UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from to .
Commission File Number 001-35500
Oaktree Capital Group, LLC
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
26-0174894
(I.R.S. Employer
Identification Number)
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Telephone: (213) 830-6300
(Address, zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Class A units representing limited liability company interests
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and
will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the Class A units of the registrant held by non-affiliates as of June 30, 2014 was approximately $2.2 billion.
As of February 24, 2015, there were 43,771,659 Class A units and 109,974,898 Class B units of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
Page
Business .................................................................................................................................... 6
PART I.
Item 1.
Item 1A. Risk Factors ............................................................................................................................... 23
Item 1B. Unresolved Staff Comments ...................................................................................................... 60
Properties .................................................................................................................................. 60
Item 2.
Legal Proceedings ..................................................................................................................... 60
Item 3.
Item 4. Mine Safety Disclosures ............................................................................................................ 60
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities ................................................................................................................. 61
Selected Financial Data ............................................................................................................. 63
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ...... 66
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ...................................................... 115
Financial Statements and Supplementary Data ......................................................................... 118
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 181
Item 9A. Controls and Procedures ........................................................................................................... 181
Item 9B. Other Information ....................................................................................................................... 182
PART III.
Item 10. Directors, Executive Officers and Corporate Governance ......................................................... 182
Item 11. Executive Compensation ........................................................................................................... 189
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters .................................................................................................................................... 208
Item 13. Certain Relationships and Related Transactions, and Director Independence .......................... 210
Item 14. Principal Accounting Fees and Services .................................................................................... 217
PART IV.
Item 15. Exhibits, Financial Statement Schedules ................................................................................... 217
Signatures
2
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning of Section 27A of the U.S.
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the U.S. Securities Exchange Act of
1934, as amended (the “Exchange Act”), which reflect our current views with respect to, among other things, our
future results of operations and financial performance. In some cases, you can identify forward-looking statements
by words such as “anticipate,” “approximately,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,”
“may,” “outlook,” “plan,” “potential,” “predict,” “seek,” “should,” “will” and “would” or the negative version of these
words or other comparable or similar words. These statements identify prospective information. Important factors
could cause actual results to differ, possibly materially, from those indicated in these statements. Forward-looking
statements are based on our beliefs, assumptions and expectations of our future performance, taking into account
all information currently available to us. Such forward-looking statements are subject to risks and uncertainties and
assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy
and liquidity, including, but not limited to, changes in our anticipated revenue and income, which are inherently
volatile; changes in the value of our investments; the pace of our raising of new funds; changes in assets under
management; the timing and receipt of, and impact of taxes on, carried interest; distributions from and liquidation of
our existing funds; the amount and timing of distributions on our Class A units; changes in our operating or other
expenses; the degree to which we encounter competition; and general economic and market conditions. The
factors listed in the item captioned “Risk Factors” in this annual report 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 of this annual report. 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.
MARKET AND INDUSTRY DATA
This annual report includes market and industry data and forecasts that are derived from independent
reports, publicly available information, various industry publications, other published industry sources and our
internal data, estimates and forecasts. Independent reports, industry publications and other published industry
sources generally indicate that the information contained therein was obtained from sources believed to be reliable.
We have not commissioned, nor are we affiliated with, any of the sources cited herein.
Our internal data, estimates and forecasts are based upon information obtained from investors in our funds,
partners, trade and business organizations and other contacts in the markets in which we operate and our
management’s understanding of industry conditions.
3
In this annual report, unless the context otherwise requires:
“Oaktree,” “OCG,” “we,” “us,” “our” or “our company” refers to Oaktree Capital Group, LLC and, where
applicable, its subsidiaries and affiliates.
“Oaktree Operating Group,” or “Operating Group,” refers collectively to the entities that control the general
partners and investment advisers of our funds in which we have a minority economic interest and indirect control.
“OCGH” refers to Oaktree Capital Group Holdings, L.P., a Delaware limited partnership, which holds an
interest in the Oaktree Operating Group and all of our Class B units.
“OCGH unitholders” refers collectively to our senior executives, current and former employees and certain
other investors who hold their interest in the Oaktree Operating Group through OCGH.
“2007 Private Offering” refers to the sale completed on May 25, 2007 of 23,000,000 of our Class A units to
qualified institutional buyers (as defined in the Securities Act) in a transaction exempt from the registration
requirements of the Securities Act. Prior to our initial public offering, these Class A units traded on a private over-
the-counter market developed by Goldman, Sachs & Co. for Tradable Unregistered Equity Securities.
“assets under management,” or “AUM,” generally refers to the assets we manage and equals the NAV (as
defined below) of the assets we manage, the fund-level leverage on which management fees are charged, the
undrawn capital that we are entitled to call from investors in our funds pursuant to their capital commitments, and
the aggregate par value of collateral assets and principal cash held by our collateralized loan obligation vehicles
(“CLOs”). Our AUM amounts include AUM for which we charge no fees. Our definition of AUM is not based on any
definition contained in our operating agreement or the agreements governing the funds that we manage. Our
calculation of AUM and the two AUM-related metrics described below may not be directly comparable to the AUM
metrics of other investment managers.
•
•
“management fee-generating assets under management,” or “management fee-generating AUM,” is a
forward-looking metric and reflects the AUM on which we will earn management fees in the following
quarter, as more fully described in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Segment and Operating Metrics—Assets Under Management—Management
Fee-generating Assets Under Management.”
“incentive-creating assets under management,” or “incentive-creating AUM,” refers to the AUM that may
eventually produce incentive income, as more fully described in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Segment and Operating Metrics—Assets
Under Management—Incentive-creating Assets Under Management.”
“consolidated funds” refers to the funds and CLOs that Oaktree consolidates through a majority voting
interest or otherwise, including those funds in which Oaktree as the general partner is presumed to have control.
“funds” refers to investment funds and, where applicable, CLOs and separate accounts that are managed
by us or our subsidiaries.
“initial public offering” refers to the listing of our Class A units on the New York Stock Exchange on April 12,
2012 whereby Oaktree sold 7,888,864 Class A units and selling unitholders sold 954,159 Class A units, as more
fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Initial
Public Offering” in this annual report.
“Intermediate Holding Companies” collectively refers to the subsidiaries wholly owned by us.
“net asset value,” or “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.
“Relevant Benchmark” refers, with respect to:
•
•
our U.S. High Yield Bond strategy, to the Citigroup U.S. High Yield Cash-Pay Capped Index;
our Global High Yield Bond strategy, to an Oaktree custom global high yield index that represents 60%
BofA Merrill Lynch High Yield Master II Constrained Index and 40% BofA Merrill Lynch Global Non-
4
Financial High Yield European Issuers 3% Constrained, ex-Russia Index – USD Hedged from inception
through December 31, 2012, and the BofA Merrill Lynch Non-Financial Developed Markets High Yield
Constrained Index – USD Hedged thereafter;
•
•
•
•
•
•
•
our European High Yield Bond strategy, to the BofA Merrill Lynch Global Non-Financial High Yield
European Issuers excluding Russia 3% Constrained Index (USD Hedged);
our U.S. Senior Loan strategy (with the exception of the closed-end funds), to the Credit Suisse
Leveraged Loan Index;
our European Senior Loan strategy, to the Credit Suisse Western European Leveraged Loan Index
(EUR Hedged);
our U.S. Convertible Securities strategy, to an Oaktree custom convertible index that represents the
Credit Suisse Convertible Securities Index from inception through December 31, 1999, the Goldman
Sachs/Bloomberg Convertible 100 Index from January 1, 2000 through June 30, 2004 and the BofA
Merrill Lynch All U.S. Convertibles Index thereafter;
our non-U.S. Convertible Securities strategy, to the JACI Global ex-U.S. (Local) Index;
our High Income Convertible Securities strategy, to the Citigroup U.S. High Yield Market Index; and
our Emerging Markets Equity strategy, to the Morgan Stanley Capital International Emerging Markets
Index (Net).
“senior executives” refers collectively to Howard S. Marks, Bruce A. Karsh, Jay S. Wintrob, John B. Frank,
Stephen A. Kaplan, Larry W. Keele, David M. Kirchheimer and Sheldon M. Stone.
“Sharpe Ratio” refers to a metric used to calculate risk-adjusted return. The Sharpe Ratio is the ratio of
excess return to volatility, with excess return defined as the return above that of a riskless asset (based on the
three-month U.S. Treasury bill, or for our European Senior Loan strategy, the Euro Overnight Index Average)
divided by the standard deviation of such return. A higher Sharpe Ratio indicates a return that is higher than would
be expected for the level of risk compared to the risk-free rate.
This annual report and its contents do not constitute and should not be construed as an offer of securities of
any Oaktree funds.
5
Part I.
Item 1. Business
Overview
Oaktree is a leader among global investment managers specializing in alternative investments, with $90.8
billion in assets under management (“AUM”) as of December 31, 2014. We emphasize an opportunistic, value-
oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high yield debt
and senior loans), control investing, convertible securities, real estate and listed equities. Over nearly three
decades, we have developed a large and growing client base through our ability to identify and capitalize on
opportunities for attractive investment returns in less efficient markets.
Our founding senior executives were pioneers in the management of high yield bonds, convertible securities
and distressed debt. From those roots we have developed an array of specialized credit- and equity-oriented
strategies. Our 290 investment professionals include 154 senior investment professionals with an average 18 years
of industry experience, who between them possess the investing, research, analytical, legal, trading and other
skills, relationships and experience that are necessary for long-term success in our complex markets. Additionally,
our compensation and other personnel practices foster a collaborative culture that facilitates complementary
investment strategies benefiting from shared knowledge and insights.
We manage assets on behalf of many of the most significant institutional investors in the world. Our
clientele has nearly doubled over the past decade, to over 2,000, including 74 of the 100 largest U.S. pension
plans, 39 states in the United States, 407 corporations and/or their pension funds, 351 university, charitable and
other endowments and foundations, 14 sovereign wealth funds and approximately 300 other non-U.S. institutional
investors. Our 25 largest clients participate in an average of four different investment strategies, reflecting the
confidence engendered by our consistent firm-wide investment approach. Approximately 14% of our AUM
represents high-net-worth individuals or sub-advisory relationships with mutual funds, indicating both the
broadening appeal of alternatives to individual investors and our heightened focus on that market.
Since Oaktree’s founding in 1995, our AUM has grown significantly, even as we have distributed over $70
billion from our closed-end funds. Although we limit our AUM when appropriate in order to better position us to
generate superior risk-adjusted returns, we have a long-term track record of organically growing our investment
strategies, increasing our AUM and expanding our client base. In 2014, we raised gross capital of $14.7 billion, our
second-highest annual total ever and largest without a new Distressed Debt fund. Of the $14.7 billion, $7.6 billion
represented investment strategies and products developed over the last four years.
As shown in the chart below, our AUM has grown to $90.8 billion as of December 31, 2014 from $27.9 billion
a decade earlier. Over the same period, management fee-generating assets under management (“management
fee-generating AUM”) grew from $26.7 billion to $78.1 billion, and incentive-creating assets under management
(“incentive-creating AUM”) increased from $9.3 billion to $33.9 billion.
Year-end AUM
6
We have systematically broadened employee ownership since our founding to help align interests among
employees, our clients and other stakeholders, as well as to facilitate a smooth generational transfer of
management and ownership. We have 927 employees, including 218 employee-owners, with offices in 17 cities
across 12 countries, of which the largest offices are in Los Angeles (headquarters), London, New York City and
Hong Kong.
Structure and Operation of Our Business
Our business is comprised of one segment, our investment management segment, which consists of the
investment management services that we provide to our clients. Our segment revenue flows from the management
fees and incentive income generated by the funds that we manage, as well as the investment income earned from
the investments we make in our funds, third-party funds and other companies. The management fees that we
receive are based on the contractual terms of the relevant fund and are typically calculated as a fixed percentage of
the capital commitments (as adjusted for distributions during a fund’s liquidation period), drawn capital or net asset
value (“NAV”) of the particular fund. Incentive income represents our share (typically 20%) of the investors’ profits
in most of the closed-end and certain evergreen funds. Investment income refers to the investment return on a
mark-to-market basis and our equity participation on the amounts that we invest in Oaktree and third-party funds, as
well as in other companies.
Structure of Funds
Closed-end Funds
Our closed-end funds are typically structured as limited partnerships that have a 10- or 11-year term and
have a specified period during which clients can subscribe for limited partnership interests in the fund. Once a
client is admitted as a limited partner, that client is required to contribute capital when called by us as the general
partner, and generally cannot withdraw its investment. Our closed-end funds have an investment period that
generally ranges from three to five years, during which we are permitted to invest the committed capital of those
funds. As closed-end funds liquidate their investments, we typically distribute the proceeds to the clients, although
during the investment period we have the ability to retain or recall such proceeds to make additional investments.
Once we have committed to invest approximately 80% of the capital in a particular fund, we typically raise a new
fund in the same strategy, generally ensuring that we always have capital to invest in new opportunities. From time
to time, we may provide discretionary management services for clients within our closed-end fund strategies
through a separate account or a limited partnership or limited liability company managed by us with the client as the
sole limited partner or sole non-managing member (a “fund-of-one”).
Our closed-end funds also include collateralized loan obligation vehicles (“CLOs”) for which we serve as
collateral manager. CLOs are structured finance vehicles in which we typically make an investment and for which
we earn management fees. Investors in CLOs are generally unable to redeem their interests until the CLO
liquidates, is called or otherwise terminates.
Open-end Funds
Our commingled open-end funds are typically structured as limited partnerships that are designed to admit
clients as new limited partners (or accept additional capital from existing limited partners) on an ongoing basis
during the fund’s life. Clients in commingled open-end funds typically contribute all of their committed capital upon
being admitted to the fund. These funds do not have an investment period and do not distribute proceeds of
realized investments to clients. We are permitted to commit the fund’s capital (including realized proceeds) to new
investments at any time during the fund’s life. Clients in commingled open-end funds generally have the right to
withdraw their capital from the fund at any time on a monthly basis (quarterly for our Senior Loan strategy).
We also provide discretionary management services for clients through separate accounts within the open-
end fund strategies. Clients establish accounts with us by depositing funds or securities into accounts maintained
by qualified independent custodians and granting us discretionary authority to invest such funds pursuant to their
investment needs and objectives, as stated in an investment management agreement. Separate account clients
generally may terminate our services at any time by providing us with prior notice of 30 days or less. Most of the
separate accounts we currently manage are in the open-end fund strategies.
Evergreen Funds
We use the term evergreen funds to describe funds that invest in marketable securities, private debt or
equity, in certain cases on a long and short basis. As with open-end funds, commingled evergreen funds are
designed to accept new capital on an ongoing basis and generally do not distribute proceeds of realized
investments to clients. We also provide discretionary management services for clients through separate accounts
7
or fund-of-ones within our evergreen fund strategies. Clients in evergreen funds are generally subject to a lock-up,
which restricts their ability to withdraw their entire capital for a certain period of time after their initial subscription.
Management Fees
We receive management fees monthly or quarterly based on annual fee rates. While we typically earn
management fees for each of the funds that we manage, the contractual terms of those management fees vary by
certain factors, such as fund structure. Annual management fee rates generally fall in the range of 1.25% to 1.75%
for closed-end funds, 0.42% to 0.80% for open-end funds, and 1.0% to 2.0% for evergreen funds. In the case of
most closed-end funds, the management fee rate is applied against committed capital during the fund’s investment
period and the lesser of total funded capital or cost basis of assets in the liquidation period. However, for certain
closed-end funds (such as Oaktree European Dislocation Fund, L.P., Oaktree Real Estate Debt Fund, L.P. and
Oaktree Mezzanine Fund IV, L.P. (“Mezz IV”)), management fees during the investment period are calculated based
on drawn capital. Additionally, for those closed-end funds for which management fees are based on committed
capital, we sometimes elect to delay the start of the fund’s investment period and thus its full management fees;
instead, earning management fees based only on drawn capital for the period between the first capital drawdown
and the date on which we elect to start the investment period. Our right to receive management fees typically ends
after 10 or 11 years from the initial closing date or the start of the investment period, even if assets remain to be
liquidated. For open-end and evergreen funds, the management fee is generally based on the NAV of the fund. In
the case of certain open-end and evergreen fund accounts, we have the potential to earn performance-based fees,
typically in reference to a relevant benchmark index or hurdle rate. From time to time, we may in our sole discretion
afford certain investors in our funds or clients of separate accounts more favorable economic terms than other
investors in the same fund or separate account clients within the same or similar investment strategy, including with
respect to management and performance-based fees, generally based on the aggregate size of commitments of
such investor or client, as applicable, to one or more funds or accounts managed by us.
Incentive Income
We have the potential to earn incentive income from closed-end funds, most of which follow the so-called
European-style waterfall, whereby we receive incentive income only after the fund first distributes all contributed
capital plus an annual preferred return, typically 8%. Once this occurs, we generally receive as incentive income
80% of all distributions otherwise attributable to our investors, and those investors receive the remaining 20% until
we have received, as incentive income, 20% of all such distributions in excess of the contributed capital from the
inception of the fund. Thereafter, provided the preferred return continues to be met, all such future distributions
attributable to our investors are distributed 80% to those investors and 20% to us as incentive income. As a result,
we generally receive incentive income, if any, in the latter part of a fund’s life, although earlier in a fund’s term we
may receive tax distributions, which we recognize as incentive income, to cover our allocable share of income taxes
until we are otherwise entitled to payment of incentive income.
Certain of our evergreen funds pay annual incentive income equal to 20% of the year’s profits, subject to
either a high-water mark or hurdle rate. The high-water mark refers to the highest historical NAV attributable to a
limited partner’s account. We do not earn annual incentive income with respect to a limited partner if its year-end
NAV is lower than any prior year’s NAV, excluding any contributions or redemptions.
Investment Income
We earn segment investment income from our corporate investments in funds and companies, with Oaktree-
managed funds constituting the bulk of our corporate investments. Our investments in Oaktree-managed funds
generally fall into one of four categories: general partner interests in commingled funds, investments in CLOs, seed
capital for new investment strategies prior to third-party capital raising, and corporate cash management. In the
case of general partner interests in our closed-end or evergreen funds, we typically invest the greater of 2.5% of
committed capital or $20 million in each fund, not to exceed $100 million per fund. For CLOs, we generally invest
no more than 10% of the total par value of each respective CLO. For strategic purposes, we also invest in a
handful of third-party managed funds or companies. Our investments in companies include a one-fifth equity stake
in DoubleLine Capital LP and its affiliates (collectively, “DoubleLine”), an investment manager that sought our start-
up consulting and financial involvement shortly after its founding in December 2009.
Our Investment Approach
At our core, we are contrarian, value-oriented investors focused on buying securities and companies at
prices below their intrinsic value and selling or exiting those investments when they become fairly or fully valued.
8
We believe we can do this best by investing in markets where specialization and superior analysis can offer an
investing edge.
In our investing activities, we adhere to the following fundamental tenets:
• Focus on Risk-Adjusted Returns. Our primary goal is not simply to achieve superior investment
performance, but to do so with less-than-commensurate risk. We believe that the best long-term records
are built more through the avoidance of losses in bad times than the achievement of superior relative
returns in good times. Thus, our overriding belief is that “if we avoid the losers, the winners will take care
of themselves.”
• Focus on Fundamental Analysis. We employ a bottom-up approach to investing, based on proprietary,
company-specific research. We seek to generate outperformance from in-depth knowledge of companies
and their securities, not from macro-forecasting. Our 290 investment professionals have developed a
deep and thorough understanding of a wide number of companies and industries, providing us with a
significant institutional knowledge base.
• Specialization. We offer a broad array of specialized investment strategies. We believe this offers the
surest path to the results we and our clients seek. Clients interested in a single investment strategy can
limit themselves to the risk exposure of that particular strategy, while clients interested in more than one
investment strategy can combine investments in our funds to achieve their desired mix. Our focus on
specific strategies has allowed us to build investment teams with extensive experience and expertise. At
the same time, our teams access and leverage each other’s expertise, affording us both the benefits of
specialization and the strengths of a larger organization.
Our Asset Classes and Investment Strategies
We manage investments in a number of strategies within six asset classes: Corporate Debt, Convertible
Securities, Distressed Debt, Control Investing, Real Estate and Listed Equities. The diversity of our investment
strategies allows us to meet a wide range of investor needs suited for different market environments globally and,
for certain strategies, targeted regions, while providing us with a long-term diversified revenue base. Our AUM by
asset class and investment strategy as of December 31, 2014 is shown below:
Strategy
Inception
AUM
(in billions)
Strategy
Inception
AUM
(in billions)
Corporate Debt:
U.S. High Yield Bonds.............................
Global High Yield Bonds (1) .....................
European High Yield Bonds ....................
U.S. Senior Loans ...................................
European Senior Loans ..........................
Mezzanine Finance .................................
Strategic Credit .......................................
European Private Debt ............................
Convertible Securities:
U.S. Convertible Securities .....................
Non-U.S. Convertible Securities .............
High Income Convertible Securities ........
Distressed Debt:
Distressed Debt ......................................
Value Opportunities.................................
Emerging Markets Opportunities.............
1986
2010
1999
2007
2009
2001
2012
2013
1987
1994
1989
1988
2007
2012
Control Investing:
$
13.8
Global Principal Investments ...................
6.7
0.6
7.8
2.4
1.6
2.7
0.8
European Principal Investments ..............
Asia Principal Investments ......................
Power Opportunities ................................
Infrastructure Investing (2) ........................
Real Estate:
Real Estate Opportunities .......................
36.4
Real Estate Debt .....................................
4.8
2.5
0.9
8.2
15.8
1.8
0.9
18.5
Listed Equities:
Emerging Markets Equities .....................
Emerging Markets Absolute Return.........
Value Equities .........................................
Others ..................................................... Various
Total ........................................................
$
90.8
1994
2006
2006
1999
2014
1994
2012
2011
1997
2014
$
5.7
6.0
0.4
1.3
2.5
15.9
6.3
1.2
7.5
3.6
0.2
0.4
0.1
4.3
This includes $2.8 billion in AUM associated with our Expanded High Yield Bond strategy, whose inception date was 1999.
(1)
(2) Oaktree acquired the Highstar Capital team in August 2014, which represents the inception date of this strategy.
9
This array of specialized credit- and equity-oriented strategies allows us to focus on downside risk protection
while at the same time creating value and the ability to realize accrued incentives, as is demonstrated by the
diversified holdings of our incentive-creating closed-end and evergreen funds. Of the $33.9 billion of incentive-
creating AUM, as of December 31, 2014, senior and secured debt, subordinated debt, and equities represented
24%, 6% and 70%, respectively. The latter was comprised of 33%, 49% and 18% in public, private and real estate
equities, respectively.
Our most significant, longest-managed investment strategies are described below:
Distressed Debt
Our Distressed Debt team was an industry pioneer and has been one of its leaders since the inception of the
strategy in 1988. The team focuses primarily on investments in distressed companies that are perceived to have
substantial asset values or business franchises, and are in industries going through periods of transition or
dislocation. We take an opportunistic approach to investing, with the flexibility and expertise to choose from a
broad range of investments, including leveraged loans, bonds, equity securities, companies or hard assets.
Building on our Distressed Debt team’s experience in the U.S., we have established a significant presence in
Europe to capitalize on opportunities in that region.
Value Opportunities
We launched Value Opportunities (“VOF”) in September 2007 for investors who had expressed interest in a
more liquid version of the Distressed Debt strategy. The fund is managed by the Distressed Debt team and invests
mainly in distressed debt and other value-oriented investments for which there is a liquid market. Inasmuch as this
strategy is intended to be opportunistic, the composition of the portfolio is designed to capitalize on changing
market conditions. In general, this strategy employs similar strategies and tactics with regard to distressed
investments as the Distressed Debt strategy, but it may be more aggressive and more oriented to short-term trading
(and may make greater use of leverage, shorting and derivatives) with respect to its non-distressed investments.
High Yield Bonds
We view high yield bond investing as the conscious bearing of risk for potential profit, and we follow a
defensive, downside-oriented strategy focused on gauging credit risk. Rather than stretching for higher yields, our
primary focus is managing risk and avoiding defaults. Since the inception of the U.S. strategy in 1986, our holdings
have experienced an average default rate equal to approximately one-third the high yield bond market as a whole.
Our team’s analytical and investment skills also are evidenced by the fact that in each of our strategy’s 29 years, its
portfolio holdings have garnered a larger percentage of rating-agency upgrades than downgrades.
We were among the first firms to establish a dedicated European High Yield Bond strategy in 1999. Over the
years, many of our U.S. investors acquired units of the European fund to enhance performance and increase
portfolio diversification, resulting in the Expanded High Yield Bond strategy. In 2010, we established Global High
Yield Bonds, a single portfolio approach to invest in the U.S. and European markets, capitalizing on the expertise of
our research teams. Rather than combining two diversified portfolios, this approach combines the best relative
value opportunities within the two markets into a single account.
U.S. and European Senior Loans
In September 2007 we formed the U.S. Senior Loan strategy to capitalize on the backlog of unsold or “hung”
bridge loans held by investment banks near the start of the global financial crisis. As the market environment
subsequently changed, we expanded the strategy to include investing in senior bank loans. Investments include
bank loans and senior debt from the middle- and upper-quality tiers of the non-investment grade debt market. In
most instances, these instruments constitute the most senior position in the capital structure of the borrower. In
May 2009, we capitalized on our experience in senior loans and European high yield bonds by forming the
European Senior Loan strategy to take advantage of opportunities in the primary and secondary loan markets.
Mezzanine Finance
In 2001 we created the Mezzanine Finance strategy to capitalize on our expertise in credit analysis after we
observed a gap in the availability of mezzanine capital to many attractive companies that were considered too small
for the high yield bond market. Our strong relationships with small-cap and mid-cap private equity sponsors
constitute a major advantage in our Mezzanine investment process. The strategy’s targeted investment size is $20
million to $100 million, where we believe many attractive opportunities exist to help finance leveraged buyouts,
10
recapitalizations, acquisitions and corporate growth. The Mezzanine Finance strategy seeks to earn a high current
return and achieve long-term capital appreciation without subjecting principal to undue risk.
Principal Investments
The Global and European Principal Investment strategies typically target investments through capital
infusions into distressed or “stressed” companies, acquisition of distressed securities with an expected outcome of
a debt for equity conversion (“distress-for-control”), or private equity investments in targeted industries. Our team’s
private equity and distressed debt experience allows us a competitive advantage in accessing distressed debt,
negotiating through the bankruptcy process for control of a business and maximizing the value of an investment
once we obtain control. Our European investments have focused on complex business restructurings and
industries in which we have particular expertise. We have experienced in-house portfolio enhancement teams in
both the U.S. and Europe that are dedicated to identifying and implementing operational, strategic and financial
enhancements at portfolio companies.
Power Opportunities
Beginning in 1996, the Control Investing strategy made a number of power infrastructure investments jointly
with an independent firm, GFI Energy Ventures (“GFI”). In 2009, GFI personnel joined us and, starting with Oaktree
Power Opportunities Fund III, L.P. (“Power Fund III”), we became the sole manager of the strategy. The Power
Opportunities funds seek to make controlling equity investments in companies providing equipment, software and
services used in marketing, distribution, transmission, trading or consumption of power and other similar services.
The strategy invests in proven performers and market leaders, not start-up ventures or turnarounds.
Convertible Securities
Convertible securities are part debt and part equity. Applying our risk-control investment approach to these
securities, we attempt to capture most of the performance of equities in rising markets and to outperform equities in
flat or down markets. Our goal is to capture the vast majority of the performance of equities over full market cycles
with reduced volatility and/or substantially outperform straight bonds with similar levels of volatility. To reduce risk,
we broadly diversify and focus on convertibles that provide pronounced downside protection. High income, or
“busted,” convertibles offer a unique combination of high current yield and yield-to-maturity, plus the potential for
significant equity-driven capital appreciation.
Real Estate
The Real Estate team targets a diverse range of global investments, including direct property investments,
investments in companies with extensive real estate assets, undervalued debt and equity securities, and
opportunities to develop and re-position properties in association with aligned, high-quality partners. In recent years
we have developed strategic business relationships with third-party servicing companies for commercial and
residential mortgage pools, which have enabled us to acquire and profitably manage portfolios of non-performing
mortgage loans sold at discounted prices by banks.
Development of Newer Investment Strategies and Products
We add to Oaktree’s list of investment strategies when we identify a market with potential for attractive
returns that we believe can be exploited in a risk-controlled fashion, and where we have access to the investment
talent capable of producing the results we seek. Because of the high priority we place on assuring that these
requirements are met, we prefer that new products represent “step-outs” from our current investment strategies into
related fields that are managed by people with whom we have had extensive experience or for whom we can
validate qualifications. In chronological order, strategies recently launched or developed include the following:
Emerging Markets Equities. As a step-out from our Emerging Markets Absolute Return (“EMAR”) strategy,
in 2011 we added the long-only Emerging Markets Equities strategy, which we manage through funds, mutual fund
sub-advisory relationships and separate accounts. The strategy invests on a long-only basis in the equities of
emerging market companies in the Asia Pacific region, Latin America, Eastern Europe, the Middle East, Africa and
Russia.
Enhanced Income. In 2012, we added a new product under the Senior Loan umbrella, Enhanced Income,
to create a portfolio of below investment grade loans using a moderate amount of leverage. This strategy utilizes
the same investment approach as our U.S. Senior Loan strategy.
11
Emerging Markets Opportunities. We launched this strategy in 2012 and began managing assets in
September 2013 to target stressed, distressed and other value-oriented fixed income and equity investments in
emerging markets. This strategy is managed by a U.S.-based group that leverages our Distressed Debt team’s
experience and expertise, and employs an established, flexible external network of local advisers to enhance deal
flow, access local market intelligence and address the intricacies of jurisdictional differences and industry and local
regulatory developments.
Real Estate Debt. Our management of Oaktree PPIP Fund, L.P. (“PPIP”), organized pursuant to the U.S.
Treasury Department’s program to address troubled real estate-related assets during the global financial crisis,
spurred us to offer Real Estate Debt as a successor strategy in 2012. This strategy invests primarily in performing
commercial mortgage-backed securities, first mortgages, junior secured debt, unsecured debt and mezzanine debt,
both in the U.S. and Europe.
Strategic Credit. In 2012, we introduced Strategic Credit as an opportunistic credit strategy that invests in
marketable securities and private debts of stressed U.S. and non-U.S. companies. The strategy seeks returns
above those on high yield bonds but below those for more distress-oriented strategies.
European Private Debt. We introduced European Private Debt in 2013 to capitalize on opportunities
resulting from the decline in European bank lending and our significant industry experience, knowledge and deep
relationships across the continent. The strategy seeks to achieve attractive, risk-adjusted absolute returns by
making primary investments in high-yielding debt or preferred equity of companies that require liquidity for
acquisitions, buyout of minority investors, debt restructurings, recapitalizations or acquisitions of hard assets.
Collateralized Loan Obligations. Building on our experience in Senior Loans and Enhanced Income, we
added CLOs to our product offerings in 2014. CLOs are securities backed by a diversified pool of below-investment
grade loans sold to investors often seeking greater diversity and/or the potential for higher-than-average returns.
Our fully-levered CLOs utilize the same investment approach as our Senior Loan strategy.
Value Equities. We launched this strategy in 2014 as a step-out from our Distressed Debt platform. Similar
to our Distressed Debt and Value Opportunities strategies, Value Equities employs a bottom-up, value-oriented
investment approach focused on long-term principal appreciation and preservation of capital. This strategy seeks
to achieve attractive, risk-adjusted returns by opportunistically assembling and managing an unlevered,
concentrated portfolio of stressed, post-reorganization and value equities that offer asymmetric return profiles.
Infrastructure Investing. In August 2014, we acquired the Highstar Capital team and certain Highstar
entities (collectively “Highstar”) to facilitate the expansion of our Power Opportunities strategy to capitalize on
investment opportunities created by aging infrastructure assets and the expansion of existing infrastructure to adapt
to changing energy markets. This strategy seeks to capitalize on these and similar opportunities by originating,
owning and operating infrastructure and related investments, primarily in North America.
12
Our Investment Performance
Our investment professionals have generated impressive investment performance through multiple market
cycles. As of December 31, 2014, our incentive-creating closed-end funds had produced an aggregate gross IRR
of 19.6% on over $68 billion of drawn capital. All 49 of the incentive-creating closed-end funds we manage that
commenced before July 1, 2013 had positive gross and net IRRs as of December 31, 2014, an achievement that
reflects, among many factors, our practice of sizing funds in proportion to our view of the supply of potential
attractive investment opportunities.
Information regarding our most significant and longest-managed closed-end funds is shown below, as of or
for the periods ended December 31, 2014. Please see “Fund Data” below for more information regarding the
performance of our closed-end funds.
Strategy
Inception
Total Drawn
Capital
(in millions)
IRR Since Inception
Gross
Net
Multiple of
Drawn
Capital
Distressed Debt ...............................................................
Real Estate Opportunities ................................................
Global Principal Investments ...........................................
European Principal Investments ......................................
Power Opportunities ........................................................
Mezzanine Finance .........................................................
Sub-total ..........................................................................
Other funds .....................................................................
Total ................................................................................
1988
1994
1994
2006
1999
2001
$
38,529
22.6%
17.1%
1.7x
15.8
13.5
14.0
34.8
13.1
12.3
10.0
9.2
26.7
8.8
1.7
1.6
1.5
2.4
1.4
6,348
10,094
4,901
1,498
3,342
64,712
3,978
$
68,690
Performance of our open-end funds is in part measured in relation to applicable benchmark returns. We
have a long track record of achieving competitive returns in up markets and substantial relative outperformance in
down markets. We believe this pattern of results leads to significant outperformance over full market cycles.
Information regarding our open-end funds, together with relevant benchmark data, is set forth below as of or for the
periods ended December 31, 2014. Please see “Fund Data” below for more information regarding the performance
of our open-end funds.
Annualized Rates of Return
Sharpe Ratio
Since Inception
Strategy
Inception
AUM
Gross
Net
Oaktree
Relevant
Benchmark
(Gross)
Oaktree
Gross
Relevant
Benchmark
(Gross)
(in millions)
U.S. High Yield Bonds...................
Global High Yield Bonds (1) ...........
European High Yield Bonds ..........
U.S. Convertibles ..........................
Non-U.S. Convertibles ..................
High Income Convertibles .............
U.S. Senior Loans .........................
European Senior Loans ................
Emerging Markets Equities ...........
1986
2010
1999
1987
1994
1989
2008
2009
2011
$ 13,776
9.7%
9.1%
8.6%
6,678
634
4,844
2,467
907
7,844
2,423
3,633
8.4
8.3
9.9
8.7
11.7
7.0
9.6
(0.6)
7.8
7.8
9.4
8.2
11.2
6.5
9.1
(1.4)
7.4
6.3
8.4
5.9
8.4
5.6
10.7
(2.6)
0.81
1.22
0.67
0.50
0.78
1.04
1.17
1.72
0.55
1.15
0.39
0.36
0.40
0.59
0.60
1.79
(0.04)
(0.15)
(1)
This includes $2.8 billion in AUM associated with our Expanded High Yield Bond strategy, whose inception date was 1999.
Synergies
We emphasize cross-group cooperation and collaboration among our investment professionals. Many of our
investment strategies are complementary, and our investment professionals often identify and communicate
potential opportunities to other groups, allowing our funds to benefit from the synergies created by the scale of our
13
business and our proprietary research. The High Yield Bond group, for instance, sometimes alerts the Distressed
Debt group to issuers facing financial difficulties; alternatively, the Distressed Debt group sometimes identifies
companies emerging from bankruptcy that could be attractive to the High Yield Bond group.
This cross-pollination among our investment groups occurs both formally and informally. For example,
representatives of the Distressed Debt, Principal Investments and Real Estate groups typically attend each other’s
meetings in order to ensure that each group keeps abreast of the others’ activities and has ready access to
specialized expertise for more informed investment decisions. These groups periodically invest jointly, permitting us
to make larger or more specialized investments than we could undertake in the absence of such collaboration. Our
investment professionals also cooperate informally, consulting each other on a regular basis with respect to existing
and proposed investments. Our culture encourages such cooperation, as does the broad ownership by all of our
senior investment professionals, which gives each of them an indirect stake in the success of all of our investment
strategies.
We have a shared trading desk in the U.S. for many of our strategies, which provides the benefit of our
traders’ deep experience with both performing and distressed securities, facilitates communication among the
groups, and allows us to combine trades for larger orders with the preferential access and pricing that sometimes
comes with larger orders. Additionally, the shared nature of the trading desk allows us to pursue individual
opportunities without revealing to the broader market which of our strategies may be purchasing the targeted
security, providing an advantage over our competitors who invest exclusively in distressed or distress-for-control
strategies, thus revealing their expectations for their investments.
The scale of our investing activities makes us a significant client of many investment banks, brokers and
consultants, and thus helps each group access opportunities that might not be available were it not part of our
larger organization. Finally, the scale of our activities has permitted us to create significant shared resources.
Marketing and Client Relations
Our client relationships are fundamental to our business. We strive to act with professionalism and integrity
and believe our success flows from the success of our fund investors. We have developed a loyal following among
many of the nation’s most significant institutional investors, and believe that their and our other investors’ loyalty
flows from our superior investment record, our reputation for integrity, and the fairness and transparency of our fee
structures.
As of December 31, 2014, our $90.8 billion of AUM was divided by client type and geographic origin as
follows:
AUM by Client Type
AUM
%
AUM by Client Location
AUM
%
(in millions)
(in millions)
Public funds .............................................. $
24,007
26%
North America ............................... $
68,267
75%
Corporate and corporate pension .............
23,445
26
Europe ..........................................
11,798
Asia & Australia .............................
Africa & Middle East ......................
South America ...............................
9,173
1,462
131
Total .............................................. $
90,831
100%
13
10
2
0
Sub-advisory – mutual funds ....................
Insurance companies ...............................
Sovereign wealth funds ............................
Endowments/foundations .........................
Private – high net worth/family office ........
Fund of funds ...........................................
Unions ......................................................
Oaktree and other .....................................
7,564
7,320
6,975
5,991
5,005
2,099
1,706
6,719
8
8
8
7
6
2
2
7
Total .......................................................... $
90,831
100%
Our extensive in-house global Marketing and Client Relations group, comprised of 55 individuals dedicated
to relationship management and sales, client service or sales strategy in Europe, the Middle East, Asia/Pacific and
the Americas, appropriately reflects the increasingly global composition of our client base. This team is augmented
by 48 dedicated marketing support, portfolio analytics and client reporting professionals.
14
Employees
We strive to maintain a work environment that fosters integrity, professionalism, excellence, candor and
collegiality among our employees. We consider our labor relations to be good. As of December 31, 2014, we had
927 employees, categorized as follows:
Investment professionals .........................................................................................
Other professionals .................................................................................................
Support staff ............................................................................................................
Total .........................................................................................................................
(1)
Represents employees that hold OCGH units.
Competition
All
Employees
290
471
166
927
Employee
Owners (1)
142
76
—
218
Employees
Located
Outside
the U.S.
106
62
37
205
We compete with many other firms in every aspect of our business, including raising funds, seeking
investments and hiring and retaining professionals. Many of our competitors are substantially larger than us and
have considerably greater financial, technical and marketing resources. Certain of these competitors periodically
raise significant amounts of capital in investment strategies that are similar to ours. Some of these competitors also
may have a lower cost of capital and access to funding sources that are not available to us, which may create
further competitive disadvantages for us with respect to investment opportunities. In addition, some of these
competitors may have higher risk tolerances or make different risk assessments than we do, allowing them to
consider a wider variety of investments and establish broader networks of business relationships. In short, we
operate in a highly competitive business and many of our competitors may be better positioned than we are to take
advantage of opportunities in the marketplace. For additional information regarding the competitive risks that we
face, please see “Risk Factors—Risks Relating to Our Business—The investment management business is
intensely competitive.”
Organizational Structure
Oaktree Capital Group, LLC is a Delaware limited liability company that was formed on April 13, 2007. The
Company is owned by its Class A and Class B unitholders. Oaktree Capital Group Holdings GP, LLC acts as the
Company’s manager and is the general partner of Oaktree Capital Group Holdings, L.P., which owns 100% of the
Company’s outstanding Class B units. OCGH is owned by the OCGH unitholders. The Company’s operations are
conducted through a group of operating entities collectively referred to as the Oaktree Operating Group. OCGH
has a direct economic interest in the Oaktree Operating Group and the Company has an indirect economic interest
in the Oaktree Operating Group. We collectively refer to the interests in the Oaktree Operating Group as the
“Oaktree Operating Group units.” An Oaktree Operating Group unit is not a separate legal interest but represents
one limited partnership interest in each of the Oaktree Operating Group entities.
Class A units are entitled to one vote per unit. Class B units are entitled to ten votes per unit. However, if the
Oaktree control condition (as defined below) is no longer satisfied, our Class B units will be entitled to only one vote
per unit. Holders of our Class A units and Class B units generally vote together as a single class on the limited set
of matters on which our unitholders have a vote. Such matters, which must be approved by a majority (or, in the
case of election of directors when the Oaktree control condition is no longer satisfied, a plurality) of the votes
entitled to be cast by all Class A units and Class B units present in person or represented by proxy at a meeting of
unitholders, include a proposed sale of all or substantially all of our assets, certain mergers and consolidations,
certain amendments to our operating agreement and an election by our board of directors to dissolve the company.
The Class B units do not represent an economic interest in Oaktree Capital Group, LLC. The number of Class B
units held by OCGH, however, increases or decreases with corresponding changes in OCGH’s economic interest in
the Oaktree Operating Group.
Our operating agreement provides that so long as our senior executives, or their successors or affiliated
entities (other than us or our subsidiaries), including OCGH, collectively hold, directly or indirectly, at least 10% of
the aggregate outstanding Oaktree Operating Group units, our manager, Oaktree Capital Group Holdings GP, LLC,
which is 100% owned and controlled by our senior executives, will be entitled to designate all the members of our
board of directors. We refer to this ownership condition as the “Oaktree control condition.” Holders of our Class A
15
units and Class B units have no right to elect our manager. So long as the Oaktree control condition is satisfied, our
manager will control the membership of our board of directors, which will manage all of our operations and activities
and will have discretion over significant corporate actions, such as the issuance of securities, payment of
distributions, sale of assets, making certain amendments to our operating agreement and other matters.
The diagram below depicts our organizational structure as of December 31, 2014.
______________________
(1)
Holds 100% of the Class B units and 0.03% of the Class A units, which together represent 96.1% of the total combined voting power of our
outstanding Class A and Class B units. The Class B units have no economic interest in us. The general partner of Oaktree Capital Group Holdings,
L.P. is Oaktree Capital Group Holdings GP, LLC, which is controlled by our senior executives. Oaktree Capital Group Holdings GP, LLC also acts
as our manager and in that capacity has the authority to designate all the members of our board of directors for so long as the Oaktree control
condition is satisfied.
(2)
(3)
(4)
(5)
The percent economic interest represents the applicable number of Class A units as a percentage of the Oaktree Operating Group units. As of
December 31, 2014, there were 152,852,620 Oaktree Operating Group units outstanding.
The percent economic interest in Oaktree Operating Group represents the aggregate number of Oaktree Operating Group units held, directly or
indirectly, as a percentage of the total number of Oaktree Operating Group units outstanding.
Oaktree Capital Group, LLC holds 1,000 shares of non-voting Class A common stock of Oaktree AIF Holdings, Inc., which are entitled to receive
100% of any dividends. Oaktree Capital Group Holdings, L.P. holds 100 shares of voting Class B common stock of Oaktree AIF Holdings, Inc.,
which do not participate in dividends or otherwise represent an economic interest in Oaktree AIF Holdings, Inc.
Owned indirectly by Oaktree Holdings, LLC through an entity not reflected in this diagram that is treated as a partnership for U.S. federal income
tax purposes. Through this entity, each of Oaktree Holdings, Inc. and Oaktree Holdings, Ltd. owns a less than 1% indirect interest in Oaktree
Capital I, L.P.
16
Regulatory Matters and Compliance
Our business, as well as the financial services industry in general, is subject to extensive regulation in the
United States and elsewhere. Our indirect subsidiary, Oaktree Capital Management, L.P., is registered as an
investment adviser with the U.S. Securities and Exchange Commission (“SEC”). Registered investment advisers
are subject to the requirements and regulations of the U.S. Investment Advisers Act of 1940, as amended (the
“Advisers Act”). These requirements relate to, among other things, fiduciary duties to clients, maintaining an
effective compliance program, solicitation agreements, conflicts of interest, recordkeeping and reporting, disclosure,
limitations on agency cross and principal transactions between an adviser and advisory clients and general anti-
fraud prohibitions. In addition, Oaktree Capital Management, L.P. is registered as a commodity pool operator and a
commodity trading adviser with the U.S. Commodity Futures Trading Commission (“CFTC”). Registered commodity
pool operators and commodity trading advisers are each subject to the requirements and regulations of the U.S.
Commodity Exchange Act, as amended (the “Commodity Exchange Act”). These requirements relate to, among
other things, maintaining an effective compliance program, recordkeeping and reporting, disclosure, business
conduct, and general anti-fraud prohibitions. In addition, as a registered commodity pool operator and a commodity
trading adviser with the CFTC, we are also required to be a member of the National Futures Association (the
“NFA”), a self-regulatory organization for the U.S. derivatives industry. The NFA also promulgates and enforces
rules governing the conduct of, and examines the activities of, its member firms.
In December 2014, we launched our first directly advised mutual funds, which are subject to the rules and
regulations applicable to investment companies under the U.S. Investment Company Act of 1940 (as amended, the
“Investment Company Act”). We are required to invest our mutual funds’ assets in accordance with limitations
under the Investment Company Act and applicable provisions of the U.S. Internal Revenue Code of 1986, as
amended (the “Code”). In addition, we are required to file periodic and annual reports on behalf of the mutual funds
with the SEC. Furthermore, advisers to mutual funds have a fiduciary duty under the Investment Company Act not
to charge excessive compensation, and the Investment Company Act grants shareholders of mutual funds a direct
private right of action against investment advisers to seek redress for alleged violations of this fiduciary duty.
One of our indirect subsidiaries, OCM Investments, LLC, is registered as a broker-dealer with the SEC and in
all 50 states, the District of Columbia and Puerto Rico, and is a member of the U.S. Financial Industry Regulatory
Authority (“FINRA”). As a broker-dealer, this subsidiary is subject to regulation and oversight by the SEC and state
securities regulators. In addition, FINRA, a self-regulatory organization that is subject to oversight by the SEC,
promulgates and enforces rules governing the conduct of, and examines the activities of, its member firms. Due to
the limited authority granted to our subsidiary in its capacity as a broker-dealer, it is not required to comply with
certain regulations covering trade practices among broker-dealers and the use and safekeeping of customers’ funds
and securities. As a registered broker-dealer and member of a self-regulatory organization, we are, however,
subject to the SEC’s uniform net capital rule. Rule 15c3-1 of the Exchange Act specifies the minimum level of net
capital a broker-dealer must maintain and also requires that a significant part of a broker-dealer’s assets be kept in
relatively liquid form. The SEC and FINRA impose rules that require notification when net capital falls below certain
predefined criteria, limit the ratio of subordinated debt to equity in the regulatory capital composition of a broker
dealer and constrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally,
the SEC’s uniform net capital rule imposes certain requirements that may have the effect of prohibiting a broker-
dealer from distributing or withdrawing capital and requiring prior notice to the SEC for certain withdrawals of
capital.
Another of our subsidiaries, Oaktree Capital Management (UK) LLP, is authorized and regulated by the U.K.
Financial Conduct Authority (“FCA”) as an investment manager in the United Kingdom. The U.K. Financial
Services and Markets Act 2000 (“FSMA”) and rules promulgated thereunder govern all aspects of the U.K.
investment business, including sales, research and trading practices, the provision of investment advice, the use
and safekeeping of client funds and securities, regulatory capital, record keeping, margin practices and procedures,
the approval standards for individuals, anti-money laundering, periodic reporting, and settlement procedures.
Similarly, we have a number of other non-U.S. subsidiaries that are regulated by the applicable regulators in their
respective jurisdictions.
The SEC and other regulators have in recent years aggressively increased their regulatory activities in
respect of asset management firms. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-
Frank Act”), among other things, imposes significant regulations on nearly every aspect of the U.S. financial
services industry, including oversight and regulation of systemic market risk (including the power to liquidate certain
institutions); authorizing the Federal Reserve to regulate nonbank institutions that are deemed systemically
important; generally prohibiting insured depository institutions and their affiliates from conducting proprietary trading
17
and investing in private equity funds and hedge funds; and imposing new registration, recordkeeping and reporting
requirements on private fund investment advisers. Some of these provisions are still subject to further rulemaking
and to the discretion of regulatory bodies. The Dodd-Frank Act also prohibits investments in private equity and
hedge funds by certain banking entities and covered nonbank companies. While certain of our subsidiaries are
already registered investment advisers and registered broker-dealers and subject to SEC and FINRA examinations,
compliance with any additional legal or regulatory requirements, including the need to register other subsidiaries as
investment advisers, could make compliance more difficult and expensive and affect the manner in which we
conduct business.
Certain of our activities are subject to compliance with laws and regulations of U.S. federal, state and
municipal governments, non-U.S. governments, their respective agencies and/or various self-regulatory
organizations or exchanges relating to, among other things, antitrust laws, anti-money laundering laws, anti-bribery
laws relating to foreign officials, and privacy laws with respect to client information, and some of our funds invest in
businesses that operate in highly regulated industries. Any failure to comply with these rules and regulations could
expose us to liability and/or reputational damage. Our business has operated for many years within a legal
framework that requires our being able to monitor and comply with a broad range of legal and regulatory
developments that affect our activities. However, additional legislation, changes in rules or changes in the
interpretation or enforcement of existing laws and rules, either in the United States or elsewhere, may directly affect
our mode of operation and profitability. Please see “Risk Factors—Risks Relating to Our Business—Regulatory
changes in the United States, regulatory compliance failures and the effects of negative publicity surrounding the
financial industry in general could adversely affect our reputation, business and operations.”
Financial and Other Information by Segment
Financial and other information by segment for the years ended December 31, 2014, 2013 and 2012 are set
forth in Note 17. “Segment Reporting” in our consolidated financial statements included elsewhere in this annual
report.
Available Information
Our website address is www.oaktreecapital.com. Information on our website is not a part of this annual
report and is not incorporated by reference herein. We make available free of charge on our website or provide a
link on our website to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the
SEC. To access these filings, go to the “Unitholders” section of our website and then click on “SEC Filings.” You
may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E.,
Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference
room. In addition these reports and the other documents we file with the SEC are available at a website maintained
by the SEC at www.sec.gov.
Investors and others should note that we use the “Investors” section of our corporate website to announce
material information to investors and the marketplace. While not all of the information that we post on our corporate
website is of a material nature, some information could be deemed to be material. Accordingly, we encourage
investors, the media, and others interested in Oaktree to review the information that we share on our corporate
website at the “Unitholders – Investor Relations” section of our website, http://ir.oaktreecapital.com/. Information
contained on, or available through, our website is not incorporated by reference into this document.
18
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
Investment Period
Start Date
End Date
Total
Committed
Capital
Drawn
Capital (1)
Fund Net
Income
Since
Inception
Distri-
butions
Since
Inception
Net
Asset
Value
As of December 31, 2014
Manage-
ment
Fee-
gener-
ating
AUM
Oaktree
Segment
Incentive
Income
Recog-
nized
Accrued
Incentives
(Fund
Level) (2)
Unreturned
Drawn
Capital Plus
Accrued
Preferred
Return (3)
Distressed Debt
Oaktree Opportunities Fund IX, L.P. .............................................
Jan. 2014
Jan. 2017
$
5,066
$
4,053
$
Oaktree Opportunities Fund VIIIb, L.P. ......................................... Aug. 2011
Aug. 2014
Special Account B ........................................................................ Nov. 2009
Nov. 2012
Oaktree Opportunities Fund VIII, L.P. ........................................... Oct. 2009
Oct. 2012
Special Account A ......................................................................... Nov. 2008
Oct. 2012
2,692
1,031
4,507
253
OCM Opportunities Fund VIIb, L.P. .............................................. May 2008
May 2011
10,940
OCM Opportunities Fund VII, L.P. ................................................ Mar. 2007
Mar. 2010
OCM Opportunities Fund VI, L.P. .................................................
Jul. 2005
Jul. 2008
OCM Opportunities Fund V, L.P....................................................
Legacy funds (6). ...........................................................................
Jun. 2004
Jun. 2007
Various
Various
3,598
1,773
1,179
9,543
2,692
1,087
4,507
253
9,844
3,598
1,773
1,179
9,543
135
708
588
2,384
304
9,159
1,477
1,304
975
8,182
$
2
$ 4,186
$
4,966
$
— $
— $
273
854
3,127
821
3,506
3,385
462
95
17,027
1,976
4,381
2,818
2,032
17,695
694
259
122
30
2,547
816
2,433
75
1,510
888
380
128
—
17
15
106
41
1,394
81
123
166
1,113
117
19
359
19
386
—
132
24
6
4,349
2,980
611
2,431
—
—
729
—
—
—
(in millions)
Emerging Markets Opportunities
Oaktree Emerging Market Opportunities Fund, L.P. (7) (8) .............. Sep. 2013
Special Account F (7). ....................................................................
Jan. 2014
Sep. 2016
$
Jan. 2017
$
384
253
162
106
$
(29)
$
— $ 133
$
126
$
— $
— $
(20)
—
86
85
—
—
169
111
nm
nm
nm
nm
Global Principal Investments
Oaktree Principal Fund VI, L.P. (7) .................................................
Oaktree Principal Fund V, L.P. (10). ................................................
Feb. 2009
Feb. 2015
Special Account C ........................................................................ Dec. 2008
Feb. 2014
OCM Principal Opportunities Fund IV, L.P. ................................... Oct. 2006
Oct. 2011
OCM Principal Opportunities Fund III, L.P. ................................... Nov. 2003
Legacy funds (6). ...........................................................................
Various
Nov. 2008
Various
Asia Principal Investments
— (9)
—
$
592
$
24
$
(1)
$
— $
23
$
23
$
— $
— $
24
nm
2,827
505
3,328
1,400
2,301
2,586
455
3,328
1,400
2,301
858
313
1,756
901
1,840
994
268
3,416
2,115
4,137
2,450
500
1,668
186
4
1,839
395
1,246
—
—
18
13
22
139
236
148
49
10
35
1
2,252
15.0%
334
1,660
—
—
18.3
10.5
14.1
14.5
OCM Asia Principal Opportunities Fund, L.P. ............................... May 2006
May 2011
$
578
$
503
$
47
$
177
$ 373
$
332
$
— $
— $
601
5.3%
1.6%
1.3x
European Principal Investments (11)
Oaktree European Principal Fund III, L.P. ..................................... Nov. 2011
Nov. 2016
OCM European Principal Opportunities Fund II, L.P..................... Dec. 2007
Dec. 2012
3,164
1,759
1,974
1,685
OCM European Principal Opportunities Fund, L.P........................ Mar. 2006
Mar. 2009
$
495
$
473
$
608
727
430
224
€ 2,358
1,300
€ 1,112
3,133
1,042
$
822
$
81
$
91
$
— €
19
30
$
Power Opportunities
Oaktree Power Opportunities Fund III, L.P. ..................................
Apr. 2010
Apr. 2015
$
1,062
$
OCM/GFI Power Opportunities Fund II, L.P. ................................. Nov. 2004
Nov. 2009
OCM/GFI Power Opportunities Fund, L.P. .................................... Nov. 1999
Nov. 2004
1,021
449
574
541
383
$
127
$
134
$ 567
$
1,036
$
— $
1,451
251
1,921
634
71
—
39
—
95
23
118
59
52
22
5
—
$
$
2,066
1,032
—
20.7%
12.1%
1.4x
12.6
11.5
8.2
8.6
14.0%
9.2%
1.6
2.0
538
18.1%
8.5%
1.4x
—
—
76.1
20.1
58.8
13.1
3.9
1.8
34.8%
26.7%
19
IRR Since
Inception (4)
Gross
Net
Multiple
of Drawn
Capital (5)
8.1%
3.7%
1.1x
13.4
17.0
15.7
29.9
22.8
10.6
12.1
18.6
24.2
8.5
14.3
11.1
24.4
17.4
8.0
8.9
14.3
19.3
22.6%
17.1%
nm
8.6%
13.5
8.0
9.7
11.6
13.5%
10.0%
1.3
1.6
1.6
2.2
2.0
1.5
1.8
1.9
1.9
0.8x
0.8
1.1x
1.4
1.8
1.7
1.8
1.8
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
Investment Period
Start Date
End Date
Total
Committed
Capital
Drawn
Capital (1)
Fund Net
Income
Since
Inception
Distri-
butions
Since
Inception
Net
Asset
Value
As of December 31, 2014
Manage-
ment
Fee-
gener-
ating
AUM
Oaktree
Segment
Incentive
Income
Recog-
nized
Accrued
Incentives
(Fund
Level) (2)
Unreturned
Drawn
Capital Plus
Accrued
Preferred
Return (3)
IRR Since
Inception (4)
Gross
Net
Multiple
of Drawn
Capital (5)
Infrastructure Investing
Highstar Capital IV, L.P. (12). ................................................... Nov. 2010
Nov. 2016
$
2,346
$
1,756
$
221
$
268
$1,709
$
1,882
$
— $
— $
1,335
19.1%
8.9%
1.3x
(in millions)
Real Estate Opportunities
Oaktree Real Estate Opportunities Fund VI, L.P. ................... Aug. 2012
Aug. 2016
$
Oaktree Real Estate Opportunities Fund V, L.P...................... Mar. 2011
Mar. 2015
Special Account D .................................................................. Nov. 2009
Nov. 2012
Oaktree Real Estate Opportunities Fund IV, L.P..................... Dec. 2007
Dec. 2011
OCM Real Estate Opportunities Fund III, L.P. ........................ Sep. 2002
Legacy funds (6).
....................................................................
Various
Sep. 2005
Various
2,677
1,283
256
450
707
$
2,035
$
1,283
263
450
707
$
491
746
161
391
652
1,634
1,610
1,399
40
701
224
430
1,283
3,009
$2,486
$
2,610
$
— $
1,328
1,209
200
411
76
—
112
277
—
—
12
2
13
114
112
95
130
14
61
15
—
$
2,199
24.9%
15.8%
1.3x
913
138
220
—
—
19.9
16.1
17.7
15.6
15.2
14.5
13.8
12.2
11.7
12.0
15.8%
12.3%
Real Estate Debt
Oaktree Real Estate Debt Fund, L.P. (7) (13). ............................ Sep. 2013
Oaktree PPIP Fund, L.P. (14) . ................................................. Dec. 2009
Mezzanine Finance
Oaktree Mezzanine Fund IV, L.P. (7) (13) .................................. Oct. 2014
Oaktree Mezzanine Fund III, L.P. (15). ..................................... Dec. 2009
OCM Mezzanine Fund II, L.P. ................................................
Jun. 2005
OCM Mezzanine Fund, L.P. (16). ............................................. Oct. 2001
European Private Debt
Oaktree European Dislocation Fund, L.P. (7) (13). ..................... Oct. 2013
Special Account E (7) (13). ........................................................ Oct. 2013
Sep. 2016
$
Dec. 2012
1,012
2,322
$
57
$
1,113
15
457
$
3
$
1,570
$
69
—
75
—
$
— $
47
$
2
—
55
—
nm
28.2%
nm
N/A
Oct. 2019
$
463
$
39
$
— $
— $
39
$
$
— $
— $
Dec. 2014
Jun. 2010
Oct. 2006
1,592
1,251
808
1,423
1,107
773
Oct. 2016
Apr. 2015
294
379
66
166
$ 68,690
(17) (18)
253
503
303
8
13
911
1,388
1,073
39
16
765
222
3
35
163
Other (19)
Total (20)
38
732
307
—
64
156
31,515
5,478
(18)
—
—
38
— €
— €
—
—
1
1
2
(18)
1,919
25
$ 36,993
$
1,944
40
775
239
—
29
158
nm
nm
14.9% 10.4% / 7.2%
11.3
15.4
7.8
10.8 / 10.5
13.1%
8.8%
nm
nm
nm
nm
1.7
1.6
2.0
2.0
1.9
1.4x
1.4
1.0x
1.3
1.6
1.5
1.2x
1.1
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
Drawn capital reflects the capital contributions of investors in the fund, net of any distributions to such investors of uninvested capital.
Accrued incentives (fund level) exclude Oaktree segment incentive income previously recognized.
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.
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.
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.
Legacy funds represent certain predecessor funds within the relevant strategy that have substantially or completely liquidated their assets, including funds managed by certain Oaktree investment professionals while employed at the Trust Company of
the West prior to Oaktree’s founding in 1995. When these employees joined Oaktree upon, or shortly after, its founding, they continued to manage the fund through the end of its term pursuant to a sub-advisory relationship between the Trust Company
of the West and Oaktree.
The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through December 31, 2014 was less than 18 months.
As of December 31, 2014, Oaktree had temporarily elected to assess management fees on NAV, instead of committed capital, during the investment period. As a result, as of December 31, 2014, management fee-generating AUM represented only that
portion of NAV on which management fees were assessed.
As of December 31, 2014, Oaktree Principal Fund VI, L.P. had made an aggregate $24 million drawdown against its $592 million of committed capital. Oaktree has not yet commenced the fund’s investment period and, as a result, as of December 31,
2014 management fees were assessed only on the drawn capital, and management fee-generating AUM included only that portion of committed capital.
In the fourth quarter of 2013, the investment period for Oaktree Principal Fund V, L.P. was extended for a one-year period until February 2015. However, management fees stepped down to the post-investment period basis effective February 2014.
Aggregate IRRs are based on the conversion of OCM European Principal Opportunities Fund II, L.P. and Oaktree European Principal Fund III, L.P. cash flows from Euros to USD using the December 31, 2014 spot rate of $1.21.
The fund includes co-investments of $385 million in AUM for which we earn no management fees or incentive allocation. Those co-investments have been excluded from the calculation of gross and net IRR, as well as the unreturned drawn capital plus
accrued preferred return amount and multiple of drawn capital. The fund follows the American-style waterfall, whereby the general partner may receive carry 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 carried interest may be subject to repayment, or clawback. As of December 31, 2014, Oaktree had not recognized any carry from this fund. Additionally, under the terms of
the Highstar acquisition, Oaktree is effectively entitled to approximately 8% of the carry generated by this fund.
20
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
Management fees during the investment period are calculated on drawn, rather than committed, capital. As a result, as of December 31, 2014 management fee-generating AUM included only that portion of committed capital that had been drawn.
Due to the differences in allocations of income and expenses to this fund’s two primary limited partners, the U.S. Treasury and Oaktree PPIP Private Fund, L.P., a combined net IRR is not presented. Oaktree PPIP Fund, L.P. had liquidated all of its
investments and made its final liquidating distribution as of December 31, 2013. Oaktree PPIP Fund, L.P., Oaktree PPIP Private Fund, L.P. and its related feeder fund were dissolved as of December 31, 2013. Of the $2,322 million in capital
commitments, $1,161 million related to the Oaktree PPIP Private Fund, L.P. The gross and net IRR for the Oaktree PPIP Private Fund, L.P. were 24.7% and 18.6%, respectively, as of December 31, 2013.
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 7.2%. The combined net IRR for Class A and Class B interests was 9.3%.
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 10.7%.
The aggregate change in drawn capital for the three and twelve months ended December 31, 2014 was $2.6 billion and $8.8 billion, respectively.
Totals are based on the conversion of Euro amounts to USD using the December 31, 2014 spot rate of $1.21.
This includes Oaktree Enhanced Income Fund, L.P., Oaktree Enhanced Income Fund II, L.P., Oaktree Loan Fund 2x, L.P., Oaktree Asia Special Situations Fund, L.P., CLOs, a closed-end separate account, a non-Oaktree fund and two evergreen
separate accounts in our Real Estate Debt strategy.
This excludes one separate account with management fee-generating AUM of $425 million as of December 31, 2014, which has been included as part of the Strategic Credit strategy within the evergreen funds table, and includes two evergreen
separate accounts in our Real Estate Debt strategy with an aggregate $146 million of management fee-generating AUM.
21
Open-end Funds
Manage-
ment Fee-
gener-
ating AUM
as of
Dec. 31,
2014
(in millions)
Strategy
Inception
Year Ended December 31, 2014
Since Inception through December 31, 2014
Rates of Return (1)
Annualized Rates of Return (1)
Sharpe Ratio
Oaktree
Gross
Net
Rele-
vant
Bench-
mark
Oaktree
Gross
Net
Rele-
vant
Bench-
mark
Oaktree
Gross
Rele-
vant
Bench-
mark
U.S. High Yield Bonds .......... Jan. 1986
Global High Yield Bonds (2) ... Nov. 2010
European High Yield Bonds.. May 1999
U.S. Convertibles.................. Apr. 1987
Non-U.S. Convertibles .......... Oct. 1994
High Income Convertibles..... Aug. 1989
U.S. Senior Loans ................ Sep. 2008
European Senior Loans ........ May 2009
Emerging Markets Equities...
Jul. 2011
$ 13,772
1.7%
1.2%
1.9%
9.7%
9.1%
8.6%
6,652
634
4,844
2,466
907
2,860
1,638
3,610
2.5
6.0
3.0
3.4
3.7
1.9
1.4
2.0
5.5
2.5
2.8
3.2
1.4
0.9
2.8
4.6
9.4
3.1
1.8
2.1
2.0
8.4
8.3
9.9
8.7
11.7
7.0
9.6
7.8
7.8
9.4
8.2
11.2
6.5
9.1
(5.3)
(6.1)
(2.2)
(0.6)
(1.4)
7.4
6.3
8.4
5.9
8.4
5.6
10.7
(2.6)
0.81
1.22
0.67
0.50
0.78
1.04
1.17
1.72
0.55
1.15
0.39
0.36
0.40
0.59
0.60
1.79
(0.04)
(0.15)
Total
$ 37,383
(1) Returns represent time-weighted rates of return, including reinvestment of income, net of commissions and transaction costs. The returns
(2)
for Relevant Benchmarks are presented on a gross basis.
This includes $2.8 billion in management fee-generating AUM associated with our Expanded High Yield Bond strategy, whose inception
date was 1999.
Evergreen Funds
Strategy
Inception
AUM
As of December 31, 2014
Accrued
Incen-
tives
(Fund
Level)
Manage-
ment
Fee-gener-
ating AUM
(in millions)
Year Ended
December 31, 2014
Since Inception through
December 31, 2014
Rates of Return (1)
Annualized Rates
of Return (1)
Gross
Net
Gross
Net
Jul. 2012
Strategic Credit (2). ................................
Value Opportunities .............................. Sep. 2007
Value Equities (4). .................................. Apr. 2014
Emerging Markets Opportunities (4). ..... Sep. 2013
Emerging Markets Absolute Return...... Apr. 1997
$ 2,687
$
1,567
$ n/a
0.8%
(0.7)%
1,834
1,769
351
286
199
112
79
176
3,703
—
$
3,703
$
(0.2)
(2.4)
nm
nm
nm
nm
(0.3)
(1.2)
— (3)
—
— (3)
— (3)
—
5
5
Restructured funds (5)
Total (2)(6)
10.6%
12.2
nm
nm
14.3
9.0%
7.6
nm
nm
9.7
(1) Returns represent time-weighted rates of return.
(2)
Includes a separate account in a closed-end fund structure with $579 million and $425 million of AUM and management fee-generating
AUM, respectively.
(3) As of December 31, 2014, the aggregate depreciation below high-water marks previously established for individual investors in the fund
totaled approximately $47.2 million for Value Opportunities, $15.7 million for Emerging Markets Opportunities and $4.1 million for
Emerging Markets Absolute Return.
(4) Rates of return are not considered meaningful (“nm”) because the since-inception period as of December 31, 2014 was less than 18
months.
(5) Oaktree manages three restructured evergreen funds that are in liquidation: Oaktree European Credit Opportunities Fund, L.P., Oaktree
High Yield Plus Fund, L.P. and Oaktree Japan Opportunities Fund, L.P. (Yen class). As of December 31, 2014, these funds had gross and
net IRRs since inception of (2.0)% and (4.4)%, 7.7% and 5.3%, and (5.4)% and (6.4)%, respectively, and in the aggregate had AUM of
$131.0 million. Additionally, Oaktree High Yield Plus Fund, L.P. had accrued incentives (fund level) of $5.3 million as of December 31,
2014.
Total excludes two evergreen separate accounts in our Real Estate Debt strategy with an aggregate $146 million of management fee-
generating AUM.
(6)
22
Item 1A. Risk Factors
We are subject to a number of significant risks inherent in our business. You should carefully consider the
risks and uncertainties described below and other information included in this annual report. If any of the events
described below occur, our business and financial results could be seriously harmed. The trading price of our
Class A units could decline as a result of any of these risks, and you could lose all or part of your investment.
Risks Relating to Our Business
Given our focus on achieving superior investment performance with less-than-commensurate risk, and the
priority we afford our clients’ interests, we may reduce our AUM, restrain its growth, reduce our fees or
otherwise alter the terms under which we do business when we deem it appropriate—even in
circumstances where others might deem such actions unnecessary. Our approach could adversely affect
our results of operations.
One of the means by which we seek to achieve superior investment performance in each of our strategies is
by limiting the AUM in our strategies to an amount that we believe can be invested appropriately in accordance with
our investment philosophy and current or anticipated economic and market conditions. Thus, in the past we have
often taken affirmative steps to limit the growth of our AUM. For example:
•
•
from time to time, we have suspended marketing our U.S. High Yield Bond strategy for long periods and
have declined to participate in searches aggregating billions of dollars since 1998;
from time to time, we have ceased general marketing of our funds in our Convertible Securities strategy
and have asked The Vanguard Group to close its Convertible Securities Fund, which we sub-advise, to
new money from investors for certain periods of time;
• we returned $5.0 billion from our 2001 and 2002 Distressed Debt funds prior to the end of their respective
investment periods and $4.4 billion from OCM Opportunities Fund VIIb, L.P. (“Opps VIIb”) prior to the end
of its investment period;
• we deferred raising a new Distressed Debt fund by a year from 2003 to 2004, even though a significant
amount of capital had already been offered;
• we intentionally sized Oaktree Opportunities Fund VIII, L.P. (“Opps VIII”) and Oaktree Opportunities Fund
VIIIb, L.P. (“Opps VIIIb”) smaller than their predecessors even though we could have raised additional
capital (i.e., we capped Opps VIII at $4.5 billion and Opps VIIIb at $2.7 billion); and
• since our founding we have turned away substantial amounts of capital offered to us for management.
Additionally, we may voluntarily reduce management fee rates or change the terms of how we assess
management fees for certain of our funds or strategies when we deem it appropriate, even when doing so may
reduce our short-term revenue. For example, we decided to reduce our maximum annual management fee for
Opps VIII and Oaktree Principal Fund V, L.P. (“PF V”) from 1.75% to 1.60%. We also, on our own initiative, waived
management fees for Opps VIII with respect to capital commitments in excess of $4.0 billion and reduced the
management fee rate to 1.0% with respect to capital commitments in excess of $2.0 billion for Opps VIIIb. In
addition, we may voluntarily decide to assess management fees for our closed-end funds temporarily based on
contributed capital or fund NAV, rather than committed capital. For example, while management fees for Oaktree
Emerging Market Opportunities Fund, L.P. (“EMOF”) are based on committed capital during its investment period,
we had voluntarily elected to assess management fees for EMOF temporarily based on fund NAV, rather than
committed capital, during the fund’s investment period. Additionally, in 2013 we elected not to start the investment
period of Oaktree Opportunities Fund IX, L.P. (“Opps IX”) even though we made initial drawdowns of commitments
for opportunistic investments. During this time, we assessed management fees only on the drawn capital rather
than, had we started the investment period of Opps IX, on total committed capital. We have applied this approach
to certain other closed-end funds subsequent to Opps IX and may do so in the future. We made these changes not
because they were necessary to raise the capital we wanted, but because we deemed it important to demonstrate
to our clients that we were not financially incentivized to raise more capital than appropriate for the opportunity set
or to deploy capital for the sake of triggering management fees based on a fund’s total committed capital as well as
to avoid a disproportionate impact on the applicable funds’ net returns. Additionally, from time to time, we may in
our sole discretion afford certain investors in our funds or clients of separate accounts more favorable economic
terms than other investors in the same fund or separate account clients within the same or similar investment
strategy, including with respect to management fee and performance-based fees, generally based on the aggregate
size of commitments of such investor or client, as applicable, to one or more funds or accounts managed by us.
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Our practice of putting our clients’ interests first and forsaking short-term advantage by, for example,
reducing assets under management or management fee or carried interest rates may reduce the profits we could
otherwise realize in the short term and adversely affect our business and financial condition and therefore conflict
with the short-term interests of our Class A unitholders. In addition, to protect our current clients’ interests, we may
not accept all of the capital offered to us, which may damage our relationships and prospects with potential
investors in our funds and may reduce the value of our business and therefore conflict with our Class A unitholders’
short-term interests. Our Class A unitholders should thus understand that in instances in which our clients’ interests
diverge from the short-term interests of our Class A unitholders, we intend to act in the interests of our clients.
However, it is our fundamental belief that prioritizing our clients’ interests in such instances will maximize the long-
term value of our business, which, in turn, will benefit our Class A unitholders.
Our business is materially affected by conditions in the global financial markets and economies, and any
disruption or deterioration in these conditions could materially reduce our revenues and cash flow and
adversely affect our overall performance, ability to raise or deploy capital, financial condition and liquidity
position.
Our business is materially affected by conditions in the global financial markets and economic conditions
throughout the world that are outside our control, such as interest rates, availability and cost of credit, inflation rates,
economic uncertainty, changes in laws (including laws relating to taxation), trade barriers, commodity prices,
currency exchange rates and controls and national and international political circumstances (including wars,
terrorist acts and security operations). The detrimental impact to the U.S. and global financial markets following the
unprecedented turmoil in the global capital markets and the financial services industry in late 2008 and early 2009
serves as an example of how global market conditions can cause uncertainty and instability for investment
management businesses. While there has been significant recovery in the capital markets since then, particularly
in the equity markets, concerns over falling oil prices towards the end of 2014, increasing interest rates, particularly
short-term rates, sluggish economic expansion in non-U.S. economies, including continued concerns over growth
prospects in China and emerging markets, growing debt loads for certain countries and uncertainty about the
consequences of the U.S. and other governments withdrawing monetary stimulus measures, all highlight the fact
that economic conditions remain unpredictable. These and other uncertain conditions in the global financial
markets and economy have resulted in, and may continue to result in, adverse consequences for many of our
funds, including restricting such funds’ investment activities and impeding such funds’ ability to effectively achieve
their investment objectives.
The economic environment in the past has resulted in and may in the future result in decreases in the market
value of certain publicly traded securities held by some of our funds. Illiquidity in certain portions of the financial
markets could adversely affect the pace of realization of our funds’ investments or otherwise restrict the ability of
our funds to realize value from their investments, thereby adversely affecting our ability to generate incentive or
investment income. There can be no assurance that conditions in the global financial markets will not worsen and/
or adversely affect our investments and overall performance.
Our profitability may also be adversely affected by our fixed costs, such as the base salaries and expenses
of our staff, lease payments on our office space, maintenance on our information technology and infrastructure, and
the possibility that we would be unable to scale back other costs and otherwise redeploy our resources within a time
frame sufficient to match changes in market and economic conditions to take advantage of the opportunities that
may be presented by these changes. As a result, we may not be able to adjust our resources to take advantage of
new investment opportunities that may be created as a result of specific dislocations in the market.
Our business depends in large part on our ability to raise capital from investors. If we were unable to raise
such capital, we would be unable to collect management fees or deploy such capital into investments,
which would materially reduce our revenues and cash flow and adversely affect our financial condition.
Our ability to raise capital from investors depends on a number of factors, including many that are outside
our control, such as the general economic environment or the number of other investment funds being raised at the
same time by our competitors that are focused on the same investment strategies as our funds. Additionally,
investors may downsize (or even eliminate) their investment allocations to alternative investments, including private
funds and hedge funds, to rebalance a disproportionate weighting of their overall investment portfolio among asset
classes. Poor performance of our funds could also make it more difficult for us to raise new capital. Investors in
our closed-end funds may decline to invest in future closed-end funds we raise, and investors in our open-end and
evergreen funds may withdraw their investments in the funds (on specified withdrawal dates) as a result of poor
performance. Our investors and potential investors continually assess our funds’ performance independently and
relative to market benchmarks and our competitors, and our ability to raise capital for existing and future funds and
avoid excessive redemptions depends on our funds’ performance. To the extent economic and market conditions
24
deteriorate, we may be unable to raise sufficient amounts of capital to support the investment activities of future
funds.
In addition, certain institutional investors, including sovereign wealth funds and public pension funds, have
demonstrated an increased preference for alternatives to the traditional investment fund structure, such as
managed accounts, including fund-of-ones, smaller funds and co-investment vehicles. There can be no assurance
that such alternatives will be as profitable for us as the traditional investment fund structure, or as to the impact
such a trend could have on the cost of our operations or profitability. Moreover, certain institutional investors are
demonstrating a preference to
alternative assets without the assistance of private equity advisers like us. Such institutional investors may become
our competitors and could cease to be our clients. As some existing investors cease or significantly curtail making
commitments to alternative investment funds, we may need to identify and attract new investors in order to maintain
or increase the size of our investment funds. There are no assurances that we can find or secure commitments
from those new investors. If economic conditions were to deteriorate or if we are unable to find new investors, we
might raise less than our desired amount for a given fund.
their own investment professionals and to make direct investments in
If we were unable to successfully raise capital, it could materially reduce our revenue and cash flow and
adversely affect our financial condition.
We depend on a number of key personnel, and our ability to retain them and attract additional qualified
personnel is critical to our success and our growth prospects.
We depend on the diligence, skill, judgment, reputation and business contacts of our key personnel. Our
future success will depend upon our ability to retain our key personnel and our ability to recruit additional qualified
personnel. Our key personnel possess substantial experience and expertise in investing, are responsible for
locating and executing our funds’ investments, have significant relationships with the institutions that are the source
of many of our funds’ investment opportunities and in certain cases have strong relationships with our investors.
Therefore, if our key personnel join competitors or form competing companies, it could result in the loss of
significant investment opportunities and certain existing investors. Legislation has been proposed in the U.S.
Congress to treat portions of carried interest as ordinary income rather than as capital gain for U.S. federal income
tax purposes. Because we compensate our senior investment professionals in large part by giving them an equity
interest in our business or a right to receive carried interest, such legislation could adversely affect our ability to
recruit, retain and motivate our current and future senior investment professionals. Please see “—Risks Related to
United States Taxation—Our structure involves complex provisions of U.S. federal income tax law for which no clear
precedent or authority may be available and is subject to potential legislative, judicial or administrative change and
differing interpretations, possibly on a retroactive basis.”
We have experienced departures of key investment professionals in the past and will do so in the future.
Any of those departures could have a negative impact on our ability to achieve our investment objectives. Indeed,
the departure for any reason of any of our most senior professionals, such as Howard Marks or Bruce Karsh, or a
significant number of our other investment professionals, could have a material adverse effect on our ability to
achieve our investment objectives, cause certain of our investors to withdraw capital they invest with us or elect not
to commit additional capital to our funds or otherwise have a material adverse effect on our business and our
prospects. The departure of some or all of those individuals could also trigger certain “key man” provisions in the
documentation governing certain of our closed-end funds, which would permit the limited partners of those funds to
suspend or terminate the funds’ investment periods or, in the case of EMAR, permit investors to withdraw their
capital prior to expiration of the applicable lock-up date. Our key man provisions vary by both strategy and fund
and, with respect to each strategy and fund, are typically tied to multiple individuals, meaning that it would require
the departure of more than one individual to trigger the key man provisions. In the event that our key man
provisions were triggered for all of our funds with such provisions, the investment period for these funds would be
terminated, and as of December 31, 2014, such terminations would result in a $9.4 billion decrease in AUM. In
addition, if the key man provision for EMAR were triggered, investors in EMAR would be allowed to withdraw all of
their capital, which represents 0.2% of our AUM as of December 31, 2014. As a part of a restructuring in May 2007,
our senior employees exchanged their direct or indirect ownership interest in Oaktree Capital Management, LLC,
our predecessor company (“OCM”), for a new interest in OCGH that vested over time. Because 100% of these
interests have vested, affected employees may be less motivated to remain at Oaktree.
We anticipate that it will be necessary for us to add investment professionals both to grow our team and to
replace those who depart. However, the market for qualified investment professionals is extremely competitive,
both in the United States and internationally, and we may not succeed in recruiting additional personnel or we may
fail to effectively replace current personnel who depart with qualified or effective successors. Our efforts to retain
and attract investment professionals may also result in significant additional expenses, which could adversely affect
25
our profitability or result in an increase in the portion of our incentive income that we grant to our investment
professionals.
Our revenues are highly volatile due to the nature of our business and we do not expect steady earnings
growth, each of which may cause the value of interests in our business to be variable.
Our segment revenues and cash flow are highly volatile, primarily due to the fact that the incentive income
we receive from our funds and the investment income we recognize on our corporate investments in funds and
companies, which individually and collectively account for a substantial portion of our income, are highly volatile. In
the case of our closed-end funds, our incentive income is recognized only when it is fixed or determinable under the
Method 1 approach offered by generally accepted accounting principles in the United States (“GAAP”), which
typically occurs in a sporadic and unpredictable fashion. For purposes of adjusted net income, incentive income is
recognized 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 incentive income is recognized under Method 1. In addition, we are
entitled to incentive income (other than tax distributions, which are treated as incentive income) only after all
contributed capital and profits representing, typically, an 8% annual preferred return on that capital have been
distributed to our funds’ limited partners. In the case of certain evergreen funds, we are generally entitled to receive
an annual incentive payment based upon the increase in NAV attributable to or the net profit allocated to a limited
partner during a particular calendar year, subject to a high-water mark or a preferred return hurdle. Given that the
investments made by our funds may be illiquid or volatile and that our investment results and the pace of realization
of our investments will vary from fund to fund and period to period, our incentive income likely will vary materially
from year to year.
We may also experience fluctuations in our operating results, from quarter to quarter or year to year, due to a
host of other factors, including changes in the values of our investments, changes in the operating results of
DoubleLine or its funds or other companies in which we have corporate investments, changes in the amount of
distributions from our funds or companies in which we have corporate investments, the pace of raising new funds
and liquidation of our old funds, dividends or interest paid in respect of investments, changes in our operating or
other expenses, the degree to which we encounter competition and general economic and market conditions. This
variability may cause our results for a particular period not to be indicative of our performance in a future period.
As noted above, the timing and amount of incentive income generated by our closed-end funds are uncertain
and will contribute to the volatility of our net income. Incentive income depends on our closed-end funds’
investment performance and opportunities for realizing gains, which may be limited. In addition, it takes a
substantial period of time to identify attractive investment opportunities, to raise all the funds needed to make an
investment and then to realize the cash value of an investment through resale, recapitalization or other exit event.
Even if an investment proves to be profitable, it may be several years or longer before those profits can be realized
in cash or other manner of payment. We cannot predict when, or if, any realization of investments will occur. If we
have a realization event in a particular quarter, it may have a significant impact on our revenues and profits for that
particular quarter, which may not be replicated in subsequent quarters.
A small number of our open-end funds and certain evergreen funds also generate performance-based
revenues based on their investment returns as compared with a specified market index or other benchmark. As a
result, we may not earn a performance fee in a particular period even if the fund had a positive return. The
incentive income and performance fee revenues we earn are therefore dependent on, among other factors, the
NAV of the fund and, in certain cases, its performance relative to its market, which may lead to volatility in our
quarterly or annual financial results.
The historical financial information included in this annual report is not necessarily indicative of our future
performance.
The historical financial information included in this annual report is not necessarily indicative of our future
financial results. This financial information does not purport to represent or predict the results of any future periods.
The results of future periods are likely to be materially different as a result of:
•
future growth that does not follow our historical trends;
• changes in the economic environment, competitive landscape and financial markets;
• new and additional costs and expenses attributable to our operations, including our operations as a public
company, as a mutual fund adviser and a company within an extensively regulated industry;
•
increases in non-cash compensation charges primarily related to the vesting of OCGH units issued after
our initial public offering in April 2012; and
26
• a provision for corporate income taxes on the income of two of our Intermediate Holding Companies that
are taxed as corporations for U.S. federal income tax purposes.
Our funds depend on investment cycles, and any change in such cycles could have an adverse effect on
our investment prospects.
Cyclicality is important to our business. Weak economic environments have tended to afford us our best
investment opportunities and our best relative investment performance. For example, the relative performance of
our High Yield Bond strategy has typically been strongest in difficult times when default rates are highest, and our
Distressed Debt and Control Investing funds have historically found their best investment opportunities during
downturns in the economy when credit is not as readily available. Conversely, we tend to realize value from our
investments in times of economic expansion, when opportunities to sell investments may be greater. Thus, we
depend on the cyclicality of the market in order to sustain our business and generate superior risk-adjusted returns
over extended periods. Any prolonged economic expansion or recession could have an adverse impact on certain
of our funds and materially affect our ability to deliver superior investment returns or generate incentive or other
income.
Our failure to deal appropriately with conflicts of interest could damage our reputation and adversely affect
our business.
As we have expanded the number and scope of our strategies and distribution channels, including offering
our investment products through mutual funds registered under the Investment Company Act, we increasingly
confront potential conflicts of interest that we need to manage and resolve. These conflicts take many forms. For
example, the investment focus of a number of our funds overlap, meaning that we occasionally confront issues as
to how a particular investment opportunity should be allocated. Though we believe we have appropriate means to
resolve these conflicts, our judgment on any particular allocation could be challenged, particularly in instances (as is
sometimes the case) where the affected funds have different fee structures or our employees have invested more
heavily in one fund than another. Additionally, different funds that we manage may invest in different parts of the
capital structure of the same company, and thus the interests of two or more funds may be adverse to each other
when the company experiences financial distress, undergoes a restructuring or files for bankruptcy. While we have
developed general guidelines regarding when two or more funds may invest in different parts of the same
company’s capital structure and created a process that we employ to handle such conflicts if they arise, our
judgment to permit the investments to occur in the first instance or our judgment on how to minimize the conflict
could be challenged. Another example involves our receipt of material non-public information regarding a potential
investment. Normally, our receipt of such information restricts all of our investment strategies from trading in the
securities of the applicable issuers. Occasionally, one investment group will want to obtain such information, but
another will want to remain free to trade the securities of that issuer and will not want to become restricted. In such
circumstances, we sometimes have to choose which group’s preference will prevail. In these and other
circumstances, we seek to resolve the conflict in good faith and with a view to the best interests of all of our clients,
but there can be no assurance that we will make the correct judgment in hindsight or that our judgment will not be
questioned or challenged.
Our compliance and legal groups seek to monitor and manage our actual and potential conflicts of interest.
We maintain internal controls and various policies and procedures, including oversight, codes of conduct,
compliance systems and communication tools, to identify, prevent, mitigate or resolve any conflicts of interest that
may arise. Our compliance policies and procedures address a variety of regulatory and compliance risks, such as
the handling of material non-public information, personal securities trading and the allocation of investment
opportunities and expenses. Our compliance and legal groups also monitor information barriers that we may
establish on a limited basis from time to time between our different investment groups. Notwithstanding the
foregoing, it is possible that perceived or actual conflicts could give rise to investor dissatisfaction or litigation or
regulatory enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and any
mistake could potentially create liability or damage our reputation. Regulatory scrutiny of, or litigation in connection
with, conflicts of interest could have a material adverse effect on our reputation, which in turn could materially
adversely affect our business in a number of ways, such as causing investors to redeem their capital (to the degree
they have that right), making it harder for us to raise new funds and discouraging others from doing business with
us.
The investment management business is intensely competitive.
The investment management business is intensely competitive, with competition based on a variety of
factors, including investment performance, the quality of service provided to clients, brand recognition and business
reputation. Our investment management business competes for clients, personnel and investment opportunities
27
with a large number of private equity funds, specialized investment funds, hedge funds, corporate buyers, traditional
investment managers, commercial banks, investment banks, other investment managers and other financial
institutions. Numerous factors serve to increase our competitive risks:
• a number of our competitors have more personnel and greater financial, technical, marketing and other
resources than we do;
• many of our competitors have raised, or are expected to raise, significant amounts of capital, and many of
them have investment objectives similar to ours, which may create additional competition for investment
opportunities and reduce the size and duration of pricing inefficiencies that we seek to exploit;
• some of our competitors may have a lower cost of capital and access to funding sources that are not
available to us, which may create competitive disadvantages for us with respect to our funds, particularly
our funds that directly use leverage or rely on debt financing of their portfolio companies to generate
superior investment returns;
• some of our competitors have higher risk tolerances, different risk assessments or lower return thresholds,
which could allow them to consider a wider variety of investments and to bid more aggressively than us for
investments;
• our competitors may be able to achieve synergistic cost savings in respect of an investment that we
cannot, which may provide them with a competitive advantage in bidding for an investment;
•
there are relatively few barriers to entry impeding new investment funds, and the successful efforts of new
entrants into our various lines of business, including major commercial and investment banks and other
financial institutions, have resulted in increased competition;
• some investors may prefer to invest with an investment manager whose equity securities are not traded
on a national securities exchange; and
• other industry participants will from time to time seek to recruit our investment professionals and other
employees away from us.
We may find it harder to raise funds, and we may lose investment opportunities in the future, if we do not
match the fees, structures and terms offered by competitors to their fund clients. Alternatively, we may experience
decreased profitability, rates of return and increased risk of loss if we match the prices, structures and terms offered
by competitors. This competitive pressure could adversely affect our ability to make successful investments and
limit our ability to raise future funds, either of which would adversely impact our business, revenues, results of
operations and cash flow.
The increasing number of investment managers dedicated to our markets and the increasing amount of
capital available to them have made it more difficult to identify markets in which to invest, and this could
lead to a decline in our returns on investments.
The asset management market has grown at a rapid pace during the last several years, leading to
substantial growth in assets under management in our industry. Our success in the past has largely been a result
of our ability to identify and exploit non-mainstream markets with the potential for attractive returns. Although
investment managers worldwide have expanded the range of their investments in terms of transaction sizes,
industries and geographical regions, there is a finite number of available investment opportunities at any given time.
Particularly in strong economic times, the most attractive opportunities generally are pursued by an increasing
number of managers with increasing amounts to invest and, as a result, it is sometimes difficult for us to identify
markets that are capable of generating attractive investment returns. If we are unable to identify a sufficient number
of attractive investment opportunities in the future, our returns will decline. This development would have an
adverse impact on our AUM and on our results of operations.
Poor performance of our funds would cause a decline in our revenues, net income and cash flow and could
adversely affect our ability to raise capital for future funds.
When any of our funds perform poorly, either by incurring losses or underperforming benchmarks or our
competitors, our investment record suffers. Poor investment performance by our funds also adversely affects our
incentive income and, all else being equal, may lead to a decline in our AUM, resulting in a reduction of our
management fees for certain funds. Moreover, in such circumstances, we may experience losses on our
investments of our own capital. If a fund performs poorly, we will receive little or no incentive income with regard to
the fund and little income or possibly losses from our own principal investment in the fund. Poor performance of our
funds could also make it more difficult for us to raise new capital. Investors in our closed-end funds may decline to
28
invest in future closed-end funds we raise, and investors in our open-end and evergreen funds may withdraw their
investments in the funds (on specified withdrawal dates) as a result of poor performance. Our investors and
potential investors continually assess our funds’ performance independently and relative to market benchmarks and
our competitors, and our ability to raise capital for existing and future funds and avoid excessive redemption levels
depends on our funds’ performance.
We may not be able to maintain our current fee structure as a result of industry pressure from clients to
reduce fees, which could have an adverse effect on our profit margins and results of operations.
We may not be able to maintain our current fee structure as a result of industry pressure from clients to
reduce fees. Although our investment management fees vary among and within asset classes, historically we have
competed primarily on the basis of our performance and not on the level of our investment management fees
relative to those of our competitors. In recent years, however, there has been a general trend toward lower fees in
the investment management industry. For example, we reduced our maximum annual management fee for Opps
VIII from 1.75% to 1.60% and have continued to maintain that same fee rate to date for successor funds in our
Distressed Debt strategy. Moreover, for Oaktree Real Estate Opportunities Fund VI, L.P. (“ROF VI”), we reduced
our annual management fees for certain investors based on the amount of capital commitments they commit to the
fund and have continued to maintain this practice for its successor fund, ROF VII. Additionally, we have afforded,
and reserve the right in our sole discretion to continue to afford, certain clients more favorable economic terms,
including with respect to management fee rates and carried interest rates, in cases where such clients have
committed a certain amount of capital to our funds or strategies that in the aggregate exceed certain threshold
amounts, if any. In order to maintain our fee structure in a competitive environment, we must be able to continue to
provide clients with investment returns and service that incentivize our investors to pay our current fee rates. We
cannot assure you that we will succeed in providing investment returns and service that will allow us to maintain our
current fee structure. Fee reductions on existing or future new business could have an adverse effect on our profit
margins and results of operations. For more information about our fees please see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
We have experienced significant growth in our operations outside the United States, which may place
significant demands on our administrative, operational and financial resources.
In recent years, the scope and relative share of our non-U.S. operations have grown significantly. We or our
fund affiliates now have offices in 13 cities outside the United States, housing over one-fifth of our personnel. This
rapid growth has placed and may continue to place significant demands on our business infrastructure. Pursuing
investment opportunities outside the United States presents challenges not faced by U.S. investments, such as
different legal and tax regimes and currency fluctuations, which require additional resources to address. In addition,
in conducting business in these jurisdictions, we are often faced with the challenge of ensuring that our activities are
consistent with U.S. or other laws with extraterritorial application, such as the USA PATRIOT Act and the U.S.
Foreign Corrupt Practices Act (“FCPA”). Moreover, actively pursuing international investment opportunities may
require that we increase the size or number of our international offices. Pursuing non-U.S. clients means that we
must comply with international laws governing the sale of interests in our funds, different investor reporting and
information processes and other requirements. As a result of these and other challenges, we are required to
continuously develop our systems and infrastructure in response to the increasing complexity and sophistication of
the investment management market and legal, accounting and regulatory situations. Moreover, this growth has
required, and will continue to require, us to incur significant additional expenses and to commit additional senior
management and operational resources. There can be no assurance that we will be able to manage our expanding
international operations effectively or that we will be able to continue to grow this part of our business, and any
failure to do so could adversely affect our ability to generate revenues and control our expenses.
We may enter into new lines of business, make strategic investments or acquisitions or enter into joint
ventures, each of which may result in additional risks and uncertainties for our business.
Our operating agreement permits us to enter into new lines of business, make future strategic investments or
acquisitions and enter into joint ventures. As we have in the past, and subject to market conditions, we may grow
our business by increasing AUM in existing investment strategies, pursue new investment strategies, which may be
similar or complementary to our existing strategies or be wholly new initiatives, or enter into strategic relationships,
such as our current relationship with DoubleLine, or joint ventures. In addition, opportunities may arise to acquire
other alternative or traditional investment managers.
To the extent we make strategic investments or acquisitions, enter into strategic relationships or joint
ventures or enter into new lines of business, we will face numerous risks and uncertainties, including risks
associated with the required investment of capital and other resources and with combining or integrating operational
29
and management systems and controls and managing potential conflicts. Entry into certain lines of business may
subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and
may lead to increased litigation and regulatory risk. If a new business generates insufficient revenues, or produces
investment losses, or if we are unable to efficiently manage our expanded operations, our results of operations will
be adversely affected, and our reputation and business may be harmed. In the case of joint ventures, we are
subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or
reputational damage relating to, systems, controls and personnel that are not under our control.
We may not be successful in expanding into new investment strategies, markets and lines of business.
We actively consider the opportunistic expansion of our business, both geographically and into new
investment strategies. For example, we have focused on expanding into products for real estate, senior loans,
listed equities, corporate debt, collateralized loan obligations, infrastructure investments, energy credits, emerging
market credits and direct lending. Additionally, we have focused on broadening our distribution channels, including
strategic partnerships, subadvisory and retail and high net worth offerings. For example, in December 2014 we
launched our first directly advised mutual fund registered under the Investment Company Act. These and other
expansion efforts may result in adding personnel and growing investment teams. We may not be successful in any
such attempted expansion. Attempts to expand our business involve a number of special risks, including some or
all of the following:
•
•
the diversion of management’s attention from our existing business;
the disruption of our existing business;
• entry into markets or lines of business in which we may have limited or no experience;
•
increasing costs and demands on our operational systems;
• potential increase in investor concentration; and
•
increasing the risks associated with U.S. or foreign regulatory requirements or conducting operations in
foreign jurisdictions.
Because we continuously evaluate potential new investment strategies, geographic markets and lines of
business, we cannot identify for you all the risks we may face and the potential adverse consequences on us and
your investment that may result from any attempted expansion.
We often pursue investment opportunities that involve business, regulatory, legal or other complexities.
We often pursue unusually complex investment opportunities involving substantial business, regulatory or
legal complexity that would deter other investment managers. Our tolerance for complexity presents risks, as such
transactions can be more difficult, expensive and time-consuming to finance and execute; it can be more difficult to
manage or realize value from the assets acquired in such transactions; and such transactions sometimes entail a
higher level of regulatory scrutiny or a greater risk of contingent liabilities. Any of these risks could harm the
performance of our funds.
Extensive regulation in the United States and abroad affects our activities and creates the potential for
significant liabilities and penalties that could adversely affect our business and results of operations.
Potential regulatory action poses a significant risk to our reputation and our business. Our business is
subject to extensive regulation in the United States and in the other countries in which our investment activities
occur. The SEC oversees the activities of our subsidiary Oaktree Capital Management, L.P. as a registered
investment adviser under the Advisers Act, and the activities of certain mutual funds registered under the
Investment Company Act that are advised by us. Additionally, the CFTC and the NFA oversee the activities of
Oaktree Capital Management, L.P. as a registered commodity pool operator (“CPO”) and commodity trading adviser
(“CTA”) under the Commodity Exchange Act. FINRA oversees the activities of our subsidiary OCM Investments,
LLC as a registered broker-dealer. In addition, we regularly rely on exemptions from various requirements of the
Securities Act, the Exchange Act, the Investment Company Act, the Commodity Exchange Act and the U.S.
Employee Retirement Income Security Act of 1974 (“ERISA”). These exemptions are sometimes highly complex
and may in certain circumstances depend on compliance by third parties whom we do not control. If for any reason
these exemptions were to be revoked or challenged or otherwise become unavailable to us, we could be subject to
regulatory action or third-party claims, and our business could be materially and adversely affected.
We may become subject to additional regulatory and compliance burdens as we expand our product
offerings and investment platform. In December 2014, we launched our first directly advised mutual funds, which
are subject to the rules and regulations applicable to investment companies under the Investment Company Act.
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We are required to invest our mutual funds’ assets in accordance with limitations under the Investment Company
Act and applicable provisions of the Code. In addition, we are required to file periodic and annual reports with the
SEC and may also be required to comply with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”). Furthermore, advisers to mutual funds have a fiduciary duty under the Investment
Company Act not to charge excessive compensation, and the Investment Company Act grants shareholders of
mutual funds a direct private right of action against investment advisers to seek redress for alleged violations of this
fiduciary duty. These requirements could increase our compliance costs and create the potential for additional
liabilities and penalties if we fail to comply with the applicable rules and regulations.
Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing with many aspects of
financial services, including the authority to grant, and in specific circumstances to cancel, permissions to carry on
particular activities. A failure to comply with the obligations imposed by the Advisers Act, including recordkeeping,
advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities, could result
in investigations, sanctions and reputational damage. Similarly, a failure to comply with the obligations imposed by
the Commodity Exchange Act, including recordkeeping, reporting requirements, disclosure obligations and
prohibitions on fraudulent activities, could also result in investigations, sanctions and reputational damage. We are
involved regularly in trading activities that implicate a broad number of U.S. securities law regimes, including laws
governing trading on inside information, market manipulation and a broad number of technical trading requirements
that implicate fundamental market regulation policies. Violation of these laws could result in severe restrictions on
our activities and damage to our reputation.
Our failure to comply with applicable laws or regulations could result in fines, censure, suspensions of
personnel or other sanctions, including revocation of the registration of our relevant subsidiary as an investment
adviser, commodity pool operator, commodity trading adviser or registered broker-dealer. The regulations to which
our business is subject are designed primarily to protect investors in our funds and to ensure the integrity of the
financial markets. They are not designed to protect our Class A unitholders. Even if a sanction imposed against us,
one of our subsidiaries or our personnel by a regulator is for a small monetary amount, the adverse publicity related
to the sanction could harm our reputation, which in turn could materially adversely affect our business in a number
of ways, such as causing investors to redeem their capital (to the degree they have that right), making it harder for
us to raise new funds and discouraging others from doing business with us.
Some of our funds invest in businesses that operate in highly regulated industries, including in businesses
that are regulated by the U.S. Federal Communications Commission, the U.S. Federal Energy Regulatory
Commission, U.S. federal and state banking authorities and U.S. state gaming authorities. The regulatory regimes
to which such businesses are subject may, among other things, condition our funds’ ability to invest in those
businesses upon the satisfaction of applicable ownership restrictions or qualification requirements or, absent any
applicable exemption, require us or our subsidiaries to comply with registration, reporting or other requirements.
Moreover, our failure to obtain or maintain any regulatory approvals necessary for our funds to invest in such
industries may disqualify our funds from participating in certain investments or require our funds to divest
themselves of certain assets.
The Iran Threat Reduction and Syrian Human Rights Act of 2012 (“ITRSHRA”) expanded the scope of U.S.
sanctions against Iran. Notably, ITRSHRA prohibits foreign entities that are majority owned or controlled by U.S.
persons from engaging in transactions with Iran that would be contrary to the sanctions regulations if undertaken by
a U.S. person. In addition, Section 219 of ITRSHRA amended the Exchange Act to require public reporting
companies to disclose in their annual or quarterly reports any dealings or transactions the company or its affiliates
engaged in during the previous reporting period involving Iran or other individuals and entities targeted by certain
OFAC sanctions. In some cases, ITRSHRA requires companies to disclose these types of transactions even if they
were permissible under U.S. law or were conducted outside of the United States by a foreign affiliate. Disclosure of
such activity, even if such activity is not subject to sanctions under applicable law, and any sanctions actually
imposed on us or our affiliates as a result of these activities, could harm our reputation and have a negative impact
on our business.
Regulatory changes in the United States, regulatory compliance failures and the effects of negative
publicity surrounding the financial industry in general could adversely affect our reputation, business and
operations.
As a result of market disruption as well as highly publicized financial scandals in recent years, regulators and
investors have expressed concerns over the integrity of the U.S. financial markets, and the business in which we
operate both in and outside the United States will be subject to new or additional regulations. We may be adversely
affected as a result of new or revised legislation or regulations imposed by the SEC, the CFTC or other U.S.
governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. We also
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may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these
governmental authorities and self-regulatory organizations.
On July 21, 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act, among other
things, imposes significant new regulations on nearly every aspect of the U.S. financial services industry, including
oversight and regulation of systemic market risk (including the power to liquidate certain institutions); authorizing the
Federal Reserve to regulate nonbank institutions that are deemed systemically important; generally prohibiting
insured depository institutions, insured depository institution holding companies and their subsidiaries and affiliates
from conducting proprietary trading and investing in or sponsoring private equity funds and hedge funds; and
imposing new registration, recordkeeping and reporting requirements on private fund investment advisers.
Importantly, while several key aspects of the Dodd-Frank Act have been defined through final rules, many aspects
remain to be implemented by various regulatory bodies. While we already have one subsidiary registered as an
investment adviser subject to SEC examinations and as a CPO and CTA subject to CFTC regulation and another
subsidiary registered as a broker-dealer subject to FINRA examinations, the imposition of any additional legal or
regulatory requirements could make compliance more difficult and expensive, affect the manner in which we
conduct our business and adversely affect our profitability.
The Dodd-Frank Act established a ten-member Financial Stability Oversight Council (the “Council”), an
interagency body chaired by the Secretary of the Treasury, to identify and manage systemic risk in the financial
system and improve interagency cooperation. Under the Dodd-Frank Act, the Council has the authority to review
the activities of certain nonbank financial firms engaged in financial activities that are designated as “systemically
important,” meaning, among other things, that the distress of the financial firm would threaten the stability of the
U.S. economy. To date, the Council has designated four nonbank financial companies for Federal Reserve
supervision. While no asset managers have been designed to date, on December 18, 2014, the Council released a
notice seeking public comment on the potential risks posed by aspects of the asset management industry, including
whether asset management products and activities may pose potential risks to the U.S. financial system in the
areas of liquidity and redemptions, leverage, operational functions and resolution, or in other areas. If we were ever
designated, it would result in increased regulation of our business, including higher standards on capital, leverage,
liquidity, risk management, credit exposure reporting and concentration limits, restrictions on acquisitions and
annual stress tests by the Federal Reserve.
On December 10, 2013, the Federal Reserve and other federal regulatory agencies issued final rules
implementing a section of the Dodd-Frank Act that has become known as the “Volcker Rule.” The Volcker Rule
generally prohibits depository institution holding companies (including foreign banks with U.S. branches and
insurance companies with U.S. depository institution subsidiaries), insured depository institutions and subsidiaries
and affiliates of such entities from investing in or sponsoring private equity funds or hedge funds. When the Volcker
Rule became effective on July 21, 2012, it kicked off a two-year conformance period, which was set to expire on
July 21, 2014. However, in conjunction with the release of the final rules on December 10, 2013, the Federal
Reserve issued an order granting an industry-wide, one-year extension for all banking entities. As a result, banking
entities are required to have wound down, sold, transferred or otherwise conformed their investments and
sponsorship activities to the Volcker Rule by July 21, 2015, absent an extension to the conformance period by the
Federal Reserve or an exemption for certain “permitted activities.” On December 18, 2014, the Federal Reserve
extension, giving banking entities until July 21, 2016, in respect of investments in
granted an additional
and relationships with certain funds that were in place prior to December 31, 2013 (“legacy covered funds and
relationships”). All investments in and relationships with funds covered by the Volcker Rule made after
December 31, 2013 must be divested or restructured by July 21, 2015. The Federal Reserve also announced that,
extension in 2015, which
with respect to legacy covered funds and relationships, it intends to grant a final
would give banking entities until July 21, 2017 to comply with the Volcker Rule. While we do not currently anticipate
that the Volcker Rule will adversely affect our fundraising to any significant extent, to the extent there is uncertainty
regarding the interpretation or implementation of the Volcker Rule and its practical implications, there could be
adverse implications on our ability to raise funds from the types of entities mentioned above as a result of this
prohibition.
Pursuant to the Dodd-Frank Act, the SEC adopted a rule requiring investment advisers registered or required
to register with the SEC under the Advisers Act that advise one or more private funds and have at least $150 million
in private fund AUM to periodically file reports on Form PF. Under the rule, large private fund investment advisers,
or advisers with at least $1.5 billion in AUM attributable to hedge funds and advisers with at least $2.0 billion in AUM
attributable to private equity funds, are subject to more detailed and in certain cases more frequent reporting
requirements. As a result of this rule we file quarterly reports on Form PF, which has resulted in substantial
administrative costs and requires a significant amount of attention and time to be spent by our personnel.
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In addition, the CFTC repealed CFTC Rule 4.13(a)(4), an exemption from registration as a CPO on which we
previously relied in operating our funds. As a result, one of our subsidiaries, Oaktree Capital Management, L.P.,
has registered with the CFTC as a CPO and CTA with respect to the management of our funds. In connection with
such registrations, we also rely on the CFTC Rule 4.7 exemption, which provides a CPO and a CTA relief from
certain of the Commodity Exchange Act’s disclosure, reporting and recordkeeping requirements applicable to CPOs
and CTAs, subject to certain conditions. The operators of funds relying upon the exemption provided by CFTC Rule
4.7, unlike a fully-registered CPO, will not be required to file any offering memorandum with the CFTC, and the
CFTC will not pass upon the merits of participating in a pool or upon the adequacy of accuracy of an offering
memorandum. Nonetheless, CPOs and CTAs that qualify for relief under Rule 4.7 remain subject to certain
disclosure, reporting and recordkeeping requirements that could adversely affect our ability to implement our
investment program, conduct our operations and/or achieve our objectives and subject us to certain additional
costs, expenses and administrative burdens.
For some of our other funds that trade in commodity interests, we rely on the de minimis exemption provided
by CFTC Rule 4.13(a)(3). For those funds that rely upon the exemption provided by CFTC Rule 4.13(a)(3), unlike
pools operated on a registered basis as a CPO by the CFTC, the operators of such pools are not required to
provide prospective investors with a CFTC compliant disclosure document, nor are the operators required to
provide participants with periodic account statements or certified annual reports that satisfy the requirements of
CFTC rules applicable to registered CPOs.
Certain mutual funds advised by us also rely on the exemption provided by CFTC Rule 4.5, which provides a
CPO and a CTA relief from the obligation to provide prospective investors with a CFTC compliant disclosure
document, periodic account statements or certified annual reports that satisfy the requirements of CFTC rules
applicable to registered CPOs.
In the event we determine to cease or to limit investing in swaps or other assets rather than subjecting
ourselves to all of the regulations of the CFTC, our ability to implement our investment objectives for our funds and
to hedge risks associated with our funds’ investments and operations may be materially impaired. Furthermore, the
CFTC has substantial enforcement power with respect to violations of the laws over which it has jurisdiction,
including their anti-fraud and anti-manipulation provisions. Among other things, the CFTC may suspend or revoke
the registration of a person who fails to comply, prohibit such a person from trading or doing business with
registered entities, impose civil money penalties, require restitution and seek fines or imprisonment for criminal
violations. Additionally, a private right of action exists against those who violate the laws over which the CFTC has
jurisdiction or who willfully aid, abet, counsel, induce or procure a violation of those laws. In the event our
registration with the CFTC as a CPO or CTA is rescinded or restricted and we are unable to rely on an exemption
from registration or we otherwise fail to comply with the regulatory requirements of these rules, we may be unable
to use certain types of hedging instruments or may be subject to significant fines, penalties and other civil or
governmental actions or proceedings, any of which could have a materially adverse effect on our business, financial
condition and results of operations.
