10-K 1 a201810-kdoc.htm FORM 10-K Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2018
or
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)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Class A units representing limited liability company interests
6.625% Series A preferred units
6.550% Series B preferred units
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  x    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ¨     No  x
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  ¨
Indicate by check mark whether the registrant has submitted electronically 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 such files).  Yes  x     No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
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   ¨
 
Non-accelerated filer   ¨
Smaller reporting company   ¨
 
Emerging growth company   o
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  x
The aggregate market value of the Class A units of the registrant held by non-affiliates as of June 30, 2018 was approximately $2.9 billion.
As of February 20, 2019, there were 71,482,276 Class A units and 85,408,069 Class B units of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None




TABLE OF CONTENTS
 
Page
PART I.
 
PART II.
 
 
PART III.
 
 
PART IV.
 
 
 


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FORWARD-LOOKING STATEMENTS
This annual 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 preferred units and our Class A units; changes in our operating or other expenses; the degree to which we encounter competition; and general political, economic and market conditions. The factors listed in the item captioned Risk Factors in this annual report 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 annual 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.
MARKET AND INDUSTRY DATA
This annual report includes market and industry data and forecasts that are derived from independent reports, publicly available information, various industry publications, other published industry sources and our internal data, estimates and forecasts. Independent reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable. We have not commissioned, nor are we affiliated with, any of the sources cited herein.
Our internal data, estimates and forecasts are based upon information obtained from investors in our funds, partners, trade and business organizations, and other contacts in the markets in which we operate and our management’s understanding of industry conditions.



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In this annual 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 in which we have a minority economic interest and indirect control that either (i) act as or control the general partners and investment advisers of our funds or (ii) hold interests in other entities or investments generating income for us.
“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 interests in the Oaktree Operating Group through OCGH.
“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 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 our pro-rata portion of AUM managed by DoubleLine (as defined below) in which we hold a minority ownership interest. For our collateralized loan obligation vehicles (“CLOs”), AUM represents the aggregate par value of collateral assets and principal cash, for our publicly-traded BDCs, gross assets (including assets acquired with leverage), net of cash, and for DoubleLine funds, NAV. Our AUM amounts include AUM for which we charge no management 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 generally reflects the beginning 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—Non-GAAP Measures—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—Non-GAAP Measures—Assets Under Management—Incentive-creating Assets Under Management.”
“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 Oaktree is required to consolidate as of the applicable reporting date.
“DoubleLine” refers to DoubleLine Capital LP and its affiliates.
“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.
“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.  

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“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.
“Relevant Benchmark” refers, with respect to:
our U.S. High Yield Bond strategy, to the FTSE US High-Yield Cash-Pay Capped Index;
our Global High Yield Bond strategy, to an Oaktree custom global high yield index that represents 60% ICE BofAML High Yield Master II Constrained Index and 40% ICE BofAML Global Non-Financial High Yield European Issuers 3% Constrained, ex-Russia Index – USD Hedged from inception through December 31, 2012, and the ICE BofAML Non-Financial Developed Markets High Yield Constrained Index – USD Hedged thereafter;
our European High Yield Bond strategy, to the ICE BofAML 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 ICE BofAML 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 FTSE US High-Yield Market Index; and
our Emerging Markets Equities 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 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 annual report and its contents do not constitute and should not be construed as an offer of securities of any Oaktree funds.

5


Part I.
Item 1. Business
Overview
Oaktree is a leader among global investment managers specializing in alternative investments, with $119.6 billion in assets under management (“AUM”) as of December 31, 2018. Our mission is to deliver superior investment results with risk under control and to conduct our business with the highest integrity. We emphasize an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. Over more than 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.
Oaktree was formed in 1995 by a group of individuals who had been investing together since the mid-1980s. Our founders were pioneers in the management of high yield bonds, convertible securities and distressed debt. From those roots we have developed a diversified mix of specialized credit- and equity-oriented strategies. We operate according to a unifying investment philosophy, which consists of six tenets—risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing—and is complemented by a set of core business principles that articulate our commitment to excellence in investing, commonality of interests with clients, a collaborative and cooperative culture, and a disciplined, opportunistic approach to the expansion of products. As of December 31, 2018, we had 317 investment professionals, including 185 senior investment professionals with an average 19 years of industry experience, who among them possess the investing, research, analytical, legal, trading and other skills, as well as relationships and experience, that are necessary for long-term success in our complex markets. Additionally, our compensation and other personnel practices foster a collaborative culture that facilitates complementary investment strategies benefiting from shared knowledge and insights.
We have systematically broadened employee ownership since our founding to help align interests among employees, our clients and other stakeholders, as well as to facilitate a smooth generational transfer of management and ownership. As of December 31, 2018, we had 978 employees, including 296 employee-owners, with offices in 18 cities across 13 countries, of which the largest offices are in Los Angeles (headquarters), London, New York City and Hong Kong.
We manage assets on behalf of many of the most significant institutional investors in the world. Our clientele (excluding DoubleLine’s clientele) includes 73 of the 100 largest U.S. pension plans, 38 state retirement plans in the United States, over 400 corporations and/or their pension funds, over 340 university, charitable and other endowments and foundations, over 15 sovereign wealth funds, and over 350 other non-U.S. institutional investors. As measured by AUM (excluding our pro-rata portion of DoubleLine’s AUM), our 25 largest clients participate in an average of three different investment strategies, reflecting the confidence engendered by our consistent firm-wide investment approach. Approximately 16% of our AUM represents high-net-worth individuals or intermediary distribution such as sub-advisory relationships with mutual funds and advisory relationships with publicly-traded BDCs, indicating both the broadening appeal of alternatives to individual investors and our heightened focus on that market.
Since Oaktree’s founding, our AUM has grown significantly, despite having distributed nearly $105 billion from our closed-end funds.  While we may limit our AUM when appropriate in order to better position us to generate superior risk-adjusted returns, we have a long-term track record of organically growing our investment strategies, increasing our AUM and expanding our client base. Over the last 10 years, we have raised gross capital averaging $13 billion per year. In 2018, we raised gross capital of $13 billion, of which more than $3 billion was from global high net worth individuals, family offices, clients of financial advisory firms and intermediary distribution platforms across various strategies. As of December 31, 2018, we had $19.5 billion of uncalled capital commitments (“dry powder”), which positions us well for any expansion of investment opportunities across our strategies.

6


As shown in the chart below, our AUM has grown to $119.6 billion as of December 31, 2018 from $49.9 billion a decade earlier.  Over the same period, management fee-generating assets under management (“management fee-generating AUM”) grew from $50.2 billion to $98.1 billion, and incentive-creating assets under management (“incentive-creating AUM”) increased from $22.2 billion to $34.6 billion.

Year-end AUM (1) aum2018.jpg
 
 
 
 
 
(1)
AUM includes Oaktree’s pro-rata portion (based on our 20% ownership stake) of DoubleLine’s total AUM since its inception in 2009.

Structure and Operation of Our Business
Our business is comprised of one segment, our investment management business, which consists of the investment management services that we provide to our clients. Our 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, cost basis or NAV of the particular fund. Incentive income represents our share (up to 20%) of the investors’ profits in most of the closed-end and evergreen funds. Investment income generally reflects 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 collateralized loan obligation vehicles (“CLOs”) and other companies.
Structure of Funds
Closed-end Funds
Our closed-end funds are typically structured as limited partnerships that have a 10- or 11-year term and have a specified period during which clients can subscribe for limited partnership interests in the fund. Once a client is admitted as a limited partner, that client is required to contribute capital when called by us as the general partner, and generally cannot withdraw its investment. Our closed-end funds have an investment period that generally ranges from three to five years, during which we are permitted to call the committed capital of those funds to make investments. As closed-end funds liquidate their investments, we typically distribute the proceeds to the clients, although during the investment period we have the ability to retain or recall such proceeds to make additional investments. Once we have committed to invest approximately 80% of the capital in a particular fund, we typically raise a new fund in the same strategy, generally ensuring that we always have capital to invest in new opportunities. We may also provide discretionary management services for clients within our closed-end fund strategies through a separate account or through a limited partnership or limited liability company managed by us with the client as the sole limited partner or sole non-managing member (a “fund-of-one”).
Our closed-end funds also include CLOs for which we serve as collateral manager. CLOs are structured finance vehicles in which we make an investment and for which we are entitled to earn management fees.

