INVESTMENTS

6 Months Ended

Jun. 30, 2019

Corporate Investments

Corporate investments consist of investments in funds and companies in which the Company does not have a controlling financial interest. Investments for which the Company is deemed to exert significant influence are accounted for under the equity method of accounting and reflect Oaktree’s ownership interest in each fund or company. In the case of investments for which the Company is not deemed to exert significant influence or control, the fair value option of accounting has been elected. Investment income represents the Company’s pro-rata share of income or loss from these funds or companies, or the change in fair value of the investment, as applicable. Oaktree’s general partnership interests are substantially illiquid. While investments in funds reflect each respective fund’s holdings at fair value, equity-method investments in DoubleLine Capital LP and its affiliates (collectively, “DoubleLine”) and other companies are not adjusted to reflect the fair value of the underlying company. The fair value of the underlying investments in Oaktree funds is based on the Company’s assessment, which takes into account expected cash flows, earnings multiples and/or comparisons to similar market transactions, among other factors. Valuation adjustments reflecting consideration of credit quality, concentration risk, sales restrictions and other liquidity factors are integral to valuing these instruments.

Corporate investments consisted of the following:



	As of
Corporate Investments	June 30, 2019		December 31, 2018

Equity-method investments:
Funds	$	1,053,897	$	1,089,068
Companies	27,476		45,797
Other investments, at fair value	73,080		74,899
Total corporate investments	$	1,154,453	$	1,209,764

The components of investment income are set forth below:



	Three Months Ended June 30,					Six Months Ended June 30,
Investment Income	2019			2018		2019		2018

Equity-method investments:
Funds	$	17,997		$	25,798	$	57,317	$	53,064
Companies	19,700			17,430		36,811		35,568
Other investments, at fair value	(4,862		)	13,695		857		2,854
Total investment income	$	32,835		$	56,923	$	94,985	$	91,486

Equity-method Investments

The Company’s equity-method investments include its investments in Oaktree funds for which it serves as general partner and other third-party funds and companies that are not consolidated but for which the Company is deemed to exert significant influence. The Company’s share of income or loss generated by these investments is recorded within investment income in the condensed consolidated statements of operations. The Company’s equity-method investments in Oaktree funds principally reflect the Company’s general partner interests in those funds, which typically does not exceed 2.5% in each fund. The Oaktree funds are investment companies that follow a specialized basis of accounting established by GAAP. Equity-method investments in companies include the Company’s one-fifth equity stake in DoubleLine.

Each reporting period, the Company evaluates each of its equity-method investments to determine if any are considered significant, as defined by the SEC. For the six months ended June 30, 2019, no individual equity-method investment met the significance criteria.

Summarized financial information of the Company’s equity-method investments is set forth below.



	Three Months Ended June 30,						Six Months Ended June 30,
Statements of Operations	2019			2018			2019			2018
Revenues / investment income	$	339,302		$	457,262		$	1,231,263		$	934,753
Interest expense	(60,041		)	(65,385		)	(130,898		)	(132,615		)
Other expenses	(119,402		)	(215,921		)	(481,302		)	(417,357		)
Net realized and unrealized gain on investments	115,770			815,438			1,120,917			1,345,799
Net income	$	275,629		$	991,394		$	1,739,980		$	1,730,580

Other Investments, at Fair Value

Other investments, at fair value primarily consist of (a) investments in certain Oaktree and non-Oaktree funds for which the fair value option of accounting has been elected and (b) derivatives utilized to hedge the Company’s exposure to investment income earned from its funds.

The following table summarizes net gains (losses) attributable to the Company’s other investments:



	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018

Realized gain (loss)	$	6,311		$	172	$	6,311		$	968
Net change in unrealized gain (loss)	(11,173		)	13,523		(5,454		)	1,886
Total gain (loss)	$	(4,862	)	$	13,695	$	857		$	2,854

Investments of Consolidated Funds

Investments, at Fair Value

Investments held and securities sold short by the consolidated funds are summarized below:



	Fair Value as of				Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
United States:
Debt securities:
Communication services	$	562,588	$	543,948	8.1	%	8.4	%
Consumer discretionary	463,591		506,551		6.7		7.8
Consumer staples	73,446		112,197		1.1		1.7
Energy	294,600		204,568		4.2		3.1
Financials	347,654		332,240		5.0		5.1
Health care	497,827		537,592		7.2		8.2
Industrials	506,454		443,406		7.3		6.8
Information technology	517,714		536,000		7.5		8.2
Materials	299,226		289,499		4.3		4.4
Real estate	261,778		217,633		3.8		3.3
Utilities	189,894		137,031		2.7		2.1
Total debt securities (cost: $4,046,820 and $4,019,823 as of June 30, 2019 and December 31, 2018, respectively)	4,014,772		3,860,665		57.9		59.1
Equity securities:
Consumer discretionary	2,314		1,915		0.1		0.1
Energy	122		131		0.0		0.0
Financials	415		837		0.0		0.0
Health care	1,383		1,348		0.0		0.0
Industrials	100		88		0.0		0.0
Utilities	1,072		1,107		0.0		0.0
Total equity securities (cost: $8,862 and $6,117 as of June 30, 2019 and December 31, 2018, respectively)	5,406		5,426		0.1		0.1
Real estate:
Real estate	57,080		—		0.8		—
Total real estate securities (cost: $57,080 and $0 as of June 30, 2019 and December 31, 2018, respectively)	57,080		—		0.8		—



