Oaktree Capital Group, LLC - Quarter Report: 2015 March (Form 10-Q)

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, 2015


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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:



	Large accelerated filer x	Accelerated filer o
	Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 4, 2015, there were 48,371,659 Class A units and 105,468,586 Class B units of the registrant outstanding.

TABLE OF CONTENTS



		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Financial Condition	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014	2
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014	4
	Condensed Consolidated Statements of Changes in Unitholders’ Capital for the Three Months Ended March 31, 2015 and 2014	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	84
Item 4.	Controls and Procedures	87

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	88
Item 1A.	Risk Factors	88
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
Item 3.	Defaults Upon Senior Securities	88
Item 4.	Mine Safety Disclosures	88
Item 5.	Other Information	88
Item 6.	Exhibits	93
Signature

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 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, 2014 filed with the Securities and Exchange Commission (“SEC”) on February 27, 2015 (“annual report”), 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 that control the general partners and investment advisers of our funds in which we have a minority economic interest and indirect control.

“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 their interest in the Oaktree Operating Group through OCGH.

“2007 Private Offering” refers to the sale completed on May 25, 2007 of 23,000,000 of our Class A units to qualified institutional buyers (as defined in the Securities Act) in a transaction exempt from the registration requirements of the Securities Act. Prior to our initial public offering, these Class A units traded on a private over-the-counter market developed by Goldman, Sachs & Co. for tradable unregistered equity securities.

“assets under management,” or “AUM,” generally refers to the assets we manage and equals the NAV (as defined below) of the assets we manage, the fund-level leverage on which management fees are charged, the undrawn capital that we are entitled to call from investors in our funds pursuant to their capital commitments, and the aggregate par value of collateral assets and principal cash held by our collateralized loan obligation vehicles (“CLOs”). Our AUM amounts include AUM for which we charge no fees. Our definition of AUM is not based on any definition contained in our operating agreement or the agreements governing the funds that we manage. Our calculation of AUM and the two AUM-related metrics described below may not be directly comparable to the AUM metrics of other investment managers.

•

“management fee-generating assets under management,” or “management fee-generating AUM,” is a forward-looking metric and reflects the AUM on which we will earn management fees in the following quarter, as more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment and Operating Metrics—Assets Under Management—Management Fee-generating Assets Under Management.”


•	“incentive-creating assets under management,” or “incentive-creating AUM,” refers to the AUM that may eventually produce incentive income, as more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment and Operating Metrics—Assets Under Management—Incentive-creating Assets Under Management.”

“consolidated funds” refers to the funds and CLOs that Oaktree consolidates through a majority voting interest or otherwise, including those funds in which Oaktree as the general partner is presumed to have control.

“funds” refers to investment funds and, where applicable, CLOs and separate accounts that are managed by us or our subsidiaries.

“initial public offering” refers to the listing of our Class A units on the New York Stock Exchange on April 12, 2012 whereby Oaktree sold 7,888,864 Class A units and selling unitholders sold 954,159 Class A units, as more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Initial Public Offering” in our annual report.

“Intermediate Holding Companies” collectively refers to the subsidiaries wholly owned by us.

“net asset value,” or “NAV,” refers to the value of all the assets of a fund (including cash and accrued interest and dividends) less all liabilities of the fund (including accrued expenses and any reserves established by us, in our discretion, for contingent liabilities) without reduction for accrued incentives (fund level) because they are reflected in the partners’ capital of the fund.

“Relevant Benchmark” refers, with respect to:


•	our U.S. High Yield Bond strategy, to the Citigroup U.S. High Yield Cash-Pay Capped Index;


•	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 Equity strategy, to the Morgan Stanley Capital International Emerging Markets Index (Net).

“senior executives” refers collectively to Howard S. Marks, Bruce A. Karsh, Jay S. Wintrob, John B. Frank, Stephen A. Kaplan, Larry W. Keele, David M. Kirchheimer and Sheldon M. Stone.

“Sharpe Ratio” refers to a metric used to calculate risk-adjusted return. The Sharpe Ratio is the ratio of excess return to volatility, with excess return defined as the return above that of a riskless asset (based on the three-month U.S. Treasury bill, or for our European Senior Loan strategy, the Euro Overnight Index Average) divided by the standard deviation of such return. A higher Sharpe Ratio indicates a return that is higher than would be expected for the level of risk compared to the risk-free rate.

This 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)



	March 31, 2015			December 31, 2014
Assets
Cash and cash-equivalents	$	437,225		$	408,296
U.S. Treasury securities	570,749			655,529
Corporate investments (includes $18,027 and $40,814 measured at fair value as of March 31, 2015 and December 31,2014, respectively)	167,999			187,963
Due from affiliates	42,931			46,881
Deferred tax assets	430,873			357,364
Other assets	284,259			282,516
Assets of consolidated funds:
Cash and cash-equivalents	1,980,539			2,940,198
Investments, at fair value	48,734,371			46,533,799
Dividends and interest receivable	337,346			193,428
Due from brokers	751,007			605,882
Receivable for securities sold	250,105			171,817
Derivative assets, at fair value	384,394			296,197
Other assets	665,779			664,192
Total assets	$	55,037,577		$	53,344,062
Liabilities and Unitholders’ Capital
Liabilities:
Accrued compensation expense	$	147,734		$	294,886
Accounts payable, accrued expenses and other liabilities	140,727			148,361
Due to affiliates	371,988			309,214
Debt obligations	850,000			850,000
Liabilities of consolidated funds:
Accounts payable, accrued expenses and other liabilities	168,907			75,487
Payables for securities purchased	884,682			767,733
Securities sold short, at fair value	65,403			64,438
Derivative liabilities, at fair value	381,798			253,509
Distributions payable	333,819			752,762
Borrowings under credit facilities	5,260,604			4,704,852
Collateralized loan obligation loans payable	1,775,856			1,601,535
Total liabilities	10,381,518			9,822,777
Commitments and contingencies (Note 13)
Non-controlling redeemable interests in consolidated funds	42,751,514			41,681,155
Unitholders’ capital:
Class A units, no par value, unlimited units authorized, 48,371,659 and 43,763,719 units issued and outstanding as of March 31, 2015 and December 31, 2014, respectively	—			—
Class B units, no par value, unlimited units authorized, 105,298,682 and 109,088,901 units issued and outstanding as of March 31, 2015 and December 31, 2014, respectively	—			—
Paid-in capital	571,988			536,431
Retained earnings	49,631			11,378
Accumulated other comprehensive loss	(2,006		)	(1,070		)
Class A unitholders’ capital	619,613			546,739
Non-controlling interests in consolidated funds	30,828			27,430
Non-controlling interests in consolidated subsidiaries	1,254,104			1,265,961
Total unitholders’ capital	1,904,545			1,840,130
Total liabilities and unitholders’ capital	$	55,037,577		$	53,344,062

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per unit amounts)



	Three Months Ended March 31,
	2015			2014
Revenues:
Management fees	$	50,819		$	40,431
Expenses:
Compensation and benefits	(110,143		)	(98,292		)
Equity-based compensation	(11,706		)	(9,182		)
Incentive income compensation	(66,892		)	(91,494		)
Total compensation and benefits expense	(188,741		)	(198,968		)
General and administrative	(6,580		)	(32,238		)
Depreciation and amortization	(2,892		)	(1,921		)
Consolidated fund expenses	(37,761		)	(25,192		)
Total expenses	(235,974		)	(258,319		)
Other income (loss):
Interest expense	(46,569		)	(24,000		)
Interest and dividend income	522,929			362,136
Net realized gain on consolidated funds’ investments	474,830			654,151
Net change in unrealized appreciation on consolidated funds’ investments	507,483			770,478
Investment income	12,682			4,991
Other income (expense), net	4,694			(1,698		)
Total other income	1,476,049			1,766,058
Income before income taxes	1,290,894			1,548,170
Income taxes	(7,875		)	(7,986		)
Net income	1,283,019			1,540,184
Less:
Net income attributable to non-controlling interests in consolidated funds	(1,136,665		)	(1,324,832		)
Net income attributable to non-controlling interests in consolidated subsidiaries	(108,101		)	(163,558		)
Net income attributable to Oaktree Capital Group, LLC	$	38,253		$	51,794
Distributions declared per Class A unit	$	0.56		$	1.00
Net income per unit (basic and diluted):
Net income per Class A unit	$	0.85		$	1.30
Weighted average number of Class A units outstanding	45,063			39,700

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)



Three Months Ended March 31, 2015	Oaktree Capital Group, LLC			Non-controlling Interests in Consolidated Subsidiaries			Non-controlling Interests in Consolidated Funds			Total
Net income	$	38,253		$	108,101		$	1,136,665		$	1,283,019
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(897		)	(2,150		)	—			(3,047		)
Unrealized loss on interest-rate swap designated as cash-flow hedge	(39		)	(92		)	—			(131		)
Other comprehensive income (loss), net of tax	(936		)	(2,242		)	—			(3,178		)
Total comprehensive income	37,317			105,859			1,136,665			1,279,841
Less: Comprehensive income attributable to non-controlling interests	—			(105,859		)	(1,136,665		)	(1,242,524		)
Comprehensive income attributable to Oaktree Capital Group, LLC	$	37,317		$	—		$	—		$	37,317
Three Months Ended March 31, 2014
Net income	$	51,794		$	163,558		$	1,324,832		$	1,540,184
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	90			253			—			343
Unrealized loss on interest-rate swap designated as cash-flow hedge	(159		)	(451		)	—			(610		)
Other comprehensive income (loss), net of tax	(69		)	(198		)	—			(267		)
Total comprehensive income	51,725			163,360			1,324,832			1,539,917
Less: Comprehensive income attributable to non-controlling interests	—			(163,360		)	(1,324,832		)	(1,488,192		)
Comprehensive income attributable to Oaktree Capital Group, LLC	$	51,725		$	—		$	—		$	51,725

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



	Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net income	$	1,283,019		$	1,540,184
Adjustments to reconcile net income to net cash used in operating activities:
Investment income	(12,682		)	(4,991		)
Depreciation and amortization	2,892			1,921
Equity-based compensation	11,706			9,182
Net realized and unrealized gains from consolidated funds’ investments	(982,313		)	(1,424,629		)
Amortization (accretion) of original issue and market discount of consolidated funds’ investments, net	(4,932		)	(14,943		)
Income distributions from corporate investments in companies	16,144			15,448
Amortization or write-down of debt issuance costs	3,257			4,504
Cash flows due to changes in operating assets and liabilities:
Decrease in other assets	7,517			8,997
Increase (decrease) in net due to affiliates	4,250			(1,607		)
Decrease in accrued compensation expense	(147,152		)	(125,747		)
Increase (decrease) in accounts payable, accrued expenses and other liabilities	(7,824		)	12,121
Cash flows due to changes in operating assets and liabilities of consolidated funds:
Increase in dividends and interest receivable	(143,918		)	(29,087		)
(Increase) decrease in due from brokers	(145,125		)	3,278
Increase in receivables for securities sold	(78,288		)	(541,940		)
(Increase) decrease in other assets	(8,817		)	90,296
Increase in accounts payable, accrued expenses and other liabilities	57,025			11,064
Increase in payables for securities purchased	116,949			443,106
Purchases of securities	(4,527,455		)	(6,032,306		)
Proceeds from maturities and sales of securities	2,657,889			5,050,883
Net cash used in operating activities	(1,897,858		)	(984,266		)
Cash flows from investing activities:
Purchases of U.S. Treasury securities	(155,274		)	—
Proceeds from maturities and sales of U.S. Treasury securities	240,054			316,041
Corporate investments in funds and companies	(13,932		)	(22,037		)
Distributions and proceeds from corporate investments in funds and companies	30,434			2,775
Purchases of fixed assets	(12,461		)	(1,333		)
Net cash provided by investing activities	88,821			295,446

(continued)

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Cash Flows (Unaudited) — (Continued)

(in thousands)



	Three Months Ended March 31,
	2015			2014
Cash flows from financing activities:
Proceeds from issuance of debt obligations	$	—		$	250,000
Payment of debt issuance costs	—			(728		)
Repayments of debt obligations	—			(218,750		)
Proceeds from issuance of Class A units	237,820			296,650
Purchase of OCGH units	(237,820		)	(296,400		)
Repurchase and cancellation of OCGH units	(4,290		)	(2,055		)
Distributions to Class A unitholders	(24,508		)	(38,473		)
Distributions to OCGH unitholders	(75,537		)	(140,302		)
Cash flows from financing activities of consolidated funds:
Contributions from non-controlling interests	1,840,538			1,846,325
Distributions to non-controlling interests	(1,710,583		)	(1,966,752		)
Proceeds from debt obligations issued by collateralized loan obligation vehicles	394,295			503,622
Payment of debt issuance costs	(9,108		)	(5,973		)
Borrowings on credit facilities	1,904,082			2,075,529
Repayments on credit facilities	(1,413,812		)	(1,265,823		)
Net cash provided by financing activities	901,077			1,036,870
Effect of exchange rate changes on cash	(22,770		)	(747		)
Net increase (decrease) in cash and cash-equivalents	(930,730		)	347,303
Cash and cash-equivalents, beginning balance	3,348,494			2,637,665
Cash and cash-equivalents, ending balance	$	2,417,764		$	2,984,968

Please see accompanying notes to condensed consolidated financial statements.

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 Deficit)			Accumulated Other Comprehensive Income (Loss)			Non-controlling Interests in Consolidated Subsidiaries			Non-controlling Interests in Consolidated Funds			Total Unitholders’ Capital
Unitholders’ capital as of December 31, 2014	43,764	109,089		$	536,431		$	11,378		$	(1,070	)	$	1,265,961		$	27,430		$	1,840,130
Activity for the three months ended March 31, 2015:
Issuance of Class A units	4,608	—		237,820			—			—			—			—			237,820
Issuance of Class B units	—	927		—			—			—			—			—			—
Cancellation of Class B units associated with forfeitures of OCGH units	—	(15	)	—			—			—			—			—			—
Cancellation of Class B units	—	(4,702	)	—			—			—			—			—			—
Purchase of OCGH units from OCGH unitholders	—	—		(237,820		)	—			—			—			—			(237,820		)
Deferred tax effect resulting from the purchase of OCGH units	—	—		11,025			—			—			—			—			11,025
Repurchase and cancellation of OCGH units	—	—		—			—			—			(4,290		)	—			(4,290		)
Capital contributions	—	—		—			—			—			—			2,880			2,880
Equity reallocation between controlling and non-controlling interests	—	—		45,761			—			—			(45,761		)	—			—
Capital increase related to equity-based compensation	—	—		3,279			—			—			7,872			—			11,151
Distributions declared	—	—		(24,508		)	—			—			(75,537		)	(549		)	(100,594		)
Net income	—	—		—			38,253			—			108,101			1,067			147,421
Foreign currency translation adjustment, net of tax	—	—		—			—			(897		)	(2,150		)	—			(3,047		)
Unrealized loss on interest-rate swap designated as cash-flow hedge, net of tax	—	—		—			—			(39		)	(92		)	—			(131		)
Unitholders’ capital as of March 31, 2015	48,372	105,299		$	571,988		$	49,631		$	(2,006	)	$	1,254,104		$	30,828		$	1,904,545

Unitholders’ capital as of December 31, 2013	38,473	112,584		$	590,236		$	(114,905	)	$	(1,122	)	$	1,234,169		$	—		$	1,708,378
Activity for the three months ended March 31, 2014:
Issuance of Class A units	5,007	—		296,650			—			—			—			—			296,650
Issuance of Class B units	—	1,667		—			—			—			—			—			—
Cancellation of Class B units associated with forfeitures of OCGH units	—	(2	)	—			—			—			—			—			—
Cancellation of Class B units	—	(5,045	)	—			—			—			—			—			—
Purchase of OCGH units from OCGH unitholders	—	—		(296,400		)	—			—			—			—			(296,400		)
Deferred tax effect resulting from the purchase of OCGH units	—	—		14,122			—			—			—			—			14,122
Repurchase and cancellation of OCGH units	—	—		—			—			—			(2,055		)	—			(2,055		)
Equity reallocation between controlling and non-controlling interests	—	—		49,098			—			—			(49,098		)	—			—
Capital increase related to equity-based compensation	—	—		2,394			—			—			6,788			—			9,182
Distributions declared	—	—		(38,473		)	—			—			(140,302		)	—			(178,775		)
Net income	—	—		—			51,794			—			163,558			—			215,352
Foreign currency translation adjustment, net of tax	—	—		—			—			90			253			—			343
Unrealized loss on interest-rate swap designated as cash-flow hedge, net of tax	—	—		—			—			(159		)	(451		)	—			(610		)
Unitholders’ capital as of March 31, 2014	43,480	109,204		$	617,627		$	(63,111	)	$	(1,191	)	$	1,212,862		$	—		$	1,766,187

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2015

($ in thousands, except where noted)

1. ORGANIZATION AND BASIS OF PRESENTATION

Oaktree Capital Group, LLC (together with its subsidiaries, “Oaktree” or the “Company”) is a leader among global investment managers specializing in alternative investments. Oaktree emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. Funds managed by Oaktree (the “Oaktree funds”) include commingled funds, separate accounts and collateralized loan obligation vehicles (“CLOs”). Commingled funds include open-end and closed-end limited partnerships in which the Company makes an investment and for which it serves as the general partner or, in certain limited cases, co-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 (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, however, increases or decreases with 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, the consolidated entities that are considered to be variable interest entities (“VIEs”) and for which the Company is considered the primary beneficiary, and certain entities that are not considered VIEs but in which the Company has a controlling financial interest. Most of the Oaktree funds consolidated by the Company are investment companies that follow a specialized basis of accounting established by GAAP. All intercompany transactions and balances have been eliminated in consolidation. 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, 2014 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 27, 2015.

Reclassifications

Certain amounts reported in the condensed consolidated statements of cash flows for the prior period have been reclassified to conform to the current-period presentation.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Policies of the Company

Consolidation

The Company consolidates those entities where it has a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. As of March 31, 2015, this included seven VIEs for which the Company was considered the primary beneficiary, and substantially all of Oaktree’s closed-end, commingled open-end and evergreen funds for which the Company acts as the sole general partner and is deemed to control through a voting interest model.

Variable Interest Model. The Company consolidates VIEs for which it is considered the primary beneficiary. An entity is determined to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the entity’s business and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation model for VIEs, which was revised effective January 1, 2010, requires an analysis to determine (a) whether an entity in which the Company holds a variable interest is a VIE and (b) whether the Company’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance-related fees), would give it a controlling financial interest. The consolidation model for VIEs may be deferred if the VIE and the reporting entity’s interest in the VIE meet the deferral conditions set forth in Accounting Standards Codification (“ASC”) 810-10-65-2(aa). If a VIE has met the deferral conditions, the analysis is based on the consolidation model for VIEs prior to January 1, 2010, which requires an analysis to determine (a) whether an entity in which the Company holds a variable interest is a VIE and (b) whether the Company’s involvement through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance-related fees) would be expected to absorb a majority of the variability of the entity. Under either model, the Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Company, affiliates of the Company or third parties) or amendments to the governing documents of the respective Oaktree funds could affect an entity’s status as a VIE or the determination of the primary beneficiary.

While the Company holds variable interests in the Oaktree funds, most of those funds do not meet the characteristics of a VIE. As of March 31, 2015, the Company consolidated seven VIEs for which it was the primary beneficiary, including Oaktree AIF Holdings, Inc. (“AIF”), which was formed to hold certain assets for regulatory and other purposes. The six remaining VIEs represented CLOs for which the Company acts as collateral manager. Two of the CLOs had not priced as of March 31, 2015. As of December 31, 2014, the Company consolidated six VIEs. There were no VIEs for which the Company was not the primary beneficiary as of March 31, 2015 and December 31, 2014.

As of March 31, 2015, the Company consolidated six CLOs with total assets and liabilities of $2.1 billion and $1.9 billion, respectively. The assets and liabilities of the CLOs primarily consisted of investments in debt securities and loans, respectively, issued by the CLOs. The loans issued by each CLO were collateralized by the investments held by the CLO, and assets of one CLO may not be used to satisfy liabilities of another. In exchange for managing the collateral of the CLOs, the Company typically earns management fees and may earn performance fees, both of which are eliminated in consolidation. As of March 31, 2015, the Company had invested an aggregate $160.7 million in its CLOs, which represented its maximum risk of loss. The Company’s investments are generally subordinated to other interests in the CLOs and entitle the Company to receive a pro-rata portion of the residual cash flows, if any, from the CLOs. Investors in the CLOs have no recourse against the Company for any losses they sustain. Please see note 7 for more information on CLO debt obligations.

Voting Interest Model. For entities that are not VIEs, the Company evaluates those entities that it controls through a majority voting interest, including those Oaktree funds in which the Company as the sole general partner

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

is presumed to have control (together with the CLOs, the “consolidated funds”). Although as general partner the Company typically has only a small, single-digit percentage equity interest in each fund, the funds’ third-party limited partners do not have the right to dissolve the partnerships or have substantive kick-out or participating rights that would overcome the presumption of control by the Company.

Consequently, Oaktree’s condensed consolidated financial statements reflect the assets, liabilities, revenues, expenses and cash flows of the consolidated funds on a gross basis, and the majority of the economic interests in those funds, which are held by third-party investors, are attributed to non-controlling interests in consolidated funds in the accompanying condensed consolidated financial statements. All of the revenues earned by Oaktree from the funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by non-controlling interests, Oaktree’s attributable share of the net income from the funds is increased by the amounts eliminated. Thus, the elimination of the amounts in consolidation has no effect on net income or loss attributable to the Company. All intercompany transactions and balances have been eliminated in consolidation.

Certain funds for which the Company has no general partner responsibility but has the ability to exert significant influence through other means are accounted for under the equity method of accounting.

Non-controlling Redeemable Interests in Consolidated Funds

The Company records non-controlling interests to reflect the economic interests of the unaffiliated limited partners. These interests are presented as non-controlling redeemable interests in consolidated funds within the 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 the respective limited partnership agreements, over periods ranging from one month to three years. While limited partners in consolidated closed-end funds generally have not been granted redemption rights, these limited partners do have withdrawal or redemption rights in certain limited circumstances that are beyond the control of the Company, such as instances in which retaining the limited partnership interest could cause the limited partner to violate a law, regulation or rule.

The allocation of net income or loss to non-controlling redeemable interests in consolidated funds is based on the relative ownership interests of the unaffiliated limited partners after the consideration of contractual arrangements that govern allocations of income or loss. At the consolidated level, potential incentives are allocated to non-controlling redeemable interests in consolidated funds until such incentives become allocable to the Company under the substantive contractual terms of the limited partnership agreements of the funds.

Non-controlling Interests in Consolidated Funds

Non-controlling interests in consolidated funds represent the equity interests held by third-party investors in CLOs that had not yet priced as of the respective period end. All non-controlling interests in those CLOs are attributed a share of income or loss arising from the respective CLO based on the relative ownership interests of third-party investors after consideration of contractual arrangements that govern allocations of income or loss. Investors in those CLOs are generally unable to redeem their interests until the CLO liquidates, is called or otherwise terminates.

Non-controlling Interests in Consolidated Subsidiaries

Non-controlling interests in consolidated subsidiaries reflect the portion of unitholders’ capital attributable to OCGH unitholders (“OCGH non-controlling interest”), certain related parties and other 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 9 for more information.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting, which requires the use of estimates and judgment to measure the fair value of the identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquiree as of the acquisition date. Contingent consideration that is determined to be part of the business combination is recognized at fair value as of the acquisition date and is included in the purchase price. Transaction costs are expensed as incurred.

Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of identifiable net assets of acquired businesses. Goodwill has an indefinite useful life and is not amortized, but instead tested for impairment annually in the fourth quarter of each fiscal year or more frequently when events and circumstances indicate that impairment may have occurred.

The Company's intangible assets acquired in business combinations are primarily 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 hierarchal disclosure framework that prioritizes the inputs used in measuring financial instruments at fair value into three levels based on their market observability. Market price observability is affected by a number of factors, such as the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available quoted prices from an active market or for which fair value can be measured based on actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value.

Financial assets and liabilities measured and reported at fair value are classified as follows:


•	Level I – Quoted unadjusted prices for identical instruments in active markets to which the Company has access at the date of measurement. The types of investments in Level I include exchange-traded equities, debt and derivatives with quoted prices.

•

Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are directly or indirectly observable. Level II inputs include interest rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates. The types of investments in Level II generally include corporate bonds and loans, government and agency securities, less liquid and restricted equity investments, over-the-counter traded derivatives, and other investments where the fair value is based on observable inputs.

•

Level III – Valuations for which one or more significant inputs are unobservable. These inputs reflect the Company’s assessment of the assumptions that market participants use to value the investment based on the best available information. Level III inputs include prices of quoted securities in markets for which there are few transactions, less public information exists or prices vary among brokered market makers. The types of investments in Level III include non-publicly traded equity, debt, real estate and derivatives.

In some instances, the inputs used to value an instrument may fall into multiple levels of the fair-value hierarchy. In such instances, the instrument’s level within the fair-value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the fair-value measurement. The Company’s assessment of the significance of an input requires judgment and considers factors specific to the instrument. Transfers of assets into or out of each fair value hierarchy level as a result of changes in the observability of the inputs used in measuring fair value are accounted for as of the beginning of the reporting period. Transfers resulting from a specific event, such as a reorganization or restructuring, are accounted for as of the date of the event that caused the transfer.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

In the absence of observable market prices, the Company values Level III investments using valuation methodologies applied on a consistent basis. The quarterly valuation process for Level III investments begins with each portfolio company, property or security being valued by the investment or valuation teams. With the exception of open-end funds, all unquoted Level III investment values are reviewed and approved by (i) the Company’s valuation officer, who is independent of the investment teams, (ii) a designated investment professional of each strategy and (iii) for a substantial majority of unquoted Level III holdings as measured by market value, a valuation committee for such strategy. For open-end funds, all 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 evaluates changes in fair-value measurements from period to period for reasonableness, considering items such as industry trends, general economic and market conditions, and factors specific to the investment.

