Oaktree Capital Group, LLC [OAK-PB] Filings

10-Q 1 oak-20220930.htm 10-Q oak-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________

FORM 10-Q

________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2022

☐ 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)

_______________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
6.625% Series A preferred units	OAK-PA	New York Stock Exchange
6.550% Series B preferred units	OAK-PB	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of November 9, 2022, there were 103,080,160 Class A units and 56,871,798 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 as of September 30, 2022 and December 31, 2021	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Changes in Unitholders’ Capital for the Three and Nine Months Ended September 30, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	58
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	80
Item 4.	Controls and Procedures	82

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	83
Item 1A.	Risk Factors	83
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83
Item 3.	Defaults Upon Senior Securities	83
Item 4.	Mine Safety Disclosures	83
Item 5.	Other Information	83
Item 6.	Exhibits	84
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.

In addition to factors previously disclosed in Oaktree Capital Group, LLC’s (“OCG”) reports filed with securities regulators in the United States and those identified elsewhere in this quarterly report, the following factors, among others, could cause actual results to differ materially from forward-looking statements and information or historical performance: course and severity of the coronavirus (including any subsequent variants, “COVID-19”) pandemic and its direct and indirect business impacts; the ability of OCG to retain and hire key personnel; the continued availability of capital and financing; the business, economic and political conditions in the markets in which OCG operates; changes in OCG’s anticipated revenue and income, which are inherently volatile; changes in the value of OCG’s investments; the termination or amendment (including fee amendments) of certain service or sub-advisory agreements that generate revenues for OCG that are between OCG and its subsidiaries on the one hand and certain affiliates of OCG on the other hand; the pace of OCG’s 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 OCG’s existing funds; the amount and timing of distributions on OCG’s preferred units; changes in OCG’s operating or other expenses; the degree to which OCG encounters competition; and general political, economic and market conditions.

Any forward-looking statements and information speak only as of the date of this quarterly report or as of the date they were made, and except as required by law, OCG does not undertake any obligation to update forward-looking statements and information. For a more detailed discussion of these factors, also see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in OCG’s most recent report on Form 10-K for the year ended December 31, 2021 (our “annual report”), and in this quarterly report, and in each case any material updates to these factors contained in any of OCG’s future filings.

As for the forward-looking statements and information that relate to future financial results and other projections, actual results will be different due to the inherent uncertainties of estimates, forecasts and projections and may be better or worse than projected and such differences could be material. Given these uncertainties, you should not place any reliance on these forward-looking statements and information.

This quarterly report and its contents do not constitute and should not be construed as (a) a recommendation to buy, (b) an offer to buy or solicitation of an offer to buy, (c) an offer to sell or (d) advice in relation to, any securities of OCG or securities of any Oaktree investment fund.

In this quarterly report, unless the context otherwise requires:

“Oaktree” refers to (i) Oaktree Capital Group, LLC and, where applicable, its subsidiaries and affiliates prior to October 1, 2019 and (ii) the Oaktree Operating Group and, where applicable, their respective subsidiaries and affiliates after September 30, 2019.

“OCG,” “Company,” “we,” “us,” “our” or “our company” refers to Oaktree Capital Group, LLC and, where applicable, its subsidiaries and affiliates, including, as the context requires, affiliated Oaktree Operating Group members after September 30, 2019.

“OCM” refers to Oaktree Capital Management, L.P. and, where applicable, its subsidiaries and affiliates. OCM is one of the Oaktree Operating Group entities and acts as the U.S. registered investment adviser to most of the Oaktree funds. Subsequent to September 30, 2019, OCM is no longer our indirect subsidiary.

“Oaktree Operating Group,” or “Operating Group,” refers collectively to the entities that either (i) act as or control the general partners and investment advisers of the Oaktree funds or (ii) hold interests in other entities or investments generating income for Oaktree.

“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 Oaktree senior executives, current and former employees and their respective transferees who hold interests in the Oaktree Operating Group through OCGH.

