Sculptor Capital Management, Inc. (Form: 10-Q, Received: 05/05/2023 16:34:27)

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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 March 31, 2023
			or
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from ________ to ________

Commission File Number: 001-33805

SCULPTOR CAPITAL MANAGEMENT, INC.

(Exact name of Registrant as specified in its charter)


Delaware						26-0354783
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

9 West 57th Street, New York, New York 10019

(Address of principal executive offices)

(212) 790-0000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Class A Shares

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 May 2, 2023, there were 24,971,561 Class A Shares, 4,645,054 Restricted Class A Shares and 33,018,248 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 March 31, 2023 and December 31, 2022	7

	Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022	8

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022	9

	Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Three Months Ended March 31, 2023 and 2022	10

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	11

	Notes to Consolidated Financial Statements	13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	81

Item 4.	Controls and Procedures	83

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	85

Item 1A.	Risk Factors	85

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85

Item 3.	Defaults upon Senior Securities	85

Item 4.	Mine Safety Disclosures	85

Item 5.	Other Information	85

Item 6.	Exhibits	86

Signatures		87

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.

active executive managing directors						Executive managing directors who remain active in our business.

Annual Report						Our annual report on Form 10-K for the year ended December 31, 2022, dated March 3, 2023, 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 the 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. AUM for our new real estate investment vehicle is based on net asset value. 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 account 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.

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, redeemable 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.

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, 2021 and 2022 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.

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.

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 “Shareholder Services—Corporate Governance” section are charters for our Audit Committee; Compensation Committee; Nominating, Corporate Governance and Conflicts Committee and Corporate Responsibility and Compliance Committee, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics governing our directors, officers and employees. Information on, or accessible through, our website is not a part of, and is not incorporated into, this report or any other SEC filing. Copies of our SEC filings or corporate governance materials are available without charge upon written request to Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Office of the Secretary. Any materials we file with the SEC are also publicly available through the SEC’s website (www.sec.gov).

No statements herein, available on our website or in any of the materials we file with the SEC constitute, or should be viewed as constituting, an offer of any fund.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that reflect our current views with respect to, among other things, future events, our operations and our financial performance. We generally identify forward-looking statements by terminology such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “seek,” “approximately,” “predict,” “intend,” “plan,” “estimate,” “anticipate,” “opportunity,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve,” “see,” “think,” “position” or the negative version of those words or other comparable words.

Any forward-looking statements contained herein are based upon historical information and on our current plans, estimates and expectations. The inclusion of this or other forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.

We caution that forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties, including but not limited to the following: global economic, business, market and geopolitical conditions, 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 United Kingdom’s withdrawal from the European Union; the outcome of third-party litigation involving us; the consequences of the Foreign Corrupt Practices Act settlements with the SEC and the United States (“U.S.”). Department of Justice and any claims or negative publicity arising therefrom or from matters involving the founder and former CEO of our predecessor Och-Ziff; 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; the publicly announced special committee process and any outcome thereof; our ability to appropriately manage conflicts of interest and tax and other regulatory factors relevant to our business; 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.

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.

SCULPTOR CAPITAL MANAGEMENT, INC.

CONSOLIDATED BALANCE SHEETS — UNAUDITED

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements


	March 31, 2023		December 31, 2022
	(dollars in thousands)
Assets
Cash and cash equivalents	$	211,758	$	258,863
Restricted cash	7,912		7,895
Investments (includes assets measured at fair value of $217,008 and $231,929 including assets sold under agreements to repurchase of $161,424 and $157,107 as of March 31, 2023 and December 31, 2022, respectively)	292,978		299,059
Income and fees receivable	46,439		56,360
Due from related parties	24,860		32,846
Deferred income tax assets	246,230		257,939
Operating lease assets	72,985		75,861
Other assets, net	79,248		106,442
Assets of consolidated entities:

