Oaktree Capital Group, LLC - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - FORM 8-K - Oaktree Capital Group, LLC	form8-k1q2018.htm

Oaktree Announces First Quarter 2018 Financial Results

As of March 31, 2018 or for the quarter then ended, and where applicable, per Class A unit:


•	GAAP net income attributable to Oaktree Capital Group, LLC (“OCG”) was $52.7 million ($0.78 per unit), down from $54.9 million ($0.87) for the first quarter of 2017.


•	Adjusted net income was $160.4 million, down slightly from $161.2 million for the first quarter of 2017, on lower investment income and fee-related earnings, largely offset by higher incentive income. On a per unit basis, which is net of tax, adjusted net income was $0.93 per unit, up from $0.85 per unit, primarily due to a lower effective tax rate.


•	Distributable earnings were $194.0 million ($1.18 per unit), up from $159.2 million ($0.88) for the first quarter of 2017, on higher incentive income and investment income proceeds.


•	Assets under management were $121.4 billion, down 2% for the quarter and up slightly over the last 12 months. Gross capital raised was $1.9 billion and $7.7 billion for the quarter and last 12 months, respectively. Uncalled capital commitments (“dry powder”) were $19.6 billion, of which $12.4 billion were not yet generating management fees (“shadow AUM”).


•	Management fee-generating assets under management were $102.0 billion, down 2% for the quarter and up 2% over the last 12 months.


•	A distribution was declared of $0.96 per unit, bringing aggregate distributions relating to the last 12 months to $3.59.

LOS ANGELES, CA. April 26, 2018 – Oaktree Capital Group, LLC (NYSE: OAK) today reported its unaudited financial results for the first quarter ended March 31, 2018.

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

Changes to Non-GAAP Measures

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

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

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

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

Prior periods have been recast to reflect the changes above.

Distribution

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

Conference Call

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

About Oaktree

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

Contacts:



Investor Relations:	Press Relations:

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

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



	As of or for the Three Months Ended March 31,
	2018		2017
GAAP Results:	(in thousands, except per unit data or as otherwise indicated)

Revenues	$	337,321	$	289,585
Net income-OCG	52,732		54,915
Net income per Class A unit	0.78		0.87

Non-GAAP Results: ⁽¹⁾⁽²⁾
Adjusted revenues	$	451,156	$	391,187
Adjusted net income	160,363		161,164
Adjusted net income-OCG	62,903		53,741

Distributable earnings revenues	477,264		377,744
Distributable earnings	193,973		159,221
Distributable earnings-OCG	80,178		55,173

Fee-related earnings revenues	202,947		201,207
Fee-related earnings	58,487		63,779
Fee-related earnings-OCG	24,269		21,900

Economic net income revenues	326,784		445,512
Economic net income	107,546		183,651
Economic net income-OCG	42,509		64,060

Per Class A Unit:
Adjusted net income	$	0.93	$	0.85
Distributable earnings	1.18		0.88
Fee-related earnings	0.36		0.35
Economic net income	0.63		1.02

Weighted average number of Operating Group units outstanding	156,188		154,666
Weighted average number of Class A units outstanding	67,918		63,022

Operating Metrics: ⁽¹⁾
Assets under management (in millions):
Assets under management	$	121,394	$	121,232
Management fee-generating assets under management	102,043		100,248
Incentive-creating assets under management	33,035		32,934
Uncalled capital commitments	19,556		21,770
Accrued incentives (fund level):
Incentives created (fund level)	111,185		201,767
Incentives created (fund level), net of associated incentive income compensation expense	52,298		96,785
Accrued incentives (fund level)	1,795,967		2,068,422
Accrued incentives (fund level), net of associated incentive income compensation expense	868,035		969,029

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

calculated in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented at Exhibit A. All non-GAAP measures and all interim results presented in this release are unaudited.

(1)

Beginning with the first quarter of 2018, management fees and incentive income reflect the portion of the earnings from management fees and performance fees, respectively, attributable to our 20% ownership interest in DoubleLine. Such earnings were previously reported as investment income. Additionally, AUM, management fee-generating AUM, incentive-creating AUM and incentives created (fund level) now reflect our pro-rata portion (based on our 20% ownership stake) of DoubleLine’s total AUM, management fee-generating AUM, incentive-creating AUM and performance fees, respectively. All prior periods have been recast to reflect this change.

(2)

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

GAAP Results

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

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

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

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

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

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

Operating Metrics

Assets Under Management

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

The $0.2 billion increase in AUM since March 31, 2017 primarily reflected $5.1 billion in market-value gains, $2.9 billion attributable to DoubleLine, $2.1 billion from becoming the investment adviser to two publicly-traded business development companies (the “BDC acquisition”), $2.0 billion of capital commitments to closed-end funds and $2.0 billion in favorable foreign-currency translation, largely offset by $10.3 billion of distributions to closed-end fund

investors and $3.8 billion of net outflows from open-end funds. Commitments to closed-end funds included $1.2 billion for our Real Estate products and $0.3 billion for our European Private Debt product. Distributions to closed-end fund investors included $5.1 billion from Credit funds, $3.0 billion from Private Equity funds and $2.1 billion from Real Asset funds.

Management Fee-generating Assets Under Management

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

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

Incentive-creating Assets Under Management

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

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

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

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

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

Uncalled Capital Commitments

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

Non-GAAP Results

Adjusted Revenues

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

Management Fees

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

Incentive Income

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

Investment Income

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

Adjusted Expenses

Compensation and Benefits

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

Equity-based Compensation

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

Incentive Income Compensation

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

General and Administrative

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

Depreciation and Amortization

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

Interest Expense, Net

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

Adjusted Net Income

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

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

Distributable Earnings

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

Fee-related Earnings

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

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

Capital and Liquidity

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

Forward-Looking Statements

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

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

Investor Relations Website

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

GAAP Consolidated Statements of Operations ⁽¹⁾



	Three Months Ended March 31,
	2018			2017
	(in thousands, except per unit data)
Revenues:
Management fees	$	185,415		$	180,928
Incentive income	151,906			108,657
Total revenues	337,321			289,585
Expenses:
Compensation and benefits	(108,754		)	(104,487		)
Equity-based compensation	(14,621		)	(14,953		)
Incentive income compensation	(84,815		)	(34,608		)
Total compensation and benefits expense	(208,190		)	(154,048		)
General and administrative	(32,964		)	(32,219		)
Depreciation and amortization	(6,402		)	(3,824		)
Consolidated fund expenses	(3,480		)	(2,471		)
Total expenses	(251,036		)	(192,562		)
Other income (loss):
Interest expense	(40,579		)	(48,770		)
Interest and dividend income	62,619			47,960
Net realized gain (loss) on consolidated funds’ investments	14,599			(1,872		)
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments	(14,386		)	24,678
Investment income	34,563			50,451
Other income, net	697			4,663
Total other income	57,513			77,110
Income before income taxes	143,798			174,133
Income taxes	(6,397		)	(12,302		)
Net income	137,401			161,831
Less:
Net income attributable to non-controlling interests in consolidated funds	(10,725		)	(9,692		)
Net income attributable to non-controlling interests in consolidated subsidiaries	(73,944		)	(97,224		)
Net income attributable to Oaktree Capital Group, LLC	$	52,732		$	54,915
Distributions declared per Class A unit	$	0.76		$	0.63
Net income per unit (basic and diluted):
Net income per Class A unit	$	0.78		$	0.87
Weighted average number of Class A units outstanding	67,918			63,022

