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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  ________  to ________
Commission File Number: 001-33805
SCULPTOR CAPITAL MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)
 
Delaware 26-0354783
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
9 West 57th Street, New York, New York 10019
(Address of principal executive offices)
(212) 790-0000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading symbol(s)Name of each exchange on which registered
Class A Shares SCUNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  Accelerated filer
  
Non-accelerated filer  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 
As of July 31, 2020,May 3, 2021, there were 22,415,76624,854,188 Class A Shares and 32,820,41432,887,882 Class B Shares outstanding.
 




SCULPTOR CAPITAL MANAGEMENT, INC.
TABLE OF CONTENTS
 
  Page
PART I — FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
PART II — OTHER INFORMATION 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 

i


Defined Terms
2007 OfferingsRefers collectively to our IPO and the concurrent private offering of approximately 38.1 million Class A Shares to DIC Sahir Limited, a wholly owned indirect subsidiary of Dubai Holdings LLC
active executive managing directorsExecutive managing directors who remain active in our business
Annual ReportOur annual report on Form 10-K for the year ended December 31, 2019, as amended,2020, dated February 25, 202023, 2021 and filed with the SEC
Class A SharesOur Class A Shares, representing Class A common stock of Sculptor Capital Management, Inc., which are publicly traded and listed on the NYSE
Class B SharesClass B Shares of Sculptor Capital Management, Inc., which are not publicly traded, are currently held solely by our executive managing directors and have no economic rights but entitle the holders thereof to one vote per share together with the holders of our Class A Shares
CLOsCollateralized loan obligations
the Company, Sculptor Capital, the firm, we, us, ourRefers, unless the context requires otherwise, to the Registrant and its consolidated subsidiaries, including the Sculptor Operating Group
Distribution HolidayThe Sculptor Operating Partnerships initiated a distribution holiday (the “Distribution Holiday”) on the Group A Units, Group D Units, Group E Units and Group P Units and on certain RSUs that will terminate on the earlier of (x) 45 days after the last day of the first calendar quarter as of which the achievement of $600.0 million of Distribution Holiday Economic Income is realized and (y) April 1, 2026. Holders of Group A Units, Group D Units, Group E Units and Group P Units and certain RSUs, do not receive distributions during the Distribution Holiday
Distribution Holiday Economic IncomeDistribution Holiday Economic Income is the cumulative amount of Economic Income earned since October 1, 2018, less any dividends paid to Class A Shareholders or on the now-retired Preferred Units. Distribution Holiday Economic Income is a non-GAAP measure that is defined in the agreements of limited partnership of the Sculptor Operating Partnerships and is being presented to provide an update on the progress made toward the $600.0 million target required to exit the Distribution Holiday.
Exchange ActSecurities Exchange Act of 1934, as amended
executive managing directorsThe current executive managing directors of the Company, and, except where the context requires otherwise, also includes certain executive managing directors who are no longer active in our business
fundsThe multi-strategy funds, dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products, real estate funds and other alternative investment vehicles for which we provide asset management services
GAAPU.S. generally accepted accounting principles
Group A UnitsRefers collectively to one Class A operating group unit in each of the Sculptor Operating Partnerships. Group A Units are limited partner interests held by our executive managing directors
1


Group A-1 UnitsRefers collectively to one Class A-1 operating group unit in each of the Sculptor Operating Partnerships. Group A-1 Units are limited partner interests held by our executive managing directors
Group B UnitsRefers collectively to one Class B operating group unit in each of the Sculptor Operating Partnerships. Group B Units are limited partner interests held by Sculptor Corp
Group D UnitsRefers collectively to one Class D operating group unit in each of the Sculptor Operating Partnerships. Group D Units are limited partner interests held by our executive managing directors
Group E UnitsRefers collectively to one Class E operating group unit in each of the Sculptor Operating Partnerships. Group E Units are limited partner interests held by our executive managing directors
1


Group P UnitsRefers collectively to one Class P operating group unit in each of the Sculptor Operating Partnerships. Group P Units are limited partner interests held by our executive managing directors
Institutional Credit StrategiesOur asset management platform that invests in performing credits, including leveraged loans, high-yield bonds, private credit/bespoke financing and investment grade credit via CLOs, aircraft securitizations,securitization vehicles, collateralized bond obligations, and other customized solutions
IPOOur initial public offering of 3.6 million Class A Shares that occurred in November 2007
NYSENew York Stock Exchange
Partner Equity UnitsRefers collectively to the Group A Units, Group E Units and Group P Units
Preferred UnitsOne Class A cumulative preferred unit in each of the Sculptor Operating Partnerships collectively represents one “Preferred Unit.” Certain of our executive managing directors collectively ownowned 100% of the Preferred Units. Preferred Units issued in 2016 and 2017 are, collectively, referred to as “2016 Preferred Units.” Preferred Units issued in 2019 are referred to as “2019 Preferred Units.” We redeemed in full the Preferred Units in the fourth quarter of 2020, and as of March 31, 2021 there were no Preferred Units outstanding.
PSUsClass A performance-based RSUs
RecapitalizationRefers to the recapitalization of our business that occurred in February 2019. As part of the Recapitalization, a portion of the interests held by our active and former executive managing directors were reallocated to existing members of senior management. In addition, we restructured the previously outstanding senior debt and Preferred Units
RegistrantSculptor Capital Management, Inc., a Delaware corporation
RSUsClass A restricted share units
Sculptor CorpSculptor Capital Holding Corporation, a Delaware corporation
Sculptor Operating GroupRefers collectively to the Sculptor Operating Partnerships and their consolidated subsidiaries
Sculptor Operating Group UnitsRefers collectively to Sculptor Operating Group A, B, D, E, and P Units
Sculptor Operating PartnershipsRefers collectively to Sculptor Capital LP, Sculptor Capital Advisors LP and Sculptor Capital Advisors II LP
SECU.S. Securities and Exchange Commission
2


Securities ActSecurities Act of 1933, as amended
Special InvestmentsInvestments that we, as investment manager, believe lack a readily ascertainable market value, are illiquid or should be held until the resolution of a special event or circumstance

23


Available Information
We file annual, quarterly and current reports, proxy statements and other information required by the Exchange Act with the SEC. We make available free of charge on our website (www.sculptor.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those filings as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. We also use our website to distribute company information, including assets under management by investment strategy, and such information may be deemed material. Accordingly, investors should monitor our website, in addition to our press releases, SEC filings and public conference calls and webcast. The contents of our website are not, however, a part of this report.
Also posted on our website in the “Investor Relations—Corporate Governance” section are charters for our Audit Committee; Compensation Committee; Nominating, Corporate Governance and Conflicts Committee and Corporate Responsibility and Compliance Committee, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics governing our directors, officers and employees. Information on, or accessible through, our website is not a part of, and is not incorporated into, this report or any other SEC filing. Copies of our SEC filings or corporate governance materials are available without charge upon written request to Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Office of the Secretary. Any materials we file with the SEC are also publicly available through the SEC’s website (www.sec.gov).
No statements herein, available on our website or in any of the materials we file with the SEC constitute, or should be viewed as constituting, an offer of any fund.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that reflect our current views with respect to, among other things, future events, our operations and our financial performance. We generally identify forward-looking statements by terminology such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “seek,” “approximately,” “predict,” “intend,” “plan,�� “estimate,” “anticipate,” “opportunity,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve,” “see,” “think,” “position” or the negative version of those words or other comparable words.
Any forward-looking statements contained herein are based upon historical information and on our current plans, estimates and expectations. The inclusion of this or other forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.
We caution that forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties, including but not limited to the following: global economic, business, market and geopolitical conditions, including the impact of public health crises, such as the ongoing COVID-19 pandemic; United States (“U.S.”) and foreign regulatory developments relating to, among other things, financial institutions and markets, government oversight, fiscal and tax policy; the outcome of third-party litigation involving us; the consequences of the Foreign Corrupt Practices Act settlements with the SEC and the U.S. Department of Justice (the “DOJ”) and any claims arising therefrom; whether the Company realizes all or any of the anticipated benefits from the Recapitalization and other related transactions; whether the Recapitalization and other related transactions result in any increased or unforeseen costs, indemnification obligations or have an impact on our ability to retain or compete for professional talent or investor capital; conditions impacting the alternative asset management industry; our ability to retain existing investor capital; our ability to successfully compete for fund investors, assets, professional talent and investment opportunities; our ability to retain our active executive managing directors, managing directors and other investment professionals; our successful formulation and execution of our business and growth strategies; our ability to appropriately manage conflicts of interest and tax and other regulatory factors relevant to our business; the anticipated benefits of changing the Registrant’s tax classification from a partnership to a corporation and subsequently converting from a limited liability company to a corporation; and assumptions relating to our operations, investment performance, financial results, financial condition, business prospects, growth strategy and liquidity.
If one or more of these or other risks or uncertainties materialize, or if our assumptions or estimates prove to be incorrect, our actual results may vary materially from those indicated in these statements. These factors are not and should not be
4




construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in our
3




filings with the SEC, including but not limited to our Annual Report and Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.Report.
There may be additional risks, uncertainties and factors that we do not currently view as material or that are not known. The forward-looking statements contained in this report are made only as of the date of this report. We do not undertake to update any forward-looking statement because of new information, future developments or otherwise.
45

SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS — UNAUDITED
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

 June 30, 2020December 31, 2019
 (dollars in thousands)
Assets  
Cash and cash equivalents$127,702  $240,938  
Restricted cash4,538  4,501  
Investments (includes assets measured at fair value of $385,276 and $329,435, including assets sold under agreements to repurchase of $96,505 and $98,085 as of June 30, 2020 and December 31, 2019, respectively)471,344  411,426  
Income and fees receivable73,104  215,395  
Due from related parties20,435  15,355  
Deferred income tax assets341,283  310,557  
Operating lease assets110,374  115,810  
Other assets, net76,523  82,608  
Assets of consolidated funds: 
Other assets of consolidated funds650  649  
Total Assets$1,225,953  $1,397,239  
Liabilities and Shareholders’ Equity 
Liabilities  
Compensation payable$45,197  $187,180  
Unearned incentive income64,607  60,798  
Due to related parties194,518  211,915  
Operating lease liabilities120,990  128,043  
Debt obligations256,341  286,728  
Securities sold under agreements to repurchase97,670  97,508  
Other liabilities169,824  59,217  
Liabilities of consolidated funds: 
Other liabilities of consolidated funds408  389  
Total Liabilities949,555  1,031,778  
Commitments and Contingencies (Note 18)
Redeemable Noncontrolling Interests (Note 4)153,313  150,000  
Shareholders’ Equity  
Class A Shares, par value $0.01 per share, 100,000,000 and 100,000,000 shares authorized, 22,311,432 and 21,284,945 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively223  213  
Class B Shares, par value $0.01 per share, 75,000,000 and 75,000,000 shares authorized, 32,820,414 and 29,208,952 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively328  292  
Additional paid-in capital142,288  117,936  
Accumulated deficit(406,440) (343,759) 
Shareholders’ deficit attributable to Class A Shareholders(263,601) (225,318) 
Shareholders’ equity attributable to noncontrolling interests386,686  440,779  
Total Shareholders’ Equity123,085  215,461  
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity$1,225,953  $1,397,239  
See notes to consolidated financial statements.
5


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED
 Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
 (dollars in thousands)
Revenues    
Management fees$60,383  $61,400  $127,336  $125,023  
Incentive income38,238  34,757  47,560  87,955  
Other revenues2,424  5,043  5,377  8,812  
Income of consolidated funds32  2,308  32  4,912  
Total Revenues101,077  103,508  180,305  226,702  

Expenses    
Compensation and benefits65,290  80,709  132,709  166,424  
Interest expense4,674  6,523  10,456  12,731  
General, administrative and other142,615  28,427  177,321  66,215  
Expenses of consolidated funds19  84  19  139  
Total Expenses212,598  115,743  320,505  245,509  

Other Income (Loss)    
Changes in tax receivable agreement liability—  5,362  278  5,362  
Net losses on early retirement of debt(170) (595) (693) (6,053) 
Net gains (losses) on investments29,178  3,148  (4,891) 5,837  
Net gains of consolidated funds—  482  —  4,228  
Total Other Income (Loss)29,008  8,397  (5,306) 9,374  

Loss Before Income Taxes(82,513) (3,838) (145,506) (9,433) 
Income taxes(17,400) 10,134  (27,368) 13,520  
Consolidated and Comprehensive Net Loss(65,113) (13,972) (118,138) (22,953) 
Less: Net loss attributable to noncontrolling interests41,860  7,984  67,945  15,218  
Less: Net income attributable to redeemable noncontrolling interests—  (2,637) —  (8,171) 
Net Loss Attributable to Sculptor Capital Management, Inc.(23,253) (8,625) (50,193) (15,906) 
Change in redemption value of Preferred Units(1,986) —  (3,313) 44,364  
Net (Loss) Income Attributable to Class A Shareholders$(25,239) $(8,625) $(53,506) $28,458  
(Loss) Earnings per Class A Share    
(Loss) Earnings per Class A Share - basic$(1.12) $(0.42) $(2.38) $1.38  
(Loss) Earnings per Class A Share - diluted$(1.77) $(0.46) $(3.04) $1.10  
Weighted-average Class A Shares outstanding - basic22,590,084  20,722,510  22,447,399  20,599,616  
Weighted-average Class A Shares outstanding - diluted38,609,590  36,714,012  38,464,470  25,942,105  

 March 31, 2021December 31, 2020
 (dollars in thousands)
Assets  
Cash and cash equivalents$198,039 $183,815 
Restricted cash3,219 3,162 
Investments (includes assets measured at fair value of $307,778 and $309,805, including assets sold under agreements to repurchase of $118,926 and $123,616 as of March 31, 2021 and December 31, 2020, respectively)432,526 414,974 
Income and fees receivable82,298 539,623 
Due from related parties16,936 14,086 
Deferred income tax assets244,012 240,288 
Operating lease assets104,408 104,729 
Other assets, net80,013 82,500 
Assets of consolidated funds: 
Other assets of consolidated funds
Total Assets$1,161,454 $1,583,177 
Liabilities and Shareholders’ Equity 
Liabilities  
Compensation payable$39,355 $234,006 
Unearned income and fees57,470 61,880 
Due to related parties184,580 202,225 
Operating lease liabilities114,604 115,237 
Debt obligations185,793 334,972 
Warrant liabilities, at fair value62,771 37,827 
Securities sold under agreements to repurchase117,780 122,638 
Other liabilities32,152 39,512 
Liabilities of consolidated funds: 
Other liabilities of consolidated funds
Total Liabilities794,507 1,148,297 
Commitments and Contingencies (Note 16)00
Shareholders’ Equity  
Class A Shares, par value $0.01 per share, 100,000,000 and 100,000,000 shares authorized, 23,899,777 and 22,903,571 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively239 229 
Class B Shares, par value $0.01 per share, 75,000,000 and 75,000,000 shares authorized, 32,887,883 and 32,824,538 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively329 328 
Additional paid-in capital185,961 166,917 
Accumulated deficit(255,522)(178,674)
Accumulated other comprehensive income350 732 
Shareholders’ deficit attributable to Class A Shareholders(68,643)(10,468)
Shareholders’ equity attributable to noncontrolling interests435,590 445,348 
Total Shareholders’ Equity366,947 434,880 
Total Liabilities and Shareholders’ Equity$1,161,454 $1,583,177 
See notes to consolidated financial statements.
6


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
 Three Months Ended March 31,
20212020
 (dollars in thousands)
Revenues  
Management fees$73,961 $66,953 
Incentive income47,804 9,322 
Other revenues1,581 2,953 
Income of consolidated funds
Total Revenues123,349 79,228 

Expenses  
Compensation and benefits89,234 67,419 
Interest expense4,868 5,782 
General, administrative and other27,376 34,706 
Expenses of consolidated funds
Total Expenses121,480 107,907 

Other Loss  
Changes in fair value of warrant liabilities(24,944)
Changes in tax receivable agreement liability580 278 
Net losses on retirement of debt(23,673)(523)
Net gains (losses) on investments5,362 (34,069)
Total Other Loss(42,675)(34,314)

Loss Before Income Taxes(40,806)(62,993)
Income taxes(1,715)(9,968)
Consolidated Net Loss(39,091)(53,025)
Less: Net loss attributable to noncontrolling interests18,798 26,085 
Net Loss Attributable to Sculptor Capital Management, Inc.(20,293)(26,940)
Change in redemption value of Preferred Units(1,327)
Net Loss Attributable to Class A Shareholders$(20,293)$(28,267)
Loss per Class A Share  
Loss per Class A Share - basic$(0.85)$(1.27)
Loss per Class A Share - diluted$(0.99)$(1.27)
Weighted-average Class A Shares outstanding - basic23,853,428 22,304,713 
Weighted-average Class A Shares outstanding - diluted39,872,934 38,319,348 

See notes to consolidated financial statements.

7


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED

Three Months Ended March 31,
20212020
(dollars in thousands)
Consolidated net loss$(39,091)$(53,025)
Other Comprehensive Loss, Net of Tax
Other comprehensive loss - currency translation adjustment(868)
Comprehensive Loss(39,959)(53,025)
Less: Comprehensive loss attributable to noncontrolling interests19,284 26,085 
Comprehensive Loss Attributable to Sculptor Capital Management, Inc.$(20,675)$(26,940)

See notes to consolidated financial statements.
8


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) — UNAUDITED

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
2020201920202019 20212020
(dollars in thousands)(dollars in thousands)
Number of Class A SharesNumber of Class A SharesNumber of Class A Shares
Beginning balanceBeginning balance21,946,639  20,484,430  21,284,945  19,905,126  Beginning balance22,903,571 21,284,945 
Equity-based compensationEquity-based compensation364,793  147,320  1,026,487  726,624  Equity-based compensation996,206 661,694 
Ending BalanceEnding Balance22,311,432  20,631,750  22,311,432  20,631,750  Ending Balance23,899,777 21,946,639 
Number of Class B SharesNumber of Class B SharesNumber of Class B Shares
Beginning balanceBeginning balance32,845,414  29,208,952  29,208,952  29,458,948  Beginning balance32,824,538 29,208,952 
Equity-based compensationEquity-based compensation(25,000) —  3,611,462  (249,996) Equity-based compensation63,345 3,636,462 
Ending BalanceEnding Balance32,820,414  29,208,952  32,820,414  29,208,952  Ending Balance32,887,883 32,845,414 
Class A Shares Par ValueClass A Shares Par ValueClass A Shares Par Value
Beginning balanceBeginning balance$219  $—  $213  $—  Beginning balance$229 $213 
Equity-based compensationEquity-based compensation  10   Equity-based compensation10 
Reclassification upon corporate conversion—  205  —  205  
Ending BalanceEnding Balance$223  $206  $223  $206  Ending Balance$239 $219 
Class B Shares Par ValueClass B Shares Par ValueClass B Shares Par Value
Beginning balanceBeginning balance$328  $—  $292  $—  Beginning balance$328 $292 
Equity-based compensationEquity-based compensation—  —  36  —  Equity-based compensation36 
Reclassification upon corporate conversion—  292  —  292  
Ending BalanceEnding Balance$328  $292  $328  $292  Ending Balance$329 $328 
Additional Paid-in CapitalAdditional Paid-in CapitalAdditional Paid-in Capital
Beginning balanceBeginning balance$130,968  $3,235,728  $117,936  $3,135,841  Beginning balance$166,917 $117,936 
Dividend equivalents on Class A restricted share unitsDividend equivalents on Class A restricted share units—  (61) 875  478  Dividend equivalents on Class A restricted share units590 875 
Equity-based compensation, net of taxesEquity-based compensation, net of taxes13,306  20,618  26,790  40,318  Equity-based compensation, net of taxes18,454 13,484 
Reclassification upon corporate conversion—  (3,235,728) —  (3,235,728) 
Impact of changes in Sculptor Operating Group ownership—  —  —  (124) 
Reallocation of equity and income tax effects of Recapitalization—  —  —  35,408  
Amendment to tax receivable agreement—  50,318  —  50,318  
Change in redemption value of Preferred UnitsChange in redemption value of Preferred Units(1,986) —  (3,313) 44,364  Change in redemption value of Preferred Units(1,327)
Ending BalanceEnding Balance$142,288  $70,875  $142,288  $70,875  Ending Balance$185,961 $130,968 
79


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) — UNAUDITED — (continued)

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
2020201920202019 20212020
(dollars in thousands)(dollars in thousands)
Accumulated DeficitAccumulated DeficitAccumulated Deficit
Beginning balanceBeginning balance$(383,187) $(3,577,250) $(343,759) $(3,564,727) Beginning balance$(178,674)$(343,759)
Cash dividends declared on Class A SharesCash dividends declared on Class A Shares—  (7,621) (11,613) (12,324) Cash dividends declared on Class A Shares(55,965)(11,613)
Dividend equivalents on Class A restricted share unitsDividend equivalents on Class A restricted share units—  61  (875) (478) Dividend equivalents on Class A restricted share units(590)(875)
Reclassification upon corporate conversion—  3,235,231  —  3,235,231  
Comprehensive net loss, excluding amounts attributable to redeemable noncontrolling interests(23,253) (8,625) (50,193) (15,906) 
Consolidated net lossConsolidated net loss(20,293)(26,940)
Ending BalanceEnding Balance$(255,522)$(383,187)
Accumulated Other Comprehensive IncomeAccumulated Other Comprehensive Income
Beginning balanceBeginning balance$732 $
Currency translation adjustmentCurrency translation adjustment(382)
Ending BalanceEnding Balance$(406,440) $(358,204) $(406,440) $(358,204) Ending Balance$350 $0 
Shareholders’ Deficit Attributable to Class A ShareholdersShareholders’ Deficit Attributable to Class A Shareholders$(263,601) $(286,831) $(263,601) $(286,831) Shareholders’ Deficit Attributable to Class A Shareholders$(68,643)$(251,672)
Shareholders’ Equity Attributable to Noncontrolling InterestsShareholders’ Equity Attributable to Noncontrolling InterestsShareholders’ Equity Attributable to Noncontrolling Interests
Beginning balanceBeginning balance$425,768  $444,837  $440,779  $419,431  Beginning balance$445,348 $440,779 
Currency translation adjustmentCurrency translation adjustment(486)
Capital contributionsCapital contributions2,059  191  3,549  618  Capital contributions468 1,490 
Capital distributionsCapital distributions(2,962) (342) (3,248) (627) Capital distributions(1,016)(286)
Equity-based compensation, net of taxesEquity-based compensation, net of taxes3,681  17,190  13,551  31,608  Equity-based compensation, net of taxes10,074 9,870 
Impact of changes in Sculptor Operating Group ownership—  —  —  124  
Reallocation of equity and income tax effects of Recapitalization—  —  —  (39,086) 
Change in redemption value of Preferred Units—  —  —  57,042  
Comprehensive net loss, excluding amounts attributable to redeemable noncontrolling interests(41,860) (7,984) (67,945) (15,218) 
Consolidated net lossConsolidated net loss(18,798)(26,085)
Ending BalanceEnding Balance$386,686  $453,892  $386,686  $453,892  Ending Balance$435,590 $425,768 
Total Shareholders’ EquityTotal Shareholders’ Equity$123,085  $167,061  $123,085  $167,061  Total Shareholders’ Equity$366,947 $174,096 
Cash dividends paid on Class A SharesCash dividends paid on Class A Shares$—  $0.37  $0.53  $0.60  Cash dividends paid on Class A Shares$2.35 $0.53 

See notes to consolidated financial statements.
810


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED




Six Months Ended June 30, Three Months Ended March 31,
20202019 20212020
(dollars in thousands) (dollars in thousands)
Cash Flows from Operating ActivitiesCash Flows from Operating Activities  Cash Flows from Operating Activities  
Consolidated net lossConsolidated net loss$(118,138) $(22,953) Consolidated net loss$(39,091)$(53,025)
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:Adjustments to reconcile consolidated net loss to net cash provided by operating activities:  Adjustments to reconcile consolidated net loss to net cash provided by operating activities:  
Amortization of equity-based compensationAmortization of equity-based compensation42,370  74,318  Amortization of equity-based compensation30,897 24,729 
Depreciation, amortization and net gains and losses on fixed assetsDepreciation, amortization and net gains and losses on fixed assets3,606  4,775  Depreciation, amortization and net gains and losses on fixed assets1,735 1,802 
Net losses on early retirement of debt693  6,053  
Changes in fair value of warrant liabilitiesChanges in fair value of warrant liabilities24,944 
Net losses on retirement of debtNet losses on retirement of debt23,673 523 
Deferred income taxesDeferred income taxes(30,726) 10,373  Deferred income taxes(3,311)(11,195)
Non-cash lease expenseNon-cash lease expense10,656  10,618  Non-cash lease expense5,645 5,298 
Net losses (gains) on investments, net of dividends6,565  (4,843) 
Net (gains) losses on investments, net of dividendsNet (gains) losses on investments, net of dividends(4,622)35,204 
Operating cash flows due to changes in:Operating cash flows due to changes in:  Operating cash flows due to changes in:  
Income and fees receivableIncome and fees receivable142,291  31,498  Income and fees receivable457,239 171,613 
Due from related partiesDue from related parties(5,080) 2,013  Due from related parties(2,855)(2,458)
Other assets, netOther assets, net6,391  779  Other assets, net3,321 4,439 
Compensation payableCompensation payable(143,037) (63,288) Compensation payable(196,865)(164,961)
Unearned incentive income3,810  4,911  
Unearned income and feesUnearned income and fees(4,410)1,569 
Due to related partiesDue to related parties(17,397) (4,491) Due to related parties(17,642)(16,716)
Operating lease liabilitiesOperating lease liabilities(11,900) (7,513) Operating lease liabilities(5,744)(6,261)
Other liabilitiesOther liabilities110,572  (19,886) Other liabilities(5,980)(5,616)
Consolidated funds related items:Consolidated funds related items:  Consolidated funds related items:  
Net gains of consolidated funds—  (4,228) 
Purchases of investments—  (99,407) 
Proceeds from sale of investments—  176,284  
Other assets of consolidated fundsOther assets of consolidated funds—  (57,639) Other assets of consolidated funds(3)
Other liabilities of consolidated fundsOther liabilities of consolidated funds19  5,695  Other liabilities of consolidated funds
Net Cash Provided by Operating Activities695  43,069  
Net Cash Provided by (Used in) Operating ActivitiesNet Cash Provided by (Used in) Operating Activities266,933 (15,055)
Cash Flows from Investing ActivitiesCash Flows from Investing Activities  Cash Flows from Investing Activities  
Purchases of fixed assetsPurchases of fixed assets(984) (720) Purchases of fixed assets(1,290)(394)
Purchases of United States government obligationsPurchases of United States government obligations(224,525) (161,066) Purchases of United States government obligations(91,533)(89,489)
Maturities and sales of United States government obligationsMaturities and sales of United States government obligations165,218  175,029  Maturities and sales of United States government obligations90,892 50,632 
Investments in fundsInvestments in funds(11,620) (59,210) Investments in funds(25,477)(7,852)
Return of investments in fundsReturn of investments in funds4,202  35,756  Return of investments in funds4,996 288 
Net Cash Used in Investing ActivitiesNet Cash Used in Investing Activities(67,709) (10,211) Net Cash Used in Investing Activities(22,412)(46,815)
911


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED — (continued)

Three Months Ended March 31,
Six Months Ended June 30, 20212020
20202019
(dollars in thousands)
(dollars in thousands)
Cash Flows from Financing ActivitiesCash Flows from Financing Activities  Cash Flows from Financing Activities  
Contributions from noncontrolling and redeemable noncontrolling interests3,549  4,263  
Distributions to noncontrolling and redeemable noncontrolling interests(3,248) (16,462) 
Contributions from noncontrolling interestsContributions from noncontrolling interests468 1,490 
Distributions to noncontrolling interestsDistributions to noncontrolling interests(1,016)(285)
Dividends on Class A SharesDividends on Class A Shares(11,613) (12,324) Dividends on Class A Shares(55,965)(11,613)
Proceeds from debt obligations, net of issuance costsProceeds from debt obligations, net of issuance costs2,746  —  Proceeds from debt obligations, net of issuance costs1,746 1,988 
Repayment of debt obligations, including prepayment costsRepayment of debt obligations, including prepayment costs(36,667) (166,068) Repayment of debt obligations, including prepayment costs(174,400)(27,000)
Proceeds from securities sold under agreements to repurchase, net of issuance costs—  16,328  
Other, netOther, net(952) (2,329) Other, net(787)(789)
Net Cash Used in Financing ActivitiesNet Cash Used in Financing Activities(46,185) (176,592) Net Cash Used in Financing Activities(229,954)(36,209)
Effect of exchange rate changes on cash and cash equivalents and restricted cashEffect of exchange rate changes on cash and cash equivalents and restricted cash(286)
Net change in cash and cash equivalents and restricted cashNet change in cash and cash equivalents and restricted cash(113,199) (143,734) Net change in cash and cash equivalents and restricted cash14,281 (98,079)
Cash and cash equivalents and restricted cash, beginning of periodCash and cash equivalents and restricted cash, beginning of period245,439  323,884  Cash and cash equivalents and restricted cash, beginning of period186,977 245,439 
Cash and Cash Equivalents and Restricted Cash, End of PeriodCash and Cash Equivalents and Restricted Cash, End of Period$132,240  $180,150  Cash and Cash Equivalents and Restricted Cash, End of Period$201,258 $147,360 
Supplemental Disclosure of Cash Flow InformationSupplemental Disclosure of Cash Flow Information  Supplemental Disclosure of Cash Flow Information  
Cash paid during the period:Cash paid during the period:  Cash paid during the period:  
InterestInterest$7,099  $7,696  Interest$4,678 $2,937 
Income taxesIncome taxes$4,771  $3,373  Income taxes$974 $2,113 
Non-cash transactions:  
Increase in paid-in capital as a result of tax receivable agreement amendment$—  $50,318  
Reconciliation of cash and cash equivalents and restricted cash:Reconciliation of cash and cash equivalents and restricted cash:Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalentsCash and cash equivalents$127,702  $174,743  Cash and cash equivalents$198,039 $142,753 
Restricted cashRestricted cash4,538  5,407  Restricted cash3,219 4,607 
Total Cash and Cash Equivalents and Restricted CashTotal Cash and Cash Equivalents and Restricted Cash$132,240  $180,150  Total Cash and Cash Equivalents and Restricted Cash$201,258 $147,360 

See notes to consolidated financial statements.

10
12


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021


1. OVERVIEWORGANIZATION
Sculptor Capital Management, Inc. (the “Registrant”), a Delaware corporation, together with its consolidated subsidiaries (collectively, the “Company” or “Sculptor Capital”), is a global alternative asset management firm providing investment products in a range of areas, including multi-strategy, credit and real estate. With offices in New York, London, Hong Kong and Shanghai, the Company serves global clients through commingled funds, separate accounts and specialized products (collectively, the “funds”). Sculptor Capital’s distinct investment process seeks to generate attractive and consistent risk-adjusted returns across market cycles through a combination of bottom-up fundamental analysis, a high degree of flexibility, a collaborative team and integrated risk management. The Company’s capabilities span all major geographies, in strategies including fundamental equities, corporate credit, real estate debt and equity, merger arbitrage and structured credit and private investments.credit.
The Company manages multi-strategy funds, dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products, real estate funds and other alternative investment vehicles. Through Institutional Credit Strategies, the Company’s asset management platform that invests in performing credits, the Company manages collateralized loan obligations (“CLOs”), aircraft securitizations,securitization vehicles, collateralized bond obligations (“CBOs”), commingled products and other customized solutions for clients.
The Company’s primary sources of revenues are management fees, which are based on the amount of the Company’s assets under management, and incentive income, which is based on the investment performance of its funds. Accordingly, for any given period, the Company’s revenues will be driven by the combination of assets under management and the investment performance of the funds.
The Company has one operating and reportable segmentconducts its business and generates substantially all of its revenues primarily in the United States.States (the “U.S.”) through one operating and reportable segment. The single reportable segment reflects how the Company’s chief operating decision makers allocate resources, make operating decisions and assess financial performance on a consolidated basis under the Company’s ‘one-firm approach,’ which includes operating collaboratively across business lines, with predominantly a single expense pool. The Company conducts its operations through Sculptor Capital LP, Sculptor Capital Advisors LP and Sculptor Capital Advisors II LP (collectively, the “Sculptor Operating Partnerships” and collectively with their consolidated subsidiaries, the “Sculptor Operating Group”). The Registrant holds its interests in the Sculptor Operating Group indirectly through Sculptor Capital Holding Corporation (“Sculptor Corp”), a wholly owned subsidiary of the Registrant.
References to the Company’s “executive managing directors” include the current executive managing directors of the Company, and, except where the context requires otherwise, also include certain executive managing directors who are no longer active in the Company’s business. References to the Company’s “active executive managing directors” refer to executive managing directors who remain active in the Company’s business.
COVID-19 Pandemic
In the first half of 2020, a novel strain of coronavirus (“COVID-19”) spread across the world resulting in a wide-spread economic downturn. As a result, in the first quarter of 2020, the Company’s funds experienced significant performance-related depreciation, which had a negative impact on the Company’s incentive income during the first quarter of 2020. In the second quarter of 2020, the Company generated stronger returns across the majority of its strategies and positions that offset the majority of the first quarter losses. To the extent that the Company has performance-related depreciation at year-end, it could have a material impact on the Company’s ability to earn incentive income in 2020, as well as in future years until the losses are recovered for continuing fund investors.
In addition, in the first half of 2020, the Company experienced unrealized losses on its risk retention investments held in certain of the CLOs that it manages. While the Company is required to hold these investments for the entire duration of the CLOs, to the extent that cash flows in the CLOs deteriorate, the Company could experience declining interest income and impairments on these investments.
A portion of the management fees the Company earns from its CLOs is subordinated to other obligations of the CLOs, including principal and interest on the notes issued by the CLOs. When certain overcollateralization tests are triggered, cash flows
11


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

received on the underlying collateral in the CLOs that would have otherwise been distributed as subordinated management fees to the Company are redirected to pay principal and interest on the more senior obligations of the CLOs. In the second quarter of 2020, driven by the market and economic impacts of the ongoing COVID-19 pandemic and resulting ratings downgrades and defaults on certain of the collateral held by CLOs, the impacted CLOs failed to satisfy one or more overcollateralization tests, and as a result the Company stopped recognizing management fees for these CLOs until the collateral tests are remedied and such fees are paid. In the event the persistent market conditions do not sufficiently recover over the life cycle of these CLOs, the Company’s management fees from our securitization vehicles will continue to deteriorate.
The Company has also evaluated its long-lived assets including operating lease assets and goodwill and has not identified any impairments to these assets as of June 30, 2020.
Company Structure
The Registrant is a holding company that, through Sculptor Corp, holds equity ownership interests in the Sculptor Operating Group. The Registrant had issued and outstanding the following share classes:
Class A Shares—Class A Shares are publicly traded and entitle the holders thereof to one vote per share on matters submitted to a vote of shareholders. The holders of Class A Shares are entitled to any distributions declared on the Class A Shares by the Registrant’s Board of Directors (the “Board”).Directors.
Class B Shares—Class B Shares are held by executive managing directors, as further discussed below. These shares are not publicly traded but rather entitle the executive managing directors to one vote per share on matters submitted to a vote of shareholders. These shares do not participate in the earnings of the Registrant, as the
13


