Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	167
Consolidated Statements of Financial Condition as of December 31, 2015 and 2014	168
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013	170
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 2013	171
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2015, 2014 and 2013	172
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013	173
Notes to Consolidated Financial Statements	175

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Unitholders of KKR & Co. L.P.:

We have audited the accompanying consolidated statements of financial condition of KKR & Co. L.P. and subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule listed in Item 15. We also have audited the Company's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of KKR & Co. L.P. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Deloitte & Touche LLP

New York, New York

February 26, 2016

KKR & CO. L.P.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in Thousands, Except Unit Data)

	December 31, 2015				December 31, 2014
Assets
Cash and Cash Equivalents	$	1,047,740			$	918,080
Cash and Cash Equivalents Held at Consolidated Entities	1,472,120				1,372,775
Restricted Cash and Cash Equivalents	267,628				102,991
Investments	65,305,931				60,167,626
Due from Affiliates	139,783				147,056
Other Assets	2,824,557				3,164,217
Total Assets	$	71,057,759			$	65,872,745
Liabilities and Equity
Debt Obligations	$	18,730,017			$	10,837,784
Due to Affiliates	144,807				131,548
Accounts Payable, Accrued Expenses and Other Liabilities	2,715,350				3,199,352
Total Liabilities	21,590,174				14,168,684
Commitments and Contingencies
Redeemable Noncontrolling Interests	188,629				300,098
Equity
KKR & Co. L.P. Partners’ Capital (457,834,875 and 433,330,540 common units issued and outstanding as of December 31, 2015 and 2014, respectively)	5,575,981				5,403,095
Accumulated Other Comprehensive Income (Loss)	(28,799		)		(20,404		)
Total KKR & Co. L.P. Partners’ Capital	5,547,182				5,382,691
Noncontrolling Interests	43,731,774				46,004,377
Appropriated Capital	—				16,895
Total Equity	49,278,956				51,403,963
Total Liabilities and Equity	$	71,057,759			$	65,872,745

See notes to consolidated financial statements.

KKR & CO. L.P.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)

(Amounts in Thousands)

The following presents the portion of the balances presented in the consolidated statements of financial condition attributable to consolidated variable interest entities (“VIEs”) as of December 31, 2015 and 2014. The assets of consolidated collateralized financing entities (“CFEs”) holding collateralized loan obligations ("CLOs") and commercial real estate mortgage-backed securities ("CMBS”), which comprise the majority of KKR’s consolidated VIEs, are held solely as collateral to satisfy the obligations of the CFEs. KKR has no right to the benefits from, nor does KKR bear the risks associated with, the assets held by these CFEs beyond KKR’s beneficial interest therein and any fees generated from the CFEs. The assets in each CFE can be used only to settle the debt of the related CFE. The noteholders and other creditors of the CFEs have no recourse to KKR’s general assets. There are neither explicit arrangements nor does KKR hold implicit variable interests that would require KKR to provide any ongoing financial support to the CFEs.

	December 31, 2015				December 31, 2014
Assets
Cash and Cash Equivalents Held at Consolidated Entities	$	975,433			$	1,046,018
Investments	12,735,309				8,559,967
Other Assets	133,953				129,949
Total Assets	$	13,844,695			$	9,735,934
Liabilities
Debt Obligations	$	12,365,222			$	7,615,340
Accounts Payable, Accrued Expenses and Other Liabilities	546,129				638,953
Total Liabilities	$	12,911,351			$	8,254,293

See notes to consolidated financial statements.

KKR & CO. L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands, Except Unit Data)

	For the Years Ended December 31,
	2015				2014				2013
Revenues
Fees and Other	$	1,043,768			$	1,110,008			$	762,546
Expenses
Compensation and Benefits	1,180,591				1,263,852				1,266,592
Occupancy and Related Charges	65,683				62,564				61,720
General, Administrative and Other	624,951				869,651				438,826
Total Expenses	1,871,225				2,196,067				1,767,138
Investment Income (Loss)
Net Gains (Losses) from Investment Activities	4,672,627				4,778,232				7,826,082
Dividend Income	850,527				1,174,501				695,521
Interest Income	1,219,197				909,207				474,759
Interest Expense	(573,226		)		(317,192		)		(99,616		)
Total Investment Income (Loss)	6,169,125				6,544,748				8,896,746
Income (Loss) Before Taxes	5,341,668				5,458,689				7,892,154
Income Tax / (Benefit)	66,636				63,669				37,926
Net Income (Loss)	5,275,032				5,395,020				7,854,228
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests	(4,512		)		(3,341		)		62,255
Net Income (Loss) Attributable to Noncontrolling Interests and Appropriated Capital	4,791,062				4,920,750				7,100,747
Net Income (Loss) Attributable to KKR & Co. L.P.	$	488,482			$	477,611			$	691,226
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic	$	1.09			$	1.25			$	2.51
Diluted	$	1.01			$	1.16			$	2.30
Weighted Average Common Units Outstanding
Basic	448,884,185				381,092,394				274,910,628
Diluted	482,699,194				412,049,275				300,254,090

See notes to consolidated financial statements.

KKR & CO. L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in Thousands)

	For the Years Ended December 31,
	2015				2014				2013
Net Income (Loss)	$	5,275,032			$	5,395,020			$	7,854,228
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation Gain (Loss)	(27,176		)		(37,119		)		(4,642		)
Comprehensive Income (Loss)	5,247,856				5,357,901				7,849,586
Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interests	(4,512		)		(3,341		)		62,255
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests and Appropriated Capital	4,771,152				4,897,831				7,096,898
Comprehensive Income (Loss) Attributable to KKR & Co. L.P.	$	481,216			$	463,411			$	690,433

See notes to consolidated financial statements.

KKR & CO. L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in Thousands, Except Unit Data)

	KKR & Co. L.P.
	Common Units			Partners’ Capital				Accumulated Other Comprehensive Income (Loss)				Noncontrolling Interests				Appropriated Capital				Total Equity				Redeemable Noncontrolling Interests
Balance at January 1, 2013	253,363,691			$	2,008,965			$	(4,606	)		$	38,938,531			$	—			$	40,942,890			$	462,564
Net Income (Loss)				691,226								7,100,747								7,791,973				62,255
Other Comprehensive Income (Loss)-Foreign Currency Translation (Net of Tax)								(793		)		(3,849		)						(4,642		)
Contributions of Net Assets of previously Unconsolidated Entities												294,767								294,767
Exchange of KKR Holdings L.P. Units and Other Exchangeable Securities to KKR & Co. L.P. Common Units	28,184,258			333,804				(776		)		(333,028		)						—
Tax Effects Resulting from Exchange of KKR Holdings L.P. Units and delivery of KKR & Co. L.P. Common Units				18,924				276												19,200
Net Delivery of Common Units-Equity Incentive Plan	6,595,378			(8,136		)														(8,136		)
Equity Based Compensation				114,709								192,805								307,514
Capital Contributions												7,475,577								7,475,577				176,503
Capital Distributions				(431,583		)						(10,430,549		)						(10,862,132		)		(73,515		)
Balance at December 31, 2013	288,143,327			$	2,727,909			$	(5,899	)		$	43,235,001			$	—			$	45,957,011			$	627,807

Net Income (Loss)				477,611								4,929,337				(8,587		)		5,398,361				(3,341		)
Other Comprehensive Income (Loss)-Foreign Currency Translation (Net of Tax)								(14,200		)		(20,725		)		(2,194		)		(37,119		)
Exchange of KKR Holdings L.P. Units and Other Exchangeable Securities to KKR & Co. L.P. Common Units and transfers of CLO beneficial interests to appropriated capital	27,228,991			332,479				(833		)		(359,322		)		27,676				—
Tax Effects Resulting from Exchange of KKR Holdings L.P. Units and delivery of KKR & Co. L.P. Common Units				46,311				528												46,839
Net Delivery of Common Units-Equity Incentive Plan	9,952,634			(8,757		)														(8,757		)
Equity Based Compensation				158,927								151,476								310,403
Acquisitions	108,005,588			2,453,610								435,478								2,889,088
Capital Contributions												11,236,018								11,236,018				148,355
Capital Distributions				(784,995		)						(13,602,886		)						(14,387,881		)		(472,723		)
Balance at December 31, 2014	433,330,540			$	5,403,095			$	(20,404	)		$	46,004,377			$	16,895			$	51,403,963			$	300,098

Net Income (Loss)				488,482								4,791,062								5,279,544				(4,512		)
Other Comprehensive Income (Loss)- Foreign Currency Translation (Net of Tax)								(7,266		)		(19,910		)						(27,176		)
Cumulative-effect adjustment from adoption of accounting guidance				(307		)										(16,895		)		(17,202		)
Exchange of KKR Holdings L.P. Units and Other Securities to KKR & Co. L.P. Common Units	16,095,538			207,114				(1,483		)		(205,631		)						—
Tax Effects Resulting from Exchange of KKR Holdings L.P. Units and delivery of KKR & Co. L.P. Common Units				18,244				354												18,598
Net Delivery of Common Units-Equity Incentive Plan	10,964,144			15,245																15,245
Equity Based Compensation				186,346								75,233								261,579
Common Units Issued in Connection with the Purchase of an Investment	7,364,545			126,302																126,302
Unit Repurchases	(9,919,892	)		(161,929		)														(161,929		)
Capital Contributions				0								6,274,296								6,274,296				193,269
Capital Distributions				(706,611		)						(13,187,653		)						(13,894,264		)		(300,226		)
Balance at December 31, 2015	457,834,875			$	5,575,981			$	(28,799	)		$	43,731,774			$	—			$	49,278,956			$	188,629

See notes to consolidated financial statements.

KKR & CO. L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

	For the Years Ended December 31,
	2015				2014				2013
Operating Activities
Net Income (Loss)	$	5,275,032			$	5,395,020			$	7,854,228
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities:
Equity Based Compensation	261,579				310,403				307,514
Net Realized (Gains) Losses on Investments	(3,001,884		)		(5,433,586		)		(3,909,432		)
Change in Unrealized (Gains) Losses on Investments	(1,670,743		)		655,354				(3,916,650		)
Other Non-Cash Amounts	(78,522		)		73,061				(95,961		)
Cash Flows Due to Changes in Operating Assets and Liabilities:
Change in Cash and Cash Equivalents Held at Consolidated Entities	(160,092		)		(166,275		)		166,552
Change in Due from / to Affiliates	15,264				(3,368		)		(25,314		)
Change in Other Assets	605,305				(150,131		)		248,330
Change in Accounts Payable, Accrued Expenses and Other Liabilities	(187,661		)		(156,176		)		578,724
Investments Purchased	(27,936,898		)		(37,935,909		)		(31,844,648		)
Proceeds from Sale of Investments and Principal Payments	27,264,024				38,900,257				33,214,410
Net Cash Provided (Used) by Operating Activities	385,404				1,488,650				2,577,753
Investing Activities
Change in Restricted Cash and Cash Equivalents	(164,637		)		(10,849		)		29,852
Purchases of Fixed Assets	(169,419		)		(12,163		)		(14,396		)
Development of Oil and Natural Gas Properties	(95,959		)		(233,777		)		—
Proceeds from Sale of Oil and Natural Gas Properties	4,863				82,423				—
Net Cash Acquired	—				151,491				—
Net Cash Provided (Used) by Investing Activities	(425,152		)		(22,875		)		15,456
Financing Activities
Distributions to Partners	(706,611		)		(784,995		)		(431,583		)
Distributions to Redeemable Noncontrolling Interests	(300,226		)		(472,723		)		(73,515		)
Contributions from Redeemable Noncontrolling Interests	193,269				148,355				176,503
Distributions to Noncontrolling Interests	(13,187,653		)		(13,602,886		)		(10,430,549		)
Contributions from Noncontrolling Interests	6,274,296				11,196,066				7,475,577
Net Delivery of Common Units - Equity Incentive Plan	15,245				(8,757		)		(8,136		)
Unit Repurchases	(161,929		)		—				—
Proceeds from Debt Obligations	14,014,510				5,433,135				1,374,343
Repayment of Debt Obligations	(5,926,162		)		(3,728,195		)		(594,970		)
Financing Costs Paid	(45,331		)		(34,078		)		(4,960		)
Net Cash Provided (Used) by Financing Activities	169,408				(1,854,078		)		(2,517,290		)
Net Increase/(Decrease) in Cash and Cash Equivalents	129,660				(388,303		)		75,919
Cash and Cash Equivalents, Beginning of Period	918,080				1,306,383				1,230,464
Cash and Cash Equivalents, End of Period	$	1,047,740			$	918,080			$	1,306,383

See notes to consolidated financial statements.

KKR & CO. L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in Thousands)

	For the Years Ended December 31,
	2015				2014				2013
Supplemental Disclosures of Cash Flow Information
Payments for Interest	$	485,739			$	195,055			$	74,835
Payments for Income Taxes	$	40,468			$	47,138			$	81,419
Supplemental Disclosures of Non-Cash Investing and Financing Activities
Non-Cash Contributions of Equity Based Compensation	$	261,579			$	310,403			$	307,514
Cumulative effect adjustment from adoption of accounting guidance	$	(17,202	)		$	—			$	—
Debt Obligations - Net Gains (Losses), Translation and Other	$	226,577			$	328,464			$	(5,435	)
Tax Effects Resulting from Exchange of KKR Holdings L.P. Units and delivery of KKR & Co. L.P. Common Units	$	18,598			$	46,839			$	19,200
Non-Cash Contributions from Noncontrolling Interests	$	—			$	39,952			$	—
Impairments of Oil and Natural Gas Properties	$	53,926			$	220,063			$	—
Gains on Sales of Oil and Natural Gas Properties	$	—			$	16,924			$	—
Net Assets Acquired
Cash and Cash Equivalents Held at Consolidated Entities	$	—			$	765,231			$	—
Restricted Cash and Cash Equivalents	$	—			$	35,038			$	—
Investments	$	—			$	9,225,660			$	—
Other Assets	$	—			$	885,314			$	—
Debt Obligations	$	—			$	7,538,726			$	—
Accounts Payable, Accrued Expenses and Other Liabilities	$	—			$	616,979			$	—
Contribution of Net Assets of Previously Unconsolidated Entities
Investments	$	—			$	—			$	294,767

See notes to consolidated financial statements.

KKR & CO. L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All Amounts in Thousands, Except Unit, Per Unit Data, and Except Where Noted)

1. ORGANIZATION

KKR & Co. L.P. (NYSE: KKR), together with its consolidated subsidiaries (“KKR”), is a leading global investment firm that manages investments across multiple asset classes including private equity, energy, infrastructure, real estate, credit and hedge funds. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world class people, and driving growth and value creation at the asset level. KKR invests its own capital alongside the capital it manages for fund investors and brings debt and equity investment opportunities to others through its capital markets business.

KKR & Co. L.P. was formed as a Delaware limited partnership on June 25, 2007 and its general partner is KKR Management LLC (the “Managing Partner”). KKR & Co. L.P. is the parent company of KKR Group Limited, which is the non-economic general partner of KKR Group Holdings L.P. (“Group Holdings”), and KKR & Co. L.P. is the sole limited partner of Group Holdings. Group Holdings holds a controlling economic interest in each of (i) KKR Management Holdings L.P. (“Management Holdings”) through KKR Management Holdings Corp., a Delaware corporation which is a domestic corporation for U.S. federal income tax purposes, (ii) KKR Fund Holdings L.P. (“Fund Holdings”) directly and through KKR Fund Holdings GP Limited, a Cayman Island limited company which is a disregarded entity for U.S. federal income tax purposes, and (iii) KKR International Holdings L.P. (“International Holdings”, and together with Management Holdings and Fund Holdings, the “KKR Group Partnerships”) directly and through KKR Fund Holdings GP Limited. Group Holdings also owns certain economic interests in Management Holdings through a wholly owned Delaware corporate subsidiary of KKR Management Holdings Corp. and certain economic interests in Fund Holdings through a Delaware partnership of which Group Holdings is the general partner with a 99% economic interest and KKR Management Holdings Corp. is a limited partner with a 1% economic interest. KKR & Co. L.P., through its indirect controlling economic interests in the KKR Group Partnerships, is the holding partnership for the KKR business.

KKR & Co. L.P. both indirectly controls the KKR Group Partnerships and indirectly holds Class A partner units in each KKR Group Partnership (collectively, “KKR Group Partnership Units”) representing economic interests in KKR’s business. The remaining KKR Group Partnership Units are held by KKR Holdings L.P. (“KKR Holdings”), which is not a subsidiary of KKR. As of December 31, 2015, KKR & Co. L.P. held approximately 56% of the KKR Group Partnership Units and principals through KKR Holdings held approximately 44% of the KKR Group Partnership Units. The percentage ownership in the KKR Group Partnerships will continue to change as KKR Holdings and/or principals exchange units in the KKR Group Partnerships for KKR & Co. L.P. common units or when KKR & Co. L.P. otherwise issues or repurchases KKR & Co. L.P. common units.

For acquisitions KKR made during the year ended December 31, 2014, see Note 14 “Acquisitions”.

The following table presents the effect of changes in the ownership interest in the KKR Group Partnerships on KKR:

	For the Years Ended December 31,
	2015				2014				2013
Net income (loss) attributable to KKR & Co. L.P.	$	488,482			$	477,611			$	691,226
Transfers from noncontrolling interests:
Exchange of KKR Group Partnership units held by KKR Holdings L.P.(a)	212,043				380,916				341,410
Change from net income (loss) attributable to KKR & Co. L.P. and transfers from noncontrolling interests held by KKR Holdings	$	700,525			$	858,527			$	1,032,636

(a)	Increase in KKR’s partners’ capital for exchange of 15,850,161, 27,172,269 and 28,184,258 for the years ended December 31, 2015, 2014, and 2013, respectively, KKR Group Partnerships units held by KKR Holdings L.P., inclusive of deferred taxes.

Notes to Consolidated Financial Statements (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements (referred to hereafter as the “financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

KKR & Co. L.P. consolidates the financial results of the KKR Group Partnerships and their consolidated subsidiaries, which include the accounts of KKR’s investment management and capital markets companies, the general partners of certain unconsolidated funds and vehicles, general partners of consolidated funds and their respective consolidated funds and certain other entities including CFEs. References in the accompanying financial statements to “principals” are to KKR’s senior employees and non‑employee operating consultants who hold interests in KKR’s business through KKR Holdings, and references to “Senior Principals” are to KKR’s senior employees who hold interests in the Managing Partner entitling them to vote for the election of the Managing Partner’s directors.

All intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of fees, expenses and investment income (loss) during the reporting periods. Such estimates include but are not limited to the valuation of investments and financial instruments. Actual results could differ from those estimates, and such differences could be material to the financial statements.

Principles of Consolidation

The types of entities KKR assesses for consolidation include (i) subsidiaries, including management companies, broker-dealers and general partners of investment funds that KKR manages, (ii) entities that have all the attributes of an investment company, like investment funds, (iii) CFEs and (iv) other entities, including entities that employ non-employee operating consultants. Each of these entities is assessed for consolidation on a case by case basis depending on the specific facts and circumstances surrounding that entity.

Pursuant to its consolidation policy, KKR first considers whether an entity is considered a VIE and therefore whether to apply the consolidation guidance under the VIE model. Entities that do not qualify as VIEs are generally assessed for consolidation as voting interest entities (“VOEs”) under the voting interest model.

The consolidation rules were revised effective January 1, 2010 which had the effect of changing the criteria for determining whether a reporting entity is the primary beneficiary of a VIE. However, the adoption of these new consolidation rules was indefinitely deferred (the “Deferral”) for a reporting entity’s interests in certain entities. In particular, entities that have all the attributes of an investment company such as investment funds generally meet the conditions necessary for the Deferral. Entities that are securitization or asset-backed financing entities such as CFEs would generally not qualify for the Deferral. Accordingly, when making the assessment of whether an entity is a VIE, KKR considers whether the entity being assessed meets the conditions for the Deferral and therefore would be subject to the rules that existed prior to January 1, 2010. Under both sets of rules, VIEs for which KKR is determined to be the primary beneficiary are consolidated and such VIEs generally include certain CFEs and entities that employ non-employee operating consultants.

An entity in which KKR holds a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of equity investment at risk (as a group) lack either the direct or indirect ability through voting rights or similar rights to make decisions about a legal entity’s activities that have a significant effect on the success of the legal entity or the obligation to absorb the expected losses or right to receive the expected residual returns, or (c) the voting rights of some investors are disproportionate to their obligation to absorb the expected losses of the legal entity, their rights to receive the expected residual returns of the legal entity, or both and substantially all of the legal entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.

With respect to VIEs such as KKR’s investment funds that qualify for the Deferral and therefore apply the previous consolidation rules, KKR is determined to be the primary beneficiary if its involvement, through holding interests directly or indirectly in the VIE or contractually through other variable interests (e.g., carried interest), would be expected to absorb a

Notes to Consolidated Financial Statements (Continued)

majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. In cases where two or more KKR related parties hold a variable interest in a VIE, and the aggregate variable interest held by those parties would, if held by a single party, identify that party as the primary beneficiary, then KKR is determined to be the primary beneficiary to the extent it is the party within the related party group that is most closely associated with the VIE.

Under the voting interest model, KKR consolidates those entities it controls through a majority voting interest or through other means, including those VOEs in which the general partner is presumed to have control. KKR does not consolidate those VOEs in which the presumption of control by the general partner has been overcome through either the granting of substantive rights to the unaffiliated fund investors to either dissolve the fund or remove the general partner (“kick-out rights”) or the granting of substantive participating rights.

The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE depends on the facts and circumstances surrounding each entity and therefore certain of KKR’s investment funds may qualify as VIEs whereas others may qualify as VOEs.

With respect to KKR’s consolidated funds that are not CFEs, KKR meets the criteria for the Deferral and therefore applies the consolidation rules that existed prior to January 1, 2010. For these funds, KKR generally has operational discretion and control, and fund investors have no substantive rights to impact ongoing governance and operating activities of the fund, including the ability to remove the general partner, also known as kick-out rights. As a result, a fund should be consolidated unless KKR has a nominal level of equity at risk. To the extent that KKR commits a nominal amount of equity to a given fund and has no obligation to fund any future losses, the equity at risk to KKR is not considered substantive and the fund is typically considered a VIE. In these cases, the fund investors are generally deemed to be the primary beneficiaries, and KKR does not consolidate the fund. In cases when KKR’s equity at risk is deemed to be substantive, the fund is generally considered to be a VOE and KKR generally consolidates the fund under the VOE model.

With respect to CFEs, which are generally VIEs, the criteria for the Deferral are not met and therefore KKR applies the consolidation rules issued on January 1, 2010.

With respect to CLOs, in its role as collateral manager, KKR generally has the power to direct the activities of the CLO entities that most significantly impact the economic performance of the entity. In some, but not all cases, KKR, through both its residual interest in the CLO and the potential to earn an incentive fee, may have variable interests that represent an obligation to absorb losses of, or a right to receive benefits from, the CLO that could potentially be significant to the CLO. In cases where KKR has both (a) the power to direct the activities of the CLO that most significantly impact the CLOs economic performance and (b) the obligation to absorb losses of the CLO or the right to receive benefits from the CLO that could potentially be significant to the CLO, KKR consolidates the CLO.

