Oaktree Capital Group, LLC (NYSE: OAK) today reported its unaudited financial results for the third quarter ended September 30, 2018.

Jay Wintrob, Chief Executive Officer, said, “The third quarter was highlighted by continued strong investment performance and solid fundraising of $3.4 billion in gross capital raised. Elevated closed-end fund realizations continued in the quarter, improving our outlook for incentive income over the next year or two. Importantly, we remain well positioned with ample dry powder across our investment funds and significant corporate balance sheet liquidity during this time of increasing market volatility.”

Series B Preferred Unit Issuance

On August 9, 2018, Oaktree issued 9,400,000 of its 6.550% Series B preferred units representing limited liability company interests with a liquidation preference of $25.00 per unit. The issuance resulted in $226.9 million in net proceeds to us, which will be used for general corporate purposes, including to fund investments. Distributions on the Series B preferred units, when and if declared by the board of directors of Oaktree, will be paid quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on December 17, 2018. Distributions on the Series B preferred units are non-cumulative.

Class A Unit Distribution

A distribution of $0.70 per Class A unit attributable to the third quarter of 2018 will be paid on November 13, 2018 to Class A unitholders of record at the close of business on November 5, 2018.

Series A Preferred Unit Distribution

A distribution was declared of $0.414063 per Series A preferred unit, which will be paid on December 17, 2018 to Series A preferred unitholders of record at the close of business on December 1, 2018.

Series B Preferred Unit Distribution

A distribution was declared of $0.573125 per Series B preferred unit, which will be paid on December 17, 2018 to Series B preferred unitholders of record at the close of business on December 1, 2018. The first distribution on Series B preferred units is calculated based on the date of the original issuance, reflecting a period longer than three months. Future distributions will reflect a period of three months.

Conference Call

Oaktree will host a conference call to discuss its third 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 10124801, beginning approximately one hour after the broadcast.

About Oaktree

Oaktree is a leader among global investment managers specializing in alternative investments, with $124 billion in assets under management as of September 30, 2018. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. The firm has over 900 employees and offices in 18 cities worldwide. For additional information, please visit Oaktree’s website at www.oaktreecapital.com.

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

   
As of or for the Three Months
Ended September 30,		 As of or for the Nine Months
Ended September 30,
2018   2017 2018   2017
GAAP Results: (in thousands, except per unit data or as otherwise indicated)
 
Revenues $ 241,227 $ 235,032 $ 791,831 $ 1,158,672
Net income-Class A 52,750 45,841 136,603 218,080
Net income per Class A unit 0.74 0.71 1.95 3.41
 
Non-GAAP Results: (1)
Adjusted revenues $ 320,166 $ 304,756 $ 1,044,847 $ 1,400,305
Adjusted net income 137,511 131,436 389,369 574,254
Adjusted net income per Class A unit 0.78 0.67 2.20 3.26
 
Distributable earnings revenues 319,822 282,867 1,084,141 1,360,471
Distributable earnings 147,849 119,030 456,108 567,541
Distributable earnings per Class A unit 0.88 0.74 2.74 3.28
 
Fee-related earnings revenues 197,056 203,440 595,938 607,361
Fee-related earnings 56,286 76,579 165,648 209,359
Fee-related earnings per Class A unit 0.34 0.42 0.99 1.13
 
Economic net income revenues 380,644 385,843 1,048,918 1,246,873
Economic net income 153,809 164,677 383,403 527,603
Economic net income per Class A unit 0.86 0.89 2.18 2.96
 
Weighted Average Units:
OCGH 85,775 91,864 86,675 91,750
Class A 71,369 64,394 70,167 63,875
Total 157,144 156,258 156,842 155,625
 
Operating Metrics: (1)

Assets under management (in millions):

Assets under management $ 123,516 $ 122,589 $ 123,516 $ 122,589
Management fee-generating assets under management 100,693 103,244 100,693 103,244
Incentive-creating assets under management 33,626 31,564 33,626 31,564
Uncalled capital commitments 21,435 21,202 21,435 21,202
Accrued incentives (fund level):
Incentives created (fund level) 134,966 135,595 365,468 508,414
Incentives created (fund level), net of associated incentive income compensation expense 59,278 61,387 172,497 245,715
Accrued incentives (fund level) 1,924,410 1,860,665 1,924,410 1,860,665
Accrued incentives (fund level), net of associated incentive income compensation expense 914,886 899,891 914,886 899,891
 

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 Capital LP and its affiliates (collectively, “DoubleLine”). Such earnings were previously reported as investment income. Additionally, AUM, management fee-generating AUM, incentive-creating AUM and incentives created (fund level) now reflect our pro-rata portion (based on our 20% ownership stake) of DoubleLine’s total AUM, management fee-generating AUM, incentive-creating AUM and performance fees, respectively. All prior periods have been recast to reflect this change.
 

GAAP Results

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

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

Total revenues increased $6.2 million, or 2.6%, to $241.2 million for the third quarter of 2018, from $235.0 million for the third quarter of 2017, primarily reflecting higher incentive income. The impact on revenues as a result of applying the new revenue recognition standard was a net decrease of $2.1 million for the third quarter of 2018.

Total expenses increased $21.4 million, or 12.6%, to $191.2 million for the third quarter of 2018, from $169.8 million for the third quarter of 2017, primarily reflecting higher general and administrative expenses.

Total other income increased $16.6 million, or 20.0%, to $99.6 million for the third quarter of 2018, from $83.0 million for the third quarter of 2017, primarily reflecting variations in returns on our fund investments between periods.

Net income attributable to OCG Class A unitholders increased $7.0 million, or 15.3%, to $52.8 million for the third quarter of 2018, from $45.8 million for the third quarter of 2017, primarily reflecting higher profits, as well as a larger allocation of income to OCG Class A unitholders resulting from an increase in the average number of Class A units outstanding.

Operating Metrics

Assets Under Management

Assets under management were $123.5 billion as of September 30, 2018, $121.6 billion as of June 30, 2018 and $122.6 billion as of September 30, 2017. The $1.9 billion increase since June 30, 2018 primarily reflected $2.2 billion in new capital commitments to closed-end funds, $1.5 billion in market-value gains and $0.6 billion attributable to DoubleLine, partially offset by $1.5 billion of distributions to closed-end fund investors and $0.9 billion of net outflows from open-end funds. Commitments to closed-end funds included $0.7 billion for our Middle Market Direct Lending strategy, $0.5 billion for Oaktree Special Situations Fund II (“SSF II”) and $0.4 billion for our Emerging Markets Debt strategy.

The $0.9 billion increase in AUM since September 30, 2017 primarily reflected $5.9 billion of capital commitments to closed-end funds, $3.7 billion in market-value gains, $2.1 billion from becoming the investment adviser to two publicly-traded business development companies (the “BDC acquisition”) and $1.6 billion attributable to DoubleLine, largely offset by $8.2 billion of distributions to closed-end fund investors and $3.7 billion of net outflows from open-end funds. Commitments to closed-end funds included $1.6 billion for our Real Estate strategy, $1.2 billion for SSF II, $1.1 billion to Oaktree Transportation Infrastructure Fund (“TIF”), $0.7 billion for our Middle Market Direct Lending strategy and $0.5 billion for our Emerging Markets Debt strategy. Distributions to closed-end fund investors included $3.5 billion from Credit funds, $2.3 billion from Private Equity funds and $2.3 billion from Real Asset funds.

Management Fee-generating Assets Under Management

Management fee-generating AUM, a forward-looking metric, was $100.7 billion as of September 30, 2018, $100.5 billion as of June 30, 2018 and $103.2 billion as of September 30, 2017. The $0.2 billion increase since June 30, 2018 primarily reflected $0.8 billion in market-value gains, $0.6 billion attributable to DoubleLine and $0.6 billion from capital drawn by funds that pay fees based on drawn capital, NAV or cost basis, largely offset by $1.2 billion attributable to closed-end funds in liquidation and $0.9 billion of net outflows from open-end funds.