Cash and cash equivalents	12,655		3
Restricted cash and cash equivalents	9,906		9,805
Investments of consolidated entities	547,834		544,554
Other assets of consolidated entities	2,241		2,579
Total Assets	$	1,555,046	$	1,652,206
Liabilities and Shareholders’ Equity
Liabilities
Compensation payable	$	26,162	$	127,209
Unearned income and fees	45,504		53,869
Tax receivable agreement liability	190,188		190,245
Operating lease liabilities	88,601		92,045
Debt obligations	119,869		124,176
Warrant liabilities, at fair value	23,989		24,163
Securities sold under agreements to repurchase	168,931		166,632
Other liabilities	44,854		43,049
Liabilities of consolidated entities:
Notes payable, at fair value	197,813		196,106
Warrant liabilities, at fair value	1,082		596
Other liabilities of consolidated entities	12,917		9,669
Total Liabilities	919,910		1,027,759
Commitments and Contingencies (Note 16)
Redeemable Noncontrolling Interests of Consolidated Entities (Note 3)	240,541		237,864
Shareholders’ Equity
Class A Shares, par value $0.01 per share, 100,000,000 shares authorized; 27,992,537 and 26,729,608 shares issued and 24,970,157 and 23,707,228 shares outstanding as of March 31, 2023 and December 31, 2022, respectively	250		238
Class B Shares, par value $0.01 per share, 75,000,000 shares authorized; 33,018,248 and 33,569,188 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	330		336
Treasury stock, at cost; 3,022,380 as of March 31, 2023 and December 31, 2022	(32,495)		(32,495)
Additional paid-in capital	263,607		255,293
Accumulated deficit	(272,410)		(276,149)
Accumulated other comprehensive income (loss)	546		(119)
Shareholders’ deficit attributable to Class A Shareholders	(40,172)		(52,896)
Shareholders’ equity attributable to noncontrolling interests	434,767		439,479
Total Shareholders’ Equity	394,595		386,583
Total Liabilities and Shareholders’ Equity	$	1,555,046	$	1,652,206

See notes to consolidated financial statements.

SCULPTOR CAPITAL MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended March 31,
		2023		2022
		(dollars in thousands)
Revenues
Management fees		$	63,708	$	73,437
Incentive income		40,286		21,642
Other revenues		6,545		2,430
Income (loss) of consolidated entities		2,696		(161)
Total Revenues		113,235		97,348

Expenses
Compensation and benefits		68,622		77,785
Interest expense		5,596		3,285
General, administrative and other		33,795		27,316
Expenses of consolidated entities		547		244
Total Expenses		108,560		108,630

Other Income
Changes in fair value of warrant liabilities		174		24,336
Changes in tax receivable agreement liability		57		(7)

Net gains (losses) on investments		4,928		(5,344)
Net gains of consolidated entities		7,877		4,140
Total Other Income		13,036		23,125

Income Before Income Taxes		17,711		11,843
Income taxes		12,747		6,967
Consolidated Net Income		4,964		4,876
Less: Net loss attributable to noncontrolling interests		6,205		12,006
Less: Net income attributable to redeemable noncontrolling interests		(1,499)		(3,068)
Net Income Attributable to Sculptor Capital Management, Inc.		9,670		13,814
Change in redemption value of redeemable noncontrolling interests		(1,178)		3,068
Net Income Attributable to Class A Shareholders		$	8,492	$	16,882

Earnings per Class A Share
Earnings per Class A Share - basic		$	0.34	$	0.63
Earnings per Class A Share - diluted		$	0.05	$	(0.29)
Weighted-average Class A Shares outstanding - basic		25,173,834		26,596,572
Weighted-average Class A Shares outstanding - diluted		53,633,608		43,693,932

See notes to consolidated financial statements.

SCULPTOR CAPITAL MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	Three Months Ended March 31,
		2023		2022
		(dollars in thousands)
Consolidated net income		$	4,964	$	4,876
Other Comprehensive Income, Net of Tax
Other comprehensive income (loss) - currency translation adjustment		665		(750)
Comprehensive Income		5,629		4,126
Less: Comprehensive loss attributable to noncontrolling interests		6,205		12,006
Less: Comprehensive income attributable to redeemable noncontrolling interests		(1,499)		(3,068)

Comprehensive Income Attributable to Sculptor Capital Management, Inc.		$	10,335	$	13,064

See notes to consolidated financial statements.

