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EX-31.2 - EXHIBIT 31.2 - Sculptor Capital Management, Inc.ozm-10xqx3q2015xex312.htm
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EX-31.1 - EXHIBIT 31.1 - Sculptor Capital Management, Inc.ozm-10xqx3q2015xex311.htm


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2015
Commission File Number 001-33805
 
 
OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
(Exact Name of Registrant as Specified in its Charter)
 
 
 
Delaware
 
26-0354783
(State of Incorporation)
 
(I.R.S. Employer Identification Number)
 
9 West 57th Street, New York, New York 10019
(Address of Principal Executive Offices)
Registrant’s telephone number: (212) 790-0000
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
 
þ
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No þ
As of October 30, 2015, there were 177,489,226 Class A Shares and 297,317,400 Class B Shares outstanding.
 
 





OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
TABLE OF CONTENTS
 
 
 
Page
PART I — FINANCIAL INFORMATION
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II — OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 


i



Defined Terms
2007 Offerings
 
Refers collectively to our IPO and the concurrent private offering of approximately 38.1 million Class A Shares to DIC Sahir Limited, a wholly owned indirect subsidiary of Dubai Holding LLC
 
 
 
2011 Offering
 
Our public offering of 33.3 million Class A Shares in November 2011
 
 
 
active executive managing directors
 
Executive managing directors who remain active in our business
 
 
 
Annual Report
 
Our annual report on Form 10-K for the year ended December 31, 2014, dated February 23, 2015 and filed with the SEC
 
 
 
Class A Shares
 
Our Class A Shares, representing Class A limited liability company interests of Och-Ziff Capital Management Group LLC, which are publicly traded and listed on the NYSE
 
 
 
Class B Shares
 
Class B Shares of Och-Ziff Capital Management Group LLC, which are not publicly traded, are currently held solely by our executive managing directors and have no economic rights but entitle the holders thereof to one vote per share together with the holders of our Class A Shares
 
 
 
CLOs
 
Collateralized loan obligations
 
 
 
Exchange Act
 
Securities Exchange Act of 1934, as amended
 
 
 
executive managing directors
 
The current limited partners of the Och-Ziff Operating Group entities other than our intermediate holding companies, including our founder, Daniel S. Och, and, except where the context requires otherwise, include certain limited partners who are no longer active in the business of the Company
 
 
 
GAAP
 
U.S. generally accepted accounting principles
 
 
 
intermediate holding companies
 
Refers collectively to Och-Ziff Corp and Och-Ziff Holding, both of which are wholly owned subsidiaries of Och-Ziff Capital Management Group LLC
 
 
 
Institutional Credit Strategies
 
Our asset management platform that invests in performing credits, including leveraged loans, high-yield bonds, private credit/bespoke financing and investment grade credit via CLOs and other customized solutions
 
 
 
IPO
 
Our initial public offering of 36.0 million Class A Shares that occurred in November 2007
 
 
 
NYSE
 
New York Stock Exchange
 
 
 
Och-Ziff, the Company, the firm, we, us, our
 
Refers, unless the context requires otherwise, to Och-Ziff Capital Management Group LLC, a Delaware limited liability company, and its consolidated subsidiaries, including the Och-Ziff Operating Group
 
 
 
Och-Ziff Corp
 
Och-Ziff Holding Corporation, a Delaware corporation
 
 
 
Och-Ziff funds, funds
 
The multi-strategy, opportunistic credit, real estate and equity funds, Institutional Credit Strategies products and other alternative investment vehicles for which we provide asset management services
 
 
 
Och-Ziff Holding
 
Och-Ziff Holding LLC, a Delaware limited liability company
 
 
 

1



Och-Ziff Operating Group
 
Refers collectively to OZ Management, OZ Advisors I and OZ Advisors II, and their consolidated subsidiaries
 
 
 
OZ Advisors I
 
OZ Advisors LP, a Delaware limited partnership
 
 
 
OZ Advisors II
 
OZ Advisors II LP, a Delaware limited partnership
 
 
 
OZ Management
 
OZ Management LP, a Delaware limited partnership
 
 
 
Registrant
 
Och-Ziff Capital Management Group LLC, a Delaware limited liability company
 
 
 
Reorganization
 
The reorganization of our business that took place prior to the 2007 Offerings
 
 
 
SEC
 
U.S. Securities and Exchange Commission
 
 
 
Securities Act
 
Securities Act of 1933, as amended
 
 
 
Special Investments
 
Investments that we, as investment manager, believe lack a readily ascertainable market value, are illiquid or should be held until the resolution of a special event or circumstance
 
 
 
Ziffs
 
Refers collectively to Ziff Investors Partnership, L.P. II and certain of its affiliates and control persons

2



Available Information
Och-Ziff Capital Management Group LLC files annual, quarterly and current reports, proxy statements and other information required by the Exchange Act with the SEC. We make available free of charge on our website (www.ozcap.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those filings as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Also posted on our website in the “Public Investors – Corporate Governance” section are charters for our Audit Committee; Compensation Committee; and Nominating, Corporate Governance and Conflicts Committee, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics governing our directors, officers and employees. Information on, or accessible through, our website is not a part of, and is not incorporated into, this report or any other SEC filing. Copies of our SEC filings or corporate governance materials are available without charge upon written request to Och-Ziff Capital Management Group LLC, 9 West 57th Street, New York, New York 10019, Attention: Office of the Secretary.
Any materials we file with the SEC are also publicly available through the SEC’s website (www.sec.gov) or may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.


