UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
________________   
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2017
or
o
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
 
26-0174894
(State or other jurisdiction of
incorporation or organization)
 
(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)
________________
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   x     No   o
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   x     No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
 
Large accelerated filer   x
Accelerated filer   o
 
Non-accelerated filer   o
Smaller reporting company   o
(Do not check if a smaller reporting company)
Emerging growth company   o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   o    No   x
As of May 1, 2017, there were 64,200,639 Class A units and 91,793,490 Class B units of the registrant outstanding.


TABLE OF CONTENTS
 
 
Page
PART I – FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 

1

FORWARD-LOOKING STATEMENTS
This quarterly 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 political, economic and market conditions. The factors listed in the item captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 (“annual report”) filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2017, which is accessible on the SEC’s website at www.sec.gov, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in our forward-looking statements.
Forward-looking statements speak only as of the date of this quarterly 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.



In this quarterly 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 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 management 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 is required to consolidate as of the applicable reporting date.
“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.
“Intermediate Holding Companies” collectively refers to the subsidiaries wholly owned by us.
“net asset value,” or “NAV,” refers to the value of all the assets of a fund (including cash and accrued interest and dividends) less all liabilities of the fund (including accrued expenses and any reserves established by us, in our discretion, for contingent liabilities) without reduction for accrued incentives (fund level) because they are reflected in the partners ’ capital of the fund.  
“Relevant Benchmark” refers, with respect to:
•
our U.S. High Yield Bond strategy, to the Citigroup U.S. High Yield Cash-Pay Capped Index;
•
our Global High Yield Bond strategy, to an Oaktree custom global high yield index that represents 60% BofA Merrill Lynch High Yield Master II Constrained Index and 40% BofA Merrill Lynch Global Non-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 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 quarterly report and its contents do not constitute and should not be construed as an offer of securities of any Oaktree funds.



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Oaktree Capital Group, LLC
Condensed Consolidated Statements of Financial Condition (Unaudited)
($ in thousands)
 
 
As of

March 31,
2017
 
December 31,
2016
Assets
 
 
 
Cash and cash-equivalents
$
362,889

 
$
291,470

U.S. Treasury and time deposit securities
596,872

 
757,578

Corporate investments (includes $105,849 and $107,591 measured at fair value as of March 31, 2017 and December 31, 2016, respectively)
1,057,494

 
1,123,732

Due from affiliates
136,915

 
208,643

Deferred tax assets
404,740

 
404,614

Other assets
241,394

 
237,466

Assets of consolidated funds:
 
 
 
Cash and cash-equivalents
561,122

 
667,730

Investments, at fair value
4,561,421

 
3,808,234

Dividends and interest receivable
16,608

 
15,297

Due from brokers
49,851

 
98,746

Receivable for securities sold
139,720

 
34,932

Derivative assets, at fair value
943

 
357

Other assets
391

 
311

Total assets
$
8,130,360

 
$
7,649,110

Liabilities and Unitholders’ Capital
 
 
 
Liabilities:
 
 
 
Accrued compensation expense
$
152,324

 
$
284,510

Accounts payable, accrued expenses and other liabilities
158,539

 
150,596

Due to affiliates
343,840

 
346,543

Debt obligations
746,117

 
745,897

Liabilities of consolidated funds:
 
 
 
Accounts payable, accrued expenses and other liabilities
22,444

 
11,689

Payables for securities purchased
626,196

 
291,182

Securities sold short, at fair value
62,345

 
41,016

Derivative liabilities, at fair value
570

 
1,086

Distributions payable
5,109

 
9,207

Borrowings under credit facilities
575,754

 
483,956

Debt obligations of CLOs
3,060,082

 
3,054,210

Total liabilities
5,753,320

 
5,419,892

Commitments and contingencies (Note 15)

 


Non-controlling redeemable interests in consolidated funds
453,578

 
344,047

Unitholders’ capital:
 
 
 
Class A units, no par value, unlimited units authorized, 64,185,070 and 63,032,276 units issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
—

 
—

Class B units, no par value, unlimited units authorized, 91,568,490 and 91,758,067 units issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
—

 
—

Paid-in capital
759,712

 
749,618

Retained earnings
69,976

 
54,494

Accumulated other comprehensive income (loss)
(80
)
 
1,793

Class A unitholders’ capital
829,608

 
805,905

Non-controlling interests in consolidated subsidiaries
1,064,807

 
1,050,319

Non-controlling interests in consolidated funds
29,047

 
28,947

Total unitholders’ capital
1,923,462

 
1,885,171

Total liabilities and unitholders’ capital
$
8,130,360

 
$
7,649,110


Please see accompanying notes to condensed consolidated financial statements.

1

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per unit amounts)
 
 
Three Months Ended March 31,
 
2017
 
2016
Revenues:
 
 
 

Management fees
$
180,928

 
$
198,553

Incentive income
108,657

 
55,937

Total revenues
289,585

 
254,490

Expenses:
 
 
 
Compensation and benefits
(104,487
)
 
(108,405
)
Equity-based compensation
(14,953
)
 
(13,896
)
Incentive income compensation
(34,608
)
 
(9,807
)
Total compensation and benefits expense
(154,048
)
 
(132,108
)
General and administrative
(32,219
)
 
(47,831
)
Depreciation and amortization
(3,824
)
 
(4,161
)
Consolidated fund expenses
(2,471
)
 
(1,084
)
Total expenses
(192,562
)
 
(185,184
)
Other income (loss):
 
 
 
Interest expense
(48,770
)
 
(27,705
)
Interest and dividend income
47,960

 
36,270

Net realized gain (loss) on consolidated funds’ investments
(1,872
)
 
3,401

Net change in unrealized appreciation (depreciation) on consolidated funds’ investments
24,678

 
(20,672
)
Investment income
50,451

 
29,447

Other income (expense), net
4,663

 
5,801

Total other income
77,110

 
26,542

Income before income taxes
174,133

 
95,848

Income taxes
(12,302
)
 
(12,680
)
Net income
161,831

 
83,168

Less:
 
 
 
Net (income) loss attributable to non-controlling interests in consolidated funds
(9,692
)
 
4,944

Net income attributable to non-controlling interests in consolidated subsidiaries
(97,224
)
 
(60,034
)
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078

Distributions declared per Class A unit
$
0.63

 
$
0.47

Net income per unit (basic and diluted):
 
 
 
Net income per Class A unit
$
0.87

 
$
0.45

Weighted average number of Class A units outstanding
63,022

 
61,894













Please see accompanying notes to condensed consolidated financial statements.

2

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)

Three Months Ended March 31, 2017
 
Oaktree Capital Group, LLC
 
Non-controlling Interests in Consolidated Subsidiaries
 
Non-controlling Interests in Consolidated Funds
 
Total
Net income
$
54,915

 
$
97,224

 
$
9,692

 
$
161,831

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(1,897
)
 
(2,760
)
 
—

 
(4,657
)
Unrealized gain on interest-rate swap designated as cash-flow hedge
24

 
36

 
—

 
60

Other comprehensive loss, net of tax
(1,873
)
 
(2,724
)
 
—

 
(4,597
)
Total comprehensive income
53,042

 
94,500

 
9,692

 
157,234

Less: Comprehensive income attributable to non-controlling interests
—

 
(94,500
)
 
(9,692
)
 
(104,192
)
Comprehensive income attributable to Oaktree Capital
       Group, LLC
$
53,042

 
$
—

 
$
—

 
$
53,042

Three Months Ended March 31, 2016
 
 

 
 

 
 

 
 

Net income (loss)
$
28,078

 
$
60,034

 
$
(4,944
)
 
$
83,168

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
442

 
651

 
—

 
1,093

Unrealized loss on interest-rate swap designated as cash-flow hedge
(8
)
 
(12
)
 
—

 
(20
)
Other comprehensive income, net of tax
434

 
639

 
—

 
1,073

Total comprehensive income (loss)
28,512

 
60,673

 
(4,944
)
 
84,241

Less: Comprehensive (income) loss attributable to non-controlling interests
—

 
(60,673
)
 
4,944

 
(55,729
)
Comprehensive income attributable to Oaktree Capital
       Group, LLC
$
28,512

 
$
—

 
$
—

 
$
28,512


 





















Please see accompanying notes to condensed consolidated financial statements.

3

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

 
Three Months Ended March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
161,831

 
$
83,168

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Investment income
(50,451
)
 
(29,447
)
Depreciation and amortization
3,824

 
4,161

Equity-based compensation
14,953

 
13,896

Net realized and unrealized (gain) loss from consolidated funds’ investments
(22,806
)
 
17,271

Amortization (accretion) of original issue and market discount of consolidated funds’ investments, net
(413
)
 
(2,900
)
Income distributions from corporate investments in funds and companies
44,465

 
34,024

Other non-cash items
517

 
405

Cash flows due to changes in operating assets and liabilities:
 
 
 
Decrease in other assets
1,325

 
17,765

Increase (decrease) in net due to affiliates
69,025

 
(94,558
)
Decrease in accrued compensation expense
(132,186
)
 
(190,392
)
Increase in accounts payable, accrued expenses and other liabilities
6,148

 
28,918

Cash flows due to changes in operating assets and liabilities of consolidated funds:
 
 
 
Increase in dividends and interest receivable
(631
)
 
(1,934
)
Decrease in due from brokers
48,895

 
6,654

Increase in receivables for securities sold
(104,540
)
 
(26,736
)
(Increase) decrease in other assets
(78
)
 
135

Increase in accounts payable, accrued expenses and other liabilities
6,246

 
2,524

Increase in payables for securities purchased
332,907

 
37,337

Purchases of securities
(1,537,496
)
 
(684,154
)
Proceeds from maturities and sales of securities
912,891

 
455,042

Net cash used in operating activities
(245,574
)
 
(328,821
)
Cash flows from investing activities:
 
 
 
Purchases of U.S. Treasury and time deposit securities
(220,035
)
 
(72,783
)
Proceeds from maturities and sales of U.S. Treasury and time deposit securities
380,741

 
115,000

Corporate investments in funds and companies
(8,150
)
 
(19,537
)
Distributions and proceeds from corporate investments in funds and companies
79,998

 
62,811

Purchases of fixed assets
(4,250
)
 
(1,615
)
Net cash provided by investing activities
228,304

 
83,876


(continued)









 
Please see accompanying notes to condensed consolidated financial statements.

4

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Cash Flows (Unaudited) — (Continued)
(in thousands)
 

 
Three Months Ended March 31,
 
2017
 
2016
Cash flows from financing activities:
 
 
 
Payment of debt issuance costs
$
—

 
$
(801
)
Repurchase and cancellation of units
(9,689
)
 
(9,732
)
Distributions to Class A unitholders
(39,785
)
 
(29,428
)
Distributions to OCGH unitholders
(72,376
)
 
(51,485
)
Distributions to non-controlling interests
(1,174
)
 
(1,755
)
Cash flows from financing activities of consolidated funds:
 
 
 
Contributions from non-controlling interests
34,786

 
11,277

Distributions to non-controlling interests
(9,762
)
 
(15,920
)
Proceeds from debt obligations issued by CLOs
412,500

 
426,292

Payment of debt issuance costs
—

 
(7,974
)
Repayment on debt obligations issued by CLOs
(412,500
)
 
—

Borrowings on credit facilities
91,500

 
64,185

Repayments on credit facilities
(8,251
)
 
(163,012
)
Net cash provided by (used in) financing activities
(14,751
)
 
221,647

Effect of exchange rate changes on cash
(3,168
)
 
6,430

Net decrease in cash and cash-equivalents
(35,189
)
 
(16,868
)
Cash and cash-equivalents, beginning balance
959,200

 
3,331,102

Change in cash and cash-equivalents from adoption of accounting guidance
—

 
(2,712,190
)
Cash and cash-equivalents, ending balance
$
924,011

 
$
602,044

 
 
 
 



























Please see accompanying notes to condensed consolidated financial statements.

5

Oaktree Capital Group, LLC
Condensed Consolidated Statements of Changes in Unitholders’ Capital (Unaudited)
(in thousands)

 
Oaktree Capital Group, LLC  
 
Non-controlling Interests in Consolidated Subsidiaries
 
Non-controlling Interests in Consolidated Funds
 
Total Unitholders’ Capital
 
Class A Units
 
Class B Units
 
Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Unitholders’ capital as of December 31, 2016
63,032

 
91,758

 
$
749,618

 
$
54,494

 
$
1,793

 
$
1,050,319

 
$
28,947

 
$
1,885,171

Activity for the three months ended March 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative-effect adjustment from adoption of accounting guidance
—

 
—

 
(352
)
 
352

 
—

 
—

 
—

 
—

Issuance of units
1,333

 
21

 
—

 
—

 
—

 
—

 
—

 
—

Cancellation of units
—

 
(140
)
 
—

 
—

 
—

 
—

 
—

 
—

Repurchase and cancellation of units
(180
)
 
(71
)
 
(7,186
)
 
—

 
—

 
(2,503
)
 
—

 
(9,689
)
Equity reallocation between controlling and non-controlling interests
—

 
—

 
12,061

 
—

 
—

 
(12,061
)
 
—

 
—

Capital increase related to equity-based compensation
—

 
—

 
5,571

 
—

 
—

 
8,102

 
—

 
13,673

Distributions declared
—

 
—

 
—

 
(39,785
)
 
—

 
(73,550
)
 
(589
)
 
(113,924
)
Net income
—

 
—

 
—

 
54,915

 
—

 
97,224

 
689

 
152,828

Foreign currency translation adjustment, net of tax
—

 
—

 
—

 
—

 
(1,897
)
 
(2,760
)
 
—

 
(4,657
)
Unrealized gain on interest-rate swap designated as cash-flow hedge, net of tax
—

 
—

 
—

 
—

 
24

 
36

 
—

 
60

Unitholders’ capital as of March 31, 2017
64,185

 
91,568

 
$
759,712

 
$
69,976

 
$
(80
)
 
$
1,064,807

 
$
29,047

 
$
1,923,462

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unitholders’ capital as of December 31, 2015
61,970

 
91,938

 
$
735,166

 
$
—

 
$
(1,216
)
 
$
1,043,930

 
$
30,214

 
$
1,808,094

Activity for the three months ended March 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative-effect adjustment from adoption of accounting guidance
—

 
—

 
(12,912
)
 
—

 
—

 
(109,709
)
 
—

 
(122,621
)
Issuance of units
868

 
623

 
—

 
—

 
—

 
—

 
—

 
—

Cancellation of units associated with forfeitures
(23
)
 
(11
)
 
—

 
—

 
—

 
—

 
—

 
—

Cancellation of units
—

 
(110
)
 
—

 
—

 
—

 
—

 
—

 
—

Repurchase and cancellation of units
(220
)
 
(2
)
 
(9,665
)
 
—

 
—

 
(67
)
 
—

 
(9,732
)
Equity reallocation between controlling and non-controlling interests
—

 
—

 
7,481

 
—

 
—

 
(7,481
)
 
—

 
—

Capital increase related to equity-based compensation
—

 
—

 
5,452

 
—

 
—

 
8,096

 
—

 
13,548

Distributions declared
—

 
—

 
(1,350
)
 
(28,078
)
 
—

 
(53,240
)
 
(884
)
 
(83,552
)
Net income (loss)
—

 
—

 
—

 
28,078

 
—

 
60,034

 
(662
)
 
87,450

Foreign currency translation adjustment, net of tax
—

 
—

 
—

 
—

 
442

 
651

 
—

 
1,093

Unrealized loss on interest-rate swap designated as cash-flow hedge, net of tax
—

 
—

 
—

 
—

 
(8
)
 
(12
)
 
—

 
(20
)
Unitholders’ capital as of March 31, 2016
62,595

 
92,438

 
$
724,172

 
$
—

 
$
(782
)
 
$
942,202

 
$
28,668

 
$
1,694,260










Please see accompanying notes to condensed consolidated financial statements.

6

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2017
($ 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 condensed consolidated financial statements.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) such that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. The condensed consolidated financial statements include the accounts of the Company, its wholly-owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. Certain 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. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2017.

7

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Policies of the Company
Consolidation
The Company consolidates entities in which it has a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. A limited partnership or similar entity is a variable interest entity (“VIE”) if the unaffiliated limited partners do not have substantive kick-out or participating rights. Most of the Oaktree funds are VIEs because they have not granted unaffiliated limited partners substantive kick-out or participating rights. The Company consolidates those VIEs in which it is the primary beneficiary. An entity is deemed 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 economic performance 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 guidance 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-based fees), would give it a controlling financial interest. A decision maker’s fee arrangement is not considered a variable interest if it is compensation for services provided, commensurate with the level of effort required to provide those services and part of a compensation arrangement that includes only terms, conditions or amounts that are customarily present in arrangements for similar services negotiated at arm’s length (“at-market”), and the decision maker does not hold any other variable interests that absorb more than an insignificant amount of the potential VIE’s expected residual returns.
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. Please see note 3 for more information regarding VIEs. The Company does not consolidate most of the Oaktree funds because it is not the primary beneficiary, as its fee arrangements are not deemed to be variable interests and it does not hold any other interests in those funds that are considered to be more than insignificant. For entities that are not VIEs, consolidation is evaluated through a majority voting interest model.
“Consolidated funds” refers to Oaktree-managed funds and CLOs that Oaktree is required to consolidate. When funds or CLOs are consolidated, the Company reflects the assets, liabilities, revenues, expenses and cash flows of the funds or CLOs on a gross basis, and the majority of the economic interests in those funds or CLOs, which are held by third-party investors, are reflected as non-controlling interests in consolidated funds or debt obligations of CLOs in the condensed consolidated financial statements. All of the revenues earned by the Company as investment manager of the consolidated funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by third-party investors, the consolidation of a fund does not impact net income or loss attributable to the Company.
Certain entities in which the Company has the ability to exert significant influence, including unconsolidated Oaktree funds for which the Company acts as general partner, 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 condensed 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

8

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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 respective 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”) 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 or third parties after consideration of contractual arrangements that govern allocations of income or loss. Please see note 11 for more information.
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 is tested for impairment annually in the fourth quarter of each fiscal year, or more frequently when events or 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,

9

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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, other investments where the fair value is based on observable inputs, and debt obligations of consolidated CLOs.
•
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.
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 and/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 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 condensed consolidated statements of operations. The Company’s accounting for these investments is similar to its accounting for investments held by the consolidated funds at fair value, and the valuation methods are consistent with those used to determine the fair value of the consolidated funds’ investments.

10

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

The Company has elected the fair value option for the financial assets and financial liabilities of its consolidated CLOs. The assets and liabilities of CLOs are primarily reflected within the investments, at fair value and within the debt obligations of CLOs line items in the condensed consolidated statements of financial condition. The Company’s accounting for CLO assets is similar to its accounting for its 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. The fair value of CLO liabilities are measured as the fair value of CLO assets less the sum of (a) the fair value of any beneficial interests held by the Company and (b) the carrying value of any beneficial interests that represent compensation for services. Realized gains or losses and changes in the fair value of CLO assets, respectively, are included in net realized gain on consolidated funds’ investments and net change in unrealized appreciation (depreciation) on consolidated funds’ investments in the condensed consolidated statements of operations. Interest income of CLOs is included in interest and dividend income, and interest expense and other expenses, respectively, are included in interest expense and consolidated fund expenses in the condensed consolidated statements of operations. Changes in the fair value of a CLO’s financial liabilities in accordance with the CLO measurement guidance are included in net change in unrealized appreciation (depreciation) on consolidated funds’ investments in the condensed consolidated statements of operations. Please see notes 5 and 9 for more information.
Accounting Policies of Consolidated Funds
Investments, at Fair Value
The consolidated funds include investment limited partnerships and CLOs 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 investment limited partnerships with respect to consolidated investments and has elected the fair value option for the financial assets of CLOs. Thus, the consolidated investments are reflected in the condensed consolidated statements of financial condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of net change in unrealized appreciation (depreciation) on consolidated funds’ investments in the condensed 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 condensed consolidated statements of financial condition and results of operations for all periods presented.

11

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

Credit-oriented Investments (including Real Estate Loan Portfolios)
Investments in corporate and government debt which are not listed or admitted to trading on any securities exchange are valued at the mean of the last bid and ask prices on the valuation date based on quotations supplied by recognized quotation services or by reputable broker-dealers.
The market-yield approach is considered in the valuation of non-publicly traded debt securities, utilizing expected future cash flows and discounted using estimated current market rates. Discounted cash-flow calculations may be adjusted to reflect current market conditions and/or the perceived credit risk of the borrower. Consideration is also given to a borrower’s ability to meet principal and interest obligations; this may include an evaluation of collateral and/or the underlying value of the borrower utilizing techniques described below under “—Non-publicly Traded Equity and Real Estate Investments.”
Non-publicly Traded Equity and Real Estate Investments
The fair value of equity and real estate investments is determined using a cost, market or income approach. The cost approach is based on the current cost of reproducing a real estate investment less deterioration and functional and economic obsolescence. The market approach utilizes valuations of comparable public companies and transactions, and generally seeks to establish the enterprise value of the portfolio company or investment property using a market-multiple methodology. This approach takes into account the financial measure (such as EBITDA, adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value) believed to be most relevant for the given company or investment property. Consideration also may be given to factors such as acquisition price of the security or investment property, historical and projected operational and financial results for the portfolio company, the strengths and weaknesses of the portfolio company or investment property relative to its comparable companies or properties, industry trends, general economic and market conditions, and others deemed relevant. The income approach is typically a discounted cash-flow method that incorporates expected timing and level of cash flows. It incorporates assumptions in determining growth rates, income and expense projections, discount and capitalization rates, capital structure, terminal values, and other factors. The applicability and weight assigned to market and income approaches are determined based on the availability of reliable projections and comparable companies and transactions.
The valuation of securities may be impacted by expectations of investors’ receptiveness to a public offering of the securities, the size of the holding of the securities and any associated control, information with respect to transactions or offers for the securities (including the transaction pursuant to which the investment was made and the elapsed time from the date of the investment to the valuation date), and applicable restrictions on the transferability of the securities.
These valuation methodologies involve a significant degree of management judgment. Accordingly, valuations by the Company do not necessarily represent the amounts that eventually may be realized from sales or 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 condensed consolidated financial statements.
Recent Accounting Developments
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify the accounting for goodwill impairments by eliminating step 2 of the goodwill impairment test. This step currently requires an entity to perform a hypothetical purchase price allocation to derive the implied fair value of goodwill. Under the new guidance, an impairment loss is recognized if the carrying value of a reporting unit exceeds its fair value. The impairment loss would equal the amount of that excess, limited to the total amount of goodwill. All other goodwill impairment guidance remains largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The guidance is effective for the Company in the first quarter of 2020 on a prospective basis, with early adoption permitted. The Company expects that adoption of this guidance will not have a material impact on its consolidated financial statements.
In January 2017, the FASB issued guidance that amends the definition of a business. The guidance provides a framework to help determine whether a transaction involves an asset or a business. In general, if

12

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

substantially all of the gross assets acquired or disposed of are concentrated in a single identifiable asset or group of similar identifiable assets, the transaction is deemed to not involve a business. This framework is expected to reduce the number of transactions that an entity must further evaluate to determine whether they are business combinations or asset acquisitions. The definition of a business may also affect other aspects of accounting, such as goodwill impairment or consolidation. The guidance is effective for the Company in the first quarter of 2018 on a prospective basis, with early adoption permitted. The Company expects that adoption of this guidance will not have a material impact on its consolidated financial statements.
In October 2016, the FASB amended the consolidation guidance with respect to a single decision maker’s evaluation of interests held through related parties that are under common control when it is determining whether it is the primary beneficiary of a VIE. Under the guidance, a reporting entity considers its indirect economic interests in a VIE held through related parties that are under common control on a proportionate basis, consistent with the way it would evaluate its indirect economic interests held through related parties that are not under common control. Previously, a reporting entity’s indirect economic interests in a VIE held through related parties that are under common control were considered to be the equivalent of direct interests in their entirety. The Company adopted the guidance in the first quarter of 2017, with no impact on its consolidated financial statements.
In August 2016, the FASB issued guidance on the classification of certain cash receipts and payments in the statement of cash flows. The amendments add to or clarify guidance on a number of cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity-method investees and beneficial interests in securitization transactions. The guidance is effective for the Company in the first quarter of 2018, generally on a retrospective basis, with early adoption permitted. The Company expects that adoption of this guidance will not have a material impact on its consolidated financial statements.
In March 2016, the FASB issued guidance that affects several aspects of accounting for employee share-based payment awards. The amendments relate to the accounting for forfeitures, income taxes at settlement, the classification of income taxes in the statement of cash flows and net settlements for withholding tax. The amendment with respect to forfeitures allows an entity to make an accounting policy election either to estimate the number of forfeitures expected to occur or to account for forfeitures when they occur. The amendments related to income taxes require (a) all excess tax benefits and deficiencies related to share-based payment transactions to be recognized through the provision for income taxes in the consolidated statement of operations and (b) excess tax benefits related to share-based payment transactions to be presented as operating activities in the consolidated statement of cash flows with employee taxes paid classified as a financing activity. The amendments related to net settlements allow an employer to withhold shares upon settlement of an award to satisfy the employer’s tax withholding requirement in an amount up to the employees’ maximum individual tax rate in the relevant jurisdiction without resulting in liability classification of the award. The Company adopted the guidance in the first quarter of 2017. With respect to forfeitures, the Company made an accounting policy election to account for forfeitures when they occur and to adopt the guidance on a modified retrospective basis, which resulted in a $0.4 million increase to retained earnings and a corresponding $0.4 million decrease to paid in capital. Amendments relating to income taxes were adopted on a prospective basis. As a result, prior periods have not been recast. Amendments relating to net settlements were adopted on a modified retrospective basis, with no impact to the consolidated financial statements.
In March 2016, the FASB issued guidance eliminating the requirement to retroactively apply the equity method of accounting when a reporting entity obtains significant influence over an investment (e.g., due to an increase in ownership) that previously had been accounted for under the cost basis or at fair value. Instead, the reporting entity would be required to apply the equity method of accounting prospectively from the date significant influence was obtained. The cost of the additional interest in the investee, if any, should be added to the current basis of the investment. The amendment also provides guidance for available-for-sale investments that become eligible for the equity method of accounting. In those cases, any unrealized gain or loss recorded within accumulated other comprehensive income should be recognized in earnings as of the date the investment initially qualifies for the use of the equity method. The Company adopted the guidance in the first quarter of 2017 on a prospective basis, with no impact on its consolidated financial statements.

13

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

In February 2016, the FASB issued guidance that will require a lessee to recognize a lease asset and a lease liability for most of its operating leases. Under current GAAP, operating leases are not recognized by a lessee in its statements of financial position. In general, the new asset and liability will each equal 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 Company expects to adopt the guidance in the first quarter of 2019 under the modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented. The Company does not expect that adoption will have a material impact on its consolidated statements of operations because all of its leases are currently classified as operating leases, which under the guidance will continue to be recognized as expense on a straight-line basis. The adoption, however, will result in a significant gross up in total assets and total liabilities on the Company’s consolidated statements of financial position. As of March 31, 2017, the Company’s minimum lease payments under lease obligations aggregated $139.9 million .
In January 2016, the FASB issued guidance that changes the classification and measurement of financial instruments and amends certain disclosure requirements associated with the fair value of financial instruments. The amendments revise the accounting related to (a) the classification and measurement of investments in equity investments and (b) the presentation of certain fair value changes for financial liabilities measured at fair value. Specifically, the guidance generally requires equity investments to be carried at fair value with changes flowing through net income. This requirement does not apply to equity-method investments. For financial liabilities measured at fair value, the guidance requires fair value changes attributable to instrument-specific credit risk to be presented separately in other comprehensive income, as opposed to reflecting the entire fair-value change in net income. The guidance is effective for the Company in the first quarter of 2019, 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 issued guidance on revenue recognition that superseded most existing revenue recognition guidance, including industry-specific guidance. The new guidance outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, and provides a largely principles-based framework for addressing revenue recognition issues on a comprehensive basis. Under the new guidance, revenue would be recognized when an entity satisfies a performance obligation by transferring control of a promised good or service to a customer in an amount that reflects the consideration for which the entity expects to be entitled for that good or service. Additionally, enhanced disclosures would be required regarding both revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts, including quantitative and qualitative information about significant judgments and changes in those judgments made by management in recognizing revenue.  The Company expects to adopt the guidance in the first quarter of 2018 on a modified retrospective basis.  The Company currently anticipates that the most significant effect of the new guidance relates to the recognition of incentive income.  The new guidance would require the Company to recognize incentive income when it concludes that it is probable that significant reversals of revenue will not occur in subsequent periods.  Under current GAAP, the amount of incentive income recognized by the Company is generally limited to the amount that is not contingent on a future event. The Company is in the process of evaluating the effects, if any, of adopting the new standard on its consolidated financial statements.
3. VARIABLE INTEREST ENTITIES
The Company consolidates VIEs for which it is the primary beneficiary. VIEs include funds managed by Oaktree and CLOs for which Oaktree acts as collateral manager. The purpose of these VIEs is to provide investment opportunities for investors in exchange for management fees and, in certain cases, performance-based allocations. While the investment strategies of the funds and CLOs differ by product, in general the fundamental risks of the funds and CLOs have similar characteristics, including loss of invested capital and reduction or absence of management and performance-based fees. As general partner or collateral manager, respectively, Oaktree generally considers itself the sponsor of the applicable fund or CLO. The Company does not provide performance guarantees and, other than capital commitments, has no financial obligation to provide funding to VIEs.
Consolidated VIEs
As of March 31, 2017, the Company consolidated 18 VIEs for which it was the primary beneficiary, including nine funds managed by Oaktree, eight CLOs for which Oaktree serves as collateral manager, and Oaktree AIF

14

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

Holdings, Inc., which was formed to hold certain assets for regulatory and other purposes. One of the consolidated funds, Oaktree Enhanced Income Retention Holdings III, LLC, was formed to satisfy risk retention requirements under Section 15G of the Exchange Act. One of the CLOs had not priced as of March 31, 2017. As of December 31, 2016, the Company consolidated 17 VIEs.
As of March 31, 2017, the assets and liabilities of the 17 consolidated VIEs representing funds and CLOs amounted to $5.2 billion and $4.3 billion , respectively. The assets of these consolidated VIEs primarily consisted of investments in debt and equity securities, while their liabilities primarily represented debt obligations issued by CLOs. The assets of these VIEs may be used only to settle obligations of the same VIE. In addition, there is no recourse to the Company for the VIEs’ liabilities. In exchange for managing either the funds’ or CLOs’ collateral, the Company typically earns management fees and may earn performance fees, all of which are eliminated in consolidation. As of March 31, 2017, the Company’s investments in consolidated VIEs had a carrying value of $339.1 million , which represented its maximum risk of loss as of that date. The Company’s investments in CLOs 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. Please see note 9 for more information on CLO debt obligations.
Unconsolidated VIEs
The Company holds variable interests in certain VIEs in the form of direct equity interests that are not consolidated because it is not the primary beneficiary, inasmuch as its fee arrangements are considered at-market and it does not hold interests in those entities that are considered more than insignificant. The assets and liabilities of VIEs that were not consolidated, and the Company’s investments in those VIEs, are shown below.
 
Carrying Value as of
 
March 31, 2017
 
December 31, 2016
 
 
 
 
Assets of VIEs
$
50,881,963

 
$
52,098,059

Liabilities of VIEs
$
9,590,345

 
$
9,088,173

 
 
 
 
Corporate investments
$
889,727

 
$
1,055,227

Due from affiliates
89,456

 
159,714

Maximum exposure to loss
$
979,183

 
$
1,214,941

4. INVESTMENTS
Corporate Investments
Corporate investments consist of investments in funds and companies in which the Company does not have a controlling financial interest. Investments for which the Company is deemed to exert significant influence are accounted for under the equity method of accounting and reflect Oaktree’s ownership interest in each fund or company. In the case of investments for which 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 each respective fund’s holdings at fair value, equity-method investments in DoubleLine Capital LP and its affiliates (collectively, “DoubleLine”) and other companies are not adjusted to reflect the fair value of the underlying company. The fair value of the underlying investments in Oaktree 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.

15

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

Corporate investments consisted of the following:
 
As of
Corporate Investments:
March 31, 2017
 
December 31,
2016
 
 
 
 
Equity-method Investments:
 
 
 
Funds
$
921,683

 
$
981,209

Companies
29,962

 
34,932

Other investments, at fair value
105,849

 
107,591

Total corporate investments
$
1,057,494

 
$
1,123,732

The components of investment income are set forth below:
 
Three Months Ended March 31,
Investment Income (Loss):
2017
 
2016
 
 
 
 
Equity-method Investments:
 
 
 
Funds
$
32,921

 
$
18,960

Companies
15,894

 
15,107

Other investments, at fair value
1,636

 
(4,620
)
Total investment income
$
50,451

 
$
29,447

Equity-method Investments
The Company’s equity-method investments include its investments in Oaktree funds for which it serves as general partner, and other third-party funds and companies that are not consolidated for which the Company is deemed to exert significant influence. The Company’s share of income or loss generated by these investments is recorded within investment income in the condensed consolidated statements of operations. The Company’s equity-method investments in Oaktree funds principally reflect the Company’s general partner interests in those funds, which typically does not exceed 2.5% in each fund. The Oaktree funds are investment companies that follow a specialized basis of accounting established by GAAP. Equity-method investments in companies include the Company’s one-fifth equity stake in DoubleLine.
Each reporting period, the Company evaluates each of its equity-method investments to determine if any are considered significant, as defined by the SEC. As of or for the year ended December 31, 2016, no individual equity-method investment met the significance criteria. As a result, separate financial statements were not required for any of the Company’s equity-method investments.

16

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

Summarized financial information of the Company’s equity-method investments is set forth below.
 
As of
Statement of Financial Condition :
March 31, 2017
 
December 31,
2016
Assets:
 
 
 
Cash and cash-equivalents
$
3,109,839

 
$
3,713,045

Investments, at fair value
42,303,584

 
43,084,842

Other assets
2,145,832

 
1,994,304

Total assets
$
47,559,255

 
$
48,792,191

Liabilities and Capital:
 
 
 
Debt obligations
$
7,650,448

 
$
7,372,063

Other liabilities
2,256,633

 
2,028,065

Total liabilities
9,907,081

 
9,400,128

Total capital
37,652,174

 
39,392,063

Total liabilities and capital
$
47,559,255

 
$
48,792,191

 
Three Months Ended March 31,
Statements of Operations :
2017
 
2016
Revenues / investment income
$
520,610

 
$
542,834

Interest expense
(47,014
)
 
(38,529
)
Other expenses
(211,158
)
 
(220,436
)
Net realized and unrealized gain on investments
924,551

 
288,067

Net income
$
1,186,989

 
$
571,936

Other Investments, at Fair Value
Other investments, at fair value primarily consist of investments in certain Oaktree and non-Oaktree funds for which the fair value option of accounting has been elected, as well as derivatives utilized to hedge the Company’s exposure to investment income earned from unconsolidated funds. The following table summarizes net gains (losses) attributable to the Company’s other investments:
 
Three Months Ended March 31,
 
2017
 
2016
 
 
 
 
Realized gain (loss)
$
1,496

 
$
(2,494
)
Net change in unrealized gain (loss)
140

 
(2,126
)
Total gain (loss)
$
1,636

 
$
(4,620
)


17

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

Investments of Consolidated Funds
Investments, at Fair Value
Investments held and securities sold short by the consolidated funds are summarized below:
 
Fair Value as of
 
Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments
March 31,
2017
 
December 31,
2016
 
March 31,
2017
 
December 31,
2016
United States:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Consumer discretionary
$
669,741

 
$
628,621

 
14.7
%
 
16.5
%
Consumer staples
113,912

 
123,395

 
2.5

 
3.2

Energy
83,587

 
55,655

 
1.8

 
1.5

Financials
277,707

 
182,685

 
6.1

 
4.8

Government
—

 
5,234

 
—

 
0.1

Health care
390,497

 
337,138

 
8.6

 
8.9

Industrials
432,937

 
379,122

 
9.5

 
10.0

Information technology
400,168

 
272,637

 
8.8

 
7.2

Materials
256,099

 
237,417

 
5.6

 
6.2

Telecommunication services
127,523

 
93,893

 
2.8

 
2.5

Utilities
91,495

 
76,920

 
2.0

 
2.0

Total debt securities (cost: $2,832,567 and $2,378,759 as of March 31, 2017 and December 31, 2016, respectively)
2,843,666

 
2,392,717

 
62.4

 
62.9

Equity securities:
 
 
 

 
 
 
 

Consumer discretionary
718

 
711

 
0.0

 
0.0

Consumer staples
354

 
—

 
0.0

 
—

Energy
2,413

 
2,002

 
0.1

 
0.1

Financials
5,207

 
3,977

 
0.1

 
0.1

Government
1,978

 
—

 
0.0

 
—

Health care
366

 
343

 
0.0

 
0.0

Industrials
—

 
1

 
—

 
0.0

Materials
499

 
691

 
0.0

 
0.0

Telecommunication services
393

 
—

 
0.0

 
—

Total equity securities (cost: $11,075 and $5,462 as of March 31, 2017 and December 31, 2016, respectively)
11,928

 
7,725

 
0.2

 
0.2


18

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

 
Fair Value as of
 
Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments
March 31,
2017
 
December 31,
2016
 
March 31,
2017
 
December 31,
2016
Europe:
 
 
 

 
 
 
 

Debt securities:
 
 
 
 
 
 
 
Consumer discretionary
$
434,480

 
$
374,627

 
9.5
%
 
9.8
%
Consumer staples
95,397

 
92,750

 
2.1

 
2.4

Energy
8,361

 
13,274

 
0.2

 
0.3

Financials
14,584

 
13,822

 
0.3

 
0.4

Government
2,541

 
1,996

 
0.1

 
0.1

Health care
266,448

 
210,078

 
5.8

 
5.5

Industrials
80,612

 
54,578

 
1.8

 
1.4

Information technology
29,635

 
23,832

 
0.7

 
0.6

Materials
264,729

 
226,961

 
5.8

 
6.0

Telecommunication services
214,384

 
214,182

 
4.7

 
5.6

Total debt securities (cost: $1,401,393 and $1,214,068 as of March 31, 2017 and December 31, 2016, respectively)
1,411,171

 
1,226,100

 
31.0

 
32.1

Equity securities:
 
 
 

 
 
 
 

Consumer discretionary
32

 
—

 
0.0

 
—

Energy
2,938

 
—

 
0.1

 
—

Financials
3,368

 
1,605

 
0.1

 
0.0

Materials
1,741

 
—

 
0.0

 
—

Total equity securities (cost: $6,647 and $1,494 as of March 31, 2017 and December 31, 2016, respectively)
8,079

 
1,605

 
0.2

 
0.0

Asia and other:
 
 
 

 
 
 
 

Debt securities:
 
 
 

 
 
 
 

Consumer discretionary
9,918

 
3,145

 
0.2

 
0.1

Consumer staples
5,089

 
5,994

 
0.1

 
0.2

Energy
11,192

 
9,570

 
0.3

 
0.3

Financials
2,891

 
—

 
0.1

 
—

Government
—

 
1,506

 
—

 
0.0

Health care
—

 
1,245

 
—

 
0.0

Industrials
18,774

 
15,450

 
0.4

 
0.4

Information technology
408

 
409

 
0.0

 
0.0

Materials
10,592

 
10,245

 
0.2

 
0.3

Telecommunication services
10,702

 
4,809

 
0.2

 
0.1

Utilities
933

 
928

 
0.0

 
0.0

Total debt securities (cost: $72,982 and $57,400 as of March 31, 2017 and December 31, 2016, respectively)
70,499

 
53,301

 
1.5

 
1.4


19

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

 
Fair Value as of
 
Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments
March 31,
2017
 
December 31,
2016
 
March 31,
2017
 
December 31,
2016
Asia and other:
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 

Consumer discretionary
$
24,469

 
$
7,639

 
0.5
%
 
0.2
%
Consumer staples
7,040

 
3,786

 
0.2

 
0.1

Energy
4,872

 
6,978

 
0.1

 
0.2

Financials
73,660

 
44,328

 
1.6

 
1.2

Industrials
47,920

 
21,564

 
1.1

 
0.6

Information technology
24,217

 
16,642

 
0.5

 
0.4

Materials
26,218

 
19,697

 
0.6

 
0.5

Telecommunication services
6,508

 
4,296

 
0.1

 
0.1

Utilities
1,174

 
1,856

 
0.0

 
0.1

Total equity securities (cost: $205,326 and $118,292 as of March 31, 2017 and December 31, 2016, respectively)
216,078

 
126,786

 
4.7

 
3.4

Total debt securities
4,325,336

 
3,672,118

 
94.9

 
96.4

Total equity securities
236,085

 
136,116

 
5.1

 
3.6

Total investments, at fair value
$
4,561,421

 
$
3,808,234

 
100.0
%
 
100.0
%
Securities Sold Short
 
 
 
 
 
 
 

Equity securities (proceeds: $59,218 and $41,541 as of March 31, 2017 and December 31, 2016, respectively)
$
(62,345
)
 
$
(41,016
)
 
 
 
 

As of March 31, 2017 and December 31, 2016, no single issuer or investment had a fair value that exceeded 5% of Oaktree’s total consolidated net assets.

