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SEGMENT REPORTING
6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
SEGMENT REPORTING
14. SEGMENT REPORTING
The Company operates through its distinct operating segments that are summarized below:
Credit Group: The Credit Group manages credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, multi-asset credit, alternative credit investments and direct lending. The syndicated loans
strategy focuses on evaluating individual credit opportunities related primarily to non-investment grade senior secured loans and primarily target first lien secured debt, with a secondary focus on second lien loans, mezzanine loans, high yield bonds and unsecured loans. The high yield bond strategy seeks to deliver a diversified portfolio of liquid, traded non-investment grade corporate bonds, including secured, unsecured and subordinated debt instruments. Multi-asset credit is a “go anywhere” strategy designed to offer investors a flexible solution to global credit investing by tactical allocation between multiple asset classes in various market conditions. The alternative credit strategy seeks to capitalize on asset-focused investment opportunities that fall outside of traditional, well-defined markets such as corporate debt, real estate and private equity. The alternative credit strategy emphasizes downside protection and capital preservation through a focus on investments that tend to share the following key attributes: asset security, covenants, structural protections and cash flow velocity. The direct lending strategy is one of the largest self-originating direct lenders to the U.S. and European markets and has a multi-channel origination strategy designed to address a broad set of investment opportunities in the middle market. U.S. direct lending activities are managed through a publicly traded business development company, ARCC, as well as through private funds. The group maintains a flexible investment strategy with the capability to invest in first lien senior secured loans (including “unitranche” loans which are loans that combine senior and mezzanine debt, generally in a first lien position), second lien senior secured loans, mezzanine debt and non-control equity co-investments in middle market companies and power generation projects.

Private Equity Group: The Private Equity Group manages investment strategies broadly categorized as corporate private equity, infrastructure and power, special opportunities, and energy opportunities. In its North American and European flexible capital corporate private equity strategy, the Company targets opportunistic majority or shared-control investments in businesses with strong franchises and attractive growth opportunities in North America and Europe. The infrastructure and power strategy targets infrastructure-related assets across the power generation, transmission, midstream sectors and renewables seeking attractive risk-adjusted equity returns with current cash flow and capital appreciation. The special opportunities strategy seeks to invest opportunistically across a broad spectrum of distressed or mispriced investments, including corporate debt, rescue capital, private asset-backed investments, post-reorganization securities and non-performing portfolios. The energy opportunities strategy targets investments in the energy industry where its flexible capital can provide attractive risk-adjusted returns while mitigating commodity risk.