3



Forward-Looking Statements
Some of the statements under “Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which we refer to as the “MD&A,” “Part I — Item 3. Quantitative and Qualitative Disclosures About Market Risk,” “Part II — Item 1A. Risk Factors” and elsewhere in this quarterly report may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that reflect our current views with respect to, among other things, future events and financial performance. We generally identify forward-looking statements by terminology such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “seek,” “approximately,” “predict,” “intend,” “plan,” “estimate,” “anticipate,” “opportunity,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve,” “see,” “think,” “position” or the negative version of those words or other comparable words.
Any forward-looking statements contained herein are based upon historical information and on our current plans, estimates and expectations. The inclusion of this or other forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.
We caution that forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties, including but not limited to the following: global economic, business, market and geopolitical conditions; U.S. and foreign regulatory developments relating to, among other things, financial institutions and markets, government oversight, fiscal and tax policy; conditions impacting the alternative asset management industry; our ability to retain existing investor capital; our ability to successfully compete for fund investors, assets, professional talent and investment opportunities; our ability to retain our active executive managing directors, managing directors and other investment professionals; our successful formulation and execution of our business and growth strategies; our ability to appropriately manage conflicts of interest and tax and other regulatory factors relevant to our business; and assumptions relating to our operations, investment performance, financial results, financial condition, business prospects, growth strategy and liquidity.
If one or more of these or other risks or uncertainties materialize, or if our assumptions or estimates prove to be incorrect, our actual results may vary materially from those indicated in these statements. These factors are not and should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in our filings with the SEC, including but not limited to our Annual Report.
There may be additional risks, uncertainties and factors that we do not currently view as material or that are not known. The forward-looking statements contained in this report are made only as of the date of this report. We do not undertake to update any forward-looking statement because of new information, future developments or otherwise.

4



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
CONSOLIDATED BALANCE SHEETS — UNAUDITED
 
September 30, 2015
 
December 31, 2014
 
 
 
 
 
(dollars in thousands)
Assets
 

 
 
Cash and cash equivalents
$
311,345

 
$
250,603

Income and fees receivable
51,977

 
440,327

Due from related parties
7,734

 
4,963

Deferred income tax assets
730,372

 
835,385

Other assets, net (includes assets measured at fair value of $37,000 and $36,969 as of September 30, 2015 and December 31, 2014, respectively)
200,322

 
212,428

Assets of consolidated Och-Ziff funds:
 

 
 
Investments, at fair value
8,908,111

 
7,456,134

Other assets of Och-Ziff funds
284,242

 
103,046

Total Assets
$
10,494,103

 
$
9,302,886

 
 
 
 
Liabilities and Shareholders' Equity
 

 
 
Liabilities
 

 
 
Due to related parties
$
654,846

 
$
702,905

Debt obligations
449,655

 
447,887

Compensation payable
34,721

 
238,489

Other liabilities
82,065

 
95,747

Liabilities of consolidated Och-Ziff funds:
 

 
 
Notes and loans payable of consolidated CLOs, at fair value
6,704,556

 
5,227,411

Securities sold under agreements to repurchase
230,550

 
302,266

Other liabilities of Och-Ziff funds
52,119

 
50,333

Total Liabilities
8,208,512

 
7,065,038

 
 
 
 
Commitments and Contingencies (Note 14)


 


 
 
 
 
Redeemable Noncontrolling Interests (Note 3)
857,609

 
545,771

 
 
 
 
Shareholders' Equity
 

 
 

Class A Shares, no par value, 1,000,000,000 shares authorized, 177,310,768 and 175,946,555 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively

 

Class B Shares, no par value, 750,000,000 shares authorized, 301,874,006 and 301,884,116 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively

 

Paid-in capital
3,040,247

 
3,004,881

Appropriated retained deficit
(19,466
)
 
(31,336
)
Accumulated deficit
(3,366,471
)
 
(3,264,304
)
Shareholders' deficit attributable to Class A Shareholders
(345,690
)
 
(290,759
)
Shareholders' equity attributable to noncontrolling interests
1,773,672

 
1,982,836

Total Shareholders' Equity
1,427,982

 
1,692,077

Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity
$
10,494,103

 
$
9,302,886

See notes to consolidated financial statements.

5



OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Revenues
 
 
 
 
 
 
 
Management fees
$
162,778

 
$
171,906

 
$
496,207

 
$
494,707

Incentive income
35,615

 
28,011

 
121,262

 
91,022

Other revenues
579

 
284

 
1,548

 
931

Income of consolidated Och-Ziff funds
126,931

 
106,484

 
361,136

 
267,974

Total Revenues
325,903

 
306,685

 
980,153

 
854,634


 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Compensation and benefits
70,602

 
74,115

 
211,895

 
206,664

Reorganization expenses
4,018

 
4,023

 
12,052

 
12,065

Interest expense
5,383

 
1,688

 
16,033

 
5,047

General, administrative and other
65,484

 
23,160

 
127,332

 
102,303

Expenses of consolidated Och-Ziff funds
82,576

 
50,082

 
220,847

 
127,215

Total Expenses
228,063

 
153,068

 
588,159

 
453,294


 
 
 
 
 
 
 
Other Income (Loss)
 
 
 
 
 
 
 
Net gains (losses) on investments in Och-Ziff funds and joint ventures
(146
)
 
76

 
43

 
5,949

Net gains (losses) of consolidated Och-Ziff funds
(20,627
)
 
(4,769
)
 
