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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 June 30, 2020
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 July 31, 2020, there were 22,415,766 Class A Shares and 32,820,414 Class B Shares outstanding.
 




SCULPTOR CAPITAL MANAGEMENT, INC.
TABLE OF CONTENTS
 
    Page
PART I — FINANCIAL INFORMATION
 
Item 1.
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5
 
 
6
 
 
7
 
 
9
 
 
11
 
Item 2.
40
 
Item 3.
76
 
Item 4.
78
 
PART II — OTHER INFORMATION  
 
Item 1.
79
 
Item 1A.
79
 
Item 2.
80
 
Item 3.
80
 
Item 4.
80
 
Item 5.
80
 
Item 6.
81
 
82

i


Defined Terms
2007 Offerings
Refers collectively to our IPO and the concurrent private offering of approximately 38.1 million Class A Shares to DIC Sahir Limited, a wholly owned indirect subsidiary of Dubai Holdings LLC
active executive managing 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, 2019, as amended, dated February 25, 2020 and filed with the SEC
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
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
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
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 D Units
Refers collectively to one Class D operating group unit in each of the Sculptor Operating Partnerships. Group D Units are limited partner interests held by our executive managing directors
Group E 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
1


Group P Units
Refers collectively to one Class P operating group unit in each of the Sculptor Operating Partnerships. Group P Units are limited partner interests held by our executive managing directors
Institutional Credit 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 securitizations, collateralized bond obligations, and other customized solutions
IPO
Our initial public offering of 3.6 million Class A Shares that occurred in November 2007
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 represents one “Preferred Unit.” Certain of our executive managing directors collectively own 100% of the Preferred Units. Preferred Units issued in 2016 and 2017 are, collectively, referred to as “2016 Preferred Units.” Preferred Units issued in 2019 are referred to as “2019 Preferred Units.”
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 active and former executive managing directors were reallocated to existing members of senior management. In addition, we restructured the previously outstanding senior debt and Preferred Units
Registrant
Sculptor Capital Management, Inc., a Delaware corporation
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, D, 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
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

2


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, and such information may be deemed material. Accordingly, investors should monitor our website, in addition to our press releases, SEC filings and public conference calls and webcast. The contents of our website are not, however, a part of this report.
Also posted on our website in the “Investor Relations—Corporate Governance” section are charters for our Audit Committee; Compensation Committee; Nominating, Corporate Governance and Conflicts Committee and Corporate Responsibility and Compliance Committee, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics governing our directors, officers and employees. Information on, or accessible through, our website is not a part of, and is not incorporated into, this report or any other SEC filing. Copies of our SEC filings or corporate governance materials are available without charge upon written request to Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Office of the Secretary. Any materials we file with the SEC are also publicly available through the SEC’s website (www.sec.gov).
No statements herein, available on our website or in any of the materials we file with the SEC constitute, or should be viewed as constituting, an offer of any fund.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that reflect our current views with respect to, among other things, future events, our operations and our financial performance. We generally identify forward-looking statements by terminology such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “seek,” “approximately,” “predict,” “intend,” “plan,” “estimate,” “anticipate,” “opportunity,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve,” “see,” “think,” “position” or the negative version of those words or other comparable words.
Any forward-looking statements contained herein are based upon historical information and on our current plans, estimates and expectations. The inclusion of this or other forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.
We caution that forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties, including but not limited to the following: global economic, business, market and geopolitical conditions, including the impact of public health crises, such as the ongoing COVID-19 pandemic; U.S. and foreign regulatory developments relating to, among other things, financial institutions and markets, government oversight, fiscal and tax policy; the outcome of third-party litigation involving us; the consequences of the Foreign Corrupt Practices Act settlements with the SEC and the U.S. Department of Justice (the “DOJ”) and any claims arising therefrom; whether the Company realizes all or any of the anticipated benefits from the Recapitalization and other related transactions; whether the Recapitalization and other related transactions result in any increased or unforeseen costs, indemnification obligations or have an impact on our ability to retain or compete for professional talent or investor capital; conditions impacting the alternative asset management industry; our ability to retain existing investor capital; our ability to successfully compete for fund investors, assets, professional talent and investment opportunities; our ability to retain our active executive managing directors, managing directors and other investment professionals; our successful formulation and execution of our business and growth strategies; our ability to appropriately manage conflicts of interest and tax and other regulatory factors relevant to our business; the anticipated benefits of changing the Registrant’s tax classification from a partnership to a corporation and subsequently converting from a limited liability company to a corporation; and assumptions relating to our operations, investment performance, financial results, financial condition, business prospects, growth strategy and liquidity.
If one or more of these or other risks or uncertainties materialize, or if our assumptions or estimates prove to be incorrect, our actual results may vary materially from those indicated in these statements. These factors are not and should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in our
3




filings with the SEC, including but not limited to our Annual Report and Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
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.
4

