Oaktree Announces Third Quarter 2017 Financial Results

|Business Wire|About: OAK

As of September 30, 2017 or for the quarter and nine months then ended, and where applicable, per Class A unit:

  • GAAP net income attributable to Oaktree Capital Group, LLC (“OCG”) decreased to $45.8 million ($0.71 per unit) for the quarter, from $58.3 million ($0.93 per unit) for the third quarter of 2016, and increased to $218.1 million ($3.41) for the nine-month period, from $135.4 million ($2.17) for the comparable 2016 period.
  • Assets under management were $99.5 billion, up slightly for the quarter and down slightly over the last 12 months. Gross capital raised was $2.7 billion and $12.0 billion for the quarter and last 12 months, respectively. Uncalled capital commitments (“dry powder”) were $21.2 billion, of which $12.4 billion were not yet generating management fees (“shadow AUM”).
  • Management fee-generating assets under management were $80.2 billion, up 1% for the quarter and up 2% over the last 12 months.
  • Adjusted net income declined to $131.4 million ($0.67 per unit) for the quarter, from $161.7 million ($0.92 per unit) for the third quarter of 2016, on lower revenues. For the nine-month period, adjusted net income increased to $574.3 million ($3.26), from $402.0 million ($2.16) for the comparable 2016 period, driven by higher incentive income and investment income.
  • Distributable earnings declined to $118.6 million ($0.74 per unit) for the quarter, from $140.6 million ($0.81 per unit) for the third quarter of 2016, primarily on lower incentive income. For the nine-month period, distributable earnings increased to $558.1 million ($3.22), from $385.9 million ($2.15) for the comparable 2016 period, driven by higher incentive income and investment income proceeds.
  • A distribution was declared of $0.56 per unit, bringing aggregate distributions relating to the last 12 months to $3.21.

LOS ANGELES--(BUSINESS WIRE)-- Oaktree Capital Group, LLC (NYSE: OAK) today reported its unaudited financial results for the third quarter ended September 30, 2017.

Jay Wintrob, Chief Executive Officer, said, “Oaktree’s continued strong investment performance was the highlight of the third quarter, driving 14% growth in net incentives created year-to-date. Additionally, adjusted net income growth of 43% and distributable earnings growth of 45% year-to-date demonstrate the power of our business model. At this point in the cycle, we continue to deploy capital across our strategies in a cautious and disciplined manner, and we continue to capitalize on the current market environment by actively harvesting investments, creating value for both our clients and our unitholders.”

Distribution

The distribution of $0.56 per Class A unit attributable to the third quarter of 2017 will be paid on November 10, 2017 to Class A unitholders of record at the close of business on November 6, 2017.

Conference Call

Oaktree (OCSL) will host a conference call to discuss its third quarter 2017 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 10112877, beginning approximately one hour after the broadcast.

About Oaktree

Oaktree is a leader among global investment managers specializing in alternative investments, with $100 billion in assets under management as of September 30, 2017. 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.

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

  As of or for the Three Months
Ended September 30,
  As of or for the Nine Months
Ended September 30,
2017   2016 2017   2016
GAAP Results: (in thousands, except per unit data or as otherwise indicated)
 
Revenues $ 235,032 $ 290,230 $ 1,158,672 $ 827,436
Net income-OCG 45,841 58,297 218,080 135,422
Net income per Class A unit 0.71 0.93 3.41 2.17
 
Non-GAAP Results: (1)
Adjusted revenues $ 304,756 $ 365,008 $ 1,400,305 $ 1,010,765
Adjusted net income 131,436 161,651 574,254 402,000
Adjusted net income-OCG 43,309 57,710 208,156 134,605
 
Distributable earnings revenues 282,426 329,966 1,351,048 960,965
Distributable earnings 118,589 140,584 558,118 385,901
Distributable earnings-OCG 47,717 50,861 205,401 134,399
 
Fee-related earnings revenues 186,615 194,349 558,494 593,069
Fee-related earnings 59,754 66,708 160,492 185,782
Fee-related earnings-OCG 22,694 23,507 60,099 67,196
 
Economic net income revenues 385,843 687,962 1,246,873 1,274,356
Economic net income 164,677 263,114 527,603 463,176
Economic net income-OCG 57,342 95,485 188,757 160,221
 
Per Class A Unit:
Adjusted net income $ 0.67 $ 0.92 $ 3.26 $ 2.16
Distributable earnings 0.74 0.81 3.22 2.15
Fee-related earnings 0.35 0.37 0.94 1.08
Economic net income 0.89 1.52 2.96 2.57
 
Weighted average number of Operating Group units outstanding 156,258 154,945 155,625 154,605
Weighted average number of Class A units outstanding 64,394 62,755 63,875 62,424
 
Operating Metrics:

Assets under management (in millions):

Assets under management $ 99,515 $ 99,834 $ 99,515 $ 99,834
Management fee-generating assets under management 80,170 78,700 80,170 78,700
Incentive-creating assets under management 31,020 32,440 31,020 32,440
Uncalled capital commitments (2) 21,202 22,663 21,202 22,663

Accrued incentives (fund level):

Incentives created (fund level) 134,815 422,685 504,935 547,557
Incentives created (fund level), net of associated incentive income compensation expense 60,607 153,817 242,236 212,609
Accrued incentives (fund level) 1,860,665 1,848,808 1,860,665 1,848,808
Accrued incentives (fund level), net of associated incentive income compensation expense 899,891 872,716 899,891 872,716
 

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

(1)   Beginning with the second quarter of 2017, the definition of adjusted net income was modified with respect to third-party placement costs associated with closed-end funds and liability-classified OCGH equity value units (“EVUs”) to conform to the GAAP treatment. Under GAAP, placement costs are expensed as incurred and liability-classified EVUs are remeasured as of each reporting date. Previously for adjusted net income, placement costs were capitalized and amortized in proportion to the associated management fee stream, and liability-classified EVUs were treated as equity-classified awards. All prior periods have been recast for these changes.
(2) 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.
 

GAAP Results

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

Total revenues decreased $55.2 million, or 19.0%, to $235.0 million for the third quarter of 2017, from $290.2 million for the third quarter of 2016. The decrease reflected lower incentive income and management fees.

Total expenses decreased $32.5 million, or 16.1%, to $169.8 million for the third quarter of 2017, from $202.3 million for the third quarter of 2016. The decrease primarily reflected lower incentive income compensation and general and administrative expense.

Other income decreased $6.5 million, or 7.3%, to $83.0 million for the third quarter of 2017, from $89.5 million for the third quarter of 2016. The decrease primarily reflected lower overall returns on our funds’ investments.

Net income attributable to OCG decreased $12.5 million, or 21.4%, to $45.8 million for the third quarter of 2017, from $58.3 million for the third quarter of 2016, primarily reflecting lower operating profits.

Operating Metrics

Assets Under Management

Assets under management (“AUM”) were $99.5 billion as of September 30, 2017, $99.3 billion as of June 30, 2017 and $99.8 billion as of September 30, 2016. The $0.2 billion increase since June 30, 2017 primarily reflected $1.7 billion in market-value gains, $1.3 billion in new capital commitments to closed-end and evergreen funds, and $0.5 billion of favorable foreign-currency translation, largely offset by $2.2 billion of distributions to closed-end fund investors and $0.8 billion of net outflows from open-end funds. Commitments to closed-end and evergreen funds included $0.4 billion for our Emerging Markets Debt strategy and $0.3 billion to our European Private Debt strategy.

The $0.3 billion decrease in AUM since September 30, 2016 primarily reflected $10.5 billion of distributions to closed-end fund investors, $1.4 billion of net outflows from open-end funds and $1.1 billion of uncalled capital commitments for closed-end funds that have entered liquidation, largely offset by $7.4 billion in market-value gains, $4.4 billion of capital commitments and fee-generating leverage to closed-end funds, and $0.8 billion in favorable foreign-currency translation. Commitments to closed-end funds included $1.0 billion for Oaktree Real Estate Debt Fund II, $0.6 billion for Oaktree Opportunities Fund Xb, $0.5 billion for Oaktree Real Estate Opportunities Fund VII (“ROF VII”) and $0.4 billion for Oaktree European Capital Solutions Fund. Distributions to closed-end fund investors included $4.1 billion from Control Investing funds, $4.0 billion from Distressed Debt funds and $1.3 billion from Real Estate funds.

Management Fee-generating Assets Under Management

Management fee-generating assets under management (“management fee-generating AUM”), a forward-looking metric, were $80.2 billion as of September 30, 2017, $79.8 billion as of June 30, 2017 and $78.7 billion as of September 30, 2016. The $0.4 billion increase since June 30, 2017 primarily reflected an aggregate $1.4 billion increase from the start of the investment period for Oaktree European Principal Fund IV (“EPF IV”) in July 2017 and capital drawn by funds that pay fees based on drawn capital, NAV or cost basis, and $0.9 billion in market-value gains. These increases were partially offset by $1.4 billion attributable to closed-end funds in liquidation and $0.8 billion of net outflows from open-end funds.

The $1.5 billion increase in management fee-generating AUM since September 30, 2016 primarily reflected $3.4 billion in market-value gains, an aggregate $2.6 billion increase from the start of the investment period for EPF IV, additional capital commitments to ROF VII and fee-generating leverage to closed-end funds, $1.7 billion from capital drawn by closed-end funds that pay fees based on drawn capital, NAV or cost basis, and $0.8 billion of favorable foreign-currency translation. These increases were partially offset by $4.4 billion attributable to closed-end funds in liquidation, $1.6 billion of net outflows from open-end funds and $0.9 billion of distributions by closed-end funds that pay fees based on NAV.