Certain assets are valued using prices obtained from brokers or pricing vendors. The Company obtains an average of one to two broker quotes. The Company seeks to obtain at least one quote directly from a broker making a market for the asset and one price from a pricing vendor for the subject 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. Generally, the Company does not adjust any of the prices received from these sources, and all prices are reviewed by the Company. 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 on-going monitoring and back-testing, the Company performs due diligence procedures over 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 those investments is similar to its accounting for investments held by the consolidated funds at fair value and the valuation methods used to determine the fair value of those investments.

In addition, the Company has elected the fair value option for the assets of its CLOs. Assets of the CLOs are included in investments, at fair value and liabilities of the CLOs are reflected in collateralized loan obligation loans payable in the condensed consolidated statements of financial condition. The Company’s accounting for CLOs is similar to its accounting for closed-end funds with respect to both carrying investments held by CLOs at fair value and the valuation methods used to determine the fair value of those investments. Realized gains or losses and changes in the fair value of consolidated CLO assets are included in net realized gain on consolidated funds’ investments and net change in unrealized appreciation (depreciation) on consolidated funds’ investments, respectively, in the condensed consolidated statements of operations. Interest income of CLOs is included in interest and dividend income. CLOs’ interest expense and other expenses are included in interest expense and consolidated fund expenses, respectively, in the condensed consolidated statements of operations.

Accounting Policies of Consolidated Funds

Investments, at Fair Value

The consolidated funds are primarily investment limited partnerships that reflect their investments, including majority-owned and controlled investments, at fair value. The Company has retained the specialized investment company accounting guidance under GAAP for those consolidated funds with respect to consolidated investments. Thus, the consolidated investments are reflected in the 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 on consolidated funds’ investments in the condensed consolidated statements of

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

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 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.

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.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

The valuation of securities may be impacted by expectations of investors’ receptiveness to a public offering of the securities, the size of the holding of the securities and any associated control, information with respect to transactions or offers for the securities (including the transaction pursuant to which the investment was made and the elapsed time from the date of the investment to the valuation date), and applicable restrictions on the transferability of the securities.

These valuation methodologies involve a significant degree of management judgment. Accordingly, valuations by the Company do not necessarily represent the amounts that eventually may be realized from sales or other dispositions of investments. Fair values may differ from the values that would have been used had a ready market for the investment existed, and the differences could be material to the condensed consolidated financial statements.

Recent Accounting Developments

In April 2015, the Financial Accounting Standards Board (“FASB”) issued guidance that changes the presentation of debt issuance costs in the statements of financial position. Under current GAAP, such costs are reflected in the statements of financial position as a deferred asset. The new guidance will require these costs to be presented as a direct deduction from the related debt liability and to be amortized as interest expense. The amendment does not affect the current guidance on the recognition and measurement of debt issuance costs. The guidance is effective for the Company in the first quarter of 2016 on a retrospective basis, with early adoption permitted. The Company does not expect that adoption of this guidance will have a material impact on its condensed consolidated financial statements.

In February 2015, the FASB issued guidance that amends the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The new guidance does not add or remove any of the five characteristics that determine if an entity is a VIE; rather, it focuses on the consolidation criteria used to evaluate whether certain legal entities should be consolidated. Additionally, the new guidance eliminates the presumption that a general partner should consolidate a limited partnership under the voting model. The amendment is intended to simplify the consolidation guidance by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a VIE and providing more clarity for reporting entities that typically make use of limited partnerships or VIEs. The guidance is effective for the Company in the first quarter of 2016 on either a full or modified retrospective basis, with early adoption permitted. Under the modified retrospective approach, prior years would not be restated; instead, a cumulative-effect adjustment to equity as of the beginning of the adoption year would be recorded. The Company may elect to early adopt and is currently evaluating the effect that adoption will have on its condensed consolidated financial statements.

In August 2014, the FASB issued guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. Additionally, an entity must provide certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern. The guidance is effective for the Company in the fourth quarter of 2016, with early adoption permitted. The Company does not expect that adoption of this guidance will have a material impact on its condensed consolidated financial statements.

In August 2014, the FASB issued guidance on measuring the financial assets and financial liabilities of a consolidated collateralized financing entity. The guidance applies to reporting entities that are required to consolidate a collateralized financing entity under the VIE guidance when (a) the reporting entity measures all of the financial assets and financial liabilities of that consolidated financing entity at fair value in the consolidated financial statements and (b) the changes in the fair values of those financial assets and financial liabilities are reflected in earnings. The guidance provides an alternative for measuring the financial assets and financial liabilities of a consolidated collateralized financing entity to eliminate differences in the fair value of those financial assets and financial liabilities as determined under GAAP. The guidance is effective for the Company in the first quarter of 2016, with early adoption permitted. The Company is currently evaluating the effect that adoption will have on its condensed consolidated financial statements.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

In May 2014, the FASB and International Accounting Standards Board issued converged guidance on revenue recognition, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance provides a largely principles-based framework for addressing revenue recognition issues on a comprehensive basis, eliminates an entity’s ability to recognize revenue if there is risk of significant reversal, and requires enhanced disclosures to provide greater insight into both revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts, including quantitative and qualitative information about significant judgments and changes in those judgments made by management in recognizing revenue. The guidance is effective for the Company in the first quarter of 2017, on either a full or modified retrospective basis. The Company is currently evaluating the effect that adoption will have on its condensed consolidated financial statements.

3. BUSINESS COMBINATIONS

In August 2014, the Company completed its acquisition of the Highstar Capital team and certain Highstar entities (collectively, “Highstar”) for $31.4 million in cash, 100,595 fully-vested OCGH units and contingent consideration of up to $60.0 million. Highstar is an investment management firm specializing in U.S. energy infrastructure, waste management and transportation. The transaction, which was immaterial to Oaktree’s condensed consolidated financial statements, resulted in $50.8 million of goodwill, $28.0 million of intangible assets, primarily consisting of contractual rights associated with the management of Highstar Capital IV (“HS IV”), and $72.2 million of non-controlling interests in certain acquired subsidiaries that principally relate to investments in HS IV. Effective August 2014, the Company consolidated the financial position and results of operations of the controlled Highstar entities, including HS IV, and accounted for this transaction as a business combination. Please see note 13 for information on the contingent consideration liability.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

4. INVESTMENTS, AT FAIR VALUE

Investments held and securities sold short by the consolidated funds are summarized below:



	Fair Value as of				Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments:	March 31, 2015		December 31, 2014		March 31, 2015		December 31, 2014
United States:
Debt securities:
Consumer discretionary	$	3,421,630	$	3,173,576	7.0	%	6.8	%
Consumer staples	738,049		692,890		1.5		1.5
Energy	1,320,250		1,028,317		2.7		2.2
Financials	1,030,123		805,337		2.1		1.7
Government	125,048		140,053		0.3		0.3
Health care	1,199,528		1,010,462		2.5		2.2
Industrials	1,741,247		1,795,909		3.6		3.9
Information technology	1,191,809		1,167,635		2.4		2.5
Materials	1,553,560		1,288,947		3.2		2.8
Telecommunication services	365,089		372,457		0.7		0.8
Utilities	1,305,612		1,409,408		2.7		3.0
Total debt securities (cost: $14,722,400 and $13,611,109 as of March 31, 2015 and December 31, 2014, respectively)	13,991,945		12,884,991		28.7		27.7
Equity securities:
Consumer discretionary	2,547,906		2,475,318		5.2		5.3
Consumer staples	749,419		530,305		1.5		1.1
Energy	1,756,114		1,756,480		3.6		3.8
Financials	8,203,670		7,720,904		16.8		16.6
Health care	228,243		224,705		0.5		0.5
Industrials	2,865,130		2,970,356		5.9		6.4
Information technology	140,723		176,097		0.3		0.4
Materials	1,059,654		1,207,523		2.2		2.6
Telecommunication services	23,025		21,616		0.1		0.0
Utilities	350,984		329,175		0.7		0.7
Total equity securities (cost: $13,989,870 and $13,911,333 as of March 31, 2015 and December 31, 2014, respectively)	17,924,868		17,412,479		36.8		37.4

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)



	Fair Value as of				Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments:	March 31, 2015		December 31, 2014		March 31, 2015		December 31, 2014
Europe:
Debt securities:
Consumer discretionary	$	1,347,977	$	1,371,689	2.8	%	3.0	%
Consumer staples	221,567		242,513		0.5		0.5
Energy	348,990		370,456		0.7		0.8
Financials	641,157		803,468		1.3		1.7
Health care	126,218		147,661		0.3		0.3
Industrials	325,512		344,642		0.7		0.7
Information technology	42,840		41,960		0.1		0.1
Materials	401,983		421,327		0.8		0.9
Telecommunication services	156,879		142,322		0.3		0.3
Utilities	8,854		24,668		0.0		0.1
Total debt securities (cost: $3,825,214 and $3,803,751 as of March 31, 2015 and December 31, 2014, respectively)	3,621,977		3,910,706		7.5		8.4
Equity securities:
Consumer discretionary	295,101		311,847		0.6		0.7
Consumer staples	126,646		59,628		0.3		0.1
Energy	42,102		92,416		0.1		0.2
Financials	5,067,338		4,760,386		10.4		10.2
Government	36		635		0.0		0.0
Health care	65,409		52,887		0.1		0.1
Industrials	1,378,343		1,226,825		2.8		2.6
Information technology	1,450		1,190		0.0		0.0
Materials	331,526		398,559		0.7		0.9
Telecommunication services	17,104		—		0.0		—
Utilities	184,886		—		0.4		—
Total equity securities (cost: $6,668,796 and $5,884,950 as of March 31, 2015 and December 31, 2014, respectively)	7,509,941		6,904,373		15.4		14.8
Asia and other:
Debt securities:
Consumer discretionary	109,091		140,732		0.2		0.3
Consumer staples	3,858		7,927		0.0		0.0
Energy	258,362		217,299		0.5		0.5
Financials	20,203		18,935		0.1		0.0
Government	3,787		50,073		0.0		0.1
Health care	51,459		48,977		0.1		0.1
Industrials	342,427		420,323		0.7		0.9
Information technology	36,175		23,555		0.1		0.1
Materials	276,790		252,965		0.6		0.6
Utilities	8,794		9,113		0.0		0.0
Total debt securities (cost: $1,126,042 and $1,168,453 as of March 31, 2015 and December 31, 2014, respectively)	1,110,946		1,189,899		2.3		2.6

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)



	Fair Value as of						Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments:	March 31, 2015			December 31, 2014			March 31, 2015		December 31, 2014
Asia and other:
Equity securities:
Consumer discretionary	$	739,373		$	664,077		1.5	%	1.4	%
Consumer staples	111,011			113,471			0.2		0.2
Energy	315,005			298,040			0.6		0.6
Financials	1,531,343			1,518,532			3.1		3.3
Health care	24,519			22,899			0.1		0.1
Industrials	1,083,182			937,455			2.2		2.0
Information technology	372,881			322,592			0.8		0.7
Materials	156,487			145,657			0.3		0.3
Telecommunication services	62,959			39,244			0.1		0.1
Utilities	177,934			169,384			0.4		0.4
Total equity securities (cost: $3,797,519 and $3,393,453 as of March 31, 2015 and December 31, 2014, respectively)	4,574,694			4,231,351			9.3		9.1
Total debt securities	18,724,868			17,985,596			38.5		38.7
Total equity securities	30,009,503			28,548,203			61.5		61.3
Total investments, at fair value	$	48,734,371		$	46,533,799		100.0	%	100.0	%
Securities Sold Short:
Securities sold short – equities (proceeds: $71,682 and $70,760 as of March 31, 2015 and December 31, 2014, respectively)	$	(65,403	)	$	(64,438	)

As of March 31, 2015 and December 31, 2014, no single issuer or investment had a fair value that exceeded 5% of Oaktree’s total consolidated net assets.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

Net Gains From Investment Activities of Consolidated Funds

Net gains from investment activities in the condensed consolidated statements of operations consist primarily of the 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,
	2015						2014
	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	$	167,799		$	557,315		$	718,123		$	775,322
Foreign currency forward contracts ⁽¹⁾	295,976			20,384			(56,976		)	(168		)
Total-return, credit-default and interest-rate swaps ⁽¹⁾	(4,926		)	(60,218		)	(102		)	7,419
Options and futures ⁽¹⁾	17,801			(11,149		)	(6,894		)	(10,057		)
Swaptions ⁽²⁾	(1,820		)	1,151			—			(2,038		)
Total	$	474,830		$	507,483		$	654,151		$	770,478


(1)	Please see note 6 for additional information.


(2)	A swaption is an option granting the buyer the right but not the obligation to enter into a swap agreement on a specified future date.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ 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 liabilities by fair-value hierarchy level are set forth below. Please see notes 7 and 14 for the fair value of the Company’s outstanding debt obligations and amounts due from/to affiliates, respectively.



	As of March 31, 2015											As of December 31, 2014
	Level I		Level II			Level III			Total			Level I		Level II			Level III			Total
Assets
U.S. Treasury securities ⁽¹⁾	$	570,749	$	—		$	—		$	570,749		$	655,529	$	—		$	—		$	655,529
Forward currency contracts ⁽²⁾	—		33,820			—			33,820			—		24,499			—			24,499
Total assets	$	570,749	$	33,820		$	—		$	604,569		$	655,529	$	24,499		$	—		$	680,028

Liabilities
Contingent consideration ⁽³⁾	$	—	$	—		$	(28,052	)	$	(28,052	)	$	—	$	—		$	(27,245	)	$	(27,245	)
Forward currency contracts ⁽³⁾	—		(4,219		)	—			(4,219		)	—		(3,439		)	—			(3,439		)
Interest-rate swaps ⁽³⁾	—		(2,448		)	—			(2,448		)	—		(2,317		)	—			(2,317		)
Total liabilities	$	—	$	(6,667	)	$	(28,052	)	$	(34,719	)	$	—	$	(5,756	)	$	(27,245	)	$	(33,001	)


(1)	Carrying value approximates fair value due to the short-term nature.


(2)	Amounts are included in other assets in the 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.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

Fair Value of Financial Instruments Held By Consolidated Funds

The short-term nature of cash and cash-equivalents held at the consolidated funds causes their carrying value to approximate fair value. The fair value of cash-equivalents is a Level I valuation. Derivatives may apply 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, 2015												As of December 31, 2014
	Level I			Level II			Level III			Total			Level I			Level II			Level III			Total
Assets
Investments:
Corporate debt – bank debt	$	—		$	8,306,307		$	1,573,508		$	9,879,815		$	—		$	8,135,722		$	1,555,656		$	9,691,378
Corporate debt – all other	4,416			6,067,778			2,772,859			8,845,053			4,039			5,539,518			2,750,661			8,294,218
Equities – common stock	6,225,293			106,367			10,156,394			16,488,054			6,042,583			505,459			9,044,579			15,592,621
Equities – preferred stock	1,519			—			1,381,135			1,382,654			3,148			—			1,320,752			1,323,900
Real estate	—			—			9,728,967			9,728,967			—			—			9,216,056			9,216,056
Real estate loan portfolios	—			—			2,406,252			2,406,252			—			—			2,399,105			2,399,105
Other	—			—			3,576			3,576			945			—			15,576			16,521
Total investments	6,231,228			14,480,452			28,022,691			48,734,371			6,050,715			14,180,699			26,302,385			46,533,799
Derivatives:
Forward currency contracts	—			358,551			—			358,551			—			254,929			—			254,929
Swaps	—			8,626			—			8,626			—			4,217			—			4,217
Options and futures	120			17,013			—			17,133			—			36,568			—			36,568
Swaptions	—			84			—			84			—			483			—			483
Total derivatives	120			384,274			—			384,394			—			296,197			—			296,197
Total assets	$	6,231,348		$	14,864,726		$	28,022,691		$	49,118,765		$	6,050,715		$	14,476,896		$	26,302,385		$	46,829,996

Liabilities
Securities sold short – equities	$	(65,403	)	$	—		$	—		$	(65,403	)	$	(64,438	)	$	—		$	—		$	(64,438	)
Derivatives:
Forward currency contracts	—			(132,908		)	—			(132,908		)	—			(54,663		)	—			(54,663		)
Swaps	—			(237,993		)	(6,988		)	(244,981		)	—			(172,672		)	(10,687		)	(183,359		)
Options and futures	(1,585		)	(2,324		)	—			(3,909		)	(11,051		)	(3,918		)	—			(14,969		)
Swaptions	—			—			—			—			—			(518		)	—			(518		)
Total derivatives	(1,585		)	(373,225		)	(6,988		)	(381,798		)	(11,051		)	(231,771		)	(10,687		)	(253,509		)
Total liabilities	$	(66,988	)	$	(373,225	)	$	(6,988	)	$	(447,201	)	$	(75,489	)	$	(231,771	)	$	(10,687	)	$	(317,947	)

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

The following tables set forth a summary of changes in the fair value of Level III investments:



	Corporate Debt – Bank Debt			Corporate Debt – All Other			Equities – Common Stock			Equities – Preferred Stock			Real Estate			Real Estate Loan Portfolios			Swaps			Other			Total
Three Months Ended March 31, 2015:
Beginning balance	$	1,555,656		$	2,750,661		$	9,056,579		$	1,320,752		$	9,216,056		$	2,399,105		$	(10,687	)	$	3,576		$	26,291,698
Transfers into Level III	106,935			—			326,587			4,636			—			—			—			—			438,158
Transfers out of Level III	(103,602		)	(31,834		)	(16		)	(12,201		)	—			—			—			—			(147,653		)
Purchases	182,030			251,565			852,436			57,732			291,518			129,278			—			—			1,764,559
Sales	(155,360		)	(78,944		)	(92,721		)	(52,187		)	(94,937		)	(89,892		)	—			—			(564,041		)
Realized gains (losses), net	14,803			3,274			(139,337		)	38,537			46,399			30,811			—			—			(5,513		)
Unrealized appreciation (depreciation), net	(26,954		)	(121,863		)	152,866			23,866			269,931			(63,050		)	3,699			—			238,495
Ending balance	$	1,573,508		$	2,772,859		$	10,156,394		$	1,381,135		$	9,728,967		$	2,406,252		$	(6,988	)	$	3,576		$	28,015,703
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	(5,384	)	$	32,951		$	205,341		$	108,209		$	428,121		$	(63,050	)	$	2,268		$	—		$	708,456
Three Months Ended March 31, 2014:
Beginning balance	$	2,809,437		$	2,432,179		$	6,700,015		$	919,771		$	6,221,294		$	2,369,441		$	—		$	13,708		$	21,465,845
Transfers into Level III	721,444			150			424,682			—			1,762			—			—			—			1,148,038
Transfers out of Level III	(972,015		)	(6,366		)	(340,071		)	(3,849		)	(90,896		)	—			—			—			(1,413,197		)
Purchases	254,943			123,984			800,128			144,517			800,795			236,684			—			1,000			2,362,051
Sales	(274,745		)	(536,993		)	(273,583		)	(41,380		)	(302,335		)	(285,339		)	—			—			(1,714,375		)
Realized gains (losses), net	44,144			115,502			59,376			(28		)	52,203			26,860			—			—			298,057
Unrealized appreciation (depreciation), net	1,146			(61,112		)	243,179			126,599			293,802			65,766			(2,902		)	(27		)	666,451
Ending balance	$	2,584,354		$	2,067,344		$	7,613,726		$	1,145,630		$	6,976,625		$	2,413,412		$	(2,902	)	$	14,681		$	22,812,870
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	(24,732	)	$	48,955		$	354,211		$	141,096		$	298,175		$	71,975		$	2,084		$	5		$	891,769

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.

There were no transfers between Level I and Level II positions for the three months ended March 31, 2015. Transfers between Level I and Level II positions for the three months ended March 31, 2014 included $635.2 million from Level II to Level I due to the removal of discounts on three exchange-traded common equity investments upon the expiration of lockup periods.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

Transfers out of Level III were generally attributable to certain investments that experienced a more significant level of market trading activity or completed an initial public offering during the respective period and thus were valued using observable inputs. Transfers into Level III typically reflected either investments that experienced a less significant level of market trading activity during the period or portfolio companies that undertook restructurings or bankruptcy proceedings and thus were valued in the absence of observable inputs.

The following table sets forth a summary of the valuation techniques and quantitative information utilized in determining the fair value of the consolidated funds’ Level III investments as of March 31, 2015:

Investment Type

Fair Value

Valuation Technique

Significant Unobservable Inputs ^(9)(10)(11)

Range

Weighted Average ⁽¹²⁾

Credit-oriented investments:

Consumer

discretionary:

214,234

Discounted cash flow ⁽¹⁾

Discount rate

5% – 14%

11%

475,228

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

3x – 8x

120,690

Recent transaction price ⁽⁵⁾

Not applicable

88,309

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Financials:

436,108

Discounted cash flow ⁽¹⁾

Discount rate

7% – 14%

11%

244,440

Market approach
(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

140,392

Recent transaction price ⁽⁵⁾

Not applicable

97,659

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Industrials:

187,152

Discounted cash flow ⁽¹⁾

Discount rate

5% – 15%

12%

198,362

Discounted cash flow ⁽¹⁾ /

Sales approach ⁽⁸⁾

Discount rate / Market transactions

10% – 14%

12%

13,358

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 9x

77,160

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

36,823

Recent transaction price ⁽⁵⁾

Not applicable

67,583

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Materials:

138,398

Discounted cash flow ⁽¹⁾

Discount rate

11% – 13%

12%

219,701

Discounted cash flow ⁽¹⁾ /

Sales approach ⁽⁸⁾

Discount rate / Market transactions

12% – 14%

13%

257,288

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

7x – 9x

16,459

Recent transaction price ⁽⁵⁾

Not applicable

Other:

547,453

Discounted cash flow ⁽¹⁾

Discount rate

5% – 14%

12%

162,887

Market approach
(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

7x – 9x

209,414

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

20,289

Recent transaction price ⁽⁵⁾

Not applicable

369,992

Recent market information ⁽⁶⁾

Quoted prices / discount
(discount not applicable)

Not applicable

Equity investments:

Energy:

39,577

Discounted cash flow ⁽¹⁾

Discount rate

10% – 12%

11%

967,139

Market approach
(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

5x – 18x

12x

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

Investment Type

Fair Value

Valuation Technique

Significant Unobservable Inputs ^(9)(10)(11)

Range

Weighted Average ⁽¹²⁾

62,459

Recent transaction price ⁽⁵⁾

Not applicable

422,931

Other

Not applicable

Financials:

124,776

Discounted cash flow ⁽¹⁾ /

Sales approach ⁽⁸⁾

Discount rate / Market transactions

6% – 8%

759,272

Market approach
(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.2x

1.1x

266,438

Recent transaction price ⁽⁵⁾

Not applicable

148,477

Recent market information ⁽⁶⁾

Quoted prices / discount
(discount not applicable)

Not applicable

Industrials:

4,683

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

7% – 9%

2,182,953

Market approach
(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 15x

2,474,244

Market approach
(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.1x

289,884

Recent transaction price ⁽⁵⁾

Not applicable

307,271

Recent market information ⁽⁶⁾

Quoted prices / discount
(discount not applicable)

Not applicable

Materials:

1,158,360

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 10x

15,575

Recent transaction price ⁽⁵⁾

Not applicable

179,174

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Other:

1,647,200

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 11x

336,896

Recent transaction price ⁽⁵⁾

Not applicable

150,220

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Real estate-oriented investments:

3,566,031

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

6% – 44%

13%

Terminal capitalization rate

5% – 10%

Direct capitalization rate

4% – 10%

Net operating income growth rate

0% – 60%

12%

Absorption rate

21% – 50%

39%

227,085

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

12x – 14x

13x

805,420

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.5x

1.4x

693,022

Recent transaction price ⁽⁵⁾

Not applicable

201,027

Recent market information ⁽⁶⁾ /

Market approach

(comparable companies) ⁽²⁾

Quoted prices / discount

(discount not applicable) /

Earnings multiple ⁽³⁾

7x – 9x

2,836,541

Recent market information ⁽⁶⁾

Quoted prices / discount

0% – 6%

1,347,446

Sales approach ⁽⁸⁾

Market transactions

Not applicable

52,395

Other

Not applicable

Real estate loan portfolios:

1,980,758

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

10% – 15%

12%

425,494

Recent transaction price ⁽⁵⁾

Not applicable

Other

3,576

Total Level III

investments

28,015,703

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

The following table sets forth a summary of the valuation technique and quantitative information utilized in determining the fair value of the consolidated funds’ Level III investments as of December 31, 2014:

Investment Type

Fair Value

Valuation Technique

Significant Unobservable Inputs ^(9)(10)(11)

Range

Weighted Average ⁽¹²⁾

Credit-oriented investments:

Consumer

discretionary:

164,401

Discounted cash flow ⁽¹⁾

Discount rate

5% – 12%

11%

487,784

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

3x – 10x

133,410

Recent transaction price ⁽⁵⁾

Not applicable

119,219

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Financials:

280,827

Discounted cash flow ⁽¹⁾

Discount rate

9% – 14%

12%

205,639

Market approach
(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

228,804

Recent transaction price ⁽⁵⁾

Not applicable

55,472

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Industrials:

240,935

Discounted cash flow ⁽¹⁾

Discount rate

5% – 20%

13%

206,763

Discounted cash flow ⁽¹⁾ /

Sales approach ⁽⁸⁾

Discount rate / Market transactions

10% – 14%

12%

13,358

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

3x – 8x

83,020

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

121,888

Recent transaction price ⁽⁵⁾

Not applicable

113,500

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Materials:

77,008

Discounted cash flow ⁽¹⁾

Discount rate

11% – 13%

12%

189,081

Discounted cash flow ⁽¹⁾ /

Sales approach ⁽⁸⁾

Discount rate / Market transactions

15% – 17%

16%

250,803

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 8x

64,490

Recent transaction price ⁽⁵⁾

Not applicable

Other:

449,065

Discounted cash flow ⁽¹⁾

Discount rate

5% – 13%

11%

376,237

Market approach
(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

7x – 8x

123,842

Recent transaction price ⁽⁵⁾

Not applicable

310,084

Recent market information ⁽⁶⁾

Quoted prices / discount
(discount not applicable)

Not applicable

Equity investments:

Energy:

47,524

Discounted cash flow ⁽¹⁾

Discount rate

10% – 12%

11%

1,045,233

Market approach
(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

5x – 18x

12x

60,409

Recent transaction price ⁽⁵⁾

Not applicable

432,717

Other

Not applicable

Financials:

116,328

Discounted cash flow ⁽¹⁾ /

Sales approach ⁽⁸⁾

Discount rate / Market transactions

6% – 8%

646,720

Market approach
(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.1x

171,844

Recent transaction price ⁽⁵⁾

Not applicable

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

Investment Type

Fair Value

Valuation Technique

Significant Unobservable Inputs ^(9)(10)(11)

Range

Weighted Average ⁽¹²⁾

140,804

Recent market information ⁽⁶⁾

Quoted prices / discount
(discount not applicable)

Not applicable

Industrials:

2,086,026

Market approach
(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

3x – 15x

2,313,549

Market approach
(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.2x

100,655

Recent transaction price ⁽⁵⁾

Not applicable

397,377

Recent market information ⁽⁶⁾

Quoted prices / discount
(discount not applicable)

Not applicable

Materials:

1,154,908

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 11x

70,123

Recent transaction price ⁽⁵⁾

Not applicable

1,477

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Other:

1,371,935

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 12x

55,769

Recent transaction price ⁽⁵⁾

Not applicable

151,933

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Real estate-oriented investments:

3,276,236

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

6% – 44%

13%

Terminal capitalization rate

6% – 10%

Direct capitalization rate

5% – 9%

Net operating income growth rate

0% – 37%

10%

Absorption rate

19% – 44%

38%

262,218

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

12x – 18x

13x

766,755

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.5x

1.4x

915,247

Recent transaction price ⁽⁵⁾

Not applicable

2,625,026

Recent market information ⁽⁶⁾

Quoted prices / discount

0% – 6%

245,316

Recent market information ⁽⁶⁾ /

Market approach

(comparable companies) ⁽²⁾

Quoted prices / discount
(discount not applicable) /

Earnings multiple ⁽³⁾

7x – 9x

1,075,459

Sales approach ⁽⁸⁾

Market transactions

Not applicable

49,799

Other

Not applicable

Real estate loan portfolios:

2,019,261

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

8% – 16%

13%

379,844

Recent transaction price ⁽⁵⁾

Not applicable

Other

15,576

Total Level III

investments

26,291,698


(1)	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.