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

  June 30, 2020 December 31, 2019
  (dollars in thousands)
Assets    
Cash and cash equivalents $ 127,702    $ 240,938   
Restricted cash 4,538    4,501   
Investments (includes assets measured at fair value of $385,276 and $329,435, including assets sold under agreements to repurchase of $96,505 and $98,085 as of June 30, 2020 and December 31, 2019, respectively)
471,344    411,426   
Income and fees receivable 73,104    215,395   
Due from related parties 20,435    15,355   
Deferred income tax assets 341,283    310,557   
Operating lease assets 110,374    115,810   
Other assets, net 76,523    82,608   
Assets of consolidated funds:  
Other assets of consolidated funds 650    649   
Total Assets $ 1,225,953    $ 1,397,239   
Liabilities and Shareholders’ Equity  
Liabilities    
Compensation payable $ 45,197    $ 187,180   
Unearned incentive income 64,607    60,798   
Due to related parties 194,518    211,915   
Operating lease liabilities 120,990    128,043   
Debt obligations 256,341    286,728   
Securities sold under agreements to repurchase 97,670    97,508   
Other liabilities 169,824    59,217   
Liabilities of consolidated funds:  
Other liabilities of consolidated funds 408    389   
Total Liabilities 949,555    1,031,778   
Commitments and Contingencies (Note 18)
Redeemable Noncontrolling Interests (Note 4) 153,313    150,000   
Shareholders’ Equity    
Class A Shares, par value $0.01 per share, 100,000,000 and 100,000,000 shares authorized, 22,311,432 and 21,284,945 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
223    213   
Class B Shares, par value $0.01 per share, 75,000,000 and 75,000,000 shares authorized, 32,820,414 and 29,208,952 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
328    292   
Additional paid-in capital 142,288    117,936   
Accumulated deficit (406,440)   (343,759)  
Shareholders’ deficit attributable to Class A Shareholders (263,601)   (225,318)  
Shareholders’ equity attributable to noncontrolling interests 386,686    440,779   
Total Shareholders’ Equity 123,085    215,461   
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity $ 1,225,953    $ 1,397,239   
See notes to consolidated financial statements.
5


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED
  Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
  (dollars in thousands)
Revenues        
Management fees $ 60,383    $ 61,400    $ 127,336    $ 125,023   
Incentive income 38,238    34,757    47,560    87,955   
Other revenues 2,424    5,043    5,377    8,812   
Income of consolidated funds 32    2,308    32    4,912   
Total Revenues 101,077    103,508    180,305    226,702   

Expenses        
Compensation and benefits 65,290    80,709    132,709    166,424   
Interest expense 4,674    6,523    10,456    12,731   
General, administrative and other 142,615    28,427    177,321    66,215   
Expenses of consolidated funds 19    84    19    139   
Total Expenses 212,598    115,743    320,505    245,509   

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

Loss Before Income Taxes (82,513)   (3,838)   (145,506)   (9,433)  
Income taxes (17,400)   10,134    (27,368)   13,520   
Consolidated and Comprehensive Net Loss (65,113)   (13,972)   (118,138)   (22,953)  
Less: Net loss attributable to noncontrolling interests 41,860    7,984    67,945    15,218   
Less: Net income attributable to redeemable noncontrolling interests —    (2,637)   —    (8,171)  
Net Loss Attributable to Sculptor Capital Management, Inc. (23,253)   (8,625)   (50,193)   (15,906)  
Change in redemption value of Preferred Units (1,986)   —    (3,313)   44,364   
Net (Loss) Income Attributable to Class A Shareholders $ (25,239)   $ (8,625)   $ (53,506)   $ 28,458   
(Loss) Earnings per Class A Share        
(Loss) Earnings per Class A Share - basic $ (1.12)   $ (0.42)   $ (2.38)   $ 1.38   
(Loss) Earnings per Class A Share - diluted $ (1.77)   $ (0.46)   $ (3.04)   $ 1.10   
Weighted-average Class A Shares outstanding - basic 22,590,084    20,722,510    22,447,399    20,599,616   
Weighted-average Class A Shares outstanding - diluted 38,609,590    36,714,012    38,464,470    25,942,105   

