Sculptor Capital Management Inc.

08/05/2022 | Press release | Distributed by Public on 08/05/2022 14:19

Quarterly Report for Quarter Ending 2022-06-30 (Form 10-Q)

scu-20220630


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, 2022
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 York10019
(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 SCU New 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 August 1, 2022, there were 24,856,260 Class A Shares, 5,228,852 of Restricted Class A Shares and 33,633,474 Class B Shares outstanding.



SCULPTOR CAPITAL MANAGEMENT, INC.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
7
Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021
7
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021
8
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2022 and 2021
9
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the Three and Six Months Ended June 30, 2022 and 2021
10
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021
12
Notes to Consolidated Financial Statements
14
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
48
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
90
Item 4.
Controls and Procedures
92
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
94
Item 1A.
Risk Factors
94
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
94
Item 3.
Defaults upon Senior Securities
95
Item 4.
Mine Safety Disclosures
95
Item 5.
Other Information
95
Item 6.
Exhibits
96
Signatures
97

i

Defined Terms
2007 Offerings
Refers collectively to our IPO and the concurrent private offering of approximately 3.81 million Class A Shares to DIC Sahir Limited, a wholly owned indirect subsidiary of Dubai Holdings LLC.
Accrued but unrecognized incentive income Accrued but unrecognized incentive income ("ABURI") is the amount of incentive income accrued at the fund level on longer-term AUM that has not yet been recognized in our revenues. These amounts may ultimately not be recognized as revenue by us in the event of future losses in the respective funds.
Annual Report
Our annual report on Form 10-K for the year ended December 31, 2021, dated February 25, 2022 and filed with the SEC
Advisers Act Investment Advisers Act of 1940, as amended.
Assets Under Management
Assets Under Management ("AUM") refers to the assets for which we provide investment management, advisory or certain other investment-related services. Specifically:
a.AUM for our multi-strategy and opportunistic credit funds is generally based on the net asset value of those funds plus any unfunded commitments, if applicable. AUM is reduced for unfunded commitments that will be funded through transfers from other funds.
b.AUM for Institutional Credit Strategies is generally based on the amount of equity outstanding for CLOs and CBOs (during the warehouse period) and the par value of the collateral assets and cash held (after warehouse period). For aircraft securitization vehicles, AUM is based on the adjusted portfolio appraisal values for the aircraft collateral within the securitization. AUM is reduced for any investments in these CLOs and securitization vehicles held by our other funds. AUM also includes the net asset value of other investment vehicles within this strategy.
c.AUM for our real estate funds is 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. AUM is reduced for unfunded commitments that will be funded through transfers from other funds.
d.AUM for our special purpose acquisition company ("SPAC") sponsored by us includes the proceeds raised in the initial public offering that are currently held in a trust for use in a business combination.

AUM includes amounts that are not subject to management fees, incentive allocation or other amounts earned on AUM, including without limitation, investments by the Company, its executive managing directors, employees and certain other related parties. Our calculation of AUM may differ from the calculations of other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers. Our calculations of AUM are not based on any definition set forth in the governing documents of the investment funds and are not calculated pursuant to any regulatory definitions.
Class A Shares
Our Class A Shares, representing Class A common stock of Sculptor Capital Management, Inc., which are publicly traded and listed on the NYSE.
Class B Shares
Class 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.
CLOs
Collateralized loan obligations.
the Company, Sculptor Capital, the firm, we, us, our
Refers, unless the context requires otherwise, to the Registrant and its consolidated subsidiaries, including the Sculptor Operating Group.
1

Consolidated Entities
Refers to funds, special purpose entities, investment vehicles and other similar structures for which the Company is required to consolidate in accordance with GAAP.
Distribution Holiday The Sculptor Operating Partnerships initiated a distribution holiday (the "Distribution Holiday") on the Group A Units, Group E Units and Group P Units and on certain RSUs and RSAs 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 E Units and Group P Units and certain RSUs and RSAs, do not receive distributions during the Distribution Holiday.
Distribution Holiday Economic Income Distribution 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.
Economic Income
Economic Income is a non-GAAP measure of pre-tax operating performance that excludes the following from our results on a GAAP basis: noncontrolling interests, equity based compensation expense, net of cash settled RSUs, depreciation and amortization expenses, components of our other income (loss), non-cash interest expense accretion on debt, and amounts related to consolidated entities, in addition, expenses related to incentive income profit-sharing arrangements are generally recognized at the same time the related incentive income revenue is recognized. The fair value of RSUs that are settled in cash to employees or executive managing directors, where the number of RSUs to be settled in cash is not certain at the time of grant, is included as an expense at the time of settlement. Where the number of RSUs to be settled in cash is certain on the grant date, the expense is recognized during the performance period to which the award relates. Similarly, deferred cash compensation is expensed in full during the performance period to which the award relates for Economic Income, rather than over the service period for GAAP. Further, impairment of right-of-use lease assets is excluded from Economic Income at the time the impairment is recognized for GAAP and the impact is then amortized over the lease term for Economic Income. Additionally, rent expense is offset by subrental income as management evaluates rent expenses on a net basis.
Exchange Act
Securities Exchange Act of 1934, as amended.
executive managing directors
The 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.
Fee Paying Assets Under Management Fee Paying Assets Under Management ("FP AUM") refers to the AUM on which we earn management fees and/or incentive income.
funds
The 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, as well as the SPAC we sponsor.
GAAP
U.S. generally accepted accounting principles.
Group A Units
Refers 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.
Group A-1 Units
Refers 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.
2

Group B Units
Refers 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 E Units
Refers 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.
Group P Units
Refers collectively to one Group 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 Strategies
Our asset management platform that invests in performing credits, including leveraged loans, high-yield bonds, private credit/bespoke financing and investment grade credit via CLOs, aircraft securitization vehicles, collateralized bond obligations, the structured alternative investment solution, and other customized solutions.
IPO
Our initial public offering of 3.6 million Class A Shares that occurred in November 2007.
Longer-term AUM
AUM from investors that are subject to initial commitment periods of three years or longer. Investors with longer-term AUM may have less than three years remaining in their commitment period. This excludes AUM that had initial commitment periods of three years or longer and subsequently moved to shorter commitment periods at the end of their initial commitment period.
NYSE
New York Stock Exchange.
Partner Equity Units
Refers collectively to the Group A Units, Group E Units and Group P Units.
Preferred Units One Class A cumulative preferred unit in each of the Sculptor Operating Partnerships collectively represented one "Preferred Unit." Certain of our executive managing directors collectively owned 100% of the Preferred Units. We redeemed in full the Preferred Units in the fourth quarter of 2020, and as of December 31, 2020 and 2021 there were no Preferred Units outstanding.
PSUs
Class A performance-based RSUs.
Recapitalization
Refers to the recapitalization of our business that occurred in February 2019. As part of the Recapitalization, a portion of the interests held by our former executive management were reallocated to existing members of senior management. In addition, we restructured the previously outstanding senior debt and Preferred Units.
Registrant
Sculptor Capital Management, Inc., a Delaware corporation.
RSAs
Restricted Class A Shares.
RSUs
Class A restricted share units.
Sculptor Corp
Sculptor Capital Holding Corporation, a Delaware corporation.
Sculptor Operating Group
Refers collectively to the Sculptor Operating Partnerships and their consolidated subsidiaries.
Sculptor Operating Group Units
Refers collectively to Sculptor Operating Group A, B, E, and P Units.
Sculptor Operating Partnerships
Refers collectively to Sculptor Capital LP, Sculptor Capital Advisors LP and Sculptor Capital Advisors II LP.
3

SEC
U.S. Securities and Exchange Commission.
Securities Act
Securities Act of 1933, as amended.
SPAC Refers to special purpose acquisition company.
Special Investments
Investments that we, as investment manager, believe lack a readily ascertainable market value, are illiquid or should be held until the resolution of a special event or circumstance.
4

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 webcasts. 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 57thStreet, 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, the United Kingdom's withdrawal from the European Union; poor investment performance of, or lack of capital flows into, the funds we manage; our investors' right to redeem their investments from our funds on a regular basis; the highly variable nature of our revenues, results of operations and cash flows; difficult market conditions that could adversely affect our funds; counterparty default risks; 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 or negative publicity arising therefrom or from matters involving the Company's founding CEO; 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 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; United States ("U.S.") and foreign regulatory developments relating to, among other things, financial institutions and markets, government oversight, fiscal and tax policy; and assumptions relating to our operations, investment performance, financial results, financial condition, business prospects, growth strategy and liquidity.
If one or more of these or other risks or uncertainties materialize, or if our assumptions or estimates prove to be incorrect, our actual results may vary materially from those indicated in these statements. These factors are not and should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in our filings with the SEC, including but not limited to those described in our Annual Report.
5



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.
6
SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS - UNAUDITED
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

June 30, 2022 December 31, 2021
(dollars in thousands)
Assets
Cash and cash equivalents $ 192,578 $ 170,781
Restricted cash 7,238 7,289
Investments (includes assets measured at fair value of $218,415 and $424,910, including assets sold under agreements to repurchase of $152,838 and $157,721 as of June 30, 2022 and December 31, 2021, respectively)
336,993 583,622
Income and fees receivable 25,421 193,636
Due from related parties 30,158 28,037
Deferred income tax assets 245,101 241,759
Operating lease assets 81,382 85,735
Other assets, net 107,047 77,091
Assets of consolidated entities:
Cash and cash equivalents 25,650 -
Restricted cash and cash equivalents 234,934 234,601
Investments of consolidated entities 331,151 -
Other assets of consolidated entities 4,171 5,304
Total Assets $ 1,621,824 $ 1,627,855
Liabilities and Shareholders' Equity
Liabilities
Compensation payable $ 51,344 $ 246,261
Unearned income and fees 67,271 62,800
Tax receivable agreement liability 178,759 195,752
Operating lease liabilities 98,734 104,753
Debt obligations 123,295 126,474
Warrant liabilities, at fair value 22,211 65,287
Securities sold under agreements to repurchase 163,329 156,448
Other liabilities 36,279 38,790
Liabilities of consolidated entities:
Loans payable, at fair value 201,985 -
Warrant liabilities, at fair value 2,645 7,590
Other liabilities of consolidated entities 45,473 10,817
Total Liabilities 991,325 1,014,972
Commitments and Contingencies (Note 16)
Redeemable Noncontrolling Interests of Consolidated Entities (Note 3) 234,600 234,600
Shareholders' Equity
Class A Shares, par value $0.01 per share, 100,000,000 and 100,000,000 shares authorized, 24,885,028 and 25,668,987 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
249 257
Class B Shares, par value $0.01 per share, 75,000,000 and 75,000,000 shares authorized, 33,633,474 and 33,613,023 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
336 336
Treasury stock, at cost; 1,641,589 and 0 as of June 30, 2022 and December 31, 2021, respectively
(19,492) -
Additional paid-in capital 219,705 184,691
Accumulated deficit (251,059) (253,521)
Accumulated other comprehensive (loss) income (1,925) 51
Shareholders' deficit attributable to Class A Shareholders (52,186) (68,186)
Shareholders' equity attributable to noncontrolling interests 448,085 446,469
Total Shareholders' Equity 395,899 378,283
Total Liabilities and Shareholders' Equity $ 1,621,824 $ 1,627,855
See notes to consolidated financial statements.
7

SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Revenues
Management fees $ 71,770 $ 76,610 $ 145,207 $ 150,571
Incentive income 44,580 59,544 66,222 107,348
Other revenues 2,520 1,778 4,950 3,359
Income of consolidated entities 311 - 150 3
Total Revenues 119,181 137,932 216,529 261,281

Expenses
Compensation and benefits 79,743 59,447 157,528 148,681
Interest expense 3,427 4,135 6,712 9,003
General, administrative and other 26,425 25,022 53,741 52,398
Expenses of consolidated entities 1,668 - 1,912 2
Total Expenses 111,263 88,604 219,893 210,084

Other (Loss) Income
Changes in fair value of warrant liabilities 18,740 (13,231) 43,076 (38,175)
Changes in tax receivable agreement liability 227 (559) 220 21
Net losses on retirement of debt - (6,525) - (30,198)
Net (losses) gains on investments (30,838) 6,255 (36,182) 11,617
Net losses of consolidated entities (6,434) - (2,294) -
Total Other (Loss) Income (18,305) (14,060) 4,820 (56,735)

(Loss) Income Before Income Taxes (10,387) 35,268 1,456 (5,538)
Income taxes (7,914) 13,047 (947) 11,332
Consolidated Net (Loss) Income (2,473) 22,221 2,403 (16,870)
Less: Net (income) loss attributable to noncontrolling interests (5,579) (407) 6,427 18,391
Less: Net income attributable to redeemable noncontrolling interests (697) - (3,765) -
Net (Loss) Income Attributable to Sculptor Capital Management, Inc. (8,749) 21,814 5,065 1,521
Change in redemption value of redeemable noncontrolling interests 697 - 3,765 -
Net (Loss) Income Attributable to Class A Shareholders $ (8,052) $ 21,814 $ 8,830 $ 1,521
(Loss) Earnings per Class A Share
(Loss) Earnings per Class A Share - basic $ (0.32) $ 0.87 $ 0.34 $ 0.06
(Loss) Earnings per Class A Share - diluted $ (0.89) $ 0.40 $ (1.00) $ (0.32)
Weighted-average Class A Shares outstanding - basic 25,514,364 25,025,974 26,052,478 24,442,940
Weighted-average Class A Shares outstanding - diluted 26,565,792 55,191,693 27,611,057 54,229,693

See notes to consolidated financial statements.
8

SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Consolidated net (loss) income $ (2,473) $ 22,221 $ 2,403 $ (16,870)
Other Comprehensive (Loss) Income, Net of Tax
Other comprehensive (loss) income - currency translation adjustment (1,226) 185 (1,976) (683)
Comprehensive (Loss) Income (3,699) 22,406 427 (17,553)
Less: Comprehensive (income) loss attributable to noncontrolling interests (5,579) (523) 6,427 18,761
Less: Comprehensive income attributable to redeemable noncontrolling interests (697) - (3,765) -
Comprehensive (Loss) Income Attributable to Sculptor Capital Management, Inc. $ (9,975) $ 21,883 $ 3,089 $ 1,208

See notes to consolidated financial statements.
9

SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) - UNAUDITED
Sculptor Capital Management, Inc. Shareholders
Class A Shares Class B Shares Treasury Stock Shares Class A Shares Par Value Class B Shares Par Value Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive (Loss) Income Treasury Stock, at cost Shareholders' Deficit Attributable to Class A Shareholders Shareholders' Equity Attributable to Noncontrolling Interests Total Shareholders' Equity
(dollars in thousands, except share data)
Balance at April 1, 2022 26,052,113 33,676,331 473,719 $ 261 $ 337 $ 202,305 $ (239,776) $ (699) $ (6,249) $ (43,821) $ 437,936 $ 394,115
Equity-based compensation, net of taxes 785 (42,857) - - (1) 16,948 - - - 16,947 1,959 18,906
Repurchase of Class A Shares (1,167,870) - 1,167,870 (12) - - - - (13,243) (13,255) - (13,255)
Dividend equivalents on Class A restricted share units - - - - - (245) 245 - - - - -
Change in redemption value of SPAC Class A Shares - - - - - 697 - - - 697 - 697
Cash dividends declared on Class A Shares ($0.11 per share)
- - - - - - (2,779) - - (2,779) - (2,779)
Consolidated net (loss) income, excluding amounts attributable to redeemable noncontrolling interests - - - - - - (8,749) - - (8,749) 5,579 (3,170)
Currency translation adjustment - - - - - - - (1,226) - (1,226) - (1,226)
Capital contributions - - - - - - - - - - 3,982 3,982
Capital distributions - - - - - - - - - - (1,371) (1,371)
Balance at June 30, 2022 24,885,028 33,633,474 1,641,589 $ 249 $ 336 $ 219,705 $ (251,059) $ (1,925) $ (19,492) $ (52,186) $ 448,085 $ 395,899
Balance at April 1, 2021 23,899,777 32,887,883 - $ 239 $ 329 $ 185,961 $ (255,522) $ 350 $ - $ (68,643) $ 435,590 $ 366,947
Equity-based compensation, net of taxes 1,201,410 (1) - 12 - 8,885 - - - 8,897 1,478 10,375
Dividend equivalents on Class A restricted share units - - - - - 5,887 (5,887) - - - - -
Cash dividends declared on Class A Shares ($0.30 per share)
- - - - - - (7,463) - - (7,463) - (7,463)
Consolidated net income, excluding amounts attributable to redeemable noncontrolling interests - - - - - - 21,814 - - 21,814 407 22,221
Currency translation adjustment - - - - - - - 69 - 69 116 185
Capital contributions - - - - - - - - - - 2,496 2,496
Capital distributions - - - - - - - - - - (1,467) (1,467)
Balance at June 30, 2021 25,101,187 32,887,882 - $ 251 $ 329 $ 200,733 $ (247,058) $ 419 $ - $ (45,326) $ 438,620 $ 393,294
10

SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) - (continued)

Sculptor Capital Management, Inc. Shareholders
Class A Shares Class B Shares Treasury Stock Shares Class A Shares Par Value Class B Shares Par Value Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive (Loss) Income Treasury Stock, at cost Shareholders' Deficit Attributable to Class A Shareholders Shareholders' Equity Attributable to Noncontrolling Interests Total Shareholders' Equity
(dollars in thousands, except share data)
Balance at January 1, 2022 25,668,987 33,613,023 - $ 257 $ 336 $ 184,691 $ (253,521) $ 51 $ - $ (68,186) $ 446,469 $ 378,283
Equity-based compensation, net of taxes 857,630 20,451 - 9 - 31,425 - - - 31,434 3,883 35,317
Repurchase of Class A Shares (1,641,589) - 1,641,589 (17) - - - - (19,492) (19,509) - (19,509)
Dividend equivalents on Class A restricted share units - - - - - (176) 176 - - - - -
Change in redemption value of SPAC Class A Shares - - - - - 3,765 - - - 3,765 - 3,765
Cash dividends declared on Class A Shares ($0.11 per share)
- - - - - - (2,779) - - (2,779) - (2,779)
Consolidated net income (loss), excluding amounts attributable to redeemable noncontrolling interests - - - - - - 5,065 - - 5,065 (6,427) (1,362)
Currency translation adjustment - - - - - - - (1,976) - (1,976) - (1,976)
Capital contributions - - - - - - - - - - 8,979 8,979
Capital distributions - - - - - - - - - - (4,819) (4,819)
Balance at June 30, 2022 24,885,028 33,633,474 1,641,589 $ 249 $ 336 $ 219,705 $ (251,059) $ (1,925) $ (19,492) $ (52,186) $ 448,085 $ 395,899
Balance at January 1, 2021 22,903,571 32,824,538 - $ 229 $ 328 $ 166,917 $ (178,674) $ 732 $ - $ (10,468) $ 445,348 $ 434,880
Equity-based compensation, net of taxes 2,197,616 63,344 - 22 1 27,339 - - - 27,362 11,552 38,914
Dividend equivalents on Class A restricted share units - - - - - 6,477 (6,477) - - - - -
Cash dividends declared on Class A Shares ($2.65 per share)
- - - - - - (63,428) - - (63,428) - (63,428)
Consolidated net income (loss), excluding amounts attributable to redeemable noncontrolling interests - - - - - - 1,521 - - 1,521 (18,391) (16,870)
Currency translation adjustment - - - - - - - (313) - (313) (370) (683)
Capital contributions - - - - - - - - - - 2,964 2,964
Capital distributions - - - - - - - - - - (2,483) (2,483)
Balance at June 30, 2021 25,101,187 32,887,882 - $ 251 $ 329 $ 200,733 $ (247,058) $ 419 $ - $ (45,326) $ 438,620 $ 393,294
See notes to consolidated financial statements.
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SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED



Six Months Ended June 30,
2022 2021
(dollars in thousands)
Cash Flows from Operating Activities
Consolidated net income (loss) $ 2,403 $ (16,870)
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Amortization of equity-based compensation 45,647 42,919
Depreciation, amortization and net gains and losses on fixed assets 2,698 3,309
Changes in fair value of warrant liabilities (43,076) 38,175
Net losses on retirement of debt - 30,198
Deferred income taxes (2,238) 8,131
Non-cash lease expense 9,550 10,748
Net losses (gains) on investments, net of dividends 38,968 (9,140)
Operating cash flows due to changes in:
Income and fees receivable 167,958 463,605
Due from related parties (2,085) (4,502)
Other assets, net (15,850) 5,839
Compensation payable (199,515) (187,537)
Unearned income and fees 4,471 5,324
Tax receivable agreement liability (16,993) (7,239)
Operating lease liabilities (11,029) (11,076)
Other liabilities (2,536) (20,260)
Consolidated entities related items:
Net losses of consolidated entities 2,294 -
Purchases of investments (463,231) -
Proceeds from sale of investments 86,645 -
Other assets of consolidated entities (2,679) (3)
Other liabilities of consolidated entities 62,858 2
Net Cash (Used in) Provided by Operating Activities (335,740) 351,623
Cash Flows from Investing Activities
Purchases of fixed assets (1,310) (4,243)
Purchases of United States government obligations (28,784) (164,523)
Maturities and sales of United States government obligations 219,144 131,690
Investments in funds (49,077) (97,887)
Return of investments in funds 37,734 24,692
Net Cash Provided by (Used in) Investing Activities 177,707 (110,271)
12

SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED - (continued)
Six Months Ended June 30,
2022 2021
(dollars in thousands)
Cash Flows from Financing Activities
Contributions from noncontrolling and redeemable noncontrolling interests 8,979 2,964
Distributions to noncontrolling and redeemable noncontrolling interests (4,819) (2,483)
Dividends on Class A Shares (2,779) (63,428)
Proceeds from debt obligations, net of issuance costs 5,683 3,219
Repayment of debt obligations, including prepayment costs (9,424) (249,731)
Proceeds from securities sold under agreements to repurchase, net of issuance costs 20,395 41,004
Purchases of treasury stock (19,492) -
Proceeds from debt obligations of consolidated entities, net of issuance costs 215,733 -
Other, net (5,962) (3,838)
Net Cash Provided by (Used in) Financing Activities 208,314 (272,293)
Effect of exchange rate changes on cash and cash equivalents and restricted cash (2,552) (574)
Net change in cash and cash equivalents and restricted cash 47,729 (31,515)
Cash and cash equivalents and restricted cash, beginning of period 412,671 186,977
Cash and Cash Equivalents and Restricted Cash, End of Period $ 460,400 $ 155,462
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ 5,682 $ 8,236
Income taxes $ 6,274 $ 4,179
Non-cash transactions:
Assets related to initial consolidation of funds $ 16,699 $ -
Liabilities related to initial consolidation of funds $ 2,364 $ -
Assets related to deconsolidation of funds $ 44,042 $ -
Liabilities related to deconsolidation of funds $ 29,632 $ -
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents $ 192,578 $ 153,827
Restricted cash 7,238 1,635
Cash and cash equivalents of consolidated entities 25,650 -
Restricted cash and cash equivalents of the consolidated SPAC 234,934 -
Total Cash and Cash Equivalents and Restricted Cash $ 460,400 $ 155,462
`

See notes to consolidated financial statements.
13

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022


1. ORGANIZATION
Sculptor Capital Management, Inc. (the "Registrant"), a Delaware corporation, together with its consolidated subsidiaries (collectively, the "Company" or "Sculptor Capital"), is a leading institutional alternative asset management firm with a global presence with offices in New York, London, Hong Kong and Shanghai. The Company provides asset management services and investment products across Multi-Strategy, Credit, and Real Estate. The Company serves global clients through commingled funds, separate accounts and specialized products, as well as sponsoring a special purpose acquisition company ("SPAC") (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 and asset classes, including fundamental equities, corporate credit, real estate debt and equity, merger arbitrage and structured 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 securitization vehicles, collateralized bond obligations ("CBOs"), structured alternative investment solutions, commingled products and other customized solutions for clients.
The Company's primary sources of revenues are management fees, which are generally based on the amount of the Company's Assets Under Management ("AUM"), as defined below, 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. AUM refers to the assets of the funds to which the Company provides investment management and advisory services. The Company's AUM are a function of the capital that is allocated to it by the investors in its funds and the investment performance of its funds.
The Company conducts its business and generates substantially all of its revenues primarily in the United 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 former executive managing directors who are no longer active in the Company's business.
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 (other than RSAs, where entitlement to distributions may be subject to limitations and conditions).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

•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 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, 2022:
•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. 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.
Group A Unit grants are accounted for as equity-based compensation. See Note 13 in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022 ("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 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.
•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, book-up, 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, which consists of the Chief Executive Officer and the Chief Financial Officer of Sculptor Capital Management, Inc.). 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,
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SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

in a change of control transaction or other liquidity event only to the extent of their relative positive capital accounts (if any). Holders of Group E Units do not receive distributions during the Distribution Holiday. See Note 3 in the Company's Annual Report for additional details. Group E Unit grants are accounted for as equity-based compensation. See Note 13 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 upon satisfaction of certain service and market conditions. 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 market 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 market 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. See Note 13 in the Company's Annual Report for additional information.
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 in the Company's Annual Report), and Group P Units held. Upon the exchange of a Group A Unit or 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. 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 of the Registrant and the Sculptor Operating Partnerships, respectively, that were outstanding as of June 30, 2022:
As of June 30, 2022
Sculptor Capital Management, Inc.
Class A Shares 24,885,028
Class B Shares 33,633,474
Restricted Class A Shares ("RSAs") 5,228,852
Warrants to purchase Class A Shares (Note 7)
4,338,015
Sculptor Operating Partnerships
Group A Units 15,025,994
Group A-1 Units 9,244,477
Group B Units 24,885,028
Group E Units 13,009,158
Group P Units 5,412,858
The Company has 1,641,589 of treasury stock shares as of June 30, 2022. 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 13 in the Company's Annual Report for additional information.
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SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

Share Repurchase Program
In February 2022, the Company's Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock. The Company records its treasury stock repurchases at cost on a trade date basis. As of June 30, 2022, the Company repurchased 1,641,589 Class A Shares at a cost of $19.5 million for an average price of $11.87 per share through open market purchase transactions. As of June 30, 2022, $80.5 million remained available for repurchase of the Company's common stock under the share repurchase program. All of the repurchased shares are classified as treasury stock in the Company's consolidated balance sheets.
The repurchase program has no expiration date. The Company may purchase shares on a discretionary basis from time to time through open market purchases, privately negotiated transactions or other means, including through Rule 10b5-1 trading plans or through the use of other techniques such as accelerated share repurchases. The timing and amount of any transactions will be subject to the discretion of the Company based upon market conditions and other opportunities that the Company may have for the use or investment of its cash balances. The repurchase program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice.
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 for the year ended December 31, 2021. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's unaudited, interim, consolidated financial statements have been included and are of a normal and recurring nature. The consolidated financial statements include the accounts of the Company, its wholly owned or majority owned subsidiaries, the consolidated entities which are considered to be variable interest entities and for which the Company is considered the primary beneficiary, and certain other entities which are not considered variable interest entities but the Company is determined to have control. 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 AUM is recognized in the fourth quarter each year, based on full year investment performance.
Policies of Consolidated Entities
Consolidated Entities
For purposes of these consolidated financial statements, "Consolidated Entities" refers to funds, special purpose entities, investment vehicles and other similar structures which the Company is required to consolidate in accordance with GAAP. The funds are considered investment companies for GAAP purposes. Pursuant to specialized accounting guidance for investment companies and the retention of that guidance in the Company's consolidated financial statements, the investments held by the consolidated entities are reflected in the consolidated financial statements at their estimated fair values.
The policy applied by the Company is that a consolidated entity that is considered an investment company under the GAAP guidance generally consolidates another investment company when it owns substantially all of the interest in that investment company.
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SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

Income of Consolidated Entities
Income of consolidated entities consists of interest income, dividend income and other miscellaneous items. Interest income is recorded on an accrual basis. The consolidated entities may place debt obligations, including bank debt and other participation interests, on non-accrual status and, when necessary, reduce current interest income by charging off any interest receivable when collection of all or a portion of such accrued interest has become doubtful. The balance of non-accrual investments as of June 30, 2022, and the impact of such investments for the three and six months ended June 30, 2022 were not material. Dividend income is recorded on the ex-dividend date, net of withholding taxes, if applicable. Premiums and discounts are amortized and accreted, respectively, to income of consolidated funds in the consolidated statements of comprehensive income (loss).
Expenses of Consolidated Entities
Expenses of consolidated entities consist of interest expense, general and administrative and other miscellaneous expenses. Interest expense is recorded on an accrual basis.
Certain Assets and Liabilities of Consolidated Entities
Investments of consolidated entities are carried at fair value and include the consolidated entities' investments in securities, investment companies and other investments. Securities transactions are recorded on a trade-date basis. Realized gains and losses on sales of investments of the funds are determined on a specific identification basis and are included within net losses of consolidated entities in the consolidated statements of operations.
The fair value of investments held by the consolidated entities is based on observable market prices when available. Such values are generally based on the last reported sales price as of the reporting date. In the absence of readily ascertainable market values, the determination of the fair value of investments held by the consolidated funds may require significant judgment or estimation. For information regarding the valuation of these assets, see Note 4.
Assets of the consolidated fund are presented within investments of consolidated entities, and liabilities due to third parties are presented within loans payable, at fair value within liabilities of consolidated entities in the consolidated balance sheets. Changes in the fair value of the vehicle's financial assets and liabilities and related interest and other income are presented within net losses of consolidated entities, and ongoing expenses of the fund are presented as expenses of consolidated entities in the consolidated statements of operations.
Consolidation of SPAC, Structured Alternative Investment Solution and Other Funds
In 2021, the Company consolidated a SPAC, which it continues to consolidate as of June 30, 2022. The SPAC accrues interest income on money market investments held in a trust account, and incurs certain operational expenses related to legal, insurance and deal research costs.
In the first quarter of 2022, the Company consolidated a fund it manages as a result of an increase in the Company's investment in the vehicle, which resulted in the Company having a controlling financial interest in the VIE; the fund was subsequently deconsolidated in the first quarter of 2022 as the Company determined it was no longer the primary beneficiary as a result of the Company's redemption of its economic exposure to the fund. The Company recognized no gain or loss from consolidation and deconsolidation of the fund in the first quarter of 2022.
Additionally, in the first quarter of 2022, the Company closed on a $350.0 million structured alternative investment solution. The vehicle is a collateralized financing vehicle that issues senior and subordinated notes to investors and uses those proceeds to invest in a diversified portfolio of funds managed by the Company. Senior and mezzanine notes issued by the vehicle make periodic payments based on a stated interest rate, while the most subordinated notes have no stated interest rate but receive periodic payments from excess cash flows remaining after periodic payments have been made to the other notes and for fees and expenses due, as prescribed by the terms of the notes. During the second quarter of 2022, the cash proceeds from the issuance of
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SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

the notes were invested in certain of the Company's funds, while $9.9 million of the remaining cash proceeds are restricted due to a contractual minimum cash balance level at the consolidated entity, and are included in Assets of consolidated entities: Cash and cash equivalents on the Consolidated Balance Sheets.
The structured alternative investment solution is a variable interest entity ("VIE") since it lacks sufficient equity at risk to finance its expected activities without additional subordinated financial support from other parties, as it is financed through senior, mezzanine and subordinated notes. The Company consolidates the entity, as it has the power to direct the activities that most significantly impact the vehicle's economic performance, and the Company has the right to receive benefits or the obligation to absorb losses of the vehicle in the form of its retained interest that could potentially be significant to the vehicle. The Company invested approximately $127.8 million in the vehicle. The collateral assets of the consolidated entity are held solely to satisfy the obligations of the entity, and the investors in the consolidated vehicle have no recourse against the Company for any losses sustained by the entity.
The Company measures the financial assets of the consolidated structured alternative investment solution, an investment company, at fair value using net asset value ("NAV") per share of the underlying funds. The Company may determine, based on its own due diligence and investment procedures, that NAV per share does not represent fair value. In such circumstances, the Company will estimate the fair value in good faith and in a manner that it reasonably chooses, in accordance with the requirements of GAAP. The terms of the investments in underlying funds generally provide for minimum holding or lock-up periods, as well as redemption restrictions. Refer to Note 4 for further disclosures of investments for which fair value is measured using NAV per share.
The Company has elected the fair value option for the financial liabilities of the structured alternative investment solution. The Company measures the financial liabilities of its consolidated entity based on the fair value of the financial assets of its consolidated entity, as the Company believes the fair value of the financial assets are more observable. The financial liabilities are measured as (i) the sum of the fair value of the consolidated fund assets less (ii) the sum of the fair value of any beneficial interests retained by the Company.
See Note 2 in the Company's Annual Report for the complete listing of our significant accounting policies.
Recently Adopted Accounting Pronouncements
No changes to GAAP that went into effect in the six months ended June 30, 2022, 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. 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
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SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

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.
Noncontrolling interests are presented as a separate component of shareholders' equity on the Company's consolidated balance sheets. The primary components of noncontrolling interests are separately presented in the Company's consolidated statements of changes in shareholders' equity (deficit) to distinguish the shareholders' equity (deficit) attributable to Class A shareholders and noncontrolling interest holders. Net income (loss) includes the net income (loss) attributable to the holders of noncontrolling interest on the Company's consolidated statements of operations.
Sculptor Operating Group Ownership
The Company's equity interest in the Sculptor Operating Group increased to 47.0% as of June 30, 2022, from 46.4% as of June 30, 2021. Changes in the Company's interest in the Sculptor Operating Group have historically been, and in the future may be, driven by the following: (i) the exchange of Group A Units and Group P Units for Class A Shares, at which time the related Class B Shares are also canceled; (ii) vesting of RSAs; (iii) the issuance of Class A Shares under the Company's Amended and Restated 2007 Equity Incentive Plan, 2013 Incentive Plan and 2022 Incentive Plan related to the settlement of Class A restricted share units (the "RSUs") or Class A performance-based RSUs (the "PSUs"); (iv) the forfeiture of Group A Units and participating Group P Units by a departing executive managing director; and (v) the repurchase of Class A Shares and Group A Units. The Company's interest in the Sculptor Operating Group is expected to continue to increase over time as additional Class A Shares are issued upon the exchange of Group A Units and Group P Units, as well as the settlement of vested RSUs, PSUs and RSAs. Additionally, the Company's economic interest in the Sculptor Operating Group will decline when Group P Units begin to participate, as described in Note 13 in the Company's Annual Report.
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.
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SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Sculptor Capital LP
Net (loss) income $ (25,001) $ 19,669 $ 16,215 $ (27,794)
Blended participation percentage 0 % 42 % 0 % 39 %
Net (Loss) Income Attributable to Group A Units $ - $ 8,220 $ - $ (10,827)
Sculptor Capital Advisors LP
Net income (loss) $ 15,623 $ (22,681) $ (1,197) $ (23,194)
Blended participation percentage 36 % 39 % 38 % 39 %
Net Income (Loss) Attributable to Group A Units $ 5,702 $ (8,830) $ (451) $ (9,036)
Sculptor Capital Advisors II LP
Net (loss) income $ (1,677) $ 36,368 $ (19,473) $ 41,583
Blended participation percentage 49 % 0 % 38 % 0 %
Net (Loss) Income Attributable to Group A Units $ (821) $ - $ (7,331) $ -
Total Sculptor Operating Group
Net (loss) income $ (11,055) $ 33,356 $ (4,455) $ (9,405)
Blended participation percentage -44 % -2 % 175 % 211 %
Net Income (Loss) Attributable to Group A Units $ 4,881 $ (610) $ (7,782) $ (19,863)
The following table presents the components of the net income (loss) attributable to noncontrolling interests:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Group A Units $ 4,881 $ (610) $ (7,782) $ (19,863)
Other 698 1,017 1,355 1,472
$ 5,579 $ 407 $ (6,427) $ (18,391)
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SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

The following table presents the components of the shareholders' equity attributable to noncontrolling interests:
June 30, 2022 December 31, 2021
(dollars in thousands)
Group A Units $ 427,405 $ 431,304
Other 20,680 15,165
$ 448,085 $ 446,469
Redeemable noncontrolling interests
In 2021, the Company consolidated the SPAC it sponsors. The Class A shares issued by the consolidated SPAC are redeemable for cash by the public shareholders in the event the SPAC is unable to complete a business combination or a tender offer provision by a set date. Therefore, the investors' interests in the SPAC are classified within redeemable noncontrolling interests in the consolidated balance sheets. The following table presents the activity in redeemable noncontrolling interests in the three and six months ended June 30, 2022. There were no redeemable noncontrolling interests outstanding during the first half of 2021.
Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
2022 2022
SPAC SPAC
(dollars in thousands)
Beginning balance $ 234,600 $ 234,600
Change in redemption value of Class A Shares of consolidated SPAC (697) (3,765)
Comprehensive income 697 3,765
Ending Balance $ 234,600 $ 234,600
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, 2022 December 31, 2021
(dollars in thousands)
U.S. government obligations, at fair value $ 14,784 $ 205,400
CLOs, at fair value 203,631 219,510
Equity method investments 118,578 158,712
Total Investments $ 336,993 $ 583,622
Investments of Consolidated Entities $ 331,151 $ -
The Company invests in U.S. government obligations to manage excess liquidity, and these investments are carried at fair value under the fair value option election. Changes in fair value are recorded within net (losses) gains on investments in the consolidated statements of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

CLOs, at fair value, consist of investments in notes of unconsolidated CLOs and are carried at fair value under the fair value option election. Changes in fair value are included within net (losses) gains on investments in the consolidated statements of operations.
The Company's equity investments include investments in funds, which are not consolidated, but in which the Company exerts significant influence. The Company has not elected the fair value option and accounts for such investments under the equity method. Under the equity method of accounting, the Company recognizes its share of the underlying earnings (losses) from equity method investments within net (losses) gains on investments in the consolidated statements of operations. The carrying amounts of equity method investments are recorded in investments in the consolidated balance sheets. Refer to Note 15 for details of the related party nature of such investments.
The investments of the consolidated structured alternative investment solution that the Company manages are generally measured at fair value using the NAV per share practical expedient. The Company may determine based on its own due diligence and investment procedures, that NAV per share does not represent fair value. In such circumstances, the Company will estimate the fair value in good faith and in a manner that it reasonably chooses in accordance with GAAP. The Company does not categorize investments where fair value is measured using the NAV practical expedient within the fair value hierarchy.
The following table summarizes the fair value of the investments of the structured alternative investment solution that are measured at NAV by strategy type and ability to redeem such investments as of June 30, 2022.
Fund Type(1)
Fair Value (as of June 30, 2022)
Redemption Frequency(2)
Redemption Notice Period(2)
(dollars in thousands)
Multi-strategy funds 105,691
Quarterly - Annually
30 days - 90 days
Credit 123,410
Monthly - Annually
30 days - 90 days
Total $ 229,101
_______________
(1)The structured alternative investment solution invests in both open-ended and close-ended funds. The investments in each fund may represent investments in a particular tranche of such fund subject to different withdrawal rights.
(2)$168.8 million of investments are subject to an initial lock-up period of three years during which time no withdrawals or redemptions are allowed. Once the lock-up period ends, the investments are able to be redeemed with the frequency noted above.

