Morgan Stanley 2014 Annual Report Download - page 88

2013 Compared with 2012.
Trading. The Company recognized gains of $41 million in 2013 compared with losses of $44 million in 2012.
Trading results in 2013 primarily reflected gains related to certain consolidated real estate funds sponsored by the
Company. Trading results in 2012 primarily reflected losses related to certain consolidated real estate funds
sponsored by the Company as well as losses on hedges on certain investments.
Investments. The Company recorded net investment gains of $1,056 million in 2013 compared with gains of
$513 million in 2012. The increase in 2013 was primarily related to higher net investment gains predominantly
within the Company’s Merchant Banking and Real Estate Investing businesses and higher gains on certain
investments associated with the Company’s employee deferred compensation and co-investment plans. Results in
2013 also included the benefit of carried interest.
Asset Management, Distribution and Administration Fees. Asset management, distribution and administration
fees increased 7% from 2012 to $1,920 million in 2013. The increase primarily reflected higher management and
administration revenues, primarily due to higher average assets under management, as well as higher
performance fees.
The Company’s assets under management increased $34 billion from $343 billion at December 31, 2012 to
$377 billion at December 31, 2013, reflecting market appreciation and positive net flows. The Company recorded
$22 billion in market appreciation and net inflows of $12 billion in 2013, primarily reflecting net customer
inflows in liquidity funds. In 2012, the Company recorded $25 billion in market appreciation and $25 billion in
net customer inflows, primarily in liquidity funds.
Other. Other revenues were $32 million in 2013 as compared with $51 million in 2012. The results in 2013
included higher revenues associated with the Company’s minority investment in certain third-party investment
managers. The results in 2012 included gains associated with the expiration of a lending facility to a real estate
fund sponsored by the Company.
Non-interest Expenses. Non-interest expenses were $2,051 million in 2013 as compared with $1,666 million in
2012. Compensation and benefits expenses increased 40% in 2013, primarily due to an increase in the fair value
of deferred compensation plan referenced investments. Non-compensation expenses increased 5% in 2013,
primarily due to higher brokerage and clearing, professional services expenses and an impairment expense
related to certain intangible assets (management contracts) associated with alternative investments funds partially
offset by lower information processing expenses.
Income Tax Items.
In 2012, the Company recognized in Provision for (benefit from) income taxes an out-of-period net tax provision of
$107 million, attributable to its Investment Management business segment, primarily related to the overstatement of
deferred tax assets associated with partnership investments in prior years. The Company has evaluated the effects of
the understatement of the income tax provision both qualitatively and quantitatively and concluded that it did not
have a material impact on any prior annual or quarterly consolidated financial statements.
Nonredeemable Noncontrolling Interests.
Nonredeemable noncontrolling interests are primarily related to the consolidation of certain real estate funds
sponsored by the Company. Investment gains associated with these consolidated funds were $104 million,
$151 million and $225 million in 2014, 2013 and 2012, respectively. Nonredeemable noncontrolling interests
decreased in 2014, primarily due to the deconsolidation in the second quarter of 2014 of certain legal entities
associated with a real estate fund sponsored by the Company.
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