“assets under management,” or “AUM,” generally refers to the sum of (i) the assets Oaktree manages and equals the NAV (as defined below) of the assets Oaktree manages, (ii) the leverage on which management fees are charged,(iii) the undrawn capital that Oaktree is entitled to call from investors in the funds pursuant to their capital commitments, (iv) investment proceeds held in trust for use in investment activities, (v) Oaktree’s pro rata portion of AUM managed by DoubleLine Capital LP and its affiliates (“DoubleLine”), in which Oaktree holds a minority ownership interest and (vi) 100% of the AUM managed by 17 Capital LLP and its affiliates in which Oaktree holds a majority ownership interest. For Oaktree’s collateralized loan obligation vehicles (“CLOs”), AUM represents the aggregate par value of collateral assets and principal cash; for Oaktree’s BDCs, gross assets (including assets acquired with leverage), net of cash; for Oaktree’s special purpose acquisition companies (“SPACs”), the proceeds of any initial public offering held in trust for use in a business combination; and for DoubleLine funds, NAV. Oaktree’s AUM amounts include AUM for which Oaktree charges no management fees. Oaktree’s definition of AUM is not based on any definition contained in our operating agreement or the agreements governing the funds that Oaktree manages. Oaktree’s calculation of AUM and the AUM-related metric described below may not be directly comparable to the AUM metrics of other investment managers.

“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—Operating Metrics”.

“Class A units” refer to the common units of OCG designated as Class A units.

“common units” or “common unitholders” refer to the Class A common units of OCG or Class A common unitholders, respectively, unless otherwise specified.

“consolidated funds” refers to the funds and CLOs that we are required to consolidate as of the applicable reporting date.

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

“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.

“preferred units” or “preferred unitholders” refer to the Series A and Series B preferred units of OCG or Series A and Series B preferred unitholders, respectively, unless otherwise specified.

“senior executives” refers collectively to Howard S. Marks, Bruce A. Karsh, Jay S. Wintrob, John B. Frank and Sheldon M. Stone.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Financial Condition (Unaudited)

($ in thousands)


	As of
	September 30, 2022		December 31, 2021
Assets
Cash and cash-equivalents	$	120,544	$	167,319
U.S. Treasury and other securities	6,033		2,086
Corporate investments (includes $88,260 and $71,154 measured at fair value as of September 30, 2022 and December 31, 2021, respectively)	1,289,818		1,022,564
Due from affiliates	104,537		372,861
Deferred tax assets	3,489		3,548
Right-of-use assets	27,148		33,359
Other assets	52,816		45,979
Assets of consolidated funds:
Cash and cash-equivalents	655,187		991,800
Investments, at fair value	11,945,770		11,456,895
Dividends and interest receivable	65,762		48,584
Due from brokers	60,418		15,498
Receivable for securities sold	88,191		206,770
Derivative assets, at fair value	37,839		6,733
Other assets, net	23,703		23,853
Total assets	$	14,481,255	$	14,397,849
Liabilities and Unitholders’ Capital
Liabilities:
Accrued compensation expense	$	150,891	$	245,787
Accounts payable, accrued expenses and other liabilities	35,757		15,365
Due to affiliates	18,535		4,198
Debt obligations (Note 8)	198,245		—
Operating lease liabilities	31,908		39,294
Liabilities of consolidated funds:
Accounts payable, accrued expenses and other liabilities	144,356		80,897
Payables for securities purchased	586,140		1,066,261

