As of December 31, 2016, or for the quarter and year then ended,
and where applicable, per Class A unit:
- GAAP net income attributable to
Oaktree Capital Group, LLC (“OCG”) increased to $59.3 million
($0.94 per unit) and $194.7 million ($3.11 per unit) for the
quarter and full year, respectively, from $11.4 million ($0.21 per
unit) and $71.3 million ($1.45 per unit) for the comparable 2015
periods.
- Adjusted net income increased to
$172.8 million ($0.91 per unit) and $582.6 million ($3.11 per unit)
for the quarter and full year, respectively, from $49.6 million
($0.26 per unit) and $311.9 million ($1.62 per unit) for the
comparable 2015 periods, driven by growth primarily in investment
income and secondarily in incentive income and fee-related
earnings.
- Distributable earnings increased
to $143.7 million ($0.73 per unit) and $538.4 million ($2.94 per
unit) for the quarter and full year, respectively, from $104.3
million ($0.55 per unit) and $447.6 million ($2.42 per unit) for
the comparable 2015 periods, on higher incentive income and
fee-related earnings.
- Assets under management grew to
$100.5 billion, up 1% for the quarter and 3% for the full year.
Gross capital raised was $4.7 billion and $11.6 billion for the
quarter and full year, respectively. Uncalled capital commitments
as of December 31, 2016 were $20.8 billion.
- A distribution was declared of
$0.63 per unit, bringing aggregate distributions relating to
full-year 2016 to $2.41.
Oaktree Capital Group, LLC (NYSE: OAK) today reported its
unaudited financial results for the fourth quarter and year ended
December 31, 2016.
Jay Wintrob, Chief Executive Officer, said, “The fourth quarter
of 2016 completed a strong year for Oaktree. We had our best
quarterly earnings results as expressed by adjusted net income in
11 quarters and grew ANI by 87 percent during the full year.
Highlighting fourth-quarter and full-year financial results was
strong investment performance, resulting in the best quarterly and
annual investment income totals since 2013, as well as $320 million
in new, net incentives created. Distributable earnings grew 38
percent in the fourth quarter compared to a year ago and grew 20
percent in the last twelve months, based primarily on growth in
three areas – fee-related earnings, net incentive income and
distributions from our 20 percent ownership stake in DoubleLine
Capital. Fundraising of $4.7 billion of gross capital in the fourth
quarter and $11.6 billion for the year positions us well for
2017.”
GAAP-basis results for the fourth quarter and full-year 2016
included net income attributable to Oaktree Capital Group, LLC of
$59.3 million and $194.7 million, respectively, up from $11.4
million and $71.3 million for the comparable 2015 periods. Both
periods’ increases reflected higher segment profits, as well as a
larger allocation of income to OCG based on the average number of
Class A units outstanding.
Assets under management (“AUM”) grew to $100.5 billion as of
December 31, 2016, up 1% from $99.8 billion as of September 30,
2016, and 3% from $97.4 billion as of December 31, 2015. Management
fee-generating assets under management (“management fee-generating
AUM”) grew to $79.8 billion as of December 31, 2016, up 1% from
$78.7 billion as of September 30, 2016 and $78.9 billion as of
December 31, 2015.
As of December 31, 2016, uncalled capital commitments (so-called
“dry powder”) stood at $20.8 billion. Of these commitments, $13.5
billion were not yet generating management fees (so-called “shadow
AUM”). Gross capital raised was $4.7 billion and $11.6 billion for
the fourth quarter and full-year 2016, respectively.
Adjusted net income (“ANI”) grew to $172.8 million and $582.6
million for the fourth quarter and full-year 2016, respectively,
from $49.6 million and $311.9 million for the comparable 2015
periods. Distributable earnings grew to $143.7 million and $538.4
million for the fourth quarter and full-year 2016, respectively,
from $104.3 million and $447.6 million for the comparable 2015
periods. Each of these increases reflected higher incentive income
and fee-related earnings, and for ANI, higher investment
income.
In addition to ANI, Oaktree calculates economic net income
(“ENI”) to facilitate comparisons with other alternative asset
managers that report a measure similar to ENI as a performance
metric. Unlike ANI, ENI measures incentive income based on the
market values of the funds’ holdings, including what we call
“incentives created (fund level).” ENI was $246.6 million and
$717.6 million for the fourth quarter and full-year 2016,
respectively, as compared to a loss of $29.1 million and income of
$123.5 million for the comparable 2015 periods. Per Class A unit,
ENI was $1.41 and $4.03 for the fourth quarter and full-year 2016,
respectively, as compared to a loss of $0.27 and income of $0.18
for the comparable 2015 periods.
The table below presents (a) GAAP-basis results, (b) segment
results for both the Operating Group and per Class A unit,
and (c) assets under management and accrued incentives (fund
level) data. Please refer to the Glossary for definitions.
As of or for the Three MonthsEnded December
31, As of or for the YearEnded December 31,
2016 2015 2016 2015
GAAP-basis Results: (in thousands, except per unit data
or as otherwise indicated) Revenues $
298,310
$ 49,108 $
1,125,746
$ 201,905 Net income attributable to Oaktree Capital Group, LLC
59,283 11,395 194,705 71,349 Net income per Class A unit 0.94 0.21
3.11 1.45
Segment Results: Segment revenues $ 351,437
$ 211,981 $ 1,362,202 $ 1,065,864 Adjusted net income 172,773
49,577 582,583 311,862 Distributable earnings revenues 309,950
256,072 1,270,915 1,166,974 Distributable earnings 143,712 104,261
538,420 447,576 Fee-related earnings revenues 192,604 187,747
785,673 753,805 Fee-related earnings 73,144 60,708 267,733 218,562
Economic net income revenues 516,726 64,978 1,791,082 701,674
Economic net income (loss) 246,599 (29,102 ) 717,585 123,479
Per
Class A Unit: Adjusted net income $ 0.91 $ 0.26 $ 3.11 $ 1.62
Distributable earnings 0.73 0.55 2.94 2.42 Fee-related earnings
0.37 0.36 1.50 1.34 Economic net income (loss) 1.41 (0.27 ) 4.03
0.18
Operating Metrics: Assets under management (in
millions): Assets under management $ 100,504 $ 97,359 $ 100,504 $
97,359 Management fee-generating assets under management 79,767
78,897 79,767 78,897 Incentive-creating assets under management
33,627 31,923 33,627 31,923 Uncalled capital commitments 20,755
21,650 20,755 21,650 Accrued incentives (fund level): Incentives
created (fund level) 236,475 (114,149 ) 784,032 (100,384 )
Incentives created (fund level), net of associated incentive income
compensation expense 107,863 (60,395 ) 320,472 (66,399 ) Accrued
incentives (fund level) 2,014,097 1,585,217 2,014,097 1,585,217
Accrued incentives (fund level), net of associated incentive income
compensation expense 946,542 811,540 946,542 811,540 Note:
Oaktree discloses in this earnings release certain revenues and
financial measures, including segment measures such as segment
revenues and adjusted net income, and measures that are calculated
and presented on a basis other than generally accepted accounting
principles in the United States (“non-GAAP”), including adjusted
net income per Class A unit, distributable earnings revenues,
distributable earnings, distributable earnings per Class A unit,
fee-related earnings revenues, fee-related earnings, fee-related
earnings per Class A unit, economic net income revenues, economic
net income and economic net income per Class A unit.
Reconciliations of those segment and 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. GAAP-basis results and
adjusted net income for the year ended December 31, 2016 are
subject to the completion of Oaktree’s annual audit.
GAAP-basis Results
Oaktree adopted the new consolidation guidance as of January 1,
2016 under the modified retrospective approach, which did not
require prior periods to be recast. The adoption resulted in the
deconsolidation of substantially all of our previously consolidated
investment funds. Investment vehicles in which we have a
significant investment, such as collateralized loan obligation
vehicles (“CLOs”) and certain Oaktree funds, remain 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 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.
Total revenues increased $249.2 million, to $298.3 million for
the fourth quarter of 2016, from $49.1 million for the fourth
quarter of 2015. For full-year 2016, total revenues increased
$923.8 million, to $1.1 billion from $201.9 million in 2015. Both
increases reflected the deconsolidation of substantially all of
Oaktree’s investment funds caused by the adoption of the new
consolidation guidance, effective the first quarter of 2016.
Total expenses decreased $58.3 million, or 21.7%, to $210.2
million for the fourth quarter of 2016, from $268.5 million for the
fourth quarter of 2015. For full-year 2016, total expenses
decreased $151.6 million, or 16.1%, to $789.3 million from $940.9
million in 2015. Both declines primarily reflected the impact of
deconsolidation.
Other income (loss) increased to income of $97.8 million in the
fourth quarter of 2016, from a loss of $511.1 million in the fourth
quarter of 2015. For full-year 2016, other income (loss) increased
to income of $272.2 million, from a loss of $776.4 million in 2015.
Both increases reflected our funds’ performance, as well as the
impact of deconsolidation.
Net income attributable to OCG increased to $59.3 million for
the fourth quarter of 2016, from $11.4 million for the fourth
quarter of 2015. For full-year 2016, net income attributable to OCG
increased to $194.7 million, from $71.3 million for 2015. Both
increases reflected higher segment profits, as well as a larger
allocation of income to OCG resulting from an increase in the
average number of Class A units outstanding.
Operating Metrics
Assets Under Management
AUM was $100.5 billion as of December 31, 2016, $99.8 billion as
of September 30, 2016 and $97.4 billion as of December 31, 2015.
The $0.7 billion increase since September 30, 2016 primarily
reflected $2.0 billion in aggregate market-value gains, $1.9
billion of capital inflows for closed-end funds and $0.8 billion of
net inflows to open-end funds, partially offset by $2.5 billion of
distributions to closed-end fund investors and $1.1 billion of
uncalled capital commitments for closed-end funds that have entered
liquidation.
The $3.1 billion increase in AUM since December 31, 2015
primarily reflected $8.1 billion in aggregate market-value gains
and $5.9 billion of capital inflows for closed-end funds, partially
offset by $7.7 billion of distributions to closed-end fund
investors, $1.6 billion of net outflows from open-end funds and
$1.1 billion of uncalled capital commitments for closed-end funds
that have entered liquidation. Inflows for closed-end funds
included $1.0 billion for Oaktree European Principal Fund IV, $0.8
billion for Oaktree Opportunities Funds X and Xb (“Opps X and Xb”)
and $0.8 billion for Oaktree Real Estate Opportunities Fund VII
(“ROF VII”). Distributions to closed-end fund investors included
$2.6 billion from Real Estate funds, $2.8 billion from Control
Investing funds and $1.6 billion from Distressed Debt funds.
Management Fee-generating Assets Under
Management
Management fee-generating AUM, a forward-looking metric, was
$79.8 billion as of December 31, 2016, $78.7 billion as of
September 30, 2016 and $78.9 billion as of December 31, 2015. The
$1.1 billion increase since September 30, 2016 primarily reflected
an aggregate $1.5 billion increase from capital drawn by funds that
pay fees based on drawn capital, NAV or cost basis, CLOs and
additional capital commitments to ROF VII, as well as $0.8 billion
of net inflows to open-end funds. These increases were largely
offset by an aggregate $1.2 billion attributable to closed-end
funds in liquidation, either from realizations or uncalled capital
commitments.
The $0.9 billion increase in management fee-generating AUM since
December 31, 2015 primarily reflected $4.7 billion in aggregate
market-value gains, an aggregate $2.1 billion of capital inflows to
closed-end funds, principally ROF VII, Opps X and CLOs, and $1.4
billion of drawdowns by closed-end funds for which management fees
are based on drawn capital, NAV or cost basis. These increases were
largely offset by an aggregate $5.0 billion attributable to
closed-end funds in liquidation and $1.6 billion of net outflows
from open-end funds.
Incentive-creating Assets Under
Management
Incentive-creating assets under management (“incentive-creating
AUM”) were $33.6 billion as of December 31, 2016, $32.4 billion as
of September 30, 2016 and $31.9 billion as of December 31, 2015.
The $1.2 billion increase since September 30, 2016 reflected an
aggregate $3.1 billion in drawdowns or contributions by closed-end
and evergreen funds, as well as market-value gains, partially
offset by an aggregate $1.9 billion decline primarily attributable
to distributions by closed-end funds. The $1.7 billion increase
since December 31, 2015 reflected an aggregate $8.2 billion in
drawdowns or contributions by closed-end and evergreen funds, as
well as market-value gains, partially offset by an aggregate
decline of $6.5 billion primarily attributable to distributions by
closed-end funds.
Of the $33.6 billion in incentive-creating AUM as of December
31, 2016, $21.2 billion, or 63%, was generating incentives at the
fund level, as compared with $17.5 billion, or 55%, of the $31.9
billion of incentive-creating AUM as of December 31, 2015.