See notes to consolidated financial statements.
6


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

Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
(dollars in thousands)
Number of Class A Shares
Beginning balance
21,946,639    20,484,430    21,284,945    19,905,126   
Equity-based compensation
364,793    147,320    1,026,487    726,624   
Ending Balance
22,311,432    20,631,750    22,311,432    20,631,750   
Number of Class B Shares
Beginning balance
32,845,414    29,208,952    29,208,952    29,458,948   
Equity-based compensation
(25,000)   —    3,611,462    (249,996)  
Ending Balance
32,820,414    29,208,952    32,820,414    29,208,952   
Class A Shares Par Value
Beginning balance
$ 219    $ —    $ 213    $ —   
Equity-based compensation
    10     
Reclassification upon corporate conversion
—    205    —    205   
Ending Balance
$ 223    $ 206    $ 223    $ 206   
Class B Shares Par Value
Beginning balance
$ 328    $ —    $ 292    $ —   
Equity-based compensation
—    —    36    —   
Reclassification upon corporate conversion
—    292    —    292   
Ending Balance
$ 328    $ 292    $ 328    $ 292   
Additional Paid-in Capital
Beginning balance
$ 130,968    $ 3,235,728    $ 117,936    $ 3,135,841   
Dividend equivalents on Class A restricted share units —    (61)   875    478   
Equity-based compensation, net of taxes 13,306    20,618    26,790    40,318   
Reclassification upon corporate conversion —    (3,235,728)   —    (3,235,728)  
Impact of changes in Sculptor Operating Group ownership —    —    —    (124)  
Reallocation of equity and income tax effects of Recapitalization —    —    —    35,408   
Amendment to tax receivable agreement —    50,318    —    50,318   
Change in redemption value of Preferred Units (1,986)   —    (3,313)   44,364   
Ending Balance
$ 142,288    $ 70,875    $ 142,288    $ 70,875   
7


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

Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
(dollars in thousands)
Accumulated Deficit
Beginning balance
$ (383,187)   $ (3,577,250)   $ (343,759)   $ (3,564,727)  
Cash dividends declared on Class A Shares —    (7,621)   (11,613)   (12,324)  
Dividend equivalents on Class A restricted share units —    61    (875)   (478)  
Reclassification upon corporate conversion —    3,235,231    —    3,235,231   
Comprehensive net loss, excluding amounts attributable to redeemable noncontrolling interests (23,253)   (8,625)   (50,193)   (15,906)  
Ending Balance
$ (406,440)   $ (358,204)   $ (406,440)   $ (358,204)  
Shareholders’ Deficit Attributable to Class A Shareholders
$ (263,601)   $ (286,831)   $ (263,601)   $ (286,831)  
Shareholders’ Equity Attributable to Noncontrolling Interests
Beginning balance
$ 425,768    $ 444,837    $ 440,779    $ 419,431   
Capital contributions 2,059    191    3,549    618   
Capital distributions (2,962)   (342)   (3,248)   (627)  
Equity-based compensation, net of taxes 3,681    17,190    13,551    31,608   
Impact of changes in Sculptor Operating Group ownership —    —    —    124   
Reallocation of equity and income tax effects of Recapitalization —    —    —    (39,086)  
Change in redemption value of Preferred Units —    —    —    57,042   
Comprehensive net loss, excluding amounts attributable to redeemable noncontrolling interests (41,860)   (7,984)   (67,945)   (15,218)  
Ending Balance
$ 386,686    $ 453,892    $ 386,686    $ 453,892   
Total Shareholders’ Equity $ 123,085    $ 167,061    $ 123,085    $ 167,061   
Cash dividends paid on Class A Shares $ —    $ 0.37    $ 0.53    $ 0.60   

