SEGMENT REPORTING

3 Months Ended

Mar. 31, 2020

The Company operates through its distinct operating segments that 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. The syndicated loans strategy focuses on evaluating individual credit opportunities related primarily to non-investment grade senior secured loans

and primarily target first lien secured debt, with a secondary focus on second lien loans, mezzanine loans, high yield bonds and unsecured loans. The high yield bond strategy seeks to deliver a diversified portfolio of liquid, traded non-investment grade corporate bonds, including secured, unsecured and subordinated debt instruments. Multi-asset credit is a “go anywhere” strategy designed to offer investors a flexible solution to global credit investing by tactical allocation between multiple asset classes in various market conditions. The alternative credit strategy seeks to capitalize on asset-focused investment opportunities that fall outside of traditional, well-defined markets such as corporate debt, real estate and private equity. The alternative credit strategy emphasizes downside protection and capital preservation through a focus on investments that tend to share the following key attributes: asset security, covenants, structural protections and cash flow velocity. The direct lending strategy is one of the largest self-originating direct lenders to the U.S. and European markets and has a multi-channel origination strategy designed to address a broad set of investment opportunities in the middle market. The Credit Group manages U.S. corporate lending activities primarily through its inaugural vehicle and publicly traded business development company, ARCC. The group maintains a flexible investment strategy with the capability to invest in first lien senior secured loans (including "unitranche" loans which are loans that combine senior and mezzanine debt, generally in a first lien position), second lien senior secured loans, mezzanine debt and non-control equity co-investments in middle market companies and power generation projects.

Private Equity Group: The Private Equity Group manages investment strategies broadly categorized as corporate private equity, infrastructure and power, special opportunities, and energy opportunities. In its North American and European flexible capital corporate private equity strategy, the Company targets opportunistic majority or shared-control investments in businesses with strong franchises and attractive growth opportunities in North America and Europe. The infrastructure and power strategy targets infrastructure-related assets across the power generation, transmission, midstream sectors and renewables seeking attractive risk-adjusted equity returns with current cash flow and capital appreciation. The special opportunities strategy seeks to invest opportunistically across a broad spectrum of distressed or mispriced investments, including corporate debt, rescue capital, private asset-backed investments, post-reorganization securities and non-performing portfolios. The energy opportunities strategy targets investments in the energy industry where its flexible capital can provide attractive risk-adjusted returns while mitigating commodity risk.

Real Estate Group: The Real Estate Group manages comprehensive real estate equity and debt strategies. Real Estate equity strategies focus on applying hands-on value creation initiatives to mismanaged and capital-starved assets, as well as new development, ultimately selling stabilized assets back into the market. The Real Estate Group manages both a value-add strategy and an opportunistic strategy. The value-add strategy seeks to create value by buying assets at attractive valuations and through active asset management of income-producing properties across the U.S. and Western Europe. The opportunistic strategy focuses on manufacturing core assets through development, redevelopment and fixing distressed capital structures across major properties in the U.S. and Europe. The Company’s debt strategies leverage the Real Estate Group’s diverse sources of capital to directly originate and manage commercial mortgage investments on properties that range from stabilized to requiring hands-on value creation. In addition to managing private debt funds, the Real Estate Group makes debt investments through a publicly traded commercial mortgage REIT, ACRE.

The OMG 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 Condensed 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 three months ended March 31, 2020:


	Credit Group		Private Equity Group		Real Estate Group		Total Segments		OMG		Total
Management fees (Credit Group includes ARCC Part I Fees of $43,923)	$	197,437	$	52,157	$	24,184	$	273,778	$	—	$	273,778
Other fees	3,058		110		704		3,872		—		3,872
Compensation and benefits	(70,925)		(19,596)		(12,413)		(102,934)		(36,426)		(139,360)
General, administrative and other expenses	(15,313)		(5,633)		(2,935)		(23,881)		(21,305)		(45,186)
Fee related earnings	114,257		27,038		9,540		150,835		(57,731)		93,104
Performance income—realized	9,016		116,154		26,600		151,770		—		151,770
Performance related compensation—realized	(7,899)		(92,924)		(17,170)		(117,993)		—		(117,993)
Realized net performance income	1,117		23,230		9,430		33,777		—		33,777
Investment income (loss)—realized	(843)		11,470		1,290		11,917		(5,698)		6,219
Interest and other investment income —realized	4,575		812		796		6,183		168		6,351
Interest expense	(1,715)		(1,643)		(971)		(4,329)		(977)		(5,306)
Realized net investment income (loss)	2,017		10,639		1,115		13,771		(6,507)		7,264
Realized income	$	117,391	$	60,907	$	20,085	$	198,383	$	(64,238)	$	134,145