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

executive managing directors participate in the related economics of the Sculptor Operating Group through their direct ownership in the Sculptor Operating Group, subject to the Distribution Holiday discussed below.
The Company conducts its operations through the Sculptor Operating Group. The following is a list of the outstanding units of the Sculptor Operating Partnerships as of June 30, 2020:March 31, 2021:
Group A Units—Group A Units are limited partner interests issued to certain executive managing directors. In connection with the Recapitalization, as defined below, the Sculptor Operating Partnerships initiated a distribution holiday (the “Distribution Holiday”). Holders of Group A Units do not receive distributions on such units during the Distribution Holiday. Beginning on the final day of the Distribution Holiday, (as defined in Note 3), each executive managing director may exchange his or her vested and booked-up (as defined below) Group A Units for an equal number of Class A Shares (or the cash equivalent thereof) over a period of two years in three equal installments commencing upon the final day of the Distribution Holiday and on each of the first and second anniversary thereof (or, for units that become vested and booked-up Group A Units after the final day of the Distribution Holiday, from the later of the date on which they would have been exchangeable in accordance with the foregoing and the date on which they become vested and booked-up Group A Units) (and thereafter such units will remain exchangeable), in each case, subject to certain restrictions. A “book-up” is achieved when sufficient appreciation has occurred to meet a prescribed capital account book-up target under the terms of the Sculptor Operating Partnership limited partnership agreements.
Holders of Group A Units do not receive distributions during the Distribution Holiday. Group A Unit grants are accounted for as equity-based compensation. See Note 1413 in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2019, dated February 25, 2020 (“Annual Report”) for additional information. The Company completed a recapitalization in February 2019 (“Recapitalization”). See Note 3 in the Company’s Annual Report for additional details. In connection with the Recapitalization each Group A Unit outstanding on the Recapitalization date was recapitalized into 0.65 Group A Units and 0.35 Group A-1 Units.
Group A-1 Units—Group A-1 Units are limited partner interests into which 0.35 of each Group A Unit was recapitalized in connection with the reallocation that was effectuated by the Recapitalization. The Group A-1 Units will be canceled at such time and to the extent that the Group E Units granted in connection with the
12


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

Recapitalization vest and achieve a book-up. Group A-1 Units are not eligible to receive distributions at any time and do not participate in the net income (loss) of the Sculptor Operating Group. However, the holders of Group A-1 Units shall participate in any sale, change of control or other liquidity event that takes place prior to cancellation of the Group A-1 Units. In the Recapitalization, the holders of the 2016 Preferred Units, (asas defined below)below, forfeited an additional 749,813 Group A Units, which were recapitalized into Group A-1 Units.
Group B Units—Sculptor Corp holds a general partner interest and Group B Units in each Sculptor Operating Partnership. Sculptor Corp owns all of the Group B Units, which represent equity interest in the Sculptor Operating Partnerships. Except during the Distribution Holiday as described above, the Group B Units are economically identical to the Group A Units held by executive managing directors but are not exchangeable for Class A Shares and are not subject to vesting, forfeiture or minimum retained ownership requirements.
Group E Units—Group E Units are limited partner interests issued to certain executive managing directors that are only entitled to future profits and gains. Each Group E Unit converts into a Group A Unit and becomes exchangeable for one Class A Share (or the cash equivalent thereof) to the extent there has been a sufficient amount of appreciation for a Group E Unit to achieve a book-up target and, subject to other conditions contained in the limited partnership agreements of the Sculptor Operating Partnerships, the Distribution Holiday has ended (or an earlier exchange date is established by the Exchange Committee). The Group E Units are entitled to share in residual assets upon liquidation, dissolution or winding up and become eligible to participate in any tag along right, in a change of control transaction or other liquidity event only to the extent of their relative positive capital accounts (if any). In connection with the Recapitalization, all outstanding Group D Units, which were non-equity profits interests, converted into Group E Units on a one-for-one basis. Holders of Group E Units do not receive distributions during the Distribution Holiday. See Note 3 in the
14


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

Company’s Annual Report for additional information.details. Group E Unit grants are accounted for as equity-based compensation. See Note 1413 in the Company’s Annual Report for additional information.
Group P Units—Group P Units are limited partner interests issued to certain executive managing directors that are only entitled to future profits and gains. Each Group P Unit becomes exchangeable for one Class A Share (or the cash equivalent thereof), in each case upon satisfaction of certain service and performance conditions at such time and, with respect to exchanges, to the extent there has been sufficient appreciation for a Group P Unit to achieve a book-up target and, subject to other conditions contained in the limited partnership agreements of the Sculptor Operating Partnerships, the Distribution Holiday has ended (or an earlier exchange date is established by the Exchange Committee). The Group P Units are entitled to share in residual assets upon liquidation, dissolution or winding up and become eligible to participate in any tag along right, in a change of control transaction or other liquidity event only to the extent that certain performance conditions are met and to the extent of their relative positive capital accounts (if any). The terms of the Group P Units may be varied for certain executive managing directors. Group P Unit grants are accounted for as equity-based compensation. See Note 1413 in the Company’s Annual Report for additional information.
Preferred Units— The Preferred Units arewere non-voting preferred equity interests in the Sculptor Operating Partnerships. Preferred Units issued in 2016 and 2017 are collectively referred to as the “2016 Preferred Units.” The 2016 Preferred Units were redeemed in full as a part of the Recapitalization. The Preferred Units issued in 2019 are referred to as the “2019 Preferred Units.” See Note 10 for additional information.The 2019 Preferred Units were redeemed in full at a 25% discount in the fourth quarter of 2020.
Executive managing directors hold a number of Class B Shares equal to the number of Group A Units, vested Group E Units, Group A-1 Units (to the extent the corresponding Class B Shares have not been canceled in connection with the vesting of certain Group E Units issued in connection with the Recapitalization, as further discussed in Note 3)3 in the Company’s Annual Report) and Group P Units held. Upon the exchange of a Group A Unit or a Group P Unit for a Class A Share, the corresponding Class B Share is canceled and a Group B Unit is issued to Sculptor Corp.
13


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

Class B Shares that relate to Group A-1 Units will be voted pro rata in accordance with the vote of the Class A Shares.
The following table presents the number of shares and units (excluding Preferred Units) of the Registrant and the Sculptor Operating Partnerships, respectively, that were outstanding as of June 30, 2020:March 31, 2021:
 As of June 30, 2020March 31, 2021
Sculptor Capital Management, Inc.
Class A Shares22,311,43223,899,777
Class B Shares32,820,41432,887,883
Warrants to purchase Class A Shares (Note 7)4,338,015 
Sculptor Operating Partnerships
Group A Units16,019,50616,019,509
Group A-1 Units9,779,446
Group B Units22,311,43223,899,777
Group E Units13,450,82113,009,153
Group P Units3,385,000
In addition, the Company grants Class A restricted share units (“RSUs”) and performance-based RSUs (“PSUs”) to its employees and executive managing directors as a form of compensation. RSU and PSU grants are accounted for as equity-based compensation. See Note 1413 in the Company’s Annual Report for additional information.
15


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These unaudited, interim, consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”), and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s unaudited, interim, consolidated financial statements have been included and are of a normal and recurring nature. All significant intercompany transactions and balances have been eliminated in consolidation.
The results of operations presented for the interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. For example, incentive income for the majority of the Company’s multi-strategy assets under management is recognized in the fourth quarter each year, based on full year investment performance.
Recently Adopted Accounting Pronouncements
No changes to GAAP that went into effect in the sixthree months ended June 30, 2020,March 31, 2021, had a material effect on the Company’s consolidated financial statements.
Future Adoption of Accounting Pronouncements
No changes to GAAP that are not yet effective are expected to have a material effect on the Company’s consolidated financial statements.
3. RECAPITALIZATION
On February 7, 2019, the Company completed the Recapitalization, which included a series of transactions that involved the reallocation of certain ownership interests in the Sculptor Operating Partnerships to existing members of senior management, a “Distribution Holiday” on interests held by active and former executive managing directors, an amendment to the tax receivable
14


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

agreement, a “Cash Sweep” to pay down the 2018 Term Loan (as defined in Note 8) and 2019 Preferred Units, and various other related transactions. In addition, (i) $200.0 million of the 2016 Preferred Units was restructured into the Debt Securities (as described in Note 8) and (ii) $200.0 million of the 2016 Preferred Units was restructured into the 2019 Preferred Units.
Reallocation of Equity
In connection with the Recapitalization, holders of Group A Units collectively reallocated 35% of their Group A Units to existing members of senior management and for potential grants to new hires. The reallocation was effected by (i) recapitalizing such Group A Units into Group A-1 Units and (ii) creating and making grants to existing members of senior management (and reserving for future grants to active managing directors and new hires) of Group E Units. An equivalent number of Group A-1 Units will be canceled at such time and to the extent that Group E Units vest and achieve a book-up. Upon vesting, holders of Group E Units received in connection with the reallocation of Group A Units will be entitled to vote a corresponding number of Class B Shares previously allocated to Group A-1 Units. Until such time as the relevant Group E Units become vested, the Class B Shares corresponding to the Group A-1 Units will be voted pro rata in accordance with the vote of the Class A Shares. In connection with the Recapitalization, the holders of the 2016 Preferred Units forfeited an additional 749,813 Group A Units (which were recapitalized into Group A-1 Units).
Distribution Holiday
The Sculptor Operating Partnerships initiated a distribution holiday (the “Distribution Holiday”) on the Group A Units, Group D Units, Group E Units and Group P Units and on certain RSUs that will terminate on the earlier of (x) 45 days after the last day of the first calendar quarter as of which the achievement of $600.0 million of Distribution Holiday Economic Income (as defined in the Sculptor Operating Partnerships’ limited partnership agreements) is realized and (y) April 1, 2026.
 During the Distribution Holiday, (i) the Sculptor Operating Partnerships shall only make distributions with respect to Group B Units, (ii) the performance thresholds of Group P Units and PSUs shall be adjusted to take into account performance and distributions during such period, and (iii) RSUs will continue to receive dividend equivalents in respect of dividends or distributions paid on the Class A Shares. For executive managing directors that have received Group E Units, distributions on RSUs, as well as distributions counted in determining whether performance conditions of Group P Units and PSUs are met, are limited to an aggregate amount not to exceed $4.00 per Group P Unit, PSU or RSU, as applicable, cumulatively during the Distribution Holiday. Following the termination of the Distribution Holiday, Group A Units and Group E Units (whether vested or unvested) shall receive distributions even if such units have not been booked-up.
The Distribution Holiday was effective retroactively to October 1, 2018. As a result, the Company recorded an adjustment to additional paid-in capital and noncontrolling interests to reallocate a portion of pre-Recapitalization earnings and related income tax effects from noncontrolling interests to the Company’s additional paid-in capital. Such adjustment is recorded within Recapitalization adjustment in the consolidated statement of shareholders’ equity (deficit).
Cash Sweep
As part of the Recapitalization, the Company instituted a “Cash Sweep” with regards to the paydowns of the 2018 Term Loan and the 2019 Preferred Units. During the Distribution Holiday, on a quarterly basis, for each of the first three quarters of the year 100% of all Economic Income (subject to certain adjustments described in the 2019 Preferred Unit Designations as defined in Note 10) will be applied to repay the 2018 Term Loan and then to redeem the 2019 Preferred Units, in each case, together with accrued interest. The Cash Sweep will not apply to the extent that it would result in the Sculptor Operating Group having a minimum “Free Cash Balance” (as defined in the 2019 Preferred Unit Designations) of less than $200.0 million except in certain specified circumstances. In the fourth quarter of each year, an amount equal to the excess of the Free Cash Balance over the minimum Free Cash Balance of $200.0 million, will be used to repay the 2018 Term Loan and redeem the 2019 Preferred Units. In addition, without duplication of the Cash Sweep, (i) certain of the proceeds resulting from the realization of incentive income from certain longer term assets under management described in the 2019 Preferred Units Designations (“Designated
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

Accrued Unrecognized Incentive”) and (ii) 85% of the net cash proceeds from any Asset Sales (as defined in the 2019 Preferred Units Designations), will be used to repay the 2018 Term Loan and redeem the 2019 Preferred Units.
As long as the Cash Sweep is in effect, the Sculptor Operating Group may only use funds from a cumulative discretionary one-time basket of up to $50.0 million in the aggregate, or reserve up to $17.0 million in the aggregate annually (the “Discretionary Basket”), to engage in certain “Restricted Activities” (as defined below) or any other activities related to the strategic expansion of the Sculptor Operating Group, and may not use any other funds of the Sculptor Operating Group to fund such activities, subject to certain exceptions. The Discretionary Basket will not be subject to the Distribution Holiday or the Cash Sweep and, subject to certain exceptions, may only be used to fund new firm investments or new firm products or to fund share buybacks (including RSU cash settlements in excess of permitted amounts) in an aggregate amount not to exceed $25.0 million (the “Restricted Activities”). The Discretionary Basket may not be used to fund employee compensation payments.
4. NONCONTROLLING INTERESTS
Noncontrolling interests represent ownership interests in the Company’s subsidiaries held by parties other than the Company, and primarily relate to the Group A Units held by executive managing directors.
Prior to the Recapitalization, the attribution of net income (loss) of each Sculptor Operating Partnership was based on the relative ownership percentages of the Group A Units (noncontrolling interests) and the Group B Units (indirectly held by the Registrant). In applying the substantive profit-sharing arrangements in the Sculptor Operating Partnerships’ limited partnership agreements to the Company’s consolidated financial statements, for periods subsequent to the Recapitalization and for the duration of the Distribution Holiday, the Company will allocate net income of each Sculptor Operating Partnership in any fiscal year solely to the Group B Units and any net loss on a pro rata basis based on the relative ownership percentages of the Group A Units and Group B Units. To the extent a Sculptor Operating Partnership incurs a net loss in an interim period, any net income recognized in a subsequent interim period in the same fiscal year is allocated on a pro rata basis to the extent of previously allocated net loss. Conversely, to the extent a Sculptor Operating Partnership recognizes net income in an interim period, any net loss incurred in a subsequent interim period in the same fiscal year is allocated solely to the Group B Units to the extent of previously allocated net income.
16


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

The table below sets forth the calculation of noncontrolling interests related to the Group A Units for each Sculptor Operating Partnership (rounding differences may occur). The blended participation percentages presented below take into account ownership changes throughout the periods presented. In addition, the blended participation percentages in 2019 take into account the difference in methodology described above for the period prior to the Recapitalization Date compared to the period following the Recapitalization Date. For example, Sculptor Capital Advisors LP had net income in the period prior to the Recapitalization Date, and as a result, allocates a portion of its net income for the six months ended June 30, 2019 to the Group A Units.
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (dollars in thousands)
Sculptor Capital LP
Net loss$(100,963) $(18,769) $(142,140) $(50,818) 
Blended participation percentage42 %43 %42 %44 %
Net Loss Attributable to Group A Units$(42,031) $(8,148) $(59,405) $(22,212) 
Sculptor Capital Advisors LP
Net (loss) income$(9,353) $(9,523) $(19,291) $7,974  
Blended participation percentage41 %%42 %84 %
Net (Loss) Income Attributable to Group A Units$(3,869) $—  $(8,062) $6,695  
Sculptor Capital Advisors II LP
Net income$25,712  $14,550  $16,779  $16,603  
Blended participation percentage15 %%%%
Net Income Attributable to Group A Units$3,770  $—  $—  $—  
Total Sculptor Operating Group
Net loss$(84,604) $(13,742) $(144,652) $(26,241) 
Blended participation percentage50 %59 %47 %59 %
Net Loss Attributable to Group A Units$(42,130) $(8,148) $(67,467) $(15,517) 

Three Months Ended March 31,
 20212020
 (dollars in thousands)
Sculptor Capital LP
Net loss$(47,463)$(41,177)
Blended participation percentage40 %42 %
Net Loss Attributable to Group A Units$(19,047)$(17,374)
Sculptor Capital Advisors LP
Net loss$(513)$(9,938)
Blended participation percentage40 %42 %
Net Loss Attributable to Group A Units$(206)$(4,193)
Sculptor Capital Advisors II LP
Net income (loss)$5,215 $(8,933)
Blended participation percentage%42 %
Net Income (Loss) Attributable to Group A Units$0 $(3,770)
Total Sculptor Operating Group
Net loss$(42,761)$(60,048)
Blended participation percentage45 %42 %
Net Loss Attributable to Group A Units$(19,253)$(25,337)
The following table presents the components of the net loss attributable to noncontrolling interests:
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
(dollars in thousands)
Group A Units$(42,130) $(8,148) $(67,467) $(15,517) 
Other270  164  (478) 299  
 $(41,860) $(7,984) $(67,945) $(15,218) 
17


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

Three Months Ended March 31,
 20212020
(dollars in thousands)
Group A Units$(19,253)$(25,337)
Other455 (748)
 $(18,798)$(26,085)
The following table presents the components of the shareholders’ equity attributable to noncontrolling interests:
 June 30, 2020December 31, 2019
(dollars in thousands)
Group A Units$381,028  $434,943  
Other5,658  5,836  
 $386,686  $440,779  
The Preferred Units and fund investors’ interests in certain consolidated funds (which were deconsolidated in the third quarter of 2019) are redeemable outside of the Company’s control. These interests are classified within redeemable noncontrolling interests in the consolidated balance sheets. The following tables present the activity in redeemable noncontrolling interests:
Three Months Ended June 30,
20202019
Preferred UnitsFundsPreferred UnitsTotal
(dollars in thousands)
Beginning Balance$151,327  $149,290  $150,000  $299,290  
Change in redemption value of Preferred Units1,986  —  —  —  
Capital contributions—  1,938  —  1,938  
Capital distributions—  (56,636) —  (56,636) 
Comprehensive income—  2,637  —  2,637  
Ending Balance$153,313  $97,229  $150,000  $247,229  
Six Months Ended June 30,
20202019
Preferred UnitsFundsPreferred UnitsTotal
(dollars in thousands)
Beginning balance$150,000  $157,660  $420,000  $577,660  
Fair value of Debt Securities exchanged for 2016 Preferred Units—  —  (167,799) (167,799) 
Fair value of 2019 Preferred Units exchanged for 2016 Preferred Units—  —  (137,759) (137,759) 
Issuance of 2019 Preferred Units, net of issuance costs—  —  136,964  136,964  
Change in redemption value of Preferred Units3,313  —  (101,406) (101,406) 
Capital contributions—  3,645  —  3,645  
Capital distributions—  (72,247) —  (72,247) 
Comprehensive income—  8,171  —  8,171  
Ending Balance$153,313  $97,229  $150,000  $247,229  
 March 31, 2021December 31, 2020
(dollars in thousands)
Group A Units$424,091 $433,756 
Other11,499 11,592 
 $435,590 $445,348 

1817


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

5.4. INVESTMENTS AND FAIR VALUE DISCLOSURES
The following table presents the components of the Company’s investments as reported in the consolidated balance sheets:
June 30, 2020December 31, 2019March 31, 2021December 31, 2020
(dollars in thousands)(dollars in thousands)
United States government obligations, at fair value$206,434  $146,565  
U.S. government obligations, at fair valueU.S. government obligations, at fair value$104,936 $104,295 
CLOs, at fair valueCLOs, at fair value178,842  182,870  CLOs, at fair value202,842 205,510 
Other investments, equity method86,068  81,991  
Equity method investmentsEquity method investments124,748 105,169 
Total InvestmentsTotal Investments$471,344  $411,426  Total Investments$432,526 $414,974 
Fair Value Disclosures
Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date (i.e., an exit price). The Company and the funds it manages hold a variety of investments, certain of which are not publicly traded or that are otherwise illiquid. Significant judgement and estimation go into the assumptions that drive the fair value of these investments. The fair value of these investments may be estimated using a combination of observed transaction prices, prices from third parties (including independent pricing services and relevant broker quotes), models or other valuation methodologies based on pricing inputs that are neither directly nor indirectly market observable. Due to the inherent uncertainty of valuations of investments that are determined to be illiquid or do not have readily ascertainable fair values, the estimates of fair value may differ from the values ultimately realized, and those differences can be material.
GAAP prioritizes the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of assets and liabilities and the specific characteristics of the financial assets and liabilities. AssetsFinancial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively-quoted prices generally will have a higher degree of market price observability and lesser degree of judgment used in measuring fair value.
AssetsFinancial assets and liabilities measured at fair value are classified and disclosed into one of the following categories:categories based on the observability of inputs used in the determination of fair values:
Level IFair value is determined using quotedQuoted prices that are available in active markets for identical financial assets or liabilities.liabilities as of the     reporting date. The types of financial assets and liabilities that would generally be included in this category are certain listed equities, U.S. government obligations and certain listed derivatives.
Level IIFair value is determined using quotationsQuotations received from dealers making a market for these financial assets or liabilities (“broker quotes”), valuations obtained from independent third-party pricing services, the use of models or other valuation methodologies based on pricing inputs that are either directly or indirectly market observable as of the measurement date. The types of financial assets and liabilities that would generally be included in this category are certain corporate bonds, certain credit default swap contracts, certain bank debt securities, certain commercial real estate debt, less liquid equity securities, forward contracts and certain over the-counter (“OTC”) derivatives.derivatives where the fair value is based on observable inputs. These financial assets and liabilities exhibit higher levels of liquid market observability as compared to Level III financial assets and liabilities.
Level IIIFair value is determined using pricingPricing inputs that are unobservable in the market and includes situations where there is little, if any, market activity for the financial asset or liability. The inputs into the determination of fair value of financial assets and liabilities in this category may require significant management judgment or estimation in determining fair value of the assets or liabilities.estimation. The fair value of these
18


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

financial assets and liabilities may be estimated using a combination of observed transaction prices, independent pricing services, relevant broker quotes, models or other valuation methodologies based on pricing inputs that are neither directly or indirectly market observable.observable (e.g., cash flows, implied yields, EBITDA multiples). The types of financial assets and liabilities that would generally be included in this category include CLOs, warrant liabilities, real estate investments, equity and debt securities issued by private entities, limited partnerships, certain corporate bonds, certain credit default swap contracts, certain bank debt securities, certain commercial real estate debt, certain OTC derivatives, residential and commercial mortgage-backed securities, asset-backed securities, collateralized debt obligations and investments in affiliated credit funds.
19


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, ana financial asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of ana particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial asset or liability.liability when the fair value is based on unobservable inputs.
Fair Value Measurements Categorized within the Fair Value Hierarchy
The following table summarizes the Company’s investments measured at fair value on a recurring basis within the fair value hierarchy as of June 30, 2020:March 31, 2021:
As of June 30, 2020 As of March 31, 2021
Level ILevel IILevel IIITotal Level ILevel IILevel IIITotal
(dollars in thousands) (dollars in thousands)
Assets, at Fair ValueAssets, at Fair ValueAssets, at Fair Value
Included within investments:Included within investments:Included within investments:
United States government obligations$206,434  $—  $—  $206,434  
U.S. government obligationsU.S. government obligations$104,936 $$$104,936 
CLOs(1)
CLOs(1)
$—  $—  $178,842  $178,842  
CLOs(1)
$$$202,842 $202,842 
Liabilities, at Fair ValueLiabilities, at Fair Value
WarrantsWarrants$$$62,771 $62,771 
_______________
(1) As of June 30, 2020,March 31, 2021, investments in CLOs had contractual principal amounts of $172.7$190.1 million outstanding, which excludes the Company’s investments in subordinated tranches of the notes, as these do not have contractual principal payments.
19


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

The following table summarizes the Company’s investments measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2019:2020:
As of December 31, 2019 As of December 31, 2020
Level ILevel IILevel IIITotal Level ILevel IILevel IIITotal
(dollars in thousands) (dollars in thousands)
Assets, at Fair ValueAssets, at Fair ValueAssets, at Fair Value
Included within cash and cash equivalents:Included within cash and cash equivalents:Included within cash and cash equivalents:
United States government obligations$97,034  $—  $—  $97,034  
U.S. government obligationsU.S. government obligations$29,999 $$$29,999 
Included within investments:Included within investments:Included within investments:
United States government obligations$146,565  $—  $—  $146,565  
U.S. government obligationsU.S. government obligations$104,295 $$$104,295 
CLOs(1)
CLOs(1)
$—  $—  $182,870  $182,870  
CLOs(1)
$$$205,510 $205,510 
Liabilities, at Fair ValueLiabilities, at Fair Value
WarrantsWarrants$$$37,827 $37,827 
_______________
(1) As of December 31, 2019,2020, investments in CLOs had contractual principal amounts of $170.0$194.5 million outstanding, which excludes the Company’s investments in subordinated tranches of the notes, as these do not have contractual principal payments.
Reconciliation of Fair Value Measurements Categorized within Level III
Gains and losses, excluding those of the consolidated fundsrelated to foreign currency translation adjustments, are recorded within net gains (losses) on investments in the consolidated statements of operations. Gains and losses related to foreign currency translation adjustments are recorded in the statements of comprehensive income (loss), and gains and losses of the consolidated funds are recorded within net gains of consolidated funds.. Amortization of premium, accretion of discount and foreign exchange gains and losses on non-U.S. Dollardollar investments are also included within gains and losses in the tables below.
The following table summarizes the changes in the Company’s Level III assets and liabilities for the three months ended March 31, 2021:
December 31, 2020Purchases / IssuancesInvestment Sales / SettlementsGains / Losses Included in EarningsGains / Losses Included in Other Comprehensive IncomeMarch 31, 2021
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs$205,510 $2,448 $(20)$1,423 $(6,519)$202,842 
Liabilities, at Fair Value
Warrants$37,827 $$$24,944 $$62,771 
20


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

The following table summarizes the changes in the Company’s Level III assets and liabilities for the three months ended June 30,March 31, 2020:
March 31, 2020Transfers
In
Transfers
Out
Investment
Purchases / Issuances
Investment
Sales / Settlements
Gains / LossesJune 30, 2020
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs$155,287  $—  $—  $1,074  $(185) $22,666  $178,842  
The following table summarizes the changes in the Company’s Level III assets and liabilities for the three months ended June 30, 2019:
March 31, 2019Transfers
In
Transfers
Out
Investment
Purchases / Issuances
Investment
Sales / Settlements
Gains / LossesJune 30, 2019
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs$158,468  $—  $—  $25,903  $(4,615) $1,791  $181,547  
Investments of consolidated funds:
Bank debt$59,169  $10,777  $(13,974) $16,873  $(36,635) $(80) $36,130  
The following table summarizes the changes in the Company’s Level III assets and liabilities for the six months ended June 30, 2020:
December 31, 2019Transfers InTransfers OutInvestment Purchases / IssuancesInvestment Sales / SettlementsGains / LossesJune 30, 2020
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs$182,870  $—  $—  $4,407  $(185) $(8,250) $178,842  
The following table summarizes the changes in the Company’s Level III assets and liabilities for the six months ended June 30, 2019:
December 31, 2018Transfers InTransfers OutInvestment Purchases / IssuancesInvestment Sales / SettlementsGains / LossesJune 30, 2019
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs$181,868  $—  $—  $26,711  $(27,750) $718  $181,547  
Investments of consolidated funds:
Bank debt$75,613  $8,702  $(27,313) $27,128  $(48,592) $592  $36,130  
Corporate bonds$—  $—  $—  $987  $(981) $(6) $—  
Transfers out of Level III presented in the tables above resulted from the fair values of certain securities becoming market observable, with fair value determined using independent pricing services. Transfers into Level III presented in the tables
21


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

above resulted from the valuation of certain investments with decreased market observability, with fair values determined using independent pricing services.
December 31, 2019Purchases / IssuancesInvestment Sales / SettlementsGains / Losses Included in EarningsGains / Losses Included in Other Comprehensive IncomeMarch 31, 2020
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs$182,870 $3,333 $$(30,916)$$155,287 
The table below summarizes the net change in unrealized gains and losses on the Company’s Level III investments held and warrant liabilities outstanding as of the reporting date:
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,
2020201920202019 20212020
(dollars in thousands) (dollars in thousands)
Assets, at Fair ValueAssets, at Fair ValueAssets, at Fair Value
Included within investments:Included within investments:Included within investments:
CLOsCLOs$22,667  $85  $(8,250) $877  CLOs$(5,096)$(30,916)
Investments of consolidated funds:
Bank debt$—  $114  $—  $694  
Liabilities, at Fair ValueLiabilities, at Fair Value
WarrantsWarrants$(24,944)$
Valuation Methodologies for Fair Value Measurements Categorized within Levels II and III
Investments in CLOs, bank debt and corporate bonds are valued using independent pricing services, and therefore the Company does not have transparency into the significant inputs used by such services.
The Company elected Warrant liabilities are valued using a Black-Scholes model by independent pricing services, for which the Company’s Class A Share price, exercise price, risk free rate, volatility and term to measure its investments in CLOs at fair value through consolidated net income (loss) in orderexpiry are the primary inputs to simplify its accounting for these instruments. Changes in fair value of these investments are included within net gains on investments in the consolidated statements of comprehensive income (loss). The Company accrues interest income on its investments in CLOs using the effective interest method.valuation.
Fair Value of Other Financial Instruments
Management estimates that the carrying value of the Company’s other financial instruments, including its debt obligations and repurchase agreements, approximated their fair values as of June 30, 2020.March 31, 2021. The fair value measurements for the Company’s debt obligations and repurchase agreements are categorized as Level III within the fair value hierarchy and were determined using independent pricing services. The fair value measurements for the Company’s debt obligations are categorized as Level III within the fair value hierarchy and for the 2020 Term Loan is determined using a discounted cash flow model and for CLO Investments Loans are determined using independent pricing services.
Loans Sold to CLOs Managed by the Company
From time to time the Company sells loans to CLOs managed by the Company. These loans are purchased by the Company in the open market and simultaneously sold for cash at cost to the CLOs. The loans are accounted for as transfers of financial assets as they meet the criteria for derecognition under GAAP. NaN loans were sold in each of the sixthree months ended June 30, 2020March 31, 2021 and 2019.2020. The Company invests in senior secured and subordinated notes issued by certain CLOs to which it sold loans in the past. These investments represent retained interests to the Company and are in the form of a 5% vertical strip (i.e., 5% of each of the senior and subordinated tranches of notes issued by each CLO). The retained interests are reported within investments on
21


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

the Company’s consolidated balance sheet. As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the Company’s investments in these retained interests had a fair value of $83.6$88.9 million and $88.2$90.3 million, respectively.
The Company is subject to risks associated with the performance of the underlying collateral and the market yield of the assets. The Company’s risk of loss from retained interest is limited to its investments in these interests. The Company receives quarterly payments of interest and principal, as applicable, on these retained interests. In the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, the Company received $1.6 million$717 thousand and $2.0 million,$893 thousand, respectively, of interest and principal payments related to the retained interests.
22


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

The Company uses independent pricing services to value its investments in the CLOs, including the retained interests, and therefore the only key assumption is the price provided by such service. A corresponding adverse change of 10% or 20% on price would have a corresponding impact on the fair value of the Company’s investments in CLOs.
6.5. VARIABLE INTEREST ENTITIES
In the ordinary course of business, the Company sponsors the formation of funds that are considered VIEs. See Note 2 ofin the Company's Annual Report for a discussion of entities that are VIEs and the evaluation of those entities for consolidation by the Company. The assets and liabilities of consolidated VIEs were not material as of June 30, 2020March 31, 2021 and December 31, 2019.2020.
The Company’s direct involvement with funds that are VIEs and not consolidated by the Company is generally limited to providing asset management services and, in certain cases, insignificant investments in the VIEs. The maximum exposure to loss represents the potential loss of current investments or income and fees receivables from these entities, as well as the obligation to repay unearned revenues,income and fees, primarily incentive income subject to clawback, in the event of any future fund losses. The Company has commitments to certain funds that are VIEs as discussed in Note 18.16. The Company does not provide, nor is it required to provide, any type of non-contractual financial or other support to its VIEs that are not consolidated.
The table below presents the net assets of VIEs in which the Company has variable interests along with the maximum risk of loss as a result of the Company’s involvement with VIEs:
June 30, 2020December 31, 2019March 31, 2021December 31, 2020
(dollars in thousands)(dollars in thousands)
Net assets of unconsolidated VIEs in which the Company has a variable interestNet assets of unconsolidated VIEs in which the Company has a variable interest$9,079,489  $8,805,128  Net assets of unconsolidated VIEs in which the Company has a variable interest$9,994,208 $10,481,312 
Maximum risk of loss as a result of the Company’s involvement with VIEs:Maximum risk of loss as a result of the Company’s involvement with VIEs:Maximum risk of loss as a result of the Company’s involvement with VIEs:
Unearned revenues67,748  63,337  
Unearned income and feesUnearned income and fees57,391 61,879 
Income and fees receivableIncome and fees receivable26,134  21,841  Income and fees receivable22,849 192,826 
InvestmentsInvestments196,909  200,215  Investments227,646 233,638 
Maximum Exposure to LossMaximum Exposure to Loss$290,791  $285,393  Maximum Exposure to Loss$307,886 $488,343 

2322


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

7.6. LEASES
The Company has non-cancelable operating leases for its headquarters in New York and its offices in London, Hong Kong, Shanghai, and various other locations and data centers. The Company does not have renewal options other than a three-year renewal option for any of its lease in Hong Kong, which was not included in the determination of the related lease asset and liability.current leases. The Company also subleases a portion of its office space in London through the end of the lease term. Finally,In addition, the Company has finance leases for computer hardware.
Three Months Ended March 31,
20212020
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(dollars in thousands)(dollars in thousands)
Lease CostLease CostLease Cost
Operating lease costOperating lease cost$5,141  $5,146  $10,288  $10,295  Operating lease cost$5,437 $5,147 
Short-term lease costShort-term lease cost12  14  25  32  Short-term lease cost17 13 
Finance lease cost - amortization of leased assetsFinance lease cost - amortization of leased assets193  137  330  274  Finance lease cost - amortization of leased assets199 137 
Finance lease cost - imputed interest on lease liabilitiesFinance lease cost - imputed interest on lease liabilities24  25  38  49  Finance lease cost - imputed interest on lease liabilities10 14 
Less: Sublease incomeLess: Sublease income(370) (381) (754) (765) Less: Sublease income(411)(384)
Net Lease CostNet Lease Cost$5,000  $4,941  $9,927  $9,885  Net Lease Cost$5,252 $4,927 

Three Months Ended March 31,
Three Months Ended June 30,Six Months Ended June 30,20212020
2020201920202019
(dollars in thousands)(dollars in thousands)
Supplemental Lease Cash Flow InformationSupplemental Lease Cash Flow InformationSupplemental Lease Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilitiesCash paid for amounts included in the measurement of lease liabilitiesCash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leasesOperating cash flows for operating leases$5,601  $7,380  $11,203  $11,378  Operating cash flows for operating leases$5,809 $5,602 
Operating cash flows for finance leasesOperating cash flows for finance leases$ $25  $ $49  Operating cash flows for finance leases$$
Finance cash flows for finance leasesFinance cash flows for finance leases$192  $—  $651  $457  Finance cash flows for finance leases$624 $459 
Right-of-use assets obtained in exchange for lease obligationsRight-of-use assets obtained in exchange for lease obligationsRight-of-use assets obtained in exchange for lease obligations
Operating leasesOperating leases$—  $ $ $126,007  Operating leases$2,893 $
Finance leases$745  $—  $745  $1,702  

June 30, 2020December 31, 2019March 31, 2021December 31, 2020
Lease Term and Discount RateLease Term and Discount RateLease Term and Discount Rate
Weighted average remaining lease termWeighted average remaining lease termWeighted average remaining lease term
Operating leasesOperating leases8.9 years9.3 yearsOperating leases8.2 years8.5 years
Finance leasesFinance leases2.2 years2.1 yearsFinance leases1.8 years1.6 years
Weighted average discount rateWeighted average discount rateWeighted average discount rate
Operating leasesOperating leases7.9 %7.9 %Operating leases7.8 %7.9 %
Finance leasesFinance leases7.1 %7.9 %Finance leases6.7 %7.2 %

2423


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

Operating
Leases
Finance
Leases
Operating
Leases
Finance
Leases
(dollars in thousands)(dollars in thousands)
Maturity of Lease LiabilitiesMaturity of Lease LiabilitiesMaturity of Lease Liabilities
July 1, 2020 to December 31, 2020$11,204  $258  
202120,897  867  
April 1, 2021 to December 31, 2021April 1, 2021 to December 31, 2021$16,150 $242 
2022202219,701  248  202220,851 248 
2023202319,022  —  202320,079 
2024202415,353  —  202416,133 
2025202514,330 
ThereafterThereafter82,234  —  Thereafter68,042 
Total Lease PaymentsTotal Lease Payments168,411  1,373  Total Lease Payments155,585 490 
Imputed interestImputed interest(47,421) (68) Imputed interest(40,981)(20)
Total Lease LiabilitiesTotal Lease Liabilities$120,990  $1,305  Total Lease Liabilities$114,604 $470 
As of June 30, 2020,March 31, 2021, the Company has pledged collateral related to its lease obligations of $6.2 million, which is included within investments in the consolidated balance sheets.
Operating LeasesOperating Leases
(dollars in thousands) (dollars in thousands)
Sublease Rent Payments ReceivableSublease Rent Payments ReceivableSublease Rent Payments Receivable
July 1, 2020 to December 31, 2020$1,107  
20211,476  
April 1, 2021 to December 31, 2021April 1, 2021 to December 31, 2021$1,232 
202220221,476  20221,642 
202320231,156  20231,286 
20242024—  2024
20252025
ThereafterThereafter—  Thereafter
Total Sublease Rent Payments ReceivableTotal Sublease Rent Payments Receivable$5,215  Total Sublease Rent Payments Receivable$4,160 