21,859

 
115,498

Total Other Income (Loss)
(20,773
)
 
(4,693
)
 
21,902

 
121,447


 
 
 
 
 
 
 
Income Before Income Taxes
77,067

 
148,924

 
413,896

 
522,787

Income taxes
12,422

 
36,110

 
119,607

 
91,029

Consolidated and Comprehensive Net Income
$
64,645

 
$
112,814

 
$
294,289

 
$
431,758

 
 
 
 
 
 
 
 
Allocation of Consolidated and Comprehensive Net Income
 
 
 
 
 
 
 
Class A Shareholders
$
17,417

 
$
23,202

 
$
48,048

 
$
57,770

Noncontrolling interests
78,971

 
83,235

 
270,346

 
343,896

Redeemable noncontrolling interests
(31,743
)
 
6,377

 
(24,105
)
 
30,092

 
$
64,645

 
$
112,814

 
$
294,289

 
$
431,758

 
 
 
 
 
 
 
 
Earnings Per Class A Share
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.13

 
$
0.27

 
$
0.33

Diluted
$
0.06

 
$
0.09

 
$
0.26

 
$
0.32


 
 
 
 
 
 
 
Weighted-Average Class A Shares Outstanding
 
 
 
 
 
 
 
Basic
177,805,122

 
172,959,765

 
177,711,669

 
172,541,709

Diluted
484,171,524

 
481,078,788

 
181,517,750

 
479,936,636

 
 
 
 
 
 
 
 
Dividends Paid per Class A Share
$
0.14

 
$
0.17

 
$
0.83

 
$
1.52

See notes to consolidated financial statements.

6



OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED
 
Och-Ziff Capital Management Group LLC Shareholders
 
 
 
 
 
Number of
Class A
Shares
 
Number of
Class B
Shares
 
Paid-in
Capital
 
Appropriated
Retained Deficit
 
Accumulated
Deficit
 
Shareholders' Deficit
Attributable to Class A
Shareholders
 
Shareholders' Equity
Attributable to
Noncontrolling Interests
 
Total
Shareholders'
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
As of December 31, 2014
175,946,555

 
301,884,116

 
$
3,004,881

 
$
(31,336
)
 
$
(3,264,304
)
 
$
(290,759
)
 
$
1,982,836

 
$
1,692,077

Capital contributions

 

 

 

 

 

 
241,815

 
241,815

Capital distributions

 

 

 

 

 

 
(741,565
)
 
(741,565
)
Cash dividends declared on Class A Shares

 

 

 

 
(146,346
)
 
(146,346
)
 

 
(146,346
)
Dividend equivalents on Class A restricted share units

 

 
3,869

 

 
(3,869
)
 

 

 

Equity-based compensation
1,364,213

 
(10,110
)
 
27,056

 

 

 
27,056

 
46,272

 
73,328

Impact of changes in Och-Ziff Operating Group ownership (See Note 3)

 

 
(12
)
 

 

 
(12
)
 
12

 

Initial consolidation of CLOs

 

 

 
(21,773
)
 

 
(21,773
)
 

 
(21,773
)
Allocation of income of consolidated CLOs

 

 

 
33,643

 

 
33,643

 
(33,643
)
 

Impact of amortization of Reorganization charges on capital

 

 
4,453

 

 

 
4,453

 
7,599

 
12,052

Comprehensive net income, excluding amounts allocated to redeemable noncontrolling interests

 

 

 

 
48,048

 
48,048

 
270,346

 
318,394

As of September 30, 2015
177,310,768

 
301,874,006

 
$
3,040,247

 
$
(19,466
)
 
$
(3,366,471
)
 
$
(345,690
)
 
$
1,773,672

 
$
1,427,982

See notes to consolidated financial statements.


7


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

 
Nine Months Ended September 30,
 
2015
 
2014
 
 
 
 
 
(dollars in thousands)
Cash Flows from Operating Activities
 
 
 
Consolidated net income
$
294,289

 
$
431,758

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
 
 
 
Reorganization expenses
12,052

 
12,065

Amortization of equity-based compensation
86,590

 
84,597

Depreciation and amortization
8,135

 
5,238

Deferred income taxes
105,263

 
67,779

Operating cash flows due to changes in:
 
 
 
Income and fees receivable
388,350

 
909,840

Due from related parties
(2,771
)
 
905

Other assets, net
37,211

 
(24,357
)
Due to related parties
(48,059
)
 
(24,646
)
Compensation payable
(211,617
)
 
(278,958
)
Other liabilities
(9,514
)
 
30,272

Consolidated Och-Ziff funds related items:
 
 
 
Net gains of consolidated Och-Ziff funds
(21,859
)
 
(115,498
)
Purchases of investments
(3,273,867
)
 
(3,842,599
)
Proceeds from sale of investments
3,241,032

 
3,400,438

Other assets of consolidated Och-Ziff funds
(119,007
)
 
133,664

Securities sold under agreements to repurchase
(71,716
)
 
20,238

Other liabilities of consolidated Och-Ziff funds
(2,313
)
 
5,058

Net Cash Provided by Operating Activities
412,199

 
815,794

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Purchases of fixed assets
(36,118
)
 
(67,097
)
Investment in Och-Ziff funds
(2,777
)
 
(15,389
)
Return of investment in Och-Ziff funds
296

 
15,902

Other, net

 
4,036

Net Cash Used in Investing Activities
(38,599
)
 
(62,548
)
 
 
 
 

8


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED — (continued)


 
Nine Months Ended September 30,
 
2015
 
2014
 
 
 
