Expenses

Compensation and benefits for the third quarter of 2012 amounted to $83.2 million, an increase of $17.3 million, or 26.3%, from the third quarter of 2011. Of the increase, $10.4 million resulted from a larger accrual toward the year-end bonus pool, reflecting both increased headcount and higher profitability during the current quarterly and year-to-date periods, $3.0 million resulted from higher phantom equity plan expense (to $2.3 million in the current quarter) stemming from a rise in the Class A unit trading price during the third quarter of 2012, and $3.9 million resulted from other growth in compensation and benefits. Headcount, primarily in non-investment areas, grew 13.0% between September 30, 2011 and September 30, 2012.

General, administrative and other expenses decreased $1.8 million, to $26.3 million for the third quarter of 2012 from $28.1 million for the third quarter of 2011. The decline occurred because the prior year’s third quarter included $3.3 million in costs related to our initial public offering, as compared with no such costs in the current year’s third quarter. Partially offsetting this decline was the incurrence in the third quarter of 2012 of $1.5 million in new professional fees and other costs associated with corporate growth and operating as a public company. Foreign currency-related items contributed $1.0 million and $1.1 million of expense to the third quarters of 2012 and 2011, respectively.

Incentive income compensation expense rose $13.1 million, or 79.9%, to $29.5 million for the third quarter of 2012 from $16.4 million for the third quarter of 2011, reflecting the 75.7% increase in incentive income between the same two quarters, as well as differences in the compensation percentages among the funds that contributed to incentive income for the two periods.

Adjusted net income

Adjusted net income rose $154.4 million, to $157.7 million for the third quarter of 2012 from $3.3 million for the third quarter of 2011, reflecting increases of $148.9 million in investment income and $12.4 million in incentive income, net of incentive income compensation expense, and a decrease of $6.6 million in fee-related earnings.

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