Prudential 2012 Annual Report Download - page 37

Asset Management
Operating Results
The following table sets forth the Asset Management segment’s operating results for the periods indicated.
Year ended December 31,
2012 2011 2010
(in millions)
Operating results:
Revenues ....................................................................................... $2,398 $2,531 $2,005
Expenses ....................................................................................... 1,895 1,749 1,499
Adjusted operating income ......................................................................... 503 782 506
Realized investment gains (losses), net, and related adjustments ........................................ (47) (1) 13
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests ............. 68 65 (2)
Income from continuing operations before income taxes and equity in earnings of operating joint ventures .......... $ 524 $ 846 $ 517
Adjusted Operating Income
2012 to 2011 Annual Comparison. Adjusted operating income decreased $279 million. The decrease reflects a $131 million lower
contribution from the segment’s strategic investing activities in 2012 largely due to $69 million of declines in values in two real estate
investments, one of which was sold in 2012, while strategic investing activities in 2011 included a $64 million gain on a partial sale of a
real estate seed investment. The decrease in adjusted operating income also reflects the absence of a $96 million gain on sale of our
investment in an operating joint venture in 2011, as discussed below. Additionally, results for 2012 reflect an increase in operating
expenses reflecting business growth, increased expenses related to new fund launches and increased compensation costs.
These decreases were partially offset by an increase in asset management fees, before associated expenses, primarily from institutional
and retail customer assets as a result of higher asset values due to positive net asset flows and market appreciation in 2012.
2011 to 2010 Annual Comparison. Adjusted operating income increased $276 million. Results in 2011 reflect an increase in asset
management fees, before associated expenses, of $215 million primarily from retail and institutional customer assets as a result of higher
asset values due to positive net asset flows primarily into fixed income accounts as well as market appreciation in 2011. Also contributing
to the increase was a $96 million gain on sale of our investment in an operating joint venture, Afore XXI, a pension fund manager in
Mexico. Results from the segment’s commercial mortgage activities increased $77 million primarily driven by lower net credit and
valuation-related charges on interim loans of $64 million resulting primarily from loan payoffs in 2011 and $20 million of higher gains on
sales of foreclosed commercial real estate assets in 2011. Also, results of the segment’s strategic investing activities increased $68 million
primarily due to a $64 million gain resulting from the partial sale of a real estate seed investment in 2011 as discussed above.
These increases were partially offset by increased operating expenses, primarily related to compensation as well as other costs
supporting the business.
Revenues and Expenses
The following table sets forth the Asset Management segment’s revenues, presented on a basis consistent with the table above under
“—Operating Results,” by type.
Year ended December 31,
2012 2011 2010
(in millions)
Revenues by type:
Asset management fees by source:
Institutional customers ........................................................................ $ 775 $ 729 $ 639
Retail customers(1) ........................................................................... 509 452 372
General account ............................................................................. 383 360 315
Total asset management fees ................................................................ 1,667 1,541 1,326
Incentive fees ................................................................................... 15 50 71
Transaction fees ................................................................................. 40 35 23
Strategic investing ................................................................................ (12) 118 49
Commercial mortgage(2) .......................................................................... 164 136 67
Other related revenues .................................................................... 207 339 210
Service, distribution and other revenues(3) ............................................................ 524 651 469
Total revenues ........................................................................... $2,398 $2,531 $2,005
(1) Consists of fees from: (a) individual mutual funds and both variable annuities and variable life insurance asset management revenues from our separate
accounts; (b) funds invested in proprietary mutual funds through our defined contribution plan products; and (c) third-party sub-advisory relationships.
Revenues from fixed annuities and the fixed-rate accounts of both variable annuities and variable life insurance are included in the general account.
(2) Includes mortgage origination and spread lending revenues of our commercial mortgage origination and servicing business.
(3) Includes payments from Wells Fargo under an agreement dated as of July 30, 2004 implementing arrangements with respect to money market mutual
funds in connection with the combination of our retail securities brokerage and clearing operations with those of Wells Fargo. The agreement extends
for ten years after termination of the Wachovia Securities joint venture, which occurred on December 31, 2009. The revenue from Wells Fargo under
this agreement was $66 million in 2012, $74 million in 2011 and $66 million in 2010.
Prudential Financial, Inc. 2012 Annual Report 35