Investments

3 Months Ended

Mar. 31, 2023

Equity Method Investments and Joint Ventures [Abstract]

4. Investments

The Company's equity and debt investments are represented by the following:


(In thousands)	March 31, 2023		December 31, 2022
Investment Management
Equity method investments
Principal investments	$	54,626	$	51,665
Carried interest allocation	286,517		341,749
	341,143		393,414
Other equity investment	4,683		1,913
Total Investment Management	345,826		395,327

Operating
Debt investments—loan receivable	6,804		4,638

Corporate and Other
Equity method investments—Principal investments	512,649		358,846
Equity investments of consolidated funds	211,758		185,845
Other equity investments	98,988		113,111
Debt investments
CLO subordinated notes	50,927		50,927
Loan receivable	—		133,307
Total Corporate and Other	874,322		842,036

Total Investments	$	1,226,952	$	1,242,001

Equity Method Investments

Principal Investments

Principal investments totaling $567.3 million at March 31, 2023 and $410.5 million at December 31, 2022 represent investments in the Company's sponsored investment vehicles, accounted for as equity method investments as the Company exerts significant influence in its role as general partner. The Company typically has a small percentage interest in its sponsored funds as general partner (presented in the Investment Management segment). The Company also has additional investment as general partner affiliate alongside the funds' limited partners, primarily with respect to the Company's flagship value-add funds, DigitalBridge Partners, LP ("DBP I") and DigitalBridge Partners II, LP ("DBP II"), and the InfraBridge funds (presented within Corporate and Other).

The Company's proportionate share of net income (loss) from investments in its sponsored investment vehicles, which includes unrealized gain (loss) from changes in fair value of the underlying fund investments, is recorded in principal investment income (loss) on the consolidated statements of operations.

Carried Interest Allocation

Carried interest allocation represents a disproportionate allocation of returns to the Company, as general partner, based upon the extent to which cumulative performance of a sponsored fund exceeds minimum return hurdles. Carried interest allocation generally arises when appreciation in value of the underlying investments of the fund exceeds the minimum return hurdles, after factoring in a return of invested capital and a return of certain costs of the fund pursuant to terms of the governing documents of the fund. The amount of carried interest allocation recognized is based upon the cumulative performance of the fund if it were liquidated as of the reporting date. Unrealized carried interest allocation is driven primarily by changes in fair value of the underlying investments of the fund, which may be affected by various factors, including but not limited to: the financial performance of the portfolio company, economic conditions, foreign exchange rates, comparable transactions in the market, and equity prices for publicly traded securities. For funds that have exceeded the minimum return hurdle but have not returned all capital to the limited partners, unrealized carried interest allocation may be subject to reversal over time as preferred returns continue to accrue on unreturned capital. Realization of carried interest allocation occurs upon disposition of all underlying investments of the fund, or in part with each disposition.

Generally, carried interest allocation is distributed upon profitable disposition of an investment if at the time of distribution, cumulative returns of the fund exceed minimum return hurdles. Depending on the final realized value of all investments at the end of the life of a fund (and, with respect to certain funds, periodically during the life of the fund), if it is determined that cumulative carried interest allocation distributed has exceeded the final carried interest allocation amount earned (or amount earned as of the calculation date), the Company is obligated to return the excess carried interest allocation received. Therefore, carried interest allocation distributed may be subject to clawback if decline in investment values results in cumulative performance of the fund falling below minimum return hurdles in the interim period. If it is determined that the Company has a clawback obligation, a liability would be established based upon a hypothetical liquidation of the net assets of the fund at reporting date. The actual determination and required payment of any clawback obligation would generally occur after final disposition of the investments of the fund or otherwise as set forth in the governing documents of the fund.

Carried interest allocation on the balance sheet date represents unrealized carried interest allocation in connection with sponsored funds that are currently in the early stage of their lifecycle. Carried interest allocation is presented gross of accrued carried interest compensation (Note 7).

