Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	177
Consolidated Statements of Financial Condition as of December 31, 2016 and 2015	178
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014	180
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 2014	181
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014	182
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014	183
Notes to Consolidated Financial Statements	185

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, 2016 and 2015, 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, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15. We also have audited the Company's internal control over financial reporting as of December 31, 2016, 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 schedules, 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 schedules 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, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present 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, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Note 2 to the consolidated financial statements, the Company has changed its accounting policy for the consolidation of legal entities on January 1, 2016 due to the adoption of ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis.

/s/ Deloitte & Touche LLP

New York, New York

February 24, 2017

KKR & CO. L.P.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in Thousands, Except Unit Data)

	December 31, 2016				December 31, 2015
Assets
Cash and Cash Equivalents	$	2,508,902			$	1,047,740
Cash and Cash Equivalents Held at Consolidated Entities	1,624,758				1,472,120
Restricted Cash and Cash Equivalents	212,155				267,628
Investments	31,409,765				65,305,931
Due from Affiliates	250,452				139,783
Other Assets	2,996,865				2,809,137
Total Assets	$	39,002,897			$	71,042,339
Liabilities and Equity
Debt Obligations	$	18,544,075			$	18,714,597
Due to Affiliates	359,479				144,807
Accounts Payable, Accrued Expenses and Other Liabilities	2,981,260				2,715,350
Total Liabilities	21,884,814				21,574,754
Commitments and Contingencies
Redeemable Noncontrolling Interests	632,348				188,629
Equity
Series A Preferred Units (13,800,000 units issued and outstanding as of December 31, 2016)	332,988				—
Series B Preferred Units (6,200,000 units issued and outstanding as of December 31, 2016)	149,566				—
KKR & Co. L.P. Capital - Common Unitholders (452,380,335 and 457,834,875 common units issued and outstanding as of December 31, 2016 and 2015, respectively)	5,457,279				5,547,182
Total KKR & Co. L.P. Partners' Capital	5,939,833				5,547,182
Noncontrolling Interests	10,545,902				43,731,774
Total Equity	16,485,735				49,278,956
Total Liabilities and Equity	$	39,002,897			$	71,042,339

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 consolidated balances presented in the consolidated statements of financial condition attributable to consolidated variable interest entities (“VIEs”) as of December 31, 2016 and December 31, 2015. KKR's consolidated VIEs consist primarily of certain collateralized financing entities (“CFEs”) holding collateralized loan obligations ("CLOs") and commercial real estate mortgage-backed securities ("CMBS”) and certain investment funds. With respect to consolidated VIEs, the following assets may only be used to settle obligations of these consolidated VIEs and the following liabilities are only the obligations of these consolidated VIEs. The noteholders, limited partners and other creditors of these VIEs have no recourse to KKR’s general assets. Additionally, KKR has no right to the benefits from, nor does KKR bear the risks associated with, the assets held by these VIEs beyond KKR’s beneficial interest therein and any fees generated from the VIEs. There are neither explicit arrangements nor does KKR hold implicit variable interests that would require KKR to provide any material ongoing financial support to the consolidated VIEs, beyond amounts previously committed, if any.

	December 31, 2016
	Consolidated CFEs				Consolidated KKR Funds and Other Entities				Total
Assets
Cash and Cash Equivalents Held at Consolidated Entities	$	1,158,641			$	466,117			$	1,624,758
Restricted Cash and Cash Equivalents	86,777				95,105				181,882
Investments	13,950,897				8,979,341				22,930,238
Due from Affiliates	—				5,555				5,555
Other Assets	153,283				430,326				583,609
Total Assets	$	15,349,598			$	9,976,444			$	25,326,042
Liabilities
Debt Obligations	$	13,858,288			$	1,612,799			$	15,471,087
Due to Affiliates	—				—				—
Accounts Payable, Accrued Expenses and Other Liabilities	722,714				316,121				1,038,835
Total Liabilities	$	14,581,002			$	1,928,920			$	16,509,922

	December 31, 2015
	Consolidated CFEs				Consolidated KKR Funds and Other Entities				Total
Assets
Cash and Cash Equivalents Held at Consolidated Entities	$	975,433			$	—			$	975,433
Investments	12,735,309				—				12,735,309
Other Assets	133,953				—				133,953
Total Assets	$	13,844,695			$	—			$	13,844,695
Liabilities
Debt Obligations	$	12,365,222			$	—			$	12,365,222
Accounts Payable, Accrued Expenses and Other Liabilities	546,129				—				546,129
Total Liabilities	$	12,911,351			$	—			$	12,911,351

