Oaktree Capital Management
Annual Report 2015

Plain-text annual report

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, 2015 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, 2015 was approximately $2.6 billion. As of February 23, 2016, there were 61,922,641 Class A units and 91,937,873 Class B units of the registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE None TABLE OF CONTENTS Page PART I. Item 1. Business .................................................................................................................................... Item 1A. Risk Factors ............................................................................................................................... Item 1B. Unresolved Staff Comments ...................................................................................................... Properties .................................................................................................................................. Item 2. Item 3. Legal Proceedings ..................................................................................................................... Item 4. Mine Safety Disclosures ............................................................................................................ PART II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ................................................................................................................. Selected Financial Data ............................................................................................................. Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ...... Item 7A. Quantitative and Qualitative Disclosures about Market Risk ...................................................... Financial Statements and Supplementary Data ......................................................................... Item 8. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... Item 9A. Controls and Procedures ........................................................................................................... Item 9B. Other Information ....................................................................................................................... PART III. Item 10. Directors, Executive Officers and Corporate Governance ......................................................... Item 11. Executive Compensation ........................................................................................................... Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .................................................................................................................................... Item 13. Certain Relationships and Related Transactions, and Director Independence .......................... Item 14. Principal Accounting Fees and Services .................................................................................... PART IV. Item 15. Exhibits, Financial Statement Schedules ................................................................................... Signatures 6 25 65 65 65 65 66 69 72 119 122 186 186 187 187 193 210 213 219 219 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 in which we have a minority economic interest and indirect control that either (i) act as or control the general partners and investment advisers of our funds or (ii) hold interests in other entities or investments generating income for us. “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 interests 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 beginning 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; 4 • • • • • • • • our Global High Yield Bond strategy, to an Oaktree custom global high yield index that represents 60% BofA Merrill Lynch High Yield Master II Constrained Index and 40% BofA Merrill Lynch Global Non- Financial High Yield European Issuers 3% Constrained, ex-Russia Index – USD Hedged from inception through December 31, 2012, and the BofA Merrill Lynch Non-Financial Developed Markets High Yield Constrained Index – USD Hedged thereafter; our European High Yield Bond strategy, to the BofA Merrill Lynch Global Non-Financial High Yield European Issuers excluding Russia 3% Constrained Index (USD Hedged); our U.S. Senior Loan strategy (with the exception of the closed-end funds), to the Credit Suisse Leveraged Loan Index; our European Senior Loan strategy, to the Credit Suisse Western European Leveraged Loan Index (EUR Hedged); our U.S. Convertible Securities strategy, to an Oaktree custom convertible index that represents the Credit Suisse Convertible Securities Index from inception through December 31, 1999, the Goldman Sachs/Bloomberg Convertible 100 Index from January 1, 2000 through June 30, 2004, and the BofA Merrill Lynch All U.S. Convertibles Index thereafter; our non-U.S. Convertible Securities strategy, to an Oaktree custom non-U.S. convertible index that represents the JACI Global ex-U.S. (Local) Index from inception through December 31, 2014 and the Thomson Reuters Global Focus ex-U.S. (USD hedged) Index thereafter; our High Income Convertible Securities strategy, to the Citigroup U.S. High Yield Market Index; and our Emerging Markets Equities strategy, to the Morgan Stanley Capital International Emerging Markets Index (Net). “senior executives” refers collectively to Howard S. Marks, Bruce A. Karsh, Jay S. Wintrob, John B. Frank, Stephen A. Kaplan, 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 $97 billion in assets under management (“AUM”) as of December 31, 2015. Our mission is to deliver superior investment results with risk under control and to conduct our business with the highest integrity. 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 founders 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 287 investment professionals include 151 senior investment professionals with an average 19 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 more than 2,100, including 75 of the 100 largest U.S. pension plans, 39 states in the United States, 434 corporations and/or their pension funds, approximately 370 university, charitable and other endowments and foundations, 16 sovereign wealth funds and over 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 12% 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 $79 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 2015, we raised gross capital of $23.1 billion, a record amount for any calendar year, resulting in a record $21.7 billion of uncalled capital commitments as of December 31, 2015. As shown in the chart below, our AUM has grown to $97.4 billion as of December 31, 2015 from $30.0 billion a decade earlier. Over the same period, management fee-generating assets under management (“management fee-generating AUM”) grew from $28.0 billion to $78.9 billion, and incentive-creating assets under management (“incentive-creating AUM”) increased from $10.1 billion to $31.9 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. As of December 31, 2015, we had 924 employees, including 235 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 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 call the committed capital of those funds to make investments. 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. We may also 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 make an investment and for which we are entitled to 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 on a monthly basis (with prior written notice of up to 90 days). We also provide discretionary management services for clients through separate accounts, predominantly 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. 7 Evergreen Funds Our evergreen funds invest in marketable securities, private debt and equity, and in certain cases on a long or 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 or funds-of-one 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 and accounts that we manage, the contractual terms of those management fees vary by certain factors, such as fund structure. 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. For certain closed-end funds (such as Oaktree European Dislocation Fund, Oaktree Real Estate Debt Fund and Oaktree Mezzanine Fund 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 may 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 or leverage for the period between the first drawdown of capital or leverage 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. In the case of CLOs, a portion of our management fees are dependent on the sufficiency of the particular vehicle’s cash flow. 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 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 or funds-of-one, 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 5%, but no more than 10%, of the CLO’s total par value. For strategic purposes, we also invest in a handful of third-party managed funds or companies. 8 Our investments in companies include a one-fifth equity stake in DoubleLine Capital LP and its affiliates (collectively, “DoubleLine”), a Southern California-based investment management firm that sought our start-up consulting and financial involvement shortly after its founding in December 2009 by Jeffrey Gundlach and others who had previously worked together for over 20 years. From first managing assets in April 2010, DoubleLine has grown to nearly $85 billion in assets under management as of December 31, 2015. DoubleLine invests across fixed income, equities and commodities through mutual funds, hedge funds and separate accounts. Our Investment Approach Our goal is excellence in investing. This means achieving attractive returns without commensurate risk, an imbalance which can only be achieved in markets that are not “efficient.” Although we strive for superior returns, our first priority is that our actions produce consistency, protection of capital and superior performance in bad times. 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. 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 287 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. 9 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, 2015 is shown below: Strategy Inception AUM (in millions) Control Investing: $ 14,545 Global Principal Investments ................. Corporate Debt: U.S. High Yield Bonds ........................... Global High Yield Bonds ........................ European High Yield Bonds................... U.S. Senior Loans ................................. European Senior Loans ......................... Mezzanine Finance ............................... Strategic Credit ...................................... European Private Debt .......................... Emerging Markets Total Return ............. 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 2015 1987 1994 1989 1988 2007 2012 4,113 1,127 8,077 2,532 1,591 2,942 621 207 35,755 3,965 2,084 768 6,817 23,850 1,291 800 25,941 European Principal Investments ............ Power Opportunities .............................. Infrastructure Investing (1) ...................... Other ..................................................... Real Estate: Real Estate Opportunities ...................... Real Estate Debt ................................... Listed Equities: Emerging Markets Equities .................... Emerging Markets Absolute Return ....... Value Equities ........................................ Other ..................................................... Strategy Inception 1994 2006 1999 2014 1994 2012 2011 1997 2012 AUM (in millions) $ 5,511 6,122 1,746 2,572 228 16,179 7,736 1,355 9,091 3,044 146 307 79 3,576 Total ....................................................... $ 97,359 (1) Oaktree acquired the Highstar Capital team in August 2014, which represents the inception date of this strategy. Highstar’s inception date was 2000. We add an investment strategy 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. We consider it far more important to avoid mistakes than to capture every opportunity. 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. Our asset classes and investment strategies are described below: Corporate Debt 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 30 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. In recent years, the European high yield bond market has grown significantly, which has allowed us to construct portfolios of 10 bonds issued by credit-worthy companies from a variety of sectors across developed European countries. This strategy is managed by a dedicated team of leveraged-finance specialists in our London office and employs the same investment approach successfully applied by our U.S. High Yield Bond team. Over the years, many of our U.S. clients invested in our 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 fund or account. 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 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 invest in senior secured loans in the growing European bank loan market. 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. Building on our experience in Senior Loans and Enhanced Income, in 2014 we added CLOs to our product offerings, both in the U.S. and Europe. 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. Both Enhanced Income and our fully-levered CLOs utilize the same investment approach as our Senior Loan strategy. 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 targets middle market companies with enterprise values between $150 million and $750 million, which are either too small to access the public markets or too large for most other mezzanine funds. We believe this part of the market presents attractive opportunities to help finance leveraged buyouts, recapitalizations, acquisitions and corporate growth. The Mezzanine Finance strategy seeks to earn an attractive current return and achieve long-term capital appreciation without subjecting principal to undue risk. Strategic Credit In 2012, we introduced Strategic Credit as a step out from our Distressed Debt strategy, to capture attractive investment opportunities that appear to offer too little return for distressed debt investors, but may pose too much uncertainty for high yield bond creditors. This strategy seeks to achieve an attractive total return by investing in public and private performing debt of stressed U.S. and non-U.S. companies. 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 healthy companies that require liquidity for acquisitions, buyout of minority investors, debt restructurings, recapitalizations or acquisitions of hard assets. Emerging Markets Total Return In 2015, we introduced Emerging Markets Total Return to third-party investors to capitalize on the nascent market of stressed credits falling out of the investment-grade and high yield fixed income emerging markets universe. This strategy invests primarily in performing emerging market credit, seeking to achieve an attractive total return by taking advantage of market inefficiencies and geopolitical complexities in the emerging markets credit universe. 11 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 risk. To reduce risk, we broadly diversify and focus on convertibles that provide pronounced downside protection. We manage three convertible securities strategies that focus on different regions and market sections – U.S., non-U.S. and “high income” convertibles. 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. Distressed Debt Distressed Opportunities 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. Our approach seeks to combine protection against loss, which generally comes from buying claims on assets at bargain prices, with the substantial gains to be achieved by returning companies to financial viability through restructuring. 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 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. Emerging Markets Opportunities We launched this strategy in 2012 as an expansion our of Distressed Debt strategy. The Emerging Markets Opportunities strategy targets stressed, distressed and other value-oriented fixed income, hybrid and equity investments in emerging markets. In contrast to developed markets, macroeconomic events, political crises and a misunderstanding among many investors of emerging market complexities give rise to more pronounced disruptions and an enhanced opportunity set for us to take advantage of such opportunities. 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. Control Investing Principal Investing 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 distressed and special situations 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, industries in which we have particular expertise and cross-border investments that benefit from European integration or provide opportunity for global distribution. 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. 12 Power Opportunities Beginning in 1996, the Control Investing strategy made a number of power- and energy-related investments jointly with an independent firm, GFI Energy Ventures (“GFI”), a firm founded in 1995. In 2009, GFI personnel joined us and, starting with Oaktree Power Opportunities 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 the generation, transmission, distribution, marketing, trading and consumption of power and other similar services. The strategy invests in proven performers and market leaders, not start-up ventures or turnarounds. 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. Highstar was founded in 2000. This strategy seeks to capitalize on these and similar opportunities by originating, owning and operating infrastructure and related investments, primarily in North America. Real Estate Real Estate Opportunities The Real Estate team targets a diverse range of global opportunities across all areas of this asset class, with an emphasis on debt or equity investments in commercial real estate, corporate real estate, structured finance, commercial non-performing loans, residential real estate and non-U.S. real estate. Investments may include direct property investments; investments in real estate-related corporations; commercial mortgage-backed securities and related securities; residential land, assets and loan pools; small-balance commercial loan pools; and non-U.S. investments. The team also occasionally pursues development opportunities with aligned, high-quality partners. Real Estate Debt Our management of the Oaktree PPIP Fund, 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 specializes in debt-driven opportunities similar to that of the Real Estate strategy (e.g., commercial real estate, corporate real estate, structured finance, commercial non-performing loans, residential real estate and non-U.S. real estate), and invests in commercial mortgage-backed securities, commercial and residential mortgages, mezzanine loans and corporate debt. Listed Equities Emerging Markets Equities As a step-out from our Emerging Markets Absolute Return 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. Value Equities We launched this strategy to third-party investors 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 a concentrated portfolio of stressed, post-reorganization and value equities that offer asymmetric return profiles. 13 Our Investment Performance Our investment professionals have generated impressive investment performance through multiple market cycles. As of December 31, 2015, our incentive-creating closed-end funds had produced a since-inception aggregate gross IRR of 19.0% on over $72 billion of drawn capital. Of the 54 incentive-creating closed-end funds we manage that commenced before July 1, 2014, 50 had positive net IRRs as of December 31, 2015, 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, 2015. 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 $ 39,994 22.1% 15.7 12.9 14.4 34.8 13.2 6,990 10,191 5,232 1,609 3,474 67,490 15,948 $ 83,438 16.3% 12.2 9.3 9.8 26.7 8.9 1.7x 1.7 1.6 1.6 2.4 1.4 Performance of our open-end funds is in part measured in relation to applicable benchmark returns. Our emphasis on risk control and credit selection has led to outperformance in challenging markets and 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, 2015. 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) $ 14,545 9.2% 8.7% 8.1% U.S. High Yield Bonds................... Global High Yield Bonds ............... 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 5.1 6.0 8.0 5.9 7.9 4.7 9.6 0.76 0.89 0.66 0.47 0.79 1.02 0.95 1.67 0.51 0.79 0.39 0.34 0.41 0.54 0.55 1.70 (5.5) (0.27) (0.30) 4,113 1,127 3,965 2,084 768 2,003 1,554 3,044 6.0 8.0 9.4 8.6 11.3 5.5 8.7 (5.1) 5.5 7.4 8.9 8.0 10.5 5.0 8.2 (5.8) 14 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 business and our proprietary research. For example, 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 different investment groups often attend each other’s meetings in order to facilitate keeping abreast of the others’ activities and maintaining access to specialized investment expertise. 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 one another with respect to existing and proposed investments. Our culture encourages such cooperation, as does the broad Oaktree equity 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 believe our success is a byproduct of the success of our fund investors and thus always strive to achieve superior returns with risk under control, to charge fair and transparent management fees, and to behave with professionalism and integrity. We have developed a loyal following among many of the world’s most significant institutional investors, and believe that their and our other investors’ loyalty results from our superior investment record, our reputation for integrity, and the fairness and transparency of our fee structures. As of December 31, 2015, our $97.4 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 .............................................. $ 25,753 27% North America ............................... $ 71,979 74% Corporate and corporate pension ............. 23,783 24 Europe .......................................... 13,239 Asia & Australia ............................. Africa & Middle East ...................... South America ............................... 9,738 1,742 661 Total .............................................. $ 97,359 100% 13 10 2 1 Insurance companies ............................... Sovereign wealth funds ............................ Sub-advisory – mutual funds .................... Endowments/foundations ......................... Private – high net worth/family office ........ Fund of funds ........................................... Unions ...................................................... Oaktree and other ..................................... 8,298 8,237 6,692 6,481 5,399 2,480 2,062 8,174 9 8 7 7 5 3 2 8 Total .......................................................... $ 97,359 100% 15 Our extensive in-house global Marketing and Client Relations group, consisting 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 global composition of our client base. This team is augmented by 45 dedicated marketing support, portfolio analytics and client reporting professionals. 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, 2015, we had 924 employees, categorized as follows: Investment professionals ...................................................................................................... Other professionals .............................................................................................................. Support staff ......................................................................................................................... Total ...................................................................................................................................... 287 475 162 924 139 96 — 235 All Employees Employee Owners (1) Employees Located Outside the U.S. 100 68 37 205 (1) Represents employees that have received grants of Class A or OCGH units under our equity incentive plans. Competition 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.” 16 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 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. 17 The diagram below depicts our organizational structure as of December 31, 2015. ______________________ (1) Holds 100% of the Class B units and 0.02% of the Class A units, which together represent 93.7% 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) 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, 2015, there were 153,907,733 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. (4) 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. (5) 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. 18 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 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 19 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, 2015, 2014 and 2013 are set forth in the “Segment Reporting” note 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 Unitholders – Investor Relations 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. 20 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, 2015 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) (in millions) Distressed Debt Oaktree Opportunities Fund Xb ................................................... Oaktree Opportunities Fund X (6) ................................................. TBD — $ Jan. 2016 Jan. 2019 Oaktree Opportunities Fund IX .................................................... Jan. 2014 Jan. 2017 Oaktree Opportunities Fund VIIIb ................................................ Aug. 2011 Aug. 2014 Special Account B ....................................................................... Nov. 2009 Nov. 2012 Oaktree Opportunities Fund VIII .................................................. Oct. 2009 Oct. 2012 Special Account A ....................................................................... Nov. 2008 Oct. 2012 7,530 2,955 5,066 2,692 1,031 4,507 253 OCM Opportunities Fund VIIb ..................................................... May 2008 May 2011 10,940 OCM Opportunities Fund VII ....................................................... Mar. 2007 Mar. 2010 OCM Opportunities Fund VI ........................................................ Jul. 2005 Jul. 2008 OCM Opportunities Fund V ......................................................... Legacy funds (7). .......................................................................... Jun. 2004 Jun. 2007 Various Various Real Estate Opportunities Oaktree Real Estate Opportunities Fund VII ............................... Jan. 2016 Jan. 2020 $ Oaktree Real Estate Opportunities Fund VI ................................ Aug. 2012 Aug. 2016 Oaktree Real Estate Opportunities Fund V ................................. Mar. 2011 Mar. 2015 Special Account D ....................................................................... Nov. 2009 Nov. 2012 Oaktree Real Estate Opportunities Fund IV ................................ Dec. 2007 Dec. 2011 OCM Real Estate Opportunities Fund III ..................................... Sep. 2002 Legacy funds (7). .......................................................................... Various Sep. 2005 Various 3,598 1,773 1,179 9,543 2,104 2,677 1,283 256 450 707 $ — $ — $ — $ — $ — $ — $ — $ 443 5,066 2,692 1,096 4,507 253 9,844 3,598 1,773 1,179 9,543 (39) (322) 453 456 1,868 280 8,685 1,439 1,316 967 8,199 — 3 864 988 404 4,741 2,281 564 4,048 2,327 463 70 17,328 1,201 4,597 2,833 2,096 17,695 440 256 50 47 2,881 4,966 2,260 552 2,330 75 1,561 783 391 — — — — 52 15 143 42 1,453 81 134 179 1,113 — — — 6 170 14 235 — 123 10 10 — 455 5,759 2,639 540 2,091 — — 561 — — — n/a nm n/a nm (0.6)% (4.0)% 7.7 12.9 12.1 28.1 22.0 10.3 12.1 18.5 24.2 4.3 10.4 8.4 22.7 16.7 7.5 8.9 14.2 19.3 22.1 % 16.3 % $ — $ (4) $ — $ (4) $ 1,466 $ — $ — $ — n/a n/a 2,677 1,283 263 450 707 933 872 166 385 636 427 1,074 262 570 1,290 3,009 3,183 1,081 167 265 53 — 2,610 588 93 174 — — 2 30 2 15 115 112 178 136 14 57 11 — 1,634 1,610 1,399 n/a 0.9x 1.0 1.2 1.5 1.5 2.1 2.0 1.5 1.8 1.9 1.9 n/a 1.4x 1.8 1.7 2.0 2.0 1.9 Real Estate Debt Oaktree Real Estate Debt Fund (8). ............................................. Sep. 2013 Oaktree PPIP Fund (9) . ............................................................... Dec. 2009 European Principal Investments (10) Sep. 2016 $ Dec. 2012 1,112 2,322 $ 385 $ 1,113 41 457 $ 252 $ 174 $ 374 $ — $ 1,570 — — 47 $ 6 — Oaktree European Principal Fund III ........................................... Nov. 2011 OCM European Principal Opportunities Fund II (11) ...................... Dec. 2007 Nov. 2016 Dec. 2012 3,164 1,759 2,650 1,731 OCM European Principal Opportunities Fund ............................. Mar. 2006 Mar. 2009 $ 495 $ 473 $ 1,338 553 454 285 € 3,703 3,264 — € 260 2,875 23.6 % 15.6 % 1.6x 1,476 808 $ 846 $ 81 $ 365 71 $ 29 48 $ — € 38 $ 989 — 10.2 11.7 6.3 8.9 1.5 2.1 14.4 % 9.8 % European Private Debt Oaktree European Capital Solutions Fund .................................. Dec. 2015 Oaktree European Dislocation Fund (8). ....................................... Oct. 2013 Dec. 2018 Oct. 2016 Special Account E ....................................................................... Oct. 2013 Apr. 2015 98 294 379 — € 172 261 (1) 25 43 — € (1) 87 94 110 210 26 168 217 — € — € — € — € 4 6 — 94 n/a n/a 25.8 % 18.7 % 191 15.5 12.0 n/a 1.2x 1.2 18.1 % 13.5 % 21 2,666 21.6 % 14.5 % 18.6 14.8 16.4 15.5 15.2 13.6 12.6 11.2 11.5 12.0 15.7 % 12.2 % 624 114 94 — — 145 — 21.7 % 15.2 % 28.2 n/a 1.2x 1.4 € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € 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, 2015 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) Global Principal Investments Oaktree Principal Fund VI (6) ................................................ Nov. 2015 Nov. 2018 $ 1,223 $ 116 $ 1 $ 30 $ 87 $ 1,167 $ — $ — $ 94 nm nm (in millions) Oaktree Principal Fund V .................................................... Feb. 2009 Feb. 2015 Special Account C ............................................................... Dec. 2008 Feb. 2014 OCM Principal Opportunities Fund IV .................................. Oct. 2006 Oct. 2011 OCM Principal Opportunities Fund III .................................. Nov. 2003 Legacy funds (7). .................................................................. Various Nov. 2008 Various 2,827 505 3,328 1,400 2,301 2,586 460 3,328 1,400 2,301 475 199 2,037 875 1,839 1,251 1,810 332 3,501 2,166 4,138 327 1,864 109 2 1,839 361 1,205 — — 50 16 22 149 236 — 16 129 21 — Power Opportunities Oaktree Power Opportunities Fund IV ................................. Nov. 2015 Nov. 2020 $ 1,106 $ — $ (8) $ — $ (8) $ 1,078 $ — $ — $ Oaktree Power Opportunities Fund III ................................. Apr. 2010 Apr. 2015 OCM/GFI Power Opportunities Fund II ................................ Nov. 2004 Nov. 2009 OCM/GFI Power Opportunities Fund ................................... Nov. 1999 Nov. 2004 1,062 1,021 449 685 541 383 317 1,450 251 362 1,982 634 640 9 — 477 — — — 100 23 60 1 — 2,204 304 1,704 — — — 459 — — 9.2 % 4.4 % 12.1 10.8 13.8 14.5 8.4 8.1 9.5 11.6 12.9 % 9.3 % n/a n/a 23.4 % 13.7 % 76.1 20.1 58.8 13.1 34.8 % 26.7 % 1.1x 1.3 1.5 1.7 1.8 1.8 n/a 1.6x 3.9 1.8 Nov. 2016 $ 2,346 $ 1,858 $ 292 $ 302 $1,848 $ 1,882 $ — $ — $ 1,525 14.0 % 7.8 % 1.3x Infrastructure Investing Highstar Capital IV (12). ........................................................ Nov. 2010 Mezzanine Finance Oaktree Mezzanine Fund IV (6) (8) ......................................... Oct. 2014 Oaktree Mezzanine Fund III (13). .......................................... Dec. 2009 Jun. 2005 OCM Mezzanine Fund II ...................................................... OCM Mezzanine Fund (14). ................................................... Oct. 2001 Emerging Markets Opportunities Oaktree Emerging Market Opportunities Fund .................... Sep. 2013 Sep. 2016 $ Special Account F ................................................................ Jan. 2014 Jan. 2017 $ 384 253 Oct. 2019 $ 842 $ 171 $ 8 $ 6 $ 173 $ Dec. 2014 Jun. 2010 Oct. 2006 1,592 1,251 808 343 528 302 1,291 1,489 1,073 475 146 2 $ (20) $ — $ 161 $ (13) — 106 1,423 1,107 773 181 119 71,617 11,821 164 467 167 — $ — $ — $ 1 — 38 22 — — $ (10) 364 105 34,839 7,360 — $ — $ — — 1,550 (10) 30 171 450 157 — 202 133 nm nm 15.1 % 10.3% / 8.1% 11.4 15.4 7.9 10.8 / 10.5 13.2 % 8.9 % (4.5)% (8.3)% (5.8) (7.9) (5.0)% (8.1)% 1.1x 1.3 1.6 1.5 0.9x 0.9 $ 42,199 $ 1,580 Other (15) Total (16) $ 83,438 (10) (17) (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. The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through December 31, 2015 was less than 18 months. 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. Management fees during the investment period are calculated on drawn, rather than committed, capital. As a result, as of December 31, 2015 management fee-generating AUM included only that portion of committed capital that had been drawn. Due to differences in the allocation of income and expenses to this fund’s two primary limited partners, the U.S. Treasury and Oaktree PPIP Private Fund, a combined net IRR is not presented. Of the $2,322 million in capital commitments, $1,161 million related to the Oaktree PPIP Private Fund, whose gross and net IRR were 24.7% and 18.6%, respectively. Aggregate IRRs or totals are based on the conversion of cash flows or amounts, respectively, from euros to USD using the December 31, 2015 spot rate of $1.09. As of February 1, 2016, the Company elected to temporarily defer management fees from the fund, thus reducing the effective blended management fee-generating AUM applicable to the first quarter of 2016 to €365 million, from €1.1 billion. The fund includes co-investments of $408 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 distribution waterfall, whereby the general partner may receive an incentive allocation as soon as it has returned the drawn capital and paid a preferred 22 return on the fund’s realized investments (i.e., on a deal-by-deal basis). However, such cash distributions of incentives may be subject to repayment, or clawback. As of December 31, 2015, Oaktree had not recognized any incentive income from this fund. Under the terms of the Highstar acquisition, Oaktree is effectively entitled to approximately 8% of the potential incentives generated by this fund. 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 10.3% and Class B interests was 8.1%. The combined net IRR for Class A and Class B interests was 9.5%. The fund’s partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. The net IRR for Class A interests was 10.8% and Class B interests was 10.5%. The combined net IRR for the Class A and Class B interests was 10.6%. This includes our closed-end Senior Loan funds, Oaktree Asia Special Situations Fund, OCM Asia Principal Opportunities Fund, CLOs, a non-Oaktree fund, certain separate accounts, co-investments and certain evergreen separate accounts in our Real Estate Debt, Emerging Markets Opportunities and Emerging Markets Total Return strategies. This excludes two closed-end funds with management fee-generating AUM aggregating $507 million as of December 31, 2015, which has been included as part of the Strategic Credit strategy within the evergreen funds table, and includes certain evergreen separate accounts in our Real Estate Debt, Emerging Markets Opportunities and Emerging Markets Total Return strategies with an aggregate $417 million of management fee-generating AUM. The aggregate change in drawn capital for the three months ended December 31, 2015 was $0.9 billion. (13) (14) (15) (16) (17) 23 Open-end Funds Manage- ment Fee- gener- ating AUM as of Dec. 31, 2015 (in millions) Strategy Inception Year Ended December 31, 2015 Since Inception through December 31, 2015 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 $ 14,542 (3.6)% (4.1)% (5.4)% 9.2 % 8.7 % 8.1 % Global High Yield Bonds....... 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 ................ Sept. 2008 European Senior Loans........ May 2009 Emerging Markets Equities... Jul. 2011 4,090 1,127 3,965 2,084 767 1,987 1,554 3,019 Total $ 33,135 (3.2) 2.8 (3.7) 5.7 1.2 (3.5) 3.8 (3.7) 2.3 (4.2) 5.1 0.4 (4.0) 3.3 (3.9) 1.8 (3.0) 5.4 (5.6) (0.4) 3.1 6.0 8.0 9.4 8.6 11.3 5.5 8.7 5.5 7.4 8.9 8.0 10.5 5.0 8.2 5.1 6.0 8.0 5.9 7.9 4.7 9.6 0.76 0.89 0.66 0.47 0.79 1.02 0.95 1.67 0.51 0.79 0.39 0.34 0.41 0.54 0.55 1.70 (19.1) (19.7) (14.9) (5.1) (5.8) (5.5) (0.27) (0.30) (1) Returns represent time-weighted rates of return, including reinvestment of income, net of commissions and transaction costs. The returns for Relevant Benchmarks are presented on a gross basis. Evergreen Funds Strategy Inception AUM As of December 31, 2015 Accrued Incen- tives (Fund Level) Manage- ment Fee-gener- ating AUM (in millions) Year Ended December 31, 2015 Since Inception through December 31, 2015 Rates of Return (1) Annualized Rates of Return (1) Gross Net Gross Net Strategic Credit (2). .................................. Jul. 2012 $ 2,942 $ 2,010 $ n/a (4.2)% (5.2)% 6.2% 4.1% Value Opportunities................................. Sept. 2007 Value Equities (4) ..................................... May 2012 Emerging Markets Absolute Return ........ Apr. 1997 1,291 307 146 Restructured funds Total (2) (5) (14.6) (13.7) (2.6) (16.4) (15.0) (4.1) 8.6 16.9 13.3 4.4 11.2 8.9 1,236 191 126 3,563 — $ 3,563 $ — (3) — (3) — (3) — 5 5 (1) (2) (3) (4) (5) Returns represent time-weighted rates of return. Includes two closed-end funds with an aggregate $732 million and $507 million of AUM and management fee-generating AUM, respectively. As of December 31, 2015, the aggregate depreciation below high-water marks previously established for individual investors in the fund totaled approximately $249 million for Value Opportunities, $23 million for Value Equities and $9 million for Emerging Markets Absolute Return. Includes performance results of a proprietary fund with an initial capital commitment of $25 million since its inception on May 1, 2012. Total excludes certain evergreen separate accounts in our Real Estate Debt, Emerging Markets Opportunities and Emerging Markets Total Return strategies with an aggregate $417 million of management fee-generating AUM as of December 31, 2015. 24 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. In the past we have taken, and we may continue to take, affirmative steps to limit the growth of our AUM. These steps include: • • from time to time, we have suspended marketing certain of our open-end funds or other funds that we sub-advise, sometimes for long periods, and have declined to participate in searches aggregating billions of dollars; from time to time, we have returned capital from certain of our closed-end funds prior to the end of such funds’ respective investment periods; • we intentionally sized certain of our closed-ended funds smaller than their predecessors even though we could have raised additional capital; and • since our founding we have turned away substantial amounts of capital offered to us for management. Additionally, we have voluntarily reduced management fee rates or changed the terms of how we assess management fees for certain of our funds or strategies when we deemed it appropriate, even when doing so reduced our short-term revenue, and may continue to do so. For example, we decided to reduce our maximum annual management fee for Oaktree Opportunities Fund VIII (“Opps VIII”) and Oaktree Principal Fund 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 Oaktree Opportunities Fund 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 (“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 (“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. 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’ 25 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, earnings and cash flow and adversely affect our overall performance, ability to raise or deploy capital, financial prospects and 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. Concerns over continued dislocation in oil prices, 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, instability in the Chinese stock market, 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. Such unpredictability could create volatility in the debt financing market and could negatively impact our business. The increase in the foreign exchange value of the U.S. dollar could also result in financial market dislocations that could negatively impact deal finance conditions. The fall in the price of oil may increase default risk among energy credits, including sovereign borrowers, and increase the cost or availability of financing for certain of our transactions. 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 deteriorate, we may be unable to raise sufficient amounts of capital to support the investment activities of future funds. 26 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 funds-of-one, 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, earnings and cash flow and adversely affect our financial prospects and 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 and international taxation 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 Oaktree Emerging Markets Absolute Return Fund (“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, 2015, such terminations would result in a $21.7 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 0.15% of our AUM as of December 31, 2015. 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 27 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 relating to the vesting of OCGH and Class A units issued after our initial public offering in April 2012; and 28 • a provision for corporate income taxes on the income of certain 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. In certain instances, our funds that are registered under the Investment Company Act may not be able to participate in certain investment opportunities as a result of regulatory restrictions applicable to companies with multiple types of funds with overlapping investment focuses. 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, or develop information barriers between the groups. 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 ethics and 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. 29 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 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, and we expect that competition will increase. Numerous factors serve to increase our competitive risks, some of which are outside of our control: • 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 (including strategic 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; • some investors may prefer to pursue investments directly instead of investing through one of our funds; 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. 30 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 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 (“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 certain other funds. 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. As of December 31, 2015, we or our fund affiliates had 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. 31 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 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, in recent years we have focused on expanding into products for real estate, senior loans, listed equities, corporate debt, collateralized loan obligations, infrastructure investments, 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 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; • potential conflicts of interest with existing products; • entry into markets or lines of business in which we may have limited or no experience; • exposure to new market risks; • any assumption of liabilities in acquired business; • 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. 32 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, including periodic examinations, inquiries and investigations by governmental and self-regulatory organizations in the jurisdictions in which we operate around the world. Many of these regulators, including U.S. federal and state and foreign government agencies and self-regulatory organizations, are empowered to impose fines, suspensions of personnel or other sanctions, including censure, the issuance of cease-and-desist orders or the suspension or expulsion of applicable licenses and memberships. Even if an investigation did not result in a sanction, or the sanction imposed against us or our personnel were small in monetary amount, adverse publicity relating to the investigation could harm our reputation and cause us to lose existing investors or fail to gain new investors. 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 or sub-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. The SEC and FINRA oversee 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 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. 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. Additionally, in 2015 an affiliate of ours registered as an alternative investment fund manager (“AIFM”) in Luxembourg pursuant to the European Union Alternative Investment Fund Managers Directive (the “Directive”). Such registration carries additional legal and compliance costs, as well as additional operating requirements that may also increase costs (for instance, the requirement that funds offered pursuant to the directive retain an independent depository regulated by the E.U.). 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, custody, 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, 33 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. We and our affiliates from time to time are required to report specified dealings or transactions involving Iran or other sanctioned individuals or entities. The Iran Threat Reduction and Syrian Human Rights Act of 2012 (“ITRSHRA”) expanded the scope of U.S. sanctions against Iran. 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 global 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 may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. For example, senior officials at the SEC have shown a willingness to pursue even violations that could be viewed as minor on the theory that publicly pursuing smaller matters will reduce the prevalence of larger matters. The Director of the SEC’s Division of Enforcement has described this approach as a ‘zero tolerance’ policy. 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 34 U.S. economy. To date, the Council has designated four nonbank financial companies for Federal Reserve supervision. While no asset managers have been designated 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, agencies or commercial lending companies 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 and from engaging in certain other proprietary activities. 