(2)	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.

(3)

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.


(4)	A market approach using the value of underlying assets utilizes a multiple, based on comparable companies, of underlying assets or the net book value of the portfolio company. The Company typically obtains the value of underlying assets from the underlying portfolio

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

company’s financial statements or from pricing vendors. The Company may value the underlying assets by using prices and other relevant information from market transactions involving comparable assets.


(5)	Certain investments are valued based on recent transactions, generally defined as investments purchased or sold within six months of the valuation date. The fair value may also be based on a pending transaction expected to close after the valuation date.


(6)	Certain investments are valued using quoted prices for the subject or similar securities. Generally, investments valued in this manner are classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions.

(7)

The discounted cash flow model for certain real estate-oriented investments and certain real estate loan portfolios contains a sell-out analysis. In these cases, the discounted cash flow is based on the expected timing and prices of sales of the underlying properties. The Company’s determination of the sales prices of these properties typically includes consideration of prices and other relevant information from market transactions involving comparable properties.

(8)

The sales approach uses prices and other relevant information generated by market transactions involving comparable assets. The significant unobservable inputs used in the sales approach generally include adjustments to transactions involving comparable assets or properties, adjustments to external or internal appraised values, and the Company’s assumptions regarding market trends or other relevant factors.


(9)	The discount rate is the significant unobservable input used in the fair-value measurement of performing credit-oriented investments in which the consolidated funds do not have a controlling interest in the underlying issuer, as well as certain equity investments and real estate loan portfolios. An increase (decrease) in the discount rate would result in a lower (higher) fair-value measurement.

(10)

Multiple of either earnings or underlying assets is the significant unobservable input used in the market approach for the fair-value measurement of distressed credit-oriented investments, credit-oriented investments in which the consolidated funds have a controlling interest in the underlying issuer, equity investments and certain real estate-oriented investments. An increase (decrease) in the multiple would result in a higher (lower) fair-value measurement.

(11)

The significant unobservable inputs used in the fair-value measurement of real estate investments utilizing a discounted cash flow analysis can include one or more of the following: discount rate, terminal capitalization rate, direct capitalization rate, net operating income growth rate or absorption rate. An increase (decrease) in a discount rate, terminal capitalization rate or direct capitalization rate would result in a lower (higher) fair-value measurement. An increase (decrease) in a net operating income growth rate or absorption rate would result in a higher (lower) fair-value measurement. Generally, a change in a net operating income growth rate or absorption rate would be accompanied by a directionally similar change in the discount rate.


(12)	The weighted average is based on the fair value of the investments included in the range.

A significant amount of judgment may be required when using unobservable inputs, including assessing the accuracy of source data and the results of pricing models. The Company assesses the accuracy and reliability of the sources it uses to develop unobservable inputs. These sources may include third-party vendors that the Company believes are reliable and commonly utilized by other market place 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, 2015, the valuation technique for six Level III investments changed: (a) three credit-oriented investments and one equity investment changed from a market approach based on comparable companies to a market approach based on the value of underlying assets as a result of an increased focus on the value of the company’s physical assets, (b) one real estate-oriented investment changed from a valuation based on a market approach to a discounted cash flow as a result of the stabilization of the underlying property and (c) one real estate-oriented investment changed from a valuation based on a discounted cash flow to a sales approach as a result of receiving offers from potential buyers.

During the three months ended March 31, 2014, the valuation technique for one Level III equity security and one Level III credit-oriented security changed from a valuation based on then-recent market information to a market approach based on comparable companies, because the investee underwent a restructuring and its securities are no longer traded.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

6. HEDGES AND OTHER DERIVATIVE INSTRUMENTS

The Company enters into derivative instruments 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 derivative instruments 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 derivative instruments.

As of March 31, 2015 and December 31, 2014, the Company had outstanding two interest-rate swaps that were designated to hedge the interest rate risk covering up to $172.5 million of the $250.0 million variable-rate bank term loan. The swaps, which had aggregate notional values of $341.3 million and $348.8 million as of March 31, 2015 and December 31, 2014, respectively, expire through January 2017. As of March 31, 2015, the hedges continued to be effective.

In August 2013, to facilitate its investment management activities, the Company entered into a two-year total return swap (“TRS”) agreement with a financial institution to meet certain investment objectives for which the primary risk exposure was credit. Pursuant to the TRS agreement, the Company had deposited $50.0 million in cash collateral with the counterparty and had the ability to access up to $200.0 million of U.S. dollar-denominated debt securities underlying the TRS.

In February 2014, the Company closed its TRS position resulting in realized gains of $7.1 million, and received $1.4 million in cash at closing. In connection with the launch of a CLO, the Company contributed the $50.0 million cash collateral deposit and $5.7 million of remaining realized gains due from the counterparty under the TRS agreement, and an additional $4.5 million in cash, to the CLO. The CLO purchased the underlying reference securities that were held by the counterparty under the TRS agreement at fair value of $312.9 million plus $1.0 million of interest receivable. The CLO paid $258.2 million in cash, net of the $50.0 million cash collateral deposit and $5.7 million of realized gains due from the counterparty under the TRS agreement. The CLO was funded with the Company’s $60.2 million in aggregate contributions and net proceeds of $450.0 million in cash from the issuance of $456.0 million in senior secured notes to a third party, net of $6.0 million in debt issuance costs. Please see note 7 for more information regarding CLO loans payable.

Freestanding derivatives are instruments that the Company enters into as part of its overall risk management strategy but does not designate as hedging instruments for accounting purposes. These instruments may include foreign currency exchange contracts, interest-rate swaps and other derivative contracts.

The fair value of forward currency sell contracts consisted of the following:



As of March 31, 2015:	Contract Amount in Local Currency	Contract Amount in U.S. Dollars		Market Value in U.S. Dollars		Net Unrealized Appreciation (Depreciation)
Euro, expiring 4/8/15-7/8/16	195,120	$	238,306	$	210,318	$	27,988
USD (buy GBP), expiring 4/30/15-1/8/16	92,106	92,106		95,527		(3,421		)
Japanese Yen, expiring 6/30/15-3/31/16	8,220,600	73,867		68,833		5,034
Total		$	404,279	$	374,678	$	29,601

As of December 31, 2014:
Euro, expiring 1/8/15-12/31/15	206,820	$	266,569	$	250,789	$	15,780
USD (buy GBP), expiring 1/8/15-12/31/15	88,081	88,081		91,485		(3,404		)
Japanese Yen, expiring 1/30/15-12/30/15	7,420,600	70,784		62,100		8,684
Total		$	425,434	$	404,374	$	21,060

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

Realized and unrealized gains and losses arising from freestanding derivative instruments were recorded in the condensed consolidated statements of operations as follows:



	For the Three Months Ended March 31,
Foreign Currency Forward Contracts:	2015		2014
General and administrative expenses ⁽¹⁾	$	23,955	$	(1,491	)

Total-return Swap:
Investment income	$	—	$	2,554


(1)	To the extent that the Company’s freestanding derivatives are utilized to hedge its exposure to investment income and management fees earned from consolidated funds, the related hedged items are eliminated in consolidation, with the derivative impact (a positive number reflects a reduction of expenses) reflected in consolidated general and administrative expenses.

As of both March 31, 2015 and December 31, 2014, the Company had not designated any derivatives as fair-value hedges or hedges of net investments in foreign operations.

Derivatives Held By Consolidated Funds

Certain consolidated funds utilize derivative instruments in 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 exposure for specific securities, and total-return and credit-default 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 and credit-default swaps is credit. None of the derivative instruments is accounted for as a hedging instrument utilizing hedge accounting.

The average notional amounts of foreign currency and total-return swap contracts outstanding, respectively, during the three months ended March 31, 2015 were $5.8 billion long and $357.4 million short, and $2.3 billion long and $16.4 million short.

The impact of derivative instruments held by the consolidated funds in the condensed consolidated statements of operations was as follows:



	Three Months Ended March 31,
	2015						2014
	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	$	295,976		$	20,384		$	(56,976	)	$	(168	)
Total-return, credit-default and interest-rate swaps	(4,926		)	(60,218		)	(102		)	7,419
Options and futures	17,801			(11,149		)	(6,894		)	(10,057		)
Swaptions	(1,820		)	1,151			—			(2,038		)
Total	$	307,031		$	(49,832	)	$	(63,972	)	$	(4,844	)

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ 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. The table below sets forth the setoff rights and related arrangements associated with derivative instruments held by the Company. The “gross amounts not offset in statements of financial condition” column represents derivative instruments that are eligible to be offset in accordance with applicable accounting guidance, but for which management has elected not to offset in the condensed consolidated statements of financial condition.



	Gross Amounts of Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)		Net Amounts of Assets (Liabilities) Presented			Gross Amounts Not Offset in Statements of Financial Condition						Net Amount
As of March 31, 2015	Gross Amounts of Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)		Net Amounts of Assets (Liabilities) Presented			Derivative Assets (Liabilities)			Cash Collateral Received (Pledged)			Net Amount
Derivative Assets:
Foreign currency forward contracts	$	33,820		$	—	$	33,820		$	6,667		$	—		$	27,153
Derivative assets of consolidated funds:
Foreign currency forward contracts	358,551			—		358,551			96,718			—			261,833
Total-return, credit-default and interest-rate swaps	8,626			—		8,626			1,554			—			7,072
Options and futures	17,133			—		17,133			6,110			—			11,023
Swaptions	84			—		84			84			—			—
Subtotal	384,394			—		384,394			104,466			—			279,928
Total	$	418,214		$	—	$	418,214		$	111,133		$	—		$	307,081

Derivative Liabilities:
Foreign currency forward contracts	$	(4,219	)	$	—	$	(4,219	)	$	(4,219	)	$	—		$	—
Interest-rate swaps	(2,448		)	—		(2,448		)	(2,448		)	—			—
Subtotal	(6,667		)	—		(6,667		)	(6,667		)	—			—
Derivative liabilities of consolidated funds:
Foreign currency forward contracts	(132,908		)	—		(132,908		)	(96,718		)	—			(36,190		)
Total-return, credit-default and interest-rate swaps	(244,981		)	—		(244,981		)	(5,873		)	(214,132		)	(24,976		)
Options and futures	(3,909		)	—		(3,909		)	(1,875		)	(1,678		)	(356		)
Subtotal	(381,798		)	—		(381,798		)	(104,466		)	(215,810		)	(61,522		)
Total	$	(388,465	)	$	—	$	(388,465	)	$	(111,133	)	$	(215,810	)	$	(61,522	)

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)



	Gross Amounts of Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)		Net Amounts of Assets (Liabilities) Presented			Gross Amounts Not Offset in Statements of Financial Condition						Net Amount
As of December 31, 2014	Gross Amounts of Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)		Net Amounts of Assets (Liabilities) Presented			Derivative Assets (Liabilities)			Cash Collateral Received (Pledged)			Net Amount
Derivative Assets:
Foreign currency forward contracts	$	24,499		$	—	$	24,499		$	5,756		$	—		$	18,743
Derivative assets of consolidated funds:
Foreign currency forward contracts	254,929			—		254,929			51,260			—			203,669
Total-return, credit-default and interest-rate swaps	4,217			—		4,217			512			—			3,705
Options and futures	36,568			—		36,568			12,605			—			23,963
Swaptions	483			—		483			483			—			—
Subtotal	296,197			—		296,197			64,860			—			231,337
Total	$	320,696		$	—	$	320,696		$	70,616		$	—		$	250,080

Derivative Liabilities:
Foreign currency forward contracts	$	(3,439	)	$	—	$	(3,439	)	$	(3,439	)	$	—		$	—
Interest-rate swaps	(2,317		)	—		(2,317		)	(2,317		)	—			—
Subtotal	(5,756		)	—		(5,756		)	(5,756		)	—			—
Derivative liabilities of consolidated funds:
Foreign currency forward contracts	(54,663		)	—		(54,663		)	(51,088		)	—			(3,575		)
Total-return, credit-default and interest-rate swaps	(183,359		)	—		(183,359		)	(9,427		)	(156,011		)	(17,921		)
Options and futures	(14,969		)	—		(14,969		)	(3,863		)	(11,106		)	—
Swaptions	(518		)			(518		)	(483		)	—			(35		)
Subtotal	(253,509		)	—		(253,509		)	(64,861		)	(167,117		)	(21,531		)
Total	$	(259,265	)	$	—	$	(259,265	)	$	(70,617	)	$	(167,117	)	$	(21,531	)

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

7. DEBT OBLIGATIONS AND CREDIT FACILITIES

The Company’s debt obligations are set forth below:



	As of
	March 31, 2015		December 31, 2014

$50,000, 6.09%, issued in June 2006, payable on June 6, 2016	$	50,000	$	50,000
$50,000, 5.82%, issued in November 2006, payable on November 8, 2016	50,000		50,000
$250,000, 6.75%, issued in November 2009, payable on December 2, 2019	250,000		250,000
$250,000, rate as described below, term loan issued in March 2014, payable on March 31, 2019	250,000		250,000
$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
Total remaining principal	$	850,000	$	850,000

Future scheduled principal payments of debt obligations as of March 31, 2015 were as follows:



Remainder of 2015	$	—
2016	100,000
2017	—
2018	—
2019	500,000
Thereafter	250,000
Total	$	850,000

The Company was in compliance with all financial maintenance covenants associated with its senior notes and credit facility as of March 31, 2015 and December 31, 2014.

The fair value of the Company’s debt obligations, which are carried at amortized cost, is a Level III valuation that is estimated based on a discounted cash-flow calculation using estimated rates that would be offered to Oaktree for debt of similar terms and maturities. The fair value of these debt obligations was $884.8 million and $895.9 million as of March 31, 2015 and December 31, 2014, respectively, utilizing an average borrowing rate of 3.3% and 3.2%, respectively. As of March 31, 2015, a 10% increase in the assumed average borrowing rate would lower the estimated fair value to $868.7 million, whereas a 10% decrease would increase the estimated fair value to $901.5 million.

In September 2014, the Company’s subsidiaries Oaktree Capital Management, L.P. (the “Issuer”) and Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P. (the “Guarantors” and together with the Issuer, the “Obligors”) issued and sold to certain accredited investors $50.0 million aggregate principal amount of its 3.91% Senior Notes, Series A, due September 3, 2024 (the “Series A Notes”), $100.0 million aggregate principal amount of its 4.01% Senior Notes, Series B, due September 3, 2026 (the “Series B Notes”) and $100.0 million aggregate principal amount of its 4.21% Senior Notes, Series C, due September 3, 2029 (the “Series C Notes” and together with the Series A Notes and the Series B Notes, the “Notes”) pursuant to a note and guarantee agreement (the “Note Agreement”). The Notes are senior unsecured obligations of the Issuer, guaranteed by the Guarantors on a joint and several basis. Interest on the Notes is payable semi-annually.

The Note Agreement provides for certain affirmative and negative covenants, including financial covenants relating to the Obligors’ combined leverage ratio and minimum assets under management. In addition, the Note Agreement contains customary representations and warranties of the Obligors and customary events of default, in certain cases, subject to cure periods. The Issuer may prepay all, or from time to time any part of, the Notes at any time, subject to the Issuer’s payment of the applicable make-whole amount determined with respect to such principal amount prepaid. Upon the occurrence of a change of control, the Issuer will be required to make an offer

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

to prepay the Notes together with the applicable make-whole amount determined with respect to such principal amount prepaid.

In March 2014, the Company’s subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P. and Oaktree Capital I, L.P. entered into a credit agreement with a bank syndicate for senior unsecured credit facilities (the “Credit Facility”), consisting of a $250.0 million fully-funded term loan (the “Term Loan”) and a $500.0 million revolving credit facility (the “Revolver”), each with a five-year term. The Credit Facility replaced the amortizing term loan, which had a principal balance of $218.8 million, and the undrawn revolver under the Company’s prior credit facility. The Term Loan matures in March 2019, at which time the entire principal amount of $250.0 million is due. Borrowings under the Credit Facility generally bear interest at a spread to either LIBOR or an alternative base rate. Based on the current credit ratings of Oaktree Capital Management, L.P., the interest rate on borrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of the Revolver is 0.125% per annum. Utilizing interest-rate swaps, the majority of the Term Loan’s annual interest rate is fixed at 2.69% through January 2016 and 2.22% for the twelve months thereafter, based on the current credit ratings of Oaktree Capital Management, L.P. The Credit Facility contains customary financial covenants and restrictions, including ones regarding a maximum leverage ratio of 3.0-to-1.0 and a minimum required level of assets under management (as defined in the credit agreement) of $50.0 billion. As of March 31, 2015, the Company had no outstanding borrowings under the Revolver and was able to draw the full amount available without violating any financial maintenance covenants.

Credit Facilities of the Consolidated Funds

Certain consolidated funds maintain revolving credit facilities to fund investments between capital drawdowns. These facilities generally (a) are collateralized by the unfunded capital commitments of the consolidated funds’ limited partners, (b) bear an annual commitment fee based on unfunded commitments, and (c) contain various affirmative and negative covenants and reporting obligations, including restrictions on additional indebtedness, liens, margin stock, affiliate transactions, dividends and distributions, release of capital commitments, and portfolio asset dispositions. Additionally, certain consolidated funds have issued senior variable rate notes to fund investments on a longer term basis, generally up to ten years. The obligations of the consolidated funds are nonrecourse to the Company.

The fair value of the revolving credit facilities is a Level III valuation and approximated carrying value for all periods presented due to their short-term nature. The fair value of the credit facilities and senior variable rate notes is a Level III valuation and aggregated $3.2 billion and $2.8 billion as of March 31, 2015 and December 31, 2014, respectively, using prices obtained from pricing vendors. Financial instruments that are valued using quoted prices for the subject or similar securities are generally classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

The consolidated funds had the following revolving credit facilities and term loans outstanding:



Credit Agreement	Outstanding Amount as of				Facility Capacity		LIBOR Margin ⁽¹⁾	Maturity	Commitment Fee Rate	L/C Fee ⁽²⁾
Credit Agreement	March 31, 2015		December 31, 2014		Facility Capacity		LIBOR Margin ⁽¹⁾	Maturity	Commitment Fee Rate	L/C Fee ⁽²⁾
Credit facility ⁽³⁾	$	434,000	$	434,000	$	435,000	1.45%	11/14/2018	N/A	N/A
Senior variable rate notes ⁽³⁾	249,500		249,500		$	249,500	1.55%	10/20/2022	N/A	N/A
Senior variable rate notes ⁽³⁾	499,424		499,322		$	500,000	1.20%	4/20/2023	N/A	N/A
Senior variable rate notes ⁽³⁾	402,434		402,422		$	402,500	1.20%	7/20/2023	N/A	N/A
Senior variable rate notes ⁽³⁾	64,500		64,500		$	64,500	1.65%	7/20/2023	N/A	N/A
Senior variable rate notes ⁽³⁾	420,000		420,000		$	420,000	1.47%	8/15/2025	N/A	N/A
Senior variable rate notes ⁽³⁾	84,490		84,399		$	86,000	2.10%	8/15/2025	N/A	N/A
Credit facility ⁽³⁾⁽⁴⁾	—		—		$	650,000	1.25%	4/11/2017	N/A	N/A
Senior variable rate notes ⁽³⁾	332,741		332,706		$	333,000	1.56%	11/15/2025	N/A	N/A
Senior variable rate notes ⁽³⁾	76,727		76,648		$	78,000	2.30%	11/15/2025	N/A	N/A
Senior variable rate notes ⁽³⁾	39,103		39,049		$	40,000	3.20%	11/15/2025	N/A	N/A
Senior variable rate notes ⁽³⁾	307,500		—		$	307,500	1.55%	2/15/2026	N/A	N/A
Senior variable rate notes ⁽³⁾	64,804		—		$	65,000	2.30%	2/15/2026	N/A	N/A
Senior variable rate notes ⁽³⁾	36,914		—		$	37,500	3.10%	2/15/2026	N/A	N/A
Revolving credit facility	52,917		50,054		$	450,000	2.60%	8/14/2015	0.25%	2.00%
Revolving credit facility	371,000		500,000		$	500,000	1.60%	6/26/2015	0.25%	N/A
Revolving credit facility	2,510		—		$	400,000	1.50%	3/18/2018	0.60%	1.50%
Revolving credit facility	—		—		$	25,000	1.75%	5/20/2015	0.35%	N/A
Revolving credit facility	21,300		800		$	55,000	2.00%	12/15/2015	0.35%	2.00%
Euro-denominated revolving credit facility	566,142		650,725		€	550,000	1.65%	2/25/2016	0.25%	1.65%
Euro-denominated revolving credit facility	87,271		97,925		€	100,000	1.95%	2/2/2016	0.40%	1.95%
Euro-denominated revolving credit facility	304,912		—		€	300,000	2.35%	2/27/2017	0.50%	2.35%
Revolving credit facility	82,000		146,000		$	350,000	1.65%	5/22/2015	0.25%	N/A
Revolving credit facility	253,672		201,739		$	350,000	1.60%	1/16/2017	0.25%	1.60%
Revolving credit facility	—		2,000		$	35,000	1.50%	12/11/2015	0.20%	N/A
Revolving credit facility	55,121		56,697		$	61,000	2.95%	3/15/2019	N/A	N/A
Revolving credit facility	80,325		88,000		$	95,315	2.75%	12/16/2018	1.00%	N/A
Revolving credit facility	147,796		93,943		$	225,000	1.60%	9/8/2016	0.25%	2.00%
Revolving credit facility	13,962		—		$	40,000	2.25%	3/4/2016	0.30%	1.75%
Revolving credit facility	28,200		—		$	50,000	1.50%	1/30/2017	0.25%	1.50%
Credit facility ⁽⁵⁾	181,339		214,423		$	181,339	1.99%	Various	N/A	N/A
	$	5,260,604	$	4,704,852


(1)	The facilities bear interest, at the borrower’s option, at (a) an annual rate of LIBOR plus the applicable margin or (b) an alternate base rate, as defined in the respective credit agreement.


(2)	Certain facilities allow for the issuance of letters of credit at an applicable annual fee. As of March 31, 2015 and December 31, 2014, outstanding standby letters of credit totaled $377,253 and $43,326, respectively.


(3)	The senior variable rate notes and credit facilities are collateralized by the portfolio investments and cash and cash-equivalents of the fund.


(4)	The LIBOR margin is 1.25% through July 11, 2015, and 2.50% thereafter.


(5)	The credit facility is collateralized by specific investments of the fund. Of the total balance outstanding, $27.1 million matures in February 2016, $148.4 million in March 2016 and $5.8 million in November 2016.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

Collateralized Loan Obligation Loans Payable

Debt obligations of the CLOs represent amounts due to holders of debt securities issued by the CLOs, including term loans held by CLOs that had not priced as of period end. The table below sets forth the outstanding loans payable of the CLOs.



	As of March 31, 2015						As of December 31, 2014
	Outstanding Borrowings		Fair Value ⁽¹⁾		Weighted Average Interest Rate	Weighted Average Remaining Maturity (years)	Outstanding Borrowings		Fair Value ⁽¹⁾		Weighted Average Interest Rate	Weighted Average Remaining Maturity (years)
Senior secured notes ⁽²⁾	$	456,742	$	458,199	2.27%	10.0	$	456,567	$	449,167	2.25%	10.3
Senior secured notes ⁽³⁾	453,975		456,841		2.47%	11.7	453,821		454,274		2.43%	12.0
Senior secured notes ⁽⁴⁾	89,620		89,548		2.60%	3.8	85,776		85,468		2.61%	4.0
Senior secured notes ⁽⁵⁾	359,509		357,807		2.27%	12.5	405,018		402,649		2.32%	12.7
Senior secured notes ⁽⁶⁾	356,679		360,930		2.46%	13.1	—		—		—	—
Subordinated note ⁽⁷⁾	25,500		22,643		N/A	11.7	25,500		25,500		N/A	12.0
Subordinated note ⁽⁷⁾	20,943		19,588		N/A	12.5	23,596		23,596		N/A	12.7
Subordinated note ⁽⁷⁾	12,888		13,266		N/A	13.1	—		—		—	—
Term loan	—		—		—	—	151,257		151,257		1.24%	1.8
	$	1,775,856	$	1,778,822			$	1,601,535	$	1,591,911

(1)

The debt obligations of the CLOs are Level III valuations and were valued using prices obtained from pricing vendors or recent transactions. Financial instruments that are valued using quoted prices for the subject or similar securities are generally classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions. Financial instruments that are valued based on recent transactions are generally defined as securities purchased or sold within six months of the valuation date. The fair value may also be based on a pending transaction expected to close after the valuation date. For recently issued debt obligations, the carrying value approximates fair value.


