UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________

~~Form 10-Q~~

FORM 10-Q

________________


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended ~~September 30, 2013~~March 31, 2014


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)~~

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



~~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)~~

Telephone: (213) 830-6300

(Address, zip code, and telephone number, including

area code, of registrant’s principal executive offices)

________________

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files). Yes x No o

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 ox	Accelerated filer o
	Non-accelerated filer xo	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of ~~November~~May 5, ~~2013,~~2014, there were ~~38,239,441~~43,479,670 Class A units and ~~112,821,276~~109,223,057 Class B units of the registrant outstanding.

TABLE OF CONTENTS



		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Financial Condition	1
	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three ~~and Nine~~ Months Ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013	3
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013	54
	Condensed Consolidated Statements of Changes in Unitholders’ Capital for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~	76
	Notes to Condensed Consolidated Financial Statements	87
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3942
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	8078
Item 4.	Controls and Procedures	8381

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	8482
Item 1A.	Risk Factors	8482
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8582
Item 3.	Defaults upon Senior Securities	8582
Item 4.	Mine Safety Disclosures	8582
Item 5.	Other Information	8582
Item 6.	Exhibits	8986
Signature

FORWARD-LOOKING STATEMENTS

This quarterly 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; changes in our operating or other expenses; the degree to which we encounter competition; and general economic and market conditions. The factors listed in the items captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2012~~2013 filed with the Securities and Exchange Commission (“SEC”) on ~~March 14, 2013~~February 28, 2014 (“annual report”), which is accessible on the SEC’s website at www.sec.gov, ~~and in this quarterly 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 quarterly 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.

In this quarterly 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 that control the general partners and investment advisors of our funds in which we have a minority economic interest and indirect control.

“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 principals, current and former employees and certain other investors who hold their interest in the Oaktree Operating Group through OCGH.

“2007 Private Offering” refers to the sale completed on May 25, 2007 of 23,000,000 of our Class A units to Goldman, Sachs & Co., as initial purchaser, as more fully described in “Management's Discussion and Analysis of Financial Condition and Results of Operations—The May 2007 Restructuring and The 2007 Private Offering—The 2007 Private Offering” in our annual report.

“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 fund-level leverage on which management fees are charged, ~~and~~ the undrawn capital that we are entitled to call from investors in our funds pursuant to their capital ~~commitments.~~commitments, and the aggregate par value of collateral assets and principal cash held by our collateralized loan obligation vehicles (“CLOs”). Our AUM includes amounts ~~include AUM~~ for which we charge no 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 reflects the 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—Segment and Operating Metrics—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—Segment and Operating Metrics—Assets Under Management—Incentive-creating Assets Under Management.”

“consolidated funds” refers to ~~those~~the funds and CLOs 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.

“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 whereby Oaktree sold 7,888,864 Class A units and selling unitholders sold 954,159 Class A units, as more fully described in “Management's Discussion and Analysis of Financial Condition and Results of Operations—Initial Public Offering” in our annual report.

“Intermediate Holding Companies” collectively refers to the subsidiaries wholly owned by us.

“May 2007 Restructuring” refers to the series of transactions that occurred immediately prior to the 2007 Private Offering whereby OCGH contributed our business to the Oaktree Operating Group in exchange for limited partnership interests in each Oaktree Operating Group entity, as more fully described in “Management's Discussion and Analysis of Financial Condition and Results of Operations—The May 2007 Restructuring and The 2007 Private Offering—The May 2007 Restructuring” in our annual report.

“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.

“Relevant Benchmark” refers, with respect to:

our U.S. ~~high yield bond~~High Yield Bond strategy, to the Citigroup U.S. High Yield Cash-Pay Capped Index;

our ~~European~~Global High Yield Bond strategy, to an Oaktree custom global high yield ~~bond~~index that represents 60% BofA Merrill Lynch High Yield Master II Constrained Index and 40% BofA Merrill Lynch Global Non-Financial High Yield European Issuers 3% Constrained, ex-Russia Index – USD Hedged from inception through December 31, 2012, and the BofA Merrill Lynch Non-Financial Developed Markets High Yield Constrained Index – USD Hedged thereafter;

our European High Yield Bond strategy, to the BofA Merrill Lynch Global Non-Financial High Yield European Issuers excluding Russia 3% Constrained Index (USD Hedged);

our U.S. ~~senior loan~~Senior Loan strategy (with the exception of the closed-end funds), to the Credit Suisse Leveraged Loan Index;

our European ~~senior loan~~Senior Loan strategy, to the Credit Suisse Western European Leveraged Loan Index (EUR Hedged);

our U.S. ~~convertible securities~~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 BofA Merrill Lynch All U.S. Convertibles Index thereafter;

our non-U.S. ~~convertible securities~~Convertible Securities strategy, to the JACI Global ex-U.S. (Local) Index;

our ~~high income convertible securities~~High Income Convertible Securities strategy, to the Citigroup U.S. High Yield Market Index; and

our ~~emerging markets equity~~Emerging Markets Equity strategy, to the Morgan Stanley Capital International Emerging Markets Index (Net).

“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~~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 quarterly report and its contents do not constitute and should not be construed as an offer of securities of any Oaktree funds.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Financial Condition (Unaudited)

($ in thousands)


	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Assets
Cash and cash-equivalents	$	304,743		$	458,191		$	563,292		$	390,721
U.S. Treasury and government agency securities	706,865			370,614
Corporate investments, at equity	90,680			98,950
U.S. Treasury and government-agency securities							360,559			676,600
Corporate investments (includes $61,424 and $67,596 measured at fair value as of March 31, 2014 and December 31,2013, respectively)							178,732			169,927
Due from affiliates	49,076			44,589			48,196			47,774
Deferred tax assets	293,579			159,171			373,037			278,885
Other assets	176,920			127,244			132,600			208,929
Assets of consolidated funds:
Cash and cash-equivalents	2,319,286			2,470,335			2,421,676			2,246,944
Investments, at fair value	38,764,427			38,372,626			42,527,164			39,911,888
Dividends and interest receivable	175,403			177,746			188,302			159,215
Due from brokers	342,763			405,143			280,486			283,764
Receivable for securities sold	749,309			501,199			884,132			324,213
Derivative assets, at fair value	106,857			107,560			86,888			94,937
Other assets	621,273			576,630			384,144			469,457
Total assets	$	44,701,181		$	43,869,998		$	48,429,208		$	45,263,254
Liabilities and Unitholders’ Capital
Liabilities:
Accrued compensation expense	$	187,834		$	118,921		$	152,908		$	278,655
Accounts payable, other accrued expenses and other liabilities	74,015			95,390
Accounts payable, accrued expenses and other liabilities							82,688			79,999
Due to affiliates	250,290			136,165			321,830			242,986
Debt obligations	585,714			615,179			610,714			579,464
Liabilities of consolidated funds:
Accounts payable, accrued expenses and other liabilities	28,163			104,744			40,266			29,213
Payables for securities purchased	1,294,253			629,627			1,346,617			697,705
Securities sold short, at fair value	120,598			126,530			99,509			140,251
Derivative liabilities, at fair value	154,680			156,647			125,719			149,880
Distributions payable	96,037			330,446			115,686			224,711
Borrowings under credit facilities	2,028,178			491,625			3,118,713			2,297,181
Collateralized loan obligation loans payable							497,649			—
Total liabilities	4,819,762			2,805,274			6,512,299			4,720,045
Commitments and contingencies (Note 12)
Non-controlling redeemable interests in consolidated funds	38,329,912			39,670,831			40,150,722			38,834,831
Unitholders’ capital:
Class A units, no par value, unlimited units authorized, 38,239,441 and 30,180,933 units issued and outstanding as of September 30, 2013 and December 31, 2012, respectively	—			—
Class B units, no par value, unlimited units authorized, 112,821,276 and 120,267,503 units issued and outstanding as of September 30, 2013 and December 31, 2012, respectively	—			—
Class A units, no par value, unlimited units authorized, 43,479,670 and 38,472,506 units issued and outstanding as of March 31, 2014 and December 31, 2013, respectively							—			—
Class B units, no par value, unlimited units authorized, 109,203,939 and 112,584,211 units issued and outstanding as of March 31, 2014 and December 31, 2013, respectively							—			—
Paid-in capital	614,600			645,053			617,627			590,236
Accumulated deficit	(179,812		)	(336,903		)	(63,111		)	(114,905		)
Accumulated other comprehensive loss	(1,111		)	(1,748		)	(1,191		)	(1,122		)
Class A unitholders’ capital	433,677			306,402			553,325			474,209
OCGH non-controlling interest in consolidated subsidiaries	1,117,830			1,087,491			1,212,862			1,234,169
Total unitholders’ capital	1,551,507			1,393,893			1,766,187			1,708,378
Total liabilities and unitholders’ capital	$	44,701,181		$	43,869,998		$	48,429,208		$	45,263,254

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per unit amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
Revenues:
Management fees	$	56,786		$	30,586		$	149,422		$	91,813		$	40,431		$	42,539
Incentive income	—			1,320			2,317			6,368
Total revenues	56,786			31,906			151,739			98,181			40,431			42,539
Expenses:
Compensation and benefits	(95,660		)	(83,141		)	(279,638		)	(247,907		)	(98,292		)	(93,715		)
Equity-based compensation	(7,320		)	(7,498		)	(20,877		)	(27,482		)	(9,182		)	(6,452		)
Incentive income compensation	(49,222		)	(29,546		)	(308,446		)	(118,268		)	(91,494		)	(130,271		)
Total compensation and benefits expense	(152,202		)	(120,185		)	(608,961		)	(393,657		)	(198,968		)	(230,438		)
General and administrative	(31,094		)	(25,965		)	(80,227		)	(72,394		)	(32,238		)	(19,741		)
Depreciation and amortization	(1,791		)	(1,901		)	(5,266		)	(5,573		)	(1,921		)	(1,743		)
Consolidated fund expenses	(29,071		)	(19,969		)	(80,749		)	(70,971		)	(25,192		)	(23,583		)
Total expenses	(214,158		)	(168,020		)	(775,203		)	(542,595		)	(258,319		)	(275,505		)
Other income (loss):
Interest expense	(17,337		)	(10,789		)	(42,931		)	(33,639		)	(24,000		)	(11,581		)
Interest and dividend income	389,078			452,473			1,375,923			1,455,964			362,136			406,252
Net realized gain on consolidated funds’ investments	766,199			1,097,305			2,796,448			2,904,964			654,151			1,198,260
Net change in unrealized appreciation on consolidated funds’ investments	97,773			808,989			1,007,495			1,434,596			770,478			1,021,517
Investment income	11,468			8,298			22,600			17,683			4,991			12,243
Other income (expense), net	148			(59		)	412			8,534			(1,698		)	(20		)
Total other income	1,247,329			2,356,217			5,159,947			5,788,102			1,766,058			2,626,671
Income before income taxes	1,089,957			2,220,103			4,536,483			5,343,688			1,548,170			2,393,705
Income taxes	(726		)	(5,801		)	(18,874		)	(27,493		)	(7,986		)	(10,157		)
Net income	1,089,231			2,214,302			4,517,609			5,316,195			1,540,184			2,383,548
Less:
Net income attributable to non-controlling redeemable interests in consolidated funds	(916,875		)	(2,069,855		)	(3,743,327		)	(4,868,300		)	(1,324,832		)	(2,063,965		)
Net income attributable to OCGH non-controlling interest in consolidated subsidiaries	(129,408		)	(119,235		)	(617,191		)	(379,356		)	(163,558		)	(262,017		)
Net income attributable to Oaktree Capital Group, LLC	$	42,948		$	25,212		$	157,091		$	68,539		$	51,794		$	57,566
Distributions declared per Class A unit ⁽¹⁾	$	1.51		$	0.79		$	3.97		$	1.76
Distributions declared per Class A unit													$	1.00		$	1.05
Net income per unit (basic and diluted):
Net income per Class A unit	$	1.12		$	0.84		$	4.64		$	2.49		$	1.30		$	1.91
Weighted average number of Class A units outstanding	38,239			30,181			33,845			27,494			39,700			30,186


~~(1)~~	~~All references to Class A units in these financial statements give effect to the conversion of previously outstanding~~ 13 ~~Class C units into Class A units on a one-for-one basis in April 2012.~~

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(in thousands)


Three Months Ended September 30, 2013		Oaktree Capital Group, LLC			OCGH Non-controlling Interest in Consolidated Subsidiaries			Non-controlling Redeemable Interests in Consolidated Funds			Total
Three Months Ended March 31, 2014															Oaktree Capital Group, LLC			OCGH Non-controlling Interest in Consolidated Subsidiaries			Non-controlling Redeemable Interests in Consolidated Funds			Total
Net income	Net income	$	42,948		$	129,408		$	916,875		$	1,089,231		Net income	$	51,794		$	163,558		$	1,324,832		$	1,540,184
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:													Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	784			2,306			—			3,090			Foreign currency translation adjustments	90			253			—			343
Unrealized loss on interest-rate swap designated as cash-flow hedge	Unrealized loss on interest-rate swap designated as cash-flow hedge	(61		)	(179		)	—			(240		)	Unrealized loss on interest-rate swap designated as cash-flow hedge	(159		)	(451		)	—			(610		)
Other comprehensive income, net of tax		723			2,127			—			2,850
Other comprehensive loss, net of tax														Other comprehensive loss, net of tax	(69		)	(198		)	—			(267		)
Total comprehensive income	Total comprehensive income	43,671			131,535			916,875			1,092,081			Total comprehensive income	51,725			163,360			1,324,832			1,539,917
Less: Comprehensive income attributable to non-controlling interests	Less: Comprehensive income attributable to non-controlling interests	—			(131,535		)	(916,875		)	(1,048,410		)	Less: Comprehensive income attributable to non-controlling interests	—			(163,360		)	(1,324,832		)	(1,488,192		)
Comprehensive income attributable to Oaktree Capital Group, LLC	Comprehensive income attributable to Oaktree Capital Group, LLC	$	43,671		$	—		$	—		$	43,671		Comprehensive income attributable to Oaktree Capital Group, LLC	$	51,725		$	—		$	—		$	51,725
Three Months Ended September 30, 2012
Three Months Ended March 31, 2013
Net income	Net income	$	25,212		$	119,235		$	2,069,855		$	2,214,302		Net income	$	57,566		$	262,017		$	2,063,965		$	2,383,548
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:													Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	263			1,047			—			1,310			Foreign currency translation adjustments	(670		)	(2,669		)	—			(3,339		)
Unrealized loss on interest-rate swap designated as cash-flow hedge		(63		)	(252		)	—			(315		)
Other comprehensive income, net of tax		200			795			—			995
Unrealized gain on interest-rate swap designated as cash-flow hedge														Unrealized gain on interest-rate swap designated as cash-flow hedge	108			432			—			540
Other comprehensive loss, net of tax														Other comprehensive loss, net of tax	(562		)	(2,237		)	—			(2,799		)
Total comprehensive income	Total comprehensive income	25,412			120,030			2,069,855			2,215,297			Total comprehensive income	57,004			259,780			2,063,965			2,380,749
Less: Comprehensive income attributable to non-controlling interests	Less: Comprehensive income attributable to non-controlling interests	—			(120,030		)	(2,069,855		)	(2,189,885		)	Less: Comprehensive income attributable to non-controlling interests	—			(259,780		)	(2,063,965		)	(2,323,745		)
Comprehensive income attributable to Oaktree Capital Group, LLC	Comprehensive income attributable to Oaktree Capital Group, LLC	$	25,412		$	—		$	—		$	25,412		Comprehensive income attributable to Oaktree Capital Group, LLC	$	57,004		$	—		$	—		$	57,004

~~Please see accompanying notes to condensed consolidated financial statements.~~

~~Oaktree Capital Group, LLC~~

~~Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) — (Continued)~~

~~(in thousands)~~

Nine Months Ended September 30, 2013 Oaktree Capital Group, LLC OCGH Non-controlling Interest in Consolidated Subsidiaries Non-controlling Redeemable Interests in Consolidated Funds Total
Net income $ 157,091
$ 617,191
$ 3,743,327
$ 4,517,609
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (1 ) (772 ) —
(773 )
Unrealized gain on interest-rate swap designated as cash-flow hedge 638
2,362
—
3,000
Other comprehensive income, net of tax 637
1,590
—
2,227
Total comprehensive income 157,728
618,781
3,743,327
4,519,836
Less: Comprehensive income attributable to non-controlling interests —
(618,781 ) (3,743,327 ) (4,362,108 )
Comprehensive income attributable to Oaktree Capital
Group, LLC
$ 157,728
$ —
$ —
$ 157,728
Nine Months Ended September 30, 2012

Net income $ 68,539
$ 379,356
$ 4,868,300
$ 5,316,195
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 194
947
—
1,141
Unrealized loss on interest-rate swap designated as cash-flow hedge (246 ) (968 ) —
(1,214 )
Other comprehensive loss, net of tax (52 ) (21 ) —
(73 )
Total comprehensive income 68,487
379,335
4,868,300
5,316,122
Less: Comprehensive income attributable to non-controlling interests —
(379,335 ) (4,868,300 ) (5,247,635 )
Comprehensive income attributable to Oaktree Capital
Group, LLC
$ 68,487
$ —
$ —
$ 68,487

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2014			2013
Cash flows from operating activities:
Net income	$	4,517,609		$	5,316,195		$	1,540,184		$	2,383,548
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Investment income	(22,600		)	(17,683		)	(4,991		)	(12,243		)
Depreciation and amortization	5,266			5,573			1,921			1,743
Equity-based compensation	20,877			27,482			9,182			6,452
Net realized and unrealized gains from consolidated funds' investments	(3,803,943		)	(4,339,560		)	(1,424,629		)	(2,219,777		)
Amortization of original issue and market discount of consolidated funds' investments	(32,187		)	(94,269		)	(13,488		)	(31,089		)
Income distributions from corporate investments in companies	37,706			—			15,448			17,490
Cash flows due to changes in operating assets and liabilities:
Increase in other assets	(43,512		)	(130,307		)
(Increase) decrease in other assets							102,342			(104,354		)
Decrease in net due to affiliates	(4,609		)	(6,667		)	(1,607		)	(7,294		)
Decrease in accounts payable, other accrued expenses and other liabilities	(25,433		)	(9,923		)
Decrease in accounts payable, accrued expenses and other liabilities							(102,562		)	(9,023		)
Cash flows due to changes in operating assets and liabilities of consolidated funds:
Decrease in dividends and interest receivable	2,343			45,896
Increase in dividends and interest receivable							(29,087		)	(23,777		)
Decrease in due from brokers	62,380			183,174			3,278			28,168
Increase in receivables for securities sold	(248,110		)	(364,846		)	(541,940		)	(735,889		)
Increase in payables for securities purchased	664,626			454,480			443,106			394,163
Purchases of securities	(13,143,842		)	(11,139,061		)	(6,032,306		)	(3,569,137		)
Proceeds from maturities and sales of securities	16,677,061			13,549,529			5,050,883			6,138,129
Net cash provided by operating activities	4,663,632			3,480,013
Net cash provided by (used in) operating activities							(984,266		)	2,257,110
Cash flows from investing activities:
Purchases of U.S. Treasury and government agency securities	(702,456		)	(169,142		)
Proceeds from maturities and sales of U.S. Treasury and government agency securities	366,205			190,000
Purchases of U.S. Treasury and government-agency securities							—			(70,146		)
Proceeds from maturities and sales of U.S. Treasury and government-agency securities							316,041			90,000
Corporate investments in funds and companies	(8,870		)	(8,142		)	(22,037		)	(1,957		)
Distributions from corporate investments in funds and companies	2,034			19,028			2,775			8
Purchases of fixed assets	(3,027		)	(4,631		)	(1,333		)	(126		)
Other	(40,000		)	—
Net cash provided by (used in) investing activities	(386,114		)	27,113
Net cash provided by investing activities							295,446			17,779

(continued)

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Cash Flows (Unaudited) — (Continued)

(in thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2014			2013
Cash flows from financing activities:
Proceeds from issuance of debt obligations							$	250,000		$	—
Payment of debt issuance costs							(728		)	—
Repayments of debt obligations	$	(29,465	)	$	(33,214	)	(218,750		)	(6,250		)
Proceeds from issuance of Class A units, net	419,908			322,260
Proceeds from issuance of Class A units							296,650			—
Purchase of OCGH units	(420,741		)	(322,935		)	(298,455		)	(833		)
Repurchase and cancellation of Class A units	—			(14,132		)
Distributions to Class A unitholders	(131,999		)	(50,189		)	(38,473		)	(31,690		)
Distributions to OCGH unitholders	(527,101		)	(279,086		)	(140,302		)	(152,740		)
Cash flows from financing activities of consolidated funds:
Contributions from non-controlling interests	4,613,588			4,948,480			1,846,325			1,614,894
Distributions to non-controlling interests	(10,033,373		)	(7,907,434		)	(1,966,752		)	(3,256,759		)
Proceeds from debt obligations issued by collateralized loan obligation vehicles							497,649			—
Borrowings on credit facilities	3,030,121			719,928			2,075,529			857,259
Repayments on credit facilities	(1,513,283		)	(717,425		)	(1,265,823		)	(518,887		)
Net cash used in financing activities	(4,592,345		)	(3,333,747		)
Net cash provided by (used in) financing activities							1,036,870			(1,495,006		)
Effect of exchange rate changes on cash	10,330			2,283			(747		)	(8,498		)
Net increase (decrease) in cash and cash-equivalents	(304,497		)	175,662
Net increase in cash and cash-equivalents							347,303			771,385
Cash and cash-equivalents, beginning balance	2,928,526			3,505,659			2,637,665			2,928,526
Cash and cash-equivalents, ending balance	$	2,624,029		$	3,681,321		$	2,984,968		$	3,699,911

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Condensed Consolidated Statements of Changes in Unitholders’ Capital (Unaudited)

(in thousands)


	Oaktree Capital Group, LLC															OCGH Non-controlling Interest in Consolidated Subsidiaries			Total Unitholders' Capital			Oaktree Capital Group, LLC												OCGH Non-controlling Interest in Consolidated Subsidiaries			Total Unitholders' Capital
	Class A Units		Class B Units		Class C Units		Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			OCGH Non-controlling Interest in Consolidated Subsidiaries			Total Unitholders' Capital			Class A Units	Class B Units		Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			OCGH Non-controlling Interest in Consolidated Subsidiaries			Total Unitholders' Capital
Unitholders' capital as of December 31, 2012	30,181		120,268		—		$	645,053		$	(336,903	)	$	(1,748	)	$	1,087,491		$	1,393,893
Activity for the nine months ended September 30, 2013:
Unitholders' capital as of December 31, 2013																						38,473	112,584		$	590,236		$	(114,905	)	$	(1,122	)	$	1,234,169		$	1,708,378
Activity for the three months ended March 31, 2014:
Issuance of Class A units	8,058		—		—		419,908			—			—			—			419,908			5,007	—		296,650			—			—			—			296,650
Issuance of Class B units	—		673		—		—			—			—			—			—			—	1,667		—			—			—			—			—
Cancellation of Class B units associated with forfeitures of OCGH units	—		(44	)	—		—			—			—			—			—			—	(2	)	—			—			—			—			—
Cancellation of Class B units	—		(8,076	)	—		—			—			—			—			—			—	(5,045	)	—			—			—			—			—
Purchase of OCGH units from OCGH unitholders	—		—		—		(419,908		)	—			—			—			(419,908		)	—	—		(296,400		)	—			—			—			(296,400		)
Deferred tax effect resulting from the purchase of OCGH units	—		—		—		20,161			—			—			—			20,161			—	—		14,122			—			—			—			14,122
Repurchase and cancellation of OCGH units	—		—		—		—			—			—			(833		)	(833		)	—	—		—			—			—			(2,055		)	(2,055		)
Equity reallocation between controlling and non-controlling interests	—		—		—		76,685			—			—			(76,685		)	—			—	—		49,098			—			—			(49,098		)	—
Capital increase related to equity-based compensation	—		—		—		4,700			—			—			16,177			20,877			—	—		2,394			—			—			6,788			9,182
Distributions declared	—		—		—		(131,999		)	—			—			(527,101		)	(659,100		)	—	—		(38,473		)	—			—			(140,302		)	(178,775		)
Net income	—		—		—		—			157,091			—			617,191			774,282			—	—		—			51,794			—			163,558			215,352
Foreign currency translation adjustment, net of tax	—		—		—		—			—			(1		)	(772		)	(773		)	—	—		—			—			90			253			343
Unrealized gain on interest-rate swap designated as cash-flow hedge, net of tax	—		—		—		—			—			638			2,362			3,000			—	—		—			—			(159		)	(451		)	(610		)
Unitholders' capital as of September 30, 2013	38,239		112,821		—		$	614,600		$	(179,812	)	$	(1,111	)	$	1,117,830		$	1,551,507
Unitholders' capital as of March 31, 2014																						43,480	109,204		$	617,627		$	(63,111	)	$	(1,191	)	$	1,212,862		$	1,766,187

Unitholders' capital as of December 31, 2011	22,664		125,847		13		$	634,739		$	(444,713	)	$	(1,884	)	$	935,858		$	1,124,000
Activity for the nine months ended September 30, 2012:
Unitholders' capital as of December 31, 2012																						30,181	120,268		$	645,053		$	(336,903	)	$	(1,748	)	$	1,087,491		$	1,393,893
Activity for the three months ended March 31, 2013:
Issuance of Class A units	7,904		—		—		322,260			—			—			—			322,260			8	—		—			—			—			—			—
Issuance of Class B units	—		2,358		—		—			—			—			—			—			—	522		—			—			—			—			—
Cancellation of Class B units associated with forfeitures of OCGH units	—		(5	)	—		—			—			—			—			—			—	(26	)	—			—			—			—			—
Conversion of Class C units into Class A units	13		—		(13	)	—			—			—			—			—
Repurchase and cancellation of Class A units	(400	)	—		—		(14,132		)	—			—			—			(14,132		)
Cancellation of Class B units	—		(7,904	)	—		—			—			—			—			—
Purchase of OCGH units from OCGH unitholders	—		—		—		(322,260		)	—			—			—			(322,260		)
Deferred tax effect resulting from the purchase of OCGH units	—		—		—		15,490			—			—			—			15,490
Repurchase and cancellation of OCGH units	—		—		—		—			—			—			(675		)	(675		)	—	—		—			—			—			(833		)	(833		)
Equity reallocation between controlling and non-controlling interests	—		—		—		69,101			—			—			(69,101		)	—			—	—		(887		)	—			—			887			—
Capital increase related to equity-based compensation	—		—		—		4,871			—			—			22,611			27,482			—	—		1,292			—			—			5,160			6,452
Distributions declared	—		—		—		(50,189		)	—			—			(279,086		)	(329,275		)	—	—		(31,690		)	—			—			(152,740		)	(184,430		)
Net income	—		—		—		—			68,539			—			379,356			447,895			—	—		—			57,566			—			262,017			319,583
Foreign currency translation adjustment, net of tax	—		—		—		—			—			194			947			1,141			—	—		—			—			(670		)	(2,669		)	(3,339		)
Unrealized loss on interest-rate swap designated as cash-flow hedge, net of tax	—		—		—		—			—			(246		)	(968		)	(1,214		)	—	—		—			—			108			432			540
Unitholders' capital as of September 30, 2012	30,181		120,296		—		$	659,880		$	(376,174	)	$	(1,936	)	$	988,942		$	1,270,712
Unitholders' capital as of March 31, 2013																						30,189	120,764		$	613,768		$	(279,337	)	$	(2,310	)	$	1,199,745		$	1,531,866

Please see accompanying notes to condensed consolidated financial statements.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2014

($ in thousands, except where noted)

1. ORGANIZATION AND BASIS OF PRESENTATION

Oaktree Capital Group, LLC (together with its subsidiaries, “Oaktree” or the “Company”) is a leader among global investment managers specializing in alternative investments. Oaktree emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. Funds managed by Oaktree (the “Oaktree funds”) include ~~both~~commingled funds, separate accounts and ~~commingled funds. The commingled~~collateralized loan obligation vehicles (“CLOs”). Commingled funds include open-end and closed-end limited partnerships in which the Company makes an investment and for which it serves as the general partner or, in certain limited cases, co-general partner. The CLOs are closed-end investment vehicles in which the Company may make an investment and for which it serves as collateral manager.

Oaktree Capital Group, LLC was formed on April 13, 2007. Oaktree Capital Group Holdings GP, LLC acts as the Company's manager and is the general partner of Oaktree Capital Group Holdings, L.P. (“OCGH”), which owns 100% of the Company's outstanding Class B units. OCGH is owned by the Company's ~~principals,~~Principals, current and former employees and certain other investors (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. An Oaktree Operating Group unit is not a legal interest but represents one limited partnership interest in each of the Oaktree Operating Group entities. The Class B units are entitled to ten votes per unit and have no economic interest in the Company, whereas the Class A units are only entitled to one vote per unit. Consequently, the OCGH unitholders' economic interest in the Oaktree Operating Group is reflected as OCGH non-controlling interest in consolidated subsidiaries in the accompanying condensed consolidated financial statements.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) such that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. The condensed consolidated financial statements include the accounts of the Company, its wholly-owned or majority-owned subsidiaries, the consolidated entities that are considered to be variable interest entities and for which the Company is considered the primary beneficiary, and certain entities that are not considered variable interest entities but in which the Company has a controlling financial interest. Most of the Oaktree funds consolidated by the Company are investment companies that follow a specialized basis of accounting established under GAAP. All intercompany ~~accounts~~transactions and ~~transactions~~balances have been eliminated ~~through~~in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, ~~2012~~2013 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on ~~March 14, 2013.~~February 28, 2014.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The Company consolidates those entities where it has a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. This includes four variable interest entities (“VIEs”) for which the Company is considered the primary beneficiary, and substantially all of Oaktree's closed-end, commingled open-end and evergreen funds for which the Company acts as the sole general partner and is deemed to control through a voting interest model.

Variable Interest Model. The Company consolidates entities determined to be VIEs for which it is considered the primary beneficiary. An entity is determined to be the primary beneficiary if it holds a controlling

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the entity's business and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation rules, which were revised effective January 1, 2010, require an analysis to (a) determine whether an entity in which the Company holds a variable interest is a VIE and (b) whether the Company's involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance-related fees), would give it a controlling financial interest. The consolidation rules may be deferred for a VIE if the VIE and the reporting entity's interest in the VIE meet the deferral conditions set forth in Accounting Standards Codification (“ASC”) 810-10-65-2(aa). If a VIE has qualified for the deferral of the consolidation rules, the analysis is based on consolidation rules prior to January 1, 2010. These rules require an analysis to (a) determine whether an entity in which the Company holds a variable interest is a VIE and (b) whether the Company's involvement through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance-related fees) would be expected to absorb a majority of the variability of the entity. Under either guideline, the Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Company, affiliates of the Company or third parties) or amendments to the governing documents of the respective Oaktree funds could affect an entity's status as a VIE or the determination of the primary beneficiary.

While the Company holds variable interests in the Oaktree funds, most of these funds do not meet the characteristics of a VIE. As of March 31, 2014, the Company consolidated four VIEs for which it was the primary beneficiary, including Oaktree AIF Holdings, Inc. (“AIF”), which was formed to hold certain assets for regulatory and other purposes and is immaterial to the Company. The three remaining VIEs represented CLOs, two of which had not launched as of March 31, 2014, for which the Company acts as collateral manager. As of March 31, 2014 and December 31, 2013, there were no VIEs for which the Company was not the primary beneficiary. As of December 31, 2013, the Company consolidated two VIEs.

As of March 31, 2014, the Company consolidated three CLOs with total assets and liabilities of $1.0 billion and $876.0 million, respectively. The assets and liabilities of the CLOs primarily consist of investments in debt securities and loans issued by the CLOs, respectively. The loans issued by each CLO are collateralized by the investments held by the CLO, and assets of one CLO may not be used to satisfy liabilities of another. In exchange for managing the collateral of the CLOs, the Company typically earns management fees and may earn performance fees, all of which are eliminated in consolidation. As of March 31, 2014, the Company had an aggregate $115.6 million of investments in its CLOs, which represented its maximum risk of loss. The Company's investments in the CLOs are generally subordinated to other interests in the CLOs and entitle the Company to receive a pro-rata portion of the residual cash flows, if any, from the CLOs. Investors in the CLOs have no recourse against the Company for any losses sustained in the CLO structure.

Voting Interest Model. For entities that are not VIEs, the Company evaluates those entities that it controls through a majority voting interest, including those Oaktree funds in which the Company as the sole general partner is presumed to have control (together with the CLOs, the “consolidated funds”). Although as general partner the Company typically has only a small, single-digit equity interest in each fund, the funds' third-party limited partners do not have the right to dissolve the partnerships or have substantive kick-out or participating rights that would overcome the presumption of control by the Company.

Accordingly, Oaktree's condensed consolidated financial statements reflect the assets, liabilities, investment income, expenses and cash flows of the consolidated funds on a gross basis, and the majority of the economic interests in those funds, which are held by third-party investors, are attributed to non-controlling redeemable interests in consolidated funds in the accompanying condensed consolidated financial statements. All of the management fees and incentive income earned by Oaktree from those funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by non-controlling interests, Oaktree's attributable share of the net income from those funds is increased by the amounts eliminated. Thus, the elimination

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

of these amounts in consolidation has no effect on either net income or loss attributable to the Company. All intercompany transactions and balances have been eliminated in consolidation.

Certain funds for which the Company shares general partner responsibilities or where the Company has no general partner responsibility but has the ability to exert significant influence through other means are accounted for under the equity method of accounting.

Non-controlling Redeemable Interests in Consolidated Funds

The Company records non-controlling interests to reflect the economic interests of the unaffiliated limited partners. These interests are presented as non-controlling redeemable interests in consolidated funds within the condensed consolidated statements of financial condition, outside of the permanent capital section. Limited partners in open-end and evergreen funds generally have the right to withdraw their capital, subject to the terms of the respective limited partnership agreements, over periods ranging from one month to three years. While limited partners in consolidated closed-end funds generally have not been granted redemption rights, these limited partners do have redemption rights in certain limited circumstances that are beyond the control of the Company, such as instances in which retaining the limited partnership interest could cause the limited partner to violate a law, regulation or rule.

The allocation of net income or loss to non-controlling redeemable interests in consolidated funds is based on the relative ownership interests of the unaffiliated limited partners after the consideration of contractual arrangements that govern allocations of income or loss. At the consolidated level, potential incentives are allocated to non-controlling redeemable interests in consolidated funds until such incentives become allocable to the Company under the substantive contractual terms of the limited partnership agreements of the funds.

Fair Value of Financial Instruments

GAAP establishes a hierarchal disclosure framework that prioritizes the inputs used in measuring financial instruments at fair value into three levels based on their market observability. Market price observability is affected by a number of factors, such as the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available quoted prices from an active market or for which fair value can be measured based on actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value.

Financial assets and liabilities measured and reported at fair value are classified as follows:

Level I – Quoted unadjusted prices for identical instruments in active markets to which the Company has access at the date of measurement. The types of investments in Level I include exchange-traded equities, debt and derivatives with quoted prices.

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are directly or indirectly observable. Level II inputs include prices in markets for which there are few transactions, the prices are not current, little public information exists or prices vary substantially over time or among brokered market makers. Other inputs include interest rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates. The types of investments in Level II generally include corporate bonds and loans, government and agency securities, less liquid and restricted equity investments, over-the-counter traded derivatives, and other investments where the fair value is based on observable inputs.

Level III – ~~Model-derived valuations~~Valuations for which one or more significant inputs are unobservable. These inputs reflect the Company's assessment of the assumptions that market participants use to value the investment based on the best available information. Level III inputs include prices of quoted securities in markets for which there are few transactions, less public information exists or prices vary among brokered market makers. The types of investments in Level III include non-publicly traded equity, debt, real estate and derivatives.

In some instances, an instrument may fall into multiple levels of the fair-value hierarchy. In such instances, the instrument's level within the fair-value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the fair-value measurement. The Company's assessment of the significance of an input requires judgment and considers factors specific to the instrument. The Company accounts for the transfer of assets into or out of each fair-value hierarchy level as of the beginning of the reporting period.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

In the absence of observable market prices, the Company values Level III investments using valuation methodologies applied on a consistent basis. The quarterly valuation process for Level III investments begins with each portfolio company, property or security being valued by the investment ~~and~~or valuation teams. The valuations are then reviewed and approved by the valuation team and the valuation committee of each investment strategy, which consists of senior members of the investment team. All Level III investment values are ultimately approved by the valuation committees and designated investment professionals, as well as the valuation officer, who is independent of the investment teams and reports directly to the Company's Managing Principal. For certain investments, the valuation process also includes a review by independent valuation parties, at least annually, to determine whether the fair values determined by management are reasonable. Results of the valuation process are evaluated each quarter, including an assessment of whether the underlying calculations should be adjusted or recalibrated. In connection with this process, the Company evaluates changes in fair-value measurements from period to period for reasonableness, considering items such as industry trends, general economic and market conditions, and factors specific to the investment.

Certain Level III assets are valued using prices obtained from brokers or pricing vendors. The Company obtains an average of one to two broker quotes. The Company seeks to obtain at least one quote directly from a broker making a market for the asset and one price from a pricing vendor for the subject or similar securities. These investments are classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions. Generally, the Company does not adjust any of the prices received from these sources, and all prices are reviewed by the Company. The Company evaluates the prices obtained from brokers or pricing vendors based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. The Company also performs back-testing of valuation information obtained from brokers and pricing vendors against actual prices received in transactions. In addition to on-going monitoring and back-testing, the Company performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process.

Fair Value Option

The Company has elected the fair value option for certain corporate investments that otherwise would not have reflected unrealized gains and losses in current-period earnings. Such election is irrevocable and is applied on an investment-by-investment basis at initial recognition. Unrealized gains and losses resulting from changes in fair value are reflected as a component of investment income in the condensed consolidated statements of operations. Accounting for these investments at fair value is consistent with how the Company accounts for its investments held by the consolidated funds. The valuation methods used to measure the fair value of such investments are consistent with the valuation methodologies applied to investments held by the consolidated funds.

In addition, the Company has elected the fair value option for the assets of its CLOs. Assets of the CLOs are included in investments, at fair value and liabilities are reflected in collateralized loan obligation loans payable on the condensed consolidated statements of financial condition. Accounting for the investments held by the CLOs at fair value is consistent with how the Company accounts for investments held by other consolidated funds. The valuation methods used to measure the fair value of such investments are consistent with the valuation methodologies applied to investments held by other consolidated funds. Realized gains or losses and changes in the fair value of consolidated CLO assets are included in net realized gain on consolidated funds' investments and net change in unrealized appreciation on consolidated funds' investments, respectively, in the condensed consolidated statements of operations. Interest income of the CLOs is included in interest and dividend income, while interest expense and other expenses of the CLOs are included in interest expense and consolidated fund expenses, respectively, in the condensed consolidated statements of operations.

Investments, at Fair Value

The consolidated funds are primarily investment ~~companies~~limited partnerships that reflect their investments, including majority-owned and controlled investments, ~~(the “portfolio companies”),~~ at fair value. The Company has retained the specialized investment company accounting guidance under GAAP for the consolidated funds with respect to consolidated investments. Thus, the consolidated investments are reflected on the condensed consolidated statements of financial condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of net

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

change in unrealized appreciation ~~(depreciation)~~ on consolidated funds' investments in the condensed consolidated statements of operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).

Non-publicly traded debt and equity securities and other securities or instruments for which reliable market quotations are not available are valued by management using valuation methodologies applied on a consistent basis. These securities may initially be valued at the acquisition price as the best indicator of fair value. The Company reviews the significant unobservable inputs, valuations of comparable investments and other similar transactions for investments valued at acquisition price to determine whether another valuation methodology should be utilized. Subsequent valuations will depend on the facts and circumstances known as of the valuation date and the application of valuation methodologies further described below under “—Non-publicly Traded Equity and Real Estate Investments.” The fair value may also be based on a pending transaction expected to close after the valuation date.

Exchange-traded Investments

Securities listed on one or more national securities exchanges are valued at their last reported sales price on the date of valuation. If no sale occurred on the valuation date, the security is valued at the mean of the last “bid” and “ask” prices on the valuation date. Securities that are not readily marketable due to legal restrictions that may limit or restrict transferability are generally valued at a discount from quoted market prices. The discount would

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

reflect the amount market participants would require due to the risk relating to the inability to access a public market for the security for the specified period and would vary depending on the nature and duration of the restriction and the perceived risk and volatility of the underlying securities. Securities with longer duration restrictions or higher volatility are generally valued at a higher discount. Such discounts are generally estimated based on put option models or analysis of market studies. Instances where the Company has applied discounts to quoted prices of restricted listed securities have been infrequent. The impact of such discounts is not material to the Company's condensed consolidated statements of financial condition and results of operations for all periods presented.

Credit-oriented Investments (including Real Estate Loan Portfolios)

Investments in corporate and government debt which are not listed or admitted to trading on any securities exchange are valued at the mean of the last bid and ask prices on the valuation date based on quotations supplied by recognized quotation services or by reputable broker-dealers.

The market-yield approach is considered in the valuation of non-publicly traded debt securities, utilizing expected future cash flows and discounted using estimated current market rates. Discounted ~~cash flow~~cash-flow calculations may be adjusted to reflect current market conditions and/or the perceived credit risk of the borrower. Consideration is also given to a borrower's ability to meet principal and interest obligations; this may include an evaluation of collateral and/or the underlying value of the borrower utilizing techniques described below under “—Non-publicly Traded Equity and Real Estate Investments.”

Non-publicly Traded Equity and Real Estate Investments

The fair ~~values~~value of equity and real estate investments ~~are~~is determined using ~~either~~ a cost, , market or income approach. AThe cost approach is based ~~upon~~on the current cost of reproducing a real estate investment less deterioration and functional and economic obsolescence. AThe market approach utilizes valuations of comparable public companies and transactions, and generally seeks to establish the enterprise value of the portfolio company or investment property using a market-multiple methodology. This approach takes into account the financial measure (such as EBITDA, adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value) believed to be most relevant for the given company or investment property. Consideration may also be given to factors such as acquisition price of the security or investment property, historical and projected operational and financial results for the portfolio company, the strengths and weaknesses of the portfolio company or investment property relative to its comparable companies or properties, industry trends, general economic and market conditions, and others deemed relevant. The income approach is typically a discounted ~~cash flow~~cash-flow method that incorporates expected timing and level of cash flows. It incorporates assumptions in determining growth rates, income and expense projections, discount and capitalization rates, capital structure, terminal values, and other factors. The applicability and weight assigned to market and income approaches are determined based on the availability of reliable projections and comparable companies and transactions.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

The valuation of securities may be impacted by expectations of investors' receptiveness to a public offering of the securities, the size of the holding of the securities and any associated control, information with respect to transactions or offers for the securities (including the transaction pursuant to which the investment was made and the period of time elapsed from the date of the investment to the valuation date), and applicable restrictions on the transferability of the securities.

These valuation methodologies involve a significant degree of management judgment. Accordingly, valuations by the Company do not necessarily represent the amounts that may eventually be realized from sales or other dispositions of investments. Fair values may differ from the values that would have been used had a ready market for the investment existed, and the differences could be material to the condensed consolidated financial statements.

~~Reclassifications~~

~~Certain amounts reported in the prior period have been reclassified to conform to the current period presentation.~~

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

Recent Accounting Developments

In ~~December 2011,~~June 2013, the Financial Accounting Standards Board (“FASB”) issued amended guidance requiring enhanced disclosures that will enable users to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. In January 2013, the FASB issued additional guidance to clarify that ordinary receivables and payables are not in the scope of the amended guidance. The amendments were effective for the Company beginning January 1, 2013. The Company adopted this guidance in the first quarter of 2013 and determined that the adoption did not have a material impact on its condensed consolidated financial statements. Please see note 5 for required disclosures.

In February 2013, the FASB issued guidance on reporting amounts reclassified out of accumulated other comprehensive income (“AOCI”), which requires entities to disclose additional information about reclassification adjustments, including changes in AOCI balances by component and significant items reclassified out of AOCI. The guidance was effective for the Company beginning January 1, 2013 and applied prospectively. The Company adopted this guidance in the first quarter of 2013 and determined that the adoption did not have a material impact on its condensed consolidated financial statements.

~~In June 2013, the FASB~~ issued guidance that amended the criteria by which an entity qualifies as an investment company for accounting purposes. The guidance also clarified the characteristics of an investment company and provided measurement and disclosure requirements for an investment company. The ~~amendment is effective for the~~ Company ~~beginning January 1, 2014. The Company does not expect that adoption of~~adopted this guidance ~~will~~in the first quarter of 2014, which resulted in additional disclosures (please see note 12), but did not have a material impact on its condensed consolidated financial statements.