Derivative liabilities, at fair value	36,669		11,847
Distributions payable	1,201		123
Borrowings under credit facilities	975,705		1,131,918
Debt obligations of CLOs	7,987,368		7,806,263
Total liabilities	10,166,775		10,401,953
Commitments and contingencies (Note 15)
Non-controlling redeemable interests in consolidated funds	2,131,598		1,723,294
Unitholders’ capital:
Series A preferred units, 7,200,000 units issued and outstanding as of September 30, 2022 and December 31, 2021	173,669		173,669
Series B preferred units, 9,400,000 units issued and outstanding as of September 30, 2022 and December 31, 2021	226,915		226,915
Class A units, no par value, unlimited units authorized, 103,080,160 and 99,136,620 units issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	—		—
Class B units, no par value, unlimited units authorized, 56,822,301 and 60,783,255 units issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	—		—
Paid-in capital	1,211,194		1,011,333
Retained earnings	109,157		251,791
Accumulated other comprehensive loss	(3,467)		(3,334)
Unitholders’ capital attributable to Oaktree Capital Group, LLC	1,717,468		1,660,374
Non-controlling interests in consolidated subsidiaries	465,414		612,228
Total unitholders’ capital	2,182,882		2,272,602
Total liabilities and unitholders’ capital	$	14,481,255	$	14,397,849

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 September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Revenues:
Management fees	$	59,860	$	58,628	$	183,370	$	172,848
Incentive income	(33)		167,534		56,070		811,481
Total revenues	59,827		226,162		239,440		984,329
Expenses:
Compensation and benefits	(36,452)		(37,080)		(118,371)		(116,803)
Equity-based compensation	(2,011)		(1,903)		(5,461)		(7,868)
Incentive income compensation	753		(81,952)		(17,141)		(396,435)
Total compensation and benefits expense	(37,710)		(120,935)		(140,973)		(521,106)
General and administrative	(6,251)		(5,303)		(17,548)		(18,879)
Depreciation and amortization	(356)		(580)		(1,349)		(1,745)
Consolidated fund expenses	(21,153)		(25,734)		(61,312)		(50,581)
Total expenses	(65,470)		(152,552)		(221,182)		(592,311)
Other income (loss):
Interest expense	(73,992)		(32,990)		(171,032)		(113,093)
Interest and dividend income	154,967		90,673		408,396		273,460
Net realized gain (loss) on consolidated funds’ investments	4,214		(10,345)		(68,885)		848
Net change in unrealized appreciation (depreciation) on consolidated funds’ investments	13,022		60,329		(13,971)		185,418
Investment income (loss)	(1,071)		16,989		(20,004)		190,768
Other income (loss), net	—		—		—		19
Total other income (loss)	97,140		124,656		134,504		537,420
Income (loss) before income taxes	91,497		198,266		152,762		929,438
Income taxes	(4,934)		(3,811)		(12,347)		(9,246)
Net income (loss)	86,563		194,455		140,415		920,192
Less:
Net (income) loss attributable to non-controlling interests in consolidated funds	(56,274)		(51,214)		(123,124)		(163,105)
Net (income) loss attributable to non-controlling interests in consolidated subsidiaries	(4,747)		(46,204)		11,406		(265,590)
Net income (loss) attributable to Oaktree Capital Group, LLC	25,542		97,037		28,697		491,497
Net income attributable to preferred unitholders	(6,829)		(6,829)		(20,487)		(20,487)
Net income (loss) attributable to Oaktree Capital Group, LLC Class A unitholders	$	18,713	$	90,208	$	8,210	$	471,010

Distributions declared per Class A unit	$	0.38	$	0.51	$	1.51	$	3.92
Net income (loss) per Class A unit (basic and diluted):
Net income (loss) per Class A unit	$	0.18	$	0.91	$	0.08	$	4.76
Weighted average number of Class A units outstanding	103,080		99,137		101,693		98,995

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(in thousands)


