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Cash Instruments
 9 Months Ended
Sep. 30, 2019
Text Block [Abstract]  
Cash Instruments
Note 6.
Cash Instruments
Cash instruments include U.S. government and agency obligations,
non-U.S.
government and agency obligations, mortgage-backed loans and securities, corporate debt instruments, equity securities, investments in funds at NAV, and other
non-derivative
financial instruments owned and financial instruments sold, but not yet purchased. See below for the types of cash instruments included in each level of the fair value hierarchy and the valuation techniques and significant inputs used to determine their fair values. See Note 5 for an overview of the firm’s fair value measurement policies.
Level 1 Cash Instruments
Level 1 cash instruments include certain money market instruments, U.S. government obligations, most
non-U.S.
government obligations, certain government agency obligations, certain corporate debt instruments and actively traded listed equities. These instruments are valued using quoted prices for identical unrestricted instruments in active markets.
The firm defines active markets for equity instruments based on the average daily trading volume both in absolute terms and relative to the market capitalization for the instrument. The firm defines active markets for debt instruments based on both the average daily trading volume and the number of days with trading activity.
Level 2 Cash Instruments
Level 2 cash instruments include most money market instruments, most government agency obligations, certain
non-U.S.
government obligations, most mortgage-backed loans and securities, most corporate debt instruments, most state and municipal obligations, most other debt obligations, restricted or less liquid listed equities, commodities and certain lending commitments.
Valuations of level 2 cash instruments can be verified to quoted prices, recent trading activity for identical or similar instruments, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.
Valuation adjustments are typically made to level 2 cash instruments (i) if the cash instrument is subject to transfer restrictions and/or (ii) for other premiums and liquidity discounts that a market participant would require to arrive at fair value. Valuation adjustments are generally based on market evidence.
Level 3 Cash Instruments
Level 3 cash instruments have one or more significant valuation inputs that are not observable. Absent evidence to the contrary, level 3 cash instruments are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequently, the firm uses other methodologies to determine fair value, which vary based on the type of instrument. Valuation inputs and assumptions are changed when corroborated by substantive observable evidence, including values realized on sales.
Valuation Techniques and Significant Inputs of Level 3 Cash Instruments
Valuation techniques of level 3 cash instruments vary by instrument, but are generally based on discounted cash flow techniques. The valuation techniques and the nature of significant inputs used to determine the fair values of each type of level 3 cash instrument are described below:
Loans and Securities Backed by Commercial Real Estate.
Loans and securities backed by commercial real estate are directly or indirectly collateralized by a single commercial real estate property or a portfolio of properties, and may include tranches of varying levels of subordination. Significant inputs are generally determined based on relative value analyses and include:
 
•
 Market yields implied by transactions of similar or related assets and/or current levels and changes in market indices, such as the CMBX (an index that tracks the performance of commercial mortgage bonds);
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 A measure of expected future cash flows in a default scenario (recovery rates) implied by the value of the underlying collateral, which is mainly driven by current performance of the underlying collateral, capitalization rates and multiples. Recovery rates are expressed as a percentage of notional or face value of the instrument and reflect the benefit of credit enhancements on certain instruments; and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Timing of expected future cash flows (duration) which, in certain cases, may incorporate the impact of other unobservable inputs (e.g., prepayment speeds).
 
 
 
 
 
 
 
 
Loans and Securities Backed by Residential Real Estate.
Loans and securities backed by residential real estate are directly or indirectly collateralized by portfolios of residential real estate and may include tranches of varying levels of subordination. Significant inputs are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Significant inputs include:
 
•
 Market yields implied by transactions of similar or related assets;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Cumulative loss expectations, driven by default rates, home price projections, residential property liquidation timelines, related costs and subsequent recoveries; and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Duration, driven by underlying loan prepayment speeds and residential property liquidation timelines.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Debt Instruments.
Corporate debt instruments includes corporate loans and debt securities. Significant inputs for corporate debt instruments are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps that reference the same or similar underlying instrument or entity and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include:
 
•
 Market yields implied by transactions of similar or related assets and/or current levels and trends of market indices, such as the CDX (an index that tracks the performance of corporate credit);
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related cash instrument, the cost of borrowing the underlying reference obligation; and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Duration.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Securities.
Equity securities includes private equity securities and convertible debentures. Recent third-party completed or pending transactions (e.g., merger proposals, tender offers, debt restructurings) are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate:
 
