Morgan Stanley 2015 Annual Report Download - page 168

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Value of Certain Funds Estimated to Be Liquidated Over Time.
At December 31, 2015
Fund Type Less than 5 years 5-10 years Over 10 years Total
(dollars in millions)
Private equity funds ............................... $ 142 $ 1,095 $ 680 $ 1,917
Real estate funds .................................. 128 753 456 1,337
Hedge Funds.
Investments in hedge funds may be subject to initial period lock-up restrictions or gates. A hedge fund lock-up provision is a
provision that provides that, during a certain initial period, an investor may not make a withdrawal from the fund. The
purpose of a gate is to restrict the level of redemptions that an investor in a particular hedge fund can demand on any
redemption date.
Long-Short Equity Hedge Funds. Amount includes investments in hedge funds that invest, long or short, in equities. Equity
value and growth hedge funds purchase stocks perceived to be undervalued and sell stocks perceived to be overvalued.
Fixed Income / Credit-Related Hedge Funds. Amount includes investments in hedge funds that employ long-short,
distressed or relative value strategies in order to benefit from investments in undervalued or overvalued securities that are
primarily debt or credit related.
Event-Driven Hedge Funds. Amount includes investments in hedge funds that invest in event-driven situations such as
mergers, hostile takeovers, reorganizations or leveraged buyouts. This may involve the simultaneous purchase of stock in
companies being acquired and the sale of stock in its acquirer, with the expectation to profit from the spread between the
current market price and the ultimate purchase price of the target company.
Multi-strategy Hedge Funds. Amount includes investments in hedge funds that pursue multiple strategies to realize short-
and long-term gains. Management of the hedge funds has the ability to overweight or underweight different strategies to best
capitalize on current investment opportunities.
Lock-up Restrictions and Gates by Hedge Fund Type.
At December 31, 2015
Hedge Fund Type Fair Value
(dollars in millions)
Long-short equity(1) ................................................................ $ 422
Fixed income/credit-related(2) ......................................................... 71
Event-driven ....................................................................... 2
Multi-strategy(3)(4) ................................................................. 94
(1) Investments representing approximately 12% of the fair value of investments cannot be redeemed currently because an exit restriction has been imposed by the
hedge fund manager. The restriction period for these investments subject to an exit restriction was indefinite at December 31, 2015.
(2) Investments representing approximately 80% of the fair value of investments cannot be redeemed currently because an exit restriction has been imposed by the
hedge fund manager. The restriction period for these investments subject to an exit restriction was indefinite at December 31, 2015.
(3) Investments representing approximately 16% of the fair value of investments cannot be redeemed currently because the investments include certain initial period
lock-up restrictions. The remaining restriction period subject to lock-up restrictions was primarily over three years at December 31, 2015.
(4) Investments representing approximately 3% of the fair value of investments cannot be redeemed currently because an exit restriction has been imposed by the
hedge fund manager. The restriction period for these investments subject to an exit restriction was indefinite at December 31, 2015.
Fair Value Option.
The Company elected the fair value option for certain eligible instruments that are risk managed on a fair value basis to
mitigate income statement volatility caused by measurement basis differences between the elected instruments and their
associated risk management transactions or to eliminate complexities of applying certain accounting models.
162