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Investors in CLOs are generally unable to redeem their interests until the CLO liquidates, is called or otherwise terminates.
Open-end Funds
Our commingled open-end funds are typically structured as limited partnerships that are designed to admit clients as new limited partners (or accept additional capital from existing limited partners) on an ongoing basis during the fund’s life. Clients in commingled open-end funds typically contribute all of their committed capital upon being admitted to the fund. These funds do not have an investment period and do not distribute proceeds of realized investments to clients. We are permitted to commit the fund’s capital (including realized proceeds) to new investments at any time during the fund’s life. Clients in commingled open-end funds generally have the right to withdraw their capital from the fund on a monthly basis (with prior written notice of up to 90 days).
We also provide discretionary management services for clients through separate accounts within the open-end fund strategies. Clients establish accounts with us by depositing funds or securities into accounts maintained by qualified independent custodians and granting us discretionary authority to invest such funds pursuant to their investment needs and objectives, as stated in an investment management agreement. Separate account clients generally may terminate our services at any time by providing us with prior notice of 30 days or less.
Evergreen Funds
Our evergreen funds invest in marketable securities, private debt and equity, and in certain cases on a long or short basis. As with open-end funds, commingled evergreen funds are designed to accept new capital on an ongoing basis and generally do not distribute proceeds of realized investments to clients. We also provide discretionary management services for clients through separate accounts or funds-of-one within our evergreen fund strategies. Clients in evergreen funds are generally subject to a lock-up, which restricts their ability to withdraw their entire capital for a certain period of time after their initial subscription. Evergreen funds include publicly-traded business development companies (“BDCs”) managed by us.
Management Fees
We receive management fees monthly or quarterly based on annual fee rates for our investment advisory services. The contractual terms of those management fees generally vary by fund structure. For most closed-end funds, the management fee rate is applied against committed capital during the fund’s investment period and the lesser of total funded capital or cost basis of assets in the liquidation period. For certain closed-end funds, management fees during the investment period may be calculated based on drawn capital or cost basis. Additionally, for those closed-end funds for which management fees are based on committed capital, we may elect to delay the start of the fund’s investment period and thus its full management fees, in which case we earn management fees based on drawn capital, and in certain cases, outstanding borrowings under a fund-level credit facility made in lieu of drawing capital, until we elect to start the fund’s investment period. Our right to receive management fees typically ends after 10 or 11 years from either the initial closing date or the start of the investment period, even if assets remain in the fund. In the case of CLOs, the management fee is based on the aggregate par value of collateral assets and principal cash, as defined in the applicable CLO indentures, and a portion of the management fees is dependent on the sufficiency of the particular vehicle’s cash flow. For open-end funds, the management fee is generally based on the NAV of the fund or account. Evergreen funds typically pay management fees based on NAV, invested assets or contributions, and our publicly-traded BDCs pay management fees based on gross assets (including assets acquired with leverage), net of cash.
In the case of certain open-end fund accounts, we have the potential to earn performance-based fees, typically in reference to a relevant benchmark index or hurdle rate, which are classified as management fees. Management fees also include the quarterly incentive fees on investment income we earn from our publicly-traded BDCs and certain evergreen fund accounts, which are generally recurring in nature. In a number of our strategies, we afford certain investors in our funds or clients of separate accounts more favorable economic terms than other investors in the same investment strategy, including with respect to management and performance-based fees, generally based on the aggregate size of commitments of such investor or client, as applicable, to one or more funds or accounts managed by us.

8


Incentive Income
We have the potential to earn incentive income from most of our closed-end funds, substantially all of which follow the European-style waterfall, by which we receive incentive income only after the fund first distributes all 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, all such future distributions attributable to our investors are distributed 80% to those investors and 20% to us as incentive income. As a result, we generally receive incentive income, if any, in the latter part of a fund’s life, although earlier in a fund’s term we may receive tax-related distributions, which we recognize as incentive income, to cover our allocable share of income taxes until we are otherwise entitled to payment of incentive income.
We may also earn incentive income from certain evergreen funds on an annual basis, up to 20% of the year’s profits, subject to either a high-water mark or hurdle rate. The high-water mark refers to the highest historical NAV attributable to a limited partner’s account when either incentive income has been earned or the capital was contributed.
Investment Income
We earn investment income from our corporate investments in funds and companies, with Oaktree-managed funds constituting the majority of our corporate investments. Our investments in Oaktree-managed funds generally fall into one of four categories: general partner interests in commingled funds or funds-of-one, investments in CLOs, seed capital for new investment strategies prior to third-party capital raising, and corporate cash management. In the case of general partner interests in our closed-end or evergreen funds, we typically invest the greater of 2.5% of committed capital or $20 million in each fund, not to exceed $100 million per fund. For CLOs, we generally invest up to 5% of the CLO’s total par value. We may also invest in certain third-party managed funds or companies for strategic or financial purposes.
Our investments in companies include a one-fifth equity stake in DoubleLine Capital LP and its affiliates (collectively, “DoubleLine”), a Southern California-based investment management firm that sought our start-up consulting and financial involvement at the time of its founding in December 2009 by Jeffrey Gundlach and others who had previously worked together for over 20 years.  From first managing assets in April 2010, DoubleLine has grown to approximately $121 billion in assets under management as of December 31, 2018.  DoubleLine invests across fixed income, equities and commodities through mutual funds, hedge funds, separate accounts and other vehicles.
Our Investment Approach
Our goal is excellence in investing. This means achieving attractive investment returns without commensurate risk, an imbalance which can only be achieved in markets that are not “efficient.” Although we strive for superior returns, our first priority is that our actions produce consistency, protection of capital and superior performance in bad times. At our core, we are contrarian, value-oriented investors focused on buying securities and companies at prices below their intrinsic value and selling or exiting those investments when they become fairly or fully valued. We believe we can do this best by investing in markets where specialization and superior analysis can offer an investing edge.
In our investing activities, we adhere to the following fundamental tenets:
Focus on Risk-Adjusted Returns.    Our primary goal is not simply to achieve superior investment performance, but to do so with less-than-commensurate risk. We believe that the best long-term records are built more through the avoidance of losses in bad times than the achievement of superior relative returns in good times. Thus, rather than merely searching for prospective profits, we place the highest priority on preventing losses. It is our overriding belief that, especially in the opportunistic markets in which we work, “if we avoid the losers, the winners will take care of themselves.”
Emphasis on Consistency. We believe that a superior record is best built on a high batting average, rather than a mix of brilliant successes and dismal failures. Oscillating between top-quartile results in good years and bottom-quartile results in bad years is not acceptable to us.

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The Importance of Market Inefficiency. We feel skill and hard work can lead to a “knowledge advantage,” and thus to potentially superior investment results, but not in the most efficient markets where larger numbers of participants have roughly equal access to information. Therefore, we only invest in less efficient markets in which dispassionate application of skill and effort should pay off for our clients.
Focus on Fundamental Analysis.    We believe consistently excellent performance can only be achieved through superior knowledge of companies and their securities, not from macro-forecasting. Therefore, we employ a bottom-up approach to investing, based on proprietary, company-specific research. Our 317 investment professionals have developed a deep and thorough understanding of a wide number of companies and industries, providing us with a significant institutional knowledge base. We use overall portfolio structuring as a defensive tool to help us avoid dangerous concentration, rather than as an aggressive weapon expected to enable us to hold more of the things that do best.
Disavowal of Market Timing. We do not believe in the predictive ability required to correctly time markets. However, concern about the market climate may cause us to tilt toward more defensive investments, increase selectivity or act more deliberately. We keep portfolios fully invested whenever attractively priced assets can be bought.
Specialization.    We offer a broad array of specialized investment strategies. We believe this offers the surest path to the results we, and our clients, seek. Clients interested in a single investment strategy can limit themselves to the risk exposure of that particular strategy, while clients interested in more than one investment strategy can combine investments in our funds to achieve their desired mix. We also provide clients both commingled and customized solutions with one-stop access to the entirety of Oaktree’s credit platform through our multi-credit strategy, which invests in a number of our liquid and illiquid credit strategies. Our focus on specific strategies has allowed us to build investment teams with extensive experience and expertise. At the same time, our teams access and leverage each other’s expertise, affording us both the benefits of specialization and the strengths of a larger organization.
Our Asset Classes and Investment Strategies
We manage investments in a number of strategies across four asset classes: Credit, Private Equity, Real Assets and Listed Equities. The diversity of our investment strategies allows us to meet a wide range of investor needs suited for different market environments globally and, for certain strategies, targeted regions, while providing us with a long-term diversified revenue base.
Our AUM by asset class and investment strategy group as of December 31, 2018 is shown below:
 
Strategy Inception1
 
 
 
 
Strategy Inception1
 
 
 
 
AUM
 
 
 
AUM
 
 
 
(in millions)
 
 
 
 
(in millions)
Credit:
 
 
 
 
Real Assets:
 
 
 
Distressed Debt
1988
 
$
22,266

 
Real Estate
1994
 
$
9,548

High Yield Bonds
1986
 
17,397

 
Infrastructure (2)
2014
 
2,435

Senior Loans
2007
 
10,823

 
 
 
 
11,983

Private/Alternative Credit
2001
 
7,900

 
Listed Equities:
 
 
 
Convertible Securities
1987
 
3,680

 
Emerging Markets Equities
2011
 
4,220

Multi-Strategy Credit
2017
 
2,725

 
Value/Other Equities
2012
 
482

Emerging Markets Debt
2012
 
1,708

 
 
 
 
4,702

 
 
 
66,499

 
 
 
 
 
Private Equity:
 
 
 
 
DoubleLine
 
 
24,115

Corporate Private Equity
1999
 
8,114

 
 
 
 

Special Situations
1994
 
4,147

 
Total
 
 
$
119,560

 
 
 
12,261

 
 
 
 
 
 
 
 
 
 
(1)
Represents the earliest inception date of the individual investment strategy included within the strategy group presented above.
(2)
Oaktree acquired the Highstar Capital team in 2014, which represents the inception date of this strategy. Highstar’s inception date was 2000.