See notes to consolidated financial statements.
8


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




  Six Months Ended June 30,
  2020 2019
  (dollars in thousands)
Cash Flows from Operating Activities    
Consolidated net loss $ (118,138)   $ (22,953)  
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:    
Amortization of equity-based compensation 42,370    74,318   
Depreciation, amortization and net gains and losses on fixed assets 3,606    4,775   
Net losses on early retirement of debt 693    6,053   
Deferred income taxes (30,726)   10,373   
Non-cash lease expense 10,656    10,618   
Net losses (gains) on investments, net of dividends 6,565    (4,843)  
Operating cash flows due to changes in:    
Income and fees receivable 142,291    31,498   
Due from related parties (5,080)   2,013   
Other assets, net 6,391    779   
Compensation payable (143,037)   (63,288)  
Unearned incentive income 3,810    4,911   
Due to related parties (17,397)   (4,491)  
Operating lease liabilities (11,900)   (7,513)  
Other liabilities 110,572    (19,886)  
Consolidated funds related items:    
Net gains of consolidated funds —    (4,228)  
Purchases of investments —    (99,407)  
Proceeds from sale of investments —    176,284   
Other assets of consolidated funds —    (57,639)  
Other liabilities of consolidated funds 19    5,695   
Net Cash Provided by Operating Activities 695    43,069   
Cash Flows from Investing Activities    
Purchases of fixed assets (984)   (720)  
Purchases of United States government obligations (224,525)   (161,066)  
Maturities and sales of United States government obligations 165,218    175,029   
Investments in funds (11,620)   (59,210)  
Return of investments in funds 4,202    35,756   
Net Cash Used in Investing Activities (67,709)   (10,211)  
9


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

  Six Months Ended June 30,
  2020 2019
  (dollars in thousands)
Cash Flows from Financing Activities    
Contributions from noncontrolling and redeemable noncontrolling interests 3,549    4,263   
Distributions to noncontrolling and redeemable noncontrolling interests (3,248)   (16,462)  
Dividends on Class A Shares (11,613)   (12,324)  
Proceeds from debt obligations, net of issuance costs 2,746    —   
Repayment of debt obligations, including prepayment costs (36,667)   (166,068)  
Proceeds from securities sold under agreements to repurchase, net of issuance costs —    16,328   
Other, net (952)   (2,329)  
Net Cash Used in Financing Activities (46,185)   (176,592)  
Net change in cash and cash equivalents and restricted cash (113,199)   (143,734)  
Cash and cash equivalents and restricted cash, beginning of period 245,439    323,884   
Cash and Cash Equivalents and Restricted Cash, End of Period $ 132,240    $ 180,150   
Supplemental Disclosure of Cash Flow Information    
Cash paid during the period:    
Interest $ 7,099    $ 7,696   
Income taxes $ 4,771    $ 3,373   
Non-cash transactions:    
Increase in paid-in capital as a result of tax receivable agreement amendment $ —    $ 50,318   
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents $ 127,702    $ 174,743   
Restricted cash 4,538    5,407   
Total Cash and Cash Equivalents and Restricted Cash $ 132,240    $ 180,150   

See notes to consolidated financial statements.
10


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


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


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

received on the underlying collateral in the CLOs that would have otherwise been distributed as subordinated management fees to the Company are redirected to pay principal and interest on the more senior obligations of the CLOs. In the second quarter of 2020, driven by the market and economic impacts of the ongoing COVID-19 pandemic and resulting ratings downgrades and defaults on certain of the collateral held by CLOs, the impacted CLOs failed to satisfy one or more overcollateralization tests, and as a result the Company stopped recognizing management fees for these CLOs until the collateral tests are remedied and such fees are paid. In the event the persistent market conditions do not sufficiently recover over the life cycle of these CLOs, the Company’s management fees from our securitization vehicles will continue to deteriorate.
The Company has also evaluated its long-lived assets including operating lease assets and goodwill and has not identified any impairments to these assets as of June 30, 2020.
Company Structure
The Registrant is a holding company that, through Sculptor Corp, holds equity ownership interests in the Sculptor Operating Group. The Registrant had issued and outstanding the following share classes:
Class A Shares—Class A Shares are publicly traded and entitle the holders thereof to one vote per share on matters submitted to a vote of shareholders. The holders of Class A Shares are entitled to any distributions declared on the Class A Shares by the Registrant’s Board of Directors (the “Board”).
Class B Shares—Class B Shares are held by executive managing directors, as further discussed below. These shares are not publicly traded but rather entitle the executive managing directors to one vote per share on matters submitted to a vote of shareholders. These shares do not participate in the earnings of the Registrant, as the executive managing directors participate in the related economics of the Sculptor Operating Group through their direct ownership in the Sculptor Operating Group, subject to the Distribution Holiday discussed below.
The Company conducts its operations through the Sculptor Operating Group. The following is a list of the outstanding units of the Sculptor Operating Partnerships as of June 30, 2020:
Group A Units—Group A Units are limited partner interests issued to certain executive managing directors. Beginning on the final day of the Distribution Holiday (as defined in Note 3), each executive managing director may exchange his or her vested and booked-up (as defined below) Group A Units for an equal number of Class A Shares (or the cash equivalent thereof) over a period of two years in three equal installments commencing upon the final day of the Distribution Holiday and on each of the first and second anniversary thereof (or, for units that become vested and booked-up Group A Units after the final day of the Distribution Holiday, from the later of the date on which they would have been exchangeable in accordance with the foregoing and the date on which they become vested and booked-up Group A Units) (and thereafter such units will remain exchangeable), in each case, subject to certain restrictions. A “book-up” is achieved when sufficient appreciation has occurred to meet a prescribed capital account book-up target under the terms of the Sculptor Operating Partnership limited partnership agreements.
Holders of Group A Units do not receive distributions during the Distribution Holiday. Group A Unit grants are accounted for as equity-based compensation. See Note 14 in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2019, dated February 25, 2020 (“Annual Report”) for additional information. The Company completed a recapitalization in February 2019 (“Recapitalization”). See Note 3 for additional details. In connection with the Recapitalization each Group A Unit outstanding on the Recapitalization date was recapitalized into 0.65 Group A Units and 0.35 Group A-1 Units.
Group A-1 Units—Group A-1 Units are limited partner interests into which 0.35 of each Group A Unit was recapitalized in connection with the reallocation that was effectuated by the Recapitalization. The Group A-1 Units will be canceled at such time and to the extent that the Group E Units granted in connection with the
12


