Oaktree Capital Group, LLC (NYSE: OAK) today reported its unaudited financial results for the first quarter ended March 31, 2018.

Jay Wintrob, Chief Executive Officer, said, “Oaktree had a good start to the year in terms of financial and investment performance, highlighted by 22% growth in distributable earnings in the first quarter versus the same period a year ago. Against a backdrop of turbulent financial markets, we continued to harvest assets across our credit, private equity, and real assets strategies. Our ability to sell assets at favorable prices and deliver solid investment returns, while continuing to deploy capital on attractive terms across a wide range of Oaktree strategies, speaks to the power of our investment philosophy and discipline of our teams.”

Changes to Non-GAAP Measures

As previously announced, beginning with the first quarter of 2018, reported management fees and incentive income now reflect the portion of the earnings from management fees and performance fees, respectively, attributable to Oaktree’s 20% ownership interest in DoubleLine Capital LP and its affiliates (collectively, “DoubleLine”). Such earnings were previously reported as investment income.

Additionally, assets under management (“AUM”), management fee-generating AUM, incentive-creating AUM and incentives created (fund level) now reflect Oaktree’s pro-rata portion (based on our 20% ownership stake) of DoubleLine’s total AUM, management fee-generating AUM, incentive-creating AUM and performance fees, respectively.

The new presentation does not impact adjusted net income. However, fee-related earnings now include Oaktree’s pro-rata portion of DoubleLine’s earnings from management fees, and distributable earnings now reflect its pro-rata share of DoubleLine’s income instead of cash receipts.

Finally, the impact of the recently enacted Tax Cuts and Jobs Act (the “Tax Act”), which resulted in the remeasurement of Oaktree’s deferred tax assets and tax receivable liability in the fourth quarter of 2017, will no longer be included in its non-GAAP measures. Oaktree believes that excluding the impact of the Tax Act is meaningful as it increases comparability between periods.

Prior periods have been recast to reflect the changes above.

Distribution

The distribution of $0.96 per Class A unit attributable to the first quarter of 2018 will be paid on May 11, 2018 to Class A unitholders of record at the close of business on May 7, 2018.

Conference Call

Oaktree will host a conference call to discuss its first quarter 2018 financial results today at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time. The conference call may be accessed by dialing (844) 824-3833 (U.S. callers) or +1 (412) 317-5102 (non-U.S. callers), participant password OAKTREE. Alternatively, a live webcast of the conference call can be accessed through the Unitholders – Investor Relations section of the Oaktree website, http://ir.oaktreecapital.com/. For those individuals unable to listen to the live broadcast of the conference call, a replay will be available for 30 days on Oaktree’s website, or by dialing (877) 344-7529 (U.S. callers) or +1 (412) 317-0088 (non-U.S. callers), access code 10118691, beginning approximately one hour after the broadcast.

About Oaktree

Oaktree is a leader among global investment managers specializing in alternative investments, with $121 billion in assets under management as of March 31, 2018. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. The firm has over 900 employees and offices in 18 cities worldwide. For additional information, please visit Oaktree’s website at www.oaktreecapital.com.

The table below presents (a) GAAP results, (b) non-GAAP results for both the Operating Group and per Class A unit, and (c) assets under management and accrued incentives (fund level) data. Please refer to the Glossary for definitions.

 

As of or for the Three Months
Ended March 31,

2018   2017
GAAP Results:

(in thousands, except per unit data
or as otherwise indicated)

 
Revenues $ 337,321 $ 289,585
Net income-OCG 52,732 54,915
Net income per Class A unit 0.78 0.87
 
Non-GAAP Results: (1)(2)
Adjusted revenues $ 451,156 $ 391,187
Adjusted net income 160,363 161,164
Adjusted net income-OCG 62,903 53,741
 
Distributable earnings revenues 477,264 377,744
Distributable earnings 193,973 159,221
Distributable earnings-OCG 80,178 55,173
 
Fee-related earnings revenues 202,947 201,207
Fee-related earnings 58,487 63,779
Fee-related earnings-OCG 24,269 21,900
 
Economic net income revenues 326,784 445,512
Economic net income 107,546 183,651
Economic net income-OCG 42,509 64,060
 
Per Class A Unit:
Adjusted net income $ 0.93 $ 0.85
Distributable earnings 1.18 0.88
Fee-related earnings 0.36 0.35
Economic net income 0.63 1.02
 
Weighted average number of Operating Group units outstanding 156,188 154,666
Weighted average number of Class A units outstanding 67,918 63,022
 
Operating Metrics: (1)
Assets under management (in millions):
Assets under management $ 121,394 $ 121,232
Management fee-generating assets under management 102,043 100,248
Incentive-creating assets under management 33,035 32,934
Uncalled capital commitments 19,556 21,770
Accrued incentives (fund level):
Incentives created (fund level) 111,185 201,767
Incentives created (fund level), net of associated incentive income compensation expense 52,298 96,785
Accrued incentives (fund level) 1,795,967 2,068,422
Accrued incentives (fund level), net of associated incentive income compensation expense 868,035 969,029
 

Note: Oaktree discloses in this earnings release certain revenues and financial measures, including measures that are calculated and presented on a basis other than generally accepted accounting principles in the United States (“non-GAAP”). Examples of such non-GAAP measures are identified in the table above. Such non-GAAP measures should be considered in addition to, and not as a substitute for or superior to, net income, net income per Class A unit or other financial measures calculated in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented at Exhibit A. All non-GAAP measures and all interim results presented in this release are unaudited.

(1)     Beginning with the first quarter of 2018, management fees and incentive income reflect the portion of the earnings from management fees and performance fees, respectively, attributable to our 20% ownership interest in DoubleLine. Such earnings were previously reported as investment income. Additionally, AUM, management fee-generating AUM, incentive-creating AUM and incentives created (fund level) now reflect our pro-rata portion (based on our 20% ownership stake) of DoubleLine’s total AUM, management fee-generating AUM, incentive-creating AUM and performance fees, respectively. All prior periods have been recast to reflect this change.
(2) Beginning with the second quarter of 2017, the definition of adjusted net income was modified with respect to third-party placement costs associated with closed-end funds and liability-classified OCGH equity value units (“EVUs”) to conform to the GAAP treatment. Under GAAP, placement costs are expensed as incurred and liability-classified EVUs are remeasured as of each reporting date. Previously for adjusted net income, placement costs were capitalized and amortized in proportion to the associated management fee stream, and liability-classified EVUs were treated as equity-classified awards. All prior periods have been recast for these changes.
 

GAAP Results

Oaktree consolidates entities in which it has a direct or indirect controlling financial interest. Investment vehicles in which we have a significant investment, such as collateralized loan obligation vehicles (“CLOs”) and certain Oaktree funds, are consolidated under GAAP. When a CLO or fund is consolidated, the assets, liabilities, revenues, expenses and cash flows of the consolidated funds are reflected on a gross basis, and the majority of the economic interests in those consolidated funds, which are held by third-party investors, are reflected as debt obligations of CLOs or non-controlling interests. All of the revenues earned by us as investment manager of the consolidated funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by third-party investors, the consolidation of a fund does not impact net income or loss attributable to OCG.

In the first quarter of 2018, Oaktree adopted the new revenue recognition standard on a modified retrospective basis, which did not require prior periods to be recast. Instead, a cumulative-effect adjustment to increase retained earnings of $48.7 million, net of tax, was recorded as of January 1, 2018. This adjustment relates to revenues that would have met the recognition criteria under the new standard as of January 1, 2018.

Total revenues increased $47.7 million, or 16.5%, to $337.3 million for the first quarter of 2018, from $289.6 million for the first quarter of 2017, reflecting higher incentive income. The impact on revenues as a result of applying the new revenue recognition standard was a net decrease of $42.8 million for the first quarter of 2018.

Total expenses increased $58.4 million, or 30.3%, to $251.0 million for the first quarter of 2018, from $192.6 million for the first quarter of 2017, primarily reflecting higher incentive income compensation expense.

Other income decreased $19.6 million, or 25.4%, to $57.5 million for the first quarter of 2018, from $77.1 million for the first quarter of 2017, primarily reflecting variations in returns on our fund investments between periods.

Net income attributable to OCG decreased $2.2 million, or 4.0%, to $52.7 million for the first quarter of 2018, from $54.9 million for the first quarter of 2017. The decrease primarily reflected the impact of adoption of the new revenue standard.

Operating Metrics

Assets Under Management

Assets under management were $121.4 billion as of March 31, 2018, $123.9 billion as of December 31, 2017 and $121.2 billion as of March 31, 2017. The $2.5 billion decrease since December 31, 2017 primarily reflected $2.2 billion of distributions to closed-end fund investors and $1.7 billion of net outflows from open-end funds, partially offset by $0.7 billion in new capital commitments to closed-end funds and $0.4 billion in market-value gains. Commitments to closed-end funds included $0.4 billion for Oaktree Real Estate Debt Fund II.

The $0.2 billion increase in AUM since March 31, 2017 primarily reflected $5.1 billion in market-value gains, $2.9 billion attributable to DoubleLine, $2.1 billion from becoming the investment adviser to two publicly-traded business development companies (the “BDC acquisition”), $2.0 billion of capital commitments to closed-end funds and $2.0 billion in favorable foreign-currency translation, largely offset by $10.3 billion of distributions to closed-end fund investors and $3.8 billion of net outflows from open-end funds. Commitments to closed-end funds included $1.2 billion for our Real Estate products and $0.3 billion for our European Private Debt product. Distributions to closed-end fund investors included $5.1 billion from Credit funds, $3.0 billion from Private Equity funds and $2.1 billion from Real Asset funds.

Management Fee-generating Assets Under Management

Management fee-generating AUM, a forward-looking metric, was $102.0 billion as of March 31, 2018, $104.3 billion as of December 31, 2017 and $100.2 billion as of March 31, 2017. The $2.3 billion decrease since December 31, 2017 primarily reflected $1.7 billion of net outflows from open-end funds and $1.6 billion attributable to closed-end funds in liquidation, partially offset by $0.6 billion from capital drawn by funds that pay fees based on drawn capital, NAV or cost basis and $0.4 billion in favorable foreign-currency translation.

The $1.8 billion increase in management fee-generating AUM since March 31, 2017 primarily reflected $2.9 billion attributable to DoubleLine, $2.1 billion in market-value gains, $2.1 billion from the BDC acquisition, $1.9 billion from capital drawn by closed-end funds that pay fees based on drawn capital, NAV or cost basis, $1.8 billion of favorable foreign-currency translation, and $1.0 billion from the start of the investment period for Oaktree European Principal Fund IV (“EPF IV”) in July 2017. These increases were partially offset by $5.4 billion attributable to closed-end funds in liquidation, $3.8 billion of net outflows from open-end funds and $1.0 billion of distributions by closed-end funds that pay fees based on NAV.

