Fifth Street Asset Management Inc. - FORM 10-Q

Fifth Street Asset Management Inc. - FORM 10-Q - November 24, 2015

Attached files

Attached files

Fifth Street Asset Management Inc. Reports

file	filename
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) - Fifth Street Asset Management Inc.	fsam-ex312_201593010xq.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) - Fifth Street Asset Management Inc.	fsam-ex311_201593010xq.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - Fifth Street Asset Management Inc.	fsam-ex321_201593010xq.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - Fifth Street Asset Management Inc.	fsam-ex322_201593010xq.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)



	þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015



	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 001-36701

Fifth Street Asset Management Inc.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)




DELAWARE		46-5610118
(State or jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

777 West Putnam Avenue, 3rd Floor Greenwich, CT		06830
(Address of principal executive office)		(Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:

(203) 681-3600

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 periods as 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 (§232.405 of this chapter) 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. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) YES ¨ NO þ

The number of shares of the registrant's Class A common stock, par value $0.01 per share, outstanding as of November 20, 2015 was 5,782,392. The number of shares of the registrant's Class B common stock, par value $0.01 per share, outstanding as of November 20, 2015 was 42,856,854.

TABLE OF CONTENTS




	PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements:	1
	Consolidated Statements of Financial Condition as of September 30, 2015 (unaudited) and December 31, 2014	1
	Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014 (unaudited)	3
	Consolidated Statement of Changes in Equity for the nine months ended September 30, 2015 (unaudited)	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	64
Item 4.	Controls and Procedures	65
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	68
Signatures		69

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934 as amended, (the "Exchange Act"), that reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of those words or other comparable words. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. We believe these factors include, but are not limited to, those described under "Risk Factors" in this Quarterly Report on Form 10-Q and in "Item 1A Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the "SEC"), which are accessible on the SEC's website at www.sec.gov. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these forward-looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Therefore, you should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. We do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Unless the context otherwise requires, references to "we," "us," "our" and "the Company" are intended to mean the business and operations of Fifth Street Asset Management Inc. and its consolidated subsidiaries since the consummation of our initial public offering on November 4, 2014. When used in the historical context (i.e., prior to November 4, 2014), these terms are intended to mean the business and operations of Fifth Street Management Group.

When used in this Quarterly Report on Form 10-Q, unless the context otherwise requires:

•

"Adjusted Net Income" represents income before income tax benefit (provision) as adjusted for (i) certain compensation-related charges, including the amortization of equity-based awards related to the Reorganization and initial public offering, (ii) non-recurring underwriting costs relating to public offerings of our funds, (iii) non-recurring professional fees and other expenses incurred in connection with our initial public offering, (iv) unrealized gains (losses) on beneficial interests in CLO and (v) other non-recurring items;

•

"AUM" refers to assets under management of the Fifth Street Funds and material control investments of these funds, and represents the sum of the net asset value of such funds and investments, the drawn debt and unfunded debt and equity commitments at the fund or investment-level (including amounts subject to restrictions) and uncalled committed debt and equity capital (including commitments to funds that have yet to commence their investment periods);


•	"base management fees" refer to fees we earn for advisory services provided to our funds, which are generally based on a fixed percentage of fair value of assets, total commitments, invested capital, net asset value, total assets or par value of the investment portfolios managed by us;


•	"catch-up" refers to a provision for a manager or adviser of a fund to receive the majority or all of the profits of such fund until the agreed upon profit allocation is reached;


•	"CLO" refers to a collateralized loan obligation;


•	“CLO I” refers to Fifth Street Senior Loan Fund I, LLC, a CLO in our senior loan fund strategy managed by CLO Management;


•	"CLO II" refers to Fifth Street SLF II, Ltd. (formerly Fifth Street Senior Loan Fund II, LLC, prior to securitization), a CLO in our senior loan fund strategy managed by CLO Management;


•	"CLO Management" refers to Fifth Street CLO Management LLC, the collateral manager for CLO I and CLO II;


•	"Consolidated Fund" refers to CLO II;


•	"fee-earning AUM" refers to the AUM on which we directly or indirectly earn management fees, and represents the sum of the net asset value of the Fifth Street Funds and their material control investments, and the drawn debt and unfunded debt and equity commitments at the fund or investment-level (including amounts subject to restrictions);


•	"Fifth Street BDCs" and "our BDCs" refer to FSC and FSFR together;


•	"Fifth Street Funds" and "our funds" refer to the Fifth Street BDCs and the other funds advised or managed by Fifth Street Management or CLO Management;


•	"Fifth Street Management" refers to Fifth Street Management LLC and, unless the context otherwise requires, its subsidiaries;


•	"Fifth Street Management Group" and the "Predecessor" refers to Fifth Street Management LLC, FSC, Inc., FSC CT, Inc., FSC Midwest, Inc., Fifth Street Capital West, Inc. (and their wholly-owned subsidiaries) and certain combined funds;


•	"FSC" refers to Fifth Street Finance Corp., a publicly-traded business development company managed by Fifth Street Management;


•	"FSFR" refers to Fifth Street Senior Floating Rate Corp., a publicly-traded business development company managed by Fifth Street Management;


•	"FSOF" refers to "Fifth Street Opportunities Fund, L.P.", a hedge fund managed by Fifth Street Management;


•	"Fund II" refers to Fifth Street Mezzanine Partners II, L.P., a fund advised by an affiliate of Fifth Street Management;


•	"Holdings Limited Partners" refers to active, limited partners in Fifth Street Holdings (other than us), which include, among other persons, the Principals;


•	"hurdle rate" or "hurdle" refers to a specified minimum rate of return that a fund must exceed in order for the investment adviser or manager of such a fund to receive performance fees;


•	"management fees" refer to base management fees and Part I Fees;


•	"MMKT" refers to MMKT Exchange LLC, a financial technology company in which FSM owns 80% of the common membership interests;

•

"Part I Fees" refer to fees paid to us by our BDCs that are based on a fixed percentage of pre-incentive fee net investment income, which are calculated and paid quarterly, and subject to certain specified performance hurdles. Part I Fees are classified as management fees as they are predictable and are recurring in nature, are not subject to repayment (or clawback) and are generally cash-settled each quarter;


•	"Part II Fees" refer to fees paid to us by our BDCs that are based on net capital gains, which are paid annually;


•	"performance fees" refer to fees we earn based on the performance of a fund, which are generally based on certain specific hurdle rates as defined in the fund's investment management or partnership agreements, may be either an incentive fee or carried interest, are paid annually and also include Part II Fees;

•

"permanent capital" refers to capital of funds that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital, except as required by applicable law, which funds currently consist of FSC and FSFR; such funds may be required to distribute all or a portion of capital gains and investment income or elect to distribute capital;


•	"Principals" refers to Leonard M. Tannenbaum and Bernard D. Berman and, where applicable, any entities controlled directly or indirectly by them;


•	"SLF I" refers to Fifth Street Senior Loan Fund I, LLC, a fund in our senior loan fund strategy, previously managed by Fifth Street Management prior to CLO I securitization;


•	"SLF II" refers to Fifth Street Senior Loan Fund II, LLC, a fund in our senior loan fund strategy, previously managed by Fifth Street Management prior to CLO II securitization; and


•	"TRA recipients" refers to the Principals and Ivelin M. Dimitrov.

Many of the terms used in this Quarterly Report on Form 10-Q, including AUM, fee-earning AUM and Adjusted Net Income, may not be comparable to similarly titled measures used by other companies. In addition, our definitions of AUM and fee-earning AUM are not based on any definition of AUM or fee-earning AUM that is set forth in the agreements governing the investment funds that we manage and may differ from definitions of AUM set forth in other agreements to which we are a party from time to time, including the agreements governing our revolving credit facility. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures and Operating Metrics — Assets Under Management" and "— Fee-earning AUM" for more information on AUM and fee-earning AUM. Further, Adjusted Net Income is not a performance measure calculated in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). We use Adjusted Net Income as a measure of operating performance, not as a measure of liquidity. We believe that Adjusted Net Income provides investors with a meaningful indication of our core operating performance and Adjusted Net Income is evaluated regularly by our management as a decision tool for deployment of resources. We believe that reporting Adjusted Net Income is helpful in understanding our business and that investors should review the same supplemental non-GAAP financial measures that our management uses to analyze our performance. Adjusted Net Income has limitations as an analytical tool and should not be considered in isolation or as a substitute for analyzing our results prepared in accordance with GAAP. The use of Adjusted Net Income without consideration of related GAAP measures is not adequate due to the adjustments described above. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures and Operating Metrics — Adjusted Net Income."

Amounts and percentages throughout this Quarterly Report on Form 10-Q may reflect rounding adjustments and consequently totals may not appear to sum.

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Fifth Street Asset Management Inc.

Consolidated Statements of Financial Condition



	As of
	September 30, 2015			December 31, 2014
Assets	(unaudited)			(see Note 2)
Cash and cash equivalents	$	6,037,923		$	3,238,008
Management fees receivable (includes Part I Fees of $5,838,844 and $7,809,194 at September 30, 2015 and December 31, 2014, respectively)	19,891,214			23,363,901
Performance fees receivable	79,451			106,635
Prepaid expenses (includes $436,468 and $185,580 related to income taxes at September 30, 2015 and December 31, 2014, respectively)	1,052,684			1,335,593
Investments in equity method investees	6,415,175			4,115,429
Investments in available-for-sale securities	1,350,775			—
Beneficial interest in CLOs at fair value: (cost: $4,496,624)	3,906,078			—
Due from affiliates	2,129,104			3,799,542
Fixed assets, net	10,106,099			10,274,263
Deferred tax assets	53,048,823			57,972,039
Deferred financing costs	2,055,266			2,432,764
Other assets	4,066,579			4,197,358
Assets of Consolidated Fund:
Cash and cash equivalents	74,519,096			—
Investments at fair value (cost: $323,434,153)	323,434,153			—
Interest and dividends receivable	3,277,652			—
Unsettled trades receivable	1,094,500			—
Deferred financing costs	2,744,979			—
Total assets	$	515,209,551		$	110,835,532
Liabilities and Equity
Liabilities
Accounts payable and accrued expenses	$	1,983,793		$	3,045,651
Accrued compensation and benefits	10,446,425			11,095,548
Income taxes payable	—			361,052
Loans payable (including $4,644,895 of MMKT Notes at fair value)	25,620,819			4,000,000
Credit facility payable	35,000,000			12,000,000
Dividend payable	1,608,759			—
Due to Principal	—			9,063,792
Due to affiliates	19,059			62,781
Deferred rent liability	3,187,864			3,261,434
Payable to related parties pursuant to tax receivable agreements	45,821,556			47,373,245
Liabilities of Consolidated Fund:
Unsettled trades payable	20,093,490			—
Notes payable at fair value (proceeds: $364,066,775)	364,066,775			—
Total liabilities	507,848,540			90,263,503
Commitments and contingencies
Equity
Class A common stock, $0.01 par value 500,000,000 shares authorized; 5,782,392 and 6,000,033 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	57,824			60,000
Class B common stock, $0.01 par value 50,000,000 shares authorized; 42,856,854 shares issued and outstanding as of September 30, 2015 and December 31, 2014	428,569			428,569
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued and outstanding as of September 30, 2015 and December 31, 2014	—			—
Additional paid-in capital	7,319,605			4,975,073
Accumulated other comprehensive loss	(2,075		)	—
Retained earnings	1,052,519			1,273,485
Total stockholders' equity, Fifth Street Asset Management Inc.	8,856,442			6,737,127
Non-controlling interests	(1,495,431		)	13,834,902
Total equity	7,361,011			20,572,029
Total liabilities and equity	$	515,209,551		$	110,835,532

All management and performance fees are earned from affiliates of the Company. See notes to Consolidated Financial Statements.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Consolidated Statements of Income

(unaudited)



	For the three months ended September 30,						For the nine months ended September 30,
	2015			2014			2015			2014
Revenues				(see Notes 1 and 2)						(see Notes 1 and 2)
Management fees (includes Part I Fees of $9,166,813 and $9,868,682 and $26,766,547 and $26,172,673 for the three and nine months ended September 30, 2015 and 2014, respectively)	$	23,609,474		$	22,987,898		$	70,417,077		$	66,707,202
Performance fees	2,596			139,049			79,451			139,049
Other fees	1,347,133			2,187,933			3,668,878			4,205,987
Total revenues	24,959,203			25,314,880			74,165,406			71,052,238
Expenses
Compensation and benefits	10,258,766			6,529,830			28,791,731			25,711,012
Fund offering and start-up expenses	—			909,681			—			1,200,434
General, administrative and other expenses	3,349,712			3,432,949			8,548,115			7,491,543
Depreciation and amortization	434,146			408,541			1,254,544			641,449
Total expenses	14,042,624			11,281,001			38,594,390			35,044,438
Other income (expense)
Interest income	110,525			1,891			293,665			11,530
Interest expense	(507,647		)	(25,206		)	(1,337,827		)	(74,795		)
Income (loss) from equity method investments	12,492			102,838			2,540			216,750
Unrealized loss on beneficial interests in CLOs	(23,148		)	—			(590,546		)	—
Other income (expense), net	—			66,000			122,000			132,000
Total other income (expense), net	(407,778		)	145,523			(1,510,168		)	285,485
Income before provision for income taxes	10,508,801			14,179,402			34,060,848			36,293,285
Provision for income taxes	995,506			—			3,551,329			—
Net income	9,513,295			14,179,402			30,509,519			36,293,285
Net income attributable to Predecessor	—			(14,179,402		)	—			(36,293,285		)
Net income attributable to non-controlling interests	(8,341,728		)	—			(26,859,217		)	—
Net income attributable to Fifth Street Asset Management Inc.	$	1,171,567		$	—		$	3,650,302		$	—

Net income per share attributable to Fifth Street Asset Management Inc. Class A common stock: Basic and Diluted	$	0.20					$	0.61
Weighted average shares of Class A common stock outstanding - Basic	5,901,718						5,956,389
Weighted average shares of Class A common stock outstanding - Diluted	5,908,463						5,963,318

All revenues are earned from affiliates of the Company. See notes to consolidated financial statements.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Consolidated Statements of Comprehensive Income

(unaudited)



	For the three months ended September 30,						For the nine months ended September 30,
	2015			2014			2015			2014
				(see Notes 1 and 2)						(see Notes 1 and 2)
Net income	$	9,513,295		$	14,179,402		$	30,509,519		$	36,293,285
Other comprehensive income (loss):
Adjustment for change in fair value on available-for-sale securities	538,494			—			(28,904		)	—
Tax effect on adjustment for change in fair value on available-for-sale securities	(25,410		)	—			1,370			—
Total comprehensive income	10,026,379			14,179,402			30,481,985			36,293,285
Less: Comprehensive income attributable to Predecessor	—			(14,179,402		)	—			(36,293,285		)
Less: Comprehensive income attributable to non-controlling interests	(8,549,626		)	—			(26,709,534		)	—
Comprehensive income attributable to Fifth Street Asset Management Inc.	$	1,476,753		$	—		$	3,772,451		$	—

See notes to consolidated financial statements.

Fifth Street Asset Management Inc.

Consolidated Statement of Changes in Equity

For the Nine Months Ended September 30, 2015

(unaudited)



	Class A Common Stock					Class B Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Non-Controlling Interests			Total Equity
	Shares		Amount			Shares	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Non-Controlling Interests			Total Equity

Balance, December 31, 2014 (see Notes 1 and 2)	6,000,033		$	60,000		42,856,854	$	428,569	$	4,975,073		$	—		$	1,273,485		$	13,834,902		$	20,572,029
Capital contributions	—		—			—	—		—			—			—			20,000			20,000
Distributions to Holdings limited partners	—		—			—	—		—			—			—			(41,639,038		)	(41,639,038		)
Accrued and paid dividends - $0.64 per Class A common share	—		—			—	—		—			—			(3,815,114		)	—			(3,815,114		)
Accrual of dividends on restricted stock units	—		—			—	—		—			—			(71,664		)	(529,543		)	(601,207		)
Adjustment of tax benefit in connection with tax receivable agreements	—		—			—	—		(273,828		)	—			—			—			(273,828		)
Repurchase of Class A common shares	(217,641	)	(2,176		)	—	—		(1,846,964		)	—			—			—			(1,849,140		)
Amortization of equity-based compensation	—		—			—	—		4,465,324			—			—			—			4,465,324
Change in fair value on available-for-sale securities, net of tax	—		—			—	—		—			(2,075		)	—			(25,459		)	(27,534		)
Net income	—		—			—	—		—			—			3,650,302			26,859,217			30,509,519
Special allocation of adjustments relating to the Revision	—		—			—	—		—			—			15,510			(15,510		)	—
Balance, September 30, 2015	5,782,392		$	57,824		42,856,854	$	428,569	$	7,319,605		$	(2,075	)	$	1,052,519		$	(1,495,431	)	$	7,361,011

See notes to consolidated financial statements.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Consolidated Statements of Cash Flows

(unaudited)



	For the nine months ended September 30
	2015			2014
Cash flows from operating activities				(see Note 1)
Net income	$	30,509,519		$	36,293,285
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,042,224			641,449
Amortization of fractional interests in aircrafts	212,320			—
Amortization of deferred financing costs	377,498			—
Amortization of equity-based compensation	4,480,918			3,815,194
Interest income accreted on beneficial interest in CLO	(231,231		)	—
Reclassification of distributions to former member	—			800,381
Income (loss) from equity method investments	(2,540		)	(216,750		)
Deferred taxes	3,224,078			—
Fair value adjustment – due to former member	—			180,863
Deferred rent	(73,570		)	1,239,886
Unrealized loss on beneficial interests in CLOs	590,546			—
Changes in operating assets and liabilities:
Management fees receivable	3,472,687			(43,117		)
Performance fees receivable	27,184			(54,826		)
Prepaid expenses	282,909			(258,937		)
Due from affiliates	1,670,438			1,861,107
Other assets	(81,541		)	(182,749		)
Accounts payable and accrued expenses	(1,061,858		)	724,613
Accrued compensation and benefits	(649,123		)	6,884,548
Income taxes payable	(361,052		)	—
Due to Principal	(16,863		)	—
Due to affiliates	(59,316		)	(2,528,204		)
Due to former member	—			(895,086		)
Attributable to Consolidated Fund:
Purchases of investments of Consolidated Fund	(304,435,163		)	—
Change in other assets of Consolidated Fund	(3,277,652		)	—
Net cash provided by (used in) operating activities	(264,359,588		)	48,261,657
Cash flows from investing activities
Purchases of fixed assets	(874,060		)	(9,460,980		)
Purchases of equity method investments	(7,500,000		)	(3,881,796		)
Redemptions of equity method investments	1,200,000			—
Distributions received from equity method investments	225,282			—
Purchases of investments in available-for-sale securities	(1,379,679		)	—
Purchases of beneficial interest in CLO	(612,889		)	—
Net cash used in investing activities	(8,941,346		)	(13,342,776		)
Cash flows from financing activities
Borrowings under credit facility	48,000,000			—
Repayments under credit facility	(25,000,000		)	—
Repayments of notes payable	(9,046,929		)	—
Proceeds from issuance of loans payable	21,620,819			—
Capital contributions from non-controlling interests	20,000			—
Distributions to members	(41,639,038		)	(38,590,110		)
Dividends to Class A shareholders	(2,807,562		)	—
Repurchases of Class A common shares	(1,849,140		)	—
Attributable to Consolidated Fund
Issuance of notes payable by Consolidated Fund	364,066,775			—
Deferred financing costs	(2,744,980		)	—
Net cash provided by (used in) financing activities	350,619,945			(38,590,110		)
Net increase (decrease) in cash and cash equivalents	77,319,011			(3,671,229		)
Cash and cash equivalents, beginning of period	3,238,008			4,015,728
Cash and cash equivalents, end of period (including Consolidated Fund)	80,557,019			344,499

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Consolidated Statements of Cash Flows

(unaudited)



Less: Cash and cash equivalents of the Consolidated Fund	74,519,096		—
Cash and cash equivalents of the Company, end of period	$	6,037,923	$	344,499
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	887,425	$	74,795
Cash paid during the period for income taxes	$	1,064,200	$	—
Non-cash investing activities:
Fixed asset purchases included in accounts payable	$	11,519	$	51,121
Non-cash financing activities:
Non-cash capital contribution by member	$	—	$	2,967,749
Non-cash distribution to members	$	—	$	(2,967,749	)
Accrued dividends	$	1,608,759	$	—

All management and performance fees are earned from affiliates of the Company. See notes to consolidated financial statements.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Note 1. Organization and Basis of Presentation

Fifth Street Asset Management Inc. ("FSAM"), together with its consolidated subsidiaries (collectively, the "Company"), is a leading alternative asset management firm headquartered in Greenwich, CT that provides asset management services to its investment funds, which, to date, consist primarily of Fifth Street Finance Corp. (formed on January 2, 2008, "FSC") and Fifth Street Senior Floating Rate Corp. (formed on May 22, 2013, "FSFR"), both publicly-traded business development companies regulated under the Investment Company Act of 1940 (together, the "BDCs"). The Company conducts substantially all of its operations through its consolidated subsidiaries, Fifth Street Management LLC ("FSM") and CLO Management.

The accompanying consolidated financial statements include (1) the results of the Company subsequent to the Reorganization as described below and (2) prior to the Reorganization, the financial results of Fifth Street Management Group (the "Predecessor") which includes affiliated entities either wholly or substantially owned and/or under the voting control of Leonard M. Tannenbaum. Historical financial results relating to the Predecessor are presented as net income attributable to Predecessor.

The Company's primary sources of revenues are management fees, primarily from the BDCs, which are driven by the amount of the assets under management and quarterly investment performance of the funds it manages. The Company conducts substantially all of its operations through one reportable segment that provides asset management services to its alternative investment vehicles. The Company generates all of its revenues in the United States.

Reorganization

In anticipation of its initial public offering (the "IPO") that closed November 4, 2014, FSAM was incorporated in Delaware on May 8, 2014 as a holding company with its primary asset expected to be a limited partnership interest in Fifth Street Holdings L.P. ("Fifth Street Holdings"). Fifth Street Holdings was formed on June 27, 2014 by Leonard M. Tannenbaum and another member of FSM (the "Principals") as a Delaware limited partnership. Prior to the transactions described below, the Principals were the general partners and limited partners of Fifth Street Holdings. Fifth Street Holdings has a single class of limited partnership interests (the "Holdings LP Interests"). Immediately prior to the IPO:


•	The Principals contributed their general partnership interests in Fifth Street Holdings to FSAM in exchange for 100% of the FSAM's Class B common stock;


•	The members of FSM contributed 100% of their membership interests in FSM to Fifth Street Holdings in exchange for Holdings LP Interests; and


•	The members of FSCO GP LLC ("FSCO GP"), a Delaware limited liability company, formed on January 6, 2014 to serve as the general partner of Fifth Street Opportunities Fund, L.P. (''FSOF,'' formerly Fifth Street Credit Opportunities Fund, L.P.) contributed 100% of their membership interests in FSCO GP to Fifth Street Holdings in exchange for Holdings LP Interests.

As a result of the above transactions, FSAM became the general partner of Fifth Street Holdings, which was also organized to be a holding company for FSM and FSCO GP. As a holding company, FSAM conducts all of its operations through FSM, CLO Management and FSCO GP, wholly-owned subsidiaries of Fifth Street Holdings, including the provision of management services to FSC, FSFR and other affiliated private funds. Fifth Street Management Group is the Company's predecessor prior to the IPO.

In connection with the Reorganization, FSAM entered into the Exchange Agreement with the Fifth Street Holdings Limited Partners that granted each Fifth Street Holdings Limited Partner and certain permitted transferees the right, beginning two years after the closing of the IPO and subject to vesting and minimum retained ownership requirements, on a quarterly basis, to exchange such person's Holdings LP Interests for shares of Class A common stock of FSAM, on a one-for-one basis, subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. As a result, each Fifth Street Holdings Limited Partner, over time, has the ability to convert his or her illiquid ownership interests in Fifth Street Holdings into Class A common stock that can more readily be sold in the public markets.

These collective actions are referred to herein as the "Reorganization."

Initial Public Offering

On November 4, 2014, FSAM issued 6,000,000 shares of Class A common stock in the IPO at a price of $17.00 per common share. The net proceeds totaled $95.9 million after deducting underwriting commissions of $6.1 million and before offering costs of approximately $3.9 million that were borne by FSAM. The net proceeds were used to purchase a 12.0% limited partnership interest in Fifth Street Holdings from its limited partners.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Immediately following the Reorganization transactions described above and the closing of the IPO on November 4, 2014:


•	the Principals held 42,856,854 shares of Class B common stock and 42,856,854 Holdings LP Interests, the Holdings Limited Partners, including the Principals, held 44,000,000 Holdings LP Interests and FSAM held 6,000,000 Holdings LP Interests; and


•	through their holdings of Class B common stock, the Principals, in the aggregate, had approximately 97.3% of the voting power of FSAM's common stock.

FSAM's purchase of Holdings LP Interests concurrent with its IPO, and the subsequent and future exchanges by holders of Holdings LP Interests for shares of FSAM's Class A common stock pursuant to the Exchange Agreement are expected to result in increases in its share of the tax basis of the tangible and intangible assets of Fifth Street Holdings, which will increase the tax depreciation and amortization deductions that otherwise would not have been available to FSAM. These increases in tax basis and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that FSAM would otherwise be required to pay in the future. FSAM entered into a tax receivable agreement ("TRA") with certain limited partners of Fifth Street Holdings (the "TRA Recipients") that requires it to pay them 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax that FSAM actually realizes (or, under certain circumstances, is deemed to realize) as a result of the increases in tax basis in connection with exchanges by the TRA Recipients described above and certain other tax benefits attributable to payments under the tax receivable agreement.

