As of March 31, 2018 or for the quarter then ended, and where
applicable, per Class A unit:
- GAAP net income attributable to
Oaktree Capital Group, LLC (“OCG”) was $52.7 million ($0.78 per
unit), down from $54.9 million ($0.87) for the first quarter of
2017.
- Adjusted net income was $160.4
million, down slightly from $161.2 million for the first quarter of
2017, on lower investment income and fee-related earnings, largely
offset by higher incentive income. On a per unit basis, which is
net of tax, adjusted net income was $0.93 per unit, up from $0.85
per unit, primarily due to a lower effective tax rate.
- Distributable earnings were
$194.0 million ($1.18 per unit), up from $159.2 million ($0.88) for
the first quarter of 2017, on higher incentive income and
investment income proceeds.
- Assets under management were
$121.4 billion, down 2% for the quarter and up slightly over the
last 12 months. Gross capital raised was $1.9 billion and $7.7
billion for the quarter and last 12 months, respectively. Uncalled
capital commitments (“dry powder”) were $19.6 billion, of which
$12.4 billion were not yet generating management fees (“shadow
AUM”).
- Management fee-generating assets
under management were $102.0 billion, down 2% for the quarter
and up 2% over the last 12 months.
- A distribution was declared of
$0.96 per unit, bringing aggregate distributions relating to the
last 12 months to $3.59.
Oaktree Capital Group, LLC (NYSE: OAK) today reported its
unaudited financial results for the first quarter ended March 31,
2018.
Jay Wintrob, Chief Executive Officer, said, “Oaktree had a good
start to the year in terms of financial and investment performance,
highlighted by 22% growth in distributable earnings in the first
quarter versus the same period a year ago. Against a backdrop of
turbulent financial markets, we continued to harvest assets across
our credit, private equity, and real assets strategies. Our ability
to sell assets at favorable prices and deliver solid investment
returns, while continuing to deploy capital on attractive terms
across a wide range of Oaktree strategies, speaks to the power of
our investment philosophy and discipline of our teams.”
Changes to Non-GAAP Measures
As previously announced, beginning with the first quarter of
2018, reported management fees and incentive income now reflect the
portion of the earnings from management fees and performance fees,
respectively, attributable to Oaktree’s 20% ownership interest in
DoubleLine Capital LP and its affiliates (collectively,
“DoubleLine”). Such earnings were previously reported as investment
income.
Additionally, assets under management (“AUM”), management
fee-generating AUM, incentive-creating AUM and incentives created
(fund level) now reflect Oaktree’s pro-rata portion (based on our
20% ownership stake) of DoubleLine’s total AUM, management
fee-generating AUM, incentive-creating AUM and performance fees,
respectively.
The new presentation does not impact adjusted net income.
However, fee-related earnings now include Oaktree’s pro-rata
portion of DoubleLine’s earnings from management fees, and
distributable earnings now reflect its pro-rata share of
DoubleLine’s income instead of cash receipts.
Finally, the impact of the recently enacted Tax Cuts and Jobs
Act (the “Tax Act”), which resulted in the remeasurement of
Oaktree’s deferred tax assets and tax receivable liability in the
fourth quarter of 2017, will no longer be included in its non-GAAP
measures. Oaktree believes that excluding the impact of the Tax Act
is meaningful as it increases comparability between periods.
Prior periods have been recast to reflect the changes above.
Distribution
The distribution of $0.96 per Class A unit attributable to
the first quarter of 2018 will be paid on May 11, 2018 to
Class A unitholders of record at the close of business on May
7, 2018.
Conference Call
Oaktree will host a conference call to discuss its first quarter
2018 financial results today at 11:00 a.m. Eastern Time / 8:00 a.m.
Pacific Time. The conference call may be accessed by dialing
(844) 824-3833 (U.S. callers) or +1 (412) 317-5102
(non-U.S. callers), participant password OAKTREE. Alternatively, a
live webcast of the conference call can be accessed through the
Unitholders – Investor Relations section of the Oaktree website,
http://ir.oaktreecapital.com/. For those individuals unable to
listen to the live broadcast of the conference call, a replay will
be available for 30 days on Oaktree’s website, or by dialing (877)
344-7529 (U.S. callers) or +1 (412) 317-0088 (non-U.S.
callers), access code 10118691, beginning approximately one hour
after the broadcast.
About Oaktree
Oaktree is a leader among global investment managers
specializing in alternative investments, with $121 billion in
assets under management as of March 31, 2018. The firm emphasizes
an opportunistic, value-oriented and risk-controlled approach to
investments in credit, private equity, real assets and listed
equities. The firm has over 900 employees and offices in 18 cities
worldwide. For additional information, please visit Oaktree’s
website at www.oaktreecapital.com.
The table below presents (a) GAAP results, (b) non-GAAP results
for both the Operating Group and per Class A unit, and (c)
assets under management and accrued incentives (fund level) data.
Please refer to the Glossary for definitions.
As of or for the Three
MonthsEnded March 31,
2018 2017 GAAP Results:
(in thousands, except per unit
dataor as otherwise indicated)
Revenues $ 337,321 $ 289,585 Net income-OCG 52,732 54,915
Net income per Class A unit 0.78 0.87
Non-GAAP
Results: (1)(2) Adjusted revenues $ 451,156 $ 391,187
Adjusted net income 160,363 161,164 Adjusted net income-OCG 62,903
53,741 Distributable earnings revenues 477,264 377,744
Distributable earnings 193,973 159,221 Distributable earnings-OCG
80,178 55,173 Fee-related earnings revenues 202,947 201,207
Fee-related earnings 58,487 63,779 Fee-related earnings-OCG 24,269
21,900 Economic net income revenues 326,784 445,512 Economic
net income 107,546 183,651 Economic net income-OCG 42,509 64,060
Per Class A Unit: Adjusted net income $ 0.93 $ 0.85
Distributable earnings 1.18 0.88 Fee-related earnings 0.36 0.35
Economic net income 0.63 1.02 Weighted average number of
Operating Group units outstanding 156,188 154,666 Weighted average
number of Class A units outstanding 67,918 63,022
Operating Metrics: (1) Assets under management (in
millions): Assets under management $ 121,394 $ 121,232 Management
fee-generating assets under management 102,043 100,248
Incentive-creating assets under management 33,035 32,934 Uncalled
capital commitments 19,556 21,770 Accrued incentives (fund level):
Incentives created (fund level) 111,185 201,767 Incentives created
(fund level), net of associated incentive income compensation
expense 52,298 96,785 Accrued incentives (fund level) 1,795,967
2,068,422 Accrued incentives (fund level), net of associated
incentive income compensation expense 868,035 969,029
Note: Oaktree discloses in this earnings release certain
revenues and financial measures, including measures that are
calculated and presented on a basis other than generally accepted
accounting principles in the United States (“non-GAAP”). Examples
of such non-GAAP measures are identified in the table above. Such
non-GAAP measures should be considered in addition to, and not as a
substitute for or superior to, net income, net income per Class A
unit or other financial measures calculated in accordance with
GAAP. Reconciliations of these non-GAAP financial measures to the
most directly comparable GAAP financial measures are presented at
Exhibit A. All non-GAAP measures and all interim results presented
in this release are unaudited.
(1) Beginning with the first quarter of 2018,
management fees and incentive income reflect the portion of the
earnings from management fees and performance fees, respectively,
attributable to our 20% ownership interest in DoubleLine. Such
earnings were previously reported as investment income.
Additionally, AUM, management fee-generating AUM,
incentive-creating AUM and incentives created (fund level) now
reflect our pro-rata portion (based on our 20% ownership stake) of
DoubleLine’s total AUM, management fee-generating AUM,
incentive-creating AUM and performance fees, respectively. All
prior periods have been recast to reflect this change. (2)
Beginning with the second quarter of 2017, the definition of
adjusted net income was modified with respect to third-party
placement costs associated with closed-end funds and
liability-classified OCGH equity value units (“EVUs”) to conform to
the GAAP treatment. Under GAAP, placement costs are expensed as
incurred and liability-classified EVUs are remeasured as of each
reporting date. Previously for adjusted net income, placement costs
were capitalized and amortized in proportion to the associated
management fee stream, and liability-classified EVUs were treated
as equity-classified awards. All prior periods have been recast for
these changes.
GAAP Results
Oaktree consolidates entities in which it has a direct or
indirect controlling financial interest. Investment vehicles in
which we have a significant investment, such as collateralized loan
obligation vehicles (“CLOs”) and certain Oaktree funds, are
consolidated under GAAP. When a CLO or fund is consolidated, the
assets, liabilities, revenues, expenses and cash flows of the
consolidated funds are reflected on a gross basis, and the majority
of the economic interests in those consolidated funds, which are
held by third-party investors, are reflected as debt obligations of
CLOs or non-controlling interests. All of the revenues earned by us
as investment manager of the consolidated funds are eliminated in
consolidation. However, because the eliminated amounts are earned
from and funded by third-party investors, the consolidation of a
fund does not impact net income or loss attributable to OCG.
In the first quarter of 2018, Oaktree adopted the new revenue
recognition standard on a modified retrospective basis, which did
not require prior periods to be recast. Instead, a
cumulative-effect adjustment to increase retained earnings of $48.7
million, net of tax, was recorded as of January 1, 2018. This
adjustment relates to revenues that would have met the recognition
criteria under the new standard as of January 1, 2018.
Total revenues increased $47.7 million, or 16.5%, to $337.3
million for the first quarter of 2018, from $289.6 million for the
first quarter of 2017, reflecting higher incentive income. The
impact on revenues as a result of applying the new revenue
recognition standard was a net decrease of $42.8 million for the
first quarter of 2018.
Total expenses increased $58.4 million, or 30.3%, to $251.0
million for the first quarter of 2018, from $192.6 million for the
first quarter of 2017, primarily reflecting higher incentive income
compensation expense.
Other income decreased $19.6 million, or 25.4%, to $57.5 million
for the first quarter of 2018, from $77.1 million for the first
quarter of 2017, primarily reflecting variations in returns on our
fund investments between periods.
Net income attributable to OCG decreased $2.2 million, or 4.0%,
to $52.7 million for the first quarter of 2018, from $54.9 million
for the first quarter of 2017. The decrease primarily reflected the
impact of adoption of the new revenue standard.
Operating Metrics
Assets Under Management
Assets under management were $121.4 billion as of March 31,
2018, $123.9 billion as of December 31, 2017 and $121.2 billion as
of March 31, 2017. The $2.5 billion decrease since December 31,
2017 primarily reflected $2.2 billion of distributions to
closed-end fund investors and $1.7 billion of net outflows from
open-end funds, partially offset by $0.7 billion in new capital
commitments to closed-end funds and $0.4 billion in market-value
gains. Commitments to closed-end funds included $0.4 billion for
Oaktree Real Estate Debt Fund II.
The $0.2 billion increase in AUM since March 31, 2017 primarily
reflected $5.1 billion in market-value gains, $2.9 billion
attributable to DoubleLine, $2.1 billion from becoming the
investment adviser to two publicly-traded business development
companies (the “BDC acquisition”), $2.0 billion of capital
commitments to closed-end funds and $2.0 billion in favorable
foreign-currency translation, largely offset by $10.3 billion of
distributions to closed-end fund investors and $3.8 billion of net
outflows from open-end funds. Commitments to closed-end funds
included $1.2 billion for our Real Estate products and $0.3 billion
for our European Private Debt product. Distributions to closed-end
fund investors included $5.1 billion from Credit funds, $3.0
billion from Private Equity funds and $2.1 billion from Real Asset
funds.
Management Fee-generating Assets Under
Management
Management fee-generating AUM, a forward-looking metric, was
$102.0 billion as of March 31, 2018, $104.3 billion as of December
31, 2017 and $100.2 billion as of March 31, 2017. The $2.3 billion
decrease since December 31, 2017 primarily reflected $1.7 billion
of net outflows from open-end funds and $1.6 billion attributable
to closed-end funds in liquidation, partially offset by $0.6
billion from capital drawn by funds that pay fees based on drawn
capital, NAV or cost basis and $0.4 billion in favorable
foreign-currency translation.
