SEGMENT REPORTING

12 Months Ended

Dec. 31, 2019

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

The Company operates through its distinct operating segments. During the year ended December 31, 2019, the Company reclassified certain expenses from OMG to its operating segments. The Company has modified historical results to conform with its current presentation.

The Company’s operating segments are summarized below:

Credit Group: The Credit Group manages credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, multi-asset credit, alternative credit investments and direct lending.

Private Equity Group:  The Private Equity Group manages investment strategies broadly categorized as corporate private equity, infrastructure and power, special opportunities, and energy opportunities.

Real Estate Group:  The Real Estate Group manages comprehensive real estate equity and debt strategies.

The Company has an OMG that consists of shared resource groups to support the Company’s operating segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, strategy and relationship management, legal, compliance and human resources. Additionally, the OMG provides services to certain of the Company’s investment companies and partnerships, which reimburse the OMG for expenses equal to the costs of services provided. The OMG’s expenses are not allocated to the Company’s reportable segments but the Company does consider the cost structure of the OMG when evaluating its financial performance.

Segment Profit Measures: These measures supplement and should be considered in addition to, and not in lieu of, the Consolidated Statements of Operations prepared in accordance with GAAP.

Fee related earnings (“FRE”) is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it excludes performance income, performance related compensation, investment income from the Consolidated Funds and non-consolidated funds and certain other items that the Company believes are not indicative of its core operating performance.

Realized income (“RI”) is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations of unrealized income and expenses, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from net income by excluding (a) income tax expense, (b) operating results of the Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, (e) unrealized gains and losses related to performance income and investment performance and (f) certain other items that the Company believes are not indicative of operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Management believes RI is a more appropriate metric to evaluate the Company's current business operations.

Management makes operating decisions and assesses the performance of each of the Company’s business segments based on financial and operating metrics and other data that is presented before giving effect to the consolidation of any of the Consolidated Funds. Consequently, all segment data excludes the assets, liabilities and operating results related to the Consolidated Funds and non-consolidated funds.

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the year ended December 31, 2019:

	Credit Group		Private Equity Group		Real Estate Group		Total Segments		OMG		Total
Management fees (Credit Group includes ARCC Part I Fees of $164,396)	$	713,853	$	211,614	$	87,063	$	1,012,530	$	—	$	1,012,530
Other fees	17,124		162		792		18,078		—		18,078
Compensation and benefits	(261,662)		(78,259)		(49,124)		(389,045)		(139,162)		(528,207)
General, administrative and other expenses	(55,103)		(19,098)		(13,249)		(87,450)		(91,292)		(178,742)
Fee related earnings	414,212		114,419		25,482		554,113		(230,454)		323,659
Performance income—realized	104,442		264,439		33,637		402,518		—		402,518
Performance related compensation—realized	(61,641)		(211,550)		(17,191)		(290,382)		—		(290,382)
Realized net performance income	42,801		52,889		16,446		112,136		—		112,136
Investment income—realized	2,457		47,696		8,020		58,173		—		58,173
Interest and other investment income (expense) —realized	18,670		5,046		5,633		29,349		(160)		29,189
Interest expense	(6,497)		(7,486)		(3,824)		(17,807)		(1,864)		(19,671)
Realized net investment income (loss)	14,630		45,256		9,829		69,715		(2,024)		67,691
Realized income	$	471,643	$	212,564	$	51,757	$	735,964	$	(232,478)	$	503,486
Total assets	$	997,064	$	1,123,254	$	467,741	$	2,588,059	$	165,122	$	2,753,181

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the year ended December 31, 2018:

	Credit Group		Private Equity Group		Real Estate Group		Total Segments		OMG		Total
Management fees (Credit Group includes ARCC Part I Fees of $128,805)	$	564,899	$	198,182	$	73,663	$	836,744	$	—	$	836,744
Other fees	23,247		1,008		33		24,288		—		24,288
Compensation and benefits	(218,148)		(74,672)		(38,623)		(331,443)		(124,812)		(456,255)
General, administrative and other expenses	(44,845)		(18,482)		(11,123)		(74,450)		(75,015)		(149,465)
Fee related earnings	325,153		106,036		23,950		455,139		(199,827)		255,312
Performance income—realized	121,270		139,820		96,117		357,207		—		357,207
Performance related compensation—realized	(75,541)		(111,764)		(64,292)		(251,597)		—		(251,597)
Realized net performance income	45,729		28,056		31,825		105,610		—		105,610
Investment income—realized	2,492		17,816		11,409		31,717		4,790		36,507
Interest and other investment income —realized	10,350		4,624		2,257		17,231		2,184		19,415
Interest expense	(11,386)		(6,000)		(1,836)		(19,222)		(2,226)		(21,448)
Realized net investment income	1,456		16,440		11,830		29,726		4,748		34,474
Realized income	$	372,338	$	150,532	$	67,605	$	590,475	$	(195,079)	$	395,396
Total assets	$	729,930	$	942,928	$	469,595	$	2,142,453	$	65,961	$	2,208,414

