As of June 30, 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 $31.1 million ($0.44 per
unit), down from $117.3 million ($1.83) for the second quarter of
2017, primarily driven by lower incentive income relative to the
second quarter of 2017’s record amount.
- Adjusted net income was $91.5
million ($0.51 per unit), down from $281.7 million ($1.73) for the
second quarter of 2017, primarily driven by lower incentive
income.
- Distributable earnings were
$114.3 million ($0.69 per unit), down from $289.3 million ($1.65)
for the second quarter of 2017, primarily driven by lower incentive
income.
- Assets under management were
$121.6 billion, up slightly for both the quarter and last 12
months. Gross capital raised was $3.3 billion and $9.6 billion for
the quarter and last 12 months, respectively. Uncalled capital
commitments (“dry powder”) were $20.3 billion, of which $14.1
billion were not yet generating management fees (“shadow
AUM”).
- Management fee-generating assets
under management were $100.5 billion, down 1% for both the
quarter and last 12 months.
- A distribution was declared of
$0.55 per unit, bringing aggregate distributions relating to the
last 12 months to $2.83.
Oaktree Capital Group, LLC (NYSE: OAK) today reported its
unaudited financial results for the second quarter ended June 30,
2018.
Jay Wintrob, Chief Executive Officer, said, “Oaktree delivered
strong investment performance and solid fundraising of $3.3 billion
in the second quarter. We are deploying our dry powder judiciously,
consistent with our view that it is late in the cycle, and
capitalizing on the current market environment by actively
harvesting investments, boding well for future distributable
earnings.”
Series A Preferred Unit Issuance
On May 17, 2018, Oaktree issued 7,200,000 6.625% Series A
Preferred units representing limited liability company interests
with a liquidation preference of $25.00 per unit. The issuance
resulted in $173.7 million in net proceeds. Distributions on the
Series A Preferred units, when and if declared by the board of
directors of Oaktree, will be paid quarterly on March 15, June 15,
September 15 and December 15 of each year, beginning on September
15, 2018. Distributions on the Series A Preferred units are
non-cumulative.
Class A Unit Distribution
The distribution of $0.55 per Class A unit attributable to the
second quarter of 2018 will be paid on August 10, 2018 to Class A
unitholders of record at the close of business on August 6,
2018.
Series A Preferred Unit Distribution
A distribution was declared of $0.542882 per Series A Preferred
unit, which will be paid on September 17, 2018 to Series A
Preferred unitholders of record at the close of business on
September 1, 2018. The first distribution on Series A Preferred
units is calculated based on the date of the original issuance,
reflecting a period longer than three months. Future distributions
will reflect a period of three months.
Conference Call
Oaktree will host a conference call to discuss its second
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 10121537,
beginning approximately one hour after the broadcast.
About Oaktree
Oaktree is a leader among global investment managers
specializing in alternative investments, with $122 billion in
assets under management as of June 30, 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 June 30,
As of or for the Six MonthsEnded June 30,
2018 2017 2018 2017
GAAP Results: (in thousands, except per unit data or as
otherwise indicated) Revenues $ 213,283 $ 634,055 $
550,604 $ 923,640 Net income-Class A 31,121 117,324 83,853 172,239
Net income per Class A unit 0.44 1.83 1.21 2.71
Non-GAAP
Results: (1) Adjusted revenues $ 273,525 $ 704,362 $
724,681 $ 1,095,549 Adjusted net income 91,495 281,654 251,858
442,818 Adjusted net income-Class A 36,146 111,106 99,049 164,847
Distributable earnings revenues 287,055 699,860 764,319
1,077,604 Distributable earnings 114,286 289,290 308,259 448,511
Distributable earnings-Class A 49,389 106,198 129,567 161,371
Fee-related earnings revenues 195,935 202,714 398,882
403,921 Fee-related earnings 50,875 69,001 109,362 132,780
Fee-related earnings-Class A 21,303 23,654 45,572 45,554
Economic net income revenues 341,490 415,518 668,274 861,030
Economic net income 122,048 179,275 229,594 362,926 Economic net
income-Class A 48,740 67,355 91,249 131,415
Per Class A
Unit: Adjusted net income $ 0.51 $ 1.73 $ 1.42 $ 2.59
Distributable earnings 0.69 1.65 1.86 2.54 Fee-related earnings
0.30 0.37 0.66 0.72 Economic net income 0.68 1.05 1.31 2.07
Weighted average number of Operating Group units outstanding
157,184 155,933 156,689 155,303 Weighted average number of Class A
units outstanding 71,177 64,193 69,556 63,611
Operating
Metrics: (1) Assets under management (in millions):
Assets under management $ 121,584 $ 121,053 $ 121,584 $ 121,053
Management fee-generating assets under management 100,547 101,600
100,547 101,600 Incentive-creating assets under management 33,291
31,348 33,291 31,348 Uncalled capital commitments 20,325 21,468
20,325 21,468 Accrued incentives (fund level): Incentives created
(fund level) 119,317 171,052 230,502 372,819 Incentives created
(fund level), net of associated incentive income compensation
expense 60,921 87,543 113,219 184,328 Accrued incentives (fund
level) 1,863,932 1,779,578 1,863,932 1,779,578 Accrued incentives
(fund level), net of associated incentive income compensation
expense 898,588 866,650 898,588 866,650
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.
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 decreased $420.8 million, or 66.4%, to $213.3
million for the second quarter of 2018, from $634.1 million for the
second quarter of 2017, primarily reflecting lower incentive
income. The impact on revenues as a result of applying the new
revenue recognition standard was a net increase of $2.4 million for
the second quarter of 2018.
Total expenses decreased $238.8 million, or 56.4%, to $184.6
million for the second quarter of 2018, from $423.4 million for the
second quarter of 2017, primarily reflecting lower incentive income
compensation expense.
Other income decreased $48.5 million, or 53.7%, to $41.9 million
for the second quarter of 2018, from $90.4 million for the second
quarter of 2017, primarily reflecting variations in returns on our
fund investments between periods.
Net income attributable to OCG Class A unitholders decreased
$86.2 million, or 73.5%, to $31.1 million for the second quarter of
2018, from $117.3 million for the second quarter of 2017, primarily
reflecting lower incentive income.
Operating Metrics
Assets Under Management
Assets under management were $121.6 billion as of June 30, 2018,
$121.4 billion as of March 31, 2018 and $121.1 billion as of June
30, 2017. The $0.2 billion increase since March 31, 2018 primarily
reflected $2.4 billion in new capital commitments to closed-end
funds, $0.7 billion in market-value gains and $0.3 billion
attributable to DoubleLine, largely offset by $1.9 billion of
distributions to closed-end fund investors, $0.8 billion in
unfavorable foreign-currency translation and $0.3 billion of net
outflows from open-end funds. Commitments to closed-end funds
included $1.1 billion for Oaktree Transportation Infrastructure
Fund (“TIF”) and $0.7 billion for Oaktree Special Situations Fund
II (“SSF II”).
The $0.5 billion increase in AUM since June 30, 2017 primarily
reflected $4.4 billion of capital commitments to closed-end funds,
$3.9 billion in market-value gains, $2.2 billion attributable to
DoubleLine, $2.1 billion from becoming the investment adviser to
two publicly-traded business development companies (the “BDC
acquisition”) and $0.4 billion in favorable foreign-currency
translation, largely offset by $8.8 billion of distributions to
closed-end fund investors and $3.6 billion of net outflows from
open-end funds. Commitments to closed-end funds included $1.6
billion for our Real Estate strategy, $1.1 billion to TIF, $0.7
billion for SSF II and $0.3 billion for our European Private Debt
strategy. Distributions to closed-end fund investors included $4.5
billion from Credit funds, $2.3 billion from Real Asset funds and
$2.0 billion from Private Equity funds.