2524


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

8.7. DEBT OBLIGATIONS AND WARRANTS
Debt Securities2018 Term LoanCLO Investments LoansTotal2020 Term LoanCLO Investments LoansTotal
(dollars in thousands)(dollars in thousands)
Maturity of Debt ObligationsMaturity of Debt ObligationsMaturity of Debt Obligations
July 1, 2020 to December 31, 2020$—  $—  $—  $—  
2021—  —  5,982  5,982  
April 1, 2021 to December 31, 2021April 1, 2021 to December 31, 2021$$$
2022202240,000  —  281  40,281  20222,199 2,199 
2023202340,000  8,500  —  48,500  2023
2024202440,000  —  18,328  58,328  202419,130 19,130 
20252025
20262026
ThereafterThereafter80,000  —  39,035  119,035  Thereafter145,000 39,035 184,035 
Total PaymentsTotal Payments200,000  8,500  63,626  272,126  Total Payments145,000 60,364 205,364 
Unamortized discounts & deferred financing costsUnamortized discounts & deferred financing costs(15,324) (143) (318) (15,785) Unamortized discounts & deferred financing costs(19,278)(293)(19,571)
Total Debt ObligationsTotal Debt Obligations$184,676  $8,357  $63,308  $256,341  Total Debt Obligations$125,722 $60,071 $185,793 
Debt Securities2020 Credit Agreement
In connection withOn September 25, 2020, Sculptor Capital LP, as borrower, (the “Borrower”), and certain other subsidiaries of the Recapitalization, the Sculptor Operating Partnerships, eachCompany, as a borrower,guarantors, entered into an unsecured senior subordinated term loana credit and guaranty agreement (the “Subordinated“2020 Credit Agreement”) under which $200.0, consisting of (i) a senior secured term loan facility in an initial aggregate principal amount of $320.0 million (the “2020 Term Loan”) and (ii) a senior secured revolving credit facility in an initial aggregate principal amount of $25.0 million (the “2020 Revolving Credit Facility”). The proceeds from the 2020 Term Loan were first allocated to the full fair value of the warrants issued in connection with the 2020 Credit Agreement (which establishes both a liability and a debt discount, as described below), and the residual proceeds, net of deferred offering costs and discounts, of $275.8 million was then recognized as the initial carrying value of the 2020 Term Loan. In the three months ended March 31, 2021, the Company repaid $174.4 million of Debt Securities were issuedthe 2020 Term Loan, resulting in exchange for an equal amountoutstanding balance of 2016 Preferred Units.$145.0 million, which is due at maturity. The Debt SecuritiesCompany recognized a $23.7 million loss on this retirement of debt. As a result of the $175.0 million of aggregate prepayments made through March 31, 2021, the Company is no longer subject to the cash sweep or financial maintenance covenants, other than the covenant requiring $20.0 billion minimum fee-paying assets under management described below.
The 2020 Term Loan and the 2020 Revolving Credit Facility mature on the earlier of (i) the fifthseventh and sixth anniversary, respectively, of the dateinitial funding of the 2020 Term Loan, which occurred on which all obligations underNovember 13, 2020 (the “Closing Date”). Proceeds from the 2020 Term Loan, together with cash on hand, were used to repay the Debt Securities and the 2018 Term Loan, as well as to redeem the 2019 Preferred Unit Designations have been paidUnits in full and (ii) April 1, 2026.full.
As of February 1,Borrowings under the 2020 the Debt SecuritiesCredit Agreement bear interest at a per annum rate equal to, at the borrower’sCompany’s option, one, two, three or six-month (or twelve-month with the consent of each lender)six month LIBOR (subject to a 0.75% floor) plus 4.75%6.25%, or a base rate (subject to a 1.75% floor) plus 3.75%5.25%. Commencing onThe Borrower is also required to pay an undrawn commitment fee at a rate per annum equal to 0.50% of the earlierundrawn portion of (i) the first2020 Revolving Credit Facility.
Certain prepayments of the 2020 Term Loan are subject to a prepayment premium (the “Call Premium”) equal to (a) prior to the second anniversary of the date on which all 2019 Preferred Units are paid in full and (ii) March 31, 2022, the Debt Securities amortize in quarterly installments each inClosing Date, a principal amountcustomary “make-whole” premium equal to 5%the present value of all required interest payments that would be due from the date of prepayment through and including the second anniversary of the aggregateClosing Date plus a premium of 3.0% of the principal amount of loans prepaid, (b) on or after the Debt Securitiessecond anniversary of the applicable borrower onClosing Date but prior to the effective datethird anniversary of the Subordinated Credit AgreementClosing Date, a premium of 3.0% of the principal amount of loans prepaid, (c) on or in the case of incremental Debt Securities of such borrower, the date 2019 Preferred Units are exchanged for incremental Debt Securities; provided that in no event shall amortization payments in any fiscal year be required to exceed $40.0 million.
For a period of nine months after the repaymentthird anniversary of the 2019 Preferred Units,Closing Date but prior to the borrowers will have the option to voluntarily repay the initial Debt Securities at a 5% discount.
The Subordinated Credit Agreement contains customary representations and warranties and covenants for a transaction of this type and financial covenants consistent with those described below for the 2018 Term Loan. The Subordinated Credit Agreement also requires prepayment of loans under the 2018 Term Loan and the 2019 Preferred Units in accordance with the Cash Sweep, and restricts the incurrence of indebtedness for borrowed money and certain liens, in each case subject to exceptions set forth in the Implementing Agreements.
The Subordinated Credit Agreement contains customary events of default for a transaction of this type and is based on substantially the same terms as the 2018 Term Loan. If an event of default under the Subordinated Credit Agreement occurs and is continuing, then, at the request (or with the consent)four anniversary of the lenders holdingClosing Date, a majoritypremium of the Debt Securities, upon notice by the Subordinated Credit Agreement Administrative Agent to the borrowers, the obligations under the Subordinated Credit Agreement shall become immediately due and payable. In addition, if the Sculptor Operating Partnerships or any of their material subsidiaries become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Subordinated Credit Agreement will automatically become immediately due and payable.2.0%
2625


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

2018 Term Loanof the principal amount of loans prepaid and (d) thereafter, 0%. No Call Premium was due on the first $175.0 million prepaid by the Company.
On April 10, 2018 (the “Closing Date”), Sculptor Capital LP, as borrower, (the “SeniorThe 2020 Credit Agreement Borrower”), and certain other subsidiaries ofprohibits the Company, as guarantors, entered into a senior secured credit and guaranty agreement (the “Senior Credit Agreement”) consisting of (i) a $250.0 million term loan facility (the “2018 Term Loan”) and (ii) a $100.0 million revolving credit facility (the “2018 Revolving Credit Facility”). Effective as of February 7, 2019, the Company terminated in full the commitments under the 2018 Revolving Credit Facility. At the time of such termination, no borrowings were outstanding under the 2018 Revolving Credit Facility.
In connection with the Recapitalization, the Company entered into Amendment No. 1 (the “Senior Credit Agreement Amendment”) to the Senior Credit Agreement (the Senior Credit Agreement, as amended by the Senior Credit Agreement Amendment, the “Amended Senior Credit Agreement”). In accordance with the Amended Senior Credit Agreement, indebtedness outstanding under the 2018 Term Loan will be payable in accordance with the provisions of the Cash Sweep described in Note 3. The 2018 Term Loan matures April 10, 2023. The maturity date of the 2018 Term Loan may be extended pursuant to the terms of the Amended Senior Credit Agreement. As of June 30, 2020, $8.5 million remained outstanding under the 2018 Term Loan. In accordance with the Cash Sweep, the Company repaid an additional $36.5 million during the first half of 2020.
The 2018 Term Loan bears interest at a per annum rate equal to, at the Company’s option, one, three or six months (or twelve months with the consent of each lender) LIBOR plus 4.75%, or a base rate plus 3.75%. Prior to the termination of the 2018 Revolving Credit Facility in February 2019, the Company was required to pay an undrawn commitment fee at a rate per annum equal to 0.20% to 0.75% of the undrawn portion of the commitments under the 2018 Revolving Credit Facility, computed on a daily basis.
The obligations under the Amended Senior Credit Agreement are guaranteed by the Sculptor Operating Partnerships and are secured by a lien on substantially all of the Sculptor Operating Partnerships’ assets, subject to certain exclusions.
The Amended Senior Credit Agreement contains two financial maintenance covenants. The first financial maintenance covenant states that the Company’s total fee-paying assets under management, subject to certain exclusions, of the Borrower, the guarantors and their consolidated subsidiaries as of the last day of any fiscal quarter must be greater than $20.0 billion, and the second states that the total net leverage ratio (as defined in the Amended Senior Credit Agreement, which excludes the Debt Securities) as of the last day of any fiscal quarter mustto be less than (i) 3.00 to 1.00, or (ii) following the third anniversary of the Closing Date, 2.50 to 1.00. As of June 30,$20.0 billion. The 2020 the Company was in compliance with the financial maintenance covenants.
The Amended Senior Credit Agreement requires compliance with the provisions of the Implementing Agreements that impose restrictions on distributions, including certain tax distributions, during the Distribution Holiday, requiring prepayment of loans under the Amended Senior Credit Agreement with excess cash above a certain threshold, and restricting the incurrence of indebtedness for borrowed money and certain liens, in each case subject to exceptions set forth in the Implementing Agreements.
In the event the Amended Senior Credit Agreement remains outstanding on or after March 31, 2022, the Amended Senior Credit Facility allows for the issuance of an additional $200.0 million of incremental Debt Securities in exchange for the remaining Preferred Units at that time. The Amended Senior Credit Agreement also allows restricted payments for preferred dividends of up to $12.0 million per year.
The Amended Senior Credit Agreement contains customary events of default. If an eventdefault for a transaction of this type, after which obligations under the 2020 Credit Agreement may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default underinvolving the Amended Senior Credit Agreement occurs and is continuing, then, atBorrower, the request (or with the consent)guarantors or any of the lenders holding a majoritymaterial subsidiaries of the commitments and loans, upon notice by the administrative agent to the Senior Credit Agreement Borrower,foregoing after which the obligations under the Amended Senior2020 Credit Agreement shall become immediately due and payable. In addition, if the Senior Credit Agreement Borrower or any of its material subsidiaries becomes the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Amended Senior Credit Agreement will automatically become immediately due and payable.
27


Warrants
SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,In connection with the 2020

Credit Agreement, the Company has issued and outstanding warrants to purchase 4,338,015 Class A Shares. The warrants have a 10-year term from the Closing Date and an initial exercise price per share equal to $11.93. The exercise price is subject to reduction by an amount equal to any dividends paid on Class A Shares. As a result, the exercise price was $9.58 per share as of March 31, 2021. The warrants provide for customary adjustments in the event of a stock split, stock dividend, recapitalization or similar event. In lieu of making a cash payment otherwise contemplated upon exercise, the holder may exercise the warrants in whole or in part to receive a net number of Class A Shares. In addition, one of the warrants provides that, upon exercise in whole or in part by the holder, the Company may decide in its sole discretion whether the holder’s exercise of such warrant will be settled by delivery of Class A Shares (which shares may be reduced to a net number of Class A Shares in accordance with the procedure described in the preceding sentence) or by the Company’s payment to the holder of an amount in cash equal to the Black-Scholes value as provided for in the applicable warrant agreement. If the Company undergoes a change of control prior to the expiration date, the holder will have the right to require the Company to repurchase any remaining portion of the warrants not yet exercised at their Black-Scholes value as provided for in the applicable agreement. The warrants restrict transfers and other dispositions for 18 months from the Closing Date, subject to certain exceptions.
CLO Investments Loans
The Company entered into loans to finance portions of investments in certain CLOs (collectively, the “CLO Investments Loans”). In general, the Company will make interest and principal payments on the loans at such time interest payments are received on its investments in the CLOs, and will make principal payments on the loans to the extent principal payments are received on its investments in the CLOs, with any remaining balance due upon maturity.
The loans are subject to customary events of default and covenants and also include terms that require the Company’s continued involvement with the CLOs. In addition to customary events of default included in financing arrangements of this type, an event of default would also be triggered in the event thatif there is an event of default at the CLO level. Prior to the relevant CLO’s maturity date, this would include certain material covenant breaches, regulatory and insolvency events for the relevant CLO issuer, as well as a payment default, where the relevant CLO is unable to make interest payments on the senior, non-deferrable interest notes issued by the CLO. The CLO Investments Loans do not have any financial maintenance covenants and are secured by the related investments in CLOs, which investments had fair values of $62.6$66.0 million and $65.9$66.5 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
26


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

Carrying amounts presented in the table below are net of discounts, if any, and unamortized deferred financing costs. The interest rates on the CLO Investments Loans are variable based on LIBOR or EURIBOR (subject to a floor of zero percent). The maturity date for each CLO Investments Loan is the earlier of the final maturity date presented in the table below or the date at which the Company no longer holds a risk retention investment in the respective CLO.
Initial Borrowing DateInitial Borrowing DateContractual RateFinal Maturity DateCarrying ValueInitial Borrowing DateContractual RateFinal Maturity DateCarrying Value
June 30, 2020December 31, 2019March 31, 2021December 31, 2020
(dollars in thousands)(dollars in thousands)
June 7, 2017June 7, 2017LIBOR plus 1.48%November 16, 2029$17,190  $17,245  June 7, 2017LIBOR plus 1.48%November 16, 2029$17,205 $17,200 
August 2, 2017August 2, 2017LIBOR plus 1.41%January 21, 203021,581  21,679  August 2, 2017LIBOR plus 1.41%January 21, 203021,585 21,584 
September 14, 2017September 14, 2017EURIBOR plus 2.21%September 14, 202418,274  18,237  September 14, 2017EURIBOR plus 2.21%September 14, 202419,082 19,868 
August 1, 2019EURIBOR plus 1.15%June 29, 20215,982  3,464  
February 27, 2020February 27, 2020EURIBOR plus 0.80%January 11, 2022281  —  February 27, 2020EURIBOR plus 0.80%January 11, 20222,199 505 
$63,308  $60,625  $60,071 $59,157 

9.8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
On May 29, 2018, theThe Company entered intohas a €100.0€200.0 million master credit facility agreement (the “CLO Financing Facility”) to finance a portionportions of the risk retention investments in certain European CLOs managed by the Company. Subject to the terms and conditions of the CLO Financing Facility, the Company and the counterparty may enter into repurchase agreements on such terms agreed upon by the parties. Each transaction entered into under the CLO Financing Facility will bear interest at a rate based on the weighted average effective interest rate of each class of securities that have been sold plus a spread to be agreed upon by the parties. As of June 30, 2020, €12.3March 31, 2021, €98.8 million of the CLO Financing Facility remained available.
Each transaction entered into under the CLO Financing Facility provides for payment netting and, in the case of a default or similar event with respect to the counterparty to the CLO Financing Facility, provides for netting across transactions. Generally, upon a counterparty default, the Company can terminate all transactions under the CLO Financing Facility and offset amounts it owes in respect of any one transaction against collateral it has received in respect of any other transactions under the CLO Financing Facility; provided, however, that in the case of certain defaults, the Company may only be able to terminate and offset solely with respect to the transaction affected by the default. During the term of a transaction entered into under the CLO Financing Facility, the Company will deliver cash or additional securities acceptable to the counterparty if the securities sold are in default. In addition to customary events of default included in financing arrangements of this type, an event of default would also be triggered in the event thatif there is an event of default at the CLO level. Prior to the relevant CLO’s maturity date, this would
28


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

include certain material covenant breaches, regulatory and insolvency events for the relevant CLO issuer, as well as a payment default where the relevant CLO is unable to make interest payments on the senior, non-deferrable interest notes issued by the CLO. Upon termination of a transaction, the Company will repurchase the previously sold securities from the counterparty at a previously determined repurchase price. The CLO Financing Facility may be terminated at any time upon certain defaults or circumstances agreed upon by the parties.
The repurchase agreements may result in credit exposure in the event the counterparty to the transaction is unable to fulfill its contractual obligations. The Company minimizes the credit risk associated with these activities by monitoring counterparty credit exposure and collateral values. Other than margin requirements, the Company is not subject to additional terms or contingencies which would expose the Company to additional obligations based upon the performance of the securities pledged as collateral.
27


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

The table below presents securities sold under agreements to repurchase that are offset, if any, as well as securities transferred to counterparties related to such transactions (capped so that the net amount presented will not be reduced below zero). No other material financial instruments were subject to master netting agreements or other similar agreements:
Securities Sold under Agreements to RepurchaseGross Amounts of Recognized LiabilitiesGross Amounts Offset in the Consolidated Balance SheetNet Amounts of Liabilities in the Consolidated Balance SheetSecurities TransferredNet Amount
 (dollars in thousands)
As of June 30, 2020$97,670  $—  $97,670  $96,505  $1,165  
As of December 31, 2019$97,508  $—  $97,508  $97,508  $—  
Securities Sold under Agreements to RepurchaseGross Amounts of Recognized LiabilitiesGross Amounts Offset in the Consolidated Balance SheetNet Amounts of Liabilities in the Consolidated Balance SheetSecurities TransferredNet Amount
 (dollars in thousands)
As of March 31, 2021$117,780 $$117,780 $117,780 $
As of December 31, 2020$122,638 $$122,638 $122,638 $
The securities sold under agreements to repurchase have a set scheduled maturity date that corresponds to the maturities of the securities sold under such transaction. The table below presents the remaining final contractual maturity of the securities sold under agreement to repurchase by class of collateral pledged:
Investments in CLOs
Securities Sold under Agreements to RepurchaseOvernight and ContinuousUp to 30 Days30-90 DaysGreater Than 90 DaysTotal
(dollars in thousands)
As of June 30, 2020$—  $—  $—  $97,670  $97,670  
As of December 31, 2019$—  $—  $—  $97,508  $97,508  
Investments in CLOs
Securities Sold under Agreements to RepurchaseOvernight and ContinuousUp to 30 Days30-90 DaysGreater Than 90 DaysTotal
(dollars in thousands)
As of March 31, 2021$$$$117,780 $117,780 
As of December 31, 2020$$$$122,638 $122,638 

10. PREFERRED UNITS
2019 Preferred Units
Pursuant to the 2019 Preferred Unit Designations, the Sculptor Operating Partnerships issued 2019 Preferred Units with an aggregate liquidation preference of $200.0 million, in exchange for $200.0 million of the 2016 Preferred Units. Other than following the occurrence of a Discount Termination Event (as defined in the 2019 Preferred Unit Designations), the Sculptor Operating Partnerships have the option to redeem the 2019 Preferred Units at a 25% discount until March 31, 2021, and then at a 10% discount at any time between April 1, 2021 and March 30, 2022. Any mandatory payments as a result of the Cash Sweep will be entitled to the same discount. To the extent that the 2019 Preferred Units are not repaid in full prior to March 31, 2022, at the option of the holder thereof, all or any portion of the 2019 Preferred Units will be converted into Debt Securities in an aggregate principal amount equal to the Liquidation Value (as defined below) of such 2019 Preferred Units, with such Debt Securities having the same terms as the existing $200.0 million of Debt Securities.
29


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

Pursuant to the 2019 Preferred Unit Designations, distributions on the 2019 Preferred Units were payable on the liquidation preference amount on a cumulative basis at an initial distribution rate of 0% per annum until February 19, 2020 (the “Step Up Date”), after which the distribution rate increased to 6% per annum from the Step Up Date until the sixth anniversary of the Step Up Date, then continue to increase in stages thereafter to a maximum of 10% per annum on and after the eighth anniversary of the Step Up Date. The Company has the option to defer distributions on the 2019 Preferred Units, in which case such amount is added to the redemption value of the 2019 Preferred Units and such amounts would also be eligible for the redemption discount described above. The Company elected to do so for each of the payments due in the first half of 2020.
Following the occurrence of a change of control event, the Sculptor Operating Partnerships will redeem the 2019 Preferred Units at a redemption price equal to the liquidation preference plus all accumulated but unpaid distributions (collectively, the “Liquidation Value”). If the Sculptor Operating Partnerships fail to redeem all of the outstanding 2019 Preferred Units after such change of control event, the distribution rate will increase by 7% per annum, beginning on the 31st day following such event. Pursuant to the 2019 Preferred Unit Designations, the Sculptor Operating Partnerships will not be required to effect such redemption until the earlier of (i) the date that is 20 days following such change of control event and (ii) the payment in full of all loans and other obligations and the termination of all commitments under the 2018 Term Loan.
From and after March 31, 2022, if the amounts distributed to partners of the Sculptor Operating Partnerships in respect of their equity interests in the Sculptor Operating Partnerships (other than amounts distributed in respect of tax distributions or certain other distributions) or used for repurchase of units by such entities (or which were available but not used for such purposes) for the immediately preceding fiscal year exceed $100.0 million in the aggregate, then an amount equal to 20% of such excess shall be used to redeem the 2019 Preferred Units on a pro rata basis at a redemption price equal to the Liquidation Value. Furthermore, if the average closing price of the Company’s Class A Shares exceeds $150.00 per share for the previous 20 trading days from and after the Recapitalization Closing, the Sculptor Operating Partnerships have agreed to use their reasonable best efforts to redeem all of the outstanding 2019 Preferred Units as promptly as practicable. If such event occurs prior to the maturity date of the 2018 Term Loan and all obligations under the 2018 Term Loan have not been prepaid in accordance with the terms thereof, the Company has agreed to use its reasonable best efforts to obtain consents from its lenders in order to redeem the 2019 Preferred Units as promptly as practicable.
11.9. OTHER ASSETS, NET
The following table presents the components of other assets, net as reported in the consolidated balance sheets:
June 30, 2020December 31, 2019March 31, 2021December 31, 2020
(dollars in thousands)(dollars in thousands)
Fixed Assets:Fixed Assets:  Fixed Assets:  
Leasehold improvements Leasehold improvements$52,798  $52,798   Leasehold improvements$52,443 $52,801 
Computer hardware and software Computer hardware and software48,345  47,361   Computer hardware and software52,870 50,085 
Furniture, fixtures and equipment Furniture, fixtures and equipment8,411  8,411   Furniture, fixtures and equipment8,411 8,411 
Accumulated depreciation and amortization Accumulated depreciation and amortization(77,336) (73,730)  Accumulated depreciation and amortization(81,310)(80,833)
Fixed assets, netFixed assets, net32,218  34,840  Fixed assets, net32,414 30,464 
GoodwillGoodwill22,691  22,691  Goodwill22,691 22,691 
Prepaid expensesPrepaid expenses16,766  18,507  Prepaid expenses16,812 19,229 
OtherOther4,848  6,570  Other8,096 10,116 
Total Other Assets, NetTotal Other Assets, Net$76,523  $82,608  Total Other Assets, Net$80,013 $82,500 

3028


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

12.10. OTHER LIABILITIES
The following table presents the components of other liabilities as reported in the consolidated balance sheets:
June 30, 2020December 31, 2019 March 31, 2021December 31, 2020
(dollars in thousands) (dollars in thousands)
Legal provisions$136,000  $19,100  
Accrued expensesAccrued expenses14,142  19,275  Accrued expenses$12,452 $16,904 
Uncertain tax positionsUncertain tax positions8,250  8,250  Uncertain tax positions8,250 8,250 
Unused trade commissionsUnused trade commissions4,765  5,192  Unused trade commissions3,503 3,494 
OtherOther6,667  7,400  Other7,947 10,864 
Total Other LiabilitiesTotal Other Liabilities$169,824  $59,217  Total Other Liabilities$32,152 $39,512 

13.11. REVENUES
The following table presents management fees and incentive income recognized as revenues for the three months ended June 30, 2020March 31, 2021 and 2019:2020:
Three Months Ended March 31,
Three Months Ended June 30, 2020Three Months Ended June 30, 201920212020
Management FeesIncentive IncomeManagement FeesIncentive IncomeManagement FeesIncentive IncomeManagement FeesIncentive Income
(dollars in thousands)(dollars in thousands)
Multi-strategy fundsMulti-strategy funds$29,214  $34,540  $34,219  $30,800  Multi-strategy funds$36,348 $25,984 $32,373 $1,824 
CreditCreditCredit
Opportunistic credit funds Opportunistic credit funds11,233  2,750  10,704  2,069   Opportunistic credit funds13,247 8,767 9,563 4,670 
Institutional Credit Strategies Institutional Credit Strategies8,085  —  13,848  —   Institutional Credit Strategies15,103 15,266 
Real estate fundsReal estate funds11,851  948  2,417  1,888  Real estate funds9,263 13,053 9,743 2,828 
OtherOther—  —  212  —  Other
TotalTotal$60,383  $38,238  $61,400  $34,757  Total$73,961 $47,804 $66,953 $9,322 
3129


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

The following table presents management fees and incentive income recognized as revenues for the six months ended June 30, 2020 and 2019:
Six Months Ended June 30, 2020Six Months Ended June 30, 2019
Management FeesIncentive IncomeManagement FeesIncentive Income
(dollars in thousands)
Multi-strategy funds$61,587  $36,364  $68,600  $45,784  
Credit
    Opportunistic credit funds20,796  7,420  21,139  32,989  
    Institutional Credit Strategies23,351  —  27,571  —  
Real estate funds21,594  3,776  7,249  9,182  
Other —  464  —  
Total$127,336  $47,560  $125,023  $87,955  
A liability for unearned incentive income is generally recognized when the Company receives incentive income distributions from its funds, primarily its real estate funds, whereby the distributions received have not yet met the recognition thresholdcomposition of being probable that a significant reversal of cumulative revenue will not occur. The following table presents the activity in the Company’s unearned incentive income for the six months ended June 30, 2020 and 2019:fees receivable as of March 31, 2021 and December 31, 2020:
Six Months Ended June 30,
20202019
(dollars in thousands)
Beginning of Period$60,798  $61,397  
Amounts collected during the period5,235  11,338  
Amounts recognized during the period(1,426) (6,427) 
End of Period$64,607  $66,308  
March 31, 2021December 31, 2020
(dollars in thousands)
Management fees$23,516 $25,937 
Incentive income58,782 513,686 
Income and Fees Receivable$82,298 $539,623 
The Company recognizes management fees over the period in which the performance obligation is satisfied. The Company records incentive income when it is probable that a significant reversal of income will not occur. The majority of management fees and incentive income receivable at each balance sheet date is generally collected during the following quarter.
The following table presents the composition of the Company’s unearned income and fees receivable as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
June 30, 2020December 31, 2019
March 31, 2021December 31, 2020
(dollars in thousands)(dollars in thousands)
Management feesManagement fees$35,806  $25,726  Management fees$809 $78 
Incentive incomeIncentive income37,298  189,669  Incentive income56,661 61,802 
Income and Fees Receivable$73,104  $215,395  
Unearned Income and FeesUnearned Income and Fees$57,470 $61,880 

A liability for unearned incentive income is generally recognized when the Company receives incentive income distributions from its funds, primarily its real estate funds, whereby the distributions received have not yet met the recognition threshold of being probable that a significant reversal of cumulative revenue will not occur. A liability for unearned management fees is generally recognized when management fees are paid to the Company on a quarterly basis in advance, based on the amount of assets under management at the beginning of the quarter. In the three months ended March 31, 2021, and 2020, the Company recognized $9.8 million and $2.1 million, respectively, of the beginning balance of unearned incentive income for each respective year. The Company recognized all of the beginning balances of unearned management fees during the respective quarter.
14.12. INCOME TAXES
The computation of the effective tax rate and provision at each interim period requires the use of certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of
32


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

income earned and taxed in foreign jurisdictions, permanent differences, and the likelihood of recovering deferred tax assets existing as of the balance sheet date. The estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as tax laws and regulations change. Accordingly, the effective tax rate for interim periods is not indicative of the tax rate expected for a full year.
The Sculptor Operating Partnerships are partnerships for U.S. federal income tax purposes. The Registrant was a partnership for U.S. federal income tax purposes until the Corporate Classification Change on April 1, 2019. Prior to the Corporate Classification Change, only a portion of the income the Company earned has been subject to corporate-level income taxes in the United States and foreign jurisdictions. Following the Corporate Classification Change, generally all of the income the Registrant earns will be subject to corporate-level income taxes in the United States allowing us to realize a portion of our deferred tax assets on an accelerated basis as compared to under our prior structure.
30


The Company’s income tax provision and related income tax assets and liabilities are based on, among other things, an estimate of the impact of the Corporate Classification Change, inclusive of an analysis of tax basis and state tax implications of certain partnerships and their underlying assets and liabilities as of April 1, 2019. The Company’s estimate is based on the most recent information available; however, the impact of the conversion cannot be finally determined until the Company’s 2019 tax returns have been finalized. The Company does not currently expect such information to become available until the fourth quarter of 2020. The tax basis and state impact of the partnerships and their underlying assets and liabilities are based on estimates subject to finalization of the Company’s tax returns, and the impact of the Corporate Classification Change may differ, possibly materially, from the current estimates described herein.SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

The following is a reconciliation of the statutory U.S. federal income tax rate to the Company’s effective income tax rate: 
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,
2020201920202019 20212020
Statutory U.S. federal income tax rateStatutory U.S. federal income tax rate21.00 %21.00 %21.00 %21.00 %Statutory U.S. federal income tax rate21.00 %21.00 %
Income passed through to noncontrolling interestsIncome passed through to noncontrolling interests4.76 %15.38 %-1.22 %19.02 %Income passed through to noncontrolling interests0.24 %-9.04 %
Nondeductible transaction costs— %-2.85 %— %-23.15 %
Tax effects of income recorded to equity in connection with the Recapitalization— %— %— %17.18 %
Foreign income taxesForeign income taxes-4.70 %-34.29 %-0.93 %-25.05 %Foreign income taxes-3.16 %3.99 %
RSU excess income tax benefit or expenseRSU excess income tax benefit or expense-0.45 %-15.57 %0.01 %-17.32 %RSU excess income tax benefit or expense-2.02 %0.63 %
State and local income taxesState and local income taxes5.60 %-160.11 %3.80 %-73.23 %State and local income taxes1.59 %1.44 %
Income not subject to entity level tax— %— %— %4.64 %
Nondeductible amortization of Partner Equity UnitsNondeductible amortization of Partner Equity Units-3.00 %-94.00 %-2.70 %-73.80 %Nondeductible amortization of Partner Equity Units-1.38 %-2.31 %
Nondeductible interest expenseNondeductible interest expense-0.50 %— %-0.47 %— %Nondeductible interest expense%-0.45 %
Change in fair value of warrantsChange in fair value of warrants-12.84 %%
Other, netOther, net-1.62 %6.40 %-0.68 %7.38 %Other, net0.77 %0.56 %
Effective Income Tax RateEffective Income Tax Rate21.09 %-264.04 %18.81 %-143.33 %Effective Income Tax Rate4.20 %15.82 %
The Company recognizes tax benefits for amounts that are “more likely than not” to be sustained upon examination by tax authorities. For uncertain tax positions in which the benefit to be realized does not meet the “more likely than not” threshold, the Company establishes a liability, which is included within other liabilities in the consolidated balance sheets. As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the Company had a liability for unrecognized tax benefits of $8.3 million. As of and for the sixthree months ended June 30, 2020,March 31, 2021, the Company did not accrue interest or penalties related to uncertain tax positions. As of June 30, 2020,March 31, 2021, the Company does not believe that there will be a significant change to the uncertain tax positions during the next 12 months. The Company’s total unrecognized tax benefits that, if recognized, would affect its effective tax rate wasexpense by $4.8 million as of June 30, 2020.
33
March 31, 2021.