With respect to consolidated CMBS vehicles, KKR holds unrated and non-investment grade rated securities issued by the CMBS, which are the most subordinate tranche of the CMBS vehicle. The economic performance of the CMBS is most significantly impacted by the performance of the underlying assets. Thus, the activities that most significantly impact the CMBS economic performance are the activities that most significantly impact the performance of the underlying assets. The special servicer has the ability to manage the CMBS assets that are delinquent or in default to improve the economic performance of the CMBS. KKR generally has the right to unilaterally appoint and remove the special servicer for the CMBS and as such is considered the controlling class of the CMBS vehicle. These rights give KKR the ability to direct the activities that could most significantly impact the economic performance of the CMBS. Additionally, as the holder of the most subordinate tranche, KKR is in a first loss position and has the right to receive benefits, including the actual residual returns of the CMBS, if any. In these cases, KKR is deemed to be the primary beneficiary and consolidates the CMBS.

Certain of KKR’s funds and CFEs are consolidated by KKR notwithstanding the fact that KKR has only a minority economic interest in those funds and CFEs. KKR’s financial statements reflect the assets, liabilities, fees, expenses, investment income (loss) and cash flows of the consolidated KKR funds and CFEs on a gross basis. With respect to KKR's consolidated funds, the majority of the economic interests in those funds, which are held by fund investors or other third parties, are attributed to noncontrolling interests in the accompanying financial statements. All of the management fees and certain other amounts earned by KKR from those funds are eliminated in consolidation. However, because the eliminated amounts are earned from and funded by noncontrolling interests, KKR’s attributable share of the net income (loss) from those funds is increased by the amounts eliminated. Accordingly, the elimination in consolidation of such amounts has no effect on net income (loss) attributable to KKR or KKR partners’ capital. With respect to consolidated CFEs, interests held by third party investors are recorded in debt obligations.

Notes to Consolidated Financial Statements (Continued)

KKR’s funds are, for GAAP purposes, investment companies and therefore are not required to consolidate their investments in portfolio companies even if majority-owned and controlled. Rather, the consolidated funds and vehicles reflect their investments at fair value as described below in “Fair Value Measurements”.

Business Combinations

Acquisitions are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets acquired and liabilities assumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred.

Intangible Assets

Intangible assets consist primarily of contractual rights to earn future fee income, including management and incentive fees, and are recorded in Other Assets in the accompanying consolidated statements of financial condition. Identifiable finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and amortization expense is included within General, Administrative and Other in the accompanying consolidated statements of operations. Intangible assets are reviewed for impairment when circumstances indicate impairment may exist. KKR does not have any indefinite-lived intangible assets.

Goodwill

Goodwill represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with an acquisition. Goodwill is assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred. Goodwill is recorded in Other Assets in the accompanying consolidated statements of financial condition.

Redeemable Noncontrolling Interests

Redeemable Noncontrolling Interests represent noncontrolling interests of certain investment vehicles and funds that are subject to periodic redemption by fund investors following the expiration of a specified period of time (typically between one and three years), or may be withdrawn subject to a redemption fee during the period when capital may not be otherwise withdrawn. Fund investors interests subject to redemption as described above are presented as Redeemable Noncontrolling Interests in the accompanying consolidated statements of financial condition and presented as Net Income (Loss) Attributable to Redeemable Noncontrolling Interests in the accompanying consolidated statements of operations.

When redeemable amounts become legally payable to fund investors, they are classified as a liability and included in Accounts Payable, Accrued Expenses and Other Liabilities in the accompanying consolidated statements of financial condition. For all consolidated investment vehicles and funds in which redemption rights have not been granted, noncontrolling interests are presented within Equity in the accompanying consolidated statements of financial condition as noncontrolling interests.

Noncontrolling Interests

Noncontrolling interests represent (i) noncontrolling interests in consolidated entities and (ii) noncontrolling interests held by KKR Holdings.

Noncontrolling Interests in Consolidated Entities

Noncontrolling interests in consolidated entities represent the non-redeemable ownership interests in KKR that are held primarily by:

(i)	third party fund investors in KKR’s funds;

(ii)	third parties entitled to up to 1% of the carried interest received by certain general partners of KKR’s funds and 1% of KKR’s other profits (losses) through and including December 31, 2015;

(iii)	certain former principals and their designees representing a portion of the carried interest received by the general partners of KKR’s private equity funds that was allocated to them with respect to private equity investments made during such former principals’ tenure with KKR prior to October 1, 2009;

Notes to Consolidated Financial Statements (Continued)

(iv)	certain principals and former principals representing all of the capital invested by or on behalf of the general partners of KKR’s private equity funds prior to October 1, 2009 and any returns thereon;

(v)	third parties in KKR’s capital markets business;

(vi)	holders of exchangeable equity securities representing ownership interests in a subsidiary of a KKR Group Partnership issued in connection with the acquisition of Avoca; and

(vii)	holders of the 7.375% Series A LLC Preferred Shares of KFN whose rights are limited to the assets of KFN.

Noncontrolling Interests held by KKR Holdings

Noncontrolling interests held by KKR Holdings include economic interests held by principals in the KKR Group Partnerships. Such principals receive financial benefits from KKR’s business in the form of distributions received from KKR Holdings and through their direct and indirect participation in the value of KKR Group Partnership Units held by KKR Holdings. These financial benefits are not paid by KKR and are borne by KKR Holdings.

The following table presents the calculation of noncontrolling interests held by KKR Holdings:

	For the Years Ended December 31,
	2015				2014				2013
Balance at the beginning of the period	$	4,661,679			$	5,116,761			$	4,981,864
Net income (loss) attributable to noncontrolling interests held by KKR Holdings (a)	433,693				585,135				1,056,126
Other comprehensive income (loss), net of tax (b)	(14,030		)		(15,202		)		(3,114		)
Impact of the exchange of KKR Holdings units to KKR & Co. L.P. common units (c)	(203,127		)		(357,551		)		(333,028		)
Equity based compensation	59,114				129,012				192,805
Capital contributions	25,573				30,402				31,553
Capital distributions	(615,749		)		(826,878		)		(809,445		)
Balance at the end of the period	$	4,347,153			$	4,661,679			$	5,116,761

(a)	Refer to the table below for calculation of Net income (loss) attributable to noncontrolling interests held by KKR Holdings.

(b)	Calculated on a pro rata basis based on the weighted average KKR Group Partnership Units held by KKR Holdings during the reporting period.

(c)	Calculated based on the proportion of KKR Holdings units exchanged for KKR & Co. L.P. common units pursuant to the exchange agreement during the reporting period. The exchange agreement provides for the exchange of KKR Group Partnership Units held by KKR Holdings for KKR & Co. L.P. common units.

Net income (loss) attributable to KKR & Co. L.P. after allocation to noncontrolling interests held by KKR Holdings, with the exception of certain tax assets and liabilities that are directly allocable to KKR Management Holdings Corp., is attributed based on the percentage of the weighted average KKR Group Partnership Units held by KKR and KKR Holdings, each of which hold equity of the KKR Group Partnerships. However, primarily because of the (i) contribution of certain expenses borne entirely by KKR Holdings, (ii) the periodic exchange of KKR Holdings units for KKR & Co. L.P. common units pursuant to the exchange agreement and (iii) the contribution of certain expenses borne entirely by KKR associated with the KKR & Co. L.P. 2010 Equity Incentive Plan (“Equity Incentive Plan”), equity allocations shown in the consolidated statement of changes in equity differ from their respective pro-rata ownership interests in KKR’s net assets.

Notes to Consolidated Financial Statements (Continued)

The following table presents net income (loss) attributable to noncontrolling interests held by KKR Holdings:

	For the Years Ended December 31,
	2015				2014				2013
Net income (loss)	$	5,275,032			$	5,395,020			$	7,854,228
Less: Net income (loss) attributable to Redeemable Noncontrolling Interests	(4,512		)		(3,341		)		62,255
Less: Net income (loss) attributable to Noncontrolling Interests in consolidated entities and appropriated capital	4,357,369				4,335,615				6,044,621
Plus: Income tax / (benefit) attributable to KKR Management Holdings Corp.	21,241				28,806				15,387
Net income (loss) attributable to KKR & Co. L.P. and KKR Holdings	$	943,416			$	1,091,552			$	1,762,739
Net income (loss) attributable to noncontrolling interests held by KKR Holdings	$	433,693			$	585,135			$	1,056,126

Investments

Investments consist primarily of private equity, real assets, credit, investments of consolidated CFEs, and other investments. Investments are carried at their estimated fair values, with unrealized gains or losses resulting from changes in fair value reflected as a component of Net Gains (Losses) from Investment Activities in the consolidated statements of operations. Investments denominated in currencies other than the U.S. dollar are valued based on the spot rate of the respective currency at the end of the reporting period with changes related to exchange rate movements reflected as a component of Net Gains (Losses) from Investment Activities in the consolidated statements of operations. Security and loan transactions are recorded on a trade date basis. Further disclosure on investments is presented in Note 4, “Investments.”

The following describes the types of securities held within each investment class.

Private Equity — Consists primarily of equity investments in operating businesses.

Real Assets — Consists primarily of investments in (i) energy related assets, principally oil and natural gas producing properties, (ii) infrastructure assets, and (iii) real estate, principally residential and commercial real estate assets and businesses, which, in each case, are held through consolidated investment vehicles.

Credit — Consists primarily of investments in below investment grade corporate debt securities (primarily high yield bonds and syndicated bank loans), distressed and opportunistic debt and interests in unconsolidated CLOs.

Investments of Consolidated CFEs — Consists primarily of (i) investments in below investment grade corporate debt securities (primarily high yield bonds and syndicated bank loans) held directly by the consolidated CLOs and (ii) investments in newly originated, fixed-rate mortgage loans held directly by the consolidated CMBS vehicles.

Other — Consists primarily of (i) investments in common stock, preferred stock, warrants and options of companies that are not private equity, real assets, credit or investments of consolidated CFEs and (ii) equity method investments.

Energy Investments Held Through Consolidated Investment Vehicles

Certain energy investments are made through KKR’s consolidated investment funds, including investments in working and royalty interests in oil and natural gas producing properties as well as investments in operating companies that operate in the energy industry. Since these investments are held through investment funds, such investments are reflected at fair value as of the end of the reporting period.

Investments in operating companies that are held through KKR’s investment funds are generally classified within private equity investments and investments in working and royalty interests in oil and natural gas producing properties are generally classified as real asset investments. See also "Energy Investments held directly by KKR" within this footnote.

Notes to Consolidated Financial Statements (Continued)

Fair Value Measurements

Investments and other financial instruments are measured and carried at fair value. The majority of investments and other financial instruments are held by the consolidated funds and vehicles. KKR’s funds are, for GAAP purposes, investment companies and reflect their investments and other financial instruments at fair value. KKR has retained the specialized accounting for the consolidated funds and vehicles in consolidation. Accordingly, the unrealized gains and losses resulting from changes in fair value of the investments held by KKR’s funds are reflected as a component of Net Gains (Losses) from Investment Activities in the consolidated statements of operations.

For investments and other financial instruments that are not held in a consolidated fund or vehicle, KKR has elected the fair value option since these investments and other financial instruments are similar to those in the consolidated funds and vehicles. Such election is irrevocable and is applied on an investment by investment basis at initial recognition. Unrealized gains and losses resulting from changes in fair value are reflected as a component of Net Gains (Losses) from Investment Activities in the consolidated statements of operations. The methodology for measuring the fair value of such investments and other financial instruments is consistent with the methodologies applied to investments and other financial instruments that are held in consolidated funds and vehicles. In addition, KKR has elected the fair value option for the investments of consolidated CFEs.

The carrying amounts of Other Assets, Accounts Payable, Accrued Expenses and Other Liabilities recognized on the consolidated statements of financial condition (excluding fixed assets, goodwill, intangible assets, oil & gas assets, net, contingent consideration and certain debt obligations) approximate fair value due to their short term maturities. Further information on KKR’s debt obligations are presented in Note 9, “Debt Obligations.”

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, the degree of which is dependent on a variety of factors. See Note 5, “Fair Value Measurements” for further information on KKR’s valuation techniques that involve unobservable inputs. Assets and liabilities recorded at fair value in the statements of financial condition are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets and liabilities. The hierarchical levels defined under GAAP are as follows:

Level I

Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The type of investments and other financial instruments included in this category are publicly-listed equities, debt and securities sold short.

Level II

Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level II inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The type of investments and other financial instruments included in this category are credit investments, investments and debt obligations of consolidated CMBS vehicles and consolidated CLO entities (beginning on January 1, 2015), convertible debt securities indexed to publicly-listed securities, less liquid and restricted equity securities and certain over-the-counter derivatives such as foreign currency option and forward contracts.

Level III

Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The types of assets and liabilities generally included in this category are private portfolio companies, real assets investments, credit investments and debt obligations of consolidated CLOs (prior to January 1, 2015) for which a sufficiently liquid trading market does not exist.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. KKR’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset.

Notes to Consolidated Financial Statements (Continued)

A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument has recently been issued, whether the instrument is traded on an active exchange or in the secondary market, and current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by KKR in determining fair value is greatest for instruments categorized in Level III. The variability and availability of the observable inputs affected by the factors described above may cause transfers between Levels I, II, and III, which KKR recognizes at the beginning of the reporting period.

Investments and other financial instruments that have readily observable market prices (such as those traded on a securities exchange) are stated at the last quoted sales price as of the reporting date. KKR does not adjust the quoted price for these investments, even in situations where KKR holds a large position and a sale could reasonably affect the quoted price.

Management’s determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that are management’s best estimates after consideration of a variety of internal and external factors.

Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity

As of January 1, 2015, KKR has adopted the measurement alternative included in ASU 2014-13, “Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity” (“ASU 2014-13”), and has applied the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of January 1, 2015. Refer to the consolidated statements of changes in equity for the impact of this adjustment. Pursuant to ASU 2014-13, KKR measures both the financial assets and financial liabilities of the consolidated CFEs in its consolidated financial statements using the more observable of the fair value of the financial assets and the fair value of the financial liabilities.

Prior to the adoption of ASU 2014-13, KKR elected the fair value option for the assets and liabilities of the consolidated CLO vehicles. As of January 1, 2015, KKR did not hold any beneficial interests in any CMBS vehicle, and consequently did not consolidate any CMBS vehicles. KKR accounted for the difference between the fair value of the assets and the fair value of the liabilities of the consolidated CLOs in Net Gains (Losses) from Investment Activities in the consolidated statements of operations. This amount was attributed to KKR and third party beneficial interest holders based on each beneficial holder’s residual interest in the consolidated CLOs. The amount attributed to third party beneficial interest holders was reflected in the consolidated statements of operations in Net Income (Loss) Attributable to Noncontrolling Interests and Appropriated Capital and in the consolidated statements of financial condition in Appropriated Capital within Equity. The amount was recorded as Appropriated Capital since the other holders of the CLOs’ beneficial interests, not KKR, received the benefits or absorbed the losses associated with their proportionate share of the CLOs’ assets and liabilities.

Pursuant to the adoption of ASU 2014-13, KKR is required to determine whether the fair value of the financial assets or financial liabilities are more observable. For the consolidated CLO entities, KKR has determined that the fair value of the financial assets of the consolidated CLOs, which are Level II assets within the GAAP hierarchical levels, are more observable than the fair value of the financial liabilities of the consolidated CLOs, which are Level III liabilities. As a result, the financial assets of the consolidated CLOs are being measured at fair value and the financial liabilities are being measured in consolidation as: (1) the sum of the fair value of the financial assets and the carrying value of any nonfinancial assets that are incidental to the operations of the CLOs less (2) the sum of the fair value of any beneficial interests retained by KKR (other than those that represent compensation for services) and KKR’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by KKR).

For the consolidated CMBS vehicles, KKR has determined that the fair value of the financial liabilities of the consolidated CMBS vehicles, which are Level II liabilities within the GAAP hierarchical levels, are more observable than the fair value of the financial assets of the consolidated CMBS vehicles, which are Level III assets. As a result, the financial liabilities of the consolidated CMBS vehicles are being measured at fair value and the financial assets are being measured in consolidation as: (1) the sum of the fair value of the financial liabilities (other than the beneficial interests retained by KKR), the fair value of the beneficial interests retained by KKR and the carrying value of any nonfinancial liabilities that are incidental to the operations of

Notes to Consolidated Financial Statements (Continued)

the CMBS vehicles less (2) the carrying value of any nonfinancial assets that are incidental to the operations of the CMBS vehicles. The resulting amount is allocated to the individual financial assets.

Under the measurement alternative pursuant to ASU 2014-13, KKR’s consolidated net income (loss) reflects KKR’s own economic interests in the consolidated CFEs including (i) changes in the fair value of the beneficial interests retained by KKR and (ii) beneficial interests that represent compensation for services rendered.

Level II Valuation Methodologies

Financial assets and liabilities categorized as Level II consist primarily of credit investments, investments and debt obligations of consolidated CFEs, convertible debt securities indexed to publicly-listed securities, less liquid and restricted equity securities and certain over-the-counter derivatives such as foreign currency option and forward contracts.

Credit investments, investments of consolidated CLOs and CMBS debt obligations: These instruments generally have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that KKR and others are willing to pay for an instrument. Ask prices represent the lowest price that KKR and others are willing to accept for an instrument. For financial assets and liabilities whose inputs are based on bid-ask prices obtained from third party pricing services, fair value may not always be a predetermined point in the bid-ask range. KKR’s policy is generally to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets KKR’s best estimate of fair value.

Securities indexed to publicly listed securities: The securities are typically valued using standard convertible security pricing models. The key inputs into these models that require some amount of judgment are the credit spreads utilized and the volatility assumed. To the extent the company being valued has other outstanding debt securities that are publicly-traded, the implied credit spread on the company’s other outstanding debt securities would be utilized in the valuation. To the extent the company being valued does not have other outstanding debt securities that are publicly-traded, the credit spread will be estimated based on the implied credit spreads observed in comparable publicly-traded debt securities. In certain cases, an additional spread will be added to reflect an illiquidity discount due to the fact that the security being valued is not publicly-traded. The volatility assumption is based upon the historically observed volatility of the underlying equity security into which the convertible debt security is convertible and/or the volatility implied by the prices of options on the underlying equity security.

Restricted Equity Securities: The valuation of certain equity securities is based on an observable price for an identical security adjusted for the effect of a restriction.

Derivatives: The valuation incorporates observable inputs comprising yield curves, foreign currency rates and credit spreads.

CLO Debt Obligations: Beginning on January 1, 2015 with the adoption of ASU 2014-13, KKR measures CLO debt obligations on the basis of the fair value of the financial assets of the CLO.

Investments of consolidated CMBS vehicles: KKR measures the investments of CMBS vehicles on the basis of the fair value of the financial liabilities of the CMBS.

Level III Valuation Methodologies

Financial assets and liabilities categorized as Level III consist primarily of the following:

Private Equity Investments: KKR generally employs two valuation methodologies when determining the fair value of a private equity investment. The first methodology is typically a market comparables analysis that considers key financial inputs and recent public and private transactions and other available measures. The second methodology utilized is typically a discounted cash flow analysis, which incorporates significant assumptions and judgments. Estimates of key inputs used in this methodology include the weighted average cost of capital for the investment and assumed inputs used to calculate terminal values, such as exit EBITDA multiples. Other inputs are also used in both methodologies. However, when a definitive agreement has been executed to sell an investment, KKR generally considers a significant determinant of fair value to be the consideration to be received by KKR pursuant to the executed definitive agreement.

Upon completion of the valuations conducted using these methodologies, a weighting is ascribed to each method, and an illiquidity discount is typically applied where appropriate. The ultimate fair value recorded for a particular investment will

Notes to Consolidated Financial Statements (Continued)

generally be within a range suggested by the two methodologies, except that the value may be higher or lower than such range in the case of investments being sold pursuant to an executed definitive agreement.

When determining the weighting ascribed to each valuation methodology, KKR considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis, the expected hold period and manner of realization for the investment, and in the case of investments being sold pursuant to an executed definitive agreement, the probability of such sale being completed. These factors can result in different weightings among investments in the portfolio and in certain instances may result in up to a 100% weighting to a single methodology. Across the Level III private equity investment portfolio, approximately 80.0% of the fair value is derived from investments that are valued based exactly 50% on market comparables and 50% on a discounted cash flow analysis. Less than 5% of the fair value of the Level III private equity investment portfolio is derived from investments that are valued either based 100% on market comparables or 100% on a discounted cash flow analysis.

When an illiquidity discount is to be applied, KKR seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments. KKR then evaluates such private equity investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include (i) whether KKR is unable to sell the portfolio company or conduct an initial public offering of the portfolio company due to the consent rights of a third party or similar factors, (ii) whether the portfolio company is undergoing significant restructuring activity or similar factors and (iii) characteristics about the portfolio company regarding its size and/or whether the portfolio company is experiencing, or expected to experience, a significant decline in earnings. These factors generally make it less likely that a portfolio company would be sold or publicly offered in the near term at a price indicated by using just a market multiples and/or discounted cash flow analysis, and these factors tend to reduce the number of opportunities to sell an investment and/or increase the time horizon over which an investment may be monetized. Depending on the applicability of these factors, KKR determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time KKR holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by KKR in its valuations.

Real Assets Investments: Real asset investments in infrastructure, energy and real estate are valued using one or more of the discounted cash flow analysis, market comparables analysis and direct income capitalization, which in each case incorporates significant assumptions and judgments. Infrastructure investments are generally valued using the discounted cash flow analysis. Key inputs used in this methodology include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as exit EBITDA multiples. Energy investments are generally valued using a discounted cash flow analysis. Key inputs used in this methodology that require estimates include the weighted average cost of capital. In addition, the valuations of energy investments generally incorporate both commodity prices as quoted on indices and long-term commodity price forecasts, which may be substantially different from, and are currently higher than, commodity prices on certain indices for equivalent future dates. Certain energy investments do not include an illiquidity discount. Long-term commodity price forecasts are utilized to capture the value of the investments across a range of commodity prices within the energy investment portfolio associated with future development and to reflect a range of price expectations. Real estate investments are generally valued using a combination of direct income capitalization and discounted cash flow analysis. Key inputs used in such methodologies that require estimates include an unlevered discount rate and current capitalization rate, and certain real estate investments do not include a minimum illiquidity discount. The valuations of real assets investments also use other inputs.

Credit Investments: Credit investments are valued using values obtained from dealers or market makers, and where these values are not available, credit investments are valued by KKR based on ranges of valuations determined by an independent valuation firm. Valuation models are based on discounted cash flow analyses, for which the key inputs are determined based on market comparables, which incorporate similar instruments from similar issuers.

Other Investments: With respect to other investments including equity method investments for which the fair value election has been made, KKR generally employs the same valuation methodologies as described above for private equity investments when valuing these other investments.

CLO Debt Obligations: Prior to January 1, 2015 and the adoption of ASU 2014-13, collateralized loan obligation senior secured and subordinated notes were initially valued at the transaction price and were subsequently valued using a third party valuation service. The approach used to estimate the fair values was the discounted cash flow method, which includes consideration of the cash flows of the debt obligation based on projected quarterly interest payments and quarterly

Notes to Consolidated Financial Statements (Continued)

amortization. The debt obligations were discounted based on the appropriate yield curve given the debt obligation's respective maturity and credit rating. The most significant inputs to the valuation of these financial instruments were default and loss expectations and discount margins. As described above in Fair Value Measurements - Summary of Significant Accounting Policies - Level II Valuation Methodologies, beginning on January 1, 2015, with the adoption of ASU 2014-13, KKR measures CLO debt obligations on the basis of the fair value of the financial assets of the CLO.