It is difficult to determine the full extent of the impact on us of the Dodd-Frank Act or any other new laws,
regulations or initiatives that may be proposed or whether any of the proposals will become law. Any changes in the
regulatory framework applicable to our business, including the changes described above, may impose additional
costs on us, require the attention of our senior management or result in limitations on the manner in which we
conduct our business. Moreover, as calls for additional regulation have increased, there may be a related increase
in regulatory investigations of the trading and other investment activities of alternative asset management funds,
including our funds. In addition, we may be adversely affected by changes in the interpretation or enforcement of
existing laws and rules by these governmental authorities and self-regulatory organizations. Compliance with any
new laws or regulations could make compliance more difficult and expensive, affect the manner in which we
conduct our business and adversely affect our profitability.
Regulatory changes in jurisdictions outside the United States could adversely affect our business.
Certain of our subsidiaries operate outside the United States. In the United Kingdom, Oaktree Capital
Management (UK) LLP is subject to regulation by the Financial Conduct Authority. In Hong Kong, Oaktree Capital
(Hong Kong) Limited is subject to regulation by the Hong Kong Securities and Futures Commission. In Singapore,
Oaktree Capital Management Pte. Ltd. is subject to regulation by the Monetary Authority of Singapore. In Japan,
Oaktree Japan, GK is subject to regulation by the Kanto Local Finance Bureau. Our other European and Asian
operations and our investment activities worldwide are subject to a variety of regulatory regimes that vary by
country. In addition, we regularly rely on exemptions from various requirements of the regulations of certain foreign
countries in conducting our asset management activities.
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Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing with many aspects of
financial services, including the authority to grant, and in specific circumstances to cancel, permissions to carry on
particular activities. We are involved regularly in trading activities that implicate a broad number of foreign (as well
as U.S.) securities law regimes, including laws governing trading on inside information and market manipulation and
a broad number of technical trading requirements that implicate fundamental market regulation policies.
Additionally, we must comply with foreign laws governing the sale of interests in our funds. Violation of these laws
could result in severe penalties, restrictions or prohibitions on our activities and damage to our reputation, which in
turn could materially adversely affect our business in a number of ways, such as causing investors to redeem their
capital (to the degree they have that right), making it harder for us to raise new funds and discouraging others from
doing business with us.
Alternative Investment Fund Managers Directive
The European Union Alternative Investment Fund Managers Directive (the “Directive”) took effect on July 22,
2013. The Directive applies to (a) alternative investment fund managers (“AIFM”) established in the European
Union (the “EU”) that manage EU or non-EU alternative investment funds (“AIF”), (b) non-EU AIFMs that manage
EU AIFs and (c) non-EU AIFMs that market their AIFs to professional investors within the EU. Individual EU
member states must now adopt rules and regulations implementing the Directive into domestic law.
The Directive imposes new operating requirements on EU AIFMs managing AIFs. Following a one-year
transitional period, EU AIFMs must comply with the requirements of the Directive and be appropriately authorized or
have submitted an application for authorization. EU AIFMs and non-EU AIFMs seeking to market an AIF within the
EU will need to comply with the Directive’s disclosure and transparency requirements and (in the case of non-EU
AIFMs) jurisdiction specific private placement regimes (which have changed as a result of the Directive).
The full scope of the Directive may also, from October 2015 at the earliest, be extended to non-EU AIFMs
that wish to market an AIF within the EU pursuant to a pan-European marketing passport instead of under national
private placement regimes.
The operating requirements imposed by the Directive include, among other things, rules relating to the
remuneration of certain personnel, minimum regulatory capital requirements, restrictions on use of leverage,
restrictions on early distributions relating to portfolio companies (so-called “asset stripping” rules), disclosure and
reporting requirements to both investors and home state regulators, the independent valuation of an AIF’s assets
and the appointment of an independent depository to hold assets. As a result, the Directive could have an adverse
effect on our business by, among other things, increasing the regulatory burden and costs of doing business in or
relating to EU member states, imposing extensive disclosure obligations on, and asset stripping rules with respect
to, companies, if any, in which any of our fund(s) invest that are located in EU member states, significantly
restricting marketing activities within the EU, potentially requiring our fund(s) to change their compensation
structures for key personnel, thereby affecting our ability to recruit and retain these personnel, and potentially
disadvantaging our funds as investors in private companies located in EU member states when compared to non-
AIF/AIFM competitors that may not be subject to the requirements of the Directive, thereby potentially restricting our
funds’ ability to make investments in such companies.
The Directive could also limit our operating flexibility and our investment opportunities, as well as expose us
and/or our funds to conflicting regulatory requirements in the United States (and elsewhere) and the EU.
Solvency II
Solvency II is an EU directive that sets out stronger capital adequacy and risk management requirements for
European insurers and reinsurers and, in particular, dictates how much capital such firms must hold against their
liabilities. Solvency II is currently scheduled to be implemented into domestic law by EU member states by January
2016. Solvency II will impose, among other things, substantially greater quantitative and qualitative capital
requirements for insurers and reinsurers as well as other supervisory and disclosure requirements. We are not
subject to Solvency II; however, many of our European insurer or reinsurer fund investors will be subject to this
directive, as applied under applicable domestic law. Solvency II may impact insurers’ and reinsurers’ investment
decisions and their asset allocations. In addition, insurers and reinsurers will be subject to more onerous data
collation and reporting requirements. As a result, Solvency II could in the future have an adverse indirect effect on
our business by, among other things, restricting the ability of European insurers and reinsurers to invest in our funds
and imposing on us extensive disclosure and reporting obligations for those insurers and reinsurers that do invest in
our funds.
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SEC rules barring so-called “bad actors” from relying on Rule 506 of Regulation D in private placements
could materially adversely affect our business, financial condition and results of operations.
In September 2013, the SEC adopted amendments to Rules 501 and 506 of Regulation D under the
Securities Act barring issuers deemed to be “bad actors” from relying on Rule 506 of Regulation D (“Rule 506”) in
connection with private placements (the “disqualification rule”). Specifically, an issuer will be precluded from
conducting offerings that rely on the exemption from registration under the Securities Act provided by Rule 506
(“Rule 506 offerings”) if a “covered person” of the issuer has been the subject of a “disqualifying event” (each as
defined below). “Covered persons” include, among others, the issuer, affiliated issuers, any investment manager or
solicitor of the issuer, any director, executive officer or other officer participating in the offering of the issuer, any
general partner or managing member of the foregoing entities, any promoter of the issuer and any beneficial owner
of 20% or more of the issuer’s outstanding voting equity securities, calculated on the basis of voting power. A
“disqualifying event” includes, among other things, certain (1) criminal convictions and court injunctions and
restraining orders issued in connection with the purchase or sale of a security or false filings with the SEC; (2) final
orders from the CFTC, federal banking agencies and certain other regulators that bar a person from associating
with a regulated entity or engaging in the business of securities, insurance or banking or that are based on certain
fraudulent conduct; (3) SEC disciplinary orders relating to investment advisers, brokers, dealers and their
associated persons; (4) SEC cease-and-desist orders relating to violations of certain anti-fraud provisions and
registration requirements of the federal securities laws; (5) suspensions or expulsions from membership in a self-
regulatory organization (“SRO”) or from association with an SRO member; and (6) U.S. Postal Service false
representation orders.
If any Oaktree employees or funds is subject to a disqualifying event, one or more of our funds could lose
the ability to raise capital in a Rule 506 offering for a significant period of time. Most of our funds rely on Rule 506
to raise capital from investors during their fundraising periods. If one or more of our funds were to lose the ability to
rely on the Rule 506 exemption because an Oaktree covered person has been the subject of a disqualifying event,
our business, financial condition and results of operations could be materially and adversely affected.
Failure to comply with “pay to play” regulations implemented by the SEC and certain states, and changes
to the “pay to play” regulatory regimes, could adversely affect our business.
In recent years, the SEC and several states have initiated investigations alleging that certain private equity
firms and hedge funds or agents acting on their behalf have paid money to current or former government officials or
their associates in exchange for improperly soliciting contracts with state pension funds. The SEC has also initiated
a similar investigation into contracts awarded by sovereign wealth funds. Rule 206(4)-5 under the Advisers Act
addresses “pay to play” practices by investment advisers involving campaign contributions and other payments to
government officials able to exert influence on potential government entity clients. Among other restrictions, the
rule prohibits investment advisers from providing advisory services for compensation to a government entity for two
years, subject to very limited exceptions, after the investment adviser, its senior executives or its personnel involved
in soliciting investments from government entities make contributions to certain candidates and officials in a position
to influence the hiring of an investment adviser by such government entity. Advisers are required to implement
compliance policies designed, among other matters, to track contributions by certain of the adviser’s employees
and engagements of third parties that solicit government entities and to keep certain records in order to enable the
SEC to determine compliance with the rule. Additionally, California law requires placement agents (including in
certain cases employees of investment managers) who solicit funds from California state retirement systems, such
as the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, to
register as lobbyists, thereby becoming subject to increased reporting requirements and prohibited from receiving
contingent compensation for soliciting investments from California state retirement systems. New York has adopted
similar rules. Such investigations may require the attention of senior management and may result in fines if any of
our funds are deemed to have violated any regulations, thereby imposing additional expenses on us. Any failure on
our part to comply with these rules could cause us to lose compensation for our advisory services or expose us to
significant penalties and reputational damage.
The derivatives that we or our funds use to hedge against interest rate and foreign currency exposure are
volatile and may adversely affect our results of operations.
From time to time, we and our funds enter into various hedging instruments such as swaps, options,
forwards and futures as part of managing risks related to interest rates and foreign currency exchange rates. In the
future, we and our funds may enter into additional hedging instruments as part of these or other risk management
strategies. Our hedging activity varies in scope based on the level of interest rates, the type of portfolio investments
held and other changing market conditions. These hedging instruments may fail to protect us or our funds from
interest rate or foreign currency volatility or could adversely affect us or our funds because, among other things:
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• hedging instruments can be expensive, particularly during periods of volatility in interest rates, foreign
currency and the prices of reference instruments;
• available hedging instruments may not correspond directly with the risk for which protection is sought and
the degree of correlation between price movements of the instruments used in a hedging strategy and
price movements in the portfolio positions or liabilities being hedged may vary materially and, as a result,
the gain (or loss) on such instruments may not fully offset the corresponding loss (or gain) in the value of
the underlying assets in our portfolio;
•
the duration of a hedge may be significantly different than the duration of the related liability or asset;
• derivatives generally involve leverage in the sense that the investment exposure created by the
derivatives may be significantly greater than the initial investments in the derivative;
• certain investments may be illiquid, making them unable to be sold at the desired time or price;
•
•
•
the credit quality of the party owing money on the hedge may be downgraded to such an extent that it
impairs or makes economically unattractive our ability to sell or assign our side of the hedging
transaction;
the party owing money in the hedging transaction may default on its obligation to pay;
the cost of using certain hedging instruments may increase during a period of increased volatility, for
instance, with respect to interest rate hedges, during periods of rising and volatile interest rates and, with
respect to foreign currency hedges, during periods of volatile foreign currencies; and
• derivative contracts could require us to fund cash payments in the future under certain circumstances,
including an event of default or other early termination event, or the decision by a counterparty to request
margin in the form of securities or other forms of collateral under the terms of the derivative contract.
Any hedging activity we or our funds engage in may adversely affect our results of operations, which could
adversely affect our cash available for distribution to holders of our units. Therefore, while we or our funds may
enter into such transactions to seek to reduce interest rate and foreign currency risks, unanticipated changes in
interest rates and foreign currency exchange rates may result in poorer overall investment performance than if we
had not engaged in any such hedging transactions.
Hedging instruments often involve counterparty risks and costs.
We and our funds will be subject to credit risk with respect to counterparties to derivative contracts (whether
a clearing corporation in the case of exchange-traded instruments or our hedge counterparty) and other instruments
entered into directly by us or our funds or held by special purpose or structured vehicles in which we or our funds
may invest from time to time. Counterparty risk is the risk that the other party in a derivative transaction will not
fulfill its contractual obligation. Changes in the credit quality of the companies that serve as our or our funds’
counterparties with respect to their derivative transactions will affect the value of those instruments. By entering
into derivatives, we or our funds assume the risk that these counterparties could experience financial hardships that
could call into question their continued ability to perform their obligations. As a result, concentrations of such
derivatives in any one counterparty would subject us or our funds to an additional degree of risk with respect to
defaults by such counterparty.
If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract
with us or our funds due to financial difficulties, we or our funds may experience significant delays in obtaining any
recovery under the derivative contract in a dissolution, assignment for the benefit of creditors, liquidation, winding-
up, bankruptcy or other analogous proceeding. In addition, in the event of the insolvency of a counterparty to a
derivative transaction, the derivative transaction would typically be terminated at its fair market value. If we or our
funds are owed this fair market value in the termination of the derivative transaction and such claims are
uncollateralized or otherwise unsecured, we or our funds will be treated as general creditors of such counterparty,
and will not have any claim with respect to the underlying security. We or our funds may obtain only a limited
recovery or may obtain no recovery in such circumstances.
Some, but not all, derivatives may be cleared, in which case a central clearing counterparty stands between
each buyer and seller and effectively guarantees performance of each derivative contract, to the extent of its
available resources for such purpose. As a result, the counterparty risk is now shifted from bilateral risk between
the parties to the individual credit risk of the central clearing counterparty. Even in such case, there can be no
assurance that a clearing house, or its members, will satisfy the clearing house’s obligations to our funds.
Uncleared derivatives have no such protection; each party bears the risk that its direct counterparty will default.
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Regulatory changes could occur and may adversely affect our or our funds’ ability to pursue hedging
strategies and/or increase the costs of implementing such strategies.
The enforceability of agreements underlying hedging transactions may depend on compliance with
applicable statutory and other regulatory requirements and, depending on the identity of the counterparty,
applicable international requirements. New or amended regulations may be imposed by the CFTC, the SEC, the
Federal Reserve or other financial regulators, other governmental regulatory authorities or self-regulatory
organizations that supervise the financial markets that could adversely affect us and our funds. In particular, these
agencies are empowered to promulgate a variety of new rules pursuant to recently enacted financial reform
legislation in the United States. We and our funds also may be adversely affected by changes in the enforcement
or interpretation of existing statutes and rules by these governmental regulatory authorities or self-regulatory
organizations.
In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin
requirements. For example, the Dodd-Frank Act could have an adverse effect on our funds’ ability to use derivative
instruments. The Dodd-Frank Act is designed to impose stringent regulation on the over-the-counter derivatives
market in an attempt to increase transparency and accountability and provides for, among other things, clearing,
margin, reporting, recordkeeping and registration requirements. Although the CFTC has released final rules relating
to clearing, reporting, risk management, compliance, position limit, anti-fraud, consumer protection, portfolio
reconciliation, documentation, recordkeeping and registration requirements under the Dodd-Frank Act, many of the
provisions are subject to further final rulemaking, and thus the Dodd-Frank Act’s ultimate impact remains unclear.
New regulations could, among other things, restrict our funds’ ability to engage in derivatives transactions (for
example, by making certain types of derivatives transactions no longer available to our funds), increase the costs of
using these instruments (for example, by increasing margin or capital requirements) and/or make them less
effective and, as a result, our funds may be unable to execute their investment strategies. Limits or restrictions
applicable to the counterparties with which our funds engages in derivative transactions could also prevent our
funds from using these instruments, affect the pricing or other factors relating to these instruments or may change
availability of certain investments. It is unclear how the regulatory changes will affect counterparty risk. For
instance, in December 2012, the CFTC issued a final rule requiring certain credit default swaps and interest rate
swaps to be centrally cleared, which is applicable to all swap counterparties not eligible for certain
exemption or exceptions. Such clearing requirement may affect our funds’ abilities to negotiate individualized terms
and/or may increase the costs of entering into such derivative transactions (for example, by increasing margin or
capital requirements).
For entities designated by the CFTC or the SEC as swap dealers, security-based swaps dealers, major swap
participants or major security-based swap participants, the Dodd-Frank Act imposes new regulatory, reporting and
compliance requirements. On May 23, 2012, a joint final rulemaking by the CFTC and the SEC defining these key
terms was published in the Federal Register. Based on those definitions, we do not believe that we would be a
swap dealer, security-based swap dealer, major swap participant or security-based major swap participant at this
time. If we are later designated as a swap dealer, security-based swap dealer, major swap participant or major
security-based swap participant, our business will be subject to increased regulation, including registration
requirements, additional recordkeeping and reporting obligations, external and internal business conduct standards,
position limits monitoring and capital and margin thresholds.
In November 2014, the International Swaps and Derivatives Association published the ISDA 2014 Resolution
Stay Protocol (the “Resolution Stay Protocol”), which binds adherents to recognize the cross-border application of
special resolution regimes applicable to certain financial counterparties to derivatives contracts. The Resolution
Stay Protocol also contractually limits certain rights of adherents under the United States Bankruptcy Code. We
have not adhered to the Resolution Stay Protocol, and are not bound by its terms. However, regulators have
indicated that adherence to the Resolution Stay Protocol may be required at some future date. If we were required
to adhere to the Resolution Stay Protocol, it could substantially and negatively impact the rights of funds and
accounts we advise in the event of insolvency or default by one of our financial counterparties.
The requirements of being a public company and sustaining growth may strain our resources.
As a public company, we are subject to the reporting requirements of the Exchange Act and requirements of
the Sarbanes-Oxley Act. These requirements may strain our systems and resources. The Exchange Act requires
that we file annual, quarterly and current reports with respect to our business and financial condition. The
Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls
over financial reporting, which are discussed below. In order to maintain and improve the effectiveness of our
disclosure controls and procedures, significant resources and management oversight are required. We have
implemented and continue to implement additional procedures and processes for the purpose of addressing the
37
standards and requirements applicable to public companies. In addition, sustaining our growth also requires us to
commit additional management, operational and financial resources to identify new professionals to join the firm
and to maintain appropriate operational and financial systems to adequately support expansion. These activities
may divert management’s attention from other business concerns, which could have a material adverse effect on
our business, financial condition, results of operations and cash flows. We have incurred and will continue to incur
costs that we had not previously incurred as a private company before our initial public offering in April 2012 as part
of our compliance with the Sarbanes-Oxley Act and rules of the SEC and New York Stock Exchange (“NYSE”),
including hiring additional accounting, legal and administrative personnel and various other costs related to being a
public company.
We are subject to substantial litigation risks and may face significant liabilities and damage to our
professional reputation as a result.
In recent years, the volume of claims and amount of damages claimed in litigation and regulatory
proceedings against investment managers have been increasing. We make investment decisions on behalf of our
clients that could result in substantial losses. This may subject us to the risk of legal liabilities or actions alleging
negligent misconduct, breach of fiduciary duty or breach of contract. Further, we may be subject to third-party
litigation arising from allegations that we improperly exercised control or influence over portfolio investments. In
addition, we and our affiliates that are the investment managers and general partners of our funds, our funds
themselves and those of our employees who are our, our subsidiaries’ or the funds’ officers and directors are each
exposed to the risks of litigation specific to the funds’ investment activities and portfolio companies and, in the case
where our funds own controlling interests in public companies, to the risk of shareholder litigation by the public
companies’ other shareholders. Moreover, we are exposed to risks of litigation or investigation by investors or
regulators relating to our having engaged, or our funds having engaged, in transactions that presented conflicts of
interest that were not properly addressed. Substantial legal liability could materially adversely affect our business,
financial condition or results of operations or cause significant reputational harm to us, which could seriously harm
our business. We depend to a large extent on our business relationships and our reputation for integrity and high-
caliber professional services to attract and retain investors. As a result, allegations of improper conduct by private
litigants or regulators, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity
and press speculation about us, our investment activities or the investment industry in general, whether or not valid,
may harm our reputation, which may be more damaging to our business than to other types of businesses.
Employee misconduct, which is difficult to detect and deter, could harm us by impairing our ability to
attract and retain clients and subject us to significant legal liability and reputational harm.
There have been a number of highly publicized cases involving fraud or other misconduct by employees in
the financial services industry, and there is a risk that our employees could engage in misconduct that adversely
affects our business. We are subject to a number of obligations and standards arising from our investment
management business and our authority over the assets we manage. The violation of any of these obligations or
standards by any of our employees could adversely affect our clients and us. Our business often requires that we
deal with confidential matters of great significance to companies in which we may invest or to our advisory clients.
If our employees improperly use or disclose confidential information, we could be subject to regulatory sanctions
and suffer serious harm to our reputation, financial position and current and future business relationships. It is not
always possible to deter employee misconduct, and the precautions we take to prevent this activity may not be
effective in all cases. If our employees engage in misconduct, or if they are accused of misconduct, our business
and our reputation could be adversely affected.
In recent years, the U.S. Department of Justice and the SEC have devoted greater resources to enforcement
of the FCPA. In addition, the United Kingdom has significantly expanded the reach of its anti-bribery laws. While
we have developed and implemented policies and procedures designed to ensure compliance by us and our
personnel with the FCPA, such policies and procedures may not be effective in all instances to prevent violations.
Any determination that we have violated the FCPA or other applicable anti-corruption laws could subject us to,
among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct,
securities litigation and a general loss of investor confidence, any one of which could adversely affect our business,
financial condition or results of operations.
In addition, we may also be adversely affected if there is misconduct by personnel of portfolio companies in
which our funds invest. For example, failures by personnel at our portfolio companies to comply with anti-bribery,
trade sanctions or other legal and regulatory requirements could adversely affect our business and reputation. We
may face increased risk of such misconduct to the extent our investment in non-U.S. markets, particularly emerging
markets, increases. Such misconduct might undermine our due diligence efforts with respect to such companies
and could negatively affect the valuation of our fund’s investments.
38
Failure to maintain the security of our information and technology networks, including personally
identifiable and client information, intellectual property and proprietary business information could have a
material adverse effect on us.
Security breaches and other disruptions of our information and technology networks could compromise our
information and intellectual property and expose us to liability, reputational harm and significant remediation costs,
which could cause material harm to our business and financial results. In the ordinary course of our business, we
collect and store sensitive data, including our proprietary business information and intellectual property, and
personally identifiable information of our employees and our clients, in our data centers and on our networks. The
secure processing, maintenance and transmission of this information are critical to our operations. Although we take
various measures and have made, and will continue to make, significant investments to ensure the integrity of our
systems and to safeguard against such failures or security breaches, there can be no assurance that these
measures and investments will provide protection. Despite our security measures, our information technology and
infrastructure may be vulnerable to attacks by third parties or breached due to employee error, malfeasance or
other disruptions.
A significant actual or potential theft, loss, corruption, exposure, fraudulent use or misuse of client,
employee or other personally identifiable or proprietary business data, whether by third parties or as a result of
employee malfeasance or otherwise, non-compliance with our contractual or other legal obligations regarding such
data or intellectual property or a violation of our privacy and security policies with respect to such data could result
in significant remediation and other costs, fines, litigation or regulatory actions against us. Such an event could
additionally disrupt our operations and the services we provide to clients, damage our reputation, result in a loss of
a competitive advantage, impact our ability to provide timely and accurate financial data, and cause a loss of
confidence in our services and financial reporting, which could adversely affect our business, revenues, competitive
position and investor confidence.
Interruption of our information technology, communications systems or data services could disrupt our
business, result in losses or limit our growth.
We rely heavily on our financial, accounting, communications and other data processing systems. If our
systems do not operate properly, are disabled or are compromised, we could suffer financial loss, a disruption of
our business, liability to our funds, regulatory intervention or reputational damage. Our information technology and
communications systems are vulnerable to damage or disruption from fire, power loss, telecommunications failure,
system malfunctions, natural disasters such as hurricanes, earthquakes and floods, acts of war or terrorism,
employee errors or malfeasance, computer viruses, cyber-attacks, or other events which are beyond our control.
We depend on our headquarters in Los Angeles, where a substantial portion of our personnel are located, for
the continued operation of our business. An earthquake or other disaster or a disruption in the infrastructure that
supports our business, including a disruption involving electronic communications or other services used by us or
third parties with whom we conduct business, or directly affecting our headquarters, could have a material adverse
impact on our ability to continue to operate our business without interruption. Insurance and other safeguards might
only partially reimburse us for our losses, if at all.
In addition, we rely on
service providers for certain aspects of our business, including software
vendors for portfolio management and accounting software, outside financial institutions for back office processing
and custody of securities and
for the execution of trades. An interruption or deterioration
in the performance of these third parties or failures of their information systems and technology could cause system
interruption, delays, loss, corruption or exposure of critical data or intellectual property and impair the quality of the
funds’ operations, which could impact our reputation and hence adversely affect our business.
Any such interruption or deterioration in our operations could result in substantial recovery and remediation
costs and liability to our clients, business partners and other third parties. While we have implemented disaster
recovery plans and backup systems to lessen the risk of any material adverse impact, our disaster recovery
planning may not be sufficient to mitigate the harm and cannot account for all eventualities, and a catastrophic
event that results in the destruction or disruption of any of our data, our critical business or information technology
systems could severely affect our ability to conduct our business operations, and as a result, our future operating
results could be materially adversely affected.
Risks Relating to Our Funds
Our results of operations are dependent on the performance of our funds. Poor fund performance will result
in reduced revenues. Poor performance of our funds will also make it difficult for us to retain and attract investors to
39
our funds, to retain and attract qualified professionals and to grow our business. The performance of each fund we
manage is subject to some or all of the following risks.
The historical returns attributable to our funds should not be considered indicative of the future results of
our funds or of our future results or of any returns expected on an investment in our Class A units.
The historical returns attributable to our funds should not be considered indicative of the future results of our
funds, nor are they directly linked to returns on our Class A units. Therefore, Class A unitholders should not
conclude that positive performance of our funds will necessarily result in positive returns on an investment in our
Class A units. However, poor performance of the funds we manage will cause a decline in our revenues and would
therefore have a negative effect on our operating results and returns on our Class A units.
Moreover, with respect to the historical returns of our funds:
•
the rates of return of our closed-end funds reflect unrealized gains as of the applicable measurement date
that may never be realized, which may result in a lower internal rate of return and ultimate return for some
closed-end funds from those presented in this annual report;
• our funds’ returns have previously benefited from investment opportunities and general market conditions
that may not repeat themselves, and there can be no assurance that our current or future funds will be
able to avail themselves of profitable investment opportunities;
• our funds’ historical investments were made over a long period of time and over the course of various
market and macroeconomic cycles, and the circumstances under which our current or future funds may
make future investments may differ significantly from those conditions prevailing in the past;
• our funds may not be able to successfully identify, make and realize upon any particular investment or
generate returns for their investors; and
• any material increase in the size of our funds could result in materially different rates of returns.
In addition, future returns will be affected by the applicable risks described elsewhere in this annual report.
Investors in some of our funds may be unable to fulfill their capital commitment obligations, and such
failure could have an adverse effect on the affected funds.
Investors in our closed-end funds make capital commitments that we are entitled to call from those investors
at any time during certain prescribed periods. We depend on investors fulfilling and honoring their commitments
when we call capital from them in order for our closed-end funds to consummate investments and otherwise pay
their obligations when due. Any investor that does not fund a capital call is subject to having a meaningful amount
of its existing capital account forfeited in that fund. However, if investors were to fail to honor a significant amount
of capital calls for any particular fund or funds, the affected funds’ ability to make new or follow-on investments, and
to otherwise satisfy their liabilities when due, could be materially and adversely affected.
Certain of our funds invest in relatively high-risk, illiquid, non-publicly traded assets, and we may fail to
realize any profits from these activities ever or for a considerable period of time.
Our closed-end funds often invest in securities that are not publicly traded. In many cases, our funds may be
prohibited by contract or by applicable securities laws from selling these securities for a period of time. Our funds
generally cannot sell these securities publicly unless either their sale is registered under applicable securities laws
or an exemption from registration is available. The ability of many of our funds, particularly our control investing
funds, to dispose of investments is heavily dependent on the public capital markets. For example, the ability to
realize any value from an investment may depend upon the ability to complete an initial public offering of the
portfolio company in which the investment is held. Even if securities are publicly traded, large holdings of securities
often can be sold only over a substantial length of time, exposing investment returns to risks of downward
movement in market prices.
We make distressed debt investments that involve significant risks and potential additional liabilities.
Our distressed debt funds and certain of our control investing funds invest in obligors and issuers with weak
financial conditions, poor operating results, substantial financing needs, negative net worth or significant
competitive issues. These funds also invest in obligors and issuers that are involved in bankruptcy or
reorganization proceedings. In these situations, it may be difficult to obtain full information as to the exact financial
and operating conditions of these obligors and issuers. Furthermore, some of our funds’ distressed debt
investments may not be widely traded or may have no recognized market. Depending on the specific fund’s
investment profile, a fund’s exposure to the investments may be substantial in relation to the market for those
40
investments, and the acquired assets are likely to be illiquid and difficult to transfer. As a result, it may take a
number of years for the market value of the investments to ultimately reflect their intrinsic value as we perceive it.
A central strategy of our distressed debt funds is to anticipate the occurrence of certain corporate events,
such as debt or equity offerings, restructurings, reorganizations, mergers, takeover offers and other transactions. If
the relevant corporate event that we anticipate is delayed, changed or never completed, the market price and value
of the applicable fund’s investment could decline sharply.
In addition, these investments could subject a fund to certain potential additional liabilities that may exceed
the value of its original investment. Under certain circumstances, payments or distributions on certain investments
may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance, a
preferential payment or similar transaction under applicable bankruptcy and insolvency laws. In addition, under
certain circumstances, a lender that has inappropriately exercised control of the management and policies of a
debtor may have its claims subordinated or disallowed or may be found liable for damages suffered by parties as a
result of such actions. In the case where the investment in securities of troubled companies is made in connection
with an attempt to influence a restructuring proposal or plan of reorganization in bankruptcy, the fund may become
involved in substantial litigation.
Certain of our funds are subject to the fiduciary responsibility and prohibited transaction provisions of
ERISA and the Code, and our business could be adversely affected if certain of our other funds fail to
satisfy an exemption under the “plan assets” regulation under ERISA.
Some of our funds are subject to the fiduciary responsibility and prohibited transaction provisions of ERISA
and Section 4975 of the Code. For example, we currently manage some of our funds as “plan assets” under
ERISA. With respect to these funds, this results in the application of the fiduciary responsibility standards of ERISA
to investments made by such funds, including the requirement of investment prudence and diversification, and the
possibility that certain transactions that we enter into, or may have entered into, on behalf of these funds, in the
ordinary course of business, might constitute or result in non-exempt prohibited transactions under Section 406 of
ERISA or Section 4975 of the Code. A non-exempt prohibited transaction, in addition to imposing potential liability
upon fiduciaries of a plan subject to Title I of ERISA or Section 4975 of the Code, may also result in the imposition
of an excise tax under the Code upon a “party in interest” (as defined in ERISA) or “disqualified person” (as defined
in the Code) with whom we engaged in the transaction. Some of our other funds currently qualify as venture capital
operating companies (“VCOCs”), as defined in the regulations (the “Plan Asset Regulations”) promulgated under
ERISA by the U.S. Department of Labor, or rely on other exceptions under ERISA and therefore are not subject to
the fiduciary requirements of ERISA with respect to their assets. However, if these funds fail to satisfy the
requirements to qualify as a VCOC for any reason, including an amendment of the Plan Asset Regulations, or
another exception under ERISA, such failure could materially interfere with our activities in relation to these funds or
expose us to risks related to our failure to comply with the requirements.
Certain of our funds may be subject to risks arising from potential control group liability.
Under ERISA, upon the termination of a
single employer defined benefit pension plan, the
sponsoring employer and all members of its “controlled group” will be jointly and severally liable for 100% of the
plan’s unfunded benefit liabilities whether or not the controlled group members have ever maintained or participated
in the plan. In addition, the Pension Benefit Guaranty Corporation (the “PBGC”) may assert a lien with respect to
such liability against any member of the controlled group on up to 30% of the collective net worth of all members of
the controlled group. Similarly, in the event a participating employer partially or completely withdraws from a
multiemployer (union) defined benefit pension plan, any withdrawal liability incurred under ERISA will represent a
joint and several liability of the withdrawing employer and each member of its controlled group.
A “controlled group” includes all “trades or businesses” with at least 80% or greater common ownership.
This common ownership test is broadly applied to include both
groups” applying complex exclusion and constructive ownership rules. However, regardless of the percentage
ownership that any of our funds holds in one or more of its portfolio companies, such fund itself cannot be
considered part of an ERISA controlled group unless that fund is considered to be a “trade or business”.
groups” and
While there are a number of cases that have held that managing investments is not a “trade or business” for
tax purposes, in 2007 the PBGC Appeals Board ruled that a private equity fund was a “trade or business” for ERISA
controlled group liability purposes and at least one Federal Circuit Court has similarly concluded that a private
equity fund could be a trade or business for these purposes based upon a number of factors including the fund’s
level of involvement in the management of its portfolio companies and the nature of any management fee
arrangements.
41
If any of our funds are determined to be a trade or business for purposes of ERISA, it is possible,
depending upon the structure of the investment by such fund or any of their affiliates and other
portfolio company and their respective ownership interests in the portfolio company, that any
employer defined benefit pension plan liabilities or multiemployer plan withdrawal liabilities incurred by the portfolio
company could result in liability being incurred by any of our funds, with a resulting need for additional capital
contributions, the appropriation of such fund’s assets to satisfy such pension liabilities and/or the imposition of a lien
by the PBGC on certain fund assets. Moreover, regardless of whether or not any of our funds were determined to
be a trade or business for purposes of ERISA, a court might hold that one of our fund’s portfolio companies could
become jointly and severally liable for another portfolio company’s unfunded pension liabilities pursuant to the
ERISA “controlled group” rules, depending upon the relevant investment structures and ownership interests as
noted above.
in a
single
Poor investment performance during periods of adverse market conditions may result in relatively high
levels of investor redemptions, which can exacerbate the liquidity pressures on the affected funds, force
the sale of assets at distressed prices or reduce the funds’ returns.
Poor investment performance during periods of adverse market conditions, together with investors’ increased
need for liquidity given the state of the credit markets, can prompt relatively high levels of investor redemptions at
times when many funds may not have sufficient liquidity to satisfy some or all of their investor redemption requests.
During times when market conditions are deteriorating, many funds may face additional redemption requests and/or
compulsory investor withdrawals or redemptions, which will exacerbate the liquidity pressures on the affected funds.
If they cannot satisfy their current and future redemption requests, they may be forced to sell assets at distressed
prices or cease operations. Various measures taken by funds to improve their liquidity profiles (such as the
implementation of “gates” or the suspension of redemptions) that reduce the amounts that would otherwise be paid
out in response to redemption requests may have the effect of incentivizing investors to “gross up” or increase the
size of the future redemption requests they make, thereby exacerbating the cycle of redemptions. The liquidity
issues for such funds are often further exacerbated by their fee structures, as a decrease in NAV decreases their
management fees.
Certain of our funds have, or may in the future have, agreements that create debt or debt-like obligations
with one or more counterparties. Such agreements in many instances contain covenants or “triggers” that require
the fund to maintain a certain level of NAV over certain testing periods or to post additional margin on a daily basis
when prices of our funds’ derivative contracts move against the fund. In addition, there may be guidelines in total
return swap facilities that require reference obligations to be above a certain price level. Decreases in such funds’
NAV (whether due to performance, redemptions or both) that breach such covenants, the failure to make any
margin calls or meaningful decreases in the price of the underlying reference loan or security may result in defaults
under such agreements and such defaults could permit the counterparties to take various actions that would be
adverse to the funds, including terminating the financing arrangements, increasing the amount of margin or
collateral that the funds are required to post (so-called “supercollateralization” requirements) or decreasing the
aggregate amount of leverage that such counterparty is willing to provide to our funds. In particular, many such
covenants to which our funds are party are designed to protect against sudden and pronounced drops in NAV over
specified periods, so if our open-end or evergreen funds were to receive larger-than-anticipated redemption
requests during a period of poor performance, such covenants may be breached. Defaults under any such
covenants would likely result in the affected funds being forced to sell financed assets (which sales would likely
occur in suboptimal or distressed market conditions) or being forced to restructure a swap facility with more onerous
terms or otherwise raise cash by reducing other leverage, which would reduce the funds’ returns and our
opportunities to produce incentive and investment income from the affected funds.
Valuation methodologies for certain assets in our funds can be subject to significant subjectivity, and the
values of assets established pursuant to the methodologies may never be realized.
Our funds make investments for which market quotations are not readily available, and thus the process by
which we value such investments involves inherent uncertainties. We are required by GAAP to make good faith
determinations as to the fair value of these investments on a quarterly basis in connection with the preparation of
our funds’ financial statements.
There is no single method for determining fair value in good faith. The types of factors that may be
considered when determining the fair value of an investment in a particular company include acquisition price of the
investment, discounted cash flow valuations, historical and projected operational and financial results for the
company, the strengths and weaknesses of the company relative to its comparable companies, industry trends,
general economic and market conditions, information with respect to offers for the investment, the size of the
investment (and any associated control) and other factors deemed relevant. Fair values may also be assessed
42
based on the enterprise value of a company established using a market multiple approach that is based on a
specific financial measure (such as earnings before interest, taxes, depreciation and amortization (“EBITDA”),
adjusted EBITDA, free cash flow, net income, book value or net asset value) or, in some cases, a cost basis or a
discounted cash flow or liquidation analysis. Because valuations, and in particular valuations of investments for
which market quotations are not readily available, are inherently uncertain, may fluctuate over short periods of time
and may be based on estimates, determinations of fair value may differ materially from the values that would have
resulted if a ready market had existed. Even if market quotations are available for our investments, the quotations
may not reflect the value that we would actually be able to realize because of various factors, including the possible
illiquidity associated with a large ownership position, subsequent illiquidity in the market for a company’s securities,
future market price volatility or the potential for a future loss in market value based on poor industry conditions or
the market’s view of overall company and management performance.
Because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid
investments, the fair values of such investments as reflected in a fund’s NAV do not necessarily reflect the prices
that would actually be obtained by us on behalf of the fund when such investments are sold. Sales at values
significantly lower than the values at which investments have previously been reflected in a fund’s NAV may result
in losses for the applicable fund, a decline in management fees and the loss of incentive income that may have
been accrued by the applicable fund. Changes in values attributed to investments from quarter to quarter may
result in volatility in the NAV and results of operations that we report. Also, a situation where a fund’s NAV turns out
to be materially different from the NAV previously reported for the fund could cause investors to lose confidence in
us, which could in turn result in difficulty in raising additional funds or investors requesting redemptions from certain
of our funds.
We make investments in companies that are based outside the United States, which exposes us to
additional risks not typically associated with investing in companies that are based in the United States.
Many of our funds invest a portion of their assets in the equity, debt, loans or other securities of issuers
located outside the United States, while certain of our funds invest substantially all of their assets in these types of
securities. Investments in non-U.S. securities involve certain factors not typically associated with investing in U.S.
securities, including risks relating to:
• our funds’ abilities to exchange local currencies for U.S. dollars and other currency exchange matters,
including fluctuations in currency exchange rates and costs associated with conversion of investment
principal and income from one currency into another;
• controls on, and changes in controls on, foreign investment and limitations on repatriation of invested
capital;
•
•
less developed or less efficient financial markets than exist in the United States, which may lead to price
volatility and relative illiquidity;
the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure
requirements and less government supervision and regulation;
• differences in legal and regulatory environments, particularly with respect to bankruptcy and
reorganization, less developed corporate laws regarding fiduciary duties and the protection of investors
and less reliable judicial systems to enforce contracts and applicable law;
•
less publicly available information in respect of companies in non-U.S. markets;
• heightened exposure to corruption risk;
• certain economic and political risks, including potential exchange control regulations and restrictions on
our non-U.S. investments and repatriation of capital, potential political, economic or social instability, the
possibility of nationalization or expropriation or confiscatory taxation and adverse economic and political
developments; and
•
the possible imposition of non-U.S. taxes or withholding on income and gains recognized with respect to
the securities.
There can be no assurance that adverse developments with respect to these risks will not adversely affect
our funds that invest in securities of non-U.S. issuers.
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Certain of our funds and most of our separate account agreements contain provisions that allow investors
to withdraw their capital.
Most of our separate account agreements generally can be terminated by our separate account clients upon
notice of 30 days or less. Similarly, our commingled open-end funds permit the withdrawal of capital by our
investors during certain open periods that generally occur on the first business day of each calendar month. Our
active evergreen funds have withdrawal rights that, depending on the specific fund, can be exercised in intervals
typically ranging from three months to three years. Any significant number of terminations or withdrawals could
have a material adverse effect on our business and results of operations.
We have made and expect to continue to make significant principal investments in our current and future
funds, and we may lose money on some or all of our investments.
Since our inception in 1995, we have increased the minimum level of our principal investments in our closed-
end and evergreen funds from 0.2% of the fund’s aggregate committed capital to 1.0% starting with funds that held
their initial closings in late 1998, to 2.0% starting with funds that held their initial closings in mid-2004. Subsequent
to the 2007 Private Offering, we decided to further increase our principal investments in such funds that have initial
closings after May 2007 to the greater of 2.5% of the funds’ aggregate committed capital or $20 million. Although
we are not limited in the amount we choose to invest, in 2009 we decided that we will generally not invest more
than $100 million in any one fund. We expect to continue to make significant principal investments in our funds and
may choose to increase the percentage amount we invest at any time. Contributing capital to these funds is risky,
and we may lose some or all of the principal amount of our investments. Any such loss could have a material
adverse impact on our financial condition and results of operations.
Our funds make investments in companies that we do not control.
Investments by many of our funds include debt instruments and equity securities of companies that we do
not control. These instruments and securities may be acquired by our funds through trading activities or through
purchases of securities from the issuer. In addition, our control investing funds may acquire minority equity
interests and may also dispose of a portion of their majority equity investments in portfolio companies over time in a
manner that results in the funds retaining a minority investment. Those investments will be subject to the risk that
the company in which the investment is made may make business, financial or management decisions with which
we do not agree or that the majority stakeholders or the management of the company may take risks or otherwise
act in a manner that does not serve our interests. If any of the foregoing were to occur, the values of the
investments held by our funds could decrease and our financial condition, results of operations and cash flow could
suffer as a result.
Investments by our funds will in many cases rank junior to investments made by others.
In many cases, the companies in which our funds invest have indebtedness or equity securities, or may be
permitted to incur indebtedness or to issue equity securities, that rank senior to our investment. By their terms,
these instruments may provide that their holders are entitled to receive payments of dividends, interest or principal
on or before the dates on which payments are to be made in respect of our investment. Also, in the event of
insolvency, liquidation, dissolution, reorganization or bankruptcy of a company in which we hold an investment,
holders of securities ranking senior to our investment would typically be entitled to receive payment in full before
distributions could be made in respect of our investment. After repaying senior security holders, the company may
not have any remaining assets to use for repaying amounts owed in respect of our investment. To the extent that
any assets remain, holders of claims that rank equally with our investment would be entitled to share on an equal
and ratable basis in distributions that are made out of those assets. Also, during periods of financial distress or
following an insolvency, the ability of our funds to influence a company’s affairs and to take actions to protect their
investment may be substantially less than that of those holding senior interests.
The due diligence process that we undertake in connection with investments by some of our funds may not
reveal all facts that may be relevant in connection with an investment.
Before making investments in companies that we expect to control, we undertake a due diligence
investigation of the target company. In conducting these investigations, we may be required to evaluate important
and complex business, financial, tax, accounting, environmental and legal issues. Outside consultants, legal
advisers, accountants and investment banks are often involved in the due diligence process in varying degrees
depending on the type of investment. Nevertheless, the due diligence investigation that we carry out with respect to
an investment opportunity may not reveal or highlight all relevant facts that may be necessary or helpful in
evaluating the investment opportunity. No due diligence investigation can provide certainty as to the matters
covered. In addition, instances of bribery, fraud, accounting irregularities and other improper, illegal or corrupt
44
practices are by their nature difficult to detect. Moreover, a due diligence investigation will not necessarily result in
the investment being successful. The nature of our due diligence investigation in a particular instance depends on
the size and type of investment being considered, our familiarity with the relevant industry, company and its
management and other relevant factors.
Market values of publicly traded securities that are held as investments may be volatile.
The market prices of publicly traded securities held by some of our funds may be volatile and are likely to
fluctuate due to a number of factors beyond our control, including actual or anticipated changes in the profitability of
the issuers of such securities, general economic, social or political developments, changes in industry conditions,
changes in government regulation, shortfalls in operating results from levels forecast by securities analysts, inflation
and rapid fluctuations in inflation rates, the general state of the securities markets and other material events, such
as significant management changes, financings, refinancings, securities issuances, acquisitions and dispositions.
Changes in the values of these investments may adversely affect our investment performance and our results of
operations.
Volatility in the structured credit, leveraged loan and high yield bond markets may adversely affect our
funds’ investments.
To the extent that companies in which our funds invest participate in the structured credit, leveraged loan
and high yield bond markets, the results of their operations may suffer if such markets experience dislocations,
illiquidity and volatility. In addition, to the extent that such marketplace events occur, this may have an adverse
impact on the availability of credit to businesses generally and could lead to an overall weakening of the U.S. and
global economies. Any economic downturn could adversely affect the financial resources of our funds’ investments
(in particular those investments that depend on credit from third parties or that otherwise participate in the credit
markets) and their ability to make principal and interest payments on, or refinance, outstanding debt when due. In
the event of such defaults, our funds could lose both invested capital in, and anticipated profits from, the affected
portfolio companies.
We enter into a significant number of side letter agreements with limited partners of certain of our funds,
and the terms of these agreements could expose the general partners of the funds to additional risks and
liabilities.
We regularly enter into side letter agreements with particular limited partners in the course of raising our
funds. These side letters typically afford the affected limited partners assurance with respect to particular aspects of
the operation of the fund. Given that these assurances often elaborate upon the provisions of the relevant fund’s
partnership agreement, our affiliates could be exposed to additional risks, liabilities and obligations not
contemplated in our funds’ partnership agreements.
Our funds may invest in companies that are highly leveraged, a fact that may increase the risk of loss
associated with the investments.
Our funds may invest in companies whose capital structures involve significant leverage. These investments
are inherently more sensitive to declines in revenues and to increases in expenses and interest rates. The
leveraged capital structure of these companies places significant burdens on their cash flows and increases the
exposure of our funds to adverse economic factors such as downturns in the economy or deterioration in the
condition of the portfolio company or its industry. Additionally, the securities acquired by our funds may be the most
junior in what could be a complex capital structure and thus subject us to the greatest risk of loss.
The use of leverage by our funds could have a material adverse effect on our financial condition, results of
operation and cash flow.
Some of our funds use leverage (including through swaps and other derivatives) as part of their respective
investment programs and may borrow a substantial amount of capital. The use of leverage poses a significant
degree of risk and can enhance the magnitude of a significant loss in the value of the investment portfolio. To the
extent that any fund leverages its capital structure, it is subject to the risks normally associated with debt financing,
including the risk that its cash flows will be insufficient to meet principal and interest payments, which could
significantly reduce or even eliminate the value of such fund’s investments. In addition, the interest expense and
other costs incurred in connection with such leverage may not be recovered by the appreciation in the value of any
associated securities or bank debt and will be lost – and the timing and magnitude of such losses may be
accelerated or exacerbated – in the event of a decline in the market value of such securities or bank debt. In
addition, such funds may be subject to margin calls in the event of a decline in the value of the posted collateral.
Any of the foregoing circumstances could have a material adverse effect on our financial condition, results of
operations and cash flow.
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Changes in the debt financing markets may negatively impact the ability of our funds and their portfolio
companies to obtain attractive financing for their investments or refinance existing debt and may increase
the cost of such financing if it is obtained, leading to lower-yielding investments and potentially decreasing
our incentive income and investment income.
The markets for debt financing are subject to retrenchment, resulting in more restrictive covenants or other
more onerous terms (including posting additional collateral) in order to provide financing, and in some cases
lenders may refuse to provide any financing that would have been readily obtained under different credit conditions.
If our funds are unable to obtain committed debt financing or can only obtain debt at an increased interest
rate or on other less advantageous terms, such funds’ investment activities may be restricted and their profits may
be lower than they would otherwise have achieved, either of which could lead to a decrease in the incentive and
investment income earned by us. Similarly, the portfolio companies owned by our funds regularly utilize the
corporate debt markets to obtain efficient financing for their operations. To the extent that credit markets render
such financing difficult or more expensive to obtain, the operating performance of those portfolio companies and
therefore the investment returns on our funds may be negatively impacted. In addition, to the extent that the then-
current markets make it difficult or impossible to refinance debt or extend maturities on their outstanding debt, the
relevant portfolio company may be unable to repay such debt at maturity and may be forced to sell assets, undergo
a recapitalization or seek bankruptcy protection. Any of the foregoing circumstances could impair the value of our
investment in those portfolio companies and have a material adverse effect on our financial condition, results of
operations and cash flow.
Our funds may face risks relating to undiversified investments.
We cannot give assurance as to the degree of diversification, if any, that will be achieved in any fund
investments. Difficult market conditions or slowdowns affecting a particular asset class, geographic region or other
category of investment could have a significant adverse impact on a fund if its investments are concentrated in that
area, which would result in lower investment returns. This lack of diversification may expose a fund to losses
disproportionate to market declines in general if there are disproportionately greater adverse price movements in
the particular investments. To the extent a fund holds investments concentrated in a particular issuer, security,
asset class or geographic region, such fund may be more susceptible than a more widely diversified investment
partnership to the negative consequences of a single corporate, economic, political or regulatory event.
Accordingly, a lack of diversification on the part of a fund could adversely affect a fund’s performance and, as a
result, our financial condition and results of operations.
Risk management activities may adversely affect the returns on our funds’ investments and expose our
funds to other risks.
When managing our exposure to market risks, we may (on our own behalf or on behalf of our funds) from
time to time use forward contracts, options, swaps, caps, collars and floors or pursue other strategies or use other
forms of derivative instruments to limit our exposure to changes in the relative values of investments that may result
from market developments, including changes in prevailing interest rates, currency exchange rates and commodity
prices. The success of any hedging or other derivative transactions generally will depend on our ability to correctly
predict market changes, the degree of correlation between price movements of a derivative instrument and the
position being hedged, the creditworthiness of the counterparty and other factors. As a result, while we may enter
into a transaction in order to reduce our exposure to market risks, the transaction may result in poorer overall
investment performance than if it had not been executed. Such transactions may also limit the opportunity for gain
if the value of a hedged position increases. Moreover, these hedging arrangements may generate significant
transaction costs that reduce the returns generated by a fund derivative.
In addition, derivative transactions expose our funds to liquidity, counterparty and other risks. Please see “—
The derivatives that we or our funds use to hedge against interest rate and foreign currency exposure are volatile
and may adversely affect our results of operations” above.
Our funds are subject to risks in using prime brokers, custodians, counterparties, administrators and other
agents.
Many of our funds depend on the services of prime brokers, custodians, counterparties, administrators and
other agents to carry out certain securities and derivatives transactions. The terms of these contracts are often
customized and complex, and many of these arrangements occur in markets or relate to products that are subject
to limited or no regulatory oversight. In particular, some of our funds utilize prime brokerage arrangements with a
relatively limited number of counterparties, which has the effect of concentrating the transaction volume (and
related counterparty default risk) of these funds with these counterparties.
46
Our funds are subject to the risk that the counterparty to one or more of these contracts defaults, either
voluntarily or involuntarily, on its performance under the contract. Any such default may occur suddenly and without
notice to us. Moreover, if a counterparty defaults, we may be unable to take action to cover our exposure, either
because we lack contractual recourse or because market conditions make it difficult to take effective action. This
inability could occur in times of market stress, which is when defaults are most likely to occur.
In addition, risk-management models that we may employ from time to time may not accurately anticipate the
impact of market stress or counterparty financial condition, and as a result, we may not have taken sufficient action
to reduce our risks effectively. Default risk may arise from events or circumstances that are difficult to detect,
foresee or evaluate. In addition, concerns about, or a default by, one large participant could lead to significant
liquidity problems for other participants, which may in turn expose us to significant losses.
In the event of a counterparty default, particularly a default by a major investment bank, one or more of our
funds could incur material losses, and the resulting market impact of a major counterparty default could harm our
business, results of operation and financial condition.
In the event of the insolvency of a prime broker, custodian, counterparty or any other party that is holding
assets of our funds as collateral, our funds might not be able to recover equivalent assets in full as they will rank
among the prime broker’s, custodian’s or counterparty’s unsecured creditors in relation to the assets held as
collateral. In addition, our funds’ cash held with a prime broker, custodian or counterparty generally will not be
segregated from the prime broker’s, custodian’s or counterparty’s own cash, and our funds may therefore rank as
unsecured creditors in relation thereto.
The counterparty risks that our funds’ face have increased in complexity and magnitude as a result of the
disruption in the financial markets in recent years. For example, the consolidation and elimination of counterparties
has increased our concentration of counterparty risk and decreased the universe of potential counterparties, and
our funds are generally not restricted from dealing with any particular counterparty or from concentrating any or all
of their transactions with one counterparty. In addition, counterparties have generally reacted to market volatility by
tightening their underwriting standards and increasing their margin requirements for all categories of financing,
which has the result of decreasing the overall amount of leverage available and increasing the costs of borrowing.
Risks Relating to Our Class A Units
The market price of our Class A units may decline due to the large number of units eligible for future sale
and issuable pursuant to our 2011 Equity Incentive Plan.
The market price of our Class A units could decline as a result of sales of a large number of our Class A units
in the market or the perception that these sales could occur. As of February 24, 2015, there were 43,771,659 Class
A units outstanding, which may be resold immediately in the public market, unless they are held by our affiliates, as
that term is defined in Rule 144 under the Securities Act. In addition, our directors and executive officers (which
includes our senior executives), other employees and certain other investors hold Oaktree Operating Group units
through OCGH and, subject to certain restrictions, including the approval of our board of directors, have the right to
exchange their vested OCGH units for, at the option of our board of directors, newly issued Class A units on a one-
for-one basis, an equivalent amount of cash based on then-prevailing market prices, other consideration of equal
value or any combination of the foregoing in accordance with the terms of the exchange agreement. Please see
“Certain Relationships and Related Transactions, and Director Independence—Exchange Agreement.” The market
price of our Class A units could decline as a result of an exchange, or the perception that an exchange may occur,
of a large number of OCGH units for our Class A units. As of February 24, 2015, there were 104,658,236 vested
OCGH units outstanding. Such sales or exchanges could also cause the price of our Class A units to fall and make
it more difficult for our Class A unitholders to sell their units.
We may issue our Class A units from time to time as consideration for future acquisitions and investments. If
any such acquisition or investment is significant, the number of Class A units that we issue may in turn be
significant. We may also grant registration rights covering Class A units issued in connection with any such
acquisitions and investments. In addition, as of February 24, 2015, we may issue 14,875,618 Class A units, OCGH
units or any other class or series of units or other ownership interests in us, OCGH or any of our affiliates (“2011
Plan Units”) from time to time under our 2011 Oaktree Capital Group, LLC Equity Incentive Plan (the “2011 Plan”)
as well as 2011 Plan Units that become available under our 2011 Plan pursuant to provisions in the 2011 Plan that
automatically increase 2011 Plan Units available for future issuance. The units granted under the 2011 Plan may
be subject to vesting and forfeiture provisions. Any vesting terms are set by our board of directors or a committee
appointed by our board of directors in their respective discretion. Additional issuances of 2011 Plan Units may
dilute the holdings of our existing unitholders, reduce the market price of our Class A units or both.
47
The market price and trading volume of our Class A units has been and may continue to be volatile, which
could result in rapid and substantial losses for our Class A unitholders.
The market price of our Class A units may be highly volatile and could be subject to wide fluctuations. In
addition, the trading volume in our Class A units may fluctuate and cause significant price variations to occur. If the
market price of our Class A units declines significantly, you may be unable to sell your Class A units at an attractive
price, if at all. The market price of our Class A units may fluctuate or decline significantly in the future. Some of the
factors that could negatively affect the price of our Class A units or result in fluctuations in the price or trading
volume of our Class A units include:
• variations in our quarterly operating results or distributions, which may be substantial;
• our policy of taking a long-term perspective on making investment, operational and strategic decisions,
which is expected to result in significant and unpredictable variations in our quarterly returns;
•
failure to meet analysts’ performance estimates;
• publication of research reports about us or the investment management industry or the failure of securities
analysts to cover our Class A units;
• additions or departures of key management or investment personnel;
• adverse market reaction to any indebtedness we may incur or securities we may issue in the future;
• changes in market valuations of similar companies;
• speculation in the press or investment community;
• changes or proposed changes in laws or regulations or differing interpretations thereof affecting our
business or enforcement of these laws and regulations or announcements relating to these matters;
• a lack of liquidity in the trading of our Class A units;
• adverse publicity about the asset management industry generally or individual scandals, specifically; and
• general market and economic conditions.
If we fail to maintain effective internal controls over our financial reporting in the future, the accuracy and
timing of our financial reporting may be adversely affected.
The Sarbanes-Oxley Act requires, among other things, that as a public company we maintain effective
internal control over financial reporting and disclosure controls and procedures. We are required under Section 404
to provide an annual management assessment of the effectiveness of our internal controls over financial reporting
and to include in our annual reports an opinion from our independent registered public accounting firm addressing
its assessment. To maintain and improve the effectiveness of our disclosure controls and procedures, significant
resources and management oversight are required. We have implemented and continue to implement additional
procedures and processes for the purpose of addressing the standards and requirements applicable to public
companies.
If it is determined that we are not in compliance with Section 404 in the future, we would be required to
implement remedial procedures and re-evaluate our internal control over financial reporting and our operations,
financial reporting or financial results could be adversely affected, and we could receive an adverse report on
internal controls from our independent registered public accounting firm. Matters impacting our internal controls
may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse
regulatory consequences, including sanctions by the SEC, or violations of applicable stock exchange listing rules.
Moreover, if a material misstatement occurs in the future, we may need to restate our financial results and there
could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of
our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if our
independent registered public accounting firm reports a material weakness in our internal control over financial
reporting. This could materially adversely affect us and lead to a decline in the market price of our Class A units.
Preparing our consolidated financial statements involves a number of complex manual and automated
processes, which are dependent on individual data input or review and require significant management judgment.
One or more of these elements may result in errors that may not be detected and could result in a material
misstatement of our consolidated financial statements.
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The tax attributes of our Class A units may cause mutual funds to limit or reduce their holdings of Class A
units.
U.S. mutual funds that are treated as regulated investment companies (“RICs”) for U.S. federal income tax
purposes are required, among other things, to distribute at least 90% of their taxable income to their shareholders in
order to maintain their favorable U.S. income tax status. RICs are required to meet this distribution requirement
regardless of whether their investments generate cash distributions equal to their taxable income. Accordingly,
these investors have a strong incentive to invest in securities in which the amount of cash generated approximates
the amount of taxable income recognized. Our Class A unitholders, however, are frequently allocated an amount of
taxable income that exceeds the amount of cash we distribute to them. This may make it difficult for RICs to
maintain a meaningful portion of their portfolio in our Class A units and may force those RICs that do hold our
Class A units to sell all or a portion of their holdings. These actions could increase the supply of, and reduce the
demand for, our Class A units, which could cause the price of our Class A units to decline.
The market price of our Class A units may decline due to the large number of Class A units eligible for
future issuance upon the exchange of OCGH units.
Subject to certain restrictions, including the approval of our board of directors, each holder of units in OCGH
has the right to exchange his or her vested units for, at the option of our board of directors, newly issued Class A
units on a one-for-one basis, an equivalent amount of cash based on then-prevailing market prices, other
consideration of equal value or any combination of the foregoing. The Class A units issued upon such exchanges
would be “restricted securities,” as defined in Rule 144 under the Securities Act, unless we register such issuances
Accordingly, subject to the exchange agreement described under “Certain Relationships and Related Transactions,
and Director Independence—Exchange Agreement,” a substantial number of additional units are expected to be
available to be sold in the future by the OCGH unitholders.
The market price of our Class A units could decline as a result of sales of a large number of Class A units
issuable upon exchange of OCGH units. These sales, or the possibility that these sales may occur, may also make
it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Additional issuances of units under our 2011 Plan may dilute the holdings of our existing unitholders, reduce
the market price of our Class A units or both. Additionally, our operating agreement authorizes us to issue an
unlimited number of additional units and options, rights, warrants and appreciation rights relating to such units for
consideration or for no consideration and on terms and conditions established by our board of directors in its sole
discretion without the approval of Class A unitholders. These additional securities may be used for a variety of
purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans.
We are a “controlled company” within the meaning of the NYSE listing standards and, as a result, qualify
for, and rely on, exemptions from certain corporate governance requirements.
Because our senior executives own units representing more than 50% of our voting power, we are
considered a “controlled company” for purposes of the NYSE listing requirements. As such, we have elected, and
intend to continue to elect, not to comply with certain NYSE corporate governance requirements, which may include
one or more of the following: that a majority of our board of directors consist of independent directors, that we have
a compensation committee that is composed entirely of independent directors with a written charter addressing the
committee’s purpose and responsibilities and that we have a nominating and corporate governance committee that
is composed entirely of independent directors with a written charter addressing the committee’s purpose and
responsibilities. In addition, we are not required to hold annual meetings of our unitholders. Accordingly, our Class
A unitholders do not have the same protections afforded to shareholders of companies that are subject to all of the
NYSE corporate governance requirements. Please see “Directors, Executive Officers and Corporate Governance—
Board Structure and Governance—Controlled Company Exemption.”
We cannot assure you that our intended quarterly distributions will be paid each quarter or at all.
We intend to distribute substantially all of the excess of our share of distributable earnings, net of income
taxes, as determined by our board of directors after taking into account factors it deems relevant, such as, but not
limited to, working capital levels, known or anticipated cash needs, business and investment opportunities, general
economic and business conditions, our obligations under our debt instruments or other agreements, our compliance
with applicable laws, the level and character of taxable income that flows through to our Class A unitholders, the
availability and terms of outside financing, the possible repurchase of our Class A units in open market transactions,
in privately negotiated transactions or otherwise, providing for future distributions to our Class A unitholders and
growing our capital base.
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We are not currently restricted by any contract from making distributions to our unitholders, although certain
of our subsidiaries are bound by credit agreements that contain certain restricted payment or other covenants,
which may have the effect of limiting the amount of distributions that we receive from our subsidiaries. In addition,
we are not permitted to make a distribution under Section 18-607 of the Delaware Limited Liability Company Act
(the “Act”) if, after giving effect to the distribution, our liabilities would exceed the fair value of our assets.
Distributions to our Class A unitholders are funded by our share of the Oaktree Operating Group’s
distributions. To measure our earnings for purposes of, among other things, assisting in the determination of
distributions from the Oaktree Operating Group entities to us, we utilize distributable earnings, a non-GAAP
performance measure derived from our segment results, which excludes the effects of the consolidated funds.
The declaration, payment and determination of the amount of our quarterly distribution, if any, is at the sole
discretion of our board of directors, which may change our distribution policy at any time. Our operating agreement
provides that so long as our senior executives, or their successors or affiliated entities (other than us or our
subsidiaries), including OCGH, collectively hold, directly or indirectly, at least 10% of the aggregate outstanding
Oaktree Operating Group units (the “Oaktree control condition”), our manager, which is 100% owned by our senior
executives, is entitled to designate all the members of our board of directors. As a result, Class A unitholders do not
have the power to elect the board of directors as long as the Oaktree control condition is satisfied. Moreover, our
board of directors may have interests that conflict with the interests of the Class A unitholders because the persons
who control our manager and a majority of the members of our board of directors hold the vast majority of their
economic interests in the Oaktree Operating Group through OCGH rather than through OCG. We cannot assure
you that any distributions, whether quarterly or otherwise, will or can be paid.
If we reduce or cease to make distributions on our Class A units, the value of our Class A units may
significantly decrease.
Risks Relating to Our Organization and Structure
If we or any of our funds were deemed an investment company under the Investment Company Act,
applicable restrictions could make it impractical for us to continue our business or such funds as
contemplated and could have a material adverse effect on our business.
A person will generally be deemed to be an “investment company” for purposes of the Investment Company
Act if:
•
it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of
investing, reinvesting or trading in securities; or
• absent an applicable exemption, it owns or proposes to acquire investment securities having a value
exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on
an unconsolidated basis.
We believe that we are engaged primarily in the business of providing asset management services and not
primarily in the business of investing, reinvesting or trading in securities. We also believe that the primary source of
income from our business is properly characterized as income earned in exchange for the provision of services.
We hold ourselves out as an asset management firm and do not propose to engage primarily in the business of
investing, reinvesting or trading in securities. Further, because we believe that the capital interests of the general
partners of our funds in their respective funds are neither securities nor investment securities for purposes of the
Investment Company Act, we believe that less than 40% of our total assets (exclusive of U.S. government securities
and cash items) on an unconsolidated basis are comprised of assets that could be considered investment
securities. Accordingly, we do not believe that we are an investment company under the Investment Company Act.
The Investment Company Act and the rules thereunder contain detailed parameters for the organization and
operation of investment companies. Among other things, the Investment Company Act and the rules thereunder
limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities,
generally prohibit the issuance of options and impose certain governance requirements. We intend to conduct our
operations so that we will not be deemed to be an investment company under the Investment Company Act.
Furthermore, we operate our private funds so that they are not deemed to be investment companies that are
required to be registered under the Investment Company Act. If anything were to happen that would cause us to be
deemed to be an investment company under the Investment Company Act or that would require us to register our
private funds under the Investment Company Act, requirements imposed by the Investment Company Act, including
limitations on capital structure, ability to transact business with affiliates and ability to compensate senior
employees, could make it impractical for us to continue our business or the private funds as currently conducted,
impair the agreements and arrangements between and among OCGH, us, our private funds and our senior
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management, or any combination thereof, and materially adversely affect our business, financial condition and
results of operations. In addition, we may be required to limit the amount of investments that we make as a
principal or otherwise conduct our business in a manner that does not subject us to the registration and other
requirements of the Investment Company Act.
Our Class A unitholders do not elect our manager and have limited ability to influence decisions regarding
our business, and our senior executives are able to determine the outcome of any matters submitted to a
vote of unitholders.
Our operations and activities are managed by our board of directors. So long as the Oaktree control
condition is satisfied, our manager, Oaktree Capital Group Holdings GP, LLC, which is owned by our senior
executives, is entitled to designate all the members of our board of directors and to remove or replace any director
(or our entire board of directors) at any time. Accordingly, our senior executives control our management and
affairs. Our Class A unitholders do not elect our manager.
While our Class A units and Class B units generally vote together as a single class on the limited matters
submitted to a vote of unitholders, including certain amendments of our operating agreement, our operating
agreement does not obligate us to hold annual meetings. Accordingly, our Class A unitholders have only limited
voting rights on matters affecting our business and therefore limited ability to influence decisions regarding our
business. In addition, through their control of our Class B units held by OCGH, our senior executives, with a 96.2%
voting interest as of February 24, 2015, are able to determine the outcome of any matter that our board of directors
does submit to a vote.
Our Senior Executives’ control of our manager and of the combined voting power of our units and certain
provisions of our operating agreement could delay or prevent a change of control.
As of February 24, 2015, our senior executives control 96.2% of the combined voting power of our units
through their control of OCGH. In addition, our senior executives have the ability to determine the composition of
our board of directors through their control of our manager. Our senior executives are able to appoint and remove
our directors and change the size of our board of directors, are able to determine the outcome of all matters
requiring unitholder approval, are able to cause or prevent a change of control of our company and can preclude
any unsolicited acquisition of our company. In addition, provisions in our operating agreement make it more difficult
and expensive for a third party to acquire control of us even if a change of control would be beneficial to the
interests of our Class A unitholders. For example, our operating agreement provides that only our board of directors
may call meetings and authorizes the issuance of preferred units in us that could be issued by our board of
directors to thwart a takeover attempt. The control of our manager and voting power by our senior executives and
these provisions of our operating agreement could delay or prevent a change of control and thereby deprive Class A
unitholders of an opportunity to receive a premium for their Class A units as part of a sale of our company and might
ultimately affect the market price of our Class A units.
Our senior executives and executive officers hold only a nominal amount of their economic interest in the
Oaktree Operating Group through us, which may give rise to conflicts of interest, and it is difficult for a
Class A unitholder to successfully challenge a resolution of a conflict of interest by us.
As of February 24, 2015, our senior executives hold approximately 38.0% of the economic interests of the
Oaktree Operating Group. Because they hold the vast majority of this economic interest through their ownership in
OCGH rather than through their ownership in us, our senior executives may have interests that conflict with those of
the holders of Class A units. For example, our senior executives may have different tax positions from us, which
could influence their decisions regarding whether and when to dispose of assets and whether and when to incur
new or refinance existing indebtedness, especially in light of the existence of the tax receivable agreement. In
addition, the structuring of future transactions may take into consideration the senior executives’ and employees’ tax
considerations even where no similar benefit would accrue to us and the Class A unitholders.
Any resolution or course of action taken by our directors or their affiliates with respect to an existing or
potential conflict of interest involving OCGH, our directors or their respective affiliates is permitted and deemed
approved by the Class A unitholders and does not constitute a breach of our operating agreement or any duty
(including any fiduciary duty) if the course of action is (a) approved by the vote of unitholders representing a
majority of the total votes that may be cast by disinterested parties, (b) on terms no less favorable to us, our
subsidiaries or our unitholders than those generally being provided to or available from unrelated third parties,
(c) fair and reasonable to us, taking into account the totality of the relationships among the parties involved, or
(d) approved by a majority of our directors who are not employees of us, our subsidiaries or any of our affiliates
controlled by our senior executives, who we refer to as our “outside directors.” If our board of directors determines
that any resolution or course of action satisfies either (b) or (c) above, then it will be presumed that such
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determination was made in good faith and a Class A unitholder seeking to challenge our directors’ determination
would bear the burden of overcoming such presumption. This is different from the situation with Delaware
corporations, where a conflict resolution by an interested party would be presumed to be unfair and the interested
party would have the burden of demonstrating that the resolution was fair.
As noted above, if our board of directors obtains the approval of a majority of our outside directors for any
given action, the resolution will be conclusively deemed not a breach by our board of directors of any duties it may
owe to us or our Class A unitholders. This is different from the situation with Delaware corporations, where the
approval of outside directors may, in certain circumstances, merely shift the burden of demonstrating unfairness to
the plaintiff. Potential conflicts of interest may be resolved by our outside directors even if they hold interests in us
or our funds or are otherwise affected by the decision or action that they are approving. If an investor chooses to
purchase a Class A unit, the investor is treated as having consented to the provisions set forth in our operating
agreement, including provisions regarding conflicts of interest situations that, in the absence of such provisions,
might be considered a breach of fiduciary or other duties under applicable state law. As a result, Class A
unitholders, as a practical matter, are not able to successfully challenge an informed decision by our outside
directors.
Our operating agreement contains provisions that substantially limit remedies available to our Class A
unitholders for actions that might otherwise result in liability for our officers, directors, manager or Class B
unitholder.
While our operating agreement provides that our officers and directors have fiduciary duties equivalent to
those applicable to officers and directors of a Delaware corporation under the Delaware General Corporation Law
(“DGCL”), the agreement also provides that our officers and directors are liable to us or our unitholders for an act or
omission only if such act or omission constitutes a breach of the duties owed to us or our unitholders, as applicable,
by any such officer or director and such breach is the result of willful malfeasance, gross negligence, the
commission of a felony or a material violation of law, in each case, that has, or could reasonably be expected to
have, a material adverse effect on us or fraud. Moreover, we have agreed to indemnify each of our directors and
officers, to the fullest extent permitted by law, against all expenses and liabilities (including judgments, fines,
penalties, interest, amounts paid in settlement with our approval and counsel fees and disbursements) arising from
the performance of any of their obligations or duties in connection with their service to us, including in connection
with any civil, criminal, administrative, investigative or other action, suit or proceeding to which any such person
may be made party by reason of being or having been one of our directors or officers, except for any expenses or
liabilities that have been finally judicially determined to have arisen primarily from acts or omissions that violated the
standard set forth in the preceding sentence. Furthermore, our operating agreement provides that OCGH does not
have any liability to us or our other unitholders for any act or omission and is indemnified in connection therewith.
Our manager, whose only role is to appoint members of our board of directors so long as the Oaktree control
condition is satisfied, does not owe any duties to us or our Class A unitholders. We have agreed to indemnify our
manager in the same manner as our directors and officers described above.
Under our operating agreement, each of our board of directors, our manager and us is entitled to take
actions or make decisions in its “sole discretion” or “discretion” or that it deems “necessary or appropriate” or
“necessary or advisable.” In those circumstances, each of our board of directors, our manager or us is entitled to
consider only such interests and factors as it desires, including our own or our directors’ interests, and neither it nor
our board of directors has any duty or obligation (fiduciary or otherwise) to give any consideration to any interest of
or factors affecting us or any Class A unitholders, and neither we nor our board of directors is subject to any
different standards imposed by our operating agreement, the Act or under any other law, rule or regulation or in
equity, except that we must act in good faith at all times. These modifications of fiduciary duties are expressly
permitted by Delaware law. These modifications are detrimental to the Class A unitholders because they restrict the
remedies available to Class A unitholders for actions that without those limitations might constitute breaches of duty
(including fiduciary duty).
The control of our manager may be transferred to a third party without unitholder consent.
Our manager may transfer its manager interest to a third party in a merger or consolidation, in a transfer of
all or substantially all of its assets or otherwise without the consent of our unitholders. Furthermore, our senior
executives may sell or transfer all or part of their interests in our manager without the approval of our unitholders. A
new manager could have a different investment philosophy or use its control of our board of directors to make
changes to our business that materially affect our funds, our results of operations or our financial condition.
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Our ability to make distributions to our Class A unitholders may be limited by our holding company
structure, applicable provisions of Delaware law, contractual restrictions and the terms of any senior
securities we may issue in the future.
We are a limited liability holding company and have no material assets other than the ownership of our
interests in the Oaktree Operating Group held through the Intermediate Holding Companies. We have no
independent means of generating revenues. Accordingly, to the extent we decide to make distributions to our
Class A unitholders, we will cause the Oaktree Operating Group to make distributions to its unitholders, including
the Intermediate Holding Companies, to fund any distributions we may declare on the Class A units. When the
Oaktree Operating Group makes such distributions, all holders of Oaktree Operating Group units are entitled to
receive pro rata distributions based on their ownership interests in the Oaktree Operating Group.
The declaration and payment of any future distributions is at the sole discretion of our board of directors, and
we may at any time modify our approach with respect to the proper metric for determining cash flow available for
distribution. Our board of directors will take into account factors it deems relevant, such as, but not limited to,
working capital levels, known or anticipated cash needs, business and investment opportunities, general economic
and business conditions, our obligations under our debt instruments or other agreements, our compliance with
applicable laws, the level and character of taxable income that flows through to our Class A unitholders, the
availability and terms of outside financing, the possible repurchase of our Class A units in open market transactions,
in privately negotiated transactions or otherwise, providing for future distributions to our Class A unitholders and
growing our capital base. Under the Act, we may not make a distribution to a member if, after the distribution, all
our liabilities, other than liabilities to members on account of their limited liability company interests and liabilities for
which the recourse of creditors is limited to specific property of the limited liability company, would exceed the fair
value of our assets. If we were to make such an impermissible distribution, any member who received a distribution
and knew at the time of the distribution that the distribution was in violation of the Act would be liable to us for three
years for the amount of the distribution. In addition, the Oaktree Operating Group’s cash flow may be insufficient to
enable it to make required minimum tax distributions to holders of its units, in which case the Oaktree Operating
Group may have to borrow funds or sell assets and thus our liquidity and financial condition could be materially
adversely affected. Our operating agreement contains provisions authorizing the issuance of preferred units in us
by our board of directors at any time without unitholder approval.
Furthermore, by paying cash distributions rather than investing that cash in our business, we risk slowing the
pace of our growth, or not having a sufficient amount of cash to fund our operations, new investments or
unanticipated capital expenditures, should the need arise.
We are required to pay the OCGH unitholders for most of the tax benefits we realize as a result of the tax
basis step-up we receive in connection with the sales by the OCGH unitholders of interests held in OCGH.
Subject to certain restrictions, including the approval of our board of directors, each OCGH unitholder has
the right to exchange his or her vested OCGH units for, at the option of our board of directors, Class A units, an
equivalent amount of cash based on then-prevailing market prices, other consideration of equal value or any
combination of the foregoing. In the event of an exchange, our Intermediate Holding Companies will deliver, at the
option of our board of directors, our Class A units on a one-for-one basis, an equivalent amount of cash based on
then-prevailing market prices, other consideration of equal value or any combination of the foregoing in exchange
for the applicable OCGH unitholder’s OCGH units pursuant to an exchange agreement. These exchanges are
expected to result in increases in the tax depreciation and amortization deductions, as well as an increase in the tax
basis of other assets, of certain of the Oaktree Operating Group entities that otherwise would not have been
available. These increases in tax depreciation and amortization deductions, as well as the tax basis of other
assets, may reduce the amount of tax that Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. would otherwise
be required to pay in the future, although the Internal Revenue Service (“IRS”) may challenge all or part of the
increased deductions and tax basis increase, and a court could sustain such a challenge.
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with the
OCGH unitholders that provides for the payment by Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. to the
OCGH unitholders of 85% of the amount of tax savings, if any, that they actually realize (or are deemed to realize in
the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. or a change of
control, as discussed below) as a result of these increases in tax deductions and tax basis of entities owned by
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. The payments that Oaktree Holdings, Inc. and Oaktree AIF
Holdings, Inc. may make to the OCGH unitholders could be material in amount.
Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, the
OCGH unitholders will not reimburse Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. for any payments that
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have been previously made under the tax receivable agreement. As a result, in certain circumstances, payments
could be made to the OCGH unitholders under the tax receivable agreement in excess of Oaktree Holdings, Inc.’s
and Oaktree AIF Holdings, Inc.’s cash tax savings. Their ability to achieve benefits from any tax basis increase,
and the payments to be made under the tax receivable agreement, will depend upon a number of factors, including
the timing and amount of our future income.
In addition, the tax receivable agreement provides that, upon a merger, asset sale or other form of business
combination or certain other changes of control, Oaktree Holdings, Inc.’s and Oaktree AIF Holdings, Inc.’s (or their
successors’) obligations with respect to exchanged units (whether exchanged before or after the change of control)
would be based on certain assumptions, including that they would have sufficient taxable income to fully utilize the
deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the
tax receivable agreement.
Risks Relating to United States Taxation
Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or
authority may be available and is subject to potential legislative, judicial or administrative change and
differing interpretations, possibly on a retroactive basis.
The U.S. federal income tax treatment of Class A unitholders depends in some instances on determinations
of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or
authority may be available. Our Class A unitholders should be aware that the U.S. federal income tax rules are
constantly under review by persons involved in the legislative process, the IRS and the United States Treasury
(“UST”), frequently resulting in revised interpretations of established concepts, statutory changes, revisions to
regulations and other modifications and interpretations. The IRS pays close attention to the proper application of
tax laws to partnerships. The present U.S. federal income tax treatment of an investment in our Class A units may
be modified by administrative, legislative or judicial interpretation at any time, and any such action may affect
investments and commitments previously made. Changes to the U.S. federal income tax laws and interpretations
thereof could make it more difficult or impossible to meet the qualifying income exception for us to be treated as a
partnership for U.S. federal income tax purposes that is not taxable as a corporation, cause us to change our
investments and commitments, affect the tax considerations of an investment in us, change the character or
treatment of portions of our income (including, for instance, the treatment of carried interest as ordinary income
rather than capital gain) and adversely affect an investment in our Class A units. For example, the U.S. Congress
has considered various legislative proposals to treat all or part of the capital gain and dividend income that is
recognized by an investment partnership and allocable to a partner affiliated with the sponsor of the partnership
(i.e., a portion of the incentive income) as ordinary income to such partner for U.S. federal income tax purposes.
Please see “—The U.S. Congress has considered legislation that would have taxed certain income and gains at
increased rates and may have precluded us from qualifying as a partnership for U.S. tax purposes. If any similar
legislation were to be enacted and apply to us, the after-tax income and gain related to our business, as well as the
market price of our Class A units, could be reduced.”
Our operating agreement permits our board of directors to modify our operating agreement from time to time,
without the consent of our Class A unitholders, to address certain changes in U.S. federal income tax regulations,
legislation or interpretation. In some circumstances, the revisions could have a material adverse impact on some or
all Class A unitholders. Moreover, we apply certain assumptions and conventions in an attempt to comply with
applicable rules and to report income, gain, deduction, loss and credit to Class A unitholders in a manner that
reflects such Class A unitholders’ beneficial ownership of partnership items, taking into account variation in
ownership interests during each taxable year because of trading activity. However, those assumptions and
conventions may not be in compliance with all aspects of applicable tax requirements. It is possible that the IRS will
assert successfully that the conventions and assumptions used by us do not satisfy the technical requirements of
the Code or UST regulations and could require that items of income, gain, deductions, loss or credit, including
interest deductions, be adjusted, reallocated or disallowed in a manner that adversely affects Class A unitholders.
If we were treated as a corporation for U.S. federal income tax or state tax purposes, then our distributions
to our Class A unitholders would be substantially reduced and the value of our Class A units would be
adversely affected.
The value of our Class A unitholders’ investment in us depends to a significant extent on our being treated as
a partnership for U.S. federal income tax purposes, which requires that 90% or more of our gross income for every
taxable year consist of qualifying income, as defined in Section 7704 of the Code, and that we not be required to be
registered under the Investment Company Act. Qualifying income generally includes dividends, interest, capital
gains from the sale or other disposition of stocks and securities and certain other forms of investment income. We
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may not meet these requirements or current law may change so as to cause us, in either event, to be treated as a
corporation for U.S. federal income tax purposes or otherwise subject to U.S. federal income tax. Moreover, the
anticipated after-tax benefit of an investment in our Class A units depends largely on our being treated as a
partnership for U.S. federal income tax purposes. We have not requested, and do not plan to request, a ruling from
the IRS on such matters.
If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income
tax on our taxable income at the corporate tax rate. Distributions to Class A unitholders would generally be taxed
again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to them.
Because a tax would be imposed upon us as a corporation, our distributions to Class A unitholders would be
substantially reduced, likely causing a substantial reduction in the value of our Class A units.
Current law may change, causing us to be treated as a corporation for U.S. federal or state income tax
purposes or otherwise subjecting us to entity-level taxation. Please see “—The U.S. Congress has considered
legislation that would have taxed certain income and gains at increased rates and may have precluded us from
qualifying as a partnership for U.S. tax purposes. If any similar legislation were to be enacted and apply to us, the
after-tax income and gain related to our business, as well as the market price of our Class A units, could be
reduced.” For example, because of widespread state budget deficits, several states have evaluated ways to
subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of
taxation. If any state were to impose a tax upon us as an entity, our distributions to our Class A unitholders would
be reduced.
Our Class A unitholders may be subject to U.S. federal income tax on their share of our taxable income,
regardless of whether they receive any cash distributions from us.
As long as 90% of our gross income for each taxable year constitutes qualifying income as defined in
Section 7704 of the Code and we are not required to register as an investment company under the Investment
Company Act on a continuing basis, and assuming there is no change in law (please see “—The U.S. Congress has
considered legislation that would have taxed certain income and gains at increased rates and may have precluded
us from qualifying as a partnership for U.S. tax purposes. If any similar legislation were to be enacted and apply to
us, the after-tax income and gain related to our business, as well as the market price of our Class A units, could be
reduced.”), we will be treated, for U.S. federal income tax purposes, as a partnership and not as an association or a
publicly traded partnership taxable as a corporation. Accordingly, our Class A unitholders will be required to take
into account their allocable share of our items of income, gain, loss and deduction. Distributions to our Class A
unitholders will generally be taxable for U.S. federal income tax purposes only to the extent the amount distributed
exceeds their tax basis in the Class A unit. That treatment contrasts with the treatment of a shareholder in a
corporation. For example, a shareholder in a corporation who receives a distribution of earnings from the
corporation will generally report the distribution as dividend income for U.S. federal income tax purposes. In
contrast, a holder of our Class A units who receives a distribution of earnings from us will not report the distribution
as dividend income (and will treat the distribution as taxable only to the extent the amount distributed exceeds the
Class A unitholder’s tax basis in the Class A units), but will instead report the holder’s allocable share of items of our
income for U.S. federal income tax purposes. As a result, our Class A unitholders may be subject to U.S. federal,
state, local and possibly, in some cases, foreign income taxation on their allocable share of our items of income,
gain, loss, deduction and credit (including our allocable share of those items of any entity in which we invest that is
treated as a partnership or is otherwise subject to tax on a flow-through basis) for each of our taxable years ending
with or within their taxable year, regardless of whether or not our Class A unitholders receive cash distributions from
us.
Our Class A unitholders may not receive cash distributions equal to their allocable share of our net taxable
income or even the tax liability that results from that income. In addition, certain of our holdings, including holdings,
if any, in a controlled foreign corporation (“CFC”) or a passive foreign investment company (“PFIC”), may produce
taxable income prior to the receipt of cash relating to such income, and Class A unitholders may be required to take
that income into account in determining their taxable income. In the event of an inadvertent termination of our
partnership status, for which limited relief may be available, each holder of our Class A units may be obligated to
make such adjustments as the IRS may require to maintain our status as a partnership. These adjustments may
require persons holding our Class A units to recognize additional amounts in income during the years in which they
hold such units.
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A portion of our interest in the Oaktree Operating Group is held through Oaktree Holdings, Inc. and Oaktree
AIF Holdings, Inc., which are treated as corporations for U.S. federal income tax purposes and may be
liable for significant taxes that could potentially adversely affect the value of our Class A units.
In light of the publicly traded partnership rules under U.S. federal income tax law and other requirements, we
hold a portion of our interest in the Oaktree Operating Group through Oaktree Holdings, Inc. and Oaktree AIF
Holdings, Inc., which are treated as corporations for U.S. federal income tax purposes. Oaktree Holdings, Inc. and
Oaktree AIF Holdings, Inc. could be liable for significant U.S. federal income taxes and applicable state, local and
other taxes (including taxes imposed as a result of audits by taxing authorities of such entities’ tax returns) that
would not otherwise be incurred, which could adversely affect the value of our Class A units. Those additional taxes
do not apply to the OCGH unitholders to the extent they own equity interests in the Oaktree Operating Group
entities through OCGH.
The U.S. Congress has considered legislation that would have taxed certain income and gains at increased
rates and may have precluded us from qualifying as a partnership for U.S. tax purposes. If any similar
legislation were to be enacted and apply to us, the after-tax income and gain related to our business, as
well as the market price of our Class A units, could be reduced.
Over the past several years, a number of legislative and administrative proposals have been introduced and,
in certain cases, have been passed by the U.S. House of Representatives that would have, in general, treated
income and gains, including gain on sale, attributable to an investment services partnership interest (“ISPI”) as
income subject to a new blended tax rate that is higher than under current law, except to the extent such ISPI would
have been considered under the legislation to be a qualified capital interest. Your interest in us, our interest in
Oaktree Holdings, LLC and the interests that Oaktree Holdings, LLC holds in entities that are entitled to receive
incentive income may have been classified as ISPIs for purposes of this legislation. It is unclear when or whether
the U.S. Congress will pass such legislation or what provisions will be included in any final legislation, if enacted.
The most recent legislative proposals provided that, for taxable years beginning ten years after the date of
enactment, income derived with respect to an ISPI that is not a qualified capital interest and that is subject to the
rules discussed above would not meet the qualifying income requirements under the publicly traded partnership
rules. Therefore, if similar legislation is enacted, following such ten-year period, we would be precluded from
qualifying as a partnership for U.S. federal income tax purposes or be required to hold all such ISPIs through
corporations, possibly U.S. corporations. If we were taxed as a U.S. corporation or required to hold all ISPIs
through U.S. corporations, our effective income tax rate would increase significantly. The federal statutory rate for
corporations is currently 35%. In addition, we could be subject to increased state and local taxes. Furthermore,
you could be subject to tax on our conversion into a corporation or any restructuring required in order for us to hold
our ISPIs through a corporation.
The Obama administration submitted legislation to Congress that would tax income and gain, including gain
on sale, attributable to an ISPI at ordinary rates, with an exception for certain qualified capital interests. The
proposed legislation would also characterize certain income and gain in respect of ISPIs as non-qualifying income
under the publicly traded partnership rules after a ten-year transition period from the effective date, with an
exception for certain qualified capital interests. The Obama administration’s published revenue proposals for 2014
and prior years contained similar proposals.
Enactment of legislation that would treat gain from partnership interests held in connection with the
performance of investment management services as taxed at ordinary rates could cause our investment
professionals to incur a material increase in their tax liability with respect to their interests in OCGH and carried
interest in our investment funds. This might make it more difficult for us to incentivize, attract and retain these
professionals.
States and other jurisdictions have also considered legislation to increase taxes with respect to incentive
income. For example, New York considered legislation under which Class A unitholders could be subject to New
York state income tax on income in respect of our Class A units as a result of certain activities of our affiliates in
New York. This legislation would have been retroactive to January 1, 2010. It is unclear when or whether similar
legislation will be enacted.
Additional proposed changes in the U.S. and foreign taxation of businesses could adversely affect us.
The U.S. Congress, the Organization for Economic Co-operation and Development (“OECD”) and other
government and non-government agencies in jurisdictions in which we and our affiliates invest or do business have
maintained a focus on issues related to the taxation of multinational companies. The OECD, which represents a
coalition of member countries, is contemplating changes to numerous long-standing tax principles through its base
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erosion and profit shifting (“BEPS”) project, which is focused on a number of issues, including the shifting of profits
between affiliated entities in different tax jurisdictions. Additionally, the Obama administration has announced
proposals for potential reform to the U.S. federal income tax rules for businesses, including reducing the
deductibility of interest for corporations, reducing the top marginal rate on corporations and subjecting entities
currently treated as partnerships for tax purposes to an entity-level income tax similar to the corporate income tax.
Several of these proposals for reform if enacted by the U.S. or by other countries in which we or our affiliates invest
or do business could adversely affect our investment returns. It is unclear what any actual legislation would provide,
when it would be proposed or what its prospects for enactment would be.
Other proposals by members of Congress have contemplated the migration of the United States from a
“worldwide” system of taxation, pursuant to which U.S. corporations are taxed on their worldwide income, to a
territorial system where U.S. corporations are taxed only on their U.S. source income (subject to certain exceptions
for income derived in low-tax jurisdictions from the exploitation of tangible assets) at a top corporate tax rate that
would be 25%. The territorial tax system proposals envisage a revenue neutral result and consequently include
revenue raisers to offset the reduction in the tax rate and base which may or may not be detrimental to us. A
variation of this proposal contemplates a similar territorial U.S. tax system, but with more expansive U.S. taxation of
the foreign profits of non-U.S. subsidiaries of U.S. corporations. This proposal would also eliminate the withholding
tax exemption on portfolio interest debt obligations for investors residing in non-treaty jurisdictions. Whether and in
what form any such proposals will be enacted by the government is unknown, as are the ultimate consequences of
the proposed legislation.
Complying with certain tax-related requirements may cause us to invest through foreign or domestic
corporations subject to corporate income tax or enter into acquisitions, borrowings, financings or
arrangements we may not have otherwise entered into.
In order for us to be treated as a partnership for U.S. federal income tax purposes and not as an association
or publicly traded partnership taxable as a corporation, we must meet the qualifying income exception discussed
above on a continuing basis and we must not be required to register as an investment company under the
Investment Company Act. In order to effect such treatment, we (or our subsidiaries) may be required to invest
through foreign or domestic corporations subject to corporate income tax, forgo attractive investment opportunities
or enter into acquisitions, borrowings, financings or other transactions we may not have otherwise entered into.
This may adversely affect our ability to operate solely to maximize our cash flow.
Changes in U.S. and foreign tax law could adversely affect our ability to raise funds from certain investors.
Under the U.S. Foreign Account Tax Compliance Act (“FATCA”), U.S. withholding agents and all entities in a
broadly defined class of foreign financial institutions (“FFIs”), are required to comply with a complicated and
expansive reporting regime or be subject to a 30% United States withholding tax on certain U.S. payments (and
beginning in 2017, a 30% withholding tax on gross proceeds from the sale of U.S. stocks and securities) and non
U.S. entities which are not FFIs are required to either certify they have no substantial U.S. beneficial ownership or
to report certain information with respect to their substantial U.S. beneficial ownership or be subject to a 30% U.S.
withholding tax on certain U.S. payments (and beginning in 2017, a 30% withholding tax on gross proceeds from
the sale of U.S. stocks and securities). The reporting obligations imposed under FATCA require these foreign
financial institutions to enter into agreements with the IRS to obtain and disclose information about certain investors
to the IRS. Additionally, certain non-U.S. entities that are not foreign financial institutions are required to provide
certain certifications or other information regarding their U.S. beneficial ownership or be subject to certain U.S.
withholding taxes. In addition, the administrative and economic costs of compliance with FATCA may discourage
some foreign investors from investing in U.S. funds, which could adversely affect our ability to raise funds from
these investors. Other countries, such as the United Kingdom, are evaluating and implementing regimes similar to
that of FATCA. The enactment of such regimes could result in increased administrative and compliance costs and
could subject our investment entities to increased non-U.S. withholding taxes.
Taxable gain or loss on disposition of our Class A units could be more or less than expected.
If a unitholder sells its Class A units, it will recognize a gain or loss equal to the difference between the
amount realized and the adjusted tax basis in those Class A units. Prior distributions to such unitholder in excess of
the total net taxable income allocated to it, which decreased the tax basis in its Class A units, will in effect become
taxable income to such unitholder if the Class A units are sold at a price greater than its tax basis in those Class A
units, even if the price is less than the original cost. A substantial portion of the amount realized, whether or not
representing gain, may be ordinary income to such selling unitholder.
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We may hold or acquire certain investments through entities classified as a PFIC or CFC for U.S. federal
income tax purposes.
Certain of our funds’ investments may be in foreign corporations or may be acquired through a foreign
subsidiary that would be classified as a corporation for U.S. federal income tax purposes. Such an entity may be a
PFIC or a CFC for U.S. federal income tax purposes. Class A unitholders indirectly owning an interest in a PFIC or
a CFC may experience adverse U.S. tax consequences. For example, a portion of the amount a unitholder realizes
on a sale of their Class A units may be recharacterized as ordinary income. In addition, Oaktree Holdings, Ltd. is
treated as a CFC for U.S. federal income tax purposes, and, as such, each Class A unitholder that is a U.S. person
is required to include in income its allocable share of Oaktree Holdings, Ltd.’s “Subpart F” income reported by us.
Non-U.S. persons face unique U.S. tax issues from owning Class A units that may result in adverse tax
consequences to them.
In light of our intended investment activities, we may be treated as engaged in a U.S. trade or business for
U.S. federal income tax purposes, which may cause some portion of our income to be treated as effectively
connected income (“ECI”) with respect to non-U.S. holders. Moreover, dividends paid by an investment that we
make in a real estate investment trust (“REIT”) that are attributable to gains from the sale of U.S. real property
interests and sales of certain investments in interests in U.S. real property, including stock of certain U.S.
corporations owning significant U.S. real property, may be treated as ECI with respect to non-U.S. holders.
To the extent our income is treated as ECI, non-U.S. holders generally would be subject to withholding tax on
their allocable shares of such income, would be required to file U.S. federal income tax returns for such year
reporting their allocable shares of income effectively connected with such trade or business and any other income
treated as ECI and would be subject to U.S. federal income tax at regular U.S. tax rates on any such income (state
and local income taxes and filings may also apply in that event). Non-U.S. holders that are corporations may also
be subject to a 30% branch profits tax on their allocable share of such income. In addition, certain income from
U.S. sources that is not ECI allocable to non-U.S. holders will be reduced by withholding taxes imposed at the
highest effective applicable tax rate. A portion of any gain recognized by a non-U.S. holder on the sale or exchange
of Class A units could also be treated as ECI.
Tax-exempt entities face unique tax issues from owning Class A units that may result in adverse tax
consequences to them.
In light of our intended investment activities, we may derive income that constitutes unrelated business
taxable income (“UBTI”). Consequently, a holder of Class A units that is a tax-exempt entity (including an individual
retirement account or a 401(k) plan participant) may be subject to unrelated business income tax to the extent that
its allocable share of our income consists of UBTI. A tax-exempt partner of a partnership could be treated as
earning UBTI if the partnership regularly engages in a trade or business that is unrelated to the exempt function of
the tax-exempt partner, if the partnership derives income from debt-financed property or if the partnership interest
itself is debt-financed.
We have adopted and may adopt certain income tax accounting positions that may not conform with all
aspects of applicable tax requirements. The IRS may challenge this treatment, which could adversely affect
the value of our Class A units.
We have adopted and may adopt depreciation, amortization and other tax accounting positions that may not
conform with all aspects of existing UST regulations. A successful IRS challenge to those positions could adversely
affect the amount of tax benefits available to our Class A unitholders. It also could affect the timing of these tax
benefits or the amount of gain on the sale of Class A units and could have a negative impact on the value of our
Class A units or result in audits of and adjustments to our Class A unitholders’ tax returns.
The sale or exchange of 50% or more of our capital and profit interests will result in the termination of our
partnership for U.S. federal income tax purposes.
We will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or
exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. Our
termination would, among other things, result in the closing of our taxable year for all Class A unitholders and could
result in a deferral of depreciation deductions allowable in computing our taxable income.
Class A unitholders may be subject to foreign, state and local taxes and return filing requirements as a
result of investing in our Class A units.
In addition to U.S. federal income taxes, our Class A unitholders may be subject to other taxes, including
foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are
58
imposed by the various jurisdictions in which we do business or own property now or in the future, even if our
Class A unitholders do not reside in any of those jurisdictions. Our Class A unitholders may be required to file
foreign, state and local income tax returns and pay foreign, state and local income taxes in some or all of these
jurisdictions. Furthermore, Class A unitholders may be subject to penalties for failure to comply with those
requirements. It is the responsibility of each Class A unitholder to file all U.S. federal, foreign, state and local tax
returns that may be required of such Class A unitholder.
Although we expect to provide estimates by February 28 of each year, we do not expect to be able to
furnish definitive Schedule K-1s to IRS Form 1065 to each unitholder prior to the deadline for filing U.S.
income tax returns, which means that holders of Class A units who are U.S. taxpayers may want to file
annually a request for an extension of the due date of their income tax returns.
It may require a substantial period of time after the end of our fiscal year to obtain the requisite information
from all lower-tier entities to enable us to prepare and deliver Schedule K-1s to IRS Form 1065. Notwithstanding
the foregoing, we expect to provide estimates of such tax information (including a Class A unitholder’s allocable
share of our income, gain, loss and deduction for our preceding year) by February 28 of the year following each
year; however, there is no assurance that the Schedule K-1s, which will be provided after the estimates, will be the
same as our estimates. For this reason, holders of Class A units who are U.S. taxpayers may want to file with the
IRS (and certain states) a request for an extension past the due date of their income tax returns.
In addition, it is possible that a Class A unitholder will be required to file amended income tax returns as a
result of adjustments to items on the corresponding income tax returns of the partnership. Any obligation for a Class
A unitholder to file amended income tax returns for that or any other reason, including any costs incurred in the
preparation or filing of such returns, is the responsibility of each Class A unitholder.
Tax consequences to the OCGH unitholders may give rise to conflicts of interests.
As a result of an unrealized built-in gain attributable to the value of our assets held by the Oaktree Operating
Group entities at the time of the 2007 Private Offering and unrealized built-in gain attributable to OCGH at the time
of our initial public offering in April 2012, upon the taxable sale, refinancing or disposition of the assets owned by
the Oaktree Operating Group entities, the OCGH unitholders may incur different and significantly greater tax
liabilities as a result of the disproportionately greater allocations of items of taxable income and gain to the OCGH
unitholders upon a realization event. As the OCGH unitholders will not receive a corresponding greater distribution
of cash proceeds, they may, subject to applicable fiduciary or contractual duties, have different objectives regarding
the appropriate pricing, timing and other material terms of any sale, refinancing or disposition, or whether to sell
such assets at all. Decisions made with respect to an acceleration or deferral of income or the sale or disposition of
assets may also influence the timing and amount of payments that are received by an exchanging or selling OCGH
unitholder under the tax receivable agreement. Decisions made regarding a change of control also could have a
material influence on the timing and amount of payments received by the OCGH unitholders pursuant to the tax
receivable agreement. Because our senior executives hold their economic interest in our business primarily
through OCGH and control both us and our manager (which is entitled to designate all the members of our board of
directors), these differing objectives may give rise to conflicts of interest. We will be entitled to resolve these
conflicts as described elsewhere in this annual report. Please see “—Risks Relating to Our Organization and
Structure—Our senior executives and executive officers hold only a nominal amount of their economic interest in
the Oaktree Operating Group through us, which may give rise to conflicts of interest, and it is difficult for a Class A
unitholder to successfully challenge a resolution of a conflict of interest by us.”
Due to uncertainty in the proper application of applicable law, we may over-withhold or under-withhold on
distributions to Class A unitholders.
For each calendar year, we will report to Class A unitholders and the IRS the amount of distributions we
made to Class A unitholders and the amount of U.S. federal income tax (if any) that we withheld on those
distributions. The proper application to us of rules for withholding under Section 1441 of the Code (applicable to
certain dividends, interest and similar items) is unclear. Because the documentation we receive may not properly
reflect the identities of Class A unitholders at any particular time (in light of possible sales of Class A units), we may
over-withhold or under-withhold with respect to a particular holder of Class A units. For example, we may impose
withholding, remit that amount to the IRS and thus reduce the amount of a distribution paid to a non-U.S. Holder. It
may turn out, however, that the corresponding amount of our income was not properly allocable to such holder, and
the withholding should have been less than the actual withholding. Such holder would be entitled to a credit against
the holder’s U.S. tax liability for all withholding, including any such excess withholding, but if the withholding
exceeded the holder’s U.S. tax liability, the holder would have to apply for a refund to obtain the benefit of the
excess withholding. Similarly, we may fail to withhold on a distribution, and it may turn out that the corresponding
59
income was properly allocable to a non-U.S. Holder and withholding should have been imposed. In that event, we
intend to pay the under-withheld amount to the IRS, and we may treat such under-withholding as an expense that
will be borne by all holders of Class A units on a pro rata basis (since we may be unable to allocate any such
excess withholding tax cost to the relevant non-U.S. holder).
Certain U.S. holders of common units are subject to additional tax on “net investment income.”
U.S. holders that are individuals, estates or trusts are subject to a Medicare tax of 3.8% on “net investment
income” (or undistributed “net investment income,” in the case of estates and trusts) for each taxable year, with
such tax applying to the lesser of such income or the excess of such person’s adjusted gross income (with certain
adjustments) over a specified amount. Net investment income includes net income from interest, dividends,
annuities, royalties and rents and net gain attributable to the disposition of investment property. It is anticipated that
net income and gain attributable to an investment in our Class A units will be included in a U.S. holder’s “net
investment income” subject to this Medicare tax.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Properties
Our principal executive offices are located in leased office space at 333 South Grand Avenue, 28th Floor, Los
Angeles, California 90071. We also lease the space for our offices in New York City, Stamford, Houston, London,
Frankfurt, Paris, Beijing, Hong Kong, Shanghai, Seoul, Singapore, Tokyo and Dubai. Certain affiliates of our
managed funds lease office space in Amsterdam, Luxembourg and Dublin. We do not own any real property. We
consider our facilities to be suitable and adequate for the management and operation of our business.
Item 3. Legal Proceedings
For a discussion of legal proceedings, please see the section entitled “Legal actions” in note 13 to our
consolidated financial statements included elsewhere in this annual report, which section is incorporated herein by
reference.
Item 4. Mine Safety Disclosures
None.
60
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our Class A units are traded on the NYSE under the symbol “OAK” and began trading on the NYSE on April
12, 2012. The following table sets forth the high and low intra-day sales prices per unit of our Class A units, for the
periods indicated, as reported by the NYSE:
2014
2013
High
Low
High
Low
First Quarter .......................................................................................... $ 62.30
Second Quarter .....................................................................................
58.46
Third Quarter .........................................................................................
Fourth Quarter .......................................................................................
52.25
52.00
$ 56.13
$ 53.55
$ 45.17
49.13
47.36
45.30
59.50
55.91
59.12
48.87
51.01
52.17
The number of holders of record of our Class A units as of February 24, 2015 was 8. This does not include
the number of Class A unitholders that hold units in “street-name” through banks or broker-dealers.
Cash Distribution Policy
We intend to make distributions to our Class A unitholders quarterly, following the respective quarter end.
Distributions to our Class A unitholders are funded by our share of the Oaktree Operating Group’s distributions. We
use distributable earnings, a non-GAAP performance measure derived from our segment results, to measure our
earnings at the Oaktree Operating Group level without the effects of the consolidated funds for purposes of, among
other things, assisting in the determination of equity distributions from the Oaktree Operating Group. By excluding
the results of our consolidated funds and segment investment income or loss, which are not directly available to
fund our operations or make equity distributions, and including the portion of distributions from Oaktree and non-
Oaktree funds and companies to us that is deemed the profit or loss component of the distributions and not a return
of our capital contributions, distributable earnings aids us in measuring amounts that are actually available to meet
our obligations under the tax receivable agreement and our liabilities for expenses incurred at OCG and the
Intermediate Holding Companies, as well as for distributions to Class A and OCGH unitholders.
We intend to distribute substantially all of the excess of our share of distributable earnings, net of income
taxes, as determined by our board of directors after taking into account factors it deems relevant, such as, but not
limited to, working capital levels, known or anticipated cash needs, business and investment opportunities, general
economic and business conditions, our obligations under our debt instruments or other agreements, our compliance
with applicable laws, the level and character of taxable income that flows through to our Class A unitholders, the
availability and terms of outside financing, the possible repurchase of our Class A units in open market transactions,
in privately negotiated transactions or otherwise, providing for future distributions to our Class A unitholders, and
growing our capital base. We are not currently restricted by any contract from making distributions to our
unitholders, although certain of our subsidiaries are bound by credit agreements that contain certain restricted
payment and/or other covenants, which may have the effect of limiting the amount of distributions that we receive
from our subsidiaries. In addition, we are not permitted to make a distribution under Section 18-607 of the
Delaware Limited Liability Company Act if, after giving effect to the distribution, our liabilities would exceed the fair
value of our assets.
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. Please see “Risk Factors
—Risks Relating to Our Class A Units—We cannot assure you that our intended quarterly distributions will be paid
each quarter or at all.”
Class A unitholders receive their share of these distributions by the Oaktree Operating Group, net of
expenses that we and our Intermediate Holding Companies bear directly, such as income taxes or payment
obligations under the tax receivable agreement. Our quarterly distributable earnings may be affected by potential
seasonal factors that may, in turn, affect the level of the cash distributions applicable to a particular quarter. For
example, we generally receive tax-related incentive distributions from certain closed-end funds in the first quarter of
61
the year, which if received generate distributable earnings in that period. The distribution amount for any given
period is likely to vary materially due to this and other factors.
Certain transactions involving the exchange of OCGH units, including our 2007 Private Offering, initial public
offering, and May 2013 and March 2014 follow-on offerings, increase the tax basis of the tangible and intangible
assets of the Oaktree Operating Group. Assuming no material changes in the relevant tax law and that we earn
sufficient taxable income to realize the full tax benefit of the increased amortization of our assets, we expect that
reductions in future quarterly distributions to Class A unitholders associated with payments under the tax receivable
agreement will aggregate $295.1 million through 2035. As shown in the table below, we estimate that an aggregate
$16.7 million of that total will reduce fiscal year 2015’s four quarterly distributions to Class A unitholders, which will
be funded by adjustments taken in arriving at the cash distribution payable per Class A unit. Future estimated
reductions in quarterly distributions to Class A unitholders associated with payments under the tax receivable
agreement are subject to increase in the event of additional exchanges of OCGH units. These reductions are in
addition to reductions for income taxes and other expenses that Oaktree or its Intermediate Holding Companies
bear directly.
Transactions
Fiscal Year
2014
Reductions (1)
2007 Private Offering .......................................................... $
Initial public offering ............................................................
May 2013 Offering ..............................................................
March 2014 Offering ...........................................................
Total .................................................................................... $
3.5
4.1
5.3
3.0
Future Estimated Reductions Associated
With the Tax Receivable Agreement
Total Future
Aggregate
Reductions
($ in millions)
$
39.5
74.9
103.7
77.0
Fiscal Year
2015
Reductions (1)
Reductions
Through
Fiscal Year
$
3.6
4.2
5.2
3.7
2029
2033
2034
2035
15.9
$
295.1
$
16.7
(1) This column represents reductions in quarterly distributions to Class A unitholders associated with payments
under the tax receivable agreement attributable to the applicable fiscal year.
Set forth below are the distributions per Class A unit that were paid on the indicated payment dates to the
holders of record as of a date that was two to four business days prior to the payment date.
Payment Date
February 25, 2015
November 13, 2014
August 14, 2014
May 15, 2014
Applicable to Quarterly
Period Ended
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
Total fiscal year 2014 .................................................................................................................................. $
February 27, 2014
November 15, 2013
August 20, 2013
May 21, 2013
Total fiscal year 2013 .................................................................................................................................. $
December 31, 2013
September 30, 2013
June 30, 2013
March 31, 2013
$
March 1, 2013
November 20, 2012
August 21, 2012
May 25, 2012
December 31, 2012
September 30, 2012
June 30, 2012
March 31, 2012
$
Total fiscal year 2012 .................................................................................................................................. $
62
Distribution
per Unit
$
0.56
0.62
0.55
0.98
2.71
1.00
0.74
1.51
1.41
4.66
1.05
0.55
0.79
0.55
2.94
Unregistered Sales of Equity Securities and Purchases of Equity Securities in the Fourth Quarter of 2014
On November 18, 2014, the Company issued an aggregate of 284,049 Class A units to certain directors and
employees, including certain senior executives, in exchange for OCGH units held by them on a one-for-one basis
pursuant to the terms of the exchange agreement described under “Certain Relationships and Related
Transactions, and Director Independence—Exchange Agreement.” The issuances of the Class A units were
exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, as transactions
by an issuer not involving any public offering.