Management Fee-generating Assets Under
Management
Management fee-generating AUM, a forward-looking metric, was
$100.5 billion as of June 30, 2018, $102.0 billion as of March 31,
2018 and $101.6 billion as of June 30, 2017. The $1.5 billion
decrease since March 31, 2018 primarily reflected $1.0 billion
attributable to closed-end funds in liquidation, $0.8 billion in
unfavorable foreign-currency translation and $0.4 billion of net
outflows from open-end funds, partially offset by $0.4 billion from
capital drawn by funds that pay fees based on drawn capital, NAV or
cost basis and $0.3 billion attributable to DoubleLine.
The $1.1 billion decrease in management fee-generating AUM since
June 30, 2017 primarily reflected $5.5 billion attributable to
closed-end funds in liquidation, $3.7 billion of net outflows from
open-end funds and $0.9 billion of distributions by closed-end
funds that pay fees based on NAV. These decreases were partially
offset by $2.2 billion attributable to DoubleLine, $2.1 billion
from the BDC acquisition, $1.8 billion from capital drawn by
closed-end funds that pay fees based on drawn capital, NAV or cost
basis, $1.4 billion in market-value gains, $0.9 billion from the
start of the investment period for Oaktree European Principal Fund
IV (“EPF IV”) in July 2017, and $0.3 billion in favorable
foreign-currency translation.
Incentive-creating Assets Under
Management
Incentive-creating AUM was $33.3 billion as of June 30, 2018,
$33.0 billion as of March 31, 2018 and $31.3 billion as of June 30,
2017. The $0.3 billion increase since March 31, 2018 reflected an
aggregate $2.3 billion in drawdowns or contributions by closed-end
and evergreen funds and market-value gains, partially offset by an
aggregate $2.0 billion decline primarily attributable to
distributions by closed-end funds. The $2.0 billion increase since
June 30, 2017 reflected an aggregate $9.0 billion in drawdowns or
contributions by closed-end and evergreen funds and market-value
gains and $2.1 billion from the BDC acquisition, partially offset
by an aggregate decline of $9.1 billion primarily attributable to
distributions by closed-end funds.
Of the $33.3 billion in incentive-creating AUM as of June 30,
2018, $21.0 billion (or 63%), was generating incentives at the fund
level, as compared with $20.3 billion (65%), of the $31.3 billion
of incentive-creating AUM as of June 30, 2017.
Accrued Incentives (Fund Level) and
Incentives Created (Fund Level)
Accrued incentives (fund level) were $1.9 billion as of June 30,
2018 and $1.8 billion as of both March 31, 2018 and June 30, 2017.
The second quarter of 2018 reflected $119.3 million of incentives
created (fund level) and $51.4 million of incentive income
recognized.
Accrued incentives (fund level), net of incentive income
compensation expense (“net accrued incentives (fund level)”), were
$898.6 million as of June 30, 2018, $868.0 million as of March 31,
2018, and $866.7 million as of June 30, 2017. The portion of net
accrued incentives (fund level) represented by funds that were
currently paying incentives as of June 30, 2018, March 31, 2018 and
June 30, 2017 was $214.6 million (or 24%), $197.3 million (23%) and
$236.5 million (27%), 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 $20.3 billion as of June 30,
2018, $19.6 billion as of March 31, 2018, and $21.5 billion as of
June 30, 2017. Invested capital during the quarter and 12 months
ended June 30, 2018 aggregated $1.9 billion and $7.9 billion,
respectively, as compared with $1.8 billion and $7.6 billion for
the comparable prior-year periods.
Non-GAAP Results
Adjusted Revenues
Adjusted revenues decreased $430.9 million, or 61.2%, to $273.5
million in the second quarter of 2018, from $704.4 million in the
second quarter of 2017, primarily driven by lower incentive income,
as well as declines in management fees and investment income.
Management Fees
Management fees decreased $6.8 million, or 3.4%, to $195.9
million in the second quarter of 2018, from $202.7 million in the
second quarter of 2017. The decrease reflected an aggregate decline
of $27.1 million primarily attributable to closed-end funds in
liquidation, partially offset by an aggregate increase of $20.3
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.
Incentive Income
Incentive income decreased $408.5 million, or 88.8%, to $51.4
million in the second quarter of 2018, from $459.9 million in the
second quarter of 2017. The decrease was primarily attributable to
the $427.8 million of incentive income in the prior-year period
from Oaktree Principal Opportunities Fund IV, which started paying
incentive income in the second quarter of 2017.
Investment Income
Investment income decreased $15.6 million, or 37.3%, to $26.2
million in the second quarter of 2018, from $41.8 million in the
second quarter of 2017. The decrease primarily reflected lower
returns on our Listed Equities investments.
Adjusted Expenses
Compensation and Benefits
Compensation and benefits expense increased $4.3 million, or
4.3%, to $103.6 million in the second quarter of 2018, from $99.3
million in the second quarter of 2017, in part reflecting growth in
average headcount, as well as higher 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 $0.3 million, or
2.2%, to $14.1 million in the second quarter of 2018, from $13.8
million in the second quarter of 2017.
Incentive Income Compensation
Incentive income compensation expense decreased $249.0 million,
or 92.2%, to $21.0 million in the second quarter of 2018, from
$270.0 million in the second quarter of 2017, primarily reflecting
the decline in incentive income.
General and Administrative
General and administrative expense increased $6.7 million, or
20.7%, to $39.1 million in the second quarter of 2018, from $32.4
million in the second quarter of 2017. The increase primarily
reflected higher new product development costs and expenses
relating to the infrastructure investing team that Oaktree acquired
in 2014.
Depreciation and Amortization
Depreciation and amortization expense increased $0.3 million, or
15.0%, to $2.3 million in the second quarter of 2018, from $2.0
million in the second quarter of 2017, primarily reflecting
amortization of additional leasehold improvements.
Interest Expense, Net
Interest expense, net decreased $4.1 million, or 63.1%, to $2.4
million in the second quarter of 2018, from $6.5 million in the
second quarter of 2017. The decline reflected the refinancing of
our senior notes in the fourth quarter of 2017 and higher interest
income.
Adjusted Net Income
ANI decreased $190.2 million, or 67.5%, to $91.5 million in the
second quarter of 2018, from $281.7 million in the second quarter
of 2017. The decrease primarily reflected declines of $159.6
million in incentive income, net of incentive income compensation
expense (“net incentive income”), $18.1 million in fee-related
earnings and $15.6 million in investment income, partially offset
by a $4.1 million decrease in net interest expense. The portion of
ANI attributable to our Class A units was $36.1 million, or $0.51
per unit, and $111.1 million, or $1.73 per unit, for the second
quarters of 2018 and 2017, respectively.
The effective tax rates applied to ANI in the second quarters of
2018 and 2017 were 12% and 4%, respectively, resulting from
full-year effective tax rates of 10% and 11%, 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 decreased $175.0 million, or 60.5%, to
$114.3 million in the second quarter of 2018, from $289.3 million
in the second quarter of 2017, primarily reflecting declines of
$159.6 million in net incentive income and $18.1 million in
fee-related earnings, partially offset by a $2.5 million increase
in investment income proceeds. For the second quarters of 2018 and
2017, investment income proceeds totaled $39.8 million and $37.3
million, respectively. The portion of distributable earnings
attributable to our Class A units was $0.69 and $1.65 per unit for
the second quarters of 2018 and 2017, respectively, reflecting
distributable earnings per Operating Group unit of $0.73 and $1.86,
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 $18.1 million, or 26.2%, to $50.9
million in the second quarter of 2018, from $69.0 million in the
second quarter of 2017, primarily reflecting $6.8 million in lower
management fees, $6.7 million in higher general and administrative
expense and $4.3 million in higher compensation and benefits
expense. The portion of fee-related earnings attributable to our
Class A units was $0.30 and $0.37 per unit for the second quarters
of 2018 and 2017, respectively.