The $2.5 billion decrease in management fee-generating AUM since September 30, 2017 primarily reflected $5.4 billion attributable to closed-end funds in liquidation, $3.8 billion of net outflows from open-end funds and $0.6 billion of distributions by closed-end funds that pay fees based on NAV. These decreases were partially offset by $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, $1.6 billion attributable to DoubleLine and $1.3 billion in market-value gains.

Incentive-creating Assets Under Management

Incentive-creating AUM was $33.6 billion as of September 30, 2018, $33.3 billion as of June 30, 2018 and $31.6 billion as of September 30, 2017. The $0.3 billion increase since June 30, 2018 reflected an aggregate $2.0 billion in drawdowns or contributions by closed-end and evergreen funds and market-value gains, partially offset by an aggregate $1.7 billion decline primarily attributable to distributions by closed-end funds. The $2.0 billion increase since September 30, 2017 reflected an aggregate $8.7 billion in drawdowns or contributions by closed-end and evergreen funds and market-value gains and $2.1 billion from the BDC acquisition, partially offset by an aggregate decline of $8.8 billion primarily attributable to distributions by closed-end funds.

Of the $33.6 billion in incentive-creating AUM as of September 30, 2018, $21.1 billion (or 63%) was generating incentives at the fund level, as compared with $21.0 billion (66%) of the $31.6 billion of incentive-creating AUM as of September 30, 2017.

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

Accrued incentives (fund level) were $1,924.4 million as of September 30, 2018, $1,863.9 million as of June 30, 2018 and $1,860.7 million as of September 30, 2017. The third quarter of 2018 reflected $135.0 million of incentives created (fund level) and $74.5 million of incentive income recognized.

Accrued incentives (fund level), net of incentive income compensation expense (“net accrued incentives (fund level)”), were $914.9 million as of September 30, 2018, $898.6 million as of June 30, 2018, and $899.9 million as of September 30, 2017. The portion of net accrued incentives (fund level) represented by funds that were currently paying incentives as of September 30, 2018, June 30, 2018 and September 30, 2017 was $329.9 million (or 36%), $214.6 million (24%) and $274.1 million (30%), 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 $21.4 billion as of September 30, 2018, $20.3 billion as of June 30, 2018, and $21.2 billion as of September 30, 2017. Invested capital during the quarter and 12 months ended September 30, 2018 aggregated $2.8 billion and $8.7 billion, respectively, as compared with $1.9 billion and $7.4 billion for the comparable prior-year periods.

Non-GAAP Results

Adjusted Revenues

Adjusted revenues increased $15.4 million, or 5.1%, to $320.2 million for the third quarter of 2018, from $304.8 million for the third quarter of 2017, reflecting higher incentive income and investment income, partially offset by lower management fees.

Management Fees

Management fees decreased $6.3 million, or 3.1%, to $197.1 million for the third quarter of 2018, from $203.4 million for the third quarter of 2017. The decrease reflected an aggregate decline of $27.2 million primarily attributable to closed-end funds in liquidation, partially offset by an aggregate increase of $20.9 million principally from the BDC acquisition and closed-end funds that pay management fees based on drawn capital, NAV or cost basis.

Incentive Income

Incentive income increased $20.0 million, or 36.7%, to $74.5 million for the third quarter of 2018, from $54.5 million for the third quarter of 2017. The third quarter of 2018 included $45.8 million from OCM Opportunities Fund VIIb and $14.0 million from Emerging Markets Debt funds.

Investment Income

Investment income increased $1.8 million, or 3.8%, to $48.6 million for the third quarter of 2018, from $46.8 million for the third quarter of 2017. The increase primarily reflected higher returns on our Private Equity and non-Oaktree investments, largely offset by lower returns on our Credit, Real Assets and Listed Equities investments.

Adjusted Expenses

Compensation and Benefits

Compensation and benefits expense increased $4.9 million, or 5.1%, to $100.6 million for the third quarter of 2018, from $95.7 million for the third quarter of 2017, primarily reflecting higher expenses relating to the infrastructure investing team that Oaktree acquired in 2014. In 2017, a portion of the expenses attributable to that team were paid for by a legacy Highstar fund. That fund stopped paying management fees in the fourth quarter of 2017, and thereafter Oaktree became responsible for all of the expenses of the infrastructure team.

Equity-based Compensation

Equity-based compensation expense decreased $1.1 million, or 7.5%, to $13.6 million for the third quarter of 2018, from $14.7 million for the third quarter of 2017.

Incentive Income Compensation

Incentive income compensation expense increased $5.1 million, or 19.3%, to $31.5 million for the third quarter of 2018, from $26.4 million for the third quarter of 2017, primarily reflecting the growth in incentive income, partially offset by a lower overall compensation percentage in the third quarter of 2018.

General and Administrative

General and administrative expense increased $8.9 million, or 30.6%, to $38.0 million for the third quarter of 2018, from $29.1 million for the third quarter of 2017. The increase primarily reflected higher expenses relating to the infrastructure investing team, placement costs associated with fundraising for closed-end and evergreen funds, professional fees and other general operating items.

Depreciation and Amortization

Depreciation and amortization expense increased $0.2 million, or 10.0%, to $2.2 million for the third quarter of 2018, from $2.0 million for the third quarter of 2017.

Interest Expense, Net

Interest expense, net decreased $4.1 million, or 65.1%, to $2.2 million for the third quarter of 2018, from $6.3 million for the third quarter of 2017. The decline reflected the refinancing of our senior notes in the fourth quarter of 2017 and higher interest income.

Other Income, Net

Other income, net increased $4.6 million, to $5.5 million for the third quarter of 2018, from $0.9 million for the third quarter of 2017. The increase primarily reflected gains associated with non-operating corporate activities in the third quarter of 2018.

Adjusted Net Income

ANI increased $6.1 million, or 4.6%, to $137.5 million for the third quarter of 2018, from $131.4 million for the third quarter of 2017, primarily reflecting $14.8 million in higher incentive income, net of incentive income compensation expense (“net incentive income”), $4.6 million in higher other income, $4.1 million in lower net interest expense and $1.8 million in higher investment income, partially offset by $20.3 million in lower fee-related earnings. The portion of ANI attributable to our Class A units was $55.6 million, or $0.78 per unit, and $43.3 million, or $0.67 per unit, for the third quarters of 2018 and 2017, respectively.

The effective tax rates applied to ANI for the third quarters of 2018 and 2017 were 8% and 20%, respectively, resulting from full-year effective tax rates of 9% and 12%, 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 $28.8 million, or 24.2%, to $147.8 million for the third quarter of 2018, from $119.0 million for the third quarter of 2017, primarily reflecting increases of $23.4 million in realized investment income proceeds, $14.8 million in net incentive income, $4.6 million in other income and a $4.1 million decrease in net interest expense, partially offset by a $20.3 million decline in fee-related earnings. For the third quarters of 2018 and 2017, realized investment income proceeds totaled $48.3 million and $24.9 million, respectively. The portion of distributable earnings attributable to our Class A units was $0.88 and $0.74 per unit for the third quarters of 2018 and 2017, respectively, reflecting distributable earnings per Operating Group unit of $0.94 and $0.76, respectively, less preferred unit distributions and 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 $20.3 million, or 26.5%, to $56.3 million for the third quarter of 2018, from $76.6 million for the third quarter of 2017, primarily reflecting $6.3 million in lower management fees, $4.9 million in higher compensation and benefits expense and $8.9 million in higher general and administrative expense. The portion of fee-related earnings attributable to our Class A units was $0.34 and $0.42 per unit for the third quarters of 2018 and 2017, respectively.