Incentive-creating Assets Under Management

Incentive-creating AUM was $33.0 billion as of March 31, 2018, $33.3 billion as of December 31, 2017 and $32.9 billion as of March 31, 2017. The $0.3 billion decrease since December 31, 2017 reflected an aggregate $2.3 billion decline primarily attributable to distributions by closed-end funds, largely offset by an aggregate $2.0 billion in drawdowns or contributions by closed-end and evergreen funds and market-value gains. The $0.1 billion increase since March 31, 2017 reflected an aggregate $8.6 billion in drawdowns or contributions by closed-end and evergreen funds and market-value gains and $2.1 billion from the BDC acquisition, largely offset by an aggregate decline of $10.6 billion primarily attributable to distributions by closed-end funds.

Of the $33.0 billion in incentive-creating AUM as of March 31, 2018, $19.9 billion (or 60%), was generating incentives at the fund level, as compared with $21.3 billion (65%), of the $32.9 billion of incentive-creating AUM as of March 31, 2017.

Accrued Incentives (Fund Level) and Incentives Created (Fund Level)

Accrued incentives (fund level) were $1.8 billion as of March 31, 2018, $1.9 billion as of December 31, 2017 and $2.1 billion as of March 31, 2017. The first quarter of 2018 reflected $111.2 million of incentives created (fund level) and $235.6 million of incentive income recognized.

Accrued incentives (fund level), net of incentive income compensation expense (“net accrued incentives (fund level)”), were $868.0 million as of March 31, 2018, $920.9 million as of December 31, 2017, and $969.0 million as of March 31, 2017. The portion of net accrued incentives (fund level) represented by funds that were currently paying incentives as of March 31, 2018, December 31, 2017 and March 31, 2017 was $197.3 million (or 23%), $237.2 million (26%) and $179.6 million (19%), respectively, with the remainder arising from funds that as of that date were not at the stage of their cash distribution waterfall where Oaktree was entitled to receive incentives, other than possibly tax-related distributions.

Uncalled Capital Commitments

Uncalled capital commitments were $19.6 billion as of March 31, 2018, $20.5 billion as of December 31, 2017, and $21.8 billion as of March 31, 2017. Invested capital during the quarter and 12 months ended March 31, 2018 aggregated $2.2 billion and $7.7 billion, respectively, as compared with $1.7 billion and $8.3 billion for the comparable prior-year periods.

Non-GAAP Results

Adjusted Revenues

Adjusted revenues increased $60.0 million, or 15.3%, to $451.2 million in the first quarter of 2018, from $391.2 million in the first quarter of 2017, primarily reflecting higher incentive income, partially offset by lower investment income.

Management Fees

Management fees increased $1.7 million, or 0.8%, to $202.9 million in the first quarter of 2018, from $201.2 million in the first quarter of 2017. The increase reflected an aggregate increase of $23.0 million principally from the BDC acquisition, the start of the investment period for EPF IV and closed-end funds that pay management fees based on drawn capital, NAV or cost basis. These increases were largely offset by an aggregate decline of $21.3 million primarily attributable to closed-end funds in liquidation.

Incentive Income

Incentive income increased $88.2 million, or 59.8%, to $235.6 million in the first quarter of 2018, from $147.4 million in the first quarter of 2017. The first quarter of 2018 included regular and tax-related incentive income of $131.9 million and $103.7 million, respectively, as compared to $66.0 million and $81.2 million in the first quarter of 2017, respectively.

Investment Income

Investment income decreased $29.8 million, or 70.1%, to $12.7 million in the first quarter of 2018, from $42.5 million in the first quarter of 2017. The decrease primarily reflected lower overall returns on our fund investments.

Adjusted Expenses

Compensation and Benefits

Compensation and benefits expense increased $2.7 million, or 2.6%, to $104.8 million in the first quarter of 2018, from $102.1 million in the first quarter of 2017, primarily reflecting expenses relating to the infrastructure investing team that Oaktree acquired in 2014. In 2017, a portion of the expenses attributable to that team were paid for by a legacy Highstar fund. That fund stopped paying management fees in the fourth quarter of 2017, and thereafter Oaktree became responsible for all of the expenses of the infrastructure team.

Equity-based Compensation

Equity-based compensation expense increased $0.5 million, or 4.0%, to $13.0 million in the first quarter of 2018, from $12.5 million in the first quarter of 2017.

Incentive Income Compensation

Incentive income compensation expense increased $57.3 million, or 78.4%, to $130.4 million in the first quarter of 2018, from $73.1 million in the first quarter of 2017, primarily reflecting growth in incentive income and a higher overall compensation percentage in the first quarter of 2018.

General and Administrative

General and administrative expense increased $4.9 million, or 15.1%, to $37.4 million in the first quarter of 2018, from $32.5 million in the first quarter of 2017, primarily reflecting higher placement costs associated with fundraising for closed-end funds. Excluding placement costs, general and administrative expense increased $1.4 million, or 4.4%, to $33.2 million from $31.8 million.

Depreciation and Amortization

Depreciation and amortization expense decreased $0.5 million, or 17.9%, to $2.3 million in the first quarter of 2018, from $2.8 million in the first quarter of 2017, primarily reflecting the final amortization of certain leasehold improvements in the first quarter of 2017.

Interest Expense, Net

Interest expense, net decreased $3.6 million, or 51.4%, to $3.4 million in the first quarter of 2018, from $7.0 million in the first quarter of 2017, reflecting the refinancing of our senior notes in the fourth quarter of 2017 and higher interest income.

Adjusted Net Income

ANI decreased $0.8 million, or 0.5%, to $160.4 million in the first quarter of 2018, from $161.2 million in the first quarter of 2017. The decrease primarily reflected $29.8 million in lower investment income and $5.3 million in lower fee-related earnings, partially offset by $30.8 million in higher incentive income, net of incentive income compensation expense (“net incentive income”) and $3.6 million in lower net interest expense. The portion of ANI attributable to our Class A units was $62.9 million, or $0.93 per unit, and $53.7 million, or $0.85 per unit, for the first quarters of 2018 and 2017, respectively.

The effective tax rates applied to ANI in the first quarters of 2018 and 2017 were 10% and 18%, respectively, resulting from full-year effective tax rates of 9% and 20%, respectively. The rate used for interim fiscal periods is based on an estimated full-year effective tax rate on income that can be reliably forecasted, combined with tax expense in the current period on incentive income and any other income that cannot be reliably estimated. We generally expect variability in tax rates between periods because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period’s income tax expense and often vary significantly within or between years. In general, the annual effective tax rate increases as the proportion of ANI arising from fee-related earnings and certain incentive and investment income rises, and vice versa.

Distributable Earnings

Distributable earnings increased $34.8 million, or 21.9%, to $194.0 million in the first quarter of 2018, from $159.2 million in the first quarter of 2017, primarily reflecting $30.8 million in higher net incentive income and $9.7 million in higher investment income proceeds, partially offset by $5.3 million in lower fee-related earnings. For the first quarters of 2018 and 2017, investment income proceeds totaled $38.8 million and $29.1 million, respectively. The portion of distributable earnings attributable to our Class A units was $1.18 and $0.88 per unit for the first quarters of 2018 and 2017, respectively, reflecting distributable earnings per Operating Group unit of $1.24 and $1.03, respectively, less costs borne by Class A unitholders for professional fees and other expenses, cash taxes attributable to the Intermediate Holding Companies, and amounts payable pursuant to the tax receivable agreement.

Fee-related Earnings

Fee-related earnings decreased $5.3 million, or 8.3%, to $58.5 million in the first quarter of 2018, from $63.8 million in the first quarter of 2017, primarily reflecting increases of $4.9 million in general and administrative expense and $2.7 million in compensation and benefits expense, partially offset by $1.7 million in higher management fees. The portion of fee-related earnings attributable to our Class A units was $0.36 and $0.35 per unit for the first quarters of 2018 and 2017, respectively.

The effective tax rates applicable to fee-related earnings for the first quarters of 2018 and 2017 were 4% and 15%, respectively, resulting from full-year effective tax rates of 6% and 15%, respectively. The rate used for interim fiscal periods is based on the estimated full-year effective tax rate, which is subject to change as the year progresses. In general, the annual effective tax rate increases as annual fee-related earnings increase, and vice versa.

Capital and Liquidity

As of March 31, 2018, Oaktree and its operating subsidiaries had $864 million of cash and U.S. Treasury and other securities, and $746 million of outstanding debt, which included no borrowings outstanding against its $500 million revolving credit facility. As of March 31, 2018, Oaktree’s investments in funds and companies on a non-GAAP basis had a carrying value of $1.5 billion, with the 20% investment in DoubleLine carried at $32 million based on cost, as adjusted under the equity method of accounting. Net accrued incentives (fund level) represented an additional $868 million as of that date.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, which reflect the current views of Oaktree, with respect to, among other things, our future results of operations and financial performance. In some cases, you can identify forward-looking statements by words such as “anticipate,” “approximately,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “seek,” “should,” “will” and “would” or the negative version of these words or other comparable or similar words. These statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those indicated in these statements. Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Such forward-looking statements are subject to risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity, including, but not limited to, changes in our anticipated revenue and income, which are inherently volatile; changes in the value of our investments; the pace of our raising of new funds; changes in assets under management; the timing and receipt of, and impact of taxes on, carried interest; distributions from and liquidation of our existing funds; the amount and timing of distributions on our Class A units; changes in our operating or other expenses; the degree to which we encounter competition; and general political, economic and market conditions. The factors listed in the item captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 23, 2018, which is accessible on the SEC’s website at www.sec.gov, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in our forward-looking statements. Forward-looking statements speak only as of the date the statements are made. Except as required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

This release and its contents do not constitute and should not be construed as (a) a recommendation to buy, (b) an offer to buy or solicitation of an offer to buy, (c) an offer to sell or (d) advice in relation to, any securities of OCG or securities of any Oaktree investment fund.

Investor Relations Website

Investors and others should note that Oaktree uses the Unitholders – Investor Relations section of its corporate website to announce material information to investors and the marketplace. While not all of the information that Oaktree posts on its corporate website is of a material nature, some information could be deemed to be material. Accordingly, Oaktree encourages investors, the media, and others interested in Oaktree to review the information that it shares on its corporate website at the Unitholders – Investor Relations section of the Oaktree website, http://ir.oaktreecapital.com/. Information contained on, or available through, our website is not incorporated by reference into this document.