Item 6. Selected Financial Data
The following sets forth selected historical consolidated financial and other data of Oaktree Capital Group,
LLC as of and for the years ended December 31, 2014, 2013, 2012, 2011 and 2010. The following data should be
read together with “—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
the historical financial statements and related notes included elsewhere in this annual report.
We derived the selected historical financial data as of and for the years ended December 31, 2014, 2013,
2012, 2011 and 2010 from our audited consolidated financial statements. The audited consolidated statements of
operations for the years ended December 31, 2014, 2013 and 2012 and the consolidated statements of financial
condition as of December 31, 2014 and 2013 are included elsewhere in this annual report. The audited
consolidated statements of operations and financial condition for all other periods are not included in this annual
report. The selected historical financial data are not necessarily indicative of the expected future operating results
of Oaktree.
As of or for the Year Ended December 31,
2014
2013
2012
2011
2010
(in thousands, except per unit data or as otherwise indicated)
Consolidated Statements of Operations Data:
Total revenues .......................................................................... $
193,894
$
194,922
$
144,983
$
155,770
$
206,181
Total expenses .........................................................................
(947,477)
(1,107,062)
(790,603)
(1,644,864)
(1,580,651)
Total other income ....................................................................
2,947,671
7,149,104
7,348,895
1,201,537
6,681,658
Income (loss) before income taxes ..........................................
2,194,088
6,236,964
6,703,275
(287,557)
5,307,188
Income taxes ............................................................................
(18,536)
(26,232)
(30,858)
(21,088)
(26,399)
Net income (loss) .....................................................................
2,175,552
6,210,732
6,672,417
(308,645)
5,280,789
Less:
Net income attributable to non-controlling interests in
consolidated funds .......................................................
Net (income) loss attributable to non-controlling interests
in consolidated subsidiaries .........................................
(1,649,890)
(5,163,939)
(6,016,342)
(233,573)
(5,493,799)
(399,379)
(824,795)
(548,265)
446,246
163,555
Net income (loss) attributable to OCG ...................................... $
126,283
Distributions declared per Class A unit ..................................... $
Net income (loss) per Class A unit ........................................... $
3.15
2.97
$
$
$
221,998
4.71
6.35
$
$
$
107,810
2.31
3.83
$
$
$
(95,972)
2.34
(4.23)
$
$
$
(49,455)
2.17
(2.18)
Weighted average number of Class A units outstanding ..........
42,582
34,979
28,170
22,677
22,677
63
As of or for the Year Ended December 31,
2014
2013
2012
2011
2010
(in thousands, except as otherwise indicated)
Consolidated Statements of Financial Condition Data:
Total assets .............................................................................. $ 53,344,062
$ 45,263,254
$ 43,869,998
$ 44,294,156
$ 47,843,660
Debt obligations .......................................................................
7,156,387
2,876,645
1,106,804
702,260
494,716
Non-controlling redeemable interests in consolidated funds ....
41,681,155
38,834,831
39,670,831
41,048,607
44,466,116
Segment Statements of Operations: (1)
Management fees .................................................................... $
764,492
$
749,901
$
747,440
$
724,321
$
750,031
Incentive income ......................................................................
Investment income ...................................................................
491,402
117,662
1,030,195
258,654
461,116
202,392
303,963
23,763
413,240
149,449
Total segment revenues ...................................................
1,373,556
2,038,750
1,410,948
1,052,047
1,312,720
Compensation and benefits ......................................................
(381,544)
(365,306)
(329,741)
(308,115)
(287,067)
Equity-based compensation .....................................................
Incentive income compensation ...............................................
General and administrative ......................................................
Depreciation and amortization ..................................................
Total expenses .................................................................
Interest expense, net of interest income (2) ...............................
Other income (expense), net ....................................................
(19,705)
(231,871)
(122,566)
(7,249)
(3,828)
(436,217)
(117,361)
(7,119)
(318)
(222,594)
(102,685)
(7,397)
—
—
(179,234)
(159,243)
(94,655)
(6,583)
(81,121)
(6,481)
(762,935)
(929,831)
(662,735)
(588,587)
(533,912)
(30,190)
(5,301)
(28,621)
(31,730)
409
767
(33,867)
(1,209)
(26,173)
11,243
Adjusted net income ................................................................. $
575,130
$ 1,080,707
$
717,250
$
428,384
$
763,878
Segment Statements of Financial Condition Data: (1)
Cash and cash-equivalents ...................................................... $
405,290
$
390,721
$
458,191
$
297,230
$
348,502
U.S. Treasury and government agency securities ....................
655,529
Corporate investments .............................................................
1,515,443
Total assets ..............................................................................
3,267,799
Debt obligations .......................................................................
850,000
Total liabilities ...........................................................................
1,549,410
Total unitholders’ capital ...........................................................
1,718,389
676,600
1,197,173
2,817,127
579,464
1,126,877
1,690,250
370,614
1,115,952
2,359,548
615,179
965,655
381,697
1,159,287
2,083,908
652,143
959,908
170,564
1,108,690
1,944,801
403,571
708,085
1,393,893
1,124,000
1,236,716
Operating Metrics:
Assets under management (in millions):
Assets under management .............................................. $
90,831
$
83,605
$
77,051
$
74,857
$
Management fee-generating assets under management .
Incentive-creating assets under management ..................
Uncalled capital commitments (3) ......................................
78,079
33,861
10,333
71,950
32,379
13,169
66,784
33,989
11,201
66,964
36,155
11,201
82,672
66,175
39,385
14,270
Accrued incentives (fund level): (4)
Incentives created (fund level) .........................................
164,370
1,168,836
911,947
(75,916)
889,721
Incentives created (fund level), net of associated
incentive income compensation expense .....................
24,228
549,545
493,005
(14,143)
540,701
Accrued incentives (fund level) ........................................
1,949,407
2,276,439
2,137,798
1,686,967
2,066,846
Accrued incentives (fund level), net of associated
incentive income compensation expense .....................
999,923
1,235,226
1,282,194
1,027,711
1,166,583
(1) Our business is comprised of one segment, our investment management segment, which consists of the investment management
services that we provide to our clients. The components of revenues and expenses used in determining adjusted net income do not give
effect to the consolidation of the funds that we manage. Segment revenues include investment income (loss) that is classified in other
income (loss) in the GAAP-basis statements of operations. Segment revenues and expenses also reflect Oaktree’s proportionate
economic interest in Highstar, whereby amounts received for contractually reimbursable costs are included with segment expenses, as
compared to being recorded as other income under GAAP. In addition, adjusted net income excludes the effect of (a) non-cash equity
compensation charges related to unit grants made before our initial public offering, (b) acquisition-related items including amortization of
intangibles and changes in the contingent consideration liability, (c) differences arising from equity value units that are classified as liability
awards under GAAP, but classified as equity awards for segment reporting purposes, (d) income taxes, (e) other income or expenses
applicable to OCG or its Intermediate Holding Companies and (f) the adjustment for the OCGH non-controlling interest. Incentive income
and incentive income compensation expense are included in adjusted net income 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
64
GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and
reasonably estimable. Adjusted net income is calculated at the Operating Group level. For additional information regarding these
reconciling adjustments, as well as reconciliations of segment total assets to consolidated total assets, please see the “Segment
Reporting” note to our consolidated financial statements included elsewhere in this annual report.
Interest income was $3.6 million, $3.2 million, $2.6 million, $2.3 million and $1.9 million for the years ended December 31, 2014, 2013,
2012, 2011 and 2010, respectively.
(2)
(3) Uncalled capital commitments represent undrawn capital commitments by partners (including Oaktree as general partner) of our closed-
end funds in their investment periods and certain evergreen funds. If a fund distributes capital during its investment period, that capital is
typically subject to possible recall, in which case it is included in uncalled capital commitments.
(4) Our funds record as accrued incentives the incentive income that would be paid to us if the funds were liquidated at their reported values
as of the date of the financial statements. Incentives created (fund level) refers to the gross amount of potential incentives generated by
the funds during the period. We refer to the amount of incentive income recognized as revenue by us as segment incentive income.
Amounts recognized by us as incentive income no longer are 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 other factors.
65
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial
statements of Oaktree Capital Group, LLC and the related notes included within this annual report. This discussion
contains forward-looking statements that are subject to risks and uncertainties and assumptions relating to our
operations, financial results, financial condition, business prospects, growth strategy and liquidity. The factors listed
under “Risk Factors” and “Forward-Looking Statements” in this annual report provide examples of risks,
uncertainties and events that may cause our actual results to differ materially from the expectations described in
any forward-looking statements.
Business Overview
Oaktree is a leader among global investment managers specializing in alternative investments, with $90.8
billion in AUM as of December 31, 2014. We emphasize an opportunistic, value-oriented and risk-controlled
approach to investments in distressed debt, corporate debt (including high yield debt and senior loans), control
investing, convertible securities, real estate and listed equities. Over nearly three decades, we have developed a
large and growing client base through our ability to identify and capitalize on opportunities for attractive investment
returns in less efficient markets.
We manage assets on behalf of many of the most significant institutional investors in the world. Our
clientele has nearly doubled over the past decade, to more than 2,000, including 74 of the 100 largest U.S. pension
plans, 39 states in the United States, 407 corporations and/or their pension funds, 351 university, charitable and
other endowments and foundations, 14 sovereign wealth funds and approximately 300 other non-U.S. institutional
investors. As measured by AUM, 42% of our clients are invested in two or three different investment strategies, and
33% are invested in four or more. We serve these clients with 927 employees, including 218 employee-owners,
from offices in 17 cities across 12 countries, of which the largest offices are in Los Angeles (headquarters), London,
New York City and Hong Kong.
Our business is comprised of one segment, our investment management segment, which consists of the
investment management services that we provide to our clients. Our segment revenue flows from the management
fees and incentive income generated by the funds that we manage, as well as the investment income earned from
the investments we make in our funds, third-party funds and other companies. The management fees that we
receive are based on the contractual terms of the relevant fund and are typically calculated as a fixed percentage of
the capital commitments (as adjusted for distributions during a fund’s liquidation period), drawn capital or NAV of
the particular fund. Incentive income represents our share (typically 20%) of the investors’ profits in most of the
closed-end and certain evergreen funds. Investment income refers to the investment return on a mark-to-market
basis and our equity participation on the amounts that we invest in Oaktree and third-party funds, as well as in other
companies.
Business Environment and Developments
As a global investment manager, we are affected by myriad factors, including the condition of the economy
and financial markets; the relative attractiveness of our investment strategies and investors’ demand for them; and
regulatory or other governmental policies or actions. The diversified nature of both our array of investment
strategies and our revenue mix historically has allowed us to benefit from both strong and weak environments.
Weak economies and the declining financial markets that typically accompany them tend to dampen our revenues
from asset-based management fees, investment realizations or price appreciation, but their prospect can result in
our raising relatively large amounts of capital for certain strategies, especially Distressed Debt. Additionally, during
weak financial markets there often is expanded availability of bargain investments for purchase. Conversely, the
strong phase of the economic cycle generally increases the value of our investments and therefore the fees that are
based on asset value, and creates favorable exit opportunities (and often incentive income and higher investment
income proceeds).
In 2014, as the world economy continued struggling to recover from the 2008-09 global financial crisis, in
many respects the U.S. became known as “the best house on a bad block.” The U.S. economy generally
maintained a positive trajectory during 2014, leading the U.S. Federal Reserve to end its multi-year asset purchase
program in October. However, the uneven nature of the U.S.’s economic growth, coupled with persistent economic
weakness in many other global regions, caused the Federal Reserve to further delay its long-anticipated increase in
short-term interest rates. Slowing growth in China contributed to weakness in commodity prices. Supply/demand
imbalance caused oil prices to plunge 50%, weakening currencies and economies of oil-exporting nations and
roiling industry sectors sensitive to oil prices. Against this backdrop, major equity markets rose in the U.S., while
66
generally falling in Europe and most emerging markets. Credit markets also were mixed. In the U.S., government
and investment-grade debt rose in price, while high yield bond prices fell, in part due to that market’s significant
exposure to the energy industry. The yield on the 10-year U.S. Treasury note finished the year at 2.2%, after
starting 2014 at 3.0%. Emerging markets debt underperformed relative to other asset classes. Credit
differentiation assumed particular relevance as a fall in oil and commodity prices and certain geopolitical events
drove diverging performance among countries and industries.
The mixed performance of economies and financial markets contributed to an overall gross return of 9.0%
across our closed-end funds in 2014, lower than the since-inception gross IRR of 19.6%. Real Estate and
European Principal Investing, two of our fastest-growing closed-end fund strategies, had the strongest gross returns
in 2014, at 28% and 20%, respectively. Distressed Debt, the strategy that during 2014 had the largest share of both
our corporate investments and incentive-creating AUM, had an aggregate gross return of 1% in 2014, as compared
with 24% in 2013 and 23% since-inception. The Distressed Debt returns negatively impacted our investment
income and incentives created (fund level) for 2014. At the same time, the pockets of economic weakness or
financial market turmoil afforded our funds better investing opportunities. Sectors or regions currently offering some
of the best investment opportunities include real estate, Europe, energy, shipping and infrastructure. We capitalize
on these and other opportunities through our existing funds and strategies, as well as our newer product offerings.
Closed-end funds in our existing strategies we are currently marketing include Mezz IV, Oaktree Principal
Fund VI, L.P. (“PF VI”), Oaktree Opportunities Funds X and Xb, L.P. (“Opps X and Xb”), Oaktree Power
Opportunities Fund IV, L.P. (“Power Fund IV”) and Oaktree Real Estate Opportunities Fund VII, L.P. (“ROF VII”).
New products continue to be key elements of our asset growth. Of the $14.7 billion of gross capital we raised in
2014, $7.6 billion represented investment strategies and products developed over the last four years. These
strategies included Strategic Credit, Real Estate Debt, Emerging Markets Opportunities, Emerging Markets
Equities, European Private Debt and levered senior loan vehicles, such as Enhanced Income and CLOs.
The three-year period prior to 2014 featured particularly large realizations, and subsequent distributions to
investors, by our large crisis-era Distressed Debt fund Opps VIIb and, to a lesser extent, other closed-end funds in
their liquidation period. In part due to lower remaining assets in these funds entering 2014, the level of distributions
by our closed-end funds fell from $12.0 billion in 2013 to $7.0 billion in 2014, causing a significant decline in
incentive income as between the two years. Based on the status of accrued incentives (fund level) as of December
31, 2014, over the near term incentive income is not expected to increase from its 2014 level. Specifically, of the
$1.0 billion in net accrued incentives (fund level) as of December 31, 2014, $420.7 million represented Opps VIIb or
other funds that as of that date were currently paying incentives, with the remainder arising from funds that, as of
December 31, 2014, had not yet reached the stage of their cash distribution waterfall where we are entitled to
receive incentive income (other than tax-related incentive distributions). In contrast, as of December 31, 2013, the
equivalent portion of the total $1.2 billion of net accrued incentives (fund level) that was paying incentives was
$494.0 million.
Initial Public Offering
On April 12, 2012, Oaktree Capital Group, LLC listed its Class A units on the NYSE. In connection with the
listing, Oaktree sold 7,888,864 Class A units and selling unitholders sold 954,159 Class A units. Upon the
completion of the initial public offering, we owned approximately 20% of the Oaktree Operating Group, and our
senior executives controlled 98% of the total combined voting power of our units entitled to vote. We did not
receive any of the proceeds from the sale of Class A units by the selling unitholders, and we used the offering
proceeds from our issuance to acquire interests in our business from Oaktree’s senior executives, current and
former employees and other investors.
Business Combinations
On August 1, 2014, we completed our acquisition of Highstar for $31.4 million in cash, 100,595 fully-vested
OCGH units and contingent consideration of up to $60 million. Highstar is an investment management firm
specializing in U.S. energy infrastructure, waste management and transportation. The transaction, which was
immaterial to Oaktree’s consolidated financial statements, resulted in $50.8 million of goodwill and $28.0 million of
intangible assets, primarily consisting of contractual rights associated with the management of Highstar Capital IV,
L.P. (“HS IV”). Effective August 1, 2014, we consolidated the financial position and results of operations of the
controlled Highstar entities, including HS IV, and accounted for this transaction as a business combination.
67
Understanding Our Results—Consolidation of Oaktree Funds
GAAP requires that we consolidate substantially all of our closed-end, commingled open-end and
evergreen funds and CLOs in our financial statements, notwithstanding the fact that our equity investments in those
funds do not typically exceed 2.5% of any fund’s interests (or, in the case of CLOs, no more than 10% of the total
par value). Consolidated funds refer to those funds or CLOs in which we hold a general partner interest that gives
us substantive control rights over such funds or for which Oaktree is considered the primary beneficiary of a
variable interest entity (“VIE”). With respect to our consolidated funds, we generally have operational discretion and
control over the funds, and investors do not hold any substantive rights that would enable them to impact the funds’
ongoing governance and operating activities. The funds that we manage that were not consolidated, primarily
separate accounts, represented 36% of our AUM as of December 31, 2014, and 25% and 14% of our segment
management fees and segment revenues, respectively, for the year ended December 31, 2014.
We do not consolidate OCM/GFI Power Opportunities Fund II, L.P. and its related parallel fund (“Power
Fund II”) because we do not control this fund through a majority voting interest or otherwise. Power Fund II has two
general partners—one is an entity controlled by Oaktree and the other is an entity controlled by G3W Ventures LLC
(formerly, GFI Energy Ventures LLC), a third-party investment manager. The general partners have equal voting
rights; consequently, neither general partner is deemed to individually control the fund.
When a fund is consolidated, we reflect the assets, liabilities, revenues, expenses and cash flows of the
consolidated funds on a gross basis, and the majority of the economic interests in those funds, which are held by
third-party investors, are attributed to non-controlling interests in consolidated funds in the consolidated financial
statements. All of the revenues earned by us from those funds are eliminated in consolidation. However, because
the eliminated amounts are earned from and funded by non-controlling interests, our attributable share of the net
income from those funds is increased by the amounts eliminated. Thus, the elimination of those amounts in
consolidation has no effect on net income or loss attributable to us.
The elimination of the consolidated funds from our consolidated revenues causes our consolidated
revenues to be significantly impacted by fund flows and fluctuations in the market value of our separate accounts
because they are not consolidated. Note 17 to our consolidated financial statements included elsewhere in this
annual report includes information regarding our segment on a stand-alone basis. For a more detailed discussion
of the factors that affect the results of operations of our segment, please see “—Segment Analysis” below.
Revenues
Our business generates three types of segment revenue: management fees, incentive income and
investment income. Management fees are billed monthly or quarterly based on annual rates and are typically
earned for each of the funds that we manage. The contractual terms of management fees generally vary by fund
structure. Management fees also include performance-based fees earned from certain open-end and evergreen
fund accounts. We also have the opportunity to earn incentive income from most of our closed-end funds and
certain evergreen funds. Our closed-end funds generally provide that we receive incentive income only after our
investors receive the return of all of their contributed capital plus an annual preferred return, typically 8%. Once this
occurs, we generally receive as incentive income 80% of all distributions otherwise attributable to our investors, and
those investors receive the remaining 20% until we have received, as incentive income, 20% of all such
distributions in excess of the contributed capital from the inception of the fund. Thereafter, provided the preferred
return continues to be met, all such future distributions attributable to our investors are distributed 80% to those
investors and 20% to us as incentive income. Our third segment revenue source, investment income, represents
our pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds
and as an investor in our CLOs and third-party managed funds and companies.
Our consolidated revenues reflect the elimination of all management fees, incentive income and investment
income earned by us from our consolidated funds. Investment income is presented within the other income (loss)
section of our consolidated statements of operations. Please see “Business—Structure and Operation of Our
Business—Structure of Funds” included elsewhere in this annual report for a detailed discussion of the structure of
our funds.
Expenses
Compensation and Benefits
Compensation and benefits reflects all compensation-related items not directly related to incentive income,
investment income or the vesting of OCGH units and Class A units, including salaries, bonuses, compensation
based on management fees or a definition of profits, employee benefits, and phantom equity awards, which
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represent liability-classified awards subject to vesting and remeasurement at the end of each reporting period.
Phantom equity award expense reflects the vesting of those liability-classified awards, the equity distribution
declared in the period, if applicable, and changes in the Class A unit trading price.
Equity-based Compensation
Equity-based compensation reflects the non-cash charge associated with grants of Class A units, OCGH
units and OCGH equity value units (“EVUs”). While our consolidated financial statements include non-cash
compensation expense for units granted both before and after our initial public offering, adjusted net income
excludes non-cash equity-based compensation expense for units granted before our initial public offering. In
addition, EVUs that are classified as liability awards in the consolidated financial statements are reflected as equity-
classified awards in adjusted net income (please see “—Segment and Operating Metrics—Adjusted Net Income”
below). As of December 31, 2014, there was $148.4 million of unrecognized compensation expense that we expect
to recognize in our consolidated financial statements over a weighted average remaining vesting period of 4.7
years. As of December 31, 2014, there was $93.5 million of unrecognized compensation expense that we expect to
recognize in adjusted net income over a weighted average vesting period of approximately 4.8 years. These
amounts are subject to change as a result of future unit grants and possible modifications to award terms or
changes in estimated forfeiture rates.
The following table summarizes the estimated amount of equity-based compensation charges to be
included in adjusted net income:
Equity-based Compensation
Charges included in ANI
Estimated charge from grants
2015
2016
2017
2018
2019
Thereafter
Total
(in millions)
through February 2015 ..........
$
31.9
$
33.1
$
29.2
$
17.1
$
8.6
$
15.7
$
135.6
Incentive Income Compensation
Incentive income compensation expense primarily includes compensation directly related to segment
incentive income, which generally consists of percentage interests (sometimes referred to as “points”) that we grant
to our investment professionals associated with the particular fund that generated the segment incentive income,
and secondarily includes compensation directly related to investment income. There is no fixed percentage for this
compensation, either by fund or strategy. In general, within a particular strategy more recent funds have a higher
percentage of aggregate incentive income compensation expense than do older funds. The percentage that
consolidated incentive income compensation expense represents of the particular period’s consolidated incentive
income is not meaningful because of the fact that most segment incentive income is eliminated in consolidation,
whereas no incentive income compensation expense is eliminated in consolidation. For a meaningful percentage
relationship, please see “—Segment Analysis” below.
General and Administrative
General and administrative expense includes costs related to occupancy, outside auditors, tax
professionals, legal advisers, research, consultants, travel and entertainment, communications and information
services, foreign exchange activity, insurance and other general operating items of the Company. These expenses
are not borne by fund investors and are not offset by credits attributable to fund investors’ non-controlling interests
in consolidated funds. Until April 2012, we operated as a private company. As we have incurred additional
expenses associated with being a public company, general and administrative expense has increased as compared
with periods before we became a public company. Examples of such expenses include insurance for our directors
and officers and costs to comply with SEC reporting requirements, stock exchange listing standards, the Dodd-
Frank Act and the Sarbanes-Oxley Act.
Depreciation and Amortization
Depreciation and amortization expense includes costs associated with the purchase of furniture and
equipment, capitalized software, leasehold improvements and acquired intangibles. Furniture and equipment and
capitalized software costs are depreciated using the straight-line method over the estimated useful life of the asset,
which is generally three to five years. Leasehold improvements are amortized using the straight-line method over
the shorter of the respective estimated useful life or the lease term. Acquired intangibles primarily relate to
contractual rights and non-controlling interests and are amortized over their estimated useful lives, which range
from three to seven years.
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Consolidated Fund Expenses
Consolidated fund expenses consist primarily of costs, expenses and fees that are incurred by, or arise out
of the operation and activities of or otherwise related to, our consolidated funds, including, without limitation, travel
expenses, professional fees, research and software expenses and other costs associated with administering and
supporting those funds. Inasmuch as most of these fund expenses are borne by third-party investors, they reduce
the investors’ non-controlling interests in consolidated funds.
Other Income (Loss)
Interest Expense
Interest expense primarily reflects the interest expense of the consolidated funds, as well as the interest
expense of Oaktree and its operating subsidiaries.
Interest and Dividend Income
Interest and dividend income consists of interest and dividend income earned on the investments held by
our consolidated funds, the consolidated funds’ net operating income from real estate-related activities and interest
income earned by Oaktree and its operating subsidiaries.
Net Realized Gain on Consolidated Funds’ Investments
Net realized gain on consolidated funds’ investments consists of realized gains and losses arising from
dispositions of investments held by our consolidated funds.
Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ Investments
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments reflects both
unrealized gains and losses on investments held by our consolidated funds and the reversal upon disposition of
investments of unrealized gains and losses previously recognized for those investments.
Investment Income
Investment income represents our pro-rata share of income or loss from our investments, generally in our
capacity as general partner in our funds and as an investor in our CLOs and third-party managed funds and
companies. Investment income, as reflected in our consolidated statements of operations, excludes investment
income earned by us from our consolidated funds because it is eliminated in consolidation.
Other Income (Expense), Net
Other income (expense), net represents non-operating income or expense. In recent years, it has reflected
the operating results of properties that were received as part of a 2010 arbitration award from a former senior
executive and portfolio manager of the Company’s real estate group who had previously left the Company.
Beginning in the third quarter of 2014, this line item also included income related to amounts received for
contractually reimbursable costs associated with certain arrangements made in connection with the Highstar
acquisition.
Income Taxes
Oaktree is a publicly traded partnership. Because it satisfies the qualifying income test, it is not required to
be treated as a corporation for federal and state income tax purposes; rather it is taxed as a partnership. Oaktree
Holdings, Inc. and Oaktree AIF Holdings, Inc., which are two of our five Intermediate Holding Companies and wholly
owned subsidiaries, are subject to U.S. federal and state income taxes. The remainder of Oaktree’s income is
generally not subject to corporate-level taxation.
Oaktree’s effective tax rate is directly impacted by the proportion of Oaktree’s income subject to tax
compared to income not subject to tax. Oaktree’s non-U.S. income or loss before taxes is generally not significant
in relation to total pre-tax income or loss, and is generally more predictable because, unlike U.S. pre-tax income, it
is not significantly impacted by unrealized gains or losses. Non-U.S. tax expense typically represents a
disproportionately large percentage of total income tax expense because nearly all of our non-U.S. income or loss
is subject to corporate-level income tax, whereas a substantial portion of our U.S.-based income or loss is not
subject to corporate-level taxes. In addition, changes in the proportion of non-U.S. pre-tax income to total pre-tax
income impact Oaktree’s effective tax rate to the extent non-U.S. rates differ from the combined U.S. federal and
state tax rate.
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Income taxes are accounted for using the liability method of accounting. Under this method, deferred tax
assets and liabilities are recognized for the expected future tax consequences of differences between the carrying
amounts of assets and liabilities and their respective tax bases using currently enacted tax rates. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is
enacted. Deferred tax assets would be reduced by a valuation allowance if it becomes more likely than not that
some portion or all of the deferred tax assets will not be realized.
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests represents the ownership interests that third parties hold
in entities that are consolidated in our financial statements. These interests fall into two categories:
• Net Income Attributable to Non-controlling Interests in Consolidated Funds. This represents the
economic interests of the unaffiliated investors in the consolidated funds, as well as the equity interests
held by third-party investors in CLOs that had not yet priced as of the respective period end. Those
interests are primarily driven by the investment performance of the consolidated funds, including CLOs.
In comparison to net income, this measure excludes segment results, income taxes, expenses that
OCG or its Intermediate Holding Companies bear directly, the impact of equity-based compensation
expense, amortization of acquired intangibles and changes in the contingent consideration liability; and
• Net Income Attributable to Non-controlling Interests in Consolidated Subsidiaries. This
primarily represents the economic interest in the Oaktree Operating Group owned by OCGH (“OCGH
non-controlling interest”), as well as the economic interest in certain consolidated subsidiaries held by
certain related parties and other third parties. The OCGH non-controlling interest is determined at the
Oaktree Operating Group level based on the weighted average proportionate share of Oaktree
Operating Group units held by the OCGH unitholders. Inasmuch as the number of outstanding Oaktree
Operating Group units corresponds with the total number of outstanding OCGH units and Class A units,
changes in the economic interest held by the OCGH unitholders are driven by our additional issuances
of OCGH units and our issuance, if any, of additional Class A units, as well as repurchases and
forfeitures of OCGH units and Class A units. Certain of our expenses, such as income tax and related
administrative expenses of Oaktree Capital Group, LLC and its Intermediate Holding Companies, are
solely attributable to the Class A unitholders. Please see note 9 to our consolidated financial
statements included elsewhere in this annual report for additional information on the economic interest
in the Oaktree Operating Group owned by OCGH.
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Segment and Operating Metrics
Our business is comprised of one segment, our investment management segment, 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 and operating metrics and data that are presented
without the consolidation of any funds. For a detailed reconciliation of the segment results of operations to our
consolidated statements of operations, please see “—Segment Analysis” below and the “Segment Reporting” note
to our consolidated financial statements included elsewhere in this annual report. The data most important to our
chief operating decision maker 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.
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 assets under management, management fee-generating assets under management, incentive-creating
assets under management, accrued incentives (fund level), incentives created (fund level) and uncalled capital
commitments.
Adjusted Net Income
Our chief operating decision maker uses adjusted net income (“ANI”) as a tool to help evaluate the financial
performance of, and make resource allocations and other operating decisions for, our segment. The components of
revenues and expenses used in the determination of ANI do not give effect to the consolidation of the funds that we
manage. Segment revenues include investment income (loss) that is classified in other income (loss) in the GAAP-
basis statements of operations. Segment revenues and expenses also reflect Oaktree’s proportionate economic
interest in Highstar, whereby amounts received for contractually reimbursable costs are included with segment
expenses, as compared to being recorded as other income under GAAP. In addition, ANI excludes the effect of
(a) non-cash equity-based compensation charges related to unit grants made before our initial public offering,
(b) acquisition-related items including amortization of intangibles and changes in the contingent consideration
liability, (c) differences arising from EVUs that are classified as liability awards under GAAP, but classified as equity
awards for segment reporting purposes, (d) income taxes, (e) other income or expenses applicable to OCG or its
Intermediate Holding Companies and (f) the adjustment for the OCGH non-controlling interest. Incentive income
and incentive income compensation expense are included in ANI when the underlying fund distributions are known
or knowable as of the respective quarter end, which may be later than the time at which the same revenue or
expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or
determinable and the expense standard is probable and reasonably estimable. ANI is calculated at the Operating
Group level.
Among other factors, our accounting policy for recognizing incentive income and the inclusion of non-cash
equity-based compensation charges related to unit grants made after our initial public offering will likely make our
calculation of ANI not directly comparable to economic net income (“ENI”) or other similarly named measures of
certain other asset managers.
We calculate adjusted net income-OCG, or adjusted net income per Class A unit, a non-GAAP measure, 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
Oaktree Operating Group income taxes attributable to OCG. Two of our Intermediate Holding Companies incur
U.S. federal and state income taxes for their share 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 investment income generally has not
been subject to corporate-level taxation. Thus, the blended effective tax rate has generally tended to be higher to
the extent that fee-related earnings represented a larger proportion of our ANI. Myriad other factors affect income
tax expense and the effective tax rate, and there can be no assurance that this historical relationship will continue
going forward.
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Distributable Earnings
Our chief operating decision maker uses distributable earnings as a tool to help evaluate the financial
performance of, and make resource allocations and other operating decisions for, our segment. Distributable
earnings is a non-GAAP performance measure derived from our segment results that we use to measure our
earnings at the Operating Group level without the effects of the consolidated funds for the purpose of, among other
things, assisting in the determination of equity distributions from the Operating Group. However, the declaration,
payment and determination of the amount of equity distributions, if any, is at the sole discretion of our board of
directors, which may change our distribution policy at any time.
In accordance with GAAP, certain of our funds are consolidated into our consolidated financial statements,
notwithstanding the fact that we typically have only a minority economic interest in these funds. Consequently, our
consolidated financial statements reflect the results of our consolidated funds on a gross basis. In addition, our
segment results include investment income or loss, which for equity-method investments represents our pro-rata
share of income or loss, generally in our capacity as general partner in our funds and as an investor in our CLOs
and third-party managed funds and companies, and which is largely non-cash in nature. By excluding the results of
our consolidated funds and segment investment income (loss), which are not directly available to fund our
operations or make equity distributions, and including the portion of distributions from Oaktree and non-Oaktree
funds to us that represents the income or loss component of the distributions and not a return of our capital
contributions, as well as distributions from our investments in companies, distributable earnings aids us in
measuring amounts that are actually available to meet our obligations under the tax receivable agreement and our
liabilities for expenses incurred at OCG and the Intermediate Holding Companies, as well as for distributions to
Class A and OCGH unitholders.
Distributable earnings differs from ANI in that it excludes segment investment income or loss and includes
the receipt of investment income or loss from distributions by our investments in funds and companies. In addition,
distributable earnings differs from ANI in that it is net of Operating Group income taxes and, beginning in 2013,
excludes non-cash equity-based compensation charges related to unit grants made after our initial public offering.
In contrast to the GAAP measure of net income or loss attributable to OCG, distributable earnings also excludes the
effect of (a) non-cash equity-based compensation charges related to unit grants made before our initial public
offering, (b) income taxes and expenses that OCG or its Intermediate Holding Companies bear directly and (c) the
adjustment for the OCGH non-controlling interest.
Distributable earnings-OCG, or distributable earnings per Class A unit, is a non-GAAP measure 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 the 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.
Fee-related Earnings
Fee-related earnings is a non-GAAP measure that we use to monitor the baseline earnings of our business.
Fee-related earnings is comprised of segment management fees less segment operating expenses other than
incentive income compensation expense and, beginning with the fourth quarter of 2013 (with retrospective
application), non-cash equity-based compensation charges related to unit grants made after our initial public
offering. Fee-related earnings is considered baseline because it applies all cash compensation and benefits other
than incentive income compensation expense, as well as all general and administrative expenses, to management
fees, even though a significant portion of those expenses is attributable to incentive and investment income, and
because it excludes all non-management fee revenue sources. Fee-related earnings is presented before income
taxes.
Fee-related earnings-OCG, or fee-related earnings per Class A unit, is a non-GAAP measure calculated to
provide Class A unitholders with a measure that shows the portion of fee-related earnings attributable to their
ownership. Fee-related earnings-OCG represents fee-related earnings 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 are calculated excluding any segment incentive income or investment income (loss).
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Among other factors, the exclusion of non-cash equity-based compensation charges related to unit grants
made after our initial public offering may make our calculations of fee-related earnings and fee-related earnings-
OCG not directly comparable to similarly named measures of other asset managers.
Assets Under Management
AUM generally refers to the assets we manage and equals the NAV of the assets we manage, the fund-
level leverage on which management fees are charged, the undrawn capital that we are entitled to call from
investors in our funds pursuant to their capital commitments and the aggregate par value of collateral assets and
principal cash held by our CLOs. Our AUM includes amounts for which we charge no fees. Our definition of AUM
is not based on any definition contained in our operating agreement or the agreements governing the funds that we
manage. Our calculation of AUM and the two AUM-related metrics below may not be directly comparable to the
AUM metrics of other asset managers.
• Management Fee-generating Assets Under Management. Management fee-generating AUM is a
forward-looking metric and reflects the AUM on which we will earn management fees in the following
quarter. Our closed-end funds typically pay management fees based on committed capital or drawn
capital 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 remains unchanged from the investment period through the liquidation
period. Our open-end and evergreen funds typically pay management fees based on their NAV, and
our CLOs pay management fees based on the aggregate par value of collateral assets and principal
cash held by them, as defined in the applicable CLO indentures.
•
Incentive-creating Assets Under Management. Incentive-creating AUM refers to the AUM that may
eventually produce incentive income. It represents the NAV of our funds for which we are entitled to
receive an incentive allocation, excluding CLOs and investments made by us and our employees and
directors (which are not subject to an incentive allocation). All funds for which we are entitled to receive
an incentive allocation are included in incentive-creating AUM, regardless of whether or not they are
currently generating incentives. Incentive-creating AUM does not include undrawn capital
commitments.
Accrued Incentives (Fund Level)
Our funds record as accrued incentives the incentive income that would be paid to us if the funds were
liquidated at their reported values as of the date of the financial statements. Incentives created (fund level) refers to
the gross amount of potential incentives generated by the funds during the period. We refer to the amount of
incentive income recognized as revenue by us as segment incentive income. Amounts recognized by us as
incentive income are no longer included in accrued incentives (fund level), the term we use for remaining fund-level
accruals. The amount of incentives created may fluctuate substantially as a result of changes in the fair value of
the underlying investments of the fund, as well as incentives created in excess of our typical 20% share due to
catch-up allocations for applicable closed-end funds. Generally speaking, while in the catch-up layer, approximately
80% of any increase or decrease, respectively, in the fund’s NAV results in a commensurate amount of positive or
negative incentives created (fund level).
The same performance and market risks inherent in incentives created (fund level) affect the ability to
ultimately realize accrued incentives (fund level). One consequence of the accounting method we follow for
incentives created (fund level) is that accrued incentives (fund level) is an off-balance sheet metric, rather than
being an on-balance sheet receivable that could require reduction if fund performance suffers. We track accrued
incentives (fund level) because it provides an indication of potential future value, though the timing and ultimate
realization of that value are uncertain.
Incentives Created (Fund Level)
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 other factors. In addition to incentive income compensation expense, the magnitude of the annual cash
bonus pool is indirectly affected by the level of incentive income, net of its associated incentive income
compensation expense. The total charge related to the annual cash bonus pool, including the portion attributable to
our incentive income, is reflected in the financial statement line item “compensation and benefits.”
74
Incentives created (fund level) often reflects investments measured at fair value and therefore is subject to
risk of substantial fluctuation by the time the underlying investments are liquidated. We earn the incentive income,
if any, that the fund is then obligated to pay us with respect to our incentive interest (generally 20%) in the profits of
our unaffiliated investors, subject to an annual preferred return of typically 8%. Although GAAP currently allows the
equivalent of incentives created (fund level) to be recognized as revenue by us under Method 2, we follow the
Method 1 approach offered by GAAP. Our use of Method 1 reduces by a substantial degree the possibility that
revenue recognized by us would be reversed in a subsequent period. For purposes of adjusted net income and
distributable earnings, we recognize incentive income when the underlying fund distributions are known or
knowable as of the respective quarter end, as opposed to the fixed or determinable standard of Method 1. We track
incentives created (fund level) because it provides an indication of the value for us currently being created by our
investment activities and facilitates comparability with those companies in our industry that utilize the alternative
accrual-based Method 2 for recognizing incentive income in their financial statements.
Uncalled Capital Commitments
Uncalled capital commitments represent undrawn capital commitments by partners (including Oaktree as
general partner) of our closed-end funds in their investment periods and certain evergreen funds. If a closed-end
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.
75
Consolidated Results of Operations
The following table sets forth our audited consolidated statements of operations:
Year Ended December 31,
2014
2013
2012
(in thousands)
Consolidated Statements of Operations:
Revenues:
Management fees .......................................................................... $
Incentive income ............................................................................
Total revenues .........................................................................
192,055
1,839
193,894
$
192,605
2,317
194,922
$
134,568
10,415
144,983
Expenses:
Compensation and benefits ...........................................................
Equity-based compensation ...........................................................
Incentive income compensation .....................................................
Total compensation and benefits expense...............................
General and administrative ............................................................
Depreciation and amortization .......................................................
Consolidated fund expenses ..........................................................
(388,512)
(41,395)
(221,194)
(651,101)
(99,835)
(8,003)
(188,538)
(365,696)
(28,441)
(482,551)
(876,688)
(114,404)
(7,119)
(108,851)
Total expenses ........................................................................
(947,477)
(1,107,062)
Other income (loss):
Interest expense ............................................................................
Interest and dividend income .........................................................
Net realized gain on consolidated funds’ investments ...................
Net change in unrealized appreciation (depreciation) on
consolidated funds’ investments .................................................
Investment income .........................................................................
Other income, net ..........................................................................
Total other income ...................................................................
Income before income taxes ................................................................
Income taxes .................................................................................
Net income ...........................................................................................
Less:
Net income attributable to non-controlling interests in
consolidated funds ......................................................................
Net income attributable to non-controlling interests in
consolidated subsidiaries ............................................................
(129,942)
1,902,576
2,131,584
(993,260)
33,695
3,018
2,947,671
2,194,088
(18,536)
2,175,552
(61,160)
1,806,361
3,503,998
1,843,469
56,027
409
7,149,104
6,236,964
(26,232)
6,210,732
(1,649,890)
(5,163,939)
(6,016,342)
(399,379)
(824,795)
(548,265)
(330,018)
(36,342)
(222,594)
(588,954)
(101,417)
(7,397)
(92,835)
(790,603)
(45,773)
1,966,317
4,560,782
835,160
25,382
7,027
7,348,895
6,703,275
(30,858)
6,672,417
Net income attributable to Oaktree Capital Group, LLC ....................... $
126,283
$
221,998
$
107,810
76
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Revenues
Management Fees
Management fees decreased $0.5 million, or 0.3%, to $192.1 million for the year ended December 31,
2014, from $192.6 million for the year ended December 31, 2013. The decrease primarily reflected $30.2 million in
lower advisory, director, transaction and certain other ancillary fees for the benefit of our consolidated funds, nearly
entirely offset by higher fees earned across our High Yield Bond, Senior Loan, Emerging Markets Equities and
Strategic Credit strategies. We reduce our management fees by the amount of advisory and other ancillary fees so
that our funds’ investors share pro rata in the economic benefit of the ancillary fees. Thus, in our consolidated
financial statements, these ancillary fees are treated as being attributable to non-controlling interests in
consolidated funds and have no impact on the net income attributable to OCG.
Incentive Income
Incentive income decreased $0.5 million, or 21.7%, to $1.8 million for the year ended December 31, 2014,
from $2.3 million for the year ended December 31, 2013, primarily reflecting lower incentive income from a separate
account.
Expenses
Compensation and Benefits
Compensation and benefits increased $22.8 million, or 6.2%, to $388.5 million for the year ended
December 31, 2014, from $365.7 million for the year ended December 31, 2013, primarily reflecting growth in
headcount, including the Highstar acquisition. The current and prior years included a $0.2 million benefit and a $6.5
million expense, respectively, associated with our phantom equity awards, stemming from each period’s equity
distributions and change in the Class A unit trading price.
Equity-based Compensation
Equity-based compensation expense increased $13.0 million, or 45.8%, to $41.4 million for the year ended
December 31, 2014, from $28.4 million for the year ended December 31, 2013, primarily reflecting non-cash
amortization expense associated with vesting of restricted unit grants made to employees and directors subsequent
to our initial public offering in April 2012.
Incentive Income Compensation
Incentive income compensation expense decreased $261.4 million, or 54.2%, to $221.2 million for the year
ended December 31, 2014, from $482.6 million for the year ended December 31, 2013. After adjusting 2013’s
expense for the benefit of the 2011 acquisition of a small portion of certain investment professionals’ carried interest
in Opps VIIb, the year-over-year change would have been a decrease of 58.5%. There was no such benefit in
2014. The adjusted decrease was larger than the 52.3% decline in segment incentive income principally as a result
of timing differences associated with the recognition of segment incentive income and incentive income
compensation expense.
General and Administrative
General and administrative expense decreased $14.6 million, or 12.8%, to $99.8 million for the year ended
December 31, 2014, from $114.4 million for the year ended December 31, 2013. Excluding the impact of foreign
currency-related items, general and administrative expense increased $14.5 million, or 12.2%, to $133.6 million
from $119.1 million, primarily reflecting higher legal and other professional fees, as well as costs associated with
corporate growth and the Highstar acquisition, partially offset by lower placement fees.
Consolidated Fund Expenses
Consolidated fund expenses increased $79.6 million, or 73.1%, to $188.5 million for the year ended
December 31, 2014, from $108.9 million for the year ended December 31, 2013. The increase reflected higher
professional fees and other costs related to managing the funds.
Other Income (Loss)
Interest Expense
Interest expense increased $68.7 million, or 112.3%, to $129.9 million for the year ended December 31,
2014, from $61.2 million for the year ended December 31, 2013, primarily attributable to our consolidated funds.
77
Interest and Dividend Income
Interest and dividend income increased $96.2 million, or 5.3%, to $1,902.6 million for the year ended
December 31, 2014, from $1,806.4 million for the year ended December 31, 2013, primarily attributable to higher
income from Real Estate funds.
Net Realized Gain on Consolidated Funds’ Investments
Net realized gain on consolidated funds’ investments decreased $1,372.4 million, or 39.2%, to $2,131.6
million for the year ended December 31, 2014, from $3,504.0 million for the year ended December 31, 2013. Of the
$2,131.6 million net realized gain in 2014, $945.1 million was attributable to Distressed Debt funds, including
$192.3 million from Opps VIIb, $688.5 million to Control Investing funds and $253.6 million to Real Estate funds. Of
the $3,504.0 million net realized gain in 2013, $2,012.8 million was attributable to Distressed Debt funds, including
$859.8 million from Opps VIIb, $1,136.1 million to Control Investing funds and $205.8 million to Real Estate funds.
Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ Investments
The net change in unrealized appreciation (depreciation) on consolidated funds’ investments decreased
$2,836.8 million, to net depreciation of $993.3 million for the year ended December 31, 2014, from net appreciation
of $1,843.5 million for the year ended December 31, 2013. Excluding the $1,372.4 million decrease in net realized
gain on consolidated funds’ investments, the net change in unrealized appreciation (depreciation) on consolidated
funds’ investments decreased $4,209.2 million, to $1,138.3 million for the year ended December 31, 2014, from
$5,347.5 million for the year ended December 31, 2013. The $1,138.3 million net gain in 2014 reflected gains of
$1,044.1 million attributable to Real Estate funds and $683.5 million to Control Investing funds, partially offset by
losses of $396.8 million by Distressed Debt funds. The $5,347.5 million net gain in 2013 reflected gains of
$3,186.5 million attributable to Distressed Debt funds, including $807.0 million from Opps VIIb, $1,522.7 million to
Control Investing funds and $399.1 million to Real Estate funds.
Investment Income
Investment income decreased $22.3 million, or 39.8%, to $33.7 million for the year ended December 31,
2014, from $56.0 million for the year ended December 31, 2013, reflecting lower income of $15.3 million from our
investments in companies, $4.5 million from corporate investment activities and $2.5 million from our investments in
funds. The $15.3 million of lower income from investments in companies reflected a sizable market-value gain in
2013 on our minority equity investment in China Cinda Asset Management Co., Ltd. (“Cinda”), as compared to a
market-value loss in 2014. DoubleLine accounted for investment income of $46.9 million and $31.4 million in 2014
and 2013, respectively, of which performance fees accounted for $10.1 million and $3.4 million, respectively.
Other Income, Net
Other income, net increased $2.6 million, or 650.0%, to $3.0 million for the year ended December 31, 2014,
from $0.4 million for the year ended December 31, 2013. The income of $3.0 million in 2014 reflected $8.3 million
in amounts received for contractually reimbursable costs associated with the Highstar acquisition and $1.5 million of
income related to proceeds received as part of a 2010 arbitration award related to a former senior executive and
portfolio manager of the Company’s real estate group who had previously left the Company, partially offset by a
$3.0 million write-off of unamortized debt issuance costs associated with the refinancing of our corporate credit
facility, a $2.1 million loss related to the sale of properties received as part of the 2010 arbitration award, and a $1.5
million loss associated with certain non-operating activities. The 2013 income of $0.4 million reflected the operating
results of the properties received as part of the 2010 arbitration award.
Income Taxes
Income taxes decreased $7.7 million, or 29.4%, to $18.5 million for the year ended December 31, 2014,
from $26.2 million for the year ended December 31, 2013. The decrease was primarily attributable to tax benefits
recorded in 2014 resulting from the release of tax reserves related to the settlement of an income tax examination
and the expiration of statutes of limitations during 2014. The effective tax rates applicable to Class A unitholders for
2014 and 2013, respectively, were 13% and 9%. The effective tax rate is a function of the mix of income and other
factors that often vary significantly within or between years, each of which can have a material impact on the
particular year’s income tax expense. Please see “—Understanding Our Results—Consolidation of Oaktree
Funds.”
78
Net Income Attributable to Oaktree Capital Group, LLC
Net income attributable to Oaktree Capital Group, LLC decreased $95.7 million, or 43.1%, to $126.3 million
for the year ended December 31, 2014, from $222.0 million for the year ended December 31, 2013. The decrease
reflected lower segment revenues, partially offset by lower segment expenses and a larger allocation of income to
OCG as a result of an increase in the average number of Class A units outstanding during each period.
Net Income Attributable to Non-controlling Interests in Consolidated Funds
Net income attributable to non-controlling interests in consolidated funds decreased $3,514.0 million, to
$1,649.9 million for the year ended December 31, 2014, from $5,163.9 million for the year ended December 31,
2013, reflecting lower net gains on investments. These effects are described in more detail under “—Other Income
(Loss)” above.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Revenues
Management Fees
Management fees increased $58.0 million, or 43.1%, to $192.6 million for the year ended December 31,
2013, from $134.6 million for the year ended December 31, 2012. The increase reflected $21.0 million in higher
fees earned across our High Yield Bond, Convertible Securities, Senior Loan and Strategic Credit strategies, and
$37.0 million in greater advisory, director, transaction and certain other ancillary fees for the benefit of our
consolidated funds. We reduce our management fees by the amount of advisory and other ancillary fees so that
our funds’ investors share pro rata in the economic benefit of the ancillary fees. Thus, in our consolidated financial
statements, these ancillary fees are treated as being attributable to non-controlling interests in consolidated funds
and have no impact on the net income attributable to OCG.
Incentive Income
Incentive income decreased $8.1 million, or 77.9%, to $2.3 million for the year ended December 31, 2013,
from $10.4 million for the year ended December 31, 2012, primarily reflecting lower incentive income from the
unconsolidated Power Fund II and a separate account.
Expenses
Compensation and Benefits
Compensation and benefits increased $35.7 million, or 10.8%, to $365.7 million for the year ended
December 31, 2013, from $330.0 million for the year ended December 31, 2012, primarily reflecting growth in
headcount. The current and prior years included expenses of $6.5 million and $2.3 million, respectively, associated
with our phantom equity awards, stemming from each period’s equity distributions and change in the Class A unit
trading price.
Equity-based Compensation
Equity-based compensation expense decreased $7.9 million, or 21.8%, to $28.4 million for the year ended
December 31, 2013, from $36.3 million for the year ended December 31, 2012, primarily reflecting the final vesting
in 2012 of OCGH units held by our senior executives and employees at the time of the 2007 Private Offering.
Incentive Income Compensation
Incentive income compensation expense increased $260.0 million, or 116.8%, to $482.6 million for the year
ended December 31, 2013, from $222.6 million for the year ended December 31, 2012. After adjusting 2013’s
expense for the benefit of the 2011 acquisition of a small portion of certain investment professionals’ carried interest
in Opps VIIb, the year-over-year change would have been an increase of 139.3%. The adjusted increase was
larger than the 123.4% increase in segment incentive income principally as a result of timing differences associated
with the recognition of segment incentive income and incentive income compensation expense.
General and Administrative
General and administrative expense increased $13.0 million, or 12.8%, to $114.4 million for the year ended
December 31, 2013, from $101.4 million for the year ended December 31, 2012. Excluding the impact of foreign
currency-related items, as well as $2.1 million in nonrecurring costs associated with our initial public offering that
were incurred in 2012, general and administrative expense increased $21.3 million, or 21.8%, to $119.1 million in
79
2013 from $97.8 million in 2012. The increase reflected $1.8 million of placement fees incurred in 2013 for ROF VI,
as compared with none in 2012, as well as higher professional fees and other costs associated with corporate
growth, enhancements to our operational infrastructure and being a public company.
Consolidated Fund Expenses
Consolidated fund expenses increased $16.1 million, or 17.3%, to $108.9 million for the year ended
December 31, 2013, from $92.8 million for the year ended December 31, 2012, reflecting costs incurred in 2013
associated with the start of Opps IX, and higher professional fees and other costs related to managing the funds.
Other Income (Loss)
Interest Expense
Interest expense increased $15.4 million, or 33.6%, to $61.2 million for the year ended December 31, 2013,
from $45.8 million for the year ended December 31, 2012. The increase was entirely attributable to our
consolidated funds.
Interest and Dividend Income
Interest and dividend income decreased $159.9 million, or 8.1%, to $1,806.4 million for the year ended
December 31, 2013, from $1,966.3 million for the year ended December 31, 2012, attributable entirely to our
consolidated funds. Among the consolidated funds, large portfolio realizations caused Distressed Debt funds to
have an aggregate $379.0 million in lower interest and dividend income, while Control Investing funds and Oaktree
Enhanced Income Fund, L.P. (“EIF”) generated higher interest and dividend income of $144.2 million and $73.5
million, respectively.
Net Realized Gain on Consolidated Funds’ Investments
Net realized gain on consolidated funds’ investments decreased $1,056.8 million, or 23.2%, to $3,504.0
million for the year ended December 31, 2013, from $4,560.8 million for the year ended December 31, 2012. Of the
$3,504.0 million net realized gain in 2013, $2,012.8 million was attributable to Distressed Debt funds, including
$859.8 million from Opps VIIb, $1,136.1 million to Control Investing funds and $205.8 million to Real Estate funds.
Of the $4,560.8 million net realized gain in 2012, $3,189.3 million was attributable to Distressed Debt funds,
including $1,890.2 million from Opps VIIb, $926.3 million to Control Investing funds and $286.6 million to Real
Estate funds.
Net Change in Unrealized Appreciation on Consolidated Funds’ Investments
The net change in unrealized appreciation on consolidated funds’ investments increased $1,008.3 million,
or 120.7%, to $1,843.5 million for the year ended December 31, 2013, from $835.2 million for the year ended
December 31, 2012. Excluding the $1,056.8 million decrease in net realized gain on consolidated funds’
investments, the net change in unrealized appreciation on consolidated funds’ investments decreased $48.5 million,
to $5,347.5 million for the year ended December 31, 2013, from $5,396.0 million for the year ended December 31,
2012. Of the $5,347.5 million net gain in 2013, $3,186.5 million was attributable to Distressed Debt funds, including
$807.0 million from Opps VIIb, $1,522.7 million to Control Investing funds and $399.1 million to Real Estate funds.
Of the $5,396.0 million net gain in 2012, $3,446.5 million was attributable to Distressed Debt funds, including
$1,499.5 million from Opps VIIb, $894.3 million to Control Investing funds, $557.5 million to Real Estate funds and
$285.0 million to High Yield Bonds.
Investment Income
Investment income increased $30.6 million, or 120.5%, to $56.0 million for the year ended December 31,
2013, from $25.4 million for the year ended December 31, 2012. The increase was primarily attributable to
increases of $25.6 million from our investments in companies and $5.0 million from our investments in funds. The
$25.6 million increase attributable to investments in companies reflected $17.1 million of market-value gains on our
fourth-quarter 2013 minority equity investment in Cinda and $8.5 million of higher income from DoubleLine, which
accounted for investment income of $31.4 million and $22.9 million in 2013 and 2012, respectively, of which
performance fees accounted for $3.4 million and $8.0 million, respectively.
Other Income, Net
Other income, net decreased to $0.4 million for the year ended December 31, 2013, from $7.0 million for
the year ended December 31, 2012. The $0.4 million in 2013 reflected the operating results of the properties
received as part of a 2010 arbitration award related to a former senior executive and portfolio manager of our real
80
estate group who had previously left the Company. The $7.0 million in 2012 included a $6.3 million reduction to the
tax receivable agreement liability as a result of a remeasurement of deferred tax assets associated with the 2007
Private Offering. The remaining 2012 income of $0.7 million primarily reflected the net effect of $3.1 million of
income attributable to the sale of a real estate property and other proceeds received as part of the 2010 arbitration
award, a $0.8 million write-off of unamortized debt issuance costs associated with the refinancing of our credit
facility and a $1.7 million write-off of certain receivables related to a former corporate investment.
Income Taxes
Income taxes decreased $4.7 million, or 15.2%, to $26.2 million for the year ended December 31, 2013,
from $30.9 million for the year ended December 31, 2012. This expense declined, despite an increase in pre-tax
income attributable to Class A unitholders, as a result of a year-over-year decrease in the effective tax rate related
to Class A unitholders and the fact that 2012 included a nonrecurring tax expense of $7.1 million stemming from a
remeasurement of deferred tax assets. The effective tax rate related to Class A unitholders for 2013 was 9%. The
effective tax rate related to Class A unitholders for 2012 was 15% without the $7.1 million nonrecurring tax expense
and 19% with it. The effective tax rate is a function of the mix of income and other factors that often vary
significantly within or between years, each of which can have a material impact on the particular year’s income tax
expense. Please see “—Understanding Our Results—Consolidation of Oaktree Funds.”
Net Income Attributable to Oaktree Capital Group, LLC
Net income attributable to Oaktree Capital Group, LLC increased $114.2 million, or 105.9%, to $222.0
million for the year ended December 31, 2013, from $107.8 million for the year ended December 31, 2012. The
increase reflected higher segment revenues and a larger allocation of income to OCG as a result of an increase in
the average number of Class A units outstanding during each period, partially offset by higher segment expenses.
Net Income Attributable to Non-controlling Interests in Consolidated Funds
Net income attributable to non-controlling interests in consolidated funds decreased $852.4 million, to
$5,163.9 million for the year ended December 31, 2013, from $6,016.3 million for the year ended December 31,
2012, reflecting both lower interest and dividend income and net gains on investments. These effects are described
in more detail under “—Other Income (Loss)” above.
81
Segment Financial Data
The following table presents segment financial data:
Segment Statements of Operations Data: (1)
Revenues:
As of or for the Year Ended December 31,
2014
2013
2012
(in thousands, except per unit data or
as otherwise indicated)
Management fees ........................................................................... $
Incentive income .............................................................................
Investment income ..........................................................................
764,492
491,402
117,662
$
749,901
1,030,195
258,654
$
747,440
461,116
202,392
Total revenues ..........................................................................
1,373,556
2,038,750
1,410,948
Expenses:
Compensation and benefits ............................................................
Equity-based compensation ............................................................
Incentive income compensation ......................................................
General and administrative .............................................................
Depreciation and amortization ........................................................
Total expenses..........................................................................
Adjusted net income before interest and other income (expense).........
Interest expense, net of interest income (2) ......................................
Other income (expense), net ...........................................................
(381,544)
(19,705)
(231,871)
(122,566)
(7,249)
(762,935)
610,621
(30,190)
(5,301)
(365,306)
(3,828)
(436,217)
(117,361)
(7,119)
(929,831)
1,108,919
(28,621)
409
Adjusted net income .............................................................................. $
575,130
$ 1,080,707
Adjusted net income-OCG ..................................................................... $
Adjusted net income per Class A unit..............................................
Distributable earnings ............................................................................
Distributable earnings-OCG ..................................................................
Distributable earnings per Class A unit ...........................................
Fee-related earnings .............................................................................
Fee-related earnings-OCG ....................................................................
Fee-related earnings per Class A unit .............................................
Weighted average number of Operating Group units outstanding.........
Weighted average number of Class A units outstanding .......................
137,762
3.24
608,139
145,973
3.43
253,133
61,318
1.44
152,660
42,582
$
223,113
6.38
984,266
203,595
5.82
260,115
50,122
1.43
150,971
34,979
$
$
(329,741)
(318)
(222,594)
(102,685)
(7,397)
(662,735)
748,213
(31,730)
767
717,250
114,395
4.06
672,181
107,678
3.82
307,617
45,646
1.62
150,539
28,170
Operating Metrics:
Assets under management (in millions):
Assets under management ............................................................. $
Management fee-generating assets under management................
Incentive-creating assets under management ................................
Uncalled capital commitments ........................................................
90,831
78,079
33,861
10,333
$
$
83,605
71,950
32,379
13,169
77,051
66,784
33,989
11,201
Accrued incentives (fund level):
Incentives created (fund level) ........................................................
Incentives created (fund level), net of associated incentive income
compensation expense ................................................................
Accrued incentives (fund level) .......................................................
Accrued incentives (fund level), net of associated incentive
income compensation expense ...................................................
164,370
1,168,836
911,947
24,228
1,949,407
549,545
2,276,439
493,005
2,137,798
999,923
1,235,226
1,282,194
(1) Our business is comprised of one segment, our investment management segment, which consists of the
investment management services that we provide to our clients. The components of revenues and expenses
82
used in determining adjusted net income do not give effect to the consolidation of the funds that we manage.
Segment revenues include investment income (loss) that is classified in other income (loss) in the GAAP-basis
statements of operations. Segment revenues and expenses also reflect Oaktree’s proportionate economic
interest in Highstar, whereby amounts received for contractually reimbursable costs are included with segment
expenses, as compared to being recorded as other income under GAAP. In addition, adjusted net income
excludes the effect of (a) non-cash equity-based compensation charges related to unit grants made before our
initial public offering, (b) acquisition-related items including amortization of intangibles and changes in the
contingent consideration liability, (c) differences arising from EVUs that are classified as liability awards under
GAAP but classified as equity awards for segment reporting purposes, (d) income taxes, (e) other income or
expenses applicable to OCG or its Intermediate Holding Companies and (f) the adjustment for the OCGH non-
controlling interest. Incentive income and incentive income compensation expense are included in adjusted
net income when the underlying fund distributions are known or knowable as of the respective quarter end,
which may be later than the time at which the same revenue or expense is included in the GAAP-basis
statements of operations, for which the revenue standard is fixed or determinable and the expense standard is
probable and reasonably estimable. Adjusted net income is calculated at the Operating Group level. For a
detailed description of our segment and operating metrics, please see “—Segment and Operating Metrics”
above.
Interest income was $3.6 million, $3.2 million and $2.6 million for the years ended December 31, 2014, 2013
and 2012, respectively.
(2)
83
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. 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
Assets Under Management:
Closed-end funds ............................................................................................. $ 48,203
37,452
Open-end funds ...............................................................................................
5,176
Evergreen funds ...............................................................................................
(in millions)
$ 46,685
32,868
4,052
$ 45,700
29,092
2,259
Total ................................................................................................................. $ 90,831
$ 83,605
$ 77,051
As of December 31,
2014
2013
2012
Year Ended December 31,
2014
2013
2012
Change in Assets Under Management:
Beginning balance ............................................................................................ $ 83,605
Closed-end funds:
(in millions)
$ 77,051
$ 74,857
New capital commitments/other (1) .............................................................
Acquisition (Highstar) .................................................................................
Distributions for a realization event/other (2) ...............................................
Uncalled capital commitments at end of investment period .......................
Foreign currency translation ......................................................................
Change in market value (3) .........................................................................
Change in applicable leverage ..................................................................
Open-end funds:
Contributions .............................................................................................
Redemptions .............................................................................................
Foreign currency translation ......................................................................
Change in market value (3) .........................................................................
Evergreen funds:
Contributions or new capital commitments ................................................
Redemptions or distributions .....................................................................
Distributions from restructured funds .........................................................
Foreign currency translation ......................................................................
Change in market value (3) .........................................................................
4,172
2,349
(6,956)
(315)
(868)
2,279
857
9,123
(4,415)
(522)
398
1,447
(218)
(55)
6
(56)
5,496
—
(12,029)
—
269
5,837
1,412
5,276
(4,292)
108
2,684
1,739
(272)
(49)
4
371
6,456
—
(12,663)
(1,634)
99
5,810
207
4,394
(3,869)
65
3,460
140
(548)
(57)
1
333
Ending balance ................................................................................................ $ 90,831
$ 83,605
$ 77,051
(1) These amounts represent new capital commitments and the aggregate par value of collateral assets and
principal cash associated with our CLOs.
(2) These amounts represent distributions for a realization event, tax-related distributions, reductions in the par
value of collateral assets and principal cash resulting from the repayment of debt by our CLOs and recallable
distributions at the end of the investment period.
(3) The change in market value reflects the change in NAV of our funds resulting from current income and realized
and unrealized gains/losses on investments, less management fees and other fund expenses, and changes in
the aggregate par value of collateral assets and principal cash held by our CLOs resulting from other activities.
84
Management Fee-generating Assets Under Management
Management Fee-generating Assets Under Management:
Closed-end funds:
As of December 31,
2014
2013
2012
(in millions)
Senior Loans ............................................................................................. $
Other closed-end funds .............................................................................
Open-end funds ...............................................................................................
Evergreen funds ...............................................................................................
5,255
32,017
37,383
3,424
$
2,425
33,997
32,830
2,698
$
714
35,036
29,056
1,978
Total ................................................................................................................. $ 78,079
$ 71,950
$ 66,784
Year Ended December 31,
2014
2013
2012
Change in Management Fee-generating Assets Under Management:
Beginning balance ............................................................................................ $ 71,950
Closed-end funds:
(in millions)
$ 66,784
$ 66,964
New capital commitments to funds that pay fees based on committed
capital/other (1) ........................................................................................
Acquisition (Highstar) .................................................................................
Capital drawn by funds that pay fees based on drawn capital or NAV.......
Change attributable to funds in liquidation (2) ..................................................
Uncalled capital commitments at end of investment period for funds that
pay fees based on committed capital .....................................................
Distributions by funds that pay fees based on NAV/other (3) ......................
Foreign currency translation ......................................................................
Change in market value (4) .........................................................................
Change in applicable leverage ..................................................................
Open-end funds:
Contributions .............................................................................................
Redemptions .............................................................................................
Foreign currency translation ......................................................................
Change in market value .............................................................................
Evergreen funds:
Contributions or capital drawn by funds that pay fees based on drawn
capital or NAV .........................................................................................
Redemptions or distributions .....................................................................
Change in market value .............................................................................
1,667
1,882
959
(3,303)
(169)
(511)
(662)
29
958
9,095
(4,418)
(521)
397
998
(214)
(58)
6,597
—
1,835
(8,222)
(664)
(325)
196
(1)
1,256
5,276
(4,292)
108
2,682
660
(272)
332
486
—
968
(5,457)
(57)
(512)
148
125
182
4,380
(3,869)
65
3,455
140
(548)
314
Ending balance ................................................................................................ $ 78,079
$ 71,950
$ 66,784
(1) These amounts represent new capital commitments to funds that pay fees based on committed capital and the
aggregate par value of collateral assets and principal cash associated with our CLOs.
(2) These amounts represent the change for funds that pay fees based on the lesser of funded capital or cost
basis during the liquidation period, and 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
generally declines as the fund sells assets.
(3) These amounts represent distributions by funds that pay fees based on NAV and reductions in the par value of
collateral assets and principal cash resulting from the repayment of debt by our CLOs.
85
(4) The change in market value reflects certain funds that pay management fees based on NAV and leverage, as
applicable, and changes in the aggregate par value of collateral assets and principal cash held by our CLOs
resulting from other activities.
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 or
NAV;
•
The investments we make in our funds as general partner;
• Closed-end funds that are beyond the term during which they pay management fees and co-
investments that pay no management fees; and
• AUM in restructured and liquidating evergreen funds for which management fees were waived.
A reconciliation of AUM to management fee-generating AUM is set forth below:
As of December 31,
2014
2013
2012
(in millions)
Reconciliation of Assets Under Management to Management Fee-
generating Assets Under Management:
Assets under management .............................................................................. $ 90,831
$ 83,605
$ 77,051
Difference between assets under management and committed capital or
cost basis for applicable closed-end funds (1) .........................................
Undrawn capital commitments to funds that have not yet commenced
their investment periods .........................................................................
Undrawn capital commitments to funds for which management fees are
based on drawn capital or NAV ..............................................................
Oaktree’s general partner investments in management fee-generating
funds .......................................................................................................
Closed-end funds that are no longer paying management fees and co-
investments that pay no management fees ............................................
Funds for which management fees were permanently waived ..................
(5,521)
(6,311)
(3,164)
(320)
(693)
(5,016)
(4,528)
(2,625)
(584)
(1,231)
(1,371)
(1,041)
(924)
(228)
(461)
(194)
(231)
(231)
Management fee-generating assets under management ................................. $ 78,079
$ 71,950
$ 66,784
(1) This difference is not applicable to closed-end funds that pay management fees based on NAV or leverage.
The period-end weighted average annual management fee rates applicable to the respective management
fee-generating AUM balances above are set forth below, and reflect the applicable contractual fee rates, exclusive
of the impact of special items such as retroactive management fees and the collection of deferred contingent
management fees.
As of December 31,
2014
2013
2012
Weighted Average Annual Management Fee Rates:
Closed-end funds:
Senior Loans .............................................................................................
Other closed-end funds .............................................................................
Open-end funds ...............................................................................................
Evergreen funds ...............................................................................................
Overall ..............................................................................................................
0.50%
1.54
0.47
1.53
0.96
0.50%
1.55
0.47
1.63
1.02
0.50%
1.53
0.49
1.82
1.07
86
Incentive-creating Assets Under Management
Incentive-creating AUM is set forth below. As of December 31, 2014, 2013 and 2012, the portion of
incentive-creating AUM generating incentives at the fund level was $24.3 billion (or 71.7%), $29.6 billion (91.4%),
and $25.6 billion (75.3%), respectively. Incentive-creating AUM does not include undrawn capital commitments.
As of December 31,
2014
2013
2012
(in millions)
Incentive-creating Assets Under Management:
Closed-end funds ............................................................................................. $ 31,743
2,118
Evergreen funds ...............................................................................................
$ 30,362
2,017
$ 32,058
1,931
Total ................................................................................................................. $ 33,861
$ 32,379
$ 33,989
Year Ended December 31, 2014
AUM increased $7.2 billion, or 8.6%, to $90.8 billion as of December 31, 2014, from $83.6 billion as of
December 31, 2013. The increase reflected $6.5 billion of capital inflows and fee-generating leverage for closed-
end and evergreen funds, $4.7 billion of net inflows to open-end funds, $2.6 billion of market-value gains and $2.3
billion from the Highstar acquisition, partially offset by $7.0 billion of distributions to closed-end fund investors and a
$1.4 billion negative net impact from foreign currency translation. The $6.5 billion of capital inflows and fee-
generating leverage for closed-end and evergreen funds included $1.9 billion for CLOs, $1.5 billion for Oaktree
Enhanced Income Fund II, L.P. (“EIF II”), $1.0 billion for Real Estate Debt, $0.7 billion for Strategic Credit, $0.5
billion for Mezz IV, $0.3 billion for PF VI and $0.3 billion for Value Equities. Of the $7.0 billion of distributions to
closed-end fund investors, $3.2 billion and $2.0 billion were attributable to Distressed Debt and Principal Investing
funds, respectively. Net inflows to open-end funds included gross capital raised of $3.8 billion for High Yield Bonds,
$3.1 billion for Emerging Markets Equities, $1.2 billion for Senior Loans and $1.0 billion for Convertible Securities.
Management fee-generating AUM increased $6.1 billion, or 8.5%, to $78.1 billion as of December 31, 2014,
from $72.0 billion as of December 31, 2013, reflecting $4.7 billion from net inflows to open-end funds, $2.9 billion
from fee-generating leverage and drawdowns or contributions by closed-end and evergreen funds for which
management fees are based on drawn capital or NAV, $1.9 billion from the Highstar acquisition and $1.7 billion in
new capital commitments, partially offset by $3.3 billion attributable to closed-end funds in liquidation, a $1.2 billion
negative net impact from foreign currency translation and $0.5 billion of distributions by funds that pay fees based
on NAV.
Incentive-creating AUM increased $1.5 billion, or 4.6%, to $33.9 billion as of December 31, 2014, from
$32.4 billion as of December 31, 2013. The increase reflected the net effect of $5.8 billion in drawdowns by closed-
end funds, $2.3 billion in market-value gains, $1.0 billion from the Highstar acquisition, $6.8 billion in distributions by
closed-end funds and a $0.7 billion negative net impact from foreign currency translation.
Year Ended December 31, 2013
AUM increased $6.5 billion, or 8.4%, to $83.6 billion as of December 31, 2013, from $77.1 billion as of
December 31, 2012. The increase reflected $8.9 billion of market-value gains, $8.5 billion of aggregate capital
inflows and fee-generating leverage for closed-end and evergreen funds, and $1.0 billion of net inflows to open-end
funds, partially offset by $12.0 billion of distributions to closed-end fund investors. Capital inflows and fee-
generating leverage included $2.4 billion for ROF VI, $1.7 billion for EIF, $1.4 billion for Strategic Credit, $0.9 billion
for European Private Debt and $0.8 billion for Emerging Markets Opportunities. The $12.0 billion of distributions to
closed-end fund investors included $3.2 billion by Opps VIIb, $3.8 billion by other Distressed Debt funds, $3.4 billion
by Principal Investing funds and $1.2 billion by Real Estate funds.
Management fee-generating AUM increased $5.2 billion, or 7.8%, to $72.0 billion as of December 31, 2013,
from $66.8 billion as of December 31, 2012, reflecting $6.6 billion from the start of Opps IX’s investment period on
January 1, 2014 and new capital commitments to ROF VI, $3.8 billion from fee-generating leverage and drawdowns
or contributions by closed-end and evergreen funds that pay fees based on drawn capital or NAV, $3.0 billion from
market-value gains in funds for which management fees are based on NAV, and $1.0 billion from net inflows to
open-end funds. Partially offsetting those increases was an $8.2 billion decline from asset sales by closed-end
funds in liquidation, of which Opps VIIb accounted for $2.8 billion.
87
Incentive-creating AUM decreased $1.6 billion, or 4.7%, to $32.4 billion as of December 31, 2013, from
$34.0 billion as of December 31, 2012. The decrease resulted from the net effect of $12.1 billion in distributions by
closed-end funds, $5.9 billion in market-value gains, and $4.7 billion in drawdowns by closed-end funds.
Year Ended December 31, 2012
AUM increased $2.2 billion, or 2.9%, to $77.1 billion as of December 31, 2012, from $74.9 billion as of
December 31, 2011. The increase was primarily attributable to $9.6 billion of market-value gains, $6.5 billion of
new capital commitments, including $5.0 billion for Opps IX, and $0.5 billion of net inflows to open-end funds,
partially offset by $12.7 billion of distributions to closed-end fund investors and $1.6 billion in aggregate uncalled
capital commitments across closed-end funds reaching the end of their investment periods. The $12.7 billion of
aggregate distributions included $5.7 billion by Opps VIIb. The $1.6 billion in uncalled capital commitments
included $1.2 billion by PPIP.
Management fee-generating AUM decreased $0.2 billion, or 0.3%, to $66.8 billion as of December 31,
2012, from $67.0 billion as of December 31, 2011. The decrease reflected a $5.5 billion decline attributable to
asset sales by closed-end funds in liquidation, largely offset by $3.9 billion in market-value gains in funds for which
management fees are based on NAV and an aggregate $1.0 billion from closings for Oaktree Real Estate
Opportunities Fund V, L.P. (“ROF V”) and ROF VI, and drawdowns by PPIP and EIF, including leverage. Opps VIIb
accounted for $2.6 billion of the $5.5 billion decline from asset sales by closed-end funds in liquidation.
Incentive-creating AUM decreased $2.2 billion, or 6.1%, to $34.0 billion as of December 31, 2012, from
$36.2 billion as of December 31, 2011. The decrease reflected $12.1 billion in distributions by closed-end funds,
partially offset by $5.4 billion in market-value gains and $4.5 billion in drawdowns by closed-end funds. Opps VIIb
represented $5.5 billion of the $12.1 billion in distributions.
Accrued Incentives (Fund Level) and Incentives Created (Fund Level)
Accrued incentives (fund level), gross and net of incentive income compensation expense, as well as
changes in accrued incentives (fund level) are set forth below.
As of or for the Year Ended December 31,
2014
2013
2012
(in thousands)
Accrued Incentives (Fund Level):
Beginning balance ............................................................................... $ 2,276,439
$ 2,137,798
$ 1,686,967
Incentives created (fund level):
Closed-end funds ..........................................................................
Evergreen funds ...........................................................................
Total incentives created (fund level) .......................................
163,194
1,176
164,370
1,114,088
54,748
1,168,836
869,557
42,390
911,947
Less: segment incentive income recognized by us .............................
(491,402)
(1,030,195)
(461,116)
Ending balance ................................................................................... $ 1,949,407
Accrued incentives (fund level), net of associated incentive income
compensation expense .................................................................... $
999,923
$ 2,276,439
$ 2,137,798
$ 1,235,226
$ 1,282,194
As of December 31, 2014, 2013 and 2012, the portion of net accrued incentives (fund level) represented by
funds that were currently paying incentives was $420.7 million, $494.0 million and $798.6 million, respectively, with
the remainder arising from funds that as of that date had not yet reached the stage of their cash distribution
waterfall where Oaktree was entitled to receive incentives, other than possibly tax-related distributions.
As of December 31, 2014, $745.5 million, or 75%, of the net accrued incentives (fund level) was in funds in
their liquidation period, and approximately 45% of the assets underlying total net accrued incentives (fund level)
were Level I or Level II securities. Please see “—Critical Accounting Policies—Investments, at Fair Value—Non-
publicly Traded Equity and Real Estate Investments” for a discussion of the fair-value hierarchy level established by
GAAP.
88
Year Ended December 31, 2014
Incentives created (fund level) was $164.4 million for the year ended December 31, 2014, reflecting the
period’s investment returns. The $164.4 million of incentives created (fund level) reflected $201.9 million from Real
Estate funds, $146.2 million from Control Investing funds, and negative $190.8 million from Distressed Debt funds.
The $164.4 million of incentives created (fund level) was the net result of $494.9 million from funds that generated
positive incentives and $330.5 million from funds that created negative incentives, with a significant portion of the
latter being in excess of our typical 20% share due to catch-up allocations for certain closed-end funds. Generally
speaking, while in the catch-up layer, approximately 80% of any increase or decrease, respectively, in the fund’s
NAV results in a commensurate amount of positive or negative incentives created (fund level).
Year Ended December 31, 2013
Incentives created (fund level) amounted to $1.2 billion for the year ended December 31, 2013, reflecting
both the 91.3% share of our incentive-creating AUM that was creating incentives as of December 31, 2013 and the
period’s investment returns. The $1.2 billion of incentives created (fund level) included $733.0 million from
Distressed Debt funds, of which the largest was Opps VIII at $196.5 million, and $318.6 million from Control
Investing funds. The $1.2 billion of incentives created (fund level) was the net result of $1.2 billion from funds that
generated positive incentives and $3.5 million from funds that created negative incentives. The impact of the catch-
up layer was not significant for 2013.
Year Ended December 31, 2012
Incentives created (fund level) amounted to $911.9 million for the year ended December 31, 2012, reflecting
both the 75.3% share of our incentive-creating AUM that was creating incentives as of December 31, 2012 and the
period’s investment returns. The $911.9 million of incentives created (fund level) reflected $351.1 million from Opps
VIIb, $374.6 million from other closed-end Distressed Debt funds and $117.8 million from Real Estate funds. The
$911.9 million of incentives created (fund level) was the net result of $942.7 million from funds that generated
positive incentives and $30.8 million from funds that created negative incentives. The impact of the catch-up layer
was not significant for 2012.
Uncalled Capital Commitments
As of December 31, 2014 and 2013, uncalled capital commitments were $10.3 billion and $13.2 billion,
respectively. Capital drawn by closed-end funds during the years ended December 31, 2014 and 2013 aggregated
$8.8 billion and $6.1 billion, respectively.
89
Segment Analysis
Our business is comprised of one segment, our investment management segment, 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 and operating metrics and data that are presented
without the consolidation of any funds. For a detailed reconciliation of the segment results of operations to our
consolidated statements of operations, please see “—Distributable Earnings” and “—Fee-related Earnings” below
and the “Segment Reporting” note to our consolidated financial statements included elsewhere in this annual report.
The data most important to our chief operating decision maker 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.
Adjusted Net Income
ANI and adjusted net income-OCG, as well as per unit data, are set forth below:
Year Ended December 31,
2014
2013
2012
(in thousands, except per unit data)
Revenues:
Management fees ........................................................................ $ 764,492
491,402
Incentive income ..........................................................................
117,662
Investment income .......................................................................
$ 749,901
1,030,195
258,654
$ 747,440
461,116
202,392
Total revenues ....................................................................... 1,373,556
2,038,750
1,410,948
Expenses:
Compensation and benefits .........................................................
Equity-based compensation .........................................................
Incentive income compensation ...................................................
General and administrative ..........................................................
Depreciation and amortization .....................................................
(381,544)
(19,705)
(231,871)
(122,566)
(7,249)
Total expenses.......................................................................
(762,935)
(365,306)
(3,828)
(436,217)
(117,361)
(7,119)
(929,831)
Adjusted net income before interest and other income (expense)......
610,621
1,108,919
Interest expense, net of interest income ......................................
Other income (expense), net ........................................................
Adjusted net income ...........................................................................
(30,190)
(5,301)
575,130
(28,621)
409
1,080,707
(329,741)
(318)
(222,594)
(102,685)
(7,397)
(662,735)
748,213
(31,730)
767
717,250
Adjusted net income attributable to OCGH non-controlling
interest ......................................................................................
Non-Operating Group other income .............................................
Non-Operating Group expenses ..................................................
Adjusted net income-OCG before income taxes.................................
Income taxes-OCG ......................................................................
(417,259)
—
(1,645)
156,226
(18,464)
(834,966)
—
(1,195)
244,546
(21,433)
(582,746)
6,260 (1)
(553)
140,211
(25,816) (1)
Adjusted net income-OCG .................................................................. $ 137,762
$ 223,113
$ 114,395
Adjusted net income per Class A unit ................................................. $
3.24
$
6.38
$
4.06
Weighted average number of Class A units outstanding ....................
42,582
34,979
28,170
(1) A nonrecurring adjustment in 2012 had the effect of increasing income taxes-OCG by $(7,134) and increasing
non-Operating Group other income by $6,260, for a net effect of additional after-tax OCG expense of $(874).
This adjustment stemmed from reductions in deferred tax assets and the liability for amounts due to affiliates.
The effective tax rate applicable to adjusted net income-OCG before income taxes for the year ended
December 31, 2012 was 14% without the $(7,134) nonrecurring expense and 18% with it.
90
Distributable Earnings
Distributable earnings and distributable earnings-OCG, as well as per unit data, are set forth below:
Year Ended December 31,
2014
2013
2012
(in thousands, except per unit data)
Revenues:
Management fees ............................................................................ $ 764,492
491,402
Incentive income ..............................................................................
Receipts of investment income from funds (1) ...................................
81,438
49,546
Receipts of investment income from companies ..............................
$ 749,901
1,030,195
128,896
35,664
$ 747,440
461,116
129,621
33,838
Total distributable earnings revenues ........................................ 1,386,878
1,944,656
1,372,015
Expenses:
Compensation and benefits .............................................................
Incentive income compensation .......................................................
General and administrative ..............................................................
Depreciation and amortization .........................................................
(381,544)
(231,871)
(122,566)
(7,249)
Total expenses...........................................................................
(743,230)
Other income (expense):
Interest expense, net of interest income ..........................................
(30,190)
Operating Group income taxes ........................................................
(18)
Other income (expense), net ............................................................
(5,301)
(365,306)
(436,217)
(117,361)
(7,119)
(926,003)
(28,621)
(6,175)
409
(330,059)
(222,594)
(102,685)
(7,397)
(662,735)
(31,730)
(6,136)
767
Distributable earnings .............................................................................
608,139
984,266
672,181
Distributable earnings attributable to OCGH non-controlling
interest ..........................................................................................
Non-Operating Group expenses ......................................................
Distributable earnings-OCG income taxes .......................................
Tax receivable agreement ................................................................
(440,530)
(1,645)
(4,138)
(15,853)
(761,370)
(1,195)
(7,684)
(10,422)
(544,957)
(553)
(12,185)
(6,808)
Distributable earnings-OCG ................................................................... $ 145,973
$ 203,595
$ 107,678
Distributable earnings per Class A unit ................................................... $
3.43
$
5.82
$
3.82
Weighted average number of Class A units outstanding ........................
42,582
34,979
28,170
(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.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Distributable earnings declined $376.2 million, or 38.2%, to $608.1 million for the year ended December 31,
2014, from $984.3 million for the year ended December 31, 2013, reflecting decreases of $334.4 million in net
incentive income, $33.6 million in investment income proceeds and $7.0 million in fee-related earnings. For 2014,
investment income proceeds totaled $131.0 million, including $81.4 million from fund distributions and $46.7 million
from DoubleLine, as compared with total investment income proceeds in 2013 of $164.6 million, of which $128.9
million and $35.7 million was attributable to fund distributions and DoubleLine, respectively.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Distributable earnings increased $312.1 million, or 46.4%, to $984.3 million for the year ended December
31, 2013, from $672.2 million for the year ended December 31, 2012, on $355.5 million of higher net incentive
91
income, partially offset by a $47.5 million decline in fee-related earnings. For 2013, investment income proceeds
totaled $164.6 million, including $128.9 million from fund distributions and $35.7 million from DoubleLine, as
compared with total investment income proceeds in 2012 of $163.5 million, of which $129.6 million and $33.8
million was attributable to fund distributions and DoubleLine, respectively.
The following table reconciles distributable earnings and ANI to net income attributable to Oaktree Capital
Group, LLC:
Year Ended December 31,
2014
2013
2012
(in thousands)
Distributable earnings ............................................................................. $ 608,139
117,662
Investment income (1) .......................................................................
Receipts of investment income from funds (2) ...................................
Receipts of investment income from companies ..............................
Equity-based compensation (3) .........................................................
Operating Group income taxes ........................................................
Adjusted net income ...............................................................................
Incentive income (4) ..........................................................................
Incentive income compensation (4) ...................................................
Equity-based compensation (5) .........................................................
Acquisition-related items (6) ..............................................................
Income taxes (7) ................................................................................
Non-Operating Group other income (8) .............................................
Non-Operating Group expenses (8) ..................................................
OCGH non-controlling interest (8) .....................................................
(81,438)
(49,546)
(19,705)
18
575,130
(28,813)
10,677
(21,690)
(2,442)
(18,536)
—
$ 984,266
$ 672,181
258,654
202,392
(128,896)
(129,621)
(35,664)
(33,838)
(3,828)
6,175
1,080,707
64,460
(46,334)
(24,613)
—
—
6,136
717,250
—
—
(36,024)
—
(26,232)
(30,858)
(1,645)
(1,195)
—
6,260
(553)
(386,398)
(824,795)
(548,265)
Net income attributable to Oaktree Capital Group, LLC ......................... $ 126,283
$ 221,998
$ 107,810
(1) This adjustment adds back our segment investment income, which with respect to investment in funds is
initially largely non-cash in nature and is thus not available to fund our operations or make equity distributions.
(2) This adjustment eliminates 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.
(3) This adjustment adds back the effect of equity-based compensation charges related to unit grants made after
our initial public offering, which is excluded from distributable earnings because it is non-cash in nature and
does not impact our ability to fund our operations or make equity distributions.
(4) 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. There were no adjustments attributable to timing differences for 2012.
(5) This adjustment adds back the effect of (a) equity-based compensation charges related to unit grants made
before our initial public offering, which is excluded from adjusted net income because it does not affect our
financial position and from distributable earnings because it is non-cash in nature and does not impact our
ability to fund operations or make equity distributions, and (b) differences arising from EVUs that are classified
as liability awards under GAAP, but classified as equity awards for segment reporting purposes.
(6) This adjustment adds back the effect of acquisition-related items associated with the amortization of
intangibles and changes in the contingent consideration liability.
(7) Because adjusted net income and distributable earnings are pre-tax measures, this adjustment adds back the
effect of income tax expense.
(8) Because adjusted net income and distributable earnings are calculated at the Operating Group level, this
adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or the OCGH
non-controlling interest.
92
The following table reconciles distributable earnings-OCG and adjusted net income-OCG to net income
attributable to Oaktree Capital Group, LLC:
Year Ended December 31,
2014
2013
2012
(in thousands)
Distributable earnings-OCG (1) ................................................................ $ 145,973
32,399
Investment income attributable to OCG ...........................................
Receipts of investment income from funds attributable to OCG.......
Receipts of investment income from companies attributable to
OCG ..............................................................................................
Equity-based compensation attributable to OCG (2) .........................
Distributable earnings-OCG income taxes .......................................
Tax receivable agreement ................................................................
Non-Operating Group other income .................................................
Income taxes of Intermediate Holding Companies...........................
Adjusted net income-OCG (1) ..................................................................
Incentive income attributable to OCG (3) ..........................................
Incentive income compensation attributable to OCG (3) ...................
Equity-based compensation attributable to OCG (4) .........................
Acquisition-related items attributable to OCG (5) ..............................
$ 203,595
$ 107,678
60,000
(29,141)
(8,486)
(904)
7,684
10,422
—
(20,057)
223,113
16,361
(11,761)
(5,715)
—
37,293
(25,215)
(5,891)
—
12,185
6,808
6,260
(24,723)
114,395
—
—
(6,585)
—
(22,674)
(13,892)
(5,517)
4,138
15,853
—
(18,518)
137,762
(6,641)
1,913
(6,053)
(698)
Net income attributable to Oaktree Capital Group, LLC ......................... $ 126,283
$ 221,998
$ 107,810
(1) Distributable earnings-OCG and adjusted net income-OCG are calculated to evaluate the portion of adjusted
net income and distributable earnings attributable to Class A unitholders. These measures are net of income
taxes and expenses applicable to OCG or its Intermediate Holding Companies.
(2) This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to
unit grants made after our initial public offering, which is excluded from distributable earnings because it is
non-cash in nature and does not impact our ability to fund our operations or make equity distributions.
(3) This adjustment adds back the effect of timing differences associated with the recognition of incentive income
and incentive income compensation expense attributable to OCG between adjusted net income-OCG and net
income attributable to OCG. There were no adjustments attributable to timing differences for 2012.
(4) This adjustment adds back the effect of (a) equity-based compensation charges attributable to OCG related to
unit grants made before our initial public offering, which is excluded from adjusted net income because it does
not affect our financial position and from distributable earnings because it is non-cash in nature and does not
impact our ability to fund our operations or make equity distributions, and (b) differences arising from EVUs
that are classified as liability awards under GAAP, but classified as equity awards for segment reporting
purposes.
(5) This adjustment adds back acquisition-related items associated with the amortization of intangibles and
changes in the contingent consideration liability attributable to OCG.
93
Fee-related Earnings
Fee-related earnings and fee-related earnings-OCG, as well as per unit data, are set forth below:
Year Ended December 31,
2014
2013
2012
(in thousands, except per unit data)
Management fees:
Closed-end funds ........................................................................ $ 538,463
173,018
Open-end funds ..........................................................................
53,011
Evergreen funds ..........................................................................
$ 559,426
146,557
43,918
$ 580,636
128,821
37,983
Total management fees ........................................................
764,492
749,901
747,440
Expenses:
Compensation and benefits ........................................................
General and administrative .........................................................
Depreciation and amortization ....................................................
(381,544)
(122,566)
(7,249)
Total expenses......................................................................
(511,359)
Fee-related earnings .........................................................................
Fee-related earnings attributable to OCGH non-controlling
interest .....................................................................................
Non-Operating Group other income ............................................
Non-Operating Group expenses .................................................
Fee-related earnings-OCG before income taxes ...............................
Fee-related earnings-OCG income taxes....................................
253,133
(182,414)
—
(1,647)
69,072
(7,754)
(365,306)
(117,361)
(7,119)
(489,786)
260,115
(199,758)
—
(1,196)
59,161
(9,039)
Fee-related earnings-OCG ................................................................ $
61,318
Fee-related earnings per Class A unit................................................ $
1.44
Weighted average number of Class A units outstanding ...................
42,582
$
$
50,122
1.43
34,979
$
$
(329,741)
(102,685)
(7,397)
(439,823)
307,617
(250,273)
6,260 (1)
(551)
63,053
(17,407) (1)
45,646
1.62
28,170
(1) A nonrecurring adjustment in 2012 had the effect of increasing income taxes-OCG by $(7,134) and increasing
non-Operating Group other income by $6,260, for a net effect of additional after-tax OCG expense of $(874).
This adjustment stemmed from reductions in deferred tax assets and the liability for amounts due to affiliates.
The effective tax rate applicable to fee-related earnings-OCG before income taxes for the year ended
December 31, 2012 was 18% without the $(7,134) nonrecurring expense and 28% with it.
94
The following table reconciles fee-related earnings and ANI to net income attributable to Oaktree Capital
Group, LLC:
Year Ended December 31,
2014
2013
2012
Fee-related earnings (1) ..................................................................................... $ 253,133
491,402
(231,871)
117,662
(19,705)
(30,190)
(5,301)
Incentive income ................................................................................
Incentive income compensation .........................................................
Investment income .............................................................................
Equity-based compensation (2) ...........................................................
Interest expense, net of interest income ............................................
Other income (expense), net ..............................................................
Adjusted net income .................................................................................
Incentive income (3) ............................................................................
Incentive income compensation (3) .....................................................
Equity-based compensation (4) ...........................................................
Acquisition-related items (5) ................................................................
Income taxes (6) ..................................................................................
Non-Operating Group other income (7) ...............................................
Non-Operating Group expenses (7) .....................................................
OCGH non-controlling interest (7) ........................................................
575,130
(28,813)
10,677
(21,690)
(2,442)
(18,536)
—
(1,645)
(386,398)
(in thousands)
$ 260,115
1,030,195
(436,217)
258,654
(3,828)
(28,621)
409
1,080,707
64,460
(46,334)
(24,613)
—
(26,232)
—
(1,195)
(824,795)
$ 307,617
461,116
(222,594)
202,392
(318)
(31,730)
767
717,250
—
—
(36,024)
—
(30,858)
6,260
(553)
(548,265)
Net income attributable to Oaktree Capital Group, LLC ........................... $ 126,283
$ 221,998
$ 107,810
(1) Fee-related earnings is a component of adjusted net income and is comprised of segment management fees
less segment operating expenses other than incentive income compensation expense and non-cash equity-
based compensation charges related to unit grants made after our initial public offering.
(2) This adjustment adds back the effect of equity-based compensation charges 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 or make equity distributions.
(3) 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. There were no adjustments attributable to timing differences for 2012.
(4) This adjustment adds back the effect of (a) equity-based compensation charges related to unit grants made
before our initial public offering, which is excluded from adjusted net income and fee-related earnings because
it is a non-cash charge that does not affect our financial position, and (b) differences arising from EVUs that
are classified as liability awards under GAAP, but classified as equity awards for segment reporting purposes.
(5) This adjustment adds back the effect of acquisition-related items associated with the amortization of
intangibles and changes in the contingent consideration liability.
(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 the OCGH
non-controlling interest.
95
The following table reconciles fee-related earnings-OCG and adjusted net income-OCG to net income
attributable to Oaktree Capital Group, LLC:
Year Ended December 31,
2014
2013
2012
(in thousands)
Fee-related earnings-OCG (1) .............................................................................. $
Incentive income attributable to OCG ....................................................
Incentive income compensation attributable to OCG ............................
Investment income attributable to OCG ................................................
Equity-based compensation attributable to OCG (2) ...............................
Interest expense, net of interest income attributable to OCG ................
Other income (expense) attributable to OCG ........................................
Non-fee-related earnings income taxes attributable to OCG (3) ...............
Adjusted net income-OCG (1) .......................................................................
Incentive income attributable to OCG (4) ................................................
Incentive income compensation attributable to OCG (4) .........................
Equity-based compensation attributable to OCG (5) ...............................
Acquisition-related items attributable to OCG (6) ....................................
61,318
132,901
(62,719)
32,399
(5,517)
(8,439)
(1,471)
(10,710)
137,762
(6,641)
1,913
(6,053)
(698)
$
50,122
231,971
(99,168)
60,000
(904)
(6,610)
96
(12,394)
223,113
16,361
(11,761)
(5,715)
—
$
45,646
88,809
(43,001)
37,293
(59)
(5,924)
40
(8,409)
114,395
—
—
(6,585)
—
Net income attributable to Oaktree Capital Group, LLC ............................... $ 126,283
$ 221,998
$ 107,810
(1) Fee-related earnings-OCG and adjusted net income-OCG are calculated to evaluate the portion of adjusted
net income and fee-related earnings attributable to Class A unitholders. These measures are net of income
taxes and other income or expenses applicable to OCG or its Intermediate Holding Companies.
(2) This adjustment adds back the effect of equity-based compensation charges 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 or make equity distributions.
(3) This adjustment adds back income taxes associated with segment incentive income, incentive income
compensation expense or investment income or loss, which are not included in the calculation of fee-related
earnings-OCG.
(4) This adjustment adds back the effect of timing differences associated with the recognition of incentive income
and incentive income compensation expense attributable to OCG between adjusted net income-OCG and net
income attributable to OCG. There were no adjustments attributable to timing differences for 2012.
(5) This adjustment adds back the effect of (a) equity-based compensation charges attributable to OCG related to
unit grants made before our initial public offering, which is excluded from adjusted net income-OCG and fee-
related earnings-OCG because it is a non-cash charge that does not affect our financial position, and (b)
differences arising from EVUs that are classified as liability awards under GAAP, but classified as equity
awards for segment reporting purposes.
(6) This adjustment adds back the effect of acquisition-related items associated with the amortization of
intangibles and changes in the contingent consideration liability attributable to OCG.
96
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Segment Revenues
Management Fees
A summary of management fees is set forth below:
Year Ended December 31,
2014
2013
(in thousands)
Management Fees:
Closed-end funds ................................................................................................................ $ 538,463
173,018
Open-end funds ..................................................................................................................
53,011
Evergreen funds .................................................................................................................
$ 559,426
146,557
43,918
Total .................................................................................................................................... $ 764,492
$ 749,901
Management fees increased $14.6 million, or 1.9%, to $764.5 million for the year ended December 31,
2014, from $749.9 million for the year ended December 31, 2013, for the reasons described below.
• Closed-end funds. Management fees attributable to closed-end funds decreased $20.9 million, or
3.7%, to $538.5 million for the year ended December 31, 2014, from $559.4 million for the year ended
December 31, 2013. The decrease was primarily the result of the prior-year period’s extra $15.6 million
in deferred fees from Oaktree Mezzanine Fund III, L.P. (“Mezz III”) that were contingent on the fund
achieving certain cash-flow levels and $9.5 million in retroactive management fees from ROF VI.
Excluding the extra management fees from Mezz III and ROF VI, management fees increased $4.2
million, or 0.8%, from the prior-year period, reflecting the start of Opps IX’s investment period on
January 1, 2014 and the Highstar acquisition, less the impact of closed-end fund distributions.
• Open-end funds. Management fees attributable to open-end funds increased $26.4 million, or 18.0%,
to $173.0 million for the year ended December 31, 2014, from $146.6 million for the year ended
December 31, 2013. The increase reflected higher management fees in our High Yield Bond,
Emerging Markets Equities and Senior Loan strategies. The increase from High Yield Bonds reflected
$0.5 million in higher performance-based fees. Those increases were partially offset by $4.7 million in
lower performance-based fees in our Convertible Securities strategies.
• Evergreen funds. Management fees attributable to evergreen funds increased $9.1 million, or 20.7%,
to $53.0 million for the year ended December 31, 2014, from $43.9 million for the year ended
December 31, 2013, primarily reflecting drawdowns of capital commitments by Strategic Credit and
Emerging Markets Opportunities, as well as market-value gains in VOF, partially offset by $3.8 million in
lower performance-based fees from Strategic Credit. The period-end weighted average annual
management fee rate for evergreen funds decreased to 1.53% as of December 31, 2014, from 1.63%
as of December 31, 2013, largely as a result of Strategic Credit, for which the average management
fee rate is lower than 1.63%.
Incentive Income
A summary of incentive income is set forth below:
Year Ended December 31,
2014
2013
(in thousands)
Incentive Income:
Closed-end funds ........................................................................................................... $
Evergreen funds ............................................................................................................
490,081
1,321
$
972,199
57,996
Total ............................................................................................................................... $
491,402
$ 1,030,195
Incentive income decreased $538.8 million, or 52.3%, to $491.4 million for the year ended December 31,
2014, from $1.0 billion for the year ended December 31, 2013. The decline was primarily attributable to lower
incentive distributions, partially offset by higher tax-related incentive distributions with respect to taxable income
97
generated by closed-end funds. The current year included incentive distributions of $201.8 million from Opps VIIb
and $219.7 million of tax-related incentive distributions. The prior year included incentive distributions of $662.3
million from Opps VIIb and $122.7 million of tax-related incentive distributions
Investment Income
A summary of investment income is set forth below:
Year Ended December 31,
2014
2013
(in thousands)
Income (loss) from investments in funds:
Oaktree funds:
Corporate Debt ........................................................................................................... $
Convertible Securities ................................................................................................
Distressed Debt ..........................................................................................................
Control Investing ........................................................................................................
Real Estate ................................................................................................................
Listed Equities ............................................................................................................
Non-Oaktree funds ........................................................................................................
Income from investments in companies ...........................................................................
15,767
143
(894)
26,369
32,347
8,466
2,479
32,985
$
19,928
163
91,793
48,003
14,199
36,615
(369)
48,322
Total investment income ................................................................................................... $ 117,662
$ 258,654
Investment income decreased $141.0 million, or 54.5%, to $117.7 million for the year ended December 31,
2014, from $258.7 million for the year ended December 31, 2013, primarily as a result of market-value changes in
Oaktree funds. Investments in companies accounted for $15.3 million of the overall decline, principally reflecting a
sizable market-value gain in 2013 on our investment in Cinda, as compared to a market-value loss in 2014. Our
one-fifth ownership stake in DoubleLine accounted for investment income of $46.9 million and $31.4 million in 2014
and 2013, respectively, of which performance fees accounted for $10.1 million and $3.4 million, respectively.
Segment Expenses
Compensation and Benefits
Compensation and benefits increased $16.2 million, or 4.4%, to $381.5 million for the year ended
December 31, 2014, from $365.3 million for the year ended December 31, 2013, primarily reflecting growth in
headcount, including the Highstar acquisition. The current and prior years included a $0.2 million benefit and a $6.5
million expense, respectively, associated with our phantom equity awards, stemming from each period’s equity
distributions and change in the Class A unit trading price.
Equity-based Compensation
Equity-based compensation increased $15.9 million, to $19.7 million for the year ended December 31,
2014, from $3.8 million for the year ended December 31, 2013, primarily reflecting non-cash amortization expense
associated with vesting of restricted unit grants made to employees and directors subsequent to our initial public
offering in April 2012.
Incentive Income Compensation
Incentive income compensation expense decreased $204.3 million, or 46.8%, to $231.9 million for the year
ended December 31, 2014, from $436.2 million for the year ended December 31, 2013. The percentage decrease
was slightly smaller than the corresponding decline of 52.3% in incentive income, primarily due to the 2011
acquisition of a small portion of certain investment professionals’ carried interest in Opps VIIb, which caused
incentive income compensation expense in 2013 to be $50.1 million lower than it otherwise would have been.
There was no such benefit in 2014.
General and Administrative
General and administrative expense increased $5.2 million, or 4.4%, to $122.6 million for the year ended
December 31, 2014, from $117.4 million for the year ended December 31, 2013. Excluding the impact of foreign
currency-related items, general and administrative expense increased $10.5 million, or 8.9%, to $128.8 million from
98
$118.3 million, primarily reflecting higher legal and other professional fees, as well as costs associated with
corporate growth and the Highstar acquisition, partially offset by lower placement fees.
Interest Expense, Net
Interest expense, net, increased $1.6 million, or 5.6%, to $30.2 million for the year ended December 31,
2014, from $28.6 million for the year ended December 31, 2013, primarily reflecting higher interest expense as a
result of the issuance of our new senior notes in September 2014.
Other Income (Expense), Net
Other income (expense), net was an expense of $5.3 million for the year ended December 31, 2014 and
income of $0.4 million for the year ended December 31, 2013. The expense of $5.3 million in 2014 reflected a $3.0
million write-off of unamortized debt issuance costs associated with the refinancing of our five-year corporate credit
facility, a $2.1 million loss related to the sale of properties received as part of a 2010 arbitration award related to a
former senior executive and portfolio manager of the Company’s real estate group who had previously left the
Company, and a $1.5 million loss associated with certain non-operating activities, partially offset by $1.5 million of
income related to proceeds received as part of the 2010 arbitration award. The 2013 income of $0.4 million
reflected the operating results of the properties received as part of the 2010 arbitration award.
Adjusted Net Income
Adjusted net income decreased $505.6 million, or 46.8%, to $575.1 million for the year ended December
31, 2014, from $1.1 billion for the year ended December 31, 2013, reflecting decreases of $334.4 million in net
incentive income, $141.0 million in investment income and $7.0 million in fee-related earnings.
Income Taxes-OCG
Income taxes decreased $2.9 million, or 13.6%, to $18.5 million for the year ended December 31, 2014,
from $21.4 million for the year ended December 31, 2013. The decrease was primarily attributable to tax benefits
recorded in 2014 resulting from the release of tax reserves related to the settlement of an income tax examination
and the expiration of statutes of limitations during 2014, as well as lower state and foreign income tax expense in
2014 as compared to 2013. The effective tax rates applicable to adjusted net income-OCG before income taxes for
2014 and 2013 were 12% and 9%, respectively. The effective tax rate is a function of the mix of income and other
factors that often vary significantly within or between years, each of which can have a material impact on the
particular year’s income tax expense.
99
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Segment Revenues
Management Fees
A summary of management fees is set forth below:
Year Ended December 31,
2013
2012
(in thousands)
Management Fees:
Closed-end funds ................................................................................................................ $ 559,426
146,557
Open-end funds ..................................................................................................................
43,918
Evergreen funds .................................................................................................................
$ 580,636
128,821
37,983
Total .................................................................................................................................... $ 749,901
$ 747,440
Management fees increased $2.5 million, or 0.3%, to $749.9 million for the year ended December 31, 2013,
from $747.4 million for the year ended December 31, 2012, for the reasons described below.
• Closed-end funds. Management fees attributable to closed-end funds decreased $21.2 million, or
3.7%, to $559.4 million for the year ended December 31, 2013, from $580.6 million for the year ended
December 31, 2012. The decrease primarily reflected a $107.2 million decline from closed-end funds
in liquidation, partially offset by an aggregate increase of $87.7 million in management fees from new
capital commitments to ROF VI, closed-end funds for which management fees are based on drawn
capital or NAV, and deferred fees from Mezz III.
• Open-end funds. Management fees attributable to open-end funds increased $17.8 million, or 13.8%,
to $146.6 million for the year ended December 31, 2013, from $128.8 million for the year ended
December 31, 2012, reflecting higher management fees across most of our open-end strategies as a
result of market-value appreciation and net inflows and, in the case of Convertible Securities, $2.1
million in higher performance-based fees.
• Evergreen funds. Management fees attributable to evergreen funds increased $5.9 million, or 15.5%,
to $43.9 million for the year ended December 31, 2013, from $38.0 million for the year ended
December 31, 2012, principally reflecting drawdowns and $3.8 million in performance-based fees from
Strategic Credit. The period-end weighted average annual management fee rate for evergreen funds
decreased to 1.63% as of December 31, 2013, from 1.82% as of December 31, 2012, largely as a
result of Strategic Credit, for which the average management fee rate is lower than 1.82%.
Incentive Income
A summary of incentive income is set forth below:
Year Ended December 31,
2013
2012
(in thousands)
Incentive Income:
Closed-end funds ........................................................................................................... $
Evergreen funds ............................................................................................................
972,199
57,996
Total ............................................................................................................................... $ 1,030,195
$
$
419,530
41,586
461,116
Incentive income increased $569.1 million, or 123.4%, to $1.0 billion for the year ended December 31,
2013, from $461.1 million for the year ended December 31, 2012. The current year included incentive distributions
of $662.3 million from Opps VIIb, $141.9 million from Principal Investing and Real Estate funds, $52.8 million from
VOF, and $44.1 million from other Distressed Debt funds, as well as $122.7 million of tax-related incentive
distributions. The prior year included $200.7 million of tax-related incentive distributions, mostly attributable to
Opps VIIb, and incentive distributions of $198.5 million from Principal Investing and Real Estate funds, and $40.5
million from VOF.
100
Investment Income
A summary of investment income is set forth below:
Year Ended December 31,
2013
2012
(in thousands)
Income (loss) from investments in funds:
Oaktree funds:
Corporate Debt ........................................................................................................... $
Convertible Securities ................................................................................................
Distressed Debt ..........................................................................................................
Control Investing ........................................................................................................
Real Estate ................................................................................................................
Listed Equities ............................................................................................................
Non-Oaktree funds ........................................................................................................
Income from investments in companies ...........................................................................
19,928
163
91,793
48,003
14,199
36,615
(369)
48,322
$
14,670
141
106,810
28,322
19,927
8,307
1,526
22,689
Total investment income ................................................................................................... $ 258,654
$ 202,392
Investment income increased $56.3 million, or 27.8%, to $258.7 million for the year ended December 31,
2013, from $202.4 million for the year ended December 31, 2012, reflecting $32.5 million of market-value gains in
Oaktree funds and a $23.8 million increase from our investments in companies. The $23.8 million increase in
investments in companies primarily reflected $17.1 million of market-value gains on our fourth-quarter 2013 minority
equity investment in Cinda and $8.5 million of higher income from DoubleLine. DoubleLine accounted for
investment income of $31.4 million and $22.9 million in 2013 and 2012, respectively, of which performance fees
accounted for $3.4 million and $8.0 million, respectively.
Segment Expenses
Compensation and Benefits
Compensation and benefits increased $35.6 million, or 10.8%, to $365.3 million for the year ended
December 31, 2013, from $329.7 million for the year ended December 31, 2012, primarily reflecting growth in
headcount. The current and prior years included expenses of $6.5 million and $2.3 million, respectively, associated
with our phantom equity awards, stemming from each period’s equity distributions and change in the Class A unit
trading price.
Equity-based Compensation
Equity-based compensation increased to $3.8 million for the year ended December 31, 2013, from $0.3
million for the year ended December 31, 2012, reflecting non-cash amortization expense associated with vesting of
restricted unit grants made to employees and directors subsequent to our initial public offering in April 2012.