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We add new products when we identify a market with potential for attractive returns that we believe can be exploited in a risk-controlled fashion, and where we have access to the investment talent capable of producing the results we seek. Therefore, when adding new products, we consider it far more important to avoid mistakes than to capture every opportunity. Our decision to create a new product is based on the identification of an inefficient market with the potential for attractive returns, conviction that the market can be exploited in a limited-risk fashion, and access to an investment team fully capable of producing the results we seek. Because of the high priority we place on assuring that these requirements are met, we prefer that new products represent “step-outs” from our current investment strategies into highly related fields that are managed by people with whom we have had extensive first-hand experience or for whom we can validate qualifications.
Our asset classes and investment strategies are described below:
Credit
Distressed Debt
Distressed Opportunities. Our Distressed Debt team was an industry pioneer and has been one of its leaders since the inception of the strategy in 1988. The team focuses primarily on investments in distressed companies that are perceived to have substantial asset values or business franchises, and are in industries going through periods of transition or dislocation. Our approach seeks to combine protection against loss, which generally comes from buying claims on assets at bargain prices, with the substantial gains to be achieved by returning companies to financial viability through restructuring. We take an opportunistic approach to investing, with the flexibility and expertise to choose from a broad range of investments, including leveraged loans, bonds, equity securities, companies or hard assets. We have had investment teams in the United States and Europe for many years, and more recently have expanded our geographic reach by adding an investment team in Asia.
Value Opportunities. We launched Value Opportunities in 2007 for investors who had expressed interest in a more liquid version of the Distressed Debt strategy. The fund is managed by the Distressed Debt team and invests mainly in distressed debt, stressed debt and other value-oriented investments for which there is a liquid market. The strategy is intended to be an aggressive and opportunistic alternative to Distressed Debt, but with a portfolio composition that allows it to capitalize on changing market conditions. In general, the strategy employs similar strategies and tactics with regard to distressed investments as the Distressed Debt strategy, but it may be more aggressive and more oriented to short selling and short-term trading (and may make greater use of leverage and derivatives) with respect to its non-distressed investments.
High Yield Bonds
We view high yield bond investing as the conscious bearing of risk for potential profit, and we follow a defensive, downside-oriented strategy.  Rather than stretching for higher yields, our primary focus is managing credit risk, avoiding dangerous concentrations and minimizing defaults.  We have been managing high yield bonds for over three decades, starting in 1986 with U.S. high yield bonds, and over that time our U.S. strategy has experienced an average default rate equal to approximately one-third the market as a whole.  By controlling risk and preserving profits, we seek to outperform our benchmark over full market cycles with less-than-commensurate risk.
We established a dedicated European high yield bond strategy in 1999 when the European high yield bond market was still in its nascent stage.  Since then, the European high yield bond market has grown significantly, which has allowed us to construct diverse portfolios of bonds issued by credit-worthy companies from a variety of sectors across developed European countries. The strategy is managed by a dedicated team of leveraged-finance specialists in our London office and employs the same investment approach successfully applied by our U.S. High Yield Bond team.
As a natural extension of our U.S. and European High Yield Bond strategies, in 2010 we established the Global High Yield Bond strategy, a single portfolio approach to investing in the lower-rated, yet credit-worthy performing bonds across the developed world. In constructing our portfolios, we allocate between North America and Europe based on an issue-by-issue relative value framework and market technicals. We also avoid concentrations by industry or company because we believe thoughtful diversification is one of the most cost-effective means of mitigating the impact of credit problems. By employing a highly disciplined, credit-intensive research approach to construct a diversified, risk-controlled portfolio, the strategy targets the most attractive risk/return opportunities we identify across the developed world.

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Senior Loans
We formed the U.S. Senior Loan strategy in 2007 to capitalize on the backlog of unsold or “hung” bridge loans held by investment banks near the start of the global financial crisis. As the market environment changed, we expanded the strategy to include investing in senior bank loans. The strategy typically invests in broadly-syndicated, senior-secured loans or other senior, non-investment grade debt. In most instances, these instruments constitute the most senior position in the capital structure of the borrower. We employ a fundamental, bottom-up credit analysis when approaching potential loan investments. We rely on the same downside sensitivities in our models and proprietary credit scoring matrix that have been successfully applied for over three decades by our High Yield Bond team.
In 2009, we formed the European Senior Loan strategy to invest in senior secured loans in the growing European bank loan market. The strategy focuses on the senior-secured debt of issuers in Europe, and a majority of the portfolio consists of floating-rate obligations. The strategy may also invest opportunistically in senior secured, fixed-rate bonds in which we see the potential for enhanced returns relative to floating-rate loans. The strategy benefits from the experience and expertise of our London-based European Credit team, which began investing in non-investment grade credit in 1999.
In 2012, we continued to expand the Senior Loan strategy by introducing a new product, Enhanced Income, to create a portfolio of below-investment grade loans using a moderate amount of leverage. Building on our experience in Senior Loans and Enhanced Income, in 2014 we added CLOs to our product offerings, both in the U.S. and Europe. CLOs are securities backed by a diversified pool of below-investment grade loans sold to investors often seeking credit-rated securities or the potential for higher-than-average returns. Both Enhanced Income and our fully-levered CLOs utilize the same investment approach as our Senior Loan strategy, with an emphasis on capital preservation and strong collateral coverage, collaborating with other investment teams across Oaktree’s broader credit platform to maximize the potential of our investments.
Private/Alternative Credit
U.S. Private Debt. We established the U.S. Private Debt strategy in 2001 as a step-out to the High Yield Bond strategy to capitalize on our expertise in credit analysis after we observed a gap in the availability of mezzanine capital to many attractive companies that were considered too small for the high yield bond market.  Initially focused on mezzanine financings, the strategy has evolved to include directly originated senior first lien and senior second lien loans.  The strategy seeks to achieve attractive, risk-adjusted absolute returns by originating or, in limited circumstances, participating in the syndication of performing debt issued privately by U.S. borrowers. Our strong relationships in the private equity, intermediary and banking communities constitute a major advantage in our investment process.  We target investments in companies that are unable to access widely available financing sources for leveraged buyouts, recapitalizations, acquisitions and corporate growth, and that have a strong relative market position and a well-developed business strategy, in addition to sustainable cash flow and a proven management team. 
European Private Debt. We introduced European Private Debt in 2013 to capitalize on opportunities resulting from the decline in European bank lending and our significant industry experience, knowledge and deep relationships across the Continent.  The strategy seeks to achieve attractive, risk-adjusted absolute returns by making primary investments in high-yielding debt or preferred equity of healthy European companies that require liquidity for acquisitions, buyouts of minority investors, debt restructurings, recapitalizations or acquisitions of hard assets.  Such investments are not expected to result in substantial influence or control. Our goal is to target a concentrated portfolio of direct loans to middle-market companies resulting from unique proprietary lending opportunities generated by the European Principal Group (the “EPG”).  The strategy invests primarily in industries in which the EPG has existing portfolio companies or experience, with a particular emphasis on capital-intensive sectors where a lack of bank financing has created an opportunity to acquire assets at a significant discount or to extend credit at attractive rates.  Typically we are the sole lender in our direct-lending transactions, and we rarely participate in sponsor-backed transactions or competitive auctions.
Strategic Credit. We added the Strategic Credit strategy in 2012 as a step-out from our Distressed Debt strategy to capture attractive investment opportunities that appear to offer too little return for distressed debt investors, but may pose too much uncertainty for high yield bond investors. The strategy seeks to achieve an attractive, unlevered total return by investing in public and private performing debt of stressed U.S. and non-U.S. companies. Such investment opportunities may arise from pricing inefficiencies that occur in the primary and secondary markets or from the financing needs of healthy companies with limited access to traditional lenders or