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

Recapitalization vest and achieve a book-up. Group A-1 Units are not eligible to receive distributions at any time and do not participate in the net income (loss) of the Sculptor Operating Group. However, the holders of Group A-1 Units shall participate in any sale, change of control or other liquidity event that takes place prior to cancellation of the Group A-1 Units. In the Recapitalization, the holders of the 2016 Preferred Units (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, forfeiture or minimum retained ownership requirements.
Group E Units—Group E Units are limited partner interests issued to certain executive managing directors that are only entitled to future profits and gains. Each Group E Unit converts into a Group A Unit and becomes exchangeable for one Class A Share (or the cash equivalent thereof) to the extent there has been a sufficient amount of appreciation for a Group E Unit to achieve a book-up target and, subject to other conditions contained in the limited partnership agreements of the Sculptor Operating Partnerships, the Distribution Holiday has ended (or an earlier exchange date is established by the Exchange Committee). The Group E Units are entitled to share in residual assets upon liquidation, dissolution or winding up and become eligible to participate in any tag along right, in a change of control transaction or other liquidity event only to the extent of their relative positive capital accounts (if any). In connection with the Recapitalization, all outstanding Group D Units, which were non-equity profits interests, converted into Group E Units on a one-for-one basis. Holders of Group E Units do not receive distributions during the Distribution Holiday. See Note 3 for additional information. Group E Unit grants are accounted for as equity-based compensation. See Note 14 in the Annual Report for additional information.
Group P Units—Group P Units are limited partner interests issued to certain executive managing directors that are only entitled to future profits and gains. Each Group P Unit becomes exchangeable for one Class A Share (or the cash equivalent thereof), in each case upon satisfaction of certain service and performance conditions at such time and, with respect to exchanges, to the extent there has been sufficient appreciation for a Group P Unit to achieve a book-up target and, subject to other conditions contained in the limited partnership agreements of the Sculptor Operating Partnerships, the Distribution Holiday has ended (or an earlier exchange date is established by the Exchange Committee). The Group P Units are entitled to share in residual assets upon liquidation, dissolution or winding up and become eligible to participate in any tag along right, in a change of control transaction or other liquidity event only to the extent that certain performance conditions are met and to the extent of their relative positive capital accounts (if any). The terms of the Group P Units may be varied for certain executive managing directors. Group P Unit grants are accounted for as equity-based compensation. See Note 14 in the Annual Report for additional information.
Preferred Units— The Preferred Units are non-voting preferred equity interests in the Sculptor Operating Partnerships. Preferred Units issued in 2016 and 2017 are collectively referred to as the “2016 Preferred Units.” The Preferred Units issued in 2019 are referred to as the “2019 Preferred Units.” See Note 10 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) and Group P Units held. Upon the exchange of a Group A Unit or a Group P Unit for a Class A Share, the corresponding Class B Share is canceled and a Group B Unit is issued to Sculptor Corp.
13