(1)

Operating Metrics

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



Assets Under Management				As of
				March 31, 2018			December 31, 2017			March 31, 2017
				(in millions)
Assets Under Management:
Closed-end funds				$	55,682		$	56,871		$	59,848
Open-end funds				33,703			35,441			35,125
Evergreen funds				8,227			7,916			5,340
DoubleLine ⁽¹⁾				23,782			23,702			20,919
Total				$	121,394		$	123,930		$	121,232

	Three Months Ended March 31,						Twelve Months Ended March 31,
	2018			2017			2018			2017
	(in millions)
Change in Assets Under Management:
Beginning balance	$	123,930		$	120,801		$	121,232		$	115,769
Closed-end funds:
Capital commitments/other ⁽²⁾	653			1,094			2,031			6,092
Distributions for a realization event / other ⁽³⁾	(2,182		)	(2,553		)	(10,262		)	(8,286		)
Change in uncalled capital commitments for funds entering or in liquidation ⁽⁴⁾	(306		)	31			(319		)	(1,053		)
Foreign-currency translation	219			106			1,106			(411		)
Change in market value ⁽⁵⁾	431			870			3,105			4,259
Change in applicable leverage	(4		)	196			173			166
Open-end funds:
Contributions	891			2,007			4,623			6,716
Redemptions	(2,635		)	(2,977		)	(8,399		)	(8,254		)
Foreign-currency translation	181			107			874			(245		)
Change in market value ⁽⁵⁾	(175		)	883			1,480			3,900
Evergreen funds:
Contributions or new capital commitments ⁽⁶⁾	363			7			1,089			200
Acquisition (BDCs)	—			—			2,110			—
Redemptions or distributions ⁽⁷⁾	(161		)	(106		)	(786		)	(428		)
Foreign-currency translation	(3		)	(2		)	(2		)	(1		)
Change in market value ⁽⁵⁾	112			146			476			784
DoubleLine:
Net change in DoubleLine	80			622			2,863			2,024
Ending balance	$	121,394		$	121,232		$	121,394		$	121,232


(1)	DoubleLine AUM reflects our pro-rata portion (based on our 20% ownership stake) of DoubleLine’s total AUM.


(2)	These amounts include capital commitments, as well as the aggregate par value of collateral assets and principal cash related to new CLO formations.


(3)	These amounts include distributions for a realization event, tax-related distributions, reductions in the par value of collateral assets and principal cash resulting from the repayment of debt as return of principal by CLOs, and recallable distributions at the end of the investment period.


(4)	The change in uncalled capital commitments generally reflects declines attributable to funds entering their liquidation periods, as well as capital contributions to funds in their liquidation periods for deferred purchase obligations or other reasons.


(5)	The change in market value reflects the change in NAV of our funds, less management fees and other fund expenses, as well as changes in the aggregate par value of collateral assets and principal cash held by CLOs and other levered funds.


(6)	These amounts include contributions and capital commitments, and for our publicly-traded BDCs, issuances of equity or debt capital.


(7)	These amounts include redemptions and distributions, and for our publicly-traded BDCs, dividends, repurchases of equity capital or repayment of debt.



Management Fee-generating AUM				As of
				March 31, 2018			December 31, 2017			March 31, 2017
Management Fee-generating AUM:				(in millions)
Closed-end funds:
Senior Loans				$	8,104		$	8,066		$	7,721
Other closed-end funds				29,734			30,779			32,340
Open-end funds				33,448			35,188			34,930
Evergreen funds				6,975			6,552			4,338
DoubleLine				23,782			23,702			20,919
Total				$	102,043		$	104,287		$	100,248

	Three Months Ended March 31,						Twelve Months Ended March 31,
	2018			2017			2018			2017
Change in Management Fee-generating AUM:	(in millions)

Beginning balance	$	104,287		$	100,064		$	100,248		$	98,803
Closed-end funds:
Capital commitments to funds that pay fees based on committed capital / other ⁽¹⁾.	—			17			952			1,456
Capital drawn by funds that pay fees based on drawn capital, NAV or cost basis	559			327			1,895			1,516
Change attributable to funds in liquidation ⁽²⁾.	(1,595		)	(954		)	(5,401		)	(4,735		)
Change in uncalled capital commitments for funds entering or in liquidation that pay fees based on committed capital ⁽³⁾	—			—			—			(881		)
Distributions by funds that pay fees based on NAV / other ⁽⁴⁾.	(193		)	(165		)	(954		)	(688		)
Foreign-currency translation	174			82			932			(389		)
Change in market value ⁽⁵⁾.	53			88			182			430
Change in applicable leverage	(5		)	172			171			212
Open-end funds:
Contributions	890			1,882			4,575			6,542
Redemptions	(2,635		)	(2,971		)	(8,398		)	(8,223		)
Foreign-currency translation	181			107			874			(245		)
Change in market value	(176		)	878			1,467			3,917
Evergreen funds:
Contributions or capital drawn by funds that pay fees based on drawn capital or NAV ⁽⁶⁾	470			59			931			255
Acquisition (BDCs)	—			—			2,110			—
Redemptions or distributions ⁽⁷⁾	(147		)	(90		)	(829		)	(475		)
Change in market value ⁽⁵⁾.	100			130			425			729
DoubleLine:
Net change in DoubleLine	80			622			2,863			2,024
Ending balance	$	102,043		$	100,248		$	102,043		$	100,248


(1)	These amounts include capital commitments to funds that pay fees based on committed capital, as well as the aggregate par value of collateral assets and principal cash related to new CLO formations.

(2)

These amounts include the change for funds that pay fees based on the lesser of funded capital or cost basis during the liquidation period, as well as recallable distributions at the end of the investment period. For most closed-end funds, management fees are charged during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund, with the cost basis of assets generally calculated by excluding cash balances. Thus, changes in fee basis during the liquidation period are not dependent on distributions made from the fund; rather, they are tied to the cost basis of the fund’s investments, which typically declines as the fund sells assets.


(3)	The change in uncalled capital commitments reflects declines attributable to funds entering their liquidation periods, as well as capital contributions to funds in their liquidation periods for deferred purchase obligations or other reasons.


(4)	These amounts include distributions by funds that pay fees based on NAV, as well as reductions in the par value of collateral assets and principal cash resulting from the repayment of debt as return of principal by CLOs.


(5)	The change in market value reflects certain funds that pay management fees based on NAV and leverage, as applicable, as well as changes in the aggregate par value of collateral assets and principal cash held by CLOs and other levered funds.


(6)	These amounts include contributions and capital commitments, and for our publicly-traded BDCs, issuances of equity or debt capital.


(7)	These amounts include redemptions and distributions, and for our publicly-traded BDCs, dividends, repurchases of equity capital or repayment of debt.