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 were 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 granted an additional extension, giving banking entities until July 21, 2016, in respect of investments in 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 have been divested or restructured by July 21, 2015. The Federal Reserve also announced that, with respect to legacy covered funds and relationships, it intends to grant a final extension, which 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. In addition, the CFTC repealed CFTC Regulation 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 Regulation 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 Regulation 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 Regulation 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 Regulation 4.13(a)(3). For those funds that rely upon the exemption provided by CFTC Regulation 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. However, these funds are subject to certain limits on their ability to use commodity futures (which include futures on broad-based securities indexes and interest rate futures) or options on commodity futures, engage in 35 swaps transactions or make certain other investments (whether directly or indirectly through investments in other investment vehicles). If our funds do not continue to claim the exclusion, they would likely become subject to registration and regulation as commodity pool operators. As a result, we may incur additional expenses as a result of the CFTC’s registration and regulatory requirements. Certain mutual funds advised by us also rely on the exemption provided by CFTC Regulation 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. In addition, pursuant to the Dodd-Frank Act, the SEC and other federal regulatory agencies have issued final rules requiring managers of CLOs to retain at least 5% of the credit risk in each CLO they manage (the “U.S. Risk Retention Rules”). Therefore, the U.S. Risk Retention Rules, which fully come into effect in December 2016, will require us to contribute a minimum level of capital into our CLOs. The U.S. Risk Retention Rules and their pending effectiveness could result in reduced CLO origination activity by us, result in increased investment by us in our CLOs and could adversely affect the market for CLOs more generally, which could adversely affect the performance and prospects for our CLO activity. 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. In Luxembourg, Oaktree Capital Management (Lux) S.à r.l. is subject to regulation by the Commission de Surveillance du Secteur Financier. 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. 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 36 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 took effect on July 22, 2013. The Directive applies to (a) AIFMs established in the European Union (the “EU”) that manage EU or non-EU alternative investment funds (“AIFs”), (b) non-EU AIFMs that manage EU AIFs and (c) non-EU AIFMs that market their AIFs to professional investors within the EU. Accordingly, individual EU member states have adopted rules and regulations implementing the Directive into domestic law. The Directive imposes detailed operating requirements on EU AIFMs managing AIFs. 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 must 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 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. Risk Retention and Due Diligence Requirements Similar to the U.S. Risk Retention Rules, the EU has adopted rules that prevent certain investors from investing in EU CLOs that we originate unless, among other things, we retain at least a 5% ownership stake in the CLO and meet certain heightened due diligence requirements (the “EU Risk Retention and Due Diligence Requirements”). On September 30, 2015, the European Commission proposed new regulations that would expand the application of the EU Risk Retention and Due Diligence Requirements to certain additional types of EU institutional investors. These new regulations are subject to further review, and it is not clear whether they will be adopted. Such regulations could result in reduced EU CLO activity by us and have a negative impact on the price and liquidity of EU CLOs and could adversely affect our EU CLO activity. Failure to comply with one or more of the requirements may result in various penalties including the imposition of a punitive capital charge on the notes issued by our EU CLOs. 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 came into effect on January 1, 2016. Solvency II imposes, 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 37 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. OECD Changes in tax laws by foreign jurisdictions could arise as a result of BEPS projects being undertaken by the OECD (each as defined below). These contemplated changes, if finalized and adopted by countries, could increase uncertainty faced by us, our business and our investors, change our business model or increase the cost of acquiring businesses. The timing or impact of these proposals is unclear at this point. There are also continual changes to tax laws, regulations and interpretations regularly which could impact our structures or the returns to investors. 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. Rules 501 and 506 of Regulation D under the Securities Act bar 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 covered person 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 38 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, foreign-currency exchange rates or exposure to certain equity markets. 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: • 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 derivatives 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- 39 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. 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, execution, margin, reporting, recordkeeping, business conduct, disclosure, position limit, minimum net capital and registration requirements. Although the CFTC has released final rules relating to clearing, execution reporting, risk management, compliance, position limit, anti-fraud, consumer protection, portfolio reconciliation, documentation, recordkeeping, business conduct and margin 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, capital or reporting 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 engage 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 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. Furthermore, on December 15, 2015, the CFTC approved a final rule, to become effective in April 2016, requiring swap dealers and major swap participants that are not subject to supervision by a prudential regulator to exchange initial margin and variation margin with counterparties to swaps not cleared through a central counterparty, subject to certain exemptions for commercial end-users and inter-affiliate swaps. The rule generally applies initial margin and variation margin requirements to swaps between non-prudentially regulated swap dealers and major swap participants and between non-prudentially regulated swap dealers, major swap participants and financial end users with a “material swaps exposure” of more than $8 billion in a three-month period of the previous calendar year. The CFTC final rule is broadly consistent with a similar rule mandating the exchange of initial and 40 variation margin adopted by the Federal Reserve in October 2015. It is possible that such regulations could limit our or our funds’ use of derivatives, which could have an adverse impact on us or our funds. The SEC has also indicated that it may adopt new policies on the use of derivatives by registered investment companies. Such policies could affect the nature and extent of derivatives use by us or certain of our funds. On August 31, 2011, the SEC issued a concept release to seek public comment on a wide range of issues raised by the use of derivatives by investment companies. Then, on December 11, 2015, the SEC proposed new rules to govern the use of derivatives by registered investment companies and business development companies (“registered funds”). It is possible that such regulations, once adopted, could limit our funds’ use of derivatives, which could have an adverse impact on us or our funds. Additionally, in November 2015, the International Swaps and Derivatives Association published the ISDA 2015 Universal 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. 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. Heightened standards of care or additional fiduciary duties may apply in certain of our managed accounts or other advisory contracts. To the extent we enter into agreements with clients containing such terms or applicable law mandates a heightened standard of care or duties, we could, for example, be liable to certain clients for acts of simple negligence or breach of such duties, which might include the allocation of a client’s funds to our affiliated funds. Further, we may be subject to third-party litigation arising from investor dissatisfaction with the performance of our funds or from third-party allegations that we improperly exercised control or influence over portfolio investments or that we are liable for actions or inactions taken by portfolio companies that such third parties argue we control. 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. Fraud and other deceptive practices or other misconduct at our portfolio companies could similarly subject us to liability and reputational damage and also harm our performance. 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 or advisors 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 41 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, UK anti-bribery laws 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. 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. Certain of our funds invest in strategic assets having a national or regional profile or in infrastructure assets, the nature of which could expose them to a greater risk of being subject to a terrorist attack or security breach. In addition, we and our employees may be the target of fraudulent emails or other targeted attempts to gain unauthorized access to proprietary or sensitive information. 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 42 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 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: • we may create new funds in the future that reflect a different asset mix and different investment strategies, as well as a varied geographic and industry exposure as compared to our present funds, and any such new funds could have different returns from our existing or previous 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; • many of 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; • newly-established funds may generate lower returns during the period in which they initially deploy their capital; • 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 or decrease in the size of our funds could result in materially different rates of returns. The future internal rate of return for any current or future fund may vary considerably from the historical internal rate of return generated by any particular fund, or for our funds as a whole. In addition, future returns will be affected by the applicable risks described elsewhere in this annual report, including risks of the industries and businesses in which a particular fund invests. 43 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. Moreover, because the investment strategy of many of our funds, particularly our control investing funds, often entails our having representation on our funds’ public portfolio company boards, our funds may be restricted in their ability to effect such sales during certain time periods. Accordingly, under certain conditions, our investment funds may be forced to either sell securities at lower prices than they had expected to realize or defer – potentially for a considerable period of time – sales that they had planned to make. We have made and expect to continue to make significant principal investments in our current and future funds. Contributing capital to these funds is risky, and we may lose some or the entire principal amount of our investments. We make distressed debt investments that involve significant risks and potential additional liabilities. Certain of our funds invest in obligors and issuers with weak financial conditions, poor operating results, substantial financing needs, negative net worth or significant competitive issues and/or securities that are illiquid, distressed or have other high-risk features. 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 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, for example, 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 44 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. 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 such funds 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 45 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 or margin loans 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 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. The SEC has highlighted valuation practices as one of its areas of focus in investment adviser 46 examinations and has instituted enforcement actions against private equity fund advisers for misleading investors about valuation. 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. 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 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 principal investments made collectively by Oaktree and its affiliates 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. Further, from time to time we make loans or otherwise extend credit or guarantees to our funds. Contributing capital, making other investments or extending credit to these funds is risky, and we may lose some or all of our 47 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 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 48 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 or acceleration in the event of a decline in the value of the posted collateral. To meet liquidity needs as a result of margin calls or acceleration, we may elect to invest additional capital into or loan money to such funds. Any such investment or loan would be subject to the risk of loss. In addition, if we were to elect to enforce our rights against any fund with respect to a loan to such fund, we may damage our relationships with our investors and have difficulty raising additional capital. Any of the foregoing circumstances could have a material adverse effect on our financial condition, results of operations and cash flow. 49 Changes in the debt financing markets and higher interest rates 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. In addition, higher interest rates generally impact the investment management industry by making it harder to obtain financing for new investments, refinance existing investment or liquidate debt investments, which can lead to reduced investment returns and missed investment opportunities. Since the most recent recession, the U.S. Federal Reserve has taken actions which have resulted in low interest rates prevailing in the marketplace for a historically long period of time. In December 2015, the U.S. Federal Reserve raised its benchmark interest rate by a quarter of a percentage point. Market interest rates may continue to increase and the increase may materially and negatively affect us. 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. 50 Our funds are subject to risks in using prime brokers, custodians, counterparties, administrators, other agents and third-party service providers. Many of our funds depend on the services of prime brokers, custodians, counterparties, administrators and other agents and third-party services providers to carry out certain securities and derivatives transactions and other business functions. 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. 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 23, 2016, there were 59,757,389 Class A units outstanding, which may be resold immediately in the public market upon the release of any applicable lock- up periods, and, in the case of Class A units held by our affiliates, as that term is defined in Rule 144 under the Securities Act, subject to the applicable volume limitations of Rule 144 unless we register the resale of such units. In addition, certain of 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 (or may be required to exchange) their 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 23, 2016, there were 89,720,406 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. 51 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 23, 2016, we may issue 14,967,828 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. 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. 52 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. 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 (or may be required to exchange) his or her 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 may generally be resold immediately in the public market upon the release of any applicable lock-up periods, and, in the case of Class A units held by our affiliates, as that term is defined in Rule 144 under the Securities Act, subject to the applicable volume limitations of Rule 144 unless we register the resale of such units. 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. In addition, we completed the exchange of 12,998,725 OCGH units into an equivalent number of Class A units in November 2015. The exchanged Class A units are subject to a three-year lock-up scheduled to be released in equal quarterly increments, generally two business days after each quarter’s earnings release, starting with the earnings release for the fourth quarter of 2015. This would result in approximately 1.1 million units becoming newly tradable each quarter beginning February 2016 until November 2018. 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 New York Stock Exchange (“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 53 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, the possible repurchase of OCGH units, 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 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 private 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 54 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. While we do advise or sub-advise funds that are registered under the Investment Company Act, 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 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 93.7% voting interest as of February 23, 2016, 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 23, 2016, our senior executives control 93.7% 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. 55 Our senior executives hold a small 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 23, 2016, our senior executives hold approximately 33.3% 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 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. 56 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. 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, the possible repurchase of OCGH units, 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. 57 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 (or may be required to exchange) his or her 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 certain 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 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 58 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 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. 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 59 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. 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 2015 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 60 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, although 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 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, anti-inversion rules, 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. The Chairman of the House Ways and Means Committee has also identified comprehensive tax reform as a priority for the next Congress. Whether and in what form any such proposals will be enacted by Congress 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 and other jurisdictions 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 61 funds from these investors. Other countries, such as the United Kingdom and the Cayman Islands have implemented regimes similar to that of FATCA. Compliance with 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. 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 certain 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 62 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 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 the deadline for filing U.S. income tax returns each year, we do not necessarily expect to be able to furnish definitive Schedule K-1s to IRS Form 1065 to each unitholder prior to such deadline, 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. In the event we cannot provide timely Schedule K-1s, 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 the deadline for filing U.S. income tax returns each year; in that event however, there is no assurance that the Schedule K-1s, which would 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, in the event we provide separate estimates and subsequent Schedule K-1s, 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 hold a small amount of their economic interest in the Oaktree Operating Group 63 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 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. 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. We may be liable for adjustments to our tax returns as a result of recently enacted legislation. Legislation was recently enacted that significantly changes the rules for U.S. federal income tax audits of partnerships. Such audits will continue to be conducted at the partnership level, but with respect to tax returns for taxable years beginning after December 31, 2017, and, unless a partnership qualifies for and affirmatively elects an alternative procedure, any adjustments to the amount of tax due (including interest and penalties) will be payable by the partnership. Under the elective alternative procedure, a partnership would issue information returns to persons who were partners in the audited year, who would then be required to take the adjustments into account in calculating their own tax liability, and the partnership would not be liable for the adjustments. If a partnership elects the alternative procedure for a given adjustment, the amount of taxes for which its partners would be liable would be increased by any applicable penalties and a special interest charge. There can be no assurance that we will be eligible to make such an election or that we will, in fact, make such an election for any given adjustment. If we do not or are not able to make such an election, then (1) our then-current common unitholders, in the aggregate, could indirectly bear income tax liabilities in excess of the aggregate amount of taxes that would have been due had we elected the alternative procedure, and (2) a given common unitholder may indirectly bear taxes attributable to income allocable to other common unitholders or former common unitholders, including taxes (as well as interest and penalties) with respect to periods prior to such holder’s ownership of common units. Amounts available for distribution to our common unitholders may be reduced as a result of our obligation to pay any taxes associated with an adjustment. Many issues and the overall effect of this new legislation on us are uncertain, and common unitholders should consult their own tax advisors regarding all aspects of this legislation as it affects their particular circumstances. 64 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. 65 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: 2015 2014 High Low High Low First Quarter ..................................................................................................... $ 57.07 $ 51.09 $ 62.30 $ 56.13 Second Quarter ................................................................................................ Third Quarter .................................................................................................... Fourth Quarter .................................................................................................. 55.19 56.54 52.15 51.00 48.69 45.67 58.46 52.00 52.25 49.13 47.36 45.30 The number of holders of record of our Class A units as of February 23, 2016 was 228. 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; the possible repurchase of OCGH units; 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 66 the year, which if received generate distributable earnings in that period. Additionally, DoubleLine’s corporate distributions to us may vary in length of period covered. For example, the quarterly distributions made in the second and fourth quarters typically have covered two and four months of activity, respectively. The distribution amount for any given period is likely to vary materially due to these and other factors. Certain transactions involving the exchange of OCGH units, including our 2007 Private Offering, 2012 initial public offering, and May 2013, March 2014 and March 2015 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 $339.7 million through 2036. As shown in the table below, we estimate that an aggregate $20.5 million of that total will reduce fiscal year 2016’s four quarterly distributions to Class A unitholders, which will be funded by adjustments taken in arriving at the cash distribution payable per Class A unit. Future estimated reductions in quarterly distributions to Class A unitholders associated with payments under the tax receivable agreement are subject to increase in the event of additional exchanges of OCGH units that result in an increase to such tax bases. These reductions are in addition to reductions for income taxes and other expenses that Oaktree or its Intermediate Holding Companies bear directly. The November 2015 exchange of OCGH units did not result in an increase in the tax basis of the tangible and intangible assets of the Oaktree Operating Group and, therefore, did not result in an increase to the tax receivable agreement liability. Please see note 9 to our consolidated financial statements included elsewhere in this annual report. Transactions Future Estimated Reductions Associated With the Tax Receivable Agreement Fiscal Year 2015 Reductions (1) Total Future Aggregate Reductions ($ in millions) Fiscal Year 2016 Reductions (1) Reductions Through Fiscal Year 2007 Private Offering ................................................................... $ Initial public offering ...................................................................... May 2013 Offering ........................................................................ March 2014 Offering ..................................................................... March 2015 Offering ..................................................................... $ 3.6 4.2 5.2 3.7 2.4 $ 35.9 70.7 98.5 74.5 60.1 3.8 4.4 5.5 3.9 2.9 2029 2033 2034 2035 2036 Total ............................................................................................. $ 19.1 $ 339.7 $ 20.5 (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. 67 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 five business days prior to the payment date. Payment Date February 26, 2016 November 12, 2015 August 13, 2015 May 14, 2015 Applicable to Quarterly Period Ended December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 Total fiscal year 2015 .................................................................................................................................................. $ February 25, 2015 November 13, 2014 August 14, 2014 May 15, 2014 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 December 31, 2013 September 30, 2013 June 30, 2013 March 31, 2013 $ Total fiscal year 2013 .................................................................................................................................................. $ Distribution per Unit $ 0.47 0.40 0.50 0.64 2.01 0.56 0.62 0.55 0.98 2.71 1.00 0.74 1.51 1.41 4.66 Unregistered Sales of Equity Securities and Purchases of Equity Securities in the Fourth Quarter of 2015 None. 68 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, 2015, 2014, 2013, 2012 and 2011. 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, 2015, 2014, 2013, 2012 and 2011 from our audited consolidated financial statements. The audited consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013 and the consolidated statements of financial condition as of December 31, 2015 and 2014 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, 2015 2014 2013 2012 2011 (in thousands, except per unit data or as otherwise indicated) Consolidated Statements of Operations Data: Total revenues .......................................................................... $ 201,905 $ 193,894 $ 194,922 $ 144,983 $ 155,770 Total expenses ......................................................................... (940,908) (947,477) (1,107,062) (790,603) (1,644,864) Total other income (loss) .......................................................... (776,410) 2,947,671 7,149,104 7,348,895 1,201,537 Income (loss) before income taxes .......................................... (1,515,413) 2,194,088 6,236,964 6,703,275 Income taxes ............................................................................ (17,549) (18,536) (26,232) (30,858) (287,557) (21,088) Net income (loss) ..................................................................... (1,532,962) 2,175,552 6,210,732 6,672,417 (308,645) Less: Net (income) loss attributable to non-controlling interests in consolidated funds ................................................... Net (income) loss attributable to non-controlling interests in consolidated subsidiaries ......................................... 1,809,683 (1,649,890) (5,163,939) (6,016,342) (233,573) (205,372) (399,379) (824,795) (548,265) 446,246 Net income (loss) attributable to OCG ...................................... $ 71,349 Distributions declared per Class A unit ..................................... $ Net income (loss) per Class A unit ........................................... $ 2.10 1.45 $ $ $ 126,283 3.15 2.97 $ $ $ 221,998 4.71 6.35 $ $ $ 107,810 2.31 3.83 $ $ $ (95,972) 2.34 (4.23) Weighted average number of Class A units outstanding .......... 49,324 42,582 34,979 28,170 22,677 69 As of or for the Year Ended December 31, 2015 2014 2013 2012 2011 (in thousands, except as otherwise indicated) Consolidated Statements of Financial Condition Data: Total assets .............................................................................. $ 51,811,098 $ 53,344,062 $ 45,263,254 $ 43,869,998 $ 44,294,156 Debt obligations ....................................................................... 9,667,822 7,156,387 2,876,645 1,106,804 702,260 Non-controlling redeemable interests in consolidated funds .... 38,173,125 41,681,155 38,834,831 39,670,831 41,048,607 Segment Statements of Operations: (1) Management fees .................................................................... $ 753,805 $ 762,823 $ 749,901 $ 747,440 $ 724,321 Incentive income ...................................................................... Investment income ................................................................... 263,806 48,253 491,402 117,662 1,030,195 258,654 461,116 202,392 303,963 23,763 Total segment revenues ................................................... 1,065,864 1,371,887 2,038,750 1,410,948 1,052,047 Compensation and benefits ...................................................... (404,442) (379,360) (365,306) (329,741) (308,115) 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 .................................................... (37,978) (141,822) (120,783) (10,018) (19,705) (231,871) (127,954) (7,249) (3,828) (436,217) (117,361) (7,119) (318) (222,594) (102,685) (7,397) — (179,234) (94,655) (6,583) (715,043) (766,139) (929,831) (662,735) (588,587) (35,032) (3,927) (30,190) (2,431) (28,621) (31,730) 409 767 (33,867) (1,209) Adjusted net income ................................................................. $ 311,862 $ 573,127 $ 1,080,707 $ 717,250 $ 428,384 Segment Statements of Financial Condition Data: (1) Cash and cash-equivalents ...................................................... $ 476,046 $ 405,290 $ 390,721 $ 458,191 $ 297,230 U.S. Treasury and government agency securities .................... 661,116 Corporate investments ............................................................. 1,434,109 Total assets .............................................................................. 3,257,728 Debt obligations ....................................................................... 850,000 Total liabilities ........................................................................... 1,575,831 Total unitholders’ capital ........................................................... 1,681,897 655,529 1,515,443 3,267,799 850,000 1,549,410 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 1,393,893 1,124,000 Operating Metrics: Assets under management (in millions): Assets under management .............................................. $ 97,359 $ 90,831 $ 83,605 $ 77,051 $ Management fee-generating assets under management . Incentive-creating assets under management .................. Uncalled capital commitments (3) ...................................... 78,897 31,923 21,650 78,079 33,861 10,333 71,950 32,379 13,169 66,784 33,989 11,201 74,857 66,964 36,155 11,201 Accrued incentives (fund level): (4) Incentives created (fund level) ......................................... (100,384) 164,370 1,168,836 911,947 (75,916) Incentives created (fund level), net of associated incentive income compensation expense ..................... (66,399) 24,228 549,545 493,005 (14,143) Accrued incentives (fund level) ........................................ 1,585,217 1,949,407 2,276,439 2,137,798 1,686,967 Accrued incentives (fund level), net of associated incentive income compensation expense ..................... 811,540 999,923 1,235,226 1,282,194 1,027,711 (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 classified for segment reporting as expenses and under GAAP as other income. In addition, adjusted net income excludes the effect of (a) non-cash equity-based compensation expense related to unit grants made before our initial public offering, (b) acquisition-related items including amortization of intangibles and changes in the contingent consideration liability, (c) differences arising from OCGH equity value units that are classified as liability awards under GAAP but as equity awards for segment reporting, (d) income taxes, (e) other income or expenses applicable to OCG or its Intermediate Holding Companies, and (f) the adjustment for non-controlling interests. Beginning with the fourth quarter of 2015, the definition of adjusted net income was modified to reflect differences with respect to (a) third-party placement costs associated 70 with closed-end funds, which under GAAP are expensed as incurred, but for adjusted net income are capitalized and amortized as general and administrative expense in proportion to the associated management fee stream, and (b) gains and losses resulting from foreign- currency transactions and hedging activities, which under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period, but for adjusted net income unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged. Foreign-currency transaction gains and losses are included in other income (expense), net. Prior periods have not been recast for the change related to third-party placement costs, but have been recast to retroactively reflect the change related to foreign-currency hedging for fiscal years 2015 and 2014. The impact on 2013, 2012 and 2011 from the foreign currency changes was deemed to be immaterial and thus adjusted net income has not been recast for these changes. 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 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 $5.1 million, $3.6 million, $3.2 million, $2.6 million and $2.3 million for the years ended December 31, 2015, 2014, 2013, 2012, and 2011, 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 are no longer included in accrued incentives (fund level), the term we use for remaining fund-level accruals. Incentives created (fund level), incentive income and accrued incentives (fund level) are presented gross, without deduction for direct compensation expense that is owed to our investment professionals associated with the particular fund when we earn the incentive income. We call that charge “incentive income compensation expense.” Incentive income compensation expense varies by the investment strategy and vintage of the particular fund, among many factors. 71 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 $97 billion in AUM as of December 31, 2015. Our mission is to deliver superior investment results with risk under control and to conduct our business with the highest integrity. 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 2,100, including 75 of the 100 largest U.S. pension plans, 39 states in the United States, 434 corporations and/or their pension funds, approximately 370 university, charitable and other endowments and foundations, 16 sovereign wealth funds and over 300 other non-U.S. institutional investors. As measured by AUM, 40% of our clients are invested in two or three different investment strategies, and 36% are invested in four or more. Headquartered in Los Angeles, we serve these clients with over 900 employees and offices in 17 cities worldwide. 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, strong financial markets generally increase the value of our investments and therefore the management fees that are based on asset value, and create favorable exit opportunities that enhance the prospect for incentive income and fund-related investment income proceeds. In 2015, the U.S. economy continued its slow and uneven recovery from the global financial crisis, while slowing growth in China and elsewhere contributed to a prolonged and sharp decline in energy-related and other commodity prices, as well as concern about the impact of China’s slowing on the rest of the world’s economies. As the year progressed, anxiety rose about the sustainability of the U.S. recovery, even as the U.S. Federal Reserve raised short-term interest rates for the first time in nine years. Equity markets and the prices of riskier credit instruments generally slid in the second half of the year. For 2015, the S&P 500 Index had a total return of 1.4%, while the Russell 2000 Index lost 4.4%. Non-U.S. equities, as measured by the MSCI ACWI ex-USA Index, fell 5.3%. Emerging market stocks lost 14.6%, as measured by the MSCI Emerging Markets Index. The 10-year U.S. 72 Treasury yield closed at 2.3%, up slightly from 2.2% at the beginning of the year. In part reflecting its mid-teens- percentage energy weighting, the Citigroup U.S. High Yield Cash-Pay Capped Index ended the year down 5.4%, its third worst year of the past 30. Against this backdrop, in 2015 our closed-end fund strategies experienced widely divergent investment performance, for a blended gross return of -0.1%, and we raised a significant amount of committed capital for them. Aggregate gross capital raised in 2015 for closed-end funds was $17.9 billion, driving the company-wide total to $23.1 billion, a record amount for any calendar year, and uncalled capital commitments to a record $21.7 billion as of December 31, 2015. The $23.1 billion included $10.5 billion for Oaktree Opportunities Funds X and Xb (“Opps X and Xb”), $2.1 billion for Oaktree Real Estate Opportunities Fund VII (“ROF VII”), $1.1 billion for Oaktree Power Opportunities Fund IV (“Power Fund IV”) and $1.7 billion for Enhanced Income funds and CLOs, including leverage. As of December 31, 2015, AUM was $97.4 billion and management fee-generating AUM was $78.9 billion. Investment strategies or products developed since the beginning of 2011 accounted for approximately $16.4 billion of AUM as of December 31, 2015. Closed-end funds we are currently marketing include ROF VII, Opps X and Xb, Oaktree Infrastructure Fund, Oaktree European Capital Solutions Fund and Oaktree European Principal Fund IV (“EPF IV”). Business Combinations In August 2014, we completed the acquisition of Highstar, an investment management firm founded in 2000, which specializes in U.S. energy infrastructure, waste management and transportation. Effective August 2014, we consolidated the financial position and results of operations of the controlled Highstar entities, including Highstar Capital IV, and accounted for this transaction as a business combination. Please see note 3 to our consolidated financial statements included elsewhere in this annual report. Understanding Our Results—Consolidation of Oaktree Funds GAAP currently requires that we consolidate substantially all of our closed-end funds, 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). In February 2015, the Financial Accounting Standards Board amended its consolidation guidance to end the deferral granted to investment companies with respect to applying the variable interest entity (“VIE”) guidance. We will adopt the guidance in the first quarter of 2016 on a modified retrospective basis. Under the modified retrospective approach, prior years would not be restated; instead, a cumulative-effect adjustment to equity as of the beginning of the adoption year would be recorded. We are currently evaluating the effect that adoption will have on our consolidated financial statements. The adoption is expected to significantly reduce the number of funds consolidated by us, and therefore reduce our consolidated total assets, total liabilities and non-controlling redeemable interests in consolidated funds. However, we do not expect there to be an impact on net income attributable to us. Please see “—Recent Accounting Developments” under note 2 to our consolidated financial statements included elsewhere in this annual report for more information regarding the recently issued consolidation guidance. Consolidated funds refer to those funds in which we hold a general partner interest that gives us substantive control rights over such funds or CLOs for which Oaktree is considered the primary beneficiary of a 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 31% of our AUM as of December 31, 2015, and 26% and 23% of our segment management fees and segment revenues, respectively, for the year ended December 31, 2015. We do not consolidate OCM/GFI Power Opportunities Fund II and OCM/GFI Power Opportunities Fund II (Cayman) (collectively, “Power Fund II”) because we do not control these funds 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 these funds. 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 73 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 revenues earned by us from the consolidated funds 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 investment management 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” in this annual report for a detailed discussion of the structure of our funds. Expenses Compensation and Benefits Compensation and benefits reflect all compensation-related items not directly related to incentive income, investment income or the vesting of OCGH and Class A units, and includes salaries, bonuses, compensation based on management fees or a definition of profits, employee benefits, and phantom equity awards. Phantom equity awards 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 and changes in the Class A unit trading price. Equity-based Compensation Equity-based compensation expense reflects the non-cash charge associated with grants of Class A units, OCGH units and OCGH equity value units (“EVUs”). Our GAAP-basis statements of operations include equity- based compensation expense for units granted both before and after our initial public offering. Our segment measure of adjusted net income differs from GAAP because it (a) excludes equity-based compensation expense for units granted before our initial public offering, and (b) reflects EVU awards that are liability classified in our GAAP- basis statements of operations as equity-classified awards (please see “—Segment and Operating Metrics— Adjusted Net Income” below). As of December 31, 2015, there was $146.4 million of unrecognized compensation expense for GAAP purposes, which is expected to be recognized as expense in our GAAP consolidated financial statements over a weighted average vesting period of 4.2 years. As of December 31, 2015, there was $109.7 million of unrecognized compensation expense for segment reporting purposes, with the difference primarily representing unit grants made before our initial public offering. The $109.7 million is expected to be recognized as expense in adjusted net income over a weighted average vesting period of approximately 4.1 years, as detailed in the table below. These 74 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 expense to be included in adjusted net income: Equity-based Compensation Expense included in ANI 2016 2017 2018 2019 2020 Thereafter Total (in millions) Estimated expense from equity grants awarded through December 2015 ..................... $ 34.8 $ 30.1 $ 18.2 $ 9.5 $ 4.6 $ 12.5 $ 109.7 Incentive Income Compensation Incentive income compensation expense includes (a) 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 (b) compensation directly related to investment income. There is no fixed percentage for the incentive income-related portion of 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, changes in the contingent consideration liability, and other general items related directly to the Company’s operations. These expenses are net of amounts borne by fund investors and are not offset by credits attributable to fund investors’ non-controlling interests in consolidated funds. Depreciation and Amortization Depreciation and amortization expense includes costs associated with the purchase of furniture and equipment, capitalized software, leasehold improvements, an airplane 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. A company-owned airplane is depreciated using the straight-line method over its estimated useful life. Acquired intangibles primarily relate to contractual rights and are amortized over their estimated useful lives, which range from three to seven years. 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, insurance, 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 and have no impact on net income or loss attributable to the Company. 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. 75 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. Other Income (Expense), Net Other income (expense), net represents non-operating income or expense. In the third quarter of 2014, this line item began to include income related to amounts received for contractually reimbursable costs associated with certain arrangements made in connection with the Highstar acquisition. In past years, it has also included the operating results of certain properties that were received as part of a 2010 arbitration award. 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 U.S. 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 dependent on many factors, including the mix of revenues and expenses between our two corporate Intermediate Holding Companies that are subject to income tax and our three other Intermediate Holding Companies that are not; consequently, the effective tax rate is subject to significant variation from period to period. 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. 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. 76 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, changes in the contingent consideration liability, placement costs associated with closed-end funds and unrealized gains and losses from foreign- currency hedging activities; 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 related parties and 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 and Class A units, changes in the economic interest held by the OCGH unitholders are driven by our additional issuances of OCGH and Class A units, as well as repurchases and forfeitures of and exchanges between OCGH 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. 