•
 Industry multiples (primarily EBITDA multiples) and public comparables;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Transactions in similar instruments;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Discounted cash flow techniques; and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Third-party appraisals.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The firm also considers changes in the outlook for the relevant industry and financial performance of the issuer as compared to projected performance. Significant inputs include:
 
•
 Market and transaction multiples;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Discount rates and capitalization rates; and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 For equity securities with debt-like features, market yields implied by transactions of similar or related assets, current performance and recovery assumptions, and duration.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Cash Instruments.
Other cash instruments includes U.S. government and agency obligations,
non-U.S.
government and agency obligations, state and municipal obligations, and other debt obligations. Significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps that reference the same or similar underlying instrument or entity and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include:
 
•
 Market yields implied by transactions of similar or related assets and/or current levels and trends of market indices;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related cash instrument, the cost of borrowing the underlying reference obligation; and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Duration.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value of Cash Instruments by Level
The table below presents cash instrument assets and liabilities at fair value by level within the fair value hierarchy.
 
                                 
       
 
              
 
        
$ in millions
 
 
 
 
 
 
Level 1
 
    
Level 2
     
Level 3
 
    
Total
 
As of September 2019
    
 
    
     
 
    
 
Assets
    
 
    
     
 
    
 
Money market instruments
   
$
    
1,545
 
    
$
    
2,170
     
$
 
        
–
 
    
$
    
3,715
 
Government and agency obligations:
   
     
 
    
 
U.S.
   
100,276
 
    
31,204
     
20
 
    
131,500
 
Non-U.S.
   
42,386
 
    
13,186
     
85
 
    
55,657
 
Loans and securities backed by:
   
 
    
     
 
    
 
Commercial real estate
   
–
 
    
2,891
     
822
 
    
3,713
 
Residential real estate
   
–
 
    
14,254
     
463
 
    
14,717
 
Corporate debt instruments
   
1,228
 
    
33,026
     
4,788
 
    
39,042
 
State and municipal obligations
   
–
 
    
1,194
     
39
 
    
1,233
 
Other debt obligations
   
–
 
    
1,067
     
641
 
    
1,708
 
Equity securities
   
93,227
 
    
11,292
     
11,528
 
    
116,047
 
Commodities
   
–
 
    
3,553
     
–
 
    
3,553
 
Subtotal
   
$238,662
 
    
$113,837
     
$18,386
 
    
$370,885
 
Investments in funds at NAV
   
 
    
     
 
    
4,232
 
Total cash instrument assets
   
 
    
     
 
    
$375,117
 
Liabilities
   
 
    
     
 
    
 
Government and agency obligations:
   
     
 
    
 
U.S.
   
$
 
(12,326
)
   
$
  
      
(48
)
   
$
  
        
–
 
    
$
 
(12,374
)
Non-U.S.
   
(21,350
)
    
(2,087
)
    
(1
)
    
(23,438
)
Loans and securities backed by:
   
 
    
 
    
 
    
 
Commercial real estate
   
–
 
    
(27
)
    
(1
)
    
(28
)
Residential real estate
   
–
 
    
(6
)
    
(1
)
    
(7
)
Corporate debt instruments
   
(59
)
    
(8,381
)
    
(220
)
    
(8,660
)
State and municipal obligations
 
 
–
 
 
 
(2
)
 
 
–
 
 
 
(2
)
Equity securities
   
(25,796
)
    
(380
)
    
(17
)
    
(26,193
)
Total cash instrument liabilities
   
 
 
 
 
 
 
 
$
 
(59,531
)
   
$
 
(10,931
)
   
$
 
 
 
 
(240
)
   
$
 
(70,702
)
 
As of December 2018
    
 
    
     
 
    
 
Assets
   
 
    
     
 
    
 
Money market instruments
   
$    1,489
 
    
$
 
  
  
1,146
     
$
  
        –
 
    
$    2,635
 
Government and agency obligations:
   
     
 
    
 
U.S.
   
82,264
 
    
28,327
     
25
 
    
110,616
 
Non-U.S.
   