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

15.13. GENERAL, ADMINISTRATIVE AND OTHER
The following table presents the components of general, administrative and other expenses as reported in the consolidated statements of comprehensive income (loss):operations:
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,
2020201920202019 20212020
(dollars in thousands) (dollars in thousands)
Occupancy and equipmentOccupancy and equipment$7,531  $7,524  $15,136  $15,108  Occupancy and equipment$8,032 $7,605 
Information processing and communicationsInformation processing and communications5,634  5,488  10,658  10,850  Information processing and communications5,357 5,024 
Professional servicesProfessional services5,196  6,730  14,945  21,690  Professional services4,428 9,749 
Recurring placement and related service feesRecurring placement and related service fees3,680  3,503  10,172  6,845  Recurring placement and related service fees4,351 6,492 
InsuranceInsurance2,126  2,172  4,256  4,324  Insurance2,222 2,130 
Business developmentBusiness development303  859  1,363  1,957  Business development152 1,060 
Foreign exchange gains(281) (402) (310) (354) 
Other expensesOther expenses1,526  2,553  4,201  5,795  Other expenses3,053 2,675 
25,715  28,427  60,421  66,215  27,595 34,735 
Legal provisions116,900  —  116,900  —  
Foreign currency transaction gainsForeign currency transaction gains(219)(29)
Total General, Administrative and OtherTotal General, Administrative and Other$142,615  $28,427  $177,321  $66,215  Total General, Administrative and Other$27,376 $34,706 

31
16. (LOSS) EARNINGS


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

14. LOSS PER CLASS A SHARE
Basic (loss) earningsloss per Class A Share is computed by dividing the net (loss) incomeloss attributable to Class A Shareholders by the weighted-average number of Class A Shares outstanding for the period.
For the three months ended June 30,March 31, 2021 and 2020, and 2019, the Company included 557,070232,235 and 164,777566,136 RSUs respectively, that have vested but have not been settled in Class A Shares in the weighted-average Class A Shares outstanding used to calculate basic and diluted (loss) earnings per Class A Share. For the six months ended June 30, 2020 and 2019, the Company included 561,603 and 174,461 RSUs respectively, that have vested but have not been settled in Class A Shares in the weighted-average Class A Shares outstanding used to calculate basic and diluted (loss) earningsloss per Class A Share.
When calculating dilutive (loss) earningsloss per Class A Share, the Company applies the treasury stock method to outstanding warrants and unvested RSUs andRSUs. At the Sculptor Operating Group Level, the Company applies the if-converted method to vested Group A Units and vested Group E Units. TheFor unvested Group A Units and unvested Group E Units, the Company applies the treasury stock method first to unvested Group A Units and Group E Units anddetermine the if-converted method on the resulting number of incremental units that would be issued.issuable and then applies the if-converted method to those resulting incremental units. The Company did not include the Group P Units or PSUs in the calculationscalculation of dilutive earnings (loss) earnings per Class A Share, as the applicable market performance conditions havehad not yet been met as of June 30, 2020.the end of each reporting period presented below. The effect of dilutive securities on net income (loss) attributable to Class A Shareholders is presented net of tax.
The following tables present the computation of basic and diluted loss per Class A Share:
Three Months Ended March 31, 2021Net Loss Attributable to Class A ShareholdersWeighted- Average Class A Shares OutstandingLoss Per Class A ShareNumber of Antidilutive Units and Warrants Excluded from Diluted Calculation
 (dollars in thousands, except per share amounts)
Basic$(20,293)23,853,428 $(0.85)
Effect of dilutive securities:
Group A Units(19,362)16,019,506 
Group E Units13,012,857 
RSUs3,702,394 
Warrants2,237,743 
Diluted$(39,655)39,872,934 $(0.99)

Three Months Ended March 31, 2020Net Loss Attributable to Class A ShareholdersWeighted- Average Class A Shares OutstandingLoss Per Class A ShareNumber of Antidilutive Units Excluded from Diluted Calculation
 (dollars in thousands, except per share amounts)
Basic$(28,267)22,304,713 $(1.27)
Effect of dilutive securities:
Group A Units(20,416)16,014,635 
Group E Units13,450,821 
RSUs4,169,785 
Diluted$(48,683)38,319,348 $(1.27)

3432


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

The following tables present the computation of basic and diluted (loss) earnings per Class A Share:
Three Months Ended June 30, 2020Net Loss Attributable to Class A ShareholdersWeighted- Average Class A Shares OutstandingLoss Per Class A ShareNumber of Antidilutive Units Excluded from Diluted Calculation
(dollars in thousands, except per share amounts)
Basic$(25,239) 22,590,084  $(1.12) 
Effect of dilutive securities:
Group A Units(42,982) 16,019,506  —  
Group E Units—  —  13,450,821  
RSUs—  —  4,278,779  
Diluted$(68,221) 38,609,590  $(1.77) 

Three Months Ended June 30, 2019Net Loss Attributable to Class A ShareholdersWeighted- Average Class A Shares OutstandingLoss Per Class A ShareNumber of Antidilutive Units Excluded from Diluted Calculation
(dollars in thousands, except per share amounts)
Basic$(8,625) $20,722,510  $(0.42) 
Effect of dilutive securities:
Group A Units(8,146) 15,991,502  —  
Group E Units—  —  13,541,818  
RSUs—  —  4,882,433  
Diluted$(16,771) $36,714,012  $(0.46) 
Six Months Ended June 30, 2020Net Loss Attributable to Class A ShareholdersWeighted- Average Class A Shares OutstandingLoss Per Class A ShareNumber of Antidilutive Units Excluded from Diluted Calculation
 (dollars in thousands, except per share amounts)
Basic$(53,506) 22,447,399  $(2.38) 
Effect of dilutive securities:
Group A Units(63,398) 16,017,071  —  
Group E Units—  —  13,450,821  
RSUs—  —  4,224,282  
Diluted$(116,904) 38,464,470  $(3.04) 

35


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

Six Months Ended June 30, 2019Net Income Attributable to Class A ShareholdersWeighted- Average Class A Shares OutstandingEarnings Per Class A ShareNumber of Antidilutive Units Excluded from Diluted Calculation
 (dollars in thousands, except per share amounts)
Basic$28,458  20,599,616  $1.38  
Effect of dilutive securities:
Group A Units—  —  18,018,619  
Group E Units—  5,291,581  —  
RSUs—  50,908  —  
Diluted$28,458  25,942,105  $1.10  

17.15. RELATED PARTY TRANSACTIONS
Due from Related Parties
Amounts due from related parties relate primarily to amounts due from the funds for expenses paid on their behalf. These amounts are reimbursed to the Company on an ongoing basis.
Due to Related Parties
Amounts due to related parties relate primarily to future payments owed to current and former executive managing directors and Ziff Investors Partnership, L.P. II and certain of its affiliates and control persons (the “Ziffs”) under the tax receivable agreement, as discussed further in Note 18.16. The Company made payments totaling $7.2 million, and $18.2 million under the tax receivable agreement (inclusive of interest thereon) in the six months ended June 30, 2020. No payments were made in the three months ended June 30,March 31, 2021 and 2020, and three and six months ended June 30, 2019.respectively.
Management Fees and Incentive Income Earned from Related Parties and Waived Fees
The Company earns substantially all of its management fees and incentive income from the funds, which are considered related parties as the Company manages the operations of and makes investment decisions for these funds.
As of June 30,March 31, 2021 and 2020, and 2019, respectively, approximately $929.2$916.6 million and $1.1 billion$869.8 million of the Company’s assets under management represented investments by the Company, its executive managing directors, employees and certain other related parties in the Company’s funds. As of June 30,March 31, 2021 and 2020, approximately 52% and 2019, approximately 48% and 30%43%, respectively, of these assets under management were not charged management fees or incentive income. The following table presents management fees and incentive income charged on investments held by the Company’s executive managing directors, employees and certain other related parties:
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,
2020201920202019 20212020
(dollars in thousands)(dollars in thousands)
Fees charged on investments held by related parties:Fees charged on investments held by related parties:   Fees charged on investments held by related parties:  
Management feesManagement fees$833  $1,671  $1,899  $4,396  Management fees$972 $1,066 
Incentive incomeIncentive income$94  $3,207  $431  $4,768  Incentive income$1,979 $337 
OtherCommitment to Purchase Interest in BharCap Sponsor LLC.
In March 2021, the Company committed to acquire a non-controlling membership interest of BharCap Sponsor LLC, an entity managed by a member of the Company’s board of directors. In connection with the Recapitalization,anticipated initial public offering of BharCap Acquisition Corp., a newly organized blank check company, BharCap Sponsor LLC purchased shares of BharCap Acquisition Corp.’s Class B common stock and has committed to purchase warrants in a private placement that will close simultaneously with the Company paid for Mr. Och’s expenses incurred in connection with these transactions in the amount of $5.0 million, of which $4.5 million was incurred in the fourth quarter of 2018 and the remainder in
36


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

the first quarter of 2019. In addition, the Company will pay for reasonable expenses, if any, incurred by holdersclosing of the 2019 Preferred Units in connection with protecting the interests or enforcing the rightsinitial public offering of such securities.BharCap Acquisition Corp.
18.16. COMMITMENTS AND CONTINGENCIES
Tax Receivable Agreement
The purchase of Group A Units from current and former executive managing directors and the Ziffs with the proceeds from the 2007 Offerings, and subsequent taxable exchanges by them of Partner Equity Units for Class A Shares on a one-for-one basis (or, at the Company’s option, a cash equivalent), resulted, and, in the case of future exchanges, are anticipated to result, in an increase in the tax basis of the assets of the Sculptor Operating Group that would not otherwise have been available. The Company anticipates that any such tax basis adjustment resulting from an exchange will be allocated principally to certain
33


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

intangible assets of the Sculptor Operating Group, and the Company will derive its tax benefits principally through amortization of these intangibles over a 15-year period. Consequently, these tax basis adjustments will increase, for tax purposes, the Company’s depreciation and amortization expenses and will therefore reduce the amount of tax that Sculptor Corp and any other future corporate taxpaying entities that acquire Group B Units in connection with an exchange, if any, would otherwise be required to pay in the future. Accordingly, pursuant to the tax receivable agreement, such corporate taxpaying entities (including Sculptor Capital Management, Inc. once it became treated as a corporate taxpayer following the Corporate Classification Change) have agreed to pay the executive managing directors and the Ziffs a percentage of the amount of cash savings, if any, in federal, state and local income taxes in the United StatesU.S. that these entities actually realize related to their units as a result of such increases in tax basis. For tax years prior to 2019, such percentage was 85% of such annual cash savings under the tax receivable agreement.
In connection with the Recapitalization, the Company amended the tax receivable agreement to provide that, conditioned on Sculptor Capital Management, Inc. electing to be classified as, or converting into, a corporation for U.S. tax purposes, (i) no amounts are due or payable with respect to the 2017 tax year, (ii) only partial payments equal to 85% of the excess of such cash savings that would otherwise be due over 85% of such cash savings determined assuming that taxable income equals Economic Income are due and payable in respect of the 2018 tax year and (iii) the percentage of cash savings required to be paid with respect to the 2019 tax year and thereafter, as well as with respect to cash savings from subsequent exchanges, is reduced to 75%. The amendment to the tax receivable agreement was effective on April 1, 2019, the date on which the Registrant changed its tax classification from a partnership to a corporation. As a result of the amendment to the tax receivable agreement, the Company released $67.2 million of previously accrued tax receivable agreement liability, which reduced its deferred income tax assets by $16.3 million. The net impact of $51.0 million was recognized as an increase to additional paid-in capital.
In connection with the departure of certain former executive managing directors since the 2007 Offerings, the right to receive payments under the tax receivable agreement by those former executive managing directors was contributed to the Sculptor Operating Group. As a result, the Company expects to pay to the other executive managing directors and the Ziffs approximately 69% of the amount of cash savings, if any, in federal, state and local income taxes in the United StatesU.S. that the Company realizes as a result of such increases in tax basis with respect to future tax years. To the extent that the Company does not realize any cash savings, it would not be required to make corresponding payments under the tax receivable agreement.
The Company recorded its initial estimate of future payments under the tax receivable agreement as a decrease to additional paid-in capital and an increase in amounts due to related parties in the consolidated financial statements. Subsequent adjustments to the liability for future payments under the tax receivable agreement related to changes in estimated future tax rates or state income tax apportionment are recognized through current period earnings in the consolidated statements of comprehensive income (loss).operations.
The estimate of the timing and the amount of future payments under the tax receivable agreement involves several assumptions that do not account for the significant uncertainties associated with these potential payments, including an assumption that Sculptor Corp will have sufficient taxable income in the relevant tax years to utilize the tax benefits that would give rise to an obligation to make payments. The actual timing and amount of any actual payments under the tax receivable agreement will vary based upon these and a number of other factors. As of March 31, 2021, the estimated future payment under the tax receivable agreement was $182.5 million, which is recorded in due to related parties on the consolidated balance sheets.
3734


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021

agreement will vary based upon these and a number of other factors. As of June 30, 2020, the estimated future payment under the tax receivable agreement was $187.5 million, which is recorded in due to related parties on the consolidated balance sheets.
The table below presents management’s estimate as of June 30, 2020,March 31, 2021, of the maximum amounts that would be payable under the tax receivable agreement assuming that the Company will have sufficient taxable income each year to fully realize the expected tax savings. In light of the numerous factors affecting the Company’s obligation to make such payments, the timing and amounts of any such actual payments may differ materially from those presented in the table. The impact of any net operating losses is included in the “Thereafter” amount in the table below.
Potential Payments Under Tax Receivable Agreement Potential Payments Under Tax Receivable Agreement
(dollars in thousands) (dollars in thousands)
July 1, 2020 to December 31, 2020$11,796  
20211,539  
April 1, 2021 to December 31, 2021April 1, 2021 to December 31, 2021$20,037 
2022202226,069  20223,006 
2023202341,769  202326,266 
2024202440,774  202420,008 
2025202524,396 
2026202627,192 
ThereafterThereafter65,514  Thereafter61,589 
Total PaymentsTotal Payments$187,461  Total Payments$182,494 
Litigation
From time to time, the Company is involved in litigation and claims incidental to the conduct of the Company’s business. The Company is also subject to extensive scrutiny by regulatory agencies globally that have, or may in the future have, regulatory authority over the Company and its business activities. This has resulted, or may in the future result, in regulatory agency investigations, litigation and subpoenas and costs related to each.

In U.S. v. Oz Africa Management GP, LLC, Cr. No. 16-515 (NGG) (EDNY), on February 20, 2018, certain former shareholders of Africo Resources Ltd. (the “Claimants”) filed a letter withNovember 4, 2020, the U.S. District Court for the Eastern District of New York (the “Court”) stating they plan to seekordered restitution atconsistent with the sentencing hearing forterms of the settlement agreement between Oz Africa Management GP, LLC (“Oz Africa”). On August and certain former shareholders of Africo Resources Ltd. (the “Claimants”), and imposed a sentence otherwise consistent with the Plea Agreement, dated September 29, 2019, the court filed a Memorandum & Order in which it found that the claimants qualify as “victims” under the Mandatory Victims Restitution Act and directed the parties to submit briefs regarding the calculation of restitution, among other issues.
At a conference on July 23, 2020,2016, between Oz Africa the Claimants and the U.S. Department of Justice (the “DOJ”) discussed a potential settlement framework with the Honorable Nicholas Garaufis of the U.S. District Court for the Eastern District of New York. If the Court approves this framework, then settlement terms would be presented to the Court for approval. Oz Africa and the Claimants have conditionally agreed in principle on a restitution amount of $136.0 million. The proposed settlement remains subject to (i) final negotiation and signing of a formal settlement agreement, which will only be entered into if the Court approves the settlement framework; and (ii) the subsequent approval by the Court of the restitution amount.
38


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

In line with the settlement discussions, Oz Africa has recorded a $136.0 million accrual in the matter, of which $116.9 million was recorded this quarter. Prior to settlement discussions, Claimants, the DOJ and Oz Africa each submitted differing calculations relating to restitution. Claimants have taken the position that the value of the mining rights at issue to Africo Resources Ltd. (in which the Claimants were shareholders) was $421.8 million, the DOJ indicated that the value of the portion of the mining rights held by Africo Resources Ltd. could be as high as $151.5 million, but did not submit a proposed restitution figure, and Oz Africa took the view that the Claimants’ losses should be valued by the loss to the publicly-traded value of their Africo Resources Ltd. shares, which formed the basis for the Company’s previous $19.1 million accrual. If the matter is not resolved pursuant to the proposed settlement framework, it is possible that losses may exceed the currently-accrued amount.
Additionally, on January 23, 2020, the Company entered into an amendment to the Deferred Prosecution Agreement (the “DPA”) with the DOJ and the U.S. Attorney’s Office for the Eastern District of New York that extended(the “USAO”). Per the termCourt’s sentence and the settlement agreement, Oz Africa paid approximately $138.0 million to former shareholders of Africo Resources Ltd. Additionally, the Deferred Prosecution Agreement (the “DPA”) between the Company, the DOJ and the USAO was terminated shortly thereafter.
With completion of the DPA until 61 days after the entry of a final judgment by the U.S. District Court for the Eastern District of New York in the matter of U.S. v. Oz Africa Management GP, LLC, Cr. No. 16-515 (NGG) (EDNY). The amendment makes no other material changes to the DPA. The extension is based solely on the voluntary agreement of the parties and is not premised on any non-compliance byforegoing events, the Company with the DPA.has put all legal issues stemming from legacy dealings in Africa behind it.
Investment Commitments
The Company has unfunded capital commitments of $86.1$75.2 million to certain funds it manages. Approximately $60.2$52.8 million of these commitments will be funded by contributions to the Company from certain employees and executive managing directors. The Company expects to fund these commitments over the approximately next eightseven years. In addition, certain current and former executive managing directors of the Company, collectively, have unfunded capital commitments to funds managed by the Company of up to $14.9$35.3 million. The Company has guaranteed these commitments in the event any executive managing director fails to fund any portion when called by the fund. The Company has historically not funded any of these commitments and does not expect to in the future, as these commitments are expected to be funded by the Company’s executive managing directors individually.
35


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021

In addition, in March 2021, the Company committed to acquire a non-controlling membership interest of BharCap Sponsor LLC., see Note 15 for additional details.
Other Contingencies
In the normal course of business, the Company enters into contracts that provide a variety of general indemnifications. Such contracts include those with certain service providers, brokers and trading counterparties. Any exposure to the Company under these arrangements could involve future claims that may be made against the Company. Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications.
Additionally, the Company has agreements with certain of the funds it manages to reimburse certain expenses in excess of an agreed-upon cap. During the three months ended March 31, 2021 and 2020 these amounts were not material.
17. SUBSEQUENT EVENTS
Dividend
On May 5, 2021, the Company announced a cash dividend of $0.30 per Class A Share. The dividend is payable on May 25, 2021, to holders of record as of the close of business on May 18, 2021.
39
36




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the related notes included in Item 1 of this quarterly report and with our audited consolidated financial statements and the related notes included in our Annual Report. In addition, this discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described under the heading “Forward-Looking Statements” in this report, and under the heading “Item 1A. Risk Factors” in this quarterly report and in our Annual Report, and in other reports we file with the SEC, that could cause actual results to differ materially from the results describeddescribe in or implied by the forward-looking statements contained in the following discussion and analysis. An investment in our Class A Shares is not an investment in any of our funds.
Overview
COVID-19 Pandemic
In 2020, the first half of 2020, a novel strain of coronavirus (“COVID-19”)COVID-19 pandemic spread across the world, resulting in a wide-spread economic downturn. As a result, in the first quarter of 2020, our funds experienced significant performance-related depreciation, which had a negative impact on our incentive income during the first quarter of 2020. In the second quarter of 2020, we generated stronger returns across the majority of our strategies and positions that offset the majority of our first quarter losses. To the extent that we have performance-related depreciation at year-end, it could have a material impact on our ability to earn incentive income in 2020, as well as in future years until the losses are recovered for continuing fund investors.
In addition, in the first half of 2020, we experienced unrealized losses on our risk retention investments held in certain of the CLOs that we manage. While we are required to hold these investments for the entire duration of the CLOs, to the extent that cash flows in the CLOs deteriorate, we could experience declining interest income and impairments on these investments.
A portion of the management fees we earn from our CLOs is subordinated to other obligations of the CLOs, including principal and interest on the notes issued by the CLOs. When certain overcollateralization tests are triggered, cash flows received on the underlying collateral in the CLOs that would have otherwise been distributed as subordinated management fees due to us are redirected to pay principal and interest on the more senior obligations of the CLOs. In the second quarter of 2020, driven by the market and economic impacts of the ongoing COVID-19 pandemic and resulting ratings downgrades and defaults on certain of the collateral held by CLOs, the impacted CLOs failed to satisfy one or more overcollateralization tests, and as a result we stopped recognizing management fees for these CLOs until the collateral tests are remedied and such fees are paid. In the event the persistent market conditions do not sufficiently recover over the life cycle of these CLOs, our management fees from our securitization vehicles will continue to deteriorate. We will continue to evaluate our ability to collect these and any future fees; however, to the extent the overcollateralization tests in our CLOs have not resolved, the amount of fees deferred would continue to increase, which may negatively impact our liquidity and the amounts we recognize as revenue in future periods.
We have also evaluated our long-lived assets, including operating lease assets and goodwill, and have not identified any impairments to these assets as of June 30, 2020.
We have successfully executed aour business continuity plan and continued our operations with no material interruptions by implementing a work from home model as necessary to protect the health and well-being of our employees and in response to mandated precautions, where applicable. In addition, we haveWe also reached out to our critical vendors to ensure that they are well positioned to operate during the pandemic. We rely significantly on the effectiveness of our information technology infrastructure to continue our operations and to continue to maintain appropriate controls over operations, treasury function, accounting and financial reporting.
DueThe COVID-19 pandemic impacted our results negatively in the first quarter of 2020, and those impacts mostly reversed in the subsequent quarters. In the quarters following the first quarter of 2020 through the first quarter of 2021, we generated strong returns and continued to grow our assets under management. However, due to the uncertainty over the timing and extent of any possible global economic recovery, we cannot readily estimate or determine the effects that the ongoing COVID-19 pandemic will ultimately have on our future business and financial results.results, as well as on our liquidity and capital resources. Please see the COVID-19 commentary included throughout this MD&A, including “—Liquidity and Capital Resources”Resources,” “Part I—Item 1A. Risk Factors” and Note 1 to our consolidated financial statements included in our Annual Report for additional information.
2020 Credit Agreement
On September 25, 2020, we entered into a new financing facility, the 2020 Credit Agreement, consisting of (i) a senior secured term loan facility in an initial aggregate principal amount of $320.0 million (the “2020 Term Loan”) and (ii) a senior secured revolving credit facility in an initial aggregate principal amount of $25.0 million (the “2020 Revolving Credit Facility”). Upon the closing of the 2020 Credit Agreement in the fourth quarter of 2020, we used the proceeds from the 2020 Term Loan to repay in full our existing 2018 Term Loan and Debt Securities, as well as “Item 1A. Risk Factors”to redeem the 2019 Preferred Units in this quarterly reportfull, which allowed us to capture $62.3 million of negotiated discounts available under the Debt Securities and the 2019 Preferred Units. In connection with the 2020 Credit Agreement, we issued warrants to purchase approximately 4.3 million Class A Shares and provided the counterparty a seat on our Board of Directors. Through March 31, 2021, we voluntarily prepaid an aggregate of $175.0 million of the 2020 Term Loan, leaving a balance of $145.0 million, which is due at maturity. As a result of the prepayments, we are no longer subject to the cash sweep or financial maintenance covenants other than the $20.0 billion minimum fee-paying assets under management covenant. The 2020 Revolving Credit Facility remains undrawn and available for working capital and general corporate purposes. Please see “—Liquidity and Capital Resources” for additional information on these impacts and the potential impacts on our results of operations and financial position.
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information.
Overview of Our Financial Results
We reported a GAAP net loss attributable to Class A Shareholders of $25.2 million for the second quarter of 2020, compared to a net loss of $8.6 million for the second quarter of 2019, and GAAP net loss of $53.5$20.3 million in the first halfquarter of 2020,2021, compared to net incomeloss of $28.5$28.3 million in the first half of 2019.
The increase in net loss attributable to Class A Shareholders for the second quarter of 2020 was primarily due to higher legal provisions and lower revenues, partially offset by lower income tax expense, higher unrealized gains on our investments, lower equity-based compensation expense, a2020. The decrease related to a change in tax receivable agreement liability in the prior year, as well as reductions across various operating expense categories.
The increase in net loss attributable to Class A Shareholders for the first halfquarter of 20202021 was primarily due to higher legal provisions, lower incentive income and unrealized lossesmanagement fees, higher gains on our investments and lower operating expenses, partially offset by lowerchange in fair value of warrant liabilities, losses on retirement of debt, higher bonus expense, and higher income tax expense, lower equity-based compensation, and lower professional services expenses, driven by higher legal and accounting fees incurred in connection with the Recapitalization in the prior-year period. Also impacting our results to Class A Shareholders was an adjustment to the redemption value of Preferred Units recognized in connection with the Recapitalization in the first quarter of 2019 that increased net income attributable to Class A Shareholders in the first half of 2019 by $44.4 million. In the first half of 2020, an adjustment of $3.3 million to the redemption value of the Preferred Units related to the accrual of distributions on the units decreased amounts attributable to Class A Shareholders in the first half of 2020.expense. Please see “—Results of Operations” for detailed discussion of the drivers of our results.
Economic Income was a loss of $84.2 million for the second quarter of 2020, compared to income of $32.4 million for the second quarter of 2019. This decline was primarily due to legal provisions recorded in the second quarter of 2020, lower interest income, and higher interest expense, partially offset by an increase in incentive income, as well as reductions across various operating expense categories.
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Economic Income was a loss of $81.9$40.9 million in the first halfquarter of 2020,2021, compared to income of $70.2$2.3 million in the first halfquarter of 2019.2020. This increase in loss was primarily due to higher legal provisions, as well as lower incentive income and management fees and lower interest income, and higher interest expense,operating expenses, partially offset by lower professional services expenses, driven by higher legal and accounting fees incurred in connection with the Recapitalization in the prior-year period, lower compensation and benefits expense, as well as reductions across various operating expense categories. Please see “—Economic Income Analysis” for detailed discussion of the drivers of our results. bonus expense.
Economic Income is a non-GAAP measure. For additional information regarding non-GAAP measures, as well as for a discussion of the drivers of the year-over-year change in Economic Income, please see “—Economic Income Analysis.”
Overview of Assets Under Management and Fund Performance
Assets under management totaled $35.4$37.4 billion as of June 30, 2020.March 31, 2021. Longer-dated assets under management, which are those subject to initial commitment periods of three years or longer, were $24.5$25.0 billion, comprising 69%67% of our total assets under management as of June 30, 2020. Assets under management in our dedicated credit, real estate and other strategy-specific funds were $26.0 billion, comprising 73% ofMarch 31, 2021. This amount excludes assets under management asthat had initial commitment periods of June 30, 2020.three year or longer and subsequently moved to shorter commitment periods at the end of their initial commitment period.
Assets under management in our multi-strategy funds totaled $9.4$10.9 billion as of June 30, 2020, decreasing $373.6 million,March 31, 2021, increasing $2.5 billion, or 4%29%, year-over-year. This change was driven by performance-related appreciation of $2.7 billion, partially offset by net capital outflows of $974.6$175.9 million, primarily in the Sculptor Master Fund, our largest multi-strategy fund, and $56.2 million of distributions to investors in certain smaller funds that we have decided to close. These decreases were partially offset by performance-related appreciation of $657.2 million.fund.
Sculptor Master Fund generated a gross return of 8.2%4.8% and a net return of 6.0%3.6% year-to-date through June 30, 2020. Sculptor Master Fund generatedMarch 31, 2021. Idiosyncratic gains from high conviction positions within corporate credit, structured credit and convertible and derivative arbitrage drove the positive performance across all strategies in the second quarter, lifted by a broad rebound in risk assets which helped to deliver strong performance in the majorityfirst quarter of positions we added at the onset of the COVID-19 crisis. Our active repositioning of the portfolio amidst record volatility and diverging markets was also meaningful in contributing to a second quarter return that drove Sculptor Master Fund to year-to-date gains.2021. Please see “—Assets Under Management and Fund Performance—Multi-Strategy Funds” for additional information regarding the returns of the Sculptor Master Fund.
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Assets under management in our dedicated credit products totaled $21.3$22.2 billion as of June 30, 2020,March 31, 2021, increasing $534.7 million,$1.3 billion, or 3%6%, year-over-year. Assets under management in our opportunistic credit funds totaled $5.9$6.6 billion as of June 30, 2020, decreasing $145.8 million,March 31, 2021, increasing $1.6 billion, or 2%33%, year-over-year. This change was driven by $381.5$1.4 billion of performance-related appreciation and $359.6 million of performance-related depreciation, and $15.2net inflows, partially offset by $187.4 million of distributions in our closed-end opportunistic credit funds. These decreases were partially offset by $250.8 million of net inflows.
Sculptor Credit Opportunities Master Fund, our global opportunistic credit fund, generated a gross return of -10.2%8.7% and a net return of -11.4%7.2% year-to-date through June 30, 2020. In a similar manner toMarch 31, 2021. Idiosyncratic, less correlated high-yielding special situations and process-driven investments drove Sculptor Credit Opportunities Master Fund’s strong performance in the multi-strategy funds, the recoveryfirst quarter of credit markets during the quarter propelled returns, particularly amongst the investments we made as a result of the mispricings during the market downturn.2021. Assets under management for the fund were $1.7$2.5 billion as of June 30, 2020.March 31, 2021.
Assets under management in Institutional Credit Strategies totaled $15.4$15.7 billion as of June 30, 2020, increasing $680.6March 31, 2021, decreasing $342.0 million, or 5%2%, year-over-year. The increaseThis was driven primarily by the launch of various aircraft securitizations and a CBO, partially offset by a reduction in assets under management related to a decrease in the number of aircraft serving as collateral in ancertain of our aircraft securitization vehicle andvehicles, as well as changes in underlying collateral value and distributions.values, partially offset by the launch of additional CLOs.
Assets under management in our real estate funds totaled $4.7$4.3 billion as of June 30, 2020,March 31, 2021, increasing $1.8 billion,$260.9 million, or 62%7%, year-over-year primarily due to the launchadditional closings of Sculptor Real Estate Fund IV, during the fourth quarter of 2019, which had its final closing in the second quarter of 2020, and related co-investment vehicles, partially offset by $1.3 billion$776.5 million of distributions and other reductions, primarily related to the expiration of the investment period of Sculptor Real Estate Credit Fund III and related co-investment vehicles.I in the fourth quarter of 2020. Since inception through June 30, 2020,March 31, 2021, the gross internal rate of return (“IRR”) was 28.3%27.8% and 18.4%18.2% net for Sculptor Real Estate Fund III (for which the investment period ended in September 2019).
Assets Under Management and Fund Performance
Our financial results are primarily driven by the combination of our assets under management and the investment performance of our funds. Both of these factors directly affect the revenues we earn from management fees and incentive income. Growth in assets under management due to capital placed with us by investors in our funds and positive investment performance of our funds drive growth in our revenues and earnings. Conversely, poor investment performance slows our growth by decreasing our assets under management and increasing the potential for redemptions from our funds, which would have a negative effect on our revenues and earnings.
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We typically accept capital from new and existing investors in our multi-strategy and certain open-end opportunistic credit funds on a monthly basis on the first day of each month. Investors in these funds (other than with respect to capital invested in Special Investments) typically have the right to redeem their interests in a fund following an initial lock-up period of one to four years. Following the expiration of these lock-up periods, subject to certain limitations, investors may redeem capital generally on a quarterly or annual basis upon giving 30 to 90 days’ prior written notice. The lock-up requirements for our funds may generally be waived or modified at the sole discretion of each fund’s general partner or board of directors, as applicable.
With respect to investors with quarterly redemption rights, requests for redemptions submitted during a quarter generally reduce assets under management on the first day of the following quarter. Accordingly, quarterly redemptions generally will have no impact on management fees during the quarter in which they are submitted. Instead, these redemptions will reduce management fees in the following quarter. With respect to investors with annual redemption rights, redemptions paid prior to the end of a quarter impact assets under management in the quarter in which they are paid, and therefore impact management fees for that quarter.
Investors in our closed-end credit funds, securitization vehicles, real estate and certain other funds are not able to redeem their investments. In those funds, investors generally make a commitment that is funded over an investment period (or at launch for our securitization vehicles). Upon the expiration of the investment period, the investments are then sold or realized over time, and distributions are made to the investors in the fund.
In a declining market, during periods when the hedge fund industry generally experiences outflows, or in response to specific company events, we could experience increased redemptions and a consequent reduction in our assets under management. Over the past few years, our assets under management have declined and this trend may continue to some extent
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for some period of time in light of the 2016 settlements and the global economic downturn as a result of the ongoing COVID-19 pandemic. Throughout the latter part of 2017 and 2018, net outflows from our multi-strategy funds began to normalize and were partially offset by growth in our Institutional Credit Strategies business, as well as positive fund performance. However, in the first quarter of 2020 our funds experienced significant performance-related depreciation due to the unprecedented market events that unfolded as a result of the COVID-19 pandemic. Although the majority of our first quarter losses were offset by stronger returns during the second quarter of 2020, the ongoing COVID-19 pandemic has affected almost every segment of the global economy and may have a negative impact on our assets under management, management fees and incentive income in future periods.
Information with respect to our assets under management throughout this report, including the tables set forth below, includes investments by us, our executive managing directors, employees and certain other related parties. As of June 30, 2020,March 31, 2021, approximately 3%2% of our assets under management represented investments by us, our executive managing directors, employees and certain other related parties in our funds. As of that date, approximately 48%52% of these affiliated assets under management are not charged management fees and are not subject to an incentive income calculation. Additionally, to the extent that a fund is an investor in another fund, we waive or rebate a corresponding portion of the management fees charged to the fund.
As further discussed below in “—Understanding Our Results—Revenues—Management Fees,” we generally calculate management fees based on assets under management as of the beginning of each quarter. The assets under management in the tables below are presented net of management fees and incentive income as of the end of the period. Accordingly, the assets under management presented in the tables below are not the amounts used to calculate management fees for the respective periods.
Appreciation (depreciation) in the tables below reflects the aggregate net capital appreciation (depreciation) for the entire period and is presented on a total return basis, net of all fees and expenses (except incentive income on Special Investments), and includes the reinvestment of all dividends and other income. Management fees and incentive income vary by product. Appreciation (depreciation) within Institutional Credit Strategies includes the effects of changes in the par value of the underlying collateral of the CLOs and CBO, foreign currency translation changes in the measurement of assets under management of our European CLOs and changes in the portfolio appraisal values for aircraft securitizations.
Summary of Changes in Assets Under Management
The tables below present the changes to our assets under management for the respective periods based on the type of funds or investment vehicles we manage.
Three Months Ended June 30, 2020Three Months Ended March 31, 2021
March 31, 2020Inflows / (Outflows)Distributions / Other ReductionsAppreciation / (Depreciation)June 30, 2020December 31, 2020Inflows / (Outflows)Distributions / Other ReductionsAppreciation / (Depreciation)
Other(1)
March 31, 2021
(dollars in thousands)(dollars in thousands)
Multi-strategy fundsMulti-strategy funds$8,460,210  $(108,540) $(12,373) $1,062,462  $9,401,759  Multi-strategy funds$10,504,024 $78,237 $(723)$337,195 $— $10,918,733 
CreditCreditCredit
Opportunistic credit funds Opportunistic credit funds4,944,832  472,037  (15) 463,272  5,880,126   Opportunistic credit funds6,287,777 (117,077)(5,600)387,399 — 6,552,499 
Institutional Credit Strategies Institutional Credit Strategies15,994,399  22,254  (619,430) 2,072  15,399,295   Institutional Credit Strategies15,697,827 303,522 (40,698)209 (308,431)15,652,429 
Real estate fundsReal estate funds3,989,821  775,229  (27,879) (627) 4,736,544  Real estate funds4,308,648 139,140 (198,356)1,325 — 4,250,757 
Other1,214   (448) —  770  
TotalTotal$33,390,476  $1,160,984  $(660,145) $1,527,179  $35,418,494  Total$36,798,276 $403,822 $(245,377)$726,128 $(308,431)$37,374,418 
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Three Months Ended June 30, 2019
March 31, 2019Inflows / (Outflows)Distributions / Other ReductionsAppreciation / (Depreciation)June 30, 2019
(dollars in thousands)
Multi-strategy funds$10,292,551  $(848,872) $(5,699) $337,415  $9,775,395  
Credit
   Opportunistic credit funds5,787,118  188,858  (5,204) 55,183  6,025,955  
   Institutional Credit Strategies13,365,643  1,460,664  (1,986) (105,580) 14,718,741  
Real estate funds2,652,488  279,085  (10,048) —  2,921,525  
Other224,146  —  (6,296) —  217,850  
Total$32,321,946  $1,079,735  $(29,233) $287,018  $33,659,466  

Six Months Ended June 30, 2020Three Months Ended March 31, 2020
December 31, 2019Inflows / (Outflows)Distributions / Other ReductionsAppreciation / (Depreciation)June 30, 2020December 31, 2019Inflows / (Outflows)Distributions / Other ReductionsAppreciation / (Depreciation)
Other(1)
March 31, 2020
(dollars in thousands)(dollars in thousands)
Multi-strategy fundsMulti-strategy funds$9,332,118  $(318,214) $(17,819) $405,674  $9,401,759  Multi-strategy funds$9,332,118 $(209,674)$(5,446)$(656,788)$— $8,460,210 
CreditCreditCredit
Opportunistic credit funds Opportunistic credit funds6,025,306  192,762  (15) (337,927) 5,880,126   Opportunistic credit funds6,025,306 (279,275)— (801,199)— 4,944,832 
Institutional Credit Strategies Institutional Credit Strategies15,710,319  419,246  (619,436) (110,834) 15,399,295   Institutional Credit Strategies15,710,319 396,992 (6)(1,257)(111,649)15,994,399 
Real estate fundsReal estate funds3,393,876  1,422,105  (69,269) (10,168) 4,736,544  Real estate funds3,393,876 646,876 (41,390)(9,541)— 3,989,821 
OtherOther8,311  20  (7,561) —  770  Other8,311 16 (7,113)— — 1,214 
TotalTotal$34,469,930  $1,715,919  $(714,100) $(53,255) $35,418,494  Total$34,469,930 $554,935 $(53,955)$(1,468,785)$(111,649)$33,390,476 
_______________
(1)Includes the effects of changes in the par value of the underlying collateral of the CLOs, foreign currency translation changes in the measurement of assets under management of our European CLOs and changes in the portfolio appraisal value for aircraft securitization vehicles.
In the three months ended March 31, 2021, our funds experienced performance-related appreciation of $726.1 million, net inflows of $403.8 million and a decrease of $308.4 million primarily due to the effects of changes in par value of underlying collateral of the CLOs. The net inflows were comprised of (i) $942.1 million of gross inflows, driven by $486.4 million in multi-strategy funds, primarily due to new assets into the Sculptor Master Fund, and $304.0 million in Institutional Credit Strategies, primarily driven by the launch of an additional CLO; and (ii) $538.2 million of gross outflows due to redemptions, primarily in our multi-strategy and opportunistic credit funds. Distributions and other reductions of $245.4 million were driven primarily by $198.4 million of distributions from our real estate funds as a result of realizations in our real estate funds. In 2021, excluding securitization vehicles within Institutional Credit Strategies, our largest sources of gross inflows were from corporate and other institutions and pensions, while pensions and fund-of-funds were the largest source of gross outflows.
As of May 1, 2021, estimated assets under management decreased to $36.8 billion, driven by $707.7 million of distributions and other reductions to investors in certain funds, paydowns in our CLOs and a wind down of one of our CLOs, and $248.2 million of net outflows, partially offset by $364.2 million of performance-related appreciation.