 

GAAP Consolidated Statements of Operations (1)

 
  Three Months Ended March 31,
2018   2017
(in thousands, except per unit data)
Revenues:
Management fees $ 185,415 $ 180,928
Incentive income   151,906     108,657  
Total revenues   337,321     289,585  
Expenses:
Compensation and benefits (108,754 ) (104,487 )
Equity-based compensation (14,621 ) (14,953 )
Incentive income compensation   (84,815 )   (34,608 )
Total compensation and benefits expense (208,190 ) (154,048 )
General and administrative (32,964 ) (32,219 )
Depreciation and amortization (6,402 ) (3,824 )
Consolidated fund expenses   (3,480 )   (2,471 )
Total expenses   (251,036 )   (192,562 )
Other income (loss):
Interest expense (40,579 ) (48,770 )
Interest and dividend income 62,619 47,960
Net realized gain (loss) on consolidated funds’ investments 14,599 (1,872 )
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments (14,386 ) 24,678
Investment income 34,563 50,451
Other income, net   697     4,663  
Total other income   57,513     77,110  
Income before income taxes 143,798 174,133
Income taxes   (6,397 )   (12,302 )
Net income 137,401 161,831
Less:
Net income attributable to non-controlling interests in consolidated funds (10,725 ) (9,692 )
Net income attributable to non-controlling interests in consolidated subsidiaries   (73,944 )   (97,224 )
Net income attributable to Oaktree Capital Group, LLC $ 52,732   $ 54,915  
Distributions declared per Class A unit $ 0.76   $ 0.63  
Net income per unit (basic and diluted):
Net income per Class A unit $ 0.78   $ 0.87  
Weighted average number of Class A units outstanding   67,918     63,022  
 
(1)   In the first quarter of 2018, Oaktree adopted the new revenue recognition standard on a modified retrospective basis, which did not require prior periods to be recast. Instead, a cumulative-effect adjustment to increase retained earnings of $48.7 million, net of tax, was recorded as of January 1, 2018. This adjustment relates to revenues that would have met the recognition criteria under the new standard as of January 1, 2018.
 

Operating Metrics

We monitor certain operating metrics that are either common to the alternative asset management industry or that we believe provide important data regarding our business. As described below, these operating metrics include AUM, management fee-generating AUM, incentive-creating AUM, incentives created (fund level), accrued incentives (fund level) and uncalled capital commitments.

 
Assets Under Management As of
March 31,   December 31,   March 31,
2018 2017 2017
(in millions)
Assets Under Management:
Closed-end funds $ 55,682 $ 56,871 $ 59,848
Open-end funds 33,703 35,441 35,125
Evergreen funds 8,227 7,916 5,340
DoubleLine (1)   23,782     23,702     20,919  
Total $ 121,394   $ 123,930   $ 121,232  
 
Three Months Ended Twelve Months Ended
March 31, March 31,
2018 2017 2018 2017
(in millions)
Change in Assets Under Management:
Beginning balance $ 123,930 $ 120,801 $ 121,232 $ 115,769
Closed-end funds:
Capital commitments/other (2) 653 1,094 2,031 6,092
Distributions for a realization event / other (3) (2,182 ) (2,553 ) (10,262 ) (8,286 )
Change in uncalled capital commitments for funds entering or in liquidation (4) (306 ) 31 (319 ) (1,053 )
Foreign-currency translation 219 106 1,106 (411 )
Change in market value (5) 431 870 3,105 4,259
Change in applicable leverage (4 ) 196 173 166
Open-end funds:
Contributions 891 2,007 4,623 6,716
Redemptions (2,635 ) (2,977 ) (8,399 ) (8,254 )
Foreign-currency translation 181 107 874 (245 )
Change in market value (5) (175 ) 883 1,480 3,900
Evergreen funds:
Contributions or new capital commitments (6) 363 7 1,089 200
Acquisition (BDCs) — — 2,110 —
Redemptions or distributions (7) (161 ) (106 ) (786 ) (428 )
Foreign-currency translation (3 ) (2 ) (2 ) (1 )
Change in market value (5) 112 146 476 784
DoubleLine:
Net change in DoubleLine   80     622     2,863     2,024  
Ending balance $ 121,394   $ 121,232   $ 121,394   $ 121,232  
 
(1)     DoubleLine AUM reflects our pro-rata portion (based on our 20% ownership stake) of DoubleLine’s total AUM.
(2) These amounts include capital commitments, as well as the aggregate par value of collateral assets and principal cash related to new CLO formations.
(3) These amounts include distributions for a realization event, tax-related distributions, reductions in the par value of collateral assets and principal cash resulting from the repayment of debt as return of principal by CLOs, and recallable distributions at the end of the investment period.
(4) The change in uncalled capital commitments generally reflects declines attributable to funds entering their liquidation periods, as well as capital contributions to funds in their liquidation periods for deferred purchase obligations or other reasons.
(5) The change in market value reflects the change in NAV of our funds, less management fees and other fund expenses, as well as changes in the aggregate par value of collateral assets and principal cash held by CLOs and other levered funds.
(6) These amounts include contributions and capital commitments, and for our publicly-traded BDCs, issuances of equity or debt capital.
(7) These amounts include redemptions and distributions, and for our publicly-traded BDCs, dividends, repurchases of equity capital or repayment of debt.
 
 
Management Fee-generating AUM   As of
March 31,   December 31,   March 31,
2018 2017 2017
Management Fee-generating AUM: (in millions)
Closed-end funds:
Senior Loans $ 8,104 $ 8,066 $ 7,721
Other closed-end funds 29,734 30,779 32,340
Open-end funds 33,448 35,188 34,930
Evergreen funds 6,975 6,552 4,338
DoubleLine   23,782     23,702     20,919  
Total $ 102,043   $ 104,287   $ 100,248  
 

Three Months Ended
March 31,

Twelve Months Ended
March 31,

2018 2017 2018 2017
Change in Management Fee-generating AUM: (in millions)
 
Beginning balance $ 104,287 $ 100,064 $ 100,248 $ 98,803
Closed-end funds:
Capital commitments to funds that pay fees based on committed capital / other (1) — 17 952 1,456
Capital drawn by funds that pay fees based on drawn capital, NAV or cost basis 559 327 1,895 1,516
Change attributable to funds in liquidation (2) (1,595 ) (954 ) (5,401 ) (4,735 )
Change in uncalled capital commitments for funds entering or in liquidation that pay fees based on committed capital (3) — — — (881 )
Distributions by funds that pay fees based on NAV / other (4) (193 ) (165 ) (954 ) (688 )
Foreign-currency translation 174 82 932 (389 )
Change in market value (5) 53 88 182 430
Change in applicable leverage (5 ) 172 171 212
Open-end funds:
Contributions 890 1,882 4,575 6,542
Redemptions (2,635 ) (2,971 ) (8,398 ) (8,223 )
Foreign-currency translation 181 107 874 (245 )
Change in market value (176 ) 878 1,467 3,917
Evergreen funds:
Contributions or capital drawn by funds that pay fees based on drawn capital or NAV (6) 470 59 931 255
Acquisition (BDCs) — — 2,110 —
Redemptions or distributions (7) (147 ) (90 ) (829 ) (475 )
Change in market value (5) 100 130 425 729
DoubleLine:
Net change in DoubleLine   80     622     2,863     2,024  
Ending balance $ 102,043   $ 100,248   $ 102,043   $ 100,248  
 
(1)     These amounts include capital commitments to funds that pay fees based on committed capital, as well as the aggregate par value of collateral assets and principal cash related to new CLO formations.
(2) These amounts include the change for funds that pay fees based on the lesser of funded capital or cost basis during the liquidation period, as well as recallable distributions at the end of the investment period. For most closed-end funds, management fees are charged during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund, with the cost basis of assets generally calculated by excluding cash balances. Thus, changes in fee basis during the liquidation period are not dependent on distributions made from the fund; rather, they are tied to the cost basis of the fund’s investments, which typically declines as the fund sells assets.
(3) The change in uncalled capital commitments reflects declines attributable to funds entering their liquidation periods, as well as capital contributions to funds in their liquidation periods for deferred purchase obligations or other reasons.
(4) These amounts include distributions by funds that pay fees based on NAV, as well as reductions in the par value of collateral assets and principal cash resulting from the repayment of debt as return of principal by CLOs.
(5) The change in market value reflects certain funds that pay management fees based on NAV and leverage, as applicable, as well as changes in the aggregate par value of collateral assets and principal cash held by CLOs and other levered funds.
(6) These amounts include contributions and capital commitments, and for our publicly-traded BDCs, issuances of equity or debt capital.
(7) These amounts include redemptions and distributions, and for our publicly-traded BDCs, dividends, repurchases of equity capital or repayment of debt.
 
 
  As of
March 31,   December 31,   March 31,
2018 2017 2017
Reconciliation of AUM to Management Fee-generating AUM: (in millions)
Assets under management $ 121,394 $ 123,930 $ 121,232
Difference between assets under management and committed capital or the lesser of funded capital or cost basis for applicable closed-end funds (1) (2,195 ) (2,331 ) (3,773 )
Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods (8,463 ) (8,675 ) (10,542 )
Undrawn capital commitments to funds for which management fees are based on drawn capital, NAV or cost basis (3,954 ) (4,037 ) (2,593 )

Oaktree’s general partner investments in management fee-generating funds

(2,059 ) (1,937 ) (1,928 )
Funds that are no longer paying management fees and co-investments that pay no management fees (2)   (2,680 )   (2,663 )   (2,148 )
Management fee-generating assets under management $ 102,043   $ 104,287   $ 100,248  
 
(1)     This difference is not applicable to closed-end funds that pay management fees based on NAV or leverage.
(2) This includes certain accounts that pay administrative fees intended to offset Oaktree’s costs related to the accounts.
 

The period-end weighted average annual management fee rates applicable to the closed-end, open-end and evergreen management fee-generating AUM balances above are set forth below.

 
As of
March 31,   December 31,   March 31,
Weighted Average Annual Management Fee Rates: 2018 2017 2017
Closed-end funds:
Senior Loans 0.50 % 0.50 % 0.50 %
Other closed-end funds 1.47 1.49 1.50
Open-end funds 0.45 0.46 0.45
Evergreen funds (1) 1.20 1.22 1.22
All Oaktree funds (2) 0.91 0.92 0.92
 
(1)     Fee rates reflect the applicable asset-based management fee rates, exclusive of quarterly incentive fees on investment income that are included in management fees.
(2) Excludes DoubleLine funds.
 
 

Incentive-creating AUM

 
  As of
March 31,   December 31,   March 31,
2018 2017 2017
Incentive-creating AUM: (in millions)
Closed-end funds $ 26,732 $ 27,322 $ 28,943
Evergreen funds 5,688 5,383 3,394
DoubleLine   615   606   597
Total $ 33,035 $ 33,311 $ 32,934
 
 

Accrued Incentives (Fund Level) and Incentives Created (Fund Level)

 
  As of or for
the Three Months
Ended March 31,
2018   2017
Accrued Incentives (Fund Level): (in thousands)
Beginning balance $ 1,920,339   $ 2,014,097  
Incentives created (fund level):
Closed-end funds 97,306 190,021
Evergreen funds 13,879 11,497
DoubleLine   —     249  
Total incentives created (fund level)   111,185     201,767  
Less: incentive income recognized by us   (235,557 )   (147,442 )
Ending balance $ 1,795,967   $ 2,068,422  
Accrued incentives (fund level), net of associated incentive income compensation expense $ 868,035   $ 969,029  
 

Non-GAAP Results

Our business is comprised of one segment, our investment management business, which consists of the investment management services that we provide to our clients. Management makes operating decisions and assesses the performance of our business based on financial data that are presented without the consolidation of our funds. The data most important to management in assessing our performance are adjusted net income, adjusted net income-OCG, distributable earnings, distributable earnings-OCG, fee-related earnings and fee-related earnings-OCG. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented at Exhibit A.