In connection with the above transactions, the previous members of FSM agreed to allocate to the limited partners of Fifth Street Holdings and FSAM the Company's earnings (excluding the compensation charges related to the Reorganization) from October 1, 2014 through the date of the IPO.

Basis of Presentation

The unaudited interim consolidated financial statements presented in this quarterly report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented, have been reflected as required by Regulation S-X, Rule 10-01. Such adjustments are of a normal and recurring nature. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2014. The results of operations for interim periods are not necessarily indicative of the operating results to be expected for the full year or any other interim period. All significant intercompany transactions and balances have been eliminated in consolidation.

Prior to the completion of the IPO, the historical consolidated financial statements consisted of the combined results of Fifth Street Management Group which includes affiliated entities either wholly or substantially owned and/or under the voting control of Leonard M. Tannenbaum at the time of the Reorganization and IPO. As such, FSAM's acquisition of a 12.0% partnership interest in Fifth Street Holdings and related Reorganization have been accounted for as transactions among entities under common control, pursuant to ASC 805-50, and recorded on a historical cost basis.

After the completion of the IPO, FSAM became the general partner of Fifth Street Holdings and acquired a 12.0% limited partnership interest in Fifth Street Holdings. Accordingly, Fifth Street Holdings and its wholly-owned subsidiaries (including FSM) are consolidated in FSAM's financial statements. The Company has presented the Consolidated Statements of Income after giving effect to the Reorganization, as discussed above. All amounts attributable to the Company's Predecessor are recorded as "Net income attributable to Predecessor" within the consolidated financial statements. Subsequent to November 4, 2014, the portion of the net income attributable to Fifth Street Holdings limited partnership interests is recorded as "net income attributable to non-controlling interests."

On October 13, 2014, FSAM effectuated a 1-for-3 reverse stock split. All share information has been retroactively adjusted to reflect the reverse stock split.

On December 22, 2014, FSM entered into a limited liability company agreement, as majority member, with Leonard Tannenbaum’s brother, as minority member, for the purpose of forming MMKT Exchange LLC (previously IMME LLC), a Delaware limited liability company (“MMKT”). MMKT is a secure digital exchange that introduces efficiency, liquidity and transparency to the outdated middle market loan syndication process while increasing accessibility to a broader base of purchasers. The purpose of MMKT is to develop technology related to the financial services industry. FSM made a capital contribution of $80,000 for an 80% membership interest in MMKT.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

On September 29, 2015, CLO Management closed a securitization of senior secured loans warehoused in Fifth Street Senior Loan Fund II, LLC ("SLF II") as a Collateralized Loan Obligation ("CLO"). In connection with the securitization, SLF II merged into Fifth Street SLF II Ltd. ("CLO II"). CLO II issued a total of approximately $416.6 million of notes, including a subordinated note tranche of $52.1 million. The Company has concluded that CLO II should be consolidated by FSM (see Note 3). The Company invested $20,910,115 in senior and subordinated notes in CLO II, which was partially financed by the Risk Retention Credit Facility in the amount of $16,975,924 (see Note 9).

Deconsolidation of Combined Funds

During the year ended December 31, 2014, the Company formed the following entities (collectively referred to as the “Combined Funds”) whose financial results were included in the Company’s combined financial statements in previous filings with the SEC:


•	FSCO GP, a Delaware limited liability company, formed on January 6, 2014 to serve as the general partner of FSOF, which primarily invests in yield-oriented corporate credit assets and equities;


•	Fifth Street EIV, LLC ("Fifth Street EIV"), a Delaware limited liability company formed on February 7, 2014 to hold FSM's equity interest in Fifth Street Senior Loan Fund I, LLC ("SLF I"), which primarily invests in senior secured loans to middle-market companies; and


•	Fifth Street EIV II, LLC ("Fifth Street EIV II"), a Delaware limited liability company formed on July 10, 2014 to hold certain of the Company's employees' equity interests in SLF II, which primarily invests in senior secured loans to middle market companies.

Such Combined Funds were included in the financial statements previously filed with the SEC through periods ended September 30, 2014 based on the then existing consolidation guidance. In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis ("ASU 2015-02"), as discussed in Note 3. As of December 31, 2014, the Company elected to early adopt such guidance, which resulted in deconsolidation of the Combined Funds. The Company determined that these entities were variable interest entities and that the Company was not the primary beneficiary because under ASU 2015-02, the Company's fee arrangements, which are commensurate with the level of effort performed and include only customary terms, do not represent variable interests. Also see Note 3 for the related disclosures for certain unconsolidated variable interest entities. There was no gain or loss recognized as a result of the deconsolidation of the Combined Funds and the Company will continue to earn management and/or performance fees from these funds. Although total assets and equity significantly decreased as a result of the Combined Funds' deconsolidation, it did not change net income or equity attributable to controlling interests in FSAM.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Impact of Reorganization and Deconsolidation of Combined Funds

The following tables show the impact on the Consolidated Statements of Income for the three and nine months ended September 30, 2014 for the deconsolidation of previously combined funds and the Reorganization:



	Three months ended September 30, 2014
	As revised (see Note 2)			Deconsolidation of Combined Funds and Effects of Reorganization			As adjusted

Revenues	$	25,042,949		$	271,931		$	25,314,880
Net income	$	17,161,160		$	(2,981,758	)	$	14,179,402
Net income attributable to redeemable non-controlling interests in Combined Fund	$	(1,072,218	)	$	1,072,218		$	—
Net income attributable to non-controlling interests in Combined Funds	$	(1,909,540	)	$	1,909,540		$	—
Net income attributable to Predecessor	$	—		$	(14,179,402	)	$	(14,179,402	)
Net income attributable to non-controlling interests in Fifth Street Holdings L.P.	$	—		$	—		$	—
Net income attributable to controlling interests in Fifth Street Management Group	$	14,179,402		$	(14,179,402	)	$	—
Net income attributable to Fifth Street Asset Management Inc.	$	—		$	—		$	—



	Nine months ended September 30, 2014
	As revised (see Note 2)			Deconsolidation of Combined Funds and Effects of Reorganization			As adjusted

Revenues	$	70,678,754		$	373,484		$	71,052,238
Net income	$	41,554,502		$	(5,261,217	)	$	36,293,285
Net income attributable to redeemable non-controlling interests in Combined Fund	$	(2,336,539	)	$	2,336,539		$	—
Net income attributable to non-controlling interests in Combined Funds	$	(2,924,678	)	$	2,924,678		$	—
Net income attributable to Predecessor	$	—		$	(36,293,285	)	$	(36,293,285	)
Net income attributable to non-controlling interests in Fifth Street Holdings L.P.	$	—		$	—		$	—
Net income attributable to controlling interests in Fifth Street Management Group	$	36,293,285		$	(36,293,285	)	$	—
Net income attributable to Fifth Street Asset Management Inc.	$	—		$	—		$	—

Note 2. Revision of Previously Issued Financial Statements for Correction of Immaterial Errors

During the three months ended September 30, 2015, the Company identified errors in the calculation of Part I Fees previously paid to the Company by the BDCs. The amounts paid were originally recognized as revenue in the first quarter of 2012 through the second quarter of 2015. The cumulative adjustment of $811,025 related to the years ended 2012 and 2013, was not considered material and is reflected as an out-of-period adjustment to the three months ended March 31, 2014. The identified errors related to incorrect information used by FSC CT LLC, the Company's administrator, a wholly-owned subsidiary of the Company. The errors related primarily to the timing of when Part I fees should have been recorded and paid. The aggregate adjustment was a net reduction of Part I Fees in the amount of $3,327,969 as of June 30, 2015. The Company

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

assessed the materiality of the errors on its prior quarterly and annual financial statements, assessing materiality both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the errors were not material to any of its previously issued financial statements. However, the Company concluded the cumulative corrections of these errors would be material to the Company's financial statements for the three and nine months ended September 30, 2015 and, therefore, it is not appropriate to recognize the cumulative corrections in this period. Accordingly, the prior period financial statements provided herein have been revised to correct these errors (the "Revision") as well as other unrelated, immaterial out-of-period adjustments that had been previously recorded.

These prior period adjustments will be reflected in future quarterly and annual filings for the respective period. The revision had no net impact on the Company’s net cash provided by operating activities for any period presented.

The Holdings Limited Partners have agreed to refund all of the overpaid fees to the Company and therefore none of the expense will be borne by the Class A stockholders of FSAM.

Set forth below is a summary of the financial statement line items impacted by these revisions for the periods presented in this Form 10-Q and previous filings.



	June 30, 2015
Consolidated Statements of Financial Condition:	As previously reported			Adjustment			As revised
Management fees receivable	$	23,065,693		$	(3,327,969	)	$	19,737,724
Prepaid expenses	795,591			166,888			962,479
Subordinated debt interest in CLO	1,043,144			(1,043,144		)	—
Beneficial interest in CLO	3,022,329			1,043,144			4,065,473
Total assets	$	111,289,257		$	(3,161,081	)	$	108,128,176
Accumulated other comprehensive income (loss)	(40,575		)	40,575			—
Retained earnings	945,531			(40,575		)	904,956
Non-controlling interests	4,879,615			(3,161,081		)	1,718,534
Total equity	13,517,127			(3,161,081		)	10,356,046
Total liabilities and equity	$	111,289,257		$	(3,161,081	)	$	108,128,176



	Three Months Ended June 30, 2015
Consolidated Statements of Income:	As previously reported			Adjustment			As revised
Management fees	$	23,058,289		$	514,753		$	23,573,042
Total revenues	24,166,163			514,753			24,680,916
General, administrative and other expenses	2,633,265			(139,071		)	2,494,194
Total expenses	12,276,236			(139,071		)	12,137,165
Other income (expense), net	(226,967		)	(567,398		)	(794,365		)
Income before provision for income taxes	11,662,960			86,426			11,749,386
Provision for income taxes	(1,315,041		)	(45,628		)	(1,360,669		)
Net income	10,347,919			40,798			10,388,717
Net income attributable to non-controlling interests	(9,141,173		)	(75,322		)	(9,216,495		)
Net income attributable to Fifth Street Asset Management Inc.	$	1,206,746		$	(34,524	)	$	1,172,222

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements



	Six Months Ended June 30, 2015
Consolidated Statements of Income:	As previously reported			Adjustment			As revised
Management fees	$	46,637,687		$	169,916		$	46,807,603
Total revenues	49,036,287			169,916			49,206,203
General, administrative and other expenses	5,434,574			(236,171		)	5,198,403
Total expenses	24,787,937			(236,171		)	24,551,766
Other income (expense), net	(534,992		)	(567,398		)	(1,102,390		)
Income before provision for income taxes	23,713,358			(161,311		)	23,552,047
Provision for income taxes	(2,537,107		)	(18,716		)	(2,555,823		)
Net income	21,176,251			(180,027		)	20,996,224
Net income attributable to non-controlling interests	(18,660,175		)	142,686			(18,517,489		)
Net income attributable to Fifth Street Asset Management Inc.	$	2,516,076		$	(37,341	)	$	2,478,735
Net income per share attributable to Fifth Street Asset Management Inc. Class A common stock: Basic and Diluted	$	0.42		$	(0.01	)	$	0.41



	Three Months Ended June 30, 2015
Consolidated Statements of Comprehensive Income:	As previously reported			Adjustment		As revised
Net income	$	10,347,919		$	40,798	$	10,388,717
Total comprehensive income	9,807,301			40,798		9,848,099
Less: Comprehensive income attributable to non-controlling interests	(8,641,130		)	40,798		(8,600,332		)
Comprehensive income attributable to Fifth Street Asset Management Inc.	$	1,166,171		$	40,798	$	1,206,969



	Six Months Ended June 30, 2015
Consolidated Statements of Comprehensive Income:	As previously reported			Adjustment			As revised
Net income	$	21,176,251		$	(180,027	)	$	20,996,224
Total comprehensive income	20,635,633			(180,027		)	20,455,606
Less: Comprehensive income attributable to non-controlling interests	(18,160,132		)	(180,027		)	(18,340,159		)
Comprehensive income attributable to Fifth Street Asset Management Inc.	$	2,475,501		$	(180,027	)	$	2,295,474

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements



	March 31, 2015
Consolidated Statements of Financial Condition:	As previously reported		Adjustment			As revised
Management fees receivable	$	23,344,726	$	(3,842,722	)	$	19,502,004
Prepaid expenses	856,405		223,511			1,079,916
Subordinated debt interest in CLO	1,043,144		(1,043,144		)	—
Beneficial interest in CLO	3,443,940		1,043,144			4,487,084
Fixed assets, net	9,977,576		631			9,978,207
Total assets	$	106,953,005	$	(3,618,580	)	$	103,334,425
Retained earnings	523,066		631			523,697
Total stockholders' equity, Fifth Street Asset Management Inc.	7,466,620		631			7,467,251
Non-controlling interests	12,062,033		(3,619,211		)	8,442,822
Total equity	19,528,653		(3,618,580		)	15,910,073
Total liabilities and equity	$	106,953,005	$	(3,618,580	)	$	103,334,425



	Three Months Ended March 31, 2015
Consolidated Statements of Income:	As previously reported			Adjustment			As revised
Management fees	$	23,579,398		$	(344,837	)	$	23,234,561
Total revenues	24,870,124			(344,837		)	24,525,287
General administrative and other expenses	2,801,309			(97,100		)	2,704,209
Total expenses	12,511,701			(97,100		)	12,414,601
Income before provision for income taxes	12,050,398			(247,737		)	11,802,661
Provision for income taxes	(1,222,066		)	26,911			(1,195,155		)
Net income	10,828,332			(220,826		)	10,607,506
Net income attributable to non-controlling interests	(9,519,002		)	218,009			(9,300,993		)
Net income attributable to Fifth Street Asset Management Inc.	$	1,309,330		$	(2,817	)	$	1,306,513



	December 31, 2014
Consolidated Statements of Financial Condition:	As previously reported		Adjustment			As revised
Management fees receivable	$	26,861,787	$	(3,497,886	)	$	23,363,901
Prepaid expenses	1,150,013		185,580			1,335,593
Total assets	$	114,147,838	$	(3,312,306	)	$	110,835,532
Retained earnings	1,288,995		(15,510		)	1,273,485
Total stockholders' equity, Fifth Street Asset Management Inc.	6,752,637		(15,510		)	6,737,127
Non-controlling interests	17,131,698		(3,296,796		)	13,834,902
Total equity	23,884,335		(3,312,306		)	20,572,029
Total liabilities and equity	$	114,147,838	$	(3,312,306	)	$	110,835,532

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements



	Year Ended December 31, 2014
Consolidated Statements of Income:	As previously reported			Adjustment			As revised
Management fees	$	95,425,407		$	(3,497,886	)	$	91,927,521
Total revenues	103,206,061			(3,497,886		)	99,708,175
Compensation and benefits	53,697,430			129,252			53,826,682
Total expenses	66,297,065			129,252			66,426,317
Income before provision for income taxes	36,935,074			(3,627,138		)	33,307,936
Provision for income taxes	1,877,758			185,580			2,063,338
Net income	38,812,832			(3,441,558		)	35,371,274
Net income attributable to non-controlling interests	(38,284,255		)	3,409,177			(34,875,078		)
Net income attributable to Fifth Street Asset Management Inc.	$	528,577		$	(32,381	)	$	496,196
Net income per share attributable to Fifth Street Asset Management Inc. Class A common stock: Basic and Diluted	$	0.09		$	(0.01	)	$	0.08



	September 30, 2014
Consolidated Statements of Financial Condition:	As previously reported		Adjustment			As revised
Management fees receivable	$	23,263,679	$	(1,810,799	)	$	21,452,880
Total assets	$	46,642,231	$	(1,810,799	)	$	44,831,432
Members' equity	25,154,063		(1,810,799		)	23,343,264
Total equity	25,154,063		(1,810,799		)	23,343,264
Total liabilities and equity	$	46,642,231	$	(1,810,799	)	$	44,831,432



	Three Months Ended September 30, 2014
Consolidated Statements of Income:	As previously reported			Adjustment			As revised (see Note 1)
Management fees	$	23,091,676		$	(375,709	)	$	22,715,967
Total revenues	25,418,658			(375,709		)	25,042,949
Income before provision for income taxes	17,536,869			(375,709		)	17,161,160
Net income	17,536,869			(375,709		)	17,161,160
Net income attributable to controlling interests in Fifth Street Management Group	(14,555,111		)	375,709			(14,179,402		)



	Nine Months Ended September 30, 2014
Consolidated Statements of Income:	As previously reported			Adjustment			As revised (see Note 1)
Management fees	$	68,144,517		$	(1,810,799	)	$	66,333,718
Total revenues	72,489,553			(1,810,799		)	70,678,754
Income before provision for income taxes	43,365,301			(1,810,799		)	41,554,502
Net income	43,365,301			(1,810,799		)	41,554,502
Net income attributable to controlling interests in Fifth Street Management Group	(38,104,084		)	1,810,799			(36,293,285		)

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements



	June 30, 2014
Consolidated Statements of Financial Condition:	As previously reported		Adjustment			As revised
Management fees receivable	$	22,653,659	$	(1,435,090	)	$	21,218,569
Total assets	$	39,301,825	$	(1,435,090	)	$	37,866,735
Members' equity	19,157,235		(1,435,090		)	17,722,145
Total equity	19,157,235		(1,435,090		)	17,722,145
Total liabilities and equity	$	39,301,825	$	(1,435,090	)	$	37,866,735



	Three Months Ended June 30, 2014
Consolidated Statements of Income:	As previously reported			Adjustment			As revised
Management fees	$	22,451,668		$	(386,998	)	$	22,064,670
Total revenues	23,405,083			(386,998		)	23,018,085
Income before provision for income taxes	9,060,459			(386,998		)	8,673,461
Net income	9,060,459			(386,998		)	8,673,461
Net income attributable to Predecessor	(9,060,459		)	386,998			(8,673,461		)



	Six Months Ended June 30, 2014
Consolidated Statements of Income:	As previously reported			Adjustment			As revised
Management fees	$	45,154,394		$	(1,435,090	)	$	43,719,304
Total revenues	47,172,448			(1,435,090		)	45,737,358
Income before provision for income taxes	23,548,973			(1,435,090		)	22,113,883
Net income	23,548,973			(1,435,090		)	22,113,883
Net income attributable to Predecessor	(23,548,973		)	1,435,090			(22,113,883		)



	March 31, 2014
Consolidated Statements of Financial Condition:	As previously reported		Adjustment			As revised
Management fees receivable	$	22,702,726	$	(656,462	)	$	22,046,264
Total assets	$	45,405,391	$	(656,462	)	$	44,748,929
Members' equity	28,701,287		(656,462		)	28,044,825
Total equity	28,701,287		(656,462		)	28,044,825
Total liabilities and equity	$	45,405,391	$	(656,462	)	$	44,748,929



	Three Months Ended March 31, 2014
Consolidated Statements of Income:	As previously reported			Adjustment			As revised
Management fees	$	22,702,726		$	(1,048,094	)	$	21,654,632
Total revenues	23,767,365			(1,048,094		)	22,719,271
Income before provision for income taxes	14,488,514			(1,048,094		)	13,440,420
Net income	14,488,514			(1,048,094		)	13,440,420
Net income attributable to Predecessor	(14,488,514		)	1,048,094			(13,440,420		)

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Note 3. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and entities in which it, directly or indirectly, is determined to have a controlling financial interest under ASC 810, as amended by ASU No. 2015-02. Under the variable interest model, the Company determines whether, if by design, an entity has equity investors who lack substantive participating or kick-out rights. If equity investors do not have such rights, the entity is considered a variable interest entity ("VIE") and must be consolidated by its primary beneficiary. An enterprise is determined to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation guidance requires an analysis to determine (a) whether an entity in which the Company holds a variable interest is a VIE and (b) whether the Company's involvement, through holding interests directly or indirectly in the entity, would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment.

Under the consolidation guidance, the Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and reconsiders that conclusion continually. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company and its affiliates or indirectly through employees. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Company, affiliates of the Company or third parties) or amendments to the governing documents of the respective investment funds could affect an entity's status as a VIE or the determination of the primary beneficiary. At each reporting date, the Company assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.

For equity investments where the Company does not control the investee, and where it is not the primary beneficiary of a VIE, but can exert significant influence over the financial and operating policies of the investee, the Company follows the equity method of accounting. The evaluation of whether the Company exerts control or significant influence over the financial and operational policies of its investees requires significant judgment based on the facts and circumstances surrounding each individual investment. Factors considered in these evaluations may include the type of investment, the legal structure of the investee, the terms and structure of the investment agreement, including investor voting or other rights, the terms of the Company's investment advisory agreement or other agreements with the investee, any influence the Company may have on the governing board of the investee, the legal rights of other investors in the entity pursuant to the fund’s operating documents and the relationship between the Company and other investors in the entity.

Consolidated Variable Interest Entities

Fifth Street Holdings

FSAM is the sole general partner of Fifth Street Holdings and, as such, it operates and controls all of the business and affairs of Fifth Street Holdings and its wholly-owned subsidiaries, FSM, CLO Management and FSCO GP. Under ASC 810, Fifth Street Holdings meets the definition of a VIE because the limited partners do not hold substantive kick-out or participating rights. Since FSAM has the obligation to absorb expected losses that could be significant to Fifth Street Holdings and is the sole general partner, FSAM is considered to be the primary beneficiary of Fifth Street Holdings.

As a result, the Company consolidates the financial results of Fifth Street Holdings and its wholly-owned subsidiaries and records a non-controlling interest for the economic interest in Fifth Street Holdings held by the limited partners as a separate component of stockholders' equity in its Consolidated Statements of Financial Condition for the remaining economic interests in Fifth Street Holdings. The non-controlling interest in the income of Fifth Street Holdings is included in the Consolidated Statements of Income as a reduction of net income.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

As of September 30, 2015 and December 31, 2014, the Company has recorded the following amounts in its Consolidated Statements of Financial Condition relating to Fifth Street Holdings:



	September 30, 2015		December 31, 2014 (as revised)
Assets
Cash and cash equivalents	$	6,021,384	$	3,236,830
Management fees receivable	19,891,214		23,363,901
Performance fees receivable	79,451		106,635
Prepaid expenses (includes $266,402 related to income taxes)	882,618		1,335,593
Investments in equity method investees	6,415,175		4,115,429
Investments in available-for-sale securities	1,350,775		—
Beneficial interest in CLOs at fair value: (cost: $4,496,624)	3,906,078		—
Due from affiliates (1)	6,750,454		8,369,501
Fixed assets, net	10,106,099		10,274,263
Deferred tax assets	—		2,705,934
Deferred financing costs	2,055,266		2,432,764
Other assets	4,066,579		4,197,358
Assets of Consolidated Fund:
Cash and cash equivalents	74,519,096		—
Investments at fair value (cost: $323,434,153)	323,434,153		—
Interest and dividends receivable	3,277,652		—
Unsettled trades receivable	1,094,500		—
Deferred financing costs	2,744,979		—
Total assets	$	466,595,473	$	60,138,208

Liabilities
Accounts payable and accrued expenses	$	1,983,793	$	2,830,052
Accrued compensation and benefits	10,446,425		11,095,548
Income taxes payable	438,794		—
Loans payable	25,620,819		4,000,000
Credit facility payable	35,000,000		12,000,000
Dividend payable	601,207		—
Due to Principal	—		9,063,792
Due to affiliates (2)	710,203		747,505
Deferred rent liability	3,187,864		3,261,434
Deferred tax liability	424,316		—
Liabilities of Consolidated Fund:
Unsettled trades payable	20,093,490		—
Notes payable at fair value (proceeds: $364,066,775)	364,066,775		—
Total liabilities	462,573,686		42,998,331
Equity	4,021,787		17,139,877
Total liabilities and equity	$	466,595,473	$	60,138,208

_____________

(1) The amounts due from affiliates include $4,621,350 that is eliminated in consolidation.

(2) The amounts due to affiliates include $691,144 that is eliminated in consolidation.

The liabilities recognized as a result of consolidating Fifth Street Holdings do not represent additional claims on FSAM’s general assets; rather, they represent claims against the specific assets of Fifth Street Holdings and its subsidiaries. Conversely, assets recognized as a result of consolidating Fifth Street Holdings do not represent additional assets that could be used to satisfy claims against FSAM's general assets.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

CLO II

Fifth Street CLO Management LLC ("CLO Management"), a wholly owned-consolidated subsidiary of Fifth Street Holdings, is the collateral manager of CLO II, and as such, it operates and controls all of the business and affairs of CLO II. As part of the CLO II securitization, CLO Management retained approximately 5% of each tranche of notes issued and Leonard M. Tannenbaum directly invested in Class D and subordinated notes.

Under ASC 810, CLO II meets the definition of a VIE because the limited partners do not hold substantive kick-out or participating rights. Since CLO Management has the obligation to absorb expected losses that could be significant to CLO II and is its collateral manager, FSM is considered to be the primary beneficiary of CLO II. As a result, the Company consolidates the financial results of CLO II (the "Consolidated Fund") and eliminates its investment in senior and subordinated notes in the entity. The Consolidated Statements of Financial Condition separately presents these amounts as assets and liabilities of the Consolidated Fund.

Including the results of the Consolidated Fund significantly increases the reported amounts of the assets, liabilities, revenues, expenses and cash flows of the Company; however, the Consolidated Fund's results included herein have no direct effect on the net income attributable to controlling interests or on total controlling equity.

Voting Interest Entities

For entities that are not VIEs, the Company consolidates those entities in which it has an equity investment of greater than 50% and has control over significant operating, financial and investing decisions of the entity. Additionally, the Company consolidates entities in which the Company is a substantive, controlling general partner and the limited partners have no substantive rights to participate in the ongoing governance and operating activities.

Unconsolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated because the Company is not deemed the primary beneficiary as of September 30, 2015. The Company's interest in such entities generally is in the form of direct equity interests and fixed fee arrangements. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities. The Company's interests in these non-consolidated VIEs and their respective maximum exposure to loss relating to non-consolidated VIEs as of September 30, 2015 is $10,321,253, which represents the fair value at such date.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions affecting amounts reported in the consolidated financial statements and accompanying notes. The most significant of these estimates are related to: (i) the valuation of equity-based compensation, (ii) the estimate of future taxable income, which impacts the carrying amount of the Company’s deferred income tax assets, (iii) the determination of net tax benefits in connection with the Company's tax receivable agreements and (iv) the valuation of the Consolidated Fund's investments and the fair value measurements of the Company's investments in unconsolidated VIEs. These estimates are based on the information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions and conditions.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents with high-credit quality financial institutions.

For the nine months ended September 30, 2015 and 2014, substantially all revenues and receivables were earned or derived from advisory or administrative services provided to the BDCs and other affiliated entities.

The Company is dependent on its chief executive officer, Leonard M. Tannenbaum, who holds over 90% of the combined voting power of the Company through his ownership of shares of common stock. If for any reason the services of the Company's chief executive officer were to become unavailable, there could be a material adverse effect on the Company's operations, liquidity and profitability.

Fair Value Measurements

The carrying amounts of cash and cash equivalents, management and performance fees receivable from affiliates, prepaid expenses, due from/to affiliates, accounts payable and accrued expenses, accrued compensation and benefits and income taxes payable approximate fair value due to the immediate or short-term maturity of these financial instruments.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Cash and Cash Equivalents

Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. The Company places its cash and cash equivalents with U.S. financial institutions and, at times, amounts may exceed federally insured limits. The Company monitors the credit standing of these financial institutions.

Investments in Equity Method Investees

Investments in equity method investees consists of the Company's interests in unconsolidated VIEs. Entities and investments over which the Company exercises significant influence but which do not meet the requirements for consolidation are accounted for using the equity method of accounting, whereby the Company records its share of the underlying income or losses of these entities. Intercompany profit arising from transactions with affiliates is eliminated to the extent of its beneficial interest. Equity in losses of equity method investments is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist.

The Company evaluates its equity method investments for impairment, whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment when the loss in value is deemed other than temporary. No impairment charges related to equity method investments were recorded during the nine months ended September 30, 2015 and 2014.

The Company's only equity method investment is its general partnership interest in FSOF, a credit-oriented hedge fund which was previously consolidated. FSOF follows GAAP specialized industry accounting which requires it to carry its investments at fair value. Accordingly, the Company's income allocated from the equity method investees includes net unrealized gain/loss allocations from FSOF.

Investments in Available-for-Sale Securities

Available-for-sale securities consist of investments in FSFR common stock. All unrealized gains and losses are recorded in Accumulated Other Comprehensive Income. The cost of investments in available-for-sale securities is determined on a specific identification basis. Realized gains or losses and declines in value judged to be other than temporary, if any, are reported in other income, net. The Company evaluates its investments periodically for possible impairment and reviews factors such as the length of time and extent to which fair value has been below cost basis and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in market value.

Beneficial Interest in CLOs

The beneficial interest in the CLOs meets the definition of a debt security under ASC 325-40. Accordingly, the Company recognizes the accretable yield as interest income over the life of the beneficial interest using the effective yield method, which was $95,396 and $231,231 for the three and nine months ended September 30, 2015, respectively. In order to determine the interest recorded in each period, the Company estimates the timing and amount of future cash flows attributable to the beneficial interests over the estimated life of the CLOs. The Company reevaluates the estimated future cash flows periodically to determine whether an adjustment to the accretable yield is required.

The Company has elected the fair value option to account for beneficial interests in CLOs as discussed below. There were no sales or transfers of the Company's beneficial interest in CLOs during the nine months ended September 30, 2015.

Fair Value Option

Upon the closing of the securitization of CLO I on February 19, 2015, the Company elected the fair value option to value its beneficial interests in CLO I, which had a cost of $4,487,084. There was $23,148 and $590,546 of unrealized losses recorded on beneficial interests in CLO I, respectively, for the three and nine months ended September 30, 2015. The Company believes that by electing the fair value option for these financial instruments, it provides consistent measurement with its peers in the asset management industry.

Upon the closing of the securitization of CLO II on September 29, 2015, the Company adopted the fair value option to value the Consolidated Fund's investments and notes payable in accordance with ASC 825-10-25-1, which had a cost of $344,344,268, and $364,066,775 ($20,910,115 of which represents the Company's beneficial interests in the CLOs which are eliminated in consolidation), respectively. As a result of the fair value option election, the change in fair value of these assets and liabilities are recorded within other income (expense) in the Consolidated Statements of Income. There was no fair value adjustment on the Consolidated Fund's investments and notes payable for the three months ended September 30, 2015 since the transaction closed one day prior to quarter end. Refer to Note 4 for a description of valuation methodologies for each of the financial instruments mentioned above.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

In September 2015, the Company also elected the fair value option on the MMKT Notes (see Note 9), which had a cost of $4,644,895. There was no gain (loss) recognized on MMKT Notes during the nine months ended September 30, 2015.

Fixed Assets

Fixed assets consist of furniture, fixtures and equipment (including automobiles, computer hardware and purchased software), software developed for internal use and leasehold improvements, and are recorded at cost, less accumulated depreciation and amortization. Depreciation of furniture, fixtures and equipment is computed using the straight-line method over the estimated useful lives of the respective assets (three to eight years). Software developed for internal use, which is amortized over three years, consists of costs incurred during the application development stage of software developed for the Company's proprietary use and includes costs of company personnel who are directly associated with the development. Amortization of improvements to leased properties is computed using the straight-line method based upon the initial term of the applicable lease or the estimated useful life of the improvements, whichever is shorter, and ranges from five to 10 years. Routine expenditures for repairs and maintenance are charged to expense when incurred. Major betterments and improvements are capitalized. Upon retirement or disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the Consolidated Statements of Income. The Company evaluates fixed assets for impairment whenever events or changes in circumstances indicate that an asset's carrying value may not be fully recovered. During the nine months ended September 30, 2015 and 2014, there were no impairments recognized.

Deferred Financing Costs

Deferred financing costs consist of fees and expenses paid in connection with the closing of Fifth Street Holdings' credit facility and are capitalized at the time of payment. Deferred financing costs are amortized using the straight line method over the term of the credit facility and are included in interest expense Company's Consolidated Statements of Income.

Deferred Rent

The Company recognizes rent expense on a straight-line basis over the expected lease term. Within the provisions of certain leases, there are free rent periods and escalations in payments over the base lease term. The effects of these items have been reflected in rent expense on a straight-line basis over the expected lease term. Landlord contributions and tenant allowances are included in the straight-line calculations and are being deferred over the lease term and are reflected as a reduction in rent expense.

Revenue Recognition

The Company has three principal sources of revenues: management fees, performance fees and other fees. These revenues are derived from the Company's agreements with the funds it manages, primarily the BDCs. The investment advisory agreements on which revenues are based are generally renewable on an annual basis by the general partner or the board of directors of the respective funds.

Management Fees

Management fees are generally based on a defined percentage of fair value of assets, total commitments, invested capital, net asset value, net investment income, total assets or par value of the investment portfolios managed by the Company. All management fees are earned from affiliated funds of the Company. The contractual terms of management fees vary by fund structure and investment strategy and range from 0.40% to 2.00% for base management fees, which are asset or capital-based.

Management fees from affiliates also include quarterly incentive fees on the net investment income from the BDCs ("Part I Fees"). Part I Fees are generally equal to 20.0% of the BDCs' net investment income (before Part I Fees and performance fees payable based on capital gains), subject to fixed "hurdle rates" as defined in the respective investment advisory agreement. No fees are recognized until the BDCs' net investment income exceeds the respective hurdle rate, with a "catch-up" provision that serves to ensure the Company receives 20.0% of the BDCs' net investment income from the first dollar earned. Such fees are classified as management fees as they are paid quarterly, predictable and recurring in nature, not subject to repayment (or clawback) and cash settled each quarter. Management fees from affiliates are recognized as revenue in the period investment advisory services are rendered, subject to the Company's assessment of collectability.

Performance Fees

Performance fees are earned from the funds managed by the Company based on the performance of the respective funds. The contractual terms of performance fees vary by fund structure and investment strategy and are generally 15.0% to 20.0%.

The Company has elected to adopt Method 2 of ASC 605-20, Revenue Recognition for Revenue Based on a Formula. Under this method, the Company records revenue when it is entitled to performance-based fees, subject to certain hurdles or benchmarks. The performance fees for any period are based upon an assumed liquidation of the fund's net assets on the

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

reporting date, and distribution of the net proceeds in accordance with the fund's income allocation provisions. The performance fees may be subject to reversal to the extent that the performance fees recorded exceed the amount due to the general partner or investment manager based on a fund's cumulative investment returns.

Performance fees related to the BDCs ("Part II Fees") are calculated and payable in arrears as of the end of each fiscal year of the BDCs and equal 20.0% of the BDCs' realized capital gains, if any, on a cumulative basis since inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.

Other Fees

The Company also provides administrative services to the BDCs and private funds and the fees earned are reported within Revenues — Other fees. These fees generally represent the portion of compensation, overhead and other expenses incurred by the Company directly attributable to the funds, but may also be based on a fund's net asset value. The Company selects the vendors, incurs the expenses, and is the primary obligor under the related arrangements. Such reimbursement is at cost with no profit to, or markup by, the Company. The Company is considered the principal under these arrangements and is required to record the expense and related reimbursement revenue on a gross basis. Other fees are recognized in the periods during which the related expenses are incurred and the reimbursements are contractually earned.

Compensation and Benefits

Compensation generally includes salaries, bonuses and equity-based compensation charges. Bonuses are accrued over the service period to which they relate. All payments made to the Predecessor's managing member since inception and all payments made to the Predecessor's equity members since December 1, 2012 (see Note 12) related to their granted or purchased interests are accounted for as distributions on the equity held by such members.

Equity-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation – Stock Compensation." Under the fair value recognition provision of this guidance, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period.

The Company recognizes expense related to equity-based compensation transactions in which it receives employee services in exchange for: (a) equity instruments of the Company or (b) liabilities that are based on the fair value of the Company's equity instruments. Equity-based compensation expense represents expenses associated with the: (i) granting of Part I Fee-sharing arrangements prior to the Reorganization; (ii) conversion of and acceleration in vesting of interests in the Predecessor in connection with the Reorganization; and (iii) the granting of restricted stock units, options to purchase shares of Class A common stock and stock appreciation rights granted in connection with the IPO.

Stock-based compensation expense is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The effect of such change in estimated forfeitures is recognized through a cumulative catch-up adjustment that is included in the period of the change in estimate.

The value of the portion of the award that is ultimately expected to vest on a straight-line basis over the requisite service period is included within compensation and benefits (except for grants to non-employees which are included in general, administrative and other expenses) in the Company’s Consolidated Statements of Income.

The Company records deferred tax assets or liabilities for equity compensation plan awards based on deductions for income tax purposes of stock-based compensation recognized at the statutory tax rate in the jurisdiction in which the Company is expected to receive a tax deduction. In addition, differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the Company's income tax returns are recorded as adjustments to additional paid-in capital. If the tax deduction is less than the deferred tax asset, the calculated shortfall reduces the pool of excess tax benefits. If the pool of excess tax benefits is reduced to zero, then subsequent shortfalls would increase the income tax expense.

Reimbursable Expenses

In the normal course of business, the Company pays certain expenses on behalf of the BDCs, primarily for professional travel and other costs associated with particular portfolio company holdings of the BDCs, for which it is reimbursed. Such expenses are not an obligation of the Company and are recorded as Due from Affiliates at the time of disbursement (see Note 11).

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Fund Offering and Start-up Expenses

In certain instances, the Company may bear offering costs related to capital raising activities of the Fifth Street Funds, including underwriting commissions, which are expensed as incurred. In addition, the Company expenses all costs associated with starting new investment funds. Included in the Consolidated Statement of Income for the three and nine months ended September 30, 2014 is approximately $910,000 and $1,200,000, respectively, of expenses associated with the formation of FSOF and SLF I.

Income Taxes

Prior to the completion of the IPO, substantially all of the Company's earnings flowed through to the former members of FSM without being subject to entity level income taxes. Accordingly, no provision for income taxes has been recorded in the consolidated financial statements prior to the IPO.

Fifth Street Holdings complies with the requirements of the Internal Revenue Code that are applicable to limited partnerships, which allow for the complete pass-through of taxable income or losses to Fifth Street Holdings limited partners, including FSAM, who are individually responsible for any federal tax consequences. Subsequent to the IPO, the tax provision includes the income tax obligation related to FSAM's allocated portion of Fifth Street Holdings' income, which is net of any tax incurred at Fifth Street Holdings' subsidiaries that are subject to income tax.

Also, as a result of the Reorganization, certain subsidiaries were converted from pass-through entities to taxable entities. Accordingly, the portion of the Company's subsidiaries' earnings attributable to non-controlling interests are subject to tax when reported as a component of the non-controlling interests' taxable income on their individual tax returns.

The Company accounts for income taxes under the asset and liability method prescribed by ASC 740, "Income Taxes." As a result of the Company's acquisition of limited partnership interests in Fifth Street Holdings, the Company expects to benefit from amortization and other tax deductions reflecting the step-up in tax basis in the acquired assets. Those deductions will be used by the Company and will be taken into account in determining the Company's taxable income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Management periodically assesses the recoverability of its deferred tax assets based upon expected future earnings, future deductibility of the asset and changes in applicable tax laws and other factors. If management determines that it is not probable that the deferred tax asset will be fully recoverable in the future, a valuation allowance may be established for the difference between the asset balance and the amount expected to be recoverable in the future. The allowance will result in a charge to the Company’s Consolidated Statements of Income. Further, the Company records its income taxes receivable and payable based upon its estimated income tax liability.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The Company recognizes interest and penalties associated with tax matters such as franchise tax liabilities, if applicable, as general and administrative and other expenses.

Class A Earnings per Share

The Company computes basic earnings per share attributable to FSAM’s Class A common stockholders by dividing income attributable to FSAM by the weighted-average Class A common shares outstanding for the period. Diluted earnings per share reflects the potential dilution beyond shares for basic earnings per share that could occur if securities or other contracts to issue common stock were exercised, converted into common stock, or resulted in the issuance of common stock that would have shared in the Company's earnings. Potentially dilutive securities include outstanding options to acquire Class A common shares, unvested restricted stock units and Fifth Street Holdings limited partnership interests which are exchangeable for shares of Class A common stock. The dilutive effect of stock options and restricted stock units is reflected in diluted earnings per share of Class A common stock by application of the treasury stock method.

Under the treasury stock method, if the average market price of a share of Class A common stock increases above the option's exercise price, the proceeds that would be assumed to be realized from the exercise of the option would be used to acquire outstanding shares of Class A common stock. The dilutive effect of awards is directly correlated with the fair value of the shares of Class A common stock. However, the awards may be anti-dilutive when the market price of the underlying shares exceeds the option's exercise price. This result is possible because the compensation expense attributed to future services but not yet recognized is included as a component of the assumed proceeds upon exercise.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Market and Other Risk Factors

Due to the nature of the Consolidated Fund's investment strategy, the Company is subject to market and other risk factors, including, but not limited to the following:

Market Risk

The market price of investments may significantly fluctuate during the period of investment. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of an investment may decline due to general market conditions which are not specifically related to such investment, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry.

Limited Liquidity of Investments

The Consolidated Fund invests in investments that may not be readily marketable. Illiquid investments may trade at a discount from comparable, more liquid investments, and at times there may be no market at all for such investments. Subordinate investments may be less marketable, or in some instances illiquid, because of the absence of registration under federal securities laws, contractual restrictions on transfer, the small size of the market and the small size of the issue (relative to issues of comparable interests). As a result, the Consolidated Fund may encounter difficulty in selling its investments or may, if required to liquidate investments to satisfy redemption requests of its investors or debt service obligations, be compelled to sell such investments at less than fair value.

Counterparty Risk

Some of the markets in which the Consolidated Fund may effect transactions are "over-the-counter" or "interdealer" markets. The participants in such markets are typically not subject to credit evaluation and regulatory oversight, unlike members of exchange-based markets. This exposes the Consolidated Fund to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the applicable contract (whether or not such dispute is bona fide) or because of a credit or liquidity problem, causing the Consolidated Fund to suffer loss. Such "counterparty risk" is accentuated for contracts with longer maturities where events may occur that prevent settlement, or where the Consolidated Fund has concentrated its transactions with a single or small group of counterparties.

Credit Risk

There are no restrictions on the credit quality of the investments the Consolidated Fund makes. Investments may be deemed by nationally recognized rating agencies to have substantial vulnerability to default in payment of interest and/or principal. Some investments may have low-quality ratings or be unrated. Lower rated and unrated investments have major risk exposure to adverse conditions and are considered to be predominantly speculative. Generally, such investments offer a higher return potential than higher rated investments, but involve greater volatility of price and greater risk of loss of income and principal.

In general, the ratings of nationally recognized rating organizations represent the opinions of agencies as to the quality of the securities they rate. Such ratings, however, are relative and subjective; they are not absolute standards of quality and do not evaluate the market value risk of the relevant securities. It is also possible that a rating agency might not change its rating of a particular issue on a timely basis to reflect subsequent events. The Consolidated Fund may use these ratings as initial criteria for the selection of portfolio assets but are not required to utilize them.

Interest Rate Risk

Fluctuations in interest rates expose the Company to interest rate risk on certain assets and liabilities of the Consolidated Fund. These changes may affect the fair value, interest income and interest expense related to certain floating rate assets and liabilities that are indexed to market interest rates.

Accounting Policies of Consolidated Fund

The Consolidated Fund, in which the Company has a minor ownership interest, is included in the Company's consolidated financial statements. Management fees from the Consolidated Fund are eliminated in consolidation.

The Consolidated Fund is considered an investment company for GAAP purposes. Pursuant to specialized accounting guidance for investment companies and the retention of that guidance in the Company's consolidated financial statements, the investments held by the Consolidated Fund are reflected in the consolidated financial statements at their estimated fair values.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Investments at fair value

Investments at fair value include the Consolidated Fund's investments in securities. Securities transactions are recorded on a trade-date basis. Realized gains and losses on sales of investments are determined on a specific identification basis and are included within net realized gains of Consolidated Fund in the Consolidated Statements of Income. Premiums and discounts are amortized and accreted, respectively, to income of the Consolidated Fund in the Consolidated Statements of Income.

The fair value of investments held by the Consolidated Fund is based on observable market prices when available. Such values are generally based on the last reported sales price as of the reporting date. In the absence of readily ascertainable market values, the determination of the fair value of investments held by the Consolidated Fund may require significant judgment or estimation (see Note 3). Actual results could differ materially from these estimates under different assumptions and conditions.

Deferred Financing Costs

Deferred financing costs consist of fees and expenses paid in connection with the closing of the CLO II securitization and are capitalized at the time of payment. Deferred financing costs are amortized using the straight line method over the terms of the respective maturity of the senior and subordinated notes and are included in interest expense of the Consolidated Fund in the Company's Consolidated Statement of Income.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard will be effective for the Company on January 1, 2018 and early adoption is permitted on the original effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of this standard on its consolidated financial statements and its ongoing financial reporting.

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the requisite service period, which clarifies the recognition of stock-based compensation over the required service period, if it is probable that the performance condition will be achieved. This guidance will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and should be applied prospectively. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements and its ongoing financial reporting.

In August 2014, the FASB issued ASU 2014-13, Measuring the Financial Assets and Financial Liabilities of a Consolidated Collateralized Financing Entity ("CFE"). This guidance requires reporting entities to use the more observable of the fair value of the financial assets or the financial liabilities to measure the financial assets and the financial liabilities of a CFE when a CFE is initially consolidated. It permits entities to make an accounting policy election to apply this same measurement approach after initial consolidation or to apply other GAAP to account for the consolidated CFE's financial assets and financial liabilities. It also prohibits all entities from electing to use the fair value option in ASC 825 to measure either the financial assets or financial liabilities of a consolidated CFE that is within the scope of this issue. This guidance is effective for fiscal years beginning after December 15, 2015, and interim periods therein. Early adoption is permitted using a modified retrospective transition approach as described in the pronouncement. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements and its ongoing financial reporting.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern, which requires management to evaluate, at each annual and interim reporting period, a company's ability to continue as a going concern within one year of the date the financial statements are issued and provide related disclosures. This accounting guidance is effective for the Company on a prospective basis beginning in the first quarter of fiscal 2016 and is not expected to have a material effect on its consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, which provides guidance on evaluating whether a reporting entity should consolidate certain legal entities. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are VIEs. Under this analysis, limited partnerships and other similar entities will be considered a VIE unless the limited partners hold substantive kick-out rights or participating rights. Further, the amendments eliminate the presumption that a general partner should consolidate a limited partnership under the voting interest model, as well as affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. A reporting entity may apply the amendments using a modified retrospective approach or a

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

full retrospective application. As of December 31, 2014, the Company has elected to early adopt such guidance in these consolidated financial statements which resulted in deconsolidation of the Combined Funds. Although total assets and equity significantly decreased as a result of the Combined Funds' deconsolidation, it did not change net income or equity attributable to controlling interests in FSAM.

In April 2015, the FASB issued ASU 2015-03, which changes the presentation of debt issuance costs in a reporting entity's financial statements. Under this new guidance, debt issuance costs will be presented as a direct deduction from the related debt liability instead of an asset. This accounting change is consistent with the current presentation under GAAP for debt discounts and it also converges the guidance under GAAP with that in the International Financial Reporting Standards. Debt issuance costs will reduce the proceeds from debt borrowings in the statement of cash flows instead of being presented as a separate caption in the financing section of that statement. Amortization of debt issuance costs will continue to be reported as interest expense in the statement of income. This accounting update does not affect the current accounting guidance for the recognition and measurement of debt issuance costs. This update is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for all entities for financial statements that have not been previously issued. This guidance is not expected to have a material effect on the consolidated financial statements as it will result in a reclassification on the Consolidated Statements of Financial Condition. Accordingly, there will be no impact on total equity or net income as a result of adoption of this guidance. Additionally, in August 2015, the FASB issued ASU 2015-15, which provides further clarification on the same topic and states that the SEC would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of the deferred costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820) - 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. Removing these investments from the fair value hierarchy will eliminate diversity in current practice resulting from the way in which investments measured at net asset value per share with future redemption dates are classified and ensure that all investments categorized in the fair value hierarchy are classified using a consistent approach. Investments that calculate net asset value per share, but for which the practical expedient is not applied, will continue to be included in the fair value hierarchy. ASU 2015-07 is effective for public entities for annual reporting periods beginning after December 15, 2015 and interim periods within those reporting periods and should be applied retrospectively to all periods presented. Early adoption of the amendments is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). The objective of the guidance in ASU 2015-16 is to simplify the accounting for adjustments made to provisional amounts recognized at acquisition in a business combination by requiring an acquirer to recognize adjustments to the provisional amounts during the measurement period in the reporting period in which the amount is determined, which may be the reporting period for the fiscal year after the acquisition. An acquirer also is required to recognize in the same financial reporting period the effect of changes in depreciation, amortization, or other effects on income, if any, as a result of changes to provisional amounts, which would be calculated as if the accounting had been completed at the acquisition date. The guidance should be applied prospectively to adjustments made to provisional amounts that occur after the effective date of the guidance. ASU 2015-15 is effective for public entities for annual reporting periods beginning after December 15, 2015 and interim periods within those reporting periods. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Note 4. Investments and Fair Value Measurements

Investments of the Consolidated Fund

The following table presents a summary of the investments held by the Consolidated Fund and as a percentage of total investments of the Consolidated Fund as of September 30, 2015:



	Fair Value		Percentage of Investments of Consolidated Fund
Geographic Region/Investment/Industry
North America
Senior secured debt investments:
Aerospace and Defense	$	7,892,268	2.44	%
Broadcast radio and television	16,174,214		5.00	%
Brokerage/securities dealers/investment houses	13,174,593		4.07	%
Building and Development	7,481,968		2.31	%
Business equipment and services	51,100,153		15.80	%
Containers and glass products	5,890,104		1.82	%
Cosmetics/Toiletries	7,547,822		2.33	%
Drugs	17,111,110		5.29	%
Electronics/electric	20,099,797		6.22	%
Farming/agriculture	5,949,600		1.84	%
Financial Intermediaries	2,967,363		0.92	%
Food products	4,502,456		1.39	%
Food/drug retailers	6,022,041		1.86	%
Health care	35,334,676		10.92	%
Home furnishings	6,511,837		2.01	%
Industrial equipment	7,872,464		2.44	%
Oil and gas	6,807,830		2.11	%
Publishing	45,180,369		13.97	%
Retailers (other than food/drug)	33,912,844		10.49	%
Telecommunications	14,198,405		4.39	%
Utilities	7,702,239		2.38	%
Total investments of Consolidated Fund (cost of $323,434,153)	$	323,434,153	100.00	%

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

ASC 820 – Fair Value Measurements and Disclosures ("ASC 820") – defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments' complexity. The Company engages an independent third party valuation firm to assist in the fair value measurement for its beneficial interest in CLO.

Assets and liabilities recorded at fair value in the Company's consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:


•	Level 1 — Unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.


•	Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.