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

The following table presents the number of shares and units (excluding Preferred Units) of the Registrant and the Sculptor Operating Partnerships, respectively, that were outstanding as of June 30, 2020:
  As of June 30, 2020
Sculptor Capital Management, Inc.
Class A Shares 22,311,432
Class B Shares 32,820,414
Sculptor Operating Partnerships
Group A Units 16,019,506
Group A-1 Units 9,779,446
Group B Units 22,311,432
Group E Units 13,450,821
Group P Units 3,385,000
In addition, the Company grants Class A restricted share units (“RSUs”) and performance-based RSUs (“PSUs”) to its employees and executive managing directors as a form of compensation. RSU and PSU grants are accounted for as equity-based compensation. See Note 14 in the Annual Report for additional information.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These unaudited, interim, consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”), and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s unaudited, interim, consolidated financial statements have been included and are of a normal and recurring nature. All significant intercompany transactions and balances have been eliminated in consolidation.
The results of operations presented for the interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. For example, incentive income for the majority of the Company’s multi-strategy assets under management is recognized in the fourth quarter each year, based on full year investment performance.
Recently Adopted Accounting Pronouncements
No changes to GAAP that went into effect in the six months ended June 30, 2020, had a material effect on the Company’s consolidated financial statements.
Future Adoption of Accounting Pronouncements
No changes to GAAP that are not yet effective are expected to have a material effect on the Company’s consolidated financial statements.
3. RECAPITALIZATION
On February 7, 2019, the Company completed the Recapitalization, which included a series of transactions that involved the reallocation of certain ownership interests in the Sculptor Operating Partnerships to existing members of senior management, a “Distribution Holiday” on interests held by active and former executive managing directors, an amendment to the tax receivable
14


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

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

Accrued Unrecognized Incentive”) and (ii) 85% of the net cash proceeds from any Asset Sales (as defined in the 2019 Preferred Units Designations), will be used to repay the 2018 Term Loan and redeem the 2019 Preferred Units.
As long as the Cash Sweep is in effect, the Sculptor Operating Group may only use funds from a cumulative discretionary one-time basket of up to $50.0 million in the aggregate, or reserve up to $17.0 million in the aggregate annually (the “Discretionary Basket”), to engage in certain “Restricted Activities” (as defined below) or any other activities related to the strategic expansion of the Sculptor Operating Group, and may not use any other funds of the Sculptor Operating Group to fund such activities, subject to certain exceptions. The Discretionary Basket will not be subject to the Distribution Holiday or the Cash Sweep and, subject to certain exceptions, may only be used to fund new firm investments or new firm products or to fund share buybacks (including RSU cash settlements in excess of permitted amounts) in an aggregate amount not to exceed $25.0 million (the “Restricted Activities”). The Discretionary Basket may not be used to fund employee compensation payments.
4. NONCONTROLLING INTERESTS
Noncontrolling interests represent ownership interests in the Company’s subsidiaries held by parties other than the Company, and primarily relate to the Group A Units held by executive managing directors.
Prior to the Recapitalization, the attribution of net income (loss) of each Sculptor Operating Partnership was based on the relative ownership percentages of the Group A Units (noncontrolling interests) and the Group B Units (indirectly held by the Registrant). In applying the substantive profit-sharing arrangements in the Sculptor Operating Partnerships’ limited partnership agreements to the Company’s consolidated financial statements, for periods subsequent to the Recapitalization and for the duration of the Distribution Holiday, the Company will allocate net income of each Sculptor Operating Partnership in any fiscal year solely to the Group B Units and any net loss on a pro rata basis based on the relative ownership percentages of the Group A Units and Group B Units. To the extent a Sculptor Operating Partnership incurs a net loss in an interim period, any net income recognized in a subsequent interim period in the same fiscal year is allocated on a pro rata basis to the extent of previously allocated net loss. Conversely, to the extent a Sculptor Operating Partnership recognizes net income in an interim period, any net loss incurred in a subsequent interim period in the same fiscal year is allocated solely to the Group B Units to the extent of previously allocated net income.
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

