Financial Performance Overview

Brookfield Oaktree Holdings, LLC (the Company) is a leading global alternative investment management firm with expertise in credit, real assets, private equity, and listed equities. The Company’s financial performance in the first half of 2024 was strong, with significant increases in incentive income, investment income, and net income compared to the same period in 2023.

Revenue and Profit Trends

Incentive income, which is a key revenue driver for the Company, increased by $56.0 million to $117.5 million in the first six months of 2024 compared to the first six months of 2023. This was primarily due to larger tax-related distributions from the Company’s Credit and Private Equity closed-end funds.

Incentive income compensation expense, which is directly related to incentive income, decreased by $34.8 million to $22.2 million in the first six months of 2024. This was primarily due to SPAC incentive compensation being fully amortized in 2023 and the write-off of incentive compensation liability related to liquidated funds.

Investment income, which represents the Company’s pro-rata share of income or loss from its investments, increased by $24.9 million to $34.8 million in the first six months of 2024. This was primarily due to increases in the values of the Company’s Credit investments.

Overall, net income attributable to Brookfield Oaktree Holdings, LLC Class A unitholders increased by $82.2 million, or 252.1%, to $114.8 million in the first six months of 2024 compared to the first six months of 2023. This was driven by the increases in incentive income and investment income, as well as the decrease in incentive income compensation expense.

Strengths and Weaknesses

One of the Company’s key strengths is its diversified mix of specialized credit- and equity-oriented strategies, which has historically allowed it to benefit from both strong and weak economic environments. The Company’s investment philosophy, which emphasizes risk control, consistency, market inefficiency, specialization, bottom-up analysis, and disavowal of market timing, has also contributed to its success.

However, the Company’s results can be volatile due to the nature of its incentive income, which is largely unpredictable in terms of amount and timing. The Company’s performance is also subject to global economic and market conditions, as well as regulatory or other governmental policies or actions.

Additionally, the ongoing Russia-Ukraine conflict and the recent conflict between Israel and Hamas have created continued uncertainty and volatility in the global financial markets and economy, which may adversely impact the Company’s business and its funds’ and their respective portfolio companies’ business.

Outlook and Future Considerations

The Company’s management believes that the sources of liquidity available to the Company, including incentive income, distributions from corporate investments, debt financings, credit agreements, and equity financings, will be sufficient to fund its working capital requirements for at least the next twelve months.

The Company has made significant capital commitments to two of Oaktree’s funds, Oaktree Opportunities Fund XI and Oaktree Opportunities Fund XII, which may require additional capital contributions from the Company’s sole Class A unitholder or its affiliates in the future. The Company’s preferred unitholders should not rely on distributions received from these investments for payment of distributions or redemption of the preferred units.

The Company’s recent acquisition of a non-traded REIT (Brookfield REIT) through its subsidiary NTR may also present opportunities and challenges going forward. The Company has entered into agreements to provide additional capital contributions and indemnification related to the REIT Entities, which could impact the Company’s financial position and performance.

Additionally, the Company implemented a restructuring in July 2024, which resulted in the deconsolidation of Oaktree Capital I, L.P. This change in the Company’s structure and operations may have implications for its future financial reporting and performance.

Overall, the Company’s financial performance in the first half of 2024 was strong, and management remains cautiously optimistic about the Company’s outlook. However, the Company’s results will continue to be influenced by a variety of factors, including global economic and market conditions, regulatory changes, and the performance of its diversified investment strategies.