Goldman Sachs 2009 Annual Report Download - page 42

For positions that are not traded in active markets or are
subject to transfer restrictions, valuations are adjusted
to re ect illiquidity and/or non-transferability. Such
adjustments are generally based on market evidence where
available. In the absence of such evidence, management’s
best estimate is used.
▪ Public Principal Investments. Our public principal
investments held within the Principal Investments
component of our Trading and Principal Investments
segment tend to be large, concentrated holdings resulting
from initial public offerings or other corporate transactions,
and are valued based on quoted market prices. For positions
that are not traded in active markets or are subject to
transfer restrictions, valuations are adjusted to re ect
illiquidity and/or non-transferability. Such adjustments are
generally based on market evidence where available. In the
absence of such evidence, management’s best estimate is used.
Our investment in the ordinary shares of ICBC is valued
using the quoted market price adjusted for transfer
restrictions. Under the original transfer restrictions, the
ICBC shares we held would have become free from transfer
restrictions in equal installments on April 28, 2009 and
October 20, 2009. During the quarter ended March 2009,
the shares became subject to new supplemental transfer
restrictions. Under these new supplemental transfer
restrictions, on April 28, 2009, 20% of the ICBC shares
that we held became free from transfer restrictions and we
completed the disposition of these shares during the second
quarter of 2009. Our remaining ICBC shares are subject to
transfer restrictions, which prohibit liquidation at any time
prior to April 28, 2010.
We also have an investment in the convertible preferred
stock of SMFG. This investment is valued using a model that
is principally based on SMFG’s common stock price. During
2008, we converted one-third of our SMFG preferred stock
investment into SMFG common stock, and delivered the
common stock to close out one-third of our hedge position.
As of December2009, we remained hedged on substantially
all of the common stock underlying our remaining
investment in SMFG.
▪ Private Principal Investments. Our private principal
investments held within the Principal Investments
component of our Trading and Principal Investments
segment include investments in private equity, debt and
real estate, primarily held through investment funds.
Cash Instruments. Cash instruments include cash trading
instruments, public principal investments and private
principalinvestments.
▪ Cash Trading Instruments. Our cash trading instruments
(e.g.,equity and debt securities) are generally valued
using quoted market prices, broker or dealer quotations,
or alternative pricing sources with reasonable levels of
price transparency. The types of instruments valued based
on quoted market prices in active markets include most
government obligations, active listed equities and certain
money market securities.
The types of instruments that trade in markets that are not
considered to be active, but are valued based on quoted
market prices, broker or dealer quotations, or alternative
pricing sources with reasonable levels of price transparency
include most government agency securities, most corporate
bonds, certain mortgage products, certain bank loans
and bridge loans, less liquid listed equities, certain state,
municipal and provincial obligations and certain money
market securities and loan commitments.
Certain cash trading instruments trade infrequently
and therefore have little or no price transparency. Such
instruments include private equity investments and real
estate fund investments, certain bank loans and bridge
loans (including certain mezzanine  nancing, leveraged
loans arising from capital market transactions and other
corporate bank debt), less liquid corporate debt securities
and other debt obligations (including less liquid corporate
bonds, distressed debt instruments and collateralized debt
obligations (CDOs) backed by corporate obligations), less
liquid mortgage whole loans and securities (backed by
either commercial or residential real estate), and acquired
portfolios of distressed loans. The transaction price is
initially used as the best estimate of fair value. Accordingly,
when a pricing model is used to value such an instrument,
the model is adjusted so that the model value at inception
equals the transaction price. This valuation is adjusted only
when changes to inputs and assumptions are corroborated
by evidence such as transactions in similar instruments,
completed or pending third-party transactions in the
underlying investment or comparable entities, subsequent
rounds of  nancing, recapitalizations and other transactions
across the capital structure, offerings in the equity or debt
capital markets, and changes in  nancial ratios or cash ows.
Goldman Sachs 2009 Annual Report
40
Management’s Discussion and Analysis