments .................................................... 905 213 0 1,118
On-Balance Sheet Commitments:
Recourse to Prudential Insurance ............................................................. 701 0 17 718
Recourse limited to assets of separate accounts .................................................. 1,337 188 18 1,543
Total On-Balance Sheet Commitments .................................................... 2,038 188 35 2,261
Total Commitments ................................................................... $2,943 $401 $35 $3,379
The contractual maturity dates of some of the outstanding purchase commitments may accelerate upon a failure to maintain required
loan-to-value ratios, failure of Prudential Insurance to maintain required ratings or failure to satisfy other financial covenants.
Some separate accounts have also entered into syndicated credit facilities providing for borrowings in the aggregate amount of up to
$0.8 billion. As of December 31, 2011, there were no outstanding borrowings under these credit facilities. These facilities also include
loan-to-value ratio requirements and other financial covenants. Recourse on obligations under these facilities is limited to the assets of the
applicable separate account. As of December 31, 2011, these separate account portfolios had combined gross and net asset values of $28
billion and $17 billion, respectively.
128 Prudential Financial, Inc. 2011 Annual Report