Adjusted Net Income

The following schedules set forth the components of adjusted net income and adjusted net income-OCG, as well as per unit data:

 

Adjusted Revenues

 
  Three Months Ended
March 31,
2018   2017
(in thousands)
Revenues:
Management fees $ 202,947 $ 201,207
Incentive income 235,557 147,442
Investment income   12,652   42,538
Total adjusted revenues $ 451,156 $ 391,187
 
 

Management Fees

Three Months Ended

 

March 31,
2018   2017
(in thousands)
Management fees:
Closed-end funds $ 121,706 $ 131,708
Open-end funds 38,112 40,144
Evergreen funds 24,916 13,713
DoubleLine   18,213   15,642
Total management fees $ 202,947 $ 201,207
 
 

Investment Income

Three Months Ended

 

March 31,
2018   2017
(in thousands)
Oaktree funds:
Credit $ 14,884 $ 29,198
Private Equity (812 ) 3,422
Real Assets 4,950 3,948
Listed Equities (7,412 ) 3,687
Non-Oaktree   1,042     2,283
Total investment income $ 12,652   $ 42,538
 
 

Adjusted Expenses

 
  Three Months Ended
March 31,
2018   2017
(in thousands)
Expenses:
Compensation and benefits $ (104,770 ) $ (102,136 )
Equity-based compensation (12,993 ) (12,521 )
Incentive income compensation (130,442 ) (73,144 )
General and administrative (37,437 ) (32,469 )
Depreciation and amortization (2,253 ) (2,823 )
Total adjusted expenses $ (287,895 ) $ (223,093 )
 
 

Adjusted Interest and Other Income, Net

 
  Three Months Ended
March 31,
2018   2017
(in thousands)
 
Interest expense, net of interest income (1) $ (3,410 ) $ (6,971 )
Other income, net 512 41
 
(1)     Interest income was $2.4 million and $1.7 million for the three months ended March 31, 2018 and 2017, respectively.
 
 

Adjusted Net Income

 
  Three Months Ended
March 31,
2018   2017
(in thousands, except per unit data)
 
Adjusted net income $ 160,363 $ 161,164
Adjusted net income attributable to OCGH non-controlling interest (90,629 ) (95,494 )
Non-Operating Group income (expense)   20     (232 )
Adjusted net income-OCG before income taxes 69,754 65,438
Income taxes-OCG   (6,851 )   (11,697 )
Adjusted net income-OCG $ 62,903   $ 53,741  
Adjusted net income per Class A unit $ 0.93   $ 0.85  
Weighted average number of Class A units outstanding   67,918     63,022  
 
 

Distributable Earnings and Distribution Calculation

Distributable earnings and the calculation of distributions are set forth below:

 
  Three Months Ended
March 31,
2018   2017
Distributable Earnings: (in thousands, except per unit data)
 
Adjusted net income $ 160,363 $ 161,164
Investment income (12,652 ) (42,538 )
Receipts of investment income (1) 38,760 29,095
Equity-based compensation 12,993 12,521
Other (income) expense, net (2) (2,745 ) —
Operating Group income taxes   (2,746 )   (1,021 )
Distributable earnings $ 193,973   $ 159,221  
 
Distribution Calculation:
Operating Group distribution with respect to the period $ 165,045 $ 132,595
Distribution per Operating Group unit $ 1.05 $ 0.85
Adjustments per Class A unit:
Distributable earnings-OCG income tax expense (0.02 ) (0.05 )
Tax receivable agreement (0.06 ) (0.08 )
Non-Operating Group expenses   (0.01 )   (0.01 )
Distribution per Class A unit (3) $ 0.96   $ 0.71  
 
(1)     This adjustment characterizes a portion of the distributions received from funds as receipts of investment income or loss. In general, the income or loss component of a fund distribution is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends. Additionally, any impairment charges on our CLO investments included in ANI are, for distributable earnings purposes, amortized over the remaining investment period of the respective CLO to align with the timing of expected cash flows.
(2) For distributable earnings purposes, the $22 million make-whole premium charge that was included in ANI in the fourth quarter of 2017 in connection with the early repayment of our 2019 Notes is amortized through the original maturity date of December 2019.
(3) With respect to the quarter ended March 31, 2018, a distribution was announced on April 26, 2018 and is payable on May 11, 2018.
 
 

Units Outstanding

 
  Three Months Ended
March 31,
2018   2017
(in thousands)
Weighted Average Units:
OCGH 88,270 91,644
Class A 67,918 63,022
Total 156,188 154,666
Units Eligible for Fiscal Period Distribution:
OCGH 86,007 91,793
Class A 71,179 64,201
Total 157,186 155,994
 
 

GAAP Statement of Financial Condition (Unaudited)

 
  As of March 31, 2018
Oaktree and      
Operating Consolidated
Subsidiaries Funds Eliminations Consolidated
(in thousands)
Assets:
Cash and cash-equivalents $ 634,691 $ — $ — $ 634,691
U.S. Treasury and other securities 229,274 — — 229,274
Corporate investments 1,548,125 — (545,924 ) 1,002,201
Deferred tax assets 243,241 — — 243,241
Receivables and other assets 716,072 — (14 ) 716,058
Assets of consolidated funds   —   6,297,405   (149 )   6,297,256
Total assets $ 3,371,403 $ 6,297,405 $ (546,087 ) $ 9,122,721
Liabilities and Capital:
Liabilities:
Accounts payable and accrued expenses $ 367,813 $ — $ 7,848 $ 375,661
Due to affiliates 211,736 — — 211,736
Debt obligations 745,546 — — 745,546
Liabilities of consolidated funds   —   4,873,974   (3,136 )   4,870,838
Total liabilities   1,325,095   4,873,974   4,712     6,203,781
Non-controlling redeemable interests in consolidated funds — — 861,864 861,864
Capital:
Unitholders’ capital attributable to OCG 966,722 249,402 (249,402 ) 966,722
Non-controlling interest in consolidated subsidiaries 1,079,586 301,397 (301,397 ) 1,079,586
Non-controlling interest in consolidated funds   —   872,632   (861,864 )   10,768
Total capital   2,046,308   1,423,431   (1,412,663 )   2,057,076
Total liabilities and capital $ 3,371,403 $ 6,297,405 $ (546,087 ) $ 9,122,721
 
 

Corporate Investments

 
  As of
March 31,   December 31,   March 31,
2018 2017 2017
(in thousands)
Oaktree funds:
Credit $ 922,287 $ 937,277 $ 924,975
Private Equity 245,450 247,546 258,064
Real Assets 148,215 263,732 140,569
Listed Equities 126,777 137,941 122,572
Non-Oaktree   75,451     82,096     100,945  
Total corporate investments – Non-GAAP 1,518,180 1,668,592 1,547,125
Adjustments (1)   29,945     22,957     3,802  
Total corporate investments – Oaktree and operating subsidiaries 1,548,125 1,691,549 1,550,927
Eliminations   (545,924 )   (681,918 )   (493,433 )
Total corporate investments – Consolidated $ 1,002,201   $ 1,009,631   $ 1,057,494  
 
(1)     This adjusts CLO investments carried at amortized cost to fair value for GAAP reporting.
 

Fund Data

Information regarding our closed-end, open-end and evergreen funds, together with benchmark data where applicable, is set forth below. For our closed-end and evergreen funds, no benchmarks are presented in the tables as there are no known comparable benchmarks for these funds’ investment philosophy, strategy and implementation.

 

Closed-end Funds

 
      As of March 31, 2018
Investment Period Total Committed Capital   %

Invested (1)

   %

Drawn (2)

   Fund Net Income Since Inception   Distri-

butions Since Inception

   Net Asset Value   Manage-

ment Fee-gener-

ating AUM

   Incentive Income Recog-

nized (Non-GAAP)

   Accrued Incentives (Fund Level) (3)   Unreturned Drawn Capital Plus Accrued Preferred Return (4)   IRR Since Inception (5)     Multiple of Drawn Capital (6)
Start Date End Date

Gross

   Net

Credit

(in millions)
Distressed Debt
Oaktree Opportunities Fund Xb (7) TBD — $8,872

—%

—%

$—

$— $— $— $— $— $— n/a n/a n/a
Oaktree Opportunities Fund X (7) Jan. 2016 Jan. 2019 3,603 81 63 756 81 2,933 3,474 — 146 2,399

35.6%

21.6% 1.4x
Oaktree Opportunities Fund IX Jan. 2014 Jan. 2017 5,066 nm 100 528 1,671 3,923 3,853 — — 5,092 5.3 2.7 1.2
Oaktree Opportunities Fund VIIIb Aug. 2011 Aug. 2014 2,692 nm 100 835 2,020 1,507 1,568 52 — 1,868 8.7 5.8 1.4
Special Account B Nov. 2009 Nov. 2012 1,031 nm 100 607 1,511 204 198 16 — 101 13.6 11.3 1.6
Oaktree Opportunities Fund VIII Oct. 2009 Oct. 2012 4,507 nm 100 2,527 6,102 932 1,036 208 284 313 13.0 9.1 1.6
Special Account A Nov. 2008 Oct. 2012 253 nm 100 314 542 25 39 57 5 — 28.0 22.8 2.3
OCM Opportunities Fund VIIb May 2008 May 2011 10,940 nm 90 8,995 17,844 995 824 1,554 194 — 21.9 16.6 2.0
OCM Opportunities Fund VII Mar. 2007 Mar. 2010 3,598 nm 100 1,479 4,742 335 — 87 — 501 10.2 7.5 1.5
Legacy funds (8) Various Various 12,495 nm 100 10,458 22,925 28 — 1,557 6 — 23.6 18.5 1.9
22.0% 16.1%
Private/Alternative Credit
Oaktree European Capital Solutions Fund (7)(9)(10) Dec. 2015 Dec. 2018 €703 80% 64% €28 €155 €291 €355 €— €4 €281 11.5% 7.3% 1.1x
Oaktree European Dislocation Fund (10) Oct. 2013 Oct. 2016 €294 nm 57 €41 €187 €36 €21 €3 €4 €13 20.6 14.8 1.3
Special Account E (10) Oct. 2013 Apr. 2015 €379 nm 69 €64 €301 €24 €9 €4 €6 €1 14.3 11.1 1.3
15.1% 11.0%
 
Oaktree Mezzanine Fund IV (9) Oct. 2014 Oct. 2019 $852 76% 71% $93 $111 $587 $560 $— $15 $567 12.2% 8.6% 1.2x
Oaktree Mezzanine Fund III (11) Dec. 2009 Dec. 2014 1,592 nm 89 462 1,777 108 116 17 30 39 15.3 10.4 / 9.2 1.4
OCM Mezzanine Fund II Jun. 2005 Jun. 2010 1,251 nm 88 492 1,529 71 — — — 144 10.9 7.4 1.6
OCM Mezzanine Fund (12) Oct. 2001 Oct. 2006 808 nm 96 302 1,075 — — 38 — — 15.4 10.8 / 10.5 1.5
13.1% 8.8%
Emerging Markets Debt
Oaktree Emerging Market Opportunities Fund Sep. 2013 Sep. 2017 $384 nm 78% $125 $281 $142 $104 $— $22 $83 17.1% 11.7% 1.5x
Special Account F Jan. 2014 Sep. 2017 253 nm 96 80 236 86 85 — 16 47 16.6 11.9 1.4
16.9% 11.8%