Incentive-creating Assets Under Management

Incentive-creating assets under management (“incentive-creating AUM”) were $31.0 billion as of September 30, 2017, $30.8 billion as of June 30, 2017 and $32.4 billion as of September 30, 2016. The $0.2 billion increase since June 30, 2017 reflected an aggregate $2.2 billion in drawdowns or contributions by closed-end and evergreen funds and market-value gains, partially offset by an aggregate $2.0 billion decline primarily attributable to distributions by closed-end funds. The $1.4 billion decrease since September 30, 2016 reflected an aggregate decline of $9.9 billion primarily attributable to distributions by closed-end funds, partially offset by an aggregate $8.5 billion principally from drawdowns or contributions by closed-end and evergreen funds and market-value gains.

Of the $31.0 billion in incentive-creating AUM as of September 30, 2017, $20.5 billion (or 66%), was generating incentives at the fund level, as compared with $20.0 billion (62%), of the $32.4 billion of incentive-creating AUM as of September 30, 2016.

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

Accrued incentives (fund level) were $1.9 billion as of September 30, 2017, and $1.8 billion as of both June 30, 2017 and September 30, 2016. The third quarter of 2017 reflected $134.8 million of incentives created (fund level) and $53.7 million of incentive income recognized.

Accrued incentives (fund level), net of incentive income compensation expense (“net accrued incentives (fund level)”), were $899.9 million as of September 30, 2017, $866.7 million as of June 30, 2017, and $872.7 million as of September 30, 2016. The portion of net accrued incentives (fund level) represented by funds that were currently paying incentives as of September 30, 2017, June 30, 2017 and September 30, 2016, respectively, was $274.1 million (or 30%), $236.5 million (27%) and $224.9 million (26%), with the remainder arising from funds that as of that date were not at the stage of their cash distribution waterfall where Oaktree was entitled to receive incentives, other than possibly tax-related distributions.

Uncalled Capital Commitments

Uncalled capital commitments were $21.2 billion as of September 30, 2017, $21.5 billion as of June 30, 2017, and $22.7 billion as of September 30, 2016. Invested capital during the quarter and 12 months ended September 30, 2017 aggregated $1.9 billion and $7.4 billion, respectively, as compared with $2.2 billion and $8.1 billion for the comparable prior-year periods.

Non-GAAP Results

Adjusted Revenues

Adjusted revenues decreased $60.2 million, or 16.5%, to $304.8 million in the third quarter of 2017, from $365.0 million in the third quarter of 2016, reflecting declines of $46.0 million in incentive income, $7.7 million in management fees and $6.5 million in investment income.

Management Fees

Management fees decreased $7.7 million, or 4.0%, to $186.6 million in the third quarter of 2017, from $194.3 million in the third quarter of 2016. The decrease reflected an aggregate decline of $19.0 million primarily attributable to closed-end funds in liquidation, partially offset by an aggregate increase of $11.3 million principally from the start of the investment period for EPF IV, closed-end funds that pay management fees based on drawn capital, NAV or cost basis, and additional commitments to ROF VII.

Incentive Income

Incentive income decreased $46.0 million, or 46.1%, to $53.7 million in the third quarter of 2017, from $99.7 million in the third quarter of 2016. The third quarter of 2017 included $51.3 million from Oaktree Real Estate Opportunities Fund V.

Investment Income

Investment income decreased $6.5 million, or 9.2%, to $64.4 million in the third quarter of 2017, from $70.9 million in the third quarter of 2016. The decrease primarily reflected lower 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 $17.6 million and $17.7 million in the third quarters of 2017 and 2016, respectively, of which performance fees accounted for $0.8 million and $1.9 million, respectively.

Adjusted Expenses

Compensation and Benefits

Compensation and benefits expense increased $1.1 million, or 1.2%, to $95.7 million in the third quarter of 2017, from $94.6 million in the third quarter of 2016.

Equity-based Compensation

Equity-based compensation expense decreased $0.9 million, or 5.8%, to $14.7 million in the third quarter of 2017, from $15.6 million in the third quarter of 2016. The decrease reflected higher expense in the third quarter of 2016 related to accelerated vesting from employee departures.

Incentive Income Compensation

Incentive income compensation expense decreased $21.0 million, or 44.3%, to $26.4 million in the third quarter of 2017, from $47.4 million in the third quarter of 2016, reflecting the decline in incentive income.

General and Administrative

General and administrative expense decreased $1.1 million, or 3.6%, to $29.1 million in the third quarter of 2017, from $30.2 million in the third quarter of 2016.

Depreciation and Amortization

Depreciation and amortization expense decreased $0.9 million, or 31.0%, to $2.0 million in the third quarter of 2017, from $2.9 million in the third quarter of 2016, primarily reflecting the final amortization of certain leasehold improvements in the first quarter of 2017.

Interest Expense, Net

Interest expense, net decreased $1.5 million, or 19.2%, to $6.3 million in the third quarter of 2017, from $7.8 million in the third quarter of 2016, reflecting higher interest income and the maturity of $50.0 million in senior notes in the fourth quarter of 2016.

Other Income (Expense), Net

Other income (expense), net increased $5.8 million, to income of $0.9 million in the third quarter of 2017, from expense of $4.9 million in the third quarter 2016. The third quarter of 2016 included a $4.4 million impairment charge taken on our corporate aircraft.

Adjusted Net Income

ANI decreased $30.3 million, or 18.7%, to $131.4 million in the third quarter of 2017, from $161.7 million in the third quarter of 2016, reflecting decreases of $25.0 million in incentive income, net of incentive income compensation expense (“net incentive income”), $6.9 million in fee-related earnings and $6.5 million in investment income. The portion of ANI attributable to our Class A units was $43.3 million, or $0.67 per unit, and $57.7 million, or $0.92 per unit, for the third quarters of 2017 and 2016, respectively.

The effective tax rates applied to ANI in the third quarters of 2017 and 2016 were 20% and 12%, respectively, resulting from full-year effective rates of 12% and 17%, respectively. The rate used for interim fiscal quarters is based on an estimated full-year effective tax rate on income that can be reliably forecasted, combined with tax expense in the current period on incentive income and any other income that cannot be reliably estimated. We generally expect variability in tax rates between periods because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period’s income tax expense and often vary significantly within or between years. In general, the annual effective tax rate increases as the proportion of ANI arising from fee-related earnings, DoubleLine-related investment income and certain incentive and investment income rises, and vice versa.

Distributable Earnings

Distributable earnings decreased $22.0 million, or 15.6%, to $118.6 million in the third quarter of 2017, from $140.6 million in the third quarter of 2016, reflecting decreases of $25.0 million in net incentive income and $6.9 million in fee-related earnings, partially offset by increases of $6.2 million in investment income proceeds and $5.8 million in other income (expense), net. For the third quarter of 2017, investment income proceeds totaled $42.1 million, including $24.9 million from fund distributions and $17.2 million from DoubleLine, as compared with total investment income proceeds in the prior-year quarter of $35.9 million, of which $18.0 million and $17.9 million was attributable to fund distributions and DoubleLine, respectively. The portion of distributable earnings attributable to our Class A units was $0.74 and $0.81 per unit for the third quarters of 2017 and 2016, respectively, reflecting distributable earnings per Operating Group unit of $0.76 and $0.91, respectively, less costs borne by Class A unitholders for professional fees and other expenses, cash taxes attributable to the Intermediate Holding Companies, and amounts payable pursuant to the tax receivable agreement.

Fee-related Earnings

Fee-related earnings decreased $6.9 million, or 10.3%, to $59.8 million in the third quarter of 2017, from $66.7 million in the third quarter of 2016, reflecting the decline in management fees. The portion of fee-related earnings attributable to our Class A units was $0.35 and $0.37 per unit for the third quarters of 2017 and 2016, respectively.

The effective tax rates applicable to fee-related earnings for the third quarters of 2017 and 2016 were 7% and 12%, respectively, resulting from full-year effective rates of 8% for both periods. The rate used for interim fiscal periods is based on the estimated full-year effective tax rate, which is subject to change as the year progresses. In general, the annual effective tax rate increases as annual fee-related earnings increase, and vice versa.

