10-Q: Brookfield Oaktree Holdings Reports Q3 2024 Results, Impacted by Oaktree Capital I Deconsolidation
Quarterly Report
Brookfield Oaktree Holdings' Q3 2024 results reflect the impact of the Oaktree Capital I deconsolidation, with increased interest and dividend income partially offsetting the loss of incentive income.
Summary
- Brookfield Oaktree Holdings, LLC (BOH) reported its financial results for the quarter ended September 30, 2024.
- The results were impacted by the restructuring that led to the deconsolidation of Oaktree Capital I as of July 1, 2024.
- Interest and dividend income increased by $28.1 million to $115.0 million compared to Q3 2023.
- Investment income decreased slightly by $0.2 million to $25.3 million.
- The company no longer earns incentive income due to the deconsolidation of Oaktree Capital I.
- Net income attributable to BOH Class A unitholders increased by $11.7 million to $36.8 million.
- Basic and diluted net income per Class A unit was $0.33.
- The company consolidated 2 VIEs through which interests are held in Oaktree Opportunities Fund XI, LP and Oaktree Opportunities Fund XII, L.P.
- As of September 30, 2024, the assets and liabilities of the 2 consolidated VIEs amounted to $5.5 billion and $1.6 billion, respectively.
- The company has undrawn capital commitments of $112.5 million in Opps XI and $712.5 million in Opps XII.
Sentiment
Score: 6
Explanation: The sentiment is neutral. While interest and dividend income increased, the deconsolidation of Oaktree Capital I significantly altered the company's financial structure and revenue streams. The future performance is dependent on the performance of the remaining investments and the equity investment in Oaktree Capital I.
Positives
- Interest and dividend income increased by $28.1 million to $115.0 million in Q3 2024 compared to Q3 2023.
- Net income attributable to BOH Class A unitholders increased by $11.7 million to $36.8 million in Q3 2024 compared to Q3 2023.
- Net realized gain on consolidated funds investments increased $18.4 million, from a gain of $14.1 million for the third quarter of 2023 to a gain of $32.5 million for the third quarter of 2024.
Negatives
- Investment income decreased slightly by $0.2 million to $25.3 million.
- The company no longer earns incentive income due to the deconsolidation of Oaktree Capital I.
Risks
- The ongoing Russia-Ukraine conflict and conflict in the Middle East create continued uncertainty and volatility in the global financial markets and economy and, as a result, may adversely impact Brookfields and Oaktrees businesses and their funds and their respective portfolio companies business.
- There has been significant recent progress and developments in the area of generative artificial intelligence, such as ChatGPT, but the impact to our business of such evolving technology cannot be fully determined at this time.
Future Outlook
The company's future results are largely driven by the performance of certain funds and other investments held directly or indirectly by Oaktree Capital I. The distributions to preferred unitholders of the Series A and Series B preferred units listed on the NYSE are generally serviced by the distributions from Oaktree Capital I.
Industry Context
Brookfield Oaktree Holdings operates within the alternative asset management industry, where performance is closely tied to market conditions and the success of investment strategies. The deconsolidation of Oaktree Capital I reflects a strategic shift in the company's structure, impacting its revenue streams and financial reporting.
Comparison to Industry Standards
- It is difficult to compare the results to industry standards due to the deconsolidation of Oaktree Capital I.
- Comparable companies in the alternative asset management space include Blackstone, Apollo Global Management, and KKR.
- These firms typically report metrics such as assets under management (AUM), fee-related earnings (FRE), and distributable earnings (DE).
- Without specific AUM and FRE figures for the remaining consolidated entities, a direct comparison is challenging.
Related Party Transactions
- The Company is party to the Services Agreement with OCM.
- Oaktree Capital I, along with certain other Oaktree Operating Group members as co-borrowers, are parties to a credit agreement with a subsidiary of Brookfield that provides for a subordinated credit facility.
- The Company has subscribed for a limited partner interest in, and made a capital commitment of, $750.0 million to Oaktree Opportunities Fund XI, L.P.
- The Company has subscribed for a limited partner interest in, and made a capital commitment of, $750 million to Oaktree Opportunities Fund XII, L.P.
- On June 27, 2023, the Company entered into a contribution agreement with Brookfield Corporate Treasury Ltd.
Stakeholder Impact
- The deconsolidation of Oaktree Capital I impacts the revenue streams and financial reporting of the company, affecting shareholders.
- The company plans to distribute amounts it receives in respect of such distributions, less any tax and tax receivable obligations, to holders of its Class A units.
- The preferred unitholders should not rely on distributions received by the Company in respect of the Companys Opps XI Investment for payment of dividends or redemption of the preferred units.
Key Dates
| Date | Description |
|---|---|
| April 13, 2007 | Brookfield Oaktree Holdings, LLC was formed as Oaktree Capital Group, LLC. |
| May 17, 2018 | Company issued 7,200,000 of its 6.625% Series A preferred units. |
| August 9, 2018 | Company issued 9,400,000 of its 6.550% Series B preferred units. |
| September 30, 2019 | Certain mergers with affiliates of Brookfield were completed. |
| October 1, 2019 | Restructuring completed in connection with the Mergers. |
| November 4, 2021 | OCM entered into a note and guaranty agreement with certain accredited investors pursuant to which OCM agreed to issue and sell to such investors $200 million aggregate principal amount of its 3.06% Senior Notes due January 12, 2037. |
| March 30, 2022 | Oaktree Capital I entered into a note and guaranty agreement with certain accredited investors. |
| June 8, 2022 | Offering closed, and Oaktree Capital I received proceeds of $200 million. |
| November 30, 2022 | Restructuring completed in connection with an internal Oaktree reorganization. |
| May 22, 2023 | The Company subscribed for a limited partner interest in, and made a capital commitment of, $750 million to Oaktree Opportunities Fund XII, L.P. |
| June 27, 2023 | The Company entered into a contribution agreement with Brookfield Corporate Treasury Ltd. and acquired the equity ownership in certain entities which beneficially own shares in Brookfield Real Estate Income Trust. |
| June 30, 2023 | The Acquisition was completed. |
| July 1, 2024 | Restructuring completed in connection with an internal Oaktree reorganization which resulted in the change of the general partner of Oaktree Capital I, L.P. |
| September 30, 2024 | End of the reporting period for the quarterly report. |
| November 8, 2024 | A distribution of $0.79 per Class A unit was paid. |
| November 11, 2024 | As of this date, there were 116,373,234 Class A units and 43,822,210 Class B units outstanding. |
| November 12, 2024 | Date of the report. |
| December 16, 2024 | A distribution of $0.414063 per Series A preferred unit and $0.409375 per Series B preferred unit will be paid. |
Keywords
Brookfield Oaktree Holdings, Oaktree Capital, Financial Results, Q3 2024, Deconsolidation, Investment Income, Interest Income, Preferred Units, Class A Units, Opps XI, Opps XII
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