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public markets. Typical investments are in high yield bonds and senior loans entailing above average credit risk, loan portfolios, rescue financings and other capital solutions for companies experiencing financial stress.
Convertible Securities
Convertible securities are part debt and part equity. By applying our risk-control investment approach to these securities, we attempt to capture most of the returns of equities in rising markets and to outperform equities in flat or down markets. Our goal is to capture the vast majority of the performance of equities over full market cycles with reduced volatility and/or substantially outperform straight bonds with similar levels of risk. To reduce risk, we broadly diversify and focus on convertibles that provide pronounced downside protection. We manage three convertible securities strategies that focus on different regions and market sections – U.S., non-U.S. and “high income” convertibles. High income (or busted”) convertibles offer a unique combination of high current yield and yield-to-maturity, plus the potential for significant equity-driven capital appreciation.
Multi-Strategy Credit
We have been managing multi-strategy fixed income portfolios since 1998, strategically allocating clients’ capital in a number of our liquid and illiquid credit strategies. In 2017, we introduced our first Multi-Strategy Credit Fund, which provides our clients access to Oaktree’s more liquid credit strategies, including high yield bonds, senior loans, emerging markets debt, real estate debt securities, structured credit and convertible bonds. We also provide customized solutions based on clients’ specific investment goals and objectives. The strategy seeks to take advantage of changing market conditions by investing flexibly in various liquid credit opportunities based on our assessment of relative value. Our goal is to generate attractive current income and total return while limiting volatility through diversification.
Emerging Markets Debt
Emerging Markets Opportunities. We launched the Emerging Markets Opportunities strategy in 2012 as an expansion of our Distressed Debt strategy. The strategy targets stressed, distressed and other value-oriented fixed income, hybrid and equity investments in emerging markets. In contrast to developed markets, macroeconomic events, political crises and a misunderstanding among many investors of emerging market complexities give rise to more pronounced disruptions and an enhanced opportunity set for us to take advantage of such opportunities. The strategy is managed by a U.S.-based group that leverages our Distressed Debt team’s experience and expertise, and employs an established, flexible external network of local advisers to enhance deal flow, access local market intelligence and address the intricacies of jurisdictional differences and industry and local regulatory developments.
Emerging Markets Debt Total Return. As a step-out to our Emerging Markets Opportunities strategy, in 2015 we introduced Emerging Markets Debt Total Return to third-party investors to capitalize on the nascent market of stressed credits falling out of the investment-grade and high yield fixed income emerging markets universe.  The strategy invests primarily in performing emerging market credit-oriented investments on an unlevered basis, seeking to achieve an attractive total return by taking advantage of market inefficiencies and geopolitical complexities in the emerging markets credit universe.
Private Equity
Special Situations
Our Special Situations strategy makes control-oriented debt and equity investments in middle-market companies that have an element of distress, dislocation or dysfunction and that we perceive to be undervalued. It seeks situations in which we can gain control of, or significant influence over, companies exhibiting such characteristics and then actively manages those businesses in an effort to deliver value as a private equity-like sponsor. The cornerstone of the Special Situations strategy is its flexibility to invest across capital structures, whether by purchasing secondary market debt (“distress-for-control”) or making direct debt or equity investments in distressed businesses. Importantly, the strategy does not require a distressed macro environment to invest successfully, relying instead on “situational” distress that can be uncovered in any industry, sector or individual company at any point in the economic cycle.

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Corporate Private Equity 
Power Opportunities. In 1996, we began making a number of power- and energy-related investments jointly with an independent firm, GFI Energy Ventures (“GFI”), a firm founded in 1995. In 2009, GFI personnel joined us and, starting with Oaktree Power Opportunities Fund III, we became the sole manager of the strategy. The Power Opportunities funds seek to make controlling investments in mid-sized companies providing equipment, services and software used in the generation, transmission, distribution, marketing or consumption of energy, with a focus on electric power, natural gas and other utility-related businesses. The Power Opportunities team is comprised of seasoned energy sector investors who work to identify key energy industry themes and then invest in companies which are well-positioned to benefit from such themes. The team then works closely with portfolio companies to strengthen operations, pursue new customers and market opportunities, recruit additional talent, and make complementary acquisitions, among other activities to increase shareholder value. The strategy invests in proven performers and market leaders, not start-up ventures or turnarounds.
European Principal. The European Principal strategy targets control investing opportunities where dislocation or distress enable its funds to secure an attractive purchase price or creation value, and thus the potential for attractive returns.  EPG’s diverse skillset enables the team to target “off-the-run” investment opportunities in which competition is limited, to assess the correlation between a company’s performance and the general economic cycle or specific industry trends, and to develop and implement bespoke operational, legal and financial solutions.  We eschew competitive auctions, preferring instead to work closely with parties which have agreed in principle to the proposed transaction.  This approach can improve information flow, reduce the risk and cost of competition, and translate into a more attractive investment opportunity.  The team uses its local presence in multiple countries, coupled with its deal execution, operational and legal expertise, to craft customized solutions for situations that, in addition to capital, require complex operational or strategic improvements.  Capital-intensive industries are an area of focus because the investment can be at least partially secured by the value of the assets, which creates downside protection and possibly substantial upside returns.  We may also seek to acquire individual assets or smaller pools of assets in a single industry, consolidating them into a larger operating company. These so-called platform investments, which typically are managed by personnel identified by EPG, may benefit from operational, strategic and financial enhancements implemented by our in-house portfolio enhancement teams.
Real Assets
Real Estate
Real Estate Opportunities. The Real Estate team targets a wide range of global investment opportunities across multiple asset types and investment structures at all points in the economic cycle.  The Real Estate Opportunities strategy targets debt and equity investments in commercial real estate, corporate platforms, residential real estate, and opportunistic credit, including commercial and residential non-performing loans.  The strategy seeks to achieve attractive risk-adjusted returns by investing in assets that offer compelling growth characteristics, whether structured as individual properties, portfolios or platforms, as well as distressed assets at appropriate points in the economic cycle.  With dedicated real estate professionals in the U.S., the U.K., Hong Kong, South Korea, Australia and Japan, the team benefits from Oaktree’s multi-disciplinary strengths and global footprint. 
Real Estate Debt. Although the Real Estate team had actively invested in debt in its first 15 years, in 2010, we added Real Estate Debt as a standalone strategy, leveraging the Oaktree infrastructure and dedicated real estate investment team to invest capital in performing real estate debt on a global basis. The funds and separate accounts in this strategy target attractive risk-adjusted returns and current income through investments in real estate-related debt that is not anticipated to result in control of the underlying asset. The first fund launched under this mandate was the Oaktree PPIP Fund, which was organized pursuant to the U.S. Treasury Department’s program to invest in mortgage-backed securities in the aftermath of the global financial crisis. The strategy has evolved significantly since that first fund, and today focuses on a broad range of transactions in the commercial and residential sectors, investing in both private loans and traded securities. The primary asset classes targeted by this strategy are commercial and residential first mortgages, subordinated secured debt, mezzanine loans, CMBS, RMBS and real estate-related corporate debt.
Real Estate Income. We launched the Real Estate Income strategy in 2016 as a step-out of the Real Estate Opportunities strategy to expand the reach of our real estate platform through investments that have the potential to provide stable income and attractive risk-adjusted returns, but do not have the requisite distress or total return profile to be a candidate for our Real Estate Opportunities funds. The strategy seeks to achieve superior

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risk-adjusted returns through investments in high-quality real estate assets with an emphasis on income and long-term growth, and targets commercial real estate assets, with a particular emphasis on office, multifamily and industrial properties. It also considers debt and other income-producing investments on a limited basis.
Infrastructure
In August 2014, we acquired the Highstar Capital team and certain Highstar entities (collectively “Highstar”) to facilitate the expansion of our Power Opportunities strategy and to help us capitalize on the growing need for private capital to support the renovation, replacement and creation of critical transportation and energy infrastructure.  Highstar was founded in 2000 and was an early entrant into infrastructure investing.  Oaktree’s Infrastructure Investing strategy seeks to leverage our team’s expertise to capitalize on evolving industry dynamics by originating, owning and operating infrastructure and related investments, particularly in the transportation and energy sectors.  Leveraging the team’s deep experience and long standing relationships in these respective industries, the strategy targets investments primarily in North America where we see the potential to add significant value, principally through our operational, managerial, industry, risk management and financial expertise.
Listed Equities
Emerging Markets Equities
In 2011, we added the long-only Emerging Markets Equities strategy, which we manage through funds, mutual fund sub-advisory relationships and separate accounts.  The strategy seeks to earn attractive risk-adjusted returns relative to its benchmarks by investing on a long-only basis in the equities of emerging market companies in the Asia Pacific region, Latin America, Eastern Europe, the Middle East, Africa and Russia.
Value Equities
We launched the Value Equities strategy to third-party investors in 2014 as a step-out from our Distressed Debt platform. Similar to our Distressed Debt and Value Opportunities strategies, Value Equities employs a bottom-up, value-oriented investment approach focused on long-term principal appreciation and preservation of capital. The strategy seeks to achieve attractive, risk-adjusted returns by opportunistically assembling and managing an unleveraged, concentrated portfolio of stressed, post-reorganization and deep value equities that offer asymmetric return profiles across industries, market capitalizations and geographies within developed markets.