Incentive Income Compensation
Incentive income compensation expense increased $213.6 million, or 96.0%, to $436.2 million for the year
ended December 31, 2013, from $222.6 million for the year ended December 31, 2012. The percentage increase
was smaller than the corresponding increase of 123.4% in incentive income, primarily due to the 2011 acquisition of
a small portion of certain investment professionals’ carried interest in Opps VIIb, which caused incentive income
compensation expense in 2013 to be $50.1 million lower than it otherwise would have been. There was no such
benefit in 2012.
General and Administrative
General and administrative expense increased $14.7 million, or 14.3%, to $117.4 million for the year ended
December 31, 2013, from $102.7 million for the year ended December 31, 2012. Excluding the impact of foreign
currency-related items, as well as $2.1 million in nonrecurring costs associated with our initial public offering that
were incurred in 2012, general and administrative expense increased $20.8 million, or 21.3%, to $118.3 million in
2013 from $97.5 million in 2012. The increase reflected $1.8 million of placement fees incurred in 2013 for ROF VI,
as compared with none in 2012, as well as higher professional fees and other costs associated with corporate
growth, enhancements to our operational infrastructure and being a public company.
101
Interest Expense, Net
Interest expense, net, decreased $3.1 million, or 9.8%, to $28.6 million for the year ended December 31,
2013, from $31.7 million for the year ended December 31, 2012, reflecting scheduled repayments of certain long-
term debt and a lower weighted-average interest rate on outstanding borrowings resulting from both Oaktree’s
improved credit rating and refinancing of our credit facility in the fourth quarter of 2012.
Other Income (Expense), Net
Other income (expense), net decreased to income of $0.4 million for the year ended December 31, 2013,
from income of $0.8 million for the year ended December 31, 2012. The 2013 income reflected the operating
results of the properties received as part of a 2010 arbitration award related to a former senior executive and
portfolio manager of our real estate group who had previously left the Company. The 2012 income primarily
reflected the net effect of $3.1 million of income attributable to the sale of a real estate property and other proceeds
received as part of the 2010 arbitration award, a $0.8 million write-off of unamortized debt issuance costs
associated with the refinancing of our credit facility, and a $1.7 million write-off of certain receivables related to a
former corporate investment.
Adjusted Net Income
Adjusted net income increased $363.4 million, or 50.7%, to $1.1 billion for the year ended December 31,
2013, from $717.3 million for the year ended December 31, 2012, as a result of increases of $355.5 million in net
incentive income and $56.3 million in investment income, partially offset by a $47.5 million decline in fee-related
earnings.
Income Taxes-OCG
Income taxes decreased $4.4 million, or 17.1%, to $21.4 million for the year ended December 31, 2013,
from $25.8 million for the year ended December 31, 2012. This expense declined, despite an increase in adjusted
net income-OCG before income taxes, as a result of a year-over-year decrease in the effective tax rate and the fact
that 2012 included a nonrecurring tax expense of $7.1 million stemming from a remeasurement of deferred tax
assets. The effective tax rate applied against adjusted net income-OCG before income taxes for 2013 was 9%.
The effective tax rate applied against adjusted net income-OCG before income taxes for 2012 was 14%, without the
$7.1 million nonrecurring tax expense, and 18% with it.
102
Segment Statements of Financial Condition
Since our founding, we have managed our financial condition in a way that builds our capital base and
maintains sufficient liquidity for known and anticipated uses of cash. We have issued debt largely to help fund our
corporate investments in funds and companies, favoring longer terms to better match the multi-year nature of our
typical investment. Our segment assets do not include accrued incentives (fund level), an off-balance sheet metric,
nor do they reflect the fair-market value of our 20% interest in DoubleLine, which is carried at cost, as adjusted
under the equity method of accounting. For a reconciliation of segment total assets to our consolidated total assets,
please see the “Segment Reporting” note to our consolidated financial statements included elsewhere in this annual
report.
The following table presents our segment statements of financial condition:
As of December 31,
2014
2013
(in thousands)
Assets:
Cash and cash-equivalents ............................................................................................ $ 405,290
U.S. Treasury securities .................................................................................................
655,529
1,515,443
Corporate investments ...................................................................................................
357,364
Deferred tax assets ........................................................................................................
334,173
Receivables and other assets ........................................................................................
$ 390,721
676,600
1,197,173
278,885
273,748
Total assets .............................................................................................................. $ 3,267,799
$ 2,817,127
Liabilities and Capital:
Liabilities:
Accounts payable and accrued expenses ................................................................ $ 390,196
309,214
Due to affiliates ........................................................................................................
850,000
Debt obligations .......................................................................................................
$ 304,427
242,986
579,464
Total liabilities ....................................................................................................
1,549,410
1,126,877
Capital:
OCGH non-controlling interest in consolidated subsidiaries ....................................
Unitholders’ capital attributable to Oaktree Capital Group, LLC ...............................
1,172,663
545,726
Total capital .......................................................................................................
1,718,389
1,220,647
469,603
1,690,250
Total liabilities and capital .................................................................................. $ 3,267,799
$ 2,817,127
Corporate Investments
A summary of corporate investments is set forth below:
As of December 31,
2014
2013
(in thousands)
Investments in funds:
Oaktree funds:
Corporate Debt ......................................................................................................... $ 426,677
18,698
Convertible Securities ...............................................................................................
433,715
Distressed Debt ........................................................................................................
249,840
Control Investing .......................................................................................................
134,631
Real Estate ...............................................................................................................
149,901
Listed Equities ..........................................................................................................
49,441
Non-Oaktree funds .......................................................................................................
52,540
Investments in companies ...............................................................................................
$ 125,560
1,554
438,144
246,058
112,981
129,697
51,580
91,599
Total corporate investments ............................................................................................ $ 1,515,443
$ 1,197,173
103
Liquidity and Capital Resources
We manage our liquidity and capital requirements by focusing on our cash flows before the consolidation of
our funds and the effect of normal changes in short-term assets and liabilities. Our primary cash flow activities on
an unconsolidated basis involve (a) generating cash flow from operations, (b) generating income from investment
activities, including strategic investments in certain third parties, (c) funding capital commitments that we have
made to our funds, (d) funding our growth initiatives, (e) distributing cash flow to our owners and (f) borrowings,
interest payments and repayments under credit agreements, our senior notes and other borrowing arrangements.
As of December 31, 2014, we had $1.1 billion of cash and investments in U.S. Treasury securities and $850 million
in outstanding debt. Additionally, we have a $500 million revolving credit facility available to us, which was undrawn
as of December 31, 2014. Oaktree’s investments in funds and companies had a carrying value of $1.5 billion as of
December 31, 2014.
Ongoing sources of cash, or distributable earnings, include (a) management fees, which are collected
monthly or quarterly, (b) incentive income, which is volatile and largely unpredictable as to amount and timing, and
(c) distributions related to our corporate investments in funds and companies. As of December 31, 2014, corporate
investments of $1.5 billion included unrealized investment income of $322.3 million. We primarily use cash flow
from operations and distributions from our corporate investments to pay compensation and related expenses,
general and administrative expenses, income taxes, debt service, capital expenditures and distributions. This same
cash flow, together with proceeds from equity and debt issuances, is also used to fund corporate investments, fixed
assets and other capital items. If cash flow from operations were insufficient to fund distributions, we expect that
we would suspend paying such distributions.
We use distributable earnings, which is derived from our segment results, to assess performance and
assist in the determination of equity distributions from the Operating Group. Our quarterly distributable earnings
may be affected by potential seasonal factors that may, in turn, affect the level of the cash distributions applicable to
a particular quarter. For example, we generally receive tax-related incentive distributions from certain closed-end
funds in the first quarter of the year, which if received generate distributable earnings in that period. The distribution
amount for any given period is likely to vary materially due to this and other factors.
Tax distributions are not required in respect of the Class A units and are only required from the Oaktree
Operating Group entities if and to the extent that there is sufficient cash available for distribution. Accordingly, if
there were insufficient cash flow from operations to fund quarterly or tax distributions by the Oaktree Operating
Group entities, we expect that these distributions would not be made. We believe that we have sufficient access to
cash from existing balances, our operations and the revolving credit facility described below to fund our operations
and commitments.
Consolidated Cash Flows
The accompanying consolidated statements of cash flows include our consolidated funds, despite the fact
that we typically have only a minority economic interest in those funds. The assets of consolidated funds, on a
gross basis, are substantially larger than the assets of our business and, accordingly, have a substantial effect on
the cash flows reflected in our consolidated statements of cash flows. The primary cash flow activities of our
consolidated funds involve:
• raising capital from third-party investors;
• using the capital provided by us and third-party investors to fund investments and operating expenses;
• financing certain investments with indebtedness;
• generating cash flows through the realization of investments, as well as the collection of interest and
dividend income; and
• distributing net cash flows to fund investors and to us.
Because most of our consolidated funds are treated as investment companies for accounting purposes,
their investing cash flow amounts are included in our cash flows from operations. We believe that each of the
consolidated funds and Oaktree has sufficient access to cash to fund their respective operations in the near term.
104
Significant amounts from our consolidated statements of cash flows for the years ended December 31,
2014, 2013 and 2012 are discussed below.
Operating Activities
Net cash used in operating activities was $4.3 billion for 2014. Net cash provided by operating activities
was $5.4 billion and $7.0 billion for 2013 and 2012, respectively. These amounts included (a) net purchases of
securities of the consolidated funds of $4.8 billion in 2014 and net proceeds from maturities, repayments and sales
of investments by the consolidated funds of $4.1 billion and $5.8 billion in 2013 and 2012, respectively; (b) net
realized gains on consolidated funds’ investments of $2.1 billion, $3.5 billion and $4.6 billion in 2014, 2013 and
2012, respectively; and (c) changes in unrealized depreciation on consolidated funds’ investments of $1.0 billion in
2014 and unrealized appreciation of $1.8 billion and $0.8 billion in 2013 and 2012, respectively.
Investing Activities
Investing activities used net cash of $39.7 million and $417.6 million in 2014 and 2013, respectively, and
provided $55.0 million in 2012. Investing activities were primarily driven by net U.S. Treasury and government-
agency investment activities. Net activity from purchases, maturities and sales of U.S. Treasury and government-
agency securities included net proceeds of $21.1 million in 2014, net purchases of $306.0 million in 2013 and net
proceeds of $11.1 million in 2012. Corporate investments in funds and companies of $68.5 million, $59.7 million
and $16.6 million in 2014, 2013 and 2012, respectively, consisted of the following:
Investments in funds ...............................................................
Investments in consolidated funds eliminated in
consolidation ........................................................................
Investments in unconsolidated companies .............................
Corporate investments in funds and companies .....................
Year Ended December 31,
2014
2013
2012
(in millions)
$ 600.3
$ 170.4
$ 187.2
(536.3)
(162.3)
(173.9)
4.5
$
68.5
$
51.6
59.7
$
3.3
16.6
Distributions from corporate investments in funds and companies of $38.3 million, $2.6 million and $63.7 million in
2014, 2013 and 2012, respectively, consisted of the following:
Distributions received from investments in funds ....................
Distributions received from consolidated funds eliminated in
consolidation ........................................................................
Distributions received from unconsolidated companies ..........
Distributions from corporate investments in funds and
companies ...........................................................................
Year Ended December 31,
2014
2013
2012
(in millions)
$ 372.9
$ 357.4
$ 418.1
(365.3)
(354.8)
(371.4)
30.7
—
17.0
$
38.3
$
2.6
$
63.7
Purchases of fixed assets were $5.0 million, $4.6 million and $5.2 million in 2014, 2013 and 2012, respectively.
Additionally, 2014 included a $25.6 million payment, net of cash acquired, for the Highstar acquisition and 2013
included a $50.0 million deposit related to a total return swap agreement.
Financing Activities
Financing activities provided $5.1 billion of cash in 2014 and used $5.3 billion and $7.6 billion of cash in
2013 and 2012, respectively. Financing activities included (a) net contributions from non-controlling interests to
consolidated funds of $1.4 billion in 2014 and net distributions from consolidated funds to non-controlling interests
of $6.3 billion and $7.6 billion in 2013 and 2012, respectively; (b) net borrowings on credit facilities of the
consolidated funds of $2.4 billion, $1.8 billion and $438.2 million in 2014, 2013 and 2012, respectively;
(c) distributions to unitholders of $550.8 million, $781.9 million and $424.1 million in 2014, 2013 and 2012,
respectively; (d) net proceeds of $268.2 million associated with the refinancing of our corporate credit facility in
105
2014, repayment of debt obligations of $35.7 million in 2013 and net repayment of $39.3 million in debt obligations
associated with the refinancing of our corporate credit facility in 2012; and (e) net purchases of Oaktree Operating
Group units, net of issuances of Class A units, of $1.8 million, $0.8 million and $0.7 million in 2014, 2013 and 2012,
respectively. Additionally in 2014, there were $1.6 billion in proceeds from debt obligations issued by our CLOs and
debt issuance costs of $29.7 million paid by our consolidated funds.
Future Sources and Uses of Liquidity
We expect to continue to make distributions to our Class A unitholders pursuant to our distribution policy. In
the future, we may also issue additional units or debt and other equity securities with the objective of increasing our
available capital. In addition, we may, from time to time, repurchase our Class A units in open market or privately
negotiated purchases or otherwise, or redeem our Class A units pursuant to the terms of our operating agreement.
In addition to our ongoing sources of cash that include management fees, incentive income and fund
distributions related to our corporate investments in funds and companies, we also have access to liquidity through
our debt financings and credit agreements. We believe that the sources of liquidity described below will be
sufficient to fund our working capital requirements for at least the next twelve months.
In September 2014, our subsidiaries Oaktree Capital Management, L.P. (the “Issuer”) and Oaktree Capital
I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P. (the “Guarantors” and together with the Issuer, the
“Obligors”) issued and sold to certain accredited investors $50.0 million aggregate principal amount of our 3.91%
Senior Notes, Series A, due September 3, 2024 (the “Series A Notes”), $100.0 million aggregate principal amount of
our 4.01% Senior Notes, Series B, due September 3, 2026 (the “Series B Notes”) and $100.0 million aggregate
principal amount of our 4.21% Senior Notes, Series C, due September 3, 2029 (the “Series C Notes” and together
with the Series A Notes and the Series B Notes, the “2014 Notes”) pursuant to a note and guarantee agreement
(the “Note Agreement”). The 2014 Notes are senior unsecured obligations of the Issuer, guaranteed by the
Guarantors on a joint and several basis. Interest on the 2014 Notes is payable semi-annually.
The Note Agreement provides for certain affirmative and negative covenants, including financial covenants
relating to the Obligors’ combined leverage ratio and minimum assets under management. In addition, the Note
Agreement contains customary representations and warranties of the Obligors and customary events of default, in
certain cases, subject to cure periods. The Issuer may prepay all, or from time to time any part of, the 2014 Notes
at any time, subject to the Issuer’s payment of the applicable make-whole amount determined with respect to such
principal amount prepaid. Upon the occurrence of a change of control, the Issuer will be required to make an offer
to prepay the 2014 Notes together with the applicable make-whole amount determined with respect to such
principal amount prepaid.
In November 2009, our subsidiary Oaktree Capital Management, L.P. issued $250 million in aggregate
principal amount of senior notes due December 2, 2019 (the “2009 Notes”). The indenture governing the 2009
Notes contains customary financial covenants and restrictions that, among other things, limit Oaktree Capital
Management, L.P. and the guarantors’ ability, subject to certain exceptions, to incur indebtedness secured by liens
on voting stock or profit-participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or
lease assets. The 2009 Notes do not contain financial maintenance covenants.
In addition to the 2009 Notes, as of December 31, 2014, we had two other series of senior notes
outstanding, with an aggregate remaining principal balance of $100.0 million due in 2016. These senior notes
contain customary financial covenants and restrictions that, among other things, restrict our subsidiaries from
incurring additional indebtedness and our subsidiaries and us from merging, consolidating, transferring, leasing or
selling assets, incurring certain liens and making restricted payments, subject to certain exceptions. In addition, the
agreements contain the following financial covenants: (a) a maximum consolidated leverage ratio covenant that
requires us and our subsidiaries to maintain a ratio, calculated by dividing consolidated total debt (for us and our
subsidiaries) by Consolidated EBITDA (as defined in each agreement) for the last four fiscal quarters, below 3.0-
to-1.0, (b) a maximum interest coverage ratio covenant that requires us and our subsidiaries to maintain a ratio,
calculated by dividing Consolidated EBITDA for the last four fiscal quarters by consolidated interest expense (for us
and our subsidiaries), below 4.0-to-1.0, and (c) an assets under management covenant that requires us to maintain
assets under management above $20 billion. As of December 31, 2014, we were in compliance with each of these
covenants.
In March 2014, our subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF
Investments, L.P. and Oaktree Capital I, L.P. entered into a credit agreement with a bank syndicate for senior
unsecured credit facilities (the “Credit Facility”), consisting of a $250 million fully-funded term loan (the “Term Loan”)
106
and a $500 million revolving credit facility (the “Revolver”), each with a five-year term. The Credit Facility replaced
the amortizing term loan, which had a principal balance of $218.8 million, and the undrawn revolver under the
Company’s prior credit facility. The Term Loan matures in March 2019, at which time the entire principal amount of
$250 million is due. Borrowings under the Credit Facility generally bear interest at a spread to either LIBOR or an
alternative base rate. Based on the current credit ratings of Oaktree Capital Management, L.P., the interest rate on
borrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of the Revolver is
0.125% per annum. Utilizing interest-rate swaps, the majority of the Term Loan’s annual interest rate is fixed at
2.69% through January 2016 and 2.22% for the twelve months thereafter, based on our current credit ratings. The
Credit Facility contains customary financial covenants and restrictions, including ones regarding a maximum
leverage ratio of 3.0-to-1.0 and a minimum required level of assets under management (as defined in the credit
agreement) of $50 billion. As of December 31, 2014, we were in compliance with each of these covenants and
were able to draw the full amount available under the Revolver without violating any financial covenants.
In December 2012, our subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree
AIF Investments, L.P. and Oaktree Capital I, L.P. entered into a credit agreement with a bank syndicate for senior
unsecured credit facilities, consisting of a $250 million fully-funded term loan and a $500 million revolving credit
facility, each with a five-year term. We were required to make quarterly principal payments equal to 2.5% of the
original principal amount of $250 million, with principal payments due in March, June, September and December of
each year, and the remaining principal payable upon maturity in December 2017. This credit facility was terminated
and replaced by the Credit Facility in March 2014, with proceeds from the Term Loan used to pay off the $218.8
million outstanding balance.
We are required to maintain minimum net capital balances for regulatory purposes in the U.S. and certain
non-U.S. jurisdictions in which we do business, which are met in part by retaining cash and cash-equivalents in
those jurisdictions. As a result, we may be restricted in our ability to transfer cash between different jurisdictions.
As of December 31, 2014, we were required to maintain approximately $100.1 million in net capital at these
subsidiaries and were in compliance with all regulatory minimum net capital requirements as of such date.
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with
OCGH unitholders that, as amended, provides for the payment to an exchanging or selling OCGH unitholder of
85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income taxes that they actually
realize (or are deemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree
AIF Holdings, Inc., or a change of control) as a result of an increase in the tax basis of the assets owned by the
Oaktree Operating Group. Assuming no material changes in the relevant tax law and that the Company earns
sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, as of December
31, 2014, future payments of this nature were estimated to aggregate $40.4 million over the period ending
approximately in 2029 with respect to the 2007 Private Offering and $79.0 million over the period ending
approximately in 2034 with respect to our initial public offering.
On May 29, 2013, we issued and sold 8,050,000 Class A units in a public offering (the “May 2013
Offering”), resulting in $419.9 million in net proceeds to us, after deducting underwriting discounts and
commissions. We did not retain any proceeds from the sale of Class A units in the May 2013 Offering, and we used
the net proceeds from the May 2013 Offering to acquire interests in our business from certain Oaktree directors,
employees and other investors, including certain senior executives and other members of our senior management.
The exchange of OCGH units in connection with the May 2013 Offering resulted in increases in the tax basis of the
tangible and intangible assets of the Oaktree Operating Group. As a result, we recorded a deferred tax asset of
$134.4 million and an associated liability of $114.2 million for payments to OCGH unitholders under the tax
receivable agreement, which together increased capital by $20.2 million. As of December 31, 2014, future
payments with respect to the May 2013 Offering were estimated to aggregate $109.0 million over the period ending
approximately in 2035.
On March 4, 2014, we issued and sold 5,000,000 Class A units in a public offering (the “March 2014
Offering”), resulting in $296.7 million in proceeds to us. We did not retain any proceeds from the sale of Class A
units in the March 2014 Offering. The proceeds from the March 2014 Offering were used to acquire interests in our
business from certain Oaktree directors, employees and other investors, including certain senior executives and
other members of our senior management. The exchange of OCGH units in connection with the March 2014
Offering resulted in increases in the tax basis of the tangible and intangible assets of the Oaktree Operating Group.
As a result, we recorded a deferred tax asset of $94.2 million and an associated liability of $80.0 million for
payments to OCGH unitholders under the tax receivable agreement, which together increased capital by $14.1
107
million. As of December 31, 2014, future payments with respect to the March 2014 Offering were estimated to
aggregate $80.0 million over the period ending approximately in 2036.
For the years ended December 31, 2014, 2013 and 2012, respectively, $10.1 million, $6.3 million and $3.3
million were paid under the tax receivable agreement.
Contractual Obligations, Commitments and Contingencies
In the ordinary course of business, Oaktree and our consolidated funds enter into contractual arrangements
that may require future cash payments. The following table sets forth information related to anticipated future cash
payments as of December 31, 2014:
2015
2016-2017
2018-2019
Thereafter
Total
Oaktree and Operating Subsidiaries:
Operating lease obligations (1) ................. $
Debt obligations payable .......................
Interest obligations on debt (2) .................
Tax receivable agreement .....................
Contingent consideration ......................
Commitments to Oaktree and third-
party funds (3) .........................................
Subtotal ..........................................
15,841
—
38,550
15,825
27,245
255,980
353,441
$
20,379
100,000
66,313
34,617
—
—
221,309
(in thousands)
$
20,934
500,000
57,735
37,358
—
—
616,027
$
60,570
250,000
82,489
220,675
—
—
613,734
$
117,724
850,000
245,087
308,475
27,245
255,980
1,804,511
Consolidated Funds:
Debt obligations payable .......................
Interest obligations on debt (2) ...............
CLO loans payable ................................
Interest on CLO loans payable (2) ..........
Commitments to fund investments (4) .....
4,704,852
26,053
—
34,811
1,585,818
Total ................................................ $ 6,704,975
—
—
151,257
67,278
—
$ 439,844
—
—
85,776
63,578
—
$ 765,381
—
—
1,364,502
203,502
—
$ 2,181,738
4,704,852
26,053
1,601,535
369,169
1,585,818
$ 10,091,938
(1) We lease our office space under agreements that expire periodically through 2030. The table includes only
guaranteed minimum lease payments for these leases and does not project other lease-related payments.
These leases are classified as operating leases for financial statement purposes and as such are not recorded
as liabilities in our consolidated financial statements.
Interest obligations include accrued interest on outstanding indebtedness. Where applicable, current interest
rates are applied to estimate future interest obligations on variable-rate debt.
(2)
(3) These obligations represent commitments by us to provide general partner capital funding to our funds and
limited partner capital funding to funds managed by unaffiliated third parties. These amounts are generally
due on demand and are therefore presented in the 2015 column. Capital commitments are expected to be
called over the next five years.
(4) These obligations represent commitments by our funds to make investments or fund uncalled contingent
commitments. These amounts are generally due either on demand or by various contractual dates that vary
by investment and are therefore presented in the 2015 column. Capital commitments are expected to be
called over a period of several years.
In some of our service contracts or management agreements, we have agreed to indemnify third-party
service providers or separate account clients under certain circumstances. The terms of the indemnities vary from
contract to contract and the amount of indemnification liability, if any, cannot be determined and has neither been
included in the above table nor recorded in our consolidated financial statements as of December 31, 2014.
As of December 31, 2014, none of the incentive income we had recognized was subject to clawback by the
funds.
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General Partner and Other Capital Commitments
As of December 31, 2014, our capital commitments to our funds (as general partner or otherwise) and
certain non-Oaktree investment vehicles for which a portion of the commitment remained undrawn were as follows:
Undrawn
Commitments
as of
December 31,
2014
Capital
Commitments
(in millions)
Corporate Debt:
Oaktree Enhanced Income Fund II, L.P. ...................................................................
Collateralized Loan Obligation Vehicles ....................................................................
Oaktree Mezzanine Fund IV, L.P. .............................................................................
Strategic Credit .........................................................................................................
European Private Debt .............................................................................................
$ 20
82
20
21
15
$
Distressed Debt:
Oaktree Opportunities Fund IX, L.P. .........................................................................
Emerging Markets Opportunities ..............................................................................
Control Investments:
Oaktree Principal Fund V, L.P. ..................................................................................
Oaktree Principal Fund VI, L.P. .................................................................................
Oaktree European Principal Fund III, L.P..................................................................
Oaktree Power Opportunities Fund III, L.P. ..............................................................
Real Estate:
Oaktree Real Estate Opportunities Fund V, L.P........................................................
Oaktree Real Estate Opportunities Fund VI, L.P.......................................................
Real Estate Debt .......................................................................................................
Listed Equities:
Value Equities ...........................................................................................................
Non-Oaktree ...................................................................................................................
100
50
71
20
100
27
32
67
32
15
30
6
5
18
11
10
20
23
8
19
43
15
16
16
29
10
7
Total ................................................................................................................................
$ 702
$ 256
Off-Balance Sheet Arrangements
As of December 31, 2014, we leased a corporate airplane for business purposes. We were responsible for
any unreimbursed costs and expenses incurred in connection with the operation, crew, registration, maintenance,
service and repair of the airplane. An unaffiliated third party provides certain services with respect to operations of
the plane. On January 22, 2015, the Company entered into an agreement to extend the lease, previously due to
expire on February 1, 2015, through April 1, 2015. The lease contains a buyout provision that allows us to
purchase the plane at any time through the lease’s termination on April 1, 2015. If we do not exercise that option,
we would be responsible for any shortfall, up to $10.0 million, in sale proceeds the lessor might incur below a sale
value of $12.3 million.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with GAAP. In applying many of these
accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of
assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and
judgments on historical experience and other assumptions that we believe are reasonable under the circumstances.
These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual
results may differ from our assumptions and estimates. If actual amounts are ultimately different from our
estimates, the revisions are included in our results of operations for the period in which the actual amounts become
known. We believe the following critical accounting policies could potentially produce materially different results if
we were to change underlying assumptions, estimates or judgments. For a summary of our significant accounting
policies, please see the notes to our consolidated financial statements included elsewhere in this annual report.
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Principles of Consolidation
We consolidate all entities where we have a direct or indirect controlling financial interest based on either a
variable interest model or voting interest model. As of December 31, 2014, this included six VIEs for which we were
considered the primary beneficiary, and substantially all of our closed-end, commingled open-end and evergreen
funds for which we act as the sole general partner and are deemed to control through a voting interest model.
Although as general partner we typically have only a small single-digit percentage interest in each fund, the funds’
third-party limited partners do not have the right to dissolve the partnerships or substantive kick-out or participating
rights that would overcome the presumption of control by the general partner. Accordingly, we consolidate the
limited partnerships and record non-controlling interests to reflect the economic interests of the unaffiliated limited
partners. Because limited partners in consolidated funds have been granted redemption rights exercisable in
certain circumstances, amounts relating to third-party interests in consolidated funds are presented as non-
controlling redeemable interests in consolidated funds within the consolidated statements of financial condition,
outside of the permanent capital section. All intercompany transactions and balances have been eliminated in
consolidation.
Our consolidated financial statements reflect the assets, liabilities, revenues, expenses and cash flows of
the consolidated funds on a gross basis, and the majority of the economic interests in those funds, which are held
by third-party investors, are attributed to non-controlling interests in consolidated funds. All of the revenues earned
by us from those funds are eliminated in consolidation. However, because the eliminated amounts are earned from,
and funded by, non-controlling interests, our attributable share of the net income from those funds is increased by
the amounts eliminated. Thus, the elimination of those amounts in consolidation has no effect on net income or
loss attributable to us.
Corporate investments consist of investments in funds and companies that we do not control. Investments
where we are deemed to exert significant influence are accounted for using the equity method of accounting and
reflect our ownership interest in each such fund or company. For investments where we are not deemed to exert
significant influence or control, the fair value option of accounting has been elected. Investment income represents
our pro-rata share of income or loss from these funds or companies or the change in fair value of the investment, as
applicable. Our general partnership interests are substantially illiquid. While investments in funds reflect the fund’s
holdings at fair value, our investment in DoubleLine is not adjusted to reflect the fair value of the underlying
company. The fair value of the underlying investments in funds is based on our assessment, which takes into
account expected cash flows, earnings multiples and/or comparisons to similar market transactions, among other
factors. Valuation adjustments reflecting consideration of credit quality, concentration risk, sales restrictions and
other liquidity factors are integral to valuing these instruments.
Revenue Recognition
Management Fees
We recognize management fees over the period in which the investment advisory services are performed.
The contractual terms of management fees generally vary by fund structure. Annual management fee rates
generally fall in the range of 1.25% to 1.75% for closed-end funds, 0.42% to 0.80% for open-end funds, and 1.0% to
2.0% for evergreen funds. In the case of most closed-end funds, the management fee rate is applied against
committed capital during the fund’s investment period and the lesser of total funded capital or cost basis of assets in
the liquidation period. However, for certain closed-end funds, management fees during the investment period are
calculated based on drawn capital. Additionally, for those closed-end funds for which management fees are based
on committed capital, we sometimes elect to delay the start of the fund’s investment period and thus its full
management fees; instead, earning management fees based only on drawn capital for the period between the first
capital drawdown and the date on which we elect to start the investment period. Our right to receive management
fees typically ends after 10 or 11 years from the initial closing date or the start of the investment period, even if
assets remain to be liquidated. For open-end and evergreen funds, the management fee is generally based on the
NAV of the fund. In the case of certain open-end and evergreen fund accounts, we have the potential to earn
performance-based fees, typically in reference to a relevant benchmark index or hurdle rate.
Fee calculations that consider committed capital, drawn capital or cost basis are each objective in nature
and therefore do not require the use of significant estimates or assumptions. Management fees related to our
open-end and evergreen funds, by contrast, are typically based on NAV as defined in the respective partnership or
investment management agreement. NAV is typically based on the current fair value of the underlying investments
within a fund. Estimates and assumptions are made when determining the fair value of the underlying investments
within a fund and could vary depending on the valuation methodology used. Please see “—Investments, at Fair
110
Value” below for further discussion related to significant estimates and assumptions used in determining the fair
value of the underlying investments in our funds.
We do not recognize incremental income for transaction, advisory, director and other ancillary fees received
in connection with providing services to portfolio companies or potential investees of the funds; rather, any such
fees are offset against management fees earned from the applicable fund. These fees are typically recognized as
revenue in the period in which they are offset against the quarterly management fee that would otherwise be paid
by the applicable fund, which is generally the quarter following the period in which the fees are received. Inasmuch
as these fees are not paid directly by the consolidated funds, such fees do not eliminate in consolidation;
accordingly, there is no impact to our net income or loss as the amounts are included in income attributable to
OCG.
Incentive Income
In calculating incentive income, we have elected to adopt Method 1 from GAAP guidance applicable to
accounting for revenues based on a formula. Under this method, we recognize incentive income when amounts are
fixed or determinable, all related contingencies have been removed and collection is reasonably assured, which
generally occurs in the quarter of, or the quarter immediately prior to, the distribution of the income by the fund to
us. For purposes of adjusted net income, incentive income is recognized 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 incentive
income is recognized under Method 1.
Other Income (Loss)
Other income (loss) consists primarily of the unrealized and realized gains (losses) on consolidated funds’
investments (including the impact of foreign currency on non-dollar denominated investments), dividend and
interest income received from investments, and interest expense incurred in connection with investment activities.
Unrealized gains or losses result from changes in the fair value of our funds’ investments during a period as well as
the reversal of unrealized gains or losses in connection with realization events. Upon disposition of an investment,
previously recognized unrealized gains or losses are reversed and a corresponding realized gain or loss is
recognized in the current period. While this reversal generally does not significantly impact the net amounts of
gains and losses that we recognize from investment activities, it affects the manner in which we classify our gains
and losses for reporting purposes.
Investments, at Fair Value
GAAP establishes a hierarchal disclosure framework that prioritizes the inputs used in measuring financial
instruments at fair value into three levels based on their market observability. Market price observability is affected
by a number of factors, such as the type of instrument and the characteristics specific to the instrument. Financial
instruments with readily available quoted prices from an active market or for which fair value can be measured
based on actively quoted prices generally will have a higher degree of market price observability and a lesser
degree of judgment inherent in measuring fair value.
Non-publicly traded debt and equity securities and other securities or instruments for which reliable market
quotations are not available are valued by management using valuation methodologies applied on a consistent
basis. These securities may initially be valued at the acquisition price as the best indicator of fair value. We review
the significant unobservable inputs, valuations of comparable investments and other similar transactions for
investments valued at acquisition price to determine whether another valuation methodology should be utilized.
Subsequent valuations will depend on facts and circumstances known as of the valuation date and the application
of valuation methodologies further described below under “—Non-publicly Traded Equity and Real Estate
Investments.” The fair value may also be based on a pending transaction expected to close after the valuation
date.
Exchange-traded Investments
Securities listed on one or more national securities exchanges are valued at their last reported sales price
on the date of valuation. If no sale occurred on the valuation date, the security is valued at the mean of the last
“bid” and “ask” prices on the valuation date. Securities that are not readily marketable due to legal restrictions that
may limit or restrict transferability are generally valued at a discount from quoted market prices. The discount would
reflect the amount market participants would require due to the risk relating to the inability to access a public market
for the security for the specified period and would vary depending on the nature and duration of the restriction and
the perceived risk and volatility of the underlying securities. Securities with longer duration restrictions or higher
volatility are generally valued at a higher discount. Such discounts are generally estimated based on put option
111
models or an analysis of market studies. Instances where we have applied discounts to quoted prices of restricted
listed securities have been infrequent. The impact of such discounts is not material to our consolidated statements
of financial condition and results of operations for all periods presented.
Credit-oriented Investments (including Real Estate Loan Portfolios)
Investments in corporate and government debt which are not listed or admitted to trading on any securities
exchange are valued at the mean of the last bid and ask prices on the valuation date based on quotations supplied
by recognized quotation services or by reputable broker-dealers.
The market-yield approach is considered in the valuation of non-publicly traded debt securities, utilizing
expected future cash flows and discounted using estimated current market rates. Discounted cash flow calculations
may be adjusted to reflect current market conditions and/or the perceived credit risk of the borrower. Consideration
is also given to a borrower’s ability to meet principal and interest obligations; this may include an evaluation of
collateral and/or the underlying value of the borrower utilizing techniques described below under “—Non-publicly
Traded Equity and Real Estate Investments.”
Non-publicly Traded Equity and Real Estate Investments
The fair value of equity and real estate investments is determined using a cost, market or income approach.
The cost approach is based on the current cost of reproducing a real estate investment less deterioration and
functional and economic obsolescence. The market approach utilizes valuations of comparable public companies
and transactions, and generally seeks to establish the enterprise value of the portfolio company or investment
property using a market-multiple methodology. This approach takes into account the financial measure (such as
EBITDA, adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value)
believed to be most relevant for the given company or investment property. Consideration also may be given to
factors such as acquisition price of the security or investment property, historical and projected operational and
financial results for the portfolio company, the strengths and weaknesses of the portfolio company or investment
property relative to its comparable companies or properties, industry trends, general economic and market
conditions, and others deemed relevant. The income approach is typically a discounted cash-flow method that
incorporates expected timing and level of cash flows. It incorporates assumptions in determining growth rates,
income and expense projections, discount and capitalization rates, capital structure, terminal values, and other
factors. The applicability and weight assigned to market and income approaches are determined based on the
availability of reliable projections and comparable companies and transactions.
The valuation of securities may be impacted by expectations of investors’ receptiveness to a public offering
of the securities, the size of the holding of the securities and any associated control, information with respect to
transactions or offers for the securities (including the transaction pursuant to which the investment was made and
the elapsed time from the date of the investment to the valuation date) and applicable restrictions on the
transferability of the securities.
These valuation methodologies involve a significant degree of management judgment. Accordingly,
valuations by us do not necessarily represent the amounts that eventually may be realized from sales or other
dispositions of investments. Fair values may differ from the values that would have been used had a ready market
for the investment existed, and the differences could be material to the financial statements.
Financial assets and liabilities measured and reported at fair value are classified as follows:
•
•
•
Level I – Quoted unadjusted prices for identical instruments in active markets to which we have
access at the date of measurement. The types of investments in Level I include exchange-traded
equities, debt and derivatives with quoted prices.
Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs
are directly or indirectly observable. Level II inputs include interest rates, yield curves, volatilities,
prepayment risks, loss severities, credit risks and default rates. The types of investments in Level II
generally include corporate bonds and loans, government and agency securities, less liquid and
restricted equity investments, over-the-counter traded derivatives, and other investments where the
fair value is based on observable inputs.
Level III – Valuations for which one or more significant inputs are unobservable. These inputs reflect
our assessment of the assumptions that market participants use to value the investment based on the
best available information. Level III inputs include prices of quoted securities in markets for which
112
there are few transactions, less public information exists or prices vary among brokered market
makers. The types of investments in Level III include non-publicly traded equity, debt, real estate and
derivatives.
In some instances, an instrument may fall into multiple levels of the fair-value hierarchy. In such instances,
the instrument’s level within the fair-value hierarchy is based on the lowest of the three levels (with Level III being
the lowest) that is significant to the value measurement. Our assessment of the significance of an input requires
judgment and considers factors specific to the instrument. Transfers of assets into or out of each fair value
hierarchy level as a result of changes in the observability of the inputs used in measuring fair value are accounted
for as of the beginning of the reporting period. Transfers resulting from a specific event, such as a reorganization or
restructuring, are accounted for as of the date of the event that caused the transfer.
In the absence of observable market prices, we value Level III investments using valuation methodologies
applied on a consistent basis. The quarterly valuation process for Level III investments begins with each portfolio
company, property or security being valued by the investment or valuation teams. The valuations are then reviewed
and approved by the valuation team and the valuation committee of each investment strategy, which consists of
senior members of the investment team. All Level III investment values are ultimately approved by the valuation
committees and designated investment professionals, as well as the valuation officer, who is independent of the
investment teams. For certain investments, the valuation process also includes a review by independent valuation
parties, at least annually, to determine whether the fair values determined by management are reasonable. Results
of the valuation process are evaluated each quarter, including an assessment of whether the underlying
calculations should be adjusted or recalibrated. In connection with this process, we evaluate changes in fair-value
measurements from period to period for reasonableness, considering items such as industry trends, general
economic and market conditions, and factors specific to the investment.
Certain assets are valued using prices obtained from brokers or pricing vendors. We obtain an average of
one to two broker quotes. We seek to obtain at least one quote directly from a broker making a market for the asset
and one price from a pricing vendor for the subject or similar securities. These investments may be classified as
Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be
for similar securities, or may require adjustment for investment-specific factors or restrictions. Generally, we do not
adjust any of the prices received from these sources, and all prices are reviewed by us. We evaluate the prices
obtained from brokers or pricing vendors based on available market information, including trading activity of the
subject or similar securities, or by performing a comparable security analysis to ensure that fair values are
reasonably estimated. We also perform back-testing of valuation information obtained from brokers and pricing
vendors against actual prices received in transactions. In addition to on-going monitoring and back-testing, we
perform due diligence procedures over pricing vendors to understand their methodology and controls to support
their use in the valuation process.
The table below summarizes the investments and other financial instruments, by fund structure and fair-
value hierarchy levels, held by our consolidated funds for each period presented in our consolidated statements of
financial condition (in thousands):
As of December 31, 2014
Closed-end funds ...................................................... $ 4,169,235
1,084,571
Open-end funds ........................................................
721,422
Evergreen funds .......................................................
Total .......................................................................... $ 5,975,228
Level I
Level II
$ 8,518,277
4,996,824
730,022
$ 14,245,123
Level III
$ 25,497,911
51,174
742,613
$ 26,291,698
Total
$ 38,185,423
6,132,569
2,194,057
$ 46,512,049
As of December 31, 2013
Closed-end funds ...................................................... $ 3,780,782
166,664
Open-end funds ........................................................
Evergreen funds .......................................................
718,997
Total .......................................................................... $ 4,666,443
$ 7,489,381
4,914,628
1,180,397
$ 13,584,406
$ 20,746,453
3,647
715,745
$ 21,465,845
$ 32,016,616
5,084,939
2,615,139
$ 39,716,694
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Hedging and Other Derivatives
We enter into derivative instruments as part of our overall risk management strategy or to facilitate our
investment management activities. Risks associated with fluctuations in interest rates and foreign currency
exchange rates in the normal course of business are addressed as part of our overall risk management strategy
that may result in the use of derivative instruments to economically hedge or reduce these exposures. To mitigate
the risk associated with fluctuations in interest rates, we may enter into interest-rate swaps to manage all or a
portion of the interest-rate risk associated with our variable-rate borrowings. Our corporate investments in funds
include investments denominated in currencies other than the U.S. dollar, which is Oaktree’s functional currency
and, consequently, are subject to fluctuations in foreign currency exchange rates. We also receive management
fees from certain funds and pay expenses in currencies other than the U.S. dollar. To manage the risks associated
with foreign currency exchange gains and losses generated by the remeasurement of our corporate investments,
management fees, and expenses denominated in non-functional currencies, we may enter into currency option and
forward contracts. As a result of the use of these or other derivative contracts, we are exposed to the risk that
counterparties will fail to fulfill their contractual obligations. We attempt to mitigate this counterparty risk by entering
into derivative contracts only with major financial institutions that have investment-grade credit ratings.
Counterparty credit risk is evaluated in determining the fair value of derivative instruments.
We recognize all derivatives as assets or liabilities in our consolidated statements of financial condition at
fair value. In connection with our derivative activities, we generally enter into agreements subject to enforceable
master netting arrangements that allow us to offset derivative assets and liabilities in the same currency by specific
derivative type or, in the event of default by the counterparty, to offset derivative assets and liabilities with the same
counterparty. While these derivative instruments are eligible to be offset in accordance with applicable accounting
guidance, we have elected to present derivative assets and liabilities based on gross fair value in our consolidated
statements of financial condition.
When we enter into a derivative contract, we may elect to designate the derivative as a hedging instrument
and apply hedge accounting as part of our overall risk management strategy. In other situations, when a derivative
does not qualify for hedge accounting or when the derivative and the hedged item are both recorded in current-
period earnings and thus deemed to be economic hedges, hedge accounting is not applied.
Derivatives that are designated as hedging instruments are classified as either a hedge of (a) a recognized
asset or liability (“fair-value hedge”), (b) a forecasted transaction or of the variability of cash flows to be received or
paid related to a recognized asset or liability (“cash-flow hedge”), or (c) a net investment in a foreign operation. For
a fair-value hedge, we record changes in the fair value of the derivative and, to the extent that it is highly effective,
changes in the fair value of the hedged asset or liability attributable to the hedged risk in current-period earnings in
the same caption in the consolidated statements of operations as the hedged item. Changes in the fair value of a
derivative that is highly effective and is designated and qualifies as a cash-flow hedge, to the extent that the hedge
is effective, are recorded in other comprehensive income (loss) until earnings are affected by the variability of cash
flows of the hedged transaction. Any hedge ineffectiveness is recorded in current-period earnings. Changes in the
fair value of derivatives designated as hedging instruments caused by factors other than changes in the risk being
hedged are recognized in current-period earnings. For a derivative that is not designated as a hedging instrument
(“freestanding derivative”), the Company records changes in fair value in current-period earnings.
We formally document at inception the hedge relationship, including identification of the hedging instrument
and the hedged item, as well as the risk management objectives, the strategy for undertaking the hedge
transaction, and the evaluation of effectiveness of the hedged transaction. On a quarterly basis, we formally assess
whether the derivative designated in each hedging relationship has been and is expected to remain highly effective
in offsetting changes in the estimated fair value or cash flow of the hedged item. If it is determined that a derivative
is not highly effective at hedging the designated exposure, hedge accounting is discontinued and the balance
remaining in other comprehensive income is released to earnings.
Equity-based Compensation
Equity-based compensation reflects the non-cash charge associated with grants of Class A units, OCGH
units and EVUs, and is calculated based on the grant-date fair value of the unit award, adjusted annually or more
frequently, as necessary, for actual forfeitures to reflect expense only for those units that ultimately vest. A
contemporaneous valuation report is utilized in determining fair value at the date of grant for unit awards. Each
valuation report is based on the market price of Oaktree’s Class A units, which were traded on the GSTrUE OTC
market prior to listing on the NYSE in April 2012, as well as other pertinent factors. A discount is then applied to the
Class A unit market price to reflect the lack of marketability for the OCGH units or EVUs, as applicable. The
114
determination of an appropriate discount for lack of marketability is based on a review of discounts on the sale of
restricted shares of publicly traded companies and multi-period put-based quantitative methods. Factors that
influence the size of the discount for lack of marketability include (a) the estimated time it would take for an OCGH
unitholder to exchange units into Class A units, (b) the volatility of the Company’s business, (c) thin trading of the
Class A units, and (d) prior to the initial public offering in April 2012, restrictive trading of the Class A units. Each of
these factors is subject to significant judgment. Equity-based awards that do not require future service (i.e., awards
vested at grant) are expensed immediately. Equity-based awards that require future service are recognized on a
straight-line basis over the requisite service period. Cash-settled equity-based awards are classified as liabilities
and are remeasured at the end of each reporting period.
Incentive Income Compensation
Incentive income compensation expense primarily includes compensation directly related to segment
incentive income, which generally consists of percentage interests (sometimes referred to as “points”) that we grant
to our investment professionals associated with the particular fund that generated the segment incentive income,
and secondarily includes compensation directly related to investment income. We have an obligation to pay a fixed
percentage of the incentive income earned from a particular fund, including income from consolidated funds that is
eliminated in consolidation, to specified investment professionals responsible for the management of the fund.
Amounts payable pursuant to these arrangements are recorded as compensation expense when they have become
probable and reasonably estimable. Our determination of the point at which it becomes probable and reasonably
estimable that incentive income compensation expense should be recorded is based on our assessment of
numerous factors, particularly those related to the profitability, realizations, distribution status, investment profile
and commitments or contingencies of the individual funds that may give rise to incentive income. Incentive income
compensation is expensed no later than the period in which the underlying income is recognized. Payment of
incentive income compensation generally occurs in the same period the related income is received or in the next
period. Participation in incentive income generated by our funds is subject to forfeiture upon departure and to
vesting provisions (generally over a period of five years), in each case, under certain circumstances set forth in the
applicable governing documents. These provisions are generally only applicable to incentive income compensation
that has not yet been recognized as an expense by us or paid to the participant.
Recent Accounting Developments
Please see note 2 to our consolidated financial statements included elsewhere in this annual report for
information regarding recent accounting developments.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to a broad range of risks inherent in the financial markets
in which we participate, including price risk, interest-rate risk, access to and cost of financing risk, liquidity risk,
counterparty risk and foreign exchange-rate risk. Potentially negative effects of these risks may be mitigated to a
certain extent by those aspects of our investment approach, investment strategies, fundraising practices or other
business activities that are designed to benefit, either in relative or absolute terms, from periods of economic
weakness, tighter credit or financial market dislocations.
Our predominant exposure to market risk is related to our role as general partner or investment adviser to
our funds and the sensitivities to movements in the fair value of their investments on management fees, incentive
income and investment income. The fair value of the financial assets and liabilities of our funds may fluctuate in
response to changes in, among many factors, the value of securities and foreign exchange, commodities and
interest rates.
Price Risk
Impact on Net Change in Unrealized Appreciation on Consolidated Funds’ Investments
As of December 31, 2014, we had investments at fair value of $46.5 billion related to our consolidated
funds. We estimate that a 10% decline in market values would result in a decrease in unrealized appreciation on
the consolidated funds’ investments of $4.7 billion. Inasmuch as this effect would primarily be attributable to non-
controlling interests, net income attributable to Oaktree Capital Group, LLC would be largely unaffected.
Impact on Segment Management Fees
Management fees are generally assessed in the case of (a) our open-end funds and evergreen funds,
based on NAV; and (b) our closed-end funds, based on committed capital or drawn capital during the investment
period and, during the liquidation period, based on the lesser of (i) the total funded committed capital or (ii) the cost
115
basis of assets remaining in the fund. Management fees are affected by short-term changes in market values to the
extent they are based on NAV, in which case the effect is prospective. For the years ended December 31, 2014
and 2013, NAV-based management fees represented approximately 33% and 29%, respectively, of total
management fees. We estimate that for the year ended December 31, 2014, an incremental 10% decline in market
values of the investments held in our funds would have resulted in an approximate $25.4 million decrease in
management fees. These estimated effects are without regard to a number of factors that would be expected to
increase or decrease the magnitude of the change to degrees that are not readily quantifiable, such as the use of
leverage facilities in certain of our funds or the timing of fund flows.
Impact on Segment Incentive Income
Incentive income is recognized only when it is known or knowable, which in the case of (a) our closed-end
funds, generally occurs only after all contributed capital and an annual preferred return on that capital (typically 8%)
have been distributed to the fund’s investors and (b) our active evergreen funds, generally occurs as of
December 31, based on the increase in the fund’s NAV during the year, subject to any high-water marks or hurdle
rates. In the case of closed-end funds, the link between short-term fluctuations in market values and a particular
period’s incentive income is indirect at best and, in certain cases, non-existent. Thus, the effect on incentive
income of an incremental 10% decline in market values for the year ended December 31, 2014 is not readily
quantifiable. Over a number of years, a decline in market values would be expected to cause a decline in incentive
income. In the case of evergreen funds, we estimate that an incremental 10% decline in fair values during the year
would have been insignificant on our incentive income of $1.3 million recognized during the year ended December
31, 2014. A decline in market values would be expected to cause a decline in accrued incentives (fund level), which
by itself would be expected to cause a prospective decline in incentive income.
Impact on Segment Investment Income
Investment income or loss arises from our pro-rata share of income or loss from our investments, generally
in our capacity as general partner in our funds and as an investor in our CLOs and third-party managed funds or
companies. This income is directly affected by changes in market risk factors. We estimate that for the year ended
December 31, 2014, an incremental 10% decline in fair values of the investments held in our funds and other
holdings would have resulted in a $269.6 million decrease in investment income. The estimated incremental
decline of $269.6 million is greater than 10% of the year's average corporate investments balance primarily
because of our investments in levered senior loan products, which have been a growing component of our
corporate investments. These estimated effects are without regard to a number of factors that would be expected
to increase or decrease the magnitude of the change to degrees that are not readily quantifiable, such as the use of
leverage facilities in certain of our funds, the timing of fund flows or the timing of new investments or realizations.
Exchange-rate Risk
Our business is affected by movements in the rate of exchange between the U.S. dollar and non-U.S. dollar
currencies in the case of (a) management fees that vary based on the NAV of our funds that hold investments
denominated in non-U.S. dollar currencies, (b) management fees received in non-U.S. dollar currencies,
(c) operating expenses for our foreign offices that are denominated in non-U.S. dollar currencies and (d) cash
balances we hold in non-U.S. dollar currencies. We manage our exposure to exchange-rate risks through our
regular operating activities and, when appropriate, through the use of derivative instruments.
We estimate that for the year ended December 31, 2014, a 10% decline in the average rate of exchange of
the U.S. dollar would have resulted in the following approximate effects on our segment results:
•
•
•
•
our management fees (relating to (a) and (b) above) would have increased by $11.4 million;
our operating expenses would have increased by $21.0 million;
OCGH interest in net income of consolidated subsidiaries would have decreased by $7.3 million; and
our income tax expense would have decreased by $0.8 million.
These movements would have decreased our net income attributable to OCG by $1.5 million.
At any point in time, some investments held in the closed-end and evergreen funds are carried in non-U.S.
dollar currencies on an unhedged basis. Changes in currency rates could affect incentive income, incentives
created (fund level) and investment income for closed-end and evergreen funds, although the degree of impact is
116
not readily determinable because of the many indirect effects that currency movements may have on individual
investments.
Credit Risk
We are party to agreements providing for various financial services and transactions that contain an
element of risk in the event that the counterparties are unable to meet the terms of such agreements. In such
agreements, we depend on the respective counterparty to make payment or otherwise perform. We generally
endeavor to minimize our risk of exposure by limiting to reputable financial institutions the counterparties with which
we enter into financial transactions. In other circumstances, availability of financing from financial institutions may
be uncertain due to market events, and we may not be able to access these financing markets.
Interest-rate Risk
As of December 31, 2014, Oaktree and its operating subsidiaries had $850 million in debt obligations
consisting of four senior notes issuances and a funded term loan. Each senior notes issuance accrues interest at a
fixed rate. The funded term loan accrues interest at a variable rate; however, we entered into interest-rate swaps
that effectively converted the majority of the term loan interest rate to a fixed rate through January 2017. As a
result, we estimate that as of December 31, 2014, there would be no material impact to interest expense of Oaktree
and its operating subsidiaries resulting from a 100-basis point increase in interest rates. Of the $1.1 billion of
aggregate segment cash and cash-equivalents and investments in U.S. Treasury securities as of December 31,
2014, we estimate Oaktree and its operating subsidiaries would generate an additional $10.6 million in interest
income on an annualized basis as a result of a 100-basis point increase in interest rates.
Our consolidated funds have debt obligations that include revolving credit agreements, debt issued by our
CLOs and certain other investment financing arrangements. Most of these debt obligations accrue interest at
variable rates, and changes in these rates would affect the amount of interest payments that we would have to
make, impacting future earnings and cash flows. As of December 31, 2014, $6.3 billion was outstanding under
these debt obligations. We estimate that interest expense relating to variable rates would increase on an
annualized basis by $61.6 million in the event interest rates were to increase by 100 basis points.
As credit-oriented investors, we are also subject to interest-rate risk through the securities we hold in our
consolidated funds. A 100-basis point increase in interest rates would be expected to negatively affect prices of
securities that accrue interest income at fixed rates and therefore negatively impact net change in unrealized
appreciation (depreciation) on consolidated funds’ investments. The actual impact is dependent on the average
duration of such holdings. Conversely, securities that accrue interest at variable rates would be expected to benefit
from a 100-basis point increase in interest rates because these securities would generate higher levels of current
income and therefore positively impact interest and dividend income. Inasmuch as these effects are almost entirely
attributable to non-controlling interests, net income attributable to OCG would largely be unaffected. In cases
where our funds pay management fees based on NAV, we would expect our segment management fees to
experience a change in direction and magnitude corresponding to that experienced by the underlying portfolios.
117
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements:
Page
Report of Independent Registered Public Accounting Firm ........................................................................ 119
Consolidated Statements of Financial Condition as of December 31, 2014 and 2013 ..............................
120
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012..........
121
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013
and 2012 .................................................................................................................................................
122
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012.........
123
Consolidated Statements of Changes in Unitholders’ Capital for the Years Ended December 31, 2014,
2013 and 2012 ........................................................................................................................................
125
Notes to Consolidated Financial Statements ............................................................................................. 126
118
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Unitholders of
Oaktree Capital Group, LLC
In our opinion, the accompanying consolidated statements of financial condition and the related consolidated
statements of operations, comprehensive income, cash flows and changes in unitholders’ capital present fairly, in all
material respects, the financial position of Oaktree Capital Group, LLC and its subsidiaries (the “Company”) at
December 31, 2014 and December 31, 2013, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control -
Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these financial statements, for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express opinions on these financial statements and on the Company’s internal control over
financial reporting based on our audits which were integrated audits in 2014 and 2013. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 27, 2015
119
Oaktree Capital Group, LLC
Consolidated Statements of Financial Condition
($ in thousands)
Assets
Cash and cash-equivalents ............................................................................................................... $
U.S. Treasury securities ....................................................................................................................
Corporate investments (includes $40,814 and $67,596 measured at fair value as of December 31,
........................................................................................................
2014 and 2013, respectively)
Due from affiliates .............................................................................................................................
Deferred tax assets ...........................................................................................................................
Other assets ......................................................................................................................................
Assets of consolidated funds:
Cash and cash-equivalents ...............................................................................................................
Investments, at fair value ..................................................................................................................
Dividends and interest receivable .....................................................................................................
Due from brokers ..............................................................................................................................
Receivable for securities sold ............................................................................................................
Derivative assets, at fair value ..........................................................................................................
Other assets ......................................................................................................................................
Total assets ............................................................................................................................... $
Liabilities and Unitholders’ Capital
Liabilities:
Accrued compensation expense ................................................................................................ $
Accounts payable, accrued expenses and other liabilities .........................................................
Due to affiliates ..........................................................................................................................
Debt obligations .........................................................................................................................
Liabilities of consolidated funds:
Accounts payable, accrued expenses and other liabilities .........................................................
Payables for securities purchased .............................................................................................
Securities sold short, at fair value ..............................................................................................
Derivative liabilities, at fair value ................................................................................................
Distributions payable .................................................................................................................
Borrowings under credit facilities ...............................................................................................
Collateralized loan obligation loans payable ..............................................................................
Total liabilities .....................................................................................................................
Commitments and contingencies (Note 13)
As of December 31,
2014
2013
408,296
655,529
$
187,963
46,881
357,364
282,516
2,940,198
46,533,799
193,428
605,882
171,817
296,197
664,192
53,344,062
294,886
148,361
309,214
850,000
75,487
767,733
64,438
253,509
752,762
4,704,852
1,601,535
9,822,777
$
$
390,721
676,600
169,927
47,774
278,885
208,929
2,246,944
39,911,888
159,215
283,764
324,213
94,937
469,457
45,263,254
278,655
79,999
242,986
579,464
29,213
697,705
140,251
149,880
224,711
2,297,181
—
4,720,045
Non-controlling redeemable interests in consolidated funds ..............................................................
Unitholders’ capital:
41,681,155
38,834,831
Class A units, no par value, unlimited units authorized, 43,763,719 and 38,472,506 units
issued and outstanding as of December 31, 2014 and 2013, respectively .............................
Class B units, no par value, unlimited units authorized, 109,088,901 and 112,584,211 units
issued and outstanding as of December 31, 2014 and 2013, respectively .............................
—
—
Paid-in capital
............................................................................................................................
Retained earnings (accumulated deficit) ....................................................................................
Accumulated other comprehensive loss ....................................................................................
Class A unitholders’ capital .................................................................................................
Non-controlling interests in consolidated funds ..........................................................................
Non-controlling interests in consolidated subsidiaries ................................................................
Total unitholders’ capital .....................................................................................................
Total liabilities and unitholders’ capital ................................................................................ $
536,431
11,378
(1,070)
546,739
27,430
1,265,961
1,840,130
53,344,062
$
—
—
590,236
(114,905)
(1,122)
474,209
—
1,234,169
1,708,378
45,263,254
Please see accompanying notes to consolidated financial statements.
120
Oaktree Capital Group, LLC
Consolidated Statements of Operations
(in thousands, except per unit amounts)
Year Ended December 31,
2014
2013
2012
Revenues:
Management fees .......................................................................................... $
Incentive income ............................................................................................
Total revenues .........................................................................................
192,055
$
192,605
$
134,568
1,839
193,894
2,317
194,922
10,415
144,983
Expenses:
Compensation and benefits ............................................................................
Equity-based compensation ...........................................................................
Incentive income compensation .....................................................................
Total compensation and benefits expense ...............................................
General and administrative .............................................................................
Depreciation and amortization ........................................................................
Consolidated fund expenses ..........................................................................
Total expenses ........................................................................................
(388,512)
(365,696)
(330,018)
(41,395)
(221,194)
(651,101)
(99,835)
(8,003)
(28,441)
(482,551)
(876,688)
(114,404)
(7,119)
(188,538)
(108,851)
(36,342)
(222,594)
(588,954)
(101,417)
(7,397)
(92,835)
(947,477)
(1,107,062)
(790,603)
Other income (loss):
Interest expense .............................................................................................
Interest and dividend income ..........................................................................
Net realized gain on consolidated funds’ investments ....................................
(129,942)
(61,160)
(45,773)
1,902,576
2,131,584
1,806,361
3,503,998
1,966,317
4,560,782
Net change in unrealized appreciation (depreciation) on consolidated funds’
investments ................................................................................................
Investment income .........................................................................................
Other income, net ...........................................................................................
Total other income ...................................................................................
Income before income taxes .................................................................................
Income taxes ..................................................................................................
Net income ............................................................................................................
Less:
(993,260)
1,843,469
33,695
3,018
2,947,671
2,194,088
56,027
409
7,149,104
6,236,964
835,160
25,382
7,027
7,348,895
6,703,275
(18,536)
(26,232)
(30,858)
2,175,552
6,210,732
6,672,417
Net income attributable to non-controlling interests in consolidated funds ......
(1,649,890)
(5,163,939)
(6,016,342)
Net income attributable to non-controlling interests in consolidated
subsidiaries .................................................................................................
(399,379)
(824,795)
(548,265)
Net income attributable to Oaktree Capital Group, LLC ......................................... $
126,283
Distributions declared per Class A unit .................................................................. $
Net income per unit (basic and diluted):
Net income per Class A unit (1) ........................................................................ $
3.15
2.97
$
$
$
221,998
4.71
6.35
$
$
$
107,810
2.31
3.83
Weighted average number of Class A units outstanding .................................
42,582
34,979
28,170
(1) All references to Class A units in these financial statements give effect to the conversion of previously outstanding 13 Class
C units into Class A units on a one-for-one basis in April 2012.
Please see accompanying notes to consolidated financial statements.
121
Oaktree Capital Group, LLC
Consolidated Statements of Comprehensive Income
(in thousands)
Year Ended December 31, 2014
Oaktree
Capital
Group, LLC
Non-
controlling
Interests in
Consolidated
Subsidiaries
Non-
controlling
Interests in
Consolidated
Funds
Total
Net income ......................................................................................... $ 126,283
Other comprehensive income (loss), net of tax:
$ 399,379
$ 1,649,890
$ 2,175,552
Foreign currency translation adjustments ....................................
(489)
(1,204)
Unrealized gain on interest-rate swap designated as cash-flow
hedge .......................................................................................
Other comprehensive income, net of tax ..............................
Total comprehensive income ..............................................................
Less: Comprehensive income attributable to non-controlling
interests ...................................................................................
541
52
1,311
107
—
—
—
(1,693)
1,852
159
126,335
399,486
1,649,890
2,175,711
—
(399,486)
(1,649,890)
(2,049,376)
Comprehensive income attributable to Oaktree Capital Group, LLC... $ 126,335
$
— $
— $ 126,335
Year Ended December 31, 2013
Net income ......................................................................................... $ 221,998
Other comprehensive income (loss), net of tax:
$ 824,795
$ 5,163,939
$ 6,210,732
Foreign currency translation adjustments ....................................
(198)
(1,348)
Unrealized gain on interest-rate swap designated as cash-flow
hedge .......................................................................................
Other comprehensive income, net of tax ..............................
Total comprehensive income ..............................................................
Less: Comprehensive income attributable to non-controlling
interests ...................................................................................
824
626
2,908
1,560
—
—
—
(1,546)
3,732
2,186
222,624
826,355
5,163,939
6,212,918
—
(826,355)
(5,163,939)
(5,990,294)
Comprehensive income attributable to Oaktree Capital Group, LLC... $ 222,624
$
— $
— $ 222,624
Year Ended December 31, 2012
Net income ......................................................................................... $ 107,810
Other comprehensive income (loss), net of tax:
$ 548,265
$ 6,016,342
$ 6,672,417
Foreign currency translation adjustments ....................................
Unrealized loss on interest-rate swap designated as cash-flow
hedge .......................................................................................
Other comprehensive income, net of tax ..............................
Total comprehensive income ..............................................................
Less: Comprehensive income attributable to non-controlling
interests ...................................................................................
205
(69)
136
988
(264)
724
—
—
—
1,193
(333)
860
107,946
548,989
6,016,342
6,673,277
—
(548,989)
(6,016,342)
(6,565,331)
Comprehensive income attributable to Oaktree Capital Group, LLC... $ 107,946
$
— $
— $ 107,946
Please see accompanying notes to consolidated financial statements.
122
Oaktree Capital Group, LLC
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2014
2013
2012
Cash flows from operating activities:
Net income ................................................................................................ $ 2,175,552
$ 6,210,732
$ 6,672,417
Adjustments to reconcile net income to net cash provided by operating
activities:
Investment income .............................................................................
Depreciation and amortization ............................................................
Equity-based compensation ...............................................................
(33,695)
8,003
41,395
(56,027)
7,119
28,441
(25,382)
7,397
36,342
Net realized and unrealized gains from consolidated funds’
investments .....................................................................................
(1,138,324)
(5,347,467)
(5,395,942)
Amortization (accretion) of original issue and market discount of
consolidated funds’ investments, net ...............................................
Income distributions from corporate investments in companies ..........
Amortization or write-off of debt issuance costs ..................................
Cash flows due to changes in operating assets and liabilities:
Decrease in deferred tax assets .........................................................
Increase in other assets .....................................................................
Increase in net due from affiliates .......................................................
Increase (decrease) in accrued compensation expense .....................
Increase (decrease) in accounts payable, accrued expenses and
other liabilities .................................................................................
Cash flows due to changes in operating assets and liabilities of
consolidated funds:
(5,910)
45,817
12,042
15,255
(62,883)
(12,908)
16,231
(73,376)
(120,132)
37,706
4,701
12,367
(23,252)
(8,638)
159,734
—
2,238
16,949
(8,679)
(21,952)
(66,676)
43,661
(19,524)
19,431
(Increase) decrease in dividends and interest receivable ...................
(Increase) decrease in due from brokers ............................................
(Increase) decrease in receivables for securities sold .........................
(Increase) decrease in other assets ....................................................
Increase (decrease) in accounts payable, accrued expenses and
other liabilities .................................................................................
Increase (decrease) in payables for securities purchased ..................
Purchases of securities ......................................................................
(33,171)
(322,119)
177,130
(171,720)
(32,640)
(287,005)
18,531
121,379
176,986
119,274
(74,898)
68,031
90,416
498,542
(441,521)
(464,623)
92,322
230,913
(21,975,014)
(18,277,324)
(15,266,419)
Proceeds from maturities, repayments and sales of securities ...........
Net cash provided by (used in) operating activities .............................
17,213,767
22,351,522
21,101,717
(4,326,536)
5,436,017
6,957,358
Cash flows from investing activities:
Purchases of U.S. Treasury securities .......................................................
(414,970)
(702,456)
(258,922)
Proceeds from maturities and sales of U.S. Treasury and government-
agency securities ...................................................................................
Corporate investments in funds and companies ........................................
Distributions from corporate investments in funds and companies.............
Acquisition, net of cash acquired (Highstar) ...............................................
Purchases of fixed assets ..........................................................................
Other
.........................................................................................................
Net cash provided by (used in) investing activities ..............................
436,041
(68,499)
38,341
(25,637)
(5,005)
—
396,470
(59,682)
2,643
—
(4,609)
(50,000)
(39,729)
(417,634)
270,005
(16,635)
63,704
—
(5,218)
2,113
55,047
(continued)
Please see accompanying notes to consolidated financial statements.
123
Oaktree Capital Group, LLC
Consolidated Statements of Cash Flows - (Continued)
(in thousands)
Year Ended December 31,
2014
2013
2012
Cash flows from financing activities:
Proceeds from issuance of debt obligations ............................................... $
Payment of debt issuance costs ................................................................
Repayments of debt obligations .................................................................
Proceeds from issuance of Class A units ...................................................
Purchase of OCGH units ...........................................................................
Repurchase and cancellation of Class A units ...........................................
Distributions to Class A unitholders ............................................................
Distributions to OCGH unitholders .............................................................
500,000
$
— $
250,000
(2,296)
(229,464)
296,650
(298,485)
—
(131,954)
(418,867)
—
(35,715)
419,908
(420,741)
—
(160,296)
(621,613)
(2,351)
(286,964)
322,260
(322,935)
(14,132)
(66,789)
(357,278)
Cash flows from financing activities of consolidated funds:
Contributions from non-controlling interests ...............................................
Distributions to non-controlling interests ....................................................
Proceeds from debt obligations issued by collateralized loan obligation
8,260,647
6,507,188
6,441,090
(6,826,094)
(12,783,673)
(13,993,859)
1,601,535
vehicles ..................................................................................................
Payment of debt issuance costs ................................................................
Borrowings on credit facilities ....................................................................
Repayments on credit facilities ..................................................................
Net cash provided by (used in) financing activities .............................
Effect of exchange rate changes on cash .........................................................
Net increase (decrease) in cash and cash-equivalents .....................................
Cash and cash-equivalents, beginning balance ................................................
Cash and cash-equivalents, ending balance ..................................................... $ 3,348,494
5,092,336
2,637,665
7,503,750
710,829
(5,133,389)
(15,242)
(29,697)
—
(13,595)
—
(3,145)
3,718,026
1,458,825
(1,922,433)
(1,017,500)
(5,312,944)
(7,592,778)
3,700
3,240
(290,861)
(577,133)
2,928,526
3,505,659
$ 2,637,665
$ 2,928,526
Supplemental cash flow disclosures:
* * *
Cash paid for interest
................................................................................ $
79,222
$
47,360
$
Cash paid for income taxes .......................................................................
7,947
15,526
37,738
18,524
Supplemental disclosure of non-cash activities:
Issuance of OCGH units related to the Highstar acquisition ....................... $
Net assets related to the initial consolidation of a fund ..............................
Non-controlling interests in consolidated subsidiaries acquired .................
3,996
$
— $
961,634
72,195
—
—
—
—
—
Please see accompanying notes to consolidated financial statements
124
Oaktree Capital Group, LLC
Consolidated Statements of Changes in Unitholders’ Capital
(in thousands)
Unitholders’ capital as of December 31, 2011 ........................................................................................................
Activity for the year ended December 31, 2012:
Issuance of Class A units ............................................................................................................................
Issuance of Class B units ............................................................................................................................
Cancellation of Class B units associated with forfeitures of OCGH units .....................................................
Conversion of Class C units into Class A units ............................................................................................
Repurchase and cancellation of Class A units .............................................................................................
Cancellation of Class B units .......................................................................................................................
Purchase of OCGH units from OCGH unitholders .......................................................................................
Deferred tax effect resulting from the purchase of OCGH units ...................................................................
Repurchase and cancellation of OCGH units ..............................................................................................
Equity reallocation between controlling and non-controlling interests ..........................................................
Capital increase related to equity-based compensation ..............................................................................
Distributions declared ..................................................................................................................................
Net income ..................................................................................................................................................
Foreign currency translation adjustment, net of tax .....................................................................................
Unrealized loss on interest-rate swap designated as cash-flow hedge, net of tax .......................................
Unitholders’ capital as of December 31, 2012 ........................................................................................................
Activity for the year ended December 31, 2013:
Issuance of Class A units ............................................................................................................................
Issuance of Class B units ............................................................................................................................
Cancellation of Class B units associated with forfeitures of OCGH units .....................................................
Cancellation of Class B units .......................................................................................................................
Purchase of OCGH units from OCGH unitholders .......................................................................................
Deferred tax effect resulting from the purchase of OCGH units ...................................................................
Repurchase and cancellation of OCGH units ..............................................................................................
Equity reallocation between controlling and non-controlling interests ..........................................................
Capital increase related to equity-based compensation ..............................................................................
Distributions declared ..................................................................................................................................
Net income ..................................................................................................................................................
Foreign currency translation adjustment, net of tax .....................................................................................
Unrealized gain on interest-rate swap designated as cash-flow hedge, net of tax .......................................
Unitholders’ capital as of December 31, 2013 ........................................................................................................
Activity for the year ended December 31, 2014:
Issuance of Class A units ............................................................................................................................
Issuance of Class B units ............................................................................................................................
Cancellation of Class B units associated with forfeitures of OCGH units .....................................................
Cancellation of Class B units .......................................................................................................................
Issuance of OCGH units related to the Highstar acquisition ........................................................................
Purchase of OCGH units from OCGH unitholders .......................................................................................
Deferred tax effect resulting from the purchase of OCGH units ...................................................................
Repurchase and cancellation of OCGH units ..............................................................................................
Non-controlling interests related to the Highstar acquisition ........................................................................
Capital contributions ....................................................................................................................................
Equity reallocation between controlling and non-controlling interests ..........................................................
Capital increase related to equity-based compensation ..............................................................................
Distributions declared ..................................................................................................................................
Net income ..................................................................................................................................................
Foreign currency translation adjustment, net of tax .....................................................................................
Unrealized gain on interest-rate swap designated as cash-flow hedge, net of tax .......................................
Oaktree Capital Group, LLC
Class A
Units
Class B
Units
Class C
Units
Paid-in
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated Other
Comprehensive
Income (Loss)
Non-controlling
Interests in
Consolidated
Subsidiaries
Non-controlling
Interests in
Consolidated
Funds
Total
Unitholders’
Capital
22,664
125,847
13
$
634,739
$
(444,713)
$
(1,884)
$
935,858
$
— $
1,124,000
7,904
—
—
13
(400)
—
—
—
—
—
—
—
—
—
—
30,181
8,292
—
—
—
—
—
—
—
—
—
—
—
—
38,473
5,291
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,358
(33)
—
—
(7,904)
—
—
—
—
—
—
—
—
—
120,268
—
673
(48)
(8,309)
—
—
—
—
—
—
—
—
—
112,584
—
1,891
(56)
(5,330)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(13)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
322,260
—
—
—
(14,132)
—
(322,260)
15,490
—
69,097
6,648
(66,789)
—
—
—
645,053
419,908
—
—
—
(419,908)
19,807
—
79,052
6,620
(160,296)
—
—
—
590,236
296,650
—
—
—
1,137
(296,400)
13,705
—
—
—
51,525
11,532
(131,954)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
107,810
—
—
(336,903)
—
—
—
—
—
—
—
—
—
—
221,998
—
—
(114,905)
—
—
—
—
—
—
—
—
—
—
—
—
—
126,283
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
205
(69)
(1,748)
—
—
—
—
—
—
—
—
—
—
—
(198)
824
(1,122)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(489)
541
—
—
—
—
—
—
—
—
(675)
(69,097)
29,694
(357,278)
548,265
988
(264)
1,087,491
—
—
—
—
—
—
(833)
(79,052)
21,821
(621,613)
824,795
(1,348)
2,908
1,234,169
—
—
—
—
2,859
—
—
(2,085)
72,195
13,810
(51,525)
29,729
(432,677)
399,379
(1,204)
1,311
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
51,644
—
—
(26,351)
2,137
—
—
322,260
—
—
—
(14,132)
—
(322,260)
15,490
(675)
—
36,342
(424,067)
656,075
1,193
(333)
1,393,893
419,908
—
—
—
(419,908)
19,807
(833)
—
28,441
(781,909)
1,046,793
(1,546)
3,732
1,708,378
296,650
—
—
—
3,996
(296,400)
13,705
(2,085)
72,195
65,454
—
41,261
(590,982)
527,799
(1,693)
1,852
Unitholders’ capital as of December 31, 2014 ........................................................................................................
43,764
109,089
— $
536,431
$
11,378
$
(1,070)
$
1,265,961
$
27,430
$
1,840,130
Please see accompanying notes to consolidated financial statements.
125
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements
December 31, 2014
($ in thousands, except where noted)
1. ORGANIZATION AND BASIS OF PRESENTATION
Oaktree Capital Group, LLC (together with its subsidiaries, “Oaktree” or the “Company”) is a leader among
global investment managers specializing in alternative investments. Oaktree emphasizes an opportunistic, value-
oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high yield debt
and senior loans), control investing, convertible securities, real estate and listed equities. Funds managed by
Oaktree (the “Oaktree funds”) include commingled funds, separate accounts and collateralized loan obligation
vehicles (“CLOs”). Commingled funds include open-end and closed-end limited partnerships in which the Company
makes an investment and for which it serves as the general partner or, in certain limited cases, co-general partner.
CLOs are structured finance vehicles in which the Company typically makes an investment and for which it serves
as collateral manager.
Oaktree Capital Group, LLC is a Delaware limited liability company that was formed on April 13, 2007. The
Company is owned by its Class A and Class B unitholders. Oaktree Capital Group Holdings GP, LLC acts as the
Company’s manager and is the general partner of Oaktree Capital Group Holdings, L.P. (“OCGH”), which owns
100% of the Company’s outstanding Class B units. OCGH is owned by the Company’s senior executives, current
and former employees and certain other investors (the “OCGH unitholders”). The Company’s operations are
conducted through a group of operating entities collectively referred to as the Oaktree Operating Group. OCGH has
a direct economic interest in the Oaktree Operating Group and the Company has an indirect economic interest in
the Oaktree Operating Group. The interests in the Oaktree Operating Group are referred to as the “Oaktree
Operating Group units.” An Oaktree Operating Group unit is not a separate legal interest but represents one limited
partnership interest in each of the Oaktree Operating Group entities. Class A units are entitled to one vote per unit.
Class B units are entitled to ten votes per unit and do not represent an economic interest in the Company. The
number of Class B units held by OCGH, however, increases or decreases with corresponding changes in OCGH’s
economic interest in the Oaktree Operating Group. Consequently, the OCGH unitholders’ economic interest in the
Oaktree Operating Group is reflected within non-controlling interests in consolidated subsidiaries in the
accompanying consolidated financial statements.
Initial Public Offering
On April 12, 2012, the Company listed its Class A units on the New York Stock Exchange (“NYSE”). In
connection with the listing, the Company and selling unitholders sold 7,888,864 and 954,159 Class A units,
respectively. Upon the completion of the initial public offering, the Company owned approximately 20% of the
Oaktree Operating Group and the Company’s senior executives controlled 98% of the total combined voting power
of the Company’s units entitled to vote. The Company did not receive any of the proceeds from the sale of Class A
units by the selling unitholders, and used the offering proceeds from the issuance of units to acquire interests in the
Company’s business from its senior executives, employees (including former employees) and other investors.
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the
accounts of the Company, its wholly-owned or majority-owned subsidiaries, the consolidated entities that are
considered to be variable interest entities (“VIEs”) and for which the Company is considered the primary beneficiary,
and certain entities that are not considered VIEs but in which the Company has a controlling financial interest. Most
of the Oaktree funds consolidated by the Company are investment companies that follow a specialized basis of
accounting established by GAAP. All intercompany transactions and balances have been eliminated in
consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires the Company to
make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the
consolidated financial statements, as well as the reported amounts of income and expenses during the period then
ended. Actual results could differ from these estimates.
126
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Reclassifications
Certain amounts reported in the consolidated statements of cash flows for prior periods have been
reclassified to conform to the current period presentation.
Accounting Policies of the Company
Consolidation
The Company consolidates those entities where it has a direct or indirect controlling financial interest based
on either a variable interest model or voting interest model. As of December 31, 2014, this included six VIEs for
which the Company was considered the primary beneficiary, and substantially all of Oaktree’s closed-end,
commingled open-end and evergreen funds for which the Company acts as the sole general partner and is deemed
to control through a voting interest model.
Variable Interest Model. The Company consolidates VIEs for which it is considered the primary
beneficiary. An entity is determined to be the primary beneficiary if it holds a controlling financial interest. A
controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact
the entity’s business and (b) the obligation to absorb losses of the entity or the right to receive benefits from the
entity that could potentially be significant to the VIE. The consolidation model for VIEs, which was revised effective
January 1, 2010, requires an analysis to determine (a) whether an entity in which the Company holds a variable
interest is a VIE and (b) whether the Company’s involvement, through holding interests directly or indirectly in the
entity or contractually through other variable interests (e.g., management and performance-related fees), would give
it a controlling financial interest. The consolidation model for VIEs may be deferred if the VIE and the reporting
entity’s interest in the VIE meet the deferral conditions set forth in Accounting Standards Codification (“ASC”)
810-10-65-2(aa). If a VIE has met the deferral conditions, the analysis is based on the consolidation model for VIEs
prior to January 1, 2010, which requires an analysis to determine (a) whether an entity in which the Company holds
a variable interest is a VIE and (b) whether the Company’s involvement through holding interests directly or
indirectly in the entity or contractually through other variable interests (e.g., management and performance-related
fees) would be expected to absorb a majority of the variability of the entity. Under either model, the Company
determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders
that conclusion at each reporting date. In evaluating whether the Company is the primary beneficiary, the Company
evaluates its economic interests in the entity held either directly by the Company or indirectly through related
parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent
that the Company is not the primary beneficiary, a quantitative analysis may also be performed. Investments and
redemptions (either by the Company, affiliates of the Company or third parties) or amendments to the governing
documents of the respective Oaktree funds could affect an entity’s status as a VIE or the determination of the
primary beneficiary.
While the Company holds variable interests in the Oaktree funds, most of those funds do not meet the
characteristics of a VIE. As of December 31, 2014, the Company consolidated six VIEs for which it was the primary
beneficiary, including Oaktree AIF Holdings, Inc. (“AIF”), which was formed to hold certain assets for regulatory and
other purposes and is immaterial to the Company. The five remaining VIEs represented CLOs for which the
Company acts as collateral manager. As of December 31, 2014, two of the CLOs had not priced. There were no
VIEs for which the Company was not the primary beneficiary as of December 31, 2014 and 2013. The Company
consolidated two VIEs as of December 31, 2013.
As of December 31, 2014, the Company consolidated five CLOs with total assets and liabilities of $2.1
billion and $1.9 billion, respectively. The assets and liabilities of the CLOs primarily consist of investments in debt
securities and loans, respectively, issued by the CLOs. The loans issued by each CLO are collateralized by the
investments held by the CLO, and assets of one CLO may not be used to satisfy liabilities of another. In exchange
for managing the collateral of the CLOs, the Company typically earns management fees and may earn performance
fees, all of which are eliminated in consolidation. As of December 31, 2014, the Company had invested an
aggregate $171.0 million in its CLOs, which represented its maximum risk of loss. The Company’s investments are
generally subordinated to other interests in the CLOs and entitle the Company to receive a pro-rata portion of the
residual cash flows, if any, from the CLOs. Investors in the CLOs have no recourse against the Company for any
losses they sustain. Please see note 7 for information on CLO debt obligations.
127
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Voting Interest Model. For entities that are not VIEs, the Company evaluates those entities that it controls
through a majority voting interest, including those Oaktree funds in which the Company as the sole general partner
is presumed to have control (together with the CLOs, the “consolidated funds”). Although as general partner the
Company typically has only a small, single-digit percentage equity interest in each fund, the funds’ third-party limited
partners do not have the right to dissolve the partnerships or have substantive kick-out or participating rights that
would overcome the presumption of control by the Company.
Accordingly, Oaktree’s consolidated financial statements reflect the assets, liabilities, revenues, expenses
and cash flows of the consolidated funds on a gross basis, and the majority of the economic interests in those
funds, which are held by third-party investors, are attributed to non-controlling interests in consolidated funds in the
accompanying consolidated financial statements. All of the revenues earned by Oaktree from those funds are
eliminated in consolidation. However, because the eliminated amounts are earned from and funded by non-
controlling interests, Oaktree’s attributable share of the net income from those funds is increased by the amounts
eliminated. Thus, the elimination of those amounts in consolidation has no effect on net income or loss attributable
to the Company. All intercompany transactions and balances have been eliminated in consolidation.
Certain funds for which the Company shares general partner responsibilities or where the Company has no
general partner responsibility but has the ability to exert significant influence through other means are accounted for
under the equity method of accounting.
Non-controlling Redeemable Interests in Consolidated Funds
The Company records non-controlling interests to reflect the economic interests of the unaffiliated limited
partners. These interests are presented as non-controlling redeemable interests in consolidated funds within the
consolidated statements of financial condition, outside of the permanent capital section. Limited partners in open-
end and evergreen funds generally have the right to withdraw their capital, subject to the terms of the respective
limited partnership agreements, over periods ranging from one month to three years. While limited partners in
consolidated closed-end funds generally have not been granted redemption rights, these limited partners do have
withdrawal or redemption rights in certain limited circumstances that are beyond the control of the Company, such
as instances in which retaining the limited partnership interest could cause the limited partner to violate a law,
regulation or rule.
The allocation of net income or loss to non-controlling redeemable interests in consolidated funds is based
on the relative ownership interests of the unaffiliated limited partners after the consideration of contractual
arrangements that govern allocations of income or loss. At the consolidated level, potential incentives are allocated
to non-controlling redeemable interests in consolidated funds until such incentives become allocable to the
Company under the substantive contractual terms of the limited partnership agreements of the funds.
Non-controlling Interests in Consolidated Funds
Non-controlling interests in consolidated funds represent the equity interests held by third-party investors in
CLOs that had not yet priced as of the respective period end. All non-controlling interests in those CLOs are
attributed a share of income or loss arising from the respective CLO based on the relative ownership interests of
third-party investors after consideration of contractual arrangements that govern allocations of income or loss.
Investors in those CLOs are generally unable to redeem their interests until the CLO liquidates, is called or
otherwise terminates.
Non-controlling Interests in Consolidated Subsidiaries
Non-controlling interests in consolidated subsidiaries reflect the portion of unitholders’ capital attributable to
OCGH unitholders (“OCGH non-controlling interest”), certain related parties and other third parties. All non-
controlling interests in consolidated subsidiaries are attributed a share of income or loss in the respective
consolidated subsidiary based on the relative economic interests of the OCGH unitholders or third parties after
consideration of contractual arrangements that govern allocations of income or loss. Please see note 9 for more
information.
128
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, which
requires the use of estimates and judgment to measure the fair value of the identifiable tangible and intangible
assets acquired, liabilities assumed, and non-controlling interests in the acquiree as of the acquisition date.
Contingent consideration that is determined to be part of the business combination is recognized at fair value as of
the acquisition date and is included in the purchase price. Transaction costs are expensed as incurred.
Fair Value of Financial Instruments
GAAP establishes a hierarchal disclosure framework that prioritizes the inputs used in measuring financial
instruments at fair value into three levels based on their market observability. Market price observability is affected
by a number of factors, such as the type of instrument and the characteristics specific to the instrument. Financial
instruments with readily available quoted prices from an active market or for which fair value can be measured
based on actively quoted prices generally will have a higher degree of market price observability and a lesser
degree of judgment inherent in measuring fair value.
Financial assets and liabilities measured and reported at fair value are classified as follows:
•
•
•
Level I – Quoted unadjusted prices for identical instruments in active markets to which the Company
has access at the date of measurement. The types of investments in Level I include exchange-traded
equities, debt and derivatives with quoted prices.
Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs
are directly or indirectly observable. Level II inputs include interest rates, yield curves, volatilities,
prepayment risks, loss severities, credit risks and default rates. The types of investments in Level II
generally include corporate bonds and loans, government and agency securities, less liquid and
restricted equity investments, over-the-counter traded derivatives, and other investments where the fair
value is based on observable inputs.
Level III – Valuations for which one or more significant inputs are unobservable. These inputs reflect
the Company’s assessment of the assumptions that market participants use to value the investment
based on the best available information. Level III inputs include prices of quoted securities in markets
for which there are few transactions, less public information exists or prices vary among brokered
market makers. The types of investments in Level III include non-publicly traded equity, debt, real
estate and derivatives.
In some instances, an instrument may fall into multiple levels of the fair-value hierarchy. In such instances,
the instrument’s level within the fair-value hierarchy is based on the lowest of the three levels (with Level III being
the lowest) that is significant to the fair-value measurement. The Company’s assessment of the significance of an
input requires judgment and considers factors specific to the instrument. Transfers of assets into or out of each fair
value hierarchy level as a result of changes in the observability of the inputs used in measuring fair value are
accounted for as of the beginning of the reporting period. Transfers resulting from a specific event, such as a
reorganization or restructuring, are accounted for as of the date of the event that caused the transfer.
In the absence of observable market prices, the Company values Level III investments using valuation
methodologies applied on a consistent basis. The quarterly valuation process for Level III investments begins with
each portfolio company, property or security being valued by the investment or valuation teams. The valuations are
then reviewed and approved by the valuation team and the valuation committee of each investment strategy, which
consists of senior members of the investment team. All Level III investment values are ultimately approved by the
valuation committees and designated investment professionals, as well as the valuation officer, who is independent
of the investment teams. For certain investments, the valuation process also includes a review by independent
valuation parties, at least annually, to determine whether the fair values determined by management are
reasonable. Results of the valuation process are evaluated each quarter, including an assessment of whether the
underlying calculations should be adjusted or recalibrated. In connection with this process, the Company evaluates
changes in fair-value measurements from period to period for reasonableness, considering items such as industry
trends, general economic and market conditions, and factors specific to the investment.
129
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Certain assets are valued using prices obtained from brokers or pricing vendors. The Company obtains an
average of one to two broker quotes. The Company seeks to obtain at least one quote directly from a broker
making a market for the asset and one price from a pricing vendor for the subject or similar securities. These
investments may be classified as Level III because the quoted prices may be indicative in nature for securities that
are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or
restrictions. Generally, the Company does not adjust any of the prices received from these sources, and all prices
are reviewed by the Company. The Company evaluates the prices obtained from brokers or pricing vendors based
on available market information, including trading activity of the subject or similar securities, or by performing a
comparable security analysis to ensure that fair values are reasonably estimated. The Company also performs
back-testing of valuation information obtained from brokers and pricing vendors against actual prices received in
transactions. In addition to on-going monitoring and back-testing, the Company performs due diligence procedures
over pricing vendors to understand their methodology and controls to support their use in the valuation process.
Fair Value Option
The Company has elected the fair value option for certain corporate investments that otherwise would not
have reflected unrealized gains and losses in current-period earnings. Such election is irrevocable and is applied
on an investment-by-investment basis at initial recognition. Unrealized gains and losses resulting from changes in
fair value are reflected as a component of investment income in the consolidated statements of operations. The
Company’s accounting for those investments is similar to its accounting for investments held by the consolidated
funds at fair value and the valuation methods used to determine the fair value of those investments.
In addition, the Company has elected the fair value option for the assets of its CLOs. Assets of the CLOs
are included in investments, at fair value and liabilities of the CLOs are reflected in collateralized loan obligation
loans payable in the consolidated statements of financial condition. The Company’s accounting for CLOs is similar
to its accounting for closed-end funds with respect to both carrying investments held by CLOs at fair value and the
valuation methods used to determine the fair value of those investments. Realized gains or losses and changes in
the fair value of consolidated CLO assets are included in net realized gain on consolidated funds’ investments and
net change in unrealized appreciation (depreciation) on consolidated funds’ investments, respectively, in the
consolidated statements of operations. Interest income of CLOs is included in interest and dividend income, while
their interest expense and other expenses are included in interest expense and consolidated fund expenses,
respectively, in the consolidated statements of operations.
Foreign Currency
The assets and liabilities of Oaktree’s foreign subsidiaries with non-U.S. dollar functional currencies are
translated at exchange rates prevailing at the end of each reporting period. The results of foreign operations are
translated at the weighted average exchange rate for each reporting period. Translation adjustments are included
as a component of accumulated other comprehensive income (loss) until realized. Gains or losses resulting from
foreign currency transactions are included in general and administrative expenses.
Hedging and Other Derivatives
The Company enters into derivative instruments as part of its overall risk management strategy or to
facilitate its investment management activities. Risks associated with fluctuations in interest rates and foreign
currency exchange rates in the normal course of business are addressed as part of the Company’s overall risk
management strategy that may result in the use of derivative instruments to economically hedge or reduce these
exposures. To mitigate the risk associated with fluctuations in interest rates, the Company may enter into interest-
rate swaps to manage all or a portion of the interest-rate risk associated with its variable-rate borrowings. The
Company’s corporate investments in funds include investments denominated in currencies other than the U.S.
dollar, which is the Company’s functional currency and, consequently, are subject to fluctuations in foreign currency
exchange rates. The Company also receives management fees from certain funds and pays expenses in
currencies other than the U.S. dollar. To manage the risks associated with foreign currency exchange gains and
losses generated by the remeasurement of the Company’s corporate investments, management fees and expenses
denominated in non-functional currencies, the Company may enter into currency option and forward contracts. As a
result of the use of these or other derivative contracts, the Company is exposed to the risk that counterparties will
fail to fulfill their contractual obligations. The Company attempts to mitigate this counterparty risk by entering into
130
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
derivative contracts only with major financial institutions that have investment-grade ratings. Counterparty credit
risk is evaluated in determining the fair value of derivative instruments.
The Company recognizes all derivatives as assets or liabilities in its consolidated statements of financial
condition at fair value. In connection with its derivative activities, the Company generally enters into agreements
subject to enforceable master netting arrangements that allow the Company to offset derivative assets and liabilities
in the same currency by specific derivative type or, in the event of default by the counterparty, to offset derivative
assets and liabilities with the same counterparty. While these derivative instruments are eligible to be offset in
accordance with applicable accounting guidance, the Company has elected to present derivative assets and
liabilities based on gross fair value in its consolidated statements of financial condition.
When the Company enters into a derivative contract, the Company may elect to designate the derivative as
a hedging instrument and apply hedge accounting as part of its overall risk management strategy. In other
situations, when a derivative does not qualify for hedge accounting or when the derivative and the hedged item are
both recorded in current-period earnings and thus deemed to be economic hedges, hedge accounting is not
applied.
Derivatives that are designated as hedging instruments are classified as either a hedge of (a) a recognized
asset or liability (“fair-value hedge”), (b) a forecasted transaction or of the variability of cash flows to be received or
paid related to a recognized asset or liability (“cash-flow hedge”), or (c) a net investment in a foreign operation. For
a fair-value hedge, the Company records changes in the fair value of the derivative and, to the extent that it is highly
effective, changes in the fair value of the hedged asset or liability attributable to the hedged risk in current-period
earnings in the same caption in the consolidated statements of operations as the hedged item. Changes in the fair
value of a derivative that is highly effective and is designated and qualifies as a cash-flow hedge, to the extent that
the hedge is effective, are recorded in other comprehensive income (loss) until earnings are affected by the
variability of cash flows of the hedged transaction. Any hedge ineffectiveness is recorded in current-period
earnings. Changes in the fair value of derivatives designated as hedging instruments that are caused by factors
other than changes in the risk being hedged are excluded from the assessment of hedge effectiveness and
recognized in current-period earnings. For a derivative that is not designated as a hedging instrument
(“freestanding derivative”), the Company records changes in fair value in current-period earnings.
The Company formally documents at inception the hedge relationship, including identification of the hedging
instrument and the hedged item, as well as the risk management objectives, the strategy for undertaking the hedge
transaction, and the evaluation of effectiveness of its hedged transaction. On a quarterly basis, the Company
formally assesses whether the derivative it designated in each hedging relationship has been and is expected to
remain highly effective in offsetting changes in the estimated fair value or cash flow of the hedged items. If it is
determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is
discontinued and the balance remaining in other comprehensive income is released to earnings.
Cash and Cash-equivalents
Cash and cash-equivalents include demand deposit accounts, as well as money market funds and short-
term investments with maturities of three months or less at the date of acquisition.
U.S. Treasury Securities
Includes holdings of U.S. Treasury bills with maturities greater than three months at the date of acquisition.
These securities, classified as available-for-sale, are recorded at fair value with changes in fair value included in
other comprehensive income (loss). Changes in fair value were not material for all years presented.
Corporate Investments
Corporate investments consist of investments in funds and companies that the Company does not control.
Investments where the Company is deemed to exert significant influence are accounted for using the equity method
of accounting and reflect Oaktree’s ownership interest in each such fund or company. For investments where the
Company is not deemed to exert significant influence or control, the fair value option of accounting has been
elected. Investment income represents the Company’s pro-rata share of income or loss from these funds or
companies or the change in fair value of the investment, as applicable. Oaktree’s general partnership interests are
131
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
substantially illiquid. While investments in funds reflect the fund’s holdings at fair value, equity-method investments
in DoubleLine Capital LP and other companies are not adjusted to reflect the fair value of the underlying company.
The fair value of the underlying investments in funds is based on the Company’s assessment, which takes into
account expected cash flows, earnings multiples and/or comparisons to similar market transactions, among other
factors. Valuation adjustments reflecting consideration of credit quality, concentration risk, sales restrictions and
other liquidity factors are integral to valuing these instruments.
Goodwill and Intangibles
Goodwill represents the excess of cost over the fair value of identifiable net assets of acquired businesses.
Goodwill has an indefinite useful life and is not amortized, but instead tested for impairment annually in the fourth
quarter of each fiscal year or more frequently when events and circumstances indicate that impairment may have
occurred.
Intangibles acquired in business combinations primarily relate to contractual rights to earn future
management fees and incentive income, and non-controlling interests. Finite-lived intangible assets are amortized
over their estimated useful lives, which range from three to seven years, and are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of the asset may not be recoverable.
Management Fees
Management fees are recognized over the period in which the investment advisory services are performed.
The contractual terms of management fees vary by fund structure. Annual management fee rates generally fall in
the range of 1.25% to 1.75% for closed-end funds, 0.42% to 0.80% for open-end funds, and 1.0% to 2.0% for
evergreen funds. In the case of most closed-end funds, the management fee rate is applied against committed
capital during the fund’s investment period and the lesser of total funded capital or cost basis of assets in the
liquidation period. However, for certain closed-end funds, management fees during the investment period are
calculated based on drawn capital. Additionally, for those closed-end funds for which management fees are based
on committed capital, the Company sometimes elects to delay the start of the fund’s investment period and thus its
full management fees; instead, earning management fees based only on drawn capital for the period between the
first capital drawdown and the date on which the Company elects to start the investment period. The Company’s
right to receive management fees typically ends after 10 or 11 years from the initial closing date or the start of the
investment period even if assets remain to be liquidated. For open-end and evergreen funds, the management fee
is generally based on the NAV of the fund. In the case of certain open-end and evergreen fund accounts, the
Company has the potential to earn performance-based fees, typically in reference to a relevant benchmark index or
hurdle rate.
The Company does not recognize incremental income for transaction, advisory, director and other ancillary
fees received in connection with providing services to portfolio companies or potential investees of the funds; rather,
any such fees are offset against management fees earned from the applicable fund. These fees are typically
recognized as revenue in the period in which they are offset against the quarterly management fees that would
otherwise be paid by the applicable fund, which is generally the quarter following the period in which the fees are
received. Inasmuch as these fees are not paid directly by the consolidated funds, such fees do not eliminate in
consolidation and may impact the presentation of gross consolidated management fees; however, there is no
impact to the Company’s net income as the amounts are included in net income (loss) attributable to non-controlling
interests in consolidated funds. Ancillary fees recognized in management fees for the years ended December 31,
2014, 2013 and 2012 were $32.7 million, $62.9 million and $25.9 million, respectively.
Incentive Income
Incentive income generally represents 20% of each closed-end fund’s profits, subject to the return of
contributed capital and a preferred return of typically 8% per annum, and 20% of certain evergreen fund’s annual
profits, subject to high-water marks. The Company has elected to adopt “Method 1” for revenue recognition based
on a formula. Under this method, incentive income is recognized when fixed or determinable, all related
contingencies have been removed and collection is reasonably assured, which generally occurs in the quarter of, or
the quarter immediately prior to, the distribution of the income by the fund to Oaktree. The Method 1 criteria for
revenue recognition is typically met (a) for closed-end funds, only after all contributed capital and the preferred
return on that capital have been distributed to the fund’s investors, and (b) for certain evergreen funds, at the
132
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
conclusion of each annual measurement period. Incentives received by Oaktree before the above criteria are met
are deferred and recorded as a deferred incentive income liability within accounts payable, other accrued expenses
and other liabilities on the consolidated statements of financial condition. There was no incentive income deferred
as of December 31, 2014 and 2013. The Company may receive tax distributions related to taxable income
allocated by funds, which are treated as an advance of incentive income and subject to the same recognition
criteria. Tax distributions are contractually not subject to clawback.
Incentive Income Compensation
Incentive income compensation expense primarily includes compensation directly related to incentive
income, which generally consists of percentage interests (sometimes referred to as “points”) that the Company
grants to its investment professionals associated with the particular fund that generated the incentive income, and
secondarily includes compensation directly related to investment income. The Company has an obligation to pay a
fixed percentage of the incentive income earned from a particular fund, including income from consolidated funds
that is eliminated in consolidation, to specified investment professionals responsible for the management of the
fund. Amounts payable pursuant to these arrangements are recorded as compensation expense when they have
become probable and reasonably estimable. The Company’s determination of the point at which it becomes
probable and reasonably estimable that incentive income compensation expense should be recorded is based on
its assessment of numerous factors, particularly those related to the profitability, realizations, distribution status,
investment profile and commitments or contingencies of the individual funds that may give rise to incentive income.
Incentive income compensation is expensed no later than the period in which the underlying income is recognized.
Payment of incentive income compensation generally occurs in the same period the related income is received or in
the next period. Participation in incentive income generated by the consolidated funds is subject to forfeiture upon
departure and to vesting provisions (generally over a period of five years), in each case, under certain
circumstances set forth in the applicable governing documents. These provisions are generally only applicable to
incentive income compensation that has not yet been recognized as an expense by the Company or paid to the
participant.
Equity-based Compensation
Equity-based compensation reflects the non-cash charge associated with grants of Class A units, OCGH
units and OCGH equity value units (“EVUs”), and is calculated based on the grant-date fair value of the unit award,
adjusted annually or more frequently, as necessary, for actual forfeitures to reflect expense only for those units that
ultimately vest. A contemporaneous valuation report is utilized in determining fair value at the date of grant for unit
awards. Each valuation report is based on the market price of Oaktree’s Class A units, which were traded on the
private over-the-counter market developed by Goldman, Sachs & Co. for Tradable Unregistered Equity Securities
(the “GSTrUE OTC market”) prior to listing on the NYSE, as well as other pertinent factors. A discount is then
applied to the Class A unit market price to reflect the lack of marketability for equity-classified awards. The
determination of an appropriate discount for lack of marketability is based on a review of discounts on the sale of
restricted shares of publicly traded companies and multi-period put-based quantitative methods. Factors that
influence the size of the discount for lack of marketability include (a) the estimated time it would take for an OCGH
unitholder to exchange units into Class A units, (b) the volatility of the Company’s business, (c) thin trading of the
Class A units, and (d) prior to the initial public offering in April 2012, restrictive trading of the Class A units. Each of
these factors is subject to significant judgment. Equity-based awards that do not require future service (i.e., awards
vested at grant) are expensed immediately. Equity-based awards that require future service are recognized on a
straight-line basis over the requisite service period. Cash-settled equity-based awards are classified as liabilities
and are remeasured at the end of each reporting period.
Depreciation and Amortization
Depreciation and amortization expense includes costs associated with the purchase of furniture and
equipment, capitalized software, and leasehold improvements. Furniture and equipment and capitalized software
costs are depreciated using the straight-line method over the estimated useful life of the asset, generally three to
five years beginning in the first full month after the asset is placed in service. Leasehold improvements are
amortized using the straight-line method over the shorter of the respective estimated useful life or the lease term.
133
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Other Income (Expense), Net
Other income (expense), net has typically reflected the net results of operating the portfolio of properties
received as part of an arbitration award in 2010 related to a former senior executive and portfolio manager of the
Company’s real estate group who left the Company in 2005. In the fourth quarter of 2014, Oaktree sold the portfolio
of properties and incurred a $2.1 million loss on the sale of those properties. Beginning in the third quarter of 2014,
other income (expense), net also includes income related to amounts received for contractually reimbursable costs
associated with certain arrangements made in connection with the acquisition of the Highstar Capital team and
certain Highstar entities (collectively “Highstar”). Additionally, the year ended December 31, 2014 included the
write-off of $3.0 million in unamortized debt issuance costs stemming from the refinancing of our corporate credit
facility, a $1.5 million loss associated with certain non-operating activities and $1.5 million of income related to
proceeds received as part of the 2010 arbitration award. The year ended December 31, 2012 included a $6.3
million reduction to the tax receivable agreement liability as a result of a remeasurement of deferred tax assets, the
write-off of $0.8 million in unamortized debt issuance costs related to the refinancing of our credit facility and the
write-off of $1.7 million in certain receivables related to a former corporate investment.
Income Taxes
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., two of the Company’s Intermediate Holding
Companies and wholly-owned corporate subsidiaries, are subject to U.S. federal and state income taxes. The
remainder of Oaktree’s income is generally not subject to U.S. corporate-level taxation.
Income taxes are accounted for using the liability method of accounting. Under this method, deferred tax
assets and liabilities are recognized for the expected future tax consequences of differences between the carrying
amount of assets and liabilities and their respective tax bases, using currently enacted tax rates. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is
enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
Oaktree analyzes its tax filing positions for all open tax years in all of the U.S. federal, state, local and
foreign tax jurisdictions where it is required to file income tax returns. If the Company determines that uncertainties
in tax positions exist, a reserve is established. Oaktree recognizes accrued interest and penalties related to
uncertain tax positions in income tax expense within the consolidated statements of operations.
Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental
taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions,
including evaluating uncertainties under GAAP. Oaktree reviews its tax positions quarterly and adjusts its tax
balances as new information becomes available.
The Oaktree funds are generally not subject to U.S. federal and state income taxes and, consequently, no
income tax provision has been made in the accompanying consolidated financial statements because individual
partners are responsible for their proportionate share of the taxable income.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting
unitholders’ capital that, under GAAP, are excluded from net income (loss). Other gains and losses result from
unrealized gains and losses on cash-flow hedges and foreign currency translation adjustments, net of tax.
Accounting Policies of Consolidated Funds
Although as general partner the Company typically only has a small minority economic interest in the
consolidated funds, the third-party limited partners neither have the right to dissolve the partnerships nor possess
substantive kick-out or participating rights that would overcome the presumption of control by the Company.
Accordingly, the Company consolidates the consolidated funds and records non-controlling interests to reflect the
economic interests of the unaffiliated limited partners.
134
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Investment Transactions and Income Recognition
The consolidated funds record investment transactions at cost on trade date for publicly traded securities or
when they have an enforceable right to acquire the security, which is generally on the closing date if not publicly
traded. Realized gains and losses on investments are recorded on a specific identification basis. The consolidated
funds record dividend income on the ex-dividend date and interest income on an accrual basis, unless the related
investment is in default or if collection of the income is otherwise considered doubtful. The consolidated funds may
hold investments that provide for interest payable in-kind rather than in cash, in which case the related income is
recorded at its estimated net realizable amount.
Income Taxes
The consolidated funds may invest in operating entities that are treated as partnerships for U.S. federal
income tax purposes which may give rise to unrelated business taxable income (“UBTI”) or income effectively
connected with a U.S. trade or business (“ECI”). The consolidated funds permit certain investors to elect to
participate in these investments through a “blocker structure” using entities that are treated as corporations for U.S.
federal income tax purposes and are generally subject to U.S. federal, state and local taxes. The consolidated
funds withhold blocker expenses and tax payments from electing limited partners, which are treated as deemed
distributions to such limited partners pursuant to the terms of the respective limited partnership agreement.
Foreign Currency
Investments denominated in non-U.S. currencies are recorded in the consolidated financial statements after
translation into U.S. dollars utilizing rates of exchange on the last business day of the period. Interest and dividend
income is recorded net of foreign withholding taxes and calculated using the exchange rate in effect when the
income is recognized. The effect of changes in exchange rates on assets and liabilities, income and realized gains
or losses is included as part of net realized gain (loss) on consolidated funds’ investments and net change in
unrealized appreciation (depreciation) on consolidated funds’ investments in the consolidated statements of
operations.
Cash and Cash-equivalents
Cash and cash-equivalents held at the consolidated funds represent cash that, although not legally
restricted, is not available to support the general liquidity needs of Oaktree as the use of such amounts is generally
limited to the investment activities of the consolidated funds. Cash-equivalents, a Level I valuation, include highly
liquid investments such as money market funds, whose carrying value approximates fair value due to its short-term
nature.
Receivable for Investments Sold
Receivables for investments sold by the consolidated funds are recorded at net realizable value. Changes
in net realizable value are reflected within net change in unrealized appreciation (depreciation) on consolidated
funds’ investments and realizations are reflected within net realized gain on consolidated funds’ investments in the
consolidated statements of operations.
Investments, at Fair Value
The consolidated funds are primarily investment limited partnerships that reflect their investments, including
majority-owned and controlled investments, at fair value. The Company has retained the specialized investment
company accounting guidance under GAAP for those consolidated funds with respect to consolidated investments.
Thus, the consolidated investments are reflected in the consolidated statements of financial condition at fair value,
with unrealized gains and losses resulting from changes in fair value reflected as a component of net change in
unrealized appreciation (depreciation) on consolidated funds’ investments in the consolidated statements of
operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (i.e., the exit price).
Non-publicly traded debt and equity securities and other securities or instruments for which reliable market
quotations are not available are valued by management using valuation methodologies applied on a consistent
basis. These securities may initially be valued at the acquisition price as the best indicator of fair value. The
Company reviews the significant unobservable inputs, valuations of comparable investments and other similar
135
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
transactions for investments valued at acquisition price to determine whether another valuation methodology should
be utilized. Subsequent valuations will depend on the facts and circumstances known as of the valuation date and
the application of valuation methodologies further described below under “—Non-publicly Traded Equity and Real
Estate Investments.” The fair value may also be based on a pending transaction expected to close after the
valuation date.
Exchange-traded Investments
Securities listed on one or more national securities exchanges are valued at their last reported sales price
on the date of valuation. If no sale occurred on the valuation date, the security is valued at the mean of the last
“bid” and “ask” prices on the valuation date. Securities that are not readily marketable due to legal restrictions that
may limit or restrict transferability are generally valued at a discount from quoted market prices. The discount would
reflect the amount market participants would require due to the risk relating to the inability to access a public market
for the security for the specified period and would vary depending on the nature and duration of the restriction and
the perceived risk and volatility of the underlying securities. Securities with longer duration restrictions or higher
volatility are generally valued at a higher discount. Such discounts are generally estimated based on put option
models or an analysis of market studies. Instances where the Company has applied discounts to quoted prices of
restricted listed securities have been infrequent. The impact of such discounts is not material to the Company’s
consolidated statements of financial condition and results of operations for all periods presented.
Credit-oriented Investments (including Real Estate Loan Portfolios)
Investments in corporate and government debt which are not listed or admitted to trading on any securities
exchange are valued at the mean of the last bid and ask prices on the valuation date based on quotations supplied
by recognized quotation services or by reputable broker-dealers.