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the year ended December 31, 2017:

	Credit Group		Private Equity Group		Real Estate Group		Total Segments		OMG		Total
Management fees (Credit Group includes ARCC Part I Fees of $105,467)	$	481,466	$	198,498	$	64,861	$	744,825	$	—	$	744,825
Other fees	20,830		1,495		106		22,431		—		22,431
Compensation and benefits	(194,821)		(68,569)		(39,586)		(302,976)		(110,759)		(413,735)
General, administrative and other expenses	(34,335)		(17,561)		(10,519)		(62,415)		(74,116)		(136,531)
Fee related earnings	273,140		113,863		14,862		401,865		(184,875)		216,990
Performance income—realized	21,087		287,092		9,608		317,787		—		317,787
Performance related compensation—realized	(9,218)		(228,774)		(4,338)		(242,330)		—		(242,330)
Realized net performance income	11,869		58,318		5,270		75,457		—		75,457
Investment income—realized	7,102		22,625		5,534		35,261		3,880		39,141
Interest and other investment income —realized	10,192		3,226		511		13,929		1,142		15,071
Interest expense	(12,405)		(5,218)		(1,650)		(19,273)		(1,946)		(21,219)
Realized net investment income	4,889		20,633		4,395		29,917		3,076		32,993
Realized income	$	289,898	$	192,814	$	24,527	$	507,239	$	(181,799)	$	325,440
Total assets	$	837,562	$	1,255,454	$	306,463	$	2,399,479	$	119,702	$	2,519,181

The following table presents the components of the Company’s operating segments’ revenue, expenses and realized net investment income:

	For the Year Ended December 31,
	2019		2018		2017
Segment revenues
Management fees (includes ARCC Part I Fees of $164,396, $128,805 and $105,467 for the years ended December 31, 2019, 2018, and 2017, respectively)	$	1,012,530	$	836,744	$	744,825
Other fees	18,078		24,288		22,431
Performance income—realized	402,518		357,207		317,787
Total segment revenues	$	1,433,126	$	1,218,239	$	1,085,043
Segment expenses
Compensation and benefits	$	389,045	$	331,443	$	302,976
General, administrative and other expenses	87,450		74,450		62,415
Performance related compensation—realized	290,382		251,597		242,330
Total segment expenses	$	766,877	$	657,490	$	607,721
Segment realized net investment income
Investment income—realized	$	58,173	$	31,717	$	35,261
Interest and other investment income —realized	29,349		17,231		13,929
Interest expense	(17,807)		(19,222)		(19,273)
Total segment realized net investment income	$	69,715	$	29,726	$	29,917

The following table reconciles the Company's consolidated revenues to segment revenue:

	For the Year Ended December 31,
	2019		2018		2017
Total consolidated revenue	$	1,765,438	$	958,461	$	1,479,943
Performance (income) loss-unrealized	(303,142)		247,212		(325,915)
Management fees of Consolidated Funds eliminated in consolidation	34,920		34,242		22,406
Carried interest allocation of Consolidated Funds eliminated in consolidation	—		—		1,017
Incentive fees of Consolidated Funds eliminated in consolidation	13,851		4,000		4,075
Principal investment (income) loss of Consolidated Funds eliminated in consolidation	(12,235)		2,502		24,587
Administrative, transaction and other fees of Consolidated Funds eliminated in consolidation	12,641		—		—
Administrative fees(1)	(31,629)		(27,380)		(34,049)
Performance loss reclass(2)	740		205		1,936
Principal investment income	(44,320)		(1,047)		(89,031)
Net (income) expense of non-controlling interests in consolidated subsidiaries	(3,138)		44		74
Total consolidation adjustments and reconciling items	(332,312)		259,778		(394,900)
Total segment revenue	$	1,433,126	$	1,218,239	$	1,085,043

(1)Represents administrative fees that are presented in administrative, transaction and other fees in the Company’s Consolidated Statements of Operations and are netted against the respective expenses for segment reporting.