20

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

Net Gains (Losses) From Investment Activities of Consolidated Funds
Net gains (losses) from investment activities in the condensed 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.
The following table summarizes net gains (losses) from investment activities:
 
Three Months Ended March 31,
 
2017
 
2016
 
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
$
739

 
$
3,736

 
$
3,671

 
$
9,683

CLO liabilities (1)  
—

 
19,831

 
—

 
(28,202
)
Foreign-currency forward contracts (2)  
179

 
(314
)
 
(202
)
 
(392
)
Total-return and interest-rate swaps (2)  
(746
)
 
1,235

 
17

 
(1,618
)
Options and futures (2)  
(2,044
)
 
190

 
(85
)
 
(143
)
Total
$
(1,872
)
 
$
24,678

 
$
3,401

 
$
(20,672
)
 
 
 
 
 
(1)
Represents the net change in the fair value of CLO liabilities based on the more observable fair value of CLO assets, as measured under the CLO measurement guidance. Please see note 2 for more information.
(2)
Please see note 6 for additional information.

21

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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 financial liabilities by fair-value hierarchy level are set forth below. Please see notes 9 and 16 for the fair value of the Company’s outstanding debt obligations and amounts due from/to affiliates, respectively.
 
As of March 31, 2017
 
As of December 31, 2016
 
Level I
 
Level II
 
Level III
 
Total
 
Level I
 
Level II
 
Level III
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and time deposit securities (1)  
$
596,872

 
$
—

 
$
—

 
$
596,872

 
$
757,578

 
$
—

 
$
—

 
$
757,578

Corporate investments
—

 
27,906

 
75,441

 
103,347

 
—

 
27,551

 
74,663

 
102,214

Foreign-currency forward contracts (2)  
—

 
10,483

 
—

 
10,483

 
—

 
16,142

 
—

 
16,142

Total assets
$
596,872

 
$
38,389

 
$
75,441

 
$
710,702

 
$
757,578

 
$
43,693

 
$
74,663

 
$
875,934

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration (3)  
$
—

 
$
—

 
$
(24,168
)
 
$
(24,168
)
 
$
—

 
$
—

 
$
(23,567
)
 
$
(23,567
)
Foreign-currency forward contracts (3)  
—

 
(5,583
)
 
—

 
(5,583
)
 
—

 
(7,805
)
 
—

 
(7,805
)
Interest-rate swaps (3)  
—

 
—

 
—

 
—

 
—

 
(60
)
 
—

 
(60
)
Total liabilities
$
—

 
$
(5,583
)
 
$
(24,168
)
 
$
(29,751
)
 
$
—

 
$
(7,865
)
 
$
(23,567
)
 
$
(31,432
)
 
 
 
 
 
(1)
Carrying value approximates fair value due to the short-term nature.
(2)
Amounts are included in other assets in the condensed consolidated statements of financial condition, except for $2,502 and $5,377 as of March 31, 2017 and December 31, 2016, respectively, which are included within corporate investments in the condensed consolidated statements of financial condition.
(3)
Amounts are included in accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition.
There were no transfers between Level I and Level II positions for the three months ended March 31, 2017 and 2016.

22

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

The table below sets forth a summary of changes in the fair value of Level III financial instruments:
 
Three Months Ended March 31,
 
2017
 
2016
 
Corporate Investments
 
Contingent Consideration Liability
 
Corporate Investments
 
Contingent Consideration Liability
 
 
 
 
 
 
 
 
Beginning balance
$
74,663

 
$
(23,567
)
 
$
25,750

 
$
(28,494
)
Contributions or additions
156

 
—

 
—

 
—

Distributions
(3,135
)
 
—

 
—

 
—

Net gain (loss) included in earnings
3,757

 
(601
)
 
(126
)
 
610

Ending balance
$
75,441

 
$
(24,168
)
 
$
25,624

 
$
(27,884
)
 
 
 
 
 
 
 
 
Net change in unrealized gains (losses) attributable to financial instruments still held at end of period
$
2,261

 
$
(601
)
 
$
(126
)
 
$
610

The table below sets forth a summary of the valuation techniques and quantitative information utilized in determining the fair value of the Company’s Level III financial instruments:
 
 
Fair Value as of
 
 
 
Significant Unobservable Input
 
 
 
 
Financial Instrument
 
March 31, 2017
 
December 31, 2016
 
Valuation Technique
 
 
Range
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate investment – Limited partnership interests
 
$
75,441

 
$
74,663

 
Market approach
(value of underlying assets)
 
Not applicable
 
Not applicable
 
Not applicable
Contingent consideration liability
 
24,168

 
23,567

 
Discounted cash flow
 
Assumed % of total potential contingent payments
 
0% – 100%
 
45%


23

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ 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 March 31, 2017
 
As of December 31, 2016
Level I
 
Level II
 
Level III
 
Total
 
Level I
 
Level II
 
Level III
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt – bank debt
$
—

 
$
3,514,878

 
$
179,080

 
$
3,693,958

 
$
—

 
$
2,973,482

 
$
208,868

 
$
3,182,350

Corporate debt – all other
—

 
592,445

 
38,933

 
631,378

 
—

 
460,975

 
28,793

 
489,768

Equities – common stock
225,099

 
131

 
6,645

 
231,875

 
129,362

 
61

 
6,693

 
136,116

Equities – preferred stock
1,444

 
788

 
—

 
2,232

 
—

 
—

 
—

 
—

Real estate loan portfolios
—

 
1,978

 
—

 
1,978

 
—

 
—

 
—

 
—

Total investments
226,543

 
4,110,220

 
224,658

 
4,561,421

 
129,362

 
3,434,518

 
244,354

 
3,808,234

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign-currency forward contracts
—

 
31

 
—

 
31

 
—

 
216

 
—

 
216

Swaps
—

 
901

 
—

 
901

 
—

 
141

 
—

 
141

Options and futures
11

 
—

 
—

 
11

 
—

 
—

 
—

 
—

Total derivatives
11

 
932

 
—

 
943

 
—

 
357

 
—

 
357

Total assets
$
226,554

 
$
4,111,152

 
$
224,658

 
$
4,562,364

 
$
129,362

 
$
3,434,875

 
$
244,354

 
$
3,808,591

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLO debt obligations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior secured notes (1)  
$
—

 
$
(2,959,909
)
 
$
—

 
$
(2,959,909
)
 
$
—

 
$
(2,953,880
)
 
$
—

 
$
(2,953,880
)
Subordinated notes (1)  
—

 
(100,173
)
 
—

 
(100,173
)
 
—

 
(100,330
)
 
—

 
(100,330
)
Total CLO debt obligations
—

 
(3,060,082
)
 
—

 
(3,060,082
)
 
—

 
(3,054,210
)
 
—

 
(3,054,210
)
Securities sold short:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
(62,345
)
 
—

 
—

 
(62,345
)
 
(41,016
)
 
—

 
—

 
(41,016
)
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign-currency forward contracts
—

 
(176
)
 
—

 
(176
)
 
—

 
(4
)
 
—

 
(4
)
Swaps
—

 
(394
)
 
—

 
(394
)
 
—

 
(1,082
)
 
—

 
(1,082
)
Total derivatives
—

 
(570
)
 
—

 
(570
)
 
—

 
(1,086
)
 
—

 
(1,086
)
Total liabilities
$
(62,345
)
 
$
(3,060,652
)
 
$
—

 
$
(3,122,997
)
 
$
(41,016
)
 
$
(3,055,296
)
 
$
—

 
$
(3,096,312
)
 
 
 
 
 
(1)
The fair value of CLO liabilities is classified based on the more observable fair value of CLO assets. Please see notes 2 and 9 for more information.

24

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ 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 Portfolios
 
Swaps
 
Total
Three Months Ended
      March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
208,868

 
$
28,793

 
$
6,693

 
$
—

 
$
—

 
$
—

 
$
—

 
$
244,354

Transfers into Level III
19,844

 
—

 
—

 
—

 
—

 
—

 
—

 
19,844

Transfers out of Level III
(41,469
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(41,469
)
Purchases
15,008

 
16,199

 
—

 
—

 
—

 
—

 
—

 
31,207

Sales
(24,134
)
 
(6,416
)
 
(116
)
 
—

 
—

 
—

 
—

 
(30,666
)
Realized gains (losses), net
104

 
195

 
87

 
—

 
—

 
—

 
—

 
386

Unrealized appreciation (depreciation), net
859

 
162

 
(19
)
 
—

 
—

 
—

 
—

 
1,002

Ending balance
$
179,080

 
$
38,933

 
$
6,645

 
$
—

 
$
—

 
$
—

 
$
—

 
$
224,658

Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period
$
447

 
$
162

 
$
(19
)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
590

Three Months Ended
      March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
1,871,375

 
$
3,009,164

 
$
8,729,202

 
$
1,363,542

 
$
9,655,270

 
$
2,597,405

 
$
(8,251
)
 
$
27,217,707

Cumulative-effect adjustment from adoption of accounting guidance
(1,672,305
)
 
(3,007,287
)
 
(8,725,026
)
 
(1,363,542
)
 
(9,655,270
)
 
(2,597,405
)
 
8,251

 
(27,012,584
)
Transfers into Level III
37,535

 
—

 
398

 
—

 
—

 
—

 
—

 
37,933

Transfers out of Level III
(40,708
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(40,708
)
Purchases
7,139

 
1

 
—

 
—

 
—

 
—

 
—

 
7,140

Sales
(1,986
)
 
—

 
(296
)
 
—

 
—

 
—

 
—

 
(2,282
)
Realized gains (losses), net
26

 
—

 
—

 
—

 
—

 
—

 
—

 
26

Unrealized appreciation (depreciation), net
(265
)
 
(25
)
 
48

 
—

 
—

 
—

 
—

 
(242
)
Ending balance
$
200,811

 
$
1,853

 
$
4,326

 
$
—

 
$
—

 
$
—

 
$
—

 
$
206,990

Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period
$
1,456

 
$
(25
)
 
$
48

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,479


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 condensed consolidated statements of operations.
Transfers between Level I and Level II positions for the three months ended March 31, 2017 included $0.4 million from Level I to Level II due to a decline in trading activity for one credit-oriented security, which was valued using quoted prices. There were no transfers between Level I and Level II positions for the three months ended March 31, 2016.
Transfers out of Level III are 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 reflect either investments that experienced a less significant level of market trading activity during the period or portfolio companies that undertook restructurings or bankruptcy proceedings and thus were valued in the absence of observable inputs.

25

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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 March 31, 2017:
Investment Type
 
Fair Value
 
Valuation Technique
 
Significant Unobservable
Inputs  (1)(2)
 
Range
 
Weighted Average (3)
 
 
 
 
 
 
 
 
 
 
 
Credit-oriented investments:
 
 
 
 
 
 
 
 
 
 
Consumer
discretionary:
 
$
7,623

 
Discounted cash flow (4)
 
Discount rate
 
5% – 13%
 
8%
 
 
54,686

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Consumer Staples:
 
6,845

 
Discounted cash flow (4)
 
Discount rate
 
6% – 12%
 
7%
 
 
12,868

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Industrials:
 
10,525

 
Discounted cash flow (4)
 
Discount rate
 
5% – 7%
 
6%
 
 
4,224

 
Market approach
(comparable companies) (6)
 
Earnings multiple (7)
 
4x - 6x
 
5x
 
 
24,743

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
3,981

 
Recent transaction price (8)
 
Not applicable
 
Not applicable
 
Not applicable
Information
technology:
 
11,569

 
Discounted cash flow (4)
 
Discount rate
 
6% – 13%
 
9%
 
 
2,845

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Materials:
 
1,209

 
Discounted cash flow (4)
 
Discount rate
 
11% – 13%
 
12%
 
 
14,162

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Other:
 
10,112

 
Discounted cash flow (4)
 
Discount rate
 
8% – 15%
 
13%
 
 
18,248

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Real Estate:
 
3,615

 
Discounted cash flow (4)
 
Discount rate
 
11% – 13%
 
12%
 
 
10,632

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
20,130

 
Recent transaction price (8)
 
Not applicable
 
Not applicable
 
Not applicable
Equity investments:
 
 
 
 
 
 
 
 
 
 
 
 
3,540

 
Market approach
(comparable companies) (6)
 
Earnings multiple (7)
 
5x – 10x
 
8x
 
 
1,381

 
Discounted cash flow (4)
 
Discount rate
 
11% – 33%
 
14%
 
 
1,720

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Total Level III
investments
 
$
224,658

 
 
 
 
 
 
 
 




26

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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, 2016:
Investment Type
 
Fair Value
 
Valuation Technique
 
Significant Unobservable
Inputs  (1)(2)
 
Range
 
Weighted Average (3)
 
 
 
 
 
 
 
 
 
 
 
Credit-oriented investments:
 
 
 
 
 
 
 
 
 
 
Consumer
discretionary:
 
$
7,658

 
Discounted cash flow (4)
 
Discount rate
 
5% – 13%
 
7%
 
 
64,147

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Consumer Staples:
 
7,356

 
Discounted cash flow (4)
 
Discount rate
 
6% – 12%
 
7%
 
 
23,182

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Energy:
 
12,758

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Industrials:
 
10,574

 
Discounted cash flow (4)
 
Discount rate
 
5% – 7%
 
6%
 
 
4,230

 
Market approach
(comparable companies) (6)
 
Earnings multiple (7)
 
5x - 7x
 
6x
 
 
30,531

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Information
technology:
 
11,681

 
Discounted cash flow (4)
 
Discount rate
 
6% – 13%
 
9%
 
 
5,076

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Materials:
 
1,206

 
Discounted cash flow (4)
 
Discount rate
 
11% – 13%
 
12%
 
 
15,586

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Other:
 
13,754

 
Discounted cash flow (4)
 
Discount rate
 
8% – 16%
 
12%
 
 
9,137

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
 
 
20,785

 
Recent transaction price (8)
 
Not applicable
 
Not applicable
 
Not applicable
Equity investments:
 
 
 
 
 
 
 
 
 
 
 
 
3,542

 
Market approach
(comparable companies) (6)
 
Earnings multiple (7)
 
4x – 11x
 
8x
 
 
1,352

 
Discounted cash flow (4)
 
Discount rate
 
11% – 33%
 
14%
 
 
1,799

 
Recent market information (5)
 
Quoted prices
 
Not applicable
 
Not applicable
Total Level III
investments
 
$
244,354

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
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.
(2)
Multiple of either earnings or underlying assets is the significant unobservable input used in the market approach for the fair-value measurement of distressed credit-oriented investments, credit-oriented investments in which the consolidated funds have a controlling interest in the underlying issuer, equity investments and certain real estate-oriented investments. An increase (decrease) in the multiple would result in a higher (lower) fair-value measurement.
(3)
The weighted average is based on the fair value of the investments included in the range.
(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.
(5)
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.
(6)
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.
(7)
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.
(8)
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.

27

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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 three months ended March 31, 2017, there were no changes in the valuation techniques for Level III securities. During the three months ended March 31, 2016, the valuation technique for one Level III credit-oriented investment changed from a discounted cash flow to a market approach based on comparable companies due to the anticipated restructuring of the portfolio company.
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.
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. Freestanding derivatives are financial instruments that the Company enters into as part of its overall risk management strategy but does not utilize hedge accounting. These financial instruments may include foreign-currency exchange contracts, interest-rate swaps and other derivative contracts.
As of March 31, 2017, there were no derivatives outstanding that were designated as hedging instruments for accounting purposes. As of December 31, 2016, the Company had one interest-rate swap outstanding, which expired in January 2017, that was designated to hedge the interest-rate risk of the $150.0 million outstanding principal balance remaining under the $250.0 million variable-rate bank term loan. 


28

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

The fair value of foreign-currency forward sell contracts consisted of the following:
As of March 31, 2017:
Contract 
Amount in
Local Currency
 
Contract 
Amount in
U.S. Dollars
 
Market 
Value in
U.S. Dollars
 
Net Unrealized
Appreciation
(Depreciation)
 
 
 
 
 
 
 
 
Euro, expiring 4/7/17-3/29/18
259,400

 
$
288,320

 
$
279,767

 
$
8,553

USD (buy GBP), expiring 4/28/17-12/29/17
65,167

 
65,167

 
67,965

 
(2,798
)
CHF, expiring 12/29/17
5,300

 
5,418

 
5,393

 
25

Japanese Yen, expiring 4/28/17-6/30/17
6,050,000

 
53,592

 
54,472

 
(880
)
Total
 
 
$
412,497

 
$
407,597

 
$
4,900

 
 
 
 
 
 
 
 
As of December 31, 2016:
 

 
 

 
 

 
 

Euro, expiring 1/9/17-12/29/17
242,100

 
$
271,848

 
$
257,652

 
$
14,196

USD (buy GBP), expiring 1/31/17-12/29/17
72,565

 
72,565

 
78,143

 
(5,578
)
Japanese Yen, expiring 1/31/17-2/28/17
6,150,000

 
52,511

 
52,792

 
(281
)
Total
 
 
$
396,924

 
$
388,587

 
$
8,337

Realized and unrealized gains and losses arising from freestanding derivative instruments were recorded in the condensed consolidated statements of operations as follows:
 
Three Months Ended March 31,
Foreign-currency Forward Contracts
2017
 
2016
 
 
 
 
Investment income
$
(873
)
 
$
(8,901
)
General and administrative expense (1)  
(2,683
)
 
(9,891
)
Total
$
(3,556
)
 
$
(18,792
)
 
 
 
 
 
(1)
To the extent that the Company’s freestanding derivatives are utilized to hedge its foreign-currency 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.


29

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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.
The impact of derivatives held by the consolidated funds in the condensed consolidated statements of operations was as follows:
 
Three Months Ended March 31,
 
2017
 
2016
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
Net Realized Gain (Loss) on Investments
 
Net Change in Unrealized Appreciation (Depreciation) on Investments
 
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
179

 
$
(314
)
 
$
(202
)
 
$
(392
)
Total-return and interest-rate swaps
(746
)
 
1,235

 
17

 
(1,618
)
Options and futures
(2,044
)
 
190

 
(85
)
 
(143
)
Total
$
(2,611
)
 
$
1,111

 
$
(270
)
 
$
(2,153
)




30

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

Balance Sheet Offsetting
The Company recognizes all derivatives as assets or liabilities at fair value in its condensed 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 condensed 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.
 
Gross and Net Amounts of Assets (Liabilities) Presented
 
Gross Amounts Not Offset in Statements of Financial Condition
 
Net Amount
As of March 31, 2017:
 
Derivative Assets (Liabilities)
 
Cash Collateral Received (Pledged)
 
Derivative Assets:
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
10,483

 
$
5,583

 
$
—

 
$
4,900

Derivative assets of consolidated funds:
 
 
 
 
 
 
 
Foreign-currency forward contracts
31

 
31

 
—

 
—

Total-return and interest-rate swaps
901

 
394

 
—

 
507

Options and futures
11

 
—

 
—

 
11

Subtotal
943

 
425

 
—

 
518

Total
$
11,426

 
$
6,008

 
$
—

 
$
5,418

 
 
 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
(5,583
)
 
$
(5,583
)
 
$
—

 
$
—

Derivative liabilities of consolidated funds:
 
 
 
 
 
 
 
Foreign-currency forward contracts
(176
)
 
(31
)
 
—

 
(145
)
Total-return and interest-rate swaps
(394
)
 
(394
)
 
—

 
—

Subtotal
(570
)
 
(425
)
 
—

 
(145
)
Total
$
(6,153
)
 
$
(6,008
)
 
$
—

 
$
(145
)

31

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

 
Gross and Net Amounts of Assets (Liabilities) Presented
 
Gross Amounts Not Offset in Statements of Financial Condition
 
Net Amount
As of December 31, 2016:
 
Derivative Assets (Liabilities)
 
Cash Collateral Received (Pledged)
 
Derivative Assets:
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
16,142

 
$
7,805

 
$
—

 
$
8,337

Derivative assets of consolidated funds:
 
 
 
 
 
 
 
Foreign-currency forward contracts
216

 
4

 
—

 
212

Total-return and interest-rate swaps
141

 
141

 
—

 
—

Subtotal
357

 
145

 
—

 
212

Total
$
16,499

 
$
7,950

 
$
—

 
$
8,549

 
 
 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
 
 
Foreign-currency forward contracts
$
(7,805
)
 
$
(7,805
)
 
$
—

 
$
—

Interest-rate swaps
(60
)
 

 
—

 
(60
)
Subtotal
(7,865
)
 
(7,805
)
 
—

 
(60
)
Derivative liabilities of consolidated funds:
 
 
 
 
 
 
 
Foreign-currency forward contracts
(4
)
 
(4
)
 
—

 
—

Total-return and interest-rate swaps
(1,082
)
 
(141
)
 
(941
)
 
—

Subtotal
(1,086
)
 
(145
)
 
(941
)
 
—

Total
$
(8,951
)
 
$
(7,950
)
 
$
(941
)
 
$
(60
)

7. FIXED ASSETS
Fixed assets, which consist of furniture and equipment, capitalized software, office leasehold improvements, and company-owned aircraft, are included in other assets in the condensed consolidated statements of financial position.
The following table sets forth the Company’s fixed assets and accumulated depreciation:
 
As of
 
March 31, 2017
 
December 31,
2016
 
 
 
 
Furniture, equipment and capitalized software
$
19,330

 
$
18,771

Leasehold improvements
52,987

 
49,626

Corporate aircraft
66,277

 
66,277

Other
4,308

 
3,748

Fixed assets
142,902

 
138,422

Accumulated depreciation
(48,397
)
 
(45,344
)
Fixed assets, net
$
94,505

 
$
93,078



32

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

8. 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 is tested for impairment annually in the fourth quarter of each fiscal year, or more frequently if events or circumstances indicate that impairment may have occurred. As of both March 31, 2017 and December 31, 2016, the Company had $69.3 million of goodwill.
The following table summarizes the carrying value of intangible assets:
 
As of
 
March 31, 2017
 
December 31, 2016
 
 
 
 
Contractual rights
$
28,017

 
$
28,017

Accumulated amortization
(10,676
)
 
(9,675
)
Intangible assets, net
$
17,341

 
$
18,342

Amortization expense associated with the Company's intangible assets was $1.0 million for both the three months ended March 31, 2017 and 2016. Amortization expense is estimated to be $3.0 million for the remaining nine months of 2017, $4.0 million per annum for each of the years ending December 31, 2018–2020 and $2.3 million for 2021.
Goodwill and intangible assets are included in other assets in the condensed consolidated statements of financial position.
9. DEBT OBLIGATIONS AND CREDIT FACILITIES
The Company’s debt obligations are set forth below:
 
As of
 
March 31, 2017
 
December 31,
2016
 
 
 
 
$250,000, 6.75%, issued in November 2009, payable on December 2, 2019
$
250,000

 
$
250,000

$250,000, variable-rate term loan, issued in March 2014, payable on March 31, 2021 (1)  
150,000

 
150,000

$50,000, 3.91%, issued in September 2014, payable on September 3, 2024
50,000

 
50,000

$100,000, 4.01%, issued in September 2014, payable on September 3, 2026
100,000

 
100,000

$100,000, 4.21%, issued in September 2014, payable on September 3, 2029
100,000

 
100,000

$100,000, 3.69%, issued in July 2016, payable on July 12, 2031
100,000

 
100,000

Total remaining principal
750,000

 
750,000

Less: Debt issuance costs
(3,883
)
 
(4,103
)
Debt obligations
$
746,117

 
$
745,897

 
 
 
 
 
(1)
The credit agreement consists of a $250 million term loan and a $500 million revolving credit facility. Borrowings 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 revolving credit facility is 0.125% per annum. The credit agreement contains customary financial covenants and restrictions, including ones regarding a maximum leverage ratio and a minimum required level of assets under management (as defined in the credit agreement). As of March 31, 2017, the Company had no outstanding borrowings under the revolving credit facility.


33

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

As of March 31, 2017, future scheduled principal payments of debt obligations were as follows:
Last nine months of 2017
$
—

2018
—

2019
250,000

2020
—

2021
150,000

Thereafter
350,000

Total
$
750,000

The Company was in compliance with all financial maintenance covenants associated with its senior notes and bank credit facility as of March 31, 2017 and December 31, 2016.
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, gross of debt issuance costs, was $781.2 million and $756.6 million as of March 31, 2017 and December 31, 2016, respectively, utilizing an average borrowing rate of 3.6% and 3.9% , respectively. As of March 31, 2017, a 10% increase in the assumed average borrowing rate would lower the estimated fair value to $765.3 million , whereas a 10% decrease would increase the estimated fair value to $797.7 million .
Credit Facilities of the Consolidated Funds
Certain consolidated funds may 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) are subject to 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 may issue 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.
As of March 31, 2017 and December 31, 2016, the consolidated funds had debt obligations with an aggregate outstanding principal balance of $580.5 million and $489.0 million , respectively. The fair value of the revolving credit facility is a Level III valuation and approximated carrying value due to the short-term nature. The fair value of the senior variable rate notes is a Level III valuation and approximated carrying value as of March 31, 2017 and December 31, 2016 due to their recent issuance date. Financial instruments that are valued using quoted prices for the security 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.
The consolidated funds had the following debt obligations outstanding:
 
Outstanding Amount as of
 
Facility Capacity
 
LIBOR
Margin (1)
 
Maturity
 
Commitment Fee Rate
 
L/C Fee
Credit Agreement
March 31, 2017
 
December 31, 2016
Revolving credit facility
$
91,500

 
$
—

 
$
450,000

 
1.25%
 
4/19/2019
 
N/A
 
N/A
Senior variable rate notes (2)  
488,999

 
488,997

 
$
489,000

 
Various
 
10/20/2027
 
N/A
 
N/A
Total debt obligations
580,499

 
488,997

 
 
 
 
 
 
 
 
 
 
Less: Debt issuance costs
(4,745
)
 
(5,041
)
 
 
 
 
 
 
 
 
 
 
Total debt obligations, net
$
575,754

 
$
483,956

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
The facility bears interest at an annual rate of LIBOR plus the applicable margin.
(2)
The weighted average interest rate was 2.62% as of March 31, 2017.

34

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

Debt Obligations of CLOs
Debt obligations of CLOs represent amounts due to holders of debt securities issued by the CLOs, including term loans of CLOs that had not priced as of period end. The table below sets forth the outstanding debt obligations of CLOs as of the date indicated.
 
As of March 31, 2017
 
As of December 31, 2016
 
Fair Value (1)
 
Weighted Average Interest Rate
 
Weighted Average Remaining Maturity (years)
 
Fair Value (1)
 
Weighted Average Interest Rate
 
Weighted Average Remaining Maturity (years)
Senior secured notes (2)  
$
468,783

 
3.03%
 
8.0
 
$
471,603

 
2.90%
 
8.2
Senior secured notes (2)(3)  
462,458

 
2.81%
 
9.7
 
470,298

 
3.03%
 
9.9
Senior secured notes (4)  
41,086

 
3.48%
 
1.8
 
49,336

 
3.31%
 
2.0
Senior secured notes (5)  
362,270

 
1.73%
 
10.4
 
357,706

 
1.73%
 
10.7
Senior secured notes (2)  
466,824

 
3.11%
 
10.7
 
467,084

 
2.96%
 
11.0
Senior secured notes (5)  
366,254

 
2.29%
 
11.0
 
360,234

 
2.29%
 
11.3
Senior secured notes (5)  
402,018

 
2.28%
 
12.1
 
395,458

 
2.28%
 
12.4
Senior secured notes (5)  
390,216

 
1.99%
 
13.0
 
382,161

 
1.99%
 
13.2
Subordinated note (6)  
15,652

 
N/A
 
9.7
 
12,281

 
N/A
 
9.9
Subordinated note (6)  
17,389

 
N/A
 
10.4
 
17,871

 
N/A
 
10.7
Subordinated note (6)  
17,728

 
N/A
 
10.7
 
18,432

 
N/A
 
11.0
Subordinated note (6)  
12,959

 
N/A
 
11.0
 
13,422

 
N/A
 
11.3
Subordinated note (6)  
16,479

 
N/A
 
12.1
 
17,073

 
N/A
 
12.4
Subordinated note (6)  
19,966

 
N/A
 
13.0
 
21,251

 
N/A
 
13.2
Total CLO debt obligations
$
3,060,082

 
 
 
 
 
$
3,054,210

 
 
 
 
 
 
 
 
 
(1)
The fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (a) the fair value of any beneficial interests held by the Company and (b) the carrying value of any beneficial interests that represent compensation for services. Please see notes 2 and 5 for more information.
(2)
The weighted average interest rate is based on LIBOR plus a margin.
(3)
These notes were refinanced in March 2017, resulting in a lower interest rate spread. There was no change to the original maturity date.
(4)
The interest rate is LIBOR plus a margin determined based on a formula as defined in the respective borrowing agreements, which incorporate different borrowing values based on the characteristics of collateral investments purchased.  The weighted average unused commitment fee rate ranged from 0% to 2.0% .
(5)
The weighted average interest rate is based on EURIBOR (subject to a zero floor) plus a margin.
(6)
The subordinated notes do not have a contractual interest rate; instead, they receive distributions from the excess cash flows generated by the CLO.
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 March 31, 2017 and December 31, 2016, the fair value of CLO assets was $3.7 billion and $3.4 billion , respectively, and consisted of cash, corporate loans, corporate bonds and other securities.
As of March 31, 2017, future scheduled principal or par value payments with respect to the debt obligations of CLOs were as follows:
Last nine months of 2017
$
—

2018
41,086

2019
—

2020
—

2021
—

Thereafter
3,024,996

Total
$
3,066,082


35

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

10. 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 presented on a gross basis in the table below.
 
Three Months Ended March 31,
 
2017
 
2016
 
 
 
 
Beginning balance
$
344,047

 
$
38,173,125

Cumulative-effect adjustment from adoption of accounting guidance
—

 
(37,969,042
)
Initial consolidation of a fund
70,817

 
—

Contributions
34,786

 
11,277

Distributions
(9,173
)
 
(15,036
)
Net income (loss)
9,003

 
(4,282
)
Change in distributions payable
4,098

 
1,318

Foreign currency translation and other
—

 
4,330

Ending balance
$
453,578

 
$
201,690

 
11. 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 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 March 31, 2017 and December 31, 2016, respectively, OCGH units represented 91,568,490 of the total 155,753,560 Oaktree Operating Group units and 91,758,067 of the total 154,790,343 Oaktree Operating Group units. Based on total allocable Oaktree Operating Group capital of $1,795,024 and $1,754,882 as of March 31, 2017 and December 31, 2016, respectively, the OCGH non-controlling interest was $1,055,310 and $1,040,274 . As of March 31, 2017 and December 31, 2016, non-controlling interests attributable to third parties was $9,497 and $10,045 , respectively.


36

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

The following table sets forth a summary of net income attributable to the OCGH unitholders' non-controlling interest and to Class A unitholders:
 
Three Months Ended March 31,
 
2017
 
2016
Weighted average Oaktree Operating Group units outstanding (in thousands):
 
 
 
OCGH non-controlling interest
91,644

 
91,914

Class A unitholders
63,022

 
61,894

Total weighted average units outstanding
154,666

 
153,808

Oaktree Operating Group net income:
 
 
 

Net income attributable to OCGH non-controlling interest
$
96,598

 
$
58,826

Net income attributable to Class A unitholders
66,428

 
39,615

Oaktree Operating Group net income (1)  
$
163,026

 
$
98,441

Net income attributable to Oaktree Capital Group, LLC:
 
 
 

Oaktree Operating Group net income attributable to Class A unitholders
$
66,428

 
$
39,615

Non-Operating Group expenses
(232
)
 
(264
)
Income tax expense of Intermediate Holding Companies
(11,281
)
 
(11,273
)
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078

 
 
 
 
 
(1)
Oaktree Operating Group net income does not include amounts attributable to other non-controlling interests, which amounted to $626 and $1,207 for the three months ended March 31, 2017 and 2016, respectively.
The change in the Company’s ownership interest in the Oaktree Operating Group is set forth below:
 
Three Months Ended March 31,
 
2017
 
2016
 
 
 
 
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078

Equity reallocation between controlling and non-controlling interests
12,061

 
7,481

Change from net income attributable to Oaktree Capital Group, LLC and transfers from non-controlling interests
$
66,976

 
$
35,559

 
Please see notes 12, 13 and 14 for additional information regarding transactions that impacted unitholders’ capital.

37

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

12. EARNINGS PER UNIT
The computation of net income per Class A unit is set forth below:  
 
Three Months Ended March 31,
 
2017
 
2016
Net income per Class A unit (basic and diluted):
(in thousands, except per unit amounts)
 
 
 
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078

Weighted average number of Class A units outstanding (basic and diluted)
63,022

 
61,894

Basic and diluted net income per Class A unit
$
0.87

 
$
0.45

OCGH units may be exchanged on a one -for- one basis into Class A units, subject to certain restrictions. As of March 31, 2017, there were 91,568,490 OCGH units outstanding, which are vested or will vest through February 15, 2026, that ultimately may be exchanged into 91,568,490 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 three months ended March 31, 2017 and 2016.
In connection with the 2014 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 March 31, 2017, 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 three months ended March 31, 2017 and 2016. Please see note 15 for more information.
13. EQUITY-BASED COMPENSATION
Class A and OCGH Unit Awards
During the three months ended March 31, 2017, the Company granted 1,210,691 Class A units and 21,362 restricted OCGH units to its employees and directors, subject to annual vesting over a weighted average period of approximately 4.9 years . The grant date fair value of OCGH units awarded during the three months ended March 31, 2017 was determined by applying a 20% discount to the Class   A unit trading price on the New York Stock Exchange as of the grant date. In the first quarter of 2017, the Company adopted the new accounting guidance related to share-based payment awards, as further discussed in note 2. With respect to forfeitures, the Company adopted the guidance on a modified retroactive basis and made an accounting policy election to account for forfeitures when they occur. Accordingly, no forfeitures have been assumed in the calculation of compensation expense effective January 1, 2017.
As of March 31, 2017, the Company expected to recognize compensation expense on its unvested Class A and OCGH unit awards of $181.9 million over a weighted average period of 4.5 years.  