	As of
	March 31, 2018			December 31, 2017			March 31, 2017
Reconciliation of AUM to Management Fee-generating AUM:	(in millions)
Assets under management	$	121,394		$	123,930		$	121,232
Difference between assets under management and committed capital or the lesser of funded capital or cost basis for applicable closed-end funds ⁽¹⁾.	(2,195		)	(2,331		)	(3,773		)
Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods	(8,463		)	(8,675		)	(10,542		)
Undrawn capital commitments to funds for which management fees are based on drawn capital, NAV or cost basis	(3,954		)	(4,037		)	(2,593		)
Oaktree’s general partner investments in management fee-generating funds	(2,059		)	(1,937		)	(1,928		)
Funds that are no longer paying management fees and co-investments that pay no management fees ⁽²⁾	(2,680		)	(2,663		)	(2,148		)
Management fee-generating assets under management	$	102,043		$	104,287		$	100,248


(1)	This difference is not applicable to closed-end funds that pay management fees based on NAV or leverage.


(2)	This includes certain accounts that pay administrative fees intended to offset Oaktree’s costs related to the accounts.

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



	As of
Weighted Average Annual Management Fee Rates:	March 31, 2018		December 31, 2017		March 31, 2017
Closed-end funds:
Senior Loans	0.50	%	0.50	%	0.50	%
Other closed-end funds	1.47		1.49		1.50
Open-end funds	0.45		0.46		0.45
Evergreen funds ⁽¹⁾	1.20		1.22		1.22
All Oaktree funds ⁽²⁾	0.91		0.92		0.92


(1)	Fee rates reflect the applicable asset-based management fee rates, exclusive of quarterly incentive fees on investment income that are included in management fees.


(2)	Excludes DoubleLine funds.

Incentive-creating AUM



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

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



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

Non-GAAP Results

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

Adjusted Net Income

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

Adjusted Revenues



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



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



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

Adjusted Expenses



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

Adjusted Interest and Other Income, Net



	Three Months Ended March 31,
	2018			2017
	(in thousands)

Interest expense, net of interest income ⁽¹⁾	$	(3,410	)	$	(6,971	)
Other income, net	512			41


(1)	Interest income was $2.4 million and $1.7 million for the three months ended March 31, 2018 and 2017, respectively.

Adjusted Net Income



	Three Months Ended March 31,
	2018			2017
	(in thousands, except per unit data)

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

Distributable Earnings and Distribution Calculation

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



	Three Months Ended March 31,
	2018			2017
Distributable Earnings:	(in thousands, except per unit data)

Adjusted net income	$	160,363		$	161,164
Investment income	(12,652		)	(42,538		)
Receipts of investment income ⁽¹⁾	38,760			29,095
Equity-based compensation	12,993			12,521
Other (income) expense, net ⁽²⁾	(2,745		)	—
Operating Group income taxes	(2,746		)	(1,021		)
Distributable earnings	$	193,973		$	159,221

Distribution Calculation:
Operating Group distribution with respect to the period	$	165,045		$	132,595
Distribution per Operating Group unit	$	1.05		$	0.85
Adjustments per Class A unit:
Distributable earnings-OCG income tax expense	(0.02		)	(0.05		)
Tax receivable agreement	(0.06		)	(0.08		)
Non-Operating Group expenses	(0.01		)	(0.01		)
Distribution per Class A unit⁽³⁾.	$	0.96		$	0.71

(1)

This adjustment characterizes a portion of the distributions received from funds as receipts of investment income or loss. In general, the income or loss component of a fund distribution is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends. Additionally, any impairment charges on our CLO investments included in ANI are, for distributable earnings purposes, amortized over the remaining investment period of the respective CLO to align with the timing of expected cash flows.


(2)	For distributable earnings purposes, the $22 million make-whole premium charge that was included in ANI in the fourth quarter of 2017 in connection with the early repayment of our 2019 Notes is amortized through the original maturity date of December 2019.


(3)	With respect to the quarter ended March 31, 2018, a distribution was announced on April 26, 2018 and is payable on May 11, 2018.

Units Outstanding



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

GAAP Statement of Financial Condition (Unaudited)



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

Corporate Investments



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


(1)	This adjusts CLO investments carried at amortized cost to fair value for GAAP reporting.

Fund Data

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

Closed-end Funds



			As of March 31, 2018
	Investment Period		Total Committed Capital		% Invested ⁽¹⁾		% Drawn ⁽²⁾		Fund Net Income Since Inception			Distri- butions Since Inception		Net Asset Value		Manage- ment Fee-gener- ating AUM		Incentive Income Recog- nized (Non-GAAP)		Accrued Incentives (Fund Level) ⁽³⁾		Unreturned Drawn Capital Plus Accrued Preferred Return ⁽⁴⁾		IRR Since Inception ⁽⁵⁾					Multiple of Drawn Capital ⁽⁶⁾
	Start Date	End Date	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⁾		Gross			Net		Multiple of Drawn Capital ⁽⁶⁾
Credit	(in millions)
Distressed Debt
Oaktree Opportunities Fund Xb ⁽⁷⁾	TBD	—	$	8,872	—	%	—	%	$	—		$	—	$	—	$	—	$	—	$	—	$	—	n/a			n/a		n/a
Oaktree Opportunities Fund X ⁽⁷⁾	Jan. 2016	Jan. 2019	3,603		81		63		756			81		2,933		3,474		—		146		2,399		35.6	%		21.6	%	1.4x
Oaktree Opportunities Fund IX	Jan. 2014	Jan. 2017	5,066		nm		100		528			1,671		3,923		3,853		—		—		5,092		5.3			2.7		1.2
Oaktree Opportunities Fund VIIIb	Aug. 2011	Aug. 2014	2,692		nm		100		835			2,020		1,507		1,568		52		—		1,868		8.7			5.8		1.4
Special Account B	Nov. 2009	Nov. 2012	1,031		nm		100		607			1,511		204		198		16		—		101		13.6			11.3		1.6
Oaktree Opportunities Fund VIII	Oct. 2009	Oct. 2012	4,507		nm		100		2,527			6,102		932		1,036		208		284		313		13.0			9.1		1.6
Special Account A	Nov. 2008	Oct. 2012	253		nm		100		314			542		25		39		57		5		—		28.0			22.8		2.3
OCM Opportunities Fund VIIb	May 2008	May 2011	10,940		nm		90		8,995			17,844		995		824		1,554		194		—		21.9			16.6		2.0
OCM Opportunities Fund VII	Mar. 2007	Mar. 2010	3,598		nm		100		1,479			4,742		335		—		87		—		501		10.2			7.5		1.5
Legacy funds ⁽⁸⁾	Various	Various	12,495		nm		100		10,458			22,925		28		—		1,557		6		—		23.6			18.5		1.9
																								22.0	%		16.1	%
Private/Alternative Credit
Oaktree European Capital Solutions Fund ^(7)(9)(10)	Dec. 2015	Dec. 2018	€	703	80	%	64	%	€	28		€	155	€	291	€	355	€	—	€	4	€	281	11.5	%		7.3	%	1.1x
Oaktree European Dislocation Fund ⁽¹⁰⁾	Oct. 2013	Oct. 2016	€	294	nm		57		€	41		€	187	€	36	€	21	€	3	€	4	€	13	20.6			14.8		1.3
Special Account E ⁽¹⁰⁾	Oct. 2013	Apr. 2015	€	379	nm		69		€	64		€	301	€	24	€	9	€	4	€	6	€	1	14.3			11.1		1.3
																								15.1	%		11.0	%

