Executive Summary / Key Takeaways

• Brookfield Oaktree Holdings, LLC (OAK-PB) reported a net loss attributable to Class A unitholders in Q1 2025, primarily driven by unrealized investment losses in its consolidated funds, particularly Oaktree Opportunities Fund XI and XII, and decreases in the value of publicly-traded equity investments held by its equity method investment, Oaktree Capital I.
• The company's financial reporting and operational structure were significantly altered by the July 1, 2024 restructuring, which resulted in the deconsolidation of Oaktree Capital I and a shift to accounting for its approximately 72% economic interest under the equity method, eliminating direct incentive income recognition and related compensation expense.
• Despite the Q1 loss, the company maintains a solid liquidity position, supported by distributions from its equity method investments and capital contributions from its Class A unitholder to fund commitments in key opportunistic credit funds (Opps XI and XII).
• Oaktree, as the underlying asset manager, emphasizes a value-oriented, risk-controlled approach, particularly in opportunistic credit, which historically has allowed it to potentially benefit from both strong and weak economic environments, positioning it uniquely against larger, more diversified competitors like Blackstone (BX) and Apollo (APO).
• Investors should monitor global market conditions, the performance of Oaktree's flagship funds (especially Opps XI and XII), and the realization of value from the Oaktree Capital I equity method investment as key drivers for future profitability and distributions.

Setting the Scene: A Shifting Structure in Alternative Investments

Brookfield Oaktree Holdings, LLC (OAK-PB) occupies a unique position within the competitive landscape of global alternative asset management. As the issuer of publicly traded preferred units, its financial performance is intrinsically linked to the underlying operations and investment success of Oaktree Capital Management, L.P., a leader specializing in alternative investments with a distinct emphasis on opportunistic, value-oriented, and risk-controlled strategies across credit, equity, and real estate.

The company's structure has evolved significantly, notably through a series of restructurings culminating in the July 1, 2024 reorganization. This pivotal event fundamentally changed how OAK-PB reports its financial results, shifting from consolidating Oaktree Capital I, L.P. (a key operating entity holding a majority of Oaktree's fund investments and acting as general partner for certain funds) to accounting for its substantial economic interest (approximately 72% as of March 31, 2025) in Oaktree Capital I under the equity method. This transition means that the economics derived from Oaktree Capital I's activities, including its right to earn incentive income and returns from its direct fund holdings, are now reflected within OAK-PB's investment income line item, rather than through direct revenue and expense recognition.

This structural shift frames the current investment narrative for OAK-PB. The company's performance is now more directly tied to the net results of its equity method investments, primarily Oaktree Capital I and its indirect ownership in Brookfield Real Estate Income Trust Inc., alongside direct limited partner investments in certain flagship funds like Oaktree Opportunities Fund XI and XII. Understanding OAK-PB requires looking through this new lens, focusing on the performance of these underlying investments and the strategic positioning of Oaktree within the dynamic alternative asset market.

Business Model and Strategic Positioning

OAK-PB's business model, post-2024 restructuring, is centered around holding interests in alternative investment vehicles managed by Oaktree and Brookfield. Its primary assets include:

• A significant equity method investment in Oaktree Capital I, L.P., which provides indirect exposure to a broad portfolio of Oaktree funds and the economics of Oaktree's incentive income generation.
• Direct limited partner investments in certain key Oaktree funds, notably opportunistic credit strategies like Oaktree Opportunities Fund XI (Opps XI) and Oaktree Opportunities Fund XII (Opps XII).
• An indirect equity method ownership interest in Brookfield Real Estate Income Trust Inc..

Oaktree's overarching strategy, which underpins OAK-PB's investment exposure, is characterized by its value-oriented, risk-controlled approach. This involves identifying undervalued assets, particularly in credit markets, and employing rigorous due diligence and downside protection measures. This approach is designed to perform across market cycles, potentially offering resilience during downturns and capturing upside during recoveries. The focus on opportunistic credit, in particular, positions Oaktree to capitalize on market dislocations and distressed situations.

While specific technological differentiators or R&D initiatives related to Oaktree's investment processes or OAK-PB's operations are not detailed, the strength of the business model appears to lie in the expertise, market relationships, and proprietary investment methodologies developed by Oaktree's investment professionals over decades. The competitive advantage stems from this deep domain knowledge, disciplined investment philosophy, and established track record, rather than explicit technological moats or quantifiable benefits from specific software or platforms. Specific technological performance metrics, target metrics, timelines, or expected quantifiable improvements from technology are not available.