33,231
 
    
10,366
     
10
 
    
43,607
 
Loans and securities backed by:
   
 
    
     
 
    
 
Commercial real estate
   
–
 
    
2,350
     
1,019
 
    
3,369
 
Residential real estate
   
–
 
    
12,286
     
663
 
    
12,949
 
Corporate debt instruments
   
468
 
    
26,515
     
4,224
 
    
31,207
 
State and municipal obligations
   
–
 
    
1,210
     
23
 
    
1,233
 
Other debt obligations
   
–
 
    
1,326
     
538
 
    
1,864
 
Equity securities
   
52,989
 
    
12,456
     
10,725
 
    
76,170
 
Commodities
   
–
 
    
3,729
     
–
 
    
3,729
 
Subtotal
   
$170,441
 
    
$
 
  
99,711
     
$17,227
 
    
$287,379
 
Investments in funds at NAV
   
 
    
     
 
    
3,936
 
Total cash instrument assets
   
 
    
     
 
    
$291,315
 
Liabilities
   
 
    
     
 
    
 
Government and agency obligations:
   
     
 
    
 
U.S.
   
$
 
  (5,067
)
    
$
 
      (13
)
    
$
  
        –
 
    
$
  
 (5,080
)
Non-U.S.
   
(23,872
)
    
(1,475
)
    
–
 
    
(25,347
)
Loans and securities backed by residential real estate
   
–
 
    
(1
)
    
–
 
    
(1
)
Corporate debt instruments
   
(4
)
    
(10,376
)
    
(31
)
    
(10,411
)
Other debt obligations
   
–
 
    
(1
)
    
–
 
    
(1
)
Equity securities
   
(25,147
)
    
(298
)
    
(18
)
    
(25,463
)
Total cash instrument liabilities
   
$
 
(54,090
)
    
$
  
(12,164
)
    
$
 
     (49
)
    
$
 
(66,303
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In the table above:
 
•
 Cash instrument assets are included in financial instruments owned and cash instrument liabilities are included in financial instruments sold, but not yet purchased.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Cash instrument assets are shown as positive amounts and cash instrument liabilities are shown as negative amounts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Money market instruments includes commercial paper, certificates of deposit and time deposits, substantially all of which have a maturity of less than one year.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Corporate debt instruments includes corporate loans and debt securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Equity securities includes public and private equities, exchange-traded funds and convertible debentures. Such securities include investments accounted for at fair value under the fair value option where the firm would otherwise apply the equity method of accounting of $8.02 billion as of September 2019 and $7.91 billion as of December 2018. As of both September 2019 and December 2018, level 3 equity securities primarily consisted of private equity securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Significant Unobservable Inputs
The table below presents the amount of level 3 assets, and ranges and weighted averages of significant unobservable inputs used to value level 3 cash instruments.
 
                 
       
 
Level 3 Assets and Range of Significant
Unobservable Inputs (Weighted Average) as of
 
                 
$ in millions
   
September
2019
     
December
2018
 
Loans and securities backed by commercial real estate
 
Level 3 assets
   
$
822
      
$
1,019
  
Yield
   
4.1
% to 21.7% (10.6%
)
   
6.9% to 22.5% (12.4%
 )
Recovery rate
   
5.5% to 89.3% (48.6
%
)
   
9.7% to 78.4% (42.9%
 )
Duration (years)
   
0.3 to 6.2 (3.3
)
   
0.4 to 7.1 (3.7
 )
Loans and securities backed by residential real estate
 
Level 3 assets
   
$
463
      
$
663
  
Yield
   
0.9% to 14.0% (8.5
%
)
   
2.6% to 19.3% (9.2%
 )
Cumulative loss rate
   
2.8% to 47.2% (33.3
%
)
   
8.3% to 37.7% (19.2%
 )
Duration (years)
   
1.0 to 12.9 (5.3
)
   
1.4 to 14.0 (6.7
 )
Corporate debt instruments
 
Level 3 assets
   
$
4,788
      
$
4,224
  
Yield
   
1.2% to 29.4% (12.0%
)
   
0.7% to 32.3% (11.9%
 )
Recovery rate
   
0.0% to 78.0% (52.6%
)
   
0.0% to 78.0% (57.8%
 )
Duration (years)
   
0.6
to 6.0 (
3.2
)
   
0.4 to 13.5 (3.4
 )
Equity securities
   
 
Level 3 assets
   
$
11,528
      
$
10,725
  
Multiples
   
0.5
x to 27.0x (7.6x
)
   
1.0x to 23.6x (8.1x
 )
Discount rate/yield
   
6.5% to 22.5% (13.5%
)
   