As of June 30, 2022, the structured alternative investment solution did not have any unfunded commitments related to the investments presented in the table above.
See Note 2 for additional information regarding the investments of consolidated entities.
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 establishes a hierarchical disclosure framework that prioritizes and ranks the level of market price observability used in measuring financial assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type and the specific characteristics of the financial instrument including existence and transparency of transactions between market participants. Financial instruments with readily available, actively quoted prices or for which fair value can be
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

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.
Financial instruments measured at fair value are classified and disclosed into one of the following categories based on the observability of inputs used in the determination of fair values:
•Level I - Quoted prices that are available in active markets for identical financial instruments as of the reporting date. The types of financial instruments that would generally be included in this category are listed equities, U.S. government obligations and listed derivatives. The Company does not adjust the quoted price for these investments.
•Level II- Quotations received from dealers making a market for financial instruments ("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 observable as of the reporting date. The types of financial instruments 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 where the fair value is based on observable inputs. These financial instruments exhibit higher levels of liquid market observability as compared to Level III financial instruments.
•Level III- Pricing inputs that are unobservable for the financial instruments and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value of financial instruments in this category may require significant management judgment or estimation. The fair value of these financial instruments 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 (e.g., cash flows, implied yields, EBITDA multiples). The types of financial instruments that would generally be included in this category include CLOs, certain warrant liabilities, certain credit default swap contracts, certain bank debt securities, certain OTC derivatives, asset-backed securities, collateralized debt obligations and investments in affiliated credit funds.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument when the fair value is based on unobservable inputs.
For financial instruments for which the Company uses independent pricing services for valuation, the Company performs analytical procedures and compares independent pricing service valuations to other vendors' pricing as applicable. The Company also performs due diligence reviews on independent pricing services on an annual basis and performs other due diligence procedures as may be deemed necessary.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

Fair Value Measurements Categorized within the Fair Value Hierarchy
The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy as of June 30, 2022:
As of June 30, 2022
Level I Level II Level III NAV Total
(dollars in thousands)
Assets, at Fair Value
Included within cash and cash equivalents:
U.S. government obligations $ 4,999 $ - $ - $ - $ 4,999
Included within investments:
U.S. government obligations $ 14,784 $ - $ - $ - $ 14,784
CLOs(1)
$ - $ - $ 203,631 $ - $ 203,631
Included within restricted cash and cash equivalents of consolidated entities:
U.S. government obligations $ 234,934 $ - $ - $ - $ 234,934
Included within investments of consolidated entities:
Futures Contracts $ 18 $ - $ - $ - $ 18
Common Stock - 507 - - 507
Bank Debt - 37,963 40,226 - 78,189
Corporate Bonds - 23,336 - - 23,336
Investments in funds - - - 229,101 229,101
Investments of Consolidated Entities $ 18 $ 61,806 $ 40,226 $ 229,101 $ 331,151
Liabilities, at Fair Value
Warrants $ - $ - $ 22,211 $ - $ 22,211
Liabilities of consolidated entities:
Warrants $ 2,645 $ - $ - $ - $ 2,645
Notes payable $ - $ - $ 201,985 $ - $ 201,985
_______________
(1) As of June 30, 2022, investments in CLOs had contractual principal amounts of $208.7 million outstanding, which excludes the Company's investments in subordinated tranches of the notes, as these do not have contractual principal payments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2021:
As of December 31, 2021
Level I Level II Level III Total
(dollars in thousands)
Assets, at Fair Value
Included within investments:
U.S. government obligations $ 205,400 $ - $ - $ 205,400
CLOs(1)
$ - $ - $ 219,510 $ 219,510
Included within restricted cash of consolidated entities:
U.S. government obligations $ 234,601 $ - $ - $ 234,601
Liabilities, at Fair Value
Warrants $ - $ - $ 65,287 $ 65,287
Liabilities of consolidated entities:
Warrants $ - $ - $ 7,590 $ 7,590
_______________
(1) As of December 31, 2021, investments in CLOs had contractual principal amounts of $205.9 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 on investments categorized within Level III, excluding those related to investments of consolidated entities and foreign currency translation adjustments, are recorded within net (losses) gains 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 related to investment of consolidated entities are recorded within net losses of consolidated entities. Amortization of premium, accretion of discount and foreign exchange gains and losses on non-U.S. dollar investments are also included within gains and losses in the tables below. Changes in fair value of warrant liabilities are included in other income (loss) in the consolidated statements of operations. In the first quarter of 2022, the warrants of the consolidated SPAC began to trade publicly, and as such, were transferred from Level III to Level I. Changes in fair value of warrant liabilities and notes payable of the consolidated entities are included in net (losses) gains of consolidated entities in the consolidated statements of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

The following table summarizes the changes in the Company's Level III financial assets and liabilities for the three months ended June 30, 2022:
March 31, 2022 Purchases / Issuances Investment Sales / Settlements Gains / (Losses) Included in Earnings Gains / (Losses) Included in Other Comprehensive Income June 30, 2022
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ 226,552 $ 1,032 $ (26) $ (14,269) $ (9,658) $ 203,631
Investments of consolidated entities:
Bank Debt $ - $ 41,792 $ - $ (1,566) $ - $ 40,226
Liabilities, at Fair Value
Warrants $ 40,951 $ - $ - $ 18,740 $ - $ 22,211
Liabilities of consolidated entities:
Notes payable $ 215,733 $ - $ - $ 13,748 $ - $ 201,985
The following table summarizes the changes in the Company's Level III financial assets and liabilities for the three months ended June 30, 2021.
March 31, 2021 Purchases / Issuances Investment Sales / Settlements Gains / (Losses) Included in Earnings Gains / (Losses) Included in Other Comprehensive Income June 30, 2021
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ 202,842 $ 30,846 $ (16,125) $ 330 $ 1,540 $ 219,433
Liabilities, at Fair Value
Warrants $ 62,771 $ - $ - $ (13,231) $ - $ 76,002
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

The following table summarizes the changes in the Company's Level III financial assets and liabilities for the six months ended June 30, 2022:
December 31, 2021 Transfers In Transfers Out Purchases / Issuances Investment Sales / Settlements Gains / (Losses) Included in Earnings Gains / (Losses) Included in Other Comprehensive Income June 30, 2022
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ 219,510 $ - $ - $ 29,839 $ (12,373) $ (18,788) $ (14,557) $ 203,631
Investments of consolidated entities:
Bank Debt $ - $ 3,603
(1)
$ (14,666)
(1)
$ 56,425 $ (3,475) $ (1,661) $ - $ 40,226
Liabilities, at Fair Value
Warrants $ 65,287 $ - $ - $ - $ - $ 43,076 $ - $ 22,211
Liabilities of consolidated entities:
Warrants $ 7,590 $ - $ (3,450)
(2)
$ - $ - $ 4,140 $ - $ -
Notes payable $ - $ - $ - $ 215,733 $ - $ 13,748 $ - $ 201,985
_______________
(1)Transfers into and out of Level III in bank debt include $2.3 million related to the consolidation and $14.0 million related to the subsequent deconsolidation of a fund that the Company manages.
(2) Transfers out of Level III into Level I related to warrants of consolidated entities that became publicly traded with available quoted prices during the first quarter of 2022.
The following table summarizes the changes in the Company's Level III financial assets for the six months ended June 30, 2021:
December 31, 2020 Purchases / Issuances Investment Sales / Settlements Gains / (Losses) Included in Earnings Gains / (Losses) Included in Other Comprehensive Income June 30, 2021
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ 205,510 $ 33,294 $ (16,145) $ 1,753 $ (4,979) $ 219,433
Liabilities, at Fair Value
Warrants $ 37,827 $ - $ - $ (38,175) $ - $ 76,002
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022


The table below summarizes the net change in unrealized gains and (losses) on the Company's Level III financial instruments still held as of the reporting date:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ (23,928) $ 2,625 $ (33,346) $ (2,470)
Included within investments of consolidated entities:
Bank debt $ (1,566) $ - $ (1,566) $ -
Liabilities, at Fair Value
Warrants $ 18,740 $ (13,231) $ 43,076 $ (38,175)
Liabilities of consolidated entities:
Notes payable $ 13,748 $ - $ 13,748 $ -
Valuation Methodologies for Fair Value Measurements Categorized within Level II and III
Investments in CLOs are valued using independent pricing services. The Company performs procedures over the values provided by the pricing services as discussed above. Warrant liabilities of the Company are valued by independent pricing services using a Black-Scholes option pricing model, for which the Company's Class A share price, warrant exercise price, risk free rate, volatility, dividend yield, redemption trigger price and term to expiry are the primary inputs to the valuation. The significant unobservable quantitative input used for the fair value measurement of the warrant liabilities of the Company, which are categorized as Level III under the fair value hierarchy, was volatility. The volatility used in the fair value measurement was 53.25% as of June 30, 2022.

The warrant liabilities of the consolidated SPAC are currently valued using quoted prices. Prior to being transferred to Level I, they were valued by independent pricing services using a Monte Carlo simulation model, for which SAC I's Class A share price, exercise price, risk free rate, volatility and term to expiry were the primary inputs to the valuation. The volatility used in the initial fair value measurement on December 13, 2021 was 13.00%. The Company reviews inputs, assumptions and valuation methodologies used in the warrants' valuations. As noted above, the warrant liabilities of the consolidated SPAC were transferred from Level III to Level I in the first quarter of 2022.
Notes payable of consolidated entities are valued using independent pricing services. The Company measures the financial liabilities of its consolidated entity based on the fair value of the financial assets of its consolidated entity, as the Company believes the fair value of the financial assets are more observable. Refer to Note 2 for additional valuation considerations of the notes payable of consolidated entities.
Investments of the Company's consolidated structured alternative investment solution that are categorized as Level II or Level III under the fair value hierarchy include common stock, bank debt, and corporate bonds. Common stock and corporate bonds are both categorized as Level II under the fair value hierarchy and are valued using independent pricing services. Bank debt is categorized as both Level II and Level III under the fair value hierarchy. Bank debt that is categorized as Level II is valued using independent pricing services, while bank debt that is categorized as Level III is valued using either independent pricing
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

services or a discounted cash flows method. For bank debt within Level II there are no unobservable valuation inputs used in determining their value. The significant unobservable input used in the fair value measurement of the Company's bank debt that is valued using a discounted cash flows method is the discount rate, which was 11.43% as of June 30, 2022.
Financial Instruments Not Measured at Fair Value
As of June 30, 2022, the Company's debt obligations had a fair value of $114.9 million and a carrying value of $123.3 million. Management estimates that the carrying value of the Company's repurchase agreements approximated their fair value as of June 30, 2022. 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. Management estimates that the carrying value of the Company's other financial instruments approximated their fair values as of June 30, 2022.
Loans Sold to CLOs Managed by the Company
From time to time the Company may sell loans to CLOs managed by the Company. These loans are purchased by the Company in the open market and simultaneously sold for cash to the CLOs. The loans are accounted for as transfers of financial assets as they meet the criteria for derecognition under U.S. GAAP. No loans were sold in each of the six months ended June 30, 2022 and 2021. 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 the Company's consolidated balance sheet. As of June 30, 2022 and December 31, 2021, the Company's investments in these retained interests had a fair value of $78.9 million and $87.9 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. For both the six months ended June 30, 2022 and 2021, the Company received $1.3 million, of interest and principal payments related to the retained interests.
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.
5. VARIABLE INTEREST ENTITIES
In the ordinary course of business, the Company sponsors the formation of entities that are considered VIEs. In accordance with GAAP consolidation guidance, the Company consolidates certain VIEs for which it is the primary beneficiary either directly or indirectly, through a consolidated entity. See Note 2 in the Company's Annual Report for a discussion of entities that are VIEs and the evaluation of those entities for consolidation by the Company.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

The table below presents the assets and liabilities of VIEs consolidated by the Company.
June 30, 2022 December 31, 2021
(dollars in thousands)
Assets
Assets of consolidated entities:
Cash and cash equivalents of consolidated entities $ 25,650 $ -
Investments of consolidated entities, at fair value 331,151 -
Other assets of consolidated entities 3,294 4,339
Total Assets $ 360,095 $ 4,339
Liabilities
Liabilities of consolidated entities:
Notes payable of consolidated entities $ 201,985 $ -
Other liabilities of consolidated entities 37,519 2,603
Total Liabilities $ 239,504 $ 2,603
The assets of consolidated variable interest entities may only be used to settle obligations of these entities and are not available to creditors of the Company. The investors in these consolidated entities have no recourse against the assets of the Company. There is no recourse to the Company for the consolidated VIEs' liabilities.
The Company's direct involvement with VIEs that are not consolidated 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, primarily incentive income subject to clawback, in the event of any future fund losses, as well as unfunded commitments to certain funds that are VIEs, as discussed in Note 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 other than its own capital commitments.
The table below presents the net assets of unconsolidated 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, 2022 December 31, 2021
(dollars in thousands)
Net assets of unconsolidated VIEs in which the Company has a variable interest $ 11,981,206 $ 11,304,196
Maximum risk of loss as a result of the Company's involvement with VIEs:
Unearned income and fees 67,271 62,800
Income and fees receivable 12,346 61,273
Investments 238,285 249,104
Investments of consolidated entities 123,411 -
Unfunded commitments(1)
94,139 60,474
Maximum Exposure to Loss $ 535,452 $ 433,651
_______________
(1)Includes commitments from certain employees and executive managing directors in the amounts of $66.9 million and $46.3 million as of June 30, 2022 and December 31, 2021, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

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 for any of its current leases. The Company also subleases a portion of its office space in London and New York through the end of the lease term. In addition, the Company has finance leases for computer hardware. As of June 30, 2022, the Company has pledged collateral related to its lease obligations of $6.2 million, which is included within restricted cash in the consolidated balance sheets.
The tables below represent components of lease expense and associated cash flows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Lease Cost
Operating lease cost $ 4,656 $ 4,896 $ 9,364 $ 10,333
Short-term lease cost 44 5 54 22
Finance lease cost - amortization of leased assets 91 198 183 397
Finance lease cost - imputed interest on lease liabilities 1 7 4 17
Less: Sublease income (804) (415) (1,634) (826)
Net Lease Cost $ 3,988 $ 4,691 $ 7,971 $ 9,943

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Supplemental Lease Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases $ 5,165 $ 5,356 $ 10,491 $ 11,165
Operating cash flows for finance leases $ - $ - $ - $ 1
Finance cash flows for finance leases $ - $ - $ 163 $ 624
Right-of-use assets obtained in exchange for lease obligations
Operating leases $ - $ - $ 1,079 $ 2,893
Finance leases $ - $ - $ - $ -
June 30, 2022 December 31, 2021
Lease Term and Discount Rate
Weighted average remaining lease term
Operating leases 7.1 years 7.6 years
Finance leases 1.0 year 1.3 years
Weighted average discount rate
Operating leases 7.8 % 7.8 %
Finance leases 5.8 % 6.3 %
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

Operating
Leases 		Finance
Leases
(dollars in thousands)
Maturity of Lease Liabilities - Contractual Payments to be Paid
July 1, 2022 to December 31, 2022 $ 10,409 $ 86
2023 20,153 -
2024 16,528 -
2025 14,328 -
2026 15,353 -
Thereafter 52,689 -
Total Lease Payments 129,460 86
Imputed interest (30,726) -
Total Lease Liabilities - Contractual Payments to be Paid $ 98,734 $ 86
Operating Leases
(dollars in thousands)
Sublease Rent - Contractual Payments to be Received
July 1, 2022 to December 31, 2022 $ 1,206
2023 3,057
2024 1,920
2025 1,920
2026 1,920
Thereafter 6,120
Total Sublease Rent - Contractual Payments to be Received $ 16,143

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

7. DEBT OBLIGATIONS AND WARRANTS
2020 Term Loan CLO Investments Loans Total
(dollars in thousands)
Maturity of Debt Obligations
July 1, 2022 to December 31, 2022 $ - $ - $ -
2023 - 1,865 1,865
2024 - - -
2025 - - -
2026 - - -
2027 95,000 - 95,000
Thereafter - 39,035 39,035
Total Payments 95,000 40,900 135,900
Unamortized discounts & deferred financing costs (12,393) (212) (12,605)
Total Debt Obligations $ 82,607 $ 40,688 $ 123,295
2020 Credit Agreement
On September 25, 2020, Sculptor Capital LP, as borrower, (the "Borrower"), and certain other subsidiaries of the Company, as guarantors, entered into a credit and guaranty agreement (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"). 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.
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 Closing Date, a customary "make-whole" premium equal to 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 Closing Date plus a premium of 3.0% of the principal amount of loans prepaid, (b) on or after the second anniversary of the Closing Date but prior to the third anniversary of the Closing Date, a premium of 3.0% of the principal amount of loans prepaid, (c) on or after the third anniversary of the Closing Date but prior to the four anniversary of the Closing Date, a premium of 2.0% of the principal amount of loans prepaid and (d) thereafter, 0%. On June 21, 2021, the Company entered into a letter agreement amending the 2020 Credit Agreement to increase the amount of voluntary prepayments for which the Call Premium shall not apply from $175.0 million to $225.0 million in exchange for an amendment fee of $1.75 million. As such, no Call Premium was due on the first $225.0 million prepaid by the Company. The amendment fee was recorded as an additional discount to the 2020 Term Loan in the second quarter of 2021. In 2021, the Company prepaid $224.4 million of the 2020 Term Loan, resulting in an outstanding balance of $95.0 million, which is due at maturity. The Company recognized a $30.2 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 seventh and sixth anniversary, respectively, of the initial funding of the 2020 Term Loan, which occurred on November 13, 2020 (the "Closing Date").
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Borrowings under the 2020 Credit Agreement bear interest at a per annum rate equal to, at the Company's option, one, two, three or six-month LIBOR (subject to a 0.75% floor) plus 6.25%, or a base rate (subject to a 1.75% floor) plus 5.25%. The Borrower is also required to pay an undrawn commitment fee at a rate per annum equal to 0.50% of the undrawn portion of the 2020 Revolving Credit Facility.
The 2020 Credit Agreement prohibits the 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 to be less than $20.0 billion. The 2020 Credit Agreement contains customary events of default 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 involving the Borrower, the guarantors or any of the material subsidiaries of the foregoing after which the obligations under the 2020 Credit Agreement become automatically due and payable. The 2020 Credit Agreement also provided the counterparty the right to appoint an individual to a seat on the Company's Board of Directors.
Warrants
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 $8.35 per share as of June 30, 2022. 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.
Debt Obligations of Consolidated Funds
Warrants of the Consolidated SPAC
At the time of IPO in December 2021, Sculptor Acquisition Corporation I ("SAC I") issued 11.2 million warrants to the Company and 11.5 million warrants to third parties. The warrants have a 5-year term from the day of the SAC I IPO and an initial exercise price per share equal to $11.50. The warrants are subject to other customary terms common for instruments of this type. The Company eliminates the SPAC warrants it holds in consolidation. As of June 30, 2022, the warrants had fair value of $2.6 million.
Notes Payable of a Consolidated Entity
In the first quarter of 2022, the Company launched a structured alternative investment solution that it consolidated, which issued notes in the aggregate principal amount of $350.0 million, of which approximately $128.0 million were acquired by the Company and eliminated in consolidation. The notes held by the Company consisted and of $20.0 million of Class A, $20.0 million of Class B and $87.8 million of subordinate notes. Changes in the fair value of the notes payable of the structured alternative investment solution are presented within net losses of consolidated entities in the consolidated statements of operations. The fair value of the notes payable as of June 30, 2022, was $202.0 million. The notes payable mature in May 2037.
35