(2)	The weighted average interest rate is based on LIBOR plus 2.01%.


(3)	The weighted average interest rate is based on LIBOR plus 2.21%.


(4)	The interest rate was LIBOR plus a margin determined based on a formula as defined in the respective borrowing agreements, which incorporate different borrowing values based on the characteristics of collateral investments purchased. The weighted average unused commitment fee rate ranged from 0% to 2.0%.


(5)	The weighted average interest rate is based on EURIBOR plus 2.25%.


(6)	The weighted average interest rate is based on EURIBOR plus 2.27%.


(7)	The subordinated notes do not have a contractual interest rate; instead, they receive distributions from the excess cash flows generated by the CLO.

The obligations with respect to the CLO loans payable 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, 2015, the fair value of the CLO assets was $2.1 billion and consisted of cash, corporate loans, corporate bonds and other securities.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

Future scheduled principal payments with respect to the CLO loans payable as of March 31, 2015 were as follows:



Remainder of 2015	$	—
2016	—
2017	—
2018	89,620
2019	—
Thereafter	1,686,236
Total	$	1,775,856

8. NON-CONTROLLING REDEEMABLE INTERESTS IN CONSOLIDATED FUNDS

The following table sets forth a summary of changes in the non-controlling redeemable interests in the consolidated funds. Dividends reinvested and in-kind contributions or distributions are non-cash in nature and have been grossed up in the table below.



	Three Months Ended March 31,
	2015			2014
Beginning balance	$	41,681,155		$	38,834,831
Contributions	2,073,402			1,971,832
Distributions	(1,945,778		)	(2,092,259		)
Net income	1,135,598			1,324,832
Change in distributions payable	418,943			109,025
Change in accrued or deferred contributions	(59,583		)	—
Foreign currency translation and other	(552,223		)	2,461
Ending balance	$	42,751,514		$	40,150,722

9. UNITHOLDERS’ CAPITAL

Unitholders’ capital reflects the economic interests attributable to Class A unitholders, non-controlling interests in consolidated subsidiaries and non-controlling interests in consolidated funds. Non-controlling interests in consolidated subsidiaries represent the portion of unitholders’ capital attributable to third parties and to OCGH unitholders’ economic interest in the Oaktree Operating Group, or OCGH non-controlling interest. 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, 2015 and December 31, 2014, respectively, OCGH units represented 105,298,682 of the total 153,670,341 Oaktree Operating Group units and 109,088,901 of the total 152,852,620 Oaktree Operating Group units. Based on total allocable Oaktree Operating Group capital of $1,694,411 and $1,640,594 as of March 31, 2015 and December 31, 2014, respectively, the OCGH non-controlling interest was $1,161,057 and $1,170,893. As of March 31, 2015 and December 31, 2014, non-controlling interests attributable to third parties was $93,047 and $95,068, respectively.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

The following table sets forth a summary of the net income attributable to the OCGH unitholders' non-controlling interest and to the Class A unitholders:



	Three Months Ended March 31,
	2015			2014
Weighted average Oaktree Operating Group units outstanding (in thousands):
OCGH non-controlling interest	108,174			112,571
Class A unitholders	45,063			39,700
Total weighted average units outstanding	153,237			152,271
Oaktree Operating Group net income:
Net income attributable to OCGH non-controlling interest	$	108,766		$	163,558
Net income attributable to Class A unitholders	45,310			57,682
Oaktree Operating Group net income ⁽¹⁾	$	154,076		$	221,240
Net income attributable to Oaktree Capital Group, LLC:
Oaktree Operating Group net income attributable to Class A unitholders	$	45,310		$	57,682
Non-Operating Group expenses	(334		)	(282		)
Income tax expense of Intermediate Holding Companies	(6,723		)	(5,606		)
Net income attributable to Oaktree Capital Group, LLC	$	38,253		$	51,794


(1)	Oaktree Operating Group net income attributable to other non-controlling interests was a loss of $665 for the three months ended March 31, 2015 and is not reflected in the table above.

The effects of changes in the Company’s ownership interest in the Oaktree Operating Group are set forth below:



	Three Months Ended March 31,
	2015		2014

Net income attributable to Oaktree Capital Group, LLC	$	38,253	$	51,794
Equity reallocation between controlling and non-controlling interests	45,761		49,098
Change from net income attributable to Oaktree Capital Group, LLC and transfers from non-controlling interests	$	84,014	$	100,892

In March 2015, the Company issued and sold 4,600,000 Class A units in a public offering (the “March 2015 Offering”), resulting in $237.8 million in proceeds to the Company. The Company did not retain any proceeds from the sale of Class A units in the March 2015 Offering. The proceeds from the March 2015 Offering were used to acquire interests in the Company’s business from certain of the Company’s directors, employees and other investors, including certain senior executives and other members of the Company’s senior management.

Please see notes 10, 11 and 12 for additional information regarding transactions that impacted unitholders’ capital.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

10. EARNINGS PER UNIT

The computation of net income per Class A unit is set forth below:



	Three Months Ended March 31,
	2015		2014
Net income per Class A unit (basic and diluted):	(in thousands, except per unit amounts)
Net income per Class A unit (basic and diluted):
Net income attributable to Oaktree Capital Group, LLC	$	38,253	$	51,794
Weighted average number of Class A units outstanding (basic and diluted)	45,063		39,700
Basic and diluted net income per Class A unit	$	0.85	$	1.30

Vested OCGH units may be exchangeable on a one-for-one basis into Class A units, subject to certain restrictions. As of March 31, 2015, there were 105,298,682 OCGH units outstanding, which are vested or will vest through March 1, 2025, that may ultimately be exchanged into 105,298,682 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, 2015 and 2014.

In connection with the August 2014 Highstar acquisition, the Company has a contingent consideration obligation, a portion of which is payable in 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, 2015, 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, 2015.

11. EQUITY-BASED COMPENSATION

Restricted Unit Awards

During the three months ended March 31, 2015, the Company granted 978,128 restricted OCGH units and 7,940 Class A units to its employees and directors, subject to annual vesting over a weighted average period of approximately 5.7 years. The grant date fair value of OCGH units awarded during the three months ended March 31, 2015 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. The calculation of compensation expense for all OCGH units awarded during 2015 assumed a forfeiture rate, based on expected employee turnover, of up to 1.5% annually.

As of March 31, 2015, the Company expected to recognize compensation expense on its unvested equity-based awards of $165.2 million over a weighted average recognition period of 5.1 years.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

A summary of the status of the Company’s unvested equity-based awards as of March 31, 2015 and a summary of changes for the three months then ended are presented 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, 2014	19,049		$	50.63	5,070,992		$	36.21
Granted	7,940		55.75		978,128		44.60
Vested	(5,403	)	49.88		(1,247,093	)	31.62
Forfeited	—		—		(22,320	)	44.36
Balance, March 31, 2015	21,586		$	52.70	4,779,707		$	39.09

As of March 31, 2015, unvested units were expected to vest as follows:



	Number of Units	Weighted Average Remaining Service Term (Years)
Class A units	21,586	3.1
OCGH units	4,779,707	5.1

Equity Value Units

OCGH equity value units (“EVUs”) represent special limited partnership units in OCGH that entitle the holder the right to receive a one-time special distribution that will be settled in OCGH units, based on value created during a specified period (“Term”) in excess of a fixed “Base Value.” The value created will be measured on a per unit basis, based on Class A unit trading prices and certain components of quarterly distributions with respect to interim periods during the Term. EVUs also give the holder the right, subject to service vesting and Oaktree performance relative to the accreting Base Value, to receive certain quarterly distributions from OCGH. EVUs do not entitle the holder to any voting rights.

On December 2, 2014, OCGH granted 2,000,000 EVUs to Jay S. Wintrob, the Company’s Chief Executive Officer, subject to a five-year vesting schedule through December 2019. The grant agreement provides Mr. Wintrob with certain liquidity rights in respect of the one-time special distribution that will be settled in OCGH units. The Company accounts for those EVUs subject to such liquidity rights as liability-classified awards. As of March 31, 2015, there were 1,000,000 equity-classified EVUs and 1,000,000 liability-classified EVUs outstanding.

On February 24, 2015, the Company’s board of directors approved an amendment to certain terms relating to the EVUs granted to Mr. Wintrob. The board of directors determined that it was appropriate to extend Mr. Wintrob’s EVU performance period, and the period during which Mr. Wintrob’s potential payment of OCGH units remains at risk, over two additional years to provide a longer term incentive structure. As a result of the amendment, the number of OCGH units that Mr. Wintrob will receive in respect of the EVUs will generally be determined based on the appreciation of the Class A units and certain distributions made with respect to OCGH units over the period beginning on January 1, 2015 and ending on each of December 31, 2019, December 31, 2020 and December 31, 2021, with one-third of the EVUs recapitalizing on each such date. The amendment was accounted for as a modification of an equity award in the first quarter of 2015 and was immaterial to the Company’s condensed consolidated financial statements.

As of March 31, 2015, the Company expected to recognize $13.9 million of compensation expense on its unvested EVUs over the next 4.8 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.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

The fair value of EVUs was determined using a Monte Carlo simulation model at the grant date for equity-classified EVUs and as of the period end date for liability-classified EVUs. The fair value is affected by the Class A unit trading price and assumptions regarding certain complex and subjective variables, including the expected Class A unit trading price volatility, distributions and exercise timing, and the risk-free interest rate. The fair value of equity-classified EVUs reflected a 20% lack of marketability discount for the OCGH units that will be issued upon vesting, and an assumed forfeiture rate of zero.

12. INCOME TAXES AND RELATED PAYMENTS

Oaktree is a publicly traded partnership and Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., two of its Intermediate Holding Companies, are wholly-owned corporate subsidiaries. Income earned by these corporate subsidiaries is subject to U.S. federal and state income taxation and taxed at prevailing rates. Income earned by non-corporate subsidiaries is not subject to U.S. federal corporate income tax and is allocated to the Oaktree Operating Group’s unitholders. The Company’s effective tax rate is dependent on many factors, including the estimated nature of many amounts and the mix of revenues and expenses between the two corporate subsidiaries that are subject to income tax and the three other subsidiaries that are not; consequently, the effective tax rate is subject to significant variation from period to period. The Company’s 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.

U.S. and non-U.S. taxing authorities are currently examining certain income tax returns of Oaktree, with certain of these examinations at an advanced stage. The Company believes that it is reasonably possible that expiring statutes of limitation may result in the release of up to $2 million of previously accrued Operating Group income taxes during the four quarters ending March 31, 2016. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to its tax examinations and that any settlements related thereto will not have a material adverse effect on the Company’s condensed consolidated financial position or results of operations; however, there can be no assurances as to the ultimate outcomes.

Tax Receivable Agreement

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, the Company recorded an estimated 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. These payments are expected to occur over the period ending approximately in 2037.

No amounts were paid under the tax receivable agreement during the three months ended March 31, 2015.

13. COMMITMENTS AND CONTINGENCIES

In the normal course of business, Oaktree enters into contracts that contain certain representations, warranties and indemnifications. The Company’s exposure under these arrangements would involve future claims that have not yet been asserted. Inasmuch as no such claims currently exist or are expected to arise, the Company has not accrued any liability in connection with these indemnifications.

Legal Actions

Periodically, the Company is a party to legal actions arising in the ordinary course of business. The Company is currently not subject to any pending actions that either individually or in the aggregate are expected to have a material impact on its condensed consolidated results of operations, cash flows or financial condition.

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 NAV. 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, 2015 and December 31, 2014, the

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

aggregate of such amounts recorded at the fund level in excess of incentive income recognized by the Company was $2,045,069 and $1,915,107, respectively, for which related direct incentive income compensation expense was estimated to be $981,178 and $930,572, respectively.

Contingent Consideration

The Company has contingent consideration obligations of up to $60.0 million related to the August 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 seven years from the acquisition date. As of March 31, 2015, the fair value of the contingent consideration liability was $28.1 million, based on a discount rate of 10%. For the three months ended March 31, 2015, the Company recognized $0.8 million of expense associated with changes in the contingent consideration liability. The contingent consideration’s fair value, a Level III valuation using a discounted cash-flow analysis, was based on a probability-weighted average estimate of achieving certain performance targets, including fundraising and revenue levels. 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, 2015 and December 31, 2014, the Company, generally in the capacity as general partner, had undrawn capital commitments of $402.5 million and $256.0 million, respectively, including commitments to both non-consolidated and consolidated funds.

Investment Commitments of Consolidated Funds

The consolidated funds are parties to certain credit agreements that provide for the issuance of letters of credit and revolving loans, and may require the consolidated funds to extend additional loans to investee companies. The consolidated funds use the same investment criteria in making these unrecorded commitments as they do for investments that are included in the condensed consolidated statements of financial condition. The unfunded liability associated with these credit agreements is equal to the amount by which the contractual loan commitment exceeds the sum of the amount of funded debt and cash held in escrow, if any. As of March 31, 2015 and December 31, 2014, the consolidated funds had aggregate potential credit and investment commitments of $1,639.5 million and $1,585.8 million, respectively. These commitments will be funded by the funds’ cash balances, proceeds from asset sales or drawdowns against existing capital commitments.

A consolidated fund may agree to guarantee the repayment obligations of certain investee companies. The aggregate amounts guaranteed were not material to the condensed consolidated financial statements as of March 31, 2015 and December 31, 2014.

The majority of the Company’s consolidated funds are investment companies that are required to disclose financial support provided or contractually required to be provided to any of their portfolio companies. Certain consolidated funds within the Distressed Debt, Control Investing and Real Estate strategies provide financial support to portfolio companies in accordance with the investment objectives of the consolidated funds. Distressed Debt funds typically invest primarily in the securities of entities that are undergoing, are considered likely to undergo, or have undergone reorganizations under applicable bankruptcy law, or other extraordinary transactions such as debt restructurings, reorganizations and liquidations outside of bankruptcy. Control Investing funds typically seek to obtain control or significant influence primarily in middle-market companies through the purchase of debt at a discount (also known as “distress-for-control”), structured or hybrid investments (such as convertible debt or debt with warrants), or direct equity investments that typically involve situations with an element of distress or dislocation. Real Estate funds generally focus on distressed or similar opportunities primarily in real estate, real estate debt and restructurings, which typically involve value investments, rescue capital and distress-for-control investments. This financial support may be provided pursuant to contractual agreements, typically in the form of follow-on investments, guarantees or financing commitments. Most of the financial support is provided as an inherent part of the ongoing investment operations of the consolidated funds within these strategies and is considered to be provided at the discretion of the Company in its capacity as general partner and investment manager. For the three months ended March 31, 2015, the consolidated funds provided financial support to portfolio companies totaling

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

$241.9 million and $1.7 billion with respect to support pursuant to contractual agreements and at the discretion of the consolidated funds, respectively. The majority of this financial support consisted of the funds’ purchases of investment securities and companies.

14. RELATED-PARTY TRANSACTIONS

The Company considers its senior executives, employees and non-consolidated Oaktree funds to be affiliates (as defined in the FASB ASC Master Glossary). Amounts due from and to affiliates are set forth below. The fair value of amounts due from and to affiliates is a Level III valuation and was valued based on a discounted cash-flow analysis. The carrying value of amounts due from affiliates approximated fair value because their average interest rate, which ranged from 2.0% to 3.0%, approximated the Company’s cost of debt. The fair value of amounts due to affiliates approximated $164,442 and $159,264 as of March 31, 2015 and December 31, 2014, respectively, based on a discount rate of 10.0%.



	As of
	March 31, 2015		December 31, 2014
Due from affiliates:
Loans	$	36,389	$	39,452
Amounts due from non-consolidated funds	1,570		2,525
Payments made on behalf of non-consolidated entities	3,221		3,221
Non-interest bearing advances made to certain non-controlling interest holders and employees	1,751		1,683
Total due from affiliates	$	42,931	$	46,881
Due to affiliates:
Due to OCGH unitholders in connection with the tax receivable agreement (please see note 12)	$	370,949	$	308,475
Amounts due to senior executives, certain non-controlling interest holders and employees	1,039		739
Total due to affiliates	$	371,988	$	309,214

Loans

Loans primarily consist of interest-bearing advances made to certain non-controlling interest holders, primarily the Company’s employees, to meet tax obligations related to vesting of equity awards. The notes, which are generally recourse to the borrower or secured by vested equity and other collateral, bear interest at the Company’s cost of capital and generated interest income of $370 and $568 for the three months ended March 31, 2015 and 2014, respectively.

Due From Oaktree Funds and Portfolio Companies

In the normal course of business, the Company pays certain expenses on behalf of the Oaktree funds, for which it is reimbursed. Amounts advanced on behalf of consolidated funds are eliminated in consolidation. Certain expenses initially paid by the Company, primarily employee travel and other costs associated with particular portfolio company holdings, are reimbursed by the portfolio companies.

Other Investment Transactions

The Company’s senior executives, directors and senior professionals are permitted to invest their own capital (or the capital of family trusts or other estate planning vehicles they control) in Oaktree funds, for which they pay the particular fund’s full management fee but not its incentive allocation. To facilitate the funding of capital calls by funds in which employees are invested, the Company periodically advances on a short-term basis the capital calls on certain employees’ behalf. These advances are generally reimbursed toward the end of the calendar

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

quarter in which the capital calls occurred. Amounts temporarily advanced by the Company are included in non-interest bearing advances made to certain non-controlling interest holders and employees.

Aircraft Services

As of December 31, 2014, the Company leased an airplane for business purposes. On March 23, 2015, the Company exercised a purchase option for $12.5 million. Howard Marks, the Company’s co-chairman, may use this aircraft for personal travel and, pursuant to a policy adopted by the Company relating to such personal use, the Company is reimbursed by Mr. Marks for the costs of using the aircraft for personal travel. Additionally, the Company occasionally makes use of an airplane owned by one of its senior executives for business purposes at a price to the Company that is based on market rates.

Special Allocations

Certain senior executives receive special allocations based on a percentage of profits of the Oaktree Operating Group. These special allocations, which are recorded as compensation expense, are made on a current basis for so long as they remain senior executives of the Company, with limited exceptions.

15. 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 included with segment expenses, as compared to being recorded as other income under GAAP. In addition, ANI excludes the effect of (a) non-cash equity-based compensation charges related to unit grants made before the Company’s 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 classified as equity awards for segment reporting purposes, (d) income taxes, (e) other income or expenses applicable to Oaktree Capital Group, LLC or its Intermediate Holding Companies and (f) the adjustment for non-controlling interests. Incentive income and incentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. ANI is calculated at the Operating Group level.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

ANI was as follows:



	Three Months Ended March 31,
	2015			2014
Revenues:
Management fees	$	188,050		$	188,400
Incentive income	152,879			292,876
Investment income	53,458			46,480
Total revenues	394,387			527,756
Expenses:
Compensation and benefits	(105,854		)	(98,194		)
Equity-based compensation	(7,023		)	(3,983		)
Incentive income compensation	(90,102		)	(137,828		)
General and administrative	(24,350		)	(30,562		)
Depreciation and amortization	(1,891		)	(1,921		)
Total expenses	(229,220		)	(272,488		)
Adjusted net income before interest and other income (expense)	165,167			255,268
Interest expense, net of interest income⁽¹⁾	(8,933		)	(6,625		)
Other income (expense), net	(896		)	(1,698		)
Adjusted net income	$	155,338		$	246,945


(1)	Interest income was $1.0 million and $1.1 million for the three months ended March 31, 2015 and 2014, respectively.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

A reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income of the investment management segment is presented below.



	Three Months Ended March 31,
	2015			2014
Net income attributable to Oaktree Capital Group, LLC	$	38,253		$	51,794
Incentive income ⁽¹⁾	17,378			64,460
Incentive income compensation ⁽¹⁾	(23,210		)	(46,334		)
Equity-based compensation⁽²⁾	4,683			5,199
Acquisition-related items ⁽³⁾	1,807			—
Income taxes ⁽⁴⁾	7,875			7,986
Non-Operating Group expenses⁽⁵⁾	334			282
Non-controlling interests⁽⁵⁾	108,218			163,558
Adjusted net income	$	155,338		$	246,945


(1)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG.

(2)

This adjustment adds back the effect of (a) equity-based compensation charges 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 classified as equity awards for segment reporting purposes.


(3)	This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability.


(4)	Because adjusted net income is a pre-tax measure, this adjustment adds back the effect of income tax expense.


(5)	Because adjusted net income is calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or non-controlling interests.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ 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, 2015
	Segment			Adjustments			Consolidated
Management fees ⁽¹⁾	$	188,050		$	(137,231	)	$	50,819
Incentive income ⁽¹⁾	152,879			(152,879		)	—
Investment income ⁽¹⁾	53,458			(40,776		)	12,682
Total expenses ⁽²⁾	(229,220		)	(6,754		)	(235,974		)
Interest expense, net ⁽³⁾	(8,933		)	(37,636		)	(46,569		)
Other income (expense), net ⁽⁴⁾	(896		)	5,590			4,694
Other income of consolidated funds ⁽⁵⁾	—			1,505,242			1,505,242
Income taxes	—			(7,875		)	(7,875		)
Net income attributable to non-controlling interests in consolidated funds	—			(1,136,665		)	(1,136,665		)
Net income attributable to non-controlling interests in consolidated subsidiaries	—			(108,101		)	(108,101		)
Adjusted net income/net income attributable to Oaktree Capital Group, LLC	$	155,338		$	(117,085	)	$	38,253
Corporate investments ⁽⁶⁾	$	1,503,621		$	(1,335,622	)	$	167,999
Total assets ⁽⁷⁾	$	3,253,074		$	51,784,503		$	55,037,577


(1)	The adjustment represents the elimination of amounts earned from the consolidated funds.

(2)

The expense adjustment consists of (a) equity-based compensation charges of $4,595 related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of $17,511, (c) expenses incurred by the Intermediate Holding Companies of $334, (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 $23,210, (e) acquisition-related items of $1,807, (f) adjustments related to amounts received for contractually reimbursable costs that are included with segment expenses, as compared to being recorded as other income under GAAP of $5,590, (g) differences arising from EVUs that are classified as liability awards under GAAP, but classified as equity awards for segment reporting purposes of $88 and (h) other expenses of $39.


(3)	The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of the consolidated funds and the exclusion of segment interest income.


(4)	The adjustment to other income (expense), net represents adjustments related to amounts received for contractually reimbursable costs that are included with segment expenses, as compared to being recorded as other income under GAAP.


(5)	The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investment income attributable to non-controlling interests of the consolidated funds.


(6)	The adjustment to corporate investments is to remove from segment assets the Company’s investments in the consolidated funds, including investments in its CLOs, that are treated as equity- or cost-method investments for segment reporting. Of the $1.5 billion, equity-method investments accounted for $1.3 billion.


(7)	The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)



	As of or for the Three Months Ended March 31, 2014
	Segment			Adjustments			Consolidated
Management fees ⁽¹⁾	$	188,400		$	(147,969	)	$	40,431
Incentive income ⁽¹⁾	292,876			(292,876		)	—
Investment income ⁽¹⁾	46,480			(41,489		)	4,991
Total expenses ⁽²⁾	(272,488		)	14,169			(258,319		)
Interest expense, net ⁽³⁾	(6,625		)	(17,375		)	(24,000		)
Other income (expense), net	(1,698		)	—			(1,698		)
Other income of consolidated funds ⁽⁴⁾	—			1,786,765			1,786,765
Income taxes	—			(7,986		)	(7,986		)
Net income attributable to non-controlling interests in consolidated funds	—			(1,324,832		)	(1,324,832		)
Net income attributable to non-controlling interests in consolidated subsidiaries	—			(163,558		)	(163,558		)
Adjusted net income/net income attributable to Oaktree Capital Group, LLC	$	246,945		$	(195,151	)	$	51,794
Corporate investments ⁽⁵⁾	$	1,393,692		$	(1,214,960	)	$	178,732
Total assets ⁽⁶⁾	$	2,934,327		$	45,494,881		$	48,429,208


(1)	The adjustment represents the elimination of amounts attributable to the consolidated funds.

(2)

The expense adjustment consists of (a) equity-based compensation charges of $5,199 related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of $26,684, (c) expenses incurred by the Intermediate Holding Companies of $282 and (d) the effect of timing differences in the recognition of incentive income compensation expense between adjusted net income and net income attributable to OCG of $46,334.


(3)	The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of the consolidated funds and the exclusion of segment interest income.


(4)	The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investment income attributable to non-controlling interests of the consolidated funds.


(5)	The adjustment to corporate investments is to remove from segment assets the consolidated funds, including investments in its CLOs, that are treated as equity- or cost-method investments for segment reporting. Of the $1.4 billion, equity-method investments accounted for $1.2 billion.


(6)	The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2015

($ in thousands, except where noted)

16. SUBSEQUENT EVENTS

On April 30, 2015, the Company declared a distribution of $0.64 per Class A unit. This distribution, which is related to the first quarter of 2015, will be paid on May 14, 2015 to Class A unitholders of record as of the close of business on May 11, 2015.

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 billion in AUM as of March 31, 2015. We emphasize an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. Over nearly three decades, we have developed a large and growing client base through our ability to identify and capitalize on opportunities for attractive investment returns in less efficient markets.

We manage assets on behalf of many of the most significant institutional investors in the world. Our clientele has approximately doubled over the past decade, to nearly 2,100, including 75 of the 100 largest U.S. pension plans, 39 states in the United States, 417 corporations and/or their pension funds, 343 university, charitable and other endowments and foundations, 14 sovereign wealth funds and approximately 300 other non-U.S. institutional investors. As measured by AUM, 43% of our clients are invested in two or three different investment strategies, and 33% are invested in four or more. Headquartered in Los Angeles, we serve these clients with over 900 employees and offices in 17 cities worldwide.