	Fair Value as of				Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Europe:
Debt securities:
Communication services	$	562,857	$	530,337	8.2	%	8.1	%
Consumer discretionary	570,296		545,324		8.2		8.3
Consumer staples	155,299		160,406		2.2		2.5
Energy	11,124		15,260		0.2		0.2
Financials	69,965		48,545		1.0		0.7
Health care	506,629		418,516		7.3		6.4
Industrials	280,831		246,640		4.0		3.8
Information technology	175,777		194,988		2.5		3.0
Materials	268,538		221,660		3.9		3.4
Real estate	27,598		30,045		0.4		0.5
Utilities	3,041		1,559		0.0		0.0
Total debt securities (cost: $2,642,902 and $2,477,821 as of June 30, 2019 and December 31, 2018, respectively)	2,631,955		2,413,280		37.9		36.9
Equity securities:
Consumer staples	—		38		—		0.0
Financials	39,860		—		0.6		—
Health care	923		948		0.0		0.1
Total equity securities (cost: $40,078 and $320 as of June 30, 2019 and December 31, 2018, respectively)	40,783		986		0.6		0.1
Asia and other:
Debt securities:
Communication services	18,528		12,069		0.3		0.2
Consumer discretionary	45,019		36,822		0.6		0.6
Consumer staples	3,765		11,867		0.1		0.2
Energy	18,786		20,594		0.3		0.3
Financials	5,464		13,995		0.1		0.2
Government	5,708		12,155		0.1		0.2
Health care	6,952		9,633		0.1		0.1
Industrials	45,829		40,468		0.5		0.7
Information technology	3,519		1,887		0.1		0.0
Materials	14,410		15,516		0.2		0.2
Real estate	721		38,592		0.0		0.6
Utilities	18,650		14,870		0.3		0.2
Total debt securities (cost: $184,948 and $233,603 as of June 30, 2019 and December 31, 2018, respectively)	187,351		228,468		2.7		3.5



	Fair Value as of					Fair Value as a Percentage of Investments of Consolidated Funds as of
Investments	June 30, 2019		December 31, 2018			June 30, 2019		December 31, 2018
Asia and other:
Equity securities:
Consumer discretionary	$	—	$	874		—	%	0.0	%
Consumer staples	15		997			0.0		0.0
Energy	355		382			0.0		0.0
Financials	—		2,935			—		0.0
Industrials	—		11,265			—		0.2
Information technology	—		1,725			—		0.0
Materials	1,787		4,382			0.0		0.1
Total equity securities (cost: $3,880 and $22,977 as of June 30, 2019 and December 31, 2018, respectively)	2,157		22,560			0.0		0.3
Total debt securities	6,834,078		6,502,413			98.5		99.5
Total equity securities	48,346		28,972			0.7		0.5
Total real estate	57,080		—			0.8		—
Total investments, at fair value	$	6,939,504	$	6,531,385		100.0	%	100.0	%
Securities Sold Short
Equity securities (proceeds: $0 and $2,644 as of June 30, 2019 and December 31, 2018, respectively)	$	—	$	(2,609	)

As of June 30, 2019 and December 31, 2018, no single issuer or investment had a fair value that exceeded 5% of Oaktree’s total consolidated net assets.

Net Gains (Losses) From Investment Activities of Consolidated Funds

Net gains (losses) from investment activities in the condensed consolidated statements of operations consist primarily of realized and unrealized gains and losses on the consolidated funds’ investments (including foreign-exchange gains and losses attributable to foreign-denominated investments and related activities) and other financial instruments. Unrealized gains or losses result from changes in the fair value of these investments and other financial instruments. Upon disposition of an investment, unrealized gains or losses are reversed and an offsetting realized gain or loss is recognized in the current period.

The following table summarizes net gains (losses) from investment activities:



	Three Months Ended June 30,
	2019					2018
	Net Realized Gain (Loss) on Investments		Net Change in Unrealized Appreciation (Depreciation) on Investments			Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments

Investments and other financial instruments	$	233	$	22,562		$	(13,856	)	$	(46,500	)
CLO liabilities ⁽¹⁾	—		(21,906		)	—			14,785
Foreign-currency forward contracts ⁽²⁾	214		1,158			(2,507		)	(465		)
Total-return and interest-rate swaps ⁽²⁾	—		—			838			115
Options and futures ⁽²⁾	—		—			(1,771		)	960
Total	$	447	$	1,814		$	(17,296	)	$	(31,105	)



	Six Months Ended June 30,
	2019						2018
	Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments			Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation (Depreciation) on Investments

Investments and other financial instruments	$	(7,712	)	$	152,232		$	(2,534	)	$	(77,088	)
CLO liabilities ⁽¹⁾	—			(93,989		)	—			32,857
Foreign-currency forward contracts ⁽²⁾	2,340			688			(1,068		)	(1,176		)
Total-return and interest-rate swaps ⁽²⁾	—			—			858			29
Options and futures ⁽²⁾	—			—			47			(113		)
Total	$	(5,372	)	$	58,931		$	(2,697	)	$	(45,491	)


(1)	Represents the net change in the fair value of CLO liabilities based on the more observable fair value of CLO assets, as measured under the CLO measurement guidance. Please see note 2 for more information.

(2)

Please see note 7 for additional information.