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,
		2016				2015				2014
Revenues
Fees and Other		$	1,908,093			$	1,043,768			$	1,110,008
Expenses
Compensation and Benefits		1,063,813				1,180,591				1,263,852
Occupancy and Related Charges		64,622				65,683				62,564
General, Administrative and Other		567,039				624,951				869,651
Total Expenses		1,695,474				1,871,225				2,196,067
Investment Income (Loss)
Net Gains (Losses) from Investment Activities		342,897				4,672,627				4,778,232
Dividend Income		187,853				850,527				1,174,501
Interest Income		1,021,809				1,219,197				909,207
Interest Expense		(789,953		)		(573,226		)		(317,192		)
Total Investment Income (Loss)		762,606				6,169,125				6,544,748
Income (Loss) Before Taxes		975,225				5,341,668				5,458,689
Income Tax / (Benefit)		24,561				66,636				63,669
Net Income (Loss)		950,664				5,275,032				5,395,020
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests		(8,476		)		(4,512		)		(3,341		)
Net Income (Loss) Attributable to Noncontrolling Interests		649,833				4,791,062				4,920,750
Net Income (Loss) Attributable to KKR & Co. L.P.		309,307				488,482				477,611
Net Income Attributable to Series A Preferred Unitholders		17,337				—				—
Net Income Attributable to Series B Preferred Unitholders		4,898				—				—
Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders		$	287,072			$	488,482			$	477,611
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic		$	0.64			$	1.09			$	1.25
Diluted		$	0.59			$	1.01			$	1.16
Weighted Average Common Units Outstanding
Basic		448,905,126				448,884,185				381,092,394
Diluted		483,431,048				482,699,194				412,049,275

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,
		2016				2015				2014
Net Income (Loss)		$	950,664			$	5,275,032			$	5,395,020
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation Adjustments		(34,583		)		(27,176		)		(37,119		)
Comprehensive Income (Loss)		916,081				5,247,856				5,357,901
Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interests		(8,476		)		(4,512		)		(3,341		)
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests		634,813				4,771,152				4,897,831
Comprehensive Income (Loss) Attributable to KKR & Co. L.P.		$	289,744			$	481,216			$	463,411

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		Capital - Common Unitholders			Accumulated Other Comprehensive Income (Loss)			Total Capital - Common Units			Capital - Series A Preferred Units			Capital - Series B Preferred Units				Noncontrolling Interests				Appropriated Capital				Total Equity				Redeemable Noncontrolling Interests
Balance at January 1, 2014	288,143,327		$	2,727,909		$	(5,899	)	$	2,722,010		$	—		$	—			$	43,235,001			$	—			$	45,957,011			$	627,807
Net Income (Loss)			477,611						477,611										4,929,337				(8,587		)		5,398,361				(3,341		)
Other Comprehensive Income (Loss)- Foreign Currency Translation (Net of Tax)						(14,200		)	(14,200		)								(20,725		)		(2,194		)		(37,119		)
Exchange of KKR Holdings L.P. Units and Other Securities to KKR & Co. L.P. Common Units and transfers of CLO beneficial interests to appropriated capital	27,228,991		332,479			(833		)	331,646										(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																		46,839
Net Delivery of Common Units - Equity Incentive Plan	9,952,634		(8,757		)				(8,757		)																(8,757		)
Equity Based Compensation			158,927						158,927										151,476								310,403
Acquisitions	108,005,588		2,453,610						2,453,610										435,478								2,889,088
Capital Contributions									—										11,236,018								11,236,018				148,355
Capital Distributions			(784,995		)				(784,995		)								(13,602,886		)						(14,387,881		)		(472,723		)
Balance at December 31, 2014	433,330,540		$	5,403,095		$	(20,404	)	$	5,382,691		$	—		$	—			$	46,004,377			$	16,895			$	51,403,963			$	300,098

