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 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 estimated fair value of these debt obligations was $611.1 million and $652.9 million as of December 31, 2013 and 2012, respectively, utilizing an average borrowing rate of 3.2% and 3.1%, respectively. As of December 31, 2013, a 10% increase in the assumed average borrowing rate would lower the estimated fair value to $603.7 million, whereas a 10% decrease would increase the estimated fair value to $618.7 million. The fair value of the Company's interest-rate swaps and foreign exchange contracts is a Level II valuation and is included in accounts payable, other accrued expenses and other liabilities. As of December 31, 2013 and 2012, the fair value of the interest-rate swaps was a net liability of $4.2 million and $7.9 million, respectively, and the fair value of the foreign exchange contracts was a net asset of $1.8 million and a net liability of $0.8 million, respectively. The fair value of the Company's total-return swap, a Level II valuation, included in other assets on the consolidated balance sheet, was an asset of $4.5 million as of December 31, 2013.

In 2013, the Company elected the fair value option for certain corporate investments that otherwise would not have reflected unrealized gains and losses in current-period earnings. As of December 31, 2013, the fair value of those securities was $67.6 million and consisted of available-for-sale equity securities. The gain from changes in fair value included in 2013 earnings was $17.1 million, and is included in investment income on the consolidated statements of operations. Accounting for these investments at fair value is consistent with how the Company accounts for its other corporate investments, which are primarily investments in funds. The valuation methods used to measure the fair value of such investments is consistent with the valuation methodologies applied to investments held by the consolidated funds.

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 December 31, 2013:	Level I			Level II			Level III		Total
Corporate debt – bank debt	$	—		$	7,352,129		$	2,809,437	$	10,161,566
Corporate debt – all other	798			5,125,646			2,432,179		7,558,623
Equities – common stock	4,804,068			1,109,270			6,700,015		12,613,353
Equities – preferred stock	4,101			8,483			919,771		932,355
Real estate	—			37,184			6,221,294		6,258,478
Real estate loan portfolio	—			—			2,369,441		2,369,441
Other	2,656			1,708			13,708		18,072
Total investments	$	4,811,623		$	13,634,420		$	21,465,845	$	39,911,888
Securities sold short – equities	$	(140,251	)	$	—		$	—	$	(140,251	)
Options written (net)	$	(1,862	)	$	16,853		$	—	$	14,991
Swaps (net)	—			11,222			—		11,222
Swaptions (net)	—			5,392			—		5,392
Forward contracts (net)	—			(83,481		)	—		(83,481		)
Futures (net)	(3,067		)	—			—		(3,067		)



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

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
2013:
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	377,448			2,410			367,562			387,757			15,055			—			—			—			1,150,232
Transfers out of Level III	(656,354		)	(327,612		)	(1,222,610		)	(35,771		)	—			—			—			—			(2,242,347		)
Purchases	1,673,352			428,783			1,437,693			280,531			2,200,559			1,226,791			—			—			7,247,709
Sales	(1,120,160		)	(1,029,515		)	(2,590,023		)	(316,187		)	(978,064		)	(866,588		)	(91,101		)	—			(6,991,638		)
Realized gains (losses), net	33,427			120,610			956,094			41,553			194,681			39,755			91,070			(27,386		)	1,449,804
Unrealized appreciation (depreciation), net	248,248			78,452			(349,752		)	(88,208		)	842,921			231,661			(44,674		)	25,547			944,195
Ending balance	$	2,809,437		$	2,432,179		$	6,700,015		$	919,771		$	6,221,294		$	2,369,441		$	—		$	13,708		$	21,465,845
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	198,469		$	165,124		$	246,039		$	(42,108	)	$	777,549		$	231,662		$	—		$	(1,783	)	$	1,574,952
2012:
Beginning balance	$	1,978,637		$	3,155,241		$	6,164,025		$	1,090,107		$	2,786,862		$	479,690		$	—		$	18,824		$	15,673,386
Transfers into Level III	476,034			688,299			785,470			6,884			39,199			—			2,317			—			1,998,203
Transfers out of Level III	(547,130		)	(592,397		)	(306,648		)	(98,797		)	(5,353		)	—			—			—			(1,550,325		)
Purchases	1,667,292			953,076			1,009,258			53,788			1,361,920			2,104,577			—			500			7,150,411
Sales	(1,329,534		)	(1,183,277		)	(564,217		)	(410,261		)	(914,108		)	(988,399		)	—			(7,835		)	(5,397,631		)
Realized gains (losses), net	50,938			112,396			178,115			318,498			249,933			35,650			—			5,404			950,934
Unrealized appreciation (depreciation), net	(42,761		)	25,713			835,048			(310,123		)	427,689			106,304			42,388			(1,346		)	1,082,912
Ending 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
Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period	$	(45,214	)	$	23,779		$	847,098		$	14,873		$	531,768		$	106,304		$	42,388		$	(64	)	$	1,520,932

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 consolidated statements of operations.

