Oaktree Announces Second Quarter 2019 Financial Results

As of June 30, 2019 or for the quarter then ended, and where applicable, per Class A unit:

• GAAP net income attributable to Oaktree Capital Group, LLC (“OCG”) Class A unitholders was $42.4 million ($0.57 per unit), up from $31.1 million ($0.44) for the second quarter of 2018, primarily reflecting higher incentive income.

• Distributable earnings were $138.3 million ($0.88 per unit), up from $114.3 million ($0.69) for the second quarter of 2018, driven by higher incentive income.

• Assets under management were $120.4 billion, up 2% for the quarter and down 1% over the last 12 months. Gross capital raised was $4.3 billion and $13.4 billion for the quarter and last 12 months, respectively. Uncalled capital commitments (“dry powder”) were $18.0 billion, of which $13.2 billion were not yet generating management fees (“shadow AUM”).

• Management fee-generating assets under management were $101.4 billion, up 1% for both the quarter and the last 12 months.

LOS ANGELES–(BUSINESS WIRE)–Oaktree Capital Group, LLC (NYSE: OAK) today reported its unaudited financial results for the second quarter ended June 30, 2019.

Agreement and Plan of Merger

On March 13, 2019, OCG and Brookfield Asset Management Inc. (“Brookfield”) entered into a definitive merger agreement pursuant to which Brookfield will acquire approximately 62% of Oaktree’s business in a stock and cash transaction. Following the transaction, the remaining 38% of the business will continue to be owned by Oaktree Capital Group Holdings, L.P. (“OCGH”), whose unitholders consist primarily of OCG’s founders and certain other members of management and current and former employees. As part of the transaction, Brookfield will acquire all outstanding OCG Class A units for, at the election of OCG Class A unitholders, either $49.00 in cash or 1.0770 Class A shares of Brookfield per OCG Class A unit (subject to pro-ration to ensure that no more than fifty percent (50%) of the aggregate merger consideration is paid in the form of cash or stock), in each case, without interest and subject to any applicable withholding taxes. In addition, the founders, senior management, and current and former employee-unitholders of OCGH will sell to Brookfield 20% of their OCGH units for the same consideration as the OCG Class A unitholders. On June 25, 2019, OCG received written consent in favor of the adoption of the merger agreement from OCGH, constituting the requisite approval of the transaction by OCG unitholders. The transaction is anticipated to close during the third quarter of 2019, subject to customary closing conditions including certain regulatory approvals.

Class A Unit Distribution

Consistent with the terms of the merger agreement with Brookfield, no quarterly distribution per Class A unit attributable to the second quarter of 2019 will be declared.

Preferred Unit Distributions

A distribution was declared of $0.414063 per Series A preferred unit, which will be paid on September 16, 2019 to Series A preferred unitholders of record at the close of business on September 1, 2019.

A distribution was declared of $0.409375 per Series B preferred unit, which will be paid on September 16, 2019 to Series B preferred unitholders of record at the close of business on September 1, 2019.

About Oaktree

Oaktree is a leader among global investment managers specializing in alternative investments, with $120 billion in assets under management as of June 30, 2019. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. The firm has over 950 employees and offices in 18 cities worldwide. For additional information, please visit Oaktree’s website at www.oaktreecapital.com.

The table below presents (a) GAAP results, (b) non-GAAP results for both the Operating Group and per Class A unit, and (c) assets under management and accrued incentives (fund level) data. Please refer to the Glossary for definitions.

Note: Oaktree discloses in this earnings release certain revenue and financial measures, including measures that are calculated and presented on a basis other than generally accepted accounting principles in the United States (“non-GAAP”). Examples of such non-GAAP measures are identified in the table above. Such non-GAAP measures should be considered in addition to, and not as a substitute for or superior to, net income, net income per Class A unit or other financial measures calculated in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented at Exhibit A. All non-GAAP measures and all interim results presented in this release are unaudited.

GAAP Results

Oaktree consolidates entities in which it has a direct or indirect controlling financial interest. Investment vehicles in which we have a significant investment, such as collateralized loan obligation vehicles (“CLOs”) and certain Oaktree funds, are consolidated under GAAP. When a CLO or fund is consolidated, the assets, liabilities, revenues, expenses and cash flows of the consolidated funds are reflected on a gross basis, and the majority of the economic interests in those consolidated funds, which are held by third-party investors, are reflected as debt obligations of CLOs or non-controlling interests. All of the revenues earned by us as investment manager of the consolidated funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by third-party investors, the consolidation of a fund does not impact net income or loss attributable to OCG.