Capital and Liquidity

As of September 30, 2017, Oaktree had $1.0 billion of cash and U.S. Treasury (TSRMF) and other securities, and $747 million of outstanding debt, which included no borrowings outstanding against its $500 million revolving credit facility. As of September 30, 2017, Oaktree’s investments in funds and companies had a carrying value of $1.6 billion, with the 20% investment in DoubleLine carried at $21 million based on cost, as adjusted under the equity method of accounting. Net accrued incentives (fund level) represented an additional $900 million as of that date.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, which reflect the current views of Oaktree, with respect to, among other things, our future results of operations and financial performance. In some cases, you can identify forward-looking statements by words such as “anticipate,” “approximately,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “seek,” “should,” “will” and “would” or the negative version of these words or other comparable or similar words. These statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those indicated in these statements. Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Such forward-looking statements are subject to risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity, including, but not limited to, changes in our anticipated revenue and income, which are inherently volatile; changes in the value of our investments; the pace of our raising of new funds; changes in assets under management; the timing and receipt of, and impact of taxes on, carried interest; distributions from and liquidation of our existing funds; the amount and timing of distributions on our Class A units; changes in our operating or other expenses; the degree to which we encounter competition; and general political, economic and market conditions. The factors listed in the item captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 1, 2017, which is accessible on the SEC’s website at www.sec.gov, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in our forward-looking statements. Forward-looking statements speak only as of the date the statements are made. Except as required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

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

Investor Relations Website

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

GAAP Consolidated Statements of Operations

   
 
Three Months Ended

September 30,

Nine Months Ended
September 30,
2017   2016 2017   2016
(in thousands, except per unit data)
Revenues:
Management fees $ 181,312 $ 190,974 $ 542,268 $ 584,542
Incentive income 53,720   99,256   616,404   242,894  
Total revenues 235,032   290,230   1,158,672   827,436  
Expenses:
Compensation and benefits (98,224 ) (97,552 ) (304,713 ) (308,959 )
Equity-based compensation (15,828 ) (19,838 ) (45,529 ) (48,460 )
Incentive income compensation (26,362 ) (47,385 ) (327,526 ) (92,653 )
Total compensation and benefits expense (140,414 ) (164,775 ) (677,768 ) (450,072 )
General and administrative (24,096 ) (32,252 ) (90,703 ) (113,032 )
Depreciation and amortization (3,037 ) (3,867 ) (9,865 ) (12,076 )
Consolidated fund expenses (2,226 ) (1,445 ) (7,425 ) (3,991 )
Total expenses (169,773 ) (202,339 ) (785,761 ) (579,171 )
Other income (loss):
Interest expense (35,776 ) (32,414 ) (128,797 ) (86,849 )
Interest and dividend income 55,218 46,817 155,092 120,225
Net realized gain (loss) on consolidated funds’ investments 3,392 (1,436 ) 1,755 8,647
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments 3,662 10,231 56,793 (15,742 )
Investment income 51,061 65,758 150,618 136,205
Other income (expense), net 5,418   543   14,979   11,892  
Total other income 82,975   89,499   250,440   174,378  
Income before income taxes 148,234 177,390 623,351 422,643
Income taxes (13,857 ) (8,567 ) (31,700 ) (29,818 )
Net income 134,377 168,823 591,651 392,825
Less:
Net income attributable to non-controlling interests in consolidated funds (9,990 ) (13,243 ) (23,543 ) (15,618 )
Net income attributable to non-controlling interests in consolidated subsidiaries (78,546 ) (97,283 ) (350,028 ) (241,785 )
Net income attributable to Oaktree Capital Group, LLC $ 45,841   $ 58,297   $ 218,080   $ 135,422  
Distributions declared per Class A unit $ 1.31   $ 0.58   $ 2.65   $ 1.60  
Net income per unit (basic and diluted):
Net income per Class A unit $ 0.71   $ 0.93   $ 3.41   $ 2.17  
Weighted average number of Class A units outstanding 64,394   62,755   63,875   62,424  
 

Operating Metrics

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

Assets Under Management   As of

September 30,
2017

 

June 30,
2017

 

September 30,
2016

(in millions)
Assets Under Management:
Closed-end funds $ 57,769 $ 58,323 $ 60,488
Open-end funds 35,793 35,628 34,197
Evergreen funds 5,953   5,309   5,149  
Total $ 99,515   $ 99,260   $ 99,834  
 
 
Three Months Ended

September 30,

Twelve Months Ended

September 30,

2017 2016 2017 2016
(in millions)
Change in Assets Under Management:
Beginning balance $ 99,260 $ 98,124 $ 99,834 $ 100,237
Closed-end funds:
Capital commitments/other (1). 654 1,182 3,729 5,919
Distributions for a realization event/other (2). (2,160 ) (2,028 ) (10,521 ) (6,585 )
Change in uncalled capital commitments for funds entering or in liquidation (3) (198 ) (22 ) (1,126 ) 76
Foreign-currency translation 302 91 429 50
Change in market value (4). 829 1,616 4,137 1,926
Change in applicable leverage 19 73 633 (216 )
Open-end funds:
Contributions 1,427 914 7,557 3,380
Redemptions (2,209 ) (2,105 ) (8,997 ) (8,228 )
Foreign-currency translation 241 65 411 80
Change in market value (4). 706 1,656 2,625 3,051
Evergreen funds:
Contributions or new capital commitments 632 91 685 300
Redemptions or distributions/other (138 ) (55 ) (479 ) (511 )
Foreign-currency translation (1 ) 6 (9 )
Change in market value (4). 150   233   592   364  
Ending balance $ 99,515   $ 99,834   $ 99,515   $ 99,834  
 
(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

September 30,
2017

 

June 30,
2017

 

September 30,
2016

Management Fee-generating Assets Under Management: (in millions)
Closed-end funds:
Senior Loans $ 8,073 $ 7,943 $ 6,887
Other closed-end funds 31,953 32,048 33,575
Open-end funds 35,570 35,429 34,148
Evergreen funds 4,574   4,387   4,090  
Total $ 80,170   $ 79,807   $ 78,700  
 
 
Three Months Ended
September 30,
Twelve Months Ended
September 30,
2017 2016 2017 2016
Change in Management Fee-generating Assets Under Management: (in millions)
 
Beginning balance $ 79,807 $ 79,516 $ 78,700 $ 76,489
Closed-end funds:
Capital commitments to funds that pay fees based on committed capital/other (1). 925 111 1,970 7,253
Capital drawn by funds that pay fees based on drawn capital, NAV or cost basis 493 345 1,733 1,247
Change attributable to funds in liquidation (2). (1,350 ) (1,462 ) (4,054 ) (4,230 )
Change in uncalled capital commitments for funds entering or in liquidation that pay fees based on committed capital (3) (512 ) (382 ) (437 )
Distributions by funds that pay fees based on NAV/other (4). (333 ) (283 ) (895 ) (589 )
Foreign-currency translation 236 75 355 1
Change in market value (5). 45 131 256 167
Change in applicable leverage 19 52 581 23
Open-end funds:
Contributions 1,407 914 7,359 3,382
Redemptions (2,209 ) (2,074 ) (8,990 ) (8,203 )
Foreign-currency translation 241 65 411 80
Change in market value 702 1,646 2,642 3,049
Evergreen funds:
Contributions or capital drawn by funds that pay fees based on drawn capital or NAV 234 39 478 612
Redemptions or distributions (187 ) (97 ) (535 ) (491 )
Change in market value 140   234   541   347  
Ending balance $ 80,170   $ 78,700   $ 80,170   $ 78,700  
 
(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

September 30,
2017

 

June 30,
2017

 

September 30,
2016

Reconciliation of Assets Under Management to Management Fee-generating Assets Under Management: (in millions)
Assets under management $ 99,515 $ 99,260 $ 99,834
Difference between assets under management and committed capital or the lesser of funded capital or cost basis for applicable closed-end funds (1). (2,920 ) (2,585 ) (4,449 )
Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods (8,675 ) (9,560 ) (9,552 )
Undrawn capital commitments to funds for which management fees are based on drawn capital, NAV or cost basis (3,714 ) (3,242 ) (3,720 )
Oaktree’s general partner investments in management fee-generating
funds
(1,883 ) (1,948 ) (1,987 )
Funds that are no longer paying management fees and co-investments that pay no management fees (2) (2,153 ) (2,118 ) (1,426 )
Management fee-generating assets under management $ 80,170   $ 79,807   $ 78,700  
 
(1)   This difference is not applicable to closed-end funds that pay management fees based on NAV or leverage.
(2) This includes certain accounts that pay administrative fees intended to offset Oaktree’s costs related to the accounts.
 

The period-end weighted average annual management fee rates applicable to the respective management fee-generating AUM balances above are set forth below.

  As of
Weighted Average Annual Management Fee Rates:

September 30,
2017

 

June 30,
2017

 

September 30,
2016

Closed-end funds:
Senior Loans 0.50 % 0.50 % 0.50 %
Other closed-end funds 1.49 1.49 1.51
Open-end funds 0.46 0.46 0.46
Evergreen funds 1.17 1.21 1.22
Overall 0.91 0.92 0.95
 

Incentive-creating AUM

 
As of

September 30,
2017

 

June 30,
2017

 

September 30,
2016

Incentive-creating Assets Under Management: (in millions)
Closed-end funds $ 27,555 $ 27,450 $ 29,241
Evergreen funds 3,465   3,376   3,199
Total $ 31,020   $ 30,826   $ 32,440
 

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

   
As of or for the Three Months
Ended September 30,
As of or for the Nine Months
Ended September 30,
2017   2016 2017   2016
Accrued Incentives (Fund Level): (in thousands)
Beginning balance $ 1,779,578   $ 1,525,854   $ 2,014,097   $ 1,585,217  
Incentives created (fund level):
Closed-end funds 122,273 402,842 471,501 522,847
Evergreen funds 12,542   19,843   33,434   24,710  
Total incentives created (fund level) 134,815   422,685   504,935   547,557  
Less: incentive income recognized by us (53,728 ) (99,731 ) (658,367 ) (283,966 )
Ending balance $ 1,860,665   $ 1,848,808   $ 1,860,665   $ 1,848,808  
Accrued incentives (fund level), net of associated incentive income compensation expense $ 899,891   $ 872,716   $ 899,891   $ 872,716  
 

Non-GAAP Results

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

Adjusted Net Income

Beginning with the second quarter of 2017, the definition of adjusted net income was modified with respect to third-party placement costs associated with closed-end funds and liability-classified EVUs to conform to the GAAP treatment. Under GAAP, placement costs are expensed as incurred and liability-classified EVUs are remeasured as of each reporting date. Previously for adjusted net income, placement costs were capitalized and amortized in proportion to the associated management fee stream, and liability-classified EVUs were treated as equity-classified awards. All prior periods have been recast for these changes.