The effective tax rates applicable to fee-related earnings for the third quarters of 2018 and 2017 were 5% and 14%, 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 September 30, 2018, Oaktree and its operating subsidiaries had $1.0 billion 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 September 30, 2018, Oaktree’s investments in funds and companies on a non-GAAP basis had a carrying value of $1.7 billion, with the 20% investment in DoubleLine carried at $23 million based on cost, as adjusted under the equity method of accounting. Net accrued incentives (fund level) represented an additional $915 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 preferred units and our Class A units; changes in our operating or other expenses; the degree to which we encounter competition; and general political, economic and market conditions. The factors listed in the item captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 23, 2018, which is accessible on the SEC’s website at www.sec.gov, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in our forward-looking statements. Forward-looking statements speak only as of the date the statements are made. Except as required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

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

Investor Relations Website

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

 

GAAP Consolidated Statements of Operations (1)

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands, except per unit data)
Revenues:
Management fees $ 175,195 $ 181,312 $ 538,706 $ 542,268
Incentive income   66,032     53,720     253,125     616,404  
Total revenues   241,227     235,032     791,831     1,158,672  
Expenses:
Compensation and benefits (101,787 ) (98,224 ) (315,614 ) (304,713 )
Equity-based compensation (14,747 ) (15,828 ) (44,614 ) (45,529 )
Incentive income compensation   (27,294 )   (26,362 )   (127,327 )   (327,526 )
Total compensation and benefits expense (143,828 ) (140,414 ) (487,555 ) (677,768 )
General and administrative (38,051 ) (24,096 ) (110,459 ) (90,703 )
Depreciation and amortization (6,459 ) (3,037 ) (19,412 ) (9,865 )
Consolidated fund expenses   (2,829 )   (2,226 )   (9,383 )   (7,425 )
Total expenses   (191,167 )   (169,773 )   (626,809 )   (785,761 )
Other income (loss):
Interest expense (39,456 ) (35,776 ) (115,504 ) (128,797 )
Interest and dividend income 74,490 55,218 205,089 155,092
Net realized gain (loss) on consolidated funds’ investments (9,812 ) 3,392 (12,509 ) 1,755
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments 10,552 3,662 (34,939 ) 56,793
Investment income 58,196 51,061 149,682 150,618
Other income, net   5,629     5,418     7,240     14,979  
Total other income   99,599     82,975     199,059     250,440  
Income before income taxes 149,659 148,234 364,081 623,351
Income taxes   (6,568 )   (13,857 )   (17,832 )   (31,700 )
Net income 143,091 134,377 346,249 591,651
Less:
Net income attributable to non-controlling interests in consolidated funds (14,427 ) (9,990 ) (17,792 ) (23,543 )
Net income attributable to non-controlling interests in consolidated subsidiaries   (72,005 )   (78,546 )   (187,945 )   (350,028 )
Net income attributable to OCG 56,659 45,841 140,512 218,080
Net income attributable to preferred unitholders   (3,909 )   —     (3,909 )   —  
Net income attributable to OCG Class A unitholders $ 52,750   $ 45,841   $ 136,603   $ 218,080  
 
Distributions declared per Class A unit $ 0.55   $ 1.31   $ 2.27   $ 2.65  
Net income per Class A unit (basic and diluted):
Net income per Class A unit $ 0.74   $ 0.71   $ 1.95   $ 3.41  
Weighted average number of Class A units outstanding   71,369     64,394     70,167     63,875  
 
(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

September 30,
2018

  

June 30,
2018

  

September 30,
2017

(in millions)

Assets Under Management:

Closed-end funds $ 57,734 $ 56,294 $ 57,769
Open-end funds 32,454 32,824 35,793
Evergreen funds 8,672 8,426 5,953
DoubleLine (1)   24,656     24,040     23,074  
Total $ 123,516   $ 121,584   $ 122,589  
 

Three Months Ended
September 30,

Twelve Months Ended
September 30,

2018 2017 2018 2017
(in millions)
Change in Assets Under Management:
Beginning balance $ 121,584 $ 121,053 $ 122,589 $ 121,076
Closed-end funds:
Capital commitments/other (2) 2,205 654 5,938 3,729
Distributions for a realization event / other (3) (1,478 ) (2,160 ) (8,158 ) (10,521 )
Change in uncalled capital commitments for funds entering or in liquidation (4) 90 (198 ) (73 ) (1,126 )
Foreign-currency translation (41 ) 302 (122 ) 429
Change in market value (5) 745 829 2,531 4,137
Change in applicable leverage (81 ) 19 (151 ) 633
Open-end funds:
Contributions 841 1,427 3,431 7,557
Redemptions (1,745 ) (2,209 ) (7,127 ) (8,997 )
Foreign-currency translation (49 ) 241 (143 ) 411
Change in market value (5) 583 706 500 2,625
Evergreen funds:
Contributions or new capital commitments (6) 306 632 877 685
Acquisition (BDCs) — — 2,110 —
Redemptions or distributions (7) (205 ) (138 ) (947 ) (479 )
Foreign-currency translation 1 — — 6
Change in market value (5) 144 150 679 592
DoubleLine:
Net change in DoubleLine   616     1,281     1,582     1,832  
Ending balance $ 123,516   $ 122,589   $ 123,516   $ 122,589  
 
(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

September 30,
2018

  

June 30,
2018

  

September 30,
2017

Management Fee-generating AUM: (in millions)
Closed-end funds:
Senior Loans $ 8,297 $ 7,896 $ 8,073
Other closed-end funds 28,054 28,754 31,953
Open-end funds 32,120 32,520 35,570
Evergreen funds 7,566 7,337 4,574
DoubleLine   24,656     24,040     23,074  
Total $ 100,693   $ 100,547   $ 103,244  
 

Three Months Ended
September 30,

Twelve Months Ended
September 30,

2018 2017 2018 2017
Change in Management Fee-generating AUM: (in millions)
 
Beginning balance $ 100,547 $ 101,600 $ 103,244 $ 99,942
Closed-end funds:
Capital commitments to funds that pay fees based on committed capital / other (1) 465 925 466 1,970
Capital drawn by funds that pay fees based on drawn capital, NAV or cost basis 608 493 1,946 1,733
Change attributable to funds in liquidation (2) (1,052 ) (1,350 ) (5,191 ) (4,054 )
Change in uncalled capital commitments for funds entering or in liquidation that pay fees based on committed capital (3) (174 ) — (174 ) (382 )
Distributions by funds that pay fees based on NAV / other (4) (95 ) (333 ) (619 ) (895 )
Foreign-currency translation (36 ) 236 (122 ) 355
Change in market value (5) 63 45 165 256
Change in applicable leverage (78 ) 19 (146 ) 581
Open-end funds:
Contributions 791 1,407 3,304 7,359
Redemptions (1,721 ) (2,209 ) (7,103 ) (8,990 )
Foreign-currency translation (49 ) 241 (143 ) 411
Change in market value 579 702 492 2,642
Evergreen funds:
Contributions or capital drawn by funds that pay fees based on drawn capital or NAV (6) 302 234 1,108 478
Acquisition (BDCs) — — 2,110 —
Redemptions or distributions (7) (206 ) (187 ) (874 ) (535 )
Change in market value (5) 133 140 648 541
DoubleLine:
Net change in DoubleLine   616     1,281     1,582     1,832  
Ending balance $ 100,693   $ 103,244   $ 100,693   $ 103,244  
 
(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

September 30,
2018

  

June 30,
2018

  

September 30,
2017

Reconciliation of AUM to Management Fee-generating AUM: (in millions)
Assets under management $ 123,516 $ 121,584 $ 122,589
Difference between assets under management and committed capital or the lesser of funded capital or cost basis for applicable closed-end funds (1) (3,040 ) (2,326 ) (2,920 )
Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods (10,098 ) (10,092 ) (8,675 )
Undrawn capital commitments to funds for which management fees are based on drawn capital, NAV or cost basis (5,263 ) (4,042 ) (3,714 )

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

(1,798 ) (1,724 ) (1,883 )
Funds that pay no management fees (2)   (2,624 )   (2,853 )   (2,153 )
Management fee-generating assets under management $ 100,693   $ 100,547   $ 103,244  
 
(1)   This difference is not applicable to closed-end funds that pay management fees based on NAV or leverage.
(2) This includes funds that are no longer paying management fees, co-investments that pay no management fees, certain accounts that pay administrative fees intended to offset Oaktree’s costs related to the accounts and CLOs in the warehouse stage that pay no management fees.
 