The $1.8 billion increase in management fee-generating AUM since
March 31, 2017 primarily reflected $2.9 billion attributable to
DoubleLine, $2.1 billion in market-value gains, $2.1 billion from
the BDC acquisition, $1.9 billion from capital drawn by closed-end
funds that pay fees based on drawn capital, NAV or cost basis, $1.8
billion of favorable foreign-currency translation, and $1.0 billion
from the start of the investment period for Oaktree European
Principal Fund IV (“EPF IV”) in July 2017. These increases were
partially offset by $5.4 billion attributable to closed-end funds
in liquidation, $3.8 billion of net outflows from open-end funds
and $1.0 billion of distributions by closed-end funds that pay fees
based on NAV.
Incentive-creating Assets Under
Management
Incentive-creating AUM was $33.0 billion as of March 31, 2018,
$33.3 billion as of December 31, 2017 and $32.9 billion as of March
31, 2017. The $0.3 billion decrease since December 31, 2017
reflected an aggregate $2.3 billion decline primarily attributable
to distributions by closed-end funds, largely offset by an
aggregate $2.0 billion in drawdowns or contributions by closed-end
and evergreen funds and market-value gains. The $0.1 billion
increase since March 31, 2017 reflected an aggregate $8.6 billion
in drawdowns or contributions by closed-end and evergreen funds and
market-value gains and $2.1 billion from the BDC acquisition,
largely offset by an aggregate decline of $10.6 billion primarily
attributable to distributions by closed-end funds.
Of the $33.0 billion in incentive-creating AUM as of March 31,
2018, $19.9 billion (or 60%), was generating incentives at the fund
level, as compared with $21.3 billion (65%), of the $32.9 billion
of incentive-creating AUM as of March 31, 2017.
Accrued Incentives (Fund Level) and
Incentives Created (Fund Level)
Accrued incentives (fund level) were $1.8 billion as of March
31, 2018, $1.9 billion as of December 31, 2017 and $2.1 billion as
of March 31, 2017. The first quarter of 2018 reflected $111.2
million of incentives created (fund level) and $235.6 million of
incentive income recognized.
Accrued incentives (fund level), net of incentive income
compensation expense (“net accrued incentives (fund level)”), were
$868.0 million as of March 31, 2018, $920.9 million as of December
31, 2017, and $969.0 million as of March 31, 2017. The portion of
net accrued incentives (fund level) represented by funds that were
currently paying incentives as of March 31, 2018, December 31, 2017
and March 31, 2017 was $197.3 million (or 23%), $237.2 million
(26%) and $179.6 million (19%), respectively, with the remainder
arising from funds that as of that date were not at the stage of
their cash distribution waterfall where Oaktree was entitled to
receive incentives, other than possibly tax-related
distributions.
Uncalled Capital Commitments
Uncalled capital commitments were $19.6 billion as of March 31,
2018, $20.5 billion as of December 31, 2017, and $21.8 billion as
of March 31, 2017. Invested capital during the quarter and 12
months ended March 31, 2018 aggregated $2.2 billion and $7.7
billion, respectively, as compared with $1.7 billion and $8.3
billion for the comparable prior-year periods.
Non-GAAP Results
Adjusted Revenues
Adjusted revenues increased $60.0 million, or 15.3%, to $451.2
million in the first quarter of 2018, from $391.2 million in the
first quarter of 2017, primarily reflecting higher incentive
income, partially offset by lower investment income.
Management Fees
Management fees increased $1.7 million, or 0.8%, to $202.9
million in the first quarter of 2018, from $201.2 million in the
first quarter of 2017. The increase reflected an aggregate increase
of $23.0 million principally from the BDC acquisition, the start of
the investment period for EPF IV and closed-end funds that pay
management fees based on drawn capital, NAV or cost basis. These
increases were largely offset by an aggregate decline of $21.3
million primarily attributable to closed-end funds in
liquidation.
Incentive Income
Incentive income increased $88.2 million, or 59.8%, to $235.6
million in the first quarter of 2018, from $147.4 million in the
first quarter of 2017. The first quarter of 2018 included regular
and tax-related incentive income of $131.9 million and $103.7
million, respectively, as compared to $66.0 million and $81.2
million in the first quarter of 2017, respectively.
Investment Income
Investment income decreased $29.8 million, or 70.1%, to $12.7
million in the first quarter of 2018, from $42.5 million in the
first quarter of 2017. The decrease primarily reflected lower
overall returns on our fund investments.
Adjusted Expenses
Compensation and Benefits
Compensation and benefits expense increased $2.7 million, or
2.6%, to $104.8 million in the first quarter of 2018, from $102.1
million in the first quarter of 2017, primarily reflecting expenses
relating to the infrastructure investing team that Oaktree acquired
in 2014. In 2017, a portion of the expenses attributable to that
team were paid for by a legacy Highstar fund. That fund stopped
paying management fees in the fourth quarter of 2017, and
thereafter Oaktree became responsible for all of the expenses of
the infrastructure team.
Equity-based Compensation
Equity-based compensation expense increased $0.5 million, or
4.0%, to $13.0 million in the first quarter of 2018, from $12.5
million in the first quarter of 2017.
Incentive Income Compensation
Incentive income compensation expense increased $57.3 million,
or 78.4%, to $130.4 million in the first quarter of 2018, from
$73.1 million in the first quarter of 2017, primarily reflecting
growth in incentive income and a higher overall compensation
percentage in the first quarter of 2018.
General and Administrative
General and administrative expense increased $4.9 million, or
15.1%, to $37.4 million in the first quarter of 2018, from $32.5
million in the first quarter of 2017, primarily reflecting higher
placement costs associated with fundraising for closed-end funds.
Excluding placement costs, general and administrative expense
increased $1.4 million, or 4.4%, to $33.2 million from $31.8
million.
Depreciation and Amortization
Depreciation and amortization expense decreased $0.5 million, or
17.9%, to $2.3 million in the first quarter of 2018, from $2.8
million in the first quarter of 2017, primarily reflecting the
final amortization of certain leasehold improvements in the first
quarter of 2017.
Interest Expense, Net
Interest expense, net decreased $3.6 million, or 51.4%, to $3.4
million in the first quarter of 2018, from $7.0 million in the
first quarter of 2017, reflecting the refinancing of our senior
notes in the fourth quarter of 2017 and higher interest income.
Adjusted Net Income
ANI decreased $0.8 million, or 0.5%, to $160.4 million in the
first quarter of 2018, from $161.2 million in the first quarter of
2017. The decrease primarily reflected $29.8 million in lower
investment income and $5.3 million in lower fee-related earnings,
partially offset by $30.8 million in higher incentive income, net
of incentive income compensation expense (“net incentive income”)
and $3.6 million in lower net interest expense. The portion of ANI
attributable to our Class A units was $62.9 million, or $0.93
per unit, and $53.7 million, or $0.85 per unit, for the first
quarters of 2018 and 2017, respectively.
The effective tax rates applied to ANI in the first quarters of
2018 and 2017 were 10% and 18%, respectively, resulting from
full-year effective tax rates of 9% and 20%, respectively. The rate
used for interim fiscal periods is based on an estimated full-year
effective tax rate on income that can be reliably forecasted,
combined with tax expense in the current period on incentive income
and any other income that cannot be reliably estimated. We
generally expect variability in tax rates between periods because
the effective tax rate is a function of the mix of income and other
factors, each of which can have a material impact on the particular
period’s income tax expense and often vary significantly within or
between years. In general, the annual effective tax rate increases
as the proportion of ANI arising from fee-related earnings and
certain incentive and investment income rises, and vice versa.
Distributable Earnings
Distributable earnings increased $34.8 million, or 21.9%, to
$194.0 million in the first quarter of 2018, from $159.2 million in
the first quarter of 2017, primarily reflecting $30.8 million in
higher net incentive income and $9.7 million in higher investment
income proceeds, partially offset by $5.3 million in lower
fee-related earnings. For the first quarters of 2018 and 2017,
investment income proceeds totaled $38.8 million and $29.1 million,
respectively. The portion of distributable earnings attributable to
our Class A units was $1.18 and $0.88 per unit for the first
quarters of 2018 and 2017, respectively, reflecting distributable
earnings per Operating Group unit of $1.24 and $1.03, respectively,
less costs borne by Class A unitholders for professional fees
and other expenses, cash taxes attributable to the Intermediate
Holding Companies, and amounts payable pursuant to the tax
receivable agreement.
Fee-related Earnings
Fee-related earnings decreased $5.3 million, or 8.3%, to $58.5
million in the first quarter of 2018, from $63.8 million in the
first quarter of 2017, primarily reflecting increases of $4.9
million in general and administrative expense and $2.7 million in
compensation and benefits expense, partially offset by $1.7 million
in higher management fees. The portion of fee-related earnings
attributable to our Class A units was $0.36 and $0.35 per unit
for the first quarters of 2018 and 2017, respectively.
The effective tax rates applicable to fee-related earnings for
the first quarters of 2018 and 2017 were 4% and 15%, respectively,
resulting from full-year effective tax rates of 6% and 15%,
respectively. The rate used for interim fiscal periods is based on
the estimated full-year effective tax rate, which is subject to
change as the year progresses. In general, the annual effective tax
rate increases as annual fee-related earnings increase, and vice
versa.
Capital and Liquidity
As of March 31, 2018, Oaktree and its operating subsidiaries had
$864 million of cash and U.S. Treasury and other securities, and
$746 million of outstanding debt, which included no borrowings
outstanding against its $500 million revolving credit facility. As
of March 31, 2018, Oaktree’s investments in funds and companies on
a non-GAAP basis had a carrying value of $1.5 billion, with the 20%
investment in DoubleLine carried at $32 million based on cost, as
adjusted under the equity method of accounting. Net accrued
incentives (fund level) represented an additional $868 million as
of that date.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of Section 27A of the U.S. Securities Act of 1933, as
amended, and Section 21E of the U.S. Securities Exchange Act
of 1934, as amended, which reflect the current views of Oaktree,
with respect to, among other things, our future results of
operations and financial performance. In some cases, you can
identify forward-looking statements by words such as “anticipate,”
“approximately,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “outlook,” “plan,” “potential,”
“predict,” “seek,” “should,” “will” and “would” or the negative
version of these words or other comparable or similar words. These
statements identify prospective information. Important factors
could cause actual results to differ, possibly materially, from
those indicated in these statements. Forward-looking statements are
based on our beliefs, assumptions and expectations of our future
performance, taking into account all information currently
available to us. Such forward-looking statements are subject to
risks and uncertainties and assumptions relating to our operations,
financial results, financial condition, business prospects, growth
strategy and liquidity, including, but not limited to, changes in
our anticipated revenue and income, which are inherently volatile;
changes in the value of our investments; the pace of our raising of
new funds; changes in assets under management; the timing and
receipt of, and impact of taxes on, carried interest; distributions
from and liquidation of our existing funds; the amount and timing
of distributions on our Class A units; changes in our operating or
other expenses; the degree to which we encounter competition; and
general political, economic and market conditions. The factors
listed in the item captioned “Risk Factors” in our Annual Report on
Form 10-K for the year ended December 31, 2017 filed with the SEC
on February 23, 2018, which is accessible on the SEC’s website at
www.sec.gov, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the
expectations described in our forward-looking statements.
Forward-looking statements speak only as of the date the statements
are made. Except as required by law, we do not undertake any
obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future
developments or otherwise.
This release and its contents do not constitute and should not
be construed as (a) a recommendation to buy, (b) an offer
to buy or solicitation of an offer to buy, (c) an offer to
sell or (d) advice in relation to, any securities of OCG or
securities of any Oaktree investment fund.
Investor Relations Website
Investors and others should note that Oaktree uses the
Unitholders – Investor Relations section of its corporate website
to announce material information to investors and the marketplace.
While not all of the information that Oaktree posts on its
corporate website is of a material nature, some information could
be deemed to be material. Accordingly, Oaktree encourages
investors, the media, and others interested in Oaktree to review
the information that it shares on its corporate website at the
Unitholders – Investor Relations section of the Oaktree website,
http://ir.oaktreecapital.com/. Information contained on, or
available through, our website is not incorporated by reference
into this document.