The effective tax rates applicable to fee-related earnings for
the second quarters of 2018 and 2017 were 5% and 16%, 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 June 30, 2018, Oaktree and its operating subsidiaries had
$832 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 June 30, 2018, Oaktree’s investments in funds and companies on a
non-GAAP basis had a carrying value of $1.6 billion, with the 20%
investment in DoubleLine carried at $22 million based on cost, as
adjusted under the equity method of accounting. Net accrued
incentives (fund level) represented an additional $899 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 Series A Preferred units and 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 EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands, except per unit data) Revenues: Management
fees $ 178,096 $ 180,028 $ 363,511 $ 360,956 Incentive income
35,187 454,027 187,093
562,684 Total revenues 213,283
634,055 550,604 923,640
Expenses: Compensation and benefits (105,073 ) (102,002 ) (213,827
) (206,489 ) Equity-based compensation (15,246 ) (14,748 ) (29,867
) (29,701 ) Incentive income compensation (15,218 )
(266,556 ) (100,033 ) (301,164 ) Total compensation
and benefits expense (135,537 ) (383,306 ) (343,727 ) (537,354 )
General and administrative (39,444 ) (34,388 ) (72,408 ) (66,607 )
Depreciation and amortization (6,551 ) (3,004 ) (12,953 ) (6,828 )
Consolidated fund expenses (3,074 ) (2,728 )
(6,554 ) (5,199 ) Total expenses (184,606 )
(423,426 ) (435,642 ) (615,988 ) Other income (loss):
Interest expense (35,469 ) (44,251 ) (76,048 ) (93,021 ) Interest
and dividend income 67,980 51,914 130,599 99,874 Net realized gain
(loss) on consolidated funds’ investments (17,296 ) 235 (2,697 )
(1,637 ) Net change in unrealized appreciation (depreciation) on
consolidated funds’ investments (31,105 ) 28,453 (45,491 ) 53,131
Investment income 56,923 49,106 91,486 99,557 Other income, net
914 4,898 1,611
9,561 Total other income 41,947 90,355
99,460 167,465 Income before
income taxes 70,624 300,984 214,422 475,117 Income taxes
(4,867 ) (5,541 ) (11,264 ) (17,843 ) Net
income 65,757 295,443 203,158 457,274 Less: Net (income) loss
attributable to non-controlling interests in consolidated funds
7,360 (3,861 ) (3,365 ) (13,553 ) Net income attributable to
non-controlling interests in consolidated subsidiaries
(41,996 ) (174,258 ) (115,940 ) (271,482 ) Net
income attributable to OCG Class A unitholders $ 31,121 $
117,324 $ 83,853 $ 172,239
Distributions declared per Class A unit $ 0.96 $ 0.71
$ 1.72 $ 1.34 Net income per Class A unit (basic and
diluted): Net income per Class A unit $ 0.44 $ 1.83 $
1.21 $ 2.71 Weighted average number of Class A units
outstanding 71,177 64,193 69,556
63,611 (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 June
30, March 31, June 30, 2018
2018 2017 (in millions) Assets Under
Management: Closed-end funds $ 56,294 $ 55,682 $ 58,323
Open-end funds 32,824 33,703 35,628 Evergreen funds 8,426 8,227
5,309 DoubleLine (1) 24,040 23,782
21,793 Total $ 121,584 $ 121,394 $
121,053
Three Months Ended Twelve Months
Ended June 30, June 30, 2018 2017
2018 2017 (in millions) Change in Assets
Under Management: Beginning balance $ 121,394 $ 121,232 $
121,053 $ 118,644 Closed-end funds: Capital commitments/other (2)
2,410 54 4,387 4,257 Distributions for a realization event / other
(3) (1,901 ) (3,323 ) (8,840 ) (10,389 ) Change in uncalled capital
commitments for funds entering or in liquidation (4) 74 116 (361 )
(950 ) Foreign-currency translation (444 ) 441 221 218 Change in
market value (5) 525 1,015 2,615 4,924 Change in applicable
leverage (52 ) 172 (51 ) 687 Open-end funds: Contributions 724
1,330 4,017 7,044 Redemptions (1,056 ) (1,864 ) (7,591 ) (8,893 )
Foreign-currency translation (373 ) 354 147 235 Change in market
value (5) (174 ) 683 623 3,575 Evergreen funds: Contributions or
new capital commitments (6) 140 26 1,203 144 Acquisition (BDCs) — —
2,110 — Redemptions or distributions (7) (270 ) (176 ) (880 ) (396
) Foreign-currency translation 2 1 (1 ) 5 Change in market value
(5) 327 118 685 675 DoubleLine: Net change in DoubleLine 258
874 2,247 1,273
Ending balance $ 121,584 $ 121,053 $ 121,584 $
121,053 (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 June 30, March 31,
June 30, 2018 2018 2017
Management Fee-generating AUM: (in millions)
Closed-end funds: Senior Loans $ 7,896 $ 8,104 $ 7,943 Other
closed-end funds 28,754 29,734 32,048 Open-end funds 32,520 33,448
35,429 Evergreen funds 7,337 6,975 4,387 DoubleLine 24,040
23,782 21,793 Total $ 100,547
$ 102,043 $ 101,600
Three Months EndedJune
30,
Twelve Months EndedJune
30,
2018 2017 2018 2017 Change in
Management Fee-generating AUM: (in millions)
Beginning balance $ 102,043 $ 100,248 $ 101,600 $ 100,036
Closed-end funds: Capital commitments to funds that pay fees based
on committed capital / other (1) — 26 926 1,156 Capital drawn by
funds that pay fees based on drawn capital, NAV or cost basis 385
449 1,831 1,585 Change attributable to funds in liquidation (2)
(981 ) (893 ) (5,489 ) (4,166 ) Change in uncalled capital
commitments for funds entering or in liquidation that pay fees
based on committed capital (3) — — — (894 ) Distributions by funds
that pay fees based on NAV / other (4) (161 ) (258 ) (857 ) (845 )
Foreign-currency translation (380 ) 402 150 194 Change in market
value (5) (1 ) 34 147 342 Change in applicable leverage (50 ) 170
(49 ) 614 Open-end funds: Contributions 674 1,329 3,920 6,866
Redemptions (1,056 ) (1,863 ) (7,591 ) (8,855 ) Foreign-currency
translation (373 ) 354 147 235 Change in market value (173 ) 679
615 3,586 Evergreen funds: Contributions or capital drawn by funds
that pay fees based on drawn capital or NAV (6) 227 118 1,040 283
Acquisition (BDCs) — — 2,110 — Redemptions or distributions (7)
(205 ) (179 ) (855 ) (445 ) Change in market value (5) 340 110 655
635 DoubleLine: Net change in DoubleLine 258
874 2,247 1,273 Ending balance $
100,547 $ 101,600 $ 100,547 $ 101,600
(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 June
30, March 31, June 30, 2018
2018 2017 Reconciliation of AUM to Management
Fee-generating AUM: (in millions) Assets under
management $ 121,584 $ 121,394 $ 121,053 Difference between assets
under management and committed capital or the lesser of funded
capital or cost basis for applicable closed-end funds (1) (2,326 )
(2,195 ) (2,585 ) Undrawn capital commitments to closed-end funds
that have not yet commenced their investment periods (10,092 )
(8,463 ) (9,560 ) Undrawn capital commitments to funds for which
management fees are based on drawn capital, NAV or cost basis
(4,042 ) (3,954 ) (3,242 )
Oaktree’s general partner investments in
management fee-generating funds
(1,724 ) (1,727 ) (1,919 ) Funds that don’t pay management fees (2)
(2,853 ) (3,012 ) (2,147 ) Management
fee-generating assets under management $ 100,547 $ 102,043
$ 101,600 (1) This difference is not
applicable to closed-end funds that pay management fees based on
NAV or leverage. (2) This includes funds that are no longer paying
management fees, co-investments that pay no management fees,
certain accounts that pay administrative fees intended to offset
Oaktree’s costs related to the accounts and CLOs in the warehouse
stage that don’t pay management fees.