Private Equity

Corporate Private Equity
Oaktree European Principal Fund IV (7)(10)(13) Jul. 2017 Jul. 2022 €1,119 77% 63% €(22) €2 €674 €1,085 €— €— €722 nm nm 1.0x
Oaktree European Principal Fund III (10) Nov. 2011 Nov. 2016 €3,164 nm 85 €2,248 €1,533 €3,464 €2,682 €— €437 €2,222 18.9% 12.9% 2.0
OCM European Principal Opportunities Fund II (10) Dec. 2007 Dec. 2012 €1,759 nm 100 €354 €1,866 €220 €584 €29 €— €729 8.0 3.9 1.4
OCM European Principal Opportunities Fund Mar. 2006 Mar. 2009 $495 nm 96 $454 $927 $— $— $87 $— $— 11.7 8.9 2.1
13.3% 8.8%
 
     
As of March 31, 2018
Investment Period Total Committed Capital   %

Invested (1)

   %

Drawn (2)

   Fund Net Income Since Inception   Distri-

butions Since Inception

   Net Asset Value   Manage-

ment Fee-gener-

ating AUM

   Incentive Income Recog-
nized (Non-GAAP)		   Accrued Incentives (Fund Level) (3)   Unreturned Drawn Capital Plus Accrued Preferred Return (4)   IRR Since

Inception (5)

   Multiple of Drawn Capital (6)
Start Date End Date

Gross

   Net
(in millions)
 
Oaktree Power Opportunities Fund IV Nov. 2015 Nov. 2020 $1,106 81% 77% $58 $1 $904 $1,078 $— $— $923 11.5% 6.0% 1.1x
Oaktree Power Opportunities Fund III Apr. 2010 Apr. 2015 1,062 nm 66 556 651 610 361 24 80 270 23.0 15.1 1.9
Legacy funds (8) Various Various 1,470 nm 63 1,689 2,616 — — 123 — — 35.1 27.4 2.8
34.5% 26.2%
Special Situations
Oaktree Special Situations Fund (7) Nov. 2015 Nov. 2018 $1,377 88% 53% $205 $160 $777 $1,271 $— $40 $627 40.0% 22.7% 1.4x
Other funds:
Oaktree Principal Fund V Feb. 2009 Feb. 2015 $2,827 nm 91% $456 $1,730 $1,312 $1,435 $50 $— $2,086 7.3% 3.2% 1.3x
Special Account C Dec. 2008 Feb. 2014 505 nm 91 199 423 236 246 21 — 262 10.4 7.2 1.5
OCM Principal Opportunities Fund IV Oct. 2006 Oct. 2011 3,328 nm 100 3,052 6,156 224 — 553 43 — 12.5 9.1 2.1
Legacy funds (8) Various Various 3,701 nm 100 2,710 6,404 7 — 407 1 — 14.4 11.1 1.8
13.1% 9.3%

Real Assets

Real Estate
Oaktree Real Estate Opportunities Fund VII (13)(14) Jan. 2016 Jan. 2020 $2,921 66% 20% $259 $239 $604 $2,634 $— $50 $371 nm nm 1.7x
Oaktree Real Estate Opportunities Fund VI Aug. 2012 Aug. 2016 2,677 nm 100 1,324 2,104 1,897 1,461 70 186 1,442 15.3% 10.3% 1.6
Oaktree Real Estate Opportunities Fund V Mar. 2011 Mar. 2015 1,283 nm 100 991 2,018 256 136 140 49 — 17.4 12.9 1.9
Special Account D Nov. 2009 Nov. 2012 256 nm 100 199 419 44 — 15 4 — 14.6 12.6 1.8
Oaktree Real Estate Opportunities Fund IV Dec. 2007 Dec. 2011 450 nm 100 383 766 67 62 59 13 — 15.7 10.6 2.0
Legacy funds (8) Various Various 2,341 nm 99 2,010 4,324 2 — 232 — — 15.2 11.9 1.9
15.5% 11.9%
 
Oaktree Real Estate Debt Fund II (9)(13) Mar. 2017 Mar. 2020 $1,627 47% 10% $15 $52 $156 $837 $— $2 $146 nm nm 1.1x
Oaktree Real Estate Debt Fund Sep. 2013 Oct. 2016 1,112 nm 81 166 581 487 594 10 14 362 23.1% 17.3% 1.2
Oaktree PPIP Fund (15) Dec. 2009 Dec. 2012 2,322 nm 48 457 1,570 — — 47 — — 28.2 n/a 1.4
 
Special Account G (Real Estate Income) (9)(13) Oct. 2016 Oct. 2020 $615 66% 66% $45 $46 $404 $384 $— $7 $389 nm nm 1.1
 
Infrastructure
Highstar Capital IV (16) Nov. 2010 Nov. 2016 $2,000 nm 100% $437 $696 $1,741 $1,336 $— $— $1,974 11.0% 6.7% 1.4x
29,516 (10) 1,761 (10)
Other (17) 8,187 7
Total (18) $37,703 $1,768
 
(1)     For our incentive-creating closed-end funds in their investment periods, this percentage equals invested capital divided by committed capital. Invested capital for this purpose is the sum of capital drawn from fund investors plus net borrowings, if any, outstanding, under a fund-level credit facility where such borrowings were made in lieu of drawing capital from fund investors.
(2) Represents capital drawn from fund investors, net of distributions to such investors of uninvested capital, divided by committed capital. The aggregate change in drawn capital for the three months ended March 31, 2018 was $0.9 billion.
(3) Accrued incentives (fund level) exclude non-GAAP incentive income previously recognized.
(4) Unreturned drawn capital plus accrued preferred return reflects the amount the fund needs to distribute to its investors as a return of capital and a preferred return (as applicable) before Oaktree is entitled to receive incentive income (other than tax distributions) from the fund.
(5) The internal rate of return (“IRR”) is the annualized implied discount rate calculated from a series of cash flows. It is the return that equates the present value of all capital invested in an investment to the present value of all returns of capital, or the discount rate that will provide a net present value of all cash flows equal to zero. Fund-level IRRs are calculated based upon the actual timing of cash contributions/distributions to investors and the residual value of such investor’s capital accounts at the end of the applicable period being measured. Gross IRRs reflect returns before allocation of management fees, expenses and any incentive allocation to the fund’s general partner. To the extent material, gross returns include certain transaction, advisory, directors or other ancillary fees (“fee income”) paid directly to us in connection with our funds’ activities (we credit all such fee income back to the respective fund(s) so that our funds’ investors share pro rata in the fee income’s economic benefit). Net IRRs reflect returns to non-affiliated investors after allocation of management fees, expenses and any incentive allocation to the fund’s general partner.
(6) Multiple of drawn capital is calculated as drawn capital plus gross income and, if applicable, fee income before fees and expenses divided by drawn capital.
(7) Fund data include the performance of the main fund and any associated fund-of-one accounts, except the gross and net IRRs presented reflect only the performance of the main fund. Certain fund-of-one accounts pay management fees based on cost basis, rather than committed capital.
(8) Legacy funds represent certain predecessor funds within the relevant strategy or product that have substantially or completely liquidated their assets, including funds managed by certain Oaktree investment professionals while employed at the Trust Company of the West prior to Oaktree’s founding in 1995. When these employees joined Oaktree upon, or shortly after, its founding, they continued to manage the fund through the end of its term pursuant to a sub-advisory relationship between the Trust Company of the West and Oaktree.
(9) Management fees during the investment period are calculated on drawn capital or cost basis, rather than committed capital. As a result, as of March 31, 2018 management fee-generating AUM included only that portion of committed capital that had been drawn.
(10) Aggregate IRRs or totals are based on the conversion of cash flows or amounts, respectively, from euros to USD using the March 31, 2018 spot rate of $1.23.
(11) The fund’s partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. The net IRR for Class A interests was 10.4% and Class B interests was 9.2%. The combined net IRR for Class A and Class B interests was 9.8%.
(12) The fund’s partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. The net IRR for Class A interests was 10.8% and Class B interests was 10.5%. The combined net IRR for the Class A and Class B interests was 10.6%.
(13) The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through March 31, 2018 was less than 24 months.
(14) A portion of this fund pays management fees based on drawn, rather than committed, capital.
(15) Due to differences in the allocation of income and expenses to this fund’s two primary limited partners, the U.S. Treasury and Oaktree PPIP Private Fund, a combined net IRR is not presented. Of the $2,322 million in capital commitments, $1,161 million related to the Oaktree PPIP Private Fund, whose gross and net IRR were 24.7% and 18.6%, respectively.
(16) The fund follows the American-style distribution waterfall, whereby the general partner may receive an incentive allocation as soon as it has returned the drawn capital and paid a preferred return on the fund’s realized investments (i.e., on a deal-by-deal basis). However, such cash distributions of incentives may be subject to repayment, or clawback. As of March 31, 2018, Oaktree had not recognized any incentive income from this fund. The accrued incentives (fund level) for this fund represents Oaktree’s effective 8% of the potential incentives generated by this fund in accordance with the terms of the Highstar acquisition.
(17) This includes our closed-end Senior Loan funds, CLOs, a non-Oaktree fund and certain separate accounts and co-investments.
(18) The total excludes one closed-end fund with management fee-generating AUM of $135 million as of March 31, 2018, which has been included as part of the Strategic Credit strategy within the evergreen funds table.
 
 

Open-end Funds

 
    Manage-

ment Fee-gener-

ating AUM

as of

Mar. 31, 2018

   Twelve Months Ended

March 31, 2018

   Since Inception through March 31, 2018
Strategy Inception Rates of Return (1) Annualized Rates of Return (1)   Sharpe Ratio
Oaktree   Rele-

vant Bench-

mark

Oaktree   Rele-

vant Bench-

mark

Oaktree Gross   Rele-

vant Bench-

mark

Gross   Net Gross   Net

 

(in millions)

Credit

High Yield Bonds
U.S. High Yield Bonds 1986 $ 14,741 3.0 % 2.5 % 3.7 % 9.1 % 8.6 % 8.3 % 0.79 0.57
Global High Yield Bonds 2010 3,898 3.6 3.1 4.0 7.0 6.5 6.7 1.11 1.09
European High Yield Bonds 1999 890 5.2 4.6 5.3 8.0 7.4 6.3 0.72 0.46
 
Convertibles
U.S. Convertibles 1987 2,205 7.2 6.7 10.6 9.3 8.8 8.3 0.50 0.38
Non-U.S. Convertibles 1994 1,449 5.2 4.6 2.2 8.2 7.7 5.5 0.79 0.40
High Income Convertibles 1989 987 5.4 4.8 3.7 11.2 10.4 8.1 1.06 0.60
 
Senior Loans
U.S. Senior Loans 2008 672 4.9 4.3 4.6 6.0 5.5 5.3 1.13 0.67
European Senior Loans 2009 1,661 2.4 1.9 3.0 7.6 7.1 8.3 1.66 1.69
 
Multi-Strategy Credit
Multi-Strategy Credit (2) Various 2,890 nm nm nm nm nm nm nm nm
 

Listed Equities

Emerging Markets Equities
Emerging Markets Equities 2011   4,055 26.0 25.0 24.9 3.8 3.0 2.7 0.19 0.14

 

Total

$ 33,448
 
(1)     Returns represent time-weighted rates of return, including reinvestment of income, net of commissions and transaction costs. The returns for Relevant Benchmarks are presented on a gross basis.
(2) Includes Global Credit Fund and individual accounts across various strategies with different investment mandates. As such, a combined performance measure is not considered meaningful (“nm”).
 