GAAP Consolidated Statements of
Operations (1)
Three Months Ended March 31, 2018
2017 (in thousands, except per unit data)
Revenues: Management fees $ 185,415 $ 180,928 Incentive income
151,906 108,657 Total revenues
337,321 289,585 Expenses: Compensation and
benefits (108,754 ) (104,487 ) Equity-based compensation (14,621 )
(14,953 ) Incentive income compensation (84,815 )
(34,608 ) Total compensation and benefits expense (208,190 )
(154,048 ) General and administrative (32,964 ) (32,219 )
Depreciation and amortization (6,402 ) (3,824 ) Consolidated fund
expenses (3,480 ) (2,471 ) Total expenses
(251,036 ) (192,562 ) Other income (loss): Interest expense
(40,579 ) (48,770 ) Interest and dividend income 62,619 47,960 Net
realized gain (loss) on consolidated funds’ investments 14,599
(1,872 ) Net change in unrealized appreciation (depreciation) on
consolidated funds’ investments (14,386 ) 24,678 Investment income
34,563 50,451 Other income, net 697 4,663
Total other income 57,513 77,110
Income before income taxes 143,798 174,133 Income taxes
(6,397 ) (12,302 ) Net income 137,401 161,831 Less: Net
income attributable to non-controlling interests in consolidated
funds (10,725 ) (9,692 ) Net income attributable to non-controlling
interests in consolidated subsidiaries (73,944 )
(97,224 ) Net income attributable to Oaktree Capital Group, LLC $
52,732 $ 54,915 Distributions declared per Class A
unit $ 0.76 $ 0.63 Net income per unit (basic and
diluted): Net income per Class A unit $ 0.78 $ 0.87
Weighted average number of Class A units outstanding 67,918
63,022 (1) In the first quarter
of 2018, Oaktree adopted the new revenue recognition standard on a
modified retrospective basis, which did not require prior periods
to be recast. Instead, a cumulative-effect adjustment to increase
retained earnings of $48.7 million, net of tax, was recorded as of
January 1, 2018. This adjustment relates to revenues that would
have met the recognition criteria under the new standard as of
January 1, 2018.
Operating Metrics
We monitor certain operating metrics that are either common to
the alternative asset management industry or that we believe
provide important data regarding our business. As described below,
these operating metrics include AUM, management fee-generating AUM,
incentive-creating AUM, incentives created (fund level), accrued
incentives (fund level) and uncalled capital commitments.
Assets Under Management As of March 31,
December 31, March 31, 2018
2017 2017 (in millions) Assets Under
Management: Closed-end funds $ 55,682 $ 56,871 $ 59,848
Open-end funds 33,703 35,441 35,125 Evergreen funds 8,227 7,916
5,340 DoubleLine (1) 23,782 23,702
20,919 Total $ 121,394 $ 123,930 $
121,232
Three Months Ended Twelve Months
Ended March 31, March 31, 2018 2017
2018 2017 (in millions) Change in Assets
Under Management: Beginning balance $ 123,930 $ 120,801 $
121,232 $ 115,769 Closed-end funds: Capital commitments/other (2)
653 1,094 2,031 6,092 Distributions for a realization event / other
(3) (2,182 ) (2,553 ) (10,262 ) (8,286 ) Change in uncalled capital
commitments for funds entering or in liquidation (4) (306 ) 31 (319
) (1,053 ) Foreign-currency translation 219 106 1,106 (411 ) Change
in market value (5) 431 870 3,105 4,259 Change in applicable
leverage (4 ) 196 173 166 Open-end funds: Contributions 891 2,007
4,623 6,716 Redemptions (2,635 ) (2,977 ) (8,399 ) (8,254 )
Foreign-currency translation 181 107 874 (245 ) Change in market
value (5) (175 ) 883 1,480 3,900 Evergreen funds: Contributions or
new capital commitments (6) 363 7 1,089 200 Acquisition (BDCs) — —
2,110 — Redemptions or distributions (7) (161 ) (106 ) (786 ) (428
) Foreign-currency translation (3 ) (2 ) (2 ) (1 ) Change in market
value (5) 112 146 476 784 DoubleLine: Net change in DoubleLine
80 622 2,863 2,024
Ending balance $ 121,394 $ 121,232 $ 121,394
$ 121,232 (1) DoubleLine AUM
reflects our pro-rata portion (based on our 20% ownership stake) of
DoubleLine’s total AUM. (2) These amounts include capital
commitments, as well as the aggregate par value of collateral
assets and principal cash related to new CLO formations. (3) These
amounts include distributions for a realization event, tax-related
distributions, reductions in the par value of collateral assets and
principal cash resulting from the repayment of debt as return of
principal by CLOs, and recallable distributions at the end of the
investment period. (4) The change in uncalled capital commitments
generally reflects declines attributable to funds entering their
liquidation periods, as well as capital contributions to funds in
their liquidation periods for deferred purchase obligations or
other reasons. (5) The change in market value reflects the change
in NAV of our funds, less management fees and other fund expenses,
as well as changes in the aggregate par value of collateral assets
and principal cash held by CLOs and other levered funds. (6) These
amounts include contributions and capital commitments, and for our
publicly-traded BDCs, issuances of equity or debt capital. (7)
These amounts include redemptions and distributions, and for our
publicly-traded BDCs, dividends, repurchases of equity capital or
repayment of debt.
Management Fee-generating
AUM As of March 31, December
31, March 31, 2018 2017 2017
Management Fee-generating AUM: (in millions)
Closed-end funds: Senior Loans $ 8,104 $ 8,066 $ 7,721 Other
closed-end funds 29,734 30,779 32,340 Open-end funds 33,448 35,188
34,930 Evergreen funds 6,975 6,552 4,338 DoubleLine 23,782
23,702 20,919 Total $ 102,043
$ 104,287 $ 100,248
Three Months EndedMarch
31,
Twelve Months EndedMarch
31,
2018 2017 2018 2017 Change in
Management Fee-generating AUM: (in millions)
Beginning balance $ 104,287 $ 100,064 $ 100,248 $ 98,803 Closed-end
funds: Capital commitments to funds that pay fees based on
committed capital / other (1) — 17 952 1,456 Capital drawn by funds
that pay fees based on drawn capital, NAV or cost basis 559 327
1,895 1,516 Change attributable to funds in liquidation (2) (1,595
) (954 ) (5,401 ) (4,735 ) Change in uncalled capital commitments
for funds entering or in liquidation that pay fees based on
committed capital (3) — — — (881 ) Distributions by funds that pay
fees based on NAV / other (4) (193 ) (165 ) (954 ) (688 )
Foreign-currency translation 174 82 932 (389 ) Change in market
value (5) 53 88 182 430 Change in applicable leverage (5 ) 172 171
212 Open-end funds: Contributions 890 1,882 4,575 6,542 Redemptions
(2,635 ) (2,971 ) (8,398 ) (8,223 ) Foreign-currency translation
181 107 874 (245 ) Change in market value (176 ) 878 1,467 3,917
Evergreen funds: Contributions or capital drawn by funds that pay
fees based on drawn capital or NAV (6) 470 59 931 255 Acquisition
(BDCs) — — 2,110 — Redemptions or distributions (7) (147 ) (90 )
(829 ) (475 ) Change in market value (5) 100 130 425 729
DoubleLine: Net change in DoubleLine 80 622
2,863 2,024 Ending balance $
102,043 $ 100,248 $ 102,043 $ 100,248
(1) These amounts include capital commitments
to funds that pay fees based on committed capital, as well as the
aggregate par value of collateral assets and principal cash related
to new CLO formations. (2) These amounts include the change for
funds that pay fees based on the lesser of funded capital or cost
basis during the liquidation period, as well as recallable
distributions at the end of the investment period. For most
closed-end funds, management fees are charged during the
liquidation period on the lesser of (a) total funded capital or (b)
the cost basis of assets remaining in the fund, with the cost basis
of assets generally calculated by excluding cash balances. Thus,
changes in fee basis during the liquidation period are not
dependent on distributions made from the fund; rather, they are
tied to the cost basis of the fund’s investments, which typically
declines as the fund sells assets. (3) The change in uncalled
capital commitments reflects declines attributable to funds
entering their liquidation periods, as well as capital
contributions to funds in their liquidation periods for deferred
purchase obligations or other reasons. (4) These amounts include
distributions by funds that pay fees based on NAV, as well as
reductions in the par value of collateral assets and principal cash
resulting from the repayment of debt as return of principal by
CLOs. (5) The change in market value reflects certain funds that
pay management fees based on NAV and leverage, as applicable, as
well as changes in the aggregate par value of collateral assets and
principal cash held by CLOs and other levered funds. (6) These
amounts include contributions and capital commitments, and for our
publicly-traded BDCs, issuances of equity or debt capital. (7)
These amounts include redemptions and distributions, and for our
publicly-traded BDCs, dividends, repurchases of equity capital or
repayment of debt.
As of March
31, December 31, March 31,
2018 2017 2017 Reconciliation of AUM to
Management Fee-generating AUM: (in millions) Assets
under management $ 121,394 $ 123,930 $ 121,232 Difference between
assets under management and committed capital or the lesser of
funded capital or cost basis for applicable closed-end funds (1)
(2,195 ) (2,331 ) (3,773 ) Undrawn capital commitments to
closed-end funds that have not yet commenced their investment
periods (8,463 ) (8,675 ) (10,542 ) Undrawn capital commitments to
funds for which management fees are based on drawn capital, NAV or
cost basis (3,954 ) (4,037 ) (2,593 )
Oaktree’s general partner investments in
management fee-generating funds
(2,059 ) (1,937 ) (1,928 ) Funds that are no longer paying
management fees and co-investments that pay no management fees (2)
(2,680 ) (2,663 ) (2,148 ) Management
fee-generating assets under management $ 102,043 $ 104,287
$ 100,248 (1) This difference is
not applicable to closed-end funds that pay management fees based
on NAV or leverage. (2) This includes certain accounts that pay
administrative fees intended to offset Oaktree’s costs related to
the accounts.
The period-end weighted average annual management fee rates
applicable to the closed-end, open-end and evergreen management
fee-generating AUM balances above are set forth below.
As of March 31, December 31,
March 31, Weighted Average Annual Management Fee
Rates: 2018 2017 2017 Closed-end funds:
Senior Loans 0.50 % 0.50 % 0.50 % Other closed-end funds 1.47 1.49
1.50 Open-end funds 0.45 0.46 0.45 Evergreen funds (1) 1.20 1.22
1.22 All Oaktree funds (2) 0.91 0.92 0.92 (1)
Fee rates reflect the applicable asset-based management fee rates,
exclusive of quarterly incentive fees on investment income that are
included in management fees. (2) Excludes DoubleLine funds.
Incentive-creating AUM
As of March 31, December
31, March 31, 2018 2017 2017
Incentive-creating AUM: (in millions) Closed-end
funds $ 26,732 $ 27,322 $ 28,943 Evergreen funds 5,688 5,383 3,394
DoubleLine 615 606 597 Total $ 33,035 $ 33,311
$ 32,934
Accrued Incentives (Fund Level) and
Incentives Created (Fund Level)
As of or for the Three Months Ended
March 31, 2018 2017 Accrued Incentives
(Fund Level): (in thousands) Beginning balance $
1,920,339 $ 2,014,097 Incentives created (fund
level): Closed-end funds 97,306 190,021 Evergreen funds 13,879
11,497 DoubleLine — 249 Total
incentives created (fund level) 111,185
201,767 Less: incentive income recognized by us
(235,557 ) (147,442 ) Ending balance $ 1,795,967 $
2,068,422 Accrued incentives (fund level), net of associated
incentive income compensation expense $ 868,035 $ 969,029
Non-GAAP Results
Our business is comprised of one segment, our investment
management business, which consists of the investment management
services that we provide to our clients. Management makes operating
decisions and assesses the performance of our business based on
financial data that are presented without the consolidation of our
funds. The data most important to management in assessing our
performance are adjusted net income, adjusted net income-OCG,
distributable earnings, distributable earnings-OCG, fee-related
earnings and fee-related earnings-OCG. Reconciliations of these
non-GAAP financial measures to the most directly comparable GAAP
financial measures are presented at Exhibit A.