Key unobservable inputs that have a significant impact on KKR’s Level III investment valuations as described above are included in Note 5 “Fair Value Measurements.” KKR utilizes several unobservable pricing inputs and assumptions in determining the fair value of its Level III investments. These unobservable pricing inputs and assumptions may differ by investment and in the application of KKR’s valuation methodologies. KKR’s reported fair value estimates could vary materially if KKR had chosen to incorporate different unobservable pricing inputs and other assumptions or, for applicable investments, if KKR only used either the discounted cash flow methodology or the market comparables methodology instead of assigning a weighting to both methodologies.

Level III Valuation Process

The valuation process involved for Level III measurements is completed on a quarterly basis and is designed to subject the valuation of Level III investments to an appropriate level of consistency, oversight, and review. As of December 31, 2015, the valuation process for Level III measurements, as described below, subjected valuations to the review and oversight of various committees. KKR has a Private Markets valuation committee for private equity and real assets investments and a valuation committee for credit and credit-related investments. The Private Markets valuation committee is assisted by subcommittees in the valuation of real asset and growth equity investments, and is also assisted by a valuation team. The Private Markets valuation committee is comprised only of employees who are not investment professionals responsible for preparing preliminary valuations or for oversight of the investments being valued. The valuation teams and subcommittees for real asset and growth equity investments, however, include investment professionals who participate in the preparation of preliminary valuations or are responsible for oversight for those investments. The credit valuation committee is also assisted by a valuation team. The credit valuation teams include investment professionals responsible for preparing preliminary valuations or for oversight of the investments being valued. The credit valuation committee is comprised of investment professionals with no responsibility for preparing preliminary valuations, but certain committee members are responsible for oversight of the investments being valued. The valuation committees and teams are responsible for coordinating and consistently implementing KKR’s quarterly valuation policies, guidelines and processes. For Private Markets investments classified as Level III, investment professionals prepare preliminary valuations based on their evaluation of financial and operating data, company specific developments, market valuations of comparable companies and other factors. These preliminary valuations are reviewed with the investment professionals by the applicable valuation team and are also reviewed by an independent valuation firm engaged by KKR to perform certain procedures in order to assess the reasonableness of KKR’s valuations annually for all Level III investments in Private Markets and quarterly for investments other than certain investments, which have values less than pre-set value thresholds and which in the aggregate comprise less than 5% of the total value of KKR’s Level III Private Markets investments. For most investments classified as Level III in credit, in general, an independent valuation firm is engaged by KKR to provide third party valuations, or ranges of valuations from which KKR’s investment professionals select a point in the range to determine the preliminary valuation, or an independent valuation firm is engaged by KKR to perform certain procedures in order to assess the reasonableness and provide positive assurance of KKR’s valuations. These preliminary valuations are reviewed by senior investment professionals for each credit strategy. All preliminary valuations in Private Markets and Public Markets are then reviewed by the applicable valuation committee, and after reflecting any input by their respective valuation committees, the preliminary valuations are presented to the firm’s management committee. When these valuations are approved by this committee after reflecting any input from it, the valuations of Level III investments, as well as the valuations of Level I and Level II investments, are presented to the audit committee of KKR’s board of directors and are then reported on to the board of directors.

Energy Investments Held Directly by KKR

KKR makes certain energy investments directly in working and royalty interests in oil and natural gas producing properties outside its investment funds, which as a result of the acquisition of KKR Financial Holdings LLC ("KFN") on April 30, 2014 became more significant. Oil and natural gas producing activities are accounted for under the successful efforts method of accounting and such working interests are consolidated based on the proportion of the working interests held by KKR. Accordingly, KKR reflects its proportionate share of the underlying statements of financial condition and statements of operations of the consolidated working interests on a gross basis and changes in the value of these working interests are not reflected as unrealized gains and losses in the consolidated statements of operations. Under the successful efforts method, exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. Costs that are associated with the drilling of successful exploration wells are capitalized if proved reserves are found. Lease acquisition costs are

Notes to Consolidated Financial Statements (Continued)

capitalized when incurred. Costs associated with the drilling of exploratory wells that do not find proved reserves, geological and geophysical costs and costs of certain nonproducing leasehold costs are charged to expense as incurred.

Expenditures for repairs and maintenance, including workovers, are charged to expense as incurred.

The capitalized costs of producing oil and natural gas properties are depleted on a field-by-field basis using the units-of production method based on the ratio of current production to estimated total net proved oil, natural gas and natural gas liquid reserves. Proved developed reserves are used in computing depletion rates for drilling and development costs and total proved reserves are used for depletion rates of leasehold costs.

Estimated dismantlement and abandonment costs for oil and natural gas properties, net of salvage value, are capitalized at their estimated net present value and amortized on a unit-of-production basis over the remaining life of the related proved developed reserves.

Whenever events or changes in circumstances indicate that the carrying amounts of oil and natural gas properties may not be recoverable, KKR evaluates the proved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. The determination of recoverability is made based upon estimated undiscounted future net cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related asset. Unproved oil and natural gas properties are assessed periodically and, at a minimum, annually on a property-by-property basis, and any impairment in value is recognized when incurred and is recorded in General, Administrative, and Other expense in the consolidated statements of operations.

Fees and Other

Fees and other consist primarily of (i) transaction fees earned in connection with successful investment transactions and from capital markets activities, (ii) management and incentive fees from providing investment management services to unconsolidated funds, CLOs, other vehicles, and separately managed accounts, (iii) monitoring fees from providing services to portfolio companies, (iv) revenue earned by oil and gas-producing entities that are consolidated and (v) consulting fees earned by entities that employ non-employee operating consultants.

For the years ended December 31, 2015, 2014 and 2013, respectively, fees and other consisted of the following:

	For the Years Ended December 31,
	2015				2014				2013
Transaction Fees	$	337,544			$	425,019			$	287,387
Monitoring Fees	336,159				190,584				161,796
Management Fees	201,006				215,266				177,961
Oil and Gas Revenue	112,328				186,876				22,105
Consulting Fees	40,316				41,573				47,930
Incentive Fees	16,415				50,690				65,367
Total Fees and Other	$	1,043,768			$	1,110,008			$	762,546

All fees presented in the table above, except for oil and gas revenue, are earned from KKR investment funds, vehicles and portfolio companies. Consulting fees are earned by certain consolidated entities that employ non-employee operating consultants from providing advisory and other services to portfolio companies and other companies and are recognized as the services are rendered. These fees are separately negotiated with each company for which services are provided and are not shared with KKR.

Transaction Fees

Transaction fees are earned by KKR primarily in connection with successful investment transactions and capital markets activities. Transaction fees are recognized upon closing of the transaction. Fees are typically paid on or shortly after the closing of a transaction.

In connection with pursuing successful portfolio company investments, KKR receives reimbursement for certain transaction‑related expenses. Transaction‑related expenses, which are reimbursed by third parties, are typically deferred until the transaction is consummated and are recorded in Other Assets on the consolidated statements of financial condition on the

Notes to Consolidated Financial Statements (Continued)

date incurred. The costs of successfully completed transactions are borne by the KKR investment funds and included as a component of the investment’s cost basis. Subsequent to closing, investments are recorded at fair value each reporting period as described in the section above titled “Investments”. Upon reimbursement from a third party, the cash receipt is recorded and the deferred amounts are relieved. No fees or expenses are recorded for these reimbursements.

Monitoring Fees

Monitoring fees are earned by KKR for services provided to portfolio companies and are recognized as services are rendered. These fees are generally paid based on a fixed periodic schedule by the portfolio companies either in advance or in arrears and are separately negotiated for each portfolio company.

In connection with the monitoring of portfolio companies and certain unconsolidated funds, KKR receives reimbursement for certain expenses incurred on behalf of these entities. Costs incurred in monitoring these entities are classified as general, administrative and other expenses and reimbursements of such costs are classified as monitoring fees. In addition, certain monitoring fee provisions may provide for a termination payment following an initial public offering or change of control. These termination payments are recognized in the period when the related transaction closes.

Management Fees

Management fees are recognized in the period during which the related services are performed in accordance with the contractual terms of the related agreement. Management fees earned from private equity funds and certain investment vehicles are based upon a percentage of capital committed or capital invested during the investment period, and thereafter generally based on remaining invested capital or net asset value. For certain other investment vehicles, CLOs, and separately managed accounts, management fees are recognized in the period during which the related services are performed and are based upon the net asset value, gross assets or as otherwise defined in the respective agreements.

Management fees received from KKR’s consolidated funds and vehicles are eliminated in consolidation. However, because these amounts are funded by, and earned from, noncontrolling interests, KKR’s allocated share of the net income from KKR’s consolidated funds and vehicles is increased by the amount of fees that are eliminated. Accordingly, the elimination of these fees does not have an effect on the net income (loss) attributable to KKR or KKR partners’ capital.

Private Equity Funds

For KKR’s consolidated and unconsolidated private equity funds, gross management fees generally range from 1% to 2% of committed capital during the fund’s investment period and is generally 0.75% to 1.25% of invested capital after the expiration of the fund’s investment period with subsequent reductions over time. Typically, an investment period is defined as a period of up to six years. The actual length of the investment period may be shorter based on the timing and deployment of committed capital.

Certain of KKR’s private equity funds require the management company to refund up to 20% of any cash management fees earned from limited partners in the event that the funds recognize a carried interest. At such time as the fund recognizes a carried interest in an amount sufficient to cover 20% of the cash management fees earned or a portion thereof, a liability to the fund’s limited partners is recorded and revenue is reduced for the amount of the carried interest recognized, not to exceed 20% of the cash management fees earned. The refunds to the limited partners are paid, and the liabilities relieved, at such time that the underlying investments are sold and the associated carried interests are realized. In the event that a fund’s carried interest is not sufficient to cover all or a portion of the amount that represents 20% of the earned cash management fees, these fees would not be returned to the funds’ limited partners, in accordance with the respective fund agreements.

Other Investment Vehicles

Certain other investment vehicles that invest capital in real assets, credit and hedge fund strategies provide for management fees determined quarterly based on an annual rate generally ranging from 0.5% to 1.5%. Such rate may be based on the investment vehicles’ average net asset value, capital commitments, or invested capital.

CLOs

KKR’s management agreements for its CLO vehicles provide for senior collateral management fees and subordinate collateral management fees. Senior collateral management fees are determined based on an annual rate ranging from 0.15% to 0.20% of collateral and subordinate collateral management fees are determined based on an annual rate ranging from 0.30% to

Notes to Consolidated Financial Statements (Continued)

0.35% of collateral. If amounts distributable on any payment date are insufficient to pay the collateral management fees according to the priority of payments, any shortfall is deferred and payable on subsequent payment dates. KKR has the right to waive all or any portion of any collateral management fee. For the purpose of calculating the collateral management fees, collateral, the payment dates, and the priority of payments are terms defined in the management agreements.

Oil and Gas Revenue Recognition

Oil and gas revenues are recognized when production is sold to a purchaser at fixed or determinable prices, when delivery has occurred and title has transferred and collectability of the revenue is reasonably assured. The oil and gas producing entities consolidated by KKR follow the sales method of accounting for natural gas revenues. Under this method of accounting, revenues are recognized based on volumes sold, which may differ from the volume to which the entity is entitled based on KKR’s working interest. An imbalance is recognized as a liability only when the estimated remaining reserves will not be sufficient to enable the under-produced owners to recoup their entitled share through future production. Under the sales method, no receivables are recorded when these entities have taken less than their share of production and no payables are recorded when it has taken more than its share of production unless reserves are not sufficient.

Consulting Fees

Consulting fees are earned by certain consolidated entities that employ non‑employee operating consultants from providing advisory and other services to portfolio companies and other companies and are recognized as the services are rendered. These fees are separately negotiated with each company for which services are provided and are not shared with KKR.

Incentive Fees

Incentive fees earned on the performance of certain hedge fund structures are recognized based on fund performance, subject to the achievement of minimum return levels, and/or high water marks, in accordance with the respective terms set out in each fund’s governing agreements. Incentive fee rates generally range from 5% to 20%. KKR does not record performance‑based incentive fees until the end of each fund’s measurement period (which is generally one year) when the performance‑based incentive fees become fixed and determinable.

Investment Income

Investment income consists primarily of the net impact of:

(i)	Realized and unrealized gains and losses on investments, securities sold short and debt obligations of consolidated CFEs which are recorded in Net Gains (Losses) from Investment Activities.

(ii)	Foreign exchange gains and losses relating to mark‑to‑market activity on foreign exchange forward contracts, foreign currency options and foreign denominated debt which are recorded in Net Gains (Losses) from Investment Activities.

(iii)	Dividends, which are recognized on the ex‑dividend date, or in the absence of a formal declaration, on the date it is received.

(iv)	Interest income, which is recognized as earned.

(v)	Interest expense, which is recognized as incurred. In addition to these interest costs, KKR capitalizes debt financing costs incurred in connection with new debt arrangements. Such costs are amortized into interest expense using either the interest method or the straight‑line method, as appropriate.

Unrealized gains or losses result from changes in fair value of investments during the period and are included in Net Gains (Losses) from Investment Activities. Upon disposition of an investment, previously recognized unrealized gains or losses are reversed and a realized gain or loss is recognized.

Carried Interest

Carried interest entitles the general partner of a fund to a greater allocable share of the fund’s earnings from investments relative to the capital contributed by the general partner and correspondingly reduces noncontrolling interests’ attributable share of those earnings. Amounts earned pursuant to carried interest are included as investment income (loss) in Net Gains (Losses)

Notes to Consolidated Financial Statements (Continued)

from Investment Activities in the consolidated statements of operations and are earned by the general partner of those funds to the extent that cumulative investment returns are positive and where applicable, preferred return thresholds have been met. If these investment returns decrease or turn negative in subsequent periods, recognized carried interest will be reversed and reflected as investment losses in Net Gains (Losses) from Investment Activities in the consolidated statements of operations. Carried interest is recognized based on the contractual formula set forth in the agreements governing the fund as if the fund was terminated at the reporting date with the then estimated fair values of the investments realized. Due to the extended durations of KKR’s private equity funds and other investment vehicles, KKR believes that this approach results in income recognition that best reflects the periodic performance of KKR in the management of those funds. For funds that are consolidated, all investment income (loss), including the portion of a funds’ investment income (loss) that is allocable to KKR’s carried interest, is included in investment income (loss) on the consolidated statements of operations. The carried interest that KKR retains in net income (loss) attributable to KKR & Co. L.P. is reflected as an adjustment to net income (loss) attributable to noncontrolling interests. See Note 13 “Segment Reporting” for the amount of carried interest income earned or reversed for years ended December 31, 2015, 2014 and 2013.

The agreements governing KKR’s private equity funds generally include a “clawback” or, in certain instances, a “net loss sharing” provision that, if triggered, may give rise to a contingent obligation that may require the general partner to return or contribute amounts to the fund for distribution to fund investors at the end of the life of the fund. See Note 17 “Commitments and Contingencies.”

Compensation and Benefits

Compensation and Benefits expense includes cash compensation consisting of salaries, bonuses, and benefits, as well as equity based compensation consisting of charges associated with the vesting of equity‑based awards and carry pool allocations.

All KKR employees and employees of certain consolidated entities receive a base salary that is paid by KKR or its consolidated entities, and is accounted for as Compensation and Benefits expense in the consolidated statements of operations. These employees are also eligible to receive discretionary cash bonuses based on performance, overall profitability and other matters. While cash bonuses paid to most employees are borne by KKR and certain consolidated entities and result in customary compensation and benefits expense, cash bonuses that are paid to certain of KKR’s principals are currently borne by KKR Holdings. These bonuses are funded with distributions that KKR Holdings receives on KKR Group Partnership Units held by KKR Holdings but are not then passed on to holders of unvested units of KKR Holdings. Because KKR principals are not entitled to receive distributions on units that are unvested, any amounts allocated to principals in excess of a principal’s vested equity interests are reflected as employee compensation and benefits expense. These compensation charges are recorded based on the unvested portion of quarterly earnings distributions received by KKR Holdings at the time of the distribution.

Further disclosure regarding equity based compensation is presented in Note 11 “Equity Based Compensation.”

Carry Pool Allocation

With respect to KKR’s active and future funds and co‑investment vehicles that provide for carried interest, KKR allocates to its employees and employees of certain consolidated entities a portion of the carried interest earned in relation to these funds as part of its carry pool. KKR currently allocates approximately 40% of the carry it earns from these funds and vehicles to its carry pool. These amounts are accounted for as compensatory profit‑sharing arrangements in Accounts Payable, Accrued Expenses and Other Liabilities within the accompanying consolidated statements of financial condition in conjunction with the related carried interest income and recorded as compensation expense for KKR employees and general, administrative and other expense for certain non‑employee consultants and service providers in the consolidated statements of operations. See Note 13 “Segment Reporting” for the amount of carry pool allocation expense recognized for the years ended December 31, 2015, 2014 and 2013.

Profit Sharing Plan

KKR provides certain profit sharing programs for KKR employees and other eligible personnel. In particular, KKR provides a 401(k) plan (the “Plan”) for eligible employees in the United States. For certain professionals who are participants in the Plan, KKR may, in its discretion, contribute an amount after the end of the Plan year. For the years ended December 31, 2015, 2014 and 2013, KKR incurred expenses of $7.9 million, $6.9 million and $7.7 million, respectively, in connection with the Plan and other profit sharing programs.

Notes to Consolidated Financial Statements (Continued)

General, Administrative and Other

General, administrative and other expense consists primarily of professional fees paid to legal advisors, accountants, advisors and consultants, insurance costs, travel and related expenses, communications and information services, depreciation and amortization charges, changes in fair value of contingent consideration, expenses incurred by oil and gas‑producing entities (including impairment charges) that are consolidated and other general and operating expenses which are not borne by fund investors and are not offset by credits attributable to fund investors’ noncontrolling interests in consolidated funds. General, administrative and other expense also consists of costs incurred in connection with pursuing potential investments that do not result in completed transactions, a substantial portion of which are borne by fund investors.

Foreign Currency

Consolidated entities which have a functional currency that differs from KKR’s reporting currency are primarily KKR’s investment management and capital markets companies located outside the United States. Foreign currency denominated assets and liabilities are translated using the exchange rates prevailing at the end of each reporting period. Results of foreign operations are translated at the weighted average exchange rate for each reporting period. Translation adjustments are included as a component of accumulated other comprehensive income (loss) until realized. Foreign currency income or expenses resulting from transactions outside of the functional currency of a consolidated entity are recorded as incurred in general, administrative and other expense in the consolidated statements of operations.

Derivatives

Derivative contracts include forward, swap and option contracts related to foreign currencies and credit standing of reference entities to manage foreign exchange risk and credit risk arising from certain assets and liabilities. All derivatives are recognized in Other Assets or Accounts Payable, Accrued Expenses and Other Liabilities and are presented gross in the consolidated statements of financial condition and measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. KKR’s derivative financial instruments contain credit risk to the extent that its counterparties may be unable to meet the terms of the agreements. KKR attempts to minimize this risk by limiting its counterparties to major financial institutions with strong credit ratings.

Securities Sold Short

Whether part of a hedging transaction or a transaction in its own right, securities sold short represent obligations of KKR to deliver the specified security at the contracted price at a future point in time, and thereby create a liability to repurchase the security in the market at the prevailing prices. The liability for such securities sold short, which is recorded in Accounts Payable, Accrued Expenses and Other Liabilities in the statement of financial condition, is marked to market based on the current fair value of the underlying security at the reporting date with changes in fair value recorded as unrealized gains or losses in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. These transactions may involve market risk in excess of the amount currently reflected in the accompanying consolidated statements of financial condition.

Cash and Cash Equivalents

KKR considers all highly liquid short‑term investments with original maturities of 90 days or less when purchased to be cash equivalents.

Cash and Cash Equivalents Held at Consolidated Entities

Cash and cash equivalents held at consolidated entities represents cash that, although not legally restricted, is not available to fund general liquidity needs of KKR as the use of such funds is generally limited to the investment activities of KKR’s investment funds and CFEs.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents primarily represent amounts that are held by third parties under certain of KKR’s financing and derivative transactions.

Notes to Consolidated Financial Statements (Continued)

Due from and Due to Affiliates

KKR considers its principals and their related entities, unconsolidated funds and the portfolio companies of its funds to be affiliates. Receivables from and payables to affiliates are recorded at their current settlement amount.

Fixed Assets, Depreciation and Amortization

Fixed assets consist primarily of corporate real estate, leasehold improvements, furniture and computer hardware. Such amounts are recorded at cost less accumulated depreciation and amortization and are included in Other Assets within the accompanying consolidated statements of financial condition. Depreciation and amortization are calculated using the straight‑line method over the assets’ estimated economic useful lives, which for leasehold improvements are the lesser of the lease terms or the life of the asset, and three to seven years for other fixed assets.

Comprehensive Income (Loss)

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from contributions from and distributions to owners. In the accompanying consolidated financial statements, comprehensive income represents Net Income (Loss), as presented in the consolidated statements of operations and net foreign currency translation gains / (losses).

Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit

Basic Income (Loss) Attributable to KKR per common unit is calculated by dividing Net Income (Loss) Attributable to KKR by the weighted‑average number of common units outstanding for the period. Diluted Income (Loss) Attributable to KKR per common unit reflects the assumed conversion of all dilutive securities. Diluted Income (Loss) Attributable to KKR per common unit excludes the anti‑dilutive effect of KKR Holdings units, which are exchangeable on a one‑for‑one basis into common units of KKR & Co. L.P. The KKR Holdings units are excluded from the diluted calculation since the exchange of these units would not dilute KKR’s respective ownership interests in the KKR Group Partnerships.

Income Taxes

The consolidated entities of KKR are generally treated as partnerships or disregarded entities for U.S. and non‑U.S. tax purposes. However, certain consolidated subsidiaries are treated as corporations for U.S. and non‑U.S tax purposes and are therefore subject to U.S. federal, state and/or local income taxes at the entity‑level. In addition, certain consolidated entities which are treated as partnerships for U.S. tax purposes are subject to the New York City Unincorporated Business Tax or other local taxes.

Income taxes are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis, using tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets, which are recorded in Other Assets within the statement of financial condition, are reduced by a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. When evaluating the realizability of the deferred tax assets, all evidence, both positive and negative, is considered. Items considered when evaluating the need for a valuation allowance include the ability to carry back losses, future reversals of existing temporary differences, tax planning strategies, and expectations of future earnings.

For a particular tax‑paying component of an entity and within a particular tax jurisdiction, deferred tax assets and liabilities are offset and presented as a single amount within Other Assets or Accounts Payable, Accrued and Other Liabilities, as applicable, in the accompanying statements of financial position.

KKR analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, KKR determines that uncertainties in tax positions exist, a reserve is established. KKR recognizes accrued interest and penalties related to uncertain tax positions within the provision for income taxes in the consolidated statements of operations.

KKR records uncertain tax positions on the basis of a two‑step process: (a) determination is made whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (b) those tax positions that

Notes to Consolidated Financial Statements (Continued)

meet the more‑likely‑than‑not threshold are recognized as the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Recently Issued Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers Topic 606 (“ASU 2014-09”) which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Revenue recorded under ASU 2014-09 will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017. Early adoption will be permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. A full retrospective or modified retrospective approach is required. KKR is currently evaluating the impact the adoption of this guidance may have on its financial statements, including with respect to the timing of the recognition of carried interest.

Measurement of Financial Assets and Liabilities - Consolidated Collateralized Financing Entities

In August 2014, the FASB issued ASU 2014‑13, “Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity” (“CFE”), such as CLO and CMBS vehicles. ASU 2014‑13 provides an entity with an election to measure the financial assets and financial liabilities of a consolidated CFE on the basis of either the fair value of the CFE’s financial assets or financial liabilities, whichever is more observable. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted and this guidance was early adopted by KKR on January 1, 2015 using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the annual period. Refer above to Variable Interest Entities - Collateralized Loan Obligations.