 

Evergreen Funds

 
    As of March 31, 2018   Twelve Months Ended March 31, 2018   Since Inception through
March 31, 2018
AUM   Manage-

ment

Fee-gener-

ating AUM

   Accrued Incen-

tives (Fund Level)

Strategy Inception Rates of Return (1) Annualized Rates

of Return (1)

Gross   Net Gross   Net
(in millions)

Credit

Private/Alternative Credit
Strategic Credit (2) 2012 $5,044 $4,709 $3 12.8% 10.1% 9.4% 6.9%
 
Distressed Debt
Value Opportunities 2007 1,135 1,056 5 13.0 10.1 9.7 5.9
 
Emerging Markets Debt
Emerging Markets Debt (3) 2015 771 207 8 13.4 10.3 15.5 12.1
 

Listed Equities

Value/Other Equities
Value Equities (4) 2012 475 452 — 25.1 18.1 20.9 15.1
6,424 16
Other (5) 686 7
Restructured funds — 5
Total (2) $7,110 $28
 
(1)     Returns represent time-weighted rates of return.
(2) Includes our publicly-traded BDCs and one closed-end fund with $141 million and $135 million of AUM and management fee-generating AUM, respectively. The rates of return reflect the performance of a composite of certain evergreen accounts and exclude our publicly-traded BDCs.
(3) Includes the Emerging Markets Debt Total Return and Emerging Markets Opportunities products. The rates of return reflect the performance of a composite of accounts for the Emerging Markets Debt Total Return product, including a single account with a December 2014 inception date.
(4) Includes performance of a proprietary fund with an initial capital commitment of $25 million since its inception in May 2012.
(5) Includes the Emerging Markets Absolute Return product and certain Real Estate and Multi-Strategy Credit accounts.
 

GLOSSARY

Accrued incentives (fund level) represents the incentive income that would be paid to us if the funds were liquidated at their reported values as of the date of the financial statements. Incentives created (fund level) refers to the gross amount of potential incentives generated by the funds during the period, and includes our pro-rata portion of performance fees attributable to our minority interest in DoubleLine earned in the period. We refer to the amount of accrued incentives recognized as revenue by us as incentive income. Amounts recognized by us as incentive income are no longer included in accrued incentives (fund level), the term we use for remaining fund-level accruals. Incentives created (fund level), incentive income and accrued incentives (fund level) are presented gross, without deduction for direct compensation expense that is owed to our investment professionals associated with the particular fund when we earn the incentive income. We call that charge “incentive income compensation expense.” Incentive income compensation expense varies by the investment strategy and vintage of the particular fund, among many factors.

Adjusted net income (“ANI”) is a measure of profitability for our investment management business. The components of revenues (“adjusted revenues”) and expenses (“adjusted expenses”) used in the determination of ANI do not give effect to the consolidation of the funds that we manage. Adjusted revenues include investment income (loss) that is classified in other income (loss) in the GAAP statements of operations, and management fees and incentive income include the portion of the earnings from management fees and performance fees, respectively, attributable to our 20% ownership interest in DoubleLine, which are reflected as investment income in our GAAP statements of operations. In addition, ANI excludes the effect of (a) non-cash equity-based compensation expense related to unit grants made before our initial public offering, (b) acquisition-related items, including amortization of intangibles and changes in the contingent consideration liability, (c) income taxes, (d) other income or expenses applicable to OCG or its Intermediate Holding Companies, and (e) the adjustment for non-controlling interests. Moreover, gains and losses resulting from foreign-currency transactions and hedging activities under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period. For ANI, unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged, and foreign-currency transaction gains and losses are included in other income (expense), net. Incentive income and incentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP statements of operations, for which the revenue standard is probable that significant reversal will not occur and the expense standard is probable and reasonably estimable. CLO investments are carried at fair value for GAAP reporting, whereas for ANI, they are carried at amortized cost, subject to any impairment charges. Investment income on CLO investments is recognized in ANI when cash distributions are received. Cash distributions are allocated between income and return of capital based on the effective yield method. In periods prior to 2018, adjusted revenues and adjusted expenses reflected Oaktree’s proportionate economic interest in Highstar, whereby amounts received for contractually reimbursable costs from a legacy Highstar fund were classified as expenses for ANI and as other income under GAAP. The legacy Highstar fund stopped paying management fees in 2017. As a result, we will no longer be receiving such income. ANI is calculated at the Operating Group level.

Adjusted net income–OCG, or adjusted net income per Class A unit, a non-GAAP performance measure, is calculated to provide Class A unitholders with a measure that shows the portion of ANI attributable to their ownership. Adjusted net income-OCG represents ANI including the effect of (a) the OCGH non-controlling interest, (b) other income or expenses, such as income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) any Operating Group income taxes attributable to OCG. Two of our Intermediate Holding Companies incur federal and state income taxes for their shares of Operating Group income. Generally, those two corporate entities hold an interest in the Operating Group’s management fee-generating assets and a small portion of its incentive and investment income-generating assets. As a result, historically our fee-related earnings generally have been subject to corporate-level taxation, and most of our incentive income and other investment income generally has not been subject to corporate-level taxation. Thus, the blended effective income tax rate has generally tended to be higher to the extent that fee-related earnings represented a larger proportion of our ANI. A variety of other factors affect income tax expense and the effective income tax rate, and there can be no assurance that this historical relationship will continue going forward.

Assets under management (“AUM”) generally refers to the assets we manage and equals the NAV of the assets we manage, the leverage on which management fees are charged, the undrawn capital that we are entitled to call from investors in our funds pursuant to their capital commitments, and our pro-rata portion of AUM managed by DoubleLine in which we hold a minority ownership interest. For our CLOs, AUM represents the aggregate par value of collateral assets and principal cash, for our publicly-traded BDCs, gross assets (including assets acquired with leverage), net of cash, and for DoubleLine funds, NAV. Our AUM includes amounts for which we charge no management fees.

  • Management fee-generating assets under management (“management fee-generating AUM”) is a forward-looking metric and generally reflects the beginning AUM on which we will earn management fees in the following quarter, as well as our pro-rata portion of the fee basis of DoubleLine’s AUM. Our closed-end funds typically pay management fees based on committed capital, drawn capital or cost basis during the investment period, without regard to changes in NAV, and during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund. The annual management fee rate generally remains unchanged from the investment period through the liquidation period. Our open-end and evergreen funds typically pay management fees based on their NAV, our CLOs pay management fees based on the aggregate par value of collateral assets and principal cash, as defined in the applicable CLO indentures, our publicly-traded BDCs pay management fees based on gross assets (including assets acquired with leverage), net of cash, and DoubleLine funds typically pay management fees based on NAV. As compared with AUM, management fee-generating AUM generally excludes the following:
    • Differences between AUM and either committed capital or cost basis for most closed-end funds, other than for closed-end funds that pay management fees based on NAV and leverage, as applicable;
    • Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods;
    • Undrawn capital commitments to funds for which management fees are based on drawn capital, NAV or cost basis;
    • Oaktree’s general partner investments in management fee-generating funds;
    • Funds that are no longer paying management fees and co-investments that pay no management fees; and
    • Differences between AUM and fee basis for DoubleLine funds.
  • Incentive-creating assets under management (“incentive-creating AUM”) refers to the AUM that may eventually produce incentive income. It generally represents the NAV of our funds for which we are entitled to receive an incentive allocation, excluding CLOs and investments made by us and our employees and directors (which are not subject to an incentive allocation), gross assets (including assets acquired with leverage), net of cash, for our publicly-traded BDCs, and our pro-rata portion of DoubleLine’s incentive-creating AUM. All funds for which we are entitled to receive an incentive allocation are included in incentive-creating AUM, regardless of whether or not they are currently above their preferred return or high-water mark and therefore generating incentives. Incentive-creating AUM does not include undrawn capital commitments.

Consolidated funds refers to the funds and CLOs that Oaktree is required to consolidate as of the respective reporting date.

Distributable earnings is a non-GAAP performance measure derived from our non-GAAP results that we use to measure our earnings at the Operating Group level without the effects of the consolidated funds for the purpose of, among other things, assisting in the determination of equity distributions from the Operating Group. However, the declaration, payment and determination of the amount of equity distributions, if any, is at the sole discretion of our board of directors, which may change our distribution policy at any time.

Distributable earnings and distributable earnings revenues differ from ANI in that they exclude investment income or loss and include the receipt of investment income or loss from distributions by our investments in funds. Additionally, any impairment charges on our CLO investments included in ANI are, for distributable earnings purposes, amortized over the remaining investment period of the respective CLO, in order to align with the timing of expected cash flows. In addition, distributable earnings differs from ANI in that make-whole premium charges related to the repayment of debt are included in ANI, but for distributable earnings purposes are amortized through the original maturity date of the repaid debt. Finally, distributable earnings differs from ANI in that it is net of Operating Group income taxes and excludes non-cash equity-based compensation expense.

Distributable earnings–OCG, or distributable earnings per Class A unit, a non-GAAP performance measure, is calculated to provide Class A unitholders with a measure that shows the portion of distributable earnings attributable to their ownership. Distributable earnings-OCG represents distributable earnings, including the effect of (a) the OCGH non-controlling interest, (b) expenses, such as current income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) amounts payable under a tax receivable agreement. The income tax expense included in distributable earnings-OCG represents the implied current provision for income taxes calculated using an approach similar to that which is used in calculating the income tax provision for adjusted net income-OCG.

Economic net income (“ENI”) is a non-GAAP performance measure that we use to evaluate the financial performance of our business by applying the mark-to-market approach to incentive income. The mark-to-market approach followed by ENI recognizes incentive income as if the funds were liquidated at their reported values as of the date of the financial statements, as compared to the GAAP criteria that it is probable that a significant reversal will not occur and the ANI criteria that the underlying fund distributions are known or knowable. ENI is computed by adjusting ANI for the change in accrued incentives (fund level), net of associated incentive income compensation expense, during the period.

Economic net income revenues is a non-GAAP measure applying the mark-to-market approach, instead of the GAAP revenue recognition approach, for incentive income, and reflects the adjustments described above under the definition of ANI.