Adjusted Net Income
The following schedules set forth the components of adjusted net
income and adjusted net income-OCG, as well as per unit data:
Adjusted
Revenues
Three Months Ended March 31,
2018 2017 (in thousands) Revenues:
Management fees $ 202,947 $ 201,207 Incentive income 235,557
147,442 Investment income 12,652 42,538 Total
adjusted revenues $ 451,156 $ 391,187
Management Fees
Three Months Ended
March 31, 2018 2017 (in
thousands) Management fees: Closed-end funds $ 121,706 $
131,708 Open-end funds 38,112 40,144 Evergreen funds 24,916 13,713
DoubleLine 18,213 15,642 Total management fees $
202,947 $ 201,207
Investment Income
Three Months Ended
March 31, 2018 2017 (in
thousands) Oaktree funds: Credit $ 14,884 $ 29,198 Private
Equity (812 ) 3,422 Real Assets 4,950 3,948 Listed Equities (7,412
) 3,687 Non-Oaktree 1,042 2,283 Total
investment income $ 12,652 $ 42,538
Adjusted
Expenses
Three Months Ended March 31,
2018 2017 (in thousands) Expenses:
Compensation and benefits $ (104,770 ) $ (102,136 ) Equity-based
compensation (12,993 ) (12,521 ) Incentive income compensation
(130,442 ) (73,144 ) General and administrative (37,437 ) (32,469 )
Depreciation and amortization (2,253 ) (2,823 ) Total adjusted
expenses $ (287,895 ) $ (223,093 )
Adjusted Interest
and Other Income, Net
Three Months Ended March 31,
2018 2017 (in thousands)
Interest expense, net of interest income (1) $ (3,410 ) $ (6,971 )
Other income, net 512 41 (1) Interest income
was $2.4 million and $1.7 million for the three months ended March
31, 2018 and 2017, respectively.
Adjusted Net
Income
Three Months Ended March 31,
2018 2017 (in thousands, except per unit
data) Adjusted net income $ 160,363 $ 161,164 Adjusted
net income attributable to OCGH non-controlling interest (90,629 )
(95,494 ) Non-Operating Group income (expense) 20
(232 ) Adjusted net income-OCG before income taxes 69,754
65,438 Income taxes-OCG (6,851 ) (11,697 ) Adjusted
net income-OCG $ 62,903 $ 53,741 Adjusted net income
per Class A unit $ 0.93 $ 0.85 Weighted average
number of Class A units outstanding 67,918
63,022
Distributable Earnings and Distribution
Calculation
Distributable earnings and the calculation
of distributions are set forth below:
Three Months Ended March 31,
2018 2017 Distributable Earnings:
(in thousands, except per unit data) Adjusted net
income $ 160,363 $ 161,164 Investment income (12,652 ) (42,538 )
Receipts of investment income (1) 38,760 29,095 Equity-based
compensation 12,993 12,521 Other (income) expense, net (2) (2,745 )
— Operating Group income taxes (2,746 ) (1,021 )
Distributable earnings $ 193,973 $ 159,221
Distribution Calculation: Operating Group distribution with
respect to the period $ 165,045 $ 132,595 Distribution per
Operating Group unit $ 1.05 $ 0.85 Adjustments per Class A unit:
Distributable earnings-OCG income tax expense (0.02 ) (0.05 ) Tax
receivable agreement (0.06 ) (0.08 ) Non-Operating Group expenses
(0.01 ) (0.01 ) Distribution per Class A unit (3) $
0.96 $ 0.71 (1) This adjustment
characterizes a portion of the distributions received from funds as
receipts of investment income or loss. In general, the income or
loss component of a fund distribution is calculated by multiplying
the amount of the distribution by the ratio of our investment’s
undistributed income or loss to our remaining investment balance.
In addition, if the distribution is made during the investment
period, it is generally not reflected in distributable earnings
until after the investment period ends. Additionally, any
impairment charges on our CLO investments included in ANI are, for
distributable earnings purposes, amortized over the remaining
investment period of the respective CLO to align with the timing of
expected cash flows. (2) For distributable earnings purposes, the
$22 million make-whole premium charge that was included in ANI in
the fourth quarter of 2017 in connection with the early repayment
of our 2019 Notes is amortized through the original maturity date
of December 2019. (3) With respect to the quarter ended March 31,
2018, a distribution was announced on April 26, 2018 and is payable
on May 11, 2018.
Units Outstanding
Three Months Ended March 31,
2018 2017 (in thousands) Weighted
Average Units: OCGH 88,270 91,644 Class A 67,918 63,022 Total
156,188 154,666
Units Eligible for Fiscal Period
Distribution: OCGH 86,007 91,793 Class A 71,179 64,201 Total
157,186 155,994
GAAP Statement of Financial Condition
(Unaudited)
As of March 31, 2018 Oaktree and
Operating Consolidated
Subsidiaries Funds Eliminations
Consolidated (in thousands) Assets: Cash and
cash-equivalents $ 634,691 $ — $ — $ 634,691 U.S. Treasury and
other securities 229,274 — — 229,274 Corporate investments
1,548,125 — (545,924 ) 1,002,201 Deferred tax assets 243,241 — —
243,241 Receivables and other assets 716,072 — (14 ) 716,058 Assets
of consolidated funds — 6,297,405 (149 )
6,297,256 Total assets $ 3,371,403 $ 6,297,405 $ (546,087 )
$ 9,122,721
Liabilities and Capital: Liabilities: Accounts
payable and accrued expenses $ 367,813 $ — $ 7,848 $ 375,661 Due to
affiliates 211,736 — — 211,736 Debt obligations 745,546 — — 745,546
Liabilities of consolidated funds — 4,873,974
(3,136 ) 4,870,838 Total liabilities 1,325,095
4,873,974 4,712 6,203,781 Non-controlling
redeemable interests in consolidated funds — — 861,864 861,864
Capital: Unitholders’ capital attributable to OCG 966,722 249,402
(249,402 ) 966,722 Non-controlling interest in consolidated
subsidiaries 1,079,586 301,397 (301,397 ) 1,079,586 Non-controlling
interest in consolidated funds — 872,632
(861,864 ) 10,768 Total capital 2,046,308
1,423,431 (1,412,663 ) 2,057,076 Total liabilities
and capital $ 3,371,403 $ 6,297,405 $ (546,087 ) $ 9,122,721
Corporate Investments
As of March 31, December
31, March 31, 2018 2017 2017
(in thousands) Oaktree funds: Credit $ 922,287 $ 937,277 $
924,975 Private Equity 245,450 247,546 258,064 Real Assets 148,215
263,732 140,569 Listed Equities 126,777 137,941 122,572 Non-Oaktree
75,451 82,096 100,945
Total corporate investments – Non-GAAP 1,518,180 1,668,592
1,547,125 Adjustments (1) 29,945 22,957
3,802 Total corporate investments – Oaktree and
operating subsidiaries 1,548,125 1,691,549 1,550,927 Eliminations
(545,924 ) (681,918 ) (493,433 ) Total
corporate investments – Consolidated $ 1,002,201 $ 1,009,631
$ 1,057,494 (1) This adjusts CLO
investments carried at amortized cost to fair value for GAAP
reporting.
Fund Data
Information regarding our closed-end, open-end and evergreen
funds, together with benchmark data where applicable, is set forth
below. For our closed-end and evergreen funds, no benchmarks are
presented in the tables as there are no known comparable benchmarks
for these funds’ investment philosophy, strategy and
implementation.
Closed-end
Funds
As of March 31, 2018
Investment Period Total Committed Capital
%
Invested (1)
%
Drawn (2)
Fund Net Income Since Inception Distri-
butions Since Inception
Net Asset Value Manage-
ment Fee-gener-
ating AUM
Incentive Income Recog-
nized (Non-GAAP)
Accrued Incentives (Fund Level) (3)
Unreturned Drawn Capital Plus Accrued Preferred Return
(4) IRR Since Inception (5)
Multiple of Drawn Capital (6) Start
Date End Date
Gross
Net
Credit
(in millions) Distressed Debt Oaktree Opportunities
Fund Xb (7) TBD — $8,872
—%
—%
$—
$— $— $— $— $— $— n/a n/a n/a Oaktree Opportunities Fund X (7) Jan.
2016 Jan. 2019 3,603 81 63 756 81 2,933 3,474 — 146 2,399
35.6%
21.6% 1.4x Oaktree Opportunities Fund IX Jan. 2014 Jan. 2017 5,066
nm 100 528 1,671 3,923 3,853 — — 5,092 5.3 2.7 1.2 Oaktree
Opportunities Fund VIIIb Aug. 2011 Aug. 2014 2,692 nm 100 835 2,020
1,507 1,568 52 — 1,868 8.7 5.8 1.4 Special Account B Nov. 2009 Nov.
2012 1,031 nm 100 607 1,511 204 198 16 — 101 13.6 11.3 1.6 Oaktree
Opportunities Fund VIII Oct. 2009 Oct. 2012 4,507 nm 100 2,527
6,102 932 1,036 208 284 313 13.0 9.1 1.6 Special Account A Nov.
2008 Oct. 2012 253 nm 100 314 542 25 39 57 5 — 28.0 22.8 2.3 OCM
Opportunities Fund VIIb May 2008 May 2011 10,940 nm 90 8,995 17,844
995 824 1,554 194 — 21.9 16.6 2.0 OCM Opportunities Fund VII Mar.
2007 Mar. 2010 3,598 nm 100 1,479 4,742 335 — 87 — 501 10.2 7.5 1.5
Legacy funds (8) Various Various 12,495 nm 100 10,458 22,925 28 —
1,557 6 — 23.6 18.5 1.9 22.0% 16.1%
Private/Alternative
Credit Oaktree European Capital Solutions Fund (7)(9)(10) Dec.
2015 Dec. 2018 €703 80% 64% €28 €155 €291 €355 €— €4 €281 11.5%
7.3% 1.1x Oaktree European Dislocation Fund (10) Oct. 2013 Oct.
2016 €294 nm 57 €41 €187 €36 €21 €3 €4 €13 20.6 14.8 1.3 Special
Account E (10) Oct. 2013 Apr. 2015 €379 nm 69 €64 €301 €24 €9 €4 €6
€1 14.3 11.1 1.3 15.1% 11.0% Oaktree Mezzanine Fund IV (9)
Oct. 2014 Oct. 2019 $852 76% 71% $93 $111 $587 $560 $— $15 $567
12.2% 8.6% 1.2x Oaktree Mezzanine Fund III (11) Dec. 2009 Dec. 2014
1,592 nm 89 462 1,777 108 116 17 30 39 15.3 10.4 / 9.2 1.4 OCM
Mezzanine Fund II Jun. 2005 Jun. 2010 1,251 nm 88 492 1,529 71 — —
— 144 10.9 7.4 1.6 OCM Mezzanine Fund (12) Oct. 2001 Oct. 2006 808
nm 96 302 1,075 — — 38 — — 15.4 10.8 / 10.5 1.5 13.1% 8.8%
Emerging Markets Debt Oaktree Emerging Market Opportunities
Fund Sep. 2013 Sep. 2017 $384 nm 78% $125 $281 $142 $104 $— $22 $83
17.1% 11.7% 1.5x Special Account F Jan. 2014 Sep. 2017 253 nm 96 80
236 86 85 — 16 47 16.6 11.9 1.4 16.9% 11.8%
Private
Equity
Corporate Private Equity Oaktree European Principal Fund IV
(7)(10)(13) Jul. 2017 Jul. 2022 €1,119 77% 63% €(22) €2 €674 €1,085
€— €— €722 nm nm 1.0x Oaktree European Principal Fund III (10) Nov.
2011 Nov. 2016 €3,164 nm 85 €2,248 €1,533 €3,464 €2,682 €— €437
€2,222 18.9% 12.9% 2.0 OCM European Principal Opportunities Fund II
(10) Dec. 2007 Dec. 2012 €1,759 nm 100 €354 €1,866 €220 €584 €29 €—
€729 8.0 3.9 1.4 OCM European Principal Opportunities Fund Mar.