Our business is comprised of one segment, our investment management segment, which consists of the investment management services that we provide to our clients. Our segment revenue flows from the management fees and incentive income generated by the funds that we manage, as well as the investment income earned from the investments we make in our funds, third-party funds and other companies. The management fees that we receive are based on the contractual terms of the relevant fund and are typically calculated as a fixed percentage of the capital commitments (as adjusted for distributions during a fund’s liquidation period), drawn capital or NAV of the particular fund. Incentive income represents our share (typically 20%) of the investors’ profits in most of the closed-end and certain evergreen funds. Investment income refers to the investment return on a mark-to-market basis and our equity participation on the amounts that we invest in Oaktree and third-party funds, as well as in other companies.

Business Environment and Developments

As a global investment manager, we are affected by myriad factors, including the condition of the economy and financial markets; the relative attractiveness of our investment strategies and investors’ demand for them; and regulatory or other governmental policies or actions. The diversified nature of both our array of investment strategies and our revenue mix historically has allowed us to benefit from both strong and weak environments. Weak economies and the declining financial markets that typically accompany them tend to dampen our revenues from asset-based management fees, investment realizations or price appreciation, but their prospect can result in our raising relatively large amounts of capital for certain strategies, especially Distressed Debt. Additionally, during weak financial markets there often is expanded availability of bargain investments for purchase. Conversely, the strong phase of the economic cycle generally increases the value of our investments and therefore the fees that are based on asset value, and creates favorable exit opportunities (and often incentive income and higher investment income proceeds).

In the first quarter of 2015, major global financial markets generally rose, as the U.S. economy maintained its overall positive trajectory and the European economy showed signs of strength. The S&P 500 Stock Index gained 1%, while European equities and worldwide bond prices were generally positive. The U.S. dollar strengthened relative to most major currencies, rising a particularly high 11% versus the euro. Against this backdrop, our closed-end funds delivered an overall gross return of 4% in the first quarter of 2015. European Principal Investing and Real Estate, two of our fastest-growing closed-end fund strategies, continued to show strong gross returns in the quarter, at 14% and 6%, respectively. Power Opportunities and Mezzanine Finance each gained 6% gross. Distressed Debt, which had the largest share of both our corporate investments and incentive-creating AUM in the first quarter of 2015, had an aggregate gross return of 1%. While elevated asset prices caused

bargain-priced buying opportunities to be relatively scarce, certain pockets of economic weakness or financial market turmoil afforded our funds investing opportunities.

Closed-end funds in our existing strategies we are currently marketing include Oaktree Mezzanine Fund IV, Oaktree Principal Fund VI, Oaktree Real Estate Opportunities Fund VII, Oaktree Opportunities Funds X and Xb (“Opps X and Xb”), and Oaktree Enhanced Income Fund III. Gross capital raised was $11.4 billion and $23.1 billion for the three- and 12-month periods ended March 31, 2015, each representing a new record high for any such period in the Company’s 20-year history. Investment strategies or products developed since the beginning of January 2011 are key elements of our growth, accounting for approximately one-third of the $23.1 billion of capital raised in the 12 months ended March 31, 2015.

Based on the status of accrued incentives (fund level) as of March 31, 2015, in the near term, incentive income is not expected to increase from its 2014 level. Specifically, of the $1.1 billion in net accrued incentives (fund level) as of March 31, 2015, $419.8 million represented OCM Opportunities Fund VIIb (“Opps VIIb”) or other funds that as of that date were currently paying incentives, with the remainder arising from funds that, as of March 31, 2015, had not yet reached the stage of their cash distribution waterfall where we are entitled to receive incentive income (other than tax-related incentive distributions). In contrast, as of March 31, 2014, the equivalent portion of the total $1.2 billion of net accrued incentives (fund level) that was paying incentives was $444.9 million.

Business Combinations

In August 2014, we completed our acquisition of the Highstar team and certain Highstar entities (collectively, “Highstar”) for $31.4 million in cash, 100,595 fully-vested OCGH units and contingent consideration of up to $60.0 million. Highstar is an investment management firm specializing in U.S. energy infrastructure, waste management and transportation. The transaction, which was immaterial to Oaktree’s condensed consolidated financial statements, resulted in $50.8 million of goodwill and $28.0 million of intangible assets, primarily consisting of contractual rights associated with the management of Highstar Capital IV (“HS IV”). Effective August 2014, we consolidated the financial position and results of operations of the controlled Highstar entities, including HS IV, and accounted for this transaction as a business combination.

Understanding Our Results—Consolidation of Oaktree Funds

GAAP currently requires that we consolidate substantially all of our closed-end, commingled open-end and evergreen funds and CLOs in our financial statements, notwithstanding the fact that our equity investments in those funds do not typically exceed 2.5% of any fund’s interests (or, in the case of CLOs, no more than 10% of the total par value). Please see “—Recent Accounting Developments” under note 2 to our condensed consolidated financial statements included elsewhere in this quarterly report for information regarding the recently issued revisions by the Financial Accounting Standards Board to the consolidation guidance. Consolidated funds refer to those funds or CLOs in which we hold a general partner interest that gives us substantive control rights over such funds or for which Oaktree is considered the primary beneficiary of a variable interest entity (“VIE”). With respect to our consolidated funds, we generally have operational discretion and control over the funds, and investors do not hold any substantive rights that would enable them to impact the funds’ ongoing governance and operating activities. The funds that we manage that were not consolidated, primarily separate accounts, represented 34% of our AUM as of March 31, 2015, and 27% of our segment management fees and 21% of our segment revenues for the three months ended March 31, 2015.

We do not consolidate OCM/GFI Power Opportunities Fund II and OCM/GFI Power Opportunities Fund II (Cayman) (collectively, “Power Fund II”) because we do not control these funds through a majority voting interest or otherwise. Power Fund II has two general partners—one is an entity controlled by Oaktree and the other is an entity controlled by G3W Ventures LLC (formerly, GFI Energy Ventures LLC), a third-party investment manager. The general partners have equal voting rights; consequently, neither general partner is deemed to individually control these funds.

When a fund is consolidated, we reflect the assets, liabilities, revenues, expenses and cash flows of the consolidated funds on a gross basis, and the majority of the economic interests in those funds, which are held by third-party investors, are attributed to non-controlling interests in consolidated funds in the condensed consolidated financial statements. All of the revenues earned by us from those funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by non-controlling interests, our attributable share of the net income from those funds is increased by the amounts eliminated. Thus, the elimination of those amounts in consolidation has no effect on net income or loss attributable to us.

The elimination of the consolidated funds from our consolidated revenues causes our consolidated revenues to be significantly impacted by fund flows and fluctuations in the market value of our separate accounts because they are not consolidated. Note 15 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 include performance-based fees earned from certain open-end and evergreen fund accounts. We also have the opportunity to earn incentive income from most of our closed-end funds and certain evergreen funds. Our closed-end funds generally provide that we receive incentive income only after our investors receive the return of all of their contributed capital plus an annual preferred return, typically 8%. Once this occurs, we generally receive as incentive income 80% of all distributions otherwise attributable to our investors, and those investors receive the remaining 20% until we have received, as incentive income, 20% of all such distributions in excess of the contributed capital from the inception of the fund. Thereafter, provided the preferred return continues to be met, all such future distributions attributable to our investors are distributed 80% to those investors and 20% to us as incentive income. Our third segment revenue source, investment income, represents our pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds and as an investor in our CLOs and third-party managed funds and companies.

Our consolidated revenues reflect the elimination of all management fees, incentive income and investment income earned by us from our consolidated funds. Investment income is presented within the other income (loss) section of our 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 reflects all compensation-related items not directly related to incentive income, investment income or the vesting of OCGH and Class A units, including salaries, bonuses, compensation based on management fees or a definition of profits, employee benefits, and phantom equity awards, which 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 reflects the non-cash charge associated with grants of Class A units, OCGH units and OCGH equity value units (“EVUs”). While our condensed consolidated financial statements include non-cash compensation expense for units granted both before and after our initial public offering, adjusted net income excludes non-cash equity-based compensation expense for units granted before our initial public offering. In addition, EVUs that are classified as liability awards in the condensed consolidated financial statements are reflected as equity-classified awards in adjusted net income (please see “—Segment and Operating Metrics—Adjusted Net Income” below).

As of March 31, 2015, there was $179.1 million and $128.7 million of unrecognized compensation expense for GAAP and segment reporting purposes, respectively, with the difference primarily representing unit grants made before our initial public offering. The $179.1 million is expected to be recognized as expense in our GAAP condensed consolidated financial statements over a weighted average vesting period of 5.0 years. The $128.7 million increased to $135.9 million in April 2015 as a result of additional grants of OCGH units. The $135.9 million is expected to be recognized as expense in adjusted net income over a weighted average vesting period of approximately 4.8 years, as shown below. These amounts are subject to change as a result of future unit grants and possible modifications to award terms or changes in estimated forfeiture rates.

The following table summarizes the estimated amount of equity-based compensation charges to be included in adjusted net income:



Equity-based Compensation Charges Included in ANI	Last Nine Months of 2015 ⁽¹⁾		2016		2017		2018		2019		Thereafter		Total
	(in millions)
Estimated charges from grants awarded through April 2015	$	29.2	$	34.2	$	29.6	$	17.6	$	9.1	$	16.2	$	135.9


(1)	The charge for the second, third and fourth quarters of 2015 is estimated to be $11.7 million, $8.7 million and $8.7 million.

Incentive Income Compensation

Incentive income compensation expense primarily includes 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 includes compensation directly related to investment income. There is no fixed percentage for this compensation, either by fund or strategy. In general, within a particular strategy more recent funds have a higher percentage of aggregate incentive income compensation expense than do older funds. The percentage that consolidated incentive income compensation expense represents of the particular period’s consolidated incentive income is not meaningful because of the fact that most segment incentive income is eliminated in consolidation, whereas no incentive income compensation expense is eliminated in consolidation. For a meaningful percentage relationship, please see “—Segment Analysis” below.

General and Administrative

General and administrative expense includes costs related to occupancy, outside auditors, tax professionals, legal advisers, research, consultants, travel and entertainment, communications and information services, foreign exchange activity, insurance and other general items related directly to the Company’s operations and not related to any activities of our funds. These expenses are net of amounts borne by fund investors and are not offset by credits attributable to fund investors’ non-controlling interests in consolidated funds.

Depreciation and Amortization

Depreciation and amortization expense includes costs associated with the purchase of furniture and equipment, capitalized software, leasehold improvements, an airplane and acquired intangibles. Furniture and equipment and capitalized software costs are depreciated using the straight-line method over the estimated useful life of the asset, which is generally three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the respective estimated useful life or the lease term. Acquired intangibles primarily relate to contractual rights and non-controlling interests and are amortized over their estimated useful lives, which range from three to seven years.

Consolidated Fund Expenses

Consolidated fund expenses consist primarily of costs, expenses and fees that are incurred by, or arise out of the operation and activities of or otherwise related to, our consolidated funds, including, without limitation, travel expenses, professional fees, research and software expenses, insurance and other costs associated with administering and supporting those funds. Inasmuch as most of these fund expenses are borne by third-party investors, they reduce the investors’ non-controlling interests in consolidated funds.

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, the consolidated funds’ net operating income from real estate-related activities and interest income earned by Oaktree and its operating subsidiaries.

Net Realized Gain on Consolidated Funds’ Investments

Net realized gain on consolidated funds’ investments consists of realized gains and losses arising from dispositions of investments held by our consolidated funds.

Net Change in Unrealized Appreciation on Consolidated Funds’ Investments

Net change in unrealized appreciation on consolidated funds’ investments reflects both unrealized gains and losses on investments held by our consolidated funds and the reversal upon disposition of investments of unrealized gains and losses previously recognized for those investments.

Investment Income

Investment income represents our pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds and as an investor in our CLOs and third-party managed funds and companies. Investment income, as reflected in our consolidated statements of operations, excludes investment income earned by us from our consolidated funds.

Other Income (Expense), Net

Other income (expense), net represents non-operating income or expense. In recent years, it has typically reflected the operating results of certain properties that were received as part of a 2010 arbitration award. Beginning in the third quarter of 2014, this line item also included 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 directly impacted by the proportion of Oaktree’s income subject to tax compared to income not subject to tax. 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 represents the economic interests of the unaffiliated investors in the consolidated funds, as well as the equity interests held by third-party investors in CLOs that had not yet priced as of the respective period end. Those interests are primarily driven by the investment performance of the consolidated funds, including CLOs. In comparison to net income, this measure excludes segment results, income taxes, expenses that OCG or its Intermediate Holding Companies bear directly, the impact of equity-based compensation expense, amortization of acquired intangibles and changes in the contingent consideration liability; and

•

Net Income Attributable to Non-controlling Interests in Consolidated Subsidiaries. This primarily represents the economic interest in the Oaktree Operating Group owned by OCGH (“OCGH non-controlling interest”), as well as the economic interest in certain consolidated subsidiaries held by certain related parties and other third parties. The OCGH non-controlling interest is determined at the Oaktree Operating Group level based on the weighted average proportionate share of Oaktree Operating Group units held by the OCGH unitholders. Inasmuch as the number of outstanding Oaktree Operating Group units corresponds with the total number of outstanding OCGH units and Class A units, changes in the economic interest held by the OCGH unitholders are driven by our additional issuances of OCGH units and our issuance, if any, of additional Class A units, as well as repurchases and forfeitures of OCGH units and Class A units. Certain of our expenses, such as income tax and related administrative expenses of Oaktree Capital Group, LLC and its Intermediate Holding Companies, are solely attributable to the Class A unitholders. Please see note 9 to our 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.

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 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 included with segment expenses, as compared to being recorded as other income under GAAP. In addition, ANI excludes the effect of (a) non-cash equity-based compensation charges 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 classified as equity awards for segment reporting purposes, (d) income taxes, (e) other income or expenses applicable to OCG or its Intermediate Holding Companies and (f) the adjustment for non-controlling interests. Incentive income and incentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense

is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. ANI is calculated at the Operating Group level.

Among other factors, our accounting policy for recognizing incentive income and the inclusion of non-cash equity-based compensation charges related to unit grants made after our initial public offering will likely make our calculation of ANI not directly comparable to economic net income (“ENI”) or other similarly named measures of certain other asset managers.

We calculate adjusted net income-OCG, or adjusted net income per Class A unit, a non-GAAP measure, to provide Class A unitholders with a measure that shows the portion of ANI attributable to their ownership. Adjusted net income-OCG represents ANI including the effect of (a) the OCGH non-controlling interest, (b) other income or expenses, such as income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) any Oaktree Operating Group income taxes attributable to OCG. Two of our Intermediate Holding Companies incur U.S. federal and state income taxes for their share 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 generally have been subject to corporate-level taxation, and most of our incentive income and investment income generally has not been subject to corporate-level taxation. Thus, the blended effective tax rate has generally tended to be higher to the extent that fee-related earnings represented a larger proportion of our ANI. Myriad other factors affect income tax expense and the effective 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.

In accordance with GAAP, certain of our funds are consolidated into our condensed consolidated financial statements, notwithstanding the fact that we typically have only a minority economic interest in these funds. Consequently, our condensed consolidated financial statements reflect the results of our consolidated funds on a gross basis. In addition, our segment results include 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, and which is largely non-cash in nature. By excluding the results of our consolidated funds and segment investment income (loss), which are not directly available to fund our operations or make equity distributions, and including the portion of distributions from Oaktree and non-Oaktree funds 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 differs from ANI in that it excludes segment investment income or loss and includes the receipt of investment income or loss from distributions by our investments in funds and companies. In addition, distributable earnings differs from ANI in that it is net of Operating Group income taxes and excludes non-cash equity-based compensation charges related to unit grants made after our initial public offering. In contrast to the GAAP measure of net income or loss attributable to OCG, distributable earnings also excludes the effect of (a) non-cash equity-based compensation charges related to unit grants made before our initial public offering, (b) income taxes and expenses that OCG or its Intermediate Holding Companies bear directly and (c) the adjustment for non-controlling interests.

Distributable earnings-OCG, or distributable earnings per Class A unit, is a non-GAAP measure calculated to provide Class A unitholders with a measure that shows the portion of distributable earnings attributable to their ownership. Distributable earnings-OCG represents distributable earnings including the effect of (a) the OCGH non-controlling interest, (b) expenses, such as current income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) amounts payable under the tax receivable agreement. The income tax expense

included in distributable earnings-OCG represents the implied current provision for income taxes calculated using an approach similar to that which is used in calculating the income tax provision for adjusted net income-OCG.

Fee-related Earnings

Fee-related earnings is a non-GAAP measure that we use to monitor the baseline earnings of our business. Fee-related earnings is comprised of segment management fees less segment operating expenses other than incentive income compensation expense and non-cash equity-based compensation charges related to unit grants made after our initial public offering. Fee-related earnings is considered baseline because it applies all cash compensation and benefits other than incentive income compensation expense, as well as all general and administrative expenses, to management fees, even though a significant portion of those expenses is attributable to incentive and investment income, and because it excludes all non-management fee revenue sources. Fee-related earnings is presented before income taxes.

Fee-related earnings-OCG, or fee-related earnings per Class A unit, is a non-GAAP measure calculated to provide Class A unitholders with a measure that shows the portion of fee-related earnings attributable to their ownership. Fee-related earnings-OCG represents fee-related earnings including the effect of (a) the OCGH non-controlling interest, (b) other income or expenses, such as income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) any Operating Group income taxes attributable to OCG. Fee-related earnings-OCG income taxes are calculated excluding any segment incentive income or investment income (loss).

Among other factors, the exclusion of non-cash equity-based compensation charges related to unit grants made after our initial public offering may make our calculations of fee-related earnings and fee-related earnings-OCG not directly comparable to similarly named measures of other asset managers.

Assets Under Management

AUM generally refers to the assets we manage and equals the NAV of the assets we manage, the fund-level leverage on which management fees are charged, the undrawn capital that we are entitled to call from investors in our funds pursuant to their capital commitments and the aggregate par value of collateral assets and principal cash held by our CLOs. Our AUM includes amounts for which we charge no fees. Our definition of AUM is not based on any definition contained in our operating agreement or the agreements governing the funds that we manage. Our calculation of AUM and the two AUM-related metrics below may not be directly comparable to the AUM metrics of other asset managers.

•

Management Fee-generating Assets Under Management. Management fee-generating AUM is a forward-looking metric and reflects the AUM on which we will earn management fees in the following quarter. Our closed-end funds typically pay management fees based on committed capital or drawn capital during the investment period, without regard to changes in NAV, and during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund. The annual management fee rate remains unchanged from the investment period through the liquidation period. Our open-end and evergreen funds typically pay management fees based on their NAV, and our CLOs pay management fees based on the aggregate par value of collateral assets and principal cash held by them, as defined in the applicable CLO indentures.

•

Incentive-creating Assets Under Management. Incentive-creating AUM refers to the AUM that may eventually produce incentive income. It represents the NAV of our funds for which we are entitled to receive an incentive allocation, excluding CLOs and investments made by us and our employees and directors (which are not subject to an incentive allocation). All funds for which we are entitled to receive an incentive allocation are included in incentive-creating AUM, regardless of whether or not they are currently generating incentives. Incentive-creating AUM does not include undrawn capital commitments.

Accrued Incentives (Fund Level)

Our funds record as accrued incentives the incentive income that would be paid to us if the funds were liquidated at their reported values as of the date of the financial statements. Incentives created (fund level) refers to the gross amount of potential incentives generated by the funds during the period. We refer to the amount of incentive income recognized as revenue by us as segment incentive income. Amounts recognized by us as incentive income are no longer included in accrued incentives (fund level), the term we use for remaining fund-level accruals. The amount of incentives created may fluctuate substantially as a result of changes in the fair value of the underlying investments of the fund, as well as incentives created in excess of our typical 20% share due to

catch-up allocations for applicable closed-end funds. Generally speaking, while in the catch-up layer, approximately 80% of any increase or decrease, respectively, in the fund’s NAV results in a commensurate amount of positive or negative incentives created (fund level).

The same performance and market risks inherent in incentives created (fund level) affect the ability to ultimately realize accrued incentives (fund level). One consequence of the accounting method we follow for incentives created (fund level) is that accrued incentives (fund level) is an off-balance sheet metric, rather than being an on-balance sheet receivable that could require reduction if fund performance suffers. We track accrued incentives (fund level) because it provides an indication of potential future value, though the timing and ultimate realization of that value are uncertain.

Incentives Created (Fund Level)

Incentives created (fund level), incentive income and accrued incentives (fund level) are presented gross, without deduction for direct compensation expense that is owed to our investment professionals associated with the particular fund when we earn the incentive income. We call that charge “incentive income compensation expense.” Incentive income compensation expense varies by the investment strategy and vintage of the particular fund, among many other factors. In addition to incentive income compensation expense, the magnitude of the annual cash bonus pool is indirectly affected by the level of incentive income, net of its associated incentive income compensation expense. The total charge related to the annual cash bonus pool, including the portion attributable to our incentive income, is reflected in the financial statement line item “compensation and benefits.”

Incentives created (fund level) often reflects investments measured at fair value and therefore is subject to risk of substantial fluctuation by the time the underlying investments are liquidated. We earn the incentive income, if any, that the fund is then obligated to pay us with respect to our incentive interest (generally 20%) in the profits of our unaffiliated investors, subject to an annual preferred return of typically 8%. Although GAAP currently allows the equivalent of incentives created (fund level) to be recognized as revenue by us under Method 2, we follow the Method 1 approach offered by GAAP. Our use of Method 1 reduces by a substantial degree the possibility that revenue recognized by us would be reversed in a subsequent period. For purposes of adjusted net income and distributable earnings, we recognize incentive income when the underlying fund distributions are known or knowable as of the respective quarter end, as opposed to the fixed or determinable standard of Method 1. We track incentives created (fund level) because it provides an indication of the value for us currently being created by our investment activities and facilitates comparability with those companies in our industry that utilize the alternative accrual-based Method 2 for recognizing incentive income in their financial statements.

Uncalled Capital Commitments

Uncalled capital commitments represent undrawn capital commitments by partners (including Oaktree as general partner) of our closed-end funds through their investment periods and certain evergreen funds. If a closed-end fund distributes capital during its investment period, that capital is typically subject to possible recall, in which case it is included in uncalled capital commitments.

Condensed Consolidated Results of Operations

The following table sets forth our unaudited condensed consolidated statements of operations:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Revenues:
Management fees	$	50,819		$	40,431
Expenses:
Compensation and benefits	(110,143		)	(98,292		)
Equity-based compensation	(11,706		)	(9,182		)
Incentive income compensation	(66,892		)	(91,494		)
Total compensation and benefits expense	(188,741		)	(198,968		)
General and administrative	(6,580		)	(32,238		)
Depreciation and amortization	(2,892		)	(1,921		)
Consolidated fund expenses	(37,761		)	(25,192		)
Total expenses	(235,974		)	(258,319		)
Other income (loss):
Interest expense	(46,569		)	(24,000		)
Interest and dividend income	522,929			362,136
Net realized gain on consolidated funds’ investments	474,830			654,151
Net change in unrealized appreciation on consolidated funds’ investments	507,483			770,478
Investment income	12,682			4,991
Other income (expense), net	4,694			(1,698		)
Total other income	1,476,049			1,766,058
Income before income taxes	1,290,894			1,548,170
Income taxes	(7,875		)	(7,986		)
Net income	1,283,019			1,540,184
Less:
Net income attributable to non-controlling interests in consolidated funds	(1,136,665		)	(1,324,832		)
Net income attributable to non-controlling interests in consolidated subsidiaries	(108,101		)	(163,558		)
Net income attributable to Oaktree Capital Group, LLC	$	38,253		$	51,794

Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Revenues

Management Fees

Management fees increased $10.4 million, or 25.7%, to $50.8 million for the three months ended March 31, 2015, from $40.4 million for the three months ended March 31, 2014. The increase primarily reflected $3.9 million in higher advisory, director, transaction and certain other ancillary fees for the benefit of our consolidated funds, as well as higher fees earned across our U.S. High Yield Bond, Emerging Markets Equities and Strategic Credit strategies. We reduce our management fees by the amount of advisory and other ancillary fees so that our funds’ investors share pro rata in the economic benefit of the ancillary fees. Thus, in our consolidated financial statements, these ancillary fees are treated as being attributable to non-controlling interests in consolidated funds and have no impact on the net income attributable to OCG.

Expenses

Compensation and Benefits

Compensation and benefits increased $11.8 million, or 12.0%, to $110.1 million for the three months ended March 31, 2015, from $98.3 million for the three months ended March 31, 2014, primarily reflecting growth in headcount, including from the Highstar acquisition.

Equity-based Compensation

Equity-based compensation expense increased $2.5 million, or 27.2%, to $11.7 million for the three months ended March 31, 2015, from $9.2 million for the three months ended March 31, 2014, primarily reflecting non-cash amortization expense associated with vesting of restricted unit grants made to employees and directors subsequent to our initial public offering in April 2012.

Incentive Income Compensation

Incentive income compensation expense decreased $24.6 million, or 26.9%, to $66.9 million for the three months ended March 31, 2015, from $91.5 million for the three months ended March 31, 2014. The percentage decrease was smaller than the corresponding decline of 47.8% in segment incentive income, primarily due to timing differences associated with the recognition of segment incentive income and incentive income compensation expense, as well as catch-up tax distributions related to incentive interests awarded to certain investment professionals in 2014.

General and Administrative

General and administrative expense decreased $25.6 million, or 79.5%, to $6.6 million for the three months ended March 31, 2015, from $32.2 million for the three months ended March 31, 2014. Because segment investment income earned from our investments in consolidated funds is eliminated in consolidation, gains or losses associated with foreign currency hedges used to economically hedge our non-U.S. dollar denominated investments in consolidated funds are included in general and administrative expense. Excluding the impact of foreign currency-related items, general and administrative expense decreased $0.5 million, or 1.6%, to $31.4 million from $31.9 million, reflecting a number of factors, including expenses related to our bi-annual client conferences in early 2014.

Consolidated Fund Expenses

Consolidated fund expenses increased $12.6 million, or 50.0%, to $37.8 million for the three months ended March 31, 2015, from $25.2 million for the three months ended March 31, 2014. The increase reflected higher professional fees and other costs related to managing the funds.