The market-yield approach is considered in the valuation of non-publicly traded debt securities, utilizing
expected future cash flows and discounted using estimated current market rates. Discounted cash flow calculations
may be adjusted to reflect current market conditions and/or the perceived credit risk of the borrower. Consideration
is also given to a borrower’s ability to meet principal and interest obligations; this may include an evaluation of
collateral and/or the underlying value of the borrower utilizing techniques described below under “—Non-publicly
Traded Equity and Real Estate Investments.”
Non-publicly Traded Equity and Real Estate Investments
The fair value of equity and real estate investments is determined using a cost, market or income approach.
The cost approach is based on the current cost of reproducing a real estate investment less deterioration and
functional and economic obsolescence. The market approach utilizes valuations of comparable public companies
and transactions, and generally seeks to establish the enterprise value of the portfolio company or investment
property using a market-multiple methodology. This approach takes into account the financial measure (such as
EBITDA, adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value)
believed to be most relevant for the given company or investment property. Consideration also may be given to
factors such as acquisition price of the security or investment property, historical and projected operational and
financial results for the portfolio company, the strengths and weaknesses of the portfolio company or investment
property relative to its comparable companies or properties, industry trends, general economic and market
conditions, and others deemed relevant. The income approach is typically a discounted cash-flow method that
incorporates expected timing and level of cash flows. It incorporates assumptions in determining growth rates,
income and expense projections, discount and capitalization rates, capital structure, terminal values, and other
factors. The applicability and weight assigned to market and income approaches are determined based on the
availability of reliable projections and comparable companies and transactions.
The valuation of securities may be impacted by expectations of investors’ receptiveness to a public offering
of the securities, the size of the holding of the securities and any associated control, information with respect to
transactions or offers for the securities (including the transaction pursuant to which the investment was made and
the elapsed time from the date of the investment to the valuation date), and applicable restrictions on the
transferability of the securities.
These valuation methodologies involve a significant degree of management judgment. Accordingly,
valuations by the Company do not necessarily represent the amounts that eventually may be realized from sales or
136
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
other dispositions of investments. Fair values may differ from the values that would have been used had a ready
market for the investment existed, and the differences could be material to the consolidated financial statements.
Securities Sold Short
Securities sold short represent obligations of the consolidated funds to make a future delivery of a specific
security and, correspondingly, create an obligation to purchase the security at prevailing market prices (or deliver
the security, if owned by the consolidated funds) as of the delivery date. As a result, these short sales create the
risk that the funds’ obligations to satisfy the delivery requirement may exceed the amount recorded in the
accompanying consolidated statements of financial condition.
Securities sold short are recorded at fair value, with the resulting change in value reflected as a component
of net change in unrealized appreciation (depreciation) on consolidated funds’ investments. When the securities are
delivered, any gain or loss is included in net realized gain (loss) on consolidated funds’ investments. The funds
maintain cash deposits with prime brokers in order to cover their obligations on short sales. These amounts are
included in due from brokers in the consolidated statements of financial condition.
Options
The purchase price of a call option or a put option is recorded as an investment, which is carried at fair
value. If a purchased option expires, a loss in the amount of the cost of the option is realized. When there is a
closing sale transaction, a gain or loss is realized if the proceeds are greater or less than, respectively, the cost of
the option. When a call option is exercised, the cost of the security purchased upon exercise is increased by the
premium originally paid.
When a consolidated fund writes an option, the premium received is recorded as a liability and is
subsequently adjusted to the current fair value of the option written. If a written option expires, a gain is realized in
the amount of the premium received. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated as a realized gain or loss. The
writer of an option bears the market risk of an unfavorable change in the price of the security underlying the written
option. Options written are included in accounts payable, accrued expenses and other liabilities in the consolidated
statements of financial condition.
Credit Default Swaps
A credit default swap (“CDS”) is a financial instrument used to transfer the credit risk of a reference entity
from one party to another for a specified period of time. In a standard CDS contract, one party (the “protection
buyer”) agrees to pay a premium (commonly based on a rate of a notional principal amount) to another party (the
“protection seller”) in exchange for a contingent payment in the event of a pre-defined credit event that relates to an
obligation of a reference entity. The reference entity of the swap can be a single issuer, a basket of issuers or an
index. Types of underlying referenced obligations can be, but are not limited to, corporate bonds, bank loans,
sovereign debt and asset-backed securities. When a credit event is triggered, the protection seller is obligated to
pay the contingent payment to the buyer, which is typically the par value (full notional value) of the reference
obligation, though the actual payment may be mitigated by terms of the International Swaps and Derivatives
Association Master Agreement allowing for netting arrangements and collateral. The contingent payment may be a
cash settlement or a physical delivery of the reference obligation in return for payment of the face amount of the
obligation. These contingent amounts are partially offset by any recovery value of the respective referenced
obligation, upfront payments received upon entering into the agreement, if any, or net amounts received from the
settlement of buy protection agreements entered into by the consolidated funds for the same referenced entity or
entities. If a consolidated fund is a protection buyer and no credit event occurs, the fund may lose its investment
and recover nothing. However, if a credit event occurs, the protection buyer typically receives full notional value for
a reference obligation that may have little or no value. Based on the complex nature of the settlement process and
volatility of the market, the Company is generally unable to reasonably estimate the amount of potential future
recovery values.
In addition to general market risks, CDS contracts are subject to liquidity and counterparty risk. A CDS may
entail greater risks than those of other instruments, including the risk of mispricing due to limited availability of
pricing sources and the risk that changes in the value of the swap may not correlate with the underlying asset. A
CDS may be highly illiquid because such instruments typically are traded over-the-counter and are not exchange
137
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
traded. When a fund is a protection buyer, the fund is exposed to credit risk relating to whether the counterparty will
meet its obligation upon the occurrence of a credit event. When a fund is a protection seller, it is exposed to off-
balance sheet risk to the extent that its ultimate obligation to the counterparty upon the occurrence of a credit event
may be significantly higher than the fair value reflected in the consolidated statements of financial condition.
CDS contracts are valued by the Company based in part on quotations provided by an independent pricing
service, with changes in value recorded as unrealized appreciation or depreciation. Upfront payments received or
paid by the consolidated funds are reflected as an asset or liability in the consolidated statements of financial
condition. For further information regarding CDS contracts, please see note 6.
Total Return Swaps
A total return swap is an agreement to exchange cash flows based on an underlying asset. Pursuant to
these agreements, a fund may deposit collateral with the counterparty and may pay a swap fee equal to a fixed
percentage of the value of the underlying security (notional amount). A fund earns interest on cash collateral held
on account with the counterparty and may be required to deposit additional collateral equal to the unrealized
appreciation or depreciation on the underlying asset. Changes in the underlying value of the swaps recorded as
unrealized gains or losses are based on changes in the underlying value of the security. All amounts exchanged
with the swap counterparty representing capital appreciation or depreciation, dividend income and expense, items
of interest income on short proceeds, borrowing costs on short sales, and commissions are recorded as realized
gains or losses. Dividend income and expense on the underlying assets are accrued as unrealized gains or losses
on the ex-date. The average notional amounts of total return swap contracts outstanding during 2014 were
$1,358,867 long and $20,955 short. The average notional amounts of total return swaps outstanding during 2013
were $463,596 long and $30,536 short.
Due From Brokers
Due from brokers represents cash owned by the consolidated funds and cash collateral on deposit with
brokers and counterparties that are used as collateral for the consolidated funds’ securities and swaps.
Risks and Uncertainties
Certain consolidated funds invest primarily in the securities of entities that are undergoing, or are
considered likely to undergo, reorganization, debt restructuring, liquidation or other extraordinary transactions.
Investments in such entities are considered speculative and involve substantial risk of principal loss. Certain of the
consolidated funds’ investments may also consist of securities that are thinly traded, securities and other assets for
which no market exists, and securities which are restricted as to their transferability. Additionally, investments are
subject to concentration and industry risks, reflecting numerous factors, including political, regulatory or economic
issues that could cause the investments and their markets to be relatively illiquid and their prices relatively volatile.
Investments denominated in non-U.S. currencies or involving non-U.S. domiciled entities are subject to risks and
special considerations not typically associated with U.S. investments. Such risks may include, but are not limited to,
investment and repatriation restrictions; currency exchange-rate fluctuations; adverse political, social and economic
developments; less liquidity; smaller capital markets; and certain local tax law considerations.
Credit risk is the potential loss that may be incurred from the failure of a counterparty or an issuer to make
payments according to the terms of a contract. Some consolidated funds are subject to additional credit risk due to
strategies of investing in debt of financially distressed issuers or derivative instruments, as well as involvement in
privately-negotiated structured notes and structured-credit transactions. Counterparties include custodian banks,
major brokerage houses and their affiliates. The Company monitors the creditworthiness of the financial institutions
with which it conducts business.
Bank debt has exposure to certain types of risk, including interest rate, market and the potential non-
payment of principal and interest as a result of default or bankruptcy of the issuer. Loans are generally subject to
prepayment risk, which will affect the maturity of such loans. The consolidated funds may enter into bank debt
participation agreements through contractual relationships with a third-party intermediary, causing the consolidated
funds to assume the credit risk of both the borrower and the intermediary.
138
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The consolidated funds may invest in real property and real estate-related investments, including
commercial mortgage-backed securities (“CMBS”) and real estate loans, that entail substantial inherent risks.
There can be no assurance that such investments will increase in value or that significant losses will not be
incurred. CMBS are subject to a number of risks, including credit, interest rate, prepayment and market. These
risks can be affected by a number of factors, including general economic conditions, particularly those in the area
where the related mortgaged properties are located, the level of the borrowers’ equity in the mortgaged properties,
and the relative timing and rate of delinquencies and prepayments of mortgage loans bearing a higher rate of
interest. Real estate loans include residential or commercial loans that are non-performing at the time of their
acquisition or that become non-performing following their acquisition. Non-performing real estate loans may require
a substantial amount of workout negotiations or restructuring, which may entail, among other things, a substantial
reduction in the interest rate and/or write-down of the principal balance. Moreover, foreclosure on collateral
securing one or more real estate loans held by the consolidated funds may be necessary, which may be lengthy and
expensive. Residential loans are typically subject to risks associated with the value of the underlying properties,
which may be affected by a number of factors including general economic conditions, mortgage qualification
standards, local market conditions such as employment levels, the supply of homes, and the safety, convenience
and attractiveness of the properties and neighborhoods. Commercial loans are typically subject to risks associated
with the ability of the borrower to repay, which may be impacted by general economic conditions, as well as
borrower-specific factors including the quality of management, the ability to generate sufficient income to make
scheduled principal and interest payments, or the ability to obtain alternative financing to repay the loan.
Certain consolidated funds hold over-the-counter derivatives that may allow counterparties to terminate
derivative contracts prior to maturity under certain circumstances, thereby resulting in an accelerated payment of
any net liability owed to the counterparty.
Recent Accounting Developments
In February 2015, the Financial Accounting Standards Board (“FASB”) issued guidance that amends the
current consolidation guidance and ends the deferral granted to investment companies from applying the VIE
guidance. The new guidance does not add or remove any of the five characteristics that determine if an entity is a
VIE; rather, it focuses on the consolidation criteria used to evaluate whether certain legal entities should be
consolidated. Additionally, the new guidance eliminates the presumption that a general partner should consolidate a
limited partnership under the voting model. The amendment is intended to simplify the consolidation guidance by
placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of
the application of related-party guidance when determining a controlling financial interest in a VIE and providing
more clarity for reporting entities that typically make use of limited partnerships or VIEs. The guidance is effective
for the Company in the first quarter of 2016, with early adoption permitted. The Company may elect to early adopt
and is currently evaluating the effect that adoption will have on its consolidated financial statements.
In August 2014, the FASB issued guidance on determining when and how reporting entities must disclose
going-concern uncertainties in their financial statements. The guidance requires management to perform interim
and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance
of the entity’s financial statements. Additionally, an entity must provide certain disclosures if there is substantial
doubt about the entity’s ability to continue as a going concern. The guidance is effective for the Company in the
fourth quarter of 2016, with early adoption permitted. The Company does not expect that adoption of this guidance
will have a material impact on its consolidated financial statements.
In August 2014, the FASB issued guidance on measuring the financial assets and financial liabilities of a
consolidated collateralized financing entity. The guidance applies to reporting entities that are required to
consolidate a collateralized financing entity under the VIE guidance when (a) the reporting entity measures all of the
financial assets and financial liabilities of that consolidated financing entity at fair value in the consolidated financial
statements and (b) the changes in the fair values of those financial assets and financial liabilities are reflected in
earnings. The guidance provides an alternative for measuring the financial assets and financial liabilities of a
consolidated collateralized financing entity to eliminate differences in the fair value of those financial assets and
financial liabilities as determined under GAAP. The guidance is effective for the Company in the first quarter of
2016, with early adoption permitted. The Company is currently evaluating the effect that adoption will have on its
consolidated financial statements.
139
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
In May 2014, the FASB and International Accounting Standards Board issued converged guidance on
revenue recognition, which outlines a single comprehensive model for entities to use in accounting for revenue
arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. The guidance provides a largely principles-based framework for addressing revenue
recognition issues on a comprehensive basis, eliminates an entity’s ability to recognize revenue if there is risk of
significant reversal, and requires enhanced disclosures to provide greater insight into both revenue that has been
recognized and revenue that is expected to be recognized in the future from existing contracts, including
quantitative and qualitative information about significant judgments and changes in those judgments made by
management in recognizing revenue. The guidance is effective for the Company in the first quarter of 2017, with
either full or modified retrospective application. The Company is currently evaluating the effect that adoption will
have on its consolidated financial statements.
In June 2013, the FASB issued guidance that amended the criteria by which an entity qualifies as an
investment company for accounting purposes. The guidance also clarified the characteristics of and provided
measurement and disclosure requirements for an investment company. The Company adopted this guidance in the
first quarter of 2014, which resulted in additional disclosures (please see note 13), but did not have a material
impact on its consolidated financial statements.
3. BUSINESS COMBINATIONS
On August 1, 2014, the Company completed its acquisition of Highstar for $31.4 million in cash, 100,595
fully-vested OCGH units and contingent consideration of up to $60.0 million. Highstar is an investment
management firm specializing in U.S. energy infrastructure, waste management and transportation. The
transaction, which was immaterial to Oaktree’s consolidated financial statements, resulted in $50.8 million of
goodwill, $28.0 million of intangible assets, primarily consisting of contractual rights associated with the
management of Highstar Capital IV, L.P. (“HS IV”), and $72.2 million of non-controlling interests in certain acquired
subsidiaries that principally relate to investments in HS IV. Effective August 1, 2014, the Company consolidated the
financial position and results of operations of the controlled Highstar entities, including HS IV, and accounted for this
transaction as a business combination. Please see note 13 for information on the contingent consideration liability.
140
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
4. INVESTMENTS, AT FAIR VALUE
Investments held and securities sold short by the consolidated funds are summarized below:
Investments:
United States:
Debt securities:
Fair Value as of December 31,
Fair Value as a
Percentage of
Investments of
Consolidated Funds
as of December 31,
2014
2013
2014
2013
Consumer discretionary ................................................. $ 3,173,576
Consumer staples ..........................................................
692,890
1,028,317
Energy ...........................................................................
805,337
Financials .......................................................................
Government ...................................................................
140,053
1,010,462
Health care ....................................................................
1,795,909
Industrials ......................................................................
1,167,635
Information technology ...................................................
1,288,947
Materials ........................................................................
372,457
Telecommunication services ..........................................
1,409,408
Utilities ...........................................................................
$ 3,017,755
801,959
650,336
554,115
—
600,570
1,768,600
1,130,614
1,094,476
289,046
2,182,098
6.8%
1.5
2.2
1.7
0.3
2.2
3.9
2.5
2.8
0.8
3.0
7.6%
2.0
1.6
1.4
—
1.5
4.4
2.8
2.7
0.7
5.6
Total debt securities (cost: $13,611,109 and
$12,008,435 as of December 31, 2014 and 2013,
respectively) ...........................................................
Equity securities:
Consumer discretionary .................................................
Consumer staples ..........................................................
Energy ...........................................................................
Financials .......................................................................
Health care ....................................................................
Industrials ......................................................................
Information technology ...................................................
Materials ........................................................................
Telecommunication services ..........................................
Utilities ...........................................................................
Total equity securities (cost: $13,911,333 and
$11,104,484 as of December 31, 2014 and 2013,
respectively) ...........................................................
12,884,991
12,089,569
27.7
30.3
2,475,318
530,305
1,756,480
7,720,904
224,705
2,970,356
176,097
1,207,523
21,616
329,175
3,164,000
482,521
570,839
6,474,365
310,582
1,840,900
227,608
923,933
51,881
193,984
5.3
1.1
3.8
16.6
0.5
6.4
0.4
2.6
0.0
0.7
7.9
1.2
1.4
16.3
0.8
4.6
0.6
2.3
0.1
0.5
17,412,479
14,240,613
37.4
35.7
141
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Fair Value as of December 31,
Fair Value as a
Percentage of
Investments of
Consolidated Funds
as of December 31,
2014
2013
2014
2013
Investments:
Europe:
Debt securities:
Consumer discretionary ................................................. $ 1,371,689
242,513
Consumer staples ..........................................................
370,456
Energy ...........................................................................
803,468
Financials .......................................................................
147,661
Health care ....................................................................
344,642
Industrials ......................................................................
41,960
Information technology ...................................................
421,327
Materials ........................................................................
142,322
Telecommunication services ..........................................
24,668
Utilities ...........................................................................
$ 1,519,530
159,489
295,942
612,123
39,189
378,797
22,216
663,984
175,231
18,581
3.0%
0.5
0.8
1.7
0.3
0.7
0.1
0.9
0.3
0.1
Total debt securities (cost: $3,803,751 and
$3,349,740 as of December 31, 2014 and 2013,
respectively) ...........................................................
Equity securities:
Consumer discretionary .................................................
Consumer staples ..........................................................
Energy ...........................................................................
Financials .......................................................................
Government ...................................................................
Health care ....................................................................
Industrials ......................................................................
Information technology ...................................................
Materials ........................................................................
Telecommunication services ..........................................
Total equity securities (cost: $5,884,950 and
$4,111,171 as of December 31, 2014 and 2013,
respectively) ...........................................................
Asia and other:
Debt securities:
Consumer discretionary .................................................
Consumer staples ..........................................................
Energy ...........................................................................
Financials .......................................................................
Government ...................................................................
Health care ....................................................................
Industrials ......................................................................
Information technology ...................................................
Materials ........................................................................
Telecommunication services ..........................................
Utilities ...........................................................................
Total debt securities (cost: $1,168,453 and
$1,639,694 as of December 31, 2013 and 2012,
respectively) ...........................................................
142
3,910,706
3,885,082
8.4
311,847
59,628
92,416
4,760,386
635
52,887
1,226,825
1,190
398,559
—
198,045
385,595
129,207
2,763,198
—
13,084
784,524
1,341
249,732
1,382
0.7
0.1
0.2
10.2
0.0
0.1
2.6
0.0
0.9
—
6,904,373
4,526,108
14.8
11.3
140,732
7,927
217,299
18,935
50,073
48,977
420,323
23,555
252,965
—
9,113
93,087
25,424
74,167
159,369
—
31,057
1,247,793
21,842
84,107
1,884
6,808
0.3
0.0
0.5
0.0
0.1
0.1
0.9
0.1
0.6
—
0.0
0.2
0.1
0.2
0.4
—
0.1
3.1
0.1
0.2
0.0
0.0
1,189,899
1,745,538
2.6
4.4
3.8%
0.4
0.7
1.5
0.1
1.0
0.1
1.7
0.4
0.0
9.7
0.5
1.0
0.3
6.9
—
0.0
2.0
0.0
0.6
0.0
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Fair Value as of December 31,
Fair Value as a
Percentage of
Investments of
Consolidated Funds
as of December 31,
2014
2013
2014
2013
Investments:
Asia and other:
Equity securities:
Consumer discretionary ................................................. $
Consumer staples ..........................................................
Energy ...........................................................................
Financials .......................................................................
Health care ....................................................................
Industrials ......................................................................
Information technology ...................................................
Materials ........................................................................
Telecommunication services ..........................................
Utilities ...........................................................................
664,077
113,471
298,040
1,518,532
22,899
937,455
322,592
145,657
39,244
169,384
$
422,731
42,937
267,494
1,211,033
8,124
1,136,934
130,714
63,395
17,719
123,897
1.4%
0.2
0.6
3.3
0.1
2.0
0.7
0.3
0.1
0.4
1.1%
0.1
0.7
3.0
0.0
2.9
0.3
0.2
0.0
0.3
Total equity securities (cost: $3,393,453
and $2,734,160 as of December 31, 2014 and
2013, respectively) .................................................
Total debt securities ...........................................................
Total equity securities.........................................................
4,231,351
17,985,596
28,548,203
Total investments, at fair value....................................... $ 46,533,799
3,424,978
17,720,189
22,191,699
$ 39,911,888
9.1
38.7
61.3
8.6
44.4
55.6
100.0% 100.0%
Securities Sold Short:
Securities sold short – equities (proceeds: $70,760
and $137,092 as of December 31, 2014 and 2013,
respectively) .................................................................... $
(64,438) $
(140,251)
As of December 31, 2014 and 2013, no single issuer or investment had a fair value that exceeded 5% of
Oaktree’s total consolidated net assets.
Net Gains From Investment Activities of Consolidated Funds
Net gains from investment activities in the consolidated statements of operations consist primarily of the
realized and unrealized gains and losses on the consolidated funds’ investments (including foreign exchange gains
and losses attributable to foreign-denominated investments and related activities) and other financial instruments.
Unrealized gains or losses result from changes in the fair value of these investments and other financial
instruments. Upon disposition of an investment, unrealized gains or losses are reversed and an offsetting realized
gain or loss is recognized in the current period.
143
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The following table summarizes net gains (losses) from investment activities:
Year Ended December 31,
2014
2013
2012
Net Realized
Gain (Loss) on
Investments
Net Change in
Unrealized
Appreciation
(Depreciation)
on Investments
Net Realized
Gain (Loss) on
Investments
Net Change in
Unrealized
Appreciation
(Depreciation)
on Investments
Net Realized
Gain (Loss) on
Investments
Net Change in
Unrealized
Appreciation
(Depreciation)
on Investments
Investments and other
financial instruments .......... $ 1,937,061
$ (1,080,571)
$ 3,649,821
$ 2,152,662
$ 4,421,219
$
952,478
Foreign currency forward
contracts (1) ........................
Total-return, credit-default
and interest-rate swaps (1) ..
Options and futures (1) ...........
Swaptions (1)(2) .......................
179,675
278,647
(217,234)
(286,336)
85,773
(148,791)
54,437
(38,431)
(1,158)
(193,079)
6,513
(4,770)
89,333
(17,922)
—
(22,619)
(238)
—
66,992
(13,202)
—
33,445
(1,972)
—
Total ............................... $ 2,131,584
$
(993,260)
$ 3,503,998
$ 1,843,469
$ 4,560,782
$
835,160
(1) Please see note 6 for additional information.
(2) A swaption is an option granting the buyer the right but not the obligation to enter into a swap agreement on a specified
future date.
5. FAIR VALUE
Fair Value of Financial Assets and Liabilities
The short-term nature of cash and cash-equivalents, receivables and accounts payable causes each of
their carrying values to approximate fair value. The fair value of short-term investments included in cash and cash-
equivalents is a Level I valuation. The Company’s other financial assets and liabilities by fair-value hierarchy level
are set forth below. Please see notes 7 and 15 for the fair value of the Company's outstanding debt obligations and
due from/to affiliates, respectively.
As of December 31, 2014
As of December 31, 2013
Level I
Level II
Level III
Total
Level I
Level II
Level III
Total
Assets
U.S. Treasury securities (1) ......... $ 655,529
Forward currency contracts (2) ....
Total-return swap (2) ....................
Total assets................................ $ 655,529
—
—
$
— $
— $ 655,529
$ 676,600
$
— $
— $ 676,600
24,499
—
—
—
24,499
—
—
—
7,893
4,515
—
—
7,893
4,515
$
24,499
$
— $ 680,028
$ 676,600
$
12,408
$
— $ 689,008
Liabilities
Contingent consideration (3) ....... $
Forward currency contracts (3) ....
Interest-rate swaps (3) .................
Total liabilities............................. $
— $
— $ (27,245) $ (27,245)
$
— $
— $
— $
—
—
—
(3,439)
(2,317)
—
—
(3,439)
(2,317)
—
—
(6,141)
(4,171)
—
—
(6,141)
(4,171)
— $
(5,756) $
(27,245) $
(33,001)
$
— $
(10,312) $
— $
(10,312)
(1) Carrying value approximates fair value due to the short-term nature.
(2) Amounts are included in other assets in the consolidated statements of financial condition.
(3) Amounts are included in accounts payable, accrued expenses and other liabilities in the consolidated statements of financial condition.
144
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Fair Value of Financial Instruments Held By Consolidated Funds
The short-term nature of cash and cash-equivalents held at the consolidated funds causes their carrying
value to approximate fair value. The fair value of cash-equivalents is a Level I valuation. The table below
summarizes the investments and other financial instruments of the consolidated funds by fair-value hierarchy level:
As of December 31, 2014
As of December 31, 2013
Level I
Level II
Level III
Total
Level I
Level II
Level III
Total
Assets
Investments:
Corporate debt – bank
debt ........................... $
Corporate debt – all
other..........................
Equities – common
— $ 8,135,722
$ 1,555,656
$ 9,691,378
$
— $ 7,352,129
$ 2,809,437
$ 10,161,566
4,039
5,539,518
2,750,661
8,294,218
798
5,125,646
2,432,179
7,558,623
stock .........................
6,042,583
505,459
9,044,579
15,592,621
4,804,068
1,109,270
6,700,015
12,613,353
Equities – preferred
stock .........................
Real estate ....................
Real estate loan
portfolios ...................
Other .............................
3,148
—
—
945
—
—
—
—
1,320,752
1,323,900
4,101
8,483
919,771
932,355
9,216,056
9,216,056
2,399,105
2,399,105
—
—
37,184
6,221,294
6,258,478
—
2,369,441
2,369,441
15,576
16,521
2,656
1,708
13,708
18,072
Total investments......
6,050,715
14,180,699
26,302,385
46,533,799
4,811,623
13,634,420
21,465,845
39,911,888
Derivatives:
Forward currency
contracts ...................
Swaps ...........................
Options and futures .......
Swaptions......................
Total derivatives........
—
—
—
—
—
254,929
4,217
36,568
483
296,197
—
—
—
—
—
254,929
4,217
36,568
483
296,197
—
—
101
—
101
51,765
18,318
18,037
6,716
94,836
—
—
—
—
—
51,765
18,318
18,138
6,716
94,937
Total assets ....................... $ 6,050,715
$ 14,476,896
$ 26,302,385
$ 46,829,996
$ 4,811,724
$ 13,729,256
$ 21,465,845
$ 40,006,825
Liabilities
Securities sold short –
equities .......................... $
(64,438) $
— $
— $
(64,438)
$
(140,251) $
— $
— $
(140,251)
Derivatives:
Forward currency
contracts ...................
Swaps ...........................
—
—
(54,663)
—
(54,663)
(172,672)
(10,687)
(183,359)
Options and futures .......
(11,051)
Swaptions......................
—
(3,918)
(518)
—
—
(14,969)
(518)
—
—
(5,030)
—
(135,246)
(7,096)
(1,184)
(1,324)
Total derivatives........
(11,051)
(231,771)
(10,687)
(253,509)
(5,030)
(144,850)
—
—
—
—
—
(135,246)
(7,096)
(6,214)
(1,324)
(149,880)
Total liabilities .................... $
(75,489) $
(231,771) $
(10,687) $
(317,947)
$
(145,281) $
(144,850) $
— $
(290,131)
145
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The following tables set forth a summary of changes in the fair value of the Level III investments:
Corporate
Debt –
Bank Debt
Corporate
Debt – All
Other
Equities –
Common
Stock
Equities –
Preferred
Stock
Real Estate
Real Estate
Loan
Portfolio
Swaps
Other
Total
2014:
Beginning balance ........ $ 2,809,437
$ 2,432,179
$ 6,700,015
$ 919,771
$ 6,221,294
$ 2,369,441
$
— $ 13,708
$ 21,465,845
Transfers into
Level III ............
930,966
222,357
1,044,659
1,017
474,098
Transfers out of
Level III ............
(2,121,960)
(19,480)
(809,815)
(97,171)
(120,120)
—
—
Purchases ............
1,083,224
1,021,815
2,944,074
328,507
2,943,580
950,256
—
—
—
—
—
2,673,097
(3,168,546)
2,000
9,273,456
Sales ....................
(1,121,409)
(888,147)
(917,197)
(85,470)
(1,688,713)
(1,277,993)
(3,939)
(4,469)
(5,987,337)
Realized gains
(losses), net .....
135,890
114,436
170,598
(14,462)
275,717
175,962
3,939
3,363
865,443
Unrealized
appreciation
(depreciation),
net ....................
(160,492)
(132,499)
(87,755)
268,560
1,110,200
181,439
(10,687)
974
1,169,740
Ending balance ............. $ 1,555,656
$ 2,750,661
$ 9,044,579
$ 1,320,752
$ 9,216,056
$ 2,399,105
$ (10,687) $ 15,576
$ 26,291,698
Net change in
unrealized
appreciation
(depreciation)
attributable to assets
still held at end of
period ....................... $
2013:
(27,075) $ 114,613
$ 264,486
$ 299,817
$ 1,468,857
$ 181,439
$ (10,687) $
(132) $ 2,291,318
Beginning balance ........ $ 2,253,476
$ 3,159,051
$ 8,101,051
$ 650,096
$ 3,946,142
$ 1,737,822
$ 44,705
$ 15,547
$ 19,907,890
Transfers into
Level III ............
377,448
Transfers out of
2,410
367,562
387,757
15,055
Level III ............
(656,354)
(327,612)
(1,222,610)
(35,771)
—
Purchases ............
1,673,352
428,783
1,437,693
280,531
2,200,559
1,226,791
Sales ....................
(1,120,160)
(1,029,515)
(2,590,023)
(316,187)
(978,064)
(866,588)
(91,101)
—
—
—
—
—
—
—
—
—
1,150,232
(2,242,347)
7,247,709
(6,991,638)
Realized gains
(losses), net .....
Unrealized
appreciation
(depreciation),
net ....................
33,427
120,610
956,094
41,553
194,681
39,755
91,070
(27,386)
1,449,804
248,248
78,452
(349,752)
(88,208)
842,921
231,661
(44,674)
25,547
944,195
Ending balance ............. $ 2,809,437
$ 2,432,179
$ 6,700,015
$ 919,771
$ 6,221,294
$ 2,369,441
$
— $ 13,708
$ 21,465,845
Net change in
unrealized
appreciation
(depreciation)
attributable to assets
still held at end of
period ....................... $ 198,469
$ 165,124
$ 246,039
$
(42,108) $ 777,549
$ 231,662
$
— $ (1,783) $ 1,574,952
Total realized and unrealized gains and losses recorded for Level III investments are included in net
realized gain on consolidated funds’ investments or net change in unrealized appreciation (depreciation) on
consolidated funds’ investments in the consolidated statements of operations.
Transfers between Level I and Level II positions for the year ended December 31, 2014 included $739.7
million from Level II to Level I due to the removal of discounts on three exchange-traded common equity
investments upon the expiration of lockup periods and increased trading volume for one exchange-traded common
equity investment. Transfers between Level I and Level II positions for the year ended December 31, 2013 included
$1.3 billion from Level II to Level I, as certain common equity investments began trading on a securities exchange.
Transfers out of Level III were generally attributable to certain investments that experienced a more
significant level of market trading activity or completed an initial public offering during the respective period and thus
146
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
were valued using observable inputs. Transfers into Level III typically reflected either investments that experienced
a less significant level of market trading activity during the period or portfolio companies that undertook
restructurings or bankruptcy proceedings and thus were valued in the absence of observable inputs.
The following table sets forth a summary of the valuation technique and quantitative information utilized in
determining the fair value of the consolidated funds’ Level III investments as of December 31, 2014:
Investment Type
Fair Value
Valuation Technique
Significant Unobservable
Inputs (9)(10)(11)
Range
Weighted
Average (12)
Credit-oriented
investments:
Consumer
discretionary:
$
164,401
Discounted cash flow (1)
Discount rate
487,784
133,410
Market approach
(comparable companies) (2)
Recent transaction price (5)
119,219
Recent market information (6)
Earnings multiple (3)
5% – 12%
3x – 10x
11%
5x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Not applicable
Not applicable
Financials:
280,827
Discounted cash flow (1)
Discount rate
9% – 14%
Materials:
77,008
Discounted cash flow (1)
Discount rate
Industrials:
240,935
Discounted cash flow (1)
Discount rate
205,639
228,804
Market approach
(value of underlying assets) (2)(4)
Recent transaction price (5)
55,472
Recent market information (6)
Underlying asset multiple
0.9x – 1.1x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Not applicable
Not applicable
206,763
13,358
83,020
121,888
Discounted cash flow (1) /
Sales approach (8)
Market approach
(comparable companies) (2)
Market approach
(value of underlying assets) (2)(4)
Recent transaction price (5)
113,500
Recent market information (6)
Discount rate / Market
transactions
Earnings multiple (3)
5% – 20%
10% – 14%
3x – 8x
Underlying asset multiple
0.9x – 1.1x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Not applicable
Not applicable
12%
1x
13%
12%
7x
1x
189,081
250,803
64,490
Discounted cash flow (1) /
Sales approach (8)
Market approach
(comparable companies) (2)
Recent transaction price (5)
Discount rate / Market
transactions
Earnings multiple (3)
Not applicable
Not applicable
Not applicable
11% – 13%
15% – 17%
6x – 8x
12%
16%
7x
5% – 13%
7x – 8x
11%
8x
Other:
449,065
Discounted cash flow (1)
Discount rate
376,237
123,842
Market approach
(comparable companies) (2)
Recent transaction price (5)
310,084
Recent market information (6)
Earnings multiple (3)
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Not applicable
Not applicable
Equity investments:
Energy:
47,524
Discounted cash flow (1)
Discount rate
1,045,233
60,409
Market approach
(comparable companies) (2)
Recent transaction price (5)
432,717
Other
Earnings multiple (3)
Not applicable
Not applicable
10% – 12%
5x – 18x
11%
12x
Not applicable
Not applicable
Not applicable
Not applicable
147
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Investment Type
Fair Value
Valuation Technique
Significant Unobservable
Inputs (9)(10)(11)
Financials:
$
116,328
Discounted cash flow (1) /
Sales approach (8)
646,720
171,844
Market approach
(value of underlying assets) (2)(4)
Recent transaction price (5)
140,804
Recent market information (6)
2,086,026
2,313,549
100,655
Market approach
(comparable companies) (2)
Market approach
(value of underlying assets) (2)(4)
Recent transaction price (5)
397,377
Recent market information (6)
1,154,908
70,123
Market approach
(comparable companies) (2)
Recent transaction price (5)
1,477
Recent market information (6)
1,371,935
55,769
Market approach
(comparable companies) (2)
Recent transaction price (5)
151,933
Recent market information (6)
Industrials:
Materials:
Other:
Real estate-oriented
investments:
Discount rate / Market
transactions
Underlying asset multiple
Range
6% – 8%
1x – 1.1x
Weighted
Average (12)
7%
1x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Earnings multiple (3)
Underlying asset multiple
Not applicable
Not applicable
3x – 15x
1x – 1.2x
9x
1x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Earnings multiple (3)
Not applicable
Not applicable
4x – 11x
8x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Earnings multiple (3)
Not applicable
Not applicable
4x – 12x
8x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Not applicable
Not applicable
Terminal capitalization rate
6% – 10%
Direct capitalization rate
5% – 9%
Net operating income growth rate
0% – 37%
Absorption rate
19% – 44%
Earnings multiple (3)
Underlying asset multiple
12x – 18x
1x – 1.5x
13%
8%
7%
10%
38%
13x
1.4x
3,276,236
Discounted cash flow (1)(7)
Discount rate
6% – 44%
262,218
766,755
915,247
Market approach
(comparable companies) (2)
Market approach
(value of underlying assets) (2)(4)
Recent transaction price (5)
Not applicable
Not applicable
Not applicable
2,625,026
Recent market information (6)
Quoted prices / discount
245,316
1,075,459
Recent market information (6) /
Market approach
(comparable companies) (2)
Sales approach (8)
Quoted prices / discount
(discount not applicable) /
Earnings multiple (3)
0% – 6%
7x – 9x
4%
8x
Market transactions
Not applicable
Not applicable
49,799
Other
Not applicable
Not applicable
Not applicable
Real estate loan
portfolios:
2,019,261
Discounted cash flow (1)(7)
Discount rate
8% – 16%
13%
379,844
Recent transaction price (5)
Not applicable
Not applicable
Not applicable
Other................................
15,576
Total Level III
investments ..................
$ 26,291,698
148
Industrials:
328,712
Discounted cash flow (1)
Discount rate
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The following table sets forth a summary of the valuation technique and quantitative information utilized in
determining the fair value of the consolidated funds’ Level III investments as of December 31, 2013:
Investment Type
Fair Value
Valuation Technique
Significant Unobservable
Inputs (9)(10)(11)
Range
Weighted
Average (12)
Credit-oriented
investments:
Consumer
discretionary:
$
40,998
Discounted cash flow (1)
Discount rate
571,865
321,619
Market approach
(comparable companies) (2)
Recent transaction price (5)
139,002
Recent market information (6)
335,270
59,349
77,550
208,436
Discounted cash flow (1) /
Sales approach (8)
Market approach
(comparable companies) (2)
Market approach
(value of underlying assets) (2)(4)
Recent transaction price (5)
840,871
Recent market information (6)
Earnings multiple (3)
13% – 15%
4x – 11x
14%
5x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Not applicable
Not applicable
Discount rate / Market
transactions
Earnings multiple (3)
Underlying asset multiple
0.9x – 1.1x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Not applicable
Not applicable
12% – 17%
11% – 20%
4x – 6x
14%
14%
6x
1x
13% – 14%
6x – 7x
13%
6x
8% – 15%
6x – 7x
11%
7x
Materials:
67,280
Discounted cash flow (1)
Discount rate
437,522
79,020
Market approach
(comparable companies) (2)
Recent transaction price (5)
Earnings multiple (3)
Not applicable
Not applicable
Not applicable
Other:
704,430
Discounted cash flow (1)
Discount rate
337,406
291,925
Market approach
(comparable companies) (2)
Recent transaction price (5)
400,361
Recent market information (6)
Earnings multiple (3)
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Not applicable
Not applicable
57,560
Discounted cash flow (1)
Discount rate
Earnings multiple (3)
12% – 14%
4x – 11x
13%
9x
Equity investments:
Consumer
discretionary:
Financials:
Industrials:
504,550
97,834
Market approach
(comparable companies) (2)
Recent transaction price (5)
140,705
Recent market information (6)
344,636
407,823
185,140
1,511,811
1,064,686
745,519
Market approach
(comparable companies) (2)
Market approach
(value of underlying assets) (2)(4)
Recent transaction price (5)
Market approach
(comparable companies) (2)
Market approach
(value of underlying assets) (2)(4)
Recent transaction price (5)
149
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Earnings multiple (3)
Underlying asset multiple
Not applicable
Not applicable
12x – 14x
1x – 1.2x
13x
1.1x
Not applicable
Not applicable
Not applicable
Earnings multiple (3)
Underlying asset multiple
4x – 12x
1x – 1.4x
8x
1.1x
Not applicable
Not applicable
Not applicable
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Investment Type
Fair Value
Valuation Technique
Significant Unobservable
Inputs (9)(10)(11)
Materials:
$ 1,014,930
1,604
Market approach
(comparable companies) (2)
Recent market information (6)
Earnings multiple (3)
Quoted prices / discount
(discount not applicable)
Range
6x – 8x
Weighted
Average (12)
7x
Not applicable
Not applicable
56,064
Recent transaction price (5)
Not applicable
Not applicable
Not applicable
Other:
60,451
Discounted cash flow (1)
Discount rate
1,052,158
21,790
Market approach
(comparable companies) (2)
Recent transaction price (5)
107,361
Recent market information (6)
Earnings multiple (3)
10% – 12%
5x – 11x
11%
9x
Not applicable
Not applicable
Not applicable
Quoted prices / discount
(discount not applicable)
Not applicable
Not applicable
245,164
Other
Not applicable
Not applicable
Not applicable
Real estate-oriented
investments:
1,997,927
Discounted cash flow (1)(7)
Discount rate
8% – 36%
14%
Terminal capitalization rate
6% – 15%
Direct capitalization rate
7% – 8%
Net operating income growth rate
1% – 30%
Absorption rate
Earnings multiple (3)
16% – 44%
6x – 12x
Underlying asset multiple
1.3x – 1.5x
8%
8%
9%
32%
12x
1.4x
Not applicable
Not applicable
Not applicable
1,230,234
Market approach
(comparable companies) (2)
427,452
710,888
Market approach
(value of underlying assets) (2)(4)
Recent transaction price (5)
684,802
Sales approach (8)
Market transactions
Not applicable
Not applicable
1,169,991
Recent market information (6)
Quoted prices / discount
0% – 6%
5%
Real estate loan
portfolios:
593,986
Recent transaction price (5)
Not applicable
Not applicable
Not applicable
1,775,455
Discounted cash flow (1)(7)
Discount rate
10% – 24%
15%
Other................................
13,708
Total Level III
investments ..................
$ 21,465,845
(1)
(2)
(3)
(4)
A discounted cash flow method is generally used to value performing credit-oriented investments in which the consolidated funds do not
have a controlling interest in the underlying issuer, as well as certain equity investments, real estate-oriented investments and real estate
loan portfolios.
A market approach is generally used to value distressed investments and investments in which the consolidated funds have a controlling
interest in the underlying issuer.
Earnings multiples are based on comparable public companies and transactions with comparable companies. The Company typically
utilizes multiples of EBITDA; however, in certain cases the Company may use other earnings multiples believed to be most relevant to the
investment. The Company typically applies the multiple to trailing-twelve months’ EBITDA. However, in certain cases other earnings
measures, such as pro forma EBITDA, may be utilized if deemed to be more relevant.
A market approach using the value of underlying assets utilizes a multiple, based on comparable companies, of underlying assets or the
net book value of the portfolio company. The Company typically obtains the value of underlying assets from the underlying portfolio
company’s financial statements or from pricing vendors. The Company may value the underlying assets by using prices and other
relevant information from market transactions involving comparable assets.
(5) Certain investments are valued based on recent transactions, generally defined as investments purchased or sold within six months of the
valuation date. The fair value may also be based on a pending transaction expected to close after the valuation date.
150
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
(6) Certain investments are valued using quoted prices for the subject or similar securities. Generally, investments valued in this manner are
classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar
securities, or may require adjustment for investment-specific factors or restrictions.
(7)
(8)
(9)
The discounted cash flow model for certain real estate-oriented investments and certain real estate loan portfolios contains a sell-out
analysis. In these cases, the discounted cash flow is based on the expected timing and prices of sales of the underlying properties. The
Company’s determination of the sales prices of these properties typically includes consideration of prices and other relevant information
from market transactions involving comparable properties.
The sales approach uses prices and other relevant information generated by market transactions involving comparable assets. The
significant unobservable inputs used in the sales approach generally include adjustments to transactions involving comparable assets or
properties, adjustments to external or internal appraised values, and the Company’s assumptions regarding market trends or other
relevant factors.
The discount rate is the significant unobservable input used in the fair-value measurement of performing credit-oriented investments in
which the consolidated funds do not have a controlling interest in the underlying issuer, as well as certain equity investments and real
estate loan portfolios. An increase (decrease) in the discount rate would result in a lower (higher) fair-value measurement.
(10) Multiple of either earnings or underlying assets is the significant unobservable input used in the market approach for the fair-value
measurement of distressed credit-oriented investments, credit-oriented investments in which the consolidated funds have a controlling
interest in the underlying issuer, equity investments and certain real estate-oriented investments. An increase (decrease) in the multiple
would result in a higher (lower) fair-value measurement.
(11) The significant unobservable inputs used in the fair-value measurement of real estate investments utilizing a discounted cash flow analysis
can include one or more of the following: discount rate, terminal capitalization rate, direct capitalization rate, net operating income growth
rate or absorption rate. An increase (decrease) in a discount rate, terminal capitalization rate or direct capitalization rate would result in a
lower (higher) fair-value measurement. An increase (decrease) in a net operating income growth rate or absorption rate would result in a
higher (lower) fair-value measurement. Generally, a change in a net operating income growth rate or absorption rate would be
accompanied by a directionally similar change in the discount rate.
(12) The weighted average is based on the fair value of the investments included in the range.
A significant amount of judgment may be required when using unobservable inputs, including assessing the
accuracy of source data and the results of pricing models. The Company assesses the accuracy and reliability of
the sources it uses to develop unobservable inputs. These sources may include third-party vendors that the
Company believes are reliable and commonly utilized by other market place participants. As described in note 2,
other factors beyond the unobservable inputs described above may have a significant impact on investment
valuations.
During the year ended December 31, 2014, the valuation technique for one Level III equity security and one
Level III credit-oriented security changed from a valuation based on recent market information to a market approach
based on comparable companies, because the investee underwent a restructuring and its securities are no longer
traded. The valuation technique for two Level III equity securities and one Level III credit-oriented security changed
from a valuation based on a discounted cash flow to a market approach based on comparable companies as a
result of the stabilization of the underlying investments. One equity investment changed from a market approach
based on the value of underlying assets to a valuation based on recent market information as a result of a pending
transaction in which the consolidated funds are expected to receive shares of publicly traded stock in exchange for
their current equity investment. One real estate-oriented investment commenced trading on a securities exchange;
thus, it changed from a market approach based on comparable companies to a valuation based on recent market
information, as adjusted for factors stemming from the structure of the equity interests owned by the consolidated
funds. One Level III real estate-oriented investment changed from a valuation based on recent market information
to a market approach based on comparable companies as a result of a lack of recent market transaction data.
Additionally, two real estate-oriented investments changed from a sales approach based on recent market
transactions to a discounted cash flow approach reflecting a change to a model-based approach driven by a
reduction in recent observable market data.
During the year ended December 31, 2013, one Level III real estate-oriented investment commenced
trading on a securities exchange causing its valuation technique to change from a market approach based on the
value of underlying assets to a valuation based on recent market information, as adjusted for factors stemming from
the structure of the equity interests owned by the consolidated funds. Additionally, the valuation technique for
certain Level III real estate loan portfolios changed to a discounted cash flow method from a combination of recent
market and sales information due to the lack of recent market transactions. One Level III credit-oriented investment
changed to a market approach based on comparable companies from a valuation based on underlying assets as a
result of a change in the composition of the underlying investment.
151
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
6. HEDGES AND OTHER DERIVATIVE INSTRUMENTS
The Company enters into derivative instruments as part of its overall risk management strategy or to
facilitate its investment management activities. Risks associated with fluctuations in interest rates and foreign
currency exchange rates in the normal course of business are addressed as part of the Company’s overall risk
management strategy that may include the use of derivative instruments to economically hedge or reduce these
exposures. From time to time, the Company may enter into (a) foreign currency option and forward contracts to
reduce earnings and cash-flow volatility associated with changes in foreign currency exchange rates, and
(b) interest-rate swaps to manage all or a portion of the interest-rate risk associated with its variable rate
borrowings. As a result of the use of these or other derivative contracts, the Company is exposed to the risk that
counterparties will fail to fulfill their contractual obligations. The Company attempts to mitigate this counterparty risk
by entering into derivative contracts only with major financial institutions that have investment-grade credit ratings.
Counterparty credit risk is evaluated in determining the fair value of derivative instruments.
In January 2013, the Company entered into an interest-rate swap with a notional value of $175.0 million, of
which $168.8 million was designated to hedge a portion of the interest-rate risk associated with its variable-rate
borrowings. As of December 31, 2014, the Company had two interest-rate swaps designated as cash-flow hedges
with a combined notional value of $348.8 million. These hedges continued to be effective as of that date. As of
December 31, 2013, the Company had two interest-rate swaps designated as cash-flow hedges with a combined
notional value of $378.8 million.
In August 2013, to facilitate its investment management activities, the Company entered into a two-year total
return swap (“TRS”) agreement with a financial institution to meet certain investment objectives for which the
primary risk exposure was credit. Pursuant to the TRS agreement, the Company had deposited $50.0 million in
cash collateral with the counterparty and had the ability to access up to $200.0 million of U.S. dollar-denominated
debt securities underlying the TRS.
In February 2014, the Company closed its TRS position resulting in realized gains of $7.1 million, and
received $1.4 million in cash at closing. In connection with the launch of a CLO, the Company contributed the $50.0
million cash collateral deposit and $5.7 million of remaining realized gains due from the counterparty under the TRS
agreement, and an additional $4.5 million in cash, to the CLO. The CLO purchased the underlying reference
securities that were held by the counterparty under the TRS agreement at fair value of $312.9 million plus $1.0
million of interest receivable. The CLO paid $258.2 million in cash, net of the $50.0 million cash collateral deposit
and $5.7 million of realized gains due from the counterparty under the TRS agreement. The CLO was funded with
the Company’s $60.2 million in aggregate contributions and net proceeds of $450.0 million in cash from the
issuance of $456.0 million in senior secured notes to a third party, net of $6.0 million in debt issuance costs. Please
see note 7 for more information regarding CLO loans payable.
Freestanding derivatives are instruments that the Company enters into as part of its overall risk
management strategy but does not designate as hedging instruments for accounting purposes. These instruments
may include foreign currency exchange contracts, interest-rate swaps and other derivative contracts.
152
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The fair value of forward currency sell contracts consisted of the following:
As of December 31, 2014:
Euro, expiring 1/8/15-12/31/15 ......................................................
USD (buy GBP), expiring 1/8/15-12/31/15 .....................................
Japanese Yen, expiring 1/30/15-12/30/15 .....................................
Total .......................................................................................
Contract
Amount in
Local Currency
Contract
Amount in
U.S. Dollars
Market
Amount in
U.S. Dollars
Net Unrealized
Appreciation
(Depreciation)
206,820
$
266,569
$
250,789
$
15,780
88,081
7,420,600
88,081
70,784
91,485
62,100
(3,404)
8,684
$
425,434
$
404,374
$
21,060
As of December 31, 2013:
Euro, expiring 1/8/14-10/31/14 ......................................................
USD (buy GBP), expiring 1/8/14-9/30/14 ......................................
GBP, expiring 4/30/14 ...................................................................
Japanese Yen, expiring 1/31/14-1/30/15 .......................................
Total .......................................................................................
115,685
$
153,959
$
159,485
$
(5,526)
54,361
3,000
6,261,700
54,361
4,643
63,107
50,286
4,966
59,581
$
276,070
$
274,318
$
4,075
(323)
3,526
1,752
There were no TRS positions outstanding as of December 31, 2014. The fair value of the TRS contract as
of December 31, 2013 is included in other assets in the consolidated statements of financial condition and is shown
below:
As of December 31, 2013
Notional
Fair Value
Total-return swap ............................................................................................................................. $
189,089
$
4,515
Realized and unrealized gains and losses arising from freestanding derivative instruments were recorded
in the consolidated statements of operations as follows:
Foreign Currency Forward Contracts:
General and administrative expenses (1) ................................................................. $
For the Year Ended December 31,
2014
2013
2012
31,772
$
3,763
$
1,545
Total-return Swap:
Investment income ................................................................................................. $
2,554
$
4,515
$
—
(1) To the extent that the Company’s freestanding derivatives are utilized to hedge its exposure to investment income and
management fees earned from consolidated funds, the related hedged items are eliminated in consolidation, with the
derivative impact (a positive number reflects a reduction of expenses) reflected in consolidated general and administrative
expenses.
As of both December 31, 2014 and 2013, the Company had not designated any derivatives as fair-value
hedges or hedges of net investments in foreign operations.
Derivatives Held By Consolidated Funds
Certain consolidated funds utilize derivative instruments in ongoing investment operations. These
derivatives primarily consist of foreign currency forward contracts and options utilized to manage currency risk,
interest-rate swaps to hedge interest-rate risk, options and futures used to hedge exposure for specific securities,
and total-return and credit-default swaps utilized mainly to obtain exposure to leveraged loans or to participate in
foreign markets not readily accessible. The primary risk exposure for options and futures is price, while the primary
risk exposure for total-return and credit-default swaps is credit. None of the derivative instruments are accounted
for as hedging instruments utilizing hedge accounting.
153
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The impact of derivative instruments held by the consolidated funds on the consolidated statements of
operations was as follows:
Year Ended December 31,
2014
2013
2012
Net Realized
Gain (Loss)
on
Investments
Net Change in
Unrealized
Appreciation
(Depreciation)
on
Investments
Net Realized
Gain (Loss)
on
Investments
Net Change in
Unrealized
Appreciation
(Depreciation)
on
Investments
Net Realized
Gain (Loss)
on
Investments
Net Change in
Unrealized
Appreciation
(Depreciation)
on
Investments
Foreign currency forward
contracts .................................... $ 179,675
$ 278,647
$ (217,234) $ (286,336) $
85,773 $ (148,791)
Total-return, credit-default and
interest-rate swaps .....................
Options and futures .......................
Swaptions ......................................
54,437
(38,431)
(1,158)
Total ........................................ $ 194,523
(193,079)
6,513
(4,770)
87,311
$
Foreign Currency Forward Contracts
89,333
(17,922)
—
33,445
(1,972)
—
$ (145,823) $ (309,193) $ 139,563 $ (117,318)
66,992
(13,202)
—
(22,619)
(238)
—
Certain consolidated funds enter into foreign currency contracts to hedge foreign currencies utilized in
certain current investments or future purchase commitments. All commitments are valued using the applicable
foreign currency exchange rate, with the resulting unrealized gain or loss included in income. Gains or losses are
realized at the time forward contracts are either extinguished or closed if entering into an offsetting contract.
The average notional amounts of foreign currency contracts outstanding during 2014 were $4.9 billion long
and $293.1 million short, and during 2013 were $4.5 billion long and $243.6 million short. Outstanding foreign
currency contracts as of December 31, 2014 and 2013, which included $254.9 million and $51.8 million of gross
unrealized appreciation, and $54.7 million and $135.2 million of gross unrealized depreciation, respectively, were as
follows:
As of December 31, 2014:
Euro, expiring 1/15/15-11/10/17 .........................
Pound Sterling, expiring 1/15/15-11/13/15 .........
Canadian Dollar, expiring 2/12/15-5/14/15.........
Australian Dollar, expiring 5/14/15 .....................
Hong Kong Dollar, expiring 1/22/15 ...................
Japanese Yen, expiring 1/15/15-11/27/15..........
Swiss Franc, expiring 1/22/15 ............................
Singapore Dollar, expiring 1/22/15 .....................
South Korean Won, expiring 2/2/15-7/23/15 ......
New Zealand Dollar, expiring 2/12/15-5/14/15 ...
Danish Krone, expiring 11/4/15 ..........................
Indian Rupee, expiring 3/2/15-12/1/15 ...............
Swedish Krona, expiring 1/22/15 .......................
Israeli New Sheqel, expiring 2/27/15..................
U.S. Dollar (buy Euro), expiring
2/24/15-6/29/15 ...............................................
Total .............................................................
Buy (Sell)
Contract Amount
in Local Currency
Contract Amount
in U.S. Dollars
Market Amount in
U.S. Dollars
Net Unrealized
Appreciation
(Depreciation)
2,157,379
$
2,063,471
$
2,415,637
2,334,072
36,125
372,065
2,037
237,931
581
856
88,233
130,519
56,723
(2,001)
284
34,355
367,066
2,037
228,584
554
788
86,302
131,417
54,992
(2,526)
245
(121,007)
(124,720)
93,908
81,565
1,770
4,999
—
9,347
27
68
1,931
(898)
1,731
525
39
3,713
33,636
5,408,998
32,095
5,208,732
$
$
$
1,541
200,266
(1,750,676) $
(1,502,240)
(40,491)
(452,812)
(33,463)
(27,531,226)
(550)
(3,396)
(95,179,385)
(170,103)
(336,981)
165,828
(3,963)
487,100
(31,528)
154
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
As of December 31, 2013:
Euro, expiring 1/6/14-3/4/15 ...............................
Pound Sterling, expiring 1/6/14-12/12/14 ...........
Canadian Dollar, expiring 1/16/14-2/13/14.........
Australian Dollar, expiring 1/16/14-6/12/14 ........
Hong Kong Dollar, expiring 1/23/14 ...................
Japanese Yen, expiring 1/10/14-11/28/14..........
Swiss Franc, expiring 1/23/14 ............................
Singapore Dollar, expiring 1/23/14 .....................
South Korean Won, expiring 1/23/14 .................
New Zealand Dollar, expiring 2/13/14-6/12/14 ...
Danish Krone, expiring 11/4/14 ..........................
Indian Rupee, expiring 1/2/14-12/1/15 ...............
Korean Won, expiring 2/4/14-7/23/14.................
Total .............................................................
Buy (Sell)
Contract Amount
in Local Currency
Contract Amount
in U.S. Dollars
Market Value in
U.S. Dollars
Net Unrealized
Appreciation
(Depreciation)
(1,324,989) $
(905,090)
(8,289)
(404,642)
(37,208)
(37,773,587)
(2,355)
(5,741)
(1,236,110)
(114,303)
(314,524)
424,331
(104,273,576)
$
1,832,932
1,437,028
7,864
376,193
4,800
383,383
2,635
2,717
1,161
94,065
57,007
(6,106)
93,775
4,287,454
$
$
1,878,449
1,510,779
7,706
361,010
4,799
359,072
2,648
2,633
1,177
92,984
58,047
(6,502)
98,133
4,370,935
$
$
(45,517)
(73,751)
158
15,183
1
24,311
(13)
84
(16)
1,081
(1,040)
396
(4,358)
(83,481)
Credit Default Swaps
Changes in the value of a CDS are recorded as unrealized appreciation or depreciation. Upfront payments
received or paid by the consolidated funds are reflected as an asset or liability in the consolidated statements of
financial condition. As of December 31, 2014, there were no CDS contracts outstanding.
As of December 31, 2013, payments in the amount of $3,506 had been received as upfront payments.
Periodic premiums received or payments made by the consolidated funds are recorded as realized gains or losses
on consolidated funds’ investments, respectively, in the consolidated statements of operations. Gains or losses are
realized upon early termination of the swap agreement. Collateral, in the form of cash or securities, may be
required to be held in segregated accounts with a custodian in compliance with a CDS contract.
As of December 31, 2013, the consolidated funds had bought protection on various index swaps. The
maximum receipts on these buy protection contracts were approximately $50,000, with terms up to five years. The
net unrealized depreciation on these contracts was $4,335 as of December 31, 2013.
155
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Balance Sheet Offsetting
The Company recognizes all derivatives as assets or liabilities at fair value in its consolidated statements of
financial condition. In connection with its derivative activities, the Company generally enters into agreements
subject to enforceable master netting arrangements that allow the Company to offset derivative assets and liabilities
in the same currency by specific derivative type or, in the event of default by the counterparty, to offset derivative
assets and liabilities with the same counterparty. The table below sets forth the setoff rights and related
arrangements associated with derivative instruments held by the Company. The “gross amounts not offset in
statements of financial condition” column represents derivative instruments that are eligible to be offset in
accordance with applicable accounting guidance, but for which management has elected not to offset in the
consolidated statements of financial condition.
Gross
Amounts of
Assets
(Liabilities)
Gross
Amounts
Offset in
Assets
(Liabilities)
Net Amounts
of Assets
(Liabilities)
Presented
Gross Amounts Not Offset in
Statements of Financial Condition
Derivative
Assets
(Liabilities)
Cash Collateral
Received
(Pledged)
Net Amount
As of December 31, 2014
Derivative Assets:
Foreign currency forward contracts... $
24,499
$
— $
24,499
$
5,756
$
— $
18,743
Total-return swaps ............................
—
Subtotal .....................................
24,499
Derivative assets of consolidated funds:
Foreign currency forward contracts...
254,929
Total-return, credit-default and
interest-rate swaps ........................
Options and futures ...........................
Swaptions .........................................
4,217
36,568
483
Subtotal .....................................
296,197
—
—
—
—
—
—
—
—
24,499
—
5,756
254,929
51,260
4,217
36,568
483
296,197
512
12,605
483
64,860
—
—
—
—
—
—
—
—
18,743
203,669
3,705
23,963
—
231,337
Total .................................................. $
320,696
$
— $
320,696
$
70,616
$
— $
250,080
Derivative Liabilities:
Foreign currency forward contracts... $
(3,439)
$
— $
(3,439)
$
(3,439) $
— $
—
—
—
(3,575)
(17,921)
—
(35)
Interest-rate swaps ...........................
Subtotal .....................................
(2,317)
(5,756)
Derivative liabilities of consolidated funds:
Foreign currency forward contracts...
(54,663)
Total-return, credit-default and
interest-rate swaps ........................
(183,359)
Options and futures ...........................
(14,969)
Swaptions .........................................
(518)
Subtotal .....................................
(253,509)
—
—
—
—
—
—
—
(2,317)
(5,756)
(2,317)
(5,756)
(54,663)
(51,088)
—
—
—
(183,359)
(14,969)
(518)
(9,427)
(3,863)
(483)
(156,011)
(11,106)
—
(253,509)
(64,861)
(167,117)
(21,531)
Total .................................................. $
(259,265)
$
— $
(259,265)
$
(70,617) $
(167,117)
$
(21,531)
156
1,942
4,515
6,457
20,542
17,835
18,138
5,392
61,907
68,364
(1,675)
(2,686)
(4,361)
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
As of December 31, 2013
Derivative Assets:
Gross
Amounts of
Assets
(Liabilities)
Gross
Amounts
Offset in
Assets
(Liabilities)
Net Amounts
of Assets
(Liabilities)
Presented
Gross Amounts Not Offset in
Statements of Financial Condition
Derivative
Assets
(Liabilities)
Cash Collateral
Received
(Pledged)
Net Amount
Foreign currency forward contracts... $
Total-return swaps ............................
Subtotal .....................................
7,893
4,515
12,408
Derivative assets of consolidated funds:
Foreign currency forward contracts...
51,765
Total-return, credit-default and
interest-rate swaps ........................
Options and futures ...........................
Swaptions .........................................
Subtotal .....................................
18,318
18,138
6,716
94,937
$
— $
—
—
—
—
—
—
—
51,765
31,223
18,318
18,138
6,716
94,937
483
—
1,324
33,030
$
5,951
$
— $
7,893
4,515
12,408
—
5,951
—
—
—
—
—
—
—
Total .................................................. $
107,345
$
— $
107,345
$
38,981
$
— $
Derivative Liabilities:
Foreign currency forward contracts... $
(6,141)
$
— $
(6,141)
$
(4,466) $
— $
Interest-rate swaps ...........................
Subtotal .....................................
(4,171)
(10,312)
Derivative liabilities of consolidated funds:
Foreign currency forward contracts...
(135,246)
Total-return, credit-default and
interest-rate swaps ........................
Options and futures ...........................
Swaptions .........................................
(7,096)
(6,214)
(1,324)
Subtotal .....................................
(149,880)
—
—
—
—
—
—
—
(4,171)
(10,312)
(1,485)
(5,951)
—
—
(135,246)
(31,223)
(11,583)
(92,440)
(7,096)
(6,214)
(1,324)
(149,880)
(483)
—
(1,324)
(33,030)
(4,358)
(3,067)
—
(2,255)
(3,147)
—
(19,008)
(97,842)
Total .................................................. $
(160,192)
$
— $
(160,192)
$
(38,981) $
(19,008)
$
(102,203)
157
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
7. DEBT OBLIGATIONS AND CREDIT FACILITIES
The Company’s debt obligations are set forth below:
As of December 31,
2014
2013
$75,000, 5.03%, issued in June 2004, payable in seven equal annual installments
starting June 14, 2008 .................................................................................................... $
— $
10,714
$50,000, 6.09%, issued in June 2006, payable on June 6, 2016.......................................
$50,000, 5.82%, issued in November 2006, payable on November 8, 2016 .....................
$250,000, 6.75%, issued in November 2009, payable on December 2, 2019 ...................
$250,000, variable rate term loan issued in December 2012, payable 2.5% per quarter
through September 2017, final $125,000 payment on December 21, 2017, prepaid in
March 2014 ....................................................................................................................
$250,000, rate as described below, term loan issued in March 2014, payable on March
50,000
50,000
50,000
50,000
250,000
250,000
—
218,750
31, 2019 .........................................................................................................................
$50,000, 3.91%, issued in September 2014, payable on September 3, 2024 ...................
$100,000, 4.01%, issued in September 2014, payable on September 3, 2026 .................
$100,000, 4.21%, issued in September 2014, payable on September 3, 2029 .................
100,000
Total remaining principal .................................................................................................... $ 850,000
250,000
100,000
50,000
—
—
—
—
$ 579,464
Future principal payments of debt obligations as of December 31, 2014 were as follows:
2015 ......................................................................................................................................................... $
—
2016 .........................................................................................................................................................
100,000
2017 .........................................................................................................................................................
—
2018 .........................................................................................................................................................
—
2019 .........................................................................................................................................................
500,000
250,000
Thereafter ................................................................................................................................................
Total ......................................................................................................................................................... $ 850,000
The Company was in compliance with all financial covenants associated with its senior notes and credit
facility as of December 31, 2014 and 2013.
The fair value of the Company’s debt obligations, which are carried at amortized cost, is a Level III valuation
that is estimated based on a discounted cash-flow calculation using estimated rates that would be offered to
Oaktree for debt of similar terms and maturities. The fair value of these debt obligations was $895.9 million and
$611.1 million as of December 31, 2014 and 2013, respectively, utilizing an average borrowing rate of 3.2% for both
periods. As of December 31, 2014, a 10% increase in the assumed average borrowing rate would lower the
estimated fair value to $879.8 million, whereas a 10% decrease would increase the estimated fair value to $912.6
million.
In September 2014, the Company’s subsidiaries Oaktree Capital Management, L.P. (the “Issuer”) and
Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P. (the “Guarantors” and together
with the Issuer, the “Obligors”) issued and sold to certain accredited investors $50.0 million aggregate principal
amount of its 3.91% Senior Notes, Series A, due September 3, 2024 (the “Series A Notes”), $100.0 million
aggregate principal amount of its 4.01% Senior Notes, Series B, due September 3, 2026 (the “Series B Notes”) and
$100.0 million aggregate principal amount of its 4.21% Senior Notes, Series C, due September 3, 2029 (the “Series
C Notes” and together with the Series A Notes and the Series B Notes, the “Notes”) pursuant to a note and
guarantee agreement (the “Note Agreement”). The Notes are senior unsecured obligations of the Issuer,
guaranteed by the Guarantors on a joint and several basis. Interest on the Notes is payable semi-annually.
The Note Agreement provides for certain affirmative and negative covenants, including financial covenants
relating to the Obligors’ combined leverage ratio and minimum assets under management. In addition, the Note
Agreement contains customary representations and warranties of the Obligors and customary events of default, in
158
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
certain cases, subject to cure periods. The Issuer may prepay all, or from time to time any part of, the Notes at any
time, subject to the Issuer’s payment of the applicable make-whole amount determined with respect to such
principal amount prepaid. Upon the occurrence of a change of control, the Issuer will be required to make an offer
to prepay the Notes together with the applicable make-whole amount determined with respect to such principal
amount prepaid.
In March 2014, the Company’s subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P.,
Oaktree AIF Investments, L.P. and Oaktree Capital I, L.P. entered into a credit agreement with a bank syndicate for
senior unsecured credit facilities (the “Credit Facility”), consisting of a $250.0 million fully-funded term loan (the
“Term Loan”) and a $500.0 million revolving credit facility (the “Revolver”), each with a five-year term. The Credit
Facility replaced the amortizing term loan, which had a principal balance of $218.8 million, and the undrawn
revolver under the Company’s prior credit facility. The Term Loan matures in March 2019, at which time the entire
principal amount of $250.0 million is due. Borrowings under the Credit Facility generally bear interest at a spread to
either LIBOR or an alternative base rate. Based on the current credit ratings of Oaktree Capital Management, L.P.,
the interest rate on borrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of
the Revolver is 0.125% per annum. Utilizing interest-rate swaps, the majority of the Term Loan’s annual interest
rate is fixed at 2.69% through January 2016 and 2.22% for the twelve months thereafter, based on the current credit
ratings of Oaktree Capital Management, L.P. The Credit Facility contains customary financial covenants and
restrictions, including ones regarding a maximum leverage ratio of 3.0-to-1.0 and a minimum required level of
assets under management (as defined in the credit agreement) of $50.0 billion. As of December 31, 2014, the
Company had no outstanding borrowings under the Revolver and was able to draw the full amount available without
violating any financial covenants.
Credit Facilities of the Consolidated Funds
Certain consolidated funds maintain revolving credit facilities to fund investments between capital
drawdowns. These facilities generally (a) are collateralized by the unfunded capital commitments of the
consolidated funds’ limited partners, (b) bear an annual commitment fee based on unfunded commitments, and
(c) contain various affirmative and negative covenants and reporting obligations, including restrictions on additional
indebtedness, liens, margin stock, affiliate transactions, dividends and distributions, release of capital commitments,
and portfolio asset dispositions. Additionally, certain consolidated funds have issued senior variable rate notes to
fund investments on a longer term basis, generally up to ten years. The obligations of the consolidated funds are
nonrecourse to the Company.
The fair value of the revolving credit facilities is a Level III valuation and approximated carrying value for all
periods presented due to their short-term nature. The fair value of the credit facilities and senior variable rate notes
is a Level III valuation and was $2.8 billion as of December 31, 2014 using prices obtained from pricing vendors,
and approximated carrying value as of December 31, 2013 due to a resulting yield that approximated the market
rate. Financial instruments that are valued using quoted prices for the subject or similar securities are generally
classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive
market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions. As of
December 31, 2014, the consolidated funds were in compliance with all covenants.
159
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The consolidated funds had the following revolving credit facilities and term loans outstanding:
Outstanding Amount as of
December 31,
2014
2013
Facility
Capacity
LIBOR
Margin (1)
Credit Agreement
Credit facility (3) .......................... $
Senior variable rate notes (3) ......
Senior variable rate notes (3) ......
Senior variable rate notes (3) ......
Senior variable rate notes (3) ......
Senior variable rate notes (3) ......
Senior variable rate notes (3) ......
Credit facility (3)(4) .......................
Senior variable rate notes (3) ......
Senior variable rate notes (3) ......
Senior variable rate notes (3) ......
Revolving credit facility ..............
434,000
$
434,000
$ 435,000
249,500
499,322
402,422
64,500
420,000
84,399
—
332,706
76,648
39,049
50,054
249,500
$ 249,500
498,916
$ 500,000
402,375
$ 402,500
64,500
$
64,500
— $ 420,000
— $
86,000
— $ 650,000
— $ 333,000
— $
78,000
— $
40,000
— $ 450,000
Revolving credit facility ..............
500,000
400,000
$ 500,000
Revolving credit facility ..............
Revolving credit facility ..............
Revolving credit facility ..............
Euro-denominated revolving
—
—
800
67,000
$ 150,000
— $
65,000
— $
55,000
1.45%
1.55%
1.20%
1.20%
1.65%
1.47%
2.10%
1.25%
1.56%
2.30%
3.20%
2.60%
1.60%
1.75%
1.75%
2.00%
Maturity
11/14/2018
10/20/2022
4/20/2023
7/20/2023
7/20/2023
8/15/2015
8/15/2015
4/11/2017
11/15/2025
11/15/2025
11/15/2025
8/14/2015
6/26/2015
12/15/2014
5/20/2015
12/15/2015
Commitment
Fee Rate
L/C Fee (2)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.25%
0.25%
0.35%
0.35%
0.35%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2.00%
N/A
N/A
N/A
2.00%
credit facility ...........................
650,725
13,090
550,000
1.65%
2/25/2016
0.25%
1.65%
Euro-denominated revolving
credit facility ...........................
Revolving credit facility ..............
Revolving credit facility ..............
Revolving credit facility ..............
Revolving credit facility ..............
Revolving credit facility ..............
Revolving credit facility ..............
Revolving credit facility ..............
Credit facility (5) ..........................
97,925
—
146,000
201,739
2,000
93,943
56,697
88,000
214,423
— €
100,000
2,800
$
10,000
165,000
$ 350,000
— $ 250,000
— $
35,000
— $ 100,000
— $
61,000
— $ 103,065
— $ 214,423
1.95%
2.25%
1.65%
1.60%
1.50%
1.60%
2.95%
2.75%
2.03%
2/2/2016
9/1/2014
3/22/2015
1/16/2017
12/11/2015
9/8/2016
3/15/2019
0.40%
0.38%
0.25%
0.25%
0.20%
0.25%
N/A
12/16/2018
1.00%
Various
N/A
1.95%
N/A
N/A
1.60%
N/A
2.00%
N/A
N/A
N/A
$ 4,704,852
$ 2,297,181
(1) The facilities bear interest, at the borrower’s option, at (a) an annual rate of LIBOR plus the applicable margin or (b) an alternate
base rate, as defined in the respective credit agreement.
(2) Certain facilities allow for the issuance of letters of credit at an applicable annual fee. As of December 31, 2014 and 2013,
outstanding standby letters of credit totaled $43,326 and $55,954, respectively.
(3) The senior variable rate notes and credit facilities are collateralized by the portfolio investments and cash and cash-equivalents of
the fund.
(4) The LIBOR margin is 1.25% through April 11, 2015, and 2.50% thereafter.
(5) The credit facility is collateralized by specific investments of the fund. Of the total balance outstanding, $155.9 million matures in
March 2015, $30.6 million matures in February 2016 and $27.9 million matures in November 2016.
160
€
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Collateralized Loan Obligation Loans Payable
Debt obligations of the CLOs represent amounts due to holders of debt securities issued by the CLOs,
including term loans held by CLOs that had not priced as of period end. The table below sets forth the outstanding
loans payable of the CLOs as of December 31, 2014.
Outstanding
Borrowings
Senior secured notes (2) ............................................................... $ 456,567
Senior secured notes (3) ...............................................................
453,821
Senior secured notes (4) ...............................................................
Senior secured notes (5) ...............................................................
Subordinated note (6) ...................................................................
Subordinated note (6) ...................................................................
Term loan (7) .................................................................................
151,257
405,018
23,596
85,776
25,500
As of December 31, 2014
Fair Value (1)
$ 449,167
454,274
85,468
402,649
25,500
23,596
Weighted
Average
Interest Rate
2.25%
2.43%
2.61%
2.32%
N/A
N/A
151,257
1.24%
Weighted
Average
Remaining
Maturity
(years)
10.3
12.0
4.0
12.7
12.0
12.7
1.8
$ 1,601,535
$ 1,591,911
(1) The debt obligations of the CLOs are Level III valuations and were valued using prices obtained from pricing vendors
or recent transactions. Financial instruments that are valued using quoted prices for the subject or similar securities
are generally classified as Level III because the quoted prices may be indicative in nature for securities that are in an
inactive market, may be for similar securities, or may require adjustment for investment-specific factors or
restrictions. Financial instruments that are valued based on recent transactions are generally defined as securities
purchased or sold within six months of the valuation date. The fair value may also be based on a pending
transaction expected to close after the valuation date. For recently issued debt obligations, the carrying value
approximates fair value.
(2) The weighted average interest rate was LIBOR plus 2.01%.
(3) The weighted average interest rate was LIBOR plus 2.21%.
(4) The interest rate was LIBOR plus a margin determined based on a formula as defined in the respective borrowing
agreements, which incorporate different borrowing values based on the characteristics of collateral investments
purchased. The weighted average unused commitment fee rate ranged from 0% to 2.0%.
(5) The weighted average interest rate was EURIBOR plus 2.25%.
(6) The subordinated notes do not have a contractual interest rate; instead, they receive distributions from the excess
cash flows generated by the CLO.
(7) The term loan had a total facility capacity of €325.0 million as of December 31, 2014. The interest rate represents
an interpolated rate based on the three and six-month EURIBOR plus 1.20%. The unused commitment fee was
0.30%. The carrying value approximates fair value due to the recent issuance date.
The obligations with respect to the CLO loans payable are nonrecourse to the Company and are backed by
the investments held by the respective CLO. Assets of one CLO may not be used to satisfy the liabilities of another.
As of December 31, 2014, the fair value of the CLO assets was $2.1 billion and consisted of cash, corporate loans,
corporate bonds and other securities. As of December 31, 2013, there were no assets or liabilities outstanding
associated with the CLOs.
161
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Future scheduled principal payments with respect to the CLO loans payable as of December 31, 2014 were
as follows:
2015 .................................................................................................................................................................. $
—
2016 ..................................................................................................................................................................
151,257
2017 ..................................................................................................................................................................
—
2018 ..................................................................................................................................................................
85,776
2019 ..................................................................................................................................................................
—
Thereafter .........................................................................................................................................................
1,364,502
Total .................................................................................................................................................................. $ 1,601,535
8. NON-CONTROLLING REDEEMABLE INTERESTS IN CONSOLIDATED FUNDS
The following table sets forth a summary of changes in the non-controlling redeemable interests in the
consolidated funds. Dividends reinvested and in-kind contributions or distributions are non-cash in nature and have
been grossed up in the table below.
Year Ended December 31,
2014
Beginning balance ............................................................................. $ 38,834,831
9,420,044
(7,962,362)
1,647,753
(528,051)
(26,760)
902,979
(607,279)
Ending balance ................................................................................. $ 41,681,155
Contributions ..............................................................................
Distributions ................................................................................
Net income .................................................................................
Change in distributions payable ..................................................
Change in accrued or deferred contributions ..............................
Initial consolidation of a fund ......................................................
Foreign currency translation and other .......................................
2013
$ 39,670,831
6,507,188
(12,783,673)
5,163,939
105,735
—
—
170,811
$ 38,834,831
2012
$ 41,048,607
6,441,090
(13,993,859)
6,016,342
49,109
41,000
—
68,542
$ 39,670,831
162
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
9. UNITHOLDERS’ CAPITAL
Unitholders’ capital reflects the economic interests attributable to Class A unitholders, non-controlling
interests in consolidated subsidiaries and non-controlling interests in consolidated funds. Non-controlling interests
in consolidated subsidiaries represent the portion of unitholders’ capital attributable to third parties and to OCGH
unitholders’ economic interest in the Oaktree Operating Group, or OCGH non-controlling interest. The OCGH non-
controlling interest is determined at the Oaktree Operating Group level based on the proportionate share of Oaktree
Operating Group units held by the OCGH unitholders. Certain expenses, such as income tax and related
administrative expenses of Oaktree Capital Group, LLC and its Intermediate Holding Companies, are solely
attributable to the Class A unitholders. As of December 31, 2014 and 2013, respectively, OCGH units represented
109,088,901 of the total 152,852,620 Oaktree Operating Group units and 112,584,211 of the total 151,056,717
Oaktree Operating Group units. Based on total allocable Oaktree Operating Group capital of $1,640,594 and
$1,655,911 as of December 31, 2014 and 2013, respectively, the OCGH non-controlling interest was $1,170,893
and $1,234,169. As of December 31, 2014, non-controlling interests attributable to third parties was $95,068.
Distributions per Class A unit are set forth below:
Distribution
Per Unit
$
$
$
$
$
$
0.62
0.55
0.98
1.00
3.15
0.74
1.51
1.41
1.05
4.71
0.55
0.79
0.55
0.42
2.31
Payment Date
November 13, 2014
August 14, 2014
May 15, 2014
February 27, 2014
Total 2014 .............................................................................................................................................
Applicable to Quarterly Period Ended
September 30, 2014
June 30, 2014
March 31, 2014
December 31, 2013
Record Date
November 10, 2014
August 11, 2014
May 12, 2014
February 24, 2014
November 15, 2013
August 20, 2013
May 21, 2013
March 1, 2013
Total 2013 .............................................................................................................................................
September 30, 2013
June 30, 2013
March 31, 2013
December 31, 2012
November 13, 2013
August 16, 2013
May 17, 2013
February 25, 2013
November 20, 2012
August 21, 2012
May 25, 2012
March 7, 2012
Total 2012 .............................................................................................................................................
September 30, 2012
June 30, 2012
March 31, 2012
December 31, 2011
November 16, 2012
August 17, 2012
May 21, 2012
March 1, 2012
163
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The following table sets forth a summary of the net income attributable to the OCGH non-controlling interest
and to the Class A unitholders:
Year Ended December 31,
2014
2013
2012
Weighted average Oaktree Operating Group units outstanding
(in thousands):
OCGH non-controlling interest ......................................................
Class A unitholders .......................................................................
Total weighted average units outstanding.....................................
110,078
42,582
152,660
115,992
34,979
150,971
122,369
28,170
150,539
Oaktree Operating Group net income:
Net income attributable to OCGH non-controlling interest ............ $ 386,398
Net income attributable to Class A unitholders..............................
146,446
Oaktree Operating Group net income (1) ....................................... $ 532,844
$ 824,795
$ 548,265
243,250
126,826
$ 1,068,045
$ 675,091
Net income attributable to Oaktree Capital Group, LLC:
Oaktree Operating Group net income attributable to Class A
unitholders ................................................................................. $ 146,446
—
Non-Operating Group other income ..............................................
Non-Operating Group expenses ...................................................
Income tax expense of Intermediate Holding Companies.............
(18,518)
Net income attributable to Oaktree Capital Group, LLC................ $ 126,283
(1,645)
$ 243,250
$ 126,826
—
(1,195)
(20,057)
6,260
(553)
(24,723)
$ 221,998
$ 107,810
(1) Oaktree Operating Group net income attributable to other non-controlling interests was $12,981 and is not
reflected in the table above.
The effects of changes in the Company’s ownership interest in the Oaktree Operating Group are set forth
below:
Year Ended December 31,
2014
2013
2012
Net income attributable to Oaktree Capital Group, LLC .......................... $ 126,283
$ 221,998
$ 107,810
Equity reallocation between controlling and non-controlling interests......
Change from net income (loss) attributable to Oaktree Capital Group,
51,525
79,052
69,097
LLC and transfers from (to) non-controlling interest ............................. $ 177,808
$ 301,050
$ 176,907
On March 10, 2014, the Company issued and sold 5,000,000 Class A units in a public offering (the “March
2014 Offering”), resulting in $296.7 million in proceeds to the Company. The Company did not retain any proceeds
from the sale of Class A units in the March 2014 Offering. The proceeds from the March 2014 Offering were used to
acquire interests in the Company’s business from certain of the Company’s directors, employees and other
investors, including certain senior executives and other members of the Company’s senior management.
In May 2013, the Company issued and sold 8,050,000 Class A units in a public offering at a price to the
public of $53.50 per Class A unit (the “May 2013 Offering”), resulting in $419.9 million in net proceeds to the
Company, after deducting underwriting discounts and commissions. The Company did not retain any proceeds
from the sale of Class A units in the May 2013 Offering. The net proceeds from the May 2013 Offering were used to
acquire interests in the Company’s business from certain of the Company’s directors, employees and other
investors, including certain senior executives and other members of the Company’s senior management.
In June 2012, the Company repurchased and subsequently canceled 400,000 Class A units from an
unrelated third party broker-dealer in a privately negotiated transaction. The aggregate purchase price was $14.1
164
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
million excluding commissions, which represented a per unit price of $35.30. The Company repurchased the Class
A units using cash on hand. The Company did not repurchase any Class A units for the years ended December 31,
2014 and 2013.
Please see notes 10, 11 and 12 for additional information regarding transactions that impacted unitholders’
capital.
10. EARNINGS PER UNIT
The computation of net income per Class A unit is set forth below:
Net income per Class A unit (basic and diluted):
Year Ended December 31,
2014
2013
2012
(in thousands, except per unit amounts)
Net income attributable to Oaktree Capital Group, LLC......................... $ 126,283
Weighted average number of Class A units outstanding (basic and
diluted) ................................................................................................
42,582
$ 221,998
$ 107,810
34,979
28,170
Basic and diluted net income per Class A unit ....................................... $
2.97
$
6.35
$
3.83
Vested OCGH units may be exchangeable on a one-for-one basis into Class A units, subject to certain
restrictions. As of December 31, 2014, there were 109,088,901 OCGH units outstanding, which are vested or will
vest through August 1, 2024, that may ultimately be exchanged into 109,088,901 Class A units. The exchange of
these units would proportionally increase the Company’s interest in the Oaktree Operating Group; however, the
restrictions set forth in the exchange agreement were in place at the end of each respective reporting period. As
such, those units were not included in the computation of diluted earnings per unit for the years ended December
31, 2014, 2013 and 2012.
In connection with the August 1, 2014 Highstar acquisition, the Company has a contingent consideration
obligation, a portion of which is payable in fully-vested OCGH units. The amount of contingent consideration, if any,
is based on the achievement of certain performance targets over a period of up to seven years. As of December
31, 2014, no OCGH units were considered issuable under the terms of the contingent consideration arrangement;
consequently, no contingently issuable units were included in the computation of diluted earnings per unit for the
year ended December 31, 2014.
11. EQUITY-BASED COMPENSATION
In December 2011, the Company adopted the 2011 Oaktree Capital Group, LLC Equity Incentive Plan (the
“2011 Plan”). The 2011 Plan provides for the granting of options, unit appreciation rights, restricted unit awards, unit
bonus awards, phantom equity awards or other unit-based awards to senior executives, directors, officers, certain
employees, consultants, and advisors of the Company and its affiliates. As of December 31, 2014, a maximum of
22,658,508 units have been authorized to be awarded pursuant to the 2011 Plan, and 7,047,186 units (including
2,000,000 EVUs and 33,608 phantom units) have been awarded (of which 6,877,186 units have been issued) under
the 2011 Plan. A total of 4,954,976 OCGH units were awarded and issued pursuant to the 2007 Oaktree Capital
Group Equity Incentive Plan, which was discontinued for future issuances on March 28, 2012. Each Class A and
OCGH unit, when issued, represents an indirect interest in one Oaktree Operating Group unit. Total vested and
unvested Class A and OCGH units issued and outstanding were 152,852,620 as of December 31, 2014.
Pursuant to the Company’s exchange agreement, as amended, the general partner of OCGH may elect at
its discretion to declare an open period during which an OCGH unitholder may exchange its unrestricted vested
OCGH units for, at the option of the Company’s board of directors, Class A units, an equivalent amount of cash
based on then-prevailing market prices, other consideration of equal value, or any combination of the foregoing.
The general partner determines the number of units eligible for exchange within a given open period and, if the
OCGH unitholders request to exchange a number of units in excess of the amount eligible for exchange, the
general partner determines which units to exchange taking into account appropriate factors. Upon approval by the
Company’s board of directors, OCGH units selected for exchange in accordance with the foregoing will be
exchanged, at the option of the board of directors, into Class A units, an equivalent amount of cash based on then-
165
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
prevailing market prices, other consideration of equal value, or any combination of the foregoing pursuant to the
terms of the exchange agreement.
The exchange agreement generally provides that (a) such OCGH units will be acquired by the Intermediate
Holding Companies in exchange for, at the option of the Company’s board of directors, Class A units, an equivalent
amount of cash based on then-prevailing market prices, other consideration of equal value, or any combination of
the foregoing, (b) the OCGH units acquired by the Intermediate Holding Companies may then be redeemed by
OCGH in exchange for Oaktree Operating Group units, (c) the Intermediate Holding Companies may exchange
Oaktree Operating Group units with each other such that, immediately after such exchange, each Intermediate
Holding Company holds Oaktree Operating Group units only in the Oaktree Operating Group entity for which such
Intermediate Holding Company serves as the general partner and (d) the Company will cancel a corresponding
number of Class B units. The partnership agreement of OCGH generally provides that, in the event an employee’s
employment with the Oaktree Operating Group is terminated for any reason, the unvested portion of his or her
OCGH units will be forfeited, unless the termination is due to his or her death or disability.
Restricted Unit Awards
In 2014, the Company granted 1,770,418 restricted OCGH units to certain of its employees and 7,164 Class
A units to certain of its directors, subject to equal annual vesting generally over periods of three to ten years. As of
December 31, 2014, the Company expected to recognize compensation expense on its unvested restricted unit
awards of $133.7 million over a weighted average period of 4.6 years. Please see note 18 for additional equity
awards granted subsequent to December 31, 2014, as part of the year-end 2014 compensation process.
The Company utilizes a contemporaneous valuation report in determining fair value at the date of grant for
OCGH and Class A unit awards. Each valuation report is based on the market price of Oaktree’s Class A units,
which were traded on the GSTrUE OTC market prior to listing on the NYSE. A discount is then applied to the Class
A unit market price to reflect the lack of marketability for the OCGH units. The determination of an appropriate
discount for lack of marketability is based on a review of discounts on the sale of restricted shares of publicly traded
companies and multi-period put-based quantitative methods. Factors that influence the size of the discount for lack
of marketability include (a) the estimated time it would take for an OCGH unitholder to exchange units into Class A
units, (b) the volatility of the Company’s business, (c) thin trading of the Class A units, and (d) prior to the initial
public offering in April 2012, restrictive trading of the Class A units. Each of these factors is subject to significant
judgment.
The estimated time-to-liquidity assumption increased from approximately three years in the first quarter of
2012 to approximately five years in the most recent valuation in 2014. The estimated time to liquidity is influenced
primarily by the need for (a) the general partner of OCGH to elect in its discretion to declare an open period during
which an OCGH unitholder may exchange his or her unrestricted vested OCGH units for, at the option of the
Company’s board of directors, Class A units on a one-for-one basis, an equivalent amount of cash based on then-
prevailing market prices, other consideration of equal value or any combination of the foregoing, and (b) the
approval of the Company’s board of directors to exchange such OCGH units into any of the foregoing. Board
approval is based primarily on the objective of maintaining an orderly market for Oaktree’s units, but may take into
account any other factors that the board may deem appropriate in its sole discretion. Volatility is estimated from
historical and implied volatilities of comparable public alternative asset management companies. Prior to the
Company’s initial public offering in April 2012, three comparable publicly-owned alternative asset managers were
used in the volatility calculation. Subsequent to the Company’s initial public offering in April 2012, three additional
comparable companies, in addition to the Company, were included in the volatility calculations.
In valuing employee unit grants, the discount percentage applied to the Class A then-prevailing trading price
was 25% for units granted from January 1, 2012 to March 31, 2012, 30% from April 1, 2012 to March 31, 2013, 25%
from April 1, 2013 to April 30, 2014, and 20% from May 1, 2014 to December 31, 2014. The increase in the
discount percentage beginning April 1, 2012 was primarily due to an increase in the estimated time to liquidity, while
the subsequent declines in the discount rate were primarily attributable to lower volatility. The calculation of
compensation expense assumes a forfeiture rate of up to 1.5% annually, based on expected employee turnover.
Compensation expense is revised annually or more frequently, as necessary, to adjust for actual forfeitures and to
reflect expense only for those units that ultimately vest. In each period presented, forfeitures were not materially
different from the assumed rate.
166
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The following table summarizes the status of the Company’s unvested restricted unit awards and a
summary of changes for the periods presented (actual dollars per unit):
Class A Units
Class C Units
OCGH Units
Number of
Units
— $
Balance, December 31, 2011...............
Granted .........................................
Vested ...........................................
Exchanged ....................................
Forfeited ........................................
Balance, December 31, 2012 ..............
Granted .........................................
Vested ...........................................
Forfeited ........................................
Balance, December 31, 2013 ..............
Granted .........................................
Vested ...........................................
Forfeited ........................................
Balance, December 31, 2014 ..............
14,969
(3,900)
600
—
11,669
8,508
(3,595)
—
16,582
7,164
(4,697)
—
19,049
Weighted
Average
Grant Date
Fair Value
—
43.14
44.00
24.75
—
41.91
47.83
40.07
—
45.34
58.88
44.54
—
$ 50.63
Number of
Units
1,200
—
(600)
(600)
—
—
—
—
—
—
—
—
—
— $
Weighted
Average
Grant Date
Fair Value
$ 24.75
—
24.75
24.75
—
—
—
—
—
—
—
—
—
—
Number of Units
24,130,569
2,457,502
(21,652,473)
—
(33,250)
4,902,348
763,000
(1,152,026)
(47,600)
4,465,722
1,770,418
(1,109,170)
(55,978)
5,070,992
As of December 31, 2014, unvested restricted unit awards were expected to vest as follows:
Class A units ..................................................................................................................................
19,049
OCGH units ...................................................................................................................................
5,070,992
Number of
Units
Weighted
Average
Grant Date
Fair Value
$ 41.13
32.55
43.11
—
28.74
28.17
34.60
24.10
29.54
30.30
43.98
24.90
34.42
$ 36.21
Weighted
average
Remaining
Service Term
(Years)
2.8
4.6
Equity Value Units
EVUs represent special limited partnership units in 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 the service period
(“Term”) in excess of a fixed “Base Value.” The value created will be measured on a per unit basis, based on Class
A unit trading prices and certain components of quarterly distributions with respect to interim periods 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.
On December 2, 2014, the Company granted 2,000,000 EVUs to Jay S. Wintrob, its Chief Executive
Officer, subject to a five-year cliff vest schedule. As of December 31, 2014, the Company expected to recognize
compensation expense on its unvested EVUs of $14.7 million over the next 5.0 years. The grant agreement
provides Mr. Wintrob with certain liquidity rights in respect of the one-time special distribution that will be settled in
OCGH units. The Company has accounted for those EVUs subject to such liquidity rights as liability-classified
awards. As of December 31, 2014, there were 1,000,000 equity-classified EVUs and 1,000,000 liability-classified
EVUs outstanding. Please see note 18 for information regarding subsequent amendments made to certain terms of
the EVUs granted to Mr. Wintrob.
The fair value of EVUs was determined using a Monte Carlo simulation model at the grant date for equity-
classified EVUs and at the period end date for liability-classified EVUs. The fair value is affected by the Class A unit
trading price as well as assumptions regarding a number of complex and subjective variables, including expected
Class A unit trading price volatility, risk-free interest rate, expected distributions and projected exercise behavior.
167
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The fair value of equity-classified EVUs reflects a 20% discount for lack of marketability for OCGH units that will be
issued upon vesting as discussed above, and the calculation of the expense assumes a 0% forfeiture rate.
12. INCOME TAXES AND RELATED PAYMENTS
Oaktree is a publicly traded partnership and Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., two of its
Intermediate Holding Companies, are wholly-owned corporate subsidiaries. Income earned by these corporate
subsidiaries is subject to U.S. federal and state income taxation and taxed at prevailing rates. Income earned by
non-corporate subsidiaries is not subject to U.S. federal corporate income tax and is allocated to the Oaktree
Operating Group’s unitholders. The Company’s effective tax rate is dependent on many factors, including the
estimated nature of many amounts and the mix of revenues and expenses between the two corporate subsidiaries
that are subject to income tax and the three other subsidiaries that are not; consequently, the effective tax rate is
subject to significant variation from period to period.
Income tax expense from operations consisted of the following:
Year Ended December 31,
2014
2013
2012
Current:
U.S. federal income tax ................................................................... $
State and local income tax ..............................................................
Foreign income tax ..........................................................................
$
Deferred:
U.S. federal income tax ................................................................... $
State and local income tax ..............................................................
Foreign income tax ..........................................................................
$
Total:
U.S. federal income tax ................................................................... $
State and local income tax ..............................................................
Foreign income tax ..........................................................................
Income tax expense ............................................................................... $
4,128
(372)
2,245
6,001
12,544
1,836
(1,845)
12,535
16,672
1,464
400
18,536
$
$
$
$
$
$
5,516
5,148
3,195
13,859
11,253
1,120
—
12,373
16,769
6,268
3,195
26,232
$
$
$
$
$
$
11,232
3,737
3,351
18,320
7,432
5,106
—
12,538
18,664
8,843
3,351
30,858
The Company’s income before income taxes consisted of the following:
Domestic income before income taxes .................................................. $ 2,195,174
(1,086)
Foreign income (loss) before income taxes ...........................................
$ 6,233,758
3,206
$ 6,710,286
(7,011)
Total income before income taxes ......................................................... $ 2,194,088
$ 6,236,964
$ 6,703,275
The Company’s effective tax rate differed from the federal statutory rate for the following reasons:
Year Ended December 31,
2014
2013
2012
Income tax expense at federal statutory rate .........................................
Income passed through ..........................................................................
State and local taxes, net of federal benefit ...........................................
Foreign taxes .........................................................................................
Other, net ...............................................................................................
Total effective rate ..................................................................................
168
Year Ended December 31,
2014
35.00%
(34.15)
0.05
0.04
(0.10)
0.84%
2013
35.00%
(34.69)
0.09
0.03
(0.01)
0.42%
2012
35.00%
(34.78)
0.07
0.09
0.08
0.46%
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The components of the Company’s deferred tax assets and liabilities were as follows:
As of December 31,
2014
2013
2012
Deferred tax assets:
Investment in partnerships ................................................................. $ 351,962
5,514
Equity-based compensation expense ................................................
3,071
Other, net ...........................................................................................
360,547
Total deferred tax assets...........................................................................
Total deferred tax liabilities .......................................................................
3,183
357,364
Net deferred tax assets before valuation allowance .................................
Valuation allowance ..................................................................................
—
Net deferred tax assets ............................................................................. $ 357,364
$ 277,039
3,695
1,822
282,556
3,671
278,885
—
$ 278,885
$ 157,999
3,994
1,697
163,690
4,519
159,171
—
$ 159,171
In assessing the realizability of deferred tax assets, the Company considers whether it is probable that some
or all of the deferred tax assets will not be realized. In determining whether the deferred tax assets are realizable,
the Company considers the period of expiration of the tax asset, historical and projected taxable income, and tax
liabilities for the tax jurisdiction in which the tax asset is located. The deferred tax asset recognized by the
Company, as it relates to the higher tax basis in the carrying value of certain assets compared to the book basis of
those assets, will be recognized in future years by these taxable entities. Deferred tax assets are based on the
amount of the tax benefit that the Company’s management has determined is more likely than not to be realized in
future periods. In determining the realizability of this tax benefit, management has considered numerous factors
which will give rise to pre-tax income in future periods. Among these are the historical and expected future book
and tax basis pre-tax income of the Company and unrealized gains in the Company’s assets at the determination
date. Based on these and other factors, the Company determined that, as of December 31, 2014, all deferred tax
assets were more likely than not to be realized in future periods.
The Company recognizes tax benefits related to its tax positions only where the position is “more likely than
not” to be sustained in the event of examination by tax authorities. As part of its assessment, the Company
analyzes its tax filing positions in all of the federal, state and foreign tax jurisdictions where it is required to file
income tax returns, and for all open tax years in these jurisdictions. As of December 31, 2014, the total reserve
balance including interest and penalties was $7.1 million.
The following is a reconciliation of unrecognized tax benefits (excluding interest and penalties thereon):
Unrecognized tax benefits, January 1 ....................................................... $
Additions for tax positions related to the current year .........................
Additions for tax positions related to prior years .................................
Reductions for tax positions related to prior years ..............................
Settlements ........................................................................................
Lapse in statute of limitations .............................................................
Unrecognized tax benefits, December 31 ................................................. $
Year Ended December 31,
$
2014
10,390
1,492
—
(1,373)
(3,657)
(1,277)
2013
2012
9,472
1,633
1,029
(806)
—
(938)
$
8,594
72
806
—
—
—
5,575
$
10,390
$
9,472
If the above tax benefits were recognized, $5.6 million for the year ended December 31, 2014 would reduce
the annual effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax positions in the provision for
income taxes in the accompanying consolidated statement of operations. As of December 31, 2014, 2013, and
2012, the amount of interest and penalties accrued was $1.5 million, $4.4 million and $3.9 million, respectively. The
Company recognized a net benefit of $2.9 million in 2014 associated with interest and penalties and an expense of
169
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
$0.5 million and $1.4 million in 2013 and 2012, respectively. The net benefit recognized in 2014 included a $4.2
million benefit from prior year accruals resulting from the lapse in the statute of limitations and settlement referred to
above, which is partially offset by a $1.3 million accrual of interest and penalties.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the
normal course of business, the Company is subject to examination by federal, state, local and foreign tax
regulators. With limited exceptions, the Company is no longer subject to income tax audits by taxing authorities for
the years before 2010. Although the outcome of tax audits is always uncertain, the Company does not believe the
outcome of any current audit will have a material adverse effect on the Company’s consolidated cash flows,
financial position or results of operations.
U.S. and non-U.S. taxing authorities are currently examining certain income tax returns of Oaktree, with
certain of these examinations at an advanced stage. The Company recorded a net tax benefit of $2.8 million in
2014 as a result of audit resolution activity and another net tax benefit of $2.5 million as a result of expiring statutes
of limitation. The Company believes that it is reasonably possible that expiring statutes of limitation may result in
the release of approximately $1 million to $2 million of previously accrued Operating Group income taxes during the
four quarters ending December 31, 2015. The Company believes that it has adequately provided for any
reasonably foreseeable outcomes related to its tax examinations and that any settlements related thereto will not
have a material adverse effect on the Company’s financial position or results of operations; however, there can be
no assurances as to the ultimate outcomes.
Tax Receivable Agreement
Subject to certain restrictions, each holder of OCGH units has the right, subject to the approval of the
Company’s board of directors, to exchange his or her vested units for, at the option of the Company’s board of
directors, Class A units, an equivalent amount of cash based on then-prevailing market prices, other consideration
of equal value, or any combination of the foregoing. Certain of the Oaktree Operating Group entities made an
election under Section 754 of the U.S. Internal Revenue Code, as amended (the “Code”), which may result in an
adjustment to the tax basis of the assets owned by the Oaktree Operating Group at the time of an exchange. These
exchanges may result in increases in tax deductions and tax basis that would reduce the amount of tax that Oaktree
Holdings, Inc. and Oaktree AIF Holdings, Inc. would otherwise be required to pay in the future.
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with
OCGH unitholders that, as amended, provides for the payment to an exchanging or selling OCGH unitholder of
85.0% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income taxes that they actually
realize (or are deemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree
AIF Holdings, Inc., or a change of control) as a result of an increase in the tax basis of the assets owned by the
Oaktree Operating Group. When an exchange of OCGH units results in an increase to the tax basis of the assets
owned by the Oaktree Operating Group, a deferred tax asset and an associated liability for payments to OCGH
unitholders under the tax receivable agreement are recorded. The establishment of a deferred tax asset increases
additional paid-in capital because the transactions are between Oaktree and its unitholders.
As a result of a change in state tax law that reduced the combined federal and state tax rate applicable to
income from Oaktree Holdings, Inc. from 41% to 38%, the deferred tax asset under the tax receivable agreement
associated with unitholders prior to the Company’s initial public offering in April 2012 was reduced by $7.8 million in
the second quarter of 2012, consequently reducing the related tax receivable agreement liability payable to OCGH
unitholders by $6.3 million. The $6.3 million reduction in the tax receivable agreement payable was reflected in
other income (expense), net in the consolidated statements of operations. Assuming no material changes in the
relevant tax law and that the Company earns sufficient taxable income to realize the full tax benefit of the increased
amortization of the assets, the expected future payments to OCGH unitholders under the tax receivable agreement,
as of December 31, 2014, were estimated to aggregate $40.4 million over the period ending approximately in 2029
with respect to the 2007 Private Offering, $79.0 million over the period ending approximately in 2034 with respect to
the initial public offering, $109.0 million over the period ending approximately in 2035 with respect to the May 2013
Offering and $80.0 million over the period ending approximately in 2036 with respect to the March 2014 Offering.
Future estimated payments to OCGH unitholders under the tax receivable agreement are subject to increase in the
event of additional exchanges of OCGH units.
170
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
13. COMMITMENTS AND CONTINGENCIES
In the normal course of business, Oaktree enters into contracts that contain certain representations,
warranties and indemnifications. The Company’s exposure under these arrangements would involve future claims
that have not yet been asserted. Inasmuch as no such claims currently exist or are expected to arise, the Company
has not accrued any liability in connection with these indemnifications.
Legal Actions
Periodically, the Company is a party to legal actions arising in the ordinary course of business. The
Company is currently not subject to any pending actions that either individually or in the aggregate are expected to
have a material impact on its results of operations, cash flows or financial condition.
On June 8, 2011, Kaplan Industry, Inc. v. Oaktree Capital Management, L.P. was filed in the U.S. District
Court for the Southern District of Florida. In Kaplan, the plaintiff alleged that Oaktree Capital Management, L.P.
tortiously interfered with a business relationship and engaged in a civil conspiracy through the actions of Gulmar
Offshore Middle East, LLC (“Gulmar”), a business acquired by subsidiaries of OCM European Principal
Opportunities Fund II, L.P. (“EPOF II”). Oaktree Capital Management, L.P. serves as investment manager to EPOF
II. The complaint alleged that Gulmar breached a consortium agreement between Gulmar and Kaplan Industry, Inc.
relating to the consortium’s performance of services to Petróleos de Venezuela, S.A., the state-owned oil producer
of Venezuela. The plaintiff alleged that Oaktree was responsible for those breaches by Gulmar. The complaint
sought damages in excess of $800 million. The substance of the claim related almost exclusively to actions by
Gulmar prior to EPOF II’s acquisition and the basis of the claim was subject to an ongoing arbitration in the United
Kingdom between Kaplan and Gulmar. On August 18, 2011, the court granted Oaktree Capital Management, L.P.’s
motion to stay pending the completion of a related arbitration proceeding in London. On July 2, 2014, the court
issued an order dismissing this matter with prejudice after the plaintiff filed a notice of voluntary dismissal.
Incentive Income
In addition to the incentive income recognized by the Company, certain of its funds have amounts recorded
as potentially allocable to the Company as its share of potential future incentive income, based on each fund’s NAV.
Inasmuch as this incentive income is contingent upon future investment activity and other factors, it is not
recognized by the Company until it is fixed or determinable. As of December 31, 2014, 2013 and 2012, the
aggregate of such amounts recorded at the fund level in excess of incentive income recognized by the Company
was $1,915,107, $2,211,979 and $2,137,798, respectively, for which related direct incentive income compensation
expense was estimated to be $930,572, $994,879 and $855,604, respectively.
Contingent Consideration
The Company has contingent consideration obligations of up to $60.0 million related to the Highstar
acquisition on August 1, 2014, payable in cash and fully-vested OCGH units. The amount of contingent
consideration is based on the achievement of certain performance targets over seven years. As of December 31,
2014, the fair value of the contingent consideration liability was $27.2 million, based on a discount rate of 10.0%. In
2014, the Company recognized $1.7 million of expense associated with changes in the contingent consideration
liability. The contingent consideration’s fair value, a Level III valuation using a discounted cash-flow analysis, was
based on a probability-weighted average estimate of achieving certain performance targets, including fundraising
and revenue levels. The contingent consideration liability is included in accounts payable, accrued expenses and
other liabilities in the consolidated statements of financial condition. Changes in the liability are recorded in general
and administrative expenses in the consolidated statements of operations.
Commitments to Funds
As of December 31, 2014 and 2013, the Company, generally in the capacity as general partner, had undrawn
capital commitments of $255,980 and $327,254, respectively, including commitments to both non-consolidated and
consolidated funds.
171
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Operating Leases
Oaktree leases its main headquarters office in Los Angeles and offices in 16 other cities in the U.S., Asia and
Europe, pursuant to current lease terms expiring through 2030. On November 7, 2014, the Company extended its
Los Angeles office space lease, previously due to expire in 2017, through 2030. Occupancy costs, including non-
lease expenses, were $18,040, $17,878 and $18,084 for the years ended December 31, 2014, 2013 and 2012,
respectively. Additionally, Oaktree leases a corporate plane pursuant to an agreement with a scheduled termination
in April 2015.
As of December 31, 2014, aggregate estimated minimum commitments under Oaktree’s operating leases
were as follows:
2015 ......................................................................................................................................................... $
2016 .........................................................................................................................................................
2017 .........................................................................................................................................................
2018 .........................................................................................................................................................
2019 .........................................................................................................................................................
Thereafter ................................................................................................................................................
60,570
Total ......................................................................................................................................................... $ 117,724
10,683
10,251
15,841
13,064
7,315
Investment Commitments of Consolidated Funds
The consolidated funds are parties to certain credit agreements that provide for the issuance of letters of
credit and revolving loans, and may require the consolidated funds to extend additional loans to investee
companies. The consolidated funds use the same investment criteria in making these unrecorded commitments as
they do for investments that are included in the consolidated statements of financial condition. The unfunded
liability associated with these credit agreements is equal to the amount by which the contractual loan commitment
exceeds the sum of the amount of funded debt and cash held in escrow, if any. As of December 31, 2014 and
December 31, 2013, the consolidated funds had aggregate potential credit and investment commitments of
$1,585.8 million and $1,307.9 million, respectively. These commitments will be funded by the funds’ cash balances,
proceeds from asset sales or drawdowns against existing capital commitments.
A consolidated fund may agree to guarantee the repayment obligations of certain investee companies. On
December 20, 2012, certain consolidated funds (“Funds”) entered into a $200.0 million revolving credit facility (the
“RCF”) pursuant to which certain portfolio companies of the Funds were able to draw under the RCF over a three-
year period. The RCF had an annual commitment fee on unused commitments of 1.0% and an annual interest rate
equal to LIBOR or EURIBOR, as applicable, plus 2.0%. The Funds guaranteed the payment and other obligations
of the borrowers under the RCF. As of December 31, 2013, there were $317.0 million of borrowings outstanding
under the RCF. On February 25, 2014, the Funds repaid the outstanding balance under the RCF and replaced the
RCF, along with a then-existing €130.0 million revolving credit facility, with a €550.0 million revolving credit facility
(please see note 7).
The aggregate amounts guaranteed in addition to those described for the RCF were not material to the
consolidated financial statements as of December 31, 2014 and 2013.