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

~~3. INVESTMENTS, AT FAIR VALUE~~

~~Investments held and securities sold short in the consolidated funds are summarized below:~~

Fair Value as of Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments:
September 30,
2013

December 31,
2012

September 30,
2013

December 31,
2012
United States:
Fixed income securities:
Consumer discretionary $ 3,754,991
$ 5,072,283
9.7 % 13.2 %
Consumer staples 850,671
697,300
2.2
1.8
Energy 709,682
565,151
1.8
1.5
Financials 551,391
1,013,230
1.4
2.6
Health care 724,472
658,932
1.9
1.7
Industrials 1,840,898
1,957,259
4.7
5.1
Information technology 1,244,353
908,662
3.2
2.4
Materials 1,081,165
826,008
2.8
2.2
Telecommunication services 332,734
282,101
0.9
0.7
Utilities 2,062,556
1,717,978
5.3
4.5
Total fixed income securities (cost: $13,054,005 and $13,320,475 as of September 30, 2013 and December 31, 2012, respectively) 13,152,913
13,698,904
33.9
35.7
Equity securities:
Consumer discretionary 2,973,559
3,289,347
7.7
8.6
Consumer staples 470,065
444,735
1.2
1.2
Energy 563,676
448,412
1.5
1.2
Financials 5,636,471
6,001,493
14.5
15.6
Health care 250,276
134,239
0.6
0.3
Industrials 1,554,872
1,201,156
4.0
3.1
Information technology 243,756
199,003
0.6
0.5
Materials 1,225,018
1,407,850
3.2
3.7
Telecommunication services 40,796
15,022
0.1
0.0
Utilities 176,216
140,037
0.5
0.4
Total equity securities (cost: $10,526,283 and $11,637,988 as of September 30, 2013 and December 31, 2012, respectively) 13,134,705
13,281,294
33.9
34.6

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

3. INVESTMENTS, AT FAIR VALUE

Investments held and securities sold short by the consolidated funds are summarized below:


	Fair Value as of				Fair Value as a Percentage of Investments of Consolidated Funds as of				Fair Value as of				Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments:	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013		March 31, 2014		December 31, 2013
Europe:
United States:
Fixed income securities:
Consumer discretionary	$	1,509,502	$	1,607,822	3.9	%	4.2	%	$	2,790,284	$	3,017,755	6.5	%	7.6	%
Consumer staples	154,953		486,037		0.4		1.3		570,952		801,959		1.3		2.0
Energy	282,569		272,079		0.7		0.7		684,839		650,336		1.6		1.6
Financials	531,437		627,161		1.4		1.6		478,739		554,115		1.1		1.4
Health care	25,159		19,585		0.1		0.0		849,138		600,570		2.0		1.5
Industrials	502,857		531,770		1.3		1.4		1,947,941		1,768,600		4.6		4.4
Information technology	7,280		5,397		0.0		0.0		1,119,772		1,130,614		2.6		2.8
Materials	681,813		717,294		1.8		1.9		1,149,059		1,094,476		2.7		2.7
Telecommunication services	172,840		190,369		0.4		0.5		319,044		289,046		0.8		0.7
Utilities	18,049		28,561		0.0		0.1		2,328,326		2,182,098		5.5		5.6
Total fixed income securities (cost: $3,085,553 and $4,383,068 as of September 30, 2013 and December 31, 2012, respectively)	3,886,459		4,486,075		10.0		11.7
Total fixed income securities (cost: $12,228,907 and $12,008,435 as of March 31, 2014 and December 31, 2013, respectively)									12,238,094		12,089,569		28.7		30.3
Equity securities:
Consumer discretionary	167,589		117,485		0.5		0.3		3,097,080		3,164,000		7.3		7.9
Consumer staples	747,302		1,336,420		1.9		3.5		559,012		482,521		1.3		1.2
Energy	77,901		91,724		0.2		0.2		621,780		570,839		1.5		1.4
Financials	2,876,742		1,553,598		7.4		4.1		7,151,016		6,474,365		16.8		16.3
Health care	12,850		—		0.0		—		346,115		310,582		0.8		0.8
Industrials	462,977		1,388		1.2		0.0		2,965,141		1,840,900		7.0		4.6
Information technology	1,398		335		0.0		0.0		252,151		227,608		0.6		0.6
Materials	246,176		374,169		0.7		1.0		926,008		923,933		2.2		2.3
Telecommunication services	882		—		0.0		—		46,408		51,881		0.1		0.1
Total equity securities (cost: $3,749,094 and $2,960,210 as of September 30, 2013 and December 31, 2012, respectively)	4,593,817		3,475,119		11.9		9.1
Asia and other:
Fixed income securities:
Consumer discretionary	124,192		680,273		0.3		1.8
Consumer staples	19,488		3,615		0.1		0.0
Energy	62,885		47,776		0.2		0.1
Financials	117,585		22,186		0.3		0.1
Health care	—		1,622		—		0.0
Industrials	676,076		290,639		1.7		0.8
Information technology	18,648		33,260		0.0		0.1
Materials	97,568		92,974		0.3		0.2
Telecommunication services	834		1,939		0.0		0.0
Utilities	7,188		129,474		0.0		0.3		222,846		193,984		0.5		0.5
Total fixed income securities (cost: $1,099,405 and $1,298,868 as of September 30, 2013 and December 31, 2012, respectively)	1,124,464		1,303,758		2.9		3.4
Total equity securities (cost: $12,202,295 and $11,104,484 as of March 31, 2014 and December 31, 2013, respectively)									16,187,557		14,240,613		38.1		35.7

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)



	Fair Value as of				Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments:	March 31, 2014		December 31, 2013		March 31, 2014		December 31, 2013
Europe:
Fixed income securities:
Consumer discretionary	$	1,315,531	$	1,519,530	3.1	%	3.8	%
Consumer staples	157,755		159,489		0.4		0.4
Energy	345,572		295,942		0.8		0.7
Financials	574,178		612,123		1.4		1.5
Health care	78,646		39,189		0.2		0.1
Industrials	351,636		378,797		0.8		1.0
Information technology	31,216		22,216		0.1		0.1
Materials	650,492		663,984		1.5		1.7
Telecommunication services	150,745		175,231		0.4		0.4
Utilities	14,422		18,581		0.0		0.0
Total fixed income securities (cost: $3,414,059 and $3,349,740 as of March 31, 2014 and December 31, 2013, respectively)	3,670,193		3,885,082		8.7		9.7
Equity securities:
Consumer discretionary	324,219		198,045		0.8		0.5
Consumer staples	421,003		385,595		1.0		1.0
Energy	140,976		129,207		0.3		0.3
Financials	3,442,951		2,763,198		8.0		6.9
Health care	13,092		13,084		0.0		0.0
Industrials	1,140,867		784,524		2.7		2.0
Information technology	—		1,341		—		0.0
Materials	304,886		249,732		0.7		0.6
Telecommunication services	—		1,382		—		0.0
Total equity securities (cost: $5,083,771 and $4,111,171 as of March 31, 2014 and December 31, 2013, respectively)	5,787,994		4,526,108		13.5		11.3
Asia and other:
Fixed income securities:
Consumer discretionary	121,197		93,087		0.3		0.2
Consumer staples	67,452		25,424		0.2		0.1
Energy	55,863		74,167		0.1		0.2
Financials	190,506		159,369		0.4		0.4
Health care	34,748		31,057		0.1		0.1
Industrials	820,314		1,247,793		1.9		3.1
Information technology	23,882		21,842		0.1		0.1
Materials	113,321		84,107		0.3		0.2
Telecommunication services	1,608		1,884		0.0		0.0
Utilities	8,262		6,808		0.0		0.0
Total fixed income securities (cost: $1,329,587 and $1,639,694 as of March 31, 2014 and December 31, 2013, respectively)	1,437,153		1,745,538		3.4		4.4

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)


	Fair Value as of						Fair Value as a Percentage of Investments of Consolidated Funds as of				Fair Value as of						Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments:	September 30, 2013			December 31, 2012			September 30, 2013		December 31, 2012		March 31, 2014			December 31, 2013			March 31, 2014		December 31, 2013
Asia and other:
Equity securities:
Consumer discretionary	$	554,280		$	99,527		1.4	%	0.3	%	$	599,159		$	422,731		1.4	%	1.1	%
Consumer staples	25,462			42,688			0.1		0.1		67,223			42,937			0.2		0.1
Energy	251,661			213,490			0.7		0.6		227,935			267,494			0.5		0.7
Financials	955,794			973,745			2.5		2.5		1,177,443			1,211,033			2.8		3.0
Health care	810			71			0.0		0.0		29,696			8,124			0.1		0.0
Industrials	809,879			613,020			2.1		1.6		620,416			1,136,934			1.5		2.9
Information technology	82,707			75,583			0.2		0.2		222,057			130,714			0.5		0.3
Materials	54,050			51,296			0.1		0.1		80,734			63,395			0.2		0.2
Telecommunication services	7,934			6,044			0.0		0.0		18,397			17,719			0.0		0.0
Utilities	129,492			52,012			0.3		0.1		163,113			123,897			0.4		0.3
Total equity securities (cost: $2,298,307 and $1,726,145 as of September 30, 2013 and December 31, 2012, respectively)	2,872,069			2,127,476			7.4		5.5
Total equity securities (cost: $2,516,567 and $2,734,160 as of March 31, 2014 and December 31, 2013, respectively)											3,206,173			3,424,978			7.6		8.6
Total fixed income securities	18,163,836			19,488,737			46.8		50.8		17,345,440			17,720,189			40.8		44.4
Total equity securities	20,600,591			18,883,889			53.2		49.2		25,181,724			22,191,699			59.2		55.6
Total investments, at fair value	$	38,764,427		$	38,372,626		100.0	%	100.0	%	$	42,527,164		$	39,911,888		100.0	%	100.0	%
Securities Sold Short:
Securities sold short – equities	$	(120,598	)	$	(126,530	)
Securities sold short – equities (proceeds: $103,344 and $137,092 as of March 31, 2014 and December 31, 2013, respectively)											$	(99,509	)	$	(140,251	)

As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, no single issuer or investment had a fair value that exceeded 5% of Oaktree's total consolidated net assets.

Net Gains From Investment Activities of Consolidated Funds

Net gains from investment activities in the condensed consolidated statements of operations consist primarily of the realized and unrealized gains and losses on the consolidated funds' investments (including foreign exchange gains and losses attributable to foreign-denominated investments and related activities) and other financial instruments. Unrealized gains or losses result from changes in the fair value of these investments and other financial instruments. Upon disposition of an investment, unrealized gains or losses are reversed and an offsetting realized gain or loss is recognized in the current period.

1415

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

The following table summarizes net gains (losses) from investment activities:

Three Months Ended September 30,
2013 2012
Net Realized Gain (Loss) on Investments Net Change in Unrealized Appreciation (Depreciation) on Investments Net Realized Gain (Loss) on Investments Net Change in Unrealized Appreciation (Depreciation) on Investments
Investments and other financial instruments $ 760,923
$ 306,542
$ 1,028,109
$ 948,408
Total-return, credit-default and interest-rate swaps ⁽¹⁾
(1,235 ) 19,637
28,849
2,189
Foreign currency forward contracts ⁽¹⁾
9,382
(222,589 ) 40,148
(135,228 )
Options and futures ⁽¹⁾
(2,871 ) (5,817 ) 199
(6,380 )
Total $ 766,199
$ 97,773
$ 1,097,305
$ 808,989


	Nine Months Ended September 30,												Three Months Ended March 31,
	2013						2012						2014						2013
	Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments			Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments			Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments			Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments
Investments and other financial instruments	$	2,773,547		$	998,935		$	2,754,917		$	1,535,611		$	718,123		$	775,322		$	1,237,119		$	855,550
Foreign currency forward contracts ⁽¹⁾													(56,976		)	(168		)	(35,989		)	147,889
Total-return, credit-default and interest-rate swaps ⁽¹⁾	2,648			44,396			59,313			38,311			(102		)	7,419			2,327			12,992
Foreign currency forward contracts ⁽¹⁾	28,934			(38,598		)	103,052			(137,422		)
Options and futures ⁽¹⁾	(8,681		)	2,762			(12,318		)	(1,904		)	(6,894		)	(10,057		)	(5,197		)	5,086
Swaptions													—			(2,038		)	—			—
Total	$	2,796,448		$	1,007,495		$	2,904,964		$	1,434,596		$	654,151		$	770,478		$	1,198,260		$	1,021,517


(1)	Please see note 5 for additional information.

4. FAIR VALUE

Fair Value of Financial Assets and Liabilities

~~The short-term nature of cash and cash-equivalents, U.S. Treasury and government agency securities, receivables and accounts payable causes each of their carrying values to approximate fair value.~~ The fair value of ~~U.S. Treasury securities and short-term investments included in cash and cash-equivalents~~financial instruments by fair-value hierarchy level is a Level I valuation and the fair value of government agency securities is a level II valuation. The fair value of the Company's debt obligations, which are carried at amortized cost, is a Level III valuation that is estimated based on a discounted cash-flow calculation using estimated rates that would be offered to Oaktree for debt of similar terms and maturities. The fair value of these debt obligations was ~~$624.7 million~~ ~~and~~ ~~$652.9 million~~ ~~as of September 30, 2013 and December 31, 2012, respectively, utilizing an average borrowing rate of~~ ~~3.2%~~ ~~and 3.1%, respectively. As of September 30, 2013, a~~ ~~10%~~ ~~increase in the assumed average borrowing rate would lower the estimated fair value to~~ ~~$617.0 million, whereas a~~ ~~10%~~ ~~decrease would increase the estimated fair value to~~ ~~$632.6 million~~. The fair values of the Company's interest-rate swaps and foreign exchange contracts are Level II valuations and are included in accounts payable, other accrued expenses and other liabilities. As of September 30, 2013 and December 31, 2012, the fair value of the interest-rate swaps was a net liability of ~~$4.9 million~~ ~~and~~ ~~$7.9 million, respectively, and the fair value of the foreign exchange contracts was a net liability of~~ ~~$1.4 million~~ ~~and~~ ~~$0.8 million, respectively. The fair value of the Company's total-return swap, a Level II valuation, included in other assets on the condensed consolidated balance sheet, was a net asset of~~ ~~$0.1 million~~ ~~as of September 30, 2013.~~set forth below:



	As of March 31, 2014										As of December 31, 2013
	Level I		Level II			Level III		Total			Level I		Level II			Level III		Total
Assets
Cash and cash-equivalents ⁽¹⁾	$	563,292	$	—		$	—	$	563,292		$	390,721	$	—		$	—	$	390,721
U.S. Treasury and government-agency securities ⁽¹⁾	360,559		—			—		360,559			676,600		—			—		676,600
Forward contracts ⁽²⁾	—		3,506			—		3,506			—		7,893			—		7,893
Total-return swap ⁽²⁾	—		—			—		—			—		4,515			—		4,515
Total assets	$	923,851	$	3,506		$	—	$	927,357		$	1,067,321	$	12,408		$	—	$	1,079,729

Liabilities
Forward contracts ⁽³⁾	$	—	$	(4,790	)	$	—	$	(4,790	)	$	—	$	(6,141	)	$	—	$	(6,141	)
Interest-rate swaps ⁽³⁾	—		(4,781		)	—		(4,781		)	—		(4,171		)	—		(4,171		)
Total liabilities	$	—	$	(9,571	)	$	—	$	(9,571	)	$	—	$	(10,312	)	$	—	$	(10,312	)


(1)	The carrying value approximates fair value due to the short-term nature.


(2)	Amounts are included in other assets in the condensed consolidated statements of financial condition.


(3)	Amounts are included in accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition.

1516

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Fair Value of Financial Instruments Held By Consolidated Funds

The table below summarizes the valuation of investments and other financial instruments of the consolidated funds by fair-value hierarchy levels:


As of September 30, 2013:	Level I			Level II			Level III		Total
												As of March 31, 2014												As of December 31, 2013
												Level I			Level II			Level III			Total			Level I			Level II			Level III		Total
Assets
Cash and cash-equivalents ⁽¹⁾												$	2,421,676		$	—		$	—		$	2,421,676		$	2,246,944		$	—		$	—	$	2,246,944
Investments:
Corporate debt – bank debt	$	—		$	8,060,810		$	2,288,908	$	10,349,718		—			7,668,325			2,584,354			10,252,679			—			7,352,129			2,809,437		10,161,566
Corporate debt – all other	—			5,152,485			2,661,633		7,814,118			1,224			5,024,193			2,067,344			7,092,761			798			5,125,646			2,432,179		7,558,623
Equities – common stock	4,689,131			683,956			6,468,956		11,842,043			6,378,075			475,554			7,613,726			14,467,355			4,804,068			1,109,270			6,700,015		12,613,353
Equities – preferred stock	3,888			5,208			862,800		871,896			3,607			10,018			1,145,630			1,159,255			4,101			8,483			919,771		932,355
Real estate	—			34,340			5,855,710		5,890,050			—			148,767			6,976,625			7,125,392			—			37,184			6,221,294		6,258,478
Real estate loan portfolio	—			—			1,979,132		1,979,132
Real estate loan portfolios												—			—			2,413,412			2,413,412			—			—			2,369,441		2,369,441
Other	1,888			1,467			14,115		17,470			1,629			—			14,681			16,310			2,656			1,708			13,708		18,072
Total investments	$	4,694,907		$	13,938,266		$	20,131,254	$	38,764,427		6,384,535			13,326,857			22,815,772			42,527,164			4,811,623			13,634,420			21,465,845		39,911,888
Derivatives:
Forward contracts												—			16,163			—			16,163			—			51,765			—		51,765
Swaps												—			30,015			—			30,015			—			18,318			—		18,318
Options and futures												63			36,006			—			36,069			101			18,037			—		18,138
Swaptions												—			4,641			—			4,641			—			6,716			—		6,716
Total derivatives												63			86,825			—			86,888			101			94,836			—		94,937
Total assets												$	8,806,274		$	13,413,682		$	22,815,772		$	45,035,728		$	7,058,668		$	13,729,256		$	21,465,845	$	42,253,769

Liabilities
Securities sold short – equities	$	(120,598	)	$	—		$	—	$	(120,598	)	$	(99,509	)	$	—		$	—		$	(99,509	)	$	(140,251	)	$	—		$	—	$	(140,251	)
Options written (net)	$	—		$	287		$	—	$	287
Swaps (net)	—			8,635			74,797		83,432
Forward contracts (net)	—			(132,386		)	—		(132,386		)
Futures (net)	844			—			—		844
Derivatives:
Forward contracts												—			(98,580		)	—			(98,580		)	—			(135,246		)	—		(135,246		)
Swaps												—			(6,763		)	(2,902		)	(9,665		)	—			(7,096		)	—		(7,096		)
Options and futures												(1,794		)	(14,395		)	—			(16,189		)	(5,030		)	(1,184		)	—		(6,214		)
Swaptions												—			(1,285		)	—			(1,285		)	—			(1,324		)	—		(1,324		)
Total derivatives												(1,794		)	(121,023		)	(2,902		)	(125,719		)	(5,030		)	(144,850		)	—		(149,880		)
Total liabilities												$	(101,303	)	$	(121,023	)	$	(2,902	)	$	(225,228	)	$	(145,281	)	$	(144,850	)	$	—	$	(290,131	)

As of December 31, 2012: Level I Level II Level III Total
Corporate debt – bank debt $ —
$ 7,412,691
$ 2,253,476
$ 9,666,167
Corporate debt – all other —
6,663,519
3,159,051
9,822,570
Equities – common stock 3,362,742
1,055,465
8,101,051
12,519,258
Equities – preferred stock 2,520
2,133
650,096
654,749
Real estate —
—
3,946,142
3,946,142
Real estate loan portfolio —
—
1,737,822
1,737,822
Other 1,933
8,438
15,547
25,918
Total investments $ 3,367,195
$ 15,142,246
$ 19,863,185
$ 38,372,626
Securities sold short – equities $ (126,530 ) $ —
$ —
$ (126,530 )
Options written (net) $ —
$ 5,520
$ —
$ 5,520
Swaps (net) —
(5,539 ) 44,705
39,166
Forward contracts (net) —
(93,863 ) —
(93,863 )
Futures (net) 90
—
—
90


(1)	The carrying value approximates fair value due to the short-term nature.

1617

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

The following tables set forth a summary of changes in the fair value of the Level III investments:

Corporate Debt – Bank Debt Corporate Debt – All Other Equities – Common Stock Equities – Preferred Stock Real Estate Real Estate Loan Portfolio Swaps Other Total
Three Months Ended September 30, 2013:

Beginning balance $ 1,711,680
$ 2,535,280
$ 7,373,118
$ 663,523
$ 5,199,534
$ 1,989,515
$ 55,817
$ 14,516
$ 19,542,983
Transfers into Level III 276,696
48,124
105,583
118,496
—
—
—
—
548,899
Transfers out of Level III (72,043 ) (14,544 ) (654,361 ) (9,991 ) —
—
—
—
(750,939 )
Purchases 533,073
240,959
334,417
105,921
624,020
253,669
—
—
2,092,059
Sales (280,820 ) (254,764 ) (860,649 ) (723 ) (148,528 ) (357,451 ) —
—
(1,902,935 )
Realized gains (losses), net 19,096
65,722
397,272
164
24,190
9,781
—
—
516,225
Unrealized appreciation (depreciation), net 101,226
40,856
(226,424 ) (14,590 ) 156,494
83,618
18,980
(401 ) 159,759
Ending balance $ 2,288,908
$ 2,661,633
$ 6,468,956
$ 862,800
$ 5,855,710
$ 1,979,132
$ 74,797
$ 14,115
$ 20,206,051
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period $ 102,940
$ 22,270
$ (14,316 ) $ 30,688
$ 138,039
$ 83,618
$ 18,973
$ (344 ) $ 381,868
Three Months Ended September 30, 2012:

Beginning balance $ 2,424,016
$ 3,054,677
$ 7,180,826
$ 1,046,978
$ 3,132,225
$ 712,145
$ —
$ 19,965
$ 17,570,832
Transfers into Level III 1,403
234,196
102,504
1,164
—
—
—
—
339,267
Transfers out of Level III (319,348 ) (389,549 ) (11,424 ) —
—
—
—
—
(720,321 )
Purchases 652,231
333,320
23,065
51,479
352,462
1,008,622
—
—
2,421,179
Sales (197,648 ) (89,188 ) (118,584 ) (277,090 ) (182,159 ) (528,500 ) —
(7,835 ) (1,401,004 )
Realized gains (losses), net 25,762
7,536
41,470
273,589
(7,402 ) 8,256
—
5,516
354,727
Unrealized appreciation (depreciation), net 27,074
24,186
203,827
(255,308 ) 194,118
25,410
—
(2,608 ) 216,699
Ending balance $ 2,613,490
$ 3,175,178
$ 7,421,684
$ 840,812
$ 3,489,244
$ 1,225,933
$ —
$ 15,038
$ 18,781,379
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period $ 1,492
$ 24,723
$ 267,576
$ 26,859
$ 207,526
$ 79,306
$ —
$ (1,214 ) $ 606,268

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~


		Corporate Debt – Bank Debt			Corporate Debt – All Other			Equities – Common Stock			Equities – Preferred Stock			Real Estate			Real Estate Loan Portfolio			Swaps		Other			Total				Corporate Debt – Bank Debt			Corporate Debt – All Other			Equities – Common Stock			Equities – Preferred Stock			Real Estate			Real Estate Loan Portfolios			Swaps			Other			Total
Nine Months Ended September 30, 2013:
Three Months Ended March 31, 2014:																												Three Months Ended March 31, 2014:
Beginning balance	Beginning balance	$	2,253,476		$	3,159,051		$	8,101,051		$	650,096		$	3,946,142		$	1,737,822		$	44,705	$	15,547		$	19,907,890		Beginning balance	$	2,809,437		$	2,432,179		$	6,700,015		$	919,771		$	6,221,294		$	2,369,441		$	—		$	13,708		$	21,465,845
Transfers into Level III	Transfers into Level III	440,605			59,544			698,735			385,099			15,055			—			—		—			1,599,038			Transfers into Level III	721,444			150			424,682			—			1,762			—			—			—			1,148,038
Transfers out of Level III	Transfers out of Level III	(669,172		)	(215,738		)	(1,059,337		)	(9,991		)	—			—			—		—			(1,954,238		)	Transfers out of Level III	(972,015		)	(6,366		)	(340,071		)	(3,849		)	(90,896		)	—			—			—			(1,413,197		)
Purchases	Purchases	827,924			358,510			685,588			203,315			1,556,156			849,342			—		—			4,480,835			Purchases	254,943			123,984			800,128			144,517			800,795			236,684			—			1,000			2,362,051
Sales	Sales	(708,296		)	(898,672		)	(2,277,253		)	(312,669		)	(497,633		)	(810,873		)	—		—			(5,505,396		)	Sales	(274,745		)	(536,993		)	(273,583		)	(41,380		)	(302,335		)	(285,339		)	—			—			(1,714,375		)
Realized gains (losses), net	Realized gains (losses), net	18,523			157,027			922,320			55,985			169,388			27,713			—		—			1,350,956			Realized gains (losses), net	44,144			115,502			59,376			(28		)	52,203			26,860			—			—			298,057
Unrealized appreciation (depreciation), net	Unrealized appreciation (depreciation), net	125,848			41,911			(602,148		)	(109,035		)	666,602			175,128			30,092		(1,432		)	326,966			Unrealized appreciation (depreciation), net	1,146			(61,112		)	243,179			126,599			293,802			65,766			(2,902		)	(27		)	666,451
Ending balance	Ending balance	$	2,288,908		$	2,661,633		$	6,468,956		$	862,800		$	5,855,710		$	1,979,132		$	74,797	$	14,115		$	20,206,051		Ending balance	$	2,584,354		$	2,067,344		$	7,613,726		$	1,145,630		$	6,976,625		$	2,413,412		$	(2,902	)	$	14,681		$	22,812,870
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	90,534		$	101,485		$	119,749		$	(50,371	)	$	616,914		$	175,128		$	30,092	$	(1,376	)	$	1,082,155		Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	(24,732	)	$	48,955		$	354,211		$	141,096		$	298,175		$	71,975		$	2,084		$	5		$	891,769
Nine Months Ended September 30, 2012:
Three Months Ended March 31, 2013:																												Three Months Ended March 31, 2013:
Beginning balance	Beginning balance	$	1,978,637		$	3,155,241		$	6,164,025		$	1,090,107		$	2,786,862		$	479,690		$	—	$	18,824		$	15,673,386		Beginning balance	$	2,253,476		$	3,159,051		$	8,101,051		$	650,096		$	3,946,142		$	1,737,822		$	44,705		$	15,547		$	19,907,890
Transfers into Level III	Transfers into Level III	377,015			606,212			567,143			8,151			17,275			—			—		—			1,575,796			Transfers into Level III	49,731			6,131			528,314			125,470			—			—			—			—			709,646
Transfers out of Level III	Transfers out of Level III	(538,993		)	(590,324		)	(371,106		)	(100,064		)	(5,353		)	—			—		—			(1,605,840		)	Transfers out of Level III	(193,810		)	(97,875		)	(398,778		)	—			—			—			—			—			(690,463		)
Purchases	Purchases	1,355,860			745,392			637,685			95,040			1,072,682			1,236,118			—		—			5,142,777			Purchases	134,839			33,584			51,039			29,300			307,269			224,425			—			—			780,456
Sales	Sales	(561,188		)	(953,083		)	(189,821		)	(280,947		)	(786,375		)	(592,355		)	—		(7,835		)	(3,371,604		)	Sales	(183,236		)	(198,596		)	(1,127,763		)	(178,320		)	(26,834		)	(283,182		)	—			—			(1,997,931		)
Realized gains (losses), net	Realized gains (losses), net	35,655			107,829			(19,541		)	270,390			236,762			23,174			—		5,516			659,785			Realized gains (losses), net	(17,014		)	23,255			426,537			29,034			(9,325		)	7,074			—			—			459,561
Unrealized appreciation (depreciation), net	Unrealized appreciation (depreciation), net	(33,496		)	103,911			633,299			(241,865		)	167,391			79,306			—		(1,467		)	707,079			Unrealized appreciation (depreciation), net	23,452			(12,712		)	(332,554		)	(7,748		)	281,674			44,245			9,969			(57		)	6,269
Ending balance	Ending balance	$	2,613,490		$	3,175,178		$	7,421,684		$	840,812		$	3,489,244		$	1,225,933		$	—	$	15,038		$	18,781,379		Ending balance	$	2,067,438		$	2,912,838		$	7,247,846		$	647,832		$	4,498,926		$	1,730,384		$	54,674		$	15,490		$	19,175,428
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	(8,054	)	$	156,816		$	552,674		$	41,154		$	364,835		$	79,306		$	—	$	(73	)	$	1,186,658		Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	33,359		$	27,735		$	145,621		$	32,491		$	279,223		$	44,245		$	9,970		$	(58	)	$	572,586

Total realized and unrealized gains and losses recorded for Level III investments are included in net realized gain on consolidated funds' investments or net change in unrealized appreciation on consolidated funds' investments in the condensed consolidated statements of operations.

~~There were~~ no ~~transfers~~Transfers between Level I and Level II positions for the three months ended ~~September 30, 2013.~~March 31, 2014 included $635.2 million from Level II to Level I due to the removal of discounts on three exchange-traded common-equity investments upon the expiration of lockup periods. Transfers between Level I and Level II positions for the ~~nine~~three months ended ~~September 30,~~March 31, 2013 included $1,066.8 million from Level II to Level I, as an investment in common equity began trading on a securities exchange. ~~Transfers between Level I and Level II positions for the three and nine months ended September 30, 2012 included~~ ~~$17.6 million~~ ~~from Level II~~

Oaktree Capital Group, LLC

Notes to ~~Level I, as certain securities began trading on a securities exchange.~~Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Transfers out of Level III were generally attributable to certain investments that experienced a more significant level of market activity during the period and thus were valued using observable inputs. Transfers into

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

Level III were typically due to certain investments that experienced a less significant level of market activity during the period or portfolio companies that undertook restructurings or bankruptcy proceedings and thus were valued in the absence of observable inputs.

The following table sets forth a summary of the valuation technique and quantitative information utilized in determining the fair value of the ~~Company's~~consolidated funds' Level III investments as of ~~September 30, 2013:~~March 31, 2014:

Investment Type Fair Value Valuation Technique
Significant Unobservable Inputs ^(9)(10)(11)
Credit-oriented investments:
$ 1,245,372

Discounted cash flow ⁽¹⁾
Discount rate
(range: 8% - 19%)
1,264,193

Market approach (comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾
(range: 4x - 9x)
204,597

Market approach (value of underlying assets) ⁽²⁾⁽⁴⁾
Underlying asset multiple
(range: 0.9x - 1.1x)
961,333

Recent transaction price ⁽⁵⁾
Not applicable
364,961

Discounted cash flow ⁽¹⁾ / Sales approach ⁽⁸⁾
Discount rate
(range: 13% - 33%)
Market transactions
984,882

Recent market information ⁽⁶⁾
Quoted prices / discount (discount not applicable)
Equity investments:
5,126,645

Market approach (comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾
(range: 3x - 13x)
891,062

Market approach (value of underlying assets) ⁽²⁾⁽⁴⁾
Underlying asset multiple
(range: 1x - 1.4x)
1,164,874

Recent transaction price ⁽⁵⁾
Not applicable
111,323

Discounted cash flow ⁽¹⁾
Discount rate
(range: 11% - 13%)
37,852

Recent market information ⁽⁶⁾
Quoted prices / discount (discount not applicable)
Real estate-oriented
investments:

1,846,201

Discounted cash flow ⁽¹⁾⁽⁷⁾
Discount rate
(range: 8% - 40%)
Terminal capitalization rate
(range: 6% - 15%)
Direct capitalization rate
(range: 7% - 9%)
Net operating income growth rate
(range: 1% - 31%)
Absorption rate
(range: 16% - 33%)
1,013,953

Market approach (comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾
(range: 6x - 12x)
397,321

Market approach (value of underlying assets) ⁽²⁾⁽⁴⁾
Underlying asset multiple
(range: 1.1x - 1.3x)
962,463

Recent transaction price ⁽⁵⁾
Not applicable
472,869

Sales approach ⁽⁸⁾
Market transactions
1,162,903

Recent market information ⁽⁶⁾
Quoted prices / discount (discount range: 0% - 6%)
Real estate loan portfolios:
496,282

Recent transaction price ⁽⁵⁾
Not applicable
1,482,850

Discounted cash flow ⁽¹⁾⁽⁷⁾
Discount rate
(range: 12% - 30%)
Other 14,115

Total Level III investments $ 20,206,051

Investment Type

Fair Value

Valuation Technique

Significant Unobservable Inputs ^(9)(10)(11)

Range

Weighted Average ⁽¹²⁾

Credit-oriented investments:

Consumer

discretionary:

69,643

Discounted cash flow ⁽¹⁾

Discount rate

10% – 15%

11%

611,631

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 8x

217,385

Recent transaction price ⁽⁵⁾

Not applicable

221,933

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Financials:

10,765

Discounted cash flow ⁽¹⁾

Discount rate

14% – 16%

15%

221,170

Recent transaction price ⁽⁵⁾

Not applicable

559,229

Recent market information ⁽⁶⁾

Quoted prices / discount
(discount not applicable)

Not applicable

Industrials:

233,578

Discounted cash flow ⁽¹⁾

Discount rate

12% – 19%

14%

346,492

Discounted cash flow ⁽¹⁾ /

Sales approach ⁽⁸⁾

Discount rate / Market transactions

10% – 20%

14%

56,665

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

5x – 6x

82,555

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

260,803

Recent transaction price ⁽⁵⁾

Not applicable

210,707

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Materials:

102,511

Discounted cash flow ⁽¹⁾

Discount rate

11% – 14%

13%

442,411

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 7x

13,303

Recent transaction price ⁽⁵⁾

Not applicable

Other:

446,518

Discounted cash flow ⁽¹⁾

Discount rate

9% – 14%

12%

374,787

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 11x

29,426

Recent transaction price ⁽⁵⁾

Not applicable

137,284

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Equity investments:

Consumer

discretionary:

57,560

Discounted cash flow ⁽¹⁾

Discount rate

10% – 12%

11%

622,920

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 11x

2,940

Recent transaction price⁽⁵⁾

Not applicable

167,262

Recent market information⁽⁶⁾

Quoted prices / discount
(discount not applicable)

Not applicable

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Investment Type

Fair Value

Valuation Technique

Significant Unobservable Inputs ^(9)(10)(11)

Range

Weighted Average ⁽¹²⁾

Financials:

94,481

Discounted cash flow ⁽¹⁾

Discount rate

11% – 13%

12%

489,920

Market approach
(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.4x

1.2x

272,389

Recent transaction price ⁽⁵⁾

Not applicable

Industrials:

24,938

Discounted cash flow ⁽¹⁾

Discount rate

15% – 17%

16%

1,668,252

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 14x

1,493,256

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.3x

873,360

Recent transaction price ⁽⁵⁾

Not applicable

229,158

Recent market information ⁽⁶⁾

Quoted prices / discount
(discount not applicable)

Not applicable

Materials:

1,101,844

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 8x

124,651

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

32,483

Recent transaction price ⁽⁵⁾

Not applicable

Other:

63,222

Discounted cash flow ⁽¹⁾

Discount rate

10% – 12%

11%

1,178,207

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 11x

83,889

Recent transaction price ⁽⁵⁾

Not applicable

247

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

178,377

Other

Not applicable

Real estate-oriented

investments:

2,304,595

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

8% – 36%

14%

Terminal capitalization rate

6% – 11%

Direct capitalization rate

7% – 8%

Net operating income growth rate

1% – 17%

Absorption rate

16% – 44%

31%

1,348,855

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 12x

12x

483,110

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1.2x – 1.4x

1.3x

1,049,702

Recent transaction price ⁽⁵⁾

Not applicable

694,305

Sales approach ⁽⁸⁾

Market transactions

Not applicable

1,096,058

Recent market information ⁽⁶⁾

Quoted prices / discount

0% – 6%

Real estate loan

portfolios:

734,587

Recent transaction price ⁽⁵⁾

Not applicable

1,678,825

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

10% – 23%

15%

Other

14,681

Total Level III

investments

22,812,870

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

The following table sets forth a summary of the valuation technique and quantitative information utilized in determining the fair value of the Company's Level III investments as of December 31, 2013:

Investment Type

Fair Value

Valuation Technique

Significant Unobservable Inputs ^(9)(10)(11)

Range

Weighted Average ⁽¹²⁾

Credit-oriented investments:

Consumer

discretionary:

40,998

Discounted cash flow ⁽¹⁾

Discount rate

13% – 15%

14%

571,865

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 11x

321,619

Recent transaction price ⁽⁵⁾

Not applicable

139,002

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Industrials:

328,712

Discounted cash flow ⁽¹⁾

Discount rate

12% – 17%

14%

335,270

Discounted cash flow ⁽¹⁾ /

Sales approach ⁽⁸⁾

Discount rate / Market transactions

11% – 20%

14%

59,349

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 6x

77,550

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

208,436

Recent transaction price ⁽⁵⁾

Not applicable

840,871

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Materials:

67,280

Discounted cash flow ⁽¹⁾

Discount rate

13% – 14%

13%

437,522

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 7x

79,020

Recent transaction price ⁽⁵⁾

Not applicable

Other:

704,430

Discounted cash flow ⁽¹⁾

Discount rate

8% – 15%

11%

337,406

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 7x

291,925

Recent transaction price ⁽⁵⁾

Not applicable

400,361

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Equity investments:

Consumer

discretionary:

57,560

Discounted cash flow ⁽¹⁾

Discount rate

12% – 14%

13%

504,550

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 11x

97,834

Recent transaction price ⁽⁵⁾

Not applicable

140,705

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Financials:

344,636

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

12x – 14x

13x

407,823

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.2x

1.1x

185,140

Recent transaction price ⁽⁵⁾

Not applicable

Industrials:

1,511,811

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 12x

1,064,686

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1x – 1.4x

1.1x

745,519

Recent transaction price ⁽⁵⁾

Not applicable

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Investment Type

Fair Value

Valuation Technique

Significant Unobservable Inputs ^(9)(10)(11)

Range

Weighted Average ⁽¹²⁾

Materials:

1,014,930

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 8x

1,604

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

56,064

Recent transaction price ⁽⁵⁾

Not applicable

Other:

60,451

Discounted cash flow ⁽¹⁾

Discount rate

10% – 12%

11%

1,052,158

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

5x – 11x

21,790

Recent transaction price ⁽⁵⁾

Not applicable

107,361

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

245,164

Other

Not applicable

Real estate-oriented

investments:

1,997,927

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

8% – 36%

14%

Terminal capitalization rate

6% – 15%

Direct capitalization rate

7% – 8%

Net operating income growth rate

1% – 30%

Absorption rate

16% – 44%

32%

1,230,234

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 12x

12x

427,452

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1.3x – 1.5x

1.4x

710,888

Recent transaction price ⁽⁵⁾

Not applicable

684,802

Sales approach ⁽⁸⁾

Market transactions

Not applicable

1,169,991

Recent market information ⁽⁶⁾

Quoted prices / discount

0% – 6%

Real estate loan

portfolios:

593,986

Recent transaction price ⁽⁵⁾

Not applicable

1,775,455

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

10% – 24%

15%

Other

13,708

Total Level III

investments

21,465,845


(1)	A discounted ~~cash flow~~cash-flow method is generally used to value performing credit-oriented investments in which the consolidated funds do not have a controlling interest in the underlying issuer, as well as certain equity investments, ~~certain~~ real estate-oriented investments and ~~certain~~ real estate loan portfolios.


(2)	A market approach is generally used to value distressed investments and investments in which the consolidated funds have a controlling interest in the underlying issuer.

(3)

Earnings multiples are based on comparable public companies and transactions with comparable companies. The Company typically utilizes multiples of EBITDA; however, in certain cases the Company may use other earnings multiples believed to be most relevant to the investment. The Company typically applies the multiple to trailing-twelve months' EBITDA. However, in certain cases other earnings measures, such as pro forma EBITDA, may be utilized if deemed to be more relevant.

(4)

A market approach using the value of underlying assets utilizes a multiple, based on comparable companies, of underlying assets or the net book value of the portfolio company. The Company typically obtains the value of underlying assets from the underlying portfolio company's financial statements or from pricing vendors. The Company may value the underlying assets by using prices and other relevant information from market transactions involving comparable assets.

(5)

Certain investments are valued based on recent transactions, generally defined as investments purchased or sold within six months of the valuation ~~date, adjusted when appropriate based on changes in significant unobservable inputs, valuations of comparable companies and other similar transactions.~~date. The fair value may also be based on a pending transaction expected to close after the valuation date.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

(6)

Certain investments are valued using quoted prices for the subject or similar securities. Generally, investments valued in this manner are classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities, or may require adjustment for investment-specific factors or restrictions. Quoted prices include exchange-listed prices and prices obtained from brokers or pricing vendors. Prices obtained from brokers or pricing vendors are evaluated based on trading activity of the subject or similar securities or comparable-yield analysis.

(7)

The discounted cash flow model for certain real estate-oriented investments and certain real estate loan portfolios contains a sell-out analysis. In these cases, the discounted cash flow is based on the expected timing and prices of sales of the underlying properties. The Company's determination of the sales prices of these properties typically includes consideration of prices and other relevant information from market transactions involving comparable properties.

(8)

The sales approach uses prices and other relevant information generated by market transactions involving comparable assets. The significant unobservable inputs used in the sales approach generally include adjustments to transactions involving comparable assets or properties, adjustments to external or internal appraised values, and the Company's assumptions regarding market trends or other relevant factors.

(9)

The discount rate is the significant unobservable input used in the fair-value measurement of performing credit-oriented investments in which the consolidated funds do not have a controlling interest in the underlying issuer, as well as certain equity investments and ~~certain~~ real estate loan portfolios. An increase (decrease) in the discount rate would result in a lower (higher) fair-value measurement.

(10)

Multiple of either earnings or underlying assets is the significant unobservable input used in the market approach for the fair-value measurement of distressed credit-oriented investments, credit-oriented investments in which the consolidated funds have a controlling interest in the underlying issuer, equity investments and certain real estate-oriented investments. An increase (decrease) in the multiple would result in a higher (lower) fair-value measurement.

(11)

The significant unobservable inputs used in the fair-value measurement of real estate investments utilizing a discounted cash flow analysis can include one or more of the following: discount rate, terminal capitalization rate, direct capitalization rate, net operating income growth rate or absorption rate. An increase (decrease) in a discount rate, terminal capitalization rate or direct capitalization rate would result in a lower (higher) fair-value measurement. An increase (decrease) in a net operating income growth rate or absorption rate would result in a higher (lower) fair-value measurement. Generally, a change in a net operating income growth rate or absorption rate would be accompanied by a directionally similar change in the discount rate.


(12)	The weighted average is based on the fair value of the investments included in the range.

A significant amount of judgment may be required when using unobservable inputs, including assessing the accuracy of source data and the results of pricing models. The Company assesses the accuracy and reliability of the sources it uses to ~~obtain~~develop unobservable inputs. These sources may include third-party vendors that the Company believes are reliable and commonly utilized by other market place participants. As described in note 2, other factors beyond the unobservable inputs described above may have a significant impact on investment valuations.

During the ~~nine~~three months ended ~~September 30, 2013, there were changes in~~March 31, 2014, the ~~techniques used~~valuation technique for ~~purposes of valuing certain~~one Level ~~III-type investments. One real estate-oriented investment commenced trading on a securities exchange; thus, it~~III equity security and one Level III credit-oriented security changed from ~~a market approach based on the value of underlying assets to~~ a valuation based on recent market information ~~as adjusted for factors stemming from the structure of the equity interests owned by the consolidated funds. Additionally, the valuation technique for certain real estate loan portfolios changed~~ to a ~~discounted cash flow method from~~market approach based on comparable companies, as the investee underwent a ~~combination of recent market~~restructuring and ~~sales information, as a result of a lack of recent market transaction data.~~its securities are no longer traded. During the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, there were no changes in techniques used to value Level III investments.

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

5. HEDGES AND OTHER DERIVATIVE ~~FINANCIAL~~ INSTRUMENTS

The Company enters into derivative ~~financial~~ instruments as part of its overall risk management strategy or to facilitate its investment management activities. Risks associated with fluctuations in interest rates and foreign currency exchange rates in the normal course of business are addressed as part of the Company's overall risk management strategy that may include the use of derivative ~~financial~~ instruments to economically hedge or reduce these exposures. From time to time, the Company may enter into (a) foreign currency option and forward contracts to reduce earnings and cash flow volatility associated with changes in foreign currency exchange rates, orand (b) interest-rate swaps to manage all or a portion of the interest-rate risk associated with its variable rate borrowings. As a result of the use of these or other derivative contracts, the Company is exposed to the risk that counterparties will fail to fulfill their contractual obligations. The Company attempts to mitigate this counterparty risk by entering into derivative contracts only with major financial institutions that have investment-grade credit ratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.

In January 2013, the Company entered into an interest-rate swap with a notional value of $175.0 million, of which $168.8 million was designated to hedge a portion of the interest-rate risk associated with its variable-rate borrowings. ~~In conjunction~~As of March 31, 2014, the Company had two interest-rate swaps designated as cash-flow hedges with ~~the Company’s existing interest-rate swap, this swap effectively fixed the annual interest rate at~~ a ~~blended rate~~combined notional value of ~~2.60%~~$371.3 million ~~on the bulk of the first~~ ~~four~~ ~~years of the Company's term loan facility, based on the Company’s current credit ratings.~~

. These hedges continued to be effective. As of ~~September 30,~~December 31, 2013, the Company had two interest-rate swaps designated as cash-flow hedges with a combined notional value of $~~386.3 million. These hedges continued to be effective as of September 30, 2013. As of December 31, 2012, the Company had one interest-rate swap designated as a cash-flow hedge with a notional value of~~ ~~$240.0~~378.8 million.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

In August 2013, to facilitate its investment management activities, the Company entered into a two-year total return swap (“TRS”) agreement with a financial institution to meet certain investment objectives for which the primary risk exposure iswas credit. Pursuant to the TRS agreement, ~~as of September 30, 2013,~~ the Company had deposited ~~$40~~$50 million in cash collateral with the counterparty and had the ability to access up to $200 million of U.S. dollar-denominated debt securities underlying the TRS. ~~The~~

In February 2014, the Company ~~will be entitled to receive or obligated to pay certain amounts based on~~closed its TRS position resulting in realized gains of $7.1 million, of which $1.4 million was received in cash. In connection with the ~~interest income or expense, as well as changes in~~launch of a CLO, the ~~market values, of the TRS's underlying reference securities. The~~ Company ~~pays interest on the outstanding notional amount of~~purchased the underlying reference securities that were held by the counterparty at ~~a spread to LIBOR. The TRS's~~ fair value ~~is based on changes~~totaling $312.9 million and interest receivable of $1.0 million. The Company paid $258.2 million in ~~the fair value~~cash, net of the ~~underlying reference securities, which are recorded as unrealized~~$50 million cash deposit and an offset of the remaining $5.7 million of realized gains ~~or losses until realized.~~due from the counterparty under the TRS. The CLO was funded with net proceeds of $450.0 million in cash from the issuance of $456.0 million in senior secured notes to a third party, net of $6.0 million in debt issuance costs, and $60.2 million in contributions from the Company. Please see note 6 for more information regarding CLO loans payable.