Consolidation

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU 2015-02"). The guidance in ASU 2015-02 eliminates the presumption that a general partner should consolidate a limited partnership and also eliminates the consolidation model specific to limited partnerships. The amendments also clarify how to treat fees paid to an asset manager or other entity that makes the decisions for the investment vehicle and whether such fees should be considered in determining when a variable interest entity should be reported on an asset manager's balance sheet. ASU 2015-02 is effective for reporting periods starting after December 15, 2015 and for interim periods within the fiscal year. Early adoption is permitted, and a full retrospective or modified retrospective approach is required. KKR is evaluating the impact on its financial statements and expects to deconsolidate a significant number of investment funds, vehicles and entities upon adoption of this guidance.

Interest - Imputation of Interest

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The guidance in ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB clarified that line-of-credit arrangements are outside the scope of ASU 2015-03. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted, and a retrospective approach is required. The adoption of this guidance is not expected to have a material impact on KKR’s financial statements.

Notes to Consolidated Financial Statements (Continued)

Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share

In May 2015, the FASB issued amended guidance on the disclosures for investments in certain entities that calculate net asset value per share (or its equivalent). The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods within those years. The guidance shall be applied retrospectively for all periods presented. Early application is permitted. The guidance is not expected to have a material impact on KKR’s financial statements.

Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Liabilities (“ASU 2016-01”). The amended guidance (i) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at fair value; (iii) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments and (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amended guidance should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amended guidance related to equity securities without readily determinable fair values (including the disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. KKR is currently evaluating the impact on the financial statements.

Notes to Consolidated Financial Statements (Continued)

3. NET GAINS (LOSSES) FROM INVESTMENT ACTIVITIES

Net Gains (Losses) from Investment Activities in the consolidated statements of operations consist primarily of the realized and unrealized gains and losses on investments (including foreign exchange gains and losses attributable to foreign denominated investments and related activities) and other financial instruments, including those for which the fair value option has been elected. Unrealized gains or losses result from changes in the fair value of these investments and other financial instruments during a period. Upon disposition of an investment or financial instrument, previously recognized unrealized gains or losses are reversed and an offsetting realized gain or loss is recognized in the current period.

The following table summarizes total Net Gains (Losses) from Investment Activities for the years ended December 31, 2015, 2014 and 2013, respectively:

	For the Years Ended December 31,
	2015								2014								2013
	Net Realized Gains (Losses)				Net Unrealized Gains (Losses)				Net Realized Gains (Losses)				Net Unrealized Gains (Losses)				Net Realized Gains (Losses)				Net Unrealized Gains (Losses)
Private Equity (a)	$	4,452,593			$	1,140,377			$	4,985,786			$	(399,593	)		$	3,664,219			$	4,052,553
Credit and Other (a)	138,915				(800,027		)		323,676				(229,004		)		351,417				182,752
Investments of Consolidated CFEs (a)	(54,367		)		(220,577		)		15,921				(237,199		)		—				—
Real Assets (a)	(2,035,727		)		1,591,541				225,497				(548,788		)		15,868				(64,667		)
Foreign Exchange Forward Contracts and Options (b)	415,370				87,482				(10,620		)		787,682				17,760				(235,794		)
Securities Sold Short (b)	(6,860		)		3,909				(59,071		)		21,057				(105,513		)		(19,205		)
Other Derivatives	17,694				2,449				(34,319		)		(15,384		)		(24,223		)		(2,030		)
Debt Obligations - Net Gains (Losses) and Other (c)	74,266				(134,411		)		(13,284		)		(34,125		)		(10,096		)		3,041
Total Net Gains (Losses) from Investment Activities	$	3,001,884			$	1,670,743			$	5,433,586			$	(655,354	)		$	3,909,432			$	3,916,650

(a)	See Note 4 “Investments.”

(b)	See Note 7 “Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities.”

(c)	See Note 9 "Debt Obligations."

4. INVESTMENTS

Investments consist of the following:

	Fair Value								Cost
	December 31, 2015				December 31, 2014				December 31, 2015				December 31, 2014
Private Equity	$	36,398,474			$	38,222,255			$	26,370,241			$	29,317,314
Credit	6,300,004				6,702,740				7,144,934				6,906,583
Investments of Consolidated CFEs	12,735,309				8,559,967				13,203,483				8,815,286
Real Assets	4,048,281				3,130,404				4,681,228				5,354,191
Other	5,823,863				3,552,260				5,687,660				3,182,917
Total Investments	$	65,305,931			$	60,167,626			$	57,087,546			$	53,576,291

As of December 31, 2015, investments which represented greater than 5% of total investments consisted of Walgreens Boots Alliance, Inc. of $5.1 billion and First Data Corporation of $4.3 billion. As of December 31, 2014, investments which represented greater than 5% of total investments consisted of Walgreens Boots Alliance, Inc. of $5.5 billion and First Data Corporation of $3.8 billion. In addition, as of December 31, 2015 and 2014, investments totaling $14.2 billion and $11.4 billion, respectively, were pledged as direct collateral against various financing arrangements. See Note 9 “Debt Obligations.” The majority of the securities underlying private equity investments represent equity securities.

Notes to Consolidated Financial Statements (Continued)

The following table represents private equity investments by industry as of December 31, 2015 and 2014, respectively:

	Fair Value
	December 31, 2015				December 31, 2014
Health Care	$	10,477,069			$	10,269,605
Financial Services	6,265,748				5,691,815
Technology	4,686,795				4,262,800
Retail	4,187,517				4,141,276
Manufacturing	3,602,594				4,227,859
Other	7,178,751				9,628,900
	$	36,398,474			$	38,222,255

In the table above, other investments represent private equity investments in the following industries: Consumer Products, Education, Energy, Forestry, Media, Services, Telecommunications, Transportation, Hotel/Leisure, Packaging, Mining, Agriculture and Recycling. None of these industries represents more than 10% of total private equity investments as of December 31, 2015.

Equity Method

As of December 31, 2015 and 2014, KKR had equity method investments totaling $1,929.6 million and $1,467.4 million, respectively, which are recorded in Other Investments. Equity method investments include (i) certain investments in private equity funds, real assets funds and credit funds, which are not consolidated and (ii) certain investments in operating companies in which KKR is deemed to exert significant influence.

Under the equity method of accounting, KKR’s share of earnings (losses) from equity method investments is reflected as a component of Net Gains (Losses) from Investment Activities in the consolidated statements of operations. Because the underlying investments of unconsolidated investment funds are reported at fair value, the carrying value of these equity method investments representing KKR’s interests in unconsolidated funds approximates fair value. The carrying value of equity method investments in certain operating companies, which KKR is determined to exert significant influence, is determined based on the amounts invested by KKR, adjusted for the equity in earnings or losses of the investee allocated based on KKR’s respective ownership percentage, less distributions. In some cases, KKR has elected the fair value option to account for certain of these equity method investments. With respect to equity method investments where KKR has elected the fair value option, KKR's share of the investee's underlying net income or loss predominantly represents fair value adjustments in the investments. Changes in estimated fair value are recorded in Net Gains (Losses) from Investment Activities in the consolidated statements of operations.

KKR evaluates each of its equity method investments to determine if any are significant as defined by guidance from the United States Securities and Exchange Commission. As of and for the years ended December 31, 2015, 2014 and 2013, no individual equity method investment held by KKR met the significance criteria. As such, KKR is not required to present separate financial statements for any of its equity method investments.

Summarized Financial Information

The following table shows summarized financial information relating to the statements of financial condition for KKR's equity method investments assuming 100% ownership as of December 31, 2015 and 2014:

	December 31, 2015			December 31, 2014
Total Assets	$	8,759,354		$	7,157,281
Total Liabilities	$	2,387,866		$	1,814,781
Total Equity	$	6,371,488		$	5,342,500

Notes to Consolidated Financial Statements (Continued)

The following table shows summarized financial information relating to the statements of operations for KKR's equity method investments assuming 100% ownership for the years ended December 31, 2015, 2014 and 2013:

	For the years ended December 31,
	2015				2014				2013
Investment Related Revenues	$	240,877			$	175,343			$	112,850
Other Revenues	623,714				409,984				333,382
Investment Related Expenses	53,081				29,157				8,238
Other Expenses	675,293				448,096				185,636
Net Realized and Unrealized Gain/(Loss) from Investments	(307,301		)		350,248				(5,829		)
Net Income	$	(171,084	)		$	458,322			$	246,529

5. FAIR VALUE MEASUREMENTS

The following tables summarize the valuation of KKR’s assets and liabilities reported at fair value by the fair value hierarchy levels described in Note 2 “Summary of Significant Accounting Policies” as of December 31, 2015 and 2014 including those investments, other financial instruments and debt obligations of consolidated CFEs for which the fair value option has been elected. Equity Method Investments for which the fair value option has not been elected have been excluded from the tables below.

Assets, at fair value:

	December 31, 2015
	Quoted Prices in Active Markets for Identical Assets (Level I)				Significant Other Observable Inputs (Level II)				Significant Unobservable Inputs (Level III)				Total
Private Equity	$	16,614,008			$	880,928			$	18,903,538			$	36,398,474
Credit	—				1,287,649				5,012,355				6,300,004
Investments of Consolidated CFEs	—				12,735,309				—				12,735,309
Real Assets	—				—				4,048,281				4,048,281
Other	817,328				449,715				3,472,794				4,739,837
Total	17,431,336				15,353,601				31,436,968				64,221,905
Foreign Exchange Contracts and Options	—				635,183				—				635,183
Other Derivatives	—				5,703				—				5,703
Total Assets	$	17,431,336			$	15,994,487			$	31,436,968			$	64,862,791

	December 31, 2014
	Quoted Prices in Active Markets for Identical Assets (Level I)				Significant Other Observable Inputs (Level II)				Significant Unobservable Inputs (Level III)				Total
Private Equity	$	5,940,470			$	6,005,764			$	26,276,021			$	38,222,255
Credit	—				2,510,038				4,192,702				6,702,740
Investments of Consolidated CFEs	—				8,467,472				92,495				8,559,967
Real Assets	—				—				3,130,404				3,130,404
Other	573,983				276,051				2,133,001				2,983,035
Total	6,514,453				17,259,325				35,824,623				59,598,401
Foreign Exchange Contracts and Options	—				517,088				—				517,088
Other Derivatives	2,246				9,651				—				11,897
Total Assets	$	6,516,699			$	17,786,064			$	35,824,623			$	60,127,386

Notes to Consolidated Financial Statements (Continued)

Liabilities, at fair value:

	December 31, 2015
	Quoted Prices in Active Markets for Identical Assets (Level I)				Significant Other Observable Inputs (Level II)				Significant Unobservable Inputs (Level III)				Total
Securities Sold Short	$	286,981			$	13,009			$	—			$	299,990
Foreign Exchange Contracts and Options	—				83,748				—				83,748
Unfunded Revolver Commitments	—				15,533				—				15,533
Other Derivatives	—				104,518				—				104,518
Debt Obligations of Consolidated CFEs	—				12,365,222				—				12,365,222
Total Liabilities	$	286,981			$	12,582,030			$	—			$	12,869,011

	December 31, 2014
	Quoted Prices in Active Markets for Identical Assets (Level I)				Significant Other Observable Inputs (Level II)				Significant Unobservable Inputs (Level III)				Total
Securities Sold Short	$	630,794			$	2,338			$	—			$	633,132
Foreign Exchange Contracts and Options	—				71,956				—				71,956
Unfunded Revolver Commitments	—				3,858				—				3,858
Other Derivatives	—				75,150				—				75,150
Debt Obligations of Consolidated CFEs	—				—				7,615,340				7,615,340
Total Liabilities	$	630,794			$	153,302			$	7,615,340			$	8,399,436

The following tables summarize changes in assets and liabilities reported at fair value for which Level III inputs have been used to determine fair value for the years ended December 31, 2015 and 2014, respectively:

	For the Year Ended December 31, 2015
	Level III Assets																								Level III Liabilities
	Private Equity				Credit				Investments of Consolidated CFEs				Real Assets				Other				Total Level III Assets				Debt Obligations of Consolidated CFEs
Balance, Beg. of Period	$	26,276,021			$	4,192,702			$	92,495			$	3,130,404			$	2,133,001			$	35,824,623			$	7,615,340
Transfers In (1)	—				45,461				108,340				—				1,187				154,988				—
Transfers Out (2)	(6,775,013		)		(12,860		)		(153,656		)		—				(1,710		)		(6,943,239		)		—
Acquisitions	—				—				—				—				—				—				—
Purchases	1,822,388				2,641,247				1,308				1,489,967				1,615,298				7,570,208				—
Sales	(4,698,120		)		(1,601,897		)		(3,138		)		(127,906		)		(350,844		)		(6,781,905		)		—
Settlements	—				291,341				(883		)		—				—				290,458				—
Net Realized Gains (Losses)	1,806,962				(33,943		)		—				(2,035,726		)		61,533				(201,174		)		—
Net Unrealized Gains (Losses)	471,300				(496,416		)		(44,466		)		1,591,542				7,273				1,529,233				—
Change in Accounting Principle (3)	—				—				—				—				—				—				(7,615,340		)
Change in Other Comprehensive Income	—				(13,280		)		—				—				7,056				(6,224		)		—
Balance, End of Period	$	18,903,538			$	5,012,355			$	—			$	4,048,281			$	3,472,794			$	31,436,968			$	—
Changes in Net Unrealized Gains (Losses) Included in Net Gains (Losses) from Investment Activities related to Level III Assets and Liabilities still held as of the Reporting Date	$	1,820,279			$	(601,455	)		$	—			$	(442,524	)		$	26,992			$	803,292			$	—

Notes to Consolidated Financial Statements (Continued)

	For the Year Ended December 31, 2014
	Level III Assets																								Level III Liabilities
	Private Equity				Credit				Investments of Consolidated CFEs				Real Assets				Other				Total Level III Assets				Debt Obligations of Consolidated CFEs
Balance, Beg. of Period	$	29,646,471			$	1,944,464			$	—			$	2,736,708			$	348,486			$	34,676,129			$	—
Transfers In (1)	—				614,289				—				—				54,397				668,686				—
Transfers Out (2)	(7,081,883		)		(149,860		)		—				—				(202,010		)		(7,433,753		)		—
Acquisitions	82,986				405,720				97,996				35,192				606,914				1,228,808				6,814,217
Purchases	6,341,501				2,360,565				4,884				1,163,161				1,497,251				11,367,362				2,463,639
Sales	(5,767,506		)		(991,408		)		(15,907		)		(482,485		)		(152,406		)		(7,409,712		)		(1,435,708		)
Settlements	—				194,997				6,691				—				(2,054		)		199,634				3,988
Net Realized Gains (Losses)	2,312,973				(3,643		)		—				217,004				5,200				2,531,534				—
Net Unrealized Gains (Losses)	741,479				(156,221		)		(1,169		)		(539,176		)		(22,777		)		22,136				(23,840		)
Change in Other Comprehensive Income	—				(26,201		)		—				—				—				(26,201		)		(206,956		)
Balance, End of Period	$	26,276,021			$	4,192,702			$	92,495			$	3,130,404			$	2,133,001			$	35,824,623			$	7,615,340
Changes in Net Unrealized Gains (Losses) Included in Net Gains (Losses) from Investment Activities related to Level III Assets and Liabilities still held as of the Reporting Date	$	3,200,086			$	(127,323	)		$	(1,786	)		$	(543,891	)		$	(18,036	)		$	2,509,050			$	(23,840	)

(1)	The Transfers In noted in the tables above for credit, investments of consolidated CFEs and other investments are principally attributable to certain investments that experienced an insignificant level of market activity during the period and thus were valued in the absence of observable inputs.

(2)

The Transfers Out noted in the tables above for private equity investments are attributable to portfolio companies that are now valued using their publicly traded market price. The Transfers Out noted above for credit, investments of consolidated CFEs and other investments are principally attributable to certain investments that experienced a higher level of market activity during the period and thus were valued using observable inputs.

(3)

Upon adoption of ASU 2014-13, the debt obligations of consolidated CLOs are no longer Level III financial liabilities under the GAAP fair value hierarchy. As of December 31, 2015, the debt obligations of consolidated CLOs are measured on the basis of the fair value of the financial assets of the CLO and are classified as Level II financial liabilities. See Note 2 " Summary of Significant Accounting Policies".

Total realized and unrealized gains and losses recorded for Level III investments are reported in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. For private equity investments, there were three transfers for $5,539.0 million for the year ended December 31, 2015 between Level I and Level II investments. There was one transfer for $318.9 million between Level I and Level II for private equity investments during the year ended December 31, 2014. Transfers were attributable to portfolio companies that are now valued using their publicly traded market prices.

The following table presents additional information about valuation methodologies and significant unobservable inputs used for investments that are measured at fair value and categorized within Level III as of December 31, 2015:

	Fair Value December 31, 2015					Valuation Methodologies		Unobservable Input(s) (1)		Weighted Average (2)		Range			Impact to Valuation from an Increase in Input (3)
Private Equity Investments	$	18,903,538
Retail	$	3,583,195				Inputs to market comparable and discounted cash flow		Illiquidity Discount		8.2%		5.0% - 20.0%			Decrease
							Weight Ascribed to Market Comparables		49.9%		0% - 50.0%			(4)
							Weight Ascribed to Discounted Cash Flow		50.1%		50.0% - 100%			(5)
						Market comparables		Enterprise Value/LTM EBITDA Multiple		10.3x		5.6x - 13.6x			Increase
							Enterprise Value/Forward EBITDA Multiple		9.7x		5.5x - 13.2x			Increase
						Discounted cash flow		Weighted Average Cost of Capital		10.7%		9.1% - 24.7%			Decrease
							Enterprise Value/LTM EBITDA Exit Multiple		8.3x		6.0x - 10.0x			Increase

Notes to Consolidated Financial Statements (Continued)

Manufacturing	$	3,181,626				Inputs to market comparable, discounted cash flow and transaction cost		Illiquidity Discount		8.3%		5.0% - 15.0%			Decrease
							Weight Ascribed to Market Comparables		44.8%		33.3% - 50.0%			(4)
							Weight Ascribed to Discounted Cash Flow		53.6%		33.3% - 66.7%			(5)
							Weight Ascribed to Transaction Price		33.3%		33.3% - 33.3%			(6)
						Market comparables		Enterprise Value/LTM EBITDA Multiple		11.4x		8.0x - 16.5x			Increase
							Enterprise Value/Forward EBITDA Multiple		10.5x		7.8x - 12.9x			Increase
							Control Premium		20.0%		20.0% - 20.0%	(7)		Increase
						Discounted cash flow		Weighted Average Cost of Capital		13.0%		10.0% - 20.1%			Decrease
							Enterprise Value/LTM EBITDA Exit Multiple		9.3x		7.0x - 10.5x			Increase
Technology	$	3,090,729				Inputs to market comparable, discounted cash flow and transaction cost		Illiquidity Discount		10.7%		5.0% - 15.0%			Decrease
							Weight Ascribed to Market Comparables		50.2%		0% - 100%			(4)
							Weight Ascribed to Discounted Cash Flow		45.4%		0% - 100%			(5)
							Weight Ascribed to Transaction Price		34.3%		25.0% - 100%			(6)
						Market comparables		Enterprise Value/LTM EBITDA Multiple		13.8x		6.0x - 18.0x			Increase
							Enterprise Value/Forward EBITDA Multiple		11.6x		5.1x - 15.4x			Increase
						Discounted cash flow		Weighted Average Cost of Capital		11.5%		7.2% - 31.3%			Decrease
							Enterprise Value/LTM EBITDA Exit Multiple		9.3x		5.5x - 11.0x			Increase
Healthcare	$	2,276,992				Inputs to market comparable, discounted cash flow and transaction cost		Illiquidity Discount		8.9%		5.0% - 15.0%			Decrease
							Weight Ascribed to Market Comparables		38.2%		0% - 50.0%			(4)
							Weight Ascribed to Discounted Cash Flow		61.8%		50.0% - 100%			(5)
						Market comparables		Enterprise Value/LTM EBITDA Multiple		10.7x		10.4x - 11.9x			Increase
							Enterprise Value/Forward EBITDA Multiple		10.2x		10.0x - 10.8x			Increase
						Discounted cash flow		Weighted Average Cost of Capital		10.2%		8.6% - 11.8%			Decrease
							Enterprise Value/LTM EBITDA Exit Multiple		8.6x		7.5x - 10.0x			Increase
Other	$	6,770,996				Inputs to market comparable, discounted cash flow and transaction cost		Illiquidity Discount		11.8%		5.0% - 20.0%			Decrease
							Weight Ascribed to Market Comparables		45.3%		0% - 50.%			(4)
							Weight Ascribed to Discounted Cash Flow		50.9%		12.5% - 100%			(5)
							Weight Ascribed to Transaction Price		56.1%		33.3% - 75.0%			(6)
						Market comparables		Enterprise Value/LTM EBITDA Multiple		12.4x		5.9x - 33.1x			Increase
							Enterprise Value/Forward EBITDA Multiple		10.5x		5.5x - 17.8x			Increase
							Control Premium		15.7%		10.0% - 20.0%	(7	)	Increase
						Discounted cash flow		Weighted Average Cost of Capital		11.5%		7.4% - 20.0%			Decrease
							Enterprise Value/LTM EBITDA Exit Multiple		10.1x		6.0x - 12.0x			Increase
Real Assets	$	4,048,281
Energy	$	1,221,243				Discounted cash flow		Weighted Average Cost of Capital		11.1%		8.1% - 17.0%			Decrease
								Average Price Per BOE (10)		$34.37		$24.39- $41.70			Increase
Infrastructure	$	1,657,950				Discounted cash flow		Weighted Average Cost of Capital		7.6%		5.4% - 9.8%			Decrease
								Enterprise Value/LTM EBITDA Exit Multiple		10.4x		7.8x - 15.0x			Increase
Real Estate	$	1,169,088				Inputs to direct income capitalization and discounted cash flow		Weight Ascribed to Direct Income Capitalization		40.4%		0% - 100%			(9)
							Weight Ascribed to Discounted Cash Flow		59.6%		0% - 100%			(5)
						Direct Income Capitalization		Current Capitalization Rate		6.6%		5.1% - 10.9%			Decrease
						Discounted cash flow		Unlevered Discount Rate		10.9%		6.8% - 20.0%			Decrease
Credit	$	5,012,355		(8	)	Yield Analysis		Yield		9.4%		5.5% - 30.3%			Decrease
							Net Leverage		4.6x		0.5x - 18.3x			Decrease
							EBITDA Multiple		6.4x		0.8x - 25.4x			Increase

Notes to Consolidated Financial Statements (Continued)

In the table above, Other Investments, within private equity investments, represents the following industries: Financial Services, Consumer Products, Education, Energy, Forestry, Media, Services, Telecommunications, Transportation, Hotels/Leisure, Packaging, Agriculture and Recycling. None of these industries represents more than 10% of total Level III private equity investments as of December 31, 2015.

(1)

In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. Management has determined that market participants would take these inputs into account when valuing the investments. LTM means Last Twelve Months and EBITDA means Earnings Before Interest Taxes Depreciation and Amortization.

(2)	Inputs were weighted based on the fair value of the investments included in the range.

(3)	Unless otherwise noted, this column represents the directional change in the fair value of the Level III investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.