(2)Related to performance income for AREA Sponsor Holdings LLC, an investment pool. Changes in value of this investment are reflected within net realized and unrealized gains (losses) on investments in the Company’s Consolidated Statements of Operations.

The following table reconciles the Company's consolidated expenses to segment expenses:

	For the Year Ended December 31,
	2019		2018		2017
Total consolidated expenses	$	1,462,797	$	870,362	$	1,504,758
Performance related compensation-unrealized	(206,799)		221,343		(237,392)
Expenses of Consolidated Funds added in consolidation	(90,816)		(92,006)		(65,501)
Expenses of Consolidated Funds eliminated in consolidation	48,771		38,242		26,481
Administrative fees(1)	(31,629)		(27,380)		(34,049)
OMG expenses	(230,454)		(199,827)		(184,875)
Acquisition and merger-related expense	(16,266)		(2,936)		(280,055)
Equity compensation expense	(97,691)		(89,724)		(69,711)
Deferred placement fees	(24,306)		(20,343)		(19,765)
Depreciation and amortization expense	(40,602)		(25,087)		(30,481)
Other expense(2)	—		(11,836)		—
Expense of non-controlling interests in consolidated subsidiaries	(6,128)		(3,318)		(1,689)
Total consolidation adjustments and reconciling items	(695,920)		(212,872)		(897,037)
Total segment expenses	$	766,877	$	657,490	$	607,721

(1)Represents administrative fees that are presented in administrative, transaction and other fees in the Company’s Consolidated Statements of Operations and are netted against the respective expenses for segment reporting.

(2)2018 period includes $11.8 million payment to ARCC for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and the first quarter of 2018.

The following table reconciles the Company's consolidated other income to segment realized net investment income:

	For the Year Ended December 31,
	2019		2018		2017
Total consolidated other income	$	122,539	$	96,242	$	174,674
Investment (income) loss - unrealized	26,620		49,241		(46,860)
Interest and other investment loss - unrealized	9,061		233		1,868
Other income from Consolidated Funds added in consolidation, net	(117,405)		(114,286)		(154,869)
Other (income) loss from Consolidated Funds eliminated in consolidation, net	(12,991)		(865)		1,059
OMG other income	(1,190)		(3,315)		(11,828)
Performance income reclass(1)	(740)		(205)		(1,936)
Principal investment loss	44,320		1,047		89,031
Change in value of contingent consideration	—		—		(20,156)
Other (income) expense, net	(460)		1,653		(1,042)
Other income of non-controlling interests in consolidated subsidiaries	(39)		(19)		(24)
Total consolidation adjustments and reconciling items	(52,824)		(66,516)		(144,757)
Total segment realized net investment income	$	69,715	$	29,726	$	29,917

(1)Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within net realized and unrealized gains (losses) on investments in the Company’s Consolidated Statements of Operations.

The following table presents the reconciliation of income before taxes as reported in the Consolidated Statements of Operations to segment results of RI and FRE:

	For the Year Ended December 31,
	2019		2018		2017
Income before taxes	$	425,180	$	184,341	$	149,859
Adjustments:
Depreciation and amortization expense	40,602		25,087		30,481
Equity compensation expense	97,691		89,724		69,711
Acquisition and merger-related expense	16,266		2,936		259,899
Deferred placement fees	24,306		20,343		19,765
OMG expense, net	229,264		196,512		173,047
Other (income) expense, net(1)	(460)		13,489		(1,042)
Net expense of non-controlling interests in consolidated subsidiaries	2,951		3,343		1,739
Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(39,174)		(20,643)		(62,705)
Total performance (income) loss - unrealized	(303,142)		247,212		(325,915)
Total performance related compensation - unrealized	206,799		(221,343)		237,392
Total investment (income) loss - unrealized	35,681		49,474		(44,992)
Realized income	735,964		590,475		507,239
Total performance income - realized	(402,518)		(357,207)		(317,787)
Total performance related compensation - realized	290,382		251,597		242,330
Total investment income - realized	(69,715)		(29,726)		(29,917)
Fee related earnings	$	554,113	$	455,139	$	401,865

(1)2018 period includes $11.8 million payment to ARCC for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and the first quarter of 2018.