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

The table below summarizes material terms of the notes payable:
Class A Notes Class B Notes Class C Notes
Subordinate Notes(1)
(dollars in thousands)
Type Senior Secured Senior Secured Mezzanine Secured Unsecured
Initial principal amount $ 140,000 $ 70,000 $ 35,000 $ 105,000
Initial interest rate 4.25 % 6.00 % 6.75 % N/A
Interest rate after step up and effective date
6.25%; May 2028
8.00%; May 2029
9.50%; May 2025
N/A
_______________
(1) Subordinate notes do not have stated interest rates or principal entitlement but instead receive net proceeds from excess cash flows remaining after periodic payments have been made to more senior notes and after fees and expenses in accordance with the priority of payments.
See Note 2 for accounting policies for the notes payables of the consolidated entities
Credit Facility of a Consolidated Entity
In the first quarter of 2022, the structured alternative investment vehicle entered into a $52.5 million credit facility which expires March 18, 2025. The credit facility is capped at $20.0 million of the total borrowing capacity per quarter. The facility is subject to a SOFR reference rate, as defined in the agreement, plus 3.00%. The facility is also subject to an annual 1.15% unused commitment fee. As of June 30, 2022, the fund has not drawn on the facility. The credit facility agreement is subject to other customary terms common for instruments of this type. The creditors of our consolidated entities have no recourse to the Company. As of June 30, 2022, the consolidated entities were in compliance with all financial and non-financial covenants under their debt obligations.
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 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 if 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 $41.2 million and $43.1 million as of June 30, 2022 and December 31, 2021, respectively.
36

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

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 Date Contractual Rate Final Maturity Date Carrying Value
June 30, 2022 December 31, 2021
(dollars in thousands)
June 7, 2017
LIBOR plus 1.48%
November 16, 2029 $ 17,232 $ 17,221
August 2, 2017
LIBOR plus 1.41%
January 21, 2030 21,592 21,589
October 21, 2021
EURIBOR plus 0.85%
August 29, 2023 - 5,892
January 19, 2022
EURIBOR plus 1.00%
December 15, 2023 1,864 -
$ 40,688 $ 44,702

8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company has a €200.0 million master credit facility agreement (the "CLO Financing Facility") to finance portions of the risk retention investments in certain 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, 2022, €42.9 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 if 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. 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.
37

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

The table below presents securities sold under agreements to repurchase that are offset, if any, as well as securities transferred to the counterparty 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 Repurchase Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Liabilities in the Consolidated Balance Sheet Securities Transferred Net Amount
(dollars in thousands)
As of June 30, 2022 $ 163,329 $ - $ 163,329 $ 152,838 $ 10,491
As of December 31, 2021 $ 156,448 $ - $ 156,448 $ 156,448 $ -
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 to the counterparty under agreement to repurchase by class of collateral pledged:
Investments in CLOs
Securities Sold under Agreements to Repurchase Overnight and Continuous Up to 30 Days 30-90 Days Greater Than 90 Days Total
(dollars in thousands)
As of June 30, 2022 $ - $ - $ - $ 163,329 $ 163,329
As of December 31, 2021 $ - $ - $ - $ 156,448 $ 156,448

9. OTHER ASSETS, NET
The following table presents the components of other assets, net as reported in the consolidated balance sheets:
June 30, 2022 December 31, 2021
(dollars in thousands)
Fixed Assets:
Leasehold improvements $ 47,736 $ 47,797
Computer hardware and software 54,508 55,320
Furniture, fixtures and equipment 8,078 8,013
Accumulated depreciation and amortization (83,780) (83,371)
Fixed assets, net 26,542 27,759
Redemption receivable(1)
32,118 -
Goodwill 22,691 22,691
Prepaid expenses
13,246 17,095
Other 12,450 9,546
Total Other Assets, Net $ 107,047 $ 77,091
_______________
(1) Represents amounts receivable on a redeemed investment in a fund.
38

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

10. OTHER LIABILITIES
The following table presents the components of other liabilities as reported in the consolidated balance sheets:
June 30, 2022 December 31, 2021
(dollars in thousands)
Accrued expenses $ 19,484 $ 16,949
Uncertain tax positions 8,250 8,250
Due to funds(1)
3,114 3,017
Unused trade commissions
1,405 1,513
Other 4,026 9,061
Total Other Liabilities $ 36,279 $ 38,790
_______________
(1) To the extent that a fee-paying fund is an investor in another fee-paying fund, the Company rebates a corresponding portion of the management fees charged in the investee fund. Due to funds amounts also reflect certain incentive income and management fee waivers.
11. REVENUES
The following table presents management fees and incentive income recognized as revenues for the three months ended June 30, 2022 and 2021:
Three Months Ended June 30,
2022 2021
Management Fees Incentive Income Management Fees Incentive Income
(dollars in thousands)
Multi-strategy funds $ 38,612 $ (835) $ 38,252 $ 55,129
Credit
Opportunistic credit funds 12,342 102 12,677 3,492
Institutional Credit Strategies 11,808 - 16,401 -
Real estate funds 9,008 45,313 9,280 923
Total $ 71,770 $ 44,580 $ 76,610 $ 59,544
The following table presents management fees and incentive income recognized as revenues for the six months ended June 30, 2022 and 2021:
Six Months Ended June 30,
2022 2021
Management Fees Incentive Income Management Fees Incentive Income
(dollars in thousands)
Multi-strategy funds $ 78,592 $ 120 $ 74,600 $ 81,113
Credit
Opportunistic credit funds 25,166 19,905 25,924 12,259
Institutional Credit Strategies 23,391 - 31,504 -
Real estate funds 18,058 46,197 18,543 13,976
Total $ 145,207 $ 66,222 $ 150,571 $ 107,348
39

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

The following table presents the composition of the Company's income and fees receivable as of June 30, 2022 and December 31, 2021
June 30, 2022 December 31, 2021
(dollars in thousands)
Management fees $ 23,904 $ 25,520
Incentive income 1,517 168,116
Income and Fees Receivable $ 25,421 $ 193,636
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 Company's unearned income and fees as of June 30, 2022 and December 31, 2021:
June 30, 2022 December 31, 2021
(dollars in thousands)
Management fees $ 1,414 $ 84
Incentive income 65,857 62,716
Unearned Income and Fees $ 67,271 $ 62,800
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 six months ended June 30, 2022 and 2021, the Company recognized $41.4 million and $9.8 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.
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 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.
40

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

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,
2022 2021 2022 2021
Statutory U.S. federal income tax rate 21.00 % 21.00 % 21.00 % 21.00 %
Loss (income) passed through to noncontrolling interests 13.60 % -0.37 % 31.73 % 4.16 %
Foreign income taxes 5.14 % 3.58 % -1.10 % -46.09 %
RSU excess income tax benefit or expense -1.24 % -1.96 % -85.00 % 1.51 %
State and local income taxes 16.21 % 2.85 % 156.82 % -6.38 %
Nondeductible amortization of Partner Equity Units 2.54 % 2.27 % 143.06 % -24.59 %
Foreign tax credits and deductions -1.08 % -0.75 % 0.23 % 9.68 %
Change in fair value of warrants 41.17 % 7.88 % -591.40 % -144.77 %
Disallowed executive compensation -20.63 % 1.90 % 256.31 % -16.18 %
Other, net -0.52 % 0.59 % 3.31 % -2.96 %
Effective Income Tax Rate 76.19 % 36.99 % -65.04 % -204.62 %
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, 2022 and December 31, 2021, the Company had a liability for unrecognized tax benefits of $8.3 million. As of and for the six months ended June 30, 2022, the Company did not accrue interest or penalties related to uncertain tax positions. As of June 30, 2022, 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 if recognized, would affect its tax expense by $4.8 million as of June 30, 2022.
13. GENERAL, ADMINISTRATIVE AND OTHER
The following table presents the components of general, administrative and other expenses as reported in the consolidated statements of operations:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Occupancy and equipment $ 6,900 $ 7,311 $ 13,990 $ 15,343
Professional services 6,177 3,261 11,641 7,689
Recurring placement and related service fees 5,182 5,243 10,431 9,594
Information processing and communications 5,175 5,500 10,201 10,857
Insurance 2,228 2,270 4,435 4,492
Business development 797 158 1,295 310
Other expenses (34) 1,279 1,748 4,113
$ 26,425 $ 25,022 $ 53,741 $ 52,398
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SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

14. (LOSS) EARNINGS PER CLASS A SHARE
Basic (loss) earnings per Class A Share is computed by dividing the net (loss) income 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, 2022 and 2021, the Company included 163,136 and 167,904 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, 2022 and 2021, the Company included 174,974 and 199,893 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.
When calculating dilutive (loss) earnings per Class A Share, the Company applies the treasury stock method to outstanding warrants, unvested RSUs and RSAs, which are only subject to a service condition. At the Sculptor Operating Group Level, the Company applies the if-converted method to vested Group A Units and vested Group E Units. For unvested Group A Units and unvested Group E Units, the Company applies the treasury stock method first to determine the number of incremental units that would be issuable and then applies the if-converted method to those resulting incremental units. The Company did not include RSAs subject to service and market conditions, Group P Units or unvested PSUs in the calculation of dilutive (loss) earnings per Class A Share, as the applicable market conditions had not yet been met as of the end of each reporting period presented below. The Company also did not include RSUs which will be settled in cash. The effect of dilutive securities on net (loss) income attributable to Class A Shareholders is presented net of tax.
The following tables present the computation of basic and diluted (loss) earnings per Class A Share:
Three Months Ended June 30, 2022 Net Loss Attributable to Class A Shareholders Weighted- Average Class A Shares Outstanding Loss Per Class A Share Number of Antidilutive Units and Warrants Excluded from Diluted Calculation
(dollars in thousands, except per share amounts)
Basic $ (8,052) 25,514,364 $ (0.32)
Effect of dilutive securities:
Group A Units - - 15,025,994
Group E Units - - 13,009,158
RSUs - - 2,605,627
RSAs - - 1,575,134
Warrants (15,702) 1,051,428 -
Diluted $ (23,754) 26,565,792 $ (0.89)
42

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

Three Months Ended June 30, 2021 Net Income Attributable to Class A Shareholders Weighted- Average Class A Shares Outstanding Earnings Per Class A Share Number of Antidilutive Units and Warrants Excluded from Diluted Calculation
(dollars in thousands, except per share amounts)
Basic $ 21,814 25,025,974 $ 0.87
Effect of dilutive securities:
Group A Units 283 16,019,506 -
Group E Units - 12,387,325 -
RSUs - 1,758,888 -
Warrants - - 4,338,015
Diluted $ 22,097 55,191,693 $ 0.40
Six Months Ended June 30, 2022 Net Income (Loss) Attributable to Class A Shareholders Weighted- Average Class A Shares Outstanding Earnings (Loss) Per Class A Share Number of Antidilutive Units and Warrants Excluded from Diluted Calculation
(dollars in thousands, except per share amounts)
Basic $ 8,830 26,052,478 $ 0.34
Effect of dilutive securities:
Group A Units - - 15,025,994
Group E Units - - 13,009,157
RSUs - - 2,557,642
RSAs - - 1,312,520
Warrants (36,341) 1,558,579 -
Diluted $ (27,511) 27,611,057 $ (1.00)
Six Months Ended June 30, 2021 Net Income (Loss) Attributable to Class A Shareholders Weighted- Average Class A Shares Outstanding Earnings (Loss) Per Class A Share Number of Antidilutive Units and Warrants Excluded from Diluted Calculation
(dollars in thousands, except per share amounts)
Basic $ 1,521 24,442,940 $ 0.06
Effect of dilutive securities:
Group A Units (19,079) 16,019,506 -
Group E Units - 12,230,728 -
RSUs - 1,536,519 -
Warrants - - 4,338,015
Diluted $ (17,558) 54,229,693 $ (0.32)
43

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

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.
Certain Amounts Related to Tax Receivable Agreement Liability
Amounts due to related parties relate primarily to future payments owed to certain former executive managing directors under the tax receivable agreement, as discussed further in Note 16. The tax receivable agreement liability was $178.8 million as of June 30, 2022, and $67.9 million of the balance was due to related parties. The Company made payments totaling $16.9 million and $7.2 million under the tax receivable agreement (inclusive of interest thereon) in the six months ended June 30, 2022 and 2021, respectively, of which $7.4 million and $3.9 million were paid to related parties. No payments were made in the three months ended June 30, 2022 and 2021, 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, 2022 and December 31, 2021, respectively, approximately $1.0 billion and $910.5 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, 2022 and December 31, 2021, approximately 47% and 51%, 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,
2022 2021 2022 2021
(dollars in thousands)
Fees charged on investments held by related parties:
Management fees $ 1,320 $ 855 $ 2,159 $ 1,827
Incentive income $ 1,533 $ 174 $ 2,031 $ 2,153
Commitment 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 the amount of $3.0 million out of which $55 thousand was funded and subsequently written-off. As of June 1, 2022, BharCap Acquisition Corp's registration statement filed with the SEC lapsed and the Company will not be funding any additional amounts in connection with the foregoing commitment.
Investment in SPAC
In a private placement concurrent with the initial public offering of the SPAC the Company sponsors, SAC I sold warrants to Sculptor Acquisition Sponsor I, LLC, a subsidiary of the Company, for total gross proceeds of $11.2 million. Prior to the completion of a business combination, Sculptor Acquisition Sponsor I, LLC owns the majority of the Class B ordinary shares outstanding of SAC I, and consolidates SAC I under the voting interest model, and therefore the private placement warrants and Class B ordinary shares held by the Company are eliminated upon consolidation. Refer to Note 2 of the Company's Annual Report for additional details on the SPAC.
44

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

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 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 Company's conversion from a partnership to a corporation for U.S. federal income tax purposes, effective April 1, 2019 (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 U.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%.
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 U.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 the tax receivable agreement liability 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 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 June 30, 2022, the estimated future payment under the tax receivable agreement was $178.8 million, which is recorded in the tax receivable agreement liability balance on the consolidated balance sheets.
45

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

The table below presents management's estimate as of June 30, 2022, 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
(dollars in thousands)
July 1, 2022 to December 31, 2022 $ 29,483
2023 662
2024 15,120
2025 24,660
2026 23,602
2027 26,320
Thereafter 58,912
Total Payments $ 178,759
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.
Investment Commitments
The Company has unfunded capital commitments of $143.2 million to certain funds it manages, of which $34.8 million relates to commitments to consolidated funds and $108.4 million relates to commitments of the Company to unconsolidated funds. Approximately $46.8 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 six 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 $25.7 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.
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 six months ended June 30, 2022 and 2021 these amounts were not material.
46

SCULPTOR CAPITAL MANAGEMENT, INC. - UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022

17. SUBSEQUENT EVENTS
Dividend
On August 3, 2022, the Company announced a cash dividend of $0.13 per Class A Share. The dividend is payable on August 22, 2022, to holders of record as of the close of business on August 15, 2022.
Share Repurchases
As discussed in Note 1, as of June 30, 2022, the Company repurchased 1,641,589 Class A Shares at a cost of $19.5 million for an average price of $11.87 per share through open market purchase transactions. Through August 1, 2022, we purchased 1,756,112 shares in aggregate at an average price of $11.68, resulting in a total buyback of $20.5 million of stock.



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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 described 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
Overview of Our Business