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


	Credit Group		Private Equity Group		Real Estate Group		Total Segments		OMG		Total
Management fees (Credit Group includes ARCC Part I Fees of $38,393)	$	162,966	$	51,396	$	18,650	$	233,012	$	—	$	233,012
Other fees	3,066		—		9		3,075		—		3,075
Compensation and benefits	(60,348)		(21,196)		(9,284)		(90,828)		(32,661)		(123,489)
General, administrative and other expenses	(13,505)		(4,057)		(3,132)		(20,694)		(20,632)		(41,326)
Fee related earnings	92,179		26,143		6,243		124,565		(53,293)		71,272
Performance income—realized	21,925		44,123		2,525		68,573		—		68,573
Performance related compensation—realized	(12,663)		(35,297)		(1,257)		(49,217)		—		(49,217)
Realized net performance income	9,262		8,826		1,268		19,356		—		19,356
Investment income—realized	858		10,936		3,480		15,274		—		15,274
Interest and other investment income —realized	2,905		294		1,105		4,304		15		4,319
Interest expense	(1,899)		(2,175)		(1,119)		(5,193)		(396)		(5,589)
Realized net investment income (loss)	1,864		9,055		3,466		14,385		(381)		14,004
Realized income	$	103,305	$	44,024	$	10,977	$	158,306	$	(53,674)	$	104,632

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


	Three months ended March 31,
	2020		2019
Segment revenues
Management fees (includes ARCC Part I Fees of $43,923 and $38,393 for the three months ended March 31, 2020 and 2019 respectively)	$	273,778	$	233,012
Other fees	3,872		3,075
Performance income—realized	151,770		68,573
Total segment revenues	$	429,420	$	304,660
Segment expenses
Compensation and benefits	$	102,934	$	90,828
General, administrative and other expenses	23,881		20,694
Performance related compensation—realized	117,993		49,217
Total segment expenses	$	244,808	$	160,739
Segment realized net investment income
Investment income—realized	$	11,917	$	15,274
Interest and other investment income —realized	6,183		4,304
Interest expense	(4,329)		(5,193)
Total segment realized net investment income	$	13,771	$	14,385

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


	Three months ended March 31,
	2020		2019
Total consolidated revenue	$	13,409	$	477,197
Performance (income) loss-unrealized	387,657		(146,575)
Management fees of Consolidated Funds eliminated in consolidation	10,502		8,413

Incentive fees of Consolidated Funds eliminated in consolidation	(45)		434
Administrative, transaction and other fees of Consolidated Funds eliminated in consolidation	3,317		—
Administrative fees(1)	(9,661)		(6,602)

Performance income (loss) reclass(2)	(1,717)		606
Principal investment (income) loss, net of eliminations	26,723		(28,759)
Net income of non-controlling interests in consolidated subsidiaries	(765)		(54)
Total consolidation adjustments and reconciling items	416,011		(172,537)
Total segment revenue	$	429,420	$	304,660

(1)Represents administrative fees that are presented in administrative, transaction and other fees in the Company’s Condensed 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 Condensed Consolidated Statements of Operations.

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


	Three months ended March 31,
	2020		2019
Total consolidated expenses	$	81,959	$	369,107
Performance related compensation-unrealized	285,892		(107,303)
Expenses of Consolidated Funds added in consolidation	(17,899)		(13,401)
Expenses of Consolidated Funds eliminated in consolidation	10,456		8,847
Administrative fees(1)	(9,661)		(6,602)
OMG expenses	(57,731)		(53,293)
Acquisition and merger-related expense	(3,115)		(1,773)
Equity compensation expense	(32,557)		(27,552)
Deferred placement fees	(5,415)		(521)
Depreciation and amortization expense	(5,542)		(5,824)

Expense of non-controlling interests in consolidated subsidiaries	(1,579)		(946)
Total consolidation adjustments and reconciling items	162,849		(208,368)
Total segment expenses	$	244,808	$	160,739

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


	Three months ended March 31,
	2020		2019
Total consolidated other income	$	(227,863)	$	27,870
Investment (income) loss - unrealized	105,594		(16,183)
Interest and other investment (income) loss - unrealized	(4,961)		4,978
Other (income) loss from Consolidated Funds added in consolidation, net	198,245		(31,207)
Other income from Consolidated Funds eliminated in consolidation, net	(3,819)		(372)
OMG other expense	1,141		30
Performance (income) loss reclass(1)	1,717		(606)
Principal investment income (loss)	(75,988)		29,892

Other (income) expense, net	22		(1)
Other (income) loss of non-controlling interests in consolidated subsidiaries	19,683		(16)
Total consolidation adjustments and reconciling items	241,634		(13,485)
Total segment realized net investment income	$	13,771	$	14,385

(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 Condensed Consolidated Statements of Operations.

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


	Three months ended March 31,
	2020		2019
Income (loss) before taxes	$	(296,413)	$	135,960
Adjustments:
Depreciation and amortization expense	5,542		5,824
Equity compensation expense	32,557		27,552
Acquisition and merger-related expense	3,137		1,773
Deferred placement fees	5,415		521
OMG expense, net	58,872		53,323
Other income, net	—		(1)
Net expense of non-controlling interests in consolidated subsidiaries	20,497		876
Income (loss) before taxes of non-controlling interests in Consolidated Funds, net of eliminations	166,378		(17,045)
Total performance (income) loss - unrealized	387,657		(146,575)
Total performance related compensation - unrealized	(285,892)		107,303
Total investment (income) loss - unrealized	100,633		(11,205)
Realized income	198,383		158,306
Total performance income - realized	(151,770)		(68,573)
Total performance related compensation - realized	117,993		49,217
Total investment income - realized	(13,771)		(14,385)
Fee related earnings	$	150,835	$	124,565