Overview of Financial Performance

Brookfield Oaktree Holdings, LLC (BOH) is a publicly traded partnership that manages and invests in various funds and companies. The company’s financial results are significantly impacted by the consolidation of certain Oaktree funds and vehicles, which can make the financial statements complex to interpret.

In 2024, BOH underwent a major restructuring, known as the “2024 Restructuring”, which resulted in the deconsolidation of Oaktree Capital I. As a result, BOH no longer directly earns incentive income or records the associated compensation expenses. Instead, BOH’s results now reflect its approximately 72% equity method investment in Oaktree Capital I.

Revenue and Profit Trends

BOH’s total revenues increased by 13.0% in 2024 to $778.0 million, up from $688.8 million in 2023. This was primarily driven by:

The increase in interest and dividend income was mainly due to higher income from BOH’s investments in Oaktree Opportunities Fund XI and XII. Investment income also grew significantly, reflecting improved performance of BOH’s Credit investments held directly and through its equity method investment in Oaktree Capital I.

However, incentive income declined by 56.0% to $117.5 million in 2024, down from $267.3 million in 2023. This decrease was a direct result of the 2024 Restructuring, which eliminated BOH’s ability to earn incentive income.

On the expense side, incentive income compensation decreased by 83.5% to $22.2 million in 2024, again due to the 2024 Restructuring. General and administrative expenses also declined by 42.9% to $3.2 million. However, consolidated fund expenses increased by 23.3% to $81.1 million, and interest expense grew by 98.5% to $99.8 million, primarily related to Oaktree Opportunities Fund XII.

Overall, BOH’s net income attributable to Class A unitholders increased by 44.5% to $280.2 million in 2024, up from $193.9 million in 2023. This was driven by the higher investment income and lower incentive compensation, partially offset by the decline in incentive income.

Strengths and Weaknesses

Strengths:

• Diversified investment portfolio across credit, equity, and real estate strategies
• Strong investment performance, as evidenced by the growth in investment income
• Reduced reliance on incentive income and associated compensation expenses after the 2024 Restructuring
• Healthy liquidity position with $22.3 million in cash and cash equivalents as of December 31, 2024

Weaknesses:

• Significant impact of fund consolidation on financial statements, making them more complex to interpret
• Decline in incentive income, which was previously an important revenue stream
• Increased interest expense related to fund-level debt, which could pressure profitability

Outlook and Future Considerations

The 2024 Restructuring was a significant event that fundamentally changed BOH’s financial profile. By deconsolidating Oaktree Capital I, the company has reduced the complexity of its financial statements and eliminated the volatility associated with incentive income and compensation.

Going forward, BOH’s performance will be more closely tied to the investment performance of its equity method investment in Oaktree Capital I, as well as its direct investments in Oaktree funds such as Opportunities Fund XI and XII. The company’s ability to generate consistent investment income and manage its fund-level debt will be crucial to maintaining profitability.

Additionally, BOH will need to navigate the evolving landscape of generative artificial intelligence, such as ChatGPT, and assess the potential impact on its business. While the full implications are not yet known, this emerging technology could present both opportunities and challenges for the company.

Overall, BOH appears to be in a solid financial position, with a diversified investment portfolio, healthy liquidity, and a simplified organizational structure following the 2024 Restructuring. However, the company will need to continue to adapt to industry changes and manage its fund-level leverage to ensure long-term success.