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Our Investment Performance
Our investment professionals have generated impressive investment performance through multiple market cycles. As of December 31, 2018, our incentive-creating closed-end funds had produced a since-inception aggregate gross IRR of 18.8% on approximately $84 billion of drawn capital. Of the 59 such closed-end funds we manage with greater than 36 months of performance, 58 had positive net IRRs as of December 31, 2018, an achievement that reflects, among many factors, our practice of sizing funds in proportion to our view of the supply of potential attractive investment opportunities.
Information regarding our most significant and longest-managed closed-end funds is shown below, as of or for the periods ended December 31, 2018. Please see “Fund Data” below for more information regarding the performance of our closed-end funds.
 
Strategy Inception / Vintage
 
Total Drawn Capital
 
IRR Since Inception
 
Multiple of Drawn Capital
 
 
 
Gross
 
Net
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distressed Debt funds
1988
 
$
43,770

 
21.9
%
 
16.0
%
 
1.7x
Real Estate Opportunities funds
1994
 
8,372

 
15.6

 
11.9

 
1.7
Oaktree Special Situations Fund
2015
 
1,144

 
19.1

 
9.3

 
1.2
Other Special Situations funds (1) 
1994
 
10,096

 
12.9

 
9.2

 
1.7
European Principal funds (2) 
2006
 
6,560

 
13.3

 
8.8

 
1.7
Power Opportunities funds
1999
 
2,668

 
34.4

 
26.0

 
2.0
U.S. Private Debt funds
2001
 
3,980

 
13.0

 
8.7

 
1.4
Sub-total
 
 
76,590

 

 

 

Other funds
 
 
23,033

 
 
 
 
 
 
Total
 
 
$
99,623

 
 
 
 
 
 
 
 
 
 
 
(1)
The figures shown exclude the performance of Oaktree Special Situations Fund.
(2)
All figures are based on the conversion of amounts or cash flows from euros to USD using the December 31, 2018 spot rate of $1.14.
Performance of our open-end funds is in part measured in relation to applicable benchmark returns. Our emphasis on risk control and credit selection has generally led to outperformance in challenging markets and over full market cycles. Information regarding our open-end funds, together with relevant benchmark data, is set forth below as of or for the periods ended December 31, 2018. Please see “Fund Data” below for more information regarding the performance of our open-end funds.
 
Strategy Inception
 
AUM
 
Since Inception as of December 31, 2018
 
 
 
Annualized Rates of Return
 
Sharpe Ratio
 
 
 
Oaktree
 
Relevant Benchmark
(Gross)
 
Oaktree Gross
 
Relevant Benchmark
(Gross)
 
 
 
Gross
 
Net
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. High Yield Bonds
1986
 
$
13,822

 
8.9
%
 
8.3
%
 
8.0
%
 
0.76
 
0.54
Global High Yield Bonds
2010
 
3,154

 
6.1

 
5.6

 
5.9

 
0.96
 
0.95
European High Yield Bonds
1999
 
421

 
7.7

 
7.1

 
6.0

 
0.69
 
0.43
U.S. Convertibles
1987
 
1,658

 
9.0

 
8.5

 
8.0

 
0.47
 
0.37
Non-U.S. Convertibles
1994
 
1,000

 
7.8

 
7.3

 
5.2

 
0.73
 
0.37
High Income Convertibles
1989
 
1,022

 
11.0

 
10.1

 
7.8

 
1.05
 
0.58
U.S. Senior Loans
2008
 
642

 
5.6

 
5.1

 
4.8

 
1.03
 
0.61
European Senior Loans
2009
 
1,143

 
7.0

 
6.5

 
7.6

 
1.59
 
1.59
Emerging Markets Equities
2011
 
4,220

 
1.2

 
0.4

 
0.1

 
0.04
 
(0.02)

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Synergies
We emphasize cross-group cooperation and collaboration among our investment professionals. Many of our investment strategies are complementary, and our investment professionals often identify and communicate potential opportunities to other groups, allowing our funds to benefit from the synergies created by the scale of our business and our proprietary research. For example, the Distressed Debt group sometimes identifies companies emerging from bankruptcy that could be attractive to the High Yield Bond group.
This cross-pollination among our investment groups occurs both formally and informally. For example, representatives of different investment groups often attend each other’s meetings in order to keep abreast of the others’ activities and maintain access to specialized investment expertise. Groups periodically invest jointly, permitting us to make larger or more specialized investments than we could undertake in the absence of such collaboration. Our investment professionals also cooperate informally, consulting one another with respect to existing and proposed investments. Our culture encourages such cooperation, as does the broad Oaktree equity ownership among our investment professionals, which gives them an indirect stake in the success of all of our investment strategies.
We have a shared trading desk in the U.S. for many of our strategies, which provides the benefit of our traders’ deep experience with both performing and distressed securities, facilitates communication among the groups, and allows us to combine trades for larger orders with the preferential access and pricing that sometimes comes with larger orders. Additionally, the scale of our investing activities makes us a significant client of many investment banks, brokers and consultants, and thus helps each group access opportunities that might not be available were it not part of our larger organization.
Marketing and Client Relations
Our client relationships are fundamental to our business. We believe our success is a byproduct of the success of our fund investors and thus always strive to achieve superior returns with risk under control, to charge fair and transparent management fees, and to conduct ourselves with the highest levels of professionalism and integrity.
We have developed a loyal following among many of the world’s most significant institutional investors, and believe that their and our other investors’ loyalty results from our superior investment record, our reputation for integrity, and the fairness and transparency of our fee structures.
As of December 31, 2018, our $119.6 billion of AUM was divided by client type and geographic origin as follows:
AUM by Client Type
AUM
 
% (1)
 
AUM by Client Location
 
AUM
 
% (1)
 
(in millions)
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
Public funds
$
20,454

 
22
%
 
Americas
 
$
67,445

 
71
%
Corporate and corporate pension
20,339

 
21

 
Europe, Middle East & Africa
 
15,216

 
16

Insurance companies
9,925

 
10

 
Asia Pacific
 
12,784

 
13

Intermediary distribution
9,410

 
10

 
DoubleLine
 
24,115

 

Sovereign wealth funds
7,704

 
8

 
Total
 
$
119,560

 
100
%
Private – high net worth / family office
5,874

 
6

 
 
 
 
 
 
Endowments / foundations
5,200

 
6

 
 
 
 
 
 
Oaktree & affiliates
3,783

 
4

 
 
 
 
 
 
Fund of funds
2,915

 
3

 
 
 
 
 
 
Unions
1,916

 
2

 
 
 
 
 
 
Other
7,925

 
8

 
 
 
 
 
 
DoubleLine
24,115

 

 
 
 
 
 
 
Total
$
119,560

 
100
%
 
 
 
 
 
 
 
 
 
 
 
(1)
Excludes our proportionate amount of DoubleLine AUM.


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Our extensive in-house global Marketing and Client Relations groups, composed of 90 individuals, 47 of which are dedicated to relationship management, sales and client service in Europe, the Middle East, Asia/Pacific and the Americas, appropriately reflects the increasingly global composition of our client base.  This relationship management, sales and client service team is augmented by 12 product specialists and associates, and 31 dedicated support staff across the areas of due diligence services, product management and marketing programming. 
Employees
We strive to maintain a work environment that fosters integrity, professionalism, excellence, candor and collegiality among our employees. We consider our labor relations to be good. As of December 31, 2018, we had 978 employees, categorized as follows:
 
All Employees
 
Employee Owners (1)
 
Employees Located Outside the U.S.
Investment professionals
317

 
196

 
100

Other professionals
508

 
100

 
85

Support staff
153

 

 
42

Total
978

 
296

 
227

 
 
 
 
 
(1)
Represents employees that have received grants of Class A or OCGH units under our equity incentive plans.
Competition
We compete with many other firms in every aspect of our business, including raising funds, seeking investments and hiring and retaining professionals. Many of our competitors are substantially larger than us and have considerably greater financial, technical and marketing resources. Certain of these competitors periodically raise significant amounts of capital in investment strategies that are similar to ours. Some of these competitors also may have a lower cost of capital and access to funding sources that are not available to us, which may create further competitive disadvantages for us with respect to investment opportunities. In addition, some of these competitors may have higher risk tolerances or make different risk assessments than we do, allowing them to consider a wider variety of investments and establish broader networks of business relationships. In short, we operate in a highly competitive business and many of our competitors may be better positioned than we are to take advantage of opportunities in the marketplace. For additional information regarding the competitive risks that we face, please see “Risk Factors—Risks Relating to Our Business—The investment management business is intensely competitive.”
Organizational Structure
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 and its preferred 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., which owns 100% of the Company’s outstanding Class B units. OCGH is owned by 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.