Accrued Incentives (Fund Level) and
Incentives Created (Fund Level)
Accrued incentives (fund level) were $2.0 billion as of December
31, 2016, $1.8 billion as of September 30, 2016 and $1.6 billion as
of December 31, 2015. The fourth quarter of 2016 reflected $236.5
million of incentives created (fund level) and $71.2 million of
segment incentive income recognized. The full-year 2016 reflected
$784.0 million of incentives created (fund level) and $355.2
million of segment incentive income recognized.
Net of incentive income compensation expense, accrued incentives
(fund level) were $946.5 million as of December 31, 2016, $872.7
million as of September 30, 2016, and $811.5 million as of December
31, 2015. As of December 31, 2016, September 30, 2016 and December
31, 2015, the portion of net accrued incentives (fund level)
represented by funds that were currently paying incentives was
$201.7 million, $224.9 million and $292.1 million, respectively,
with the remainder arising from funds that as of that date were not
at the stage of their cash distribution waterfall where Oaktree was
entitled to receive incentives, other than possibly tax-related
distributions.
Uncalled Capital Commitments
Uncalled capital commitments were $20.8 billion as of December
31, 2016, $22.7 billion as of September 30, 2016, and $21.7 billion
as of December 31, 2015. Invested capital during the quarter and
year ended December 31, 2016 aggregated $2.2 billion and $8.5
billion, respectively, as compared with $1.7 billion and $8.1
billion for the comparable 2015 periods.
Segment Results
Revenues
Segment revenues grew $139.4 million, or 65.8%, to $351.4
million in the fourth quarter of 2016, from $212.0 million in the
fourth quarter of 2015, reflecting increases of $4.9 million in
management fees, $38.3 million in incentive income and $96.2
million in investment income.
For full-year 2016, segment revenues grew $296.3 million, or
27.8%, to $1.4 billion from $1.1 billion in 2015, reflecting
increases of $31.9 million in management fees, $91.4 million in
incentive income and $173.1 million in investment income.
Management Fees
Management fees increased $4.9 million, or 2.6%, to $192.6
million in the fourth quarter of 2016, from $187.7 million in the
fourth quarter of 2015. The growth reflected an aggregate increase
of $29.0 million principally from the start of investment periods
for Opps X and ROF VII. This increase was partially offset by an
aggregate decline of $24.1 million primarily attributable to
closed-end funds in liquidation. The fourth quarter of 2016
benefited from $4.7 million in retroactive management fees related
to additional commitments to ROF VII.
For full-year 2016, management fees increased $31.9 million, or
4.2%, to $785.7 million from $753.8 million in 2015. The growth
reflected an aggregate increase of $116.8 million principally from
the start of investment periods for Oaktree Power Opportunities
Fund IV, Oaktree Special Situations Fund, Opps X and ROF VII. This
increase was partially offset by an aggregate decline of $84.9
million primarily attributable to closed-end funds in liquidation
and net outflows from open-end funds.
Incentive Income
Incentive income increased $38.3 million, to $71.2 million in
the fourth quarter of 2016, from $32.9 million in the fourth
quarter of 2015. The fourth quarter of 2016 reflected nine
investment strategies, with $39.0 million arising from closed-end
funds and $32.2 million from evergreen funds.
For full-year 2016, incentive income increased $91.4 million, or
34.6%, to $355.2 million from $263.8 million in 2015. Full-year
2016 included tax-related incentive income of $72.7 million and
regular incentive income of $282.5 million, as compared with $142.9
million and $120.9 million, respectively, in 2015.
Investment Income (Loss)
Investment income increased $96.2 million, to $87.6 million in
the fourth quarter of 2016, from a loss of $8.6 million in the
fourth quarter of 2015. The increase primarily reflected higher
overall returns on our fund investments. Our one-fifth ownership
stake in DoubleLine Capital LP and its affiliates (collectively,
“DoubleLine”) accounted for investment income of $16.8 million and
$14.6 million in the fourth quarters of 2016 and 2015,
respectively, of which performance fees accounted for $0.8 million
and $0.4 million, respectively.
For full-year 2016, investment income increased $173.1 million,
to $221.4 million, from $48.3 million in 2015. The increase
primarily reflected higher overall returns on our fund investments,
despite a $23 million impairment charge in the first quarter of
2016 on investments in certain of our CLOs that predominantly
stemmed from holdings in energy-related companies. DoubleLine
accounted for investment income of $66.1 million and $55.0 million
in 2016 and 2015, respectively, of which performance fees accounted
for $4.7 million and $4.3 million, respectively.
Expenses
Compensation and Benefits
Compensation and benefits decreased $9.5 million, or 10.2%, to
$83.9 million in the fourth quarter of 2016, from $93.4 million in
the fourth quarter of 2015. For full-year 2016, compensation and
benefits decreased $22.5 million, or 5.6%, to $381.9 million from
$404.4 million in 2015. Both decreases reflected an overall shift
in compensation mix from cash to equity. Additionally, the bonus
charges in both fourth quarters were lower than the respective
year’s quarterly average because of higher accruals taken in the
first three quarters towards the year-end cash bonus pool.
Equity-based Compensation
Equity-based compensation increased $2.4 million, or 23.5%, to
$12.6 million in the fourth quarter of 2016, from $10.2 million in
the fourth quarter of 2015. For full-year 2016, equity-based
compensation increased $13.8 million, or 36.3%, to $51.8 million
from $38.0 million in 2015. Both increases reflected non-cash
amortization expense associated with vesting of Class A and OCGH
unit grants made to employees and directors subsequent to our 2012
initial public offering.
Incentive Income Compensation
Incentive income compensation expense increased $22.5 million,
to $37.1 million in the fourth quarter of 2016, from $14.6 million
in the fourth quarter of 2015. For full-year 2016, incentive income
compensation expense increased $27.9 million, or 19.7%, to $169.7
million, from $141.8 million in 2015. Both increases were primarily
driven by the growth in incentive income, as well as differences in
the applicable funds’ compensation percentages. Additionally,
full-year 2015 included catch-up tax amounts related to incentive
interests awarded to certain investment professionals.
General and Administrative
General and administrative expense increased $1.8 million, or
5.9%, to $32.4 million in the fourth quarter of 2016, from $30.6
million in the fourth quarter of 2015. For full-year 2016, general
and administrative expense increased $3.0 million, or 2.5%, to
$123.8 million, from $120.8 million in 2015.
Depreciation and Amortization
Depreciation and amortization expense increased $0.1 million, or
3.3%, to $3.1 million in the fourth quarter of 2016, from $3.0
million in the fourth quarter of 2015. For full-year 2016,
depreciation and amortization expense increased $2.2 million, or
22.0%, to $12.2 million, from $10.0 million in 2015, primarily
reflecting leasehold improvements associated with office space
expansion.
Other Income (Expense), Net
Other income (expense), net amounted to expense of $2.1 million
and $1.6 million in the fourth quarters of 2016 and 2015,
respectively, reflecting $3.3 million of losses associated with
non-operating corporate activities and $1.2 million in
foreign-currency transaction gains for the fourth quarter of 2016,
and $1.6 million of foreign-currency transaction losses for the
fourth quarter of 2015. For full-years 2016 and 2015, other income
(expense), net amounted to expense of $8.4 million and $3.9
million, respectively, primarily reflecting losses associated with
non-operating corporate activities. Full-year 2016 included a $4.4
million impairment charge on our corporate plane that was taken in
the third quarter.
Adjusted Net Income
ANI increased $123.2 million, to $172.8 million in the fourth
quarter of 2016, from $49.6 million in the fourth quarter of 2015,
reflecting increases of $96.2 million in investment income, $15.8
million in incentive income, net of incentive income compensation
expense (“net incentive income”), and $12.4 million in fee-related
earnings. The portion of ANI attributable to our Class A units
was $57.1 million, or $0.91 per unit, and $14.6 million, or $0.26
per unit, for the fourth quarters of 2016 and 2015,
respectively.
For full-year 2016, ANI increased $270.7 million, or 86.8%, to
$582.6 million, from $311.9 million in 2015, reflecting increases
of $173.1 million in investment income, $63.5 million in net
incentive income and $49.1 million in fee-related earnings. The
portion of ANI attributable to our Class A units was $194.8
million, or $3.11 per unit, and $79.9 million, or $1.62 per unit,
for 2016 and 2015, respectively.
The effective tax rate applied to ANI in the fourth quarters of
2016 and 2015 was 18% and 15%, respectively, resulting from
full-year effective rates of 17% and 16%, respectively. In general,
the annual effective tax rate increases as the proportion of ANI
arising from fee-related earnings, DoubleLine-related investment
income and certain incentive and investment income rises, and vice
versa.
Distributable Earnings
Distributable earnings grew $39.4 million, or 37.8%, to $143.7
million in the fourth quarter of 2016, from $104.3 million in the
fourth quarter of 2015, reflecting increases of $15.8 million in
net incentive income, $12.4 million in fee-related earnings and
$10.7 million in investment income proceeds. For the fourth quarter
of 2016, investment income proceeds totaled $46.2 million,
including $24.8 million from fund distributions and $21.4 million
from DoubleLine, as compared with total investment income proceeds
in the prior-year quarter of $35.5 million, of which $17.7 million
and $17.8 million was attributable to fund distributions and
DoubleLine, respectively. The portion of distributable earnings
attributable to our Class A units was $0.73 and $0.55 per unit
for the fourth quarters of 2016 and 2015, respectively, reflecting
distributable earnings per Operating Group unit of $0.93 and $0.68,
respectively, less costs borne by Class A unitholders for
professional fees and other expenses, cash taxes attributable to
the Intermediate Holding Companies, and amounts payable pursuant to
the tax receivable agreement.
For full-year 2016, distributable earnings grew $90.8 million,
or 20.3%, to $538.4 million, from $447.6 million in 2015,
reflecting increases of $63.5 million in net incentive income and
$49.1 million in fee-related earnings, partially offset by a $19.3
million decline in investment income proceeds. For 2016, investment
income proceeds totaled $130.1 million, including $66.4 million
from fund distributions and $63.7 million from DoubleLine, as
compared with total investment income proceeds in 2015 of $149.4
million, of which $101.3 million and $51.7 million was attributable
to fund distributions and DoubleLine, respectively. The portion of
distributable earnings attributable to our Class A units was
$2.94 and $2.42 per unit for 2016 and 2015, respectively,
reflecting distributable earnings per Operating Group unit of $3.48
and $2.91, respectively, less costs borne by Class A
unitholders.
Fee-related Earnings
Fee-related earnings grew $12.4 million, or 20.4%, to $73.1
million in the fourth quarter of 2016, from $60.7 million in the
fourth quarter of 2015. The increase reflected $4.9 million of
higher management fees and $9.5 million of lower compensation and
benefits, partially offset by $1.8 million of higher general and
administrative expense. The portion of fee-related earnings
attributable to our Class A units was $0.37 and $0.36 per unit
for the fourth quarters of 2016 and 2015, respectively.
For full-year 2016, fee-related earnings grew $49.1 million, or
22.5%, to $267.7 million, from $218.6 million in 2015. The increase
reflected $31.9 million of higher management fees and $22.5 million
of lower compensation and benefits, partially offset by $3.0
million of higher general and administrative expense. The portion
of fee-related earnings attributable to our Class A units was
$1.50 and $1.34 per unit for 2016 and 2015, respectively.
The effective tax rate applicable to fee-related earnings for
the fourth quarters of 2016 and 2015 was 22% and 8%, respectively,
resulting from full-year effective rates of 13% and 4%,
respectively. In general, the annual effective tax rate increases
as annual fee-related earnings increase, and vice versa.
Capital and Liquidity
As of December 31, 2016, Oaktree had $1.0 billion of cash and
U.S. Treasury and time deposit securities, and $746 million of
outstanding debt, net of debt issuance costs. Oaktree neither had
as of December 31, 2016, nor currently has, any borrowings
outstanding against its $500 million revolving credit facility. As
of December 31, 2016, Oaktree’s investments in funds and companies
had a carrying value of $1.5 billion, with the 20% investment in
DoubleLine carried at $31 million based on cost, as adjusted under
the equity method of accounting. Accrued incentives (fund level),
net of associated compensation expense, represented an additional
$947 million as of that date.
Distribution
A distribution attributable to the fourth quarter of 2016 was
declared of $0.63 per Class A unit. This distribution will be
paid on February 24, 2017 to Class A unitholders of record at
the close of business on February 17, 2017.
Conference Call
Oaktree will host a conference call to discuss its fourth
quarter and full-year 2016 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 10099503,
beginning approximately one hour after the broadcast.
About Oaktree
Oaktree is a leader among global investment managers
specializing in alternative investments, with $101 billion in
assets under management as of December 31, 2016. The firm
emphasizes an opportunistic, value-oriented and risk-controlled
approach to investments in distressed debt, corporate debt
(including high yield debt and senior loans), control investing,
convertible securities, real estate and listed equities.
Headquartered in Los Angeles, the firm has over 900 employees and
offices in 18 cities worldwide. For additional information, please
visit Oaktree’s website at www.oaktreecapital.com.
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.