Total revenues increased $100.2 million, or 47.0%, to $313.5 million for the second quarter of 2019, from $213.3 million for the second quarter of 2018, reflecting higher incentive income.

Total expenses increased $81.3 million, or 44.0%, to $265.9 million for the second quarter of 2019, from $184.6 million for the second quarter of 2018, primarily reflecting higher incentive income compensation.

Total other income increased $33.9 million, to $75.8 million for the second quarter of 2019, from income of $41.9 million for the second quarter of 2018. The increase primarily reflecting variations in returns on our fund investments between periods.

Net income attributable to OCG Class A unitholders increased $11.3 million, or 36.3%, to $42.4 million for the second quarter of 2019, from $31.1 million for the second quarter of 2018, primarily reflecting higher incentive income.

Operating Metrics

Assets Under Management

Assets under management were $120.4 billion as of June 30, 2019, $118.6 billion as of March 31, 2019 and $121.6 billion as of June 30, 2018. The $1.8 billion increase since March 31, 2019 primarily reflected $3.7 billion of capital commitments to closed-end funds and $2.0 billion attributable to DoubleLine, partially offset by $2.5 billion of distributions to closed-end fund investors and $1.7 billion of net outflows from open-end funds. Commitments to closed-end funds included $1.4 billion for CLOs, $1.0 billion for the Highstar III Successor Funds (“HS III”), and $0.5 billion for Oaktree Special Situations Fund II (“SS II”).

The $1.2 billion decrease in AUM since June 30, 2018 primarily reflected $8.2 billion of distributions to closed-end fund investors and uncalled commitments, $6.9 billion of net outflows from open-end funds, and $0.4 billion of unfavorable foreign-currency translation, partially offset by $8.4 billion of capital commitments to closed-end funds, $4.0 billion attributable to DoubleLine, and $3.0 billion in market-value gains. Commitments to closed-end funds included $2.5 billion for CLOs, $1.4 billion for Oaktree Power Opportunities Fund V (“Power V”), $1.2 billion for SS II, $1.1 billion for our Middle Market Direct Lending strategy, and $1.0 billion for HS III. Distributions to closed-end fund investors included $4.6 billion from Credit funds, $1.6 billion from Real Asset funds and $1.0 billion from Private Equity funds.

Management Fee-generating Assets Under Management

Management fee-generating AUM, a forward-looking metric, was $101.4 billion as of June 30, 2019, $100.3 billion as of March 31, 2019 and $100.5 billion as of June 30, 2018. The $1.1 billion increase since March 31, 2019 primarily reflected $2.1 billion from new CLOs and HS III, $2.0 billion attributable to DoubleLine, $0.8 billion in market-value gains, partially offset by $1.7 billion of net outflows from open-end funds, $1.1 billion change in applicable leverage, and $0.7 billion attributable to closed-end funds in liquidation.

The $0.9 billion increase in management fee-generating AUM since June 30, 2018 reflected $5.1 billion primarily from new CLOs and the start of the investment periods for Oaktree Transportation Infrastructure Fund and Power V, $4.0 billion attributable to DoubleLine, $3.2 billion from capital drawn by closed-end funds that pay fees based on drawn capital, NAV or cost basis, $2.1 billion in market-value gains, and $0.7 billion of net inflows to evergreen funds. These increases were partially offset by $6.9 billion of net outflows from open-end funds, $4.1 billion attributable to closed-end funds in liquidation and uncalled commitments, $1.2 billion of distributions by closed-end funds that pay fees based on NAV, and $0.4 billion in unfavorable foreign-currency translation.

Incentive-creating Assets Under Management

Incentive-creating AUM was $36.0 billion as of June 30, 2019, $34.4 billion as of March 31, 2019 and $33.3 billion as of June 30, 2018. The $1.6 billion increase since March 31, 2019 reflected an aggregate increase of $3.3 billion primarily attributable to drawdowns, contributions and market-value gains, partially offset by an aggregate $1.7 billion of distributions. The $2.7 billion increase since June 30, 2018 reflected an aggregate $9.7 billion in drawdowns, contributions and market-value gains, partially offset by an aggregate decline of $7.0 billion primarily attributable to distributions.

Of the $36.0 billion in incentive-creating AUM as of June 30, 2019, $22.8 billion (or 63%) was generating incentives at the fund level, as compared with $21.0 billion (or 63%) of the $33.3 billion of incentive-creating AUM as of June 30, 2018.