The majority of the Company’s consolidated funds are investment companies that are required to disclose
financial support provided or contractually required to be provided to any of their portfolio companies. Certain
consolidated funds within the Distressed Debt, Control Investing and Real Estate strategies provide financial
support to portfolio companies in accordance with the investment objectives of the consolidated funds. Distressed
Debt funds typically invest primarily in the securities of entities that are undergoing, are considered likely to
undergo, or have undergone reorganizations under applicable bankruptcy law, or other extraordinary transactions
such as debt restructurings, reorganizations and liquidations outside of bankruptcy. Control Investing funds typically
seek to obtain control or significant influence primarily in middle-market companies through the purchase of debt at
a discount (also known as “distress-for-control”), structured or hybrid investments (such as convertible debt or debt
with warrants), or direct equity investments that typically involve situations with an element of distress or dislocation.
Real Estate funds generally focus on distressed or similar opportunities primarily in real estate, real estate debt and
restructurings, which typically involve value investments, rescue capital and distress-for-control investments. This
172
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
financial support may be provided pursuant to contractual agreements, typically in the form of follow-on
investments, guarantees or financing commitments. Most of the financial support is provided as an inherent part of
the ongoing investment operations of the consolidated funds within these strategies and is considered to be
provided at the discretion of the Company in its capacity as general partner and investment manager. For the year
ended December 31, 2014, the consolidated funds provided financial support to portfolio companies totaling $856.3
million and $7.7 billion with respect to support pursuant to contractual agreements and at the discretion of the
consolidated funds, respectively. The majority of this financial support consisted of the funds’ purchases of
investment securities and companies.
14. EMPLOYEE BENEFITS
Oaktree provides certain employee benefits, including a voluntary 401(k) savings plan for which the
Company makes an annual profit sharing contribution equal to up to 4.5% of total compensation for employees
below certain compensation levels and up to 13.3% of total compensation, subject to prescribed limits, for
employees meeting certain eligibility requirements. For the years ended December 31, 2014, 2013 and 2012, the
Company incurred expenses of $7.8 million, $6.0 million and $6.4 million, respectively, in connection with the plan.
Oaktree also has a discretionary annual bonus program for all employees, which is based, in part, on annual
adjusted net income.
15. RELATED PARTY TRANSACTIONS
The Company considers its senior executives, employees and non-consolidated Oaktree funds to be
affiliates (as defined in the FASB ASC Master Glossary). Amounts due from and to affiliates are set forth below.
The fair value of amounts due from and to affiliates is a Level III valuation and was valued based on a discounted
cash-flow analysis. The carrying value of amounts due from affiliates approximated fair value because their
average interest rate, which ranged from 2.0% to 3.0%, approximated the Company’s cost of debt. The fair value of
amounts due to affiliates approximated $159,264 and $123,497 as of December 31, 2014 and 2013, respectively,
based on a discount rate of 10.0%.
As of December 31,
2014
2013
Due from affiliates:
Loans .......................................................................................................................... $
39,452
$
41,095
Amounts due from non-consolidated funds .................................................................
Payments made on behalf of non-consolidated entities ..............................................
Non-interest bearing advances made to certain non-controlling interest holders and
employees ................................................................................................................
2,525
3,221
1,683
1,220
3,272
2,187
Total due from affiliates ......................................................................................... $
46,881
$
47,774
Due to affiliates:
Due to OCGH unitholders in connection with the tax receivable agreement (please
see note 12) ............................................................................................................. $ 308,475
$ 240,911
Amounts due to senior executives, certain non-controlling interest holders and
employees ................................................................................................................
739
2,075
Total due to affiliates ............................................................................................. $ 309,214
$ 242,986
Loans
Loans primarily consist of interest-bearing advances made to certain non-controlling interest holders,
primarily the Company’s employees, to meet tax obligations related to vesting of equity awards. The notes, which
are generally recourse to the borrower or secured by vested equity and other collateral, bear interest at the
Company’s cost of capital and generated interest income of $1,440, $1,629 and $1,396 for the years ended
December 31, 2014, 2013 and 2012, respectively.
173
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Due From Oaktree Funds and Portfolio Companies
In the normal course of business, the Company pays certain expenses on behalf of the Oaktree funds, for
which it is reimbursed. Amounts advanced on behalf of consolidated funds are eliminated in consolidation. Certain
expenses initially paid by the Company, primarily employee travel and other costs associated with particular
portfolio company holdings, are reimbursed by the portfolio companies.
Other Investment Transactions
The Company’s senior executives, directors and senior professionals are permitted to invest their own capital
(or the capital of family trusts or other estate planning vehicles they control) in Oaktree funds, for which they pay the
particular fund’s full management fee but not its incentive allocation. To facilitate the funding of capital calls by
funds in which employees are invested, the Company periodically advances on a short-term basis the capital calls
on certain employees’ behalf. These advances are generally reimbursed toward the end of the calendar quarter in
which the capital calls occurred. Amounts temporarily advanced by the Company are included in non-interest
bearing advances made to certain non-controlling interest holders and employees.
Aircraft Services
A subsidiary of the Company leases an airplane for business purposes. Howard Marks, the Company’s co-
chairman, may use this aircraft for personal travel and, pursuant to a policy adopted by such subsidiary relating to
such personal use, the Company is reimbursed by Mr. Marks for the costs of using the aircraft for personal travel.
Additionally, the Company occasionally makes use of an airplane owned by one of its senior executives for business
purposes at a price to the Company that is based on market rates.
Special Allocations
Certain senior executives receive special allocations based on a percentage of profits of the Oaktree
Operating Group. These special allocations, which are recorded as compensation expense, are made on a current
basis for so long as they remain senior executives of the Company, with limited exceptions.
Transactions with Meyer Memorial Trust
One of the Company’s directors, Mr. Pierson, was the Chief Financial and Investment Officer of Meyer
Memorial Trust. Meyer Memorial Trust invests in certain Oaktree funds on the same terms as the other investors in
those funds. Mr. Pierson retired as the Chief Financial and Investment Officer of Meyer Memorial Trust effective
June 30, 2014.
16. CAPITAL REQUIREMENTS OF REGULATED ENTITIES
One of the Company’s indirect subsidiaries is a registered U.S. broker-dealer that is subject to the minimum
net capital requirements of the U.S. Securities and Exchange Commission and the U.S. Financial Industry
Regulatory Authority. Additionally, one of the Company’s indirect subsidiaries based in London is subject to the
capital requirements of the U.K. Financial Conduct Authority, and another based in Hong Kong is subject to the
capital requirements of the Hong Kong Securities and Futures Ordinance. These entities operate in excess of their
respective regulatory capital requirements.
The regulatory capital requirements referred to above may restrict the Company’s ability to withdraw capital
from its entities for purposes such as paying cash distributions or advances to the Company. As of December 31,
2014 and 2013, there was approximately $100.1 million and $16.0 million, respectively, of such potentially restricted
amounts.
17. SEGMENT REPORTING
The Company’s business is comprised of one segment, the investment management segment. As a global
investment manager, the Company provides investment management services through funds and separate
accounts. Management makes operating decisions and assesses business performance based on financial and
operating metrics and data that are presented without the consolidation of any funds.
174
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The Company conducts its investment management business primarily in the United States, where
substantially all of its revenues are generated.
Adjusted Net Income
The Company’s chief operating decision maker uses adjusted net income (“ANI”) as a tool to help evaluate
the financial performance of, and make resource allocations and other operating decisions for, the investment
management segment. The components of revenues and expenses used in the determination of ANI do not give
effect to the consolidation of the funds that the Company manages. Segment revenues include investment income
(loss) that is classified in other income (loss) in the GAAP-basis statements of operations. Segment revenues and
expenses also reflect Oaktree’s proportionate economic interest in Highstar, whereby amounts received for
contractually reimbursable costs are included with segment expenses, as compared to being recorded as other
income under GAAP. In addition, ANI excludes the effect of (a) non-cash equity-based compensation charges
related to unit grants made before the Company’s initial public offering, (b) acquisition-related items including
amortization of intangibles and changes in the contingent consideration liability, (c) differences arising from EVUs
that are classified as liability awards under GAAP, but classified as equity awards for segment reporting purposes,
(d) income taxes, (e) expenses that Oaktree Capital Group, LLC or its Intermediate Holding Companies bear
directly and (f) the adjustment for non-controlling interests in consolidated subsidiaries. Incentive income and
incentive income compensation expense are included in ANI when the underlying fund distributions are known or
knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense
is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and
the expense standard is probable and reasonably estimable. ANI is calculated at the Operating Group level.
ANI was as follows:
Revenues:
Year Ended December 31,
2014
2013
2012
Management fees .............................................................................. $ 764,492
491,402
Incentive income ................................................................................
117,662
Investment income .............................................................................
1,373,556
Total revenues .............................................................................
$ 749,901
1,030,195
258,654
2,038,750
$ 747,440
461,116
202,392
1,410,948
Expenses:
Compensation and benefits ................................................................
Equity-based compensation ...............................................................
Incentive income compensation .........................................................
General and administrative ................................................................
Depreciation and amortization ............................................................
Total expenses .............................................................................
Adjusted net income before interest and other income (expense) ............
Interest expense, net of interest income (1) .............................................
Other income (expense), net ..............................................................
(381,544)
(19,705)
(231,871)
(122,566)
(7,249)
(762,935)
610,621
(30,190)
(5,301)
Adjusted net income ................................................................................. $ 575,130
(365,306)
(3,828)
(436,217)
(117,361)
(7,119)
(929,831)
1,108,919
(28,621)
409
$1,080,707
(329,741)
(318)
(222,594)
(102,685)
(7,397)
(662,735)
748,213
(31,730)
767
$ 717,250
(1)
Interest income was $3.6 million, $3.2 million and $2.6 million for the years ended December 31, 2014, 2013
and 2012, respectively.
175
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
A reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income of the
investment management segment is presented below.
Year Ended December 31,
2014
2013
2012
Net income attributable to Oaktree Capital Group, LLC ........................... $ 126,283
28,813
Incentive income (1) .............................................................................
Incentive income compensation (1) .....................................................
Equity-based compensation (2) ...........................................................
Acquisition-related items (3) ................................................................
Income taxes (4) ..........................................................................................
Non-Operating Group other income (5) ....................................................
Non-Operating Group expenses (5) ..........................................................
OCGH non-controlling interest (5) ........................................................
$ 221,998
$ 107,810
(64,460)
46,334
24,613
—
26,232
—
1,195
—
—
36,024
—
30,858
(6,260)
553
(10,677)
21,690
2,442
18,536
—
1,645
386,398
824,795
548,265
Adjusted net income ................................................................................. $ 575,130
$1,080,707
$ 717,250
(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. There were no adjustments attributable to timing differences in 2012.
(2) This adjustment adds back the effect of (a) equity-based compensation charges related to unit grants made
before the Company’s initial public offering, which is excluded from adjusted net income because it is a non-
cash charge that does not affect the Company’s financial position, and (b) differences arising from EVUs that
are classified as liability awards under GAAP, but classified as equity awards for segment reporting purposes.
(3) This adjustment adds back the effect of acquisition-related items associated with the amortization of
intangibles and changes in the contingent consideration liability.
(4) Because adjusted net income is a pre-tax measure, this adjustment adds back the effect of income tax
expense.
(5) Because adjusted net income is calculated at the Operating Group level, this adjustment adds back the effect
of items applicable to OCG, its Intermediate Holding Companies or the OCGH non-controlling interest.
176
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
The following tables reconcile the Company’s segment information to the consolidated financial statements:
Management fees (1) ................................................................................. $
Incentive income (1) ...................................................................................
Investment income (1) ................................................................................
Total expenses (2) ...............................................................................
Interest expense, net (3) ............................................................................
Other income, net (4) ..........................................................................
Other income of consolidated funds (5) ...................................................
Income taxes .....................................................................................
Net income attributable to non-controlling interests in consolidated
funds ..............................................................................................
Net income attributable to non-controlling interests in consolidated
subsidiaries ....................................................................................
Adjusted net income/net income attributable to Oaktree Capital
Group, LLC .................................................................................... $
As of or for the Year Ended December 31, 2014
Segment
Adjustments
Consolidated
764,492
$
(572,437) $
192,055
491,402
117,662
(489,563)
(83,967)
(762,935)
(184,542)
(30,190)
(5,301)
(99,752)
8,319
1,839
33,695
(947,477)
(129,942)
3,018
—
—
—
—
3,040,900
3,040,900
(18,536)
(18,536)
(1,649,890)
(1,649,890)
(399,379)
(399,379)
575,130
$
(448,847) $
126,283
Corporate investments (6) ......................................................................... $ 1,515,443
$ (1,327,480) $
187,963
Total assets (7) .................................................................................... $ 3,267,799
$ 50,076,263
$ 53,344,062
(1) The adjustment represents the elimination of amounts earned from the consolidated funds.
(2) The expense adjustment consists of (a) equity-based compensation charges of $21,657 related to unit grants
made before the Company’s initial public offering, (b) consolidated fund expenses of $161,055, (c) expenses
incurred by the Intermediate Holding Companies of $1,645, (d) the effect of timing differences in the
recognition of incentive income compensation expense between adjusted net income and net income
attributable to OCG of $10,677, (e) acquisition-related items of $2,442, (f) adjustments related to amounts
received for contractually reimbursable costs that are included with segment expenses, as compared to being
recorded as other income under GAAP of $8,319, (g) differences arising from EVUs that are classified as
liability awards under GAAP, but classified as equity awards for segment reporting purposes of $33 and (h)
other expenses of $68.
(3) The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling
interests of the consolidated funds and the exclusion of segment interest income.
(4) The adjustment to other income, net represents adjustments related to amounts received for contractually
reimbursable costs that are included with segment expenses, as compared to being recorded as other income
under GAAP.
(5) The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend
and other investment income attributable to non-controlling interests of the consolidated funds.
(6) The adjustment to corporate investments is to remove from segment assets the Company’s investments in the
consolidated funds, including investments in its CLOs, that are treated as equity- or cost-method investments
for segment reporting. Of the $1.5 billion, equity-method investments accounted for $1.3 billion.
(7) The total assets adjustment represents the inclusion of investments and other assets of the consolidated
funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds
and incentive income receivable.
177
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Management fees (1) .......................................................................... $
Incentive income (1) ...................................................................................
Investment income (1) ................................................................................
Total expenses (2) ...............................................................................
Interest expense, net (3) .....................................................................
Other income, net ..............................................................................
Other income of consolidated funds (4) ..............................................
Income taxes .....................................................................................
Net income attributable to non-controlling interests in consolidated
funds ..............................................................................................
Net loss attributable to non-controlling interests in consolidated
subsidiaries ....................................................................................
Adjusted net income/net income attributable to Oaktree Capital
As of or for the Year Ended December 31, 2013
Segment
Adjustments
Consolidated
749,901
$
(557,296) $
192,605
1,030,195
(1,027,878)
258,654
(202,627)
2,317
56,027
(929,831)
(177,231)
(1,107,062)
(28,621)
(32,539)
(61,160)
409
—
—
—
—
—
409
7,153,828
7,153,828
(26,232)
(26,232)
(5,163,939)
(5,163,939)
(824,795)
(824,795)
Group, LLC .................................................................................... $ 1,080,707
$
(858,709) $
221,998
Corporate investments (5) ......................................................................... $ 1,197,173
$ (1,027,246) $
169,927
Total assets (6) ............................................................................................ $ 2,817,127
$ 42,446,127
$ 45,263,254
(1) The adjustment represents the elimination of amounts attributable to the consolidated funds.
(2) The expense adjustment consists of (a) equity-based compensation charges of $24,613 related to unit grants
made before the Company’s initial public offering, (b) consolidated fund expenses of $105,089, (c) expenses
incurred by the Intermediate Holding Companies of $1,195 and (d) the effect of timing differences in the
recognition of incentive income compensation expense between adjusted net income and net income
attributable to OCG of $46,334.
(3) The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling
interests of the consolidated funds and the exclusion of segment interest income.
(4) The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend
and other investment income attributable to non-controlling interests of the consolidated funds.
(5) The adjustment to corporate investments is to remove from segment assets the consolidated funds that are
treated as equity method investments for segment reporting purposes.
(6) The total assets adjustment represents the inclusion of investments and other assets of the consolidated
funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds
and incentive income receivable.
178
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
Management fees (1) .......................................................................... $
Incentive income (1) ...................................................................................
Investment income (1) ................................................................................
Total expenses (2) ...............................................................................
Interest expense, net (3) .....................................................................
Other income, net (4) ..........................................................................
Other income of consolidated funds (5) ..............................................
Income taxes .....................................................................................
Net income attributable to non-controlling interests in consolidated
funds ..............................................................................................
Net loss attributable to non-controlling interests in consolidated
subsidiaries ....................................................................................
Adjusted net income/net loss attributable to Oaktree Capital
As of or for the Year Ended December 31, 2012
Segment
Adjustments
Consolidated
747,440
$
(612,872) $
134,568
461,116
202,392
(662,735)
(31,730)
767
(450,701)
(177,010)
(127,868)
(14,043)
6,260
10,415
25,382
(790,603)
(45,773)
7,027
—
—
—
—
7,362,259
7,362,259
(30,858)
(30,858)
(6,016,342)
(6,016,342)
(548,265)
(548,265)
Group, LLC .................................................................................... $
717,250
$
(609,440) $
107,810
Corporate investments (6) ......................................................................... $ 1,115,952
$ (1,017,002) $
98,950
Total assets (7) ............................................................................................ $ 2,359,548
$ 41,510,450
$ 43,869,998
(1) The adjustment represents the elimination of amounts attributable to the consolidated funds.
(2) The expense adjustment consists of (a) equity-based compensation charges of $36,024 related to unit grants
made before the Company’s initial public offering, (b) consolidated fund expenses of $91,291 and (c) expenses
incurred by the Intermediate Holding Companies of $553.
(3) The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling
interests of the consolidated funds and the exclusion of segment interest income.
(4) The other income, net adjustment represents other income or expenses of OCG or its Intermediate Holding
Companies. This amount is attributable to a reduction in the amount of the deferred tax asset associated with
the Company’s tax receivable agreement, which reduced the tax receivable agreement liability payable to
OCGH unitholders.
(5) The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend
and other investment income attributable to non-controlling interests of the consolidated funds.
(6) The adjustment to corporate investments is to remove from segment assets the consolidated funds that are
treated as equity method investments for segment reporting purposes.
(7) The total assets adjustment represents the inclusion of investments and other assets of the consolidated
funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds
and incentive income receivable.
179
Oaktree Capital Group, LLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014
($ in thousands, except where noted)
18. SUBSEQUENT EVENTS
On February 9, 2015, the Company declared a distribution attributable to the fourth quarter of 2014 of $0.56
per Class A unit, bringing the aggregate distributions for fiscal year 2014 to $2.71. The distribution of $0.56 was
paid on February 25, 2015 to Class A unitholders of record at the close of business on February 19, 2015.
On February 17, 2015, the Company awarded 978,128 restricted OCGH units, 23,352 phantom equity units
and 7,940 Class A units to its employees and directors. These issuances are subject to annual vesting over a
weighted average period of approximately 5.6 years and were not eligible to participate in the distribution paid on
February 25, 2015, which was related to the fourth quarter of 2014.
On February 24, 2015, the Company’s board of directors approved an amendment to certain terms relating
to the EVUs that were granted to Jay S. Wintrob, the Company’s Chief Executive Officer, on December 2, 2014.
The board of directors determined that it was appropriate to extend Mr. Wintrob’s EVU performance period, and the
period during which Mr. Wintrob’s potential payment of OCGH units remains at risk, for two additional years to
provide a longer term incentive structure. The amendment will be accounted for as a modification of an equity
award in the first quarter of 2015 and is not expected to have a material impact on the Company's consolidated
financial statements.
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Revenues ..................................................................... $
Expenses ......................................................................
Other income (expense) ...............................................
March 31, 2014
40,431
Three Months Ended
June 30, 2014
51,560
$
September 30,
2014
54,243
$
December 31,
2014
47,660
$
(258,319)
(215,385)
1,766,058
1,476,829
(252,401)
(375,461)
(221,372)
80,245
Income (loss) before income taxes ............................... $ 1,548,170
$ 1,313,004
$ (573,619) $
(93,467)
Net income (loss) .......................................................... $ 1,540,184
Net income attributable to Oaktree Capital
Group, LLC ................................................................ $
Net income per unit (basic and diluted):
Net income per Class A unit.......................................... $
Distributions declared per Class A unit ......................... $
51,794
1.30
1.00
$ 1,307,243
$ (578,960) $
(92,915)
$
$
$
31,186
0.72
0.98
$
$
$
18,913
0.43
0.55
$
$
$
24,390
0.56
0.62
Three Months Ended
June 30, 2013
52,414
$
September 30,
2013
56,786
$
December 31,
2013
43,183
$
March 31, 2013
42,539
Revenues ..................................................................... $
Expenses ......................................................................
Other income ................................................................
(275,505)
(285,540)
(214,158)
(331,859)
2,626,671
1,285,947
1,247,329
1,989,157
Income before income taxes ......................................... $ 2,393,705
$ 1,052,821
$ 1,089,957
$ 1,700,481
Net income .................................................................... $ 2,383,548
Net income attributable to Oaktree Capital
Group, LLC ................................................................ $
Net income per unit (basic and diluted):
Net income per Class A unit.......................................... $
Distributions declared per Class A unit ......................... $
180
$ 1,044,830
$ 1,089,231
$ 1,693,123
$
$
$
56,577
1.71
1.41
$
$
$
42,948
1.12
1.51
$
$
$
64,907
1.69
0.74
57,566
1.91
1.05
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) that are designed to ensure that information required to be disclosed by us in reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing disclosure controls and procedures, our management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The
design of any disclosure controls and procedures also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired objectives.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the
end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective at the reasonable assurance level
to accomplish their objectives of ensuring that information we are required to disclose in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms and that such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during our most recent quarter, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a process designed under the supervision of management,
including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of our consolidated financial statements for external reporting
purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes policies and procedures that pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of
assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures are
being made only in accordance with authorizations of management and the directors; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
Our management conducted an assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2014 based on criteria established in Internal Control—Integrated Framework 2013
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management has determined that our internal control over financial reporting as of December 31, 2014 was
effective.
Attestation Report of the Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited our financial
statements included in this annual report and has issued its attestation report on our internal control over financial
reporting as of December 31, 2014, which is included in “Financial Statements and Supplementary Data.”
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Item 9B. Other Information
On February 24, 2015, our Board approved an amendment to certain terms relating to the EVUs that were
previously granted to Jay S. Wintrob, our Chief Executive Officer, on December 2, 2014. Our Board determined
that it was appropriate to extend Mr. Wintrob’s EVU performance period, and the period during which Mr. Wintrob’s
potential payment of OCGH units remains at risk, for two additional years to provide a longer term incentive
structure. Please see “Compensation Discussion and Analysis—EVU Grant to Mr. Wintrob,” “—EVU Valuation and
Recapitalization” and “—Distributions on EVUs.”
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
The following table sets forth information about our executive officers and directors as of February 27, 2015:
Name
Howard S. Marks ................. 68 Director and Co-Chairman
Age Position
Bruce A. Karsh ..................... 59 Director, Co-Chairman and Chief Investment Officer
Jay S. Wintrob...................... 57 Director and Chief Executive Officer
John B. Frank....................... 58 Director and Vice Chairman
David M. Kirchheimer........... 58 Director, Chief Financial Officer and Principal
Susan Gentile ...................... 48 Chief Accounting Officer and Managing Director
Stephen A. Kaplan ............... 56 Director and Principal
Larry W. Keele ..................... 57 Director and Principal
Sheldon M. Stone ................ 62 Director and Principal
Robert E. Denham ............... 69 Director
D. Richard Masson .............. 56 Director
Wayne G. Pierson ................ 64 Director
Marna C. Whittington ........... 67 Director
Todd E. Molz ........................ 43 General Counsel, Chief Administrative Officer and Secretary
Scott L. Graves .................... 44 Head of Credit Strategies and Managing Director
B. James Ford...................... 46 Managing Director
Caleb S. Kramer .................. 45 Managing Director
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Howard S. Marks is our Co-Chairman and a co-founder and has been a director since May 2007. Since the
formation of Oaktree in 1995, Mr. Marks has been responsible for ensuring the firm’s adherence to its core
investment philosophy; communicating closely with clients concerning products and strategies; and contributing his
experience to big-picture decisions relating to investments and corporate direction. From 1985 until 1995, Mr.
Marks led the groups at The TCW Group, Inc. that were responsible for investments in distressed debt, high yield
bonds, and convertible securities. He was also Chief Investment Officer for Domestic Fixed Income at TCW.
Previously, Mr. Marks was with Citicorp Investment Management for 16 years, where from 1978 to 1985 he was
Vice President and senior portfolio manager in charge of convertible and high yield securities. Between 1969 and
1978, he was an equity research analyst and, subsequently, Citicorp’s Director of Research. Mr. Marks holds a
B.S.Ec. degree cum laude from the Wharton School of the University of Pennsylvania with a major in finance and
an M.B.A. in accounting and marketing from the Booth School of Business of the University of Chicago, where he
received the George Hay Brown Prize. He is a CFA® charterholder and a Chartered Investment Counselor. Mr.
Marks serves on the Investment Committees of the Helmsley Charitable Trust, The Edmund J. Safra Foundation
and the Metropolitan Museum of Art and he is a Trustee of the Metropolitan Museum, Mount Sinai Hospital, and the
University of Pennsylvania (Emeritus), where from 2000 to 2010 he chaired the Investment Board. With over 40
years of investment experience, Mr. Marks’s extensive expertise in our industry, his perceptive market insights and
his importance to our client development bring considerable value to our board of directors and our overall
business.
Bruce A. Karsh is our Co-Chairman and one of the firm’s co-founders and has been a director since May
2007. He also is chief investment officer and serves as portfolio manager for Oaktree’s Distressed Opportunities
and Value Opportunities strategies. Prior to co-founding Oaktree, Mr. Karsh was a Managing Director of TCW
Asset Management Company, and the portfolio manager of the Special Credits Funds from 1988 until 1995. Prior
to joining TCW, Mr. Karsh worked as Assistant to the Chairman of SunAmerica, Inc. Prior to that, he was an
attorney with the law firm of O’Melveny & Myers. Before working at O’Melveny & Myers, Mr. Karsh clerked for the
Honorable Anthony M. Kennedy, then of the U.S. Court of Appeals for the Ninth Circuit and presently Associate
Justice of the U.S. Supreme Court. Mr. Karsh holds an A.B. degree in Economics summa cum laude from Duke
University, where he was elected to Phi Beta Kappa. He went on to earn a J.D. from the University of Virginia
School of Law, where he served as Notes Editor of the Virginia Law Review and was a member of the Order of the
Coif. Mr. Karsh currently serves on the Board of Trustees of Duke University. In addition, he serves on the boards
of Tribune Company and a number of privately held companies. He previously served on the boards of Charter
Communications, Inc.; Furniture Brands International; KinderCare Learning Centers, Inc.; and Littelfuse Inc. Mr.
Karsh is highly respected as one of the leading portfolio managers in the area of distressed debt investing, one of
our flagship investment strategies. Additionally, Mr. Karsh’s extensive leadership and management skills and his
current and past service on boards of other public companies add significant value to our board of directors and our
overall business.
Jay S. Wintrob became our Chief Executive Officer in October 2014 and has been a director since
September 2011. Prior to joining the firm in 2014 as our Chief Executive Officer, he was President and Chief
Executive Officer of AIG Life and Retirement, a division of American International Group, Inc. In 1987, Mr. Wintrob
joined SunAmerica Inc., which was later acquired by AIG, where he most recently served as Vice Chairman. From
1994 through 2000, he also served as President of SunAmerica Investments, Inc., overseeing the company’s
invested asset portfolio. Mr. Wintrob began his career with the law firm of O’Melveny & Myers. He received his
B.A. from the University of California, Berkeley as well as a J.D. from the university’s Boalt Hall School of Law. Mr.
Wintrob is a board member of several non-profit organizations, including The Broad Foundations, The J. Paul Getty
Trust and the Skirball Cultural Center. Mr. Wintrob’s investment and finance expertise and his service as chief
executive officer of one of the largest life insurance and retirement services organizations in the United States add
value to our board of directors and to our business.
John B. Frank is our Vice Chairman and works closely with Messrs. Marks, Karsh and Wintrob in managing
the firm. He has been a director since May 2007. Mr. Frank joined in 2001 as General Counsel and was named
Oaktree’s Managing Principal in early 2006, a position which he held for over eight years. Prior thereto, Mr. Frank
was a partner of the Los Angeles law firm of Munger, Tolles & Olson LLP. While at that firm, he acted as principal
lawyer in a number of notable merger and acquisition transactions; as primary outside counsel to a number of
public and privately held corporations; and as special counsel to various boards of directors and special board
committees. Prior to joining Munger Tolles in 1984, Mr. Frank served as a law clerk to the Honorable Frank M.
Coffin of the United States Court of Appeals for the First Circuit. Prior to attending law school, Mr. Frank served as
a Legislative Assistant to the Honorable Robert F. Drinan, Member of Congress. Mr. Frank holds a B.A. degree with
honors in History from Wesleyan University and a J.D. magna cum laude from the University of Michigan Law
School, where he was Managing Editor of the Michigan Law Review and a member of the Order of the Coif. He is a
183
member of the State Bar of California and, while in private practice, was listed in Woodward & White’s Best
Lawyers in America. Mr. Frank is a trustee of Wesleyan University, Polytechnic School and Good Samaritan
Hospital of Los Angeles. Mr. Frank brings a deep knowledge of our business to our board of directors, as well as
many years of experience as a corporate lawyer. Mr. Frank has broad responsibility for our business and his
service on our board of directors helps ensure both that our board is well informed about our operations and that
the board’s priorities are implemented.
David M. Kirchheimer has been our Chief Financial Officer since our founding and a director since May
2007. Prior to joining Oaktree in 1995, Mr. Kirchheimer was a Vice President and the Chief Administrative Officer of
Ticketmaster Corporation, a then-leading ticket processing and distribution company. Previously, he was Executive
Vice President and Chief Financial Officer of Republic Pictures Corporation, a then-publicly held entertainment
company. From 1979 to 1986, Mr. Kirchheimer was with Price Waterhouse in Los Angeles, most recently serving
as a Senior Audit Manager. Mr. Kirchheimer graduated Phi Beta Kappa and summa cum laude with a B.A. degree
in Economics from Colorado College and an M.B.A. in Accounting and Finance from the Booth School of Business
of the University of Chicago. He is a Certified Public Accountant (inactive). As our Chief Financial Officer, Mr.
Kirchheimer has thorough knowledge of the day-to-day operations of our business. Additionally, his extensive
experience in financial reporting, accounting and controls adds a valuable resource to our board of directors.
Susan Gentile is our Chief Accounting Officer and a Managing Director. Ms. Gentile joined Oaktree in
September 2013 from the Clorox Company, where she most recently served as Controller and Chief Accounting
Officer, and was employed from March 2006 to September 2013. Additionally, she has held accounting, internal
controls and financial reporting roles for Levi Strauss & Co., Motorola, Inc. and Next Level Communications, Inc.
Ms. Gentile began her career in the audit and assurance practice at Deloitte & Touche LLP. She received her B.S.
and B.A. degrees in Finance from Boston University, School of Management. Ms. Gentile is a Certified Public
Accountant.
Stephen A. Kaplan is a Principal and the former head of our Global Principal Group and has been a director
since May 2007. Mr. Kaplan joined Oaktree in 1995, having previously served as a Managing Director of TCW and
Portfolio Manager in the TCW Special Credits Group. Prior to joining TCW in 1993, Mr. Kaplan was a partner with
the law firm of Gibson, Dunn & Crutcher and responsible for that firm’s East Coast bankruptcy and workout practice.
During his career as an attorney, Mr. Kaplan specialized in transactions involving the purchase and sale of
companies undergoing financial restructurings. Mr. Kaplan presently serves on the boards of Regal Entertainment
Group and Townsquare Media, Inc. He has previously served on the boards of Alliance HealthCare Services, Inc.;
Genco Shipping and Trading Ltd.; and General Maritime Corporation. In addition, he currently serves on the boards
of numerous private companies. Mr. Kaplan is also a trustee of numerous nonprofit boards of directors, including
the Jonsson Comprehensive Cancer Center Foundation and the New York University School of Law. Mr. Kaplan
graduated with a B.S. degree in Political Science summa cum laude from the State University of New York at Stony
Brook and a J.D. from the New York University School of Law. Mr. Kaplan has over 19 years of experience making
and managing control investments. His knowledge of the private equity markets and his experiences as a director
of public companies broadens and diversifies the experiences of our board of directors as he is very familiar with
board responsibilities, oversight and control.
Larry W. Keele is a Principal and a co-founder and has been a director since May 2007. Mr. Keele heads
our Convertible Securities group. Mr. Keele managed Trust Company of the West’s Convertible Value portfolios
from 1986 to 1995. Prior to joining TCW, Mr. Keele organized and managed the NationsBank Equity Income Fund,
a commingled fund specializing in convertible securities and high yielding equities. He also served as a Security
Analyst and Institutional Portfolio Manager. Mr. Keele holds a B.B.A. degree in Finance from Tennessee
Technological University and an M.B.A. in Finance from the University of South Carolina and is a CFA charterholder.
With over 25 years of experience in investing and managing convertible securities, Mr. Keele has extensive
experience in that asset class. As one of our co-founders, he is also closely familiar with our business. His
investment background and insights to the convertible markets bring value to our board of directors and our
business.
Sheldon M. Stone is a Principal and a co-founder and has been a director since May 2007. Mr. Stone is the
head of Oaktree’s high yield bond area. In this capacity, he serves as co-portfolio manager of Oaktree’s U.S. High
Yield Bond and Global High Yield Bond strategies and has supervisory responsibility for European High Yield
Bonds. Mr. Stone, a co-founding member of Oaktree in 1995, established TCW’s High Yield Bond Department with
Mr. Marks in 1985 and ran the department for ten years. Prior to joining TCW, Mr. Stone worked with Mr. Marks at
Citibank for two years where he performed credit analysis and managed high yield bond portfolios. From 1978 to
1983, Mr. Stone worked at The Prudential Insurance Company where he was a Director of Corporate Finance,
184
managing a fixed income portfolio exceeding $1 billion. Mr. Stone holds a B.A. degree from Bowdoin College and
an M.B.A. in Accounting and Finance from Columbia University. Mr. Stone serves as a Trustee of Colonial
Williamsburg Foundation and Bowdoin College. With over 35 years of experience in the fixed income markets, Mr.
Stone brings a wealth of knowledge. As one of our co-founders, he is also closely familiar with our business. His
investment background and insights into the fixed income markets bring value to our board of directors and our
business.
Robert E. Denham has been a director since December 2007. He is a partner in the law firm of Munger,
Tolles & Olson LLP, having rejoined the firm as a partner in 1998 to advise clients on strategic and financial issues,
after serving as the Chairman and Chief Executive Officer of Salomon Inc. Mr. Denham joined Salomon in late
August 1991 as General Counsel of Salomon and its subsidiary, Salomon Brothers, and became Chairman and
CEO of Salomon in June 1992. Prior to joining Salomon, Mr. Denham had been at Munger, Tolles & Olson LLP for
twenty years, including five years as managing partner. Mr. Denham graduated magna cum laude from the
University of Texas, where he was elected to Phi Beta Kappa. He received a master’s degree in Government from
Harvard University in 1968, and a J.D. from Harvard Law School in 1971, where he graduated magna cum laude
and was a Case and Developments Editor of the Harvard Law Review. Mr. Denham is a member of the California,
American and Los Angeles County Bar Associations. Mr. Denham serves on the Board of Directors of the James
Irvine Foundation and is a trustee of the Good Samaritan Hospital of Los Angeles (Vice Chairman). He is also a
public member of the Professional Ethics Executive Committee of the American Institute of Certified Public
Accountants. Mr. Denham presently serves on the boards of the Chevron Corporation, Fomento Economico
Mexicano, S.A. de CV (FEMSA) and The New York Times. Mr. Denham previously served on the board of Wesco
Financial Corporation and UGL Limited. Mr. Denham’s investment and finance expertise and his familiarity with our
company add value to our board of directors and to our business. Mr. Denham also provides a broader range of
expertise on the board of directors given his background as a corporate lawyer and a former chief executive officer
of a global financial services company, where among other responsibilities, he chaired the risk management
committee.
D. Richard Masson has been a director since May 2007. Prior to his retirement from Oaktree in 2009,
Mr. Masson was a co-founder and Principal of Oaktree, where he served as head of analysis for the Distressed
Debt strategy from 1995 to 2001 and as co-head of analysis from 2001 to 2009. Prior thereto, he was Managing
Director of TCW and its affiliate, TCW Asset Management Company, and head of the Special Credits Analytical
Group. Prior to joining TCW in 1988, Mr. Masson worked for three years at Houlihan, Lokey, Howard and
Zukin, Inc., where he was responsible for the valuation and analysis of securities and businesses. Prior to
Houlihan, Mr. Masson was a Senior Accountant with the Comprehensive Professional Services Group at Price
Waterhouse in Los Angeles. Mr. Masson holds a B.S. in Business Administration from the University of California at
Berkeley and an M.B.A. in Finance from the University of California at Los Angeles. He is a Certified Public
Accountant (inactive). Mr. Masson’s investment and finance expertise and his familiarity with our company add
value to our board of directors and to our business.
Wayne G. Pierson has been a director since November 2007. Mr. Pierson currently serves as President of
Acorn Investors, LLC, an investor in OCGH which is comprised of six longstanding Oaktree clients who became
institutional investors in Oaktree in February, 2004. Mr. Pierson recently retired from Meyer Memorial Trust (a
member of Acorn Investors, LLC) after 32 years as the Chief Financial & Investment Officer. Prior to joining Meyer
Memorial Trust, Mr. Pierson served as Treasurer of Gregory Affiliates from 1980 until 1982. From 1973 until 1980,
he served as an audit supervisor with Ernst & Young. Mr. Pierson initiated and conducted a comprehensive
investment survey for the Foundation Financial Officers Group, representing more than 160 foundations with assets
totaling approximately $250 billion for over 20 years. He has served on a number of private equity fund advisory
boards and is a trustee for several private trusts. In addition, he serves on the board of directors of M Fund, Inc.
and is a principal with Clifford Capital Partners, LLC. Mr. Pierson received a B.S. in Business Administration cum
laude from California State University, Northridge and is a Certified Public Accountant and CFA charterholder.
Mr. Pierson’s investment and finance expertise and his familiarity with our company add value to our board of
directors and to our business.
Marna C. Whittington, Ph.D., has been a director since June 2012. Ms. Whittington was the Chief
Executive Officer of Allianz Global Investors Capital from 2001 until her retirement in January 2012. From 2002 to
2011, she was Chief Operating Officer of Allianz Global Investors, the parent company of Allianz Global Investors
Capital. Prior to that, she was Managing Director and Chief Operating Officer of Morgan Stanley Investment
Management. Ms. Whittington started in the investment management industry in 1992, joining Philadelphia-based
Miller Anderson & Sherrerd. Previously, she was Executive Vice President and CFO of the University of
Pennsylvania, and earlier, Secretary of Finance for the State of Delaware. Ms. Whittington currently serves as a
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director of Macy’s, Inc. and Phillips 66. She holds an M.S. degree and a Ph.D. from the University of Pittsburgh,
both in Quantitative Methods, and a B.A. degree in Mathematics from the University of Delaware. Ms. Whittington’s
twenty years of experience in the investment management industry and her service on the board of other public
companies enhance and contribute to the range of experience and independence of our board of directors.
Todd E. Molz is Oaktree’s General Counsel and Chief Administrative Officer. He oversees the Compliance,
Internal Audit and Administration functions and all aspects of our legal activities, including fund formation,
acquisitions and other special projects. Prior to joining the firm in 2006, Mr. Molz was a partner of the Los Angeles
law firm of Munger, Tolles & Olson LLP, where his practice focused on tax and structuring aspects of complex and
novel business transactions. Prior to joining Munger Tolles, Mr. Molz served as a law clerk to the Honorable Alfred
T. Goodwin of the United States Court of Appeals for the Ninth Circuit. Mr. Molz received a B.A. degree in Political
Science cum laude from Middlebury College and a J.D. degree with honors from the University of Chicago. While
at Chicago, Mr. Molz served on the Law Review, received the John M. Olin Student Fellowship and was a member
of the Order of the Coif. Mr. Molz serves on the Board of Trustees of the Children’s Hospital of Los Angeles.
Scott L. Graves is a Managing Director and serves as Head of Credit Strategies for Oaktree with
responsibility for overseeing the Multi-Strategy Credit, U.S. Senior Loan, European Senior Loan, Mezzanine
Finance, Strategic Credit and Emerging Market Total Return strategies. He is also active in corporate management
matters for the firm and is responsible for Oaktree’s corporate and strategic development efforts. Since joining the
firm in 2001 and through to 2013, Mr. Graves served as an investment professional in the Distressed Opportunities,
Value Opportunities and Strategic Credit strategies, where he was most recently a co-portfolio manager and
contributed to the analysis, portfolio construction and management of the investment funds. Prior to joining
Oaktree, Mr. Graves served as a Principal in William E. Simon & Sons’ Private Equity Group where he was
responsible for sourcing, structuring, executing and managing corporate leveraged buy-outs and growth capital
investments. Before joining William E. Simon & Sons in 1998, Mr. Graves worked at Merrill Lynch & Company in
the Mergers and Acquisitions Group, where he focused on leveraged buy-out situations and the valuation of public
and private companies. Prior thereto, Mr. Graves worked at Price Waterhouse LLP in the Audit Business Services
division. Mr. Graves received a B.A. degree in History from the University of California at Los Angeles and an
M.B.A. in Entrepreneurial Finance from the Wharton School at the University of Pennsylvania, where he currently
serves on the Wharton School Graduate Executive Board. He is a Certified Public Accountant (inactive).
B. James Ford is a Managing Director and portfolio manager within Oaktree’s Global Principal Group. He is
responsible for overseeing all activities of the Global Principal Group, including investment commitments and
approvals, client relations and administrative and personnel-related matters. Since joining Oaktree in 1996, he has
been involved in sourcing and executing a number of the firm’s most significant investments and led the group’s
efforts in the media and energy sectors prior to being named a portfolio manager in 2006. Mr. Ford has worked
extensively with a variety of Oaktree portfolio companies, including currently serving on the Boards of Directors of
Contango Oil & Gas Company, EXCO Resources and Townsquare Media, as well as numerous private companies.
Mr. Ford previously served on the board of Cequel Communications; Forcenergy, Inc.; Dial Global, Inc.; and Regal
Entertainment. Mr. Ford earned a B.A. in Economics from the University of California at Los Angeles and an M.B.A.
from the Stanford University Graduate School of Business. He serves as an active member of the Board of
Directors of the Children’s Bureau.
Caleb S. Kramer is a Managing Director and the portfolio manager of our European Principal Group. Prior
to joining Oaktree in 2000, Mr. Kramer co-founded Seneca Capital Partners LLC, a private equity investment firm.
From 1994 to 1996, Mr. Kramer was employed by Archon Capital Partners, an investment firm. Prior to 1994, Mr.
Kramer was an Associate in M&A at Dillon Read and Co. Inc. and an Analyst at Merrill Lynch and Co. Inc. Mr.
Kramer received a B.A. degree in Economics from the University of Virginia.
There are no family relationships among any of our executive officers and directors.
Board Structure and Governance
Composition of Our Board of Directors
Our operating agreement establishes a board of directors responsible for the oversight of our business and
operations. So long as the Oaktree control condition is satisfied, the number of directors that comprise our board of
directors is determined from time to time by our manager. Our board of directors consists of Messrs. Marks, Karsh,
Wintrob, Frank, Kirchheimer, Kaplan, Keele, Stone, Masson, Denham, and Pierson and Ms. Whittington (for a total
of 12 directors). Actions by our board of directors must be taken with the approval of a majority of its members. So
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long as the Oaktree control condition is satisfied, our manager is entitled to designate all the members of our board
of directors.
Control of Oaktree Capital Group Holdings GP, LLC
Oaktree Capital Group Holdings GP, LLC acts as our manager and is the general partner of OCGH, which
owns 100% of our outstanding Class B units. Under its operating agreement, Oaktree Capital Group Holdings GP,
LLC is managed by an executive committee that is comprised of our senior executives. In general, the executive
committee seeks to act by consensus or, absent a consensus, by a vote of a majority of the voting percentage of
the executive committee members (or such higher threshold as may be determined from time to time by the
executive committee). The executive committee also, from time to time, delegates to one or more of its members or
to other persons such authority and duties as the executive committee may deem advisable. Oaktree Capital
Group Holdings GP, LLC has agreed that the admission of any member who is not a “principal” as defined under its
operating agreement is prohibited.
The voting percentage of each member of the executive committee is equal to the fraction, expressed as a
percentage, the numerator of which is his percentage interest in OCGH and the denominator of which is the
aggregate percentage interest of all of the executive committee members in OCGH. Accordingly, members with
larger economic stakes in the Oaktree Operating Group (including Messrs. Marks, Karsh and Stone) are able to
exercise greater voting power than members with smaller economic stakes on any matter submitted to the
executive committee for a vote. The combined voting percentages of Messrs. Marks and Karsh by themselves are
sufficient, for the foreseeable future, to constitute a majority of the voting percentage of the executive committee
members.
Controlled Company Exemption
Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual,
group or another company is a “controlled company” and may elect not to comply with certain NYSE corporate
governance standards. Because our senior executives represent more than 50% of our voting power, we are
therefore a “controlled company.” As a result, we have elected not to comply with certain NYSE corporate
governance standards, including the requirement that a majority of the board of directors consist of independent
directors and the requirement to have a compensation committee and a nominating/corporate governance
committee that are composed entirely of independent directors with written charters addressing the committee’s
purpose and responsibilities. In addition, we are not required to hold annual meetings of our unitholders.
Accordingly, our Class A unitholders do not have the same protections afforded to shareholders of companies that
are subject to all of the NYSE corporate governance requirements.
Audit Committee
The purpose of the audit committee is to assist our board of directors in overseeing and monitoring the
quality and integrity of our financial statements, our compliance with legal and regulatory requirements, the
performance of our internal audit function and our independent registered public accounting firm’s qualifications,
independence and performance. Our audit committee is comprised of Messrs. Masson and Pierson and Ms.
Whittington. Our board of directors has determined that Messrs. Masson and Pierson and Ms. Whittington meet the
independence standards and financial literacy requirements for service on an audit committee of a board of
directors under Rule 10A-3 promulgated under the Exchange Act and the NYSE rules. In addition, our board of
directors has determined that each of Messrs. Masson and Pierson and Ms. Whittington is an “audit committee
financial expert” within the meaning of Item 407(d)(5) of Regulation S-K and has “accounting or related financial
management expertise” under applicable NYSE rules. The audit committee has a charter that is available on our
website at www.oaktreecapital.com under the “Unitholders” section.
Executive Committee
Our board of directors has established an executive committee that acts, when necessary, in place of our full
board of directors during intervals between meetings of our board of directors. The executive committee consists of
Messrs. Marks, Karsh, Wintrob and Frank.
Code of Ethics
We have a Code of Ethics, which applies to our directors, executive officers and employees and is available
on our website at www.oaktreecapital.com under the “Unitholders” section. We intend to disclose any amendment
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to or waiver of the Code of Ethics on behalf of a director or executive officer either on our website or in a Current
Report on Form 8-K filing.
Corporate Governance Guidelines
Our board of directors has a governance policy, which addresses matters such as the board of directors’
responsibilities and duties, the board of directors’ composition, policies and compensation and director
independence, and is available on our website at www.oaktreecapital.com under the “Unitholders” section.
Communications to the Board of Directors
The non-management members of our board of directors meet quarterly. The non-management directors
have currently selected Mr. Pierson, one of our non-management directors, to lead these meetings for 2015. All
interested parties, including any employee or unitholder, may send communications to the non-management
members of our board of directors by writing to: Oaktree Capital Group, LLC, Attn: General Counsel, 333 South
Grand Avenue, 28th Floor, Los Angeles, CA 90071.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more
than ten percent of a registered class of our equity securities to file initial reports of ownership and reports of
changes in ownership with the SEC and furnish us with copies of all Section 16(a) forms they file. To our
knowledge, based solely on our review of the copies of such reports furnished to us or written representations from
such persons that they were not required to file a Form 5 to report previously unreported ownership or changes in
ownership, we believe that, with respect to the year ended December 31, 2014, such persons complied with all
such filing requirements, except that Ms. Gentile’s initial Form 3 was filed late following her appointment as an
officer of the Company.
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Item 11. Executive Compensation
Compensation Discussion and Analysis
Overview of Compensation Philosophy and Program
Our fundamental philosophy in compensating our key personnel has always been, and continues to be, to
align their interests with the interests of our clients and unitholders. The alignment of interests is a defining
characteristic of our business and one that we believe best optimizes long-term sustainable value. We achieve this
alignment by compensating our most senior professionals primarily through equity awards and profit sharing.
Indeed, many of our most senior executives receive a substantial majority of their total compensation from their
indirect ownership of the Oaktree Operating Group.
Our named executive officers (“NEOs”) consisted of the following individuals: (a) Bruce A. Karsh, our Chief
Investment Officer and Co-Chairman; (b) Jay S. Wintrob, who became our Chief Executive Officer and principal
executive officer on November 1, 2014; (c) John B. Frank, our Vice Chairman and principal executive officer before
November 1, 2014; (d) David M. Kirchheimer, our Chief Financial Officer; (e) Caleb S. Kramer, who manages our
European Principal Investments strategy; and (f) Scott L. Graves, Head of Credit Strategies.
Compensation Elements for Named Executive Officers
Our NEOs (other than Mr. Graves) are compensated primarily or exclusively through a combination of
equity grants and profit and fee sharing. We have generally designed our NEOs' compensation as long-term
arrangements that are structured to align our NEOs' interests with the interests of our company and our clients,
motivate and reward long-term performance, and reduce the need for recurring and potentially distracting
compensation negotiations.
Mr. Wintrob’s compensation has the same general structure as for the other NEOs in that its principal
component elements consist of an equity grant and a profit sharing arrangement. However, Mr. Wintrob’s equity
grant, called an equity value unit, or EVU, is a special form of partnership interest in OCGH, called a profits interest,
that is currently only held by him. Its features are different from the OCGH units held by other members of
management in that it is not exchangeable for Oaktree Class A units and has value only to the extent certain
distributions plus the value of our Class A units on the relevant measurement dates exceed the applicable “Base
Value,” which is (a) $61.00 for the performance period January 1, 2015 – December 31, 2019, (b) $65.00 for the
performance period January 1, 2015 – December 31, 2020 and (c) $69.00 for the performance period January 1,
2015 – December 31, 2021. The EVUs are structured so that, at fixed future dates, their value is measured and
recapitalized into OCGH units. The EVU structure was developed for Mr. Wintrob in order to deliver an award to
him that would incentivize him to create value in our Class A units and the level of cash distributions to OCGH units,
in a manner that was also tax efficient for Oaktree and Mr. Wintrob. The number of EVUs, their vesting schedule,
the Base Value, and the EVUs’ unique cash distribution features (described in detail below) were set in the context
of arms’ length negotiations we undertook before Mr. Wintrob joined the Company.
Mr. Wintrob’s profit sharing arrangement is structured similarly to those of Messrs. Frank and Kirchheimer,
although fees and allocations from certain pre-existing funds are not counted for purposes of Mr. Wintrob’s profit
sharing amounts. The percentage of Mr. Wintrob’s profit sharing level was also set in the context of the above-
mentioned arms’ length negotiations, and, in setting the percentages, the Company took into account the
percentages at which Messrs. Frank and Kirchheimer are compensated and Messrs. Marks’s and Karsh’s
subjective understanding of the market for CEO annual cash compensation.
As the Company has separately disclosed publicly, it is excited to have Mr. Wintrob on board and is
optimistic about his role and potential contributions to our business. The Company sought out Mr. Wintrob
specifically, because he was a seasoned executive at another large, publicly traded company, but was also uniquely
familiar with Oaktree’s culture and enterprise through his long term relationships with our founders and service as
one of our outside directors. In order to encourage an executive of Mr. Wintrob’s caliber and talent to join our
organization, it was necessary to develop an equity award structure that served both his and Oaktree’s best
interests and to set compensation levels that were appropriate to incentivize him. The Company believes that the
compensation levels that have been agreed with Mr. Wintrob are appropriate and competitive given his unique
qualifications and familiarity with Oaktree through his director service.
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Determination of Executive Compensation
Generally speaking, we do not review our NEOs' compensation arrangements on an annual basis. To the
extent that an NEO's compensation is modified, such decisions are based upon Messrs. Marks's and Karsh's, or,
after he began serving as our CEO, Mr. Wintrob’s, subjective assessment of a multitude of factors, including the
scope and complexity of the NEO's responsibilities, the NEO's individual performance, the alignment of interests
between the NEO and our clients and unitholders, and the NEO's historic and anticipated contributions to our
business results and financial performance. In general, none of the factors we consider is assigned any particular
weighting in determining the amount of compensation to award. We attached little weight to the mix of
compensation in any particular year, as we focus on the long-term nature of our business and compensation
arrangements. As further discussed below, Mr. Graves transitioned out of our Distressed Debt group in 2013. His
cash compensation continues to reflect profit sharing interests awarded to him when he was a member of the
Distressed Debt group, which were generally the same for similarly situated senior investment professionals of the
group.
The compensation of our senior professionals was determined with respect to 2014 by the relevant portfolio
manager or department head and by our principal executive officer. Our principal executive officer, with the input of
Messrs. Marks and Karsh, and once Mr. Wintrob assumed the role of principal executive officer, Mr. Frank, made
the final decisions in his discretion, based on his subjective assessment of what will best advance the interests of
our company, but our compensation process is a collaborative and iterative effort. Our process is intended to
appropriately reward and incentivize our executives so as to secure their loyalty and motivate them to devote their
best efforts to the interests of our clients and unitholders. Our process is not formulaic. Rather, we seek to take into
account a range of largely subjective factors relating to the individual's historic and projected contribution to the
success of our business. The particular factors deemed most relevant to any particular compensation decision vary
widely depending upon individual circumstance, but typically include consideration of the individual's work ethic,
expertise, judgment, reputation, seniority, willingness and ability to work as part of a team and overall effectiveness.
None of these factors is assigned any particular weight in making any compensation decisions.
What We Reward and Why We Pay Each Pay Element
The compensation packages for our NEOs are intended to align their interests with our clients and
unitholders, reward risk mitigation and sustained financial and operational performance and to motivate these
individuals to remain with us for long and productive careers. Our compensation arrangements are intended to
attract, retain and motivate individuals of the highest level of quality and effectiveness. We are focused on
rewarding the types of sustained, longer-term performance that provide attractive risk-adjusted returns for clients
and increase long-term unitholder value.
Our compensation structure enables our NEOs to receive remuneration via distributions on their indirect
ownership of the Oaktree Operating Group and from various profit-sharing arrangements. Allowing our NEOs to
participate in profit-sharing arrangements aligns their interests with those of our unitholders and clients. The indirect
ownership of the Oaktree Operating Group by our NEOs results in distributions to our NEOs that are by design
performance-based since all of the distributions are determined based on our profits and in respect of the officers'
allocated shares of the carried interest or incentive fees payable in respect of our investment funds. Equity grants
under the 2011 Plan and the 2007 Plan (each as defined on pages 200 and 201, respectively) further align the
interests of our NEOs with those of our unitholders.
We entered into an employment agreement with Mr. Wintrob for a term of employment that began on
November 1, 2014 and, subject to earlier termination, ends on December 31, 2019. Pursuant to the employment
agreement, Mr. Wintrob received an equity grant comprised of the EVUs and is entitled to receive certain profit
sharing payments and other equity grants, which are discussed below. Mr. Wintrob also received a cash
replacement payment of approximately $920,000 to make him whole for a portion of an equity compensation award
from his prior employer that he forfeited when he left his prior employer to join us. Mr. Wintrob may be entitled to
additional payments from us, if and to the extent that certain other incentive awards from his prior employer are
otherwise not paid (and he remains entitled to such payments under the terms of his employment agreement with
us).
A portion of the compensation earned by Mr. Kramer and all of the compensation earned by Mr. Karsh
consists of carried interests they received in respect of the funds for which they act as portfolio manager. In
addition, a significant portion of the compensation earned by Mr. Kramer has consisted of his share of the
management fees paid by the funds for which he serves as portfolio manager. Mr. Frank receives a share of the
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carried interest from our largest closed-end strategy, Distressed Debt, both in recognition of his historic contributions
to the management of some of the strategy's investments and in lieu of compensation he would otherwise be
eligible to receive, such as a greater profit-sharing percentage or grants of additional OCGH units.
The compensation received by Mr. Graves in 2014 primarily related to his historic role as a senior
investment professional in our Distressed Debt group prior to his transition into his current role as Head of Credit
Strategies in early 2013. We generally compensate our senior investment professionals through a mix of a base
salary (generally capped at $130,000), discretionary bonus, and carried interest for strategies from which we may
earn incentive income. For Mr. Graves, the carried interest he received in 2014 was consistent with the amounts
we paid other similarly situated senior investment professionals in the Distressed Debt group and reflects the
significant incentive income generated from funds managed by that group in 2014. His bonus was consistent with
the bonus levels of other Oaktree senior investment professionals who we considered relevant comparisons for
assessing Mr. Graves’s performance and compensation.
Indirect Ownership of the Oaktree Operating Group
All of our executive officers, including our NEOs, have significant indirect equity stakes in the Oaktree
Operating Group through their holdings of OCGH units or, in the case of Mr. Wintrob, EVUs which, if certain
performance targets are met, will be recapitalized as OCGH units, which we believe provide a long-term incentive to
improve the value of our business.
OCGH Units
OCGH units entitle our NEOs to a portion of the aggregate earnings of the Oaktree Operating Group, which
allows our NEOs to realize appreciation in the value of our units by, subject to the approval of our board of directors,
exchanging such units for Class A units which they can sell. For purposes of our financial statements, we treat
distributions paid on the OCGH units as distributions on equity rather than as compensation, and therefore these
payments are not reflected in the Summary Compensation Table below. As described under “Certain Relationships
and Related Transactions, and Director Independence—Exchange Agreement,” subject to certain restrictions, each
OCGH unitholder will have the right, subject to the approval of our board of directors, to exchange his or her vested
OCGH units into Class A units, an equivalent amount of cash based on then-prevailing market prices, other
consideration of equal value or any combination of the foregoing as determined by our board of directors pursuant
to the terms of an exchange agreement.
Our NEOs will forfeit all their unvested OCGH units upon their departure from Oaktree for any reason
unless the departure is due to death, disability, or, for certain awards, termination without cause, in which case all
unvested units automatically vest in full, or if the forfeiture requirement is waived by us. All of our NEOs are subject
to transfer restrictions in respect of their OCGH units by virtue of the fact that each of our NEOs must obtain board
approval to exchange their OCGH units for Class A units, which may be sold, or the equivalent amount of cash as
discussed above.
Grants of OCGH Units Under the 2011 Plan
Since the adoption of the Oaktree Capital Group, LLC 2011 Equity Incentive Plan (our “2011 Plan”), all
grants of equity-based awards to be made to our NEOs, whether of OCGH units or EVUs, are being made pursuant
to the terms and conditions of the 2011 Plan. For all equity-based incentive awards granted to our executive
officers since our initial public offering, our principal executive officer recommended such grants to the board,
subject to the input and advice of Messrs. Marks and Karsh and, once Mr. Wintrob assumed the role of principal
executive officer, Mr. Frank. Our entire board serves as the committee under the 2011 Plan for purposes of making
such grants. We intend to continue this practice with respect to all such grants in the future.
In assessing equity grants to our personnel, including our NEOs, our principal executive officer does not
employ any formulaic approach or utilize compensation consultants, although we do pay a portion of the bonus
awards to our senior personnel in the form of OCGH units, based on a formula that increases the portion paid in the
form of OCGH units as an individual’s total compensation increases. Such awards typically vest twenty-five percent
annually over four years. For other awards of OCGH units, our principal executive officer subjectively assesses
factors such as the scope and impact of the person's role, his or her historic and anticipated future contribution to
our long term success, the person's historic compensation (including equity grants) and overall level of
compensation relative to other personnel, and the vesting periods associated with the equity grants. Our principal
executive officer does not weigh these factors in any particular way; rather, he uses his subjective judgment to
determine the size of the equity grant.
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Scott Graves received a grant of 256,234 OCGH units in January 2014 that vests over 4 years, with the first
vesting date on March 1, 2015. Of the OCGH units awarded, 250,000 units were in recognition of the
responsibilities he assumed in 2013 as our Head of Credit Strategies, whereas the remaining 6,234 units were in
connection with the approach we adopted in 2013 of awarding a portion of our senior professionals’ bonuses above
certain thresholds in the form of OCGH units. No other NEO received an OCGH unit grant in 2014.
EVU Grant to Mr. Wintrob
In connection with his appointment as our chief executive officer, Mr. Wintrob was awarded 2,000,000 EVUs
under our 2011 Plan. Their value is measured in three tranches at fixed future dates, at which time they are
recapitalized as fully vested OCGH units, like those held by the other NEOs.
The determination of how many OCGH units Mr. Wintrob will receive when the EVUs are recapitalized will
generally be made in three tranches after December 31, 2019, December 31, 2020 and December 31, 2021. The
recapitalizations could occur earlier, in the event of Mr. Wintrob’s termination due to death or disability, or upon
certain other acceleration events, which are discussed below under “Potential Payments Upon Termination of
Employment or Change in Control at 2014 Year End.” Except for certain distributions described below, Mr. Wintrob
will not realize any value from the EVUs unless and until such recapitalizations occur.
EVU Valuation and Recapitalization. The number of OCGH units that Mr. Wintrob will receive in respect of
the EVUs will generally be determined based on the appreciation of our Class A units and certain distributions made
with respect to OCGH units over the period beginning January 1, 2015 and ending on each of December 31, 2019,
December 31, 2020, and December 31, 2021, with one-third of the EVUs recapitalizing on each date. The number
of OCGH units will be determined by (1) calculating the excess (if any) of (A) the sum of (x) the volume-weighted
average price of a Class A unit over a period of 60 business days before and 60 business days after each of
December 31, 2019, December 31, 2020, and December 31, 2021 and (y) the aggregate cash distributions made
on a per-OCGH unit basis in respect of such period, excluding distributions attributable to net incentive income from
certain Oaktree funds listed in Mr. Wintrob’s employment agreement, over (B) the Base Values of $61.00, $65.00,
and $69.00, respectively, (2) multiplying such excess by one-third of 2,000,000 (the aggregate number of EVUs) on
each of the applicable recapitalization dates, and (3) dividing that amount by the applicable volume-weighted
average price of a Class A unit described in this paragraph.
Distributions on EVUs. Commencing in 2016, Mr. Wintrob will also be eligible to receive cash distributions
in respect of the EVUs. He will not receive any cash distributions in 2015. The cash distributions are designed to
deliver to Mr. Wintrob the same cash distributions he would receive if he held a certain number of OCGH units
(“reference OCGH units”), other than distributions attributable to net incentive income for certain investment funds
listed in Mr. Wintrob’s employment agreement. These distributions are designed to align his interests with those of
holders of OCGH units and Class A units and also to incentivize him to achieve certain performance targets in order
to receive the distributions.
• The reference OCGH units are not real OCGH units; they represent a reference point for purposes of
calculating cash distributions only.
• The number of reference OCGH units based off of which the cash distributions are to be calculated is
determined by application of a vesting schedule (described below) and a performance requirement.
The performance requirement for each year is appreciation in value in a Class A unit and in the
aggregate cash distributions made on a per-OCGH unit basis over a pre-set hurdle.
• Once the number of reference OCGH units is determined for a given fiscal year (commencing with
2016), Mr. Wintrob will be entitled to receive, for each reference OCGH unit, the amount of the per-
OCGH unit distributions all OCGH unitholders otherwise receive for the applicable year.
• Mr. Wintrob’s entitlement to cash distributions in one year does not mean he will be entitled to them in
the next year.
The calculation of the cash distributions is described more specifically below.
To be eligible to receive cash distributions in respect of any of 2016-2021, the sum of (x) the volume-
weighted average price of an Oaktree Class A unit over a period of 60 business days before and 60 business days
after the end of the preceding fiscal year (the “end of year VWAP”) and (y) the aggregate cash distributions made
on a per-OCGH unit basis in respect of such fiscal year and, if applicable, all preceding fiscal years commencing
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with 2015, excluding distributions attributable to net incentive income from certain Oaktree funds listed in Mr.
Wintrob’s employment agreement (“eligible cash distributions”), must exceed the pre-set hurdle for the year. If this
performance condition is not met, then Mr. Wintrob will not be entitled to any cash distributions in respect of the
EVUs for the year. If the condition is met, Mr. Wintrob will be entitled to cash distributions, in the amounts described
below.
The number of reference OCGH units with which Mr. Wintrob will be credited, and which determine the
value of his cash distributions in the year, will be:
•
2,000,000 EVUs (reduced to 1,333,334 with respect to 2020 and 666,667 with respect to 2021),
multiplied by
• Mr. Wintrob’s vested percentage in the EVUs as of the December 31 preceding the year of distribution,
multiplied by
•
the amount by which the end of year VWAP plus the eligible cash distributions exceeds the applicable
annual hurdle, divided by
•
the end of year VWAP.
Distributions in respect of the reference OCGH units for a year are paid quarterly, after each quarter is completed
(so, distributions for the first quarter are paid in the second quarter, distributions for the second quarter are made in
the third quarter, and so on). Subject to Mr. Wintrob’s continued employment, the vested percentage is 20% on
December 31, 2015, 40% on December 31, 2016, 60% on December 31, 2017, 80% on December 31, 2018 and
100% on December 31, 2019.
The annual hurdles selected serve as an ongoing assessment of the Company’s performance and are
intended to motivate and reward Mr. Wintrob for directing and managing the Company in a way that enables it to
exceed the targeted performance – by reference to two measures, Class A unit price and certain cash distributions
– over the relevant time period. Whether these targets will be achieved depends on a number of factors, many of
which are not predictable at this time, but our assessment is that they are ambitious but achievable.
When designing Mr. Wintrob’s compensation, our objective was to strongly align Mr. Wintrob’s
compensation with the total return achieved by the Company’s unitholders over the relevant period. We believe the
EVUs are well designed to accomplish that objective, in that the number of OCGH units Mr. Wintrob will ultimately
receive upon the recapitalization of the EVUs into OCGH units at the end of the relevant performance period is a
function of the amount by which the volume-weighted average price of a Class A unit and the applicable
distributions described above exceed the applicable Base Value of $61.00, $65.00 and $69.00 for the performance
period in question. Similarly, his level of participation in distributions during any given performance period will be
based on the extent to which the volume-weighted average price of a Class A unit and the applicable distributions
exceed a pre-set hurdle for each of the relevant performance periods. The overall level of EVUs granted was
determined based on arms’ length negotiations between the Company and Mr. Wintrob, and the Company made a
subjective assessment of Mr. Wintrob’s ability to contribute to achieving our objectives and determined that the level
of EVUs was appropriate, taking into account our perception of the market for an executive of Mr. Wintrob’s
experience and caliber.
As of December 31, 2014, the number of OCGH units that Mr. Wintrob would receive upon the
recapitalization of the EVUs into OCGH units would have been determined based only on the volume-weighted
average price of a Class A unit and the distributions described above over the $61.00 Base Value through
December 31, 2019. We determined that it was appropriate to extend Mr. Wintrob’s EVU performance period, and
the period during which Mr. Wintrob’s potential payment of OCGH units remains at risk for two additional years to
provide a longer term incentive structure, and we amended Mr. Wintrob’s EVU grant agreement accordingly on
February 24, 2015.
193
As of December 31, 2014, our NEOs beneficially owned the following number of OCGH units, EVUs, and
Class A units:
Number of
OCGH Units (1)
Name
Bruce A. Karsh ...................................... 19,047,271
—
Jay S. Wintrob ......................................
John B. Frank .......................................
David M. Kirchheimer............................
Caleb S. Kramer ...................................
Scott L. Graves .....................................
1,584,716
2,211,542
1,078,392
1,360,527
Number of
EVUs
—
Number of
Class A Units
1,826
Total Number
of Units
19,049,097
2,000,000
6,191
—
—
—
—
185
136
79
72
2,006,191
2,211,727
1,584,852
1,078,471
1,360,599
Percentage of
Beneficial
Ownership of
Oaktree
Operating
Group
12.46%
0.00%
1.45%
1.04%
0.71%
0.89%
(1) Following the May 2007 Restructuring, the OCGH unitholders' interests in OCGH continued to take into
account any disproportionate sharing in historical incentive income in accordance with the terms of the OCGH
limited partnership agreement that were in effect prior to the May 2007 Restructuring. As a result, distributions
to the OCGH unitholders by OCGH that are attributable to historical incentive income are not made pro rata in
proportion to the OCGH unitholders' interest in OCGH units but instead will be adjusted to account for the
disproportionate sharing of historical incentive income. The figures included in this table do not reflect the
NEO’s rights to historical incentive income.
Components of Other Compensation
As described above, our NEOs' compensation arrangements are designed as long-term arrangements that
are structured to align our NEOs' interests with the interests of our unitholders and our clients, motivate and reward
long-term performance and reduce the need for recurring and potentially distracting compensation negotiations.
Generally speaking, we pay our NEOs a certain percentage of different revenues or profits, focused more on our
overall profitability in the case of Messrs. Wintrob, Frank and Kirchheimer, and more on particular strategies we
manage in the case of Messrs. Karsh, Kramer and Graves. However, a meaningful portion of Mr. Frank’s
compensation in a given year may relate to incentive income generated by our distressed debt funds, and, our
NEOs’ equity ownership (including Mr. Wintrob’s ownership of EVUs) represents a very substantial portion of each
NEO’s participation in the economics of our business. Several years ago, Messrs. Marks and Karsh set the
percentages of profit sharing, incentive income and management fee income for many of our senior executives.
When doing so, they considered a variety of factors, including the projected amount of profit sharing, incentive
income and management fee income each NEO would receive relative to the other applicable compensation
components.
Profit Sharing Arrangements
Each of Messrs. Frank and Kirchheimer is entitled to receive a quarterly profit-sharing payment based on
the annual GAAP net income of the Oaktree Operating Group with adjustments (a) eliminating the compensation
expense relating to equity granted on or before the 2007 Private Offering, (b) representing a 50% reduction to the
compensation expense relating to all other equity grants and (c) for certain other minor items. For 2014, such
adjusted net income amount was approximately $540 million. Profit-sharing payments made in respect of a
particular year are subject to a true-up or true-down after the close of that year to reflect actual profits for the year.
This profit-sharing arrangement will terminate upon the termination of the employment of Messrs. Frank and
Kirchheimer, respectively, for any reason.
When Messrs. Frank and Kirchheimer became Principals of our business in 2002, no Principal had ever
received a fixed salary and bonus, and Messrs. Marks and Karsh determined that annual discussion of bonuses
would be contrary to the status of Messrs. Frank and Kirchheimer as Principals. Instead, they determined an
appropriate profit-sharing percentage for Messrs. Frank and Kirchheimer based in part on the compensation they
would have received had they remained employees compensated at the most senior level, taking into account that
this profit-sharing arrangement was 100% at risk and tied their compensation directly to the overall profitability of
our business. Accordingly, Messrs. Kirchheimer and Frank's profit-sharing arrangement commenced in 2003, when
it was determined that compensating them by reference to our profits would be preferable to continuing to afford
194
them salary and bonus or granting them equity sufficient to generate a comparable cash flow. Their profit-sharing
percentages were increased in 2009 to reflect the growth in their responsibilities since 2003. Given the
responsibilities of Messrs. Frank and Kirchheimer, we think the profit-sharing arrangements appropriately motivate
them by tying their compensation to the success of our overall business. The amounts paid to Messrs. Frank and
Kirchheimer as annual profits participation interests are set forth under “All Other Compensation” in the Summary
Compensation Table below. There was no further increase in Messrs. Frank and Kirchheimer’s profit-sharing
percentages in 2014.
Pursuant to his employment agreement, Mr. Wintrob is entitled to profit sharing payments equal to a fixed
percentage of certain of Oaktree’s operating profit and income. Specifically, Mr. Wintrob’s share of profit and
income excludes net incentive income on closed-end funds and certain other funds raised before Mr. Wintrob’s
employment. The fixed percentage will be 1.5% in 2014 and 1.5% in each of 2015–2019, up to the level of profit
and income in 2014 and 1.75% of profit and income that exceeds the 2014 level, if any. In all cases, Mr. Wintrob’s
profit sharing payments will have a floor of $5,000,000 per year, pro-rated for partial years. With respect to 2014,
we paid in cash a pro rata portion of the $5,000,000 floor in the amount of $833,000. Payments will be made in a
combination of cash and OCGH units, but at least the first $3,000,000 in each year will be paid in cash. The OCGH
units will vest annually over four years. In setting the level of Mr. Wintrob’s profit participation, including the annual
floor, Messrs. Marks and Karsh took into account the sharing percentages of Messrs. Frank and Kirchheimer, their
subjective understanding of the market for CEO compensation and what would be necessary to retain Mr. Wintrob.
In addition, Messrs. Marks and Karsh thought it appropriate to pay a significant portion of Mr. Wintrob’s profit
participation in the form of OCGH units that vest over time after grant to further align Mr. Wintrob’s interests with the
Company’s unitholders.
Carried Interest or Incentive Income
As noted above, Messrs. Karsh, Frank, Kramer and Graves (like many of our investment professionals)
have the right to receive a portion of the incentive income generated by our funds through their participation
interests in the carry pools generated by the general partners of these funds. The carry pools are the participation
interests in these funds set aside for the general partners of the funds, which in turn grant a portion of such interests
to our investment professionals. Each of Messrs. Karsh, Frank and Graves receives a share of the incentive
income we receive with respect to certain of our Distressed Debt funds, and Mr. Kramer receives a share of the
incentive income we receive from our Control Investing funds. We first awarded Mr. Karsh an interest relating to the
incentive income of our Distressed Debt funds commencing with OCM Opportunities Fund VII, L.P. and have
awarded him an interest in each subsequent Distressed Debt fund. The distributions Mr. Karsh receives in respect
of his percentage interest in the incentive income of each such Distressed Debt fund are reduced by an amount
equal to his indirect pro rata interest in the aggregate amount of such distributions as a result of his limited
partnership interest in OCGH. The carry pools (and Messrs. Karsh, Frank, Kramer and Graves' participation
therein) are referred to as our “Carry Plans.” Under the terms of our closed-end funds, we (and our employees who
share in our carried interest) are generally not entitled to carried interest distributions (other than tax distributions)
until the investors in our funds have received a return of all contributed capital plus a preferred return, which is
typically 8%. Because the aggregate amount of carried interest payable through our Carry Plans is directly tied to
the realized performance of the funds, we believe this fosters a strong alignment of interests among the investors in
those funds and Messrs. Karsh, Frank, Kramer and Graves, and therefore benefits both those investors and our
unitholders.
Participation in carried interest is a primary means of compensating and motivating many of our investment
professionals. We believe such participation is one of the most effective ways to align the interests of our
investment professionals with our clients and unitholders. Our principal executive officer, or Messrs. Marks and
Karsh, as applicable, determine the amount of incentive income to grant in respect of a given fund based on our
historical arrangements with the NEO and our estimation of the NEO's current and projected role in the investment
activities of the particular fund. In making these determinations, we consider a multitude of factors, including the
NEO's role in raising the particular fund, sourcing and evaluating potential investment opportunities for the fund,
managing and monitoring existing investments within the fund, running the larger investment strategy and managing
the investment and other professionals involved in the fund's activities. None of these factors is assigned a
particular weighting when determining the amount of carried interest to grant to a particular NEO.
We expect to continue to use participation in carried interest as a cornerstone of compensation for our
investment professionals who manage closed-end funds. Grants of participation interests in incentive income for
our closed-end funds are made in each specific fund and are subject to vesting, which typically runs over five years,
with accelerated vesting for death, disability or termination without cause. Vesting serves as an employment
195
retention mechanism and thereby enhances the alignment of interests between a participant and us. We believe
that vesting of participation in incentive income motivates participants to remain in our employ over the long term.
For purposes of our financial statements, we treat the income allocated to all of our personnel who have
participation interests in the incentive income generated by our funds as compensation, and the allocations of
incentive income earned by Messrs. Karsh, Frank, Graves, and Kramer in respect of 2014 are accordingly set forth
under “All Other Compensation” in the Summary Compensation Table below, even though they may not have
received such amounts in cash.
Asset-based Management Fees
While all of our NEOs share indirectly in our management fees through their ownership of OCGH units (or,
in the case of Mr. Wintrob, when, as and if his EVUs are recapitalized as OCGH units, he will also share in our
management fees in this manner), Mr. Kramer also historically received a direct share of the management fees paid
by the Control Investing funds for which he serves as portfolio manager. During their investment periods, these
funds pay a management fee based on a percentage of limited partners' capital commitments. Thereafter, the
management fee is based on the lesser of a percentage of the portion of limited partners' capital contributions that
has been invested and not returned to such limited partners and the cost basis of the assets remaining in the fund.
The amount paid to Mr. Kramer as distributions of asset-based management fees is set forth under “All Other
Compensation” in the Summary Compensation Table and is determined by reference to sharing percentages we
negotiated with Mr. Kramer some years ago, taking into account Mr. Kramer’s roles in fundraising, sourcing and
evaluating potential investment opportunities, managing and monitoring existing investments and managing the
strategy and its investment and other professionals, with none of these factors having any particular weighting.
Starting in 2012, we began moving away from these formulaic revenue-based arrangements for our
executive officers. We have transitioned away from formulaic compensation arrangements based on a fund’s
assets under management because we believe that we can better tailor incentives, and thus align the interests of
our investment professionals with our clients and, by extension, our unitholders, by setting compensation on a
periodic basis. Under a formulaic compensation arrangement, factors outside an individual’s control, such as the
environment in which a fund is raised, could result in an increase or decrease in an individual’s compensation. In
addition, such arrangements reduce our ability to adjust compensation for other factors, such as fund performance
or team management. In contrast, we now have the ability to periodically adjust the compensation of our
investment professionals to account for each individual’s contribution to our various investment strategies and
funds, the fund’s investment performance and the individual’s contributions to Oaktree’s business as a whole. As a
result, we are in a better position to control our compensation expenses and to tailor our compensation packages to
changing facts and circumstances, which we believe allows us to better align incentives between our investment
professionals and our clients and unitholders. In 2014, other than a fixed payment to Mr. Wintrob of $833,000 with
respect to his profit sharing and a signing bonus of $75,000, and the salary paid to Mr. Graves, we did not make
fixed payments to any of our NEOs.
Severance, Change in Control, and Similar Benefits
Other than Mr. Wintrob, each of our NEOs is either a founder of our company or has been promoted from
within and has generally not received special severance or change in control benefits with their compensation
arrangements. By contrast, Mr. Wintrob was hired from outside of Oaktree. His employment agreement and EVU
award are the products of an arms’ length negotiation we undertook with Mr. Wintrob before he joined the Company.
In order to encourage Mr. Wintrob to join our Company, it was necessary to provide him with the security provided
by continuation of his profit sharing payment levels following certain terminations from employment as well as the
EVU protections discussed below under “Potential Payments Upon Termination of Employment or Change in
Control at 2014 Year End.” As described in that section, Mr. Wintrob’s EVUs will receive enhanced vesting credit
upon certain terminations from employment, which credit is further enhanced if such termination occurs following a
change in control of our business. Also, if we no longer employ Howard Marks or Bruce Karsh, if either one is no
longer our director or officer, or if either one substantially reduces his role (other than for death or disability, or a
family medical issue), then Mr. Wintrob’s EVUs will become fully vested and recapitalized at the time of Mr. Marks’s
or Mr. Karsh’s departure (as applicable), and Mr. Wintrob will receive a new EVU grant. Providing these profit
sharing payment continuation and EVU protections was critical to reaching an agreement with Mr. Wintrob. We
think these payments and benefits are appropriate and consistent with what might be included in a new chief
executive officer’s compensation arrangements at a similarly situated company.
196
Other Benefits
We provide an annual cost of living adjustment to Mr. Kramer to compensate him for the additional costs he
incurs by being stationed in London with his family. We also cover the cost of travel for Mr. Kramer and his family
from the United Kingdom to the United States. We agreed to provide this personal benefit in order to encourage Mr.
Kramer to relocate to London, and we believe that it has contributed to the success of that arrangement. We
provide minimal other perquisites to our executives and such perquisites form an insignificant element of our total
compensation structure.
Risk Analysis of Our Compensation Programs
We strive to invest in a risk-controlled fashion and seek to ensure that our compensation policies are
consistent with that approach and discourage the incurrence of undue risk. Thus, we emphasize both the grant of
equity and – for senior investment professionals in our closed-end funds – carried interest subject to multi-year
vesting as key forms of compensation, particularly as employees become more senior in the organization and
assume more leadership. We believe this policy encourages long-term thinking, fosters a collaborative culture and
reduces any incentive to accept excessive risk in a search for short-term gain. With respect to participation in our
incentive income, our closed-end funds generally distribute incentive income only after we have returned all capital
plus a preferred return to our investors, meaning that in analyzing investments and making investment decisions,
our investment professionals are motivated to take a long-term view of their investments, given that short-term
results typically do not affect their compensation. Importantly, the amount of incentive income paid to these
investment professionals is determined by the performance of the fund as a whole, rather than specific investments,
meaning that they have a material interest in every investment. This approach discourages excessive risk taking,
given that even a hugely successful investment will result in incentive compensation payments only if the overall
performance of the fund exceeds the requisite hurdle.
Tax and Accounting Considerations
Beginning on May 25, 2007, we began accounting for share-based payments (i.e., OCGH units issued at
the time of the May 2007 Restructuring and equity-based awards granted under our 2011 Plan and our 2007 Plan)
in accordance with Accounting Standards Codification Topic 718.
Summary Compensation Table for 2014
The following table provides summary information concerning the compensation of Jay S. Wintrob, who
became our principal executive officer on November 1, 2014, John B. Frank, who served as our principal executive
officer prior to that date, David M. Kirchheimer, our chief financial officer and our three other most highly
compensated employees who served as executive officers as of December 31, 2014, for services rendered to us
during 2014.
197
The distributions our NEOs receive in respect of their indirect ownership of the Oaktree Operating Group
are based on their respective holdings of OCGH units and are not reflected as cash compensation in the table
below.
Name and Principal Position
Year
Salary ($) (3)
Bonus ($)
Stock Awards
($) (4)
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($) (5),(6)
Total ($)
Bruce A. Karsh,
President and Chief
Investment Officer .............
Jay S. Wintrob,
Chief Executive Officer (1) ..
John B. Frank,
Vice Chairman (1) ...............
David M. Kirchheimer,
Chief Financial Officer .......
Caleb S. Kramer,
Managing Director .............
Scott L Graves,
Managing Director .............
2014
2013
2012
2014
2014
2013
2012
2014
2013
2012
2014
2013
2012
2014
2013
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
—
—
—
$
$
$
— $
— $
— $
— $ 15,926,190
$ 15,926,190
— $ 43,510,002
$ 43,510,002
— $ 12,195,475
$ 12,195,475
81,254
$
991,636 (2) $ 13,805,454
$
— $
833,000
$ 15,711,344
— $
— $
— $
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
$
$
— $
— $
— $ 13,150,280
$ 13,150,280
— $ 34,096,814
$ 34,096,814
$ 3,300,000
$
— $ 13,549,896
$ 16,849,896
$
$
$
$
$
— $
— $
— $ 5,338,247
$ 5,338,247
— $ 11,514,606
$ 11,514,606
825,000
$
— $ 6,546,440
$ 7,371,440
— $
— $
— $ 20,577,023
$ 20,577,023
— $ 21,678,691
$ 21,678,691
$ 130,000
$ 130,000
$ 2,651,900 (2) $ 11,315,293
$ 2,151,900
$
— $
$ 9,134,466
$
$
— $ 22,031,711
$ 31,166,177
— $ 14,003,920
$ 28,101,113
— $ 44,745,507
$ 47,027,407
(1) Mr. Wintrob became our Chief Executive Officer on November 1, 2014, on which date Mr. Frank ceased to be our principal executive
officer.
(2) With respect to Mr. Wintrob, represents (a) a cash replacement payment of $916,636 we paid to Mr. Wintrob upon the commencement of
his employment with us to make him whole for certain equity incentive compensation he forfeited when he left his prior employer to join us
and (b) a hiring bonus of $75,000. With respect to Mr. Graves, includes a one-time $500,000 discretionary bonus we paid to Mr. Graves in
connection with the establishment of certain new strategies that Mr. Graves oversees.
(4)
(3) Other than the payment to Mr. Wintrob described in footnote (2) above and the potential replacement payments discussed on page 190,
we do not make fixed payments to any of our NEOs, other than to Mr. Graves. Mr. Wintrob received cash remuneration of $81,254 for his
services as an outside member of our Board of Directors prior to his employment with us on November 1, 2014.
The reference to “stock” in this table reflects 2,000,000 EVUs granted to Mr. Wintrob in 2014, as well as 1,791 Class A units awarded to
Mr. Wintrob in January 2014 as remuneration for his service as an outside director before his employment with us began. The amounts in
the Stock Awards column for Mr. Graves in 2014 includes 250,000 OCGH units granted in recognition of the responsibilities he assumed in
2013 as our Head of Credit Strategies and 6,234 OCGH units granted as a part of Mr. Grave’s bonus, as discussed in our Compensation
Discussion and Analysis, above. The grant date fair value of the units received by our NEOs during the year ended December 31, 2014 is
reflected in the “Stock Awards” column in the Summary Compensation Table because we must account for such units as compensation
expense for financial statement reporting purposes. We recognize expense for financial statement reporting purposes in respect of the
unvested units in OCGH received by our NEOs on the basis of the value of those units at the time of the grant pursuant to Financial
Accounting Standards Board Accounting Codification (ASC) Topic 718 or “ASC Topic 718,” Accounting for Stock Compensation. Please
see notes 2 and 11 to our consolidated financial statements included elsewhere in this annual report for further information concerning the
assumptions underlying such expense.
(5) Amounts included for 2014 reflect the total amount payable with respect to such NEO's right to receive an allocation of the annual profits of
the Oaktree Operating Group in respect of the year ended December 31, 2014 (please see “—Compensation Elements for Named
Executive Officers—Profit Sharing Arrangements”).
(6) Please see the “All Other Compensation Supplemental Table” below.
198
All Other Compensation Supplemental Table
The following table provides additional information regarding each component of the All Other
Compensation column in the Summary Compensation Table:
Name
Bruce A. Karsh.....................
Year
2014
2013
2012
Payments in
Respect of
Carried
Interest (1)
Asset Based
Management
Fees (2)
Profits
Participation (3)
Cost of Living
Allowance (4)
Travel
Allowance (5)
Total
$ 15,926,190
$ 43,510,002
$ 12,195,475
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $ 15,926,190
— $ 43,510,002
— $ 12,195,475
Jay S. Wintrob .....................
2014
$
— $
— $
833,000
John B. Frank ......................
2014
$ 6,138,185
2013
$ 18,435,266
2012
$ 4,997,285
$
$
$
$
$
$
— $
— $
— $
David M. Kirchheimer ..........
Caleb S. Kramer ..................
Scott L. Graves ....................
2014
2013
2012
2014
2013
2012
2014
2013
— $ 7,012,095
— $ 15,661,548
— $ 8,552,611
— $ 5,338,247
— $ 11,514,606
— $ 6,546,440
$
$
$
$
$
$
$
— $
— $
833,000
— $
— $
— $
— $
— $
— $
— $ 13,150,280
— $ 34,096,814
— $ 13,549,896
— $ 5,338,247
— $ 11,514,606
— $ 6,546,440
$ 8,776,180
$ 11,430,228
$ 7,147,358
$ 14,166,390
$ 6,190,783
$ 15,458,919
$
$
$
— $
325,000
— $
325,000
— $
325,000
$
$
$
45,615
$ 20,577,023
39,943
$ 21,678,691
57,009
$ 22,031,711
$ 14,003,920
$ 44,745,507
$
$
— $
— $
— $
— $
— $
— $
— $ 14,003,920
— $ 44,745,507
(1) Amounts included for 2014 represent amounts earned on an accrual basis in respect of participation interests in incentive income
generated by our funds with respect to the year ended December 31, 2014. To the extent that timing differences may exist between when
amounts are earned on an accrual basis and paid in cash, these amounts do not reflect actual cash carried interest distributions to the
NEOs during such periods. Timing differences typically arise when cash is distributed in the quarter immediately following the one in which
the related income was earned.
(2) Amounts included for 2014 represent management fees earned on an accrual basis in a given year in respect of funds in which the NEO
serves as a portfolio manager.
(3) Amounts included for 2014 represent the amounts earned on an accrual basis in a given year in respect of the NEO's annual profits
participation interest.
(4) Amounts intended to compensate Mr. Kramer for the additional expenses incurred by being located in the United Kingdom.
(5) Amounts needed to cover the actual cost of travel between the United States and the United Kingdom for Mr. Kramer and his family.
Non-competition, Non-solicitation and Confidentiality Restrictions
Pursuant to the terms of OCGH's partnership agreement, our executive officers (including our NEOs) are
subject to customary provisions regarding non-solicitation of our clients and employees, confidentiality, assignment
of intellectual property and nondisparagement obligations. In addition, during the term of employment and for the
one-year period immediately following the resignation or termination of employment (other than a termination by us
without cause), our executive officers may not, directly or indirectly:
•
•
•
engage in any business activity in which we operate, including any Competitive Business (as defined
below);
render any services to any Competitive Business; or
acquire a financial interest in or become actively involved with any Competitive Business (other than as
a passive investor holding a minimal percentage of the stock of a public company).
Under the terms of OCGH’s partnership agreement, during the term of employment and for the two-year
period immediately following the resignation or termination of employment for any reason, our executive officers
199
(including Mr. Wintrob, as these restrictive covenants are reflected in Mr. Wintrob’s employment agreement), may
not solicit our customers or clients for a Competitive Business, induce any employee to leave our employ or hire or
otherwise enter into any business affiliation with any person who was our employee during the twelve-month period
preceding such executive officer's termination of employment.
“Competitive Business” means any business which is competitive with the business of any member of the
Oaktree Operating Group or any of its affiliates (including raising, organizing, managing or advising any fund having
an investment strategy in any way competitive with any of the funds managed by any member of the Oaktree
Operating Group or any of its affiliates) anywhere in the United States or any other country where a member of the
Oaktree Operating Group or any of its affiliates conducts business.
Incentive Income
Participation in incentive income generated by our funds is typically subject to a five-year vesting schedule,
under which a participating NEO's interest will vest in increments of 22% on each of the first through fourth
anniversaries of the closing date of the applicable fund, with the remaining 12% of the interest vesting on or after
the fifth anniversary of such closing date, subject to certain limitations as set forth in the applicable governing
documents. Under the terms of the applicable governing documents, NEOs are subject to various covenants
addressing confidentiality, intellectual property, non-solicitation, non-competition and non-disparagement. Pursuant
to the applicable fund agreements, a participating NEO's incentive income interest is subject to clawback in the
event that the general partner of the applicable fund is required to return any distributions (other than tax
distributions) received in respect of such NEO's interest in the applicable fund.
2011 Equity Incentive Plan
In December 2011, we adopted the 2011 Plan. The purpose of the 2011 Plan is to provide a means for us
and our Affiliates (as defined in the 2011 Plan) to attract and retain key personnel and a means for current and
prospective principals, directors, officers, employees, consultants and advisors of us and our Affiliates to acquire
and maintain an equity interest in us and/or one or more of our Affiliates, thereby strengthening their commitment to
our welfare and that of our Affiliates and aligning their interests with those of our unitholders and clients.
Administration. A committee (the "Committee") established by our board of directors administers the 2011
Plan. The current members of the Committee are Messrs. Marks, Karsh, Wintrob and Frank. The Committee has
broad authority to designate participants of the 2011 Plan, determine the type of awards and terms and conditions of
awards granted under the 2011 Plan and adopt, alter and repeal rules, guidelines and practices relating to the 2011
Plan.
Eligibility. Employees, partners, directors, consultants, advisors and other individuals providing services to
us or our Affiliates are eligible to participate in the 2011 Plan. Participation in the 2011 Plan is limited to persons
who have entered into an award agreement or who have received written notification from the Committee (or its
designee) that they have been selected to participate in the 2011 Plan.
Awards. The Committee has the discretion to grant awards in respect of Oaktree Operating Group units,
Class A units, OCGH units, any type of unit or interest of any member of the Oaktree Operating Group or any class
or series of units or other ownership interests issued by us or one of our Affiliates (collectively, “Units”). The
Committee may grant options, unit appreciation rights (“UARs”), restricted Unit awards, Unit bonus awards and/or
phantom equity awards to eligible persons.
Number of Units Authorized. The 2011 Plan provides that the maximum number of Units that may be
delivered pursuant to awards under the 2011 Plan is 22,300,000, as increased on January 1 of each year beginning
in 2012 by a number of Units equal to the excess of (a) 15% of the number of outstanding Oaktree Operating Group
units on December 31 of the immediately preceding year over (b) the number of Oaktree Operating Group units that
have been issued or are issuable under the 2011 Plan as of such date, except that our board of directors may, in its
discretion, increase the number of Units covered by the 2011 Plan by a lesser amount. The issuance of Units or the
payment of cash upon the exercise of an award or in consideration of the cancellation or termination of an award
will reduce the total number of Units available under the 2011 Plan, as applicable. Units underlying awards under
the 2011 Plan that are forfeited, cancelled, expire unexercised or are settled in cash will be available again to be
granted under the 2011 Plan. However, Units used to pay the required exercise price or tax obligations, or Units not
issued in connection with the settlement of an award or that are used or withheld to satisfy tax obligations of a
participant, will not be available again for grant under the 2011 Plan. Units delivered in settlement of awards may be
authorized and unissued Units, treasury Units, Units purchased on the open market or by private purchase by us or
200
one of our Affiliates, as applicable, or a combination of the foregoing. As of February 24, 2015, 8,052,275 Units have
been issued or are issuable under the 2011 Plan, and the Committee may issue 14,875,618 additional Units under
the 2011 Plan.
Options. The Committee may grant options to purchase Units under the 2011 Plan. Options will be granted
subject to such terms and conditions, including the option's exercise price and the conditions and timing of exercise,
as determined by the Committee and specified in the applicable award agreement.
Unit Appreciation Rights. The Committee may grant UARs under the 2011 Plan. UARs will be subject to
the terms and conditions established by the Committee and set forth in the award agreement. Any UAR granted
under the 2011 Plan will expire no later than 10 years following the date of grant. Any option granted under the
2011 Plan may include tandem UARs.
Restricted Units. The Committee may grant Restricted Units (as defined in the 2011 Plan) under the 2011
Plan. Restricted Units will be subject to the terms and conditions established by the Committee and set forth in the
award agreement. A Restricted Unit is a Unit that generally is non-transferable and is subject to other restrictions
determined by the Committee for a specified period.
Unit Bonus Awards. The Committee may grant unrestricted Units, or other awards denominated in Units,
under the 2011 Plan to eligible persons, either alone or in tandem with other awards, in such amounts as the
Committee determines. The terms and conditions of each Unit bonus award granted under the 2011 Plan will be set
forth in an award agreement.
Phantom Equity Awards. The Committee may grant a phantom equity award to eligible persons under the
2011 Plan. A phantom equity award provides a participant with the right to receive cash payments in respect of the
award. The terms and conditions of each phantom equity award will be set forth in the applicable award agreement,
and such agreement will specify the Affiliate obligated to make payments in respect of the award, the number and
type of Units in respect of which the value and properties of the award are to be determined, the vesting and the
terms of any distributions to be made in respect of such award.
2007 Equity Incentive Plan
Our board of directors and the general partner of OCGH adopted the 2007 Oaktree Capital Group, LLC
Equity Incentive Plan (our “2007 Plan”) as part of the May 2007 Restructuring. As explained in more detail below,
the 2007 Plan was a source of equity-based awards, permitting us to grant to our investment professionals, other
employees, directors and consultants options, unit appreciation rights, restricted units, phantom restricted units and
other awards based on the units of OCGH, each of which represent an indirect interest in one Oaktree Operating
Group unit. No more awards are being granted under the 2007 Plan.
Administration. The 2007 Plan is administered by our board of directors with the general partner of OCGH.
Our board of directors and the general partner of OCGH has delegated the authority to administer the 2007 Plan to
the Administrator, which is a committee consisting of Messrs. Marks, Karsh and Frank. For each OCGH unit
granted pursuant to an award under the 2007 Plan (the “Award Units”) we issue one Class B unit and one Oaktree
Operating Group unit to OCGH. For each OCGH unit granted under the 2007 Plan that is subsequently forfeited by
the grantee, the 2007 Plan also provides for the automatic corresponding cancellation of one Class B unit and one
Oaktree Operating Group unit held by OCGH.
Units Subject to the 2007 Plan. As of February 25, 2015, 4,954,976 OCGH units have been issued under
our 2007 Plan. As with the other OCGH units, pursuant to the exchange agreement and the terms of the OCGH
partnership agreement, vested Award Units may be exchanged for, at the option of our board of directors, our Class
A units, an equivalent amount of cash based on then-prevailing market prices, other consideration of equal value or
any combination of the foregoing, subject to approval of our board of directors.
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Outstanding Equity at 2014 Year End
The following table provides information regarding outstanding unvested equity held by our NEOs as of
December 31, 2014:
Name
Stock Awards (1)
Number of Units
That Have Not
Vested
Market Value of
Units That Have
Not Vested (2)
Bruce A. Karsh ..........................................................................................................
— $
—
Jay S. Wintrob ..........................................................................................................
2,004,856
$
251,686
John B. Frank ...........................................................................................................
170,000
$ 7,048,880
David M. Kirchheimer ...............................................................................................
42,500
$ 1,762,220
Caleb S. Kramer .......................................................................................................
153,802
$ 6,377,246
Scott L. Graves .........................................................................................................
485,734
$ 20,140,475
(1)
(2)
The references to stock awards or units in this table refer to 2,000,000 EVUs and 4,856 Class A units in the
case of Mr. Wintrob and otherwise refer to OCGH units.
The fair market value of $51.83 per Class A unit and $41.46 per OCGH unit is based on the closing price for
our Class A units on December 31, 2014, less a discount applied to OCGH units as detailed in notes 2 and
11 to our consolidated financial statements.
Units Vested in 2014
The following table provides information regarding the number of outstanding equity units held by our NEOs
that vested during the year ended December 31, 2014:
Name
Stock Awards (1)
Number of Units
Acquired on
Vesting
Market Value of
Units Vesting (2)
Bruce A. Karsh ..........................................................................................................
— $
—
Jay S. Wintrob ..........................................................................................................
880
$
54,278
John B. Frank ...........................................................................................................
50,000
$ 2,227,800
David M. Kirchheimer ...............................................................................................
10,000
$
446,625
Caleb S. Kramer .......................................................................................................
43,500
$ 1,666,935
Scott L. Graves .........................................................................................................
68,500
$ 3,044,205
(1)
(2)
The references to Stock Awards or units in this table refer to Class A units in the case of Mr. Wintrob and
otherwise refer to OCGH units.
The fair market value per unit is based on the trading price for our Class A units on applicable vesting dates
of January 1, 2014, March 1, 2014 and November 11,2014, respectively, less a discount applied to OCGH
units as detailed in notes 2 and 11 to our consolidated financial statements.
Potential Payments Upon Termination of Employment or Change in Control at 2014 Year End
Except as otherwise reflected in Mr. Wintrob’s employment agreement, we do not have any formal
severance or change of control plans or agreements in place for any of our NEOs. Except for Mr. Wintrob’s EVUs,
none of the equity awards held by any of our executive officers at 2014 year end is subject to accelerated vesting in
connection with a change in control or a termination of employment for any reason, except if termination is due to
death, disability or, in certain cases discussed in detail below, termination without cause, in which case all unvested
units automatically accelerate in full.
In all cases, none of Messrs. Karsh, Frank, Kramer and Graves is entitled to any additional vesting of their
participation rights in the incentive income generated by our funds as a result of a change in control of us or any of
202
our affiliates. The impact of a termination of employment on the incentive income participation rights held by each
of Messrs. Karsh, Frank, Kramer and Graves is described below.
Incentive Income (Messrs. Karsh, Frank, Kramer and Graves)
Generally, upon the earliest to occur of a participating NEO's death, “disability” (as defined in the applicable
governing documents) termination without “cause” (as defined in the applicable governing documents) or
resignation (each, a “termination event”), such NEO's incentive income interest will be converted into the right to
receive a residual percentage (which cannot exceed the NEO's interest prior to such termination event) of the
distributions the NEO otherwise would have received absent such termination event, as described below.
In the case of a termination event other than resignation, the residual percentage generally will equal the
product of:
•
•
•
•
•
•
the participating NEO's interest prior to such event; and
if the fund is in its investment period, a percentage equal to the applicable fund's aggregate committed
capital that had been contributed as of the date of the termination event.
If a participating NEO resigns, the residual percentage generally will equal the product of:
the participating NEO's interest prior to such resignation;
the participating NEO's vested percentage as of the resignation date (as discussed above under “—
Carried Interest or Incentive Income”); and
if the fund is in its investment period, a percentage equal to the applicable fund's aggregate committed
capital that had been contributed as of the resignation date.
If a participating NEO resigns and engages in competitive activity within two years following his resignation,
the NEO's residual percentage will be reduced further (by as much as 50%). However, with respect to certain funds,
Mr. Kramer may resign for “good reason” (as defined in the applicable governing documents) and his residual
interest in these funds will not be subject to any further reduction.
In the event that a participating NEO is terminated for cause, he immediately forfeits all rights to further
distributions of incentive income.
The following table sets forth the estimated value of the estimated incentive income distributions that would
be made in respect of the NEO's unvested incentive income interests under the Carry Plans, assuming those
interests became fully vested on December 31, 2014 upon a termination of employment without cause or for good
reason (as applicable) or termination due to death, disability or resignation. No amount is payable or accelerated in
respect of an interest in the incentive income upon an individual's termination, regardless of the reason for the
termination. Rather, an individual who is terminated will receive amounts payable as and when we receive the
associated incentive income (which is expected to occur over a number of years) in accordance with the same
payment schedule as would have been in effect in the absence of termination.
The values disclosed below in respect of the rights of participating NEOs to continue to participate in
distributions of incentive income, whether at the same level as before termination or at a reduced level as described
above under “—Potential Payments Upon Termination of Employment or Change in Control at 2014 Year End,”
have been determined assuming that each of the funds in respect of which the NEOs would have a right to
incentive income had been liquidated on December 31, 2014 and all of the funds' assets distributed in accordance
with their respective distribution provisions at a value equal to their book value as of December 31, 2014. We have
calculated the amounts set forth below using these assumptions because distributions made on a liquidation basis
would yield the maximum amounts potentially payable to each of the NEOs, had a termination of employment
actually occurred on December 31, 2014. We note, however, that the values set forth below were computed based
on assumptions that may not be accurate or applicable to a given circumstance of termination. The actual amounts
to be paid upon a particular termination of employment cannot be directly determined since such payments would
be based on several factors, including when termination of employment occurs, the circumstances of termination,
the time period for fund liquidation, the investment performance of the fund and the value at which such liquidations
actually occur, when Oaktree determines to make distributions from such funds, when income is realized from such
funds and the actual amounts so realized.
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Estimated Distributions in Respect of Acceleration of Unvested Incentive Income Interests
Name
Bruce A. Karsh ................................................................................................................................... $ 52,673,948
Jay S. Wintrob .................................................................................................................................... $
—
John B. Frank ..................................................................................................................................... $ 21,142,500
David M. Kirchheimer ......................................................................................................................... $
—
Caleb S. Kramer ................................................................................................................................ $ 32,042,239
Scott L. Graves .................................................................................................................................. $ 45,320,186
Liquidation Value
of Interests Subject
to Vesting
Acceleration
Impact of Termination Without Cause or for Good Reason on Profit Sharing Payments
If Mr. Wintrob’s employment is terminated by us without cause or by Mr. Wintrob for good reason (as
defined in Mr. Wintrob’s employment agreement), Mr. Wintrob will be entitled to: (i) the profit sharing payments
described above on page 194 through the fiscal quarter of termination, (ii) immediate vesting of all unvested OCGH
Units delivered in respect of prior profit sharing payments, and (iii) payment of 25% of the aggregate profit sharing
payments earned in respect of the four full fiscal quarters that preceded the termination quarter for up to eight
quarters after the quarter of termination, depending on the timing and circumstances of the termination. If Mr.
Wintrob’s employment had been terminated by us without cause or by him for good reason on December 31, 2014,
we expect that we would have paid him an amount equal to $1,250,000 per quarter for each of the Company’s eight
consecutive fiscal quarters beginning with the first quarter of 2015, for a total of $10,000,000. In addition, we would
still make the cash replacement payments to Mr. Wintrob described above on page 190 if Mr. Wintrob’s prior
employer does not otherwise honor its continuing payment obligations to Mr. Wintrob As we could not know as of
December 31, 2014 whether or not Mr. Wintrob’s prior employer would honor its continuing payment obligations, we
cannot quantify the contingent cash replacement payments that we may need to make in the future.
Under his employment agreement,
•
•
“cause” includes (i) willful and continued failure to fulfill responsibilities under the employment
agreement, (ii) gross negligence or willful misconduct detrimental to Oaktree, (iii) material breach of the
employment agreement or any other agreement with Oaktree, (iv) material violation of a material
regulation or regulatory rule, (v) conviction of, or entry of a guilty plea or of no contest to, certain
felonies, (vi) court or regulatory order removing Mr. Wintrob as an officer (or equivalent person) of
Oaktree or prohibiting him from participating in the conduct of any Oaktree affairs, (vii) fraud, theft
misappropriation or dishonesty relating to Oaktree, or (viii) material breach of Oaktree policies; and
“good reason” includes (i) a material diminution or adverse change in duties, authority, responsibilities,
positions or reporting lines of authority under the employment agreement, (ii) relocation of Mr. Wintrob’s
principal job location or office by more than 35 miles, and (iii) any material breach by Oaktree of the
employment agreement.
As a condition to receiving these entitlements, Mr. Wintrob will be required to sign a release of claims
against us, our employees, directors and related persons and to comply with certain post-employment restrictive
covenants.
Impact of Termination Without Cause or for Good Reason on EVUs
Termination Other than During the One Year Period Following a Change in Control. If Mr. Wintrob had been
terminated by us without cause, or if he had resigned for good reason, on December 31, 2014, Mr. Wintrob would
be vested in a number of EVUs equal to the sum (not to exceed 2,000,000) of (A) the number of EVUs that have
vested before the fiscal year in which his termination of employment occurs, plus, (B) the product of 400,000 EVUs
multiplied by, a fraction, the numerator of which is the number of days in the fiscal year during which we employed
Mr. Wintrob, and the denominator of which is 365, plus (C) 800,000 EVUs, so Mr. Wintrob would be vested in
866,849 EVUs. The value attributable to the accelerated vesting of the EVUs is not currently calculable because
these vested EVUs would be recapitalized as OCGH Units following December 31, 2019, December 31, 2020, and
December 31, 2021 based on the excess of (A) the sum of (x) the volume-weighted average price of an Oaktree
Class A unit over a period of 60 business days before and 60 business days after December 31, 2019, December
204
31, 2020, and December 31, 2021 and (y) the aggregate cash distributions made on a per-OCGH unit basis in
respect of such periods, excluding distributions attributable to net incentive income from certain Oaktree funds listed
in Mr. Wintrob’s employment agreement, over (B) $61.00, $65.00 and $69.00, as applicable (2) multiplying such
excess by 866,849 EVUs, and (3) dividing that amount by the volume-weighted average price described in this
section.
Termination During the One Year Period Following a Change in Control. The EVU award agreement
provides that if Mr. Wintrob had been terminated by us without cause, or if he had resigned for good reason, within
one year following a change in control, 1,200,000 EVUs would vest if the termination occurs before 2016, 1,600,000
EVUs would vest if the termination occurs in 2016 and 2,000,000 EVUs would vest if a termination occurs in 2017,
2018 or 2019. If a change in control occurred on December 31, 2014 and Mr. Wintrob had been terminated by us
without cause, or if he had resigned for good reason on such date, then Mr. Wintrob would be vested in 1,200,000
EVUs. The value attributable to the accelerated vesting of the EVUs is not currently calculable because the
recapitalization and settlement of those EVUs would occur in the same manner as described in the preceding
paragraph.
Voluntary Resignation Without Good Reason, Termination for Cause or Termination by Reason of Death or
Disability
If Mr. Wintrob resigns without good reason, then Mr. Wintrob would not receive payment in respect of any
EVUs, as none will have become vested and nonforfeitable by December 31, 2014. If Mr. Wintrob is terminated by
us for cause, all of his EVUs, whether vested or unvested, will be immediately forfeited without consideration. While
Mr. Wintrob would not be entitled to any vesting or payments in respect of his EVUs if his employment were
terminated by reason of death or disability on December 31, 2014, if he were terminated by reason of death or
disability on or after January 1, 2015, Mr. Wintrob would be entitled to pro rata vesting and recapitalization of his
EVUs, all as described in his EVU award agreement.
Full Acceleration Event for EVUs
If we no longer employ Howard Marks or Bruce Karsh, or if either one is no longer our director or officer, or
if either one substantially reduces his role (other than for death or disability, or a family medical issue), then Mr.
Wintrob will be entitled to the following treatment with respect to his EVUs:
(A) All of Mr. Wintrob’s 2,000,000 outstanding EVUs will become fully vested and nonforfeitable. In lieu of
calculating the value of the amounts paid in respect of the EVUs in 2019, 2020 or 2021 as would occur absent a full
acceleration event, the calculation would occur promptly following the full acceleration event. The allocation for the
EVUs will equal the sum of (i) the volume-weighted average price of our Class A Units over the 15 business days
before the date as of which either Mr. Wintrob notifies us that Mr. Karsh or Mr. Marks has ceased to serve, or there
is a public announcement that Mr. Karsh or Mr. Marks has ceased to serve; plus (ii) the aggregate cash distributions
made on a per-OCGH Unit-basis from January 1, 2015 through such date of notice, excluding distributions
attributable to net incentive income from certain Oaktree funds listed in Mr. Wintrob’s employment agreement over
the $61.00 Base Value as accreted through such date of notice. The allocation hereunder will be made no later
than in the year following the year in which the full acceleration event occurred.