SCULPTOR CAPITAL MANAGEMENT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)



	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, 2023	23,707,228	33,569,188	3,022,380	$	238	$	336	$	255,293	$	(276,149)	$	(119)	$	(32,495)	$	(52,896)	$	439,479	$	386,583
Equity-based compensation, net of taxes	1,262,929	(550,940)	—	12		(6)		8,555		—		—		—		8,561		1,361		9,922


Dividend equivalents on Class A restricted share units	—	—	—	—		—		937		(937)		—		—		—		—		—
Change in redemption value of SPAC Class A Shares	—	—	—	—		—		(1,178)		—		—		—		(1,178)		—		(1,178)
Cash dividends declared on Class A Shares ($0.20 per share)	—	—	—	—		—		—		(4,994)		—		—		(4,994)		—		(4,994)
Consolidated net income (loss), excluding amounts attributable to redeemable noncontrolling interests	—	—	—	—		—		—		9,670		—		—		9,670		(6,205)		3,465
Currency translation adjustment	—	—	—	—		—		—		—		665		—		665		—		665

Capital contributions	—	—	—	—		—		—		—		—		—		—		1,280		1,280
Capital distributions	—	—	—	—		—		—		—		—		—		—		(1,148)		(1,148)
Balance at March 31, 2023	24,970,157	33,018,248	3,022,380	$	250	$	330	$	263,607	$	(272,410)	$	546	$	(32,495)	$	(40,172)	$	434,767	$	394,595

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	856,845	63,308	—	9		1		14,477		—		—		—		14,487		1,924		16,411

Repurchase of Class A Shares	(473,719)	—	473,719	(5)		—		—		—		—		(6,249)		(6,254)		—		(6,254)
Dividend equivalents on Class A restricted share units	—	—	—	—		—		69		(69)		—		—		—		—		—
Change in redemption value of SPAC Class A Shares	—	—	—	—		—		3,068		—		—		—		3,068		—		3,068

Consolidated net loss (gain), excluding amounts attributable to redeemable noncontrolling interests	—	—	—	—		—		—		13,814		—		—		13,814		(12,006)		1,808
Currency translation adjustment	—	—	—	—		—		—		—		(750)		—		(750)		—		(750)
Capital contributions	—	—	—	—		—		—		—		—		—		—		4,997		4,997
Capital distributions	—	—	—	—		—		—		—		—		—		—		(3,448)		(3,448)
Balance at March 31, 2022	26,052,113	33,676,331	473,719	$	261	$	337	$	202,305	$	(239,776)	$	(699)	$	(6,249)	$	(43,821)	$	437,936	$	394,115

See notes to consolidated financial statements.

SCULPTOR CAPITAL MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Cash Flows from Operating Activities
Consolidated net income	$	4,964	$	4,876
Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities:
Amortization of equity-based compensation	13,916		24,843
Depreciation, amortization and net gains and losses on fixed assets	1,043		1,394
Changes in fair value of warrant liabilities	(174)		(24,336)

Deferred income taxes	11,689		5,522
Non-cash lease expense	4,605		4,803
Net (gains) losses on investments, net of dividends	(3,715)		6,706

Operating cash flows due to changes in:
Income and fees receivable	9,992		128,362
Due from related parties	8,028		7,607
Other assets, net	(2,323)		(17,708)
Compensation payable	(102,583)		(218,098)
Unearned income and fees	(8,365)		16,293
Tax receivable agreement liability	(57)		(16,766)
Operating lease liabilities	(5,173)		(5,508)
Other liabilities	1,700		(5,123)
Consolidated entities related items:
Net gains of consolidated entities	(7,877)		(4,140)
Purchases of investments	(4,887)		(32,778)
Proceeds from sale of investments	16,768		8,760
Other assets of consolidated entities	340		(3,687)
Other liabilities of consolidated entities	(1,840)		27,785
Net Cash Used in Operating Activities	(63,949)		(91,193)

Cash Flows from Investing Activities
Purchases of fixed assets	(66)		(418)

Purchases of United States government obligations	—		(13,992)
Maturities and sales of United States government obligations	15,000		219,144
Investments in funds	(7,713)		(42,472)
Return of investments in funds	33,862		15,757



Net Cash Provided by Investing Activities	41,083		178,019

SCULPTOR CAPITAL MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued)


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Cash Flows from Financing Activities
Contributions from noncontrolling interests	1,280		4,997
Distributions to noncontrolling interests	(1,148)		(3,447)
Dividends on Class A Shares	(4,994)		—
Proceeds from debt obligations, net of issuance costs	—		4,852
Repayment of debt obligations, including prepayment costs	(4,760)		(9,424)
Proceeds from securities sold under agreements to repurchase, net of issuance costs	—		20,395
Purchases of treasury stock	—		(6,249)
Other, net	(2,612)		(4,969)
Consolidated entities related items:
Proceeds from debt obligations of consolidated entities, net of issuance costs	—		215,733