Competitive Dynamics in Alternative Asset Management

The alternative asset management industry is highly competitive, with firms vying for limited investor capital and attractive investment opportunities. Oaktree, and by extension OAK-PB, competes with a range of players, from large, diversified institutions to more specialized firms. Key publicly traded competitors include Blackstone Inc. , Apollo Global Management, Inc. , KKR & Co. Inc. (KKR), and Ares Management Corporation (ARES).

Compared to these peers, Oaktree, with approximately $205 billion in AUM as of September 30, 2024, operates at a smaller scale than the largest players like Blackstone (~$1.1 trillion AUM) and Apollo (~$650 billion AUM). This difference in scale can impact the ability to deploy large pools of capital and capture the biggest institutional mandates. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Oaktree holds an estimated 5-10% aggregate market share in alternative investments, with a growth trajectory of 5-7% annually, lagging peers like Blackstone (10-12% growth).

Oaktree's competitive strengths lie in its specialized expertise, particularly in credit strategies, and its disciplined, risk-controlled investment philosophy. This focus can lead to strong performance in specific market niches and potentially better risk-adjusted returns, contributing to solid margins (OAK-PB's TTM Net Profit Margin is 22.53%). This contrasts with competitors like Apollo, known for aggressive growth in credit, or KKR, strong in private equity and global networks.

However, OAK-PB faces competitive disadvantages related to scale and potentially innovation speed compared to larger, more technologically advanced competitors. While OAK-PB's operational efficiency is noted for niche investments, larger peers like Blackstone and Apollo leverage advanced data analytics and integrated systems that can lead to lower operating costs per AUM unit and faster deal processing, potentially impacting OAK-PB's cost structure and market share capture over time. The competitive landscape is also influenced by indirect competitors like low-cost passive investment providers, which can pressure fees across the industry. High barriers to entry, such as regulatory requirements and significant capital needs, do, however, help protect established players like Oaktree from new entrants.

Analyzing Recent Financial Performance (Q1 2025)

The first quarter of 2025 presented headwinds for OAK-PB, resulting in a net loss attributable to Class A unitholders of $11.8 million, a significant decrease from net income of $76.8 million in the prior-year quarter. This shift was primarily driven by investment performance.

Total revenues decreased to $143.4 million in Q1 2025 from $255.0 million in Q1 2024. This decline is largely explained by the impact of the 2024 Restructuring. Incentive income, which was $115.3 million in Q1 2024, is no longer recognized directly by OAK-PB post-restructuring. Investment income also saw a substantial decrease, moving from a gain of $18.2 million in Q1 2024 to a loss of $4.9 million in Q1 2025. This decrease was primarily attributed to lower values in certain publicly-traded equity investments held by Oaktree Capital I, reflecting challenging market conditions during the period. Interest and dividend income, however, saw a positive trend, increasing by $27.0 million (22.2%) to $148.4 million, mainly due to higher income generated from investments in Opps XII, partially offset by the deconsolidation of Oaktree Capital I's direct income.

Expenses also saw significant changes due to the restructuring. Incentive income compensation expense, which was $26.3 million in Q1 2024, was eliminated. General and administrative expenses decreased by $2.5 million (73.5%) to $0.9 million, also reflecting the deconsolidation of Oaktree Capital I. Consolidated fund expenses increased by $6.1 million (29.6%) to $26.7 million, driven by higher general costs incurred by Opps XII, partially offset by the deconsolidation impact. Interest expense increased by $11.9 million (53.6%) to $34.1 million, primarily due to a higher debt balance within Opps XII, again partially offset by the deconsolidation of Oaktree Capital I and its funds.

Other income/loss was a major factor in the net loss. Net realized gain on consolidated funds investments saw a significant improvement, moving from a loss of $51.8 million in Q1 2024 to a gain of $74.6 million in Q1 2025, reflecting positive realizations from investments sold by consolidated funds, particularly Opps XI and XII. However, this was more than offset by a substantial decrease in the net change in unrealized appreciation/depreciation on consolidated funds investments, which fell by $245.3 million, from a gain of $117.5 million in Q1 2024 to a loss of $127.8 million in Q1 2025. This unrealized loss was the primary driver of the overall net loss attributable to Class A unitholders, stemming mainly from the performance of investments within Opps XI and XII.