Oaktree Mezzanine Fund IV⁽⁹⁾	Oct. 2014	Oct. 2019	$	852	76	%	71	%	$	93		$	111	$	587	$	560	$	—	$	15	$	567	12.2	%		8.6	%	1.2x
Oaktree Mezzanine Fund III ⁽¹¹⁾	Dec. 2009	Dec. 2014	1,592		nm		89		462			1,777		108		116		17		30		39		15.3		10.4 / 9.2			1.4
OCM Mezzanine Fund II	Jun. 2005	Jun. 2010	1,251		nm		88		492			1,529		71		—		—		—		144		10.9			7.4		1.6
OCM Mezzanine Fund ⁽¹²⁾	Oct. 2001	Oct. 2006	808		nm		96		302			1,075		—		—		38		—		—		15.4			10.8 / 10.5		1.5
																								13.1	%		8.8	%
Emerging Markets Debt
Oaktree Emerging Market Opportunities Fund	Sep. 2013	Sep. 2017	$	384	nm		78	%	$	125		$	281	$	142	$	104	$	—	$	22	$	83	17.1	%		11.7	%	1.5x
Special Account F	Jan. 2014	Sep. 2017	253		nm		96		80			236		86		85		—		16		47		16.6			11.9		1.4
																								16.9	%		11.8	%
Private Equity
Corporate Private Equity
Oaktree European Principal Fund IV ^(7)(10)(13)	Jul. 2017	Jul. 2022	€	1,119	77	%	63	%	€	(22	)	€	2	€	674	€	1,085	€	—	€	—	€	722	nm			nm		1.0x
Oaktree European Principal Fund III ⁽¹⁰⁾	Nov. 2011	Nov. 2016	€	3,164	nm		85		€	2,248		€	1,533	€	3,464	€	2,682	€	—	€	437	€	2,222	18.9	%		12.9	%	2.0
OCM European Principal Opportunities Fund II ⁽¹⁰⁾	Dec. 2007	Dec. 2012	€	1,759	nm		100		€	354		€	1,866	€	220	€	584	€	29	€	—	€	729	8.0			3.9		1.4
OCM European Principal Opportunities Fund	Mar. 2006	Mar. 2009	$	495	nm		96		$	454		$	927	$	—	$	—	$	87	$	—	$	—	11.7			8.9		2.1
																								13.3	%		8.8	%



			As of March 31, 2018
	Investment Period		Total Committed Capital		% Invested ⁽¹⁾		% Drawn ⁽²⁾		Fund Net Income Since Inception		Distri- butions Since Inception		Net Asset Value		Manage- ment Fee-gener- ating AUM			Incentive Income Recog- nized (Non-GAAP)		Accrued Incentives (Fund Level) ⁽³⁾			Unreturned Drawn Capital Plus Accrued Preferred Return ⁽⁴⁾		IRR Since Inception ⁽⁵⁾				Multiple of Drawn Capital ⁽⁶⁾
	Start Date	End Date	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⁾		Gross		Net		Multiple of Drawn Capital ⁽⁶⁾
	(in millions)

Oaktree Power Opportunities Fund IV	Nov. 2015	Nov. 2020	$	1,106	81	%	77	%	$	58	$	1	$	904	$	1,078		$	—	$	—		$	923	11.5	%	6.0	%	1.1x
Oaktree Power Opportunities Fund III	Apr. 2010	Apr. 2015	1,062		nm		66		556		651		610		361			24		80			270		23.0		15.1		1.9
Legacy funds ⁽⁸⁾	Various	Various	1,470		nm		63		1,689		2,616		—		—			123		—			—		35.1		27.4		2.8
																									34.5	%	26.2	%
Special Situations
Oaktree Special Situations Fund ⁽⁷⁾	Nov. 2015	Nov. 2018	$	1,377	88	%	53	%	$	205	$	160	$	777	$	1,271		$	—	$	40		$	627	40.0	%	22.7	%	1.4x
Other funds:
Oaktree Principal Fund V	Feb. 2009	Feb. 2015	$	2,827	nm		91	%	$	456	$	1,730	$	1,312	$	1,435		$	50	$	—		$	2,086	7.3	%	3.2	%	1.3x
Special Account C	Dec. 2008	Feb. 2014	505		nm		91		199		423		236		246			21		—			262		10.4		7.2		1.5
OCM Principal Opportunities Fund IV	Oct. 2006	Oct. 2011	3,328		nm		100		3,052		6,156		224		—			553		43			—		12.5		9.1		2.1
Legacy funds ⁽⁸⁾	Various	Various	3,701		nm		100		2,710		6,404		7		—			407		1			—		14.4		11.1		1.8
																									13.1	%	9.3	%
Real Assets
Real Estate
Oaktree Real Estate Opportunities Fund VII ^(13)(14)	Jan. 2016	Jan. 2020	$	2,921	66	%	20	%	$	259	$	239	$	604	$	2,634		$	—	$	50		$	371	nm		nm		1.7x
Oaktree Real Estate Opportunities Fund VI	Aug. 2012	Aug. 2016	2,677		nm		100		1,324		2,104		1,897		1,461			70		186			1,442		15.3	%	10.3	%	1.6
Oaktree Real Estate Opportunities Fund V	Mar. 2011	Mar. 2015	1,283		nm		100		991		2,018		256		136			140		49			—		17.4		12.9		1.9
Special Account D	Nov. 2009	Nov. 2012	256		nm		100		199		419		44		—			15		4			—		14.6		12.6		1.8
Oaktree Real Estate Opportunities Fund IV	Dec. 2007	Dec. 2011	450		nm		100		383		766		67		62			59		13			—		15.7		10.6		2.0
Legacy funds ⁽⁸⁾	Various	Various	2,341		nm		99		2,010		4,324		2		—			232		—			—		15.2		11.9		1.9
																									15.5	%	11.9	%

Oaktree Real Estate Debt Fund II ^(9)(13)	Mar. 2017	Mar. 2020	$	1,627	47	%	10	%	$	15	$	52	$	156	$	837		$	—	$	2		$	146	nm		nm		1.1x
Oaktree Real Estate Debt Fund	Sep. 2013	Oct. 2016	1,112		nm		81		166		581		487		594			10		14			362		23.1	%	17.3	%	1.2
Oaktree PPIP Fund ⁽¹⁵⁾	Dec. 2009	Dec. 2012	2,322		nm		48		457		1,570		—		—			47		—			—		28.2		n/a		1.4

Special Account G (Real Estate Income) ^(9)(13)	Oct. 2016	Oct. 2020	$	615	66	%	66	%	$	45	$	46	$	404	$	384		$	—	$	7		$	389	nm		nm		1.1

Infrastructure
Highstar Capital IV ⁽¹⁶⁾	Nov. 2010	Nov. 2016	$	2,000	nm		100	%	$	437	$	696	$	1,741	$	1,336		$	—	$	—		$	1,974	11.0	%	6.7	%	1.4x
															29,516		⁽¹⁰⁾			1,761		⁽¹⁰⁾
											Other ⁽¹⁷⁾				8,187					7
											Total ⁽¹⁸⁾				$	37,703				$	1,768


(1)	For our incentive-creating closed-end funds in their investment periods, this percentage equals invested capital divided by committed capital. Invested capital for this purpose is the sum of capital drawn from fund investors plus net borrowings, if any, outstanding, under a fund-level credit facility where such borrowings were made in lieu of drawing capital from fund investors.