2006 Mar. 2009 $495 nm 96 $454 $927 $— $— $87 $— $— 11.7 8.9 2.1
13.3% 8.8%
As of March 31, 2018
Investment Period Total Committed Capital
%
Invested (1)
%
Drawn (2)
Fund Net Income Since Inception Distri-
butions Since Inception
Net Asset Value Manage-
ment Fee-gener-
ating AUM
Incentive Income Recog-nized (Non-GAAP)
Accrued Incentives (Fund Level) (3)
Unreturned Drawn Capital Plus Accrued Preferred Return
(4) IRR Since
Inception (5)
Multiple of Drawn Capital (6) Start
Date End Date
Gross
Net (in millions) Oaktree Power
Opportunities Fund IV Nov. 2015 Nov. 2020 $1,106 81% 77% $58 $1
$904 $1,078 $— $— $923 11.5% 6.0% 1.1x Oaktree Power Opportunities
Fund III Apr. 2010 Apr. 2015 1,062 nm 66 556 651 610 361 24 80 270
23.0 15.1 1.9 Legacy funds (8) Various Various 1,470 nm 63 1,689
2,616 — — 123 — — 35.1 27.4 2.8 34.5% 26.2%
Special
Situations Oaktree Special Situations Fund (7) Nov. 2015 Nov.
2018 $1,377 88% 53% $205 $160 $777 $1,271 $— $40 $627 40.0% 22.7%
1.4x Other funds: Oaktree Principal Fund V Feb. 2009 Feb. 2015
$2,827 nm 91% $456 $1,730 $1,312 $1,435 $50 $— $2,086 7.3% 3.2%
1.3x Special Account C Dec. 2008 Feb. 2014 505 nm 91 199 423 236
246 21 — 262 10.4 7.2 1.5 OCM Principal Opportunities Fund IV Oct.
2006 Oct. 2011 3,328 nm 100 3,052 6,156 224 — 553 43 — 12.5 9.1 2.1
Legacy funds (8) Various Various 3,701 nm 100 2,710 6,404 7 — 407 1
— 14.4 11.1 1.8 13.1% 9.3%
Real
Assets
Real Estate Oaktree Real Estate Opportunities Fund VII
(13)(14) Jan. 2016 Jan. 2020 $2,921 66% 20% $259 $239 $604 $2,634
$— $50 $371 nm nm 1.7x Oaktree Real Estate Opportunities Fund VI
Aug. 2012 Aug. 2016 2,677 nm 100 1,324 2,104 1,897 1,461 70 186
1,442 15.3% 10.3% 1.6 Oaktree Real Estate Opportunities Fund V Mar.
2011 Mar. 2015 1,283 nm 100 991 2,018 256 136 140 49 — 17.4 12.9
1.9 Special Account D Nov. 2009 Nov. 2012 256 nm 100 199 419 44 —
15 4 — 14.6 12.6 1.8 Oaktree Real Estate Opportunities Fund IV Dec.
2007 Dec. 2011 450 nm 100 383 766 67 62 59 13 — 15.7 10.6 2.0
Legacy funds (8) Various Various 2,341 nm 99 2,010 4,324 2 — 232 —
— 15.2 11.9 1.9 15.5% 11.9% Oaktree Real Estate Debt Fund II
(9)(13) Mar. 2017 Mar. 2020 $1,627 47% 10% $15 $52 $156 $837 $— $2
$146 nm nm 1.1x Oaktree Real Estate Debt Fund Sep. 2013 Oct. 2016
1,112 nm 81 166 581 487 594 10 14 362 23.1% 17.3% 1.2 Oaktree PPIP
Fund (15) Dec. 2009 Dec. 2012 2,322 nm 48 457 1,570 — — 47 — — 28.2
n/a 1.4 Special Account G (Real Estate Income) (9)(13) Oct.
2016 Oct. 2020 $615 66% 66% $45 $46 $404 $384 $— $7 $389 nm nm 1.1
Infrastructure Highstar Capital IV (16) Nov. 2010
Nov. 2016 $2,000 nm 100% $437 $696 $1,741 $1,336 $— $— $1,974 11.0%
6.7% 1.4x 29,516 (10) 1,761 (10) Other (17) 8,187 7 Total (18)
$37,703 $1,768 (1) For our incentive-creating
closed-end funds in their investment periods, this percentage
equals invested capital divided by committed capital. Invested
capital for this purpose is the sum of capital drawn from fund
investors plus net borrowings, if any, outstanding, under a
fund-level credit facility where such borrowings were made in lieu
of drawing capital from fund investors. (2) Represents capital
drawn from fund investors, net of distributions to such investors
of uninvested capital, divided by committed capital. The aggregate
change in drawn capital for the three months ended March 31, 2018
was $0.9 billion. (3) Accrued incentives (fund level) exclude
non-GAAP incentive income previously recognized. (4) Unreturned
drawn capital plus accrued preferred return reflects the amount the
fund needs to distribute to its investors as a return of capital
and a preferred return (as applicable) before Oaktree is entitled
to receive incentive income (other than tax distributions) from the
fund. (5) The internal rate of return (“IRR”) is the annualized
implied discount rate calculated from a series of cash flows. It is
the return that equates the present value of all capital invested
in an investment to the present value of all returns of capital, or
the discount rate that will provide a net present value of all cash
flows equal to zero. Fund-level IRRs are calculated based upon the
actual timing of cash contributions/distributions to investors and
the residual value of such investor’s capital accounts at the end
of the applicable period being measured. Gross IRRs reflect returns
before allocation of management fees, expenses and any incentive
allocation to the fund’s general partner. To the extent material,
gross returns include certain transaction, advisory, directors or
other ancillary fees (“fee income”) paid directly to us in
connection with our funds’ activities (we credit all such fee
income back to the respective fund(s) so that our funds’ investors
share pro rata in the fee income’s economic benefit). Net IRRs
reflect returns to non-affiliated investors after allocation of
management fees, expenses and any incentive allocation to the
fund’s general partner. (6) Multiple of drawn capital is calculated
as drawn capital plus gross income and, if applicable, fee income
before fees and expenses divided by drawn capital. (7) Fund data
include the performance of the main fund and any associated
fund-of-one accounts, except the gross and net IRRs presented
reflect only the performance of the main fund. Certain fund-of-one
accounts pay management fees based on cost basis, rather than
committed capital. (8) Legacy funds represent certain predecessor
funds within the relevant strategy or product that have
substantially or completely liquidated their assets, including
funds managed by certain Oaktree investment professionals while
employed at the Trust Company of the West prior to Oaktree’s
founding in 1995. When these employees joined Oaktree upon, or
shortly after, its founding, they continued to manage the fund
through the end of its term pursuant to a sub-advisory relationship
between the Trust Company of the West and Oaktree. (9) Management
fees during the investment period are calculated on drawn capital
or cost basis, rather than committed capital. As a result, as of
March 31, 2018 management fee-generating AUM included only that
portion of committed capital that had been drawn. (10) Aggregate
IRRs or totals are based on the conversion of cash flows or
amounts, respectively, from euros to USD using the March 31, 2018
spot rate of $1.23. (11) The fund’s partnership interests are
divided into Class A and Class B interests, with the Class A
interests having priority with respect to the distribution of
current income and disposition proceeds. The net IRR for Class A
interests was 10.4% and Class B interests was 9.2%. The combined
net IRR for Class A and Class B interests was 9.8%. (12) The fund’s
partnership interests are divided into Class A and Class B
interests, with the Class A interests having priority with respect
to the distribution of current income and disposition proceeds. The
net IRR for Class A interests was 10.8% and Class B interests was
10.5%. The combined net IRR for the Class A and Class B interests
was 10.6%. (13) The IRR is not considered meaningful (“nm”) as the
period from the initial capital contribution through March 31, 2018
was less than 24 months. (14) A portion of this fund pays
management fees based on drawn, rather than committed, capital.
(15) Due to differences in the allocation of income and expenses to
this fund’s two primary limited partners, the U.S. Treasury and
Oaktree PPIP Private Fund, a combined net IRR is not presented. Of
the $2,322 million in capital commitments, $1,161 million related
to the Oaktree PPIP Private Fund, whose gross and net IRR were
24.7% and 18.6%, respectively. (16) The fund follows the
American-style distribution waterfall, whereby the general partner
may receive an incentive allocation as soon as it has returned the
drawn capital and paid a preferred return on the fund’s realized
investments (i.e., on a deal-by-deal basis). However, such cash
distributions of incentives may be subject to repayment, or
clawback. As of March 31, 2018, Oaktree had not recognized any
incentive income from this fund. The accrued incentives (fund
level) for this fund represents Oaktree’s effective 8% of the
potential incentives generated by this fund in accordance with the
terms of the Highstar acquisition. (17) This includes our
closed-end Senior Loan funds, CLOs, a non-Oaktree fund and certain
separate accounts and co-investments. (18) The total excludes one
closed-end fund with management fee-generating AUM of $135 million
as of March 31, 2018, which has been included as part of the
Strategic Credit strategy within the evergreen funds table.
Open-end
Funds
Manage-
ment Fee-gener-
ating AUM
as of
Mar. 31, 2018
Twelve Months Ended
March 31, 2018
Since Inception through March 31, 2018 Strategy
Inception Rates of Return (1) Annualized Rates
of Return (1) Sharpe Ratio Oaktree
Rele-
vant Bench-
mark
Oaktree Rele-
vant Bench-
mark
Oaktree Gross Rele-
vant Bench-
mark
Gross Net Gross Net
(in millions)
Credit
High Yield Bonds U.S. High Yield Bonds 1986 $ 14,741 3.0 %
2.5 % 3.7 % 9.1 % 8.6 % 8.3 % 0.79 0.57 Global High Yield Bonds
2010 3,898 3.6 3.1 4.0 7.0 6.5 6.7 1.11 1.09 European High Yield
Bonds 1999 890 5.2 4.6 5.3 8.0 7.4 6.3 0.72 0.46
Convertibles U.S. Convertibles 1987 2,205 7.2 6.7 10.6 9.3
8.8 8.3 0.50 0.38 Non-U.S. Convertibles 1994 1,449 5.2 4.6 2.2 8.2
7.7 5.5 0.79 0.40 High Income Convertibles 1989 987 5.4 4.8 3.7
11.2 10.4 8.1 1.06 0.60
Senior Loans U.S. Senior
Loans 2008 672 4.9 4.3 4.6 6.0 5.5 5.3 1.13 0.67 European Senior
Loans 2009 1,661 2.4 1.9 3.0 7.6 7.1 8.3 1.66 1.69
Multi-Strategy Credit Multi-Strategy Credit (2) Various
2,890 nm nm nm nm nm nm nm nm
Listed Equities
Emerging Markets Equities Emerging Markets Equities 2011
4,055 26.0 25.0 24.9 3.8 3.0 2.7 0.19 0.14
Total
$ 33,448 (1) Returns represent time-weighted
rates of return, including reinvestment of income, net of
commissions and transaction costs. The returns for Relevant
Benchmarks are presented on a gross basis. (2) Includes Global
Credit Fund and individual accounts across various strategies with
different investment mandates. As such, a combined performance
measure is not considered meaningful (“nm”).