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

Adjusted Revenues

   
 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
Revenues:
Management fees $ 186,615 $ 194,349 $ 558,494 $ 593,069
Incentive income 53,728 99,731 658,367 283,966
Investment income 64,413   70,928   183,444   133,730
Total adjusted revenues $ 304,756   $ 365,008   $ 1,400,305   $ 1,010,765
 
Management Fees   Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
Management fees:
Closed-end funds $ 131,612 $ 141,513 $ 395,215 $ 435,717
Open-end funds 40,882 39,828 121,507 117,017
Evergreen funds 14,121   13,008   41,772   40,335
Total management fees $ 186,615   $ 194,349   $ 558,494   $ 593,069
 
Investment Income   Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
Income (loss) from investments in funds: (in thousands)
Oaktree funds:
Corporate Debt $ 10,409 $ 15,932 $ 28,242 $ 15,026
Convertible Securities 535 77 1,398 (819 )
Distressed Debt 15,255 15,295 46,905 34,462
Control Investing 3,985 19,702 15,055 19,535
Real Estate 6,063 3,791 14,519 8,353
Listed Equities 8,312 (2,802 ) 18,738 2,956
Non-Oaktree funds 2,413 1,166 6,423 4,661
Income from investments in companies 17,441   17,767   52,164   49,556  
Total investment income $ 64,413   $ 70,928   $ 183,444   $ 133,730  
 

Adjusted Expenses

   
 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
Expenses:
Compensation and benefits $ (95,691 ) $ (94,624 ) $ (297,097 ) $ (298,067 )
Equity-based compensation (14,691 ) (15,637 ) (40,971 ) (38,192 )
Incentive income compensation (26,362 ) (47,378 ) (369,480 ) (132,534 )
General and administrative (29,134 ) (30,151 ) (94,042 ) (100,146 )
Depreciation and amortization (2,036 ) (2,866 ) (6,863 ) (9,074 )
Total adjusted expenses $ (167,914 ) $ (190,656 ) $ (808,453 ) $ (578,013 )
 

Adjusted Interest and Other Income (Expense), Net

 

 

 
 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
Interest expense, net of interest income (1) $ (6,280 ) $ (7,799 ) $ (19,795 ) $ (24,458 )
Other income (expense), net 874 (4,902 ) 2,197 (6,294 )
 
(1)   Interest income was $2.7 million and $6.8 million for the three and nine months ended September 30, 2017, respectively, and $1.7 million and $4.6 million for the three and nine months ended September 30, 2016, respectively.
 

Adjusted Net Income

   
 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands, except per unit data)
Adjusted net income $ 131,436 $ 161,651 $ 574,254 $ 402,000
Adjusted net income attributable to OCGH non-controlling interest (77,271 ) (96,180 ) (338,471 ) (239,607 )
Non-Operating Group expenses (62 ) (182 ) (549 ) (647 )
Adjusted net income-OCG before income taxes 54,103 65,289 235,234 161,746
Income taxes-OCG (10,794 ) (7,579 ) (27,078 ) (27,141 )
Adjusted net income-OCG $ 43,309   $ 57,710   $ 208,156   $ 134,605  
Adjusted net income per Class A unit $ 0.67   $ 0.92   $ 3.26   $ 2.16  
Weighted average number of Class A units outstanding 64,394   62,755   63,875   62,424  
 

Distributable Earnings and Distribution Calculation

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

  Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
Distributable Earnings: (in thousands, except per unit data)
 
Adjusted net income $ 131,436 $ 161,651 $ 574,254 $ 402,000
Investment income (64,413 ) (70,928 ) (183,444 ) (133,730 )
Receipts of investment income from funds (1) 24,919 18,020 91,264 41,637
Receipts of investment income from companies 17,164 17,866 42,923 42,293
Equity-based compensation 14,691 15,637 40,971 38,192
Operating Group income taxes (5,208 ) (1,662 ) (7,850 ) (4,491 )
Distributable earnings $ 118,589   $ 140,584   $ 558,118   $ 385,901  
 
Distribution Calculation:
Operating Group distribution with respect to the period $ 101,586 $ 119,314 $ 474,832 $ 336,319
Distribution per Operating Group unit $ 0.65 $ 0.77 $ 3.04 $ 2.17
Adjustments per Class A unit:
Distributable earnings-OCG income tax expense (0.01 ) (0.03 ) (0.20 ) (0.12 )
Tax receivable agreement (0.08 ) (0.08 ) (0.24 ) (0.24 )
Non-Operating Group expenses   (0.01 ) (0.02 ) (0.03 )

Distribution per Class A unit (2)

$ 0.56   $ 0.65   $ 2.58   $ 1.78  
 
(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 September 30, 2017, a distribution was announced on October 26, 2017 and is payable on November 10, 2017.
 

Units Outstanding

   
 
Three Months Ended September 30, Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
Weighted Average Units:
OCGH 91,864 92,190 91,750 92,181
Class A 64,394   62,755   63,875   62,424
Total 156,258   154,945   155,625   154,605
Units Eligible for Fiscal Period Distribution:
OCGH 91,682 92,039
Class A 64,604   62,914  
Total 156,286   154,953  
 

GAAP Statement of Financial Condition (Unaudited)

 
 
As of September 30, 2017

Oaktree and
Operating
Subsidiaries

 

Consolidated
Funds

  Eliminations   Consolidated
(in thousands)
Assets:
Cash and cash-equivalents $ 705,121 $ $ $ 705,121
U.S. Treasury and other securities 324,478 324,478
Corporate investments 1,608,082 (553,095 ) 1,054,987
Deferred tax assets 405,042 405,042
Receivables and other assets 401,868 (2,812 ) 399,056
Assets of consolidated funds   5,979,078   (863 ) 5,978,215
Total assets $ 3,444,591   $ 5,979,078   $ (556,770 ) $ 8,866,899
Liabilities and Capital:
Liabilities:
Accounts payable and accrued expenses $ 375,444 $ $ 4,952 $ 380,396
Due to affiliates 342,226 342,226
Debt obligations 746,556 746,556
Liabilities of consolidated funds   4,795,301   (16,203 ) 4,779,098
Total liabilities 1,464,226   4,795,301   (11,251 ) 6,248,276
Non-controlling redeemable interests in consolidated funds 609,354 609,354
Capital:
Unitholders’ capital attributable to OCG 875,444 225,517 (225,517 ) 875,444
Non-controlling interest in consolidated subsidiaries 1,104,921 320,002 (320,002 ) 1,104,921
Non-controlling interest in consolidated funds   638,258   (609,354 ) 28,904
Total capital 1,980,365   1,183,777   (1,154,873 ) 2,009,269
Total liabilities and capital $ 3,444,591   $ 5,979,078   $ (556,770 ) $ 8,866,899
 

Corporate Investments

 
 
As of

September 30,
2017

 

June 30,
2017

 

September 30,
2016

Investments in funds: (in thousands)
Oaktree funds:
Corporate Debt $ 550,888 $ 518,813 $ 421,466
Convertible Securities 28,134 27,599 1,704
Distressed Debt 370,152 396,077 396,173
Control Investing 250,244 236,099 263,882
Real Estate 133,129 135,751 117,822
Listed Equities 139,628 132,113 92,962
Non-Oaktree funds 94,262 72,326 69,651
Investments in companies 24,242   25,188   19,952  
Total corporate investments – Non-GAAP 1,590,679 1,543,966 1,383,612
Adjustments (1) 17,403   19,031   (30,838 )
Total corporate investments – Oaktree and operating subsidiaries 1,608,082 1,562,997 1,352,774
Eliminations (553,095 ) (546,919 ) (311,780 )
Total corporate investments – Consolidated $ 1,054,987   $ 1,016,078   $ 1,040,994  
 
(1)   This adjusts CLO investments carried at amortized cost to fair value for GAAP reporting.
 