Carried Interest Allocation Distributed

There was immaterial carried interest allocation distributed and recognized in revenues in the first quarter of 2023. No carried interest allocation was distributed in the first quarter of 2022.

Clawback Obligation

The Company did not have a liability for clawback obligations on carried interest allocation distributed as of March 31, 2023 and December 31, 2022.

With respect to funds that have distributed carried interest allocation, if in the event all of their investments are deemed to have no value, the likelihood of which is remote, carried interest allocation distributed of $75.6 million would be subject to clawback as of March 31, 2023, of which $58.9 million would be the responsibility of the employee and former employee recipients. For this purpose, a portion of the carried interest allocation is generally held back from these recipients at the time of distribution. The amount withheld resides in entities outside of the Company.

Equity Investments of Consolidated Funds

The Company consolidates sponsored funds in which it has more than an insignificant equity interest in the fund as general partner, as discussed in Note 12. Equity investments of consolidated funds are composed of predominantly marketable equity securities held by funds in the liquid securities strategy, and an equity interest held by a credit fund in a pooling entity that invests in loan assets. Equity investments of consolidated funds are carried at fair value with changes in fair value recorded in other gain (loss) on the consolidated statements of operations.

Other Equity Investments

Other equity investments totaling $103.7 million at March 31, 2023 and $115.0 million at December 31, 2022 include investments warehoused potentially for future sponsored funds, a marketable equity security and investment in a non-traded REIT (Note 11) (presented within Corporate and Other), as well as an investment in a managed account (presented in the Investment Management segment). These investments are generally carried at fair value or under the measurement alternative which is at cost, adjusted for impairment and observable price changes. Dividends or other distributions from these investments are recorded in other income while changes in the value of these investments are recorded in other gain (loss) on the consolidated statements of operations.

Debt Investments

Debt investments are composed of subordinated notes in a third party collateralized loan obligation ("CLO") and loans receivable. Interest income from debt investments are recorded in other income.

CLO Subordinated Notes

In the third quarter of 2022, bank syndicated loans that the Company previously warehoused were transferred into a third party warehouse entity at their acquisition price totaling $232.7 million, and securitized through the issuance of CLO securities. The corresponding warehouse facility of $172.5 million was concurrently repaid. The CLO is sponsored and managed by the third party. The Company acquired all of the subordinated notes of the CLO, which are classified as available-for-sale ("AFS") debt securities. The CLO has a stated legal final maturity of 2035.

The balance of the CLO subordinated notes is summarized as follows:


	Amortized Cost without Allowance for Credit Loss		Allowance for Credit Loss		Gross Cumulative Unrealized
(in thousands)					Gains		Losses		Fair Value
At March 31, 2023 and December 31, 2022	$	50,927	$	—	$	—	$	—	$	50,927

In estimating fair value of the CLO subordinated notes, the Company used a benchmarking approach by looking to the implied credit spreads derived from observed prices on comparable CLO issuances in the first quarter of 2023, and also considering the current size and diversification of the CLO collateral pool and projected return on the subordinated notes. Based upon these data points, the Company determined that the issued price of the subordinated notes in September 2022 was a reasonable representation of their fair value at March 31, 2023 and December 31, 2022, classified as Level 3 of the fair value hierarchy.

Loans Receivable

The Company elected fair value option for its loans receivable, which consisted of two unsecured promissory notes, one in connection with the sale of NRF Holdco (Note 2) and one held by DataBank at March 31, 2023 and December 31, 2022. The DataBank loan receivable was fully repaid in April 2023. Changes in fair value and valuation methodology is discussed further in Note 11.

Investment Commitments

Sponsored Funds—At March 31, 2023, the Company had unfunded commitments to its sponsored funds as general partner and general partner affiliate totaling $126.5 million, including commitments to a consolidated fund. Generally, the timing for funding of these commitments is not known and the commitments are callable on demand at any time prior to their respective expirations.