Real Estate Group: The Real Estate Group manages comprehensive real estate equity and debt strategies. Real Estate equity strategies focus on applying hands-on value creation initiatives to mismanaged and capital-starved assets, as well as new development, ultimately selling stabilized assets back into the market. The Real Estate Group manages both a value-add strategy and an opportunistic strategy. The value-add strategy seeks to create value by buying assets at attractive valuations and through active asset management of income-producing properties across the U.S. and Western Europe. The opportunistic strategy focuses on manufacturing core assets through development, redevelopment and fixing distressed capital structures across major properties in the U.S. and Europe. The Company’s debt strategies leverage the Real Estate Group’s diverse sources of capital to directly originate and manage commercial mortgage investments on properties that range from stabilized to requiring hands-on value creation. In addition to managing private debt funds, the Real Estate Group makes debt investments through a publicly traded commercial mortgage REIT, ACRE.
The OMG consists of shared resource groups to support the Company’s operating segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, strategy and relationship management, legal, compliance and human resources. Additionally, the OMG provides services to certain of the Company’s investment companies and partnerships, which reimburse the OMG for expenses equal to the costs of services provided. The OMG’s expenses are not allocated to the Company’s reportable segments but the Company does consider the cost structure of the OMG when evaluating its financial performance.
Segment Profit Measures: These measures supplement and should be considered in addition to, and not in lieu of, the Condensed Consolidated Statements of Operations prepared in accordance with GAAP.
Fee related earnings (“FRE”) is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it excludes performance income, performance related compensation, investment income from the Consolidated Funds and non-consolidated funds and certain other items that the Company believes are not indicative of its core operating performance.
Realized income (“RI”) is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the
fluctuations of unrealized income and expenses, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from net income by excluding (a) income tax expense, (b) operating results of the Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, (e) unrealized gains and losses related to performance income and investment performance and (f) certain other items that the Company believes are not indicative of operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Management believes RI is a more appropriate metric to evaluate the Company's current business operations.
Management makes operating decisions and assesses the performance of each of the Company’s business segments based on financial and operating metrics and other data that is presented before giving effect to the consolidation of any of the Consolidated Funds. Consequently, all segment data excludes the assets, liabilities and operating results related to the Consolidated Funds and non-consolidated funds.
The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the three months ended June 30, 2020:
Credit GroupPrivate Equity GroupReal
Estate Group
Total
Segments
OMGTotal
Management fees (Credit Group includes ARCC Part I Fees of $41,306)
$200,788  $53,396  $23,488  $277,672  $—  $277,672  
Other fees4,101  30   4,138  —  4,138  
Compensation and benefits(76,765) (22,126) (12,735) (111,626) (36,939) (148,565) 
General, administrative and other expenses(12,524) (4,448) (3,263) (20,235) (16,053) (36,288) 
Fee related earnings115,600  26,852  7,497  149,949  (52,992) 96,957  
Performance income—realized—  44,318  307  44,625  —  44,625  
Performance related compensation—realized(112) (36,741) (191) (37,044) —  (37,044) 
Realized net performance income (loss)(112) 7,577  116  7,581  —  7,581  
Investment income—realized—  8,045  964  9,009  —  9,009  
Interest and other investment income (expense) —realized6,629  487  920  8,036  (253) 7,783  
Interest expense(2,336) (2,247) (1,355) (5,938) (144) (6,082) 
Realized net investment income (loss)4,293  6,285  529  11,107  (397) 10,710  
Realized income$119,781  $40,714  $8,142  $168,637  $(53,389) $115,248  

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the three months ended June 30, 2019:
Credit GroupPrivate Equity GroupReal
Estate Group
Total
Segments
OMGTotal
Management fees (Credit Group includes ARCC Part I Fees of $39,157)
$172,347  $52,162  $21,770  $246,279  $—  $246,279  
Other fees3,939  —  672  4,611  —  4,611  
Compensation and benefits
(64,965) (21,291) (11,928) (98,184) (33,994) (132,178) 
General, administrative and other expenses(13,381) (4,912) (3,523) (21,816) (19,874) (41,690) 
Fee related earnings97,940  25,959  6,991  130,890  (53,868) 77,022  
Performance income—realized15,959  18,369  1,666  35,994  —  35,994  
Performance related compensation—realized(9,564) (14,696) (969) (25,229) —  (25,229) 
Realized net performance income6,395  3,673  697  10,765  —  10,765  
Investment income (loss)—realized(310) 1,030  1,546  2,266  —  2,266  
Interest and other investment income (expense) —realized4,631  3,318  2,119  10,068  (17) 10,051  
Interest expense(1,908) (2,436) (1,050) (5,394) (399) (5,793) 
Realized net investment income (loss)2,413  1,912  2,615  6,940  (416) 6,524  
Realized income$106,748  $31,544  $10,303  $148,595  $(54,284) $94,311  
The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the six months ended June 30, 2020:
Credit GroupPrivate Equity GroupReal
Estate Group
Total
Segments
OMGTotal
Management fees (Credit Group includes ARCC Part I Fees of $85,229)
$398,225  $105,553  $47,672  $551,450  $—  $551,450  
Other fees7,159  140  711  8,010  —  8,010  
Compensation and benefits(147,690) (41,722) (25,148) (214,560) (73,365) (287,925) 
General, administrative and other expenses(27,837) (10,081) (6,198) (44,116) (37,358) (81,474) 
Fee related earnings229,857  53,890  17,037  300,784  (110,723) 190,061  
Performance income—realized9,016  160,472  26,907  196,395  —  196,395  
Performance related compensation—realized(8,011) (129,665) (17,361) (155,037) —  (155,037) 
Realized net performance income1,005  30,807  9,546  41,358  —  41,358  
Investment income (loss)—realized(843) 19,515  2,254  20,926  (5,698) 15,228  
Interest and other investment income (expense) —realized11,204  1,299  1,716  14,219  (85) 14,134  
Interest expense(4,051) (3,890) (2,326) (10,267) (1,121) (11,388) 
Realized net investment income (loss)6,310  16,924  1,644  24,878  (6,904) 17,974  
Realized income$237,172  $101,621  $28,227  $367,020  $(117,627) $249,393  