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
Capital Group, LLC (“OCG”), with respect to, among other things,
our future results of operations and financial performance. In some
cases, you can identify forward-looking statements by words such as
“anticipate,” “approximately,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “may,” “outlook,” “plan,”
“potential,” “predict,” “seek,” “should,” “will” and “would” or the
negative version of these words or other comparable or similar
words. These statements identify prospective information. Important
factors could cause actual results to differ, possibly materially,
from those indicated in these statements. Forward-looking
statements are based on our beliefs, assumptions and expectations
of our future performance, taking into account all information
currently available to us. Such forward-looking statements are
subject to risks and uncertainties and assumptions relating to our
operations, financial results, financial condition, business
prospects, growth strategy and liquidity, including, but not
limited to, changes in our anticipated revenue and income, which
are inherently volatile; changes in the value of our investments;
the pace of our raising of new funds; changes in assets under
management; the timing and receipt of, and impact of taxes on,
carried interest; distributions from and liquidation of our
existing funds; the amount and timing of distributions on our Class
A units; changes in our operating or other expenses; the degree to
which we encounter competition; and general 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,
2015 and our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2016, filed with the SEC on February 26, 2016 and on
August 4, 2016, respectively, which are 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.
Consolidated Statements of Operations
Data (GAAP basis) (1)
Three Months Ended
December 31,
Year Ended December 31, 2016 2015
2016 2015 (in thousands, except per unit
data) Revenues: Management fees $ 190,045 $ 46,460 $ 774,587 $
195,308 Incentive income
108,265
2,648
351,159
6,597 Total revenues
298,310
49,108
1,125,746
201,905 Expenses: Compensation and benefits (80,933 )
(97,774 ) (389,892 ) (416,907 ) Equity-based compensation (15,264 )
(14,098 ) (63,724 ) (54,381 ) Incentive income compensation (75,623
) (53,821 ) (168,276 ) (160,831 ) Total compensation and benefits
expense (171,820 ) (165,693 ) (621,892 ) (632,119 ) General and
administrative (32,398 ) (32,982 ) (145,430 ) (110,677 )
Depreciation and amortization (4,146 ) (3,991 ) (16,222 ) (14,022 )
Consolidated fund expenses (1,801 ) (65,821 ) (5,792 ) (184,090 )
Total expenses (210,165 ) (268,487 ) (789,336 ) (940,908 ) Other
income (loss): Interest expense (33,761 ) (61,465 ) (120,610 )
(216,799 ) Interest and dividend income 44,841 503,178 165,066
1,958,802 Net realized gain (loss) on consolidated funds’
investments 18,946 (473,495 ) 27,593 1,177,150 Net change in
unrealized appreciation (depreciation) on consolidated funds’
investments 3,289 (498,636 ) (12,453 ) (3,767,527 ) Investment
income 62,921 13,240 199,126 51,958 Other income (expense), net
1,598 6,081 13,490 20,006
Total other income (loss)
97,834 (511,097 ) 272,212 (776,410 ) Income (loss)
before income taxes
185,979
(730,476 )
608,622
(1,515,413 ) Income taxes (12,701 ) (2,296 ) (42,519 ) (17,549 )
Net income (loss)
173,278
(732,772 )
566,103
(1,532,962 ) Less: Net (income) loss attributable to
non-controlling interests in consolidated funds
(7,303
) 775,162
(22,921
) 1,809,683 Net income attributable to non-controlling interests in
consolidated subsidiaries (106,692 ) (30,995 ) (348,477 ) (205,372
) Net income attributable to Oaktree Capital Group, LLC $ 59,283
$ 11,395 $ 194,705 $ 71,349
Distributions declared per Class A unit $ 0.65 $ 0.40
$ 2.25 $ 2.10 Net income per unit (basic and
diluted): Net income per Class A unit $ 0.94 $ 0.21 $
3.11 $ 1.45 Weighted average number of Class A units
outstanding 62,986 55,317 62,565 49,324
(1) In the first quarter of 2016, Oaktree adopted the
new consolidation and collateralized financing entity guidance
under the modified retrospective approach. The modified
retrospective approach did not require prior periods to be recast.
The adoption resulted in the deconsolidation of substantially all
of Oaktree’s investment funds.
Segment Financial Data
As of or for the Three Months
Ended December 31,
As of or for the YearEnded December 31, 2016
2015 2016 2015 Segment
Statements of Operations Data: (1)
(in thousands, except per
unit data or as otherwise indicated) Revenues: Management fees
$ 192,604 $ 187,747 $ 785,673 $ 753,805 Incentive income 71,186
32,854 355,152 263,806 Investment income (loss) 87,647
(8,620 ) 221,377 48,253
Total revenues
351,437 211,981 1,362,202 1,065,864
Expenses: Compensation and benefits (83,870 ) (93,446 ) (381,937 )
(404,442 ) Equity-based compensation (12,570 ) (10,218 ) (51,759 )
(37,978 ) Incentive income compensation (37,149 ) (14,570 )
(169,683 ) (141,822 ) General and administrative (32,445 ) (30,602
) (123,784 ) (120,783 ) Depreciation and amortization (3,145 )
(2,991 ) (12,219 ) (10,018 )
Total expenses
(169,179 ) (151,827 ) (739,382 ) (715,043 ) Adjusted net income
before interest and other income (expense) 182,258 60,154 622,820
350,821
Interest expense, net of interest income
(2)
(7,387 ) (8,929 ) (31,845 ) (35,032 ) Other income (expense), net
(2,098 ) (1,648 ) (8,392 ) (3,927 ) Adjusted net income $ 172,773
$ 49,577 $ 582,583 $ 311,862
Adjusted net income-OCG $ 57,094 $ 14,602 $ 194,844 $ 79,941
Adjusted net income per Class A unit 0.91 0.26 3.11 1.62
Distributable earnings 143,712 104,261 538,420 447,576
Distributable earnings-OCG 46,277 30,360 184,225 119,406
Distributable earnings per Class A unit 0.73 0.55 2.94 2.42
Fee-related earnings 73,144 60,708 267,733 218,562 Fee-related
earnings-OCG 22,995 19,967 93,740 66,328 Fee-related earnings per
Class A unit 0.37 0.36 1.50 1.34 Economic net income (loss) 246,599
(29,102 ) 717,585 123,479 Economic net income (loss)-OCG 88,840
(14,725 ) 252,206 8,716 Economic net income (loss) per Class A unit
1.41 (0.27 ) 4.03 0.18 Weighted average number of Operating
Group units outstanding 154,934 153,970 154,687 153,751 Weighted
average number of Class A units outstanding 62,986 55,317 62,565
49,324
Operating Metrics: Assets under management (in
millions): Assets under management $ 100,504 $ 97,359 $ 100,504 $
97,359 Management fee-generating assets under management 79,767
78,897 79,767 78,897 Incentive-creating assets under management
33,627 31,923 33,627 31,923
Uncalled capital commitments (3)
20,755 21,650 20,755 21,650 Accrued incentives (fund level): (4)
Incentives created (fund level) 236,475 (114,149 ) 784,032 (100,384
) Incentives created (fund level), net of associated incentive
income compensation expense 107,863 (60,395 ) 320,472 (66,399 )
Accrued incentives (fund level) 2,014,097 1,585,217 2,014,097
1,585,217 Accrued incentives (fund level), net of associated
incentive income compensation expense 946,542 811,540 946,542
811,540 (1) Our business is comprised of one segment,
our investment management segment, which consists of the investment
management services that we provide to our clients. The components
of revenues and expenses used in determining ANI do not give effect
to the consolidation of the funds that we manage. Segment revenues
include investment income (loss) that is classified in other income
(loss) in the GAAP-basis statements of operations. Segment revenues
and expenses also reflect Oaktree's proportionate economic interest
in Highstar, whereby amounts received for contractually
reimbursable costs are classified for segment reporting as expenses
and under GAAP as other income. 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)
differences arising from OCGH equity value units (“EVUs”) that are
classified as liability awards under GAAP but as equity awards for
segment reporting, (d) income taxes, (e) other income or expenses
applicable to OCG or its Intermediate Holding Companies, and (f)
the adjustment for non-controlling interests. Moreover, third-party
placement costs associated with closed-end funds under GAAP are
expensed as incurred, but for ANI are capitalized and amortized as
general and administrative expense in proportion to the associated
management fee stream. 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, but 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.
Additionally, for ANI, 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-basis
statements of operations, for which the revenue standard is fixed
or determinable and the expense standard is probable and reasonably
estimable. CLO investments are carried at fair value for GAAP
reporting, whereas for segment reporting 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. ANI is calculated at the Operating Group level. For
additional information regarding the reconciling adjustments
discussed above, please see Exhibit A. (2) Interest income was $2.0
million and $1.1 million for the three months ended December 31,
2016 and 2015, respectively, and $6.6 million and $5.1 million for
the years ended December 31, 2016 and 2015, respectively. (3)
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. (4) Our funds record as accrued incentives 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. We refer to the amount of incentive income recognized as
revenue by us as segment 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.
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 December
31,2016 September 30,2016
December 31,2015 (in millions) Assets Under
Management: Closed-end funds $ 60,104 $ 60,488 $ 59,430
Open-end funds 35,105 34,197 33,202 Evergreen funds 5,295
5,149 4,727 Total $ 100,504 $ 99,834 $
97,359
Three Months Ended
December 31,
Year Ended December 31, 2016 2015 2016
2015 (in millions) Change in Assets Under
Management: Beginning balance $ 99,834 $ 100,237 $ 97,359 $
90,831 Closed-end funds:
Capital commitments/other (1)
1,927 1,982 5,864 17,868
Distributions for a realization
event/other (2)
(2,485 ) (1,323 ) (7,747 ) (5,225 ) Change in uncalled capital
commitments for funds entering or in liquidation (3) (1,075 ) 85
(1,084 ) (767 ) Foreign-currency translation (420 ) (194 ) (176 )
(706 )
Change in market value (4)
1,423 (405 ) 3,754 (522 ) Change in applicable leverage 246 (33 )
63 579 Open-end funds: Contributions 2,793 729 5,444 4,919
Redemptions (1,947 ) (3,127 ) (7,048 ) (7,260 ) Foreign-currency
translation (291 ) (81 ) (130 ) (422 )
Change in market value (4)
353 (233 ) 3,637 (1,487 ) Evergreen funds: Contributions or new
capital commitments 20 61 259 349 Redemptions or
distributions/other (59 ) (189 ) (381 ) (406 ) Foreign-currency
translation 7 — (2 ) —
Change in market value (4)
178 (150 ) 692 (392 ) Ending balance $ 100,504
$ 97,359 $ 100,504 $ 97,359 (1)
These amounts represent capital commitments, as well as the
aggregate par value of collateral assets and principal cash related
to new CLO formations. (2) These amounts represent 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. (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) 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.
Management Fee-generating AUM As of
December 31,2016 September
30,2016 December 31,2015
Management Fee-generating Assets Under Management: (in
millions) Closed-end funds: Senior Loans $ 7,504 $ 6,887 $
6,580 Other closed-end funds 32,990 33,575 35,709 Open-end funds
35,034 34,148 33,135 Evergreen funds 4,239 4,090
3,473 Total $ 79,767 $ 78,700 $ 78,897
Three Months EndedDecember 31, Year Ended
December 31, 2016 2015 2016 2015
Change in Management Fee-generating Assets Under Management:
(in millions) Beginning balance $ 78,700 $ 76,489 $
78,897 $ 78,079 Closed-end funds:
Capital commitments to funds that pay fees
based on committed capital/other (1)
1,002 6,130 2,125 7,354 Capital drawn by funds that pay fees based
on drawn capital, NAV or cost basis 464 321 1,390 1,175
Change attributable to funds in
liquidation (2)
(857 ) (925 ) (4,162 ) (2,812 ) Change in uncalled capital
commitments for funds entering or in liquidation that pay fees
based on committed capital (3) (382 ) 62 (881 ) (409 )
Distributions by funds that pay fees based
on NAV/other (4)
(139 ) (92 ) (636 ) (381 ) Foreign-currency translation (365 ) (122
) (242 ) (443 )
Change in market value (5)
89 (171 ) 427 (294 ) Change in applicable leverage 220 59 184 827
Open-end funds: Contributions 2,741 728 5,395 4,903 Redemptions
(1,947 ) (3,126 ) (7,024 ) (7,243 ) Foreign-currency translation
(291 ) (81 ) (130 ) (421 ) Change in market value 383 (226 ) 3,658
(1,487 ) Evergreen funds: Contributions or capital drawn by funds
that pay fees based on drawn capital or NAV 67 146 533 760
Redemptions or distributions (79 ) (157 ) (413 ) (322 ) Change in
market value 161 (138 ) 646 (389 ) Ending balance $
79,767 $ 78,897 $ 79,767 $ 78,897
(1) These amounts represent 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 represent 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 represent
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.
