Asset-Liability Management

We seek to maintain a highly liquid balance sheet and substantially all of our inventory is marked-to-market daily. We utilize aged inventory limits for certain financial instruments as a disincentive to our businesses to hold inventory over longer periods of time. We believe that these limits provide a complementary mechanism for ensuring appropriate balance sheet liquidity in addition to our standard position limits. Although our balance sheet fluctuates due to seasonal activity, market conventions and periodic market opportunities in certain of our businesses, our total assets and adjusted assets at financial statement dates are not materially different than those occurring within our reporting periods.

We seek to manage the maturity profile of our funding base such that we should be able to liquidate our assets prior to our liabilities coming due, even in times of prolonged or severe liquidity stress. We do not rely on immediate sales of assets (other than our Global Core Excess) to maintain liquidity in a distressed environment, although we recognize orderly asset sales may be prudent and necessary in a persistent liquidity crisis.

In order to avoid reliance on asset sales, our goal is to ensure that we have sufficient total capital (unsecured long-term borrowings plus total shareholders’ equity) to fund our balance sheet for at least one year. The amount of our total capital is based on an internal liquidity model, which incorporates, among other things, the following long-term financing requirements:

• the portion of financial instruments owned that we believe could not be funded on a secured basis in periods of market stress, assuming conservative loan values;
• goodwill and identifiable intangible assets, property, leasehold improvements and equipment, and other illiquid assets;
• derivative and other margin and collateral requirements;
• anticipated draws on our unfunded loan commitments; and
• capital or other forms of financing in our regulated subsidiaries that is in excess of their long-term financing requirements. See "–Conservative Liability Structure" for a further discussion of how we fund our subsidiaries.

Certain financial instruments may be more difficult to fund on a secured basis during times of market stress. Accordingly, we generally hold higher levels of total capital for these assets than more liquid types of financial instruments. The table below sets forth our aggregate holdings in these categories of financial instruments:

¹ Includes funded commitments and inventory held in connection with our origination and secondary trading activities.

² Includes interests in our merchant banking funds. Such amounts exclude assets related to consolidated investment funds of $2.56 billion and $8.13 billion as of May 2008 and November 2007, respectively, for which Goldman Sachs does not bear economic exposure.

³ Includes interests of $4.50 billion and $4.30 billion as of May 2008 and November 2007, respectively, held by investment funds managed by Goldman Sachs.

⁴ During our second quarter of 2008, we converted one-third of our preferred stock investment into SMFG common stock, and delivered the common stock to close out one-third of our hedge position.

⁵ Includes interests in other investment funds that we manage.

⁶ Excludes $7.64 billion as of November 2007, of mortgage whole loans that were transferred to securitization vehicles where such transfers were accounted for as secured financings rather than sales under SFAS No. 140. We distributed to investors the securities that were issued by the securitization vehicles and therefore did not bear economic exposure to the underlying mortgage whole loans.

A large portion of these assets are funded through secured funding markets or nonrecourse financing. We focus on demonstrating a consistent ability to fund these assets on a secured basis for extended periods of time to reduce refinancing risk and to help ensure that they have an established amount of loan value in order that they can be funded in periods of market stress.

See Note 3 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding the financial instruments we hold.