•	Level 3 — Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The Company's capital markets group obtains and analyzes readily available market quotations provided by independent pricing services for all of the Consolidated Fund's senior secured debt investments. In determining the fair value of a particular investment, pricing services use observable market information, including both binding and non-binding indicative quotations. In order to validate market quotations, the capital markets group looks at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. If the quotation provided by the pricing service is based on only one market source, the Company corroborates such information by comparing the value to a third party broker quotation that makes a market in the asset. The value obtained from the pricing service is used to measure fair value unless the difference in price between the two sources is in excess of the Company's established tolerance level, in which case the third party broker quotation is used. If neither the pricing services nor the third party brokers are able to obtain any quoted prices, the Company may utilize independent third party valuation specialists. As of September 30, 2015, the fair values of senior secured debt investments were measured using unadjusted quotations from pricing services. When determining the fair value of publicly traded equity securities, the Company uses the unadjusted closing price as of the valuation date on the primary market or exchange on which they trade.

The following table presents the financial instruments carried at fair value as of September 30, 2015, by caption on the Company's Consolidated Statement of Financial Condition for each of the levels of hierarchy established by ASC 820:



Assets	Level 1		Level 2		Level 3		Total
Investments in available-for-sale securities	$	1,350,775	$	—	$	—	$	1,350,775
Beneficial interests in CLOs	—		—		3,906,078		3,906,078
Senior secured debt investments held by Consolidated Fund	—		—		323,434,153		323,434,153
	$	1,350,775	$	—	$	327,340,231	$	328,691,006



Liabilities	Level 1		Level 2		Level 3		Total
MMKT Notes	$	—	$	—	$	4,644,895	$	4,644,895
Notes payable issued by Consolidated Fund	—		—		364,066,775		364,066,775
	$	—	$	—	$	368,711,670	$	368,711,670

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

The following tables provide a roll-forward in the changes in fair value for all financial instruments for which the Company determines fair value using unobservable (Level 3) factors for the three and nine months ended September 30, 2015:



	Assets								Liabilities
	Beneficial interests in CLOs at fair value			Senior secured debt investments of Consolidated Fund		Total			MMKT Convertible Notes		Notes payable issued by Consolidated Fund		Total
Fair value at June 30, 2015	$	3,022,329		$	—	$	3,022,329		$	150,000	$	—	$	150,000
Purchases of investments	—			323,434,153		323,434,153			—		—		—
Proceeds from issuance of notes payable	—			—		—			4,450,000		364,066,775		368,516,775
Reclassifications (a)	1,043,144			—		1,043,144			—		—		—
Distributions	(231,643		)	—		(231,643		)	—		—		—
Interest income accreted	95,396			—		95,396			44,895		—		44,895
Unrealized losses	(23,148		)	—		(23,148		)	—		—		—
Fair value at September 30, 2015	$	3,906,078		$	323,434,153	$	327,340,231		$	4,644,895	$	364,066,775	$	368,711,670

(a) This adjustment is a part of the financial statement revision shown in Note 2.



	Assets								Liabilities
	Beneficial interests in CLOs at fair value			Senior secured debt investments of Consolidated Fund		Total			MMKT Convertible Notes		Notes payable issued by Consolidated Fund		Total
Fair value at December 31, 2014	$	—		$	—	$	—		$	—	$	—	$	—
Purchases of investments	4,497,036			323,434,153		327,931,189			—		—		—
Proceeds from issuance of notes payable	—			—		—			4,600,000		364,066,775		368,666,775
Distributions	(231,643		)	—		(231,643		)	—		—		—
Interest income accreted	231,231			—		231,231			44,895		—		44,895
Unrealized losses	(590,546		)	—		(590,546		)	—		—		—
Fair value at September 30, 2015	$	3,906,078		$	323,434,153	$	327,340,231		$	4,644,895	$	364,066,775	$	368,711,670

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Significant Unobservable Inputs for Level 3 Financial Instruments

The following table provides quantitative information related to the significant unobservable inputs for Level 3 financial instruments, which are carried at fair value as of September 30, 2015:



Assets	Fair Value		Valuation Technique	Unobservable Input	Input Value
Beneficial interest in CLOs at fair value	$	3,906,078	Discounted Cash Flow	Constant prepayment rate	15%
				Constant default rate	1.5%
				Loss severity rate	30%
Senior secured debt investments held by Consolidated Fund	323,434,153		Independent pricing services and/or broker quotations (a)	N/A	N/A
Total	$	327,340,231

Liabilities	Fair Value		Valuation Technique	Unobservable Input	Input Value
MMKT Notes	$	4,644,895	Recent market transactions	N/A	N/A

Notes payable issued by Consolidated Fund	364,066,775		Recent market transactions	N/A	N/A
Total	$	368,711,670

(a) The Company does not have transparency into the valuation methodology used by independent pricing services.

Under the discounted cash flow approach, the significant unobservable inputs used in the fair value measurement of the Company's beneficial interest in the CLOs are the constant prepayment rate, constant default rate and loss severity. Significant increases or decreases in the constant prepayment rate, constant default rate and loss severity rate in isolation may result in a significantly lower or higher fair value measurement, respectively. The cost of the MMKT Notes and Notes payable issued by Consolidated Fund approximated fair value as there were recent market transactions near quarter end.

The Company did not have any financial instruments carried at fair value as of December 31, 2014.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Financial Instruments Disclosed, But Not Carried At Fair Value

The following table presents the carrying value and fair value of the Company's financial assets and liabilities disclosed, but not carried, at fair value as of September 30, 2015 and the level of each financial asset and liability within the fair value hierarchy:



	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Loan payable - Risk Retention Credit Facility	$	16,975,924	$	16,975,924	$	—	$	—	$	16,975,924
Loan payable - DECD loan	4,000,000		4,042,684						4,042,684
Credit facility payable	35,000,000		35,000,000		—		—		35,000,000
Payables to related parties pursuant to tax receivable agreements	45,821,556		41,084,215		—		—		41,084,215
Total	$	101,797,480	$	97,102,823	$	—	$	—	$	97,102,823

The following table presents the carrying value and fair value of the Company's financial assets and liabilities disclosed, but not carried, at fair value as of December 31, 2014 and the level of each financial asset and liability within the fair value hierarchy:



	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Loan payable - DECD loan	$	4,000,000	$	4,049,110	$	—	$	—	$	4,049,110
Credit facility payable	12,000,000		12,000,000		—		—		12,000,000
Note payable included in Due to Principal	5,564,451		5,564,451		—		—		5,564,451
Payables to related parties pursuant to tax receivable agreements	47,373,245		42,352,014		—		—		42,352,014
Total	$	68,937,696	$	63,965,575	$	—	$	—	$	63,965,575

The Company utilizes a bond yield approach to estimate the fair value of its DECD loan, which is included in Level 3 of the hierarchy. Under the bond yield approach, the Company uses its incremental borrowing rate to determine the present value of the future cash flow streams related to the liability.

The carrying values of the Risk Retention Credit Facility, credit facility payable and the notes payable included in Due to Principal approximate their fair value and are included in Level 3 of the hierarchy.

The Company utilizes a discounted cash flow approach to estimate the fair value of its payables to related parties pursuant to TRAs, which is included in Level 3 of the hierarchy. Under the discounted cash flow approach, the Company estimates the present value of estimated future tax benefits pursuant to the TRA discounted using a market interest rate.

Note 5. Due from Affiliates

In connection with administration agreements that are in place (see Note 11), the Company provides certain administrative services for the BDCs and private funds, including office facilities and equipment, and clerical, bookkeeping and recordkeeping services at such facilities. For providing these services, facilities and personnel, the BDCs and private funds reimburse the Company for direct fund expenses and the BDCs reimburse the Company for the allocable portion of overhead and other expenses incurred by the Company in performing its obligations under the administration agreements.

Also, in the normal course of business, the Company pays certain expenses on behalf of the BDCs, primarily for travel and other costs associated with particular portfolio company holdings of the BDCs, for which it is reimbursed. Such expenses are not obligations of the Company and are recorded as Due from affiliates at the time of disbursement (see Note 11).

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Note 6. Fixed Assets

Fixed assets consist of the following:



	September 30, 2015			December 31, 2014
Furniture, fixtures and equipment	$	1,578,660		$	3,563,172
Capitalized software costs	319,429			—
Leasehold improvements	10,403,949			7,864,805
Fixed assets, cost	12,302,038			11,427,977
Less: accumulated depreciation and amortization	(2,195,939		)	(1,153,714		)
Fixed assets, net book value	$	10,106,099		$	10,274,263

Depreciation and amortization expense related to fixed assets for the three and nine months ended September 30, 2015 was $363,373 and $1,042,224, respectively. Depreciation and amortization expense related to fixed assets for the three and nine months ended September 30, 2014 was $350,342 and $468,749, respectively.

Note 7. Other Assets

Other assets consist of the following:



	September 30, 2015		December 31, 2014
Security deposits	$	515,105	$	453,375
Fractional interests in aircrafts (a)	3,372,963		3,585,283
Other	178,511		158,700
	$	4,066,579	$	4,197,358

__________________

(a)

In November 2013, the Company entered into an agreement that entitled it to the use of a corporate aircraft for five years. The amount paid, less the estimated trade-in value, is being amortized on a straight-line basis over the expected five-year term of the agreement. In December 2014, the Company sold half of this interest and entered into an agreement for a second corporate aircraft for five years. Amortization expense for the three and nine months ended September 30, 2015 was $70,773 and $212,320, respectively. Amortization expense for the three and nine months ended September 30, 2014 was $58,199 and $172,700, respectively.

Note 8. Due to Former Member

On November 5, 2010, the Company entered into a separation agreement with a member that provided for (i) the repurchase of the member's pro rata share of Part I Fees based on a formula, as defined in the separation agreement, over a five year period ending on September 30, 2015, and (ii) upon the closing of a sale transaction of the Company, the allocation by the managing member to the former member of any proceeds from the sale up to a maximum of $6,000,000. Accordingly, the Company recorded a liability for the present value of the expected future payments of the member's pro rata share of Part I Fees as of the date of the separation agreement and adjusted this liability to fair value at each reporting date. All amounts due to this former member were paid in November 2014. Included in compensation expense for the three and nine months ended September 30, 2014 were fair value adjustments related to this liability that increased compensation expense in the amount of $44,291 and $180,863, respectively.

On May 17, 2014, the Company entered into a separation agreement with a member that provided for (i) the repurchase of the member's pro rata share of Part I Fees for $1,713,802, and (ii) upon the closing of a sale transaction of the Company, the allocation by the managing member to the former member of a portion of net proceeds from the sale. In connection with the agreement to repurchase the former member's interest, the Company recognized compensation expense in the amount of $2,599,803, representing the amount paid and the reclassification of amounts previously recorded as distributions since December 1, 2012, as the award was forfeited prior to vesting. In addition, the Company recognized compensation expense in the amount of approximately $2,327,548 in connection with the reallocation to the managing member of the former member's forfeited interest. Such amount represents the fair value of the interest in the amount of $4,035,926, as determined by an independent third party appraisal, net of the cash paid on July 3, 2014 in the amount of $1,713,802.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Note 9. Debt

Loans Payable

Loans payable consist of the following:



	September 30, 2015		December 31, 2014
DECD loans	$	4,000,000	$	4,000,000
MMKT Notes (a)	4,644,895		—
Risk Retention Credit Facility	16,975,924		—
	$	25,620,819	$	4,000,000

(a) Includes accrued interest in the amount of $44,895.

DECD

On October 7, 2013, the Company borrowed $4,000,000 from the Department of Economic and Community Development (the "DECD") of the State of Connecticut. Proceeds from the loan were utilized to partially fund the build-out costs of the Company's new headquarters in Greenwich, CT. The loan bears interest at a fixed rate of 2.5% per annum, matures on November 21, 2023 and requires interest-only payments through November 1, 2017, at which point monthly payments of principal and interest are required until maturity or such time that the loan is repaid in full. As security for the loan, the Company has granted the State of Connecticut a blanket interest in the Company's personal property, subject only to prior security interests permitted by the State of Connecticut. For the three and nine months ended September 30, 2015 and 2014, interest expense related to this loan in the amounts of $25,206 and $74,795, respectively, is included in interest and other income (expense) in the Consolidated Statements of Income.

Outstanding principal amounts related to this loan maturing over the next five years are as follows:



2015	$	—
2016	—
2017	51,551
2018	627,050
2019	642,908

Under the terms of the agreement, the Company is eligible for forgiveness of up to $3,000,000 of the principal amount of the loan based on certain job creation milestones, as mutually agreed to by the Company and the DECD. If the Company is unable to meet these job creation milestones, the DECD may impose a penalty upon the Company in an amount equal to $78,125 per job below the required amount. To date, no penalties have been assessed by the DECD.

MMKT Convertible Notes

On February 24, 2015, MMKT issued $800,000 in aggregate principal amount of Convertible Promissory Notes (the "MMKT Notes") due August 31, 2016, bearing interest at a rate of 8% per annum due upon maturity, prepayment or conversion to the Company. On each of February 27, 2015, April 1, 2015 and August 5, 2015, MMKT issued additional MMKT Notes in the amounts of $50,000, $100,000 and $2,000,000, under the same terms as the MMKT Notes issues to the Company.

On each of August 28, 2015 and September 4, 2015, MMKT issued new Convertible Promissory Notes, due August 5, 2016 and bearing interest at a rate of 8% per annum due upon maturity, prepayment or conversion ("MMKT Restated Notes") to the Company and additional investors. MMKT Restated Notes also were issued to all existing holders in exchange for their outstanding MMKT Notes (the "Exchange"). The Exchange was a non-cash transaction and the principal amounts of the existing MMKT Restated Notes issued to the previous holders were increased to account for the interest accrued over the period prior to the Exchange in the amount of $2,950,000. Additionally, MMKT issued $2,950,000 in aggregate principal amount of MMKT Restated Notes to new investors.

In the event of a "Qualified Financing," in which MMKT sells, in a single or series of related transactions, equity securities in an aggregate amount of at least $4,000,000, or an equity financing in a lesser amount if approved in writing by at least 60% of the outstanding principal amount of MMKT Restated Notes (the “Majority Holder Threshold”), the principal amount of and accrued interest on the MMKT Restated Notes shall automatically be converted into the identical class or series of equity issued by MMKT in the Qualified Financing. The number or amount of Qualified Financing securities to be issued to holders upon such conversion shall be calculated by dividing (i) the entire principal amount of such holder’s MMKT Restated Notes plus

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

accrued interest by (ii) the lesser of (x) the price paid per Qualified Financing security multiplied by the applicable “Qualified Financing Conversion Price” or (y) the price per Qualified Financing security implied by a pre-money valuation of $100,000,000 calculated on a fully diluted basis. The Qualified Financing Conversion Price ranges from 80-85% on a descending monthly basis from October 31, 2015 through March 1, 2016 and is dependent upon the date of the Qualified Financing. In the event of the closing of an acquisition, merger or sale of all or substantially all of MMKT, each holder may elect to convert its MMKT Restated Notes into common equity of MMKT or accelerate the maturity date of its MMKT Restated Notes to the date of closing of such transaction, and MMKT must repurchase the MMKT Notes at par plus accrued interest. Holders may also declare the MMKT Restated Notes in default and immediately due and payable in full if MMKT: (i) fails to pay any principal or interest payment on the date due, and payment is not made within 5 days of the MMKT's receipt of written notice of failure to pay, (ii) materially breaches any covenant in the MMKT Restated Notes and such failure continues for 15 days after MMKT receives written notice, (iii) voluntarily files for bankruptcy protection or makes a general assignment for the benefit of creditors, or (iv) is the subject of an involuntary bankruptcy petition and such petition is not dismissed within 60 days. If an event of default occurs, and until any applicable Restated Note is paid in full or converted, the MMKT Notes shall bear interest at a rate equal to the lower of (i) the sum of the interest rate plus 12% per annum or (ii) the highest rate allowed by law.

The foregoing terms are substantially identical to those contained in the prior MMKT Notes (provided that the Majority Holder Threshold in the MMKT Notes was 50%), with the addition of one optional conversion clause to the MMKT Restated Notes. This clause gives each holder the option at any time to convert the entire principal amount and accrued interest on its MMKT Restated Notes into MMKT common equity, where the number or amount of common equity to be issued upon conversion shall be calculated by dividing (i) the entire principal amount of the MMKT Restated Notes plus accrued interest by (ii) the implied per share price assuming a pre-money valuation of $100,000,000 calculated on a fully diluted basis.

Due to the substantive conversion feature added to the MMKT Restated Notes, the Company has determined that the original MMKT Notes were extinguished. There was no gain or loss on the issuance as the transaction value was equivalent to principal plus accrued interest on the previous notes. The Company has elected the fair value option on the MMKT Restated Notes and has determined that the fair value as of September 30, 2015 approximated cost since the transaction closed near quarter end.

FSM holds $1,300,000 of MMKT Restated Notes as of September 30, 2015, which are eliminated in consolidation. For the three and nine months ended September 30, 2015, interest expense related to these notes in the amounts of $41,640 and $44,895, respectively, is included in interest and other income (expense) in the Consolidated Statements of Income.

Risk Retention Credit Facility

On September 28, 2015, CLO Management, a wholly-owned consolidated subsidiary of the Company, entered into a Risk Retention Credit Facility to provide financing for its purchase of CLO II senior notes. The Company's beneficial interests in CLO II in the aggregate amount of $20,910,115 at fair value are pledged as collateral to the Risk Retention Credit Facility. The facility matures on September 29, 2027 with certain lenders party thereto from time to time and Natixis, New York Branch, as administrative agent and joint lead arranger, and Bleachers Finance 1 Limited as syndication agent and joint lead arranger. The Risk Retention Credit Facility provides for $17 million of borrowing capacity and bears interest at a variable rate based on either LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change based on a total leverage ratio. Borrowings under the Risk Retention Credit Facility accrue interest at a rate based on the interest rate on the financed notes and the weighted current cost basis. The Risk Retention Credit Facility contains customary affirmative and negative covenants for agreements of this type, including financial maintenance requirements, delivery of financial and other information, compliance with laws, further assurances and limitations with respect to indebtedness, liens, fundamental changes, restrictive agreements, dispositions of assets, acquisitions and other investments, conduct of business and transactions with affiliates. The Company is in compliance with all covenants as of September 30, 2015 and has $16,975,924 of borrowings outstanding under the Risk Retention Credit Facility, which had a fair value of $16,975,924. For the three and nine months ended September 30, 2015, interest expense related to the Risk Retention Credit Facility in the amount of $3,359 is included in interest and other income (expense) in the Consolidated Statements of Income.

Credit Facility

On November 4, 2014, Fifth Street Holdings entered into an unsecured revolving credit facility which matures on November 4, 2019 with certain lenders party thereto from time to time and Sumitomo Mitsui Banking Corporation, as administrative agent and joint lead arranger, and Morgan Stanley Senior Funding, Inc., as syndication agent and joint lead arranger. The revolving credit facility provides for $176 million of borrowing capacity, with a $100 million accordion feature, and bears interest at a variable rate based on either LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change based on a total leverage ratio. Borrowings under the revolving credit facility

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

accrue interest at an annual rate of LIBOR plus 2.00% per annum and the unused commitment fee under the facility is 0.30% per annum. The revolving credit facility contains customary affirmative and negative covenants for agreements of this type, including financial maintenance requirements, delivery of financial and other information, compliance with laws, further assurances and limitations with respect to indebtedness, liens, fundamental changes, restrictive agreements, dispositions of assets, acquisitions and other investments, conduct of business and transactions with affiliates. The revolving credit facility has a term of five years. As of September 30, 2015, the Company had $35,000,000 of borrowings outstanding under the credit facility, which had a fair value of $35,000,000, and was in compliance with all debt covenants. For the three and nine months ended September 30, 2015, interest expense related to the credit facility in the amounts of $437,442 and $1,199,940, respectively, is included in interest and other income (expense) in the Consolidated Statements of Income.

Notes Payable of Consolidated Fund

On September 29, 2015, Fifth Street CLO Management LLC, a wholly-owned subsidiary controlled by FSAM, closed its second CLO, CLO II, a $416.6 million collateralized loan obligation ("CLO"). The vehicle has a four-year reinvestment period. CLO II sold securities rated from Aaa/AAA through Ba3 along with unrated subordinated notes that mature September 29, 2027. CLO Management retained approximately five percent of every class and Natixis Securities America LLC served as the Placement Agent.

The closing consisted of the following senior and subordinated notes:

Designation (1)

Class A-1R Notes

Class A-1T Notes

Class A-1F Notes

Class A-2 Notes

Class B Notes

Class C Notes

Class D Notes

Subordinated Notes

Type

Senior Secured Revolving Floating Rate

Senior Secured Floating Rate

Senior Secured Fixed Rate

Senior Secured Floating Rate

Senior Secured Deferrable Floating Rate

Subordinated

Initial Principal Amount/ Face Amount

$20,000,000

$175,800,000

$31,000,000

$40,600,000

$39,600,000

$22,300,000

$35,200,000

$52,100,000

Interest Rate

LIBOR + 1.92%

3.53%

LIBOR + 2.81%

LIBOR + 3.72%

LIBOR + 4.85%

LIBOR + 7.30%

N/A

CLO Management investment (a)

$—

$11,800,000

$—

$2,100,000

$2,050,000

$1,150,000

$1,800,000

$2,605,000

__________________


(a)	These senior and subordinated notes are eliminated in consolidation as they are held by CLO Management, the Company's consolidated subsidiary.

CLO Management has continuing involvement with CLO II as it is the collateral manager for the vehicle. There was no interest expense recorded for these notes for the three and nine months ended September 30, 2015.

Note 10. Commitments and Contingencies

Leases

The Company leases office space in various locations throughout the United States and maintains its headquarters in Greenwich, CT. On July 22, 2013, the Company entered into a lease agreement with a related party (see Note 10) for office space in Greenwich, CT that expires on September 30, 2024. Other non-cancelable office leases in other locations expire through 2020. The Company's rental lease agreements are generally subject to escalation provisions on base rental payments, as well as certain costs incurred by the property owner and are recognized on a straight-line basis over the term of the lease agreements.

In July 2014, the Company terminated the operating lease for its White Plains, NY office. Under the terms of the agreement with the landlord, the Company paid an early termination fee of $616,852 at that time and was obligated to pay rent through November 30, 2015. Accordingly, upon lease termination, the Company had recognized an additional expense in the amount of $460,658 representing the fair value of the remaining lease obligation. During March 2015, the Company reached an agreement with its landlord to cancel a significant portion of its remaining lease obligation which resulted in a reduction of rent expense in the amount of $341,044.

Capital Commitments

As of September 30, 2015, the Company does not have any unfunded capital commitments.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Unfunded Commitments of Consolidated Fund

As of September 30, 2015, the Consolidated Fund had approximately $1,185,000 in unfunded commitments related to the senior secured debt investments.

Litigation

From time to time, the Company may be involved in litigation and claims incidental to the conduct of the Company's business. The Company may also be subject, from time to time, to reviews, inquiries and investigations by regulatory agencies that have regulatory authority over the Company's business activities. Refer to Note 15 for a description of pending litigation which arose after period end.

Note 11. Related Party Transactions

Due to Principal

On October 29, 2014, the Company issued notes payable to a Principal in the amount of $5,564,451 representing an initial estimate of the undistributed earnings of the Predecessor as of the IPO. Such notes bore interest at 1.0% per annum and were due no later than June 30, 2015. In addition to the notes, the Company accrued an additional $3,482,478 representing the finalization of the amount of undistributed earnings of the Predecessor to the Principal as of the IPO. The entire amount was paid in April 2015 in full satisfaction of all obligations under the notes payable.

Payments Pursuant to Tax Receivable Agreements

FSAM's purchase of Holdings LP Interests concurrent with its IPO, and the subsequent and future exchanges by holders of Holdings LP Interests for shares of FSAM's Class A common stock pursuant to the Exchange Agreement resulted in increases in its share of the tax basis of the tangible and intangible assets of Fifth Street Holdings, which increased the tax depreciation and amortization deductions that otherwise would not have been available to FSAM. These increases in tax basis and tax depreciation and amortization deductions reduce the amount of cash taxes that FSAM would otherwise be required to pay. FSAM entered into a TRA with certain limited partners of Fifth Street Holdings TRA Recipients that requires it to pay them 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax that FSAM actually realizes (or, under certain circumstances, is deemed to realize) as a result of the increases in tax basis in connection with exchanges by the TRA Recipients described above and certain other tax benefits attributable to payments under the TRA. As of September 30, 2015, payments due to the TRA Recipients under the TRA totaled $45,821,556.

In connection with the finalization of the 2014 tax returns, FSAM will pay $340,255, representing the initial payment associated with the TRA liability and the Company has reduced the tax benefit associated with the TRA by $273,828. Within the next 12 month period, the Company expects to pay $2,051,328 of the total amount of estimated TRA liability. Such amount was determined by estimating the amount of taxable income and specified deductions subject to the TRA which are expected to be realized by FSAM for the related tax year. These calculations are performed pursuant to the terms of the TRAs.

Payments are anticipated to be made under the TRAs indefinitely, and are due within 45 calendar days after the date FSAM files its federal income tax return. The payments are to be made in accordance with the terms of the TRAs. The timing of the payments is subject to certain contingencies including the Company having sufficient taxable income to utilize all of the tax benefits defined in the TRAs.

Obligations pursuant to the TRAs are obligations of FSAM. They do not impact the non-controlling interests in Fifth Street Holdings. These obligations are not income tax obligations and have no impact on the tax provision or the allocation of taxes. In general, items of income, gain, loss and deduction are allocated on the basis of the limited partners' ownership interests pursuant to the Fifth Street Holdings limited partnership agreement after taking into consideration all relevant sections of the Internal Revenue Code.

Other Related Party Transactions

Revenues

All of the Company's revenue is earned from its affiliates, including management fees, performance fees and other fees.