 
 
(dollars in thousands)
Cash Flows from Financing Activities
 
 
 
Contributions from noncontrolling and redeemable noncontrolling interests
580,080

 
485,519

Distributions to noncontrolling and redeemable noncontrolling interests
(743,887
)
 
(842,003
)
Dividends on Class A Shares
(146,346
)
 
(258,696
)
Proceeds from debt obligations
3,606

 
48,662

Other, net
(6,311
)
 
(9,506
)
Net Cash Used in Financing Activities
(312,858
)
 
(576,024
)
Net Change in Cash and Cash Equivalents
60,742

 
177,222

Cash and Cash Equivalents, Beginning of Period
250,603

 
189,974

Cash and Cash Equivalents, End of Period
$
311,345

 
$
367,196

 
 
 
 
 
 
 
 
Supplemental Disclosure of Cash Flow Information
 

 
 
Cash paid during the period:
 

 
 
Interest
$
10,019

 
$
5,067

Income taxes
$
17,003

 
$
18,400

Non-cash transactions:
 
 
 
Assets related to the initial consolidation of CLOs
$
1,551,028

 
$
2,013,309

Liabilities related to the initial consolidation of CLOs
$
1,572,801

 
$
2,043,888

See notes to consolidated financial statements.

9


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015



1. OVERVIEW
Och-Ziff Capital Management Group LLC (the “Registrant”), a Delaware limited liability company, together with its consolidated subsidiaries (collectively, the “Company”), is a global alternative asset management firm with offices in New York, London, Hong Kong, Mumbai, Beijing, Dubai, Shanghai and Houston. The Company provides asset management services to its investment funds (the “Och-Ziff funds” or the “funds”), which pursue a broad range of global investment opportunities. The Company currently manages multi-strategy funds, dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products, real estate funds and other alternative investment vehicles. Through Institutional Credit Strategies, the Company's asset management platform that invests in performing credits, the Company manages collateralized loan obligations (“CLOs”) and other customized solutions for clients.
The Company’s primary sources of revenues are management fees, which are based on the amount of the Company’s assets under management, and incentive income, which is based on the investment performance of its funds. Accordingly, for any given period, the Company’s revenues will be driven by the combination of assets under management and the investment performance of the Och-Ziff funds.
The Company currently has two operating segments: the Och-Ziff Funds segment and the Company's real estate business. The Och-Ziff Funds segment is currently the Company’s only reportable operating segment under U.S. generally accepted accounting principles (“GAAP”) and provides asset management services to the Company’s multi-strategy funds, dedicated credit funds and other alternative investment vehicles. The Company’s real estate business, which provides asset management services to its real estate funds, is included within Other Operations as it does not meet the threshold of a reportable operating segment under GAAP.
The Company generates substantially all of its revenues in the United States. The liability of the Company’s Class A Shareholders is limited to the extent of their capital contributions.
The Company conducts substantially all of its operations through OZ Management LP (“OZ Management”), OZ Advisors LP (“OZ Advisors I”) and OZ Advisors II LP (“OZ Advisors II”) and their consolidated subsidiaries (collectively, the “Och-Ziff Operating Group”). References to the Company’s “executive managing directors” refer to the current limited partners of OZ Management, OZ Advisors and OZ Advisors II other than the Company’s intermediate holding companies, including the Company’s founder, Daniel S. Och, and, except where the context requires otherwise, include certain limited partners who are no longer active in the business of the Company. References to the Company’s “active executive managing directors” refer to executive managing directors who remain active in the Company’s business. References to the “Ziffs” refer collectively to Ziff Investors Partnership, L.P. II and certain of its affiliates and control persons. References to the Company’s “intermediate holding companies” refer, collectively, to Och-Ziff Holding Corporation (“Och-Ziff Corp”) and Och-Ziff Holding LLC, both of which are wholly owned subsidiaries of the Registrant.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These unaudited, interim, consolidated financial statements are prepared in accordance with GAAP as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”), and should be read in conjunction with the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2014 (the “Annual Report”). In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s unaudited, interim, consolidated financial statements have been included and are of a normal and recurring nature. The results of operations presented for the interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year, primarily because of the majority of incentive income and discretionary cash bonuses being recorded in the fourth quarter each year. All significant intercompany transactions and balances have been eliminated in consolidation.