38

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

A summary of the status of the Company’s unvested Class A and OCGH unit awards and a summary of changes for the period 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, 2016
2,128,400

 
$
41.86

 
2,337,953

 
$
39.80

Granted
1,210,691

 
45.30

 
21,362

 
36.24

Vested
(744,318
)
 
40.40

 
(344,702
)
 
39.23

Forfeited
—

 
—

 
—

 
—

Balance, March 31, 2017
2,594,773

 
$
43.89

 
2,014,613

 
$
39.91

Equity Value Units
OCGH equity value units (“EVUs”) represent special limited partnership units in OCGH that entitle the holder the right to receive special distributions that will be settled in OCGH units, based on value created during a specified period in excess of a fixed “Base Value.” The value created will be measured on a per unit basis, based on the appreciation of the Class A units and certain components of quarterly distributions 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. 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.
Certain EVUs provide the holder with liquidity rights in respect of the special distributions, if any, that will be settled in OCGH units. The Company accounts for EVUs with liquidity rights as liability-classified awards. As of March 31, 2017, there were 1,000,000 equity-classified EVUs and 1,000,000 liability-classified EVUs outstanding. As of March 31, 2017, the Company expected to recognize $6.1 million of compensation expense on its unvested EVUs over the next 2.8 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.
14. INCOME TAXES AND RELATED PAYMENTS
Oaktree is a publicly traded partnership and Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., two of its Intermediate Holding Companies, are wholly-owned corporate subsidiaries. Income earned by these corporate subsidiaries is subject to U.S. federal and state income taxation and taxed at prevailing rates. Income earned by non-corporate subsidiaries is not subject to U.S. federal corporate income tax and is allocated to the Oaktree Operating Group’s unitholders.  The Company’s effective tax rate is dependent on many factors, including the estimated nature of many amounts and the mix of revenues and expenses between the subsidiaries that are or are not subject to income tax; consequently, from period to period the effective tax rate is subject to significant variation. The Company’s effective tax rate used for interim periods is based on the estimated full-year income tax rate. Certain future items that cannot be reliably estimated, such as incentive income, are excluded from the estimated annual effective tax rate. The tax expense or benefit stemming from these items is recognized in the same period as the underlying income or expense.
Tax authorities currently are examining certain income tax returns of Oaktree, with certain of these examinations at an advanced stage. Over the next four quarters ending March 31, 2018, the Company believes that it is reasonably possible that one outcome of these examinations and expiring statutes of limitation on other items may be the release of up to approximately $5.7 million of previously accrued Operating Group income taxes.

39

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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.
Exchange Agreement and Tax Receivable Agreement
Subject to certain restrictions and the approval of the Company’s board of directors, each holder of OCGH units has the right 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 and/or other consideration of equal value. Certain of the Oaktree Operating Group entities made an election under Section 754 of the U.S. Internal Revenue Code, as amended, 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% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income taxes that they actually realize (or are deemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc., or a change of control) as a result of an increase in the tax basis of the assets owned by the Oaktree Operating Group. When an exchange of OCGH units results in an increase to the tax basis of the assets owned by the Oaktree Operating Group, a deferred tax asset and an associated liability for payments to OCGH unitholders under the tax receivable agreement are recorded, subject to realizability considerations. 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 March 31, 2017, are estimated to aggregate $33.4 million over the period ending approximately in 2029 with respect to the 2007 Private Offering, $71.3 million over the period ending approximately in 2034 with respect to the initial public offering, $99.0 million over the period ending approximately in 2035 with respect to the May 2013 Offering, $74.5 million over the period ending approximately in 2036 with respect to the March 2014 Offering, and $62.7 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.
No amounts were paid under the tax receivable agreement during the three months ended March 31, 2017.

40

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

15. 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
Oaktree, its affiliates, investment professionals, and portfolio companies are routinely involved in litigation and other legal actions in the ordinary course of their business and investing activities.  In addition, Oaktree is subject to the authority of a number of U.S. and non-U.S. regulators, including the SEC and the Financial Industry Regulatory Authority, and those authorities periodically conduct examinations of Oaktree and make other inquiries that may result in the commencement of regulatory proceedings against Oaktree and its personnel. Oaktree is currently not subject to any pending actions or regulatory proceedings 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 March 31, 2017 and December 31, 2016, respectively, the aggregate of such amounts recorded at the fund level in excess of incentive income recognized by the Company was $2,063,616 and $1,970,755 , for which related direct incentive income compensation expense was estimated to be $1,096,719 and $1,026,345 .
Contingent Consideration
The Company has a contingent consideration obligation of up to $60.0 million related to the 2014 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 March 31, 2017 and December 31, 2016, respectively, the fair value of the contingent consideration liability was $24.2 million and $23.6 million . Changes in this liability resulted in expense of $0.6 million and income of $0.6 million for the three months ended March 31, 2017 and 2016, respectively. The fair value of the contingent consideration liability is a Level III valuation, which uses a discounted cash-flow analysis based on a probability-weighted average estimate of certain performance targets, including fundraising and revenue levels. The assumptions used in the analysis are inherently subjective, and thus the ultimate amount of the contingent consideration liability may differ materially from the most recent estimate. The contingent consideration liability is included in accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition. Changes in the liability are recorded in general and administrative expense in the condensed consolidated statements of operations.
Commitments to Funds
As of March 31, 2017 and December 31, 2016, the Company, generally in its capacity as general partner, had undrawn capital commitments of $468.8 million and $565.4 million , respectively, including commitments to both unconsolidated and consolidated funds.
Investment Commitments of Consolidated Funds
Certain of the consolidated funds are parties to credit arrangements that provide for the issuance of letters of credit and/or revolving loans, which may require the particular fund to extend loans to investee companies. The consolidated funds use the same investment criteria in making these commitments as they do for investments that are included in the condensed consolidated statements of financial condition. The unfunded liability associated with these credit arrangements is equal to the amount by which the contractual loan commitment exceeds the sum of funded debt and cash held in escrow, if any. As of March 31, 2017 and December 31, 2016, the consolidated funds had potential aggregate commitments of $10.5 million and $2.1 million , respectively. These commitments are

41

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

expected to be funded by the funds’ cash balances, proceeds from asset sales or drawdowns against existing capital commitments.
A consolidated fund may agree to guarantee the repayment obligations of certain investee companies. As of March 31, 2017 and December 31, 2016, there were no guaranteed amounts under such arrangements.
Certain 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. During the three months ended March 31, 2017, the consolidated funds did not provide any financial support to portfolio companies.
16. RELATED-PARTY TRANSACTIONS
The Company considers its senior executives, employees and unconsolidated 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 due to their short-term nature or 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 $165,408 and $164,335 as of March 31, 2017 and December 31, 2016, respectively, based on a discount rate of 10.0% .
 
As of
 
March 31, 2017
 
December 31, 2016
Due from affiliates:
 
 
 
Loans
$
13,862

 
$
19,325

Amounts due from unconsolidated funds
60,391

 
53,573

Management fees and incentive income due from unconsolidated funds
57,860

 
130,708

Payments made on behalf of unconsolidated entities
3,778

 
3,779

Non-interest bearing advances made to certain non-controlling interest holders and employees
1,024

 
1,258

Total due from affiliates
$
136,915

 
$
208,643

Due to affiliates:
 
 
 

Due to OCGH unitholders in connection with the tax receivable agreement (please see note 14)
$
340,966

 
$
340,966

Amounts due to senior executives, certain non-controlling interest holders and employees
2,874

 
5,577

Total due to affiliates
$
343,840

 
$
346,543

Loans
Loans primarily consist of interest-bearing loans made to certain non-controlling interest holders, primarily certain employees, to meet tax obligations related to vesting of equity awards. The loans, which are generally recourse to the borrower or secured by vested equity and other collateral, typically bear interest at the Company’s cost of debt and generated interest income of $151 and $204 for the three months ended March 31, 2017 and 2016, respectively.

42

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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 paid by the Company, which typically are employee travel and other costs associated with particular portfolio company holdings, are reimbursed to the Company by the portfolio companies.
Revenues Earned From Oaktree Funds
Management fees and incentive income earned from unconsolidated Oaktree funds totaled $260.2 million and $227.0 million for the three months ended March 31, 2017 and 2016, respectively.
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 reimbursed generally toward the end of the calendar quarter in which the capital calls occurred. Amounts advanced by the Company are included in non-interest bearing advances made to certain non-controlling interest holders and employees.
Aircraft Services
The Company owns an aircraft for business purposes. Howard Marks, the Company’s co-chairman, may use this aircraft for personal travel and will reimburse the Company to the extent his use of the aircraft for personal travel exceeds a certain threshold pursuant to a Company policy adopted as of January 1, 2017.  Additionally, the Company occasionally makes use of an aircraft 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.
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.
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

43

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

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. Moreover, third-party placement costs associated with closed-end funds 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. Gains and losses resulting from foreign-currency transactions and hedging activities under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period, but for ANI unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged. Additionally, for ANI, foreign-currency transaction gains and losses are included in other income (expense), net. Incentive income and incentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. CLO investments are carried at fair value for GAAP reporting, whereas for segment reporting they are carried at amortized cost, subject to any impairment charges. Investment income on CLO investments is recognized in ANI when cash distributions are received. Cash distributions are allocated between income and return of capital based on the effective yield method. ANI is calculated at the Operating Group level.
ANI was as follows:
 
Three Months Ended March 31,
 
2017
 
2016
Revenues:
 

 
 

Management fees
$
185,565

 
$
201,270

Incentive income
147,193

 
96,588

Investment income
58,429

 
15,077

Total revenues
391,187

 
312,935

Expenses:
 
 
 

Compensation and benefits
(102,136
)
 
(104,270
)
Equity-based compensation
(11,651
)
 
(10,703
)
Incentive income compensation
(73,144
)
 
(49,749
)
General and administrative
(32,409
)
 
(31,481
)
Depreciation and amortization
(2,823
)
 
(3,160
)
Total expenses
(222,163
)
 
(199,363
)
Adjusted net income before interest and other income (expense)
169,024

 
113,572

Interest expense, net of interest income (1)
(6,971
)
 
(8,682
)
Other income (expense), net
41

 
135

Adjusted net income
$
162,094

 
$
105,025

 
 
 
 
 
(1)
Interest income was $1.7 million and $1.3 million for the three months ended March 31, 2017 and 2016, respectively.

44

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ 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.  
 
Three Months Ended March 31,
 
2017
 
2016
 
 
 
 
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078

Incentive income (1)  
38,536

 
39,942

Incentive income compensation (1)  
(38,536
)
 
(39,942
)
Investment income (2)  
(4,372
)
 
(10,429
)
Equity-based compensation (3)  
3,302

 
3,192

Placement costs (4)  
60

 
6,704

Foreign-currency hedging (5)  
(1,996
)
 
5,866

Acquisition-related items (6)  
1,602

 
391

Income taxes (7)  
12,302

 
12,680

Non-Operating Group expenses (8)  
232

 
264

Non-controlling interests (8)  
96,049

 
58,279

Adjusted net income
$
162,094

 
$
105,025

 
 
 
 
 
(1)
This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG.
(2)
This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs which under GAAP are marked-to-market but for segment reporting are accounted for at amortized cost, subject to impairment.
(3)
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.
(4)
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.
(5)
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.
(6)
This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability, which are excluded from adjusted net income.
(7)
Because adjusted net income is a pre-tax measure, this adjustment adds back the effect of income tax expense.
(8)
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 inter ests.

45

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

The following tables reconcile the Company’s segment information to the condensed consolidated financial statements:
 
As of or for the Three Months Ended March 31, 2017
 
Segment
 
Adjustments
 
Consolidated
 
 
 
 
 
 
Management fees (1)
$
185,565

 
$
(4,637
)
 
$
180,928

Incentive income (1)
147,193

 
(38,536
)
 
108,657

Investment income (1)
58,429

 
(7,978
)
 
50,451

Total expenses (2)
(222,163
)
 
29,601

 
(192,562
)
Interest expense, net (3)
(6,971
)
 
(41,799
)
 
(48,770
)
Other income (expense), net (4)   
41

 
4,622

 
4,663

Other income of consolidated funds (5)
—

 
70,766

 
70,766

Income taxes
—

 
(12,302
)
 
(12,302
)
Net income attributable to non-controlling interests in consolidated funds
—

 
(9,692
)
 
(9,692
)
Net income attributable to non-controlling interests in consolidated subsidiaries
—

 
(97,224
)
 
(97,224
)
Adjusted net income/net income attributable to Oaktree Capital Group, LLC
$
162,094

 
$
(107,179
)
 
$
54,915

Corporate investments (6)
$
1,547,125

 
$
(489,631
)
 
$
1,057,494

Total assets (7)
$
3,260,269

 
$
4,870,091

 
$
8,130,360

 
 
 
 
 
(1)
The adjustment represents (a) the elimination of amounts earned from the consolidated funds, (b) for management fees, the reclassification of $415 of net gains related to foreign-currency hedging activities to general and administrative expense, (c) for incentive income, the effect of timing differences in the recognition of such income between adjusted net income and net income attributable to OCG of $38,536 , and (d) for investment income, differences of $4,372 related to corporate investments in CLOs which under GAAP are marked-to-market but for segment reporting accounted for at amortized cost, subject to impairment.
(2)
The expense adjustment consists of (a) equity-based compensation expense of $2,432 related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of $1,457 , (c) expenses incurred by the Intermediate Holding Companies of $305 , (d) the effect of timing differences in the recognition of incentive income compensation expense between adjusted net income and net income attributable to OCG of $38,536 , (e) acquisition-related items of $1,602 , (f) adjustments of $4,661 related to amounts received for contractually reimbursable costs that are classified as expenses for segment reporting and as other income under GAAP, (g) differences of $870 arising from EVUs that are classified as liability awards under GAAP but as equity awards for segment reporting, (h) $60 related to third-party placement costs, and (i) $2,452 of net gains related to foreign-currency hedging activities.
(3)
The interest expense adjustment represents the inclusion of interest expense attributable to third-party investors in CLOs, 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 $4,661 that are classified as expenses for segment reporting and as other income under GAAP, and (b) the reclassification of $41 in 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 third-party investors in CLOs and 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 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, such as corporate investments in funds and incentive income receivable.

46

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

 
As of or for the Three Months Ended March 31, 2016
 
Segment
 
Adjustments
 
Consolidated
 
 
 
 
 
 
Management fees (1)  
$
201,270

 
$
(2,717
)
 
$
198,553

Incentive income (1)
96,588

 
(40,651
)
 
55,937

Investment income (1)
15,077

 
14,370

 
29,447

Total expenses (2)
(199,363
)
 
14,179

 
(185,184
)
Interest expense, net (3)
(8,682
)
 
(19,023
)
 
(27,705
)
Other income (expense), net (4)  
135

 
5,666

 
5,801

Other income of consolidated funds (5)  
—

 
18,999

 
18,999

Income taxes
—

 
(12,680
)
 
(12,680
)
Net loss attributable to non-controlling interests in consolidated funds
—

 
4,944

 
4,944

Net income attributable to non-controlling interests in consolidated subsidiaries
—

 
(60,034
)
 
(60,034
)
Adjusted net income/net income attributable to Oaktree Capital Group, LLC
$
105,025

 
$
(76,947
)
 
$
28,078

Corporate investments (6)  
$
1,352,362

 
$
(306,785
)
 
$
1,045,577

Total assets (7)  
$
3,136,660

 
$
3,222,154

 
$
6,358,814

 
 
 
 
 
(1)
The adjustment represents (a) the elimination of amounts earned from the consolidated funds, (b) for management fees, the reclassification of $662 of net gains related to foreign-currency hedging activities to general and administrative expense, (c) for incentive income, the effect of timing differences in the recognition of such income between adjusted net income and net income attributable to OCG of $39,942 , and (d) for investment income, differences of $10,429 related to corporate investments in CLOs which under GAAP are marked-to-market but for segment reporting accounted for at amortized cost, subject to impairment.
(2)
The expense adjustment consists of (a) equity-based compensation expense of $3,245 related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of $4,311 , (c) expenses incurred by the Intermediate Holding Companies of $295 , (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 $39,942 , (e) acquisition-related items of $391 , (f) adjustments of $5,801 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 $53 arising from EVUs that are classified as liability awards under GAAP but as equity awards for segment reporting, (h) $6,704 related to third-party placement costs, and (i) $5,069 of net losses related to foreign-currency hedging activities.
(3)
The interest expense adjustment represents the inclusion of interest expense attributable to third-party investors in CLOs, 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 $5,801 that are classified as expenses for segment reporting and as other income under GAAP, and (b) the reclassification of $135 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 third-party investors in CLOs and 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 that are treated as equity- or cost-method investments for segment reporting. The $1.4 billion of corporate investments included $1.2 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, such as corporate investments in funds and incentive income receivable.

47

Oaktree Capital Group, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)
March 31, 2017
($ in thousands, except where noted)

18. SUBSEQUENT EVENTS
Distribution
On April 27, 2017, the Company declared a distribution of $0.71 per Class A unit. This distribution, which is related to the first quarter of 2017, will be paid on May 12, 2017 to Class A unitholders of record at the close of business on May 8, 2017.
Compensatory Arrangements of Certain Officers
Effective as of April 26, 2017, Oaktree’s board of directors has approved the extension of the term of the employment agreement of Jay S. Wintrob, Oaktree’s Chief Executive Officer, to March 31, 2022 in recognition of Mr. Wintrob’s performance to date. In conjunction with this extension, the board of directors approved certain adjustments to the compensation arrangements of Mr. Wintrob by awarding him 225,000 limited partnership units vesting pro-rata over ten years (the “Granted OCGH Units”) in OCGH in accordance with the terms of Oaktree’s 2011 Equity Incentive Plan and expanding his profit sharing arrangement to include a share of the net incentive income from certain funds that had their final close before Mr. Wintrob joined Oaktree (“pre-employment funds”). The incremental amounts Mr. Wintrob receives as a result of these changes will reduce the amount Mr. Wintrob would be entitled to, if any, with respect to his EVUs in OCGH. The board of directors believes these modifications more fully align Mr. Wintrob’s interests with Oaktree’s Class A unitholders and provide him with compensation that is competitive with the range of compensation paid to other CEOs (or executives serving in a similar capacity) in the asset management industry. The material terms of the new compensation arrangements are summarized below.
Employment Agreement Amendment
On April 26, 2017, the Company, Oaktree Capital Management, L.P. and Mr. Wintrob entered into a second amended and restated employment agreement, which extended the term of the agreement through March 31, 2022. Under the amended agreement, beginning in 2017, Mr. Wintrob’s profit sharing payments will now be calculated to include a portion of the net incentive income on pre-employment funds. For 2017-2019, the payments will be calculated taking into account 75% of the net incentive income earned by Oaktree that is derived from such funds, and for 2020 or later, such percentage will change to 50% . In addition, the amended agreement provides that Mr. Wintrob will now receive his quarterly profit sharing payments in arrears, rather than in advance, and that the value of the portion of such payments (if any) paid in Class A units will be determined based on the average daily closing price of the Class A units for the period commencing 20 trading days before the date such Class A units are issued (or such other period that Oaktree selects as applied consistently to other employees).
The employment agreement has also been modified to provide that if, after December 31, 2019, Mr. Wintrob’s employment is terminated by the Company without cause or by Mr. Wintrob for good reason (as such terms are defined in the agreement), Mr. Wintrob will receive a quarterly cash payment in each of the four fiscal quarters that follow the fiscal quarter in which he is terminated. Each payment will be 25% of the aggregate profit sharing payments he earned for the four full fiscal quarters that preceded his termination.
Equity Value Unit Amendment
On April 26, 2017, the Company and Mr. Wintrob entered into a second amended and restated grant agreement under Oaktree’s 2011 Equity Incentive Plan, which amended Mr. Wintrob’s existing EVU award. The amended agreement reduces the value received under the EVUs by (i) distributions on such Granted OCGH Units, (ii) the value of the portion of Mr. Wintrob’s profit sharing payments attributable to the net incentive income received from the pre-employment funds, and (iii) the full value of the Granted OCGH Units, calculated assuming the value per OCGH unit is the average daily closing price of a Class A unit over the 20 trading day period preceding the grant date of the Granted OCGH Units. To the extent that the reduction relates to the value of any Granted OCGH Units that are unvested at the time of the reduction, such Granted OCGH Units will vest at that time.

48

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of Oaktree Capital Group, LLC and the related notes included within this quarterly 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 quarterly report and under “Risk Factors” in our 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 $100.3 billion in AUM as of March 31, 2017. 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 more than 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 includes 75 of the 100 largest U.S. pension plans, 38 states in the United States, over 400 corporations and/or their pension funds, over 350 university, charitable and other endowments and foundations, 16 sovereign wealth funds and over 350 other non-U.S. institutional investors. As measured by AUM, approximately 76% of our clients are invested in two or more different investment strategies, and 38% are invested in four or more. Headquartered in Los Angeles, we serve these clients with over 900 employees and offices in 18 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, cost basis or NAV of the particular fund. Incentive income represents our share (typically 20%) of the investors’ profits in most of the closed-end and evergreen funds. Investment income reflects 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 CLOs and other companies.
Business Environment and Developments
As a global investment manager, we are affected by myriad factors, including the condition of the global economy and financial markets; the relative attractiveness of our investment strategies and investors’ demand for them; and regulatory or other governmental policies or actions. Global economic conditions can significantly affect the values of our funds’ investments and our ability to make new investments or sell existing investments for our funds. Historically, however, the diversified nature of both our array of investment strategies and our revenue mix has generally allowed us to benefit from both strong and weak economic 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 present us with opportunities to raise relatively larger amounts of capital for certain strategies, especially Distressed Debt. Additionally, weak financial markets may also present us with more opportunities to make investments for our funds at reduced prices. Conversely, strong financial markets generally increase the value of our funds’ investments, which positions us for growth in management fees that are based on asset value, and typically create favorable exit opportunities that enhance the prospect for incentive income and fund-related investment income proceeds. Those same markets may delay or diminish opportunities to deploy capital and thus management fees from certain of our funds.
In the first quarter, most major financial markets delivered strong returns amid generally improving global economic data. U.S. equities reached all-time highs in the quarter, on hopes that the newly elected U.S. President Donald Trump would deliver on his plans to cut taxes, boost infrastructure spending and reduce regulation. The S&P 500 Index finished the quarter with a total return of 6.1%, while the Russell 2000 Index returned 2.5%. Non-U.S. equities, as measured by the MSCI ACWI ex-USA Index, returned 8.0%. Emerging market equities were

49

particularly strong, returning 11.5%, as measured by the MSCI Emerging Markets Index, while European equity markets returned 7.6%, as measured by the MSCI Europe Index. Credit markets performed relatively well, despite the U.S. Federal Reserve’s decision to increase short-term interest rates in March for a second time in as many quarters. U.S. high yield bonds, as measured by the Citigroup U.S. High Yield Cash-Pay Capped Index, returned 2.4% for the quarter, while emerging market bonds returned 3.9%, as measured by the JP Morgan Corporate Emerging Markets Bond Index (CEMBI) High Yield. The 10-year U.S. Treasury yield declined slightly during the quarter, to 2.40%, from 2.45% at the end of 2016.
Against this backdrop, our incentive-creating closed-end funds delivered an overall blended gross return for the quarter of 3.3%. As of March 31, 2017, AUM was $100.3 billion and management fee-generating AUM was $79.3 billion . Gross capital raised was $3.1 billion and $13.0 billion for the quarter and the 12 months ended March 31, 2017, respectively. As of March 31, 2017, uncalled capital commitments were $21.8 billion . Of these commitments, $13.1 billion were not yet generating management fees (“shadow AUM”).  The largest portion of the shadow AUM, at $8.8 billion, was represented by Oaktree Opportunities Fund Xb (“Opps Xb”).  Currently, we do not expect Opps Xb to start its investment period and thus begin generating management fees based on committed capital until sometime in 2018.  Most of the remaining $4.3 billion of shadow AUM charges management fees based on drawn capital or cost basis and therefore we currently expect it will start generating management fees on a gradual basis over multiple years.
Understanding Our Results—Consolidation of Oaktree Funds
GAAP requires us to consolidate entities in which we have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. A limited partnership or similar entity is a variable interest entity (“VIE”) if the unaffiliated limited partners do not have substantive kick-out or participating rights. Most of the Oaktree funds are VIEs because they have not granted unaffiliated limited partners substantive kick-out or participating rights. Oaktree consolidates those VIEs in which we are the primary beneficiary. For entities that are not VIEs, consolidation is evaluated through a majority voting interest model. Please see note 2 to our condensed consolidated financial statements for more information.
Most of the Oaktree funds that are VIEs are not consolidated because we are not the primary beneficiary, as our fee arrangements are not deemed to be variable interests and we do not hold any other interests in those funds that are considered to be more than insignificant. However, investment vehicles in which we have a significant investment, such as CLOs and certain Oaktree funds, are consolidated under GAAP (“consolidated funds”). When a CLO or 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 consolidated funds, which are held by third-party investors, are reflected as debt obligations of CLOs or non-controlling interests in consolidated funds in the consolidated financial statements. All of the revenues earned by us as investment manager of the consolidated funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by third-party investors, the consolidation of a fund does not impact net income or loss attributable to us.
Certain entities in which we have the ability to exert significant influence, including unconsolidated Oaktree funds for which we act as general partner, are accounted for under the equity method of accounting.
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. Note 17 to our condensed consolidated financial statements included elsewhere in this quarterly report includes information regarding our segment on a stand-alone basis. For a more detailed discussion of the factors that affect the results of operations of our segment, please see “—Segment Analysis” below.  
Revenues
Our business generates three types of segment revenue: management fees, incentive income and investment income. Management fees are billed monthly or quarterly based on annual rates and are typically earned for each of the funds that we manage. The contractual terms of management fees generally vary by fund structure. Management fees also may 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 and 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

50

excess of the contributed capital from the inception of the fund. Thereafter, 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 as investment manager of our consolidated funds. Investment income is presented within the other income (loss) section of our condensed consolidated statements of operations. Please see “Business—Structure and Operation of Our Business—Structure of Funds” in our annual report for a detailed discussion of the structure of our funds.
Expenses
Compensation and Benefits
Compensation and benefits expense reflects 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 EVUs that are classified as liability awards in our GAAP-basis statements of operations as equity-classified awards (please see “—Segment and Operating Metrics—Adjusted Net Income” below). 
As of March 31, 2017, there was $188.0 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 4.0 years. As of March 31, 2017, there was $170.7 million of unrecognized compensation expense for segment reporting purposes, with the difference versus the GAAP-basis figure primarily representing unit grants made before our initial public offering.  The $170.7 million increased to $181.9 million in April 2017 as a result of additional unit grants. The $181.9 million is expected to be recognized as expense in adjusted net income over a weighted average vesting period of approximately 4.0 years, as shown in the table below. These amounts are subject to change as a result of future unit grants, including those from our annual bonus awards, which are typically issued in the first quarter of the following fiscal year, 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
 
Last Nine Months of 2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
 
 
(in millions)
Estimated expense from equity grants awarded through April 2017
 
$
44.3

 
$
46.6

 
$
37.8

 
$
21.5

 
$
8.8

 
$
22.9

 
$
181.9

Incentive Income Compensation
Incentive income compensation expense primarily reflects compensation directly related to segment incentive income, which generally consists of percentage interests (sometimes referred to as “points”) that we grant to our investment professionals associated with the particular fund that generated the segment incentive income, and secondarily, 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

51

consolidated incentive income may not be meaningful because (a) the criteria for recognizing income and expense differ under GAAP and thus may result in timing differences, and (b) segment incentive income is eliminated in consolidation, whereas no incentive income compensation expense is eliminated in consolidation. For the most 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, business process outsourcing, 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, office leasehold improvements, corporate aircraft 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. Company-owned aircraft are depreciated using the straight-line method over the 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 are 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’ interests in the 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.
Interest and Dividend Income
Interest and dividend income consists of interest and dividend income earned on the investments held by our consolidated funds, and interest income earned by Oaktree and its operating subsidiaries.
Net Realized Gain (Loss) on Consolidated Funds’ Investments
Net realized gain (loss) 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 condensed consolidated statements of operations, excludes investment income earned by us from our consolidated funds.
 

52

Other Income (Expense), Net
Other income (expense), net represents non-operating income or expense, including income related to amounts received for contractually reimbursable costs associated with certain arrangements made in connection with the Highstar acquisition.
Income Taxes
Oaktree is a publicly traded partnership. Because it satisfies the qualifying income test, it is not required to be treated as a corporation for 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 effective tax rate used for interim periods is based on the estimated full year income tax rate. Certain items that cannot be reliably estimated, such as incentive income, are excluded from the estimated annual effective tax rate. The tax expense or benefit stemming from these items is recognized in the same period as the underlying income or expense.
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.
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 category 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. In comparison to net income, this measure excludes segment results and other items solely attributable to the Company; and
•
Net Income Attributable to Non-controlling Interests in Consolidated Subsidiaries. This category 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 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 Class A and OCGH units, changes in the economic interest held by the OCGH unitholders are driven by our additional issuances of Class A and OCGH units, as well as repurchases and forfeitures of, and exchanges between, Class A and OCGH 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 11 to our condensed consolidated financial statements included elsewhere in this quarterly report for additional information on the economic interest in the Oaktree Operating Group owned by OCGH.

53

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 condensed consolidated statements of operations, please see “— Segment Analysis ” below and the “Segment Reporting” note to our condensed consolidated financial statements included elsewhere in this quarterly report. The data most important to our chief operating decision maker in assessing our performance are adjusted net income, adjusted net income-OCG, distributable earnings, distributable earnings-OCG, fee-related earnings and fee-related earnings-OCG.
We monitor certain operating metrics that are either common to the alternative asset management industry or that we believe provide important data regarding our business. As described below, these operating metrics include assets under management, management fee-generating assets under management, incentive-creating assets under management, accrued incentives (fund level), incentives created (fund level) and uncalled capital commitments.
Adjusted Net Income
Our chief operating decision maker uses adjusted net income (“ANI”) as a tool to help evaluate the financial performance of, and make resource allocations and other operating decisions for, our 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. Moreover, third-party placement costs associated with closed-end funds 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. Gains and losses resulting from foreign-currency transactions and hedging activities under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period, but for ANI unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged. Additionally, for ANI, foreign-currency transaction gains and losses are included in other income (expense), net. Incentive income and incentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. CLO investments are carried at fair value for GAAP reporting, whereas for segment reporting they are carried at amortized cost, subject to any impairment charges. Investment income on CLO investments is recognized in ANI when cash distributions are received. Cash distributions are allocated between income and return of capital based on the effective yield method. ANI is calculated at the Operating Group level.
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 or other similarly named measures utilized by other asset managers.
We calculate adjusted net income-OCG, or adjusted net income per Class A unit, a non-GAAP performance 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

54

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 other investment income generally has not been subject to corporate-level taxation. Thus, the blended effective income tax rate has generally tended to be higher to the extent that fee-related earnings and DoubleLine-related investment income represented a larger proportion of our ANI. Myriad other factors affect income tax expense and the effective income tax rate, and there can be no assurance that this historical relationship will continue going forward.
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. Additionally, any impairment charges on our CLO investments included in ANI are, for distributable earnings purposes, amortized over the remaining investment period of the respective CLO to align with the timing of expected cash flows. 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.
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 our CLOs and 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 performance 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 performance 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. 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 those expenses also support the generation of 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 performance 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).

55

Assets Under Management
AUM generally refers to the assets we manage and equals the NAV of the assets we manage, the leverage on which management fees are charged, the undrawn capital that we are entitled to call from investors in our funds pursuant to their capital commitments and the aggregate par value of collateral assets and principal cash held by our CLOs. Our AUM includes amounts for which we charge no management fees. 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, drawn capital or cost basis during the investment period, without regard to changes in NAV, and during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund. The annual management fee rate generally remains unchanged from the investment period through the liquidation period. Our open-end and evergreen funds typically pay management fees based on their NAV, and our CLOs pay management fees based on the aggregate par value of collateral assets and principal cash held by them, as defined in the applicable CLO indentures.
•
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 above their preferred return or high-water mark and therefore 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 accrued incentives 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.
Incentives created (fund level) often reflects investments measured at fair value and therefore is subject to risk of substantial fluctuation by the time the underlying investments are liquidated. We earn the incentive income, if any, that the fund is then obligated to pay us with respect to our incentive interest (generally 20%) in the profits of our unaffiliated investors, subject to an annual preferred return of typically 8%. Although GAAP currently allows the equivalent of incentives created (fund level) to be recognized as revenue by us under Method 2, we follow the Method 1 approach offered by GAAP. Our use of Method 1 reduces by a substantial degree the possibility that revenue recognized by us would be reversed in a subsequent period. For purposes of ANI and distributable

56

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.  
Invested Capital
Invested capital reflects deployed capital, whether involving drawn or recycled equity capital, or borrowings from fund-level credit facilities.  This metric is used in connection with incentive-creating closed-end funds and certain evergreen funds.
Consolidated Results of Operations
The following table sets forth our unaudited condensed consolidated statements of operations:  
Condensed Consolidated Statements of Operations
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Revenues:
 
 
 
Management fees
$
180,928

 
$
198,553

Incentive income
108,657

 
55,937

Total revenues
289,585

 
254,490

Expenses:
 
 
 
Compensation and benefits
(104,487
)
 
(108,405
)
Equity-based compensation
(14,953
)
 
(13,896
)
Incentive income compensation
(34,608
)
 
(9,807
)
Total compensation and benefits expense
(154,048
)
 
(132,108
)
General and administrative
(32,219
)
 
(47,831
)
Depreciation and amortization
(3,824
)
 
(4,161
)
Consolidated fund expenses
(2,471
)
 
(1,084
)
Total expenses
(192,562
)
 
(185,184
)
Other income (loss):
 
 
 
Interest expense
(48,770
)
 
(27,705
)
Interest and dividend income
47,960

 
36,270

Net realized gain (loss) on consolidated funds’ investments
(1,872
)
 
3,401

Net change in unrealized appreciation (depreciation) on consolidated funds’ investments
24,678

 
(20,672
)
Investment income
50,451

 
29,447

Other income (expense), net
4,663

 
5,801

Total other income
77,110

 
26,542

Income before income taxes
174,133

 
95,848

Income taxes
(12,302
)
 
(12,680
)
Net income
161,831

 
83,168

Less:
 
 
 
Net (income) loss attributable to non-controlling interests in consolidated funds
(9,692
)
 
4,944

Net income attributable to non-controlling interests in consolidated subsidiaries
(97,224
)
 
(60,034
)
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078


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Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016
Revenues
Management Fees
Management fees decreased $17.7 million, or 8.9% , to $180.9 million for the three months ended March 31, 2017, from $198.6 million for the three months ended March 31, 2016. The decrease reflected an aggregate decline of $23.6 million primarily attributable to unconsolidated closed-end funds in liquidation, partially offset by an aggregate increase of $5.9 million principally from additional capital commitments to ROF VII and closed-end funds that pay management fees based on drawn capital, NAV or cost basis.
Incentive Income
Incentive income increased $52.8 million, or 94.5% , to $108.7 million for the three months ended March 31, 2017, from $55.9 million for the three months ended March 31, 2016. The current-year period included regular and tax-related incentive income of $66.0 million and $42.7 million from unconsolidated funds, respectively, as compared to $23.1 million and $32.8 million in the prior-year period, respectively.
Expenses
Compensation and Benefits
Compensation and benefits expense decreased $3.9 million, or 3.6% , to $104.5 million for the three months ended March 31, 2017, from $108.4 million for the three months ended March 31, 2016. The decrease was primarily attributable to variations in bonus accruals, partially offset by a $2.3 million unfavorable change in phantom equity expense, stemming largely from each period’s change in the Class A unit trading price.
Equity-based Compensation
Equity-based compensation expense increased $1.1 million, or 7.9% , to $15.0 million for the three months ended March 31, 2017, from $13.9 million for the three months ended March 31, 2016. The increase reflected non-cash amortization expense associated with vesting of Class A and OCGH unit grants made to employees and directors.
Incentive Income Compensation
Incentive income compensation expense increased $24.8 million, or 253.1% , to $34.6 million for the three months ended March 31, 2017, from $9.8 million for the three months ended March 31, 2016. The percentage increase in incentive income compensation expense was larger than the corresponding increase of 52.4% in segment incentive income, primarily as a result of timing differences between the recognition of segment incentive income and incentive income compensation expense.
General and Administrative
General and administrative expense decreased $15.6 million, or 32.6% , to $32.2 million for the three months ended March 31, 2017, from $47.8 million for the three months ended March 31, 2016. 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 $5.1 million, or 13.1%, to $33.8 million from $38.9 million, primarily reflecting lower placement costs associated with closed-end funds.
Consolidated Fund Expenses
Consolidated fund expenses increased $1.4 million, to $2.5 million for the three months ended March 31, 2017, from $1.1 million for the three months ended March 31, 2016. The increase primarily reflected higher professional fees and other costs of our consolidated funds.