(4)

The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level III investments if the market comparables approach results in a higher valuation than the discounted cash flow approach and transaction price. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach and transaction price.

(5)

The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level III investments if the discounted cash flow approach results in a higher valuation than the market comparables approach, transaction price and direct income capitalization approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach and transaction price.

(6)

The directional change from an increase in the weight ascribed to the transaction price would increase the fair value of the Level III investments if the transaction price results in a higher valuation than the market comparables and discounted cash flow approach. The opposite would be true if the transaction price results in a lower valuation than the market comparables approach and discounted cash flow approach.

(7)	Level III private equity investments whose valuations include a control premium represent less than 10% of total Level III private equity investments. The valuations for the remaining investments do not include a control premium.

(8)	Amounts include $546.4 million of investments that were valued using dealer quotes or third party valuation firms.

(9)

The directional change from an increase in the weight ascribed to the direct income capitalization approach would increase the fair value of the Level III investments if the direct income capitalization approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the direct income capitalization approach results in a lower valuation than the discounted cash flow approach.

(10)

The total Energy fair value amount includes multiple investments (in multiple locations throughout North America) that are held in multiple investment funds and produce varying quantities of oil, condensate, natural gas liquids, and natural gas. Commodity price may be measured using a common volumetric equivalent where one barrel of oil equivalent, or BOE, is determined using the ratio of six thousand cubic feet of natural gas to one barrel of oil, condensate or natural gas liquids. The price per BOE is provided to show the aggregate of all price inputs for the various investments over a common volumetric equivalent although the valuations for specific investments may use price inputs specific to the asset for purposes of our valuations. The discounted cash flows include forecasted production of liquids (oil, condensate, and natural gas liquids) and natural gas with a forecasted revenue ratio of approximately 68% liquids and 32% natural gas.

In the table above, certain private equity investments may be valued at cost for a period of time after an acquisition as the best indicator of fair value. In addition, certain valuations of private equity investments may be entirely or partially derived by reference to observable valuation measures for a pending or consummated transaction.

The table above excludes Other Investments in the amount of $3.5 billion comprised primarily of privately-held equity and equity-like securities (e.g. warrants) in companies that are neither private equity, real assets nor credit investments. These investments were valued using Level III valuation methodologies that are generally the same as those shown for private equity investments.

The various unobservable inputs used to determine the Level III valuations may have similar or diverging impacts on valuation. Significant increases and decreases in these inputs in isolation and interrelationships between those inputs could result in significantly higher or lower fair value measurements as noted in the table above.

Notes to Consolidated Financial Statements (Continued)

6. NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. L.P. PER COMMON UNIT

For the years ended December 31, 2015, 2014, and 2013, basic and diluted Net Income (Loss) attributable to KKR & Co. L.P. per common unit were calculated as follows:

	For the Years Ended December 31,
	2015				2014				2013
Net Income (Loss) Attributable to KKR & Co. L.P.	$	488,482			$	477,611			$	691,226

Basic Net Income (Loss) Per Common Unit
Weighted Average Common Units Outstanding - Basic	448,884,185				381,092,394				274,910,628
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit - Basic	$	1.09			$	1.25			$	2.51

Diluted Net Income (Loss) Per Common Unit
Weighted Average Common Units Outstanding - Basic	448,884,185				381,092,394				274,910,628
Weighted Average Unvested Common Units and Other Exchangeable Securities	33,815,009				30,956,881				25,343,462
Weighted Average Common Units Outstanding - Diluted	482,699,194				412,049,275				300,254,090
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit - Diluted	$	1.01			$	1.16			$	2.30

Weighted Average Common Units Outstanding—Diluted primarily includes unvested equity awards that have been granted under the Equity Incentive Plan as well as exchangeable equity securities issued in connection with the acquisition of Avoca. Vesting or exchanges of these equity interests dilute KKR and KKR Holdings pro rata in accordance with their respective ownership interests in the KKR Group Partnerships.

	For the Years Ended December 31,
	2015			2014			2013
Weighted Average KKR Holdings Units Outstanding	368,399,872			388,198,713			414,581,851

For the years ended December 31, 2015, 2014 and 2013, KKR Holdings units have been excluded from the calculation of Net Income (Loss) attributable to KKR & Co. L.P. per common unit - diluted since the exchange of these units would not dilute KKR’s respective ownership interests in the KKR Group Partnerships.

Notes to Consolidated Financial Statements (Continued)

7. OTHER ASSETS AND ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Other Assets consist of the following:

	December 31, 2015				December 31, 2014
Foreign Exchange Contracts and Options (a)	$	635,183			$	517,088
Interest, Dividend and Notes Receivable (b)	372,699				594,288
Due from Broker (c)	365,678				561,554
Oil & Gas Assets, net (d)	355,537				460,658
Deferred Tax Assets, net	275,391				237,982
Fixed Assets, net (e)	226,340				76,247
Intangible Assets, net (f)	176,987				209,202
Goodwill (f)	89,000				89,000
Deferred Financing Costs	80,645				46,058
Receivables	78,297				55,876
Unsettled Investment Sales (g)	74,862				176,622
Deferred Transaction Related Expenses	35,422				14,981
Prepaid Taxes	24,326				31,267
Prepaid Expenses	13,697				8,812
Derivative Assets	5,703				11,897
Other	14,790				72,685
Total	$	2,824,557			$	3,164,217

(a)

Represents derivative financial instruments used to manage foreign exchange risk arising from certain foreign denominated investments. Such instruments are measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. The cost bases for these instruments at December 31, 2015 and 2014 was $27,191 and $2,332, respectively. See Note 3 “Net Gains (Losses) from Investment Activities” for the net changes in fair value associated with these instruments.

(b)	Represents interest and dividend receivables and promissory notes due from third parties. The promissory notes bear interest at rates ranging from 2.0% -3.0% per annum and mature between 2016 and 2018.

(c)	Represents amounts held at clearing brokers resulting from securities transactions.

(d) Includes proved and unproved oil and natural gas properties under the successful efforts method of accounting, which is net of impairment write-downs, accumulated depreciation, depletion and amortization. Depreciation, depletion and amortization amounted to $69.6 million and $86.2 million for the years ended December 31, 2015 and 2014, respectively. Whenever events or changes in circumstances indicate that the carrying amounts of such oil and natural gas properties may not be recoverable, KKR evaluates its proved and unproved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. For the years ended December 31, 2015 and 2014, KKR recorded impairment charges totaling approximately $54.0 million and $220.1 million, respectively, to write down certain of its oil and natural gas properties. The impairment charge is recorded in General, Administrative and Other in the consolidated statements of operations.

(e) Net of accumulated depreciation and amortization of $135,487 and $122,908 as of December 31, 2015 and 2014, respectively. Depreciation and amortization expense of $15,418, $15,923 and $14,714 for the years ended December 31, 2015, 2014 and 2013, respectively, is included in General, Administrative and Other in the accompanying consolidated statements of operations.

(f)	See Note 16 “Goodwill and Intangible Assets.”

(g)	Represents amounts due from third parties for investments sold for which cash settlement has not occurred.

Notes to Consolidated Financial Statements (Continued)

Accounts Payable, Accrued Expenses and Other Liabilities consist of the following:

	December 31, 2015				December 31, 2014
Amounts Payable to Carry Pool (a)	$	1,199,000			$	1,100,943
Unsettled Investment Purchases (b)	594,152				891,649
Securities Sold Short (c)	299,990				633,132
Accounts Payable and Accrued Expenses	112,007				119,491
Interest Payable	102,195				61,643
Foreign Exchange Contracts and Options (d)	83,748				71,956
Derivative Liabilities	104,518				75,150
Contingent Consideration Obligation (e)	46,600				40,600
Income Taxes Payable	8,770				6,362
Due to Broker (f)	27,121				72,509
Deferred Rent and Income	21,706				26,894
Accrued Compensation and Benefits	17,765				17,799
Other Liabilities	97,778				81,224
Total	$	2,715,350			$	3,199,352

(a)	Represents the amount of carried interest payable to principals, professionals and other individuals with respect to KKR’s active funds and co-investment vehicles that provide for carried interest.

(b)	Represents amounts owed to third parties for investment purchases for which cash settlement has not occurred.

(c)

Represents the obligations of KKR to deliver a specified security at a future point in time. Such securities are measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. See Note 3 “Net Gains (Losses) from Investment Activities” for the net changes in fair value associated with these instruments. The cost bases for these instruments at December 31, 2015 and 2014 were $298,838 and $628,071, respectively.

(d)

Represents derivative financial instruments used to manage foreign exchange risk arising from certain foreign denominated investments. Such instruments are measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. The cost bases for these instruments at December 31, 2015 and 2014 was $6,038 and $0, respectively. See Note 3 “Net Gains (Losses) from Investment Activities” for the net changes in fair value associated with these instruments.

(e)	Represents the fair value of the contingent consideration related to the acquisition of Prisma. During the year ended December 31, 2014, a portion of the obligation recorded as of June 30, 2014 was settled for $123.6 million. Of this amount, approximately $84.1 million was settled with the issuance of 3.7 million KKR & Co. L.P. common units.

(f)	Represents amounts owed for securities transactions initiated at clearing brokers.

Notes to Consolidated Financial Statements (Continued)

8. VARIABLE INTEREST ENTITIES

Consolidated VIEs

KKR consolidates certain VIEs in which it is determined that KKR is the primary beneficiary, which predominately are CFEs. In developing its conclusion that it is the primary beneficiary of these CFEs, KKR determined that it has more than an insignificant variable interest in these CFEs by virtue of its residual interest in these CFEs and, in certain cases, the presence of an incentive fee. These two variable interests were determined to expose KKR to a more than insignificant amount of these CFEs’ variability relative to its anticipated economic performance. In addition, KKR has the power to direct the activities that most significantly impact the economic performance of the entities. In each case, KKR’s variable interests represent an obligation to absorb losses of or a right to receive benefits from the entity that could potentially be significant to the entity. In consideration of these factors, KKR concluded that it was the primary beneficiary of these CFEs for consolidation accounting purposes. The primary purpose of these CFEs is to provide investment opportunities with the objective of generating current income for these CFE investors. The investment strategies of these CFEs are similar and the fundamental risks of these CFEs have similar characteristics, which include loss of invested capital and loss of management fees and/or incentive based fees in certain cases. KKR does not provide performance guarantees and has no other financial obligation to provide funding to these consolidated CFEs.

Unconsolidated VIEs

KKR holds variable interests in certain VIEs which are not consolidated as it is determined that KKR is not the primary beneficiary. VIEs that are not consolidated include (i) certain investment funds sponsored by KKR where the equity at risk to KKR is not considered substantive and (ii) certain CLO vehicles where KKR does not hold a variable interest that exposes KKR to a more than insignificant amount of the CLO vehicle’s variability.

Investments in Unconsolidated Investment Funds

KKR’s investment strategies differ by investment fund; however, the fundamental risks have similar characteristics, including loss of invested capital and loss of management fees and carried interests. KKR’s maximum exposure to loss as a result of its investments in the unconsolidated investment funds is the carrying value of such investments, which was $262.7 million at December 31, 2015. Accordingly disaggregation of KKR’s involvement by type of unconsolidated investment fund would not provide more useful information. For these unconsolidated investment funds in which KKR is the sponsor, KKR may have an obligation as general partner to provide commitments to such investment funds. As of December 31, 2015, KKR's commitments to these unconsolidated investment funds was $10.0 million. KKR has not provided any financial support other than its obligated amount as of December 31, 2015.

Investments in Unconsolidated CLO Vehicles

KKR provides collateral management services for, and has made nominal investments in, certain CLO vehicles that it does not consolidate. KKR’s investments in the unconsolidated CLO vehicles, if any, are carried at fair value in the consolidated statements of financial condition. KKR earns management fees, including subordinated collateral management fees, for managing the collateral of the CLO vehicles. At December 31, 2015, combined assets under management in the pools of unconsolidated CLO vehicles were $1.4 billion. KKR’s maximum exposure to loss as a result of its investments in the residual interests of unconsolidated CLO vehicles is the carrying value of such investments, which was $1.6 million at December 31, 2015. CLO investors in the CLO vehicles may only use the assets of the CLO to settle the debt of the related CLO, and otherwise have no recourse against KKR for any losses sustained in the CLO structures.

As of December 31, 2015 and 2014, the maximum exposure to loss, before allocations to the carry pool, if any, for those VIEs in which KKR is determined not to be the primary beneficiary but in which it has a variable interest is as follows:

	December 31, 2015				December 31, 2014
Investments	$	264,277			$	375,061
Due from Affiliates, net	4,315				3,478
Maximum Exposure to Loss	$	268,592			$	378,539

Notes to Consolidated Financial Statements (Continued)

9. DEBT OBLIGATIONS

KKR borrows and enters into credit agreements and issues debt for its general operating and investment purposes and certain of its investment funds borrow to meet financing needs of their operating and investing activities. In connection with the acquisition of KFN on April 30, 2014, KKR consolidates and reports KFN's debt obligations which are non-recourse to KKR beyond the assets of KFN.

Fund financing facilities have been established for the benefit of certain KKR investment funds. When a KKR investment fund borrows from the facility in which it participates, the proceeds from the borrowings are strictly limited for their intended use by the borrowing investment fund. KKR’s obligations with respect to these financing arrangements are generally limited to KKR’s pro-rata equity interest in such funds.

In addition, consolidated CFE vehicles issue debt securities to third party investors which are collateralized by assets held by the CFE vehicle. KKR bears no obligation with respect to financing arrangements at KKR’s consolidated CFEs. Debt securities issued by CFEs are supported solely by the assets held at the CFEs and are not collateralized by assets of any other KKR entity.

KKR’s borrowings consisted of the following:

	December 31,
	2015												2014
	Financing Available				Borrowing Outstanding				Fair Value				Financing Available				Borrowing Outstanding				Fair Value
Revolving Credit Facilities:
Corporate Credit Agreement	$	1,000,000			$	—			$	—			$	1,000,000			$	—			$	—
KCM Credit Agreement	500,000				—				—				473,000				27,000				27,000			(j)
Notes Issued:
KKR Issued 6.375% Notes Due 2020 (a)	—				499,012				578,510			(k)	—				498,804				583,692			(k)
KKR Issued 5.500% Notes Due 2043 (b)	—				494,836				517,880			(k)	—				494,644				566,250			(k)
KKR Issued 5.125% Notes Due 2044 (c)	—				998,589				994,960			(k)	—				493,214				539,797			(k)
KFN Issued 8.375% Notes Due 2041 (d)	—				289,660				273,965			(l)	—				290,861				287,359			(l)
KFN Issued 7.500% Notes Due 2042 (e)	—				123,346				120,425			(l)	—				123,663				125,856			(l)
KFN Issued Junior Subordinated Notes (f)	—				248,498				216,757				—				246,907				228,087
Other Consolidated Debt Obligations:
Fund Financing Facilities (g)	3,465,238				3,710,854				3,710,854			(m)	2,150,819				1,047,351				1,047,351			(m)
CLO Debt Obligations (h)	—				8,093,141				8,093,141				—				7,615,340				7,615,340
CMBS Debt Obligations (i)	—				4,272,081				4,272,081				—				—				—
	$	4,965,238			$	18,730,017			$	18,778,573			$	3,623,819			$	10,837,784			$	11,020,732

(a)	$500 million aggregate principal amount of 6.375% senior notes of KKR due 2020.

(b)	$500 million aggregate principal amount of 5.500% senior notes of KKR due 2043.

(c)	$1.0 billion aggregate principal amount of 5.125% senior notes of KKR due 2044.

(d)	KKR consolidates KFN and thus reports KFN’s outstanding $259 million aggregate principal amount of 8.375% senior notes due 2041.

(e)	KKR consolidates KFN and thus reports KFN’s outstanding $115 million aggregate principal amount of 7.500% senior notes due 2042.

(f)

KKR consolidates KFN and thus reports KFN’s outstanding $284 million aggregate principal amount of junior subordinated notes. The weighted average interest rate is 5.4% and the weighted average years to maturity is 21.0 years as of December 31, 2015. These debt obligations are classified as Level III within the fair value hierarchy and valued using the same valuation methodologies as KKR’s Level III credit investments.

(g)

Certain of KKR’s investment funds have entered into financing arrangements with major financial institutions, generally to enable such investment funds to make investments prior to or without receiving capital from fund limited partners. The weighted average interest rate is 2.3% and 2.9% as of December 31, 2015 and 2014, respectively. In addition, the weighted average years to maturity is 2.5 years and 2.9 years as of December 31, 2015 and 2014, respectively.

(h)	CLO debt obligations are carried at fair value and are classified as Level II within the fair value hierarchy. See Note 5 “Fair Value Measurements.”

(i)	CMBS debt obligations are carried at fair value and are classified as Level II within the fair value hierarchy. See Note 5 “Fair Value Measurements.”

(j)	Carrying value approximates fair value given the credit facility's interest rate is variable.

Notes to Consolidated Financial Statements (Continued)

(k)	The notes are classified as Level II within the fair value hierarchy and fair value is determined by third party broker quotes.

(l)	The notes are classified as Level I within the fair value hierarchy and fair value is determined by quoted prices in active markets since the debt is publicly listed.

(m)	Carrying value approximates fair value given the fund financing facilities’ interest rates are variable.

Revolving Credit Facilities

Corporate Credit Agreement

On October 22, 2014, Kohlberg Kravis Roberts & Co. L.P. and the KKR Group Partnerships, as borrowers, entered into a credit agreement with certain lending institutions and HSBC Bank USA, National Association, as Administrative Agent (the "Corporate Credit Agreement"). The Corporate Credit Agreement provides the borrowers with a senior unsecured multicurrency revolving credit facility in an aggregate principal amount of $1.0 billion, as of the closing date, with the option to request an increase in the facility amount of up to an additional $250 million, for an aggregate principal amount of $1.25 billion, subject to certain conditions, including obtaining new or increased commitments from new or existing lenders. The credit facility is a five‑year facility, scheduled to mature on October 22, 2019, with the borrowers’ option to extend the maturity date, subject to the consent of the applicable lenders, and the borrowers may prepay, terminate or reduce the commitments under the credit facility at any time without penalty. Interest on borrowings under the credit facility are based on either London Interbank Offered Rate (LIBOR) or Alternate Base Rate, with the applicable margin (per annum in excess of LIBOR or the Alternate Base Rate) based on a corporate ratings‑based pricing grid ranging from 69 basis points to 120 basis points (for LIBOR borrowings). Borrowings under the credit facility are guaranteed by KKR & Co. L.P. and any other entity (other than the borrowers) that guarantees the 2020 Senior Notes, 2043 Senior Notes or the 2044 Senior Notes. The Corporate Credit Agreement replaces a credit agreement dated February 26, 2008,which was terminated on October 22, 2014. For the years ended December 31, 2015 and 2014, no amounts were borrowed under the credit facility, except for a letter of credit of $15.0 million.

KCM Credit Agreement

On February 27, 2008, KKR Capital Markets entered into a revolving credit agreement with a major financial institution (the “KCM Credit Agreement”) for use in KKR’s capital markets business. This financial institution also holds an ownership interest in our capital markets business. The KCM Credit Agreement, as amended, provides for revolving borrowings of up to $500 million with a $500 million sublimit for letters of credit.

On March 30, 2012, an agreement was made to extend the maturity of the KCM Credit Agreement from February 27, 2013 to March 30, 2017. In addition to extending the term, certain other terms of the KCM Credit Agreement were renegotiated including a reduction of the cost of funding on amounts drawn and a reduced commitment fee. If a borrowing is made on the KCM Credit Agreement, the interest rate will vary depending on the type of drawdown requested. If the loan is a Eurocurrency Loan, it will be based on the LIBOR Rate plus the applicable margin which ranges initially between 1.25% and 2.50%, depending on the amount and nature of the loan. If the loan is an ABR Loan, it will be based on the Prime Rate plus the applicable margin which ranges initially between 0.25% and 1.50% depending on the amount and nature of the loan. Borrowings under this facility may only be used for KKR’s capital markets business, and its only obligors are entities involved in our capital markets business, and its liabilities are non-recourse to other parts of KKR's business.

For the year ended December 31, 2015, a total of $97 million was borrowed under the KCM Credit Agreement. Repayments under the KCM Credit Agreement were $124 million for the year ended December 31, 2015. For the year ended December 31, 2014, $751.0 million was borrowed and $724.0 million was repaid under the credit facility.

Notes Issued

KKR Issued 6.375% Notes Due 2020

On September 29, 2010, KKR Group Finance Co. LLC, a subsidiary of KKR Management Holdings Corp., issued $500 million aggregate principal amount of 6.375% Senior Notes (the “2020 Senior Notes”), which were issued at a price of 99.584%. The 2020 Senior Notes are unsecured and unsubordinated obligations of KKR Group Finance Co. LLC and will mature on September 29, 2020, unless earlier redeemed or repurchased. The 2020 Senior Notes are fully and unconditionally guaranteed, jointly and severally, by KKR & Co. L.P. and the KKR Group Partnerships. The guarantees are unsecured and unsubordinated obligations of the guarantors.

The 2020 Senior Notes bear interest at a rate of 6.375% per annum, accruing from September 29, 2010. Interest is payable semi‑annually in arrears on March 29 and September 29 of each year.

Notes to Consolidated Financial Statements (Continued)

The indenture, as supplemented by a first supplemental indenture, relating to the 2020 Senior Notes includes covenants, including limitations on KKR Group Finance Co. LLC and the guarantors’ ability to, subject to exceptions, incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The indenture, as supplemented, also provides for events of default and further provides that the trustee or the holders of not less than 25% in aggregate principal amount of the outstanding 2020 Senior Notes may declare the 2020 Senior Notes immediately due and payable upon the occurrence and during the continuance of any event of default after expiration of any applicable grace period. In the case of specified events of bankruptcy, insolvency, receivership or reorganization, the principal amount of the 2020 Senior Notes and any accrued and unpaid interest on the 2020 Senior Notes automatically becomes due and payable. All or a portion of the 2020 Senior Notes may be redeemed at the issuer’s option in whole or in part, at any time, and from time to time, prior to their stated maturity, at the make‑whole redemption price set forth in the 2020 Senior Notes. If a change of control repurchase event occurs, the 2020 Senior Notes are subject to repurchase by the issuer at a repurchase price in cash equal to 101% of the aggregate principal amount of the 2020 Senior Notes repurchased plus any accrued and unpaid interest on the 2020 Senior Notes repurchased to, but not including, the date of repurchase.

KKR Issued 5.500% Notes Due 2043

On February 1, 2013, KKR Group Finance Co. II LLC, a subsidiary of KKR Management Holdings Corp., issued $500 million aggregate principal amount of 5.50% Senior Notes (the “2043 Senior Notes”), which were issued at a price of 98.856%. The 2043 Senior Notes are unsecured and unsubordinated obligations of KKR Group Finance Co. II LLC and will mature on February 1, 2043, unless earlier redeemed or repurchased. The 2043 Senior Notes are fully and unconditionally guaranteed, jointly and severally, by KKR & Co. L.P. and the KKR Group Partnerships. The guarantees are unsecured and unsubordinated obligations of the guarantors.

The 2043 Senior Notes bear interest at a rate of 5.50% per annum, accruing from February 1, 2013. Interest is payable semi‑annually in arrears on February 1 and August 1 of each year.