Sculptor Capital is a leading institutional alternative asset manager, with approximately $36.8 billion in Assets Under Management as of July 1, 2022 and a global presence with offices in New York, London, Hong Kong, and Shanghai. We provide asset management services and investment products across Multi-Strategy, Credit, and Real Estate. We serve our global client base through our commingled funds, separate accounts, and specialized products. Our capabilities span all major geographies and asset classes. Our approach to asset management is based on the same fundamental elements that we have employed since Sculptor Capital was founded in 1994. Our distinctive investment process seeks to generate attractive and consistent risk-adjusted returns across market cycles through a combination of fundamental bottom-up research, a high degree of flexibility, a collaborative team, and integrated risk management. We currently serve a diverse global investor base with investment solutions across core capabilities in multi-strategy funds, dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products and real estate funds.
COVID-19 Pandemic
As the COVID-19 pandemic evolved, we continued to focus on the health and well-being of our employees and the uninterrupted service to investors in our funds and our shareholders. We have largely returned to the office with safety protocols in place consistent with government guidelines. We continue to monitor government guidelines and maintain the effectiveness of our information technology infrastructure and other controls to remain agile should the situation change.
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, 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," and "Part I-Item 1A. Risk Factors" included in our Annual Report for additional information.
Overview of Our Financial Results
As a global alternative asset manager, our results of operations are impacted by a variety of factors, including conditions in the global financial markets and economic and political environments. Financial markets severely corrected in the second quarter as investors collectively gauged the rising uncertainty of a deteriorating global growth outlook. This tops an already fraught market debate around record inflation, rising interest rates, and the immense value distortion of risk assets for much of the last two-plus years. From equities to bonds, the first half of 2022 has been one of the worst on record as 60/40 strategies suffered their weakest performance in 90 years. However, we believe both our funds, through their unconstrained investment style, and our platform, from our business diversification and strong balance sheet, are well positioned to navigate these challenging conditions.
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As of June 30, 2022, our AUM was $36.9 billion, a decrease of $944.5 million from the prior year period. Our AUM decreased, primarily due to performance-related depreciation in multi-strategy funds, as well as distributions and other reductions in Institutional Credit Strategies and real estate funds, partially offset by net inflows in Institutional Credit Strategies and real estate funds. We continued our fundraising momentum for our multi-strategy funds with gross inflows of $776.5 million in the first half of 2022. We expanded our product offering through new products and new distribution channels, partnering with new and existing clients. In 2022, we held first closes for our Real Estate Credit Fund II, Tactical Credit Fund ("STAX"), the latest vintage in our series of seven closed-end opportunistic credit funds, and closed a $350.0 million structured alternative investment solution, which was tailored to meet the needs of insurance investors. Lastly, we launched two additional CLOs in the first half of 2022. These new launches further diversify our business by product, channel and vintage, continuing the trend of raising long term capital, as we grew our long-term AUM to 71% of our total AUM as of June 30, 2022.
We reported a GAAP net loss of $8.1 million in the second quarter of 2022, compared to net income of $21.8 million for the second quarter of 2021, and GAAP net income of $8.8 million in the first half of 2022, compared to net income of $1.5 million in the first half of 2021.
Management fees for the second quarter of 2022 were $71.8 million, a decrease of $4.8 million compared to the second quarter of 2021. Our management fees fell primarily due to Institutional Credit Strategies, driven by the one-time recovery of previously deferred subordinated management fees in the prior year as well as lower weighted-average management fee rates. We continue to issue new CLOs and reset older CLO vintages, which extends the duration of our AUM in Institutional Credit Strategies, but we have seen our average fee rate decline in these vehicles, bringing down management fees despite growth in AUM.
Incentive income was $44.6 million for the second quarter of 2022 driven by crystallizations and distributions in real estate funds, primarily from Sculptor Real Estate Fund III.
Expenses were $111.3 million for the second quarter of 2022, up $22.7 million from the second quarter of 2021 driven by higher compensation and benefits expense, which included higher bonus expense primarily as a result of higher real estate incentive income profit sharing, and higher equity-based compensation expense. Additionally, general, administrative and other expenses were higher due to higher professional services expenses.
Other loss for the second quarter of 2022 increased compared 2021, as a result of losses on our investments and losses of consolidated entities in the second quarter of 2022. These were partially offset by a decrease in the fair value of warrants to purchase our Class A Shares, as well as losses on retirement of debt incurred in the prior year period in connection with $224.4 million of prepayments of the 2020 Term Loan.
Economic Income was $32.6 million for the second quarter of 2022, compared to $75.1 million for the second quarter of 2021. Economic Income was $61.8 million for the first half of 2022, compared to $116.0 million in the first half of 2021. The decreases were primarily due to lower incentive income, higher compensation and benefits expenses from incentive income profit sharing and lower management fees.
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."
Managing Business Performance
Our financial results are primarily driven by the combination of our AUM 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 AUM 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 AUM and increasing the potential for redemptions from our funds, which would have a negative effect on our revenues and earnings.
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
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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 funds' 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 AUM 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 AUM 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.
Information with respect to our AUM 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, 2022, approximately 3% of our AUM represented investments by us, our executive managing directors, employees and certain other related parties in our funds. As of that date, approximately 47% of these affiliated AUM 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 or vehicle, 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 AUM as of the beginning of each quarter. The AUM in the tables below are presented net of management fees and incentive income as of the end of the period. Accordingly, the AUM 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.
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Summary of Changes in AUM
The tables below present the changes to our AUM for the respective periods based on the type of funds or investment vehicles we manage.
Three Months Ended June 30, 2022
March 31, 2022
Inflows / (Outflows)(1)
Distributions / Other Reductions Appreciation / (Depreciation)
Other(2)
June 30, 2022
(dollars in thousands)
Multi-strategy funds $ 11,076,217 $ (137,889) $ - $ (1,188,851) $ - $ 9,749,477
Credit
Opportunistic credit funds 6,309,552 75,275 (103,589) (254,941) - 6,026,297
Institutional Credit Strategies 16,657,708 123,637 (52,195) (2,801) (266,485) 16,459,864
Real estate funds 4,590,385 77,782 (33,348) 333 (11,200) 4,623,952
Total $ 38,633,862 $ 138,805 $ (189,132) $ (1,446,260) $ (277,685) $ 36,859,590
Three Months Ended June 30, 2021
March 31, 2021
Inflows / (Outflows)(1)
Distributions / Other Reductions Appreciation / (Depreciation)
Other(2)
June 30, 2021
(dollars in thousands)
Multi-strategy funds $ 10,918,733 $ 119,155 $ (36) $ 267,940 $ - $ 11,305,792
Credit
Opportunistic credit funds 6,552,499 (307,334) (5,361) 227,610 - 6,467,414
Institutional Credit Strategies 15,652,429 725,922 (727,594) 208 4,033 15,654,998
Real estate funds 4,250,757 239,280 (114,467) 275 - 4,375,845
Total $ 37,374,418 $ 777,023 $ (847,458) $ 496,033 $ 4,033 $ 37,804,049
Six Months Ended June 30, 2022
December 31, 2021
Inflows / (Outflows)(1)
Distributions / Other Reductions Appreciation / (Depreciation)
Other(2)
June 30, 2022
(dollars in thousands)
Multi-strategy funds $ 11,112,445 $ 172,722 $ (49) $ (1,535,641) $ - $ 9,749,477
Credit
Opportunistic credit funds 6,350,474 (22,853) (103,589) (197,735) - 6,026,297
Institutional Credit Strategies 16,052,406 920,280 (153,396) (2,947) (356,479) 16,459,864
Real estate funds 4,544,862 214,393 (119,780) 333 (15,856) 4,623,952
Total $ 38,060,187 $ 1,284,542 $ (376,814) $ (1,735,990) $ (372,335) $ 36,859,590
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Six Months Ended June 30, 2021
December 31, 2020
Inflows / (Outflows)(1)
Distributions / Other Reductions Appreciation / (Depreciation)
Other(2)
June 30, 2021
(dollars in thousands)
Multi-strategy funds $ 10,504,024 $ 197,392 $ (759) $ 605,135 $ - $ 11,305,792
Credit
Opportunistic credit funds 6,287,777 (424,411) (10,961) 615,009 - 6,467,414
Institutional Credit Strategies 15,697,827 1,035,394 (768,542) 417 (310,098) 15,654,998
Real estate funds 4,308,648 378,420 (312,823) 1,600 - 4,375,845
Total $ 36,798,276 $ 1,186,795 $ (1,093,085) $ 1,222,161 $ (310,098) $ 37,804,049
_______________
(1)Includes transfers between Sculptor funds.
(2)Includes the effects of changes in the par value of the underlying collateral of the CLOs, foreign currency translation changes in the measurement of AUM of our European CLOs and other funds, and changes in the portfolio appraisal value for aircraft securitization vehicles. For FP AUM, this also includes movements in or out of FP AUM.
AUM totaled $36.9 billion as of June 30, 2022. In the six months ended June 30, 2022, AUM decreased by $1.2 billion, driven by performance-related depreciation of $1.7 billion, primarily from multi-strategy funds, a decrease of $294.9 million due to the effects of foreign currency translation adjustments on CLOs, and distributions and other reductions of $376.8 million, driven primarily by distributions from our CLOs and real estate funds. These decreases were partially offset by net inflows of $1.3 billion across Institutional Credit Strategies, multi-strategy and real estate funds.
AUM net inflows of $1.3 billion were comprised of (i) $2.1 billion of gross inflows, driven by $958.2 million in Institutional Credit Strategies, from the launch of additional CLOs, $698.7 million in multi-strategy funds and $214.4 million in real estate funds, driven by the launch of Real Estate Credit Fund II; and (ii) $762.2 million of gross outflows due to redemptions, primarily in our multi-strategy and opportunistic credit funds. In 2022, excluding securitization vehicles within Institutional Credit Strategies, our largest sources of gross inflows were from high net worth and family offices, sovereign wealth and corporates, and pensions, while pensions, fund-of-funds, and high net worth and family offices were the largest source of gross outflows.
Distributions and other reductions of $376.8 million were driven primarily by $153.4 million of distributions from Institutional Credit Strategies as a result of paydowns in certain of our CLOs, and $119.8 million of distributions from our real estate funds as a result of realizations.

In the six months ended June 30, 2021, our funds experienced performance-related appreciation of $1.2 billion, net inflows of $1.2 billion and a decrease of $310.1 million primarily due to the effects of changes in par value of underlying collateral of the CLOs. The net inflows were comprised of (i) $2.2 billion of gross inflows, driven by $1.0 billion in Institutional Credit Strategies, primarily driven by the launch of additional CLOs, and $760.2 million in multi-strategy funds; and (ii) $1.0 billion of gross outflows due to redemptions, primarily in our multi-strategy and opportunistic credit funds. Distributions and other reductions of $1.1 billion were driven primarily by $768.5 million of distributions from Institutional Credit Strategies as a result of a wind down of a CLO, and $312.8 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 high net worth and family offices, sovereign wealth and corporates, and fund-of-funds, while pensions and fund-of-funds were the largest source of gross outflows.
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Summary of Changes in FP AUM
The tables below present the changes to our FP AUM for the respective periods based on the type of funds or investment vehicles we manage. FP AUM represents the AUM on which we earn management fees and / or incentive income.
Three Months Ended June 30, 2022
March 31, 2022
Inflows / (Outflows)(1)
Distributions / Other Reductions Appreciation / (Depreciation)
Other(2)
June 30, 2022
(dollars in thousands)
Multi-strategy funds $ 10,837,660 $ (145,836) $ - $ (1,160,088) $ 8,915 $ 9,540,651
Credit
Opportunistic credit funds 5,730,008 71,312 (100,715) (251,223) 50,531 5,499,913
Institutional Credit Strategies 11,337,931 136,884 (29,665) (2,346) (206,992) 11,235,812
Real estate funds 3,923,995 52,211 (30,724) - (51,200) 3,894,282
Total $ 31,829,594 $ 114,571 $ (161,104) $ (1,413,657) $ (198,746) $ 30,170,658
Three Months Ended June 30, 2021
March 31, 2021
Inflows / (Outflows)(1)
Distributions / Other Reductions Appreciation / (Depreciation)
Other(2)
June 30, 2021
(dollars in thousands)
Multi-strategy funds $ 10,708,351 $ 80,973 $ (35) $ 260,030 $ 12,841 $ 11,062,160
Credit
Opportunistic credit funds 5,895,539 (297,453) (5,358) 225,345 61,244 5,879,317
Institutional Credit Strategies 12,226,454 436,667 (411,144) 45 (153,932) 12,098,090
Real estate funds 3,559,184 422,876 (101,194) - 275 3,881,141
Total $ 32,389,528 $ 643,063 $ (517,731) $ 485,420 $ (79,572) $ 32,920,708
Six Months Ended June 30, 2022
December 31, 2021
Inflows / (Outflows)(1)
Distributions / Other Reductions Appreciation / (Depreciation)
Other(2)
June 30, 2022
(dollars in thousands)
Multi-strategy funds $ 10,877,541 $ 158,142 $ (49) $ (1,500,539) $ 5,556 $ 9,540,651
Credit
Opportunistic credit funds 5,742,605 (26,223) (100,715) (194,872) 79,118 5,499,913
Institutional Credit Strategies 11,142,956 458,449 (67,852) (2,360) (295,381) 11,235,812
Real estate funds 3,875,427 162,211 (87,487) - (55,869) 3,894,282
Total $ 31,638,529 $ 752,579 $ (256,103) $ (1,697,771) $ (266,576) $ 30,170,658
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Six Months Ended June 30, 2021
December 31, 2020
Inflows / (Outflows)(1)
Distributions / Other Reductions Appreciation / (Depreciation)
Other(2)
June 30, 2021
(dollars in thousands)
Multi-strategy funds $ 10,319,387 $ 137,207 $ (35) $ 594,026 $ 11,575 $ 11,062,160
Credit
Opportunistic credit funds 5,964,678 (395,464) (5,358) 605,968 (290,507) 5,879,317
Institutional Credit Strategies 12,694,258 589,411 (449,492) 89 (736,176) 12,098,090
Real estate funds 3,575,828 558,753 (255,037) - 1,597 3,881,141
Total $ 32,554,151 $ 889,907 $ (709,922) $ 1,200,083 $ (1,013,511) $ 32,920,708
_______________
(1)Includes transfers between Sculptor funds.
(2)Includes the effects of changes in the par value of the underlying collateral of the CLOs, foreign currency translation changes in the measurement of AUM of our European CLOs and other funds, and changes in the portfolio appraisal value for aircraft securitization vehicles. For FP AUM, this also includes movements in or out of FP AUM.
FP AUM totaled $30.2 billion as of June 30, 2022. FP AUM is lower than AUM primarily due to:
•Amounts held by our employees or other related parties who do not pay fees in our multi-strategy funds, opportunistic credit funds, and real estate funds
•Uncalled capital for funds where we do not earn management fees until it is invested for our opportunistic credit funds and real estate funds; and
•Fee rebates when our funds invest in the equity of CLOs in Institutional Credit Strategies, in addition to the AUM associated with the structured alternative investment solution, which will become FP AUM once it is invested in our funds. Refer to the "Institutional Credit Strategies" section below for further details.
In the six months ended June 30, 2022, FP AUM decreased by $1.5 billion, driven largely by the drivers discussed in the Summary of Changes in AUM section above. FP AUM as a percentage of AUM decreased during the period due to an increase in the amount of CLO equity held by our funds for which there is no fee.
The table below presents our weighted-average FP AUM and average management fee rates for our FP AUM. Weighted-average FP AUM exclude the impact of second quarter investment performance for the periods presented, as these amounts generally do not impact management fees calculated for those periods. Our average management fee may vary from period to period based on the mix of products that comprise our FP AUM. The average management fee rates below consider management fees on an Economic Income basis. For reconciliations of our non-GAAP measures to the respective GAAP measures, please see "-Economic Income Reconciliations" at the end of this MD&A.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Weighted-average fee-paying assets under management $ 31,728,559 $ 31,919,091 $ 31,824,604 $ 32,259,491
Average management fee rates 0.84 % 0.89 % 0.85 % 0.87 %
Fund Performance Information
The tables below present performance information for the funds we manage. The return information presented 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
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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.
The performance information presented in this "Fund Performance Information" section 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.
Multi-Strategy Funds
Our multi-strategy funds invest globally in high-conviction investment ideas across asset classes, regions and investment strategies with a primary focus is on idiosyncratic opportunities where return drivers are less sensitive to direction of broader financial markets and which tend to arise when value is obscured by attributes such as complexity, corporate actions, market dislocations, or investor misunderstandings. Additionally, we have the flexibility to take on market-directional risk when we believe that broad market dislocations have created asymmetric upside/downside potential.
The table below presents AUM and investment performance for our multi-strategy funds. AUM are generally based on the net asset value of these funds plus any unfunded commitments, if applicable. Management fees generally range from 1.00% to 2.00% annually of FP AUM. For the second quarter of 2022, our multi-strategy funds had an average management fee rate of 1.27% of FP AUM.
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 AUM 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 upon crystallization at the end of the multi-year commitment period.
Returns for the Six Months Ended June 30, Annualized Returns Since Inception Through June 30, 2022
Assets Under Management as of June 30, 2022 2021
2022 2021 Gross Net Gross Net Gross Net
Fund (dollars in thousands)
Sculptor Master Fund(1)
$ 9,031,780 $ 10,343,152 -12.6 % -13.2 % 8.2 % 5.9 % 15.6 %
(2)
10.7 %
(2)
Sculptor Enhanced Master Fund 706,133 952,657 -17.6 % -18.3 % 4.9 % 3.4 % 10.5 % 6.4 %
Other funds 11,564 9,983 n/m n/m n/m n/m n/m n/m
$ 9,749,477 $ 11,305,792
_______________
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 AUM in the fund. Inclusive of these Special Investments, the returns of the Sculptor Master Fund for the six months ended June 30, 2022 were -12.2% gross and -12.8% net, for the six months ended June 30, 2021 were 8.3% gross and 6.1% net, and annualized since inception through June 30, 2022 were 15.4% gross and 10.6% 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
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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. 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, 2022, the annualized returns since the Sculptor Master Fund's inception on January 1, 1998 were 12.5% gross and 8.2% net excluding Special Investments and 12.2% gross and 8.1% net inclusive of Special Investments.
AUM in our multi-strategy funds decreased by $1.6 billion, or 14%, year-over-year. This was driven primarily by $1.6 billion of performance-related depreciation, partially offset by $75.3 million of net inflows.
Our funds exhibited resilience in the face of extreme market stress during the quarter and experienced a portion of the market volatility. Our multi-strategy approach affirmed its value as it dampened volatility. In the first half of 2022, the Sculptor Master Fund generated a gross return of -12.6% and a net return of -13.2%. Equities was the largest detractor for the quarter, although the fund also faced losses in credit strategies.
In the first half of 2021, the Sculptor Master Fund generated a gross return of 8.2% and a net return of 5.9%. The fund profited from positions within fundamental equities, corporate credit, structured credit and merger arbitrage, while proactive risk management provided downside protection during a period of pronounced factor volatility in equity markets.
Credit
Assets Under Management as of June 30,
2022 2021
(dollars in thousands)
Opportunistic credit funds $ 6,026,297 $ 6,467,414
Institutional Credit Strategies 16,459,864 15,654,998
$ 22,486,161 $ 22,122,412
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.
Within our Opportunistic Credit strategy, we manage open-ended and closed-ended funds on behalf of investors. In our open-ended funds, we allow for contributions and redemptions (subject to initial lock-up and notice periods) on a periodic basis, similar to our multi-strategy funds. In our closed-ended funds, investors commit capital that is funded over an investment period. Upon the expiration of the investment period, the investments are then sold or realized over a period of time, and distributions are made to the investors in the fund.
AUM for our opportunistic credit funds are generally based on the net asset value of those funds plus any unfunded commitments, if applicable. Management fees for our opportunistic credit funds generally range from 0.75% to 1.75% annually of the net asset value of these funds. For the second quarter of 2022, our opportunistic credit funds had an average management fee rate of 0.88% of FP AUM.
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The table below presents AUM 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 AUM is subject to hurdle rates, which are generally 5% 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 the potential recognition by us of a full 20% of the net profits attributable to investors in these funds. The measurement periods for these AUM generally range from one to five years.
We generally crystallize incentive income from our opportunistic credit funds at the end of a multi-year measurement period. This results in a timing difference between when we can recognize incentive income and when we accrue the associated discretionary bonus expense. Incentive income accrued at the fund level that cannot yet be recognized drives an increase in our ABURI balance. Compensation expense related to ABURI generated from our opportunistic credit funds is generally recognized in the fourth quarter of the year the underlying fund performance is generated which may not occur at the same time that the related revenues are recognized by us.
Returns for the Six Months Ended June 30, Annualized Returns Since Inception Through June 30, 2022
Assets Under Management as of June 30, 2022 2021
2022 2021 Gross Net Gross Net Gross Net
Fund (dollars in thousands)
Sculptor Credit Opportunities Master Fund(1)
$ 1,904,832 $ 2,336,582 -2.4 % -2.8 % 14.6 % 11.7 % 13.2 % 9.3 %
Customized Credit Focused Platform 3,827,891 3,792,908 See below for return information on our Customized Credit Focused Platform.
Closed-end opportunistic credit funds 293,574 337,924 See below for return information on our closed-end opportunistic credit funds.
$ 6,026,297 $ 6,467,414
_______________
(1)The returns for the Sculptor Credit Opportunities Master Fund exclude Special Investments, which are held by investors representing a small percentage of AUM in the fund. Inclusive of these Special Investments, the returns of the Sculptor Credit Opportunities Master Fund for the six months ended June 30, 2022 were -2.4% gross and -2.8% net, for the six months ended June 30, 2021 were 14.6% gross and 11.8% net, and annualized since inception through June 30, 2022 were 12.9% gross and 9.1% net.
AUM in our opportunistic credit funds decreased by $441.1 million, or 7%, year-over-year. This was driven primarily by $398.2 million of net outflows, offset by $88.2 million of performance-related appreciation and $85.0 million related to the first closing STAX, which is the latest vintage in our series of seven closed-end opportunistic credit funds. We continue to raise capital for STAX and held a second closing on July 1 with $250.0 million, bringing total committed capital to $370.0 million. We plan to hold additional closes throughout the year and have seen previous periods of market volatility act as a catalyst for capital raising in these types of strategies.
In the first half of 2022, the Sculptor Credit Opportunities Master Fund, our global opportunistic credit fund, generated a gross return of -2.4% and a net return of -2.8%. The fund delivered strong results as compared to Global High Yield and global equities. In 2022, the fund experienced losses in corporate credit and structured credit.
In the first half of 2021, the Sculptor Credit Opportunities Master Fund generated a gross return of 14.6% and a net return of 11.7%. The fund continued to see contributions to performance from exposure added in the depths of the dislocation. Corporate credit led performance from additional positive development across a variety of our largest process driven investments in both the U.S. and Europe. The portfolio benefited from the successful progression of a number of long-term restructurings where we had added to our exposure over the past year at and near pricing lows.

Our Customized Credit Focused Platform invests in a flexible credit mandate across the credit spectrum to allow timely investments as market conditions change and dislocate. The table below presents investment performance for the fund.