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

 
  As of
Weighted Average Annual Management Fee Rates:

September 30,
2018

  

June 30,
2018

  

September 30,
2017

Closed-end funds:
Senior Loans 0.50 % 0.50 % 0.50 %
Other closed-end funds 1.46 1.47 1.49
Open-end funds 0.45 0.45 0.46
Evergreen funds (1) 1.19 1.20 1.17
All Oaktree funds (2) 0.90 0.91 0.91
 
(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

September 30,
2018

  

June 30,
2018

  

September 30,
2017

Incentive-creating AUM: (in millions)
Closed-end funds $ 26,801 $ 26,677 $ 27,555
Evergreen funds 6,236 6,006 3,465
DoubleLine   589   608   544
Total $ 33,626 $ 33,291 $ 31,564
 
 

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

 
 

As of or for the Three Months
Ended September 30,

  

As of or for the Nine Months
Ended September 30,

2018   2017 2018   2017
Accrued Incentives (Fund Level): (in thousands)
Beginning balance $ 1,863,932   $ 1,779,578   $ 1,920,339   $ 2,014,097  
Incentives created (fund level):
Closed-end funds 115,659 122,273 315,815 471,501
Evergreen funds 18,787 12,542 49,033 33,434
DoubleLine   520     780     620     3,479  
Total incentives created (fund level)   134,966     135,595     365,468     508,414  
Less: incentive income recognized by us   (74,488 )   (54,508 )   (361,397 )   (661,846 )
Ending balance $ 1,924,410   $ 1,860,665   $ 1,924,410   $ 1,860,665  
Accrued incentives (fund level), net of associated incentive income compensation expense $ 914,886   $ 899,891   $ 914,886   $ 899,891  
 

Non-GAAP Results

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

Adjusted Net Income

The following schedules set forth the components of adjusted net income:

 

Adjusted Revenues

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
Revenues:
Management fees $ 197,056 $ 203,440 $ 595,938 $ 607,361
Incentive income 74,488 54,508 361,397 661,846
Investment income   48,622   46,808   87,512   131,098
Total adjusted revenues $ 320,166 $ 304,756 $ 1,044,847 $ 1,400,305
 
 

Adjusted Expenses

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
Expenses:
Compensation and benefits $ (100,589 ) $ (95,691 ) $ (309,001 ) $ (297,097 )
Equity-based compensation (13,649 ) (14,691 ) (40,788 ) (40,971 )
Incentive income compensation (31,508 ) (26,362 ) (182,934 ) (369,480 )
General and administrative (37,963 ) (29,134 ) (114,508 ) (94,042 )
Depreciation and amortization   (2,218 )   (2,036 )   (6,781 )   (6,863 )
Total adjusted expenses $ (185,927 ) $ (167,914 ) $ (654,012 ) $ (808,453 )
 
 

Adjusted Net Income

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
 
Interest expense, net of interest income (1) $(2,197) $(6,280) $(8,006) $(19,795)
Other income, net 5,469 874 6,540 2,197
Adjusted net income (2) $137,511 $131,436 $389,369 $574,254
 
(1)   Interest income was $4.0 million and $9.9 million for the three and nine months ended September 30, 2018, respectively, and $2.7 million and $6.8 million for the three and nine months ended September 30, 2017, respectively.
(2) This reflects the sum of total adjusted revenues, adjusted expenses, net interest expense and other income, net.
 

Distributable Earnings and Distribution Calculation

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

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
Distributable Earnings: (in thousands, except per unit data)
 
Adjusted net income $ 137,511 $ 131,436 $ 389,369 $ 574,254
Investment income (48,622 ) (46,808 ) (87,512 ) (131,098 )
Realized investment income proceeds (1) 48,278 24,919 126,806 91,264
Equity-based compensation 13,649 14,691 40,788 40,971
Other (income) expense, net (2) (2,745 ) — (8,235 ) —
Operating Group income taxes   (222 )   (5,208 )   (5,108 )   (7,850 )
Distributable earnings 147,849 119,030 456,108 567,541
Preferred unit distributions   (3,909 )   —     (3,909 )   —  
Distributable earnings after preferred unit distributions $ 143,940   $ 119,030   $ 452,199   $ 567,541  
 
Distribution Calculation:
Operating Group distribution with respect to the period $ 120,995 $ 101,586 $ 383,478 $ 474,832
Distribution per Operating Group unit $ 0.77 $ 0.65 $ 2.44 $ 3.04
Adjustments per Class A unit:
Distributable earnings-Class A income taxes (0.01 ) (0.01 ) (0.04 ) (0.20 )
Tax receivable agreement (0.06 ) (0.08 ) (0.18 ) (0.24 )
Non-Operating Group expenses   —     —     (0.01 )   (0.02 )
Distribution per Class A unit (3) $ 0.70   $ 0.56   $ 2.21   $ 2.58  
 
(1)   Amounts reflect the portion of income or loss on distributions received from funds and companies. 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 September 30, 2018, a distribution was announced on October 25, 2018 and is payable on November 13, 2018.
 
 

Units Outstanding

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
Weighted Average Units:
OCGH 85,775 91,864 86,675 91,750
Class A 71,369 64,394 70,167 63,875
Total 157,144 156,258 156,842 155,625
Units Eligible for Fiscal Period Distribution:
OCGH 85,626 91,682
Class A 71,511 64,604
Total 157,137 156,286
 

Additional Revenue Detail

 

Management Fees

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
Management fees:
Closed-end funds $ 114,236 $ 131,612 $ 352,718 $ 395,215
Open-end funds 36,201 40,882 111,399 121,507
Evergreen funds 28,269 14,121 77,758 41,772
DoubleLine   18,350   16,825   54,063   48,867
Total management fees $ 197,056 $ 203,440 $ 595,938 $ 607,361
 
 

Investment Income

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
Oaktree funds:
Credit $ 21,537 $ 26,199 $ 59,338 $ 76,545
Private Equity 7,063 3,985 14,515 15,055
Real Assets 4,031 6,063 17,683 14,519
Listed Equities 2,255 8,312 (19,829 ) 18,738
Non-Oaktree   13,736   2,249   15,805     6,241
Total investment income $ 48,622 $ 46,808 $ 87,512   $ 131,098
 
 

GAAP Statement of Financial Condition (Unaudited)