For the three months ended September 30, 2015 and 2014, the Company earned $22,927,964 and $22,715,966, respectively, in management fees relating to services provided to the BDCs. For the nine months ended September 30, 2015 and 2014, the Company earned $68,561,315 and $66,529,533, respectively, in management fees relating to services provided to

the BDCs. As of September 30, 2015 and December 31, 2014, management fees receivable in the amounts of $19,600,003 and $23,195,707, were due from the BDCs. For the three months ended September 30, 2015 and 2014, the Company voluntarily waived $145,399 and $378,890 of management fees from the BDCs, respectively. For the nine months ended September 30, 2015 and 2014, the Company voluntarily waived $435,232 and $841,715 of management fees from the BDCs, respectively. In connection with the misstatements discussed in Note 2, the Company has recorded a reduction of its management fees receivable from FSC and FSFR in the amounts of $1,863,242 and $1,464,728, respectively.

On July 14, 2015, FSC announced that FSM, its investment adviser, voluntarily agreed to a revised base management fee arrangement ("Revised Management Fee") for the period commencing on July 1, 2015 and remaining in effect until January 1, 2017. The Revised Management Fee is intended to provide for a potential reduction in the base management fee payable by FSC to FSM during such period. The Revised Management Fee will be calculated quarterly and will be equal to FSC’s gross assets, including assets acquired with borrowed funds, but excluding any cash and cash equivalents, multiplied by 0.25 multiplied by the sum of (x) and (y), expressed as a percentage, where (x) is equal to 2% multiplied by the Baseline NAV Percentage, and (y) is equal to 1% multiplied by the Incremental NAV Percentage.

The “Baseline NAV Percentage” is the percentage derived by dividing FSC’s net asset value as of March 31, 2015 (i.e., $1,407,774,000) (the “Baseline NAV”), by the net asset value of FSC at the beginning of the fiscal quarter for which the fee is being calculated (the “New NAV”). The “Incremental NAV Percentage” is the percentage derived by dividing the New NAV in excess of the Baseline NAV by the New NAV.

FSM’s letter agreement modifies the base management fee payable to FSM pursuant to the investment advisory agreement by and between FSC and FSM and results in a blended annual base management fee rate that will not be less than 1%, or greater than 2%. The initial computation of the Revised Management Fee will occur at the end of the quarter following the quarter in which FSC issues or sells shares of its common stock, including new shares issued as dividends or pursuant to the FSC’s dividend reinvestment plan, but excluding certain non-ordinary course transactions as outlined below. Prior to that time, the annual base management fee rate will remain at 2%. Moreover, if any recalculation of the base management fee rate would otherwise result in an increase of the blended rate used, the blended rate in effect immediately prior to such recalculation would remain in effect until such time, if any, as a recalculation following an equity issuance would result in a lower base management fee rate. The waiver discussed above has not impacted the management fees earned from FSC as its net asset value has been below the Baseline NAV per the agreement.

Performance fees for the three months ended September 30, 2015 and 2014 were $2,596 and $139,049, respectively. Performance fees earned for the nine months ended September 30, 2015 and 2014 were $79,451 and $54,826, respectively.

The Company also has entered into administration agreements under which the Company provides administrative services for the BDCs and private funds (collectively, the "Fifth Street Funds"), including office facilities and equipment, and clerical, bookkeeping and recordkeeping services at such facilities. Under the administration agreements, the Company also performs or oversees the performance of the BDCs' required administrative services, which includes being responsible for the financial records which the BDCs are required to maintain and preparing reports to the BDCs' stockholders and reports filed with the SEC. In addition, the Company assists each of the BDCs in determining and publishing its net asset value, overseeing the preparation and filing of its tax returns and the printing and dissemination of reports to the each of the BDC's stockholders, and generally overseeing the payment of each Fifth Street Fund's expenses and the performance of administrative and professional services rendered to the funds. For providing these services, facilities and personnel, the Fifth Street Funds reimburse the Company for direct fund expenses and the BDCs reimburse the Company for the allocable portion of overhead and other expenses incurred by the Company in performing its obligations under the administration agreements, including rent and such BDC's allocable portion of the costs of compensation and related expenses of such BDC's chief financial officer and chief compliance officer and their staffs. Such reimbursement is at cost with no profit to, or markup by, the Company. Included in Revenues — other fees in the Consolidated Statements of Income for the three months ended September 30, 2015 and 2014 was $1,347,133 and $2,187,933, respectively, related to amounts charged for the above services provided to the Fifth Street Funds. For the nine months ended September 30, 2015 and 2014, $3,668,878 and $4,205,987, respectively, was recorded related to amounts charged for the above services provided to the Fifth Street Funds. The Company may also provide, on the BDCs' behalf, managerial assistance to such BDC's portfolio companies. Each of the administration agreements may be terminated by either the Company or the BDC without penalty upon 60 days' written notice to the other party.

Receivables for reimbursable expenses from the Fifth Street Funds are included within Due from Affiliates and totaled $2,024,931 and $3,723,160 at September 30, 2015 and December 31, 2014, respectively.

MMKT

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

On December 22, 2014, FSM entered into a limited liability company agreement, as majority member, with Leonard Tannenbaum’s brother, as minority member, for the purpose of forming MMKT. The purpose of MMKT is to develop technology related to the financial services industry. FSM made a total capital contribution of $80,000 for an 80% membership interest in MMKT. The Company has consolidated MMKT in its consolidated financial statements since it holds a controlling financial interest in MMKT. The Company has consolidated MMKT in its consolidated financial statements based on its 80% membership interest. The operating losses attributable to MMKT was $399,999 and $830,298 for the three and nine months ended September 30, 2015, respectively. As of September 30, 2015, FSM holds $1,300,000 in the aggregate principal amount of convertible promissory notes, which is eliminated in consolidation.

FSOF

As of September 30 2015, the Company has made capital contributions (net of redemptions) of $6,412,635 to FSOF through its investment in FSCO GP, which is recorded in investments in equity method investees in the Consolidated Statements of Financial Condition. For the three and nine months ended September 30, 2015, the Company recorded income from its investment in FSOF of $2,540.

CLO I and CLO II

As of September 30 2015, the Company has made investments in senior and subordinated notes in CLO I in the amount $4,496,624, which had a fair value of $3,906,078. For the three and nine months ended September 30, 2015, interest income accreted from FSM's investment in CLO I was $95,396 and $231,231. As of September 30 2015, the Company has made investments in senior and subordinated notes in CLO II in the amount $20,910,115 (which approximates fair value as of such date), which is eliminated in consolidation. Additionally, Leonard M. Tannenbaum invested $5,800,000 in senior and subordinated notes in connection with the CLO II securitization.

Other

On July 22, 2013, the Company entered into a lease agreement for office space for its headquarters in Greenwich, CT. The landlord is an entity controlled by Leonard M. Tannenbaum, the Company's chairman and chief executive officer. The lease agreement requires monthly rental payments at market rates, expires on September 30, 2024 and can be renewed at the request of the Company for two additional five year periods. Rental payments under this lease of approximately $2,000,000 per year began on October 11, 2014.

The Company's fractional interests in corporate aircrafts are used primarily for business purposes. Occasionally, certain of the members of management have used the aircraft for personal use. The Company charges these members of management for such personal use based on market rates. There were no such charges for the three and nine months ended September 30, 2015 and 2014.

During the three months ended September 30, 2015, the Company purchased 154,728 shares of FSFR common stock in the open market for $1,379,679, which represented a weighted average price of $8.92 per share.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

As of September 30, 2015 and December 31, 2014 amounts due to and from affiliates were comprised of the following:



	As of September 30, 2015		As of December 31, 2014 (as revised)
Management fees receivable:
Base management fees receivable - BDCs	$	13,761,159	$	15,200,933
Part I Fees receivable - BDCs	5,838,844		7,809,194
Collateral management fees receivable - CLO I and CLO II	291,211		351,274
Management fees receivable - FSOF	—		2,500
	$	19,891,214	$	23,363,901

Performance fees receivable:
Performance fees receivable - FSOF	$	79,451	$	106,635
	$	79,451	$	106,635

Due from affiliates:
Reimbursed expenses due from the BDCs	$	1,733,210	$	3,596,975
Reimbursed expenses due from private funds	291,721		126,185
Due from employees	57,780		59,489
Other amounts due from affiliated entities	46,393		16,893
	$	2,129,104	$	3,799,542

Due to affiliates:
Distribution payable to former members of Predecessor	$	—	$	59,316
SARs liability	19,059		3,465
	$	19,059	$	62,781

Note 12. Equity and Equity Based Compensation

FSAM Ownership Structure

Subsequent to the Reorganization and IPO as described in Note 1, FSAM has two classes of common stock, Class A common stock and Class B common stock, which are described as follows:

Class A common stock

Holders of shares of Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Additionally, holders of shares of Class A common stock are entitled to receive dividends when and if declared by the Board of Directors, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock.

Upon dissolution, liquidation or the sale of all or substantially all of the Company's assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of Class A common stock would be entitled to receive the Company's remaining assets available for distribution on pro rata basis.

Holders of shares of Class A common stock do not have preemptive, subscription, redemption or conversion rights.

Class B common stock

Holders of Class B common stock are entitled to five votes for each share held of record on all matters submitted to a vote of stockholders. Shares of Class B common stock have voting but no economic rights and were issued in equal proportion to the number of Holdings LP Interests issued in the Reorganization to the Principals.

Holders of Class B common stock do not have any right to receive dividends (other than dividends consisting of shares of Class B common stock or in rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class B common stock paid proportionally with respect to each outstanding share of Class B common stock) or to

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

receive a distribution upon the dissolution, liquidation or sale of all or substantially all of the Company's assets with respect to their Class B common stock other than the par value of the Class B common stock held.

FSAM's amended and restated certificate of incorporation does not provide for any restrictions on transfer of shares of Class B common stock, however, in the event that an outstanding share of Class B common stock ceases to be held by a holder of a corresponding Holdings LP Interest, such share shall automatically be retired and canceled. In addition, when a Holdings LP Interest is exchanged for a share of Class A common stock by a Principal, the corresponding share of Class B common stock will be retired and canceled.

Preferred Stock

FSAM's amended and restated certificate of incorporation authorizes its Board of Directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or by any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by holders of Class A common stock. FSAM's Board of Directors is able to determine, with respect to any series of preferred stock, the terms and rights of the series of preferred stock.

FSAM could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of its stockholders may believe is in their best interests or in which they may receive a premium for their Class A common stock over the market price of the Class A common stock.

Allocation of pre-IPO Earnings

In connection with the IPO, the previous members of FSM agreed to allocate to the limited partners of Fifth Street Holdings, including FSAM, the Company's earnings (excluding the compensation charges related to the Reorganization) from October 1, 2014 through the date of the IPO.

Dividends

On January 15, 2015, the Company's Board of Directors declared an initial quarterly dividend of $0.30 per share on its Class A common stock. The declared dividend was paid on April 15, 2015 to stockholders of record at the close of business on March 31, 2015.

On May 11, 2015, the Company's Board of Directors declared a quarterly dividend of $0.17 per share on its Class A common stock. The declared dividend was paid on July 15, 2015 to stockholders of record at the close of business on June 30, 2015.

On August 10, 2015, the Company's Board of Directors declared a quarterly dividend of $0.17 per share on its Class A common stock. The declared dividend is payable on October 15, 2015 to stockholders of record at the close of business on September 30, 2015.

Share Repurchase Program

On May 11, 2015, the Company's Board of Directors authorized a share repurchase program of up to $20.0 million of the Company’s Class A common stock. Under the repurchase program, the Company is authorized to repurchase shares through open market purchases or block trades, as conditions permit and in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The repurchase program will terminate on May 11, 2016, unless earlier terminated or extended by the Company's Board of Directors, and may be suspended for periods or discontinued at any time. For the nine months ended September 30, 2015, FSAM repurchased and retired 217,641 shares of its Class A common stock at a weighted average price of $8.47 per share pursuant to this program. The aggregate cash consideration paid for these repurchases was $1,849,140 after brokerage commissions. Upon the completion of each Class A common stock repurchase transaction, Fifth Street Holdings repurchased an equivalent number of Holdings LP Interests held by FSAM. Accordingly, Fifth Street Holdings repurchased 217,641 Holdings LP Interests during the nine months ended September 30, 2015.

Equity-based Compensation

Prior to the Reorganization, the Company historically had fee sharing arrangements whereby certain employees or members were granted interests to a share of Part I Fees. Upon consummation of the Reorganization such interests were exchanged for Holdings LP Interests. In addition, upon consummation of the IPO, the Company granted certain equity instruments to Holdings Limited Partners, employees and directors.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Part I Fees

Prior to December 1, 2012, interests in the Company's Part I Fees that were granted and/or sold to members (other than the managing member) were accounted for as liabilities using the intrinsic-value method as these interests are subject to repurchase in the event of the member's termination of employment, at a formula-based price (as defined in the then existing operating agreement) determined by the member's pro rata share of Part I Fees. In addition, the redemption amounts were exclusive of any accumulated undistributed earnings associated with the member's interests, which were also required to be paid to a former member.

Effective December 1, 2012, the Fifth Street operating agreement was amended to include a retirement eligibility vesting clause for then existing members (“equity members”). Members admitted after December 1, 2012, were considered non-equity members as their interests did include the retirement eligibility clause and were accounted for as liabilities using the intrinsic-value method consistent with the above. The amounts paid by the equity members prior to December 1, 2012 for these interests, totaling $2,065,664, which had been accounted for as a liability, were reclassified to members' equity with payments subsequent to December 1, 2012 being accounted for as distributions from equity. The fair value of these awards at that date in the amount of $15,187,787, net of cash paid for the awards, as determined by an independent third party appraisal, was amortized on a straight-line basis over the period to retirement eligibility.

Conversion and Vesting of Member Interests in Predecessor and Fifth Street Holdings L.P.

On November 4, 2014, in connection with the Reorganization, existing interests held by the members of the Predecessor (Part I fee-sharing arrangements discussed above) were exchanged for Holdings LP Interests. As part of this exchange, one of the members' Holdings LP Interests became immediately vested and expensed in full and the other members' vesting was modified and their Holdings LP Interests now vest over a period of eight years from the IPO. There was no change in the fair value of these converted interests as a result of the modification in vesting.

The following table summarizes activity for the nine months ended September 30, 2015 and 2014 with respect to the Company's equity classified awards:



Balance at December 31, 2013	$	18,243,398
Fair value of purchased interest	4,035,926
Cash received for purchased interest	(1,708,378		)
Amortization of granted and purchased interests	(3,815,194		)
Balance at September 30, 2014	$	16,755,752

Balance at December 31, 2014	$	8,043,058
Amortization of Holdings LP Interests	(770,079		)
Balance at September 30, 2015	$	7,272,979

Included in compensation expense for the nine months ended September 30, 2015 and 2014 was $770 079 and $3,815,194, respectively, of amortization relating to the above equity-classified awards.

As of September 30, 2015, unrecognized compensation cost in the amount of $7,279,979 relating to these equity-based awards is expected to be recognized over a period of approximately 7.1 years.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

The following table summarizes activity for the nine months ended September 30, 2015 and 2014 with respect to the Company's liability classified awards, including stock appreciation rights discussed below:



Balance at December 31, 2013	$	129,001
Cash received for purchased interests	14,129
Compensation expense	228,140
Payment of liabilities	(228,140		)
Balance at September 30, 2014	$	143,130

Balance at December 31, 2014	$	3,465
Compensation expense	15,594
Balance at September 30, 2015	$	19,059

Fifth Street Asset Management Inc. 2014 Omnibus Incentive Plan

In connection with the IPO, FSAM's Board of Directors adopted the 2014 Omnibus Incentive Plan pursuant to which the Company granted options to its non-employee directors, executive officers and other employees to acquire 5,658,970 shares of Class A common stock, 1,174,748 restricted stock units to be settled in shares of Class A common stock and 90,500 stock appreciation rights to be settled in cash. During the nine months ended September 30, 2015, there were additional grants under the 2014 Omnibus Incentive Plan as discussed below.

Equity-based compensation expense, net of assumed forfeitures, is as follows:



	Three Months Ended September 30, 2015		Nine Months Ended September 30, 2015
Restricted stock units to be settled in Class A common stock	$	666,347	$	1,969,093
Options to acquire shares of Class A common stock	575,384		1,726,152
Stock appreciation rights to be settled in cash	5,198		15,594
Total	$	1,246,929	$	3,710,839

Restricted Stock Units

Each restricted stock unit represents an unfunded, unsecured right of the holder to receive a Class A common share on the vesting dates. The restricted stock units will not vest for three years and subsequently vest at a rate of one-third per year on the fourth, fifth and sixth anniversary of the grant date. These awards will become saleable at a rate of one-quarter (¼) per year, beginning on the sixth, seventh, eighth and ninth anniversary of the grant date. Upon vesting, shares of Class A common stock will be delivered to the participant.

Additionally, if the Company pays dividends on its outstanding shares of Class A common stock, the holder of the restricted stock units will be credited with dividend equivalents. For stock dividends, the dividend equivalents will be in the form of additional restricted stock units. For cash dividends, the dividend equivalents will be in the form of cash (without interest or earnings). Dividend equivalents are subject to the same terms and conditions as the original restricted stock unit award, and are not paid until the vesting and settlement of the underlying shares of Class A common stock to which such dividend equivalents relate. During the nine months ended September 30, 2015, the Company granted 65,952 restricted stock units to employees under substantially similar terms to the IPO grant. For the nine months ended September 30, 2015, the Company declared cash dividends of $0.64 per share and accrued dividends in the amount of $601,207 related to unvested restricted stock units which are forfeitable.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

The following table presents unvested restricted stock units' activity for the nine months ended September 30, 2015:



	Restricted Units		Weighted Average Grant Date Fair Value Per Unit
Balance - December 31, 2014	1,174,748		$	17.00
Granted	65,952		10.23
Vested	—		—
Forfeited	(14,583	)	17.00
Balance - September 30, 2015	1,226,117		$	16.64

No previously granted restricted stock units vested during the nine months ended September 30, 2015. The total compensation expense expected to be recognized in all future periods associated with the restricted stock units, considering assumed annual forfeitures of 5.0%, is $13,597,689 at September 30, 2015, which is expected to be recognized over the remaining weighted average period of 5.0 years.

Options

Each option entitles the holders to purchase from the Company, upon exercise thereof, one Class A common share at the stated exercise price. Since all of the options granted either restrict saleability upon vesting or have strike prices in excess of the IPO price, the use of standard option pricing models such as Black-Scholes is precluded by ASC 718. As such, the Company has utilized a Monte Carlo pricing simulation, a statistical pricing technique or similar method to measure the fair value of option awards on the date of grant. No options were granted during the nine months ended September 30, 2015.

A summary of unvested options activity for the nine months ended September 30, 2015 is presented below:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (in years)	Aggregate Intrinsic Value
Balance - December 31, 2014	5,658,970		$	18.70	8.3
Granted	—		—		—
Vested	—		—		—
Forfeited	(80,420	)	$	18.70	7.5
Balance - September 30, 2015	5,578,550		$	18.70	7.5
Exercisable at September 30, 2015	—		$	—	—	$	—
Expected to vest after September 30, 2015	—		$	—	—	$	—

Aggregate intrinsic value represents the value of the Company's closing share price on the last trading day of the year in excess of the weighted average exercise price multiplied by the number of options exercisable or expected to vest. As of September 30, 2015, the Company's closing share price was lower than the weighted average exercise price of the options exercisable or expected to vest. As a result, the options are out of the money and have no intrinsic value.

Compensation expense associated with these options is being recognized on a straight-line basis during the service period of the respective grant. As of September 30, 2015, there was $5,991,906 of total unrecognized compensation expense, net of assumed annual forfeitures of 5%, that is expected to be recognized over the remaining weighted average period of 3.8 years.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Stock Appreciation Rights (“SARs”)

Each SAR represents an unfunded, unsecured right of the holder to receive an amount in cash equal to the excess of the closing price of a Class A common share over the exercise price. The SARs terms and conditions are substantially similar to the provisions of the ten year option grants discussed above and had a grant date fair value of $1.78 per unit. Upon vesting, they will be settled in cash. The fair value of the SARs are re-measured each reporting period until settlement and changes in fair value are charged to compensation expense as the SARs vest over the remaining service period. The amount of the adjustment has been derived based on a grant date fair value using the IPO price of $17.00 per share, multiplied by the number of unvested shares, and expensed over the six year service period. Additionally, the calculation of the expense assumes a forfeiture rate of 5%. The total compensation expense expected to be recognized in all future periods associated with the SARs, considering assumed forfeitures, is approximately $110,896. No SARs were issued during the nine months ended September 30, 2015.

A summary of unvested SARs activity for the nine months ended September 30, 2015 is presented below:



	SARs		Weighted Average Grant Date Fair Value Per SAR
Balance December 31, 2014	90,500		$	1.78
Granted	—		—
Vested	—		—
Forfeited	(19,500	)	$	1.78
Balance September 30, 2015	71,000		$	1.78

Note 13. Income Taxes

Prior to November 4, 2014, the Company had not been subject to U.S. Federal income taxes as the Predecessor was organized as a limited liability company. As a result of the Reorganization and IPO, the portion of Fifth Street Holdings income attributable to FSAM is now subject to U.S. Federal, state and local income taxes and is taxed at the prevailing corporate tax rates.

The Company's effective tax rate includes a rate benefit attributable to the fact that certain of the Company's subsidiaries operate as a series of pass-through entities which are not themselves subject to federal income tax. As a result of the Reorganization, certain subsidiaries were converted from pass-through entities to taxable entities. Accordingly, the portion of the Company's subsidiaries' earnings attributable to non-controlling interests are subject to tax when reported as a component of the non-controlling interests' taxable income on their individual tax returns.

The Company’s provision for income taxes consists of Federal, state and local taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. The estimated annualized income tax provision for 2015 reflects an effective tax rate of 11.3%. The difference between the annual effective rate of 11.3% and the statutory Federal rate of 35% primarily relates to state taxes and pass-through entity income not subject to income taxes. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates. Actual provision expense may vary from the annual effective rate for discrete items recorded in the period.

Deferred tax assets are primarily the result of an increase in the tax basis of certain intangible assets resulting from FSAM's investment in Fifth Street Holdings. Net deferred tax assets are also recorded related to differences between the financial reporting basis and the tax basis of FSAM's proportionate share of the net assets of Fifth Street Holdings. Based on the Company's historical taxable income and its expected future earnings, management evaluates the uncertainty associated with booking tax benefits and determined that the deferred tax assets are more likely than not to be realized, including evaluation of deferred tax liabilities and the expectation of future taxable income.

The Company does not believe it has any significant uncertain tax positions. Accordingly, the Company did not record any adjustments or recognize interest expense for uncertain tax positions for the years ended December 31, 2014, 2013 and 2012. In the future, if uncertain tax positions arise, interest and penalties will be accrued and included in the Provision for Income Taxes.

Note 14. Earnings Per Share

Prior to the Reorganization and the IPO, the Company's businesses were conducted through multiple operating businesses rather than a single holding entity. As such, there was no single capital structure upon which to calculate historical earnings per common share information. Accordingly, earnings per Class A common share information has not been presented for historical periods prior to the IPO.

Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted earnings per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The treasury stock method is used to determine the dilutive potential of stock options and restricted stock units.

The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations (in thousands, except shares and per share information):



	Three Months Ended September 30, 2015		Nine Months Ended September 30, 2015
Numerator for basic and diluted net income per share of Class A common stock:
Net income attributable to Fifth Street Asset Management Inc.	$	1,171,567	$	3,650,302
Denominator for basic net income per share of Class A common stock:
Weighted average shares of Class A common stock outstanding	5,901,718		5,956,389
Denominator for diluted net income per share of Class A common stock:
Weighted average shares of Class A common stock outstanding	5,901,718		5,956,389
Dilutive effects of restricted stock units	6,745		6,929
Weighted average shares of Class A common stock outstanding - diluted	5,908,463		5,963,318
Earnings per share of Class A common stock:
Net income attributable to Fifth Street Asset Management Inc. per share of Class A common stock, basic	$	0.20	$	0.61
Net income attributable to Fifth Street Asset Management Inc. per share of Class A common stock, diluted	$	0.20	$	0.61

Shares of Class B common stock have no impact on the calculation of net income per share of Class A common stock as holders of Class B common stock do not participate in net income or dividends, and thus, are not participating securities.

The treasury stock method is used to calculate incremental Class A common shares on potentially dilutive Class A common shares resulting from options and unvested restricted units granted in connection with the IPO. Potentially dilutive securities representing an incremental 1,235,515 restricted stock units and 5,630,376 options to acquire Class A common shares for the three and nine months ended September 30, 2015 were excluded from the computation of diluted earnings per Class A common share for the period because their impact would have been anti-dilutive.

The EPS calculation excludes the assumed conversion of 44,000,000 Holdings LP interests into Class A common shares as the impact would have been anti-dilutive.

Note 15. Subsequent Events

On November 23, 2015, the Company's Board of Directors declared a quarterly dividend of $0.17 per share of Class A common stock. The declared dividend is payable on January 15, 2016 to stockholders of record at the close of business on December 31, 2015.

The Company has been named as a defendant in three putative securities class-action lawsuits arising from its role as investment adviser to FSC. The first lawsuit was filed on October 1, 2015, in the United States District Court for the Southern District of New York and is captioned Howard Randall, Trustee, Howard & Gale Randall Trust FBO Kimberly Randall Irrevocable Trust UA Feb 15, 2000 v. Fifth Street Finance Corp., et al., Case No. 1:15-cv-07759. The second lawsuit was filed on October 14, 2015, in the United States District Court for the District of Connecticut and is captioned Lynn Waters-Cottrell v. Fifth Street Finance Corp., et al., Case No. 3:15-cv-01488. The third lawsuit was filed on November 12, 2015, in the United States District Court for the Southern District of New York and is captioned Robert J. Hurwitz v. Fifth Street Finance Corp., et al., Case No. 1:15-cv-08908. The defendants in all three cases are Leonard M. Tannenbaum, Bernard D. Berman, Alexander C.

Fifth Street Asset Management Inc.