Freestanding derivatives are instruments that the Company enters into as part of its overall risk management strategy but does not designate as hedging instruments for accounting purposes. These instruments may include foreign currency exchange contracts, interest-rate swaps and other derivative contracts.

The fair value of forward currency sell contracts ~~which are recorded within the same caption as the underlying hedged items in the condensed consolidated statements of financial condition,~~ consisted of the following:

As of September 30, 2013:
Contract
Amount in
Local Currency

Contract
Amount in
U.S. Dollars

Market
Value in
U.S. Dollars

Net Unrealized
Appreciation
(Depreciation)
Euro, expiring 10/4/13-7/31/14 110,360
$ 144,894
$ 149,326
$ (4,432 )
USD (buy GBP), expiring 10/4/13-6/27/14 59,511
59,511
56,395
3,116
GBP, expiring 4/30/14 3,000
4,643
4,848
(205 )
Japanese Yen, expiring 11/27/13-1/30/15 5,468,700
55,955
55,835
120
Total $ 265,003
$ 266,404
$ (1,401 )
As of December 31, 2012:

Euro, expiring 1/7/13-10/31/13 93,500
$ 104,155
$ 105,997
$ (1,842 )
Japanese Yen, expiring 2/28/13-5/31/13 1,330,000
16,418
15,379
1,039
Total $ 120,573
$ 121,376
$ (803 )



As of March 31, 2014:	Contract Amount in Local Currency	Contract Amount in U.S. Dollars		Market Value in U.S. Dollars		Net Unrealized Appreciation (Depreciation)
Euro, expiring 4/8/14-1/8/15	149,055	$	201,266	$	205,319	$	(4,053	)
USD (buy GBP), expiring 4/8/14-1/30/15	53,498	53,498		51,907		1,591
GBP, expiring 4/30/14	3,000	4,643		5,001		(358		)
Japanese Yen, expiring 4/30/14-1/30/15	5,745,650	57,267		55,731		1,536
Total		$	316,674	$	317,958	$	(1,284	)

As of December 31, 2013:
Euro, expiring 1/8/14-10/31/14	115,685	$	153,959	$	159,485	$	(5,526	)
USD (buy GBP), expiring 1/8/14-9/30/14	54,361	54,361		50,286		4,075
GBP, expiring 4/30/14	3,000	4,643		4,966		(323		)
Japanese Yen, expiring 1/31/14-1/30/15	6,261,700	63,107		59,581		3,526
Total		$	276,070	$	274,318	$	1,752

2124

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

The fair value of the TRS contract as of December 31, 2013, which is included in other assets in the condensed consolidated statements of financial condition, consisted of the following:


As of September 30, 2013	Notional		Fair Value
As of December 31, 2013					Notional		Fair Value
Total-return swap	$	135,561	$	132	$	189,089	$	4,515

Realized and unrealized gains and losses arising from freestanding derivative instruments were recorded on the condensed consolidated statements of operations as follows:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,				For the Three Months Ended March 31,
Foreign Currency Forward Contracts:	2013			2012			2013		2012		2014			2013
General and administrative expenses ⁽¹⁾	$	(3,531	)	$	(1,483	)	$	1,318	$	1,543	$	(1,491	)	$	4,359

Total-return Swap:
Other income (expense), net	$	132		$	—		$	132	$	—
Investment income											$	2,554		$	—


(1)	To the extent that the Company's freestanding derivatives are utilized to hedge its exposure to investment income and management fees earned from consolidated funds, the related hedged items are eliminated in consolidation, with the derivative impact (a positive number reflects a reduction of expenses) reflected in consolidated general and administrative expenses.

As of both ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, the Company had not designated any derivatives as fair-value hedges or hedges of net investments in foreign operations.

Derivatives Held By Consolidated Funds

Certain consolidated funds utilize derivative instruments in ongoing investment operations. These derivatives primarily consist of foreign currency forward contracts and options utilized to manage currency risk, interest-rate swaps to hedge interest-rate risk, options and futures used to hedge exposure for specific securities, and total-return ~~swaps~~ and credit-default swaps utilized mainly to obtain exposure to leveraged loans or to participate in foreign markets not readily accessible. The primary risk exposure for options and futures is price, while the primary risk exposure for total-return and credit-default swaps is credit. None of the derivative instruments isare accounted for as a hedging ~~instrument~~instruments utilizing hedge accounting.

The impact of derivative instruments held by the consolidated funds on the condensed consolidated statements of operations ~~for the three and nine months ended September 30, 2013 and 2012~~ was as follows:


	Three Months Ended September 30,											Three Months Ended March 31,
	2013						2012					2014						2013
	Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments			Net Realized Gain (Loss) on Investments		Net Change in Unrealized Appreciation (Depreciation) on Investments			Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments			Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments
Foreign currency forward contracts												$	(56,976	)	$	(168	)	$	(35,989	)	$	147,889
Total-return, credit-default and interest-rate swaps	$	(1,235	)	$	19,637		$	28,849	$	2,189		(102		)	7,419			2,327			12,992
Foreign currency forward contracts	9,382			(222,589		)	40,148		(135,228		)
Options and futures	(2,871		)	(5,817		)	199		(6,380		)	(6,894		)	(10,057		)	(5,197		)	5,086
Swaptions												—			(2,038		)	—			—
Total	$	5,276		$	(208,769	)	$	69,196	$	(139,419	)	$	(63,972	)	$	(4,844	)	$	(38,859	)	$	165,967

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

Nine Months Ended September 30,
2013 2012
Net Realized Gain (Loss) on Investments Net Change in Unrealized Appreciation (Depreciation) on Investments Net Realized Gain (Loss) on Investments Net Change in Unrealized Appreciation (Depreciation) on Investments
Total-return, credit-default and interest-rate swaps $ 2,648
$ 44,396
$ 59,313
$ 38,311
Foreign currency forward contracts 28,934
(38,598 ) 103,052
(137,422 )
Options and futures (8,681 ) 2,762
(12,318 ) (1,904 )
Total $ 22,901
$ 8,560
$ 150,047
$ (101,015 )

Although the Company generally presents derivative instruments on a gross basis in its condensed consolidated statements of financial condition, certain derivative instruments, primarily held by the consolidated funds, are subject to enforceable master netting arrangements with certain counterparties which allow for the derivative instruments to be offset. The table below sets forth the rights of setoff and related arrangements associated with the Company's derivative instruments:

Gross Amounts of Assets (Liabilities) Gross Amounts Offset in Assets (Liabilities) Net Amounts of Assets (Liabilities) Presented Gross Amounts Not Offset in Statements of Financial Condition Net Amount
As of September 30, 2013 Derivative Assets (Liabilities) Cash Collateral Received (Pledged)
Derivative Assets:
Foreign currency forward contracts $ 4,009
$ 4,009
$ —
$ —
$ —
$ —
Total-return swaps 132
—
132
—
—
132
Subtotal 4,141
4,009
132
—
—
132
Derivative assets of consolidated funds:
Foreign currency forward contracts 16,989
52
16,937
13,388
—
3,549
Total-return, credit-default and interest-rate swaps 83,191
—
83,191
91
—
83,100
Options and futures 4,603
—
4,603
—
—
4,603
Swaptions 2,126
—
2,126
—
—
2,126
Subtotal 106,909
52
106,857
13,479
—
93,378
Total $ 111,050
$ 4,061
$ 106,989
$ 13,479
$ —
$ 93,510

Derivative Liabilities:
Foreign currency forward contracts $ (5,410 ) $ (4,009 ) $ (1,401 ) $ (6 ) $ —
$ (1,395 )
Interest-rate swaps (4,900 ) —
(4,900 ) 6
—
(4,906 )
Subtotal (10,310 ) (4,009 ) (6,301 ) —
—
(6,301 )
Derivative liabilities of consolidated funds:
Foreign currency forward contracts (149,375 ) (52 ) (149,323 ) (13,388 ) —
(135,935 )
Total-return, credit-default and interest-rate swaps (1,885 ) —
(1,885 ) (91 ) —
(1,794 )
Options and futures (3,472 ) —
(3,472 ) —
—
(3,472 )
Subtotal (154,732 ) (52 ) (154,680 ) (13,479 ) —
(141,201 )
Total $ (165,042 ) $ (4,061 ) $ (160,981 ) $ (13,479 ) $ —
$ (147,502 )

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

Gross Amounts of Assets (Liabilities) Gross Amounts Offset in Assets (Liabilities) Net Amounts of Assets (Liabilities) Presented Gross Amounts Not Offset in Statements of Financial Condition Net Amount
As of December 31, 2012 Derivative Assets (Liabilities) Cash Collateral Received (Pledged)
Derivative Assets:
Foreign currency forward contracts $ 1,558
$ 1,558
$ —
$ (549 ) $ —
$ 549
Derivative assets of consolidated funds:
Foreign currency forward contracts 52,663
—
52,663
34,139
—
18,524
Total-return, credit-default and interest-rate swaps 48,727
—
48,727
312
340
48,075
Options and futures 6,170
—
6,170
—
—
6,170
Subtotal 107,560
—
107,560
34,451
340
72,769
Total $ 109,118
$ 1,558
$ 107,560
$ 33,902
$ 340
$ 73,318

Derivative Liabilities:
Foreign currency forward contracts $ (2,361 ) $ (1,558 ) $ (803 ) $ 654
$ —
$ (1,457 )
Interest-rate swaps (7,900 ) —
(7,900 ) (105 ) —
(7,795 )
Subtotal (10,261 ) (1,558 ) (8,703 ) 549
—
(9,252 )
Derivative liabilities of consolidated funds:
Foreign currency forward contracts (146,526 ) —
(146,526 ) (34,139 ) (632 ) (111,755 )
Total-return, credit-default and interest-rate swaps (9,561 ) —
(9,561 ) (312 ) (1,828 ) (7,421 )
Options and futures (560 ) —
(560 ) —
(47 ) (513 )
Subtotal (156,647 ) —
(156,647 ) (34,451 ) (2,507 ) (119,689 )
Total $ (166,908 ) $ (1,558 ) $ (165,350 ) $ (33,902 ) $ (2,507 ) $ (128,941 )

~~6. DEBT OBLIGATIONS AND CREDIT FACILITIES~~

~~The Company had the following debt obligations as of September 30, 2013 and December 31, 2012:~~

As of

September 30,
2013

December 31,
2012
$75,000, 5.03%, issued in June 2004, payable in seven equal annual installments starting June 14, 2008 $ 10,714
$ 21,429
$50,000, 6.09%, issued in June 2006, payable on June 6, 2016 50,000
50,000
$50,000, 5.82%, issued in November 2006, payable on November 8, 2016 50,000
50,000
$250,000, 6.75%, issued in November 2009, payable on December 2, 2019 250,000
250,000
$250,000, rate as described below, term loan issued in December 2012, payable 2.5% per quarter through September 2017, final $125,000 payment on December 21, 2017 225,000
243,750
Total remaining principal $ 585,714
$ 615,179

2425

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Balance Sheet Offsetting

The Company recognizes all derivatives as assets or liabilities at fair value in its condensed consolidated statements of financial condition. In connection with its derivative activities, the Company generally enters into agreements subject to enforceable master netting arrangements that allow the Company to offset derivative assets and liabilities in the same currency by specific derivative type or, in the event of default by the counterparty, to offset derivative assets and liabilities with the same counterparty. The table below sets forth the rights of setoff and related arrangements associated with derivative instruments held by the Company. The “gross amounts not offset in statements of financial condition” column in the table below relates to derivative instruments that are eligible to be offset in accordance with applicable accounting guidance, but for which management has elected not to offset in the condensed consolidated statements of financial condition.



	Gross Amounts of Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)			Net Amounts of Assets (Liabilities) Presented			Gross Amounts Not Offset in Statements of Financial Condition						Net Amount
As of March 31, 2014	Gross Amounts of Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)			Net Amounts of Assets (Liabilities) Presented			Derivative Assets (Liabilities)			Cash Collateral Received (Pledged)			Net Amount
Derivative Assets:
Foreign currency forward contracts	$	3,506		$	—		$	3,506		$	2,834		$	—		$	672
Derivative assets of consolidated funds:
Foreign currency forward contracts	16,163			—			16,163			14,911			—			1,252
Total-return, credit-default and interest-rate swaps	30,015			—			30,015			1,009			—			29,006
Options and futures	36,069			—			36,069			16,634			—			19,435
Swaptions	4,641			—			4,641			1,285			—			3,356
Subtotal	86,888			—			86,888			33,839			—			53,049
Total	$	90,394		$	—		$	90,394		$	36,673		$	—		$	53,721

Derivative Liabilities:
Foreign currency forward contracts	$	(4,790	)	$	—	��	$	(4,790	)	$	(3,437	)	$	—		$	(1,353	)
Interest-rate swaps	(4,781		)	—			(4,781		)	603			—			(5,384		)
Subtotal	(9,571		)	—			(9,571		)	(2,834		)	—			(6,737		)
Derivative liabilities of consolidated funds:
Foreign currency forward contracts	(98,580		)	—			(98,580		)	(15,723		)	(2,562		)	(80,295		)
Total-return, credit-default and interest-rate swaps	(9,665		)	—			(9,665		)	(2,436		)	(4,383		)	(2,846		)
Options and futures	(16,189		)	—			(16,189		)	(14,395		)	(1,794		)	—
Swaptions	(1,285		)	—			(1,285		)	(1,285		)	—			—
Subtotal	(125,719		)	—			(125,719		)	(33,839		)	(8,739		)	(83,141		)
Total	$	(135,290	)	$	—		$	(135,290	)	$	(36,673	)	$	(8,739	)	$	(89,878	)

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)



	Gross Amounts of Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)		Net Amounts of Assets (Liabilities) Presented			Gross Amounts Not Offset in Statements of Financial Condition						Net Amount
As of December 31, 2013	Gross Amounts of Assets (Liabilities)			Gross Amounts Offset in Assets (Liabilities)		Net Amounts of Assets (Liabilities) Presented			Derivative Assets (Liabilities)			Cash Collateral Received (Pledged)			Net Amount
Derivative Assets:
Foreign currency forward contracts	$	7,893		$	—	$	7,893		$	5,951		$	—		$	1,942
Total-return swaps	4,515			—		4,515			—			—			4,515
Subtotal	12,408			—		12,408			5,951			—			6,457
Derivative assets of consolidated funds:
Foreign currency forward contracts	51,765			—		51,765			31,223			—			20,542
Total-return, credit-default and interest-rate swaps	18,318			—		18,318			483			—			17,835
Options and futures	18,138			—		18,138			—			—			18,138
Swaptions	6,716			—		6,716			1,324			—			5,392
Subtotal	94,937			—		94,937			33,030			—			61,907
Total	$	107,345		$	—	$	107,345		$	38,981		$	—		$	68,364

Derivative Liabilities:
Foreign currency forward contracts	$	(6,141	)	$	—	$	(6,141	)	$	(4,466	)	$	—		$	(1,675	)
Interest-rate swaps	(4,171		)	—		(4,171		)	(1,485		)	—			(2,686		)
Subtotal	(10,312		)	—		(10,312		)	(5,951		)	—			(4,361		)
Derivative liabilities of consolidated funds:
Foreign currency forward contracts	(135,246		)	—		(135,246		)	(31,223		)	(11,583		)	(92,440		)
Total-return, credit-default and interest-rate swaps	(7,096		)	—		(7,096		)	(483		)	(4,358		)	(2,255		)
Options and futures	(6,214		)	—		(6,214		)	—			(3,067		)	(3,147		)
Swaptions	(1,324		)	—		(1,324		)	(1,324		)	—			—
Subtotal	(149,880		)	—		(149,880		)	(33,030		)	(19,008		)	(97,842		)
Total	$	(160,192	)	$	—	$	(160,192	)	$	(38,981	)	$	(19,008	)	$	(102,203	)

6. DEBT OBLIGATIONS AND CREDIT FACILITIES

The Company's debt obligations are set forth below:



	As of
	March 31, 2014		December 31, 2013
$75,000, 5.03%, issued in June 2004, payable in seven equal annual installments starting June 14, 2008	$	10,714	$	10,714
$50,000, 6.09%, issued in June 2006, payable on June 6, 2016	50,000		50,000
$50,000, 5.82%, issued in November 2006, payable on November 8, 2016	50,000		50,000
$250,000, 6.75%, issued in November 2009, payable on December 2, 2019	250,000		250,000
$250,000, variable rate term loan issued in December 2012, payable 2.5% per quarter through September 2017, final $125,000 payment on December 21, 2017, prepaid in March 2014	—		218,750
$250,000, rate as described below, term loan issued in March 2014, payable on March 31, 2019	250,000		—
Total remaining principal	$	610,714	$	579,464

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Future principal payments of debt obligations as of ~~September 30, 2013~~March 31, 2014 were as follows:


Remainder of 2013	$	6,250
2014	35,714
Remainder of 2014			$	10,714
2015	25,000		—
2016	125,000		100,000
2017	143,750		—
2018			—
Thereafter	250,000		500,000
Total	$	585,714	$	610,714

The Company was in compliance with all financial covenants associated with its senior notes and credit facility as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012.~~2013.

The fair value of the Company's debt obligations, which are carried at amortized cost, is a Level III valuation that is estimated based on a discounted cash-flow calculation using estimated rates that would be offered to Oaktree for debt of similar terms and maturities. The fair value of these debt obligations was $662.3 million and $611.1 million as of March 31, 2014 and December 31, 2013, respectively, utilizing an average borrowing rate of 3.3% and 3.2%, respectively. As of March 31, 2014, a 10% increase in the assumed average borrowing rate would lower the estimated fair value to $656.5 million, whereas a 10% decrease would increase the estimated fair value to $668.4 million.

In ~~December 2012,~~March 2014, the Company's subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P. and Oaktree Capital I, L.P. entered into a credit agreement ~~(the “Credit Facility”)~~ with a bank syndicate for senior unsecured credit facilities (the “Credit Facility”), consisting of a $~~250.0~~250 million fully-funded term loan (the “Term Loan”) and a $~~500.0~~500 million revolving credit facility (the “Revolver”), each with a ~~five-year~~five-year term. The Credit Facility replaced the ~~previous undrawn credit facility and the Term Loan replaced the prior~~ amortizing term loan, which had a principal balance of $~~247.5~~218.8 million., and the undrawn revolver under the Company's prior credit facility. The Term Loan ~~amortizes quarterly~~matures in ~~an amount equal to~~ ~~2.5%~~ ofMarch 2019, at which time the ~~original~~entire principal amount of $~~250.0~~250 million~~, with principal payments due in March, June, September and December of each year, and the remaining principal payable upon maturity in December 2017.~~ is due. Borrowings under the Credit Facility generally bear interest at a spread to either LIBOR or an alternative base rate. Based on the current credit ratings of Oaktree Capital Management, L.P., the interest rate on borrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of the Revolver is 0.125% per annum. Utilizing interest-rate swaps, the ~~bulk of the first four years~~majority of the Term Loan's annual interest rate is fixed at ~~2.60%~~2.69%, through January 2016 and 2.22% for the twelve months thereafter, based on the current credit ratings of Oaktree Capital Management, L.P. The Credit Facility contains customary financial covenants and restrictions, including ones regarding a maximum leverage ratio of ~~3.0-to-1.0, minimum fixed charge coverage ratio of~~ ~~2.5-to-1.0~~3.0-to-1.0 and a minimum required ~~levels~~level of assets under management ~~and net worth~~ (as defined in the credit agreement) of $50 billion ~~and~~ ~~$600 million, respectively.~~. As of ~~September 30, 2013,~~March 31, 2014, the Company had no outstanding borrowings under the Revolver and was able to draw the full amount available without violating any financial covenants.

Credit Facilities of the Consolidated Funds

Certain ~~of the~~ consolidated funds maintain revolving credit facilities to fund investments between capital drawdowns. These facilities generally (a) are collateralized by the unfunded capital commitments of the consolidated funds' limited partners, (b) bear an annual commitment fee based on unfunded commitments, and (c) contain various affirmative and negative covenants and reporting obligations, including restrictions on additional indebtedness, liens, margin stock, affiliate transactions, dividends and distributions, release of capital commitments, and portfolio asset dispositions. Additionally, certain consolidated funds have issued senior variable rate notes to fund investments on a longer term basis, generally up to ten years. The obligations of the consolidated funds are nonrecourse to the Company. The fair value of the credit facilities and senior variable rate notes is a Level III valuation and was estimated based on a discounted cash-flow analysis utilizing a discount rate that ranged from 1.6% to 1.8%. For all periods presented, carrying value approximates the fair value of the credit facilities and senior variable rate notes due to their short-term nature, ~~or their~~ recent issuance ~~date.~~date or a resulting yield that approximates the market rate. As of ~~and for the nine months ended September 30, 2013,~~March 31, 2014, the consolidated funds were in compliance with all covenants.

2528

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

The consolidated funds had the following revolving credit facilities and term loans outstanding:


Credit agreement	Outstanding Amount as of				Facility Capacity		LIBOR Margin ⁽¹⁾		Maturity	Commitment Fee Rate		L/C Fee ⁽²⁾
Credit agreement	September 30, 2013		December 31, 2012		Facility Capacity		LIBOR Margin ⁽¹⁾		Maturity	Commitment Fee Rate		L/C Fee ⁽²⁾
Credit Agreement														Outstanding Amount as of				Facility Capacity		LIBOR Margin ⁽¹⁾	Maturity	Commitment Fee Rate	L/C Fee ⁽²⁾
Credit Agreement														March 31, 2014		December 31, 2013		Facility Capacity		LIBOR Margin ⁽¹⁾	Maturity	Commitment Fee Rate	L/C Fee ⁽²⁾
Credit facility⁽⁴⁾⁽³⁾	$	289,000	$	63,000	$	750,000	1.25	%	8/28/2015	N/A		N/A		$	434,000	$	434,000	$	435,000	1.45%	11/14/2018	N/A	N/A
Senior variable rate notes ⁽⁴⁾	249,500		249,500		$	249,500	1.55	%	10/20/2022	N/A		N/A
Senior variable rate notes ⁽⁴⁾	498,814		—		$	500,000	1.20	%	4/20/2023	N/A		N/A
Senior variable rate notes ⁽⁴⁾	402,364		—		$	402,500	1.20	%	7/20/2023	N/A		N/A
Senior variable rate notes ⁽⁴⁾	64,500		—		$	64,500	1.65	%	7/20/2023	N/A		N/A
Senior variable rate notes ⁽³⁾														249,500		249,500		$	249,500	1.55%	10/20/2022	N/A	N/A
Senior variable rate notes ⁽³⁾														499,017		498,916		$	500,000	1.20%	4/20/2023	N/A	N/A
Senior variable rate notes ⁽³⁾														402,387		402,375		$	402,500	1.20%	7/20/2023	N/A	N/A
Senior variable rate notes ⁽³⁾														64,500		64,500		$	64,500	1.65%	7/20/2023	N/A	N/A
Revolving credit facility	300,000		—		$	500,000	1.60	%	6/26/2015	0.25	%	N/A		300,000		400,000		$	500,000	1.60%	6/26/2015	0.25%	N/A
Multi-currency term loan ⁽⁵⁾	—		49,158		$	275,000	3.00	%	N/A	N/A		N/A
Revolving credit facility	—		38,000		$	180,000	1.75	%	12/15/2014	0.35	%	N/A		—		67,000		$	180,000	1.75%	12/15/2014	0.35%	N/A
Revolving credit facility	125,000		8,625		$	125,000	1.75	%	5/20/2014	0.35	%	N/A		—		—		$	125,000	1.75%	5/20/2014	0.35%	N/A
Revolving credit facility	9,000		19,400		$	55,000	2.00	%	12/15/2013	0.35	%	2.00	%	—		—		$	55,000	2.00%	12/15/2015	0.35%	2.00%
Revolving credit facility	—		—		$	40,000	1.50	%	12/11/2013	0.30	%	1.50	%	—		—		$	40,000	1.50%	12/5/2014	0.30%	1.50%
Euro-denominated revolving credit facility	—		63,942		€	100,000	1.75	%	12/17/2015	0.30	%	2.00	%	647,481		13,090		€	550,000	1.65%	2/25/2016	0.25%	1.65%
Euro-denominated revolving credit facility														37,213		—		€	100,000	1.95%	2/2/2016	0.40%	1.95%
Revolving credit facility	—		—		$	10,000	2.25	%	9/1/2014	0.38	%	N/A		—		2,800		$	10,000	2.25%	9/1/2014	0.38%	N/A
Revolving credit facility	90,000		—		$	350,000	1.65	%	3/22/2015	0.25	%	N/A		245,000		165,000		$	350,000	1.65%	3/22/2015	0.25%	N/A
Revolving credit facility														24,500		—		$	150,000	1.60%	1/16/2017	0.25%	1.60%
Revolving credit facility														13,600		—		$	30,000	1.50%	12/11/2015	0.20%	N/A
Credit facility ⁽⁴⁾														201,515		—		$	201,515	2.12%	Various	N/A	N/A
	$	2,028,178	$	491,625										$	3,118,713	$	2,297,181


(1)	The facilities bear interest, at the borrower's option, at (a) an annual rate of LIBOR plus the applicable margin or (b) an alternate base rate, as defined in the respective credit agreement.


(2)	Certain facilities allow for the issuance of letters of credit at an applicable annual fee. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, outstanding standby letters of credit totaled $~~63,545~~55,546 and $~~76,975~~55,954, respectively.


(3)	~~Libor margin equals~~ ~~1.25%~~ ~~through August 28, 2013 and~~ ~~2.50%~~ ~~thereafter.~~


~~(4)~~	The credit facility iswas collateralized by the portfolio investments and cash and cash-equivalents of the fund.


~~(5)~~(4)	The ~~loan~~credit facility was ~~fully repaid~~collateralized by specific investments of the fund. Of the total balance outstanding, $166.7 million matures on March 11, 2015 and ~~terminated~~the remaining $34.8 million matures on ~~September 20, 2013.~~February 11, 2016.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Collateralized Loan Obligation Loans Payable

As of March 31, 2014, the Company had consolidated three CLOs in its condensed consolidated financial statements. The table below sets forth the loans payable of those CLOs.



	As of March 31, 2014						As of December 31, 2013
	Outstanding Borrowings		Fair Value ⁽¹⁾		Weighted Average Interest Rate	Weighted Average Remaining Maturity (years)	Outstanding Borrowings		Fair Value		Weighted Average Interest Rate	Weighted Average Remaining Maturity (years)
Senior secured notes ⁽²⁾	$	456,075	$	456,075	2.25%	11.0	$	—	$	—	n/a	n/a
Senior secured notes ⁽³⁾	20,900		20,900		2.55%	4.8	—		—		n/a	n/a
Term loan ⁽⁴⁾	20,674		20,674		1.83%	1.3	—		—		n/a	n/a
	$	497,649	$	497,649


(1)	The carrying value approximates fair value due to the short-term nature or recent issuance date. The debt obligations of the CLOs are Level III valuations and were valued using a discounted cash-flow analysis.


(2)	The interest rate was LIBOR plus 2.01%.


(3)	The interest rate was LIBOR plus a margin determined based on a formula as defined in the respective borrowing agreements, which incorporate different borrowing values based on the characteristics of collateral investments purchased. The weighted average unused commitment fee rate ranged from 0% to 2.0%.


(4)	The term loan had a total facility capacity of €140 million as of March 31, 2014. The interest rate was EURIBOR plus 1.40% and the unused commitment fee was 0.30%.

The obligations with respect to the CLO loans payable are nonrecourse to the Company and are backed by the investments held by the respective CLO. Assets of one CLO may not be used to satisfy the liabilities of another. As of March 31, 2014, the fair value of the CLO assets was $1.0 billion and consisted of cash, corporate loans, corporate bonds and other securities. As of December 31, 2013, there were no assets or liabilities outstanding associated with the CLOs.

Future principal payments with respect to the CLO loans payable as of March 31, 2014 were as follows:



Remainder of 2014	$	—
2015	20,674
2016	—
2017	—
2018	—
Thereafter	476,975
Total	$	497,649

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

7. NON-CONTROLLING REDEEMABLE INTERESTS IN CONSOLIDATED FUNDS

The following table sets forth a summary of changes in the non-controlling redeemable interests in the consolidated funds:


	Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2014			2013
Beginning balance	$	39,670,831		$	41,048,607		$	38,834,831		$	39,670,831
Contributions	4,613,588			4,948,480			1,971,832			1,614,894
Distributions	(10,033,373		)	(7,907,434		)	(2,092,259		)	(3,256,759		)
Net income	3,743,327			4,868,300			1,324,832			2,063,965
Change in distributions payable	234,409			125,741			109,025			105,089
Change in accrued or deferred contributions	3,525			41,000
Foreign currency translation and other	97,605			(21,152		)	2,461			(97,875		)
Ending balance	$	38,329,912		$	43,103,542		$	40,150,722		$	40,100,145

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

8. UNITHOLDERS’ CAPITAL

The OCGH unitholders’ economic interest in the Oaktree Operating Group is reflected as OCGH non-controlling interest in consolidated subsidiaries and is determined at the Oaktree Operating Group level based on the proportionate share of Oaktree Operating Group units held by the OCGH unitholders. Certain expenses, such as income tax and related administrative expenses of Oaktree Capital Group, LLC and its Intermediate Holding Companies, are solely attributable to the Class A unitholders. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, respectively, OCGH units represented ~~112,821,276~~109,203,939 of the total ~~151,060,717~~152,683,609 Oaktree Operating Group units and ~~120,267,503~~112,584,211 ~~units~~ of the total ~~150,448,436~~151,056,717 Oaktree Operating Group units. Based on total Oaktree Operating Group capital of $~~1,496,709~~1,695,765 and $~~1,360,331~~1,655,911 as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, respectively, the OCGH non-controlling interest was $~~1,117,830~~1,212,862 and $~~1,087,491~~1,234,169.

The following table sets forth a summary of the net income attributable to the OCGH non-controlling interest and to the Class A unitholders:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
Weighted average Oaktree Operating Group units outstanding (in thousands):
OCGH non-controlling interest	112,791			120,283			117,103			123,070			112,571			120,628
Class A unitholders	38,239			30,181			33,845			27,494			39,700			30,186
Total weighted average units outstanding	151,030			150,464			150,948			150,564			152,271			150,814
Oaktree Operating Group net income:
Net income attributable to OCGH non-controlling interest	$	129,408		$	119,235		$	617,191		$	379,356		$	163,558		$	262,017
Net income attributable to Class A unitholders	43,875			29,920			172,631			84,444			57,682			65,569
Oaktree Operating Group net income	$	173,283		$	149,155		$	789,822		$	463,800		$	221,240		$	327,586
Net income attributable to Oaktree Capital Group, LLC:
Oaktree Operating Group net income attributable to Class A unitholders	$	43,875		$	29,920		$	172,631		$	84,444		$	57,682		$	65,569
Non-Operating Group other income	—			—			—			6,260
Non-Operating Group expenses	(271		)	(115		)	(947		)	(393		)	(282		)	(210		)
Income tax expense of Intermediate Holding Companies	(656		)	(4,593		)	(14,593		)	(21,772		)	(5,606		)	(7,793		)
Net income attributable to Oaktree Capital Group, LLC	$	42,948		$	25,212		$	157,091		$	68,539		$	51,794		$	57,566

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Set forth below are the effects of changes in the Company’s ownership interest in the Oaktree Operating Group:


											Three Months Ended March 31,
	Three Months Ended September 30,						Nine Months Ended September 30,				2014		2013
	2013			2012			2013		2012
Net income attributable to Oaktree Capital Group, LLC	$	42,948		$	25,212		$	157,091	$	68,539	$	51,794	$	57,566
Equity reallocation between controlling and non-controlling interests	(160		)	(74		)	76,685		69,101		49,098		(887		)
Change from net income attributable to Oaktree Capital Group, LLC and transfers from (to) non-controlling interest	$	42,788		$	25,138		$	233,776	$	137,640	$	100,892	$	56,679

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

On ~~May 29, 2013,~~March 10, 2014, the Company issued and sold ~~8,050,000~~5,000,000 Class A units to the underwriter in a public offering ~~at a price to the public of~~ ~~$53.50~~ ~~per Class A unit~~ (the ~~“May 2013~~“March 2014 Offering”), resulting in ~~$419.9~~$296.7 million in ~~net~~ proceeds to the ~~Company, after deducting underwriting discounts and commissions.~~Company. The Company did not retain any proceeds from the sale of Class A units in the ~~May 2013~~March 2014 Offering. The ~~net~~ proceeds from the ~~May 2013~~March 2014 Offering were used to acquire interests in the Company's business from certain of the Company's directors, employees and other investors, including certain ~~principals~~Principals and other members of the Company's senior management.

Please see notes 9, 10 and 1011 for additional information regarding transactions that impacted unitholders' capital.

9. EARNINGS PER UNIT

The computations of net income per Class A unit are set forth below:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2013		2012		2013		2012		2014		2013
Weighted average units outstanding:	(in thousands, except per unit amounts)								(in thousands, except per unit amounts)
Class A units outstanding	38,239		30,181		33,845		27,494		39,700		30,186
OCGH units exchangeable into Class A units ⁽¹⁾	—		—		—		—		—		—
Total weighted average units outstanding	38,239		30,181		33,845		27,494		39,700		30,186
Net income per Class A unit:
Net income	$	42,948	$	25,212	$	157,091	$	68,539	$	51,794	$	57,566
Weighted average units outstanding	38,239		30,181		33,845		27,494		39,700		30,186
Basic and diluted net income per Class A unit	$	1.12	$	0.84	$	4.64	$	2.49	$	1.30	$	1.91

(1)

Vested OCGH units are potentially exchangeable on a one-for-one basis into Class A units. As of ~~September 30, 2013,~~March 31, 2014, there were ~~112,821,276~~109,203,939 OCGH units outstanding, accordingly, the Company may cumulatively issue up to ~~112,821,276~~109,203,939 additional Class A units through ~~August~~March 1, ~~2023~~2024 if all such units were exchanged. For all periods presented, OCGH units have been excluded from the calculation of diluted earnings per unit because the exchange of these units would proportionally increase Oaktree Capital Group, LLC’s interest in the Oaktree Operating Group and could have an anti-dilutive effect on earnings per unit to the extent that tax-related or other expenses were incurred by the Company as a result of the exchange.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

10. EQUITY-BASED COMPENSATION

During the ~~nine~~three months ended ~~September 30, 2013,~~March 31, 2014, the Company granted ~~663,000~~1,690,418 restricted OCGH units and ~~100,000 deferred OCGH units to certain of its employees and~~ ~~8,508~~7,164 Class A units to ~~certain of~~ its employees and directors, subject to ~~equal~~ annual vesting ~~generally~~ over ~~periods~~a weighted average period of approximately ~~five~~5.1 years or ~~ten~~ ~~years.~~. The grant date fair value of all OCGH units awarded in ~~2013~~2014 was determined by applying a ~~discount ranging from~~ 25% to ~~30%~~discount to the Class A unit trading price on the New York Stock Exchange and the calculation of compensation expense assumed a forfeiture rate, based on expected employee turnover, of up to 1.5% annually.

As of ~~September 30, 2013,~~March 31, 2014, the Company expected to recognize compensation expense on its unvested equity-based awards of $~~107.5~~163.1 million over a weighted average recognition period of 5.2 years.

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

A summary of the status of the Company’s unvested equity-based awards as of ~~September 30, 2013~~March 31, 2014 and a summary of changes for the ~~nine~~three months then ended are presented below (actual dollars per unit):


	Class A Units				OCGH Units				Class A Units				OCGH Units
	Number of Units		Weighted Average Grant Date Fair Value		Number of Units		Weighted Average Grant Date Fair Value		Number of Units		Weighted Average Grant Date Fair Value		Number of Units		Weighted Average Grant Date Fair Value
Balance, December 31, 2012	11,669		$	41.91	4,902,348		$	28.17
Balance, December 31, 2013									16,582		$	45.34	4,465,722		$	30.30
Granted	8,508		47.83		763,000		34.60		7,164		58.88		1,690,418		44.16
Vested	(3,069	)	39.40		(1,103,569	)	23.80		(4,412	)	45.16		(1,027,363	)	24.28
Forfeited	—		—		(43,600	)	30.05		—		—		(2,011	)	27.60
Balance, September 30, 2013	17,108		$	45.30	4,518,179		$	30.30
Balance, March 31, 2014									19,334		$	50.40	5,126,766		$	36.08

As of ~~September 30, 2013,~~March 31, 2014, unvested units were expected to vest as follows:


	Number of Units	Weighted Average Remaining Service Term (Years)	Number of Units	Weighted Average Remaining Service Term (Years)
Class A units	17,108	3.7	19,334	3.6
OCGH units	4,518,179	5.2	5,126,766	5.2

11. INCOME TAXES AND RELATED PAYMENTS

Oaktree is a publicly traded partnership and Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., two of its Intermediate Holding Companies, are wholly-owned corporate subsidiaries. Income earned by these corporate subsidiaries is subject to U.S. federal and state income taxation and taxed at prevailing rates. Income earned by non-corporate subsidiaries is not subject to U.S. federal corporate income tax and is allocated to the Oaktree Operating Group's unitholders. The Company's effective ~~income~~ tax rate is dependent on many factors, including the estimated nature of many amounts and the mix of revenues and expenses between the two corporate subsidiaries that are subject to income ~~taxes~~tax and the three other subsidiaries that are not; consequently, the effective ~~income~~ tax rate is subject to significant variation from period to period. The Company's effective ~~income~~ tax rate used for interim periods is based on the estimated full-year income tax rate.

U.S. and non-U.S. taxing authorities are currently examining certain income tax returns of Oaktree, with certain of these examinations at an advanced stage. The Company believes that it is reasonably possible that one outcome of these current examinations, combined with expiring statutes of limitation on other ~~issues,~~items, may be to reduce in the next 12 months approximately $8 million to $10 million of previously accrued Operating Group income taxes. ~~Other issues are related to years with expiring statutes of limitation.~~ The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to its tax examinations and that any settlements related thereto will not have a material adverse effect on the Company's financial position or results of operations. However, there can be no assurances as to the ultimate outcomes.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Tax Receivable Agreement

The exchange of OCGH units in connection with the ~~May 2013~~March 2014 Offering resulted in increases in the tax basis of the tangible and intangible assets of the Oaktree Operating Group. As a result, the Company recorded a deferred tax asset of $~~134.4~~94 million and an associated liability of $~~114.2~~80 million for payments to OCGH unitholders under the tax receivable agreement, which together increased capital by $~~20.2~~14 million. These payments are expected to occur over the period ending approximately in ~~2035.~~2036.

No amounts were paid under the tax receivable agreement during the ~~nine~~three months ended ~~September 30, 2013.~~March 31, 2014.

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

12. COMMITMENTS AND CONTINGENCIES

In the normal course of business, Oaktree enters into contracts that contain certain representations, warranties and indemnifications. The Company’s exposure under these arrangements would involve future claims that have not yet been asserted. Inasmuch as no such claims currently exist or are expected to arise, the Company has not accrued any liability in connection with these indemnifications.

Legal Actions

Periodically, the Company is a party to legal actions arising in the ordinary course of business. The Company is currently not subject to any pending actions that either individually or in the aggregate are expected to have a material impact on its results of operations, cash flows or financial condition.

On June 8, 2011, Kaplan Industry, Inc. v. Oaktree Capital Management, L.P. was filed in the U.S. District Court for the Southern District of Florida. In Kaplan, the plaintiff alleges that Oaktree Capital Management, L.P. tortiously interfered with a business relationship and engaged in a civil conspiracy through the actions of Gulmar Offshore Middle East, LLC (“Gulmar”), a business acquired by subsidiaries of OCM European Principal Opportunities Fund II, L.P. (“EPOF II”). Oaktree Capital Management, L.P. serves as investment manager to EPOF II. The complaint alleges that Gulmar breached a consortium agreement between Gulmar and Kaplan Industry, Inc. relating to the consortium’s performance of services to Petróleos de Venezuela, S.A., the state-owned oil producer of Venezuela. The plaintiff alleges that Oaktree is responsible for these breaches by Gulmar. The complaint seeks damages in excess of $800 million. The substance of the claim relates almost exclusively to actions by Gulmar prior to EPOF II’s acquisition and the basis of the claim is currently subject to an ongoing arbitration in the United Kingdom between Kaplan and Gulmar. On August 18, 2011, the court granted Oaktree Capital Management, L.P.’s motion to stay pending the completion of a related arbitration proceeding in London. Oaktree Capital Management, L.P. believes the case is without merit and that any exposure to loss is remote.

Incentive Income

In addition to the incentive income recognized by the Company, certain of its funds have amounts recorded as potentially allocable to the Company as its share of potential future incentive income, based on each fund’s NAV. Inasmuch as this incentive income is contingent upon future investment activity and other factors, it is not recognized by the Company until it is fixed or ~~otherwise~~ determinable. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, the aggregate of such amounts recorded at the fund level in excess of incentive income recognized by the Company was $~~2,103,533~~2,335,937 and $~~2,137,798~~2,211,979, respectively, for which related direct incentive income compensation expense was estimated to be $~~903,134~~1,120,414 and $~~855,604~~994,879, respectively.

Commitments to Funds

As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, the Company, generally in the capacity as general partner, had undrawn capital commitments of $~~291,945~~335.8 million and $~~265,401~~327.3 million, respectively, including commitments to both non-consolidated and consolidated funds.

Investment Commitments of Consolidated Funds

The consolidated funds are parties to certain credit agreements, providing for the issuance of letters of credit and revolving loans, which may require the consolidated funds to extend additional loans to investee companies. The consolidated funds use the same investment criteria in making these unrecorded commitments as they do for investments that are included in the condensed consolidated statements of financial condition. The

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

unfunded liability associated with these credit agreements is equal to the amount by which the contractual loan commitment exceeds the sum of the amount of funded debt and cash held in escrow, if any. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, the consolidated funds had aggregate potential credit and investment commitments of $~~1,137,348~~1.2 billion and $~~912,001~~1.3 billion, respectively. These commitments will be funded by the funds’ ~~aggregate~~ cash ~~balance,~~balances, proceeds from asset sales ~~proceeds~~ or drawdowns against existing capital commitments.

A consolidated fund may agree to guarantee the repayment obligations of certain investee companies. On December 20, 2012, certain consolidated funds (“Funds”) entered into a £200 million revolving credit facility (the “RCF”) pursuant to which certain portfolio companies of the Funds ~~(“the borrowers”) will be~~were able to draw under the RCF ~~during~~over a three-year period. The RCF ~~has~~had an annual commitment fee on unused commitments of 1.0% and

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

~~bears interest at~~ an annual interest rate equal to Libor or Euribor, as applicable, plus 2.0%. The Funds ~~guarantee~~guaranteed the payment and other obligations of the borrowers under the RCF. ~~The amounts borrowed, accrued interest and other costs~~As of December 31, 2013, there were $317.0 million of borrowings outstanding under the RCF. On February 25, 2014, the Funds repaid the outstanding balance under the RCF ~~will be paid by~~and replaced the ~~portfolio companies. As of September 30, 2013 and December 31, 2012, there were~~RCF, along with an existing €130 million revolving credit facility, with a ~~$121.2~~€550 million and zero borrowings outstanding, respectively. The Funds, as guarantors, must maintain compliance with certain financial covenants at all times. As of and for the nine months ended September 30, 2013, the Funds were in compliance with these financial covenants.revolving credit facility (please see note 6).

The aggregate amounts guaranteed in addition to those described for the RCF were not material to the condensed consolidated financial statements as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012.~~2013.

The majority of the Company’s consolidated funds are investment companies that are required to disclose financial support provided or contractually required to be provided to any of their portfolio companies. Certain consolidated funds within the Distressed Debt, Control Investing and Real Estate strategies provide financial support to portfolio companies in accordance with the investment objectives of the consolidated funds. Distressed Debt funds invest primarily in the securities of entities that are undergoing, are considered likely to undergo, or have undergone reorganizations under applicable bankruptcy law, or other extraordinary transactions such as debt restructurings, reorganizations and liquidations outside of bankruptcy. Control Investing funds seek to obtain control or significant influence primarily in middle-market companies through the purchase of debt at a discount (also known as “distress-for-control”), structured or hybrid investments (such as convertible debt or debt with warrants), or direct equity investments that typically involve situations with an element of distress or dislocation. Real Estate funds focus on distressed opportunities primarily in real estate, real estate debt and restructurings, which typically involve value investments, rescue capital and distress-for-control investments. This financial support may be provided pursuant to contractual agreements, typically in the form of follow-on investments, guarantees or financing commitments. Most of the financial support is provided as an inherent part of the ongoing investment operations of the consolidated funds within these strategies and is considered to be provided at the discretion of the Company in its capacity as general partner and investment manager. For the three months ended March 31, 2014, the consolidated funds provided financial support to portfolio companies totaling $366.4 million and $2.6 billion with respect to support pursuant to contractual agreements and at the discretion of the consolidated funds, respectively. The majority of this financial support consisted of the funds' ongoing purchases of investment securities and companies.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

13. RELATED-PARTY TRANSACTIONS

The Company considers its ~~principals,~~Principals, employees and non-consolidated Oaktree funds to be ~~affiliates.~~affiliates (as defined in the FASB ASC Master Glossary). Amounts due from and to affiliates ~~were comprised~~are set forth below. The fair value of amounts due from and to affiliates is a Level III valuation and was valued based on a discounted cash-flow analysis. The carrying value of amounts due from affiliates approximates fair value because their average interest rate, which ranged from 2.0% to 3.0%, approximated the ~~following:~~Company's cost of debt. The fair value of amounts due to affiliates was $160,951 and $123,497 as of March 31, 2014 and December 31, 2013, respectively, based on a discount rate of 10.0%.