Balance Sheet Strength and Liquidity

As of March 31, 2025, OAK-PB's consolidated total assets stood at $7.01 billion, slightly down from $7.07 billion at December 31, 2024. The balance sheet reflects the consolidation of certain funds, primarily Opps XI and XII, alongside the company's direct corporate investments. On an unconsolidated basis, OAK-PB held $15.9 million in cash and cash equivalents.

The company manages its liquidity by focusing on cash flows before fund consolidation. Ongoing cash sources include distributions from its equity method corporate investments, notably Oaktree Capital I and Brookfield Real Estate Income Trust Inc.. These distributions are crucial for covering operating expenses, administrative service fees paid to OCM, and distributions to unitholders.

OAK-PB has significant unfunded capital commitments to Oaktree funds, totaling $112.5 million for Opps XI and $656.9 million for Opps XII as of March 31, 2025. These commitments are intended to be funded by capital contributions from the sole Class A unitholder (Brookfield Corporate Treasury Ltd. or its affiliates), and distributions from these specific fund investments are earmarked for the benefit of the Class A unitholder, not the preferred unitholders. As of March 31, 2025, $637.5 million of the $750 million Opps XI commitment and $93.1 million of the $750 million Opps XII commitment had been funded. A portion of the Opps XI investment ($418.7 million carrying value) is pledged as collateral for non-recourse credit facilities of an affiliate, limiting OAK-PB's exposure to the pledged interest value.

The company's distribution policy for Class A unitholders targets distributing at least 85% of adjusted distributable earnings received from Oaktree's operating group entities, less taxes. Distributions on the Series A and Series B preferred units are discretionary and non-cumulative, paid quarterly. The company believes its current sources of liquidity are sufficient to meet its working capital requirements for at least the next twelve months.

Risks and Outlook

OAK-PB's performance is inherently exposed to market risks. Global economic conditions, financial market volatility, interest rate fluctuations, and geopolitical events (such as the Russia-Ukraine conflict and Middle East tensions) can significantly impact the value of fund investments and the ability to make or exit investments. The shift to an equity method for Oaktree Capital I means that OAK-PB's investment income is now directly sensitive to the performance and valuation changes within Oaktree Capital I's underlying portfolio.

Specific risks highlighted include those associated with investments in distressed entities, illiquid or thinly traded securities, concentration risk, credit risk from counterparties, and risks related to real estate investments (CMBS, non-performing loans). Changes in regulatory and governmental policies can also affect the business. The potential impact of generative artificial intelligence is noted as an evolving risk whose full effect is currently undetermined.

Oaktree's strategy of focusing on opportunistic credit and value investing is designed to potentially mitigate some of these risks or capitalize on the opportunities they create, particularly during periods of market stress. While no specific quantitative forward guidance was provided in the filing, the outlook for OAK-PB is tied to the performance of Oaktree's investment strategies and the realization of value within the Oaktree Capital I equity investment and direct fund holdings. The ability to deploy the remaining capital commitments in Opps XI and XII into potentially attractive opportunities in the current market environment will be a key factor influencing future results.

Conclusion

Brookfield Oaktree Holdings, LLC's first quarter 2025 results reflect the significant structural changes implemented in the 2024 Restructuring and the impact of challenging market conditions on investment valuations. The reported net loss attributable to Class A unitholders underscores the sensitivity of OAK-PB's results to the performance of its underlying fund investments, now primarily reflected through the equity method investment in Oaktree Capital I and direct holdings in funds like Opps XI and XII.

The core investment thesis for OAK-PB remains linked to the success of Oaktree's differentiated value-oriented, risk-controlled approach, particularly in opportunistic credit. While lacking explicit technological moats, Oaktree's competitive positioning is built on expertise and strategy. The company maintains a sound liquidity profile, supported by its Class A unitholder's commitment to funding future capital calls. Investors in OAK-PB, particularly preferred unitholders, should focus on the stability of distributions, which are serviced by the cash flows generated from Oaktree Capital I and other corporate investments, while acknowledging that the performance of the underlying funds and the broader market environment will dictate the potential for future growth and the value of the equity interests. The ability of Oaktree's strategies to navigate ongoing market volatility and capitalize on investment opportunities will be paramount to OAK-PB's long-term financial trajectory.