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 June 30, March 31,
June 30, Weighted Average Annual Management Fee
Rates: 2018 2018 2017 Closed-end funds:
Senior Loans 0.50 % 0.50 % 0.50 % Other closed-end funds 1.47 1.47
1.49 Open-end funds 0.45 0.45 0.46 Evergreen funds (1) 1.20 1.20
1.21 All Oaktree funds (2) 0.91 0.91 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 June 30, March 31,
June 30, 2018 2018 2017
Incentive-creating AUM: (in millions) Closed-end
funds $ 26,677 $ 26,732 $ 27,450 Evergreen funds 6,006 5,688 3,376
DoubleLine 608 615 522 Total $ 33,291 $ 33,035
$ 31,348
Accrued Incentives (Fund Level) and
Incentives Created (Fund Level)
As of or for the Three
MonthsEnded June 30,
As of or for the Six MonthsEnded June 30,
2018 2017 2018 2017
Accrued Incentives (Fund Level): (in thousands)
Beginning balance $ 1,795,967 $ 2,068,422 $ 1,920,339
$ 2,014,097 Incentives created (fund level):
Closed-end funds 102,850 159,207 200,156 349,228 Evergreen funds
16,367 9,395 30,246 20,892 DoubleLine 100
2,450 100 2,699 Total incentives
created (fund level) 119,317 171,052
230,502 372,819 Less: incentive income
recognized by us (51,352 ) (459,896 ) (286,909
) (607,338 ) Ending balance $ 1,863,932 $ 1,779,578
$ 1,863,932 $ 1,779,578 Accrued incentives
(fund level), net of associated incentive income compensation
expense $ 898,588 $ 866,650 $ 898,588 $
866,650
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, distributable earnings and
fee-related earnings, each for both the Operating Group and per
Class A unit. 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, adjusted net income-OCG and per unit data:
Adjusted
Revenues
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Revenues: Management fees $ 195,935 $ 202,714
$ 398,882 $ 403,921 Incentive income 51,352 459,896 286,909 607,338
Investment income 26,238 41,752 38,890
84,290 Total adjusted revenues $ 273,525 $ 704,362 $ 724,681 $
1,095,549 Management Fees
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Management fees: Closed-end funds $ 116,776 $
131,895 $ 238,482 $ 263,603 Open-end funds 37,086 40,481 75,198
80,625 Evergreen funds 24,573 13,938 49,489 27,651 DoubleLine
17,500 16,400 35,713 32,042 Total
management fees $ 195,935 $ 202,714 $ 398,882 $ 403,921
Investment Income
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Oaktree funds: Credit $ 22,917 $ 21,148 $
37,801 $ 50,346 Private Equity 8,264 7,648 7,452 11,070 Real Assets
8,702 4,508 13,652 8,456 Listed Equities (14,672 ) 6,739 (22,084 )
10,426 Non-Oaktree 1,027 1,709 2,069
3,992 Total investment income $ 26,238 $
41,752 $ 38,890 $ 84,290
Adjusted
Expenses
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Expenses: Compensation and benefits $
(103,642 ) $ (99,270 ) $ (208,412 ) $ (201,406 ) Equity-based
compensation (14,146 ) (13,759 ) (27,139 ) (26,280 ) Incentive
income compensation (20,984 ) (269,974 ) (151,426 ) (343,118 )
General and administrative (39,108 ) (32,439 ) (76,545 ) (64,908 )
Depreciation and amortization (2,310 ) (2,004 )
(4,563 ) (4,827 ) Total adjusted expenses $ (180,190
) $ (417,446 ) $ (468,085 ) $ (640,539 )
Adjusted Interest
and Other Income, Net
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Interest expense, net of interest
income (1) $(2,399) $(6,544) $(5,809) $(13,515) Other income, net
559 1,282 1,071 1,323 (1) Interest income was $3.6
million and $6.0 million for the three and six months ended June
30, 2018, respectively, and $2.3 million and $4.0 million for the
three and six months ended June 30, 2017, respectively.
Adjusted Net
Income
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands, except per unit data) Adjusted net
income $ 91,495 $ 281,654 $ 251,858 $ 442,818 Adjusted net income
attributable to OCGH non-controlling interest (50,063 ) (165,706 )
(140,692 ) (261,200 ) Non-Operating Group income (expense) (328 )
(255 ) (308 ) (487 ) Income taxes-Class A (4,958 )
(4,587 ) (11,809 ) (16,284 ) Adjusted net
income-Class A $ 36,146 $ 111,106 $ 99,049 $
164,847 Adjusted net income per Class A unit $ 0.51 $
1.73 $ 1.42 $ 2.59 Weighted average number of
Class A units outstanding 71,177 64,193
69,556 63,611
Distributable Earnings and Distribution Calculation
Distributable earnings and the calculation of distributions are
set forth below:
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
Distributable Earnings: (in thousands, except per unit
data) Adjusted net income $ 91,495 $ 281,654 $ 251,858 $
442,818 Investment income (26,238 ) (41,752 ) (38,890 ) (84,290 )
Receipts of investment income (1) 39,768 37,250 78,528 66,345
Equity-based compensation 14,146 13,759 27,139 26,280 Other
(income) expense, net (2) (2,745 ) — (5,490 ) — Operating Group
income taxes (2,140 ) (1,621 ) (4,886 )
(2,642 ) Distributable earnings $ 114,286 $ 289,290 $
308,259 $ 448,511
Distribution
Calculation: Operating Group distribution with respect to the
period $ 97,438 $ 240,651 $ 262,483 $ 373,246 Distribution per
Operating Group unit $ 0.62 $ 1.54 $ 1.67 $ 2.39 Adjustments per
Class A unit: Distributable earnings-Class A income taxes (0.01 )
(0.14 ) (0.03 ) (0.19 ) Tax receivable agreement (0.06 ) (0.08 )
(0.12 ) (0.16 ) Non-Operating Group expenses —
(0.01 ) (0.01 ) (0.02 )
Distribution per Class A unit (3)
$ 0.55 $ 1.31 $ 1.51 $ 2.02 (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 June 30, 2018, a distribution was announced on July
26, 2018 and is payable on August 10, 2018.