The table below sets forth the calculation of noncontrolling interests related to the Group A Units for each Sculptor Operating Partnership (rounding differences may occur). The blended participation percentages presented below take into account ownership changes throughout the periods presented. In addition, the blended participation percentages in 2019 take into account the difference in methodology described above for the period prior to the Recapitalization Date compared to the period following the Recapitalization Date. For example, Sculptor Capital Advisors LP had net income in the period prior to the Recapitalization Date, and as a result, allocates a portion of its net income for the six months ended June 30, 2019 to the Group A Units.
Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
  (dollars in thousands)
Sculptor Capital LP
Net loss $ (100,963)   $ (18,769)   $ (142,140)   $ (50,818)  
Blended participation percentage 42  % 43  % 42  % 44  %
Net Loss Attributable to Group A Units $ (42,031)   $ (8,148)   $ (59,405)   $ (22,212)  
Sculptor Capital Advisors LP
Net (loss) income $ (9,353)   $ (9,523)   $ (19,291)   $ 7,974   
Blended participation percentage 41  % % 42  % 84  %
Net (Loss) Income Attributable to Group A Units $ (3,869)   $ —    $ (8,062)   $ 6,695   
Sculptor Capital Advisors II LP
Net income $ 25,712    $ 14,550    $ 16,779    $ 16,603   
Blended participation percentage 15  % % % %
Net Income Attributable to Group A Units $ 3,770    $ —    $ —    $ —   
Total Sculptor Operating Group
Net loss $ (84,604)   $ (13,742)   $ (144,652)   $ (26,241)  
Blended participation percentage 50  % 59  % 47  % 59  %
Net Loss Attributable to Group A Units $ (42,130)   $ (8,148)   $ (67,467)   $ (15,517)  

The following table presents the components of the net loss attributable to noncontrolling interests:
Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
(dollars in thousands)
Group A Units $ (42,130)   $ (8,148)   $ (67,467)   $ (15,517)  
Other 270    164    (478)   299   
  $ (41,860)   $ (7,984)   $ (67,945)   $ (15,218)  
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

The following table presents the components of the shareholders’ equity attributable to noncontrolling interests:
  June 30, 2020 December 31, 2019
(dollars in thousands)
Group A Units $ 381,028    $ 434,943   
Other 5,658    5,836   
  $ 386,686    $ 440,779   
The Preferred Units and fund investors’ interests in certain consolidated funds (which were deconsolidated in the third quarter of 2019) are redeemable outside of the Company’s control. These interests are classified within redeemable noncontrolling interests in the consolidated balance sheets. The following tables present the activity in redeemable noncontrolling interests:
Three Months Ended June 30,
2020 2019
Preferred Units Funds Preferred Units Total
(dollars in thousands)
Beginning Balance
$ 151,327    $ 149,290    $ 150,000    $ 299,290   
Change in redemption value of Preferred Units
1,986    —    —    —   
Capital contributions
—    1,938    —    1,938   
Capital distributions —    (56,636)   —    (56,636)  
Comprehensive income —    2,637    —    2,637   
Ending Balance $ 153,313    $ 97,229    $ 150,000    $ 247,229   
Six Months Ended June 30,
2020 2019
Preferred Units Funds Preferred Units Total
(dollars in thousands)
Beginning balance $ 150,000    $ 157,660    $ 420,000    $ 577,660   
Fair value of Debt Securities exchanged for 2016 Preferred Units
—    —    (167,799)   (167,799)  
Fair value of 2019 Preferred Units exchanged for 2016 Preferred Units
—    —    (137,759)   (137,759)  
Issuance of 2019 Preferred Units, net of issuance costs
—    —    136,964    136,964   
Change in redemption value of Preferred Units
3,313    —    (101,406)   (101,406)  
Capital contributions
—    3,645    —    3,645   
Capital distributions —    (72,247)   —    (72,247)  
Comprehensive income —    8,171    —    8,171   
Ending Balance $ 153,313    $ 97,229    $ 150,000    $ 247,229   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