(2)	Represents capital drawn from fund investors, net of distributions to such investors of uninvested capital, divided by committed capital. The aggregate change in drawn capital for the three months ended March 31, 2018 was $0.9 billion.


(3)	Accrued incentives (fund level) exclude non-GAAP incentive income previously recognized.


(4)	Unreturned drawn capital plus accrued preferred return reflects the amount the fund needs to distribute to its investors as a return of capital and a preferred return (as applicable) before Oaktree is entitled to receive incentive income (other than tax distributions) from the fund.

(5)

The internal rate of return (“IRR”) is the annualized implied discount rate calculated from a series of cash flows. It is the return that equates the present value of all capital invested in an investment to the present value of all returns of capital, or the discount rate that will provide a net present value of all cash flows equal to zero. Fund-level IRRs are calculated based upon the actual timing of cash contributions/distributions to investors and the residual value of such investor’s capital accounts at the end of the applicable period being measured. Gross IRRs reflect returns before allocation of management fees, expenses and any incentive allocation to the fund’s general partner. To the extent material, gross returns include certain transaction, advisory, directors or other ancillary fees (“fee income”) paid directly to us in connection with our funds’ activities (we credit all such fee income back to the respective fund(s) so that our funds’ investors share pro rata in the fee income’s economic benefit). Net IRRs reflect returns to non-affiliated investors after allocation of management fees, expenses and any incentive allocation to the fund’s general partner.


(6)	Multiple of drawn capital is calculated as drawn capital plus gross income and, if applicable, fee income before fees and expenses divided by drawn capital.


(7)	Fund data include the performance of the main fund and any associated fund-of-one accounts, except the gross and net IRRs presented reflect only the performance of the main fund. Certain fund-of-one accounts pay management fees based on cost basis, rather than committed capital.

(8)

Legacy funds represent certain predecessor funds within the relevant strategy or product that have substantially or completely liquidated their assets, including funds managed by certain Oaktree investment professionals while employed at the Trust Company of the West prior to Oaktree’s founding in 1995. When these employees joined Oaktree upon, or shortly after, its founding, they continued to manage the fund through the end of its term pursuant to a sub-advisory relationship between the Trust Company of the West and Oaktree.


(9)	Management fees during the investment period are calculated on drawn capital or cost basis, rather than committed capital. As a result, as of March 31, 2018 management fee-generating AUM included only that portion of committed capital that had been drawn.


(10)	Aggregate IRRs or totals are based on the conversion of cash flows or amounts, respectively, from euros to USD using the March 31, 2018 spot rate of $1.23.


(11)	The fund’s partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. The net IRR for Class A interests was 10.4% and Class B interests was 9.2%. The combined net IRR for Class A and Class B interests was 9.8%.


(12)	The fund’s partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. The net IRR for Class A interests was 10.8% and Class B interests was 10.5%. The combined net IRR for the Class A and Class B interests was 10.6%.


(13)	The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through March 31, 2018 was less than 24 months.


(14)	A portion of this fund pays management fees based on drawn, rather than committed, capital.


(15)	Due to differences in the allocation of income and expenses to this fund’s two primary limited partners, the U.S. Treasury and Oaktree PPIP Private Fund, a combined net IRR is not presented. Of the $2,322 million in capital commitments, $1,161 million related to the Oaktree PPIP Private Fund, whose gross and net IRR were 24.7% and 18.6%, respectively.

(16)

The fund follows the American-style distribution waterfall, whereby the general partner may receive an incentive allocation as soon as it has returned the drawn capital and paid a preferred return on the fund’s realized investments (i.e., on a deal-by-deal basis). However, such cash distributions of incentives may be subject to repayment, or clawback. As of March 31, 2018, Oaktree had not recognized any incentive income from this fund. The accrued incentives (fund level) for this fund represents Oaktree’s effective 8% of the potential incentives generated by this fund in accordance with the terms of the Highstar acquisition.


(17)	This includes our closed-end Senior Loan funds, CLOs, a non-Oaktree fund and certain separate accounts and co-investments.


(18)	The total excludes one closed-end fund with management fee-generating AUM of $135 million as of March 31, 2018, which has been included as part of the Strategic Credit strategy within the evergreen funds table.

Open-end Funds



			Manage- ment Fee-gener- ating AUM as of Mar. 31, 2018		Twelve Months Ended March 31, 2018						Since Inception through March 31, 2018
	Strategy Inception				Rates of Return ⁽¹⁾						Annualized Rates of Return ⁽¹⁾						Sharpe Ratio
					Oaktree				Rele- vant Bench- mark		Oaktree				Rele- vant Bench- mark		Oaktree Gross	Rele- vant Bench- mark
					Gross		Net		Rele- vant Bench- mark		Gross		Net		Rele- vant Bench- mark		Oaktree Gross	Rele- vant Bench- mark
		(in millions)
Credit
High Yield Bonds
U.S. High Yield Bonds	1986		$	14,741	3.0	%	2.5	%	3.7	%	9.1	%	8.6	%	8.3	%	0.79	0.57
Global High Yield Bonds	2010		3,898		3.6		3.1		4.0		7.0		6.5		6.7		1.11	1.09
European High Yield Bonds	1999		890		5.2		4.6		5.3		8.0		7.4		6.3		0.72	0.46

Convertibles
U.S. Convertibles	1987		2,205		7.2		6.7		10.6		9.3		8.8		8.3		0.50	0.38
Non-U.S. Convertibles	1994		1,449		5.2		4.6		2.2		8.2		7.7		5.5		0.79	0.40
High Income Convertibles	1989		987		5.4		4.8		3.7		11.2		10.4		8.1		1.06	0.60

Senior Loans
U.S. Senior Loans	2008		672		4.9		4.3		4.6		6.0		5.5		5.3		1.13	0.67
European Senior Loans	2009		1,661		2.4		1.9		3.0		7.6		7.1		8.3		1.66	1.69

Multi-Strategy Credit
Multi-Strategy Credit ⁽²⁾	Various		2,890		nm		nm		nm		nm		nm		nm		nm	nm

Listed Equities
Emerging Markets Equities
Emerging Markets Equities	2011		4,055		26.0		25.0		24.9		3.8		3.0		2.7		0.19	0.14
Total			$	33,448


(1)	Returns represent time-weighted rates of return, including reinvestment of income, net of commissions and transaction costs. The returns for Relevant Benchmarks are presented on a gross basis.


(2)	Includes Global Credit Fund and individual accounts across various strategies with different investment mandates. As such, a combined performance measure is not considered meaningful (“nm”).

Evergreen Funds



		As of March 31, 2018						Twelve Months Ended March 31, 2018				Since Inception through March 31, 2018
		AUM		Manage- ment Fee-gener- ating AUM		Accrued Incen- tives (Fund Level)
	Strategy Inception							Rates of Return ⁽¹⁾				Annualized Rates of Return ⁽¹⁾
								Gross		Net		Gross		Net
		(in millions)
Credit
Private/Alternative Credit
Strategic Credit ⁽²⁾.	2012	$	5,044	$	4,709	$	3	12.8	%	10.1	%	9.4	%	6.9	%

Distressed Debt
Value Opportunities	2007	1,135		1,056		5		13.0		10.1		9.7		5.9

Emerging Markets Debt
Emerging Markets Debt ⁽³⁾	2015	771		207		8		13.4		10.3		15.5		12.1

Listed Equities
Value/Other Equities
Value Equities ⁽⁴⁾	2012	475		452		—		25.1		18.1		20.9		15.1
				6,424		16
Other ⁽⁵⁾				686		7
Restructured funds				—		5
Total ⁽²⁾				$	7,110	$	28


(1)	Returns represent time-weighted rates of return.