Net Income (Loss)			488,482						488,482										4,791,062								5,279,544				(4,512		)
Other Comprehensive Income (Loss)-Foreign Currency Translation (Net of Tax)						(7,266		)	(7,266		)								(19,910		)						(27,176		)
Cumulative-effect adjustment from adoption of accounting policies			(307		)				(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										(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																		18,598
Net Delivery of Common Units-Equity Incentive Plan	10,964,144		15,245						15,245																		15,245
Equity Based Compensation			186,346						186,346										75,233								261,579
Common Units Issued in Connection with the Purchase of an Investment	7,364,545		126,302						126,302																		126,302
Unit Repurchases	(9,919,892	)	(161,929		)				(161,929		)																(161,929		)
Capital Contributions									—										6,274,296								6,274,296				193,269
Capital Distributions			(706,611		)				(706,611		)								(13,187,653		)						(13,894,264		)		(300,226		)
Balance at December 31, 2015	457,834,875		$	5,575,981		$	(28,799	)	$	5,547,182		$	—		$	—			$	43,731,774			$	—			$	49,278,956			$	188,629

Net Income (Loss)			287,072						287,072			17,337			4,898				649,833								959,140				(8,476		)
Other Comprehensive Income (Loss)- Foreign Currency Translation (Net of Tax)						(19,563		)	(19,563		)								(15,020		)						(34,583		)
Deconsolidation of Funds									—										(34,240,240		)						(34,240,240		)
Exchange of KKR Holdings L.P. Units and Other Securities to KKR & Co. L.P. Common Units	7,627,578		91,357			(830		)	90,527										(90,527		)						—
Tax Effects Resulting from Exchange of KKR Holdings L.P. Units and delivery of KKR & Co. L.P. Common Units			(1,495		)	96			(1,399		)																(1,399		)
Net Delivery of Common Units - Equity Incentive Plan	8,672,152		(50,515		)				(50,515		)																(50,515		)
Equity Based Compensation			186,227						186,227										78,663								264,890
Unit Repurchases	(21,754,270	)	(296,844		)				(296,844		)																(296,844		)
Equity Issued in connection with Preferred Unit Offering									—			332,988			149,566												482,554
Capital Contributions									—										2,525,635								2,525,635				479,031
Capital Distributions			(285,408		)				(285,408		)	(17,337		)	(4,898		)		(2,094,216		)						(2,401,859		)		(26,836		)
Balance at December 31, 2016	452,380,335		$	5,506,375		$	(49,096	)	$	5,457,279		$	332,988		$	149,566			$	10,545,902			$	—			$	16,485,735			$	632,348

See notes to consolidated financial statements.

KKR & CO. L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

	For the Years Ended December 31,
	2016				2015				2014
Operating Activities
Net Income (Loss)	$	950,664			$	5,275,032			$	5,395,020
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities:
Equity Based Compensation	264,890				261,579				310,403
Net Realized (Gains) Losses on Investments	(347,097		)		(3,001,884		)		(5,433,586		)
Change in Unrealized (Gains) Losses on Investments	4,200				(1,670,743		)		655,354
Carried Interest Allocated as a result of Changes in Fund Fair Value	(803,185		)		—				—
Other Non-Cash Amounts	(34,620		)		(78,522		)		73,061
Cash Flows Due to Changes in Operating Assets and Liabilities:
Change in Cash and Cash Equivalents Held at Consolidated Entities	(435,417		)		(160,092		)		(166,275		)
Change in Due from / to Affiliates	(79,372		)		15,264				(3,368		)
Change in Other Assets	(555,666		)		605,305				(150,131		)
Change in Accounts Payable, Accrued Expenses and Other Liabilities	648,737				(187,661		)		(156,176		)
Investments Purchased	(20,824,349		)		(27,936,898		)		(37,935,909		)
Proceeds from Investments	19,649,033				27,264,024				38,900,257
Net Cash Provided (Used) by Operating Activities	(1,562,182		)		385,404				1,488,650
Investing Activities
Change in Restricted Cash and Cash Equivalents	1,409				(164,637		)		(10,849		)
Purchase of Fixed Assets	(62,663		)		(169,419		)		(12,163		)
Development of Oil and Natural Gas Properties	(2,122		)		(95,959		)		(233,777		)
Proceeds from Sale of Oil and Natural Gas Properties	858				4,863				82,423
Net Cash Acquired	—				—				151,491
Net Cash Provided (Used) by Investing Activities	(62,518		)		(425,152		)		(22,875		)
Financing Activities
Distributions to Partners	(285,408		)		(706,611		)		(784,995		)
Distributions to Redeemable Noncontrolling Interests	(26,836		)		(300,226		)		(472,723		)
Contributions from Redeemable Noncontrolling Interests	479,031				193,269				148,355
Distributions to Noncontrolling Interests	(2,086,577		)		(13,187,653		)		(13,602,886		)
Contributions from Noncontrolling Interests	2,496,352				6,274,296				11,196,066
Issuance of Preferred Units (net of issuance costs)	482,554				—				—
Preferred Unit Distributions	(22,235		)		—				—
Net Delivery of Common Units - Equity Incentive Plan	(50,515		)		15,245				(8,757		)
Unit Repurchases	(296,844		)		(161,929		)		—
Proceeds from Debt Obligations	7,895,320				14,014,510				5,433,135
Repayment of Debt Obligations	(5,482,133		)		(5,926,162		)		(3,728,195		)
Financing Costs Paid	(16,847		)		(45,331		)		(34,078		)
Net Cash Provided (Used) by Financing Activities	3,085,862				169,408				(1,854,078		)
Net Increase/(Decrease) in Cash and Cash Equivalents	1,461,162				129,660				(388,303		)
Cash and Cash Equivalents, Beginning of Period	1,047,740				918,080				1,306,383
Cash and Cash Equivalents, End of Period	$	2,508,902			$	1,047,740			$	918,080