	As of				As of
	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Due from affiliates:
Loans	$	41,450	$	38,091	$	41,092	$	41,095
Amounts due from non-consolidated funds	868		661		870		1,220
Payments made on behalf of non-consolidated entities	3,229		3,444		4,397		3,272
Non-interest bearing advances made to certain non-controlling interest holders and employees	3,529		2,393		1,837		2,187
Total due from affiliates	$	49,076	$	44,589	$	48,196	$	47,774
Due to affiliates:
Due to OCGH unitholders in connection with the tax receivable agreement (please see note 11)	$	249,200	$	134,953	$	320,940	$	240,911
Amounts due to principals, certain non-controlling interest holders and employees	1,090		1,212
Amounts due to Principals, certain non-controlling interest holders and employees					890		2,075
Total due to affiliates	$	250,290	$	136,165	$	321,830	$	242,986

Loans

Loans primarily consist of interest-bearing advances made to certain non-controlling interest holders, primarily the Company’s employees, to meet tax obligations related to vesting of equity awards. The notes, which are generally recourse to the borrower or secured by vested equity and other collateral, bear interest at the Company’s cost of capital and generated interest income of $~~1,283~~568 and $~~1,048~~413 for the ~~nine~~three months ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012,~~ respectively.

Due From Oaktree Funds and Portfolio Companies

In the normal course of business, the Company pays certain expenses on behalf of the Oaktree funds, for which it is reimbursed. Amounts advanced on behalf of consolidated funds are eliminated in consolidation. Certain expenses initially paid by the Company, primarily employee travel and other costs associated with particular portfolio company holdings, are reimbursed by the portfolio companies.

Other Investment Transactions

The Company’s ~~principals,~~Principals, directors and senior professionals are permitted to invest their own capital (or the capital of family trusts or other estate planning vehicles they control) in Oaktree funds, for which they pay the particular fund’s full management fee but not its incentive allocation. To facilitate the funding of capital calls by funds in which ~~certain~~ employees are invested, the Company periodically advances on a short-term basis the capital calls on ~~the~~certain employees' behalf. These advances are generally reimbursed toward the end of the calendar quarter in which the capital calls occurred. Amounts temporarily advanced by the Company are included in non-interest bearing advances made to certain non-controlling interest holders and employees.

3136

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

Aircraft Services

A subsidiary of the Company leases an airplane for business purposes. The Company’s Chairman may use this aircraft for personal travel and, pursuant to a policy adopted by such subsidiary relating to such personal use, the Company is reimbursed by the Company’s Chairman for the costs of using the aircraft for personal travel. Additionally, the Company occasionally makes use of an airplane owned by one of its ~~principals~~Principals for business purposes at a price to the Company that is based on market rates.

Special Allocations

Certain ~~principals~~Principals receive special allocations based on a percentage of profits of the Oaktree Operating Group. These special allocations, which are recorded as compensation expense, are made on a current basis only for so long as they remain ~~principals~~Principals of the Company.

Transactions with Meyer Memorial Trust

One of the Company’s directors, Mr. Pierson, is the Chief Financial and Investment Officer of Meyer Memorial Trust. Meyer Memorial Trust invests in certain Oaktree funds on the same terms as the other investors in those funds.

14. SEGMENT REPORTING

The Company’s business is comprised of one segment, the investment management segment. As a global investment manager, the Company provides investment management services through funds and separate accounts. Management makes operating decisions and assesses business performance based on financial and operating metrics and data that are presented without the consolidation of any funds.

The Company conducts its investment management business primarily in the United States, where substantially all of its revenues are generated.

Adjusted Net Income

The Company’s chief operating decision maker uses adjusted net income (“ANI”) as a tool to help evaluate the financial performance of, and make resource allocations and other operating decisions for, the 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 the Company manages. In addition, ANI excludes the effect of (a) non-cash equity-based compensation charges related to unit grants made before the Company’s initial public offering, (b) income taxes, (c) ~~other income or~~ expenses ~~applicable to~~that Oaktree Capital Group, LLC or its Intermediate Holding Companies bear directly and (d) the adjustment for the OCGH non-controlling interest. Incentive income and incentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. ANI is calculated at the ~~Oaktree~~ Operating Group level.

3237

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

ANI was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
Revenues:
Management fees	$	185,580		$	182,587		$	552,281		$	562,692		$	188,400		$	184,214
Incentive income	122,424			59,174			787,665			250,861			292,876			327,184
Investment income	53,558			62,801			170,184			150,382			46,480			82,050
Total revenues	361,562			304,562			1,510,130			963,935			527,756			593,448
Expenses:
Compensation and benefits	(95,561		)	(83,080		)	(279,344		)	(247,787		)	(98,194		)	(93,617		)
Equity-based compensation	(1,070		)	(128		)	(2,646		)	(128		)	(3,983		)	(652		)
Incentive income compensation	(49,222		)	(29,546		)	(308,446		)	(118,268		)	(137,828		)	(130,271		)
General and administrative	(27,389		)	(24,429		)	(80,889		)	(73,665		)	(30,562		)	(23,988		)
Depreciation and amortization	(1,791		)	(1,901		)	(5,266		)	(5,573		)	(1,921		)	(1,743		)
Total expenses	(175,033		)	(139,084		)	(676,591		)	(445,421		)	(272,488		)	(250,271		)
Adjusted net income before interest and other income (expense)	186,529			165,478			833,539			518,514			255,268			343,177
Interest expense, net of interest income ⁽¹⁾	(7,074		)	(7,687		)	(21,617		)	(23,914		)	(6,625		)	(7,407		)
Other income (expense), net	148			(59		)	412			2,274			(1,698		)	(20		)
Adjusted net income	$	179,603		$	157,732		$	812,334		$	496,874		$	246,945		$	335,750


(1)	Interest income was $~~0.9~~1.1 million and $~~0.8~~0.6 million for the three months ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012, respectively, and~~ ~~$2.4 million~~ ~~and~~ ~~$1.9 million~~ ~~for the nine months ended September 30, 2013 and 2012,~~ respectively.

A reconciliation of net income attributable to Oaktree Capital Group, LLC to adjusted net income of the investment management segment is presented below.

Three Months Ended
September 30,

Nine Months Ended
September 30,
2013 2012 2013 2012
Net income attributable to Oaktree Capital Group, LLC $ 42,948
$ 25,212
$ 157,091
$ 68,539
Equity-based compensation ⁽¹⁾
6,250
7,369
18,231
27,353
Income taxes ⁽²⁾
726
5,801
18,874
27,493
Non-Operating Group other income ⁽³⁾
—
—
—
(6,260 )
Non-Operating Group expenses ⁽³⁾
271
115
947
393
OCGH non-controlling interest ⁽³⁾
129,408
119,235
617,191
379,356
Adjusted net income $ 179,603
$ 157,732
$ 812,334
$ 496,874



	Three Months Ended March 31,
	2014			2013
Net income attributable to Oaktree Capital Group, LLC	$	51,794		$	57,566
Incentive income ⁽¹⁾	64,460			—
Incentive income compensation ⁽¹⁾	(46,334		)	—
Equity-based compensation ⁽²⁾	5,199			5,800
Income taxes ⁽³⁾	7,986			10,157
Non-Operating Group expenses ⁽⁴⁾	282			210
OCGH non-controlling interest ⁽⁴⁾	163,558			262,017
Adjusted net income	$	246,945		$	335,750


(1)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG. There were no adjustments attributable to timing differences for the three months ended March 31, 2013.


(2)	This adjustment adds back the effect of equity-based compensation charges related to unit grants made before the Company’s initial public offering, which is excluded from adjusted net income because it is a non-cash charge that does not affect the Company's financial position.


~~(2)~~(3)	Because adjusted net income is a pre-tax measure, this adjustment eliminates the effect of income tax ~~expense.~~expense from adjusted net income.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)


~~(3)~~(4)	Because adjusted net income is calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or the OCGH non-controlling interest.

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

The following tables reconcile the Company’s segment information to the condensed consolidated financial statements:


	As of or for the Three Months Ended September 30, 2013									As of or for the Three Months Ended March 31, 2014
	Segment			Adjustments			Consolidated			Segment			Adjustments			Consolidated
Management fees ⁽¹⁾	$	185,580		$	(128,794	)	$	56,786		$	188,400		$	(147,969	)	$	40,431
Incentive income ⁽¹⁾	122,424			(122,424		)	—			292,876			(292,876		)	—
Investment income ⁽¹⁾	53,558			(42,090		)	11,468			46,480			(41,489		)	4,991
Total expenses ⁽²⁾	(175,033		)	(39,125		)	(214,158		)	(272,488		)	14,169			(258,319		)
Interest expense, net ⁽³⁾	(7,074		)	(10,263		)	(17,337		)	(6,625		)	(17,375		)	(24,000		)
Other income, net	148			—			148			(1,698		)	—			(1,698		)
Other income of consolidated funds ⁽⁴⁾	—			1,253,050			1,253,050			—			1,786,765			1,786,765
Income taxes	—			(726		)	(726		)	—			(7,986		)	(7,986		)
Net income attributable to non-controlling redeemable interests in consolidated funds	—			(916,875		)	(916,875		)	—			(1,324,832		)	(1,324,832		)
Net income attributable to OCGH non-controlling interest in consolidated subsidiaries	—			(129,408		)	(129,408		)	—			(163,558		)	(163,558		)
Adjusted net income/net income attributable to Oaktree Capital Group, LLC	$	179,603		$	(136,655	)	$	42,948		$	246,945		$	(195,151	)	$	51,794
Corporate investments, at equity ⁽⁵⁾	$	1,100,500		$	(1,009,820	)	$	90,680
Corporate investments ⁽⁵⁾										$	1,393,692		$	(1,214,960	)	$	178,732
Total assets⁽⁶⁾	$	2,649,360		$	42,051,821		$	44,701,181		$	2,934,327		$	45,494,881		$	48,429,208


(1)	The adjustment represents the elimination of amounts attributable to the consolidated funds.

(2)

The expense adjustment consists of (a) equity-based compensation charges of $~~6,250~~5,199 related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of $~~32,604~~26,684, (c) expenses incurred by the Intermediate Holding Companies of $282 and (d) the effect of timing differences in the recognition of incentive income compensation expense between adjusted net income and net income attributable to OCG of $46,334.


(3)	The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of the consolidated funds and the exclusion of segment interest income.


(4)	The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investment income attributable to non-controlling interests of the consolidated funds.


(5)	The adjustment to corporate investments is to remove from segment assets the Company's investments in the consolidated funds, including investments in its CLOs, that are treated as equity- or cost-method investments for segment reporting purposes. Of the $1.4 billion, equity-method investments accounted for $1.2 billion.


(6)	The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable.

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)



	As of or for the Three Months Ended March 31, 2013
	Segment			Adjustments			Consolidated
Management fees ⁽¹⁾	$	184,214		$	(141,675	)	$	42,539
Incentive income ⁽¹⁾	327,184			(327,184		)	—
Investment income ⁽¹⁾	82,050			(69,807		)	12,243
Total expenses ⁽²⁾	(250,271		)	(25,234		)	(275,505		)
Interest expense, net ⁽³⁾	(7,407		)	(4,174		)	(11,581		)
Other income, net	(20		)	—			(20		)
Other income of consolidated funds ⁽⁴⁾	—			2,626,029			2,626,029
Income taxes	—			(10,157		)	(10,157		)
Net income attributable to non-controlling redeemable interests in consolidated funds	—			(2,063,965		)	(2,063,965		)
Net income attributable to OCGH non-controlling interest in consolidated subsidiaries	—			(262,017		)	(262,017		)
Adjusted net income/net income attributable to Oaktree Capital Group, LLC	$	335,750		$	(278,184	)	$	57,566
Corporate investments ⁽⁵⁾	$	1,117,848		$	(1,022,196	)	$	95,652
Total assets ⁽⁶⁾	$	2,500,367		$	42,416,711		$	44,917,078


(1)	The adjustment represents the elimination of amounts attributable to the consolidated funds.


(2)	The expense adjustment consists of (a) equity-based compensation charges of $5,800 related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of $19,224 and (c) expenses incurred by the Intermediate Holding Companies of $~~271~~210.


(3)	The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of the consolidated funds and the exclusion of segment interest income.


(4)	The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investment income attributable to non-controlling interests of the consolidated funds.


(5)	The adjustment to corporate investments is to remove from segment assets the ~~consolidated funds that are treated as equity method~~Company's investments ~~for segment reporting purposes.~~


~~(6)~~	~~The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated~~ in ~~consolidation, which are primarily corporate investments in funds and incentive income receivable.~~

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

As of or for the Three Months Ended September 30, 2012
Segment Adjustments Consolidated
Management fees ⁽¹⁾
$ 182,587
$ (152,001 ) $ 30,586
Incentive income ⁽¹⁾
59,174
(57,854 ) 1,320
Investment income ⁽¹⁾
62,801
(54,503 ) 8,298
Total expenses ⁽²⁾
(139,084 ) (28,936 ) (168,020 )
Interest expense, net ⁽³⁾
(7,687 ) (3,102 ) (10,789 )
Other income, net (59 ) —
(59 )
Other income of consolidated funds ⁽⁴⁾
—
2,358,767
2,358,767
Income taxes —
(5,801 ) (5,801 )
Net income attributable to non-controlling redeemable interests in consolidated funds —
(2,069,855 ) (2,069,855 )
Net income attributable to OCGH non-controlling interest in consolidated subsidiaries —
(119,235 ) (119,235 )
Adjusted net income/net income attributable to Oaktree Capital Group, LLC $ 157,732
$ (132,520 ) $ 25,212
Corporate investments, at equity ⁽⁵⁾
$ 1,236,710
$ (1,108,088 ) $ 128,622
Total assets ⁽⁶⁾
$ 2,266,488
$ 44,542,839
$ 46,809,327


~~(1)~~	~~The adjustment represents the elimination of amounts attributable to the consolidated funds.~~


~~(2)~~	~~The expense adjustment consists of (a) equity-based compensation charges of~~ ~~$7,369~~ ~~related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of~~ ~~$21,452~~ ~~and (c) expenses incurred by the Intermediate Holding Companies of~~ ~~$115~~.


~~(3)~~	~~The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of the consolidated funds and the exclusion of segment interest income.~~


~~(4)~~	The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investment income attributable to non-controlling interests of the consolidated funds.


~~(5)~~	~~The adjustment to corporate investments is to remove from segment assets~~ the consolidated funds that are treated as ~~equity method~~equity-method investments for segment reporting purposes.


(6)	The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable.

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

As of or for the Nine Months Ended September 30, 2013
Segment Adjustments Consolidated
Management fees ⁽¹⁾
$ 552,281
$ (402,859 ) $ 149,422
Incentive income ⁽¹⁾
787,665
(785,348 ) 2,317
Investment income ⁽¹⁾
170,184
(147,584 ) 22,600
Total expenses ⁽²⁾
(676,591 ) (98,612 ) (775,203 )
Interest expense, net ⁽³⁾
(21,617 ) (21,314 ) (42,931 )
Other income, net 412
—
412
Other income of consolidated funds ⁽⁴⁾
—
5,179,866
5,179,866
Income taxes —
(18,874 ) (18,874 )
Net income attributable to non-controlling redeemable interests in consolidated funds —
(3,743,327 ) (3,743,327 )
Net income attributable to OCGH non-controlling interest in consolidated subsidiaries —
(617,191 ) (617,191 )
Adjusted net income/net income attributable to Oaktree Capital Group, LLC $ 812,334
$ (655,243 ) $ 157,091
Corporate investments, at equity ⁽⁵⁾
$ 1,100,500
$ (1,009,820 ) $ 90,680
Total assets⁽⁶⁾
$ 2,649,360
$ 42,051,821
$ 44,701,181


~~(1)~~	~~The adjustment represents the elimination of amounts attributable to the consolidated funds.~~


~~(2)~~	~~The expense adjustment consists of (a) equity-based compensation charges of~~ ~~$18,231~~ ~~related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of~~ ~~$79,434~~ ~~and (c) expenses incurred by the Intermediate Holding Companies of~~ ~~$947~~.


~~(3)~~	~~The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of the consolidated funds and the exclusion of segment interest income.~~


~~(4)~~	The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investment income attributable to non-controlling interests of the consolidated funds.


~~(5)~~	~~The adjustment to corporate investments is to remove from segment assets the consolidated funds that are treated as equity method investments for segment reporting purposes.~~


~~(6)~~	The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable.

~~Oaktree Capital Group, LLC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)~~

~~($ in thousands, except where noted)~~

As of or for the Nine Months Ended September 30, 2012
Segment Adjustments Consolidated
Management fees ⁽¹⁾
$ 562,692
$ (470,879 ) $ 91,813
Incentive income ⁽¹⁾
250,861
(244,493 ) 6,368
Investment income ⁽¹⁾
150,382
(132,699 ) 17,683
Total expenses ⁽²⁾
(445,421 ) (97,174 ) (542,595 )
Interest expense, net ⁽³⁾
(23,914 ) (9,725 ) (33,639 )
Other income, net ⁽⁴⁾
2,274
6,260
8,534
Other income of consolidated funds ⁽⁵⁾
—
5,795,524
5,795,524
Income taxes —
(27,493 ) (27,493 )
Net income attributable to non-controlling redeemable interests in consolidated funds —
(4,868,300 ) (4,868,300 )
Net income attributable to OCGH non-controlling interest in consolidated subsidiaries —
(379,356 ) (379,356 )
Adjusted net income/net income attributable to Oaktree Capital Group, LLC $ 496,874
$ (428,335 ) $ 68,539
Corporate investments, at equity ⁽⁶⁾
$ 1,236,710
$ (1,108,088 ) $ 128,622
Total assets ⁽⁷⁾
$ 2,266,488
$ 44,542,839
$ 46,809,327


~~(1)~~	~~The adjustment represents the elimination of amounts attributable to the consolidated funds.~~


~~(2)~~	~~The expense adjustment consists of (a) equity-based compensation charges of~~ ~~$27,353~~ ~~related to unit grants made before the Company’s initial public offering, (b) consolidated fund expenses of~~ ~~$69,428~~ ~~and (c) expenses incurred by the Intermediate Holding Companies of~~ ~~$393~~.


~~(3)~~	~~The interest expense adjustment represents the inclusion of interest expense attributable to non-controlling interests of the consolidated funds and the exclusion of segment interest income.~~


~~(4)~~	The other income, net adjustment represents other income or expenses of OCG or its Intermediate Holding Companies. This amount is attributable to a reduction in the amount of the deferred tax asset under the tax receivable agreement associated with the 2007 Private Offering, which reduced the tax receivable agreement liability payable to OCGH unitholders.


~~(5)~~	The adjustment to other income of consolidated funds primarily represents the inclusion of interest, dividend and other investment income attributable to non-controlling interests of the consolidated funds.


~~(6)~~	~~The adjustment to corporate investments is to remove from segment assets the consolidated funds that are treated as equity method investments for segment reporting purposes.~~


~~(7)~~	The total assets adjustment represents the inclusion of investments and other assets of the consolidated funds, net of segment assets eliminated in consolidation, which are primarily corporate investments in funds and incentive income receivable.

3740

Oaktree Capital Group, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2014

($ in thousands, except where noted)

15. SUBSEQUENT EVENTS

On ~~November~~May 1, ~~2013,~~2014, the Company declared a distribution of $~~0.74~~0.98 per Class A unit. This distribution, which is related to the ~~third~~first quarter of ~~2013,~~2014, will be paid on ~~November~~May 15, ~~2013~~2014 to Class A unitholders of record as of the close of business on ~~November 13, 2013.~~May 12, 2014.

3841

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of Oaktree Capital Group, LLC and the related notes included within this quarterly report. This discussion contains forward-looking statements that are subject to risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. The factors listed under “Risk Factors” and “Forward-Looking Statements” in this quarterly report and under “Risk Factors” in our annual report provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in any forward-looking statements.

Business Overview

Oaktree is a leader among global investment managers specializing in alternative investments, with ~~$79.8~~$86.2 billion in AUM as of ~~September 30, 2013.~~March 31, 2014. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. Over more than a quarter-century 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. Our investment approach, based on the primacy of risk control, and the strong risk-adjusted performance record it has produced appeal to the many investors who seek attractive returns with less-than-commensurate risk. Oaktree's growth and success are byproducts of our proven investment approach and our policy of putting clients' interests first.

We manage assets on behalf of many of the most significant institutional investors in the world. Our clientele has more than doubled over the past decade, to ~~over 1,900,~~approximately 2,000, including 7574 of the 100 largest U.S. pension plans, 38 states in the United States, ~~approximately~~over 400 corporations, ~~over 300~~nearly 350 university, charitable and other endowments and foundations, 11 sovereign wealth funds and ~~over 250~~approximately 300 other non-U.S. institutional investors. Approximately 39% of our clients are invested in at least four or more different investment strategies, and approximately 38% of our clients are invested in two or three different investment strategies. We serve these clients with over ~~750~~800 employees, including over ~~190~~220 employee-owners, with offices in 1516 cities across 12 countries, of which the largest offices are in Los Angeles (headquarters), London, New York and Hong Kong.

Our business is comprised of one segment, our investment management segment, which consists of the investment management services that we provide to our clients. Our segment revenue flows from the management fees and incentive income generated by the funds that we manage, as well as the investment income from the funds we manage and other ~~third-party~~ funds and companies in which we invest. 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 or NAV of the particular fund. Incentive income represents our share (typically 20%) of the investors' profits in most of the closed-end and evergreen funds. Investment income refers to the investment return on a mark-to-market basis or our equity participation on the amounts that we invest in Oaktree and third-party funds, as well as ~~our equity income participation from investments~~ in other companies.

Business Environment and Developments

As a global investment manager, we are affected by myriad factors, including the condition of the economy and financial markets; the relative attractiveness of our investment strategies and investors' demand for them; and regulatory or other governmental policies or actions. The diversified nature of both our array of investment strategies and our revenue mix historically has allowed us to benefit from both strong and weak environments. Weak economies and the declining financial markets that typically accompany them tend to dampen our revenues from asset-based management fees, investment realizations or price appreciation, but their prospect can result in our raising relatively large amounts of capital for certain strategies, especially ~~distressed debt.~~Distressed Debt. Additionally, during weak financial markets there often is expanded availability of bargain investments for purchase, and our risk-controlled investment approach generally allows us to take maximum advantage of them. Conversely, the strong phase of the economic cycle generally increases the value of our investments and therefore the fees ~~from strategies~~ that are based on asset value, and creates favorable exit opportunities (and often incentive ~~income)~~income and higher investment income proceeds). At the same time, however, this motivates us to be more restrained in sizing funds in distress-oriented strategies.

~~The third~~Following 2013’s strong returns, most major equity markets saw modest gains in the first quarter of ~~2013 saw a continuation of the recovery in the U.S. economy and financial markets since the global financial crisis,~~2014, with the S&P 500 Index rising ~~5.2% in the third quarter and 19.8% in the first nine months of 2013.~~1.8%. Credit markets ~~benefited from~~generally rose, as the uneven nature of the economic recovery and lack of inflationary pressures restrained the late-2013 rise in interest rates. The yield on the 10-year U.S. ~~Federal Reserve’s decision~~Treasury note declined 31 basis points, to ~~delay tapering its bond-buying program, with U.S. high~~close the quarter at 2.73%. High yield bonds ~~finishing the quarter with a total return of 2.2%, bringing the year-to-date return to 3.6%~~returned 2.9% (as

measured by the Citigroup U.S. High Yield Cash-Pay Capped Index)~~. Financial markets elsewhere also~~, as yield spreads tightened. European equities were generally ~~gained in the quarter. European equity markets produced particularly strong returns,~~positive, with

the MSCI Europe Index ~~gaining 13.7% for the quarter, to 16.7% for the year-to-date period,~~advancing 2.2%, on ~~improved consumer sentiment and other data that indicated improvement~~signs of continuing economic recovery in the ~~region’s struggling economy.~~region. In general, emerging markets stocks continued to lag those in developed markets, amid concerns over the U.S. Federal Reserve’s tapering of its bond-buying program, slowing growth in China and tensions between Russia and Ukraine.

~~Against this general backdrop of elevated asset prices, we continued~~The first quarter’s generally accommodative financial and capital markets allowed us to maintain our harvesting of profitable ~~investments. Fund~~investments in our liquidating closed-end funds. Those realizations and ongoing interest and dividend income drove the ~~third quarter’s~~$2.0 billion in distributions by our ~~distressed debt~~Distressed Debt and other closed-end funds, ~~to an~~bringing their aggregate ~~$1.9 billion, on top of the $7.9 billion of closed-end fund~~ distributions for the ~~first six~~trailing twelve months to $10.8 billion. As of ~~2013. These same positive~~March 31, 2014, our closed-end funds had produced an aggregate gross IRR of 19.9% on over $64 billion of drawn capital. Our AUM and management fee-generating AUM reached all-time highs, boosted by rising market values and ~~financing conditions kept attractive~~net capital inflows. Although bargain-priced buying opportunities remained relatively scarce, particularly for our distress-oriented ~~funds. While such scarcity of~~funds, we are finding attractive risk-adjusted investment opportunities ~~is typical for this phase of the strong economic cycle, attractive risk-adjusted opportunities exist~~ in pockets of dislocation where a pullback of traditional lenders as well as a tightening financial regulatory environment have ~~pulled back.~~created a void of capital. These ~~areas~~opportunities include ~~middle-market companies~~a broad array of assets in Europe, ~~certain~~ commercial ~~real estate sectors,~~bank loan portfolios and ~~the shipping and power industries.~~shipping. We ~~are capitalizing~~continue to capitalize on these and other opportunities through our ~~real estate, mezzanine finance~~existing funds and ~~control investing funds,~~strategies, as well as our newer product offerings, including Strategic Credit, Real Estate Debt, Emerging Markets Opportunities, Emerging Markets Equities, European Private Debt and levered senior loan vehicles such as Oaktree Enhanced Income Fund, L.P. (“EIF”). New clients and new products were key elements of our asset growth, as approximately 45% of the $13 billion of gross capital raised within the last twelve months was for strategies and investment products that did not exist three years ago, and about one-third of the gross capital raised within the last twelve months was from clients new to Oaktree.

The continued strength in financial markets resulted in incentives created by 22 different funds across nine different investment strategies in the first quarter of 2014, and accrued incentives (fund level), net of associated incentive income compensation expense (“net accrued incentives (fund level)”), of $1.2 billion as of March 31, 2014. However, the prospect of near-term realizations from the March 31, 2014 net accrued incentives (fund level) balance is considerably lower than was the case from the year-ago balance as of March 31, 2013. Specifically, of the $1.2 billion in net accrued incentives (fund level) as of March 31, 2014, $444.9 million represented funds that as of that date were currently paying incentives, with the remainder arising from funds that, as of March 31, 2014, had not yet reached the stage of their cash distribution waterfall where we are entitled to receive incentive income, other than tax-related incentive distributions (which are not currently expected for the final three quarters of 2014). In contrast, as of March 31, 2013, the equivalent portion of net accrued incentives (fund level) that was paying incentives was $777.5 million.

OCM Opportunities Fund VIIb, L.P. (“Opps VIIb”) represented approximately four-fifths of the $444.9 million in net accrued incentives (fund level) as of March 31, 2014 attributable to funds currently paying incentives. Historically, a closed-end fund’s incentive distributions tend to become more sporadic, lumpier and/or smaller in size, and its holdings tend to become more concentrated and less liquid, as it progresses through its liquidation phase, such as ~~Strategic Credit, real estate debt, emerging market opportunities~~is now the case for Opps VIIb, which had an NAV of $3.0 billion as of March 31, 2014, down from $5.4 billion as of March 31, 2013. As a result, due to the $332.6 million decline in net accrued incentives (fund level) attributable to funds currently paying incentives over the last twelve months and ~~European private debt.~~the fact that approximately four-fifths of that smaller balance was represented by a fund whose incentive distributions would normally be expected to decline in frequency and/or size, for the remainder of 2014 we would expect significantly less net incentive income, and thus lower adjusted net income and distributable earnings, to arise from the net accrued incentives (fund level) balance as of the end of the first quarter than was the case for the last three quarters of 2013 from the March 31, 2013 net accrued incentives (fund level) balance.

Understanding Our Results—Consolidation of Oaktree Funds

GAAP requires that we consolidate substantially all of our closed-end, commingled open-end and evergreen funds in our financial statements, notwithstanding the fact that our equity investments in those funds do not typically exceed 2.5% of any fund’s interests. Consolidated funds consist of those funds and CLOs in which we hold a general partner interest or otherwise that ~~gives~~give us substantive control rights over such funds. With respect to our consolidated funds, we generally have operational discretion and control over the funds, and investors do not hold any substantive rights that would enable them to impact the funds’ ongoing governance and operating activities. The funds that we manage that were not consolidated, primarily separately managed accounts, represented ~~35%~~36% of our AUM as of ~~September 30, 2013,~~March 31, 2014, and ~~31%~~21% and ~~27%~~8% of our segment management fees and ~~16% and 10% of our~~ segment revenues, respectively, for the three ~~and nine~~ months ended ~~September 30, 2013, respectively.~~March 31, 2014.

We do not consolidate OCM/GFI Power Opportunities Fund II, L.P. (“Power Fund II”) because we do not control this fund through a majority voting interest or otherwise. Power Fund II has two general partners—one is an entity controlled by Oaktree and the other is an entity controlled by G3W Ventures LLC (formerly, GFI Energy Ventures LLC), a third-party investment manager. The general partners have equal voting rights; consequently, neither general partner is deemed to individually control the fund.

When a fund is consolidated, we reflect the assets, liabilities, revenues, expenses and cash flows of the fund on a gross basis, ~~subject to eliminations in consolidation. Those eliminations have~~and the ~~effect~~majority of ~~reclassifying from consolidated revenues to consolidated non-controlling interests~~ the ~~management fees and other revenues that we earn from consolidated funds, because~~economic interests in ~~the consolidated~~those funds, which are held by third-party investors, are treated as non-controlling interests. Conversely, the presentation of incentive income compensation expense and other expenses associated with generating such reclassified revenue is not affected by the consolidation process. The assets, liabilities, revenues and expenses attributable to non-controlling interests are presented as non-controlling redeemable interests in consolidated entities in the condensed consolidated statements of financial condition and as net income attributableattributed to non-controlling redeemable interests in consolidated ~~entities~~funds in the condensed consolidated ~~statements~~financial statements. All of ~~operations.~~the management fees and incentive income earned by us from those funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by non-controlling interests, our attributable share of the net income from those funds is increased by the amounts eliminated. Thus, the elimination of these amounts in consolidation has no effect on either net income or loss attributable to us.

The elimination of consolidated funds from our consolidated revenues means that going forward consolidated revenues are expected to be significantly impacted by fund flows and fluctuations in the market value of our separately managed accounts ~~as well as the revenues earned from the single power opportunities fund that we do~~because they are not ~~consolidate.~~consolidated. Note 14 to our condensed consolidated financial statements included elsewhere in this quarterly report includes information regarding our segment on a stand-alone basis. For a more detailed discussion of the factors that affect the results of operations of our segment, please see “—Segment Analysis” below.

Revenues

Our business generates three types of segment revenue: management fees, incentive income and investment income. Management fees are billed monthly or quarterly based on annual rates and are typically earned for each of the funds that we manage. The contractual terms of management fees generally vary by fund structure. Management fees also include performance-based revenues earned from certain open-end and evergreen fund accounts and CLOs. We also have the opportunity to earn incentive income from most of our closed-end funds and certain evergreen funds. Our closed-end funds generally provide that we receive incentive income only after our ~~incentive allocation is equal to 20% of our investors’ profits, after the~~ investors ~~(including us, as general partner)~~ receive the return of all of their 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 ~~the~~those investors receive the remaining 20% until we have received, ~~in the aggregate,~~as incentive income, 20% of all such distributions in excess of the contributed capital from the inception of the fund. Thereafter, provided the preferred return continues to be met, all such future distributions attributable to our investors are distributed 80% to ~~the~~those investors and 20% to ~~us.~~us as incentive income. Our third segment revenue source, investment income, represents our ~~pro rata~~pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds and as an investor in third-party managed funds and companies. Our consolidated revenues exclude investment income, which is presented within the other income (loss) section of our ~~condensed~~ consolidated statements of operations. Please see “Business—Structure and Operation of Our Business—Structure of Funds” in our annual report for a detailed discussion of the structure of our funds.

Expenses

Compensation and Benefits

Compensation and benefits reflects all compensation-related items not directly related to incentive income, investment income or the vesting of OCGH and Class A units, including salaries, bonuses, compensation based on management fees or a definition of profits, employee benefits, and ~~employee benefits.~~liability-based awards subject to vesting and remeasurement at the end of each reporting period (“phantom equity plan expense”).

Equity-based Compensation

Equity-based compensation ~~expense~~ reflects the non-cash charge associated with ~~both the OCGH units held by our principals and employees at the time of the 2007 Private Offering and subsequent~~ grants of Class A and OCGH units. ~~Starting with the year ended December 31, 2007, the~~The non-cash compensation expense for units ~~held at~~granted before and after our initial public offering is recognized in the ~~time~~condensed consolidated financial statements. Adjusted net income, however, excludes non-cash equity-based compensation expense for units granted before our initial public offering (please see “—Segment and Operating Metrics—Adjusted Net Income” below). As of ~~the 2007 Private Offering~~March 31, 2014, there was ~~charged equally over the five-year vesting period that ended January 2, 2012, based on the units’ value as of the 2007 Private Offering. The remaining $5.1~~$69.8 million of unrecognized compensation expense ~~relating to the 2007 Private Offering as of December 31, 2011 was recognized in the first quarter of 2012. As of September 30, 2013, we had~~ ~~$107.5 million~~ ~~of unrecognized compensation expense relating~~related to unit grants ~~subsequent to the 2007 Private Offering~~made before our initial public offering that we expect to recognize in our condensed consolidated financial statements over their weighted average remaining vesting period of 5.2 years. As of March 31, 2014, there was an additional $93.3 million of unrecognized compensation expense related to unit grants made after our initial public offering that we expect to recognize in both our condensed consolidated financial

statements and adjusted net income over these units’ weighted average vesting period of approximately 5.3 years, as shown below. These amounts are subject to increase as a result of future unit grants, and subject to change as a result of possible modifications to award terms or changes in estimated forfeiture rates.



Non-cash Charge to ANI from Equity-based Compensation	Last Nine Months of 2014		2015		2016		2017		2018		Thereafter		Total
	(in millions)
Estimated charge from grants through March 2014	$	15.6	$	21.4	$	21.5	$	17.5	$	5.8	$	11.5	$	93.3

Incentive Income Compensation

Incentive income compensation expense primarily includes compensation directly related to segment incentive income, which generally consists of percentage interests (sometimes referred to as “points”) that we grant to our investment professionals associated with the particular fund that generated the segment incentive income, and secondarily includes compensation directly related to investment income. There is no fixed percentage for this compensation, ~~expense,~~ either by fund or strategy. In general, within a particular strategy more recent funds have a higher percentage of aggregate incentive income compensation expense than do older funds. The percentage that consolidated incentive income compensation expense represents of the particular period’s consolidated incentive income is not meaningful because of the fact that most segment incentive income is eliminated in consolidation, whereas no incentive income compensation expense is eliminated in consolidation. For a meaningful percentage relationship, please see “—Segment Analysis” below. ~~Additionally, note 12 to our condensed consolidated financial statements contains the estimated incentive income compensation expense related to accrued incentives (fund level).~~

General and Administrative

General and administrative expenses include costs related to occupancy, ~~accountants,~~outside auditors, tax professionals, legal ~~advisors,~~advisers, consultants, travel and entertainment, communications and information services, foreign exchange activity and other general operating items. These expenses are not borne by fund investors and are not offset by credits attributable to fund investors’ non-controlling redeemable interests in consolidated funds. Until April 2012, we operated as a private company. As we have incurred additional expenses associated with being a public company, general and administrative expenses have increased as compared with periods before we became a public company. Examples of such expenses include insurance for our directors and officers and costs to comply with SEC reporting requirements, stock exchange listing standards, the Dodd-Frank Act and the Sarbanes-Oxley Act.

Depreciation and Amortization

Depreciation and amortization expense includes costs associated with the purchase of furniture and equipment, capitalized software, and leasehold improvements. Furniture and equipment isand capitalized software costs are depreciated using the straight-line method over the estimated useful life of the asset, which is generally three-to-five years. Leasehold improvements are amortized using the straight-line method over the shorter of the respective estimated useful life or the lease term.

Consolidated Fund Expenses

Consolidated fund expenses consist primarily of costs incurred by our consolidated funds, including travel expenses, professional fees, research expenses and other costs associated with administering these funds. Inasmuch as most of these fund expenses are borne by third-party fund investors, they are offset by credits attributable to the fund investors’ non-controlling redeemable interests in consolidated funds.

Other Income (Loss)

Interest Expense

Interest expense reflects the interest expense of Oaktree and its operating subsidiaries, as well as interest expense of the consolidated funds.

Interest and Dividend Income

Interest and dividend income consists of interest and dividend income earned on the investments held by our consolidated funds, the consolidated funds’ net operating income from real estate-related activities and interest income earned by Oaktree and its operating subsidiaries.

Net Realized Gain on Consolidated Funds’ Investments

Net realized gain on consolidated funds’ investments consists of realized gains and losses arising from dispositions of investments held by our consolidated funds.

Net Change in Unrealized Appreciation on Consolidated Funds’ Investments

Net change in unrealized appreciation on consolidated funds’ investments reflects, for our consolidated funds, both unrealized gains and losses on investments and the reversal upon disposition of investments of unrealized gains and losses previously recognized for those investments.

Investment Income

Investment income represents our ~~pro rata~~pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds and as an investor in ~~other~~ third-party managed funds and companies.

Other Income (Expense), Net

Other income (expense), net primarily reflects the settlement of an arbitration award we received relating to a former ~~principal~~Principal and portfolio manager of our real estate group who left us in 2005. Additionally, the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2014 included the ~~impact~~write-off of ~~a reduction~~unamortized debt issuance costs related to the ~~tax receivable agreement liability as a result~~refinancing of ~~a remeasurement of the deferred tax asset associated with the 2007 Private Offering.~~our corporate credit facility.

Income Taxes

Oaktree is a publicly traded partnership that meets the qualifying income exception, allowing it to be treated as a partnership for U.S. federal income tax purposes that is not taxable as a corporation. Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., which are two of our five Intermediate Holding Companies ~~which were established as our~~and wholly owned subsidiaries, are subject to U.S. federal and state income taxes. The remainder of Oaktree’s income is generally not subject to corporate-level taxation.

Oaktree’s effective tax rate is directly impacted by the proportion of Oaktree’s income subject to tax compared to income not subject to tax. Oaktree’s non-U.S. income ~~(loss)~~or loss before taxes is generally not significant in relation to total pre-tax income ~~(loss)~~or loss and is generally more predictable because, unlike U.S. pre-tax income, it is not significantly impacted by unrealized gains or losses. Non-U.S. tax expense typically comprises a disproportionately large percentage of total income tax expense because nearly all of our non-U.S. income or loss is subject to corporate-level income tax, whereas a substantial portion of our U.S. income or loss is not subject to corporate-level taxes. In addition, changes in the proportion of non-U.S. pre-tax income to total pre-tax income impact Oaktree’s effective tax rate to the extent non-U.S. rates differ from the combined U.S. federal and state tax rate.

Income taxes are accounted for using the liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Net Income Attributable to Non-controlling Interests

Net income attributable to non-controlling interests represents the ownership interests that third parties hold in entities that are consolidated in our financial statements. These interests fall into two categories:

Net Income Attributable to Non-controlling Redeemable Interests in Consolidated Funds. This represents the ~~non-controlling~~economic interests ~~that third-party~~of the unaffiliated investors ~~hold~~ in the consolidated funds, which interests are primarily driven by the investment performance of the consolidated funds. In comparison to net income, this measure excludes segment results, income taxes, expenses that OCG or its Intermediate Holding Companies bear directly and the impact of equity-based compensation expense; and

Net Income Attributable to OCGH Non-controlling Interest in Consolidated Subsidiaries. This represents the economic interest in the Oaktree Operating Group owned by OCGH, which interest is determined at the Oaktree Operating Group level based on the weighted average proportionate share of Oaktree Operating Group units held by the OCGH unitholders. Inasmuch as the number of outstanding Oaktree Operating Group units corresponds with the total number of outstanding OCGH units and Class A units, changes in the economic interest held by the OCGH unitholders are driven by

our additional ~~grants~~issuances of OCGH units and our issuance, if any, of additional Class A units, as well as repurchases and forfeitures of OCGH units and Class A units. Certain of our expenses, such as income tax and related administrative expenses of Oaktree Capital Group, LLC and its Intermediate Holding Companies, are solely attributable to the Class A unitholders. Please see note 8 to our condensed consolidated financial statements included elsewhere in this quarterly report for additional information on the economic interest in the Oaktree Operating Group owned by OCGH.

Segment and Operating Metrics

Our business is comprised of one segment, our investment management segment, which consists of the investment management services that we provide to our clients. Management makes operating decisions and assesses the performance of our business based on financial and operating metrics and data that are presented without the consolidation of any funds. For a detailed reconciliation of the segment results of operations to our condensed consolidated ~~results~~statements of operations, please see “—Segment Analysis” below and the “Segment Reporting” note to our condensed consolidated financial statements included elsewhere in this quarterly report. The data most important to our chief operating decision maker in assessing our performance are adjusted net income, adjusted net income-OCG, distributable earnings, distributable earnings-OCG, fee-related earnings and fee-related earnings-OCG.

We monitor certain operating metrics that are either common to the alternative asset management industry or that we believe provide important data regarding our business. As described below, these operating metrics include assets under management, management fee-generating assets under management, incentive-creating assets under management, incentives created (fund level), accrued incentives (fund level) and uncalled capital commitments.

Adjusted Net Income

Our chief operating decision maker uses adjusted net income (“ANI”) as a tool to help evaluate the financial performance of, and make resource allocations and other operating decisions for, our 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-based compensation charges related to unit grants made before our initial public offering, (b) income taxes, (c) other income or expenses applicable to OCG or its Intermediate Holding Companies and (d) the adjustment for the OCGH non-controlling interest. Incentive income and incentive income compensation expense are included in ANI when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. ANI is calculated at the Operating Group level.

Among other factors, our accounting policy for recognizing incentive income and inclusion of non-cash equity-based compensation charges related to unit grants made after our initial public offering will likely make our ~~calculations~~calculation of ANI not directly comparable to economic net income (“ENI”) or other similarly named measures ~~for~~of other asset managers.

We calculate adjusted net income-OCG, or adjusted net income per Class A unit, a non-GAAP measure, 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) other income or expenses, such as income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) any Oaktree Operating Group income taxes attributable to OCG. Two of our Intermediate Holding Companies incur U.S. federal and state income taxes for their share of Operating Group income. Generally, 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 most of our incentive income and investment income generally has 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.

4347

Distributable Earnings

Our chief operating decision maker uses distributable earnings as a tool to help evaluate the financial performance of, and make resource allocations and other operating decisions for, our segment. Distributable earnings is a non-GAAP performance measure derived from our segment results that we use to measure our earnings at the ~~Oaktree~~ 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.

In accordance with GAAP, certain of our funds are consolidated into our condensed consolidated financial statements, notwithstanding the fact that we typically have only a minority economic interest in these funds. Consequently, our condensed consolidated financial statements reflect the results of our consolidated funds on a gross basis. In addition, our segment results include investment income (loss), which under the equity method of accounting represents our ~~pro rata~~pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds and as an investor in ~~other~~ third-party managed funds and companies, and which is largely non-cash in nature. By excluding the results of our consolidated funds and segment investment income ~~(loss),~~or loss, which are not directly available to fund our operations or make equity distributions, and including the portion of distributions from Oaktree and non-Oaktree funds to us that represents the income or loss component of the distributions and not a return of our capital contributions, as well as distributions from our investments in companies, distributable earnings aids us in measuring amounts that are actually available to meet our obligations under the tax receivable agreement and our liabilities for expenses incurred at OCG and the Intermediate Holding Companies, as well as for distributions to Class A and OCGH unitholders.

Distributable earnings differs from ANI in that it excludes segment investment income ~~(loss)~~or loss and includes the receipt of investment income or loss from distributions by our investments in funds and companies. In addition, distributable earnings differs from ANI in that it is net of Operating Group income taxes and ~~beginning in 2013,~~ excludes non-cash equity-based compensation charges related to unit grants made after our initial public offering. In contrast to the GAAP measure of net income or loss attributable to OCG, distributable earnings also excludes the effect of (a) non-cash equity-based compensation charges related to unit grants made before our initial public offering, (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-OCG, or distributable earnings per Class A unit, is a non-GAAP measure calculated to provide Class A unitholders with a measure that shows the portion of distributable earnings attributable to their ownership. Distributable earnings-OCG represents distributable earnings including the effect of (a) OCGH non-controlling interest, (b) expenses, such as current income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) amounts payable under athe tax receivable agreement. The income tax expense included in distributable earnings-OCG represents the implied current provision for income taxes calculated using an approach similar to that which is used in calculating the income tax provision for adjusted net income-OCG.