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Other Income (Loss)
Interest Expense
Interest expense increased $21.1 million, or 76.2% , to $48.8 million for the three months ended March 31, 2017, from $27.7 million for the three months ended March 31, 2016. The increase was attributable to our consolidated funds.
Interest and Dividend Income
Interest and dividend income increased $11.7 million, or 32.2% , to $48.0 million for the three months ended March 31, 2017, from $36.3 million for the three months ended March 31, 2016. The increase was primarily attributable to our consolidated funds.
Net Realized Gain (Loss) on Consolidated Funds’ Investments
Net realized gain (loss) on consolidated funds’ investments decreased to a loss of $1.9 million for the three months ended March 31, 2017, from a gain of $3.4 million for the three months ended March 31, 2016. The decrease reflected our consolidated funds’ performance in each period.
Net Change in Unrealized Appreciation (Depreciation) on Consolidated Funds’ Investments
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments increased to a gain of $24.7 million for the three months ended March 31, 2017, from a loss of $20.7 million for the three months ended March 31, 2016. Excluding the impact of the reversal of net realized gain on consolidated funds’ investments, net change in unrealized appreciation (depreciation) on consolidated funds’ investments increased to a net gain of $22.8 million for the three months ended March 31, 2017, from a net loss of $17.3 million for the three months ended March 31, 2016, primarily reflecting our consolidated funds’ performance in each period.
Investment Income
Investment income increased $21.1 million, or 71.8% , to $50.5 million for the three months ended March 31, 2017, from $29.4 million for the three months ended March 31, 2016. The increase primarily reflected higher overall returns on our fund investments. DoubleLine accounted for investment income of $15.9 million and $15.1 million in the current and prior-year periods, respectively, of which performance fees accounted for $0.2 million and $0.6 million, respectively.
Other Income (Expense), Net
Other income (expense), net was income of $4.7 million and $5.8 million for the three months ended March 31, 2017 and 2016, respectively. Both periods primarily reflected income received for contractually reimbursable costs associated with Highstar.
Income Taxes
Income taxes decreased $0.4 million, or 3.1% , to $12.3 million for the three months ended March 31, 2017, from $12.7 million for the three months ended March 31, 2016.  The decrease reflected a lower effective tax rate for the three months ended March 31, 2017, partially offset by higher pre-tax income attributable to Class A unitholders. The effective tax rates applicable to Class A unitholders for the three months ended March 31, 2017 and 2016 were 17% and 29%, respectively, resulting from an estimated full-year effective rate of 20% and 26%, respectively.  The rate used for interim fiscal periods is based on an estimated full-year effective tax rate on income that can be reliably forecasted, combined with the tax expense in the current period on incentive income and any other income that cannot be reliably estimated. We generally expect variability in tax rates between periods, because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period’s income tax expense and may vary significantly within or between years.  Please see “—Understanding Our Results—Consolidation of Oaktree Funds.”
Net (Income) Loss Attributable to Non-controlling Interests in Consolidated Funds
Net (income) loss attributable to non-controlling interests in consolidated funds increased to income of $9.7 million for the three months ended March 31, 2017, as compared to a loss of $4.9 million for the three months

59

ended March 31, 2016. The increase primarily reflected our consolidated funds’ performance in each period. 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 increased $26.8 million, or 95.4% , to $54.9 million for the three months ended March 31, 2017, from $28.1 million for the three months ended March 31, 2016. The increase was primarily attributable to higher segment profits.


60

Segment Financial Data
The following table presents segment financial data:  
Segment Statements of Operations Data:  (1)
As of or for the Three Months
Ended March 31,
 
2017
 
2016
 
(in thousands, except per unit data or as otherwise indicated)
Revenues:
 
 
 
Management fees
$
185,565

 
$
201,270

Incentive income
147,193

 
96,588

Investment income
58,429

 
15,077

Total revenues
391,187

 
312,935

Expenses:
 
 
 
Compensation and benefits
(102,136
)
 
(104,270
)
Equity-based compensation
(11,651
)
 
(10,703
)
Incentive income compensation
(73,144
)
 
(49,749
)
General and administrative
(32,409
)
 
(31,481
)
Depreciation and amortization
(2,823
)
 
(3,160
)
Total expenses
(222,163
)
 
(199,363
)
Adjusted net income before interest and other income (expense)
169,024

 
113,572

Interest expense, net of interest income  (2)  
(6,971
)
 
(8,682
)
Other income (expense), net
41

 
135

Adjusted net income
$
162,094

 
$
105,025

 
 
 
 
Adjusted net income-OCG
$
54,119

 
$
30,160

Adjusted net income per Class A unit
0.86

 
0.49

Distributable earnings
157,099

 
125,725

Distributable earnings-OCG
54,306

 
41,843

Distributable earnings per Class A unit
0.86

 
0.68

Fee-related earnings
48,197

 
62,359

Fee-related earnings-OCG
17,814

 
23,059

Fee-related earnings per Class A unit
0.28

 
0.37

 
 
 
 
Weighted average number of Operating Group units outstanding
154,666

 
153,808

Weighted average number of Class A units outstanding
63,022

 
61,894

 
 
 
 
Operating Metrics:
 
 
 
Assets under management (in millions):
 
 
 
Assets under management
$
100,313

 
$
96,874

Management fee-generating assets under management
79,329

 
79,908

Incentive-creating assets under management 
32,337

 
31,205

Uncalled capital commitments 
21,770

 
21,400

Accrued incentives (fund level):
 
 
 
Incentives created (fund level) 
201,518

 
(46,270
)
Incentives created (fund level), net of associated incentive income compensation expense 
96,536

 
(16,991
)
Accrued incentives (fund level) 
2,068,422

 
1,442,359

Accrued incentives (fund level), net of associated incentive income compensation expense
969,029

 
747,711

 
 
 
 
 
(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 ANI

61

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. Moreover, third-party placement costs associated with closed-end funds 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. Gains and losses resulting from foreign-currency transactions and hedging activities under GAAP are recognized as general and administrative expense whether realized or unrealized in the current period, but for ANI unrealized gains and losses from foreign-currency hedging activities are deferred until realized, at which time they are included in the same revenue or expense line item as the underlying exposure that was hedged. Additionally, for ANI, foreign-currency transaction gains and losses are included in other income (expense), net. Incentive income and incentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. CLO investments are carried at fair value for GAAP reporting, whereas for segment reporting they are carried at amortized cost, subject to any impairment charges. Investment income on CLO investments is recognized in ANI when cash distributions are received. Cash distributions are allocated between income and return of capital based on the effective yield method. ANI is calculated at the Operating Group level. For a detailed description of our segment and operating metrics, please see “—Segment and Operating Metrics” above.
(2)
Interest income was $1.7 million and $1.3 million for the three months ended March 31, 2017 and 2016, respectively.





62

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
 
As of
 
March 31, 2017
 
December 31, 2016
 
March 31, 2016
Assets Under Management:
(in millions)
Closed-end funds
$
59,848

 
$
60,104

 
$
59,081

Open-end funds
35,125

 
35,105

 
33,008

Evergreen funds
5,340

 
5,295

 
4,785

Total
$
100,313

 
$
100,504

 
$
96,874


 
Three Months Ended March 31,
 
2017
 
2016
Change in Assets Under Management:
(in millions)
Beginning balance
$
100,504

 
$
97,359

Closed-end funds:
 
 
 
Capital commitments/other (1)  
1,094

 
866

Distributions for a realization event/other (2)  
(2,553
)
 
(2,014
)
Change in uncalled capital commitments for funds entering or in liquidation (3)  
31

 
—

Foreign-currency translation
106

 
341

Change in market value (4)  
870

 
365

Change in applicable leverage
196

 
93

Open-end funds:
 
 
 
Contributions
2,007

 
735

Redemptions
(2,977
)
 
(1,771
)
Foreign-currency translation
107

 
222

Change in market value (4)  
883

 
620

Evergreen funds:
 
 
 
Contributions or new capital commitments
7

 
66

Redemptions or distributions/other
(106
)
 
(59
)
Foreign-currency translation
(2
)
 
(3
)
Change in market value (4)  
146

 
54

Ending balance
$
100,313

 
$
96,874

 
 
 
 
 
(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.

63

Management Fee-generating Assets Under Management
 
As of
 
March 31, 2017
 
December 31, 2016
 
March 31, 2016
Management Fee-generating Assets Under Management:
(in millions)
Closed-end funds:
 
 
 
 
 
Senior Loans
$
7,721

 
$
7,504

 
$
7,184

Other closed-end funds
32,340

 
32,990

 
35,956

Open-end funds
34,930

 
35,034

 
32,939

Evergreen funds
4,338

 
4,239

 
3,829

Total
$
79,329

 
$
79,767

 
$
79,908


 
Three Months Ended March 31,
Change in Management Fee-generating Assets Under Management:
2017
 
2016
(in millions)
Beginning balance
$
79,767

 
$
78,897

Closed-end funds:
 
 
 
Capital commitments to funds that pay fees based on committed capital/other (1)  
17

 
686

Capital drawn by funds that pay fees based on drawn capital, NAV or cost basis
327

 
201

Change attributable to funds in liquidation  (2)  
(954
)
 
(381
)
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)  
(165
)
 
(113
)
Foreign-currency translation
82

 
229

Change in market value (5)  
88

 
85

Change in applicable leverage
172

 
144

Open-end funds:
 
 
 
Contributions
1,882

 
735

Redemptions
(2,971
)
 
(1,772
)
Foreign-currency translation
107

 
222

Change in market value
878

 
619

Evergreen funds:
 
 
 
Contributions or capital drawn by funds that pay fees based on drawn capital or NAV
59

 
337

Redemptions or distributions
(90
)
 
(28
)
Change in market value
130

 
47

Ending balance
$
79,329

 
$
79,908

 
 
 
 
 
(1)
These amounts represent capital commitments to funds that pay fees based on committed capital, as well as the aggregate par value of collateral assets and principal cash related to new CLO formations.
(2)
These amounts represent the change for funds that pay fees based on the lesser of funded capital or cost basis during the liquidation period, as well as recallable distributions at the end of the investment period. For most closed-end funds, management fees are charged during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund, with the cost basis of assets generally calculated by excluding cash balances. Thus, changes in fee basis during the liquidation period are not dependent on distributions made from the fund; rather, they are tied to the cost basis of the fund’s investments, which typically declines as the fund sells assets.
(3)
The change in uncalled capital commitments reflects declines attributable to funds entering their liquidation periods, as well as capital contributions to funds in their liquidation periods for deferred purchase obligations or other reasons.
(4)
These amounts represent distributions by funds that pay fees based on NAV, as well as reductions in the par value of collateral assets and principal cash resulting from the repayment of debt as return of principal by CLOs.
(5)
The change in market value reflects certain funds that pay management fees based on NAV and leverage, as applicable, as well as changes in the aggregate par value of collateral assets and principal cash held by CLOs.

64

A reconciliation of AUM to management fee-generating AUM is set forth below:  
 
As of
Reconciliation of Assets Under Management to Management Fee-generating Assets Under Management:
March 31, 2017
 
December 31, 2016
 
March 31, 2016
(in millions)
Assets under management
$
100,313

 
$
100,504

 
$
96,874

Difference between assets under management and committed capital or the lesser of funded capital or cost basis for applicable closed-end funds (1)  
(3,773
)
 
(4,183
)
 
(1,829
)
Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods
(10,542
)
 
(10,367
)
 
(8,143
)
Undrawn capital commitments to funds for which management fees are based on drawn capital, NAV or cost basis
(2,593
)
 
(3,109
)
 
(4,095
)
Oaktree’s general partner investments in management fee-generating funds
(1,928
)
 
(1,822
)
 
(1,727
)
Funds that are no longer paying management fees and co-investments that pay no management fees (2)  
(2,148
)
 
(1,256
)
 
(1,172
)
Management fee-generating assets under management
$
79,329

 
$
79,767

 
$
79,908

 
 
 
 
 
(1)
This difference is not applicable to closed-end funds that pay management fees based on NAV or leverage.
(2)
This includes certain accounts that pay fees intended to offset Oaktree’s costs related to the accounts.

The period-end weighted average annual management fee rates applicable to the respective management fee-generating AUM balances above are set forth below.
 
As of
 
March 31, 2017
 
December 31, 2016
 
March 31, 2016
Weighted Average Annual Management Fee Rates:
 
 
 
 
 
Closed-end funds:
 
 
 
 
 
Senior Loans
0.50
%
 
0.50
%
 
0.50
%
Other closed-end funds
1.50

 
1.50

 
1.52

Open-end funds
0.45

 
0.46

 
0.47

Evergreen funds
1.22

 
1.22

 
1.33

Overall
0.92

 
0.93

 
0.98

Incentive-creating Assets Under Management
Incentive-creating AUM is set forth below. As of March 31, 2017, December 31, 2016 and March 31, 2016, the portion of incentive-creating AUM generating incentives at the fund level was $20.7 billion, $21.2 billion and $16.5 billion, respectively. Incentive-creating AUM does not include undrawn capital commitments.  
 
As of
 
March 31, 2017
 
December 31, 2016
 
March 31, 2016
Incentive-creating Assets Under Management:
(in millions)
Closed-end funds
$
28,943

 
$
30,292

 
$
29,251

Evergreen funds
3,394

 
3,335

 
1,954

Total
$
32,337

 
$
33,627

 
$
31,205

Three Months Ended March 31, 2017
AUM decreased $0.2 billion , or 0.2% , to $100.3 billion as of March 31, 2017, from $100.5 billion as of December 31, 2016. The decrease primarily reflected $2.6 billion of distributions to closed-end fund investors and $1.0 billion of net outflows from open-end funds, largely offset by $1.9 billion in market-value gains and $1.1 billion of capital inflows for closed-end funds.

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Management fee-generating AUM, a forward-looking metric, decreased $0.5 billion , or 0.6% , to $79.3 billion as of March 31, 2017, from $79.8 billion as of December 31, 2016. The decrease primarily reflected $1.1 billion of net outflows from open-end funds and $1.0 billion attributable to closed-end funds in liquidation, partially offset by $1.1 billion in market-value gains and $0.3 billion from capital drawn by funds that pay fees based on drawn capital, NAV or cost basis.
Incentive-creating AUM decreased $1.3 billion , or 3.9% , to $32.3 billion as of March 31, 2017, from $33.6 billion as of December 31, 2016, reflecting an aggregate $2.7 billion decline primarily attributable to distributions by closed-end funds, partially offset by an aggregate $1.4 billion in drawdowns or contributions by closed-end and evergreen funds and market-value gains.
Three Months Ended March 31, 2016
AUM decreased $0.5 billion, or 0.5%, to $96.9 billion as of March 31, 2016, from $97.4 billion as of December 31, 2015. The decrease reflected $2.0 billion of distributions to closed-end fund investors and $1.0 billion of net outflows from open-end funds, partially offset by $1.0 billion in market-value gains, $0.9 billion of capital inflows for closed-end funds and $0.6 billion of favorable foreign-currency translation.
Management fee-generating AUM, a forward-looking metric, increased $1.0 billion, or 1.3%, to $79.9 billion as of March 31, 2016, from $78.9 billion as of December 31, 2015. The increase reflected an aggregate $0.9 billion increase from capital drawn by funds that pay fees based on drawn capital, NAV or cost basis and additional capital commitments for Oaktree Opportunities Fund X (“Opps X”), as well as $0.8 billion of market-value gains and $0.5 billion of favorable foreign-currency translation. These increases were partially offset by $1.0 billion of net outflows from open-end funds and a $0.4 billion decline attributable to closed-end funds in liquidation.
Incentive-creating AUM decreased $0.7 billion, or 2.2%, to $31.2 billion as of March 31, 2016, from $31.9 billion as of December 31, 2015, reflecting an aggregate $2.0 billion decline primarily attributable to distributions by closed-end funds, partially offset by an aggregate $1.3 billion in drawdowns or contributions by closed-end and evergreen funds and 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 Three Months
Ended March 31,
 
2017
 
2016
Accrued Incentives (Fund Level):
(in thousands)
Beginning balance
$
2,014,097

 
$
1,585,217

Incentives created (fund level):
 
 
 
Closed-end funds
190,021

 
(46,845
)
Evergreen funds
11,497

 
575

Total incentives created (fund level)
201,518

 
(46,270
)
Less: segment incentive income recognized by us
(147,193
)
 
(96,588
)
Ending balance
$
2,068,422

 
$
1,442,359

Accrued incentives (fund level), net of associated incentive income compensation expense
$
969,029

 
$
747,711

As of March 31, 2017 and 2016, the portion of net accrued incentives (fund level) represented by funds that were currently paying incentives was $179.6 million (or 19%) and $294.1 million (39%), 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.
In April 2017, AdvancePierre Foods, our largest holding in OCM Principal Opportunities Fund IV (“POF IV”), announced that it had agreed to be acquired by Tyson Foods.  The transaction would result in POF IV reaching the stage of its cash distribution waterfall whereby Oaktree is entitled to receive incentives. The closing of this transaction, which is currently expected in the second quarter of 2017, is subject to the satisfaction of certain customary conditions, including the completion of the announced tender offer and receipt of required regulatory

66

approvals. Upon closing, the transaction is expected to generate approximately $20 million of receipts of investment income and at least $150 million of net incentive income.
As of March 31, 2017, $889.2 million, or 92%, of the net accrued incentives (fund level) was in funds in their liquidation period, and approximately 32% 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.
Three Months Ended March 31, 2017 and 2016
Incentives created (fund level) was $201.5 million for the three months ended March 31, 2017, primarily reflecting $119.3 million of incentives created (fund level) from Distressed Debt funds, $29.3 million from Control Investing funds and $22.5 million from Real Estate funds.
Incentives created (fund level) was negative $46.3 million for the three months ended March 31, 2016, primarily reflecting $66.5 million of net negative incentives created (fund level) from Distressed Debt funds, partially offset by $19.7 million of positive incentives created (fund level) from Real Estate funds.
Uncalled Capital Commitments
As of March 31, 2017, December 31, 2016, and March 31, 2016, uncalled capital commitments were $21.8 billion , $20.8 billion and $21.4 billion, respectively. Invested capital during the three and 12 months ended March 31, 2017 aggregated $1.7 billion and $8.3 billion, respectively, as compared with $1.9 billion and $7.5 billion for the comparable prior-year periods.

67

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 condensed consolidated statements of operations, please see “—Distributable Earnings” and “—Fee-related Earnings” below and the “Segment Reporting” note to our condensed consolidated financial statements included elsewhere in this quarterly report. The data most important to our chief operating decision maker in assessing our performance are adjusted net income, adjusted net income-OCG, distributable earnings, distributable earnings-OCG, fee-related earnings and fee-related earnings-OCG.
Adjusted Net Income
ANI and adjusted net income-OCG, as well as per unit data, are set forth below:  
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands, except per unit data)
Revenues:
 
 
 
Management fees
$
185,565

 
$
201,270

Incentive income
147,193

 
96,588

Investment income
58,429

 
15,077

Total revenues
391,187

 
312,935

Expenses:
 
 
 
Compensation and benefits
(102,136
)
 
(104,270
)
Equity-based compensation
(11,651
)
 
(10,703
)
Incentive income compensation
(73,144
)
 
(49,749
)
General and administrative
(32,409
)
 
(31,481
)
Depreciation and amortization
(2,823
)
 
(3,160
)
Total expenses
(222,163
)
 
(199,363
)
Adjusted net income before interest and other income (expense)
169,024

 
113,572

Interest expense, net of interest income
(6,971
)
 
(8,682
)
Other income (expense), net
41

 
135

Adjusted net income
162,094

 
105,025

Adjusted net income attributable to OCGH non-controlling interest
(96,046
)
 
(62,762
)
Non-Operating Group expenses
(232
)
 
(264
)
Adjusted net income-OCG before income taxes
65,816

 
41,999

Income taxes-OCG
(11,697
)
 
(11,839
)
Adjusted net income-OCG
$
54,119

 
$
30,160

Adjusted net income per Class A unit
$
0.86

 
$
0.49

Weighted average number of Class A units outstanding
63,022

 
61,894



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Distributable Earnings
Distributable earnings and distributable earnings-OCG, as well as per unit data, are set forth below:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands, except per unit data)
Revenues:
 
 
 
Management fees
$
185,565

 
$
201,270

Incentive income
147,193

 
96,588

Receipts of investment income from funds  (1)  
29,095

 
12,923

Receipts of investment income from companies
13,709

 
13,558

Total distributable earnings revenues
375,562

 
324,339

Expenses:
 
 
 
Compensation and benefits
(102,136
)
 
(104,270
)
Incentive income compensation
(73,144
)
 
(49,749
)
General and administrative
(32,409
)
 
(31,481
)
Depreciation and amortization
(2,823
)
 
(3,160
)
Total expenses
(210,512
)
 
(188,660
)
Other income (expense):
 
 
 
Interest expense, net of interest income
(6,971
)
 
(8,682
)
Operating Group income taxes
(1,021
)
 
(1,407
)
Other income (expense), net
41

 
135

Distributable earnings
157,099

 
125,725

Distributable earnings attributable to OCGH non-controlling interest
(93,086
)
 
(75,132
)
Non-Operating Group expenses
(232
)
 
(264
)
Distributable earnings-OCG income taxes
(4,112
)
 
(3,380
)
Tax receivable agreement
(5,363
)
 
(5,106
)
Distributable earnings-OCG
$
54,306

 
$
41,843

Distributable earnings per Class A unit
$
0.86

 
$
0.68

Weighted average number of Class A units outstanding
63,022

 
61,894

 
 
 
 
 
(1)
This adjustment characterizes a portion of the distributions received from funds as receipts of investment income or loss. In general, the income or loss component of a fund distribution is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends. Additionally, any impairment charges on our CLO investments included in ANI are, for distributable earnings purposes, amortized over the remaining investment period of the respective CLO to align with the timing of expected cash flows.
Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016
Distributable earnings grew $31.4 million, or 25.0% , to $157.1 million for the three months ended March 31, 2017, from $125.7 million for the three months ended March 31, 2016, reflecting increases of $27.2 million in incentive income, net of incentive income compensation expense (“net incentive income”), and $16.3 million in investment income proceeds, partially offset by a $14.2 million decline in fee-related earnings. For the three months ended March 31, 2017, investment income proceeds totaled $42.8 million, including $29.1 million from fund distributions and $13.7 million from DoubleLine, as compared with total investment income proceeds in the prior-year period of $26.5 million , of which $12.9 million and $13.6 million was attributable to fund distributions and DoubleLine, respectively.

69

The following table reconciles net income attributable to Oaktree Capital Group, LLC to ANI and distributable earnings:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078

Incentive income (1)
38,536

 
39,942

Incentive income compensation (1)  
(38,536
)
 
(39,942
)
Investment income (2)  
(4,372
)
 
(10,429
)
Equity-based compensation (3)
3,302

 
3,192

Placement costs (4)  
60

 
6,704

Foreign-currency hedging (5)  
(1,996
)
 
5,866

Acquisition-related items (6)  
1,602

 
391

Income taxes (7)  
12,302

 
12,680

Non-Operating Group expenses (8)
232

 
264

Non-controlling interests (8)
96,049

 
58,279

Adjusted net income
162,094

 
105,025

Investment income (9)
(58,429
)
 
(15,077
)
Receipts of investment income from funds (10)
29,095

 
12,923

Receipts of investment income from companies
13,709

 
13,558

Equity-based compensation (11)
11,651

 
10,703

Operating Group income taxes
(1,021
)
 
(1,407
)
Distributable earnings
$
157,099

 
$
125,725

 
 
 
 
 
(1)
This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG.
(2)
This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs, which under GAAP are marked-to-market but for segment reporting are accounted for at amortized cost, subject to impairment.
(3)
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 and fee-related earnings because it is a non-cash charge that does not affect our financial position, and (b) differences arising from EVUs that are classified as liability awards under GAAP but as equity awards for segment reporting.
(4)
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.
(5)
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.
(6)
This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability, which are excluded from adjusted net income.
(7)
Because adjusted net income and fee-related earnings are pre-tax measures, this adjustment adds back the effect of income tax expense.
(8)
Because adjusted net income and fee-related earnings are calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or non-controlling interests.
(9)
This adjustment eliminates segment investment income, which with respect to investments in funds is initially largely non-cash in nature and is thus not available to fund our operations.
(10)
This adjustment reflects the portion of distributions received from funds characterized as receipts of investment income or loss. In general, the income or loss component of a distribution from a fund is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends.
(11)
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.



70

The following table reconciles net income attributable to Oaktree Capital Group, LLC to adjusted net income-OCG and distributable earnings-OCG: 
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078

Incentive income attributable to OCG (1)
15,702

 
16,073

Incentive income compensation attributable to OCG (1)
(15,702
)
 
(16,073
)
Investment income attributable to OCG (2)  
(1,781
)
 
(4,197
)
Equity-based compensation attributable to OCG (3)
1,345

 
1,285

Placement costs attributable to OCG (4)  
24

 
2,698

Foreign-currency hedging attributable to OCG (5)  
(813
)
 
2,359

Acquisition-related items attributable to OCG (6)
652

 
158

Non-controlling interests attributable to OCG (6)  
(223
)
 
(221
)
Adjusted net income-OCG (7)
54,119

 
30,160

Investment income attributable to OCG
(23,809
)
 
(6,067
)
Receipts of investment income from funds attributable to OCG
11,856

 
5,200

Receipts of investment income from companies attributable to OCG
5,586

 
5,456

Equity-based compensation attributable to OCG (8)
4,748

 
4,307

Distributable earnings-OCG income taxes
(4,112
)
 
(3,380
)
Tax receivable agreement
(5,363
)
 
(5,106
)
Income taxes of Intermediate Holding Companies
11,281

 
11,273

Distributable earnings-OCG (7)
$
54,306

 
$
41,843

 
 
 
 
 
(1)
This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income-OCG and net income attributable to OCG.
(2)
This adjustment adds back the effect of differences in the recognition of investment income related to corporate investments in CLOs, which under GAAP are marked-to-market but for segment reporting are accounted for at amortized cost, subject to impairment.
(3)
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-OCG and fee-related earnings-OCG because it is a non-cash charge that does not affect our financial position, and (b) differences arising from EVUs that are classified as liability awards under GAAP but as equity awards for segment reporting.
(4)
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.
(5)
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.
(6)
This adjustment adds back the effect of (a) acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability and (b) non-controlling interests, which are both excluded from segment reporting.
(7)
Adjusted net income-OCG and distributable earnings-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.
(8)
This adjustment adds back the effect of equity-based compensation expense attributable to OCG related to unit grants made after our initial public offering, which is excluded from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations.    


71

Fee-related Earnings
Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016
Fee-related earnings decreased $14.2 million, or 22.8% , to $48.2 million for the three months ended March 31, 2017, from $62.4 million for the three months ended March 31, 2016. The decline reflected $15.7 million of lower management fees and $0.9 million of higher general and administrative expense, partially offset by $2.2 million of lower compensation and benefits expense. The portion of fee-related earnings attributable to our Class A units was $0.28 and $0.37 per unit for the three months ended March 31, 2017 and 2016, respectively.
The effective tax rate applicable to fee-related earnings for the three months ended March 31, 2017 and 2016 was 8% and 7%, respectively, resulting from full-year effective rates of 8% and 7%, respectively.  The rate used for interim fiscal periods is based on the estimated full-year effective tax rate, which is subject to change as the year progresses. In general, the annual effective tax rate increases as annual fee-related earnings increase, and vice versa.
The following table reconciles net income attributable to Oaktree Capital Group, LLC to ANI and fee-related earnings:  
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078

Reconciling adjustments (1)  
107,179

 
76,947

Adjusted net income
162,094

 
105,025

Incentive income
(147,193
)
 
(96,588
)
Incentive income compensation
73,144

 
49,749

Investment income
(58,429
)
 
(15,077
)
Equity-based compensation  (2)  
11,651

 
10,703

Interest expense, net of interest income
6,971

 
8,682

Other (income) expense, net
(41
)
 
(135
)
Fee-related earnings
$
48,197

 
$
62,359

 
 
 
 
 
(1)
Please refer to the table on page 70 for a detailed reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income.
(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.


72

The following table reconciles net income attributable to Oaktree Capital Group, LLC to adjusted net income-OCG and fee-related earnings-OCG:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Net income attributable to Oaktree Capital Group, LLC
$
54,915

 
$
28,078

Reconciling adjustments (1)  
(796
)
 
2,082

Adjusted net income-OCG (2)  
54,119

 
30,160

Incentive income attributable to OCG
(59,977
)
 
(38,868
)
Incentive income compensation attributable to OCG
29,804

 
20,020

Investment income attributable to OCG
(23,809
)
 
(6,067
)
Equity-based compensation attributable to OCG  (3)  
4,748

 
4,307

Interest expense, net of interest income attributable to OCG
2,768

 
3,463

Other (income) expense attributable to OCG
(16
)
 
(54
)
Non-fee-related earnings income taxes attributable to OCG (4)  
10,177

 
10,098

Fee-related earnings-OCG (2)  
$
17,814

 
$
23,059

 
 
 
 
 
(1)
Please refer to the table on page 71 for a detailed reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income-OCG.
(2)
Adjusted net income-OCG and fee-related earnings-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. A reconciliation of fee-related earnings to fee-related earnings-OCG is presented below.
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Fee-related earnings
$
48,197

 
$
62,359

Fee-related earnings attributable to OCGH non-controlling interest
(28,558
)
 
(37,264
)
Non-Operating Group expenses
(305
)
 
(295
)
Fee-related earnings-OCG income taxes
(1,520
)
 
(1,741
)
Fee-related earnings-OCG
$
17,814

 
$
23,059

Fee-related earnings-OCG per Class A unit
$
0.28

 
$
0.37


(3)
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.
(4)
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.


73

Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016
Segment Revenues
Management Fees
A summary of management fees is set forth below:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Management Fees:
 

 
 

Closed-end funds
$
131,708

 
$
148,251

Open-end funds
40,144

 
38,413

Evergreen funds
13,713

 
14,606

Total
$
185,565

 
$
201,270

 
Management fees decreased $15.7 million, or 7.8% , to $185.6 million for the three months ended March 31, 2017, from $201.3 million for the three months ended March 31, 2016, for the reasons described below.
•
Closed-end funds .    Management fees attributable to closed-end funds decreased $16.6 million, or 11.2% , to $131.7 million for the three months ended March 31, 2017, from $148.3 million for the three months ended March 31, 2016. The decline reflected an aggregate decrease of $22.6 million primarily attributable to closed-end funds in liquidation, partially offset by an aggregate increase of $6.0 million principally from additional capital commitments to Oaktree Real Estate Opportunities Fund VII and closed-end funds that pay management fees based on drawn capital, NAV or cost basis.
•
Open-end funds .    Management fees attributable to open-end funds increased $1.7  million, or 4.4% , to $40.1 million for the three months ended March 31, 2017, from $38.4 million for the three months ended March 31, 2016. The increase was primarily attributable to market-value gains, partially offset by net outflows and a lower overall average fee rate.
•
Evergreen funds .    Management fees attributable to evergreen funds decreased $0.9  million, or 6.2% , to $13.7 million for the three months ended March 31, 2017, from $14.6 million for the three months ended March 31, 2016, primarily reflecting a lower average management fee rate. The period-end weighted average annual management fee rate for evergreen funds decreased to 1.22% as of March 31, 2017, from 1.33% as of March 31, 2016, primarily reflecting a reduction in the average management fee rate for Value Opportunities Fund.
Incentive Income
A summary of incentive income is set forth below:  
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Incentive Income:
 
 
 
Closed-end funds
$
147,193

 
$
96,588

Incentive income increased $50.6 million, or 52.4% , to $147.2 million for the three months ended March 31, 2017, from $96.6 million for the three months ended March 31, 2016. The current-year period included regular and tax-related incentive income of $66.0 million and $81.2 million, respectively, as compared to $23.9 million and $72.7 million in the prior-year period.

74

Investment Income
A summary of investment income is set forth below:  
 
Three Months Ended March 31,
 
2017
 
2016
Income (loss) from investments in funds:
(in thousands)
Oaktree funds:
 

 
 

Corporate Debt
$
8,912

 
$
(13,543
)
Convertible Securities
445

 
(944
)
Distressed Debt
19,841

 
8,891

Control Investing
3,422

 
(1,447
)
Real Estate
3,948

 
3,105

Listed Equities
3,687

 
3,488

Non-Oaktree funds
2,280

 
420

Income from investments in companies
15,894

 
15,107

Total investment income
$
58,429

 
$
15,077

Investment income increased $43.3 million, to $58.4 million for the three months ended March 31, 2017, from $15.1 million for the three months ended March 31, 2016. Excluding the $22.7 million impairment charge taken in the prior-year period on investments in certain of our CLOs, investment income increased $20.6 million , primarily reflecting higher overall returns on our fund investments. DoubleLine accounted for investment income of $15.9 million and $15.1 million in the first three months of 2017 and 2016, respectively, of which performance fees accounted for $0.2 million and $0.6 million, respectively.
Segment Expenses
Compensation and Benefits
Compensation and benefits expense decreased $2.2 million, or 2.1% , to $102.1 million for the three months ended March 31, 2017, from $104.3 million for the three months ended March 31, 2016. The decrease was primarily attributable to variations in bonus accruals, partially offset by a $2.3 million unfavorable change in phantom equity expense, stemming largely from each period’s change in the Class A unit trading price.
Equity-based Compensation
Equity-based compensation expense increased $1.0 million, or 9.3% , to $11.7 million for the three months ended March 31, 2017, from $10.7 million for the three months ended March 31, 2016. The increase reflected non-cash amortization expense associated with vesting of Class A and OCGH unit grants made to employees and directors subsequent to our 2012 initial public offering.
Incentive Income Compensation
Incentive income compensation expense increased $23.4 million, or 47.1% , to $73.1 million for the three months ended March 31, 2017, from $49.7 million for the three months ended March 31, 2016. The increase reflected growth in incentive income, partially offset by differences in the applicable funds’ compensation percentages.
General and Administrative
General and administrative expense increased $0.9 million, or 2.9% , to $32.4 million for the three months ended March 31, 2017, from $31.5 million for the three months ended March 31, 2016.
Interest Expense, Net of Interest Income
Interest expense, net decreased $1.7 million, or 19.5% , to $7.0 million for the three months ended March 31, 2017, from $8.7 million for the three months ended March 31, 2016, reflecting the maturity of $100.0 million in senior notes in 2016 and higher interest income.

75

Adjusted Net Income
ANI increased $57.1 million, or 54.4% , to $162.1 million for the three months ended March 31, 2017, from $105.0 million for the three months ended March 31, 2016, reflecting increases of $43.3 million in investment income and $27.2 million in net incentive income, partially offset by a $14.2 million decline in fee-related earnings.
Income Taxes-OCG
Income taxes decreased $0.1 million, or 0.8% , to $11.7 million for the three months ended March 31, 2017, from $11.8 million for the three months ended March 31, 2016.  The decrease reflected a lower effective tax rate for the three months ended March 31, 2017, largely offset by higher adjusted net income-OCG before income taxes. The effective tax rates applied to ANI for the three months ended March 31, 2017 and 2016 were 18% and 28%, respectively, resulting from full-year effective rates of 20% and 23%, respectively. The rate used for interim fiscal quarters is based on an estimated full-year effective tax rate on income that can be reliably forecasted, combined with tax expense in the current period on incentive income and any other income that cannot be reliably estimated. We generally expect variability in tax rates between periods, because the effective tax rate is a function of the mix of income and other factors, each of which can have a material impact on the particular period's income tax expense and often vary significantly within or between years. In general, the annual effective tax rate increases as the proportion of ANI arising from fee-related earnings, DoubleLine-related investment income and certain incentive and investment income rises, and vice versa.
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 investments. 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 condensed consolidated financial statements included elsewhere in this quarterly report.  
The following table presents our segment statements of financial condition:
 
As of
 
March 31,
2017
 
December 31,
2016
 
March 31,
2016
Assets:
(in thousands)
Cash and cash-equivalents
$
362,889

 
$
291,470

 
$
342,079

U.S. Treasury and time deposit securities
596,872

 
757,578

 
618,899

Corporate investments
1,547,125

 
1,480,928

 
1,352,362

Deferred tax assets
404,740

 
404,614

 
425,904

Receivables and other assets
348,643

 
379,124

 
397,416

Total assets
$
3,260,269

 
$
3,313,714

 
$
3,136,660

Liabilities and Capital:
 
 
 
 
 
Liabilities:
 
 
 
 
 
Accounts payable and accrued expenses
$
268,824

 
$
353,451

 
$
253,305

Due to affiliates
343,840

 
346,543

 
356,851

Debt obligations
746,117

 
745,897

 
845,736

Total liabilities
1,358,781

 
1,445,891

 
1,455,892

Capital:
 
 
 
 
 
OCGH non-controlling interest in consolidated subsidiaries
1,065,053

 
1,053,109

 
945,519

Unitholders’ capital attributable to Oaktree Capital Group, LLC
836,435

 
814,714

 
735,249

Total capital
1,901,488

 
1,867,823

 
1,680,768

Total liabilities and capital
$
3,260,269

 
$
3,313,714

 
$
3,136,660


76

Corporate Investments
A summary of corporate investments is set forth below:
 
As of
 
March 31,
2017
 
December 31,
2016
 
March 31,
2016
Investments in funds:
(in thousands)
Oaktree funds:
 

 
 

 
 
Corporate Debt
$
493,478

 
$
422,330

 
$
381,456

Convertible Securities
27,180

 
1,735

 
1,579

Distressed Debt
404,317

 
426,108

 
379,507

Control Investing
258,064

 
265,919

 
258,753

Real Estate
140,569

 
141,234

 
127,731

Listed Equities
122,572

 
116,988

 
111,185

Non-Oaktree funds
70,983

 
71,682

 
66,321

Investments in companies
29,962

 
34,932

 
25,830

Total corporate investments
$
1,547,125

 
$
1,480,928

 
$
1,352,362

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 March 31, 2017, we had $1.0 billion of cash and U.S. Treasury and time deposit securities, and $746 million in outstanding debt, which included no borrowings outstanding against our $500 million revolving credit facility. Our investments in funds and companies had a carrying value of $1.5 billion as of March 31, 2017.
Ongoing sources of cash 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 March 31, 2017, corporate investments of $1.5 billion included unrealized investment income proceeds of $380 million, of which $187 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 may 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 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.

