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Oaktree Capital Group, LLC Announces Second Quarter 2012 Financial Results

Stocks in this article: OAK

Closed-end funds

                As of June 30, 2012
                           

Oaktree Segment Incentive Income Recognized

            Unreturned Drawn Capital Plus Accrued Preferred Return (3)                    

Fund Net Income Since Inception

Total Committed Capital

Distributions Since Inception

Accrued Incentives (Fund Level) (2) Multiple of Drawn Capital (5)
Investment Period Drawn Capital (1) Net Asset Value IRR Since Inception (4)
Start Date End Date                 Gross Net
(in millions)
Distressed Debt
TCW Special Credits Fund I, L.P. (6) Oct. 1988 Oct. 1991

$

97

$

97

$

121

$

218

$

-

$

-

$

-

$

-

29.0%

 

24.7%

 

2.3x
TCW Special Credits Fund II, L.P. (6) Jul. 1990 Jul. 1993 261 261 505 766 - - - - 41.6 35.7 3.1
TCW Special Credits Fund IIb, L.P. (6) Dec. 1990 Dec. 1993 153 153 323 476 - - - - 44.0 37.9 3.1
TCW Special Credits Fund III, L.P. (6) Nov. 1991 Nov. 1994 329 329 470 799 - - - - 26.2 22.1 2.5
TCW Special Credits Fund IIIb, L.P. (6) Apr. 1992 Apr. 1995 447 447 459 906 - - - - 21.2 17.9 2.1
TCW Special Credits Fund IV, L.P. (6) Jun. 1993 Jun. 1996 394 394 462 856 - - - - 21.1 17.3 2.2

OCM Opportunities Fund, L.P.

Oct. 1995 Oct. 1998 771 771 568 1,339 - 74 - - 12.4 10.2 1.8

OCM Opportunities Fund II, L.P.

Oct. 1997 Oct. 2000 1,550 1,550 989 2,539 - 197 - - 11.0

8.5

1.7

OCM Opportunities Fund III, L.P.

Sep. 1999 Sep. 2002 2,077 2,077 1,287 3,335 28 248 6 - 15.4 11.9 1.7

OCM Opportunities Fund IV, L.P.

Sep. 2001 Sep. 2004 2,125 2,125 1,727 3,845 7 340 1 - 35.0 28.1 1.9

OCM Opportunities Fund IVb, L.P.

May 2002 May 2005 1,339 1,339 1,257 2,596 - 247 2 - 57.8 47.3 2.0

OCM Opportunities Fund V, L.P.

Jun. 2004 Jun. 2007 1,179 1,179 901 1,857 223 142 34 - 18.5 14.2 1.8

OCM Opportunities Fund VI, L.P.

Jul. 2005 Jul. 2008 1,773 1,773 1,135 1,858 1,051 76 145 826 12.0

8.6

1.7
OCM Opportunities Fund VII, L.P Mar. 2007 Mar. 2010 3,598 3,598 1,241 2,650 2,189 9 7 2,184 10.4 8.1 1.4

OCM Opportunities Fund VIIb, L.P.

May 2008 May 2011 10,940 9,844 7,665 9,682 7,826 410 1,078 2,997 23.5 17.6 1.8
Special Account A Nov. 2008 Oct. 2012 253 253 218 87 383 5 38 219 31.4 24.9 1.9

Oaktree Opportunities Fund VIII, L.P.

Oct. 2009 Oct. 2012 4,507 4,507 587 30 5,064 - 9 5,053 11.2

8.1

1.2
Special Account B Nov. 2009 Nov. 2012 1,031 1,031 151 103 1,100 - - 1,102 11.9 11.5 1.2
Oaktree Opportunities Fund VIIIb, L.P. (7) Aug. 2011 Aug. 2014 2,692 1,077 36 1 1,112 - - 1,119 nm nm 1.1

Oaktree Opportunities Fund IX, L.P.

TBD - 4,615 - - - - - - - - - -
Special Account E (7) (12) Feb. 2012 - 253 76 3 - 79 - - 77 nm nm 1.0

22.9%

17.5%

 
Global Principal Investments
TCW Special Credits Fund V, L.P. (6) Apr. 1994 Apr. 1997

$

401

$

401

$

349

$

750

$

-

$

-

$

-

$

-

17.2% 14.6% 1.9x

OCM Principal Opportunities Fund, L.P.

Jul. 1996 Jul. 1999 625 625 281 906 - - - -

6.4

5.4

1.5

OCM Principal Opportunities Fund II, L.P.

Dec. 2000 Dec. 2005 1,275 1,275 1,147 2,125 297 166 58 - 23.1 17.6 2.0

OCM Principal Opportunities Fund III, L.P.