Fee-related Earnings

Fee-related earnings is a non-GAAP measure that we use to monitor the baseline earnings of our business. Fee-related earnings is comprised of segment management fees less segment operating expenses other than incentive income compensation ~~expense. This calculation~~expense and, beginning with the fourth quarter of 2013 (with retrospective application), non-cash equity-based compensation charges related to unit grants made after our initial public offering. Fee-related earnings is considered baseline because it applies all ~~bonus~~cash compensation and benefits other than incentive income compensation expense, as well as all general and administrative expenses, to management fees, even though a significant portion of those expenses is attributable to incentive and investment ~~income. Fee-related earnings include non-cash equity-based compensation charges related to unit grants made after our initial public offering.~~income, and because it excludes all non-management fee revenue sources. Fee-related earnings is presented before income taxes.

Fee-related earnings-OCG, or fee-related earnings per Class A unit, is a non-GAAP measure calculated to provide Class A unitholders with a measure that shows the portion of fee-related earnings attributable to their ownership. Fee-related earnings-OCG represents fee-related earnings including the effect of (a) the OCGH non-controlling interest, (b) other income or expenses, such as income tax expense, applicable to OCG or its Intermediate Holding Companies and (c) any Operating Group income taxes attributable to OCG. Fee-related earnings-OCG income taxes are calculated excluding any segment incentive income or investment income (loss).

Among other factors, the ~~inclusion~~exclusion of non-cash equity-based compensation charges related to unit grants made after our initial public offering may make our calculations of fee-related earnings and fee-related earnings-OCG not directly comparable to similarly named measures ~~for~~of other asset managers.

Assets Under Management

AUM generally refers to the assets we manage and equals the NAV of the assets we manage, the fund-level leverage on which management fees are charged, ~~and~~ the undrawn capital that we are entitled to call from investors in our funds pursuant to their capital ~~commitments.~~commitments and the aggregate par value of collateral assets and principal cash held by our CLOs. Our AUM includes amounts ~~include AUM~~ for which we charge no 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 below may not be directly comparable to the AUM metrics of other asset managers.

Management Fee-generating Assets Under Management. Management fee-generating AUM is a forward-looking metric and reflects the AUM on which we will earn management fees in the following quarter. Our closed-end funds typically pay management fees based on committed capital or drawn capital during the investment period, without regard to changes in NAV, ~~or the pace of capital drawdowns,~~ and during the liquidation period on the lesser of (a) total funded capital and (b) the cost basis of assets remaining in the fund. The annual management fee rate remains unchanged from the investment period through the liquidation period. Our open-end and evergreen funds pay management fees based on their ~~NAV.~~NAV, and our CLOs pay management fees based on the aggregate par value of collateral assets and principal cash held by them, as defined in the applicable CLO indentures.

Incentive-creating Assets Under Management. Incentive-creating AUM refers to the AUM that may eventually produce incentive income. It represents the NAV of our funds for which we are entitled to receive an incentive allocation, excluding investments made by us and our employees and directors (which are not subject to an incentive allocation). All funds for which we are entitled to receive an incentive allocation are included in incentive-creating AUM, regardless of whether or not they are currently generating incentives. Incentive-creating AUM does not include undrawn capital commitments because they are not part of the NAV.

Accrued Incentives (Fund Level)

Our funds record as accrued incentives 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 gross amount of potential incentives 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 are no longer ~~are~~ included in accrued incentives (fund level), the term we use for remaining fund-level accruals.

The same performance and market risks inherent in incentives created (fund level) affect the ability to ultimately realize accrued incentives (fund level). One consequence of the accounting method we follow for incentives created (fund level) is that accrued incentives (fund level) is an off-balance sheet metric, rather than being an on-balance sheet receivable that could require reduction if fund performance suffers. We track accrued incentives (fund level) because it provides an indication of potential future value, though the timing and ultimate realization of that value are uncertain.

Incentives Created (Fund Level)

Incentives created (fund level), incentive income and accrued incentives (fund level) are presented gross, without deduction for direct compensation expense that is owed to our investment professionals associated with the particular fund when we earn the incentive income. We call that charge “incentive income compensation expense.” Incentive income compensation expense varies by the investment strategy and vintage of the particular fund, among other factors. In addition to incentive income compensation expense, the magnitude of the annual cash bonus pool is indirectly affected by the level of incentive income, net of its associated incentive income compensation expense. The total charge related to the annual cash bonus pool, including the portion attributable to our incentive income, is reflected in the financial statement line item “compensation and ~~benefits expense.~~benefits.”

Incentives created (fund level) often reflects investments measured at fair value and therefore is subject to risk of substantial fluctuation by the time the underlying investments are liquidated. We earn the incentive income, if any, that the fund is then obligated to pay us with respect to our incentive interest (generally 20%) in the ~~limited partner investors’~~ profits of

our unaffiliated investors, subject to an annual preferred return of typically 8%. Although GAAP allows the equivalent of incentives created (fund level) to be recognized as revenue by us under Method 2, we ~~have always followed~~follow the Method 1 approach offered by ~~GAAP that is dependent on additional factors, including the incentive allocations becoming fixed or determinable, so as to reduce~~GAAP. Our use of Method 1 reduces by a substantial degree the possibility that revenue recognized by us would be reversed in a subsequent period. ~~Consequently, during~~For purposes of adjusted net income and distributable earnings, we recognize incentive income when the ~~active life of a~~underlying fund ~~the amounts of incentives created (fund level) and incentives we receive~~distributions are known or ~~recognize are not expected to move in~~

~~tandem because~~knowable as of the ~~disparity, inherent in~~respective quarter end, as opposed to the ~~method~~fixed or determinable standard of ~~accounting we utilize under GAAP, between the time that potential incentives are created at the fund level and the time that the revenue recognition criteria is met.~~Method 1. We track incentives created (fund level) because it provides an indication of the value for us currently being created by our investment activities and facilitates comparability with those companies in our industry that utilize the alternative accrual-based Method 2 for recognizing incentive income in their financial statements.

Uncalled Capital Commitments

Uncalled capital commitments represent undrawn capital commitments by partners (including Oaktree as general partner) of our closed-end funds in their investment periods and certain evergreen funds. If a closed-end fund distributes capital during its investment period, that capital is typically subject to possible recall, in which case it is included in uncalled capital commitments.

Condensed Consolidated ~~Results~~Statements of Operations

The following table sets forth our unaudited condensed consolidated ~~results~~statements of ~~operations for the periods indicated:~~operations:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Condensed Consolidated Statements of Operations	2013			2012			2013			2012
													2014			2013
	(in thousands)												(in thousands)
Revenues:
Management fees	$	56,786		$	30,586		$	149,422		$	91,813		$	40,431		$	42,539
Incentive income	—			1,320			2,317			6,368
Total revenues	56,786			31,906			151,739			98,181			40,431			42,539
Expenses:
Compensation and benefits	(95,660		)	(83,141		)	(279,638		)	(247,907		)	(98,292		)	(93,715		)
Equity-based compensation	(7,320		)	(7,498		)	(20,877		)	(27,482		)	(9,182		)	(6,452		)
Incentive income compensation	(49,222		)	(29,546		)	(308,446		)	(118,268		)	(91,494		)	(130,271		)
Total compensation and benefits expense	(152,202		)	(120,185		)	(608,961		)	(393,657		)	(198,968		)	(230,438		)
General and administrative	(31,094		)	(25,965		)	(80,227		)	(72,394		)	(32,238		)	(19,741		)
Depreciation and amortization	(1,791		)	(1,901		)	(5,266		)	(5,573		)	(1,921		)	(1,743		)
Consolidated fund expenses	(29,071		)	(19,969		)	(80,749		)	(70,971		)	(25,192		)	(23,583		)
Total expenses	(214,158		)	(168,020		)	(775,203		)	(542,595		)	(258,319		)	(275,505		)
Other income (loss):
Interest expense	(17,337		)	(10,789		)	(42,931		)	(33,639		)	(24,000		)	(11,581		)
Interest and dividend income	389,078			452,473			1,375,923			1,455,964			362,136			406,252
Net realized gain on consolidated funds’ investments	766,199			1,097,305			2,796,448			2,904,964			654,151			1,198,260
Net change in unrealized appreciation on consolidated funds’ investments	97,773			808,989			1,007,495			1,434,596			770,478			1,021,517
Investment income	11,468			8,298			22,600			17,683			4,991			12,243
Other income (expense), net	148			(59		)	412			8,534			(1,698		)	(20		)
Total other income	1,247,329			2,356,217			5,159,947			5,788,102			1,766,058			2,626,671
Income before income taxes	1,089,957			2,220,103			4,536,483			5,343,688			1,548,170			2,393,705
Income taxes	(726		)	(5,801		)	(18,874		)	(27,493		)	(7,986		)	(10,157		)
Net income	1,089,231			2,214,302			4,517,609			5,316,195			1,540,184			2,383,548
Less:
Net income attributable to non-controlling redeemable interests in consolidated funds	(916,875		)	(2,069,855		)	(3,743,327		)	(4,868,300		)	(1,324,832		)	(2,063,965		)
Net income attributable to OCGH non-controlling interest in consolidated subsidiaries	(129,408		)	(119,235		)	(617,191		)	(379,356		)	(163,558		)	(262,017		)
Net income attributable to Oaktree Capital Group, LLC	$	42,948		$	25,212		$	157,091		$	68,539		$	51,794		$	57,566

4650

Three Months Ended ~~September 30, 2013~~March 31, 2014 Compared to the Three Months Ended ~~September 30, 2012~~March 31, 2013

Revenues

Management Fees

Management fees ~~increased~~ ~~$26.2~~decreased $2.1 million, or ~~85.6%~~4.9%, to ~~$56.8~~$40.4 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$30.6~~$42.5 million for the three months ended ~~September 30, 2012.~~March 31, 2013. The ~~increase~~decrease reflected ~~$4.1~~$7.0 million in ~~higher fees earned across our high yield bond, convertible securities, senior loan and Strategic Credit strategies, and $21.9 million in greater~~lower advisory, director, transaction and certain other ancillary fees for the benefit of our consolidated ~~funds.~~funds and $4.3 million in higher fees earned across our U.S. High Yield Bond, Emerging Markets Equity and Strategic Credit strategies. We reduce our management fees by the amount of advisory and other ancillary fees so that our funds' investors share pro rata in the economic benefit of the ancillary fees. Thus, in our condensed consolidated financial statements, these ancillary fees are treated as being attributable to non-controlling redeemable interests in consolidated entities and have no impact on the net income attributable to OCG.

~~Incentive Income~~

~~The~~ ~~$1.3 million~~ ~~of incentive income for the three months ended September 30, 2012 arose from a separately managed account.~~

Expenses

Compensation and Benefits

Compensation and benefits increased ~~$12.6~~$4.6 million, or ~~15.2%~~4.9%, to ~~$95.7~~$98.3 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$83.1~~$93.7 million for the three months ended ~~September 30, 2012,~~March 31, 2013, primarily reflecting growth in ~~headcount of 10% between September 30, 2012 and September 30, 2013, in part related to corporate development activities, and a higher accrual towards the year-end bonus.~~headcount.

Equity-based Compensation

Equity-based compensation expense ~~decreased~~ ~~$0.2~~increased $2.7 million, or ~~2.7%~~41.5%, to ~~$7.3~~$9.2 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$7.5~~$6.5 million for the three months ended ~~September 30, 2012, reflecting the full~~March 31, 2013. The increase reflected non-cash amortization expense associated with vesting of ~~certain~~restricted unit grants made to employees and directors subsequent to our initial public offering in ~~the prior-year period, partially offset by new unit grants.~~April 2012.

Incentive Income Compensation

Incentive income compensation expense ~~increased~~ ~~$19.7~~decreased $38.8 million, or ~~66.8%~~29.8%, to ~~$49.2~~$91.5 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$29.5~~$130.3 million for the three months ended ~~September 30, 2012. The percentage increase was smaller than~~March 31, 2013. After adjusting the ~~106.8%~~ ~~increase in segment incentive income, principally because in~~2013 quarter's expense for its benefit from the 2011 ~~we acquired and expensed~~acquisition of a small portion of certain investment professionals' carried interest in ~~OCM Opportunities Fund~~Opps VIIb, ~~L.P. (“Opps VIIb”)~~the year-over-year change would have been a decrease of 37.1%. ~~If that transaction had not occurred, total~~The decrease was larger than the 10.5% decline in segment incentive income principally as a result of timing differences associated with the recognition of segment incentive income and incentive income compensation ~~expense would have been an estimated $56.8 million in~~expense. The remainder of the ~~current-year period. Additionally,~~adjusted percentage difference was attributable to the fact that funds that generated segment incentive income in the ~~prior-year period~~current-year's first quarter had a higher average percentage of incentive income compensation expense than those that generated segment incentive income in the ~~current-year~~prior-year period.

General and Administrative

General and administrative expenses increased ~~$5.1~~$12.5 million, or ~~19.6%~~63.5%, to ~~$31.1~~$32.2 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$26.0~~$19.7 million for the three months ended ~~September 30, 2012.~~March 31, 2013. Excluding the impact of foreign currency-related items, general and administrative expenses increased ~~$5.2~~$6.9 million, or ~~22.2%~~27.6%, to ~~$28.6~~$31.9 million from ~~$23.4~~$25.0 million. The increase reflected higher professional fees and costs associated with our 2014 bi-annual client conferences, corporate growth ~~enhancements to~~and continued investment in our operational ~~infrastructure and being a public company.~~infrastructure.

Consolidated Fund Expenses

Consolidated fund expenses increased ~~$9.1~~$1.6 million, or ~~45.5%~~6.8%, to ~~$29.1~~$25.2 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$20.0~~$23.6 million for the three months ended ~~September 30, 2012.~~March 31, 2013. The increase reflected ~~costs incurred in the current-year period associated with the new Oaktree Opportunities Fund IX, L.P (“Opps IX”) and~~ higher professional fees and ~~other costs.~~administrative costs related to managing the funds.

Other Income (Loss)

Interest Expense

Interest expense increased ~~$6.5~~$12.4 million, or ~~60.2%~~106.9%, to ~~$17.3~~$24.0 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$10.8~~$11.6 million for the three months ended ~~September 30, 2012,~~March 31, 2013, attributable entirely to our consolidated funds.

Interest and Dividend Income

Interest and dividend income decreased ~~$63.4~~$44.2 million, or ~~14.0%~~10.9%, to ~~$389.1~~$362.1 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$452.5~~$406.3 million for the three months ended ~~September 30, 2012,~~March 31, 2013, attributable entirely to our consolidated funds. Among the consolidated funds, large portfolio realizations ~~caused distressed debt funds to have~~resulted in an aggregate ~~$83.7~~ $63.8

million inof lower interest and dividend income for the Distressed Debt and Control Investing funds, while ~~the new Oaktree Enhanced Income Fund, L.P. (“EIF”)~~EIF generated $18.5 million in higher interest and dividend ~~income of $24.8 million.~~income.

Net Realized Gain on Consolidated Funds’ Investments

Net realized gain on consolidated funds’ investments decreased ~~$331.1~~$544.1 million, or ~~30.2%~~45.4%, to ~~$766.2~~$654.2 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$1,097.3~~$1,198.3 million for the three months ended ~~September 30, 2012.~~March 31, 2013. Of the ~~$766.2~~$654.2 million net realized gain in the current-year period, ~~$403.4~~$388.3 million was attributable to ~~control investing funds, $345.0 million to distressed debt~~Distressed Debt funds, including ~~$172.3~~$67.5 million from Opps VIIb, ~~and $17.1~~$175.1 million to ~~real estate~~Control Investing funds, and $27.3 million to Real Estate funds. Of the ~~$1,097.3~~$1,198.3 million net realized gain in the prior-year period, ~~$675.9~~$764.6 million was attributable to ~~distressed debt~~Distressed Debt funds, including ~~$292.0~~$392.0 million from Opps VIIb, ~~$336.6~~and $320.9 million to ~~control investing funds, $38.1 million to mezzanine funds, and $27.7 million to real estate~~Control Investing funds.

Net Change in Unrealized Appreciation on Consolidated Funds’ Investments

The net change in unrealized appreciation on consolidated funds’ investments decreased ~~$711.2~~$251.0 million, or ~~87.9%~~24.6%, to ~~$97.8~~$770.5 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$809.0~~$1,021.5 million for the three months ended ~~September 30, 2012.~~March 31, 2013. Excluding the ~~$331.1~~$544.1 million decrease in net realized gain on consolidated funds’ investments, the net change in unrealized appreciation on consolidated funds’ investments decreased ~~$1,042.3~~$795.1 million,, to ~~$864.0~~$1,424.6 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$1,906.3~~$2,219.8 million for the three months ended ~~September 30, 2012.~~March 31, 2013. Of the ~~$864.0~~$1,424.6 million net gain in the current-year period, ~~$493.2~~$701.6 million was attributable to ~~distressed debt~~Distressed Debt funds, ~~$230.3~~$435.3 million to ~~control investing~~Control Investing funds and ~~$65.7~~$176.7 million to ~~real estate~~Real Estate funds. Of the ~~$1,906.3~~$2,219.8 million net gain in the prior-year period, ~~$1,185.0~~$1,542.8 million was attributable to ~~distressed debt~~Distressed Debt funds, ~~$391.3~~including $513.0 million from Opps VIIb, $395.6 million to ~~control investing~~Control Investing funds, ~~$157.8~~and $183.3 million to ~~real estate funds and $98.4 million to the high yield bonds strategy.~~Real Estate funds.

Investment Income

Investment income ~~increased~~ ~~$3.2~~decreased $7.2 million, or ~~38.6%~~59.0%, to ~~$11.5~~$5.0 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$8.3~~$12.2 million for the three months ended ~~September 30, 2012.~~March 31, 2013. The ~~prior-year period included~~decrease reflected $7.2 million in lower income from our investments in companies, primarily as a ~~$1.6 million loss attributable to~~result of a market-value decline on our minority equity investment in ~~Apson Global Fund L.P.~~China Cinda Asset Management Co., Ltd. (“Cinda”). Our one-fifth ownership ~~interest~~stake in DoubleLine ~~Capital LP and its affiliates (collectively, “DoubleLine”) contributed $9.5~~accounted for investment income of $9.6 million and ~~$7.2~~$11.0 million ~~of investment income in~~for the ~~current-year~~three months ended March 31, 2014 and ~~prior-year periods,~~2013, respectively, of which the portion attributable to performance fees was ~~zero~~$1.4 million and ~~$2.8~~$2.0 million, respectively.

Other Income ~~Taxes~~(Expense), Net

~~Income taxes~~Other income (expense), net decreased ~~$5.1~~to an expense of $1.7 million or ~~87.9%, to~~ ~~$0.7 million~~ for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$5.8 million~~an expense of $20,000 for the three months ended ~~September 30, 2012. This~~March 31, 2013. The expense ~~declined, despite~~of $1.7 million in the current-year period reflected a $3.0 million write-off of unamortized debt issuance costs associated with the refinancing of our corporate credit facility, partially offset by $1.5 million of income attributable to proceeds received as part of an ~~increase~~arbitration award in 2010 related to a former Principal and portfolio manager of our real estate group who left us in 2005. The expense of $20,000 in the prior-year period reflected the net results of operating the portfolio of properties received as part of the 2010 arbitration award.

Income Taxes

Income taxes decreased $2.2 million, or 21.6%, to $8.0 million for the three months ended March 31, 2014, from $10.2 million for the three months ended March 31, 2013. The decrease resulted from lower income before income taxes related to Class A unitholders asand a ~~result of the accounting effect in the current-year's quarter from a decrease in the~~lower estimated full-year effective ~~income~~ tax ~~rate principally caused by higher-than-expected incentive and investment income.~~rate. The effective tax rate related to Class A unitholders for the three months ended ~~September 30,~~March 31, 2014 and 2013 was 2%11% and 12%, ~~based on an estimated annual rate of 9%.~~respectively. The effective ~~tax rate related to Class A unitholders for the three months ended September 30, 2012 was 16%, based on an estimated annual rate of 19%. The effective income~~ tax rate used for interim fiscal periods is based on the estimated full-year income tax rate and is a function of the mix of income and other factors that often vary significantly within or between years, each of which can have a material impact on the particular ~~year's~~year’s income tax expense. Please see “—Understanding Our Results—Consolidation of Oaktree Funds.”

Net Income Attributable to Oaktree Capital Group, LLC

Net income attributable to Oaktree Capital Group, LLC ~~increased~~ ~~$17.7~~decreased $5.8 million, or ~~70.2%~~10.1%, to ~~$42.9~~$51.8 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$25.2~~$57.6 million for the three months ended ~~September 30, 2012.~~March 31, 2013. The ~~increase resulted primarily from~~decrease reflected lower segment revenues and higher segment ~~incentive income.~~expenses, partially offset by a larger allocation of income to OCG as a result of an increase in the average number of Class A units outstanding during each period.

Net Income Attributable to Non-controlling Redeemable Interests in Consolidated Funds

Net income attributable to non-controlling redeemable interests in consolidated funds decreased ~~$1,153.0~~$739.2 million, or ~~55.7%~~35.8%, to ~~$916.9~~$1,324.8 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$2,069.9~~$2,064.0 million for the three months ended ~~September 30, 2012, primarily as a result of~~March 31, 2013, reflecting lower interest and dividend income and lower net gains on investments. These effects are described in more detail under “—Other Income (Loss)” above.

~~Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012~~

~~Revenues~~

~~Management Fees~~

~~Management fees increased~~ ~~$57.6~~ ~~million, or~~ ~~62.7%, to~~ ~~$149.4 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$91.8 million~~ for the nine months ended September 30, 2012. The increase reflected $13.6 million in higher fees earned across our U.S. high yield bond, U.S. convertible securities, senior loan and Strategic Credit strategies, and $43.0 million in greater advisory, director, transaction and certain other ancillary fees for the benefit of our consolidated funds. We reduce our management fees by the amount of advisory and other ancillary fees so that our funds' investors share pro rata in the economic benefit of the ancillary fees. Thus, in our condensed consolidated financial statements, these ancillary fees are treated as being attributable to non-controlling redeemable interests in consolidated entities and have no impact on the net income attributable to OCG.

~~Incentive Income~~

~~Incentive income decreased~~ ~~$4.1~~ ~~million, or~~ ~~64.1%, to~~ ~~$2.3 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$6.4 million~~ ~~for the nine months ended September 30, 2012, primarily reflecting a decline in realizations attributable to the unconsolidated OCM/GFI Power Opportunities Fund II, L.P.~~

~~Expenses~~

~~Compensation and Benefits~~

~~Compensation and benefits increased~~ ~~$31.7~~ ~~million, or~~ ~~12.8%, to~~ ~~$279.6 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$247.9 million~~ for the nine months ended September 30, 2012, reflecting growth in headcount of 10% between September 30, 2012 and September 30, 2013, in part related to corporate development activities, a higher accrual towards the year-end bonus and an increase of $4.1 million, to $4.4 million in the current-year period, in phantom equity plan expense tied to changes in the Class A unit trading price over the respective periods.

~~Equity-based Compensation~~

~~Equity-based compensation expense decreased~~ ~~$6.6~~ ~~million, or~~ ~~24.0%, to~~ ~~$20.9 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$27.5 million~~ ~~for the nine months ended September 30, 2012. The decline was primarily attributable to the final vesting of pre-2007 Private Offering units on January 2, 2012.~~

~~Incentive Income Compensation~~

~~Incentive income compensation expense increased~~ ~~$190.1~~ ~~million, or~~ ~~160.7%, to~~ ~~$308.4 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$118.3 million~~ ~~for the nine months ended September 30, 2012. The percentage increase was smaller than the~~ ~~213.9%~~ increase in segment incentive income, principally because in 2011 we acquired and expensed a small portion of certain investment professionals' carried interest in Opps VIIb. If that transaction had not occurred, total incentive income compensation expense would have been an estimated $352.5 million in the current-year period. Additionally, funds that generated segment incentive income in the prior-year period had a higher average percentage of incentive income compensation expense than those that generated segment incentive income in the current-year period.

~~General and Administrative~~

~~General and administrative expenses increased~~ ~~$7.8~~ ~~million, or~~ ~~10.8%, to~~ ~~$80.2 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$72.4 million~~ ~~for the nine months ended September 30, 2012. Excluding the~~

impact of foreign currency-related items, as well as $2.1 million in non-recurring costs associated with our initial public offering that were incurred in the prior-year period, general and administrative expenses increased $12.1 million, or 17.2%, to $82.3 million from $70.2 million. The increase reflected costs associated with corporate growth, enhancements to our operational infrastructure and being a public company.

~~Consolidated Fund Expenses~~

~~Consolidated fund expenses increased~~ ~~$9.7~~ ~~million, or~~ ~~13.7%, to~~ ~~$80.7 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$71.0 million~~ ~~for the nine months ended September 30, 2012. The increase reflected costs incurred in the current-year period associated with the new Opps IX and higher professional fees and other costs.~~

~~Other Income (Loss)~~

~~Interest Expense~~

~~Interest expense increased~~ ~~$9.3~~ ~~million, or~~ ~~27.7%, to~~ ~~$42.9 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$33.6 million~~ for the nine months ended September 30, 2012, reflecting an $11.1 million increase in aggregate interest expense from our consolidated funds, partially offset by $1.8 million in lower interest expense related to Oaktree and its operating subsidiaries from less debt and lower borrowing costs on our bank credit facility.

~~Interest and Dividend Income~~

~~Interest and dividend income decreased~~ ~~$80.1~~ ~~million, or~~ ~~5.5%, to~~ ~~$1,375.9 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$1,456.0 million~~ for the nine months ended September 30, 2012, attributable entirely to our consolidated funds. Among the consolidated funds, large portfolio realizations caused distressed debt funds to have an aggregate $271.3 million in lower interest and dividend income, while control investing funds and the new EIF generated higher interest and dividend income of $147.5 million and $52.0 million, respectively.

~~Net Realized Gain on Consolidated Funds’ Investments~~

~~Net realized gain on consolidated funds’ investments decreased~~ ~~$108.6~~ ~~million, or~~ ~~3.7%, to~~ ~~$2,796.4 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$2,905.0 million~~ ~~for the nine months ended September 30, 2012. Of the~~ ~~$2,796.4 million~~ net realized gain in the current-year period, $1,594.2 million was attributable to distressed debt funds, including $693.1 million from Opps VIIb, $859.5 million to control investing funds and $177.5 million to real estate funds. Of the ~~$2,905.0 million~~ net realized gain in the prior-year period, $2,059.2 million was attributable to distressed debt funds, with Opps VIIb accounting for $1,199.7 million, $573.1 million to control investing funds and $162.4 million to real estate funds.

~~Net Change in Unrealized Appreciation on Consolidated Funds’ Investments~~

~~The net change in unrealized appreciation on consolidated funds’ investments decreased~~ ~~$427.1~~ ~~million, or~~ ~~29.8%, to~~ ~~$1,007.5 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$1,434.6 million~~ ~~for the nine months ended September 30, 2012. Excluding the~~ ~~$108.6~~ ~~million decrease in net realized gain on consolidated funds’ investments, the net change in unrealized appreciation on consolidated funds’ investments decreased~~ ~~$535.7 million, to~~ ~~$3,803.9 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$4,339.6 million~~ ~~for the nine months ended September 30, 2012. Of the~~ ~~$3,803.9 million~~ net gain in the current-year period, $2,444.1 million was attributable to distressed debt funds, including $641.8 million from Opps VIIb. Of the remaining $1,359.8 million net gain, $940.1 million was attributable to control investing funds and $368.9 million to real estate funds. Of the ~~$4,339.6 million~~ net gain in the prior-year period, $2,800.8 million was attributable to distressed debt funds, including $1,272.1 million from Opps VIIb. Of the remaining $1,538.8 million net gain, $767.7 million was attributable to control investing funds, $377.5 million to real estate funds and $222.3 million to the high yield bonds strategy.

~~Investment Income~~

~~Investment income increased~~ ~~$4.9~~ ~~million, or~~ ~~27.7%, to~~ ~~$22.6 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$17.7 million~~ for the nine months ended September 30, 2012. The prior-year period included a $4.1 million loss attributable to our investment in Apson Global Fund L.P. Our one-fifth ownership interest in DoubleLine contributed $19.5 million and $16.1 million of investment income in the current-year and prior-year periods, respectively, of which the portion attributable to performance fees was $3.0 million and $5.2 million, respectively. In the current-year period, DoubleLine incurred a placement fee associated with the launch of a closed-end fund and a non-cash charge related to the firm's employee ownership interests; excluding the effect of

~~those two expenses, the current-year period's investment income of $19.5 million would have been investment income of approximately $31 million.~~

~~Other Income (Expense), Net~~

~~Other income (expense), net decreased to income of~~ ~~$0.4 million~~ ~~for the nine months ended September 30, 2013, from income of~~ ~~$8.5 million~~ for the nine months ended September 30, 2012. The current-year income reflected the net results of operating the portfolio of properties received as part of an arbitration award in 2010 related to a former principal and portfolio manager of our real estate group who left in 2005. The prior-year income of ~~$8.5 million~~ included a $6.3 million reduction to the tax receivable agreement liability as a result of a remeasurement of the deferred tax asset associated with the 2007 Private Offering. The remaining $2.2 million primarily represented a gain on the sale of a real estate property received as part of the 2010 arbitration award.

~~Income Taxes~~

~~Income taxes decreased~~ ~~$8.6~~ ~~million, or~~ ~~31.3%, to~~ ~~$18.9 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$27.5 million~~ for the nine months ended September 30, 2012. This expense declined, despite an increase in income before income taxes related to Class A unitholders, because of a year-over-year decrease in the effective tax rate related to Class A unitholders and because the prior-year period included a nonrecurring tax expense of $7.1 million stemming from a remeasurement of deferred tax assets. The effective tax rate related to Class A unitholders for the nine months ended September 30, 2013 was 9%, based on an estimated annual rate of 9%. The effective tax rate related to Class A unitholders for the nine months ended September 30, 2012 was 19%, based on an estimated annual rate of 19%, without the $7.1 million nonrecurring tax expense, and 25%, based on an estimated annual rate of 24%, with it. The effective income tax rate used for interim fiscal periods is based on the estimated full-year income tax rate and is a function of the mix of income and other factors that often vary significantly within or between years, each of which can have a material impact on the particular year's income tax expense. Please see “—Understanding Our Results—Consolidation of Oaktree Funds.”

~~Net Income Attributable to Oaktree Capital Group, LLC~~

~~Net income attributable to Oaktree Capital Group, LLC increased~~ ~~$88.6~~ ~~million, or~~ ~~129.3%, to~~ ~~$157.1 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$68.5 million~~ ~~for the nine months ended September 30, 2012. The increase resulted primarily from higher segment revenues, partially offset by higher segment expenses.~~

~~Net Income Attributable to Non-controlling Redeemable Interests in Consolidated Funds~~

~~Net income attributable to non-controlling redeemable interests in consolidated funds decreased~~ ~~$1,125.0~~ ~~million, to~~ ~~$3,743.3 million~~ ~~for the nine months ended September 30, 2013, from~~ ~~$4,868.3 million~~ for the nine months ended September 30, 2012, primarily as a result of lower interest and dividend income and lower net gains on investments. These effects are described in more detail under “—Other Income (Loss)” above.

5153

Segment Financial Data

The following table presents segment financial ~~data for the periods indicated:~~data:


	As of or for the Three Months Ended September 30,						As of or for the Nine Months Ended September 30,						As of or for the Three Months Ended March 31,
Segment Statements of Operations Data: ⁽¹⁾	2013			2012			2013			2012			2014			2013
	(in thousands, except per unit data or as otherwise indicated)												(in thousands, except per unit data or as otherwise indicated)
Revenues:
Management fees	$	185,580		$	182,587		$	552,281		$	562,692		$	188,400		$	184,214
Incentive income	122,424			59,174			787,665			250,861			292,876			327,184
Investment income	53,558			62,801			170,184			150,382			46,480			82,050
Total revenues	361,562			304,562			1,510,130			963,935			527,756			593,448
Expenses:
Compensation and benefits	(95,561		)	(83,080		)	(279,344		)	(247,787		)	(98,194		)	(93,617		)
Equity-based compensation	(1,070		)	(128		)	(2,646		)	(128		)	(3,983		)	(652		)
Incentive income compensation	(49,222		)	(29,546		)	(308,446		)	(118,268		)	(137,828		)	(130,271		)
General and administrative	(27,389		)	(24,429		)	(80,889		)	(73,665		)	(30,562		)	(23,988		)
Depreciation and amortization	(1,791		)	(1,901		)	(5,266		)	(5,573		)	(1,921		)	(1,743		)
Total expenses	(175,033		)	(139,084		)	(676,591		)	(445,421		)	(272,488		)	(250,271		)
Adjusted net income before interest and other income (expense)	186,529			165,478			833,539			518,514			255,268			343,177
Interest expense, net of interest income ⁽²⁾	(7,074		)	(7,687		)	(21,617		)	(23,914		)	(6,625		)	(7,407		)
Other income (expense), net	148			(59		)	412			2,274			(1,698		)	(20		)
Adjusted net income	$	179,603		$	157,732		$	812,334		$	496,874		$	246,945		$	335,750

Adjusted net income-OCG	$	44,530		$	26,690		$	161,185		$	73,384		$	57,875		$	58,727
Adjusted net income per Class A unit	1.16			0.88			4.76			2.67			1.46			1.95
Distributable earnings	154,827			120,363			763,011			434,047			233,141			295,027
Distributable earnings-OCG	34,639			21,126			152,681			66,426			55,812			54,076
Distributable earnings per Class A unit	0.91			0.70			4.51			2.42			1.41			1.79
Fee-related earnings	59,769			73,049			184,136			235,539
Fee-related earnings-OCG	12,434			12,213			34,353			33,601
Fee-related earnings per Class A unit	0.33			0.40			1.02			1.22
Fee-related earnings ⁽³⁾													57,723			64,866
Fee-related earnings-OCG ⁽³⁾													12,923			10,538
Fee-related earnings per Class A unit ⁽³⁾													0.33			0.35

Weighted average number of Operating Group units outstanding	151,030			150,464			150,948			150,564			152,271			150,814
Weighted average number of Class A units outstanding	38,239			30,181			33,845			27,494			39,700			30,186

Operating Metrics:
Assets under management (in millions):
Assets under management	$	79,818		$	80,967		$	79,818		$	80,967		$	86,226		$	78,801
Management fee-generating assets under management	66,947			66,171			66,947			66,171			74,027			66,350
Incentive-creating assets under management	32,301			37,071			32,301			37,071			33,258			33,950
Uncalled capital commitments	12,344			13,262			12,344			13,262			12,002			11,198
Accrued incentives (fund level):
Incentives created (fund level)	98,457			446,401			753,400			702,447			352,374			459,700
Incentives created (fund level), net of associated incentive income compensation expense	52,082			246,960			411,534			405,806			137,332			261,737
Accrued incentives (fund level)	2,103,533			2,138,553			2,103,533			2,138,553			2,335,937			2,270,314
Accrued incentives (fund level), net of associated incentive income compensation expense	1,200,399			1,280,865			1,200,399			1,280,865			1,215,523			1,347,018

5254

(1)

Our business is comprised of one segment, our investment management segment, which consists of the investment management services that we provide to our clients. The components of revenues and expenses used in determining adjusted net income do not give effect to the consolidation of the funds that we manage. In addition, adjusted net income excludes the effect of (a) non-cash equity-based compensation charges related to unit grants made before our initial public offering, (b) income taxes, (c) other income or expenses applicable to OCG or its Intermediate Holding Companies and (d) the adjustment for the OCGH non-controlling interest. Incentive income and incentive income compensation expense are included in adjusted net income when the underlying fund distributions are known or knowable as of the respective quarter end, which may be later than the time at which the same revenue or expense is included in the GAAP-basis statements of operations, for which the revenue standard is fixed or determinable and the expense standard is probable and reasonably estimable. Adjusted net income is calculated at the Operating Group level. For a detailed description of our segment and operating metrics, please see “—“—Segment and Operating ~~Metrics~~”Metrics” above.


(2)	Interest income was ~~$0.9~~$1.1 million and ~~$0.8~~$0.6 million for the three months ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012, respectively, and $2.4~~respectively.

(3)

Beginning with the fourth quarter of 2013, the definition of fee-related earnings was modified to exclude non-cash equity-based compensation charges related to unit grants made after our initial public offering in April 2012. Prior periods have been recast to retroactively reflect this change. Those non-cash compensation charges amounted to $0.7 million, ~~and $1.9 million~~or less than $0.01 per Class A unit, for the ~~nine~~three months ended ~~September 30, 2013 and 2012, respectively.~~March 31, 2013.

5355

Operating Metrics

We monitor certain operating metrics that are either common to the alternative asset management industry or that we believe provide important data regarding our business. These operating metrics include assets under management, management fee-generating assets under management, incentive-creating assets under management, incentives created (fund level), accrued incentives (fund level) and uncalled capital commitments.

Assets Under Management

AUM ~~as of September 30, 2013, June 30, 2013 and September 30, 2012 are~~is set forth below:


	As of
	September 30, 2013		June 30, 2013		September 30, 2012		As of
	(in millions)						March 31, 2014		December 31, 2013		March 31, 2013
Assets Under Management:							(in millions)
Closed-end funds	$	45,357	$	44,197	$	50,966	$	46,902	$	46,685	$	46,381
Open-end funds	30,669		29,271		27,589		34,911		32,868		29,837
Evergreen funds	3,792		2,932		2,412		4,413		4,052		2,583
Total	$	79,818	$	76,400	$	80,967	$	86,226	$	83,605	$	78,801

The change in AUM ~~for the three and nine months ended September 30, 2013 and 2012~~ is set forth below:


	Three Months Ended September 30,							Nine Months Ended September 30,
	2013			2012				2013			2012			Three Months Ended March 31,
	(in millions)													2014			2013
Change in Assets Under Management:														(in millions)
Beginning balance	$	76,400		$	78,713			$	77,051		$	74,857		$	83,605		$	77,051
Closed-end funds:
New capital commitments	1,724			657				3,662			5,857
Distributions for a realization event/other	(1,898		)	(1,647		)		(9,789		)	(6,947		)
New capital commitments/other ⁽¹⁾														1,083			1,215
Distributions for a realization event/other ⁽²⁾														(1,952		)	(3,180		)
Uncalled capital commitments at end of investment period														(146		)	—
Foreign currency translation	226			77				158			(43		)	1			(133		)
Change in market value ⁽¹⁾	882			1,949				4,302			4,594
Change in market value ⁽³⁾														1,369			2,235
Change in applicable leverage	226			135				1,324			80			(138		)	544
Open-end funds:
Contributions	1,162			790				3,255			2,787			1,695			1,127
Redemptions	(707		)	(911		)		(3,300		)	(2,902		)	(579		)	(1,229		)
Foreign currency translation	144			54				56			(16		)	14			(94		)
Change in market value ⁽¹⁾	799			1,114				1,566			2,678
Change in market value ⁽³⁾														913			941
Evergreen funds:
Contributions or new capital commitments	787			66				1,508			69			268			237
Redemptions	(19		)	(125		)	��	(180		)	(266		)	(14		)	(17		)
Distributions from restructured funds	(17		)	—				(48		)	(34		)	(16		)	(15		)
Change in market value ⁽¹⁾	109			95				253			253
Foreign currency translation														(1		)	(1		)
Change in market value ⁽³⁾														124			120
Ending balance	$	79,818		$	80,967			$	79,818		$	80,967		$	86,226		$	78,801


(1)	~~Change~~These amounts represent new capital commitments and the aggregate par value of collateral assets and principal cash associated with our CLOs.


(2)	These amounts represent distributions for a realization event, tax-related distributions and reductions in the par value of collateral assets and principal cash resulting from the repayment of debt by our CLOs.


(3)	The change in market value ~~represents~~reflects the change in NAV of our funds resulting from current income and realized and unrealized gains/losses on investments, less management fees and other fund ~~expenses.~~expenses, and changes in the aggregate par value of collateral assets and principal cash held by our CLOs resulting from other activities.

5456

Management Fee-generating Assets Under Management

Management fee-generating AUM ~~as of September 30, 2013, June 30, 2013 and September 30, 2012 are set forth below:~~

As of

September 30,
2013

June 30,
2013

September 30,
2012
(in millions)
Management Fee-generating Assets Under Management:
Closed-end funds $ 33,833
$ 33,119
$ 36,509
Open-end funds 30,632
29,235
27,553
Evergreen funds 2,482
2,260
2,109
Total $ 66,947
$ 64,614
$ 66,171

~~The change in management fee-generating AUM for the three and nine months ended September 30, 2013 and 2012~~ is set forth below:

Three Months Ended
September 30,

Nine Months Ended
September 30,
2013 2012 2013 2012
(in millions)
Change in Management Fee-generating Assets Under Management:
Beginning balance $ 64,614
$ 66,311
$ 66,784
$ 66,964
Closed-end funds:
New capital commitments to funds that pay fees based on committed capital 1,103
235
2,035
486
Capital drawn by funds that pay fees based on drawn capital or NAV 380
232
1,692
746
Change for funds that pay fees based on the lesser of funded capital or cost basis during liquidation ⁽¹⁾
(1,089 ) (1,765 ) (6,695 ) (4,386 )
Distributions by funds that pay fees based on NAV (100 ) (79 ) (218 ) (371 )
Foreign currency translation 236
118
133
5
Change in market value ⁽²⁾
48
(52 ) (85 ) 106
Change in applicable leverage 136
110
1,221
56
Open-end funds:
Contributions 1,162
775
3,254
2,772
Redemptions (707 ) (910 ) (3,300 ) (2,902 )
Foreign currency translation 144
54
57
(16 )
Change in market value 798
1,112
1,565
2,674
Evergreen funds:
Contributions or capital drawn by funds that pay fees based on drawn capital or NAV 156
66
467
69
Redemptions (19 ) (125 ) (180 ) (266 )
Change in market value 85
89
217
234
Ending balance $ 66,947
$ 66,171
$ 66,947
$ 66,171



	As of
	March 31, 2014		December 31, 2013		March 31, 2013
Management Fee-generating Assets Under Management:	(in millions)
Closed-end funds	$	36,176	$	36,422	$	34,412
Open-end funds	34,855		32,830		29,799
Evergreen funds	2,996		2,698		2,139
Total	$	74,027	$	71,950	$	66,350

The change in management fee-generating AUM is set forth below:



	Three Months Ended March 31,
	2014			2013
Change in Management Fee-generating Assets Under Management:	(in millions)
Beginning balance	$	71,950		$	66,784
Closed-end funds:
New capital commitments to funds that pay fees based on committed capital and other increases ⁽¹⁾	560			381
Capital drawn by funds that pay fees based on drawn capital or NAV	107			702
Change for funds that pay fees based on the lesser of funded capital or cost basis during liquidation ⁽²⁾	(898		)	(2,747		)
Distributions by funds that pay fees based on NAV and other decreases ⁽³⁾	(108		)	(61		)
Foreign currency translation	(16		)	(145		)
Change in market value ⁽⁴⁾	109			(8		)
Change in applicable leverage	—			540
Open-end funds:
Contributions	1,680			1,127
Redemptions	(581		)	(1,229		)
Foreign currency translation	14			(94		)
Change in market value	912			939
Evergreen funds:
Contributions or capital drawn by funds that pay fees based on drawn capital or NAV	197			71
Redemptions	(14		)	(17		)
Change in market value	115			107
Ending balance	$	74,027		$	66,350


(1)	These amounts represent new capital commitments to funds that pay fees based on committed capital and the aggregate par value of collateral assets and principal cash associated with our CLOs.

(2)

For most closed-end funds, management fees are charged during the liquidation period on the lesser of (a) total funded capital and (b) the cost basis of assets remaining in the fund, with the cost basis of assets generally calculated by excluding cash balances. Thus, changes in fee basis during the liquidation period are not dependent on distributions made from the fund; rather, they are tied to the cost basis of the fund’s investments, which generally declines as the fund sells assets.


~~(2)~~(3)	These amounts represent distributions by funds that pay fees based on NAV and reductions in the par value of collateral assets and principal cash resulting from the repayment of debt by our CLOs.


(4)	The change in market value reflects certain funds that pay management fees based on NAV and leverage, as ~~applicable.~~applicable, and changes in the aggregate par value of collateral assets and principal cash held by our CLOs resulting from other activities.

5557

As compared with AUM, management fee-generating AUM generally excludes the following:

Differences between AUM and either committed capital or cost basis for most closed-end funds, other than for closed-end funds that pay management fees based on NAV and leverage, as applicable;

Undrawn capital commitments to closed-end funds that have not yet commenced their investment periods;

Undrawn capital commitments to funds for which management fees are based on drawn capital or NAV;

The investments we make in our funds as general partner;

Closed-end funds that are beyond the term during which they pay management fees; and

AUM in restructured and liquidating evergreen funds for which management fees were waived.

A reconciliation of AUM to management fee-generating AUM ~~as of September 30, 2013, June 30, 2013 and September 30, 2012~~ is set forth below:


	As of									As of
	September 30, 2013			June 30, 2013			September 30, 2012
	(in millions)
Reconciliation of Assets Under Management to Management Fee-generating Assets Under Management:										March 31, 2014			December 31, 2013			March 31, 2013
										(in millions)
Assets under management	$	79,818		$	76,400		$	80,967		$	86,226		$	83,605		$	78,801
Difference between assets under management and committed capital or cost basis for most closed-end funds ⁽¹⁾	(5,002		)	(4,761		)	(6,303		)	(6,616		)	(6,311		)	(5,160		)
Undrawn capital commitments to funds that have not yet commenced their investment periods	(5,179		)	(4,855		)	(4,898		)	(696		)	(693		)	(4,994		)
Undrawn capital commitments to funds for which management fees are based on drawn capital or NAV	(1,032		)	(733		)	(1,701		)	(3,013		)	(2,625		)	(846		)
Oaktree’s general partner investments in management fee-generating funds	(1,273		)	(940		)	(1,092		)	(1,247		)	(1,371		)	(1,003		)
Closed-end funds that are no longer paying management fees	(181		)	(289		)	(548		)	(444		)	(461		)	(218		)
Funds for which management fees were permanently waived	(204		)	(208		)	(254		)	(183		)	(194		)	(230		)
Management fee-generating assets under management	$	66,947		$	64,614		$	66,171		$	74,027		$	71,950		$	66,350


(1)	~~Not~~This difference is not applicable to closed-end funds that pay management fees based on NAV or ~~leverage, as applicable.~~ leverage.