(B) Mr. Wintrob will get an award of an additional 2,000,000 OCGH equity value units (the “new EVUs”).
The new EVUs will vest ratably over the period between January 1, 2015 and December 31, 2020, subject to Mr.
Wintrob’s continued employment. Mr. Wintrob would be entitled to annual cash distributions in respect of the new
EVUs based on the performance period of January 1, 2015 through December 31, 2020. The determination of how
many of the new EVUs are recapitalized as OCGH units would be made as of December 31, 2020 and would be
made based on the performance period of January 1, 2015 through December 31, 2020. The Base Value for the
2020 fiscal year would be the volume-weighted average price of our Class A units over the 15 days following the
date as of which Mr. Marks or Mr. Karsh ceases to serve, plus any unaccreted portion of the $61.00 Base Value that
is an estimate of the projected cash distributions over the period January 1, 2015 through December 31, 2020, on a
per-OCGH Unit-basis, excluding distributions attributable to net incentive income from certain Oaktree funds listed
in Mr. Wintrob’s employment agreement, plus twenty percent of such unaccreted Base Value.
All other terms and conditions that applied to the original EVUs will apply to the new EVUs.
205
Accelerated Vesting of OCGH Units and Class A Units Upon Termination of Employment
The following table sets forth the estimated value of the acceleration of all unvested OCGH units held by
each NEO other than Mr. Wintrob, assuming a termination of employment due to death or disability on December
31, 2014. The table also sets forth the estimated value of the accelerated vesting of the OCGH units granted in
January 2014 that are held by Mr. Graves, assuming a termination of his employment by us without cause. Other
than on termination of employment by reason of death or disability, the vesting of outstanding OCGH unit awards
does not accelerate upon termination of employment, except in the case of OCGH units granted to Mr. Wintrob in
connection with his profit sharing payments and in the case of Mr. Graves’s 2014 OCGH unit award, each as
described above. In addition, the table details the estimated value of the acceleration of the unvested Class A units
that Mr. Wintrob received in 2014 in connection with his service as a director, as the Class A units granted to a
member of our board in 2014 become fully vested if that board member’s services is terminated without cause.
Acceleration of Unvested OCGH Units and Class A Units
OCGH Units or Class A Units (1)
Name
Bruce A. Karsh .......................................................................................................
Jay S. Wintrob ........................................................................................................
John B. Frank .........................................................................................................
David M. Kirchheimer .............................................................................................
Caleb S. Kramer .....................................................................................................
Scott L. Graves ......................................................................................................
Number of Units of
Stock Subject to
Vesting
Acceleration
Market Value of
Accelerated
Vesting of Units (2)
—
251,686
— $
$
4,856
170,000
42,500
153,802
$
$
$
7,048,880
1,762,220
6,377,246
485,731
$ 20,140,475
(1)
(2)
The references to stock awards or units in this table refer to Class A units in the case of Mr. Wintrob and
otherwise refer to OCGH units.
The fair market value of $51.83 per Class A unit and $41.46 per OCGH unit is based on the closing price for
our Class A units on December 31, 2014, less a discount applied to OCGH units as detailed in notes 2 and
11 to our consolidated financial statements.
Director Compensation Table for 2014
The following table sets forth the cash and equity compensation paid to our non-employee directors for the
year ended December 31, 2014:
Name
Robert E. Denham ..................................................................... $
D. Richard Masson .................................................................... $
Wayne G. Pierson ...................................................................... $
Marna C. Whittington ................................................................. $
Jay S. Wintrob (3) ........................................................................ $
75,000
115,000
25,000
100,000
$
$
$
$
105,454
105,454
$
$
— $
Total
180,454
220,454
25,000
105,454
$
205,454
— $
— $
—
Fees Earned or
Paid in Cash (1)
Unit Awards (2)
(1)
Annual cash retainer and fees for supervision of audit-related activities. Mr. Pierson did not receive any fees
for his service as a member of our board of directors for the first three quarters of 2014 because he serves
as President of Acorn Investors, LLC, which indirectly holds a minority interest in the Oaktree Operating
Group units through OCGH. However, when Mr. Wintrob was hired by us as our Chief Executive Officer,
our Board elected Mr. Pierson as a member of our Audit Committee to replace Mr. Wintrob, and our Board
also approved to provide cash compensation to Mr. Pierson in the same manner as our other outside
directors.
206
(2)
(3)
On January 24, 2014, we granted 1,791 Class A units to each of Messrs. Denham, Masson and Wintrob
and Ms. Whittington, which will vest ratably over four years beginning on March 1, 2015, in consideration of
their service as members of our board of directors in 2014. The number of outstanding and unvested Class
A units held by Messrs. Denham, Masson and Ms. Whittington as of December 31, 2014 are 6,356, 3,493
and 4,346 units, respectively. We recognize expense for financial statement reporting purposes in respect
of the unvested units in OCGH received by our directors on the basis of the value of those units at the time
of the grant pursuant to ASC Topic 718, Accounting for Stock Compensation. Please see notes 2 and 11 to
our consolidated financial statements included elsewhere in this annual report for further information
concerning the assumptions underlying such expense.
On and after November 1, 2014 Mr. Wintrob no longer received remuneration as an outside director, and his
remuneration he received as an outside director in 2014 is reflected in the Summary Compensation Table.
During 2014, we compensated our outside directors through an annual cash retainer of $75,000, and, for
three of our outside directors, the grant of our Class A units. Directors who are also senior executives do not receive
any additional compensation for serving on our board of directors. Accordingly, Mr. Wintrob stopped receiving
remuneration in respect of his service as a director when he became our Chief Executive Officer on November 1,
2014. Members of our audit committee receive an additional annual retainer of $25,000, and the chair of the audit
committee receives an additional annual retainer of $15,000. All members of our board of directors are reimbursed
for their reasonable out-of-pocket expenses incurred in attending board meetings.
The number of Class A units granted is that number of Class A units having a value equal to $100,000,
determined based on the average closing price of the Class A units during the 20 trading days prior to January 1,
2014.
Compensation Committee Interlocks and Insider Participation
As described under “Directors, Executive Officers and Corporate Governance—Board Structure and
Governance—Controlled Company Exemption,” we are a “controlled company” within the meaning of the NYSE
corporate governance standards and do not have a compensation committee. Messrs. Marks, Karsh, Wintrob, and
Frank make all final determinations regarding executive officer compensation. For a description of certain
transactions involving us and our directors and executive officers, please see “Certain Relationships and Related
Transactions, and Director Independence.”
Compensation Committee Report
As described above, our board of directors does not have a compensation committee. The executive
committee of the board of directors identified below has reviewed and discussed with management the foregoing
Compensation Discussion and Analysis and, based on such review and discussion, has determined that the
Compensation Discussion and Analysis should be included in this annual report.
Howard S. Marks
Bruce A. Karsh
Jay S. Wintrob
John B. Frank
207
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The following table sets forth information regarding the current beneficial ownership of our Class A units and
Class B units and the OCGH units by:
• each person known to us to beneficially own more than 5% of any class of the outstanding voting
securities of Oaktree Capital Group, LLC;
• each of our directors;
• each of our named executive officers; and
• all directors and executive officers as a group.
The applicable percentage ownership with respect to the Class A units and the Class B units beneficially
owned is based on 43,771,659 Class A units outstanding and 109,974,898 Class B units outstanding as of February
24, 2015. The applicable percentage ownership with respect to the OCGH units beneficially owned represents the
applicable unitholder’s aggregate holdings of OCGH units and Class A units as a percentage of the 153,746,557
Oaktree Operating Group units outstanding as of February 24, 2015. This percentage represents the applicable
unitholder’s aggregate economic interest in the Oaktree Operating Group. Although holders of OCGH units are
entitled, subject to vesting requirements and transfer restrictions, to exchange their OCGH units for, at the option of
our board of directors, our Class A units on a one-for-one basis, an equivalent amount of cash based on then-
prevailing market prices, other consideration of equal value or any combination of the foregoing, such exchanges
require board approval and thus holders of OCGH units are not deemed to beneficially own the equivalent number
of Class A units.
Beneficial ownership is determined in accordance with the rules of the SEC. Under these rules, more than
one person may be deemed a beneficial owner of the same securities, and a person may be deemed a beneficial
owner of securities as to which he has no economic interest. To our knowledge, each person named in the table
below has sole voting and investment power with respect to all of the interests shown as beneficially owned by such
person, except as otherwise set forth in the notes to the table and pursuant to applicable community property laws.
Unless otherwise specified, the address of each person named in the table is c/o Oaktree Capital Group, LLC, 333
South Grand Avenue, 28th Floor, Los Angeles, CA 90071.
208
Executive Officers and Directors
Number
Percent
Number
Percent
Number
Percent
Class A Units
Beneficially Owned
Class B Units
Beneficially Owned
OCGH Units
Beneficially Owned (1)
Howard S. Marks ......................
Bruce A. Karsh .........................
Jay S. Wintrob ..........................
John B. Frank ...........................
David M. Kirchheimer ...............
Caleb S. Kramer .......................
Scott L. Graves .........................
Stephen A. Kaplan....................
Larry W. Keele ..........................
Sheldon M. Stone .....................
Robert E. Denham ....................
D. Richard Masson ...................
Wayne G. Pierson (3) .................
Marna C. Whittington ................
All executive officers and
directors as a group
(17 persons) ..........................
5% Unitholders
1,826
1,826
6,191
185
136
79
72
181
322
1,009
20,176
6,416
—
10,326
50,861
*
*
*
*
*
*
*
*
*
*
*
*
*
*
—
FMR LLC (4) ..............................
5,894,215
13.5%
Wellington Management Group
LLP (5) ...................................
Hawkins Capital, L.P. (6) ............
Acorn Investors, LLC ................
Oaktree Capital Group
2,489,196
2,332,915
—
5.7
5.4
—
— (2)
— (2)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
18,899,721
19,047,271
12.3%
12.4
—
2,211,542
1,584,716
1,078,392
1,367,438
1,907,905
4,060,135
10,644,843
—
3,090,401
—
—
—
1.4
1.0
*
*
1.2
2.6
6.9
—
2.0
—
—
65,419,859
42.6
—
—
—
8,210,090
—
—
—
5.3
—
Holdings, L.P. ........................
13,000
*
109,974,898
100%
—
Represents less than 1%.
*
(1) Subject to certain restrictions, each OCGH unitholder has the right, subject to the approval of our board of directors, to
exchange his or her vested units following the expiration of any applicable lock-up period pursuant to the terms of an
exchange agreement. Pursuant to the exchange agreement and the terms of the OCGH partnership agreement, the
OCGH units will be exchanged for, at the option of our board of directors, our Class A units on a one-for-one basis, an
equivalent amount of cash based on then-prevailing market prices, other consideration of equal value or any combination
of the foregoing, and we will cancel a corresponding number of Class B units.
(2) Excludes 13,000 Class A units and 109,974,898 Class B units held by OCGH. The general partner of OCGH is Oaktree
Capital Group Holdings GP, LLC. In their capacities as members of the executive committee of Oaktree Capital Group
Holdings GP, LLC holding more than 50% of the aggregate number of OCGH units held by all of the members of the
executive committee as a group, Mr. Marks and Mr. Karsh may be deemed to be beneficial owners of the securities held by
OCGH. Each of Mr. Marks and Mr. Karsh disclaims beneficial ownership of such securities.
(3) Excludes 8,210,090 OCGH units held by Acorn Investors, LLC, which Mr. Pierson may be deemed to beneficially own.
Mr. Pierson is the President of Acorn Investors, LLC and disclaims beneficial ownership of the OCGH units held by that
entity.
(4) Reflects Class A units beneficially owned as of December 31, 2014 by FMR LLC based on a Schedule 13G filed by FMR
LLC on February 13, 2015. The Schedule 13G includes 5,894,215 Class A units beneficially owned by Edward C. Johnson
3d and family members and Fidelity Management & Research Company (together with FMR LLC and Edward C. Johnson
3d, “Fidelity”), a wholly owned subsidiary of FMR LLC, in its capacity as investment adviser to various registered
investment companies (the “Fidelity funds”). Mr. Johnson is Chairman of FMR LLC. The Schedule 13G states that Mr.
Johnson and various family members, through their ownership of FMR LLC voting common stock and the execution of a
shareholders’ voting agreement, may be deemed a controlling group with respect to FMR LLC. The Schedule 13G also
states that neither FMR LLC nor Mr. Johnson has the sole power to vote or direct the voting of the shares owned directly
by the Fidelity funds, which power resides with the Fidelity funds’ boards of trustees pursuant to established guidelines.
The address of Fidelity is 245 Summer Street, Boston, Massachusetts 02210.
209
(5) Reflects Class A units beneficially owned as of December 31, 2014 by clients of one or more investment advisers directly
or indirectly owned by Wellington Management Group LLP (“Wellington”), based on a Schedule 13G filed by Wellington on
February 12, 2015. The address of Wellington is c/o Wellington Management Company LLP, 280 Congress Street,
Boston, Massachusetts 02210.
(6) Reflects Class A units beneficially owned as of December 31, 2014 by Hawkins Capital L.P., the general partner and
manager of Hawkins Investment Partnership L.P. (“HIP”), and Russell B. Hawkins, the sole portfolio manager of HIP, each
of whom may be deemed to share voting and dispositive power with respect to the Class A units held by HIP, based on a
Schedule 13G filed with the SEC by Hawkins Capital L.P. on February 18, 2015. The address of HIP, Hawkins Capital L.P.
and Mr. Hawkins is 600 Travis Street, Suite 6650, Houston, TX 77002.
Equity Compensation Plan Information
The following table sets forth information concerning the awards that may be issued under the 2011 Plan as
of December 31, 2014.
Plan Category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights (1)
Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans
(excluding
securities
reflected in
column (a)) (2)
(a)
(b)
(c)
Equity compensation plans approved by security holders................
Equity compensation plans not approved by security holders..........
Total (3) .............................................................................................
7,047,186
—
7,047,186
—
—
—
15,611,322
—
15,611,322
(1) Reflects the aggregate number of OCGH units, Class A units, phantom units and EVUs granted under the
2011 Plan as of December 31, 2014.
(2) The 2011 Plan provides that the maximum number of Units that may be delivered pursuant to awards under
the 2011 Plan is 22,300,000, as increased on January 1 of each year beginning in 2012 by a number of Units
equal to the excess of (a) 15% of the number of outstanding Oaktree Operating Group units on December 31
of the immediately preceding year over (b) the number of Oaktree Operating Group units that have been
issued or are issuable under the 2011 Plan as of such date, except that our board of directors may, in its
discretion, increase the number of Units covered by the 2011 Plan by a lesser amount. The issuance of Units
or the payment of cash upon the exercise of an award or in consideration of the cancellation or termination of
an award will reduce the total number of Units available under the 2011 Plan, as applicable. Units underlying
awards under the 2011 Plan that are forfeited, cancelled, expire unexercised or are settled in cash will be
available again to be used as awards under the 2011 Plan. However, Units used to pay the required exercise
price or tax obligations, or Units not issued in connection with the settlement of an award or that are used or
withheld to satisfy tax obligations of a participant, will not be available again for other awards under the 2011
Plan.
(3) As of December 31, 2014, 4,954,976 OCGH units have been granted under the 2007 Plan. However, such
amounts are not reflected in this table because our board of directors has resolved that the administrator of the
2007 Plan will no longer grant awards under the 2007 Plan. Please see note 11 to our consolidated financial
statements included elsewhere in this annual report for additional information.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Exchange Agreement
Under the terms of the OCGH limited partnership agreement, its general partner may elect in its discretion to
declare an open period during which an OCGH unitholder may exchange its unrestricted vested OCGH units for, at
the option of our board of directors, Class A units, an equivalent amount of cash based on then-prevailing market
prices, other consideration of equal value or any combination of the foregoing. The general partner determines the
210
number of units eligible for exchange within a given open period and, if the OCGH unitholders request to exchange
a number of units in excess of the amount eligible for exchange, which units to exchange taking into account such
factors as the general partner determines appropriate. Upon approval of our board of directors, OCGH units that
are selected for exchange in accordance with the foregoing will be exchanged, at the option of our board of
directors, into Class A units, an equivalent amount of cash based on then-prevailing market prices, other
consideration of equal value or any combination of the foregoing pursuant to the terms of the exchange agreement.
The exchange agreement provides that:
• such OCGH units will be acquired by the Intermediate Holding Companies in exchange for, at the option
of our board of directors, Class A units, an equivalent amount of cash based on then-prevailing market
prices, other consideration of equal value or any combination of the foregoing;
•
•
the OCGH units acquired by the Intermediate Holding Companies may then be redeemed by OCGH in
exchange for Oaktree Operating Group units;
the Intermediate Holding Companies may exchange Oaktree Operating Group units with each other such
that, immediately after such exchange, each Intermediate Holding Company holds Oaktree Operating
Group units only in the Oaktree Operating Group entity for which such Intermediate Holding Company
serves as the general partner; and
• we will cancel a corresponding number of Class B units.
Tax Receivable Agreement
As described above, subject to certain restrictions, including the approval of our board of directors, each
OCGH unitholder has the right to exchange his or her vested OCGH units for, at the option of our board of directors,
Class A units, an equivalent amount of cash based on then-prevailing market prices, other consideration of equal
value or any combination of the foregoing. Our Intermediate Holding Companies will deliver, at the option of our
board of directors, Class A units on a one-for-one basis, an equivalent amount of cash based on then-prevailing
market prices, other consideration of equal value or any combination of the foregoing in exchange for the applicable
OCGH unitholder’s OCGH units pursuant to the exchange agreement. These exchanges, including our purchase of
Oaktree Operating Group units in connection with the 2007 Private Offering and in connection with our initial public
offering in April 2012 and follow-on offerings in May 2013 and March 2014, resulted in, and are expected to result
in, increases in the tax basis of the tangible and intangible assets of the Oaktree Operating Group. These
increases in tax basis have increased and will increase (for tax purposes) depreciation and amortization deductions
and reduce gain on sales of assets, and therefore reduce the taxes of two of our Intermediate Holding Companies,
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc.
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. entered into a tax receivable agreement with the
OCGH unitholders that provides for the payment by Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. to the
OCGH unitholders of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that
Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. actually realizes (or is deemed to realize in the case of an early
termination payment by Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. or a change of control, as discussed
below) as a result of these increases in tax basis and of certain other tax benefits related to our entering into the tax
receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These
payment obligations are obligations of Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. and not of the Oaktree
Operating Group.
Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. expect to benefit from the remaining 15% of cash
savings, if any, in income tax that they realize. For purposes of the tax receivable agreement, cash savings in
income tax will be computed by comparing the actual income tax liability of Oaktree Holdings, Inc. or Oaktree AIF
Holdings, Inc. to the amount of such taxes that Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. would have
been required to pay had there been no increase to the tax basis of the tangible and intangible assets of the
Oaktree Operating Group as a result of the exchanges and had Oaktree Holdings, Inc. and Oaktree AIF
Holdings, Inc. not entered into the tax receivable agreement. An OCGH unitholder may also elect to make a
charitable contribution of units. In such a case, an exchange under the exchange agreement to facilitate a
charitable contribution will not result in an increase in the tax basis of the assets of the Oaktree Operating Group;
therefore, no payments will be made under the tax receivable agreement.
The term of the tax receivable agreement commenced upon the consummation of the 2007 Private Offering
and continues until all such tax benefits have been utilized or expired, unless Oaktree Holdings, Inc. or Oaktree AIF
Holdings, Inc. exercises its right to terminate the tax receivable agreement for an amount based on the agreed
payments remaining to be made under the agreement. Estimating the amount of payments that may be made
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under the tax receivable agreement is by its nature imprecise, as the calculation of amounts payable depends on a
variety of factors. The actual increase in tax basis, as well as the amount and timing of any payments under the tax
receivable agreement, will vary depending upon a number of factors, including:
•
•
•
•
•
the timing of the exchanges – for instance, the increase in any tax deductions will vary depending on the
fair market value, which may fluctuate over time, of the depreciable or amortizable assets of the Oaktree
Operating Group at the time of the transaction;
the price of our Class A units at the time of the exchanges – the increase in any tax deductions, as well as
the tax basis increase in other assets, of the Oaktree Operating Group, is directly proportional to the
market value of our Class A units at the time of the exchange;
the extent to which an exchange of OCGH units is taxable – if an exchange is not taxable for any reason
(for instance, in connection with a charitable contribution), increased deductions will not be available;
the amount and timing of our income – Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. will be
required to pay 85% of the tax savings as and when realized, if any; and
the corporate income tax rates (both U.S. federal and state and local) in effect at the time the tax
deductions are utilized to offset taxable income - since an increase in tax rates will generally result in
higher payments, and a decrease in tax rates will generally result in lower payments.
If Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. do not have taxable income, they are not required to
make payments under the tax receivable agreement for that taxable year because no tax savings will have been
actually realized. We expect that as a result of the size of the increases in the tax basis of the tangible and
intangible assets of the Oaktree Operating Group, the payments that we may make under the tax receivable
agreement will be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient
taxable income to realize the full tax benefit of the increased amortization of our assets, we expect that remaining
payments under the tax receivable agreement (“TRA payments”) in connection with the 2007 Private Offering, our
initial public offering in 2012 and our follow-on offerings in May 2013 and March 2014 will aggregate to $40.4 million
over the period ending approximately in 2029, $79.0 million over the period ending approximately in 2034, $109.0
million over the period ending in approximately 2035 and $80.0 million over the period ending in approximately
2036, respectively. We have begun to make payments in respect of the 2007 Private Offering, our initial public
offering and our 2013 follow-on offering. During the year ended December 31, 2014, we made TRA payments in
respect of the year ended December 31, 2013 of $2,161,908, $2,160,877, $1,002,495, $430,424, $176,939,
$165,489, $135,452, $309,475 and $954,108 to Howard Marks, our Co-Chairman and a director; Bruce Karsh, our
Co-Chairman, Chief Investment Officer and a director; Sheldon Stone, a principal and a director; D. Richard
Masson, a director; John B. Frank, our Vice Chairman and a director; Stephen A. Kaplan, a principal and a director;
B. James Ford, a Managing Director; Kevin Clayton, a former principal and former director; and Acorn Investors,
LLC, respectively. We have not yet begun to make TRA payments in respect of the March 2014 follow-on offering.
In addition, we expect that future TRA payments in connection with the 2007 Private Offering, our initial public
offering and the May 2013 and March 2014 follow-on offerings to Messrs. Marks, Karsh, Stone, Masson, Frank,
Kaplan, Ford and Clayton; David Kirchheimer, our Chief Financial Officer, a principal and a director; Larry Keele, a
principal and a director; Caleb Kramer, a Managing Director; Scott Graves, Head of Credit Strategies and a
Managing Director; Todd Molz, our General Counsel and Chief Administrative Officer; and Acorn Investors, LLC will
be approximately $68.4 million, $66.0 million, $32.9 million, $11.4 million, $6.0 million, $5.6 million, $4.2 million,
$9.5 million, $3.1 million, $3.0 million, $2.9 million, $2.5 million, $0.4 million and $27.9 million, respectively. Future
payments under the tax receivable agreement in respect of subsequent exchanges of OCGH units would be in
addition to these amounts and are expected to be substantial. The payments under the tax receivable agreement
are not conditioned upon OCGH unitholders’ continued ownership of interests in OCGH.
In addition, the tax receivable agreement provides that, upon certain mergers, asset sales, other forms of
business combinations or other changes of control, the obligations of Oaktree Holdings, Inc. and Oaktree AIF
Holdings, Inc. (or their successors) with respect to purchased interests would be based on certain assumptions,
including that Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. would have sufficient taxable income to fully
utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering
into the tax receivable agreement.
Decisions we make in the course of running our business, such as with respect to the realization of an
investment by one of our funds, may influence the timing and amount of payments made under the tax receivable
agreement. For example, if one of our funds disposes of assets, the disposition may accelerate payments under
the tax receivable agreement and increase the present value of such payments.
212
Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, Oaktree
Holdings, Inc. and Oaktree AIF Holdings, Inc. will not be reimbursed for any payments previously made under the
tax receivable agreement. As a result, in certain circumstances, payments could be made under the tax receivable
agreement in excess of Oaktree Holdings, Inc.’s and Oaktree AIF Holdings, Inc.’s cash tax savings. However, the
value of such excess payments may be recouped through reduced future payments of amounts otherwise payable
by Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. pursuant to the tax receivable agreement.
Oaktree Operating Group Partnership Agreements
Each of the Oaktree Operating Group partnerships either has as its sole general partner one of the
Intermediate Holding Companies or is indirectly controlled by the Intermediate Holding Companies. Accordingly,
Oaktree Capital Group, LLC operates all of the business and affairs of the Oaktree Operating Group and conducts
our business through the Oaktree Operating Group and its subsidiaries.
Pursuant to the partnership agreements of the Oaktree Operating Group partnerships, the Intermediate
Holding Companies that are the general partners of those partnerships (or entities controlled by the Intermediate
Holding Companies) have the right to determine when distributions will be made to the holders of Oaktree
Operating Group units and the amounts of any such distributions. If a distribution is authorized, the distribution will
be made to the holders of Oaktree Operating Group units pro rata in accordance with the percentages of their
respective interests.
Each of the Oaktree Operating Group partnerships has an identical number of units outstanding, and we use
the term “Oaktree Operating Group unit” to refer, collectively, to a unit in each of the Oaktree Operating Group
partnerships. As of February 24, 2015, there were 153,746,557 Oaktree Operating Group units outstanding. The
holders of Oaktree Operating Group units, including the Intermediate Holding Companies, will incur U.S. federal,
state and local income taxes on their proportionate share of any net taxable income of the Oaktree Operating
Group. Net profits and net losses of Oaktree Operating Group units generally are allocated to the holders of such
units (including the Intermediate Holding Companies) pro rata in accordance with the percentages of their
respective interests. The partnership agreement of each Oaktree Operating Group partnership provides for cash
distributions, which we refer to as “tax distributions,” to the partners of such partnership if we determine that the
allocation of the partnership’s income will give rise to taxable income for its partners. Generally, these tax
distributions are computed based on our estimate of the net taxable income of the relevant entity allocable to a
partner multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and
local income tax rate prescribed for an individual or corporate resident in Los Angeles, California or New York, New
York (taking into account the nondeductibility of certain expenses and the character of our income). Tax
distributions are made only to the extent that all distributions from the Oaktree Operating Group for the relevant
year were insufficient to cover such tax liabilities.
The partnership agreements of the Oaktree Operating Group partnerships also provide that substantially all
of our expenses will be borne by the Oaktree Operating Group (excluding, for example, obligations incurred under
the tax receivable agreement by the Intermediate Holding Companies, income tax expenses of the Intermediate
Holding Companies and payments on indebtedness incurred by the Intermediate Holding Companies).
Oaktree Capital Group Holdings, L.P. Units
OCGH unitholders hold OCGH units. OCGH, in turn, holds an equivalent number of Oaktree Operating
Group units. The units in OCGH held by the OCGH unitholders as of February 24, 2015 have vesting provisions.
Upon expiration of the vesting period, OCGH unitholders may, subject to certain restrictions, sell their OCGH units
or exchange their OCGH units into, at the option of our board of directors, Class A units, an equivalent amount of
cash based on then-prevailing market prices, other consideration of equal value or any combination of the foregoing
and, subsequently, sell any such Class A units received. OCGH and our board of directors may limit the number of
OCGH units that may be exchanged after expiration of the relevant vesting period, based on such factors as they
deem appropriate, including the market’s ability to absorb sales of the exchanged Class A units. As of the date of
this annual report, sales of Class A units by our employees may only be effected during “open periods” authorized
by us. The amount of OCGH units vesting will vary year to year, sometimes materially, but as of February 24, 2015,
OCGH units due to vest after 2015 represented approximately 3% of the total outstanding number of Oaktree
Operating Group units.
OCGH unitholders that are employees will generally forfeit all unvested units in OCGH upon termination of
their employment for any reason unless the termination is due to death or disability or if the forfeiture requirement is
waived. Except as otherwise set forth in any employment agreement or letter agreement, starting with OCGH unit
grants issued in 2014 any unvested OCGH units held by employees subject to four-year vesting will generally vest
in full upon termination of their employment by us without cause if such employee delivers to us a release for our
213
benefit. Any of the OCGH units that were outstanding at the time of the 2007 Private Offering that are forfeited will
be reallocated among the remaining OCGH unitholders at the time of such offering. Any of the OCGH units issued
after the date of the 2007 Private Offering that are forfeited will result in a corresponding forfeiture of Oaktree
Operating Group units held by OCGH.
Our Manager
Our operating agreement provides that so long as the Oaktree control condition is satisfied, our manager will
control the membership of our board of directors. Our board of directors will manage all of our operations and
activities and will have discretion over significant corporate actions, such as the issuance of securities, payment of
distributions, sales of assets, making certain amendments to our operating agreement and other matters.
Holders of our Class A units and Class B units have no right to elect our manager, which is controlled by our
senior executives.
Aircraft Use
In January 2010, we exercised a buyout provision in our then aircraft lease agreement and thereafter sold
the acquired plane to Mr. Karsh for an aggregate purchase price of $11,080,000. We and Mr. Karsh agreed that we
would have the option of leasing this plane from him for business-related purposes on a non-exclusive basis
pursuant to a lease agreement. During the year ended December 31, 2014, we paid Mr. Karsh $1,053,382 in
connection with our use of his plane under this lease agreement. In addition, during the year ended December 31,
2014, Mr. Marks paid us $437,908 in reimbursement for operating costs of our existing corporate plane that we had
incurred on his behalf in connection with his personal use of such plane.
Investments in Funds
Our directors and executive officers are permitted to invest their own capital (or the capital of family trusts or
other estate planning vehicles they control) in our funds. These investment opportunities are available to all of our
professionals who we have determined have a status that reasonably permits us to offer them these types of
investments in compliance with applicable laws and regulations. These investment opportunities are available on
the same terms and conditions as those applicable to third-party investors in our funds and bear their share of
management fees, except that they are not subject to incentive fees. As of December 31, 2014, we manage over
$680.0 million of AUM invested by our directors, executive officers and certain current and former employees in our
funds. During the year ended December 31, 2014, the following directors (or former director) and executive officers
made the following contributions of their own capital (and/or the capital of family trusts or other estate planning
vehicles they control) to our funds and are expected to continue to contribute capital in our funds from time to time:
Mr. Clayton contributed an aggregate of $1,812,582; Mr. Denham contributed an aggregate of $142,200; Mr. Frank
contributed an aggregate of $3,175,071; Mr. Graves contributed an aggregate of $781,626; Mr. Kaplan contributed
an aggregate of $316,362; Mr. Karsh and an organization affiliated with Mr. Karsh contributed an aggregate of
$19,668,680; Mr. Keele contributed an aggregate of $1,476,247; Mr. Kirchheimer contributed an aggregate of
$4,147,044; Mr. Marks contributed an aggregate of $11,770,000; Mr. Stone contributed an aggregate of
$24,518,909; Ms. Whittington contributed an aggregate of $149,900; and Mr. Wintrob contributed an aggregate of
$2,240,000, respectively. During the year ended December 31, 2014, the following directors (or former director)
and executive officers (and/or family trusts or other estate planning vehicles they control) received the following net
distributions from our funds as a result of their invested capital: Mr. Clayton received $631,913; Mr. Frank received
$890,958; Mr. Kaplan received $702,236; Mr. Karsh and an organization affiliated with Mr. Karsh received an
aggregate of $12,170,152; Mr. Keele received $1,096,804; Mr. Kirchheimer received $1,478,332; Mr. Marks
received $15,220,967; Mr. Masson received $1,588,239; Mr. Stone received $19,288,391; and Mr. Wintrob received
$417,136 from our funds, respectively.
Transactions with Kevin Clayton
Mr. Clayton was a principal and a director of the Company until July 31, 2014. Starting in 2011, we paid
Mr. Clayton a salary and participation profits that totaled approximately $5,000,000 per year. During 2014, we paid
Mr. Clayton $2,904,110 under this arrangement for the period in which he was employed with us.
Offsets to Distributions in Respect of OCGH Units
Pursuant to an agreement between Mr. Marks and Oaktree Capital Management (UK) LLP, a subsidiary of
ours in the United Kingdom, we provide £150,000 ($232,980 based on the average exchange rate for the 24-hour
period ending December 31, 2014 as reported by www.oanda.com) per year to Mr. Marks, which is offset by
distributions in respect of OCGH units to which Mr. Marks is entitled. In accordance with ASC Topic 718, the
payment of future distributions in respect of OCGH units is factored into the grant date fair value of the OCGH units
214
(which value is used for determining the compensation expense for such units under ASC Topic 718) and any
distributions made with respect to such units are therefore not treated as an additional compensation expense by
such subsidiary in the year in which such distributions are paid.
Transactions with other Related Persons
We have and may in the future continue to enter into ordinary course transactions with unaffiliated entities
known to us to beneficially own more than 5% of any class of the outstanding voting securities of the Company.
These transactions may include investments by them or their affiliates in our funds generally on the same terms and
conditions offered to other unaffiliated fund investors and participation in our capital markets transactions, including
underwritings and syndications, generally on the same terms and conditions offered to other unaffiliated capital
markets participants. See “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.”
Limitations on Liability; Indemnification of Directors, Officers and Manager
Our operating agreement provides that our directors and officers will be liable to us or our unitholders for an
act or omission only if such act or omission constitutes a breach of the duties owed to us or our unitholders, as
applicable, by any such director or officer and such breach is the result of (a) willful malfeasance, gross negligence,
the commission of a felony or a material violation of law, in each case, that has or could reasonably be expected to
have a material adverse effect on us or (b) fraud and that our manager will not be liable to us or our unitholders for
its actions.
Moreover, in our operating agreement we have agreed to indemnify our directors, officers and manager, to
the fullest extent permitted by law, against all expenses and liabilities (including judgments, fines, penalties, interest,
amounts paid in settlement with our approval and counsel fees and disbursements) arising from the performance of
any of their obligations or duties in connection with their service to us, including in connection with any civil,
criminal, administrative, investigative or other action, suit or proceeding to which any such person may hereafter be
made a party by reason of being or having been one of our directors or officers or our manager, except for any
expenses or liabilities that have been finally judicially determined to have arisen primarily from acts or omissions
that violated the standard set forth in the preceding paragraph.
The indemnification rights that we provide to our directors and officers are more expansive than those
provided to the directors and officers of a Delaware corporation.
In addition to the indemnity that exists in our operating agreement, our subsidiary Oaktree Capital
Management, L.P. has entered into separate indemnification agreements with each of our directors and our
executive officers, that indemnify them, to the fullest extent permitted by applicable law, against all expenses and
liabilities (including judgments, fines, penalties, interest and amounts paid in settlement) incurred by them in
connection with any proceeding in which any of them are made a party to or any claim, issue or matter, except to
the extent that it shall have been determined in a final non-appealable judgment by a court of competent jurisdiction
that such expenses and liabilities arose primarily from acts or omissions that constituted a breach of their duties and
such breach was the result of (a) willful malfeasance, gross negligence, the commission of a felony or a material
violation of applicable law (including any federal or state securities law), in each case, that resulted in, or could
reasonably be expected to result in, a material adverse effect on us or our affiliates or (b) fraud. Such
indemnification agreements will continue until and terminate upon the later of (a) 10 years after the indemnitee has
ceased to occupy any positions or have any relationships with us or any of our affiliates, (b) the final termination of
all proceedings pending or threatened during such period to which any indemnitee may be subject and (c) the
expiration of the applicable statute of limitations for any possible claim or threatened, pending or completed action,
suit or proceeding.
Statement of Policy Regarding Transactions with Related Persons
Our board of directors has adopted a written statement of policy for our company regarding transactions with
related persons. Our related person policy covers any “related person transaction” including, but not limited to, any
transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or series of
similar transactions, arrangements or relationships that is reportable by us under Item 404(a) of Regulation S-K in
which we were or are to be a participant and the amount involved exceeds $120,000 and in which any “related
person” (as defined in Item 404(a) of Regulation S-K) had or will have a direct or indirect material interest. With
certain limited exceptions, our related person policy requires that each related person transaction, and any material
amendment or modification to a related person transaction, be reviewed and approved or ratified by a committee or
subcommittee of our board of directors composed solely of disinterested directors, by a majority of the disinterested
215
members of our board of directors, by a majority of disinterested members of the executive committee of our board
of directors or as otherwise approved in accordance with our operating agreement.
Director Independence
Because our senior executives represent more than 50% of our voting power, we are a “controlled
company” as defined in the NYSE corporate governance standards. Accordingly, we have elected not to comply
with certain NYSE corporate governance standards, including the requirements that a majority of our board of
directors consist of independent directors and that we have a compensation committee and a nominating/corporate
governance committee with written charters addressing the committee’s purpose and responsibilities that are
composed entirely of independent directors.
At such time that we are no longer deemed a controlled company, the board of directors will become
comprised of a majority of independent directors in accordance with the applicable standards set forth by the SEC
and NYSE for determining director independence. Presently, in applying such SEC and NYSE independence
standards and the independence standards described in our corporate governance guidelines, the board of
directors has determined that three of its members, namely Messrs. Masson and Pierson and Ms. Whittington, are
each independent. Please see “Directors, Executive Officers and Corporate Governance—Board Structure and
Governance” and “—Corporate Governance Guidelines.”
216
Item 14. Principal Accounting Fees and Services
The following table sets forth the aggregate fees for professional services provided by our independent
registered public accounting firm, PricewaterhouseCoopers LLP, for the years ended December 31, 2014 and 2013:
For the Year Ended December 31,
2014
2013
Oaktree
Capital
Group, LLC
Oaktree
Funds
Oaktree
Capital
Group, LLC
Oaktree
Funds
($ in thousands, except where noted)
Audit fees (1) ............................................................................... $
Audit-related fees (2) ...................................................................
Tax fees (3) ..................................................................................
5,944
$
316
3,803
5,006
4,401
15,534
$
4,268
$
239
3,489
4,500
1,660
12,877
(1) Audit fees consist of fees for services related to the annual audit of our consolidated financial statements,
reviews of our interim consolidated financial statements on Form 10-Q, SEC registration statements,
accounting consultations and services that are normally provided in connection with statutory and regulatory
filings and engagements. Fees in 2014 include $0.4 million related to 2013 audits.
(2) Audit-related fees consist of fees related to financial due diligence services in connection with acquisitions of
portfolio companies for investment by funds managed by Oaktree in its capacity as general partner, as well as
examinations of our investment adviser operations controls.
(3) Tax fees consist of fees related to tax compliance and tax advisory services, including tax diligence services in
connection with acquisitions of portfolio companies for investments by funds managed by Oaktree in its
capacity as general partner. Fees in 2013 include $0.6 million and $2.3 million for services rendered in 2012
to Oaktree Capital Group, LLC and Oaktree funds, respectively.
In accordance with our audit committee charter, the audit committee is required to approve, in advance, all
audit and non-audit services to be provided by our independent registered public accounting firm,
PricewaterhouseCoopers LLP. All services reported in the Audit, Audit-related, Tax and All other categories above
were approved by the audit committee. Our audit committee charter is available on our website at
www.oaktreecapital.com under the “Unitholders” section.
PART IV.
Item 15. Exhibits, Financial Statement Schedules
(a)
The following documents are filed as part of this report:
Financial statements: Please see Item 8 above.
(1)
Financial statement schedules: Schedules for which provision is made in the applicable accounting
(2)
regulations of the SEC are not required under the related instructions or are not applicable and
therefore have been omitted.
Exhibits: For a list of exhibits filed with this report, please refer to the Exhibits Index on the page
immediately preceding the exhibits, which Exhibit Index is incorporated herein by reference.
(3)
217
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2015
Oaktree Capital Group, LLC
By:
Name:
Title:
/s/ Susan Gentile
Susan Gentile
Chief Accounting Officer and Managing Director
and Authorized Signatory
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant in the capacities indicated on this 27th day of February 2015:
Signature
Title
/s/ Howard S. Marks
Howard S. Marks
/s/ Bruce A. Karsh
Bruce A. Karsh
/s/ Jay S. Wintrob
Jay S. Wintrob
/s/ John B. Frank
John B. Frank
/s/ David M. Kirchheimer
David M. Kirchheimer
/s/ Susan Gentile
Susan Gentile
/s/ Stephen A. Kaplan
Stephen A. Kaplan
/s/ Larry W. Keele
Larry W. Keele
/s/ Sheldon M. Stone
Sheldon M. Stone
/s/ Robert E. Denham
Robert E. Denham
/s/ D. Richard Masson
D. Richard Masson
/s/ Wayne G. Pierson
Wayne G. Pierson
Director and Co-Chairman
Director, Co-Chairman and Chief Investment Officer
Director and Chief Executive Officer
(Principal Executive Officer)
Director and Vice Chairman
Director, Chief Financial Officer and Principal
(Principal Financial Officer)
Chief Accounting Officer and Managing Director
(Principal Accounting Officer)
Director and Principal
Director and Principal
Director and Principal
Director
Director
Director
/s/ Marna C. Whittington
Marna C. Whittington
Director
218
Exhibit No.
Description of Exhibit
EXHIBITS INDEX
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
Restated Certificate of Formation of the Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant’s Registration Statement on Form S-1, filed with the SEC on June 17, 2011).
Third Amended and Restated Operating Agreement of the Registrant dated as of August 31, 2011
(incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1,
filed with the SEC on September 2, 2011).
Amendment to Third Amended and Restated Operating Agreement of the Registrant dated as of
March 29, 2012 (incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement
on Form S-1, filed with the SEC on March 30, 2012).
Specimen Certificate evidencing the Registrant’s Class A units (incorporated by reference to Exhibit
4.1 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 2,
2011).
Note Purchase Agreement, by and among Oaktree Capital Management, LLC and the purchasers
named therein, dated as of June 14, 2004, for $75,000,000 in aggregate principal amount of 5.03%
Senior Notes due June 14, 2014 (incorporated by reference to Exhibit 4.2 to the Registrant’s
Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Amendment No. 1 to the June 14, 2004 Note Purchase Agreement, by and among Oaktree Capital
Management, LLC and the other parties thereto, dated as of March 15, 2006 (incorporated by
reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-1, filed with the SEC
on August 1, 2011).
Amendment No. 2 and Waiver to the June 14, 2004 Note Purchase Agreement, by and among
Oaktree Capital Management, LLC and the other parties thereto, dated as of June 6, 2006
(incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-1,
filed with the SEC on August 1, 2011).
Form of 5.03% Senior Note due June 14, 2014 (incorporated by reference to Exhibit 4.5 to the
Registrant’s Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Assumption and Guaranty Agreement, by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree
Media Investments, L.P. in favor of the holders of the 5.03% Senior Notes due June 14, 2014
(incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form S-1,
filed with the SEC on August 1, 2011).
Note Purchase Agreement, by and among Oaktree Capital Management, LLC and the purchasers
named therein, dated as of June 6, 2006, for $50,000,000 in aggregate principal amount of 6.09%
Senior Notes due June 6, 2016 (incorporated by reference to Exhibit 4.7 to the Registrant’s
Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Form of 6.09% Senior Note due June 6, 2016 (incorporated by reference to Exhibit 4.8 to the
Registrant’s Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Assumption and Guaranty Agreement, by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree
Media Investments, L.P. in favor of the holders of the 6.09% Senior Notes due June 6, 2016
(incorporated by reference to Exhibit 4.9 to the Registrant’s Registration Statement on Form S-1,
filed with the SEC on August 1, 2011).
Note Purchase Agreement, by and among Oaktree Capital Management, LLC and the purchasers
named therein, dated as of November 8, 2006, for $50,000,000 in aggregate principal amount of
5.82% Senior Notes due November 8, 2016 (incorporated by reference to Exhibit 4.10 to the
Registrant’s Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Form of 5.82% Senior Note due November 8, 2016 (incorporated by reference to Exhibit 4.11 to the
Registrant’s Registration Statement on Form S-1, filed with the SEC on September 2, 2011).
Assumption and Guaranty Agreement, by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree
Media Investments, L.P. in favor of the holders of the 5.82% Senior Notes due November 8, 2016
(incorporated by reference to Exhibit 4.12 to the Registrant’s Registration Statement on Form S-1,
filed with the SEC on August 1, 2011).
219
4.13
4.14
4.15
4.16
4.17
4.18
4.19
10.1
10.2
10.3
10.4
10.5
10.6
10.7
Amendment and Waiver to the June 25, 2001 Note Purchase Agreement, the June 14, 2004 Note
Purchase Agreement, the June 6, 2006 Note Purchase Agreement and the November 8, 2006 Note
Purchase Agreement, by and among Oaktree Capital Management, LLC and the other parties
thereto, dated as of May 16, 2007 (incorporated by reference to Exhibit 4.13 to the Registrant’s
Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Second Amendment and Waiver to the June 25, 2001 Note Purchase Agreement, the June 14, 2004
Note Purchase Agreement, the June 6, 2006 Note Purchase Agreement and the November 8, 2006
Note Purchase Agreement, by and among Oaktree Capital Management, L.P., Oaktree Capital I,
L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P. and the other parties thereto, dated as of
July 6, 2010 (incorporated by reference to Exhibit 4.14 to the Registrant’s Registration Statement on
Form S-1, filed with the SEC on August 1, 2011).
Indenture, dated as of November 24, 2009, by and among Oaktree Capital Management, L.P., as
Issuer, Oaktree Capital Group, LLC, Oaktree Capital Group Holdings, L.P., Oaktree Capital II, L.P.
and Oaktree AIF Investments, L.P., each an Initial Guarantor, and Wells Fargo Bank, National
Association, as Trustee, with respect to 6.75% Senior Notes Due 2019 (incorporated by reference to
Exhibit 4.15 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on August 1,
2011).
Note and Guaranty Agreement, dated as of July 11, 2014, by and among Oaktree Capital
Management, L.P., Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P.
and each of the purchasers party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K, filed with the SEC on July 15, 2014).
Form of 3.91% Senior Notes, Series A, due September 3, 2024 (incorporated by reference to Exhibit
4.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 15, 2014).
Form of 4.01% Senior Notes, Series B, due September 3, 2026 (incorporated by reference to Exhibit
4.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 15, 2014).
Form of 4.21% Senior Notes, Series C, due September 3, 2029 (incorporated by reference to Exhibit
4.4 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 15, 2014).
Amended and Restated Limited Partnership Agreement of Oaktree Capital I, L.P., dated as of
May 25, 2007 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement
on Form S-1, filed with the SEC on August 1, 2011).
Amended and Restated Limited Partnership Agreement of Oaktree Capital II, L.P., dated as of
May 25, 2007 (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement
on Form S-1, filed with the SEC on August 1, 2011).
Limited Partnership Agreement of Oaktree Capital Management, L.P., dated as of May 25, 2007
(incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1,
filed with the SEC on August 1, 2011).
Amended and Restated Limited Partnership Agreement of Oaktree Capital Management (Cayman),
L.P., dated as of May 25, 2007 (incorporated by reference to Exhibit 10.4 to the Registrant’s
Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Second Amended and Restated Limited Partnership Agreement of Oaktree Investment Holdings,
L.P., dated as of May 25, 2011 (incorporated by reference to Exhibit 10.5 to the Registrant’s
Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Second Amended and Restated Limited Partnership Agreement of Oaktree AIF Investments, L.P.,
dated as of October 29, 2008 (incorporated by reference to Exhibit 10.6 to the Registrant’s
Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Second Amended and Restated Tax Receivable Agreement, dated as of March 29, 2012, by and
among Oaktree Holdings, Inc., Oaktree AIF Holdings, Inc., Oaktree Capital II, L.P., Oaktree Capital
Management, L.P., Oaktree Investment Holdings, L.P., Oaktree AIF Investments, L.P. and the other
parties from time to time party thereto (incorporated by reference to Exhibit 10.7 to the Registrant’s
Registration Statement on Form S-1, filed with the SEC on March 30, 2012).
220
10.8
10.9
10.9.1
10.10
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
Second Amended and Restated Exchange Agreement, dated as of March 29, 2012, by and among
Oaktree Capital Group, LLC, OCM Holdings I, LLC, Oaktree Holdings, Inc., Oaktree AIF Holdings,
Inc., Oaktree Holdings, Ltd., Oaktree Capital Group Holdings, L.P. and the other parties from time to
time party thereto (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration
Statement on Form S-1, filed with the SEC on March 30, 2012).
Credit Agreement, dated as of March 31, 2014, by and among Oaktree Capital Management, L.P.,
Oaktree Capital II, L.P., Oaktree AIF Investments, L.P., Oaktree Capital I, L.P., the Lenders party
thereto, Wells Fargo Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line
Lender, and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Lead Bookrunner
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with
the SEC on April 4, 2014).
First Amendment, dated November 3, 2014, to the March 31, 2014 Credit Agreement by and among
Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P., Oaktree
Capital I, L.P., the Lenders party thereto, Wells Fargo Bank, National Association, as Administrative
Agent, L/C Issuer and Swing Line Lender, and Wells Fargo Securities, LLC, as Sole Lead Arranger
and Sole Lead Bookrunner (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2014, filed with the SEC on November 7,
2014).
Form of Indemnification Agreement by and between Oaktree Capital Management, L.P. and the
director or officer named therein (incorporated by reference to Exhibit 10.11 to the Registrant’s
Registration Statement on Form S-1, filed with the SEC on October 20, 2011).
2007 Oaktree Capital Group Equity Incentive Plan and forms of award agreements thereunder
(incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1,
filed with the SEC on August 1, 2011).
Summary Employment Agreement by and among Oaktree Capital Management Limited and Howard
Marks, dated as of September 26, 2006 (incorporated by reference to Exhibit 10.14 to the
Registrant’s Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Summary Employment Agreement by and among Oaktree Capital Management, L.P. and Kevin
Clayton, dated as of April 26, 2011 (incorporated by reference to Exhibit 10.15 to the Registrant’s
Registration Statement on Form S-1, filed with the SEC on August 1, 2011).
Form of Management Fee Sharing Letter Agreement (incorporated by reference to Exhibit 10.16 to
the Registrant’s Registration Statement on Form S-1, filed with the SEC on March 30, 2012).
Form of Profit Sharing Letter Agreement (incorporated by reference to Exhibit 10.17 to the
Registrant’s Registration Statement on Form S-1, filed with the SEC on March 30, 2012).
Fifth Amended and Restated Limited Partnership Agreement of Oaktree Fund GP I, L.P., dated as of
July 28, 2011 (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement
on Form S-1, filed with the SEC on August 1, 2011).
Fifth Amended and Restated Limited Partnership Agreement of Oaktree Fund GP II, L.P., dated as of
July 28, 2011 (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement
on Form S-1, filed with the SEC on August 1, 2011).
Third Amended and Restated Limited Partnership Agreement of Oaktree Fund GP III, L.P., dated as
of July 28, 2011 (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration
Statement on Form S-1, filed with the SEC on August 1, 2011).
Form of Oaktree Capital Group, LLC 2011 Equity Incentive Plan (incorporated by reference to Exhibit
10.24 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on October 3,
2011).
Form of Grant Agreement under the Oaktree Capital Group, LLC 2011 Equity Incentive Plan.
Amended and Restated Employment Agreement by and among the Registrant, Oaktree Capital
Management, L.P. and Jay S. Wintrob dated February 24, 2015.
Letter Agreement between Oaktree Capital Management, L.P. and Jay S. Wintrob dated October 6,
2014.
221
10.23*
Amended and Restated Grant Agreement under the Oaktree Capital Group, LLC 2011 Equity
Incentive Plan by and among Oaktree Capital Group Holdings, L.P., Oaktree Capital Group Holdings
GP, LLC and Jay S. Wintrob dated February 24, 2015.
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of the Registrant.
Consent of PricewaterhouseCoopers LLP.
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
* Management contract or compensatory plan or arrangement.
222
Exhibit 10.20
FORM OF
GRANT AGREEMENT
UNDER THE
OAKTREE CAPITAL GROUP, LLC
2011 EQUITY INCENTIVE PLAN
This GRANT AGREEMENT (as may be amended, modified, supplemented or restated from
time to time, this “Agreement”) is effective as of [ ] (the “Effective Date”), by and among OAKTREE
CAPITAL GROUP HOLDINGS, L.P., a Delaware limited partnership (the “Partnership”), OAKTREE
CAPITAL GROUP HOLDINGS GP, LLC, a Delaware limited liability company (in its capacity as the
general partner of the Partnership, the “General Partner”), and you (the “Participant”). Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to them in the Oaktree Capital Group,
LLC 2011 Equity Incentive Plan (the “Plan”) and the Fourth Amended and Restated Limited Partnership
Agreement of the Partnership, dated as of January 1, 2014 (as amended, modified, supplemented or restated
from time to time, the “Partnership Agreement”), as applicable. This Agreement shall be deemed executed,
accepted and agreed to by all parties hereto upon the Participant’s acceptance of this Agreement by clicking
on the “Accept” button related to this Award in the Oaktree equity portal established to facilitate the grant
of Awards under the Plan (the “Oaktree Equity Portal”).
Recitals
WHEREAS, the Plan was adopted for purposes of promoting the long-term financial interests
and growth of the Oaktree Group by, among other things, providing select investment professionals,
employees, directors, consultants and advisors of the Oaktree Group with equity-based awards based upon
Units (as defined under the Plan); and
WHEREAS, either the Committee authorized to administer the Plan by the Board or the Board
has approved the grant and issuance of the Granted Units (as defined below) to the Participant pursuant to
the Plan, subject to the terms and conditions of the Grant Documents (as defined below).
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein
contained, the parties hereto, intending to be legally bound, hereby agree as follows:
Agreement
1.
Grant of Units. Subject to the terms and conditions of this Agreement, the Partnership
Agreement and the other Grant Documents:
(a)
the Partnership hereby grants and issues to the Participant, and the Participant hereby
accepts and receives from the Partnership, the number of Units of the Partnership specified for the
Participant on the Oaktree Equity Portal related to this specific Award under the column “Units
Awarded” (the “Granted Units”), which Granted Units shall have an aggregate Award Value specified
on the Oaktree Equity Portal related to this specific Award;
(b)
if the Participant is not already a Limited Partner, then the Participant is hereby
admitted as a Limited Partner, and each of the General Partner, the Partnership and the Participant
hereby consents to such admission;
(c)
the Participant hereby acknowledges that he or she has received and has reviewed
carefully a copy of (i) the Partnership Agreement, (ii) the Exchange Agreement, (iii) the Tax
Receivable Agreement, (iv) the Plan, and (v) each other agreement, instrument or document required
by any Oaktree Group Member to be executed and delivered by the Participant in connection with
the transactions contemplated by this Agreement (collectively, including the Partnership Agreement,
the Exchange Agreement, the Tax Receivable Agreement, and the Plan, as each such document may
be amended, modified, supplemented or restated in accordance with its respective terms from time
to time, the “Grant Documents”);
(d)
if the Participant is not already a party to the Partnership Agreement, the Exchange
Agreement and the Tax Receivable Agreement, then the Participant hereby joins as a party to, and
agrees to be bound by each and every provision of, the Partnership Agreement, the Exchange
Agreement and the Tax Receivable Agreement; and
(e)
for the avoidance of doubt, the Participant shall not be entitled to receive quarterly
distributions, if any, from the Partnership with respect to the Granted Units that are attributable to
the fourth quarter of 2014 paid by the Partnership to its Limited Partners during the first quarter of
2015.
2.
Vesting of Units. Each Granted Unit shall be unvested as of the Effective Date. [Insert
specific vesting language depending on vesting schedule for Participant].
3.
Forfeiture of Units. [For four-year vesting grants, this section will generally be
omitted.][For all other grants, the following language will be included: Notwithstanding anything to the
contrary contained in Section 4.5 of the Partnership Agreement, the Participant hereby agrees that if the
Participant ceases to provide services to the Oaktree Group (other than as a result of his or her Incapacitation),
for any reason or no reason at all (including a termination of such services by any Oaktree Group Member
without Cause), then all unvested Granted Units of the Participant hereunder shall be immediately and
automatically forfeited on the effective date the Participant ceases to provide services to the Oaktree Group
without any further action by any parties hereto. For the avoidance of doubt, Section 4.4(d)(iii) of the
Partnership Agreement shall not apply to the Granted Units.]
4.
Participant’s Obligation to Pay Taxes.
(a)
The Participant shall be responsible for any and all taxes relating to the Granted Units,
including amounts due upon the vesting of any Granted Units or relating to allocations of income
with respect to the Granted Units. Without limiting Section 7.8 of the Partnership Agreement and
Section 15(c) of the Plan, the Participant hereby agrees that the Partnership has the right to require
reimbursement from the Participant of any such taxes that are paid by the Partnership and to deduct
any such taxes from any payment of any kind otherwise due to the Participant, including as necessary
to satisfy any foreign, U.S. federal, state or local withholding tax requirements and from payments
receivable by the Participant under the Grant Documents. As security for the full, prompt and complete
payment and performance when due of all of the Participant’s obligations under this Paragraph 4
(including its obligation to reimburse the Partnership for any such taxes that are paid by the
Partnership), the Participant hereby unconditionally and irrevocably grants to the Partnership a
security interest in the Granted Units and on all proceeds directly or indirectly receivable by the
Partnership in respect of the Granted Units (including any distributions by the Partnership to the
Participant in respect of the Granted Units and any proceeds receivable by the Participant in connection
with the sale of the Granted Units). The Participant shall take such actions as the Partnership may
2
request from time to time to perfect or enforce such security interest and to otherwise maintain such
security interest as a first priority lien in favor of the Partnership.
(b) Without limiting the generality of clause (a) above, the General Partner may, in its
sole and absolute discretion, permit the Participant to satisfy, in whole or in part, the foregoing
withholding liability by (i) the delivery of Mature Units, of the same type of Units as are subject to
this Agreement, owned by the Participant having a Fair Market Value equal to such withholding
liability and any follow-on tax obligations incurred as a result of the disposition of such Mature Units
(with all tax calculations to be undertaken by the General Partner in good faith and in its sole and
absolute discretion) to Oaktree Capital Group, LLC, a Delaware limited liability company (“OCG”),
or any of its subsidiaries on behalf of the Partnership, as applicable or (ii) having OCG or any of its
subsidiaries, or OCG or any of its subsidiaries on behalf of the Partnership, as applicable, deliver in
settlement of the Granted Units the number of vested Granted Units less a number of Units with a
Fair Market Value equal to such withholding liability (but no more than the minimum required
statutory withholding liability); provided, that the mechanisms described in the foregoing clauses (i)
and (ii) shall only be available if and to the extent the Participant has notified the General Partner of
his or her desire to use either mechanism within such time period as the General Partner may require
from time to time before the date on which the applicable Granted Units become vested Granted
Units.
5.
Certain Representations, Warranties, Covenants and Agreements. As an essential
inducement to the Partnership to grant and issue the Granted Units to the Participant, the Participant hereby
represents and warrants to the Oaktree Group as follows:
(a)
Authority and Capacity. The Participant has the legal capacity to agree to, execute
and deliver each Grant Document and to perform all of his or her obligations thereunder. The
Participant is deemed to have duly executed and delivered this Agreement upon accepting its terms
on the Oaktree Equity Portal, and each Grant Document constitutes the legal, valid and binding
obligation of the Participant, enforceable against the Participant in accordance with their respective
terms.
(b)
No Conflict; Satisfaction of Conditions to Membership Transactions. Neither the
execution, acceptance and delivery by the Participant of any Grant Document, nor the performance
by the Participant of his or her obligations thereunder, violates, conflicts with or constitutes a default
or breach under, or will violate, conflict with or constitute a default or breach under any applicable
law or any contract, indenture, agreement, instrument or mortgage binding on the Participant or any
of his or her properties. To the best knowledge of the Participant, neither the grant and issuance of
the Granted Units to the Participant, nor the ownership by the Participant of the Granted Units, nor
the status of the Participant as a Limited Partner:
(i)
would reasonably be expected to result in the violation by the Partnership, the
General Partner or any other Oaktree Related Person (as defined below) of any
applicable law, including any applicable U.S. federal or state securities laws;
(ii)
would reasonably be expected to terminate the existence or qualification of
the Partnership under the laws of any jurisdiction;
(iii) would reasonably be expected to cause the Partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for
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U.S. federal income tax purposes (to the extent not already so treated or taxed);
or
(iv) would reasonably be expected to subject the Partnership, the General Partner
or any other Oaktree Related Person to any material regulatory requirement
to which it, he or she otherwise would not be subject, including any requirement
that the Partnership register as an investment company under the Investment
Company Act or as a result of all or any portion of the Partnership’s assets
becoming or being deemed to be “plan assets” for purposes of ERISA.
(c)
Suitability. The Participant meets all suitability standards or eligibility requirements
imposed by the jurisdiction of his or her residence for his or her acquisition of the Granted Units
pursuant to the Grant Documents. The Participant has such knowledge and experience in financial
and business matters that he or she is capable of evaluating the merits and risks of an investment in
the Granted Units and protecting his or her own interests in connection with such investment.
(d)
Access to Information. The Participant (i) has been provided with ample opportunity
to discuss each Grant Document, the Granted Units and the Oaktree Business (as defined below) with
the General Partner and to ask the General Partner such questions regarding each Grant Document,
the Granted Units and the Oaktree Business, and to receive such answers to such questions and such
other information, as the Participant deems necessary, appropriate or advisable, and (ii) has been
provided with ample opportunity to consult with such legal, tax, financial and other advisors of the
Participant regarding each Grant Document, the Granted Units and the Oaktree Business as the
Participant deems necessary, appropriate or advisable. The Participant has a preexisting personal and
business relationship with the senior executives of the Oaktree Group, and such personal and business
relationship is of a nature and duration so as to enable the Participant to be aware of their character,
business acumen and general business and financial circumstances.
(e)
Independent Investment Decision. The Participant is relying on his or her own
independent investigation and the information contained in the Grant Documents, and the Participant
is not relying on any Person (other than his or her own legal, tax, financial and other advisors) or any
representation or warranty made by any Oaktree Related Person, in each case, in deciding to own
and hold the Granted Units. Without limiting the foregoing, no representation or warranty has been
made to the Participant by any Oaktree Related Person as to the existing value or the future performance
of the Oaktree Business.
(f)
Investment Intent. The Participant will own and hold the Granted Units for his or her
own account, as a principal, for investment purposes only, and not with a view to, or for, resale or
distribution, in whole or in part. No other Person has a direct or indirect beneficial interest in the
Granted Units (other than, if the Participant is a married natural person acquiring the Granted Units
as community property, the community property interest of the Participant’s spouse). The Participant
is not acting as an agent, representative, intermediary or nominee, or in any similar capacity, for or
on behalf of any other Person with respect to any Granted Units.
(g)
Restricted Securities. The Participant understands that the grant and issuance
hereunder of the Granted Units are intended to be exempt from registration under the U.S. Securities
Act of 1933, as amended (the “Securities Act”), state securities laws and other applicable foreign or
domestic securities laws. The Participant further understands that the Granted Units have not been
recommended or endorsed by the U.S. Securities and Exchange Commission, any state securities
commission or any other foreign or domestic governmental authority. No Transfer of the Granted
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Units will be made by the Participant except for Transfers that comply with all applicable laws,
including the Securities Act, and the provisions of the Grant Documents, including the restrictions
on Transfer set forth in Section 4.6 of the Partnership Agreement. Although the Grant Documents
contemplate that the Participant may be able to monetize vested Granted Units pursuant to Article
VI of the Partnership Agreement and the provisions of the Exchange Agreement, the Participant
understands that there is no assurance that (i) the Participant will actually be able to monetize, Transfer
or otherwise realize value from such Granted Units and (ii) any such monetization, Transfer or other
realization will be at a price or upon terms and conditions that are satisfactory to the Participant. The
Participant further understands that Oaktree Group is under no obligation to ensure (i) that any Issuer
Equity will continue to be tradable on the New York Stock Exchange or any other national securities
exchange or market or trading platform or (ii) that other avenues of liquidity will be made available
to the Participant with respect to the Granted Units. The Participant is able and willing to bear, and
has the financial ability to bear, the economic and other risks of his or her ownership in the Granted
Units for an indefinite period of time. The Participant has no need for liquidity with respect to the
Granted Units.
(h)
Accredited Investor. The Participant is an “accredited investor” within the meaning
of Rule 501 of Regulation D promulgated under the Securities Act. Without limiting the foregoing,
the Participant is a natural person, who (i) has a net worth individually or jointly with his or her spouse
that exceeds $1,000,000 at the time of the grant and issuance of the Granted Units (excluding the
value of the Participant’s primary residence and the related amount of indebtedness secured by the
primary residence up to the fair market value of the residence but including as a liability any
indebtedness secured by such residence in excess of the fair market value of such residence) or (ii)
had annual income in excess of $200,000 in each of the two most recent calendar years (e.g., if the
current calendar year is 2015, then in each of 2014 and 2013) and reasonably expects to have income
in excess of $200,000 in the current calendar year; or (iii) had annual income jointly with his or her
spouse in excess of $300,000 in each of the two most recent calendar years (e.g., if the current calendar
year is 2015, then in each of 2014 and 2013) and reasonably expects to have joint income in excess
of $300,000 in the current calendar year.
(i)
Tax Consequences. The Participant understands that his or her ownership of the
Granted Units may cause him or her adverse tax consequences, including the realization of taxable
income without receiving cash distributions to pay the required tax thereon. For example, the
Participant may be taxed upon the vesting of the Granted Units on the value of the vesting Granted
Units. Moreover, although it is contemplated that the Partnership will make cash distributions in
respect of the Granted Units from time to time, the Participant understands that there is no obligation
for the Partnership to make any distribution (including tax distributions) to its Limited Partners
(including the Participant). The Participant further understands that even if the Partnership were to
make cash distributions from time to time, there is no assurance that such cash distributions will be
made in sufficient amounts or at an opportune time so as to enable the Participant to pay in a timely
manner any taxes that the Participant may be required to pay in respect of the Granted Units. The
Participant has sufficient liquid resources to pay all taxes that the Participant may be required to pay
in respect of the Granted Units, including all taxes arising from the vesting of the Granted Units or
allocations of taxable income of the Partnership to the Participant with respect to the Granted Units.
The Participant has reviewed his or her investment in the Granted Units with his or her tax advisors
and has not received or relied upon any tax advice from any Oaktree Related Person. No Oaktree
Related Person has made any representation or warranty (and shall not otherwise be liable to the
Participant) as to the tax treatment of vesting, allocations or distributions with respect to the Granted
Units under applicable law.
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(j)
IRS 83(b) Election for non-U.S. Citizens. If the Participant is not a citizen or permanent
resident of the United States, the Participant hereby (i) agrees that, no later than 30 calendar days
after the Effective Date, he or she will (A) file an election under Section 83(b) of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”), with respect to the Granted Units and (B) provide
a copy of such election to the Chief Financial Officer of Oaktree Capital Management, L.P. or his
designee, and (ii) confirms and acknowledges that he or she has filed an election under Section 83
(b) of the Code with respect to any other units of the Partnership previously granted to the Participant
prior to the Effective Date.
(k)
Understanding of Grant Documents. The Participant understands each provision of
each Grant Document and the terms and conditions of the Granted Units. Without limiting the
foregoing, the Participant understands that:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
the Participant has irrevocably constituted and appointed each of the
Partnership, the General Partner, their respective authorized officers and
attorneys-in-fact, and the members of the General Partner with full power of
substitution, as the true and lawful attorney-in-fact and agent of the Participant
as set forth in Section 3.9 of the Partnership Agreement for the purposes set
forth therein;
the Partnership Agreement permits the Partnership to issue, at any time and
from time to time, without the approval of the Participant or the need to notify
the Participant, additional Units on such terms and conditions as the General
Partner may determine, including Units that may be senior or superior to, or
of a different class from, the Granted Units;
the Participant does not have any preemptive rights, right of first refusal, right
of first offer or other right of participation with respect to any issuances of any
Units, and such issuances are expected to have a dilutive effect on the
Participant’s interest in the Partnership;
amounts distributable to the Participant in respect of the Granted Units are
subject to withholding pursuant to Section 7.8 of the Partnership Agreement;
and
the Participant is subject to certain minimum retained ownership requirements
with respect to the Participant’s ability to exchange or sell any Granted Units
that have become Exchangeable Units as set forth in Section 6.1(a)(v) of the
Partnership Agreement; and
the Participant, as a Service Partner, is subject to the protective covenants set
forth in Article X of the Partnership Agreement, which includes covenants and
prohibitions to which the Participant will continue to be bound after the
Participant ceases to provide services to the Oaktree Group.
The Participant has given careful consideration to all of the provisions of the Grant Documents. For
the avoidance of doubt, and without limiting the immediately preceding sentence, the Participant (x)
has given careful consideration to the restraints imposed upon him or her under the Grant Documents,
including under Articles IV and X of the Partnership Agreement, (y) is in full accord as to the necessity
6
of such provisions, and (z) understands that his or her agreement to be bound by each such provision
is an essential inducement to the Partnership to grant and issue the Granted Units to the Participant.
If the Participant becomes aware that any representation or warranty made by him or her in any Grant
Document would be incorrect in any material respect if such representation or warranty were to be made as
of any subsequent date, or that the Participant is unable fulfill or perform in any material respect any of his
or her covenants or agreements in any Grant Document, the Participant shall promptly notify the General
Partner of such inaccuracy or inability.
6.
Incorporation of Partnership Agreement Provisions. The provisions of Article XII
of the Partnership Agreement (other than Section 12.3 of the Partnership Agreement) are hereby incorporated
herein by reference and shall apply mutatis mutandis to this Agreement. Without limiting the foregoing:
(a)
any and all disputes, claims or controversies arising out of or relating to this Agreement
shall be resolved pursuant to Section 12.1 of the Partnership Agreement;
(b)
this Agreement may be amended, modified, or waived with the written consent of the
General Partner; provided that if any such amendment, modification, or waiver would adversely affect
the Participant in any material respect, such amendment, modification, or waiver shall also require
the written consent of the Participant; provided further that, for the avoidance of doubt, the Partnership
Agreement may be amended, modified and waived pursuant to Section 12.5 of the Partnership
Agreement, and the Plan may be amended, modified and waived pursuant to Section 14(a) of the
Plan, and, in each case, no such amendment, modification or waiver shall be deemed to be an
amendment, modification or waiver of this Agreement;
(c)
any notice that is required or permitted hereunder to be given to any party hereto shall
be given pursuant to Section 12.6 of the Partnership Agreement; and
(d)
in accordance with Section 12.9 of the Partnership Agreement, this Agreement shall
be construed and enforced, along with any rights, remedies, or obligations provided for hereunder,
in accordance with the laws of the State of Delaware applicable to contracts made and to be performed
entirely within the State of Delaware by residents of the State of Delaware; provided that the
enforceability of Paragraph 6(a) shall be governed by the Federal Arbitration Act, 9 U.S.C. Section
1 et seq., and not the laws of the State of Delaware.
7.
Entire Agreement. The Grant Documents constitute the entire agreement among the
parties hereto with respect to the subject matter hereof, and supersede any prior agreement or understanding
among them with respect to such matter; provided that in the event of any conflict between the Exchange
Agreement and the Partnership Agreement, the Partnership Agreement shall prevail and provided, further
that in the event of any conflict between the Partnership Agreement and this Agreement, this Agreement shall
prevail.
8.
Interpretation and Certain Definitions.
(a)
All ambiguities shall be resolved without reference to which party may have drafted
this Agreement. All article or section headings or other captions in this Agreement are for convenience
only, and they shall not be deemed part of this Agreement and in no way define, limit, extend or
describe the scope or intent of any provisions hereof. Unless the context clearly indicates otherwise:
(i) a term has the meaning assigned to it; (ii) “or” is not exclusive; (iii) provisions apply to successive
events and transactions; (iv) each definition herein includes the singular and the plural; (v) each
7
reference herein to any gender includes the masculine, feminine, and neuter where appropriate; (vi)
the word “including” when used herein means “including, but not limited to,” and the word “include”
when used herein means “include, without limitation”; and (vii) references herein to specified
paragraph numbers refer to the specified paragraph of this Agreement. The words “hereof,” “herein,”
“hereto,” “hereby,” “hereunder,” and derivative or similar words refer to this Agreement as a whole
and not to any particular provision of this Agreement. The words “applicable law” and any other
similar references to the law include all applicable statutes, laws (including common law), treaties,
orders, rules, regulations, determinations, orders, judgments, and decrees of any Governmental
Authority. The abbreviation “U.S.” refers to the United States of America. All monetary amounts
expressed herein by the use of the words “U.S. dollar” or “U.S. dollars” or the symbol “$” are expressed
in the lawful currency of the United States of America. The words “foreign” and “domestic” shall
be interpreted by reference to the United States of America.
(b)
Nothing in this Agreement is intended to confer upon the Participant any right or
privilege that is in addition, or otherwise more favorable, to the rights and privileges generally enjoyed
by the other Limited Partners under the Partnership Agreement, the Exchange Agreement and the
Tax Receivable Agreement, except to the extent such additional or more favorable right or privilege
is expressly and intentionally conferred under this Agreement. Without limiting the foregoing, the
Granted Units are not subject to any Unit Designation which alters the terms and conditions generally
applicable to Units under the Partnership Agreement.
(c)
“Oaktree Business” means the business and operations of the Oaktree Group, including
the organization, investment objectives, expenses, operational structure, management structure and
other material details of the Oaktree Group.
(d)
“Oaktree Related Person” means (i) any Oaktree Group Member, (ii) the current and
former senior executives, officers, directors, employees and duly authorized agents and
representatives of any Oaktree Group Member, and (iii) the current and former direct and indirect
shareholders, partners, members and equityholders of any Oaktree Group Member (other than the
current and former direct and indirect shareholders, partners, members and equityholders of OCG,
who are not otherwise included in either of the foregoing clause (i) or (ii)).
(e)
This Agreement is intended to constitute a “Grant Agreement” for purposes of the
Partnership Agreement and an “Award agreement” for purposes of the Plan. The Granted Units are
intended to constitute an “Award” for purposes of the Plan.
9.
Further Assurances. The Participant agrees to take all actions that may be reasonably
requested by the General Partner from time to time, including by executing and delivering all agreements,
instruments and documents that may be reasonably requested by the General Partner, to carry out the purposes
of the Grant Documents.
THE GRANTED UNITS HAVE NOT BEEN REGISTERED WITH OR QUALIFIED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES REGULATORY
AUTHORITY OR ANY OTHER REGULATORY AUTHORITY OF ANY OTHER
JURISDICTION. SUCH UNITS ARE BEING SOLD IN RELIANCE UPON EXEMPTIONS
FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS. THE GRANTED
UNITS CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF, IN
EACH CASE, EXCEPT IN COMPLIANCE WITH THE RESTRICTIONS ON
TRANSFERABILITY CONTAINED IN THIS AGREEMENT AND OTHER GRANT
8
DOCUMENTS AND THE SECURITIES LAWS OF ALL APPLICABLE JURISDICTIONS,
INCLUDING APPLICABLE U.S. FEDERAL AND STATE SECURITIES LAWS.
9
Exhibit 10.21
EXECUTION COPY
OAKTREE CAPITAL GROUP, LLC
OAKTREE CAPITAL MANAGEMENT, L.P.
CONFIDENTIAL
February 24, 2015
Jay S. Wintrob
c/o Oaktree Capital Management, L.P.
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Re:
Amended and Restated Employment Agreement
Dear Mr. Wintrob:
On October 6, 2014, you entered into an agreement with Oaktree Capital Group, LLC, a
Delaware limited liability company (“OCG”) and Oaktree Capital Management, L.P., a Delaware limited
partnership (the “Company” and, together with its affiliates, “Oaktree”) setting out the terms and conditions
of your employment by the Company as Chief Executive Officer of the Company and OCG (the “Original
Employment Agreement”). OCG, the Company and you have agreed to amend and restate the Original
Employment Agreement, as reflected herein (this “Agreement”). This Agreement is based on your
providing, and continuing to provide, the services described below on a full-time basis.
1.
Term. Your employment under the Original Employment Agreement commenced on November 1,
2014 (the “Commencement Date”), and shall continue under this Agreement through December 31, 2019,
unless terminated earlier pursuant to Section 5 of this Agreement (such period of employment hereunder,
the “Term”). You are an “at will” employee of Oaktree, which means that your employment with Oaktree
may be terminated at any time by you with or without Good Reason (defined below) or by Oaktree with or
without Cause (defined below) and for any lawful reason or no reason; provided that if you intend to
terminate your employment other than for Good Reason, you shall provide Oaktree with at least six (6)
months prior written notice of the effective date of such termination in order to provide Oaktree with ample
opportunity to arrange for the orderly transition of your duties and responsibilities. At any time after such
notice, Oaktree may elect, in its sole discretion, (i) for you to remain employed with Oaktree in your
capacity of Chief Executive Officer (and with full duties, responsibilities and authority consistent with such
position) until such effective date of termination designated by you or (ii) to accept your resignation from
employment effective as of a date designated by Oaktree prior to the end of said six (6) month period;
provided that, if Oaktree elects to take the action described in clause (ii), such action shall not be regarded
as a termination without Cause or constitute a basis for your termination for Good Reason, under this
Agreement or for any purpose.
2.
Employment.
(a)
Title; Reporting. During the Term, you will be employed by the Company and hold the
title of Chief Executive Officer of OCG and the Company, and, at the request of the Board of Directors of
OCG (the “Board”), of any other Oaktree affiliate that is covered by the indemnification provided, and the
directors’ and officers’ liability insurance maintained, by OCG and the Company. You shall report directly
to the Board. During the Term, you shall be nominated to serve on the Board.
(b)
Duties. During the Term, you shall have such duties, responsibilities and authority as are
commensurate with the title and position set forth in Section 2(a) hereof and such other duties,
responsibilities and authority not inconsistent with your position, as may be assigned to you from time to
time by the Board. During the Term, you shall devote all of your business time and attention to Oaktree,
the promotion of its interests and the performance of your duties and responsibilities hereunder and as a
member of the Board and use your best efforts to faithfully and diligently serve Oaktree.
Notwithstanding the foregoing, during the Term you shall be permitted to engage in outside
activities, in your personal capacity, to the extent permitted by Oaktree’s Code of Ethics, Section 6 of this
Agreement and other policies then in effect applicable to senior executives, subject to the foregoing not
interfering with the performance of your duties hereunder other than in an immaterial respect.
3.
Location. Your principal place of employment shall be at Oaktree’s offices in Los Angeles,
California or at such other locations as are mutually agreed between you and Oaktree; provided that, for the
avoidance of doubt, you shall travel as reasonably required in connection with the performance of your
duties.
2
4.
Compensation and Related Matters.
(a)
Profit Participation. During the Term, subject to Section 5 below, you shall be entitled to
receive:
(i)
Incentive Payments. Certain payments (“Incentive Payments”) from Oaktree
Fund GP I, L.P., Oaktree Fund GP II, L.P., and Oaktree Fund GP III, L.P (collectively, the “PoolCos”) in
respect of the Net Incentive Income (defined below) received by the PoolCos from the investment funds
and accounts managed by Oaktree (the “Funds”);
(ii)
Investment Payments. Certain payments from the PoolCos in respect of all
income (excluding incentive income) earned in respect of a fiscal year by the PoolCos from their respective
direct and indirect investments in Funds (including through the general partner of any such Fund)
determined in a manner consistent with adjusted net income on the financial statements of OCG (“Net
Investment Income”) received by the PoolCos from the Funds (“Investment Payments”); and
(iii)
Profit Payments. Certain payments in respect of Net Operating Profit (defined
below) of the entities that control the general partners and investment advisors of the Funds in which OCG
has a minority economic interest and indirect control (the “Oaktree Operating Group”) with respect to each
fiscal year of Oaktree (“Profit Payments” and, collectively with the Incentive Payments and Investment
Payments, the “Profit Sharing Payments”).
(iv)
Profit Sharing Payment Calculation Rules.
(A)
For fiscal year 2014, your Profit Sharing Payments shall equal 1.5% of
the sum of the Net Incentive Income, Net Investment Income and Net Operating Profit
(each, a “Profit Metric,” and the sum of the Profit Metrics, the “Aggregate Profit Metric”),
and, for each of the fiscal years 2015 – 2019, your Profit Sharing Payments shall equal (x)
1.5% in respect of the portion of the Aggregate Profit Metric that is less than or equal to
the Aggregate Profit Metric in 2014 plus (y) 1.75% in respect of the portion, if any, of
such fiscal year’s Aggregate Profit Metric that is greater than the Aggregate Profit Metric
for 2014.
3
(B)
In calculating the Aggregate Profit Metric for any fiscal year, any
negative amounts with respect to one or more of such Profit Metrics in a fiscal year shall
be netted against positive amounts, if any, of such Profit Metrics in such fiscal year (but
there shall be no carry forward to any future year of any net negative amount).
(C)
For 2014, your Profit Sharing Payment shall not be less than $833,333.
(D)
For each of 2015 through 2019, your aggregate Profit Sharing Payment
shall not be less than $5 million per year, and, if your employment with Oaktree
hereunder terminates in any such year, then your Profit Sharing Payment shall equal the
product of the Profit Sharing Payments for such year and a fraction, the numerator of
which is the number of days in the fiscal year during which you were employed
hereunder, and the denominator of which is 365.
(v)
Definitions.
(A)
“Net Incentive Income” means with respect to a given fiscal year, (i)
all incentive income earned by the PoolCos that is derived from any Fund (other than
incentive income from any Pre-Employment Funds) determined in a manner consistent
with the incentive income component of adjusted net income on the financial statements
of OCG, net of (ii) all participation in such income granted to any party by Oaktree (other
than participation through “Common Series Interests” in the PoolCos and the payments in
respect of Net Incentive Income granted hereunder), including any such participation
through “Points Series Interests” and “Net Carry Series Interests” in the PoolCos, and
(iii) as adjusted to take into account payments in respect of Net Incentive Income granted
hereunder and other participations in such incentive income as determined by Oaktree
consistent with past practice. In respect of each fiscal year, the incentive income to be
included in clause (i) shall include incentive income relating to such year received by the
Oaktree Operating Group in the subsequent year from those Evergreen Funds that pay
incentive income annually.
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(B)
“Net Investment Income” means with respect to a given fiscal year, all
income (excluding incentive income) earned by the PoolCos from their respective direct
and indirect investments in Funds (including through the general partner of any such
Fund), determined in a manner consistent with the investment income component of
adjusted net income on the financial statements of OCG.
(C)
“Net Operating Profit” means with respect to a given fiscal year, the
adjusted net income of any and all of the members of the Oaktree Operating Group,
determined in a manner consistent with adjusted net income on the financial statements
of OCG, as further adjusted by (i) subtracting compensation expense with respect to the
vesting of units granted after May 25, 2007 but before the OCG Class A Units were listed
on the New York Stock Exchange, (ii) subtracting Oaktree Operating Group income
taxes, (iii) adding back 50% of the compensation expense recognized with respect to the
vesting of that class of limited partnership units (“OCGH Units”) in Oaktree Capital
Group Holdings, L.P. (“OCGH”) that, pursuant to the terms of the Fourth Amended and
Restated Limited Partnership Agreement of OCGH, dated as of January 1, 2014 (as
amended or restated from time to time) (the “OCGH Limited Partnership Agreement”),
may be exchanged for OCG Class A Units on a one-for-one basis units, that were granted
after May 25, 2007, and (iv) excluding incentive income (net of incentive income
compensation expense) and phantom equity expense, (v) excluding Net Investment
Income, and (vi) excluding compensation expense relating to individuals entitled to
payments in respect of Net Operating Profit and Net Investment Income.
(D)
“Pre-Employment Fund” means a fund that is set forth on Exhibit A to
this Agreement.
(E)
“Evergreen Fund” means a Fund treated by the Company as an
evergreen fund. Such funds typically invest in marketable securities, private debt or
equity on a long or short basis and with limited restrictions on investor withdrawal and
redemption rights.
5
Net Incentive Income, Net Investment Income, Net Operating Profits and the amount of
any management fee offsets for any applicable Fund will be determined in accordance with the partnership
agreement, separate account agreement, advisory agreement, side letter or other relevant document(s)
governing or binding upon the applicable Fund, and the Profit Sharing Payments shall be determined in
accordance with Oaktree’s general conventions consistently applied to other senior executives of Oaktree.
(vi)
Payment Dates. Except as provided in Section 5 of this Agreement, your Profit
Sharing Payments in respect of each fiscal year during the Term shall be paid to you in four (4) installments
(each, a “Payment Installment”) on the same payment dates consistent with past practice (each such date, a
“Quarterly Profit Payment Date”), subject to your continued employment on such Quarterly Profit Payment
Date. The amount of each Payment Installment due on each Quarterly Profit Payment Date shall be
determined by Oaktree based on its periodic reasonable estimates of your expected Profit Sharing
Payments. Within thirty (30) days following delivery of the audited financial statements of Oaktree in
respect of a given fiscal year, a determination shall be made as to whether the aggregate Payment
Installments paid to you in respect of such fiscal year were greater or less than the Profit Sharing Payments
to which you are due applying the calculation required by this Agreement (“Earned Amount”). If your
aggregate Payment Installments were less than the Earned Amount, you shall receive a true-up payment on
such date to make up for any shortfall. In calculating your entitlement to Profit Sharing Payments
hereunder, the excess of your aggregate Payment Installments over the Earned Amount shall be netted
against future Payment Installments, if any. Amounts due hereunder shall be determined by Oaktree in
good faith. Notwithstanding anything herein to the contrary, you agree to repay to Oaktree any amount
paid to you in excess of what you should have received under the terms of this Section 4(a)(vii) for any
reason within thirty (30) days following notice from Oaktree that there has been any excess payment,
including, without limitation, by reason of (i) a mistake in calculation or (ii) other administrative error,
which notice must explain the reason for the excess in reasonable detail and ; provided, that, except as may
be required by law, the requirement to repay amounts in excess of the Earned Amount for any fiscal year
shall cease to apply one hundred and twenty (120) following the delivery of audited financial statements for
such fiscal year. Except as otherwise required in Section 5 below, each installment of any Profit Sharing
Payment will only be made if you are actively employed by or providing services to Oaktree at the time at
which such payment is otherwise to be made, and your entitlement to Profit Sharing Payments shall cease
6
immediately upon the termination of your employment with Oaktree, whether by voluntary resignation,
involuntary termination (with or without Cause), death, Disability or otherwise for any reason; provided
that, if your employment hereunder is not terminated prior to December 31, 2019, then you shall be entitled
to Profit Sharing Payments in respect of all of 2019 (including any payments and grants of OCGH Units in
settlement thereof that are made in 2020), even if your employment with Oaktree does not continue
following December 31, 2019.
(vii)
Form of Payment. The Profit Sharing Payment shall be satisfied in the form of
cash and, if certain thresholds are met, a combination of cash and OCGH Units, as follows: for each fiscal
year, each Payment Installment, or portion thereof, shall be paid in cash until the aggregate amount paid in
respect of all Payment Installments, or portions thereof, for such fiscal year is $3 million (the “Cash
Threshold”). The Profit Sharing Payments relating to the first and third quarters shall be paid in cash, and,
subject to such payments in any given fiscal year already reaching the Cash Threshold, the Profit Sharing
Payments relating to the second and fourth quarters shall be paid in a combination of cash and OCGH
Units, as follows: You will paid in OCGH Units such that 20% (or such higher percentage applicable to
bonus payments to other most senior executive officers of Oaktree for such fiscal year) of your aggregate
Profit Sharing Payments with respect to a given year is paid in the form of OCGH Units. The value of the
OCGH Units will be determined based on the closing price for the period commencing ten business days
before the quarter end and ending ten business days after the last day of the quarter, and the OCGH Units
shall be delivered on the same date as other equity grants are generally made around such time. Such
OCGH Units will have the terms and conditions set forth below in this Section 4(a)(vii) and shall be subject
to the other standard terms and conditions that apply to grants of restricted OCGH Units to other senior
executive officers of Oaktree. The OCGH Units delivered in settlement of any portion of any Payment
Installment herein shall vest in equal annual installments over the four (4) year period with the same annual
vesting date as other OCGH Units granted at the same time, subject to your continued employment on each
such vesting date, and you shall be entitled to receive distributions in respect of all such OCGH Units,
whether vested or unvested, in the same amounts and at the same times as distributions are paid to other
holders of OCGH Units. The OCGH Units granted pursuant to this Section 4(a)(vii) shall be referred to
herein as the “Profit Payment Units.” You shall be responsible for satisfying any applicable U.S. federal,
state and local tax withholding obligations and non-U.S. tax withholding obligations upon the vesting and
7
settlement of the OCGH Units. You may elect to satisfy, in whole or in part, any such tax obligations by
directing Oaktree to withhold a number of Profit Payment Units that would otherwise be deliverable to you
with a fair market value equal to such withholding liability, subject to any limitations that the Board may
impose for Oaktree to remain in compliance with any debt or indenture covenants, similar undertakings or
applicable law.
(viii)
For the avoidance of doubt, neither the grant to you of the right to receive Profit
Sharing Payments hereunder nor the delivery to you of the Profit Payment Units, gives you any
management, control or other rights with respect to any Funds. You and the interests granted hereunder
shall be subject to the provisions of each PoolCo limited partnership agreement and any other document or
arrangement which govern the terms of the PoolCos.
(b)
Equity Value Units. Effective as of December 2, 2014, you were granted 2,000,000
“EVUs”, representing special limited partnership units in OCGH, pursuant to the Oaktree Capital Group,
LLC 2011 Equity Incentive Plan (the “EVU Award”). Oaktree shall use reasonable efforts to structure the
EVU Award so as to qualify for long-term capital gain tax treatment, or short-term capital gain tax
treatment as a second preferred treatment, but such reasonable efforts must be balanced against Oaktree’s
need to preserve the economic equivalent of the deductibility of the EVU Award.
(c)
Oaktree has agreed to make certain replacement payments (“Replacement Payments”) to
you to compensate you for certain reduced payment opportunities resulting from your departure from your
prior employer and your commencing employment hereunder.
(d)
Benefits. You shall be entitled to all rights and benefits for which you are otherwise
eligible under any health, life and disability insurance plans, vacation policies, sick leave policies and 401
(k) elections that Oaktree generally provides to senior executive officers. You agree that Oaktree may
deduct the premiums for your long-term disability insurance from the compensation otherwise payable to
you.
(e)
Travel. When travelling via airplane for Oaktree-business purposes, (i) you shall be
entitled to fly by means of a private aircraft which will be provided by Oaktree by any reasonably
commercial method and subject to reasonable limitations which may be imposed from time to time by the
8
Board and (ii) your spouse shall be permitted to accompany you on such aircraft, subject to your being
solely responsible for all tax liabilities associated therewith. To the extent available, you shall also be
entitled to fly by means of private aircraft for personal travel, subject to your payment for such use on the
same terms applicable to the Chairman of Oaktree on the date of this Agreement.
(f)
Signing Bonus. The Company shall pay you a signing bonus equal to $75,000 within ten
(10) days following the Commencement Date.
(g)
No Representation regarding Tax Treatment; Section 409A. Oaktree makes no
representation as to the tax treatment of distributions or payments with respect to the amounts described in
this Section 4 (including Section 4(b)) under applicable U.S. federal or state tax laws. Notwithstanding
anything herein to the contrary, if as a result of your separation from service, you would receive any
payment that, absent the application of this paragraph, would be subject to interest and additional tax
imposed pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the
Treasury Regulations promulgated thereunder (collectively referred to herein as “Section 409A”) as a result
of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to
the date that is the earliest of (i) six (6) months after the date of your separation from service, (ii) your
death, or (iii) such other date as will cause such payment not to be subject to such interest and additional
tax. It is the intention of the parties that payments or benefits payable hereunder not be subject to the
additional tax imposed pursuant to Section 409A of the Code, and this Agreement shall be interpreted
accordingly. To the extent such potential payments or benefits could become subject to Section 409A of the
Code, you and Oaktree shall cooperate to amend your compensation, with the goal of giving you the
economic benefits described herein in a manner that does not result in such tax being imposed. If a
termination of your employment does not result in a “separation from service” within the meaning of
Section 409A of the Code, then for purposes of determining the timing of any payment provided for by this
Agreement, termination shall not be considered to occur until you have incurred such a separation from
service. The preceding sentence shall not affect the determination of your entitlement to any payment or
benefit, but only the timing thereof. For purposes of Section 409A of the Code, each of the payments that
may be made hereunder are designated as separate payments. No amounts may be offset against non-
qualified deferred compensation to the extent such offset would violate Section 409A.
9
5.
Termination.
(a)
You may voluntarily terminate your employment hereunder and the Term at any time and
for any reason as set forth in Section 1 of this Agreement. Any termination of employment by you shall be
communicated to the Board by written notice, which shall include your date of termination of employment,
but the Board reserves the right to accelerate such termination date. The Company may, if approved by the
Board, terminate your employment hereunder and the Term at any time and for any reason. Your
employment hereunder shall automatically terminate upon your death.
(i)
Upon the termination of your employment hereunder as a result of your death or
Disability (defined below), subject, in the case of your termination due to Disability, to your satisfaction of
any Release Condition (defined below), (A) all unvested Profit Payment Units shall become fully vested,
(B) you shall be entitled to the Profit Sharing Payments for the full fiscal year of termination, and (C) you
shall remain entitled to the Replacement Payments.
(ii)
Upon the termination of your employment hereunder by the Board without
Cause or by you for Good Reason, subject to your satisfaction of any Release Condition, (A) all unvested
Profit Payments Units shall become fully vested, (B) you shall receive your Profit Sharing Payments in
respect of the fiscal year in which your termination occurs, but only for the period ending at the end of the
fiscal quarter in which your termination occurs (the “Termination Quarter”), (C) (I) if such termination
occurs after you have notified Oaktree in writing that you do not intend to continue your employment with
Oaktree following the expiration of the Term or after mutual written agreement of the parties that your
employment will not continue after expiration of the Term, you shall receive a payment in cash at the end
of each of the successive eight (8) fiscal quarters following the Termination Quarter but not beyond the
fifth (5th) anniversary of the Commencement Date, and (II) in all other cases, you shall receive a payment
in cash at the end of each of (x) the successive eight (8) fiscal quarters following the Termination Quarter,
or if shorter (y) the longer of (a) the successive fiscal quarters following the Termination Quarter
remaining through the fifth (5th) anniversary of the Commencement Date or (b) six (6) fiscal quarters,
where the amount paid in each quarter is 25% of the aggregate Profit Sharing Payments earned in respect of
the four (4) full fiscal quarters that preceded the Termination Quarter, and (D) you shall remain entitled to
the Replacement Payments.
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(iii)
Upon the termination of your employment for Cause, all unvested Profit
Payments Units shall be immediately forfeited for no consideration and you shall not be entitled to any
Profit Sharing Payment or any other payments or benefits in respect of any period occurring after your
termination. Upon termination of your employment due to your resignation without Good Reason, you
shall retain any vested Profit Payment Units, all unvested Profit Payment Units shall be immediately
forfeited for no consideration and you shall be entitled to receive Profit Sharing Payments in respect of
performance through your termination date.
(iv)
Upon the termination of your employment for any reason, you shall be entitled
to receive from the Company (a) any business expenses incurred by you but unreimbursed on the date of
termination, provided that such expenses and required substantiation and documentation thereof are
submitted within thirty (30) days of termination and that such expenses are reimbursable under Oaktree
policy, (b) all other vested and accrued payments or benefits to which you are entitled under, and paid or
provided in accordance with, the terms of any applicable employee benefit plan, arrangement or program
other than under any severance plan or program, and (c) continued coverage under any indemnification
provided, and any directors’ and officers’ liability insurance maintained, by OCG and the Company, in each
case in accordance with the terms thereof.
(b)
Definitions.
(i)
“Affiliate” means with respect to any Person, any other Person that directly or
indirectly through one or more intermediaries controls, is controlled by, or is under common control with,
the Person in question; provided that no investment fund or account, and no portfolio company, of any
member of the Oaktree Group shall be deemed to be an Affiliate of any member of the Oaktree Group.
(ii)
“Cause” means the occurrence of any of the following events during your
provision of services to the Oaktree Group (defined below): (A) willful and continued failure to fulfill your
responsibilities hereunder in accordance with the terms and provisions of this Agreement; (B) gross
negligence or willful misconduct detrimental to any member of the Oaktree Group; (C) material breach by
you of this Agreement or any other agreement between you and any member of the Oaktree Group; (D)
material violation of any material applicable regulatory rule or regulation; (E) conviction of, or entry of a
guilty plea or of no contest to, a felony (other than a motor-vehicle-related felony for which no custodial
11
penalty is imposed); (F) entry of an order issued by any court or regulatory agency removing you as an
officer (or equivalent person) of a member of the Oaktree Group or prohibiting you from participating in
the conduct of the affairs of any member of the Oaktree Group; (G) fraud, theft, misappropriation or
dishonesty by you relating to any member of the Oaktree Group, including any theft of funds or
misappropriation of Confidential Information (defined below); or (H) material breach of any of the Oaktree
Group’s written policies. Notwithstanding the foregoing, (i) termination by the Company for Cause for any
prong of the preceding sentence other than clauses (D), (E), (F) or (G) shall not be effective until and
unless you have been given written notice of particular acts or circumstances which are the basis for the
termination for Cause, you are thereafter given ten (10) days to cure the omission or conduct that is the
basis of such claim, but in all circumstances only if such omission or conduct is reasonably capable of
being cured and (ii) any action by you that is permitted by Section 6 of this Agreement shall not be deemed
a breach of Oaktree’s Code of Ethics or the OCGH or grounds for Cause. If, within sixty (60) days after
your termination from employment hereunder after a resignation by you without Good Reason, Oaktree
discovers that any occurrence set forth in clause (A) through (H) above has occurred, such shall constitute
“Cause” for all purposes of this Agreement, so long as Oaktree provides you with notice of such discovery
no later than the last day of such 60-day period, and, for any occurrence other than one set forth in clause
(D), (E), (F) or (G), you will be given ten (10) days to cure the omission or conduct that is the basis of such
claim, but in all circumstances only if such omission or conduct is reasonably capable of being cured.
(iii)
“Disability” means entitlement to long-term disability benefits under the
Company’s long-term disability plan as in effect from time to time and the failure to have performed your
material duties and responsibilities due to physical or mental illness or incapacity that lasts for one-hundred
and eighty (180) days in any three-hundred and sixty-five (365) day period.
(iv)
“Good Reason” means without your prior written consent, one or more of the
following events: (x) a material diminution or adverse change in you duties, authority, responsibilities,
positions or reporting lines of authority hereunder; (y) the Board’ s requiring you to be based at a location
in excess of thirty-five (35) miles from your principal job location or office specified in Section 3, except
for required travel on Oaktree business to an extent substantially consistent with your position or (z) any
material breach by the Company or OCG of this Agreement; provided, however, that prior to resigning for
Good Reason, you shall give written notice to the Board of the facts and circumstances claimed to provide
12
a basis for such resignation not more than thirty (30) days following your knowledge of such facts and
circumstances, and the Company shall have thirty (30) days after receipt of such notice to cure such facts
and circumstances (and if so cured, you shall not be permitted to resign for Good Reason in respect
thereof). Any termination of employment by you for Good Reason shall be communicated to the Board by
written notice, which shall include your date of termination of employment, which shall be within sixty
(60) days after the end of the cure period, but the Board reserves the right to accelerate such termination
date.
(v)
“Oaktree Group” means collectively, Oaktree and its Affiliates.
(vi)
“Person” means, any individual, corporation, firm, partnership (general or
limited), joint venture, limited liability company, association, business, estate, trust, business association,
organization, unincorporated organization, any other entity or a government or any department, agency,
authority, instrumentality or political subdivision thereof, or any other entity.
(vii)
“Release Condition” means you have executed and delivered to Oaktree, no later
than 25 days after the applicable termination date, and have not sought to revoke (whether or not you have
any right under applicable law to revoke), a release substantially in the form attached hereto as Exhibit B,
fully and finally releasing the Oaktree Group and its related persons from all claims and liabilities
whatsoever, subject to the exceptions in Exhibit B.
6.
Confidential Information; Covenants. You acknowledge and agree that your provision of services
to any member of the Oaktree Group, including your employment by the Company and OCG, creates a
relationship of confidence and trust between you and the Oaktree Group with respect to Confidential
Information and Intellectual Property (defined below) pertaining to the business of the Oaktree Group.
Moreover, you recognize that such information (including information created, discovered or developed by,
or made known to you from and after the date this Agreement is entered into) has commercial value in the
business in which the Oaktree Group is engaged. Accordingly, you hereby covenant, agree and
acknowledge as follows:
13
(a)
Confidential Information and Intellectual Property.
(i)
You shall not without the prior express written consent of the Chairman of
Oaktree (A) use for your benefit, use to the detriment of any member of the Oaktree Group, or disclose, at
any time during your employment by any member of the Oaktree Group, or if you cease to be so employed,
at any time thereafter (unless and to the extent you reasonably determine that such disclosure is required by
law or otherwise appropriate in the course of the performance of your duties hereunder) in the performance
of your duties as an employee of a member of the Oaktree Group), any Confidential Information, or (B)
take, remove or retain, upon your ceasing to be so employed for any reason, any document, paper,
electronic file or other storage medium containing or relating to any Confidential Information, any
Intellectual Property or any physical property of any member of the Oaktree Group, except that you may
retain your address book/contact list to the extent it only contains contact information.
(ii)
You agree (A) to deliver to Oaktree on the date you cease to be an employee for
any reason, or promptly at any other time that any member of the Oaktree Group may request, all
memoranda, notes, plans, records, reports, computer files and tapes, printouts and software and other
documents and data (and copies thereof) within your possession or control that contain any Confidential
Information or any Intellectual Property, and (B) to the extent not yet publicly disclosed, to keep the terms
of this Agreement confidential, except as otherwise required by applicable law and except that the terms
hereof may be disclosed to your family members, attorneys, accountants or other professional advisers who
agree to keep the terms of this Agreement confidential, to taxing and other governmental or regulatory
authority and to disclose in compliance with legal process.
(iii)
You agree that any and all Intellectual Property is and shall be the exclusive
property of the Oaktree Group for the Oaktree Group’s sole use. In addition, you acknowledge and agree
that the investment performance of the funds and accounts managed by any member of the Oaktree Group
is attributable to the efforts of the team of professionals of the Oaktree Group and not to the efforts of any
single individual, and that, therefore, the performance records of the funds and accounts managed by any
member of the Oaktree Group are and shall be the exclusive property of the Oaktree Group. You agree that
you shall not use or disclose any Intellectual Property, including any of the performance records of the
funds and accounts managed by any member of the Oaktree Group without the prior written consent of the
14
Chairman of Oaktree, or one of the Chairmen of Oaktree if more than one Chairman exists, except in the
ordinary course of your employment with Oaktree or as required by legal process or governmental or
regulatory inquiry.
(iv)
Without limiting the generality of the foregoing, any trade secrets of the Oaktree
Group will be entitled to all of the protections and benefits under applicable law. You acknowledge and
agree that (A) you may have had, and may have in the future, access to information that constitutes trade
secrets but that has not been, and will not be, marked to indicate its status as such and (B) the preparation of
this letter constitutes reasonable efforts under the circumstances by the Oaktree Group to notify you of the
existence of such trade secrets and to maintain the confidentiality of such trade secrets within the
provisions of the Uniform Trade Secrets Act or other applicable law.
(b)
Interference. To the maximum extent permitted by applicable law, while you are
providing services to any member of the Oaktree Group, and for two years after you cease to provide
services to any member of the Oaktree Group, you shall not directly or indirectly: (A) solicit any customer
or client of any member of the Oaktree Group for a Competitive Business (defined below); provided that
this Section 6(b) shall not be deemed to prohibit you from participating in the normal marketing efforts of a
Competitive Business so long as you avoid soliciting any client or customer that you know as a result of
your employment by any member of the Oaktree Group to be a client or customer of any member of the
Oaktree Group, other than clients or customers of the Oaktree Group that, as of the termination of your
employment, are bona fide pre-existing clients or customers of the Competitive Business; provided, further
that you shall not be prohibited from soliciting clients or customers of AIG Life and Retirement, as long as
any such client or customer is not a sovereign wealth fund, a state pension fund or one of the largest 100
corporate pension plans, (B) induce or attempt to induce any employee of the Oaktree Group to leave the
Oaktree Group or in any way interfere with the relationship between the Oaktree Group and any employee
thereof, except in the good faith performance of your duties hereunder, or (C) hire, engage, employ, retain
or otherwise enter into any business affiliation with any person who was an employee of the Oaktree Group
at any time during the twelve-month period prior to the date you cease to provide services to any member
of the Oaktree Group; provided that you shall not be prohibited from becoming employed by an
organization that employs other or former employees of the Oaktree Group if you were not involved in the
circumstances that led to such employees becoming employed by such organization.
15
(c)
Non-Disparagement. You hereby agree that, during the Term and for five (5) years
following the termination of your employment from Oaktree, you shall not make any statements, encourage
others to make statements or release information that disparages, discredits, or defames any member of the
Oaktree Group or engage in any activity that would have the effect of disparaging, discrediting or defaming
any member of the Oaktree Group. Notwithstanding the foregoing, nothing in this Agreement shall prohibit
you from making truthful statements when required by law or as a response to any statement made about
you in breach of this Section 6(c). Oaktree hereby agrees that it shall instruct its Chairmen, Vice Chairman,
directors and executive officers not to, during the Term and for five (5) years following the termination of
your employment from Oaktree, make any statements, encourage others to make statements or release
information that disparages, discredits, or defames you or engage in any activity that would have the effect
of disparaging, discrediting or defaming you. Notwithstanding the foregoing, nothing in this Agreement
shall prohibit Oaktree from making truthful statements when required by law.
(d)
Enforcement. Because your services are unique and because you have access to
Confidential Information and Intellectual Property, you agree that a remedy at law for any breach or
threatened breach of the provisions of this Section 6 would be inadequate and, therefore, you agree that any
member of the Oaktree Group shall be entitled to injunctive relief, in addition to any other available rights
and remedies in case of any such breach or threatened breach; provided that nothing contained herein shall
be construed as prohibiting any member of the Oaktree Group from pursuing any other rights and remedies
available for any such breach or threatened breach. If, at the time of enforcement of any of the paragraphs
of this Section 6, a court or arbitrator shall hold that the duration, scope or area restrictions stated herein are
unreasonable under the circumstances then existing, the parties agree that the maximum duration, scope or
area reasonable under such circumstances shall be substituted for the stated duration, scope or area, and that
the court or arbitrator, as the case may be, shall be allowed to construe or revise the restrictions contained
herein to cover the maximum period, scope and area permitted by law. You expressly acknowledge and
agree that (i) you have carefully read this Agreement and have given careful consideration to the restraints
imposed upon you by this Section 6; (ii) you are in full accord as to their necessity; (iii) the rights and
remedies under this Section 6 shall be in addition to any other rights and remedies of any member of the
Oaktree Group; and (iv) the provisions of this Section 6 are an essential inducement to Oaktree to enter into
this Agreement. For the avoidance of doubt, your obligations under this Section 6 are in addition to, and do
16
not qualify or relieve you of any obligation you may have under any other agreement you may have with
any other member of the Oaktree Group.
(e)
Certain Definitions. For purposes of this Agreement, the following capitalized terms shall
have the meanings set forth below.
(i)
“Competitive Business” means any business which is competitive with the
business of any member of the Oaktree Group (including raising, organizing, managing or advising any
fund or separate account having an investment strategy in any way competitive with any of the funds or
separate accounts managed by any member of the Oaktree Group).
(ii)
“Confidential Information” means any information concerning the employees,
organization, business or finances of any member of the Oaktree Group or any third party (including any
client, investor, partner, portfolio company, customer, vendor, or other person) with which a member of the
Oaktree Group is engaged or conducts business, including business strategies, operating plans, acquisition
strategies (including the identities of, and any other information concerning, possible acquisition
candidates), financial information, valuations, analyses, investment performance, market analysis,
acquisition terms and conditions, personnel, compensation and ownership information, know-how,
customer lists and relationships, the identity of any client, investor, partner, portfolio company, customer
vendor or other third party, and supplier lists and relationships, as well as all other secret, confidential or
proprietary information belonging to any member of the Oaktree Group; provided that Confidential
Information shall not include any information generally known to the public other than as a result of
disclosure by you not permitted hereunder.
(iii)
“Intellectual Property” means (A) any and all investment or trading records,
agreements or data; (B) any and all financial and other analytic models, records, data, methodologies or
software; (C) any and all investment advisory contracts, fee schedules and investment performance data;
(D) any and all investment agreements, limited partnership agreements, subscription agreements, private
placement memorandums and other offering documents and materials; (E) any and all client, investor or
vendor lists, records or contact data; (F) any and all other documents, records, materials, data, trade secrets
and other incidents of any business carried on by any member of the Oaktree Group or learned, created,
developed or carried on by any employee of any member of the Oaktree Group (in whatever form,
17
including print, computer file, diskette or otherwise); and (G) all trade names, services marks and logos
under which any member of the Oaktree Group does business, and any combinations or variations thereof
and all related logos.
(f)
Conflict. In the event of any conflict between the provisions of this Section 6 and
corresponding covenants in the OCGH Limited Partnership Agreement, Oaktree’s Code of Ethics,
Oaktree’s equity incentive plans or agreements, equity grant agreements or any other agreements that you
enter into with Oaktree relating to intellectual property rights, nondisclosure of confidential information,
non-disparagement or non-solicitation (and corresponding enforcement, remedial and interpretive
provisions), the provisions of this Section 6 shall control. You will be subject to all other provisions of the
OCGH Limited Partnership Agreement, Code of Ethics, equity incentive plans and agreements; provided,
that, for purposes of Section 10.4(b) of the OCGH Limited Partnership Agreement or any similar provision
in any Oaktree equity incentive plan, agreement or policy or equity grant agreement, a “Competitive
Business” shall not include any business enterprise that is primarily a commercial bank, an investment
bank, an insurance company or a retail distribution business.
7.
Representations of Executive; Advice of Counsel.