As of December
31,2016 September 30,2016
December 31,2015 Reconciliation of Assets Under
Management to Management Fee-generating Assets Under
Management: (in millions) Assets under management $
100,504 $ 99,834 $ 97,359
Difference between assets under management
and committed capital or the lesser of funded capital or cost basis
for applicable closed-end funds (1)
(4,183 ) (4,449 ) (2,958 ) Undrawn capital commitments to
closed-end funds that have not yet commenced their investment
periods (10,367 ) (9,552 ) (8,215 ) Undrawn capital commitments to
funds for which management fees are based on drawn capital, NAV or
cost basis (3,109 ) (3,720 ) (4,754 )
Oaktree’s general partner investments in
management fee-generating funds
(1,822 ) (1,987 ) (1,357 ) Funds that are no longer paying
management fees and co-investments that pay no management fees
(1,256 ) (1,426 ) (1,178 ) Management fee-generating assets under
management $ 79,767 $ 78,700 $ 78,897
(1) This difference is not applicable to closed-end funds
that pay management fees based on NAV or leverage.
The period-end weighted average annual management fee rates
applicable to the respective management fee-generating AUM balances
above are set forth below.
As of Weighted Average Annual Management Fee
Rates: December 31,2016 September
30,2016 December 31,2015 Closed-end
funds: Senior Loans 0.50 % 0.50 % 0.50 % Other closed-end funds
1.50 1.51 1.52 Open-end funds 0.46 0.46 0.48 Evergreen funds 1.22
1.22 1.43 Overall 0.93 0.95 0.99
Incentive-creating AUM
As of December 31,2016 September
30,2016 December 31,2015
Incentive-creating Assets Under Management: (in
millions) Closed-end funds $ 30,292 $ 29,241 $ 30,100 Evergreen
funds 3,335 3,199 1,823 Total $ 33,627 $
32,440 $ 31,923
Accrued Incentives (Fund Level) and
Incentives Created (Fund Level)
As of or for the Three MonthsEnded December
31, As of or for the YearEnded December 31,
2016 2015 2016 2015
Accrued Incentives (Fund Level): (in thousands)
Beginning balance $ 1,848,808 $ 1,732,220 $ 1,585,217
$ 1,949,407 Incentives created (fund level):
Closed-end funds 223,502 (114,047 ) 746,349 (100,633 ) Evergreen
funds 12,973 (102 ) 37,683 249
Total incentives created (fund level)
236,475 (114,149 ) 784,032 (100,384 ) Less: segment
incentive income recognized by us (71,186 ) (32,854 ) (355,152 )
(263,806 ) Ending balance $ 2,014,097 $ 1,585,217 $
2,014,097 $ 1,585,217 Accrued incentives (fund
level), net of associated incentive income compensation expense $
946,542 $ 811,540 $ 946,542 $ 811,540
Uncalled Capital Commitments
Uncalled capital commitments were $20.8 billion as of December
31, 2016, $22.7 billion as of September 30, 2016 and $21.7 billion
as of December 31, 2015.
Segment Results
Our business is comprised of one segment, our investment
management segment, which consists of the investment management
services that we provide to our clients.
Adjusted Net Income
Adjusted net income and adjusted net income-OCG, as well as per
unit data, are set forth below:
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands, except per unit data) Revenues:
Management fees $ 192,604 $ 187,747 $ 785,673 $ 753,805 Incentive
income 71,186 32,854 355,152 263,806 Investment income (loss)
87,647 (8,620 ) 221,377 48,253 Total revenues
351,437 211,981 1,362,202 1,065,864
Expenses: Compensation and benefits (83,870 ) (93,446 ) (381,937 )
(404,442 ) Equity-based compensation (12,570 ) (10,218 ) (51,759 )
(37,978 ) Incentive income compensation (37,149 ) (14,570 )
(169,683 ) (141,822 ) General and administrative (32,445 ) (30,602
) (123,784 ) (120,783 ) Depreciation and amortization (3,145 )
(2,991 ) (12,219 ) (10,018 ) Total expenses (169,179 ) (151,827 )
(739,382 ) (715,043 ) Adjusted net income before interest and other
income (expense) 182,258 60,154 622,820 350,821 Interest expense,
net of interest income (7,387 ) (8,929 ) (31,845 ) (35,032 ) Other
income (expense), net (2,098 ) (1,648 ) (8,392 ) (3,927 ) Adjusted
net income 172,773 49,577 582,583 311,862 Adjusted net income
attributable to OCGH non-controlling interest (102,535 ) (31,767 )
(346,807 ) (214,629 ) Non-Operating Group expenses (529 ) (673 )
(1,176 ) (2,097 ) Adjusted net income-OCG before income taxes
69,709 17,137 234,600 95,136 Income taxes-OCG (12,615 ) (2,535 )
(39,756 ) (15,195 ) Adjusted net income-OCG $ 57,094 $
14,602 $ 194,844 $ 79,941 Adjusted net income
per Class A unit $ 0.91 $ 0.26 $ 3.11 $ 1.62
Weighted average number of Class A units outstanding 62,986
55,317 62,565 49,324
Management Fees
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) Management fees: Closed-end funds
$ 139,573 $ 130,590 $ 575,290 $ 518,513 Open-end funds 39,516
43,150 156,533 178,409 Evergreen funds 13,515 14,007
53,850 56,883 Total management fees $ 192,604 $
187,747 $ 785,673 $ 753,805
Investment Income (Loss)
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 Income (loss) from investments in funds:
(in
thousands) Oaktree funds: Corporate Debt $ 9,349 $ (6,230 ) $
24,375 $ 7,020 Convertible Securities 31 45 (788 ) (201 )
Distressed Debt 23,143 (12,088 ) 57,605 (46,977 ) Control Investing
14,887 (1,055 ) 34,422 17,072 Real Estate 2,672 2,618 11,025 14,980
Listed Equities 19,690 (6,594 ) 22,646 (1,857 ) Non-Oaktree funds
1,004 (119 ) 5,665 7,930 Income from investments in companies
16,871 14,803 66,427 50,286 Total
investment income (loss) $ 87,647 $ (8,620 ) $ 221,377
$ 48,253
Distributable Earnings and Distribution Calculation
Distributable earnings and the calculation of distributions are
set forth below:
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 Distributable Earnings: (in thousands, except
per unit data) Revenues: Management fees $ 192,604 $ 187,747 $
785,673 $ 753,805 Incentive income 71,186 32,854 355,152 263,806
Receipts of investment income from funds
(1)
24,753 17,679 66,390 101,296 Receipts of investment income from
companies 21,407 17,792 63,700 48,067
Total distributable earnings revenues 309,950 256,072
1,270,915 1,166,974 Expenses: Compensation and
benefits (83,870 ) (93,446 ) (381,937 ) (404,442 ) Incentive income
compensation (37,149 ) (14,570 ) (169,683 ) (141,822 ) General and
administrative (32,445 ) (30,602 ) (123,784 ) (120,783 )
Depreciation and amortization (3,145 ) (2,991 ) (12,219 ) (10,018 )
Total expenses (156,609 ) (141,609 ) (687,623 ) (677,065 ) Other
income (expense): Interest expense, net of interest income (7,387 )
(8,929 ) (31,845 ) (35,032 ) Operating Group income taxes (144 )
375 (4,635 ) (3,374 ) Other income (expense), net (2,098 ) (1,648 )
(8,392 ) (3,927 ) Distributable earnings $ 143,712 $ 104,261
$ 538,420 $ 447,576
Distribution
Calculation: Operating Group distribution with respect to the
period $ 122,265 $ 86,162 $ 458,584 $ 377,095 Distribution per
Operating Group unit $ 0.79 $ 0.56 $ 2.96 $ 2.45 Adjustments per
Class A unit: Distributable earnings-OCG income tax expense (0.08 )
— (0.20 ) (0.02 ) Tax receivable agreement (0.08 ) (0.08 ) (0.32 )
(0.38 ) Non-Operating Group expenses — (0.01 ) (0.03 ) (0.04
)
Distribution per Class A unit (2)
$ 0.63 $ 0.47 $ 2.41 $ 2.01 (1)
This adjustment characterizes a portion of the distributions
received from funds as receipts of investment income or loss. In
general, the income or loss component of a fund distribution is
calculated by multiplying the amount of the distribution by the
ratio of our investment’s undistributed income or loss to our
remaining investment balance. In addition, if the distribution is
made during the investment period, it is generally not reflected in
distributable earnings until after the investment period ends.
Additionally, any impairment charges on our CLO investments
included in ANI are, for distributable earnings purposes, amortized
over the remaining investment period of the respective CLO to align
with the timing of expected cash flows. (2) With respect to the
quarter ended December 31, 2016, a distribution was announced on
February 7, 2017 and is payable on February 24, 2017.
Units Outstanding
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) Weighted Average Units:
OCGH 91,948 98,653 92,122 104,427 Class A 62,986 55,317
62,565 49,324 Total 154,934 153,970
154,687 153,751
Units Eligible for Fiscal Period
Distribution: OCGH 91,756 91,938 Class A 63,010 61,923
Total 154,766 153,861
Segment Statements of Financial
Condition
As of December 31,
2016
September 30,2016 December
31,2015 (in thousands) Assets: Cash and
cash-equivalents $ 291,470 $ 461,389 $ 476,046 U.S. Treasury and
time deposit securities 757,578 676,226 661,116 Corporate
investments 1,480,928 1,383,612 1,434,109 Deferred tax assets
404,614 426,138 425,798 Receivables and other assets
379,124
355,546 257,013 Total assets $
3,313,714
$ 3,302,911 $ 3,254,082
Liabilities and
Capital: Liabilities: Accounts payable and accrued expenses $
353,451
$ 337,594 $ 368,980 Due to affiliates 346,543 360,193 356,851 Debt
obligations (1) 745,897 795,678 846,354 Total
liabilities
1,445,891
1,493,465 1,572,185 Capital: OCGH non-controlling
interest in consolidated subsidiaries
1,053,109
1,017,711 944,882 Unitholders’ capital attributable to Oaktree
Capital Group, LLC
814,714
791,735 737,015 Total capital
1,867,823
1,809,446 1,681,897 Total liabilities and capital $
3,313,714
$ 3,302,911 $ 3,254,082 (1) In the
first quarter of 2016, Oaktree adopted accounting guidance that
requires debt issuance costs, which were previously included in
receivables and other assets, to be netted with the associated
outstanding borrowings. Prior periods have been recast for this
change.
Corporate Investments
As of December 31,2016
September 30,2016 December
31,2015 Investments in funds:
(in thousands)
Oaktree funds: Corporate Debt $ 422,330 $ 421,466 $ 432,228
Convertible Securities 1,735 1,704 18,497 Distressed Debt 426,108
396,173 379,676 Control Investing 265,919 263,882 267,692 Real
Estate 141,234 117,822 135,922 Listed Equities 116,988 92,962
105,631 Non-Oaktree funds 71,682 69,651 65,901 Investments in
companies 34,932 19,952 28,562 Total corporate
investments $ 1,480,928 $ 1,383,612 $ 1,434,109
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 December 31, 2016 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
Oaktree Segment Incentive Income Recog-
nized
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) Distressed Debt
Oaktree Opportunities Fund Xb TBD — $8,063 —% —% $— $— $— $— $— $—
$— n/a n/a n/a Oaktree Opportunities Fund X (7) Jan. 2016 Jan. 2019
3,243 74 35 367 41 1,461 3,161 — 71 1,152 nm nm 1.4x Oaktree
Opportunities Fund IX Jan. 2014 Jan. 2017 5,066 100 100 132 5 5,193
4,966 — — 6,219 3.7% 0.9% 1.1 Oaktree Opportunities Fund VIIIb Aug.
2011 Aug. 2014 2,692 nm 100 452 1,314 1,830 2,074 52 — 2,372 6.7
3.7 1.3 Special Account B Nov. 2009 Nov. 2012 1,031 nm 100 497
1,147 452 438 15 — 428 12.8 10.3 1.5 Oaktree Opportunities Fund
VIII Oct. 2009 Oct. 2012 4,507 nm 100 2,069 4,652 1,924 1,797 144
218 1,627 12.1 8.4 1.5 Special Account A Nov. 2008 Oct. 2012 253 nm
100 297 466 84 71 42 17 — 28.1 22.7 2.2 OCM Opportunities Fund VIIb
May 2008 May 2011 10,940 nm 90 8,817 17,369 1,292 1,202 1,472 242 —
21.9 16.6 2.0 OCM Opportunities Fund VII Mar. 2007 Mar. 2010 3,598
nm 100 1,472 4,637 433 633 81 — 553 10.3 7.6 1.5 OCM Opportunities
Fund VI Jul. 2005 Jul. 2008 1,773 nm 100 1,297 3,051 19 — 249 4 —
11.9 8.8 1.8 OCM Opportunities Fund V Jun. 2004 Jun. 2007 1,179 nm
100 957 2,104 32 — 180 7 — 18.4 14.1 1.9
Legacy funds (8)
Various Various 9,543 nm 100 8,205 17,695 53 — 1,113 11 — 24.2 19.3
1.9 22.0% 16.2%
Real Estate Opportunities Oaktree Real
Estate Opportunities Fund VII (7) (9) Jan. 2016 Jan. 2020 $2,920
41% 10% $27 $12 $307 $2,450 $— $— $294 nm nm 1.3x Oaktree Real
Estate Opportunities Fund VI Aug. 2012 Aug. 2016 2,677 nm 100 1,083
1,111 2,649 2,037 10 199 2,182 16.9% 11.3% 1.5 Oaktree Real Estate
Opportunities Fund V Mar. 2011 Mar. 2015 1,283 nm 100 930 1,597 616
355 56 121 162 17.6 12.9 1.8 Special Account D Nov. 2009 Nov. 2012
256 nm 100 185 311 138 73 3 15 77 14.7 12.7 1.7 Oaktree Real Estate
Opportunities Fund IV Dec. 2007 Dec. 2011 450 nm 100 395 714 131 91
49 25 — 16.1 11.0 2.0 OCM Real Estate Opportunities Fund III Sep.