Six Months Ended June 30, 2019
December 31, 2018Inflows / (Outflows)Distributions / Other ReductionsAppreciation / (Depreciation)June 30, 2019
(dollars in thousands)
Multi-strategy funds$10,420,858  $(1,735,225) $(26,977) $1,116,739  $9,775,395  
Credit
   Opportunistic credit funds5,751,411  125,328  (32,176) 181,392  6,025,955  
   Institutional Credit Strategies13,491,734  1,474,170  (109,133) (138,030) 14,718,741  
Real estate funds2,577,040  354,555  (10,048) (22) 2,921,525  
Other286,635  (62,868) (6,296) 379  217,850  
Total$32,527,678  $155,960  $(184,630) $1,160,458  $33,659,466  
In the sixthree months ended June 30,March 31, 2020, our funds experienced performance-related depreciation of $53.3 million and $1.5 billion,
net inflows of $1.7 billion.$554.9 million. The net inflows were comprised of (i) $2.6$1.1 billion of gross inflows, driven by $1.4 billion$646.9 million in real estate funds, primarily due to additional closes of Sculptor Real Estate Fund IV, $518.4 million in opportunistic credit funds, and $449.3$427.1 million in Institutional Credit Strategies, primarily driven by a launch of an aircraft securitization;securitization vehicle; and (ii) $875.9$571.8 million of gross outflows due to redemptions, primarily in our multi-strategy and open-ended credit funds. Additionally, our funds experienced distributions and other reductions of $714.1 million, driven by Institutional Credit Strategies, as there was a decrease in the number of aircraft serving as collateral in certain of our aircraft securitization vehicles for which we act as collateral manager.multi-strategy funds. In 2020, excluding securitization vehicles within Institutional Credit Strategies, our largest sources of gross inflows were from private banks pensions, and related parties,pensions, while pensions were the largest source of gross outflows.
As of August 1, 2020, estimated assets under management increased to $35.5 billion, driven by $340.4 million of performance-related appreciation, partially offset by approximately $274.5 million of distributions and other reductions to
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investors in certain funds, which included a $172.4 million reduction in assets under management related to a decrease in the number of aircraft serving as collateral in an aircraft securitization vehicle for which we act as collateral manager.
In the six months ended June 30, 2019, our funds experienced performance-related appreciation of $1.2 billion and net inflows of $156.0 million. The net inflows were comprised of $2.3 billion of gross inflows and $2.1 billion of gross outflows due to redemptions, primarily in our multi-strategy funds. In 2019, excluding securitization vehicles within Institutional Credit
Strategies, our largest sources of gross inflows were from corporate, institutional and other, fund-of-funds, and pensions, while
related parties were the largest source of gross outflows. The net outflows include approximately $885.9 million of redemptions
to former executive managing directors, the majority of which were driven by the anticipated Liquidity Redemption discussed in Note 3 of our Annual Report.
Weighted-Average Assets Under Management and Average Management Fee Rates
The table below presents our weighted-average assets under management and average management fee rates. Weighted-average assets under management exclude the impact of secondfirst quarter investment performance for the periods presented, as these amounts generally do not impact management fees calculated for those periods. The average management fee rates presented below take into account the effect of non-fee paying assets under management. Please see the respective sections below for average management fee rates by fund type.
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(dollars in thousands)
Weighted-average assets under management$33,727,812  $32,125,578  $34,060,884  $31,858,459  
Average management fee rates0.67 %0.72 %0.69 %0.74 %
The decline in our average management fee rate for the periods presented occurred primarily because of a change in the mix of products that comprise our assets under management, as well as the deferral of recognition of certain subordinated management fees from our CLOs, as discussed above. Our average management fee willmay vary from period to period based on the mix of products that comprise our assets under management.
Three Months Ended March 31,
20212020
(dollars in thousands)
Weighted-average assets under management$36,747,298 $34,393,956 
Average management fee rates0.76 %0.70 %
Fund Performance Information
The tables below present performance information for the funds we manage. The performance information presented in this report is not indicative of the performance of our Class A Shares and is not necessarily indicative of the future results of any particular fund, including the accrued unrecognized amounts of incentive income. An investment in our Class A Shares is not an investment in any of our funds. There can be no assurance that any of our existing or future funds will achieve similar results. The timing and amount of incentive income generated from our funds are inherently uncertain. Incentive income is a function of investment performance and realizations of investments, which vary period-to-period based on market conditions and other factors. We cannot predict when, or if, any realization of investments will occur. Incentive income recognized for any particular period is not a reliable indicator of incentive income that may be earned in subsequent periods.
The return information presented in this report represents, where applicable, the composite performance of all feeder funds that comprise each of the master funds presented. Gross return information is generally calculated using the total return of all feeder funds, net of all fees and expenses except management fees and incentive income of such feeder funds and master funds and the returns of each feeder fund include the reinvestment of all dividends and other income. Net return information is generally calculated as the gross returns less management fees and incentive income. Return information that includes Special Investments excludes incentive income on unrealized gains attributable to such investments, which could reduce returns at the time of realization. Special Investments and initial public offering investments are not allocated to all investors in the funds, and investors that were not allocated Special Investments and initial public offering investments may experience materially different returns.
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Multi-Strategy Funds
The table below presents assets under management and investment performance for our multi-strategy funds. Assets under management are generally based on the net asset value of these products. Management fees generally range from 0.83%1.00% to 2.25%2.00% annually of assets under management. For the secondfirst quarter of 2020,2021, our multi-strategy funds had an average management fee rate of 1.26%.
We generally crystallize incentive income from the majority of our multi-strategy funds on an annual basis. Incentive income is generally equal to 20% of the realized and unrealized profits attributable to each investor. A portion of the assets under management in each of the Sculptor Master Fund and our other multi-strategy funds is subject to initial commitment periods of three years, and for certain of these assets, we only earn incentive income once profits attributable to an investor exceed a preferential return, or “hurdle rate,” which is generally equal to the 3-month T-bill rate for our multi-strategy funds. Once the investment performance has exceeded the hurdle rate for these assets, we may receive a “catch-up” allocation, resulting in a potential recognition by us of a full 20% of the net profits attributable to investors in these assets.
Returns for the Six Months Ended June 30,Annualized Returns Since Inception Through June 30, 2020
Assets Under Management as of June 30,20202019
20202019GrossNetGrossNetGrossNet
Fund(dollars in thousands)
Sculptor Master Fund(1)
$8,629,632  $8,886,655  8.2 %6.0 %16.4 %13.3 %16.5 %
(2)
11.5 %
(2)
Sculptor Enhanced Master Fund733,013  693,290  6.4 %4.7 %24.6 %19.8 %14.2 %9.8 %
Other funds39,114  195,450  n/mn/mn/mn/mn/mn/m
$9,401,759  $9,775,395  
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Returns for the Three Months Ended March 31,Annualized Returns Since Inception Through March 31, 2021
Assets Under Management as of March 31,20212020
20212020GrossNetGrossNetGrossNet
Fund(dollars in thousands)
Sculptor Master Fund(1)
$10,016,988 $7,776,131 4.8 %3.6 %-6.5 %-6.6 %16.9 %(2)11.8 %(2)
Sculptor Enhanced Master Fund892,589 622,453 1.3 %0.8 %-7.5 %-7.2 %15.1 %10.5 %
Other funds9,156 61,626 n/mn/mn/mn/mn/mn/m
$10,918,733 $8,460,210 
_______________
n/m not meaningful
(1)The returns for the Sculptor Master Fund exclude Special Investments. Special Investments in the Sculptor Master Fund are held by investors representing a small percentage of assets under management in the fund. Inclusive of these Special Investments, the returns of the Sculptor Master Fund for sixthree months ended June 30,March 31, 2021 were 4.8% gross and 3.6% net, for three months ended March 31, 2020 were 7.2%-6.8% gross and 5.1% net, for six months ended June 30, 2019 were 14.8% gross and 11.7%-6.8% net, and annualized since inception through June 30, 2020March 31, 2021 were 16.2%16.5% gross and 11.3%11.6% net.
(2)The annualized returns since inception are those of the Sculptor Multi-Strategy Composite, which represents the composite performance of all accounts that were managed in accordance with our broad multi-strategy mandate that were not subject to portfolio investment restrictions or other factors that limited our investment discretion since inception on April 1, 1994. Performance is calculated using the total return of all such accounts net of all investment fees and expenses of such accounts, and the returns include the reinvestment of all dividends and other income. The performance calculation for the Sculptor Master Fund excludes realized and unrealized gains and losses attributable to currency hedging specific to certain investors investing in Sculptor Master Fund in currencies other than the U.S. Dollar.dollar. For the period from April 1, 1994 through December 31, 1997, the returns are gross of certain overhead expenses that were reimbursed by the accounts. Such reimbursement arrangements were terminated at the inception of the Sculptor Master Fund on January 1, 1998. The size of the accounts comprising the composite during the time period shown vary materially. Such differences impacted our investment decisions and the diversity of the investment strategies followed. Furthermore, the composition of the investment strategies we follow is subject to our discretion, has varied materially since inception and is expected to vary materially in the future. As of June 30, 2020,March 31, 2021, the annualized returns since the Sculptor Master Fund’s inception on January 1, 1998 were 13.2%13.7% gross and 8.9%9.3% net excluding Special Investments and 12.8%13.3% gross and 8.6%9.1% net inclusive of Special Investments.
The $373.6 million,$2.5 billion, or 4%29%, year-over-year decreaseincrease in assets under management in our multi-strategy funds was primarily due to performance-related appreciation of $2.7 billion, partially offset by capital net outflows of $974.6$175.9 million, primarily from the Sculptor Master Fund, our largest multi-strategy fund, and distributionsfund. In 2021, the largest sources of $56.2 million in certain othergross inflows into our multi-strategy funds that we have decided to close, partially offset by performance-related appreciation of $657.2 million. In 2020,were from corporate and other institutions, private banks, and pensions, while the largest sources of gross outflows from our multi-strategy funds were attributable to pensions and private banks family offices and individuals, and foundations and endowments..
In the first halfquarter of 2021, the Sculptor Master Fund generated a gross return of 4.8% and a net return of 3.6%. Idiosyncratic gains from high conviction positions within corporate credit, structured credit and convertible and derivative arbitrage drove the positive performance in the first quarter of 2021.
In the first quarter of 2020, the Sculptor Master Fund generated a gross return of 8.2%-6.5% and a net return of 6.0%-6.6%. Losses in Sculptor Master Fund generated positive performance across all strategieswere concentrated in corporate credit where even the highest quality securities widened to levels not seen since the global financial crisis of 2008. We have fully recovered these losses in the second quarter, lifted by a broad rebound in risk assets which helped to deliver strong performance in the majoritylatter part of positions we added at the onset of the COVID-19 crisis. Our active repositioning of the portfolio amidst record volatility and diverging markets was also meaningful in contributing to a second quarter return that drove Sculptor Master Fund to year-to-date gains.2020.
4642




In the first half of 2019, the Sculptor Master Fund generated a gross return of 16.4% and a net return of 13.3%. Sculptor Master Fund delivered positive returns across all major strategies in the quarter with performance driven primarily by global equities, merger arbitrage and corporate credit.
Credit
Assets Under Management as of June 30,Assets Under Management as of March 31,
2020201920212020
(dollars in thousands)(dollars in thousands)
Opportunistic credit fundsOpportunistic credit funds$5,880,126  $6,025,955  Opportunistic credit funds$6,552,499 $4,944,832 
Institutional Credit StrategiesInstitutional Credit Strategies15,399,295  14,718,741  Institutional Credit Strategies15,652,429 15,994,399 
$21,279,421  $20,744,696  $22,204,928 $20,939,231 
Opportunistic Credit Funds
Our opportunistic credit funds seek to generate risk-adjusted returns by capturing value in mispriced investments across disrupted, dislocated and distressed corporate, structured and private credit markets globally.
Certain of our opportunistic credit funds are open-end and allow for contributions and redemptions (subject to initial lock-up and notice periods) on a periodic basis similar to our multi-strategy funds. Our remaining opportunistic credit funds are closed-end, whereby investors make a commitment that is funded over an investment period. Upon the expiration of an investment period, the investments are then sold or realized over a period of time, and distributions are made to the investors in the fund.
Assets under management for our opportunistic credit funds are generally based on the net asset value of those funds plus any unfunded commitments. Management fees for our opportunistic credit funds generally range from 0.75% to 2.00%1.75% annually of the net asset value of these funds. For the secondfirst quarter of 2020,2021, our opportunistic credit funds had an average management fee rate of 0.84%0.87%.
The table below presents assets under management and investment performance information for certain of our opportunistic credit funds. Incentive income related to these funds (excluding the closed-end opportunistic fund, which is explained further below) is generally equal to 20% of realized and unrealized profits attributable to each investor, and a portion of these assets under management is subject to hurdle rates, which are generally 6% to 8% for our open-end opportunistic credit funds. Once the cumulative investment performance has exceeded the hurdle rate, we may receive a “catch-up” allocation, resulting in a potential recognition by us of a full 20% of the net profits attributable to investors in these funds. The measurement periods for these assets under management generally range from one to five years.
Returns for the Six Months Ended June 30,Annualized Returns Since Inception Through June 30, 2020Returns for the Three Months Ended March 31,Annualized Returns Since Inception Through March 31, 2021
Assets Under Management as of June 30,20202019Assets Under Management as of March 31,20212020Annualized Returns Since Inception Through March 31, 2021
20202019GrossNetGrossNetGrossNet20212020GrossNetGrossNetGrossNet
FundFund(dollars in thousands)Fund(dollars in thousands)
Sculptor Credit Opportunities Master Fund(1)
Sculptor Credit Opportunities Master Fund(1)
$1,686,984  $1,691,379  -10.2 %-11.4 %4.6 %3.5 %12.6 %8.6 %
Sculptor Credit Opportunities Master Fund(1)
$2,548,631 $1,064,409 8.7 %7.2 %-19.8 %-20.0 %14.0 %10.0 %
Customized Credit Focused PlatformCustomized Credit Focused Platform3,147,797  3,239,374  -7.3 %-6.0 %6.9 %5.2 %14.9 %11.2 %Customized Credit Focused Platform3,660,340 2,878,029 See below for return information on our Customized Credit Focused Platform.
Closed-end opportunistic credit fundsClosed-end opportunistic credit funds524,339  550,079  See below for return information on our closed-end opportunistic credit funds.Closed-end opportunistic credit funds343,528 518,104 See below for return information on our closed-end opportunistic credit funds.
Other fundsOther funds521,006  545,123  n/mn/mn/mn/mn/mn/mOther funds— 484,290 n/mn/mn/mn/mn/mn/m
$5,880,126  $6,025,955  $6,552,499 $4,944,832 
_______________
n/m not meaningful
(1)The returns for the Sculptor Credit Opportunities Master Fund exclude Special Investments. Special Investments in the Sculptor Credit Opportunities Master Fund are held by investors representing a small percentage of assets under management in the fund. Inclusive of these Special Investments, the returns of the Sculptor Credit Opportunities Master Fund for three months ended March 31, 2021 were 8.6% gross and 7.3% net, for three months ended March 31, 2020 were -19.9% gross and -20.2% net, and annualized since inception through March 31, 2021 were 13.6% gross and 9.7% net.
4743




returns of the Sculptor Credit Opportunities Master Fund for six months ended June 30, 2020 were -10.7% gross and -11.8% net, for six months ended June 30, 2019 were 4.4% gross and 3.3% net, and annualized since inception through June 30, 2020 were 12.2% gross and 8.3% net.
Assets under management in our opportunistic credit funds decreasedincreased by $145.8 million,$1.6 billion, or 2%33%, year-over-year. This change was driven by $381.5$1.4 billion of performance-related appreciation, and $359.6 million of performance-related depreciation, and $15.2net inflows, partially offset by $187.4 million of distributions in our closed-end opportunistic credit funds, partially offset by $250.8 million of net inflows.funds.
In the first halfquarter of 2021, the Sculptor Credit Opportunities Master Fund, our global opportunistic credit fund, generated a gross return of 8.7% and a net return of 7.2%. Idiosyncratic, less correlated high-yielding special situations and process-driven investments drove Sculptor Credit Opportunities Master Fund’s strong performance in the first quarter of 2021.
In the first quarter of 2020, the Sculptor Credit Opportunities Master Fund, our global opportunistic credit fund, generated a gross return of -10.2%-19.8% and a net return of -11.4%-20.0%. Similar to the Sculptor Master Fund, performance was impacted by the widened levels of credit spreads not seen since 2008. We have substantially recovered these losses in the latter part of 2020.
Weighted Average Return for the Three Months Ended March 31,(2)
Inception to Date as of March 31, 2021
20212020IRR
Net Invested Capital Multiple(5)
Customized Credit Focused PlatformGrossNetGrossNet
Gross(3)
Net(4)
Opportunistic Credit Performance(1)
8.3 %6.7 %-18.7 %-15.1 %15.9 %12.2 %2.4x
_______________
(1)Performance presented is for the opportunistic credit strategies in the Customized Credit Focused Platform. As of March 31, 2021, approximately 95% of the invested capital in the Customized Credit Focused Platform is invested in the Platform’s opportunistic credit strategies.
(2)Weighted Average Returns reflect the total profit & loss divided by the weighted average capital base for the period.
(3)Gross IRR represents estimated, unaudited, annualized pre-tax returns based on the timing of cash inflows and outflows for each investment. It is calculated in the same manner as Net IRR, however, it does not reflect adjustments to cash flows related to incentive income, management fees and the applicable fund expenses. Gross IRR represents the estimated, unaudited, annualized pre-tax return based on the actual and/or projected timing of cash inflows from, and outflows to, investors for each investment (irrespective of any funding from a credit facility or other third-party financing source used by the Customized Credit Focused Platform). In certain cases, funding from a similar mannercredit facility or other third party financing source was initially used by the Customized Credit Focused Platform to acquire an investment or pay certain expenses, which may have the multi-strategy funds,effect of increasing the recoveryGross IRR above that which would have been presented, had drawdowns from limited partners been initially used to acquire the investment or pay such expenses. Gross IRR is adjusted for actual investment expenses, but is not adjusted for management fees, incentive income or other fees or expenses to be paid by the Customized Credit Focused Platform, which would reduce the return. Gross IRR includes the effect of credit markets duringinvestment hedges as determined by the quarter propelled returns, particularly amongstCompany. There can be no assurance that an appropriate hedge will be identified for each investment or that an appropriate hedge will be available for all investments.
(4)Net IRR is the investments we made asGross IRR adjusted to reflect actual management fees, incentive income and expenses incurred by the Customized Credit Focused Platform.
(5)Net Invested Capital Multiple: Given the Customized Credit Focused Platform has an active liquid investment program, a resultkey element of which includes ramping up and ramping down depending on market conditions - much of which has recently been deployed - this is a multiple measuring the mispricings duringcurrent net asset value over the market downturn.
In the first half of 2019, the Sculptor Credit Opportunities Master Fund, our global opportunistic credit fund, generated a gross return of 4.6% and a net return of 3.5%. Performance was broad-based with gains across both the corporate and structured credit strategies, and geographies.invested capital, where net invested capital represents cumulative contributions less cumulative distributions.
The table below presents assets under management, investment performance and other information for our closed-end opportunistic credit funds. Our closed-end opportunistic credit funds follow a European-style waterfall, whereby incentive income may be paid to us only after a fund investor receives distributions in excess of their total contributed capital and a preferential return, which is generally 6% to 8%. Incentive income related to these funds is generally equal to 20% of the cumulative realized profits in excess of the preferential return attributable to each investor over the life of the fund. Once the investment performance has exceeded the preferential return, we may receive a “catch-up” allocation, resulting in a potential recognition by us of a full 20% of the net profits attributable to investors in these funds. These funds have concluded their
44




investment periods, and therefore we expect assets under management for these funds to decrease as investments are sold and the related proceeds are distributed to the investors in these funds.
Assets Under Management as of June 30,Inception to Date as of June 30, 2020Assets Under Management as of March 31,Inception to Date as of March 31, 2021
20202019Total Commitments
Total Invested Capital(1)
Gross IRR(2)
Net IRR(3)
Gross MOIC(4)
20212020Total Commitments
Total Invested Capital(1)
Gross IRR(2)
Net IRR(3)
Gross MOIC(4)
Fund (Investment Period)Fund (Investment Period)(dollars in thousands)Fund (Investment Period)(dollars in thousands)
Sculptor European Credit Opportunities Fund (2012-2015)Sculptor European Credit Opportunities Fund (2012-2015)$—  $1,240  n/an/an/an/an/aSculptor European Credit Opportunities Fund (2012-2015)$— $— $459,600 $305,487 15.7 %11.8 %1.5x
Sculptor Structured Products Domestic Fund II (2011-2014)Sculptor Structured Products Domestic Fund II (2011-2014)50,221  61,228  326,850  326,850  19.4 %15.3 %2.1xSculptor Structured Products Domestic Fund II (2011-2014)13,428 46,610 326,850 326,850 19.4 %15.3 %2.1x
Sculptor Structured Products Offshore Fund II (2011-2014)Sculptor Structured Products Offshore Fund II (2011-2014)54,606  64,860  304,531  304,531  16.8 %13.1 %1.9xSculptor Structured Products Offshore Fund II (2011-2014)11,973 50,480 304,531 304,531 16.8 %13.2 %1.9x
Sculptor Structured Products Offshore Fund I (2010-2013)Sculptor Structured Products Offshore Fund I (2010-2013)3,980  4,580  155,098  155,098  23.8 %19.1 %2.1xSculptor Structured Products Offshore Fund I (2010-2013)4,721 3,744 155,098 155,098 23.8 %19.1 %2.1x
Sculptor Structured Products Domestic Fund I (2010-2013)Sculptor Structured Products Domestic Fund I (2010-2013)3,532  4,260  99,986  99,986  22.6 %18.0 %2.0xSculptor Structured Products Domestic Fund I (2010-2013)4,586 3,270 99,986 99,986 22.6 %18.0 %2.0x
Other fundsOther funds412,000  413,911  412,170  73,624  n/mn/mn/mOther funds308,820 414,000 309,000 132,083 n/mn/mn/m
$524,339  $550,079  $1,298,635  $960,089  $343,528 $518,104 $1,655,065 $1,324,035 
_______________
n/m not meaningful
(1)Represents funded capital commitments net of recallable distributions to investors.
(2)Gross IRR for our closed-end opportunistic credit funds represents the estimated, unaudited, annualized return based on the timing of cash inflows and outflows for the fund as of June 30, 2020,March 31, 2021, including the fair value of unrealized investments as of such date, together with any appreciation or depreciation from related hedging activity. Gross IRR does not include the effects of management fees or incentive income, which would reduce the return, and includes the reinvestment of all fund income.
(3)Net IRR is calculated as described in footnote (2), but is reduced by all management fees, as well as paid incentive and accrued incentive income that will be payable upon the distribution of each fund’s capital in accordance with the terms of the relevant fund. Accrued incentive income may be higher or lower at such time. The net IRR represents a composite rate of return for a fund and does not reflect the net IRR specific to any individual investor.
(4)Gross MOIC for our closed-end opportunistic credit funds is calculated by dividing the sum of the net asset value of the fund, accrued incentive income, life-to-date incentive income and management fees paid and any non-recallable distributions made from the fund by the invested capital.
48




Institutional Credit Strategies
Institutional Credit Strategies is our asset management platform that invests in performing credits, including leveraged loans, high-yield bonds, private credit/bespoke financing and investment grade credit via CLOs, aircraft securitizations,securitization vehicles, CBOs, and other customized solutions for clients.
Assets under management for Institutional Credit Strategies are generally based on the par value of the collateral and cash held for CLOs and CBO, and adjusted portfolio values for our aircraft securitizations.securitization vehicles. However, assets under management are reduced for any investments in these securitization vehicles held by our other funds to avoid double counting these assets. Management fees for Institutional Credit Strategies generally range from 0.30% to 0.50% annually of assets under management. For the secondfirst quarter of 2020,2021, Institutional Credit Strategies had an average management fee rate of 0.25%0.46% gross of rebates on cross-investments from other funds we manage (0.20%(0.37% net of such rebates). The decline inThese average rates exclude the average management fee rate for the second quarternet impact of 2020 occurred primarily due to the deferral of recognition of certaindeferred subordinated management fees from our CLOs, as discussed above.fees.
Incentive income from our CLOs and CBO is generally equal to 20% of the excess cash flows due to the holders of the subordinated notes issued by the CLOs and CBO and is generally subject to a 12% hurdle rate. Because of the hurdle rate and structure of our CLOs and CBO, we do not expect to earn a meaningful amount of incentive income from these entities, and therefore no return information is presented for these vehicles. We do not earn incentive income from our aircraft securitizations.securitization vehicles.
Most Recent Closing or Refinancing YearAssets Under Management as of June 30,
Deal Size20202019
(dollars in thousands)
Collateralized loan obligations2017$4,209,590  $3,475,548  $3,494,157  
20187,487,273  7,055,741  7,099,508  
20192,985,214  2,875,534  2,499,499  
2020409,250  397,938  394,957  
15,091,327  13,804,761  13,488,121  
Aircraft securitizations2018696,000  497,611  497,611  
20191,128,000  379,350  542,822  
2020472,732  382,963  —  
2,296,732  1,259,924  1,040,433  
Collateralized bond obligation2019349,550  274,632  —  
Other fundsn/an/a59,978  190,187  
$17,737,609  $15,399,295  $14,718,741  
45




Most Recent Launch or Refinancing YearAssets Under Management as of March 31,
Deal Size20212020
(dollars in thousands)
Collateralized loan obligations2017$2,763,790 $2,075,836 $2,079,965 
20186,920,173 6,433,979 6,520,422 
20192,985,214 2,886,735 2,841,011 
20201,868,287 1,726,148 1,401,170 
20211,242,425 1,163,472 891,936 
15,779,889 14,286,170 13,734,504 
Aircraft securitization vehicles2018696,000 475,415 497,611 
20191,128,000 388,706 1,035,459 
2020472,732 175,710 398,653 
2,296,732 1,039,831 1,931,723 
Collateralized bond obligation2019349,550 274,418 274,183 
Other fundsn/an/a52,010 53,989 
$18,426,171 $15,652,429 $15,994,399 
Assets under management in Institutional Credit Strategies totaled $15.4$15.7 billion as of June 30, 2020, increasing $680.6 million, or 5%,March 31, 2021, decreasing 2% year-over-year. The year-over-year increase in assets under management in Institutional Credit StrategiesThis was driven primarily by a reduction of $936.9 million driven by lower collateral balances on which management fees are based, as well as the closingeffects of additional CLOs and launches of aircraft securitizations and a CBO,foreign exchange losses, partially offset by changes in underlying collateral value and distributions.$664.8 million of net inflows, driven by the launches of additional CLOs. In addition, in 20202021 we refinanced onetwo of our 20162017 CLOs.
Real Estate Funds
Our real estate funds generally make investments in commercial and residential real estate, including real property, multi-property portfolios, real estate-related joint ventures, real estate operating companies and other real estate-related assets.
Assets under management for our real estate funds are generally based on the amount of capital committed by our fund investors during the investment period and the amount of actual capital invested for periods following the investment period. However, assets under management are reduced for unfunded commitments by our executive managing directors that will be funded through transfers from other funds in order to avoid double counting these assets. Management fees for our real estate funds, exclusive of co-investment vehicles, generally range from 0.50% to 1.50% annually of assets under management;management, however, management fees for Sculptor Real
49




Estate Credit Fund I are based on invested capital both during and after the investment period. For the secondfirst quarter of 2020,2021, our real estate funds, inclusive of co-investment vehicles, had an average management fee rate of 1.06%0.82%.
The tables below present assets under management, investment performance and other information for our real estate funds. The amounts included within “other funds” below mainly relate to co-investment vehicles. Our real estate funds generally follow an American-style waterfall, whereby incentive income may be paid to us after a fund investment is realized if a fund investor receives distributions in excess of the capital contributed for such investment, as well as a preferential return on such investment, which is generally 6% to 10%. Upon each subsequent realization, incentive income, which is generally 20% of realized profits, is recalculated based on the cumulative realized profits in excess of the preferential return attributable to each investor over the life of the fund. Once the investment performance has exceeded the hurdle rate, we may receive a “catch-up” allocation, resulting in a potential recognition by us of a full 20% of the realized net profits attributable to investors in these funds.
Due to the recalculation of cumulative realized profits upon each realization, the fund may clawback incentive income previously paid to us. As a result, we record incentive income paid to us by the real estate funds as unearned revenue in our consolidated balance sheets until the criteria for revenue recognition has been met.
Assets Under Management as of June 30,
20202019
Fund(dollars in thousands)
    Sculptor Real Estate Fund I$—  $13,578  
     Sculptor Real Estate Fund II61,602  92,234  
Sculptor Real Estate Fund III517,037  1,487,960  
Sculptor Real Estate Fund IV2,593,090  —  
Sculptor Real Estate Credit Fund I730,785  724,854  
Other funds834,030  602,899  
$4,736,544  $2,921,525  

Inception to Date as of June 30, 2020
Total Investments
Realized/Partially Realized Investments(1)
Total Commitments
Invested Capital(2)
Total
Value(3)
Gross IRR(4)
Net IRR(5)
Gross MOIC(6)
Invested CapitalTotal
Value
Gross IRR(4)
Gross MOIC(6)
Fund (Investment Period)(dollars in thousands)
Sculptor Real Estate Fund I(7) (2005-2010)
$408,081  $386,298  $845,975  25.5 %16.1 %2.2x$386,298  $845,975  25.5 %2.2x
Sculptor Real Estate Fund II(7) (2011-2014)
839,508  762,588  1,554,419  32.8 %21.6 %2.0x762,588  1,554,419  32.8 %2.0x
Sculptor Real Estate Fund III(7) (2014-2019)
1,500,000  1,053,427  1,708,462  28.3 %18.4 %1.6x653,617  1,171,822  35.3 %1.8x
Sculptor Real Estate Fund IV(8) (2019-2023)
2,596,024  122,556  146,208  n/mn/mn/m65,056  86,762  n/mn/m
Sculptor Real Estate Credit Fund I(8) (2015-2020)
736,225  354,196  415,295  n/mn/mn/m130,028  168,063  n/mn/m
Other funds1,139,097  439,504  577,615  n/mn/mn/m63,189  108,964  n/mn/m
$7,218,935  $3,118,569  $5,247,974  $2,060,776  $3,936,005  

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Unrealized Investments as of June 30, 2020
Invested CapitalTotal
Value
Gross
MOIC(6)
Fund (Investment Period)(dollars in thousands)
Sculptor Real Estate Fund I (2005-2010)(7)
$—  $—  —  
Sculptor Real Estate Fund II (2011-2014)(7)
—  —  —  
Sculptor Real Estate Fund III (2014-2019)(7)
399,810  536,640  1.3x
Sculptor Real Estate Fund IV (2019-2023)(8)
57,500  59,446  n/m
Sculptor Real Estate Credit Fund I (2015-2020)(8)
224,168  247,232  n/m
Other funds376,315  468,651  n/m
$1,057,793  $1,311,969  
For funds that have concluded their investment periods, we expect assets under management to decrease as investments are sold and the related proceeds are distributed to the investors in these funds.
Assets Under Management as of March 31,
20212020
Fund (Investment Period)(dollars in thousands)
Sculptor Real Estate Fund II (2011-2014)42,040 61,602 
Sculptor Real Estate Fund III (2014-2019)
405,775 540,979 
Sculptor Real Estate Fund IV (2019-2023)2,593,338 2,023,070 
Sculptor Real Estate Credit Fund I (2015-2020)259,370 730,738 
Co-investment and other funds950,234 633,432 
$4,250,757 $3,989,821 

Inception to Date as of March 31, 2021
Total Investments
Realized/Partially Realized Investments(1)
Total Commitments
Invested Capital(2)
Total
Value(3)
Gross IRR(4)
Net IRR(5)
Gross MOIC(6)
Invested CapitalTotal
Value
Gross IRR(4)
Gross MOIC(6)
Fund(dollars in thousands)
Sculptor Real Estate Fund I$408,081 $386,298 $847,612 25.5 %16.1 %2.2x$386,298 $847,612 25.5 %2.2x
Sculptor Real Estate Fund II839,508 762,588 1,572,431 32.8 %21.6 %2.1x762,588 1,572,431 32.8 %2.1x
Sculptor Real Estate Fund III1,500,000 1,069,720 1,802,310 27.8 %18.2 %1.7x889,483 1,571,112 31.7 %1.8x
Sculptor Real Estate Fund IV(7)
2,596,024 335,291 413,753 n/mn/mn/m65,018 109,514 n/mn/m
Sculptor Real Estate Credit Fund I736,225 483,563 589,355 18.1 %12.6 %1.2x248,333 325,647 19.5 %1.3x
Co-investment and other funds1,193,944 473,512 654,764 n/mn/mn/m152,126 276,571 n/mn/m
$7,273,782 $3,510,972 $5,880,225 $2,503,846 $4,702,887 

Unrealized Investments as of March 31, 2021
Invested CapitalTotal
Value
Gross
MOIC(6)
Fund(dollars in thousands)
Sculptor Real Estate Fund I$— $— — 
Sculptor Real Estate Fund II— — — 
Sculptor Real Estate Fund III180,237 231,198 1.3x
Sculptor Real Estate Fund IV(7)
270,273 304,239 n/m
Sculptor Real Estate Credit Fund I235,230 263,708 1.1x
Co-investment and other funds321,386 378,193 n/m
$1,007,126 $1,177,338 
_______________
n/m not meaningful
(1)An investment is considered partially realized when the total amount of proceeds received, including dividends, interest or other distributions of income and return of capital, represents at least 50% of invested capital.
(2)Invested capital represents total aggregate contributions made for investments by the fund.
(3)Total value represents the sum of realized distributions and the fair value of unrealized and partially realized investments as of June 30, 2020.March 31, 2021. Total value will be impacted (either positively or negatively) by future economic and other factors. Accordingly, the total value ultimately realized will likely be higher or lower than the amounts presented as of June 30, 2020.March 31, 2021.
(4)Gross IRR for our real estate funds represents the estimated, unaudited, annualized return based on the timing of cash inflows and outflows for the aggregated investments as of June 30, 2020,March 31, 2021, including the fair value of unrealized and partially realized investments as of such date, together with any unrealized appreciation or depreciation from related hedging activity. Gross IRR is not adjusted for estimated management fees, incentive income or other fees or expenses to be paid by the fund, which would reduce the return.
47




(5)Net IRR is calculated as described in footnote (4), but is reduced by management fees and other fund-level fees and expenses not adjusted for in the calculation of gross IRR. Net IRR is further reduced by paid incentive and accrued incentive income that will be payable upon the distribution of each fund’s capital in accordance with the terms of the relevant fund. Accrued incentive income may be higher or lower at such time. The net IRR represents a composite rate of return for a fund and does not reflect the net IRR specific to any individual investor.
(6)Gross MOIC for our real estate funds is calculated by dividing the value of a fund’s investments by the invested capital, prior to adjustments for incentive income, management fees or other expenses to be paid by the fund.
(7)These funds have concluded their investment periods, and therefore we expect assets under management for these funds to decrease as investments are sold and the related proceeds are distributed to the investors in these funds.
(8)This fund has invested less than half of its committed capital; therefore, IRR and MOIC information is not presented, as it is not meaningful.
Assets under management in our real estate funds increased $1.8 billion,$260.9 million, or 62%7%, year-over-year due to net inflows of $3.1$1.0 billion, primarily due to the launchadditional closings of Sculptor Real Estate Fund IV, during the fourth quarter of 2019, which had its final closing in the second quarter of 2020, and related co-investment vehicles, partially offset by $1.3 billion$776.5 million of distributions and other reductions, primarily related to the expiration of the investment period of Sculptor Real Estate Credit Fund III and related co-investment vehicles.I in the fourth quarter of 2020. Our real estate funds continue to deploy capital and generate strong returns with an 18.4%18.2% annualized net return in Sculptor Real Estate Fund III. Despite the recent market dislocation, we believe our diversified approach across product types, position in the capital structure, focus on current income and modest use of leverage has allowed our portfolios to generate consistent returns over time. While we continue to actively navigate the current economic and market conditions resulting from the ongoing COVID-19 pandemic, to the extent our ability to realize investments may be delayed or operating cash flows from existing investments may be reduced or deferred, we may experience a delay in our ability to recognize incentive income from these funds.
5148