Net Cash (Used in) Provided by Financing Activities	(12,234)		221,888
Effect of exchange rate changes on cash and cash equivalents and restricted cash	765		(137)
Net change in cash and cash equivalents and restricted cash	(34,335)		308,577
Cash and cash equivalents and restricted cash, beginning of period	276,566		412,671
Cash and Cash Equivalents and Restricted Cash, End of Period	$	242,231	$	721,248

Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest	$	4,854	$	2,922
Income taxes	$	2,054	$	3,439

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	$	211,758	$	135,951
Restricted cash	7,912		7,188
Cash and cash equivalents of consolidated entities	12,655		343,486
Restricted cash and cash equivalents of consolidated entities	9,906		234,623
Total Cash and Cash Equivalents and Restricted Cash	$	242,231	$	721,248

See notes to consolidated financial statements.

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

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 global alternative asset manager and a specialist in opportunistic investing with offices in New York, London, Hong Kong and Shanghai. The Company provides asset management services and investment products across Credit, Real Estate, and Multi-Strategy. The Company serves its global client base through commingled funds, separate accounts and specialized products, as well as sponsoring a special purpose acquisition company (“SPAC”) (collectively, the “funds”). The Company’s model is driven by a global team that is predominantly home-grown, long tenured and incentivized to put client outcomes first. The Company’s capabilities span all major geographies and asset classes, including corporate credit, structured credit, real estate debt and equity, fundamental equities, merger arbitrage, and convertible and derivative arbitrage.

The Company manages dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products, real estate funds, multi-strategy 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 (“Assets Under Management” or “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 (the “Board of Directors” or the “Board”) (other than RSAs, where entitlement to distributions may be subject to limitations and conditions).

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

•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 March 31, 2023:

•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 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. In the Recapitalization, the holders of the 2016 Preferred Units, as defined below, forfeited an additional 749,813 Group A Units, which were recapitalized into Group A-1 Units.

•Group B Units—Sculptor Corp holds a general partner interest and Group B Units in each Sculptor Operating Partnership. Sculptor Corp owns all of the Group B Units, which represent equity interest in the Sculptor Operating Partnerships. Except during the Distribution Holiday as described above, the Group B Units are economically identical to the Group A Units held by executive managing directors but are not exchangeable for Class A Shares and are not subject to vesting, 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 upon satisfaction of a certain performance condition. 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

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

winding up and become eligible to participate in any tag along right, in a change of control transaction or other liquidity event only to the extent of their relative positive capital accounts (if any). 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. Group P Unit grants are accounted for as equity-based compensation. 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.

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

The following table presents the number of shares and units of the Company and the Sculptor Operating Partnerships, respectively, that were outstanding as of March 31, 2023:


			As of March 31, 2023
Sculptor Capital Management, Inc.
Class A Shares			24,970,157
Class B Shares			33,018,248
Restricted Class A Shares (“RSAs”)			4,645,054
Restricted Share Units (“RSUs”)			2,779,823
Performance-based RSUs (“PSUs”)			912,500
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			24,970,157
Group E Units			13,021,158
Group P Units			4,734,286

The Company grants RSAs, RSUs and PSUs to its employees and executive managing directors as a form of compensation. These grants are accounted for as equity-based compensation. See Note 13 in the Company's Annual Report for additional information. In addition, the Company has 3,022,380 shares of treasury stock as of March 31, 2023.

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 March 31, 2023, the Company repurchased 3,022,380 Class A Shares at a cost of $32.5 million for an average price of $10.75 per share through open market purchase transactions. No shares were purchased in the three months ended March 31, 2023. As of March 31, 2023, $67.5 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 exclude some of the disclosures required in audited financial statements and therefore should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report. Management believes all adjustments considered necessary for a fair presentation of the Company’s unaudited, interim, consolidated financial

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

statements have been included and are of a normal and recurring nature and that estimates made in preparing unaudited, interim, consolidated financial statements are reasonable and prudent. 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.

Recently Adopted Accounting Pronouncements

No changes to GAAP that went into effect in the three months ended March 31, 2023, 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 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 decreased to 47.1% as of March 31, 2023, from 48.2% as of March 31, 2022. 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

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

RSUs or 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 generally 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. However, additional repurchases of Class A Shares under the Company’s 2022 Share Repurchase Program may lead to a decrease of the Company’s interest in the Sculptor Operating Group. 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.