Fund Data

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

Closed-end Funds

    As of September 30, 2017
Investment Period

Total
Committed
Capital

 

%
Invested (1)

  %

Drawn (2)

 

Fund Net
Income
Since
Inception

 

Distri-

butions
Since
Inception

 

Net
Asset
Value

 

Manage-

ment Fee-
gener-

ating
AUM

 

Incentive
Income
Recog-

nized
(Non-
GAAP)

 

Accrued
Incentives
(Fund
Level) (3)

 

Unreturned
Drawn
Capital Plus
Accrued
Preferred
Return (4)

 

IRR Since
Inception (5)

 

Multiple
of Drawn
Capital (6)

Start Date End Date

Gross

  Net
(in millions)
Distressed Debt
Oaktree Opportunities Fund Xb (7) TBD $ 8,872 —% —% $ $ $ $ $ $ $ n/a n/a n/a
Oaktree Opportunities Fund X (7) Jan. 2016 Jan. 2019 3,603 76 44 629 80 2,135 3,404 122 1,648 46.5 % 28.5 % 1.5x
Oaktree Opportunities Fund IX Jan. 2014 Jan. 2017 5,066 nm 100 519 1,165 4,419 4,358 5,398 5.6 3.0 1.2
Oaktree Opportunities Fund VIIIb Aug. 2011 Aug. 2014 2,692 nm 100 675 1,809 1,558 1,704 52 2,005 7.9 5.0 1.4
Special Account B Nov. 2009 Nov. 2012 1,031 nm 100 578 1,352 331 321 16 249 13.5 11.1 1.6
Oaktree Opportunities Fund VIII Oct. 2009 Oct. 2012 4,507 nm 100 2,408 5,541 1,375 1,236 165 303 828 12.8 8.9 1.6
Special Account A Nov. 2008 Oct. 2012 253 nm 100 307 507 52 49 50 10 28.0 22.7 2.3
OCM Opportunities Fund VIIb May 2008 May 2011 10,940 nm 90 8,972 17,744 1,072 866 1,534 209 21.9 16.6 2.0
OCM Opportunities Fund VII Mar. 2007 Mar. 2010 3,598 nm 100 1,479 4,742 335 590 85 481 10.3 7.5 1.5
Legacy funds (8). Various Various 12,495 nm 100 10,456 22,912 39 1,555 9 23.6   18.5   1.9
22.0 % 16.2 %
Real Estate Opportunities
Oaktree Real Estate Opportunities Fund VII (9)(10) Jan. 2016 Jan. 2020 $ 2,921 58% 10% $ 127 $ 199 $ 220 $ 2,566 $ $ 24 $ 109 nm nm 1.8x
Oaktree Real Estate Opportunities Fund VI Aug. 2012 Aug. 2016 2,677 nm 100 1,259 1,425 2,511 1,876 22 222 2,011 16.0 % 10.8 % 1.6
Oaktree Real Estate Opportunities Fund V Mar. 2011 Mar. 2015 1,283 nm 100 978 1,838 423 215 124 62 17.5 12.9 1.9
Special Account D Nov. 2009 Nov. 2012 256 nm 100 199 350 113 33 4 16 42 14.8 12.8 1.8
Oaktree Real Estate Opportunities Fund IV Dec. 2007 Dec. 2011 450 nm 100 395 753 92 63 57 18 16.0 10.9 2.0
Legacy funds (8). Various Various 2,341 nm 99 2,010 4,316 11 231 2 15.2   11.9   1.9
15.5 % 11.9 %
Real Estate Debt
Oaktree Real Estate Debt Fund II (9)(11) Mar. 2017 Mar. 2020 $ 1,017 49% 9% $ $ 5 $ 84 $ 482 $ $ $

85

 

nm nm 1.1x
Oaktree Real Estate Debt Fund Sep. 2013 Oct. 2016 1,112 nm 61 149 495 328 594 6 16 213 26.2 % 19.8 % 1.4
Oaktree PPIP Fund (12). Dec. 2009 Dec. 2012 2,322 nm 48 457 1,570 47 28.2 n/a 1.4
 
Real Estate Income (13)
Special Account G (9)(11) Oct. 2016 Oct. 2020 $ 615 48% 48% $ 36 $ 26 $ 305 $ 241 $ $ 7 $ 284 nm nm 1.1x
 
European Principal (14)
Oaktree European Principal Fund IV (7)(9) Jul. 2017 Jul. 2022 1,119 43% 20% (13 ) 209 1,089 225 nm nm 1.0x
Oaktree European Principal Fund III Nov. 2011 Nov. 2016 3,164 nm 85 2,017 873 3,893 2,682 392 2,783 19.3 % 13.0 % 1.9
OCM European Principal Opportunities Fund II Dec. 2007 Dec. 2012 1,759 nm 100 400 1,867 264 799 29 702 8.4 4.4 1.4
OCM European Principal Opportunities Fund Mar. 2006 Mar. 2009 $ 495 nm 96 $ 454 $ 927 $ $ $ 87 $ $ 11.7   8.9   2.1
13.5 % 8.9 %
 
      As of September 30, 2017        
Investment Period

Total
Committed
Capital

 

%
Invested (1)

  %

Drawn (2)

 

Fund Net Income
Since
Inception

 

Distri-

butions
Since
Inception

 

Net
Asset
Value

 

Manage-
ment Fee-
gener-

ating
AUM

 

Incentive
Income
Recog-
nized (Non-GAAP)

 

Accrued
Incentives
(Fund
Level) (3)

 

Unreturned
Drawn
Capital Plus
Accrued
Preferred
Return (4)

 

IRR Since
Inception (5)

 

Multiple
of Drawn
Capital (6)

Start Date End Date

Gross

 

 

  Net
(in millions)
European Private Debt (14)
Oaktree European Capital Solutions Fund (7)(11) Dec. 2015 Dec. 2018 703 69% 49% 14 110 234 247 1 233

9.6%

 

6.1%

 

1.1x
Oaktree European Dislocation Fund Oct. 2013 Oct. 2016 294 nm 57 39 167 54 54 2 4 32 21.1 15.1 1.3
Special Account E Oct. 2013 Apr. 2015 379 nm 69 63 269 55 54 4 6 32 14.4 11.2 1.3
15.3% 11.2%
Special Situations (15)
Oaktree Special Situations Fund (7) Nov. 2015 Nov. 2018 $ 1,377 82% 41% $ 176 $ 158 $ 589 $ 1,256 $ $ 34 $ 448 51.6% 29.4% 1.4x
Other funds:
Oaktree Principal Fund V Feb. 2009 Feb. 2015 $ 2,827 nm 91% $ 456 $ 1,642 $ 1,400 $ 1,658 $ 50 $ $ 2,093 7.6% 3.4% 1.3x
Special Account C Dec. 2008 Feb. 2014 505 nm 91 203 413 250 282 21 263 10.8 7.6 1.6
OCM Principal Opportunities Fund IV Oct. 2006 Oct. 2011 3,328 nm 100 3,132 5,887 573 111 450 161 12.7 9.3 2.1
Legacy funds (8). Various Various 3,701 nm 100 2,716 6,401 15 404 3 14.4 11.1 1.8
13.2% 9.5%
Power Opportunities
Oaktree Power Opportunities Fund IV Nov. 2015 Nov. 2020 $ 1,106 65% 65% $ 25 $ 1 $ 741 $ 1,078 $ $ $ 762 11.6% 4.3% 1.1x
Oaktree Power Opportunities Fund III Apr. 2010 Apr. 2015 1,062 nm 66 409 583 524 405 24 55 323 20.8 12.9 1.7
Legacy funds (8). Various Various 1,470 nm 63 1,690 2,616 123 35.1 27.4 2.8
34.5% 26.2%
Infrastructure Investing
Highstar Capital IV (16). Nov. 2010 Nov. 2016 $ 2,000 nm 100% $ 456 $ 664 $ 1,792 $ 1,321 $ $ 3 $ 1,935 12.2% 7.9% 1.4x
 
U.S. Private Debt (17)
Oaktree Mezzanine Fund IV (11) Oct. 2014 Oct. 2019 $ 852 60% 60% $ 67 $ 79 $ 495 $ 472 $ $ 10 $ 481 12.2% 8.6% 1.2x
Oaktree Mezzanine Fund III (18). Dec. 2009 Dec. 2014 1,592 nm 89 421 1,507 337 339 15 25 303 14.9

 