The indenture, as supplemented by a first supplemental indenture, relating to the 2043 Senior Notes includes covenants, including limitations on KKR Group Finance Co. II LLC and the guarantors’ ability to, subject to exceptions, incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The indenture, as supplemented, also provides for events of default and further provides that the trustee or the holders of not less than 25% in aggregate principal amount of the outstanding 2043 Senior Notes may declare the 2043 Senior Notes immediately due and payable upon the occurrence and during the continuance of any event of default after expiration of any applicable grace period. In the case of specified events of bankruptcy, insolvency, receivership or reorganization, the principal amount of the 2043 Senior Notes and any accrued and unpaid interest on the 2043 Senior Notes automatically becomes due and payable. All or a portion of the 2043 Senior Notes may be redeemed at the issuer’s option in whole or in part, at any time, and from time to time, prior to their stated maturity, at the make‑whole redemption price set forth in the 2043 Senior Notes. If a change of control repurchase event occurs, the 2043 Senior Notes are subject to repurchase by the issuer at a repurchase price in cash equal to 101% of the aggregate principal amount of the 2043 Senior Notes repurchased plus any accrued and unpaid interest on the 2043 Senior Notes repurchased to, but not including, the date of repurchase.

KKR Issued 5.125% Notes Due 2044

On May 29, 2014, KKR Group Finance Co. III LLC, a subsidiary of KKR Management Holdings Corp., issued $500 million aggregate principal amount of 5.125% Senior Notes due 2044 (the “2044 Senior Notes”), which were issued at a price of 98.612%. The 2044 Senior Notes are unsecured and unsubordinated obligations of the issuer and will mature on June 1, 2044, unless earlier redeemed or repurchased. The 2044 Senior Notes are fully and unconditionally guaranteed, jointly and severally, by KKR & Co. L.P. and the KKR Group Partnerships. The guarantees are unsecured and unsubordinated obligations of the guarantors.

The 2044 Senior Notes bear interest at a rate of 5.125% per annum, accruing from May 29, 2014. Interest is payable semi‑annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2014.

The indenture, as supplemented by a first supplemental indenture, relating to the 2044 Senior Notes includes covenants, including limitations on the issuer’s and the guarantors’ ability to, subject to exceptions, incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The indenture, as supplemented, also provides for events of default and further provides that the trustee or the holders of not less than 25% in aggregate principal amount of the outstanding 2044 Senior Notes may declare the 2044 Senior Notes immediately due and payable upon the occurrence and during the continuance of any event of default after expiration of any applicable grace period. In the case of specified events of bankruptcy, insolvency, receivership or reorganization, the principal amount of the 2044 Senior Notes and any accrued and unpaid interest on the 2044 Senior Notes automatically becomes due and

Notes to Consolidated Financial Statements (Continued)

payable. All or a portion of the 2044 Senior Notes may be redeemed at the issuer’s option in whole or in part, at any time, and from time to time, prior to their stated maturity, at the make‑whole redemption price set forth in the 2044 Senior Notes. If a change of control repurchase event occurs, the 2044 Senior Notes are subject to repurchase by the issuer at a repurchase price in cash equal to 101% of the aggregate principal amount of the 2044 Senior Notes repurchased plus any accrued and unpaid interest on the 2044 Senior Notes repurchased to, but not including, the date of repurchase.

On March 18, 2015, KKR Group Finance Co. III LLC, a subsidiary of KKR Management Holdings Corp., issued an additional $500 million aggregate principal amount of its 2044 Notes, which were priced at 101.062%. The 2044 Notes issued in March 2015 form a single series with the 2044 Notes issued in May 2014, and the terms are identical to each other except for the issue date, issue price, the first payment date, June 1, 2015, and the date from which interest begins to accrue for the 2044 Notes issued in March 2015.

KFN Issued 8.375% Notes Due 2041

On November 15, 2011, KFN issued $258.8 million par amount of 8.375% Senior Notes (“KFN 2041 Senior Notes”), resulting in net proceeds to KFN of $250.7 million. The notes trade under the ticker symbol “KFH” on the NYSE. Interest on the 8.375% Senior Notes is payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year. The KFN 2041 Senior Notes will mature on November 15, 2041 unless previously redeemed or repurchased in accordance with their terms prior to such date. KFN may redeem the KFN 2041 Senior Notes, in whole or in part, at any time on or after November 15, 2016 at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. Upon a change of control and reduction in the KFN 2041 Senior Notes’ ratings to below investment grade by two nationally recognized statistical ratings organizations, as defined in the indenture, KFN will be required to make an offer to repurchase all outstanding KFN 2041 Senior Notes at a price in cash equal to 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. The KFN 2041 Senior Notes contain certain restrictions on KFN’s ability to create liens over its equity interests in its subsidiaries and to merge, consolidate or sell all or substantially all of its assets. If an event of default with respect to the KFN 2041 Senior Notes occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding may declare the principal of the notes to be due and payable immediately.

KFN Issued 7.500% Notes Due 2042

On March 20, 2012, KFN issued $115.0 million par amount of 7.500% Senior Notes (“KFN 2042 Senior Notes”), resulting in net proceeds to KFN of $111.4 million. The notes trade under the ticker symbol “KFI” on the NYSE. Interest on the 7.500% Senior Notes is payable quarterly in arrears on June 20, September 20, December 20 and March 20 of each year. The KFN 2042 Senior Notes will mature on March 20, 2042 unless previously redeemed or repurchased in accordance with their terms prior to such date. KFN may redeem the KFN 2042 Senior Notes, in whole or in part, at any time on or after March 20, 2017 at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. Upon a change of control and reduction in the KFN 2042 Senior Notes’ ratings to below investment grade by two nationally recognized statistical ratings organizations, all terms as defined in the applicable indenture, KFN will be required to make an offer to repurchase all outstanding KFN 2042 Senior Notes at a price in cash equal to 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. The KFN 2042 Senior Notes contain certain restrictions on KFN’s ability to create liens over its equity interests in its subsidiaries and to merge, consolidate or sell all or substantially all of its assets, subject to qualifications and limitations set forth in the applicable indenture. Otherwise, the Indenture does not contain any provisions that would limit KFN's ability to incur indebtedness. If an event of default with respect to the KFN 2042 Senior Notes occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding may declare the principal of the notes to be due and payable immediately.

KFN Issued Junior Subordinated Notes

KFN has also established six 30‑year trusts from 2006 through 2007 for the sole purpose of issuing trust preferred securities. These trusts issued preferred securities to unaffiliated investors and common securities to KFN. The combined proceeds were invested by the trusts in junior subordinated notes issued by KFN. The junior subordinated notes are the sole assets of trusts and mature between 2036 and 2037. Interest is payable quarterly and are fixed, floating or a combination among the six trusts.

Other Consolidated Debt Obligations

Fund Financing Facilities

Certain of KKR’s investment funds have entered into financing arrangements with major financial institutions, generally in connection with the management of capital calls to fund limited partners to provide liquidity to such investment funds. These

Notes to Consolidated Financial Statements (Continued)

financing arrangements are generally not direct obligations of the general partners of KKR’s investment funds or its management companies. Such borrowings have varying maturities and bear interest at floating rates. Borrowings are generally secured by the investment purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective fund. When an investment vehicle borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of other investment vehicles or KKR. Collateral within each investment vehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or KKR. For the years ended December 31, 2015 and 2014, $7.2 billion was borrowed and $3.6 billion was repaid and $2.4 billion was borrowed and $2.2 billion was repaid, respectively.

Debt Obligations of Consolidated CFEs

As of December 31, 2015, debt obligations of consolidated CFEs consisted of the following:

	Borrowing Outstanding				Weighted Average Interest Rate			Weighted Average Remaining Maturity in Years
Senior Secured Notes of Consolidated CLOs	$	7,802,665			2.2	%		9.8
Debt Obligations of Consolidated CMBS Vehicles	4,272,081				3.4	%		33.0
Subordinated Notes of Consolidated CLOs	290,476				(a)			8.9
	$	12,365,222

(a) The subordinated notes do not have contractual interest rates but instead receive a pro rata amount of the net distributions from the excess cash flows of the respective CLO vehicle. Accordingly, weighted average borrowing rates for the subordinated notes are based on cash distributions during the period, if any.

Debt obligations of consolidated CFEs are collateralized by assets held by each respective CFE vehicle and assets of one CFE vehicle may not be used to satisfy the liabilities of another. As of December 31, 2015, the fair value of the consolidated CFE assets was $13.8 billion. This collateral consisted of Cash and Cash Equivalents Held at Consolidated Entities, Investments, and Other Assets.

As part of KKR’s borrowing arrangements, KKR is subject to certain financial and operating covenants. KKR was in compliance with all of its debt covenants as of December 31, 2015.

Scheduled principal payments for debt obligations at December 31, 2015 are as follows:

	Revolving Credit Facilities				Notes Issued				Other Consolidated Debt Obligations				Total
2016	$	—			$	—			$	1,512,122			$	1,512,122
2017 ‑ 2018	—				—				1,594,913				1,594,913
2019 ‑ 2020	—				500,000				892,839				1,392,839
2021 and Thereafter	—				2,157,250				12,156,682				14,313,932
	$	—			$	2,657,250			$	16,156,556			$	18,813,806

Notes to Consolidated Financial Statements (Continued)

10. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

	For the Years Ended December 31,
	2015				2014				2013
Current
Federal Income Tax	$	27,978			$	29,388			$	35,234
State and Local Income Tax	6,320				8,921				6,269
Foreign Income Tax	42,036				31,972				22,740
Subtotal	76,334				70,281				64,243
Deferred
Federal Income Tax	(19,133		)		(6,327		)		(21,277		)
State and Local Income Tax	8,264				344				(4,319		)
Foreign Income Tax	1,171				(629		)		(721		)
Subtotal	(9,698		)		(6,612		)		(26,317		)
Total Income Taxes	$	66,636			$	63,669			$	37,926

The following table reconciles the U.S. Federal Statutory Tax Rate to the Effective Income Tax Rate:

	For the Years Ended December 31,
	2015			2014			2013
Statutory U.S. Federal Income Tax Rate	35.00	%		35.00	%		35.00	%
Income not attributable to KKR Management Holdings Corp. (a)	(36.04	)%		(36.36	)%		(35.84	)%
Foreign Income Taxes	0.81	%		0.58	%		0.28	%
State and Local Income Taxes	0.21	%		0.13	%		0.00	%
Compensation Charges Borne by KKR Holdings	1.92	%		2.08	%		1.35	%
Change in Valuation Allowance	0.29	%		0.08	%		—	%
Other	(0.94	)%		(0.34	)%		(0.31	)%
Effective Income Tax Rate	1.25	%		1.17	%		0.48	%

(a)	Represents primarily income attributable to (i) redeemable noncontrolling interests, (ii) noncontrolling interests and appropriated capital and (iii) investment income of certain entities and net carried interest of certain general partners of KKR investment funds that are not controlled and consolidated by KKR Management Holdings L.P.

Notes to Consolidated Financial Statements (Continued)

Deferred income taxes reflect the net tax effects of temporary differences that may exist between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. A summary of the tax effects of the temporary differences is as follows:

	As of December 31,
	2015				2014
Deferred Tax Assets
Fund Management Fees	$	76,017			$	74,775
Equity Based Compensation	32,193				27,373
KKR Holdings Unit Exchanges (a)	156,202				147,531
Depreciation and Amortization	34,128				30,571
Federal Foreign Tax Credit	25,041				6,389
Other	10,291				904
Total Deferred Tax Assets before Valuation Allowance	333,872				287,543
Valuation Allowance	(19,781		)		(4,153		)
Total Deferred Tax Assets	314,091				283,390
Deferred Tax Liabilities
Investment Basis Differences / Net Unrealized Gains	38,700				45,408
Total Deferred Tax Liabilities	38,700				45,408
Total Deferred Taxes, Net	$	275,391			$	237,982

(a)

In connection with exchanges of KKR Holdings units into common units of KKR & Co. L.P., KKR records a deferred tax asset associated with an increase in KKR Management Holdings Corp.’s share of the tax basis of the tangible and intangible assets of KKR Management Holdings L.P. This amount was offset by an adjustment to record amounts due to KKR Holdings and principals under the tax receivable agreement, which is included within Due to Affiliates in the consolidated statements of financial condition. The net impact of these adjustments was recorded as an adjustment to equity at the time of the exchanges.

Future realization of the above deferred tax assets is dependent on KKR generating sufficient taxable income within the period of time that the tax benefits are expected to reverse. KKR considers projections of taxable income in evaluating its ability to utilize those deferred tax assets. In projecting its taxable income, KKR begins with historical results and incorporates assumptions concerning the amount and timing of future pretax operating income. Those assumptions require significant judgment and are consistent with the plans and estimates that KKR uses to manage its business. As of December 31, 2015, KKR had a federal foreign tax credit (“FTC”) carryforward of $25 million. The FTCs are related to taxes paid in foreign jurisdictions, which if not utilized, will begin to expire in 2024. KKR has determined that a portion of the FTC carryforward will not ultimately be realized due to federal limitations on FTC utilization. Therefore, KKR has established a valuation allowance of $19.8 million as of December 31, 2015 against the deferred tax asset. For all other deferred tax assets, KKR has determined that it is more likely than not that they will be realized and that a valuation allowance is not needed as of December 31, 2015. In addition, because KKR has not recorded an operating loss since its inception, KKR has not recorded a deferred tax asset for any federal or state net operating tax loss carry forwards.

KKR files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, KKR is subject to examination by federal and certain state, local and foreign tax regulators. As of December 31, 2015, the federal, state and local tax returns of KKR and its predecessor entities for the years 2012 through 2014 are open under normal statute of limitations and are therefore subject to examination.

Notes to Consolidated Financial Statements (Continued)

At December 31, 2015, 2014 and 2013, KKR’s unrecognized tax benefits, excluding related interest and penalties, were:

	For the Years Ended December 31,
	2015				2014				2013
Unrecognized Tax Benefits, beginning of period	$	7,180			$	6,028			$	4,627
Gross increases in tax positions in prior periods	—				44				—
Gross decreases in tax positions in prior periods	(116		)		—				(33		)
Gross increases in tax positions in current period	15,959				1,369				2,741
Lapse of statute of limitations	(231		)		(261		)		(1,307		)
Unrecognized Tax Benefits, end of period	$	22,792			$	7,180			$	6,028

If the above tax benefits were recognized it would reduce the annual effective income tax rate. KKR believes that there will not be a significant increase or decrease to the tax positions within 12 months of the reporting date.

The unrecognized tax benefits are recorded in Accounts Payable, Accrued Expenses and Other Liabilities. KKR recognizes interest and penalties accrued related to unrecognized tax positions in income taxes. For the years ended December 31, 2015, 2014 and 2013, interest and penalties included in KKR’s tax provision were immaterial.

Notes to Consolidated Financial Statements (Continued)

11. EQUITY BASED COMPENSATION

The following table summarizes the expense associated with equity based compensation for the years ended December 31, 2015, 2014 and 2013, respectively.

	Year Ended December 31,
	2015				2014				2013
Equity Incentive Plan Units	$	186,346			$	158,927			$	114,709
Other Exchangeable Securities	16,119				22,464				—
KKR Holdings Principal Awards	6,726				29,838				88,641
KKR Holdings Restricted Equity Units	132				887				3,768
Discretionary Compensation	52,256				98,287				100,396
Total	$	261,579			$	310,403			$	307,514

Equity Incentive Plan

Under the Equity Incentive Plan, KKR is permitted to grant equity awards representing ownership interests in KKR & Co. L.P. common units. Vested awards under the Equity Incentive Plan dilute KKR & Co. L.P. common unitholders and KKR Holdings pro rata in accordance with their respective percentage interests in the KKR Group Partnerships.

The total number of common units that may be issued under the Equity Incentive Plan is equivalent to 15% of the number of fully diluted common units outstanding, subject to annual adjustment. Equity awards have been granted under the Equity Incentive Plan and are generally subject to service based vesting, typically over a three to five year period from the date of grant. In certain cases, these awards are subject to transfer restrictions and/or minimum retained ownership requirements. The transfer restriction period, if applicable, lasts for (i) one year with respect to one-half of the interests vesting on any vesting date and (ii) two years with respect to the other one-half of the interests vesting on such vesting date. While providing services to KKR, if applicable, certain of these recipients are also subject to minimum retained ownership rules requiring them to continuously hold common unit equivalents equal to at least 15% of their cumulatively vested interests.

Expense associated with the vesting of these awards is based on the closing price of the KKR & Co. L.P. common units on the date of grant, discounted for the lack of participation rights in the expected distributions on unvested units, which ranges from 8% to 56% (for awards granted prior to December 31, 2015) multiplied by the number of unvested units on the grant date. The grant date fair value of a KKR & Co. L.P. common unit reflects a discount for lack of distribution participation rights, because equity awards are not entitled to receive distributions while unvested. The discount range for awards granted prior to December 31, 2015 was based on management’s estimates of future distributions that unvested equity awards will not be entitled to receive between the grant date and the vesting date. Therefore, units granted prior to December 31, 2015 that vest in earlier periods have a lower discount as compared to units that vest in later periods, which have a higher discount. The discount range will generally increase when the level of expected annual distributions increased relative to the grant date fair value of a KKR & Co. L.P. common unit. A decrease in expected annual distributions relative to the grant date fair value of a KKR & Co. L.P. common unit would generally have the opposite effect.

In connection with the change to KKR's distribution policy effective beginning with the distribution declared on February 11, 2016, KKR intends to make equal quarterly distributions to holders of its common units in an amount of $0.16 per common unit per quarter ($0.64 per year). Accordingly, for grants under the Equity Incentive Plan made subsequent to December 31, 2015, the discount for the lack of participation rights in the expected distributions on unvested units will based on the $0.64 expected annual distribution.

Expense is recognized on a straight line basis over the life of the award and assumes a forfeiture rate of up to 8% annually based upon expected turnover by class of recipient.

Notes to Consolidated Financial Statements (Continued)

As of December 31, 2015, there was approximately $225.3 million of estimated unrecognized expense related to unvested

awards. That cost is expected to be recognized as follows:

Year		Unrecognized Expense (in millions)
2016		$	130.0
2017		76.0
2018		18.7
2019		0.6
Total		$	225.3

A summary of the status of unvested awards granted under the Equity Incentive Plan from January 1, 2015 through December 31, 2015 is presented below:

	Units			Weighted Average Grant Date Fair Value
Balance, January 1, 2015	20,488,737			$	12.33
Granted	16,104,931			16.98
Vested	(10,648,392	)		13.85
Forfeited	(2,817,048	)		14.44
Balance, December 31, 2015	23,128,228			$	14.61

The weighted average remaining vesting period over which unvested awards are expected to vest is 1.1 years.

A summary of the remaining vesting tranches of awards granted under the Equity Incentive Plan is presented below:

Vesting Date		Units
April 1, 2016		7,136,962
October 1, 2016		4,189,133
April 1, 2017		5,320,984
October 1, 2017		1,338,201
April 1, 2018		4,055,043
October 1, 2018		997,308
April 1, 2019		6,947
October 1, 2019		83,650
		23,128,228

Subsequent to December 31, 2015, approximately 13.3 million common units were issued under the Equity Incentive Plan with terms and conditions substantially the same as the units described above.

Other Exchangeable Securities

In connection with the acquisition of Avoca, KKR issued 2,545,602 equity securities of a subsidiary of a KKR Group Partnership and of KKR & Co. L.P. both of which are exchangeable into common units of KKR & Co. L.P. on a one-for-one basis (“Other Exchangeable Securities”). Certain Other Exchangeable Securities are subject to time based vesting (generally over a three-year period from February 19, 2014) and are not exchangeable into common units until vested, and in certain cases are subject to minimum retained ownership requirements and transfer restrictions. Consistent with grants of KKR Holdings awards and grants made under the KKR Equity Incentive Plan, holders of Other Exchangeable Securities are not entitled to receive distributions while unvested.

The fair value of Other Exchangeable Securities is based on the closing price of KKR & Co. L.P. common units on the date of grant. KKR determined this to be the best evidence of fair value as a KKR & Co. L.P. common unit is traded in an active market and has an observable market price. Additionally, Other Exchangeable Securities are instruments with terms and

Notes to Consolidated Financial Statements (Continued)

conditions similar to those of a KKR & Co. L.P. common unit. Specifically, these Other Exchangeable Securities are exchangeable into KKR & Co. L.P. common units on a one-for-one basis upon vesting.

Expense associated with the vesting of these Other Exchangeable Securities is based on the closing price of a KKR & Co. L.P. common unit on the date of grant, discounted for the lack of participation rights in the expected distributions on unvested Other Exchangeable Securities, which currently ranges from 8% to 56% (for awards granted prior to December 31, 2015) multiplied by the number of unvested Other Exchangeable Securities on the issuance date. The discount range was based on management’s estimates of future distributions that unvested Other Exchangeable Securities will not be entitled to receive between the issuance date and the vesting date. Therefore, Other Exchangeable Securities granted prior to December 31, 2015 that vest in earlier periods have a lower discount as compared to Other Exchangeable Securities that vest in later periods, which have a higher discount. The discount range will generally increase when the level of expected annual distributions increases relative to the issuance date fair value of a KKR & Co. L.P. common unit. A decrease in expected annual distributions relative to the grant date fair value of a KKR & Co. L.P. common unit would generally have the opposite effect. No Other Exchangeable Securities are anticipated to be issued subsequent to December 31, 2015. Expense is recognized on a straight line basis over the life of the security and assumes a forfeiture rate of up to 8% annually based upon expected turnover by class of recipient.

As of December 31, 2015, there was approximately $9.6 million of estimated unrecognized expense related to unvested Other Exchangeable Securities. That cost is expected to be recognized by October 1, 2016.

A summary of the status of unvested Other Exchangeable Securities from January 1, 2015 through December 31, 2015 is presented below:

	Units			Weighted Average Grant Date Fair Value
Balance, January 1, 2015	1,695,972			$	18.45
Granted	—			—
Vested	(847,983	)		19.62
Forfeited	—			—
Balance, December 31, 2015	847,989			$	17.28

The weighted average remaining vesting period over which unvested Other Exchangeable Securities are expected to vest is less than one year and all units will vest on October 1, 2016.

KKR Holdings—Principal Awards

Certain KKR employees and non-employee operating consultants and other service providers received grants of KKR Holdings units (“Principal Awards”) which are exchangeable for KKR Group Partnership Units. These units are generally subject to minimum retained ownership requirements and allow for their exchange into common units of KKR & Co. L.P. on a one-for-one basis. As of December 31, 2015 and 2014, KKR Holdings owned approximately 44.1%, or 361,346,588 and 46.5%, or 377,196,749, respectively, of the outstanding KKR Group Partnership Units. Substantially all Principal Awards are fully vested as of October 1, 2015 and there is no material unrecognized expense with respect to them.

KKR Holdings—Restricted Equity Units

Grants of restricted equity units based on KKR Group Partnership Units held by KKR Holdings were made to professionals, support staff, and other personnel (“Holdings REU Awards”). These grants are funded by KKR Holdings and do not dilute KKR’s interests in the KKR Group Partnerships. Substantially all Holdings REU Awards were fully vested as of April 1, 2015 and there is no material unrecognized expense with respect to them.

KKR Holdings - Market Condition Awards

In 2016, certain KKR employees and non-employee operating consultants received grants of approximately 28.9 million KKR Holdings units subject to price and service-based vesting requirements (“Market Condition Awards”). Tranches of these Market Condition Awards become eligible to vest periodically over a three year period beginning on January 1, 2018, upon satisfaction of a service-based vesting condition and also a price vesting condition based on the price of KKR common units reaching and maintaining certain specified price thresholds for a specified period of time. None of these Market Condition

Notes to Consolidated Financial Statements (Continued)

Awards are eligible to vest prior to January 1, 2018 and if applicable price targets are not achieved by the close of business on January 1, 2021, any unvested Market Condition Awards will be automatically canceled and forfeited. These Market Condition Awards are not subject to additional transfer restrictions after vesting but are subject to minimum retained ownership requirements.