The period-end weighted average annual management fee rates applicable to the respective management fee-generating AUM balances above are set forth ~~below:~~ below, and reflect the applicable contractual fee rates, exclusive of the impact of special items such as retroactive management fees and the collection of deferred contingent management fees.


	As of						As of
	September 30, 2013		June 30, 2013		September 30, 2012		March 31, 2014		December 31, 2013		March 31, 2013
Weighted Average Annual Management Fee Rates:
Closed-end funds	1.47	%	1.48	%	1.48	%	1.46	%	1.48	%	1.49	%
Open-end funds	0.48		0.49		0.48		0.47		0.47		0.49
Evergreen funds	1.69		1.72		1.82		1.61		1.63		1.80
Overall	1.03		1.04		1.07		1.00		1.02		1.05

5658

Incentive-creating Assets Under Management

Incentive-creating AUM ~~as of September 30, 2013, June 30, 2013 and September 30, 2012 are~~is set forth below:


	As of
	September 30, 2013		June 30, 2013		September 30, 2012		As of
	(in millions)						March 31, 2014		December 31, 2013		March 31, 2013
Incentive-creating Assets Under Management:							(in millions)
Closed-end funds	$	29,915	$	29,920	$	34,980	$	31,172	$	30,362	$	31,862
Evergreen funds	2,386		2,175		2,091		2,086		2,017		2,088
Total	$	32,301	$	32,095	$	37,071	$	33,258	$	32,379	$	33,950

As of ~~September 30,~~March 31, 2014, December 31, 2013 ofand March 31, 2013, the ~~$32.3 billion~~ inportion of incentive-creating AUM ~~$24.5 billion, or 75.8%, was~~ generating incentives at the fund ~~level.~~level was $30.0 billion, $29.6 billion and $25.1 billion, respectively. Incentive-creating AUM does not include undrawn capital ~~commitments because they are not part of the NAV.~~commitments.

Three Months Ended ~~September 30, 2013~~March 31, 2014

AUM ~~increased~~ ~~$3.4~~grew $2.6 billion, or 3.1%, ~~or 4.5%, from $76.4~~to $86.2 billion as of ~~June 30, 2013, to~~ ~~$79.8~~March 31, 2014, from $83.6 billion as of ~~September 30,~~December 31, 2013. The increase reflected $2.4 billion of aggregate market-value gains, $1.3 billion of new capital commitments ~~$1.8 billion of aggregate market-value gains~~ and ~~$0.5~~$1.1 billion of net inflows to open-end funds, partially offset by ~~$1.9~~$2.0 billion of distributions to closed-end fund investors. The $2.4 billion of new capital commitments included $1.1 billion to Oaktree Real Estate Opportunities Fund VI, L.P. (“ROF VI”), $0.6 billion to the Strategic Credit strategy, $0.3 billion to the Emerging Market Opportunities strategy and $0.2 billion to the European Private Debt strategy. Net inflows across open-end funds principally related to high yield bonds. The $1.9$2.0 billion of distributions to closed-end fund investors included ~~$0.5~~$1.2 billion by Distressed Debt funds, including $0.3 billion by Opps VIIb, and $0.6 billion by ~~other distressed debt funds and $0.7 billion by principal investing~~Principal Investing funds.

Management fee-generating AUM ~~increased $2.3~~grew $2.0 billion, or ~~3.6%~~2.8%, ~~from $64.6~~to $74.0 billion as of ~~June 30, 2013, to $66.9~~March 31, 2014, from $72.0 billion as of ~~September 30,~~December 31, 2013. The increase ~~was primarily attributable to~~reflected $1.1 ~~billion of new capital commitments for ROF VI, $0.9 billion of market-value gains in funds for which management fees are based on NAV, $0.5~~ billion of net inflows to open-end funds, and $0.4 billion in drawdowns by funds that pay fees based on drawn capital or NAV, partially offset by a $1.1 billion decline attributable to asset sales by closed-end funds in liquidation. The $0.4 billion in drawdowns included an additional 5% drawdown by Opps IX, bringing that fund's total drawn capital as of September 30, 2013 to 15% of Opps IX's $5.1 billion of committed capital. We had not commenced Opps IX's investment period as of September 30, 2013; thus, management fees were assessed only on Opps IX's drawn capital, and management fee-generating AUM included only that portion of its committed capital.

Incentive-creating AUM increased $0.2 billion, or 0.6%, from $32.1 billion as of June 30, 2013, to $32.3 billion as of September 30, 2013. The increase reflected the net effect of $1.0 billion in market-value and foreign currency gains, $1.4 billion in contributions and drawdowns, and $2.3 billion in distributions by closed-end funds. Opps VIIb accounted for $0.5 billion of the $2.3 billion in distributions.

~~Three Months Ended September 30, 2012~~

AUM increased $2.3 billion, or 2.9%, from $78.7 billion as of June 30, 2012, to $81.0 billion as of September 30, 2012. The increase primarily reflected $3.2 billion of market-value gains and $0.7 billion of new capital commitments to closed-end funds, less $1.6 billion of distributions to closed-end fund investors. Of the $1.6 billion of distributions, $0.6 billion, or 37.5%, were attributable to Opps VIIb.

Management fee-generating AUM decreased $0.1 billion, or 0.2%, from $66.3 billion as of June 30, 2012, to $66.2 billion as of September 30, 2012. The decrease reflected the net effect of a $1.8 billion decline resulting from asset sales by closed-end funds in liquidation, $1.1 billion of market-value gains in funds for which management fees are based on NAV, and ~~an increase of~~ $0.6 billion ~~upon the initial closings and commencement of ROF VI and EIF. Of the $1.8~~in new capital commitments, partially offset by a $0.9 billion decline significant contributors included OCM Opportunities Fund VII, L.P. (“Opps VII”) with $0.3 billion, Opps VIIb with $0.5 billion, and Oaktree Opportunities Fund VIII, L.P. (“Opps VIII”) with $0.4 billion.attributable to asset sales by closed-end funds in liquidation.

Incentive-creating AUM ~~increased $1.1~~grew $0.9 billion, or 2.8%, to $33.3 billion as of March 31, 2014, from $32.4 billion as of December 31, 2013. The increase reflected the net effect of $1.6 billion in drawdowns by closed-end funds, $1.4 billion in market-value gains in closed-end and evergreen funds, and $2.1 billion in distributions by closed-end funds.

Three Months Ended March 31, 2013

AUM grew $1.7 billion, or ~~3.1%~~2.2%, ~~from $36.0~~to $78.8 billion as of ~~June 30, 2012, to $37.1 billion as of September 30, 2012. The increase primarily reflected $1.8 billion of market-value gains, $0.9 billion of~~

~~aggregate increases in drawn capital by closed-end funds, and $1.6 billion of distributions across closed-end funds. Of the $1.6 billion in distributions, Opps VIIb accounted for $0.6 billion.~~ March

~~Nine Months Ended September 30,~~31, 2013,

~~AUM increased $2.7 billion, or 3.5%,~~ from $77.1 billion as of December 31, ~~2012, to $79.8 billion as of September 30, 2013.~~2012. The increase ~~reflected $6.1~~was primarily attributable to $3.3 billion ofin aggregate market-value gains and ~~$6.3~~$1.8 billion ofin new capital commitments and fee-generating leverage in our closed-end funds, partially offset by ~~$9.8~~$3.2 billion ofin distributions toby closed-end ~~fund investors.~~funds in liquidation. New capital commitments ~~and fee-generating leverage~~ included ~~$2.1~~$0.4 billion ~~for~~ from Oaktree Real Estate Opportunities Fund VI, L.P. (“ROF VI ~~$1.6~~”) and $0.9 billion ~~for~~from EIF, ~~and~~including leverage. The $3.2 billion in aggregate distributions included $0.8 billion from Opps VIIb, $1.3 billion ~~for the Strategic Credit strategy. Opps VIIb accounted for $2.7~~from other Distressed Debt funds and $0.8 billion ~~of the $9.8 billion in distributions.~~from Control Investing funds.

Management fee-generating AUM ~~increased $0.1~~decreased $0.4 billion, or ~~0.1%~~0.6%, to $66.4 billion as of March 31, 2013, from $66.8 billion as of December 31, ~~2012,~~2012. The decrease reflected a $2.7 billion decline attributable to ~~$66.9 billion as of September 30, 2013. The increase reflected $2.9 billion in fee-generating leverage and drawdowns~~asset sales by closed-end funds ~~on which management fees are based on drawn capital or NAV, $2.0~~in liquidation, largely offset by $1.0 billion ~~of new capital commitments for ROF VI, and $1.9 billion of~~in market-value ~~and foreign currency~~ gains in funds for which management fees are based on ~~NAV. These~~NAV and $1.3billion of increases ~~were offset~~due to closings for ROF VI and drawdowns by ~~a $6.7 billion decline caused by asset sales in closed-end funds in their liquidation period.~~EIF, including leverage. Opps VIIb accounted for ~~$2.5~~$1.6 billion of the ~~$6.7~~$2.7 billion decline ~~resulting~~ from asset ~~sales.~~sales by closed-end funds in liquidation. As of ~~September 30,~~March 31, 2013, Oaktree Opportunities Fund IX, L.P. (“Opps IX”) had made an ~~aggregate 15%~~initial 5% drawdown against its ~~$5.1~~$5.0 billion of committed capital. ~~We had~~The Company chose to not ~~commenced~~commence Opps IX's investment period until January 1, 2014; as a result, as of ~~September 30, 2013; thus,~~March 31, 2013 management fees were assessed only on ~~Opps IX's~~its drawn capital, and management fee-generating AUM included only that portion of ~~its~~ committed capital.

Incentive-creating AUM ~~decreased $1.7 billion, or 5.0%, from~~was $34.0 billion as of March 31, 2013, unchanged from December 31, 2012, to $32.3 billion as of September 30, 2013. The decrease was primarily attributable to $9.5 billion of distributions by closed-end funds, partially offset by $4.2 billion of market-value and foreign currency gains and $3.2 billion of drawn capital by closed-end funds. Opps VIIb accounted for $2.6 billion of the $9.5 billion in distributions.

~~Nine Months Ended September 30, 2012~~

~~AUM increased $6.1 billion, or 8.1%, from $74.9 billion as of December 31, 2011, to $81.0 billion as of September 30,~~ 2012. The ~~increase was primarily due to $7.5 billion in market-value gains and $5.9 billion in new capital commitments,~~first quarter of ~~which the latter included $4.8 billion for Opps IX. These increases were partially offset by $6.9~~2013 reflected $3.0 billion in distributions by closed-end funds, ~~in liquidation, of which Opps VIIb accounted for $3.2 billion.~~

Management fee-generating AUM decreased $0.8 billion, or 1.2%, from $67.0 billion as of December 31, 2011, to $66.2 billion as of September 30, 2012. The decrease was primarily due to the net result of a $4.4 billion decline causedoffset by ~~closed-end funds in liquidation, $2.7~~ $2.1billion in market-value gains ~~in open-end funds,~~ and $1.2 billion of increases related to new capital commitments and drawdowns for closed-end funds on which management fees are based on drawn capital or NAV. Of the $4.4 billion decline attributable to liquidating closed-end funds, Opps VII and Opps VIIb accounted for $0.7 billion and $1.9 billion, respectively. Opps IX, with total capital commitments of $4.8 billion as of September 30, 2012, was not included in management fee-generating AUM as it had not commenced its investment period.

~~Incentive-creating AUM increased $0.9 billion, or 2.5%, from $36.2 billion as of December 31, 2011, to $37.1 billion as of September 30, 2012. The increase was primarily due to a combination of $3.5~~$0.8 billion in drawn ~~capital and $4.3 billion in market-value gains, less $6.8 billion in distributions by closed-end funds.~~capital. Opps VIIb ~~accounted for $3.1~~ represented $0.7billion of the ~~$6.8~~quarter's $3.0 billion in distributions.

5859

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

Accrued incentives (fund level), gross and net of incentive income compensation expense, as ~~of September 30, 2013 and 2012, as~~ well as changes in accrued incentives (fund level) ~~for the periods presented,~~, are set forth below.


	As of or for the Three Months Ended September 30,						As of or for the Nine Months Ended September 30,
	2013			2012			2013			2012			As of or for the Three Months Ended March 31,
	(in thousands)												2014			2013
Accrued Incentives (Fund Level):													(in thousands)
Beginning balance	$	2,127,500		$	1,751,326		$	2,137,798		$	1,686,967		$	2,276,439		$	2,137,798
Incentives created (fund level):
Closed-end funds	85,068			430,555			714,899			673,284			337,583			439,586
Evergreen funds	13,389			15,846			38,501			29,163			14,791			20,114
Total incentives created (fund level)	98,457			446,401			753,400			702,447			352,374			459,700
Less: segment incentive income recognized by us	(122,424		)	(59,174		)	(787,665		)	(250,861		)	(292,876		)	(327,184		)
Ending balance	$	2,103,533		$	2,138,553		$	2,103,533		$	2,138,553		$	2,335,937		$	2,270,314
Accrued incentives (fund level), net of associated incentive income compensation expense	$	1,200,399		$	1,280,865		$	1,200,399		$	1,280,865		$	1,215,523		$	1,347,018

As of March 31, 2014 and 2013, the portion of net accrued incentives (fund level) represented by funds that were currently paying incentives was $444.9 million and $777.5 million, respectively, with the remainder arising from funds that as of that date had not yet reached the stage of their cash distribution waterfall where Oaktree was entitled to receive incentives, other than tax-related distributions.

As of March 31, 2014, 84% of the net accrued incentives (fund level) were in funds in their liquidation period or evergreen funds, and 49% of the assets underlying total net accrued incentives (fund level) were Level I or Level II securities. Please see “—Critical Accounting Policies—Investments, at Fair Value—Non-publicly Traded Equity and Real Estate Investments” for a discussion of the fair-value hierarchy level established by GAAP.

Three Months Ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~

~~Incentives created (fund level) amounted to~~ ~~$98.5 million~~ ~~for the three months ended September 30, 2013, reflecting the period's investment returns across our incentive-creating funds. Of the~~ ~~$98.5 million~~ ~~of incentives created (fund level), $90.4 million was attributable to distressed debt funds.~~

Incentives created (fund level) ~~amounted to $446.4~~was $352.4 million for the three months ended September 30, 2012, primarily resulting from current income and price appreciation across distressed debt funds of $380.1 million, real estate funds of $33.9 million and control investing funds of $16.7 million. OfMarch 31, 2014, reflecting both the ~~$380.1 million attributable to distressed debt funds, Opps VIIb and Opps VIII accounted for $112.2 million and $168.2 million, respectively.~~

~~Nine Months Ended September 30, 2013 and 2012~~

~~Incentives created (fund level) amounted to~~ ~~$753.4 million~~ ~~for the nine months ended September 30, 2013, reflecting the 75.8%~~90.3% share of our incentive-creating AUM that was creating incentives as of ~~September 30,~~March 31, 2014 and the period's investment returns. The $352.4 million of incentives created (fund level) included $191.1 million from Control Investing funds and $117.8 million from Distressed Debt funds.

Incentives created (fund level) was $459.7 million for the three months ended March31, 2013, reflecting both the 73.8% share of our incentive-creating AUM that was creating incentives as of March 31, 2013 and the period's investment returns. ~~The major components of~~Of the ~~$753.4~~$459.7 million of incentives created (fund level) ~~were $142.7~~, $106.7 million ~~from Opps VIIb, $449.6 million from other distressed debt funds and $122.2 million from control investing and real estate funds.~~

Incentives created (fund level) of $702.4 million for the nine months ended September 30, 2012 included $598.7 million from distressed debt funds and $68.2 million from real estate funds. Of the $598.7 millionwas attributable to ~~distressed debt funds,~~ Opps VIIb and ~~Opps VIII accounted for $289.2~~$283.5 million ~~and $177.5 million, respectively.~~arose from other Distressed Debt funds.

Uncalled Capital Commitments

As of ~~September 30, 2013, June 30,~~March 31, 2014, December 31, 2013 and ~~September 30, 2012,~~March 31, 2013, uncalled capital commitments were $~~12.3~~12.0 billion, ~~$11.0~~$13.2 billion and ~~$13.3~~$11.2 billion,, respectively.

5960

Segment Analysis

Our business is comprised of one segment, our investment management segment, which consists of the investment management services that we provide to our clients. Management makes operating decisions and assesses the performance of our business based on financial and operating metrics and data that are presented without the consolidation of any funds. For a detailed reconciliation of the segment results of operations to our condensed consolidated ~~results~~statements of operations, please see “—Distributable Earnings” and “—Fee-related Earnings” below and the “Segment Reporting” note to our condensed consolidated financial statements included elsewhere in this quarterly report. The data most important to our chief operating decision maker in assessing our performance are adjusted net income, adjusted net income-OCG, distributable earnings, distributable earnings-OCG, fee-related earnings and fee-related earnings-OCG.

Adjusted Net Income

ANI and adjusted net income-OCG, as well as per unit data, are set forth ~~below for the periods indicated:~~below:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
	2013			2012			2013			2012				2014			2013
	(in thousands, except per unit data)													(in thousands, except per unit data)
Revenues:
Management fees	$	185,580		$	182,587		$	552,281		$	562,692			$	188,400		$	184,214
Incentive income	122,424			59,174			787,665			250,861				292,876			327,184
Investment income	53,558			62,801			170,184			150,382				46,480			82,050
Total revenues	361,562			304,562			1,510,130			963,935				527,756			593,448
Expenses:
Compensation and benefits	(95,561		)	(83,080		)	(279,344		)	(247,787		)		(98,194		)	(93,617		)
Equity-based compensation	(1,070		)	(128		)	(2,646		)	(128		)		(3,983		)	(652		)
Incentive income compensation	(49,222		)	(29,546		)	(308,446		)	(118,268		)		(137,828		)	(130,271		)
General and administrative	(27,389		)	(24,429		)	(80,889		)	(73,665		)		(30,562		)	(23,988		)
Depreciation and amortization	(1,791		)	(1,901		)	(5,266		)	(5,573		)		(1,921		)	(1,743		)
Total expenses	(175,033		)	(139,084		)	(676,591		)	(445,421		)		(272,488		)	(250,271		)
Adjusted net income before interest and other income (expense)	186,529			165,478			833,539			518,514				255,268			343,177
Interest expense, net of interest income	(7,074		)	(7,687		)	(21,617		)	(23,914		)		(6,625		)	(7,407		)
Other income (expense), net	148			(59		)	412			2,274				(1,698		)	(20		)
Adjusted net income	179,603			157,732			812,334			496,874				246,945			335,750
Adjusted net income attributable to OCGH non-controlling interest	(134,128		)	(126,092		)	(634,714		)	(406,575		)		(182,561		)	(268,547		)
Non-Operating Group other income	—			—			—			6,260			⁽¹⁾
Non-Operating Group expenses	(271		)	(115		)	(947		)	(393		)		(282		)	(210		)
Adjusted net income-OCG before income taxes	45,204			31,525			176,673			96,166				64,102			66,993
Income taxes-OCG	(674		)	(4,835		)	(15,488		)	(22,782		)	⁽¹⁾	(6,227		)	(8,266		)
Adjusted net income-OCG	$	44,530		$	26,690		$	161,185		$	73,384			$	57,875		$	58,727
Adjusted net income per Class A unit	$	1.16		$	0.88		$	4.76		$	2.67			$	1.46		$	1.95
Weighted average number of Class A units outstanding	38,239			30,181			33,845			27,494				39,700			30,186

Distributable Earnings

Distributable earnings and distributable earnings-OCG, as well as per unit data, are set forth below:



	Three Months Ended March 31,
	2014			2013
Revenues:	(in thousands, except per unit data)
Management fees	$	188,400		$	184,214
Incentive income	292,876			327,184
Receipts of investment income from funds ⁽¹⁾	21,658			34,026
Receipts of investment income from companies	9,415			9,013
Total distributable earnings revenues	512,349			554,437
Expenses:
Compensation and benefits	(98,194		)	(93,617		)
Incentive income compensation	(137,828		)	(130,271		)
General and administrative	(30,562		)	(23,988		)
Depreciation and amortization	(1,921		)	(1,743		)
Total expenses	(268,505		)	(249,619		)
Other income (expense):
Interest expense, net of interest income	(6,625		)	(7,407		)
Operating Group income taxes	(2,380		)	(2,364		)
Other income (expense), net	(1,698		)	(20		)
Distributable earnings	233,141			295,027
Distributable earnings attributable to OCGH non-controlling interest	(172,355		)	(235,976		)
Non-Operating Group expenses	(282		)	(210		)
Distributable earnings-OCG income taxes	(739		)	(2,920		)
Tax receivable agreement	(3,953		)	(1,845		)
Distributable earnings-OCG	$	55,812		$	54,076
Distributable earnings per Class A unit	$	1.41		$	1.79
Weighted average number of Class A units outstanding	39,700			30,186

(1)

A nonrecurring adjustment in the second quarter of 2012 had the effect of increasing income taxes-OCG by $(7,134) and increasing non-Operating Group other income by $6,260, for a net effect of additional after-tax OCG expense of $(874). This adjustment stemmed from reductions in deferred tax assets and the liability for amounts due to affiliates. The effective income tax rate applicable to adjusted net income-OCG before income taxes for the nine months ended September 30, 2012 was 17%, based on an estimated annual rate of 18%, without the $(7,134) nonrecurring expense, and 24%, based on an estimated annual rate of 23%, with it.

~~Distributable Earnings~~ ⁽¹⁾

~~Distributable earnings and distributable earnings-OCG, as well as per unit data, are set forth below for the periods indicated:~~

Three Months Ended
September 30,

Nine Months Ended
September 30,
2013 2012 2013 2012
Revenues: (in thousands, except per unit data)
Management fees $ 185,580
$ 182,587
$ 552,281
$ 562,692
Incentive income 122,424
59,174
787,665
250,861
Receipts of investment income from funds ⁽²⁾
18,783
21,184
102,281
79,608
Receipts of investment income from DoubleLine and other companies 9,000
5,456
20,216
13,668
Total distributable earnings revenues 335,787
268,401
1,462,443
906,829
Expenses:
Compensation and benefits (95,561 ) (83,208 ) (279,344 ) (247,915 )
Incentive income compensation (49,222 ) (29,546 ) (308,446 ) (118,268 )
General and administrative (27,389 ) (24,429 ) (80,889 ) (73,665 )
Depreciation and amortization (1,791 ) (1,901 ) (5,266 ) (5,573 )
Total expenses (173,963 ) (139,084 ) (673,945 ) (445,421 )
Other income (expense):
Interest expense, net of interest income (7,074 ) (7,687 ) (21,617 ) (23,914 )
Operating Group income taxes (71 ) (1,208 ) (4,282 ) (5,721 )
Other income (expense), net 148
(59 ) 412
2,274
Distributable earnings 154,827
120,363
763,011
434,047
Distributable earnings attributable to OCGH non-controlling interest (115,624 ) (96,218 ) (596,276 ) (354,591 )
Non-Operating Group expenses (271 ) (115 ) (947 ) (393 )
Distributable earnings-OCG income taxes (1,445 ) (1,301 ) (5,566 ) (7,480 )
Tax receivable agreement (2,848 ) (1,603 ) (7,541 ) (5,157 )
Distributable earnings-OCG $ 34,639
$ 21,126
$ 152,681
$ 66,426
Distributable earnings per Class A unit $ 0.91
$ 0.70
$ 4.51
$ 2.42
Weighted average number of Class A units outstanding 38,239
30,181
33,845
27,494


~~(1)~~	Beginning in 2013, distributable earnings excludes non-cash equity-based compensation charges related to unit grants made after our initial public offering in April 2012. These non-cash compensation charges amounted to $0.1 million for both the three and nine months ended September 30, 2012, and thus were considered immaterial for purposes of recasting those periods' results.

~~(2)~~

This adjustment characterizes a portion of the distributions received from funds as receipts of investment income or loss. In general, the income or loss component of a fund distribution is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends.

Three Months Ended ~~September 30, 2013~~March 31, 2014 Compared to the Three Months Ended ~~September 30, 2012~~March 31, 2013

Distributable earnings ~~increased~~ ~~$34.4~~decreased $61.9 million, or ~~28.6%~~21.0%, to $~~154.8~~233.1 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$120.4~~$295.0 million for the three months ended ~~September 30, 2012. The increase reflected~~March 31, 2013, reflecting decreases of $~~43.6~~41.9 million in ~~higher~~ incentive income, net of incentive income compensation expense, ~~partially offset by a~~$12.0 million in investment income proceeds, and $~~13.2~~7.2 million ~~decline~~ in fee-related earnings. For the ~~current-year period,~~three months ended March 31, 2014, receipts of investment income totaled $~~27.8~~31.1 million, including $~~18.8~~21.7 million from fund distributions and ~~$9.0~~$9.4 million from ~~Oaktree’s one-fifth equity ownership~~DoubleLine, as compared with total receipts in ~~DoubleLine. For~~ the prior-year period ~~receipts~~ of ~~investment income totaled~~ ~~$26.6~~$43.0 million,~~, including~~ of which $34.0 million and $9.0 million was attributable to fund distributions and DoubleLine, respectively.

6162

~~$21.2 million~~ from fund distributions and $5.3 million from DoubleLine, of which the latter included $0.9 million attributable to performance fees. No DoubleLine performance fees were received in the current-year period.

~~Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012~~

~~Distributable earnings increased~~ ~~$329.0~~ ~~million, or~~ ~~75.8%, to~~ ~~$763.0 million~~ ~~for the nine months ended September 30, 2013, from $434.0 million for the nine months ended September 30, 2012. The increase reflected~~ ~~$346.6 million~~ ~~in higher net incentive income and~~ ~~$29.2 million~~ ~~in higher receipts of investment income, partially offset by a~~ ~~$51.4~~ ~~million decline in fee-related earnings. For the current-year period, receipts of investment income totaled~~ ~~$122.5 million, including~~ ~~$102.3 million~~ ~~from fund distributions and~~ ~~$20.2 million~~ ~~from DoubleLine, of which the latter included $3.0 million attributable to performance fees. For the prior-year period, receipts of investment income totaled~~ ~~$93.3 million, including~~ ~~$79.6 million~~ ~~from fund distributions and $13.0 million from DoubleLine, of which the latter included $3.9 million attributable to performance fees.~~

The following table reconciles distributable earnings and ANI to net income attributable to Oaktree Capital Group, ~~LLC for the periods indicated:~~LLC:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
	(in thousands)												(in thousands)
Distributable earnings	$	154,827		$	120,363		$	763,011		$	434,047		$	233,141		$	295,027
Investment income ⁽¹⁾	53,558			62,801			170,184			150,382			46,480			82,050
Receipts of investment income from funds ⁽²⁾	(18,783		)	(21,184		)	(102,281		)	(79,608		)	(21,658		)	(34,026		)
Receipts of investment income from DoubleLine and other companies	(9,000		)	(5,456		)	(20,216		)	(13,668		)
Receipts of investment income from companies													(9,415		)	(9,013		)
Equity-based compensation ⁽³⁾	(1,070		)	—			(2,646		)	—			(3,983		)	(652		)
Operating Group income taxes	71			1,208			4,282			5,721			2,380			2,364
Adjusted net income	179,603			157,732			812,334			496,874			246,945			335,750
Equity-based compensation ⁽⁴⁾	(6,250		)	(7,369		)	(18,231		)	(27,353		)
Income taxes ⁽⁵⁾	(726		)	(5,801		)	(18,874		)	(27,493		)
Non-Operating Group other income ⁽⁶⁾	—			—			—			6,260
Non-Operating Group expenses ⁽⁶⁾	(271		)	(115		)	(947		)	(393		)
OCGH non-controlling interest ⁽⁶⁾	(129,408		)	(119,235		)	(617,191		)	(379,356		)
Incentive income ⁽⁴⁾													(64,460		)	—
Incentive income compensation ⁽⁴⁾													46,334			—
Equity-based compensation ⁽⁵⁾													(5,199		)	(5,800		)
Income taxes ⁽⁶⁾													(7,986		)	(10,157		)
Non-Operating Group expenses ⁽⁷⁾													(282		)	(210		)
OCGH non-controlling interest ⁽⁷⁾													(163,558		)	(262,017		)
Net income attributable to Oaktree Capital Group, LLC	$	42,948		$	25,212		$	157,091		$	68,539		$	51,794		$	57,566


(1)	This adjustment eliminates our segment investment income, which with respect to investment in funds is initially largely non-cash in nature and is thus not available to fund our operations or make equity distributions.

(2)

This adjustment characterizes a portion of the distributions received from funds as receipts of investment income or loss. In general, the income or loss component of a distribution from a fund is calculated by multiplying the amount of the distribution by the ratio of our investment’s undistributed income or loss to our remaining investment balance. In addition, if the distribution is made during the investment period, it is generally not reflected in distributable earnings until after the investment period ends.


(3)	This adjustment adds back the effect of equity-based compensation charges related to unit grants made after our initial public offering, which is excluded from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.


(4)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG. There were no adjustments attributable to timing differences for the three months ended March 31, 2013.


(5)	This adjustment adds back the effect of equity-based compensation charges related to unit grants made before our initial public offering, which is excluded from adjusted net income because it does not affect our financial position and from distributable earnings because it is non-cash in nature and does not impact our ability to fund operations or make equity distributions.


~~(5)~~(6)	Because adjusted net income and distributable earnings are pre-tax measures, this adjustment adds back the effect of income tax expense.


~~(6)~~(7)	Because adjusted net income and distributable earnings are calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or the OCGH non-controlling interest.

6263

The following table reconciles distributable earnings-OCG and adjusted net income-OCG to net income attributable to Oaktree Capital Group, ~~LLC for the periods indicated:~~LLC:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
	(in thousands)												(in thousands)
Distributable earnings-OCG ⁽¹⁾	$	34,639		$	21,126		$	152,681		$	66,426		$	55,812		$	54,076
Investment income attributable to OCG	13,560			12,597			37,544			26,861			12,118			16,424
Receipts of investment income from funds attributable to OCG	(4,756		)	(4,312		)	(22,385		)	(14,518		)	(5,647		)	(6,810		)
Receipts of investment income from DoubleLine and other companies attributable to OCG	(2,279		)	(1,032		)	(4,565		)	(2,510		)
Receipts of investment income from companies attributable to OCG													(2,455		)	(1,804		)
Equity-based compensation attributable to OCG ⁽²⁾	(271		)	—			(604		)	—			(1,039		)	(131		)
Distributable earnings-OCG income taxes	1,445			1,301			5,566			7,480			739			2,920
Tax receivable agreement	2,848			1,603			7,541			5,157			3,953			1,845
Non-Operating Group other income	—			—			—			6,260
Income taxes of Intermediate Holding Companies	(656		)	(4,593		)	(14,593		)	(21,772		)	(5,606		)	(7,793		)
Adjusted net income-OCG ⁽¹⁾	44,530			26,690			161,185			73,384			57,875			58,727
Equity-based compensation attributable to OCG ⁽³⁾	(1,582		)	(1,478		)	(4,094		)	(4,845		)
Incentive income attributable to OCG ⁽³⁾													(16,806		)	—
Incentive income compensation attributable to OCG ⁽³⁾													12,080			—
Equity-based compensation attributable to OCG ⁽⁴⁾													(1,355		)	(1,161		)
Net income attributable to Oaktree Capital Group, LLC	$	42,948		$	25,212		$	157,091		$	68,539		$	51,794		$	57,566


(1)	Distributable earnings-OCG and adjusted net income-OCG are calculated to evaluate the portion of adjusted net income and distributable earnings attributable to Class A unitholders. These measures are net of income taxes and expenses applicable to OCG or its Intermediate Holding Companies.


(2)	This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made after our initial public offering, which is excluded from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.


(3)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense attributable to OCG between adjusted net income-OCG and net income attributable to OCG. There were no adjustments attributable to timing differences for the three months ended March 31, 2013.

(4)

This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made before our initial public offering, which is excluded from adjusted net income because it does not affect our financial position and from distributable earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.

6364

Fee-related Earnings⁽¹⁾

Fee-related earnings and fee-related earnings-OCG, as well as per unit data, are set forth ~~below for the periods indicated:~~below:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
	2013			2012			2013			2012				2014			2013
	(in thousands, except per unit data)													(in thousands, except per unit data)
Management fees:
Closed-end funds	$	139,305		$	140,056		$	414,529		$	439,836			$	137,038		$	139,048
Open-end funds	36,125			32,888			108,469			94,336				39,654			36,055
Evergreen funds	10,150			9,643			29,283			28,520				11,708			9,111
Total management fees	185,580			182,587			552,281			562,692				188,400			184,214
Expenses:
Compensation and benefits	(95,561		)	(83,080		)	(279,344		)	(247,787		)		(98,194		)	(93,617		)
Equity-based compensation	(1,070		)	(128		)	(2,646		)	(128		)
General and administrative	(27,389		)	(24,429		)	(80,889		)	(73,665		)		(30,562		)	(23,988		)
Depreciation and amortization	(1,791		)	(1,901		)	(5,266		)	(5,573		)		(1,921		)	(1,743		)
Total expenses	(125,811		)	(109,538		)	(368,145		)	(327,153		)		(130,677		)	(119,348		)
Fee-related earnings	59,769			73,049			184,136			235,539				57,723			64,866
Fee-related earnings attributable to OCGH non-controlling interest	(44,635		)	(58,397		)	(142,995		)	(192,649		)		(42,673		)	(51,883		)
Non-Operating Group other income	—			—			—			6,260			⁽¹⁾
Non-Operating Group expenses	(272		)	(115		)	(949		)	(391		)		(282		)	(210		)
Fee-related earnings-OCG before income taxes	14,862			14,537			40,192			48,759				14,768			12,773
Fee-related earnings-OCG income taxes	(2,428		)	(2,324		)	(5,839		)	(15,158		)	⁽¹⁾	(1,845		)	(2,235		)
Fee-related earnings-OCG	$	12,434		$	12,213		$	34,353		$	33,601			$	12,923		$	10,538
Fee-related earnings per Class A unit	$	0.33		$	0.40		$	1.02		$	1.22			$	0.33		$	0.35
Weighted average number of Class A units outstanding	38,239			30,181			33,845			27,494				39,700			30,186

(1)

~~A nonrecurring adjustment in~~Beginning with the ~~second~~fourth quarter of ~~2012 had~~2013, the ~~effect~~definition of increasing income taxes-OCG by $(7,134) and increasing non-Operating Group other income by $6,260, for a net effect of additional after-tax OCG expense of $(874). This adjustment stemmed from reductionsfee-related earnings was modified to exclude non-cash equity-based compensation charges related to unit grants made after our initial public offering in ~~deferred tax assets and the liability for amounts due~~April 2012. Prior periods have been recast to ~~affiliates. The effective income tax rate applicable~~retroactively reflect this change. Those non-cash compensation charges amounted to ~~fee-related earnings-OCG before income taxes~~$0.7 million, or less than $0.01 per Class A unit, for the ~~nine~~three months ended ~~September 30, 2012 was 19%, based on an estimated annual rate of 20%, without the $(7,134) nonrecurring expense, and 31%, based on an estimated annual rate of 29%, with it.~~March 31, 2013.

6465

The following table reconciles fee-related earnings and ANI to net income attributable to Oaktree Capital Group, LLC:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
	(in thousands)												(in thousands)
Fee-related earnings ⁽¹⁾	$	59,769		$	73,049		$	184,136		$	235,539		$	57,723		$	64,866
Incentive income	122,424			59,174			787,665			250,861			292,876			327,184
Incentive income compensation	(49,222		)	(29,546		)	(308,446		)	(118,268		)	(137,828		)	(130,271		)
Investment income	53,558			62,801			170,184			150,382			46,480			82,050
Equity-based compensation ⁽²⁾													(3,983		)	(652		)
Interest expense, net of interest income	(7,074		)	(7,687		)	(21,617		)	(23,914		)	(6,625		)	(7,407		)
Other income (expense), net	148			(59		)	412			2,274			(1,698		)	(20		)
Adjusted net income	179,603			157,732			812,334			496,874			246,945			335,750
Equity-based compensation ⁽²⁾	(6,250		)	(7,369		)	(18,231		)	(27,353		)
Income taxes ⁽³⁾	(726		)	(5,801		)	(18,874		)	(27,493		)
Non-Operating Group other income ⁽⁴⁾	—			—			—			6,260
Non-Operating Group expenses ⁽⁴⁾	(271		)	(115		)	(947		)	(393		)
OCGH non-controlling interest ⁽⁴⁾	(129,408		)	(119,235		)	(617,191		)	(379,356		)
Incentive income ⁽³⁾													(64,460		)	—
Incentive income compensation ⁽³⁾													46,334			—
Equity-based compensation ⁽⁴⁾													(5,199		)	(5,800		)
Income taxes ⁽⁵⁾													(7,986		)	(10,157		)
Non-Operating Group expenses ⁽⁶⁾													(282		)	(210		)
OCGH non-controlling interest ⁽⁶⁾													(163,558		)	(262,017		)
Net income attributable to Oaktree Capital Group, LLC	$	42,948		$	25,212		$	157,091		$	68,539		$	51,794		$	57,566


(1)	Fee-related earnings is a component of adjusted net income and is comprised of segment management fees less segment operating expenses other than incentive income compensation ~~expense.~~expense and non-cash equity-based compensation charges related to unit grants made after our initial public offering.


(2)	This adjustment adds back the effect of equity-based compensation charges related to unit grants made after our initial public offering, which is excluded from fee-related earnings because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.


(3)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense between adjusted net income and net income attributable to OCG. There were no adjustments attributable to timing differences for the three months ended March 31, 2013.


(4)	This adjustment adds back the effect of equity-based compensation charges related to unit grants made before our initial public offering, which is excluded from adjusted net income and fee-related earnings because it is a non-cash charge that does not affect our financial position.


~~(3)~~(5)	Because adjusted net income and fee-related earnings are pre-tax measures, this adjustment adds back the effect of income tax expense.


~~(4)~~(6)	Because adjusted net income and fee-related earnings are calculated at the Operating Group level, this adjustment adds back the effect of items applicable to OCG, its Intermediate Holding Companies or the OCGH non-controlling interest.

6566

The following table reconciles fee-related earnings-OCG and adjusted net income-OCG to net income attributable to Oaktree Capital Group, LLC:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2013			2012			2014			2013
	(in thousands)												(in thousands)
Fee-related earnings-OCG ⁽¹⁾	$	12,434		$	12,213		$	34,353		$	33,601		$	12,923		$	10,538
Incentive income attributable to OCG	30,997			11,869			170,411			46,635			76,359			65,487
Incentive income compensation attributable to OCG	(12,463		)	(5,926		)	(66,737		)	(22,074		)	(35,935		)	(26,074		)
Investment income attributable to OCG	13,560			12,597			37,544			26,861			12,118			16,424
Equity-based compensation attributable to OCG ⁽²⁾													(1,039		)	(131		)
Interest expense, net of interest income attributable to OCG	(1,790		)	(1,542		)	(4,832		)	(4,357		)	(1,726		)	(1,482		)
Other income (expense) attributable to OCG	38			(10		)	95			342			(443		)	(4		)
Non-fee-related earnings income taxes attributable to OCG ⁽²⁾	1,754			(2,511		)	(9,649		)	(7,624		)
Non-fee-related earnings income taxes attributable to OCG ⁽³⁾													(4,382		)	(6,031		)
Adjusted net income-OCG ⁽¹⁾	44,530			26,690			161,185			73,384			57,875			58,727
Equity-based compensation attributable to OCG ⁽³⁾	(1,582		)	(1,478		)	(4,094		)	(4,845		)
Incentive income attributable to OCG ⁽⁴⁾													(16,806		)	—
Incentive income compensation attributable to OCG ⁽⁴⁾													12,080			—
Equity-based compensation attributable to OCG ⁽⁵⁾													(1,355		)	(1,161		)
Net income attributable to Oaktree Capital Group, LLC	$	42,948		$	25,212		$	157,091		$	68,539		$	51,794		$	57,566


(1)	Fee-related earnings-OCG and adjusted net income-OCG are calculated to evaluate the portion of adjusted net income and fee-related earnings attributable to Class A unitholders. These measures are net of income taxes and other income or expenses applicable to OCG or its Intermediate Holding Companies.


(2)	This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made after our initial public offering, which is excluded from fee-related earnings-OCG because it is non-cash in nature and does not impact our ability to fund our operations or make equity distributions.


(3)	This adjustment adds back income taxes associated with segment incentive income, incentive income compensation ~~expense~~ or investment income (loss), which are not included in the calculation of fee-related earnings-OCG.


~~(3)~~(4)	This adjustment adds back the effect of timing differences associated with the recognition of incentive income and incentive income compensation expense attributable to OCG between adjusted net income-OCG and net income attributable to OCG. There were no adjustments attributable to timing differences for the three months ended March 31, 2013.


(5)	This adjustment adds back the effect of equity-based compensation charges attributable to OCG related to unit grants made before our initial public offering, which is excluded from adjusted net income-OCG and fee-related earnings-OCG because it is a non-cash charge that does not affect our financial position.

Three Months Ended ~~September 30, 2013~~March 31, 2014 Compared to the Three Months Ended ~~September 30, 2012~~March 31, 2013

Segment Revenues

Management Fees

A summary of ~~our~~ management fees ~~for the three months ended September 30, 2013 and 2012~~ is set forth below:


	Three Months Ended September 30,				Three Months Ended March 31,
	2013		2012		2014		2013
	(in thousands)				(in thousands)
Management Fees:
Closed-end funds	$	139,305	$	140,056	$	137,038	$	139,048
Open-end funds	36,125		32,888		39,654		36,055
Evergreen funds	10,150		9,643		11,708		9,111
Total	$	185,580	$	182,587	$	188,400	$	184,214

Management fees increased ~~$3.0~~$4.2 million, or ~~1.6%~~2.3%, to ~~$185.6 million~~ ~~for the three months ended September 30, 2013, from $182.6~~$188.4 million for the three months ended ~~September 30, 2012,~~March 31, 2014, from $184.2 million for the three months ended March 31, 2013, for the reasons described below.

Closed-end funds. Management fees attributable to closed-end funds decreased ~~$0.8~~$2.0 million, or ~~0.6%~~1.4%, to ~~$139.3 million~~ ~~for the three months ended September 30, 2013, from $140.1~~$137.0 million for the three months ended ~~September 30, 2012.~~March 31, 2014, from $139.0 million for the three months ended March 31, 2013. The decrease primarily resulted from a ~~$30.8~~$30.4 million decline in management fees from closed-end funds in their liquidation periods, of which Opps VIIb accounted

for ~~$13.5~~$11.0 million, declining from ~~$23.9~~$19.3 million in the prior-year period to ~~$10.4~~$8.3 million in the current-year period. Largely offsetting this decrease were increases ~~in management fees~~ of $19.7 million ~~due to~~from the start of Opps IX's investment period on January 1, 2014, $5.5 million from new capital commitments to ROF VI, ~~$5.5~~and $2.7 million from closed-end funds for which management fees are based on drawn capital or NAV and $4.3 million (to $7.4 million) from Oaktree Mezzanine Fund III, L.P. (“Mezz III”). Of the $19.7 million increase attributable to ROF VI, $11.7 million represented additional management fees that were earned retroactive to the start of the fund's investment period in August 2012. No such retroactive management fees fell in the prior-year period. Funds contributing to the $5.5 million increase in management fees based on drawn capital or NAV were EIF, Opps IX and separate accounts in the Strategic Credit and real estate debt strategies. We had not commenced Opps IX's investment period as of September 30, 2013; thus, management fees were assessed only on its drawn capital. The increase in fees from Mezz III resulted from the fact that two-thirds of its 1.50% annual management fee rate is contingent on the fund achieving certain cash flow levels.NAV.

Open-end funds. Management fees attributable to open-end funds increased ~~$3.2~~$3.6 million, or ~~9.7%~~10.0%, to $~~36.1~~39.7 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$32.9~~$36.1 million for the three months ended ~~September 30, 2012.~~March 31, 2013. The increase reflected higher management fees ~~across our U.S. high yield bond, U.S. senior loan and convertible securities strategies~~ as a result of net inflows to our Emerging Markets Equity and Senior Loan strategies, and market-value appreciation ~~and net inflows.~~in our U.S. High Yield Bond strategy. These increases were partially offset by $1.7 million in lower performance-based fees in our U.S. Convertible Securities strategy.

Evergreen funds. Management fees attributable to evergreen funds increased $~~0.6~~2.6 million, or ~~6.3%~~28.6%, to $~~10.2~~11.7 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$9.6~~$9.1 million for the three months ended ~~September 30, 2012,~~March 31, 2013, principally reflecting drawdowns by ~~the new~~ Strategic Credit ~~strategy~~ and ~~net outflows from~~market-value gains in Oaktree ~~Emerging Markets Absolute Return~~Value Opportunities Fund, L.P. ~~(“EMAR”).~~ The period-end weighted average annual management fee rate for evergreen funds decreased to ~~1.69%~~1.61% as of ~~September 30, 2013,~~March 31, 2014, from ~~1.82%~~1.80% as of ~~September 30, 2012,~~March 31, 2013, largely as a result of ~~the new~~ Strategic Credit, ~~strategy,~~for which ~~as of September 30, 2013 had a~~the average management fee rate is lower ~~average fee rate.~~than is the case for other evergreen funds.