77

Consolidated Cash Flows
The accompanying condensed 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 larger than the assets of our business and, accordingly, have a substantial effect on the cash flows reflected in our condensed 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 our consolidated funds are either treated as investment companies for accounting purposes or represent CLOs whose primary operations are investing activities, 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.
Significant amounts from our condensed consolidated statements of cash flows for the three months ended March 31, 2017 and 2016 are discussed below.
Operating Activities
Net cash used in operating activities was $245.6 million and $328.8 million in the first three months of 2017 and 2016, respectively. These amounts principally reflected net purchases of securities of the consolidated funds of $396.2 million and $218.5 million for the first three months of 2017 and 2016, respectively, partially offset by net income in each respective period.
Investing Activities
Net cash provided by investing activities was $228.3 million and $83.9 million in the first three months of 2017 and 2016, respectively. Net activity from purchases, maturities and sales of U.S. Treasury and time deposit securities included net proceeds of $160.7 million and $42.2 million for the first three months of 2017 and 2016, respectively. Corporate investments in funds and companies of $8.2 million and $19.5 million for the first three months of 2017 and 2016, respectively, consisted of the following:
 
Three Months Ended March 31,


2017
 
2016
 
(in thousands)
Funds
$
148,891

 
$
48,002

Eliminated in consolidation
(140,741
)
 
(28,465
)
Total investments
$
8,150

 
$
19,537


Distributions and proceeds from corporate investments in funds and companies of $80.0 million and $62.8 million for the first three months of 2017 and 2016, respectively, consisted of the following:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Funds
$
96,717

 
$
92,005

Eliminated in consolidation
(16,719
)
 
(29,194
)
Total proceeds
$
79,998

 
$
62,811



78

Purchases of fixed assets were $4.3 million and $1.6 million for the first three months of 2017 and 2016, respectively.
Financing Activities
Financing activities used $14.8 million and provided $221.6 million of cash in the first three months of 2017 and 2016, respectively. For the first three months of 2017 and 2016, respectively, financing activities included: (a) net contributions from non-controlling interests in consolidated funds of $25.0 million and net distributions of $4.6 million ; (b) net borrowings on credit facilities of the consolidated funds of $83.2 million and net repayments of $98.8 million ; (c) distributions to unitholders of $112.2 million and $80.9 million ; and (d) net unit purchases of $9.7 million and $9.7 million . The first three months of 2017 included proceeds from the refinancing of CLO debt obligations of $412.5 million and an equal repayment of $412.5 million . The first three months of 2016 included proceeds from the issuance of CLO debt obligations of $426.3 million and payments for debt issuance costs of $8.8 million .
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 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 July 2016, our indirect subsidiary, Oaktree Capital Management, L.P. (the “Issuer”), issued and sold to certain accredited investors $100 million of 3.69% senior notes (the “2016 Notes”) due July 12, 2031. The Notes are senior unsecured obligations of the Issuer, jointly and severally guaranteed by our indirect subsidiaries, Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P. (together with the Issuer, the “Obligors”) pursuant to a note and guaranty agreement (the “2016 Note Agreement”). We used the proceeds from the sale of the 2016 Notes to simultaneously repay $100 million of our $250 million term loan due March 31, 2021.
The 2016 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 2016 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 2016 Notes at any time, subject to the Issuer’s payment of the applicable make-whole amount determined with respect to such principal amount prepaid. Upon the occurrence of a change of control, the Issuer will be required to make an offer to prepay the Notes together with the applicable make-whole amount determined with respect to such principal amount prepaid.
In March 2016, Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P., and Oaktree Capital I, L.P. (collectively, the “Borrowers”) entered into the Second Amendment to Credit Agreement (the “Second Amendment”), which amended the credit agreement dated as of March 31, 2014 (as amended through and including the Second Amendment, the “Credit Agreement”). The Credit Agreement consists of a $250 million fully-funded term loan (the “Term Loan”), of which $100 million was repaid in July 2016, and a $500 million revolving credit facility (the “Revolver”). The Second Amendment extended the maturity date of the Credit Agreement from March 31, 2019 to March 31, 2021, at which time the entire remaining principal balance of $150 million is due, and provides the Borrowers with the option to extend the new maturity date by one year if the lenders holding at least 50% of the aggregate amount of the term loan and the revolving loan commitment thereunder on the date of the Borrowers’ extension request consent to such extension. Borrowings under the Credit Agreement 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. The Credit Agreement 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). The Second Amendment increased the minimum level of assets under management to $60 billion and made certain other

79

amendments to the provisions of the Credit Agreement. As of March 31, 2017, we had no outstanding borrowings under our $500 million revolving credit facility.
In September 2014, Oaktree Capital Management, L.P. issued and sold to certain accredited investors $50 million aggregate principal amount of 3.91% Senior Notes, Series A, due September 3, 2024 (the “Series A Notes”), $100 million aggregate principal amount of 4.01% Senior Notes, Series B, due September 3, 2026 (the “Series B Notes”) and $100 million aggregate principal amount of 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 “2014 Note Agreement”). The 2014 Notes are senior unsecured obligations of the issuer, guaranteed on a joint and several basis by Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P. Interest on the 2014 Notes is payable semi-annually.
The 2014 Note Agreement provides for certain affirmative and negative covenants, including financial covenants relating to the issuer’s and guarantors’ combined leverage ratio and minimum assets under management. In addition, the 2014 Note Agreement contains customary representations and warranties of the issuer and the guarantors, 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, 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 the issuer’s 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.
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 March   31, 2017, we were required to maintain approximately $94.2 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 March 31, 2017, future payments of this nature were estimated to aggregate $33.4 million over the period ending approximately in 2029 with respect to the 2007 Private Offering and $71.3 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 March 31, 2017, future payments with respect to the May 2013 Offering were estimated to aggregate $99.0 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

80

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 March 31, 2017, future payments with respect to the March 2014 Offering were estimated to aggregate $74.5 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 March 31, 2017, future payments with respect to the March 2015 Offering were estimated to aggregate $62.7 million over the period ending approximately in 2037.
No amounts were paid under the tax receivable agreement during the three months ended March 31, 2017.
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 March 31, 2017:  
 
Last Nine Months of 2017
 
2018-2019
 
2020-2021
 
Thereafter
 
Total
 
(in thousands)
Oaktree and Operating Subsidiaries:
 
 
 
 
 
 
 
 
 
Operating lease obligations  (1)  
$
5,330

 
$
30,151

 
$
32,408

 
$
72,045

 
$
139,934

Debt obligations payable (2)  
—

 
250,000

 
150,000

 
350,000

 
750,000

Interest obligations on debt  (3)  
25,286

 
66,145

 
31,456

 
91,584

 
214,471

Tax receivable agreement
20,677

 
43,757

 
47,879

 
228,653

 
340,966

Contingent consideration (4)
24,168

 
—

 
—

 
—

 
24,168

Commitments to Oaktree and third-party funds  (5)  
468,760

 
—

 
—

 
—

 
468,760

Subtotal
544,221

 
390,053

 
261,743

 
742,282

 
1,938,299

Consolidated Funds:
 

 
 

 
 

 
 

 
 

Debt obligations payable (2)  
91,500

 
—

 
—

 
488,999

 
580,499

Interest obligations on debt  (3)  
10,120

 
25,624

 
25,624

 
76,258

 
137,626

Debt obligations of CLOs (2)  
—

 
41,086

 
—

 
3,024,996

 
3,066,082

Interest on debt obligations of CLOs (3)  
55,485

 
146,495

 
145,101

 
412,514

 
759,595

Commitments to fund investments  (6)  
10,463

 
—

 
—

 
—

 
10,463

Total
$
711,789

 
$
603,258

 
$
432,468

 
$
4,745,049

 
$
6,492,564

 
 
 
 
 
(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.
(2)
These obligations represent future principal payments, gross of debt issuance costs, and for CLOs, the par value.
(3)
Interest obligations include accrued interest on outstanding indebtedness. Where applicable, current interest rates are applied to estimate future interest obligations on variable-rate debt.
(4)
This represents the undiscounted contingent consideration obligation as of March 31, 2017 related to the 2014 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 2017 column.

81

(5)
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 2017 column. Capital commitments are expected to be called over a period of several years.
(6)
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 2017 column. Capital commitments are expected to be called over a period of several years.

In some of our service contracts or management agreements, we have agreed to indemnify third-party service providers or separate account clients under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has neither been included in the above table nor recorded in our condensed consolidated financial statements as of March 31, 2017.
As of March 31, 2017, none of the incentive income we had recognized was subject to clawback by the funds.  
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements. Please see note 15 for information on our commitments and contingencies.
Critical Accounting Policies
We prepare our condensed 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 condensed 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 condensed consolidated financial statements included elsewhere in this quarterly report and the notes to our consolidated financial statements in our annual report. For a summary of our critical accounting policies, please see “Management’s Discussion and Analysis of Financial Condition and Result of Operations—Critical Accounting Policies” in our annual report.
The table below summarizes the investments and other financial instruments, net of debt obligations, by fund structure and fair-value hierarchy levels, held by our consolidated funds for each period presented in our condensed consolidated statements of financial condition (in thousands):
As of March 31, 2017:   
Level I
 
Level II
 
Level III
 
Total
 
 
 
 
 
 
 
 
Closed-end funds
$
6,132

 
$
810,558

 
$
211,822

 
$
1,028,512

Open-end funds
1,615

 
239,435

 
11,446

 
252,496

Evergreen funds
156,462

 
507

 
1,390

 
158,359

Total
$
164,209

 
$
1,050,500

 
$
224,658

 
$
1,439,367

As of December 31, 2016:
 
 
 
 
 
 
 
Closed-end funds
$
6,078

 
$
320,688

 
$
242,961

 
$
569,727

Open-end funds
37,608

 
59,832

 
—

 
97,440

Evergreen funds
44,660

 
(941
)
 
1,393

 
45,112

Total
$
88,346

 
$
379,579

 
$
244,354

 
$
712,279


Recent Accounting Developments
Please see note 2 to our condensed consolidated financial statements included elsewhere in this quarterly report for information regarding recent accounting developments.

82

Item 3. 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 as an investor in our CLOs, and the sensitivities to movements in the fair value of their investments on management fees, incentive income and investment income, as applicable. The fair value of the financial assets and liabilities of our funds and CLOs 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 March 31, 2017, we had investments, at fair value of $4.6 billion related to our consolidated funds, primarily consisting of investments held by our CLOs. We estimate that a 10% decline in market values would result in a decrease in unrealized appreciation (depreciation) on the consolidated funds’ investments of $456.1 million. Of this decline, approximately $172.5 million would impact net income attributable to Oaktree Capital Group, LLC, with the remainder attributable to non-controlling interests and third-party debt holders in our CLOs. The magnitude of the impact on net income attributable to Oaktree Capital Group, LLC is largely affected by the percentage of our equity ownership interest and levered nature of our CLO investments.
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, drawn capital or cost basis 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 three months ended March 31, 2017 and 2016, NAV-based management fees represented approximately 32% and 31%, respectively, of total management fees. Based on investments held as of March 31, 2017, we estimate that a 10% decline in market values of the investments held in our funds would result in an approximate $6.0 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 March 31, 2017, a 10% decline in fair values of the investments held in our funds and other holdings would result in a $282.6 million decrease in the amount of investment income. The estimated decline of $282.6 million is greater than 10% of the March 31, 2017 corporate investments balance primarily due to the levered nature of our CLO investments. These estimated effects are without regard to a number of factors that would be expected to increase or decrease the magnitude of the change to degrees that are not readily quantifiable, such as the use of leverage facilities in certain of our funds, the timing of fund flows or the timing of new investments or realizations.

83

Exchange-rate Risk
Our business is affected by movements in the exchange rate 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 three months ended March 31, 2017, 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 $2.3 million;
•
our operating expenses would have increased by $2.9 million;  
•
OCGH interest in net income of consolidated subsidiaries would have decreased by $0.4 million; and
•
our income tax expense would have decreased by $0.1 million.
These movements would have decreased our net income attributable to OCG by $0.1 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 March 31, 2017, Oaktree and its operating subsidiaries had $746 million in debt obligations, net of debt issuance costs, consisting of three 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. For the three months ended March 31, 2017, interest expense attributable to Oaktree and its operating subsidiaries would increase by $1.5 million on an annualized basis as a result of a 100-basis point increase in interest rates. Of the $1.0 billion of aggregate segment cash and U.S. Treasury and time deposit securities as of March 31, 2017, we estimate that Oaktree and its operating subsidiaries would generate an additional $9.6 million in interest income on an annualized basis as a result of a 100-basis point increase in interest rates.
Our consolidated funds have debt obligations, most of which accrue interest at variable rates. Changes in these rates would affect the amount of interest payments that our funds would have to make, impacting future earnings and cash flows. As of March 31, 2017, $3.6 billion was outstanding under these debt obligations. We estimate that interest expense relating to variable-rate debt would increase on an annualized basis by $34.1 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 income and therefore positively impact interest and dividend income. 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.

84

Item 4. 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.


85

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of legal proceedings, please see the section entitled “Legal Actions” in note 15 to our condensed consolidated financial statements included elsewhere in this quarterly report, which section is incorporated herein by reference. Also, please see Item “1A. Risk Factors—Risks Related to Our Business—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” in our annual report.
Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, please see the information under “Risk Factors” in our annual report. There have been no material changes to the risk factors as disclosed in our annual report.
The risks described in our annual report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Under our operating agreement, we are required to issue one Class B unit for each OCGH unit issued. Accordingly, on March 31, 2017, we issued 21,362 Class B units to OCGH which corresponded to the number of OCGH units issued by OCGH pursuant to our 2011 Equity Incentive Plan, subject to time-based vesting.
No purchase price was paid by OCGH to the Company for the issuances of the Class B units to OCGH. These issuances, to the extent they constitute sales, were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, as transactions by an issuer not involving any public offering.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
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.


86

Closed-end Funds

 
 
 
 
 
As of March 31, 2017
 
Investment Period
 
Total Committed Capital
 
%
Invested (1)
 
%
Drawn (2)
 
Fund Net Income Since Inception
 
Distri-
butions Since Inception
 
Net Asset Value
 
Manage-
ment Fee-gener-
ating AUM
 
Oaktree Segment Incentive Income Recog-
nized
 
Accrued Incentives (Fund Level) (3)
 
Unreturned Drawn Capital Plus Accrued Preferred Return (4)
 
IRR Since Inception (5)
 
Multiple of Drawn Capital (6)
 
Start Date
 
End Date
 
Gross
 
Net
 
(in millions)
Distressed Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Opportunities Fund Xb (7)  
TBD
 
—
 
$
8,872

 
—
%
 
—
%
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
n/a
 
n/a
 
n/a
Oaktree Opportunities Fund X (7)  
Jan. 2016
 
Jan. 2019
 
3,603

 
68

 
29

 
502

 
43

 
1,514

 
3,335

 
—

 
97

 
1,103

 
57.7
%
 
35.6
%
 
1.7x
Oaktree Opportunities Fund IX
Jan. 2014
 
Jan. 2017
 
5,066

 
nm

 
100

 
190

 
409

 
4,847

 
4,868

 
—

 
—

 
5,936

 
4.0

 
1.3

 
1.1
Oaktree Opportunities Fund VIIIb
Aug. 2011
 
Aug. 2014
 
2,692

 
nm

 
100

 
547

 
1,464

 
1,775

 
2,001

 
52

 
—

 
2,268

 
7.3

 
4.3

 
1.3
Special Account B
Nov. 2009
 
Nov. 2012
 
1,031

 
nm

 
100

 
548

 
1,240

 
412

 
399

 
16

 
—

 
347

 
13.3

 
10.9

 
1.6
Oaktree Opportunities Fund VIII
Oct. 2009
 
Oct. 2012
 
4,507

 
nm

 
100

 
2,286

 
5,087

 
1,707

 
1,502

 
165

 
280

 
1,232

 
12.7

 
8.7

 
1.6
Special Account A
Nov. 2008
 
Oct. 2012
 
253

 
nm

 
100

 
303

 
487

 
69

 
57

 
46

 
14

 
—

 
28.1

 
22.8

 
2.2
OCM Opportunities Fund VIIb
May 2008
 
May 2011
 
10,940

 
nm

 
90

 
8,893

 
17,633

 
1,104

 
996

 
1,523

 
205

 
—

 
21.9

 
16.6

 
2.0
OCM Opportunities Fund VII
Mar. 2007
 
Mar. 2010
 
3,598

 
nm

 
100

 
1,474

 
4,697

 
375

 
574

 
85

 
—

 
503

 
10.3

 
7.6

 
1.5
OCM Opportunities Fund VI
Jul. 2005
 
Jul. 2008
 
1,773

 
nm

 
100

 
1,294

 
3,064

 
3

 
—

 
252

 
1

 
—

 
11.9

 
8.8

 
1.8
OCM Opportunities Fund V
Jun. 2004
 
Jun. 2007
 
1,179

 
nm

 
100

 
958

 
2,103

 
34

 
—

 
180

 
7

 
—

 
18.5

 
14.1

 
1.9
Legacy funds (8) .
Various
 
Various
 
9,543

 
nm

 
100

 
8,204

 
17,695

 
52

 
—

 
1,113

 
10

 
—

 
24.2

 
19.3

 
1.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
22.0
%
 
16.2
%
 
 
Real Estate Opportunities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Real Estate Opportunities Fund VII (9)(10)  
Jan. 2016
 
Jan. 2020
 
$
2,920

 
48
%
 
10
%
 
$
42

 
$
94

 
$
240

 
$
2,496

 
$
—

 
$
8

 
$
206

 
nm
 
nm
 
1.4x
Oaktree Real Estate Opportunities Fund VI
Aug. 2012
 
Aug. 2016
 
2,677

 
nm

 
100

 
1,121

 
1,171

 
2,627

 
2,006

 
22

 
195

 
2,172

 
16.4
%
 
10.9
%
 
1.5
Oaktree Real Estate Opportunities Fund V
Mar. 2011
 
Mar. 2015
 
1,283

 
nm

 
100

 
951

 
1,649

 
585

 
294

 
73

 
108

 
126

 
17.5

 
13.0

 
1.8
Special Account D
Nov. 2009
 
Nov. 2012
 
256

 
nm

 
100

 
191

 
326

 
129

 
64

 
4

 
15

 
63

 
14.8

 
12.8

 
1.8
Oaktree Real Estate Opportunities Fund IV
Dec. 2007
 
Dec. 2011
 
450

 
nm

 
100

 
395

 
753

 
92

 
64

 
57

 
18

 
—

 
16.1

 
11.0

 
2.0
OCM Real Estate Opportunities Fund III
Sep. 2002
 
Sep. 2005
 
707

 
nm

 
100

 
613

 
1,307

 
13

 
—

 
119

 
3

 
—

 
15.3

 
11.3

 
2.0
Legacy funds (8) .
Various
 
Various
 
1,634

 
nm

 
99

 
1,399

 
3,009

 
—

 
—

 
112

 
—

 
—

 
15.2

 
12.0

 
1.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.5
%
 
11.9
%
 
 
Real Estate Debt
 
 
 
 
 

 
 
 
 
 
 

 
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 

 
 
Oaktree Real Estate Debt Fund II (9)(11)  
Mar. 2017
 
Mar. 2020
 
$
765

 
10
%
 
2
%
 
$
(2
)
 
$
—

 
$
14

 
$
71

 
$
—

 
$
—

 
$
16

 
nm
 
nm
 
1.0x
Oaktree Real Estate Debt Fund
Sep. 2013
 
Oct. 2016
 
1,112

 
nm

 
58

 
116

 
430

 
327

 
623

 
6

 
11

 
234

 
26.7
%
 
20.0
%
 
1.3
Oaktree PPIP Fund (12)   .
Dec. 2009
 
Dec. 2012
 
2,322

 
nm

 
48

 
457

 
1,570

 
—

 
—

 
47

 
—

 
—

 
28.2

 
n/a
 
1.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real Estate Value-Add
 
 
 
 
 

 
 
 
 
 
 

 
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 

 
 
Special Account G (9)(11)  
Oct. 2016
 
Oct. 2020
 
$
615

 
40
%
 
40
%
 
$
3

 
$
4

 
$
242

 
$
237

 
$
—

 
$
—

 
$
245

 
nm
 
nm
 
 1.0x
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Principal (13)
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 

 
 
Oaktree European Principal Fund IV (7)(9)(14)  
TBD
 
—
 
€
1,104

 
15
%
 
3
%
 
€
(6
)
 
€
—

 
€
25

 
€
240

 
€
—

 
€
—

 
€
31

 
nm
 
nm
 
1.0x
Oaktree European Principal Fund III
Nov. 2011
 
Nov. 2016
 
€
3,164

 
nm

 
85

 
€
1,846

 
€
648

 
€
3,947

 
€
2,682

 
€
—

 
€
358

 
€
2,898

 
20.3
%
 
13.6
%
 
1.8
OCM European Principal Opportunities Fund II
Dec. 2007
 
Dec. 2012
 
€
1,759

 
nm

 
100

 
€
441

 
€
1,867

 
€
306

 
€
779

 
€
29

 
€
—

 
€
675

 
8.8

 
4.8

 
1.4
OCM European Principal Opportunities Fund
Mar. 2006
 
Mar. 2009
 
$
495

 
nm

 
96

 
$
454

 
$
927

 
$
—

 
$
—

 
$
87

 
$
—

 
$
—

 
11.7

 
8.9

 
2.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
13.7
%
 
9.2
%
 
 


87

 
 
 
 
 
As of March 31, 2017
 
Investment Period
 
Total Committed Capital
 
%
Invested (1)
 
%
Drawn (2)
 
Fund Net Income Since Inception
 
Distri-
butions Since Inception
 
Net Asset Value
 
Manage-
ment Fee-gener-
ating AUM
 
Oaktree Segment Incentive Income Recog-
nized
 
Accrued Incentives (Fund Level) (3)
 
Unreturned Drawn Capital Plus Accrued Preferred Return (4)
 
IRR Since Inception (5)
 
Multiple of Drawn Capital (6)
 
Start Date
 
End Date
 
Gross
 
Net
 
(in millions)
European Private Debt (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree European Capital Solutions Fund (7)(9)(11)
Dec. 2015
 
Dec. 2018
 
€
703

 
37
%
 
31
%
 
€
8

 
€
14

 
€
211

 
€
189

 
€
—

 
€
—

 
€
211

 
nm
 
nm
 
1.1x
Oaktree European Dislocation Fund
Oct. 2013
 
Oct. 2016
 
€
294

 
nm

 
57

 
€
35

 
€
153

 
€
64

 
€
91

 
€
2

 
€
3

 
€
45

 
21.6
%
 
15.4
%
 
1.2
Special Account E
Oct. 2013
 
Apr. 2015
 
€
379

 
nm

 
69

 
€
58

 
€
248

 
€
71

 
€
100

 
€
4

 
€
5

 
€
52

 
14.2

 
11.0

 
1.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.4
%
 
11.4
%
 
 
Special Situations (15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Special Situations Fund (7)  
Nov. 2015
 
Nov. 2018
 
$
1,377

 
51
%
 
21
%
 
$
92

 
$
86

 
$
297

 
$
1,216

 
$
—

 
$
18

 
$
229

 
49.5
%
 
24.4
%
 
1.5x
Other funds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Principal Fund V
Feb. 2009
 
Feb. 2015
 
$
2,827

 
nm

 
91
%
 
$
457

 
$
1,592

 
$
1,451

 
$
1,695

 
$
50

 
$
—

 
$
2,062

 
7.9
%
 
3.6
%
 
1.3x
Special Account C
Dec. 2008
 
Feb. 2014
 
505

 
nm

 
91

 
208

 
40

 
263

 
283

 
21

 
—

 
260

 
11.3

 
8.1

 
1.6
OCM Principal Opportunities Fund IV
Oct. 2006
 
Oct. 2011
 
3,328

 
nm

 
100

 
2,904

 
4,439

 
1,793

 
538

 
22

 
545

 
882

 
12.4

 
8.9

 
2.0
Legacy funds (8) .
Various
 
Various
 
3,701

 
nm

 
100

 
2,719

 
6,397

 
23

 
—

 
236

 
4

 
—

 
14.4

 
11.1

 
1.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
13.1
%
 
9.4
%
 
 
Power Opportunities
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 

 
 
Oaktree Power Opportunities Fund IV (9)  
Nov. 2015
 
Nov. 2020
 
$
1,106

 
47
%
 
43
%
 
$
13

 
$
1

 
$
489

 
$
1,078

 
$
—

 
$
—

 
$
500

 
nm
 
nm
 
1.1x
Oaktree Power Opportunities Fund III
Apr. 2010
 
Apr. 2015
 
1,062

 
nm

 
66

 
413

 
579

 
532

 
418

 
24

 
55

 
310

 
22.3
%
 
13.9
%
 
1.7
OCM/GFI Power Opportunities Fund II
Nov. 2004
 
Nov. 2009
 
1,021

 
nm

 
53

 
1,446

 
1,982

 
5

 
—

 
100

 
—

 
—

 
76.1

 
58.8

 
3.8
OCM/GFI Power Opportunities Fund
Nov. 1999
 
Nov. 2004
 
449

 
nm

 
85

 
251

 
634

 
—

 
—

 
23

 
—

 
—

 
20.1

 
13.1

 
1.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
34.6
%
 
26.4
%
 
 
Infrastructure Investing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Infrastructure Fund (16)  
TBD
 
—
 
$
409

 
—
%
 
—
%
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
n/a

 
n/a

 
n/a
Highstar Capital IV (17) .
Nov. 2010
 
Nov. 2016
 
2,000

 
nm

 
100

 
438

 
473

 
2,043

 
1,317

 
—

 
4

 
2,087

 
14.0
%
 
8.6
%
 
1.4x
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Private Debt (18)
 
 
 
 
 

 
 
 
 
 
 

 
 

 
 
 
 

 
 
 
 

 
 
 
 
 
 
 
 
Oaktree Mezzanine Fund IV  (11)  
Oct. 2014
 
Oct. 2019
 
$
852

 
58
%
 
53
%
 
$
45

 
$
3

 
$
465

 
$
408

 
$
—

 
$
7

 
$
456

 
12.4
%
 
8.6
%
 
1.1x
Oaktree Mezzanine Fund III (19) .
Dec. 2009
 
Dec. 2014
 
1,592

 
nm

 
89

 
409

 
1,451

 
381

 
376

 
15

 
23

 
341

 
15.1

10.4 / 8.6
1.4
OCM Mezzanine Fund II
Jun. 2005
 
Jun. 2010
 
1,251

 
nm

 
88

 
507

 
1,504

 
110

 
—

 
—

 
—

 
157

 
11.1

 
7.6

 
1.6
OCM Mezzanine Fund (20) .
Oct. 2001
 
Oct. 2006
 
808

 
nm

 
96

 
302

 
1,075

 
—

 
—

 
38

 
—

 
—

 
15.4

 
10.8 / 10.5
1.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13.1
%
 
8.8
%
 
 
Emerging Markets Opportunities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Emerging Market Opportunities Fund (21)  
Sep. 2013
 
Sep. 2017
 
$
384

 
75
%
 
75
%
 
$
72

 
$
1

 
$
360

 
$
279

 
$
—

 
$
13

 
$
336

 
15.0
%
 
9.6
%
 
1.3x
Special Account F
Jan. 2014
 
Jan. 2018
 
253

 
96

 
96

 
49

 
83

 
208

 
206

 
—

 
10

 
191

 
14.2

 
9.8

 
1.2
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
31,766

(13)  
 
2,042

(13)  
 
14.7
%
 
9.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (22)
 
 
7,811

 
 
 
6

 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
Total (23)
 
 
$
39,577

 
 
 
$
2,048

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
For our incentive-creating closed-end funds in their investment periods, this percentage equals invested capital divided by committed capital. Invested capital for this purpose is the sum of capital drawn from fund investors plus net borrowings, if any, outstanding, under a fund-level credit facility where such borrowings were made in lieu of drawing capital from fund investors.
(2)
Represents capital drawn from fund investors, net of distributions to such investors of uninvested capital, divided by committed capital. The aggregate change in drawn capital for the three months ended March 31, 2017 was $156 million.
(3)
Accrued incentives (fund level) exclude Oaktree segment incentive income previously recognized.
(4)
Unreturned drawn capital plus accrued preferred return reflects the amount the fund needs to distribute to its investors as a return of capital and a preferred return (as applicable) before Oaktree is entitled to receive incentive income (other than tax distributions) from the fund.
(5)
The internal rate of return (“IRR”) is the annualized implied discount rate calculated from a series of cash flows. It is the return that equates the present value of all capital invested in an investment to the present value of all returns of capital, or the discount rate that will provide a net present value of all cash flows equal to zero. Fund-level IRRs are calculated based upon the actual timing of cash contributions/distributions to investors and the residual value of such investor’s capital accounts at the end of the applicable period being measured. Gross IRRs reflect returns before allocation of management fees, expenses and any incentive allocation to the fund’s general partner. To the extent material, gross returns include certain transaction, advisory, directors or other ancillary fees (“fee income”) paid directly to us in connection with our funds’ activities (we credit all such fee income back to the respective fund(s) so that our funds’ investors share pro rata in the fee income’s economic benefit). Net IRRs reflect returns to non-affiliated investors after allocation of management fees, expenses and any incentive allocation to the fund’s general partner.
(6)
Multiple of drawn capital is calculated as drawn capital plus gross income and, if applicable, fee income before fees and expenses divided by drawn capital.

88

(7)
Fund data include the performance of the main fund and fund-of-one accounts, except the gross and net IRRs presented reflect only the performance of the main fund. Certain fund-of-one accounts pay management fees based on cost basis, rather than committed capital.
(8)
Legacy funds represent certain predecessor funds within the relevant strategy that have substantially or completely liquidated their assets, including funds managed by certain Oaktree investment professionals while employed at the Trust Company of the West prior to Oaktree’s founding in 1995. When these employees joined Oaktree upon, or shortly after, its founding, they continued to manage the fund through the end of its term pursuant to a sub-advisory relationship between the Trust Company of the West and Oaktree.
(9)
The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through March 31, 2017 was less than 18 months.
(10)
A portion of this fund pays management fees based on drawn, rather than committed, capital.
(11)
Management fees during the investment period are calculated on drawn capital or cost basis, rather than committed capital. As a result, as of March 31, 2017 management fee-generating AUM included only that portion of committed capital that had been drawn.
(12)
Due to differences in the allocation of income and expenses to this fund’s two primary limited partners, the U.S. Treasury and Oaktree PPIP Private Fund, a combined net IRR is not presented. Of the $2,322 million in capital commitments, $1,161 million related to the Oaktree PPIP Private Fund, whose gross and net IRR were 24.7% and 18.6%, respectively.
(13)
Aggregate IRRs or totals are based on the conversion of cash flows or amounts, respectively, from euros to USD using the March 31, 2017 spot rate of $1.07.
(14)
Management fees are based on aggregate contributed capital for the period from the initial investment date until the investment period start date, which includes indebtedness incurred in lieu of drawn capital.
(15)
Effective November 2016, the Global Principal strategy was renamed Special Situations. The aggregate gross and net IRRs presented for this strategy exclude the performance of Oaktree Special Situations Fund.
(16)
A portion of the $409 million of commitments to Oaktree Infrastructure Fund is subject to certain contingencies.
(17)
The fund follows the American-style distribution waterfall, whereby the general partner may receive an incentive allocation as soon as it has returned the drawn capital and paid a preferred return on the fund’s realized investments (i.e., on a deal-by-deal basis). However, such cash distributions of incentives may be subject to repayment, or clawback. As of March 31, 2017, Oaktree had not recognized any incentive income from this fund. The accrued incentives (fund level) amount shown for this fund represents Oaktree’s effective 8% of the potential incentives generated by this fund in accordance with the terms of the Highstar acquisition.
(18)
Effective April 2017, the Mezzanine Finance strategy was renamed U.S. Private Debt, and includes our Mezzanine Finance and Direct Lending funds.
(19)
The fund’s partnership interests are divided into Class A and Class B interests, with the Class A interests having priority with respect to the distribution of current income and disposition proceeds. The net IRR for Class A interests was 10.4% and Class B interests was 8.6%. The combined net IRR for Class A and Class B interests was 9.6%.
(20)
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%.
(21)
In the third quarter of 2016, the investment period for Oaktree Emerging Market Opportunities Fund was extended for a one year period until September 2017. However, management fees stepped down to the post-investment period basis effective October 1, 2016.
(22)
This includes our closed-end Senior Loan funds, CLOs, OCM Asia Principal Opportunities Fund, a non-Oaktree fund and certain separate accounts and co-investments.
(23)
The total excludes two closed-end funds with management fee-generating AUM aggregating $484 million as of March 31, 2017, which has been included as part of the Strategic Credit strategy within the evergreen funds table.


89

Open-end Funds
 
 
 
Manage-
ment Fee-gener-
ating AUM
as of
Mar. 31, 2017
 
Twelve Months Ended
March 31, 2017
 
Since Inception through March 31, 2017
 
Strategy Inception
 
 
Rates of Return (1)
 
Annualized Rates of Return (1)
 
Sharpe Ratio
 
Oaktree
 
Rele-
vant Bench-
mark
 
Oaktree
 
Rele-
vant Bench-
mark
 
Oaktree Gross
 
Rele-
vant Bench-
mark
 
Gross
 
Net
 
 
Gross
 
Net
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. High Yield Bonds
1986
 
$
16,816

 
12.5
%
 
11.9
%
 
16.3
%
 
9.3
%
 
8.8
 %
 
8.4
 %
 
0.81
 
0.57
Global High Yield Bonds
2010
 
4,592

 
13.9

 
13.3

 
16.2

 
7.5

 
7.0

 
7.1

 
1.15
 
1.11
European High Yield Bonds
1999
 
1,073

 
10.2

 
9.7

 
11.9

 
8.1

 
7.6

 
6.4

 
0.71
 
0.45
U.S. Convertibles
1987
 
3,142

 
13.6

 
13.1

 
18.1

 
9.4

 
8.8

 
8.2

 
0.49
 
0.37
Non-U.S. Convertibles
1994
 
1,335

 
7.2

 
6.7

 
4.2

 
8.4

 
7.8

 
5.6

 
0.78
 
0.41
High Income Convertibles
1989
 
945

 
16.5

 
15.6

 
16.7

 
11.4

 
10.6

 
8.2

 
1.06
 
0.60
U.S. Senior Loans
2008
 
1,726

 
10.9

 
10.3

 
9.7

 
6.2

 
5.7

 
5.3

 
1.11
 
0.66
European Senior Loans
2009
 
1,648

 
6.0

 
5.4

 
6.9

 
8.3

 
7.8

 
9.0

 
1.71
 
1.73
Emerging Markets Equities
2011
 
3,380

 
24.5

 
23.5

 
17.2

 
0.4

 
(0.4
)
 
(0.7
)
 
0.02
 
(0.04)
Other
 
 
273

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
34,930

 
 
 
 
 
 
 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
(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
 
 
 
As of March 31, 2017
 
Twelve Months Ended
March 31, 2017
 
Since Inception through
March 31, 2017
 
 
 
AUM
 
Manage-
ment
Fee-gener-
ating AUM
 
Accrued Incen-
tives (Fund Level)
 
 
 
Strategy Inception
 
 
 
 
Rates of Return (1)
 
Annualized Rates
of Return (1)
 
 
 
Gross
 
Net
 
Gross
 
Net
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic Credit (2) .
2012
 
$
3,038

 
$
2,482

 
$
5

 
18.5
%
 
14.4
%
 
8.7
%
 
6.2
%
Value Opportunities
2007
 
1,284

 
1,218

 
—

(3)  
21.0

 
19.1

 
9.4

 
5.5

Emerging Markets Debt Total Return (4)  
2015
 
413

 
373

 
4

 
22.8

 
18.0

 
16.5

 
12.9

Value Equities (5)  
2012
 
385

 
315

 
3

 
41.8

 
35.9

 
20.0

 
14.5

 
 
 
 
 
4,388

 
12

 
 
 
 
 
 
 
 
Other (6)
 
 
434

 
4

 
 
 
 
 
 
 
 
Restructured funds
 
 
—

 
4

 
 
 
 
 
 
 
 
Total (2)
 
 
$
4,822

 
$
20

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Returns represent time-weighted rates of return.
(2)
Includes two closed-end funds with an aggregate $494 million and $484 million of AUM and management fee-generating AUM, respectively.
(3)
As of March 31, 2017, the aggregate depreciation below high-water marks previously established for individual investors in the fund totaled approximately $57 million for Value Opportunities.
(4)
The rates of return reflect the performance of a composite of accounts, including a single account with a December 2014 inception date.
(5)
Includes performance of a proprietary fund with an initial capital commitment of $25 million since its inception in May 2012.
(6)
Includes the Emerging Markets Absolute Return strategy and certain evergreen separate accounts in the Real Estate Debt and Emerging Markets Opportunities strategies.



90

Item 6. Exhibits
For a list of exhibits filed with this report, refer to the Exhibits Index on the page immediately preceding the exhibits, which Exhibit Index is incorporated herein by reference.

91

SIGNATURE
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: May 5, 2017  
 
Oaktree Capital Group, LLC
 
By:
/s/    Susan Gentile
 
Name:
Susan Gentile
 
 
 
 
Title:
Chief Accounting Officer and Managing Director
and Authorized Signatory


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EXHIBITS INDEX
Exhibit No.
Description of Exhibit
 
 
3.1
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).
 
 
3.2
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).
 
 
3.3
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).
 
 
3.4
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).
 
 
10.1*
Second Amended and Restated Employment Agreement by and among the Registrant, Oaktree Capital Management, L.P. and Jay S. Wintrob dated April 26, 2017.
 