2002 Sep. 2005 707 nm 100 618 1,307 18 — 119 4 — 15.3 11.3 2.0
Legacy funds (8)
Various Various 1,634 nm 99 1,399 3,009 — — 112 — — 15.2 12.0 1.9
15.5% 11.9%
Real Estate Debt Oaktree Real Estate Debt Fund
II (10) TBD — $505 —% —% $— $— $— $— $— $— $— n/a n/a n/a Oaktree
Real Estate Debt Fund Sep. 2013 Oct. 2016 1,112 nm 58 94 417 318
623 — 14 246 25.9% 19.0% 1.3x
Oaktree PPIP Fund (11)
Dec. 2009 Dec. 2012 2,322 nm 48 457 1,570 — — 47 — — 28.2 n/a 1.4
Real Estate Value-Add
Special Account G (7) (10)
Oct. 2016 Oct. 2020 $615 31% 31% $— $— $193 $188 $— $— $195 nm nm
1.0x
European Principal (12) Oaktree European
Principal Fund IV (13) TBD — €936 5% —% €(6) €— €(6) €48 €— €— €—
n/a n/a n/a Oaktree European Principal Fund III Nov. 2011 Nov. 2016
€3,164 nm 85 €1,699 €548 €3,900 €2,682 €— €330 €2,941 20.4% 13.6%
1.7x OCM European Principal Opportunities Fund II Dec. 2007 Dec.
2012 €1,759 nm 100 €469 €1,867 €332 €770 €29 €— €664 9.1 5.1 1.4
OCM European Principal Opportunities Fund Mar. 2006 Mar. 2009 $495
nm 96 $454 $927 $— $— $87 $— $— 11.7 8.9 2.1 13.7% 9.1%
As of December 31, 2016 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
Oaktree Segment Incentive Income Recog-
nized
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) European Private Debt
(12) Oaktree European Capital Solutions Fund (7) (10) Dec.
2015 Dec. 2018 €430 54% 43% €3 €— €188 €194 €— €— €189 nm nm 1.0x
Oaktree European Dislocation Fund Oct. 2013 Oct. 2016 €294 nm 57
€34 €140 €76 €97 €— €5 €56 22.3% 15.9% 1.2 Special Account E Oct.
2013 Apr. 2015 €379 nm 69 €55 €232 €84 €107 €— €8 €62 14.3 11.0 1.2
16.0% 11.6%
Special Situations (14) Oaktree Special
Situations Fund Nov. 2015 Nov. 2018 $1,223 51% 17% $66 $67 $207
$1,167 $— $13 $157 51.0% 24.4% 1.5x Other funds: Oaktree Principal
Fund V Feb. 2009 Feb. 2015 $2,827 nm 91% $545 $1,563 $1,568 $1,712
$50 $— $2,052 8.8% 4.4% 1.4x Special Account C Dec. 2008 Feb. 2014
505 nm 91 223 398 285 288 21 13 263 11.9 8.3 1.6 OCM Principal
Opportunities Fund IV Oct. 2006 Oct. 2011 3,328 nm 100 2,886 4,122
2,092 539 22 541 1,183 12.5 9.0 2.0 OCM Principal Opportunities
Fund III Nov. 2003 Nov. 2008 1,400 nm 100 881 2,205 76 — 167 3 —
13.8 9.5 1.8
Legacy funds (8)
Various Various 2,301 nm 100 1,840 4,138 3 — 236 1 — 14.5 11.6 1.8
13.3% 9.5%
Power Opportunities Oaktree Power Opportunities
Fund IV (7) Nov. 2015 Nov. 2020 $1,106 43% 43% $7 $1 $483 $1,078 $—
$— $490 nm nm 1.1x Oaktree Power Opportunities Fund III Apr. 2010
Apr. 2015 1,062 nm 66 408 575 531 412 14 64 304 22.9% 14.2% 1.7
OCM/GFI Power Opportunities Fund II Nov. 2004 Nov. 2009 1,021 nm 53
1,446 1,982 5 — 100 — — 76.1 58.8 3.8 OCM/GFI Power Opportunities
Fund Nov. 1999 Nov. 2004 449 nm 85 251 634 — — 23 — — 20.1 13.1 1.8
34.7% 26.5%
Infrastructure Investing Oaktree Infrastructure
Fund (15) TBD — $409 —% —% $— $— $— $— $— $— $— n/a n/a n/a
Highstar Capital IV (16)
Nov. 2010 Nov. 2016 2,000 nm 100 442 441 2,001 1,317 — 5 2,002
14.8% 8.8% 1.4x
Mezzanine Finance Oaktree Mezzanine
Fund IV (10) Oct. 2014 Oct. 2019 $852 41% 40% $35 $27 $347 $331 $—
$5 $340 12.3% 8.5% 1.1x
Oaktree Mezzanine Fund III (17)
Dec. 2009 Dec. 2014 1,592 nm 89 400 1,437 386 378 10 26 348 15.2
10.4 / 8.6 1.4 OCM Mezzanine Fund II Jun. 2005 Jun. 2010 1,251 nm
88 529 1,504 132 — — — 154 11.3 7.8 1.6
OCM Mezzanine Fund (18)
Oct. 2001 Oct. 2006 808 nm 96 302 1,075 — — 38 — — 15.4 10.8 / 10.5
1.5 13.2% 8.9%
Emerging Markets Opportunities Oaktree
Emerging Market Opportunities Fund (19) Sep. 2013 Sep. 2017 $384
65% 65% $48 $1 $297 $246 $— $4 $291 12.5% 8.2% 1.2x Special Account
F Jan. 2014 Jan. 2017 253 74 74 33 — 220 218 — 4 215 11.6 8.3 1.2
31,957 (12) 1,988 (12) 12.2% 8.9% Other (20) 8,399 19 Total (21)
$40,356 $2,007 (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 divided by committed capital. The
aggregate change in drawn capital for the three months ended
December 31, 2016 was $2.3 billion. (3) Accrued incentives (fund
level) exclude Oaktree segment 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) The IRR is
not considered meaningful (“nm”) as the period from the initial
capital contribution through December 31, 2016 was less than 18
months. (8) Legacy funds represent certain predecessor funds within
the relevant strategy 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) A portion of this fund pays management fees based on
drawn, rather than committed, capital. (10) Management fees during
the investment period are calculated on drawn capital or cost
basis, rather than committed capital. As a result, as of December
31, 2016 management fee-generating AUM included only that portion
of committed capital that had been drawn. (11) 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. (12) Aggregate IRRs or totals are based on the
conversion of cash flows or amounts, respectively, from euros to
USD using the December 31, 2016 spot rate of $1.05. (13) Management
fees are based on aggregate contributed capital for the period from
the initial investment date until the investment period start date,
which includes indebtedness incurred in lieu of drawn capital. (14)
Effective November 2016, the Global Principal strategy was renamed
the Special Situations strategy. The aggregate gross and net IRRs
presented for this strategy exclude the performance of Oaktree
Special Situations Fund. (15) A portion of the $409 million of
commitments to Oaktree Infrastructure Fund is subject to certain
contingencies. (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
December 31, 2016, Oaktree had not recognized any incentive income
from this fund. The accrued incentives (fund level) amount shown
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) 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 8.6%. The combined
net IRR for Class A and Class B interests was 9.6%. (18) 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%. (19) In the third quarter of 2016, the investment period
for Oaktree Emerging Market Opportunities Fund was extended for a
one year period until September 2017. However, management fees
stepped down to the post-investment period basis effective October
1, 2016. (20) This includes our closed-end Senior Loan funds, CLOs,
Oaktree European Special Situations Fund, OCM Asia Principal
Opportunities Fund, a non-Oaktree fund, certain separate accounts,
co-investments and certain evergreen separate accounts in our Real
Estate Debt and Emerging Markets Opportunities strategies. (21) The
total excludes two closed-end funds with management fee-generating
AUM aggregating $472 million as of December 31, 2016, which has
been included as part of the Strategic Credit strategy within the
evergreen funds table, and includes certain evergreen separate
accounts in our Real Estate Debt and Emerging Markets Opportunities
strategies with an aggregate $334 million of management
fee-generating AUM.
Open-end
Funds
Manage-
ment Fee-gener-
ating AUM
as of
Dec. 31, 2016
Year Ended December 31, 2016 Since Inception through
December 31, 2016 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) U.S. High Yield Bonds 1986 $ 17,289
14.2 % 13.6 % 17.3 % 9.4 % 8.8 % 8.4 % 0.80 0.56 Global High Yield
Bonds 2010 4,425 15.5 15.0 16.9 7.5 7.0 6.9 1.13 1.07 European High
Yield Bonds 1999 1,316 11.1 10.6 12.5 8.1 7.6 6.3 0.71 0.44 U.S.
Convertibles 1987 3,411 8.2 7.6 10.4 9.4 8.8 8.1 0.48 0.36 Non-U.S.
Convertibles 1994 1,456 3.7 3.2 0.9 8.4 7.8 5.6 0.78 0.40 High
Income Convertibles 1989 863 15.0 14.1 17.8 11.4 10.6 8.2 1.06 0.60
U.S. Senior Loans 2008 1,572 11.5 10.9 9.9 6.2 5.7 5.3 1.11 0.65
European Senior Loans 2009 1,422 6.7 6.2 6.5 8.5 7.9 9.2 1.72 1.73
Emerging Markets Equities 2011 3,060 15.1 14.2 11.2 (1.7 ) (2.5 )
(2.7 ) (0.09 ) (0.15 ) Other 220 Total $ 35,034
(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.
Evergreen
Funds
As of December 31, 2016 Year Ended
December 31, 2016
Since Inception throughDecember 31, 2016 AUM
Manage-
ment
Fee-gener-
ating AUM
Accrued Incen-
tives (Fund Level)
StrategyInception
Rates of Return (1) Annualized Rates
of Return (1)
Gross Net Gross Net
(in millions)
Strategic Credit (2)
2012 $ 3,281 $ 2,392 $ — (3) 16.3 % 12.8 % 8.3 % 6.0 % Value
Opportunities 2007 1,272 1,207 — (4) 17.7 15.5 9.5 5.5 Emerging
Markets Debt Total Return (5) 2015 441 366 2 (3) 31.3 25.0 15.5
12.1 Value Equities (6) 2012 371 301 — (3) 29.6 25.7 19.5 14.1
Emerging Markets Absolute Return 1997 131 111 — (4) 5.8 4.4
12.9 8.7 4,377 2 Restructured funds — 5 Total (2) (7) $
4,377 $ 7 (1) Returns represent time-weighted
rates of return. (2) Includes two closed-end funds with an
aggregate $799 million and $472 million of AUM and management
fee-generating AUM, respectively. Beginning with the third quarter
of 2016, annual performance-based fees have been reflected as
incentive income (as opposed to management fees). Such amounts were
not material in prior periods. (3) For the year ended December 31,
2016, segment gross incentive income recognized by Oaktree totaled
$19.3 million, $4.8 million and $5.3 million for Strategic Credit,
Emerging Markets Debt Total Return and Value Equities,
respectively. (4) As of December 31, 2016, the aggregate
depreciation below high-water marks previously established for
individual investors in the fund totaled approximately $67 million
for Value Opportunities and $2 million for Emerging Markets
Absolute Return. (5) The rates of return include the performance of
the composite for a single account with a December 2014 inception
date. (6) Includes performance of a proprietary fund with an
initial capital commitment of $25 million since its inception in
May 2012. (7) The total excludes certain evergreen separate
accounts in our Real Estate Debt and Emerging Markets Opportunities
strategies with an aggregate $334 million of management
fee-generating AUM as of December 31, 2016.
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. We
refer to the amount of accrued incentives recognized as revenue by
us as segment 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.