Incentive Income

A summary of ~~our~~ incentive income ~~for the three months ended September 30, 2013 and 2012~~ is set forth below:


	Three Months Ended September 30,				Three Months Ended March 31,
	2013		2012		2014		2013
	(in thousands)				(in thousands)
Incentive Income:
Closed-end funds	$	121,322	$	59,174	$	292,830	$	325,491
Evergreen funds	1,102		—		46		1,693
Total	$	122,424	$	59,174	$	292,876	$	327,184

Incentive income ~~increased~~decreased $~~63.2~~34.3 million, or ~~106.8%~~10.5%, to $~~122.4~~292.9 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$59.2~~$327.2 million for the three months ended ~~September 30, 2012.~~March 31, 2013. The current-year period included ~~$97.3~~$219.7

million of tax-related incentive distributions with respect to 2013 taxable income generated by closed-end funds, and $73.2 million of other incentive distributions, including $57.8 million from Opps VIIb. The prior-year period included an incentive distribution of $195.2 million from Opps VIIb and ~~$14.5 million from Oaktree PPIP Fund, L.P. (“PPIP”). The prior-year period included an aggregate $41.0 million from principal investing and real estate funds, and $16.2~~$113.4 million of tax-related incentive distributions with respect to 2012 taxable income generated by ~~Opps VIIb.~~closed-end funds.

Investment Income

A summary of investment income ~~for the three months ended September 30, 2013 and 2012~~ is set forth below:

Three Months Ended
September 30,
2013 2012
(in thousands)
Income (loss) from investments in funds:
Oaktree funds:

Distressed debt $ 15,346
$ 33,861
Control investing 8,431
9,885
Real estate 4,006
5,857
Corporate debt 4,310
4,867
Listed equities 11,416
(18 )
Convertible securities 57
50
Non-Oaktree 287
1,100
Income from investments in companies:
DoubleLine and other 9,705
7,199
Total investment income $ 53,558
$ 62,801



	Three Months Ended March 31,
	2014			2013
Income (loss) from investments in funds:	(in thousands)
Oaktree funds:
Corporate Debt	$	8,835		$	3,772
Convertible Securities	408			50
Distressed Debt	20,474			41,362
Control Investing	11,042			9,856
Real Estate	5,466			9,211
Listed Equities	(3,960		)	5,224
Non-Oaktree funds	923			2,076
Income from investments in companies	3,292			10,499
Total investment income	$	46,480		$	82,050

Investment income decreased $~~9.2~~35.6 million, or ~~14.6%~~43.4%, to $~~53.6~~46.5 million for the three months ended ~~September 30,~~March 31, 2014, from $82.1 million for the three months ended March 31, 2013, ~~from $62.8~~a quarter marked by particularly strong financial markets. Investments in companies accounted for $7.2 million of the decrease, primarily as a result of a market-value decline on our minority equity investment in Cinda. Our one-fifth ownership stake in DoubleLine accounted for investment income of $9.6 million and $11.0 million for the three months ended ~~September 30, 2012, reflecting a lower average return on an average invested fund balance that declined 10.3% from~~March 31, 2014 and 2013, respectively, of which the ~~prior-year period. Investments in companies relate principally~~portion attributable to ~~our one-fifth ownership interest in DoubleLine. Investment income from DoubleLine did not include any~~ performance fees ~~in the current-year period, as compared to $2.8~~was $1.4 million ~~of performance fees in the prior-year period.~~and $2.0 million, respectively.

Segment Expenses

Compensation and Benefits

Compensation and benefits increased $~~12.5~~4.6 million, or ~~15.0%~~4.9%, to $~~95.6~~98.2 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from $83.1 million for the three months ended September 30, 2012, reflecting growth in headcount of 10% between September 30, 2012 and September 30, 2013, in part related to corporate development activities, and a higher accrual towards the year-end bonus.

~~Equity-based Compensation~~

~~Equity-based compensation increased~~ $~~1.0~~ ~~million, to~~ ~~$1.1~~93.6 million for the three months ended ~~September 30,~~March 31, 2013, ~~from $0.1~~primarily reflecting growth in headcount.

Equity-based Compensation

Equity-based compensation increased to $4.0 million for the three months ended ~~September 30, 2012, reflecting~~March 31, 2014, from $0.7 million for the three months ended March 31, 2013. The increase reflected non-cash amortization expense associated with vesting of restricted unit grants made to employees and directors subsequent to our initial public offering in April 2012.

Incentive Income Compensation

Incentive income compensation expense increased $~~19.7~~7.5 million, or ~~66.8%~~5.8%, to $~~49.2~~137.8 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$29.5~~$130.3 million for the three months ended ~~September 30, 2012. The percentage increase was smaller than~~March 31, 2013. After adjusting the ~~106.8%~~ ~~increase in incentive income, principally because in~~2013 quarter's expense for its benefit from the 2011 ~~we acquired and expensed~~acquisition of a small portion of certain investment professionals' carried interest in Opps ~~VIIb. If that transaction had not occurred, total incentive income compensation expense~~VIIb, the year-over-year change would have been ~~an estimated $56.8 million~~a decrease of 5.3%, which is more in line with the ~~current-year~~10.5% decline in incentive income over the same period. ~~Additionally,~~The remainder of the adjusted percentage difference was attributable to the fact that funds that generated incentive income in the ~~prior-year period~~current-year's first quarter had a higher average percentage of incentive income compensation expense than those that generated incentive income in the ~~current-year~~prior-year period.

6869

General and Administrative

General and administrative expenses increased $~~3.0~~6.6 million, or ~~12.3%~~27.5%, to $~~27.4~~30.6 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$24.4~~$24.0 million for the three months ended ~~September 30, 2012.~~March 31, 2013. Excluding the impact of foreign currency-related items, general and administrative expenses increased ~~$5.0~~$6.9 million, or ~~21.4%~~27.8%, to ~~$28.4~~$31.7 million from ~~$23.4~~$24.8 million. The increase reflected higher professional fees and costs associated with our 2014 bi-annual client conferences, corporate growth ~~enhancements to~~and continued investment in our operational ~~infrastructure and being a public company.~~infrastructure.

Interest Expense, Net of Interest Income

Interest expense, net decreased ~~$0.6~~$0.8 million, or ~~7.8%~~10.8%, to ~~$7.1 million~~ ~~for the three months ended September 30, 2013, from $7.7~~$6.6 million for the three months ended ~~September 30, 2012,~~March 31, 2014, from $7.4 million for the three months ended March 31, 2013, reflecting higher interest income and scheduled repayments of certain long-term debt.

Other Income (Expense), Net

Other income (expense), net decreased to an expense of $1.7 million for the three months ended March 31, 2014, from an expense of $20,000 for the three months ended March 31, 2013. The expense of $1.7 million in the current-year period reflected a $3.0 million write-off of unamortized debt ~~and a lower weighted-average interest rate on outstanding borrowings resulting from both Oaktree's improved credit rating and~~issuance costs associated with the refinancing of our corporate credit facility, partially offset by $1.5 million of income attributable to proceeds received as part of an arbitration award in 2010 related to a former Principal and portfolio manager of our real estate group who left us in 2005. The expense of $20,000 in the ~~fourth quarter~~prior-year period reflected the net results of ~~2012.~~operating the portfolio of properties received as part of the 2010 arbitration award.

Adjusted Net Income

Adjusted net income ~~increased~~decreased $~~21.9~~88.9 million, or ~~13.9%~~26.5%, to $~~179.6~~246.9 million for the three months ended ~~September 30, 2013,~~March 31, 2014, from ~~$157.7 million for the three months ended September 30, 2012. The increase reflected higher net incentive income of~~ $~~$43.6 million, partially offset by a~~ ~~$13.2~~ ~~million decline in fee-related earnings and~~ ~~$9.2~~ ~~million in investment income.~~

~~Income Taxes-OCG~~

~~Income taxes decreased~~ ~~$4.1~~ ~~million, or~~ ~~85.4%, to~~ ~~$0.7~~335.8 million for the three months ended ~~September 30,~~March 31, 2013, ~~from $4.8~~reflecting decreases of $41.9 million in incentive income, net of incentive income compensation expense, $35.6 million in investment income, and $7.2 million in fee-related earnings.

Income Taxes-OCG

Income taxes decreased $2.1 million, or 25.3%, to $6.2 million for the three months ended ~~September 30, 2012. This expense declined, despite an increase in~~March 31, 2014, from $8.3 million for the three months ended March 31, 2013. The decrease resulted from lower adjusted net income-OCG before income taxes asand a ~~result of the accounting effect in the current-year's quarter from a decrease in the~~lower estimated full-year effective ~~income~~ tax ~~rate principally caused by higher-than-expected incentive and investment income.~~rate. The effective tax rate applied against adjusted net income-OCG before income taxes for the three months ended ~~September 30,~~March 31, 2014 and 2013 was 1%10% and 12%, ~~based on an estimated annual rate of 9%.~~respectively. The effective ~~tax rate applied against adjusted net income-OCG before income taxes for the three months ended September 30, 2012 was 15%, based on an estimated annual rate of 18%. The effective income~~ tax rate used for interim fiscal periods is based on the estimated full-year income tax rate and is a function of the mix of income and other factors that often vary significantly within or between years, each of which can have a material impact on the particular year’s income tax expense.

~~Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012~~

~~Segment Revenues~~

~~Management Fees~~

~~A summary of our management fees for the nine months ended September 30, 2013 and 2012 is set forth below:~~

Nine Months Ended
September 30,
2013 2012
(in thousands)
Management Fees:

Closed-end funds $ 414,529
$ 439,836
Open-end funds 108,469
94,336
Evergreen funds 29,283
28,520
Total $ 552,281
$ 562,692

~~Management fees decreased~~ ~~$10.4~~ ~~million, or~~ ~~1.8%, to~~ ~~$552.3 million~~ ~~for the nine months ended September 30, 2013, from $562.7 million for the nine months ended September 30, 2012, for the reasons described below.~~

~~Closed-end funds. Management fees attributable to closed-end funds decreased~~ ~~$25.3~~ ~~million, or~~ ~~5.8%, to~~ ~~$414.5 million~~ ~~for the nine months ended September 30, 2013, from $439.8 million for the nine months ended September 30, 2012. The decrease reflected a decline of $76.5 million attributable to~~

closed-end funds in their liquidation periods, as well as $3.2 million in retroactive management fees earned in the prior-year period upon the final closing of Oaktree Real Estate Opportunities Fund V, L.P. (“ROF V”). Partially offsetting these decreases were increases of $32.2 million in management fees from new capital commitments to closed-end funds in their investment periods, $12.0 million in fees from closed-end funds for which management fees are based on drawn capital or NAV, and $10.1 million (to $20.5 million) in fees from Mezz III. Of the $76.5 million decline in management fees arising from asset sales, Opps VIIb accounted for $36.8 million, declining from $79.8 million in the prior-year period to $43.0 million in the current-year period. The $32.2 million increase in management fees from new capital commitments was attributable to ROF VI, of which $8.1 million represented additional management fees that were earned retroactive to the start of the fund's investment period in August 2012. The $12.0 million increase in management fees based on drawn capital or NAV related to EIF, Opps IX, and the Strategic Credit and real estate debt strategies. We had not commenced Opps IX's investment period as of September 30, 2013; thus, management fees were assessed only on its drawn capital. The increase in fees from Mezz III resulted from the fact that two-thirds of its 1.50% annual management fee rate is contingent on the fund achieving certain cash flow levels.

~~Open-end funds. Management fees attributable to open-end funds increased~~ ~~$14.2~~ ~~million, or~~ ~~15.1%, to~~ ~~$108.5 million~~ for the nine months ended September 30, 2013, from $94.3 million for the nine months ended September 30, 2012. The increase reflected higher management fees across the U.S. high yield bond, U.S. senior loan and convertible securities strategies as a result of market-value appreciation, net inflows and, in the case of convertible securities, an increase of $3.4 million (to $2.3 million) in performance-based fees.

~~Evergreen funds. Management fees attributable to evergreen funds increased~~ ~~$0.8~~ ~~million, or~~ ~~2.8%, to~~ ~~$29.3 million~~ for the nine months ended September 30, 2013, from $28.5 million for the nine months ended September 30, 2012, principally reflecting drawdowns by the new Strategic Credit strategy and market-value appreciation in Oaktree Value Opportunities Fund, L.P., partially offset by net outflows from EMAR. The period-end weighted average annual management fee rate for evergreen funds decreased to ~~1.69%~~ ~~as of September 30, 2013, from 1.82% as of September 30, 2012, largely as a result of the new Strategic Credit strategy, which as of September 30, 2013 had a lower average fee rate.~~

~~Incentive Income~~

~~A summary of our incentive income for the nine months ended September 30, 2013 and 2012 is set forth below:~~

Nine Months Ended
September 30,
2013 2012
(in thousands)
Incentive Income:
Closed-end funds $ 782,900
$ 250,701
Evergreen funds 4,765
160
Total $ 787,665
$ 250,861

~~Incentive income increased~~ ~~$536.8~~ ~~million, or~~ ~~213.9%, to~~ ~~$787.7 million~~ for the nine months ended September 30, 2013, from $250.9 million for the nine months ended September 30, 2012. The current-year period included $565.0 million from Opps VIIb, $101.3 million from other funds and $121.4 million of tax-related incentive distributions. For the prior-year period, tax-related incentive distributions by closed-end funds accounted for $97.0 million of that period's $250.9 million of incentive income.

~~Investment Income~~

~~A summary of investment income for the nine months ended September 30, 2013 and 2012 is set forth below:~~

Nine Months Ended
September 30,
2013 2012
(in thousands)
Income from investments in funds:
Oaktree funds:

Distressed debt $ 70,538
$ 85,653
Control investing 31,202
21,051
Real estate 14,685
13,201
Corporate debt 9,774
10,209
Listed equities 23,370
2,129
Convertible securities 120
114
Non-Oaktree 1,240
1,712
Income from investments in companies:
DoubleLine and other 19,255
16,313
Total investment income $ 170,184
$ 150,382

~~Investment income increased~~ ~~$19.8~~ ~~million, or~~ ~~13.2%, to~~ ~~$170.2 million~~ for the nine months ended September 30, 2013, from $150.4 million for the nine months ended September 30, 2012, as a result of a higher average return on an average invested fund balance that declined 7.7% from the prior-year period. Investments in companies relate principally to our one-fifth ownership interest in DoubleLine. In the current-year period, DoubleLine incurred a placement fee associated with the launch of a closed-end fund and a non-cash charge related to the firm's employee ownership interests; excluding the effect of those two expenses, the current-year period's investment income of $19.5 million would have been investment income of approximately $31 million. Our share of performance fees from DoubleLine generated investment income of $3.0 million and $5.2 million in the current-year and prior-year periods, respectively.

Segment ~~Expenses~~

~~Compensation and Benefits~~

~~Compensation and benefits increased~~ ~~$31.5~~ ~~million, or~~ ~~12.7%, to~~ ~~$279.3 million~~ for the nine months ended September 30, 2013, from $247.8 million for the nine months ended September 30, 2012, reflecting growth in headcount of 10% between September 30, 2012 and September 30, 2013, in part related to corporate development activities, a higher accrual towards the year-end bonus and an increase of $4.1 million, to $4.4 million in the current-year period, in phantom equity plan expense tied to changes in the Class A unit trading price over the respective periods.

~~Equity-based Compensation~~

~~Equity-based compensation increased to~~ ~~$2.6 million~~ for the nine months ended September 30, 2013, from $0.1 million in the nine months ended September 30, 2012, reflecting non-cash amortization expense associated with vesting of restricted unit grants made to employees and directors subsequent to our initial public offering in April 2012.

~~Incentive Income Compensation~~

~~Incentive income compensation expense increased~~ ~~$190.1~~ ~~million, or~~ ~~160.7%, to~~ ~~$308.4 million~~ ~~for the nine months ended September 30, 2013, from $118.3 million for the nine months ended September 30, 2012. The percentage increase was smaller than the~~ ~~213.9%~~ increase in incentive income, principally because in 2011 we acquired and expensed a small portion of certain investment professionals' carried interest in Opps VIIb. If that transaction had not occurred, total incentive income compensation expense would have been an estimated $352.5 million in the current-year period. Additionally, funds that generated incentive income in the prior-year period had a higher average percentage of incentive income compensation expense than those that generated incentive income in the current-year period.

~~General and Administrative~~

~~General and administrative expenses increased~~ ~~$7.2~~ ~~million, or~~ ~~9.8%, to~~ ~~$80.9 million~~ for the nine months ended September 30, 2013, from $73.7 million for the nine months ended September 30, 2012. Excluding the impact of foreign currency-related items, as well as $2.1 million in non-recurring costs associated with our initial public offering that were incurred in the prior-year period, general and administrative expenses increased $11.8 million, or 16.9%, to $81.7 million from $69.9 million. The increase reflected costs associated with corporate growth, enhancements to our operational infrastructure and being a public company.

~~Interest Expense, Net~~

~~Interest expense, net, decreased~~ ~~$2.3~~ ~~million, or~~ ~~9.6%, to~~ ~~$21.6 million~~ for the nine months ended September 30, 2013, from $23.9 million for the nine months ended September 30, 2012, reflecting scheduled repayments of certain long-term debt and a lower weighted-average interest rate on outstanding borrowings resulting from both Oaktree's improved credit rating and refinancing our credit facility in the fourth quarter of 2012.

~~Other Income (Expense), Net~~

~~Other income (expense), net decreased to income of~~ ~~$0.4 million~~ for the nine months ended September 30, 2013, from income of $2.3 million for the nine months ended September 30, 2012. The current-year income reflected the net results of operating the portfolio of properties received as part of an arbitration award in 2010 related to a former principal and portfolio manager of our real estate group who left in 2005. The prior-year income primarily reflected a gain on the sale of a real estate property received as part of the 2010 arbitration award.

~~Adjusted Net Income~~

~~Adjusted net income increased~~ ~~$315.4~~ ~~million, or~~ ~~63.5%, to~~ ~~$812.3 million~~ ~~for the nine months ended September 30, 2013, from $496.9 million for the nine months ended September 30, 2012. The increase reflected higher net incentive income of~~ ~~$346.6 million~~ ~~and investment income of~~ ~~$19.8~~ ~~million, partially offset by a~~ ~~$51.4~~ ~~million decline in fee-related earnings.~~

~~Income Taxes-OCG~~

~~Income taxes decreased~~ ~~$7.3~~ ~~million, or~~ ~~32.0%, to~~ ~~$15.5 million~~ for the nine months ended September 30, 2013, from $22.8 million for the nine months ended September 30, 2012. This expense declined, despite an increase in adjusted net income-OCG before income taxes, because of a year-over-year decrease in the effective tax rate and because the prior-year period included a nonrecurring tax expense of $7.1 million stemming from a remeasurement of deferred tax assets. The effective tax rate applied against adjusted net income-OCG before income taxes for the nine months ended September 30, 2013 was 9%, based on an estimated annual rate of 9%. The effective tax rate applied against adjusted net income-OCG before income taxes for the nine months ended September 30, 2012 was 17%, based on an estimated annual rate of 18%, without the $7.1 million nonrecurring tax expense, and 24%, based on an estimated annual rate of 23%, with it. The effective income tax rate used for interim fiscal periods is based on the estimated full-year income tax rate and is a function of the mix of income and other factors that often vary significantly within or between years, each of which can have a material impact on the particular year’s income tax expense.

~~Segment Statement~~Statements of Financial Condition

Since our founding, we have managed our financial condition in a way that builds our capital base and maintains sufficient liquidity for known and anticipated uses of cash. We have issued debt largely to help fund our corporate investments in funds and companies. We believe that debt maturities should generally match the anticipated sources of repayments. Because the largest share of our corporate investments in funds has been in closed-end funds with 10- to 11-year terms, we have often issued debt with 10-year terms, as augmented by bank term loans with shorter multi-year terms to capitalize on historically low interest ~~rates.~~rates and provide financing flexibility. Our ~~segment’s receivables~~segment assets do not include accrued incentives (fund level), an off-balance sheet ~~metric.~~metric, nor do they reflect the fair-market value of our 20% interest in DoubleLine, which is carried at cost, as adjusted under the equity method of accounting. For a reconciliation of segment total assets to our consolidated total assets, please see the “Segment Reporting” note to our condensed consolidated financial statements included elsewhere in this quarterly report.

The following table presents our segment ~~statement~~statements of financial condition:


	As of
	September 30, 2013		December 31, 2012		September 30, 2012		As of
	(in thousands)						March 31, 2014		December 31, 2013		March 31, 2013
Assets:							(in thousands)
Cash and cash-equivalents	$	304,743	$	458,191	$	310,854	$	563,292	$	390,721	$	687,412
U.S. Treasury and government agency securities	706,865		370,614		360,839
Management fees receivable	42,809		27,351		24,010
Incentive income receivable	2,251		82,182		30,195
Corporate investments, at equity	1,100,500		1,115,952		1,236,710
U.S. Treasury and government-agency securities							360,559		676,600		350,760
Corporate investments							1,393,692		1,197,173		1,117,848
Deferred tax assets	293,579		159,171		168,110		373,037		278,885		159,171
Other assets	198,613		146,087		135,770		243,747		273,748		185,176
Total assets	$	2,649,360	$	2,359,548	$	2,266,488	$	2,934,327	$	2,817,127	$	2,500,367
Liabilities and Capital:
Liabilities:
Accounts payable and accrued expenses	$	261,849	$	214,311	$	236,536	$	235,596	$	304,427	$	223,118
Due to affiliates	250,290		136,165		140,311		321,830		242,986		136,454
Debt obligations	585,714		615,179		618,929		610,714		579,464		608,929
Total liabilities	1,097,853		965,655		995,776		1,168,140		1,126,877		968,501
Capital:
OCGH non-controlling interest in consolidated subsidiaries	1,117,830		1,087,491		988,942		1,212,862		1,220,647		1,199,745
Unitholders’ capital attributable to Oaktree Capital Group, LLC	433,677		306,402		281,770		553,325		469,603		332,121
Total capital	1,551,507		1,393,893		1,270,712		1,766,187		1,690,250		1,531,866
Total liabilities and capital	$	2,649,360	$	2,359,548	$	2,266,488	$	2,934,327	$	2,817,127	$	2,500,367

7371

Corporate Investments ~~at Equity~~

A summary of corporate investments ~~at equity~~ is set forth below:

As of

September 30,
2013
December 31, 2012
September 30,
2012
(in thousands)
Investments in funds:

Oaktree funds:

Distressed debt $ 421,426
$ 475,476
$ 533,715
Control investing 249,456
264,186
270,001
Real estate 128,144
107,408
112,880
Corporate debt 117,265
115,250
134,587
Listed equities 116,919
69,222
61,925
Convertible securities 1,511
1,392
1,365
Non-Oaktree 53,758
53,591
98,000
Investments in companies:
DoubleLine and other 12,021
29,427
24,237
Total corporate investments, at equity $ 1,100,500
$ 1,115,952
$ 1,236,710



	As of
	March 31, 2014		December 31, 2013		March 31, 2013
Investments in funds:	(in thousands)
Oaktree funds:
Corporate Debt	$	279,022	$	125,560	$	106,255
Convertible Securities	18,963		1,554		1,441
Distressed Debt	461,400		438,144		468,308
Control Investing	244,661		246,058		256,034
Real Estate	124,741		112,981		125,116
Listed Equities	130,960		129,697		81,393
Non-Oaktree funds	50,020		51,580		56,237
Investments in companies	83,925		91,599		23,064
Total corporate investments	$	1,393,692	$	1,197,173	$	1,117,848

Liquidity and Capital Resources

We ~~have managed~~manage our ~~historical~~ liquidity and capital requirements by focusing on our cash flows before the consolidation of our funds and the effect of normal changes in short-term assets and liabilities. Our primary cash flow activities on an unconsolidated basis involve (a) generating cash flow from operations, (b) generating income from investment activities, including strategic investments in certain third parties, (c) funding capital commitments that we have made to our funds, (d) funding our growth initiatives, (e) distributing cash flow to our owners and (f) borrowings, interest payments and repayments under credit agreements, our senior notes and other borrowing arrangements. As of ~~September 30, 2013,~~March 31, 2014, we had$923.9 million of cash and investments in U.S. Treasury and ~~government agency~~government-agency securities ~~of $1.0 billion,~~ and $~~585.7~~610.7 million in outstanding debt. Additionally, we have a $500 million revolving credit facility available to us, which was undrawn as of ~~September 30, 2013.~~March 31, 2014. Oaktree’s investments in funds and companies had a carrying value of ~~$1.1~~$1.4 billion as of September 30, 2013. While all of these investments in funds and companies follow the equity method of accounting, whereby original cost is adjusted for Oaktree’s share of income/loss and distributions, investments in funds reflect each fund’s holdings at fair value, whereas investments in DoubleLine and other companies are not adjusted to reflect the fair value of the underlying companies.March 31, 2014.

Ongoing sources of cash, or distributable earnings, include (a) management fees, which are collected monthly or quarterly, (b) incentive income, which is volatile and largely unpredictable as to amount and timing, and (c) distributions related to our corporate investments in funds and companies. As of ~~September 30, 2013,~~March 31, 2014, corporate investments ~~at equity~~ of ~~$1.1~~$1.4 billion included unrealized investment income of ~~$332.0~~$393 million. We primarily use cash flow from operations and distributions from our corporate investments to pay compensation and related expenses, general and administrative expenses, income taxes, debt service, capital expenditures and distributions. This same cash flow, together with proceeds from equity and debt issuances, is also is used to fund corporate investments, fixed assets and other capital items. If cash flow from operations were insufficient to fund distributions, we expect that we would suspend paying such distributions.

We use distributable earnings, which is derived from our segment results, to assess performance and assist in the determination of equity distributions from the Operating Group. Our quarterly distributable earnings may be affected by potential seasonal factors that may, in turn, affect the level of the cash distributions applicable to a particular quarter. For example, we generally receive tax-related incentive distributions from certain closed-end funds in the first quarter of the year, which if received generate distributable earnings in that period. The distribution ~~amounts as between~~amount for any given ~~periods are~~period is likely to vary materially due to this and other factors.

Tax distributions are not required in respect of the Class A units and are only required from the Oaktree Operating Group entities if and to the extent that there is sufficient cash available for distribution. Accordingly, if there were insufficient cash flow from operations to fund quarterly or tax distributions by the Oaktree Operating Group entities, we expect that these distributions would not be made. We believe that we have sufficient access to

cash from existing balances, our operations and the revolving credit facility described below to fund our operations and commitments.

Consolidated Cash Flows

The accompanying condensed consolidated statements of cash flows include our consolidated funds, despite the fact that we typically have only a minority economic interest in those funds. The assets of consolidated funds, on a gross basis, are substantially larger than the assets of our business and, accordingly, have a substantial effect on the cash flows reflected in our condensed consolidated statements of cash flows. The primary cash flow activities of our consolidated funds involve:

raising capital from third-party investors;

using the capital provided by us and third-party investors to fund investments and operating expenses;

financing certain investments with indebtedness;

generating cash flows through the realization of investments, as well as the collection of interest and dividend income; and

distributing net cash flows to fund investors and to us.

Because most of our consolidated funds are treated as investment companies for accounting purposes, their investing cash flow amounts are included in our cash flows from operations. We believe that each of the consolidated funds and Oaktree has sufficient access to cash to fund their respective operations in the near term.

Significant amounts from our condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ are discussed below.

Operating Activities

Net cash used in operating activities was $984.3 million in the first three months of 2014. Net cash provided by operating activities was ~~$4.7~~$2.3 billion ~~and~~ ~~$3.5 billion~~ for the first ~~nine~~three months of ~~2013 and 2012, respectively.~~2013. These amounts included, for the first ~~nine~~three months of 2014 and 2013, (a) net purchases of securities of the consolidated funds of $1.0 billion and ~~2012, (a)~~ net proceeds from maturities and sales of investments of the consolidated funds of ~~$3.5~~$2.6 billion, ~~and~~ ~~$2.4 billion~~, respectively; (b) net realized gains on investments of the consolidated funds of ~~$2.8~~$654.2 million and $1.2 billion, ~~and~~ ~~$2.9 billion~~, respectively; and (c) changes in unrealized gains on investments of the consolidated funds of ~~$1.0~~$770.5 million and $1.0 billion, ~~and~~ ~~$1.4 billion~~, respectively.

Investing Activities

Investing activities ~~used~~ ~~$386.1~~provided $295.4 million and $17.8 million of cash in the first ~~nine~~three months of 2014 and 2013, ~~and provided~~ ~~$27.1 million~~ ~~of cash in the first nine months of 2012.~~respectively. Investing activities were primarily driven by net U.S. Treasury and ~~other U.S. government agency~~government-agency investment activities and net corporate investments in non-consolidated funds and companies. Net activity from purchases, maturities and sales of U.S. Treasury and ~~government agency~~government-agency securities reflected net ~~purchases~~proceeds of ~~$336.3~~$316.0 million and $19.9 million for the first ~~nine~~three months of 2014 and 2013, ~~and net dispositions of~~ ~~$20.9 million~~ ~~for the first nine months of 2012.~~respectively. Corporate investments in funds and companies of ~~$8.9~~$22.0 million and ~~$8.1~~$2.0 million for the first ~~nine~~three months of ~~2013~~2014 and ~~2012,~~2013, respectively, consisted of the following:


	Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2014			2013
	(in thousands)						(in thousands)
Investments in funds	$	125,690		$	151,331		$	165,525		$	52,238
Investments in consolidated funds eliminated in consolidation	(117,866		)	(146,557		)	(147,969		)	(50,909		)
Investments in unconsolidated companies	1,046			3,368			4,481			628
Corporate investments in funds and companies	$	8,870		$	8,142		$	22,037		$	1,957

7573

Distributions from corporate investments in funds and companies of ~~$2.0~~$2.8 million and ~~$19.0 million~~$8 thousand for the first ~~nine~~three months of ~~2013~~2014 and ~~2012,~~2013, respectively, consisted of the following:


	Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2014			2013
	(in thousands)						(in thousands)
Distributions received from investments in funds	$	274,666		$	214,598		$	59,034		$	115,530
Distributions received from consolidated funds eliminated in consolidation	(272,632		)	(208,631		)	(56,259		)	(115,522		)
Distributions received from unconsolidated companies	—			13,061
Distributions from corporate investments in funds and companies	$	2,034		$	19,028		$	2,775		$	8

Purchases of fixed assets were ~~$3.0~~$1.3 million and ~~$4.6 million~~$126 thousand for the first ~~nine~~three months of 2014 and 2013, ~~and 2012,~~ respectively. ~~The current-year period included a $40 million deposit related to the TRS agreement.~~

Financing Activities

~~Net~~Financing activities provided $1.0 billion of cash ~~used~~ in ~~financing activities was~~ ~~$4.6 billion~~ ~~and~~ ~~$3.3 billion~~ ~~for~~ the first ~~nine~~three months of ~~2013~~2014 and ~~2012, respectively.~~used $1.5 billion of cash in the first three months of 2013. For the first ~~nine~~three months of ~~2013~~2014 and ~~2012,~~2013, financing activities included (a) net distributions from consolidated funds to non-controlling interests of ~~$5.4~~$120.4 million and $1.6 billion, ~~and~~ ~~$3.0 billion~~, respectively; (b) net borrowings on revolving credit facilities of the consolidated funds of ~~$1,516.8~~$809.7 million and ~~$2.5~~$338.4 million,, respectively; (c) distributions to unitholders of ~~$659.1~~$178.8 million and ~~$329.3~~$184.4 million,, respectively; (d) net proceeds of $30.5 million associated with the refinancing of our corporate credit facility and repayment of debt obligations of ~~$29.5~~$6.3 million, ~~and~~ ~~$33.2 million~~, respectively; and (e) purchases of OCGH units, net of issuance of Class A units, of ~~$0.8~~$1.8 million and ~~$0.7~~$0.8 million,, respectively. ~~The prior-year~~Additionally, the current-year period included ~~$14.1~~$497.6 million in ~~repurchases of Class A units.~~proceeds from debt obligations issued by our CLOs.

Future Sources and Uses of Liquidity

We expect to continue to make distributions to our Class A unitholders pursuant to our distribution policy. In the future, we may also issue additional units or debt and other equity securities with the objective of increasing our available capital. In addition, we may, from time to time, repurchase our Class A units in open market or privately negotiated purchases or otherwise or redeem our Class A units pursuant to the terms of our operating agreement.

In addition to our ongoing sources of cash that include management fees, incentive income and fund distributions related to our corporate investments in funds and companies, we also have access to liquidity through our debt financings and credit agreements. We believe that the sources of liquidity described below will be sufficient to fund our working capital requirements for at least the next twelve months.

In ~~December 2012,~~March 2014, our subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P. and Oaktree Capital I, L.P. entered into a credit agreement ~~(the “Credit Facility”)~~ with a bank syndicate for senior unsecured credit facilities (the “Credit Facility”), consisting of a $250 million fully-funded term loan (the “Term Loan”) and a $500 million revolving credit facility (the “Revolver”), each with a ~~5-year~~five-year term. The Credit Facility replaced the ~~previous credit facility and the Term Loan replaced the prior~~ amortizing term loan, which had a principal balance of ~~$247.5 million.~~$218.8 million, and the undrawn revolver under the Company's prior credit facility. The Term Loan ~~amortizes quarterly~~matures in ~~an amount equal to 2.5% of~~March 2019, at which time the ~~original~~entire principal amount of $250 million ~~with principal payments due in March, June, September and December of each year, and the remaining principal payable upon maturity in December 2017.~~is due. Borrowings under the Credit Facility generally bear interest at a spread to either LIBOR or an alternative base rate. Based on the current credit ratings of Oaktree Capital Management, L.P., the interest rate on borrowings is LIBOR plus 1.00% per annum and the commitment fee on the unused portions of the Revolver is 0.125% per annum. Utilizing interest-rate swaps, the ~~bulk of the first four years~~majority of the Term Loan’s annual interest rate is fixed at ~~2.60%,~~2.69% through January 2016 and 2.22% for the twelve months thereafter, based on our current credit ratings. The Credit Facility contains customary financial covenants and restrictions, including ones regarding a maximum leverage ratio of 3.0-to-1.0 ~~minimum fixed charge coverage ratio of 2.5-to-1.0~~ and a minimum required ~~levels~~level of assets under management ~~and net worth~~ (as defined in the credit agreement) of $50 ~~billion and $600 million, respectively.~~billion. As of ~~September 30, 2013,~~March 31, 2014, we were in compliance with each of these covenants and were able to draw the full amount available under the Revolver without violating any financial covenants.

In ~~January 2011,~~December 2012, our subsidiaries Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P. and Oaktree Capital I, L.P. entered into a credit ~~facility~~agreement with a bank syndicate for senior unsecured credit facilities, consisting of a ~~$300~~$250 million fully-funded term loan and a ~~$250~~$500 million ~~three-year~~ revolving credit ~~facility.~~facility, each with a five-year term. We were required to make

quarterly principal payments ~~of $7.5 million in respect~~equal to 2.5% of the ~~term loan~~original principal amount of $250 million, with principal payments due in March, June, September and December ~~with~~of each year, and the ~~final payment of $150 million, constituting the remainder of the term loan, due on January 7, 2016.~~remaining principal payable upon maturity in December 2017. This credit facility was terminated

and replaced by the Credit Facility in ~~December 2012,~~March 2014, with proceeds from the Term Loan used to pay off the ~~$247.5~~$218.8 million outstanding balance.

In November 2009, our subsidiary Oaktree Capital Management, L.P. issued $250 million in aggregate principal amount of senior notes due December 2, 2019 (the “2019 Notes”). The indenture governing the 2019 Notes contains customary financial covenants and restrictions that, among other things, limit Oaktree Capital Management, L.P. and the guarantors' ability, subject to certain exceptions, to incur indebtedness secured by liens on voting stock or profit-participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The 2019 Notes do not contain financial maintenance covenants.

In addition to the 2019 Notes, as of ~~September~~March ~~30, 2013,~~31, 2014, we had three other series of senior notes outstanding, with an aggregate remaining principal balance of $110.7 million. These notes have aggregate principal repayments due of $10.7 million in June 2014 and $100 million in 2016. Note purchase agreements underlying these senior notes contain customary financial covenants and restrictions that, among other things, restrict our subsidiaries from incurring additional indebtedness and our subsidiaries and us from merging, consolidating, transferring, leasing or selling assets, incurring certain liens and making restricted payments, subject to certain exceptions. In addition, the agreements contain the following financial covenants: (a) a maximum consolidated leverage ratio covenant that requires us and our subsidiaries to maintain a ratio, calculated by dividing consolidated total debt (for us and our subsidiaries) by Consolidated EBITDA (as defined in each agreement) for the last four fiscal quarters, below 3.0-to-1.0, (b) a maximum interest coverage ratio covenant that requires us and our subsidiaries to maintain a ratio, calculated by dividing Consolidated EBITDA for the last four fiscal quarters by consolidated interest expense (for us and our subsidiaries), below 4.0-to-1.0, and (c) an assets under management covenant that requires us to maintain assets under management above $20 billion ($15 billion under one agreement). As of ~~September~~March ~~30, 2013,~~31, 2014, we were in compliance with each of these covenants.

We are required to maintain minimum net capital balances for regulatory purposes in the U.S. and certain non-U.S. jurisdictions in which we do business, which are met in part by retaining cash and cash-equivalents in those jurisdictions. As a result, we may be restricted in our ability to transfer cash between different jurisdictions. As of ~~September~~March ~~30, 2013,~~31, 2014, we were required to maintain approximately ~~$13.2~~$16.0 million in net capital at these subsidiaries and were in compliance with all regulatory minimum net capital requirements as of such date.

Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. have entered into a tax receivable agreement with OCGH unitholders that, as amended, provides for the payment to an exchanging or selling OCGH unitholder of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income taxes that they actually realize (or are deemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc., or a change of control) as a result of an increase in the tax basis of the assets owned by the Oaktree Operating Group. These payments are expected to occur over the period ending in approximately 2029 with respect to the 2007 Private Offering and in 2034 with respect to ~~the~~ our initial public offering.

On May 29, 2013, we issued and sold 8,050,000 Class A units in a public offering ~~at a price to the public of $53.50 per Class A unit~~ (the “May 2013 Offering”), resulting in $419.9 million in net proceeds to us, after deducting underwriting discounts and commissions. We did not retain any proceeds from the sale of Class A units in the May 2013 Offering, and we used the net proceeds from the May 2013 Offering to acquire interests in our business from certain Oaktree directors, employees and other investors, including certain ~~principals~~Principals and other members of our senior management.

The exchange of OCGH units in connection with the May 2013 Offering resulted in increases in the tax basis of the tangible and intangible assets of the Oaktree Operating Group. As a result, we recorded a deferred tax asset of $134.4 million and an associated liability of $114.2 million for payments to OCGH unitholders under the tax receivable agreement, which together increased capital by $20.2 million. These payments are expected to occur over the period ending approximately in 2035.

On March 4, 2014, we issued and sold 5,000,000 Class A units to the underwriter in a public offering (the “March 2014 Offering”), resulting in $296.7 million in proceeds to us. We did not retain any proceeds from the sale of Class A units in the March 2014 Offering. The proceeds from the March 2014 Offering were used to acquire interests in our business from certain Oaktree directors, employees and other investors, including certain Principals and other members of our senior management.

The exchange of OCGH units in connection with the March 2014 Offering resulted in increases in the tax basis of the tangible and intangible assets of the Oaktree Operating Group. As a result, we recorded a deferred tax asset of $94 million and an associated liability of $80 million for payments to OCGH unitholders under the tax

receivable agreement, which together increased capital by $14 million. These payments are expected to occur over the period ending approximately in 2036.

No amounts were paid under the tax receivable agreement during the ~~nine~~three months ended ~~September 30, 2013.~~March 31, 2014.

Contractual Obligations, Commitments and Contingencies

In the ordinary course of business, we and our consolidated funds enter into contractual arrangements that may require future cash payments. The following table sets forth information relating to anticipated future cash payments as of ~~September 30, 2013:~~March 31, 2014:


	Last Three Months of 2013		2014-2015		2016-2017		Thereafter		Total		Last Nine Months of 2014		2015-2016		2017-2018		Thereafter		Total
	(in thousands)										(in thousands)
Oaktree and Operating Subsidiaries:
Operating lease obligations ⁽¹⁾	$	3,879	$	27,189	$	15,710	$	12,423	$	59,201	$	11,524	$	22,703	$	9,404	$	8,588	$	52,219
Debt obligations payable	6,250		60,714		268,750		250,000		585,714		10,714		100,000		—		500,000		610,714
Interest obligations on debt ⁽²⁾	14,799		56,257		43,563		33,750		148,369		27,586		54,405		39,716		17,602		139,309
Tax receivable agreement	6,284		23,587		27,630		191,699		249,200		10,423		33,122		36,266		241,129		320,940
Commitments to Oaktree and third-party funds ⁽³⁾	291,945		—		—		—		291,945		335,783		—		—		—		335,783
Sub-total	323,157		167,747		355,653		487,872		1,334,429
Consolidated funds:
Subtotal											396,030		210,230		85,386		767,319		1,458,965
Consolidated Funds:
Debt obligations payable	2,028,178		—		—		—		2,028,178		3,118,713		—		—		—		3,118,713
CLO loans payable											—		20,674		—		476,975		497,649
Interest obligations on debt	10,313		—		—		—		10,313		15,814		—		—		—		15,814
Interest on CLO loans payable											8,380		21,704		21,590		53,877		105,551
Commitments to fund investments ⁽⁴⁾	1,137,348		—		—		—		1,137,348		1,167,843		—		—		—		1,167,843
Total	$	3,498,996	$	167,747	$	355,653	$	487,872	$	4,510,268	$	4,706,780	$	252,608	$	106,976	$	1,298,171	$	6,364,535


(1)	We lease our office space under agreements that expire periodically through 2022. The table includes only guaranteed minimum lease payments for these leases and does not project other lease-related payments. These leases are classified as operating leases for financial statement purposes and as such are not recorded as liabilities in our condensed consolidated financial statements.


(2)	Interest obligations include accrued interest on outstanding indebtedness. Where applicable, current interest rates are applied to estimate future interest obligations on variable-rate debt.


(3)	These obligations represent commitments by us to provide general partner capital funding to our funds and limited partner capital funding to funds managed by unaffiliated third parties. These amounts are generally due on demand and are therefore presented in the ~~2013~~2014 column. Capital commitments are expected to be called over the next five years.


(4)	These obligations represent commitments by our funds to make investments or fund uncalled contingent commitments. These amounts are generally due either on demand or by various contractual dates that vary by investment and are therefore presented in the ~~2013~~2014 column. Capital commitments are expected to be called over a period of several years.

In some of our service contracts or management agreements, we have agreed to indemnify third-party service providers or separate account clients under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has neither been included in the above table nor recorded in our condensed consolidated financial statements as of ~~September 30, 2013.~~March 31, 2014.

As of ~~September 30, 2013,~~March 31, 2014, none of the incentive income we had recognized was subject to clawback by the funds.

7876

General Partner and Other Capital Commitments

As of ~~September 30, 2013,~~March 31, 2014, our capital commitments to our funds (as general ~~partner)~~partner or otherwise) and certain non-Oaktree investment vehicles for which a portion of the commitment remained undrawn were as follows:


	Capital Commitments			Undrawn Commitments as of September 30, 2013			Capital Commitments			Undrawn Commitments as of March 31, 2014
		(in millions)						(in millions)
Distressed Debt:
Oaktree Opportunities Fund VIIIb, L.P.		$	67		$	3
Oaktree Opportunities Fund IX, L.P.		100			85			$	100		$	53
Emerging Market Opportunities		21			21
Emerging Markets Opportunities								50			34
Control Investments:
Oaktree Principal Fund V, L.P.		71			17			71			17
Oaktree Principal Fund VI, L.P.								20			20
Oaktree European Principal Fund III, L.P.		100			64			100			67
Oaktree Power Opportunities Fund III, L.P.		27			18			27			15
Special account		5			1
Real Estate:
Oaktree Real Estate Opportunities Fund V, L.P.		32			2			32			4
Oaktree Real Estate Opportunities Fund VI, L.P.		64			34			67			27
Real Estate Debt		20			10			21			19
Corporate Debt:
Oaktree Mezzanine Fund III, L.P.		40			11			40			7
Strategic Credit		8			2			11			4
European Private Debt		11			11			16			13
Collateralized Loan Obligation Vehicles								100			47
Non-Oaktree		42			13			32			9
Total		$	608		$	292		$	687		$	336

Off-Balance Sheet Arrangements

We lease a corporate airplane for business purposes. We are responsible for any unreimbursed costs and expenses incurred in connection with the operation, crew, registration, maintenance, service and repair of the airplane. An unaffiliated third party manages the airplane and coordinates its use. The lease contains a buyout provision that would allow us to purchase the plane at the lease’s termination in February 2015. If we do not exercise that option, we would be responsible for any shortfall, up to $10.0 million, in sale proceeds the lessor might incur below an expected sale value of $12.3 million.

Critical Accounting Policies

We prepare our condensed consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our condensed consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe our critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments. For a summary of our significant accounting policies, please see the notes to our condensed consolidated financial statements included elsewhere in this quarterly report and the notes to our consolidated financial statements in our annual report. For a summary of our critical accounting policies, please see “Management's Discussion and Analysis of Financial Condition and Result of Operations—Critical Accounting Policies” in our annual report.