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Class A units are entitled to one vote per unit. Class B units are entitled to ten votes per unit. However, if the Oaktree control condition (as defined below) is no longer satisfied, our Class B units will be entitled to only one vote per unit. Holders of our Class A units and Class B units generally vote together as a single class on the limited set of matters on which our unitholders have a vote. Such matters, which must be approved by a majority (or, in the case of election of directors when the Oaktree control condition is no longer satisfied, a plurality) of the votes entitled to be cast by all Class A units and Class B units present in person or represented by proxy at a meeting of unitholders, include a proposed sale of all or substantially all of our assets, certain mergers and consolidations, certain amendments to our operating agreement and an election by our board of directors to dissolve the company. The Class B units do not represent an economic interest in Oaktree Capital Group, LLC. 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.
Our operating agreement provides that so long as our senior executives, or their successors or affiliated entities (other than us or our subsidiaries), including OCGH, collectively hold, directly or indirectly, at least 10% of the aggregate outstanding Oaktree Operating Group units, our manager, Oaktree Capital Group Holdings GP, LLC, which is 100% owned and controlled by our senior executives, will be entitled to designate all the members of our board of directors. We refer to this ownership condition as the “Oaktree control condition.” Holders of our Class A units and Class B units have no right to elect our manager. So long as the Oaktree control condition is satisfied, our manager will control the membership of our board of directors, which will manage all of our operations and activities and will have discretion over significant corporate actions, such as the issuance of securities, payment of distributions, sale of assets, making certain amendments to our operating agreement and other matters.

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The diagram below depicts our organizational structure as of December 31, 2018.
orgstrucchart123118a05.jpg
______________________
(1)
Holds 100% of the Class B units and 0.02% of the Class A units, which together represent 92.3% of the total combined voting power of our outstanding Class A and Class B units. The Class B units have no economic interest in us. The general partner of Oaktree Capital Group Holdings, L.P. is Oaktree Capital Group Holdings GP, LLC, which is controlled by our senior executives. Oaktree Capital Group Holdings GP, LLC also acts as our manager and in that capacity has the authority to designate all the members of our board of directors for so long as the Oaktree control condition is satisfied.
(2)
The percent economic interest represents the applicable number of Class A units as a percentage of the Oaktree Operating Group units. As of December 31, 2018, there were 157,133,560 Oaktree Operating Group units outstanding.
(3)
The percent economic interest in Oaktree Operating Group represents the aggregate number of Oaktree Operating Group units held, directly or indirectly, as a percentage of the total number of Oaktree Operating Group units outstanding.
(4)
Oaktree Capital Group, LLC holds 1,000 shares of non-voting Class A common stock of Oaktree AIF Holdings, Inc., which are entitled to receive 100% of any dividends. Oaktree Capital Group Holdings, L.P. holds 100 shares of voting Class B common stock of Oaktree AIF Holdings, Inc., which do not participate in dividends or otherwise represent an economic interest in Oaktree AIF Holdings, Inc.
(5)
Owned indirectly by Oaktree Holdings, LLC through an entity not reflected in this diagram that is treated as a partnership for U.S. federal income tax purposes. Through this entity, each of Oaktree Holdings, Inc. and Oaktree Holdings, Ltd. owns a less than 1% indirect interest in Oaktree Capital I, L.P.

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Regulatory Matters and Compliance
Our business, as well as the financial services industry in general, is subject to extensive regulation in the United States and elsewhere. Our indirect subsidiaries, Oaktree Capital Management, L.P. and Oaktree Fund Advisers, LLC, are registered as investment advisers with the U.S. Securities and Exchange Commission (“SEC”). Registered investment advisers are subject to the requirements and regulations of the U.S. Investment Advisers Act of 1940, as amended (the “Advisers Act”). These requirements relate to, among other things, fiduciary duties to clients, maintaining an effective compliance program, solicitation agreements, conflicts of interest, recordkeeping and reporting, disclosure, limitations on agency cross and principal transactions between an adviser and advisory clients and general anti-fraud prohibitions. In addition, Oaktree Capital Management, L.P. is registered as a commodity pool operator and a commodity trading adviser with the U.S. Commodity Futures Trading Commission (“CFTC”). Registered commodity pool operators and commodity trading advisers are each subject to the requirements and regulations of the U.S. Commodity Exchange Act, as amended (the “Commodity Exchange Act”). These requirements relate to, among other things, maintaining an effective compliance program, recordkeeping and reporting, disclosure, business conduct, and general anti-fraud prohibitions. In addition, as a registered commodity pool operator and a commodity trading adviser with the CFTC, we are also required to be a member of the National Futures Association (the “NFA”), a self-regulatory organization for the U.S. derivatives industry. The NFA also promulgates and enforces rules governing the conduct of, and examines the activities of, its member firms.
Our publicly-traded BDCs and open-end mutual funds are subject to the rules and regulations applicable to investment companies under the U.S. Investment Company Act of 1940 (as amended, the “Investment Company Act”). We are required to invest such funds’ assets in accordance with limitations under the Investment Company Act and applicable provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). We also have received exemptive relief from the SEC that allows our BDCs to co-invest with each other and other Oaktree funds, subject to compliance with certain conditions. In addition, we are required to file periodic and annual reports on behalf of such funds with the SEC. Furthermore, advisers to mutual funds have a fiduciary duty under the Investment Company Act not to charge excessive compensation, and the Investment Company Act grants shareholders of mutual funds a direct private right of action against investment advisers to seek redress for alleged violations of this fiduciary duty.
One of our indirect subsidiaries, OCM Investments, LLC, is registered as a broker-dealer with the SEC and in all 50 states, the District of Columbia and Puerto Rico, and is a member of the U.S. Financial Industry Regulatory Authority (“FINRA”). As a broker-dealer, this subsidiary is subject to regulation and oversight by the SEC and state securities regulators. In addition, FINRA, a self-regulatory organization that is subject to oversight by the SEC, promulgates and enforces rules governing the conduct of, and examines the activities of, its member firms. Due to the limited authority granted to our subsidiary in its capacity as a broker-dealer, it is not required to comply with certain regulations covering trade practices among broker-dealers and the use and safekeeping of customers’ funds and securities. As a registered broker-dealer and member of a self-regulatory organization, we are, however, subject to the SEC’s uniform net capital rule. Rule 15c3-1 of the Exchange Act specifies the minimum level of net capital a broker-dealer must maintain and also requires that a significant part of a broker-dealer’s assets be kept in relatively liquid form. The SEC and FINRA impose rules that require notification when net capital falls below certain predefined criteria, limit the ratio of subordinated debt to equity in the regulatory capital composition of a broker-dealer and constrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally, the SEC’s uniform net capital rule imposes certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to the SEC for certain withdrawals of capital.
Three of our subsidiaries, Oaktree Capital Management (UK) LLP, Oaktree Capital Management (Europe) LLP and Oaktree Capital Management (International) Limited, are authorized and regulated by the U.K. Financial Conduct Authority (FCA) as an investment manager in the United Kingdom. The U.K. Financial Services and Markets Act 2000 (FSMA) and rules promulgated thereunder govern all aspects of the U.K. investment business, including sales, research and trading practices, the provision of investment advice, the use and safekeeping of client funds and securities, regulatory capital, recordkeeping, margin practices and procedures, the approval standards for individuals, anti-money laundering, periodic reporting, and settlement procedures. Similarly, we have a number of other non-U.S. subsidiaries that are regulated by the applicable regulators in their respective jurisdictions.
Since the financial crisis in 2008, the SEC and other regulators have increased their regulatory activities in respect of asset management firms. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), among other things, imposes significant regulations on nearly every aspect of the U.S. financial