	Three Months Ended March 31,
		2023			2022

		(dollars in thousands)

Sculptor Capital LP
Net income		$	31,087		$	41,216
Blended participation percentage		0		%	0		%
Net Income Attributable to Group A Units		$	—		$	—

Sculptor Capital Advisors LP
Net loss		$	(4,182)		$	(16,820)
Blended participation percentage		38		%	37		%
Net Loss Attributable to Group A Units		$	(1,571)		$	(6,153)

Sculptor Capital Advisors II LP
Net loss		$	(14,451)		$	(17,796)
Blended participation percentage		38		%	37		%
Net Loss Attributable to Group A Units		$	(5,429)		$	(6,510)

Total Sculptor Operating Group
Net income		$	12,454		$	6,600
Blended participation percentage		-56		%	-192		%
Net Loss Attributable to Group A Units		$	(7,000)		$	(12,663)

The following table presents the components of the net loss attributable to noncontrolling interests:


	Three Months Ended March 31,
		2023		2022

		(dollars in thousands)
Group A Units		$	(7,000)	$	(12,663)

Other		795		657
		$	(6,205)	$	(12,006)

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

The following table presents the components of the shareholders’ equity attributable to noncontrolling interests:


	March 31, 2023		December 31, 2022

	(dollars in thousands)
Group A Units	$	407,302	$	412,941

Other	27,465		26,538
	$	434,767	$	439,479

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 as redeemable noncontrolling interests in the consolidated balance sheets. The following table presents the activity in redeemable noncontrolling interests for the three months ended March 31, 2023 and 2022 :


	Three Months Ended March 31,
	2023		2022


	(dollars in thousands)
Beginning balance	$	237,864	$	234,600

Change in redemption value of Class A Shares of consolidated SPAC	1,178		(3,068)








Comprehensive income	1,499		3,068
Ending Balance	$	240,541	$	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:


	March 31, 2023		December 31, 2022

	(dollars in thousands)
U.S. government obligations, at fair value	$	9,978	$	24,782
CLOs, at fair value	207,030		207,147
Equity method investments	75,970		67,130
Total Investments	$	292,978	$	299,059

Investments of Consolidated Entities	$	547,834	$	544,554

The Company invests in U.S. government obligations to manage excess liquidity. CLOs, at fair value, consist of investments in notes of unconsolidated CLOs. These investments are carried at fair value under the irrevocable fair value option election at initial recognition. Changes in fair value are recorded within net gains (losses) on investments in the consolidated statements of operations. Interest income on these investments is accrued using the effective interest method and separately presented from the overall change in fair value and is recognized in other revenue in the consolidated statement of operations.

The Company’s equity method investments include investments in funds, which are not consolidated, but in which the Company exerts significant influence, but not control. The Company has not elected the fair value option and accounts for such

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

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 gains (losses) 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.

Investments of consolidated entities include both investments of the Company’s consolidated SPAC, which consists of investments in U.S. Treasury bills held in a trust account and measured at fair value, as well as investments held by the Company’s consolidated structured alternative investment solution. 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 using the NAV practical expedient by strategy type and ability to redeem such investments as of March 31, 2023:

Fund Type(1)

Fair Value (as of March 31, 2023)

Redemption Frequency(2)

Redemption Notice Period(2)

(dollars in thousands)

Multi-strategy

67,514

Quarterly - Annually

30 days - 90 days

Credit

231,028

Monthly - Annually(3)

30 days - 90 days

Real estate

8,757

None(4)

N/A

Total

307,299

_______________

(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)$154.2 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.

(3)22% of these investments are in closed-end funds which cannot be redeemed, as distributions will be received as the underlying assets are liquidated, which is expected to be approximately six years.

(4)100% of these investments are in closed-end funds which cannot be redeemed, as distributions will be received as the underlying assets are liquidated, which is expected to be approximately seven to nine years.

As of March 31, 2023, the structured alternative investment solution had unfunded commitments of $96.9 million related to the investments presented in the table above.

See Note 2 in the Company’s Annual Report 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

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

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 instruments 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 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 and loans, 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.