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Weighted Average Return for the Six Months Ended June 30,(2)
Inception to Date as of June 30, 2022
2022 2021 IRR
Net Invested Capital Multiple(5)
Customized Credit Focused Platform Gross Net Gross Net
Gross(3)
Net(4)
Opportunistic Credit Performance(1)
-4.6 % -4.0 % 14.1 % 11.3 % 14.8 % 11.2 % 2.5x
_______________
(1)Performance presented is for the opportunistic credit strategies in the Customized Credit Focused Platform. As of June 30, 2022, approximately 93% 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, which represents net asset value plus net contributions (distributions) 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 credit 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 effect of increasing the Gross 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 includes the effect of investment hedges as determined by the Company. 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 Gross IRR adjusted to reflect actual management fees, incentive income and expenses incurred by the Customized Credit Focused Platform.
(5)Net invested capital multiple measures the current net asset value over the net invested capital, where net invested capital represents cumulative contributions less cumulative distributions. The Customized Credit Focused Platform has an active liquid investment program, a key element of which includes ramping up and ramping down depending on market conditions. Much of the capital has recently been deployed.
The table below presents AUM 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 investment periods, and therefore we expect AUM 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, 2022
2022 2021 Total Commitments
Total Invested Capital(1)
Gross IRR(2)
Net IRR(3)
Gross MOIC(4)
Fund (Investment Period) (dollars in thousands)
Sculptor Tactical Credit Fund (2022 - 2025)(5)
83,651 - 119,940 85,142 n/m n/m n/m
Sculptor European Credit Opportunities Fund (2012-2015)
- - 459,600 305,487 15.7 % 11.8 % 1.5x
Sculptor Structured Products Domestic Fund II (2011-2014)
- 10,956 326,850 326,850 19.2 % 15.1 % 2.1x
Sculptor Structured Products Offshore Fund II (2011-2014)
- 9,967 304,531 304,531 16.5 % 12.9 % 1.9x
Sculptor Structured Products Offshore Fund I (2010-2013)
- 3,907 155,098 155,098 23.7 % 18.9 % 2.1x
Sculptor Structured Products Domestic Fund I (2010-2013)
3,423 4,242 99,986 99,986 22.6 % 18.0 % 2.0x
OZ Global Credit Master Fund I (2008-2009) - - 214,141 214,141 5.5 % 4.2 % 1.1x
Other funds
206,500 308,852 428,940 284,582 n/m n/m n/m
$ 293,574 $ 337,924 $ 2,109,086 $ 1,775,817
_______________
n/m not meaningful
(1)Represents funded capital commitments net of recallable distributions to investors.
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(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, 2022, 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 Multiple on Invested Capital ("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.
(5)This fund is in the first year of deployment; therefore, IRR and MOIC information is not presented, as it is not meaningful.
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 securitization vehicles, CBOs, and other customized solutions for clients.
AUM for Institutional Credit Strategies are generally based on the amount of equity outstanding for CLOs and CBOs (during the warehouse period), the par value of the collateral assets and cash held for CLOs and CBOs (after the warehouse period), and adjusted portfolio appraisal values for the aircraft collateral within the securitization vehicles. AUM also includes the net asset value of other investment vehicles within the strategy. However, AUM are reduced for any investments in CLOs and securitization vehicles held by our other funds. Management fees for Institutional Credit Strategies generally range from 0.25% to 0.50% annually of AUM. For the second quarter of 2022, Institutional Credit Strategies had an average management fee rate of 0.40% net of rebates on cross-investments from other funds we manage.
Given market pressures, average fee rates in our Institutional Credit Strategies business decreased in line with the broader market trends. We continue to issue new CLOs and reset older CLO vintages, which extends the duration of our AUM and we believe may lead to enhanced returns to our investors.
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 securitization vehicles.
During the first quarter of 2022, we closed on a $350.0 million structured alternative investment solution, which was tailored to meet the needs of insurance investors. The financing vehicle issued senior and subordinated notes to investors and used those proceeds to invest in a diversified portfolio of funds managed by us. Prior to investing in the portfolio of funds, the AUM is included within Institutional Credit Strategies. Upon investment in the funds, which began during April 2022, we earn management and incentive fees based on the terms of the underlying funds in which the vehicle invests and the associated AUM is included in those funds.
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Most Recent Launch or Refinancing Year Assets Under Management as of June 30,
Deal Size 2022 2021
(dollars in thousands)
Collateralized loan obligations 2017 $ 1,658,282 $ 1,024,627 $ 1,024,781
2018 5,315,728 4,038,908 4,807,567
2019 653,250 - -
2020 1,868,287 1,673,813 1,713,880
2021 8,174,069 6,981,035 6,814,580
2022 852,334 783,981 -
18,521,950 14,502,364 14,360,808
Aircraft securitization vehicles 2018 696,000 432,723 475,415
2019 1,128,000 299,178 357,369
2020 472,732 173,943 172,738
2021 821,529 591,256 -
3,118,261 1,497,100 1,005,522
Collateralized bond obligation 2021 367,050 286,141 273,987
Other funds 174,259 14,681
$ 22,007,261 $ 16,459,864 $ 15,654,998
AUM in Institutional Credit Strategies totaled $16.5 billion as of June 30, 2022, increasing $804.9 million, or 5%, year-over-year. The year-over-year increase in AUM in Institutional Credit Strategies was driven primarily by the launches of five CLOs and a non-fee paying aircraft securitization vehicle, partially offset by the redemption and amortization of certain of our CLOs, as a result of natural life-cycle events, and decreases driven by foreign currency translation adjustments and changes in underlying collateral value.
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. We seek to build portfolios that are balanced between traditional and non-traditional asset classes, employing moderate leverage, using creative structures and targeting high cash-on-cash returns.
AUM 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. AUM are reduced for unfunded commitments that will be funded through transfers from other funds. AUM for the special purpose acquisition company ("SPAC") sponsored by us includes the proceeds raised in the initial public offering that are currently held in a trust for use in a business combination. The SPAC AUM is non-fee paying, and our AUM will be reduced if and when the SPAC undergoes a business combination or in the event of its liquidation. Management fees for our real estate funds, exclusive of co-investment vehicles, generally range from 0.50% to 1.50% annually of FP AUM, however, management fees for Sculptor Real Estate Credit Fund I are based on invested capital both during and after the investment period. For the second quarter of 2022, our real estate funds, inclusive of co-investment vehicles, had an average management fee rate of 0.86% of FP AUM.
The tables below present AUM, investment performance and other information for our real estate funds. The amounts included within "co-investment and other funds" below mainly relate to co-investment vehicles in which we partner with clients on investment opportunities, typically with lower fees.
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,
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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 preferential 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.
In addition, we recognize incentive income on our real estate funds related to certain tax distributions on realizations at the fund level. Realizations at the fund level may give rise to tax liabilities for our investors and us. Funds distribute capital back to us to cover these tax liabilities and this in turn drives the recognition of tax distribution-related incentive income. In addition, incentive income is recognized as investments are sold and related distributions are made to investors and us. 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 as we have received cash before we can recognize the revenue.
For additional information on incentive income accrued at fund level for our real estate, as well as other funds, see "Longer-Term AUM and Accrued Unrecognized Incentive Income" for additional information.
For funds that have concluded their investment periods, we expect AUM 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,
2022 2021
Fund (Investment Period) (dollars in thousands)
Sculptor Real Estate Fund I (2005-2010) $ - $ -
Sculptor Real Estate Fund II (2011-2014) 20,413 26,148
Sculptor Real Estate Fund III (2014-2019)
251,089 327,771
Sculptor Real Estate Fund IV (2019-2023) 2,593,626 2,593,365
Sculptor Real Estate Credit Fund I (2015-2020) 375,001 345,914
Sculptor Real Estate Credit Fund II (2022-2025) 136,035 -
Co-investment and other funds 1,247,788 1,082,647
$ 4,623,952 $ 4,375,845
Inception to Date as of June 30, 2022
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 Capital Total
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 II 839,508 762,588 1,611,953 32.9 % 21.8 % 2.1x 762,588 1,611,953 32.9 % 2.1x
Sculptor Real Estate Fund III 1,500,000 1,101,784 2,137,145 30.2 % 16.4 % 1.9x 920,933 1,867,810 34.3 % 2.0x
Sculptor Real Estate Fund IV(7)
2,596,024 916,080 1,141,061 n/m n/m n/m 293,006 440,611 n/m n/m
Sculptor Real Estate Credit Fund I 736,225 677,221 861,513 18.5 % 13.3 % 1.3x 338,375 456,642 20.3 % 1.3x
Sculptor Real Estate Credit Fund II(7)
136,235 n/m n/m n/m n/m n/m n/m n/m n/m n/m
Co-investment and other funds 1,357,509 1,181,282 1,485,151 n/m n/m n/m 196,791 353,206 n/m n/m
$ 7,573,582 $ 5,025,253 $ 8,084,435 $ 2,897,991 $ 5,577,834
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Unrealized Investments as of June 30, 2022
Invested Capital Total
Value
Gross
MOIC(6)
Fund (dollars in thousands)
Sculptor Real Estate Fund I $ - $ - -
Sculptor Real Estate Fund II - - -
Sculptor Real Estate Fund III 180,851 269,335 1.5x
Sculptor Real Estate Fund IV(7)
623,074 700,450 n/m
Sculptor Real Estate Credit Fund I 338,845 404,871 1.2x
Sculptor Real Estate Credit Fund II(7)
n/m n/m n/m
Co-investment and other funds 984,491 1,131,944 n/m
$ 2,127,261 $ 2,506,600
_______________
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, 2022. 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, 2022.
(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, 2022, 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.
(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 invested less than half of their committed capital; therefore, IRR and MOIC information is not presented, as it is not meaningful. Sculptor Real Estate Credit Fund II total commitments include $34.3 million associated with the structure alternative investment solution.
AUM in our real estate funds totaled $4.6 billion as of June 30, 2022, increasing $248.1 million, or 6%, year-over-year due to net inflows of $544.3 million, primarily due to the launch of our SPAC and the first closing of Sculptor Real Estate Credit Fund II. This was partially offset by $277.5 million of distributions and other reductions, primarily related to Sculptor Real Estate Fund III, Sculptor Real Estate Credit Fund I, and various other real estate funds, as these funds are harvesting investments and making distributions. Our real estate funds continue to deploy capital and generate strong returns with a 16.4% annualized net return in Sculptor Real Estate Fund III and a 13.3% annualized net return in Sculptor Real Estate Credit Fund I.