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. In the fourth quarter of 2015, we made certain changes to the calculation methodology of adjusted net income. These changes were made to keep our segment reporting consistent with the data that our chief operating decision maker uses to manage the business. One change involves third-party placement costs associated with the marketing of closed-end funds, which now are capitalized and amortized as general and administrative expense in proportion to the associated management fee stream. Previously, these placement costs were expensed as incurred, which mirrors their treatment under GAAP and remains the case for any such costs associated with open- end and evergreen funds. Prior-period placement costs associated with closed-end funds were deemed to be immaterial and thus ANI has not been recast for this change. The other changes involve two areas related to foreign currency: gains and losses stemming from our hedging activities, and income or expense from foreign- currency transactions. Previously, all of these income statement effects, whether realized or unrealized, were included in the particular period’s general and administrative expense. This treatment remains the case for GAAP presentation. However, for ANI, realized gains and losses from our foreign-currency hedging activities now are included in the same revenue or expense line item as the underlying exposure that was hedged. Unrealized gains and losses from such hedging activities are deferred until realized. Foreign-currency transaction gains and losses 77 are included in other income (expense), net. Fiscal years 2015 and 2014 have been recast to retroactively reflect these changes related to foreign currency. The impact on 2013 from the foreign currency changes was deemed to be immaterial and thus ANI has not been recast for these changes. 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 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 we manage. Segment revenues include investment income (loss) that is classified in other income (loss) in the GAAP-basis statements of operations. Segment revenues and expenses also reflect Oaktree’s proportionate economic interest in Highstar, whereby amounts received for contractually reimbursable costs are classified for segment reporting as expenses and under GAAP as other income. In addition, ANI excludes the effect of (a) non-cash equity-based compensation expense related to unit grants made before our initial public offering, (b) acquisition-related items including amortization of intangibles and changes in the contingent consideration liability, (c) differences arising from EVUs that are classified as liability awards under GAAP but as equity awards for segment reporting, (d) income taxes, (e) other income or expenses applicable to OCG or its Intermediate Holding Companies, and (f) the adjustment for non-controlling interests. Beginning with the fourth quarter of 2015, the definition of ANI was modified to reflect differences with respect to (a) third-party placement costs associated with closed-end funds, which under GAAP are expensed as incurred, but for ANI are capitalized and amortized as general and administrative expense in proportion to the associated management fee stream, and (b) gains and losses resulting from foreign-currency transactions and hedging activities, which under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period, but for ANI unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged. Foreign- currency transaction gains and losses are included in other income (expense), net. Prior periods have not been recast for the change related to third-party placement costs, but have been recast to retroactively reflect the change related to foreign-currency hedging for fiscal years 2015 and 2014. The impact on 2013 from the foreign currency changes was deemed to be immaterial and thus ANI has not been recast for these changes. 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 expense 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 Operating Group income taxes attributable to OCG. Two of our Intermediate Holding Companies incur federal and state income taxes for their shares of Operating Group income. Generally, those two corporate entities hold an interest in the Operating Group’s management fee-generating assets and a small portion of its incentive and investment income-generating assets. As a result, historically our fee-related earnings and investment income arising from our one-fifth ownership stake in DoubleLine Capital LP and its affiliates (collectively, “DoubleLine”) 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 income tax rate has generally tended to be higher to the extent that fee-related earnings and DoubleLine-related investment income represented a larger proportion of our ANI. Myriad other factors affect income tax expense and the effective income tax rate, and there can be no assurance that this historical relationship will continue going forward. 78 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. 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 excludes non-cash equity-based compensation expense related to unit grants made after our initial public offering. Segment 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 third-party managed funds and companies, is largely non-cash in nature. By excluding segment investment income or loss, which is 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-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 non-cash equity-based compensation expense 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 (such as earnings from our minority equity interest in DoubleLine). 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). Among other factors, the exclusion of non-cash equity-based compensation expense 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. 79 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 beginning AUM on which we will earn management fees in the following quarter. Our closed-end funds typically pay management fees based on committed capital 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) and Incentives Created (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), incentive income and accrued incentives (fund level) are presented gross, without deduction for direct compensation expense that is owed to our investment professionals associated with the particular fund when we earn the incentive income. We call that charge “incentive income compensation expense.” Incentive income compensation expense varies by the investment strategy and vintage of the particular fund, among many 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.” 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 80 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 through 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. 81 Consolidated Results of Operations The following table sets forth our audited consolidated statements of operations: Consolidated Statements of Operations: Revenues: Year Ended December 31, 2015 2014 2013 (in thousands) Management fees ..................................................................................... $ Incentive income ...................................................................................... Total revenues ................................................................................... 195,308 $ 192,055 $ 192,605 6,597 201,905 1,839 193,894 2,317 194,922 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 .................................................................................. (416,907) (54,381) (160,831) (632,119) (110,677) (14,022) (184,090) (940,908) (388,512) (41,395) (221,194) (651,101) (99,835) (8,003) (188,538) (947,477) (365,696) (28,441) (482,551) (876,688) (114,404) (7,119) (108,851) (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 (loss) ................................................................... Income (loss) before income taxes .................................................................. Income taxes ............................................................................................ (216,799) (129,942) (61,160) 1,958,802 1,177,150 1,902,576 2,131,584 1,806,361 3,503,998 (3,767,527) (993,260) 1,843,469 51,958 20,006 (776,410) (1,515,413) 33,695 3,018 2,947,671 2,194,088 56,027 409 7,149,104 6,236,964 (17,549) (18,536) (26,232) Net income (loss) ............................................................................................ (1,532,962) 2,175,552 6,210,732 Less: Net (income) loss attributable to non-controlling interests in consolidated funds ..................................................................................................... Net income attributable to non-controlling interests in consolidated 1,809,683 (1,649,890) (5,163,939) subsidiaries ........................................................................................... (205,372) (399,379) (824,795) Net income attributable to Oaktree Capital Group, LLC ................................... $ 71,349 $ 126,283 $ 221,998 82 Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 Revenues Management Fees Management fees increased $3.2 million, or 1.7%, to $195.3 million for the year ended December 31, 2015, from $192.1 million for the year ended December 31, 2014. The increase primarily reflected higher fees earned across non-consolidated funds and accounts, partially offset by lower 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 increased $4.8 million, or 266.7%, to $6.6 million for the year ended December 31, 2015, from $1.8 million for the year ended December 31, 2014, primarily reflecting higher incentive income from the unconsolidated Power Fund II and separate accounts. Expenses Compensation and Benefits Compensation and benefits increased $28.4 million, or 7.3%, to $416.9 million for the year ended December 31, 2015, from $388.5 million for the year ended December 31, 2014, in part reflecting growth in average headcount, including the Highstar acquisition. Equity-based Compensation Equity-based compensation expense increased $13.0 million, or 31.4%, to $54.4 million for the year ended December 31, 2015, from $41.4 million for the year ended December 31, 2014, primarily reflecting non-cash amortization expense associated with vesting of restricted unit grants made to employees and directors subsequent to our 2012 initial public offering. Incentive Income Compensation Incentive income compensation expense decreased $60.4 million, or 27.3%, to $160.8 million for the year ended December 31, 2015, from $221.2 million for the year ended December 31, 2014. The percentage decrease was smaller than the corresponding decline of 46.3% in segment incentive income, primarily due to timing differences associated with the recognition of segment incentive income and incentive income compensation expense, as well as catch-up tax distributions related to incentive interests awarded to certain investment professionals in 2014. General and Administrative General and administrative expense increased $10.9 million, or 10.9%, to $110.7 million for the year ended December 31, 2015, from $99.8 million for the year ended December 31, 2014. Excluding the impact of foreign currency-related items, which stemmed primarily from foreign-currency hedges used to economically hedge our non-U.S. dollar denominated revenues and expenses, general and administrative expense decreased $0.8 million, or 0.6%, to $132.8 million from $133.6 million. Depreciation and Amortization Depreciation and amortization expense increased $6.0 million, or 75.0%, to $14.0 million for the year ended December 31, 2015, from $8.0 million. The increase in part reflected amortization of leasehold improvements associated with office space expansion, as well as amortization expense related to acquired intangibles from the Highstar acquisition. Consolidated Fund Expenses Consolidated fund expenses decreased $4.4 million, or 2.3%, to $184.1 million for the year ended December 31, 2015, from $188.5 million for the year ended December 31, 2014. The decrease reflected lower professional fees and other costs of our consolidated funds. 83 Other Income (Loss) Interest Expense Interest expense increased $86.9 million, or 66.9%, to $216.8 million for the year ended December 31, 2015, from $129.9 million for the year ended December 31, 2014, primarily attributable to our consolidated funds. Interest and Dividend Income Interest and dividend income increased $56.2 million, or 3.0%, to $1,958.8 million for the year ended December 31, 2015, from $1,902.6 million for the year ended December 31, 2014, primarily attributable to higher income from Distressed Debt, Real Estate and Senior Loan funds, partially offset by lower income from Control Investing funds. Net Realized Gain on Consolidated Funds’ Investments Net realized gain on consolidated funds’ investments decreased $954.4 million, or 44.8%, to $1,177.2 million for the year ended December 31, 2015, from $2,131.6 million for the year ended December 31, 2014, reflecting in part a larger amount of portfolio realizations in 2014 and that year’s generally stronger financial markets. Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ Investments The net change in unrealized appreciation (depreciation) on consolidated funds’ investments were losses of $3,767.5 million for the year ended December 31, 2015 and $993.3 million for the year ended December 31, 2014. Excluding the $954.4 million decrease in net realized gain on consolidated funds’ investments, the net change in unrealized appreciation (depreciation) on consolidated funds’ investments was a loss of $2,590.4 million for the current year, as compared to a gain of $1,138.3 million for the prior year, reflecting the generally stronger financial markets in 2014. The current-year net loss reflected losses from Distressed Debt, Senior Loan, High Yield Bond and Emerging Markets Equities funds, partially offset by gains from Control Investing and Real Estate funds. The prior-year net gain reflected gains from Real Estate and Control Investing funds, partially offset by losses from Distressed Debt funds. Investment Income Investment income increased $18.3 million, or 54.3%, to $52.0 million for the year ended December 31, 2015, from $33.7 million for the year ended December 31, 2014, reflecting higher income of $17.3 million from our investments in companies. DoubleLine accounted for investment income of $55.0 million and $46.9 million in 2015 and 2014, respectively, of which performance fees accounted for $4.3 million and $10.1 million, respectively. The prior year included a market-value loss on our minority equity investment in China Cinda Asset Management Co., Ltd. (“Cinda”). Other Income, Net Other income, net increased $17.0 million, or 566.7%, to $20.0 million for the year ended December 31, 2015, from $3.0 million for the year ended December 31, 2014. The current-year income of $20.0 million reflected $23.6 million of income received for contractually reimbursable costs associated with the Highstar acquisition, partially offset by losses associated with certain non-operating corporate activities. The prior-year income of $3.0 million reflected $8.3 million of income received for contractually reimbursable costs associated with the Highstar acquisition and $1.5 million of income attributable to proceeds received as part of a 2010 arbitration award, 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. Income Taxes Income taxes decreased $1.0 million, or 5.4%, to $17.5 million for the year ended December 31, 2015, from $18.5 million for the year ended December 31, 2014. The decrease was primarily attributable to the decline in pre- tax income attributable to Class A unitholders, partially offset by an increase in the effective tax rate. The effective tax rates applicable to Class A unitholders for 2015 and 2014, respectively, were 17% and 13%. We would expect variability in tax rates between quarters and full years, because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period’s income tax expense and may vary significantly within or between years. Please see “—Understanding Our Results—Consolidation of Oaktree Funds.” 84 Net (Income) Loss Attributable to Non-controlling Interests in Consolidated Funds Net (income) loss attributable to non-controlling interests in consolidated funds decreased to a loss of $1,809.7 million for the year ended December 31, 2015, from income of $1,649.9 million for the year ended December 31, 2014, reflecting lower net gains on investments. These effects are described in more detail under “—Other Income (Loss)” above. Net Income Attributable to Oaktree Capital Group, LLC Net income attributable to Oaktree Capital Group, LLC decreased $55.0 million, or 43.5%, to $71.3 million for the year ended December 31, 2015, from $126.3 million for the year ended December 31, 2014. 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. 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 lower advisory, director, transaction and certain other ancillary fees for the benefit of our consolidated funds, offset by higher fees earned across our non-consolidated funds and accounts. 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 average headcount, including the Highstar acquisition. Fiscal years 2014 and 2013 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 2012 initial public offering. 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 OCM Opportunities Fund VIIb (“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, which stemmed primarily from foreign-currency hedges used to economically hedge our 85 non-U.S. dollar denominated revenues and expenses, 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. 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 of our consolidated 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. 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. The net realized gain in 2014 reflected gains from Distressed Debt, Control Investing and Real Estate funds. The net gain in 2013 reflected gains from Distressed Debt, Control Investing and 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 net gain in 2014 reflected gains from Real Estate and Control Investing funds, partially offset by losses from Distressed Debt funds. The net gain in 2013 reflected gains from Distressed Debt, Control Investing and 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 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 of income received for contractually reimbursable costs associated with the Highstar acquisition and $1.5 million of income attributable to proceeds received as part of a 2010 arbitration award, 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 income of $0.4 million in 2013 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 86 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%. 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. 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. 87 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, 2015 2014 2013 (in thousands, except per unit data or as otherwise indicated) Management fees ...................................................................................... $ Incentive income ........................................................................................ Investment income .................................................................................... Total revenues .................................................................................... 753,805 $ 762,823 $ 749,901 263,806 48,253 491,402 117,662 1,030,195 258,654 1,065,864 1,371,887 2,038,750 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 ..................................................................... (404,442) (37,978) (141,822) (120,783) (10,018) (715,043) 350,821 (35,032) (3,927) Adjusted net income ......................................................................................... $ 311,862 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 ................................... 79,941 1.62 447,576 119,406 2.42 218,562 66,328 1.34 153,751 49,324 (379,360) (19,705) (231,871) (127,954) (7,249) (766,139) 605,748 (30,190) (2,431) (365,306) (3,828) (436,217) (117,361) (7,119) (929,831) 1,108,919 (28,621) 409 $ $ 573,127 $ 1,080,707 137,159 $ 223,113 3.22 606,136 145,370 3.41 248,260 59,915 1.41 152,660 42,582 6.38 984,266 203,595 5.82 260,115 50,122 1.43 150,971 34,979 Operating Metrics: Assets under management (in millions): Assets under management ........................................................................ $ Management fee-generating assets under management ........................... Incentive-creating assets under management ........................................... Uncalled capital commitments ................................................................... 97,359 $ 90,831 $ 78,897 31,923 21,650 78,079 33,861 10,333 83,605 71,950 32,379 13,169 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 .......................................................................... (100,384) 164,370 1,168,836 (66,399) 24,228 549,545 1,585,217 1,949,407 2,276,439 811,540 999,923 1,235,226 (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 88 contractually reimbursable costs are classified for segment reporting as expenses and under GAAP as other income. In addition, adjusted net income excludes the effect of (a) non-cash equity-based compensation expense related to unit grants made before our initial public offering, (b) acquisition-related items including amortization of intangibles and changes in the contingent consideration liability, (c) differences arising from EVUs that are classified as liability awards under GAAP but as equity awards for segment reporting, (d) income taxes, (e) other income or expenses applicable to OCG or its Intermediate Holding Companies, and (f) the adjustment for non-controlling interests. Beginning with the fourth quarter of 2015, the definition of adjusted net income was modified to reflect differences with respect to (a) third-party placement costs associated with closed-end funds, which under GAAP are expensed as incurred, but for adjusted net income are capitalized and amortized as general and administrative expense in proportion to the associated management fee stream, and (b) gains and losses resulting from foreign-currency transactions and hedging activities, which under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period, but for adjusted net income unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged. Foreign-currency transaction gains and losses are included in other income (expense), net. Prior periods have not been recast for the change related to third-party placement costs, but have been recast to retroactively reflect the change related to foreign-currency hedging for fiscal years 2015 and 2014. The impact on 2013 from the foreign currency changes was deemed to be immaterial and thus adjusted net income has not been recast for these changes. 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 $5.1 million, $3.6 million, and $3.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. (2) 89 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: As of December 31, 2015 2014 2013 (in millions) Closed-end funds ......................................................................................................... $ Open-end funds ............................................................................................................ Evergreen funds ........................................................................................................... 59,430 $ 48,203 $ 46,685 33,202 4,727 37,452 5,176 32,868 4,052 Total ............................................................................................................................. $ 97,359 $ 90,831 $ 83,605 Change in Assets Under Management: Beginning balance ........................................................................................................ $ Closed-end funds: Capital commitments/other (1) ................................................................................ Acquisition (Highstar) ............................................................................................ Distributions for a realization event/other (2) ........................................................... Change in uncalled capital commitments for funds entering or in liquidation (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 (4) ..................................................................................... Evergreen funds: Contributions or new capital commitments ............................................................ Redemptions or distributions ................................................................................. Distributions from restructured funds ..................................................................... Foreign-currency translation .................................................................................. Change in market value (4) ..................................................................................... Year Ended December 31, 2015 2014 2013 (in millions) 90,831 $ 83,605 $ 77,051 17,868 — 4,172 2,349 5,496 — (5,225) (6,956) (12,029) (767) (706) (522) 579 4,919 (7,260) (422) (1,487) 349 (359) (47) — (392) (315) (868) 2,279 857 9,123 (4,415) (522) 398 — 269 5,837 1,412 5,276 (4,292) 108 2,684 1,447 1,739 (218) (55) 6 (56) (272) (49) 4 371 Ending balance ............................................................................................................ $ 97,359 $ 90,831 $ 83,605 (1) These amounts represent capital commitments, as well as the aggregate par value of collateral assets and principal cash related to new CLO formations. (2) These amounts represent distributions for a realization event, tax-related distributions, reductions in the par value of collateral assets and principal cash resulting from the repayment of debt as return of principal by CLOs, and recallable distributions at the end of the investment period. (3) The change in uncalled capital commitments reflects declines attributable to funds entering their liquidation periods, as well as capital contributions to funds in their liquidation periods for deferred purchase obligations or other reasons. (4) The change in market value reflects the change in NAV of our funds, less management fees and other fund expenses, as well as changes in the aggregate par value of collateral assets and principal cash held by CLOs. 90 Management Fee-generating Assets Under Management Management Fee-generating Assets Under Management: Closed-end funds: As of December 31, 2015 2014 2013 (in millions) Senior Loans ......................................................................................................... $ Other closed-end funds ......................................................................................... Open-end funds ............................................................................................................ Evergreen funds ........................................................................................................... 6,580 $ 5,255 $ 2,425 35,709 33,135 3,473 32,017 37,383 3,424 33,997 32,830 2,698 Total ............................................................................................................................. $ 78,897 $ 78,079 $ 71,950 Change in Management Fee-generating Assets Under Management: Beginning balance ........................................................................................................ $ Closed-end funds: 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, NAV or cost basis.. Change attributable to funds in liquidation (2) ......................................................... Change in uncalled capital commitments for funds entering or in liquidation that pay fees based on committed capital (3) ............................................................. Distributions by funds that pay fees based on NAV/other (4) ................................... Foreign-currency translation .................................................................................. Change in market value (5) ..................................................................................... 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 ........................................................................................ Year Ended December 31, 2015 2014 2013 (in millions) 78,079 $ 71,950 $ 66,784 7,354 — 1,175 (2,812) (409) (381) (443) (294) 827 4,903 (7,243) (421) (1,487) 760 (322) (389) 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 Ending balance ............................................................................................................ $ 78,897 $ 78,079 $ 71,950 (1) These amounts represent capital commitments to funds that pay fees based on committed capital, as well as the aggregate par value of collateral assets and principal cash related to new CLO formations. (2) These amounts represent the change for funds that pay fees based on the lesser of funded capital or cost basis during the liquidation period, as well as recallable distributions at the end of the investment period. For most closed-end funds, management fees are charged during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund, with the cost basis of assets generally calculated by excluding cash balances. Thus, changes in fee basis during the liquidation period are not dependent on distributions made from the fund; rather, they are tied to the cost basis of the fund’s investments, which generally declines as the fund sells assets. (3) The change in uncalled capital commitments reflects declines attributable to funds entering their liquidation periods, as well as capital contributions to funds in their liquidation periods for deferred purchase obligations or other reasons. (4) These amounts represent distributions by funds that pay fees based on NAV, as well as reductions in the par value of collateral assets and principal cash resulting from the repayment of debt as return of principal by CLOs. (5) The change in market value reflects certain funds that pay management fees based on NAV and leverage, as applicable, as well as changes in the aggregate par value of collateral assets and principal cash held by CLOs. 91 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, 2015 2014 2013 (in millions) 97,359 $ 90,831 $ 83,605 Reconciliation of Assets Under Management to Management Fee-generating Assets Under Management: Assets under management ........................................................................................... $ Difference between assets under management and committed capital or cost basis for applicable closed-end funds (1) ............................................................ (2,958) (5,521) (6,311) Undrawn capital commitments to funds that have not yet commenced their investment periods ............................................................................................. (8,215) (320) (693) Undrawn capital commitments to funds for which management fees are based on drawn capital, NAV or cost basis ................................................................... Oaktree’s general partner investments in management fee-generating funds ....... 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 ............................... (4,754) (1,357) (1,016) (162) (4,528) (1,231) (924) (228) (2,625) (1,371) (461) (194) Management fee-generating assets under management .............................................. $ 78,897 $ 78,079 $ 71,950 (1) This difference is not applicable to closed-end funds that pay management fees based on NAV or leverage. The period-end weighted average annual management fee rates applicable to the respective management fee-generating AUM balances above are set forth below. As of December 31, 2015 2014 2013 Weighted Average Annual Management Fee Rates: Closed-end funds: Senior Loans ......................................................................................................... Other closed-end funds ......................................................................................... Open-end funds ............................................................................................................ Evergreen funds ........................................................................................................... Overall .......................................................................................................................... 0.50% 0.50% 0.50% 1.52 0.48 1.43 0.99 1.54 0.47 1.53 0.96 1.55 0.47 1.63 1.02 92 Incentive-creating Assets Under Management Incentive-creating AUM is set forth below. As of December 31, 2015, 2014 and 2013, the portion of incentive-creating AUM generating incentives at the fund level was $17.5 billion, $24.3 billion and $29.6 billion, respectively. Incentive-creating AUM does not include undrawn capital commitments. As of December 31, 2015 2014 2013 (in millions) Incentive-creating Assets Under Management: Closed-end funds ......................................................................................................... $ Evergreen funds ........................................................................................................... 30,100 $ 31,743 $ 30,362 1,823 2,118 2,017 Total ............................................................................................................................. $ 31,923 $ 33,861 $ 32,379 Year Ended December 31, 2015 AUM increased $6.6 billion, or 7.3%, to $97.4 billion as of December 31, 2015, from $90.8 billion as of December 31, 2014. The increase reflected $18.4 billion of aggregate capital inflows and fee-generating leverage for closed-end funds, partially offset by $5.2 billion of distributions to closed-end fund investors, $2.4 billion in aggregate market-value declines, $2.3 billion of net outflows from open-end funds, $1.1 billion of negative foreign- currency translation and a $0.8 billion decline in uncalled capital commitments for closed-end funds entering or in liquidation. Capital inflows and fee-generating leverage for closed-end funds included $10.5 billion for Opps X and Xb, $2.1 billion for ROF VII, $1.1 billion for Power Fund IV, $0.9 billion for Enhanced Income funds and $0.8 billion for CLOs. Distributions to closed-end fund investors included $1.9 billion from Distressed Debt funds, $1.3 billion from Real Estate funds and $0.8 billion from Principal Investing funds. Management fee-generating AUM, a forward-looking metric, increased $0.8 billion, or 1.0%, to $78.9 billion as of December 31, 2015, from $78.1 billion as of December 31, 2014. The increase reflected an aggregate $6.6 billion increase from the commencement of the investment periods of Power Fund IV and Oaktree Principal Fund VI (“PF VI”) in November 2015, and of Opps X and ROF VII as of January 1, 2016, and $2.8 billion of aggregate fee- generating leverage and drawdowns or contributions by closed-end and evergreen funds for which management fees are based on drawn capital or NAV. These increases were partially offset by $2.8 billion attributable to closed- end funds in liquidation, $2.3 billion of net outflows from open-end funds, $2.2 billion in aggregate market-value declines and $0.9 billion of negative foreign-currency translation. Incentive-creating AUM decreased $2.0 billion, or 5.9%, to $31.9 billion as of December 31, 2015, from $33.9 billion as of December 31, 2014. The decrease reflected the net effect of $4.0 billion in drawdowns by closed-end funds, $4.8 billion in distributions from closed-end funds, $0.7 billion in aggregate market-value declines and $0.4 billion of negative foreign-currency translation. 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. 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, $1.0 billion for Real Estate Debt and $0.7 billion for Strategic Credit. 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. 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. 93 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, $1.0 billion from the Highstar acquisition, $6.8 billion in distributions by closed-end funds, $2.3 billion in market-value gains 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 Oaktree Real Estate Opportunities Fund VI (“ROF VI”), $1.7 billion for Enhanced Income Fund, $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. 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 $4.7 billion in drawdowns by closed-end funds, $12.1 billion in distributions by closed-end funds and $5.9 billion in market-value gains. 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, 2015 2014 2013 (in thousands) Accrued Incentives (Fund Level): Beginning balance .......................................................................................... $ 1,949,407 $ 2,276,439 $ 2,137,798 Incentives created (fund level): Closed-end funds .................................................................................... Evergreen funds ...................................................................................... Total incentives created (fund level) ................................................. Less: segment incentive income recognized by us ......................................... (100,633) 249 (100,384) (263,806) 163,194 1,176 164,370 1,114,088 54,748 1,168,836 (491,402) (1,030,195) Ending balance .............................................................................................. $ 1,585,217 Accrued incentives (fund level), net of associated incentive income compensation expense ............................................................................... $ 811,540 $ $ 1,949,407 999,923 $ $ 2,276,439 1,235,226 As of December 31, 2015, 2014 and 2013, the portion of net accrued incentives (fund level) represented by funds that were currently paying incentives was $292.1 million, $420.7 million and $494.0 million, respectively, with the remainder arising from funds that as of that date were not at the stage of their cash distribution waterfall where Oaktree was entitled to receive incentives, other than possibly tax-related distributions. As of December 31, 2015, $589.1 million, or 73%, of the net accrued incentives (fund level) was in funds in their liquidation period, and approximately 35% 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. 94 Years Ended December 31, 2015, 2014 and 2013 Incentives created (fund level) was negative $100.4 million for the year ended December 31, 2015, reflecting negative incentives created (fund level) of $339.4 million from Distressed Debt funds, partially offset by $115.2 million of incentives created (fund level) from Real Estate funds and $92.2 million from Control Investing funds. Incentives created (fund level) was $164.4 million for the year ended December 31, 2014, reflecting $201.9 million from Real Estate funds, $146.2 million from Control Investing funds, and negative $190.8 million from Distressed Debt funds. Incentives created (fund level) amounted to $1.2 billion for the year ended December 31, 2013, reflecting $733.0 million from Distressed Debt funds and $318.6 million from Control Investing funds. Uncalled Capital Commitments As of December 31, 2015 and 2014, uncalled capital commitments were $21.7 billion and $10.3 billion, respectively. Capital drawn by closed-end funds during the years ended December 31, 2015 and 2014 aggregated $5.9 billion and $8.8 billion, respectively. 95 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 (1) ANI and adjusted net income-OCG, as well as per unit data, are set forth below: Year Ended December 31, 2015 2014 2013 (in thousands, except per unit data) Revenues: Management fees ........................................................................................ $ Incentive income ......................................................................................... Investment income ...................................................................................... Total revenues ...................................................................................... 753,805 263,806 48,253 $ 762,823 $ 749,901 491,402 117,662 1,030,195 258,654 1,065,864 1,371,887 2,038,750 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 ...................................................... Other income (expense), net ....................................................................... Adjusted net income ........................................................................................... Adjusted net income attributable to OCGH non-controlling interest ............. Non-Operating Group expenses .................................................................. Adjusted net income-OCG before income taxes ................................................. Income taxes-OCG ...................................................................................... (404,442) (37,978) (141,822) (120,783) (10,018) (715,043) 350,821 (35,032) (3,927) 311,862 (214,629) (2,097) 95,136 (15,195) Adjusted net income-OCG .................................................................................. $ 79,941 Adjusted net income per Class A unit .................................................................. $ 1.62 $ $ Weighted average number of Class A units outstanding ..................................... 49,324 (379,360) (19,705) (231,871) (127,954) (7,249) (766,139) 605,748 (30,190) (2,431) 573,127 (415,859) (1,645) 155,623 (18,464) 137,159 3.22 42,582 (365,306) (3,828) (436,217) (117,361) (7,119) (929,831) 1,108,919 (28,621) 409 1,080,707 (834,966) (1,195) 244,546 (21,433) 223,113 6.38 34,979 $ $ (1) Beginning with the fourth quarter of 2015, the definition of adjusted net income was modified to reflect differences with respect to (a) third-party placement costs associated with closed-end funds, which under GAAP are expensed as incurred, but for adjusted net income are capitalized and amortized as general and administrative expense in proportion to the associated management fee stream, and (b) gains and losses resulting from foreign-currency transactions and hedging activities, which under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period, but for ANI unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged. Foreign-currency transaction gains and losses are included in other income (expense), net. Prior periods have not been recast for the change related to third-party placement costs, but have been recast to retroactively reflect the change related to foreign-currency hedging for fiscal years 2015 and 2014. The impact on 2013 from the foreign currency changes was deemed to be immaterial and thus ANI has not been recast for these changes. Placement costs associated with closed-end funds amounted to $4.4 million for the first three quarters of 2015, $25,000 for 2014 and $1.8 million for 2013, and remain expensed as incurred in those periods for both GAAP and ANI purposes. 96 Distributable Earnings Distributable earnings and distributable earnings-OCG, as well as per unit data, are set forth below: Year Ended December 31, 2015 2014 2013 (in thousands, except per unit data) Revenues: Management fees ....................................................................................... $ Incentive income ......................................................................................... Receipts of investment income from funds (1) .............................................. Receipts of investment income from companies ......................................... Total distributable earnings revenues ................................................... 753,805 263,806 101,296 48,067 $ 762,823 $ 749,901 491,402 1,030,195 81,438 49,546 128,896 35,664 1,166,974 1,385,209 1,944,656 Expenses: Compensation and benefits ........................................................................ Incentive income compensation .................................................................. General and administrative ......................................................................... Depreciation and amortization .................................................................... Total expenses ..................................................................................... Other income (expense): Interest expense, net of interest income ..................................................... Operating Group income taxes ................................................................... Other income (expense), net ...................................................................... Distributable earnings ........................................................................................ Distributable earnings attributable to OCGH non-controlling interest .......... Non-Operating Group expenses ................................................................. Distributable earnings-OCG income taxes .................................................. Tax receivable agreement ........................................................................... (404,442) (141,822) (120,783) (10,018) (677,065) (35,032) (3,374) (3,927) 447,576 (304,900) (2,097) (2,083) (19,090) Distributable earnings-OCG ............................................................................... $ 119,406 Distributable earnings per Class A unit ............................................................... $ 2.42 Weighted average number of Class A units outstanding .................................... 49,324 (379,360) (231,871) (127,954) (7,249) (365,306) (436,217) (117,361) (7,119) (746,434) (926,003) (30,190) (18) (2,431) 606,136 (439,130) (1,645) (4,138) (15,853) 145,370 3.41 42,582 $ $ (28,621) (6,175) 409 984,266 (761,370) (1,195) (7,684) (10,422) 203,595 5.82 34,979 $ $ (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, 2015 Compared to Year Ended December 31, 2014 Distributable earnings declined $158.5 million, or 26.2%, to $447.6 million for the year ended December 31, 2015, from $606.1 million for the year ended December 31, 2014, reflecting decreases of $137.5 million in net incentive income and $29.7 million in fee-related earnings, partially offset by an $18.4 million increase in investment income proceeds. For 2015, investment income proceeds totaled $149.4 million, including $101.3 million from fund distributions and $51.7 million from DoubleLine, as compared with total investment income proceeds in 2014 of $131.0 million, of which $81.4 million and $46.7 million was attributable to fund distributions and DoubleLine, respectively. Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 Distributable earnings declined $378.2 million, or 38.4%, to $606.1 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 $11.8 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 97 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. The following table reconciles distributable earnings and ANI to net income attributable to Oaktree Capital Group, LLC: Distributable earnings ......................................................................................... $ 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) ..................................................................... Placement costs (6) ...................................................................................... Foreign-currency hedging (7) ........................................................................ Acquisition-related items (8) .......................................................................... Income taxes (9) ........................................................................................... Non-Operating Group expenses (10) ............................................................. Non-controlling interests (10) ......................................................................... Year Ended December 31, 2015 2014 2013 (in thousands) 447,576 $ 606,136 $ 984,266 48,253 (101,296) (48,067) (37,978) 3,374 311,862 19,002 (19,009) (16,403) (3,619) (2,619) (5,251) (17,549) (2,097) 117,662 (81,438) (49,546) (19,705) 18 258,654 (128,896) (35,664) (3,828) 6,175 573,127 1,080,707 (28,813) 10,677 (21,690) — 2,003 (2,442) (18,536) (1,645) 64,460 (46,334) (24,613) — — — (26,232) (1,195) (192,968) (386,398) (824,795) Net income attributable to Oaktree Capital Group, LLC ...................................... $ 71,349 $ 126,283 $ 221,998 (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 expense related to unit grants made after our initial public offering, which is excluded from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations 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. (5) This adjustment adds back the effect of (a) equity-based compensation expense related to unit grants made before our initial public offering, which is excluded from adjusted net income 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 as equity awards for segment reporting. (6) This adjustment adds back the effect of timing differences with respect to the recognition of third-party placement costs associated with closed-end funds between adjusted net income and net income attributable to OCG. (7) This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between adjusted net income and net income attributable to OCG. (8) This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability. (9) Because adjusted net income and distributable earnings are pre-tax measures, this adjustment adds back the effect of income tax expense. (10) 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 non-controlling interests. 98 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, 2015 2014 2013 (in thousands) Distributable earnings-OCG (1) ........................................................................... $ 119,406 $ 145,370 $ 203,595 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 ........................................................................... 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) .................................... Placement costs attributable to OCG (5) ...................................................... Foreign-currency hedging attributable to OCG (6) ........................................ Acquisition-related items attributable to OCG (7) .......................................... Non-controlling interests attributable to OCG (7) .......................................... 13,693 (32,163) (15,735) (12,259) 2,083 19,090 (14,174) 79,941 8,087 (8,209) (5,238) (1,301) (1,006) (1,628) 703 32,399 (22,674) (13,892) (5,517) 4,138 15,853 (18,518) 137,159 (6,641) 1,913 (6,053) — 603 (698) — 60,000 (29,141) (8,486) (904) 7,684 10,422 (20,057) 223,113 16,361 (11,761) (5,715) — — — — Net income attributable to Oaktree Capital Group, LLC ..................................... $ 71,349 $ 126,283 $ 221,998 (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 expense attributable to OCG related to unit grants made after our initial public offering, which is excluded from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions. (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. (4) This adjustment adds back the effect of (a) equity-based compensation expense attributable to OCG related to unit grants made before our initial public offering, which is excluded from adjusted net income 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 as equity awards for segment reporting. (5) This adjustment adds back the effect of timing differences with respect to the recognition of third-party placement costs associated with closed-end funds between adjusted net income-OCG and net income attributable to OCG. (6) This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between adjusted net income-OCG and net income attributable to OCG. (7) This adjustment adds back the effect of (a) acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability and (b) non-controlling interests. 99 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, 2015 2014 2013 (in thousands, except per unit data) Management fees: Closed-end funds ........................................................................................ $ Open-end funds .......................................................................................... Evergreen funds ......................................................................................... Total management fees ....................................................................... 518,513 178,409 56,883 753,805 Expenses: Compensation and benefits ........................................................................ General and administrative ......................................................................... Depreciation and amortization .................................................................... Total expenses ..................................................................................... Fee-related earnings .......................................................................................... Fee-related earnings attributable to OCGH non-controlling interest ............ Non-Operating Group expenses ................................................................. Fee-related earnings-OCG before income taxes ................................................ Fee-related earnings-OCG income taxes .................................................... (404,442) (120,783) (10,018) (535,243) 218,562 (148,119) (1,691) 68,752 (2,424) Fee-related earnings-OCG ................................................................................ $ 66,328 Fee-related earnings per Class A unit ................................................................ $ 1.34 $ $ Weighted average number of Class A units outstanding .................................... 49,324 $ 536,794 $ 559,426 173,018 53,011 762,823 (379,360) (127,954) (7,249) (514,563) 248,260 (178,944) (1,647) 67,669 (7,754) 59,915 1.41 42,582 146,557 43,918 749,901 (365,306) (117,361) (7,119) (489,786) 260,115 (199,758) (1,196) 59,161 (9,039) 50,122 1.43 34,979 $ $ Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 Fee-related earnings declined $29.7 million, or 12.0%, to $218.6 million for the year ended December 31, 2015, from $248.3 million for the year ended December 31, 2014, reflecting $9.0 million of lower management fees, $25.0 million in higher compensation and benefits, and $7.2 million in lower general and administrative expense. The portion of fee-related earnings attributable to our Class A units was $1.34 and $1.41 per unit for 2015 and 2014, respectively. The effective tax rate applicable to fee-related earnings for 2015 and 2014 was 4% and 11%, respectively. In general, the annual effective tax rate increases as annual fee-related earnings increase, and vice versa. Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 Fee-related earnings declined $11.8 million, or 4.5%, to $248.3 million for the year ended December 31, 2014, from $260.1 million for the year ended December 31, 2013, reflecting $12.9 million of higher management fees, $14.1 million in higher compensation and benefits, and $10.6 million in higher general and administrative expense. The portion of fee-related earnings attributable to our Class A units was $1.41 and $1.43 per unit for 2014 and 2013, respectively. The effective tax rate applicable to fee-related earnings for 2014 and 2013 was 11% and 15%, respectively. In general, the annual effective tax rate increases as annual fee-related earnings increase, and vice versa. 100 The following table reconciles fee-related earnings and ANI to net income attributable to Oaktree Capital Group, LLC: Year Ended December 31, 2015 2014 2013 (in thousands) Fee-related earnings (1) ........................................................................................... $ Incentive income ............................................................................................. Incentive income compensation ...................................................................... Investment income .......................................................................................... Equity-based compensation (2) ......................................................................... Interest expense, net of interest income .......................................................... Other income (expense), net ........................................................................... Adjusted net income ............................................................................................... Reconciling adjustments (3) .............................................................................. 218,562 $ 248,260 $ 260,115 263,806 491,402 1,030,195 (141,822) (231,871) (436,217) 48,253 (37,978) (35,032) (3,927) 117,662 (19,705) (30,190) (2,431) 258,654 (3,828) (28,621) 409 311,862 573,127 1,080,707 (240,513) (446,844) (858,709) Net income attributable to Oaktree Capital Group, LLC .......................................... $ 71,349 $ 126,283 $ 221,998 (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 expense related to unit grants made after our initial public offering. (2) This adjustment adds back the effect of equity-based compensation expense related to unit grants made after our initial public offering, which is excluded from fee-related earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions. (3) Please refer to the table on page 98 for a detailed reconciliation of adjusted net income to net income attributable to Oaktree Capital Group, LLC. The following table reconciles fee-related earnings-OCG and adjusted net income-OCG to net income attributable to Oaktree Capital Group, LLC: 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) .................................................................................. Reconciling adjustments (4) .............................................................................. Year Ended December 31, 2015 2014 2013 (in thousands) 66,328 $ 59,915 $ 50,122 81,314 (43,414) 13,693 (12,259) (11,642) (1,308) (12,771) 79,941 (8,592) 132,901 (62,719) 32,399 (5,517) (8,439) (671) (10,710) 137,159 (10,876) 231,971 (99,168) 60,000 (904) (6,610) 96 (12,394) 223,113 (1,115) Net income attributable to Oaktree Capital Group, LLC .......................................... $ 71,349 $ 126,283 $ 221,998 (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 expense attributable to OCG related to unit grants made after our initial public offering, which is excluded from fee-related earnings-OCG because it is non-cash in nature and does not impact our ability to fund our operations 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) Please refer to the table on page 99 for a detailed reconciliation of adjusted net income-OCG to net income attributable to Oaktree Capital Group, LLC. 101 Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 Segment Revenues Management Fees A summary of management fees is set forth below: Year Ended December 31, 2015 2014 (in thousands) Management Fees: Closed-end funds ............................................................................................................................ $ Open-end funds .............................................................................................................................. Evergreen funds .............................................................................................................................. 518,513 $ 536,794 178,409 56,883 173,018 53,011 Total ................................................................................................................................................ $ 753,805 $ 762,823 Management fees decreased $9.0 million, or 1.2%, to $753.8 million for the year ended December 31, 2015, from $762.8 million for the year ended December 31, 2014, for the reasons described below. • Closed-end funds. Management fees attributable to closed-end funds decreased $18.3 million, or 3.4%, to $518.5 million for the year ended December 31, 2015, from $536.8 million for the year ended December 31, 2014. The decrease reflected an aggregate decline of $61.5 million primarily attributable to closed-end funds in liquidation, partially offset by an aggregate increase of $43.2 million from the Highstar acquisition, closed-end funds for which management fees are based on drawn capital or NAV, new CLOs, and the start of the investment periods for Power Fund IV and PF VI. • Open-end funds. Management fees attributable to open-end funds increased $5.4 million, or 3.1%, to $178.4 million for the year ended December 31, 2015, from $173.0 million for the year ended December 31, 2014, primarily as a result of net inflows to Emerging Markets Equities. • Evergreen funds. Management fees attributable to evergreen funds increased $3.9 million, or 7.4%, to $56.9 million for the year ended December 31, 2015, from $53.0 million for the year ended December 31, 2014, primarily reflecting drawdowns of capital commitments by Strategic Credit and Value Equities, partially offset by net outflows and market-value declines for Value Opportunities (“VOF”). The period-end weighted average annual management fee rate for evergreen funds decreased to 1.43% as of December 31, 2015, from 1.53% as of December 31, 2014, largely as a result of Strategic Credit, for which the average management fee rate is lower than 1.53%. Incentive Income A summary of incentive income is set forth below: Year Ended December 31, 2015 2014 (in thousands) Incentive Income: Closed-end funds ............................................................................................................................ $ Evergreen funds .............................................................................................................................. 261,143 $ 490,081 2,663 1,321 Total ................................................................................................................................................ $ 263,806 $ 491,402 Incentive income decreased $227.6 million, or 46.3%, to $263.8 million for the year ended December 31, 2015, from $491.4 million for the year ended December 31, 2014. The current year included Opps VIIb incentive distributions of $59.0 million and tax-related incentive distributions of $142.8 million, as compared with $201.8 million and $219.7 million, respectively, in 2014. 102 Investment Income A summary of investment income is set forth below: Income (loss) from investments in funds: Oaktree funds: Year Ended December 31, 2015 2014 (in thousands) Corporate Debt ........................................................................................................................ $ 7,020 $ 15,767 Convertible Securities .............................................................................................................. Distressed Debt ....................................................................................................................... Control Investing ...................................................................................................................... Real Estate .............................................................................................................................. Listed Equities .......................................................................................................................... Non-Oaktree funds ...................................................................................................................... Income from investments in companies .......................................................................................... (201) (46,977) 17,072 14,980 (1,857) 7,930 50,286 143 (894) 26,369 32,347 8,466 2,479 32,985 Total investment income .................................................................................................................. $ 48,253 $ 117,662 Investment income decreased $69.4 million, or 59.0%, to $48.3 million for the year ended December 31, 2015, from $117.7 million for the year ended December 31, 2014, reflecting lower overall returns on our fund investments. Our one-fifth ownership stake in DoubleLine accounted for investment income of $55.0 million and $46.9 million in 2015 and 2014, respectively, of which performance fees accounted for $4.3 million and $10.1 million, respectively. Segment Expenses Compensation and Benefits Compensation and benefits increased $25.0 million, or 6.6%, to $404.4 million for the year ended December 31, 2015, from $379.4 million for the year ended December 31, 2014, in part reflecting growth in average headcount, including the Highstar acquisition. Equity-based Compensation Equity-based compensation increased $18.3 million, or 92.9%, to $38.0 million for the year ended December 31, 2015, from $19.7 million for the year ended December 31, 2014, primarily reflecting non-cash amortization expense associated with vesting of restricted unit grants made to employees and directors subsequent to our 2012 initial public offering. Incentive Income Compensation Incentive income compensation expense decreased $90.1 million, or 38.9%, to $141.8 million for the year ended December 31, 2015, from $231.9 million for the year ended December 31, 2014. The percentage decrease was smaller than the corresponding decline of 46.3% in incentive income, primarily as a result of catch-up tax distributions related to incentive interests awarded to certain investment professionals in 2014. General and Administrative General and administrative expense decreased $7.2 million, or 5.6%, to $120.8 million for the year ended December 31, 2015, from $128.0 million for the year ended December 31, 2014. The decline was primarily attributable to lower professional fees and certain other general operating expenses. Interest Expense, Net of Interest Income Interest expense, net, increased $4.8 million, or 15.9%, to $35.0 million for the year ended December 31, 2015, from $30.2 million for the year ended December 31, 2014, primarily reflecting the senior notes issued in September 2014. Other Income (Expense), Net Other income (expense), net amounted to expenses of $3.9 million for the year ended December 31, 2015 and $2.4 million for the year ended December 31, 2014. The current year included foreign-currency transaction 103 losses of $0.4 million, as compared to net gains of $2.9 million for 2014. The prior year also included losses associated with certain non-operating corporate activities. Adjusted Net Income Adjusted net income decreased $261.2 million, or 45.6%, to $311.9 million for the year ended December 31, 2015, from $573.1 million for the year ended December 31, 2014, reflecting declines of $137.5 million in net incentive income, $69.4 million in investment income and $29.7 million in fee-related earnings. Income Taxes-OCG Income taxes decreased $3.3 million, or 17.8%, to $15.2 million for the year ended December 31, 2015, from $18.5 million for the year ended December 31, 2014. The decrease was primarily attributable to the decline in adjusted net income-OCG before income taxes, partially offset by an increase in the effective tax rate. The effective tax rate applied to ANI for the year ended December 31, 2015 and 2014 was 16% and 12%, respectively. We would expect variability in tax rates between quarters and full years, because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period’s income tax expense and may vary significantly within or between years. In general, the annual effective tax rate increases as the proportion of ANI arising from fee-related earnings, DoubleLine-related investment income and certain incentive and investment income rises, and vice versa. 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 ............................................................................................................................ $ Open-end funds .............................................................................................................................. Evergreen funds .............................................................................................................................. 536,794 $ 559,426 173,018 53,011 146,557 43,918 Total ................................................................................................................................................ $ 762,823 $ 749,901 Management fees increased $12.9 million, or 1.7%, to $762.8 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 $22.6 million, or 4.0%, to $536.8 million for the year ended December 31, 2014, from $559.4 million for the year ended December 31, 2013. The decline was primarily the result of the prior year’s extra $25.1 million of aggregate deferred fees from Oaktree Mezzanine Fund III and retroactive management fees from ROF VI, partially offset by the start of Opps IX’s investment period on January 1, 2014 and the Highstar acquisition. • 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, partially offset by 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%. 104 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 $ 972,199 1,321 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 generated by closed-end funds. Fiscal year 2014 included incentive distributions of $201.8 million from Opps VIIb and $219.7 million of tax-related incentive distributions, as compared to $662.3 million and $122.7 million, respectively, in 2013. Investment Income A summary of investment income is set forth below: Income (loss) from investments in funds: Oaktree funds: Year Ended December 31, 2014 2013 (in thousands) Corporate Debt ........................................................................................................................ $ 15,767 $ 19,928 Convertible Securities .............................................................................................................. Distressed Debt ....................................................................................................................... Control Investing ...................................................................................................................... Real Estate .............................................................................................................................. Listed Equities .......................................................................................................................... Non-Oaktree funds ...................................................................................................................... Income from investments in companies .......................................................................................... 143 (894) 26,369 32,347 8,466 2,479 32,985 163 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, reflecting lower overall returns from our fund investments. 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 $14.1 million, or 3.9%, to $379.4 million for the year ended December 31, 2014, from $365.3 million for the year ended December 31, 2013, primarily reflecting growth in average headcount, including the Highstar acquisition. Fiscal years 2014 and 2013 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 105 associated with vesting of restricted unit grants made to employees and directors subsequent to our 2012 initial public offering. 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 $10.6 million, or 9.0%, to $128.0 million for the year ended December 31, 2014, from $117.4 million for the year ended December 31, 2013. The increase primarily reflected higher legal and other professional fees, as well as costs associated with corporate growth and the Highstar acquisition. 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 $2.4 million for the year ended December 31, 2014 and income of $0.4 million for the year ended December 31, 2013. The expense of $2.4 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 and a $1.5 million loss associated with certain non-operating activities, partially offset by $2.9 million of foreign-currency transaction gains and $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 $507.6 million, or 47.0%, to $573.1 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 $11.8 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. 106 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, 2015 2014 (in thousands) Assets: Cash and cash-equivalents .......................................................................................................... $ U.S. Treasury securities ............................................................................................................... Corporate investments ................................................................................................................. Deferred tax assets ...................................................................................................................... Receivables and other assets ...................................................................................................... 476,046 $ 405,290 661,116 655,529 1,434,109 1,515,443 425,798 260,659 357,364 334,173 Total assets ........................................................................................................................... $ 3,257,728 $ 3,267,799 Liabilities and Capital: Liabilities: Accounts payable and accrued expenses ............................................................................. $ Due to affiliates ..................................................................................................................... Debt obligations .................................................................................................................... Total liabilities ................................................................................................................. 368,980 $ 390,196 356,851 850,000 309,214 850,000 1,575,831 1,549,410 Capital: OCGH non-controlling interest in consolidated subsidiaries .................................................. Unitholders’ capital attributable to Oaktree Capital Group, LLC ............................................. 944,882 737,015 Total capital .................................................................................................................... 1,681,897 1,172,663 545,726 1,718,389 Total liabilities and capital ............................................................................................... $ 3,257,728 $ 3,267,799 Corporate Investments A summary of corporate investments is set forth below: Investments in funds: Oaktree funds: As of December 31, 2015 2014 (in thousands) Corporate Debt ..................................................................................................................... $ 432,228 $ 426,677 Convertible Securities ........................................................................................................... Distressed Debt .................................................................................................................... Control Investing ................................................................................................................... Real Estate ........................................................................................................................... Listed Equities ....................................................................................................................... Non-Oaktree funds ................................................................................................................... Investments in companies ............................................................................................................ 18,497 379,676 267,692 135,922 105,631 65,901 28,562 18,698 433,715 249,840 134,631 149,901 49,441 52,540 Total corporate investments ......................................................................................................... $ 1,434,109 $ 1,515,443 107 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, 2015, we had $1.1 billion of cash and 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, 2015 and the date of this report. Oaktree’s investments in funds and companies had a carrying value of $1.4 billion as of December 31, 2015. 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 stemming from our corporate investments in funds and companies. As of December 31, 2015, corporate investments of $1.4 billion included unrealized investment income proceeds of $259 million, of which $126 million was in closed-end funds in their liquidation period. 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 was 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. Additionally, DoubleLine’s corporate distributions to us may vary in length of period covered. For example, the quarterly distributions made in the second and fourth quarters typically have covered two and four months of activity, respectively. The distribution amount for any given period is likely to vary materially due to these 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. 108 Significant amounts from our consolidated statements of cash flows for the years ended December 31, 2015, 2014 and 2013 are discussed below. Operating Activities Net cash used in operating activities was $0.9 billion and $4.3 billion for 2015 and 2014, respectively. Net cash provided by operating activities was $5.4 billion for 2013. These amounts included (a) net purchases of securities of the consolidated funds of $2.0 billion and $4.8 billion in 2015 and 2014, respectively, and net proceeds from maturities and sales of investments by the consolidated funds of $4.1 billion in 2013; (b) net realized gains on consolidated funds’ investments of $1.2 billion, $2.1 billion and $3.5 billion in 2015, 2014 and 2013, respectively; and (c) changes in unrealized depreciation on consolidated funds’ investments of $3.8 billion and $1.0 billion in 2015 and 2014, respectively, and unrealized appreciation of $1.8 billion in 2013. Investing Activities Investing activities used net cash of $53.6 million, $39.7 million and $417.6 million in 2015, 2014 and 2013, respectively. Investing activities were primarily driven by net U.S. Treasury investment activities. Net activity from purchases, maturities and sales of U.S. Treasury securities included net purchases of $5.6 million in 2015, net proceeds of $21.1 million in 2014 and net purchases of $306.0 million in 2013. Corporate investments in funds and companies of $82.3 million, $68.5 million and $59.7 million in 2015, 2014 and 2013, respectively, consisted of the following: Funds ....................................................................... Eliminated in consolidation ....................................... Unconsolidated companies ....................................... Total investments ...................................................... $ 82.3 $ 68.5 $ Year Ended December 31, 2015 2014 2013 (in millions) $ 300.4 $ 600.3 $ 170.4 (218.1) (536.3) (162.3) — 4.5 51.6 59.7 Distributions and proceeds from corporate investments in funds and companies of $58.0 million, $38.3 million and $2.6 million in 2015, 2014 and 2013, respectively, consisted of the following: Funds ....................................................................... Eliminated in consolidation ....................................... Unconsolidated companies ....................................... Total investments ...................................................... $ Year Ended December 31, 2015 2014 2013 (in millions) $ 347.0 $ 372.9 $ 357.4 (313.0) (365.3) (354.8) 24.0 58.0 $ 30.7 38.3 $ — 2.6 Purchases of fixed assets were $23.7 million, $5.0 million and $4.6 million in 2015, 2014 and 2013, 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 $1.0 billion and $5.1 billion of cash in 2015 and 2014, respectively, and used $5.3 billion of cash in 2013. Financing activities included (a) net distributions to non-controlling interests from consolidated funds of $1.2 billion in 2015, net contributions to consolidated funds from non-controlling interests of $1.4 billion in 2014 and net distributions to non-controlling interests from consolidated funds of $6.3 billion in 2013; (b) net borrowings on credit facilities of the consolidated funds of $1.6 billion, $2.4 billion and $1.8 billion in 2015, 2014 and 2013, respectively; (c) distributions to unitholders of $372.7 million, $550.8 million and $781.9 million in 2015, 2014 and 2013, respectively; (d) net proceeds of $268.2 million associated with the refinancing of our corporate credit facility in 2014 and repayment of debt obligations of $35.7 million in 2013; and (e) net purchases of Oaktree Operating Group units, net of issuances of Class A units, of $4.9 million, $1.8 million and $0.8 million in 2015, 2014 and 2013, respectively. Additionally, there were $983.0 million and $1.6 billion in proceeds from debt 109 obligations issued by our CLOs in 2015 and 2014, respectively, and $25.2 million, $29.7 million and $13.6 million of debt issuance costs paid by our consolidated funds in 2015, 2014 and 2013, respectively. 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, redeem our Class A units pursuant to the terms of our operating agreement or repurchase OCGH units. 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, 2015, 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. 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”) 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 110 $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 was 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, 2015, we had no outstanding borrowings under the Revolver and were able to draw the full amount available without violating any financial maintenance covenants. 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, 2015, we were required to maintain approximately $71.3 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, 2015, future payments of this nature were estimated to aggregate $37.1 million over the period ending approximately in 2029 with respect to the 2007 Private Offering and $75.2 million over the period ending approximately in 2034 with respect to our initial public offering. In May 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. 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, 2015, future payments with respect to the May 2013 Offering were estimated to aggregate $104.0 million over the period ending approximately in 2035. In March 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 million. As of December 31, 2015, future payments with respect to the March 2014 Offering were estimated to aggregate $78.1 million over the period ending approximately in 2036. In March 2015, we issued and sold 4,600,000 Class A units in a public offering (the “March 2015 Offering”), resulting in $237.8 million in proceeds to us. We did not retain any proceeds from the sale of Class A units in the March 2015 Offering. The proceeds from the March 2015 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 the Company’s senior management. The exchange of OCGH units in connection with the March 2015 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 $73.5 million and an associated liability of $62.5 million for payments to OCGH unitholders under the tax receivable agreement, which together increased capital by $11.0 million. As of December 31, 2015, future payments with respect to the March 2015 Offering were estimated to aggregate $62.5 million over the period ending approximately in 2037. 111 For the years ended December 31, 2015, 2014 and 2013, respectively, $15.7 million, $10.1 million and $6.3 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, 2015: 2016 2017-2018 2019-2020 Thereafter Total (in thousands) Oaktree and Operating Subsidiaries: Operating lease obligations (1) ..................... $ Debt obligations payable ............................. Interest obligations on debt (2) ...................... Tax receivable agreement ........................... Contingent consideration (3) ......................... Commitments to Oaktree and third-party funds (4) .................................................... Subtotal ................................................ Consolidated Funds: 14,132 $ 18,375 $ 20,915 $ 50,005 $ 100,000 36,205 19,393 32,095 469,417 671,242 — 60,066 41,882 — — 500,000 37,952 45,375 — — 250,000 72,314 250,201 — — 120,323 604,242 622,520 Debt obligations payable ............................. Interest on debt obligations ......................... Debt Obligations of CLOs ............................ Interest on debt obligations of CLOs (2) ........ Commitments to fund investments (5) ........... 6,462,762 43,375 — 54,305 1,274,827 — — 173,188 107,129 — — — — 101,930 — — — 2,181,872 314,162 — 103,427 850,000 206,537 356,851 32,095 469,417 2,018,327 6,462,762 43,375 2,355,060 577,526 1,274,827 Total ..................................................... $ 8,506,511 $ 400,640 $ 706,172 $ 3,118,554 $ 12,731,877 (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. This represents the undiscounted contingent consideration obligation as of December 31, 2015 related to the Highstar acquisition, which is payable in a combination of cash and fully-vested OCGH units. The amount of the contingent consideration obligation is based on the achievement of certain performance targets over a period of up to seven years from the acquisition date. Due to uncertainty in the timing of payment, if any, the entire amount is presented in the 2016 column. 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 2016 column. Capital commitments are expected to be called over a period of several years. 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 2016 column. Capital commitments are expected to be called over a period of several years. (2) (3) (4) (5) 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, 2015. As of December 31, 2015, none of the incentive income we had recognized was subject to clawback by the funds. 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 provided certain services with respect to the operations of the plane. On March 23, 2015, we exercised a purchase option for $12.5 million. 112 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 our 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. Principles of Consolidation We consolidate those entities for which we have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. As of December 31, 2015, consolidated entities included eight 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 general partner and are deemed to have control through a voting interest model. Although as general partner we typically have 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 us. 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. Consequently, 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 in the accompanying consolidated financial statements. All intercompany transactions, including revenues earned by us from the 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 the funds is increased by the amounts eliminated. Thus, the elimination of the amounts in consolidation has no effect on net income or loss attributable to us. Certain funds for which we have no general partner responsibility but have the ability to exert significant influence through other means are accounted for under the equity method of accounting. 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 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 113 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 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 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 our net income as the amounts are included in net income (loss) attributable to non-controlling interests in consolidated funds. 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. We have elected to adopt Method 1 for revenue recognition based on a formula. Under this method, incentive income is recognized 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. 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 conclusion of each annual measurement period. Incentives received by us before the above criteria have been met are deferred and recorded as a deferred incentive income liability within accounts payable, accrued expenses and other liabilities in the consolidated statements of financial condition. We 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. 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. 114 Investments, at Fair Value GAAP establishes a hierarchical 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 the facts and circumstances known as of the valuation date and the application of valuation methodologies as 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 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 115 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 consolidated 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 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, the inputs used to value 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. 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. With the exception of open-end funds, all unquoted Level III investment values are reviewed and approved by (i) our valuation officer, who is independent of the investment teams, (ii) a designated investment professional of each strategy and (iii) for a substantial majority of unquoted Level III holdings as measured by market value, a valuation committee for such strategy. For open-end funds, unquoted Level III investment values are reviewed and approved by our valuation officer. 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 periodically evaluate changes in fair-value measurements 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 specific 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 116 for similar securities, or may require adjustment for investment-specific factors or restrictions. 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 ongoing monitoring and back-testing, we perform due diligence procedures surrounding 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, 2015 Level I Level II Level III Total Closed-end funds .............................................................. $ Open-end funds ................................................................ Evergreen funds ................................................................ Total .................................................................................. $ 3,435,823 $ 8,557,125 $ 26,508,067 $ 38,501,015 992,683 383,349 3,814,699 585,417 80,210 629,430 4,887,592 1,598,196 4,811,855 $ 12,957,241 $ 27,217,707 $ 44,986,803 As of December 31, 2014 Closed-end funds .............................................................. $ Open-end funds ................................................................ Evergreen funds ................................................................ Total .................................................................................. $ 4,169,235 $ 8,518,277 $ 25,497,911 $ 38,185,423 1,084,571 721,422 4,996,824 730,022 51,174 742,613 6,132,569 2,194,057 5,975,228 $ 14,245,123 $ 26,291,698 $ 46,512,049 Derivatives and Hedging We enter into derivatives 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 derivatives 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 reporting 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 ratings. Counterparty credit risk is evaluated in determining the fair value of derivatives. 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 derivatives 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 117 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 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. 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 we 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 (loss) is released to earnings. Equity-based Compensation Equity-based compensation expense 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 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, if applicable. 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 and (c) thin 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 expensed 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 includes (a) compensation directly related to 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 incentive income, and (b) 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 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 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. 118 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 fair value of securities, foreign exchange rates, commodities prices and interest rates. Price Risk Impact on Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ Investments As of December 31, 2015, we had investments at fair value of $45.2 billion related to our consolidated funds. We estimate that a 10% decline in market values would result in a decrease in unrealized appreciation (depreciation) on the consolidated funds’ investments of $4.5 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 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 basis of assets remaining in the fund. Management fees are affected by changes in market values to the extent they are based on NAV. For the years ended December 31, 2015 and 2014, NAV-based management fees represented approximately 36% and 33%, respectively, of total management fees. Based on investments held as of December 31, 2015, we estimate that a 10% decline in market values of the investments held in our funds would result in an approximate $6.4 million decrease in the amount of quarterly 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 may in part be indirect. Thus the effect on incentive income of a 10% decline in market values is not readily quantifiable. A decline in market values would be expected to cause a 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. Based on investments held as of December 31, 2015, a 10% decline in fair values of the investments held in our funds and other holdings would result in a $272.3 million decrease in the amount of investment income. The estimated decline of $272.3 million is greater than 10% of the December 31, 2015 corporate investments balance primarily due to our investments in levered senior loan products. 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. 119 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, 2015, without considering the impact of derivative instruments, a 10% decline in the average exchange rate 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 $10.5 million; our operating expenses would have increased by $14.4 million; OCGH interest in net income of consolidated subsidiaries would have decreased by $2.6 million; and our income tax expense would have decreased by $0.5 million. These movements would have decreased our net income attributable to OCG by $0.8 million. At any point in time, some of the investments held by our closed-end and evergreen funds may be denominated 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 with respect to such closed-end and evergreen funds; however, the degree of impact is 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, 2015, 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’s floating interest rate to fixed through January 2017. As a result, for the year ended December 31, 2015, there would not have been a material impact to interest expense attributable to 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 U.S. Treasury securities as of December 31, 2015, we estimate that Oaktree and its operating subsidiaries would generate an additional $11.4 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, 2015, $8.8 billion was outstanding under these debt obligations. We estimate that interest expense relating to variable-rate debt would increase on an annualized basis by $85.3 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 the 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 120 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. 121 Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Audited Consolidated Financial Statements: Page Report of Independent Registered Public Accounting Firm ........................................................................ 123 Consolidated Statements of Financial Condition as of December 31, 2015 and 2014 .............................. 124 Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013.......... 125 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 2013 ........................................................................................................................................ 