Adjusted net income (“ANI”) is a measure of profitability
for our investment management segment. The components of revenues
(“segment revenues”) and expenses used in the determination of ANI
do not give effect to the consolidation of the funds that we
manage. Segment revenues include investment income (loss) that is
classified in other income (loss) in the GAAP-basis statements of
operations. Segment revenues and expenses also reflect Oaktree's
proportionate economic interest in Highstar, whereby amounts
received for contractually reimbursable costs are classified for
segment reporting as expenses and under GAAP as other income. 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) differences arising from equity value
units (“EVUs”) that are classified as liability awards under GAAP
but as equity awards for segment reporting, (d) income taxes,
(e) other income or expenses applicable to OCG or its
Intermediate Holding Companies, and (f) the adjustment for
non-controlling interests. Moreover, third-party placement costs
associated with closed-end funds under GAAP are expensed as
incurred, but for ANI are capitalized and amortized as general and
administrative expense in proportion to the associated management
fee stream. 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, but 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. Additionally, for
ANI, 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-basis statements of operations, for
which the revenue standard is fixed or determinable and the expense
standard is probable and reasonably estimable. CLO investments are
carried at fair value for GAAP reporting, whereas for segment
reporting 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. ANI is calculated at the
Operating Group level.
Adjusted net income–OCG, or adjusted net income per Class A
unit, a non-GAAP performance measure, is calculated to provide
Class A unitholders with a measure that shows the portion of
ANI attributable to their ownership. Adjusted net income-OCG
represents ANI including the effect of (a) the OCGH
non-controlling interest, (b) other income or expenses, such
as income tax expense, applicable to OCG or its Intermediate
Holding Companies and (c) any Operating Group income taxes
attributable to OCG. Two of our Intermediate Holding Companies
incur federal and state income taxes for their shares of Operating
Group income. Generally, those two corporate entities hold an
interest in the Operating Group’s management fee-generating assets
and a small portion of its incentive and investment
income-generating assets. As a result, historically our fee-related
earnings and investment income arising from our one-fifth ownership
stake in DoubleLine 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 and
DoubleLine-related investment income represented a larger
proportion of our ANI. Myriad 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 the aggregate par value of
collateral assets and principal cash held by our CLOs. 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 reflects the beginning AUM on which we
will earn management fees in the following quarter. 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, and our CLOs pay management
fees based on the aggregate par value of collateral assets and
principal cash held by them, as defined in the applicable CLO
indentures. 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 are no longer paying
management fees and co-investments that pay no management
fees.
- Incentive-creating assets under
management (“incentive-creating AUM”) refers to the AUM that
may eventually produce incentive income. It 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). 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 generating
incentives. Incentive-creating AUM does not include undrawn capital
commitments.
Consolidated funds refers to the funds and CLOs that
Oaktree is required to consolidate as of the respective reporting
date.
Distributable earnings is a non-GAAP performance measure
derived from our segment 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 segment investment income or
loss and include the receipt of investment income or loss from
distributions by our investments in funds and companies.
Additionally, any impairment charges on our CLO investments
included in ANI are, for distributable earnings purposes, amortized
over the remaining investment period of the respective CLO, in
order to align with the timing of expected cash flows. In addition,
distributable earnings differs from ANI in that it is net of
Operating Group income taxes and excludes non-cash equity-based
compensation expense.
Distributable earnings–OCG, or distributable earnings per
Class A unit, a non-GAAP performance measure, is calculated to
provide Class A unitholders with a measure that shows the
portion of distributable earnings attributable to their ownership.
Distributable earnings-OCG represents distributable earnings,
including the effect of (a) the OCGH non-controlling interest,
(b) expenses, such as current income tax expense, applicable
to OCG or its Intermediate Holding Companies and (c) amounts
payable under a tax receivable agreement. The income tax expense
included in distributable earnings-OCG represents the implied
current provision for income taxes calculated using an approach
similar to that which is used in calculating the income tax
provision for adjusted net income-OCG.
Economic net income (“ENI”) is a non-GAAP performance
measure that we use to evaluate the financial performance of our
segment by applying the “Method 2,” instead of the “Method 1,”
revenue recognition approach to accounting for incentive income.
ANI follows Method 1, except incentive income is recognized when
the underlying fund distributions are known or knowable as of the
respective quarter end, as opposed to the fixed or determinable
standard of Method 1. The Method 2 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.
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
Method 2, instead of the Method 1, approach to accounting for
segment incentive income, and reflects the adjustments described
above and under the definition of ANI.
Economic net income–OCG, or economic net income per Class A
unit, a non-GAAP performance measure, is calculated to provide
Class A unitholders with a measure that shows the portion of
ENI attributable to their ownership. Economic net income-OCG
represents ENI, including the effect of (a) the OCGH
non-controlling interest, (b) other income or expenses, such
as income tax expense, applicable to OCG or its Intermediate
Holding Companies and (c) any Operating Group income taxes
attributable to OCG. The income tax expense included in economic
net income-OCG represents the implied provision for income taxes
calculated using an approach similar to that which is used in
calculating the income tax provision for adjusted net
income-OCG.
Equity value units (“EVUs”) represent special limited
partnership units in Oaktree Capital Group Holdings, L.P. (“OCGH”)
that entitle the holder the right to receive a one-time special
distribution that will be settled in OCGH units, based on value
created during a specified period (“Term”) in excess of a fixed
“Base Value.” The value created will be measured on a per unit
basis, based on Class A unit trading prices and certain components
of quarterly distributions with respect to the period during the
Term. EVUs also give the holder the right, subject to service
vesting and Oaktree performance relative to the accreting Base
Value, to receive certain quarterly distributions from OCGH. EVUs
do not entitle the holder to any voting rights.
Fee-related earnings (“FRE”) is a non-GAAP performance
measure that we use to monitor the baseline earnings of our
business. FRE is comprised of segment management fees (“fee-related
earnings revenues”) less segment operating expenses other than
incentive income compensation expense and non-cash equity-based
compensation expense. FRE is considered baseline because it 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 a significant portion of
those expenses is attributable to incentive and investment income.
FRE is presented before income taxes.
Fee-related earnings–OCG, or fee-related earnings per Class A
unit, is a non-GAAP performance measure calculated to provide
Class A unitholders with a measure that shows the portion of
FRE attributable to their ownership. Fee-related earnings–OCG
represents FRE including the effect of (a) the OCGH
non-controlling interest, (b) other income or expenses, such
as income tax expense, applicable to OCG or its Intermediate
Holding Companies and (c) any Operating Group income taxes
attributable to OCG. Fee-related earnings–OCG income taxes is
calculated excluding any segment incentive income or investment
income (loss).
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.
Net asset value (“NAV”) refers to the value of all the
assets of a fund (including cash and accrued interest and
dividends) less all liabilities of the fund (including accrued
expenses and any reserves established by us, in our discretion, for
contingent liabilities) without reduction for accrued incentives
(fund level) because they are reflected in the partners’ capital of
the fund.
Oaktree, OCG, we, us, our or the Company refers to
Oaktree Capital Group, LLC and, where applicable, its subsidiaries
and affiliates.
Oaktree Operating Group (“Operating Group”) refers
collectively to the entities in which we have a minority economic
interest and indirect control that either (i) act as or control the
general partners and investment advisers of our funds or (ii) hold
interests in other entities or investments generating income for
us.
Relevant Benchmark refers, with respect to:
- our U.S. High Yield Bond strategy, to
the Citigroup U.S. High Yield Cash-Pay Capped Index;
- our Global High Yield Bond strategy, to
an Oaktree custom global high yield index that represents 60% BofA
Merrill Lynch High Yield Master II Constrained Index and 40% BofA
Merrill Lynch Global Non-Financial High Yield European Issuers 3%
Constrained, ex-Russia Index – USD Hedged from inception through
December 31, 2012, and the BofA Merrill Lynch Non-Financial
Developed Markets High Yield Constrained Index – USD Hedged
thereafter;
- our European High Yield Bond strategy,
to the BofA Merrill Lynch Global Non-Financial High Yield European
Issuers excluding Russia 3% Constrained Index (USD Hedged);
- our U.S. Senior Loan strategy (with the
exception of the closed-end funds), to the Credit Suisse Leveraged
Loan Index;
- our European Senior Loan strategy, to
the Credit Suisse Western European Leveraged Loan Index (EUR
Hedged);
- our U.S. Convertible Securities
strategy, 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 BofA Merrill Lynch All U.S.
Convertibles Index thereafter;
- our non-U.S. Convertible Securities
strategy, 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
strategy, to the Citigroup U.S. High Yield Market Index; and
- our Emerging Markets Equities strategy,
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 strategy, 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.
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, financial
measures presented in accordance with GAAP.
Reconciliation of GAAP Net Income to Segment Results
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income and fee-related
earnings.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) Net income attributable to
Oaktree Capital Group, LLC $ 59,283 $ 11,395 $ 194,705 $ 71,349
Incentive income (1) (38,474 ) (39,251 ) 1,407 (19,002 ) Incentive
income compensation (1) 38,474 39,251 (1,407 ) 19,009 Investment
income (2) (2,081 ) — (21,814 ) — Equity-based compensation (3)
2,694 3,880 11,965 16,403 Placement costs (4) 3,063 3,619 11,870
3,619 Foreign-currency hedging (5) (9,341 ) 1,660 1,496 2,619
Acquisition-related items (6) 827 316 (924 ) 5,251 Income taxes (7)
12,701 2,296 42,519 17,549 Non-Operating Group expenses (8) 529 673
1,176 2,097 Non-controlling interests (8) 105,098 25,738
341,590 192,968 Adjusted net income 172,773
49,577 582,583 311,862 Incentive income (71,186 ) (32,854 )
(355,152 ) (263,806 ) Incentive income compensation 37,149 14,570
169,683 141,822 Investment (income) loss (87,647 ) 8,620 (221,377 )
(48,253 ) Equity-based compensation (9) 12,570 10,218 51,759 37,978
Interest expense, net of interest income 7,387 8,929 31,845 35,032
Other (income) expense, net 2,098 1,648 8,392
3,927 Fee-related earnings $ 73,144 $ 60,708 $
267,733 $ 218,562 (1) This adjustment
adds back the effect of timing differences associated with the
recognition of incentive income and incentive income compensation
expense between adjusted net income and net income attributable to
OCG. (2) This adjustment adds back the effect of differences in the
recognition of investment income related to corporate investments
in CLOs which under GAAP are marked-to-market but for segment
reporting are accounted for at amortized cost, subject to
impairment. (3) This adjustment adds back the effect of (a)
equity-based compensation expense related to unit grants made
before our initial public offering, which is excluded from adjusted
net income and fee-related earnings because it is a non-cash charge
that does not affect our financial position, and (b) differences
arising from EVUs that are classified as liability awards under
GAAP but as equity awards for segment reporting. (4) This
adjustment adds back the effect of timing differences with respect
to the recognition of third-party placement costs associated with
closed-end funds between adjusted net income and net income
attributable to OCG. (5) This adjustment adds back the effect of
timing differences associated with the recognition of unrealized
gains and losses related to foreign-currency hedging between
adjusted net income and net income attributable to OCG. (6) 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. (7) Because adjusted net income and
fee-related earnings are pre-tax measures, this adjustment adds
back the effect of income tax expense. (8) Because adjusted net
income and fee-related earnings are calculated at the Operating
Group level, this adjustment adds back the effect of items
applicable to OCG, its Intermediate Holding Companies or
non-controlling interests. (9) This adjustment adds back the effect
of equity-based compensation expense related to unit grants made
after our initial public offering, which is excluded from
fee-related earnings because it is non-cash in nature and does not
impact our ability to fund our operations.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income-OCG and
fee-related earnings-OCG.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) Net income attributable to
Oaktree Capital Group, LLC $ 59,283 $ 11,395 $ 194,705 $ 71,349
Incentive income attributable to OCG (1) (15,641 ) (14,102 ) 407
(8,087 ) Incentive income compensation attributable to OCG (1)
15,641 14,102 (407 ) 8,209 Investment income attributable to OCG
(2) (846 ) — (8,807 ) — Equity-based compensation attributable to
OCG (3) 1,095 1,395 4,839 5,238 Placement costs attributable to OCG
(4) 1,245 1,301 4,793 1,301 Foreign-currency hedging attributable
to OCG (5) (3,797 ) 595 572 1,006 Acquisition-related items
attributable to OCG (6) 336 113 (372 ) 1,628 Non-controlling
interests attributable to OCG (6) (222 ) (197 ) (886 ) (703 )
Adjusted net income-OCG (7) 57,094 14,602 194,844 79,941 Incentive
income attributable to OCG (28,939 ) (11,804 ) (143,595 ) (81,314 )
Incentive income compensation attributable to OCG 15,102 5,234
68,609 43,414 Investment (income) loss attributable to OCG (35,631
) 3,097 (89,698 ) (13,693 ) Equity-based compensation attributable
to OCG (8) 5,110 3,671 20,940 12,259 Interest expense, net of
interest income attributable to OCG 3,246 3,670 13,002 11,642 Other
(income) expense attributable to OCG 853 592 3,400 1,308
Non-fee-related earnings income taxes attributable to OCG (9) 6,160
905 26,238 12,771 Fee-related
earnings-OCG (7) $ 22,995 $ 19,967 $ 93,740 $
66,328 (1) This adjustment adds back the
effect of timing differences associated with the recognition of
incentive income and incentive income compensation expense between
adjusted net income-OCG and net income attributable to OCG. (2)
This adjustment adds back the effect of differences in the
recognition of investment income related to corporate investments
in CLOs which under GAAP are marked-to-market but for segment
reporting are accounted for at amortized cost, subject to
impairment. (3) This adjustment adds back the effect of (a)
equity-based compensation expense attributable to OCG related to
unit grants made before our initial public offering, which is
excluded from adjusted net income-OCG and fee-related earnings-OCG
because it is a non-cash charge that does not affect our financial
position, and (b) differences arising from EVUs that are classified
as liability awards under GAAP but as equity awards for segment
reporting. (4) This adjustment adds back the effect of timing
differences with respect to the recognition of third-party
placement costs associated with closed-end funds between adjusted
net income-OCG and net income attributable to OCG. (5) This
adjustment adds back the effect of timing differences associated
with the recognition of unrealized gains and losses related to
foreign-currency hedging between adjusted net income-OCG and net
income attributable to OCG. (6) This adjustment adds back the
effect of (a) acquisition-related items associated with the
amortization of intangibles and changes in the contingent
consideration liability and (b) non-controlling interests, which
are both excluded from segment reporting. (7) Adjusted net
income-OCG and fee-related earnings-OCG are calculated to evaluate
the portion of adjusted net income and fee-related earnings
attributable to Class A unitholders. These measures are net of
income taxes and other income or expenses applicable to OCG or its
Intermediate Holding Companies. A reconciliation of fee-related
earnings to fee-related earnings-OCG is presented below.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands, except per unit data) Fee-related
earnings $ 73,144 $ 60,708 $ 267,733 $ 218,562 Fee-related earnings
attributable to OCGH non-controlling interest (43,408 ) (38,898 )
(159,424 ) (148,119 ) Non-Operating Group expenses (286 ) (213 )
(1,051 ) (1,691 ) Fee-related earnings-OCG income taxes (6,455 )
(1,630 ) (13,518 ) (2,424 ) Fee-related earnings-OCG $ 22,995
$ 19,967 $ 93,740 $ 66,328 Fee-related
earnings-OCG per Class A unit $ 0.37 $ 0.36 $ 1.50
$ 1.34 (8) This adjustment adds back
the effect of equity-based compensation expense attributable to OCG
related to unit grants made after our initial public offering,
which is excluded from fee-related earnings-OCG, because it is
non-cash in nature and does not impact our ability to fund our
operations. (9) This adjustment adds back income taxes associated
with segment incentive income, incentive income compensation
expense or investment income or loss, which are not included in the
calculation of fee-related earnings-OCG.