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Longer-Term AUM and Accrued But Unrecognized Incentive Income ("ABURI")
As of June 30, 2022, approximately 71% of our AUM was subject to initial commitment periods of three years or longer, excluding AUM that had initial commitment periods of three years 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 AUM.
June 30, 2022 December 31, 2021
(dollars in thousands)
Multi-strategy funds $ 459,873 $ 458,242
Credit
Opportunistic credit funds 4,606,318 4,773,980
Institutional Credit Strategies 16,446,064 16,038,071
Real estate funds 4,623,952 4,544,862
$ 26,136,207 $ 25,815,155
Incentive income on these assets, if any, is based on the cumulative investment performance generated over this commitment period. These amounts may ultimately not be recognized as revenue by us in the event of future losses in the respective funds. See "-Understanding Our Results-Revenues-Incentive Income" for additional information.
Our longer-term AUM has continued to increase over time, as our product mix continues to shift toward longer-duration products. Longer-term AUM has increased from 26% in 2013 to 45% in 2016 to 71% as of June 30, 2022, driven by growth in opportunistic credit, Institutional Credit Strategies and real estate funds. During the first quarter, longer-term AUM increased from the launch of a structured alternative investment solution, which was tailored to insurance investors and provides exposure to our funds across the platform in a long-dated format. Longer-term AUM creates stability in our platform and provides more consistency in our management fee earnings.
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 (ABURI) during the six months ended June 30, 2022:
December 31, 2021 Recognized Incentive Income Performance
June 30, 2022
(dollars in thousands)
Multi-strategy funds $ 5,246 $ (401) $ (4,119) $ 726
Credit
Opportunistic credit funds 98,674 (10,417) (31,582) 56,675
Real estate funds 122,940 (46,881) 54,995 131,054
$ 226,860 $ (57,699) $ 19,294 $ 188,455
Incentive income, if any, on our longer-term AUM is based on the cumulative investment performance generated over the respective commitment period. As of June 30, 2022, our ABURI was $188.5 million, down $38.4 million in the first half of 2022 primarily from the crystallization of ABURI into incentive income. In real estate, we generated $55.0 million of performance for the year which was largely crystallized during the period. During the first half of the year, the opportunistic credit funds reversed a portion of previously accrued ABURI due to performance.
Our ABURI from longer-term AUM 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.
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◦Long-dated closed-end opportunistic credit funds, where incentive income will be recognized during each fund's harvest period after invested capital and a preferred return has been distributed to the clients, other than tax distributions.
◦The Customized Credit Focused Platform, where incentive income is recognized at the end of a multi-year term; previously crystallized on December 31, 2020, other than tax distributions.
•Real estate funds. Real Estate ABURI is derived from long-dated real estate funds, where incentive income will start to be recognized following the completion of each fund's investment period as investments are realized and after invested capital and a preferred return has been distributed to the clients other than tax distributions.
Certain ABURI amounts 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 as the compensation is structured as carried interest in these vehicles. Compensation expense relating to ABURI generated from our multi-strategy funds and opportunistic credit funds is generally recognized in the fourth quarter of the year the underlying fund performance is generated which may not occur at the same time that the related revenues are 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 AUM, the investment performance of our funds and the timing of when we recognize incentive income for certain AUM as discussed below.
The ability of investors to contribute capital to and redeem capital from our funds causes our AUM to fluctuate from period to period. Fluctuations in AUM 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 AUM 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 AUM and the investment performance of our funds. For example, incentive income for the majority of our multi-strategy AUM is recognized in the fourth quarter each year, based on full year investment performance.
Management Fees.Management fees are generally calculated and paid to us on a quarterly basis in advance, based on the amount of AUM 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 AUM, 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 the deferral of subordinated management fees from certain CLOs. See "-Weighted-Average FP AUM and Average Management Fee Rates" for information on our average management fee rate and Note 12 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 12 to our consolidated financial statements in our Annual Report for additional information regarding incentive income.
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Other Revenues. Other revenues consist primarily of interest income on investments in CLOs, cash equivalents and long-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.
Income of Consolidated Entities.Revenues recorded as income of consolidated entities consist primarily of interest income, dividends income, fees and other income.
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.
Due to multi-year crystallizations in our credit and real estate funds, we may recognize discretionary bonus expense as incentive is generated at the fund level but before the Company recognizes the related incentive income. For additional information on incentive income recognized at fund level but not yet recognized by us see "-Longer-Term AUM and Accrued Unrecognized Incentive Income" for additional information. We generally pay our bonuses in January of the year following the year in which bonuses were accrued.
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 RSAs, PSUs and Partner Equity Units granted to executive managing directors. These awards are structured to create strong alignment of economic interest between our executives and shareholders, in addition to retaining key talent.
We also have profit-sharing arrangements whereby certain employees or executive managing directors are entitled to a share of incentive income that we earn primarily from our real estate 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. These awards are designed to create strong alignment of economic interest between our executives and fund investors, in addition to retaining key talent.
Sculptor's compensation structure is designed to align the interests of our executive managing directors and employees with those of investors in our funds and our Class A Shareholders. Our compensation structure focuses on both individual and firm-wide performance through bonus compensation in a combination of equity and deferred cash interests that vest over time.
Interest Expense.Amounts included within interest expense relate primarily to indebtedness outstanding.
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
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development, insurance, impairment of right-of-use lease assets, foreign currency transaction gains and losses, and other miscellaneous expenses. Legal settlements and provisions are also included within general, administrative and other.
Expenses of Consolidated Entities. Expenses recorded as expenses of consolidated entities consist of interest expense, general, administrative and other miscellaneous expenses.
Other (Loss) Income
Changes in Fair Value of Warrant Liabilities. Changes in fair value of warrant liabilities represent gains (losses) from changes in fair value of warrants.
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 16 to our consolidated financial statements included in this report for additional information.
Net Losses on Retirement of Debt. Net losses on retirement of debt consist of net losses realized upon the 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 retirement of debt.
Net (Losses) Gains on Investments.Net (losses) gains on investments primarily consist of realized and unrealized net gains and losses on investments in U.S. government obligations and investments in our funds, including CLOs and other funds we manage.
Net (Losses) Gains of Consolidated Entities. Net (losses) gains of consolidated entities primarily consist of changes in the fair value of warrant liabilities related to our consolidated SPAC and gains (losses) on investments held by consolidated entities, as well as changes in the fair value of the structured alternative investment solution's assets and liabilities and related interest and other income.
Income Taxes
Income taxes consist of our provision for federal, state and local income taxes in the U.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.
Net Income (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 3 for additional information regarding our ownership interest in the Sculptor Operating Group.
In 2021, we consolidated our SPAC, wherein investors are able to redeem Class A shares issued by the SPAC. Allocations of earnings to these shares are reflected within net income (loss) attributable to redeemable noncontrolling interests in the consolidated statements of operations. Increases or decreases in the net income (loss) attributable to SPAC investors' interests in the SPAC is driven primarily by interest income generated on cash and cash equivalents, changes in fair value of warrant liabilities of the SPAC and various expenses related to legal costs, business development and insurance.
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Results of Operations
Three and Six Months Ended June 30, 2022 Compared to Three and Six Months Ended June 30, 2021
Net (Loss) Income Attributable to Class A Shareholders
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Net (Loss) Income Attributable to Class A Shareholders $ (8,052) $ 21,814 $ 8,830 $ 1,521
Refer below for the discussion of the contributing factors to changes in Net (Loss) Income Attributable to Class A Shareholders from the prior year.
Revenues
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Management fees $ 71,770 $ 76,610 $ 145,207 $ 150,571
Incentive income 44,580 59,544 66,222 107,348
Other revenues 2,520 1,778 4,950 3,359
Income of consolidated entities 311 - 150 3
Total Revenues $ 119,181 $ 137,932 $ 216,529 $ 261,281
Total revenues for the quarter-to-date period were $119.2 million, decreasing $18.8 million from the prior year period, primarily due to the following:
•A $4.8 million decrease in management fees, primarily due to the following:
•Institutional Credit Strategies. A $4.6 million decrease due to the recovery of $2.6 million of previously deferred subordinated management fees in the prior year period, as well as natural life cycle events within our existing CLOs which drove down our average net fee rate. Such life cycle events include: (i) a reduction in AUM in certain of our CLOs due to distributions; (ii) the redemptions of certain of our CLOs during 2021; and (iii) new issuances and refinancing transactions priced at lower rates. These decreases were partially offset by an increase in management fees driven by the launches of several CLOs.
• Management fees in our multi-strategy, opportunistic credit, and real estate funds remained relatively flat year-over-year.
See "-Managing Business Performance-Weighted-Average FP AUM and Average Management Fee Rates" above for information regarding our average management fee rates.
•A $15.0 million decrease in incentive income, primarily due to the following:
•Multi-strategy funds.A $56.0 million decrease in incentive income, which was driven by investors that crystallize off cycle and for which the trailing twelve month return was lower year -over-year.
•Opportunistic credit funds. A $3.4 million decrease in incentive income from our opportunistic credit funds, which was driven a lower trailing twelve month return year-over year in Sculptor Credit Opportunities Master Fund.
•Real estate funds. A $44.4 million increase in incentive income, which was driven by crystallizations and
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realizations, primarily in Sculptor Real Estate Fund III, as the fund is realizing investments during its harvest period.
•A $742 thousand increase in other revenues driven by an increase in sublease income as a result of the subleasing of a portion of our office space in New York City in the third quarter of 2021, as well as an increase in interest income from our risk retention investments in our CLOs from new CLO issuances.
Total revenues for the year-to-date period were $216.5 million, decreasing $44.8 million year over year, primarily due to the following:
•A $5.4 million decrease in management fees, primarily due to the following:
•Multi-strategy funds. A $4.0 million increase due to higher average net management fee rates.
•Institutional Credit Strategies. An $8.1 million decrease due to the recovery of $3.2 million previously deferred subordinated management fees in the prior year period, as well as natural life cycle events within our existing CLOs which drove down our average net fee rate.
•Opportunistic credit and Real estate funds. Management fees remained relatively flat year-over-year.
See "-Managing Business Performance-Weighted-Average FP AUM and Average Management Fee Rates" above for information regarding our average management fee rates.
•A $41.1 million decrease in incentive income, primarily due to the following:
•Multi-strategy funds.An $81.0 million decrease in incentive income, which was driven by investors that crystallize off cycle and for which the trailing twelve month return was lower year over year, as well as lower tax distributions.
•Opportunistic credit funds. A $7.7 million increase in incentive income, which was primarily driven by tax distributions, as well as from investors with off cycle crystallization periods. These increases were partially offset by less incentive income from certain of our closed-ended credit funds.
•Real estate funds. A $32.2 million increase in incentive income primarily due to realizations in Sculptor Real Estate Fund III.
•A $1.6 million increase in other revenues driven by an increase in sublease income as a result of the subleasing of a portion of our office space in New York City, as well as an increase in interest income from our risk retention investments in our CLOs from new CLO issuances and warehouse vehicles.
Expenses
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Compensation and benefits $ 79,743 $ 59,447 $ 157,528 $ 148,681
Interest expense 3,427 4,135 6,712 9,003
General, administrative and other 26,425 25,022 53,741 52,398
Expenses of consolidated entities 1,668 - 1,912 2
Total Expenses $ 111,263 $ 88,604 $ 219,893 $ 210,084
Total expenses for the quarter-to-date period were $111.3 million, increasing $22.7 million, primarily due to the following:
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•A $20.3 million increase in compensation and benefits expenses driven by the following:
•$10.8 million increase in real estate incentive income profit sharing expense primarily as a result of realizations in Sculptor Real Estate Fund III.
•Equity-based compensation expenses increased by $8.8 million, primarily due to an $11.9 million increase in RSAs and Group P Units, which were granted in the fourth quarter of 2021 and the first quarter of 2022. These increases were partially offset by a $3.2 million decrease in amounts related to Group E Units, as the remaining units are being amortized on an accelerated basis (i.e., each tranche is being amortized over its respective service period), resulting in decreasing expenses in each subsequent vesting year on these awards.
•Salaries and benefits increased by $1.3 million.
•A $1.7 million increase in expenses of consolidated funds, primarily due to the activity of the structured alternative investment solution that was consolidated in the first quarter of 2022.
•A $1.4 million increase in general, administrative and other expenses, primarily due to an increase in professional services expenses driven by higher legal expenses, partially offset by foreign currency transaction gains.
•An offsetting $708 thousand decrease in interest expense, primarily due to lower average outstanding debt balance as we repaid $224.4 million under the 2020 Term Loan in 2021.
Total expenses for the year-to-date period were $219.9 million, increasing $9.8 million year over year, primarily due to the following:
•An $8.8 million increase in compensation and benefits expenses driven by the following:
•Bonus expense increased by $4.3 million, primarily driven by an increase in real estate incentive income profit sharing expenses, partially offset by separation-related compensation incurred in the first half of 2021 for a departing executive.
•Equity-based compensation expense increased by $2.7 million primarily driven by a $22.9 million increase in RSAs and Group P Units granted in the fourth quarter of 2021 and the first quarter of 2022. These increases were partially offset by decreases in stock-based compensation of $16.4 million for RSUs and PSUs, primarily due to the separation-related costs incurred in the prior year period for a departing executive, as well as a $3.8 million decrease in amounts related to Group E Units, as the remaining units are being amortized on an accelerated basis (i.e., each tranche is being amortized over its respective service period), resulting in decreasing expenses in each subsequent vesting year on these awards.
•Salaries and benefits increased by $1.8 million.
•A $1.9 million increase in expenses of consolidated entities, primarily due to the activity of the structured alternative investment solution that was consolidated in the first quarter of 2022, as well an increase in expenses of the Company's consolidated SPAC.
•A $1.3 million increase in general, administrative and other expenses, primarily due to an increase in professional services expenses driven by higher legal, accounting, and recruiting expenses, partially offset by reductions across various other operating expense categories including rent expense.
•An offsetting $2.3 million decrease in interest expense, primarily due to lower average outstanding debt balance as we repaid $224.4 million under the 2020 Term Loan in 2021.
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Other (Loss) Income
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Changes in fair value of warrant liabilities $ 18,740 $ (13,231) $ 43,076 $ (38,175)
Changes in tax receivable agreement liability 227 (559) 220 21
Net losses on retirement of debt - (6,525) - (30,198)
Net (losses) gains on investments (30,838) 6,255 (36,182) 11,617
Net losses of consolidated entities (6,434) - (2,294) -
Total Other (Loss) Income $ (18,305) $ (14,060) $ 4,820 $ (56,735)
Total other loss for the quarter-to-date period was $18.3 million, increasing $4.2 million, while other income for the year-to-date period was $4.8 million, up from a loss of $56.7 million, which resulted from the following:
•Changes in fair value of warrant liabilities.These represent the change in the fair value of warrants to purchase our Class A Shares that were issued in connection with the 2020 Credit Agreement. The quarter-to-date and year-to-date amounts in 2022 were gains, driven by a decrease in the fair value of the warrants primarily due to a decrease in our Class A Share price while the amounts in 2021 were losses, driven by an increase in the fair value of the warrants that was primarily due to the increase in our Class A Share price. See Note 4 to our consolidated financial statements included in this report for additional details on warrants valuation inputs.
•Changes in tax receivable agreement liability.These are a result of changes in projected future tax rates impacting the anticipated liability under the tax receivable agreement.
•Net losses on retirement of debt.No losses on retirement of debt were incurred in 2022, while the quarter-to-date amount in 2021 was primarily related to the $50.0 million prepayment of amounts outstanding under the 2020 Term Loan and a $19.9 million repayment of a CLO Investment Loan, while the year-to-date amount in 2021 was primarily related to the $224.4 million prepayment of amounts outstanding under the 2020 Term Loan and a $19.9 million repayment of a CLO Investment Loan. The related losses on retirement of debt were comprised of unamortized discounts and deferred financing costs that were proportionately written-off in connection with these repayments.
•Net (losses) gains on investments.Investment income for both the quarter-to-date and year-to-date period decreased by $37.1 million and $47.8 million, respectively. This was primarily due to losses on our equity method investments in our multi-strategy funds and our risk retention investments in CLOs, as compared to the prior year amounts which represent investment income on our equity method investments, including the value of our risk retention investments in CLOs.
Income Taxes
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Income taxes $ (7,914) $ 13,047 $ (947) $ 11,332
Income tax expense for the quarter-to-date period decreased by $21.0 million, and decreased by $12.3 million for the year-to-date period. Income tax expense was lower primarily due to crystallization of incentive income recognized in the prior year, and a change in state tax rates on deferred taxes, partially offset by the change in fair value of warrant liabilities.
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Net Income (loss) attributable to noncontrolling interests
The following table presents the components of the net income (loss) attributable to noncontrolling interests:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Group A Units $ 4,881 $ (610) $ (7,782) $ (19,863)
Other 698 1,017 1,355 1,472
Total $ 5,579 $ 407 $ (6,427) $ (18,391)
Redeemable noncontrolling interests $ (697) $ - $ (3,765) $ -
Net income attributable to noncontrolling interests was $5.6 million for the quarter-to-date period, increasing by $5.2 million, and net loss attributable to noncontrolling interests was $6.4 million for the year-to-date period, decreasing by $12.0 million compared to the prior year period. During the Distribution Holiday, net income earned by any Sculptor Operating Partnership is allocated 100% to Sculptor Capital Management, Inc., while losses are allocated on a pro rata basis among the Group A Units (noncontrolling interests) and Sculptor Capital Management, Inc. as described in Note 3 to the financial statements included in this report.
Income attributable to redeemable noncontrolling interests relates to the SPAC that we consolidated in 2021.
Change in Redemption Value of Redeemable Noncontrolling Interests
The following table presents the change in redemption value of redeemable noncontrolling interests:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Change in redemption value of redeemable noncontrolling interests $ 697 $ - $ 3,765 $ -
The change in redemption value of redeemable noncontrolling interests for the quarter-to-date period was a gain of $697 thousand and was a gain of $3.8 million for the year-to-date period. The amounts in 2022 represent the accretion to redemption value of the Class A Shares related to our consolidated SPAC.
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.
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, net of cash settled RSUs, depreciation and amortization expenses, changes in fair value of warrant liabilities, changes in the tax receivable agreement liability, net losses on retirement of debt,
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gains and losses on fixed assets, gains and losses on investments in funds, and gains and losses of consolidated entities as management does not consider these items to be reflective of operating performance. The fair value of RSUs that are settled in cash to employees or executive managing directors, where the number of RSUs to be settled in cash is not certain at the time of the grant, is included as an expense at the time of settlement. Where the number of RSUs to be settled in cash is certain on the grant date, the expense is recognized during the performance period to which the award relates. Further, impairment of right-of-use lease assets is excluded from Economic Income at the time the impairment is recognized for GAAP and the impact is then amortized over the lease term for Economic Income. Additionally, rent expense is offset by subrental income as management evaluates rent expenses on a net basis.
•Amounts related to non-cash interest expense accretion on debt. The 2020 Term Loan and the Debt Securities were each recognized at a significant discount, as proceeds from each borrowing were allocated to warrant liabilities and the 2019 Preferred Units, respectively, resulting in non-cash accretion to par over time through interest expense for GAAP. The Debt Securities and the 2019 Preferred Units were fully redeemed in 2020. Management excludes this non-cash expense from Economic Income, as it does not consider it to be reflective of our economic borrowing costs.
•Amounts related to the consolidated entities, 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 AUM 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 in the performance period 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 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, 2022 Compared to Three and Six Months Ended June 30, 2021
Economic Income (Non-GAAP)
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Economic Income $ 32,565 $ 75,112 $ 61,766 $ 116,047
Refer below for the discussion of the contributing factors to changes in Economic Income from the prior year.
Economic Income Revenues (Non-GAAP)
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Economic Income Basis
Management fees $ 66,313 $ 70,903 $ 134,070 $ 139,973
Incentive income 44,580 59,545 66,149 107,349
Other revenues 1,604 1,778 3,044 3,359
Total Economic Income Revenues $ 112,497 $ 132,226 $ 203,263 $ 250,681
Economic Income revenues for the quarter-to-date period were $112.5 million decreasing $19.7 million, primarily due to the following:
•A $4.6 million decrease in management fees, driven primarily by the following:
•Institutional Credit Strategies. A $4.6 million decrease due to the recovery of $2.6 million of previously deferred subordinated management fees in the prior year period, as well as natural life cycle events within our existing CLOs which drove down our average net fee rate. Such life cycle events include: (i) a reduction in AUM in certain of our CLOs due to distributions; (ii) the redemptions of certain of our CLOs during 2021; and (iii) new issuances and refinancing transactions priced at lower rates. These decreases were partially offset by an increase in management fees driven by the launches of several CLOs.
•Management fees in our multi-strategy, opportunistic credit, and real estate funds remained relatively flat year-over-year.
•A $15.0 million decrease in incentive income, primarily due to the following:
•Multi-strategy funds. A $56.0 million decrease in incentive income, which was driven by investors that crystallize off cycle and for which the trailing twelve month return was lower year -over-year.
•Opportunistic credit funds. A $3.4 million decrease in incentive income from our opportunistic credit funds, which was driven a lower trailing twelve month return year-over year in Sculptor Credit Opportunities Master Fund.
•Real estate funds. A $44.4 million increase in incentive income, which was driven by crystallizations and realizations, primarily in Sculptor Real Estate Fund III, as the fund is realizing investments during its harvest period.
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Economic Income revenues for the year-to-date period were $203.3 million, decreasing $47.4 million, primarily due to the following:
•A $5.9 million decrease in management fees, driven primarily by the following:
•Multi-strategy funds. A $3.2 million increase due to higher average net management fee rates.
•Institutional Credit Strategies. An $8.0 million decrease due to the recovery of $3.2 million previously deferred subordinated management fees in the prior year period, as well as natural life cycle events within our existing CLOs which drove down our average net fee rate.
•Opportunistic credit and Real estate funds. Management fees remained relatively flat year-over-year.
•A $41.2 million decrease in incentive income, primarily due to the following:
•Multi-strategy funds. An $81.0 million decrease in incentive income, which was driven by investors that crystallize off cycle and for which the trailing twelve month return was lower year over year, as well as lower tax distributions.
•Opportunistic credit funds. A $7.6 million increase in incentive income, which was primarily driven by tax distributions, as well as from investors with off cycle crystallization periods. These increases were partially offset by less incentive income from certain of our closed-ended credit funds.
•Real estate funds.A $32.2 million increase in incentive income primarily due to realizations in Sculptor Real Estate Fund III.
Economic Income Expenses (Non-GAAP)
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Economic Income Basis
Compensation and benefits $ 58,011 $ 35,788 $ 97,208 $ 88,323
Interest expense 3,173 3,784 6,212 8,218
General, administrative and other expenses 18,658 17,542 37,985 38,093
Total Economic Income Expenses $ 79,842 $ 57,114 $ 141,405 $ 134,634
Economic Income expenses for the quarter-to-date period were $79.8 million, increasing $22.7 million, primarily due to the following:
•A $22.2 million increase in compensation and benefits expenses primarily driven by a $20.9 million increase in bonus expense, primarily due to factors outlined below:
•A $23.5 million increase in real estate incentive income profit sharing expense driven primarily by realizations from Sculptor Real Estate Fund III, which generated incentive income during the period. This was partially offset by a decrease in deferred cash compensation.
•A $1.3 million increase in salaries and benefits.
As our discretionary cash bonuses are generally determined based on fund performance in a given year, there may be differences in the timing of when bonuses are accrued and when the corresponding incentive income is recognized, particularly for performance generated on our longer-term AUM and AUM that have annual incentive
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income crystallization dates other than at year-end. In the fourth quarter we recognize discretionary bonuses, which are largely based on current year fund performance regardless of the year in which incentive income is recognized. It is best to look at our compensation ratio on incentive income over a multi-year period given the difference in timing of these line items.
Note that 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 the performance period for Economic Income, rather than over the service period for GAAP.
•A $1.1 million increase in general, administrative and other expenses primarily driven by an increase in professional services expenses. This increase was partially offset by a decrease in occupancy expense due to a sublease and a gain on foreign currency transactions.
•An offsetting $611 thousand decrease in interest expense primarily due to lower average outstanding debt balance as we repaid $224.4 million under the 2020 Term Loan in 2021.
Economic Income expenses for the year-to-date period were $141.4 million, increasing $6.8 million, primarily due to the following:
•An $8.9 million increase in compensation and benefits expenses primarily driven by a $7.1 million increase in bonus expense, primarily due to factors outlined below:
•Real estate incentive income profit sharing expense increased by $17.0 million from the prior year, driven by higher realizations and incentive income from our real estate funds in the first half of 2022, primarily from Real Estate Fund III.
•An increase of $1.4 million due to an increase in the amount of RSUs vested and settled in cash in the first half of 2022 compared to 2021.
•Partially offsetting these increases was a $10.3 million decrease in separation-related compensation, primarily due to the costs incurred in the first half of 2021 related to a departing executive.
•A $2.8 million decrease in deferred cash compensation expense.
•Salaries and benefits increased by $1.8 million.
•A $2.0 million decrease in interest expense primarily due to lower average outstanding debt balance, as a result of $224.4 million of prepayments of the 2020 Term Loan in 2021.
•General, administrative and other expenses remained relatively flat year-over-year due to an increase in professional service expenses, partially offset by a reduction in occupancy expense due to a sublease, as we offset rental expense with subrental income for Economic Income, as well as a gain from foreign currency transactions.
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.
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We ended the quarter with $192.6 million of unrestricted cash and cash equivalents, and $25.4 million of management fees and incentive income receivable (the majority of which will be collected in the third quarter of 2022) and other investments that the Company can liquidate as needed. 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 AUM, 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 continue to grow our AUM, including longer-term fee generating capital, and sustain positive investment performance in our funds, which will reflect positively on our revenue streams strengthening the balance sheet and providing the firm with stability 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 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 Units.
•Pursue new investment opportunities.
•Develop new distribution channels.
•Pay dividends.
Recent Developments - Share Repurchase Program
In February 2022, our Board of Directors authorized us to repurchase up to $100.0 million of our outstanding common stock. As of June 30, 2022, we repurchased 1,641,589 Class A Shares at the average price of $11.87 per share. Through August 1, 2022, we purchased 1,756,112 shares in aggregate at an average price of $11.68, resulting in a total buyback of $20.5 million of stock. The repurchase program has no expiration date. We may purchase shares on a discretionary basis from time to time through open market purchases, privately negotiated transactions or other means, including through Rule 10b5-1 trading plans or through the use of other techniques such as accelerated share repurchases. The timing and amount of any transactions will be subject to our discretion based upon market conditions and other opportunities that we may have for the use or investment of our cash balances. The repurchase program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice.
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 on our financing arrangements.
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•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 and fund capital commitments to our funds.
•Pay income taxes, RSU tax withholding obligations and amounts due under the tax receivable agreement.
•Make cash distributions in accordance with our distribution policy.
Operating Expenses
We generally rely on management fees to cover our "fixed" operating expenses, which we define as salaries, benefits, a minimum discretionary bonus and 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 business. No assurances can be given that our management fees will be sufficient to cover our fixed operating expenses in future periods. To the extent our management fees do not cover our fixed operating expenses, as well as to fund any other liabilities, we would rely on cash on hand and incentive income to cover any 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.
Historically, we have determined the amount of discretionary cash bonuses during the fourth quarter of each year, based on our total annual revenues and fund performance. 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. Related to performance on longer-term AUM, we accrue bonus expense on ABURI which will not be recognized as incentive income in the current year, but will have associated bonus expense in the current year period. This ABURI could crystallize into incentive income in future periods without the associated bonus expense, which would shift attributable earnings into future periods. In addition, to the 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 pay interest and principal due on our financing 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. We may also refinance all or a portion of any borrowings outstanding on 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 incurring new debt, which could result in higher borrowing costs, or by issuing equity or other securities, which would dilute existing shareholders. See Notes 7 and 8 to our consolidated financial statements for details on our debt obligations and repurchase agreements.
CLO Risk 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. Payments of interest and principal on these borrowings are generally due at such time interest and principal payments are received on our risk retention investments in the related CLOs; therefore, our CLO risk retention investments and related financings generally have a net positive impact on our liquidity at each CLO interest and principal payment date.
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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, 2022, 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 $178.8 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 16 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.
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 current and former 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.
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Dividends and Distributions
The table below presents the cash dividends paid on our Class A Shares in 2022 and 2021. We did not declare a dividend in the fourth quarter of 2021 in respect of earnings for the fourth quarter. Dividends are generally declared and paid in the quarter following the quarter to which they relate. For example, the dividend paid on May 25, 2022 was in respect of earnings for the first quarter of 2022. We paid no related cash distributions to our executive managing directors on their Sculptor Operating Group Units in the respective periods as a result of the Distribution Holiday.
Class A Shares
Payment Date Record Date Dividend per Share
May 25, 2022 May 18, 2022 $ 0.11
November 22, 2021 November 15, 2021 $ 0.28
August 24, 2021 August 17, 2021 $ 0.54
May 25, 2021 May 18, 2021 $ 0.30
March 4, 2021 February 25, 2021 $ 2.35
As discussed in Note 1 to the unaudited financial statements, as of June 30, 2022, the Company repurchased 1,641,589 Class A Shares at a cost of $19.5 million for an average price of $11.87 per share through open market purchase transactions. From July 1 through August 1, 2022, we purchased an additional 114,523 shares, bringing the total shares repurchased to 1,756,112 shares for $20.5 million, for an average price of $11.68.
As discussed in Note 3 in the Company's Annual Report, in connection with the Recapitalization, we and our executive managing directors agreed to a "Distribution Holiday" on the Group A Units, Group E Units, Group P Units and certain RSUs and RSAs 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. During the Distribution Holiday, dividends may continue to be paid on our Class A Shares. As of June 30, 2022, we have generated a total of $525.4 million of Distribution Holiday Economic Income, compared to the target of $600.0 million.
Distribution 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. Please see "-Distribution Holiday Economic Income Reconciliation" for a reconciliation of Distribution Holiday Economic Income to net income attributable to Class A Shareholders.
During the 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, and income taxes related to the earnings for the periods; provided, that, if the minimum amount of dividends 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). During the Distribution Holiday, (i) we will 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 and certain RSAs will continue to receive dividend equivalents in respect of dividends or distributions paid on the Class A Shares. For certain executive managing directors, distributions on RSUs, as well as distributions counted in determining whether market 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, RSU, or RSA, 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. See Note 13 in the Company's Annual Report for additional information.
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
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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 and certain RSAs 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 or RSAs, as applicable, which accrue additional dividend equivalents. The dividend equivalents will only be paid if the related RSUs/RSAs vest and will be settled at the same time as the underlying RSUs/RSAs. 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/RSAs 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 in the Company's Annual Report to our consolidated financial statements in this 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
In the normal course of our funds' life cycles, investors in our multi-strategy and certain open-end opportunistic credit funds have the right to redeem their interests following an initial lock up period, as discussed in the "Managing Business Performance" section, which could impact our liquidity and management fees. While 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 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
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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, for the remaining U.S. Dollar settings. As of June 30, 2022, the Company had direct exposure to U.S. Dollar LIBOR-linked interest rate settings through its 2020 Credit Agreement, and certain CLO Investments and associated CLO Investment Loans.
In the first quarter of 2020, we formed an internal LIBOR Transition Working Group to help effectuate an orderly transition from LIBOR. To address LIBOR cessation, the 2020 Credit Agreement provides for an agreed upon methodology to establish a new floating rate reference plus new applicable spreads. Each of the Company's CLO Investments and CLO Investments Loans that reference U.S. Dollar LIBOR settings will also be transitioned to an alternative reference rate. This transition will either be carried out through hardwired replacement mechanisms and/or amendment procedures in the existing governing documents for such CLO Investments and CLO Investments Loans or as a result of the state of New York's enactment of the New York LIBOR Legislation, which was signed into law on April 6, 2021. Under the New York LIBOR Legislation, if a contract governed by New York law that references USD LIBOR as a benchmark interest rate either does not contain benchmark fallback provisions or contains benchmark fallback provisions that would cause the benchmark rate to fall back to a rate that would continue to be based on USD LIBOR, then the fallback rate would be the Secured Overnight Financing Rate plus any applicable spread adjustment and any conforming changes selected or recommended by a relevant recommending authority such as the Alternative Reference Rates Committee (a committee convened by the Federal Reserve that includes major market participants).
Additionally, the firm has pursued several technology initiatives to ensure that firm-wide accounting and master data systems are equipped to handle evolving market conventions associated with regulatory recommended reference rates, and will continue to monitor our needs for any future changes in market standards. Our senior management has oversight of the Company's transition efforts, and periodic updates are provided to the Audit Committee of our Board of Directors. For the face value of instruments impacted by the LIBOR transition that we hold on our books see Note 7 to our consolidated financial statements included in this report. See "Part I, Item 1A. Risk Factors-Risks Related to Our Business-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 the "Managing Business Performance" section, 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.
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 AUM, 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.
Liquidity of Consolidated SPAC
The restricted cash and cash equivalents of our consolidated SPAC are held in a trust account and include money market funds consisting of U.S. Treasury bills with original maturities of 60 days or less when purchased, that were purchased with funds raised through the initial public offering of the consolidated entity. The $234.9 million in funds as of June 30, 2022, are restricted for use and may only be used for purposes of completing an initial business combination or redemption of public shares as set forth in the SPAC trust agreement.
Liquidity of Structured Alternative Investment Solution
The cash and cash equivalents of our consolidated structured alternative investment solution of $25.7 million are of the consolidated entity and do not directly impact the cash flows related to our Class A Shareholders.
Cash Flows Analysis
Operating Activities.Net cash from operating activities for the six months ended June 30, 2022 and 2021 was $(335.7) million and $351.6 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. Also contributing to lower cash inflows in 2022 were the investing activities of the entities we consolidate. These cash flows are of the consolidated entities and do not directly impact the cash flows related to our Class A Shareholders.
Net cash flows from operating activities for the six months ended June 30, 2022 decreased from the prior year period due to lower year-end incentive income earned in 2021 than in 2020, a large portion of the 2021 incentive was collected in the beginning of 2022, as compared to year-end incentive income earned in 2020, a large portion of which was collected in the beginning of 2021. Additionally, discretionary bonuses were higher in 2021, which were paid in the first quarter of 2022, as compared to discretionary bonuses in 2020, which were paid in the first quarter of 2021. These decreases were partially offset by the collection of more incentive income from our real estate funds in 2022 compared to 2021.
Investing Activities.Net cash from investing activities for the six months ended June 30, 2022 and 2021 was $177.7 million, and $(110.3) million, respectively. Investing cash inflows in 2022 primarily related to maturities and sales of U.S. government obligations and return of investments in our funds, partially offset by investments made in our funds and purchases of U.S. government obligations. Investing cash inflows 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.
Financing Activities.Net cash from financing activities for the six months ended June 30, 2022 and 2021 was $208.3 million, and $(272.3) 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, repurchases of treasury shares, and proceeds from repurchase agreements used to finance risk retention investments in our CLOs. Distributions to our executive managing directors on their Group A Units (prior to the Distribution Holiday), are also included in net cash from financing activities. Also contributing to higher cash inflows in 2022 were the financing activities of the entities we consolidate. These cash flows are of the consolidated entities and do not directly impact the cash flows related to our Class A Shareholders.
In the six months ended June 30, 2022, no repayments of the 2020 Term Loan were made, compared to repayments of $224.4 million in the six months ended June 30, 2021. Additionally, in the six months ended June 30, 2022, we entered into $20.4 million of repurchase agreements to finance or refinance risk retention investments in our European CLOs. Further, in the six months ended June 30, 2022, we repurchased $19.5 million of Class A shares as a part of our share repurchase program and our consolidated structured alternative investment solution issued $215.7 million of notes payable.
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We paid dividends of $2.8 million to our Class A Shareholders in the six months ended June 30, 2022, compared to dividends of $63.4 million paid to our Class A Shareholders in the six months ended June 30, 2021. No distributions were made to our executive managing directors in the six months ended June 30, 2022 or June 30, 2021, as a result of the Distribution Holiday.
Critical Accounting Estimates
Critical accounting estimates 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 materially from these estimates. See Note 2 to our consolidated financial statements included in this 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.
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 4 to our consolidated financial statements included in this report for additional information regarding fair value measurements.
As of June 30, 2022, 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 33% within Level I; approximately 42% within Level II; and approximately 25% within Level III. As of December 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 40% within Level I; approximately 41% within Level II; and approximately 19% 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
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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 function. These management control functions are segregated from the trading and investing functions.
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 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 provided by independent pricing service providers on a 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 function 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 function 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 AUM 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.
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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 investment management agreements, management will reconsider its conclusion regarding the status of an entity as a variable interest entity.
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 in 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 $3.7 million for the six months ended June 30, 2022, 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 $827.7 million over the remaining two-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 $827.7 million in taxable income over the remaining amortization and loss carryforward periods available to us, we estimated that, based on estimated AUM of $36.8 billion as of July 1, 2022, we would need to generate a minimum compound annual growth rate in AUM 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 AUM 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 AUM, whether as a result of fund
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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, 2022, we had $229.9 million of net operating losses available to offset future taxable income for federal income tax purposes that will expire between 2031 and 2037, and $233.6 million of net operating losses available to be carried forward without expiration. Additionally, $203.6 million of net operating losses are available to offset future taxable income for state income tax purposes and $199.8 million for local income tax purposes that will expire between 2035 and 2042.
Based on the analysis set forth above, as of June 30, 2022, 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 $6.2 million has been established for these items.
Impact of Recently Adopted Accounting Pronouncements on Recent and Future Trends
No changes to GAAP that went into effect during the six months ended June 30, 2022, 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,
2022 2021