(Prior to November 4, 2014 - Fifth Street Management Group)

Notes to Consolidated Financial Statements

Frank, Todd G. Owens, Ivelin M. Dimitrov, and Richard Petrocelli (collectively, the “Individual Defendants”), FSC, and the Company.

The lawsuits allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of investors who purchased FSC common stock between July 7, 2014, and February 6, 2015, inclusive. The lawsuits allege in general terms that defendants engaged in a purportedly fraudulent scheme designed to artificially inflate the true value of FSC’s investment portfolio and investment income in order to increase FSAM’s revenue, which FSAM received as the asset manager and investment advisor of FSC. For example, the lawsuits allege that FSC improperly delayed the write-down of five of its investments until the fiscal quarter ending in December 31, 2014, after FSAM conducted its Initial Public Offering (“IPO”) in October 2014, when FSC should have taken the write-down before FSAM’s IPO. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages being sought in any of the actions.

The Company believes that the claims are without merit and intends to defend itself vigorously against the plaintiffs’ allegations.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q.

Unless the context otherwise requires, references to "we," "us," "our," and "the Company" are intended to mean the business and operations of Fifth Street Asset Management Inc. and its consolidated subsidiaries since the consummation of our initial public offering on November 4, 2014. When used in the historical context (i.e., prior to November 4, 2014), these terms are intended to mean the business and operations of Fifth Street Management Group, our predecessor.

Amounts and percentages presented throughout our discussion and analysis of financial condition and results of operations may reflect rounding adjustments and consequently totals may not appear to sum. The highlights listed below have had significant effects on many items within our consolidated financial statements and affect the comparison of the current period's activity with those of prior periods.

Our Business

We are a leading alternative asset manager with approximately $5.6 billion of assets under management. The funds we manage provide innovative and flexible financing solutions to small and mid-sized companies across their capital structures, primarily in connection with investments by private equity sponsors. We define small and mid-sized companies as those with annual revenues between $25 million and $500 million. As of September 30, 2015, 86% of our assets under management reside in publicly-traded permanent capital vehicles, consisting of FSC and FSFR.

Our direct origination platform is sustained by strong relationships with over 300 private equity sponsors. We believe we are differentiated from other alternative asset managers by our structuring flexibility, financial strength and a reputation for delivering on commitments. We provide innovative and customized credit solutions across the capital structure, including one-stop financing, unitranche debt, senior secured debt, mezzanine debt, equity co-investments, healthcare asset-backed lending and venture debt financing. Our platform targets loans for investment of up to $250 million and will have the ability to structure and syndicate loans of up to $500 million. Fifth Street Management was named the 2014 "Senior Lender of the Year" by the Association for Corporate Growth (ACG) New York Chapter and The M&A Advisor, the 2013 "Lender Firm of the Year" by The M&A Advisor and the 2013 "Lender of the Year" by Mergers & Acquisitions Magazine.

Since Fifth Street's founding in 1998, we have grown into an asset manager with approximately 100 employees, half of which are investment professionals. Our management team has a proven 17-year track record across market cycles using a disciplined investment process. Our growth has been facilitated through a scalable operating platform.

Historical Organization and Consolidated Basis of Presentation

The historical financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the discussion herein of the historical results of operations and financial condition are presented for FSAM for the period after its initial public offering and for the Fifth Street Management Group for all preceding periods. Prior to our Reorganization and initial public offering, we operated our investment advisory business through a number of affiliated entities, all of which were either wholly or substantially owned and/or under the voting control of Leonard M. Tannenbaum. Fifth Street Management Group is considered the predecessor to FSAM for accounting purposes under GAAP.

We conduct substantially all of our operations through one reportable segment that provides asset management services to our alternative investment vehicles. We generate all of our revenue in the United States.

As previously disclosed, we have invested approximately $1,380,000 to date in MMKT through the purchase of $1,300,000 of convertible notes and $80,000 of common membership interests. MMKT is a secure digital exchange that introduces efficiency, liquidity and transparency to the outdated middle market loan syndication process while increasing accessibility to a broader base of purchasers. MMKT is currently seeking external equity financing to execute on its strategy. MMKT is consolidated for financial reporting purposes, as Fifth Street Management owns 80% of the common membership interests, and may in the near term have a negative impact on earnings. In that regard, the operating loss attributable to MMKT was $399,999 and $830,298 for the three and nine months ended September 30, 2015, respectively.

After the completion of our initial public offering, we became the general partner of Fifth Street Holdings and acquired a 12.0% limited partnership interest in Fifth Street Holdings. Accordingly, Fifth Street Holdings and its wholly-owned subsidiaries (including Fifth Street Management) are consolidated in our financial statements. We have presented the Consolidated Statements of Income after giving effect to the Reorganization as discussed below. All amounts attributable to our Predecessor are recorded as "Net income attributable to Predecessor" within the consolidated financial statements. Subsequent to November 4, 2014, the portion of the net income attributable to Fifth Street Holdings limited partnership interests is recorded as "net income attributable to non-controlling interests in Fifth Street Holdings."

On October 13, 2014, FSAM effectuated a 1-for-3 reverse stock split. All share information has been retroactively adjusted to reflect the reverse stock split.

On September 29, 2015, FSM closed a securitization of senior secured loans warehoused in SLF II as a CLO. In connection with the securitization, SLF II merged into CLO II. CLO II issued a total of approximately $416.6 million of notes, including a subordinated note tranche of $52.1 million. We have concluded that CLO II should be consolidated by FSM.

Our Reorganization

In anticipation of our initial public offering that closed November 4, 2014, Fifth Street Asset Management Inc. was incorporated in Delaware on May 8, 2014 as a holding company with its primary asset expected to be a limited partnership interest in Fifth Street Holdings. Fifth Street Holdings was formed on June 27, 2014 by the Principals as a Delaware limited partnership. Prior to the transactions described below, the Principals were the general partners and limited partners of Fifth Street Holdings. Fifth Street Holdings has a single class of limited partnership interests, or Holdings LP Interests. Immediately prior to our initial public offering:


•	The Principals contributed their general partnership interests in Fifth Street Holdings to us in exchange for 100% of our Class B common stock;


•	The members of Fifth Street Management contributed 100% of their membership interests in Fifth Street Management to Fifth Street Holdings in exchange for Holdings LP Interests; and


•	The members of FSCO GP contributed 100% of their membership interests in FSCO GP to Fifth Street Holdings in exchange for Holdings LP Interests.

As a result of the above transactions, we became the general partner of Fifth Street Holdings, which was also organized to be a holding company for Fifth Street Management and FSCO GP. As a holding company, we conduct all of our operations through Fifth Street Management and FSCO GP, wholly-owned subsidiaries of Fifth Street Holdings, including the provision of management services to FSC, FSFR and other affiliated private funds.

In connection with the Reorganization, we entered into the Exchange Agreement, with the Fifth Street Holdings Limited Partners that granted each Fifth Street Holdings Limited Partner and certain permitted transferees the right, beginning two years after the closing of our initial public offering and subject to vesting and minimum retained ownership requirements, on a quarterly basis, to exchange such person's Holdings LP Interests for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. As a result, each Fifth Street Holdings Limited Partner, over time, has the ability to convert his or her illiquid ownership interests in Fifth Street Holdings into our Class A common stock that can more readily be sold in the public markets.

These collective actions are referred to herein as the "Reorganization."

Our Initial Public Offering ("IPO")

On November 4, 2014, we issued 6,000,000 shares of Class A common stock to the public at a price of $17.00 per common share. The net proceeds totaled $95.9 million after deducting underwriting commissions of $6.1 million and before offering costs of approximately $3.9 million that were borne by us. The net proceeds were used to purchase a 12.0% limited partnership interest in Fifth Street Holdings from its limited partners.

Immediately following the Reorganization transactions described above and the closing of our initial public offering:


•	the Principals held 42,856,854 shares of our Class B common stock and 42,856,854 Holdings LP Interests, the Holdings Limited Partners, including the Principals, held 44,000,000 Holdings LP Interests and we held 6,000,000 Holdings LP Interests; and


•	through their holdings of Class B common stock, the Principals, in the aggregate, had approximately 97.3% of the voting power of our common stock.

Our purchase of Holdings LP Interests concurrent with our initial public offering, and the subsequent and future exchanges by holders of Holdings LP Interests for shares of our Class A common stock pursuant to the Exchange Agreement will result in increases in our share of the tax basis of the tangible and intangible assets of Fifth Street Holdings, which will increase the tax depreciation and amortization deductions that otherwise would not have been available to us. These increases in tax basis and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that we would otherwise be required to pay in the future. We entered into a tax receivable agreement, or the TRA, with the TRA Recipients that requires us to pay them 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax that we actually realize (or, under certain circumstances, are deemed to realize) as a result of the increases in tax basis in connection with exchanges by the TRA Recipients described above and certain other tax benefits attributable to payments under the tax receivable agreement.

In connection with the above transactions, the previous members of FSM agreed to allocate to the limited partners of Fifth Street Holdings and FSAM our earnings (excluding the compensation charges related to the Reorganization) from October 1, 2014 through the date of the IPO.

The diagram below depicts our organizational structure as of September 30, 2015:


(1)	Shares of our Class A common stock, which were issued to the public in our initial public offering, entitle holders to one vote per share and economic rights (including rights to dividends and distributions upon liquidation).


(2)	Shares of our Class B common stock, which are held by our Principals, entitle holders to five votes per share, but have no economic rights.


(3)	Holdings Limited Partners, pursuant to the Exchange Agreement and subject to vesting and minimum retained ownership requirements and transfer restrictions, may exchange their Holdings LP Interests for shares of our Class A common stock.


(4)	FSCO GP is the general partner of FSOF, our hedge fund, and is entitled to receive an annual performance allocation from FSOF based on the performance of such fund. Fifth Street Management is the investment adviser to FSOF.

(5)

The direct subsidiaries of Fifth Street Management are Fifth Street EIV, FSC CT LLC, FSC LLC and FSC Midwest LLC. Fifth Street Management owns approximately 11% of the equity interests of CLO I. FSC CT LLC is the primary employer of our employees located in Connecticut and is the tenant to our Connecticut headquarters lease and performs certain administrative functions for our business. FSC LLC is the owner of Fifth Street Capital West LLC. FSC Midwest LLC and Fifth Street Capital West LLC employ certain of our employees, are tenants under certain of our office leases and perform certain other administrative functions for our business.


(6)	CLO Management serves as the collateral manager to CLO I and CLO II.

Market Conditions

The global economy has experienced economic uncertainty in recent years. Economic uncertainty impacts our business in many ways, including changing spreads, structures and purchase multiples as well as the overall supply of investment capital.

Despite the economic uncertainty, the deal pipeline for our funds remains robust, with high quality transactions backed by private equity sponsors in small to mid-sized companies. In general, a climate of low and stable interest rates and high levels of liquidity in the debt and equity capital markets provide a positive environment for us to generate attractive investment returns. As always, we remain cautious in selecting new investment opportunities for our funds, and will only deploy capital in deals which we believe are consistent with our disciplined philosophy of pursuing superior risk-adjusted returns.

Trends Affecting our Business

In addition to general market conditions, we believe the following trends will influence our future performance:

•

Demand for Alternative Investments. Our ability to attract new capital and generate additional AUM and fee-earning AUM is dependent on investors' views of alternative assets relative to traditional assets. We believe fundraising efforts will continue to be impacted by certain fundamental asset management trends that include: (1) the increasing importance and market share of alternative investment strategies to investors of all types, (2) shifting asset allocation policies of institutional investors and (3) increasing demand for alternative assets from retail investors. We believe that part of the growth in the alternative investment space is due to institutional and retail demand for a more attractive risk-return profile compared to traditional bond investments, which is driving a re-thinking of asset allocations and re-positioning toward alternative credit strategies. Since our funds have always been credit focused, we stand to benefit from this migration. In addition, our BDCs are positioned to capitalize on increasing demand for alternative assets from retail investors.

•

Dislocation in the Traditional Capital Markets. Recent regulatory changes in responses to the global financial crisis have increased the cost and complexity for banking institutions to participate in the middle market lending space. We believe that many traditional senior lenders have de-emphasized their product offerings to middle market companies in favor of lending to large corporate clients, managing capital markets transactions and delivering other non-credit services to their customers. As a result, we are seeing relatively less competition from these sources in the middle market lending space. This has facilitated higher quality deal flow and has allowed us to be more selective throughout the investment process. We also benefit from better pricing and deal structure. We believe that the reduced capacity of traditional senior lenders to serve middle market opportunities will continue to create opportunities for our funds to originate direct investments in companies. In addition, certain recent regulatory developments, including the SEC's liquidity management program and risk retention rules for CLOs, may provide additional opportunities for our BDCs.

•

Competitive Landscape for Alternative Asset Managers. Middle market lending requires specialized due diligence and underwriting capabilities, as well as the extensive ongoing monitoring of investments. We believe that our operating platform, investment process and risk management approach provide us with advantages over our competitors for both capital and investment opportunities. At the same time, we face increasing competition from a growing number of larger investment management companies and other alternative asset managers. In particular, there is an increasing number of BDCs and the size of BDCs has also been increasing. In spite of increased competition, we believe we are well-positioned to grow our existing business and develop new funds and strategies.

•

Interest Rate Environment. We believe that we are well-positioned for a rising interest rate environment. The majority of the assets that we manage are floating rate loans that benefit from rising interest rates through increased Net Investment Income, which is income from interest, dividends, fees and other investment income. The increase would drive higher management fees to us, given the structure of our management agreements, which include fixed level performance benchmarks and do not include total return hurdles.

We intend, if market conditions warrant, to grow by increasing AUM in existing businesses and expanding into new investment strategies, geographic markets and businesses. We may develop new strategies and funds organically through our existing platform. For example, in February 2015, we closed our first CLO under management, CLO I, and in September 2015, we closed our second CLO under management, CLO II. We may also pursue growth through acquisitions of other investment management companies, acquisitions of critical business partners or other strategic initiatives, which may include entering into new lines of business. As previously disclosed, we have invested approximately $1,380,000 to date in MMKT Exchange LLC (“MMKT”) through the purchase of a convertible note and common membership interests. MMKT is a financial technology company that seeks to bring increased liquidity and transparency to middle market loans. MMKT is currently seeking external equity financing to execute on its strategy. MMKT is consolidated for financial reporting purposes, as Fifth Street Management owns 80% of the common membership interests, and may in the near term have a negative impact on earnings. In that regard, the net loss attributable to MMKT was $399,999 and $830,298 for the three and nine months ended September 30, 2015, respectively.

Historically, substantially all of our revenues were generated from our BDCs. As we continue to expand our non-BDC funds and develop new funds and products, we expect that the fee structures and arrangements from which we derive our revenues could be different and, potentially, less favorable to us. In addition, the nature of these funds and lines of business

may be different and subject to different risks and uncertainties than our BDCs. We may also modify fee structures with our existing investment vehicles, including our BDCs. We believe, however, that there are significant opportunities and that we are well-positioned to grow our existing investment vehicles, launch additional credit strategies, develop new products and funds and continue to grow as a diversified asset manager.

Non-GAAP Financial Measures and Operating Metrics

Adjusted Net Income

Adjusted Net Income represents income before income tax benefit (provision) as adjusted for (i) certain compensation-related charges, including the amortization of equity-based awards related to the Reorganization and initial public offering, (ii) non-recurring underwriting costs relating to public offerings of our funds, (iii) non-recurring professional fees and other expenses incurred in connection with our initial public offering, (iv) unrealized gains (losses) on beneficial interests in CLO and (v) other non-recurring items. We believe the exclusion of these items provides investors with a meaningful indication of our core operating performance and Adjusted Net Income is evaluated regularly by our management as a decision tool for deployment of resources. We believe that reporting Adjusted Net Income is helpful in understanding our business and that investors should review the same supplemental non-GAAP financial measures that our management uses to analyze our performance. Adjusted Net Income has limitations as an analytical tool and should not be considered in isolation or as a substitute for analyzing our results prepared in accordance with GAAP. The use of Adjusted Net Income without consideration of related GAAP measures is not adequate due to the adjustments described above. This measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below, which are prepared in accordance with GAAP.

Income before income tax benefit (provision) is the GAAP financial measure most comparable to Adjusted Net Income. The following table provides a reconciliation of income before income tax benefit (provision) to Adjusted Net Income (shown in thousands):



	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015			2014
Income before provision for income taxes	$	10,509	$	14,179	$	34,061		$	36,293
Adjustments:
Compensation-related charges (a)(b)	1,482		450		4,444			6,415
Unrealized loss on beneficial interests in CLOs (c)	23		—		591			—
FSC follow-on equity offering underwriting costs (d)	—		822		—			822
Lease termination charges (e)	—		606		(71		)	606
Professional fees and other expenses in connection with our IPO	—		231		—			894
Adjusted Net Income (f)	$	12,014	$	16,288	$	39,025		$	45,030

__________________

(a)

For the three months ended September 30, 2015 and 2014, this amount includes $0.3 million and $0.5 million, respectively, of amortization expense relating to certain equity-classified compensation awards. For the nine months ended September 30, 2015 and 2014, this amount includes $0.8 million and $1.5 million, respectively, of amortization expense relating to certain equity-classified compensation awards. As of the date of our IPO, the $8.2 million unamortized portion of these awards represented the fair value at their respective grant dates as determined by an independent third party appraisal net of cash paid for the awards and is being amortized on a straight-line basis over an eight year vesting period.

(b)

For the three and nine months ended September 30, 2015, this amount includes $1.2 million and $3.7million, respectively, of amortization expense relating to stock-based compensation that was awarded to certain of our employees in connection with our IPO. For the three and nine months ended September 30, 2014, this amount includes (1) $3.1 million of noncash compensation expense relating to the separation of a former equity member in May 2014 and (2) a $1.8 million cash payment to purchase the equity interest from the former member.


(c)	Represents change in fair value on beneficial interests in CLO on which we have elected the fair value option.


(d)	Represents the costs borne by us relating to equity underwriting commissions attributable to an equity offering at FSC.


(e)	Includes non-recurring charges for termination payments and related exit costs accrued at present value relating to our office leases.


(f)	Adjusted Net Income is presented on a pre-tax basis.

Assets under management

AUM is an operating metric that is commonly used in the alternative asset management industry. AUM refers to assets under management of the Fifth Street Funds and material control investments of these funds. Our calculations of fee-earning AUM and AUM may differ from the calculations of other alternative asset managers and, as a result, this measure may not be comparable to similar measures presented by others. Further, AUM and fee-earning AUM are not measures calculated in accordance with GAAP. Our AUM equals the sum of the following:


•	the net asset value, or NAV of such funds and investments;


•	the drawn debt and unfunded debt and equity commitments at the fund- or investment-level (including amounts subject to restrictions); and


•	uncalled committed debt and equity capital (including commitments to funds that have yet to commence their investment periods).

The following table provides a roll-forward of AUM for the three and nine months ended September 30, 2015 and 2014 (shown in thousands):



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Beginning balance	$	5,554,885		$	4,737,411		$	6,301,260		$	4,377,364
Commitments and equity raises	121,870			495,421			413,061			541,580
Subscriptions, deployments and changes in leverage	(30,786		)	796,131			(1,057,977		)	1,126,169
Redemptions and distributions	(54,454		)	(48,365		)	(132,639		)	(121,533		)
Change in fund value	2,176			36,039			69,986			93,057
Ending balance	$	5,593,691		$	6,016,637		$	5,593,691		$	6,016,637
Average AUM	$	5,574,288		$	5,377,026		$	5,947,476		$	5,197,002

The following tables provide a roll-forward of AUM by fund strategy for the three and nine months ended September 30, 2015 and 2014 (shown in thousands):



	Three months ended September 30, 2015
	FSC			FSFR			FSOF			Senior Loan Funds			Total
Beginning balance	$	3,726,731		$	1,112,833		$	92,893		$	622,428		$	5,554,885
Commitments and equity raises	—			—			10,000			111,870			121,870
Subscriptions, deployments and changes in leverage	54,366			(74,800		)	(486		)	(9,866		)	(30,786		)
Redemptions and distributions	(27,601		)	(5,157		)	(5,302		)	(16,394		)	(54,454		)
Change in fund value	(2,812		)	383			(27		)	4,632			2,176
Ending balance	$	3,750,684		$	1,033,259		$	97,078		$	712,670		$	5,593,691
Average AUM	$	3,738,708		$	1,073,046		$	94,985		$	667,549		$	5,574,288



	Three months ended September 30, 2014
	Structured Equity		FSC			FSFR			FSOF			Senior Loan Funds			Total
Beginning balance	$	4,801	$	4,247,247		$	230,029		$	41,166		$	214,168		$	4,737,411
Commitments and equity raises	—		138,139			276,182			30,700			50,400			495,421
Subscriptions, deployments and changes in leverage	—		527,748			30,206			(15,743		)	253,920			796,131
Redemptions and distributions	—		(39,458		)	(8,840		)	—			(67		)	(48,365		)
Change in fund value	—		28,438			4,507			1,082			2,012			36,039
Ending balance	$	4,801	$	4,902,114		$	532,084		$	57,205		$	520,433		$	6,016,637
Average AUM	$	4,801	$	4,574,681		$	381,057		$	49,186		$	367,301		$	5,377,026



	Nine months ended September 30, 2015
	FSC			FSFR			FSOF			Senior Loan Funds			Total
Beginning balance	$	4,911,422		$	791,103		$	74,710		$	524,025		$	6,301,260
Commitments and equity raises	—			175,000			27,650			210,411			413,061
Subscriptions, deployments and changes in leverage	(1,125,319		)	80,926			3,818			(17,402		)	(1,057,977		)
Redemptions and distributions	(78,464		)	(22,837		)	(10,662		)	(20,676		)	(132,639		)
Change in fund value	43,045			9,067			1,562			16,312			69,986
Ending balance	$	3,750,684		$	1,033,259		$	97,078		$	712,670		$	5,593,691
Average AUM	$	4,331,053		$	912,181		$	85,894		$	618,348		$	5,947,476



	Nine months ended September 30, 2014
	Structured Equity			FSC			FSFR			FSOF			Senior Loan Funds			Total
Beginning balance	$	4,364		$	4,148,794		$	213,873		$	10,333		$	—		$	4,377,364
Commitments and equity raises	—			138,139			276,182			37,700			89,559			541,580
Subscriptions, deployments and changes in leverage	(45		)	645,355			46,198			6,861			427,800			1,126,169
Redemptions and distributions	—			(108,999		)	(12,173		)	(294		)	(67		)	(121,533		)
Change in fund value	482			78,825			8,004			2,605			3,141			93,057
Ending balance	$	4,801		$	4,902,114		$	532,084		$	57,205		$	520,433		$	6,016,637
Average AUM	$	4,583		$	4,525,455		$	372,978		$	33,769		$	260,217		$	5,197,002

We generally use fee-earning AUM as a metric to measure changes in the assets from which we earn management or performance fees. Total AUM tends to be a better measure of our investment and fundraising performance as it reflects assets at fair value plus available uncalled capital on which we earn fees.

Fee-earning AUM

Fee-earning AUM refers to AUM on which we directly or indirectly earn management fees. Our fee-earning AUM equals the sum of the following:


•	the NAV of the Fifth Street Funds and their material control investments; and


•	the drawn debt and unfunded debt and equity commitments at the fund- or investment-level (including amounts subject to restrictions).

Our calculations of fee-earning AUM and AUM may differ from the calculations of other alternative asset managers and, as a result, this measure may not be comparable to similar measures presented by others. In addition, our definitions of AUM and fee-earning AUM are not based on any definition of AUM or fee-earning AUM that is set forth in the agreements governing the investment funds that we manage and may differ from definitions of AUM set forth in other agreements to which we are a party from time to time, including the agreements governing our revolving credit facility.

The following table provides a roll-forward of fee-earning AUM for the three and nine months ended September 30, 2015 and 2014 (shown in thousands):



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Beginning balance	$	4,343,433		$	4,301,759		$	5,554,013		$	3,929,065
Commitments and equity raises	5,000			488,921			278,541			510,578
Subscriptions, deployments and changes in leverage	166,869			5,041			(1,307,107		)	373,158
Redemptions and distributions	(54,318		)	(48,365		)	(131,303		)	(121,239		)
Change in fund value	2,154			35,478			68,994			91,272
Ending balance	$	4,463,138		$	4,782,834		$	4,463,138		$	4,782,834
Average fee-earning AUM	$	4,403,286		$	4,542,297		$	5,008,576		$	4,355,951
Effective annualized management fee rate	2.15		%	2.07		%	1.87		%	2.10		%

The following tables provide a roll-forward of fee-earning AUM by fund strategy for the three and nine months ended September 30, 2015 and 2014 (shown in thousands):



	Three months ended September 30, 2015
	FSC			FSFR			FSOF			Senior Loan Funds			Total
Beginning balance	$	2,896,820		$	809,631		$	35,097		$	601,885		$	4,343,433
Commitments and equity raises	—			—			5,000			—			5,000
Subscriptions, deployments and changes in leverage	126,048			19,438			(680		)	22,063			166,869
Redemptions and distributions	(27,601		)	(5,157		)	(5,166		)	(16,394		)	(54,318		)
Change in fund value	(2,812		)	383			(49		)	4,632			2,154
Ending balance	$	2,992,455		$	824,295		$	34,202		$	612,186		$	4,463,138
Average fee-earning AUM	$	2,944,638		$	816,963		$	34,649		$	607,036		$	4,403,286

Fee-earning AUM was $4.5 billion as of September 30, 2015, which represented a $119.7 million, or 2.8%, increase from $4.3 billion as of June 30, 2015. The net increase in fee-earning AUM was primarily comprised of $126.0 million of capital deployment at FSC, which was partially offset by $32.8 million of stockholder distributions at FSC and FSFR.