10.4 / 8.4

1.4
OCM Mezzanine Fund II Jun. 2005 Jun. 2010 1,251 nm 88 486 1,504 90 164 10.9 7.4 1.5
OCM Mezzanine Fund (19). Oct. 2001 Oct. 2006 808 nm 96 302 1,075 38 15.4 10.8 / 10.5 1.5
13.0% 8.7%
Emerging Markets Opportunities
Oaktree Emerging Market Opportunities Fund Sep. 2013 Sep. 2017 $ 384 nm 78% $ 100 $ 103 $ 295 $ 198 $ $ 18 $ 256 15.8% 10.5% 1.4x
Special Account F Jan. 2014 Sep. 2017 253 nm 96 66 155 152 151   13   125 15.4 10.8 1.3
31,692 (14) 1,818 (14) 15.6% 10.6%
Other (20) 8,120   6  
  Total (21) $ 39,812   $ 1,824  
(1) For our incentive-creating closed-end funds in their investment periods, this percentage equals invested capital divided by committed capital. Invested capital for this purpose is the sum of capital drawn from fund investors plus net borrowings, if any, outstanding, under a fund-level credit facility where such borrowings were made in lieu of drawing capital from fund investors.
(2) Represents capital drawn from fund investors, net of distributions to such investors of uninvested capital, divided by committed capital. The aggregate change in drawn capital for the three months ended September 30, 2017 was $1.2 billion.
(3) Accrued incentives (fund level) exclude non-GAAP incentive income previously recognized.
(4) Unreturned drawn capital plus accrued preferred return reflects the amount the fund needs to distribute to its investors as a return of capital and a preferred return (as applicable) before Oaktree is entitled to receive incentive income (other than tax distributions) from the fund.
(5) The internal rate of return (“IRR”) is the annualized implied discount rate calculated from a series of cash flows. It is the return that equates the present value of all capital invested in an investment to the present value of all returns of capital, or the discount rate that will provide a net present value of all cash flows equal to zero. Fund-level IRRs are calculated based upon the actual timing of cash contributions/distributions to investors and the residual value of such investor’s capital accounts at the end of the applicable period being measured. Gross IRRs reflect returns before allocation of management fees, expenses and any incentive allocation to the fund’s general partner. To the extent material, gross returns include certain transaction, advisory, directors or other ancillary fees (“fee income”) paid directly to us in connection with our funds’ activities (we credit all such fee income back to the respective fund(s) so that our funds’ investors share pro rata in the fee income’s economic benefit). Net IRRs reflect returns to non-affiliated investors after allocation of management fees, expenses and any incentive allocation to the fund’s general partner.
(6) Multiple of drawn capital is calculated as drawn capital plus gross income and, if applicable, fee income before fees and expenses divided by drawn capital.
(7) Fund data include the performance of the main fund and any associated fund-of-one accounts, except the gross and net IRRs presented reflect only the performance of the main fund. Certain fund-of-one accounts pay management fees based on cost basis, rather than committed capital.
(8) Legacy funds represent certain predecessor funds within the relevant strategy 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) The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through September 30, 2017 was less than 18 months.
(10) A portion of this fund pays management fees based on drawn, rather than committed, capital.
(11) Management fees during the investment period are calculated on drawn capital or cost basis, rather than committed capital. As a result, as of September 30, 2017 management fee-generating AUM included only that portion of committed capital that had been drawn.
(12) 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.
(13) Effective August 2017, the Real Estate Value-Add strategy was renamed Real Estate Income.
(14) Aggregate IRRs or totals are based on the conversion of cash flows or amounts, respectively, from euros to USD using the September 30, 2017 spot rate of $1.18.
(15) Effective November 2016, the Global Principal strategy was renamed Special Situations. The aggregate gross and net IRRs presented for this strategy exclude the performance of Oaktree Special Situations Fund.
(16) The fund follows the American-style distribution waterfall, whereby the general partner may receive an incentive allocation as soon as it has returned the drawn capital and paid a preferred return on the fund’s realized investments (i.e., on a deal-by-deal basis). However, such cash distributions of incentives may be subject to repayment, or clawback. As of September 30, 2017, 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) Effective April 2017, the Mezzanine Finance strategy was renamed U.S. Private Debt, and includes our Mezzanine Finance and Direct Lending funds.
(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 10.4% and Class B interests was 8.4%. The combined net IRR for Class A and Class B interests was 9.5%.
(19) 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%.
(20) This includes our closed-end Senior Loan funds, CLOs, a non-Oaktree fund and certain separate accounts and co-investments.
(21) The total excludes one closed-end fund with management fee-generating AUM aggregating $214 million as of September 30, 2017, which has been included as part of the Strategic Credit strategy within the evergreen funds table.
 

Open-end Funds

     
 
Manage-

ment Fee-gener-

ating AUM

as of

Sept. 30, 2017

Twelve Months Ended

September 30, 2017

Since Inception through September 30, 2017

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 $ 16,853 7.4 % 6.9 % 8.3 % 9.3 % 8.8 % 8.4 % 0.82 0.58
Global High Yield Bonds 2010 4,563 8.6 8.1 9.1 7.6 7.1 7.2 1.19 1.16
European High Yield Bonds 1999 1,075 8.5 8.0 9.6 8.2 7.6 6.5 0.73 0.47
U.S. Convertibles 1987 2,906 7.6 7.1 14.3 9.4 8.8 8.3 0.50 0.38
Non-U.S. Convertibles 1994 1,520 7.9 7.3 5.4 8.4 7.8 5.6 0.80 0.41
High Income Convertibles 1989 1,076 7.9 7.1 8.5 11.3 10.5 8.2 1.07 0.61
U.S. Senior Loans 2008 1,354 6.4 5.9 5.4 6.1 5.5 5.2 1.11 0.66
European Senior Loans 2009 1,695 4.0 3.5 4.2 8.0 7.5 8.7 1.70 1.71
Emerging Markets Equities 2011 3,717 26.5 25.6 22.5 2.5 1.7 1.6 0.13 0.08
Multi-Strategy Credit (2) 2017 525 nm nm nm nm nm nm nm nm
Other 286  
Total $ 35,570  
 
(1)   Returns represent time-weighted rates of return, including reinvestment of income, net of commissions and transaction costs. The returns for Relevant Benchmarks are presented on a gross basis.
(2) Performance is not considered meaningful (“nm”) as the period from the initial capital contribution through September 30, 2017 was less than 18 months. As a result, returns for the relevant benchmark and the Sharpe Ratio have been excluded.
 

Evergreen Funds

       
 
As of September 30, 2017 Twelve Months Ended

September 30, 2017

Since Inception through
September 30, 2017
AUM   Manage-

ment

Fee-gener-

ating AUM

  Accrued Incen-

tives (Fund Level)

Strategy
Inception

Rates of Return (1) Annualized Rates

of Return (1)

Gross   Net Gross   Net
(in millions)
 
Strategic Credit (2). 2012 $ 3,074 $ 2,580 $ 14 13.4 % 10.4 % 9.3 % 6.8 %
Value Opportunities 2007 1,150 1,081

(3)

 

11.9 10.3 9.3 5.5
Emerging Markets Debt (4) 2015 935 450 7 18.6 14.5 16.5 12.9
Value Equities (5) 2012 421 395   8   32.5 24.6 20.3 14.7
4,506 29
Other (6) 282 3
Restructured funds   5  
Total (2) $ 4,788   $ 37  
 
(1)   Returns represent time-weighted rates of return.
(2) Includes one closed-end fund with $184 million and $214 million of AUM and management fee-generating AUM, respectively.
(3) As of September 30, 2017, the aggregate depreciation below high-water marks previously established for individual investors in the fund totaled approximately $18 million.
(4) Includes the Emerging Markets Debt Total Return and Emerging Markets Opportunities strategies. The rates of return reflect the performance of a composite of accounts for the Emerging Markets Debt Total Return strategy, including a single account with a December 2014 inception date.
(5) Includes performance of a proprietary fund with an initial capital commitment of $25 million since its inception in May 2012.
(6) Includes the Emerging Markets Absolute Return strategy and evergreen separate accounts in the Real Estate Debt strategy.
 

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 incentive income. Amounts recognized by us as incentive income are no longer included in accrued incentives (fund level), the term we use for remaining fund-level accruals. Incentives created (fund level), incentive income and accrued incentives (fund level) are presented gross, without deduction for direct compensation expense that is owed to our investment professionals associated with the particular fund when we earn the incentive income. We call that charge “incentive income compensation expense.” Incentive income compensation expense varies by the investment strategy and vintage of the particular fund, among many factors.

Adjusted net income (“ANI”) is a measure of profitability for our investment management business. The components of revenues (“adjusted revenues”) and expenses (“adjusted expenses”) used in the determination of ANI do not give effect to the consolidation of the funds that we manage. Adjusted revenues include investment income (loss) that is classified in other income (loss) in the GAAP statements of operations. Adjusted revenues and expenses also reflect Oaktree’s proportionate economic interest in Highstar, whereby amounts received for contractually reimbursable costs are classified for ANI 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) income taxes, (d) other income or expenses applicable to OCG or its Intermediate Holding Companies, and (e) the adjustment for non-controlling interests. Moreover, gains and losses resulting from foreign-currency transactions and hedging activities under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period, 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 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 ANI, they are carried at amortized cost, subject to any impairment charges. Investment income on CLO investments is recognized in ANI when cash distributions are received. Cash distributions are allocated between income and return of capital based on the effective yield method. ANI is calculated at the Operating Group level.

Beginning with the second quarter of 2017, the definition of ANI was modified with respect to third-party placement costs associated with closed-end funds and liability-classified EVUs to conform to the GAAP treatment. Under GAAP, placement costs are expensed as incurred and liability-classified EVUs are remeasured as of each reporting date. Previously for ANI, placement costs were capitalized and amortized in proportion to the associated management fee stream, and liability-classified EVUs were treated as equity-classified awards. All prior periods have been recast for these changes.

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

Distributable earnings and distributable earnings revenues differ from ANI in that they exclude investment income or loss and include the receipt of investment income or loss from distributions by our investments in funds 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 business 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 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 Base Value will be reduced by certain distributions and profit sharing payments received by the holder and the full value of certain OCGH units granted. The value created will be measured on a per unit basis, based on Class A unit trading prices and certain components of quarterly distributions with respect to the period during the Term. EVUs also give the holder the right, subject to service vesting and Oaktree performance relative to the accreting Base Value, to receive certain quarterly distributions from OCGH. EVUs do not entitle the holder to any voting rights.

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

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

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, net income, net income per Class A unit or other financial measures presented in accordance with GAAP.