Units Outstanding
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Weighted Average Units: OCGH 86,007
91,740 87,133 91,692 Class A 71,177 64,193 69,556 63,611 Total
157,184 155,933 156,689 155,303
Units Eligible for Fiscal Period
Distribution: OCGH 85,998 92,050 Class A 71,160 64,217 Total
157,158 156,267
GAAP Statement of Financial Condition
(Unaudited)
As of June 30, 2018 Oaktree and
Operating Consolidated
Subsidiaries Funds Eliminations
Consolidated (in thousands) Assets: Cash and
cash-equivalents $ 559,425 $ — $ — $ 559,425 U.S. Treasury and
other securities 272,503 — — 272,503 Corporate investments
1,623,595 — (611,749 ) 1,011,846 Deferred tax assets 243,124 — —
243,124 Receivables and other assets 733,325 — (2,659 ) 730,666
Assets of consolidated funds — 6,233,572 (106
) 6,233,466 Total assets $ 3,431,972 $ 6,233,572 $ (614,514
) $ 9,051,030
Liabilities and Capital: Liabilities: Accounts
payable and accrued expenses $ 330,950 $ — $ 525 $ 331,475 Due to
affiliates 211,671 — — 211,671 Debt obligations 745,654 — — 745,654
Liabilities of consolidated funds — 4,871,577
(55,350 ) 4,816,227 Total liabilities 1,288,275
4,871,577 (54,825 ) 6,105,027 Non-controlling
redeemable interests in consolidated funds — — 795,587 795,587
Capital: Capital attributable to OCG preferred unitholders 173,669
— — 173,669 Capital attributable to OCG Class A unitholders 934,775
253,428 (253,428 ) 934,775 Non-controlling interest in consolidated
subsidiaries 1,035,253 306,261 (306,261 ) 1,035,253 Non-controlling
interest in consolidated funds — 802,306
(795,587 ) 6,719 Total capital 2,143,697
1,361,995 (1,355,276 ) 2,150,416 Total liabilities
and capital $ 3,431,972 $ 6,233,572 $ (614,514 ) $ 9,051,030
Corporate Investments
As of June 30, March 31,
June 30, 2018 2018 2017 (in
thousands) Oaktree funds: Credit $ 925,539 $ 922,287 $ 942,489
Private Equity 299,961 245,450 236,099 Real Assets 189,109 148,215
135,751 Listed Equities 117,939 126,777 132,113 Non-Oaktree
62,037 75,451 97,514 Total
corporate investments – Non-GAAP 1,594,585 1,518,180 1,543,966
Adjustments (1) 29,010 29,945
19,031 Total corporate investments – Oaktree and operating
subsidiaries 1,623,595 1,548,125 1,562,997 Eliminations
(611,749 ) (545,924 ) (546,919 ) Total corporate
investments – Consolidated $ 1,011,846 $ 1,002,201 $
1,016,078 (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 June 30, 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)(13) TBD — $8,872
4%
3%
$— $— $223 $217 $— $— $224 nm nm 1.0x Oaktree Opportunities Fund X
(7) Jan. 2016 Jan. 2019 3,603 81 63 982 97 3,149 3,460 — 190 2,440
36.0% 22.7% 1.5 Oaktree Opportunities Fund IX Jan. 2014 Jan. 2017
5,066 nm 100 666 1,671 4,061 3,629 — — 5,191 5.7 3.2 1.2 Oaktree
Opportunities Fund VIIIb Aug. 2011 Aug. 2014 2,692 nm 100 905 2,100
1,497 1,530 52 — 1,824 8.9 6.1 1.4 Special Account B Nov. 2009 Nov.
2012 1,031 nm 100 618 1,547 180 174 16 2 69 13.7 11.4 1.6 Oaktree
Opportunities Fund VIII Oct. 2009 Oct. 2012 4,507 nm 100 2,572
6,281 798 881 208 292 147 13.0 9.1 1.7 Special Account A Nov. 2008
Oct. 2012 253 nm 100 316 549 20 28 59 4 — 28.1 22.8 2.3 OCM
Opportunities Fund VIIb May 2008 May 2011 10,940 nm 90 9,036 18,022
858 724 1,588 168 — 21.9 16.6 2.0 OCM Opportunities Fund VII Mar.
2007 Mar. 2010 3,598 nm 100 1,483 4,823 258 — 87 — 430 10.2 7.5 1.5
Legacy funds (8) Various Various 12,495 nm 100 10,456 22,931 21 —
1,558 5 — 23.6 18.5 1.9 22.0% 16.2%
Private/Alternative
Credit Oaktree European Capital Solutions Fund (7)(9)(10) Dec.
2015 Dec. 2018 €703 80% 64% €40 €167 €310 €370 €— €5 €291 12.7%
8.4% 1.1x Oaktree European Dislocation Fund (10) Oct. 2013 Oct.
2016 €294 nm 57 €42 €193 €31 €22 €3 €4 €9 20.4 14.6 1.3 Special
Account E (10) Oct. 2013 Apr. 2015 €379 nm 69 €64 €308 €17 €8 €7 €3
€— 14.3 11.0 1.3 15.2% 11.0% Oaktree Mezzanine Fund IV (9)
Oct. 2014 Oct. 2019 $852 76% 73% $107 $200 $525 $505 $— $17 $502
12.2% 8.7% 1.2x Oaktree Mezzanine Fund III (11) Dec. 2009 Dec. 2014
1,592 nm 89 465 1,793 95 103 17 30 23 15.3 10.4 / 9.2 1.4 OCM
Mezzanine Fund II Jun. 2005 Jun. 2010 1,251 nm 88 493 1,691 54 — —
— 128 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% $124 $300 $122 $94 $— $22 $65
16.6% 11.3% 1.4x Special Account F Jan. 2014 Sep. 2017 253 nm 96 80
248 74 73 — 16 36 16.1 11.5 1.4 16.4% 11.4%
Private
Equity
Corporate Private Equity Oaktree European Principal Fund IV
(7)(10)(13) Jul. 2017 Jul. 2022 €1,119 77% 63% €69 €3 €766 €1,093
€— €12 €734 nm nm 1.1x Oaktree European Principal Fund III (10)
Nov. 2011 Nov. 2016 €3,164 nm 85 €2,275 €1,775 €3,249 €2,595 €—
€442 €2,021 18.4% 12.6% 2.0 OCM European Principal Opportunities
Fund II (10) Dec. 2007 Dec. 2012 €1,759 nm 100 €258 €1,865 €124
€440 €29 €— €743 7.2 2.9 1.3 OCM European Principal Opportunities
Fund Mar. 2006 Mar. 2009 $495 nm 96 $454 $927 $— $— $87 $— $— 11.7
8.9 2.1 13.1% 8.6%
As of June 30, 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 88% 88% $87 $1 $1,058 $1,078 $— $—
$1,067 12.1% 7.2% 1.1x Oaktree Power Opportunities Fund III Apr.
2010 Apr. 2015 1,062 nm 69 631 969 399 384 26 95 — 23.9 16.0 2.0
Legacy funds (8) Various Various 1,470 nm 63 1,689 2,616 — — 123 —
— 35.1 27.4 2.8 34.4% 26.1%
Special Situations Oaktree
Special Situations Fund II TBD — $711 —% —% $— $— $— $— $— $— $—
n/a n/a n/a Oaktree Special Situations Fund (7) Nov. 2015 Nov. 2018
1,377 88 71 298 163 1,114 1,280 — 58 890 42.9% 26.3% 1.4x Other
funds: Oaktree Principal Fund V Feb. 2009 Feb. 2015 $2,827 nm 91%
$587 $1,730 $1,444 $1,384 $50 $— $2,127 8.1% 4.0% 1.4x Special
Account C Dec. 2008 Feb. 2014 505 nm 91 203 423 239 242 21 — 268
10.4 7.2 1.6 OCM Principal Opportunities Fund IV Oct. 2006 Oct.
2011 3,328 nm 100 2,980 6,156 153 — 554 29 — 12.4 9.0 2.0 Legacy
funds (8) Various Various 3,701 nm 100 2,713 6,404 10 — 407 2 —
14.4 11.1 1.8 13.1% 9.4%
Real
Assets
Real Estate Oaktree Real Estate Opportunities Fund VII
(13)(14) Jan. 2016 Jan. 2020 $2,921 79% 37% $296 $241 $1,143 $2,723
$— $57 $885 nm nm 1.4x Oaktree Real Estate Opportunities Fund VI
Aug. 2012 Aug. 2016 2,677 nm 100 1,376 2,235 1,818 1,430 70 196
1,316 15.4% 10.3% 1.6 Oaktree Real Estate Opportunities Fund V Mar.
2011 Mar. 2015 1,283 nm 100 985 2,046 220 120 146 42 — 17.2 12.8
1.9 Special Account D Nov. 2009 Nov. 2012 256 nm 100 202 419 47 —
15 5 — 14.7 12.7 1.8 Oaktree Real Estate Opportunities Fund IV Dec.