Evergreen
Funds
As of March 31, 2018 Twelve
Months Ended March 31, 2018 Since Inception
throughMarch 31, 2018 AUM Manage-
ment
Fee-gener-
ating AUM
Accrued Incen-
tives (Fund Level)
Strategy Inception Rates of Return (1)
Annualized Rates
of Return (1)
Gross Net Gross Net
(in millions)
Credit
Private/Alternative Credit Strategic Credit (2) 2012 $5,044
$4,709 $3 12.8% 10.1% 9.4% 6.9%
Distressed Debt Value
Opportunities 2007 1,135 1,056 5 13.0 10.1 9.7 5.9
Emerging Markets Debt Emerging Markets Debt (3) 2015 771 207
8 13.4 10.3 15.5 12.1
Listed
Equities
Value/Other Equities Value Equities (4) 2012 475 452 — 25.1
18.1 20.9 15.1 6,424 16 Other (5) 686 7 Restructured funds — 5
Total (2) $7,110 $28 (1) Returns represent
time-weighted rates of return. (2) Includes our publicly-traded
BDCs and one closed-end fund with $141 million and $135 million of
AUM and management fee-generating AUM, respectively. The rates of
return reflect the performance of a composite of certain evergreen
accounts and exclude our publicly-traded BDCs. (3) Includes the
Emerging Markets Debt Total Return and Emerging Markets
Opportunities products. The rates of return reflect the performance
of a composite of accounts for the Emerging Markets Debt Total
Return product, including a single account with a December 2014
inception date. (4) Includes performance of a proprietary fund with
an initial capital commitment of $25 million since its inception in
May 2012. (5) Includes the Emerging Markets Absolute Return product
and certain Real Estate and Multi-Strategy Credit accounts.
GLOSSARY
Accrued incentives (fund level) represents the incentive
income that would be paid to us if the funds were liquidated at
their reported values as of the date of the financial statements.
Incentives created (fund level) refers to the gross amount of
potential incentives generated by the funds during the period, and
includes our pro-rata portion of performance fees attributable to
our minority interest in DoubleLine earned in the period. We refer
to the amount of accrued incentives recognized as revenue by us as
incentive income. Amounts recognized by us as incentive income are
no longer included in accrued incentives (fund level), the term we
use for remaining fund-level accruals. Incentives created (fund
level), incentive income and accrued incentives (fund level) are
presented gross, without deduction for direct compensation expense
that is owed to our investment professionals associated with the
particular fund when we earn the incentive income. We call that
charge “incentive income compensation expense.” Incentive income
compensation expense varies by the investment strategy and vintage
of the particular fund, among many factors.
Adjusted net income (“ANI”) is a measure of profitability
for our investment management business. The components of revenues
(“adjusted revenues”) and expenses (“adjusted expenses”) used in
the determination of ANI do not give effect to the consolidation of
the funds that we manage. Adjusted revenues include investment
income (loss) that is classified in other income (loss) in the GAAP
statements of operations, and management fees and incentive income
include the portion of the earnings from management fees and
performance fees, respectively, attributable to our 20% ownership
interest in DoubleLine, which are reflected as investment income in
our GAAP statements of operations. In addition, ANI excludes the
effect of (a) non-cash equity-based compensation expense
related to unit grants made before our initial public offering,
(b) acquisition-related items, including amortization of
intangibles and changes in the contingent consideration liability,
(c) income taxes, (d) other income or expenses applicable to
OCG or its Intermediate Holding Companies, and (e) the
adjustment for non-controlling interests. Moreover, gains and
losses resulting from foreign-currency transactions and hedging
activities under GAAP are recognized as general and administrative
expense whether realized or unrealized in the current period. For
ANI, unrealized gains and losses from foreign-currency hedging
activities are deferred until realized, at which time they are
included in the same revenue or expense line item as the underlying
exposure that was hedged, and foreign-currency transaction gains
and losses are included in other income (expense), net. Incentive
income and incentive income compensation expense are included in
ANI when the underlying fund distributions are known or knowable as
of the respective quarter end, which may be later than the time at
which the same revenue or expense is included in the GAAP
statements of operations, for which the revenue standard is
probable that significant reversal will not occur and the expense
standard is probable and reasonably estimable. CLO investments are
carried at fair value for GAAP reporting, whereas for ANI, they are
carried at amortized cost, subject to any impairment charges.
Investment income on CLO investments is recognized in ANI when cash
distributions are received. Cash distributions are allocated
between income and return of capital based on the effective yield
method. In periods prior to 2018, adjusted revenues and adjusted
expenses reflected Oaktree’s proportionate economic interest in
Highstar, whereby amounts received for contractually reimbursable
costs from a legacy Highstar fund were classified as expenses for
ANI and as other income under GAAP. The legacy Highstar fund
stopped paying management fees in 2017. As a result, we will no
longer be receiving such income. ANI is calculated at the Operating
Group level.
Adjusted net income–OCG, or adjusted net income per Class A
unit, a non-GAAP performance measure, is calculated to provide
Class A unitholders with a measure that shows the portion of
ANI attributable to their ownership. Adjusted net income-OCG
represents ANI including the effect of (a) the OCGH
non-controlling interest, (b) other income or expenses, such
as income tax expense, applicable to OCG or its Intermediate
Holding Companies and (c) any Operating Group income taxes
attributable to OCG. Two of our Intermediate Holding Companies
incur federal and state income taxes for their shares of Operating
Group income. Generally, those two corporate entities hold an
interest in the Operating Group’s management fee-generating assets
and a small portion of its incentive and investment
income-generating assets. As a result, historically our fee-related
earnings generally have been subject to corporate-level taxation,
and most of our incentive income and other investment income
generally has not been subject to corporate-level taxation. Thus,
the blended effective income tax rate has generally tended to be
higher to the extent that fee-related earnings represented a larger
proportion of our ANI. A variety of other factors affect income tax
expense and the effective income tax rate, and there can be no
assurance that this historical relationship will continue going
forward.
Assets under management (“AUM”) generally refers to the
assets we manage and equals the NAV of the assets we manage, the
leverage on which management fees are charged, the undrawn capital
that we are entitled to call from investors in our funds pursuant
to their capital commitments, and our pro-rata portion of AUM
managed by DoubleLine in which we hold a minority ownership
interest. For our CLOs, AUM represents the aggregate par value of
collateral assets and principal cash, for our publicly-traded BDCs,
gross assets (including assets acquired with leverage), net of
cash, and for DoubleLine funds, NAV. Our AUM includes amounts for
which we charge no management fees.
- Management fee-generating assets
under management (“management fee-generating AUM”) is a
forward-looking metric and generally reflects the beginning AUM on
which we will earn management fees in the following quarter, as
well as our pro-rata portion of the fee basis of DoubleLine’s AUM.
Our closed-end funds typically pay management fees based on
committed capital, drawn capital or cost basis during the
investment period, without regard to changes in NAV, and during the
liquidation period on the lesser of (a) total funded capital
or (b) the cost basis of assets remaining in the fund. The
annual management fee rate generally remains unchanged from the
investment period through the liquidation period. Our open-end and
evergreen funds typically pay management fees based on their NAV,
our CLOs pay management fees based on the aggregate par value of
collateral assets and principal cash, as defined in the applicable
CLO indentures, our publicly-traded BDCs pay management fees based
on gross assets (including assets acquired with leverage), net of
cash, and DoubleLine funds typically pay management fees based on
NAV. As compared with AUM, management fee-generating AUM generally
excludes the following:
- Differences between AUM and either
committed capital or cost basis for most closed-end funds, other
than for closed-end funds that pay management fees based on NAV and
leverage, as applicable;
- Undrawn capital commitments to
closed-end funds that have not yet commenced their investment
periods;
- Undrawn capital commitments to funds
for which management fees are based on drawn capital, NAV or cost
basis;
- Oaktree’s general partner investments
in management fee-generating funds;
- Funds that are no longer paying
management fees and co-investments that pay no management fees;
and
- Differences between AUM and fee basis
for DoubleLine funds.
- Incentive-creating assets under
management (“incentive-creating AUM”) refers to the AUM that
may eventually produce incentive income. It generally represents
the NAV of our funds for which we are entitled to receive an
incentive allocation, excluding CLOs and investments made by us and
our employees and directors (which are not subject to an incentive
allocation), gross assets (including assets acquired with
leverage), net of cash, for our publicly-traded BDCs, and our
pro-rata portion of DoubleLine’s incentive-creating AUM. All funds
for which we are entitled to receive an incentive allocation are
included in incentive-creating AUM, regardless of whether or not
they are currently above their preferred return or high-water mark
and therefore generating incentives. Incentive-creating AUM does
not include undrawn capital commitments.
Consolidated funds refers to the funds and CLOs that
Oaktree is required to consolidate as of the respective reporting
date.
Distributable earnings is a non-GAAP performance measure
derived from our non-GAAP results that we use to measure our
earnings at the Operating Group level without the effects of the
consolidated funds for the purpose of, among other things,
assisting in the determination of equity distributions from the
Operating Group. However, the declaration, payment and
determination of the amount of equity distributions, if any, is at
the sole discretion of our board of directors, which may change our
distribution policy at any time.
Distributable earnings and distributable earnings revenues
differ from ANI in that they exclude investment income or loss and
include the receipt of investment income or loss from distributions
by our investments in funds. Additionally, any impairment charges
on our CLO investments included in ANI are, for distributable
earnings purposes, amortized over the remaining investment period
of the respective CLO, in order to align with the timing of
expected cash flows. In addition, distributable earnings differs
from ANI in that make-whole premium charges related to the
repayment of debt are included in ANI, but for distributable
earnings purposes are amortized through the original maturity date
of the repaid debt. Finally, distributable earnings differs from
ANI in that it is net of Operating Group income taxes and excludes
non-cash equity-based compensation expense.
Distributable earnings–OCG, or distributable earnings per
Class A unit, a non-GAAP performance measure, is calculated to
provide Class A unitholders with a measure that shows the
portion of distributable earnings attributable to their ownership.
Distributable earnings-OCG represents distributable earnings,
including the effect of (a) the OCGH non-controlling interest,
(b) expenses, such as current income tax expense, applicable
to OCG or its Intermediate Holding Companies and (c) amounts
payable under a tax receivable agreement. The income tax expense
included in distributable earnings-OCG represents the implied
current provision for income taxes calculated using an approach
similar to that which is used in calculating the income tax
provision for adjusted net income-OCG.
Economic net income (“ENI”) is a non-GAAP performance
measure that we use to evaluate the financial performance of our
business by applying the mark-to-market approach to incentive
income. The mark-to-market approach followed by ENI recognizes
incentive income as if the funds were liquidated at their reported
values as of the date of the financial statements, as compared to
the GAAP criteria that it is probable that a significant reversal
will not occur and the ANI criteria that the underlying fund
distributions are known or knowable. ENI is computed by adjusting
ANI for the change in accrued incentives (fund level), net of
associated incentive income compensation expense, during the
period.
Economic net income revenues is a non-GAAP measure applying the
mark-to-market approach, instead of the GAAP revenue recognition
approach, for incentive income, and reflects the adjustments
described above under the definition of ANI.
Economic net income–OCG, or economic net income per Class A
unit, a non-GAAP performance measure, is calculated to provide
Class A unitholders with a measure that shows the portion of
ENI attributable to their ownership. Economic net income-OCG
represents ENI, including the effect of (a) the OCGH
non-controlling interest, (b) other income or expenses, such
as income tax expense, applicable to OCG or its Intermediate
Holding Companies and (c) any Operating Group income taxes
attributable to OCG. The income tax expense included in economic
net income-OCG represents the implied provision for income taxes
calculated using an approach similar to that which is used in
calculating the income tax provision for adjusted net
income-OCG.
Equity value units (“EVUs”) represent special limited
partnership units in Oaktree Capital Group Holdings, L.P. (“OCGH”)
that entitle the holder the right to receive a one-time special
distribution that will be settled in OCGH units based on value
created during a specified period (“Term”) in excess of a fixed
“Base Value.” The Base Value will be reduced by certain
distributions and profit sharing payments received by the holder
and the full value of certain OCGH units granted. The value created
will be measured on a per unit basis, based on Class A unit trading
prices and certain components of quarterly distributions with
respect to the period during the Term. EVUs also give the holder
the right, subject to service vesting and Oaktree performance
relative to the accreting Base Value, to receive certain quarterly
distributions from OCGH. EVUs do not entitle the holder to any
voting rights.
Fee-related earnings (“FRE”) is a non-GAAP performance
measure that we use to monitor the baseline earnings of our
business. FRE is derived from our non-GAAP results and is comprised
of management fees (“fee-related earnings revenues”) less operating
expenses other than incentive income compensation expense and
non-cash equity-based compensation expense. FRE is considered
baseline because it excludes all non-management fee revenue sources
and applies all cash compensation and benefits other than incentive
income compensation expense, as well as all general and
administrative expenses, to management fees, even though those
expenses also support the generation of incentive and investment
income. FRE is presented before income taxes.