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

Fair Value Measurements Categorized within the Fair Value Hierarchy

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy for the periods presented:


	As of March 31, 2023
	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	$	86,791	$	—	$	—	$	—	$	86,791

Included within investments:
U.S. government obligations	$	9,978	$	—	$	—	$	—	$	9,978
CLOs(1)	$	—	$	—	$	207,030	$	—	$	207,030









Included within investments of consolidated entities:
U.S. government obligations	$	240,535	$	—	$	—	$	—	$	240,535




Investments in funds	—		—		—		307,299		307,299
Investments of Consolidated Entities	$	240,535	$	—	$	—	$	307,299	$	547,834

Liabilities, at Fair Value
Warrants	$	—	$	—	$	23,989	$	—	$	23,989

Liabilities of consolidated entities:
Warrants	$	1,082	$	—	$	—	$	—	$	1,082
Notes payable	$	—	$	—	$	197,813	$	—	$	197,813

_______________

(1) As of March 31, 2023, investments in CLOs had contractual principal amounts of $209.8 million outstanding, which excludes the Company’s investments in subordinated tranches of the notes, as these do not have contractual principal payments.

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023


	As of December 31, 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	$	19,937	$	—	$	—	$	—	$	19,937

Included within investments:
U.S. government obligations	$	24,782	$	—	$	—	$	—	$	24,782
CLOs(1)	$	—	$	—	$	207,147	$	—	$	207,147




Included within investments of consolidated entities:
U.S. government obligations	$	237,964	$	—	$	—	$	—	$	237,964




Investments in funds	—		—		—		306,590		306,590
Investments of Consolidated Entities	$	237,964	$	—	$	—	$	306,590	$	544,554

Liabilities, at Fair Value
Warrants	$	—	$	—	$	24,163	$	—	$	24,163

Liabilities of consolidated entities:
Warrants	$	596	$	—	$	—	$	—	$	596
Notes Payable	$	—	$	—	$	196,106	$	—	$	196,106

_______________

(1) As of December 31, 2022, investments in CLOs had contractual principal amounts of $212.0 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 gains (losses) on investments in the consolidated statements of operations. Gains and losses related to foreign currency translation adjustments are recorded in the statements of comprehensive income (loss), and gains and losses related to investment of consolidated entities are recorded within net gains 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 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 gains of consolidated entities in the consolidated statements of operations. The Company elected to measure its investments in CLOs, U.S. government obligations and notes payable of the consolidated fund at fair value through consolidated net (loss) income in order to simplify its accounting for these instruments.

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

The following tables summarize the changes in the Company’s Level III financial assets and liabilities for the periods presented:


	December 31, 2022		Transfers In		Transfers Out		Purchases / Issuances		Investment Sales / Settlements		Gains / (Losses) Included in Earnings		Gains / (Losses) Included in Other Comprehensive Income		March 31, 2023

	(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs	$	207,147	$	—	$	—	$	—	$	(5,361)	$	2,809	$	2,435	$	207,030




Liabilities, at Fair Value
Warrants	$	24,163	$	—	$	—	$	—	$	—	$	174	$	—	$	23,989

Liabilities of consolidated entities:

Notes payable	$	196,106	$	—	$	—	$	—	$	—	$	(1,707)	$	—	$	197,813


	December 31, 2021		Transfers In			Transfers Out			Purchases / Issuances		Investment Sales / Settlements		Gains / (Losses) Included in Earnings		Gains / (Losses) Included in Other Comprehensive Income		March 31, 2022

	(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs	$	219,510	$	—		$	—		$	28,807	$	(12,347)	$	(4,519)	$	(4,899)	$	226,552

Investments of consolidated entities:
Bank Debt	$	—	$	3,603	(1)	$	(14,666)	(1)	$	14,633	$	(3,475)	$	(95)	$	—	$	—

Liabilities, at Fair Value
Warrants	$	65,287	$	—		$	—		$	—	$	—	$	24,336	$	—	$	40,951

Liabilities of consolidated entities:
Warrants	$	7,590	$	—		$	(3,450)	(2)	$	—	$	—	$	4,140	$	—	$	—
Notes payable	$	—	$	—		$	—		$	215,733	$	—	$	—	$	—	$	215,733

_______________

(1) Transfers into and out of Level III in bank debt include $2.3 million related to the consolidation (Transfers In) and $14.0 million related to the subsequent deconsolidation (Transfers Out) 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.