 
10.2*
Second 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 effective as of April 26, 2017.
 
 
31.1
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.
 
 
31.2
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.
 
 
32.1
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).
 
 
32.2
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
 
 
101.INS
XBRL Instance Document.
 
 
101.SCH
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
 
 
* Management contract or compensatory plan or arrangement.


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Exhibit 10.1

EXECUTION COPY

OAKTREE CAPITAL GROUP, LLC
OAKTREE CAPITAL MANAGEMENT, L.P.

CONFIDENTIAL
April 26, 2017
Jay S. Wintrob
c/o Oaktree Capital Management, L.P.
333 South Grand Avenue, 28 th Floor
Los Angeles, CA 90071

Re:      Second Amended and Restated Employment Agreement
Dear Mr. Wintrob:
On October 6, 2014, you entered into an agreement with Oaktree Capital Group, LLC, a Delaware limited liability company (“ OCG ”) and Oaktree Capital Management, L.P., a Delaware limited partnership (the “ Company ” and, together with its affiliates, “ Oaktree ”) setting out the terms and conditions of your employment by the Company as the Chief Executive Officer of the Company and OCG (the “ Original Employment Agreement ”). The Original Employment Agreement was amended and restated February 24, 2015 (the “ 2015 A&R Employment Agreement ”), and OCG, the Company and you have agreed to further amend and restate the 2015 A&R Employment Agreement, as reflected herein (this “ Agreement ”). This Agreement is based on your providing, and continuing to provide, the services described below on a full-time basis.
1. Term . Your employment commenced on November 1, 2014 (the “ Commencement Date ”), and shall continue under this Agreement through March 31, 2022, unless terminated earlier pursuant to Section 5 of this Agreement (such period of employment hereunder, the “ Term ”). You are an “at will” employee of Oaktree, which means that your employment with Oaktree may be terminated at any time by you with or without “Good Reason” (as defined below) or by Oaktree with or without “Cause” (as defined below) and for any lawful reason or no reason; provided that if you intend to terminate your employment other than for Good Reason, you shall provide Oaktree with at least six (6) months prior written notice of the effective date of such termination in order to provide Oaktree with ample opportunity to arrange for the orderly



transition of your duties and responsibilities. At any time after such notice, Oaktree may elect, in its sole discretion, (i) for you to remain employed with Oaktree in your capacity of Chief Executive Officer (and with full duties, responsibilities and authority consistent with such position) until such effective date of termination designated by you or (ii) to accept your resignation from employment effective as of a date designated by Oaktree prior to the end of said six (6) month period; provided that, if Oaktree elects to take the action described in clause (ii), such action shall not be regarded as a termination without Cause or constitute a basis for your termination for Good Reason, under this Agreement or for any purpose.
2. Employment .
(a) Title; Reporting . During the Term, you will be employed by the Company and hold the title of Chief Executive Officer of OCG and the Company, and, at the request of the Board of Directors of OCG (the “ Board ”), of any other Oaktree affiliate that is covered by the indemnification provided, and the directors’ and officers’ liability insurance maintained, by OCG and the Company. You shall report directly to the Board. During the Term, you shall be nominated to serve on the Board.
(b) Duties . During the Term, you shall have such duties, responsibilities and authority as are commensurate with the title and position set forth in Section 2(a) hereof and such other duties, responsibilities and authority not inconsistent with your position, as may be assigned to you from time to time by the Board. During the Term, you shall devote all of your business time and attention to Oaktree, the promotion of its interests and the performance of your duties and responsibilities hereunder and as a member of the Board and use your best efforts to faithfully and diligently serve Oaktree.
Notwithstanding the foregoing, during the Term you shall be permitted to engage in outside activities, in your personal capacity, to the extent permitted by Oaktree’s Code of Ethics, Section 6 of this Agreement and other policies then in effect applicable to senior executives, subject to the foregoing not interfering with the performance of your duties hereunder other than in an immaterial respect.

3. Location . Your principal place of employment shall be at Oaktree’s offices in Los Angeles, California or at such other locations as are mutually agreed between you and Oaktree; provided that, for the avoidance of doubt, you shall travel as reasonably required in connection with the performance of your duties.

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4. Compensation and Related Matters .
(a)     Profit Participation . During the Term, subject to Section 5 below, you shall be entitled to receive:
(i) Incentive Payments . Certain payments (“Incentive Payments”) from Oaktree, including from the PoolCos (as defined below) in respect of the “Net Incentive Income” (as defined below) received by such entities from the investment funds and accounts managed by Oaktree (the “Funds”);
(ii) Investment Payments . Certain payments from Oaktree, including from the PoolCos in respect of “Net Investment Income” (as defined below) earned by such entities in respect of a fiscal year by Oaktree (“Investment Payments”); and
(iii) Profit Payments . Certain payments in respect of “Net Operating Profit” (as defined below) of the “Oaktree Operating Group” (as defined below) with respect to each fiscal year of Oaktree (“Profit Payments” and, collectively with the Incentive Payments and Investment Payments, the “Profit Sharing Payments”).
(iv) Profit Sharing Payment Calculation Rules .
(A) For fiscal year 2014, your Profit Sharing Payments shall equal 1.5% of the sum of the Net Incentive Income, Net Investment Income and Net Operating Profit (each, a “ Profit Metric ,” and the sum of the Profit Metrics, the “ Aggregate Profit Metric ”), and, for each of the fiscal years 2015 – 2021 and the first fiscal quarter of 2022, your Profit Sharing Payments shall equal (x) 1.5% in respect of the portion of the Aggregate Profit Metric that is less than or equal to the Aggregate Profit Metric in 2014 plus (y) 1.75% in respect of the portion, if any, of such fiscal year’s Aggregate Profit Metric that is greater than the Aggregate Profit Metric for 2014.
(B) In calculating the Aggregate Profit Metric for any fiscal year, any negative amounts with respect to one or more of such Profit Metrics in a fiscal year shall be netted against positive amounts, if any, of such Profit Metrics in such fiscal year (but there shall be no carry forward to any future year of any net negative amount).

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(C) For 2014, your Profit Sharing Payment shall not be less than $833,333.
(D) For each of fiscal years 2015 through 2021 and the first fiscal quarter of 2022, your aggregate Profit Sharing Payment shall not be less than $5 million per year, and, if your employment with Oaktree hereunder terminates in any such year, then your Profit Sharing Payment shall equal the product of the Profit Sharing Payments for such year and a fraction, the numerator of which is the number of days in the fiscal year during which you were employed hereunder, and the denominator of which is 365.
(v) Definitions .
(A)    “ Evergreen Fund ” means a Fund treated by the Company as an evergreen fund. Such funds typically invest in marketable securities, private debt or equity on a long or short basis and with limited restrictions on investor withdrawal and redemption rights.
(B)    “ Net Incentive Income ” means with respect to a given fiscal year, (i) (A) with respect to any Fund other than a Pre-Employment Fund, all incentive income earned by Oaktree, including by the PoolCos, that is derived from such Fund and (B) with respect to any Fund that is a Pre-Employment Fund, (x) if the given fiscal year is any of 2017, 2018 or 2019, 75% of all incentive income earned by Oaktree, including by the PoolCos, that is derived from such Pre-Employment Fund, and (y) if the given fiscal year or quarter is 2020 or later, 50% of all incentive income earned by Oaktree, including by the PoolCos, that is derived from such Pre-Employment Fund, in the case of both clauses (A) and (B), determined in a manner consistent with the incentive income component of adjusted net income on the financial statements of OCG, net of (ii) all participation in such income granted to any party by Oaktree (other than participation through “Common Series Interests” in the PoolCos and the payments in respect of Net Incentive Income granted hereunder), including any such participation through “Points Series Interests” and “Net Carry Series Interests” in the PoolCos, and (iii) as adjusted to take into account payments in respect of Net Incentive Income granted hereunder and other participations in such incentive income as determined by Oaktree consistent with

4


past practice. In respect of each fiscal year, the incentive income to be included in clause (i) shall include incentive income relating to such year received by the Oaktree Operating Group in the subsequent year from those Evergreen Funds that pay incentive income annually. The term “Net Incentive Income” shall not include any tax distributions from any Fund, provided, that the amounts that would have otherwise been paid to you as a share of such foregone tax distribution shall be paid to you at the time such Fund reaches the stage of its cash distribution waterfall where the respective PoolCo or Oaktree is receiving payments of incentive income from such Fund.
(C)    “ Net Investment Income ” means with respect to a given fiscal year, all income (net of any associated compensation expense other than compensation expense relating to individuals entitled to payments in respect of Net Operating Profit and Net Investment Income and excluding incentive income) earned by Oaktree, including by the PoolCos and the Oaktree Operating Group, from their respective direct and indirect investments in Funds (including through the general partner of any such Fund) and third-party managed funds and companies, as determined in a manner consistent with the investment income component of adjusted net income on the financial statements of OCG.
(D)    “ Net Operating Profit ” means with respect to a given fiscal year, the adjusted net income of any and all of the members of the Oaktree Operating Group, determined in a manner consistent with adjusted net income on the financial statements of OCG, as further adjusted by (i) subtracting compensation expense with respect to the vesting of units granted after May 25, 2007 but before the OCG Class A Units were listed on the New York Stock Exchange, (ii) subtracting Oaktree Operating Group income taxes, (iii) adding back 50% of the compensation expense recognized with respect to the vesting of units granted after May 25, 2007 under OCG’s equity incentive plans, (iv) excluding incentive income (net of incentive income compensation expense) and phantom equity expense, (v) excluding Net Investment Income, and (vi) excluding compensation expense relating to individuals entitled to payments in respect of Net Operating Profit and Net Investment Income.

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(E)    “ Oaktree Operating Group ” means, collectively, the entities in which OCG has a minority economic interest and indirect control that either (i) act as or control the general partners and investment advisers of Oaktree’s funds or (ii) hold interests in other entities or investments generating income for Oaktree.
(F)    “ PoolCos ” mean Oaktree Fund GP I, L.P., Oaktree Fund GP II, L.P., Oaktree Fund GP III, L.P and any other entity designated by Oaktree as a “PoolCo” from time to time hereafter.
(G)    “ Pre-Employment Fund ” means a fund that is set forth on Exhibit A to this Agreement.
Net Incentive Income, Net Investment Income, Net Operating Profits and the amount of any management fee offsets for any applicable Fund will be determined in accordance with the partnership agreement, separate account agreement, advisory agreement, side letter or other relevant document(s) governing or binding upon the applicable Fund, and the Profit Sharing Payments shall be determined in accordance with Oaktree’s general conventions consistently applied to other senior executives of Oaktree.
(vi) Payment Dates . Except as provided in Section 5 of this Agreement, your Profit Sharing Payments in respect of each full fiscal year during the Term shall be paid to you in four (4) installments (each, a “ Payment Installment ” and each date of payment, a “ Quarterly Profit Payment Date ”) and (i) with respect to Profit Sharing Payments in respect of the 2015 and 2016 fiscal years, such Payment Installments shall be paid to you on the same payment dates consistent with past practice, subject to your continued employment on such Quarterly Profit Payment Date and (ii) with respect to Profit Sharing Payments in respect of each fiscal year beginning with the 2017 fiscal year, each Quarterly Profit Payment Date for cash payments shall be the date that is not later than (i) the forty-fifth (45 th ) day following the end of the first three quarters of each fiscal year and (ii) the sixtieth (60 th ) day following the end of the fourth quarter of each fiscal year. With respect to Profit Sharing Payments in respect of the 2015 and 2016 fiscal years, the amount of each Payment Installment due on each Quarterly Profit Payment Date shall be determined by Oaktree based on its periodic reasonable estimates of your expected Profit Sharing Payments. With respect to Profit Sharing Payments in respect of fiscal years beginning with the 2017 fiscal year, the amount of each Payment Installment due on each Quarterly Payment Date shall be based on actual

6


calculations of Net Incentive Income, Net Investment Income and Net Operating Profit as required by this Agreement and using relevant measures from OCG’s quarterly financial statements for the immediately preceding full fiscal quarter, or, in the case of the Quarterly Payment Date in respect of the fourth quarter of the fiscal year, using relevant measures from OCG’s annual financial statements. Within thirty (30) days following delivery of the audited financial statements of Oaktree in respect of a given fiscal year, a determination shall be made as to whether the aggregate Payment Installments paid to you in respect of such fiscal year were greater or less than the Profit Sharing Payments to which you are due applying the calculation required by this Agreement (“ Earned Amount ”). If your aggregate Payment Installments were less than the Earned Amount, you shall receive a true-up payment on such date to make up for any shortfall. In calculating your entitlement to Profit Sharing Payments hereunder, the excess of your aggregate Payment Installments over the Earned Amount shall be netted against future Payment Installments, if any. Amounts due hereunder shall be determined by Oaktree in good faith. Notwithstanding anything herein to the contrary, you agree to repay to Oaktree any amount paid to you in excess of what you should have received under the terms of this Section 4(a)(vii) for any reason within thirty (30) days following notice from Oaktree that there has been any excess payment, including, without limitation, by reason of (i) a mistake in calculation or (ii) other administrative error, which notice must explain the reason for the excess in reasonable detail; provided , that, except as may be required by law, the requirement to repay amounts in excess of the Earned Amount for any fiscal year shall cease to apply one hundred and twenty (120) following the delivery of audited financial statements for such fiscal year. Except as otherwise required in Section 5 below, each installment of any Profit Sharing Payment will only be made if you are actively employed by or providing services to Oaktree at the time at which such payment is otherwise to be made, and your entitlement to Profit Sharing Payments shall cease immediately upon the termination of your employment with Oaktree, whether by voluntary resignation, involuntary termination (with or without Cause), death, Disability or otherwise for any reason; provided that, if your employment hereunder is not terminated prior to March 31, 2022, then you shall be entitled to Profit Sharing Payments in respect of the first quarter of 2022 (including any payments and grants of Class A units of OCG (the “ Class A Units ”) in settlement thereof that are made in the second quarter of 2022), even if your employment with Oaktree does not continue following March 31, 2022. Notwithstanding any provision of this Agreement to the contrary, to the extent that Section 409A of the U.S. Internal Revenue Code of 1986, as amended (the “ Code ”) and the Treasury Regulations promulgated thereunder (collectively referred to herein as “ Section

7


409A ”) applies to a payment to be made hereunder, each Profit Sharing Payment shall be paid on the 15 th day of the third month following the end of the taxable year in which your right to such Profit Sharing Payment is no longer subject to a substantial risk of forfeiture, if such payment is not otherwise made prior to such date.
(vii) Form of Payment . The Profit Sharing Payment shall be satisfied in the form of cash and, if certain thresholds are met, a combination of cash and Class A Units, as follows: for each fiscal year, each Payment Installment, or portion thereof, shall be paid in cash until the aggregate amount paid in respect of all Payment Installments, or portions thereof, for such fiscal year is $3 million (the “ Cash Threshold ”). The Profit Sharing Payments relating to the first and third quarters shall be paid in cash, and, subject to such payments in any given fiscal year already reaching the Cash Threshold, the Profit Sharing Payments relating to the second and fourth quarters shall be paid in a combination of cash and Class A Units, as follows: You will be paid in Class A Units such that 20% (or such higher percentage applicable to bonus payments to other most senior executive officers of Oaktree for such fiscal year) of your aggregate Profit Sharing Payments with respect to a given year is paid in the form of Class A Units. The value of the Class A Units will be determined based on the average daily closing price at which the Class A Units were traded on the New York Stock Exchange for the period commencing twenty (20) trading days (or such other number of trading days that OCG elects as applied consistently to other employees of Oaktree) prior to the date such Class A Units are issued (or such other date that OCG selects as applied consistently to other employees of Oaktree). The Class A Units shall be delivered on the same date as other equity grants are generally made around such time. Such Class A Units will have the terms and conditions set forth below in this Section 4(a)(vii) and shall be subject to the other standard terms and conditions that apply to grants of restricted Class A Units to other senior executive officers of Oaktree. The Class A Units delivered in settlement of any portion of any Payment Installment herein shall vest in equal annual installments over the four (4) year period with the same annual vesting date as other Class A Units granted at the same time, subject to your continued employment on each such vesting date, and you shall be entitled to receive distributions in respect of all such Class A Units, whether vested or unvested, in the same amounts and at the same times as distributions are paid to other holders of Class A Units. The Class A Units granted pursuant to this Section 4(a)(vii) shall be referred to herein as the “ Profit Payment Units .” You shall be responsible for satisfying any applicable U.S. federal, state and local tax withholding obligations and non-

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U.S. tax withholding obligations upon the vesting and settlement of the Class A Units. You may elect to satisfy, in whole or in part, any such tax obligations by directing Oaktree to withhold a number of Profit Payment Units that would otherwise be deliverable to you with a fair market value equal to such withholding liability, subject to any limitations that the Board may impose for Oaktree to remain in compliance with any debt or indenture covenants, similar undertakings or applicable law.
(viii) For the avoidance of doubt, neither the grant to you of the right to receive Profit Sharing Payments hereunder nor the delivery to you of the Profit Payment Units, gives you any management, control or other rights with respect to any Funds. You and the interests granted hereunder shall be subject to the provisions of each PoolCo limited partnership agreement and any other document or arrangement which govern the terms of the PoolCos. Subject to the first sentence of Section 4(g) below, for U.S. federal income tax purposes, the parties intend that the right under this Section 4 to receive payments of Net Incentive Income related to Pre-Employment Funds and with respect to any PoolCo shall be treated as received by you as a deemed distribution of partnership interests in the relevant PoolCo made with respect to your EVUs (as defined below).
(b)     Equity Value Units . Effective as of December 2, 2014, you were granted 2,000,000 “EVUs”, representing special limited partnership units in OCGH, pursuant to the Oaktree Capital Group, LLC 2011 Equity Incentive Plan (the “ EVU Award ”). Oaktree shall use reasonable efforts to structure the EVU Award so as to qualify for long-term capital gain tax treatment, or short-term capital gain tax treatment as a second preferred treatment, but such reasonable efforts must be balanced against Oaktree’s need to preserve the economic equivalent of the deductibility of the EVU Award.
(c)    Oaktree has agreed to make certain replacement payments (“ Replacement Payments ”) to you to compensate you for certain reduced payment opportunities resulting from your departure from your prior employer and your commencing employment hereunder.
(d)     Benefits . You shall be entitled to all rights and benefits for which you are otherwise eligible under any health, life and disability insurance plans, vacation policies, sick leave policies and 401(k) elections that Oaktree generally provides to senior executive officers. You agree that Oaktree may deduct the premiums for your long-term disability insurance from the compensation otherwise payable to you.

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(e)     Travel . When travelling via airplane for Oaktree-business purposes, (i) you shall be entitled to fly by means of a private aircraft which will be provided by Oaktree by any reasonably commercial method and subject to reasonable limitations which may be imposed from time to time by the Board and (ii) your spouse shall be permitted to accompany you on such aircraft, subject to your being solely responsible for all tax liabilities associated therewith. To the extent available, you shall also be entitled to fly by means of private aircraft for personal travel, subject to your payment for such use on the same terms applicable to the Chairman of Oaktree on the date of the Original Employment Agreement.
(f)    [RESERVED]
(g)     No Representation regarding Tax Treatment; Section 409A . Oaktree makes no representation as to the tax treatment of distributions or payments with respect to the amounts described in this Section 4 (including Section 4(b)) under applicable U.S. federal or state tax laws. Notwithstanding anything herein to the contrary, if as a result of your separation from service, you would receive any payment that, absent the application of this paragraph, would be subject to interest and additional tax imposed pursuant to Section 409A as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (i) six (6) months after the date of your separation from service, (ii) your death, or (iii) such other date as will cause such payment not to be subject to such interest and additional tax. It is the intention of the parties that payments or benefits payable hereunder not be subject to the additional tax imposed pursuant to Section 409A, and this Agreement shall be interpreted accordingly. To the extent such potential payments or benefits could become subject to Section 409A, you and Oaktree shall cooperate to amend your compensation, with the goal of giving you the economic benefits described herein in a manner that does not result in such tax being imposed. If a termination of your employment does not result in a “separation from service” within the meaning of Section 409A, then, if and to the extent required under Section 409A, for purposes of determining the timing of any payment provided for by this Agreement, termination shall not be considered to occur until you have incurred such a separation from service. The preceding sentence shall not affect the determination of your entitlement to any payment or benefit, but only the timing thereof. For purposes of Section 409A, each of the payments that may be made hereunder are designated as separate payments. No amounts may be offset against non-qualified deferred compensation or any payment or compensation under any other

10


agreement to the extent such offset would violate Section 409A and any provision providing for any such offset shall be of no force or effect.
5. Termination .
(a)    You may voluntarily terminate your employment hereunder and the Term at any time and for any reason as set forth in Section 1 of this Agreement. Any termination of employment by you shall be communicated to the Board by written notice, which shall include your date of termination of employment, but the Board reserves the right to accelerate such termination date. The Company may, if approved by the Board, terminate your employment hereunder and the Term at any time and for any reason. Your employment hereunder shall automatically terminate upon your death.
(i)    Upon the termination of your employment hereunder as a result of your death or “Disability” (as defined below), subject, in the case of your termination due to Disability, to your satisfaction of any “Release Condition” (as defined below), (A) all unvested Profit Payment Units shall become fully vested, (B) you shall be entitled to the Profit Sharing Payments for the full fiscal year of termination, and (C) you shall remain entitled to the Replacement Payments.
(ii)    Upon the termination of your employment hereunder by the Board without Cause or by you for Good Reason, subject to your satisfaction of any Release Condition, (A) all unvested Profit Payments Units shall become fully vested, (B) you shall receive your Profit Sharing Payments in respect of the fiscal year in which your termination occurs, but only for the period ending at the end of the fiscal quarter in which your termination occurs (the “ Termination Quarter ”), (C) if such termination occurs prior to December 31, 2019, you shall receive a payment in cash at the end of each of the successive eight (8) fiscal quarters following the Termination Quarter, where the amount paid in each quarter is 25% of the aggregate Profit Sharing Payments earned in respect of the four (4) full fiscal quarters that preceded the Termination Quarter, (D) if such termination occurs after December 31, 2019, you shall receive a payment in cash at the end of each of the successive four (4) fiscal quarters following the Termination Quarter, where the amount paid in each quarter is 25% of the aggregate Profit Sharing Payments earned in respect of the four (4) full fiscal quarters that preceded the Termination Quarter and (D) you shall remain entitled to the Replacement Payments.

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(iii)    Upon the termination of your employment for Cause, all unvested Profit Payments Units shall be immediately forfeited for no consideration and you shall not be entitled to any Profit Sharing Payment or any other payments or benefits in respect of any period occurring after your termination. Upon termination of your employment due to your resignation without Good Reason, you shall retain any vested Profit Payment Units, all unvested Profit Payment Units shall be immediately forfeited for no consideration and you shall be entitled to receive Profit Sharing Payments in respect of performance through your termination date.
(iv)    Upon the termination of your employment for any reason, you shall be entitled to receive from the Company (a) reimbursement of any business expenses incurred by you but unreimbursed on the date of termination; provided that such expenses and required substantiation and documentation thereof are submitted within thirty (30) days of termination and that such expenses are reimbursable under Oaktree policy, (b) all other vested and accrued payments or benefits to which you are entitled under, and paid or provided in accordance with, the terms of any applicable employee benefit plan, arrangement or program other than under any severance plan or program, and (c) continued coverage under any indemnification provided, and any directors’ and officers’ liability insurance maintained, by OCG and the Company, in each case in accordance with the terms thereof.
(b)     Definitions .
(i)    “ Affiliate ” means with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, the Person in question; provided that no investment fund or account, and no portfolio company, of any member of the Oaktree Group shall be deemed to be an Affiliate of any member of the Oaktree Group.
(ii)    “ Cause ” means the occurrence of any of the following events during your provision of services to the “Oaktree Group” (as defined below): (A) willful and continued failure to fulfill your responsibilities hereunder in accordance with the terms and provisions of this Agreement; (B) gross negligence or willful misconduct detrimental to any member of the Oaktree Group; (C) material breach by you of this Agreement or any other agreement between you and any member of the Oaktree Group; (D) material violation of any material applicable regulatory rule or regulation; (E) conviction of, or entry of a guilty plea or of no contest to, a felony (other than a motor-vehicle-related felony for which no custodial

12


penalty is imposed); (F) entry of an order issued by any court or regulatory agency removing you as an officer (or equivalent person) of a member of the Oaktree Group or prohibiting you from participating in the conduct of the affairs of any member of the Oaktree Group; (G) fraud, theft, misappropriation or dishonesty by you relating to any member of the Oaktree Group, including any theft of funds or misappropriation of Confidential Information (defined below); or (H) material breach of any of the Oaktree Group’s written policies. Notwithstanding the foregoing, (i) termination by the Company for Cause for any prong of the preceding sentence other than clauses (D), (E), (F) or (G)  shall not be effective until and unless you have been given written notice of particular acts or circumstances which are the basis for the termination for Cause, you are thereafter given ten (10) days to cure the omission or conduct that is the basis of such claim, but in all circumstances only if such omission or conduct is reasonably capable of being cured and (ii) any action by you that is permitted by Section 6 of this Agreement shall not be deemed a breach of Oaktree’s Code of Ethics or the OCGH or grounds for Cause. If, within sixty (60) days after your termination from employment hereunder after a resignation by you without Good Reason, Oaktree discovers that any occurrence set forth in clause (A) through (H) above has occurred, such occurrence shall constitute “Cause” for all purposes of this Agreement, so long as Oaktree provides you with notice of such discovery no later than the last day of such 60-day period, and, for any occurrence other than one set forth in clause (D), (E), (F) or (G), you will be given ten (10) days to cure the omission or conduct that is the basis of such claim, but in all circumstances only if such omission or conduct is reasonably capable of being cured.
(iii)    “ Disability ” means entitlement to long-term disability benefits under the Company’s long-term disability plan as in effect from time to time and the failure to have performed your material duties and responsibilities due to physical or mental illness or incapacity that lasts for one-hundred and eighty (180) days in any three-hundred and sixty-five (365) day period.
(iv)    “ Good Reason ” means without your prior written consent, one or more of the following events: (x) a material diminution or adverse change in you duties, authority, responsibilities, positions or reporting lines of authority hereunder; (y) the Board’ s requiring you to be based at a location in excess of thirty-five (35) miles from your principal job location or office specified in Section 3, except for required travel on Oaktree business to an extent substantially consistent with your position or (z) any material breach by the Company or OCG of this Agreement; provided , that prior to resigning for Good

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Reason, you shall give written notice to the Board of the facts and circumstances claimed to provide a basis for such resignation not more than thirty (30) days following your knowledge of such facts and circumstances, and the Company shall have thirty (30) days after receipt of such notice to cure such facts and circumstances (and if so cured, you shall not be permitted to resign for Good Reason in respect thereof). Any termination of employment by you for Good Reason shall be communicated to the Board by written notice, which shall include your date of termination of employment, which shall be within sixty (60) days after the end of the cure period, but the Board reserves the right to accelerate such termination date.
(v)    “ Oaktree Group ” means collectively, Oaktree and its Affiliates.
(vi)    “ Person ” means, any individual, corporation, firm, partnership (general or limited), joint venture, limited liability company, association, business, estate, trust, business association, organization, unincorporated organization, any other entity or a government or any department, agency, authority, instrumentality or political subdivision thereof, or any other entity.
(vii)    “ Release Condition ” means you have executed and delivered to Oaktree, no later than 25 days after the applicable termination date, and have not sought to revoke (whether or not you have any right under applicable law to revoke), a release substantially in the form attached hereto as Exhibit B , fully and finally releasing the Oaktree Group and its related persons from all claims and liabilities whatsoever, subject to the exceptions in Exhibit B.
6. Confidential Information; Covenants . You acknowledge and agree that your provision of services to any member of the Oaktree Group, including your employment by the Company and OCG, creates a relationship of confidence and trust between you and the Oaktree Group with respect to “Confidential Information” and “Intellectual Property” (each as defined below) pertaining to the business of the Oaktree Group. Moreover, you recognize that such information (including information created, discovered or developed by, or made known to you from and after the date this Agreement is entered into) has commercial value in the business in which the Oaktree Group is engaged. Accordingly, you hereby covenant, agree and acknowledge as follows:

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(a)     Confidential Information and Intellectual Property .
(i)    You shall not without the prior express written consent of the Chairman of Oaktree, or one of the Chairmen of Oaktree if more than one Chairman exists (A) use for your benefit, use to the detriment of any member of the Oaktree Group, or disclose, at any time during your employment by any member of the Oaktree Group, or if you cease to be so employed, at any time thereafter (unless and to the extent you reasonably determine that such disclosure is required by law or otherwise appropriate in the course of the performance of your duties hereunder), any Confidential Information, or (B) take, remove or retain, upon your ceasing to be so employed for any reason, any document, paper, electronic file or other storage medium containing or relating to any Confidential Information, any Intellectual Property or any physical property of any member of the Oaktree Group, except that you may retain your address book/contact list to the extent it only contains contact information.
(ii)    You agree (A) to deliver to Oaktree on the date you cease to be an employee for any reason, or promptly at any other time that any member of the Oaktree Group may request, all memoranda, notes, plans, records, reports, computer files and tapes, printouts and software and other documents and data (and copies thereof) within your possession or control that contain any Confidential Information or any Intellectual Property, and (B) to the extent not yet publicly disclosed, to keep the terms of this Agreement confidential, except as otherwise required by applicable law and except that the terms hereof may be disclosed to your family members, attorneys, accountants or other professional advisers who agree to keep the terms of this Agreement confidential, to taxing and other governmental or regulatory authority and to disclose in compliance with legal process.
(iii)    You agree that any and all Intellectual Property is and shall be the exclusive property of the Oaktree Group for the Oaktree Group’s sole use. In addition, you acknowledge and agree that the investment performance of the funds and accounts managed by any member of the Oaktree Group is attributable to the efforts of the team of professionals of the Oaktree Group and not to the efforts of any single individual, and that, therefore, the performance records of the funds and accounts managed by any member of the Oaktree Group are and shall be the exclusive property of the Oaktree Group. You agree that you shall not use or disclose any Intellectual Property, including any of the performance records of the funds and accounts managed by any member of the Oaktree Group without the prior written consent of the

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Chairman of Oaktree, or one of the Chairmen of Oaktree if more than one Chairman exists, except in the ordinary course of your employment with Oaktree or as required by legal process or governmental or regulatory inquiry.
(iv)    In accordance with Section 2870 of the California Labor Code, your obligation to assign your right, title and interest throughout the world in and to all Intellectual Property does not apply to any works of authorship, inventions, intellectual property, materials, documents or other work product (including, without limitation, research, reports, software, databases, systems, applications, presentations, textual works, content or audiovisual materials) that you developed entirely on your own time without using Oaktree’s equipment, supplies, facilities, or Confidential Information (and any such works shall not be deemed “Intellectual Property” hereunder) except for the Intellectual Property that relates to either (A) the business of Oaktree at the time of conception or reduction to practice of the Intellectual Property, or actual or demonstrably anticipated research or development of Oaktree or (B) results from any work performed by you for Oaktree.
(v)    Without limiting the generality of the foregoing, any trade secrets of the Oaktree Group will be entitled to all of the protections and benefits under applicable law. You acknowledge and agree that (A) you may have had, and may have in the future, access to information that constitutes trade secrets but that has not been, and will not be, marked to indicate its status as such and (B) the preparation of this letter constitutes reasonable efforts under the circumstances by the Oaktree Group to notify you of the existence of such trade secrets and to maintain the confidentiality of such trade secrets within the provisions of the Uniform Trade Secrets Act or other applicable law.
(vi)    Nothing in this Agreement or any other agreement between you and a member of the Oaktree Group shall prohibit or impede you from communicating, cooperating or filing a complaint with any U.S. federal, state or local governmental or law enforcement branch, agency or entity (collectively, a “ Governmental Entity ”) with respect to possible violations of any U.S. federal, state or local law or regulation, or otherwise making disclosures to any Governmental Entity, in each case, that are protected under the whistleblower provisions of any such law or regulation; provided , that in each case such communications and disclosures are consistent with applicable law. Moreover, you can testify truthfully in response to a subpoena or other legal process regarding any matter concerning your

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relationship with any member of the Oaktree Group provided that you notify Oaktree within a reasonable time after receiving such a subpoena or other legal process so that Oaktree may take appropriate steps to protect its interests. Additionally, you understand and acknowledge that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made (i) in confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. You understand and acknowledge further that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order. Nothing in this Agreement requires you to obtain the prior authorization of (or to give notice to) the Oaktree Group regarding any such communication or disclosure. Notwithstanding the foregoing, under no circumstance are you authorized to disclose any information covered by the Oaktree Group’s attorney-client privilege or attorney work product without prior written consent of the Oaktree Group’s General Counsel.
(b)     Interference . To the maximum extent permitted by applicable law, while you are providing services to any member of the Oaktree Group, and for two years after you cease to provide services to any member of the Oaktree Group, you shall not directly or indirectly: (A) solicit any customer or client of any member of the Oaktree Group for a Competitive Business (defined below); provided that this Section 6(b) shall not be deemed to prohibit you from participating in the normal marketing efforts of a Competitive Business so long as you avoid soliciting any client or customer that you know as a result of your employment by any member of the Oaktree Group to be a client or customer of any member of the Oaktree Group, other than clients or customers of the Oaktree Group that, as of the termination of your employment, are bona fide pre-existing clients or customers of the Competitive Business; provided, further that you shall not be prohibited from soliciting clients or customers of AIG Life and Retirement, as long as any such client or customer is not a sovereign wealth fund, a state pension fund or one of the largest 100 corporate pension plans, (B) induce or attempt to induce any employee of the Oaktree Group to leave the Oaktree Group or in any way interfere with the relationship between the Oaktree Group and any employee thereof, except in the good faith performance of your duties hereunder, or (C) hire, engage, employ, retain

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or otherwise enter into any business affiliation with any person who was an employee of the Oaktree Group at any time during the twelve-month period prior to the date you cease to provide services to any member of the Oaktree Group; provided that you shall not be prohibited from becoming employed by an organization that employs other or former employees of the Oaktree Group if you were not involved in the circumstances that led to such employees becoming employed by such organization.
(c)     Non-Disparagement . You hereby agree that, during the Term and for five (5) years following the termination of your employment from Oaktree, you shall not make any statements, encourage others to make statements or release information that disparages, discredits, or defames any member of the Oaktree Group or engage in any activity that would have the effect of disparaging, discrediting or defaming any member of the Oaktree Group. Notwithstanding the foregoing, nothing in this Agreement shall prohibit you from making truthful statements when required by law, as a response to any statement made about you in breach of this Section 6(c) or as otherwise provided in Section 6(a)(vi). Oaktree hereby agrees that it shall instruct its Chairmen, Vice Chairman, directors and executive officers not to, during the Term and for five (5) years following the termination of your employment from Oaktree, make any statements, encourage others to make statements or release information that disparages, discredits, or defames you or engage in any activity that would have the effect of disparaging, discrediting or defaming you. Notwithstanding the foregoing, nothing in this Agreement shall prohibit Oaktree from making truthful statements when required by law.
(d)     Enforcement . Because your services are unique and because you have access to Confidential Information and Intellectual Property, you agree that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, you agree that any member of the Oaktree Group shall be entitled to injunctive relief, in addition to any other available rights and remedies in case of any such breach or threatened breach; provided that nothing contained herein shall be construed as prohibiting any member of the Oaktree Group from pursuing any other rights and remedies available for any such breach or threatened breach. If, at the time of enforcement of any of the paragraphs of this Section 6, a court or arbitrator shall hold that the duration, scope or area restrictions stated herein are unreasonable under the circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area, and that the court or arbitrator, as the case may be, shall be allowed to construe or revise the restrictions contained

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herein to cover the maximum period, scope and area permitted by law. You expressly acknowledge and agree that (i) you have carefully read this Agreement and have given careful consideration to the restraints imposed upon you by this Section 6; (ii) you are in full accord as to their necessity; (iii) the rights and remedies under this Section 6 shall be in addition to any other rights and remedies of any member of the Oaktree Group; and (iv) the provisions of this Section 6 are an essential inducement to Oaktree to enter into this Agreement. For the avoidance of doubt, your obligations under this Section 6 are in addition to, and do not qualify or relieve you of any obligation you may have under any other agreement you may have with any other member of the Oaktree Group.
(e)     Certain Definitions . For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below.
(i)    “ Competitive Business ” means any business which is competitive with the business of any member of the Oaktree Group (including raising, organizing, managing or advising any fund or separate account having an investment strategy in any way competitive with any of the funds or separate accounts managed by any member of the Oaktree Group).
(ii)    “ Confidential Information ” means any information concerning the employees, organization, business or finances of any member of the Oaktree Group or any third party (including any client, investor, partner, portfolio company, customer, vendor, or other person) with which a member of the Oaktree Group is engaged or conducts business, including business strategies, operating plans, acquisition strategies (including the identities of, and any other information concerning, possible acquisition candidates), financial information, valuations, analyses, investment performance, market analysis, acquisition terms and conditions, personnel, compensation and ownership information, know-how, customer lists and relationships, the identity of any client, investor, partner, portfolio company, customer vendor or other third party, and supplier lists and relationships, as well as all other secret, confidential or proprietary information belonging to any member of the Oaktree Group; provided that Confidential Information shall not include any information generally known to the public other than as a result of disclosure by you not permitted hereunder.
(iii)    “ Intellectual Property ” means (A) any and all investment or trading records, agreements or data; (B) any and all financial and other analytic models, records, data, methodologies or

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software; (C) any and all investment advisory contracts, fee schedules and investment performance data; (D) any and all investment agreements, limited partnership agreements, subscription agreements, private placement memorandums and other offering documents and materials; (E) any and all client, investor or vendor lists, records or contact data; (F) any and all other documents, records, materials, data, trade secrets and other incidents of any business carried on by any member of the Oaktree Group or learned, created, developed or carried on by any employee of any member of the Oaktree Group (in whatever form, including print, computer file, diskette or otherwise); and (G) all trade names, services marks and logos under which any member of the Oaktree Group does business, and any combinations or variations thereof and all related logos.
(f)     Conflict . In the event of any conflict between the provisions of this Section 6 and corresponding covenants in the OCGH Limited Partnership Agreement, Oaktree’s Code of Ethics, Oaktree’s equity incentive plans or agreements, equity grant agreements or any other agreements that you enter into with Oaktree relating to intellectual property rights, nondisclosure of confidential information, non-disparagement or non-solicitation (and corresponding enforcement, remedial and interpretive provisions), the provisions of this Section 6 shall control. You will be subject to all other provisions of the OCGH Limited Partnership Agreement, Code of Ethics, equity incentive plans and agreements; provided, that, for purposes of Section 10.4(b) of the OCGH Limited Partnership Agreement or any similar provision in any Oaktree equity incentive plan, agreement or policy or equity grant agreement, a “Competitive Business” shall not include any business enterprise that is primarily a commercial bank, an investment bank, an insurance company or a retail distribution business.
7.     Representations of Executive; Advice of Counsel .
(a)    You represent and warrant to Oaktree that (i) you are not, and since the date of commencement of your employment you have not been, an employee of any other person or entity, (ii) your employment with Oaktree or any other member of the Oaktree Group, and your performance of services for Oaktree or any other member of the Oaktree Group, will not conflict with or be constrained by (A) any prior employment, employment agreement, consulting agreement, undertaking or relationship or (B) any other contractual obligations, fiduciary or other duties, or legal restrictions applicable to you, (iii) you are not the subject of any orders, judgments or decrees of any court, regulatory agency or other

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governmental body limiting or otherwise affecting your professional activities or addressing any issue related to whether your professional conduct has been in compliance with applicable law or securities industry professional standards, (iv) to your knowledge, no claim, action or investigation involving any such matters is pending, or to your knowledge, threatened, and (v) you answered “NO” to each of the questions in the Advisory Affiliate Questionnaire submitted to Oaktree and such answers are and continue to be true and accurate. You hereby covenant that you shall immediately inform Oaktree if any of the foregoing representations is or becomes untrue or inaccurate and will update the Advisory Affiliate Questionnaire upon the request of Oaktree.
(b)    Prior to execution of this Agreement, you were advised by the Company of your right to seek independent advice from an attorney of your own selection regarding this Agreement. You acknowledge that you have entered into this Agreement knowingly and voluntarily and with full knowledge and understanding of the provisions of this Agreement after consulting with counsel. You further represent that in entering into this Agreement, you are not relying on any statements or representations made by any of the Company’s directors, officers, employees or agents which are not expressly set forth herein, and that you are relying only upon your own judgment and any advice provided by your attorney.
8.     Compliance with Law . In connection with your conduct and activities on behalf of Oaktree, you shall not knowingly fail to comply with any applicable law, including any applicable U.S. state, U.S. federal or non-U.S. securities law.
9.     Miscellaneous
(a)     Entire Agreement . This Agreement constitutes the entire and final expression of the agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof, including the Original Employment Agreement, the 2015 A&R Employment Agreement and any other employment agreement or term sheet, in final form or draft form, between you and any member of the Oaktree Group. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto that specifically references this Agreement.