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the six months ended June 30, 2019:
Credit GroupPrivate Equity GroupReal Estate GroupTotal
Segments
OMGTotal
Management fees (Credit Group includes ARCC Part I Fees of $77,550)
$335,313  $103,558  $40,420  $479,291  $—  $479,291  
Other fees7,005  —  681  7,686  —  7,686  
Compensation and benefits
(125,313) (42,487) (21,212) (189,012) (66,655) (255,667) 
General, administrative and other expenses(26,886) (8,969) (6,655) (42,510) (40,506) (83,016) 
Fee related earnings190,119  52,102  13,234  255,455  (107,161) 148,294  
Performance income—realized37,884  62,492  4,191  104,567  —  104,567  
Performance related compensation—realized(22,227) (49,993) (2,226) (74,446) —  (74,446) 
Realized net performance income15,657  12,499  1,965  30,121  —  30,121  
Investment income—realized548  11,966  5,026  17,540  —  17,540  
Interest and other investment income (expense) —realized7,536  3,612  3,224  14,372  (2) 14,370  
Interest expense(3,807) (4,611) (2,169) (10,587) (795) (11,382) 
Realized net investment income (loss)4,277  10,967  6,081  21,325  (797) 20,528  
Realized income$210,053  $75,568  $21,280  $306,901  $(107,958) $198,943  
The following table presents the components of the Company’s operating segments’ revenue, expenses and realized net investment income:
Three months ended June 30,Six months ended June 30,
2020201920202019
Segment revenues
Management fees (includes ARCC Part I Fees of $41,306, $85,229 and $39,157, $77,550 for the three and six months ended June 30, 2020 and 2019, respectively)$277,672  $246,279  $551,450  $479,291  
Other fees4,138  4,611  8,010  7,686  
Performance income—realized44,625  35,994  196,395  104,567  
Total segment revenues$326,435  $286,884  $755,855  $591,544  
Segment expenses
Compensation and benefits$111,626  $98,184  $214,560  $189,012  
General, administrative and other expenses20,235  21,816  44,116  42,510  
Performance related compensation—realized37,044  25,229  155,037  74,446  
Total segment expenses$168,905  $145,229  $413,713  $305,968  
Segment realized net investment income
Investment income—realized$9,009  $2,266  $20,926  $17,540  
Interest and other investment income —realized8,036  10,068  14,219  14,372  
Interest expense(5,938) (5,394) (10,267) (10,587) 
Total segment realized net investment income$11,107  $6,940  $24,878  $21,325  

The following table reconciles the Company's consolidated revenues to segment revenue:
Three months ended June 30,Six months ended June 30,
2020201920202019
Total consolidated revenue$602,758  $384,822  $616,167  $862,019  
Performance (income) loss-unrealized(257,303) (98,662) 130,354  (245,237) 
Management fees of Consolidated Funds eliminated in consolidation11,380  8,735  21,882  17,148  
Incentive fees of Consolidated Funds eliminated in consolidation(25) 4,750  (70) 5,184  
Administrative, transaction and other fees of Consolidated Funds eliminated in consolidation4,484  —  7,801  —  
Administrative fees(1)
(8,838) (6,602) (18,499) (13,204) 
Performance income (loss) reclass (2)
(1,656) (26) (3,373) 580  
Principal investment (income) loss, net of eliminations(23,645) (5,844) 3,078  (34,603) 
Net income of non-controlling interests in consolidated subsidiaries(720) (289) (1,485) (343) 
Total consolidation adjustments and reconciling items(276,323) (97,938) 139,688  (270,475) 
Total segment revenue$326,435  $286,884  $755,855  $591,544  

