SEC Filing Summary
Filing identity and period: The supplied filing is Oaktree Capital Group, LLC’s Form 10-K for the fiscal year ended December 31, 2015, filed February 26, 2016. This does not match the request metadata naming Brookfield Oaktree Holdings, LLC. The filing describes Oaktree as an alternative investment manager; it does not report a 2015 fourth-quarter-only financial statement.
Business Context and Results
Oaktree managed $97.4 billion of AUM at year-end, across credit, distressed debt, control investing, real estate, convertibles and listed equities. Its revenue principally comes from management fees, incentive income and returns on its own investments. The consolidated statements include many managed funds, so their gross assets, debt and investment gains or losses are not equivalent to Oaktree’s corporate economics. Segment measures below exclude fund consolidation and are non-GAAP.
| Metric | FY 2015 | FY 2014 | Change / context |
|---|---|---|---|
| Consolidated revenue | $201.9 million | $193.9 million | Up 4.1%; substantially affected by consolidation eliminations |
| Net income attributable to Oaktree | $71.3 million | $126.3 million | Down 43.5%; $1.45 vs. $2.97 per Class A unit |
| Consolidated net income (loss) | $(1,533.0) million | $2,175.6 million | Primarily reflects consolidated funds’ unrealized investment losses and related non-controlling interests |
| Segment management fees | $753.8 million | $762.8 million | Down 1.2% |
| Segment incentive income | $263.8 million | $491.4 million | Down 46.3% |
| Segment investment income | $48.3 million | $117.7 million | Down 59.0% |
| Adjusted net income (non-GAAP) | $311.9 million | $573.1 million | Down 45.6% |
| Distributable earnings (non-GAAP) | $447.6 million | $606.1 million | Down 26.2% |
| Distributable earnings attributable to Class A units | $119.4 million; $2.42 per unit | $145.4 million; $3.41 per unit | Per-unit amount down 29.0% |
| Fee-related earnings (non-GAAP) | $218.6 million | $248.3 million | Down 12.0% |
| AUM / management fee-generating AUM | $97.4 billion / $78.9 billion | $90.8 billion / $78.1 billion | AUM up 7.3%; fee-generating AUM up 1.0% |
| Uncalled capital commitments | $21.7 billion | $10.3 billion | More than doubled; record year-end amount |
Cash Flow, Debt and Liquidity
- Consolidated cash from operations was a $943 million outflow in 2015, versus a $4.3 billion outflow in 2014. These totals include managed funds and investment purchases and are not a measure of corporate operating cash generation alone.
- At the segment/corporate level, cash and U.S. Treasury securities totaled approximately $1.14 billion; corporate investments were $1.43 billion. Corporate debt obligations were $850 million. A $500 million revolving facility was undrawn, and management said available liquidity was sufficient for operations and commitments for at least the next 12 months.
- Consolidated total debt was $9.67 billion, including $6.46 billion of fund credit-facility borrowings and $2.36 billion of CLO debt; these fund obligations are generally nonrecourse to Oaktree. Consolidated cash also includes fund cash unavailable for general corporate liquidity.
- Oaktree had $100 million of corporate notes due in 2016 and a $250 million term loan due in 2019. It reported compliance with applicable financial covenants and approximately $71 million of regulatory capital requirements.
Material Changes and Unusual Items
- Market conditions weakened for risk assets in 2015: the U.S. high-yield benchmark returned negative 5.4%, and the filing reports a blended gross return of negative 0.1% for closed-end fund strategies. Fund-level incentives created were negative $100 million, and accrued fund-level incentives fell to $1.59 billion from $1.95 billion.
- Record fundraising—$23.1 billion of gross capital raised, including $17.9 billion for closed-end strategies—boosted AUM and uncalled commitments. Open-end funds nevertheless had $2.3 billion of net outflows; total AUM also faced market declines and negative foreign-currency translation.
- Consolidated funds recorded $3.77 billion of net unrealized investment depreciation in 2015, compared with $993 million in 2014. Oaktree attributed most consolidated fund results to third-party investors; the effect on income attributable to Oaktree was substantially less direct.
- DoubleLine contributed $55.0 million of investment income in 2015, up from $46.9 million; performance fees within that amount declined to $4.3 million from $10.1 million. Highstar-related reimbursable-cost income contributed $23.6 million to other income.
- Oaktree changed the calculation of adjusted net income in the fourth quarter, including treatment of closed-end-fund placement costs and foreign-currency items. Prior periods were not recast for the placement-cost change.
- Management expected 2016 adoption of revised consolidation guidance to significantly reduce reported consolidated assets, liabilities and redeemable fund interests, with no expected impact on net income attributable to Oaktree.
Outlook, Risks and Contingencies
The filing provides no quantified earnings or revenue guidance. Management emphasized that results are volatile and depend on markets, fund performance, fundraising, realizations and the timing of incentive income. It cited uncertainty around energy-related credit, interest rates, China and emerging markets, foreign exchange and the availability of financing. The company’s strategy may also involve limiting fund size or reducing fees to protect client outcomes, potentially constraining near-term revenue.
- Key risks include weak fund performance, lower incentive income, redemptions, inability to raise capital, valuation uncertainty for illiquid investments, leverage and counterparty exposure, competition, key-person departures, regulatory change and conflicts of interest.
- Oaktree estimated remaining tax receivable agreement payments of approximately $356.9 million across prior offerings, subject to assumptions about future taxable income and tax law; payments generally pass 85% of realized tax savings to OCGH unitholders. Payments made in 2015 were $15.7 million.
- Highstar acquisition contingent consideration had a $28.5 million fair value at year-end, against a maximum obligation of $60 million, dependent on performance targets. The filing states no pending legal actions were expected to have a material financial impact and no recognized incentive income was subject to clawback at year-end.
- The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective. The filing notes that fair values for substantial Level III fund investments rely on judgment and may not equal realizable sale prices.
- Class A distributions are discretionary and not assured. The filing reports $2.10 per unit declared in calendar 2015 and a further $0.47 per unit for the quarter ended December 31, 2015, paid in February 2016; distributions attributable to fiscal 2015 were reported as $2.01 per unit.
Most Important Facts to Verify
- Confirm the intended issuer: this filing is for Oaktree Capital Group, LLC, not Brookfield Oaktree Holdings, LLC.
- Review segment non-GAAP measures and their reconciliations; consolidated GAAP results include managed funds and significant consolidation effects.
- Assess the quality and timing of the $21.7 billion of uncalled commitments, $1.59 billion of accrued fund-level incentives and $1.43 billion of corporate investments, including the uncertainty of incentive realization and private-asset valuations.
- Distinguish corporate liquidity and debt from fund-level cash and borrowings, and review the $100 million of 2016 maturities, revolving-facility availability and covenant terms.
- Reconcile the filing’s per-unit distribution figures and evaluate the discretionary distribution policy and expected tax receivable agreement payments.