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(b)     Withholding . You hereby authorize Oaktree to deduct and withhold from any compensation or amounts otherwise payable to you any and all amounts required to be deducted or withheld under any applicable law or otherwise, including all taxes required to be withheld by applicable law or regulation.
(c)     Assignment; Designation of Beneficiaries . Except as set forth in this Section 9(c), the rights and benefits hereunder shall not be assignable or transferable, and any purported transfer, sale, assignment, pledge or other encumbrance or disposition or attachment of any payments or benefits hereunder other than by operation of law, shall not be permitted or recognized. The Company may assign this Agreement to its affiliates; provided that no such assignment shall affect in any way the benefits to you or Oaktree contemplated by this Agreement or release the Company from liability hereunder. You agree to take any such actions and to execute any such documents as the Company may reasonably request in order to further implement and evidence any such assignment. You may, with the consent of the Company, designate in writing, on forms prescribed by and filed with the Company, one or more beneficiaries to receive any payments payable after your death and may at any time amend or revoke any such designation; provided that if you designate a person other than your spouse as a beneficiary, your spouse must sign a statement specifically approving such designation. Any payments to which you would be entitled by virtue of this Agreement while alive will be paid, following your death, to the designated beneficiary. If no beneficiary designation is in effect at the time of death, or in the absence of a spouse’s approval as herein above provided, payments to which you are entitled hereunder shall be made to your personal representative.
(d)     Waiver . Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times.
(e)     Notices . Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person (including by a nationally recognized overnight courier service) or sent by first class certified or registered mail, postage prepaid, if to any member of the Oaktree Group, at Oaktree’s principal place of business, Attn: General Counsel, and if to you, at your home

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address most recently filed with Oaktree, or to such other address or addresses as either party shall have designated in writing to the other party hereto.
(f)     Severability . You agree that in the event any arbitrator or court of competent jurisdiction shall finally hold that any provision of Section 6 above is void or constitutes an unreasonable restriction against you, such provision shall not be rendered void but shall be enforced to such extent as such arbitrator or court, as the case may be, may determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 above is held by an arbitrator or court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question, and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision.
(g)     Governing Law . This Agreement shall be construed and enforced, along with any rights, remedies, or obligations provided for hereunder, in accordance with the laws of the State of California applicable to contracts made and to be performed entirely within the State of California; provided that the enforceability of Section 9(h) below shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and not the laws of the State of California.
(h)     Arbitration . You and Oaktree acknowledge and agree that, to the extent permitted by law, any and all disputes, claims or controversies arising out of or relating to the hiring process, your employment relationship with any member of the Oaktree Group or the termination of that employment relationship (including any claims for harassment, retaliation, or discrimination pursuant to Title VII of the Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, or any similar provision of state or federal statutory or common law) shall be submitted to final and binding arbitration before Judicial Arbitration and Mediation Services, Inc. (“ JAMS ”). The arbitration shall take place in Los Angeles, California, and shall be conducted in accordance with the provisions of JAMS Employment Arbitration Rules and Procedures, or any similar successor, in effect at the time of filing of the demand for arbitration. The arbitration shall be held before and decided by a single neutral arbitrator, experienced in employment matters. You and Oaktree agree to

23


participate in the arbitration in good faith. The arbitrator shall have the power to award any appropriate remedy allowed by applicable law, but shall not have power to modify the provisions of this Section 9(h), to make an award or impose a remedy that is not available to a court of general jurisdiction sitting in the State of California, and the jurisdiction of the arbitrator is limited accordingly. Unless otherwise determined by the arbitrator, the fees and costs of the arbitrator and the arbitration (but not the parties’ respective individual costs of conducting the arbitration) shall be borne equally by Oaktree and you; provided, that Oaktree shall pay a greater portion (including, if required, all) of the fees and costs of the arbitrator and the arbitration where required by applicable law. The arbitrator shall apply California substantive law, including any applicable statutes of limitation. Adequate discovery shall be permitted by the arbitrator consistent with applicable law and the objectives of arbitration. The award of the arbitrator, which shall be in writing summarizing the basis for the decision, shall be final and binding upon the parties (subject only to limited review as required by law) and may be entered as a judgment in any court having competent jurisdiction, and the parties hereby consent to the jurisdiction of the courts of the State of California. The details, existence and outcome of any such arbitration and any information obtained in connection with any such arbitration (including any discovery taken in connection with such arbitration) shall be kept strictly confidential and shall not be disclosed or discussed with any person not a party to, or witness in, the arbitration; provided that a party may make such disclosures as are required by applicable law or legal process; provided further that a party may make such disclosures to its attorneys, accountants or other agents and representatives who reasonably need to know the disclosed information in connection with any arbitration pursuant to this Section 9(h) and who are obligated to keep such information confidential to the same extent as such party. If either you or Oaktree, as the case may be, receives a subpoena or other request for information from a third party that seeks disclosure of any information that is required to be kept confidential pursuant to the immediately preceding sentence, or otherwise believes that it may be required to disclose any such information, you or Oaktree, as the case may be, shall (i) promptly notify the other party to the arbitration and (ii) reasonably cooperate with such other party in taking any legal or otherwise appropriate actions, including the seeking of a protective order, to prevent the disclosure or otherwise protect the confidentiality, of such information. To the extent necessary, disclosure of the EVU Award may be made in connection with enforcement of such award. For the avoidance of doubt, you and Oaktree agree and acknowledge that future agreements or contracts between you and Oaktree may

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include arbitration provisions governing disputes, claims or controversies that shall be separate and distinct from any arbitration pursuant to this Section 9(h).
(i)     Interpretation . All ambiguities shall be resolved without reference to which party may have drafted this Agreement. All section headings or other captions in this Agreement are for convenience only, and they shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Unless the context clearly indicates otherwise: (i) a term has the meaning assigned to it; (ii) “or” is not exclusive; (iii) provisions apply to successive events and transactions; (iv) each definition herein includes the singular and the plural; (v) each reference herein to any gender includes the masculine, feminine, and neuter where appropriate; (vi) the word “including” when used herein means “including, but not limited to,” and the word “include” when used herein means “include, without limitation”; and (vii) references herein to specified section numbers refer to the specified section of this Agreement. The words “hereof,” “herein,” “hereto,” “hereby,” “hereunder,” and derivative or similar words refer to this Agreement as a whole and not to any particular provision of this Agreement. The words “applicable law” and any other similar references to the law include all applicable statutes, laws (including common law), treaties, orders, rules, regulations, determinations, orders, judgments, and decrees of any governmental authority. The abbreviation “U.S.” refers to the United States of America. All monetary amounts expressed herein by the use of the words “U.S. dollar” or “U.S. dollars” or the symbol “$” are expressed in the lawful currency of the United States of America. The words “foreign” and “domestic” shall be interpreted by reference to the United States of America.
(j)     Binding Effect . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns.
(k)     Counterparts . This Agreement may be executed in any number of counterparts. Each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.



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If you agree to and accept the foregoing please so indicate by signing this Agreement in the space provided below and returning a signed copy to the undersigned. Upon acceptance by you, this Agreement will become our agreement as to the terms and conditions of your employment.

OAKTREE CAPITAL MANAGEMENT, L.P.


By:     /s/ Howard S. Marks            
Name: Howard S. Marks
Title: Co-Chairman
By:     /s/ Bruce A. Karsh            
Name: Bruce A. Karsh
Title: Co-Chairman and Chief Investment Officer
OAKTREE CAPITAL GROUP, LLC
By: Oaktree Capital Group Holdings GP, LLC    
By:     /s/ Howard S. Marks            
Name: Howard S. Marks
Title: Co-Chairman
By:     /s/ Bruce A. Karsh            
Name: Bruce A. Karsh
Title: Co-Chairman and Chief Investment Officer



I agree and accept the terms set out above as of the date of this Agreement.

/s/ Jay S. Wintrob            
JAY S. WINTROB


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EXHIBIT A

List of Pre-Employment Funds **
 
Columbia/HCA Master Retirement Trust (Opportunities Fund II)
Gryphon Domestic VI, LLC
Gryphon Domestic VII, LLC
Highstar Capital IV, L.P.
Highstar Capital IV Prism, L.P.
Oaktree Asia Special Situations Fund, L.P.
Oaktree BAA Emerging Markets Opportunities Fund, L.P.
Oaktree Desert Sky Investment Fund, L.P.
Oaktree Emerging Market Opportunities Fund, L.P.
Oaktree Enhanced Income Fund, L.P.
Oaktree Enhanced Income Fund II, L.P.
Oaktree European Credit Opportunities Fund, L.P.
Oaktree European Dislocation Fund, L.P.
Oaktree European Principal Fund III, L.P.
Oaktree FF Investment Fund, L.P.
Oaktree Glacier Investment Fund, L.P.
Oaktree High Yield Plus Fund, L.P.
Oaktree Huntington Investment Fund, L.P.
Oaktree Japan Absolute Return Fund, L.P.
Oaktree Japan Opportunities Fund, L.P.
Oaktree Japan Opportunities Value Fund, L.P.
Oaktree Loan Fund 2x, L.P.
Oaktree Mezzanine Fund III, L.P.
Oaktree Opportunities Fund VIII, L.P.
Oaktree Opportunities Fund VIIIb, L.P.
Oaktree Opportunities Fund IX, L.P.
Oaktree Power Opportunities Fund III, L.P.
Oaktree Principal Fund V, L.P.
Oaktree Private Investment Fund 2009, L.P.
Oaktree Private Investment Fund 2010, L.P.
Oaktree Private Investment Fund 2012, L.P.
Oaktree Real Estate Debt Fund, L.P.
Oaktree Real Estate Opportunities Fund IV, L.P.
Oaktree Real Estate Opportunities Fund V, L.P.
Oaktree Real Estate Opportunities Fund VI, L.P.
Oaktree Remington Investment Fund, L.P.
Oaktree TX Emerging Market Opportunities Fund, L.P.
OCM Asia Principal Opportunities Fund, L.P.
OCM CBH Co-Invest, L.P.
OCM CBH Co-Invest 2, L.P.
OCM European Principal Opportunities Fund II, L.P.
OCM European Principal Opportunities Fund, L.P.

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OCM Mezzanine Fund, L.P.
OCM Mezzanine Fund II, L.P.
OCM Opportunities Fund II, L.P.
OCM Opportunities Fund III, L.P.
OCM Opportunities Fund IV, L.P.
OCM Opportunities Fund IVb, L.P.
OCM Opportunities Fund V, L.P.
OCM Opportunities Fund VI, L.P.
OCM Opportunities Fund VII, L.P.
OCM Opportunities Fund VIIb, L.P.
OCM Principal Opportunities Fund II, L.P.
OCM Principal Opportunities Fund III, L.P.
OCM Principal Opportunities Fund IIIA, L.P.
OCM Principal Opportunities Fund IV, L.P.
OCM Real Estate Opportunities Fund A, L.P.
OCM Real Estate Opportunities Fund B, L.P.
OCM Real Estate Opportunities Fund II, L.P
OCM Real Estate Opportunities Fund III, L. P.
OCM Real Estate Opportunities Fund IIIA, L.P.
OCM STR Co-Invest 1, L.P.
OCM STR Co-Invest 2, L.P.
OCM/GFI Power Opportunities Fund II (Cayman), L.P.
OCM/GFI Power Opportunities Fund II, L.P.

** Each fund listed on this Exhibit A , includes all parallel funds that invest alongside such funds.

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Exhibit 10.2

EXECUTION COPY

SECOND AMENDED AND RESTATED
GRANT AGREEMENT
UNDER THE
OAKTREE CAPITAL GROUP, LLC
2011 EQUITY INCENTIVE PLAN

Effective as of December 2, 2014 (the “ Grant Date ”), OAKTREE CAPITAL GROUP HOLDINGS, L.P. , a Delaware limited partnership (the “ Partnership ”), OAKTREE CAPITAL GROUP HOLDINGS GP, LLC, a Delaware limited liability company (in its capacity as the general partner of the Partnership, the “ General Partner ”), and Jay S. Wintrob , an individual (“ Executive ”) entered into a GRANT AGREEMENT (the “ Original Grant Agreement ”), which was amended and restated as of February 24, 2015 (the “First A&R Grant Agreement”), which is hereby amended and restated as of April 26, 2017 (such First A&R Grant Agreement, as amended and restated herein, and as may be amended, modified, supplemented or restated from time to time, this “ Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Fifth Amended and Restated Limited Partnership Agreement of the Partnership, made and entered into as of November 10, 2015 (as may be amended, modified, supplemented or restated from time to time, the “ Partnership Agreement ”) and that certain Oaktree Capital Group Holdings, L.P. Equity Value Unit Designation, dated as of the Grant Date (as may be amended, modified, supplemented or restated from time to time, the “ EVU Designation ”), as applicable.
Recitals
WHEREAS, the Oaktree Capital Group, LLC 2011 Equity Incentive Plan (the “ Plan ”) was adopted for purposes of promoting the long-term financial interests and growth of the Oaktree Group by, among other things, providing select investment professionals, employees, directors, consultants and advisors of the Oaktree Group with equity-based awards based upon Units (as defined under the Plan);
WHEREAS, the Board (defined below) has approved (i) the grant and issuance of the Granted Units (defined below) to Executive on the Grant Date pursuant to the Original Agreement and the Plan, subject to the terms and conditions of the Grant Documents (defined below) and (ii) the modifications of certain terms of the Original Grant Agreement, as reflected in the First A&R Grant Agreement; and
WHEREAS, Executive and the General Partner have determined to modify certain terms of the First A&R Grant Agreement; and
WHEREAS, the Board has determined that such modifications, as reflected in an amended and restated grant agreement, are in the best interests of the Partnership and the Oaktree Group, and has approved this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto, intending to be legally bound, hereby agree as follows:




Agreement
1. Grant of Units. Subject to the terms and conditions of this Agreement, the Partnership Agreement and the other Grant Documents:
(a)      on the Grant Date, the Partnership granted and issued to Executive, and Executive accepted and received from the Partnership, 2,000,000 EVUs (the “ Granted Units ”), which are Units of the Partnership described in the EVU Designation;
(b)      on the Grant Date, Executive was admitted as a Limited Partner, and each of the General Partner, the Partnership and Executive consented to such admission pursuant to Section 4.2 of the Partnership Agreement, and, as of the Grant Date, Executive was regarded as a partner of the Partnership for U.S. federal income tax purposes and applicable state and local income tax purposes, and shall be treated as such;
(c)      Executive acknowledges that before the Grant Date he received and reviewed carefully a copy of ( i ) the Partnership Agreement, ( ii ) the Exchange Agreement, ( iii ) the Tax Receivable Agreement, ( iv ) the Plan, ( v ) the EVU Designation and ( vi ) each other agreement, instrument or document required by any Oaktree Group Member that was executed and delivered by Executive in connection with the transactions contemplated by this Agreement (collectively, including the Partnership Agreement, the Exchange Agreement, the Tax Receivable Agreement, and the Plan, as each such document may be amended, modified, supplemented or restated in accordance with its respective terms from time to time, the “ Grant Documents ”); and
(d)      on the Grant Date, Executive joined as a party to, and agreed to be bound by each and every provision of, the Partnership Agreement, the Exchange Agreement and the Tax Receivable Agreement.
2.      Terms and Conditions. The Granted Units shall be subject to the terms and conditions set forth in the following table:
EVUs
Each EVU shall give Executive the right to receive the Applicable End Date Allocation (defined below), certain allocations and cash distributions (as described below under “Certain Cash Distributions”), other allocations upon the occurrence of certain contingencies, and the right to recapitalize the EVUs into Units of the type that are eligible to be exchanged pursuant to the Exchange Agreement (referred to herein as “ Partnership Units ”), as described below under “Recapitalization”, subject to the terms described in this Agreement, the EVU Designation and the Exchange Agreement.


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Applicable Measurement Period

With respect to 666,666 EVUs (the “ Tranche One EVUs ”), the Applicable Measurement Period shall be January 1, 2015 through December 31, 2019 (with December 31, 2019 referred to herein as the “ Tranche One End Date ”).
With respect to 666,667 EVUs (the “ Tranche Two EVUs ”), the Applicable Measurement Period shall be January 1, 2015 through December 31, 2020 (with December 31, 2020 referred to herein as the “ Tranche Two End Date ”).
With respect to 666,667 EVUs (the “ Tranche Three EVUs ”), the Applicable Measurement Period shall be January 1, 2015 through December 31, 2021 (with December 31, 2021 referred to herein as the “ Tranche Three End Date ”).
The Tranche One End Date, Tranche Two End Date and Tranche Three End Date are collectively referred to as the “Applicable End Dates”, or, individually each as an “Applicable End Date”.
Except as described below in the case of certain terminations from employment (as described under “Termination of Employment”), Executive must remain employed by the Issuer or its Affiliates (as defined under the Partnership Agreement) through the Tranche One End Date to receive each Applicable End Date Allocation.

Applicable Base Value

“ Applicable Base Value ” shall mean (i) $61.00 with respect to the Tranche One EVUs (the “ Tranche One Base Value ”), (ii) $65.00 with respect to the Tranche Two EVUs (the “ Tranche Two Base Value ”), and (iii) $69.00 with respect to the Tranche Three EVUs (the “ Tranche Three Base Value ”).

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Applicable Measurement Period Appreciation

“ Applicable Measurement Period Appreciation ” means, with respect to the Tranche One EVUs, Tranche Two EVUs, and Tranche Three EVUs, as applicable, the excess, if any, of (A) the sum of (x) the volume-weighted average price of a Class A Unit of the Issuer (“ Applicable End Date VWAP ”) over the sixty (60) business days preceding and sixty (60) business days following the Applicable End Date, and (y) the aggregate cash distributions, excluding distributions attributable to net incentive income from a fund that is set forth on Exhibit A  of the Employment Agreement (defined below) (“ Pre-Employment Funds ”), made on a per-Partnership Unit basis in respect of the Applicable Measurement Period (even if paid after the end of the Applicable Measurement Period), over  (B) the Applicable Base Value. For purposes of the preceding definition, with respect to:
•      the Tranche One EVUs, (i) the Applicable End Date is the Tranche One End Date, (ii) the Applicable Base Value is the Tranche One Base Value, and (iii) the Applicable Measurement Period Appreciation is referred to as the “ Tranche One Measurement Period Appreciation ”;
•      the Tranche Two EVUs, (i) the Applicable End Date is the Tranche Two End Date, (ii) the Applicable Base Value is the Tranche Two Base Value, and (iii) the Applicable Measurement Period Appreciation is referred to as the “ Tranche Two Measurement Period Appreciation ;” and
•       the Tranche Three EVUs, (i) the Applicable End Date is the Tranche Three End Date, (ii) the Applicable Base Value is the Tranche Three Base Value, and the Applicable Measurement Period Appreciation is referred to as the “ Tranche Three Measurement Period Appreciation ”.

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For all purposes in this Agreement where an exclusion of net incentive income attributable to Pre-Employment Funds is required for any calculation, such exclusion shall be calculated by applying to each aggregate quarterly cash distribution to the Partners, that distribution’s overall payout ratio (as a percentage of the distributable earnings of the entities that control the general partners and investment advisors of the investment funds and accounts managed by any Oaktree Group Member in which the Issuer has a minority economic interest and indirect control (such earnings, “ DE ” and such group, the “ Oaktree Operating Group ”)) to the portion of DE representing net incentive income from Pre-Employment Funds.

Applicable End Date Allocation

“ Applicable End Date Allocation ” means:
(i) with respect to the Tranche One EVUs, (A) the product of (x) 666,666 and (y) the Tranche One Measurement Period Appreciation, (B) reduced (x) first, by the “Tranche One pre-Employment Payments,” (y) second, by the “Vested Portion o the OCGH Grant Value,” and (z) third, by the “Unvested Portion of the OCGH Grant Value” (as all such terms are defined below);
(ii) with respect to the Tranche Two EVUs, (A) the product of (x) 666,667 and (y) the Tranche Two Measurement Period Appreciation, (B) reduced by the Tranche Two Pre-Employment Payments (defined below); and
(iii) with respect to the Tranche Three EVUs, (A) the product of (x) 666,667 and (y) the Tranche Three Measurement Period Appreciation, (B) reduced by the Tranche Three Pre-Employment Payments (defined below).

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The above Applicable End Date Allocations are described in the EVU Designation.
If any of the above calculations result in an Applicable End Date Allocation that is a negative number, then (i) any portion of the Pre-Employment Funds Profit Sharing Payments, the Vested Portion o the OCGH Grant Value or the Unvested Portion of the OCGH Grant Value that has not been applied to reduce such Applicable End Date Allocation to zero shall reduce the subsequent Applicable end Date Allocation and (ii) if any Unvested Portion of the OCGH Grant value was applied to reduce such Applicable End Date Allocation to zero (the “Applied Unvested Value”), then the following percentage of those Partnership Units that are subject to the 2017 OCGH Grant shall become immediately vested: the percentage that the Applied Unvested Value represents of the OCGH Grant Value. The Partnership Units that accelerate and vest pursuant to the immediately preceding sentence (the “Accelerated Units”) shall reduce the number of Partnership Units eligible to vest on each vesting date following the date of acceleration (each “Remaining OCGH Partnership Unit Vesting Tranche”) by a number equal to the quotient obtained by dividing the number of Accelerated Units by the number of Remaining OCGH Partnership Unit Vesting Tranches.
If, after the Applicable End Date Allocation for the Tranche Three EVUs, the above calculation is a negative number, then no Applicable End Date Allocation will be made with respect to such Tranche Three EVUs, and, for the avoidance of doubt, Executive will not have any obligation to pay or deliver any amounts to the Partnership, in cash or Partnership Units or any other form, equal to any negative amount resulting from the preceding calculation.

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“Pre-Employment Funds Profit Sharing Payments” means that portion of the “Incentive Payments” (as defined in the Employment Agreement) that have been paid to Executive pursuant to Section 4(a)(i) of the Employment Agreement that are attributable to incentive income earned by Oaktree, including by the “PoolCos” (as defined in the Employment Agreement) that is derived from Pre-Employment Funds.
The “Tranche One Pre-Employment Payments” means that portion of the Pre-Employment Funds Profit Sharing Payments that have been paid or are payable to Executive with respect to the period ending on the Tranche One End Date.
The “Tranche Two Pre-Employment Payments” means that portion of the Pre-Employment Funds Profit Sharing Payments that have been paid or are payable to Executive with respect to the period beginning on January 1, 2020 and ending on the Tranche Two End Date.
The “Tranche Three Pre-Employment Payments” means that portion of the Pre-Employment Funds Profit Sharing Payments that have been paid or are payable to Executive with respect to the period beginning on January 1, 2021 and ending on March 31, 2022.
The “OCGH Grant Value” means the product of 225,000 and the average daily closing price of a Class A Unit of the Issuer over the twenty (20) trading-day period preceding the grant date of the 225,000 restricted Partnership Units granted by the Partnership to Executive pursuant tot he Plan and the award agreement relating to such grant (the “2017 OCGH Grant”).

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The “Vested Portion of the OCGH Grant Value” shall mean the product of (i) the OCGH Grant Value and (ii) a fraction, the numerator of which is the number of vesting dates in respect of such Partnership Units that have occurred prior to the applicable date of reference in this Agreement and the denominator of which is ten (10); provided, that, if an accelerated vesting event has occurred in respect of the 2017 OCGH Grant as of the applicable date of reference herein, then the numerator shall be ten (10).
The “Unvested Portion of the OCGH Grant Value” shall mean, as of the applicable date of reference, the excess of the OCGH Grant Value over the Vested Portion of the OCGH Grant Value.
Method of Calculating Number of Recapitalized Units

The number of Partnership Units into which the EVUs shall be recapitalized as described under “Recapitalization” below shall be determined by dividing the Applicable End Date Allocation for each of the Tranche One EVUs, the Tranche Two EVUs, and the Tranche Three EVUs (to the extent made pursuant to the terms of the EVU Designation) by the Applicable End Date VWAP for each such tranche.












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Applicable Recapitalization Date
The Applicable Recapitalization Date for the Applicable End Date Allocation for each of the Tranche One EVUs, the Tranche Two EVUs, and the Tranche Three EVUs, shall be promptly, but no later than fifteen (15) calendar days, following the calculation of the Applicable End Date Allocation for each such tranche. The Applicable Recapitalization Date for any other allocation in respect of the EVUs shall be as set forth in this Agreement and the EVU Designation.
Certain Cash Distributions

With respect to the period between January 1, 2015 and December 31, 2021 (such period, the “Full EVU Opportunity Period”), Executive will have the right to receive cash distributions in respect of his EVUs only under the following circumstances:
•      Cash distributions are measured and paid quarterly for each Fiscal Year from 2016 through 2021 in respect of any EVUs held by Executive during such fiscal years.
•      Executive must be employed on January 1 of each of the Fiscal Years 2016-2019 to receive the cash distributions earned in respect of each completed calendar quarter for such Fiscal Year and the immediately preceding Fiscal Year in the case of fourth quarter distributions as described below, and Executive must be employed through December 31, 2019 to receive the cash distributions earned in respect of Fiscal Years 2020 and 2021. If Executive’s employment terminates during any Fiscal Year preceding the 2020 Fiscal Year, Executive will be entitled to receive cash distributions in

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respect of any calendar quarters that ended prior to such termination and a pro-rated portion of any distributions for the quarter of termination based on the number of days during the quarter of termination during which Executive was employed. If Executive’s employment terminates on or after December 31, 2019, he shall remain eligible to receive cash distributions in respect of the 2020 and 2021 Fiscal Years and in respect of the final calendar quarter of the 2019 Fiscal Year.
Amount of Cash Distributions in Respect of EVUs

The amount of cash distributions for each Fiscal Year, shall be calculated as follows:
•     Annual Hurdle : For each of the 2015 – 2020 Fiscal Years (each such annual year, a “ Performance Period ”), Executive’s EVUs have been assigned a hurdle (each, an “ Annual Hurdle ”). The Annual Hurdle for (i) each of the 2015 through 2018 Performance Periods have been set by the Board of Directors of the Issuer (the “ Board ”) on or prior to the Grant Date and (ii) for the 2019 and 2020 Performance Periods have been set by the Board on the date of the First A&R Grant Agreement.
•     Reference Partnership Units . On or about the time of the completion of the preparation of the Issuer’s annual financial statements relating to a given Performance Period, if the Annual Hurdle for the preceding Performance Period has been met, Executive will be entitled to receive

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special cash distributions in respect of the EVUs in the immediately subsequent Performance Period as determined by using the computational approach below. The following steps will be used to determine whether the applicable Annual Hurdle has been met and the amount of the distributions Executive will be entitled to receive as distributions with respect to Executive’s EVUs:
v      Step 1 – VWAP : Determine the volume-weighted average price of a Class A Unit of the Issuer over the sixty (60) business days preceding and the sixty (60) business days following the last day of the relevant Performance Period (the “ EOY VWAP ”).
v      Step 2 – Annual Distributions . Determine the aggregate distributions made to the Partnership Unit holders relating to such Performance Period on a per- Partnership Unit basis, but excluding cash distributions attributable to net incentive income from Pre-Employment Funds (“ Performance Period Distributions ”).
v      Step 3 – Cumulative Distributions . For each of the 2016 through 2020 Performance Periods, determine the aggregate distributions made to the Partnership Unit holders relating to all preceding Performance Periods on a per- Partnership Unit basis, but excluding cash distributions attributable to net incentive income from Pre-Employment Funds (the “ Aggregate Distributions ”).

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v      Step 4 – Annual Hurdle Met ?   If the sum of such EOY VWAP and Aggregate Distributions (or, for the calculation relating to the 2015 Performance Period, the Performance Period Distributions) is greater than the Annual Hurdle for such immediately preceding Performance Period, the Annual Hurdle is met.
²     If the Annual Hurdle is met, Executive will be eligible to receive cash distributions paid relating to the immediately succeeding Performance Period, if any, in respect of the Reference Partnership Units, as calculated in Step 5 below.
²     If the Annual Hurdle is not met, Executive will not be eligible to receive any cash distributions in respect of Executive’s EVUs relating to such immediately succeeding Performance Period, but Executive will remain eligible to receive cash distributions paid in respect of Executive’s EVUs for subsequent Performance Periods if the Annual Hurdle is met for such period(s).

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v      Step 5 – Determine Annual Hurdle Attainment for Purposes of Calculating Reference Partnership Units Below . The amount by which the Annual Hurdle has been exceeded (the “ Annual Hurdle Attainment ”) for any Performance Period is the excess of (x) the sum of the EOY VWAP calculated above for such Performance Period, plus  the Aggregate Distributions calculated above for such Performance Period, over  (y) the Annual Hurdle for such Performance Period.
v      Step 6 – Applicable Reference Partnership Units . For purposes of calculating the number of notional Partnership Units (the “Reference Partnership Units”) to determine the distributions with respect to EVUs for any Performance Period, the number of “applicable” EVUs shall be determined applying the following “Vesting Schedule.”
If Executive is employed through December 31, of the applicable year below:
 
Applicable EVU percentage (or vested EVUs) will be
2015
 
20%
2016
 
40%
2017
 
60%
2018
 
80%
2019
 
100%




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v      Step 7 – Reference Partnership Units:   A number of notional units determined by dividing  (x) the product of (i) the Annual Hurdle Attainment for the relevant Performance Period multiplied by  (ii) the number of “applicable” EVUs for such Performance Period by (y) the EOY VWAP for such Performance Period.
²      Example : After the first Performance Period, the number of “applicable” EVUs is 400,000 (20% X 2,000,000). If, following that first Performance Period, the Annual Hurdle Attainment is 3 and EOY VWAP is 60, the number of Reference Partnership Units is 20,000 (= (3 X 400,000) / 60).
•    The number of Reference Partnership Units will be recalculated at the end of each Performance Period and will not give Executive any rights whatsoever other than the sole right to receive cash distributions in respect of the EVUs as described in this Agreement.
•    It is agreed and understood that distributions with respect to a particular quarter will be made in the subsequent quarter, such that the distribution with respect to the fourth quarter of any year is expected to be made in the first quarter of the following year, and the distribution made in the first quarter of a year does not relate to that year, but rather the prior year.


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Notwithstanding anything to the contrary in this Agreement, all distributions to which the Executive becomes entitled pursuant to the calculations set forth above shall be reduced, dollar-for-dollar by any cash distributions that have been paid to the Executive in respect of the Partnership Units that are granted to the Executive pursuant to the 2017 OCGH Grant.
It is the understanding of the parties to this Agreement that the Partnership does not expect to make any non-cash quarterly distributions to holders of OCGH Units in respect of the Full EVU Opportunity Period. If any non-cash distributions are made, however, the fair market value of any such non-cash distributions will be determined, and such value will be counted as a “cash distribution” for purposes of calculating the Applicable Measurement Period Appreciation, the D/D
 Appreciation, the Acceleration Event Appreciation, and, for the avoidance of doubt, Performance Period Distributions and Aggregate Distributions.
No Claw-back

Any cash distributions paid to Executive in respect of his EVUs as described above shall not be subject to subsequent readjustment, recall or claw back for any reason, including based on any recalculation of any of the items set forth above, except as otherwise required by applicable law.

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Termination of Employment

If Executive’s employment terminates for any reason prior to the Applicable End Date Allocation for either of the Tranche One EVUs or the Tranche One Re-load EVUs, then any calculation of any subsequent Applicable End Date Allocation required under this Agreement shall apply a reduction for (i) all Pre-Employment Fund Profit Sharing Payments paid or payable with respect to all periods prior to such termination (rather than applying a reduction for the Tranche One Pre-Employment Payments, the Tranche Two Pre-Employment Payments or the Tranche Three Pre-Employment Payments described in the “Applicable End Date Allocation” section, above) and (ii) only the Vested Portion of the OCGH Grant Value as of the applicable date of termination (and not any Unvested Portion of the OCGH Grant Value as described in the “Applicable End Date Allocation” section, above).
Subject to the immediately preceding paragraphs, if Executive’s employment terminates prior to December 31, 2021, the impact on Executive’s EVUs shall be as follows:
Death or Disability :
• Vesting . Executive will be vested in a number of EVUs equal to (i) a number of Tranche One EVUs equal to 666,666 multiplied by the D/D Fraction (the “ Tranche One D/D Vested EVUs ”), (ii) a number of Tranche Two EVUs equal to 666,667 multiplied by the D/D Fraction (the “ Tranche Two D/D Vested EVUs ”), and (iii) a number of Tranche


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Three EVUs equal to 666,667 multiplied by the D/D Fraction (the “ Tranche Three D/D Vested EVUs ” and, collectively with the Tranche
One D/D Vested EVUs and the Tranche Two D/D Vested EVUs, the “ D/D Vested EVUs ”). For purposes of the preceding sentence, the “ D/D Fraction ” is a fraction, the numerator of which is the number of calendar months (full or partial) during which Executive was employed on or after January 1, 2015 through the date of death or disability, and the denominator of which is sixty (60), but such fraction shall never be greater than one. The remaining EVUs shall be immediately forfeited upon the date of such death or disability. For the avoidance of doubt, if Executive remains employed through December 31, 2019, the EVUs shall be fully vested.
• Recapitalization . Fifty percent (50%) of each tranche of the D/D Vested EVUs that are outstanding on the date of termination shall be recapitalized (as described below) promptly following Executive’s death or disability (the “ D/D Measurement EVUs ”), but subject to the General Partner’s determination that there will be sufficient Adjusted Net Profits (or gross items of income and realized gain) for the applicable period, which may occur after the end of the calendar year in which the death or disability occurs. The remaining 50% of each such tranche of the D/D Vested EVUs that are outstanding on the date of termination (the “ D/D End Date Measurement EVUs ”) shall not be immediately recapitalized.

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     The allocations in respect of these D/D Vested EVUs shall be calculated as follows:
• The allocation (the “D/D Acceleration Event Allocation”) in respect of the D/D Measurement EVUs shall equal (i) the product of (A) the D/D Appreciation (defined below) and (B) the number of D/D Measurement EVUs, reduced by (ii) the sum of (A) all Pre-Employment Funds Profit Sharing Payments paid or payable with respect to the period preceding the date of death or disability, and (B) the Vested Portion of the OCGH Grant Value as of the date of death or disability. The number of Partnership Units to be delivered to Executive in connection with the recapitalization of the EVUs following the D/D Acceleration Event Allocation shall be determined by dividing  the D/D Acceleration Event Allocation by the volume weighted average price of a Class A Unit of the Issuer over the ten (10) business day period following the date of death or disability (the “D/D VWAP”), and the recapitalization shall in all other respects occur in accordance with “Recapitalization” below. If the above calculation results in a D/D Acceleration Event Allocation that is a negative number, then any portion of the Pre-Employment Funds Profit Sharing Payments or the Vested Portion of the OCGH Grant Value that has not been applied to reduce such D/D Acceleration Event Allocation to zero shall reduce the subsequent D/D End Date Allocations (defined below).