6.5% to 22.1% (14.3%
 )
Capitalization rate
   
3.6% to 15.0% (5.8%
)
   
3.5% to 12.3% (6.1%
 )
Other cash instruments
   
 
Level 3 assets
   
$
785
      
$
596
  
Yield
   
3.5% to 16.0% (13.8%
)
   
4.1% to 11.5% (9.2%
 )
Duration (years)
   
1.6 to 4.8 (2.9
)
   
2.2 to 4.8 (2.8
 )
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In the table above:
 
•
 Ranges represent the significant unobservable inputs that were used in the valuation of each type of cash instrument.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Weighted averages are calculated by weighting each input by the relative fair value of the cash instruments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one cash instrument. For example, the highest multiple for private equity securities is appropriate for valuing a specific private equity security but may not be appropriate for valuing any other private equity security. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 cash instruments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Increases in yield, discount rate, capitalization rate, duration or cumulative loss rate used in the valuation of level 3 cash instruments would have resulted in a lower fair value measurement, while increases in recovery rate or multiples would have resulted in a higher fair value measurement as of both September 2019 and December 2018. Due to the distinctive nature of each level 3 cash instrument, the interrelationship of inputs is not necessarily uniform within each product type.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Loans and securities backed by commercial and residential real estate, corporate debt instruments and other cash instruments are valued using discounted cash flows, and equity securities are valued using market comparables and discounted cash flows.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparables and discounted cash flows may be used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 cash instrument assets and liabilities.
 
                           
 
        
             
 
  
 
  
Three Months
Ended September
    
        
  
Nine Months
Ended September
  
                           
 
        
$ in millions
  
 
2019
 
    
2018
    
 
  
 
2019
 
    
2018
  
Total cash instrument assets
  
 
 
 
    
 
    
 
  
 
 
 
    
 
  
Beginning balance
  
 
$18,023
 
    
$16,216
    
 
  
 
$17,227
 
    
$15,395
  
Net realized gains/(losses)
  
 
68
 
    
122
    
 
  
 
224
 
    
350
  
Net unrealized gains/(losses)
  
 
5
 
    
481
    
 
  
 
643
 
    
585
  
Purchases
  
 
616
 
    
581
    
 
  
 
1,739
 
    
1,685
  
Sales
  
 
(360
)
    
(249
 )  
 
  
 
(1,547
)
    
(1,871
 )
Settlements
  
 
(711
)
    
(605
 )  
 
  
 
(1,584
)
    
(1,487
 )
Transfers into level 3
  
 
1,494
 
    
1,289
    
 
  
 
3,234
 
    
3,848
  
Transfers out of level 3
  
 
(749
)
    
(1,170
 )  
 
  
 
(1,550
)
    
(1,840
 )
Ending balance
  
 
$18,386
 
    
$16,665
    
 
  
 
$18,386
 
    
$16,665
  
Total cash instrument liabilities
    
 
    
 
  
 
 
 
    
 
  
Beginning balance
  
 
$
  
  
(211
)
    
$
      
(53
 )  
 
  
 
$
  
    
(49
)
    
$
      
(68
 )
Net realized gains/(losses)
  
 
(2
)
    
–
    
 
  
 
1
 
    
4
  
Net unrealized gains/(losses)
  
 
(72
)
    
(3
 )  
 
  
 
(207
)
    
2
  
Purchases
  
 
15
 
    
17
    
 
  
 
22
 
    
26
  
Sales
  
 
(16
)
    
(30
 )  
 
  
 
(19
)
    
(44
 )
Settlements
  
 
12
 
    
1
    
 
  
 
30
 
    
17
  
Transfers into level 3
  
 
(4
)
    
(17
 )  
 
  
 
(24
)
    
(9
 )
Transfers out of level 3
  
 
38
 
    
19
    
 
  
 
6
 
    
6
  
Ending balance
  
 
$
  
  
(240
)
    
$
      
(66
 )  
 
  
 
$
  
  
(240
)
    
$
      
(66
 )
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In the table above:
 
•
 Changes in fair value are presented for all cash instrument assets and liabilities that are classified in level 3 as of the end of the period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Net unrealized gains/(losses) relates to instruments that were still held at
period-end.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Purchases includes originations and secondary purchases.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a cash instrument asset or liability was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 For level 3 cash instrument assets, increases are shown as positive amounts, while decreases are shown as negative amounts. For level 3 cash instrument liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
 Level 3 cash instruments are frequently economically hedged with level 1 and level 2 cash instruments and/or level 1, level 2 or level 3 derivatives. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1 or level 2 cash instruments and/or level 1, level 2 or level 3 derivatives. As a result, gains or losses included in the level 3 rollforward below do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The table below presents information, by product type, for assets included in the summary table above.
 