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

The table below summarizes the net change in unrealized gains and (losses) on the Company’s Level III financial instruments outstanding as of the reporting date:


	Three Months Ended March 31,
		2023		2022

		(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs		$	5,244	$	(9,418)

Liabilities, at Fair Value
Warrants		$	174	$	24,336

Liabilities of consolidated entities:
Notes payable		$	(1,707)	$	—

Level III Valuation Techniques

Financial instruments classified within Level III of the fair value hierarchy are generally comprised of CLOs, warrant liabilities and notes payable of consolidated entities.

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 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 57.55% as of March 31, 2023.

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 the consolidated entity, as the Company believes the fair value of the financial assets is more observable. Refer to Note 2 in the Company’s Annual Report for additional valuation considerations of the notes payable of consolidated entities.

Financial Instruments Not Measured at Fair Value

As of March 31, 2023, the Company’s debt obligations had a fair value of $98.3 million and a carrying value of $119.9 million; and the repurchase agreements had a fair value $157.7 million of and a carrying value of $168.9 million. The fair value measurements for the Company’s debt obligations and repurchase agreements are categorized as Level III within the fair value hierarchy. The fair value measurements for the Company’s CLO Investments Loans (as defined in Note 7) and repurchase agreements were determined using independent pricing services. The fair value measurement for the Company’s 2020 Term Loan (as defined in Note 7) was determined using a discounted cash flow model. Management estimates that the carrying value of the Company’s other financial instruments approximated their fair values as of March 31, 2023.

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

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

assets as they meet the criteria for derecognition under U.S. GAAP. No loans were sold in each of the three months ended March 31, 2023 and 2022. 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 March 31, 2023 and December 31, 2022, the Company’s investments in these retained interests had a fair value of $77.3 million and $78.6 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 the three months ended March 31, 2023 and 2022, the Company received $3.7 million and $675 thousand, respectively, of interest and principal payments related to the retained interests.

The Company may from time to time refinance its investment in CLOs. If a refinanced CLO investment is considered substantially different from the original CLO investment, the refinancing is accounted for as a sale and a new refinanced CLO investment is recognized at fair value that is used to determine the amount of gain or loss on derecognition that is presented within net gains (losses) on investments in the consolidated statements of operations. If the refinancing is not considered substantially different from the original CLO investment, a new effective interest rate that equates the revised cash flows to the carrying amount of the original CLO investment is calculated and applied prospectively.

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.

The table below presents the assets and liabilities of VIEs consolidated by the Company.


	March 31, 2023		December 31, 2022

	(dollars in thousands)
Assets
Assets of consolidated entities:
Cash and cash equivalents of consolidated entities	$	12,655	$	3
Restricted cash and cash equivalents of consolidated entities	9,800		9,805
Investments of consolidated entities, at fair value	307,299		306,590
Other assets of consolidated entities	1,744		2,016
Total Assets	$	331,498	$	318,414

Liabilities
Liabilities of consolidated entities:
Notes payable of consolidated entities	$	197,813	$	196,106
Other liabilities of consolidated entities	4,816		1,601
Total Liabilities	$	202,629	$	197,707

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

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 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 exposure to loss as a result of the Company’s involvement with non-consolidated VIEs:


	March 31, 2023		December 31, 2022

	(dollars in thousands)
Net assets of unconsolidated VIEs in which the Company has a variable interest	$	12,215,434	$	12,738,164

Maximum risk of loss as a result of the Company’s involvement with unconsolidated VIEs:
Unearned income and fees	45,504		53,869
Income and fees receivable	34,711		41,890
Investments	246,366		245,583
Investments of consolidated entities	239,785		237,699
Unfunded commitments(1)	200,529		182,797
Maximum Exposure to Loss	$	766,895	$	761,838

_______________

(1) Includes commitments from certain employees and executive managing directors in the amounts of $79.1 million and $65.4 million as of March 31, 2023 and December 31, 2022, respectively.

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 March 31, 2023, 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.