126 Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013......... 127 Consolidated Statements of Changes in Unitholders’ Capital for the Years Ended December 31, 2015, 2014 and 2013 ........................................................................................................................................ 129 Notes to Consolidated Financial Statements ............................................................................................. 130 122 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, 2015 and December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 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, 2015, 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 integrated audits. 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 26, 2016 123 Oaktree Capital Group, LLC Consolidated Statements of Financial Condition ($ in thousands) As of December 31, 2015 2014 Assets Cash and cash-equivalents ............................................................................................................... $ U.S. Treasury securities .................................................................................................................... Corporate investments (includes $67,626 and $40,814 measured at fair value as of December 31, ........................................................................................................ 2015 and 2014, 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: 480,590 661,116 $ 213,988 35,899 425,798 257,913 2,850,512 45,179,906 189,693 706,708 163,799 198,351 446,825 51,811,098 $ $ Accrued compensation expense ................................................................................................ $ Accounts payable, accrued expenses and other liabilities ......................................................... Due to affiliates .......................................................................................................................... Debt obligations ......................................................................................................................... 319,834 121,934 356,851 850,000 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 ............................................................................................... Debt obligations of CLOs ........................................................................................................... Total liabilities ..................................................................................................................... 128,774 478,437 91,246 300,208 364,773 6,462,762 2,355,060 11,829,879 408,296 655,529 187,963 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 Commitments and contingencies (Note 13) Non-controlling redeemable interests in consolidated funds .............................................................. Unitholders’ capital: 38,173,125 41,681,155 Class A units, no par value, unlimited units authorized, 61,969,860 and 43,763,719 units issued and outstanding as of December 31, 2015 and 2014, respectively ............................. Class B units, no par value, unlimited units authorized, 91,937,873 and 109,088,901 units issued and outstanding as of December 31, 2015 and 2014, respectively ............................. — — Paid-in capital ............................................................................................................................ Retained earnings ..................................................................................................................... Accumulated other comprehensive loss .................................................................................... Class A unitholders’ capital ................................................................................................. Non-controlling interests in consolidated subsidiaries ................................................................ Non-controlling interests in consolidated funds .......................................................................... Total unitholders’ capital ..................................................................................................... Total liabilities and unitholders’ capital ................................................................................ $ 735,166 — (1,216) 733,950 1,043,930 30,214 1,808,094 51,811,098 $ — — 536,431 11,378 (1,070) 546,739 1,265,961 27,430 1,840,130 53,344,062 Please see accompanying notes to consolidated financial statements. 124 Oaktree Capital Group, LLC Consolidated Statements of Operations (in thousands, except per unit amounts) Year Ended December 31, 2015 2014 2013 Revenues: Management fees .......................................................................................... $ Incentive income ............................................................................................ Total revenues ......................................................................................... 195,308 $ 192,055 $ 192,605 6,597 201,905 1,839 193,894 2,317 194,922 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 ........................................................................................ (416,907) (388,512) (365,696) (54,381) (160,831) (632,119) (110,677) (14,022) (184,090) (940,908) (41,395) (221,194) (651,101) (99,835) (8,003) (28,441) (482,551) (876,688) (114,404) (7,119) (188,538) (108,851) (947,477) (1,107,062) Other income (loss): Interest expense ............................................................................................. Interest and dividend income .......................................................................... Net realized gain on consolidated funds’ investments .................................... (216,799) (129,942) (61,160) 1,958,802 1,177,150 1,902,576 2,131,584 1,806,361 3,503,998 Net change in unrealized appreciation (depreciation) on consolidated funds’ investments ................................................................................................ Investment income ......................................................................................... Other income (expense), net .......................................................................... Total other income (loss) ......................................................................... Income (loss) before income taxes ........................................................................ Income taxes .................................................................................................. (3,767,527) (993,260) 1,843,469 51,958 20,006 33,695 3,018 (776,410) 2,947,671 (1,515,413) 2,194,088 56,027 409 7,149,104 6,236,964 (17,549) (18,536) (26,232) Net income (loss) .................................................................................................. (1,532,962) 2,175,552 6,210,732 Less: Net (income) loss attributable to non-controlling interests in consolidated funds ........................................................................................................... 1,809,683 (1,649,890) (5,163,939) Net income attributable to non-controlling interests in consolidated subsidiaries ................................................................................................. (205,372) (399,379) (824,795) Net income attributable to Oaktree Capital Group, LLC ......................................... $ 71,349 Distributions declared per Class A unit .................................................................. $ Net income per unit (basic and diluted): 2.10 Net income per Class A unit ........................................................................... $ 1.45 $ $ $ 126,283 3.15 2.97 $ $ $ 221,998 4.71 6.35 Weighted average number of Class A units outstanding ................................. 49,324 42,582 34,979 Please see accompanying notes to consolidated financial statements. 125 Oaktree Capital Group, LLC Consolidated Statements of Comprehensive Income (Loss) (in thousands) Year Ended December 31, 2015 Oaktree Capital Group, LLC Non- controlling Interests in Consolidated Subsidiaries Non- controlling Interests in Consolidated Funds Total Net income (loss) ......................................................................... $ Other comprehensive income (loss), net of tax: Foreign-currency translation adjustments .............................. Unrealized gain on interest-rate swap designated as cash- flow hedge ......................................................................... Other comprehensive loss, net of tax ............................. Total comprehensive income (loss) .............................................. Less: Comprehensive (income) loss attributable to non- controlling interests ............................................................ Comprehensive income attributable to Oaktree Capital Group, 71,349 $ 205,372 $ (1,809,683) $ (1,532,962) (621) 475 (146) (1,589) 899 (690) — — — (2,210) 1,374 (836) 71,203 204,682 (1,809,683) (1,533,798) — (204,682) 1,809,683 1,605,001 LLC ........................................................................................... $ 71,203 $ — $ — $ 71,203 Year Ended December 31, 2014 Net income ................................................................................... $ Other comprehensive income (loss), net of tax: 126,283 $ 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 ............................................................................. Comprehensive income attributable to Oaktree Capital Group, 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) LLC ........................................................................................... $ 126,335 $ — $ — $ 126,335 Year Ended December 31, 2013 Net income ................................................................................... $ Other comprehensive income (loss), net of tax: 221,998 $ 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 ............................................................................. Comprehensive income attributable to Oaktree Capital Group, 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) LLC ........................................................................................... $ 222,624 $ — $ — $ 222,624 Please see accompanying notes to consolidated financial statements. 126 Oaktree Capital Group, LLC Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2015 2014 2013 Cash flows from operating activities: Net income (loss) ....................................................................................... $ (1,532,962) $ 2,175,552 $ 6,210,732 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Investment income ............................................................................. Depreciation and amortization ............................................................ Equity-based compensation ............................................................... (51,958) 14,022 54,381 (33,695) 8,003 41,395 (56,027) 7,119 28,441 Net realized and unrealized (gains) losses from consolidated funds’ investments ..................................................................................... 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) decrease in other assets .................................................... Decrease in net due to affiliates .......................................................... Increase 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: 2,590,377 (1,138,324) (5,347,467) (26,366) 50,252 15,689 10,645 34,349 (3,857) 24,948 (5,910) 45,817 12,042 15,255 (62,883) (12,908) 16,231 (73,376) 37,706 4,701 12,367 (23,252) (8,638) 159,734 (26,537) 43,661 (19,524) (Increase) decrease in dividends and interest receivable ................... (Increase) decrease in due from brokers ............................................ 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 ...................................................................... 3,735 (100,826) 8,018 224,296 64,482 (289,294) (33,171) (322,119) 177,130 (171,720) (32,640) (287,005) 18,531 121,379 176,986 119,274 (74,898) 68,031 (17,994,888) (21,975,014) (18,277,324) Proceeds from maturities and sales of securities ................................ Net cash provided by (used in) operating activities ............................. 15,988,267 17,213,767 22,351,522 (943,227) (4,326,536) 5,436,017 Cash flows from investing activities: Purchases of U.S. Treasury securities ....................................................... Proceeds from maturities and sales of U.S. Treasury securities ................ Corporate investments in funds and companies ........................................ Distributions and proceeds from corporate investments in funds and companies ............................................................................................. Acquisition, net of cash acquired (Highstar) ............................................... Purchases of fixed assets .......................................................................... Other ......................................................................................................... Net cash used in investing activities ................................................... (385,642) 380,055 (82,273) 57,954 — (23,724) — (414,970) 436,041 (68,499) 38,341 (25,637) (5,005) — (702,456) 396,470 (59,682) 2,643 — (4,609) (50,000) (53,630) (39,729) (417,634) (continued) Please see accompanying notes to consolidated financial statements. 127 Oaktree Capital Group, LLC Consolidated Statements of Cash Flows – (Continued) (in thousands) 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 OCGH units ............................................. Distributions to Class A unitholders ............................................................ Distributions to OCGH unitholders ............................................................. Contributions from non-controlling interests ............................................... Distributions to non-controlling interests .................................................... Cash flows from financing activities of consolidated funds: Year Ended December 31, 2015 2014 2013 — $ 500,000 $ — — 237,820 (237,820) (4,926) (99,120) (273,534) 4,000 (6,493) (2,296) (229,464) 296,650 (296,400) (2,085) (131,954) (418,867) — — — — (35,715) 419,908 (419,908) (833) (160,296) (621,613) — — (6,633,233) 5,404,333 Contributions from non-controlling interests ............................................... Distributions to non-controlling interests .................................................... Proceeds from debt obligations issued by CLOs ....................................... 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 ..................................................... $ 3,331,102 3,348,494 7,682,232 982,962 992,269 (6,038,796) (12,804) (25,156) (17,392) 8,260,647 6,507,188 (6,826,094) (12,783,673) 1,601,535 — (29,697) (13,595) 7,503,750 3,718,026 (5,133,389) (1,922,433) 5,092,336 (5,312,944) (15,242) 710,829 3,700 (290,861) 2,637,665 2,928,526 $ 3,348,494 $ 2,637,665 Supplemental cash flow disclosures: * * * Cash paid for interest ................................................................................ $ 159,460 $ 79,222 $ Cash paid for income taxes ....................................................................... 5,586 7,947 47,360 15,526 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 128 Oaktree Capital Group, LLC Consolidated Statements of Changes in Unitholders’ Capital (in thousands) 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 ............................................................ Unitholders’ capital as of December 31, 2014 ............................................................................................................................. Activity for the year ended December 31, 2015: Issuance of Class A units .................................................................................................................................................. Issuance of Class B units ................................................................................................................................................. Cancellation of units associated with forfeitures ............................................................................................................... Cancellation of Class B units ............................................................................................................................................ Purchase of OCGH units from OCGH unitholders ............................................................................................................ Deferred tax effect resulting from the purchase or exchange of OCGH units .................................................................... Repurchase and cancellation of OCGH units ................................................................................................................... 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 ............................................................ Unitholders’ capital as of December 31, 2015 ............................................................................................................................. Oaktree Capital Group, LLC Class A Units Class B 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 30,181 120,268 $ 645,053 $ (336,903) $ (1,748) $ 1,087,491 $ — $ 1,393,893 8,292 — — — — — — — — — — — — 38,473 5,291 — — — — — — — — — — — — — — — 43,764 18,231 — (25) — — — — — — — — — — — 61,970 — 673 (48) (8,309) — — — — — — — — — 112,584 — 1,891 (56) (5,330) — — — — — — — — — — — — 109,089 — 1,338 (135) (18,354) — — — — — — — — — — 91,938 $ 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) — — — 536,431 237,820 — — — (237,820) 16,606 — — 181,539 16,983 (16,393) — — — 735,166 — — — — — — — — — — 221,998 — — (114,905) — — — — — — — — — — — — — 126,283 — — 11,378 — — — — — — — — — — (82,727) 71,349 — — — $ $ — — — — — — — — — — — (198) 824 (1,122) — — — — — — — — — — — — — — (489) 541 (1,070) — — — — — — — — — — — — (621) 475 (1,216) $ — — — — — — (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 1,265,961 — — — — — — (4,926) 4,000 (181,539) 35,779 (280,027) 205,372 (1,589) 899 1,043,930 $ — — — — — — — — — — — — — — — — — — — — — — — 51,644 — — (26,351) 2,137 — — 27,430 — — — — — — — 2,880 — — (2,952) 2,856 — — 30,214 $ 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 1,840,130 237,820 — — — (237,820) 16,606 (4,926) 6,880 — 52,762 (382,099) 279,577 (2,210) 1,374 1,808,094 Please see accompanying notes to consolidated financial statements. 129 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements December 31, 2015 ($ 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. 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 (collectively, 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, increases or decreases in response to 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. 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. Accounting Policies of the Company Consolidation In February 2015, the Financial Accounting Standards Board (“FASB”) amended its consolidation guidance to end the deferral granted to investment companies with respect to applying the variable interest entity (“VIE”) guidance. The Company will adopt the guidance in the first quarter of 2016 on a modified retrospective basis. Under the modified retrospective approach, prior years would not be restated; instead, a cumulative-effect adjustment to equity as of the beginning of the adoption year would be recorded. The Company is currently evaluating the effect that adoption will have on its consolidated financial statements. The adoption is expected to 130 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) significantly reduce the number of funds consolidated by the Company, and therefore reduce the Company’s consolidated total assets, total liabilities and non-controlling redeemable interests in consolidated funds. However, the Company does not expect there to be an impact on net income attributable to the Company. Please see “— Recent Accounting Developments” below for more information regarding the consolidation guidance. Under current GAAP, the Company consolidates those entities for which it has a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. As of December 31, 2015, consolidated entities included eight 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 general partner and is deemed to have 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, 2015, the Company consolidated eight 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. The seven remaining VIEs represented CLOs for which the Company acts as collateral manager. Two of the CLOs had not priced as of December 31, 2015. The Company consolidated six VIEs as of December 31, 2014. There were no VIEs for which the Company was not the primary beneficiary as of December 31, 2015 and 2014. As of December 31, 2015, the Company consolidated seven CLOs with total assets and liabilities of $2.6 billion and $2.5 billion, respectively. The assets and liabilities, respectively, of the CLOs primarily consisted of investments in debt securities and debt obligations issued by the CLOs. The debt obligations issued by each CLO are collateralized by the same CLO’s investments, 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, both of which are eliminated in consolidation. As of December 31, 2015, the Company’s investments in its CLOs had a carrying value of $162.2 million (fair value approximated $130.1 million), which represented its maximum risk of loss as of that date. The Company’s investments are generally subordinated to other interests in the CLOs and entitle the Company to receive a pro-rata portion of the residual cash flows, if any, from the CLOs. Investors in the CLOs have no recourse against the Company for any losses they sustain. Please see note 7 for more information on CLO debt obligations. Voting Interest Model. For entities that are not VIEs, the Company evaluates those entities that it controls through a majority voting interest, including those Oaktree funds in which the Company as the sole general partner 131 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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. Consequently, 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 intercompany transactions, including revenues earned by Oaktree from the 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 the funds is increased by the amounts eliminated. Thus, the elimination of the amounts in consolidation has no effect on net income or loss attributable to the Company. Certain funds for which 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 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, related parties or third parties after consideration of contractual arrangements that govern allocations of income or loss. Please see note 9 for more information. 132 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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 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. 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. The Company’s identifiable intangible assets acquired in business combinations primarily relate to contractual rights to earn future management fees and incentive income. 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. Fair Value of Financial Instruments GAAP establishes a hierarchical 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, the inputs used to value 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. 133 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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. With the exception of open-end funds, all unquoted Level III investment values are reviewed and approved by (i) the Company’s valuation officer, who is independent of the investment teams, (ii) a designated investment professional of each strategy and (iii) for a substantial majority of unquoted Level III holdings as measured by market value, a valuation committee of the respective strategy. For open-end funds, unquoted Level III investment values are reviewed and approved by the Company’s valuation officer. 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 periodically evaluates changes in fair-value measurements 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. 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 specific 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. 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 ongoing monitoring and back-testing, the Company performs due diligence procedures surrounding 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 debt obligations of CLOs 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, and 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 in other comprehensive income (loss) within the consolidated statements of financial condition until realized. Gains and losses resulting from foreign-currency transactions are included in general and administrative expense. Derivatives and Hedging A derivative is an instrument whose value is derived from an underlying instrument or index, such as interest rates, equity securities, currencies, commodities or credit spreads. Derivatives include futures, forwards, 134 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) swaps, or option contracts, or other financial instruments with similar characteristics. Derivative contracts often involve future commitments to exchange interest payment streams or currencies based on a notional or contractual amount (e.g., interest-rate swaps or currency forwards). The Company enters into derivatives 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 derivatives 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 reporting 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 derivative contracts only with major financial institutions that have investment-grade ratings. Counterparty credit risk is evaluated in determining the fair value of derivatives. 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 derivatives 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, 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 are recorded 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 (loss) is released to earnings. 135 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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 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. 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. 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, 2015, 2014 and 2013 were $26.6 million, $32.7 million and $62.9 million, respectively. Incentive Income Incentive income generally represents 20% of each closed-end fund’s profits, subject to the return of contributed capital and a preferred return of typically 8% per annum, and up to 20% of certain evergreen fund’s annual profits, subject to high-water marks. The Company has elected to adopt “Method 1” for revenue recognition based on a formula. Under this method, incentive income is recognized when fixed or determinable, all related 136 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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 conclusion of each annual measurement period. Incentives received by Oaktree before the above criteria have been met are deferred and recorded as a deferred incentive income liability within accounts payable, accrued expenses and other liabilities in the consolidated statements of financial condition. There was no incentive income deferred as of December 31, 2015 and 2014. 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 includes (a) 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 (b) 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 expense 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 OCGH unit awards. Each valuation report is based on the market price of Oaktree’s Class A units 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, if applicable. 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 applicable to OCGH units 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 and (c) thin 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 expensed 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, leasehold improvements, an airplane 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, 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. A company-owned airplane is depreciated using the straight-line method over its 137 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) estimated useful life. Acquired intangibles primarily relate to contractual rights and are amortized over their estimated useful lives on a straight-line basis, which range from three to seven years. Other Income (Expense), Net Other income (expense), net represents non-operating income or expense. In the third quarter of 2014, this line item began to include 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”). In past years, it has also included the operating results of certain properties that were received as part of a 2010 arbitration award. 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 U.S. federal and state income tax purposes; rather it is taxed as a partnership. 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. 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. The Company’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 the Company’s non-U.S. income or loss is subject to corporate-level income tax, whereas a substantial portion of the Company’s 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 the Company’s effective tax rate to the extent non-U.S. rates differ from the combined U.S. federal and state tax rate. 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 within income tax expense in 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. 138 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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. 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 139 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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 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 as 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. 140 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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 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 in the consolidated statements of operations. When the securities are delivered, any gain or loss is included in net realized gain 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. 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 2015 were $2,913,281 long and $15,644 short. The average notional amounts of total-return swaps outstanding during 2014 were $1,358,867 long and $20,955 short. 141 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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 derivatives, 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. 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. 142 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) Recent Accounting Developments In February 2016, the FASB issued guidance that will require lessees to recognize a lease asset and a lease liability for most of its operating leases. Under current GAAP, operating leases are not recognized by lessees in its statements of financial position. The asset and liability will generally be equal to the present value of lease payments. The guidance does not significantly change the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee. The guidance is effective for the Company in the first quarter of 2019 using a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented. Early adoption is permitted. The Company is currently evaluating the effect that adoption will have on its consolidated financial statements. In April 2015, the FASB issued guidance that changes the presentation of debt issuance costs in the statements of financial position. Under current GAAP, such costs are reflected in the statements of financial position as a deferred asset. The new guidance will require these costs to be presented as a direct deduction from the related debt liability and to be amortized as interest expense. The amendment does not affect the current guidance on the recognition and measurement of debt issuance costs. The guidance is effective for the Company in the first quarter of 2016 on a retrospective basis, 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 February 2015, the FASB amended its consolidation guidance to end the deferral granted to investment companies with respect to applying VIE guidance. The new guidance does not affect 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 Company will adopt the guidance in the first quarter of 2016 on a modified retrospective basis. Under the modified retrospective approach, prior years would not be restated; instead, a cumulative-effect adjustment to equity as of the beginning of the adoption year would be recorded. The Company is currently evaluating the effect that adoption will have on its consolidated financial statements. The adoption is expected to significantly reduce the number of funds consolidated by the Company, and therefore reduce the Company’s consolidated total assets, total liabilities and non-controlling redeemable interests in consolidated funds. The Company does not expect there to be an impact on net income attributable to the Company. 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. 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 143 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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. In July 2015, the FASB delayed the effective date of the guidance by one year. The guidance will be effective for the Company in the first quarter of 2018 on either a full or modified retrospective basis, with early adoption permitted. The Company is currently evaluating the effect that adoption will have on its consolidated financial statements. 3. BUSINESS COMBINATIONS In August 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 identifiable intangible assets, primarily consisting of contractual rights associated with the management of Highstar Capital IV (“HS IV”), and $72.2 million of non-controlling interests in certain acquired subsidiaries that principally relate to investments in HS IV. Effective August 2014, the Company consolidated the financial position and results of operations of the controlled Highstar entities, including HS IV, and accounted for this transaction as a business combination. Please see notes 10 and 13 for more information regarding the contingent consideration liability. 144 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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, 2015 2014 2015 2014 Consumer discretionary ...................................................................... $ 3,387,072 $ 3,173,576 7.5% 6.8% Consumer staples ............................................................................... Energy ................................................................................................. 686,071 854,220 Financials ............................................................................................ 1,293,508 13,008,057 12,884,991 28.8 27.7 692,890 1,028,317 805,337 140,053 1,010,462 1,795,909 1,167,635 1,288,947 372,457 1,409,408 1.5 1.9 2.9 0.2 2.5 3.8 2.9 3.1 1.0 1.5 1.5 2.2 1.7 0.3 2.2 3.9 2.5 2.8 0.8 3.0 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 4.0 1.9 4.0 16.9 0.2 3.8 0.2 2.0 0.0 0.3 5.3 1.1 3.8 16.6 0.5 6.4 0.4 2.6 0.0 0.7 15,080,291 17,412,479 33.3 37.4 Government ........................................................................................ Health care .......................................................................................... Industrials ............................................................................................ Information technology ........................................................................ Materials .............................................................................................. Telecommunication services ............................................................... Utilities ................................................................................................ Total debt securities (cost: $15,304,870 and $13,611,109 as of December 31, 2015 and 2014, respectively) .............................. Equity securities: Consumer discretionary ...................................................................... Consumer staples ............................................................................... Energy ................................................................................................. Financials ............................................................................................ Health care .......................................................................................... 1,813,832 872,472 1,810,290 7,639,790 92,866 Industrials ............................................................................................ 1,728,086 95,508 1,135,799 1,710,706 1,293,815 1,393,521 471,711 686,126 67,253 882,366 16,471 156,865 Information technology ........................................................................ Materials .............................................................................................. Telecommunication services ............................................................... Utilities ................................................................................................ Total equity securities (cost: $13,290,699 and $13,911,333 as of December 31, 2015 and 2014, respectively) .............................. 145 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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, 2015 2014 2015 2014 Investments: Europe: Debt securities: Consumer discretionary ...................................................................... $ 1,329,387 $ 1,371,689 2.9% 3.0% Consumer staples ............................................................................... Energy ................................................................................................. Financials ............................................................................................ Government ........................................................................................ Health care .......................................................................................... Industrials ............................................................................................ Information technology ........................................................................ Materials .............................................................................................. Telecommunication services ............................................................... Utilities ................................................................................................ 222,789 144,742 808,568 46,946 197,569 291,950 71,168 377,460 200,610 18,028 242,513 370,456 803,468 — 147,661 344,642 41,960 421,327 142,322 24,668 Total debt securities (cost: $4,207,531 and $3,803,751 as of December 31, 2015 and 2014, respectively) .............................. 3,709,217 3,910,706 Equity securities: Consumer discretionary ...................................................................... Consumer staples ............................................................................... Energy ................................................................................................. 270,370 145,108 21,791 311,847 59,628 92,416 0.5 0.3 1.8 0.1 0.5 0.7 0.2 0.8 0.4 0.0 8.2 0.6 0.3 0.0 0.5 0.8 1.7 — 0.3 0.7 0.1 0.9 0.3 0.1 8.4 0.7 0.1 0.2 Financials ............................................................................................ 6,239,424 4,760,386 13.8 10.2 Government ........................................................................................ Health care .......................................................................................... 40,290 79,582 Industrials ............................................................................................ 1,499,142 Information technology ........................................................................ Materials .............................................................................................. Telecommunication services ............................................................... Utilities ................................................................................................ Total equity securities (cost: $7,627,245 and $5,884,950 as of December 31, 2015 and 2014, respectively) .............................. Asia and other: Debt securities: 635 52,887 1,226,825 1,190 398,559 — — 0.1 0.2 3.3 0.0 1.1 0.0 0.8 0.0 0.1 2.6 0.0 0.9 — — 1,646 475,306 4,834 344,736 9,122,229 6,904,373 20.2 14.8 Consumer discretionary ...................................................................... Consumer staples ............................................................................... Energy ................................................................................................. Financials ............................................................................................ Government ........................................................................................ Health care .......................................................................................... Industrials ............................................................................................ Information technology ........................................................................ Materials .............................................................................................. Utilities ................................................................................................ 102,531 33,061 193,645 27,413 6,974 47,010 268,710 31,983 248,830 2,713 140,732 7,927 217,299 18,935 50,073 48,977 420,323 23,555 252,965 9,113 Total debt securities (cost: $1,090,867 and $1,168,453 as of December 31, 2015 and 2014, respectively) .............................. 962,870 1,189,899 0.2 0.1 0.4 0.1 0.0 0.1 0.6 0.1 0.6 0.0 2.2 0.3 0.0 0.5 0.0 0.1 0.1 0.9 0.1 0.6 0.0 2.6 146 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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, 2015 2014 2015 2014 Investments: Asia and other: Equity securities: Consumer discretionary ...................................................................... $ 506,761 $ Consumer staples ............................................................................... Energy ................................................................................................. Financials ............................................................................................ Health care .......................................................................................... Industrials ............................................................................................ Information technology ........................................................................ Materials .............................................................................................. Telecommunication services ............................................................... Utilities ................................................................................................ Total equity securities (cost: $3,370,406 and $3,393,453 as of December 31, 2015 and 2014, respectively) .............................. Total debt securities .................................................................................. Total equity securities ............................................................................... 29,863 192,844 986,753 18,535 1,032,225 244,433 96,326 34,678 154,824 3,297,242 17,680,144 27,499,762 664,077 113,471 298,040 1,518,532 22,899 937,455 322,592 145,657 39,244 169,384 4,231,351 17,985,596 28,548,203 1.1% 1.4% 0.1 0.4 2.2 0.1 2.3 0.5 0.2 0.1 0.3 7.3 39.2 60.8 0.2 0.6 3.3 0.1 2.0 0.7 0.3 0.1 0.4 9.1 38.7 61.3 Total investments, at fair value ............................................................ $ 45,179,906 $ 46,533,799 100.0% 100.0% Securities Sold Short: Equity securities (proceeds: $102,236 and $70,760 as of December 31, 2015 and 2014, respectively) ........................................ $ (91,246) $ (64,438) As of December 31, 2015 and 2014, 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 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. 147 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) The following table summarizes net gains (losses) from investment activities: Year Ended December 31, 2015 2014 2013 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 .............................. $ Foreign-currency forward contracts (1) .............................. Total-return and interest-rate swaps (1) .................................. Options and futures (1) ................. Swaptions (1)(2) ............................. 895,271 $ (3,602,437) $ 1,937,061 $ (1,080,571) $ 3,649,821 $ 2,152,662 457,594 (98,420) 179,675 278,647 (217,234) (286,336) (215,837) 43,055 (2,933) (38,658) (30,198) 2,186 54,437 (38,431) (1,158) (193,079) 6,513 (4,770) 89,333 (17,922) — (22,619) (238) — Total .................................... $ 1,177,150 $ (3,767,527) $ 2,131,584 $ (993,260) $ 3,503,998 $ 1,843,469 Please see note 6 for additional information. (1) (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 amounts due from/to affiliates, respectively. As of December 31, 2015 As of December 31, 2014 Level I Level II Level III Total Level I Level II Level III Total — — 40,814 24,499 Assets U.S. Treasury securities (1) ......... $ 661,116 Corporate investments ............... — $ — $ — $ 661,116 $ 655,529 $ — $ — $ 655,529 41,876 25,750 67,626 23,660 17,154 Foreign-currency forward contracts (2) ............................ — 5,875 — 5,875 — 24,499 Total assets................................ $ 661,116 $ 47,751 $ 25,750 $ 734,617 $ 679,189 $ 41,653 $ — $ 720,842 Liabilities Contingent consideration (3) ....... $ Foreign-currency forward contracts (3) ............................ Interest-rate swaps (3) ................. Total liabilities............................. $ — $ — $ (28,494) $ (28,494) $ — $ — $ (27,245) $ (27,245) — — (3,286) (943) — — (3,286) (943) — — (3,439) (2,317) — — (3,439) (2,317) — $ (4,229) $ (28,494) $ (32,723) $ — $ (5,756) $ (27,245) $ (33,001) (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. 148 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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. Derivatives may relate to a mix of Level I, II or III investments, and therefore their fair-value hierarchy level may not correspond to the fair- value hierarchy level of the economically hedged investment. The table below summarizes the investments and other financial instruments of the consolidated funds by fair-value hierarchy level: As of December 31, 2015 As of December 31, 2014 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 — $ 7,891,929 $ 1,871,375 $ 9,763,304 $ — $ 8,135,722 $ 1,555,656 $ 9,691,378 5,450 4,902,226 3,009,164 7,916,840 4,039 5,539,518 2,750,661 8,294,218 stock ......................... 4,836,422 256,604 8,729,202 13,822,228 6,042,583 505,459 9,044,579 15,592,621 Equities – preferred stock ......................... — Real estate .................... 61,317 Real estate loan portfolios ................... Other ............................. — — — — — — 1,363,542 1,363,542 3,148 9,655,270 9,716,587 2,597,405 2,597,405 — — — — 945 — — — — 1,320,752 1,323,900 9,216,056 9,216,056 2,399,105 2,399,105 15,576 16,521 Total investments...... 