(2)	Includes our publicly-traded BDCs and one closed-end fund with $141 million and $135 million of AUM and management fee-generating AUM, respectively. The rates of return reflect the performance of a composite of certain evergreen accounts and exclude our publicly-traded BDCs.


(3)	Includes the Emerging Markets Debt Total Return and Emerging Markets Opportunities products. The rates of return reflect the performance of a composite of accounts for the Emerging Markets Debt Total Return product, including a single account with a December 2014 inception date.


(4)	Includes performance of a proprietary fund with an initial capital commitment of $25 million since its inception in May 2012.


(5)	Includes the Emerging Markets Absolute Return product and certain Real Estate and Multi-Strategy Credit accounts.

GLOSSARY

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

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

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

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

•

Management fee-generating assets under management (“management fee-generating AUM”) is a forward-looking metric and generally reflects the beginning AUM on which we will earn management fees in the following quarter, as well as our pro-rata portion of the fee basis of DoubleLine’s AUM. Our closed-end funds typically pay management fees based on committed capital, drawn capital or cost basis during the investment period, without regard to changes in NAV, and during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund. The annual management fee rate generally remains unchanged from the investment period through the liquidation period. Our open-end and evergreen funds typically pay management fees based on their NAV, our CLOs pay management fees based on the aggregate par value of collateral assets and principal cash, as defined in the applicable CLO indentures, our publicly-traded BDCs pay management fees based on gross assets (including assets acquired with leverage), net of cash, and DoubleLine funds typically pay management fees based on NAV. As compared with AUM, management fee-generating AUM generally excludes the following:


◦	Differences between AUM and either committed capital or cost basis for most closed-end funds, other than for closed-end funds that pay management fees based on NAV and leverage, as applicable;


◦	Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods;


◦	Undrawn capital commitments to funds for which management fees are based on drawn capital, NAV or cost basis;


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


◦	Funds that are no longer paying management fees and co-investments that pay no management fees; and


◦	Differences between AUM and fee basis for DoubleLine funds.

•

Incentive-creating assets under management (“incentive-creating AUM”) refers to the AUM that may eventually produce incentive income. It generally represents the NAV of our funds for which we are entitled to receive an incentive allocation, excluding CLOs and investments made by us and our employees and directors (which are not subject to an incentive allocation), gross assets (including assets acquired with leverage), net of cash, for our publicly-traded BDCs, and our pro-rata portion of DoubleLine’s incentive-creating AUM. All funds for which we are entitled to receive an incentive allocation are included in incentive-creating AUM, regardless of whether or not they are currently above their preferred return or high-water mark and therefore generating incentives. Incentive-creating AUM does not include undrawn capital commitments.

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

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

Distributable earnings and distributable earnings revenues differ from ANI in that they exclude investment income or loss and include the receipt of investment income or loss from distributions by our investments in funds. Additionally, any impairment charges on our CLO investments included in ANI are, for distributable earnings purposes, amortized over the remaining investment period of the respective CLO, in order to align with the timing of expected cash flows. In addition, distributable earnings differs from ANI in that make-whole premium charges related to the repayment of debt are included in ANI, but for distributable earnings purposes are amortized through

the original maturity date of the repaid debt. Finally, distributable earnings differs from ANI in that it is net of Operating Group income taxes and excludes non-cash equity-based compensation expense.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Relevant Benchmark refers, with respect to:


•	our U.S. High Yield Bond product, to the Citigroup U.S. High Yield Cash-Pay Capped Index;

•

our Global High Yield Bond product, to an Oaktree custom global high yield index that represents 60% ICE BofAML High Yield Master II Constrained Index and 40% ICE BofAML Global Non-Financial High Yield European Issuers 3% Constrained, ex-Russia Index – USD Hedged from inception through December 31, 2012, and the ICE BofAML Non-Financial Developed Markets High Yield Constrained Index – USD Hedged thereafter;


•	our European High Yield Bond product, to the ICE BofAML Global Non-Financial High Yield European Issuers excluding Russia 3% Constrained Index (USD Hedged);


•	our U.S. Senior Loan product (with the exception of the closed-end funds), to the Credit Suisse Leveraged Loan Index;


•	our European Senior Loan product, to the Credit Suisse Western European Leveraged Loan Index (EUR Hedged);


•	our U.S. Convertible Securities product, to an Oaktree custom convertible index that represents the Credit Suisse Convertible Securities Index from inception through December 31, 1999, the Goldman Sachs/Bloomberg Convertible 100 Index from January 1, 2000 through June 30, 2004, and the ICE BofAML All U.S. Convertibles Index thereafter;


•	our non-U.S. Convertible Securities product, to an Oaktree custom non-U.S. convertible index that represents the JACI Global ex-U.S. (Local) Index from inception through December 31, 2014 and the Thomson Reuters Global Focus ex-U.S. (USD hedged) Index thereafter;


•	our High Income Convertible Securities product, to the Citigroup U.S. High Yield Market Index; and


•	our Emerging Markets Equities product, to the Morgan Stanley Capital International Emerging Markets Index (Net).

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

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

EXHIBIT A

Use of Non-GAAP Financial Information

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

Reconciliation of GAAP to Non-GAAP Results

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



	Three Months Ended March 31,
	2018			2017
	(in thousands)
Net income attributable to Oaktree Capital Group, LLC	$	52,732		$	54,915
Incentive income ⁽¹⁾	83,581			38,536
Incentive income compensation ⁽¹⁾	(45,627		)	(38,536		)
Investment income ⁽²⁾	(10,487		)	(4,372		)
Equity-based compensation ⁽³⁾	1,628			2,432
Foreign-currency hedging ⁽⁴⁾	(2,122		)	(1,996		)
Acquisition-related items ⁽⁵⁾	1,574			1,602
Income taxes ⁽⁶⁾	6,397			12,302
Non-Operating Group (income) expenses ⁽⁷⁾	(20		)	232
Non-controlling interests ⁽⁷⁾	72,707			96,049
Adjusted net income	160,363			161,164
Incentive income	(235,557		)	(147,442		)
Incentive income compensation	130,442			73,144
Investment income	(12,652		)	(42,538		)
Equity-based compensation ⁽⁸⁾	12,993			12,521
Interest expense, net of interest income	3,410			6,971
Other (income) expense, net	(512		)	(41		)
Fee-related earnings	58,487			63,779
Incentive income	235,557			147,442
Incentive income compensation	(130,442		)	(73,144		)
Receipts of investment income ⁽⁹⁾	38,760			29,095
Interest expense, net of interest income	(3,410		)	(6,971		)
Other (income) expense, net	(2,233		)	41
Operating Group income taxes	(2,746		)	(1,021		)
Distributable earnings	$	193,973		$	159,221


(1)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG.


(2)	This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs which under GAAP are marked-to-market but for ANI are accounted for at amortized cost, subject to impairment.


