Morgan Stanley 2015 Annual Report Download - page 167

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
•Price / Earnings ratio—the ratio used to measure a company’s equity value in relation to its earnings. The ratio is
calculated by dividing the equity value per share by the latest historical or forward-looking earnings per share. The
ratio results in a standardized metric that allows comparison between companies, after also considering the effects
of different leverage ratios and taxation rates.
•Volatility—the measure of the variability in possible returns for an instrument given how much that instrument
changes in value over time. Volatility is a pricing input for options, and, generally, the lower the volatility, the less
risky the option. The level of volatility used in the valuation of a particular option depends on a number of factors,
including the nature of the risk underlying that option (e.g., the volatility of a particular underlying equity security
may be significantly different from that of a particular underlying commodity index), the tenor and the strike price
of the option.
•Volatility skew—the measure of the difference in implied volatility for options with identical underliers and expiry
dates but with different strikes. The implied volatility for an option with a strike price that is above or below the
current price of an underlying asset will typically deviate from the implied volatility for an option with a strike price
equal to the current price of that same underlying asset.
Fair Value of Investments Measured at Net Asset Value.
Investments in Certain Funds Measured at NAV per Share.
At December 31, 2015 At December 31, 2014
Fair Value Commitment Fair Value Commitment
(dollars in millions)
Private equity funds .................................... $ 1,917 $ 538 $ 2,569 $ 613
Real estate funds ....................................... 1,337 128 1,753 112
Hedge funds(1):
Long-short equity hedge funds .......................... 422 — 433 —
Fixed income/credit-related hedge funds .................. 71 — 76 —
Event-driven hedge funds .............................. 2 — 39 —
Multi-strategy hedge funds ............................. 94 4 139 3
Total ................................................ $ 3,843 $ 670 $ 5,009 $ 728
(1) Fixed income/credit-related hedge funds, event-driven hedge funds and multi-strategy hedge funds are redeemable at least on a three-month period basis,
primarily with a notice period of 90 days or less. At December 31, 2015, approximately 34% of the fair value amount of long-short equity hedge funds was
redeemable at least quarterly, 51% is redeemable every six months and 15% of these funds have a redemption frequency of greater than six months. At
December 31, 2014, approximately 36% of the fair value amount of long-short equity hedge funds was redeemable at least quarterly, 47% is redeemable every
six months and 17% of these funds have a redemption frequency of greater than six months. The notice period for long-short equity hedge funds at December 31,
2015 and December 31, 2014 was primarily greater than six months.
Private Equity Funds and Real Estate Funds.
Private Equity Funds. Amount includes several private equity funds that pursue multiple strategies, including leveraged
buyouts, venture capital, infrastructure growth capital, distressed investments and mezzanine capital. In addition, the funds
may be structured with a focus on specific domestic or foreign geographic regions.
Real Estate Funds. Amount includes several real estate funds that invest in real estate assets such as commercial office
buildings, retail properties, multi-family residential properties, developments or hotels. In addition, the funds may be
structured with a focus on specific geographic domestic or foreign regions.
Investments in these funds generally are not redeemable due to the closed-ended nature of these funds. Instead, distributions
from each fund will be received as the underlying investments of the funds are disposed and monetized.
161