5. INVESTMENTS AND FAIR VALUE DISCLOSURES
The following table presents the components of the Company’s investments as reported in the consolidated balance sheets:
June 30, 2020 December 31, 2019
(dollars in thousands)
United States government obligations, at fair value $ 206,434    $ 146,565   
CLOs, at fair value 178,842    182,870   
Other investments, equity method 86,068    81,991   
Total Investments $ 471,344    $ 411,426   
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). Due to the inherent uncertainty of valuations of investments that are determined to be illiquid or do not have readily ascertainable fair values, the estimates of fair value may differ from the values ultimately realized, and those differences can be material.
GAAP prioritizes the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of assets and liabilities and the specific characteristics of the assets and liabilities. Assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively-quoted prices generally will have a higher degree of market price observability and lesser degree of judgment used in measuring fair value.
Assets and liabilities measured at fair value are classified into one of the following categories:
Level I – Fair value is determined using quoted prices that are available in active markets for identical assets or liabilities. The types of assets and liabilities that would generally be included in this category are certain listed equities, U.S. government obligations and certain listed derivatives.
Level II – Fair value is determined using quotations received from dealers making a market for these assets or liabilities (“broker quotes”), valuations obtained from independent third-party pricing services, the use of models or other valuation methodologies based on pricing inputs that are either directly or indirectly market observable as of the measurement date. The types of assets and liabilities that would generally be included in this category are certain corporate bonds, certain credit default swap contracts, certain bank debt securities, certain commercial real estate debt, less liquid equity securities, forward contracts and certain over the-counter (“OTC”) derivatives.
Level III – Fair value is determined using pricing inputs that are unobservable in the market and includes situations where there is little, if any, market activity for the asset or liability. The fair value of assets and liabilities in this category may require significant judgment or estimation in determining fair value of the assets or liabilities. The fair value of these assets and liabilities may be estimated using a combination of observed transaction prices, independent pricing services, relevant broker quotes, models or other valuation methodologies based on pricing inputs that are neither directly or indirectly market observable. The types of assets and liabilities that would generally be included in this category include CLOs, real estate investments, equity and debt securities issued by private entities, limited partnerships, certain corporate bonds, certain credit default swap contracts, certain bank debt securities, certain commercial real estate debt, certain OTC derivatives, residential and commercial mortgage-backed securities, asset-backed securities, collateralized debt obligations and investments in affiliated credit funds.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of an input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Fair Value Measurements Categorized within the Fair Value Hierarchy
The following table summarizes the Company’s investments measured at fair value on a recurring basis within the fair value hierarchy as of June 30, 2020:
  As of June 30, 2020
  Level I Level II Level III Total
  (dollars in thousands)
Assets, at Fair Value
Included within investments:
United States government obligations $ 206,434    $ —    $ —    $ 206,434   
CLOs(1)
$ —    $ —    $ 178,842    $ 178,842   
_______________
(1) As of June 30, 2020, investments in CLOs had contractual principal amounts of $172.7 million outstanding, which excludes the Company’s investments in subordinated tranches of the notes, as these do not have contractual principal payments.
The following table summarizes the Company’s investments measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2019:
  As of December 31, 2019
  Level I Level II Level III Total
  (dollars in thousands)
Assets, at Fair Value
Included within cash and cash equivalents:
United States government obligations $ 97,034    $ —    $ —    $ 97,034   
Included within investments:
United States government obligations $ 146,565    $ —    $ —    $ 146,565   
CLOs(1)
$ —    $ —    $ 182,870    $ 182,870   
_______________
(1) As of December 31, 2019, investments in CLOs had contractual principal amounts of $170.0 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, excluding those of the consolidated funds are recorded within net gains (losses) on investments in the consolidated statements of comprehensive income (loss), and gains and losses of the consolidated funds are recorded within net gains of consolidated funds. Amortization of premium, accretion of discount and foreign exchange gains and losses on non-U.S. Dollar investments are also included within gains and losses in the tables below.
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020

The following table summarizes the changes in the Company’s Level III assets and liabilities for the three months ended June 30, 2020:
March 31, 2020 Transfers
In
Transfers
Out
Investment
Purchases / Issuances
Investment
Sales / Settlements
Gains / Losses June 30, 2020
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs
$ 155,287    $ —    $ —    $ 1,074    $ (185)   $ 22,666    $ 178,842   
The following table summarizes the changes in the Company’s Level III assets and liabilities for the three months ended June 30, 2019:
March 31, 2019 Transfers
In
Transfers
Out
Investment
Purchases / Issuances
Investment
Sales / Settlements
Gains / Losses June 30, 2019
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs
$ 158,468    $ —    $ —    $ 25,903    $ (4,615)   $ 1,791    $ 181,547   
Investments of consolidated funds:
Bank debt
$ 59,169    $ 10,777    $ (13,974)   $ 16,873    $ (36,635)   $ (80)   $ 36,130   
The following table summarizes the changes in the Company’s Level III assets and liabilities for the six months ended June 30, 2020:
December 31, 2019 Transfers In Transfers Out Investment Purchases / Issuances Investment Sales / Settlements Gains / Losses June 30, 2020
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ 182,870    $ —    $ —    $ 4,407    $ (185)   $ (8,250)   $ 178,842   
The following table summarizes the changes in the Company’s Level III assets and liabilities for the six months ended June 30, 2019:
December 31, 2018 Transfers In Transfers Out Investment Purchases / Issuances Investment Sales / Settlements Gains / Losses June 30, 2019
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ 181,868    $ —    $ —    $ 26,711    $ (27,750)   $ 718    $ 181,547   
Investments of consolidated funds:
Bank debt $ 75,613