4,903,189 13,050,759 27,225,958 45,179,906 6,050,715 14,180,699 26,302,385 46,533,799 Derivatives: Foreign-currency forward contracts ...... Swaps ........................... Options and futures ....... Swaptions...................... Total derivatives........ — — — — — 156,234 16,544 25,559 14 198,351 — — — — — 156,234 16,544 25,559 14 198,351 — — — — — 254,929 4,217 36,568 483 296,197 — — — — — 254,929 4,217 36,568 483 296,197 Total assets ....................... $ 4,903,189 $ 13,249,110 $ 27,225,958 $ 45,378,257 $ 6,050,715 $ 14,476,896 $ 26,302,385 $ 46,829,996 Liabilities Securities sold short: Equity securities ............ $ (91,246) $ — $ — $ (91,246) $ (64,438) $ — $ — $ (64,438) Derivatives: Foreign-currency forward contracts ...... Swaps ........................... Options and futures ....... Swaptions...................... Total derivatives........ — — (88) — (88) (64,364) (223,359) (4,146) — — (64,364) (8,251) (231,610) — — (54,663) — (54,663) (172,672) (10,687) (183,359) — — (4,234) (11,051) — — (3,918) (518) — — (14,969) (518) (291,869) (8,251) (300,208) (11,051) (231,771) (10,687) (253,509) Total liabilities .................... $ (91,334) $ (291,869) $ (8,251) $ (391,454) $ (75,489) $ (231,771) $ (10,687) $ (317,947) 149 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) The following tables set forth a summary of changes in the fair value of 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 2015: Beginning 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 Transfers into Level III ............ 364,501 248,824 570,137 Transfers out of Level III ............ (199,119) (246,615) (1,427,473) 15,835 142,165 (32,692) (61,317) — — Purchases ............ 684,359 1,267,168 1,706,683 203,077 1,973,704 1,207,691 Sales .................... (493,438) (584,756) (1,315,766) (305,917) (2,242,760) (1,100,273) 16,245 (4,670) 125,637 81,037 766,400 283,074 — — — — — — 1,341,462 (12,000) (1,979,216) — 7,042,682 (5,513) (6,048,423) 3,147 1,270,870 Realized gains (losses), net ..... Unrealized appreciation (depreciation), net .................... (56,829) (421,448) 25,405 81,450 (138,978) (192,192) 2,436 (1,210) (701,366) Ending balance ............. $ 1,871,375 $ 3,009,164 $ 8,729,202 $ 1,363,542 $ 9,655,270 $ 2,597,405 $ (8,251) $ — $ 27,217,707 Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period ....................... $ 2014: (43,305) $ (340,883) $ (33,299) $ 169,799 $ 342,560 $ (192,192) $ 2,436 $ — $ (94,884) 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 Transfers out of Level III ............ (2,121,960) (19,480) (809,815) 1,017 474,098 (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 ....................... $ (27,075) $ 114,613 $ 264,486 $ 299,817 $ 1,468,857 $ 181,439 $ (10,687) $ (132) $ 2,291,318 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. There were no transfers between Level I and Level II positions for the year ended December 31, 2015. Transfers between Level I and Level II positions for the year ended December 31, 2014 included $739.7 million from Level II to Level I due to the removal of discounts on three exchange-traded common equity investments upon the expiration of lockup periods and increased trading volume for one exchange-traded common equity investment. Transfers out of Level III were generally attributable to certain investments that experienced a more significant level of market trading activity or completed an initial public offering during the respective period and thus were valued using observable inputs. Transfers into Level III typically reflected either investments that experienced 150 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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 techniques and quantitative information utilized in determining the fair value of the consolidated funds’ Level III investments as of December 31, 2015: Investment Type Fair Value Valuation Technique Significant Unobservable Inputs (9)(10)(11) Range Weighted Average (12) Credit-oriented investments: Consumer discretionary: $ 289,107 Discounted cash flow (1) Discount rate Financials: 595,066 Discounted cash flow (1) Discount rate Industrials: 135,808 Discounted cash flow (1) Discount rate 451,584 232,995 Market approach (comparable companies) (2) Recent transaction price (5) 156,160 Recent market information (6) 259,669 232,958 Market approach (value of underlying assets) (2)(4) Recent transaction price (5) 241,667 Recent market information (6) 55,310 7,549 219,121 45,647 24,247 Discounted cash flow (1) / Sales approach (8) Market approach (comparable companies) (2) Market approach (value of underlying assets) (2)(4) Recent transaction price (5) Recent market information (6) 128,230 3,938 Market approach (comparable companies) (2) Recent transaction price (5) 71,174 Recent market information (6) Materials: 417,749 Discounted cash flow (1) Discount rate Information technology: 199,841 Discounted cash flow (1) Discount rate Other: 143,596 63,594 62,353 Market approach (comparable companies) (2) Recent transaction price (5) Recent market information (6) 442,797 Discounted cash flow (1) 60,643 Recent transaction price (5) 331,485 Recent market information (6) Earnings multiple (3) 5% – 15% 3x – 10x 12% 6x Not applicable Not applicable Not applicable Quoted prices / discount (discount not applicable) Not applicable Not applicable Underlying asset multiple 6% – 14% 1.1x – 1.5x 11% 1.2x Not applicable Not applicable Not applicable Quoted prices / discount (discount not applicable) Not applicable Not applicable Discount rate / Market transactions Earnings multiple (3) 5% – 15% 9% – 11% 5x – 9x 13% 10% 7x 0.9x Underlying asset multiple 0.7x – 1.0x Not applicable Not applicable Not applicable Quoted prices / discount (discount not applicable) Not applicable Not applicable Earnings multiple (3) 11% – 14% 7x – 9x 14% 8x Not applicable Not applicable Not applicable Quoted prices / discount (discount not applicable) Not applicable Not applicable Earnings multiple (3) 6% – 13% 6x – 8x 12% 7x Not applicable Not applicable Not applicable Quoted prices / discount (discount not applicable) Discount rate Not applicable Quoted prices / discount (discount not applicable) Not applicable Not applicable 5% – 20% 12% Not applicable Not applicable Not applicable Not applicable 151 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) Investment Type Fair Value Valuation Technique Significant Unobservable Inputs (9)(10)(11) Range Weighted Average (12) Equity investments: Financials: 58,352 Discounted cash flow (1) Discount rate 14% – 16% 1,029,904 189,714 Market approach (value of underlying assets) (2)(4) Recent transaction price (5) Industrials: 37,130 Discounted cash flow (1) 2,385,995 1,287,791 248,894 Market approach (comparable companies) (2) Market approach (value of underlying assets) (2)(4) Recent transaction price (5) 53,005 Recent market information (6) Materials: 1,238,760 25,133 616,596 Market approach (comparable companies) (2) Recent transaction price (5) Market approach (comparable companies) (2) 15% 1.4x Underlying asset multiple 1.0x – 1.5x Not applicable Not applicable Not applicable Discount rate Earnings multiple (3) 10% – 12% 5x – 18x Underlying asset multiple 0.9x – 1.0x 11% 9x 1.0x Not applicable Not applicable Not applicable Quoted prices / discount (discount not applicable) Earnings multiple (3) Not applicable Earnings multiple (3) Not applicable Not applicable 7x – 9x 8x Not applicable Not applicable 8x – 11x 9x 266,185 Other Not applicable Not applicable Not applicable 200,112 Recent transaction price (5) Not applicable Not applicable Not applicable 1,898,334 Market approach (comparable companies) (2) 164,026 221,350 171,463 Market approach (value of underlying assets) (2)(4) Recent transaction price (5) Recent market information (6) Earnings multiple (3) 6x – 18x Underlying asset multiple 1.1x – 1.3x 10x 1.2x Not applicable Not applicable Not applicable Quoted prices / discount (discount not applicable) Not applicable Not applicable Utilities Other: Real estate-oriented investments: 3,863,639 Discounted cash flow (1)(7) Discount rate Terminal capitalization rate Direct capitalization rate 6% – 44% 5% – 10% 5% – 10% 132,640 218,817 992,695 512,120 Discounted cash flow (1) / Sales approach (8) Market approach (comparable companies) (2) Market approach (value of underlying assets) (2)(4) Recent transaction price (5) Net operating income growth rate 0% – 38% Absorption rate Discount rate / Market transactions Earnings multiple (3) Underlying asset multiple 25% – 44% 6% – 8% 9x – 11x 1x – 1.8x Not applicable Not applicable Not applicable Real estate loan portfolios: 2,385,895 Recent market information (6) Quoted prices / discount 0% – 5% 3% 1,385,418 Sales approach (8) Market transactions Not applicable Not applicable 164,046 Other Not applicable Not applicable Not applicable 2,101,463 Discounted cash flow (1)(7) 495,942 Recent transaction price (5) Discount rate Not applicable 7% – 23% 13% Not applicable Not applicable Total Level III investments .................. $ 27,217,707 152 13% 7% 7% 10% 30% 7% 11x 1.6x Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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, 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 153 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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 .................. $ 26,291,698 154 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) (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. (7) (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. 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 (8) (9) 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 marketplace 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, 2015, the valuation technique for ten Level III investments changed, as follows: (a) three credit-oriented investments and one equity investment changed from a market approach based on comparable companies to a market approach based on the value of underlying assets as a result of an increased focus on the value of the company’s physical assets, (b) one equity investment changed from a market approach based on comparable companies to a valuation based on recent market information due to increased availability of broker quotations, (c) one credit-oriented investment changed from a valuation technique that used both a discounted cash flow and sales approach to an approach based solely on a discounted cash flow technique due to a decreased focus on the value of the issuer’s assets, (d) one real estate-oriented investment changed from a valuation based on a market approach to a discounted cash flow as a result of the stabilization of the underlying property, (e) one real estate-oriented investment changed from a valuation based on a discounted cash flow to a sales approach as a result of receiving offers from potential buyers, (f) one credit-oriented investment changed from a valuation based on recent market information to a discounted cash flow technique due to decreased availability of broker quotations, and (g) one credit-oriented investment, comprised of ten underlying loans, changed from a 155 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) valuation technique that used both a discounted cash flow and sales approach to a market approach based on the value of underlying assets as a result of an increased focus on the value of the assets collateralizing the loans. 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. 6. DERIVATIVES AND HEDGING The Company enters into derivatives 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 derivatives 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 derivatives. As of December 31, 2015 and 2014, the Company had outstanding two interest-rate swaps that were designated to hedge the interest-rate risk covering up to $150.0 million and $180.0 million, respectively, of the $250.0 million variable-rate bank term loan. The swaps, which had aggregate designated notional values of $318.8 million and $348.8 million as of December 31, 2015 and 2014, respectively, expire through January 2017. As of December 31, 2015, the hedges continued to be effective. 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 $7.1 million of realized gains and $1.4 million of cash received at closing. In connection with the launch of a CLO, the Company contributed the earlier $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. 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 third parties, net of $6.0 million in debt issuance costs. Please see note 7 for more information regarding debt obligations of CLOs. 156 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) Freestanding derivatives are financial 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 financial instruments may include foreign-currency exchange contracts, interest-rate swaps and other derivative contracts. The fair value of foreign-currency forward sell contracts consisted of the following: As of December 31, 2015: Euro, expiring 1/8/16-12/30/16 ...................................................... USD (buy GBP), expiring 1/8/16-10/31/16 ..................................... Japanese Yen, expiring 1/29/16-9/30/16 ....................................... Total ....................................................................................... Contract Amount in Local Currency Contract Amount in U.S. Dollars Market Amount in U.S. Dollars Net Unrealized Appreciation (Depreciation) 246,850 $ 274,135 $ 269,603 $ 4,532 70,594 5,840,300 70,594 48,631 72,476 48,692 (1,882) (61) $ 393,360 $ 390,771 $ 2,589 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 ....................................................................................... 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 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 expense (1) ................................................................... $ For the Year Ended December 31, 2015 2014 2013 23,554 $ 31,772 $ 3,763 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 in expenses) reflected in consolidated general and administrative expense. As of both December 31, 2015 and 2014, 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 derivatives in their 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 certain exposures for specific securities, and total-return 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 swaps is credit. None of the derivative instruments is accounted for as a hedging instrument utilizing hedge accounting. 157 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) The impact of derivatives held by the consolidated funds in the consolidated statements of operations was as follows: Year Ended December 31, 2015 2014 2013 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 ..... $ 457,594 $ (98,420) $ 179,675 $ 278,647 $ (217,234) $ (286,336) Total-return and interest-rate swaps.... (215,837) Options and futures ............................. Swaptions ............................................ 43,055 (2,933) (38,658) (30,198) 2,186 54,437 (38,431) (1,158) (193,079) 6,513 (4,770) 89,333 (17,922) — (22,619) (238) — Total ............................................ $ 281,879 $ (165,090) $ 194,523 $ 87,311 $ (145,823) $ (309,193) Foreign-currency Forward Contracts Certain consolidated funds enter into foreign-currency forward 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 forward contracts outstanding during 2015 were $5.4 billion long and $338.1 million short, and during 2014 were $4.9 billion long and $293.1 million short. Outstanding foreign-currency forward contracts as of December 31, 2015 and 2014, which included $156.2 million and $254.9 million of gross unrealized appreciation, and $64.4 million and $54.7 million of gross unrealized depreciation, respectively, were as follows: As of December 31, 2015: Buy (Sell) Contract Amount in Local Currency Contract Amount in U.S. Dollars Market Amount in U.S. Dollars Net Unrealized Appreciation (Depreciation) Euro, expiring 1/12/16-11/13/18 ............................................ (2,383,537) $ 2,630,690 $ 2,600,245 $ Pound Sterling, expiring 1/12/16-11/14/16 ............................ (1,401,289) Canadian Dollar, expiring 2/4/16-5/19/16.............................. Australian Dollar, expiring 3/17/16 ........................................ Hong Kong Dollar, expiring 1/21/16 ...................................... (46,505) (323,440) (1,896) Japanese Yen, expiring 1/21/16 -4/7/16................................ (7,651,169) Swiss Franc, expiring 1/21/16 ............................................... Singapore Dollar, expiring 1/21/16 ........................................ (481) (2,444) South Korean Won, expiring 1/4/16-12/1/16 ......................... (151,173,334) New Zealand Dollar, expiring 3/17/16-6/9/16 ........................ Danish Krone, expiring 11/4/16 ............................................. Chinese Yuan, expiring 3/17/16-5/20/16 ............................... Swedish Krona, expiring 1/21/16 .......................................... U.S. Dollar (buy Euro), expiring 1/12/16-11/18/16 ................ (284,364) (362,000) (466,187) (145) (32,547) 2,135,175 35,279 228,399 245 62,040 493 1,753 132,553 178,371 54,167 74,667 (11) 37,577 2,065,891 33,485 234,428 245 63,709 481 1,722 128,757 193,723 53,316 71,220 (17) 32,323 Total .............................................................................. $ 5,571,398 $ 5,479,528 $ 30,445 69,284 1,794 (6,029) — (1,669) 12 31 3,796 (15,352) 851 3,447 6 5,254 91,870 158 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) As of December 31, 2014: Buy (Sell) Contract Amount in Local Currency Contract Amount in U.S. Dollars Market Amount in U.S. Dollars Net Unrealized Appreciation (Depreciation) Euro, expiring 1/15/15-11/10/17 ............................................ (1,750,676) $ 2,157,379 $ 2,063,471 $ Pound Sterling, expiring 1/15/15-11/13/15 ............................ (1,502,240) 2,415,637 2,334,072 Canadian Dollar, expiring 2/12/15-5/14/15............................ Australian Dollar, expiring 5/14/15 ........................................ Hong Kong Dollar, expiring 1/22/15 ...................................... (40,491) (452,812) (33,463) Japanese Yen, expiring 1/15/15-11/27/15............................. (27,531,226) Swiss Franc, expiring 1/22/15 ............................................... Singapore Dollar, expiring 1/22/15 ........................................ (550) (3,396) South Korean Won, expiring 2/2/15-7/23/15 ......................... (95,179,385) 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 .................. (170,103) (336,981) 165,828 (3,963) 487,100 (31,528) 36,125 372,065 2,037 237,931 581 856 88,233 130,519 56,723 (2,001) 284 (121,007) 33,636 34,355 367,066 2,037 228,584 554 788 86,302 131,417 54,992 (2,526) 245 (124,720) 32,095 93,908 81,565 1,770 4,999 — 9,347 27 68 1,931 (898) 1,731 525 39 3,713 1,541 Total .............................................................................. $ 5,408,998 $ 5,208,732 $ 200,266 159 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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. While these derivatives 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. The table below sets forth the setoff rights and related arrangements associated with derivatives held by the Company. The “gross amounts not offset in statements of financial condition” columns represent derivatives that management has elected not to offset in the consolidated statements of financial condition even though they are eligible to be offset in accordance with applicable accounting guidance. As of December 31, 2015 Derivative Assets: Gross and 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 ....................................................... $ 5,875 $ 2,047 $ — $ 3,828 Derivative assets of consolidated funds: Foreign-currency forward contracts ....................................................... 156,234 Total-return and interest-rate swaps ...................................................... Options and futures ............................................................................... Swaptions ............................................................................................. 16,544 25,559 14 Subtotal ......................................................................................... 198,351 38,033 4,526 5,665 14 48,238 — — — — — 118,201 12,018 19,894 — 150,113 Total ...................................................................................................... $ 204,226 $ 50,285 $ — $ 153,941 Derivative Liabilities: Foreign-currency forward contracts ....................................................... $ (3,286) $ (2,047) $ — $ (1,239) Interest-rate swaps ............................................................................... Subtotal ......................................................................................... (943) (4,229) Derivative liabilities of consolidated funds: Foreign-currency forward contracts ....................................................... (64,364) Total-return and interest-rate swaps ...................................................... (231,610) Options and futures ............................................................................... (4,234) — (2,047) (38,788) (5,304) (4,146) — — — (202,677) (88) (943) (2,182) (25,576) (23,629) — Subtotal ......................................................................................... (300,208) (48,238) (202,765) (49,205) Total ...................................................................................................... $ (304,437) $ (50,285) $ (202,765) $ (51,387) 160 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) As of December 31, 2014 Derivative Assets: Gross and 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 ....................................................... $ 24,499 $ 5,756 $ — $ 18,743 Derivative assets of consolidated funds: Foreign-currency forward contracts ....................................................... 254,929 Total-return and interest-rate swaps ...................................................... Options and futures ............................................................................... Swaptions ............................................................................................. 4,217 36,568 483 Subtotal ......................................................................................... 296,197 51,260 512 12,605 483 64,860 — — — — — 203,669 3,705 23,963 — 231,337 Total ...................................................................................................... $ 320,696 $ 70,616 $ — $ 250,080 Derivative Liabilities: Foreign-currency forward contracts ....................................................... $ (3,439) $ (3,439) $ — $ Interest-rate swaps ............................................................................... Subtotal ......................................................................................... (2,317) (5,756) (2,317) (5,756) Derivative liabilities of consolidated funds: Foreign-currency forward contracts ....................................................... (54,663) (51,088) — — — Total-return and interest-rate swaps ...................................................... (183,359) Options and futures ............................................................................... (14,969) Swaptions ............................................................................................. (518) (9,427) (3,863) (483) (156,011) (11,106) — — — — (3,575) (17,921) — (35) Subtotal ......................................................................................... (253,509) (64,861) (167,117) (21,531) Total ...................................................................................................... $ (259,265) $ (70,617) $ (167,117) $ (21,531) 161 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 7. DEBT OBLIGATIONS AND CREDIT FACILITIES The Company’s debt obligations are set forth below: $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, rate as described below, term loan issued in March 2014, payable on March 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 ................................ Total remaining principal .................................................................................................................. $ As of December 31, 2015 2014 50,000 $ 50,000 250,000 250,000 50,000 100,000 100,000 50,000 50,000 250,000 250,000 50,000 100,000 100,000 850,000 $ 850,000 Future scheduled principal payments of debt obligations as of December 31, 2015 were as follows: 2016 ......................................................................................................................................................................... $ 2017 ......................................................................................................................................................................... 2018 ......................................................................................................................................................................... 2019 ......................................................................................................................................................................... 2020 ......................................................................................................................................................................... Thereafter ................................................................................................................................................................ 100,000 — — 500,000 — 250,000 Total ......................................................................................................................................................................... $ 850,000 The Company was in compliance with all financial maintenance covenants associated with its senior notes and bank credit facility as of December 31, 2015 and 2014. 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 $855.3 million and $895.9 million as of December 31, 2015 and 2014, respectively, utilizing an average borrowing rate of 3.7% and 3.2%, respectively. As of December 31, 2015, a 10% increase in the assumed average borrowing rate would lower the estimated fair value to $839.7 million, whereas a 10% decrease would increase the estimated fair value to $871.6 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 $100.0 million aggregate principal amount of its 4.21% Senior Notes, Series C, due September 3, 2029 (the “Series C Notes” and together with the Series A Notes and the Series B Notes, the “Notes”) pursuant to a note and guarantee agreement (the “Note Agreement”). The Notes are senior unsecured obligations of the Issuer, guaranteed by the Guarantors on a joint and several basis. Interest on the Notes is payable semi-annually. The Note Agreement provides for certain affirmative and negative covenants, including financial covenants relating to the Obligors’ combined leverage ratio and minimum assets under management. In addition, the Note Agreement contains customary representations and warranties of the Obligors and customary events of default, in certain cases, subject to cure periods. The Issuer may prepay all, or from time to time any part of, the Notes at any time, subject to the Issuer’s payment of the applicable make-whole amount determined with respect to such principal amount prepaid. Upon the occurrence of a change of control, the Issuer will be required to make an offer to prepay the Notes together with the applicable make-whole amount determined with respect to such principal amount prepaid. 162 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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, 2015, the Company had no outstanding borrowings under the Revolver and was able to draw the full amount available without violating any financial maintenance covenants. Credit Facilities of the Consolidated Funds Certain consolidated funds maintain revolving credit facilities to fund investments between, or in advance of, 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 aggregated $3.7 billion and $2.8 billion as of December 31, 2015 and 2014, respectively, using prices obtained from pricing vendors. Financial instruments that are valued using quoted prices for the subject or similar securities are generally classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment- specific factors or restrictions. 163 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) The consolidated funds had the following revolving credit facilities and term loans outstanding: Outstanding Amount as of December 31, 2015 2014 Facility Capacity LIBOR Margin (1) 434,000 $ 434,000 $ 450,000 — — — — 589,312 546,461 420,000 84,750 286,000 332,763 76,942 39,252 307,500 64,835 37,002 6,342 — — 626,366 — 71,491 17,441 249,500 $ 249,500 499,322 $ 500,000 402,422 $ 402,500 64,500 $ 64,500 — $ 620,000 — $ 575,000 420,000 $ 420,000 84,399 $ 86,000 — $ 305,000 332,706 $ 333,000 76,648 39,049 $ $ 78,000 40,000 — $ 307,500 — $ 65,000 — $ 37,500 50,054 $ 400,000 500,000 $ 500,000 — $ 150,000 — $ 1,400,000 800 $ 75,000 — $ 110,000 — $ 50,000 1.60% 1.55% 1.20% 1.20% 1.65% 1.25% 1.40% 1.47% 2.10% 1.60% 1.56% 2.30% 3.20% 1.55% 2.30% 3.10% 3.07% 1.60% 2.75% 1.50% 2.00% 2.00% 1.50% Maturity 10/20/2020 10/20/2022 4/20/2023 7/20/2023 7/20/2023 10/20/2018 10/20/2016 8/15/2025 8/15/2025 10/20/2020 11/15/2025 11/15/2025 11/15/2025 2/15/2026 2/15/2026 2/15/2026 8/13/2016 6/26/2015 2/12/2018 3/18/2018 12/15/2016 11/4/2016 1/30/2017 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 N/A N/A N/A N/A N/A 0.25% 0.25% 1.00% 0.60% 0.35% 0.25% 0.25% N/A N/A N/A N/A N/A 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 2.00% 1.50% 2.00% 2.00% 1.50% 625,833 650,725 650,000 1.65% 2/25/2016 0.25% 1.65% 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) ......... Credit facility (3) .......................... Credit facility (3) .......................... Senior variable rate notes (3) ......... Senior variable rate notes (3) ......... 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) ......... Revolving credit facility ................. Revolving credit facility ................. Revolving credit facility (4) ............. Revolving credit facility ................. Revolving credit facility ................. Revolving credit facility ................. Revolving credit facility ................. Euro-denominated revolving credit facility .............................. Euro-denominated revolving credit facility .............................. Revolving credit facility ................. 81,356 — 97,925 100,000 146,000 $ 221,000 Revolving credit facility ................. 439,504 201,739 $ 500,000 Revolving credit facility ................. Revolving credit facility (4) ............. Revolving credit facility (4) ............. Revolving credit facility ................. Credit facility (4) ............................. Credit facility (4) ............................. Revolving credit facility ................. Euro-denominated revolving credit facility .............................. Revolving credit facility ................. — 48,300 43,241 277,194 59,996 108,987 339,062 43,450 — Revolving credit facility .............. 69,339 2,000 56,697 88,000 $ $ $ 30,000 61,000 72,688 93,943 $ 450,000 — $ 59,996 — $ 108,987 — $ 800,000 — € 95,000 — $ 40,000 — $ 130,000 Euro-denominated revolving credit facility .............................. Credit facility (4)(5) .......................... 29,475 356,568 — € 35,000 214,423 $ 356,568 $ 6,462,762 $ 4,704,852 1.95% 1.65% 1.60% 1.50% 2.95% 2.75% 1.60% 4.50% 1.95% 1.45% 2.25% 2.25% 1.50% 1.50% 1.91% 2/2/2016 9/30/2015 1/16/2017 12/9/2016 3/15/2019 12/16/2018 9/8/2016 3/21/2018 3/11/2016 7/14/2017 9/1/2017 3/4/2017 10/13/2016 12/7/2017 Various 0.40% 0.25% 0.25% 0.20% N/A 1.00% 0.25% N/A N/A 1.95% N/A 1.60% N/A N/A N/A 2.00% N/A N/A 0.25% 1.45% 0.50% 0.30% 0.20% 0.20% N/A N/A 1.75% 1.50% 1.50% N/A (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, 2015 and 2014, outstanding standby letters of credit totaled $509,770 and $43,326, respectively. 164 € € Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) (3) The senior variable rate notes and credit facilities are collateralized by the portfolio investments and cash and cash-equivalents of the respective fund. The credit facility is collateralized by specific investments of the fund. (4) (5) Of the total balance outstanding, $147.4 million in March 2016, $64.0 million in July 2016, $52.3 million in October 2016 and $92.9 million in 2017. Debt Obligations of CLOs Debt obligations of CLOs represent amounts due to holders of debt securities issued by the CLOs, including term loans that had not priced as of period end. The table below sets forth the outstanding debt obligations of the CLOs for the periods indicated. As of December 31, 2015 As of December 31, 2014 Outstanding Borrowings Fair Value (1) Weighted Average Interest Rate Weighted Average Remaining Maturity (years) 457,196 $ 447,460 Senior secured notes (2) ......... $ Senior secured notes (3) ......... Senior secured notes (4) ......... Senior secured notes (5) ......... Senior secured notes (6) ......... Senior secured notes (7) ......... Subordinated note (8) .............. Subordinated note (8) .............. Subordinated note (8) .............. Subordinated note (8) .............. Subordinated note (9) .............. Term loan (10) .......................... Term loan ............................... 454,423 79,914 363,709 455,295 361,142 25,500 21,183 25,500 17,924 12,036 81,238 — 446,558 78,632 357,626 448,933 359,914 16,400 15,876 18,337 11,928 12,036 81,238 2.37% 2.52% 2.96% 2.26% 2.54% 2.29% N/A N/A N/A N/A N/A 1.20% — — 9.3 11.0 3.0 11.7 12.0 12.3 11.0 11.7 12.0 12.3 1.6 1.6 — Outstanding Borrowings Fair Value (1) $ 456,567 $ 449,167 453,821 85,776 405,018 — — 25,500 23,596 — — — — 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 — — — — 151,257 151,257 1.24% Weighted Average Remaining Maturity (years) 10.3 12.0 4.0 12.7 — — 12.0 12.7 — — — — 1.8 $ 2,355,060 $ 2,294,938 $ 1,601,535 $ 1,591,911 (1) (2) (3) (4) (5) (6) (7) (8) (9) 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 certain recently issued debt obligations, the carrying value approximates fair value. The weighted average interest rate is based on LIBOR plus 2.01%. The weighted average interest rate is based on LIBOR plus 2.20%. 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%. The weighted average interest rate is based on EURIBOR (subject to a zero floor) plus 2.26%. The weighted average interest rate is based on LIBOR plus 2.10%. The weighted average interest rate is based on EURIBOR (subject to a zero floor) plus 2.29%. The subordinated notes do not have a contractual interest rate; instead, they receive distributions from the excess cash flows generated by the CLO. This represents a subordinated credit facility with a total capacity of €25 million as of December 31, 2015. The facility does not have a contractual interest rate; instead, this facility receives distributions from the excess cash flows generated by the CLO. (10) The term loan had a total facility capacity of €150 million as of December 31, 2015. The interest rate is based on EURIBOR plus 1.20%. The unused commitment fee was 0.30%. The debt obligations of CLOs 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, 2015 and 2014, the fair value of CLO assets was $2.6 billion and $2.1 billion, respectively, and consisted of cash, corporate loans, corporate bonds and other securities. 165 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) Future scheduled principal payments with respect to the debt obligations of CLOs as of December 31, 2015 were as follows: 2016 ....................................................................................................................................................................... $ 2017 ....................................................................................................................................................................... 2018 ....................................................................................................................................................................... 2019 ....................................................................................................................................................................... 2020 ....................................................................................................................................................................... Thereafter ............................................................................................................................................................... — 93,274 79,914 — — 2,181,872 Total ....................................................................................................................................................................... $ 2,355,060 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, 2015 2014 2013 Beginning balance ....................................................................................... $ 41,681,155 5,796,081 Contributions ......................................................................................... Distributions .......................................................................................... Net income (loss) .................................................................................. Change in distributions payable ............................................................ Change in accrued or deferred contributions ........................................ Initial consolidation of a fund ................................................................. Foreign-currency translation and other ................................................. $ 38,834,831 $ 39,670,831 9,420,044 6,507,188 (7,962,362) (12,783,673) 1,647,753 (528,051) (26,760) 902,979 (607,279) 5,163,939 105,735 — — 170,811 (7,407,437) (1,812,539) 387,989 526 — (472,650) Ending balance ............................................................................................ $ 38,173,125 $ 41,681,155 $ 38,834,831 166 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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 the OCGH non-controlling interest, certain related parties and third parties. 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, 2015 and 2014, respectively, OCGH units represented 91,937,873 of the total 153,907,733 Oaktree Operating Group units and 109,088,901 of the total 152,852,620 Oaktree Operating Group units. Based on total allocable Oaktree Operating Group capital of $1,575,504 and $1,640,594 as of December 31, 2015 and 2014, respectively, the OCGH non-controlling interest was $941,141 and $1,170,893. As of December 31, 2015 and 2014, non- controlling interests attributable to certain related parties and third parties was $102,789 and $95,068, respectively. Distributions per Class A unit are set forth below: Payment Date Record Date Applicable to Quarterly Period Ended Distribution Per Unit November 12, 2015 August 13, 2015 May 14, 2015 February 25, 2015 November 9, 2015 August 10, 2015 May 11, 2015 February 19, 2015 September 30, 2015 June 30, 2015 March 31, 2015 December 31, 2014 Total 2015 ............................................................................................................................................................. November 13, 2014 August 14, 2014 May 15, 2014 February 27, 2014 November 10, 2014 August 11, 2014 May 12, 2014 February 24, 2014 September 30, 2014 June 30, 2014 March 31, 2014 December 31, 2013 Total 2014 ............................................................................................................................................................. November 15, 2013 August 20, 2013 May 21, 2013 March 1, 2013 November 13, 2013 August 16, 2013 May 17, 2013 February 25, 2013 September 30, 2013 June 30, 2013 March 31, 2013 December 31, 2012 $ $ $ $ $ Total 2013 ............................................................................................................................................................. $ 0.40 0.50 0.64 0.56 2.10 0.62 0.55 0.98 1.00 3.15 0.74 1.51 1.41 1.05 4.71 167 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) The following table sets forth a summary of net income attributable to the OCGH non-controlling interest and to Class A unitholders: Year Ended December 31, 2015 2014 2013 Weighted average Oaktree Operating Group units outstanding (in thousands): OCGH non-controlling interest .................................................................... Class A unitholders ...................................................................................... Total weighted average units outstanding .................................................... 104,427 49,324 153,751 110,078 42,582 152,660 115,992 34,979 150,971 Oaktree Operating Group net income: Net income attributable to OCGH non-controlling interest ........................... $ Net income attributable to Class A unitholders ............................................ Oaktree Operating Group net income (1) ...................................................... $ 195,162 87,620 282,782 $ $ 386,398 $ 824,795 146,446 243,250 532,844 $ 1,068,045 Net income attributable to Oaktree Capital Group, LLC: Oaktree Operating Group net income attributable to Class A unitholders.... $ Non-Operating Group expenses .................................................................. Income tax expense of Intermediate Holding Companies ............................ Net income attributable to Oaktree Capital Group, LLC ............................... $ 87,620 $ 146,446 $ 243,250 (2,097) (14,174) (1,645) (18,518) (1,195) (20,057) 71,349 $ 126,283 $ 221,998 (1) Oaktree Operating Group net income does not reflect amounts attributable to other non-controlling interests, which amounted to $10,214 and $12,981 for the years ended December 31, 2015 and 2014, respectively. The change in the Company’s ownership interest in the Oaktree Operating Group is set forth below: Net income attributable to Oaktree Capital Group, LLC .......................................... $ Equity reallocation between controlling and non-controlling interests ...................... Change from net income attributable to Oaktree Capital Group, LLC and transfers from non-controlling interest ................................................................................ $ Year Ended December 31, 2015 2014 2013 71,349 $ 126,283 $ 221,998 181,539 51,525 79,052 252,888 $ 177,808 $ 301,050 In November 2015, the Company’s board of directors approved the exchange of 12,998,725 outstanding vested and unvested OCGH units (the “November 2015 Exchange”) held by employees, former employees and other existing OCGH unitholders into an equal number of Class A units, which continued to be owned by the same unitholders. The exchange did not result in an increase to the tax receivable agreement liability. The Class A units issued in the exchange are subject to a three-year lock-up that is scheduled to be released in equal quarterly increments, generally two business days after the Company’s quarterly earnings release, starting with the earnings release for the fourth quarter of 2015 that was announced on February 9, 2016. As a result, approximately 1.1 million Class A units will become newly eligible for sale each quarter through the earnings release for the third quarter of 2018. Please see note 11 for more information. In March 2015, the Company issued and sold 4,600,000 Class A units in a public offering (the “March 2015 Offering”), resulting in $237.8 million in proceeds to the Company. The Company did not retain any proceeds from the sale of Class A units in the March 2015 Offering. The proceeds from the March 2015 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 March 2014, the Company issued and sold 5,000,000 Class A units in a public offering (the “March 2014 Offering”), resulting in $296.7 million in proceeds to the Company. The Company did not retain any proceeds from the sale of Class A units in the March 2014 Offering. The proceeds from the March 2014 Offering were used to 168 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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. 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, 2015 2014 2013 (in thousands, except per unit amounts) Net income attributable to Oaktree Capital Group, LLC ..................................... $ 71,349 $ 126,283 $ 221,998 Weighted average number of Class A units outstanding (basic and diluted)...... 49,324 42,582 34,979 Basic and diluted net income per Class A unit ................................................... $ 1.45 $ 2.97 $ 6.35 Vested OCGH units may be exchanged on a one-for-one basis into Class A units, subject to certain restrictions. As of December 31, 2015, there were 91,937,873 OCGH units outstanding, which are vested or will vest through March 1, 2025, that may ultimately be exchanged into 91,937,873 Class A units. The exchange of these units would proportionally increase the Company’s interest in the Oaktree Operating Group. However, as the restrictions set forth in the exchange agreement were in place at the end of each respective reporting period, those units were not included in the computation of diluted earnings per unit for the years ended December 31, 2015, 2014 and 2013. In connection with the Highstar acquisition, the Company has a contingent consideration liability that is payable in a combination of cash and 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 from the acquisition date. As of December 31, 2015 and 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 years ended December 31, 2015 and 2014. Please see note 13 for more information. 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, 2015, a maximum of 22,927,893 units have been authorized to be awarded pursuant to the 2011 Plan, and 8,118,332 units (including 2,000,000 EVUs and 33,608 phantom units) have been awarded 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 153,907,733 as of December 31, 2015. Pursuant to the terms of the OCGH limited partnership agreement, the general partner of OCGH may elect at its discretion to declare an open period during which an OCGH unitholder may exchange its OCGH units for, at the option of the Company’s board of directors, Class A units, an equivalent amount of cash based on then- 169 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) prevailing market prices, other consideration of equal value, or any combination of the foregoing under the terms of the Company’s exchange agreement, as amended. 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. In addition, the general partner of OCGH may at its sole discretion cause a mandatory sale or exchange of OCGH units owned by any OCGH unitholder. 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-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. Class A and OCGH Unit Awards In 2015, the Company granted 1,175,213 restricted OCGH units and 7,940 Class A units to its employees and directors, subject to annual vesting over a weighted average period of approximately 5.0 years. As of December 31, 2015, the Company expected to recognize compensation expense on its unvested Class A and OCGH unit awards of $136.3 million over a weighted average period of 4.3 years. In connection with the November 2015 Exchange, certain amendments were made to the OCGH limited partnership agreement. The amendment was accounted for as a modification of equity awards and did not result in an impact to net income attributable to the Company. Please see note 9 for more information. The Company utilizes a contemporaneous valuation report in determining fair value at the date of grant for OCGH unit awards. Each valuation report is based on the market price of Oaktree’s Class A units. 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 and (c) thin 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 2013 to more than five years in the most recent valuation in 2015. 