The following table reconciles GAAP revenues to segment revenues
and fee-related earnings revenues.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) GAAP revenues $
298,310
$ 49,108 $
1,125,746
$ 201,905 Consolidated funds (1)
30,761
188,884
57,737
831,003 Incentive income (2) (38,474 ) (39,251 ) 1,407 (19,002 )
Investment income (3) 60,840 13,240 177,312
51,958 Segment revenues 351,437 211,981 1,362,202 1,065,864
Incentive income (71,186 ) (32,854 ) (355,152 ) (263,806 )
Investment (income) loss (87,647 ) 8,620 (221,377 ) (48,253
) Fee-related earnings revenues $ 192,604 $ 187,747 $
785,673 $ 753,805 (1) This adjustment
adds back the 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, and the elimination of
non-controlling interests from segment revenues. (2) This
adjustment adds back the effect of timing differences associated
with the recognition of incentive income between segment 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 segment
revenues and GAAP revenues.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income and distributable
earnings.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) Net income attributable to
Oaktree Capital Group, LLC $ 59,283 $ 11,395 $ 194,705 $ 71,349
Reconciling adjustments (1) 113,490 38,182 387,878
240,513 Adjusted net income 172,773 49,577 582,583
311,862 Investment (income) loss (2) (87,647 ) 8,620 (221,377 )
(48,253 ) Receipts of investment income from funds (3) 24,753
17,679 66,390 101,296 Receipts of investment income from companies
21,407 17,792 63,700 48,067 Equity-based compensation (4) 12,570
10,218 51,759 37,978 Operating Group income taxes (144 ) 375
(4,635 ) (3,374 ) Distributable earnings $ 143,712 $ 104,261
$ 538,420 $ 447,576 (1) Please
refer to the table on page 31 for a detailed reconciliation of net
income attributable to Oaktree Capital Group, LLC to adjusted net
income. (2) This adjustment eliminates segment investment income,
which with respect to investments in funds is initially largely
non-cash in nature and is thus not available to fund our operations
or make equity distributions. (3) This adjustment reflects the
portion of distributions received from funds characterized as
receipts of investment income or loss. In general, the income or
loss component of a distribution from a fund is calculated by
multiplying the amount of the distribution by the ratio of our
investment’s undistributed income or loss to our remaining
investment balance. In addition, if the distribution is made during
the investment period, it is generally not reflected in
distributable earnings until after the investment period ends. (4)
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 distributable earnings because it
is non-cash in nature and does not impact our ability to fund our
operations.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income-OCG and
distributable earnings-OCG.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) Net income attributable to
Oaktree Capital Group, LLC $ 59,283 $ 11,395 $ 194,705 $ 71,349
Reconciling adjustments (1) (2,189 ) 3,207 139 8,592
Adjusted net income-OCG (2) 57,094 14,602 194,844 79,941
Investment (income) loss attributable to OCG (35,631 ) 3,097
(89,698 ) (13,693 ) Receipts of investment income from funds
attributable to OCG 10,062 6,352 26,879 32,163 Receipts of
investment income from companies attributable to OCG 8,703 6,392
25,784 15,735 Equity-based compensation attributable to OCG (3)
5,110 3,671 20,940 12,259 Distributable earnings-OCG income taxes
(6,467 ) (1,504 ) (11,939 ) (2,083 ) Tax receivable agreement
(5,151 ) (4,920 ) (20,469 ) (19,090 ) Income taxes of Intermediate
Holding Companies 12,557 2,670 37,884 14,174
Distributable earnings-OCG (2) $ 46,277 $ 30,360
$ 184,225 $ 119,406 (1) Please
refer to the table on page 32 for a detailed reconciliation of net
income attributable to Oaktree Capital Group, LLC to adjusted net
income-OCG. (2) Adjusted net income-OCG and distributable
earnings-OCG are calculated to evaluate the portion of adjusted net
income and distributable earnings attributable to Class A
unitholders. These measures are net of income taxes and expenses
applicable to OCG or its Intermediate Holding Companies. A
reconciliation of distributable earnings to distributable
earnings-OCG is presented below.
Three Months
Ended December 31, Year Ended December 31,
2016 2015 2016 2015
(in thousands, except per unit data) Distributable earnings
$ 143,712 $ 104,261 $ 538,420 $ 447,576 Distributable earnings
attributable to OCGH non-controlling interest (85,288 ) (66,804 )
(320,611 ) (304,900 ) Non-Operating Group expenses (529 ) (673 )
(1,176 ) (2,097 ) Distributable earnings-OCG income taxes (6,467 )
(1,504 ) (11,939 ) (2,083 ) Tax receivable agreement (5,151 )
(4,920 ) (20,469 ) (19,090 ) Distributable earnings-OCG $ 46,277
$ 30,360 $ 184,225 $ 119,406
Distributable earnings-OCG per Class A unit $ 0.73 $ 0.55
$ 2.94 $ 2.42 (3) This adjustment adds
back the effect of equity-based compensation expense attributable
to OCG related to unit grants made after our initial public
offering, which is excluded from distributable earnings because it
is non-cash in nature and does not impact our ability to fund our
operations or make equity distributions.
The following table reconciles GAAP revenues to segment revenues
and distributable earnings revenues.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) GAAP revenues $
298,310
$ 49,108 $
1,125,746
$ 201,905 Consolidated funds (1)
30,761
188,884
57,737
831,003 Incentive income (2) (38,474 ) (39,251 ) 1,407 (19,002 )
Investment income (3) 60,840 13,240 177,312
51,958 Segment revenues 351,437 211,981 1,362,202 1,065,864
Investment (income) loss (87,647 ) 8,620 (221,377 ) (48,253 )
Receipts of investment income from funds 24,753 17,679 66,390
101,296 Receipts of investment income from companies 21,407
17,792 63,700 48,067 Distributable earnings
revenues $ 309,950 $ 256,072 $ 1,270,915 $
1,166,974 (1) This adjustment adds back the
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, and the elimination of
non-controlling interests from segment revenues. (2) This
adjustment adds back the effect of timing differences associated
with the recognition of incentive income between segment 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 segment
revenues and GAAP revenues.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC adjusted net income and economic net
income.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) Net income attributable to
Oaktree Capital Group, LLC $ 59,283 $ 11,395 $ 194,705 $ 71,349
Reconciling adjustments (1) 113,490 38,182 387,878
240,513 Adjusted net income 172,773 49,577 582,583
311,862
Change in accrued incentives (fund level),
net of associated incentive income compensation (2)
73,826 (78,679 ) 135,002 (188,383 ) Economic net
income (loss) (3) $ 246,599 $ (29,102 ) $ 717,585 $
123,479 (1) Please refer to the table on page
31 for a detailed reconciliation of net income attributable to
Oaktree Capital Group, LLC to adjusted net income. (2) The change
in accrued incentives (fund level), net of associated incentive
income compensation expense, represents the difference between (a)
our recognition of net incentive income and (b) the incentive
income generated by the funds during the period that would be due
to us if the funds were liquidated at their reported values as of
that date, net of associated incentive income compensation expense.
(3) Please see Glossary for the definition of economic net income.
The following table reconciles net income attributable to
Oaktree Capital Group, LLC to adjusted net income-OCG and economic
net income-OCG.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) Net income attributable to
Oaktree Capital Group, LLC $ 59,283 $ 11,395 $ 194,705 $ 71,349
Reconciling adjustments (1) (2,189 ) 3,207 139 8,592
Adjusted net income-OCG (2) 57,094 14,602 194,844 79,941
Change in accrued incentives (fund level), net of associated
incentive income compensation attributable to OCG 30,013 (28,267 )
54,928 (64,283 ) Economic net income-OCG income taxes (10,882 )
(3,595 ) (37,322 ) (22,137 ) Income taxes-OCG 12,615 2,535
39,756 15,195 Economic net income (loss)-OCG
(2) $ 88,840 $ (14,725 ) $ 252,206 $ 8,716
(1) Please refer to the table on page 32 for a
detailed reconciliation of net income attributable to Oaktree
Capital Group, LLC to adjusted net income-OCG. (2) Adjusted net
income-OCG and economic net income-OCG are calculated to evaluate
the portion of adjusted net income and economic net income
attributable to Class A unitholders. These measures are net of
income taxes and other income or expenses applicable to OCG or its
Intermediate Holding Companies. A reconciliation of economic net
income to economic net income-OCG is presented below.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands, except per unit data) Economic
net income (loss) $ 246,599 $ (29,102 ) $ 717,585 $ 123,479
Economic net (income) loss attributable to OCGH non-controlling
interest (146,348 ) 18,645 (426,881 ) (90,529 ) Non-Operating Group
expenses (529 ) (673 ) (1,176 ) (2,097 ) Economic net income-OCG
income taxes (10,882 ) (3,595 ) (37,322 ) (22,137 ) Economic net
income (loss)-OCG $ 88,840 $ (14,725 ) $ 252,206 $
8,716 Economic net income (loss) per Class A unit $ 1.41
$ (0.27 ) $ 4.03 $ 0.18
The following table reconciles GAAP revenues to segment revenues
and economic net income revenues.
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 (in thousands) GAAP revenues $
298,310
$ 49,108 $
1,125,746
$ 201,905 Consolidated funds (1)
30,761
188,884
57,737
831,003 Incentive income (2) (38,474 ) (39,251 ) 1,407 (19,002 )
Investment income (3) 60,840 13,240 177,312
51,958 Segment revenues 351,437 211,981 1,362,202 1,065,864
Incentives created 236,475 (114,149 ) 784,032 (100,384 ) Incentive
income (71,186 ) (32,854 ) (355,152 ) (263,806 ) Economic net
income revenues $ 516,726 $ 64,978 $ 1,791,082
$ 701,674 (1) This adjustment adds back the
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, and the elimination of
non-controlling interests from segment revenues. (2) This
adjustment adds back the effect of timing differences associated
with the recognition of incentive income between segment 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 segment
revenues and GAAP revenues.