10


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


Recently Adopted Accounting Pronouncements
In June 2014, the FASB issued ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. ASU 2014-11 amends ASC 860—Transfers and Servicing to address the accounting for certain secured financing transactions. ASU 2014-11 also requires additional disclosures about certain transferred financial assets accounted for as sales, as well as those accounted for as secured financing transactions. ASU 2014-11 was effective for the Company beginning in the second quarter of 2015. The impact of ASU 2014-11 to the Company’s consolidated financial statements is limited to the additional disclosures for transferred financial assets accounted for as financing transactions, as disclosed in Note 5.
None of the other changes to GAAP that went into effect in the nine months ended September 30, 2015 has had a material effect on the Company’s consolidated financial statements.
Future Adoption of Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605—Revenue Recognition and most industry-specific revenue recognition guidance throughout the Codification. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The requirements of ASU 2014-09 are effective for the Company beginning in the first quarter of 2018. Entities are permitted to apply the guidance in ASU 2014-09 using one of the following methods: (1) full retrospective application to each prior period presented, or (2) modified retrospective application with a cumulative effect adjustment to opening retained earnings in the annual reporting period that includes that date of initial application. The Company is currently evaluating the impact, if any, that this update will have on its consolidated financial statements.
In August 2014, the FASB issued ASU 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. ASU 2014-13 amends ASC 810—Consolidation to address the measurement difference that may occur between the fair value, as determined under GAAP, of the financial assets and financial liabilities of a consolidated collateralized financing entity, such as a CLO. The new guidance provides a measurement alternative which allows entities to measure both the financial assets and financial liabilities of the consolidated collateralized financing entity using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. The requirements of ASU 2014-13 are effective for the Company beginning in the first quarter of 2016 using a full retrospective or modified retrospective approach at adoption. The Company is currently evaluating the impact that this update will have on its consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. ASU 2015-02 significantly changes the consolidation analysis required under GAAP. Key changes include the following:
The indefinite deferral from ASU 2010-10, Amendments to Statement 167 for Certain Investment Funds is eliminated.
The presumption that a general partner should consolidate a limited partnership is eliminated. Limited partners other than interests held by the Company and its related parties must now have either substantive kick-out or participating rights in order for a limited partnership to qualify as a voting interest entity.
Management fees and incentive income earned by the Company will no longer be considered variable interests where such fees are customary and commensurate with the level of effort required for services provided and where the Company and its related parties do not hold other interests in the variable interest entity (“VIE”) that would absorb more than an insignificant amount of the variability of the VIE.
The requirement that fees paid to the Company that are both customary and commensurate with the level of effort required for services provided be included in the determination of whether the Company absorbs variability of a VIE when the Company also has a separate variable interest in that VIE is also eliminated.
When determining the primary beneficiary of a VIE, the Company will only need to consider its share of the economic exposure in the VIE held by related parties, unless the related party is under common control, in which case the variable interest held by the related party will be considered in its entirety.

11


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


Entities are permitted to apply the guidance in ASU 2015-02 using one of the following methods: (1) full retrospective application to each prior period presented, or (2) modified retrospective application with a cumulative effect adjustment to opening retained earnings in the annual reporting period that includes that date of initial application. The requirements of ASU 2015-02 are effective for the Company beginning in the first quarter of 2016, with early adoption permitted in any interim period of 2015. The Company is currently evaluating the impact that this update will have on its consolidated financial statements.
ASU 2015-03, Simplifying the Presentation of Debt Issuance costs. ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The requirements of ASU 2015-03 are effective for the Company beginning in first quarter of 2016, with early adoption permitted. The impact on the Company will be limited to a reclassification of debt issuance costs from other assets to debt obligations in the Company’s consolidated balance sheet. As of September 30, 2015, the amount of debt issuance costs within the scope of ASU 2015-03 and currently presented within other assets, net was $4.9 million.
In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. ASU 2015-07 will be effective for the Company beginning in the first quarter of 2016, with early adoption permitted, and will be applied retrospectively. The impact of ASU 2015-07 will be limited to disclosure of the level in the fair value hierarchy of investments held by the Company that are measured using net asset value per share during the periods presented.
None of the other changes to GAAP that are not yet effective are expected to have a material effect on the Company's consolidated financial statements.
3. NONCONTROLLING INTERESTS
Noncontrolling interests represent ownership interests in the Company’s subsidiaries held by parties other than the Company, and primarily relate to the Och-Ziff Operating Group A Units held by the Company’s executive managing directors and the Ziffs (until they exchanged their remaining interests during the 2014 second quarter) as well as fund investors’ interests in the consolidated Och-Ziff funds. Net income allocated to the Och-Ziff Operating Group A Units is driven by the earnings of the Och-Ziff Operating Group. Net income allocated to fund investors’ interests in consolidated Och-Ziff funds is driven by the earnings of those funds, including the net difference in the fair value of CLO assets and liabilities that are subsequently reclassified to appropriated retained earnings on the consolidated balance sheets.
The following table presents the components of the net income allocated to noncontrolling interests:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Och-Ziff Operating Group A Units
$
43,505

 
$
57,946

 
$
175,239

 
$
180,508

Consolidated Och-Ziff funds
35,266

 
25,124

 
94,723

 
163,080

Other
200

 
165

 
384

 
308

 
$
78,971

 
$
83,235

 
$
270,346

 
$
343,896


12


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


The following table presents the components of the shareholders’ equity attributable to noncontrolling interests:
 
September 30, 2015
 
December 31, 2014
 
 
 
 
 
(dollars in thousands)
Och-Ziff Operating Group A Units
$
503,642

 
$
579,417

Consolidated Och-Ziff funds
1,267,906

 
1,401,495

Other
2,124

 
1,924

 
$
1,773,672

 
$
1,982,836

The following table presents the activity in redeemable noncontrolling interests as presented in the consolidated balance sheets:
 
Nine Months Ended September 30, 2015
 
 
 
(dollars in thousands)
Beginning balance
$
545,771

Capital contributions
338,265

Capital distributions
(2,322
)
Comprehensive loss
(24,105
)
Ending Balance
$
857,609