Other Income (Loss)

Interest Expense

Interest expense increased $22.6 million, or 94.2%, to $46.6 million for the three months ended March 31, 2015, from $24.0 million for the three months ended March 31, 2014, primarily reflecting higher outstanding borrowings on the credit facilities of our consolidated funds.

Interest and Dividend Income

Interest and dividend income increased $160.8 million, or 44.4%, to $522.9 million for the three months ended March 31, 2015, from $362.1 million for the three months ended March 31, 2014, primarily reflecting special dividends received from portfolio companies by our Distressed Debt funds in the current-year period.

Net Realized Gain on Consolidated Funds’ Investments

Net realized gain on consolidated funds’ investments decreased $179.4 million, or 27.4%, to $474.8 million for the three months ended March 31, 2015, from $654.2 million for the three months ended March 31, 2014. Of the $474.8 million net realized gain in the current-year period, $404.2 million was attributable to Distressed Debt funds and $63.1 million to Real Estate funds. Of the $654.2 million net realized gain in the prior-year period, $388.3 million was attributable to Distressed Debt funds, $175.1 million to Control Investing funds and $27.3 million to Real Estate funds.

Net Change in Unrealized Appreciation on Consolidated Funds’ Investments

The net change in unrealized appreciation on consolidated funds’ investments decreased $263.0 million, or 34.1%, to $507.5 million for the three months ended March 31, 2015, from $770.5 million for the three months ended March 31, 2014. Excluding the $179.4 million decrease in net realized gain on consolidated funds’ investments, the net change in unrealized appreciation on consolidated funds’ investments decreased $442.3 million, or 31.0%, to $982.3 million for the three months ended March 31, 2015, from $1,424.6 million for the three months ended March 31, 2014. The $982.3 million net gain in the current-year period reflected gains of $786.9 million by Control Investing funds and $265.9 million by Real Estate funds, partially offset by a loss of $182.0 million by Distressed Debt funds. The $1,424.6 million net gain in the prior-year period reflected gains of $701.6 million by Distressed Debt funds, $435.3 million by Control Investing funds and $176.7 million by Real Estate funds.

Investment Income

Investment income increased $7.7 million, or 154.0%, to $12.7 million for the three months ended March 31, 2015, from $5.0 million for the three months ended March 31, 2014. The increase reflected higher income of $6.7 million from our investments in companies and $1.0 million from our investments in funds. Our one-fifth ownership stake in DoubleLine Capital LP and its affiliates (collectively, “DoubleLine”) accounted for investment income of $14.6 million and $9.6 million in the current and prior-year periods, respectively, of which performance fees accounted for $2.0 million and $1.4 million, respectively.

Other Income (Expense), Net

Other income (expense), net increased to income of $4.7 million for the three months ended March 31, 2015, from an expense of $1.7 million for the three months ended March 31, 2014. The income of $4.7 million in the current-year period primarily reflected amounts received for contractually reimbursable costs associated with the Highstar acquisition, partially offset by losses associated with certain non-operating corporate activities. The expense of $1.7 million in the prior-year period reflected the write-off of unamortized debt issuance costs associated with the refinancing of our corporate credit facility, partially offset by income attributable to a 2010 arbitration award.

Income Taxes

Income taxes decreased $0.1 million, or 1.3%, to $7.9 million for the three months ended March 31, 2015, from $8.0 million for the three months ended March 31, 2014. The percentage decline in income taxes was smaller than the 22% decline in income applicable to Class A unitholders, primarily as a result of a higher effective tax rate for the three months ended March 31, 2015. The effective tax rates applicable to Class A unitholders for the three months ended March 31, 2015 and 2014 were 15% and 11%, respectively. The 15% effective tax rate applicable to Class A unitholders for the three months ended March 31, 2015 was based on an estimated full-year effective tax rate on income that can be reliably forecasted combined with the actual tax expense in the current period on income that cannot be reliably estimated, such as incentive income. We would expect variability between quarters and for the full year because the effective tax rate is a function of the mix of income and other factors that often vary significantly within or between years, each of which can have a material impact on the particular year’s income tax expense. Please see “—Understanding Our Results—Consolidation of Oaktree Funds.”

Net Income Attributable to Oaktree Capital Group, LLC

Net income attributable to Oaktree Capital Group, LLC decreased $13.5 million, or 26.1%, to $38.3 million for the three months ended March 31, 2015, from $51.8 million for the three months ended March 31, 2014. The decrease was primarily attributable to lower segment revenues, partially offset by lower segment expenses and a larger allocation of income to OCG as a result of an increase in the average number of Class A units outstanding during each period.

Net Income Attributable to Non-controlling Interests in Consolidated Funds

Net income attributable to non-controlling interests in consolidated funds decreased $188.1 million, or 14.2%, to $1,136.7 million for the three months ended March 31, 2015, from net income of $1,324.8 million for the three months ended March 31, 2014, primarily reflecting lower net gains on investments, partially offset by higher interest and dividend income. These effects are described in more detail under “—Other Income (Loss)” above.

Segment Financial Data

The following table presents segment financial data:



	Three Months Ended March 31,
Segment Statements of Operations Data: ⁽¹⁾	2015			2014
	(in thousands, except per unit data or as otherwise indicated)
Revenues:
Management fees	$	188,050		$	188,400
Incentive income	152,879			292,876
Investment income	53,458			46,480
Total revenues	394,387			527,756
Expenses:
Compensation and benefits	(105,854		)	(98,194		)
Equity-based compensation	(7,023		)	(3,983		)
Incentive income compensation	(90,102		)	(137,828		)
General and administrative	(24,350		)	(30,562		)
Depreciation and amortization	(1,891		)	(1,921		)
Total expenses	(229,220		)	(272,488		)
Adjusted net income before interest and other income (expense)	165,167			255,268
Interest expense, net of interest income ⁽²⁾	(8,933		)	(6,625		)
Other income (expense), net	(896		)	(1,698		)
Adjusted net income	$	155,338		$	246,945

Adjusted net income-OCG	$	38,285		$	57,875
Adjusted net income per Class A unit	0.85			1.46
Distributable earnings	140,508			233,141
Distributable earnings-OCG	36,295			55,812
Distributable earnings per Class A unit	0.81			1.41
Fee-related earnings	55,955			57,723
Fee-related earnings-OCG	14,556			12,923
Fee-related earnings per Class A unit	0.32			0.33

Weighted average number of Operating Group units outstanding	153,237			152,271
Weighted average number of Class A units outstanding	45,063			39,700

Operating Metrics:
Assets under management (in millions):
Assets under management	$	99,903		$	86,226
Management fee-generating assets under management	78,497			74,027
Incentive-creating assets under management	34,458			33,258
Uncalled capital commitments	17,196			12,002
Accrued incentives (fund level):
Incentives created (fund level)	265,462			352,374
Incentives created (fund level), net of associated incentive income compensation expense	136,299			137,332
Accrued incentives (fund level)	2,061,990			2,335,937
Accrued incentives (fund level), net of associated incentive income compensation expense	1,073,445			1,215,523

(1)

Our business is comprised of one segment, our investment management segment, which consists of the investment management services that we provide to our clients. The components of revenues and expenses used in determining adjusted net income do not give effect to the consolidation of the funds that we manage. Segment revenues include investment income (loss) that is classified in other income (loss) in the GAAP-basis statements of operations. Segment revenues and expenses also reflect Oaktree’s proportionate economic interest in Highstar, whereby amounts received for contractually reimbursable costs are included with segment expenses, as compared to being recorded as other income under GAAP. In addition, adjusted net income excludes the effect of (a) non-cash equity-based compensation charges 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 classified as equity awards for segment reporting purposes, (d) income taxes, (e) other income or expenses applicable to OCG or its Intermediate Holding Companies and (f) the adjustment for non-controlling interests. Incentive income and incentive income compensation expense are included in adjusted net income when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. Adjusted net income is calculated at the Operating Group level. For a detailed description of our segment and operating metrics, please see “—Segment and Operating Metrics” above.


(2)	Interest income was $1.0 million and $1.1 million for the three months ended March 31, 2015 and 2014, respectively.

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, 2015		December 31, 2014		March 31, 2014
Assets Under Management:	(in millions)
Closed-end funds	$	56,259	$	48,203	$	46,902
Open-end funds	38,340		37,452		34,911
Evergreen funds	5,304		5,176		4,413
Total	$	99,903	$	90,831	$	86,226



	Three Months Ended March 31,
	2015			2014
Change in Assets Under Management:	(in millions)
Beginning balance	$	90,831		$	83,605
Closed-end funds:
Capital commitments/other ⁽¹⁾	9,440			1,083
Distributions for a realization event/other ⁽²⁾	(1,937		)	(1,952		)
Uncalled capital commitments at end of investment period	(240		)	(146		)
Foreign currency translation	(776		)	1
Change in market value ⁽³⁾	1,197			1,369
Change in applicable leverage	372			(138		)
Open-end funds:
Contributions	1,710			1,695
Redemptions	(1,429		)	(579		)
Foreign currency translation	(444		)	14
Change in market value ⁽³⁾	1,051			913
Evergreen funds:
Contributions or new capital commitments	204			268
Redemptions or distributions	(56		)	(14		)
Distributions from restructured funds	(5		)	(16		)
Foreign currency translation	(1		)	(1		)
Change in market value ⁽³⁾	(14		)	124
Ending balance	$	99,903		$	86,226


(1)	These amounts represent capital commitments, as well as the aggregate par value of collateral assets and principal cash associated with our CLOs.


(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 by our CLOs and recallable distributions at the end of the investment period.


(3)	The change in market value reflects the change in NAV of our funds resulting from current income and realized and unrealized gains/losses on investments, less management fees and other fund expenses, as well as changes in the aggregate par value of collateral assets and principal cash held by our CLOs resulting from other activities.

Management Fee-generating Assets Under Management



	As of
	March 31, 2015		December 31, 2014		March 31, 2014
Management Fee-generating Assets Under Management:	(in millions)
Closed-end funds:
Senior Loans	$	6,032	$	5,255	$	2,984
Other closed-end funds	30,614		32,017		33,192
Open-end funds	38,257		37,383		34,855
Evergreen funds	3,594		3,424		2,996
Total	$	78,497	$	78,079	$	74,027



	Three Months Ended March 31,
	2015			2014
Change in Management Fee-generating Assets Under Management:	(in millions)
Beginning balance	$	78,079		$	71,950
Closed-end funds:
Capital commitments to funds that pay fees based on committed capital/other ⁽¹⁾	607			560
Capital drawn by funds that pay fees based on drawn capital or NAV	264			107
Change attributable to funds in liquidation ⁽²⁾	(861		)	(898		)
Uncalled capital commitments at end of investment period for funds that pay fees based on committed capital	(435		)	—
Distributions by funds that pay fees based on NAV/other ⁽³⁾	(109		)	(108		)
Foreign currency translation	(467		)	(16		)
Change in market value ⁽⁴⁾	17			109
Change in applicable leverage	358			—
Open-end funds:
Contributions	1,696			1,680
Redemptions	(1,413		)	(581		)
Foreign currency translation	(444		)	14
Change in market value	1,035			912
Evergreen funds:
Contributions or capital drawn by funds that pay fees based on drawn capital or NAV	233			197
Redemptions or distributions	(41		)	(14		)
Change in market value	(22		)	115
Ending balance	$	78,497		$	74,027


(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 associated with our CLOs.

(2)

These amounts represent the change for funds that pay fees based on the lesser of funded capital or cost basis during the liquidation period, as well as recallable distributions at the end of the investment period. For most closed-end funds, management fees are charged during the liquidation period on the lesser of (a) total funded capital or (b) the cost basis of assets remaining in the fund, with the cost basis of assets generally calculated by excluding cash balances. Thus, changes in fee basis during the liquidation period are not dependent on distributions made from the fund; rather, they are tied to the cost basis of the fund’s investments, which generally declines as the fund sells assets.


(3)	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 by our CLOs.


(4)	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 our CLOs resulting from other activities.

As compared with AUM, management fee-generating AUM generally excludes the following:


•	Differences between AUM and either committed capital or cost basis for most closed-end funds, other than for closed-end funds that pay management fees based on NAV and leverage, as applicable;


•	Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods;


•	Undrawn capital commitments to funds for which management fees are based on drawn capital or NAV;


•	The investments we make in our funds as general partner;


•	Closed-end funds that are beyond the term during which they pay management fees and co-investments that pay no management fees; and


•	AUM in restructured and liquidating evergreen funds for which management fees were waived.

A reconciliation of AUM to management fee-generating AUM is set forth below:



	As of
Reconciliation of Assets Under Management to Management Fee-generating Assets Under Management:	March 31, 2015			December 31, 2014			March 31, 2014
	(in millions)
Assets under management	$	99,903		$	90,831		$	86,226
Difference between assets under management and committed capital or cost basis for applicable closed-end funds ⁽¹⁾	(5,620		)	(5,521		)	(6,616		)
Undrawn capital commitments to funds that have not yet commenced their investment periods	(9,190		)	(320		)	(696		)
Undrawn capital commitments to funds for which management fees are based on drawn capital or NAV	(4,238		)	(4,528		)	(3,013		)
Oaktree’s general partner investments in management fee-generating funds	(1,200		)	(1,231		)	(1,247		)
Closed-end funds that are no longer paying management fees and co-investments that pay no management fees	(939		)	(924		)	(444		)
Funds for which management fees were permanently waived	(219		)	(228		)	(183		)
Management fee-generating assets under management	$	78,497		$	78,079		$	74,027


(1)	This difference is not applicable to closed-end funds that pay management fees based on NAV or leverage.

The period-end weighted average annual management fee rates applicable to the respective management fee-generating AUM balances above are set forth below, and reflect the applicable contractual fee rates, exclusive of the impact of special items such as retroactive management fees and the collection of deferred contingent management fees.



	As of
	March 31, 2015		December 31, 2014		March 31, 2014
Weighted Average Annual Management Fee Rates:
Closed-end funds:
Senior Loans	0.50	%	0.50	%	0.50	%
Other closed-end funds	1.54		1.54		1.55
Open-end funds	0.47		0.47		0.47
Evergreen funds	1.50		1.53		1.61
Overall	0.94		0.96		1.00

Incentive-creating Assets Under Management

Incentive-creating AUM is set forth below. As of March 31, 2015, December 31, 2014 and March 31, 2014, the portion of incentive-creating AUM generating incentives at the fund level was $25.4 billion (or 73.6%), $24.3 billion (71.7%) and $30.0 billion (90.0%), respectively. Incentive-creating AUM does not include undrawn capital commitments.



	As of
	March 31, 2015		December 31, 2014		March 31, 2014
Incentive-creating Assets Under Management:	(in millions)
Closed-end funds	$	32,374	$	31,743	$	31,172
Evergreen funds	2,084		2,118		2,086
Total	$	34,458	$	33,861	$	33,258

Three Months Ended March 31, 2015

AUM grew $9.1 billion, or 10.0%, to $99.9 billion as of March 31, 2015, from $90.8 billion as of December 31, 2014. The increase reflected $9.4 billion in capital inflows for closed-end funds and $2.2 billion of market-value gains, partially offset by $1.9 billion of distributions to closed-end fund investors and a $1.2 billion negative impact from foreign currency translation. Capital inflows for closed-end funds included $7.1 billion for Opps X and Xb and $0.9 billion for Oaktree Power Opportunities Fund IV.

Management fee-generating AUM increased $0.4 billion, or 0.5%, to $78.5 billion as of March 31, 2015, from $78.1 billion as of December 31, 2014. The increase reflected $1.0 billion in market-value gains in funds for which management fees are based on NAV, $0.9 billion in fee-generating leverage and drawdowns or contributions by closed-end and evergreen funds for which management fees are based on drawn capital or NAV, and $0.6 billion attributable to CLOs and capital commitments to closed-end funds, partially offset by a $0.9 billion decline attributable to closed-end funds in liquidation, a $0.9 billion negative impact from foreign currency translation and $0.4 billion in uncalled capital commitments.

Incentive-creating AUM grew $0.6 billion, or 1.8%, to $34.5 billion as of March 31, 2015, from $33.9 billion as of December 31, 2014. The increase reflected the net effect of $1.2 billion in drawdowns by closed-end funds, $1.0 billion in market-value gains, $1.2 billion in distributions by closed-end funds and a $0.5 billion negative impact from foreign currency translation.

Three Months Ended March 31, 2014

AUM grew $2.6 billion, or 3.1%, to $86.2 billion as of March 31, 2014, from $83.6 billion as of December 31, 2013. The increase reflected $2.4 billion of aggregate market-value gains, $1.3 billion of capital inflows for closed-end funds and $1.1 billion of net inflows to open-end funds, partially offset by $2.0 billion of distributions to closed-end fund investors. The $2.0 billion of distributions to closed-end fund investors included $1.2 billion by Distressed Debt funds and $0.6 billion by Principal Investing funds.

Management fee-generating AUM grew $2.0 billion, or 2.8%, to $74.0 billion as of March 31, 2014, from $72.0 billion as of December 31, 2013. The increase reflected $1.1 billion of net inflows to open-end funds, $1.1 billion of market-value gains in funds for which management fees are based on NAV, and $0.6 billion in capital commitments to closed-end funds, partially offset by a $0.9 billion decline attributable to closed-end funds in liquidation.

Incentive-creating AUM grew $0.9 billion, or 2.8%, to $33.3 billion as of March 31, 2014, from $32.4 billion as of December 31, 2013. The increase reflected the net effect of $1.6 billion in drawdowns by closed-end funds, $1.4 billion in market-value gains, and $2.1 billion in distributions by closed-end funds.

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,
	2015			2014
Accrued Incentives (Fund Level):	(in thousands)
Beginning balance	$	1,949,407		$	2,276,439
Incentives created (fund level):
Closed-end funds	265,457			337,583
Evergreen funds	5			14,791
Total incentives created (fund level)	265,462			352,374
Less: segment incentive income recognized by us	(152,879		)	(292,876		)
Ending balance	$	2,061,990		$	2,335,937
Accrued incentives (fund level), net of associated incentive income compensation expense	$	1,073,445		$	1,215,523

As of March 31, 2015 and 2014, the portion of net accrued incentives (fund level) represented by funds that were currently paying incentives was $419.8 million and $444.9 million, respectively, with the remainder arising from funds that as of that date had not yet reached the stage of their cash distribution waterfall where Oaktree was entitled to receive incentives, other than possibly tax-related distributions.

As of March 31, 2015, $25.4 million, or 73.7%, of the net accrued incentives (fund level) was in funds in their liquidation period, and approximately 40% 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, 2015 and 2014

Incentives created (fund level) was $265.5 million for the three months ended March 31, 2015, reflecting the period’s investment returns. The $265.5 million of incentives created (fund level) reflected $261.8 million from Control Investing funds and $49.1 million from Real Estate funds, partially offset by $60.4 million of negative incentives created (fund level) from Distressed Debt funds.

Incentives created (fund level) was $352.4 million for the three months ended March 31, 2014, reflecting both the 90.3% share of our incentive-creating AUM that was creating incentives as of March 31, 2014 and the period’s investment returns. The $352.4 million of incentives created (fund level) included $191.1 million from Control Investing funds and $117.8 million from Distressed Debt funds.

Uncalled Capital Commitments

As of March 31, 2015, December 31, 2014 and March 31, 2014, uncalled capital commitments were $17.2 billion, $10.3 billion and $12.0 billion, respectively. Capital drawn by closed-end funds during the three months ended March 31, 2015 aggregated $1.6 billion, as compared with $2.2 billion for the three months ended March 31, 2014.

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,
	2015			2014
	(in thousands, except per unit data)
Revenues:
Management fees	$	188,050		$	188,400
Incentive income	152,879			292,876
Investment income	53,458			46,480
Total revenues	394,387			527,756
Expenses:
Compensation and benefits	(105,854		)	(98,194		)
Equity-based compensation	(7,023		)	(3,983		)
Incentive income compensation	(90,102		)	(137,828		)
General and administrative	(24,350		)	(30,562		)
Depreciation and amortization	(1,891		)	(1,921		)
Total expenses	(229,220		)	(272,488		)
Adjusted net income before interest and other income (expense)	165,167			255,268
Interest expense, net of interest income	(8,933		)	(6,625		)
Other income (expense), net	(896		)	(1,698		)
Adjusted net income	155,338			246,945
Adjusted net income attributable to OCGH non-controlling interest	(109,657		)	(182,561		)
Non-Operating Group expenses	(334		)	(282		)
Adjusted net income-OCG before income taxes	45,347			64,102
Income taxes-OCG	(7,062		)	(6,227		)
Adjusted net income-OCG	$	38,285		$	57,875
Adjusted net income per Class A unit	$	0.85		$	1.46
Weighted average number of Class A units outstanding	45,063			39,700

Distributable Earnings

Distributable earnings and distributable earnings-OCG, as well as per unit data, are set forth below:



	Three Months Ended March 31,
	2015			2014
	(in thousands, except per unit data)
Revenues:
Management fees	$	188,050		$	188,400
Incentive income	152,879			292,876
Receipts of investment income from funds ⁽¹⁾	23,961			21,658
Receipts of investment income from companies	8,796			9,415
Total distributable earnings revenues	373,686			512,349
Expenses:
Compensation and benefits	(105,854		)	(98,194		)
Incentive income compensation	(90,102		)	(137,828		)
General and administrative	(24,350		)	(30,562		)
Depreciation and amortization	(1,891		)	(1,921		)
Total expenses	(222,197		)	(268,505		)
Other income (expense):
Interest expense, net of interest income	(8,933		)	(6,625		)
Operating Group income taxes	(1,152		)	(2,380		)
Other income (expense), net	(896		)	(1,698		)
Distributable earnings	140,508			233,141
Distributable earnings attributable to OCGH non-controlling interest	(99,189		)	(172,355		)
Non-Operating Group expenses	(334		)	(282		)
Distributable earnings-OCG income taxes	(280		)	(739		)
Tax receivable agreement	(4,410		)	(3,953		)
Distributable earnings-OCG	$	36,295		$	55,812
Distributable earnings per Class A unit	$	0.81		$	1.41
Weighted average number of Class A units outstanding	45,063			39,700

(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.

Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Distributable earnings declined $92.6 million, or 39.7%, to $140.5 million for the three months ended March 31, 2015, from $233.1 million for the three months ended March 31, 2014, reflecting decreases of $92.3 million in incentive income, net of incentive income compensation expense, and $1.7 million in fee-related earnings, partially offset by a $1.7 million increase in investment income proceeds. For the three months ended March 31, 2015, investment income proceeds totaled $32.8 million, including $24.0 million from fund distributions and $12.4 million from DoubleLine, as compared with total investment income proceeds in the prior-year period of $31.1 million, of which $21.7 million and $9.4 million was attributable to fund distributions and DoubleLine, respectively.

The following table reconciles distributable earnings and ANI to net income attributable to Oaktree Capital Group, LLC:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Distributable earnings	$	140,508		$	233,141
Investment income ⁽¹⁾	53,458			46,480
Receipts of investment income from funds ⁽²⁾	(23,961		)	(21,658		)
Receipts of investment income from companies	(8,796		)	(9,415		)
Equity-based compensation ⁽³⁾	(7,023		)	(3,983		)
Operating Group income taxes	1,152			2,380
Adjusted net income	155,338			246,945
Incentive income ⁽⁴⁾	(17,378		)	(64,460		)
Incentive income compensation ⁽⁴⁾	23,210			46,334
Equity-based compensation ⁽⁵⁾	(4,683		)	(5,199		)
Acquisition-related items ⁽⁶⁾	(1,807		)	—
Income taxes ⁽⁷⁾	(7,875		)	(7,986		)
Non-Operating Group expenses ⁽⁸⁾	(334		)	(282		)
Non-controlling interests ⁽⁸⁾	(108,218		)	(163,558		)
Net income attributable to Oaktree Capital Group, LLC	$	38,253		$	51,794


(1)	This adjustment adds back our segment investment income, which with respect to investment in funds is initially largely non-cash in nature and is thus not available to fund our operations or make equity distributions.

(2)

This adjustment eliminates the portion of distributions received from funds characterized as receipts of investment income or loss. In general, the income or loss component of a distribution from a fund is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends.


(3)	This adjustment adds back the effect of equity-based compensation charges related to unit grants made after our initial public offering, which is excluded from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.


(4)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG.

(5)

This adjustment adds back the effect of (a) equity-based compensation charges related to unit grants made before our initial public offering, which is excluded from adjusted net income because it does not affect our financial position and from distributable earnings because it is non-cash in nature and does not impact our ability to fund operations or make equity distributions, and (b) differences arising from EVUs that are classified as liability awards under GAAP, but classified as equity awards for segment reporting purposes.


(6)	This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability.


(7)	Because adjusted net income and distributable earnings are pre-tax measures, this adjustment adds back the effect of income tax expense.


(8)	Because adjusted net income and distributable earnings are calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or non-controlling interests.

The following table reconciles distributable earnings-OCG and adjusted net income-OCG to net income attributable to Oaktree Capital Group, LLC:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Distributable earnings-OCG ⁽¹⁾	$	36,295		$	55,812
Investment income attributable to OCG	15,721			12,118
Receipts of investment income from funds attributable to OCG	(7,046		)	(5,647		)
Receipts of investment income from companies attributable to OCG	(2,587		)	(2,455		)
Equity-based compensation attributable to OCG ⁽²⁾	(2,065		)	(1,039		)
Distributable earnings-OCG income taxes	280			739
Tax receivable agreement	4,410			3,953
Income taxes of Intermediate Holding Companies	(6,723		)	(5,606		)
Adjusted net income-OCG ⁽¹⁾	38,285			57,875
Incentive income attributable to OCG ⁽³⁾	(5,110		)	(16,806		)
Incentive income compensation attributable to OCG ⁽³⁾	6,825			12,080
Equity-based compensation attributable to OCG ⁽⁴⁾	(1,377		)	(1,355		)
Acquisition-related items attributable to OCG ⁽⁵⁾	(531		)	—
Non-controlling interests attributable to OCG ⁽⁵⁾	161			—
Net income attributable to Oaktree Capital Group, LLC	$	38,253		$	51,794


(1)	Distributable earnings-OCG and adjusted net income-OCG are calculated to evaluate the portion of adjusted net income and distributable earnings attributable to Class A unitholders. These measures are net of income taxes and expenses applicable to OCG or its Intermediate Holding Companies.


