Prudential 2015 Annual Report Download - page 38

Adjusted Operating Income
2015 to 2014 Annual Comparison. Adjusted operating income decreased $6 million. Higher asset management fees from growth in
assets under management were more than offset by higher expenses, including distribution costs associated with higher retail sales and
expenses relating to business growth initiatives. The decrease also reflected lower other related revenues, net of expenses, primarily related
to lower strategic investing results.
2014 to 2013 Annual Comparison. Adjusted operating income increased $62 million. The increase primarily reflected higher asset
management fees, net of expenses, from growth in assets under management. The increase also reflected higher other related revenues, net
of expenses, primarily related to higher performance-based incentive fees, partially offset by lower commercial mortgage results.
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,
2015 2014 2013
(in millions)
Revenues by type:
Asset management fees by source:
Institutional customers .......................................................................... $ 923 $ 877 $ 838
Retail customers(1) ............................................................................ 764 720 631
General account ............................................................................... 448 424 412
Total asset management fees ................................................................. 2,135 2,021 1,881
Incentive fees ..................................................................................... 88 91 62
Transaction fees ................................................................................... 20 26 25
Strategic investing ................................................................................. 30 45 52
Commercial mortgage(2) ............................................................................ 103 100 115
Other related revenues(3) .................................................................... 241 262 254
Service, distribution and other revenues(4) .............................................................. 568 557 543
Total revenues ............................................................................ $2,944 $2,840 $2,678
(1) Consists of fees from: individual mutual funds and variable annuities and variable life insurance separate account assets; funds invested in proprietary
mutual funds through our defined contribution plan products; and third-party sub-advisory relationships. Revenues from fixed annuities and the fixed-
rate accounts of 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) Future revenues will be impacted by the level and diversification of our strategic investments, the commercial real estate market, and other domestic and
international markets.
(4) 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 $78 million in 2015, $77 million in 2014 and $75 million in 2013.
2015 to 2014 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” increased $104 million.
Asset management fees increased $114 million primarily as a result of higher assets under management due to positive net asset flows and
market appreciation. Service, distribution and other revenues increased $11 million reflecting higher fees from certain consolidated funds,
which were partially offset by higher expenses related to noncontrolling interests in these funds. Partially offsetting these increases was a
$15 million decrease in strategic investing revenues, primarily reflecting a gain on the sale of an investment in the prior year.
Expenses, as shown in the table above under “—Operating Results,” increased $110 million, including expenses related to business
growth initiatives, commissions from higher retail sales and higher expenses related to revenues associated with certain consolidated funds,
as discussed above.
2014 to 2013 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” increased $162 million.
Asset management fees increased $140 million primarily as a result of higher assets under management due to market appreciation and
positive net asset flows. Performance-based incentive fees increased $29 million primarily related to certain fixed income funds. Service,
distribution and other revenues increased $14 million mainly reflecting higher fees and net investment income related to certain
consolidated funds. Partially offsetting these increases was a $15 million decrease in commercial mortgage revenues, driven by the
continued run off of the interim loan portfolio.
Expenses, as shown in the table above under “—Operating Results,” increased $100 million, primarily driven by higher compensation
costs.
36 Prudential Financial, Inc. 2015 Annual Report