Longer-Term Assets Under Management
As of June 30, 2020,March 31, 2021, approximately 69%67% of our assets under management were subject to initial commitment periods of three years or longer. longer, this excludes assets under management that had initial commitment periods of three year or longer and subsequently moved to shorter commitment periods at the end of their initial commitment period. The table below presents the amount of these assets under management.
March 31, 2021December 31, 2020
(dollars in thousands)
Multi-strategy funds$666,298 $463,681 
Credit
Opportunistic credit funds4,467,358 4,250,444 
Institutional Credit Strategies15,637,985 15,683,304 
Real estate funds4,250,757 4,308,648 
$25,022,398 $24,706,077 
Incentive income on these assets, if any, is based on the cumulative investment performance generated over this commitment period. The table below presents the amount of these assets under management, as well as the amount of incentive income accrued at the fund level but that has not yet been recognized in our revenues. Further, theseThese amounts may ultimately not be recognized as revenue by us in the event of future losses in the respective funds. Compensation expense will be incurred when incentive income is recognized on our real estate funds, as the compensation is structured as carried interest in these vehicles. See “—Understanding Our Results—Revenues—Incentive Income” for additional information.
June 30, 2020
Longer-Term Assets Under ManagementAccrued Unrecognized Incentive Income
(dollars in thousands)
Multi-strategy funds$392,077  $13,302  
Credit
Opportunistic credit funds4,002,526  114,241  
Institutional Credit Strategies15,385,517  —  
Real estate funds4,736,545  99,879  
Other770  —  
$24,517,435  $227,422  
The table below presents the changes in the amount of incentive income accrued at the fund level but that has not yet been recognized in our revenues during three months ended March 31, 2021:
December 31, 2020Recognized Incentive IncomePerformanceMarch 31, 2021
(dollars in thousands)
Multi-strategy funds$14,932 $820 $4,501 $20,253 
Credit
Opportunistic credit funds14,925 (1,461)49,296 62,760 
Real estate funds98,371 (13,052)12,122 97,441 
$128,228 $(13,693)$65,919 $180,454 
Accrued unrecognized incentive income associated with longer-term assets increased by $87.4$52.2 million during the second quarter of 2020, primarily driven by positive performance in our opportunistic credit funds.three months ended March 31, 2021. We expect a large portion of the amounts related to our opportunistic credit funds to be recognized in the fourth quarter of 2020. For the remaindergenerated an additional $65.9 million of accrued unrecognized incentive income we generally recognizedue to our strong fund performance. We recognized $13.7 million of incentive income in multi-strategy funds and open-end opportunistic credit funds at or near the end of their respective commitment periods, which are generally three to five years, when such amounts are probable of not significantly reversing. We may begin recognizing incentive income related tofrom our longer-term assets under management in ourthe three months ended March 31, 2021.
Our accrued unrecognized incentive income (“ABURI”) from longer-term assets under management generally comprise the following:
Multi-strategy funds. Multi-strategy ABURI is derived from clients in the three-year liquidity tranche, where incentive income other than tax distributions will be recognized at the end of each client’s three-year period.
Opportunistic credit funds. Opportunistic credit funds ABURI is derived from three sources:
Clients in the three-year and four-year liquidity tranches of an open-end opportunistic credit fund, where incentive income other than tax distributions will be recognized at the end of each client’s three-year or four-year period
Long dated closed-end opportunistic credit funds, where incentive income other than tax distributions will be recognized during each fund’s harvest period after invested capital and a preferred return has been distributed to the clients
49




The Customized Credit Focused Platform, where incentive income other than tax distributions is recognized at the end of a multi-year term; previously crystallized on December 31, 2020
Real estate funds. Real Estate ABURI is derived from long-dated real estate funds, afterwhere incentive income other than tax distributions will start to be recognized following the conclusioncompletion of their respectiveeach fund’s investment period when suchas investments are realized and after invested capital and a preferred return has been distributed to the clients.
Certain ABURI amounts presented above will generally have compensation expense (on an Economic Income Basis) that will reduce the amount ultimately realized on a net basis. Compensation expense relating to ABURI from our real estate funds is generally recognized at the same time the related incentive income revenue is recognized. Compensation expense relating to ABURI generated from our multi-strategy funds and opportunistic credit funds is generally recognized in the year the underlying fund performance is generated which may not occur at the same time that the related revenues are probable of not significantly reversing. However, these investment periods may generally be extended for an additional one to two years.generated.
Understanding Our Results
Revenues
Our operations historically have been financed primarily by cash flows generated by our business. Our principal sources of revenues are management fees and incentive income. For any given period, our revenues are influenced by the amount of our assets under management, the investment performance of our funds and the timing of when we recognize incentive income for certain assets under management as discussed below.
The ability of investors to contribute capital to and redeem capital from our funds causes our assets under management to fluctuate from period to period. Fluctuations in assets under management also result from our funds’ investment performance. Both of these factors directly impact the revenues we earn from management fees and incentive income. For example, a $1.0 billion increase or decrease in assets under management subject to a 1% management fee would generally increase or decrease annual management fees by $10.0 million. If profits, net of management fees, attributable to a fee-paying fund investor were $10.0 million in a given year, we generally would earn incentive income equal to $2.0 million, assuming a 20% incentive income rate, a one-year commitment period, no hurdle rate and no high-water marks from prior years.
For any given quarter, our revenues are influenced by the combination of assets under management and the investment performance of our funds. For example, incentive income for the majority of our multi-strategy assets under management is recognized in the fourth quarter each year, based on full year investment performance.
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Management Fees. Management fees are generally calculated and paid to us on a quarterly basis in advance, based on the amount of assets under management at the beginning of the quarter. Management fees are prorated for capital inflows and redemptions during the quarter. Accordingly, changes in our management fee revenues from quarter to quarter are driven by changes in the quarterly opening balances of assets under management, the relative magnitude and timing of inflows and redemptions during the respective quarter, the impact of differing management fee rates charged on those inflows and redemptions, as well as the impact of deferring certainthe deferral of subordinated management fees forfrom certain CLOs, as discussed above.CLOs. See “—Weighted-Average Assets Under Management and Average Management Fee Rates” for information on our average management fee rate and Note 1312 to our consolidated financial statements in our Annual Report for additional information regarding management fees.
Incentive Income. We earn incentive income based on the cumulative performance of our funds over a commitment period. We recognize incentive income when such amounts are probable of not significantly reversing. See Note 1312 to our consolidated financial statements in our Annual Report for additional information regarding incentive income.
Other Revenues. Other revenues consist primarily of interest income on investments in CLOs, cash equivalents and longer-termlong-term U.S. government obligations, as well as subrental income. Interest income is recognized on an effective yield basis. Subrental income is recognized on a straight-line basis over the lease term.
50

Income of Consolidated Funds. 
Revenues recorded as income of consolidated funds consist of interest income, dividend income and other miscellaneous items.

Expenses
Compensation and Benefits. Compensation and benefits consist of salaries, employee benefits, payroll taxes, and discretionary and guaranteed cash bonus expenses. We generally recognize compensation and benefits expenses over the related service period.
On an annual basis, compensation and benefits comprise a significant portion of total expenses, with discretionary cash bonuses generally comprising a significant portion of total compensation and benefits. We accrue minimum annual discretionary cash bonuses on a straight-line basis during the year. The total amount of discretionary cash bonuses ultimately recognized for the full year, which is determined in the fourth quarter of each year, could differ materially from the minimum amount accrued, as the total discretionary cash bonus is dependent upon a variety of factors, including fund performance for the year.
Compensation and benefits also include equity-based compensation expense, which is primarily in the form of RSUs granted to our independent board members, employees and executive managing directors, as well as PSUs and Partner Equity Units granted to executive managing directors.
We also have profit-sharing arrangements whereby certain employees or executive managing directors are entitled to a share of incentive income that we earn from certain funds. This incentive income is typically paid to us and then we pay a portion to the profit-sharing participant as investments held by these funds are realized. To the extent that the payments to the employees or executive managing directors are probable and reasonably estimable, we accrue these payments as compensation expense for GAAP purposes, which may occur prior to the recognition of the related incentive income.
Deferred cash interests (“DCIs”) are also granted to certain employees and executive managing directors as a form of compensation. DCIs reflect notional fund investments made by us on behalf of an employee or executive managing director. DCIs generally vest over a three-year period, subject to an employee’s or executive managing director’s continued service. Upon vesting, we pay the employee or executive managing director an amount in cash equal to the notional investment represented by the DCIs, as adjusted for notional fund performance. Except as otherwise provided in the relevant DCI plan or in an award agreement, in the event of a termination of the employee’s or executive managing director’s service, any portion of the DCIs that is unvested as of the date of termination will be forfeited.
Interest Expense. Amounts included within interest expense relate primarily to indebtedness outstanding. See “—Liquidity and Capital Resources—Debt Obligations” and “—Liquidity and Capital Resources—Securities Sold Under Agreements to Repurchase”Financing Arrangements” for additional information.
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General, Administrative and Other. General, administrative and other expenses are comprised of professional services, occupancy and equipment, information processing and communications, recurring placement and related service fees, business development, insurance, foreign exchangecurrency transaction gains and losses, and other miscellaneous expenses. Legal settlements and provisions are also included within general, administrative and other.
Expenses of Consolidated Funds. Expenses recorded as expenses of consolidated funds consist of interest expense and other miscellaneous expenses.
Other Income (Loss)Loss
Changes in Tax Receivable Agreement Liability. Changes in tax receivable agreement liability consists of changes in our estimate of the future payments related to the tax receivable agreement that result from changes in future income tax savings due to changes in tax rates. See Note 1816 to our consolidated financial statements included in this report for additional information.
Net Losses on Early Retirement of Debt. Net losses on early retirement of debt consist of net losses realized upon the early retirement of any indebtedness outstanding, and include the write-off of unamortized debt discounts and issuance costs, as well as other fees incurred in connection with the early retirement of debt.
Net Gains (Losses) on Investments. Net gains (losses) on investments primarily consist of realized and unrealized net gains and losses on investments in our funds, including investments in U.S. government obligations, CLOs and other funds we manage.
51

Net Gains


Changes in Fair Value of Consolidated Funds.Warrant Liabilities.  NetChanges in fair value of warrant liabilities represent gains (losses) from changes in fair value of consolidated funds consist of net realized and unrealized gains and losses on investments held by the consolidated funds.warrants.
Income Taxes
Income taxes consist of our provision for federal, state and local income taxes in the United StatesU.S. and foreign income taxes, including provisions for deferred income taxes resulting from temporary differences between the tax and GAAP bases. The computation of the provision requires certain estimates and significant judgment, including, but not limited to, the expected taxable income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent differences between the tax and GAAP bases and the likelihood of being able to fully utilize deferred income tax assets existing as of the end of the period.
The Sculptor Operating Partnerships are partnerships for U.S. federal income tax purposes. The Registrant was a partnership for U.S. federal income tax purposes until the Corporate Classification Change on April 1, 2019. Prior to the Corporate Classification Change, only a portion of the income we earned was subject to corporate-level income taxes in the United StatesU.S. and foreign jurisdictions. Following the Corporate Classification Change, generally all of the income allocated to the Registrant from the Sculptor Operating Group will be subject to corporate-level income taxes in the United States.U.S. See Note 1412 for additional information regarding significant items impacting our income tax provision and effective tax rate.
Net Loss Attributable to Noncontrolling Interests
Noncontrolling interests represent ownership interests in our subsidiaries held by parties other than us and are primarily made up of Group A Units. Increases or decreases in net (loss) income attributable to the Group A Units are driven by the earnings of the Sculptor Operating Group. See Note 43 for additional information regarding our ownership interest in the Sculptor Operating Group.
Prior to the fourth quarter of 2019, we consolidated certain of our opportunistic credit funds, wherein investors are able to redeem their interests after an initial lock-up period of up to three years. Allocations of earnings to these interests were reflected within net income (loss) attributable to redeemable noncontrolling interests in the consolidated statements of comprehensive income (loss). Increases or decreases in the net income (loss) attributable to fund investors’ interests in consolidated funds were driven by the earnings of those funds as allocated under the contractual terms of the relevant fund agreements.
54


Results of Operations
Three and Six Months Ended June 30, 2020March 31, 2021 Compared to Three and Six Months Ended June 30, 2019March 31, 2020
Revenues
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,Change
2020201920202019 20212020$%
(dollars in thousands) (dollars in thousands)
Management feesManagement fees$60,383  $61,400  $127,336  $125,023  Management fees$73,961 $66,953 $7,008 10 %
Incentive incomeIncentive income38,238  34,757  47,560  87,955  Incentive income47,804 9,322 38,482 413 %
Other revenuesOther revenues2,424  5,043  5,377  8,812  Other revenues1,581 2,953 (1,372)(46)%
Income of consolidated fundsIncome of consolidated funds32  2,308  32  4,912  Income of consolidated funds— n/m
Total RevenuesTotal Revenues$101,077  $103,508  $180,305  $226,702  Total Revenues$123,349 $79,228 $44,121 56 %
_______________
n/m - not meaningful
Total revenues for the quarter-to-date period decreased $2.4increased $44.1 million, primarily due to the following:
A $1.0$7.0 million decreaseincrease in management fees, driven primarily by (i) a $5.8 million decrease in Institutional Credit Strategies, primarily due to $6.6the following:
Multi-strategy funds. A $4.0 million of subordinated management fees that have been deferred to future periods, inclusive of a $2.8 million reversal of fees recognized in the first quarter of 2020, as discussed above and that has been driven by the ongoing market and economic impacts of the COVID-19 pandemic; and (ii) a $5.0 million decreaseincrease in multi-strategy funds due to lowerhigher average assets under management. These decreases were partially offset by a $9.4
Opportunistic credit funds. A $3.7 million increase in real estateopportunistic credit funds primarily due to the launch of Sculptor Real Estate Fund IV during the fourth quarter of 2019, which had its final closinghigher average assets under management in the second quarterSculptor Credit Opportunities Master Fund, as well as higher average fee-paying
52


assets under management in certain of 2020. our open-ended credit funds, as additional capital was called into our Customized Credit Focused Platform.
See “—Assets Under Management and Fund Performance—Weighted-Average Assets Under Management and Average Management Fee Rates” above for information regarding our average management fee rates.
A $3.5$38.5 million increase in incentive income, primarily due to the following:
Multi-strategy funds. A $3.7$24.2 million increase in incentive income from our multi-strategy funds, which was driven by strong fund performance, resulting in the following increases: (i) an $11.5$11.9 million increase from assets under management subject to a one-year measurement period, partially offset byperiod; (ii) a $7.7$9.7 million decreaseincrease in tax distributions taken to cover tax liabilities on accrued unrecognized incentive income on longer-term assets under management; (iii) a $1.3 million increase from longer-term assets under management; and (iv) a $1.1 million increase related to fund investor redemptions.
Opportunistic credit funds. A $4.1 million increase in incentive income from our opportunistic credit funds, primarily driven by: (i) a $7.1 million increase from assets under management subject to a one-year measurement period; and (ii) a $1.3 million increase from longer-term assets under management. These increases were partially offset by a $5.1 million decrease in tax distributions taken to cover tax liabilities on accrued unrecognized incentive income on longer-term assets under management.
Real estate funds. A $939 thousand decrease$10.2 million increase in incentive income from our real estate funds, primarily due to loweran $8.4 million increase in realizations as these will vary from periodSculptor Real Estate Fund II and a $3.2 million increase in tax distributions taken to period basedcover tax liabilities on exit opportunities.accrued unrecognized incentive income on longer-term assets under management.
A $2.6$1.4 million decrease in other revenues primarily due to $1.6 million of certain transaction fees recognized in the prior year period related to Institutional Credit Strategies, as well asdriven by a $1.1 million decrease in interest income earned on cash and cash equivalents, primarily due to lower interest rates.
A $2.3 million decrease in income of consolidated funds primarily due to the majority of the assets related to the funds being deconsolidated in the third quarter of 2019.Expenses
Three Months Ended March 31,Change
20212020$%
(dollars in thousands)
Compensation and benefits$89,234 $67,419 $21,815 32 %
Interest expense4,868 5,782 (914)(16)%
General, administrative and other27,376 34,706 (7,330)(21)%
Expenses of consolidated funds— n/m
Total Expenses$121,480 $107,907 $13,573 13 %
_______________
n/m - not meaningful
Total revenues for the year-to-date period decreased $46.4expenses increased $13.6 million, primarily due to the following:
A $2.3$21.8 million increase in management fees, driven primarily by (i) a $14.3 million increase in real estate funds, primarily due to the launch of Sculptor Real Estate Fund IV during the fourth quarter of 2019, which had its final closing in the second quarter of 2020. This increase was partially offset by (i) a $7.0 million decrease in multi-strategy funds due to lower average assets under management; and (ii) a $4.2 million decrease in Institutional Credit Strategies, primarily due to $6.6 million of subordinated management fees that have been deferred to future periods, as discussed above and that has been driven by the ongoing market and economic impacts of the COVID-19 pandemic. See “—Assets Under Management and Fund Performance—Weighted-Average Assets Under Management and Average Management Fee Rates” above for information regarding our average management fee rates.
55


A $40.4 million decrease in incentive income, primarily due to the following:
Multi-strategy funds. A $9.4 million decrease in incentive income from our multi-strategy funds, which was driven by: (i) a $15.6 million decrease related to fund investor redemptions; (ii) a $3.3 million decrease from longer-term assets under management; and (iii) a $3.0 million decrease in tax distributions taken to cover tax liabilities on incentive income that has been accrued on certain longer-term assets under management. These decreases were partially offset by a $12.5 million increase from assets under management subject to a one-year measurement period.
Opportunistic credit funds. A $25.6 million decrease in incentive income from our opportunistic credit funds, which was driven by: (i) a $13.6 million decrease in tax distributions; (ii) a $7.2 million decrease from longer-term assets under management; and (iii) a $4.3 million decrease from assets under management subject to a one-year measurement period.
Real estate funds. A $5.4 million decrease in incentive income from our real estate funds, primarily due to lower realizations, as these will vary from period to period based on exit opportunities.
A $3.4 million decrease in other revenues primarily due to $1.6 million of certain transaction fees recognized in the prior year period related to Institutional Credit Strategies, as well as a $1.7 million decrease in interest income earned on cash and cash equivalents, primarily due to lower rates.
A $4.9 million decrease in income of consolidated funds primarily due to the majority of the assets related to the funds being deconsolidated in the third quarter of 2019.
Expenses
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(dollars in thousands)
Compensation and benefits$65,290  $80,709  $132,709  $166,424  
Interest expense4,674  6,523  10,456  12,731  
General, administrative and other142,615  28,427  177,321  66,215  
Expenses of consolidated funds19  84  19  139  
Total Expenses$212,598  $115,743  $320,505  $245,509  
Total expenses for the quarter-to-date period increased $96.9 million, primarily due to the following:
A $114.2 million increase in general, administrative and other expenses primarily due to a $116.9 million legal provision accrual related to the matters described in Note 18, partially offset by reductions across various operating expense categories.
A $15.4 million decrease in compensation and benefits expenses primarily driven by an $18.4 million increase in bonus expense due to higher real estate incentive income profit sharing expense driven by realizations from Sculptor Real Estate Fund II and separation-related compensation for departing executives; and (ii) a $19.5$6.2 million decreaseincrease in equity-based compensation expense primarily due to: (i)to a $10.7$14.4 million decreaseincrease in RSUs amortization primarily as a result of fewer average numberacceleration of awards outstanding in the current year period and lower average grant date fair values; and (ii)compensation cost as a $7.1result of separation-related compensation for departing executives. This increase was partially offset by (x) a $5.9 million decrease in amounts related to Group E Units, primarily due toas the remaining Group E Unitsunits are being amortized on an accelerated basis (i.e., each tranche is being
53


amortized over its respective service period), resulting in decreasing expenses in each subsequent vesting year on these awards. These decreases were partially offset by a $4.2 million increase in bonus expense, primarily due to higher discretionary bonus accrual.
A $1.8 million decrease in interest expense primarily due to: (i) a $1.1 million decrease in interest expense related to the 2018 Term Loan due to repayments made in connection with the Recapitalization and subsequent paydowns in
56


accordance with the Cash Sweep; and (ii) a $636 thousand decrease in interest expense related to the Debt Securities, primarily due to a $3.3 million decrease in non-cash interest expense accretion of the discount taken at the time of the Recapitalization, partially offset by a $2.7 million increase as a result of interest payments beginning in 2020. The decrease in interest expense was also driven by lower interest rates.
Total expenses for the year-to-date period increased $75.0 million, primarily due to the following:
A $111.1 million increase in general, administrative and other expenses primarily driven by a $116.9 million legal provision accrual for the matters described in Note 18, partially offset by a $6.7 million decrease in professional services expenses, primarily due to higher legal and accounting fees incurred in connection with the Recapitalization in the prior-year period, as well as reductions across various operating expense categories
A $33.7 million decrease in compensation and benefits expenses driven by: (i) a $31.9 million decrease in equity-based compensation expense primarily due to (x) a $15.9 million decrease in RSUs amortization primarily as a result of fewer average number of awards, outstanding in the current year period and lower average grant date fair values, and (y) a $16.2$2.8 million decrease in amounts related to Group EP Units primarily due to certain awards issued in connection withas a result of the Recapitalization thatrelated service period ending during 2020. These increases were fully vested and therefore were fully expensed in the first quarter of 2019, as well as the remaining Group E Units being amortized on an accelerated basis (i.e., each tranche is being amortized over its respective service period), resulting in decreasing expenses each year on these awards; and (ii)partially offset by a $1.0$2.8 million decrease in salaries and benefits, as our worldwide headcount decreased to 367341 as of June 30, 2020,March 31, 2021, from 394388 as of June 30, 2019.March 31, 2020. Further, driving the decrease in salaries and benefits was the capitalization of $1.1 million of certain internal software implementation costs, as we continue to invest in technology to enhance future operational efficiencies.
An offsetting $7.3 million decrease in general, administrative and other expenses primarily driven by: (i) a $5.3 million decrease in professional services expenses, primarily due to costs incurred in the prior year related to legal settlements and provisions; (ii) a $2.1 million decrease in recurring placement and related service fees, driven by Sculptor Real Estate Fund IV, which launched in the fourth quarter of 2019, and held its final closing in the second quarter of 2020; and (iii) reductions across various other operating expense categories, driven by travel restrictions and employees working from home.
A $2.3 million$914 thousand decrease in interest expense, primarily due to a $3.3lower average outstanding debt balance.
Other Loss
 Three Months Ended March 31,Change
 20212020$%
 (dollars in thousands)
Changes in fair value of warrant liabilities$(24,944)$— $(24,944)n/m
Changes in tax receivable agreement liability580 278 302 109 %
Net losses on retirement of debt(23,673)(523)(23,150)n/m
Net gains (losses) on investments5,362 (34,069)39,431 (116)%
Total Other Loss$(42,675)$(34,314)$(8,361)24 %
_______________
n/m - not meaningful
Total other loss decreased by $8.4 million, decreasewhich resulted from the following:
Changes in interest expense relatedfair value of warrant liabilities. The amount in 2021 is the result of an increase in the fair value of warrants to the 2018 Term Loan due to repayments madepurchase our Class A Shares that were issued in connection with the Recapitalization and subsequent paydowns in accordance with2020 Credit Agreement. The change was primarily due to the Cash Sweep, partially offset by a $1.1 million increase in interest expenseour Class A Share price, and adjustment to the exercise price due to dividend and the change in risk-free rate from the issuance date of the warrants to March 31, 2021.
Changes in tax receivable agreement. The amounts in 2021 and 2020 are both a result of changes in projected future tax rates impacting the anticipated liability under the tax receivable agreement.
Net losses on retirement of debt. The amount in 2021 was primarily related to the Debt Securities as a result$174.4 million repayment of interest payments beginningamounts outstanding under the 2020 Term Loan. The amount in 2020 (inclusive of non-cash interest expense accretion of the discount taken at the time of the Recapitalization). The decrease in interest expense was also driven by lower interest rates.
Other Income (Loss)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (dollars in thousands)
Changes in tax receivable agreement liability$—  $5,362  $278  $5,362  
Net losses on early retirement of debt(170) (595) (693) (6,053) 
Net gains (losses) on investments29,178  3,148  (4,891) 5,837  
Net gains of consolidated funds—  482  —  4,228  
Total Other Income (Loss)$29,008  $8,397  $(5,306) $9,374  
Total other income increased by $20.6 million for the quarter-to-date period, primarily due to higher net gains on investments, partially offset by changes in tax receivable agreement liability as a result of conversion to a C-corporation in the prior year period.
Total other income (loss) decreased by $14.7 million for the year-to-date period, primarily due to net losses on investments in the first half of 2020, changes in tax receivable agreement liability as a result of conversion to a C-corporation in the prior year period, and a decrease in gains on investments in consolidated funds as the majority of the assets related to the funds were deconsolidated in the third quarter of 2019. Offsetting these decreases, losses recognized on early retirement of debt decreased, as we paid down $145.0$27.0 million repayment of amounts outstanding onunder the 2018 Term Loan in the first halfLoan. These amounts were comprised of 2019unamortized discounts and terminated the 2018 Revolving Credit Facilitydeferred financing costs that were proportionately written off in connection with the Recapitalizationthese repayments.
Net gains (losses) on investments. These amounts in 2021 were primarily driven by increases in the first quartervalue of 2019.our investments in our funds, including the value of our risk retention investments in certain of our CLOs. The amounts in 2020 were driven primarily by a $36.8 million decline on our risk retention investments in CLOs and in investments in other funds that resulted from the market conditions in March 2020.
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Income Taxes
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(dollars in thousands)
Income taxes$(17,400) $10,134  $(27,368) $13,520  
Three Months Ended March 31,Change
20212020$%
(dollars in thousands)
Income taxes$(1,715)$(9,968)$8,253 (83)%
Income tax expense for the quarter-to-date and year-to-date period decreasedincreased by $27.5 million and $40.9 million, respectively.$8.3 million. Income tax expense was higher in 2019 for both the quarter-to-date and year-to-date periods primarily due to increased profitability and the change in fair value of warrant liabilities that is non-deductible for tax impacts of the Corporate Classification Change, combined with a decrease in profitabilitypurposes in the current year period.year.
Net Loss Attributable to Noncontrolling Interests
The following table presents the components of the net loss attributable to noncontrolling interests and to redeemable noncontrolling interests:
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,Change
2020201920202019 20212020$%
(dollars in thousands) (dollars in thousands)
Group A UnitsGroup A Units$(42,130) $(8,148) $(67,467) $(15,517) Group A Units$(19,253)$(25,337)$6,084 (24)%
OtherOther270  164  (478) 299  Other455 (748)1,203 (161)%
TotalTotal$(41,860) $(7,984) $(67,945) $(15,218) Total$(18,798)$(26,085)$7,287 (28)%
Redeemable noncontrolling interests$—  $(2,637) $—  $(8,171) 
Net loss allocated to noncontrolling interests increaseddecreased by $33.9 million and $52.7 million for$7.3 million. During the quarter-to-date
and year-to-date periods, respectively. The increase in loss for the both the quarter-to-date and year-to-date period was primarily drivenDistribution Holiday, net income earned by lower profitability of theany Sculptor Operating Partnership is allocated 100% to Sculptor Capital Management, Inc., while losses are allocated on a pro rata basis among the Group resulting fromA Units (noncontrolling interests) and Sculptor Capital Management, Inc. as described in Note 3. In 2021, we allocated higher losses to Sculptor Capital LP, which earns most of our management fees and incurs most of our operating expenses, as operating expenses were higher in 2021. Sculptor Capital Advisors II LP along with Sculptor Capital Advisors LP, earns most of our incentive income. In the drivers discussed above. See Note 4 for additional details.three months ended March 31, 2021, Sculptor Capital Advisors II generated net income, and therefore we allocated 100% of its income to Sculptor Capital Management, Inc.
Net (Loss) IncomeLoss Attributable to Class A Shareholders