(2)	This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made after our initial public offering, which is excluded from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.


(3)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense attributable to OCG between adjusted net income-OCG and net income attributable to OCG.

(4)

This adjustment adds back the effect of (a) equity-based compensation charges attributable to OCG related to unit grants made before our initial public offering, which is excluded from adjusted net income because it does not affect our financial position and from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions, and (b) differences arising from EVUs that are classified as liability awards under GAAP, but classified as equity awards for segment reporting purposes.


(5)	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.

Fee-related Earnings

Fee-related earnings and fee-related earnings-OCG, as well as per unit data, are set forth below:



	Three Months Ended March 31,
	2015			2014
	(in thousands, except per unit data)
Management fees:
Closed-end funds	$	129,602		$	137,038
Open-end funds	44,441			39,654
Evergreen funds	14,007			11,708
Total management fees	188,050			188,400
Expenses:
Compensation and benefits	(105,854		)	(98,194		)
General and administrative	(24,350		)	(30,562		)
Depreciation and amortization	(1,891		)	(1,921		)
Total expenses	(132,095		)	(130,677		)
Fee-related earnings	55,955			57,723
Fee-related earnings attributable to OCGH non-controlling interest	(39,500		)	(42,673		)
Non-Operating Group expenses	(335		)	(282		)
Fee-related earnings-OCG before income taxes	16,120			14,768
Fee-related earnings-OCG income taxes	(1,564		)	(1,845		)
Fee-related earnings-OCG	$	14,556		$	12,923
Fee-related earnings per Class A unit	$	0.32		$	0.33
Weighted average number of Class A units outstanding	45,063			39,700

Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Fee-related earnings decreased $1.7 million, or 2.9%, to $56.0 million for the three months ended March 31, 2015, from $57.7 million for the three months ended March 31, 2014. The decrease reflected $0.3 million of lower management fees, an increase of $7.7 million in compensation and benefits, and a decrease of $6.2 million in general and administrative expense. The portion of fee-related earnings attributable to our Class A units was $0.32 and $0.33 per unit for the three months ended March 31, 2015 and 2014, respectively.

The effective tax rate applicable to fee-related earnings for the three months ended March 31, 2015 and 2014 was 10% and 12%, 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 fee-related earnings and ANI to net income attributable to Oaktree Capital Group, LLC:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Fee-related earnings ⁽¹⁾	$	55,955		$	57,723
Incentive income	152,879			292,876
Incentive income compensation	(90,102		)	(137,828		)
Investment income	53,458			46,480
Equity-based compensation ⁽²⁾	(7,023		)	(3,983		)
Interest expense, net of interest income	(8,933		)	(6,625		)
Other income (expense), net	(896		)	(1,698		)
Adjusted net income	155,338			246,945
Incentive income ⁽³⁾	(17,378		)	(64,460		)
Incentive income compensation ⁽³⁾	23,210			46,334
Equity-based compensation ⁽⁴⁾	(4,683		)	(5,199		)
Acquisition-related items ⁽⁵⁾	(1,807		)	—
Income taxes ⁽⁶⁾	(7,875		)	(7,986		)
Non-Operating Group expenses ⁽⁷⁾	(334		)	(282		)
Non-controlling interests ⁽⁷⁾	(108,218		)	(163,558		)
Net income attributable to Oaktree Capital Group, LLC	$	38,253		$	51,794


(1)	Fee-related earnings is a component of adjusted net income and is comprised of segment management fees less segment operating expenses other than incentive income compensation expense and non-cash equity-based compensation charges related to unit grants made after our initial public offering.


(2)	This adjustment adds back the effect of equity-based compensation charges related to unit grants made after our initial public offering, which is excluded from fee-related earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.


(3)	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.

(4)

This adjustment adds back the effect of (a) equity-based compensation charges 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 classified as equity awards for segment reporting purposes.


(5)	This adjustment adds back the effect of acquisition-related items associated with the amortization of intangibles and changes in the contingent consideration liability.


(6)	Because adjusted net income and fee-related earnings are pre-tax measures, this adjustment adds back the effect of income tax expense.


(7)	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.

The following table reconciles fee-related earnings-OCG and adjusted net income-OCG to net income attributable to Oaktree Capital Group, LLC:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Fee-related earnings-OCG ⁽¹⁾	$	14,556		$	12,923
Incentive income attributable to OCG	44,958			76,359
Incentive income compensation attributable to OCG	(26,497		)	(35,935		)
Investment income attributable to OCG	15,721			12,118
Equity-based compensation attributable to OCG ⁽²⁾	(2,065		)	(1,039		)
Interest expense, net of interest income attributable to OCG	(2,626		)	(1,726		)
Other income (expense) attributable to OCG	(264		)	(443		)
Non-fee-related earnings income taxes attributable to OCG ⁽³⁾	(5,498		)	(4,382		)
Adjusted net income-OCG ⁽¹⁾	38,285			57,875
Incentive income attributable to OCG ⁽⁴⁾	(5,110		)	(16,806		)
Incentive income compensation attributable to OCG ⁽⁴⁾	6,825			12,080
Equity-based compensation attributable to OCG ⁽⁵⁾	(1,377		)	(1,355		)
Acquisition-related items attributable to OCG ⁽⁶⁾	(531		)	—
Non-controlling interests attributable to OCG ⁽⁶⁾	161			—
Net income attributable to Oaktree Capital Group, LLC	$	38,253		$	51,794


(1)	Fee-related earnings-OCG and adjusted net income-OCG are calculated to evaluate the portion of adjusted net income and fee-related earnings attributable to Class A unitholders. These measures are net of income taxes and other income or expenses applicable to OCG or its Intermediate Holding Companies.


(2)	This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made after our initial public offering, which is excluded from fee-related earnings-OCG because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.


(3)	This adjustment adds back income taxes associated with segment incentive income, incentive income compensation expense or investment income or loss, which are not included in the calculation of fee-related earnings-OCG.


(4)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense attributable to OCG between adjusted net income-OCG and net income attributable to OCG.

(5)

This adjustment adds back the effect of (a) equity-based compensation charges 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 classified as equity awards for segment reporting purposes.


(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.

Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Segment Revenues

Management Fees

A summary of management fees is set forth below:



	Three Months Ended March 31,
	2015		2014
	(in thousands)
Management Fees:
Closed-end funds	$	129,602	$	137,038
Open-end funds	44,441		39,654
Evergreen funds	14,007		11,708
Total	$	188,050	$	188,400

Management fees decreased $0.3 million, or 0.2%, to $188.1 million for the three months ended March 31, 2015, from $188.4 million for the three months ended March 31, 2014, for the reasons described below.

•

Closed-end funds. Management fees attributable to closed-end funds decreased $7.4 million, or 5.4%, to $129.6 million for the three months ended March 31, 2015, from $137.0 million for the three months ended March 31, 2014. The decrease reflected an aggregate decline of $17.9 million primarily among closed-end funds in liquidation, partially offset by $6.2 million attributable to the Highstar acquisition, $2.8 million from closed-end funds for which management fees are based on drawn capital or NAV and $1.8 million from CLOs.


•	Open-end funds. Management fees attributable to open-end funds increased $4.7 million, or 11.8%, to $44.4 million for the three months ended March 31, 2015, from $39.7 million for the three months ended March 31, 2014, primarily as a result of net inflows to Emerging Markets Equities.

•

Evergreen funds. Management fees attributable to evergreen funds increased $2.3 million, or 19.7%, to $14.0 million for the three months ended March 31, 2015, from $11.7 million for the three months ended March 31, 2014, primarily reflecting drawdowns of capital commitments by Strategic Credit and Emerging Markets Opportunities. The period-end weighted average annual management fee rate for evergreen funds decreased to 1.50% as of March 31, 2015, from 1.61% as of March 31, 2014, largely as a result of Strategic Credit, for which the average management fee rate is lower than the 1.61%.

Incentive Income

A summary of incentive income is set forth below:



	Three Months Ended March 31,
	2015		2014
	(in thousands)
Incentive Income:
Closed-end funds	$	152,879	$	292,830
Evergreen funds	—		46
Total	$	152,879	$	292,876

Incentive income decreased $140.0 million, or 47.8%, to $152.9 million for the three months ended March 31, 2015, from $292.9 million for the three months ended March 31, 2014. Tax-related incentive distributions with respect to 2014 taxable income generated by closed-end funds not yet paying incentives accounted for $129.4 million of the $152.9 million in the current-year period, down from a corresponding $219.7 million of the prior-year period’s $292.9 million. Of the remaining $23.5 million and $73.2 million for the current and prior-year periods, respectively, Opps VIIb accounted for zero and $57.8 million.

Investment Income

A summary of investment income is set forth below:



	Three Months Ended March 31,
	2015		2014
Income (loss) from investments in funds:	(in thousands)
Oaktree funds:
Corporate Debt	$	11,351	$	8,835
Convertible Securities	948		408
Distressed Debt	1,936		20,474
Control Investing	17,757		11,042
Real Estate	5,769		5,466
Listed Equities	3,140		(3,960		)
Non-Oaktree funds	2,593		923
Income from investments in companies	9,964		3,292
Total investment income	$	53,458	$	46,480

Investment income increased $7.0 million, or 15.1%, to $53.5 million for the three months ended March 31, 2015, from $46.5 million for the three months ended March 31, 2014. Our one-fifth ownership stake in DoubleLine accounted for investment income of $14.6 million and $9.6 million in the current and prior-year periods, respectively, of which performance fees accounted for $2.0 million and $1.4 million, respectively.

Segment Expenses

Compensation and Benefits

Compensation and benefits increased $7.7 million, or 7.8%, to $105.9 million for the three months ended March 31, 2015, from $98.2 million for the three months ended March 31, 2014. The increase primarily reflected growth in headcount, including from the Highstar acquisition.

Equity-based Compensation

Equity-based compensation increased $3.0 million, or 75.0%, to $7.0 million for the three months ended March 31, 2015, from $4.0 million for the three months ended March 31, 2014, primarily reflecting non-cash amortization expense associated with vesting of restricted unit grants made to employees and directors subsequent to our initial public offering in April 2012.

Incentive Income Compensation

Incentive income compensation expense decreased $47.7 million, or 34.6%, to $90.1 million for the three months ended March 31, 2015, from $137.8 million for the three months ended March 31, 2014. The percentage decrease was smaller than the corresponding decline of 47.8% in incentive income, primarily as a result of catch-up tax distributions related to incentive interests awarded to certain investment professionals in 2014.

General and Administrative

General and administrative expense decreased $6.2 million, or 20.3%, to $24.4 million for the three months ended March 31, 2015, from $30.6 million for the three months ended March 31, 2014. Excluding the impact of foreign currency-related items, general and administrative expense decreased $2.8 million, or 8.8%, to $28.9 million from $31.7 million, reflecting a number of factors, including expenses related to our bi-annual client conferences in early 2014.

Interest Expense, Net of Interest Income

Interest expense, net increased $2.3 million, or 34.8%, to $8.9 million for the three months ended March 31, 2015, from $6.6 million for the three months ended March 31, 2014, primarily reflecting the new senior notes issued in September 2014.

Other Income (Expense), Net

Other income (expense), net were expenses of $0.9 million and $1.7 million for the three months ended March 31, 2015 and 2014, respectively. The current-year period primarily reflected losses associated with certain non-operating corporate activities. The prior-year period reflected the write-off of unamortized debt issuance costs associated with the refinancing of our corporate credit facility, partially offset by income attributable to a 2010 arbitration award.

Adjusted Net Income

ANI decreased $91.6 million, or 37.1%, to $155.3 million for the three months ended March 31, 2015, from $246.9 million for the three months ended March 31, 2014, primarily reflecting decreases of $92.3 million in incentive income, net of incentive income compensation expense, and $1.7 million in fee-related earnings, partially offset by a $7.0 million increase in investment income.

Income Taxes-OCG

Income taxes increased $0.9 million, or 14.5%, to $7.1 million for the three months ended March 31, 2015, from $6.2 million for the three months ended March 31, 2014. Income taxes increased, despite the fact that adjusted net income-OCG before income taxes declined, primarily due to a higher effective tax rate for the three months ended March 31, 2015. The effective tax rates applied to ANI for the three months ended March 31, 2015 and 2014 were 16% and 10%, respectively. The 16% effective tax rate applied to ANI for the three months ended March 31, 2015 was based on an estimated full-year effective tax rate on income that can be reliably forecasted combined with the actual tax expense in the current period on income that cannot be reliably estimated, such as incentive income. We would expect variability between quarters and for the full year because the effective tax rate is a function of the mix of income and other factors that often vary significantly within or between years, each of which can have a material impact on the particular year’s income tax expense.

Segment Statements of Financial Condition

Since our founding, we have managed our financial condition in a way that builds our capital base and maintains sufficient liquidity for known and anticipated uses of cash. We have issued debt largely to help fund our corporate investments in funds and companies, favoring longer terms to better match the multi-year nature of our typical investment. Our segment assets do not include accrued incentives (fund level), an off-balance sheet metric, nor do they reflect the fair-market value of our 20% interest in DoubleLine, which is carried at cost, as adjusted under the equity method of accounting. For a reconciliation of segment total assets to our consolidated total assets, please see the “Segment Reporting” note to our condensed consolidated financial statements included elsewhere in this quarterly report.

The following table presents our segment statements of financial condition:



	As of
	March 31, 2015		December 31, 2014		March 31, 2014
Assets:	(in thousands)
Cash and cash-equivalents	$	434,232	$	405,290	$	563,292
U.S. Treasury securities	570,749		655,529		360,559
Corporate investments	1,503,621		1,515,443		1,393,692
Deferred tax assets	430,873		357,364		373,037
Receivables and other assets	313,599		334,173		243,747
Total assets	$	3,253,074	$	3,267,799	$	2,934,327
Liabilities and Capital:
Liabilities:
Accounts payable and accrued expenses	$	252,006	$	390,196	$	235,596
Due to affiliates	371,988		309,214		321,830
Debt obligations	850,000		850,000		610,714
Total liabilities	1,473,994		1,549,410		1,168,140
Capital:
OCGH non-controlling interest in consolidated subsidiaries	1,159,339		1,172,663		1,212,862
Unitholders’ capital attributable to Oaktree Capital Group, LLC	619,741		545,726		553,325
Total capital	1,779,080		1,718,389		1,766,187
Total liabilities and capital	$	3,253,074	$	3,267,799	$	2,934,327

Corporate Investments

A summary of corporate investments is set forth below:



	As of
	March 31, 2015		December 31, 2014		March 31, 2014
Investments in funds:	(in thousands)
Oaktree funds:
Corporate Debt	$	426,543	$	426,677	$	279,022
Convertible Securities	19,647		18,698		18,963
Distressed Debt	429,173		433,715		461,400
Control Investing	262,492		249,840		244,661
Real Estate	145,330		134,631		124,741
Listed Equities	148,383		149,901		130,960
Non-Oaktree funds	49,706		49,441		50,020
Investments in companies	22,347		52,540		83,925
Total corporate investments	$	1,503,621	$	1,515,443	$	1,393,692

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, 2015, we had $1.0 billion of cash and investments in U.S. Treasury securities and $850 million in outstanding debt. Additionally, we have a $500 million revolving credit facility available to us, which was undrawn as of March 31, 2015. Oaktree’s investments in funds and companies had a carrying value of $1.5 billion as of March 31, 2015.

Ongoing sources of cash, or distributable earnings, include (a) management fees, which are collected monthly or quarterly, (b) incentive income, which is volatile and largely unpredictable as to amount and timing, and (c) distributions related to our corporate investments in funds and companies. As of March 31, 2015, corporate investments of $1.5 billion included unrealized investment income proceeds of $374 million, of which $205 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 were insufficient to fund distributions, we expect that we would suspend paying such distributions.

We use distributable earnings, which is derived from our segment results, to assess performance and assist in the determination of equity distributions from the Operating Group. Our quarterly distributable earnings may be affected by potential seasonal factors that may, in turn, affect the level of the cash distributions applicable to a particular quarter. For example, we generally receive tax-related incentive distributions from certain closed-end funds in the first quarter of the year, which if received generate distributable earnings in that period. Additionally, DoubleLine’s corporate distributions to us may vary in length of period covered. For example, the quarterly distributions made in the second and fourth quarters typically have covered two and four months of activity, respectively. The distribution amount for any given period is likely to vary materially due to these and other factors.

Tax distributions are not required in respect of the Class A units and are only required from the Oaktree Operating Group entities if and to the extent that there is sufficient cash available for distribution. Accordingly, if there were insufficient cash flow from operations to fund quarterly or tax distributions by the Oaktree Operating Group entities, we expect that these distributions would not be made. We believe that we have sufficient access to cash from existing balances, our operations and the revolving credit facility described below to fund our operations and commitments.

Consolidated Cash Flows

The accompanying 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 substantially 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 most of our consolidated funds are treated as investment companies for accounting purposes, their investing cash flow amounts are included in our cash flows from operations. We believe that each of the consolidated funds and Oaktree has sufficient access to cash to fund their respective operations in the near term.

Significant amounts from our condensed consolidated statements of cash flows for the three months ended March 31, 2015 and 2014 are discussed below.

Operating Activities

Net cash used in operating activities was $1.9 billion and $1.0 billion in the first three months of 2015 and 2014, respectively. These amounts included, for the first three months of 2015 and 2014, respectively, (a) net purchases of securities of the consolidated funds of $1.9 billion and $1.0 billion; (b) net realized gains on investments of the consolidated funds of $474.8 million and $654.2 million; and (c) changes in unrealized gains on investments of the consolidated funds of $507.5 million and $770.5 million.

Investing Activities

Investing activities provided $88.8 million and $295.4 million of cash in the first three months of 2015 and 2014, respectively. Investing activities were primarily driven by net U.S. Treasury investment activities. Net activity from purchases, maturities and sales of U.S. Treasury securities included net proceeds of $84.8 million and $316.0 million for the first three months of 2015 and 2014, respectively. Corporate investments in funds and companies of $13.9 million and $22.0 million for the first three months of 2015 and 2014, respectively, consisted of the following:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Funds	$	57,576		$	165,525
Eliminated in consolidation	(43,644		)	(147,969		)
Unconsolidated companies	—			4,481
Total investments	$	13,932		$	22,037

Distributions and proceeds from corporate investments in funds and companies of $30.4 million and $2.8 million for the first three months of 2015 and 2014, respectively, consisted of the following:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Funds	$	78,570		$	59,034
Eliminated in consolidation	(72,149		)	(56,259		)
Unconsolidated companies	24,013			—
Total proceeds	$	30,434		$	2,775

Purchases of fixed assets were $12.5 million and $1.3 million for the first three months of 2015 and 2014, respectively.

Financing Activities

Financing activities provided $901.1 million and $1.0 billion of cash in the first three months of 2015 and 2014, respectively. For the first three months of 2015 and 2014, financing activities included (a) net contributions from non-controlling interests to consolidated funds of $130.0 million and net distributions from consolidated funds to non-controlling interests of $120.4 million, respectively; (b) net borrowings on credit facilities of the consolidated funds of $490.3 million and $809.7 million, respectively; (c) distributions to unitholders of $100.0 million and $178.8 million, respectively; (d) proceeds from debt obligations issued by our CLOs of $394.3 million and $503.6 million, respectively; (e) payments for debt issuance costs of $9.1 million and $6.0 million, respectively; and (f) purchases of OCGH units, net of issuance of Class A units, of $4.3 million and $1.8 million, respectively. Additionally, the first three months of 2014 included net proceeds associated with the refinancing of our corporate credit facility of $30.5 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, or redeem our Class A units pursuant to the terms of our operating agreement.

In addition to our ongoing sources of cash that include management fees, incentive income and fund distributions related to our corporate investments in funds and companies, we also have access to liquidity through our debt financings and credit agreements. We believe that the sources of liquidity described below will be sufficient to fund our working capital requirements for at least the next twelve months.

In September 2014, our subsidiaries Oaktree Capital Management, L.P. (the “Issuer”) and Oaktree Capital I, L.P., Oaktree Capital II, L.P. and Oaktree AIF Investments, L.P. (the “Guarantors” and together with the Issuer, the “Obligors”) issued and sold to certain accredited investors $50.0 million aggregate principal amount of our 3.91% Senior Notes, Series A, due September 3, 2024 (the “Series A Notes”), $100.0 million aggregate principal amount of our 4.01% Senior Notes, Series B, due September 3, 2026 (the “Series B Notes”) and $100.0 million aggregate principal amount of our 4.21% Senior Notes, Series C, due September 3, 2029 (the “Series C Notes” and together with the Series A Notes and the Series B Notes, the “2014 Notes”) pursuant to a note and guarantee agreement (the “Note Agreement”). The 2014 Notes are senior unsecured obligations of the Issuer, guaranteed by the Guarantors on a joint and several basis. Interest on the 2014 Notes is payable semi-annually.

The Note Agreement provides for certain affirmative and negative covenants, including financial covenants relating to the Obligors’ combined leverage ratio and minimum assets under management. In addition, the Note Agreement contains customary representations and warranties of the Obligors and customary events of default, in certain cases, subject to cure periods. The Issuer may prepay all, or from time to time any part of, the 2014 Notes at any time, subject to the Issuer’s payment of the applicable make-whole amount determined with respect to such principal amount prepaid. Upon the occurrence of a change of control, the Issuer will be required to make an offer to prepay the 2014 Notes together with the applicable make-whole amount determined with respect to such principal amount prepaid.

In November 2009, our subsidiary Oaktree Capital Management, L.P. issued $250 million in aggregate principal amount of senior notes due December 2, 2019 (the “2009 Notes”). The indenture governing the 2009 Notes contains customary financial covenants and restrictions that, among other things, limit Oaktree Capital Management, L.P. and the guarantors’ ability, subject to certain exceptions, to incur indebtedness secured by liens on voting stock or profit-participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The 2009 Notes do not contain financial maintenance covenants.

In addition to the 2009 Notes, as of March 31, 2015, we had two other series of senior notes outstanding, with an aggregate remaining principal balance of $100.0 million due in 2016. These senior notes contain customary financial covenants and restrictions that, among other things, restrict our subsidiaries from incurring additional indebtedness and our subsidiaries and us from merging, consolidating, transferring, leasing or selling assets, incurring certain liens and making restricted payments, subject to certain exceptions. In addition, the agreements contain the following financial covenants: (a) a maximum consolidated leverage ratio covenant that requires us and our subsidiaries to maintain a ratio, calculated by dividing consolidated total debt (for us and our subsidiaries) by Consolidated EBITDA (as defined in each agreement) for the last four fiscal quarters, below 3.0-to-1.0, (b) a maximum interest coverage ratio covenant that requires us and our subsidiaries to maintain a ratio, calculated by dividing Consolidated EBITDA for the last four fiscal quarters by consolidated interest expense (for us and our subsidiaries), below 4.0-to-1.0, and (c) an assets under management covenant that requires us to maintain assets under management above $20 billion.

In March 2014, our subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P. and Oaktree Capital I, L.P. entered into a credit agreement with a bank syndicate for senior unsecured credit facilities (the “Credit Facility”), consisting of a $250 million fully-funded term loan (the “Term Loan”) and a $500 million revolving credit facility (the “Revolver”), each with a five-year term. The Credit Facility replaced the amortizing term loan, which had a principal balance of $218.8 million, and the undrawn revolver under the Company’s prior credit facility. The Term Loan matures in March 2019, at which time the entire principal amount of $250 million is due. Borrowings under the Credit Facility generally bear interest at a spread to either LIBOR or an alternative base rate. Based on the current credit ratings of Oaktree Capital Management, L.P., the interest rate on borrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of the Revolver is 0.125% per annum. Utilizing interest-rate swaps, the majority of the Term Loan’s annual interest rate is fixed at

2.69% through January 2016 and 2.22% for the twelve months thereafter, based on our current credit ratings. The Credit Facility contains customary financial covenants and restrictions, including ones regarding a maximum leverage ratio of 3.0-to-1.0 and a minimum required level of assets under management (as defined in the credit agreement) of $50 billion. As of March 31, 2015, we had no outstanding borrowings under the Revolver and were able to draw the full amount available without violating any financial maintenance covenants.

We are required to maintain minimum net capital balances for regulatory purposes in the U.S. and certain non-U.S. jurisdictions in which we do business, which are met in part by retaining cash and cash-equivalents in those jurisdictions. As a result, we may be restricted in our ability to transfer cash between different jurisdictions. As of March 31, 2015, we were required to maintain approximately $64.3 million in net capital at these subsidiaries and were in compliance with all regulatory minimum net capital requirements as of such date.

Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with OCGH unitholders that, as amended, provides for the payment to an exchanging or selling OCGH unitholder of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income taxes that they actually realize (or are deemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc., or a change of control) as a result of an increase in the tax basis of the assets owned by the Oaktree Operating Group. Assuming no material changes in the relevant tax law and that the Company earns sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, as of March 31, 2015, future payments of this nature were estimated to aggregate $40.4 million over the period ending approximately in 2029 with respect to the 2007 Private Offering and $79.0 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, 2015, future payments with respect to the May 2013 Offering were estimated to aggregate $109.0 million over the period ending approximately in 2035.

In March 2014, we issued and sold 5,000,000 Class A units in a public offering (the “March 2014 Offering”), resulting in $296.7 million in proceeds to us. We did not retain any proceeds from the sale of Class A units in the March 2014 Offering. The proceeds from the March 2014 Offering were used to acquire interests in our business from certain Oaktree directors, employees and other investors, including certain senior executives and other members of our senior management. The exchange of OCGH units in connection with the March 2014 Offering resulted in increases in the tax basis of the tangible and intangible assets of the Oaktree Operating Group. As a result, we recorded a deferred tax asset of $94.2 million and an associated liability of $80.0 million for payments to OCGH unitholders under the tax receivable agreement, which together increased capital by $14.1 million. As of March 31, 2015, future payments with respect to the March 2014 Offering were estimated to aggregate $80.0 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, 2015, future payments with respect to the March 2015 Offering were estimated to aggregate $62.5 million over the period ending approximately in 2037.