21


services industry, including oversight and regulation of systemic market risk (including the power to liquidate certain institutions); authorizing the Federal Reserve to regulate nonbank institutions that are deemed systemically important; generally prohibiting insured depository institutions and their affiliates from conducting proprietary trading and investing in private equity funds and hedge funds; and imposing new registration, recordkeeping and reporting requirements on private fund investment advisers. Some of these provisions are still subject to further rulemaking and to the discretion of regulatory bodies. The Dodd-Frank Act also prohibits investments in private equity and hedge funds by certain banking entities and covered nonbank companies. While certain of our subsidiaries are already registered investment advisers and registered broker-dealers and subject to SEC and FINRA examinations, compliance with any additional legal or regulatory requirements, including the need to register other subsidiaries as investment advisers, could make compliance more difficult and expensive and affect the manner in which we conduct business.
Certain of our activities are subject to compliance with laws and regulations of U.S. federal, state and municipal governments, non-U.S. governments, their respective agencies and/or various self-regulatory organizations or exchanges relating to, among other things, antitrust laws, anti-money laundering laws, anti-bribery laws relating to foreign officials, and privacy laws with respect to client information, and some of our funds invest in businesses that operate in highly regulated industries. Any failure to comply with these rules and regulations could expose us to liability and/or reputational damage. Our business has operated for many years within a legal framework that requires our being able to monitor and comply with a broad range of legal and regulatory developments that affect our activities. However, additional legislation, changes in rules or changes in the interpretation or enforcement of existing laws and rules, either in the United States or elsewhere, may directly affect our mode of operation and profitability. Please see “Risk Factors—Risks Relating to Our Business—Regulatory changes in the United States, regulatory compliance failures and the effects of negative publicity surrounding the financial industry in general could adversely affect our reputation, business and operations.”
Non-GAAP Financial and Other Information
Non-GAAP financial and other information for the years ended December 31, 2018, 2017 and 2016 are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” included elsewhere in this annual report.
Available Information
Our website address is www.oaktreecapital.com. Information on our website is not a part of this annual report and is not incorporated by reference herein. We make available free of charge on our website or provide a link on our website to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the SEC. To access these filings, go to the “Unitholders—Investor Relations” section of our website and then click on “SEC Filings.” In addition these reports and the other documents we file with the SEC are available at a website maintained by the SEC at www.sec.gov.
Investors and others should note that we use the Unitholders – Investor Relations section of our corporate website to announce material information to investors and the marketplace. While not all of the information that we post on our corporate website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in Oaktree to review the information that we share on our corporate website at the Unitholders – Investor Relations section of our website, ir.oaktreecapital.com. Information contained on, or available through, our website is not incorporated by reference into this document.

22


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 December 31, 2018
 
Investment Period
 
Total Committed Capital
 
%
Invested (1)
 
%
Drawn (2)
 
Fund Net Income Since Inception
 
Distri-
butions Since Inception
 
Net Asset Value
 
Manage-
ment Fee-gener-
ating AUM
 
Incentive Income Recog-
nized (Non-GAAP)
 
Accrued Incentives (Fund Level) (3)
 
Unreturned Drawn Capital Plus Accrued Preferred Return (4)
 
IRR Since Inception (5)
 
Multiple of Drawn Capital (6)
 
Start Date
 
End Date
 
Gross
 
Net
Credit
(in millions)
Distressed Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Opportunities Fund Xb (7)(13) 
TBD
 
 
$
8,872

 
19
%
 
13
%
 
$
(65
)
 
$

 
$
1,070

 
$
1,104

 
$

 
$

 
$
1,157

 
nm
 
nm
 
1.0x
Oaktree Opportunities Fund X (7) 
Jan. 2016
 
Jan. 2019
 
3,603

 
85

 
85

 
1,026

 
153

 
3,944

 
2,964

 

 
199

 
3,317

 
27.4
%
 
16.8
%
 
1.4
Oaktree Opportunities Fund IX
Jan. 2014
 
Jan. 2017
 
5,066

 
nm

 
100

 
626

 
1,672

 
4,021

 
3,395

 

 

 
5,393

 
5.2

 
2.8

 
1.2
Oaktree Opportunities Fund VIIIb
Aug. 2011
 
Aug. 2014
 
2,692

 
nm

 
100

 
945

 
2,100

 
1,537

 
1,447

 
52

 

 
1,895

 
8.9

 
6.1

 
1.5
Special Account B
Nov. 2009
 
Nov. 2012
 
1,031

 
nm

 
100

 
614

 
1,605

 
119

 
115

 
16

 
2

 
16

 
13.6

 
11.2

 
1.6
Oaktree Opportunities Fund VIII
Oct. 2009
 
Oct. 2012
 
4,507

 
nm

 
100

 
2,549

 
6,561

 
495

 
518

 
274

 
222

 

 
12.9

 
9.0

 
1.7
OCM Opportunities Fund VIIb
May 2008
 
May 2011
 
10,940

 
nm

 
90

 
9,030

 
18,477

 
398

 
464

 
1,677

 
78

 

 
21.8

 
16.6

 
2.0
OCM Opportunities Fund VII
Mar. 2007
 
Mar. 2010
 
3,598

 
nm

 
100

 
1,486

 
4,907

 
177

 

 
87

 

 
362

 
10.2

 
7.4

 
1.5
Legacy funds (8)
Various
 
Various
 
12,748

 
nm

 
100

 
10,773

 
23,500

 
22

 

 
1,621

 
4

 

 
23.6

 
18.5

 
1.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
21.9
%
 
16.0
%
 
 
Private/Alternative Credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree European Capital Solutions Fund (7)(9)(10)
Dec. 2015
 
Dec. 2018
 
703

 
88
%
 
73
%
 
59

 
215

 
359

 
395

 

 
8

 
334

 
14.0
%
 
9.4
%
 
1.1x
Oaktree European Dislocation Fund (10) 
Oct. 2013
 
Oct. 2016
 
294

 
nm

 
57

 
39

 
203

 
18

 
17

 
3

 
3

 

 
19.2

 
13.5

 
1.3
Special Account E (10) 
Oct. 2013
 
Apr. 2015
 
379

 
nm

 
69

 
64

 
321

 
4

 
3

 
9

 
1

 

 
14.3

 
11.0

 
1.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.1
%
 
10.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Mezzanine Fund IV (9) 
Oct. 2014
 
Oct. 2019
 
$
852

 
84
%
 
79
%
 
$
116

 
$
256

 
$
537

 
$
530

 
$

 
$
10

 
$
523

 
10.9
%
 
8.2
%
 
1.2x
Oaktree Mezzanine Fund III (11)
Dec. 2009
 
Dec. 2014
 
1,592

 
nm

 
89

 
469

 
1,803

 
89

 
104

 
17

 
31

 
15

 
15.3

10.4 / 9.2
1.4
OCM Mezzanine Fund II
Jun. 2005
 
Jun. 2010
 
1,251

 
nm

 
88

 
494

 
1,691

 
54

 

 

 

 
134

 
10.9

 
7.4

 
1.6
OCM Mezzanine Fund (12)
Oct. 2001
 
Oct. 2006
 
808

 
nm

 
96

 
302

 
1,075

 

 

 
38

 

 

 
15.4

 
10.8 / 10.5
1.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13.0
%
 
8.7
%
 
 
Emerging Markets Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Emerging Markets Opportunities Fund II (13)
TBD
 
 
$
178

 
21
%
 
21
%
 
$
(2
)
 
$

 
$
35

 
$
33

 
$

 
$

 
$
37

 
nm

 
nm

 
1.0x
Oaktree Emerging Market Opportunities Fund
Sep. 2013
 
Sep. 2017
 
384

 
nm

 
78

 
123

 
336

 
86

 
71

 
8

 
14

 
39

 
15.9
%
 
10.9
%
 
1.5
Special Account F
Jan. 2014
 
Sep. 2017
 
253

 
nm

 
96

 
80

 
270

 
51

 
50

 
6

 
9

 
21

 
15.5

 
11.1

 
1.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.7
%
 
10.8
%
 
 
Private Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Private Equity
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 

 
 
Oaktree European Principal Fund IV (7)(10)(13)
Jul. 2017
 
Jul. 2022
 
1,119

 
86
%
 
76
%
 
161

 
109

 
897

 
1,096

 

 
31

 
801

 
nm
 
nm
 
1.2x
Oaktree European Principal Fund III (10)  
Nov. 2011
 
Nov. 2016
 
3,164

 
nm

 
87

 
2,522

 
2,258

 
3,013

 
2,551

 

 
490

 
1,627

 
18.4
%
 
12.8
%
 
2.1
OCM European Principal Opportunities Fund II (10)
Dec. 2007
 
Dec. 2012
 
1,759

 
nm

 
100

 
210

 
1,865

 
75

 

 
29

 

 
772

 
6.8

 
2.3

 
1.3
OCM European Principal Opportunities Fund
Mar. 2006
 
Mar. 2009
 
$
495

 
nm

 
96

 
$
454

 
$
927

 
$

 
$

 
$
87

 
$

 
$

 
11.7

 
8.9

 
2.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
13.3
%
 
8.8
%
 
 

23


 
 
 
 
 
As of December 31, 2018
 
Investment Period
 
Total Committed Capital
 
%
Invested (1)
 
%
Drawn (2)
 
Fund Net Income Since Inception
 
Distri-
butions Since Inception
 
Net Asset Value
 
Manage-
ment Fee-gener-
ating AUM
 
Incentive Income Recog-
nized (Non-GAAP)
 
Accrued Incentives (Fund Level) (3)
 
Unreturned Drawn Capital Plus Accrued Preferred Return (4)
 
IRR Since
Inception (5)
 
Multiple of Drawn Capital (6)
 
Start Date
 
End Date
 
Gross
 
Net
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Power Opportunities Fund V
TBD
 
 
$
1,400

 
9
%
 
%
 
$
(4
)
 
$

 
$
(4
)
 