                                     
   
 
        
 
  
 
Three Months
Ended September
   
       
  
Nine Months
Ended September
 
       
 
                  
 
        
$ in millions
   
2019
 
    
2018
   
   
2019
 
    
2018
 
Loans and securities backed by commercial real estate
 
Beginning balance
   
$
     
910
     
$  1,094
   
   
$
  
1,019
 
    
$  1,126
 
Net realized gains/(losses)
   
18
 
    
16
   
   
45
 
    
58
 
Net unrealized gains/(losses)
    
(34
)
    
4
   
   
(38
)
    
(25
 )
Purchases
   
3
 
    
22
   
   
52
 
    
105
 
Sales
   
(38
)
    
(49
 )  
   
(133
)
    
(125
 )
Settlements
   
(88
)
    
(49
 )  
   
(261
)
    
(248
 )
Transfers into level 3
   
53
 
    
44
   
   
157
 
    
275
 
Transfers out of level 3
   
(2
)
    
(125
 )  
   
(19
)
    
(209
 )
Ending balance
   
$
     
822
 
    
$     957
   
   
$
     
822
 
    
$     957
 
Loans and securities backed by residential real estate
   
 
Beginning balance
   
$
     
463
 
    
$     789
   
   
$
     
663
 
    
$     668
 
Net realized gains/(losses)
   
9
 
    
12
   
   
24
 
    
41
 
Net unrealized gains/(losses)
   
16
 
    
21
   
   
39
 
    
17
 
Purchases
   
36
 
    
22
   
   
141
 
    
84
 
Sales
   
(109
)
    
(75
 )  
   
(233
)
    
(192
 )
Settlements
   
(33
)
    
(61
 )  
   
(107
)
    
(130
 )
Transfers into level 3
   
120
 
    
17
   
   
45
 
    
237
 
Transfers out of level 3
   
(39
)
    
(73
 )  
   
(109
)
    
(73
 )
Ending balance
   
$
     
463
 
    
$     652
   
   
$
     
463
 
    
$     652
 
Corporate debt instruments
   
   
   
 
    
 
Beginning balance
   
$
  
4,680
 
    
$  3,391
   
   
$
  
4,224
 
    
$  3,270
 
Net realized gains/(losses)
   
47
 
    
52
   
   
108
 
    
137
 
Net unrealized gains/(losses)
   
(31
)
    
25
   
   
112
 
    
(10
 )
Purchases
   
257
 
    
278
   
   
730
 
    
693
 
Sales
   
(127
)
    
(65
 )  
   
(401
)
    
(325
 )
Settlements
   
(239
)
    
(281
 )  
   
(520
)
    
(648
 )
Transfers into level 3
   
593
 
    
830
   
   
928
 
    
1,201
 
Transfers out of level 3
   
(392
)
    
(341
 )  
   
(393
)
    
(429
 )
Ending balance
   
$
  
4,788
 
    
$  3,889
   
   
$
  
4,788
 
    
$  3,889
 
Equity securities
 
   
 
    
 
Beginning balance
   
$11,281
 
    
$10,561
   
   
$10,725
 
    
$  9,904
 
Net realized gains/(losses)
   
23
 
    
42
   
   
55
 
    
109
 
Net unrealized gains/(losses)
   
116
 
    
429
   
   
557
 
    
591
 
Purchases
   
201
 
    
226
   
   
568
 
    
729
 
Sales
   
(68
)
    
(46
 )  
   
(735
)
    
(1,180
 )
Settlements
   
(319
)
    
(205
 )  
   
(571
)
    
(392
 )
Transfers into level 3
   
590
 
    
393
   
   
1,952
 
    
2,133
 
Transfers out of level 3
   
(296
)
    
(629
 )  
   
(1,023
)
    
(1,123
 )
Ending balance
   
$11,528
 
    
$10,771
   
   
$11,528
 
    
$10,771
 
Other cash instruments
   
 
    