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 the Company and six comparable public alternative asset management companies. In valuing employee OCGH unit grants, the discount percentage applied to the then-prevailing Class A unit trading price was 30% from January 1, 2013 to March 31, 2013, 25% from April 1, 2013 to April 30, 2014, and 20% from May 1, 2014 to December 31, 2015. The declines in the discount percentages 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 170 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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. A summary of the status of the Company’s unvested Class A and OCGH unit awards and a summary of changes for the periods presented are set forth below (actual dollars per unit): Class A Units OCGH Units Number of Units Weighted Average Grant Date Fair Value Number of Units Weighted Average Grant Date Fair Value Balance, December 31, 2012 ....................................................... Granted ................................................................................ Vested .................................................................................. Forfeited ............................................................................... Balance, December 31, 2013 ....................................................... Granted ................................................................................ Vested .................................................................................. Forfeited ............................................................................... Balance, December 31, 2014 ....................................................... Granted ................................................................................ Vested .................................................................................. Exchanged (1) ........................................................................ Forfeited ............................................................................... Balance, December 31, 2015 ....................................................... 11,669 $ 8,508 (3,595) — 16,582 7,164 (4,697) — 19,049 7,940 (50,931) 2,418,282 (18,000) 2,376,340 $ 41.91 47.83 40.07 — 45.34 58.88 44.54 — 50.63 55.75 40.11 38.10 42.29 38.18 4,902,348 $ 763,000 (1,152,026) (47,600) 4,465,722 1,770,418 (1,109,170) (55,978) 5,070,992 1,175,213 (1,421,597) (2,418,282) (140,359) 2,265,967 $ 28.17 34.60 24.10 29.54 30.30 43.98 24.90 34.42 36.21 44.04 32.38 38.10 35.68 40.70 (1) Represents the unvested units with respect to the November 2015 exchange of 12,998,725 outstanding vested and unvested OCGH units into an equal number of Class A units. Equity Value Units OCGH 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 a specified period (“Term”) in excess of a fixed “Base Value.” The value created will be measured on a per unit basis, based on Class A unit trading prices and certain components of quarterly distributions with respect to 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, OCGH granted 2,000,000 EVUs to Jay S. Wintrob, the Company’s Chief Executive Officer, subject to a five-year vesting schedule through December 2019. 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 accounts for those EVUs subject to such liquidity rights as liability-classified awards. As of December 31, 2015, there were 1,000,000 equity-classified EVUs and 1,000,000 liability-classified EVUs outstanding. 171 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) On February 24, 2015, the Company’s board of directors approved an amendment to certain terms relating to the EVUs granted to Mr. Wintrob. 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, over two additional years to provide a longer term incentive structure. As a result of the amendment, the number of OCGH units that Mr. Wintrob will receive in respect of the EVUs will generally be determined based on the appreciation of the Class A units and certain distributions made with respect to OCGH units over the period beginning on 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 such date. The amendment was accounted for as a modification of an equity award in the first quarter of 2015 and was immaterial to the Company’s consolidated financial statements. As of December 31, 2015, the Company expected to recognize $10.1 million of compensation expense on its unvested EVUs over the next 4.0 years. Equity-classified EVUs that require future service are expensed on a straight-line basis over the requisite service period. Liability-classified EVUs are remeasured at the end of each quarter. The fair value of EVUs was determined using a Monte Carlo simulation model at the grant date for equity- classified EVUs and as of the period end date for liability-classified EVUs. The fair value is affected by the Class A unit trading price and assumptions regarding certain complex and subjective variables, including the expected Class A unit trading price volatility, distributions and exercise timing, and the risk-free interest rate. The fair value of equity-classified EVUs reflected a 20% lack-of-marketability discount for the OCGH units that will be issued upon vesting, and an assumed forfeiture rate of zero. 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 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, 2015 2014 2013 Current: U.S. federal income tax .............................................................................. $ State and local income tax ......................................................................... Foreign income tax .................................................................................... $ 1,478 1,650 2,621 5,749 Deferred: U.S. federal income tax .............................................................................. $ State and local income tax ......................................................................... Foreign income tax .................................................................................... 11,306 786 (292) $ 11,800 Total: U.S. federal income tax .............................................................................. $ State and local income tax ......................................................................... Foreign income tax .................................................................................... Income tax expense .......................................................................................... $ 172 12,784 2,436 2,329 $ $ $ $ $ 4,128 $ (372) 2,245 6,001 12,544 1,836 (1,845) 12,535 16,672 1,464 400 $ $ $ $ 5,516 5,148 3,195 13,859 11,253 1,120 — 12,373 16,769 6,268 3,195 17,549 $ 18,536 $ 26,232 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) The Company’s income (loss) before income taxes consisted of the following: Year Ended December 31, 2015 2014 2013 Domestic income (loss) before income taxes .................................................... $ (1,518,108) Foreign income (loss) before income taxes ....................................................... 2,695 Total income (loss) before income taxes ........................................................... $ (1,515,413) $ 2,195,174 $ 6,233,758 (1,086) 3,206 $ 2,194,088 $ 6,236,964 The Company’s effective tax rate differed from the federal statutory rate for the following reasons: Year Ended December 31, 2015 2014 2013 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 ............................................................................................. 35.00 % (35.91) (0.17) (0.09) 0.01 (1.16)% 35.00% (34.15) 0.05 0.04 (0.10) 0.84% 35.00% (34.69) 0.09 0.03 (0.01) 0.42% The components of the Company’s deferred tax assets and liabilities were as follows: As of December 31, 2015 2014 2013 Deferred tax assets: Investment in partnerships ............................................................................ $ Equity-based compensation expense ............................................................ Other, net ...................................................................................................... Total deferred tax assets ...................................................................................... Total deferred tax liabilities ................................................................................... Net deferred tax assets before valuation allowance ............................................. Valuation allowance ............................................................................................. Net deferred tax assets ........................................................................................ $ 414,142 $ 351,962 $ 277,039 3,773 9,675 427,590 1,792 425,798 — 5,514 3,071 360,547 3,183 357,364 — 3,695 1,822 282,556 3,671 278,885 — 425,798 $ 357,364 $ 278,885 When 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 considered numerous factors that 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, 2015, 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, 2015, the total reserve balance including interest and penalties was $6.5 million. 173 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) The following is a reconciliation of unrecognized tax benefits (excluding interest and penalties thereon): Year Ended December 31, 2015 2014 2013 Unrecognized tax benefits, January 1 ................................................................... $ 5,575 $ 10,390 $ 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 ................................................................................................... 1,156 109 — — Lapse in statute of limitations ........................................................................ (1,884) 1,492 — (1,373) (3,657) (1,277) 9,472 1,633 1,029 (806) — (938) Unrecognized tax benefits, December 31 ............................................................. $ 4,956 $ 5,575 $ 10,390 If the above tax benefits as of December 31, 2015 were to be recognized in 2015, the $5.0 million would impact the annual effective tax rate. The Company recognizes interest and penalties related to unrecognized tax positions in the provision for income taxes in the consolidated statements of operations. As of both December 31, 2015 and 2014, the amount of interest and penalties accrued was $1.5 million. There was no net change in the amount of interest and penalties accrued from December 31, 2014 to December 31, 2015 because the $0.9 million accrual of interest and penalties in 2015 was fully offset by a $0.9 million benefit from the reversal of prior-year accruals upon the lapse in the statute of limitations. The Company recognized a net benefit of $2.9 million in 2014 and a net expense of $0.5 million in 2013. 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 2011. 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 financial statements. Taxing authorities are currently examining certain income tax returns of Oaktree, with certain of these examinations at an advanced stage. The Company believes that it is reasonably possible that one outcome of these current examinations and expiring statutes of limitation on other items may be the release of up to approximately $3.5 million of previously accrued Operating Group income taxes during the four quarters ending December 31, 2016. 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 consolidated financial statements; 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 174 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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. 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, 2015, are estimated to aggregate $37.1 million over the period ending approximately in 2029 with respect to the 2007 Private Offering, $75.2 million over the period ending approximately in 2034 with respect to the initial public offering, $104.0 million over the period ending approximately in 2035 with respect to the May 2013 Offering, $78.1 million over the period ending approximately in 2036 with respect to the March 2014 Offering, and $62.5 million over the period ending approximately in 2037 with respect to the March 2015 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. 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 consolidated financial statements. 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 net asset value. 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, 2015, 2014 and 2013, the aggregate of such amounts recorded at the fund level in excess of incentive income recognized by the Company was $1,540,469, $1,915,107 and $2,211,979, respectively, for which related direct incentive income compensation expense was estimated to be $750,077, $930,572 and $994,879, respectively. Contingent Consideration The Company has a contingent consideration obligation of up to $60.0 million related to the Highstar acquisition, payable in cash and fully-vested OCGH units. The amount of contingent consideration is based on the achievement of certain performance targets over a period of up to seven years from the acquisition date. As of December 31, 2015, the fair value of the contingent consideration liability was $28.5 million, based on a discount rate of 10%. In 2015 and 2014, the Company recognized expenses of $1.2 million and $1.7 million, respectively, associated with changes in the contingent consideration liability. The fair value of the contingent consideration liability is a Level III valuation and was valued using a discounted cash-flow analysis, based on a probability- weighted average estimate of achieving certain performance targets, including fundraising and revenue levels. The assumptions used in the discounted cash-flow analysis were based on a number of factors that require significant judgment. As a result, the ultimate amount of the contingent consideration liability may differ materially. 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 expense in the consolidated statements of operations. Commitments to Funds As of December 31, 2015 and 2014, the Company, generally in its capacity as general partner, had undrawn capital commitments of $469.4 million and $256.0 million, respectively, including commitments to both non- consolidated and consolidated funds. 175 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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. Occupancy costs, including non-lease expenses, were $19,305, $18,040 and $17,878 for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, aggregate estimated minimum commitments under Oaktree’s operating leases were as follows: 2016 ......................................................................................................................................................................... $ 14,132 2017 ......................................................................................................................................................................... 2018 ......................................................................................................................................................................... 2019 ......................................................................................................................................................................... 2020 ......................................................................................................................................................................... Thereafter ................................................................................................................................................................ 8,006 10,369 10,509 10,406 50,005 Total ......................................................................................................................................................................... $ 103,427 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, 2015 and 2014, the consolidated funds had aggregate potential credit and investment commitments of $1,274.8 million and $1,585.8 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 guarantee the repayment obligations of certain investee companies. The aggregate amounts guaranteed were not material to the consolidated financial statements as of December 31, 2015 and 2014. 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 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, 2015, the consolidated funds provided financial support to portfolio companies totaling $402.7 million and $5.4 billion, respectively, pursuant to contractual agreements and at the discretion of the consolidated funds. The majority of this financial support consisted of the funds’ purchases of investment securities and companies. 176 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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 13.2% of total compensation, subject to prescribed limits, for employees meeting certain eligibility requirements. For the years ended December 31, 2015, 2014 and 2013, the Company incurred expenses of $9.1 million, $7.8 million and $6.0 million, respectively, in connection with the plan. Oaktree also has a discretionary annual bonus program for all employees, which is based, in part, on 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 $160,952 and $159,264 as of December 31, 2015 and 2014, respectively, based on a discount rate of 10.0%. As of December 31, 2015 2014 Due from affiliates: Loans ....................................................................................................................................... $ 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 ............................................................................................................................ 29,718 $ 39,452 777 3,788 1,616 2,525 3,221 1,683 Total due from affiliates ...................................................................................................... $ 35,899 $ 46,881 Due to affiliates: Due to OCGH unitholders in connection with the tax receivable agreement (please see note 12) ........................................................................................................................................ $ 356,851 Amounts due to senior executives, certain non-controlling interest holders and employees ..... — Total due to affiliates .......................................................................................................... $ 356,851 $ $ 308,475 739 309,214 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 debt and generated interest income of $2,144, $1,440 and $1,629 for the years ended December 31, 2015, 2014 and 2013, respectively. Due From Oaktree Funds and Portfolio Companies In the normal course of business, the Company advances certain expenses on behalf of Oaktree funds. Amounts advanced on behalf of consolidated funds are eliminated in consolidation. Certain expenses initially paid by the Company, primarily employee travel and other costs associated with particular portfolio company holdings, are reimbursed by the portfolio companies. Other Investment Transactions The Company’s senior executives, directors and senior professionals are permitted to invest their own capital (or the capital of family trusts or other estate planning vehicles they control) in Oaktree funds, for which they pay the particular fund’s full management fee but not its incentive allocation. To facilitate the funding of capital calls by funds in which employees are invested, the Company periodically advances on a short-term basis the capital calls on certain employees’ behalf. These advances are generally reimbursed toward the end of the calendar quarter in 177 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 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 As of December 31, 2014, the Company leased an airplane for business purposes. On March 23, 2015, the Company exercised a purchase option for $12.5 million. Howard Marks, the Company’s co-chairman, may use this aircraft for personal travel and, pursuant to a policy adopted by the Company 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. 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, 2015 and 2014, there was approximately $71.3 million and $100.1 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. The Company conducts its investment management business primarily in the United States, where substantially all of its revenues are generated. In the fourth quarter of 2015, the Company made certain changes to the calculation methodology of adjusted net income. These changes were made to keep the Company’s segment reporting consistent with the data that its chief operating decision maker uses to manage the business. One change involves third-party placement costs associated with the marketing of closed-end funds, which now are capitalized and amortized as general and administrative expense in proportion to the associated management fee stream. Previously, these placement costs were expensed as incurred, which mirrors their treatment under GAAP and remains the case for any such costs associated with open-end and evergreen funds. Prior-period placement costs associated with closed-end funds were deemed to be immaterial and thus adjusted net income has not been recast for this change. The other changes involve two areas related to foreign currency: gains and losses stemming from our hedging activities, and income or expense from foreign-currency transactions. Previously, all of these income statement effects, whether realized or unrealized, were included in the particular period’s general and administrative expense. This treatment remains the case for GAAP presentation. However, for adjusted net income, realized gains and losses from the Company’s foreign-currency hedging activities now are included in the same revenue or expense line item as the underlying exposure that was hedged. Unrealized gains and losses from such hedging activities are deferred until realized. Foreign-currency transaction gains and losses are included in other income (expense), net. Fiscal years 2015 and 2014 have been recast to retroactively reflect these changes related to foreign currency. 178 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) The impact on 2013 from the foreign currency changes was deemed to be immaterial and thus adjusted net income has not been recast for these changes. 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 classified for segment reporting as expenses and under GAAP as other income. In addition, ANI excludes the effect of (a) non-cash equity-based compensation expense related to unit grants made before our initial public offering, (b) acquisition-related items including amortization of intangibles and changes in the contingent consideration liability, (c) differences arising from EVUs that are classified as liability awards under GAAP but as equity awards for segment reporting, (d) income taxes, (e) other income or expenses applicable to OCG or its Intermediate Holding Companies, and (f) the adjustment for non-controlling interests. Beginning with the fourth quarter of 2015, the definition of ANI was modified to reflect differences with respect to (a) third-party placement costs associated with closed-end funds, which under GAAP are expensed as incurred, but for ANI are capitalized and amortized as general and administrative expense in proportion to the associated management fee stream, and (b) gains and losses resulting from foreign-currency transactions and hedging activities, which under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period, but for ANI unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged. Foreign-currency transaction gains and losses are included in other income (expense), net. Prior periods have not been recast for the change related to third-party placement costs, but have been recast to retroactively reflect the change related to foreign-currency hedging for fiscal years 2015 and 2014. The impact on 2013 from the foreign currency changes was deemed to be immaterial and thus ANI has not been recast for these changes. 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. 179 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) ANI (1) was as follows: Revenues: Year Ended December 31, 2015 2014 2013 Management fees ......................................................................................... $ Incentive income ........................................................................................... Investment income ........................................................................................ Total revenues ........................................................................................ 753,805 $ 762,823 $ 749,901 263,806 48,253 491,402 117,662 1,030,195 258,654 1,065,864 1,371,887 2,038,750 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 ......................................................................... Adjusted net income ............................................................................................. $ (404,442) (37,978) (141,822) (120,783) (10,018) (715,043) 350,821 (35,032) (3,927) (379,360) (19,705) (231,871) (127,954) (7,249) (365,306) (3,828) (436,217) (117,361) (7,119) (766,139) (929,831) 605,748 1,108,919 (30,190) (2,431) (28,621) 409 311,862 $ 573,127 $ 1,080,707 (1) Beginning with the fourth quarter of 2015, the definition of adjusted net income was modified to reflect differences with respect to (a) third-party placement costs associated with closed-end funds, which under GAAP are expensed as incurred, but for adjusted net income are capitalized and amortized as general and administrative expense in proportion to the associated management fee stream, and (b) unrealized gains and losses resulting from foreign-currency hedging activities, which under GAAP are recognized as general and administrative expense in the current period, but for adjusted net income are deferred until realized at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged. Prior periods have not been recast for the change related to third-party placement costs, but have been recast to retroactively reflect the change related to foreign-currency hedging for fiscal years 2015 and 2014. The impact on 2013 from the foreign currency changes was deemed to be immaterial and thus ANI has not been recast for these changes. Placement costs associated with closed-end funds amounted to $4.4 million, $25,000 and $1.8 million for the first three quarters of 2015, full-year 2014 and full-year 2013, respectively. Interest income was $5.1 million, $3.6 million and $3.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. (2) 180 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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. Net income attributable to Oaktree Capital Group, LLC ........................................ $ Incentive income (1) ....................................................................................... Incentive income compensation (1) ................................................................ Equity-based compensation (2) ...................................................................... Placement costs (3) ........................................................................................ Foreign-currency hedging (4) .......................................................................... Acquisition-related items (5) ........................................................................... Income taxes (6) ............................................................................................. Non-Operating Group expenses (7) ................................................................ Non-controlling interests (7) ............................................................................ Adjusted net income ............................................................................................. $ Year Ended December 31, 2015 2014 2013 71,349 $ 126,283 $ 221,998 (19,002) 19,009 16,403 3,619 2,619 5,251 17,549 2,097 192,968 28,813 (10,677) 21,690 — (2,003) 2,442 18,536 1,645 386,398 (64,460) 46,334 24,613 — — — 26,232 1,195 824,795 311,862 $ 573,127 $ 1,080,707 (1) This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG. (2) This adjustment adds back the effect of (a) equity-based compensation expense 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 as equity awards for segment reporting. (3) This adjustment adds back the effect of timing differences with respect to the recognition of third-party placement costs associated with closed-end funds between adjusted net income and net income attributable to OCG. (4) This adjustment adds back the effect of timing differences associated with the recognition of unrealized gains and losses related to foreign-currency hedging between adjusted net income and net income attributable to OCG. (5) This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability. (6) Because adjusted net income is a pre-tax measure, this adjustment adds back the effect of income tax expense. (7) Because adjusted net income is calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or non-controlling interests. 181 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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 (expense), net (4) .................................................................... Other income (loss) of consolidated funds (5) ............................................... Income taxes ............................................................................................... Net loss 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 .......................................................................................................... $ Corporate investments (6) ............................................................................. $ Total assets (7) .............................................................................................. $ As of or for the Year Ended December 31, 2015 Segment Adjustments Consolidated 753,805 $ (558,497) $ 195,308 263,806 48,253 (715,043) (35,032) (3,927) — — — — (257,209) 3,705 (225,865) (181,767) 23,933 (631,575) (17,549) 6,597 51,958 (940,908) (216,799) 20,006 (631,575) (17,549) 1,809,683 1,809,683 (205,372) (205,372) 311,862 $ (240,513) 1,434,109 $ (1,220,121) $ $ 71,349 213,988 3,257,728 $ 48,553,370 $ 51,811,098 (1) The adjustment represents the elimination of amounts earned from the consolidated funds and for management fees, the reclassification of $12,676 of net gains related to foreign-currency hedging activities to general and administrative expense. (2) The expense adjustment consists of (a) equity-based compensation expense of $16,475 related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of $165,904, (c) expenses incurred by the Intermediate Holding Companies of $1,690, (d) the effect of timing differences in the recognition of incentive income compensation expense between adjusted net income and net income attributable to OCG of $19,009, (e) acquisition- related items of $5,251, (f) adjustments of $23,552 related to amounts received for contractually reimbursable costs that are classified as expenses for segment reporting and as other income under GAAP, (g) differences of $72 arising from EVUs that are classified as liability awards under GAAP but as equity awards for segment reporting, (h) $3,619 related to third-party placement costs, (i) $9,676 of net gains related to foreign-currency hedging activities, and (j) other expenses of $113. (3) The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of the consolidated funds and the exclusion of segment interest income. (4) The adjustment to other income (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $23,552 that are classified as expenses for segment reporting and as other income under GAAP, and (b) the reclassification of $381 of net losses related to foreign-currency hedging activities to general and administrative expense. (5) The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investment income 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. The $1.4 billion of corporate investments included $1.3 billion of equity-method investments. (7) The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable. 182 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) Management fees (1) .................................................................................... $ Incentive income (1) ...................................................................................... Investment income (1) ................................................................................... Total expenses (2) ......................................................................................... Interest expense, net (3) ................................................................................ Other income (expense), 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 .......................................................................................................... $ Corporate investments (6) ............................................................................. $ Total assets (7) .............................................................................................. $ As of or for the Year Ended December 31, 2014 Segment Adjustments Consolidated 762,823 $ (570,768) $ 192,055 491,402 117,662 (766,139) (30,190) (2,431) (489,563) (83,967) (181,338) (99,752) 5,449 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) 573,127 $ (446,844) 1,515,443 $ (1,327,480) $ $ 126,283 187,963 3,267,799 $ 50,076,263 $ 53,344,062 (1) The adjustment represents the elimination of amounts attributable to the consolidated funds and for management fees, the reclassification of $1,669 of net losses related to foreign-currency hedging activities to general and administrative expense. (2) The expense adjustment consists of (a) equity-based compensation expense 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 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 $10,677, (e) acquisition- related items of $2,442, (f) adjustments of $8,319 related to amounts received for contractually reimbursable costs that are classified as expenses for segment reporting and as other income under GAAP, (g) differences of $33 arising from EVUs that are classified as liability awards under GAAP but as equity awards for segment reporting, (g) $3,204 of net gains related to foreign-currency hedging activities, and (i) 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 (expense), net represents adjustments related to (a) amounts received for contractually reimbursable costs of $8,319 that are classified as expenses for segment reporting and as other income under GAAP, and (b) the reclassification of $2,870 of net gains related to foreign-currency hedging activities to general and administrative expense. (5) The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investment income attributable to 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. The $1.5 billion of corporate investments included $1.3 billion of equity-method investments. (7) The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable. 183 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ 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 income attributable to non-controlling interests in consolidated subsidiaries .............................................................................................. Adjusted net income/net income attributable to Oaktree Capital Group, LLC .......................................................................................................... $ Corporate investments (5) ............................................................................. $ Total assets (6) .............................................................................................. $ 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 (929,831) (28,621) 409 (202,627) (177,231) (32,539) — 2,317 56,027 (1,107,062) (61,160) 409 — — — — 7,153,828 7,153,828 (26,232) (26,232) (5,163,939) (5,163,939) (824,795) (824,795) 1,080,707 $ (858,709) 1,197,173 $ (1,027,246) $ $ 221,998 169,927 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 expense 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 Company’s investments in the consolidated funds, including investments in its CLOs, that are treated as equity- or cost-method investments for segment reporting. The $1.2 billion of corporate investments included $1.1 billion of equity-method investments. (6) The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable. 184 Oaktree Capital Group, LLC Notes to Consolidated Financial Statements — (Continued) December 31, 2015 ($ in thousands, except where noted) 18. SUBSEQUENT EVENTS On February 9, 2016, the Company declared a distribution attributable to the fourth quarter of 2015 of $0.47 per Class A unit, bringing aggregate distributions relating to fiscal year 2015 to $2.01. The distribution of $0.47 was paid on February 26, 2016 to Class A unitholders of record at the close of business on February 19, 2016. 19. QUARTERLY FINANCIAL DATA (UNAUDITED) Three Months Ended March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015 50,819 $ 51,487 $ 50,491 $ 49,108 Revenues .............................................................................. $ Expenses ............................................................................... Other income (loss) ............................................................... (235,974) 1,476,049 Income (loss) before income taxes ........................................ $ 1,290,894 Net income (loss) ................................................................... $ 1,283,019 Net income attributable to Oaktree Capital Group, LLC ......... $ Net income per unit (basic and diluted): 38,253 Net income per Class A unit ................................................... $ Distributions declared per Class A unit................................... $ 0.85 0.56 (245,929) (116,711) (190,518) (1,624,651) (311,153) $ (1,764,678) (316,638) $ (1,766,571) 19,814 0.41 0.64 $ $ $ 1,887 0.04 0.50 $ $ $ $ $ (268,487) (511,097) (730,476) (732,772) 11,395 0.21 0.40 $ $ $ $ $ Three Months Ended March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 40,431 $ 51,560 $ 54,243 $ 47,660 (252,401) (375,461) (573,619) (578,960) 18,913 0.43 0.55 $ $ $ $ $ (221,372) 80,245 (93,467) (92,915) 24,390 0.56 0.62 $ $ $ $ $ Revenues .............................................................................. $ Expenses ............................................................................... Other income (loss) ............................................................... (258,319) (215,385) 1,766,058 1,476,829 Income (loss) before income taxes ........................................ $ 1,548,170 $ 1,313,004 Net income (loss) ................................................................... $ 1,540,184 $ 1,307,243 Net income attributable to Oaktree Capital Group, LLC ......... $ Net income per unit (basic and diluted): 51,794 Net income per Class A unit ................................................... $ Distributions declared per Class A unit................................... $ 1.30 1.00 $ $ $ 31,186 0.72 0.98 185 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, 2015 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, 2015 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, 2015, which is included in “Financial Statements and Supplementary Data.” 186 Item 9B. Other Information None. 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 26, 2016: Name Howard S. Marks ................. 69 Director and Co-Chairman Age Position Bruce A. Karsh ..................... 60 Director, Co-Chairman and Chief Investment Officer Jay S. Wintrob...................... 58 Director and Chief Executive Officer John B. Frank....................... 59 Director and Vice Chairman David M. Kirchheimer........... 59 Director, Chief Financial Officer and Principal Susan Gentile ...................... 49 Chief Accounting Officer and Managing Director Stephen A. Kaplan ............... 57 Director and Principal Sheldon M. Stone ................ 63 Director and Principal Robert E. Denham ............... 70 Director Larry W. Keele ..................... 58 Director D. Richard Masson .............. 57 Director Wayne G. Pierson ................ 65 Director Marna C. Whittington ........... 68 Director Todd E. Molz ........................ 44 General Counsel, Chief Administrative Officer and Secretary 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. Mr. Marks is a member of the Investment Committees of the Metropolitan Museum of Art and the Edmond J. Safra Foundation; a Trustee of the Metropolitan Museum; Chairman of the Board of Trustees of the Royal Drawing School; and an Emeritus Trustee of the University of Pennsylvania (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 187 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 is Chairman of the Board of Tribune Media Company and serves on the boards of a number of privately held companies. He is a member of the investment committee of the Broad Foundations. Mr. Karsh is Trustee Emeritus of Duke University, having served as Trustee from 2003 to 2015, and as Chairman of the Board of DUMAC, LLC, the entity that managed Duke’s endowment, from 2005 to 2015. 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 is our Chief Executive Officer and has served as a member of the Board of Directors since September 2011. Prior to joining the firm as Chief Executive Officer, he was President and Chief Executive Officer of AIG Life and Retirement, the U.S.-based life and retirement services segment of American International Group, Inc., from 2009 to 2014. Following AIG’s acquisition of SunAmerica in 1998, Mr. Wintrob was Vice Chairman and Chief Operating Officer of AIG Retirement Services, Inc. from 1998 to 2001, and President of Chief Executive Officer from 2001 to 2009. Mr. Wintrob began his career in the financial services in 1987 as Assistant to the Chairman of SunAmerica Inc., and then went on to serve in several other executive positions, including President of SunAmerica Investments, Inc. overseeing the company’s invested asset portfolio. Prior to joining SunAmerica, Mr. Wintrob was with the law firm of O’Melveny & Myers. He received his B.A. and J.D. from the University of California, Berkeley. 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 about nine 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 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, Good Samaritan Hospital of Los Angeles and the XPRIZE Foundation. 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, a Principal since 2002 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 leading ticket processing and distribution company. Previously, he was Executive Vice President and Chief Financial Officer of Republic Pictures Corporation, a 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). Mr. Kirchheimer serves on the Board of Trustees of Huntington Memorial Hospital. 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. 188 Susan Gentile is our Chief Accounting Officer and a Managing Director. Ms. Gentile joined Oaktree from the Clorox Company, where she was most recently Controller and Chief Accounting Officer. 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. 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, 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. Mr. Denham 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 Russell Sage Foundation (Chair) and 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 has served as a member of the board of directors of a number of publicly traded companies and, therefore, is experienced with board responsibilities, oversight and control which will benefit our board of directors and 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. Larry W. Keele has been a director since May 2007. Prior to his retirement in 2015, Mr. Keele was a co- founder and Principal of Oaktree, where for over 20 years, he served as a portfolio manager and head of the 189 Convertible Securities group. From 1986 to 1995, Mr. Keele managed Trust Company of the West’s Convertible Value portfolios. 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. He is a CFA charterholder. Mr. Keele’s investment and finance expertise and his familiarity with our company add value to our board of directors and to our business. 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. 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 as 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 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 investment and finance expertise and her familiarity with our company add value to our board of directors and to our business. Todd E. Molz is our 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. There are no family relationships among any of our executive officers and directors. 190 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 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 – Investor Relations” section. 191 Executive Committee Our board of directors has established an executive committee of the Company that acts, when necessary, in place of our full board of directors during intervals between meetings of our board of directors. This 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 – Investor Relations” section. We intend to disclose any amendment 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 – Investor Relations” 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 2016. 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, 2015, such persons complied with all such filing requirements. 192 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. The following individuals were our named executive officers (“NEOs”) for fiscal year 2015: (a) Bruce A. Karsh, our Chief Investment Officer and Co-Chairman; (b) Jay S. Wintrob, our Chief Executive Officer and principal executive officer; (c) David M. Kirchheimer, our Chief Financial Officer; (d) Caleb S. Kramer, who manages our European Principal Investments strategy; and (e) Scott L. Graves, Head of Credit Strategies. Compensation Elements for Named Executive Officers Our NEOs 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 are 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 serves as an incentive for Mr. Wintrob to create value in our Class A units and the level of cash distributions to OCGH units, in a tax efficient manner for Oaktree and Mr. Wintrob. Mr. Wintrob’s profit sharing arrangement is structured similarly to those of Mr. Kirchheimer and John B. Frank, our Vice Chairman, although fees and allocations from certain pre-existing funds are not counted for purposes of Mr. Wintrob’s profit sharing amounts. When setting the percentage of Mr. Wintrob’s profit sharing level, the Company took into account the percentages at which Messrs. Frank and Kirchheimer are compensated and the subjective understanding of the market for CEO annual cash compensation by Mr. Karsh and Howard S. Marks, our Co-Chairman. Determination of Executive Compensation To the extent that an NEO’s compensation is modified, such decisions are based upon Messrs. Marks’s, Karsh’s and 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. With respect to 2015, our executive committee set the overall compensation pool based on a variety of factors, including the performance of the Company, group and individual contributions, compensation market trends, and other factors we considered relevant. The relevant department heads then apportioned the compensation pool among our professionals with input from and approval by Mr. Wintrob. 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 193 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 203 and 204, 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 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 that 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. The compensation received by Mr. Graves in 2015 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, discretionary bonus, and carried interest for strategies from which we may earn incentive income. For Mr. Graves, the carried interest he received in 2015 was consistent with the amounts we paid other similarly situated senior investment professionals in the Distressed Debt group. 