Economic net income–OCG, or economic net income per Class A unit, a non-GAAP performance measure, is calculated to provide Class A unitholders with a measure that shows the portion of ENI attributable to their ownership. Economic net income-OCG represents ENI, including the effect of (a) the OCGH non-controlling interest, (b) other income or expenses, such as income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) any Operating Group income taxes attributable to OCG. The income tax expense included in economic net income-OCG represents the implied provision for income taxes calculated using an approach similar to that which is used in calculating the income tax provision for adjusted net income-OCG.

Equity value units (“EVUs”) represent special limited partnership units in Oaktree Capital Group Holdings, L.P. (“OCGH”) that entitle the holder the right to receive a one-time special distribution that will be settled in OCGH units based on value created during a specified period (“Term”) in excess of a fixed “Base Value.” The Base Value will be reduced by certain distributions and profit sharing payments received by the holder and the full value of certain OCGH units granted. The value created will be measured on a per unit basis, based on Class A unit trading prices and certain components of quarterly distributions with respect to the period during the Term. EVUs also give the holder the right, subject to service vesting and Oaktree performance relative to the accreting Base Value, to receive certain quarterly distributions from OCGH. EVUs do not entitle the holder to any voting rights.

Fee-related earnings (“FRE”) is a non-GAAP performance measure that we use to monitor the baseline earnings of our business. FRE is derived from our non-GAAP results and is comprised of management fees (“fee-related earnings revenues”) less operating expenses other than incentive income compensation expense and non-cash equity-based compensation expense. FRE is considered baseline because it excludes all non-management fee revenue sources and applies all cash compensation and benefits other than incentive income compensation expense, as well as all general and administrative expenses, to management fees, even though those expenses also support the generation of incentive and investment income. FRE is presented before income taxes.

Fee-related earnings–OCG, or fee-related earnings per Class A unit, is a non-GAAP performance measure calculated to provide Class A unitholders with a measure that shows the portion of FRE attributable to their ownership. Fee-related earnings–OCG represents FRE including the effect of (a) the OCGH non-controlling interest, (b) other income or expenses, such as income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) any Operating Group income taxes attributable to OCG. Fee-related earnings–OCG income taxes is calculated excluding any incentive income or investment income (loss).

Incentive income is generally recognized for our closed-end funds only after the fund has distributed all contributed capital plus an annual preferred return (commonly referred to as the European-style waterfall) and, for our evergreen funds, on an annual basis up to 20% of the year’s profits, subject to a high-water mark or hurdle rate. For non-GAAP reporting, incentive income also includes the portion of the performance fees attributable to our minority equity interest in DoubleLine earned in the period.

Intermediate Holding Companies collectively refers to the subsidiaries wholly owned by us.

Invested capital reflects deployed capital, whether involving drawn or recycled equity capital, or borrowings from fund-level credit facilities. This metric is used in connection with incentive-creating closed-end funds and certain evergreen funds.

Management fees are recognized over the period in which our investment advisory services are performed and for non-GAAP reporting include the portion of the earnings from management fees attributable to our minority equity interest in DoubleLine.

Net asset value (“NAV”) refers to the value of all the assets of a fund (including cash and accrued interest and dividends) less all liabilities of the fund (including accrued expenses and any reserves established by us, in our discretion, for contingent liabilities) without reduction for accrued incentives (fund level) because they are reflected in the partners’ capital of the fund.

Oaktree, OCG, we, us, our or the Company refers to Oaktree Capital Group, LLC and, where applicable, its subsidiaries and affiliates.

Oaktree Operating Group (“Operating Group”) refers collectively to the entities in which we have a minority economic interest and indirect control that either (i) act as or control the general partners and investment advisers of our funds or (ii) hold interests in other entities or investments generating income for us.

Relevant Benchmark refers, with respect to:

  • our U.S. High Yield Bond product, to the Citigroup U.S. High Yield Cash-Pay Capped Index;
  • our Global High Yield Bond product, to an Oaktree custom global high yield index that represents 60% ICE BofAML High Yield Master II Constrained Index and 40% ICE BofAML Global Non-Financial High Yield European Issuers 3% Constrained, ex-Russia Index – USD Hedged from inception through December 31, 2012, and the ICE BofAML Non-Financial Developed Markets High Yield Constrained Index – USD Hedged thereafter;
  • our European High Yield Bond product, to the ICE BofAML Global Non-Financial High Yield European Issuers excluding Russia 3% Constrained Index (USD Hedged);
  • our U.S. Senior Loan product (with the exception of the closed-end funds), to the Credit Suisse Leveraged Loan Index;
  • our European Senior Loan product, to the Credit Suisse Western European Leveraged Loan Index (EUR Hedged);
  • our U.S. Convertible Securities product, to an Oaktree custom convertible index that represents the Credit Suisse Convertible Securities Index from inception through December 31, 1999, the Goldman Sachs/Bloomberg Convertible 100 Index from January 1, 2000 through June 30, 2004, and the ICE BofAML All U.S. Convertibles Index thereafter;
  • our non-U.S. Convertible Securities product, to an Oaktree custom non-U.S. convertible index that represents the JACI Global ex-U.S. (Local) Index from inception through December 31, 2014 and the Thomson Reuters Global Focus ex-U.S. (USD hedged) Index thereafter;
  • our High Income Convertible Securities product, to the Citigroup U.S. High Yield Market Index; and
  • our Emerging Markets Equities product, to the Morgan Stanley Capital International Emerging Markets Index (Net).

Sharpe Ratio refers to a metric used to calculate risk-adjusted return. The Sharpe Ratio is the ratio of excess return to volatility, with excess return defined as the return above that of a riskless asset (based on the three-month U.S. Treasury bill, or for our European Senior Loan product, the Euro Overnight Index Average) divided by the standard deviation of such return. A higher Sharpe Ratio indicates a return that is higher than would be expected for the level of risk compared to the risk-free rate.

Uncalled capital commitments represent undrawn capital commitments by partners (including Oaktree as general partner) of our closed-end funds through their investment periods and certain evergreen funds. If a fund distributes capital during its investment period, that capital is typically subject to possible recall, in which case it is included in uncalled capital commitments.

EXHIBIT A

Use of Non-GAAP Financial Information

Oaktree discloses certain non-GAAP financial measures in this earnings release. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are presented below. Management makes operating decisions and assesses the performance of Oaktree’s business based on these non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, net income, net income per Class A unit or other financial measures presented in accordance with GAAP.

Reconciliation of GAAP to Non-GAAP Results

The following table reconciles net income attributable to Oaktree Capital Group, LLC to adjusted net income, fee-related earnings and distributable earnings.

 
  Three Months Ended
March 31,
2018   2017
(in thousands)
Net income attributable to Oaktree Capital Group, LLC $ 52,732 $ 54,915
Incentive income (1) 83,581 38,536
Incentive income compensation (1) (45,627 ) (38,536 )
Investment income (2) (10,487 ) (4,372 )
Equity-based compensation (3) 1,628 2,432
Foreign-currency hedging (4) (2,122 ) (1,996 )
Acquisition-related items (5) 1,574 1,602
Income taxes (6) 6,397 12,302
Non-Operating Group (income) expenses (7) (20 ) 232
Non-controlling interests (7)   72,707     96,049  
Adjusted net income 160,363 161,164
Incentive income (235,557 ) (147,442 )
Incentive income compensation 130,442 73,144
Investment income (12,652 ) (42,538 )
Equity-based compensation (8) 12,993 12,521
Interest expense, net of interest income 3,410 6,971
Other (income) expense, net   (512 )   (41 )
Fee-related earnings 58,487 63,779
Incentive income 235,557 147,442
Incentive income compensation (130,442 ) (73,144 )
Receipts of investment income (9) 38,760 29,095
Interest expense, net of interest income (3,410 ) (6,971 )
Other (income) expense, net (2,233 ) 41
Operating Group income taxes   (2,746 )   (1,021 )
Distributable earnings $ 193,973   $ 159,221  
 
(1)     This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG.
(2) This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs which under GAAP are marked-to-market but for ANI are accounted for at amortized cost, subject to impairment.
(3) This adjustment adds back the effect of equity-based compensation expense related to unit grants made before our initial public offering, which is excluded from adjusted net income and fee-related earnings because it is a non-cash charge that does not affect our financial position.
(4) This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between adjusted net income and net income attributable to OCG.
(5) This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability, which are excluded from adjusted net income.
(6) Because adjusted net income and fee-related earnings are pre-tax measures, this adjustment adds back the effect of income tax expense.
(7) Because adjusted net income and fee-related earnings are calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or non-controlling interests.
(8) This adjustment adds back the effect of equity-based compensation expense related to unit grants made after our initial public offering, which is excluded from fee-related earnings because it is non-cash in nature and does not impact our ability to fund our operations.
(9) This adjustment reflects the portion of distributions received from funds characterized as receipts of investment income or loss. In general, the income or loss component of a distribution from a fund is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends.
 

The following table reconciles net income attributable to Oaktree Capital Group, LLC to adjusted net income-OCG, fee-related earnings-OCG and distributable earnings-OCG.

 
Three Months Ended
March 31,
2018   2017
(in thousands)
Net income attributable to Oaktree Capital Group, LLC $ 52,732 $ 54,915
Incentive income attributable to OCG (1) 36,346 15,702
Incentive income compensation attributable to OCG (1) (19,840 ) (15,702 )
Investment income attributable to OCG (2) (4,559 ) (1,781 )
Equity-based compensation attributable to OCG (3) 708 991
Foreign-currency hedging attributable to OCG (4) (923 ) (813 )
Acquisition-related items attributable to OCG (5) 684 652
Income taxes (6) (2,007 ) —
Non-controlling interests attributable to OCG (5)   (238 )   (223 )
Adjusted net income-OCG (7) 62,903 53,741
Incentive income attributable to OCG (102,432 ) (60,078 )
Incentive income compensation attributable to OCG 56,723 29,804
Investment income attributable to OCG (5,502 ) (17,334 )
Equity-based compensation attributable to OCG (8) 5,650 5,104
Interest expense, net of interest income attributable to OCG 1,256 2,768
Other (income) expense attributable to OCG (223 ) (16 )
Non-fee-related earnings income taxes attributable to OCG (9)   5,894     7,911  
Fee-related earnings-OCG (7) 24,269 21,900
Incentive income attributable to OCG 102,432 60,078
Incentive income compensation attributable to OCG (56,723 ) (29,804 )
Receipts of investment income attributable to OCG 16,855 11,856
Interest expense, net of interest income attributable to OCG (1,256 ) (2,768 )
Other (income) expense attributable to OCG (971 ) 16
Non-fee-related earnings income taxes attributable to OCG (5,894 ) (7,911 )
Distributable earnings-OCG income taxes (333 ) (4,112 )
Tax receivable agreement (3,858 ) (5,363 )
Income taxes of Intermediate Holding Companies   5,657     11,281  
Distributable earnings-OCG (7) $ 80,178   $ 55,173  
 
(1)     This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income-OCG and net income attributable to OCG.
(2) This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs which under GAAP are marked-to-market but for ANI are accounted for at amortized cost, subject to impairment.
(3) This adjustment adds back the effect of equity-based compensation expense attributable to OCG related to unit grants made before our initial public offering, which is excluded from adjusted net income-OCG and fee-related earnings-OCG because it is a non-cash charge that does not affect our financial position.
(4) This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between adjusted net income-OCG and net income attributable to OCG.
(5) This adjustment adds back the effect of (a) acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability and (b) non-controlling interests, which are both excluded from ANI.
(6) This adjustment relates to differences in income taxes between adjusted net income-OCG and net income attributable to OCG.
(7) Adjusted net income-OCG, fee-related earnings-OCG and distributable earnings-OCG are calculated to evaluate the portion of adjusted net income, fee-related earnings and distributable earnings attributable to Class A unitholders. These measures are net of income taxes and other income or expenses applicable to OCG or its Intermediate Holding Companies. Reconciliations of fee-related earnings to fee-related earnings-OCG and distributable earnings to distributable earnings-OCG are presented below.
 