The following tables reconcile segment information to
consolidated financial data:
As of or for the Three Months Ended December 31, 2016
Segment Adjustments Consolidated
(in thousands) Management fees (1) $ 192,604 $ (2,559 ) $
190,045 Incentive income (1) 71,186
37,079
108,265
Investment income (1) 87,647 (24,726 ) 62,921 Total expenses (2)
(169,179 ) (40,986 ) (210,165 ) Interest expense, net (3) (7,387 )
(26,374 ) (33,761 ) Other income (expense), net (4) (2,098 ) 3,696
1,598 Other income of consolidated funds (5) — 67,076 67,076 Income
taxes — (12,701 ) (12,701 ) Net income attributable to
non-controlling interests in consolidated funds —
(7,303
)
(7,303
) Net income attributable to non-controlling interests in
consolidated subsidiaries — (106,692 ) (106,692 ) Adjusted
net income/net income attributable to Oaktree Capital Group, LLC $
172,773 $ (113,490 ) $ 59,283 Corporate investments
(6) $ 1,480,928 $ (357,196 ) $ 1,123,732 Total assets
(7) $
3,313,714
$
4,335,396
$ 7,649,110 (1) The adjustment
represents (a) the elimination of amounts earned from the
consolidated funds, (b) for management fees, the reclassification
of $678 of net losses related to foreign-currency hedging
activities to general and administrative expense, and (c) for
investment income, differences of $2,081 related to corporate
investments in CLOs, which under GAAP are marked-to-market but for
segment reporting accounted for at amortized cost, subject to
impairment. (2) The expense adjustment consists of (a) equity-based
compensation expense of $3,358 related to unit grants made before
our initial public offering, (b) consolidated fund expenses of
$609, (c) expenses incurred by the Intermediate Holding Companies
of $286, (d) the effect of timing differences in the recognition of
incentive income compensation expense between adjusted net income
and net income attributable to OCG of $38,474, (e)
acquisition-related items of $827, (f) adjustments of $4,907
related to amounts received for contractually reimbursable costs
that are classified as expenses for segment reporting and as other
income under GAAP, (g) differences of $664 arising from EVUs that
are classified as liability awards under GAAP but as equity awards
for segment reporting, (h) $3,063 related to third-party placement
costs, and (i) $9,874 of net gains related to foreign-currency
hedging activities. (3) The interest expense adjustment represents
the inclusion of interest expense attributable to third-party
investors in our CLOs, non-controlling interests of the
consolidated funds and the exclusion of segment interest income.
(4) The adjustment to other income (expense), net represents
adjustments related to (a) amounts received for contractually
reimbursable costs of $4,907 that are classified as expenses for
segment reporting and as other income under GAAP, and (b) the
reclassification of $1,211 in net gains related to foreign-currency
hedging activities to general and administrative expense. (5) The
adjustment to other income of consolidated funds primarily
represents the inclusion of interest, dividend and other investment
income attributable to third-party investors in our CLOs and
non-controlling interests of the consolidated funds. (6) The
adjustment to corporate investments is to remove from segment
assets our investments in the consolidated funds, including
investments that are treated as equity- or cost-method investments
for segment reporting. The $1.5 billion of corporate investments
included $1.2 billion of equity-method investments. (7) The total
assets adjustment represents the inclusion of investments and other
assets of the consolidated funds, net of segment assets eliminated
in consolidation, which are primarily corporate investments in
funds and incentive income receivable.
As of or
for the Three Months Ended December 31, 2015 Segment
Adjustments Consolidated (in
thousands) Management fees (1) $ 187,747 $ (141,287 ) $ 46,460
Incentive income (1) 32,854 (30,206 ) 2,648 Investment income
(loss) (1) (8,620 ) 21,860 13,240 Total expenses (2) (151,827 )
(116,660 ) (268,487 ) Interest expense, net (3) (8,929 ) (52,536 )
(61,465 ) Other income (expense), net (4) (1,648 ) 7,729 6,081
Other income (loss) of consolidated funds (5) — (468,953 ) (468,953
) Income taxes — (2,296 ) (2,296 ) Net loss attributable to
non-controlling interests in consolidated funds — 775,162 775,162
Net income attributable to non-controlling interests in
consolidated subsidiaries — (30,995 ) (30,995 ) Adjusted net
income/net income attributable to Oaktree Capital Group, LLC $
49,577 $ (38,182 ) $ 11,395 Corporate investments (6)
$ 1,434,109 $ (1,220,121 ) $ 213,988 Total assets (7)
$ 3,254,082 $ 48,508,649 $ 51,762,731
(1) The adjustment represents (a) the elimination of amounts
earned from the consolidated funds and (b) for management fees, the
reclassification of $2,123 of net gains related to foreign-currency
hedging activities to general and administrative expense. (2) The
expense adjustment consists of (a) equity-based compensation
expense of $3,996 related to unit grants made before our initial
public offering, (b) consolidated fund expenses of $62,073, (c)
expenses incurred by the Intermediate Holding Companies of $213,
(d) the effect of timing differences in the recognition of
incentive income compensation expense between adjusted net income
and net income attributable to OCG of $39,251, (e)
acquisition-related items of $316, (f) adjustments of $6,081
related to amounts received for contractually reimbursable costs
that are classified as expenses for segment reporting and as other
income under GAAP, (g) differences of $116 arising from EVUs that
are classified as liability awards under GAAP but as equity awards
for segment reporting, (h) $3,619 related to third-party placement
costs, (i) $1,185 of net losses related to foreign-currency hedging
activities, and (j) other expenses of $42. (3) The interest expense
adjustment represents the inclusion of interest expense
attributable to non-controlling interests of the consolidated funds
and the exclusion of segment interest income. (4) The adjustment to
other income (expense), net represents adjustments related to (a)
amounts received for contractually reimbursable costs of $6,081
that are classified as expenses for segment reporting and as other
income under GAAP, and (b) the reclassification of $1,648 of net
losses related to foreign-currency hedging activities to general
and administrative expense. (5) The adjustment to other income of
consolidated funds primarily represents the inclusion of interest,
dividend and other investment income (loss) attributable to
non-controlling interests of the consolidated funds. (6) The
adjustment to corporate investments is to remove from segment
assets our investments in the consolidated funds, including
investments that are treated as equity- or cost-method investments
for segment reporting. The $1.4 billion of corporate investments
included $1.3 billion of equity-method investments. (7) The total
assets adjustment represents the inclusion of investments and other
assets of the consolidated funds, net of segment assets eliminated
in consolidation, which are primarily corporate investments in
funds and incentive income receivable.
As of or
for the Year Ended December 31, 2016 Segment
Adjustments Consolidated (in thousands)
Management fees (1) $ 785,673 $ (11,086 ) $ 774,587 Incentive
income (1) 355,152
(3,993
)
351,159
Investment income (1) 221,377 (22,251 ) 199,126 Total expenses (2)
(739,382 ) (49,954 ) (789,336 ) Interest expense, net (3) (31,845 )
(88,765 ) (120,610 ) Other income (expense), net (4) (8,392 )
21,882 13,490 Other income of consolidated funds (5) — 180,206
180,206 Income taxes — (42,519 ) (42,519 ) Net income attributable
to non-controlling interests in consolidated funds —
(22,921
)
(22,921
) Net income attributable to non-controlling interests in
consolidated subsidiaries — (348,477 ) (348,477 ) Adjusted
net income/net income attributable to Oaktree Capital Group, LLC $
582,583 $ (387,878 ) $ 194,705 Corporate investments
(6) $ 1,480,928 $ (357,196 ) $ 1,123,732 Total assets
(7) $
3,313,714
$
4,335,396
$ 7,649,110 (1) The adjustment
represents (a) the elimination of amounts earned from the
consolidated funds, (b) for management fees, the reclassification
of $408 of net gains related to foreign-currency hedging activities
to general and administrative expense, and (c) for investment
income, differences of $21,814 related to corporate investments in
CLOs, which under GAAP are marked-to-market but for segment
reporting accounted for at amortized cost, subject to impairment.
(2) The expense adjustment consists of (a) equity-based
compensation expense of $13,627 related to unit grants made before
our initial public offering, (b) consolidated fund expenses of
$4,428, (c) expenses incurred by the Intermediate Holding Companies
of $1,051, (d) the effect of timing differences in the recognition
of incentive income compensation expense between adjusted net
income and net income attributable to OCG of $1,407, (e)
acquisition-related items of $924, (f) adjustments of $21,194
related to amounts received for contractually reimbursable costs
that are classified as expenses for segment reporting and as other
income under GAAP, (g) differences of $1,661 arising from EVUs that
are classified as liability awards under GAAP but as equity awards
for segment reporting, (h) $11,870 related to third-party placement
costs, and (i) $1,776 of net losses related to foreign-currency
hedging activities. (3) The interest expense adjustment represents
the inclusion of interest expense attributable to third-party
investors in our CLOs, non-controlling interests of the
consolidated funds and the exclusion of segment interest income.
(4) The adjustment to other income (expense), net represents
adjustments related to (a) amounts received for contractually
reimbursable costs of $21,194 that are classified as expenses for
segment reporting and as other income under GAAP, and (b) the
reclassification of $688 in net losses related to foreign-currency
hedging activities to general and administrative expense. (5) The
adjustment to other income of consolidated funds primarily
represents the inclusion of interest, dividend and other investment
income attributable to third-party investors in our CLOs and
non-controlling interests of the consolidated funds. (6) The
adjustment to corporate investments is to remove from segment
assets our investments in the consolidated funds, including
investments that are treated as equity- or cost-method investments
for segment reporting. The $1.5 billion of corporate investments
included $1.2 billion of equity-method investments. (7) The total
assets adjustment represents the inclusion of investments and other
assets of the consolidated funds, net of segment assets eliminated
in consolidation, which are primarily corporate investments in
funds and incentive income receivable.
As of or
for the Year Ended December 31, 2015 Segment
Adjustments Consolidated (in thousands)
Management fees (1) $ 753,805 $ (558,497 ) $ 195,308 Incentive
income (1) 263,806 (257,209 ) 6,597 Investment income (1) 48,253
3,705 51,958 Total expenses (2) (715,043 ) (225,865 ) (940,908 )
Interest expense, net (3) (35,032 ) (181,767 ) (216,799 ) Other
income (expense), net (4) (3,927 ) 23,933 20,006 Other income
(loss) of consolidated funds (5) — (631,575 ) (631,575 ) Income
taxes — (17,549 ) (17,549 ) Net loss attributable to
non-controlling interests in consolidated funds — 1,809,683
1,809,683 Net income attributable to non-controlling interests in
consolidated subsidiaries — (205,372 ) (205,372 ) Adjusted
net income/net income attributable to Oaktree Capital Group, LLC $
311,862 $ (240,513 ) $ 71,349 Corporate investments
(6) $ 1,434,109 $ (1,220,121 ) $ 213,988 Total assets
(7) $ 3,254,082 $ 48,508,649 $ 51,762,731
(1) The adjustment represents (a) the elimination of
amounts earned from the consolidated funds and (b) for management
fees, the reclassification of $12,676 of net gains related to
foreign-currency hedging activities to general and administrative
expense. (2) The expense adjustment consists of (a) equity-based
compensation expense of $16,475 related to unit grants made before
our initial public offering, (b) consolidated fund expenses of
$165,904, (c) expenses incurred by the Intermediate Holding
Companies of $1,690, (d) the effect of timing differences in the
recognition of incentive income compensation expense between
adjusted net income and net income attributable to OCG of $19,009,
(e) acquisition-related items of $5,251, (f) adjustments of $23,552
related to amounts received for contractually reimbursable costs
that are classified as expenses for segment reporting and as other
income under GAAP, (g) differences of $72 arising from EVUs that
are classified as liability awards under GAAP but as equity awards
for segment reporting, (h) $3,619 related to third-party placement
costs, (i) $9,676 of net gains related to foreign-currency hedging
activities, and (j) other expenses of $113. (3) The interest
expense adjustment represents the inclusion of interest expense
attributable to non-controlling interests of the consolidated funds
and the exclusion of segment interest income. (4) The adjustment to
other income (expense), net represents adjustments related to (a)
amounts received for contractually reimbursable costs of $23,552
that are classified as expenses for segment reporting and as other
income under GAAP, and (b) the reclassification of $381 of net
losses related to foreign-currency hedging activities to general
and administrative expense. (5) The adjustment to other income of
consolidated funds primarily represents the inclusion of interest,
dividend and other investment income (loss) attributable to
non-controlling interests of the consolidated funds. (6) The
adjustment to corporate investments is to remove from segment
assets our investments in the consolidated funds, including
investments that are treated as equity- or cost-method investments
for segment reporting. The $1.4 billion of corporate investments
included $1.3 billion of equity-method investments. (7) The total
assets adjustment represents the inclusion of investments and other
assets of the consolidated funds, net of segment assets eliminated
in consolidation, which are primarily corporate investments in
funds and incentive income receivable.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170207005581/en/
Investor Relations:Oaktree Capital Group, LLCAndrea D.
Williams(213)
830-6483investorrelations@oaktreecapital.comorPress
Relations:Sard Verbinnen & CoJohn Christiansen(415)
618-8750jchristiansen@sardverb.comorAlyssa Linn(310)
201-2040alinn@sardverb.com
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