 
  As of September 30, 2018
Oaktree and      
Operating Consolidated
Subsidiaries Funds Eliminations Consolidated
(in thousands)
Assets:
Cash and cash-equivalents $ 543,229 $ — $ — $ 543,229
U.S. Treasury and other securities 469,800 — — 469,800
Corporate investments 1,753,683 — (698,332 ) 1,055,351
Deferred tax assets 243,059 — — 243,059
Receivables and other assets 715,896 — (22,966 ) 692,930
Assets of consolidated funds   —   6,425,680   —     6,425,680
Total assets $ 3,725,667 $ 6,425,680 $ (721,298 ) $ 9,430,049
Liabilities and Capital:
Liabilities:
Accounts payable and accrued expenses $ 371,741 $ — $ — $ 371,741
Due to affiliates 192,267 — — 192,267
Debt obligations 745,812 — — 745,812
Liabilities of consolidated funds   —   5,025,502   (24,383 )   5,001,119
Total liabilities   1,309,820   5,025,502   (24,383 )   6,310,939
Non-controlling redeemable interests in consolidated funds — — 696,307 696,307
Capital:
Capital attributable to OCG preferred unitholders 400,584 — — 400,584
Capital attributable to OCG Class A unitholders 958,949 317,165 (317,165 ) 958,949
Non-controlling interest in consolidated subsidiaries 1,056,314 379,750 (379,750 ) 1,056,314
Non-controlling interest in consolidated funds   —   703,263   (696,307 )   6,956
Total capital   2,415,847   1,400,178   (1,393,222 )   2,422,803
Total liabilities and capital $ 3,725,667 $ 6,425,680 $ (721,298 ) $ 9,430,049
 
 

Corporate Investments

 
  As of

September 30,
2018

  

June 30,
2018

  

September 30,
2017

(in thousands)
Oaktree funds:
Credit $ 1,026,207 $ 925,539 $ 949,174
Private Equity 296,224 299,961 250,244
Real Assets 239,208 189,109 133,129
Listed Equities 94,258 117,939 139,628
Non-Oaktree   63,936     62,037     118,504  
Total corporate investments – Non-GAAP 1,719,833 1,594,585 1,590,679
Adjustments (1)   33,850     29,010     17,403  
Total corporate investments – Oaktree and operating subsidiaries 1,753,683 1,623,595 1,608,082
Eliminations   (698,332 )   (611,749 )   (553,095 )
Total corporate investments – Consolidated $ 1,055,351   $ 1,011,846   $ 1,054,987  
 
(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 September 30, 2018
Investment Period Total Committed Capital   %

Invested (1)

   %

Drawn (2)

   Fund Net Income Since Inception   Distri-

butions Since Inception

   Net Asset Value   Manage-

ment Fee-gener-

ating AUM

   Incentive Income Recog-

nized (Non-GAAP)

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

Gross

Net

Credit

(in millions)
Distressed Debt
Oaktree Opportunities Fund Xb (7)(13) TBD — $8,872 9% 5% $— $— $443 $438 $— $— $456 nm nm 1.0x
Oaktree Opportunities Fund X (7) Jan. 2016 Jan. 2019 3,603 86 72 1,081 152 3,518 3,486 — 210 2,777 33.3% 21.1% 1.5
Oaktree Opportunities Fund IX Jan. 2014 Jan. 2017 5,066 nm 100 698 1,672 4,092 3,554 — — 5,292 5.7 3.2 1.2
Oaktree Opportunities Fund VIIIb Aug. 2011 Aug. 2014 2,692 nm 100 938 2,100 1,530 1,469 52 — 1,860 9.0 6.2 1.5
Special Account B Nov. 2009 Nov. 2012 1,031 nm 100 629 1,568 171 165 16 3 53 13.8 11.4 1.7
Oaktree Opportunities Fund VIII Oct. 2009 Oct. 2012 4,507 nm 100 2,613 6,444 677 635 209 300 — 13.1 9.2 1.7
Special Account A Nov. 2008 Oct. 2012 253 nm 100 317 554 16 23 60 3 — 28.1 22.8 2.3
OCM Opportunities Fund VIIb May 2008 May 2011 10,940 nm 90 9,053 18,257 640 640 1,634 125 — 21.9 16.6 2.0
OCM Opportunities Fund VII Mar. 2007 Mar. 2010 3,598 nm 100 1,487 4,843 242 — 87 — 419 10.2 7.5 1.5
Legacy funds (8) Various Various 12,495 nm 100 10,456 22,931 21 — 1,558 5 — 23.6 18.5 1.9
22.0% 16.1%
Private/Alternative Credit
Oaktree European Capital Solutions Fund (7)(9)(10) Dec. 2015 Dec. 2018 €703 80% 64% €47 €214 €269 €321 €— €6 €250 13.0% 8.4% 1.1x
Oaktree European Dislocation Fund (10) Oct. 2013 Oct. 2016 €294 nm 57 €39 €203 €18 €17 €3 €3 €— 19.5 13.8 1.3
Special Account E (10) Oct. 2013 Apr. 2015 €379 nm 69 €64 €321 €4 €3 €9 €1 €— 14.3 11.0 1.3
14.9% 10.7%
 
Oaktree Mezzanine Fund IV (9) Oct. 2014 Oct. 2019 $852 81% 78% $110 $232 $540 $514 $— $14 $523 11.4% 8.3% 1.2x
Oaktree Mezzanine Fund III (11) Dec. 2009 Dec. 2014 1,592 nm 89 465 1,796 92 104 17 30 22 15.3

 

10.4 / 9.1

1.4
OCM Mezzanine Fund II Jun. 2005 Jun. 2010 1,251 nm 88 493 1,691 54 — — — 131 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
13.0% 8.7%
Emerging Markets Debt
Oaktree Emerging Markets Opportunities Fund II (13) TBD — $178 8% 8% $— $— $13 $25 $— $— $12 nm nm 1.0x
Oaktree Emerging Market Opportunities Fund Sep. 2013 Sep. 2017 384 nm 78 117 324 92 78 8 13 51 15.7% 10.6% 1.5
Special Account F Jan. 2014 Sep. 2017 253 nm 96 76 263 55 54 6 9 28 15.3 10.8 1.4
15.5% 10.7%

Private Equity

Corporate Private Equity
Oaktree European Principal Fund IV (7)(10)(13) Jul. 2017 Jul. 2022 €1,119 77% 63% €135 €9 €835 €1,093 €— €26 €751 nm nm 1.1x
Oaktree European Principal Fund III (10) Nov. 2011 Nov. 2016 €3,164 nm 85 €2,567 €2,140 €3,176 €2,455 €— €499 €1,696 19.1% 13.3% 2.1
OCM European Principal Opportunities Fund II (10) Dec. 2007 Dec. 2012 €1,759 nm 100 €225 €1,865 €90 €348 €29 €— €757 6.9 2.5 1.3
OCM European Principal Opportunities Fund Mar. 2006 Mar. 2009 $495 nm 96 $454 $927 $— $— $87 $— $— 11.7 8.9 2.1
13.6% 9.0%
 
 
      As of September 30, 2018
Investment Period Total Committed Capital   %

Invested (1)

   %

Drawn (2)

   Fund Net Income Since Inception   Distri-

butions Since Inception

   Net Asset Value   Manage-

ment Fee-gener-

ating AUM

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

Inception (5)

   Multiple of Drawn Capital (6)
Start Date End Date Gross   Net
(in millions)
 
Oaktree Power Opportunities Fund IV Nov. 2015 Nov. 2020 $1,106 89% 88% $115 $1 $1,086 $1,078 $— $— $1,088 12.2% 7.8% 1.2x
Oaktree Power Opportunities Fund III Apr. 2010 Apr. 2015 1,062 nm 69 641 970 408 319 26 97 — 23.7 16.0 2.0
Legacy funds (8) Various Various 1,470 nm 63 1,689 2,616 — — 123 — — 35.1 27.4 2.8
34.5% 26.2%
Special Situations
Oaktree Special Situations Fund II (7) TBD — $1,217 1% 1% $(1) $— $15 $57 $— $— $16 n/a n/a n/a
Oaktree Special Situations Fund (7) Nov. 2015 Nov. 2018 1,377 100 73 208 163 1,049 1,125 — 38 933 28.5% 15.8% 1.3x
Other funds:
Oaktree Principal Fund V Feb. 2009 Feb. 2015 $2,827 nm 91% $556 $1,760 $1,382 $1,381 $50 $— $2,137 7.7% 3.7% 1.4x
Special Account C Dec. 2008 Feb. 2014 505 nm 91 196 423 233 242 21 — 273 10.1 6.9 1.5
OCM Principal Opportunities Fund IV Oct. 2006 Oct. 2011 3,328 nm 100 2,947 6,166 110 — 554 20 — 12.3 8.9 2.0
Legacy funds (8) Various Various 3,701 nm 100 2,713 6,404 10 — 407 2 — 14.4 11.1 1.8
13.0% 9.3%