Fee-related earnings–OCG, or fee-related earnings per Class A
unit, is a non-GAAP performance measure calculated to provide
Class A unitholders with a measure that shows the portion of
FRE attributable to their ownership. Fee-related earnings–OCG
represents FRE including the effect of (a) the OCGH
non-controlling interest, (b) other income or expenses, such
as income tax expense, applicable to OCG or its Intermediate
Holding Companies and (c) any Operating Group income taxes
attributable to OCG. Fee-related earnings–OCG income taxes is
calculated excluding any incentive income or investment income
(loss).
Incentive income is generally recognized for our
closed-end funds only after the fund has distributed all
contributed capital plus an annual preferred return (commonly
referred to as the European-style waterfall) and, for our evergreen
funds, on an annual basis up to 20% of the year’s profits, subject
to a high-water mark or hurdle rate. For non-GAAP reporting,
incentive income also includes the portion of the performance fees
attributable to our minority equity interest in DoubleLine earned
in the period.
Intermediate Holding Companies collectively refers to the
subsidiaries wholly owned by us.
Invested capital reflects deployed capital, whether
involving drawn or recycled equity capital, or borrowings from
fund-level credit facilities. This metric is used in connection
with incentive-creating closed-end funds and certain evergreen
funds.
Management fees are recognized over the period in which
our investment advisory services are performed and for non-GAAP
reporting include the portion of the earnings from management fees
attributable to our minority equity interest in DoubleLine.
Net asset value (“NAV”) refers to the value of all the
assets of a fund (including cash and accrued interest and
dividends) less all liabilities of the fund (including accrued
expenses and any reserves established by us, in our discretion, for
contingent liabilities) without reduction for accrued incentives
(fund level) because they are reflected in the partners’ capital of
the fund.
Oaktree, OCG, we, us, our or the Company refers to
Oaktree Capital Group, LLC and, where applicable, its subsidiaries
and affiliates.
Oaktree Operating Group (“Operating Group”) refers
collectively to the entities in which we have a minority economic
interest and indirect control that either (i) act as or control the
general partners and investment advisers of our funds or (ii) hold
interests in other entities or investments generating income for
us.
Relevant Benchmark refers, with respect to:
- our U.S. High Yield Bond product, to
the Citigroup U.S. High Yield Cash-Pay Capped Index;
- our Global High Yield Bond product, to
an Oaktree custom global high yield index that represents 60% ICE
BofAML High Yield Master II Constrained Index and 40% ICE BofAML
Global Non-Financial High Yield European Issuers 3% Constrained,
ex-Russia Index – USD Hedged from inception through December 31,
2012, and the ICE BofAML Non-Financial Developed Markets High Yield
Constrained Index – USD Hedged thereafter;
- our European High Yield Bond product,
to the ICE BofAML Global Non-Financial High Yield European Issuers
excluding Russia 3% Constrained Index (USD Hedged);
- our U.S. Senior Loan product (with the
exception of the closed-end funds), to the Credit Suisse Leveraged
Loan Index;
- our European Senior Loan product, to
the Credit Suisse Western European Leveraged Loan Index (EUR
Hedged);
- our U.S. Convertible Securities
product, to an Oaktree custom convertible index that represents the
Credit Suisse Convertible Securities Index from inception through
December 31, 1999, the Goldman Sachs/Bloomberg Convertible 100
Index from January 1, 2000 through June 30, 2004, and the
ICE BofAML All U.S. Convertibles Index thereafter;
- our non-U.S. Convertible Securities
product, to an Oaktree custom non-U.S. convertible index that
represents the JACI Global ex-U.S. (Local) Index from inception
through December 31, 2014 and the Thomson Reuters Global Focus
ex-U.S. (USD hedged) Index thereafter;
- our High Income Convertible Securities
product, to the Citigroup U.S. High Yield Market Index; and
- our Emerging Markets Equities product,
to the Morgan Stanley Capital International Emerging Markets Index
(Net).
Sharpe Ratio refers to a metric used to calculate
risk-adjusted return. The Sharpe Ratio is the ratio of excess
return to volatility, with excess return defined as the return
above that of a riskless asset (based on the three-month U.S.
Treasury bill, or for our European Senior Loan product, the Euro
Overnight Index Average) divided by the standard deviation of such
return. A higher Sharpe Ratio indicates a return that is higher
than would be expected for the level of risk compared to the
risk-free rate.
Uncalled capital commitments represent undrawn capital
commitments by partners (including Oaktree as general partner) of
our closed-end funds through their investment periods and certain
evergreen funds. If a fund distributes capital during its
investment period, that capital is typically subject to possible
recall, in which case it is included in uncalled capital
commitments.
EXHIBIT
A
Use of Non-GAAP Financial Information
Oaktree discloses certain non-GAAP financial measures in this
earnings release. Reconciliations of these non-GAAP financial
measures to the most directly comparable financial measures
calculated and presented in accordance with GAAP are presented
below. Management makes operating decisions and assesses the
performance of Oaktree’s business based on these non-GAAP financial
measures. These non-GAAP financial measures should be considered in
addition to, and not as a substitute for or superior to, net
income, net income per Class A unit or other financial measures
presented in accordance with GAAP.
Reconciliation of GAAP to Non-GAAP Results
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income, fee-related
earnings and distributable earnings.
Three Months Ended March 31,
2018 2017 (in thousands) Net income
attributable to Oaktree Capital Group, LLC $ 52,732 $ 54,915
Incentive income (1) 83,581 38,536 Incentive income compensation
(1) (45,627 ) (38,536 ) Investment income (2) (10,487 ) (4,372 )
Equity-based compensation (3) 1,628 2,432 Foreign-currency hedging
(4) (2,122 ) (1,996 ) Acquisition-related items (5) 1,574 1,602
Income taxes (6) 6,397 12,302 Non-Operating Group (income) expenses
(7) (20 ) 232 Non-controlling interests (7) 72,707
96,049 Adjusted net income 160,363 161,164 Incentive
income (235,557 ) (147,442 ) Incentive income compensation 130,442
73,144 Investment income (12,652 ) (42,538 ) Equity-based
compensation (8) 12,993 12,521 Interest expense, net of interest
income 3,410 6,971 Other (income) expense, net (512 )
(41 ) Fee-related earnings 58,487 63,779 Incentive income 235,557
147,442 Incentive income compensation (130,442 ) (73,144 ) Receipts
of investment income (9) 38,760 29,095 Interest expense, net of
interest income (3,410 ) (6,971 ) Other (income) expense, net
(2,233 ) 41 Operating Group income taxes (2,746 )
(1,021 ) Distributable earnings $ 193,973 $ 159,221
(1) This adjustment adds back the effect of
timing differences associated with the recognition of incentive
income and incentive income compensation expense between adjusted
net income and net income attributable to OCG. (2) This adjustment
adds back the effect of differences in the recognition of
investment income related to corporate investments in CLOs which
under GAAP are marked-to-market but for ANI are accounted for at
amortized cost, subject to impairment. (3) This adjustment adds
back the effect of equity-based compensation expense related to
unit grants made before our initial public offering, which is
excluded from adjusted net income and fee-related earnings because
it is a non-cash charge that does not affect our financial
position. (4) This adjustment adds back the effect of timing
differences associated with the recognition of unrealized gains and
losses related to foreign-currency hedging between adjusted net
income and net income attributable to OCG. (5) This adjustment adds
back the effect of acquisition-related items associated with the
amortization of intangibles and changes in the contingent
consideration liability, which are excluded from adjusted net
income. (6) Because adjusted net income and fee-related earnings
are pre-tax measures, this adjustment adds back the effect of
income tax expense. (7) Because adjusted net income and fee-related
earnings are calculated at the Operating Group level, this
adjustment adds back the effect of items applicable to OCG, its
Intermediate Holding Companies or non-controlling interests. (8)
This adjustment adds back the effect of equity-based compensation
expense related to unit grants made after our initial public
offering, which is excluded from fee-related earnings because it is
non-cash in nature and does not impact our ability to fund our
operations. (9) This adjustment reflects the portion of
distributions received from funds characterized as receipts of
investment income or loss. In general, the income or loss component
of a distribution from a fund is calculated by multiplying the
amount of the distribution by the ratio of our investment’s
undistributed income or loss to our remaining investment balance.
In addition, if the distribution is made during the investment
period, it is generally not reflected in distributable earnings
until after the investment period ends.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income-OCG, fee-related
earnings-OCG and distributable earnings-OCG.
Three Months Ended March 31, 2018
2017 (in thousands) Net income attributable to
Oaktree Capital Group, LLC $ 52,732 $ 54,915 Incentive income
attributable to OCG (1) 36,346 15,702 Incentive income compensation
attributable to OCG (1) (19,840 ) (15,702 ) Investment income
attributable to OCG (2) (4,559 ) (1,781 ) Equity-based compensation
attributable to OCG (3) 708 991 Foreign-currency hedging
attributable to OCG (4) (923 ) (813 ) Acquisition-related items
attributable to OCG (5) 684 652 Income taxes (6) (2,007 ) —
Non-controlling interests attributable to OCG (5) (238 )
(223 ) Adjusted net income-OCG (7) 62,903 53,741 Incentive
income attributable to OCG (102,432 ) (60,078 ) Incentive income
compensation attributable to OCG 56,723 29,804 Investment income
attributable to OCG (5,502 ) (17,334 ) Equity-based compensation
attributable to OCG (8) 5,650 5,104 Interest expense, net of
interest income attributable to OCG 1,256 2,768 Other (income)
expense attributable to OCG (223 ) (16 ) Non-fee-related earnings
income taxes attributable to OCG (9) 5,894
7,911 Fee-related earnings-OCG (7) 24,269 21,900 Incentive
income attributable to OCG 102,432 60,078 Incentive income
compensation attributable to OCG (56,723 ) (29,804 ) Receipts of
investment income attributable to OCG 16,855 11,856 Interest
expense, net of interest income attributable to OCG (1,256 ) (2,768
) Other (income) expense attributable to OCG (971 ) 16
Non-fee-related earnings income taxes attributable to OCG (5,894 )
(7,911 ) Distributable earnings-OCG income taxes (333 ) (4,112 )
Tax receivable agreement (3,858 ) (5,363 ) Income taxes of
Intermediate Holding Companies 5,657 11,281
Distributable earnings-OCG (7) $ 80,178 $ 55,173
(1) This adjustment adds back the
effect of timing differences associated with the recognition of
incentive income and incentive income compensation expense between
adjusted net income-OCG and net income attributable to OCG. (2)
This adjustment adds back the effect of differences in the
recognition of investment income related to corporate investments
in CLOs which under GAAP are marked-to-market but for ANI are
accounted for at amortized cost, subject to impairment. (3) This
adjustment adds back the effect of equity-based compensation
expense attributable to OCG related to unit grants made before our
initial public offering, which is excluded from adjusted net
income-OCG and fee-related earnings-OCG because it is a non-cash
charge that does not affect our financial position. (4) This
adjustment adds back the effect of timing differences associated
with the recognition of unrealized gains and losses related to
foreign-currency hedging between adjusted net income-OCG and net
income attributable to OCG. (5) This adjustment adds back the
effect of (a) acquisition-related items associated with the
amortization of intangibles and changes in the contingent
consideration liability and (b) non-controlling interests, which
are both excluded from ANI. (6) This adjustment relates to
differences in income taxes between adjusted net income-OCG and net
income attributable to OCG. (7) Adjusted net income-OCG,
fee-related earnings-OCG and distributable earnings-OCG are
calculated to evaluate the portion of adjusted net income,
fee-related earnings and distributable earnings attributable to
Class A unitholders. These measures are net of income taxes and
other income or expenses applicable to OCG or its Intermediate
Holding Companies. Reconciliations of fee-related earnings to
fee-related earnings-OCG and distributable earnings to
distributable earnings-OCG are presented below.