Accrued Incentives (Fund Level) and Incentives Created (Fund Level)

Accrued incentives (fund level) were $1,294.9 million as of June 30, 2019, $1,424.9 million as of March 31, 2019 and $1,863.9 million as of June 30, 2018. The second quarter of 2019 reflected $11.3 million of incentives created (fund level) and $141.4 million of incentive income recognized.

Accrued incentives (fund level), net of incentive income compensation expense (“net accrued incentives”), were $620.5 million as of June 30, 2019, $678.5 million as of March 31, 2019, and $898.6 million as of June 30, 2018. The portion of net accrued incentives represented by funds that were currently paying incentives as of June 30, 2019, March 31, 2019 and June 30, 2018 was $145.6 million (or 23%), $201.5 million (30%) and $214.6 million (24%), respectively, with the remainder arising from funds that as of that date were not at the stage of their cash distribution waterfall where Oaktree was entitled to receive incentives, other than certain tax-related distributions.

Uncalled Capital Commitments

Uncalled capital commitments were $18.0 billion as of June 30, 2019, $19.5 billion as of December 31, 2018, and $20.3 billion as of June 30, 2018. Invested capital during the quarter and 12 months ended June 30, 2019 aggregated $2.5 billion and $11.2 billion, respectively, as compared with $1.9 billion and $7.9 billion for the comparable prior-year periods.

Non-GAAP Results

Distributable Earnings Revenues

Distributable earnings revenues increased $91.3 million, or 31.8%, to $378.4 million for the second quarter of 2019, from $287.1 million for the second quarter of 2018, as further described below.

Management Fees

Management fees increased $2.1 million, or 1.1%, to $198.0 million for the second quarter of 2019, from $195.9 million for the second quarter of 2018. The increase reflected an aggregate increase of $28.5 million principally from closed-end funds in their investment periods, partially offset by an aggregate decline of $26.4 million primarily attributable to closed-end funds in liquidation and open-end funds.

Incentive Income

Incentive income increased $90.0 million, or 175.1%, to $141.4 million for the second quarter of 2019, from $51.4 million for the second quarter of 2018. The second quarter of 2019 included $118.7 million from Oaktree Opportunities Fund VIII.

Realized Investment Income Proceeds

Realized investment income proceeds decreased $0.8 million, or 2.0%, to $39.0 million for the second quarter of 2019, from $39.8 million for the second quarter of 2018, primarily reflecting lower proceeds from our non-Oaktree and Private Equity investments, largely offset by higher proceeds from our Credit investments.

Adjusted Expenses

Compensation and Benefits

Compensation and benefits expense increased $4.7 million, or 4.5%, to $108.3 million for the second quarter of 2019, from $103.6 million for the second quarter of 2018, primarily driven by growth in headcount.

Incentive Income Compensation

Incentive income compensation expense increased $52.9 million, or 251.9%, to $73.9 million for the second quarter of 2019, from $21.0 million for the second quarter of 2018, reflecting the growth in incentive income.

General and Administrative

General and administrative expense increased $3.9 million, or 10.0%, to $43.0 million for the second quarter of 2019, from $39.1 million for the second quarter of 2018, primarily reflecting higher placement fees associated with fundraising activities.

Depreciation and Amortization

Depreciation and amortization expense increased $0.1 million, or 4.3%, to $2.4 million for the second quarter of 2019, from $2.3 million for the second quarter of 2018.

Interest Expense, Net

Interest expense, net decreased $1.8 million, or 75.0%, to $0.6 million for the second quarter of 2019, from $2.4 million for the second quarter of 2018. The decrease was primarily driven by higher interest income.

Preferred Unit Distributions

The second quarter of 2019 included Series A and Series B preferred unit distributions of $6.8 million in the aggregate, as compared with $0 for the second quarter of 2018, reflecting the issuances of our Series A and Series B preferred units in the second and third quarters of 2018, respectively.

Distributable Earnings

Distributable earnings increased $24.0 million, or 21.0%, to $138.3 million for the second quarter of 2019, from $114.3 million for the second quarter of 2018. The increase reflected $37.1 million in higher net incentive income, partially offset by $6.8 million in higher preferred unit distributions and $6.5 million in lower fee-related earnings. The portion of distributable earnings attributable to our Class A units was $0.88 and $0.69 per unit for the second quarters of 2019 and 2018, respectively, reflecting distributable earnings per Operating Group unit of $0.87 and $0.73, respectively, less costs borne by Class A unitholders for professional fees and other expenses, cash taxes attributable to the Intermediate Holding Companies, and amounts payable pursuant to the tax receivable agreement.