Real Assets

Real Estate
Oaktree Real Estate Opportunities Fund VII (13)(14) Jan. 2016 Jan. 2020 $2,921 82% 37% $384 $244 $1,229 $2,747 $— $74 $897 nm nm 1.5x
Oaktree Real Estate Opportunities Fund VI Aug. 2012 Aug. 2016 2,677 nm 100 1,422 2,458 1,641 1,290 70 205 1,146 15.3% 10.3% 1.6
Oaktree Real Estate Opportunities Fund V Mar. 2011 Mar. 2015 1,283 nm 100 987 2,081 189 113 152 36 — 17.2 12.7 1.9
Special Account D Nov. 2009 Nov. 2012 256 nm 100 207 429 42 — 16 4 — 14.8 12.8 1.8
Oaktree Real Estate Opportunities Fund IV Dec. 2007 Dec. 2011 450 nm 100 392 779 63 51 61 13 — 15.8 10.7 2.0
Legacy funds (8) Various Various 2,341 nm 99 2,010 4,324 2 — 232 — — 15.2 11.9 1.9
15.6% 11.9%
 
Oaktree Real Estate Debt Fund II (9)(13) Mar. 2017 Mar. 2020 $2,087 47% 14% $31 $32 $288 $894 $— $5 $267 nm nm 1.2x
Oaktree Real Estate Debt Fund Sep. 2013 Oct. 2016 1,112 nm 81 183 653 454 492 10 16 325 20.7% 15.4% 1.3
Oaktree PPIP Fund (15) Dec. 2009 Dec. 2012 2,322 nm 48 457 1,570 — — 47 — — 28.2 n/a 1.4
 
Special Account G (Real Estate Income) (9)(13) Oct. 2016 Oct. 2020 $615 87% 87% $82 $70 $544 $499 $— $16 $511 nm nm 1.2x
 
Infrastructure
Oaktree Transportation Infrastructure Fund TBD — $1,091 —% —% $— $— $— $— $— $— $— n/a n/a n/a
Highstar Capital IV (16) Nov. 2010 Nov. 2016 2,000 nm 100 77 904 1,173 1,328 — — 1,830 5.6% 1.5% 1.2x
27,722 (10) 1,859 (10)
Other (17) 8,520 5
Total (18) $36,242 $1,864
 
(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 September 30, 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 September 30, 2018 management fee-generating AUM included only that portion of committed capital that had been drawn.
(10) Aggregate IRRs or totals are based on the conversion of cash flows or amounts, respectively, from euros to USD using the September 30, 2018 spot rate of $1.16.
(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 9.1%. 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 September 30, 2018 was less than 36 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 September 30, 2018, Oaktree had not recognized any incentive income from this fund. The accrued incentives (fund level) for this fund represents Oaktree’s effective 8% of the potential incentives generated by this fund in accordance with the terms of the Highstar acquisition.
(17) This includes our closed-end Senior Loan funds, CLOs, a non-Oaktree fund and certain separate accounts and co-investments.
(18) The total excludes one closed-end fund with management fee-generating AUM of $109 million as of September 30, 2018, which has been included as part of the Strategic Credit strategy within the evergreen funds table.
 
 

Open-end Funds

 
    Manage-

ment Fee-gener-

ating AUM

as of

Sept. 30, 2018

   Twelve Months Ended

September 30, 2018

   Since Inception through September 30, 2018
Strategy Inception Rates of Return (1) Annualized Rates of Return (1)   Sharpe Ratio
Oaktree   Rele-

vant Bench-

mark

Oaktree   Rele-

vant Bench-

mark

Oaktree Gross   Rele-

vant Bench-

mark

Gross   Net Gross   Net

 

(in millions)

Credit

 

High Yield Bonds
U.S. High Yield Bonds 1986 $ 14,722 2.0 % 1.5 % 3.2 % 9.1 % 8.6 % 8.2 % 0.80 0.57
Global High Yield Bonds 2010 3,617 2.5 2.0 3.0 7.0 6.4 6.7 1.12 1.10
European High Yield Bonds 1999 463 3.7 3.2 2.4 7.9 7.4 6.3 0.72 0.46
 
Convertibles
U.S. Convertibles 1987 2,080 10.1 9.5 12.2 9.4 8.9 8.4 0.51 0.40
Non-U.S. Convertibles 1994 1,344 2.6 2.1 0.3 8.1 7.6 5.4 0.78 0.40
High Income Convertibles 1989 1,058 5.0 4.4 3.3 11.1 10.3 8.1 1.06 0.61
 
Senior Loans
U.S. Senior Loans 2008 688 5.8 5.2 5.6 6.0 5.5 5.3 1.14 0.68
European Senior Loans 2009 1,455 2.2 1.7 2.8 7.4 6.8 8.0 1.65 1.67
 
Multi-Strategy Credit
Multi-Strategy Credit (2) Various 2,677 nm nm nm nm nm nm nm nm
 

Listed Equities

Emerging Markets Equities
Emerging Markets Equities 2011   4,016 0.6 (0.2 ) (0.8 ) 2.3 1.4 1.2 0.10 0.05

 

Total

$ 32,120
 
(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 September 30, 2018   Twelve Months Ended September 30, 2018   Since Inception through
September 30, 2018
AUM   Manage-

ment

Fee-gener-

ating AUM

   Accrued Incen-

tives (Fund Level)

Strategy Inception Rates of Return (1) Annualized Rates

of Return (1)

Gross   Net Gross   Net
(in millions)
Credit
Private/Alternative Credit
Strategic Credit (2) 2012 $ 5,390 $ 4,950 $ 14 12.3 % 9.6 % 9.8 % 7.2 %
 
Distressed Debt
Value Opportunities 2007 1,124 1,042 20 19.7 14.6 10.2 6.3
 
Emerging Markets Debt
Emerging Markets Debt (3) 2015 902 430 4 6.8 4.9 13.9 10.7
 
Listed Equities
Value/Other Equities
Value Equities (4) 2012 544   519   6 24.7 18.0 21.0 15.2
6,941 44

 

Other (5)

 734 11

 

Restructured funds

  —   5

 

Total (2)

 $ 7,675 $ 60
 
(1)   Returns represent time-weighted rates of return.
(2) Includes our publicly-traded BDCs and one closed-end fund with $108 million and $109 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 strategies. The rates of return reflect the performance of a composite of accounts for the Emerging Markets Debt Total Return strategy, 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 certain Real Estate and Multi-Strategy Credit accounts.
 

GLOSSARY

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

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

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

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

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

Class A units refer to the common units of OCG designated as Class A units.

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

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

Distributable earnings and distributable earnings revenues differ from ANI in that they exclude investment income or loss and include the portion of income or loss on distributions received from funds and companies. In addition, distributable earnings differs from ANI in that (a) 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 and (b) make-whole premium charges related to the repayment of debt included in ANI are, for distributable earnings purposes, amortized through the original maturity date of the repaid debt. Finally, distributable earnings differs from ANI in that it is net of Operating Group income taxes and excludes non-cash equity-based compensation expense.