	Three months ended September 30, 2014
	Structured Equity		FSC			FSFR			FSOF			Senior Loan Funds			Total
Beginning balance	$	4,452	$	3,937,586		$	214,751		$	18,430		$	126,540		$	4,301,759
Commitments and equity raises	—		138,139			276,182			28,100			46,500			488,921
Subscriptions, deployments and changes in leverage	—		23,860			(164,074		)	(11,359		)	156,614			5,041
Redemptions and distributions	—		(39,458		)	(8,840		)	—			(67		)	(48,365		)
Change in fund value	—		28,439			4,507			520			2,012			35,478
Ending balance	$	4,452	$	4,088,566		$	322,526		$	35,691		$	331,599		$	4,782,834
Average fee-earning AUM	$	4,452	$	4,013,076		$	268,639		$	27,060		$	229,070		$	4,542,297

Fee-earning AUM was $4.8 billion as of September 30, 2014, which represented a $481.1 million, or 11.2%, increase from $4.3 billion as of June 30, 2014. The net increase in fee-earning AUM was primarily due to $276.2 million and $138.1 million of equity capital raises in connection with follow-on equity offerings at FSFR and FSC, respectively, the closing of CLO II, which produced $140.3 million of fee-earning AUM at period end and $64.8 million of incremental investment activity at CLO I, which were all partially offset by a $164.1 million of decreases in net leverage at FSFR due to the receipt of follow-on equity proceeds.



	Nine months ended September 30, 2015
	FSC			FSFR			FSOF			Senior Loan Funds			Total
Beginning balance	$	4,366,621		$	662,654		$	39,301		$	485,437		$	5,554,013
Commitments and equity raises	—			175,000			5,000			98,541			278,541
Subscriptions, deployments and changes in leverage	(1,338,747		)	411			(1,343		)	32,572			(1,307,107		)
Redemptions and distributions	(78,464		)	(22,837		)	(9,326		)	(20,676		)	(131,303		)
Change in fund value	43,045			9,067			570			16,312			68,994
Ending balance	$	2,992,455		$	824,295		$	34,202		$	612,186		$	4,463,138
Average fee-earning AUM	$	3,679,538		$	743,475		$	36,752		$	548,812		$	5,008,577

Fee-earning AUM was $4.5 billion as of September 30, 2015, which represented a $1.1 billion, or 19.6%, decrease from $5.6 billion as of December 31, 2014. The net decrease in fee-earning AUM was primarily comprised of $961.2 million from FSC's sale of Healthcare Finance Group, LLC ("HFG"), which was partially offset by $175.0 million of incremental investment capacity as a result of the closing of FSFR's Citibank credit facility. We do not expect the disposition of the underlying portfolio assets of HFG to have a material effect on our management fee revenue in future periods.



	Nine months ended September 30, 2014
	Structured Equity		FSC			FSFR			FSOF		Senior Loan Funds			Total
Beginning balance	$	4,001	$	3,776,195		$	148,869		$	—	$	—		$	3,929,065
Commitments and equity raises	—		138,139			276,182			28,100		68,157			510,578
Subscriptions, deployments and changes in leverage	—		204,405			(98,356		)	6,741		260,368			373,158
Redemptions and distributions	—		(108,999		)	(12,173		)	—		(67		)	(121,239		)
Change in fund value	451		78,826			8,004			850		3,141			91,272
Ending balance	$	4,452	$	4,088,566		$	322,526		$	35,691	$	331,599		$	4,782,834
Average fee-earning AUM	$	4,227	$	3,932,381		$	235,698		$	17,845	$	165,800		$	4,355,951

Fee-earning AUM was $4.8 billion as of September 30, 2014, which represented an $853.8 million, or 21.7%, increase from $3.9 billion as of December 31, 2013. The net increase in fee-earning AUM was primarily due to $276.2 million and $138.1 million of equity capital raises in connection with follow-on equity offerings at FSFR and FSC, respectively, $106.0 million of increases of net leverage at our BDCs, and the closing of SLF I and SLF II which produced $331.6 million of fee-earning AUM at period end.

Overview of Results of Operations

Revenues

For the three months ended September 30, 2015 and 2014, 94.6% and 90.8%, respectively, of our revenues came from management fees (including 36.7% and 39.0%, respectively, of Part I Fees) from the BDCs and private funds. For the nine months ended September 30, 2015 and 2014, 94.9% and 93.9%, respectively, of our revenues came from management fees (including 36.1% and 36.8%, respectively, of Part I Fees) from the BDCs and private funds.

Management Fees

Base Management Fees

Pursuant to our investment advisory agreement with FSC, or the FSC Investment Advisory Agreement, we earn an annual base management fee of 2.0% of the value of FSC's gross assets, which includes any borrowings for investment purposes and excludes cash and cash equivalents. Such base management fee is calculated based on the value of FSC's gross assets at the end of its most recently completed fiscal quarter. The base management fee is payable quarterly in arrears and the fee for any partial month or quarter is appropriately prorated.

On July 14, 2015, FSC announced that FSM, as its investment adviser, voluntarily agreed to a revised base management fee arrangement ("Revised Management Fee") for the period commencing on July 1, 2015 and remaining in effect until January 1, 2017. The Revised Management Fee is intended to provide for a potential reduction in the base management fee payable by

FSC to FSM during such period. See Note 10 to the Consolidated Financial Statements for additional detail regarding the revised base management fee arrangement.

Pursuant to our investment advisory agreement with FSFR, or the FSFR Investment Advisory Agreement, we earn an annual base management fee of 1.0% of the value of FSFR's gross assets, which includes any borrowings for investment purposes and excludes cash and cash equivalents. Such base management fee is calculated based on the average value of FSFR's gross assets at the end of its two most recently completed quarters. The base management fee is payable quarterly in arrears and the fee for any partial month or quarter is appropriately prorated.

Pursuant to our investment management agreement with FSOF, we are entitled to receive a quarterly management fee from FSOF that is calculated and payable in advance at an annualized rate generally ranging from 1.0% to 1.5% of the value of a limited partner's investment, based on investment class and excluding affiliates, in FSOF. Capital contributed or withdrawn from FSOF during a quarter is charged a ratable portion of the management fee for the period invested.

Pursuant to CLO Management's investment management agreements with our senior loan funds, we are entitled to receive quarterly management fees from CLO I and CLO II that are calculated and payable in arrears pursuant to a "waterfall" structure. Under this "waterfall" structure, we are entitled to receive a senior collateral management fee at an annualized rate, for both CLO I and CLO II, of 0.25% of the average principal balance during the period and a subordinated collateral management fee at an annualized rate of 0.15%, for CLO I, and 0.13%, for CLO II, of the average principal balance during the period, in each case to the extent there are sufficient funds available for distribution at the applicable level in the hierarchy.

Part I Fees

Pursuant to the FSC and FSFR Investment Advisory Agreements, we earn Part I Fees that are calculated and payable quarterly in arrears based on each BDC's "Pre-Incentive Fee Net Investment Income" for the immediately preceding fiscal quarter. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of each BDC's net assets at the end of the immediately preceding fiscal quarter, will be compared to a specified "hurdle rate" per quarter, subject to a "catch-up" provision measured as of the end of each fiscal quarter. The BDCs' net investment income used to calculate this part of the Part I Fee is also included in the amount of its gross assets used to calculate the base management fee. Such fees are not subject to repayment (or clawback) and are cash settled each quarter.

Pursuant to the FSC Investment Advisory Agreement, the Part I Fee with respect to FSC's Pre-Incentive Fee Net Investment Income for each quarter is as follows:


•	no Part I Fee is payable to Fifth Street Management in any fiscal quarter in which FSC's Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 2.0%, or the "preferred return" or "hurdle";

•

100% of FSC's Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any fiscal quarter (10% annualized) is payable to Fifth Street Management. This portion of FSC's Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) is referred to as the "catch-up." The "catch-up" provision is intended to provide Fifth Street Management with an incentive fee of 20% on all of FSC's Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when its Pre-Incentive Fee Net Investment Income exceeds 2.5% in any fiscal quarter; and


•	20% of the amount of FSC's Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any fiscal quarter (10% annualized) is payable to Fifth Street Management once the hurdle is reached and the catch-up is achieved.

Pursuant to the FSFR Investment Advisory Agreement, the Part I Fee with respect to FSFR's Pre-Incentive Fee Net Investment Income for each quarter is as follows:


•	no Part I Fee is payable to Fifth Street Management in any fiscal quarter in which FSFR's Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 1.5%, or the "preferred return" or "hurdle";

•

50% of FSFR's Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any quarter (10% annualized) is payable to Fifth Street Management. This portion of FSFR's Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) is referred to as the "catch-up." The "catch-up" provision is intended to provide Fifth Street Management with an incentive fee of 20% on all of FSFR's Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when its Pre-Incentive Fee Net Investment Income exceeds 2.5% in any quarter; and


•	20% of the amount of FSFR's Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any quarter (10% annualized) is payable to Fifth Street Management once the hurdle is reached and the catch-up is achieved.

Performance Fees

Pursuant to the FSC Investment Advisory Agreement and the FSFR Investment Advisory Agreement, we also earn Part II Fees, which are determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement, as of the termination date) and equals 20% of each BDC's realized capital gains, if any, on a cumulative basis from inception through the end of each fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.

FSCO GP, FSOF's general partner, is entitled to receive an annual performance allocation from FSOF, generally ranging from 15% to 20% of the increase in value of a limited partner's investment, if any, subject to a loss carryover based on investment class and excluding affiliates. Pursuant to the loss carryover, no performance allocation will be charged on an investor's investment unless the value of such investment (net of any losses, for all years since admission) exceeds the higher of the following amounts: (i) the highest value of such investment through the close of any year since admission; and (ii) the value of such investor's investment on the date of admission. The performance allocation is generally calculated and allocated at the end of each fiscal year or upon a withdrawal occurring prior to the end of any fiscal year. Withdrawals by an investor will result in a proportional reduction of any loss carryover.

Performance fees may be subject to reversal to the extent that the performance fees recorded exceed the amount due to the general partner or investment manager based on a fund's cumulative investment returns.

Pursuant to our investment management agreement with CLO I and CLO II ("Fifth Street CLOs"), we were entitled to a performance fee in an amount equal to 20% of the excess cash flow after the subordinated debt investors have achieved a specified internal rate of return. In connection with the securitization of the CLOs, the investment management agreement, dated as of February 18, 2014, by and between the Fifth Street CLOs with CLO Management, was terminated. As compensation for the performance of its obligations under the collateral management agreement, Fifth Street Management is entitled to receive a collateral management incentive fee after the subordinated debt issued by each respective CLO has realized a specified internal rate of return.

Other Fees

FSC CT LLC is party to administration agreements with our BDCs and Fifth Street Management under which we provide administrative services for our BDCs and private funds, including office facilities and equipment, and clerical, bookkeeping and recordkeeping services at such facilities. Under the administration agreements, we also perform or oversee the performance of our BDCs' and private funds' required administrative services, which includes being responsible for the financial records which our BDCs and private funds are required to maintain and preparing reports to our BDCs' stockholders and reports filed with the SEC. In addition, we assist each of our BDCs in determining and publishing its net asset value, overseeing the preparation and filing of its tax returns and the printing and dissemination of reports to each of our BDC's stockholders, and generally overseeing the payment of each of our BDC's and private fund's expenses and the performance of administrative and professional services rendered to such BDC or private fund by others. For providing these services, facilities and personnel, the private funds reimburse us the allocable portion of direct fund expenses paid on their behalf and the BDCs reimburse us the allocable portion of direct expenses, as well as overhead and other expenses incurred by us in performing our obligations under the administration agreements, including rent and such BDC's allocable portion of the costs of compensation and related expenses of such BDC's chief financial officer and chief compliance officer and their staffs. Such reimbursement is at cost with no profit to, or markup by, us. These reimbursements are included in Revenues - Other fees in the consolidated statements of income and the expenses are included in compensation and benefits and general, administrative and other expenses. We may also provide, on our BDCs' behalf, managerial assistance to such BDC's portfolio companies. Each of the administration agreements may be terminated by either us or our BDCs without penalty upon 60 days' written notice to the other party.

Expenses

Compensation and benefits. Compensation generally includes salaries, bonuses and equity-based compensation charges. Bonuses are accrued over the service period to which they relate. All payments made to the managing member of Fifth Street Management since its inception and all payments made to equity members since December 1, 2012 related to their granted or purchased interests are accounted for as distributions on the equity held by such members.

Fund offering and start-up expenses. In certain instances, we may bear offering costs related to capital raising activities of the BDCs, including underwriting commissions, which are expensed as incurred. In addition, we expense all costs associated with starting new investment funds.

General, administrative and other expenses. General, administrative and other expenses primarily include costs related to professional services, occupancy and overhead expenses, travel and related expenses, communication and information systems and other general operating items.

Depreciation and amortization. Depreciation of furniture, fixtures and equipment is computed using the straight-line method over the estimated useful lives of the respective assets (three to eight years). Amortization of improvements to leased properties is computed using the straight-line method based upon the initial term of the applicable lease or the estimated useful life of the improvements, whichever is shorter, and ranges from five to 10 years.

Income taxes. Prior to our Reorganization and IPO, substantially all of the Fifth Street Management Group's earnings flowed through to its owners without being subject to entity level income taxes. Accordingly, no provision for income taxes has been recorded in historical periods. As a result of these transactions, the portion of our income attributable to Fifth Street Asset Management Inc. and other taxable entities within the post-IPO structure are now subject to U.S. federal, state and local income taxes and is taxed at the prevailing corporate tax rates.

Our effective tax rate includes a rate benefit attributable to the fact that certain of our subsidiaries operate as a series of pass-through entities which are not themselves subject to federal income tax. As a result of the Reorganization, certain subsidiaries were converted from pass-through entities to taxable entities. Accordingly, the portion of our subsidiaries' earnings attributable to non-controlling interests are subject to tax when reported as a component of the non-controlling interests' taxable income on their individual tax returns.

Other income (expense)

Other income (expense) primarily includes equity income from our investments in certain of our managed private funds and interest expense incurred on our credit facility.

Net income attributable to Predecessor

Net income attributable to Predecessor represents 100% of the net income earned by Fifth Street Management Group, our predecessor, prior to the Reorganization and IPO. Such earnings include all charges related to the Reorganization which was effectuated immediately prior to the closing of our IPO on November 4, 2014.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests represent the ownership interests in Fifth Street Holdings L.P. and MMKT which are less than 100% owned by FSAM.

Revision of Financial Statements

During the three months ended September 30, 2015, we identified errors in the calculation of Part I Fees previously paid to us by the BDCs. The amounts paid were originally recognized as revenue in the first quarter of 2012 through the second quarter of 2015. The cumulative adjustment related to the years ended 2012 and 2013, which was not considered material, in the amount of $811,025 is reflected as an out-of-period adjustment to the three months ended March 31, 2014. The identified errors related to incorrect information used by FSC CT LLC, our administrator, a wholly-owned subsidiary of us and the administrator of the Fifth Street BDCs. The errors related primarily to the timing of when Part I fees should have been recorded and paid. The aggregate adjustment was a net reduction of Part I Fees in the amount of $3,327,969 as of June 30, 2015. The Company assessed the materiality of the errors on its prior quarterly and annual financial statements, assessing materiality both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the errors were not material to any of its previously issued financial statements. However, we concluded the cumulative corrections of these errors would be material to our financial statements for the three and nine months ended September 30, 2015 and, therefore, it is not appropriate to recognize the cumulative corrections in this period. Accordingly, the prior period financial statements provided herein have been revised to correct these errors (the "Revision") as well as other unrelated, immaterial out-of-period adjustments that had been previously recorded.

These prior period adjustments will be reflected in future quarterly and annual filings for the respective period. The revision had no net impact on our net cash provided by operating activities for any period presented.

The Holdings Limited Partners have agreed to refund all of the overpaid fees to us and therefore none of the expense will be borne by the Class A stockholders of FSAM.

Results of Operations

Three months ended September 30, 2015 compared to three months ended September 30, 2014

Revenues

Management fees. Total management fees were $23.6 million for the three months ended September 30, 2015, which represented a $0.6 million, or 2.7%, increase from $23.0 million for the three months ended September 30, 2014. This increase was primarily due to $0.9 million increase in base management fees from our BDCs, a $0.4 million increase in management fees from our CLOs, partially offset by a $0.8 million decrease in BDC Part I fees.

Performance fees. Performance fees of $2,596 and $139,049 were earned from FSOF for the three months ended September 30, 2015 and 2014, respectively. There were no performance fees for the three months ended September 30, 2014 as FSOF did not have fee-earning AUM during that period.

Other fees. Other fees were $1.3 million for the three months ended September 30, 2015, which represented a $0.8 million, or 38.4%, decrease from $2.2 million for the three months ended September 30, 2014. The decrease was primarily due to a lower level of allocable direct fund expenses and general and administrative expenses by us to the Fifth Street BDCs and private funds pursuant to the administration agreements.

Expenses

Compensation and benefits. Compensation and benefits was $10.3 million for the three months ended September 30, 2015, which represented a $3.7 million, or 57.1%, increase from $6.5 million for the three months ended September 30, 2014. The increase was primarily due to $1.2 million of equity-based compensation charges related to grants under the 2014 Omnibus Incentive Plan in connection with our IPO and additional compensation due the annualization of new hires during the year-over-year period.

Fund offering and start-up expenses. There were no fund offering and start-up expenses for the three months ended September 30, 2015. For the three months ended September 30, 2014, fund offering and start-up expenses were $0.9 million which primarily consisted of offering expenses related to an FSC July 2014 follow-on equity offering.

General, administrative and other. General, administrative and other expenses were $3.3 million for the three months ended September 30, 2015, which represented a $0.1 million, or 2.4%, decrease from $3.4 million for the three months ended September 30, 2014. The decrease was primarily due to lease termination costs in the year ago period related to our former corporate headquarters, offset by incremental infrastructure spending during the period.

Depreciation and amortization. Depreciation and amortization expense was $0.4 million for the three months ended September 30, 2015 and 2014.

Other income (expense)

For the three months ended September 30, 2015, other expense was $0.4 million, which primarily consisted of interest expense related to our credit facility.

Provision for income taxes

The income tax expense of $1.0 million for the three months ended September 30, 2015 reflects the quarterly portion of our expected annual tax provision expense.

Net income

Net income was $9.5 million for the three months ended September 30, 2015, which represented a $4.7 million, or 32.9%, decrease from $14.2 million for the three months ended September 30, 2014. The decrease was primarily due to the income and expense variances discussed above.

Nine months ended September 30, 2015 compared to nine months ended September 30, 2014

Revenues

Management fees. Total management fees were $70.4 million for the nine months ended September 30, 2015, which represented a $3.7 million, or 5.6%, increase from $66.7 million for the nine months ended September 30, 2014. This increase was primarily due to $1.5 million increase in management fees from our CLOs and FSOF and a $1.4 million increase in base management fees at our BDCs.

Performance fees. Performance fees earned from FSOF were $0.1 million for the nine months ended September 30, 2015 and 2014.

Other fees. Other fees were $3.7 million for the nine months ended September 30, 2015, which represented a $0.5 million, or 12.8%, decrease from $4.2 million for the nine months ended September 30, 2014. The decrease was primarily due to a lower level of allocable direct fund expenses and general and administrative expenses by us to the Fifth Street BDCs and private funds pursuant to the administration agreements.

Expenses

Compensation and benefits. Compensation and benefits was $28.8 million for the nine months ended September 30, 2015, which represented a $3.1 million, or 12.0%, increase from $25.7 million for the nine months ended September 30, 2014. The increase was primarily due to annualization of new hires during the year-over-year period.

Fund offering and start-up expenses. There were no fund offering and start-up expenses for the nine months ended September 30, 2015. For the nine months ended September 30, 2014, fund offering and start-up expenses were $1.2 million which primarily consisted of expenses associated with the formation of FSOF, CLO I and CLO II.

General, administrative and other. General, administrative and other expenses were $8.5 million for the nine months ended September 30, 2015, which represented a $1.1 million, or 14.1%, increase from $7.5 million for the nine months ended September 30, 2014. The increase was primarily due to incremental professional fees incurred and infrastructure spending during the period.

Depreciation and amortization. Depreciation and amortization expense was $1.3 million for the nine months ended September 30, 2015, which represented a $0.6 million, or 95.6%, increase from $0.6 million for the nine months ended September 30, 2014. The increase was primarily due to depreciation on fixed assets related to the construction of our new corporate headquarters in Greenwich, CT.

Other income (expense)

For the nine months ended September 30, 2015, other expense was $1.5 million, which primarily consisted $1.3 million of interest expense related to our credit facility and $0.6 million of mark to market adjustments on our CLO investments, partially offset by $0.3 million of interest income.

Provision for income taxes

The income tax expense of $3.6 million for the nine months ended September 30, 2015 reflects the year to date portion of our expected annual tax provision expense.

Net income

Net income was $30.5 million for the nine months ended September 30, 2015, which represented a $5.8 million, or 15.9%, decrease from $36.3 million for the nine months ended September 30, 2014. The decrease was primarily due to the income and expense variances discussed above.

Liquidity and Capital Resources

We have historically managed our liquidity and capital requirements by focusing on our cash flows before giving effect to our Consolidated Fund as we have limited capital commitments to our funds. Historically, our primary source of operating cash flow, excluding the impact of the Consolidated Fund, has been the management fees generated from our BDCs which were sufficient to support our operating cash flow needs. In connection with our initial public offering, our subsidiaries entered into a new revolving credit facility with which we may increase our investments in our existing funds and seed investments. See "— Revolving Credit Facility" below.

We primarily use our operating cash flow to pay compensation and benefits, general, administrative and other expenses, state and local taxes, debt service, capital expenditures and dividends in accordance with our dividend policy described below. Our cash flows, together with the proceeds from our credit facility, are also used to fund investments, fixed assets and other capital items, such as repurchases of our Class A common stock under our newly authorized share repurchase program. If cash flow from operations were insufficient to fund distributions over a sustained period of time, we would utilize our credit facility to satisfy such distributions. We expect that our cash and liquidity requirements in the next 12 months will be met primarily through cash generated by our operations.

Our consolidated financial statements as of and for the period ended September 30, 2015 reflect the cash flows of our operating businesses as well as the results of our Consolidated Fund. The assets of our Consolidated Fund, on a gross basis, are significantly larger than the assets of our operating businesses and therefore have a substantial effect on our reported consolidated cash flows. The primary cash flow activities of our Consolidated Fund includes: (1) financing certain investments by issuing debt, (2) purchasing investment securities, (3) generating cash through the sale of certain investments, (4) collecting interest and dividend income and (5) distributing cash to investors. Our Consolidated Fund is treated as an investment company

for financial accounting purposes under GAAP; therefore, the character and classification of all investing activities of the Combined Funds are presented as cash flows from operations.

Cash Flows

Nine months ended September 30, 2015 compared to nine months ended September 30, 2014

Net cash provided (used) in operating activities was $(264.4) million for the nine months ended September 30, 2015, which represented a $312.6 million decrease from $48.3 million for the nine months ended September 30, 2014. The decrease was primarily due to $307.7 million of net cash investment activity of the Consolidated Fund and a decrease in net income of $5.7 million.

Net cash used in investing activities was $8.9 million for the nine months ended September 30, 2015, which represented a $4.4 million decrease from $13.3 million for the nine months ended September 30, 2014. The decrease was primarily due to a decreased level of capital expenditures from the year-ago period, partially offset by incremental equity method investments.

Net cash provided (used) by financing activities was $350.6 million for the nine months ended September 30, 2015, which represented a $389.2 million increase from ($38.6) million for the nine months ended September 30, 2014. The increase was primarily due to the issuance of $364.1 million of notes payable by our Consolidated Fund and $23.0 million of net borrowings on our credit facility, net proceeds from the issuance of notes payable of $12.6 million, partially offset by increased member distributions of $3.0 million.

Share Repurchase Program

On May 11, 2015, our Board of Directors authorized a share repurchase program of up to $20.0 million of our Class A common stock. Under the repurchase program, we are authorized to repurchase shares through open market purchases or block trades, as conditions permit and in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The repurchase program will terminate on May 11, 2016, unless earlier terminated or extended by our Board of Directors, and may be suspended for periods or discontinued at any time. Total repurchases under the share repurchase program for the nine months ended September 30, 2015 were approximately $1.8 million in the aggregate.

Revolving Credit Facility

On November 4, 2014, Fifth Street Holdings entered into a credit agreement, or the Credit Agreement, for a revolving credit facility, or the Credit Facility, that was jointly led by Morgan Stanley Senior Funding, Inc. and Sumitomo Mitsui Banking Corporation. We intend to use the Credit Facility, together with available cash, to, among other things: (i) provide capital to facilitate the growth of our existing businesses and funds, (ii) fund a portion of our commitments to funds that we advise, (iii) provide capital to facilitate our expansion into complementary businesses and funds, (iv) pay operating expenses, including cash compensation to our employees and payments under the tax receivable agreement, (v) provide working capital, and, potentially, seed capital for future investments and (vi) fund distributions to us so that we may pay dividends to our stockholders. As of September 30, 2015, we had $35.0 million of outstanding borrowings under the Credit Facility.