Och-Ziff Operating Group Ownership
The Company’s interest in the Och-Ziff Operating Group increased to 37.0% as of September 30, 2015, from 36.8% as of December 31, 2014. Changes in the Company’s interest in the Och-Ziff Operating Group are generally driven by the following: (i) the exchange of Och-Ziff Operating Group A Units for an equal number of Class A Shares, at which time the related Class B Shares are also canceled; (ii) the issuance of Class A Shares under the Company’s Amended and Restated 2007 Equity Incentive Plan and 2013 Incentive Plan, primarily related to the settlement of Class A restricted share units (“RSUs”); (iii) the forfeiture of Och-Ziff Operating Group A Units and related Class B Shares by a departing executive managing director; and (iv) the repurchase of Class A Shares and Och-Ziff Operating Group A Units. The Company’s interest in the Och-Ziff Operating Group is expected to continue to increase over time as additional Class A Shares are issued upon the exchange of Och-Ziff Operating Group A Units and settlement of RSUs. These increases will be offset upon any conversion by an executive managing director of Och-Ziff Operating Group D Units, which are not considered equity for GAAP purposes, into Och-Ziff Operating Group A Units, at which time an equal number of Class B Shares is also issued to the executive managing director.
4. FAIR VALUE DISCLOSURES
Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date (i.e., an exit price). Due to the inherent uncertainty of valuations of investments that are determined to be illiquid or do not have readily ascertainable fair values, the estimates of fair value may differ from the values ultimately realized, and those differences can be material.
GAAP prioritizes the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of assets and liabilities and the specific characteristics of the assets and liabilities. Assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively-quoted prices generally will have a higher degree of market price observability and lesser degree of judgment used in measuring fair value.

13


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


Assets and liabilities measured at fair value are classified into one of the following categories:
Level I – Fair value is determined using quoted prices that are available in active markets for identical assets or liabilities. The types of assets and liabilities that would generally be included in this category are certain listed equities, U.S. Treasury obligations and certain listed derivatives.
Level II – Fair value is determined using quotations received from dealers making a market for these assets or liabilities (“broker quotes”), valuations obtained from independent third-party pricing services, the use of models or other valuation methodologies based on pricing inputs that are either directly or indirectly market observable as of the measurement date. The types of assets and liabilities that would generally be included in this category are certain corporate bonds, certain credit default swap contracts, certain bank debt securities, certain commercial real estate debt, less liquid equity securities, forward contracts and certain over the-counter (“OTC”) derivatives.
Level III – Fair value is determined using pricing inputs that are unobservable in the market and includes situations where there is little, if any, market activity for the asset or liability. The fair value of assets and liabilities in this category may require significant judgment or estimation in determining fair value of the assets or liabilities. The fair value of these assets and liabilities may be estimated using a combination of observed transaction prices, independent pricing services, relevant broker quotes, models or other valuation methodologies based on pricing inputs that are neither directly or indirectly market observable. The types of assets and liabilities that would generally be included in this category include real estate investments, equity and debt securities issued by private entities, limited partnerships, certain corporate bonds, certain credit default swap contracts, certain bank debt securities, certain commercial real estate debt, certain OTC derivatives, residential and commercial mortgage-backed securities, asset-backed securities, collateralized debt obligations, as well as the notes and loans payable of consolidated CLOs.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Fair Value Measurements Categorized within the Fair Value Hierarchy
The following table summarizes the Company’s assets and liabilities (excluding the assets and liabilities of the consolidated funds) measured at fair value on a recurring basis within the fair value hierarchy as of September 30, 2015 and December 31, 2014:
 
Fair Value
 
 
 
September 30, 2015
 
December 31, 2014
 
Fair Value Hierarchy
 
 
 
 
 
 
 
(dollars in thousands)
 
 
United States government obligations
$
37,000

 
$
36,969

 
Level 1
Financial Assets, at Fair Value, Included Within Other Assets, Net
$
37,000

 
$
36,969

 
 

14


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


Consolidated Funds
The assets and liabilities presented in the tables below belong to the investors in the consolidated funds. The Company has a minimal, if any, investment in these funds.
The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy as of September 30, 2015:
 
As of September 30, 2015
 
Level I

Level II

Level III

Counterparty Netting
of Derivative Contracts

Total










 
(dollars in thousands)
Bank debt
$


$
4,514,934


$
2,017,546


$


$
6,532,480

Real estate investments




697,473




697,473

Investments in affiliated credit funds

 

 
887,624

 

 
887,624

Residential mortgage-backed securities

 

 
384,841

 

 
384,841

Collateralized debt obligations

 

 
111,061

 

 
111,061

Energy and natural resources limited partnerships

 

 
147,300

 

 
147,300

Commercial real estate debt

 

 
17,983

 

 
17,983

Corporate bonds

 
72,346

 
1

 

 
72,347

United States government obligations
15,117

 

 

 

 
15,117

Asset-backed securities

 

 
25,642

 

 
25,642

Commercial mortgage-backed securities

 

 
13,601

 

 
13,601

Other investments

 
674

 
2,017

 
(49
)
 
2,642

Financial Assets, at Fair Value, Included Within Investments, at Fair Value
$
15,117

 
$
4,587,954

 
$
4,305,089

 
$
(49
)
 
$
8,908,111

 
 
 
 
 
 
 
 
 
 
Senior secured notes and loans payable of consolidated CLOs
$

 
$

 
$
6,228,306

 
$

 
$
6,228,306

Subordinated notes payable of consolidated CLOs

 

 
476,250

 

 
476,250

Notes and loans payable of consolidated CLOs, at fair value

 

 
6,704,556

 

 
6,704,556

Other liabilities, included within other liabilities of Och-Ziff funds
9,559

 

 
49

 
(49
)
 
9,559

Financial Liabilities, at Fair Value
$
9,559

 
$

 
$
6,704,605

 
$
(49
)
 
$
6,714,115


15


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2014:
 