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

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

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

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

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

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

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

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

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

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

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

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

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

Preferred units or preferred unitholders refer to the Series A and Series B preferred units of OCG or Series A and Series B preferred unitholders, respectively, unless otherwise specified.

Relevant Benchmark refers, with respect to:

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

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

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

EXHIBIT A

Use of Non-GAAP Financial Information

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

Reconciliation of GAAP to Non-GAAP Results

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

   

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
Net income attributable to OCG Class A unitholders $ 52,750 $ 45,841 $ 136,603 $ 218,080
Preferred unit distributions 3,909 — 3,909 —
Incentive income (1) 7,935 — 107,581 41,954
Incentive income compensation (1) (4,214 ) — (55,607 ) (41,954 )
Investment income (2) (3,174 ) (1,983 ) (7,055 ) (24,630 )
Equity-based compensation (3) 1,098 1,137 3,826 4,558
Foreign-currency hedging (4) (247 ) (833 ) (3,110 ) (960 )
Acquisition-related items (5) 1,703 (3,919 ) 443 (1,456 )
Income taxes (6) 6,568 13,857 17,832 31,700
Non-Operating Group (income) expenses (7) 321 62 629 549
Non-controlling interests (7)   70,862     77,274     184,318     346,413  
Adjusted net income (10) 137,511 131,436 389,369 574,254
Incentive income (74,488 ) (54,508 ) (361,397 ) (661,846 )
Incentive income compensation 31,508 26,362 182,934 369,480
Investment income (48,622 ) (46,808 ) (87,512 ) (131,098 )
Equity-based compensation (8) 13,649 14,691 40,788 40,971
Interest expense, net of interest income 2,197 6,280 8,006 19,795
Other (income) expense, net   (5,469 )   (874 )   (6,540 )   (2,197 )
Fee-related earnings (10) 56,286 76,579 165,648 209,359
Incentive income 74,488 54,508 361,397 661,846
Incentive income compensation (31,508 ) (26,362 ) (182,934 ) (369,480 )
Realized investment income proceeds (9) 48,278 24,919 126,806 91,264
Interest expense, net of interest income (2,197 ) (6,280 ) (8,006 ) (19,795 )
Other (income) expense, net 2,724 874 (1,695 ) 2,197
Operating Group income taxes   (222 )   (5,208 )   (5,108 )   (7,850 )
Distributable earnings (10) $ 147,849   $ 119,030   $ 456,108   $ 567,541  
 
(1)   This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between GAAP and adjusted net income.
(2) This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between GAAP and adjusted net income.
(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 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 GAAP and adjusted net income.
(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 is 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 and distributable 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 realized 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.
(10) Per Class A unit amounts are calculated to evaluate the portion of adjusted net income, fee-related earnings and distributable earnings attributable to Class A unitholders. Reconciliations of adjusted net income to adjusted net income-Class A, fee-related earnings to fee-related earnings-Class A and distributable earnings to distributable earnings-Class A are presented below.
 
       

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands, except per unit data)
 
Adjusted net income $ 137,511 $ 131,436 $ 389,369 $ 574,254
Preferred unit distributions   (3,909 )   —     (3,909 )   —  
Adjusted net income after preferred unit distributions 133,602 131,436 385,460 574,254
Adjusted net income attributable to OCGH non-controlling interest (72,925 ) (77,271 )

(213,617

)

(338,471 )
Non-Operating Group income (expense) (321 ) (62 ) (629 ) (549 )
Income taxes-Class A   (4,760 )   (10,794 )   (16,569 )   (27,078 )
Adjusted net income-Class A $ 55,596   $ 43,309   $ 154,645   $ 208,156  
Adjusted net income per Class A unit $ 0.78   $ 0.67   $ 2.20   $ 3.26  
Weighted average number of Class A units outstanding   71,369     64,394     70,167     63,875  
 
       

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands, except per unit data)
Fee-related earnings $ 56,286 $ 76,579 $ 165,648 $ 209,359
Fee-related earnings attributable to OCGH non-controlling interest (30,723 ) (45,020 ) (91,614 ) (123,404 )
Non-Operating Group expenses (239 ) (209 ) (984 ) (886 )
Fee-related earnings-Class A income taxes   (1,170 )   (4,532 )   (3,324 )   (12,697 )
Fee-related earnings-Class A $ 24,154   $ 26,818   $ 69,726   $ 72,372  
Fee-related earnings per Class A unit $ 0.34   $ 0.42   $ 0.99   $ 1.13  
Weighted average number of Class A units outstanding   71,369     64,394     70,167     63,875  
 
       

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands, except per unit data)
Distributable earnings $ 147,849 $ 119,030 $ 456,108 $ 567,541
Preferred unit distributions   (3,909 )   —     (3,909 )   —  
Distributable earnings after preferred unit distributions 143,940 119,030 452,199 567,541
Distributable earnings attributable to OCGH non-controlling interest (78,568 ) (69,978 ) (250,726 ) (334,518 )
Non-Operating Group income (expense) (321 ) (62 ) (629 ) (549 )
Distributable earnings-Class A income taxes 1,687 4,323 3,327 (7,012 )
Tax receivable agreement   (4,008 )   (5,415 )   (11,874 )   (16,193 )
Distributable earnings-Class A $ 62,730   $ 47,898   $ 192,297   $ 209,269  
Distributable earnings per Class A unit $ 0.88   $ 0.74   $ 2.74   $ 3.28  
Weighted average number of Class A units outstanding   71,369     64,394     70,167     63,875  
 

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

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
GAAP revenues $ 241,227 $ 235,032 $ 791,831 $ 1,158,672
Consolidated funds (1) 15,982 20,646 2,808 73,691
Incentive income (2) 7,935 — 107,581 41,954
Investment income (3)   55,022     49,078     142,627     125,988  
Adjusted revenues 320,166 304,756 1,044,847 1,400,305
Incentive income (74,488 ) (54,508 ) (361,397 ) (661,846 )
Investment income   (48,622 )   (46,808 )   (87,512 )   (131,098 )
Fee-related earnings revenues 197,056 203,440 595,938 607,361
Incentive income 74,488 54,508 361,397 661,846
Realized investment income proceeds   48,278     24,919     126,806     91,264  
Distributable earnings revenues $ 319,822   $ 282,867   $ 1,084,141   $ 1,360,471  
 
(1)   This adjustment represents amounts attributable to the consolidated funds that were eliminated in consolidation, the reclassification of gains and losses related to foreign-currency hedging activities from general and administrative expense to revenues, the elimination of non-controlling interests from adjusted revenues, and certain compensation and administrative related expense reimbursements netted with expenses.
(2) This adjustment adds back the effect of timing differences associated with the recognition of incentive income between adjusted revenues and GAAP revenues.
(3) This adjustment reclassifies consolidated investment income from other income (loss) to revenues and adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between adjusted revenues and GAAP revenues.
 

The following table reconciles net income attributable to OCG Class A unitholders to adjusted net income and economic net income.

 
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
Net income attributable to OCG Class A unitholders $ 52,750 $ 45,841 $ 136,603 $ 218,080
Reconciling adjustments (1)   84,761   85,595   252,766     356,174  
Adjusted net income 137,511 131,436 389,369 574,254
Change in accrued incentives (fund level), net of associated incentive income compensation (2)   16,298   33,241   (5,966 )   (46,651 )
Economic net income (3) $ 153,809 $ 164,677 $ 383,403   $ 527,603  
 
(1)   Please refer to the table on page 27 for a detailed reconciliation of net income attributable to OCG Class A unitholders to adjusted net income.
(2) The change in accrued incentives (fund level), net of associated incentive income compensation expense, represents the difference between (a) our recognition of net incentive income and (b) the incentive income generated by the funds during the period that would be due to us if the funds were liquidated at their reported values as of that date, net of associated incentive income compensation expense.
(3) Per Class A unit amounts are calculated to evaluate the portion of economic net income attributable to Class A unitholders. A reconciliation of economic net income to economic net income-Class A is presented below.
 