The Market Condition Awards are outstanding but previously unallocated units, and consequently these grants will not increase the number of KKR Holdings units outstanding and if and when vested and exchanged, these Incentive Awards would not dilute KKR's respective ownership interests in the KKR Group Partnerships.

Discretionary Compensation

All KKR employees and certain employees of certain consolidated entities are eligible to receive discretionary cash bonuses. While cash bonuses paid to most employees are borne by KKR and certain consolidated entities and result in customary compensation and benefits expense, cash bonuses that are paid to certain principals are currently borne by KKR Holdings. These bonuses are funded with distributions that KKR Holdings receives on KKR Group Partnership Units held by KKR Holdings but are not then passed on to holders of unvested units of KKR Holdings. Because principals are not entitled to receive distributions on units that are unvested, any amounts allocated to principals in excess of a principal’s vested equity interests are reflected as employee compensation and benefits expense. These compensation charges are recorded based on the unvested portion of quarterly earnings distributions received by KKR Holdings at the time of the distribution.

Notes to Consolidated Financial Statements (Continued)

12. RELATED PARTY TRANSACTIONS

Due from Affiliates consists of:

	December 31, 2015				December 31, 2014
Amounts due from portfolio companies	$	46,716			$	64,989
Amounts due from unconsolidated investment funds	74,409				47,229
Amounts due from related entities	18,658				34,838
Due from Affiliates	$	139,783			$	147,056

Due to Affiliates consists of:

	December 31, 2015				December 31, 2014
Amounts due to KKR Holdings in connection with the tax receivable agreement	$	127,962			$	121,803
Amounts due to related entities	16,845				9,745
Due to Affiliates	$	144,807			$	131,548

Tax Receivable Agreement

KKR and certain intermediate holding companies that are taxable corporations for U.S. federal, state and local income tax purposes, may be required to acquire KKR Group Partnership Units from time to time pursuant to the exchange agreement with KKR Holdings. KKR Management Holdings L.P. made an election under Section 754 of the Internal Revenue Code that will remain in effect for each taxable year in which an exchange of KKR Group Partnership Units for common units occurs, which may result in an increase in KKR’s intermediate holding companies’ share of the tax basis of the assets of the KKR Group Partnerships at the time of an exchange of KKR Group Partnership Units. Certain of these exchanges are expected to result in an increase in KKR’s intermediate holding companies’ share of the tax basis of the tangible and intangible assets of the KKR Group Partnerships, primarily attributable to a portion of the goodwill inherent in KKR’s business that would not otherwise have been available. This increase in tax basis may increase depreciation and amortization deductions for tax purposes and therefore reduce the amount of income tax KKR’s intermediate holding companies would otherwise be required to pay in the future. This increase in tax basis may also decrease gain (or increase loss) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

KKR has entered into a tax receivable agreement with KKR Holdings, which requires KKR’s intermediate holding companies to pay to KKR Holdings, or to current and former principals who have exchanged KKR Holdings units for KKR common units (as transferees of KKR Group Partnership Units), 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the intermediate holding companies realize as a result of the increase in tax basis described above, as well as 85% of the amount of any such savings the intermediate holding companies realize as a result of increases in tax basis that arise due to future payments under the agreement. A termination of the agreement or a change of control could give rise to similar payments based on tax savings that KKR would be deemed to realize in connection with such events. In the event that other of KKR’s current or future subsidiaries become taxable as corporations and acquire KKR Group Partnership Units in the future, or if KKR becomes taxable as a corporation for U.S. federal income tax purposes, KKR expects that each will become subject to a tax receivable agreement with substantially similar terms.

These payment obligations are obligations of KKR’s intermediate holding companies and not the KKR Group Partnerships and are recorded within Due to Affiliates in the accompanying consolidated statements of financial condition. As such, cash payments received by common unitholders may vary from those received by holders of KKR Group Partnership Units held by KKR Holdings and KKR’s current and former principals to the extent payments are made to those parties under the tax receivable agreement. Payments made under the tax receivable agreement are required to be made within 90 days of the filing of the tax returns of KKR’s intermediate holding companies which may result in a timing difference between the tax savings received by KKR’s intermediate holdings companies and the cash payments made to the selling holders of KKR Group Partnership Units.

For the years ended December 31, 2015, 2014 and 2013, cash payments that have been made under the tax receivable agreement were $5.7 million, $5.7 million and $4.7 million, respectively. KKR expects its intermediate holding companies to benefit from the remaining 15% of cash savings, if any, in income tax that they realize. As of December 31, 2015, $3.4 million of cumulative income tax savings have been realized.

Notes to Consolidated Financial Statements (Continued)

Discretionary Investments

Certain of KKR’s investment professionals, including its principals and other qualifying personnel are permitted to invest, and have invested, their own capital in side‑by‑side investments with KKR’s investment vehicles and with KKR in its strategic partnerships with and seed investments in other asset managers. Side‑by‑side investments are made on the same terms and conditions as those acquired by the applicable investment vehicle, except that the side‑ by‑side investments do not subject the investor to management fees, incentive fees or a carried interest. The cash invested by these individuals aggregated $434.9 million, $398.3 million and $292.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Aircraft and Other Services

Certain of the Senior Principals own aircraft that KKR uses for business purposes in the ordinary course of its operations. These Senior Principals paid for the purchase of these aircraft with personal funds and bear all operating, personnel and maintenance costs associated with their operation. The hourly rates that KKR pays for the use of these aircraft are based on current market rates for chartering private aircraft of the same type. KKR incurred $4.4 million, $3.4 million and $4.2 million for the use of these aircraft for the years ended December 31, 2015, 2014 and 2013, respectively.

Facilities

Certain trusts, whose beneficiaries include children of Mr. Kravis and Mr. Roberts, and certain other Senior Principals who are not executive officers of KKR, are partners in a real‑estate based partnership that maintains an ownership interest in KKR’s Menlo Park location. Payments made to this partnership were $7.3 million, $7.2 million and $7.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Notes to Consolidated Financial Statements (Continued)

13. SEGMENT REPORTING

KKR operates through four reportable business segments. These segments, which are differentiated primarily by their business objectives and investment strategies are presented below. These financial results represent the combined financial results of the KKR Group Partnerships on a segment basis.

Private Markets

Through KKR’s Private Markets segment, KKR manages and sponsors a group of private equity funds and co-investment vehicles that invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. KKR also manages and sponsors a group of funds and co-investment vehicles that invest capital in real assets, such as infrastructure, energy and real estate. These funds, vehicles and accounts are managed by Kohlberg Kravis Roberts & Co. L.P., an SEC registered investment adviser.

Public Markets

KKR operates and reports its combined credit and hedge funds businesses through the Public Markets segment. KKR’s credit business advises funds, CLOs, separately managed accounts, and investment companies registered under the Investment Company Act, including a business development company or BDC, undertakings for collective investment in transferable securities or UCITS, and alternative investment funds or AIFs, which invest capital in (i) leveraged credit strategies, such as leveraged loans, high yield bonds and opportunistic credit, and (ii) alternative credit strategies such as mezzanine investments, direct lending investments, special situations investments, and long/short credit investment strategies. The funds, accounts, registered investment companies and CLOs in KKR's leveraged credit and alternative credit strategies are managed by KKR Credit Advisors (US) LLC, which is an SEC-registered investment adviser, KKR Credit Advisors (Ireland), regulated by the Central Bank of Ireland, and KKR Credit Advisors (UK) LLP, regulated by the United Kingdom Financial Conduct Authority or FCA. KKR’s Public Markets segment also includes its hedge funds business that offers a variety of investment strategies, including customized hedge fund portfolios and hedge fund-of-fund solutions. The funds and accounts in our hedge fund business are managed by Prisma Capital Partners LP (KKR Prisma or Prisma), an SEC‑registered investment adviser. Through our Public Markets segment, we also have developed strategic partnerships by acquiring minority stakes in other hedge fund managers.

Capital Markets

The Capital Markets segment is comprised primarily of KKR’s global capital markets business. KKR’s capital markets business supports the firm, portfolio companies, and third-party clients by developing and implementing both traditional and non-traditional capital solutions for investments or companies seeking financing. These services include arranging debt and equity financing for transactions, placing and underwriting securities offerings and providing other types of capital markets services. When KKR underwrites an offering of securities or a loan on a firm commitment basis, KKR commits to buy and sell an issue of securities or indebtedness and generate revenue by purchasing the securities or indebtedness at a discount or for a fee. When KKR acts in an agency capacity, KKR generates revenue for arranging financing or placing securities or debt with capital markets investors. We may also provide issuers with capital markets advice on security selection, access to markets, marketing considerations, securities pricing, and other aspects of capital markets transactions in exchange for a fee. KKR Capital Markets LLC is an SEC-registered broker-dealer and a FINRA member, and KKR is also registered or authorized to carry out certain broker-dealer activities in various countries in North America, Europe, Asia-Pacific and the Middle East. KKR’s third party capital markets activities are generally carried out through Merchant Capital Solutions LLC, a joint venture with one other unaffiliated partner, and non-bank financial companies, or NBFCs, in India.

Principal Activities

Through KKR's Principal Activities segment, we manage the firm’s assets and deploy capital to support and grow our businesses.

We use KKR's Principal Activities assets to support KKR's investment management and capital markets businesses. Typically, the funds in our Private Markets and Public Markets businesses contractually require KKR, as general partner of the funds, to make sizable capital commitments from time to time. KKR also deploys Principal Activities assets in order to help establish a track record for fundraising purposes in new strategies. KKR may also use its own capital to seed investments for new funds, to bridge capital selectively for its funds’ investments or finance strategic acquisitions and partnerships, although the financial results of an acquired businesses or strategic partnership may be reported in our Public Markets segment.

Notes to Consolidated Financial Statements (Continued)

Principal Activities assets also provide the required capital to fund the various commitments of the Capital Markets business when underwriting or syndicating securities, or when providing term loan commitments for transactions involving portfolio companies and for third parties. Principal Activities assets also may be utilized to satisfy regulatory requirements for the Capital Markets business and risk retention requirements for CLOs.

KKR earns the majority of its fees from subsidiaries located in the United States.

Key Performance Measure - Economic Net Income (“ENI”)

ENI is used by management in making operating and resource deployment decisions as well as assessing the overall performance of each of KKR’s reportable business segments. The reportable segments for KKR’s business are presented prior to giving effect to the allocation of income (loss) between KKR & Co. L.P. and KKR Holdings and as such represents the business in total. In addition, KKR’s reportable segments are presented without giving effect to the consolidation of the funds that KKR manages.

ENI is a measure of profitability for KKR’s reportable segments and is used by management as an alternative measurement of the operating and investment earnings of KKR and its business segments. ENI is comprised of total segment revenues; less total segment expenses and certain economic interests in KKR’s segments held by third parties. ENI differs from net income (loss) on a GAAP basis as a result of: (i) the inclusion of management fees earned from consolidated funds that were eliminated in consolidation; (ii) the exclusion of fees and expenses of certain consolidated entities; (iii) the exclusion of charges relating to the amortization of intangible assets; (iv) the exclusion of non-cash equity-based charges and other non-cash compensation charges borne by KKR Holdings or incurred under the Equity Incentive Plan and other securities that are exchangeable for common units of KKR & Co. L.P.; (v) the exclusion of certain non-recurring items; (vi) the exclusion of investment income (loss) relating to noncontrolling interests; and (vii) the exclusion of income taxes.

Modification of Segment Information

KKR’s management has reevaluated the manner in which it makes operational and resource deployment decisions and assesses the overall performance of each of KKR’s operating segments. As a result, KKR has modified the presentation of its segment financial information. In addition, since becoming a public company, KKR's principal assets have grown in significance and are a meaningful contributor to its financial results.

Certain of the more significant changes between KKR’s current segment presentation and its previously reported segment presentation are described in the following commentary.

Inclusion of a Fourth Segment

All income (loss) on investments is attributed to a new fourth segment called Principal Activities. Previously, income on investments held directly by KKR was reported in the Private Markets segment, Public Markets segment or Capital Markets segment based on the character of the income generated. For example, income from private equity investments was previously included in the Private Markets segment. However, the financial results of acquired businesses and strategic partnerships have been reported in our other segments.

Expense Allocations

KKR has changed the manner in which expenses are allocated among its operating segments. Specifically, as described below, (i) a portion of expenses, except for broken deal expenses, previously reflected in the Private Markets, Public Markets or Capital Markets segments are now reflected in the Principal Activities segment and (ii) corporate expenses are allocated across all segments.

Expenses Allocated to Principal Activities

A portion of the cash compensation and benefits, occupancy and related charges and other operating expenses previously included in the Private Markets, Public Markets and Capital Markets segments is now allocated to the Principal Activities segment. The Principal Activities segment incurs its own direct costs, and an allocation from the other segments is also made to reflect the estimated amount of costs that are necessary to operate the Principal Activities segment, which are incremental to those costs incurred directly by the Principal Activities segment. The total amount of expenses (other than its direct costs) that is allocated to Principal Activities is based on the proportion of revenue earned by Principal Activities, relative to other

Notes to Consolidated Financial Statements (Continued)

operating segments, over the preceding four annual periods. This allocation percentage is updated annually or more frequently if there are material changes to KKR's business.

Once the total amount of expense to be allocated to the Principal Activities segment is estimated for each reporting period, the amount of this expense will be allocated from the Private Markets, Public Markets and Capital Markets segments based on the proportion of headcount in each of these three segments.

Allocations of Corporate Overhead

Corporate expenses are allocated to each of the Private Markets, Public Markets, Capital Markets and Principal Activities segments based on the proportion of revenues earned by each segment over the preceding four calendar years. In KKR's previously reported segment presentation, all corporate expenses were allocated to the Private Markets segment.

In connection with these modifications, segment information for the years ended December 31, 2014 and 2013 has been presented in conformity with KKR’s current segment presentation. Consequently, this information will not be consistent with historical segment financial results previously reported. While the modified segment presentation impacted the amount of economic net income reported by each operating segment, it had no impact on KKR’s economic net income on a total reportable segment basis.

Notes to Consolidated Financial Statements (Continued)

The following tables present the financial data for KKR’s reportable segments:

	As of and for the Year Ended December 31, 2015
	Private Markets				Public Markets				Capital Markets				Principal Activities				Total Reportable Segments
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees	$	465,575			$	266,458			$	—			$	—			$	732,033
Monitoring Fees	264,643				—				—				—				264,643
Transaction Fees	144,652				28,872				191,470				—				364,994
Fee Credits (1)	(195,025		)		(24,595		)		—				—				(219,620		)
Total Management, Monitoring and Transaction Fees, Net	679,845				270,735				191,470				—				1,142,050
Performance Income
Realized Incentive Fees	—				19,647				—				—				19,647
Realized Carried Interest	1,018,201				8,953				—				—				1,027,154
Unrealized Carried Interest	182,628				(19,083		)		—				—				163,545
Total Performance Income	1,200,829				9,517				—				—				1,210,346
Investment Income (Loss)
Net Realized Gains (Losses)	—				—				—				337,023				337,023
Net Unrealized Gains (Losses)	—				—				—				(391,962		)		(391,962		)
Total Realized and Unrealized	—				—				—				(54,939		)		(54,939		)
Interest Income and Dividends	—				—				—				411,536				411,536
Interest Expense	—				—				—				(203,085		)		(203,085		)
Net Interest and Dividends	—				—				—				208,451				208,451
Total Investment Income (Loss)	—				—				—				153,512				153,512
Total Segment Revenues	1,880,674				280,252				191,470				153,512				2,505,908
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits	193,995				73,863				34,562				107,572				409,992
Realized Performance Income Compensation	407,280				11,438				—				—				418,718
Unrealized Performance Income Compensation	74,560				(7,633		)		—				—				66,927
Total Compensation and Benefits	675,835				77,668				34,562				107,572				895,637
Occupancy and Related Charges	33,640				9,808				2,641				16,568				62,657
Other Operating Expenses	127,836				40,591				14,618				50,573				233,618
Total Segment Expenses	837,311				128,067				51,821				174,713				1,191,912
Income (Loss) attributable to noncontrolling interests	1,645				1,259				13,103				—				16,007
Economic Net Income (Loss)	$	1,041,718			$	150,926			$	126,546			$	(21,201	)		$	1,297,989
Total Assets	$	1,831,716			$	1,232,404			$	521,927			$	9,843,251			$	13,429,298

(1)

KKR’s agreements with the fund investors of certain of its investment funds require KKR to share with these fund investors an agreed upon percentage of certain fees, including monitoring and transaction fees received from portfolio companies (“Fee Credits”). Fund investors receive Fee Credits only with respect to monitoring and transaction fees that are allocable to the fund’s investment in the portfolio company and not, for example, any fees allocable to capital invested through co-investment vehicles. Fee Credits are calculated after deducting certain fund-related expenses and generally amount to 80% or 100% of allocable monitoring and transaction fees after fund-related expenses are recovered, although the actual percentage may vary from fund to fund as well as among different classes of investors within a fund.

Notes to Consolidated Financial Statements (Continued)

	As of and for the Year Ended December 31, 2014
	Private Markets				Public Markets				Capital Markets				Principal Activities				Total Reportable Segments
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees	$	453,210			$	272,833			$	—			—				$	726,043
Monitoring Fees	135,160				—				—				—				135,160
Transaction Fees	214,612				27,145				217,920				—				459,677
Fee Credits (1)	(198,680		)		(23,357		)		—				—				(222,037		)
Total Management, Monitoring and Transaction Fees, Net	604,302				276,621				217,920				—				1,098,843
Performance Income
Realized Incentive Fees	—				47,807				—				—				47,807
Realized Carried Interest	1,159,011				34,650				—				—				1,193,661
Unrealized Carried Interest	70,058				40,075				—				—				110,133
Total Performance Income	1,229,069				122,532				—				—				1,351,601
Investment Income (Loss)
Net Realized Gains (Losses)	—				—				—				628,403				628,403
Net Unrealized Gains (Losses)	—				—				—				(396,425		)		(396,425		)
Total Realized and Unrealized	—				—				—				231,978				231,978
Interest Income and Dividends	—				—				—				408,084				408,084
Interest Expense	—				—				—				(134,909		)		(134,909		)
Net Interest and Dividends	—				—				—				273,175				273,175
Total Investment Income (Loss)	—				—				—				505,153				505,153
Total Segment Revenues	1,833,371				399,153				217,920				505,153				2,955,597
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits	153,339				64,530				41,551				121,161				380,581
Realized Performance Income Compensation	463,605				32,984				—				—				496,589
Unrealized Performance Income Compensation	33,430				16,029				—				—				49,459
Total Compensation and Benefits	650,374				113,543				41,551				121,161				926,629
Occupancy and Related Charges	30,946				7,214				1,523				18,104				57,787
Other Operating Expenses	125,398				31,501				11,497				60,673				229,069
Total Segment Expenses	806,718				152,258				54,571				199,938				1,213,485
Income (Loss) attributable to noncontrolling interests	1,424				1,636				11,886				—				14,946
Economic Net Income (Loss)	$	1,025,229			$	245,259			$	151,463			$	305,215			$	1,727,166
Total Assets	$	1,658,164			$	685,809			$	462,072			$	10,405,622			$	13,211,667

(1)

KKR’s agreements with the fund investors of certain of its investment funds require KKR to share with these fund investors an agreed upon percentage of certain fees, including monitoring and transaction fees received from portfolio companies (“Fee Credits”). Fund investors receive Fee Credits only with respect to monitoring and transaction fees that are allocable to the fund’s investment in the portfolio company and not, for example, any fees allocable to capital invested through co-investment vehicles. Fee Credits are calculated after deducting certain fund-related expenses and generally amount to 80% or 100% of allocable monitoring and transaction fees after fund-related expenses are recovered, although the actual percentage may vary from fund to fund as well as among different classes of investors within a fund.

Notes to Consolidated Financial Statements (Continued)

	As of and for the Year Ended December 31, 2013
	Private Markets				Public Markets				Capital Markets				Principal Activities				Total Reportable Segments
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees	$	459,496			$	206,134			$	—			$	—			$	665,630
Monitoring Fees	120,267				—				—				—				120,267
Transaction Fees	150,118				40,314				146,254				—				336,686
Fee Credits (1)	(136,662		)		(29,950		)		—				—				(166,612		)
Total Management, Monitoring and Transaction Fees, Net	593,219				216,498				146,254				—				955,971
Performance Income
Realized Incentive Fees	—				72,359				—				—				72,359
Realized Carried Interest	690,027				—				—				—				690,027
Unrealized Carried Interest	661,803				62,338				—				—				724,141
Total Performance Income	1,351,830				134,697				—				—				1,486,527
Investment Income (Loss)
Net Realized Gains (Losses)	—				—				—				635,633				635,633
Net Unrealized Gains (Losses)	—				—				—				301,262				301,262
Total Realized and Unrealized	—				—				—				936,895				936,895
Interest Income and Dividends	—				—				—				87,168				87,168
Interest Expense	—				—				—				(65,662		)		(65,662		)
Net Interest and Dividends	—				—				—				21,506				21,506
Total Investment Income (Loss)	—				—				—				958,401				958,401
Total Segment Revenues	1,945,049				351,195				146,254				958,401				3,400,899
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits	148,557				24,696				31,118				110,457				314,828
Realized Performance Income Compensation	276,011				28,944				—				—				304,955
Unrealized Performance Income Compensation	282,003				24,935				—				—				306,938
Total Compensation and Benefits	706,571				78,575				31,118				110,457				926,721
Occupancy and Related Charges	31,769				2,837				877				20,844				56,327
Other Operating Expenses	106,917				36,006				9,698				63,262				215,883
Total Segment Expenses	845,257				117,418				41,693				194,563				1,198,931
Income (Loss) attributable to noncontrolling interests	1,498				1,560				3,329				—				6,387
Economic Net Income (Loss)	$	1,098,294			$	232,217			$	101,232			$	763,838			$	2,195,581
Total Assets	$	1,600,433			$	360,891			$	441,012			$	6,580,721			$	8,983,057

(1)

KKR’s agreements with the fund investors of certain of its investment funds require KKR to share with these fund investors an agreed upon percentage of certain fees, including monitoring and transaction fees received from portfolio companies (“Fee Credits”). Fund investors receive Fee Credits only with respect to monitoring and transaction fees that are allocable to the fund’s investment in the portfolio company and not, for example, any fees allocable to capital invested through co-investment vehicles. Fee Credits are calculated after deducting certain fund-related expenses and generally amount to 80% or 100% of allocable monitoring and transaction fees after fund-related expenses are recovered, although the actual percentage may vary from fund to fund as well as among different classes of investors within a fund.