No amounts were paid under the tax receivable agreement during the three months ended March 31, 2015.

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, 2015:



	Last Nine Months of 2015		2016-2017		2018-2019		Thereafter		Total
	(in thousands)
Oaktree and Operating Subsidiaries:
Operating lease obligations ⁽¹⁾	$	10,072	$	20,033	$	20,626	$	60,429	$	111,160
Debt obligations payable	—		100,000		500,000		250,000		850,000
Interest obligations on debt ⁽²⁾	32,052		66,313		57,735		82,489		238,589
Tax receivable agreement	15,825		39,869		43,445		271,810		370,949
Contingent consideration ⁽³⁾	31,869		—		—		—		31,869
Commitments to Oaktree and third-party funds ⁽⁴⁾	402,521		—		—		—		402,521
Subtotal	492,339		226,215		621,806		664,728		2,005,088
Consolidated Funds:
Debt obligations payable	5,260,604		—		—		—		5,260,604
Interest obligations on debt	31,094		—		—		—		31,094
CLO loans payable	—		—		89,620		1,686,236		1,775,856
Interest on CLO loans payable ⁽²⁾	30,635		81,693		79,305		268,579		460,212
Commitments to fund investments ⁽⁵⁾	1,639,478		—		—		—		1,639,478
Total	$	7,454,150	$	307,908	$	790,731	$	2,619,543	$	11,172,332


(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 condensed consolidated financial statements.


(2)	Interest obligations include accrued interest on outstanding indebtedness. Where applicable, current interest rates are applied to estimate future interest obligations on variable-rate debt.

(3)

This represents the undiscounted contingent consideration obligation as of March 31, 2015 related to the August 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 seven years from the acquisition date. Due to uncertainty in the timing of payment, if any, the entire amount is presented in the 2015 column.


(4)	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 2015 column. Capital commitments are expected to be called over the next five years.


(5)	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 2015 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, 2015.

As of March 31, 2015, none of the incentive income we had recognized was subject to clawback by the funds.

General Partner and Other Capital Commitments

As of March 31, 2015, our capital commitments to our funds (as general partner or otherwise) and certain non-Oaktree investment vehicles for which a portion of the commitment remained undrawn were as follows:



	Capital Commitments			Undrawn Commitments as of March 31, 2015
		(in millions)
Corporate Debt:
Oaktree Enhanced Income Fund II		$	20		$	5
Collateralized Loan Obligation Vehicles		69			30
Oaktree Mezzanine Fund IV		20			18
Strategic Credit		23			12
European Private Debt		15			8
Emerging Markets Total Return		25			5
Distressed Debt:
Oaktree Opportunities Fund Xb		100			100
Oaktree Opportunities Fund X		60			60
Oaktree Opportunities Fund IX		100			10
Emerging Markets Opportunities		25			14
Control Investments:
Oaktree Principal Fund VI		20			19
Oaktree European Principal Fund III		100			31
Oaktree Power Opportunities Fund IV		24			24
Oaktree Power Opportunities Fund III		27			15
Real Estate:
Oaktree Real Estate Opportunities Fund VI		67			10
Real Estate Debt		32			27
Listed Equities:
Value Equities		15			8
Non-Oaktree		30			7
Total		$	772		$	403

Off-Balance Sheet Arrangements

As of December 31, 2014, we leased a corporate airplane for business purposes. We were responsible for any unreimbursed costs and expenses incurred in connection with the operation, crew, registration, maintenance, service and repair of the airplane. An unaffiliated third party provided certain services with respect to the operations of the plane. On January 22, 2015, we entered into an agreement to extend the lease, previously due to expire on February 1, 2015, through April 1, 2015. On March 23, 2015, we exercised a purchase option for $12.5 million.

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, 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, 2015	Level I		Level II		Level III		Total
Closed-end funds	$	4,096,040	$	8,715,037	$	27,268,420	$	40,079,497
Open-end funds	1,318,614		5,025,075		57,978		6,401,667
Evergreen funds	749,706		751,389		689,305		2,190,400
Total	$	6,164,360	$	14,491,501	$	28,015,703	$	48,671,564



As of December 31, 2014
Closed-end funds	$	4,169,235	$	8,518,277	$	25,497,911	$	38,185,423
Open-end funds	1,084,571		4,996,824		51,174		6,132,569
Evergreen funds	721,422		730,022		742,613		2,194,057
Total	$	5,975,228	$	14,245,123	$	26,291,698	$	46,512,049

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.

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 the sensitivities to movements in the fair value of their investments on management fees, incentive income and investment income. The fair value of the financial assets and liabilities of our funds may fluctuate in response to changes in, among many factors, the value of securities and foreign exchange, commodities and interest rates.

Price Risk

Impact on Net Change in Unrealized Appreciation on Consolidated Funds’ Investments

As of March 31, 2015, we had investments at fair value of $48.7 billion related to our consolidated funds. We estimate that a 10% decline in market values would result in a decrease in unrealized appreciation on the consolidated funds’ investments of $4.9 billion. Inasmuch as this effect would primarily be attributable to non-controlling interests, net income attributable to Oaktree Capital Group, LLC would be largely unaffected.

Impact on Segment Management Fees

Management fees are generally assessed in the case of (a) our open-end funds and evergreen funds, based on NAV; and (b) our closed-end funds, based on committed capital or drawn capital during the investment period and, during the liquidation period, based on the lesser of (i) the total funded committed capital or (ii) the cost basis of assets remaining in the fund. Management fees are affected by short-term changes in market values to the extent they are based on NAV, in which case the effect is prospective. For the three months ended March 31, 2015 and 2014, NAV-based management fees represented approximately 36% and 31%, respectively, of total management fees. We estimate that for the three months ended March 31, 2015, an incremental 10% decline in market values of the investments held in our funds would have resulted in an approximate $6.6 million decrease in 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 is indirect at best and, in certain cases, non-existent. Thus, the effect on incentive income of an incremental 10% decline in market values for the three months ended March 31, 2015 is not readily quantifiable. Over a number of years, 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. We estimate that for the three months ended March 31, 2015, an incremental 10% decline in fair values of the investments held in our funds and other holdings would have resulted in a $363.2 million decrease in investment income. The estimated incremental decline of $363.2 is greater than 10% of the period’s average corporate investments balance primarily because of our investments in levered senior loan products, which have been a growing component of our corporate 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.

Exchange-rate Risk

Our business is affected by movements in the rate of exchange between the U.S. dollar and non-U.S. dollar currencies in the case of (a) management fees that vary based on the NAV of our funds that hold investments denominated in non-U.S. dollar currencies, (b) management fees received in non-U.S. dollar currencies, (c) operating expenses for our foreign offices that are denominated in non-U.S. dollar currencies and (d) cash balances we hold in non-U.S. dollar currencies. We manage our exposure to exchange-rate risks through our regular operating activities and, when appropriate, through the use of derivative instruments.

We estimate that for the three months ended March 31, 2015, a 10% decline in the average rate of exchange 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 $2.7 million;


•	our operating expenses would have increased by $3.0 million;


•	OCGH interest in net income of consolidated subsidiaries would have decreased by $0.2 million; and


•	our income tax expense would have remained unchanged.

These movements would have decreased our net income attributable to OCG by $0.1 million.

At any point in time, some investments held in the closed-end and evergreen funds are carried 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 for closed-end and evergreen funds, although 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, 2015, Oaktree and its operating subsidiaries had $850.0 million in debt obligations consisting of four senior notes issuances and a funded term loan. Each senior notes issuance accrues interest at a fixed rate. The funded term loan accrues interest at a variable rate; however, we entered into interest-rate swaps that effectively converted the majority of the term loan interest rate to a fixed rate through January 2017. As a result, we estimate that for the three months ended March 31, 2015, there would be no material impact to interest expense of Oaktree and its operating subsidiaries resulting from a 100-basis point increase in interest rates. Of the $1.0 billion of aggregate segment cash and cash-equivalents and investments in U.S. Treasury securities as of March 31, 2015, we estimate Oaktree and its operating subsidiaries would generate an additional $10.0 million in interest income on an annualized basis as a result of a 100-basis point increase in interest rates.

Our consolidated funds have debt obligations that include revolving credit agreements, debt issued by our CLOs and certain other investment financing arrangements. Most of these debt obligations accrue interest at variable rates, and changes in these rates would affect the amount of interest payments that we would have to make, impacting future earnings and cash flows. As of March 31, 2015, $7.0 billion was outstanding under these debt obligations. We estimate that interest expense relating to variable rates would increase on an annualized basis by $69.1 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 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. Inasmuch as these effects are almost entirely attributable to non-controlling interests, net income attributable to OCG would largely be unaffected. In cases where our funds pay management fees based on NAV, we would expect our segment management fees to experience a change in direction and magnitude corresponding to that experienced by the underlying portfolios.

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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings, please see the section entitled “Legal Actions” in note 13 to our condensed consolidated financial statements included elsewhere in this quarterly report, which section is incorporated herein by reference.

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 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

Unregistered Sales of Equity Securities

On February 17, 2015, we granted 1,985 Class A Units to each of Ms. Marna Whittington, Mr. Robert Denham, Mr. Richard Masson and Mr. Wayne Pierson in consideration of their service as a member of our board of directors.

Under our operating agreement, we are required to issue one Class B unit for each OCGH unit issued. Accordingly, on February 17, 2015, we issued 926,830 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 Messrs. Denham, Masson and Pierson, Ms. Whittington or OCGH to the Company for these issuances. 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.

Closed-end Funds



			As of March 31, 2015
	Investment Period		Total Committed Capital		Drawn Capital ⁽¹⁾		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) ⁽²⁾		Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		IRR Since Inception ⁽⁴⁾				Multiple of Drawn Capital ⁽⁵⁾
	Start Date	End Date	Total Committed Capital		Drawn Capital ⁽¹⁾		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) ⁽²⁾		Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		Gross		Net		Multiple of Drawn Capital ⁽⁵⁾
	(in millions)
Distressed Debt
Oaktree Opportunities Fund Xb	TBD	—	$	4,718	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	N/A		N/A		N/A
Oaktree Opportunities Fund X	TBD	—	2,415		—		—		—		—		—		—		—		—		N/A		N/A		N/A
Oaktree Opportunities Fund IX	Jan. 2014	Jan. 2017	5,066		4,559		62		2		4,619		4,966		—		—		4,944		5.4	%	1.3	%	1.1x
Oaktree Opportunities Fund VIIIb	Aug. 2011	Aug. 2014	2,692		2,692		658		625		2,725		2,462		44		7		2,702		11.7		8.2		1.3
Special Account B	Nov. 2009	Nov. 2012	1,031		1,089		593		908		774		772		15		16		575		16.6		13.9		1.6
Oaktree Opportunities Fund VIII	Oct. 2009	Oct. 2012	4,507		4,507		2,404		3,749		3,162		2,401		140		329		2,250		15.3		10.8		1.6
Special Account A	Nov. 2008	Oct. 2012	253		253		308		462		99		75		41		20		—		29.8		24.3		2.2
OCM Opportunities Fund VIIb	May 2008	May 2011	10,940		9,844		9,221		17,027		2,038		1,463		1,394		398		—		22.8		17.4		2.0
OCM Opportunities Fund VII	Mar. 2007	Mar. 2010	3,598		3,598		1,528		4,431		695		888		81		—		693		10.7		8.1		1.5
OCM Opportunities Fund VI	Jul. 2005	Jul. 2008	1,773		1,773		1,335		2,833		275		380		134		127		—		12.2		9.0		1.9
OCM Opportunities Fund V	Jun. 2004	Jun. 2007	1,179		1,179		974		2,042		111		123		168		22		—		18.6		14.3		1.9
Legacy funds ⁽⁶⁾.	Various	Various	9,543		9,543		8,193		17,695		41		—		1,113		8		—		24.2		19.3		1.9
																					22.5	%	17.0	%
Real Estate Opportunities
Oaktree Real Estate Opportunities Fund VI	Aug. 2012	Aug. 2016	$	2,677	$	2,276	$	650	$	43	$	2,883	$	2,610	$	2	$	123	$	2,484	25.7	%	16.9	%	1.3x
Oaktree Real Estate Opportunities Fund V	Mar. 2011	Mar. 2015	1,283		1,283		819		752		1,350		739		28		129		893		20.2		14.8		1.7
Special Account D	Nov. 2009	Nov. 2012	256		263		180		229		214		110		2		15		137		16.8		14.5		1.8
Oaktree Real Estate Opportunities Fund IV	Dec. 2007	Dec. 2011	450		450		386		477		359		208		15		57		179		17.2		11.8		2.0
OCM Real Estate Opportunities Fund III	Sep. 2002	Sep. 2005	707		707		649		1,290		66		—		115		13		—		15.6		11.6		2.0
Legacy funds ⁽⁶⁾.	Various	Various	1,634		1,610		1,399		3,009		—		—		112		—		—		15.2		12.0		1.9
																					15.9	%	12.4	%
Real Estate Debt
Oaktree Real Estate Debt Fund ⁽⁷⁾.	Sep. 2013	Sep. 2016	$	1,012	$	158	$	21	$	10	$	169	$	174	$	—	$	3	$	153	27.3	%	19.0	%	1.2x
Oaktree PPIP Fund ⁽⁸⁾ .	Dec. 2009	Dec. 2012	2,322		1,113		457		1,570		—		—		47		—		—		28.2		N/A		1.4

European Principal Investments ⁽⁹⁾
Oaktree European Principal Fund III	Nov. 2011	Nov. 2016	€	3,164	€	2,208	€	922	€	224	€	2,906	€	3,299	€	—	€	179	€	2,342	24.7	%	15.7	%	1.5x
OCM European Principal Opportunities Fund II	Dec. 2007	Dec. 2012	€	1,759	€	1,685	€	858	€	1,382	€	1,161	€	1,019	€	29	€	132	€	976	13.6		8.5		1.6
OCM European Principal Opportunities Fund	Mar. 2006	Mar. 2009	$	495	$	473	$	441	$	822	$	92	$	91	$	30	$	54	$	—	11.6		8.8		2.0
																					15.4	%	10.3	%
European Private Debt
Oaktree European Dislocation Fund ^{(7) (10)}.	Oct. 2013	Oct. 2016	€	294	€	101	€	14	€	43	€	72	€	99	€	—	€	2	€	61	nm		nm		1.2x
Special Account E ^{(7) (10)}.	Oct. 2013	Apr. 2015	€	379	€	204	€	26	€	22	€	208	€	178	€	—	€	4	€	194	nm		nm		1.1



			As of March 31, 2015
	Investment Period		Total Committed Capital		Drawn Capital ⁽¹⁾			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) ⁽²⁾			Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		IRR Since Inception ⁽⁴⁾					Multiple of Drawn Capital ⁽⁵⁾
	Start Date	End Date	Total Committed Capital		Drawn Capital ⁽¹⁾			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) ⁽²⁾			Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		Gross			Net		Multiple of Drawn Capital ⁽⁵⁾
	(in millions)
Global Principal Investments
Oaktree Principal Fund VI ⁽¹⁰⁾	— ⁽¹¹⁾	—	$	602	$	30		$	12		$	—	$	42	$	30		$	—	$	—		$	31	nm			nm		1.5x
Oaktree Principal Fund V	Feb. 2009	Feb. 2015	2,827		2,586			859			1,093		2,352		1,839			50		90			2,221		14.3	%		8.4	%	1.4
Special Account C	Dec. 2008	Feb. 2014	505		455			316			293		478		395			16		46			315		17.7			13.0		1.7
OCM Principal Opportunities Fund IV	Oct. 2006	Oct. 2011	3,328		3,328			1,973			3,416		1,885		1,227			22		154			1,692		11.0			8.2		1.7
OCM Principal Opportunities Fund III	Nov. 2003	Nov. 2008	1,400		1,400			896			2,159		137		—			147		26			—		14.0			9.7		1.8
Legacy funds ⁽⁶⁾.	Various	Various	2,301		2,301			1,839			4,137		3		—			236		1			—		14.5			11.6		1.8
																									13.6	%		10.0	%
Power Opportunities
Oaktree Power Opportunities Fund IV	TBD	—	$	940	$	—		$	—		$	—	$	—	$	—		$	—	$	—		$	—	N/A			N/A		N/A
Oaktree Power Opportunities Fund III	Apr. 2010	Apr. 2015	1,062		579			160			134		605		581			—		30			554		19.0	%		9.4	%	1.4x
OCM/GFI Power Opportunities Fund II	Nov. 2004	Nov. 2009	1,021		541			1,451			1,921		71		39			96		5			—		76.1			58.8		3.9
OCM/GFI Power Opportunities Fund	Nov. 1999	Nov. 2004	449		383			251			634		—		—			23		—			—		20.1			13.1		1.8
																									34.8	%		26.6	%
Infrastructure Investing
Highstar Capital IV ⁽¹²⁾.	Nov. 2010	Nov. 2016	$	2,346	$	1,768		$	196		$	268	$	1,696	$	1,882		$	—	$	—		$	1,379	16.0	%		7.5	%	1.3x

Mezzanine Finance
Oaktree Mezzanine Fund IV ^{(7) (10)}	Oct. 2014	Oct. 2019	$	498	$	60		$	—		$	—	$	60	$	58		$	—	$	—		$	62	nm			nm		1.0x
Oaktree Mezzanine Fund III ⁽¹³⁾.	Dec. 2009	Dec. 2014	1,592		1,423			292			965		750		713			1		11			737		15.4	%	10.4% / 8.1%			1.3
OCM Mezzanine Fund II	Jun. 2005	Jun. 2010	1,251		1,107			514			1,388		233		310			—		—			244		11.4			7.9		1.6
OCM Mezzanine Fund ⁽¹⁴⁾.	Oct. 2001	Oct. 2006	808		773			303			1,073		3		—			38		1			—		15.4			10.8 / 10.5		1.5
																									13.3	%		8.9	%
Emerging Markets Opportunities
Oaktree Emerging Market Opportunities Fund ⁽¹⁵⁾	Sep. 2013	Sep. 2016	$	384	$	162		$	(31	)	$	—	$	131	$	285		$	—	$	—		$	172	(21.1)%			(23.9)%		0.8x
Special Account F ⁽¹⁰⁾.	Jan. 2014	Jan. 2017	253		86			(22		)	—		64		64			—		—			93		nm			nm		0.8
					$	68,860	^{(16) (17)}								29,819		⁽¹⁷⁾			2,025		⁽¹⁷⁾
											Other ⁽¹⁸⁾				6,533					32
											Total ⁽¹⁹⁾				$	36,352				$	2,057


(1)	Drawn capital reflects the capital contributions of investors in the fund, net of any distributions to such investors of uninvested capital.


(2)	Accrued incentives (fund level) exclude Oaktree segment incentive income previously recognized.


(3)	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.

(4)

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.


(5)	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.

(6)

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.


(7)	Management fees during the investment period are calculated on drawn, rather than committed, capital. As a result, as of March 31, 2015 management fee-generating AUM included only that portion of committed capital that had been drawn.

(8)

Due to the differences in allocations 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. Oaktree PPIP Fund had liquidated all of its investments and made its final liquidating distribution as of December 31, 2013. Oaktree PPIP Fund and Oaktree PPIP Private Fund were dissolved as of December 31, 2013. Of the $2,322 million in capital commitments, $1,161 million related to the Oaktree PPIP Private Fund. The gross and net IRR for the Oaktree PPIP Private Fund were 24.7% and 18.6%, respectively, as of December 31, 2013.


(9)	Aggregate IRRs are based on the conversion of OCM European Principal Opportunities Fund II and Oaktree European Principal Fund III cash flows from Euros to USD using the March 31, 2015 spot rate of $1.07.


(10)	The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through March 31, 2015 was less than 18 months.


(11)	As of March 31, 2015, Oaktree Principal Fund VI had made an aggregate $30 million drawdown against its $602 million of committed capital. Oaktree has not yet commenced the fund's investment period and, as a result, as of March 31, 2015 management fees were assessed only on the drawn capital, and management fee-generating AUM included only that portion of committed capital.

(12)

The fund includes co-investments of $394 million in AUM for which we earn no management fees or incentive allocation. Those co-investments have been excluded from the calculation of gross and net IRR, as well as the unreturned drawn capital plus accrued preferred return amount and multiple of drawn capital. The fund follows the American-style 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, 2015, Oaktree had not recognized any incentive income from this fund. Additionally, under the terms of the Highstar acquisition, Oaktree is effectively entitled to approximately 8% of the potential incentives generated by this fund.


(13)	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 8.1%. The combined net IRR for Class A and Class B interests was 9.5%.


(14)	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%.


(15)	Oaktree had temporarily elected to assess management fees on NAV, instead of committed capital, during the investment period. Beginning May 1, 2015, management fees will be assessed on committed capital. As a result, as of March 31, 2015, management fee-generating AUM represented a blended portion of NAV and committed capital on which management fees were assessed.


(16)	The aggregate change in drawn capital for the three months ended March 31, 2015 was $1.6 billion.


(17)	Totals are based on the conversion of Euro amounts to USD using the March 31, 2015 spot rate of $1.07.


(18)	This includes Oaktree Enhanced Income Fund, Oaktree Enhanced Income Fund II, Oaktree Loan Fund 2x, Oaktree Asia Special Situations Fund, OCM Asia Principal Opportunities Fund, CLOs, a closed-end separate account, a non-Oaktree fund and two evergreen separate accounts in our Real Estate Debt strategy.


(19)	This excludes two closed-end funds with management fee-generating AUM aggregating $433 million as of March 31, 2015, which has been included as part of the Strategic Credit strategy within the evergreen funds table, and includes two evergreen separate accounts in our Real Estate Debt strategy with an aggregate $139 million of management fee-generating AUM.

Open-end Funds



			Manage- ment Fee-gener- ating AUM as of Mar. 31, 2015		Twelve Months Ended March 31, 2015						Since Inception through March 31, 2015
	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		Rele- vant Bench- mark		Gross		Net		Rele- vant Bench- mark		Oaktree Gross	Rele- vant Bench- mark
		(in millions)

U.S. High Yield Bonds	Jan. 1986		$	16,723	1.4	%	0.9	%	1.3	%	9.7	%	9.1	%	8.6	%	0.81	0.56
Global High Yield Bonds	Nov. 2010		3,957		2.0		1.5		2.6		8.5		8.0		7.6		1.27	1.21
European High Yield Bonds	May 1999		856		6.1		5.6		5.1		8.4		7.8		6.4		0.68	0.41
U.S. Convertibles	Apr. 1987		5,063		2.9		2.4		8.1		10.0		9.4		8.5		0.43	0.28
Non-U.S. Convertibles	Oct. 1994		2,461		7.1		6.6		5.2		9.0		8.4		6.1		0.82	0.43
High Income Convertibles	Aug. 1989		962		2.6		1.9		1.3		11.7		10.9		8.4		1.05	0.60
U.S. Senior Loans	Sep. 2008		2,863		2.2		1.7		2.8		7.0		6.5		5.7		1.19	0.63
European Senior Loans	May 2009		1,518		2.9		2.4		3.6		9.6		9.1		10.7		1.76	1.82
Emerging Markets Equities	Jul. 2011		3,854		(4.6	)	(5.4	)	0.4		(0.7	)	(1.5	)	(1.9	)	(0.04)	(0.11)
Total			$	38,257


(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, 2015							Twelve Months Ended March 31, 2015				Since Inception through March 31, 2015
		AUM		Manage- ment Fee-gener- ating AUM		Accrued Incen- tives (Fund Level)			Twelve Months Ended March 31, 2015				Since Inception through March 31, 2015
	Strategy Inception								Rates of Return ⁽¹⁾				Annualized Rates of Return ⁽¹⁾
	Strategy Inception								Gross		Net		Gross		Net
		(in millions)

Strategic Credit ⁽²⁾.	Jul. 2012	$	2,977	$	1,780	$ n/a			0.2	%	(0.7	)%	10.8	%	8.2	%
Value Opportunities	Sep. 2007	1,782		1,719		—		⁽³⁾	(7.2	)	(8.5	)	11.4		6.9
Value Equities ⁽⁴⁾.	Apr. 2014	337		158		—		⁽³⁾	nm		nm		nm		nm
Emerging Markets Opportunities	Sep. 2013	190		75		—		⁽³⁾	(19.3	)	(21.0	)	(2.0	)	(10.7	)
Emerging Markets Total Return ⁽⁴⁾	Jan. 2014	134		20		—			nm		nm		nm		nm
Emerging Markets Absolute Return	Apr. 1997	158		136		—		⁽³⁾	(3.0	)	(3.5	)	14.0		9.5
				3,888		—
Restructured funds ⁽⁵⁾				—		5
Total ⁽²⁾⁽⁶⁾				$	3,888	$	5


(1)	Returns represent time-weighted rates of return.


(2)	Includes two closed-end funds with an aggregate $668 million and $433 million of AUM and management fee-generating AUM, respectively.


(3)	As of March 31, 2015, the aggregate depreciation below high-water marks previously established for individual investors in the fund totaled approximately $99 million for Value Opportunities, $1 million for Value Equities, $17 million for Emerging Markets Opportunities and $5 million for Emerging Markets Absolute Return.


(4)	Rates of return are not considered meaningful (“nm”) because the since-inception period as of March 31, 2015 was less than 18 months.

(5)

Oaktree manages three restructured evergreen funds that are in liquidation: Oaktree European Credit Opportunities Fund, Oaktree High Yield Plus Fund and Oaktree Japan Opportunities Fund (Yen class). As of March 31, 2015, these funds had gross and net IRRs since inception of (2.1)% and (4.6)%, 7.6% and 5.3%, and (5.1)% and (6.1)%, respectively, and in the aggregate had AUM of $123 million. Additionally, Oaktree High Yield Plus Fund had accrued incentives (fund level) of $5 million as of March 31, 2015.


(6)	Total excludes two evergreen separate accounts in our Real Estate Debt strategy with an aggregate $139 million of management fee-generating AUM.

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.

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 7, 2015



	Oaktree Capital Group, LLC
	By:	/s/ Susan Gentile
	Name:	Susan Gentile

	Title:	Chief Accounting Officer and Managing Director and Authorized Signatory

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).

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.