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
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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’
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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.
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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
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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
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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
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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.
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Distributable Earnings
Our chief operating decision maker uses distributable earnings as a tool to help evaluate the financial
performance of, and make resource allocations and other operating decisions for, our segment. Distributable
earnings is a non-GAAP performance measure derived from our segment results that we use to measure our
earnings at the Operating Group level without the effects of the consolidated funds for the purpose of, among other
things, assisting in the determination of equity distributions from the Operating Group. However, the declaration,
payment and determination of the amount of equity distributions, if any, is at the sole discretion of our board of
directors, which may change our distribution policy at any time.
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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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Item 11. Executive Compensation
Compensation Discussion and Analysis
Overview of Compensation Philosophy and Program
Our fundamental philosophy in compensating our key personnel has always been, and continues to be, to
align their interests with the interests of our clients and unitholders. The alignment of interests is a defining
characteristic of our business and one that we believe best optimizes long-term sustainable value. We achieve this
alignment by compensating our most senior professionals primarily through equity awards and profit sharing.
Indeed, many of our most senior executives receive a substantial majority of their total compensation from their
indirect ownership of the Oaktree Operating Group.
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
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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
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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.