As of December 31, 2014
 
Level I
 
Level II
 
Level III
 
Counterparty Netting
of Derivative Contracts
 
Total
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Bank debt
$

 
$
3,022,441

 
$
2,224,032

 
$

 
$
5,246,473

Real estate investments

 

 
645,916

 

 
645,916

Investments in affiliated credit funds

 

 
628,913

 

 
628,913

Residential mortgage-backed securities

 

 
462,927

 

 
462,927

Collateralized debt obligations

 

 
173,746

 

 
173,746

Energy and natural resources limited partnerships

 

 
154,782

 

 
154,782

Commercial real estate debt

 

 
29,815

 

 
29,815

Corporate bonds

 
70,398

 
656

 

 
71,054

United States government obligations
15,000

 

 

 

 
15,000

Asset-backed securities

 

 
21,368

 

 
21,368

Commercial mortgage-backed securities

 

 
3,287

 

 
3,287

Other investments
2

 
705

 
2,151

 
(5
)
 
2,853

Financial Assets, at Fair Value, Included Within Investments, at Fair Value
$
15,002

 
$
3,093,544

 
$
4,347,593

 
$
(5
)
 
$
7,456,134

 
 
 
 
 
 
 
 
 
 
Senior secured notes and loans payable of consolidated CLOs
$

 
$

 
$
4,784,134

 
$

 
$
4,784,134

Subordinated notes payable of consolidated CLOs

 

 
443,277

 

 
443,277

Notes and loans payable of consolidated CLOs, at fair value

 

 
5,227,411

 

 
5,227,411

Other liabilities, included within other liabilities of Och-Ziff funds
5,716

 

 
7

 
(5
)
 
5,718

Financial Liabilities, at Fair Value
$
5,716

 
$

 
$
5,227,418

 
$
(5
)
 
$
5,233,129


16


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


Reconciliation of Fair Value Measurements Categorized within Level III
The Company assumes that any transfers between Level I, Level II or Level III occur at the beginning of the reporting period presented. Amounts related to the initial consolidation of the Company’s CLOs are included within investment purchases in the tables below.
The following table summarizes the changes in the Company’s Level III assets and liabilities (excluding notes and loans payable of consolidated CLOs) for the three months ended September 30, 2015:
 
June 30, 2015
 
Transfers
In
 
Transfers
Out
 
Investment
Purchases
 
Investment
Sales
 
Derivative Settlements
 
Net Gains
(Losses)
of
Consolidated
Och-Ziff
Funds
 
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Bank debt
$
1,802,755

 
$
585,086

 
$
(302,180
)
 
$
249,177

 
$
(273,840
)
 
$

 
$
(43,452
)
 
$
2,017,546

Real estate investments
737,478

 

 

 
46,425

 
(109,908
)
 

 
23,478

 
697,473

Investments in affiliated credit funds
932,257

 

 

 
15,659

 
(32,700
)
 

 
(27,592
)
 
887,624

Residential mortgage-backed securities
414,331

 

 

 
6,433

 
(25,643
)
 

 
(10,280
)
 
384,841

Collateralized debt obligations
119,162

 

 

 
54

 
(10,187
)
 

 
2,032

 
111,061

Energy and natural resources limited partnerships
168,374

 

 

 
560

 

 

 
(21,634
)
 
147,300

Commercial real estate debt
61,267

 

 

 

 
(45,686
)
 

 
2,402

 
17,983

Corporate bonds
14

 

 

 

 

 

 
(13
)
 
1

Asset-backed securities
23,259

 

 

 
2,320

 
(878
)
 

 
941

 
25,642

Commercial mortgage-backed securities
679

 

 

 
13,599

 
(761
)
 

 
84

 
13,601

Other investments (including derivatives, net)
2,005

 

 

 

 

 
(298
)
 
261

 
1,968

 
$
4,261,581

 
$
585,086

 
$
(302,180
)
 
$
334,227

 
$
(499,603
)
 
$
(298
)
 
$
(73,773
)
 
$
4,305,040


17


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


The following table summarizes the changes in the Company’s Level III assets and liabilities (excluding notes and loans payable of consolidated CLOs) for the three months ended September 30, 2014:
 
June 30, 2014
 
Transfers In
 
Transfers Out
 
Investment Purchases
 
Investment Sales
 
Derivative Settlements
 
Net Gains (Losses) of Consolidated Och-Ziff Funds
 
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Bank debt
$
1,641,800

 
$
450,879

 
$
(292,641
)
 
$
639,221

 
$
(409,350
)
 
$

 
$
(16,840
)
 
$
2,013,069

Real estate investments
609,323

 

 

 
16,282

 
(38,677
)
 

 
21,078

 
608,006

Investments in affiliated credit funds
537,207

 

 

 
11,491

 
(12,104
)
 

 
11,984

 
548,578

Residential mortgage-backed securities
421,408

 

 

 
94,221

 
(17,732
)
 

 
2,015

 
499,912

Collateralized debt obligations
190,816

 

 

 
8,057

 
(16,184
)
 

 
4,767

 
187,456

Energy and natural resources limited partnerships
171,515

 

 

 
8,410

 
(2,876
)
 

 
(2,992
)
 
174,057

Commercial real estate debt
162,931

 

 

 
93

 
(36,893
)
 

 
936

 
127,067

Corporate bonds
826

 

 

 

 

 

 
(195
)
 
631

Asset-backed securities
23,392

 

 

 

 
(1,360
)
 

 
1,235

 
23,267

Commercial mortgage-backed securities
9,883

 

 

 

 

 

 
(83
)
 
9,800

Other investments (including derivatives, net)
3,872

 

