Fair Value

6 Months Ended

Jun. 30, 2012

Fair Value [Abstract]

FAIR VALUE

4. FAIR VALUE

Fair value of financial assets and liabilities

Carrying value approximates fair value for cash and cash-equivalents, U.S. Treasury and government agency securities, receivables, consolidated fund credit facilities and accounts payable and accrued expenses, due to the short-term nature of these items. The fair value of debt obligations is a Level III valuation that is estimated based on the current rates offered to Oaktree for debt of similar terms and maturities. The fair value of debt obligations was $655.5 million and $684.2 million as of June 30, 2012 and December 31, 2011, respectively, utilizing average borrowing rates of 3.6% and 3.5%, respectively. A 10% increase in the average borrowing rate assumption would lower the fair value as of June 30, 2012 to $645.5 million, while a 10% decrease would increase the fair value to $666.0 million. The fair value of the Company’s interest rate swap, a Level II valuation, is included in accounts payable, other accrued expenses and other liabilities and was $8.5 million as of June 30, 2012 and $7.6 million as of December 31, 2011.

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 June 30, 2012:

	Level I			Level II			Level III		Total
Corporate debt—bank debt	$	—		$	8,954,658		$	2,424,016	$	11,378,674
Corporate debt—all other		—			7,870,595			3,054,677		10,925,272
Equities—common stock		3,993,627			339,351			7,422,030		11,755,008
Equities—preferred stock		1,307			25,627			1,090,596		1,117,530
Real estate		—			71,999			3,559,548		3,631,547
Other		1,904			5,712			19,965		27,581
Total investment securities	$	3,996,838		$	17,267,942		$	17,570,832	$	38,835,612
Securities sold short—equities	$	(188,183	)	$	—		$	—	$	(188,183	)
Options written	$	—		$	(581	)	$	—	$	(581	)
Swaps (net)—corporate debt		—			33,409			—		33,409
Forward contracts (net)		—			33,121			—		33,121
Futures		(1,551	)		—			—		(1,551	)

The table below summarizes the valuation of investments and other financial instruments of the consolidated funds by fair value hierarchy levels as of December 31, 2011:

	Level I			Level II			Level III		Total
Corporate debt—bank debt	$	—		$	10,173,773		$	1,978,637	$	12,152,410
Corporate debt—all other		—			7,899,118			3,155,241		11,054,359
Equities—common stock		4,383,599			472,796			6,349,335		11,205,730
Equities—preferred stock		1,869			3,608			1,133,725		1,139,202
Real estate		—			—			3,037,624		3,037,624
Other		1,594			4,483			18,824		24,901
Total investment securities	$	4,387,062		$	18,553,778		$	15,673,386	$	38,614,226
Corporate debt	$	—		$	(12,450	)	$	—	$	(12,450	)
Equities		(201,277	)		—			—		(201,277	)
Total securities sold short	$	(201,277	)	$	(12,450	)	$	—	$	(213,727	)
Options written	$	—		$	(2,468	)	$	—	$	(2,468	)
Swaps (net)—corporate debt		—			(1,569	)		—		(1,569	)
Forward contracts (net)		—			53,738			—		53,738
Futures		(2,135	)		—			—		(2,135	)

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			Other			Total
Three months ended June 30, 2012:
Beginning balance	$	2,720,357		$	3,570,969		$	6,613,693		$	1,100,388		$	3,376,428		$	18,839		$	17,400,674
Transfers into Level III		68,038			44,376			286,535			1,761			17,275			—			417,985
Transfers out of Level III		(186,414	)		(81,365	)		(8,088	)		(11,873	)		—			—			(287,740	)
Purchases		189,629			293,499			454,453			32,109			632,392			—			1,602,082
Sales		(333,151	)		(853,066	)		(28,096	)		(3,411	)		(620,959	)		—			(1,838,683	)
Realized gains (losses), net		9,510			95,070			(32,686	)		989			253,764			—			326,647
Unrealized appreciation (depreciation), net		(43,953	)		(14,806	)		136,219			(29,367	)		(99,352	)		1,126			(50,133	)
Ending balance	$	2,424,016		$	3,054,677		$	7,422,030		$	1,090,596		$	3,559,548		$	19,965		$	17,570,832
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	115,529		$	20,447		$	154,290		$	(24,640	)	$	32,198		$	1,126		$	298,950
Three months ended June 30, 2011:
Beginning balance	$	1,355,999		$	3,323,699		$	6,004,741		$	715,237		$	1,108,083		$	14,545		$	12,522,304
Transfers into Level III		43,124			93,685			—			—			161			—			136,970
Transfers out of Level III		(70,097	)		(92,461	)		(88,799	)		(57,408	)		(935	)		(1	)		(309,701	)
Purchases		278,966			392,345			289,634			615			426,263			824			1,388,647
Sales		(15,423	)		(165,478	)		(21,774	)		(3,855	)		(76,005	)		—			(282,535	)
Realized gains (losses), net		(7,053	)		(76,557	)		13,406			1,710			4,772			—			(63,722	)
Unrealized appreciation (depreciation), net		55,683			(15,290	)		141,181			10,946			2,017			(804	)		193,733
Ending balance	$	1,641,199		$	3,459,943		$	6,338,389		$	667,245		$	1,464,356		$	14,564		$	13,585,696
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	31,629		$	166,539		$	72,332		$	7,096		$	8,658		$	(805	)	$	285,449