(1)Represents administrative fees that are presented in administrative, transaction and other fees in the Company’s Condensed Consolidated Statements of Operations and are netted against the respective expenses for segment reporting.
(2)Related to performance income for AREA Sponsor Holdings LLC, an investment pool. Changes in value of this investment are reflected within net realized and unrealized gains (losses) on investments in the Company’s Condensed Consolidated Statements of Operations.
The following table reconciles the Company's consolidated expenses to segment expenses:
Three months ended June 30,Six months ended June 30,
2020201920202019
Total consolidated expenses$483,567  $335,701  $565,526  $704,808  
Performance related compensation-unrealized(200,064) (67,459) 85,828  (174,762) 
Expenses of Consolidated Funds added in consolidation(14,601) (28,912) (32,500) (42,313) 
Expenses of Consolidated Funds eliminated in consolidation11,357  13,485  21,813  22,332  
Administrative fees(1)
(8,838) (6,602) (18,499) (13,204) 
OMG expenses(52,992) (53,868) (110,723) (107,161) 
Acquisition and merger-related expense(2,841) (4,207) (5,956) (5,980) 
Equity compensation expense(28,683) (24,029) (61,240) (51,581) 
Deferred placement fees(10,320) (12,432) (15,735) (12,953) 
Depreciation and amortization expense(6,319) (5,221) (11,861) (11,045) 
Expense of non-controlling interests in consolidated subsidiaries
(1,361) (1,227) (2,940) (2,173) 
Total consolidation adjustments and reconciling items(314,662) (190,472) (151,813) (398,840) 
Total segment expenses$168,905  $145,229  $413,713  $305,968  

(1)Represents administrative fees that are presented in administrative, transaction and other fees in the Company’s Condensed Consolidated Statements of Operations and are netted against the respective expenses for segment reporting.
The following table reconciles the Company's consolidated other income to segment realized net investment income:


Three months ended June 30,Six months ended June 30,
2020201920202019
Total consolidated other income (expense)$121,906  $35,262  $(105,957) $63,132  
Investment (income) loss—unrealized(23,704) 7,618  81,890  (8,565) 
Interest and other investment (income) loss—unrealized(3,979) (4,628) (8,940) 350  
Other (income) loss from Consolidated Funds added in consolidation, net(109,394) (33,008) 88,851  (64,215) 
Other (income) loss from Consolidated Funds eliminated in consolidation, net(4,189) 282  (8,008) (90) 
OMG other (income) expense(102) (188) 1,039  (158) 
Performance (income) loss reclass(1)
1,656  26  3,373  (580) 
Principal investment income (loss)32,957  1,579  (43,031) 31,471  
Other expense, net347   369   
Other (income) loss of non-controlling interests in consolidated subsidiaries(4,391) (5) 15,292  (21) 
Total consolidation adjustments and reconciling items(110,799) (28,322) 130,835  (41,807) 
Total segment realized net investment income$11,107  $6,940  $24,878  $21,325  

(1)Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within net realized and unrealized gains (losses) on investments in the Company’s Condensed Consolidated Statements of Operations.


The following table presents the reconciliation of income before taxes as reported in the Condensed Consolidated Statements of Operations to segment results of RI and FRE:
Three months ended June 30,Six months ended June 30,
2020201920202019
Income (loss) before taxes$241,097  $84,383  $(55,316) $220,343  
Adjustments:
Depreciation and amortization expense6,319  5,221  11,861  11,045  
Equity compensation expense28,683  24,029  61,240  51,581  
Acquisition and merger-related expense3,188  4,207  6,325  5,980  
Deferred placement fees10,320  12,432  15,735  12,953  
OMG expense, net52,890  53,680  111,762  107,003  
Other expense, net—   —   
Net (income) expense of non-controlling interests in consolidated subsidiaries(3,750) 933  16,747  1,809  
(Income) loss before taxes of non-controlling interests in Consolidated Funds, net of eliminations(85,188) (8,079) 81,190  (25,124) 
Total performance (income) loss-unrealized(257,303) (98,662) 130,354  (245,237) 
Total performance related compensation - unrealized200,064  67,459  (85,828) 174,762  
Total investment (income) loss-unrealized(27,683) 2,990  72,950  (8,215) 
Realized income168,637  148,595  367,020  306,901  
Total performance income - realized(44,625) (35,994) (196,395) (104,567) 
Total performance related compensation - realized37,044  25,229  155,037  74,446  
Total investment income - realized(11,107) (6,940) (24,878) (21,325) 
Fee related earnings$149,949  $130,890  $300,784  $255,455