Nov. 2003 Nov. 2008 1,400 1,400 1,019 1,412 1,006 42 157 534 16.0 11.3 1.8

OCM Principal Opportunities Fund IV, L.P.

Oct. 2006 Oct. 2011 3,328 3,328 839 1,112 3,056 - - 3,478

8.2

5.6

1.4

Oaktree Principal Fund V, L.P.

Feb. 2009 Feb. 2014 2,827 2,021 171 84 2,110 - - 2,162 14.5

6.5

1.2
Special Account C Dec. 2008 Feb. 2014 505 389 165 65 489 9 24 391 22.7   16.7   1.5
13.3%

9.7%

Asia Principal Investments

OCM Asia Principal Opportunities Fund, L.P.

May 2006 May 2011

$

578

$

503

$

(47)

 

$

60

$

396

$

-

$

-

$

599

1.8% (3.1)% 1.1x
 
European Principal Investments (8)

OCM European Principal Opportunities Fund, L.P.

Mar. 2006 Mar. 2009

$

495

$

460

$

300

$

84

$

676

$

1

$

39

$

625

10.9%

8.3%

1.7x

OCM European Principal Opportunities Fund II, L.P.

Dec. 2007 Dec. 2012

1,759

1,685

295

245

1,735

12

-

1,798

11.8 7.0 1.3
Oaktree European Principal Fund III, L.P. (7) Nov. 2011 Nov. 2016

3,164

948

12

2

958

-

-

975

nm

nm

1.1
11.6%

7.3%

 
Power Opportunities

OCM/GFI Power Opportunities Fund, L.P.

Nov. 1999 Nov. 2004 $ 449

$

383

$

251

$

634

$

-

$

23

 

$

-

$

-

20.1% 13.1% 1.8x

OCM/GFI Power Opportunities Fund II, L.P.

Nov. 2004 Nov. 2009 1,021 541 1,459 1,888 112 93 7 - 76.5 59.3 3.9

Oaktree Power Opportunities Fund III, L.P.

Apr. 2010 Apr. 2015 1,062 227

(35)

 

5 187 - - 239 (0.5) (19.6) 1.0
35.2% 27.2%
 
              As of June 30, 2012
                           

Unreturned

Drawn

Capital

Plus

Accrued

Preferred

Return (3)

           
 
Oaktree Segment Incentive Income Recognized

 

 

Fund Net Income Since Inception

 

Accrued

Incentives

(Fund Level) (2)

 

 

 

Distributions Since Inception Net Asset Value

Multiple

Drawn

Capital (5)

Investment Period

 

Total

Committed

Capital

 

Drawn

Capital (1)

IRR Since Inception (4)

Start Date End Date Gross Net
(in millions)
Real Estate
TCW Special Credits Fund VI, L.P. (6) Aug. 1994 Aug. 1997 $ 506 $ 506 $ 666 $ 1,172 $ - $ - $ - $ - 21.1% 17.4% 2.4x

OCM Real Estate Opportunities Fund A, L.P.

Feb. 1996 Feb. 1999 379 379 289 640 29 31 26 - 10.4

8.3

1.9

OCM Real Estate Opportunities Fund B, L.P.

Mar. 1997 Mar. 2000 285 285 163 422 26 - - 82

8.0

6.9

1.7

OCM Real Estate Opportunities Fund II, L.P.

Dec. 1998 Dec. 2001 464 440 265 697 8 50 2 - 15.2 11.1 1.7

OCM Real Estate Opportunities Fund III, L.P.

Sep. 2002 Sep. 2005 707 707 640 1,152 195 87 39 - 16.0 11.9 2.0

Oaktree Real Estate Opportunities Fund IV, L.P.

Dec. 2007 Dec. 2011 450 450 177 60 567 5 28 506 16.5 10.2 1.5
Special Account D Nov. 2009 Nov. 2012 256 256 71 - 333 - 7 315 14.7 13.0 1.3

Oaktree Real Estate Opportunities Fund V, L.P.

Mar. 2011 Mar. 2015 1,283 1,103 46 23 1,127 - - 1,150 10.1  

5.8

1.1
15.3% 11.8%
Asia Real Estate

Oaktree Asia Special Situations Fund, L.P.

May 2008 Apr. 2009 $ 50 $ 19 $ 4 $ - $ 23 $ - $ - $ 26 11.3%

4.7%

1.4x
 
PPIP
Oaktree PPIP Fund, L.P. (9) Dec. 2009 Dec. 2012 $ 2,322 $ 1,112 $ 200 $ 183 $ 1,129 $ - N/A N/A 23.4% N/A 1.2x
 
Mezzanine Finance
OCM Mezzanine Fund, L.P. (10) Oct. 2001 Oct. 2006 $ 808 $ 773 $ 281 $ 1,036 $ 18 $ 31 $ 3 $ - 14.3%

10.7% / 10.1%

1.4x

OCM Mezzanine Fund II, L.P.