Three Months Ended
March 31, 2018 2017 (in thousands,
except per unit data) Fee-related earnings $ 58,487 $ 63,779
Fee-related earnings attributable to OCGH non-controlling interest
(33,054 ) (37,788 ) Non-Operating Group expenses (207 ) (305 )
Fee-related earnings-OCG income taxes (957 ) (3,786 )
Fee-related earnings-OCG $ 24,269 $ 21,900
Fee-related earnings per Class A unit $ 0.36 $ 0.35
Weighted average number of Class A units outstanding 67,918
63,022
Three Months Ended March 31,
2018 2017 (in thousands, except per unit
data) Distributable earnings $ 193,973 $ 159,221 Distributable
earnings attributable to OCGH non-controlling interest (109,624 )
(94,341 ) Non-Operating Group income (expense) 20 (232 )
Distributable earnings-OCG income taxes (333 ) (4,112 ) Tax
receivable agreement (3,858 ) (5,363 ) Distributable
earnings-OCG $ 80,178 $ 55,173 Distributable earnings
per Class A unit $ 1.18 $ 0.88 Weighted average
number of Class A units outstanding 67,918
63,022 (8) This adjustment adds back
the effect of equity-based compensation expense attributable to OCG
related to unit grants made after our initial public offering,
which is excluded from fee-related earnings-OCG, because it is
non-cash in nature and does not impact our ability to fund our
operations. (9) This adjustment adds back income taxes associated
with incentive income, incentive income compensation expense or
investment income or loss, which are not included in the
calculation of fee-related earnings-OCG.
The following table reconciles GAAP revenues to adjusted
revenues, fee-related earnings revenues and distributable earnings
revenues.
Three Months Ended March 31, 2018
2017 (in thousands) GAAP revenues $ 337,321 $
289,585 Consolidated funds (1) 6,178 16,987 Incentive income (2)
83,581 38,536 Investment income (3) 24,076
46,079 Adjusted revenues 451,156 391,187 Incentive income
(235,557 ) (147,442 ) Investment income (12,652 )
(42,538 ) Fee-related earnings revenues 202,947 201,207 Incentive
income 235,557 147,442 Receipts of investment income 38,760
29,095 Distributable earnings revenues $
477,264 $ 377,744 (1) This
adjustment represents amounts attributable to the consolidated
funds that were eliminated in consolidation, the reclassification
of gains and losses related to foreign-currency hedging activities
from general and administrative expense to revenues, the
elimination of non-controlling interests from adjusted revenues,
and certain compensation and administrative related expense
reimbursements netted with expenses. (2) This adjustment adds back
the effect of timing differences associated with the recognition of
incentive income between adjusted revenues and GAAP revenues. (3)
This adjustment reclassifies consolidated investment income from
other income (loss) to revenues and adds back the effect of
differences in the recognition of investment income related to
corporate investments in CLOs between adjusted revenues and GAAP
revenues.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income and economic net
income.
Three Months Ended March 31, 2018
2017 (in thousands) Net income attributable to
Oaktree Capital Group, LLC $ 52,732 $ 54,915 Reconciling
adjustments (1) 107,631 106,249 Adjusted net
income 160,363 161,164 Change in accrued incentives (fund level),
net of associated incentive income compensation (2) (52,817
) 22,487 Economic net income (3) $ 107,546 $ 183,651
(1) Please refer to the table on page 27 for a
detailed reconciliation of net income attributable to Oaktree
Capital Group, LLC to adjusted net income. (2) The change in
accrued incentives (fund level), net of associated incentive income
compensation expense, represents the difference between (a) our
recognition of net incentive income and (b) the incentive income
generated by the funds during the period that would be due to us if
the funds were liquidated at their reported values as of that date,
net of associated incentive income compensation expense. (3) Please
see Glossary for the definition of economic net income.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income-OCG and economic
net income-OCG.
Three Months Ended March 31,
2018 2017 (in thousands) Net income
attributable to Oaktree Capital Group, LLC $ 52,732 $ 54,915
Reconciling adjustments (1) 10,171 (1,174 )
Adjusted net income-OCG (2) 62,903 53,741 Change in accrued
incentives (fund level), net of associated incentive income
compensation attributable to OCG (22,967 ) 9,164 Economic net
income-OCG income taxes (4,278 ) (10,542 ) Income taxes-OCG
6,851 11,697 Economic net income-OCG (2) $
42,509 $ 64,060 (1) Please refer to the
table on page 28 for a detailed reconciliation of net income
attributable to Oaktree Capital Group, LLC to adjusted net
income-OCG. (2) Adjusted net income-OCG and economic net income-OCG
are calculated to evaluate the portion of adjusted net income and
economic net income attributable to Class A unitholders. These
measures are net of income taxes and other income or expenses
applicable to OCG or its Intermediate Holding Companies. A
reconciliation of economic net income to economic net income-OCG is
presented below.
Three Months Ended March 31, 2018
2017 (in thousands, except per unit data) Economic
net income $ 107,546 $ 183,651 Economic net income attributable to
OCGH non-controlling interest (60,779 ) (108,817 ) Non-Operating
Group income (expense) 20 (232 ) Economic net income-OCG income
taxes (4,278 ) (10,542 ) Economic net income-OCG $
42,509 $ 64,060 Economic net income per Class A unit
$ 0.63 $ 1.02 Weighted average number of Class A
units outstanding 67,918 63,022
The following table reconciles GAAP revenues to adjusted
revenues and economic net income revenues.
Three Months Ended March 31, 2018
2017 (in thousands) GAAP revenues $ 337,321 $
289,585 Consolidated funds (1) 6,178 16,987 Incentive income (2)
83,581 38,536 Investment income (3) 24,076
46,079 Adjusted revenues 451,156 391,187 Incentives created
111,185 201,767 Incentive income (235,557 ) (147,442
) Economic net income revenues $ 326,784 $ 445,512
(1) This adjustment represents amounts
attributable to the consolidated funds that were eliminated in
consolidation, the reclassification of gains and losses related to
foreign-currency hedging activities from general and administrative
expense to revenues, the elimination of non-controlling interests
from adjusted revenues, and certain compensation and administrative
related expense reimbursements netted with expenses. (2) This
adjustment adds back the effect of timing differences associated
with the recognition of incentive income between adjusted revenues
and GAAP revenues. (3) This adjustment reclassifies consolidated
investment income from other income (loss) to revenues and adds
back the effect of differences in the recognition of investment
income related to corporate investments in CLOs between adjusted
revenues and GAAP revenues.
The following tables reconcile GAAP consolidated financial data
to non-GAAP data:
As of or for the Three Months Ended March 31,
2018 Consolidated Adjustments
ANI (in thousands) Management fees (1) $ 185,415 $
17,532 $ 202,947 Incentive income (1) 151,906 83,651 235,557
Investment income (1) 34,563 (21,911 ) 12,652 Total expenses (2)
(251,036 ) (36,859 ) (287,895 ) Interest expense, net (3) (40,579 )
37,169 (3,410 ) Other income, net (4) 697 (185 ) 512 Other income
of consolidated funds (5) 62,832 (62,832 ) — Income taxes (6,397 )
6,397 — Net income attributable to non-controlling interests in
consolidated funds (10,725 ) 10,725 — Net income attributable to
non-controlling interests in consolidated subsidiaries
(73,944 ) 73,944 — Net income
attributable to Oaktree Capital Group, LLC/Adjusted net income $
52,732 $ 107,631 $ 160,363 (1)
The adjustment (a) adds back amounts earned from the
consolidated funds, (b) reclassifies DoubleLine investment income
of $18,213 to management fees, (c) for management fees,
reclassifies $1,820 of net losses related to foreign-currency
hedging activities from general and administrative expense and
$4,205 of expense reimbursements grossed-up for GAAP reporting, but
netted with expenses for ANI, (d) for incentive income, includes
$83,581 related to timing differences in the recognition of
incentive income between net income attributable to OCG and
adjusted net income, and (e) for investment income, includes
$10,487 related to corporate investments in CLOs, which under GAAP
are marked-to-market but for ANI accounted for at amortized cost,
subject to impairment. (2) The expense adjustment consists of (a)
equity-based compensation expense of $1,628 related to unit grants
made before our initial public offering, (b) consolidated fund
expenses of $1,271, (c) expenses incurred by the Intermediate
Holding Companies of $207, (d) the effect of timing differences in
the recognition of incentive income compensation expense between
net income attributable to OCG and adjusted net income of $45,627,
(e) acquisition-related items of $1,574, (f) $117 of net gains
related to foreign-currency hedging activities, and (g) $4,205 of
reimbursements grossed-up as revenues for GAAP reporting, but
netted with expenses for ANI. (3) The interest expense adjustment
removes interest expense of the consolidated funds and reclassifies
interest income from other income of consolidated funds. (4) The
adjustment to other income (expense), net represents adjustments
related to the reclassification of $185 in net losses related to
foreign-currency hedging activities from general and administrative
expense. (5) The adjustment to other income of consolidated funds
removes interest, dividend and other investment income attributable
to third-party investors in our consolidated funds, and
reclassifies investment income to revenues and interest income to
interest expense, net.
As of or for the Three
Months Ended March 31, 2017 Consolidated
Adjustments ANI (in thousands)
Management fees (1) $ 180,928 $ 20,279 $ 201,207 Incentive income
(1) 108,657 38,785 147,442 Investment income (1) 50,451 (7,913 )
42,538 Total expenses (2) (192,562 ) (30,531 ) (223,093 ) Interest
expense, net (3) (48,770 ) 41,799 (6,971 ) Other income, net (4)
4,663 (4,622 ) 41 Other income of consolidated funds (5) 70,766
(70,766 ) — Income taxes (12,302 ) 12,302 — Net income attributable
to non-controlling interests in consolidated funds (9,692 ) 9,692 —
Net income attributable to non-controlling interests in
consolidated subsidiaries (97,224 ) 97,224
— Net income attributable to Oaktree Capital Group,
LLC/Adjusted net income $ 54,915 $ 106,249 $ 161,164
(1) The adjustment (a) adds back
amounts earned from the consolidated funds, (b) reclassifies
DoubleLine investment income of $15,642 to management fees and $249
to incentive income, (c) for management fees, reclassifies $415 of
net gains related to foreign-currency hedging activities from
general and administrative expense, (d) for incentive income,
includes $38,536 related to timing differences in the recognition
of incentive income between net income attributable to OCG and
adjusted net income, and (e) for investment income, includes $4,372
related to corporate investments in CLOs, which under GAAP are
marked-to-market but for ANI accounted for at amortized cost,
subject to impairment. (2) The expense adjustment consists of (a)
equity-based compensation expense of $2,432 related to unit grants
made before our initial public offering, (b) consolidated fund
expenses of $1,457, (c) expenses incurred by the Intermediate
Holding Companies of $305, (d) the effect of timing differences in
the recognition of incentive income compensation expense between
net income attributable to OCG and adjusted net income of $38,536,
(e) acquisition-related items of $1,602, (f) adjustments of $4,661
related to amounts received for contractually reimbursable costs
that are classified as other income under GAAP and as expenses for
ANI, and (g) $2,452 of net gains related to foreign-currency
hedging activities. (3) The interest expense adjustment removes
interest expense of the consolidated funds and reclassifies
interest income from other income of consolidated funds. (4) The
adjustment to other income (expense), net represents adjustments
related to (a) amounts received for contractually reimbursable
costs of $4,661 that are classified as other income under GAAP and
as expenses for ANI, and (b) the reclassification of $41 in net
gains related to foreign-currency hedging activities from general
and administrative expense. (5) The adjustment to other income of
consolidated funds removes interest, dividend and other investment
income attributable to third-party investors in our consolidated
funds, and reclassifies investment income to revenues and interest
income to interest expense, net.
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version on businesswire.com: https://www.businesswire.com/news/home/20180426005472/en/
Investor Relations:Oaktree Capital Group, LLCAndrea D.
Williams(213)
830-6483investorrelations@oaktreecapital.comorPress
Relations:Sard Verbinnen & CoJohn Christiansen(415)
618-8750jchristiansen@sardverb.comorSard Verbinnen
& CoAlyssa Linn(310)
201-2040alinn@sardverb.com
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