Brookfield Oaktree Holdings, LLC — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The company changed its name from Oaktree Capital Group, LLC in March 2024. Brookfield Oaktree Holdings, LLC (BOH) is a holding company with an indirect economic interest in only one of Oaktree’s six operating-group entities, Oaktree Capital I. Figures below are GAAP consolidated results and include certain investment funds; they should not be read as standalone asset-management operating results.
Key financial results
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Total revenue | $267.3 million | $492.6 million | Down 45.7%; management and sub-advisory fees were zero in 2023 following the 2022 restructuring and deconsolidation of OCM Cayman. |
| Incentive income | $267.3 million | $268.5 million | Down 0.4%; higher Credit, Private Equity and Real Assets income was largely offset by lower Listed Equities income. |
| Total expenses | $206.8 million | $347.1 million | Down 40.4%, substantially reflecting the restructuring and deconsolidation. |
| Income before taxes / net income | $540.2 million | $478.0 million / $463.1 million | 2023 income before tax equaled net income; no income tax expense was recorded. |
| Net income attributable to BOH Class A unitholders | $193.9 million; $1.80 per unit | $176.3 million; $1.73 per unit | Up 10.0%, primarily from improved realized and unrealized performance of consolidated-fund investments. |
| Class A distributions declared per unit | $1.00 | $1.86 | Down 46.2%. |
| Assets under management | $189.2 billion | $169.6 billion | Up 11.6%, driven by commitments, market appreciation and net inflows, partly offset by fund distributions. |
Margins: The filing does not present a conventional operating-margin measure. Revenue and expenses are affected by the restructuring, incentive-income volatility and consolidated-fund accounting; net income also includes substantial investment and fund-related income.
Cash flow, debt and liquidity
- Consolidated cash flow from operating activities was a use of $730.7 million in 2023; investing activities used $366.6 million; financing activities provided $1.262 billion. These cash flows include consolidated funds and their investment transactions, so they are not a direct measure of BOH’s standalone operating cash generation.
- At year-end, BOH and its operating subsidiaries reported $28.5 million of cash and cash equivalents and $219.7 million of debt obligations, net of issuance costs. Consolidated cash was $336.7 million, including $308.2 million held by consolidated funds and generally unavailable for BOH’s general liquidity needs.
- Consolidated funds had $952.0 million of debt outstanding; the filing states these obligations are nonrecourse to BOH. BOH and Oaktree Capital I were also jointly and severally liable for $1.05 billion of senior notes issued by OCM and other Oaktree entities. Those notes are not recorded as BOH debt unless a default occurs.
- No amounts were outstanding at year-end under the $650 million revolving credit facility or the $250 million subordinated revolving facility. The company said available sources were expected to meet working-capital needs for at least 12 months, subject to facility terms and conditions.
- BOH reported $862.5 million of limited-partner commitments to Oaktree funds, including $112.5 million remaining on Opps XI and $750 million committed to Opps XII; the Opps XII commitment was unfunded at year-end. Oaktree Capital I also had $349.9 million of general-partner commitments. Capital commitments are generally called over several years, although the contractual-obligations table presents them as due on demand.
Material changes and unusual items
- The 2022 restructuring materially changed the reporting perimeter: BOH no longer consolidates OCM Cayman or CLOs, no longer earns management or sub-advisory fees, and generally receives only one-third of incentive income attributable to Oaktree Capital I from closed-end funds established in 2022 or later and evergreen funds beginning in 2023. It generally retains 100% of its entitlement for pre-2022 closed-end funds.
- Interest expense fell to $50.3 million from $248.4 million, and interest and dividend income fell to $348.8 million from $557.8 million, mainly because CLOs were no longer consolidated. Realized gains on consolidated-fund investments were $79.4 million, versus a $13.1 million loss in 2022.
- Incentive-creating AUM rose 17.6% to $54.8 billion. Fund-level accrued incentives were $1.84 billion gross and $1.10 billion net of associated incentive compensation; these are off-balance-sheet, contingent measures, and timing and ultimate realization are uncertain.
- BOH acquired interests in entities holding Brookfield Real Estate Income Trust investments in June 2023. The carrying value of the investment was $317.3 million at year-end.
- In the second quarter of 2024, subject to regulatory approvals, an internal restructuring was expected to change the general partner of Oaktree Capital I while retaining the relevant economic interest. BOH also entered into a March 2024 agreement restricting certain junior distributions and repurchases unless preferred-unit distributions are paid or set aside.
Outlook, risks and contingencies
The filing provides no numerical earnings or revenue guidance. Management describes results as sensitive to fund performance, fundraising, realizations, market valuations and the timing of incentive income. It cites inflation, interest-rate and financing conditions, geopolitical uncertainty, bank liquidity, competition, regulation, conflicts of interest, cybersecurity, key-person retention and the valuation of illiquid investments as material risks. The filing reports no pending legal or regulatory proceeding expected to have a material impact on consolidated financial statements.
- Preferred-unit distributions are discretionary and non-cumulative. Series A units carry a stated 6.625% rate and Series B units a 6.550% rate, but payment depends on board declaration and legal and contractual constraints.
- Cash balances may exceed FDIC insurance limits. The company said it had no direct exposure to the U.S. banks that failed in 2023, but described potential access-to-cash and credit-facility counterparty risks.
- Consolidated funds held $3.6 billion of Level III investments, whose valuations rely on significant unobservable inputs. The auditor identified valuation of these investments as a critical audit matter. A 10% market-value decline was estimated to reduce consolidated-fund unrealized appreciation by $514.4 million, including an estimated $81.8 million impact on income attributable to BOH Class A unitholders.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor gave an unqualified opinion on the financial statements but was not engaged to audit internal control effectiveness.
Important facts for investors to verify
- How the post-2022 structure affects BOH’s sustainable earnings and cash flows, given the loss of management-fee revenue and its limited economic interest in Oaktree Capital I.
- Whether cash available to BOH—not consolidated fund cash—can support preferred distributions, debt service and future commitments; also review the OCM-issued debt guarantees and facility covenants.
- The realizability and timing of accrued incentive income, and the assumptions supporting Level III valuations and the Brookfield REIT investment.
- The funding schedule and source of capital for Opps XI, Opps XII and general-partner commitments, including the distinction between BOH commitments and amounts funded by its sole Class A unitholder or affiliates.
- Whether the planned 2024 restructuring received required approvals and whether the March 2024 preferred-distribution protections remain effective as described.