Reconciliation of GAAP to Non-GAAP Results

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

  Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
Net income attributable to Oaktree Capital Group, LLC $ 45,841 $ 58,297 $ 218,080 $ 135,422
Incentive income (1) (7 ) 41,954 39,881
Incentive income compensation (1) 7 (41,954 ) (39,881 )
Investment income (2) (1,983 ) (6,155 ) (24,630 ) (19,733 )
Equity-based compensation (3) 1,137 4,202 4,558 10,268
Foreign-currency hedging (4) (833 ) 1,306 (960 ) 10,837
Acquisition-related items (5) (3,919 ) (253 ) (1,456 ) (1,751 )
Income taxes (6) 13,857 8,567 31,700 29,818
Non-Operating Group expenses (7) 62 182 549 647
Non-controlling interests (7) 77,274   95,505   346,413   236,492  
Adjusted net income 131,436 161,651 574,254 402,000
Incentive income (53,728 ) (99,731 ) (658,367 ) (283,966 )
Incentive income compensation 26,362 47,378 369,480 132,534
Investment income (64,413 ) (70,928 ) (183,444 ) (133,730 )
Equity-based compensation (8) 14,691 15,637 40,971 38,192
Interest expense, net of interest income 6,280 7,799 19,795 24,458
Other (income) expense, net (874 ) 4,902   (2,197 ) 6,294  
Fee-related earnings 59,754 66,708 160,492 185,782
Incentive income 53,728 99,731 658,367 283,966
Incentive income compensation (26,362 ) (47,378 ) (369,480 ) (132,534 )
Receipts of investment income from funds (9) 24,919 18,020 91,264 41,637
Receipts of investment income from companies 17,164 17,866 42,923 42,293
Interest expense, net of interest income (6,280 ) (7,799 ) (19,795 ) (24,458 )
Other (income) expense, net 874 (4,902 ) 2,197 (6,294 )
Operating Group income taxes (5,208 ) (1,662 ) (7,850 ) (4,491 )
Distributable earnings $ 118,589   $ 140,584   $ 558,118   $ 385,901  
 
(1)   This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG.
(2) This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs which under GAAP are marked-to-market but for ANI are accounted for at amortized cost, subject to impairment.
(3) This adjustment adds back the effect of equity-based compensation expense related to unit grants made before our initial public offering, which is excluded from adjusted net income and fee-related earnings because it is a non-cash charge that does not affect our financial position.
(4) This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between adjusted net income and net income attributable to OCG.
(5) This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability, which are excluded from adjusted net income.
(6) Because adjusted net income and fee-related earnings are pre-tax measures, this adjustment adds back the effect of income tax expense.
(7) Because adjusted net income and fee-related earnings are calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or non-controlling interests.
(8) This adjustment adds back the effect of equity-based compensation expense related to unit grants made after our initial public offering, which is excluded from fee-related earnings because it is non-cash in nature and does not impact our ability to fund our operations.
(9) This adjustment reflects the portion of distributions received from funds characterized as receipts of investment income or loss. In general, the income or loss component of a distribution from a fund is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends.
 

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

  Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
Net income attributable to Oaktree Capital Group, LLC $ 45,841 $ 58,297 $ 218,080 $ 135,422
Incentive income attributable to OCG (1) (3 ) 17,109 16,048
Incentive income compensation attributable to OCG (1) 3 (17,109 ) (16,048 )
Investment income attributable to OCG (2) (817 ) (2,493 ) (10,121 ) (7,961 )
Equity-based compensation attributable to OCG (3) 469 1,702 1,867 4,147
Foreign-currency hedging attributable to OCG (4) (342 ) 529 (385 ) 4,369
Acquisition-related items attributable to OCG (5) (1,616 ) (103 ) (610 ) (708 )
Non-controlling interests attributable to OCG (5) (226 ) (222 ) (675 ) (664 )
Adjusted net income-OCG (6) 43,309 57,710 208,156 134,605
Incentive income attributable to OCG (22,141 ) (40,393 ) (270,435 ) (114,656 )
Incentive income compensation attributable to OCG 10,864 19,189 151,808 53,507
Investment income attributable to OCG (26,545 ) (28,726 ) (75,302 ) (54,067 )
Equity-based compensation attributable to OCG (7) 6,054 6,333 16,823 15,426
Interest expense, net of interest income attributable to OCG 2,441 3,112 7,786 9,756
Other (income) expense attributable to OCG (360 ) 1,985 (904 ) 2,547
Non-fee-related earnings income taxes attributable to OCG (8) 9,072   4,297   22,167   20,078  
Fee-related earnings-OCG (6) 22,694 23,507 60,099 67,196
Incentive income attributable to OCG 22,141 40,393 270,435 114,656
Incentive income compensation attributable to OCG (10,864 ) (19,189 ) (151,808 ) (53,507 )
Receipts of investment income from funds attributable to OCG 10,269 7,298 37,459 16,817
Receipts of investment income from companies attributable to OCG 7,073 7,236 17,620 17,081
Interest expense, net of interest income attributable to OCG (2,441 ) (3,112 ) (7,786 ) (9,756 )
Other (income) expense attributable to OCG 360 (1,985 ) 904 (2,547 )
Non-fee-related earnings income taxes attributable to OCG (8) (9,072 ) (4,297 ) (22,167 ) (20,078 )
Distributable earnings-OCG income taxes 4,323 (789 ) (7,012 ) (5,472 )
Tax receivable agreement (5,415 ) (5,106 ) (16,193 ) (15,318 )
Income taxes of Intermediate Holding Companies 8,649   6,905   23,850   25,327  
Distributable earnings-OCG (6) $ 47,717   $ 50,861   $ 205,401   $ 134,399  
 
(1)   This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income-OCG and net income attributable to OCG.
(2) This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs which under GAAP are marked-to-market but for ANI are accounted for at amortized cost, subject to impairment.
(3) This adjustment adds back the effect of equity-based compensation expense attributable to OCG related to unit grants made before our initial public offering, which is excluded from adjusted net income-OCG and fee-related earnings-OCG because it is a non-cash charge that does not affect our financial position.
(4) This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between adjusted net income-OCG and net income attributable to OCG.
(5) This adjustment adds back the effect of (a) acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability and (b) non-controlling interests, which are both excluded from ANI.
(6) Adjusted net income-OCG, fee-related earnings-OCG and distributable earnings-OCG are calculated to evaluate the portion of adjusted net income, fee-related earnings and distributable earnings attributable to Class A unitholders. These measures are net of income taxes and other income or expenses applicable to OCG or its Intermediate Holding Companies. Reconciliations of fee-related earnings to fee-related earnings-OCG and distributable earnings to distributable earnings-OCG are presented below.
 
  Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands, except per unit data)
Fee-related earnings $ 59,754 $ 66,708 $ 160,492 $ 185,782
Fee-related earnings attributable to OCGH non-controlling interest (35,129 ) (39,690 ) (94,596 ) (110,758 )
Non-Operating Group expenses (209 ) (229 ) (886 ) (765 )
Fee-related earnings-OCG income taxes (1,722 ) (3,282 ) (4,911 ) (7,063 )
Fee-related earnings-OCG $ 22,694   $ 23,507   $ 60,099   $ 67,196  
Fee-related earnings per Class A unit $ 0.35   $ 0.37   $ 0.94   $ 1.08  
Weighted average number of Class A units outstanding 64,394   62,755   63,875   62,424  
 
  Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands, except per unit data)
Distributable earnings $ 118,589 $ 140,584 $ 558,118 $ 385,901
Distributable earnings attributable to OCGH non-controlling interest (69,718 ) (83,646 ) (328,963 ) (230,065 )
Non-Operating Group expenses (62 ) (182 ) (549 ) (647 )
Distributable earnings-OCG income taxes 4,323 (789 ) (7,012 ) (5,472 )
Tax receivable agreement (5,415 ) (5,106 ) (16,193 ) (15,318 )
Distributable earnings-OCG $ 47,717   $ 50,861   $ 205,401   $ 134,399  
Distributable earnings per Class A unit $ 0.74   $ 0.81   $ 3.22   $ 2.15  
Weighted average number of Class A units outstanding 64,394   62,755   63,875   62,424  
(7)   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.
(8) This adjustment adds back income taxes associated with incentive income, incentive income compensation expense or investment income or loss, which are not included in the calculation of fee-related earnings-OCG.
 

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

  Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
GAAP revenues $ 235,032 $ 290,230 $ 1,158,672 $ 827,436
Consolidated funds (1) 20,646 15,182 73,691 26,976
Incentive income (2) (7 ) 41,954 39,881
Investment income (3) 49,078   59,603   125,988   116,472  
Adjusted revenues 304,756 365,008 1,400,305 1,010,765
Incentive income (53,728 ) (99,731 ) (658,367 ) (283,966 )
Investment income (64,413 ) (70,928 ) (183,444 ) (133,730 )
Fee-related earnings revenues 186,615 194,349 558,494 593,069
Incentive income 53,728 99,731 658,367 283,966
Receipts of investment income from funds 24,919 18,020 91,264 41,637
Receipts of investment income from companies 17,164   17,866   42,923   42,293  
Distributable earnings revenues $ 282,426   $ 329,966   $ 1,351,048   $ 960,965  
 
(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 adjusted revenues.
(2) This adjustment adds back the effect of timing differences associated with the recognition of incentive income between adjusted revenues and GAAP revenues.
(3) This adjustment reclassifies consolidated investment income from other income (loss) to revenues and adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between adjusted revenues and GAAP revenues.
 