2007 Dec. 2011 450 nm 100 386 766 70 60 59 14 — 15.7 10.7 2.0
Legacy funds (8) Various Various 2,341 nm 99 2,010 4,324 2 — 232 —
— 15.2 11.9 1.9 15.6% 11.9% Oaktree Real Estate Debt Fund II
(9)(13) Mar. 2017 Mar. 2020 $1,852 47% 9% $20 $21 $156 $747 $— $3
$143 nm nm 1.2x Oaktree Real Estate Debt Fund Sep. 2013 Oct. 2016
1,112 nm 81 177 625 454 568 10 15 325 21.9% 16.4% 1.3 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 87% 87% $64 $58 $538 $499 $— $12 $513 nm nm 1.1
Infrastructure Oaktree Transportation Infrastructure
Fund TBD — $1,052 —% —% $— $— $— $— $— $— $— n/a n/a n/a Highstar
Capital IV (16) Nov. 2010 Nov. 2016 2,000 nm 100 72 883 1,189 1,313
— — 1,823 5.9% 1.6% 1.2x 28,533
(10)
1,819
(10)
Other (17)
7,988 4 Total (18) $36,521 $1,823 (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 June
30, 2018 was $1.7 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 June 30, 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
June 30, 2018 spot rate of $1.17. (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 June 30, 2018
was less than 30 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 June 30, 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 $129 million
as of June 30, 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
June 30, 2018
Twelve Months Ended
June 30, 2018
Since Inception through June 30, 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 $ 14,217 1.5 %
1.0 % 2.7 % 9.1 % 8.6 % 8.2 % 0.79 0.57 Global High Yield Bonds
2010 3,790 1.9 1.4 2.6 6.9 6.3 6.6 1.10 1.08 European High Yield
Bonds 1999 845 2.6 2.1 2.7 7.9 7.3 6.2 0.71 0.45
Convertibles U.S. Convertibles 1987 2,251 9.5 8.9 12.0 9.4
8.8 8.3 0.50 0.39 Non-U.S. Convertibles 1994 1,438 3.5 3.0 0.2 8.2
7.6 5.4 0.78 0.39 High Income Convertibles 1989 1,005 5.5 4.9 2.8
11.2 10.4 8.0 1.06 0.60
Senior Loans U.S. Senior
Loans 2008 676 4.9 4.3 4.7 6.0 5.4 5.2 1.12 0.67 European Senior
Loans 2009 1,488 1.1 0.6 2.1 7.4 6.9 8.1 1.63 1.66
Multi-Strategy Credit Multi-Strategy Credit (2) Various
3,142 nm nm nm nm nm nm nm nm
Listed
Equities
Emerging Markets Equities Emerging Markets Equities 2011
3,668 6.7 5.9 8.2 2.1 1.3 1.4 0.10 0.07
Total
$ 32,520 (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 June 30, 2018 Twelve Months
Ended June 30, 2018 Since Inception
throughJune 30, 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 $ 5,262
$ 4,955 $ 9 13.0 % 10.1 % 9.7 % 7.1 %
Distressed Debt
Value Opportunities 2007 1,078 1,000 12 16.8 12.8 10.0 6.1
Emerging Markets Debt Emerging Markets Debt (3) 2015 813 247
5 9.7 7.1 14.2 11.0
Listed
Equities
Value/Other Equities Value Equities (4) 2012 502 480
— 20.2 14.6 20.2 14.6 6,682 26
Other (5)
784 10
Restructured funds
— 5
Total (2)
$ 7,466 $ 41 (1) Returns represent time-weighted
rates of return. (2) Includes our publicly-traded BDCs and one
closed-end fund with $123 million and $129 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, (e) the adjustment
for non-controlling interests, and (f) the impact of the Tax Cuts
and Jobs Act, which resulted in the remeasurement of our deferred
tax assets and tax receivable liability in the fourth quarter of
2017. 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 reimbursement amounts. ANI is calculated at the
Operating Group level.
Adjusted net income-Class A, 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-Class A
represents ANI including the effect of (a) preferred unit
distributions, (b) the OCGH non-controlling interest,
(c) other income or expenses, such as income tax expense,
applicable to OCG or its Intermediate Holding Companies and
(d) 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.
Class A units refer to the common units of OCG designated
as Class A units.
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-Class A, 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-Class A represents distributable earnings,
including the effect of (a) preferred unit distributions,
(b) the OCGH non-controlling interest, (c) expenses, such
as current income tax expense, applicable to OCG or its
Intermediate Holding Companies and (d) amounts payable under a
tax receivable agreement. The income tax expense included in
distributable earnings-Class A 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-Class A.
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-Class A, 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-Class A
represents ENI, including the effect of (a) preferred unit
distributions, (b) the OCGH non-controlling interest,
(c) other income or expenses, such as income tax expense,
applicable to OCG or its Intermediate Holding Companies and
(d) any Operating Group income taxes attributable to OCG. The
income tax expense included in economic net income-Class A
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-Class A.
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-Class A, 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-Class
A 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-Class A 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.
Preferred units or preferred unitholders refer to the
Series A Preferred units of OCG or Series A Preferred unitholders,
respectively, unless otherwise specified.
Relevant Benchmark refers, with respect to:
- our U.S. High Yield Bond product, to
the FTSE US 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 FTSE US 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 Class A unitholders to adjusted net
income, fee-related earnings and distributable earnings.
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Net income attributable to OCG Class A
unitholders $ 31,121 $ 117,324 $ 83,853 $ 172,239 Incentive income
(1) 16,065 3,418 99,646 41,954 Incentive income compensation (1)
(5,766 ) (3,418 ) (51,393 ) (41,954 ) Investment income (2) 6,606
(18,275 ) (3,881 ) (22,647 ) Equity-based compensation (3) 1,100
989 2,728 3,421 Foreign-currency hedging (4) (741 ) 1,869 (2,863 )
(127 ) Acquisition-related items (5) (2,834 ) 861 (1,260 ) 2,463
Income taxes (6) 4,867 5,541 11,264 17,843 Non-Operating Group
(income) expenses (7) 328 255 308 487 Non-controlling interests (7)
40,749 173,090 113,456
269,139 Adjusted net income 91,495 281,654 251,858
442,818 Incentive income (51,352 ) (459,896 ) (286,909 ) (607,338 )
Incentive income compensation 20,984 269,974 151,426 343,118
Investment income (26,238 ) (41,752 ) (38,890 ) (84,290 )
Equity-based compensation (8) 14,146 13,759 27,139 26,280 Interest
expense, net of interest income 2,399 6,544 5,809 13,515 Other
(income) expense, net (559 ) (1,282 ) (1,071 )
(1,323 ) Fee-related earnings 50,875 69,001 109,362 132,780
Incentive income 51,352 459,896 286,909 607,338 Incentive income
compensation (20,984 ) (269,974 ) (151,426 ) (343,118 ) Receipts of
investment income (9) 39,768 37,250 78,528 66,345 Interest expense,
net of interest income (2,399 ) (6,544 ) (5,809 ) (13,515 ) Other
(income) expense, net (2,186 ) 1,282 (4,419 ) 1,323 Operating Group
income taxes (2,140 ) (1,621 ) (4,886 )
(2,642 ) Distributable earnings $ 114,286 $ 289,290 $
308,259 $ 448,511 (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 Class A unitholders. (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 Class A unitholders. (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 OCG
Class A unitholders to adjusted net income-Class A, fee-related
earnings-Class A and distributable earnings-Class A.