   
   
 
    
 
Beginning balance
   
$
     
689
 
    
$     381
   
   
$
     
596
 
    
$     427
 
Net realized gains/(losses)
   
(29
)
    
–
   
   
(8
)
    
5
 
Net unrealized gains/(losses)
   
(62
)
    
2
   
   
(27
)
    
12
 
Purchases
   
119
 
    
33
   
   
248
 
    
74
 
Sales
   
(18
)
    
(14
 )  
   
(45
)
    
(49
 )
Settlements
   
(32
)
    
(9
 )  
   
(125
)
    
(69
 )
Transfers into level 3
   
138
 
    
5
   
   
152
 
    
2
 
Transfers out of level 3
   
(20
)
    
(2
 )  
   
(6
)
    
(6
 )
Ending balance
   
$
     
785
 
    
$     396
   
   
$
     
785
 
    
$     396
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 Rollforward Commentary
Three Months Ended September 2019.
The net realized and unrealized gains on level 3 cash instrument assets of $73 million (reflecting $68 million of net realized gains and $5 million of net unrealized gains) for the three months ended September 2019 included
gains/(losses) of $
(
157
) 
million reported in market making, $139 million reported in other principal transactions and $91 million reported in interest income.
The drivers of the net unrealized gains on level 3 cash instrument assets for the three months ended September 2019 w
ere
 not material.
Transfers into level 3 during the three months ended September 2019 primarily reflected transfers of certain corporate debt instruments and private equity securities from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments.
Transfers out of level 3 during the three months ended September 2019
primarily reflected transfers of certain corporate debt instruments and private equity securities to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments.
Nine Months Ended September 2019.
The net realized and unrealized gains on level 3 cash instrument assets of $867 million (reflecting $224 million of net realized gains and $643 million of net unrealized gains) for the nine months ended September 2019 included gains/(losses) of $(140) million reported in market making, $743 million reported in other principal transactions and $264 million reported in interest income.
The net unrealized gains on level 3 cash instrument assets for the nine months ended September 2019
primarily reflected gains on private equity securities, principally driven by corporate performance
.
Transfers into level 3 during the nine months ended September 2019
primarily reflected transfers of certain private equity securities and corporate debt instruments from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer
market 
transactions in these instruments
.
Transfers out of level 3 during the nine months ended September 2019
primarily reflected transfers of certain private equity securities and corporate debt instruments to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments
.
Three Months Ended September 2018.
The net realized and unrealized gains on level 3 cash instrument assets of $603 million (reflecting $122 million of net realized gains and $481 million of net unrealized gains) for the three months ended September 2018 included gains/(losses) of $(3) million reported in market making, $466 million reported in other principal transactions and $140 million reported in interest income.
The net unrealized gains on level 3 cash instrument assets for the three months ended September 2018 primarily reflected gains on private equity securities, principally driven by strong corporate performance.
Transfers into level 3 during the three months ended September 2018 primarily reflected transfers of certain corporate debt instruments and private equity securities from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments.
Transfers out of level 3 during the three months ended September 2018 primarily reflected transfers of certain private equity securities and corporate debt instruments to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments, and transfers of certain other corporate debt instruments to level 2, principally due to certain unobservable yield and duration inputs no longer being significant to the valuation of these instruments.
Nine Months Ended September 2018.
The net realized and unrealized gains on level 3 cash instrument assets of $935 million (reflecting $350 million of net realized gains and $585 million of net unrealized gains) for the nine months ended September 2018 included gains/(losses) of $(48) million reported in market making, $621 million reported in other principal transactions and $362 million reported in interest income.
The net unrealized gains on level 3 cash instrument assets for the nine months ended September 2018 primarily reflected gains on private equity securities, principally driven by strong corporate performance and company-specific events.
Transfers into level 3 during the nine months ended September 2018 primarily reflected transfers of certain private equity securities and corporate debt instruments from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments.
 
Transfers out of level 3 during the nine months ​​​​​​​ended September 2018 primarily reflected transfers of certain private equity securities and corporate debt instruments to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments, and transfers of certain other corporate debt instruments to level 2, principally due to certain unobservable yield and duration inputs no longer being significant to the valuation of these instruments.
Available-for-Sale
Securities
The table below presents information about cash instruments that are accounted for as
available-for-sale
by tenor.
 