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

The tables below represent components of lease expense and associated cash flows:


	Three Months Ended March 31,
		2023		2022


		(dollars in thousands)
Lease Cost
Operating lease cost		$	4,605	$	4,708
Short-term lease cost		22		10
Finance lease cost - amortization of leased assets		99		92
Finance lease cost - imputed interest on lease liabilities		15		3
Less: Sublease income		(797)		(830)
Net Lease Cost		$	3,944	$	3,983


	Three Months Ended March 31,
		2023		2022

		(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		$	5,215	$	5,326
Operating cash flows for finance leases		$	5	$	—
Finance cash flows for finance leases		$	223	$	163

Right-of-use assets obtained in exchange for lease obligations
Operating leases		$	—	$	1,079


	March 31, 2023		December 31, 2022

Lease Term and Discount Rate
Weighted average remaining lease term
Operating leases	6.5 years		6.7 years
Finance leases	4.3 years		4.5 years

Weighted average discount rate
Operating leases	7.8	%	7.8	%
Finance leases	7.9	%	7.9	%

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023


	Operating Leases		Finance Leases

	(dollars in thousands)
Maturity of Lease Liabilities - Contractual Payments to be Paid
April 1, 2023 to December 31, 2023	$	14,968	$	—
2024	16,527		228
2025	14,328		228
2026	15,353		228
2027	17,675		228
Thereafter	35,015		—
Total Lease Payments	113,866		912
Imputed interest	(25,265)		(146)
Total Lease Liabilities - Contractual Payments to be Paid	$	88,601	$	766


	Operating Leases

	(dollars in thousands)
Sublease Rent - Contractual Payments to be Received
April 1, 2023 to December 31, 2023	$	2,223
2024	1,920
2025	1,920
2026	1,920
2027	1,960
Thereafter	4,160
Total Sublease Rent - Contractual Payments to be Received	$	14,103

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

7. DEBT OBLIGATIONS AND WARRANTS


	2020 Term Loan		CLO Investments Loans		Total

	(dollars in thousands)
Maturity of Debt Obligations
April 1, 2023 to December 31, 2023	$	—	$	—	$	—
2024	—		—		—
2025	—		—		—
2026	—		—		—
2027	95,000		—		95,000
2028	—		—		—
Thereafter	—		36,186		36,186
Total Payments	95,000		36,186		131,186
Unamortized discounts & deferred financing costs	(11,126)		(191)		(11,317)
Total Debt Obligations	$	83,874	$	35,995	$	119,869

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, as amended on December 20, 2022, (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 fourth 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”). Borrowings under the 2020 Credit Agreement bear interest at a per annum rate equal to, at the Company’s option, the one, three or six-month Secured Overnight Financing Rate (“SOFR”) (subject to a 0.75% floor), plus 6.25%. With respect to interest calculated using one-month SOFR, additional rate equal to 0.05% is applied and with respect to interest calculated using three-month or six-month SOFR,

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

additional rate equal to 0.10% is applied. 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 $8.01 per share as of March 31, 2023. 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, the 2020 Credit Agreement 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.

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 March 31, 2023, the warrants of the consolidated SPAC had a fair value of $1.1 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 of $20.0 million of Class A, $20.0 million of Class C and $87.8 million of subordinated notes. Changes in the fair value of the notes payable of the structured alternative investment solution are presented within net gains of consolidated entities in the consolidated statements of operations. The fair value of the notes payable as of March 31, 2023, was $197.8 million. The notes payable mature in May 2037.

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

The table below summarizes material terms of the notes payable:


	Class A Notes			Class B Notes			Class C Notes			Subordinated 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(2)	6.25%; May 2028			8.00%; May 2029			9.50%; May 2025			N/A

_______________

(1) Subordinated 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.

(2) Interest rate after a one time step up in basis at the indicated effective date.

See Note 2 in the Company’s Annual Report 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 March 31, 2023, 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 the Company’s consolidated entities have no recourse to the Company.

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 with fair values of $37.8 million and $40.0 million as of March 31, 2023 and December 31, 2022, respectively.

SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

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 final maturity date for each CLO Investments Loan is the earlier of the contractual 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. The timing of principal payments on CLO Investments Loans is contingent on principal payments made to the Company on the investments in CLOs and the CLO Investments Loans may amortize well in advance of their contractual maturity dates.


Initial Borrowing Date	Contractual Rate	Contractual Maturity Date	Carrying Value
			March 31, 2023		December 31, 2022

			(dollars in thousands)
June 7, 2017	LIBOR plus 1.48%	November 16, 2029	$	15,610	$	16,835
August 2, 2017	LIBOR plus 1.41%	January 21, 2030	20,385		21,594




January 19, 2022	EURIBOR plus 1.50%	December 15, 2023	—		2,285
			$	35,995	$	40,714

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 March 31, 2023, €43.2 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, regulator