(3)	This adjustment adds back the effect of equity-based compensation expense related to unit grants made before our initial public offering, which is excluded from adjusted net income and fee-related earnings because it is a non-cash charge that does not affect our financial position.


(4)	This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between adjusted net income and net income attributable to OCG.


(5)	This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability, which are excluded from adjusted net income.


(6)	Because adjusted net income and fee-related earnings are pre-tax measures, this adjustment adds back the effect of income tax expense.


(7)	Because adjusted net income and fee-related earnings are calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or non-controlling interests.


(8)	This adjustment adds back the effect of equity-based compensation expense related to unit grants made after our initial public offering, which is excluded from fee-related earnings because it is non-cash in nature and does not impact our ability to fund our operations.

(9)

This adjustment reflects the portion of distributions received from funds characterized as receipts of investment income or loss. In general, the income or loss component of a distribution from a fund is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends.

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



	Three Months Ended March 31,
	2018			2017
	(in thousands)
Net income attributable to Oaktree Capital Group, LLC	$	52,732		$	54,915
Incentive income attributable to OCG ⁽¹⁾	36,346			15,702
Incentive income compensation attributable to OCG ⁽¹⁾	(19,840		)	(15,702		)
Investment income attributable to OCG ⁽²⁾	(4,559		)	(1,781		)
Equity-based compensation attributable to OCG ⁽³⁾	708			991
Foreign-currency hedging attributable to OCG ⁽⁴⁾	(923		)	(813		)
Acquisition-related items attributable to OCG ⁽⁵⁾	684			652
Income taxes ⁽⁶⁾	(2,007		)	—
Non-controlling interests attributable to OCG ⁽⁵⁾	(238		)	(223		)
Adjusted net income-OCG ⁽⁷⁾	62,903			53,741
Incentive income attributable to OCG	(102,432		)	(60,078		)
Incentive income compensation attributable to OCG	56,723			29,804
Investment income attributable to OCG	(5,502		)	(17,334		)
Equity-based compensation attributable to OCG ⁽⁸⁾	5,650			5,104
Interest expense, net of interest income attributable to OCG	1,256			2,768
Other (income) expense attributable to OCG	(223		)	(16		)
Non-fee-related earnings income taxes attributable to OCG ⁽⁹⁾	5,894			7,911
Fee-related earnings-OCG ⁽⁷⁾	24,269			21,900
Incentive income attributable to OCG	102,432			60,078
Incentive income compensation attributable to OCG	(56,723		)	(29,804		)
Receipts of investment income attributable to OCG	16,855			11,856
Interest expense, net of interest income attributable to OCG	(1,256		)	(2,768		)
Other (income) expense attributable to OCG	(971		)	16
Non-fee-related earnings income taxes attributable to OCG	(5,894		)	(7,911		)
Distributable earnings-OCG income taxes	(333		)	(4,112		)
Tax receivable agreement	(3,858		)	(5,363		)
Income taxes of Intermediate Holding Companies	5,657			11,281
Distributable earnings-OCG ⁽⁷⁾	$	80,178		$	55,173


(1)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income-OCG and net income attributable to OCG.


(2)	This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs which under GAAP are marked-to-market but for ANI are accounted for at amortized cost, subject to impairment.


(3)	This adjustment adds back the effect of equity-based compensation expense attributable to OCG related to unit grants made before our initial public offering, which is excluded from adjusted net income-OCG and fee-related earnings-OCG because it is a non-cash charge that does not affect our financial position.


(4)	This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between adjusted net income-OCG and net income attributable to OCG.


(5)	This adjustment adds back the effect of (a) acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability and (b) non-controlling interests, which are both excluded from ANI.


(6)	This adjustment relates to differences in income taxes between adjusted net income-OCG and net income attributable to OCG.

(7)

Adjusted net income-OCG, fee-related earnings-OCG and distributable earnings-OCG are calculated to evaluate the portion of adjusted net income, fee-related earnings and distributable earnings attributable to Class A unitholders. These measures are net of income taxes and other income or expenses applicable to OCG or its Intermediate Holding Companies. Reconciliations of fee-related earnings to fee-related earnings-OCG and distributable earnings to distributable earnings-OCG are presented below.



	Three Months Ended March 31,
	2018			2017
	(in thousands, except per unit data)
Fee-related earnings	$	58,487		$	63,779
Fee-related earnings attributable to OCGH non-controlling interest	(33,054		)	(37,788		)
Non-Operating Group expenses	(207		)	(305		)
Fee-related earnings-OCG income taxes	(957		)	(3,786		)
Fee-related earnings-OCG	$	24,269		$	21,900
Fee-related earnings per Class A unit	$	0.36		$	0.35
Weighted average number of Class A units outstanding	67,918			63,022



	Three Months Ended March 31,
	2018			2017
	(in thousands, except per unit data)
Distributable earnings	$	193,973		$	159,221
Distributable earnings attributable to OCGH non-controlling interest	(109,624		)	(94,341		)
Non-Operating Group income (expense)	20			(232		)
Distributable earnings-OCG income taxes	(333		)	(4,112		)
Tax receivable agreement	(3,858		)	(5,363		)
Distributable earnings-OCG	$	80,178		$	55,173
Distributable earnings per Class A unit	$	1.18		$	0.88
Weighted average number of Class A units outstanding	67,918			63,022


(8)	This adjustment adds back the effect of equity-based compensation expense attributable to OCG related to unit grants made after our initial public offering, which is excluded from fee-related earnings-OCG, because it is non-cash in nature and does not impact our ability to fund our operations.


(9)	This adjustment adds back income taxes associated with incentive income, incentive income compensation expense or investment income or loss, which are not included in the calculation of fee-related earnings-OCG.

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



	Three Months Ended March 31,
	2018			2017
	(in thousands)
GAAP revenues	$	337,321		$	289,585
Consolidated funds ⁽¹⁾	6,178			16,987
Incentive income ⁽²⁾	83,581			38,536
Investment income ⁽³⁾	24,076			46,079
Adjusted revenues	451,156			391,187
Incentive income	(235,557		)	(147,442		)
Investment income	(12,652		)	(42,538		)
Fee-related earnings revenues	202,947			201,207
Incentive income	235,557			147,442
Receipts of investment income	38,760			29,095
Distributable earnings revenues	$	477,264		$	377,744

(1)

This adjustment represents amounts attributable to the consolidated funds that were eliminated in consolidation, the reclassification of gains and losses related to foreign-currency hedging activities from general and administrative expense to revenues, the elimination of non-controlling interests from adjusted revenues, and certain compensation and administrative related expense reimbursements netted with expenses.


(2)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income between adjusted revenues and GAAP revenues.


(3)	This adjustment reclassifies consolidated investment income from other income (loss) to revenues and adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between adjusted revenues and GAAP revenues.

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



	Three Months Ended March 31,
	2018			2017
	(in thousands)
Net income attributable to Oaktree Capital Group, LLC	$	52,732		$	54,915
Reconciling adjustments⁽¹⁾	107,631			106,249
Adjusted net income	160,363			161,164
Change in accrued incentives (fund level), net of associated incentive income compensation ⁽²⁾.	(52,817		)	22,487
Economic net income ⁽³⁾	$	107,546		$	183,651


(1)	Please refer to the table on page 27 for a detailed reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income.