                         
$ in millions
   
Amortized Cost
     
Fair
Value
     
Weighted Average Yield
 
As of September 2019
    
     
     
 
Less than 5 years
   
$14,572
     
$14,576
     
1.59%
 
Greater than 5 years
   
4,580
     
4,802
     
2.17%
 
Total
   
$19,152
     
$19,378
     
1.73%
 
 
As of December 2018
    
     
     
 
Less than 5 years
   
$  5,954
     
$  5,879
     
2.10%
 
Greater than 5 years
   
6,231
     
6,153
     
2.44%
 
Total
   
$12,185
     
$12,032
     
2.28%
 
In the table above:
 
•
Available-for-sale
securities consists of U.S. government obligations that were classified in level 1 of the fair value hierarchy as of both September 2019 and December 2018.
 
•
 The firm sold $8.08
billion of available-for-sale securities during the nine months ended September 2019. The realized gains on sales of such securities were
$131 million for the nine months ended September 2019, and were included in the consolidated statements of
earnings. The sales and realized gains for the year ended December 2018 were not material.
 
•
 The gross unrealized gains included in accumulated other comprehensive income/(loss) were $275 
million and the gross unrealized losses included in accumulated other comprehensive income/(loss) were not material as of
September 2019. The gross unrealized losses included in accumulated other comprehensive income/(loss) were $153 million as of December 2018 and were related to securities in a continuous unrealized loss position for greater than a year.
 
•
Available-for-sale
securities in an unrealized loss position are periodically reviewed for other-than-temporary impairment. The firm considers various factors, including market conditions, changes in issuer credit ratings, severity and duration of the unrealized losses, and the intent and ability to hold the security until recovery to determine if the securities are other-than-temporarily impaired. There were no such impairments during both the nine months ended September 2019 and September 2018.
Investments in Funds at Net Asset Value Per Share
Cash instruments at fair value include investments in funds that are measured at NAV of the investment fund. The firm uses NAV to measure the fair value of its fund investments when (i) the fund investment does not have a readily determinable fair value and (ii) the NAV of the investment fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value.
Substantially all of the firm’s investments in funds at NAV consist of investments in firm-sponsored private equity, credit, real estate and hedge funds where the firm
co-invests
with third-party investors.
Private equity funds primarily invest in a broad range of industries worldwide, including leveraged buyouts, recapitalizations, growth investments and distressed investments. Credit funds generally invest in loans and other fixed income instruments and are focused on providing private high-yield capital for leveraged and management buyout transactions, recapitalizations, financings, refinancings, acquisitions and restructurings for private equity firms, private family companies and corporate issuers. Real estate funds invest globally, primarily in real estate companies, loan portfolios, debt recapitalizations and property. Private equity, credit and real estate funds are
closed-end
funds in which the firm’s investments are generally not eligible for redemption. Distributions will be received from these funds as the underlying assets are liquidated or distributed, the timing of which is uncertain.
The firm also invests in hedge funds, primarily multi-disciplinary hedge funds that employ a fundamental
bottom-up
investment approach across various asset classes and strategies. The firm’s investments in hedge funds primarily include interests where the underlying assets are illiquid in nature, and proceeds from redemptions will not be received until the underlying assets are liquidated or distributed, the timing of which is uncertain.
Many of the funds described above are “covered funds” as defined in the Volcker Rule of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Board of Governors of the Federal Reserve System (FRB) extended the conformance period to July 2022 for the firm’s investments in, and relationships with, certain legacy “illiquid funds” (as defined in the Volcker Rule) that were in place prior to December 2013. This extension is applicable to substantially all of the firm’s remaining investments in, and relationships with, such covered funds.
The table below presents the fair value of investments in funds at NAV and the related unfunded commitments.
 
                 
$ in millions
   
Fair Value of
Investments
     
Unfunded Commitments
 
As of September 2019
    
     
 
Private equity funds
   
$2,751
     
$
   
746
 
Credit funds
   
891
     
831
 
Hedge funds
   
136
     
–
 
Real estate funds
   
454
     
201
 
Total
   
$4,232
     
$1,778
 
 
As of December 2018
    
     
 
Private equity funds
   
$2,683
     
$   809
 
Credit funds
   
548
     
1,099
 
Hedge funds
   
161
     
–
 
Real estate funds
   
544
     
203
 
Total
   
$3,936
     
$2,111