AIG 2015 Annual Report Download - page 263

ITEM 8 / NOTE 4. FAIR VALUE MEASUREMENTS
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263
Distressed Securities of companies that are in default, under
bankruptcy protection, or troubled 146 41 164 43
Other Includes multi-strategy, mezzanine, and other strategies 298 239 216 234
Total private equity funds 2,631 970 3,160 980
Hedge funds:
Event-driven Securities of companies undergoing material structural
changes, including mergers, acquisitions and other
reorganizations 1,194 - 1,109 -
Long-short Securities that the manager believes are undervalued,
with corresponding short positions to hedge market risk 2,978 25 2,428 1
Macro Investments that take long and short positions in financial
instruments based on a top-down view of certain
economic and capital market conditions 555 - 498 -
Distressed Securities of companies that are in default, under
bankruptcy protection or troubled 699 8 731 5
Emerging markets Investments in the financial markets of developing
countries 353 - 308 -
Other Includes multi-strategy, relative value, and other strategies 167 - 125 -
Total hedge funds 5,946 33 5,199 6
Tot al $8,577 $1,003 $ 8,359 $986
Private equity fund investments included above are not redeemable, because distributions from the funds will be received
when underlying investments of the funds are liquidated. Private equity funds are generally expected to have 10-year lives at
their inception, but these lives may be extended at the fund manager’s discretion, typically in one or two-year increments. At
December 31, 2015, assuming average original expected lives of 10 years for the funds, 78 percent of the total fair value using
net asset value per share (or its equivalent) presented above would have expected remaining lives of three years or less, 6
percent between four and six years and 16 percent between seven and 10 years.
The hedge fund investments included above are generally redeemable monthly (14 percent), quarterly (47 percent), semi-
annually (14 percent) and annually (25 percent), with redemption notices ranging from one day to 180 days. At December 31,
2015, however, investments representing approximately 46 percent of the total fair value of the hedge fund investments cannot
be redeemed, either in whole or in part, because the investments include various contractual restrictions. The majority of these
contractual restrictions, which may have been put in place at the fund’s inception or thereafter, have pre-defined end dates and
are generally expected to be lifted by the end of 2016. The fund investments for which redemption is restricted only in part
generally relate to certain hedge funds that hold at least one investment that the fund manager deems to be illiquid.
Fair Value Option
Under the fair value option, we may elect to measure at fair value financial assets and financial liabilities that are not otherwise
required to be carried at fair value. Subsequent changes in fair value for designated items are reported in earnings. We elect
the fair value option for certain hybrid securities given the complexity of bifurcating the economic components associated with
the embedded derivatives. Refer to Note 10 for additional information related to embedded derivatives.
Additionally, we elect the fair value option for certain alternative investments when such investments are eligible for this
election. We believe this measurement basis is consistent with the applicable accounting guidance used by the respective
investment company funds themselves. Refer to Note 5 herein for additional information.