       

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands, except per unit data)
Economic net income $ 153,809 $ 164,677 $ 383,403 $ 527,603
Preferred unit distributions   (3,909 )   —     (3,909 )   —  
Economic net income after preferred unit distributions 149,900 164,677 379,494 527,603
Economic net income attributable to OCGH non-controlling interest (81,821 ) (96,814 ) (209,381 ) (311,105 )
Non-Operating Group income (expense) (321 ) (62 ) (629 ) (549 )
Economic net income-Class A income taxes   (6,121 )   (10,459 )   (16,598 )   (27,192 )
Economic net income-Class A $ 61,637   $ 57,342   $ 152,886   $ 188,757  
Economic net income per Class A unit $ 0.86   $ 0.89   $ 2.18   $ 2.96  
Weighted average number of Class A units outstanding   71,369     64,394     70,167     63,875  
 

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

   

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018   2017 2018   2017
(in thousands)
GAAP revenues $ 241,227 $ 235,032 $ 791,831 $ 1,158,672
Consolidated funds (1) 15,982 20,646 2,808 73,691
Incentive income (2) 7,935 — 107,581 41,954
Investment income (3)   55,022     49,078     142,627     125,988  
Adjusted revenues 320,166 304,756 1,044,847 1,400,305
Incentives created 134,966 135,595 365,468 508,414
Incentive income   (74,488 )   (54,508 )   (361,397 )   (661,846 )
Economic net income revenues $ 380,644   $ 385,843   $ 1,048,918   $ 1,246,873  
 
(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
September 30, 2018

Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 175,195 $ 21,861 $ 197,056
Incentive income (1) 66,032 8,456 74,488
Investment income (1) 58,196 (9,574 ) 48,622
Total expenses (2) (191,167 ) 5,240 (185,927 )
Interest expense, net (3) (39,456 ) 37,259 (2,197 )
Other income, net (4) 5,629 (160 ) 5,469
Other income of consolidated funds (5) 75,230 (75,230 ) —
Income taxes (6,568 ) 6,568 —
Net income attributable to non-controlling interests in consolidated funds (14,427 ) 14,427 —
Net income attributable to non-controlling interests in consolidated subsidiaries (72,005 ) 72,005 —
Net income attributable to preferred unitholders   (3,909 )   3,909     —  
Net income attributable to OCG Class A unitholders / ANI $ 52,750   $ 84,761   $ 137,511  
 
(1)   The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $18,350 to management fees and $520 to incentive income, (c) for management fees, reclassifies $46 of net losses related to foreign-currency hedging activities from general and administrative expense and $2,835 of expense reimbursements grossed-up for GAAP reporting, but netted with expenses for ANI, (d) for incentive income, includes $7,935 related to timing differences in the recognition of incentive income between net income attributable to OCG Class A unitholders and adjusted net income, and (e) for investment income, includes $3,174 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 $1,098 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $3,620, (c) expenses incurred by the Intermediate Holding Companies of $239, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG Class A unitholders and adjusted net income of $4,214, (e) acquisition-related items of $1,703, (f) $41 of net gains related to foreign-currency hedging activities, and (g) $2,835 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 $160 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
September 30, 2017

Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 181,312 $ 22,128 $ 203,440
Incentive income (1) 53,720 788 54,508
Investment income (1) 51,061 (4,253 ) 46,808
Total expenses (2) (169,773 ) 1,859 (167,914 )
Interest expense, net (3) (35,776 ) 29,496 (6,280 )
Other income, net (4) 5,418 (4,544 ) 874
Other income of consolidated funds (5) 62,272 (62,272 ) —
Income taxes (13,857 ) 13,857 —
Net income attributable to non-controlling interests in consolidated funds (9,990 ) 9,990 —
Net income attributable to non-controlling interests in consolidated subsidiaries   (78,546 )   78,546     —  
Net income attributable to OCG Class A unitholders / ANI $ 45,841   $ 85,595   $ 131,436  
 
(1)   The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $16,825 to management fees and $780 to incentive income, (c) for management fees, reclassifies $199 of net gains related to foreign-currency hedging activities from general and administrative expense, and (d) for investment income, includes $1,983 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 $1,137 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $950, (c) expenses incurred by the Intermediate Holding Companies of $209, (d) acquisition-related items of $3,919, (e) adjustments of $4,357 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (f) $870 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 $4,357 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $187 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 Nine Months Ended
September 30, 2018

Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 538,706 $ 57,232 $ 595,938
Incentive income (1) 253,125 108,272 361,397
Investment income (1) 149,682 (62,170 ) 87,512
Total expenses (2) (626,809 ) (27,203 ) (654,012 )
Interest expense, net (3) (115,504 ) 107,498 (8,006 )
Other income, net (4) 7,240 (700 ) 6,540
Other income of consolidated funds (5) 157,641 (157,641 ) —
Income taxes (17,832 ) 17,832 —
Net income attributable to non-controlling interests in consolidated funds (17,792 ) 17,792 —
Net income attributable to non-controlling interests in consolidated subsidiaries (187,945 ) 187,945 —
Net income attributable to preferred unitholders   (3,909 )   3,909     —  
Net income attributable to OCG Class A unitholders / ANI $ 136,603   $ 252,766   $ 389,369  
 
(1)   The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $54,063 to management fees and $620 to incentive income, (c) for management fees, reclassifies $4,234 of net losses related to foreign-currency hedging activities from general and administrative expense and $9,508 of expense reimbursements grossed-up for GAAP reporting, but netted with expenses for ANI, (d) for incentive income, includes $107,581 related to timing differences in the recognition of incentive income between net income attributable to OCG Class A unitholders and adjusted net income, and (e) for investment income, includes $7,055 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2) The expense adjustment consists of (a) equity-based compensation expense of $3,826 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $11,819, (c) expenses incurred by the Intermediate Holding Companies of $984, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG Class A unitholders and adjusted net income of $55,607, (e) acquisition-related items of $443, (f) $1,824 of net losses related to foreign-currency hedging activities, and (g) $9,508 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 $700 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 Nine Months Ended
September 30, 2017

Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 542,268 $ 65,093 $ 607,361
Incentive income (1) 616,404 45,442 661,846
Investment income (1) 150,618 (19,520 ) 131,098
Total expenses (2) (785,761 ) (22,692 ) (808,453 )
Interest expense, net (3) (128,797 ) 109,002 (19,795 )
Other income, net (4) 14,979 (12,782 ) 2,197
Other income of consolidated funds (5) 213,640 (213,640 ) —
Income taxes (31,700 ) 31,700 —
Net income attributable to non-controlling interests in consolidated funds (23,543 ) 23,543 —
Net income attributable to non-controlling interests in consolidated subsidiaries   (350,028 )   350,028     —  
Net income attributable to OCG Class A unitholders / ANI $ 218,080   $ 356,174   $ 574,254  
 
(1)   The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $48,867 to management fees and $3,479 to incentive income, (c) for management fees, reclassifies $2,298 of net gains related to foreign-currency hedging activities from general and administrative expense, (d) for incentive income, includes $41,954 related to timing differences in the recognition of incentive income between net income attributable to OCG Class A unitholders and adjusted net income, and (e) for investment income, includes $24,630 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 $4,558 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $5,782, (c) expenses incurred by the Intermediate Holding Companies of $886, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG Class A unitholders and adjusted net income of $41,954, (e) acquisition-related items of $1,456, (f) adjustments of $13,747 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (g) $4,250 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 $13,747 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $967 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.