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Net income attributable to OCG Class A
unitholders $ 31,121 $ 117,324 $ 83,853 $ 172,239 Incentive income
(1) 7,275 1,407 43,621 17,109 Incentive income compensation (1)
(2,611 ) (1,407 ) (22,451 ) (17,109 ) Investment income (2) 2,991
(7,523 ) (1,568 ) (9,304 ) Equity-based compensation (3) 498 407
1,206 1,398 Foreign-currency hedging (4) (336 ) 770 (1,259 ) (43 )
Acquisition-related items (5) (1,283 ) 354 (599 ) 1,006 Income
taxes (6) (1,261 ) — (3,268 ) — Non-controlling interests (5)
(248 ) (226 ) (486 ) (449 ) Adjusted
net income-Class A (7) 36,146 111,106 99,049 164,847 Incentive
income (23,254 ) (189,325 ) (125,686 ) (249,403 ) Incentive income
compensation 9,502 111,140 66,225 140,944 Investment income (11,881
) (17,189 ) (17,383 ) (34,523 ) Equity-based compensation (8) 6,406
5,665 12,056 10,769 Interest expense, net of interest income 876
2,577 2,132 5,345 Other (income) expense (253 ) (528 ) (476 ) (544
) Non-fee-related earnings income taxes (9) 3,761
208 9,655 8,119
Fee-related earnings-Class A (7) 21,303 23,654 45,572 45,554
Incentive income 23,254 189,325 125,686 249,403 Incentive income
compensation (9,502 ) (111,140 ) (66,225 ) (140,944 ) Receipts of
investment income 18,007 15,334 34,862 27,190 Interest expense, net
of interest income (876 ) (2,577 ) (2,132 ) (5,345 ) Other (income)
expense (990 ) 528 (1,961 ) 544 Non-fee-related earnings income
taxes (3,761 ) (208 ) (9,655 ) (8,119 ) Distributable earnings
income taxes 1,973 (7,223 ) 1,640 (11,335 ) Tax receivable
agreement (4,008 ) (5,415 ) (7,866 ) (10,778 ) Income taxes of
Intermediate Holding Companies 3,989 3,920
9,646 15,201 Distributable
earnings-Class A (7) $ 49,389 $ 106,198 $ 129,567
$ 161,371 (1) This adjustment adds back
the effect of timing differences attributable to Class A
unitholders associated with the recognition of incentive income and
incentive income compensation expense between net income
attributable to OCG Class A unitholders and adjusted net
income-Class A. (2) This adjustment adds back the effect of
differences in the recognition of investment income attributable to
Class A unitholders 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 Class A unitholders 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 attributable to Class A
unitholders associated with the recognition of unrealized gains and
losses related to foreign-currency hedging between net income
attributable to OCG Class A unitholders and adjusted net
income-Class A. (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
adjusted net income-Class A. (6) This adjustment relates to
differences in income taxes between net income attributable to OCG
Class A unitholders and adjusted net income-Class A. (7) These
measures 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-Class A and distributable earnings
to distributable earnings-Class A are presented below.
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands, except per unit data) Fee-related earnings $
50,875 $ 69,001 $ 109,362 $ 132,780 Fee-related earnings
attributable to OCGH non-controlling interest (27,837 ) (40,596 )
(60,891 ) (78,384 ) Non-Operating Group expenses (538 ) (372 ) (745
) (677 ) Fee-related earnings-Class A income taxes (1,197 )
(4,379 ) (2,154 ) (8,165 ) Fee-related
earnings-Class A $ 21,303 $ 23,654 $ 45,572 $
45,554 Fee-related earnings per Class A unit $ 0.30 $
0.37 $ 0.66 $ 0.72 Weighted average number of
Class A units outstanding 71,177 64,193
69,556 63,611
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands, except per unit data) Distributable earnings
$ 114,286 $ 289,290 $ 308,259 $ 448,511 Distributable earnings
attributable to OCGH non-controlling interest (62,534 ) (170,199 )
(172,158 ) (264,540 ) Non-Operating Group income (expense) (328 )
(255 ) (308 ) (487 ) Distributable earnings-Class A income taxes
1,973 (7,223 ) 1,640 (11,335 ) Tax receivable agreement
(4,008 ) (5,415 ) (7,866 ) (10,778 )
Distributable earnings-Class A $ 49,389 $ 106,198 $
129,567 $ 161,371 Distributable earnings per Class A
unit $ 0.69 $ 1.65 $ 1.86 $ 2.54
Weighted average number of Class A units outstanding 71,177
64,193 69,556 63,611
(8) This adjustment adds back the effect of
equity-based compensation expense attributable to Class A
unitholders related to unit grants made after our initial public
offering, which is excluded from fee-related earnings-Class A,
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-Class A.
The following table reconciles GAAP revenues to adjusted
revenues, fee-related earnings revenues and distributable earnings
revenues.
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) GAAP revenues $ 213,283 $ 634,055 $ 550,604 $
923,640 Consolidated funds (1) (19,352 ) 36,058 (13,174 ) 53,045
Incentive income (2) 16,065 3,418 99,646 41,954 Investment income
(3) 63,529 30,831 87,605
76,910 Adjusted revenues 273,525 704,362 724,681
1,095,549 Incentive income (51,352 ) (459,896 ) (286,909 ) (607,338
) Investment income (26,238 ) (41,752 )
(38,890 ) (84,290 ) Fee-related earnings revenues 195,935
202,714 398,882 403,921 Incentive income 51,352 459,896 286,909
607,338 Receipts of investment income 39,768
37,250 78,528 66,345
Distributable earnings revenues $ 287,055 $ 699,860 $
764,319 $ 1,077,604 (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 OCG
Class A unitholders to adjusted net income and economic net
income.
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Net income attributable to OCG Class A
unitholders $ 31,121 $ 117,324 $ 83,853 $ 172,239 Reconciling
adjustments (1) 60,374 164,330 168,005
270,579 Adjusted net income 91,495 281,654
251,858 442,818 Change in accrued incentives (fund level), net of
associated incentive income compensation (2) 30,553
(102,379 ) (22,264 ) (79,892 ) Economic net income
(3) $ 122,048 $ 179,275 $ 229,594 $ 362,926
(1) Please refer to the table on page 27 for a
detailed reconciliation of net income attributable to OCG Class A
unitholders 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 OCG
Class A unitholders to adjusted net income-Class A and economic net
income-Class A.
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) Net income attributable to OCG Class A
unitholders $ 31,121 $ 117,324 $ 83,853 $ 172,239 Reconciling
adjustments (1) 5,025 (6,218 ) 15,196
(7,392 ) Adjusted net income-Class A (2) 36,146
111,106 99,049 164,847 Change in accrued incentives (fund level),
net of associated incentive income compensation attributable to
Class A unitholders 13,835 (42,147 ) (9,132 ) (32,983 ) Economic
net income-Class A income taxes (6,199 ) (6,191 ) (10,477 ) (16,733
) Income taxes-Class A 4,958 4,587
11,809 16,284 Economic net income-Class
A (2) $ 48,740 $ 67,355 $ 91,249 $ 131,415
(1) Please refer to the table on page 28 for a
detailed reconciliation of net income attributable to OCG Class A
unitholders to adjusted net income-Class A. (2) These measures 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-Class
A is presented below.
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands, except per unit data) Economic net income $
122,048 $ 179,275 $ 229,594 $ 362,926 Economic net income
attributable to OCGH non-controlling interest (66,781 ) (105,474 )
(127,560 ) (214,291 ) Non-Operating Group income (expense) (328 )
(255 ) (308 ) (487 ) Economic net income-Class A income taxes
(6,199 ) (6,191 ) (10,477 ) (16,733 )
Economic net income-Class A $ 48,740 $ 67,355 $
91,249 $ 131,415 Economic net income per Class A unit
$ 0.68 $ 1.05 $ 1.31 $ 2.07 Weighted
average number of Class A units outstanding 71,177
64,193 69,556 63,611
The following table reconciles GAAP revenues to adjusted
revenues and economic net income revenues.