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(dollars in thousands)
Net (Loss) Income Attributable to Class A Shareholders$(25,239) $(8,625) $(53,506) $28,458  
Three Months Ended March 31,Change
20212020$%
(dollars in thousands)
Net Loss Attributable to Class A Shareholders$(20,293)$(28,267)$7,974 (28)%
Net loss attributable to Class A Shareholders increased by $16.6 million for the quarter-to-date period, primarily due to higher legal provisions and lower revenues, partially offset by lower income tax expense, higher unrealized gains on our investments, lower equity-based compensation expense, a decrease related to a change in tax receivable agreement liability in the prior year, as well as reductions across various operating expense categories.
Net (loss) income attributable to Class A Shareholders decreased by $82.0 million for the year-to-date period.$8.0 million. The year-over-year decrease was primarily due to higher legal provisions, lower incentive income and unrealized lossesmanagement fees, higher gains on our investments and lower operating expenses, partially offset by lowerchange in fair value of warrant liabilities, losses on retirement of debt, higher bonus expense, and higher income tax expense, lower equity-based compensation, and lower professional services expenses, driven by higher legal and accounting fees incurred in connection with the Recapitalization in the prior-year period. Also impacting our results to Class A Shareholders was an adjustment to the redemption value of Preferred Units recognized in connection with the Recapitalization in the first quarter of 2019 that increased net income attributable to Class A Shareholders in the first half of 2019
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by $44.4 million. In the first half of 2020, an adjustment of $3.3 million to the redemption value of the Preferred Units related to the accrual of distributions on the units decreased amounts attributable to Class A Shareholders in the first half of 2020.expense.
Economic Income Analysis
In addition to analyzing our results on a GAAP basis, management also reviews our results on an “Economic Income” basis. Economic Income excludes the adjustments described below that are required for presentation of our results on a GAAP basis, but that management does not consider when evaluating operating performance in any given period. Management uses Economic Income as the basis on which it evaluates our financial performance and makes resource allocation and other operating decisions. Management considers it important that investors review the same operating information that it uses.
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Economic Income is a measure of pre-tax operating performance that excludes the following from our results on a GAAP basis:
Income allocations to our executive managing directors on their direct interests in the Sculptor Operating Group. Management reviews operating performance at the Sculptor Operating Group level, where our operations are performed, prior to making any income allocations.
Equity-based compensation expenses, depreciation and amortization expenses, changes in fair value of warrant liabilities, changes in the tax receivable agreement liability, net losses on early retirement of debt, gains and losses on fixed assets, and gains and losses on investments in funds, as management does not consider these items to be reflective of operating performance. However, the fair value of RSUs that are settled in cash to employees or executive managing directors is included as an expense at the time of settlement.
Amounts related to non-cash interest expense accretion on Debt Securities issued in exchange for 2016 Preferred Units in connection withdebt. The 2020 Term Loan and the Recapitalization. Upon exchange, Debt Securities were each recognized at fair valuea significant discount, as proceeds from each borrowing were allocated to warrant liabilities and are being accretedthe 2019 Preferred Units, respectively, resulting in non-cash accretion to par value over time through interest expense for GAAP; however, managementGAAP. Management excludes these non-cash expenses from Economic Income, as it does not consider this interest accretionthem to be reflective of our operating performance.economic borrowing costs.
Amounts related to the consolidated funds, including the related eliminations of management fees and incentive income, as management reviews the total amount of management fees and incentive income earned in relation to total assets under management and fund performance.
In addition, expenses related to incentive income profit-sharing arrangements are generally recognized at the same time the related incentive income revenue is recognized, as management reviews the total compensation expense related to these arrangements in relation to any incentive income earned by the relevant fund. Further, deferred cash compensation is expensed in full in the year granted for Economic Income, rather than over the service period for GAAP.
As a result of the adjustments described above, as well as an adjustment to present management fees net of recurring placement and related service fees (rather than considering these fees an expense), management fees, incentive income, other revenues, compensation and benefits, interest expense, general, administrative and other expenses and net income (loss) attributable to noncontrolling interests as presented on an Economic Income basis are also non-GAAP measures.
For reconciliations of our non-GAAP measures to the respective GAAP measures, please see “—Economic Income Reconciliations” at the end of this MD&A.
Our non-GAAP financial measures should not be considered as alternatives to our GAAP net income allocated to Class A Shareholders or cash flow from operations, or as indicative of liquidity or the cash available to fund operations. Our non-GAAP measures may not be comparable to similarly titled measures used by other companies.
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Three and Six Months Ended June 30, 2020March 31, 2021 Compared to Three and Six Months Ended June 30, 2019March 31, 2020
Economic Income Revenues (Non-GAAP)
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,Change
202020192020201920212020$%
(dollars in thousands)(dollars in thousands)
Economic Income BasisEconomic Income BasisEconomic Income Basis
Management feesManagement fees$56,432  $57,635  $116,294  $117,650  Management fees$69,070 $59,862 $9,208 15 %
Incentive incomeIncentive income38,251  34,757  47,573  87,955  Incentive income47,804 9,322 38,482 413 %
Other revenuesOther revenues2,424  5,043  5,377  8,812  Other revenues1,581 2,953 (1,372)(46)%
Total Economic Income RevenuesTotal Economic Income Revenues$97,107  $97,435  $169,244  $214,417  Total Economic Income Revenues$118,455 $72,137 $46,318 64 %
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Economic Income revenues for the quarter-to-date period remained relatively flat,increased $46.3 million, primarily due to the following:
A $1.2$9.2 million decreaseincrease in management fees, driven primarily by (i) a $5.8the following:
Multi-strategy funds. A $3.6 million decreaseincrease due to higher average assets under management.
Opportunistic credit funds. A $3.7 million increase due to higher average assets under management in Institutionalthe Sculptor Credit Strategies,Opportunities Master Fund, as well as higher average fee-paying assets under management in certain of our open-ended credit funds, as additional capital was called into our Customized Credit Focused Platform.
Real estate funds. A $2.0 million increase, primarily due to $6.2 million of subordinated management fees that have been deferred to future periods, inclusive of a $2.6 million reversal of fees recognized in the first quarter of 2020, as discussed above and has been driven by the ongoing market and economic impacts of the COVID-19 pandemic; and (ii) a $4.5 million decrease in multi-strategy funds due to lower average assets under management. These decreases were partiallyprior year being offset by an $8.8 million increaserecurring placement and related service fees incurred in real estate funds, primarily due toconnection with the launchadditional closes of Sculptor Real Estate Fund IV duringthat occurred in the fourthfirst quarter of 2019, which had its final closing in the second quarter of 2020.
See “—Assets Under Management and Fund Performance—Weighted-Average Assets Under Management and Average Management Fee Rates” above for information regarding our average management fee rates.
A $3.5$38.5 million increase in incentive income, primarily due to the following:
Multi-strategy funds. A $3.7$24.2 million increase in incentive income from our multi-strategy funds, which was driven by strong fund performance, resulting in the following increases: (i) an $11.5$11.9 million increase from assets under management subject to a one-year measurement period, partially offset byperiod; (ii) a $7.7$9.7 million decreaseincrease in tax distributions taken to cover tax liabilities on accrued unrecognized incentive income on longer-term assets under management; (iii) a $1.3 million increase from longer-term assets under management; and (iv) a $1.1 million increase related to fund investor redemptions.
Opportunistic credit funds. A $4.1 million increase in incentive income from our opportunistic credit funds, primarily driven by: (i) a $7.1 million increase from assets under management subject to a one-year measurement period; and (ii) a $1.3 million increase from longer-term assets under management. These increases were partially offset by a $5.1 million decrease in tax distributions taken to cover tax liabilities on accrued unrecognized incentive income on longer-term assets under management.
Real estate funds.funds A $939 thousand decrease$10.2 million increase in incentive income from our real estate funds, primarily due to lower realizations, as these will vary from period to period based on exit opportunities.
A $2.6 million decrease in other revenues primarily due to $1.6 million of certain transaction fees recognized in the prior year period related to Institutional Credit Strategies, as well as a $1.1 million decrease in interest income earned on cash and cash equivalents, primarily due to lower rates.
Economic Income revenues for the year-to-date period decreased $45.2 million, primarily due to the following:
A $1.4 million decrease in management fees, driven primarily by (i) a $6.5 million decrease in multi-strategy funds due to lower average assets under management; and (ii) a $4.6 million decrease in Institutional Credit Strategies, primarily due to $6.2 million of subordinated management fees that have been deferred to future periods, as discussed above and has been driven by the ongoing market and economic impacts of the COVID-19 pandemic. These decreases were partially offset by a $10.5an $8.4 million increase in real estate funds, primarily due to the launch ofrealizations from Sculptor Real Estate Fund IV during the fourth quarter of 2019, which had its final closing in the second quarter of 2020. See “—Assets Under ManagementII and Fund Performance—Weighted-Average Assets Under Management and Average Management Fee Rates” above for information regarding our average management fee rates.
A $40.4a $3.2 million decrease in incentive income, primarily due to the following:
Multi-strategy funds. A $9.4 million decrease in incentive income from our multi-strategy funds, which was driven by: (i) a $15.6 million decrease related to fund investor redemptions; (ii) a $3.3 million decrease
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from longer-term assets under management; and (iii) a $3.0 million decreaseincrease in tax distributions taken to cover tax liabilities on accrued unrecognized incentive income that has been accrued on certain longer-term assets under management. These decreases were partially offset by a $12.5 million increase from assets under management subject to a one-year measurement period.
Opportunistic credit funds. A $25.6 million decrease in incentive income from our opportunistic credit funds, which was driven by: (i) a $13.6 million decrease in tax distributions; (ii) a $7.2 million decrease from longer-term assets under management; and (iii) a $4.3 million decrease from assets under management subject to a one-year measurement period.
Real estate funds. A $5.4 million decrease in incentive income from our real estate funds, primarily due to lower realizations, as these will vary from period to period based on exit opportunities.
A $3.4$1.4 million decrease in other revenues primarily due to $1.6 million of certain transaction fees recognized in the prior year period related to Institutional Credit Strategies, as well asdriven by a $1.7 million decrease in interest income earned on cash and cash equivalents, primarily due to lower interest rates.
Economic Income Expenses (Non-GAAP)
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,Change
202020192020201920212020$%
(dollars in thousands)(dollars in thousands)
Economic Income BasisEconomic Income BasisEconomic Income Basis
Compensation and benefitsCompensation and benefits$40,780  $40,316  $81,040  $83,862  Compensation and benefits$52,535 $40,260 $12,275 30 %
Interest expenseInterest expense3,888  2,419  7,805  6,316  Interest expense4,434 3,917 517 13 %
General, administrative and other expensesGeneral, administrative and other expenses136,665  22,290  162,342  54,052  General, administrative and other expenses20,551 25,677 (5,126)(20)%
Total Economic Income ExpensesTotal Economic Income Expenses$181,333  $65,025  $251,187  $144,230  Total Economic Income Expenses$77,520 $69,854 $7,666 11 %
Economic Income expenses for the quarter-to-date period increased by $116.3$7.7 million, primarily due to the following:
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A $114.4 million increase in general, administrative and other expenses primarily driven by a $116.9 million legal provision accrual related to the matters described in Note 18, partially offset by reductions across various operating expense categories.
A $1.5$12.3 million increase in interest expense primarily due to a $2.7 million increase related to the Debt Securities, which began paying interest in 2020, partially offset by a $1.1 million decrease in interest expense related to the 2018 Term Loan due to repayments made in connection with the Recapitalization and subsequent paydowns in accordance with the Cash Sweep.
Compensation and benefits expenses remained relatively flat period-over-period.
Economic Income expenses for the year-to-date period increased by $107.0 million, primarily due to the following:
A $108.3 million increase in general, administrative and other expenses primarily driven by a $116.9 million legal provision accrual for the matters described in Note 18, partially offset by a $6.7 million decrease in professional services expenses, primarily due to higher legal and accounting fees incurred in connection with the Recapitalization in the prior-year period, as well as reductions across various operating expense categories
A $2.8 million decrease in compensation and benefits expenses, driven by (i) a $1.8$15.1 million decreaseincrease in bonus expense, primarily due to lower guaranteed bonus accrualshigher real estate incentive income profit sharing expense driven by realizations from Sculptor Real Estate Fund II and deferred cashseparation-related compensation forfeiture reversals,for departing executives; partially offset
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by higher discretionary bonus accrual; and (ii) a $1.0$2.8 million decrease in salaries and benefits, as our worldwide headcount decreased to 367341 as of June 30, 2020,March 31, 2021, from 394388 as of June 30, 2019.March 31, 2020. Further, driving the decrease in salaries and benefits was the capitalization of $1.1 million of certain internal software implementation costs, as we continue to invest in technology to enhance future operational efficiencies.
A $1.5 million$517 thousand increase in interest expense primarily due to a $4.8 million increase related tointerest accruals on the Debt Securities, which began paying interest in 2020 Term Loan, partially offset by a $3.3 million decrease in interest expense related tono longer accruing on the 2018 Term Loan due to repayments madeor Debt Securities, as these were repaid in full in the fourth quarter of 2020 in connection with the Recapitalizationclosing of the 2020 Term Loan.
An offsetting $5.1 million decrease in general, administrative and subsequent paydownsother expenses primarily driven by a $5.3 million decrease in accordance with the Cash Sweep.
Economic Income (Non-GAAP)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
(dollars in thousands)
Economic Income$(84,225) $32,412  $(81,942) $70,189  
Economic Income was a loss of $84.2 million in the second quarter of 2020, compared to income of $32.4 million in the second quarter of 2019. This decline wasprofessional services expenses, primarily due to legal provisions recordedcosts incurred in the second quarter of 2020, lower interest income,prior year related to legal settlements and higher interest expense, partially offset by an increase in incentive income,provisions, as well as reductions across various other operating expense categories.categories, driven by travel restrictions and employees working from home.
Economic Income (Non-GAAP)
 Three Months Ended March 31,Change
 20212020$%
(dollars in thousands)
Economic Income$40,935 $2,283 $38,652 n/m
_______________
n/m - not meaningful
Economic Income was a loss of $81.9$40.9 million in the first half of 2020,2021, compared to income of $70.2$2.3 million in the first half of 2019.2020. This increase in loss was primarily due to higher legal provisions, as well as lower incentive income and management fees and lower interest income, and higher interest expense,operating expenses, partially offset by lower professional services expenses, driven by higher legal and accounting fees incurred in connection with the Recapitalization in the prior-year period, lower compensation and benefits expense, as well as reductions across various operating expense categories.bonus expense.
Liquidity and Capital Resources
Overview
The working capital needs of our business have historically been met, and we anticipate will continue to be met, through cash generated from management fees and incentive income earned from our funds.
We ended the quarter with $198.0 million of unrestricted cash and cash equivalents, $104.9 million of longer-term U.S. government obligations (Treasury bills) and $82.3 million of management fees and incentive income receivable (substantially all of which was collected shortly after quarter-end). We also have access to an additional $25.0 million through our undrawn 2020 Revolving Credit Facility.
Based on management’s experience and our current level of assets under management, we believe that our current liquidity position, together with the cash generated from management fees will be sufficient to meet our anticipated fixed operating expenses (as defined below) and other working capital needs for at least the next 12 months. For our longer-term liquidity needs, we expect to continue to fund our fixed operating expenses through management fees and to fund discretionary cash bonuses and the repayment of our financing arrangements through a combination of management fees and incentive income. We may also decide to meet these requirements by issuing additional debt, equity or other securities.
Over the long term, we believe we will be able to grow our assets under management and generate positive investment performance in our funds, which we expect will allow us to grow our management fees and incentive income in amounts sufficient to cover our long-term liquidity requirements.
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To maintain maximum flexibility to meet demands and opportunities both in the short and long term, and subject to existing contractual arrangements, we may want to use cash on hand, issue additional equity or borrow additional funds to:
Support the future growth in our business.
Create new or enhance existing products and investment platforms.
Repay amounts due under our debt obligations and repurchase agreements.
Repurchase Class A Shares or Sculptor Operating Group from our funds, as well as other sourcesUnits.
Pursue new investment opportunities.
Develop new distribution channels.
Pay dividends.
Recent Developments
In the three months ended March 31, 2021, we repaid $174.4 million of liquidity noted above and below.the 2020 Term Loan, leaving a balance of $145.0 million.
Liquidity Needs
Over the next 12 months, we expect that our primary liquidity needs will be to:
Pay our operating expenses.
Pay interest and principal as applicable, on our debt obligations, repurchase agreements and 2019 Preferred Units, including required paydowns under the Cash Sweep discussed below.financing arrangements.
Provide capital to facilitate the growth of our business, including making risk retention investments in CLOs managed by us that are subject to EU and UK risk retention rules.
Pay income taxes, as well as compensation-relatedRSU tax withholding obligations.obligations and amounts due under the tax receivable agreement.
Make cash distributions in accordance with our distribution policy as discussed below under “—Dividends and Distributions.”policy.
In addition, our liquidity needs in the next 12 months may include $136.0 million of settlement costs incurred to resolve the restitution claim described in Note 18 to our consolidated financial statements included in this quarterly report, which we intend to pay from cash and cash equivalents and long-term U.S. government obligations.Operating Expenses
Historically,We generally rely on management fees have been sufficient to cover our “fixed” operating expenses, which we define as salaries, benefits, a minimum discretionary bonus and our general, administrative and other expenses, including upcoming lease payments as presented in Note 6 to our consolidated financial statements, incurred in the ordinary course of
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business. Net capital outflows from our multi-strategy funds have resulted in lower management fees over the last several years, and while we are making every effort to scale our operations so that management fees are sufficient to cover our fixed operating expenses, our current management fees do not cover our current fixed operating expenses. Additionally, the global economic downturn due to the ongoing COVID-19 pandemic has increased the risk that our management fees may decline further. No assurances can be given that our management fees ultimately will be sufficient for these purposesto cover our fixed operating expenses in future periods.
We have evaluated our financing arrangements in light of To the COVID-19 pandemic to ensure compliance with debt covenants. As of the date of this filing, we remain in compliance with our debt covenants and we expect to continue to be in compliance under the terms of these arrangements in the near term. Our ability to access financial markets, should it be necessary, may be limited because of the COVID-19 pandemic.
Currentlyextent our management fees do not cover our fixed operating expenses, andas well as to fund any other liabilities, we intend to continue towould rely on cash on hand and incentive income to cover any shortfall, as well as to fund any other liabilities.shortfall. We cannot predict the amount of incentive income, if any, that we may earn in any given year. Total annual revenues, which are heavily influenced by the amount of incentive income we earn, historically have been sufficient to fund both our fixed operating expenses and all of our other working capital needs, including annual discretionary cash bonuses. These cash bonuses, which historically have comprised our largest cash operating expense, are variable such that in any year where total annual revenues are greater or less than the prior year, cash bonuses may be adjusted accordingly. Our ability to scale our largest cash operating expense to our total annual revenues helps us manage our cash flow and liquidity position from year to year.
Based on our past results, management’s experience and our current level of assets under management, we believe that our existing cash resources, together with the cash generated from management fees will be sufficient to meet our anticipated fixed operating expenses and other working capital needs for at least the next 12 months. Working capital does not include contingent liabilities.
Historically, we have determined the amount of discretionary cash bonuses during the fourth quarter of each year, based on our total annual revenues. We have historically funded these amounts through fourth quarter management fees and incentive income crystallized on December 31, which represents the majority of the incentive income we typically earn each year. To the
59




extent our funds generate incentive income in the fourth quarter, we may elect to increase the amount of cash bonuses paid to employees over the amount already accrued throughout the year, with any incremental amounts recognized as expense in the fourth quarter. Although we cannot predict the amount, if any, of incentive income we may earn, we are able to regularly monitor expected management fees and we believe that we will be able to adjust our expense infrastructure, including discretionary cash bonuses, as needed to meet the requirements of our business and in order to maintain positive operating cash flows. Nevertheless, if we generate insufficient cash flows from operations to meet our short-term liquidity needs, we may have to borrow funds or sell assets, subject to existing contractual arrangements.
Financing Arrangements
We may use cash on hand to repay all or a portion ofpay interest and principal due on our indebtedness outstanding or any other liabilitiesfinancing arrangements, including debt obligations and repurchase agreements, prior to their respective maturity or due dates, which would reduce amounts available to distribute to our Class A Shareholders. Additionally, weWe may also refinance all or a portion of ourany borrowings outstanding indebtednesson or prior to their respective maturity dates. For any amounts unpaid as of a maturity or due date, we will be required to repay the remaining balance by using cash on hand, refinancing the remaining balance by issuingincurring new notes or entering into new credit facilities,debt, which could result in higher borrowing costs, or by issuing equity or other securities, which would dilute existing shareholders. No assurance can be given that we will be ableSee Notes 7 and 8 to issue new notes, enter into new credit facilities or issue equity or other securities in the futureour consolidated financial statements for details on attractive terms or at all. Any new notes or new credit facilities that we may be able to issue or enter into may have covenants that impose additional limitations on us, including with respect to making distributions, entering into business transactions or other matters, and may result in increased interest expense. If we are unable to meet our debt obligations on terms that are favorable to us, our business may be adversely impacted.and repurchase agreements.
On July 27, 2017, the UK Financial Conduct Authority announced that it would phase out LIBOR as a benchmark by the end of 2021. To address a potential transition away from LIBOR, the Senior Subordinated Credit Agreement and Senior Credit Agreement each provide for an agreed upon methodology to calculate the new floating rate reference plus new applicable spreads. See “Part I, Item 1A.CLO Risk Factors—Risks Related to Our Business—Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect our credit arrangements and our collateralized loan obligation transactions” in our Annual Report for additional information.
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Retention Investments
In order to meet risk retention requirements for certain of the CLOs we manage, we use a combination of cash on hand, as well as financing under the CLO Investments Loans and repurchase agreements to fund our 5% risk retention investments. We expect to continue relying on a combination of cash on hand and financing to fund future CLO risk retention investments.
For our other longer-term liquidity requirements, we expect to continue to fund our fixed operating expenses through management fees and to fund discretionary cash bonuses and the repayment Payments of our debt obligations through a combination of management fees and incentive income. We may also decide to meet these requirements by issuing additional debt, equity or other securities.
Over the long term, we believe we will be able to grow our assets under management and generate positive investment performance in our funds, which we expect will allow us to grow our management fees and incentive income in amounts sufficient to cover our long-term liquidity requirements.
To maintain maximum flexibility to meet demands and opportunities both in the short and long term, and subject to existing contractual arrangements, we may want to retain cash, issue additional equity or borrow additional funds to:
Support the future growth in our business.
Create new or enhance existing products and investment platforms.
Repay amounts due under our debt obligations, repurchase agreements and 2019 Preferred Units.
Repurchase Class A Shares or Sculptor Operating Group Units.
Pursue new investment opportunities.
Develop new distribution channels.
Cover potential costs incurred in connection with the legal and regulatory matters described in the notes to our consolidated financial statements included in this report.
Market conditions, including the COVID-19 pandemic, and other factors may make it more difficult or costly to raise or borrow additional funds. Excessive costs or other significant market barriers may limit or prevent us from maximizing our growth potential and flexibility.
Cash Sweep
As part of the Recapitalization, we also instituted the Cash Sweep with regards to the paydown of the 2018 Term Loan and the 2019 Preferred Units. See Note 3 for detailed information regarding how the Cash Sweep amount is determined.
Debt Obligations
2018 Term Loan
As of June 30, 2020, $8.5 million remained outstanding under the 2018 Term Loan. In accordance with the Cash Sweep, we repaid an additional $36.5 million during the first half of 2020. See Note 8 for additional details, including information regarding financial covenants contained in these agreements. As of the date of this filing, we remain in compliance with these covenants and we expect to continue to be in compliance under the terms of the existing arrangements.
2019 Preferred Units and Debt Securities
In connection with the Recapitalization, $200.0 million of the 2016 Preferred Units was restructured into the Debt Securities and the remaining $200.0 million of the 2016 Preferred Units was restructured into the 2019 Preferred Units. As of June 30, 2020, both the Debt Securities and the 2019 Preferred Units remain outstanding. See Notes 8 and 10 for additional
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information, including information regarding financial covenants contained in these agreements. As of the date of this filing, we remain in compliance with these covenants and we expect to continue to be in compliance under the terms of the existing arrangements.
We have the option to defer distributions on the 2019 Preferred Units, in which case such amount is added to the redemption value of the 2019 Preferred Units and would be eligible for the redemption discount described in Note 10. We elected to do so for the first two quarterly payments due during the first half of 2020.
CLO Investments Loans and Securities Sold Under Agreements to Repurchase
We enter into loans and repurchase agreements to finance portions of our required risk retention investments in CLOs. In general, we will make interest and principal payments on these borrowings are generally due at such time interest and principal payments are received on our risk retention investments in the related CLOs. These financing arrangements are not subject to any financial maintenance covenants, but are subject to customary events of defaultCLOs; therefore, our CLO risk retention investments and covenants included in financing arrangements of this typerelated financings generally have a net positive impact on our liquidity at each CLO interest and also include terms that require our continued involvement with the CLOs. In addition to customary events of default included in financing arrangements of this type, the CLO Investments Loans may be accelerated to the extent there is an event of default (“EOD”) at the CLO level. Prior to the relevant CLO’s maturity date, this would include certain material covenant breaches, regulatory and insolvency events for the relevant CLO issuer, as well as aprincipal payment default where the relevant CLO is unable to make interest payments on the senior, non-deferrable interest notes issued by the CLO. For the repurchase agreements, in addition to customary events of default and covenants included in financing arrangements of this type, there are margin requirements that may cause us to post additional cash collateral; however, this is only triggered in the event of an EOD at the CLO level. Currently, we do not view any of the customary or CLO level EODs for these types of financing arrangements as a material risk. In particular, an EOD related to an interest payment default on the senior, non-deferrable interest notes of the type of cash flow CLOs that we manage has been unprecedented even during the credit crisis in 2008 and 2009. See Notes 9 and 11 to our consolidated financial statements for additional details.date.
Tax Receivable Agreement
We have made, and may in the future be required to make, payments under the tax receivable agreement that we entered into with our executive managing directors and Ziff Investors Partnership, L.P. II and certain of its affiliates and control persons (the “Ziffs”). As of June 30, 2020,March 31, 2021, assuming no material changes in the relevant tax law and that we generate sufficient taxable income to realize the full tax benefit of the increased amortization resulting from the increase in tax basis of certain Sculptor Operating Group assets, we expected to pay our executive managing directors and the Ziffs approximately $187.5$182.5 million. Future cash savings and related payments to our executive managing directors under the tax receivable agreement in respect of subsequent exchanges would be in addition to these amounts. See Note 1816 to our consolidated financial statements for additional details.
Payments under the tax receivable agreement are anticipated to increase the tax basis adjustment and, consequently, result in increasing annual amortization deductions in the taxable years of and after such increases to the original basis adjustments, and potentially will give rise to increasing tax savings with respect to such years and correspondingly increasing payments under the tax receivable agreement.
The obligation to make payments under the tax receivable agreement is an obligation of Sculptor Corp, and any other corporate taxpaying entities that hold Group B Units, and not of the Sculptor Operating Group. We may need to incur debt to finance payments under the tax receivable agreement to the extent the Sculptor Operating Group does not distribute cash to Sculptor Corp in an amount sufficient to meet our obligations under the tax receivable agreement.
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The actual increase in tax basis of the Sculptor Operating Group assets resulting from an exchange or from payments under the tax receivable agreement, as well as the amortization thereof and the timing and amount of payments under the tax receivable agreement, will vary based upon a number of factors, including the following:
The amount and timing of our income will impact the payments to be made under the tax receivable agreement. To the extent that we do not have sufficient taxable income to utilize the amortization deductions available as a result of the increased tax basis in the Sculptor Operating Partnerships’ assets, payments required under the tax receivable agreement would be reduced.
The price of our Class A Shares at the time of any exchange will determine the actual increase in tax basis of the Sculptor Operating Partnerships’ assets resulting from such exchange; payments under the tax receivable agreement resulting from future exchanges, if any, will be dependent in part upon such actual increase in tax basis.
The composition of the Sculptor Operating Group assets at the time of any exchange will determine the extent to which we may benefit from amortizing the increased tax basis in such assets and thus will impact the amount of future payments under the tax receivable agreement resulting from any future exchanges.
The extent to which future exchanges are taxable will impact the extent to which we will receive an increase in tax basis of the Sculptor Operating Group assets as a result of such exchanges, and thus will impact the benefit derived by us and the resulting payments, if any, to be made under the tax receivable agreement.
The tax rates in effect at the time any potential tax savings are realized, which would affect the amount of any future payments under the tax receivable agreement.
Depending upon the outcome of these factors, payments that we may be obligated to make to our executive managing directors and the Ziffs under the tax receivable agreement in respect of exchanges could be substantial. In light of the numerous factors affecting our obligation to make payments under the tax receivable agreement, the timing and amounts of any such actual payments are not reasonably ascertainable.
Dividends and Distributions
The table below presents the cash dividends paid on our Class A Shares in 2021 and 2020. We did not declare a dividend in respect of the first three quarters of 2020 in respect of earnings for the first three quarters. Dividends are generally declared and 2019.paid in the quarter following the quarter to which they relate. For example, the dividend paid on May 25, 2021, was in respect of earnings for the first quarter of 2021. We paid no related cash distributions to our executive managing directors on their Sculptor Operating Group Units in the respective periods.periods as a result of the Distribution Holiday.
 Class A Shares
Payment DateRecord DateDividend
per Share
March 4, 2021February 25, 2021$2.35 
March 3, 2020February 25, 2020$0.53 
November 25, 2019November 18, 2019$0.03 
August 21, 2019August 14, 2019$0.32 
May 28, 2019May 20, 2019$0.37 
March 29, 2019March 22, 2019$0.23 
As discussed in Note 3, inOn May 5, 2021, we announced a cash dividend of $0.30 per Class A Share. The dividend is payable on May 25, 2021, to holders of record as of the close of business on May 18, 2021.
In connection with the Recapitalization, and pursuant to the Cash Sweep, we and our executive managing directors agreed to a “Distribution Holiday” on the Group A Units, Group D Units, Group E Units, Group P Units and certain RSUs that will terminate on the earlier of (x) 45 days after the last day of the first calendar quarter as of which the achievement of $600.0 million of Distribution Holiday Economic Income adjusted for certain items described in the Sculptor Operating Partnership limited partnership agreements is realized and (y) April 1, 2026. During the Distribution Holiday, dividends may continue to be paid on our Class A Shares. As of March 31, 2021, we have generated a total of $412.0 million of Distribution Holiday Economic Income, compared to the target of $600.0 million.
As agreed
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Distribution Holiday Economic Income is the cumulative amount of Economic Income earned since October 1, 2018, less any dividends paid to as partClass A Shareholders or on the now-retired Preferred Units. Distribution Holiday Economic Income is a non-GAAP measure that is defined in the agreements of limited partnership of the Recapitalization, duringSculptor Operating Partnerships and is being presented to provide an update on the progress made toward the $600.0 million target required to exit the Distribution Holiday. Please see “—Distribution Holiday pursuantEconomic Income Reconciliation” for a reconciliation of Distribution Holiday Economic Income to net income attributable to Class A Shareholders.
During the Cash Sweep,Distribution Holiday, we expect to pay dividends on our Class A Shares annually in an aggregate amount equal to not less than 20% or greater than 30% of our annual Economic Income less an estimate of payments under the tax receivable agreement, Preferred Units distributions (whether paid or deferred) and income taxes related to the earnings for the periods; provided, that, if the minimum amount of dividends
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eligible to be made hereunder would be $1.00 or less per Class A Share, then up to $1.00 per Class A Share (subject to appropriate adjustment in the event of any equity dividend, equity split, combination or other similar recapitalization with respect to the Class A Shares). As a resultDuring the Distribution Holiday, (i) we will only make distributions with respect to Group B Units, (ii) the performance thresholds of our Economic Income for the firstGroup P Units and second quarters of 2020, less an estimate for payments under the tax receivable agreement, accrued Preferred UnitsPSUs shall be adjusted to take into account performance and distributions during such period, and income taxes, we did not declare a(iii) RSUs will continue to receive dividend equivalents in respect of the firstdividends or second quarters of 2020. Dividends are generally declared and paid in the quarter following the quarter to which they relate. For example, the dividenddistributions paid on March 3, 2020, wasthe Class A Shares. For certain executive managing directors, distributions on RSUs, as well as distributions counted in respectdetermining whether performance conditions of earnings forGroup P Units and PSUs are met, are limited to an aggregate amount not to exceed $4.00 per Group P Unit, PSU or RSU, as applicable, cumulatively during the fourth quarterDistribution Holiday. Following the termination of 2019.the Distribution Holiday, Group A Units and Group E Units (whether vested or unvested) shall receive distributions even if such units have not been booked-up.
The declaration and payment of any distribution may be subject to legal, contractual or other restrictions. For example, as a Delaware corporation, the Registrant’s Board may only declare and pay dividends either out of its surplus (as defined in Delaware General Corporation Law) or in case there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Our cash needs and payment obligations may fluctuate significantly from quarter to quarter, and we may have material unexpected expenses in any period. This may cause amounts available for distribution to significantly fluctuate from quarter to quarter or may reduce or eliminate such amounts.
Additionally, RSUs outstanding accrue dividend equivalents equal to the dividend amounts paid on our Class A Shares. To date, these dividend equivalents have been awarded in the form of additional RSUs, which accrue additional dividend equivalents. The dividend equivalents will only be paid if the related RSUs vest and will be settled at the same time as the underlying RSUs. Our Board of Directors has the right to determine whether the RSUs and any related dividend equivalents will be settled in Class A Shares or in cash. We currently withhold shares to satisfy the tax withholding obligations related to vested RSUs and dividend equivalents held by our employees, which results in the use of cash from operations or borrowings to satisfy these tax-withholding payments.
Historically, when we have paid dividends on our Class A Shares, we also made distributions to our executive managing directors on their interests in the Sculptor Operating Group, subject to the terms of the limited partnership agreements of the Sculptor Operating Partnerships; however, as part of the Recapitalization, the Sculptor Operating Partnerships initiated the Distribution Holiday. See Note 3 to our consolidated financial statements in this reportour Annual Report for additional information regarding the Distribution Holiday.
Our cash distribution policy has certain risks and limitations, particularly with respect to our liquidity. Although we expect to pay distributions according to our policy, we may not make distributions according to our policy, or at all, if, among other things, we do not have the cash necessary to pay the distribution. Furthermore, by paying cash distributions rather than investing that cash in our businesses, we might risk slowing the pace of our growth, or not having a sufficient amount of cash to fund our obligations, operations, new investments or unanticipated capital expenditures, should the need arise. In such event, we may not be able to execute our business and growth strategy to the extent intended.
Risks to Our Liquidity
Net capital outflows from our multi-strategy funds over the last several years caused our management fees to decline for a period of time. While outflows have stabilized over the last couple of quarters and we continuously make every effort to scale our operations so that management fees are sufficient to cover our fixed operating expenses, our management fees may not
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always cover these expenses. Additionally, in the event that a future contingent liability were to arise that exceeded our liquidity resources, we would need to rely on new sources of liquidity such as issuing additional equity or borrowing additional funds.
Any new borrowing arrangement that we may enter into may have covenants that impose additional limitations on us, including with respect to making distributions, entering into business transactions or other matters, and may result in increased interest expense. If we are unable to meet our debt obligations on terms that are favorable to us, our business may be adversely impacted. No assurance can be given that we will be able to issue new notes, enter into new credit facilities or issue equity or other securities in the future on attractive terms or at all.
Adverse market conditions, including the COVID-19 pandemic, increase the risk that our management fees and incentive income may decline if net outflows increase or as a result of performance-related depreciation in our funds. Lower revenues and other factors may make it more difficult or costly to raise or borrow additional funds, and excessive borrowing costs or other significant market barriers may limit or prevent us from maximizing our growth potential and flexibility. We have also evaluated our financing arrangements in light of the COVID-19 pandemic to ensure compliance with debt covenants. Through the date of this filing, we remain in compliance with our debt covenants and expect to continue to be in compliance in the near term. Our ability to access financial markets, should it be necessary, may be limited because of the COVID-19 pandemic.
Our CLO risk retention financing arrangements are not subject to any financial maintenance covenants, but are subject to customary events of default and covenants included in financing arrangements of this type and also include terms that require our continued involvement with the CLOs. In addition to customary events of default included in financing arrangements of this type, the CLO Investments Loans may be accelerated to the extent there is an event of default (“EOD”) at the CLO level. Prior to the relevant CLO’s maturity date, this would include certain material covenant breaches, regulatory and insolvency events for the relevant CLO issuer, as well as a payment default where the relevant CLO is unable to make interest payments on the senior, non-deferrable interest notes issued by the CLO. For the repurchase agreements, in addition to customary events of default and covenants included in financing arrangements of this type, there are margin requirements that may cause us to post additional cash collateral; however, this is only triggered in the event of an EOD at the CLO level. Currently, we do not view any of the customary or CLO level EODs for these types of financing arrangements as a material risk. In particular, an EOD related to an interest payment default on the senior, non-deferrable interest notes of the type of cash flow CLOs that we manage has been unprecedented even during the credit crisis in 2008 and 2009.
On March 5, 2021, the UK Financial Conduct Authority announced that it would phase out LIBOR as a benchmark immediately after December 31, 2021, for sterling, euro, Japanese yen, Swiss franc and 1-week and 2-month U.S. Dollar settings and immediately after June 30, 2023, the remaining U.S. Dollar settings. To address the transition away from LIBOR, the 2020 Credit Agreement provides for an agreed upon methodology to establish a new floating rate reference plus new applicable spreads. In the first quarter of 2020, we formed an internal LIBOR Transition Working Group to help effectuate an orderly transition from LIBOR. Our senior management has oversight of these transition efforts, and periodic updates are provided to the Audit Committee of our Board of Directors. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business—Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect our credit arrangements and our collateralized loan obligation transactions” in our Annual Report for additional information.
Our Funds’ Liquidity and Capital Resources
Our funds have access to liquidity from our prime brokers and other counterparties. Additionally, our funds may have committed facilities in addition to regular financing from our counterparties. These sources of liquidity provide our funds with additional financing resources, allowing them to take advantage of opportunities in the global marketplace.
Our funds’ current liquidity position could be adversely impacted by any substantial, unanticipated investor redemptions from our funds that are made within a short time period. As discussed above in “—Assets Under Management and Fund Performance,” capital contributions from investors in our multi-strategy and open-end opportunistic credit funds generally are subject to initial lock-up periods of one to three years. Following the expiration of these lock-up periods, subject to certain limitations, investors may redeem capital generally on a quarterly or annual basis upon giving 30 to 90 days’ prior written notice. These lock-ups and redemption notice periods help us to manage our liquidity position. Investors in our other funds are generally not allowed to redeem until the end of the life of the fund.
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We also follow a rigorous risk management process and regularly monitor the liquidity of our funds’ portfolios in relation to economic and market factors and the timing of potential investor redemptions. As a result of this process, we may determine to reduce exposure or increase the liquidity of our funds’ portfolios at any time, whether in response to global economic and market conditions, redemption requests or otherwise. For these reasons, we believe we will be well prepared to address market conditions and redemption requests, as well as any other events, with limited impact on our funds’ liquidity
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position. Nevertheless, significant redemptions made during a single quarter could adversely affect our funds’ liquidity position, as we may meet redemptions by using our funds’ available cash or selling assets (possibly at a loss). Such actions would result in lower assets under management, which would reduce the amount of management fees and incentive income we may earn. Our funds could also meet redemption requests by increasing leverage, provided we are able to obtain financing on reasonable terms, if at all. We believe our funds have sufficient liquidity to meet any anticipated redemptions for the foreseeable future. Please see the risk factor included in “Item 1A. Risk Factors” in this quarterly report for additional information.
Cash Flows Analysis
Operating Activities. Net cash from operating activities for the sixthree months ended June 30,March 31, 2021 and 2020 and 2019 was $0.7$266.9 million and $43.1$(15.1) million, respectively. Our net cash flows from operating activities are generally comprised of current-year management fees, the collection of incentive income earned during the fourth quarter of the previous year, interest income collected on our investments in CLO’s, less cash used for operating expenses, including interest paid on our debt obligations. Additionally, net cash from operating activities also includes the investment activities of the funds we consolidate.
Net cash flows from operating activities for the sixthree months ended June 30, 2020 decreasedMarch 31, 2021 increased from the prior year period driven by investment activitiesdue to higher year-end incentive income earned in 2020 than in 2019, a large portion of the funds we consolidate. These investment-related cash flows are of the consolidated funds and do not directly impact the cash flows related to our Class A Shareholders. As we deconsolidated certain of our funds2020 incentive was collected in the third quarter 2019, we do not expect significant cash flows in the future from consolidated funds. This decrease was partially offset by higherbeginning of 2021, as compared to year-end incentive income earned in 2019, a large portion of which was collected in the beginning of 2020, as compared to year-end incentive income earned in 2018, a large portion of which was collected in the beginning of 2019.2020. The increases in operating cash flows were partially offset by higher discretionary bonuses in 2020, which were paid in the first quarter of 2021, as compared to discretionary bonuses in 2019, which were paid in the first quarter of 2020, as compared to discretionary bonuses in 2018, which were paid in the first quarter of 2019.2020. Additionally, in the current year period as compared to the prior year period, we collected less incentive income from our real estate funds, and paid less in interest expense, primarily as a result of the lower average outstanding balance on the 2018 Term Loan.funds.
Investing Activities. Net cash from investing activities for the sixthree months ended June 30,March 31, 2021 and 2020 and 2019 was $(67.7)$(22.4) million, and $(10.2)$(46.8) million, respectively. Investing cash outflows in 2021 primarily related to purchases of U.S. government obligations and investments made in our funds, partially offset by maturities and sales of U.S. government obligations. Investing cash outflows in 2020 primarily related to purchases of U.S. government obligations and investments made in our funds, partially offset by maturities and sales of U.S. government obligations. Investing cash outflows in 2019 primarily related to purchases of U.S. government obligations and investments in our funds, partially offset by return of investments of U.S. government obligations and investments in funds.
Financing Activities. Net cash from financing activities for the sixthree months ended June 30,March 31, 2021 and 2020 and 2019 was $(46.2)$(230.0) million, and $(176.6)$(36.2) million, respectively. Net cash from financing activities is generally comprised of dividends paid to our Class A Shareholders, borrowings and repayments related to our debt obligations, and proceeds from repurchase agreements used to finance risk retention investments in our European CLOs. Contributions from noncontrolling interests, which primarily relate to fund investor contributions into the consolidated funds (prior to the deconsolidation of certain of our funds in the third quarter of 2019), and distributions to noncontrolling interests, which primarily relate to fund investor redemptions from the consolidated funds (prior to the deconsolidation of certain of our funds in the third quarter of 2019) and distributionsDistributions to our executive managing directors on their Group A Units (prior to the Distribution Holiday), are also included in net cash from financing activities.
As we deconsolidated certain of our funds in the third quarter 2019, we do not expect significant cash flows in the future from consolidated funds.
In the sixthree months ended June 30,March 31, 2021, we repaid $174.4 million of the 2020 Term Loan. In thethree months ended March 31, 2020, we repaid $36.5$27.0 million of the 2018 Term Loan. In thesix months ended June 30, 2019, we repaid $145.0 million of the 2018 Term Loan and a $21.1 million CLO Investment Loan. In the six months ended June 30, 2019, we entered into a $16.3 million repurchase agreement to finance risk retention investment in a European CLO.
We paid dividends of $56.0 million to our Class A Shareholders in the three months ended March 31, 2021, compared to dividends of $11.6 million to our Class A Shareholders in the sixthree months ended June 30, 2020, compared to dividends of $12.3 million to our Class A Shareholders in the six months ended June 30, 2019. In 2020, the only dividend paid was in respect of the fourth quarter of 2019, which was paid on March 3, 2020. No dividends were declared in respect of the first
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two quarters of31, 2020. No distributions were made to our executive managing directors in the sixthree months ended June 30,March 31, 2021 or March 31, 2020, or the six months ended June 30, 2019, as a result of the Distribution Holiday.
Contractual Obligations
The table below summarizes our contractual cash obligations as of June 30, 2020, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
 July 1, 2020-December 31, 20202021-20222023-2024ThereafterTotal
 (dollars in thousands)
Long-term debt(1)
$—  $46,263  $106,828  $119,035  $272,126  
Estimated interest on long-term debt(2)
5,812  22,373  14,691  7,117  49,993  
Securities sold under agreements to repurchase(3)
—  —  —  97,670  97,670  
Operating leases(4)
11,204  40,598  34,375  82,234  168,411  
Tax receivable agreement(5)
11,796  27,608  82,543  65,514  187,461  
Unrecognized tax benefits(6)
—  —  —  —  —  
Incentive income subject to clawback(7)
—  —  —  —  —  
Total Contractual Obligations$28,812  $136,842  $238,437  $371,570  $775,661  
_______________
(1)Represents indebtedness outstanding under the Debt Securities, 2018 Term Loan and the CLO Investments Loans. In relation to CLO Investments Loans, the amounts present our best estimate of the timing of expected payments on investments in CLOs, as the timing of payments on CLO Investments Loans is contingent on principal payments made to us on our investments in CLOs. Amounts presented represent expected cash payments, and have not been reduced for any discounts or deferred debt issuance costs that are netted against these balances for presentation in our consolidated balance sheet.
(2)Represents expected future interest payments on long-term debt based on the LIBOR and EURIBOR rates that were in effect as of June 30, 2020.
(3)Represents payments on securities sold under agreements to repurchase in accordance with the set scheduled maturity date that corresponds to the maturities of the securities sold under such transaction and exclude any interest payments as such amounts cannot be reasonably estimated. Interest payments on securities sold under agreements are based on the weighted average effective interest rate of each class of securities that have been sold, plus a spread to be agreed upon by the parties.
(4)Represents the payments required under our various operating leases for office space and data centers.
(5)Represents the maximum amounts that would be payable to our executive managing directors and the Ziffs under the tax receivable agreement assuming that we will have sufficient taxable income each year to fully realize the expected tax savings resulting from the purchase by the Sculptor Operating Group of Group A Units with proceeds from the 2007 Offerings, as well as subsequent exchanges. In light of the numerous factors affecting our obligation to make such payments, the timing and amounts of any such actual payments may differ materially from those presented in the table above.
(6)We are not currently able to make a reasonable estimate of the timing of payments in individual years in connection with our unrecognized tax benefits of $8.3 million, and therefore these amounts are not included in the table above.
(7)As of June 30, 2020, we had incentive income collected from certain of our funds that is subject to clawback in the event of future losses in the respective fund. We are not currently able to make a reasonable estimate of the timing of payments, if any, as the payments are contingent on future realizations of investments in the respective fund, the timing of which is uncertain.
Off-Balance Sheet Arrangements
In the normal course of business, we enter into various off-balance sheet arrangements including sponsoring and owning general partner interests in our funds and retained interests in a CLO we manage. We also have ongoing capital commitment arrangements with certain of our funds. None of our off-balance sheet arrangements require us to fund losses or guarantee target returns to investors in any of our other investment funds. See Notes 5 and 6 of our consolidated financial statements included in this report for information on our retained and variable interests in our funds and CLOs.
Critical Accounting Policies and Estimates
Critical accounting policies are those that require us to make significant judgments, estimates or assumptions that affect amounts reported in our financial statements or the notes thereto. We base our judgments, estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable and prudent. Actual results may differ
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materially from these estimates. See Note 2 toin our consolidated financial statements included in this reportAnnual Report for a description of our accounting policies. Set forth below is a summary of what we believe to be our most critical accounting policies and estimates.
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Fair Value of Investments
The valuation of investments held by our funds is the most critical estimate made by management impacting our results. Pursuant to specialized accounting for investment companies under GAAP, investments held by the funds are carried at their estimated fair values. The valuation of investments held by our funds has a significant impact on our results, as our management fees and incentive income are generally determined based on the fair value of these investments.
GAAP prioritizes the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of assets and liabilities and the specific characteristics of the assets and liabilities. Assets and liabilities with readily available, actively quoted prices (Level I) or for which fair value can be measured from actively quoted prices (Level II) generally will have a higher degree of market price observability and lesser degree of judgment used in measuring fair value than those measured using pricing inputs that are unobservable in the market (Level III). See Note 54 to our consolidated financial statements included in this report for additional information regarding fair value measurements.
As of June 30,March 31, 2021, the absolute values of our funds’ invested assets and liabilities (excluding the notes and loans payable of our securitization vehicles) were classified within the fair value hierarchy as follows: approximately 36% within Level I; approximately 47% within Level II; and approximately 17% within Level III. As of December 31, 2020, the absolute values of our funds’ invested assets and liabilities (excluding the notes and loans payable of our securitization vehicles) were classified within the fair value hierarchy as follows: approximately 29%35% within Level I; approximately 50%48% within Level II; and approximately 21% within Level III. As of December 31, 2019, the absolute values of our funds’ invested assets and liabilities (excluding the notes and loans payable of our securitization vehicles) were classified within the fair value hierarchy as follows: approximately 30% within Level I; approximately 51% within Level II; and approximately 19%17% within Level III. The percentage of our funds’ assets and liabilities within the fair value hierarchy will fluctuate based on the investments made at any given time and such fluctuations could be significant. A portion of our funds’ Level III assets relate to Special Investments or other investments on which we do not earn any incentive income until such investments are sold or otherwise realized. Upon the sale or realization event of these assets, any realized profits are included in the calculation of incentive income for such year. Accordingly, the estimated fair value of our funds’ Level III assets may not have any relation to the amount of incentive income actually earned with respect to such assets.
Valuation of Investments. Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants as of the measurement date. The fair value of our funds’ investments is based on observable market prices when available. We, as the investment manager of our funds, determine the fair value of investments that are not actively traded on a recognized securities exchange or otherwise lack a readily ascertainable market value. The methods and procedures to value these investments may include the following: performing comparisons with prices of comparable or similar securities; obtaining valuation-related information from the issuers; calculating the present value of future cash flows; assessing other analytical data and information relating to the investment that is an indication of value; obtaining information provided by third parties; and evaluating financial information provided by the management of these investments.
Significant judgment and estimation go into the assumptions that drive our valuation methodologies and procedures for assets that are not actively traded on a recognized securities exchange or otherwise lack a readily ascertainable market value. The valuation of investments can be more difficult when severe economic and market shocks occur. The COVID-19 pandemic is an example of such a shock. The actual amounts ultimately realized could differ materially from the values estimated based on the use of these methodologies. Realizations at values significantly lower than the values at which investments have been reflected could result in losses at the fund level and a decline in future management fees and incentive income. Such situations may also negatively impact fund investor perception of our valuation policies and procedures, which could result in redemptions and difficulties in raising additional capital.
We have established an internal control infrastructure over the valuation of financial instruments that includes ongoing oversight by our Valuation Controls Group and Valuation Committee, as well as periodic audits by our Internal Audit Group.function. These management control functions are segregated from the trading and investing functions.
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The Valuation Committee is responsible for establishing the valuation policy and monitors compliance with the policy, ensuring that all of the funds’ investments reflect fair value, as well as providing oversight of the valuation process. The valuation policy includes, but is not limited to the following: determining the pricing sources used to value specific investment classes; the selection of independent pricing services; performing due diligence of independent pricing services; and the classification of
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investments within the fair value hierarchy. The Valuation Committee reviews a variety of reports on a monthly basis, which include the following: summaries of the sources used to determine the value of the funds’ investments; summaries of the fair value hierarchy of the funds’ investments; methodology changes and variance reports that compare the values of investments to independent pricing services. The Valuation Committee is independent from the investment professionals and may obtain input from investment professionals for consideration in carrying out its responsibilities.
The Valuation Committee has assigned the responsibility of performing price verification and related quality controls in accordance with the valuation policy to the Valuation Controls Group. The Valuation Controls Group’s other responsibilities include the following: overseeing the collection and evaluation of counterparty prices, broker-dealer quotations, exchange prices and pricing information provided by independent pricing services. Additionally, the Valuation Controls Group is responsible for performing back testing by comparing prices observed in executed transactions to valuations and valuations provided by independent pricing service providers on a bi-weekly and monthly basis; performing stale pricing analysis on a monthly basis; performing due diligence reviews on independent pricing services on an annual basis; and recommending changes in valuation policies to the Valuation Committee. The Valuation Controls Group also verifies that indicative broker quotations used to value certain investments are representative of fair value through procedures such as comparison to independent pricing services, back testing procedures, review of stale pricing reports and performance of other due diligence procedures as may be deemed necessary.
Investment professionals and members of the Valuation Controls Group review a daily profit and loss report, as well as other periodic reports that analyze the profit and loss and related asset class exposure of the funds’ investments.
The Internal Audit Groupfunction employs a risk-based program of audit coverage that is designed to provide an assessment of the design and effectiveness of controls over our operations, regulatory compliance, valuation of financial instruments and reporting. Additionally, the Internal Audit Groupfunction meets periodically with management and the Audit Committee of our Board of Directors to evaluate and provide guidance on the existing risk framework and control environment assessments.
For information regarding the impact that the fair value measurement of assets under management has on our results, please see “Part I—Item 3. Quantitative and Qualitative Disclosures About Market Risk.”
Recognition of Incentive Income
The determination of whether to recognize incentive income under GAAP requires a significant amount of judgment regarding whether it is probable that a significant revenue reversal of incentive income that we are potentially entitled to as of a point in time will not occur in future periods, which would preclude the recognition of such amounts as incentive income. Management considers a variety of factors when evaluating whether the recognition of incentive income is appropriate, including: the performance of the fund, whether we have received or are entitled to receive incentive income distributions and whether such amounts are restricted, the investment period and expected term of the fund, where the fund is in its life-cycle, the volatility and liquidity of investments held by the fund, our team’s experience with similar investments and potential sales of investments within the fund. Management continuously evaluates whether there are additional considerations that could potentially impact the recognition of incentive income and notes that the recognition, and potential reversal, of incentive income is subject to potentially significant variability due to changes to the aforementioned considerations. See Note 11 for details on amounts recognized and deferred for incentive income.
Variable Interest Entities
The determination of whether or not to consolidate a variable interest entity under GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interests. To make these judgments, management has conducted an analysis, on a case-by-case basis, of whether we are the primary beneficiary and are therefore required to consolidate the entity. Management continually reconsiders whether we should consolidate a variable interest entity. Upon the occurrence of certain events, such as investor redemptions or modifications to fund organizational documents and
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investment management agreements, management will reconsider its conclusion regarding the status of an entity as a variable interest entity.
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Income Taxes
We use the asset and liability method of accounting for deferred income taxes. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established when management believes it is more likely than not that a deferred income tax asset will not be realized.
Substantially all of our deferred income tax assets relate to the goodwill and other intangible assets deductible for tax purposes by Sculptor Corp that arose in connection with the purchase of Group A Units with proceeds from the 2007 Offerings, subsequent exchanges of Group A Units for Class A Shares and subsequent payments made under the tax receivable agreement, in addition to any related net operating loss carryforward. In accordance with relevant provisions of the Code, we expect to take these goodwill and other intangible deductions over the 15-year period following the 2007 Offerings and subsequent exchanges, as well as an additional 20-year loss carryforward period available to us for net operating losses generated prior to 2018 and indefinite carryforward period for net operating losses generated beginning 2018, in order to fully realize the deferred income tax assets. Our analysis of whether we expect to have sufficient future taxable income to realize these deductions is based solely on estimates over this period.
Sculptor Corp generated taxable income of $9.0$17.4 million for the sixthree months ended June 30, 2020,March 31, 2021, before taking into account deductions related to the amortization of the goodwill and other intangible assets. We determined that we would need to generate taxable income of at least $1.0 billion$922.0 million over the remaining 4-yearthree-year weighted-average amortization period, as well as an additional 20-year loss carryforward period available for expiring losses, in order to fully realize the deferred income tax assets. Using the estimates and assumptions discussed below, we expect to generate sufficient taxable income over the remaining amortization and loss carryforward periods available to us in order to fully realize the deferred income tax assets.
To generate $1.0 billion$922.0 million in taxable income over the remaining amortization and loss carryforward periods available to us, we estimated that, based on estimated assets under management of $35.3$37.0 billion as of JulyApril 1, 2020,2021, we would need to generate a minimum compound annual growth rate in assets under management of less than 3% over the period for which the taxable income estimate relates to fully realize the deferred income tax assets, assuming no performance-related growth, and therefore no incentive income. The assumed nature and amount of this estimated growth rate are not based on historical results or current expectations of future growth; however, the other assumptions underlying the taxable income estimates, are based on our near-term operating budget. If our actual growth rate in assets under management falls below this minimum threshold for any extended time during the period for which these estimates relate and we do not otherwise experience offsetting growth rates in other periods, we may not generate taxable income sufficient to realize the deferred income tax assets and may need to record a valuation allowance.
Management regularly reviews the model used to generate the estimates, including the underlying assumptions. If it determines that a valuation allowance is required for any reason, the amount would be determined based on the relevant circumstances at that time. To the extent we record a valuation allowance against our deferred income tax assets related to the goodwill and other intangible assets, we would record a corresponding decrease in the liability under the tax receivable agreement equal to approximately 69% of such amount; therefore, our consolidated net income (loss) would only be impacted by 31% of any valuation allowance recorded against the deferred income tax assets.
Actual taxable income may differ from the estimate described above, which was prepared solely for determining whether we currently expect to have sufficient future taxable income to realize the deferred income tax assets. Furthermore, actual or estimated future taxable income may be materially impacted by significant changes in assets under management, whether as a result of fund investment performance or fund investor contributions or redemptions, significant changes to the assumptions underlying our estimates, future changes in income tax law, state income tax apportionment or other factors.
As of June 30, 2020,March 31, 2021, we had $243.1 million of net operating losses available to offset future taxable income for federal income tax purposes that will expire between 2030 and 2037, and $133.8$154.0 million of net operating losses available to be carried
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forward without expiration. Additionally, $168.6$174.8 million of net operating losses are available to offset future taxable income for state income tax purposes and $164.8$171.0 million for local income tax purposes that will expire between 2035 and 2039.2041.
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Based on the analysis set forth above, as of June 30, 2020,March 31, 2021, we have determined that it is not necessary to record a valuation allowance with respect to our deferred income tax assets related to the goodwill and other intangible assets deductible for tax purposes, and any related net operating loss carryforward. However, we have determined that we may not realize certain foreign income tax credits and accordingly, a valuation allowance of $11.1$9.8 million has been established for these items.
Impact of Recently Adopted Accounting Pronouncements on Recent and Future Trends
The Financial Accounting Standards Board (the “FASB”) has issued various Accounting Standards Updates (“ASUs”) that could impact our future trends. For additional details regarding these ASUs, including methods of adoption, see Note 2 to our consolidated financial statements included in this report for additional information.
No changes to GAAP that went into effect during the sixthree months ended June 30, 2020,March 31, 2021, are expected to substantively impact our future trends.
Expected Impact of Future Adoption of New Accounting Pronouncements on Future Trends
None of the changes to GAAP that have been issued but that we have not yet adopted are expected to substantively impact our future trends.
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Economic Income Reconciliations
The tables below present the reconciliations of total Economic Income and its components to the respective GAAP measures for the periods presented in this MD&A:
Three Months Ended June 30,
20202019
(dollars in thousands)
 Net Loss Attributable to Class A Shareholders—GAAP$(25,239) $(8,625) 
Change in redemption value of Preferred Units1,986  —  
 Net Loss Allocated to Sculptor Capital Management, Inc.—GAAP$(23,253) $(8,625) 
 Net loss allocated to Group A Units(42,130) (8,148) 
Equity-based compensation, net of RSUs settled in cash17,641  37,095  
Adjustment to recognize deferred cash compensation in the period of grant5,934  2,017  
Recapitalization-related non-cash interest expense accretion786  4,104  
Income taxes(17,400) 10,134  
Net losses on early retirement of debt170  595  
Net gains on investments(29,176) (3,148) 
Adjustment for expenses related to compensation and profit-sharing arrangements based on fund investment performance935  1,282  
Changes in tax receivable agreement liability—  (5,362) 
Depreciation, amortization and net gains and losses on fixed assets2,135  2,501  
Other adjustments133  (33) 
Economic Income—Non-GAAP$(84,225) $32,412  
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Six Months Ended June 30, Three Months Ended March 31,
20202019 20212020