            Three Months Ended
March 31,
2018   2017
(in thousands, except per unit data)
Fee-related earnings $ 58,487 $ 63,779
Fee-related earnings attributable to OCGH non-controlling interest (33,054 ) (37,788 )
Non-Operating Group expenses (207 ) (305 )
Fee-related earnings-OCG income taxes   (957 )   (3,786 )
Fee-related earnings-OCG $ 24,269   $ 21,900  
Fee-related earnings per Class A unit $ 0.36   $ 0.35  
Weighted average number of Class A units outstanding   67,918     63,022  
 
            Three Months Ended
March 31,
2018   2017
(in thousands, except per unit data)
Distributable earnings $ 193,973 $ 159,221
Distributable earnings attributable to OCGH non-controlling interest (109,624 ) (94,341 )
Non-Operating Group income (expense) 20 (232 )
Distributable earnings-OCG income taxes (333 ) (4,112 )
Tax receivable agreement   (3,858 )   (5,363 )
Distributable earnings-OCG $ 80,178   $ 55,173  
Distributable earnings per Class A unit $ 1.18   $ 0.88  
Weighted average number of Class A units outstanding   67,918     63,022  
 
(8)     This adjustment adds back the effect of equity-based compensation expense attributable to OCG related to unit grants made after our initial public offering, which is excluded from fee-related earnings-OCG, because it is non-cash in nature and does not impact our ability to fund our operations.
(9) This adjustment adds back income taxes associated with incentive income, incentive income compensation expense or investment income or loss, which are not included in the calculation of fee-related earnings-OCG.
 

The following table reconciles GAAP revenues to adjusted revenues, fee-related earnings revenues and distributable earnings revenues.

 
Three Months Ended
March 31,
2018   2017
(in thousands)
GAAP revenues $ 337,321 $ 289,585
Consolidated funds (1) 6,178 16,987
Incentive income (2) 83,581 38,536
Investment income (3)   24,076     46,079  
Adjusted revenues 451,156 391,187
Incentive income (235,557 ) (147,442 )
Investment income   (12,652 )   (42,538 )
Fee-related earnings revenues 202,947 201,207
Incentive income 235,557 147,442
Receipts of investment income   38,760     29,095  
Distributable earnings revenues $ 477,264   $ 377,744  
 
(1)     This adjustment represents amounts attributable to the consolidated funds that were eliminated in consolidation, the reclassification of gains and losses related to foreign-currency hedging activities from general and administrative expense to revenues, the elimination of non-controlling interests from adjusted revenues, and certain compensation and administrative related expense reimbursements netted with expenses.
(2) This adjustment adds back the effect of timing differences associated with the recognition of incentive income between adjusted revenues and GAAP revenues.
(3) This adjustment reclassifies consolidated investment income from other income (loss) to revenues and adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between adjusted revenues and GAAP revenues.
 

The following table reconciles net income attributable to Oaktree Capital Group, LLC to adjusted net income and economic net income.

 
Three Months Ended
March 31,
2018   2017
(in thousands)
Net income attributable to Oaktree Capital Group, LLC $ 52,732 $ 54,915
Reconciling adjustments (1)   107,631     106,249
Adjusted net income 160,363 161,164
Change in accrued incentives (fund level), net of associated incentive income compensation (2)   (52,817 )   22,487
Economic net income (3) $ 107,546   $ 183,651
 
(1)     Please refer to the table on page 27 for a detailed reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income.
(2) The change in accrued incentives (fund level), net of associated incentive income compensation expense, represents the difference between (a) our recognition of net incentive income and (b) the incentive income generated by the funds during the period that would be due to us if the funds were liquidated at their reported values as of that date, net of associated incentive income compensation expense.
(3) Please see Glossary for the definition of economic net income.
 

The following table reconciles net income attributable to Oaktree Capital Group, LLC to adjusted net income-OCG and economic net income-OCG.

 
  Three Months Ended
March 31,
2018   2017
(in thousands)
Net income attributable to Oaktree Capital Group, LLC $ 52,732 $ 54,915
Reconciling adjustments (1)   10,171     (1,174 )
Adjusted net income-OCG (2) 62,903 53,741
Change in accrued incentives (fund level), net of associated incentive income compensation attributable to OCG (22,967 ) 9,164
Economic net income-OCG income taxes (4,278 ) (10,542 )
Income taxes-OCG   6,851     11,697  
Economic net income-OCG (2) $ 42,509   $ 64,060  
 
(1)   Please refer to the table on page 28 for a detailed reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income-OCG.
(2) Adjusted net income-OCG and economic net income-OCG are calculated to evaluate the portion of adjusted net income and economic net income attributable to Class A unitholders. These measures are net of income taxes and other income or expenses applicable to OCG or its Intermediate Holding Companies. A reconciliation of economic net income to economic net income-OCG is presented below.
 
           
Three Months Ended
March 31,
2018   2017
(in thousands, except per unit data)
Economic net income $ 107,546 $ 183,651
Economic net income attributable to OCGH non-controlling interest (60,779 ) (108,817 )
Non-Operating Group income (expense) 20 (232 )
Economic net income-OCG income taxes   (4,278 )   (10,542 )
Economic net income-OCG $ 42,509   $ 64,060  
Economic net income per Class A unit $ 0.63   $ 1.02  
Weighted average number of Class A units outstanding   67,918     63,022  
 

The following table reconciles GAAP revenues to adjusted revenues and economic net income revenues.

 
Three Months Ended
March 31,
2018   2017
(in thousands)
GAAP revenues $ 337,321 $ 289,585
Consolidated funds (1) 6,178 16,987
Incentive income (2) 83,581 38,536
Investment income (3)   24,076     46,079  
Adjusted revenues 451,156 391,187
Incentives created 111,185 201,767
Incentive income   (235,557 )   (147,442 )
Economic net income revenues $ 326,784   $ 445,512  
 
(1)     This adjustment represents amounts attributable to the consolidated funds that were eliminated in consolidation, the reclassification of gains and losses related to foreign-currency hedging activities from general and administrative expense to revenues, the elimination of non-controlling interests from adjusted revenues, and certain compensation and administrative related expense reimbursements netted with expenses.
(2) This adjustment adds back the effect of timing differences associated with the recognition of incentive income between adjusted revenues and GAAP revenues.
(3) This adjustment reclassifies consolidated investment income from other income (loss) to revenues and adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between adjusted revenues and GAAP revenues.
 

The following tables reconcile GAAP consolidated financial data to non-GAAP data:

 
As of or for the Three Months
Ended March 31, 2018
Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 185,415 $ 17,532 $ 202,947
Incentive income (1) 151,906 83,651 235,557
Investment income (1) 34,563 (21,911 ) 12,652
Total expenses (2) (251,036 ) (36,859 ) (287,895 )
Interest expense, net (3) (40,579 ) 37,169 (3,410 )
Other income, net (4) 697 (185 ) 512
Other income of consolidated funds (5) 62,832 (62,832 ) —
Income taxes (6,397 ) 6,397 —
Net income attributable to non-controlling interests in consolidated funds (10,725 ) 10,725 —
Net income attributable to non-controlling interests in consolidated subsidiaries   (73,944 )   73,944     —  
Net income attributable to Oaktree Capital Group, LLC/Adjusted net income $ 52,732   $ 107,631   $ 160,363  
 
(1)     The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $18,213 to management fees, (c) for management fees, reclassifies $1,820 of net losses related to foreign-currency hedging activities from general and administrative expense and $4,205 of expense reimbursements grossed-up for GAAP reporting, but netted with expenses for ANI, (d) for incentive income, includes $83,581 related to timing differences in the recognition of incentive income between net income attributable to OCG and adjusted net income, and (e) for investment income, includes $10,487 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2) The expense adjustment consists of (a) equity-based compensation expense of $1,628 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $1,271, (c) expenses incurred by the Intermediate Holding Companies of $207, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG and adjusted net income of $45,627, (e) acquisition-related items of $1,574, (f) $117 of net gains related to foreign-currency hedging activities, and (g) $4,205 of reimbursements grossed-up as revenues for GAAP reporting, but netted with expenses for ANI.
(3) The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4) The adjustment to other income (expense), net represents adjustments related to the reclassification of $185 in net losses related to foreign-currency hedging activities from general and administrative expense.
(5) The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.
 
 
As of or for the Three Months
Ended March 31, 2017
Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 180,928 $ 20,279 $ 201,207
Incentive income (1) 108,657 38,785 147,442
Investment income (1) 50,451 (7,913 ) 42,538
Total expenses (2) (192,562 ) (30,531 ) (223,093 )
Interest expense, net (3) (48,770 ) 41,799 (6,971 )
Other income, net (4) 4,663 (4,622 ) 41
Other income of consolidated funds (5) 70,766 (70,766 ) —
Income taxes (12,302 ) 12,302 —
Net income attributable to non-controlling interests in consolidated funds (9,692 ) 9,692 —
Net income attributable to non-controlling interests in consolidated subsidiaries   (97,224 )   97,224     —  
Net income attributable to Oaktree Capital Group, LLC/Adjusted net income $ 54,915   $ 106,249   $ 161,164  
 
(1)     The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $15,642 to management fees and $249 to incentive income, (c) for management fees, reclassifies $415 of net gains related to foreign-currency hedging activities from general and administrative expense, (d) for incentive income, includes $38,536 related to timing differences in the recognition of incentive income between net income attributable to OCG and adjusted net income, and (e) for investment income, includes $4,372 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2) The expense adjustment consists of (a) equity-based compensation expense of $2,432 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $1,457, (c) expenses incurred by the Intermediate Holding Companies of $305, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG and adjusted net income of $38,536, (e) acquisition-related items of $1,602, (f) adjustments of $4,661 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (g) $2,452 of net gains related to foreign-currency hedging activities.
(3) The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4) The adjustment to other income (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $4,661 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $41 in net gains related to foreign-currency hedging activities from general and administrative expense.
(5) The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.