Jun. 2005 Jun. 2010 1,251 1,107 368 961 511 - - 587 10.1

6.9

1.4
Oaktree Mezzanine Fund III, L.P. (11) Dec. 2009 Dec. 2014 1,592 673

(1)

 

52 620 - - 700

7.4

 

7.9 / (25.2)

1.1
11.5% 7.5%
 
(1)   Reflects the capital contributions of investors in the fund, net of any distributions to such investors of uninvested capital.
(2) Excludes Oaktree segment incentive income recognized since inception.
(3) Reflects the amount the fund needs to distribute to its investors as a return of capital and a preferred return before we are entitled to receive incentive income (other than tax distributions) from the fund.
(4) The internal rate of return, or 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 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. Net IRRs reflect returns to non-affiliated investors after allocation of management fees, expenses and any incentive allocation to the fund’s general partner.
(5) Calculated as Drawn Capital plus gross income before fees and expenses divided by Drawn Capital.
(6) The fund was managed by certain of our investment professionals while employed at the Trust Company of the West prior to our founding in 1995. When these employees joined Oaktree upon, or shortly after, our 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 us.
(7) The IRR is not considered meaningful (“nm”) as the period from the initial contribution through June 30, 2012 is less than one year.
(8) Aggregate IRRs based on conversion of OCM European Principal Opportunities Fund II, L.P. and Oaktree European Principal Fund III, L.P. cash flows from Euros to USD at the June 30, 2012 spot rate of $1.2690.
(9) Due to the differences in allocations of income and expenses to this fund’s two primary limited partners, the United States Treasury and Oaktree PPIP Private Fund, L.P., a combined net IRR is not represented. Of the $2,322 million in capital commitments, $1,161 million relates to the Oaktree PPIP Private Fund, L.P. The accrued incentive and the gross and net IRR for the Oaktree PPIP Private Fund, L.P. were $16.9 million, 20.3% and 15.4%, respectively, as of June 30, 2012.
(10) 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. Net IRR for Class A interests is 10.7% and Class B interests is 10.1%. Combined net IRR for the Class A and Class B interests is 10.4%.
(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. Net IRR for Class A interests is 7.9% and Class B interests is (25.2)%. Combined net IRR for Class A and Class B interests is 0.4%.
(12) The investment period will end on the third anniversary of the start of the investment period of Oaktree Opportunities Fund IX, L.P, which has not yet commenced.
 

Open-end funds

                                                 
 
Three Months Ended June 30, 2012 Since Inception Through June 30, 2012

 

Quarterly Rates of Return (1) Annualized Rates of Return (1) Sharpe Ratio
Oaktree Relevant Oaktree Relevant Oaktree Relevant

Composite Inception

Strategy AUM as of June 30, 2012

Gross Net Benchmark Gross Net Benchmark Gross Benchmark
(in millions)
 
U.S. High Yield Bonds Jan 1986 $ 15,353 2.1 % 1.9 % 1.6 % 10.0 % 9.4 % 8.8 % 0.78 0.52
European High Yield Bonds May 1999 1,633 0.5 0.4 0.0 7.8 7.2 5.5 0.53 0.27
U.S. Convertibles April 1987 4,196 (2.9 ) (3.0 ) (3.3 ) 9.6 9.1 7.6 0.43 0.26
Non-U.S. Convertibles Oct 1994 2,161 (2.0 ) (2.1 ) (1.2 ) 8.7 8.0 5.6 0.69 0.29
High Income Convertibles Aug 1989 1,024 (2.3 ) (2.5 ) 1.8 12.0 11.2 8.6 0.99 0.55
U.S. Senior Loans (2) Sep 2008 1,248 1.2 1.0 1.0 8.5 8.0 5.8 1.12 0.49
European Senior Loans May 2009 905 1.0 0.8 0.7 13.0 12.3 14.5 1.79 1.86
 
(1)   Represents Oaktree’s time-weighted rates of return, including reinvestment of income, net of commissions and transaction costs. Returns for Relevant Benchmarks are presented on a gross basis.
(2) Excludes two closed-end funds: Oaktree Loan Fund, L.P. and Oaktree Loan Fund, 2x, L.P. As of June 30, 2012, Oaktree Loan Fund, L.P. was predominantly liquidated, and Oaktree Loan Fund 2x, L.P. had AUM of $490.7 million. The funds had since-inception gross IRRs of 2.5% and 2.4%, respectively, and since-inception net IRRs of 1.9% and 1.6%, respectively.