(dollars in thousands)

(dollars in thousands)
Net (Loss) Income Attributable to Class A Shareholders—GAAP$(53,506) $28,458  
Net Income Attributable to Class A Shareholders—GAAPNet Income Attributable to Class A Shareholders—GAAP$(20,293)$(28,267)
Change in redemption value of Preferred UnitsChange in redemption value of Preferred Units3,313  (44,364) Change in redemption value of Preferred Units— 1,327 
Net Loss Allocated to Sculptor Capital Management, Inc.—GAAP Net Loss Allocated to Sculptor Capital Management, Inc.—GAAP(50,193) (15,906) Net Loss Allocated to Sculptor Capital Management, Inc.—GAAP(20,293)(26,940)
Net loss allocated to Group A Units Net loss allocated to Group A Units(67,467) (15,517) Net loss allocated to Group A Units(19,253)(25,337)
Equity-based compensation, net of RSUs settled in cashEquity-based compensation, net of RSUs settled in cash42,039  74,318  Equity-based compensation, net of RSUs settled in cash30,202 24,398 
Adjustment to recognize deferred cash compensation in the period of grantAdjustment to recognize deferred cash compensation in the period of grant8,113  4,585  Adjustment to recognize deferred cash compensation in the period of grant8,995 2,179 
Recapitalization-related non-cash interest expense accretion2,651  6,415  
2020 Term Loan and Debt Securities non-cash discount accretion2020 Term Loan and Debt Securities non-cash discount accretion434 1,865 
Income taxesIncome taxes(27,368) 13,520  Income taxes(1,715)(9,968)
Net losses on early retirement of debt693  6,053  
Net losses (gains) on investments4,892  (5,837) 
Changes in fair value of warrant liabilitiesChanges in fair value of warrant liabilities24,944 — 
Net losses on retirement of debtNet losses on retirement of debt23,673 523 
Net (gains) losses on investmentsNet (gains) losses on investments(5,362)34,068 
Adjustment for expenses related to compensation and profit-sharing arrangements based on fund investment performanceAdjustment for expenses related to compensation and profit-sharing arrangements based on fund investment performance1,517  3,659  Adjustment for expenses related to compensation and profit-sharing arrangements based on fund investment performance(2,498)582 
Changes in tax receivable agreement liabilityChanges in tax receivable agreement liability(278) (5,362) Changes in tax receivable agreement liability(580)(278)
Depreciation, amortization and net gains and losses on fixed assetsDepreciation, amortization and net gains and losses on fixed assets3,937  5,049  Depreciation, amortization and net gains and losses on fixed assets1,735 1,802 
Other adjustmentsOther adjustments(478) (788) Other adjustments653 (611)
Economic Income—Non-GAAPEconomic Income—Non-GAAP$(81,942) $70,189  Economic Income—Non-GAAP$40,935 $2,283 
Economic Income Revenues
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,
2020201920202019 20212020
(dollars in thousands)
(dollars in thousands)
Management fees—GAAPManagement fees—GAAP$60,383  $61,400  $127,336  $125,023  Management fees—GAAP$73,961 $66,953 
Adjustment to management fees(1)
Adjustment to management fees(1)
(3,951) (3,765) (11,042) (7,373) 
Adjustment to management fees(1)
(4,891)(7,091)
Management Fees—Economic Income Basis—Non-GAAPManagement Fees—Economic Income Basis—Non-GAAP56,432  57,635  116,294  117,650  Management Fees—Economic Income Basis—Non-GAAP69,070 59,862 
Incentive income—Economic Income Basis—GAAP38,238  34,757  47,560  87,955  
Adjustment to incentive income(2)
13  —  13  —  
Incentive Income—Economic Income Basis—Non-GAAP38,251  34,757  47,573  87,955  
Incentive Income—Economic Income Basis—GAAP and Non-GAAPIncentive Income—Economic Income Basis—GAAP and Non-GAAP47,804 9,322 
Other Revenues—Economic Income Basis—GAAP and Non-GAAPOther Revenues—Economic Income Basis—GAAP and Non-GAAP2,424  5,043  5,377  8,812  Other Revenues—Economic Income Basis—GAAP and Non-GAAP1,581 2,953 
Total Revenues—Economic Income Basis—Non-GAAPTotal Revenues—Economic Income Basis—Non-GAAP$97,107  $97,435  $169,244  $214,417  Total Revenues—Economic Income Basis—Non-GAAP$118,455 $72,137 
_______________
(1)Adjustment to present management fees net of recurring placement and related service fees, as management considers these fees a reduction in management fees, not an expense. The impact of eliminations related to the consolidated funds is also removed.
(2)Adjustment to exclude the impact of eliminations related to the consolidated funds.

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Economic Income Expenses
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended March 31,
2020201920202019 20212020
(dollars in thousands)(dollars in thousands)
(dollars in thousands)
Compensation and benefits—GAAPCompensation and benefits—GAAP$65,290  $80,709  $132,709  $166,424  Compensation and benefits—GAAP$89,234 $67,419 
Adjustment to compensation and benefits(1)
Adjustment to compensation and benefits(1)
(24,510) (40,393) (51,669) (82,562) 
Adjustment to compensation and benefits(1)
(36,699)(27,159)
Compensation and Benefits—Economic Income Basis—Non-GAAPCompensation and Benefits—Economic Income Basis—Non-GAAP$40,780  $40,316  $81,040  $83,862  Compensation and Benefits—Economic Income Basis—Non-GAAP$52,535 $40,260 
Interest expense—GAAPInterest expense—GAAP$4,674  $6,523  $10,456  $12,731  Interest expense—GAAP$4,868 $5,782 
Adjustment to interest expense(2)
Adjustment to interest expense(2)
(786) (4,104) (2,651) (6,415) 
Adjustment to interest expense(2)
(434)(1,865)
Interest Expense—Economic Income Basis—Non-GAAPInterest Expense—Economic Income Basis—Non-GAAP$3,888  $2,419  $7,805  $6,316  Interest Expense—Economic Income Basis—Non-GAAP$4,434 $3,917 
General, administrative and other expenses—GAAPGeneral, administrative and other expenses—GAAP$142,615  $28,427  $177,321  $66,215  General, administrative and other expenses—GAAP$27,376 $34,706 
Adjustment to general, administrative and other expenses(3)
Adjustment to general, administrative and other expenses(3)
(5,950) (6,137) (14,979) (12,163) 
Adjustment to general, administrative and other expenses(3)
(6,825)(9,029)
General, Administrative and Other Expenses—Economic Income Basis—Non-GAAPGeneral, Administrative and Other Expenses—Economic Income Basis—Non-GAAP$136,665  $22,290  $162,342  $54,052  General, Administrative and Other Expenses—Economic Income Basis—Non-GAAP$20,551 $25,677 
_______________
(1)Adjustment to exclude equity-based compensation, as management does not consider these non-cash expenses to be reflective of our operating performance. However, the fair value of RSUs that are settled in cash to employees or executive managing directors is included as an expense at the time of settlement. In addition, expenses related to incentive income profit-sharing arrangements are generally recognized at the same time the related incentive income revenue is recognized, as management reviews the total compensation expense related to these arrangements in relation to any incentive income earned by the relevant fund. Further, deferred cash compensation is expensed in full in the year granted for Economic Income, rather than over the service period for GAAP.
(2)Adjustment to exclude amounts related to non-cash interest expense accretion on Debt Securities issued in exchange for 2016 Preferred Units in connection withdebt. The 2020 Term Loan and the Recapitalization. Upon exchange, Debt Securities were each recognized at fair valuea significant discount, as proceeds from each borrowing were allocated to warrant liabilities and are being accretedthe 2019 Preferred Units, respectively, resulting in non-cash accretion to par value over time through interest expense for GAAP; however, managementGAAP. Management excludes these non-cash expenses from Economic Income, as it does not consider this interest accretionthem to be reflective of the operating performance of the Company.our economic borrowing costs.
(3)Adjustment to exclude depreciation, amortization and losses on fixed assets as management does not consider these items to be reflective of our operating performance. Additionally, recurring placement and related service fees are excluded, as management considers these fees a reduction in management fees, not an expense.
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Distribution Holiday Economic Income Reconciliation
The table below presents the reconciliation of Distribution Holiday Economic Income to net income (loss) attributable to Class A Shareholders from October 1, 2018, to March 31, 2021.
From October 1, 2018 to March 31, 2021
(dollars in thousands)
Net income attributable to Class A shareholders$200,826 
Change in redemption value of Preferred Units(37,412)
Net Income Allocated to Sculptor Capital Management, Inc.163,414
Net loss allocated to Group A Units(69,802)
Equity-based compensation, net of RSUs settled in cash249,147 
Adjustment to recognize deferred cash compensation in the period of grant(26,027)
Recapitalization-related non-cash interest expense accretion19,156 
Income taxes120,541 
Changes in fair value of warrant liabilities32,492
Net losses on retirement of debt35,059 
Net gains on investments(18,023)
Adjustment for expenses related to compensation and profit-sharing arrangements based on fund investment performance(9,294)
Changes in tax receivable agreement liability(5,020)
Depreciation, amortization and net gains and losses on fixed assets19,907 
Other adjustments1,938 
Less: Dividends paid on 2019 Preferred Units(6,952)
Less: Dividends to Class A Shareholders declared with respect to such periods(94,541)
Distribution Holiday Economic Income—Non-GAAP$411,995

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our predominant exposure to market risk is related to our role as general partner or investment manager for the funds, and the sensitivities to movements in the fair value of their investments that may adversely affect our management fees and incentive income.
The quantitative information provided in this section was prepared using estimates and assumptions that management believes are reasonable to provide an indication of the directional impact that a hypothetical adverse movement in certain risks would have on net income attributable to Class A Shareholders. The actual impact of a hypothetical adverse movement in these risks could be materially different from the amounts shown below.
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Management of Market Risk
Risk management is highly integrated with our investment process and the operations of our business. Our approach to investing and managing risk is based on (i) proactive risk management, (ii) preservation of capital, (iii) dynamic capital allocation and (iv) expertise across strategies and geographies. We constantly monitor risk and have instituted a formal and consistent process to disseminate information, conduct informed debate, and take proactive or responsive action across our portfolios. In addition to our formalized process, we conduct custom studies and optimizations for various groups on an as-needed, ad hoc basis such as bespoke hedge solutions, pre-trade what-if analysis, and portfolio rebalance alternatives. Our goal is to preserve capital during periods of market decline and generate competitive investment performance in rising markets. We use sophisticated risk tools and active portfolio management to govern exposures to market and other risk factors. We adhere strictly to each fund’s mandate and provisions with respect to leverage. We are knowledgeable about the risks of fund leverage, respectful of its limits, and judicious in our application. We allocate to individual investments based on a thorough analysis of the risk/reward for each opportunity under consideration and the investment objectives for each of our funds. When managing our funds’ exposure to market risks, we may from time to time use hedging strategies and various forms of derivative instruments to limit the funds’ exposure to changes in the relative values of investments that may result from market developments, including changes in prevailing interest rates, currency exchange rates and commodity prices.
Changes in Fair Value
Fair value of the financial assets and liabilities of theour funds may fluctuate in response to changes in the value of investments, foreign currency exchange rates, commodity prices, and interest rates.rates, among other factors. The fair value changes in the financial assets and liabilities of theour funds may affect the amount of our assets under management and may impact the amount of management fees and incentive income we may earn from the funds.
With regards toThe amount of our assets under management in our multi-strategy and opportunistic credit funds is generally based on net asset value (plus unfunded commitments in certain cases). A 10% change in the consolidated funds,fair value of the net effectassets held by our funds as of these fair value changes primarily impacts theMarch 31, 2021 and December 31, 2020, would have resulted in a change of approximately $1.7 billion and $1.6 billion, respectively, in assets under management. Assets under management for our real estate funds and securitization vehicles are not based on net gains of consolidated funds in our consolidated statements of comprehensive income (loss); however, a large portion of these fair value changes is absorbed by the investors of these funds (noncontrolling interests). We may also be entitled to a portion of these earnings through our incentive income allocation as general partner of these funds.asset value.
Impact on Management Fees
Management fees for our multi-strategy and opportunistic credit funds are generally based on the net asset value of those funds. Accordingly, management fees will generally change in proportion to changes in the fair value of investments held by these funds. Management fees for our real estate funds and certain other fundssecuritization vehicles are generallynot based on committed capital during the
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original investment period and invested capital thereafter;net asset value; therefore, management fees are not directly impacted by changes in the fair value of investments held by those funds.
A hypothetical 10% decline in the fair value of the net assets held by our funds would have resulted in a reduction of management fees by approximately $4.9 million in the three months ended March 31, 2021 and $4.2 million in three months ended March 31, 2020.
Impact on Incentive Income
Incentive income for our funds is generally based on a percentage of profits generated by our funds over a commitment period, which is impacted by global market conditions and other factors. Major factors that influence the degree of impact include how the investments held by our funds are impacted by changes in the market and the extent to which any hurdle rates or high-water marks impact our ability to earn incentive income. Consequently, incentive income cannot be readily predicted or estimated.
Market Risk
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The amount of our assets under management is generally based on the net asset value of multi-strategy and opportunistic credit funds, and committed or invested capital for our real estate funds. A 10% change in the fair value of the net assets held by our funds as of June 30, 2020 and December 31, 2019, would have resulted in a change of approximately $1.5 billion and $1.4 billion, respectively, in our assets under management.
A 10% change in the fair value of the net assets held by our funds as of July 1, 2020 (the date management fees are calculated for the third quarter of 2020) would impact management fees charged on that day by approximately $4.1 million. A 10% change in the fair value of the net assets held by our funds as of January 1, 2020, would have impacted management fees charged on that day by approximately $3.6 million.
A 10% change in the fair value of the net assets held by our funds as of the end of any year (excluding unrealized gains and losses in Special Investments or other investments on which we do not earn any incentive income until such investments are sold or otherwise realized), could significantly affect our incentive income, as incentive income is generally based on a percentage of annual profits generated by our funds.income. We do not earn incentive income on unrealized gains attributable to Special Investments and certain other investments, and therefore a change in the fair value of those investments would have no effect on incentive income.income until such investments are sold or otherwise realized.
Exchange Rate Risk
Our fundsChanges in currency rates will impact the carrying value of financial instruments denominated in currencies other than the U.S. dollar. We hold certain cash and risk retention investments in the European CLOs as well as related financing (CLO Investments Loans and repurchase agreements) denominated in non-U.S. dollar currencies, which may be affected by movements in the rate of exchange between the U.S. dollar and foreign currencies. Additionally, a portion of our operating expenses and management fees are denominated in non-U.S. dollar currencies. We manage our exposure to exchange rate risks through our regular operating activities, wherein we may align foreign currency payments and receipts, and when appropriate, through the use of derivative financial instruments to economically hedge certain foreign currency exposure, although the impact of these were not material in three months ended March 31, 2021 and 2020.
We estimate that as of June 30,March 31, 2021 and 2020, and December 31, 2019, a hypothetical 10% weakening or strengthening of the U.S. dollar against all or any combination of currencies to which our funds have exposure to exchangeforeign currency rates would not have a material effectdirect impact on our revenues, net income attributable to Class A Shareholders or Economic Income. The impact on cash flows from financial instruments would be insignificant.
Our investment funds hold investments that are denominated in non-U.S. dollar currencies that may be affected by movement in the rate of exchange between the U.S. dollar and non-U.S. dollar currencies. The funds may seek to hedge resulting currency exposure through borrowings in foreign currencies or through the use of derivative financial instruments.
Interest Rate Risk
Borrowings under the Debt Securities, 20182020 Term Loan as well asand our investments in CLOs accrue interest at variable rates. Our funds also have financing arrangements and hold credit instruments that accrue interest at variable rates. Interest rate changes may therefore impactaffect the amount of our interest income and interest expense,payments, future earnings and cash flows.
We estimate that as of June 30,March 31, 2021 and 2020, and December 31, 2019, a 100 basis pointhypothetical one percentage increase or decrease in variable interest rates would not have a material effectdirect impact on our annual interest income, interest expense, net income attributable to Class A Shareholders or Economic Income. A tightening of credit and an increase in prevailing interest rates could make it more difficult for us to raise capital and sustain the growth rate of the funds.
Our investment funds hold investments that may be affected by changes in interest rates. A material increase in interest rates would be expected to negatively affect valuation of investments that accrue interest at fixed rates. The actual impact would be dependent upon the average duration of fixed income holdings at the time and may be partially offset by the use of derivative financial instruments and higher interest income on variable rate securities. For funds that pay management fees based on net asset value, we estimate that our management fees would change proportionally with such increases or decreases in net asset value.
Credit Risk
Credit risk is the risk that counterparties or debt issuers may fail to fulfill their obligations or that the collateral value may become inadequate to cover our exposure. We manage credit risk by monitoring the credit exposure to and the creditworthiness of counterparties, requiring additional collateral where appropriate.
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Item 4. Controls and Procedures
Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted 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 Chief Executive Officer and Chief Financial Officer, as
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appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of June 30, 2020,March 31, 2021, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level as of June 30, 2020.March 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, that occurred in the secondfirst quarter of 20202021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.
The design of any system of controls is based in part on 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. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time involved in litigation and claims incidental to the conduct of our business. Like other businesses in our industry, we are subject to extensive scrutiny by regulatory agencies globally that have, or may in the future have, regulatory authority over us and our business activities. This has resulted in, or may in the future result in, regulatory agency investigations, litigation and subpoenas, and related sanctions and costs. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business—Regulatory changes in jurisdictions outside the United StatesU.S. could adversely affect our business” in our Annual Report. See Note 1816 to our consolidated financial statements included in this report for additional information.
Item 1A. Risk Factors
In addition to the risk factor below, pleasePlease see “Item 1A. Risk Factors” in our Annual Report for a discussion of the risks material to our business.
The uncertainty surrounding the ongoing COVID-19 pandemic, including the length and severity of its impact on global economic activity, has had a substantial negative impact on many benchmark market indices and significantly increased volatility in equity and debt prices, interest and exchange rates, commodity prices and the ratings and cash flows of collateral in the CLOs that we manage. These factors have adversely impacted our business in many ways, including reducing the amount of our assets under management and our incentive income in the first quarter of 2020 and to the extent that we have performance-related depreciation at year-end, may cause us to recognize lower management fees and incentive income in the remainder of 2020, which could further adversely impact our business, financial condition, results of operations and liquidity. Additionally, we face various potential operational challenges due to the ongoing COVID-19 pandemic.
The recent global economic downturn related to the COVID-19 pandemic has adversely impacted the amount of our assets under management and may cause us to recognize lower management fees and incentive income in 2020 and may continue to adversely impact our revenues in the near term. The degree to which COVID-19 may continue to impact our business, results of operations, financial condition and liquidity will depend on future developments, which are highly uncertain, difficult to predict and outside of our control, including the continued global spread of COVID-19, the severity and the duration of the pandemic, further actions that may be taken by governmental authorities, businesses or individuals and how quickly and to what extent normal economic and operating conditions can resume. Risks that could be brought by the continuation of the COVID-19 pandemic include, but are not limited to, dislocations in market prices for investments in our funds, substantial market uncertainty which could lead to a decline in assets under management and other negative effects that could flow from an overall economic downturn. As a result, the further impact on our business, results of operations, financial condition and liquidity cannot be reasonably estimated at this time, but the impact could be significant.
In the first half of 2020, we experienced unrealized losses on our risk retention investments held in certain of the CLOs that we manage. Although this has not had a material impact on the interest income generated from our CLO investments to date, it has reduced the fair value of our investments and may have a material impact on the amount of interest income we may earn from these investments in the future. Furthermore, because of ratings downgrades and defaults on certain of the collateral held by our CLOs, some of those CLOs failed to satisfy one or more overcollateralization tests, and as a result, we stopped recognizing management fees for these CLOs until the collateral tests are remedied and such fees are paid. In the event the persistent market conditions do not sufficiently recover over the life cycle of these CLOs, management fees from our securitization vehicles will continue to deteriorate. To the extent the overcollateralization tests in our CLOs have not been resolved, the amount of management fees deferred would continue to increase, which may negatively impact the amounts we recognize as revenue in future periods.
To ensure the safety of our employees and in response to mandated precautions, where applicable, nearly all of our employees are working remotely at this time to mitigate the risks associated with COVID-19. While we believe we have been successful in implementing our business continuity plan, unexpected operational challenges may arise in the future. If we or any of our key service providers were to experience material disruptions in the ability for our or their employees to work remotely, our ability to operate our business could be materially adversely impacted. If our employees, including our executive managing
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directors and key investment professionals, were to become seriously ill, our ability to operate our business could be materially disrupted. Any such disruptions to our business operations could have a material adverse impact on our business, results of operation, financial condition or liquidity.
In addition, the continuation or a resurgence of the COVID-19 pandemic could heighten many other risks described in the “Risk Factors” section of our Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit
No.
Description
101*The following financial information from the Quarterly Report on Form 10-Q for the three months ended June 30, 2020,March 31, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iii)(iv) Consolidated Statements of Changes in Shareholders’ Equity (Deficit); (iv)(v) Consolidated Statements of Cash Flows; and (v)(vi) Notes to Consolidated Financial Statements.
104*Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)
*Filed herewith
**Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
+Management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements 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.

Dated: AugustMay 6, 20202021

SCULPTOR CAPITAL MANAGEMENT, INC.
  
By: /s/ Thomas M. SippDava Ritchea
  Thomas M. SippDava Ritchea
  Chief Financial Officer and Executive Managing Director

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