(a)
You represent and warrant to Oaktree that (i) you are not, and since the date of
commencement of your employment you have not been, an employee of any other person or entity, (ii)
your employment with Oaktree or any other member of the Oaktree Group, and your performance of
services for Oaktree or any other member of the Oaktree Group, will not conflict with or be constrained by
(A) any prior employment, employment agreement, consulting agreement, undertaking or relationship or
(B) any other contractual obligations, fiduciary or other duties, or legal restrictions applicable to you, (iii)
you are not the subject of any orders, judgments or decrees of any court, regulatory agency or other
governmental body limiting or otherwise affecting your professional activities or addressing any issue
related to whether your professional conduct has been in compliance with applicable law or securities
industry professional standards, (iv) to your knowledge, no claim, action or investigation involving any
such matters is pending, or to your knowledge, threatened, and (v) you answered “NO” to each of the
questions in the Advisory Affiliate Questionnaire submitted to Oaktree and such answers are and continue
to be true and accurate. You hereby covenant that you shall immediately inform Oaktree if any of the
18
foregoing representations is or becomes untrue or inaccurate and will update the Advisory Affiliate
Questionnaire upon the request of Oaktree.
(b)
Prior to execution of this Agreement, you were advised by the Company of your right to
seek independent advice from an attorney of your own selection regarding this Agreement. You
acknowledge that you have entered into this Agreement knowingly and voluntarily and with full knowledge
and understanding of the provisions of this Agreement after consulting with counsel. You further represent
that in entering into this Agreement, you are not relying on any statements or representations made by any
of the Company’s directors, officers, employees or agents which are not expressly set forth herein, and that
you are relying only upon your own judgment and any advice provided by your attorney.
8.
Compliance with Law. In connection with your conduct and activities on behalf of Oaktree, you
shall not knowingly fail to comply with any applicable law, including any applicable U.S. state, U.S.
federal or non-U.S. securities law.
9.
Miscellaneous
(a)
Entire Agreement. This Agreement constitutes the entire and final expression of the
agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior
agreements, oral and written, between the parties hereto with respect to the subject matter hereof, including
the Original Employment Agreement and any other employment agreement or term sheet, in final form or
draft form, between you and any member of the Oaktree Group. This Agreement may be modified or
amended only by an instrument in writing signed by both parties hereto that specifically references this
Agreement.
(b)
Withholding. You hereby authorize Oaktree to deduct and withhold from any
compensation or amounts otherwise payable to you any and all amounts required to be deducted or
withheld under any applicable law or otherwise, including all taxes required to be withheld by applicable
law or regulation.
(c)
Assignment; Designation of Beneficiaries. Except as set forth in this Section 9(c), the
rights and benefits hereunder shall not be assignable or transferable, and any purported transfer, sale,
assignment, pledge or other encumbrance or disposition or attachment of any payments or benefits
19
hereunder other than by operation of law, shall not be permitted or recognized. The Company may assign
this Agreement to its affiliates; provided that no such assignment shall affect in any way the benefits to you
or Oaktree contemplated by this Agreement or release the Company from liability hereunder. You agree to
take any such actions and to execute any such documents as the Company may reasonably request in order
to further implement and evidence any such assignment. You may, with the consent of the Company,
designate in writing, on forms prescribed by and filed with the Company, one or more beneficiaries to
receive any payments payable after your death and may at any time amend or revoke any such designation;
provided that if you designate a person other than your spouse as a beneficiary, your spouse must sign a
statement specifically approving such designation. Any payments to which you would be entitled by virtue
of this Agreement while alive will be paid, following your death, to the designated beneficiary. If no
beneficiary designation is in effect at the time of death, or in the absence of a spouse’s approval as herein
above provided, payments to which you are entitled hereunder shall be made to your personal
representative.
(d)
Waiver. Failure to insist upon strict compliance with any of the terms, covenants or
conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
(e)
Notices. Any notice required or permitted to be given under this Agreement shall be
sufficient if in writing and either delivered in person (including by a nationally recognized overnight
courier service) or sent by first class certified or registered mail, postage prepaid, if to any member of the
Oaktree Group, at Oaktree’s principal place of business, Attn: General Counsel, and if to you, at your home
address most recently filed with Oaktree, or to such other address or addresses as either party shall have
designated in writing to the other party hereto.
(f)
Severability. You agree that in the event any arbitrator or court of competent jurisdiction
shall finally hold that any provision of Section 6 above is void or constitutes an unreasonable restriction
against you, such provision shall not be rendered void but shall be enforced to such extent as such arbitrator
or court, as the case may be, may determine constitutes a reasonable restriction under the circumstances. If
any part of this Agreement other than Section 6 above is held by an arbitrator or court of competent
20
jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part by reason of any rule of
law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the
purpose only of the particular legal proceedings in question, and all other covenants and provisions of this
Agreement shall in every other respect continue in full force and effect and no covenant or provision shall
be deemed dependent upon any other covenant or provision.
(g)
Governing Law. This Agreement shall be construed and enforced, along with any rights,
remedies, or obligations provided for hereunder, in accordance with the laws of the State of California
applicable to contracts made and to be performed entirely within the State of California; provided that the
enforceability of Section 9(h) below shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq.,
and not the laws of the State of California.
(h)
Arbitration. You and Oaktree acknowledge and agree that, to the extent permitted by law,
any and all disputes, claims or controversies arising out of or relating to the hiring process, your
employment relationship with any member of the Oaktree Group or the termination of that employment
relationship (including any claims for harassment, retaliation, or discrimination pursuant to Title VII of the
Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with Disabilities Act, the Age
Discrimination in Employment Act, or any similar provision of state or federal statutory or common law)
shall be submitted to final and binding arbitration before Judicial Arbitration and Mediation Services, Inc.
(“JAMS”). The arbitration shall take place in Los Angeles, California, and shall be conducted in
accordance with the provisions of JAMS Employment Arbitration Rules and Procedures, or any similar
successor, in effect at the time of filing of the demand for arbitration. The arbitration shall be held before
and decided by a single neutral arbitrator, experienced in employment matters. You and Oaktree agree to
participate in the arbitration in good faith. The arbitrator shall have the power to award any appropriate
remedy allowed by applicable law, but shall not have power to modify the provisions of this Section 9(h),
to make an award or impose a remedy that is not available to a court of general jurisdiction sitting in the
State of California, and the jurisdiction of the arbitrator is limited accordingly. Unless otherwise
determined by the arbitrator, the fees and costs of the arbitrator and the arbitration (but not the parties’
respective individual costs of conducting the arbitration) shall be borne equally by Oaktree and you;
provided, that Oaktree shall pay a greater portion (including, if required, all) of the fees and costs of the
arbitrator and the arbitration where required by applicable law. The arbitrator shall apply California
21
substantive law, including any applicable statutes of limitation. Adequate discovery shall be permitted by
the arbitrator consistent with applicable law and the objectives of arbitration. The award of the arbitrator,
which shall be in writing summarizing the basis for the decision, shall be final and binding upon the parties
(subject only to limited review as required by law) and may be entered as a judgment in any court having
competent jurisdiction, and the parties hereby consent to the jurisdiction of the courts of the State of
California. The details, existence and outcome of any such arbitration and any information obtained in
connection with any such arbitration (including any discovery taken in connection with such arbitration)
shall be kept strictly confidential and shall not be disclosed or discussed with any person not a party to, or
witness in, the arbitration; provided that a party may make such disclosures as are required by applicable
law or legal process; provided further that a party may make such disclosures to its attorneys, accountants
or other agents and representatives who reasonably need to know the disclosed information in connection
with any arbitration pursuant to this Section 9(h) and who are obligated to keep such information
confidential to the same extent as such party. If either you or Oaktree, as the case may be, receives a
subpoena or other request for information from a third party that seeks disclosure of any information that is
required to be kept confidential pursuant to the immediately preceding sentence, or otherwise believes that
it may be required to disclose any such information, you or Oaktree, as the case may be, shall (i) promptly
notify the other party to the arbitration and (ii) reasonably cooperate with such other party in taking any
legal or otherwise appropriate actions, including the seeking of a protective order, to prevent the disclosure
or otherwise protect the confidentiality, of such information. To the extent necessary, disclosure of the
EVU Award may be made in connection with enforcement of such award. For the avoidance of doubt, you
and Oaktree agree and acknowledge that future agreements or contracts between you and Oaktree may
include arbitration provisions governing disputes, claims or controversies that shall be separate and distinct
from any arbitration pursuant to this Section 9(h).
(i)
Interpretation. All ambiguities shall be resolved without reference to which party may
have drafted this Agreement. All section headings or other captions in this Agreement are for convenience
only, and they shall not be deemed part of this Agreement and in no way define, limit, extend or describe
the scope or intent of any provisions hereof. Unless the context clearly indicates otherwise: (i) a term has
the meaning assigned to it; (ii) “or” is not exclusive; (iii) provisions apply to successive events and
transactions; (iv) each definition herein includes the singular and the plural; (v) each reference herein to
22
any gender includes the masculine, feminine, and neuter where appropriate; (vi) the word “including” when
used herein means “including, but not limited to,” and the word “include” when used herein means
“include, without limitation”; and (vii) references herein to specified section numbers refer to the specified
section of this Agreement. The words “hereof,” “herein,” “hereto,” “hereby,” “hereunder,” and derivative or
similar words refer to this Agreement as a whole and not to any particular provision of this Agreement. The
words “applicable law” and any other similar references to the law include all applicable statutes, laws
(including common law), treaties, orders, rules, regulations, determinations, orders, judgments, and decrees
of any governmental authority. The abbreviation “U.S.” refers to the United States of America. All
monetary amounts expressed herein by the use of the words “U.S. dollar” or “U.S. dollars” or the symbol
“$” are expressed in the lawful currency of the United States of America. The words “foreign” and
“domestic” shall be interpreted by reference to the United States of America.
(j)
Binding Effect. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, legal representatives and assigns.
(k)
Counterparts. This Agreement may be executed in any number of counterparts. Each of
which shall be deemed an original, but all of which together shall constitute one and the same agreement.
[remainder of page intentionally left blank]
23
If you agree to and accept the foregoing please so indicate by signing this Agreement in the space provided
below and returning a signed copy to the undersigned. Upon acceptance by you, this Agreement will
become our agreement as to the terms and conditions of your employment.
OAKTREE CAPITAL MANAGEMENT, L.P.
/s/ Howard S. Marks
By:
Name: Howard S. Marks
Title: Co-Chairman
/s/ Bruce A. Karsh
By:
Name: Bruce A. Karsh
Title: Co-Chairman and Chief Investment Officer
OAKTREE CAPITAL GROUP, LLC
By: Oaktree Capital Group Holdings GP, LLC
/s/ Howard S. Marks
By:
Name: Howard S. Marks
Title: Co-Chairman
/s/ Bruce A. Karsh
By:
Name: Bruce A. Karsh
Title: Co-Chairman and Chief Investment Officer
I agree and accept the terms set out above as of the date of this Agreement.
/s/ Jay S. Wintrob
JAY S. WINTROB
24
List of Pre-Employment Funds **
EXHIBIT A
Columbia/HCA Master Retirement Trust (Opportunities Fund II)
Gryphon Domestic VI, LLC
Gryphon Domestic VII, LLC
Highstar Capital IV, L.P.
Highstar Capital IV Prism, L.P.
Oaktree Asia Special Situations Fund, L.P.
Oaktree BAA Emerging Markets Opportunities Fund, L.P.
Oaktree Desert Sky Investment Fund, L.P.
Oaktree Emerging Market Opportunities Fund, L.P.
Oaktree Enhanced Income Fund, L.P.
Oaktree Enhanced Income Fund II, L.P.
Oaktree European Credit Opportunities Fund, L.P.
Oaktree European Dislocation Fund, L.P.
Oaktree European Principal Fund III, L.P.
Oaktree FF Investment Fund, L.P.
Oaktree Glacier Investment Fund, L.P.
Oaktree High Yield Plus Fund, L.P.
Oaktree Huntington Investment Fund, L.P.
Oaktree Japan Absolute Return Fund, L.P.
Oaktree Japan Opportunities Fund, L.P.
Oaktree Japan Opportunities Value Fund, L.P.
Oaktree Loan Fund 2x, L.P.
Oaktree Mezzanine Fund III, L.P.
Oaktree Opportunities Fund VIII, L.P.
Oaktree Opportunities Fund VIIIb, L.P.
Oaktree Opportunities Fund IX, L.P.
Oaktree Power Opportunities Fund III, L.P.
Oaktree Principal Fund V, L.P.
Oaktree Private Investment Fund 2009, L.P.
Oaktree Private Investment Fund 2010, L.P.
Oaktree Private Investment Fund 2012, L.P.
Oaktree Real Estate Debt Fund, L.P.
Oaktree Real Estate Opportunities Fund IV, L.P.
Oaktree Real Estate Opportunities Fund V, L.P.
Oaktree Real Estate Opportunities Fund VI, L.P.
Oaktree Remington Investment Fund, L.P.
Oaktree TX Emerging Market Opportunities Fund, L.P.
OCM Asia Principal Opportunities Fund, L.P.
OCM CBH Co-Invest, L.P.
OCM CBH Co-Invest 2, L.P.
OCM European Principal Opportunities Fund II, L.P.
OCM European Principal Opportunities Fund, L.P.
25
OCM Mezzanine Fund, L.P.
OCM Mezzanine Fund II, L.P.
OCM Opportunities Fund II, L.P.
OCM Opportunities Fund III, L.P.
OCM Opportunities Fund IV, L.P.
OCM Opportunities Fund IVb, L.P.
OCM Opportunities Fund V, L.P.
OCM Opportunities Fund VI, L.P.
OCM Opportunities Fund VII, L.P.
OCM Opportunities Fund VIIb, L.P.
OCM Principal Opportunities Fund II, L.P.
OCM Principal Opportunities Fund III, L.P.
OCM Principal Opportunities Fund IIIA, L.P.
OCM Principal Opportunities Fund IV, L.P.
OCM Real Estate Opportunities Fund A, L.P.
OCM Real Estate Opportunities Fund B, L.P.
OCM Real Estate Opportunities Fund II, L.P
OCM Real Estate Opportunities Fund III, L. P.
OCM Real Estate Opportunities Fund IIIA, L.P.
OCM STR Co-Invest 1, L.P.
OCM STR Co-Invest 2, L.P.
OCM/GFI Power Opportunities Fund II (Cayman), L.P.
OCM/GFI Power Opportunities Fund II, L.P.
** Each fund listed on this Exhibit A, includes all parallel funds that invest alongside such funds.
26
OAKTREE CAPITAL MANAGEMENT, L.P.
Exhibit 10.22
EXECUTION COPY
CONFIDENTIAL
October 6, 2014
Jay S. Wintrob
c/o Oaktree Capital Management, L.P.
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Re:
Replacement Payments
Dear Mr. Wintrob:
Oaktree Capital Management, L.P., a Delaware limited partnership (the “Company”)
understands that you expect to forfeit certain compensation with your prior employer in connection with
your commencement of employment with the Company and its affiliates. In addition, the Company
understands that your prior employer has agreed to provide payments to you as compensation for some
other bonuses and equity awards that you would only have received or vested in after the date you
commenced employment with the Company. The Company desires to ensure that you are not distracted
from your duties and responsibilities with the Company and its affiliates by concerns about forfeited
compensation or your prior employer’s commitment to honor the above-mentioned compensation.
To this end, the Company agrees to the following:
• The Company will pay you an amount in cash equal to 50% of the value of your
2012 TARP RSU grant from your prior employer, such amount to be based on
the closing price of your prior employer’s common stock on the New York Stock
Exchange (NYSE) on December 17, 2014. This cash payment will be made to
you promptly following December 17, 2014 and in all events prior to March 15,
2015.
•
If your prior employer does not honor its obligations to you in respect of the
below awards (“back-stop awards”), the Company will pay you amounts
described below:
2011 TARP RSUs : paid in cash, based on the closing price of your
prior employer’s common stock on the New York Stock Exchange on
December 19, 2014, no later than the Payment Deadline Date. As used
in this letter, the “Payment Deadline Date” will be March 15 of the
calendar year following the year in which your prior employer has
agreed to make an applicable payment to you under your separation and
settlement agreement with such prior employer.
2014 Target Annual Cash Bonus, Prorated: $2,000,000, in cash no
later than the Payment Deadline Date.
75% of PSUs – AIG 2013 LTIP : Payout will be based on threshold,
target or maximum performance (or somewhere in between, with
threshold being 50% of target and maximum being 150% of target),
whatever was actually achieved, and will be calculated consistent with
your prior employer’s calculation of payments to be made under the
AIG 2013 LTIP and consistent with the valuation used to pay all other
employees participating in the AIG 2013 LTIP. Amounts may be paid
in cash or, at the Company’s election, up to 50% in fully vested OCGH
limited partnership units, and shall be paid to you no later than the
Payment Deadline Date.
75% of the PSUs - 2014 LTIP : Payout will be based on target
performance, and will be calculated based on the closing price of your
prior employers’ common stock on the NYSE on the date you
commence employment with Oaktree. Amounts may be paid in cash
or, at the Company’s election, up to 50% in fully vested OCGH Units,
and shall be paid to you no later than the Payment Deadline Date.
You agree that, to be entitled to receive the payments set forth above, as of the date on
which your prior employer was obligated to provide you with such payment, your employment agreement
with the Company of even date herewith must be in full force and effect other than as provided in Section 5
thereof, and, in the case of the back-stop awards, you must make reasonable efforts to receive such
payments from your prior employer. You agree to reimburse Oaktree for any payments Oaktree makes to
you in respect of back-stop awards if you receive payment in respect of such award from your prior
employer, and Oaktree will reimburse you for your reasonable out of pocket expenses in pursuing any
claims against your prior employer, such reimbursement to be made no later than March 15 of the calendar
year following the year in which they were incurred.
This letter supersedes all prior agreements with respect to the subject matter hereof,
including any other employment agreement or term sheet. This letter may be modified only in a writing
signed by both parties hereto that references this letter agreement.
You authorize the Company to deduct and withhold from any compensation or amounts
otherwise payable to you any and all amounts required to be deducted or withheld under any applicable law
or otherwise, including all taxes required to be withheld by applicable law or regulation.
This letter shall be construed and enforced, along with any rights, remedies, or
obligations provided for hereunder, in accordance with the laws of the State of California applicable to
contracts made and to be performed entirely within the State of California. All disputes, claims or
controversies arising out of or relating to this letter shall be subject to arbitration in accordance with
Section 9(h) of your employment agreement with the Company of even date herewith.
This letter may be executed in any number of counterparts. Each of which shall be
deemed an original, but all of which together shall constitute one and the same agreement.
If you agree to and accept the foregoing please so indicate by signing this letter in the
space provided below and returning a signed copy to the undersigned.
OAKTREE CAPITAL MANAGEMENT, L.P.
/s/ Howard S. Marks
By:
Name: Howard S. Marks
Title: Chairman
/s/ Bruce A. Karsh
By:
Name: Bruce A. Karsh
Title: Co-Chairman
I agree and accept the terms set out above as of the date of this letter.
/s/ Jay S. Wintrob
JAY S. WINTROB
Exhibit 10.23
EXECUTION COPY
AMENDED AND RESTATED
GRANT AGREEMENT
UNDER THE
OAKTREE CAPITAL GROUP, LLC
2011 EQUITY INCENTIVE PLAN
Effective as of December 2, 2014 (the “Grant Date”), OAKTREE CAPITAL GROUP
HOLDINGS, L.P., a Delaware limited partnership (the “Partnership”), OAKTREE CAPITAL
GROUP HOLDINGS GP, LLC, a Delaware limited liability company (in its capacity as the
general partner of the Partnership, the “General Partner”), and Jay S. Wintrob, an individual
(the “Executive”) entered into a GRANT AGREEMENT (the “Original Grant Agreement”), which
is hereby amended and restated as of February 24, 2015 (such Original Grant Agreement, as
amended and restated herein, and as may be amended, modified, supplemented or restated from
time to time, this “Agreement”). Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Fourth Amended and Restated Limited Partnership
Agreement of the Partnership, dated as of January 1, 2014 (as may be amended, modified,
supplemented or restated from time to time, the “Partnership Agreement”) and that certain
Oaktree Capital Group Holdings, L.P. Equity Value Unit Designation, dated as of the Grant Date
(as may be amended, modified, supplemented or restated from time to time, the “EVU
Designation”), as applicable.
Recitals
WHEREAS, the Oaktree Capital Group, LLC 2011 Equity Incentive Plan (the
“Plan”) was adopted for purposes of promoting the long-term financial interests and growth of
the Oaktree Group by, among other things, providing select investment professionals,
employees, directors, consultants and advisors of the Oaktree Group with equity-based awards
based upon Units (as defined under the Plan);
WHEREAS, the Board has approved the grant and issuance of the Granted Units (as
defined below) to the Executive on the Grant Date pursuant to the Original Agreement and the
Plan, subject to the terms and conditions of the Grant Documents (as defined below);
WHEREAS, the Executive and the General Partner have determined to modify
certain terms of the Original Grant Agreement; and
WHEREAS, the Board has determined that such modifications, as reflected in an
amended and restated grant agreement, are in the best interests of the Partnership and the Oaktree
Group, and has approved this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto, intending to be legally bound, hereby agree as follows:
1.
Grant of Units. Subject to the terms and conditions of this Agreement,
the Partnership Agreement and the other Grant Documents:
Agreement
(a)
on the Grant Date, the Partnership granted and issued to the Executive,
and the Executive accepted and received from the Partnership, 2,000,000 EVUs (the
“Granted Units”), which are Units of the Partnership described in the EVU Designation;
(b)
on the Grant Date, the Executive was admitted as a Limited Partner, and
each of the General Partner, the Partnership and the Executive consented to such
admission pursuant to Section 4.2 of the Partnership Agreement, and, as of the Grant
Date, the Executive was regarded as a partner of the Partnership for U.S. federal income
tax purposes and applicable state and local income tax purposes, and shall be treated as
such;
(c)
the Executive acknowledges that before the Grant Date he received and
reviewed carefully a copy of (i) the Partnership Agreement, (ii) the Exchange Agreement,
(iii) the Tax Receivable Agreement, (iv) the Plan, (v) the EVU Designation and (vi) each
other agreement, instrument or document required by any Oaktree Group Member that
was executed and delivered by the Executive in connection with the transactions
contemplated by this Agreement (collectively, including the Partnership Agreement, the
Exchange Agreement, the Tax Receivable Agreement, and the Plan, as each such
document may be amended, modified, supplemented or restated in accordance with its
respective terms from time to time, the “Grant Documents”); and
(d)
on the Grant Date, the Executive joined as a party to, and agreed to be
bound by each and every provision of, the Partnership Agreement, the Exchange
Agreement and the Tax Receivable Agreement.
2.
Terms and Conditions. The Granted Units shall be subject to the terms
and conditions set forth in the following table:
EVUs
Each EVU shall give Executive the right to receive the
Applicable End Date Allocation (defined below), certain
allocations and cash distributions (as described below under
“Certain Cash Distributions”), other allocations upon the
occurrence of certain contingencies occurring between January
-2-
1, 2015 and December 31, 2021 (such period, the “Full EVU
Opportunity Period”), and the right to recapitalize the EVUs
into Units of the type that are eligible to be exchanged pursuant
to the Exchange Agreement (referred to herein as “Partnership
Units”), as described below under “Recapitalization”, subject
to the terms described in this Agreement, the EVU Designation
and the Exchange Agreement.
Applicable
With respect to 666,666 EVUs (the “Tranche One EVUs”), the
Measurement
Applicable Measurement Period shall be January 1, 2015
Period
through December 31, 2019 (with December 31, 2019 referred
to herein as the “Tranche One End Date”).
With respect to 666,667 EVUs (the “Tranche Two EVUs”), the
Applicable Measurement Period shall be January 1, 2015
through December 31, 2020 (with December 31, 2020 referred
to herein as the “Tranche Two End Date”).
With respect to 666,667 EVUs (the “Tranche Three EVUs”),
the Applicable Measurement Period shall be January 1, 2015
through December 31, 2021 (with December 31, 2021 referred
to herein as the “Tranche Three End Date”).
The Tranche One End Date, Tranche Two End Date and
Tranche Three End Date are collectively referred to as the
-3-
“Applicable End Dates”, or,
individually each as an
“Applicable End Date”.
Except as described below in the case of certain terminations
from employment (as described under “Termination of
Employment”), Executive must remain employed by the Issuer
or its Affiliates (as defined under the Partnership Agreement)
through the Tranche One End Date to receive each Applicable
End Date Allocation.
Applicable
“Applicable Base Value” shall mean (i) $61.00 with respect to
Base Value
the Tranche One EVUs (the “Tranche One Base Value”), (ii)
Applicable
Measurement
Period
Appreciation
$65.00 with respect to the Tranche Two EVUs (the “Tranche
Two Base Value”), and (iii) $69.00 with respect to the Tranche
Three EVUs (the “Tranche Three Base Value”).
“Applicable Measurement Period Appreciation” means, with
respect to the Tranche One EVUs, Tranche Two EVUs, and
Tranche Three EVUs, as applicable, the excess, if any, of
(A) the sum of (x) the volume-weighted average price of a
Class A Unit of the Issuer (“Applicable End Date VWAP”)
over the sixty (60) business days preceding and sixty (60)
business days following the Applicable End Date, and (y) the
aggregate
cash
distributions,
excluding
distributions
-4-
attributable to net incentive income from a fund that is set forth
on Exhibit A of the Employment Agreement (as defined below)
(“Pre-Employment Funds”), made on a per-Partnership Unit
basis in respect of the Applicable Measurement Period (even if
paid after the end of the Applicable Measurement Period), over
(B) the Applicable Base Value. For purposes of the preceding
definition, with respect to:
• the Tranche One EVUs, (i) the Applicable End Date is
the Tranche One End Date, (ii) the Applicable Base
Value is the Tranche One Base Value, and (iii) the
Applicable Measurement Period Appreciation
is
referred to as the “Tranche One Measurement Period
Appreciation”;
• the Tranche Two EVUs, (i) the Applicable End Date is
the Tranche Two End Date, (ii) the Applicable Base
Value is the Tranche Two Base Value, and (iii) the
Applicable Measurement Period Appreciation
is
referred to as the “Tranche Two Measurement Period
Appreciation;” and
• the Tranche Three EVUs, (i) the Applicable End Date
is the Tranche Three End Date, (ii) the Applicable Base
Value is the Tranche Three Base Value, and the
-5-
Applicable Measurement Period Appreciation
is
referred to as the “Tranche Three Measurement Period
Appreciation”.
For all purposes in this Agreement where an exclusion of net
incentive income attributable to Pre-Employment Funds is
required for any calculation, such exclusion shall be calculated
by applying to each aggregate quarterly cash distribution to the
Partners, that distribution’s overall payout ratio (as a percentage
of the distributable earnings of the entities that control the
general partners and investment advisors of the investment
funds and accounts managed by any Oaktree Group Member in
which the Issuer has a minority economic interest and indirect
control (such earnings, “DE” and such group, the “Oaktree
Operating Group”)) to the portion of DE representing net
incentive income from Pre-Employment Funds.
Applicable End
“Applicable End Date Allocation” means (i) with respect to the
Date Allocation
Tranche One EVUs, 666,666 multiplied by the Tranche One
Measurement Period Appreciation, (ii) with respect to the
Tranche Two EVUs, 666,667 multiplied by the Tranche Two
Measurement Period Appreciation, and (iii) with respect to the
Tranche Three EVUs, 666,667 multiplied by the Tranche Three
Measurement Period Appreciation, which allocations are
-6-
described in the EVU Designation.
Method of
The number of Partnership Units into which the EVUs shall be
Calculating
recapitalized as described under “Recapitalization” below shall
Number of
be determined by dividing the Applicable End Date Allocation
Recapitalized
for each of the Tranche One EVUs, the Tranche Two EVUs,
Units
and the Tranche Three EVUs (to the extent made pursuant to
the terms of the EVU Designation) by the Applicable End Date
VWAP for each such tranche.
Applicable
The Applicable Recapitalization Date for the Applicable End
Recapitalization
Date Allocation for each of the Tranche One EVUs, the
Date
Tranche Two EVUs, and the Tranche Three EVUs, shall be
promptly, but no later than fifteen (15) calendar days, following
the calculation of the Applicable End Date Allocation for each
such tranche. The Applicable Recapitalization Date for any
other allocation in respect of the EVUs shall be as set forth in
this Agreement and the EVU Designation.
Certain Cash
With respect to the Full EVU Opportunity Period, Executive
Distributions
will have the right to receive cash distributions in respect of his
EVUs only under the following circumstances:
Cash distributions are measured and paid quarterly
for each Fiscal Year from 2016 through 2021 in
-7-
respect of any EVUs held by Executive during such
fiscal years.
Executive must be employed on January 1 of each
of the Fiscal Years 2016-2019 to receive the cash
distributions earned in respect of each completed
calendar quarter for such Fiscal Year and the
immediately preceding Fiscal Year in the case of
fourth quarter distributions as described below, and
Executive must be employed through December 31,
2019 to receive the cash distributions earned in
respect of Fiscal Years 2020 and 2021.
If
Executive’s employment terminates during any
Fiscal Year preceding
the 2020 Fiscal Year,
Executive will be entitled
to
receive cash
distributions in respect of any calendar quarters that
ended prior to such termination and a pro-rated
portion of any distributions for the quarter of
termination based on the number of days during the
quarter of termination during which Executive was
employed. If Executive’s employment terminates
on or after December 31, 2019, he shall remain
eligible to receive cash distributions in respect of the
2020 and 2021 Fiscal Years and in respect of the
-8-
final calendar quarter of the 2019 Fiscal Year.
Amount of
The amount of cash distributions for each Fiscal Year, shall be
Cash
calculated as follows:
Distributions in
Respect of
EVUs
Annual Hurdle: For each of the 2015 – 2020 Fiscal
Years (each such annual year, a “Performance
Period”), Executive’s EVUs have been assigned a
hurdle (each, an “Annual Hurdle”). The Annual
Hurdle for (i) each of the 2015 through 2018
Performance Periods have been set by the Board of
Directors of the Issuer (the “Board”) on or prior to
the Grant Date, and (ii) for the 2019 and 2020
Performance Periods have been set by the Board on
the date hereof.
Reference Partnership Units. On or about the time
of the completion of the preparation of the Issuer’s
annual financial statements relating to a given
Performance Period, if the Annual Hurdle for the
preceding Performance Period has been met,
Executive will be entitled to receive special cash
distributions in respect of the EVUs in the
immediately subsequent Performance Period as
determined by using the computational approach
-9-
below. The following steps will be used to
determine whether the applicable Annual Hurdle has
been met and the amount of the distributions
Executive will be entitled to receive as distributions
with respect to Executive’s EVUs:
Step 1 – VWAP: Determine the volume-
weighted average price of a Class A Unit of
the Issuer over the sixty (60) business days
preceding and the sixty (60) business days
following the last day of the relevant
Performance Period (the “EOY VWAP”).
Step 2 – Annual Distributions. Determine
the aggregate distributions made to the
Partnership Unit holders relating to such
Performance Period on a per- Partnership
Unit basis, but excluding cash distributions
attributable to net incentive income from
Pre-Employment Funds (“Performance
Period Distributions”).
Step 3 – Cumulative Distributions. For each
of the 2016 through 2020 Performance
Periods, determine the aggregate
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distributions made to the Partnership Unit
holders relating to all preceding Performance
Periods on a per- Partnership Unit basis, but
excluding cash distributions attributable to
net incentive income from Pre-Employment
Funds (the “Aggregate Distributions”).
Step 4 – Annual Hurdle Met? If the sum of
such EOY VWAP and Aggregate
Distributions (or, for the calculation relating
to the 2015 Performance Period, the
Performance Period Distributions) is greater
than the Annual Hurdle for such
immediately preceding Performance Period,
the Annual Hurdle is met.
If the Annual Hurdle is met,
Executive will be eligible to receive
cash distributions paid relating to the
immediately succeeding Performance
Period, if any, in respect of the
Reference Partnership Units, as
calculated in Step 5 below.
If the Annual Hurdle is not met,
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Executive will not be eligible to
receive any cash distributions in
respect of Executive’s EVUs relating
to such immediately succeeding
Performance Period, but Executive
will remain eligible to receive cash
distributions paid in respect of
Executive’s EVUs for subsequent
Performance Periods if the Annual
Hurdle is met for such period(s).
Step 5 – Determine Annual Hurdle
Attainment for Purposes of Calculating
Reference Partnership Units Below. The
amount by which the Annual Hurdle has
been exceeded (the “Annual Hurdle
Attainment”) for any Performance Period is
the excess of (x) the sum of the EOY VWAP
calculated above for such Performance
Period, plus the Aggregate Distributions
calculated above for such Performance
Period, over (y) the Annual Hurdle for such
Performance Period.
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Step 6 – Applicable Reference Partnership
Units. For purposes of calculating the
number of notional Partnership Units (the
“Reference Partnership Units”) to determine
the distributions with respect to EVUs for
any Performance Period, the number of
“applicable” EVUs shall be determined
applying the following “Vesting Schedule.”
If Executive is employed
Applicable EVU
through December 31, of the
percentage (or
applicable year below:
vested EVUs)
2015
2016
2017
2018
2019
will be
20%
40%
60%
80%
100%
Step 7 – Reference Partnership Units: A
number of notional units determined by
dividing (x) the product of (i) the Annual
Hurdle Attainment for the relevant
Performance Period multiplied by (ii) the
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number of “applicable” EVUs for such
Performance Period by (y) the EOY VWAP
for such Performance Period.
Example: After the first Performance
Period, the number of “applicable”
EVUs is 400,000 (20% X 2,000,000).
If, following that first Performance
Period, the Annual Hurdle
Attainment is 3 and EOY VWAP is
60, the number of Reference
Partnership Units is 20,000 (= (3 X
400,000) / 60).
The number of Reference Partnership Units will be
recalculated at the end of each Performance Period
and will not give Executive any rights whatsoever
other than the sole right to receive cash distributions
in respect of the EVUs as described in this
Agreement.
It is agreed and understood that distributions with
respect to a particular quarter will be made in the
subsequent quarter, such that the distribution with
respect to the fourth quarter of any year is expected
-14-
to be made in the first quarter of the following year,
and the distribution made in the first quarter of a
year does not relate to that year, but rather the prior
year.
It is the understanding of the parties to this Agreement that the
Partnership does not expect to make any non-cash quarterly
distributions to holders of OCGH Units in respect of the Full
EVU Opportunity Period. If any non-cash distributions are
made, however, the fair market value of any such non-cash
distributions will be determined, and such value will be counted
as a “cash distribution” for purposes of calculating the
Applicable Measurement Period Appreciation,
the D/D
Appreciation, the Acceleration Event Appreciation, and, for the
avoidance of doubt, Performance Period Distributions and
Aggregate Distributions.
No Claw-back
Any cash distributions paid to Executive in respect of his EVUs
as described above shall not be subject to subsequent
readjustment, recall or claw back for any reason, including
based on any recalculation of any of the items set forth above,
except as otherwise required by applicable law.
Termination of
If Executive’s employment terminates prior to December 31,
-15-
Employment
2021, the impact on Executive’s EVUs shall be as follows:
Death or Disability:
Vesting. Executive will be vested in a number of EVUs
equal to (i) a number of Tranche One EVUs equal to
666,666 multiplied by the D/D Fraction (the “Tranche
One D/D Vested EVUs”), (ii) a number of Tranche Two
EVUs equal to 666,667 multiplied by the D/D Fraction
(the “Tranche Two D/D Vested EVUs”), and (iii) a
number of Tranche Three EVUs equal to 666,667
multiplied by the D/D Fraction (the “Tranche Three
D/D Vested EVUs” and, collectively with the Tranche
One D/D Vested EVUs and the Tranche Two D/D
Vested EVUs, the “D/D Vested EVUs”). For purposes
of the preceding sentence, the “D/D Fraction” is a
fraction, the numerator of which is the number of
calendar months (full or partial) during which Executive
was employed on or after January 1, 2015 through the
date of death or disability, and the denominator of
which is sixty (60), but such fraction shall never be
greater than one. The remaining EVUs shall be
immediately forfeited upon the date of such death or
disability. For the avoidance of doubt, if the Executive
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remains employed through December 31, 2019, the
EVUs shall be fully vested.
Recapitalization. Fifty percent (50%) of each tranche of
the D/D Vested EVUs that are outstanding on the date
of termination shall be recapitalized (as described
below) promptly
following Executive’s death or
disability (the “D/D Measurement EVUs”), but subject
to the General Partner’s determination that there will be
sufficient Adjusted Net Profits (or gross items of
income and realized gain) for the applicable period,
which may occur after the end of the calendar year in
which the death or disability occurs, and shall have an
aggregate value determined based on the volume
weighted average price of a Class A Unit of the Issuer
over the ten (10) business day period preceding and the
ten (10) business day period following the date of death
or disability (the “D/D VWAP”). The remaining 50%
of each such tranche of the D/D Vested EVUs that are
outstanding on the date of termination (the “D/D End
Date Measurement EVUs”) shall have an aggregate
value calculated based on the Applicable End Date
VWAP for each tranche and settled on the Applicable
Recapitalization Date as the Applicable End Date
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Allocation for each such tranche in accordance with
“Recapitalization” below. The allocations in respect of
each tranche of these D/D Vested EVUs shall be
calculated as follows:
The target allocation in respect of the D/D Measurement
EVUs shall equal the D/D Appreciation (defined below)
(the “D/D Acceleration Event Allocation”), and the
number of Partnership Units to be delivered shall be
determined by dividing such target allocation by the
D/D VWAP, in accordance with “Recapitalization”
below.
The target allocation in respect of the D/D End Date
Measurement EVUs shall be made on the Applicable
Recapitalization Date for each of the outstanding
Tranche One D/D Vested EVUs, Tranche Two D/D
Vested EVUs, and Tranche Three D/D Vested EVUs (as
applicable) and shall equal the Applicable Measurement
Period Appreciation for each such tranche (the “D/D
End Date Allocation”), and the number of Partnership
Units to be delivered shall be determined by dividing
such target allocation by the Applicable End Date
VWAP for each such tranche, in accordance with
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“Recapitalization” below.
D/D Appreciation: The excess of (A) the sum of (x) the
D/D VWAP plus (y) the aggregate cash distributions
made since January 1, 2015 on a per-Partnership Unit
basis, excluding distributions attributable to net
incentive income from Pre-Employment Funds, that
occurred prior the date of death or disability over
(B) the accreted base value through the date of death or
disability.
Discharge without Cause or Resignation for Good Reason:
• Vesting. Executive will be vested in a number of EVUs
equal to the sum (which shall not exceed 2,000,000) of
(A) the number of EVUs that have vested prior to the
Fiscal Year
in which Executive’s
termination of
employment occurs (based on the Vesting Schedule
above), plus, (B) the product of 400,000 EVUs
multiplied by, a fraction, the numerator of which is the
number of days in the Fiscal Year during which
Executive was
employed
hereunder,
and
the
denominator of which is 365, plus (C) 800,000 EVUs
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(such computed amount, the “Qualifying Termination
EVUs”). All EVUs that do not vest in accordance with
the above formula shall be immediately forfeited upon
such termination. For the avoidance of doubt, if
Executive remains employed through December 31,
2019, the EVUs shall be fully vested, and all such
EVUs shall be Qualifying Termination EVUs.
• Recapitalization. All Qualifying Termination EVUs
shall be deemed equally allocated among all or any of
the Tranche One EVUs, Tranche Two EVUs, and
Tranche Three EVUs
that have not yet been
recapitalized. The Applicable End Date Allocation with
respect
to each such
tranche of
the Qualifying
Termination EVUs shall be calculated in the same
manner as, and shall be allocated on the same
Applicable Recapitalization Date as is applicable to, the
Applicable End Date Allocation for such tranche as set
forth in accordance with “Recapitalization” below.
• Change in Control Termination. If the above
termination occurs within one (1) year following a
Change in Control, then Executive shall immediately
vest in a number of EVUs as set forth below (the “CIC
-20-
EVUs”). Any EVUs that do not vest in accordance with
the formula below shall be immediately forfeited upon
such termination. For the avoidance of doubt, if the
Executive remains employed through December 31,
2019, the EVUs shall be fully vested, and all such
EVUs shall be “CIC EVUs.”
Termination Date
CIC EVUs
Before 2016
In 2016
In 2017 – 2019
1,200,000
1,600,000
2,000,000
All CIC EVUs shall be deemed equally allocated
among all or any of the Tranche One EVUs, Tranche
Two EVUs, and Tranche Three EVUs that have not
yet been recapitalized. The Applicable End Date
Allocation with respect to each such tranche of the
CIC EVUs shall be calculated in the same manner as,
and shall be allocated on the same Applicable
Recapitalization Date as
is applicable
to,
the
Applicable End Date Allocation in accordance with
“Recapitalization” below.
-21-
Resignation Without Good Reason:
• Vesting. The number of EVUs that are vested through
the end of the Fiscal Year immediately preceding the
date of resignation (applying the Vesting Schedule
above) shall be vested, and all other EVUs will be
immediately forfeited upon such resignation. For the
avoidance of doubt, if Executive remains employed
through December 31, 2019, the EVUs shall be fully
vested.
• Recapitalization. The number of EVUs that are vested
in accordance with the preceding paragraph shall be
deemed equally allocated among all or any of the
Tranche One EVUs, Tranche Two EVUs, and Tranche
Three EVUs that have not yet been recapitalized. The
Applicable End Date Allocation for each such tranche
shall be calculated based on, and shall be allocated on
the same Applicable Recapitalization Date applicable
to, the Applicable End Date Allocation for such tranche
in accordance with “Recapitalization” below.
Discharge for Cause:
• Vesting. If a termination for Cause occurs on or prior to
-22-
December 31, 2019, then all EVUs shall be immediately
forfeited upon such termination, for no consideration.
All EVUs that are forfeited under this section shall,
upon such forfeiture be immediately and automatically
cancelled without any further action by Executive or
any member of the Oaktree Group and cease thereafter
to be outstanding. If Executive remains employed
through December 31, 2019, the EVUs shall be fully
vested.
• Recapitalization. The number of EVUs that are vested
upon Executive’s
remaining
employed
through
December 31, 2019 shall be deemed equally allocated
among all or any of the Tranche One EVUs, Tranche
Two EVUs, and Tranche Three EVUs that have not yet
been
recapitalized.
The Applicable End Date
Allocation for each such tranche shall be calculated
based on, and shall be allocated on the same Applicable
Recapitalization Date applicable to, the Applicable End
Date Allocation for such tranche in accordance with
“Recapitalization” below.
Full EVU
A “Full EVU Acceleration Event” shall occur if on or before
Acceleration
December 31, 2019 either (a) Howard Marks or Bruce Karsh
-23-
Event
ceases to be an employee, director and officer of the Oaktree
Group or (b) either Howard Marks or Bruce Karsh remains in
such positions but substantially reduces his role, for any reason
other than death, Disability or a family medical issue (for
example, the need to care for an immediate family member who
is seriously incapacitated for the long term); provided that, it is
understood that Howard Marks and Bruce Karsh may each
reduce their days and hours worked for the Oaktree Group, and
that any such quantitative reduction in time spent will not be
considered such a cessation as long as, in his respective role
with the Oaktree Group, Howard Marks or Bruce Karsh
continues to actually perform functions and provide services
substantially similar to the functions and services he provided
during the twelve (12) months prior to the Grant Date;
provided, that a Full EVU Acceleration Event will occur if
either Howard Marks or Bruce Karsh becomes an officer,
director or employee of a competitor of the Oaktree Group that
is a multi-asset alternative investment manager with multiple
competing products.
No Full EVU Acceleration Event shall occur until Executive
has provided notice of Executive’s belief that Howard Marks or
Bruce Karsh shall have ceased to perform in such capacity and
-24-
a thirty (30) day cure period has passed or the Board has
acknowledged in writing that a Full EVU Acceleration Event
has occurred.
This Section “Full EVU Acceleration Event” and “Re-load”
below shall cease to apply after December 31, 2019.
Re-load
Upon a Full EVU Acceleration Event, Executive’s EVUs shall
be “reloaded,” and the following shall occur:
• The entire initial EVU grant shall immediately fully
vest.
• The allocation with respect to Executive’s EVUs shall
be calculated as set forth below (the “Reload
Acceleration Event Allocation”), but subject to the
General Partner’s determination that there will be
sufficient Adjusted Net Profits (or gross items of
income and realized gain) for the applicable period,
which may occur after the end of the calendar year in
which the Full EVU Acceleration Event occurs, and
shall be settled in accordance with “Recapitalization”
below immediately following the time that such
allocation has occurred.
• Executive will receive a Re-Load EVU Award, which
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award shall have the terms described below.
2,000,000 new equity value units (the “Re-load
EVUs”),
The vesting period for purposes of cash
distributions and calculating the vesting impact
of certain terminations or resignations from
employment, shall be ratable for each remaining
full or partial fiscal year from January 1, 2015
through December 31, 2020. (So, by way of
example, for a Full EVU Acceleration Event
occurring in 2017, the Re-load EVU Award
shall vest 25% on December 31 of each of 2017
through 2020.)
For purposes of calculating annual cash
distributions due in respect of the Re-load EVU
Award, the first Performance Period shall be the
remaining portion of the year in which the Full
EVU Acceleration Event occurred and each of
the remaining full Fiscal Years through and
including 2020 shall be a Performance Period.
The Applicable Measurement Period for
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purposes of calculating the Applicable End Date
Allocation in respect of the Re-load EVU Award
shall be as follows: (i) with respect to 666,666
of the Re-load EVUs (the “Tranche One Re-load
EVUs”), the Applicable Measurement Period
shall be January 1, 2015 through December 31,
2020, (ii) with respect to another 666,667 of the
Re-load EVUs, (the “Tranche Two Re-load
EVUs”), the Applicable Measurement Period
shall be January 1, 2015 through December 31,
2021, and (iii) with respect to the remaining
666,666 of the Re-load EVUs, (the “Tranche
Three Re-load EVUs”), the Applicable
Measurement Period shall be January 1, 2015
through December 31, 2022.
The Applicable Base Value for each tranche of
Re-load EVUs shall be the sum of (A) the
volume-weighted average price of a Class A
Unit of the Issuer over the fifteen (15) business
days following the Full EVU Acceleration
Event, plus (B) the portion of the Applicable
Base Value for each corresponding tranche of
EVUs (e.g., for the Tranche One Re-load EVUs,
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the Applicable Base Value for the Tranche One
EVUs) that represents the estimate of projected
cash distributions over the Applicable
Measurement Period for such tranche (as
disclosed to Executive prior to the Grant Date),
on a per-Partnership Unit basis, reduced by cash
distributions attributable to net incentive income
from Pre-Employment Funds, that has not
accreted as of the Full EVU Acceleration Event
(the “Original Projected Distribution Value”) at
the time of the Full EVU Acceleration Event,
plus (C) 20% of the Original Projected
Distribution Value.
All other terms and conditions as applied to the
EVU Award (with applicable adjustments on
any periodic measurements).
Following the above Recapitalization Date, Executive shall
have no further rights in respect of the accelerated EVUs,
subject to the terms set forth in the EVU Designation and
Recapitalization below.
The Reload Acceleration Event Allocation shall equal the
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Acceleration Event Appreciation for the EVUs.
Acceleration Event Appreciation. The excess of (A) the sum of
(x) the volume-weighted average price of a Class A Unit of the
Issuer over the fifteen (15) business days preceding the earlier
of (I) notice by Executive that a Full EVU Acceleration Event
has occurred or (II) the public announcement by Oaktree, Bruce
Karsh or Howard Marks that a Full EVU Acceleration Event
has occurred
(such
earlier date,
the
“Acceleration
Recapitalization Date”, and such 15 day VWAP
the
“Acceleration Event VWAP”) plus (y) the aggregate cash
distributions made to Partnership Unit holders from January 1,
2015 through the Acceleration Recapitalization Date, on a per-
Partnership Unit basis, excluding distributions attributable to
net incentive income from Pre-Employment Funds over (B) the
accreted base value through the Acceleration Recapitalization
Date.
Change in
In general, EVUs should
receive
the same
form of
Control
consideration in any Change in Control as is received by
holders of Partnership Units, and the Adjustments section
below shall apply. Executive and the Partnership have
acknowledged that Executive is joining the Oaktree Group
because of the opportunity to augment the Oaktree Group’s
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profitability and growth over a full seven-year period and
thereby Executive’s potential to earn substantial incentive
income for such period. If a Change in Control occurs before
December 31, 2021, the Partnership will, and Oaktree Capital
Management, L.P. and the Issuer have agreed to, make every
effort to preserve, in respect of any EVUs then held by the
Executive, that potential for incentive-based income in the new
circumstances comparable, in amount and attainability, as
originally contemplated at the time Executive commenced
employment. If, as a result of the Change in Control, it is not
practical for the Oaktree Group to preserve such incentive-
based income opportunity (e.g., the Oaktree Group is merged
into another company and it is no longer practical to track
Applicable Measurement Period Appreciation) in a way that
makes it possible to attain the originally intended result in
terms of Executive’s compensation, the Oaktree Group has
agreed to award Executive compensation, which may include a
guaranteed payment, that makes up for the truncation of his
incentive-based income potential.
Any such judgmental
adjustment should reflect the value Executive has added to the
Oaktree Group, the total amount of incentive income or
compensation Executive has earned through the completion of
the Change in Control transaction, and the portion of the Term
-30-
(as defined in the Employment Agreement) elapsed.
“Change in Control” means the occurrence of any of the
following events: (i) the sale or disposition, in one or a series of
related transactions, of all or substantially all, of the assets of
the Issuer to any “person” or “group” (as such terms are defined
in Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934) other than any employee benefit plan (or trust forming
a part thereof) maintained by (A) the Oaktree Group or (B) any
corporation or other Person of which a majority of the voting
power of its voting equity securities or equity interests is
owned, directly or indirectly, by the Issuer, or (C) the
Partnership or any of its affiliates (“Permitted Holders”);
(ii) any person or group, other than the Permitted Holders, is or
becomes the Beneficial Owner (except that a person shall be
deemed to have “beneficial ownership” of all units and equity
interests that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total
voting power of the voting stock of the Issuer (or any entity
which controls the Issuer), including by way of merger,
consolidation, tender or exchange offer or otherwise; or (iii) a
reorganization, recapitalization, merger or consolidation (each,
a “Corporate Transaction”) involving the Issuer, unless after
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such Corporate Transaction
the General Partner of
the
Partnership or an Affiliate thereof has the ability, directly or
indirectly, to appoint a majority of the directors of the Issuer
(whether by vote, pursuant to appointment rights in the Issuer
Operating Agreement or otherwise).
“Beneficial Owner” of a security is a Person who directly or
indirectly, through any contract, arrangement, understanding,
relationship or otherwise has: (x) voting power, which includes
the power to vote, or to direct the voting of, such security
and/or (y) investment power, which includes the power to
dispose, or to direct the disposition of, such security.
-32-
Adjustments
If any equity distribution,
recapitalization, division of
Partnership Units, Class A Units of the Issuer or any class or
series of units or other ownership interests issued by any
member of the Oaktree Group (collectively, “Oaktree Units”),
unit
split,
reverse unit
split,
reorganization, merger,
consolidation, split-up, split-off, combination, repurchase or
exchange of Oaktree Units or other securities of the Issuer or an
Affiliate, as applicable, issuance of warrants or other rights to
acquire Oaktree Units or other securities of the Issuer or an
Affiliate, as applicable, or other similar corporate transaction or
event (including, without limitation, a Change in Control) that
affects the Oaktree Units, then the Board and the General
Partner shall make any such adjustments to the EVUs in such
manner as is equitable.
Recapitalization
Upon completion of the applicable Target Allocation (defined
below) with respect to the EVUs, the EVUs that receive the
Target Allocation, to the extent of such Target Allocation, shall
automatically be recapitalized into Partnership Units (any such
Partnership Units received
in such recapitalization,
the
“Recapitalized Units”) in accordance with the formulas under
“Method of Calculating the Number of Recapitalized Units”,
“Termination of Employment” or “Re-load”, as applicable.
-33-
The Recapitalization shall occur automatically on the date
immediately after the applicable Target Allocation has been
made, as described under “Partnership Allocations” in the EVU
Designation, to the extent of such allocation, and Executive
shall thereafter hold a number of Partnership Units that have
been recapitalized, determined in accordance with “Method of
Calculating the Number of Recapitalized Units”, “Termination
of Employment”, or “Re-load” described above. To the extent
that there is an EVU Allocation Shortfall (as defined in the
EVU Designation) in respect of any Target Allocation,
immediately following any subsequent Make-up Allocation of
Adjusted Net Profits under “Partnership Allocations – Target
Allocations” as set forth in the EVU Designation, a further
recapitalization shall occur in a manner consistent with this
Section.
Upon a recapitalization, the interests in the Opcos (as defined
below), that correspond to the EVUs shall similarly be
recapitalized, and the Partnership, the Opcos and the Issuer
shall take all actions necessary to maintain a one-to-one
correspondence between the Recapitalized Units and the
recapitalized Opco Units.
“Target Allocation” means, as applicable, the Applicable End
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Liquidity
Rights
Date Allocation (as determined hereunder), the D/D End Date
Allocation, the D/D Acceleration Event Allocation, or the
Reload Acceleration Event Allocation.
“Target Allocation Maturity Fiscal Year” means any Fiscal
Year in which a Target Allocation is due to Executive
hereunder.
(a)
Subject to paragraph (b) of this Section
(Liquidity Rights), Executive shall, during the period
beginning on the date that is one (1) calendar day after
the determination of each of the Applicable End Date
VWAP, D/D VWAP or Acceleration Event VWAP, as
applicable, and ending fifteen (15) calendar days later,
have
the right (the “Put Right”)
to require
the
Partnership to purchase for cash a number of the
Executive’s Recapitalized Units (rounded up by one
Recapitalized Unit, as necessary) equal to (i) the Tax
Amount divided by (ii) Applicable End Date VWAP,
the D/D VWAP or the Acceleration Event VWAP, as
applicable to the relevant Target Allocation (such
amount, the “Tax Amount”); provided, however, that
Executive shall not be permitted
to put
to
the
Partnership a number of Recapitalized Units attributable
-35-
to more than 50% of the applicable tranche(s) of EVUs
that are recapitalized on any such date.
(b)
The Partnership will permit Executive to
net cash settle a portion of the EVUs (but in any event
no more than 50% of the applicable tranche(s) of EVUs
that are recapitalized on any such date) in an amount
equal to the Tax Amount to the extent that the Financial
Accounting Standards Board adopts an accounting
standard that will permit such a settlement without
causing liability accounting or other similar accounting
deemed unfavorable by the Partnership under generally
accepted accounting principles in the U.S. If the
provisions of this paragraph (b) are triggered, the
provisions of paragraph (a) shall cease to be applicable,
and the Executive shall not have a Put Right for a
relevant Fiscal Year in which this paragraph (b) applies.
“Tax Amount” means with respect to a Target Allocation for a
Fiscal Year, the sum of:
(x) the product of (i) the net amount of Executive’s
Target Allocation for such Fiscal Year that consists of
ordinary income, ordinary gain, ordinary deduction or
-36-
ordinary loss items as determined for U.S. federal
income tax purposes and (ii) the highest effective
marginal combined U.S. federal, state and local income
tax rate applicable to ordinary income, long-term
capital gains, or short-term capital gains, as applicable,
prescribed for an individual resident in Los Angeles,
California for such Fiscal Year (the “Effective Rate”),
plus
(y) the product of (i) the Short-Term Capital Gains (as
defined below), if any, and (ii) the Effective Rate, plus
(z) the product of (i) the Long-Term Capital Gains (as
defined below), if any and (ii) the Effective Rate.
In any notice exercising a Put Right, the Executive shall
provide Oaktree with a schedule showing his available capital
loss carryforwards to and realized capital losses in any relevant
Fiscal Year in which a Target Allocation occurs (such capital
loss carryfowards and realized capital losses, the “Available
Capital Losses”), and,
if Oaktree
requests,
reasonable
supporting detail. Executive shall represent to Oaktree that the
schedule is true and correct as of the date it is delivered. Using
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the information in the schedule and the items included in (or
projected to be included in) the Target Allocation, Oaktree shall
determine the amount (if any) of net long-term capital gains
(the “Long-Term Capital Gains”) and the amount (if any) of net
short-term capital gains (the “Short-Term Capital Gains”) on
which the Executive would be required to pay tax as a result of
the Target Allocation, in each case, after taking into account
the Available Capital Losses. For the avoidance of doubt, the
parties intend that the Executive use all Available Capital
Losses to reduce or eliminate taxes payable on capital gain
allocated in respect of the Target Allocation and the parties
shall interpret the forgoing provisions accordingly.
Restricted
The “Restricted Period” (as defined
in
the Partnership
Period
Agreement) with respect to the EVUs shall be one year.
Oaktree
Each Opco has
issued
to
the Partnership back-to-back
Operating
partnerships units (“Opco B2B Units”), corresponding with and
Group
tracking, on a one-to-one basis (including with respect to the
economic
terms and entitlements
to distributions and
allocations),
the EVUs
issued by
the Partnership.
In
furtherance of the foregoing, the Partnership shall have
authority in respect of each Opco to maintain such one-to-one
ratio of the EVUs and the Opco B2B Units. The General
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Partner shall, and shall cause the Partnership to, replicate all
applicable actions taken at the level of the Partnership at the
level of the Opcos, and shall cause the Opcos to take all
necessary actions or make other adjustments at the level of the
Opcos (including any recapitalizations, splits or reverse splits,
distributions made with respect to the Opco B2B Units, and
allocations in respect of the B2B Units), in each case so that the
Opco B2B Units continue to have the economic rights and
entitlements that mirror the rights of the EVUs hereunder. The
General Partner shall, and shall cause the Partnership to, cause
each Opco to distribute and allocate to the Partnership in
respect of the Opco B2B Units amounts required to be
distributed and allocated by the Partnership to Executive
hereunder in respect of the EVUs. Each Opco shall do so in a
manner reasonably determined by the General Partner and the
general partner of each Opco, but generally shall make
distributions and allocations pro rata based on the fair market
value of each Opco as compared to the fair market value of all
Opcos.
“Opco” means any entity in which the Partnership owns an
equity interest and is designated by the General Partner of the
Partnership as an Opco. Until such time as the General Partner
of the Partnership designates otherwise, the OpCos shall consist
-39-
of (i) Oaktree Capital Management, L.P., (ii) Oaktree Capital I,
L.P., (iii) Oaktree Capital II, L.P., (iv) Oaktree Capital
Management (Cayman), L.P., (v) Oaktree AIF Investments,
L.P. and (vi) Oaktree Investment Holdings, L.P.
3.
Section 83(b) Election. It is intended that the Granted Units constitute
Profits Interests (as defined below), and the parties shall treat them as such. The Executive has
made an election under Section 83(b) of the Code within thirty (30) days of the receipt of such
Granted Units and agrees to make a protective election under Section 83(b) of the Code within
thirty (30) days after the date of this Agreement. “Profits Interest” means an interest in the
profits of the Partnership satisfying the requirements for a partnership interest transferred in
connection with the performance of services, as set forth in IRS Revenue Procedure 93-27, 1993-
2 C.B. 343 (June 6, 1993) and IRS Revenue Procedure 2001-43, 2001-2 C.B. 191 (Aug. 3,
2001), unless superseded by IRS Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005), in which
case, as set forth in Proposed Treasury Regulations Section 1.83-3(l), Notice 2005-43 and any
similar or related authority.
4.
Certain Representations, Warranties, Covenants and Agreements. As
an essential inducement to the Partnership to grant and issue the Granted Units to the Executive,
and to enter into this Amended and Restated Grant Agreement, the Executive has represented
and warranted, and hereby represents and warrants, to the Oaktree Group as follows:
(a)
Authority and Capacity. The Executive has the legal capacity to execute
and deliver each Grant Document and to perform all of his obligations thereunder. The
Executive has duly executed and delivered this Agreement, and each Grant Document
constitutes the legal, valid and binding obligation of the Executive, enforceable against
the Executive in accordance with their respective terms.
(b)
No Conflict. Neither the execution and delivery by the Executive of any
Grant Document, nor the performance by the Executive of his obligations thereunder,
violates, conflicts with or constitutes a default or breach under, or will violate, conflict
with or constitute a default or breach under any applicable law or any contract, indenture,
agreement, instrument or mortgage binding on the Executive or any of his properties.
(c)
Suitability. The Executive meets all suitability standards or eligibility
requirements imposed by the jurisdiction of his residence for his acquisition of the
Granted Units pursuant to the Grant Documents. The Executive has such knowledge and
experience in financial and business matters that he is capable of evaluating the merits
and risks of an investment in the Granted Units and protecting his own interests in
connection with such investment.
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(d)
Access to Information. The Executive (i) has been provided with ample
opportunity to discuss each Grant Document, the Granted Units and the Oaktree Business
(as defined below) with the General Partner and to ask the General Partner such questions
regarding each Grant Document, the Granted Units and the Oaktree Business, and to
receive such answers to such questions and such other information, as the Executive
deems necessary, appropriate or advisable, and (ii) has been provided with ample
opportunity to consult with such legal, tax, financial and other advisors of the Executive
regarding each Grant Document, the Granted Units and the Oaktree Business as the
Executive deems necessary, appropriate or advisable. The Executive has a preexisting
personal or business relationship with certain senior executives of the Oaktree Group, is
currently a director of the Issuer, and such personal and business relationship is of a
nature and duration so as to enable the Executive to be aware of their character, business
acumen and general business and financial circumstances.
(e)
Independent Investment Decision. The Executive is relying on his own
independent investigation and the information contained in the Grant Documents, and the
Executive is not relying on any Person (other than his own legal, tax, financial and other
advisors) or any representation or warranty made by any Oaktree Related Person, in each
case, in deciding to own and hold the Granted Units. Without limiting the foregoing, no
representation or warranty has been made to the Executive by any Oaktree Related
Person as to the existing value or the future performance of the Oaktree Business.
(f)
Investment Intent. The Executive will own and hold the Granted Units for
his own account, as a principal, for investment purposes only, and not with a view to, or
for, resale or distribution, in whole or in part. No other Person has a direct or indirect
beneficial interest in the Granted Units (other than, if the Executive is a married natural
person acquiring the Granted Units as community property, the community property
interest of the Executive’s spouse). The Executive is not acting as an agent,
representative, intermediary or nominee, or in any similar capacity, for or on behalf of
any other Person with respect to any Granted Units.
(g)
Restricted Securities. The Executive understands that the grant and
issuance hereunder of the Granted Units are intended to be exempt from registration
under the U.S. Securities Act of 1933, as amended (the “Securities Act”), state securities
laws and other applicable foreign or domestic securities laws. The Executive further
understands that the Granted Units have not been recommended or endorsed by the U.S.
Securities and Exchange Commission, any state securities commission or any other
foreign or domestic governmental authority. No Transfer of the Granted Units will be
made by the Executive. The Executive further understands that the Oaktree Group is
under no obligation to ensure (i) that any Issuer Equity will continue to be tradable on the
New York Stock Exchange or any other national securities exchange or market or trading
platform or (ii) that other avenues of liquidity will be made available to the Executive
with respect to the Granted Units. The Executive is able and willing to bear, and has the
financial ability to bear, the economic and other risks of his ownership in the Granted
Units for an indefinite period of time.
-41-
(h)
Accredited Investor. The Executive is an “accredited investor” within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act. Without
limiting the foregoing, the Executive is a natural person, who (i) has a net worth
individually or jointly with his spouse that exceeds $1,000,000 at the time of the grant
and issuance of the Granted Units (excluding the value of the Executive’s primary
residence and the related amount of indebtedness secured by the primary residence up to
the fair market value of the residence but including as a liability any indebtedness secured
by such residence in excess of the fair market value of such residence) or (ii) had annual
income in excess of $200,000 in each of the two most recent calendar years (e.g., if the
current calendar year is 2014, then in each of 2013 and 2012) and reasonably expects to
have income in excess of $200,000 in the current calendar year; or (iii) had annual
income jointly with his spouse in excess of $300,000 in each of the two most recent
calendar years (e.g., if the current calendar year is 2014, then in each of 2013 and 2012)
and reasonably expects to have joint income in excess of $300,000 in the current calendar
year.
(i)
Tax Consequences. The Executive understands that his ownership of the
Granted Units may cause him adverse tax consequences, including the realization of
taxable income without receiving cash distributions to pay the required tax thereon. The
Executive has reviewed his investment in the Granted Units with his tax advisors and has
not received or relied upon any tax advice from any Oaktree Related Person. No Oaktree
Related Person has made any representation or warranty (and shall not otherwise be
liable to the Executive) as to the tax treatment of the granting of the Granted Units or
vesting, allocations or distributions with respect to the Granted Units, under applicable
law.
(j)
Understanding of Grant Documents. The Executive understands each
provision of each Grant Document and the terms and conditions of the Granted Units.
Without limiting the foregoing, the Executive understands that:
(i)
(ii)
the Executive has irrevocably constituted and appointed each of
the Partnership, the General Partner, their respective authorized
officers and attorneys-in-fact, and the members of the General
Partner with full power of substitution, as the true and lawful
attorney-in-fact and agent of the Executive as set forth in
Section 3.9 of the Partnership Agreement for the purposes set forth
therein;
the Partnership Agreement permits the Partnership to issue, at any
time and from time to time, without the approval of the Executive
or the need to notify the Executive, additional Units on such terms
and conditions as the General Partner may determine, including
Units that may be senior or superior to the Granted Units;
(iii)
the Executive does not have any preemptive rights, right of first
refusal, right of first offer or other right of participation with
-42-
(iv)
(v)
respect to any such issuance, and such issuances are expected to
have a dilutive effect on the Executive’s interest in the Partnership;
amounts distributable to the Executive in respect of the Granted
Units are subject to withholding pursuant to Section 7.8 of the
Partnership Agreement; and
Subject to Section 6 hereof, the Executive, as a Service Partner, is
subject to the restrictive covenants set forth in Article X of the
Partnership Agreement, which includes covenants and prohibitions
to which the Executive will continue to be bound after the
Executive ceases to provide services to the Oaktree Group;
provided, that if any provisions of Article X of the Partnership
Agreement conflict with Section 6 of the Employment Agreement,
the Employment Agreement shall control; provided, further that
for purposes of Section 10.4(b) of the Partnership Agreement a
“Competitive Business” shall not include any business enterprise
that is primarily a commercial bank, an investment bank, an
insurance company or a retail distribution business.
The Executive has given careful consideration to all of the provisions of the Grant
Documents. For the avoidance of doubt, and without limiting the immediately preceding
sentence, the Executive (x) has given careful consideration to the restraints imposed upon
him under the Grant Documents, including under Articles IV and X of the Partnership
Agreement, (y) is in full accord as to the necessity of such provisions, and (z) understand
that his agreement to be bound by each such provision is an essential inducement to the
Partnership to grant and issue the Granted Units to the Executive.
If the Executive becomes aware that any representation or warranty made by him in any Grant
Document would be incorrect in any material respect if such representation or warranty were to
be made as of any subsequent date, or that the Executive is unable fulfill or perform in any
material respect any of his covenants or agreements in any Grant Document, the Executive shall
promptly notify the General Partner of such inaccuracy or inability.
5.
Incorporation of Partnership Agreement Provisions. The provisions of
Article XII of the Partnership Agreement (other than Sections 12.1 and 12.3 of the Partnership
Agreement) are hereby incorporated herein by reference and shall apply mutatis mutandis to this
Agreement. Without limiting the foregoing:
(a)
any and all disputes, claims or controversies arising out of or relating to
this Agreement shall be resolved pursuant to Section 9(h) of that certain Amended and
Restated Employment Agreement, dated as of February 24, 2015 (the “Employment
Agreement”) between the Executive, the Issuer and Oaktree Capital Management, L.P., a
Delaware limited partnership (“OCM”);
(b)
this Agreement may be amended, modified, or waived with the written
consent of the General Partner; provided that if any such amendment, modification, or
-43-
waiver would adversely affect the Executive in any material respect, such amendment,
modification, or waiver shall also require the written consent of the Executive. Moreover,
the Partnership Agreement may be amended, modified and waived pursuant to Section
12.5 of the Partnership Agreement, and the Plan may be amended, modified and waived
pursuant to Section 14(a) of the Plan; provided that, if any such amendment,
modification, or waiver would adversely affect the rights attributable solely to the EVUs
specifically granted to Executive under this Agreement and not the rights of any other
Limited Partner of the Partnership relative to all Limited Partners as a class, such
amendment, modification, or waiver shall also require the written consent of the
Executive, not to be unreasonably withheld, delayed or conditioned;
(c)
any notice that is required or permitted hereunder to be given to any party
hereto shall be given pursuant to Section 12.6 of the Partnership Agreement;
(d)
in accordance with Section 12.9 of the Partnership Agreement, this
Agreement shall be construed and enforced, along with any rights, remedies, or
obligations provided for hereunder, in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed entirely within the State of Delaware by
residents of the State of Delaware; and
(e)
in accordance with Section 12.12 of the Partnership Agreement, this
Agreement may be executed in one or more counterparts, all of which shall constitute one
and the same instrument.
6.
Entire Agreement. The Grant Documents and the EVU Designation
constitute the entire agreement among the parties hereto with respect to the subject matter hereof,
and supersede any prior agreement or understanding among them with respect to such matter,
including without limitation any term sheets or summaries relating to such matter, Section 5 of
the Employment Agreement and Exhibit B to that certain Employment Agreement between the
Executive, the Issuer and OCM; provided that in the event of any conflict between the Exchange
Agreement and the Partnership Agreement, the Partnership Agreement shall prevail, and in the
event of any conflict between any Grant Document and the EVU Designation, the EVU
Designation shall control.
7.
Interpretation and Certain Definitions.
(a)
All ambiguities shall be resolved without reference to which party may
have drafted this Agreement. All article or section headings or other captions in this
Agreement are for convenience only, and they shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of any
provisions hereof. Unless the context clearly indicates otherwise: (i) a term has the
meaning assigned to it; (ii) “or” is not exclusive; (iii) provisions apply to successive
events and transactions; (iv) each definition herein includes the singular and the plural;
(v) each reference herein to any gender includes the masculine, feminine, and neuter
where appropriate; (vi) the word “including” when used herein means “including, but not
limited to,” and the word “include” when used herein means “include, without
limitation”; and (vii) references herein to specified paragraph numbers refer to the
-44-
specified paragraph of this Agreement. The words “hereof,” “herein,” “hereto,”
“hereby,” “hereunder,” and derivative or similar words refer to this Agreement as a
whole and not to any particular provision of this Agreement. The words “applicable law”
and any other similar references to the law include all applicable statutes, laws (including
common law), treaties, orders, rules, regulations, determinations, orders, judgments, and
decrees of any Governmental Authority. The abbreviation “U.S.” refers to the United
States of America. All monetary amounts expressed herein by the use of the words “U.S.
dollar” or “U.S. dollars” or the symbol “$” are expressed in the lawful currency of the
United States of America. The words “foreign” and “domestic” shall be interpreted by
reference to the United States of America.
(b)
Except as provided in the EVU Designation, nothing in this Agreement is
intended to confer upon the Executive any right or privilege that is in addition, or
otherwise more favorable, to the rights and privileges generally enjoyed by the other
Limited Partners under the Partnership Agreement, the Exchange Agreement and the Tax
Receivable Agreement, except to the extent such additional or more favorable right or
privilege is expressly and intentionally conferred hereunder. Without limiting the
foregoing, the Granted Units are not subject to any Unit Designation, other than the EVU
Designation, which alters the terms and conditions generally applicable to Units under
the Partnership Agreement.
(c)
“Oaktree Business” means the business and operations of the Oaktree
Group, including the organization, investment objectives, expenses, operational structure,
management structure and other material details of the Oaktree Group.
(d)
“Oaktree Related Person” means (i) any Oaktree Group Member, (ii) the
current and former senior executives, principals, officers, directors, employees and duly
authorized agents and representatives of any Oaktree Group Member, and (iii) the current
and former direct and indirect shareholders, partners, members and equityholders of any
Oaktree Group Member (other than the current and former direct and indirect
shareholders, partners, members and equityholders of the Issuer, who are not otherwise
included in either of the foregoing clause (i) or (ii)).
(e)
This Agreement is intended to constitute a “Grant Agreement” for
purposes of the Partnership Agreement and an “Award agreement” for purposes of the
Plan. The Granted Units are intended to constitute an “Award” for purposes of the Plan.
8.
Oaktree Representation. The Partnership hereby represents and warrants
to the Executive that the Partnership and each applicable member of the Oaktree Group has the
legal capacity to execute and deliver each Grant Document and to perform all of his obligations
thereunder. The Partnership has duly executed and delivered this Agreement, and each Grant
Document constitutes the legal, valid and binding obligation of the applicable member of the
Oaktree Group, enforceable in accordance with their respective terms.
Further Assurances. The Executive agrees to take all actions that may
be reasonably requested by the General Partner from time to time, including by executing and
9.
-45-
delivering all agreements, instruments and documents that may be reasonably requested by the
General Partner, to carry out the purposes of the Grant Documents.
[remainder of page intentionally left blank]
-46-
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the date first written above.
PARTNERSHIP AND GENERAL PARTNER
OAKTREE CAPITAL GROUP HOLDINGS GP, LLC
On behalf of itself and as general partner on
behalf of OAKTREE CAPITAL GROUP HOLDINGS,
L.P.
By:
/s/ Howard S. Marks
Name: Howard S. Marks
Title: Co-Chairman
By:
/s/ Bruce A. Karsh
Name: Bruce A. Karsh
Title: Co-Chairman & Chief Investment
Officer
EXECUTIVE
/S/ Jay S. Wintrob
JAY S. WINTROB
THE GRANTED UNITS HAVE NOT BEEN REGISTERED WITH OR QUALIFIED BY THE
U.S. SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
REGULATORY AUTHORITY OR ANY OTHER REGULATORY AUTHORITY OF ANY
OTHER JURISDICTION. SUCH UNITS ARE BEING SOLD IN RELIANCE UPON
EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS.
THE GRANTED UNITS CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF, IN EACH CASE, EXCEPT IN COMPLIANCE WITH THE
RESTRICTIONS ON TRANSFERABILITY CONTAINED IN THIS AGREEMENT AND
OTHER GRANT DOCUMENTS AND THE SECURITIES LAWS OF ALL APPLICABLE
JURISDICTIONS, INCLUDING APPLICABLE U.S. FEDERAL AND STATE SECURITIES
LAWS.
List of Subsidiaries
Exhibit 21.1
Jurisdiction of
Incorporation or
Organization
Ireland
Ireland
Name
Arbour CLO Limited ................................................................................................................
Arbour CLO II Limited .............................................................................................................
Oaktree (Sweden) AB ............................................................................................................. Sweden
Oaktree AIF (Cayman) GP, Ltd............................................................................................... Cayman Islands
Oaktree AIF Holdings, Inc. ..................................................................................................... Delaware
Oaktree AIF Investments, L.P. ................................................................................................ Delaware
Oaktree Asia Special Situations Fund GP Ltd. ....................................................................... Cayman Islands
Oaktree Asia Special Situations Fund GP, L.P........................................................................ Cayman Islands
Oaktree Asia Special Situations Fund, L.P. ............................................................................ Cayman Islands
Oaktree BAA Emerging Market Opportunities Fund (Feeder), L.P. ........................................ Cayman Islands
Oaktree BAA Emerging Market Opportunities Fund, L.P........................................................ Cayman Islands
Oaktree Capital (Beijing) Ltd. ................................................................................................. China
Oaktree Capital (Hong Kong) Limited ..................................................................................... Hong Kong
Oaktree Capital (Seoul) Limited ............................................................................................. South Korea
Oaktree Capital (Shanghai) Ltd. ............................................................................................. China
Oaktree Capital Group Holdings GP, LLC .............................................................................. Delaware
Oaktree Capital Group Holdings, L.P...................................................................................... Delaware
Oaktree Capital Group, LLC ................................................................................................... Delaware
Oaktree Capital I, L.P. ............................................................................................................ Delaware
Oaktree Capital II, L.P. ........................................................................................................... Delaware
Oaktree Capital Management (Cayman), L.P. ........................................................................ Cayman Islands
Oaktree Capital Management (Dubai) Limited ....................................................................... United Arab Emirates
Oaktree Capital Management (UK) LLP ................................................................................. United Kingdom
Oaktree Capital Management Fund (Europe) ........................................................................ Luxembourg
Oaktree Capital Management Pte. Ltd. .................................................................................. Singapore
Oaktree Capital Management, L.P.......................................................................................... Delaware
Oaktree Capital UK Limited .................................................................................................... United Kingdom
Oaktree Desert Sky Investments GP, L.P............................................................................... Delaware
Oaktree Desert Sky Investments, L.P. .................................................................................... Delaware
Oaktree Emerging Market Debt Fund GP, L.P........................................................................ Cayman Islands
Oaktree Emerging Market Debt Fund GP, Ltd. ....................................................................... Cayman Islands
Oaktree Emerging Market Debt Fund, L.P.............................................................................. Cayman Islands
Oaktree Emerging Market Opportunities Fund (Feeder) GP, L.P............................................ Cayman Islands
Oaktree Emerging Market Opportunities Fund (Feeder), L.P. ................................................ Cayman Islands
Oaktree Emerging Market Opportunities Fund GP Ltd. .......................................................... Cayman Islands
Oaktree Emerging Market Opportunities Fund GP, L.P.......................................................... Cayman Islands
Oaktree Emerging Market Opportunities Fund Holding Ltd. ................................................... Cayman Islands
Oaktree Emerging Market Opportunities Fund, L.P. ............................................................... Cayman Islands
Oaktree Emerging Markets Absolute Return (Cayman) Fund, Ltd. ........................................ Cayman Islands
Oaktree Emerging Markets Absolute Return Feeder Fund, L.P.............................................. Delaware
Oaktree Emerging Markets Absolute Return Fund GP, L.P.................................................... Delaware
Jurisdiction of
Incorporation or
Organization
Name
Oaktree Emerging Markets Absolute Return Fund, L.P.......................................................... Delaware
Oaktree Emerging Markets Equity Fund (Cayman), L.P......................................................... Cayman Islands
Oaktree Emerging Markets Equity Fund (Delaware), L.P. ...................................................... Cayman Islands
Oaktree Emerging Markets Equity Fund (Feeder) GP, L.P..................................................... Cayman Islands
Oaktree Emerging Markets Equity Fund GP L.P. ................................................................... Cayman Islands
Oaktree Emerging Markets Equity Fund GP Ltd. ................................................................... Cayman Islands
Oaktree Emerging Markets Equity Fund, L.P. ........................................................................ Cayman Islands
Oaktree Employee Investment Fund (Cayman), L.P. ............................................................. Cayman Islands
Oaktree Employee Investment Fund, L.P. .............................................................................. Delaware
Oaktree Enhanced Income Fund (Cayman), L.P. ................................................................... Cayman Islands
Oaktree Enhanced Income Fund (Parallel) Feeder, L.P. ........................................................ Cayman Islands
Oaktree Enhanced Income Fund (Parallel), L.P. .................................................................... Delaware
Oaktree Enhanced Income Fund GP, L.P............................................................................... Delaware
Oaktree Enhanced Income Fund GP, Ltd. .............................................................................. Cayman Islands
Oaktree Enhanced Income Fund II (Cayman), L.P. ................................................................ Cayman Islands
Oaktree Enhanced Income Fund II (Parallel) Feeder, L.P. ..................................................... Cayman Islands
Oaktree Enhanced Income Fund II (Parallel), L.P. ................................................................. Delaware
Oaktree Enhanced Income Fund II GP Ltd. ........................................................................... Cayman Islands
Oaktree Enhanced Income Fund II, L.P.................................................................................. Delaware
Oaktree Enhanced Income Fund, L.P..................................................................................... Delaware
Oaktree Europe GP Limited ................................................................................................... United Kingdom
Oaktree European Credit Opportunities Fund (Cayman) Ltd. ................................................ Cayman Islands
Oaktree European Credit Opportunities Fund, L.P. ................................................................ United Kingdom
Oaktree European Credit Opportunities Holdings, Ltd. .......................................................... Cayman Islands
Oaktree European Credit Opportunities Public Limited Company .......................................... United Kingdom
Oaktree European Credit Opportunities USD Fund (Cayman) Ltd. ........................................ Cayman Islands
Oaktree European Dislocation Fund (U.S.), L.P. .................................................................... Cayman Islands
Oaktree European Dislocation Fund GP Ltd. ......................................................................... Cayman Islands
Oaktree European Dislocation Fund GP, L.P.......................................................................... Cayman Islands
Oaktree European Dislocation Fund, L.P. .............................................................................. Cayman Islands
Oaktree European High Yield Fund, L.P................................................................................. Delaware
Oaktree European Holdings, LLC .......................................................................................... Delaware
Oaktree European Principal Fund III (Cayman), L.P............................................................... Cayman Islands
Oaktree European Principal Fund III (Feeder) GP, L.P........................................................... Cayman Islands
Oaktree European Principal Fund III (Parallel) Feeder, L.P.................................................... Cayman Islands
Oaktree European Principal Fund III (Parallel), L.P. ............................................................... Cayman Islands
Oaktree European Principal Fund III (U.S.), L.P. .................................................................... Cayman Islands
Oaktree European Principal Fund III GP, L.P.......................................................................... Cayman Islands
Oaktree European Principal Fund III GP, Ltd. ........................................................................ Cayman Islands
Oaktree European Principal Fund III, L.P. .............................................................................. Cayman Islands
Oaktree European Senior Loan S.à.r.l. ................................................................................... Luxembourg
Oaktree Expanded High Yield Fund, L.P. ............................................................................... Delaware
Oaktree FF Investment Fund AIF (Delaware), L.P.................................................................. Delaware
Oaktree FF Investment Fund GP Ltd. .................................................................................... Cayman Islands
Jurisdiction of
Incorporation or
Name
Organization
Oaktree FF Investment Fund GP, L.P..................................................................................... Cayman Islands
Oaktree FF Investment Fund, L.P........................................................................................... Cayman Islands
Oaktree Finance, LLC ............................................................................................................ Delaware
Oaktree France S.A.S. ........................................................................................................... France
Oaktree Fund Administration, LLC
Delaware
Cayman Islands
Oaktree Fund AIF Series (Cayman), L.P.
Oaktree Fund AIF Series, L.P. ................................................................................................ Delaware
Oaktree Fund GP AIF, LLC..................................................................................................... Delaware
Oaktree Fund GP I, L.P. ......................................................................................................... Delaware
Oaktree Fund GP II, L.P. ........................................................................................................ Delaware
Oaktree Fund GP IIA, LLC ..................................................................................................... Delaware
Oaktree Fund GP III, L.P. ....................................................................................................... Delaware
Oaktree Fund GP IIIA, LLC .................................................................................................... Delaware
Oaktree Fund GP Ltd. ............................................................................................................ Cayman Islands
Oaktree Fund GP, LLC ........................................................................................................... Delaware
Oaktree Glacier Holdings GP Ltd. .......................................................................................... Cayman Islands
Oaktree Glacier Holdings, L.P. ............................................................................................... Cayman Islands
Oaktree Glacier Investment Fund (Feeder), L.P. .................................................................... Cayman Islands
Oaktree Glacier Investment Fund, L.P.................................................................................... Cayman Islands
Oaktree Global High Yield Bond Fund (Cayman), Ltd. ........................................................... Delaware
Oaktree Global High Yield Bond Fund GP, L.P....................................................................... Delaware
Oaktree Global High Yield Bond Fund, L.P............................................................................. Delaware
Oaktree GmbH ....................................................................................................................... Germany
Oaktree High Income Convertible Fund II, L.P. ...................................................................... Delaware
Oaktree High Income Convertible Fund, L.P. ......................................................................... Delaware
Oaktree High Yield Fund II, L.P. ............................................................................................. Delaware
Oaktree High Yield Fund, L.P. ................................................................................................ California
Oaktree High Yield Plus (Cayman) Fund, Ltd. ........................................................................ Cayman Islands
Oaktree High Yield Plus Feeder Fund, L.P. ............................................................................ Delaware
Oaktree High Yield Plus Fund, L.P. ........................................................................................ Delaware
Oaktree Holdings, Inc. ............................................................................................................ Delaware
Oaktree Holdings, LLC ........................................................................................................... Delaware
Oaktree Holdings, Ltd. ............................................................................................................ Cayman Islands
Oaktree HSF, L.P.................................................................................................................... Delaware
Oaktree Huntington Investment Fund AIF (Delaware), L.P..................................................... Delaware
Oaktree Huntington Investment Fund GP Ltd. ....................................................................... Cayman Islands
Oaktree Huntington Investment Fund GP, L.P........................................................................ Cayman Islands
Oaktree Huntington Investment Fund, L.P.............................................................................. Cayman Islands
Oaktree Infrastructure Manager LLC ...................................................................................... Delaware
Oaktree Infrastructure, L.P. .................................................................................................... Delaware
Oaktree International Holdings, LLC ...................................................................................... Delaware
Oaktree Investment Holdings, L.P. ......................................................................................... Delaware
Oaktree Japan Absolute Return Fund GP, L.P........................................................................ Delaware
Oaktree Japan Absolute Return Fund, L.P. ............................................................................ Delaware
Jurisdiction of
Incorporation or
Name
Organization
Oaktree Japan GP, L.P. .......................................................................................................... Cayman Islands
Oaktree Japan Opportunities Value Fund, L.P........................................................................ Delaware
Oaktree Japan, GK ................................................................................................................ Japan
Oaktree Loan Fund 2x (Cayman) Ltd. .................................................................................... Cayman Islands
Oaktree Loan Fund 2x, L.P. .................................................................................................... Delaware
Oaktree Loan Fund GP, L.P.................................................................................................... Delaware
Oaktree Mezzanine Fund III (Cayman) Ltd. ........................................................................... Cayman Islands
Oaktree Mezzanine Fund III GP, L.P. ..................................................................................... Delaware
Oaktree Mezzanine Fund III, L.P. ........................................................................................... Delaware
Oaktree Mezzanine Fund IV (Cayman) GP Ltd. ..................................................................... Cayman Islands
Oaktree Mezzanine Fund IV (Cayman), L.P. .......................................................................... Cayman Islands
Oaktree Mezzanine Fund IV GP, L.P...................................................................................... Delaware
Oaktree Mezzanine Fund IV, L.P. ........................................................................................... Delaware
Oaktree MM CLO Holdings, L.P. ............................................................................................ Delaware
Oaktree Non-U.S. Convertible Fund, L.P................................................................................ California
Oaktree Opportunities Fund IX (Cayman), L.P. ...................................................................... Cayman Islands
Oaktree Opportunities Fund IX (Feeder) GP, L.P. .................................................................. Cayman Islands
Oaktree Opportunities Fund IX (Parallel 2) AIF (Cayman), L.P. ............................................. Cayman Islands
Oaktree Opportunities Fund IX (Parallel 2) AIF (Delaware), L.P............................................. Delaware
Oaktree Opportunities Fund IX (Parallel 2), L.P. .................................................................... Cayman Islands
Oaktree Opportunities Fund IX (Parallel) AIF (Cayman), L.P. ................................................ Cayman Islands
Oaktree Opportunities Fund IX (Parallel) AIF (Delaware), L.P................................................ Delaware
Oaktree Opportunities Fund IX (Parallel), L.P. ....................................................................... Cayman Islands
Oaktree Opportunities Fund IX AIF (Cayman), L.P................................................................. Cayman Islands
Oaktree Opportunities Fund IX AIF (Delaware), L.P............................................................... Delaware
Oaktree Opportunities Fund IX Delaware, L.P........................................................................ Delaware
Oaktree Opportunities Fund IX GP, L.P.................................................................................. Cayman Islands
Oaktree Opportunities Fund IX GP, Ltd. ................................................................................. Cayman Islands
Oaktree Opportunities Fund IX, L.P. ....................................................................................... Cayman Islands
Oaktree Opportunities Fund VIII (Cayman) Ltd. ..................................................................... Cayman Islands
Oaktree Opportunities Fund VIII (Parallel 2) AIF (Delaware), L.P........................................... Delaware
Oaktree Opportunities Fund VIII (Parallel 2), L.P.................................................................... Cayman Islands
Oaktree Opportunities Fund VIII (Parallel) AIF (Cayman), L.P. .............................................. Cayman Islands
Oaktree Opportunities Fund VIII (Parallel) AIF (Delaware), L.P.............................................. Delaware
Oaktree Opportunities Fund VIII (Parallel), L.P. ..................................................................... Cayman Islands
Oaktree Opportunities Fund VIII AIF (Cayman), L.P............................................................... Cayman Islands
Oaktree Opportunities Fund VIII AIF (Delaware), L.P............................................................. Delaware
Oaktree Opportunities Fund VIII Delaware, L.P...................................................................... Delaware
Oaktree Opportunities Fund VIII GP Ltd. ................................................................................ Cayman Islands
Oaktree Opportunities Fund VIII GP, L.P................................................................................ Cayman Islands
Oaktree Opportunities Fund VIII, L.P. ..................................................................................... Cayman Islands
Oaktree Opportunities Fund VIIIb (Cayman) Ltd. ................................................................... Cayman Islands
Oaktree Opportunities Fund VIIIb (Parallel) AIF (Cayman), L.P. ............................................ Cayman Islands
Oaktree Opportunities Fund VIIIb (Parallel) AIF (Delaware), L.P............................................ Delaware
Jurisdiction of
Incorporation or
Name
Organization
Oaktree Opportunities Fund VIIIb (Parallel), L.P..................................................................... Cayman Islands
Oaktree Opportunities Fund VIIIb AIF (Cayman), L.P............................................................. Cayman Islands
Oaktree Opportunities Fund VIIIb AIF (Delaware), L.P........................................................... Delaware
Oaktree Opportunities Fund VIIIb Delaware, L.P.................................................................... Delaware
Oaktree Opportunities Fund VIIIb GP Ltd. .............................................................................. Cayman Islands
Oaktree Opportunities Fund VIIIb GP, L.P.............................................................................. Cayman Islands
Oaktree Opportunities Fund VIIIb, L.P. ................................................................................... Cayman Islands
Oaktree Opportunities Fund X (Feeder) GP, L.P. ................................................................... Cayman Islands
Oaktree Opportunities Fund X (Parallel 2), L.P. ..................................................................... Delaware
Oaktree Opportunities Fund X (Parallel) AIF (Cayman), L.P. ................................................. Cayman Islands
Oaktree Opportunities Fund X (Parallel), L.P. ........................................................................ Cayman Islands
Oaktree Opportunities Fund X AIF (Cayman), L.P.................................................................. Cayman Islands
Oaktree Opportunities Fund X Feeder (Cayman), L.P............................................................ Cayman Islands
Oaktree Opportunities Fund X GP Ltd. ................................................................................... Cayman Islands
Oaktree Opportunities Fund X GP, L.P................................................................................... Cayman Islands
Oaktree Opportunities Fund X, L.P. ........................................................................................ Cayman Islands
Oaktree Opportunities Fund Xb (Feeder) GP, L.P. ................................................................. Cayman Islands
Oaktree Opportunities Fund Xb (Parallel 2), L.P..................................................................... Delaware
Oaktree Opportunities Fund Xb (Parallel) AIF (Cayman), L.P. ............................................... Cayman Islands
Oaktree Opportunities Fund Xb (Parallel), L.P. ...................................................................... Cayman Islands
Oaktree Opportunities Fund Xb AIF (Cayman), L.P................................................................ Cayman Islands
Oaktree Opportunities Fund Xb Feeder (Cayman), L.P.......................................................... Cayman Islands
Oaktree Opportunities Fund Xb GP Ltd. ................................................................................. Cayman Islands
Oaktree Opportunities Fund Xb GP, L.P................................................................................. Cayman Islands
Oaktree Opportunities Fund Xb, L.P. ...................................................................................... Cayman Islands
Oaktree Overseas Investment Fund Management (Shanghai) Co., Ltd. ................................ China
Oaktree Power Infrastructure Warehouse Holdings, LLC ....................................................... Delaware
Oaktree Power Opportunities Fund III (Cayman) GP Ltd. ...................................................... Cayman Islands
Oaktree Power Opportunities Fund III (Cayman), L.P. ........................................................... Cayman Islands
Oaktree Power Opportunities Fund III (Parallel), L.P.............................................................. Delaware
Oaktree Power Opportunities Fund III AIF (Delaware), L.P. ................................................... Delaware
Oaktree Power Opportunities Fund III Delaware, L.P. ............................................................ Delaware
Oaktree Power Opportunities Fund III GP, L.P. ...................................................................... Delaware
Oaktree Power Opportunities Fund III, L.P. ............................................................................ Delaware
Oaktree Power Opportunities Fund IV (Cayman) GP Ltd. ...................................................... Cayman Islands
Oaktree Power Opportunities Fund IV (Parallel), L.P. ............................................................ Delaware
Oaktree Power Opportunities Fund IV Feeder (Cayman), L.P................................................ Cayman Islands
Oaktree Power Opportunities Fund IV GP, L.P....................................................................... Delaware
Oaktree Power Opportunities Fund IV, L.P............................................................................. Delaware
Oaktree Principal Fund V (Cayman) Ltd. ................................................................................ Cayman Islands
Oaktree Principal Fund V (Delaware), L.P. ............................................................................. Delaware
Oaktree Principal Fund V (Parallel) AIF (Cayman), L.P.......................................................... Cayman Islands
Oaktree Principal Fund V (Parallel) AIF (Delaware), L.P. ....................................................... Delaware
Oaktree Principal Fund V (Parallel), L.P. ................................................................................ Cayman Islands
Jurisdiction of
Incorporation or
Name
Organization
Oaktree Principal Fund V AIF (Cayman), L.P. ........................................................................ Cayman Islands
Oaktree Principal Fund V AIF (Delaware), L.P. ...................................................................... Delaware
Oaktree Principal Fund V GP Ltd. .......................................................................................... Cayman Islands
Oaktree Principal Fund V GP, L.P........................................................................................... Cayman Islands
Oaktree Principal Fund V, L.P................................................................................................. Cayman Islands
Oaktree Principal Fund VI (Delaware Feeder), L.P................................................................. Delaware
Oaktree Principal Fund VI (Feeder) GP, L.P........................................................................... Cayman Islands
Oaktree Principal Fund VI (Feeder), L.P................................................................................. Cayman Islands
Oaktree Principal Fund VI (Parallel), L.P. ............................................................................... Cayman Islands
Oaktree Principal Fund VI GP Ltd. ......................................................................................... Cayman Islands
Oaktree Principal Fund VI GP, L.P.......................................................................................... Cayman Islands
Oaktree Principal Fund VI, L.P. .............................................................................................. Cayman Islands
Oaktree Private Investment Fund 2009 GP, L.P..................................................................... Delaware
Oaktree Private Investment Fund 2009, L.P. .......................................................................... Delaware
Oaktree Private Investment Fund 2010 GP, L.P..................................................................... Delaware
Oaktree Private Investment Fund 2010, L.P. .......................................................................... Delaware
Oaktree Private Investment Fund 2012 GP, L.P..................................................................... Delaware
Oaktree Private Investment Fund 2012, L.P. .......................................................................... Delaware
Oaktree Private Investment Fund IV GP, L.P.......................................................................... Delaware
Oaktree Private Investment Fund IV, L.P................................................................................ Delaware
Oaktree Real Estate Debt Fund (Cayman) GP Ltd. ................................................................ Cayman Islands
Oaktree Real Estate Debt Fund (Cayman) L.P....................................................................... Cayman Islands
Oaktree Real Estate Debt Fund (Parallel) Feeder, L.P........................................................... Cayman Islands
Oaktree Real Estate Debt Fund (Parallel), L.P. ...................................................................... Delaware
Oaktree Real Estate Debt Fund GP, L.P................................................................................. Delaware
Oaktree Real Estate Debt Fund, L.P. ..................................................................................... Delaware
Oaktree Real Estate Opportunities Fund IV Delaware GP Inc. .............................................. Delaware
Oaktree Real Estate Opportunities Fund IV Delaware, L.P. ................................................... Delaware
Oaktree Real Estate Opportunities Fund IV GP Ltd. .............................................................. Cayman Islands
Oaktree Real Estate Opportunities Fund IV GP, L.P............................................................... Cayman Islands
Oaktree Real Estate Opportunities Fund IV, L.P..................................................................... Cayman Islands
Oaktree Real Estate Opportunities Fund V (Cayman) GP Ltd. .............................................. Cayman Islands
Oaktree Real Estate Opportunities Fund V (Cayman) L.P...................................................... Cayman Islands
Oaktree Real Estate Opportunities Fund V GP, L.P................................................................ Delaware
Oaktree Real Estate Opportunities Fund V, L.P...................................................................... Delaware
Oaktree Real Estate Opportunities Fund VI (Cayman) GP Ltd. ............................................. Cayman Islands
Oaktree Real Estate Opportunities Fund VI (Cayman), L.P.................................................... Cayman Islands
Oaktree Real Estate Opportunities Fund VI (Parallel 2), L.P. ................................................. Delaware
Oaktree Real Estate Opportunities Fund VI (Parallel), L.P. .................................................... Delaware
Oaktree Real Estate Opportunities Fund VI AIF (Cayman) L.P. ............................................. Cayman Islands
Oaktree Real Estate Opportunities Fund VI GP, L.P............................................................... Delaware
Oaktree Real Estate Opportunities Fund VI, L.P. ................................................................... Delaware
Oaktree Real Estate Opportunities Fund VII (Feeder) GP, L.P............................................... Cayman Islands
Oaktree Real Estate Opportunities Fund VII (Feeder), L.P..................................................... Cayman Islands
Jurisdiction of
Incorporation or
Organization
Name
Oaktree Real Estate Opportunities Fund VII (Parallel), L.P. ................................................... Delaware
Oaktree Real Estate Opportunities Fund VII GP Ltd. ............................................................. Cayman Islands
Oaktree Real Estate Opportunities Fund VII GP, L.P.............................................................. Cayman Islands
Oaktree Real Estate Opportunities Fund VII, L.P. .................................................................. Cayman Islands
Oaktree Remington Investment Fund GP, L.P........................................................................ Delaware
Oaktree Remington Investment Fund, L.P.............................................................................. Delaware
Oaktree Senior Loan Fund (Cayman) Ltd. ............................................................................. Cayman Islands
Oaktree Senior Loan Fund GP, L.P. ....................................................................................... Delaware
Oaktree Senior Loan Fund, L.P. ............................................................................................. Delaware
Oaktree Strategic Credit Fund A (Cayman), L.P..................................................................... Cayman Islands
Oaktree Strategic Credit Fund A (Feeder) GP, L.P................................................................. Cayman Islands
Oaktree Strategic Credit Fund A GP, L.P................................................................................ Cayman Islands
Oaktree Strategic Credit Fund A, L.P...................................................................................... Cayman Islands
Oaktree Strategic Credit Fund B GP, L.P................................................................................ Cayman Islands
Oaktree Strategic Credit Fund B, L.P. .................................................................................... Cayman Islands
Oaktree Strategic Credit Fund C (Cayman), L.P..................................................................... Cayman Islands
Oaktree Strategic Credit Fund C (Feeder) GP, L.P................................................................. Cayman Islands
Oaktree Strategic Credit Fund C GP, L.P. .............................................................................. Cayman Islands
Oaktree Strategic Credit Fund C, L.P. .................................................................................... Cayman Islands
Oaktree TT Multi-Strategy Fund GP, L.P. ............................................................................... Delaware
Oaktree TT Multi-Strategy Fund, L.P. ..................................................................................... Delaware
Oaktree TX Emerging Market Opportunities Fund, L.P. ......................................................... Cayman Islands
Oaktree Value Equity Fund (Cayman), L.P............................................................................. Cayman Islands
Oaktree Value Equity Fund (Delaware), L.P. .......................................................................... Delaware
Oaktree Value Equity Fund (Feeder) GP, L.P......................................................................... Cayman Islands
Oaktree Value Equity Fund GP Ltd. ....................................................................................... Cayman Islands
Oaktree Value Equity Fund GP, L.P........................................................................................ Cayman Islands
Oaktree Value Equity Fund GP-SP, L.P.................................................................................. Delaware
Oaktree Value Equity Fund, L.P.............................................................................................. Cayman Islands
Oaktree Value Equity Fund-SP, L.P........................................................................................ Delaware
Oaktree Value Opportunities (Cayman) Fund, Ltd.................................................................. Cayman Islands
Oaktree Value Opportunities Feeder Fund, L.P...................................................................... Delaware
Oaktree Value Opportunities Fund AIF (Cayman), L.P........................................................... Cayman Islands
Oaktree Value Opportunities Fund AIF (Delaware), L.P. ........................................................ Delaware
Oaktree Value Opportunities Fund GP Ltd. ............................................................................ Cayman Islands
Oaktree Value Opportunities Fund GP, L.P............................................................................. Cayman Islands
Oaktree Value Opportunities Fund, L.P. ................................................................................. Cayman Islands
Oaktree/Arctic Slope PPIP Fund GP, L.P................................................................................ Delaware
Oaktree/Arctic Slope PPIP Private Fund GP, L.P. .................................................................. Delaware
OCM Asia Principal Opportunities Fund GP Ltd. .................................................................... Cayman Islands
OCM Asia Principal Opportunities Fund GP, L.P.................................................................... Cayman Islands
OCM Asia Principal Opportunities Fund, L.P. ......................................................................... Cayman Islands
OCM Bunker Hill Re, LLC ...................................................................................................... Delaware
OCM China Holdings, L.P. ...................................................................................................... Delaware
Jurisdiction of
Incorporation or
Organization
Name
OCM China Investor, L.P. ....................................................................................................... Delaware
OCM Convertible Trust ........................................................................................................... Massachusetts
OCM Disbursement Services, L.L.C. ...................................................................................... Delaware
OCM European Principal Opportunities Fund GP, L.P............................................................ Cayman Islands
OCM European Principal Opportunities Fund GP, Ltd............................................................ Cayman Islands
OCM European Principal Opportunities Fund II (Delaware), L.P............................................ Delaware
OCM European Principal Opportunities Fund II (U.S.), L.P. ................................................... Cayman Islands
OCM European Principal Opportunities Fund II AIF (Cayman), L.P. ...................................... Cayman Islands
OCM European Principal Opportunities Fund II GP Ltd. ........................................................ Cayman Islands
OCM European Principal Opportunities Fund II GP, L.P......................................................... Cayman Islands
OCM European Principal Opportunities Fund II, L.P. ............................................................. Cayman Islands
OCM European Principal Opportunities Fund, L.P. ................................................................ Cayman Islands
OCM FIE, LLC ........................................................................................................................ Delaware
OCM Group Trust ................................................................................................................... Massachusetts
OCM High Yield Plus Fund GP, L.P........................................................................................ Delaware
OCM High Yield Trust ............................................................................................................. Massachusetts
OCM Holdings I, LLC ............................................................................................................. Delaware
OCM Investments, LLC .......................................................................................................... Delaware
OCM Mezzanine Fund II (Cayman), Ltd. ................................................................................ Cayman Islands
OCM Mezzanine Fund II GP, L.P............................................................................................ Delaware
OCM Mezzanine Fund II, L.P. ................................................................................................ Delaware
OCM Mezzanine Fund, L.P. ................................................................................................... Delaware
OCM Opportunities Fund III, L.P............................................................................................. Delaware
OCM Opportunities Fund IV, L.P. ........................................................................................... Delaware
OCM Opportunities Fund IVb (Cayman), Ltd. ........................................................................ Cayman Islands
OCM Opportunities Fund V (Cayman) Ltd. ............................................................................ Cayman Islands
OCM Opportunities Fund V Feeder, L.P. ................................................................................ Delaware
OCM Opportunities Fund V GP, L.P. ...................................................................................... Delaware
OCM Opportunities Fund V, L.P. ............................................................................................ Delaware
OCM Opportunities Fund VI (Cayman) Ltd. ........................................................................... Cayman Islands
OCM Opportunities Fund VI AIF (Cayman), L.P. .................................................................... Cayman Islands
OCM Opportunities Fund VI AIF (Delaware), L.P. .................................................................. Delaware
OCM Opportunities Fund VI GP, L.P. ..................................................................................... Delaware
OCM Opportunities Fund VI, L.P. ........................................................................................... Delaware
OCM Opportunities Fund VII (Cayman) Ltd. .......................................................................... Cayman Islands
OCM Opportunities Fund VII AIF (Delaware), L.P. ................................................................. Delaware
OCM Opportunities Fund VII Delaware GP Inc. ..................................................................... Delaware
OCM Opportunities Fund VII Delaware, L.P. .......................................................................... Delaware
OCM Opportunities Fund VII GP Ltd. ..................................................................................... Cayman Islands
OCM Opportunities Fund VII GP, L.P. .................................................................................... Cayman Islands
OCM Opportunities Fund VII, L.P. .......................................................................................... Cayman Islands
OCM Opportunities Fund VIIb (Cayman) Ltd. ........................................................................ Cayman Islands
OCM Opportunities Fund VIIb (Parallel) AIF (Cayman), L.P................................................... Cayman Islands
OCM Opportunities Fund VIIb (Parallel) AIF (Delaware), L.P................................................. Delaware
Jurisdiction of
Incorporation or
Name
Organization
OCM Opportunities Fund VIIb (Parallel), L.P. ......................................................................... Cayman Islands
OCM Opportunities Fund VIIb AIF (Cayman), L.P. ................................................................. Cayman Islands
OCM Opportunities Fund VIIb AIF (Delaware), L.P. ............................................................... Delaware
OCM Opportunities Fund VIIb Delaware, L.P. ........................................................................ Delaware
OCM Opportunities Fund VIIb GP Ltd. ................................................................................... Cayman Islands
OCM Opportunities Fund VIIb GP, L.P. .................................................................................. Cayman Islands
OCM Opportunities Fund VIIb, L.P. ........................................................................................ Cayman Islands
OCM Power Opportunities Fund II GP (Cayman) Ltd. ............................................................ Cayman Islands
OCM Power Opportunities Fund II GP, L.P............................................................................. Delaware
OCM Principal Opportunities Fund II, L.P. .............................................................................. Delaware
OCM Principal Opportunities Fund III (Cayman) Ltd. ............................................................. Cayman Islands
OCM Principal Opportunities Fund III Feeder L.P................................................................... Delaware
OCM Principal Opportunities Fund III GP, L.P........................................................................ Delaware
OCM Principal Opportunities Fund III, L.P. ............................................................................. Delaware
OCM Principal Opportunities Fund IIIA, L.P. .......................................................................... Delaware
OCM Principal Opportunities Fund IV (Cayman) Ltd. ............................................................. Cayman Islands
OCM Principal Opportunities Fund IV AIF (Delaware) GP, L.P............................................... Delaware
OCM Principal Opportunities Fund IV AIF (Delaware), L.P..................................................... Delaware
OCM Principal Opportunities Fund IV Delaware GP Inc. ....................................................... Delaware
OCM Principal Opportunities Fund IV Delaware, L.P. ............................................................ Delaware
OCM Principal Opportunities Fund IV GP, L.P........................................................................ Cayman Islands
OCM Principal Opportunities Fund IV GP, Ltd........................................................................ Cayman Islands
OCM Principal Opportunities Fund IV, L.P.............................................................................. Cayman Islands
OCM Real Estate Opportunities Fund A, L.P.......................................................................... Delaware
OCM Real Estate Opportunities Fund B, L.P.......................................................................... Delaware
OCM Real Estate Opportunities Fund II, L.P. ......................................................................... Delaware
OCM Real Estate Opportunities Fund III GP, L.P. .................................................................. Delaware
OCM Real Estate Opportunities Fund III, L.P. ........................................................................ Delaware
OCM Real Estate Opportunities Fund IIIA, L.P....................................................................... Delaware
OCM SSG Holdings GP, LLC ................................................................................................. Delaware
OCM SSG Holdings, L.P. ....................................................................................................... Delaware
OCM/GFI Power Opportunities Fund II (Cayman), L.P........................................................... Cayman Islands
OCM/GFI Power Opportunities Fund II Feeder, L.P. .............................................................. Delaware
OCM/GFI Power Opportunities Fund II, L.P. .......................................................................... Delaware
Pangaea Capital Management, L.P. ....................................................................................... Cayman Islands
Pangaea Holdings Ltd. ........................................................................................................... Cayman Islands
RBO GP Holdings, L.P. .......................................................................................................... Delaware
RBO LP Holdings, L.P. ........................................................................................................... Delaware
Sabal Financial Europe Limited .............................................................................................. United Kingdom
Sabal Financial Europe, LLC .................................................................................................. Delaware
Sabal Financial Group GP, LLC.............................................................................................. Delaware
Sabal Financial Group, L.P. .................................................................................................... Delaware
South Grand MM CLO I LLC .................................................................................................. Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (File No.
333-188596) of Oaktree Capital Group, LLC of our report dated February 27, 2015 relating to the financial
statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Los Angeles, California
February 27, 2015
Exhibit 31.1
I, Jay S. Wintrob, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014 of Oaktree Capital
Group, LLC;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: February 27, 2015
/s/ Jay S. Wintrob
Jay S. Wintrob
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, David M. Kirchheimer, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014 of Oaktree Capital
Group, LLC;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: February 27, 2015
/s/ David M. Kirchheimer
David M. Kirchheimer
Chief Financial Officer and Principal
(Principal Financial Officer)
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Oaktree Capital Group, LLC (the “Company”) for the
year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Jay S. Wintrob, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company at the dates and for the periods presented.
Date: February 27, 2015
/s/ Jay S. Wintrob
Jay S. Wintrob
Chief Executive Officer
(Principal Executive Officer)
A signed original of this written statement required by Section 906 has been provided to the Company
and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon
request.
This Certification is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of
any general incorporation language contained in such filing.
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Oaktree Capital Group, LLC (the “Company”) for the
year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, David M. Kirchheimer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company at the dates and for the periods presented.
Date: February 27, 2015
/s/ David M. Kirchheimer
David M. Kirchheimer
Chief Financial Officer and Principal
(Principal Financial Officer)
A signed original of this written statement required by Section 906 has been provided to the Company
and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon
request.
This Certification is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of
any general incorporation language contained in such filing.