Goldman Sachs 2012 Annual Report Download - page 38

Management’s Discussion and Analysis
Net revenues in Equities were essentially unchanged
compared with 2011. Net revenues in securities services
were significantly higher compared with 2011, reflecting a
gain of approximately $500 million on the sale of our hedge
fund administration business. In addition, equities client
execution net revenues were higher than 2011, primarily
reflecting significantly higher results in cash products,
principally due to increased levels of client activity. These
increases were offset by lower commissions and fees,
reflecting lower market volumes. During 2012, Equities
operated in an environment generally characterized by an
increase in global equity prices and lower volatility levels.
The net loss attributable to the impact of changes in our own
credit spreads on borrowings for which the fair value option
was elected was $714 million ($433 million and $281 million
related to Fixed Income, Currency and Commodities Client
Execution and equities client execution, respectively) for
2012, compared with a net gain of $596 million
($399 million and $197 million related to Fixed Income,
Currency and Commodities Client Execution and equities
client execution, respectively) for 2011.
Investing & Lending
Net revenues in Investing & Lending were $5.89 billion and
$2.14 billion for 2012 and 2011, respectively. During
2012, Investing & Lending net revenues were positively
impacted by tighter credit spreads and an increase in global
equity prices. Results for 2012 included a gain of
$408 million from our investment in the ordinary shares of
Industrial and Commercial Bank of China Limited (ICBC),
net gains of $2.39 billion from other investments in
equities, primarily in private equities, net gains and net
interest income of $1.85 billion from debt securities and
loans, and other net revenues of $1.24 billion, principally
related to our consolidated investment entities.
Results for 2011 included a loss of $517 million from our
investment in the ordinary shares of ICBC and net gains of
$1.12 billion from other investments in equities, primarily
in private equities, partially offset by losses from public
equities. In addition, Investing & Lending included net
revenues of $96 million from debt securities and loans. This
amount includes approximately $1 billion of unrealized
losses related to relationship lending activities, including the
effect of hedges, offset by net interest income and net gains
from other debt securities and loans. Results for 2011 also
included other net revenues of $1.44 billion, principally
related to our consolidated investment entities.
Investment Management
Net revenues in Investment Management increased
compared with 2011, due to significantly higher incentive
fees, partially offset by lower transaction revenues and
slightly lower management and other fees. During the year,
assets under supervision 1increased $70 billion to
$965 billion. Assets under management increased
$26 billion to $854 billion, reflecting net market
appreciation of $44 billion, primarily in fixed income and
equity assets, partially offset by net outflows of $18 billion.
Net outflows in assets under management included
outflows in equity, alternative investment and money
market assets, partially offset by inflows in fixed income
assets 2. Other client assets increased $44 billion to
$111 billion, primarily due to net inflows 2, principally in
client assets invested with third-party managers and assets
related to advisory relationships.
Our businesses, by their nature, do not produce predictable
earnings. Our results in any given period can be materially
affected by conditions in global financial markets,
economic conditions generally and other factors. For a
further discussion of the factors that may affect our future
operating results, see “Certain Risk Factors That
May Affect Our Businesses” below, as well as “Risk
Factors” in Part I, Item 1A of our Annual Report on
Form 10-K.
1. Assets under supervision include assets under management and other client assets. Assets under management include client assets where we earn a fee for
managing assets on a discretionary basis. Other client assets include client assets invested with third-party managers, private bank deposits and assets related to
advisory relationships where we earn a fee for advisory and other services, but do not have discretion over the assets.
2. Includes $34 billion of fixed income asset inflows in connection with our acquisition of Dwight Asset Management Company LLC (Dwight Asset Management),
including $17 billion in assets under management and $17 billion in other client assets, and $5 billion of fixed income and equity asset outflows in connection with
our liquidation of Goldman Sachs Asset Management Korea Co., Ltd. (Goldman Sachs Asset Management Korea, formerly known as Macquarie — IMM Investment
Management), all related to assets under management, for the year ended December 2012.
36 Goldman Sachs 2012 Annual Report