(2)

The change in accrued incentives (fund level), net of associated incentive income compensation expense, represents the difference between (a) our recognition of net incentive income and (b) the incentive income generated by the funds during the period that would be due to us if the funds were liquidated at their reported values as of that date, net of associated incentive income compensation expense.


(3)	Please see Glossary for the definition of economic net income.

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



	Three Months Ended March 31,
	2018			2017
	(in thousands)
Net income attributable to Oaktree Capital Group, LLC	$	52,732		$	54,915
Reconciling adjustments ⁽¹⁾	10,171			(1,174		)
Adjusted net income-OCG ⁽²⁾	62,903			53,741
Change in accrued incentives (fund level), net of associated incentive income compensation attributable to OCG	(22,967		)	9,164
Economic net income-OCG income taxes	(4,278		)	(10,542		)
Income taxes-OCG	6,851			11,697
Economic net income-OCG ⁽²⁾	$	42,509		$	64,060


(1)	Please refer to the table on page 28 for a detailed reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income-OCG.


(2)	Adjusted net income-OCG and economic net income-OCG are calculated to evaluate the portion of adjusted net income and economic net income attributable to Class A unitholders. These measures are net of income taxes and other income or expenses applicable to OCG or its Intermediate Holding Companies. A reconciliation of economic net income to economic net income-OCG is presented below.



	Three Months Ended March 31,
	2018			2017
	(in thousands, except per unit data)
Economic net income	$	107,546		$	183,651
Economic net income attributable to OCGH non-controlling interest	(60,779		)	(108,817		)
Non-Operating Group income (expense)	20			(232		)
Economic net income-OCG income taxes	(4,278		)	(10,542		)
Economic net income-OCG	$	42,509		$	64,060
Economic net income per Class A unit	$	0.63		$	1.02
Weighted average number of Class A units outstanding	67,918			63,022

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



	Three Months Ended March 31,
	2018			2017
	(in thousands)
GAAP revenues	$	337,321		$	289,585
Consolidated funds ⁽¹⁾	6,178			16,987
Incentive income ⁽²⁾	83,581			38,536
Investment income ⁽³⁾	24,076			46,079
Adjusted revenues	451,156			391,187
Incentives created	111,185			201,767
Incentive income	(235,557		)	(147,442		)
Economic net income revenues	$	326,784		$	445,512

(1)


(2)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income between adjusted revenues and GAAP revenues.


(3)	This adjustment reclassifies consolidated investment income from other income (loss) to revenues and adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs between adjusted revenues and GAAP revenues.

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



	As of or for the Three Months Ended March 31, 2018
	Consolidated			Adjustments			ANI
	(in thousands)
Management fees ⁽¹⁾	$	185,415		$	17,532		$	202,947
Incentive income ⁽¹⁾	151,906			83,651			235,557
Investment income ⁽¹⁾	34,563			(21,911		)	12,652
Total expenses ⁽²⁾	(251,036		)	(36,859		)	(287,895		)
Interest expense, net ⁽³⁾	(40,579		)	37,169			(3,410		)
Other income, net ⁽⁴⁾	697			(185		)	512
Other income of consolidated funds ⁽⁵⁾	62,832			(62,832		)	—
Income taxes	(6,397		)	6,397			—
Net income attributable to non-controlling interests in consolidated funds	(10,725		)	10,725			—
Net income attributable to non-controlling interests in consolidated subsidiaries	(73,944		)	73,944			—
Net income attributable to Oaktree Capital Group, LLC/Adjusted net income	$	52,732		$	107,631		$	160,363

(1)

The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $18,213 to management fees, (c) for management fees, reclassifies $1,820 of net losses related to foreign-currency hedging activities from general and administrative expense and $4,205 of expense reimbursements grossed-up for GAAP reporting, but netted with expenses for ANI, (d) for incentive income, includes $83,581 related to timing differences in the recognition of incentive income between net income attributable to OCG and adjusted net income, and (e) for investment income, includes $10,487 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.

(2)

The expense adjustment consists of (a) equity-based compensation expense of $1,628 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $1,271, (c) expenses incurred by the Intermediate Holding Companies of $207, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG and adjusted net income of $45,627, (e) acquisition-related items of $1,574, (f) $117 of net gains related to foreign-currency hedging activities, and (g) $4,205 of reimbursements grossed-up as revenues for GAAP reporting, but netted with expenses for ANI.


(3)	The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.


(4)	The adjustment to other income (expense), net represents adjustments related to the reclassification of $185 in net losses related to foreign-currency hedging activities from general and administrative expense.


(5)	The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.



	As of or for the Three Months Ended March 31, 2017
	Consolidated			Adjustments			ANI
	(in thousands)
Management fees ⁽¹⁾	$	180,928		$	20,279		$	201,207
Incentive income ⁽¹⁾	108,657			38,785			147,442
Investment income ⁽¹⁾	50,451			(7,913		)	42,538
Total expenses ⁽²⁾	(192,562		)	(30,531		)	(223,093		)
Interest expense, net ⁽³⁾	(48,770		)	41,799			(6,971		)
Other income, net ⁽⁴⁾	4,663			(4,622		)	41
Other income of consolidated funds ⁽⁵⁾	70,766			(70,766		)	—
Income taxes	(12,302		)	12,302			—
Net income attributable to non-controlling interests in consolidated funds	(9,692		)	9,692			—
Net income attributable to non-controlling interests in consolidated subsidiaries	(97,224		)	97,224			—
Net income attributable to Oaktree Capital Group, LLC/Adjusted net income	$	54,915		$	106,249		$	161,164

(1)

The adjustment (a) adds back amounts earned from the consolidated funds, (b) reclassifies DoubleLine investment income of $15,642 to management fees and $249 to incentive income, (c) for management fees, reclassifies $415 of net gains related to foreign-currency hedging activities from general and administrative expense, (d) for incentive income, includes $38,536 related to timing differences in the recognition of incentive income between net income attributable to OCG and adjusted net income, and (e) for investment income, includes $4,372 related to corporate investments in CLOs, which under GAAP are marked-to-market but for ANI accounted for at amortized cost, subject to impairment.

(2)

The expense adjustment consists of (a) equity-based compensation expense of $2,432 related to unit grants made before our initial public offering, (b) consolidated fund expenses of $1,457, (c) expenses incurred by the Intermediate Holding Companies of $305, (d) the effect of timing differences in the recognition of incentive income compensation expense between net income attributable to OCG and adjusted net income of $38,536, (e) acquisition-related items of $1,602, (f) adjustments of $4,661 related to amounts received for contractually reimbursable costs that are classified as other income under GAAP and as expenses for ANI, and (g) $2,452 of net gains related to foreign-currency hedging activities.


(3)	The interest expense adjustment removes interest expense of the consolidated funds and reclassifies interest income from other income of consolidated funds.


(4)	The adjustment to other income (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $4,661 that are classified as other income under GAAP and as expenses for ANI, and (b) the reclassification of $41 in net gains related to foreign-currency hedging activities from general and administrative expense.


(5)	The adjustment to other income of consolidated funds removes interest, dividend and other investment income attributable to third-party investors in our consolidated funds, and reclassifies investment income to revenues and interest income to interest expense, net.

Oaktree Capital Group, LLC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 26, 2018

Attached files

Oaktree Capital Group, LLC Reports