Evergreen funds (1)

                                       
 
As of June 30, 2012

Quarterly Rates of Return for the Three Months Ended June 30, 2012

Annualized Rates of Return from Inception Through June 30, 2012
Accrued Incentives

 

Inception AUM (Fund Level) Gross Net Gross Net
(in millions)
Emerging Markets Absolute Return Apr. 1997 $ 478

$ N/A

(2)

0.6 % 0.1 % 16.0 % 11.0 %
Value Opportunities Sep. 2007 1,672 13 1.2 0.5 12.6 7.9
 
(1)   We also manage three restructured evergreen funds that are in liquidation: European Credit Opportunities Fund, L.P., Oaktree High Yield Plus Fund, L.P. and OCM Japan Opportunities Fund, L.P. (Yen class). As of June 30, 2012, these funds had gross and net IRRs since inception of (1.7)% and (4.2)%, 8.0% and 5.5%, and (9.3)% and (10.4)%, respectively, and in the aggregate had AUM of $226.6 million as of June 30, 2012. Additionally, Oaktree High Yield Plus Fund, L.P. had accrued incentives (fund level) of $10.0 million as of June 30, 2012.
(2) As of June 30, 2012, the aggregate depreciation below high-water marks previously established for individual investors in the fund totaled approximately $21 million.

GLOSSARY

Accrued Incentives (Fund Level) represents the incentive income that would be paid to us if the funds were liquidated at their reported values as of the date of the financial statements. Incentives created (fund level) refers to the amount generated by the funds during the period. We refer to the amount of incentive income recognized as revenue by us as segment incentive income. We recognize incentive income when it becomes fixed or determinable, all related contingencies have been removed and collection is reasonably assured. Amounts recognized by us as incentive income no longer are included in accrued incentives (fund level), the term we use for remaining fund-level accruals.

Adjusted net income (“ANI”) is a measure of profitability for our investment management segment. The components of revenues and expenses used in the determination of ANI do not give effect to the consolidation of the funds that we manage. In addition, ANI excludes the effect of: (a) non-cash equity compensation charges, (b) income taxes, (c) expenses that OCG or its Intermediate Holding Companies bear directly and (d) the adjustment for the OCGH non-controlling interest. ANI is calculated at the Operating Group level. We expect that ANI will include non-cash equity compensation charges related to unit grants made after our initial public offering.

Adjusted net income–OCG, a non-GAAP measure, is calculated to provide Class A unitholders with a measure that shows the portion of ANI attributable to their ownership. Adjusted net income-OCG represents ANI including the effect of (a) the OCGH non-controlling interest, (b) expenses, such as income tax expense, that OCG or its Intermediate Holding Companies bear directly and (c) any Operating Group income taxes attributable to OCG. Two of our Intermediate Holding Companies incur federal and state income taxes for their shares of Operating Group income. Generally speaking, those two corporate entities hold an interest in the Operating Group’s management fee-generating assets and a small portion of its incentive- and investment income-generating assets. As a result, historically our fee-related earnings generally have been subject to corporate-level taxation, and our incentive income and investment income generally have not been subject to corporate-level taxation. Thus, the blended effective income tax rate has generally tended to be higher to the extent that fee-related earnings represented a larger proportion of our ANI. Myriad other factors affect income tax expense and the effective income tax rate, and there can be no assurance that this historical relationship will continue going forward.

Assets under management (“AUM”) generally refers to the assets we manage and equals the NAV of our funds plus the undrawn capital that we are entitled to call from investors in those funds pursuant to their capital commitments and fund-level leverage that generates management fees.

Consolidated funds refers to those funds that Oaktree consolidates through a majority voting interest or otherwise, including those funds in which Oaktree as the general partner is presumed to have control.

Distributable earnings is a supplemental non-GAAP performance measure derived from our segment results that we use to measure our earnings at the Operating Group level without the effects of the consolidated funds for the purpose of, among other things, assisting in the determination of equity distributions from the Operating Group. However, the declaration, payment and determination of the amount of equity distributions, if any, is at the sole discretion of our board of directors, which may change our distribution policy at any time.

Distributable earnings differs from ANI in that it is net of Operating Group income taxes, excludes segment investment income (loss), and includes the receipt of investment income or loss from fund distributions. In contrast to the GAAP measure of net income or loss attributable to OCG, Distributable earnings also exclude the effect of: (a) non-cash equity compensation charges, (b) income taxes and expenses that OCG or its Intermediate Holding Companies bear directly, and (c) the adjustment for the OCGH non-controlling interest. Distributable earnings may reflect deductions related to unit grants made after our initial public offering.

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