Fee-related Earnings

Fee-related earnings decreased $6.5 million, or 12.8%, to $44.4 million for the second quarter of 2019, from $50.9 million for the second quarter of 2018, primarily reflecting $4.7 million in higher compensation and benefits expense and $3.9 million in higher general and administrative expense, partially offset by an increase of $2.1 million in management fees.

The effective tax rates applicable to fee-related earnings for the second quarters of 2019 and 2018 were (1)% and 5%, respectively, resulting from full-year effective tax rates of 2% and 6%, respectively. The rate used for interim fiscal periods is based on the estimated full-year effective tax rate, which is subject to change as the year progresses. In general, the annual effective tax rate increases as annual fee-related earnings increase, and vice versa.

Capital and Liquidity

As of June 30, 2019, Oaktree and its operating subsidiaries had $1.1 billion of cash and U.S. Treasury and other securities, and $746 million of outstanding debt, which included no borrowings outstanding against its $500 million revolving credit facility. As of June 30, 2019, Oaktree’s investments in funds and companies on a non-GAAP basis had a carrying value of $1.8 billion, with the 20% investment in DoubleLine carried at $24 million based on cost, as adjusted under the equity method of accounting. Net accrued incentives (fund level) represented an additional $620 million as of that date.

Forward-Looking Statements and Information

This release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which reflect the current views of OCG, with respect to, among other things, its future results of operations and financial performance. In some cases, you can identify forward-looking statements and information 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 OCG’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. Such forward-looking statements and information are subject to risks and uncertainties and assumptions relating to OCG’s operations, financial results, financial condition, business prospects, growth strategy and liquidity.

In addition to factors previously disclosed in Brookfield’s and OCG’s reports filed with securities regulators in Canada and the United States and those identified elsewhere in this release, the following factors, among others, could cause actual results to differ materially from forward-looking statements and information or historical performance: the occurrence of any event, change or other circumstances that could give rise to the right of one or both of Brookfield and OCG to terminate the definitive merger agreement between Brookfield and OCG; the outcome of any legal proceedings that may be instituted against Brookfield, OCG or their respective unitholders, shareholders or directors; the ability to obtain regulatory approvals and meet other closing conditions to the merger, including the risk that regulatory approvals required for the merger are not obtained or are obtained subject to conditions that are not anticipated or that are material and adverse to Brookfield’s or OCG’s business; a delay in closing the merger; business disruptions from the proposed merger that will harm Brookfield’s or OCG’s business, including current plans and operations; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger; certain restrictions during the pendency of the merger that may impact Brookfield’s or OCG’s ability to pursue certain business opportunities or strategic transactions; the ability of Brookfield or OCG to retain and hire key personnel; uncertainty as to the long-term value of the Class A shares of Brookfield following the merger; the continued availability of capital and financing following the merger; the business, economic and political conditions in the markets in which Brookfield and OCG operate; changes in OCG’s or Brookfield’s anticipated revenue and income, which are inherently volatile; changes in the value of OCG’s or Brookfield’s investments; the pace of OCG’s or Brookfield’s raising of new funds; changes in assets under management; the timing and receipt of, and impact of taxes on, carried interest; distributions from and liquidation of OCG’s existing funds; the amount and timing of distributions on OCG’s preferred units and Class A units; changes in OCG’s operating or other expenses; the degree to which OCG or Brookfield encounters competition; and general political, economic and market conditions.

Any forward-looking statements and information speak only as of the date of this release or as of the date they were made, and except as required by law, neither Brookfield nor OCG undertakes any obligation to update forward-looking statements and information. For a more detailed discussion of these factors, also see the information under the captions “Cautionary Information Regarding Forward-Looking Statements” and “Risk Factors” in the consent solicitation statement/prospectus that forms part of the Registration Statement on Form F-4 (No. 333-231335) filed with the SEC by Bro

Contacts

Investor Relations:

Oaktree Capital Group, LLC

Andrea D. Williams

(213) 830-6483

[email protected]

Press Relations:

Sard Verbinnen & Co

John Christiansen

(415) 618-8750

[email protected]

Sard Verbinnen & Co

Alyssa Linn

(310) 201-2040

[email protected]

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