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The primary sources of market risk are interest rates, foreign currency rates, equity prices and commodity prices.
−Removed: Our business is exposed primarily to the effect of market risk on our fee income and net carried interest allocation, foreign currency risk on non-U.S.
−Removed: investment management business and foreign denominated warehoused investments (if any), interest rate risk on our VFN and other variable rate debt financing warehoused investments (if any), and, equity price risk on marketable equity securities of consolidated funds.
−Removed: Separately, the Operating segment is exposed to interest rate risk on variable rate debt, foreign currency risk on its non-U.S.
−Removed: business and commodity price risk.
−Removed: Market Risk Effect on Fee Income and Net Carried Interest Allocation
−Removed: Management Fees —To the extent management fees are based upon fair value of the underlying investments of our managed investment vehicles, an increase or decrease in fair value will directly affect our management fee income.
−Removed: Generally, our management fee income is calculated based upon investors' committed capital during the commitment period of the vehicle, and thereafter, contributed or invested capital during the investing and liquidating periods.
−Removed: To a lesser extent, management fees are based upon the net asset value of vehicles in our Liquid Strategies, measured at fair value.
−Removed: At September 30, 2023, our Liquid Strategies make up 4% of our $30 billion FEEUM.
−Removed: Accordingly, most of our management fee income will not be directly affected by changes in investment fair values.
+Added: Our business is exposed primarily to the effect of market risk on our fee revenue and net carried interest allocation, foreign currency risk on non-U.S.
+Added: investment management business and foreign denominated warehoused investments (if any), interest rate risk on our VFN and other variable rate debt financing warehoused investments (if any), and, equity price risk on marketable equity securities of consolidated investment vehicles.
+Added: Market Risk Effect on Fee Revenue and Net Carried Interest Allocation
+Added: Management Fees —To the extent management fees are based upon fair value of the underlying investments of our managed investment vehicles, an increase or decrease in fair value will directly affect our management fee revenue.
+Added: Generally, our management fee revenue is calculated based upon investors' committed capital during the commitment period of the vehicle, and thereafter, contributed or invested capital during the investing and liquidating periods, or invested capital from inception for Credit and co-investment vehicles.
+Added: To a lesser extent, management fees are based upon the NAV of vehicles in our Liquid Strategies or GAV for certain InfraBridge vehicles, measured at fair value.
+Added: At March 31, 2024, vehicles with NAV or GAV fee basis make up 5% of our $33 billion FEEUM.
+Added: Accordingly, most of our management fee revenue will not be directly affected by changes in investment fair values.
+Added: Principal Investment Income (Loss) —This is our share of income (loss) from equity interests in our sponsored funds, which in turn is largely driven by fair value changes in the underlying investments of the funds.
+Added: A hypothetical 10% decline in the fair value of fund investments at March 31, 2024 would decrease the OP's share of principal investment income by approximately $107 million.
Incentive Fees and Carried Interest —Incentive fees and carried interest, net of management allocations, are earned based upon the financial performance of a vehicle above a specified return threshold, which is largely driven by appreciation in value of underlying investments.
−Removed: Carried interest is subject to reversal until such time it is distributed, which generally occurs upon disposition of all underlying investments of an investment vehicle, or in part with each disposition.
+Added: 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.
+Added: Carried interest is subject to reversal until such time it is distributed.
The extent of the effect of fair value changes to the amount of incentive fees and carried interest earned will depend upon the cumulative performance of an investment vehicle relative to its return threshold, the performance measurement period used to calculate incentives and carried interest, and the stage of the vehicle's lifecycle.
−Removed: Investment fair values in turn could 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.
−Removed: Therefore, fair value changes are unpredictable and the effect on incentive fee and carried interest varies across different investment vehicles.
+Added: A hypothetical 10% decline in the fair value of fund investments at March 31, 2024 would decrease carried interest by approximately $71 million, representing OP share of carried interest net of allocations to employees, former employees and Wafra.
+Added: In the same scenario, generally no incentive fees would be realized.
Foreign Currency Risk
−Removed: As of September 30, 2023, we have limited direct foreign currency exposure from our foreign operations and foreign currency denominated investments warehoused on the balance sheet for future sponsored vehicles.
+Added: As of March 31, 2024, we have limited direct foreign currency exposure from our foreign operations and foreign currency denominated investments warehoused on the balance sheet for future sponsored vehicles.
Changes in foreign currency rates can adversely affect earnings and the value of our foreign currency denominated investments, including investments in our foreign subsidiaries.