The Credit Facility has a five-year term, is an unsecured facility that provides for $176 million of borrowing capacity, with a $100 million accordion feature, and bears interest at a variable rate based on either LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change based on a total leverage ratio. Borrowings under the Credit Facility accrue interest at an annual rate of LIBOR plus 2.00% per annum and the unused commitment fee under the facility is 0.30% per annum. The Credit Agreement contains customary representations and warranties and affirmative and negative covenants that, among other things, restrict the ability of Fifth Street Holdings to create or incur certain liens, incur or guarantee additional indebtedness, merge or consolidate with other companies or transfer all or substantially all of their respective assets, transfer or sell assets, make restricted payments, engage in transactions with affiliates and insiders, and incur restrictions on the payment of dividends or other distributions and certain other contractual restrictions. These covenants are subject to a number of limitations and exceptions set forth in the Credit Agreement. In addition, Fifth Street Holdings must not:


•	permit the Total Leverage Ratio (as defined in the Credit Agreement) to be greater than 3.00 to 1.00 as of the end of any fiscal quarter for the four quarter period ending on such date;


•	permit AUM (as defined in the Credit Agreement) at any time to be less than the sum of $3.25 billion plus (ii) 50% of all New Management Fee Assets (as defined in the Credit Agreement); or


•	permit the Interest Coverage Ratio (as defined in the Credit Agreement) to be less than 5.00 to 1.00 as of the end of any fiscal quarter for the four quarter period ending on such date.

We were in compliance with all covenants under the Credit Facility as of September 30, 2015.

Dividend Policy

We are a holding company and have no material assets other than our approximately 12% limited partnership interest in Fifth Street Holdings and our controlling interest and related rights as its sole general partner. As a result, we depend upon distributions from our subsidiaries to pay any dividends that our Board of Directors may declare to be paid to the holders of our Class A common stock. When our Board of Directors declares dividends, we will cause Fifth Street Holdings to make distributions to us in an amount sufficient to cover the dividends declared. Our dividend policy has certain risks and limitations, particularly with respect to liquidity. We may not pay dividends to the holders of our Class A common stock in amounts that have been paid to them in the past, or at all, if, among other things, we do not have the cash necessary to pay our intended dividends. To the extent we do not have cash on hand sufficient to pay dividends in the future, we may decide not to pay dividends. We may or may not borrow to fund dividends. By paying cash dividends rather than investing that cash in our future growth, we risk slowing the pace of our growth, or not having a sufficient amount of cash to fund our operations or unanticipated capital expenditures, should the need arise.

We expect to continue to distribute as dividends to holders of our Class A common stock, on a quarterly basis, substantially all of our allocable share of Fifth Street Holdings' distributable earnings, net of applicable corporate taxes and amounts payable under the tax receivable agreement, in excess of amounts determined to be necessary or appropriate to be retained by Fifth Street Holdings or its subsidiaries to provide for the conduct of our businesses, to make appropriate investments in our businesses and our funds, to comply with the terms of our debt instruments, other agreements or applicable law or to provide for future distributions to us and the Holdings Limited Partners for any ensuing quarter. We intend to fund our dividends from our portion of distributions made to us by Fifth Street Holdings which, in turn, will fund its distributions to us from distributions that it receives from its subsidiaries. Our ability to pay dividends is subject to our Board of Directors' discretion and may be limited by our holding company structure and applicable provisions of Delaware law.

Under the Delaware General Corporation Law (the "DGCL"), we may only pay dividends from legally available surplus or, if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Surplus is defined as the excess of a company's total assets over the sum of its total liabilities plus the par value of its outstanding capital stock. Under the DGCL, our Board of Directors can use the fair value of assets and liabilities, rather than book value, in making this determination. Under the Delaware Limited Partnership Act, Fifth Street Holdings may not make a distribution to a partner if, after the distribution, all its liabilities, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of our assets. If Fifth Street Holdings were to make such an impermissible distribution, any limited partner who received a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Limited Partnership Act would be liable to Fifth Street Holdings for the amount of the distribution for three years.

On January 15, 2015, our Board of Directors declared an initial quarterly dividend of $0.30 per share on our Class A common stock. The declared dividend was paid on April 15, 2015 to stockholders of record at the close of business on March 31, 2015.

On May 11, 2015, our Board of Directors declared a quarterly dividend of $0.17 per share on our Class A common stock. The declared dividend was paid on July 15, 2015 to stockholders of record at the close of business on June 30, 2015.

On August 10, 2015, our Board of Directors declared a quarterly dividend of $0.17 per share on our Class A common stock. The declared dividend is payable on October 15, 2015 to stockholders of record at the close of business on September 30, 2015.

Tax Receivable Agreement

Our purchase of Holdings LP Interests concurrent with our initial public offering, and the subsequent and future exchanges by holders of Holdings LP Interests for shares of our Class A common stock pursuant to the Exchange Agreement resulted in, and is expected to continue to result in, increases in our share of the tax basis of the tangible and intangible assets of Fifth Street Holdings, which will increase the tax depreciation and amortization deductions that otherwise would not have been available to us. These increases in tax basis and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that we would otherwise be required to pay in the future. We have entered into a tax receivable agreement with the TRA Recipients that requires us to pay them 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax that we actually realize (or, under certain circumstances, are deemed to realize) as a result of the increases in tax basis in connection with exchanges by the TRA Recipients described above and certain other tax benefits attributable to payments under the tax receivable agreement.

Off-Balance Sheet Arrangements

In the normal course of business, we may engage in off-balance sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications and potential contingent repayment obligations.

Contractual Obligations, Commitments and Contingencies

As of September 30, 2015, we did not have any unfunded capital commitments.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments. See "Forward-Looking Statements."

Principles of Consolidation

The consolidated financial statements include the entities in which we, directly or indirectly, are determined to have a controlling financial interest under ASC 810. Under the variable interest model, we determine whether, if by design, an entity has equity investors who lack substantive participating or kick-out rights. If equity investors do not have such rights, the entity is considered a variable interest entity ("VIE") and must be consolidated by its primary beneficiary. An enterprise is determined to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interest is defined as: (a) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation guidance requires an analysis to determine: (a) whether an entity in which we hold a variable interest is a VIE and (b) whether our involvement, through holding interests directly or indirectly in the entity, would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment.

Under the consolidation guidance, we determine whether we are the primary beneficiary of a VIE at the time we become involved with a VIE and reconsider that conclusion continually. In evaluating whether we are the primary beneficiary, we evaluate our economic interests in the entity held either directly by us and our affiliates or indirectly through employees. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that we are not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by us, affiliates of ours or third parties) or amendments to the governing documents of the respective investment funds could affect an entity's status as a VIE or the determination of the primary beneficiary. At each reporting date, we assess whether we are the primary beneficiary and will consolidate or deconsolidate accordingly.

For equity investments where we do not control the investee, and where we are not the primary beneficiary of a variable interest entity, but can exert significant influence over the financial and operating policies of the investee, we follow the equity method of accounting. The evaluation of whether we exert control or significant influence over the financial and operational policies of its investees requires significant judgment based on the facts and circumstances surrounding each individual investment. Factors considered in these evaluations may include the type of investment, the legal structure of the investee, the terms and structure of the investment agreement, including investor voting or other rights, the terms of our investment advisory agreement or other agreements with the investee, any influence we may have on the governing board of the investee, the legal rights of other investors in the entity pursuant to the fund's operating documents and the relationship between us and other investors in the entity.

Effect of Deconsolidation

During the year ended December 31, 2014, we formed the following entities (collectively referred to as the "Combined Funds") whose financial results were included in our financial statements in previous filings with the SEC:


•	FSCO GP LLC ("FSCO GP"), a Delaware limited liability company, formed on January 6, 2014 to serve as the general partner of Fifth Street Opportunities Fund, L.P. ("FSOF," formerly Fifth Street Credit Opportunities Fund, L.P.), which primarily invests in yield-oriented corporate credit assets and equities; and


•	Fifth Street EIV, LLC ("Fifth Street EIV"), a Delaware limited liability company formed on February 7, 2014 to hold Fifth Street Management's equity interest in Fifth Street Senior Loan Fund I, LLC ("SLF I"), which primarily invests in senior secured loans to middle market companies.


•	Fifth Street EIV II, LLC ("Fifth Street EIV II"), a Delaware limited liability company formed on July 10, 2014 to hold certain of our employees' equity interests in Fifth Street Senior Loan Fund II, LLC ("SLF II"), which primarily invests in senior secured loans to middle market companies.

Such Combined Funds were included in the financial statements previously filed with the SEC through periods ending September 30, 2014 based on the then existing consolidation guidance. In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis ("ASU 2015-02"). As of December 31, 2014, we elected to early adopt such guidance, which resulted in deconsolidation of the Combined Funds. We determined that these entities were variable interest entities of which we were not the primary beneficiary because under ASU 2015-02 our fee arrangements are commensurate with the level of effort performed and include only customary terms do not represent variable interests. There was no gain or loss recognized as a result of the deconsolidation of the Combined Funds. Although total assets and equity significantly decreased as a result of the Combined Funds' deconsolidation, it did not change net income or equity attributable to controlling interests in FSAM. We will continue to earn management and/or performance fees from these funds.

Effect of Consolidation

Generally, the consolidation of our Consolidated Fund has a significant gross-up effect on our assets, liabilities, and cash flows. The net effect that the consolidation of the Consolidated Fund would have on net income (before adjusting for these non-controlling interests) or to total equity is limited to the elimination of management fees earned from these funds. The assets and liabilities of our Consolidated Fund are generally held within separate legal entities and, as a result, the liabilities of our Consolidated Fund are non-recourse to us.

Base Management Fees

Base Management Fees earned from our funds are generally based on a fixed percentage of gross or net asset value based on the governing documents for each respective fund. For purposes of calculating management fees, such funds' investments are generally measured at fair value, and thus, management fee revenue are directly affected by significant estimates and assumptions used when determining the fair value of the underlying investments within the funds. These fair value measurements may vary depending on the valuation methodology that is used. See "— Fair Value Measurements" below for further discussion related to significant estimates and assumptions used for determining fair value of the underlying investments in our funds.

Part I Fees

Part I Fees earned from our funds are generally based on a fixed percentage of pre-incentive fee net investment income, which is calculated and paid quarterly, and subject to certain specified performance hurdles. Part I Fees are classified as management fees as they are predictable and are recurring in nature, are not subject to repayment (or clawback) and are generally cash-settled each quarter.

Performance Fees

Performance fees are earned from the funds managed by us based on the performance of the respective funds. The contractual terms of performance fees vary by fund structure and investment strategy and are generally 15.0% to 20.0%. We have elected to adopt Method 2 of ASC 605-20 for revenue based on a formula. Under this method, we record revenue when we are entitled to performance-based fees, subject to certain hurdles or benchmarks. The performance fees for any period are based upon an assumed liquidation of the fund's net assets on the reporting date, and distribution of the net proceeds in accordance with the fund's income allocation provisions. The performance fees may be subject to reversal to the extent that the performance fees recorded exceed the amount due to the general partner or investment manager based on a fund's cumulative investment returns. Part II Fees are calculated and payable in arrears as of the end of each fiscal year of the BDCs and equal 20% of the BDCs realized capital gains, if any, on a cumulative basis since inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. Accordingly, the amount recognized as performance fees reflects our share of the fair value gains and losses of the associated funds, and thus, are dependent on subjective judgments in determining the funds' fair value measurements.

Performance fees could continue to increase in the future as we increase our fundraising efforts for private fund vehicles. We may be required to return realized performance fees if such funds' investment values decline below certain levels. When the fair value of a fund's investments fall below certain return hurdles, previously recognized performance fees are reduced. In all cases, each fund is considered separately in that regard, and for a given fund, performance fees can never be negative over the life of a fund. Upon a hypothetical liquidation of a fund's investments at the then current fair values, previously recognized and distributed performance fees would be required to be returned, and a liability would be established for the potential giveback obligation. Part I Fees are not subject to such provisions.

Equity Based Compensation

We account for stock-based compensation in accordance with ASC 718, "Compensation – Stock Compensation." Under the fair value recognition provision of this guidance, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period.

We recognize expense related to equity-based compensation transactions in which we receive employee services in exchange for: (a) our equity instruments or (b) liabilities that are based on the fair value of our equity instruments. Equity-based compensation expense represents expenses associated with the: (i) granting of Part I Fee-sharing arrangements prior to the Reorganization; (ii) conversion of and acceleration in vesting of interests in the Predecessor in connection with the Reorganization, and (iii) the granting of restricted stock units, options to purchase Class A common shares and stock appreciation rights granted in connection with our initial public offering.

Stock-based compensation expense recognized is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The effect of such change in estimated forfeitures is recognized through a cumulative catch-up adjustment that is included in the period of the change in estimate.

We record deferred tax assets or liabilities for equity compensation plan awards based on deductions for income tax purposes of stock-based compensation recognized at the statutory tax rate in the jurisdiction in which we are expected to receive a tax deduction. In addition, differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on our income tax returns are recorded as adjustments to additional paid-in capital. If the tax deduction is less than the deferred tax asset, the calculated shortfall reduces the pool of excess tax benefits. If the pool of excess tax benefits is reduced to zero, then subsequent shortfalls would increase the income tax expense.

Historically, the grant date fair value of equity-based awards has been determined by independent third party appraisals. If we were to issue other share based compensation, such as stock options or restricted stock units, we would make judgments in order to determine the awards' grant date fair value, including volatility assumptions and estimated forfeiture rates. Each of these elements, particularly the forfeiture assumptions used in valuing any equity awards, create significant variability to fair value measurements, and the impact of changes in such elements on equity-based compensation expense could be material.

Income Taxes

Prior to the completion of our initial public offering, substantially all of our earnings flowed through to the former members of Fifth Street Management without being subject to entity level income taxes. Accordingly, no provision for income taxes has been recorded in the consolidated financial statements prior to our initial public offering.

We account for income taxes under the asset and liability method prescribed by ASC 740, Income Taxes. As a result of our acquisition of limited partnership interests in Fifth Street Holdings, we expect to benefit from amortization and other tax deductions reflecting the step-up in tax basis in the acquired assets. Those deductions will be used by us and will be taken into account in determining our taxable income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Management periodically assesses the recoverability of its deferred tax assets based upon expected future earnings, future deductibility of the asset and changes in applicable tax laws and other factors. If management determines that it is not probable that the deferred tax asset will be fully recoverable in the future, a valuation allowance may be established for the difference between the asset balance and the amount expected to be recoverable in the future. The allowance will result in a charge to our Consolidated Statements of Income. Further, we record our income taxes receivable and payable based upon our estimated income tax liability.

Fifth Street Holdings complies with the requirements of the Internal Revenue Code that are applicable to limited partnerships, which allow for the complete pass-through of taxable income or losses to Fifth Street Holdings limited partners, including us, who are individually responsible for any federal tax consequences. Therefore, no federal tax provision is required in Fifth Street Holdings' consolidated financial statements in the periods prior to November 4, 2014. Subsequent to our initial public offering, the tax provision includes the federal income tax obligation related to our allocated portion of Fifth Street Holdings' income. Fifth Street Holdings is subject to certain state and local taxes and certain of its subsidiaries are subject to entity level taxes.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

We recognize interest and penalties associated with tax matters such as franchise tax liabilities, if applicable, as general and administrative and other expenses.

Recent Accounting Pronouncements

See Note 3 to the consolidated financial statements for a description of recent accounting pronouncements including those adopted during the nine months ended September 30, 2015.

Recent Developments

See Note 15 to the consolidated financial statements for a description of recent developments that have occurred subsequent to September 30, 2015.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our primary exposure to market risk is related to our role as general partner or investment adviser to our investment funds, and to the sensitivity to movements in the fair value of the investments of such funds, including the effect on management fees and investment income.

The market price of investments may significantly fluctuate during the period of investment. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of an investment may decline due to general market conditions that are not specifically related to such investment, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry.

Effect on Management Fees

Base management fees are generally based on a defined percentage of the value of our funds' assets. Base management fees may be affected by changes in the market value of our funds' underlying investments.

The overall impact of a short-term change in market value may be mitigated by a number of factors including, but not limited to, fee definitions that are not based on market value including invested capital and committed capital, market value definitions that exclude the impact of realized and/or unrealized gains and losses, market value definitions based on beginning of the period values or a form of average market value including daily, monthly or quarterly averages as well monthly or quarterly payment terms.

Assuming an incremental 10% change in fair value of the funds' investments as of September 30, 2015, we calculated an increase in base management fees earned of $4.0 million in the case of an increase in value and a decrease in base management fees earned of $4.0 million in the case of a decline in value for the nine months ended September 30, 2015. Such a change in fair value would not have a material impact on Part I Fees.

Effect on Performance Fees

Performance fees are based on certain specific hurdle rates as defined in the funds' applicable investment management or partnership agreements. The performance fees for any period are based upon an assumed liquidation of the fund's net assets on the reporting date, and distribution of the net proceeds in accordance with the fund's income allocation provisions which can result in a performance-based fee to us, subject to certain hurdles and benchmarks. The performance fees may be subject to reversal to the extent that the performance fees recorded exceeds the amount due to the general partner or investment manager based on a fund's cumulative investment returns.

Changes in the fair values of funds' investments may materially impact performance fees depending on the respective funds' performance relative to applicable hurdles or benchmarks. Based on an incremental 10% change in fair value of the funds' investments as of September 30, 2015, there would be no material impact on performance fees for the three and nine months ended September 30, 2015.

Credit Risk

We are party to agreements providing for various financial services and transactions that contain an element of risk in the event that the counterparties are unable to meet the terms of such agreements. In such agreements, we depend on the respective counterparty to make payment or otherwise perform. We generally endeavor to minimize our risk of exposure by limiting to reputable financial institutions the counterparties with which we enter into financial transactions. In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets.

Interest Rate Risk

The funds we manage are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect our funds' costs of funding and their interest income from portfolio investments, cash and cash equivalents and idle funds' investments. Risk management systems and procedures at our funds are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. Investment income at our funds will be affected by changes in various interest rates, including LIBOR and prime rates, to the extent their debt investments include floating interest rates. In addition, investments of our BDCs are carried at fair value as determined in good faith by each BDC's respective board of directors in accordance with the 1940 Act.

Our Credit Facility bears interest at a variable rate, and as such, we may be exposed to increased interest expense with higher market interest rates. However, an incremental 10% change in LIBOR would not have a material effect on our consolidated financial results.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2015. Based upon that evaluation and subject to the foregoing, our principal executive officers and principal financial officer concluded that, as of September 30, 2015, the design and operation of our disclosure controls and procedures were not effective to accomplish their objectives at the reasonable assurance level.

Material Weaknesses in Internal Control Over Financial Reporting

In connection with the preparation of our audited financial statements for our IPO and as previously identified in our Registration Statement filing on Form S-1 (File No. 333-196813), we identified a material weakness relating to our internal control over financial reporting under standards established by the Public Company Accounting Oversight Board ("PCAOB") for the years ended December 31, 2013 and 2012 relating to the treatment of stock-based compensation and liabilities associated with existing membership units, and the consequent improper recording of certain equity transactions, as well as incorrectly recording expenses reimbursable by our funds on a net basis. In connection with the preparation of our financial statements for September 30, 2015 on Form 10-Q, we identified an additional material weakness related to the recording of Part I fee revenue.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

We did not maintain sufficient accounting resources with technical accounting knowledge, experience and training in the application of U.S. GAAP and for effective preparation and review of our financial statements. This material weakness also contributed to the following control deficiencies, each of which has been determined to be a material weakness:

•

We did not design and maintain effective controls to analyze complex and non-routine transactions or, adequately review the accounting and/or disclosure for these transactions. The material weakness was identified as the primary cause of errors relating to the treatment of stock-based compensation and liabilities associated with existing membership units, and the consequent improper recording and improper disclosure of certain equity transactions, as well as incorrectly recording expenses reimbursable by our funds on a net basis.

•

We did not design and maintain sufficient controls to evaluate information provided from and accounting conclusions reached by FSC CT LLC, the administrator of the Fifth Street BDCs and our wholly-owned subsidiary, in the determination of Part I fee revenue. The material weakness was identified as the primary cause of the revision relating to the Part I fees, and the consequent improper recording of fee revenue.

Remediation of Material Weaknesses in Internal Control Over Financial Reporting

We have taken and will take a number of actions to remediate these material weaknesses including, but not limited to, adding senior experienced accounting and financial personnel, reallocating existing internal resources and retaining third-party consultants to help enhance our internal control over financial reporting following reviews of our accounting and finance function conducted by members of senior management. Management is committed to improving our internal control processes and believes that the measures described above should be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting. We cannot assure you, however, that the steps taken will remediate such weaknesses, nor can we be certain of whether additional actions will be required or the costs of any such actions. We will be required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting commencing with our Annual Report on Form 10-K for the year ended December 31, 2015.

Changes in Internal Control Over Financial Reporting

Other than the remediation efforts described above, there were no changes in our internal control over financial reporting during the three months ended September 30, 2015 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, except as described below, we are currently not a party to any pending material legal proceedings.

The Company has been named as a defendant in three putative securities class-action lawsuits arising from our role as investment adviser to FSC. The first lawsuit was filed on October 1, 2015, in the United States District Court for the Southern District of New York and is captioned Howard Randall, Trustee, Howard & Gale Randall Trust FBO Kimberly Randall Irrevocable Trust UA Feb 15, 2000 v. Fifth Street Finance Corp., et al., Case No. 1:15-cv-07759. The second lawsuit was filed on October 14, 2015, in the United States District Court for the District of Connecticut and is captioned Lynn Waters-Cottrell v. Fifth Street Finance Corp., et al., Case No. 3:15-cv-01488. The third lawsuit was filed on November 12, 2015, in the United States District Court for the Southern District of New York and is captioned Robert J. Hurwitz v. Fifth Street Finance Corp., et al., Case No. 1:15-cv-08908. The defendants in all three cases are Leonard M. Tannenbaum, Bernard D. Berman, Alexander C. Frank, Todd G. Owens, Ivelin M. Dimitrov, and Richard Petrocelli (collectively, the “Individual Defendants”), FSC, and the Company.

The Company believes that the claims are without merit and intends to defend itself vigorously against the plaintiffs’ allegations.

Item 1A. Risk Factors

The following risks are supplemental to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2014.

We are involved in a class action lawsuit that is expensive and time consuming, and, if resolved adversely, could harm our business, financial condition, or results of operations.

We are currently named as a defendant in three putative securities class-action lawsuits arising from our role as investment adviser to FSC. See Item 1. Legal Proceedings in this Quarterly Report on Form 10-Q for additional information concerning these class-action lawsuits. While we believe that the claims are without merit and intend to vigorously defend against the plaintiffs’ allegations, there can be no assurances that a favorable final outcome will be obtained and defending any lawsuit is costly and can impose a significant burden on management and employees.

In connection with our investment in MMKT, we are expanding into a new business and industry in which we do not have any operating experience. We cannot assure you that this new business will succeed.

We have a controlling financial interest in MMKT, a financial technology company. MMKT is a development stage enterprise with a limited operating history. There can be no assurances that MMKT will be successful at commercializing its technology for the financial services industry, that any such commercialization will generate significant future revenue or that MMKT will attain profitability. In addition, we have not previously operated a business in the financial technology industry and we cannot assure you that this new business will succeed. Our entry into this new line of business may subject us to additional risks and uncertainties. See our Annual Report on Form 10-K for the year ended December 31, 2014 under Item 1A. Risk Factors and under the heading “Risk Factors-Risks Related to Our Business-We intend to enter into new lines of business

and expand into new investment strategies, geographic markets and businesses, each of which may result in additional risks and uncertainties in our businesses.” Specifically, our entry into the financial technology industry may present additional or heightened risks to our business including those relating to the management of information technology systems and infrastructure, cybersecurity, handling of confidential client and financial information and the protection and use of intellectual property.

In addition, because we hold a controlling interest in MMKT and it is consolidated within our operating results for financial reporting purposes, we have and expect to continue to incur development and start-up costs and expenses that have a negative impact on our earnings. If MMKT is not successful, it may not produce substantial revenue or profit and we may not be able to recover these costs and expenses and our operating results could be adversely affected.

Certain stockholders of FSC seek the termination or modification of our investment advisory agreement with FSC.

On November 16, 2015, RiverNorth Capital Management, LLC and affiliated funds (collectively, “RiverNorth”) delivered a letter to FSC nominating a slate of three directors to FSC’s board of directors and submitting a business proposal seeking stockholder approval to terminate our investment advisory agreement with FSC. In addition, on November 16, 2015, RiverNorth outlined in a letter to FSC certain changes that it seeks FSC to implement, including (i) the reduction of the FSC investment advisory agreement’s base management and incentive fees; (ii) the application of a total return high watermark to the FSC investment advisory agreement’s net investment income incentive fee calculation; and (iii) a significant increase to the size of FSC’s stock buyback program. If our investment advisory agreement with FSC were terminated or modified, we would experience a significant decline in revenues and profitability.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not engage in any sales of unregistered securities during the nine months ended September 30, 2015.

In May 2015, our Board of Directors authorized a share repurchase program of up to $20.0 million of our Class A common stock. For the three months ended June 30, 2015, FSAM repurchased and retired 73,258 shares of our Class A common stock at a weighted average price of $9.50 per share pursuant to this program. The aggregate cash consideration paid for these repurchases was $0.7 million. The following table outlines repurchases of our Class A common stock during the nine months ended September 30, 2015:



Month	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
May 2015 (1)	72,158	$9.49	72,158
June 2015	1,100	9.99	73,258
August 2015	27,206	8.55	100,464
September 2015	117,177	7.80	217,641
Total	217,641	$8.47	217,641	$18.2 million

(1) Program authorized by our Board of Directors on May 11, 2015.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On November 23, 2015, our Board of Directors declared a quarterly dividend of $0.17 per share of Class A common stock. The declared dividend is payable on January 15, 2016 to stockholders of record at the close of business on December 31, 2015.

Item 6. Exhibits

The required exhibits are listed in the Exhibit Index and are incorporated herein by reference.



			Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




FIFTH STREET ASSET MANAGEMENT INC.

By:		/s/ Leonard M. Tannenbaum
		Leonard M. Tannenbaum
		Chief Executive Officer (Principal Executive Officer)

By:		/s/ Alexander C. Frank
		Alexander C. Frank
		Chief Operating Officer and Chief Financial Officer (Principal Financial and Principal Accounting Officer)

Date: November 24, 2015

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