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• The allocations in respect of the D/D End Date Measurement EVUs (the "D/D End Date Allocations") shall be made on the date of Applicable End Date Allocation for each of the correspnding tranches of EVUs, and shall be calculated by replacing each of the figures (i.e., 666,666 or 666,667) therein with a number equal to 50% of the Tranche One D/D Vested EVUs, the Tranche Two D/D Vested EVUs, and the Tranche Three D/D Vested EVUs, respectively, and the number of Partnership Units to be delivered shall be determined consistent with the “Method of Calculating Number of Recapitalized Units” and “Applicable Recapitalization Date” sections, above.
• D/D Appreciation : The excess of (A) the sum of (x) the D/D VWAP   plus  (y) the aggregate cash distributions made since January 1, 2015 on a per-Partnership Unit basis, excluding distributions attributable to net incentive income from Pre-Employment Funds, that occurred prior the date of death or disability over  (B) the accreted base value through the date of death or disability.
Discharge without Cause or Resignation for Good Reason :
• Vesting . Executive will be vested in a number of EVUs equal to the sum (which shall not exceed 2,000,000) of (A) the number of EVUs that have vested prior to the Fiscal Year in which Executive’s termination of employment occurs (based on the Vesting Schedule above), plus , (B) the


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product of 400,000 EVUs multiplied by , a fraction, the numerator of which is the number of days in the Fiscal Year during which Executive was employed hereunder, and the denominator of which is 365, plus  (C) 800,000 EVUs (such computed amount, the “ Qualifying Termination EVUs ”). All EVUs that do not vest in accordance with the above formula shall be immediately forfeited upon such termination. For the avoidance of doubt, if Executive remains employed through December 31, 2019, the EVUs shall be fully vested, and all such EVUs shall be Qualifying Termination EVUs.
• Recapitalization . All Qualifying Termination EVUs shall be deemed equally allocated among all or any of the Tranche One EVUs, Tranche Two EVUs, and Tranche Three EVUs that have not yet been recapitalized. Subject to the first two paragraphs of this “Termination” section, the Applicable End Date Allocation for each such tranche shall be calculated based on, and shall be allocated on the same Applicable Recapitalization Date as is applicable to, the Applicable End Date Allocation for such tranche in accordance with the “Method of Calculating Number of Recapitalized Units” and “Applicable Recapitalization Date” sections above.

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• Change in Control Termination . If the above termination occurs within one (1) year following a Change in Control, then Executive shall immediately vest in a number of EVUs as set forth below (the “ CIC EVUs ”). Any EVUs that do not vest in accordance with the formula below shall be immediately forfeited upon such termination. For the avoidance of doubt, if Executive remains employed through December 31, 2019, the EVUs shall be fully vested, and all such EVUs shall be “ CIC EVUs .”

Termination Date
CIC EVUs
 
Before 2016
1,200,000
 
In 2016
1,600,000
 
In 2017 – 2019
2,000,000
 

 
All CIC EVUs shall be deemed equally allocated among all or any of the Tranche One EVUs, Tranche Two EVUs, and Tranche Three EVUs that have not yet been recapitalized. Subject to thefirst two paragraphs of this “Termination” section, the Applicable End Date Allocation for each such tranche shall be calculated based on, and shall be allocated on the same Applicable Recapitalization Date as is applicable to, the Applicable End Date Allocation for such tranche in accordance with the “Method of Calculating Number of Recapitalized Units” and “Applicable Recapitalization Date” sections above.


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Resignation Without Good Reason:
• Vesting . The number of EVUs that are vested through the end of the Fiscal Year immediately preceding the date of resignation (applying the Vesting Schedule above) shall be vested, and all other EVUs will be immediately forfeited upon such resignation. For the avoidance of doubt, if Executive remains employed through December 31, 2019, the EVUs shall be fully vested.
• Recapitalization . The number of EVUs that are vested in accordance with the preceding paragraph shall be deemed equally allocated among all or any of the Tranche One EVUs, Tranche Two EVUs, and Tranche Three EVUs that have not yet been recapitalized. Subject to the first two paragraphs of this “Termination” section, the Applicable End Date Allocation for each such tranche shall be calculated based on, and shall be allocated on the same Applicable Recapitalization Date as is applicable to, the Applicable End Date Allocation for such tranche in accordance with the “Method of Calculating Number of Recapitalized Units” and “Applicable Recapitalization Date” sections above.

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Discharge for Cause :
• Vesting . If a termination for Cause occurs on or prior to December 31, 2019, then all EVUs shall be immediately forfeited upon such termination, for no consideration. All EVUs that are forfeited under this section shall, upon such forfeiture be immediately and automatically cancelled without any further action by Executive or any member of the Oaktree Group and cease thereafter to be outstanding. If Executive remains employed through December 31, 2019, the EVUs shall be fully vested.
• Recapitalization . The number of EVUs that are vested in accordance with the preceding paragraph shall be deemed equally allocated among all or any of the Tranche One EVUs, Tranche Two EVUs, and Tranche Three EVUs that have not yet been recapitalized. Subject to the first two paragraphs of this “Termination” section, the Applicable End Date Allocation for each such tranche shall be calculated based on, and shall be allocated on the same Applicable Recapitalization Date as is applicable to, the Applicable End Date Allocation for such tranche in accordance with the “Method of Calculating Number of Recapitalized Units” and “Applicable Recapitalization Date” sections above.


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Full EVU Acceleration Event

A “ Full EVU Acceleration Event ” shall occur if on or before December 31, 2019 either (a) Howard Marks or Bruce Karsh ceases to be an employee, director and officer of the Oaktree Group or (b) either Howard Marks or Bruce Karsh remains in such positions but substantially reduces his role, for any reason other than death, Disability or a family medical issue (for example, the need to care for an immediate family member who is seriously incapacitated for the long term); provided that, it is understood that Howard Marks and Bruce Karsh may each reduce their days and hours worked for the Oaktree Group, and that any such quantitative reduction in time spent will not be considered such a cessation as long as, in his respective role with the Oaktree Group, Howard Marks or Bruce Karsh continues to actually perform functions and provide services substantially similar to the functions and services he provided during the twelve (12) months prior to the Grant Date; provided, that a Full EVU Acceleration Event will occur if either Howard Marks or Bruce Karsh becomes an officer, director or employee of a competitor of the Oaktree Group that is a multi-asset alternative investment manager with multiple competing products.

No Full EVU Acceleration Event shall occur until Executive has provided notice of Executive’s belief that Howard Marks or Bruce Karsh shall have ceased to perform in such capacity and a thirty (30) day cure period has passed or the Board has acknowledged in writing that a Full EVU Acceleration Event has occurred.
This Section “Full EVU Acceleration Event” and “Re-load” below shall cease to apply after December 31, 2019.

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Re-load

Upon a Full EVU Acceleration Event, Executive’s EVUs shall be “reloaded,” and the following shall occur:
• The entire initial EVU grant shall immediately fully vest.
• On the earlier of (I) notice by Executive that a Full EVU Acceleration Event has occurred or (II) the public announcement by Oaktree, Bruce Karsh or Howard Marks that a Full EVU Acceleration Event has occurred (such earlier date, the “Reload Acceleration Allocation Date”), the allocation (the “ Reload Acceleration Event Allocation ”) with respect to Executive’s EVUs, but subject to the General Partner’s determination that there will be sufficient Adjusted Net Profits (or gross items of income and realized gain) for the applicable period, which may occur after the end of the calendar year in which the Full EVU Acceleration Event occurs. Immediately following the Reload Acceleration Event Allocation, the EVUs shall be recapitalized in accordance with “Recapitalization” below (the “Reload Acceleration Event Recapitalization”).

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• Executive will receive a Re-Load EVU Award, which award shall have the terms described below.
² 2,000,000 new equity value units (the “ Re-load EVUs ”),
² The vesting period for purposes of cash distributions and calculating the vesting impact of certain terminations or resignations from employment, shall be ratable for each remaining full or partial fiscal year from January 1, 2015 through December 31, 2020. (So, by way of example, for a Full EVU Acceleration Event occurring in 2017, the Re-load EVU Award shall vest 25% on December 31 of each of 2017 through 2020.)
² For purposes of calculating annual cash distributions due in respect of the Re-load EVU Award, the first Performance Period shall be theremaining portion of the year in which the Full EVU Acceleration Event occurred and each of the remaining full Fiscal Years through and

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including 2020 shall be a Performance Period.
² The Applicable Measurement Period for purposes of calculating the Applicable End Date Allocation in respect of the Re-load EVU Award shall be as follows: (i) with respect to 666,666 of the Re-load EVUs (the “ Tranche One Re-load EVUs ”), the Applicable Measurement Period shall be January 1, 2015 through December 31, 2020, (ii) with respect to another 666,667 of the Re-load EVUs, (the “ Tranche Two Re-load EVUs ”), the Applicable Measurement Period shall be January 1, 2015 through December 31, 2021, and (iii) with respect to the remaining 666,666 of the Re-load EVUs, (the “ Tranche Three Re-load EVUs ”), the Applicable Measurement Period shall be January 1, 2015 through December 31, 2022.
² The Applicable Base Value for each tranche of Re-load EVUs shall be the sum of (A) the volume-weighted average price of a Class A Unit of the Issuer over the fifteen (15) business days following the Full EVU Acceleration Event, plus  (B) the portion of the Applicable Base Value for each corresponding tranche of EVUs ( e.g. , for the Tranche One Re-load EVUs, the Applicable Base Value for the Tranche One EVUs) that represents the estimate of projected cash distributions over the Applicable Measurement Period for such tranche (as disclosed to Executive prior to the Grant Date), on a per-Partnership Unit basis, reduced by cash distributions attributable to net incentive income from Pre-

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Employment Funds, that has not accreted as of the Full EVU Acceleration Event (the “ Original Projected Distribution Value ”) at the time of the Full EVU Acceleration Event, plus  (C) 20% of the Original Projected Distribution Value.
² All other terms and conditions as applied to the EVU Award (with applicable adjustments on any periodic measurements).
Following the Reload Acceleration Event Recapitalization, Executive shall have no further rights in respect of the accelerated EVUs, subject to the terms set forth in the EVU Designation and Recapitalization below.
The Reload Acceleration Event Allocation shall equal (A) the product of (i) 2,000,000 and (i) the Acceleration Event Appreciation (defined below), reduced by (B) the sum of (i) all Pre-Employment Funds Profit Sharing Payments paid or payable with respect to the period prior to the Reload Acceleration Allocation Date and (ii) the OCGH Grant Value.
Acceleration Event Appreciation . The excess of (A) the sum of (x) the volume-weighted average price of a Class A Unit of the Issuer over the fifteen (15) business days preceding the Reload Acceleration Allocation Date (the “ Acceleration Event VWAP ”) plus (y) the aggregate cash distributions made to Partnership Unit holders from January 1, 2015 through the Acceleration Recapitalization Date, on a per- Partnership Unit basis, excluding distributions attributable to net incentive income from Pre-Employment Funds   over  (B) the accreted base value through the Acceleration Recapitalization Date.


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Change in Control

In general, EVUs should receive the same form of consideration in any Change in Control as is received by holders of Partnership Units, and the Adjustments section below shall apply. Executive and the Partnership have acknowledged that Executive is joining the Oaktree Group because of the opportunity to augment the Oaktree Group’s profitability and growth over a full seven-year period and thereby Executive’s potential to earn substantial incentive income for such period. If a Change in Control occurs before December 31, 2021, the Partnership will, and Oaktree Capital Management, L.P. and the Issuer have agreed to, make every effort to preserve, in respect of any EVUs then held by the Executive, that potential for incentive-based income in the new circumstances comparable, in amount and attainability, as originally contemplated at the time Executive commenced employment. If, as a result of the Change in Control, it is not practical for the Oaktree Group to preserve such incentive-based income opportunity (e.g., the Oaktree Group is merged into another company and it is no longer practical to track Applicable Measurement Period Appreciation) in a way that makes it possible to attain the originally intended result in terms of Executive’s compensation, the Oaktree Group has agreed to award Executive compensation, which may include a guaranteed payment, that makes up for the truncation of his incentive-based income potential. Any such judgmental adjustment should reflect the value Executive has added to the Oaktree Group, the total amount of incentive income or compensation Executive has earned through the completion of the Change in Control transaction, and the portion of the Term (as defined in the Employment Agreement) elapsed.


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“ Change in Control ” means the occurrence of any of the following events: (i) the sale or disposition, in one or a series of related transactions, of all or substantially all, of the assets of the Issuer to any “person” or “group” (as such terms are defined in Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) other than any employee benefit plan (or trust forming a part thereof) maintained by (A) the Oaktree Group or (B) any corporation or other Person of which a majority of the voting power of its voting equity securities or equity interests is owned, directly or indirectly, by the Issuer, or (C) the Partnership or any of its affiliates (“ Permitted Holders ”); (ii) any person or group, other than the Permitted Holders, is or becomes the Beneficial Owner (except that a person shall be deemed to have “beneficial ownership” of all units and equity interests that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the voting stock of the Issuer (or any entity which controls the Issuer), including by way of merger, consolidation, tender or exchange offer or otherwise; or (iii) a reorganization, recapitalization, merger or consolidation (each, a “ Corporate Transaction ”) involving the Issuer, unless after such Corporate Transaction the General Partner of the Partnership or an Affiliate thereof has the ability, directly or indirectly, to appoint a majority of the directors of the Issuer (whether by vote, pursuant to appointment rights in the Issuer Operating Agreement or otherwise).
“Beneficial Owner” of a security is a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has: (x) voting power, which includes the power to vote, or to direct the voting of, such security and/or (y) investment power, which includes the power to dispose, or to direct the

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disposition of, such security.
Adjustments
If any equity distribution, recapitalization, division of Partnership Units, Class A Units of the Issuer or any class or series of units or other ownership interests issued by any member of the Oaktree Group (collectively, “ Oaktree Units ”), unit split, reverse unit split, reorganization, merger, consolidation, split-up, split-off, combination, repurchase or exchange of Oaktree Units or other securities of the Issuer or an Affiliate, as applicable, issuance of warrants or other rights to acquire Oaktree Units or other securities of the Issuer or an Affiliate, as applicable, or other similar corporate transaction or event (including, without limitation, a Change in Control) that affects the Oaktree Units, then the Board and the General Partner shall make any such adjustments to the EVUs in such manner as is equitable.
Recapitalization

Upon completion of the applicable Target Allocation (defined below) with respect to the EVUs, the EVUs that receive the Target Allocation, to the extent of such Target Allocation, shall automatically be recapitalized into Partnership Units (any such Partnership Units received in such recapitalization, the “ Recapitalized Units ”) in accordance with the formulas under “Method of Calculating the Number of Recapitalized Units”, “Termination of Employment” or “Re-load”, as applicable.
The Recapitalization shall occur automatically on the date immediately after the applicable Target Allocation has been made, as described under “Partnership Allocations” in the EVU Designation, to the extent of such allocation, and Executive shall thereafter hold a number of Partnership Units that have been recapitalized, determined in accordance with “Method of Calculating the Number of Recapitalized Units”, “Termination of Employment”, or “Re-load” described above.


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To the extent that there is an EVU Allocation Shortfall (as defined in the EVU Designation) in respect of any Target Allocation, immediately following any subsequent Make-up Allocation of Adjusted Net Profits under “Partnership Allocations - Target Allocations” as set forth in the EVU Designation, a further recapitalization shall occur in a manner consistent with this Section.
Upon a recapitalization, the interests in the Opcos (as defined below), that correspond to the EVUs shall similarly be recapitalized, and the Partnership, the Opcos and the Issuer shall take all actions necessary to maintain a one-to-one correspondence between the Recapitalized Units and the recapitalized Opco Units.
“Target Allocation” means, as applicable, the Applicable End Date Allocation (as determined hereunder), the D/D End Date Allocation, the D/D Acceleration Event Allocation, or the Reload Acceleration Event Allocation.
“Target Allocation Maturity Fiscal Year” means any Fiscal Year in which a Target Allocation is due to Executive hereunder.
Liquidity Rights

(a) Subject to paragraph (b) of this Section (Liquidity Rights), Executive shall, during the period beginning on the date that is one (1) calendar day after the determination of each of the Applicable End Date VWAP, D/D VWAP or Acceleration Event VWAP, as applicable, and ending fifteen (15) calendar days later, have the right (the “ Put Right ”) to require the Partnership to purchase for cash a number of Executive’s Recapitalized Units (rounded up by one Recapitalized Unit, as necessary) equal to (i) the Tax Amount divided by (ii) Applicable End Date VWAP, the D/D VWAP or the Acceleration Event VWAP, as applicable to the relevant

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Target Allocation (such amount, the “ Tax Amount ”); provided, however, that Executive shall not be permitted to put to the Partnership a number of Recapitalized Units attributable to more than 50% of the applicable tranche(s) of EVUs that are recapitalized on any such date.
(b) The Partnership will permit Executive to net cash settle a portion of the EVUs (but in any event no more than 50% of the applicable tranche(s) of EVUs that are recapitalized on any such date) in an amount equal to the Tax Amount to the extent that the Financial Accounting Standards Board adopts an accounting standard that will permit such a settlement without causing liability accounting or other similar accounting deemed unfavorable by the Partnership under generally accepted accounting principles in the U.S. If the provisions of this paragraph (b) are triggered, the provisions of paragraph (a) shall cease to be applicable, and Executive shall not have a Put Right for a relevant Fiscal Year in which this paragraph (b) applies.
“ Tax Amount ” means with respect to a Target Allocation for a Fiscal Year, the sum of:
(x) the product of (i) the net amount of Executive’s Target Allocation for such Fiscal Year that consists of ordinary income, ordinary gain, ordinary deduction or ordinary loss items as determined for U.S. federal income tax purposes and (ii) the highest effective marginal combined U.S. federal, state and local income tax rate applicable to ordinary income, long-term capital gains, or short-term capital gains, as applicable, prescribed for an individual resident in Los Angeles, California for such Fiscal Year (the “ Effective Rate ”), plus

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(y) the product of (i) the Short-Term Capital Gains (defined below), if any, and (ii) the Effective Rate, plus
(z) the product of (i) the Long-Term Capital Gains (defined below), if any and (ii) the Effective Rate.
In any notice exercising a Put Right, Executive shall provide Oaktree with a schedule showing his available capital loss carryforwards to and realized capital losses in any relevant Fiscal Year in which a Target Allocation occurs (such capital loss carryfowards and realized capital losses, the “ Available Capital Losses ”), and, if Oaktree requests, reasonable supporting detail. Executive shall represent to Oaktree that the schedule is true and correct as of the date it is delivered. Using the information in the schedule and the items included in (or projected to be included in) the Target Allocation, Oaktree shall determine the amount (if any) of net long-term capital gains (the “ Long-Term Capital Gains ”) and the amount (if any) of net short-term capital gains (the “ Short-Term Capital Gains ”) on which Executive would be required to pay tax as a result of the Target Allocation, in each case, after taking into account the Available Capital Losses. For the avoidance of doubt, the parties intend that Executive use all Available Capital Losses to reduce or eliminate taxes payable on capital gain allocated in respect of the Target Allocation and the parties shall interpret the forgoing provisions accordingly.




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Restricted Period

The “Restricted Period” (as defined in the Partnership Agreement) with respect to the EVUs shall be one year.

Oaktree
Operating
Group

Each Opco has issued to the Partnership back-to-back partnerships units (“ Opco B2B Units ”), corresponding with and tracking, on a one-to-one basis (including with respect to the economic terms and entitlements to distributions and allocations), the EVUs issued by the Partnership. In furtherance of the foregoing, the Partnership shall have authority in respect of each Opco to maintain such one-to-one ratio of the EVUs and the Opco B2B Units. The General Partner shall, and shall cause the Partnership to, replicate all applicable actions taken at the level of the Partnership at the level of the Opcos, and shall cause the Opcos to take all necessary actions or make other adjustments at the level of the Opcos (including any recapitalizations, splits or reverse splits, distributions made with respect to the Opco B2B Units, and allocations in respect of the B2B Units), in each case so that the Opco B2B Units continue to have the economic rights and entitlements that mirror the rights of the EVUs hereunder. The General Partner shall, and shall cause the Partnership to, cause each Opco to distribute and allocate to the Partnership in respect of the Opco B2B Units amounts required to be distributed and allocated by the Partnership to Executive hereunder in respect of the EVUs. Each Opco shall do so in a manner reasonably determined by the General Partner and the general partner of each Opco, but generally shall make distributions and allocations pro rata based on the fair market value of each Opco as compared to the fair market value of all Opcos.


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“ Opco ” means any entity in which the Partnership owns an equity interest and is designated by the General Partner of the Partnership as an Opco. Until such time as the General Partner of the Partnership designates otherwise, the OpCos shall consist of (i) Oaktree Capital Management, L.P., (ii) Oaktree Capital I, L.P., (iii) Oaktree Capital II, L.P., (iv) Oaktree Capital Management (Cayman), L.P., (v) Oaktree AIF Investments, L.P. and (vi) Oaktree Investment Holdings, L.P.



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3.      Section 83(b) Election. It is intended that the Granted Units constitute Profits Interests (defined below), and the parties shall treat them as such. Executive has made an election under Section 83(b) of the Code within thirty (30) days of the receipt of such Granted Units and agrees to make a protective election under Section 83(b) of the Code within thirty (30) days after the date of this Agreement. “Profits Interest” means an interest in the profits of the Partnership satisfying the requirements for a partnership interest transferred in connection with the performance of services, as set forth in IRS Revenue Procedure 93-27, 19932 C.B. 343 (June 6, 1993) and IRS Revenue Procedure 2001-43, 2001-2 C.B. 191 (Aug. 3, 2001), unless superseded by IRS Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005), in which case, as set forth in Proposed Treasury Regulations Section 1.83-3(l), Notice 2005-43 and any similar or related authority.
4.      Certain Representations, Warranties, Covenants and Agreements. As an essential inducement to the Partnership to grant and issue the Granted Units to Executive, and to enter into this Amended and Restated Grant Agreement, Executive has represented and warranted, and hereby represents and warrants, to the Oaktree Group as follow
(a)      Authority and Capacity . Executive has the legal capacity to execute and deliver each Grant Document and to perform all of his obligations thereunder. The Executive has duly executed and delivered this Agreement, and each Grant Document constitutes the legal, valid and binding obligation of the Executive, enforceable against the Executive in accordance with their respective terms.
(b)      No Conflict . Neither the execution and delivery by Executive of any Grant Document, nor the performance by Executive of his obligations thereunder, violates, conflicts with or constitutes a default or breach under, or will violate, conflict with or constitute a default or breach under any applicable law or any contract, indenture, agreement, instrument or mortgage binding on Executive or any of his properties.
(c)      Suitability . Executive meets all suitability standards or eligibility requirements imposed by the jurisdiction of his residence for his acquisition of the Granted Units pursuant to the Grant Documents. Executive has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Granted Units and protecting his own interests in connection with such investment.
(d)      Access to Information . Executive ( i ) has been provided with ample opportunity to discuss each Grant Document, the Granted Units and the Oaktree Business (defined below) with the General Partner and to ask the General Partner such questions regarding each Grant Document, the Granted Units and the Oaktree Business, and to receive such answers to such questions and such other information, as Executive deems necessary, appropriate or advisable, and ( ii ) has been provided with ample opportunity to consult with such legal, tax, financial and other advisors of Executive regarding each Grant Document, the Granted Units and the Oaktree Business as Executive deems necessary, appropriate or advisable. Executive has a preexisting personal or business relationship with certain senior executives of the Oaktree Group, is currently a director of the Issuer, and such personal and business relationship is of a nature and duration so as to enable Executive to be aware of their character, business acumen and general business and financial circumstances.
(e)      Independent Investment Decision . Executive is relying on his own independent investigation and the information contained in the Grant Documents, and Executive is not relying

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on any Person (other than his own legal, tax, financial and other advisors) or any representation or warranty made by any Oaktree Related Person, in each case, in deciding to own and hold the Granted Units. Without limiting the foregoing, no representation or warranty has been made to Executive by any Oaktree Related Person as to the existing value or the future performance of the Oaktree Business.
(f)      Investment Intent . Executive will own and hold the Granted Units for his own account, as a principal, for investment purposes only, and not with a view to, or for, resale or distribution, in whole or in part. No other Person has a direct or indirect beneficial interest in the Granted Units (other than, if Executive is a married natural person acquiring the Granted Units as community property, the community property interest of Executive’s spouse). Executive is not acting as an agent, representative, intermediary or nominee, or in any similar capacity, for or on behalf of any other Person with respect to any Granted Units.
(g)      Restricted Securities . Executive understands that the grant and issuance hereunder of the Granted Units are intended to be exempt from registration under the U.S. Securities Act of 1933, as amended (the “ Securities Act ”), state securities laws and other applicable foreign or domestic securities laws. Executive further understands that the Granted Units have not been recommended or endorsed by the U.S. Securities and Exchange Commission, any state securities commission or any other foreign or domestic governmental authority. No Transfer of the Granted Units will be made by Executive. Executive further understands that the Oaktree Group is under no obligation to ensure ( i ) that any Issuer Equity will continue to be tradable on the New York Stock Exchange or any other national securities exchange or market or trading platform or ( ii ) that other avenues of liquidity will be made available to the Executive with respect to the Granted Units. Executive is able and willing to bear, and has the financial ability to bear, the economic and other risks of his ownership in the Granted Units for an indefinite period of time.
(h)      Accredited Investor . Executive is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. Without limiting the foregoing, Executive is a natural person, who ( i ) has a net worth individually or jointly with his spouse that exceeds $1,000,000 at the time of the grant and issuance of the Granted Units (excluding the value of Executive’s primary residence and the related amount of indebtedness secured by the primary residence up to the fair market value of the residence but including as a liability any indebtedness secured by such residence in excess of the fair market value of such residence) or ( ii ) had annual income in excess of $200,000 in each of the two most recent calendar years (e.g., if the current calendar year is 2017, then in each of 2016 and 2015) and reasonably expects to have income in excess of $200,000 in the current calendar year; or ( iii ) had annual income jointly with his spouse in excess of $300,000 in each of the two most recent calendar years (e.g., if the current calendar year is 2017, then in each of 2016 and 2015) and reasonably expects to have joint income in excess of $300,000 in the current calendar year.
(i)      Tax Consequences . Executive understands that his ownership of the Granted Units may cause him adverse tax consequences, including the realization of taxable income without receiving cash distributions to pay the required tax thereon. Executive has reviewed his investment in the Granted Units with his tax advisors and has not received or relied upon any tax advice from any Oaktree Related Person. No Oaktree Related Person has made any representation or warranty (and shall not otherwise be liable to Executive) as to the tax treatment

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of the granting of the Granted Units or vesting, allocations or distributions with respect to the Granted Units, under applicable law.
(j)      Understanding of Grant Documents . Executive understands each provision of each Grant Document and the terms and conditions of the Granted Units. Without limiting the foregoing, Executive understands that:
(i)      Executive has irrevocably constituted and appointed each of the Partnership, the General Partner, their respective authorized officers and attorneys-in-fact, and the members of the General Partner with full power of substitution, as the true and lawful attorney-in-fact and agent of Executive as set forth in Section 3.9 of the Partnership Agreement for the purposes set forth therein;
(ii)      the Partnership Agreement permits the Partnership to issue, at any time and from time to time, without the approval of Executive or the need to notify Executive, additional Units on such terms and conditions as the General Partner may determine, including Units that may be senior or superior to the Granted Units;
(iii)      Executive does not have any preemptive rights, right of first refusal, right of first offer or other right of participation with respect to any such issuance, and such issuances are expected to have a dilutive effect on Executive’s interest in the Partnership;
(iv)      amounts distributable to Executive in respect of the Granted Units are subject to withholding pursuant to Section 7.8 of the Partnership Agreement; and
(v)      Subject to Section 6 hereof, Executive, as a Service Partner, is subject to the restrictive covenants set forth in Article X of the Partnership Agreement, which includes covenants and prohibitions to which Executive will continue to be bound after Executive ceases to provide services to the Oaktree Group; provided, that if any provisions of Article X of the Partnership Agreement conflict with Section 6 of the Employment Agreement, the Employment Agreement shall control; provided, further that for purposes of Section 10.4(b) of the Partnership Agreement a “Competitive Business” shall not include any business enterprise that is primarily a commercial bank, an investment bank, an insurance company or a retail distribution business.
Executive has given careful consideration to all of the provisions of the Grant Documents. For the avoidance of doubt, and without limiting the immediately preceding sentence, Executive (x) has given careful consideration to the restraints imposed upon him under the Grant Documents, including under Articles IV and X of the Partnership Agreement, (y) is in full accord as to the necessity of such provisions, and (z) understand that his agreement to be bound by each such provision is an essential inducement to the Partnership to grant and issue the Granted Units to Executive.
If Executive becomes aware that any representation or warranty made by him in any Grant Document would be incorrect in any material respect if such representation or warranty were to be made as of any subsequent date, or that Executive is unable fulfill or perform in any material respect any of his covenants or agreements in any Grant Document, Executive shall promptly notify the General Partner of such inaccuracy or inability.
5.      Incorporation of Partnership Agreement Provisions. The provisions of Article XII of the Partnership Agreement (other than Sections 12.1 and 12.3 of the Partnership

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Agreement) are hereby incorporated herein by reference and shall apply mutatis mutandis to this Agreement. Without limiting the foregoing:
(a)      any and all disputes, claims or controversies arising out of or relating to this Agreement shall be resolved pursuant to Section 9(h) of that certain Second Amended and Restated Employment Agreement, dated as of April 26, 2017 (as the same may be further amended and restated from time to time thereafter, the “ Employment Agreement ”) between Executive, the Issuer and Oaktree Capital Management, L.P., a Delaware limited partnership (“ OCM ”);
(b)      this Agreement may be amended, modified, or waived with the written consent of the General Partner; provided that if any such amendment, modification, or waiver would adversely affect Executive in any material respect, such amendment, modification, or waiver shall also require the written consent of Executive. Moreover, the Partnership Agreement may be amended, modified and waived pursuant to Section 12.5 of the Partnership Agreement, and the Plan may be amended, modified and waived pursuant to Section 14(a) of the Plan; provided that, if any such amendment, modification, or waiver would adversely affect the rights attributable solely to the EVUs specifically granted to Executive under this Agreement and not the rights of any other Limited Partner of the Partnership relative to all Limited Partners as a class, such amendment, modification, or waiver shall also require the written consent of Executive, not to be unreasonably withheld, delayed or conditioned;  
(c)      any notice that is required or permitted hereunder to be given to any party hereto shall be given pursuant to Section 12.6 of the Partnership Agreement;
(d)      in accordance with Section 12.9 of the Partnership Agreement, this Agreement shall be construed and enforced, along with any rights, remedies, or obligations provided for hereunder, in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within the State of Delaware by residents of the State of Delaware; and
(e)      in accordance with Section 12.12 of the Partnership Agreement, this Agreement may be executed in one or more counterparts, all of which shall constitute one and the same instrument.
6.      Entire Agreement. The Grant Documents and the EVU Designation constitute the entire agreement among the parties hereto with respect to the subject matter hereof, and supersede any prior agreement or understanding among them with respect to such matter, including without limitation any term sheets or summaries relating to such matter, Section 5 of the Employment Agreement and Exhibit B to that certain Employment Agreement between Executive, the Issuer and OCM; provided that in the event of any conflict between the Exchange Agreement and the Partnership Agreement, the Partnership Agreement shall prevail, and in the event of any conflict between any Grant Document and the EVU Designation, the EVU Designation shall control.
7.      Interpretation and Certain Definitions.
(a)      All ambiguities shall be resolved without reference to which party may have drafted this Agreement. All article or section headings or other captions in this Agreement are for convenience only, and they shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Unless the context clearly

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indicates otherwise: ( i ) a term has the meaning assigned to it; ( ii ) “or” is not exclusive; ( iii ) provisions apply to successive events and transactions; ( iv ) each definition herein includes the singular and the plural; ( v ) each reference herein to any gender includes the masculine, feminine, and neuter where appropriate; ( vi ) the word “including” when used herein means “including, but not limited to,” and the word “include” when used herein means “include, without limitation”; and ( vii ) references herein to specified paragraph numbers refer to the specified paragraph of this Agreement. The words “hereof,” “herein,” “hereto,” “hereby,” “hereunder,” and derivative or similar words refer to this Agreement as a whole and not to any particular provision of this Agreement. The words “applicable law” and any other similar references to the law include all applicable statutes, laws (including common law), treaties, orders, rules, regulations, determinations, orders, judgments, and decrees of any Governmental Authority. The abbreviation “U.S.” refers to the United States of America. All monetary amounts expressed herein by the use of the words “U.S. dollar” or “U.S. dollars” or the symbol “$” are expressed in the lawful currency of the United States of America. The words “foreign” and “domestic” shall be interpreted by reference to the United States of America.
(b)      Except as provided in the EVU Designation, nothing in this Agreement is intended to confer upon Executive any right or privilege that is in addition, or otherwise more favorable, to the rights and privileges generally enjoyed by the other Limited Partners under the Partnership Agreement, the Exchange Agreement and the Tax Receivable Agreement, except to the extent such additional or more favorable right or privilege is expressly and intentionally conferred hereunder. Without limiting the foregoing, the Granted Units are not subject to any Unit Designation, other than the EVU Designation, which alters the terms and conditions generally applicable to Units under the Partnership Agreement.
(c)      “ Oaktree Business ” means the business and operations of the Oaktree Group, including the organization, investment objectives, expenses, operational structure, management structure and other material details of the Oaktree Group.
(d)      “ Oaktree Related Person ” means ( i ) any Oaktree Group Member, ( ii ) the current and former senior executives, principals, officers, directors, employees and duly authorized agents and representatives of any Oaktree Group Member, and ( iii ) the current and former direct and indirect shareholders, partners, members and equityholders of any Oaktree Group Member (other than the current and former direct and indirect shareholders, partners, members and equityholders of the Issuer, who are not otherwise included in either of the foregoing clause (i) or (ii)).
(e)      This Agreement is intended to constitute a “Grant Agreement” for purposes of the Partnership Agreement and an “Award agreement” for purposes of the Plan. The Granted Units are intended to constitute an “Award” for purposes of the Plan.
8.      Oaktree Representation . The Partnership hereby represents and warrants to Executive that the Partnership and each applicable member of the Oaktree Group has the legal capacity to execute and deliver each Grant Document and to perform all of his obligations thereunder. The Partnership has duly executed and delivered this Agreement, and each Grant Document constitutes the legal, valid and binding obligation of the applicable member of the Oaktree Group, enforceable in accordance with their respective terms.

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9.      Further Assurances. Executive agrees to take all actions that may be reasonably requested by the General Partner from time to time, including by executing and delivering all agreements, instruments and documents that may be reasonably requested by the General Partner, to carry out the purposes of the Grant Documents.
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first written above.
PARTNERSHIP AND GENERAL PARTNER

OAKTREE CAPITAL GROUP HOLDINGS GP, LLC
On behalf of itself and as general partner on behalf of OAKTREE CAPITAL GROUP HOLDINGS, L.P.


 
By:
/s/    Howard S. Marks
 
 
Name: Howard S. Marks
 
 
Title: Co-Chairman

 
By:
/s/    Bruce A. Karsh
 
 
Name: Bruce A. Karsh
 
 
Title: Co-Chairman and Chief Investment Officer




EXECUTIVE


 
/s/    Jay S. Wintrob
 
JAY S. WINTROB



THE GRANTED UNITS HAVE NOT BEEN REGISTERED WITH OR QUALIFIED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES REGULATORY AUTHORITY OR ANY OTHER REGULATORY AUTHORITY OF ANY OTHER JURISDICTION. SUCH UNITS ARE BEING SOLD IN RELIANCE UPON EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS. THE GRANTED UNITS CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF, IN EACH CASE, EXCEPT IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFERABILITY CONTAINED IN THIS AGREEMENT AND OTHER GRANT DOCUMENTS AND THE SECURITIES LAWS OF ALL APPLICABLE JURISDICTIONS, INCLUDING APPLICABLE U.S. FEDERAL AND STATE SECURITIES LAWS.

    


Exhibit 31.1
CERTIFICATION
I, Jay S. Wintrob, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 of Oaktree Capital Group, LLC;
2.
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;
3.
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;
4.
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: May 5, 2017

 
/s/ Jay S. Wintrob
Jay S. Wintrob
Chief Executive Officer
(Principal Executive Officer)





Exhibit 31.2
CERTIFICATION
I, Daniel D. Levin, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 of Oaktree Capital Group, LLC;
2.
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;
3.
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;
4.
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: May 5, 2017

 
/s/ Daniel D. Levin
Daniel D. Levin
Chief Financial Officer
(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 Quarterly Report on Form 10-Q of Oaktree Capital Group, LLC (the “Company”) for the quarter ended March 31, 2017 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: May 5, 2017
 
/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 Quarterly Report on Form 10-Q of Oaktree Capital Group, LLC (the “Company”) for the quarter ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel D. Levin, 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: May 5, 2017  
/s/ Daniel D. Levin
Daniel D. Levin
Chief Financial Officer
(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.