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

Net income (loss)	$	86,563	$	194,455	$	140,415	$	920,192
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(8,677)		8,606		120		(7,733)
Other comprehensive income (loss), net of tax	(8,677)		8,606		120		(7,733)
Total comprehensive income (loss)	77,886		203,061		140,535		912,459
Less:
Comprehensive (income) loss attributable to non-controlling interests in consolidated funds	(56,274)		(51,214)		(123,124)		(163,105)
Comprehensive (income) loss attributable to non-controlling interests in consolidated subsidiaries	(1,664)		(49,477)		11,153		(263,310)
Comprehensive income (loss) attributable to OCG	19,948		102,370		28,564		486,044
Comprehensive income attributable to preferred unitholders	(6,829)		(6,829)		(20,487)		(20,487)
Comprehensive income (loss) attributable to OCG Class A unitholders	$	13,119	$	95,541	$	8,077	$	465,557

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine months ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	140,415	$	920,192
Adjustments to reconcile net income (loss) to net cash used in operating activities:

Investment (income) loss	20,004		(190,768)
Depreciation and amortization	1,349		1,745
Equity-based compensation	5,461		7,868
Net realized and unrealized (gain) loss from consolidated funds’ investments	82,856		(186,266)
Accretion of original issue and market discount of consolidated funds’ investments, net	(18,156)		(7,137)
Distributions of investment income and settlements of derivative instruments	70,786		171,106
SPAC deconsolidation gain and other non-cash items	(52,527)		(72,347)
Cash flows due to changes in operating assets and liabilities:
Decrease in deferred tax assets	505		105
Increase in other assets	2,794		3,443
(Increase) decrease in net due from affiliates	275,329		(160,078)
Increase (decrease) in accrued compensation expense	(94,896)		30,345
Decrease in accounts payable, accrued expenses and other liabilities	(5,970)		(4,676)
Cash flows due to changes in operating assets and liabilities of consolidated funds:
Increase in dividends and interest receivable	(22,043)		(16,068)
Increase in due from brokers	(45,129)		(17,603)
(Increase) decrease in receivables for securities sold	111,448		(77,192)
Decrease in other assets	(4,365)		38,620
Increase (decrease) in accounts payable, accrued expenses and other liabilities	13,782		16,386
Increase in payables for securities purchased	(314,567)		478,914
Purchases of securities	(5,858,192)		(6,718,145)
Proceeds from maturities and sales of securities	4,097,685		4,162,323
Net cash used in operating activities	(1,593,431)		(1,619,233)
Cash flows from investing activities:
Purchases of U.S. Treasury and other securities	(13,169)		(16,322)
Proceeds from maturities and sales of U.S. Treasury and other securities	8,701		19,499
Corporate investments in funds and companies	(240,035)		(166,865)
Distributions and proceeds from corporate investments in funds and companies	61,198		325,897
Purchases of fixed assets	(425)		(263)
Net cash provided by (used in) investing activities	(183,730)		161,946

(continued)

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

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

(in thousands)


	Nine months ended September 30,
	2022		2021
Cash flows from financing activities:
Capital contributions, net	$	147,604	$	109,393
Proceeds from issuance of debt obligations	214,094		—

Distributions to Class A unitholders	(159,667)		(381,382)
Distributions to Non-controlling Interests	(94,256)		(234,966)
Distributions to preferred unitholders	(20,487)		(20,487)


Payment of debt issuance costs	(1,150)		—
Cash flows from financing activities of consolidated funds:
Contributions from non-controlling interests	702,888		766,103
Distributions to non-controlling interests	(164,488)		(126,832)
Proceeds from debt obligations issued by CLOs	2,105,289		3,046,821
Payment of debt issuance costs	(7,626)		(1,827)
Repayment on debt obligations issued by CLOs	(892,528)		(2,162,786)
Borrowings on credit facilities	567,125		658,789
Repayments on credit facilities	(673,341)		—
Net cash provided by financing activities	1,723,457		1,652,826
Effect of exchange rate changes on cash	(33,063)		(9,563)
Net increase in cash and cash-equivalents	(86,767)		185,976
Initial consolidation (deconsolidation) of funds	(296,621)		(

Oaktree Capital Group, LLC [OAK-PB] Filings

Oaktree Capital Group, LLC [OAK-PA] Filings