 

 

 
(205
)
 
(457
)
 
(61
)
 
3,149

 
$
3,772,973

 
$
450,879

 
$
(292,641
)
 
$
777,775

 
$
(535,381
)
 
$
(457
)
 
$
21,844

 
$
4,194,992

The following table summarizes the changes in the Company’s Level III assets and liabilities (excluding notes and loans payable of consolidated CLOs) for the nine months ended September 30, 2015:
 
December 31, 2014
 
Transfers
In
 
Transfers
Out
 
Investment
Purchases
 
Investment
Sales
 
Derivative Settlements
 
Net Gains
(Losses)
of
Consolidated
Och-Ziff
Funds
 
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Bank debt
$
2,224,032

 
$
395,995

 
$
(642,790
)
 
$
1,000,120

 
$
(937,128
)
 
$

 
$
(22,683
)
 
$
2,017,546

Real estate investments
645,916

 

 

 
184,535

 
(207,955
)
 

 
74,977

 
697,473

Investments in affiliated credit funds
628,913

 

 

 
389,736

 
(118,312
)
 

 
(12,713
)
 
887,624

Residential mortgage-backed securities
462,927

 

 

 
33,048

 
(98,020
)
 

 
(13,114
)
 
384,841

Collateralized debt obligations
173,746

 

 

 
7,478

 
(84,103
)
 

 
13,940

 
111,061

Energy and natural resources limited partnerships
154,782

 

 

 
18,430

 
(3,467
)
 

 
(22,445
)
 
147,300

Commercial real estate debt
29,815

 

 

 
33,891

 
(48,849
)
 

 
3,126

 
17,983

Corporate bonds
656

 

 

 
147

 
(521
)
 

 
(281
)
 
1

Asset-backed securities
21,368

 

 

 
6,141

 
(2,844
)
 

 
977

 
25,642

Commercial mortgage-backed securities
3,287

 

 

 
13,598

 
(3,665
)
 

 
381

 
13,601

Other investments (including derivatives, net)
2,144

 

 

 

 
(233
)
 
(668
)
 
725

 
1,968

 
$
4,347,586

 
$
395,995

 
$
(642,790
)
 
$
1,687,124

 
$
(1,505,097
)
 
$
(668
)
 
$
22,890

 
$
4,305,040


18


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


The following table summarizes the changes in the Company’s Level III assets and liabilities (excluding notes and loans payable of consolidated CLOs) for the nine months ended September 30, 2014

December 31, 2013
 
Transfers
In
 
Transfers
Out
 
Investment
Purchases
 
Investment
Sales
 
Derivative Settlements
 
Net Gains (Losses)
of
Consolidated
Och-Ziff
Funds
 
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Bank debt
$
1,180,831

 
$
128,509

 
$
(198,654
)
 
$
1,943,328

 
$
(1,029,300
)
 
$

 
$
(11,645
)
 
$
2,013,069

Real estate investments
633,311

 

 

 
34,774

 
(110,404
)
 

 
50,325

 
608,006

Investments in affiliated credit funds
188,454

 

 

 
359,088

 
(46,452
)
 

 
47,488

 
548,578

Residential mortgage-backed securities
400,510

 

 

 
227,513

 
(164,484
)
 

 
36,373

 
499,912

Collateralized debt obligations
205,026

 

 

 
83,508

 
(124,634
)
 

 
23,556

 
187,456

Energy and natural resources limited partnerships
158,759

 

 

 
29,169

 
(18,878
)
 

 
5,007

 
174,057

Commercial real estate debt
93,445

 

 

 
105,481

 
(77,698
)
 

 
5,839

 
127,067

Corporate bonds
817

 

 

 
18

 

 

 
(204
)
 
631

Asset-backed securities
34,627

 

 

 
596

 
(11,136
)
 

 
(820
)
 
23,267

Commercial mortgage-backed securities
20,530

 

 

 

 
(13,320
)
 

 
2,590

 
9,800

Other investments (including derivatives, net)
2,492

 
69

 

 
1,993

 
(3,539
)
 
1,964

 
170

 
3,149

 
$
2,918,802

 
$
128,578

 
$
(198,654
)
 
$
2,785,468

 
$
(1,599,845
)
 
$
1,964

 
$
158,679

 
$
4,194,992

Transfers out of Level III presented in the tables above resulted from the fair values of certain securities becoming market observable, with fair value determined using independent pricing services. Transfers into Level III presented in the table above resulted from the valuation of certain investments with decreased market observability, with fair values determined using broker quotes or independent pricing services. There were no transfers between Levels I and II during the period presented above.

19


OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
SEPTEMBER 30, 2015


The table below summarizes the net change in unrealized gains and losses on the Company’s Level III assets and liabilities (excluding notes and loans payable of consolidated CLOs) held as of the reporting date. These gains and losses are included within net gains (losses) of consolidated Och-Ziff funds in the Company’s consolidated statements of comprehensive income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Bank debt
$
(42,491
)
 
$
(16,773
)
 
$
(27,838
)
 
$
(13,882
)
Real estate investments
(4,892
)
 
6,424

 
25,920

 
29,868

Investments in affiliated credit funds
(36,263
)
 
(15,360
)
 
(69,965
)
 
(10,724
)
Residential mortgage-backed securities
(14,072
)
 
831

 
(20,252
)
 
22,686

Collateralized debt obligations
(2,239
)
 
904

 
(1,194
)
 
6,751

Energy and natural resources limited partnerships
(21,634
)