EQUITY-BASED COMPENSATION

6 Months Ended

Jun. 30, 2019

Share-based Payment Arrangement, Noncash Expense [Abstract]

Class A and OCGH Unit Awards

During the six months ended June 30, 2019, the Company granted 1,464,301 Class A units and 1,320,224 restricted OCGH units to its employees and directors, subject to annual vesting over a weighted average period of approximately 5.7 years. The grant date fair value of OCGH units awarded during the six months ended June 30, 2019 was determined by applying a 17.5% discount to the Class A unit trading price on the New York Stock Exchange as of the grant date. With respect to forfeitures, the Company has made an accounting policy election to account for forfeitures when they occur. Accordingly, no forfeitures have been assumed in the calculation of compensation expense.

As of June 30, 2019, the Company expected to recognize compensation expense on its unvested Class A and OCGH unit awards of $221.9 million over a weighted average period of 4.5 years.

A summary of the status of the Company’s unvested Class A and OCGH unit awards and changes for the period presented are set forth below (actual dollars per unit):



	Class A Units				OCGH Units ⁽¹⁾
	Number of Units		Weighted Average Grant Date Fair Value		Number of Units		Weighted Average Grant Date Fair Value

Balance as of December 31, 2018	2,700,585		$	42.76	1,864,049		$	39.83
Granted	1,464,301		49.52		1,320,224		40.85
Vested	(897,558	)	42.86		(366,338	)	35.30
Forfeited	(26,926	)	44.31		—		—
Balance as of June 30, 2019	3,240,402		$	45.78	2,817,935		$	40.90

(1)

Excludes certain performance-based awards that could result in the issuance of up to 340,000 OCGH units, which would vest over periods of four to ten years from date of issuance. Though no units have been issued to date under these arrangements, as of June 30, 2019 the Company expected to recognize compensation expense on 320,000 unvested OCGH performance awards of $7.2 million over a weighted average period of 3.9 years.

Equity Value Units

OCGH equity value units (“EVUs”) represent special limited partnership units in OCGH that entitle the holder the right to receive special distributions that will be settled in OCGH units, based on value created during a specified period in excess of a fixed “Base Value.” The value created will be measured on a per unit basis, based on the appreciation of the Class A units and certain components of quarterly distributions with respect to OCGH units over the period beginning on January 1, 2015 and ending on each of December 31, 2019, December 31, 2020 and December 31, 2021, with one-third of the EVUs recapitalizing on each such date. EVUs also give the holder the right, subject to service vesting and Oaktree performance relative to the accreting Base Value, to receive certain quarterly distributions from OCGH. EVUs do not entitle the holder to any voting rights.

The value received under the EVUs will be reduced by (i) distributions received by the holder on 225,000 OCGH units granted to the holder on April 26, 2017, (ii) the value of the portion of profit sharing payments received by the holder attributable to the net incentive income received from certain funds, and (iii) the full value of the OCGH units granted to the holder on April 26, 2017. To the extent that the reduction relates to the value of any such OCGH units that are unvested at the time of the reduction, such OCGH units will vest at that time.

Certain EVUs provide the holder with liquidity rights in respect of the special distributions, if any, that will be settled in OCGH units. The Company accounts for EVUs with liquidity rights as liability-classified awards. As of June 30, 2019, there were 1,000,000 equity-classified EVUs and 1,000,000 liability-classified EVUs outstanding. As of June 30, 2019, the Company expected to recognize $0.7 million of compensation expense on its unvested EVUs

over the next 0.5 years. Equity-classified EVUs that require future service are expensed on a straight-line basis over the requisite service period. Liability-classified EVUs are remeasured at the end of each quarter.

The fair value of EVUs was determined using a Monte Carlo simulation model. The fair value is affected by the Class A unit trading price and assumptions regarding certain complex and subjective variables, including the expected Class A unit trading price volatility, distributions and exercise timing, and the risk-free interest rate.

Deferred Equity Units

A deferred equity unit represents a special unit award that, when vested, will be settled with an unvested OCGH unit on a one-for-one basis. The number of deferred equity units that will vest is based on the achievement of certain performance targets through 2029. Once a performance target has been met, the applicable number of OCGH units will be issued and begin to vest over periods of up to 10.0 years. The holder of a deferred equity unit is not entitled to any distributions until settled by the issuance of an OCGH unit. As of June 30, 2019, there were 847,115 deferred equity units outstanding. As of June 30, 2019, the Company expected to recognize compensation expense on 557,308 deferred equity units of $19.9 million over a weighted average period of 7.7 years.

The fair value of the deferred equity units issued in the six months ended June 30, 2019 was determined at the grant date based on the then-prevailing Class A unit trading price and reflected a 17.5% lack-of-marketability discount for the OCGH units that will be issued upon vesting.