Transfers between Level I and Level II for the years ended December 31, 2013 and 2012 included transfers from Level II to Level I of $1,295.4 million and $11.5 million, respectively, as certain common equity securities began trading on a securities exchange.

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 the valuation technique and quantitative information utilized in determining the fair value of the consolidated funds' 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

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

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, 2012:

Investment Type

Fair Value

Valuation Technique

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

Range

Weighted Average ⁽¹²⁾

Credit-oriented investments:

Consumer

discretionary:

163,978

Discounted cash flow ⁽¹⁾

Discount rate

7% – 15%

13%

233,160

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

5x – 12x

673,870

Recent transaction price ⁽⁵⁾

Not applicable

202,878

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Consumer staples:

317,589

Discounted cash flow ⁽¹⁾

Discount rate

12% – 14%

12%

283,020

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

9x – 10x

104,956

Recent transaction price ⁽⁵⁾

Not applicable

7,424

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Financials:

15,055

Discounted cash flow ⁽¹⁾

Discount rate

9% – 11%

10%

106,777

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

9x – 11x

10x

22,774

Recent transaction price ⁽⁵⁾

Not applicable

439,281

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Industrials:

544,628

Discounted cash flow ⁽¹⁾

Discount rate

8% – 19%

14%

173,006

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

5x – 10x

92,899

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

419,825

Recent transaction price ⁽⁵⁾

Not applicable

176,334

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Materials:

63,132

Discounted cash flow ⁽¹⁾

Discount rate

13% – 15%

14%

464,236

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 8x

173,248

Recent transaction price ⁽⁵⁾

Not applicable

Other:

252,080

Discounted cash flow ⁽¹⁾

Discount rate

7% – 16%

14%

208,950

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

5x – 6x

103,269

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

104,760

Recent transaction price ⁽⁵⁾

Not applicable

110,103

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Equity investments:

Consumer staples:

1,591,730

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

5x – 9x

Financials:

758,887

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

10x – 14x

12x

306,977

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

Underlying asset multiple

1x – 1.2x

1.1x

1,412,616

Recent transaction price ⁽⁵⁾

Not applicable

9,630

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Investment Type

Fair Value

Valuation Technique

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

Range

Weighted Average ⁽¹²⁾

Industrials:

879,752

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

4x – 11x

1,388

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

658,463

Recent transaction price ⁽⁵⁾

Not applicable

Materials:

1,685,758

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 8x

81,673

Recent transaction price ⁽⁵⁾

Not applicable

Other:

57,560

Discounted cash flow ⁽¹⁾

Discount rate

13% – 15%

14%

1,031,830

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

5x – 12x

82,131

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

0.9x – 1.1x

32,955

Recent transaction price ⁽⁵⁾

Not applicable

86,828

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

72,969

Other

Not applicable

Real estate-oriented

investments:

1,306,815

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

8% – 28%

14%

Terminal capitalization rate

6% – 11%

Direct capitalization rate

7% – 8%

Net operating income growth rate

1% – 29%

11%

Absorption rate

14% – 33%

27%

844,610

Market approach

(comparable companies) ⁽²⁾

Earnings multiple ⁽³⁾

6x – 13x

12x

737,011

Market approach

(value of underlying assets) ⁽²⁾⁽⁴⁾

Underlying asset multiple

1.7x – 1.8x

1.8x

674,292

Recent transaction price ⁽⁵⁾

Not applicable

243,791

Sales approach ⁽⁸⁾

Market transactions

Not applicable

139,623

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

Real estate loan

portfolios:

1,245,538

Recent transaction price ⁽⁵⁾

Not applicable

102,153

Recent market information ⁽⁶⁾

Quoted prices / discount

(discount not applicable)

Not applicable

390,131

Discounted cash flow ⁽¹⁾⁽⁷⁾

Discount rate

14% – 20%

15%

Other

15,547

Total Level III

investments

19,907,890


(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, as well as certain equity investments, real estate-oriented investments and 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. The fair value may also be based on a pending transaction expected to close after the valuation date.


(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.

(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 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 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 year ended December 31, 2013, there were changes in the techniques used for purposes of valuing certain Level III-type investments. One real estate-oriented investment commenced trading on a securities exchange; thus, it 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. The valuation technique for certain real estate loan portfolios changed to a discounted cash flow method from a combination of recent market and sales information, as a result of a lack of recent market transaction data. One credit-oriented investment changed to a market approach based on comparable companies from a valuation based on underlying assets as a result of a change in the composition of the underlying investment.

During the year ended December 31, 2012, the valuation technique for two real estate-oriented investments changed to a market approach based on comparable companies from a discounted cash flow approach as a result of a change in the composition of the underlying investments.