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GOLDMAN฀SAC H S ฀ 2004฀ A N N U A L ฀ R E P ORT ฀ ฀ ฀ 4 9
management’s฀discussion฀and฀analysis
management’s฀discussion฀and฀analysis
GOLDMAN฀SAC H S ฀ 2004฀ A N N U A L ฀ R E P ORT ฀ ฀ ฀ 4 9
BES฀•฀Phone฀(201)฀635-5240฀฀•฀FAX฀(201)฀635-5199
BPX/S10829฀•฀Flow฀15฀•฀Proof฀10฀•฀2/4/05฀•฀0700
2004฀v e rsus฀200 3 ฀–฀Net revenues in Asset Management and
Securities Services of $3.85 billion for 2004 increased 35%
compared with 2003. Asset Management net revenues of
$2.55 billion increased 38% compared with 2003, primarily
due to higher average assets under management, significantly
higher incentive fees and a full year contribution from Ayco.
During 2004, assets under management increased 21% to
$452 billion, reflecting net asset inflows of $52 billion, across all
asset classes, as well as market appreciation of $27 billion,
primarily in equity and fixed income assets. Securities Services
net revenues of $1.30 billion increased 29% compared with
2003, primarily due to significantly higher customer balances in
securities lending and margin lending.
Operating expenses were $2.43 billion, 29% higher than 2003,
primarily due to increased compensation and benefits expenses
resulting from higher discretionary compensation and increased
levels of employment. In addition, other expenses increased,
principally due to higher levels of business activity, including
increased Asset Management distribution costs. Professional
fees were also higher, primarily reflecting increased legal and
consulting fees. These increases were partially offset by lower
depreciation and amortization and occupancy expenses, pri-
marily reflecting lower exit costs associated with reductions in
our global office space. Pre-tax earnings of $1.42 billion
increased 47% compared with 2003.
2003฀v e rsus฀200 2 ฀–฀Net revenues in Asset Management and
Securities Services of $2.86 billion for 2003 increased 14%
compared with 2002. Asset Management net revenues of
$1.85 billion increased 12% compared with 2002, primarily
reflecting an increase in average assets under management, the
contribution from Ayco and increased incentive income. During
2003, assets under management increased 7% to $373 billion,
reflecting market appreciation of $29 billion in equity, fixed
income and alternative investment assets. Net asset outflows for
2003 were $4 billion, primarily reflecting net outflows in money
market assets, partially offset by net inflows in fixed income and
alternative investment assets. Net asset outflows for 2003
included $16 billion in net outflows related to British Coal
Pension Schemes’ planned program of diversification among its
asset managers and $4 billion in inflows acquired from Ayco.
Securities Services net revenues of $1.01 billion for 2003
increased 17% compared with 2002, primarily reflecting higher
customer balances in securities lending and margin lending.
Operating expenses were $1.89 billion in 2003, 21% higher
than 2002, primarily due to increased compensation and bene-
fits expenses resulting from higher discretionary compensation.
Operating expenses also increased as a result of our combina-
tion with Ayco and higher occupancy expenses, primarily
related to exit costs associated with reductions in our global
office space. In addition, other expenses were higher, principally
due to increased Asset Management distribution costs, and
professional fees increased, primarily reflecting higher legal fees.
Pre-tax earnings of $968 million in 2003 increased 2% com-
pared with 2002.
GEOGRAPHIC฀DATA
For a summary of the net revenues, pre-tax earnings and identi-
fiable assets of Goldman Sachs by geographic region, see
Note 15 to the consolidated financial statements.
The following table sets forth a summary of the changes in our assets under management:
changes฀in฀assets฀under฀management
฀ ฀ YEAR฀ENDED฀NOVEMBER฀30
(IN฀BILLIONS)฀ 2004฀ 2003(1)(2)฀ 2002
Balance, beginning of year $373 $348฀ $351
Net asset inflows/(outflows)
Money markets 1 (19)฀ (13)
Fixed income and currency 14 10฀ 18
Equity 13 (1)฀ 6
Alternative investments 24 6฀ (2)
Total net asset inflows/(outflows) 52 (4)฀ ฀฀9
Net market appreciation/(depreciation) 27 29฀ (12)
Balance, end of year $452 $373฀ $348
(1)฀฀Includes฀$4฀billion฀in฀non-money฀market฀assets฀acquired฀in฀our฀combination฀with฀Ayco.
(2)฀฀Includes฀ $16฀ billion฀ in฀ non-money฀ market฀ net฀ asset฀ outflows฀ resulting฀ from฀ British฀ Coal฀ Pension฀ Schemes’฀ planned฀ program฀ of฀ diversification฀ among฀ its฀
asset฀managers.