(dollars in thousands)
Net (Loss) Income Attributable to Class A Shareholders-GAAP $ (8,052) $ 21,814
Change in redemption value of redeemable noncontrolling interests (697) -
Net (Loss) Income Allocated to Sculptor Capital Management, Inc.-GAAP (8,749) 21,814
Net income (loss) allocated to Group A Units 4,881 (610)
Equity-based compensation, net of RSUs settled in cash 20,804 12,022
Adjustment to recognize deferred cash compensation in the period of grant 7,730 5,742
2020 Term Loan and Debt Securities non-cash interest expense accretion 254 351
Income taxes (7,914) 13,047
Changes in fair value of warrant liabilities (18,740) 13,231
Net losses on early retirement of debt - 6,525
Net losses (gains) on investments 30,838 (6,255)
Net losses of consolidated entities 6,434 -
Adjustment for expenses related to compensation and profit-sharing arrangements based on fund investment performance (6,802) 5,895
Changes in tax receivable agreement liability (227) 559
Depreciation, amortization and net gains and losses on fixed assets 1,304 1,574
Other adjustments 2,752 1,217
Economic Income-Non-GAAP $ 32,565 $ 75,112
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Six Months Ended June 30,
2022 2021

(dollars in thousands)
Net Income Attributable to Class A Shareholders-GAAP $ 8,830 $ 1,521
Change in redemption value of redeemable noncontrolling interests
(3,765) -
Net Income Allocated to Sculptor Capital Management, Inc.-GAAP 5,065 1,521
Net loss allocated to Group A Units (7,782) (19,863)
Equity-based compensation, net of RSUs settled in cash 43,541 42,224
Adjustment to recognize deferred cash compensation in the period of grant 16,310 14,737
2020 Term Loan non-cash discount accretion 500 785
Income taxes
(947) 11,332
Changes in fair value of warrant liabilities (43,076) 38,175
Net losses on retirement of debt
- 30,198
Net losses (gains) on investments 36,182 (11,617)
Net losses of consolidated entities 2,294 -
Adjustment for expenses related to compensation and profit-sharing arrangements based on fund investment performance
469 3,397
Changes in tax receivable agreement liability
(220) (21)
Depreciation, amortization and net gains and losses on fixed assets
2,698 3,309
Other adjustments
6,732 1,870
Economic Income-Non-GAAP
$ 61,766 $ 116,047
Economic Income Revenues
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Management fees-GAAP
$ 71,770 $ 76,610 $ 145,207 $ 150,571
Adjustment to management fees(1)
(5,457) (5,707) (11,137) (10,598)
Management Fees-Economic Income Basis-Non-GAAP 66,313 70,903 134,070 139,973
Incentive income-Economic Income Basis-GAAP 44,580 59,544 66,222 107,348
Adjustment to incentive income(2)
- 1 (73) 1
Incentive Income-Economic Income Basis- Non-GAAP 44,580 59,545 66,149 107,349
Other revenues-Economic Income Basis-GAAP 2,520 1,778 4,950 3,359
Adjustment to other revenues(3)
(916) - (1,906) -
Other Revenues-Economic Income Basis-Non-GAAP 1,604 1,778 3,044 3,359
Total Revenues-Economic Income Basis-Non-GAAP $ 112,497 $ 132,226 $ 203,263 $ 250,681
_______________
(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.
(2)Adjustment to exclude the impact of eliminations related to the consolidated entities.
(3)Adjustment for subrental income as management considers the revenue to be an offset to rent expense.
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Economic Income Expenses
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Compensation and benefits-GAAP $ 79,743 $ 59,447 $ 157,528 $ 148,681
Adjustment to compensation and benefits(1)
(21,732) (23,659) (60,320) (60,358)
Compensation and Benefits-Economic Income Basis-Non-GAAP $ 58,011 $ 35,788 $ 97,208 $ 88,323
Interest expense-GAAP
$ 3,427 $ 4,135 $ 6,712 $ 9,003
Adjustment to interest expense(2)
(254) (351) (500) (785)
Interest Expense-Economic Income Basis-Non-GAAP
$ 3,173 $ 3,784 $ 6,212 $ 8,218
General, administrative and other expenses-GAAP $ 26,425 $ 25,022 $ 53,741 $ 52,398
Adjustment to general, administrative and other expenses(3)
(7,767) (7,480) (15,756) (14,305)
General, Administrative and Other Expenses-Economic Income Basis-Non-GAAP $ 18,658 $ 17,542 $ 37,985 $ 38,093
_______________
(1)Adjustment to exclude equity-based compensation, as management does not consider these non-cash expenses to be reflective of our operating performance. The fair value of RSUs that are settled in cash to employees or executive managing directors, where the number of RSUs to be settled in cash is not certain at the time of the grant, is included as an expense at the time of settlement. Where the number of RSUs to be settled in cash is certain on the grant date, the expense is recognized during the performance period to which the award relates. 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. Deferred cash compensation is expensed in full during the performance period to which the award relates 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. The 2020 Term Loan and the Debt Securities were each recognized at a significant discount, as proceeds from each borrowing were allocated to warrant liabilities and the 2019 Preferred Units, respectively, resulting in non-cash accretion to par over time through interest expense for GAAP. Management excludes these non-cash expenses from Economic Income, as it does not consider it to be reflective of 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. Impairment of right-of-use lease assets is excluded from Economic Income at the time impairment is recognized for GAAP and the impact is then amortized for Economic Income over the lease term. Further, rent expense is offset by subrental income. 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 June 30, 2022.
From October 1, 2018 to June 30, 2022
(dollars in thousands)
Net income attributable to Class A shareholders $ 221,344
Change in redemption value of redeemable noncontrolling interests and Preferred Units (15,253)
Net Income Allocated to Sculptor Capital Management, Inc.-GAAP 206,091
Net loss allocated to Group A Units (72,630)
Equity-based compensation, net of RSUs settled in cash 289,809
Adjustment to recognize deferred cash compensation in the period of grant (24,025)
2020 Term Loan and Debt Securities non-cash discount accretion 20,491
Income taxes
135,014
Changes in fair value of warrant liabilities (8,068)
Net losses on retirement of debt
41,584
Net losses on investments 11,984
Net losses of consolidated entities 4,963
Impairment of right-of-use asset 11,240
Adjustment for expenses related to compensation and profit-sharing arrangements based on fund investment performance
(6,384)
Changes in tax receivable agreement liability
4,578
Depreciation, amortization and net gains and losses on fixed assets
29,928
Other adjustments
9,215
Less: Dividends paid on 2019 Preferred Units (6,952)
Less: Dividends to Class A Shareholders declared with respect to such periods (121,400)
Distribution Holiday Economic Income-Non-GAAP $ 525,438
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 our funds may fluctuate in response to changes in the value of investments, foreign currency exchange rates, commodity prices, and interest rates, among other factors. The fair value changes in the financial assets and liabilities of our funds may affect the amount of our AUM and may impact the amount of management fees and incentive income we may earn from the funds.
The amount of our AUM 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 fair value of the net assets held by our funds as of June 30, 2022 and December 31, 2021, would have resulted in changes of approximately $1.5 billion and $1.7 billion, respectively, in AUM. AUM for our real estate funds and securitization vehicles is not based on net 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 securitization vehicles are not based on 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 $10.3 million in the six months ended June 30, 2022 and $10.0 million in the six months ended June 30, 2021.
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.
A 10% change in the fair value of the net assets held by our funds as of the end of any year could significantly affect our incentive 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 until such investments are sold or otherwise realized.
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Exchange Rate Risk
Changes 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 2022 and 2021.
We estimate that as of June 30, 2022 and 2021, a hypothetical 10% weakening or strengthening of the U.S. dollar against all foreign currency rates would not have a material direct 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 2020 Term Loan and our investments in CLOs accrue interest at variable rates. Interest rate changes may therefore affect the amount of our interest payments, future earnings and cash flows. We estimate that as of June 30, 2022 and 2021, a hypothetical one percentage increase or decrease in variable interest rates would not have a material direct 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.
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 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.
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As of June 30, 2022, 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, 2022.
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 second quarter of 2022 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. While no such litigation currently exists, it is possible that we may face shareholder litigation relating to the matters raised in a former Board member's resignation letter dated January 30, 2022. We believe any such claim would be without merit for, among other reasons, those described in our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 3, 2022, as amended, and our proxy statement filed with the Securities and Exchange Commission on April 29, 2022, and we intend to vigorously defend any such claim if brought. See "Part I, Item 1A. Risk Factors-Risks Related to Our Business-Regulatory changes in jurisdictions outside the U.S. could adversely affect our business" in our Annual Report. See Note 16 to our consolidated financial statements included in this report for additional information.
Item 1A. Risk Factors
We may be adversely affected by the effects of inflation.
General inflation in the United States, Europe and other geographies has risen to levels not experienced in recent decades. Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly increased prices will increase our costs and may lead to our clients requesting fewer services or decreased investment in our funds. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, increased costs of labor, and other similar effects. Although we may take measures in an effort to mitigate the impact of this inflation, if these measures are not effective our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when such actions impact our results of operations and when the cost inflation is incurred.
Please see "Item 1A. Risk Factors" in our Annual Report for a discussion of the additional risks material to our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table summarizes our Class A Share repurchase activity under our 2022 Share Repurchase Program during the second quarter of 2022.
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased Publicly as part of Publicly Announced Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under Our Programs ($ in millions)
April 2022 505,273 $ 11.96 505,273 $ 87.7
May 2022 459,038 11.41 459,038 82.5
June 2022 203,559 9.62 203,559 80.5
Total 1,167,870 $ 11.34 1,167,870 $ 80.5
In February 2022, our Board of Directors authorized us to repurchase up to $100.0 million of our outstanding common stock. The repurchase program has no expiration date. As of June 30, 2022, we repurchased 1,167,870 Class A Shares at a cost of $13.2 million, for an average price of $11.34 per share through open market purchase transactions. As of June 30, 2022, $80.5 million remained available for repurchase of our common stock under the share repurchase program. All of the repurchased shares are classified as treasury stock in our consolidated balance sheets.
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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
10.1+
10.2+
10.3+
10.4*
The Sculptor Capital Management, Inc. 2022 Incentive Plan
31.1*
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934.
31.2*
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934.
32.1**
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101* The following financial information from the Quarterly Report on Form 10-Q for the three months ended June 30, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Shareholders' Equity (Deficit); (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.
104* Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)
* Filed herewith
** Furnished herewith
+ 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: August 5, 2022
SCULPTOR CAPITAL MANAGEMENT, INC.
By: /s/ Dava Ritchea
Dava Ritchea
Chief Financial Officer and Executive Managing Director

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