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

  Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
Net income attributable to Oaktree Capital Group, LLC $ 45,841 $ 58,297 $ 218,080 $ 135,422
Reconciling adjustments (1) 85,595   103,354   356,174   266,578
Adjusted net income 131,436 161,651 574,254 402,000
Change in accrued incentives (fund level), net of associated incentive income compensation (2). 33,241   101,463   (46,651 ) 61,176
Economic net income (3) $ 164,677   $ 263,114   $ 527,603   $ 463,176
 
(1)   Please refer to the table on page 26 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 September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
Net income attributable to Oaktree Capital Group, LLC $ 45,841 $ 58,297 $ 218,080 $ 135,422
Reconciling adjustments (1) (2,532 ) (587 ) (9,924 ) (817 )
Adjusted net income-OCG (2) 43,309 57,710 208,156 134,605
Change in accrued incentives (fund level), net of associated incentive income compensation attributable to OCG 13,698 41,094 (19,285 ) 24,915
Economic net income-OCG income taxes (10,459 ) (10,898 ) (27,192 ) (26,440 )
Income taxes-OCG 10,794   7,579   27,078   27,141  
Economic net income-OCG (2) $ 57,342   $ 95,485   $ 188,757   $ 160,221  
 
(1)   Please refer to the table on page 27 for a detailed reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income-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 September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands, except per unit data) (in thousands, except per unit data)
Economic net income $ 164,677 $ 263,114 $ 527,603 $ 463,176
Economic net income attributable to OCGH non-controlling interest (96,814 ) (156,549 ) (311,105 ) (275,868 )
Non-Operating Group expenses (62 ) (182 ) (549 ) (647 )
Economic net income-OCG income taxes (10,459 ) (10,898 ) (27,192 ) (26,440 )
Economic net income-OCG $ 57,342   $ 95,485   $ 188,757   $ 160,221  
Economic net income per Class A unit $ 0.89   $ 1.52   $ 2.96   $ 2.57  
Weighted average number of Class A units outstanding 64,394   62,755   63,875   62,424  
 

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

  Three Months Ended September 30,   Nine Months Ended September 30,
2017   2016 2017   2016
(in thousands)
GAAP revenues $ 235,032 $ 290,230 $ 1,158,672 $ 827,436
Consolidated funds (1) 20,646 15,182 73,691 26,976
Incentive income (2) (7 ) 41,954 39,881
Investment income (3) 49,078   59,603   125,988   116,472  
Adjusted revenues 304,756 365,008 1,400,305 1,010,765
Incentives created 134,815 422,685 504,935 547,557
Incentive income (53,728 ) (99,731 ) (658,367 ) (283,966 )
Economic net income revenues $ 385,843   $ 687,962   $ 1,246,873   $ 1,274,356  
 
(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 adjusted revenues.
(2) This adjustment adds back the effect of timing differences associated with the recognition of incentive income between adjusted revenues and GAAP revenues.
(3) This adjustment reclassifies consolidated investment income from other income (loss) to revenues and adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between adjusted revenues and GAAP revenues.
 

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

  As of or for the Three Months Ended September 30, 2017
Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 181,312 $ 5,303 $ 186,615
Incentive income (1) 53,720 8 53,728
Investment income (1) 51,061 13,352 64,413
Total expenses (2) (169,773 ) 1,859 (167,914 )
Interest expense, net (3) (35,776 ) 29,496 (6,280 )
Other income (expense), net (4) 5,418 (4,544 ) 874
Other income of consolidated funds (5) 62,272 (62,272 )
Income taxes (13,857 ) 13,857
Net income attributable to non-controlling interests in consolidated funds (9,990 ) 9,990
Net income attributable to non-controlling interests in consolidated subsidiaries (78,546 ) 78,546    
Net income attributable to Oaktree Capital Group, LLC/Adjusted net income $ 45,841   $ 85,595   $ 131,436  
 
(1)   The adjustment (a) adds back amounts earned from the consolidated funds, (b) for management fees, reclassifies $199 of net gains related to foreign-currency hedging activities from general and administrative expense, and (c) for investment income, includes $1,983 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2) The expense adjustment consists of (a) equity-based compensation expense of $1,137 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $950, (c) expenses incurred by the Intermediate Holding Companies of $209, (d) acquisition-related items of $3,919, (e) adjustments of $4,357 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (f) $870 of net gains related to foreign-currency hedging activities.
(3) The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4) The adjustment to other income (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $4,357 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $187 in net losses related to foreign-currency hedging activities from general and administrative expense.
(5) The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.
 
  As of or for the Three Months Ended September 30, 2016
Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 190,974 $ 3,375 $ 194,349
Incentive income (1) 99,256 475 99,731
Investment income (1) 65,758 5,170 70,928
Total expenses (2) (202,339 ) 11,683 (190,656 )
Interest expense, net (3) (32,414 ) 24,615 (7,799 )
Other income (expense), net (4) 543 (5,445 ) (4,902 )
Other income of consolidated funds (5) 55,612 (55,612 )
Income taxes (8,567 ) 8,567
Net income attributable to non-controlling interests in consolidated funds (13,243 ) 13,243
Net income attributable to non-controlling interests in consolidated subsidiaries (97,283 ) 97,283    
Net income attributable to Oaktree Capital Group, LLC/Adjusted net income $ 58,297   $ 103,354   $ 161,651  
 
(1)   The adjustment (a) adds back amounts earned from the consolidated funds, (b) for management fees, reclassifies $397 of net gains related to foreign-currency hedging activities from general and administrative expense, (c) for incentive income, includes $7 related to timing differences in the recognition of incentive income between net income attributable to OCG and adjusted net income, and (d) for investment income, includes $6,155 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2) The expense adjustment consists of (a) equity-based compensation expense of $4,203 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $1,143, (c) expenses incurred by the Intermediate Holding Companies of $229, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG and adjusted net income of $7, (e) acquisition-related items of $253, (f) adjustments of $4,941 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (g) $1,413 of net losses related to foreign-currency hedging activities.
(3) The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4) The adjustment to other income (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $4,941 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $504 in net losses related to foreign-currency hedging activities from general and administrative expense.
(5) The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.
 
  As of or for the Nine Months Ended September 30, 2017
Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 542,268 $ 16,226 $ 558,494
Incentive income (1) 616,404 41,963 658,367
Investment income (1) 150,618 32,826 183,444
Total expenses (2) (785,761 ) (22,692 ) (808,453 )
Interest expense, net (3) (128,797 ) 109,002 (19,795 )
Other income (expense), net (4) 14,979 (12,782 ) 2,197
Other income of consolidated funds (5) 213,640 (213,640 )
Income taxes (31,700 ) 31,700
Net income attributable to non-controlling interests in consolidated funds (23,543 ) 23,543
Net income attributable to non-controlling interests in consolidated subsidiaries (350,028 ) 350,028    
Net income attributable to Oaktree Capital Group, LLC/Adjusted net income $ 218,080   $ 356,174   $ 574,254  
 
(1)   The adjustment (a) adds back amounts earned from the consolidated funds, (b) for management fees, reclassifies $2,298 of net gains related to foreign-currency hedging activities from general and administrative expense, (c) for incentive income, includes $41,954 related to timing differences in the recognition of incentive income between net income attributable to OCG and adjusted net income, and (d) for investment income, includes $24,630 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2) The expense adjustment consists of (a) equity-based compensation expense of $4,558 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $5,782, (c) expenses incurred by the Intermediate Holding Companies of $886, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG and adjusted net income of $41,954, (e) acquisition-related items of $1,456, (f) adjustments of $13,747 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (g) $4,250 of net gains related to foreign-currency hedging activities.
(3) The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4) The adjustment to other income (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $13,747 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $967 in net gains related to foreign-currency hedging activities from general and administrative expense.
(5) The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.
 
  As of or for the Nine Months Ended September 30, 2016
Consolidated   Adjustments   ANI
(in thousands)
Management fees (1) $ 584,542 $ 8,527 $ 593,069
Incentive income (1) 242,894 41,072 283,966
Investment income (1) 136,205 (2,475 ) 133,730
Total expenses (2) (579,171 ) 1,158 (578,013 )
Interest expense, net (3) (86,849 ) 62,391 (24,458 )
Other income (expense), net (4) 11,892 (18,186 ) (6,294 )
Other income of consolidated funds (5) 113,130 (113,130 )
Income taxes (29,818 ) 29,818
Net income attributable to non-controlling interests in consolidated funds (15,618 ) 15,618
Net income attributable to non-controlling interests in consolidated subsidiaries (241,785 ) 241,785    
Net income attributable to Oaktree Capital Group, LLC/Adjusted net income $ 135,422   $ 266,578   $ 402,000  
 
(1)   The adjustment (a) adds back amounts earned from the consolidated funds, (b) for management fees, reclassifies $1,086 of net gains related to foreign-currency hedging activities from general and administrative expense, (c) for incentive income, includes $39,881 related to timing differences in the recognition of incentive income between net income attributable to OCG and adjusted net income, and (d) for investment income, includes $19,733 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.
(2) The expense adjustment consists of (a) equity-based compensation expense of $10,269 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $3,819, (c) expenses incurred by the Intermediate Holding Companies of $765, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG and adjusted net income of $39,881, (e) acquisition-related items of $1,751, (f) adjustments of $16,287 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (g) $11,650 of net losses related to foreign-currency hedging activities.
(3) The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.
(4) The adjustment to other income (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $16,287 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $1,899 in net losses related to foreign-currency hedging activities from general and administrative expense.
(5) The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20171026005474r1&sid=acqr7&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20171026005474/en/

Investor Relations:
Oaktree Capital Group, LLC
Andrea D. Williams, (213) 830-6483
investorrelations@oaktreecapital.com
or
Press Relations:
Sard Verbinnen & Co
John Christiansen, (415) 618-8750
jchristiansen@sardverb.com
or
Sard Verbinnen & Co
Alyssa Linn,(310) 201-2040
alinn@sardverb.com

Source: Oaktree Capital Group, LLC

Copyright Business Wire 2017