7977

The table below summarizes the valuation of investments and other financial instruments, by fund type and fair-value hierarchy levels, for each period presented in our condensed consolidated statements of financial condition (in thousands):


As of September 30, 2013	Level I		Level II		Level III		Total
As of March 31, 2014									Level I		Level II		Level III		Total
Closed-end funds	$	3,779,196	$	7,857,138	$	19,573,643	$	31,209,977	$	5,164,771	$	7,381,001	$	22,162,636	$	34,708,408
Open-end funds	9,795		4,868,871		2,494		4,881,160		318,131		5,125,565		9,685		5,453,381
Evergreen funds	786,162		1,088,793		629,914		2,504,869		800,393		786,093		640,549		2,227,035
Total	$	4,575,153	$	13,814,802	$	20,206,051	$	38,596,006	$	6,283,295	$	13,292,659	$	22,812,870	$	42,388,824


As of December 31, 2012
As of December 31, 2013
Closed-end funds	$	2,710,883	$	9,371,995	$	19,509,888	$	31,592,766	$	3,780,782	$	7,489,381	$	20,746,453	$	32,016,616
Open-end funds	32,714		4,773,838		19,002		4,825,554		166,664		4,914,628		3,647		5,084,939
Evergreen funds	497,158		902,531		379,000		1,778,689		718,997		1,180,397		715,745		2,615,139
Total	$	3,240,755	$	15,048,364	$	19,907,890	$	38,197,009	$	4,666,443	$	13,584,406	$	21,465,845	$	39,716,694

Recent Accounting Developments

Please see note 2 to our condensed consolidated financial statements included elsewhere in this quarterly report for information regarding recent accounting developments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, we are exposed to a broad range of risks inherent in the financial markets in which we participate, including price risk, interest-rate risk, access to and cost of financing risk, liquidity risk, counterparty risk and foreign exchange-rate risk. Potentially negative effects of these risks may be mitigated to a certain extent by those aspects of our investment approach, investment strategies, fundraising practices or other business activities that are designed to benefit, either in relative or absolute terms, from periods of economic weakness, tighter credit or financial market dislocations.

Our predominant exposure to market risk is related to our role as general partner or investment adviser to our funds and the sensitivities to movements in the fair value of their investments on management fees, incentive income and investment income. The fair value of the financial assets and liabilities of our funds may fluctuate in response to changes in, among many factors, the value of securities, foreign exchange, commodities and interest rates.

Price Risk

Impact on Net Change in Unrealized Appreciation on Consolidated Funds’ Investments

As of ~~September 30, 2013,~~March 31, 2014, we had investments at fair value of ~~$38.8~~$42.5 billion related to our consolidated funds. We estimate that a 10% decline in market values would result in a decrease in unrealized appreciation on the consolidated funds’ investments of ~~$3.9~~$4.3 billion. Inasmuch as this effect would be attributable to non-controlling interests, net income attributable to Oaktree Capital Group, LLC would be unaffected.

Impact on Segment Management Fees

Management fees are generally assessed in the case of (a) our open-end funds and evergreen funds, based on NAV; and (b) our closed-end funds, based on committed capital or drawn capital during the investment period and, during the liquidation period, based on the lesser of (i) the total funded committed capital and (ii) the cost basis of assets remaining in the fund. Management fees are affected by short-term changes in market values to the extent they are based on NAV, in which case the effect is prospective. We estimate that for the ~~nine~~three months ended ~~September 30, 2013,~~March 31, 2014, an incremental 10% decline in market values of the investments held in our funds would ~~have caused~~result in an approximate ~~$15.7~~$5.8 million decrease in management fees. These estimated effects are without regard to a number of factors that would be expected to increase or decrease the magnitude of the change to degrees that are not readily quantifiable, such as the use of leverage facilities in certain of our funds or the timing of fund flows.

Impact on Segment Incentive Income

Incentive income is recognized only when it is ~~fixed~~known or ~~determinable,~~knowable, which in the case of (a) our closed-end funds generally occurs only after all contributed capital and an annual preferred return on that capital (typically 8%)

have been distributed to the fund’s investors and (b) our active evergreen funds occurs generally as of

December 31, based on the increase in the fund’s NAV during the year, subject to any high-water marks. In the case of closed-end funds, the link between short-term fluctuations in market values and a particular period’s incentive income is indirect at best and, in certain cases, non-existent. Thus, the effect on incentive income of an incremental 10% decline in market values ~~for the nine months ended September 30, 2013~~as of March 31, 2014 is not readily quantifiable. Over a number of years, a decline in market values would be expected to cause a decline in incentive income.

Impact on Segment Investment Income

Investment income or loss arises from our ~~pro rata~~pro-rata share of income or loss from our investments, generally in our capacity as general partner in our funds and third-party managed funds or companies. This income is directly affected by changes in market risk factors. We estimate that for the ~~nine~~three months ended ~~September 30, 2013,~~March 31, 2014, an incremental 10% decline in fair values of the investments held in our funds and other holdings would ~~have reduced our~~result in a $121.5 million decrease in investment ~~income by $117.5 million.~~income. These estimated effects are without regard to a number of factors that would be expected to increase or decrease the magnitude of the change to degrees that are not readily quantifiable, such as the use of leverage facilities in certain of our funds, the timing of fund flows or the timing of new investments or realizations.

Exchange-rate Risk

Our business is affected by movements in the rate of exchange between the U.S. dollar and non-U.S. dollar currencies in the case of (a) management fees that vary based on the NAV of our funds that hold investments denominated in non-U.S. dollar currencies, (b) management fees received in non-U.S. dollar currencies, (c) operating expenses for our foreign offices that are denominated in non-U.S. dollar currencies and (d) cash balances we hold in non-U.S. dollar currencies. We manage our exposure to exchange-rate risks through our regular operating activities and, when appropriate, through the use of derivative ~~financial~~ instruments.

We estimate that for the ~~nine~~three months ended ~~September 30, 2013,~~March 31, 2014, a 10% decline in the average rate of exchange of the U.S. dollar would ~~have had~~result in the following approximate effects on our segment results:

our management fees (relating to (a) and (b) above) would have increased by ~~$7.7~~$3.0 million;

our operating expenses would have increased by ~~$8.3~~$3.6 million;

OCGH interest in net income of consolidated subsidiaries would have decreased by $0.4 million; and

our income tax expense would not have been materially affected.

These movements would not have materially affected our net income attributable to OCG.

At any point in time, some investments held in the closed-end and evergreen funds are carried in non-U.S. dollar currencies on an unhedged basis. Changes in currency rates could affect incentive income, incentives created (fund level) and investment income for closed-end and evergreen funds, although the degree of impact is not readily determinable because of the many indirect effects that currency movements may have on individual investments.

Credit Risk

We are party to agreements providing for various financial services and transactions that contain an element of risk in the event that the counterparties are unable to meet the terms of such agreements. In such agreements, we depend on the respective counterparty to make payment or otherwise perform. We generally endeavor to minimize our risk of exposure by limiting to reputable financial institutions the counterparties with which we enter into financial transactions. In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets.

Interest-rate Risk

As of ~~September 30, 2013,~~March 31, 2014, Oaktree and its operating subsidiaries had ~~$585.7~~$610.7 million in debt obligations consisting of four senior notes issuances and a funded term loan. Each senior notes issuance accrues interest at a fixed rate. The funded term loan accrues interest at a variable rate; however, we entered into interest-rate swaps that effectively converted the ~~bulk~~majority of the term loan interest rate to a fixed rate through ~~2016.~~January 2017. As a result, we estimate that for the three months ended March 31, 2014, there would be no material impact to interest expense of Oaktree and its operating subsidiaries resulting from a 100-basis point increase in interest rates. Of the ~~$1.0 billion~~$923.9 million of aggregate segment cash and cash-equivalents and investments in U.S. Treasury and ~~government agency~~government-agency securities as of ~~September 30, 2013,~~March 31, 2014, we

estimate Oaktree and its operating subsidiaries would generate an

additional ~~$10.0~~$9.2 million in interest income on an annualized basis as a result of a 100-basis point increase in interest rates.

Our consolidated funds have debt obligations that include revolving credit agreements, debt issued by our CLOs and certain other investment financing arrangements. These debt obligations accrue interest at variable rates, and changes in these rates would affect the amount of interest payments that we would have to make, impacting future earnings and cash flows. As of ~~September 30, 2013, $2.0~~March 31, 2014, $3.6 billion was outstanding under these ~~credit facilities.~~debt obligations. We estimate that interest expense relating to variable rates would increase on an ~~annual~~annualized basis by ~~$20.3~~$36.2 million in the event interest rates were to increase by 100 basis points.

As credit-oriented investors, we are also subject to interest-rate risk through the securities we hold in our consolidated funds. A 100-basis point increase in interest rates would be expected to negatively affect prices of securities that accrue interest income at fixed rates and therefore negatively impact net change in unrealized appreciation (depreciation) on consolidated funds’ investments. The actual impact is dependent on the average duration of such holdings. Conversely, securities that accrue interest at variable rates would be expected to benefit from a 100-basis point increase in interest rates because these securities would generate higher levels of current income and therefore positively impact interest and dividend income. Inasmuch as these effects are attributable to non-controlling interests, net income attributable to OCG would be unaffected. In cases where our funds pay management fees based on NAV, we would expect our segment management fees to experience a change in direction and magnitude corresponding to that experienced by the underlying portfolios.

8280

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Managing Principal and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.

Our management, including our Managing Principal and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Managing Principal and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective at the reasonable assurance level to accomplish their objectives of ensuring that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Managing Principal and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

No changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during our most recent quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

8381

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings, please see the section entitled “Legal ~~actions”~~Actions” in note 12 to our condensed consolidated financial statements included elsewhere in this quarterly report, which section is incorporated herein by reference.

Item 1A. Risk Factors

For a discussion of our potential risks and uncertainties, please see the information under “Risk Factors” in our annual report. ~~Other than the changes and updates set forth below, there~~There have been no material changes to the risk factors disclosed in our annual report.

The risks described in our annual ~~report and in this quarterly~~ report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

Failure to comply with recently adopted SEC rules barring so-called “bad actors” from relying on Rule 506 of Regulation D in private placements could materially adversely affect our business, financial condition and results of operations.

Effective September 23, 2013, the SEC adopted amendments to Rules 501 and 506 of Regulation D under the Securities Act barring issuers deemed to be “bad actors” from relying on Rule 506 of Regulation D (“Rule 506”) in connection with private placements (the “disqualification rule”). Specifically, an issuer will be precluded from conducting offerings that rely on the exemption from registration under the Securities Act provided by Rule 506 (“Rule 506 offerings”) if a “covered person” of the issuer has been the subject of a “disqualifying event” (each as defined below). “Covered persons” include, among others, the issuer, affiliated issuers, any investment manager or solicitor of the issuer, any director, executive officer or other officer participating in the offering of the issuer, any general partner or managing member of the foregoing entities, any promoter of the issuer and any beneficial owner of 20% or more of the issuer’s outstanding voting equity securities, calculated on the basis of voting power. A “disqualifying event” includes, among other things, certain (1) criminal convictions and court injunctions and restraining orders issued in connection with the purchase or sale of a security or false filings with the SEC; (2) final orders from the Commodity Futures Trading Commission, federal banking agencies and certain other regulators that bar a person from associating with a regulated entity or engaging in the business of securities, insurance or banking or that are based on certain fraudulent conduct; (3) SEC disciplinary orders relating to investment advisers, brokers, dealers and their associated persons; (4) SEC cease-and-desist orders relating to violations of certain anti-fraud provisions and registration requirements of the federal securities laws; (5) suspensions or expulsions from membership in a self-regulatory organization (“SRO”) or from association with an SRO member; and (6) U.S. Postal Service false representation orders.

A disqualification will occur only in the case of a disqualifying event of a covered person that occurs after September 23, 2013, although issuers must disclose to potential investors in a Rule 506 offering disqualifying events of covered persons that occurred before September 23, 2013. The rule provides an exception from disqualification if the issuer can show that it did not know and, in the exercise of reasonable care could not have known, that the issuer or any other covered person had a disqualifying event, although an issuer will not be able to establish that it has exercised reasonable care unless it has made, in light of the circumstances, factual inquiry into whether any disqualifications exist.

We have a large number of portfolio companies and affiliates, many of whom may be deemed to be affiliated issuers of Oaktree funds and therefore covered persons of the funds for purposes of the Rule 506 offerings conducted by our funds. Thus, while we have made, and on a periodic basis will continue to make, inquiries into whether any persons that we have determined to be affiliated issuers have been subject to any disqualifying events, in some circumstances, our ability to determine whether any of our funds would be disqualified from relying on Rule 506 will depend on cooperation by our portfolio companies and other third parties over whom we may have limited control and influence.

If any of our covered persons, including our affiliated issuers, is subject to a disqualifying event, one or more of our funds could lose the ability to raise capital in a Rule 506 offering for a significant period of time. Many of

our funds rely on Rule 506 to raise capital from investors during their fundraising periods. If one or more of our funds were to lose the ability to rely on the Rule 506 exemption because an Oaktree covered person has been the subject of a disqualifying event, our business, financial condition and results of operations could be materially and adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

On January 24, 2014, we granted 1,791 Class A Units to each of Ms. Marna Whittington, Mr. Robert Denham, Mr. Richard Masson and Mr. Jay Wintrob in consideration of their service as members of our board of directors for 2014.

Under our operating agreement, we are required to issue one Class B unit for each OCGH unit issued. Accordingly, on ~~August 1, 2013,~~January 24, 2014, we issued ~~30,000~~1,667,300 Class B units to ~~OCGH, and on September 3, 2013, we issued 66,000 Class B units to~~ OCGH.

No purchase price was paid by Messrs. Denham, Masson and Wintrob, Ms. Whittington or OCGH for these issuances. ~~These~~The issuances were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, as transactions by an issuer not involving any public offering.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

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.

8582

Closed-end Funds


			As of September 30, 2013																									As of March 31, 2014
	Investment Period		Total Committed Capital		Drawn Capital ⁽¹⁾		Fund Net Income Since Inception		Distri- butions Since Inception		Net Asset Value		Manage- ment Fee-Gener- ating AUM		Oaktree Segment Incentive Income Recog- nized		Accrued Incentives (Fund Level) ⁽²⁾		Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		IRR Since Inception ⁽⁴⁾				Multiple of Drawn Capital ⁽⁵⁾	Investment Period		Total Committed Capital		Drawn Capital ⁽¹⁾		Fund Net Income Since Inception		Distri-butions Since Inception		Net Asset Value		Manage- ment Fee-gener- ating AUM		Oaktree Segment Incentive Income Recog- nized		Accrued Incentives (Fund Level) ⁽²⁾		Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		IRR Since Inception ⁽⁴⁾				Multiple of Drawn Capital ⁽⁵⁾
	Start Date	End Date	Total Committed Capital		Drawn Capital ⁽¹⁾		Fund Net Income Since Inception		Distri- butions Since Inception		Net Asset Value		Manage- ment Fee-Gener- ating AUM		Oaktree Segment Incentive Income Recog- nized		Accrued Incentives (Fund Level) ⁽²⁾		Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		Gross		Net		Multiple of Drawn Capital ⁽⁵⁾	Start Date	End Date	Total Committed Capital		Drawn Capital ⁽¹⁾		Fund Net Income Since Inception		Distri-butions Since Inception		Net Asset Value		Manage- ment Fee-gener- ating AUM		Oaktree Segment Incentive Income Recog- nized		Accrued Incentives (Fund Level) ⁽²⁾		Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		Gross		Net		Multiple of Drawn Capital ⁽⁵⁾
	(in millions)																									(in millions)
Distressed Debt
Oaktree Opportunities Fund IX, L.P. ⁽⁶⁾	— ⁽⁷⁾	—	$	5,066	$	760	$	10	$	—	$	770	$	745	$	—	$	—	$	778	nm		nm		1.0x	Jan. 2014	Jan. 2017	$	5,066	$	2,382	$	255	$	1	$	2,636	$	4,966	$	—	$	50	$	2,470	29.8	%	19.2	%	1.1x
Oaktree Opportunities Fund VIIIb, L.P.	Aug. 2011	Aug. 2014	2,692		2,558		423		11		2,970		2,625		1		81		2,803		17.8	%	11.1	%	1.2	Aug. 2011	Aug. 2014	2,692		2,692		732		22		3,402		2,625		17		125		3,047		19.4		13.0		1.3
Special Account B	Nov. 2009	Nov. 2012	1,031		1,069		491		552		1,008		988		3		55		802		18.6		15.0		1.5	Nov. 2009	Nov. 2012	1,031		1,077		609		717		969		957		15		75		694		19.6		15.5		1.6
Oaktree Opportunities Fund VIII, L.P.	Oct. 2009	Oct. 2012	4,507		4,507		1,990		1,919		4,578		3,398		66		322		3,691		17.2		12.1		1.5	Oct. 2009	Oct. 2012	4,507		4,507		2,498		2,843		4,162		2,895		106		381		2,919		18.2		13.2		1.6
Special Account A	Nov. 2008	Oct. 2012	253		253		317		424		146		101		34		29		—		32.5		26.5		2.3	Nov. 2008	Oct. 2012	253		253		324		460		117		75		41		23		—		31.9		26.1		2.3
OCM Opportunities Fund VIIb, L.P.	May 2008	May 2011	10,940		9,844		9,290		15,488		3,646		2,460		1,095		710		—		23.8		18.2		2.0	May 2008	May 2011	10,940		9,844		9,451		16,287		3,008		1,973		1,250		587		—		23.6		18.1		2.0
OCM Opportunities Fund VII, L.P.	Mar. 2007	Mar. 2010	3,598		3,598		1,624		4,162		1,060		999		25		189		826		11.5		8.3		1.5	Mar. 2007	Mar. 2010	3,598		3,598		1,629		4,310		917		941		81		113		747		11.3		8.2		1.6
OCM Opportunities Fund VI, L.P.	Jul. 2005	Jul. 2008	1,773		1,773		1,308		2,596		485		577		90		165		148		12.4		9.1		1.8	Jul. 2005	Jul. 2008	1,773		1,773		1,317		2,666		424		549		102		155		93		12.3		9.0		1.8
OCM Opportunities Fund V, L.P.	Jun. 2004	Jun. 2007	1,179		1,179		950		1,955		174		220		151		34		—		18.6		14.3		1.9	Jun. 2004	Jun. 2007	1,179		1,179		965		2,010		134		146		162		27		—		18.7		14.3		1.9
Legacy funds ⁽⁸⁾	Various	Various	9,543		9,543		8,176		17,675		44		—		1,109		9		—		24.2		19.3		1.9
Legacy funds ⁽⁶⁾																										Various	Various	9,543		9,543		8,179		17,689		33		—		1,112		7		—		24.2		19.3		1.9
																																														22.9	%	17.6	%
Emerging Markets Opportunities
Oaktree Emerging Market Opportunities Fund, L.P. ⁽⁷⁾																										Sep. 2013	Sep. 2017	$	383	$	22	$	4	$	1	$	25	$	23	$	—	$	1	$	22	nm		nm		1.2x
Special Account F ⁽⁷⁾																										Jan. 2014	Jan. 2017	253		20		1		—		21		21		—		—		20		nm		nm		1.1
																					23.0	%	17.6	%
Global Principal Investments
Oaktree Principal Fund V, L.P.	Feb. 2009	Feb. 2014	$	2,827	$	2,233	$	427	$	385	$	2,275	$	2,756	$	—	$	5	$	2,268	13.8	%	8.1	%	1.3x
Oaktree Principal Fund V, L.P. ⁽⁸⁾																										Feb. 2009	Feb. 2015	$	2,827	$	2,233	$	678	$	591	$	2,320	$	1,839	$	18	$	113	$	2,156	15.6	%	8.5	%	1.4x
Special Account C	Dec. 2008	Feb. 2014	505		455		242		134		563		395		10		38		429		19.9		14.6		1.6	Dec. 2008	Feb. 2014	505		455		292		225		522		395		13		45		354		20.0		14.8		1.7
OCM Principal Opportunities Fund IV, L.P.	Oct. 2006	Oct. 2011	3,328		3,328		1,603		2,565		2,366		1,510		—		47		2,306		10.6		8.1		1.6	Oct. 2006	Oct. 2011	3,328		3,328		1,810		3,100		2,038		1,350		22		127		1,858		11.1		8.2		1.7
OCM Principal Opportunities Fund III, L.P.	Nov. 2003	Nov. 2008	1,400		1,400		965		1,974		391		457		52		136		—		14.8		10.3		1.8	Nov. 2003	Nov. 2008	1,400		1,400		964		2,098		266		—		136		52		—		14.6		10.2		1.8
Legacy funds ⁽⁸⁾	Various	Various	2,301		2,301		1,838		4,133		6		—		235		1		—		14.5		11.6		1.8
Legacy funds ⁽⁶⁾																										Various	Various	2,301		2,301		1,839		4,136		4		—		236		1		—		14.5		11.6		1.8
																					13.6	%	10.2	%																						13.8	%	10.2	%
Asia Principal Investments
OCM Asia Principal Opportunities Fund, L.P.	May 2006	May 2011	$	578	$	503	$	16	$	100	$	419	$	345	$	—	$	—	$	617	4.8	%	0.6	%	1.2x	May 2006	May 2011	$	578	$	503	$	19	$	124	$	398	$	331	$	—	$	—	$	618	4.6	%	0.7	%	1.2x

European Principal Investments ⁽⁹⁾
Oaktree European Principal Fund III, L.P.	Nov. 2011	Nov. 2016	€	3,164	€	1,265	€	132	€	3	€	1,394	€	3,073	€	—	€	—	€	1,413	14.7	%	7.1	%	1.2x	Nov. 2011	Nov. 2016	€	3,164	€	1,328	€	229	€	98	€	1,459	€	3,030	€	—	€	16	€	1,438	16.0	%	8.2	%	1.3x
OCM European Principal Opportunities Fund II, L.P.	Dec. 2007	Dec. 2012	€	1,759	€	1,685	€	483	€	723	€	1,445	€	1,269	€	11	€	—	€	1,482	11.5		7.7		1.4	Dec. 2007	Dec. 2012	€	1,759	€	1,685	€	704	€	975	€	1,414	€	1,192	€	19	€	92	€	1,285	13.3		8.4		1.5
OCM European Principal Opportunities Fund, L.P.	Mar. 2006	Mar. 2009	$	495	$	460	$	368	$	368	$	460	$	232	$	4	$	47	$	399	10.7		8.3		1.9	Mar. 2006	Mar. 2009	$	495	$	473	$	450	$	665	$	258	$	113	$	23	$	64	$	128	11.9		9.0		2.1
																					11.7	%	7.8	%																						13.4	%	8.5	%
Power Opportunities
Oaktree Power Opportunities Fund III, L.P.	Apr. 2010	Apr. 2015	$	1,062	$	326	$	132	$	5	$	453	$	1,036	$	—	$	25	$	369	33.4	%	17.2	%	1.6x	Apr. 2010	Apr. 2015	$	1,062	$	470	$	187	$	5	$	652	$	1,036	$	—	$	36	$	531	31.4	%	17.4	%	1.5x
OCM/GFI Power Opportunities Fund II, L.P.	Nov. 2004	Nov. 2009	1,021		541		1,459		1,899		101		39		94		7		—		76.2		59.0		3.9	Nov. 2004	Nov. 2009	1,021		541		1,456		1,899		98		39		94		6		—		76.2		58.9		3.9
OCM/GFI Power Opportunities Fund, L.P.	Nov. 1999	Nov. 2004	449		383		251		634		—		—		23		—		—		20.1		13.1		1.8	Nov. 1999	Nov. 2004	449		383		251		634		—		—		23		—		—		20.1		13.1		1.8
																					35.3	%	27.3	%																						35.2	%	27.2	%
Real Estate Opportunities
Oaktree Real Estate Opportunities Fund VI, L.P.	Aug. 2012	Aug. 2016	$	2,334	$	1,097	$	3	$	3	$	1,097	$	2,270	$	—	$	—	$	1,132	10.5	%	0.3	%	1.0x
Oaktree Real Estate Opportunities Fund V, L.P.	Mar. 2011	Mar. 2015	1,283		1,283		370		120		1,533		1,251		5		66		1,369		17.7		12.2		1.3
Special Account D	Nov. 2009	Nov. 2012	256		263		155		191		227		130		1		14		152		19.2		16.4		1.6
Oaktree Real Estate Opportunities Fund IV, L.P.	Dec. 2007	Dec. 2011	450		450		294		224		520		334		8		47		387		17.7		11.8		1.8
OCM Real Estate Opportunities Fund III, L.P.	Sep. 2002	Sep. 2005	707		707		647		1,243		111		—		106		22		—		15.8		11.8		2.0
Legacy funds ⁽⁸⁾	Various	Various	1,634		1,610		1,399		3,004		5		—		111		1		55		15.2		12.0		1.9
																					15.5	%	12.0	%

8683


			As of September 30, 2013																												As of March 31, 2014
	Investment Period		Total Committed Capital		Drawn Capital ⁽¹⁾		Fund Net Income Since Inception		Distri- butions Since Inception		Net Asset Value		Manage- ment Fee-Gener- ating AUM			Oaktree Segment Incentive Income Recog- nized		Accrued Incentives (Fund Level) ⁽²⁾			Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		IRR Since Inception ⁽⁴⁾					Multiple of Drawn Capital ⁽⁵⁾	Investment Period		Total Committed Capital		Drawn Capital ⁽¹⁾			Fund Net Income Since Inception		Distri-butions Since Inception		Net Asset Value		Manage- ment Fee-gener- ating AUM			Oaktree Segment Incentive Income Recog- nized		Accrued Incentives (Fund Level) ⁽²⁾			Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		IRR Since Inception ⁽⁴⁾					Multiple of Drawn Capital ⁽⁵⁾
	Start Date	End Date	Total Committed Capital		Drawn Capital ⁽¹⁾		Fund Net Income Since Inception		Distri- butions Since Inception		Net Asset Value		Manage- ment Fee-Gener- ating AUM			Oaktree Segment Incentive Income Recog- nized		Accrued Incentives (Fund Level) ⁽²⁾			Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		Gross			Net		Multiple of Drawn Capital ⁽⁵⁾	Start Date	End Date	Total Committed Capital		Drawn Capital ⁽¹⁾			Fund Net Income Since Inception		Distri-butions Since Inception		Net Asset Value		Manage- ment Fee-gener- ating AUM			Oaktree Segment Incentive Income Recog- nized		Accrued Incentives (Fund Level) ⁽²⁾			Unreturned Drawn Capital Plus Accrued Preferred Return ⁽³⁾		Gross			Net		Multiple of Drawn Capital ⁽⁵⁾
	(in millions)																												(in millions)
Real Estate Opportunities
Oaktree Real Estate Opportunities Fund VI, L.P.																													Aug. 2012	Aug. 2016	$	2,677	$	1,606		$	50	$	37	$	1,619	$	2,610		$	—	$	—		$	1,656	12.5	%		4.8	%	1.1x
Oaktree Real Estate Opportunities Fund V, L.P.																													Mar. 2011	Mar. 2015	1,283		1,283			509		201		1,591		1,251			12		85			1,341		18.4			13.0		1.5
Special Account D																													Nov. 2009	Nov. 2012	256		263			164		198		229		130			2		14			153		18.3			15.7		1.7
Oaktree Real Estate Opportunities Fund IV, L.P.																													Dec. 2007	Dec. 2011	450		450			300		282		468		312			13		44			345		16.6			11.0		1.8
OCM Real Estate Opportunities Fund III, L.P.																													Sep. 2002	Sep. 2005	707		707			638		1,243		102		—			106		20			—		15.6			11.6		2.0
Legacy funds ⁽⁶⁾																													Various	Various	1,634		1,610			1,399		3,004		5		—			111		1			57		15.2			12.0		1.9
																																																				15.4	%		11.9	%
Real Estate Debt
Oaktree Real Estate Debt Fund, L.P. ⁽⁶⁾	Sep. 2013	Sep. 2016	$	90	$	45	$	—	$	—	$	45	$	—		$	—	$	—		$	45	nm			nm		1.0x
Oaktree Real Estate Debt Fund, L.P. ⁽⁷⁾																													Sep. 2013	Sep. 2016	$	518	$	40		$	—	$	1	$	39	$	38		$	—	$	—		$	41	nm			nm		1.0x
Oaktree PPIP Fund, L.P. ⁽¹⁰⁾	Dec. 2009	Dec. 2012	2,322		1,113		458		1,570		1		—			46		1		⁽¹¹⁾	—		28.2	%		N/A		1.4	Dec. 2009	Dec. 2012	2,322		1,113			457		1,570		—		—			47		—			—		28.2	%		N/A		1.4

Mezzanine Finance
Oaktree Mezzanine Fund III, L.P. ⁽¹²⁾	Dec. 2009	Dec. 2014	$	1,592	$	1,174	$	147	$	544	$	777	$	1,552		$	—	$	—		$	811	14.3	%	10.4% / 2.1%			1.2x
Oaktree Mezzanine Fund III, L.P. ⁽¹¹⁾																													Dec. 2009	Dec. 2014	$	1,592	$	1,327		$	195	$	794	$	728	$	1,552		$	—	$	—		$	749	14.7	%	10.4% / 5.3%			1.2x
OCM Mezzanine Fund II, L.P.	Jun. 2005	Jun. 2010	1,251		1,107		437		1,160		384		496			—		—			435		11.0			7.4		1.5	Jun. 2005	Jun. 2010	1,251		1,107			476		1,232		351		396			—		—			377		11.2			7.7		1.5
OCM Mezzanine Fund, L.P. ⁽¹³⁾	Oct. 2001	Oct. 2006	808		773		278		1,038		13		—			32		2			—		15.1			10.7 /10.0		1.5
OCM Mezzanine Fund, L.P. ⁽¹²⁾																													Oct. 2001	Oct. 2006	808		773			303		1,041		35		—			32		6			—		15.4			10.8 /10.6		1.5
																																																				13.1	%		8.7	%
European Private Debt
Oaktree European Dislocation Fund, L.P. ⁽⁷⁾																													Oct. 2013	Oct. 2016	€	293	€	54		€	2	€	27	€	29	€	52		€	—	€	—		€	28	nm			nm		1.0x
Special Account E ⁽⁷⁾																													Oct. 2013	Apr. 2015	€	379	€	69		€	3	€	—	€	72	€	69		€	—	€	—		€	71	nm			nm		1.0
													30,794		⁽¹⁴⁾			2,053					12.7	%		8.3	%						$	63,577	^{(13) (14)}							32,549		⁽¹⁴⁾			2,307		⁽¹⁴⁾
									Other ⁽¹⁵⁾				2,614					7																				Other ⁽¹⁵⁾				3,202					6
					Total ⁽¹⁶⁾								$	33,408				$	2,060																			Total ⁽¹⁶⁾				$	35,751				$	2,313


(1)	~~Reflects~~Drawn capital reflects the capital contributions of investors in the fund, net of any distributions to such investors of uninvested capital.


(2)	~~Excludes~~Accrued incentives (fund level) excludes Oaktree segment incentive income ~~recognized since inception.~~previously recognized.


(3)	~~Reflects~~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.

(4)

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.


(5)	~~Calculated~~Multiple of drawn capital is calculated as ~~Drawn Capital~~drawn capital plus gross income and, if applicable, fee income before fees and expenses divided by ~~Drawn Capital.~~drawn capital.


(6)	~~The IRR is not considered meaningful (“nm”) as the period from the initial contribution through September 30, 2013 is less than one year.~~


~~(7)~~	As of September 30, 2013, Oaktree Opportunities Fund IX, L.P. had made an aggregate 15% drawdown against its $5.1 billion of committed capital. Oaktree has not yet commenced the fund's investment period and, as a result, as of September 30, 2013 management fees were assessed only on the drawn capital, and management fee-generating AUM included only that portion of committed capital.

~~(8)~~

~~Represents~~Legacy funds represent certain predecessor funds within the relevant strategy that have substantially or completely liquidated their ~~assets. Includes~~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.


(7)	The IRR is not considered meaningful (“nm”) as the period from the initial capital contribution through March 31, 2014 was less than one year.


(8)	In the fourth quarter of 2013, the investment period for Oaktree Principal Fund V, L.P. was extended for a one-year period until February 2015. However, management fees stepped down to the post-investment period basis effective February 2014.


(9)	Aggregate IRRs are based on the conversion of OCM European Principal Opportunities Fund II, L.P. and Oaktree European Principal Fund III, L.P. cash flows from Euros to USD atusing the ~~September 30, 2013~~March 31, 2014 spot rate of ~~$1.35.~~$1.38.

(10)

Due to the differences in allocations of income and expenses to this fund's two primary limited partners, the U.S. Treasury and Oaktree PPIP Private Fund, L.P., a combined net IRR is not presented. Oaktree PPIP Fund, L.P. had liquidated all of its investments and made its final liquidating distribution as of December 31, 2013. Oaktree PPIP Fund, L.P., Oaktree PPIP Private Fund, L.P. and its related feeder fund were dissolved as of December 31, 2013. Of the $2,322 million in capital commitments, $1,161 million ~~relates~~related to the Oaktree PPIP Private Fund, L.P. The gross and net IRR for the Oaktree PPIP Private Fund, L.P. were ~~24.8%~~24.7% and ~~18.7%~~18.6%, respectively, as of ~~September 30,~~December 31, 2013.

(11)

~~Represents amounts related~~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 ~~Oaktree PPIP Private Fund, L.P. only.~~distribution of current income and disposition proceeds. The net IRR for Class A interests was 10.4% and Class B interests was 5.3%. The combined net IRR for Class A and Class B interests was 8.8%.


(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. ~~Net~~The net IRR for Class A interests ~~is 10.4%~~was 10.8% and Class B interests ~~is 2.1%~~was 10.6%. ~~Combined net IRR for Class A and Class B interests is 8.1%.~~


~~(13)~~	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 10.0%. Combinedcombined net IRR for the Class A and Class B interests ~~is 10.3%~~was 10.7%.


(13)	The aggregate change in drawn capital for the three months ended March 31, 2014 was $2.2 billion.


(14)	~~Total~~Totals are based on the conversion of Euro amounts to USD atusing the ~~September 30, 2013~~March 31, 2014 spot rate of ~~$1.35.~~$1.38.


(15)	~~Includes~~This includes Oaktree Enhanced Income Fund, L.P., Oaktree Loan Fund 2x, L.P., Oaktree Asia Special Situations Fund, L.P., CLOs, certain separate accounts and a non-Oaktree fund.


(16)	~~Excludes~~This excludes one separate account with management fee-generating AUM of $425 million as of ~~September 30, 2013,~~March 31, 2014, which has been included as part of the Strategic Credit strategy within the evergreen funds table.

8784

Open-end Funds


		Manage- ment Fee- gener- ating AUM as of Sept. 30, 2013			Twelve Months Ended September 30, 2013								Since Inception through September 30, 2013										Manage- ment Fee-gener- ating AUM as of Mar. 31, 2014			Twelve Months Ended March 31, 2014									Since Inception through March 31, 2014
	Strategy Inception				Rates of Return ⁽¹⁾								Annualized Rates of Return ⁽¹⁾							Sharpe Ratio		Strategy Inception				Rates of Return ⁽¹⁾									Annualized Rates of Return ⁽¹⁾									Sharpe Ratio
				Manage- ment Fee- gener- ating AUM as of Sept. 30, 2013			Oaktree			Rele- vant Bench- mark			Oaktree					Rele- vant Bench- mark		Oaktree Gross	Rele- vant Bench- mark				Manage- ment Fee-gener- ating AUM as of Mar. 31, 2014			Oaktree				Rele- vant Bench- mark			Oaktree						Rele- vant Bench- mark			Oaktree Gross		Rele- vant Bench- mark
								Net				Gross			Net			Rele- vant Bench- mark		Oaktree Gross	Rele- vant Bench- mark							Net				Rele- vant Bench- mark		Gross			Net				Rele- vant Bench- mark			Oaktree Gross		Rele- vant Bench- mark
		(in millions)								Rele- vant Bench- mark													(in millions)

U.S. High Yield Bonds	Jan. 1986	$	17,251		6.3	%		5.7	%	6.7	%		9.9	%		9.4	%	8.8	%	0.81	0.55	Jan. 1986	$	12,430			7.1	%		6.6	%		7.2	%		10.0	%		9.4	%		8.9	%		0.83		0.57
Global High Yield Bonds																						Nov. 2010	6,784			8.8			8.2			8.0			10.5			9.9			9.1			1.45		1.35
European High Yield Bonds	May 1999	1,507			11.3			10.7		10.9			8.3			7.8		6.2		0.62	0.36	May 1999	1,155			11.6			11.0			9.6			8.5			8.0			6.5			0.67		0.39
U.S. Convertibles	Apr. 1987	4,669			19.7			19.1		21.1			10.1			9.6		8.2		0.50	0.32	Apr. 1987	5,105			18.5			17.9			21.2			10.3			9.7			8.5			0.52		0.35
Non-U.S. Convertibles	Oct. 1994	2,578			9.6			9.0		10.0			8.9			8.4		5.9		0.77	0.37	Oct. 1994	2,920			10.8			10.3			11.5			9.1			8.5			6.1			0.80		0.41
High Income Convertibles	Aug. 1989	1,137			13.6			13.1		6.8			12.0			11.5		8.6		1.04	0.58	Aug. 1989	1,074			13.8			13.2			7.4			12.1			11.5			8.7			1.06		0.61
U.S. Senior Loans	Sep. 2008	2,159			5.0			4.5		5.8			8.0			7.5		6.2		1.20	0.60	Sep. 2008	2,613			5.1			4.5			5.0			7.9			7.4			6.2			1.25		0.63
European Senior Loans	May 2009	1,231			7.1			6.6		8.7			11.6			11.1		12.9		1.88	1.95	May 2009	1,555			5.7			5.1			6.6			11.0			10.5			12.2			1.87		1.92
Emerging Markets Equities	Jul. 2011	100			4.7			3.9		1.0			(0.7	)		(1.5	)	(3.9	)	(0.06)	(0.21)	Jul. 2011	1,219			0.0			(0.8	)		(1.4	)		0.8			0.0			(2.7	)		0.04		(0.14)
Total	Total	$	30,632																			Total	$	34,855


(1)	~~Represents~~Returns represent Oaktree’s time-weighted rates of return, including reinvestment of income, net of commissions and transaction costs. ~~Returns~~The returns for Relevant Benchmarks are presented on a gross basis.

Evergreen Funds


		As of September 30, 2013										Twelve Months Ended September 30, 2013						Since Inception through September 30, 2013							As of March 31, 2014										Twelve Months Ended March 31, 2014				Since Inception through March 31, 2014
		Strategy AUM			Manage- ment Fee-gener- ating AUM			Accrued Incen- tives (Fund Level) ⁽¹⁾															AUM				Manage- ment Fee-gener- ating AUM			Accrued Incen- tives (Fund Level)
	Strategy Inception												Rates of Return							Annualized Rates of Return						Strategy Inception									Rates of Return				Annualized Rates of Return
				Strategy AUM							Accrued Incen- tives (Fund Level) ⁽¹⁾				Net			Gross			Net											AUM		Accrued Incen- tives (Fund Level)			Net		Gross		Net
		(in millions)																							(in millions)

Strategic Credit ⁽²⁾⁽¹⁾	Jul. 2012	$	1,833			$	807		$	1			18.2	%		16.4	%		17.6	%		15.9	%	Jul. 2012		$	2,167		$	1,188			$ N/A			14.2	%	12.5	%	17.3	%	15.6	%
Value Opportunities	Sep. 2007	1,898				1,818			35				18.8			13.1			14.0			9.0		Sep. 2007		2,045			1,954				15			18.2		12.6		14.6		9.5
Emerging Markets Opportunities ⁽²⁾																							Sep. 2013		235			23			1				nm		nm		nm		nm
Emerging Markets Absolute Return	Apr. 1997	304			282			N/A			⁽³⁾	4.3			2.0			15.2			10.3		Apr. 1997		280			256			1				2.9		0.8		15.1		10.3
					2,907			36																				3,421			17
Restructured funds ⁽⁴⁾					—			8
Total ⁽²⁾					$	2,907		$	44
Restructured funds ⁽³⁾																							Restructured funds ⁽³⁾					—			6
Total ⁽¹⁾																							Total ⁽¹⁾					$	3,421		$	23


(1)	~~For the three and nine months ended September 30, 2013, segment incentive income recognized by Oaktree totaled $1.1 million and $4.8 million, respectively.~~


~~(2)~~	~~Includes~~This strategy includes a separate account with a closed-end fund structure with ~~$562~~$599 million and $425 million of AUM and ~~$425 million of~~ management fee-generating ~~AUM. Returns~~AUM, respectively. The returns presented are time-weighted rates of return.


~~(3)~~(2)	AsRates of ~~September 30, 2013,~~return are not considered meaningful (“nm”) because the ~~aggregate depreciation below high-water marks previously established for individual investors in the fund totaled approximately $6.2 million.~~since-inception period as of March 31, 2014 was less than twelve months.

~~(4)~~(3)

Oaktree manages three restructured evergreen funds that are in liquidation: Oaktree European Credit Opportunities Fund, L.P., Oaktree High Yield Plus Fund, L.P. and Oaktree Japan Opportunities Fund, L.P. (Yen class). As of ~~September 30, 2013,~~March 31, 2014, these funds had gross and net IRRs since inception of (2.1)% and (4.6)%, ~~8.0%~~7.8% and ~~5.6%~~5.4%, and ~~(7.1)~~(6.3)% and ~~(8.1)~~(7.3)%, respectively, and in the aggregate had AUM of ~~$174.0~~$160.5 million. Additionally, Oaktree High Yield Plus Fund, L.P. had accrued incentives (fund level) of ~~$8.2~~$5.9 million as of ~~September 30, 2013.~~March 31, 2014.

8885

Item 6. Exhibits

For a list of exhibits filed with this report, refer to the Exhibits Index on the page immediately preceding the exhibits, which Exhibit Index is incorporated herein by reference.

8986

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~November 7, 2013~~May 8, 2014



	Oaktree Capital Group, LLC
	By:	/s/ ~~David M. Kirchheimer~~Susan Gentile
	Name:	~~David M. Kirchheimer~~Susan Gentile

	Title:	~~Principal,~~ Chief ~~Financial~~Accounting Officer and Managing Director ~~Chief Administrative Officer~~ and Authorized Signatory

9087

EXHIBITS INDEX



Exhibit No.	Description of Exhibit

3.1	Restated Certificate of Formation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1, filed with the SEC on June 17, 2011).

3.2	Third Amended and Restated Operating Agreement of the Registrant dated as of August 31, 2011 (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, filed with the SEC on September 2, 2011).

3.3	Amendment to Third Amended and Restated Operating Agreement of the Registrant dated as of March 29, 2012 (incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement on Form S-1, filed with the SEC on March 30, 2012).

10.1	Credit Agreement, dated as of March 31, 2014, among Oaktree Capital Management, L.P., Oaktree Capital II, L.P., Oaktree AIF Investments, L.P., Oaktree Capital I, L.P., the lenders party thereto, Wells Fargo Bank, National Association, as administrative agent, L/C issuer and swing line lender, and Wells Fargo Securities, LLC, as sole lead arranger and sole lead bookrunner (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed with the SEC on April 4, 2014).

31.1	Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.INS†	XBRL Instance Document.

101.SCH†	XBRL Taxonomy Extension Schema Document.

101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB†	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document.


†	In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed for purposes of Section 18 of the Exchange Act and otherwise is not subject to liability under such section.

9188



Nine Months Ended September 30, 2013	Oaktree Capital Group, LLC			OCGH Non-controlling Interest in Consolidated Subsidiaries			Non-controlling Redeemable Interests in Consolidated Funds			Total
Net income	$	157,091		$	617,191		$	3,743,327		$	4,517,609
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(1		)	(772		)	—			(773		)
Unrealized gain on interest-rate swap designated as cash-flow hedge	638			2,362			—			3,000
Other comprehensive income, net of tax	637			1,590			—			2,227
Total comprehensive income	157,728			618,781			3,743,327			4,519,836
Less: Comprehensive income attributable to non-controlling interests	—			(618,781		)	(3,743,327		)	(4,362,108		)
Comprehensive income attributable to Oaktree Capital Group, LLC	$	157,728		$	—		$	—		$	157,728
Nine Months Ended September 30, 2012
Net income	$	68,539		$	379,356		$	4,868,300		$	5,316,195
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	194			947			—			1,141
Unrealized loss on interest-rate swap designated as cash-flow hedge	(246		)	(968		)	—			(1,214		)
Other comprehensive loss, net of tax	(52		)	(21		)	—			(73		)
Total comprehensive income	68,487			379,335			4,868,300			5,316,122
Less: Comprehensive income attributable to non-controlling interests	—			(379,335		)	(4,868,300		)	(5,247,635		)
Comprehensive income attributable to Oaktree Capital Group, LLC	$	68,487		$	—		$	—		$	68,487



As of December 31, 2012:	Level I			Level II			Level III		Total
Corporate debt – bank debt	$	—		$	7,412,691		$	2,253,476	$	9,666,167
Corporate debt – all other	—			6,663,519			3,159,051		9,822,570
Equities – common stock	3,362,742			1,055,465			8,101,051		12,519,258
Equities – preferred stock	2,520			2,133			650,096		654,749
Real estate	—			—			3,946,142		3,946,142
Real estate loan portfolio	—			—			1,737,822		1,737,822
Other	1,933			8,438			15,547		25,918
Total investments	$	3,367,195		$	15,142,246		$	19,863,185	$	38,372,626
Securities sold short – equities	$	(126,530	)	$	—		$	—	$	(126,530	)
Options written (net)	$	—		$	5,520		$	—	$	5,520
Swaps (net)	—			(5,539		)	44,705		39,166
Forward contracts (net)	—			(93,863		)	—		(93,863		)
Futures (net)	90			—			—		90