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 and Class A 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 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 194 an exchange agreement. In addition, the general partner may at its sole discretion cause a mandatory sale or exchange of OCGH units owned by any OCGH unitholder. Our NEOs will forfeit all their unvested OCGH units when they leave 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 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, Class A 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, Karsh and 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, we pay a portion of the bonus awards to our senior personnel in the form of Class A units, based on a formula that increases the portion paid in the form of equity as an individual’s total compensation increases. Such awards typically vest twenty-five percent annually over four years. For other awards of equity 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. Scott Graves received a grant of 6,911 OCGH units in February 2015 that vests over 4 years, with the first vesting date on March 1, 2016. These units were awarded in connection with the approach we adopted in 2013 of awarding a portion of our professionals’ bonuses above certain thresholds in the form of OCGH units or, commencing in 2016, Class A units. No other NEO received an OCGH unit grant in 2015. 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 2015 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. 195 Distributions on EVUs. Commencing in 2016, Mr. Wintrob will also be eligible to receive cash distributions in respect of the EVUs. He did 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 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. At this time, we do not anticipate that the performance target for 2015 will be achieved. 196 We believe the EVUs are well designed to align Mr. Wintrob’s compensation with the total return achieved by the Company’s unitholders because 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. As of December 31, 2015, 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. As of December 31, 2015, our NEOs beneficially owned the following number of OCGH units, EVUs, and Class A units: Name Number of OCGH Units (1) Number of EVUs Number of Class A Units Total Number of Units Percentage of Beneficial Ownership of Oaktree Operating Group Bruce A. Karsh ............................................ 17,765,767 — 101,826 17,867,593 11.61% Jay S. Wintrob ............................................. — 2,000,000 David M. Kirchheimer .................................. 1,407,097 Caleb S. Kramer .......................................... 930,819 Scott L. Graves ........................................... 1,267,438 — — — 6,191 100,136 100,079 100,072 2,006,191 1,507,233 1,030,898 1,367,510 * * * * * Less than 1% (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 an NEO’s rights to historical incentive income, if applicable. 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 and Kirchheimer, and more on particular strategies we manage in the case of Messrs. Karsh, Kramer and Graves. However, 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 Mr. 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 2015, such adjusted net income amount was approximately $330 million. Profit-sharing payments made in respect of a particular year are subject to 197 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 Mr. Kirchheimer for any reason. When Mr. Kirchheimer became a Principal 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 Mr. Kirchheimer as a Principal. Instead, they determined an appropriate profit-sharing percentage for Mr. Kirchheimer based in part on the compensation he would have received had he remained an employee compensated at the most senior level, taking into account that this profit-sharing arrangement was 100% at risk and tied his compensation directly to the overall profitability of our business. Accordingly, Mr. Kirchheimer’s profit- sharing arrangement commenced in 2003, when it was determined that compensating him by reference to our profits would be preferable to continuing to afford him salary and bonus or granting him equity sufficient to generate a comparable cash flow. His profit-sharing percentage was increased in 2009 to reflect the growth in his responsibilities since 2003. Given the responsibilities of Mr. Kirchheimer, we think the profit-sharing arrangement appropriately motivates him by tying his compensation to the success of our overall business. The amounts paid to Mr. Kirchheimer as annual profits participation interests are set forth under “All Other Compensation” in the Summary Compensation Table below. 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 is 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. 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. Kirchheimer and Frank, 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, 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 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 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, 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, 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 198 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 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, Graves, and Kramer in respect of 2015 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 and Class A 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 through OCGH units), 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 2015, we did not make fixed payments to any of our NEOs other than the salary paid to Mr. Graves and a fixed payment to Mr. Wintrob of $5,000,000 with respect to his profit sharing, which was paid 80% in cash and 20% to be paid in OCGH units in the first quarter of 2016. 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 2015 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 199 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. 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. 200 Summary Compensation Table for 2015 The following table provides summary information concerning the compensation of Jay S. Wintrob, our principal executive officer, David M. Kirchheimer, our chief financial officer and our three other most highly compensated employees who served as executive officers as of December 31, 2015, for services rendered to us during 2015. The distributions our NEOs receive in respect of their indirect ownership of the Oaktree Operating Group are based on their respective holdings of OCGH and Class A units and are not reflected as cash compensation in the table below. Name and Principal Position Year Salary ($) (1) Bonus ($) Stock Awards ($) (2) Non-Equity Incentive Plan Compensation ($) All Other Compensation ($) (3)(4) Total ($) Bruce A. Karsh, President and Chief Investment Officer ......... Jay S. Wintrob, Chief Executive Officer .. David M. Kirchheimer, Chief Financial Officer ... Caleb S. Kramer, Managing Director ......... Scott L Graves, Managing Director ......... 2015 2014 2013 2015 2014 2015 2014 2013 2015 2014 2013 2015 2014 2013 $ $ $ $ $ $ $ $ $ $ $ $ $ $ — $ — $ — $ — $ — — — — $ $ $ $ — $ — $ — $ — $ 9,604,874 $ 9,604,874 — $ 15,926,190 $ 15,926,190 — $ 43,510,002 $ 43,510,002 — $ — $ 4,000,000 $ 4,000,000 81,254 $ 991,636 (5) $ 13,805,454 $ — $ 833,000 $ 15,711,344 — $ — $ — $ — $ — $ — $ — — — — — — 130,000 $ 1,974,000 $ $ $ $ $ $ $ — $ — $ — $ — $ — $ — $ — $ 3,281,631 $ 3,281,631 — $ 5,338,247 $ 5,338,247 — $ 11,514,606 $ 11,514,606 — $ 16,462,448 $ 16,462,448 — $ 20,577,023 $ 20,577,023 — $ 21,678,691 $ 21,678,691 130,000 $ 2,651,900 (5) $ 11,315,293 308,231 $ $ — $ 7,558,569 $ 9,970,800 — $ 14,003,920 $ 28,101,113 130,000 $ 2,151,900 $ — $ — $ 44,745,507 $ 47,027,407 (2) (1) Other than the payment to Mr. Wintrob described in footnote (5) below, 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 2015 include 6,911 OCGH units granted as a part of Mr. Graves’s bonus for service provided in 2014 and in 2014 reflects 250,000 OCGH units granted in recognition of the responsibilities he assumed in 2013 as our Head of Credit Strategies as well as 6,234 OCGH units granted as a part of Mr. Graves’s 2013 bonus, as discussed in our Compensation Discussion and Analysis above. The grant date fair value of the units received by our NEOs during each year 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. (3) Amounts included for 2015 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, 2015 (please see “—Compensation Elements for Named Executive Officers—Profit Sharing Arrangements”). (4) Please see the “All Other Compensation Supplemental Table” below. (5) 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. 201 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 Year Payments in Respect of Carried Interest (1) Asset Based Management Fees (2) Profits Participation (3) Cost of Living Allowance (4) Travel Allowance (5) Total Bruce A. Karsh...................... 2015 $ 9,604,874 Jay S. Wintrob ...................... David M. Kirchheimer ........... Caleb S. Kramer ................... 2014 2013 2015 2014 2015 2014 2013 2015 2014 2013 $ 15,926,190 $ 43,510,002 $ $ $ — $ — $ — $ — $ — $ — $ $ $ $ $ $ — $ — $ — $ — $ — $ — $ 4,000,000 — $ 833,000 — $ 3,281,631 — $ 5,338,247 — $ 11,514,606 $ $ $ $ $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 9,604,874 — $ 15,926,190 — $ 43,510,002 — $ 4,000,000 — $ 833,000 — $ 3,281,631 — $ 5,338,247 — $ 11,514,606 $ 5,983,098 $ 10,064,473 $ 8,776,180 $ 11,430,228 $ 7,147,358 $ 14,166,390 $ $ $ — $ 325,000 — $ 325,000 — $ 325,000 $ $ $ 89,877 $ 16,462,448 45,615 $ 20,577,023 39,943 $ 21,678,691 Scott L. Graves ..................... 2015 $ 7,558,569 2014 2013 $ 14,003,920 $ 44,745,507 $ $ $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 7,558,569 — $ 14,003,920 — $ 44,745,507 (1) Amounts included for 2015 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, 2015. 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 2015 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 2015 represent the amounts earned on an accrual basis in a given year in respect of the NEO’s annual profits participation interest. The amount for Mr. Wintrob excludes $1,000,000 earned in profits participation for 2015 that will be paid to Mr. Wintrob in the form of a grant of OCGH units in the first quarter of 2016. (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 a period up to one year 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 202 (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. Grants of Plan-Based Awards in 2015 The following table provides information concerning the grant of equity-based awards made during the 2015 fiscal year. Other than the OCGH units granted to Mr. Graves, we did not grant any OCGH units or other equity awards to any of our NEOs in fiscal year 2015. Name Grant Date All Other Stock Awards: Number of Shares of Stock or Units (1) Grant Date Fair Value of Stock Awards (2) Scott L. Graves .................................................................................... 2/17/2015 6,911 $ 308,231 (1) The awards of OCGH units granted Mr. Graves vest in four equal installments, beginning on March 1, 2016 and thereafter on March 1 in each of the following three years. (2) The grant date fair value of the unit awards was determined in accordance with ASC Topic 718. See notes 2 and 11 to our consolidated financial statements for further information concerning the assumptions underlying such expense. 2011 Equity Incentive 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. Eligibility. Employees, partners, directors, consultants, advisors and other individuals providing services to us or our Affiliates are eligible to participate in the 2011 Plan. Awards. The Committee (as defined in the 2011 Plan) 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 203 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. As of February 23, 2016, 8,118,332 Units have been issued or are issuable under the 2011 Plan, and the Committee may issue 14,967,828 additional Units under the 2011 Plan. 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. No more awards are being granted under the 2007 Plan. Units Subject to the 2007 Plan. As of February 23, 2016, 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. Outstanding Equity at 2015 Year End The following table provides information regarding outstanding unvested equity held by our NEOs as of December 31, 2015: 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 ....................................................................................................................... 2,003,528 David M. Kirchheimer ............................................................................................................. Caleb S. Kramer .................................................................................................................... Scott L. Graves ...................................................................................................................... 32,500 110,302 380,086 $ $ $ $ 12,808,356 1,240,720 4,210,889 14,510,163 (1) The references to stock awards or units in this table refer to 2,000,000 EVUs and 3,528 Class A units in the case of Mr. Wintrob and otherwise refer to OCGH units. (2) The fair market value of $47.72 per Class A unit and $38.18 per OCGH unit is based on the closing price for our Class A units on December 31, 2015, less a discount applied to OCGH units as detailed in notes 2 and 11 to our consolidated financial statements. The fair value of $6.32 per EVU was determined as of December 31, 2015 using a Monte Carlo simulation model as detailed in note 11 to our consolidated financial statements. Units Vested in 2015 The following table provides information regarding the number of outstanding equity units held by our NEOs that vested during the year ended December 31, 2015: Name Stock Awards (1) Number of Units Acquired on Vesting Market Value of Units Vesting (2) Bruce A. Karsh ....................................................................................................................... — $ — Jay S. Wintrob ....................................................................................................................... David M. Kirchheimer ............................................................................................................. Caleb S. Kramer .................................................................................................................... 1,328 10,000 43,500 Scott L. Graves ...................................................................................................................... 112,559 $ $ $ $ 71,446 418,580 1,782,660 4,783,863 (1) 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. (2) The fair market value per unit is based on the trading price for our Class A units on applicable vesting dates of January 1, 2015, March 1, 2015 and November 11, 2015, respectively, less a discount applied to OCGH units as detailed in notes 2 and 11 to our consolidated financial statements. 204 Potential Payments Upon Termination of Employment or Change in Control at 2015 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 2015 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, 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 our affiliates. The impact of a termination of employment on the incentive income participation rights held by each of Messrs. Karsh, Kramer and Graves is described below. Incentive Income (Messrs. Karsh, 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, 2015 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 2015 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, 2015 and all of the funds’ assets distributed in accordance 205 with their respective distribution provisions at a value equal to their book value as of December 31, 2015. 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, 2015. 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. Estimated Distributions in Respect of Acceleration of Unvested Incentive Income Interests Name Liquidation Value of Interests Subject to Vesting Acceleration Bruce A. Karsh ................................................................................................................................................... $ 21,791,835 Jay S. Wintrob ................................................................................................................................................... $ David M. Kirchheimer ........................................................................................................................................ $ — — Caleb S. Kramer ................................................................................................................................................ $ 34,485,051 Scott L. Graves .................................................................................................................................................. $ 22,794,088 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 198 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, 2015, we expect that we would have paid him an amount equal to $1,145,750 per quarter for each of the Company’s eight consecutive fiscal quarters beginning with the first quarter of 2016, for a total of $9,166,000. In addition, we would still make the cash replacement payments to Mr. Wintrob as described in footnote (5) of the Summary Compensation Table 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, 2015 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. 206 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, 2015, 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 1.2 million 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 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 1.2 million 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, 2015 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, 2015. If Mr. Wintrob is terminated by us for cause, all of his EVUs, whether vested or unvested, will be immediately forfeited without consideration. If Mr. Wintrob 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 207 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. 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, 2015. The table also includes the estimated value of the accelerated vesting of certain OCGH units granted after 2013 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 certain of Mr. Graves’s OCGH unit awards, each as described above. Acceleration of Unvested OCGH Units and Class A Units Name OCGH Units or Class A Units (1) Number of Units of Stock Subject to Vesting Acceleration Market Value of Accelerated Vesting of Units (2) Bruce A. Karsh .................................................................................................................... — $ — Jay S. Wintrob ..................................................................................................................... David M. Kirchheimer .......................................................................................................... Caleb S. Kramer ................................................................................................................. Scott L. Graves ................................................................................................................... 3,528 32,500 110,302 380,086 $ $ $ $ 168,356 1,240,720 4,210,889 14,510,163 (1) 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. (2) The fair market value of $47.72 per Class A unit and $38.18 per OCGH unit is based on the closing price for our Class A units on December 31, 2015, less a discount applied to OCGH units as detailed in notes 2 and 11 to our consolidated financial statements. Director Compensation Table for 2015 The following table sets forth the cash and equity compensation paid to our non-employee directors for the year ended December 31, 2015: Name Fees Earned or Paid in Cash (1) Unit Awards (2) Total Robert E. Denham ............................................................................... $ D. Richard Masson ............................................................................... $ Wayne G. Pierson ................................................................................ $ Marna C. Whittington ........................................................................... $ 75,000 115,000 100,000 100,000 $ $ $ $ 110,664 110,664 110,664 110,664 $ $ $ $ 185,664 225,664 210,664 210,664 (1) Annual cash retainer and fees for supervision of audit-related activities. (2) On February 17, 2015, we granted 1,985 Class A units to each of Messrs. Denham, Masson and Pierson and Ms. Whittington, which will vest ratably over four years beginning on March 1, 2016, in consideration of their service as members of our board of directors in 2015. The number of outstanding and unvested Class A units held by Messrs. Denham, Masson, Pierson and Ms. Whittington as of December 31, 2015 was 6,013, 4,605, 1,985 and 5,173 units, respectively. We recognize expense for financial statement reporting purposes in respect of the unvested Class A units received by our directors on the basis of the value of those units at the time of the grant pursuant to ASC Topic 718, 208 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. During 2015, we compensated our outside directors through an annual cash retainer of $75,000, and, for four of our outside directors, the grant of our Class A units. Directors who are also senior executives during any portion of 2015 do not receive any additional compensation for serving on our board of directors. 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, 2015. 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 209 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 61,922,641 Class A units outstanding and 91,937,873 Class B units outstanding as of February 23, 2016. 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 153,860,514 Oaktree Operating Group units outstanding as of February 23, 2016. 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. 210 Named 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 ........................ Sheldon M. Stone ......................... Robert E. Denham ........................ Larry W. Keele .............................. D. Richard Masson ....................... Wayne G. Pierson (3) ..................... Marna C. Whittington .................... All executive officers and directors as a group (14 persons) ............ 5% Unitholders 101,826 101,826 6,191 100,185 91,803 91,746 91,739 100,181 101,009 20,176 91,989 106,416 1,985 12,326 949,865 * * * * * * * * * * * * * * * FMR LLC (4) .................................. Acorn Investors, LLC .................... Oaktree Capital Group Holdings, L.P. ............................................ 6,331,859 10.2% 100,000 13,000 * * — (2) — (2) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 17,683,600 17,765,767 — 2,110,397 1,407,097 930,819 1,267,438 1,697,328 9,900,223 — 2,901,695 2,849,490 — — 11.5% 11.5 — 1.4 * * * 1.1 6.4 — 1.9 1.9 — — 56,497,791 36.7 — 7,703,250 — 5.0 — 91,937,873 100% — 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 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 91,937,873 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 100,000 Class A units and 7,703,250 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 Class A and OCGH units held by that entity. (4) Reflects Class A units beneficially owned as of December 31, 2015 by FMR LLC based on a Schedule 13G filed by FMR LLC on February 12, 2016. The Schedule 13G includes 6,331,859 Class A units beneficially owned by Abigail Johnson and Fidelity Management & Research Company (together with FMR LLC and Abigail Johnson, “Fidelity”), a wholly owned subsidiary of FMR LLC, in its capacity as investment adviser to various registered investment companies (the “Fidelity funds”). The Schedule 13G states that members of the Johnson family, including Abigail, 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 Ms. 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. 211 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, 2015. 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 ........................... 8,118,332 Equity compensation plans not approved by security holders ..................... Total (3) ........................................................................................................ — 8,118,332 — — — 14,809,561 — 14,809,561 (1) Reflects the aggregate number of OCGH units, Class A units, phantom units and EVUs granted under the 2011 Plan as of December 31, 2015. (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, 2015, 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. 212 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 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 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. In addition, the general partner may at its sole discretion cause a mandatory sale or exchange of OCGH units owned by any OCGH unitholder. 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 generally 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 (or may be required to) exchange his or her 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, March 2014 and March 2015, 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 213 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 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. does 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, March 2014 and March 2015 will aggregate to $37.1 million over the period ending approximately in 2029, $75.2 million over the period ending approximately in 2034, $104.0 million over the period ending approximately in 2035, $78.1 million over the period ending approximately in 2036 and $62.5 million over the period ending approximately in 2037, respectively. We have begun to make payments in respect of the 2007 Private Offering, our initial public offering, and our 2013 and 2014 follow-on offerings. During the year ended December 31, 2015, we made TRA payments in respect of the year ended December 31, 2014 of $3,429,323, $3,333,242, $1,662,933, $623,817, $297,335, $280,929, $210,108, $161,846, $141,382, $150,711 and $1,456,562 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 Frank, our Vice Chairman and a director; Stephen Kaplan, a principal and a director; B. James Ford, a Managing Director; David Kirchheimer, our Chief Financial Officer, a principal and a director; Caleb Kramer, a Managing Director; Larry Keele, a director and former principal, and Acorn Investors, LLC, respectively. We have not yet begun to make TRA payments in respect of the March 2015 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, March 2014 and March 2015 follow-on offerings to Messrs. Marks, Karsh, Stone, Masson, Frank, Kaplan, Ford, Kirchheimer, Keele, Kramer, Scott Graves, Head of Credit Strategies and a Managing Director; Todd Molz, our General Counsel and Chief Administrative Officer; and Acorn Investors, LLC, the president of which is Wayne Pierson, a director of ours, will be approximately $80.0 million, $76.0 million, $38.7 million, $12.9 million, $5.7 million, $6.6 million, $4.8 million, $4.0 million, $4.4 million, $3.3 million, $2.3 million, $0.5 million and $32.2 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 214 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. 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 23, 2016, there were 153,860,514 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 23, 2016 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. In addition, the 215 general partner of OCGH may at its sole discretion cause a mandatory sale or exchange of OCGH units owned by any OCGH unitholder. 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 23, 2016, OCGH units due to vest after 2016 represented approximately 1.4% 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 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, 2015, we paid Mr. Karsh $926,209 in connection with our use of his plane under this lease agreement. In addition, during the year ended December 31, 2015, Mr. Marks paid us $525,700 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, 2015, we managed approximately $590 million of AUM invested by our directors, executive officers and certain current and former employees in our funds. During the year ended December 31, 2015, the following directors 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. Denham contributed an aggregate of $180,990; Mr. Frank contributed an aggregate of $2,895,469; Mr. Graves contributed an aggregate of $405,000; Mr. Kramer contributed an aggregate of $1,000,000; Mr. Kaplan contributed an aggregate of $141,797; Mr. Karsh and an organization affiliated with Mr. Karsh contributed an aggregate of $9,789,489; Mr. Keele contributed an aggregate of $738,623; Mr. Kirchheimer contributed an aggregate of $1,864,921; Mr. Marks contributed an aggregate of $8,750,000; Mr. Stone contributed an aggregate of $8,350,309; and Mr. Wintrob contributed an aggregate of $1,296,250, respectively. During the year ended December 31, 2015, the following directors 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. Frank received $946,824; Mr. Kaplan received $896,987; Mr. Karsh and an organization affiliated with Mr. Karsh received an aggregate of $21,879,843; Mr. Keele received $4,745,680; Mr. Kirchheimer received $3,368,666; Mr. Marks received $21,404,793; Mr. Masson received $16,687,543; Mr. Stone received $7,491,004; and Mr. Wintrob received $600,620 from our funds, respectively. 216 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 ($222,195 based on the average exchange rate for the 24-hour period ending December 31, 2015 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 (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 217 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 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.” 218 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, 2015 and 2014. For the Year Ended December 31, 2015 2014 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) ............................................................................................ 5,497 $ 4,833 $ 5,944 $ 300 2,384 2,761 13,437 316 3,803 5,006 4,401 15,534 (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 2015 include $0.2 million related to 2014 audits and 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. 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 and Tax 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) 219 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 26, 2016 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 26th day of February 2016: 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/ Sheldon M. Stone Sheldon M. Stone /s/ Robert E. Denham Robert E. Denham /s/ Larry W. Keele Larry W. Keele /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 Director Director Director /s/ Marna C. Whittington Marna C. Whittington Director 220 Exhibit No. Description of Exhibit EXHIBITS INDEX 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 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). Unit Designation, effective November 16, 2015 (incorporated by reference to Exhibit 3 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 18, 2015). 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). 221 4.12 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 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). 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). 222 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* 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). 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). Sixth Amended and Restated Limited Partnership Agreement of Oaktree Fund GP I, L.P., dated as of March 20, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on August 6, 2015). Sixth Amended and Restated Limited Partnership Agreement of Oaktree Fund GP II, L.P., dated as of March 20, 2015 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on August 6, 2015). Fourth Amended and Restated Limited Partnership Agreement of Oaktree Fund GP III, L.P., dated as of March 20, 2015 (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on August 6, 2015). 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 (incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015). Amended and Restated Employment Agreement by and among the Registrant, Oaktree Capital Management, L.P. and Jay S. Wintrob dated February 24, 2015 (incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015). Letter Agreement between Oaktree Capital Management, L.P. and Jay S. Wintrob dated October 6, 2014 (incorporated by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015). 223 10.22* 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 (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015). 21.1 23.1 31.1 31.2 32.1 32.2 99.1 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). Section 13(r) Disclosure. 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. 224 List of Subsidiaries Exhibit 21.1 Jurisdiction of Incorporation or Organization Ireland Ireland Ireland Name Arbour CLO Limited ................................................................................................................ Arbour CLO II Limited ............................................................................................................. Arbour CLO III Limited ............................................................................................................ Highstar Capital GP IV Holdings ............................................................................................ Cayman Islands Highstar Capital GP IV, LLC ................................................................................................... Delaware Highstar Capital GP IV, LP ..................................................................................................... Cayman Islands Highstar Capital IV Prism AIF, L.P. ......................................................................................... Delaware Highstar Capital IV Prism Feeder, L.P. ................................................................................... Cayman Islands Highstar Capital IV Prism, L.P. ............................................................................................... Cayman Islands Highstar Capital IV, L.P........................................................................................................... Delaware Highstar Capital IV/A, L.P. .................................................................................................................. Delaware Highstar IV Holdco Management Ltd. ............................................................................................... Cayman Islands Highstar IV Holdco, L.P. ...................................................................................................................... Cayman Islands Oaktree (Lux.) II ..................................................................................................................... Luxembourg Oaktree (Lux.) II GP S.à r.l. ................................................................................................................ Luxembourg 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 Boulder Investment Fund (Feeder), L.P. ........................................................................... Cayman Islands Oaktree Boulder Investment Fund GP, L.P. ..................................................................................... Delaware Oaktree Boulder Investment Fund, L.P. ........................................................................................... Delaware 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 Europe Limited ............................................................................................. United Kingdom 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 (Europe) LLP .......................................................................... United Kingdom Oaktree Capital Management (Lux.) S.à r.l. ........................................................................... Luxembourg Jurisdiction of Incorporation or Organization Name 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 Cascade Investment Fund I GP, L.P......................................................................... Delaware Oaktree Cascade Investment Fund I, L.P. .............................................................................. Delaware Oaktree Cascade Investment Fund II GP, L.P........................................................................ Delaware Oaktree Cascade Investment Fund II, L.P. ............................................................................. Delaware Oaktree CLO Equityholder, LLC ............................................................................................. Delaware 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 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 III (Cayman), L.P. ............................................................... Cayman Islands Jurisdiction of Incorporation or Name Organization Oaktree Enhanced Income Fund III (Parallel) Feeder, L.P. .................................................... Cayman Islands Oaktree Enhanced Income Fund III (Parallel), L.P. ................................................................ Delaware Oaktree Enhanced Income Fund III GP Ltd. .......................................................................... Cayman Islands Oaktree Enhanced Income Fund III, L.P................................................................................. Delaware Oaktree Enhanced Income Fund, L.P..................................................................................... Delaware Oaktree Europe GP Limited ................................................................................................... United Kingdom Oaktree European Capital Solutions Fund Feeder (U.S.), L.P. .............................................. Cayman Islands Oaktree European Capital Solutions Fund GP, L.P. ............................................................... Cayman Islands Oaktree European Capital Solutions Fund GP, Ltd. ............................................................... Cayman Islands Oaktree European Capital Solutions Fund, L.P. ..................................................................... Cayman Islands 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 Principal Fund IV Feeder (Cayman), L.P.................................................. Cayman Islands Oaktree European Principal Fund IV Feeder (U.S.), L.P. ....................................................... Cayman Islands Oaktree European Principal Fund IV Feeder, SCS ................................................................ Luxembourg Oaktree European Principal Fund IV GP Ltd. ......................................................................... Cayman Islands Oaktree European Principal Fund IV GP, L.P......................................................................... Cayman Islands Oaktree European Principal Fund IV, L.P. .............................................................................. Cayman Islands Oaktree European Principal Fund IV, SCS ............................................................................. Luxembourg Oaktree European Principal Fund IV GP S.à r.l. ..................................................................... Luxembourg 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 Oaktree FF Investment Fund GP, L.P..................................................................................... Cayman Islands Oaktree FF Investment Fund, L.P........................................................................................... Cayman Islands Oaktree France S.A.S. ........................................................................................................... France Jurisdiction of Incorporation or Organization Name Oaktree Fund Administration, LLC ......................................................................................... Delaware Oaktree Fund AIF Series (Cayman), L.P. ............................................................................... Cayman Islands Oaktree Fund AIF Series, L.P. ................................................................................................ Delaware Oaktree Fund GP 1A, Ltd. ...................................................................................................... Cayman Islands Oaktree Fund GP 2A, Ltd. ...................................................................................................... Cayman Islands 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 Funds ....................................................................................................................... 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 Huntington Investment Fund II AIF (Delaware), L.P.................................................. Delaware Oaktree Huntington Investment Fund II GP, L.P..................................................................... Delaware Oaktree Huntington Investment Fund II, L.P........................................................................... Delaware Oaktree Infrastructure Fund (Parallel), L.P. ............................................................................ Cayman Islands Oaktree Infrastructure Fund Feeder (Cayman), L.P. .............................................................. Cayman Islands Oaktree Infrastructure Fund Feeder SCS ............................................................................... Luxembourg Oaktree Infrastructure Fund GP Ltd. ...................................................................................... Cayman Islands Jurisdiction of Incorporation or Name Organization Oaktree Infrastructure Fund GP, L.P....................................................................................... Cayman Islands Oaktree Infrastructure Fund SCS ........................................................................................... Luxembourg Oaktree Infrastructure Fund, L.P. ........................................................................................... Cayman Islands Oaktree Infrastructure GP S.à r.l. ........................................................................................... Luxembourg Oaktree Infrastructure IV Manager LLC ................................................................................. Delaware 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 Oaktree Japan Absolute Return Fund Feeder (Cayman), L.P. ............................................... Cayman Islands Oaktree Japan Absolute Return Fund Feeder (Delaware), L.P. ............................................. Delaware 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 Jurisdiction of Incorporation or Name Organization 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 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) AIF (Cayman), L.P. .............................................. Cayman Islands Oaktree Opportunities Fund X (Parallel 2) AIF (Delaware), L.P.............................................. Delaware 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) AIF (Delaware), L.P................................................. Delaware Oaktree Opportunities Fund X (Parallel), L.P. ........................................................................ Cayman Islands Oaktree Opportunities Fund X AIF (Cayman), L.P.................................................................. Cayman Islands Oaktree Opportunities Fund X AIF (Delaware), L.P................................................................ Delaware 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) AIF (Cayman), 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 Jurisdiction of Incorporation or Organization Name 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 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 Jurisdiction of Incorporation or Organization Name 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 Oaktree Real Estate Opportunities Fund VII (Parallel 2), L.P. ................................................ Delaware Oaktree Real Estate Opportunities Fund VII (Parallel 3) Feeder, L.P..................................... Cayman Islands Oaktree Real Estate Opportunities Fund VII (Parallel 3), L.P. ................................................ Cayman Islands 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 Jurisdiction of Incorporation or Organization Name 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 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 BSA Holdings GP, LLC.................................................................................................. Delaware OCM BSA Holdings, L.P. ........................................................................................................ Delaware OCM Bunker Hill Re, LLC ...................................................................................................... Delaware OCM China Holdings, L.P. ...................................................................................................... Delaware 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 Jurisdiction of Incorporation or Organization Name 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 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 Jurisdiction of Incorporation or Organization Name 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 Statements on Form S-3 (Nos. 333-188596 and 333-206647) of Oaktree Capital Group, LLC of our report dated February 26, 2016 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 Los Angeles, California February 26, 2016 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, 2015 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 26, 2016 /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, 2015 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 26, 2016 /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, 2015 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 26, 2016 /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, 2015 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 26, 2016 /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. Exhibit 99.1 Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 Section 13(r) of the Securities Exchange Act of 1934 requires each issuer registered with the SEC to disclose in its annual or quarterly reports whether it or any of its “affiliates” have knowingly engaged in certain specified activities, including transactions or dealings with the Government of Iran. Because the term “affiliate” is broadly interpreted pursuant to Exchange Act Rule 12b-2, certain activities that occurred during the fiscal year ended December 31, 2015 may be deemed to have been conducted by one of our affiliates. On or around April 28, 2015, the Maersk Tigris, a Marshall Islands-flagged vessel (the “Vessel”) that is indirectly owned by funds managed by Oaktree Capital Management, L.P. as investment manager, was seized by the Iran Revolutionary Guard Corps and escorted towards the Iranian port of Bandar Abbas. The Vessel was detained by the Iran Revolutionary Guard until May 7, 2015. During the pendency of the Vessel’s seizure, the Vessel’s ship master purchased certain necessary provisions to maintain the health, safety and/or security of the Vessel’s crew. Neither the Vessel nor any entity affiliated with the Vessel derived any revenues or profits from this activity, and neither the Vessel nor any entity affiliated with the Vessel intends for the activity to continue. 

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