We have exposure to foreign currency risk from the operations of our foreign subsidiaries to the extent these subsidiaries do not transact in U.S.
−Removed: Generally, this is limited to our recently acquired InfraBridge advisor subsidiary which receives fee income predominantly in U.S.
+Added: Generally, this is limited to our recently acquired InfraBridge advisor subsidiary which receives fee revenue predominantly in U.S.
dollars but incur operating costs in Pound Sterling ("GBP").
−Removed: Our foreign currency denominated investments, which are temporarily warehoused on the balance sheet, are held by our U.S.
−Removed: subsidiaries.
−Removed: Our foreign currency exposure is limited to only one AUD equity investment (cost of investment at AUD 35 million).
−Removed: Operating segment —For the substantial majority of subsidiaries in Canada that operate hyperscale data centers, the U.S.
−Removed: dollar is largely used as the transactional currency, in which case, there is generally very limited foreign currency exposure.
+Added: We may have foreign currency denominated investments held by our U.S.
+Added: subsidiaries that are temporarily warehoused on the balance sheet.
+Added: At March 31, 2024, our foreign currency exposure is limited to only one AUD equity investment (cost of investment at AUD 35 million).
+Added: Based upon book value of the investment (which is lower than cost), a hypothetical 100 basis point decline in the AUD/USD rate at March 31, 2024 would have an immaterial effect on earnings.
Interest Rate Risk
Instruments bearing variable interest rates include debt obligations, which are subject to interest rate fluctuations that will affect future cash flows, specifically interest expense.
−Removed: Corporate debt —Our corporate debt exposure to variable interest rates is limited to our VFN revolver, which had no outstanding amount as of September 30, 2023.
−Removed: Investment-level debt —Investment level financing, which totals $2.8 billion, consists predominantly of fixed rate securitized notes issued by the Vantage SDC subsidiary in the Operating segment.
−Removed: Of this amount, only $4.7 million or 0.2% is composed of variable rate debt at September 30, 2023, which is indexed primarily to Term SOFR.
−Removed: Additionally, as the Company's subsidiary in the Operating segment is substantially (87%) owned by third party investors, the resulting increase in interest expense from higher interest rates will be attributed predominantly to noncontrolling interests, with a minimal share of that effect attributed to DBRG.
−Removed: Therefore the effect to DBRG of increases in interest rates on variable rate debt in the Operating segment is not material.
+Added: Our corporate debt exposure to variable interest rates is limited to our VFN revolver, which had no outstanding amount as of March 31, 2024.
Equity Price Risk
−Removed: At September 30, 2023, we had $84 million of long positions and $44 million of short positions in marketable equity securities, held predominantly by our consolidated sponsored liquid funds.
−Removed: Realized and unrealized gains and losses from
−Removed: marketable equity securities are recorded in other gain (loss) on the consolidated statement of operations.
+Added: At March 31, 2024, we had $105 million of long positions and $44 million of short positions in marketable equity securities, held predominantly by our consolidated sponsored liquid funds.
+Added: Realized and unrealized gains and losses from marketable equity securities are recorded in other gain (loss) on the consolidated statement of operations.
Market prices for publicly traded equity securities may fluctuate due to a myriad of factors, including but not limited to, financial performance of the investee, industry conditions, economic and political environment, trade volume, and general sentiments in the equity markets.
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Additionally, one of our funds employs a long/short equity strategy, taking long positions that serve as collateral for short positions, which in combination, reduces its market risk exposure.
−Removed: The effect of equity price decreases to earnings attributable to our shareholders is further reduced as our consolidated liquid funds are substantially owned by third party capital, which represent noncontrolling interests.
−Removed: Commodity Price Risk
−Removed: Operating segment —Certain operating costs in the data center portfolio in the Operating segment are subject to price fluctuations caused by volatility of underlying commodity prices, primarily electricity used in our data center operations.
−Removed: The cost of electricity is closely monitored at all locations and power utility contracts may be entered into to purchase electricity at fixed prices in certain locations in the U.S., with such contracts generally representing less than forecasted usage.
−Removed: The building of new data centers and expansion of existing data centers will also subject the Operating segment to commodity price risk with respect to building materials such as steel and copper.
−Removed: Additionally, the lead time to procure data center equipment is substantial and procurement delays could increase construction cost and delay revenue generation.
+Added: The effect of equity price decreases to earnings attributable to our stockholders is further reduced as our consolidated liquid funds are largely owned by third party capital, which represent noncontrolling interests.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.