	Corporate debt – bank debt			Corporate debt – all other			Equities – common stock			Equities – preferred stock			Real estate			Other			Total
Six months ended June 30, 2012:
Beginning balance	$	1,978,637		$	3,155,241		$	6,349,335		$	1,133,725		$	3,037,624		$	18,824		$	15,673,386
Transfers into Level III		375,612			372,016			464,639			6,987			17,275			—			1,236,529
Transfers out of Level III		(219,645	)		(200,775	)		(359,682	)		(100,064	)		(5,353	)		—			(885,519	)
Purchases		703,629			412,072			682,612			43,561			879,724			—			2,721,598
Sales		(363,540	)		(863,895	)		(84,730	)		(3,857	)		(654,578	)		—			(1,970,600	)
Realized gains (losses), net		9,893			100,293			(61,025	)		(3,199	)		259,096			—			305,058
Unrealized appreciation (depreciation), net		(60,570	)		79,725			430,881			13,443			25,760			1,141			490,380
Ending balance	$	2,424,016		$	3,054,677		$	7,422,030		$	1,090,596		$	3,559,548		$	19,965		$	17,570,832
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	(9,546	)	$	132,093		$	285,098		$	14,295		$	157,309		$	1,141		$	580,390
Six months ended June 30, 2011:
Beginning balance	$	1,330,000		$	3,321,051		$	5,774,231		$	735,855		$	985,051		$	16,176		$	12,162,364
Transfers into Level III		94,022			245,773			161			95			1,096			1			341,148
Transfers out of Level III		(82,690	)		(179,409	)		(94,200	)		(57,408	)		(935	)		(1	)		(414,643	)
Purchases		658,257			1,064,645			563,459			8,236			558,865			1,322			2,854,784
Sales		(425,014	)		(980,120	)		(173,435	)		(58,122	)		(97,415	)		—			(1,734,106	)
Realized gains (losses), net		11,630			(82,346	)		8,393			(9,706	)		7,333			—			(64,696	)
Unrealized appreciation (depreciation), net		54,994			70,349			259,780			48,295			10,361			(2,934	)		440,845
Ending balance	$	1,641,199		$	3,459,943		$	6,338,389		$	667,245		$	1,464,356		$	14,564		$	13,585,696
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	27,314		$	205,468		$	174,747		$	22,841		$	17,002		$	(2,935	)	$	444,437

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 (depreciation) on consolidated funds’ investments in the condensed consolidated statements of operations.

There were no transfers between Level I and Level II for the periods presented.

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 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 valuation techniques and quantitative information utilized in determining the fair value of the Company’s Level III investments as of June 30, 2012:

Investment Type	Fair Value		Valuation Technique	Significant Unobservable Inputs (7)(8)(9)
Credit-oriented
investments:
	$	1,525,368	Discounted cash flow(1)	Discount rate (range: 7% – 16%)
		1,280,623	Market approach (comparable companies) (2)	Earnings multiple(3) (range: 4x – 16x)
		218,256	Market approach (value of underlying assets) (2),(4)	Underlying asset multiple (range: 1x – 1.2x)
		1,230,611	Recent transaction price(5)	Not applicable
		1,223,835	Broker quotations(6)	Not applicable
Equity investments:
		5,875,654	Market approach (comparable companies)(2)	Earnings multiple(3) (range: 4x – 16x)
		1,442,814	Market approach (value of underlying assets)(2),(4)	Underlying asset multiple (range: 1x – 1.2x)
		1,194,158	Recent transaction price(5)	Not applicable
Real estate-oriented
investments:
		1,992,612	Discounted cash flow(1)	Discount rate (range: 8% – 38%)
				Terminal capitalization rate (range: 6% – 11%)
				Direct capitalization rate (range: 7% – 9%)
				Net operating income growth rate (range: 2% – 27%)
				Absorption rate (range: 13% – 67%)
		368,714	Market approach (comparable companies) (2),(4)	Earnings multiple(3) (range: 12x – 14x)
		472,075	Market approach (value of underlying assets)(2),(4)	Underlying asset multiple (range: 1.2x – 1.3x)
		726,147	Recent transaction price(5)	Not applicable
Other		19,965
Total Level III investments	$	17,570,832

(1) A discounted 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 and certain real estate-oriented investments.

(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 for the investment.

(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.

(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 consideration of any changes in significant unobservable inputs, valuations of comparable companies and other similar transactions. In other cases, the fair value may be based on a pending transaction expected to occur after the valuation date.

(6) Certain investments are valued using broker quotes for the subject security and/or similar securities.

(7) 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 is the discount rate. A significant increase (decrease) in the discount rate would result in a significantly lower (higher) fair value measurement.

(8) 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 is a multiple of earnings or a multiple of underlying assets. A significant increase (decrease) in these multiples would result in a significantly higher (lower) fair value measurement.

(9) The significant unobservable inputs used in the fair value measurement of real estate investments valued using a discounted cash flow analysis can include a discount rate, terminal capitalization rate, direct capitalization rate, net operating income growth rate and/or absorption rate. A significant increase (decrease) in a discount rate, terminal capitalization rate or direct capitalization rate would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in a net operating income growth rate or absorption rate would result in a significantly 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.

The use of unobservable inputs, including assessing the accuracy of source data, and the results of pricing models, require a significant degree of judgment. The Company assesses the accuracy and reliability of the sources it uses to obtain unobservable inputs; these sources may include third-party vendors that the Company believes are reliable and commonly utilized by other market place participants. In addition to the unobservable inputs described above, other factors, as described in note 2, have a significant impact on investment valuations.

Since December 31, 2011, there have been no changes in techniques utilized to value Level III investments that resulted in a material impact on the condensed consolidated financial statements.