Notes to Consolidated Financial Statements (Continued)

The following tables reconcile KKR’s total reportable segments to the most directly comparable financial measures calculated and presented in accordance with GAAP:

Fees

	For the Years Ended December 31,
	2015				2014				2013
Total Segment Revenues	$	2,505,908			$	2,955,597			$	3,400,899
Management fees relating to consolidated funds and other entities	(531,027		)		(510,777		)		(487,669		)
Fee credits relating to consolidated funds	202,269				203,466				144,416
Net realized and unrealized carried interest	(1,190,699		)		(1,303,794		)		(1,414,168		)
Total investment income (loss)	(153,512		)		(505,153		)		(958,401		)
Revenue earned by oil & gas producing entities	112,328				186,876				22,105
Reimbursable expenses	66,144				55,424				41,529
Other	32,357				28,369				13,835
Fees and Other	$	1,043,768			$	1,110,008			$	762,546

Expenses

	For the Years Ended December 31,
	2015				2014				2013
Total Segment Expenses	$	1,191,912			$	1,213,485			$	1,198,931
Equity based compensation	261,579				310,403				307,514
Reimbursable expenses	103,307				92,366				58,358
Operating expenses relating to consolidated funds and other entities	65,012				93,182				26,835
Expenses incurred by oil & gas producing entities	153,611				333,123				20,442
Intangible amortization, acquisition, litigation and certain non-recurring costs	49,766				102,877				92,593
Other	46,038				50,631				62,465
Total Expenses	$	1,871,225			$	2,196,067			$	1,767,138

Income (Loss) Before Taxes

	For the Years Ended December 31,
	2015				2014				2013
Economic net income	$	1,297,989			$	1,727,166			$	2,195,581
Income tax (benefit)	(66,636		)		(63,669		)		(37,926		)
Amortization of intangibles and other, net	(47,599		)		(290,348		)		(102,789		)
Equity based compensation	(261,579		)		(310,403		)		(307,514		)
Net income (loss) attributable to noncontrolling interests held by KKR Holdings	(433,693		)		(585,135		)		(1,056,126		)
Net income (loss) attributable to KKR & Co. L.P.	$	488,482			$	477,611			$	691,226
Net income (loss) attributable to noncontrolling interests and appropriated capital	4,791,062				4,920,750				7,100,747
Net income (loss) attributable to redeemable noncontrolling interests	(4,512		)		(3,341		)		62,255
Income tax (benefit)	66,636				63,669				37,926
Income (loss) before taxes	$	5,341,668			$	5,458,689			$	7,892,154

Notes to Consolidated Financial Statements (Continued)

The items that reconcile KKR’s total reportable segments to the corresponding consolidated amounts calculated and presented in accordance with GAAP for net income (loss) attributable to redeemable noncontrolling interests and income (loss) attributable to noncontrolling interests and appropriated capital are primarily attributable to the impact of the consolidation of KKR's funds and certain other entities.

Assets

	As of December 31,
	2015				2014
Total Segment Assets	$	13,429,298			$	13,211,667
Consolidation of KKR Funds, CFEs and other entities	57,581,456				52,617,368
Accounting basis difference for oil & natural gas properties	47,005				43,710
Total Assets	$	71,057,759			$	65,872,745

14. ACQUISITIONS

Acquisition of KFN

On April 30, 2014, KKR completed its acquisition of KFN by merger (the “Merger”) contemplated by an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which KFN became a subsidiary of KKR. KFN is a specialty finance company with expertise in a range of asset classes in which it invests, consisting primarily of corporate loans, also known as leveraged loans, high yield debt securities, interests in joint ventures and partnerships, and interests in oil and gas properties. The addition of KFN provided KKR with over $2 billion of permanent equity capital to support the continued growth of its business.

The total consideration paid was approximately $2.4 billion consisting entirely of the issuance of 104.3 million KKR common units as follows (amounts in thousands except unit data):

Number of KKR common units issued	104,340,028
KKR common unit price on April 30, 2014	$	22.71
Estimated fair value of KKR common units issued	$	2,369,559

The following is a summary of the estimated fair values of the assets acquired and liabilities as of April 30, 2014, the date they were assumed (amounts in thousands):

Cash and cash equivalents	$	210,413
Cash and cash equivalents held at consolidated entities	614,929
Restricted cash and cash equivalents	35,038
Investments	1,235,813
Investments of consolidated CLOs	6,742,768
Other assets	642,721
Other assets of consolidated CLOs	133,036
Total assets	9,614,718
Debt obligations	724,509
Debt obligations of consolidated CLOs	5,663,666
Accounts payable, accrued expenses and other liabilities	118,427
Other liabilities of consolidated CLOs	344,660
Total liabilities	6,851,262
Noncontrolling interests	378,983
Fair value of Net Assets Acquired	2,384,473
Less: Fair value of consideration transferred	2,369,559
Gain on acquisition	$	14,914

As of April 30, 2014, the fair value of the net assets acquired exceeded the fair value of consideration transferred by approximately $14.9 million and relates primarily to the difference between the fair value of the assets and liabilities of CLOs consolidated by KFN. This amount has been recorded in net gains (losses) from investment activities in the consolidated statements of operations.

The consolidated statement of operations for the year ended December 31, 2014 includes the financial results of KFN since the date of acquisition, April 30, 2014, through December 31, 2014. During this period, KFN’s revenues and net income (loss) attributable to KKR & Co. L.P. were $57.6 million and $(113.2) million, respectively. Fees for KFN represent oil and gas revenue from working and royalty interests in oil and natural gas producing properties consolidated by KKR. Additionally, the portion of net income that is allocable to KKR reflects KKR’s approximate ownership interest in the KKR Group Partnerships after applicable corporate and local income taxes for the year ended December 31, 2014.

On a segment basis, the financial results of KFN are included within the Principal Activities segment.

KKR incurred $8.3 million of acquisition related costs through the date of closing, which were expensed as incurred and are reflected within General, Administrative and Other.

Acquisition of Avoca Capital

On February 19, 2014, KKR closed its acquisition of 100% of the equity interests of Avoca Capital and its affiliates (“Avoca”). Avoca, now renamed KKR Credit Advisors (Ireland), was a European credit investment manager with approximately $8.2 billion in assets under management at the time of acquisition. The addition of Avoca provided KKR with a greater presence in the European leveraged credit markets.

The total consideration included $83.3 million in cash and $56.5 million in securities of a subsidiary of a KKR Group Partnership and of KKR & Co. L.P. that are exchangeable into approximately 2.4 million KKR & Co. L.P. common units, at any time, at the election of the holders of the securities. In connection with this transaction, there is no contingent consideration payable in the future.

The following is a summary of the estimated fair values of the assets acquired and liabilities as of February 19, 2014, the date they were assumed:

Cash and cash equivalents	$	24,381
Investments	20,905
Investments of consolidated CLOs	1,226,174
Other assets of consolidated CLOs	186,609
Other assets	7,370
Intangible assets	65,880
Total assets	1,531,319
Liabilities	13,584
Debt obligations of consolidated CLOs	1,150,551
Other liabilities of consolidated CLOs	140,308
Total liabilities	1,304,443
Fair Value of Net Assets Acquired	226,876
Less: Fair value of subordinated notes of consolidated CLOs held by KKR prior to acquisition (a)	74,029
Less: Fair value of consideration transferred	139,798
Gain on acquisition	$	13,049

(a)	Represents subordinated notes in one of the consolidated CLOs held by KKR prior to the acquisition of Avoca. Upon acquisition of Avoca, KKR’s investment in the subordinated notes was offset against the corresponding debt obligations of the consolidated CLO in purchase accounting.

As of February 19, 2014, the fair value of the net assets acquired exceeded the fair value of consideration transferred by approximately $13.0 million and relates primarily to the difference between the fair value of the assets and liabilities of CLOs required to be consolidated in connection with the Avoca transaction. This amount has been recorded in net gains (losses) from investment activities in the consolidated statements of operations.

The consolidated statement of operations for the year ended December 31, 2014 includes the financial results of Avoca since the date of acquisition, February 19, 2014, through December 31, 2014. During this period, Avoca’s revenues and net income (loss) attributable to KKR & Co. L.P. were $39.7 million and $(3.3) million, respectively. This net income (loss) attributable to KKR & Co. L.P. reflects amortization of intangible assets and equity based compensation charges associated with Avoca since the date of the acquisition. Additionally, the portion of net income that is allocable to KKR reflects KKR’s approximate ownership interest in the KKR Group Partnerships after applicable corporate and local income taxes for the year ended December 31, 2014.

On a segment basis, the financial results of Avoca are included within the Public Markets segment.

KKR incurred $4.4 million of acquisition related costs through the date of closing, which were expensed as incurred and are reflected within General, Administrative and Other.

Pro Forma Financial Information

The information that follows provides supplemental information about pro forma revenues and net income (loss) attributable to KKR & Co. L.P. as if the acquisitions of KFN and Avoca had been consummated as of January 1, 2013. Such information is unaudited and is based on estimates and assumptions which KKR believes are reasonable. These results are not necessarily indicative of the consolidated statements of operations in future periods or the results that would have actually been realized had KKR, KFN and Avoca been a combined entity during 2014 and 2013 (amounts in thousands except unit data).

	Year Ended December 31,
Selected Pro Forma Financial Information	2014				2013
Revenues	$	1,152,397			$	871,144
Net Income (Loss) attributable to KKR & Co. L.P.	$	533,828			$	820,352
Net Income (Loss) attributable to KKR & Co. L.P. per common unit-basic	$	1.28			$	2.16
Net Income (Loss) attributable to KKR & Co. L.P. per common unit-diluted	$	1.19			$	2.00

Notes to Consolidated Financial Statements (Continued)

15. TOTAL EQUITY

Unit Repurchase Program

On October 27, 2015, KKR announced the authorization of a program providing for the repurchase by KKR of up to $500 million in the aggregate of its outstanding common units. Under this unit repurchase program, units may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing, manner, price and amount of any unit repurchases will be determined by KKR in its discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. KKR expects that the program, which has no expiration date, will be in effect until the maximum approved dollar amount has been used to repurchase common units. The program does not require KKR to repurchase any specific number of common units, and the program may be suspended, extended, modified or discontinued at any time. Since inception of the unit repurchase program through December 31, 2015, KKR has repurchased approximately 9.9 million of outstanding common units.

Distribution Policy

On October 27, 2015, KKR announced a change to its distribution policy effective beginning with the distribution declared on February 11, 2016 with respect to the quarter ending December 31, 2015. Under the new distribution policy, KKR intends to make equal quarterly distributions to holders of its common units in an amount of $0.16 per common unit per quarter. The declaration and payment of any distributions are subject to the discretion of the board of directors of the general partner of KKR and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intended or at all, that unitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR or that any particular distribution policy will be maintained.

Notes to Consolidated Financial Statements (Continued)

16. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill from the acquisition of Prisma Capital Partners LP and its affiliates ("Prisma") represents the excess of acquisition costs over the fair value of net tangible and intangible assets acquired and is primarily attributed to synergies expected to arise after the acquisition of Prisma. The carrying value of goodwill was $89.0 million as of December 31, 2015 and December 31, 2014, and is recorded within Other Assets on the consolidated statements of financial condition. Goodwill has been allocated entirely to the Public Markets segment. As of December 31, 2015, the fair value of KKR’s reporting units substantially exceeded their respective carrying values. All of the goodwill is currently expected to be deductible for tax purposes. See Note 7 “Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities.”

Intangible Assets

Intangible Assets, Net consists of the following:

	As of
	December 31, 2015				December 31, 2014
Finite-Lived Intangible Assets	$	284,766			$	284,766
Accumulated Amortization (includes foreign exchange)	(107,779		)		(75,564		)
Intangible Assets, Net	$	176,987			$	209,202

Changes in Intangible Assets, Net consists of the following:

	Years Ended
	December 31, 2015				December 31, 2014
Balance, Beginning of Period	$	209,202			$	177,545
Avoca Acquisition	—				65,880
Amortization Expense	(27,004		)		(27,080		)
Foreign Exchange	(5,211		)		(7,143		)
Balance, End of Period	$	176,987			$	209,202

Amortization expense including foreign exchange relating to intangible assets held at December 31, 2015 is expected to be as follows:

2016		$	26,907
2017		26,357
2018		19,922
2019		16,988
2020		16,836
2021 and thereafter		69,977
Total Amortization Expense of Intangible Assets		$	176,987

The intangible assets as of December 31, 2015 are expected to amortize over a weighted‑average period of 8.9 years.

Notes to Consolidated Financial Statements (Continued)

17. COMMITMENTS AND CONTINGENCIES

Debt Covenants

Borrowings of KKR contain various debt covenants. These covenants do not, in management’s opinion, materially restrict KKR’s operating business or investment strategies. KKR is in compliance with its debt covenants in all material respects as of December 31, 2015.

Investment Commitments

As of December 31, 2015, KKR had unfunded commitments consisting of (i) $1,353.8 million to its active private equity and other investment vehicles and (ii) $191.1 million in connection with commitments by KKR’s capital markets business, (iii) $128.6 million relating to Merchant Capital Solutions LLC and (iv) other investment commitments of $171.6 million. Whether these amounts are actually funded, in whole or in part depends on the terms of such commitments, including the satisfaction or waiver of any conditions to funding.

Non-cancelable Operating Leases

KKR’s non-cancelable operating leases consist primarily of leases of office space around the world. There are no material rent holidays, contingent rent, rent concessions or leasehold improvement incentives associated with any of these property leases. In addition to base rentals, certain lease agreements are subject to escalation provisions and rent expense is recognized on a straight‑line basis over the term of the lease agreement.

As of December 31, 2015, the approximate aggregate minimum future lease payments, net of sublease income, required on the operating leases are as follows:

2016	$	52,965
2017	48,181
2018	43,353
2019	39,292
2020 and thereafter	62,018
Total minimum payments required	$	245,809

Contingent Repayment Guarantees

The partnership documents governing KKR’s carry—paying funds, including funds relating to private equity, infrastructure, energy, real estate, mezzanine, direct lending and special situations investments, generally include a “clawback” provision that, if triggered, may give rise to a contingent obligation requiring the general partner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. Under a clawback obligation, upon the liquidation of a fund, the general partner is required to return, typically on an after-tax basis, previously distributed carry to the extent that, due to the diminished performance of later investments, the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, including the effects of any performance thresholds. Excluding carried interest received by the general partners of funds that were not contributed to KKR in the acquisition of the assets and liabilities of KKR & Co. (Guernsey) L.P. (formerly known as KKR Private Equity Investors, L.P.) on October 1, 2009 (the “KPE Transaction”), as of December 31, 2015, no carried interest was subject to this clawback obligation, assuming that all applicable carry paying funds were liquidated at their December 31, 2015 fair values. Had the investments in such funds been liquidated at zero value, the clawback obligation would have been $2,423.4 million. Carried interest is recognized in the statement of operations based on the contractual conditions set forth in the agreements governing the fund as if the fund were terminated and liquidated at the reporting date and the fund’s investments were realized at the then estimated fair values. Amounts earned pursuant to carried interest are earned by the general partner of those funds to the extent that cumulative investment returns are positive and where applicable, preferred return thresholds have been met. If these investment amounts earned decrease or turn negative in subsequent periods, recognized carried interest will be reversed and to the extent that the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, a clawback obligation would be recorded. For funds that are consolidated, this clawback obligation, if any, is reflected as an increase in noncontrolling interests in the consolidated statements of financial condition. For funds that are not consolidated, this clawback obligation, if any, is reflected as a reduction of KKR’s investment balance as this is where carried interest is initially recorded.

Notes to Consolidated Financial Statements (Continued)

Certain private equity funds that were contributed to KKR in the KPE Transaction in 2009 also include a “net loss sharing provision.” Upon the liquidation of an investment vehicle to which a net loss sharing obligation applies, the general partner is required to contribute capital to the vehicle, to fund 20% of the net losses on investments. In these vehicles, such losses would be required to be paid by KKR to the fund investors in those vehicles in the event of a liquidation of the fund regardless of whether any carried interest had previously been distributed, and a greater share of investment losses would be allocable to KKR relative to the capital that KKR contributed to it as general partner. Based on the fair market values as of December 31, 2015, there would have been no net loss sharing obligation. If the vehicles were liquidated at zero value, the net loss sharing obligation would have been zero as of December 31, 2015.

Prior to the KPE Transaction in 2009, certain principals who received carried interest distributions with respect to certain private equity funds contributed to KKR had personally guaranteed, on a several basis and subject to a cap, the contingent obligations of the general partners of such private equity funds to repay amounts to fund investors pursuant to the general partners’ clawback obligations. The terms of the KPE Transaction require that principals remain responsible for any clawback obligations relating to carry distributions received prior to the KPE Transaction, up to a maximum of $223.6 million. Through investment realizations, KKR's potential exposure has been reduced to $159.7 million as of December 31, 2015. Using valuations as of December 31, 2015, no amounts are due with respect to the clawback obligation required to be funded by principals. Carry distributions arising subsequent to the KPE Transaction may give rise to clawback obligations that may be allocated generally to KKR and persons who participate in the carry pool. Unlike the clawback obligation, KKR will be responsible for all amounts due under a net loss sharing obligation and will indemnify principals for any personal guarantees that they have provided with respect to such amounts. In addition, guarantees of or similar arrangements relating to clawback or net loss sharing obligations in favor of third party investors in an individual investment partnership by entities KKR owns may limit distributions of carried interest more generally.

Indemnifications

In the normal course of business, KKR enters into contracts that contain a variety of representations and warranties that provide general indemnifications and other indemnities relating to contractual performance. In addition, certain of KKR’s consolidated funds and KFN have provided certain indemnities relating to environmental and other matters and has provided nonrecourse carve-out guarantees for fraud, willful misconduct and other customary wrongful acts, each in connection with the financing of certain real estate investments that KKR has made. KKR’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against KKR that have not yet occurred. However, based on experience, KKR expects the risk of material loss to be low.

Litigation

From time to time, KKR is involved in various legal proceedings, lawsuits and claims incidental to the conduct of KKR’s business. KKR’s business is also subject to extensive regulation, which may result in regulatory proceedings against it.

KKR currently is and expects to continue to become, from time to time, subject to examinations, inquiries and investigations by various U.S. and non U.S. governmental and regulatory agencies, including but not limited to the U.S. Securities and Exchange Commission, or SEC, Department of Justice, state attorney generals, Financial Industry Regulatory Authority, or FINRA, and the U.K. Financial Conduct Authority. Such examinations, inquiries and investigations may result in the commencement of civil, criminal or administrative proceedings against KKR or its personnel.

Moreover, in the ordinary course of business, KKR is and can be both the defendant and the plaintiff in numerous lawsuits with respect to acquisitions, bankruptcy, insolvency and other types of proceedings. Such lawsuits may involve claims that adversely affect the value of certain investments owned by KKR’s funds.

KKR establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. No loss contingency is recorded for matters where such losses are either not probable or reasonably estimable (or both) at the time of determination. Such matters may be subject to many uncertainties, including among others (i) the proceedings may be in early stages; (ii) damages sought may be unspecified, unsupportable, unexplained or uncertain; (iii) discovery may not have been started or is incomplete; (iv) there may be uncertainty as to the outcome of pending appeals or motions; (v) there may be significant factual issues to be resolved; or (vi) there may be novel legal issues or unsettled legal theories to be presented or a large number of parties. Consequently, management is unable to estimate a range of potential loss, if any, related to these matters. In addition, loss contingencies may be, in part or in whole, subject to insurance or other payments such as contributions and/or indemnity, which may reduce any ultimate loss.

Notes to Consolidated Financial Statements (Continued)

It is not possible to predict the ultimate outcome of all pending legal proceedings, and some of the matters discussed above seek or may seek potentially large and/or indeterminate amounts. As of such date, based on information known by management, management has not concluded that the final resolutions of the matters above will have a material effect upon the consolidated financial statements. However, given the potentially large and/or indeterminate amounts sought or may be sought in certain of these matters and the inherent unpredictability of investigations and litigations, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on KKR’s financial results in any particular period.

18. REGULATORY CAPITAL REQUIREMENTS

KKR has a registered broker-dealer subsidiary which is subject to the minimum net capital requirements of the SEC and the FINRA. Additionally, KKR entities based in London and Ireland are subject to the regulatory capital requirements of the U.K. Financial Conduct Authority and the Central Bank of Ireland, respectively. In addition, KKR has an entity based in Hong Kong which is subject to the capital requirements of the Hong Kong Securities and Futures Ordinance, an entity based in Japan subject to the capital requirements of Financial Services Authority of Japan, and two entities based in Mumbai which are subject to capital requirements of the Reserve Bank of India or RBI and the Securities and Exchange Board of India or SEBI. All of these entities have continuously operated in excess of their respective minimum regulatory capital requirements.

The regulatory capital requirements referred to above may restrict KKR’s ability to withdraw capital from its registered broker-dealer entities. At December 31, 2015, approximately $152.6 million of cash at KKR’s registered broker-dealer entities may be restricted as to the payment of cash dividends and advances to KKR.

19. QUARTERLY FINANCIAL DATA (UNAUDITED)

	Three Months Ended,
	March 31, 2015				June 30, 2015				September 30, 2015				December 31, 2015
Statement of Operations Data:
Fees and Other	$	291,345			$	255,874			$	188,626			$	307,923
Less: Total Expenses	515,033				554,177				276,920				525,095
Total Investment Income (Loss)	2,182,835				3,634,718				(1,136,991		)		1,488,563
Income (Loss) Before Taxes	1,959,147				3,336,415				(1,225,285		)		1,271,391
Income Tax / (Benefit)	16,138				30,547				(7,390		)		27,341
Net Income (Loss)	1,943,009				3,305,868				(1,217,895		)		1,244,050
Less: Net Income (Loss) Attributable to Redeemable Noncontrolling Interests	1,933				(891		)		(12,925		)		7,371
Less: Net Income (Loss) Attributable to Noncontrolling Interests and Appropriated Capital	1,670,569				2,930,453				(1,014,382		)		1,204,422
Net Income (Loss) Attributable to KKR & Co. L.P.	$	270,507			$	376,306			$	(190,588	)		$	32,257
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic	$	0.62			$	0.84			$	(0.42	)		$	0.07
Diluted	$	0.57			$	0.78			$	(0.42	)		$	0.07
Weighted Average Common Units Outstanding
Basic	434,874,820				446,794,950				452,165,697				461,374,013
Diluted	472,225,344				482,651,491				452,165,697				489,704,787

Notes to Consolidated Financial Statements (Continued)

	Three Months Ended,
	March 31, 2014				June 30, 2014				September 30, 2014				December 31, 2014
Statement of Operations Data:
Fees and Other	$	302,926			$	249,370			$	344,768			$	212,944
Less: Total Expenses	473,171				585,325				504,410				633,161
Total Investment Income (Loss)	2,196,113				2,394,627				1,060,953				893,055
Income (Loss) Before Taxes	2,025,868				2,058,672				901,311				472,838
Income Tax / (Benefit)	21,702				6,176				29,267				6,524
Net Income (Loss)	2,004,166				2,052,496				872,044				466,314
Less: Net Income (Loss) Attributable to Redeemable Noncontrolling Interests	10,637				(6,809		)		(2,462		)		(4,707		)
Less: Net Income (Loss) Attributable to Noncontrolling Interests and Appropriated Capital	1,783,488				1,881,090				784,568				471,604
Net Income (Loss) Attributable to KKR & Co. L.P.	$	210,041			$	178,215			$	89,938			$	(583	)
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic	$	0.72			$	0.47			$	0.21			$	0.00
Diluted	$	0.65			$	0.43			$	0.20			$	0.00
Weighted Average Common Units Outstanding
Basic	293,490,461				377,542,161				419,961,455				431,432,521
Diluted	325,104,229				410,179,838				452,019,742				458,982,859

20. SUBSEQUENT EVENTS

Distribution

A distribution of $0.16 per KKR & Co. L.P. common unit was announced on February 11, 2016, and will be paid on March 8, 2016 to unitholders of record as of the close of business on February 22, 2016. KKR Holdings will receive its pro rata share of the distribution from the KKR Group Partnerships.