$
129

 
$

 
$

 
$

 
n/a

 
n/a

 
n/a
Oaktree Power Opportunities Fund IV
Nov. 2015
 
Nov. 2020
 
1,106

 
93

 
91

 
84

 
1

 
1,088

 
1,078

 

 

 
1,141

 
8.8
%
 
4.9
%
 
1.1x
Oaktree Power Opportunities Fund III
Apr. 2010
 
Apr. 2015
 
1,062

 
nm

 
69

 
613

 
970

 
380

 
318

 
26

 
91

 

 
22.9

 
15.3

 
2.0
Legacy funds (8)
Various
 
Various
 
1,470

 
nm

 
63

 
1,688

 
2,615

 
(3
)
 

 
123

 

 

 
35.1

 
27.4

 
2.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
34.4
%
 
26.0
%
 
 
Special Situations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Special Situations Fund II (7)
TBD
 
 
$
1,336

 
8
%
 
2
%
 
$
(5
)
 
$
1

 
$
15

 
$
94

 
$

 
$

 
$
20

 
n/a

 
n/a

 
n/a
Oaktree Special Situations Fund (7) 
Nov. 2015
 
Nov. 2018
 
1,377

 
100

 
83

 
136

 
170

 
1,110

 
1,082

 

 
25

 
1,084

 
19.1
%
 
9.3
%
 
1.2x
Other funds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Principal Fund V
Feb. 2009
 
Feb. 2015
 
$
2,827

 
nm

 
91
%
 
$
479

 
$
1,760

 
$
1,305

 
$
1,268

 
$
50

 
$

 
$
2,178

 
7.2
%
 
3.2
%
 
1.3x
Special Account C
Dec. 2008
 
Feb. 2014
 
505

 
nm

 
91

 
181

 
423

 
218

 
237

 
21

 

 
279

 
9.6

 
6.3

 
1.5
OCM Principal Opportunities Fund IV
Oct. 2006
 
Oct. 2011
 
3,328

 
nm

 
100

 
2,919

 
6,166

 
81

 

 
554

 
15

 

 
12.3

 
8.9

 
2.0
Legacy funds (8)
Various
 
Various
 
3,701

 
nm

 
100

 
2,718

 
6,404

 
15

 

 
407

 
2

 

 
14.4

 
11.1

 
1.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12.9
%
 
9.2
%
 
 
Real Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Real Estate Opportunities Fund VII (13)(14) 
Jan. 2016
 
Jan. 2020
 
$
2,921

 
83
%
 
47
%
 
$
482

 
$
245

 
$
1,618

 
$
2,758

 
$

 
$
93

 
$
1,210

 
nm
 
nm
 
1.4x
Oaktree Real Estate Opportunities Fund VI
Aug. 2012
 
Aug. 2016
 
2,677

 
nm

 
100

 
1,432

 
2,590

 
1,519

 
1,257

 
70

 
207

 
1,037

 
15.0
%
 
10.1
%
 
1.6
Oaktree Real Estate Opportunities Fund V
Mar. 2011
 
Mar. 2015
 
1,283

 
nm

 
100

 
978

 
2,093

 
167

 
107

 
154

 
32

 

 
17.0

 
12.6

 
1.9
Special Account D
Nov. 2009
 
Nov. 2012
 
256

 
nm

 
100

 
207

 
429

 
42

 

 
16

 
4

 

 
14.7

 
12.8

 
1.8
Oaktree Real Estate Opportunities Fund IV
Dec. 2007
 
Dec. 2011
 
450

 
nm

 
100

 
391

 
779

 
62

 

 
61

 
13

 

 
15.7

 
10.7

 
2.0
Legacy funds (8)
Various
 
Various
 
2,341

 
nm

 
99

 
2,010

 
4,326

 

 

 
232

 

 

 
15.2

 
11.9

 
1.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.6
%
 
11.9
%
 
 
 
 
 
 
 
 

 
 
 
 
 
 

 
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 

 
 
Oaktree Real Estate Debt Fund II (9)(13) 
Mar. 2017
 
Mar. 2020
 
$
2,087

 
52
%
 
33
%
 
$
29

 
$
44

 
$
674

 
$
1,067

 
$

 
$
4

 
$
662

 
nm
 
nm
 
1.1x
Oaktree Real Estate Debt Fund
Sep. 2013
 
Oct. 2016
 
1,112

 
nm

 
83

 
186

 
687

 
423

 
466

 
10

 
13

 
298

 
19.5
%
 
14.7
%
 
1.3
Oaktree PPIP Fund (15)
Dec. 2009
 
Dec. 2012
 
2,322

 
nm

 
48

 
457

 
1,570

 

 

 
47

 

 

 
28.2

 
n/a
 
1.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Special Account G (Real Estate Income) (9)(13) 
Oct. 2016
 
Oct. 2020
 
$
615

 
99
%
 
99
%
 
$
100

 
$
81

 
$
628

 
$
574

 
$

 
$
19

 
$
588

 
nm
 
nm
 
1.2x
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Infrastructure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oaktree Transportation Infrastructure Fund
Dec. 2018
 
Dec. 2023
 
$
1,091

 
19
%
 
19
%
 
$
(6
)
 
$

 
$
203

 
$
831

 
$

 
$

 
$

 
n/a

 
n/a

 
1.0x
Highstar Capital IV (16)
Nov. 2010
 
Nov. 2016
 
2,000

 
nm

 
100

 
(10
)
 
961

 
1,029

 
1,289

 

 

 
1,809

 
4.3
%
 
0.3
%
 
1.1
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
27,864

(10) 
 
1,695

(10) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (17)
 
 
8,971

 
 
 
10

 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
Total (18)
 
 
$
36,835

 
 
 
$
1,705

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
For our incentive-creating closed-end funds in their investment periods, this percentage equals invested capital divided by committed capital. Invested capital for this purpose is the sum of capital drawn from fund investors plus net borrowings outstanding under a fund-level credit facility (if any), where such borrowings were made in lieu of drawing capital from fund investors.
(2)
Represents capital drawn from fund investors, net of distributions to such investors of uninvested capital, divided by committed capital. The aggregate change in drawn capital for the three months ended December 31, 2018 was $3.6 billion.
(3)
Accrued incentives (fund level) exclude non-GAAP incentive income previously recognized.
(4)
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.

24


(5)
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.
(6)
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.
(7)
Fund data include the performance of the main fund and any associated fund-of-one accounts, except the gross and net IRRs presented reflect only the performance of the main fund. Certain fund-of-one accounts pay management fees based on cost basis, rather than committed capital.
(8)
Legacy funds represent certain predecessor funds within the relevant strategy or product 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.
(9)
Management fees during the investment period are calculated on drawn capital or cost basis, rather than committed capital. As a result, as of December 31, 2018 management fee-generating AUM included only that portion of committed capital that had been drawn.
(10)
Aggregate IRRs or totals are based on the conversion of cash flows or amounts, respectively, from euros to USD using the December 31, 2018 spot rate of $1.14.
(11)
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 9.2%. The combined net IRR for Class A and Class B interests was 9.8%.
(12)
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%.
(13)
The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through December 31, 2018 was less than 36 months.
(14)
A portion of this fund pays management fees based on drawn, rather than committed, capital.
(15)
Due to differences in the allocation 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. Of the $2,322 million in capital commitments, $1,161 million related to the Oaktree PPIP Private Fund, whose gross and net IRR were 24.7% and 18.6%, respectively.
(16)
The fund follows the American-style distribution 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 December 31, 2018, Oaktree had not recognized any incentive income from this fund. The accrued incentives (fund level) for this fund represents Oaktree’s effective 8% of the potential incentives generated by this fund in accordance with the terms of the Highstar acquisition.
(17)
This includes our closed-end Senior Loan funds, CLOs, a non-Oaktree fund and certain separate accounts and co-investments.
(18)
The total excludes one closed-end fund with management fee-generating AUM of $100 million as of December 31, 2018, which has been included as part of the Strategic Credit strategy within the evergreen funds table.


25


Open-end Funds
 
 
 
Manage-
ment Fee-gener-
ating AUM
as of
Dec. 31, 2018
 
Year Ended December 31, 2018
 
Since Inception through December 31, 2018
 
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
 
 
Gross
 
Net
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Yield Bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. High Yield Bonds
1986
 
$
13,818

 
(3.2
)%
 
(3.7
)%
 
(2.3
)%
 
8.9
%
 
8.3
%
 
8.0
%
 
0.76
 
0.54
Global High Yield Bonds
2010
 
3,154

 
(2.8
)
 
(3.3
)
 
(2.0
)
 
6.1

 
5.6

 
5.9

 
0.96
 
0.95
European High Yield Bonds
1999
 
421

 
0.1

 
(0.4
)
 
(2.1
)
 
7.7

 
7.1

 
6.0

 
0.69
 
0.43