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018 2017
(in thousands) GAAP revenues $ 213,283 $ 634,055 $ 550,604 $
923,640 Consolidated funds (1) (19,352 ) 36,058 (13,174 ) 53,045
Incentive income (2) 16,065 3,418 99,646 41,954 Investment income
(3) 63,529 30,831 87,605
76,910 Adjusted revenues 273,525 704,362 724,681
1,095,549 Incentives created 119,317 171,052 230,502 372,819
Incentive income (51,352 ) (459,896 ) (286,909
) (607,338 ) Economic net income revenues $ 341,490 $
415,518 $ 668,274 $ 861,030 (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
MonthsEnded June 30, 2018
Consolidated Adjustments ANI
(in thousands) Management fees (1) $ 178,096 $ 17,839 $
195,935 Incentive income (1) 35,187 16,165 51,352 Investment income
(1) 56,923 (30,685 ) 26,238 Total expenses (2) (184,606 ) 4,416
(180,190 ) Interest expense, net (3) (35,469 ) 33,070 (2,399 )
Other income, net (4) 914 (355 ) 559 Other income of consolidated
funds (5) 19,579 (19,579 ) — Income taxes (4,867 ) 4,867 — Net loss
attributable to non-controlling interests in consolidated funds
7,360 (7,360 ) — Net income attributable to non-controlling
interests in consolidated subsidiaries (41,996 )
41,996 — Net income attributable to OCG Class
A unitholders / ANI $ 31,121 $ 60,374 $ 91,495
(1) The adjustment (a) adds back amounts earned from
the consolidated funds, (b) reclassifies DoubleLine investment
income of $17,500 to management fees and $100 to incentive income,
(c) for management fees, reclassifies $2,368 of net losses related
to foreign-currency hedging activities from general and
administrative expense and $2,468 of expense reimbursements
grossed-up for GAAP reporting, but netted with expenses for ANI,
(d) for incentive income, includes $16,065 related to timing
differences in the recognition of incentive income between net
income attributable to OCG Class A unitholders and adjusted net
income, and (e) for investment income, includes $6,606 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 $1,100 related to unit grants
made before our initial public offering, (b) consolidated fund
expenses of $6,928, (c) expenses incurred by the Intermediate
Holding Companies of $538, (d) the effect of timing differences in
the recognition of incentive income compensation expense between
net income attributable to OCG Class A unitholders and adjusted net
income of $5,766, (e) acquisition-related items of $2,834, (f)
$1,982 of net losses related to foreign-currency hedging
activities, and (g) $2,468 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 $355 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
MonthsEnded June 30, 2017
Consolidated Adjustments ANI
(in thousands) Management fees (1) $ 180,028 $ 22,686 $
202,714 Incentive income (1) 454,027 5,869 459,896 Investment
income (1) 49,106 (7,354 ) 41,752 Total expenses (2) (423,426 )
5,980 (417,446 ) Interest expense, net (3) (44,251 ) 37,707 (6,544
) Other income, net (4) 4,898 (3,616 ) 1,282 Other income of
consolidated funds (5) 80,602 (80,602 ) — Income taxes (5,541 )
5,541 — Net income attributable to non-controlling interests in
consolidated funds (3,861 ) 3,861 — Net income attributable to
non-controlling interests in consolidated subsidiaries
(174,258 ) 174,258 — Net income
attributable to OCG Class A unitholders / ANI $ 117,324 $
164,330 $ 281,654 (1) The adjustment
(a) adds back amounts earned from the consolidated funds, (b)
reclassifies DoubleLine investment income of $16,400 to management
fees and $2,450 to incentive income, (c) for management fees,
reclassifies $1,684 of net gains related to foreign-currency
hedging activities from general and administrative expense, (d) for
incentive income, includes $3,418 related to timing differences in
the recognition of incentive income between net income attributable
to OCG Class A unitholders and adjusted net income, and (e) for
investment income, includes $18,275 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 $989 related to unit grants made before our initial
public offering, (b) consolidated fund expenses of $3,375, (c)
expenses incurred by the Intermediate Holding Companies of $372,
(d) the effect of timing differences in the recognition of
incentive income compensation expense between net income
attributable to OCG Class A unitholders and adjusted net income of
$3,418, (e) acquisition-related items of $861, (f) adjustments of
$4,729 related to amounts received for contractually reimbursable
costs that are classified as other income under GAAP and as
expenses for ANI, and (g) $928 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 $4,729 that are classified as other income
under GAAP and as expenses for ANI, and (b) the reclassification of
$1,113 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.
As of or for the Six MonthsEnded
June 30, 2018
Consolidated Adjustments ANI
(in thousands) Management fees (1) $ 363,511 $ 35,371 $
398,882 Incentive income (1) 187,093 99,816 286,909 Investment
income (1) 91,486 (52,596 ) 38,890 Total expenses (2) (435,642 )
(32,443 ) (468,085 ) Interest expense, net (3) (76,048 ) 70,239
(5,809 ) Other income, net (4) 1,611 (540 ) 1,071 Other income of
consolidated funds (5) 82,411 (82,411 ) — Income taxes (11,264 )
11,264 — Net income attributable to non-controlling interests in
consolidated funds (3,365 ) 3,365 — Net income attributable to
non-controlling interests in consolidated subsidiaries
(115,940 ) 115,940 — Net income
attributable to OCG Class A unitholders / ANI $ 83,853 $
168,005 $ 251,858 (1) The adjustment
(a) adds back amounts earned from the consolidated funds, (b)
reclassifies DoubleLine investment income of $35,713 to management
fees and $100 to incentive income, (c) for management fees,
reclassifies $4,188 of net losses related to foreign-currency
hedging activities from general and administrative expense and
$6,673 of expense reimbursements grossed-up for GAAP reporting, but
netted with expenses for ANI, (d) for incentive income, includes
$99,646 related to timing differences in the recognition of
incentive income between net income attributable to OCG Class A
unitholders and adjusted net income, and (e) for investment income,
includes $3,881 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 $2,728 related
to unit grants made before our initial public offering, (b)
consolidated fund expenses of $8,199, (c) expenses incurred by the
Intermediate Holding Companies of $745, (d) the effect of timing
differences in the recognition of incentive income compensation
expense between net income attributable to OCG Class A unitholders
and adjusted net income of $51,393, (e) acquisition-related items
of $1,260, (f) $1,865 of net losses related to foreign-currency
hedging activities, and (g) $6,673 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 $540 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 Six MonthsEnded
June 30, 2017
Consolidated Adjustments ANI
(in thousands) Management fees (1) $ 360,956 $ 42,965 $
403,921 Incentive income (1) 562,684 44,654 607,338 Investment
income (1) 99,557 (15,267 ) 84,290 Total expenses (2) (615,988 )
(24,551 ) (640,539 ) Interest expense, net (3) (93,021 ) 79,506
(13,515 ) Other income, net (4) 9,561 (8,238 ) 1,323 Other income
of consolidated funds (5) 151,368 (151,368 ) — Income taxes (17,843
) 17,843 — Net income attributable to non-controlling interests in
consolidated funds (13,553 ) 13,553 — Net income attributable to
non-controlling interests in consolidated subsidiaries
(271,482 ) 271,482 — Net income
attributable to OCG Class A unitholders / ANI $ 172,239 $
270,579 $ 442,818 (1) The adjustment
(a) adds back amounts earned from the consolidated funds, (b)
reclassifies DoubleLine investment income of $32,042 to management
fees and $2,699 to incentive income, (c) for management fees,
reclassifies $2,099 of net gains related to foreign-currency
hedging activities from general and administrative expense, (d) for
incentive income, includes $41,954 related to timing differences in
the recognition of incentive income between net income attributable
to OCG Class A unitholders and adjusted net income, and (e) for
investment income, includes $22,647 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 $3,421 related to unit grants made before our initial
public offering, (b) consolidated fund expenses of $4,832, (c)
expenses incurred by the Intermediate Holding Companies of $677,
(d) the effect of timing differences in the recognition of
incentive income compensation expense between net income
attributable to OCG Class A unitholders and adjusted net income of
$41,954, (e) acquisition-related items of $2,463, (f) adjustments
of $9,390 related to amounts received for contractually
reimbursable costs that are classified as other income under GAAP
and as expenses for ANI, and (g) $3,380 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 $9,390 that are classified as other income
under GAAP and as expenses for ANI, and (b) the reclassification of
$1,154 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180726005240/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
Oaktree Capital (NYSE:OAK)
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