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,
	2016				2015				2014
Supplemental Disclosures of Cash Flow Information
Payments for Interest	$	773,032			$	485,739			$	195,055
Payments for Income Taxes	$	33,526			$	40,468			$	47,138
Supplemental Disclosures of Non-Cash Investing and Financing Activities
Non-Cash Contributions of Equity Based Compensation	$	264,890			$	261,579			$	310,403
Non-Cash Contributions from Noncontrolling Interests	$	29,283			$	—			$	39,952
Non-Cash Distributions to Noncontrolling Interests	$	(7,639	)		$	—			$	—
Cumulative effect adjustment from adoption of accounting guidance	$	—			$	(17,202	)		$	—
Debt Obligations - Net Gains (Losses), Translation and Other	$	228,405			$	226,577			$	328,464
Tax Effects Resulting from Exchange of KKR Holdings L.P. Units and delivery of KKR & Co. L.P. Common Units	$	(1,399	)		$	18,598			$	46,839
Impairments of Oil and Natural Gas Properties	$	6,191			$	53,926			$	220,063
Gains on Sales of Oil and Natural Gas Properties	$	12,286			$	—			$	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
Changes in Consolidation including Adoption of ASU 2015-02
Cash and Cash Equivalents Held at Consolidated Entities	$	(270,458	)		$	—			$	—
Restricted Cash and Cash Equivalents	$	(54,064	)		$	—			$	—
Investments	$	(35,686,489	)		$	—			$	—
Due From Affiliates	$	147,427			$	—			$	—
Other Assets	$	(532,226	)		$	—			$	—
Debt Obligations	$	(2,355,305	)		$	—			$	—
Due to Affiliates	$	329,083			$	—			$	—
Accounts Payable, Accrued Expenses and Other Liabilities	$	(129,348	)		$	—			$	—
Noncontrolling Interests	$	(34,240,240	)		$	—			$	—

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, growth equity, 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, 2016, KKR & Co. L.P. held approximately 56.1% of the KKR Group Partnership Units and principals through KKR Holdings held approximately 43.9% 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. The KKR Group Partnerships also have outstanding equity interests that provide for our carry pool and preferred units with economic terms that mirror the preferred units issued by KKR & Co. L.P.

For acquisitions KKR made during the year ended December 31, 2014, see Note 15 "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,
	2016				2015				2014
Net income (loss) attributable to KKR & Co. L.P.	$	309,307			$	488,482			$	477,611
Transfers from noncontrolling interests:
Exchange of KKR Group Partnership units held by KKR Holdings L.P.(a)	90,910				212,043				380,916
Change from net income (loss) attributable to KKR & Co. L.P. and transfers from noncontrolling interests held by KKR Holdings	$	400,217			$	700,525			$	858,527

(a)	Increase in KKR’s partners’ capital for exchange of 7,589,190, 15,850,161 and 27,172,269 for the years ended December 31, 2016, 2015, and 2014, 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.

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 assessed for consolidation as voting interest entities (“VOEs”) under the voting interest model.

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.”

Consolidation Policy Upon Adoption of ASU No. 2015-02 and 2016-17

In February 2015, the Financial Accounting Standards Board (“FASB”) issued amended consolidation guidance with the issuance of ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU 2015-02"). KKR adopted this new guidance on January 1, 2016 using the modified retrospective method. As a result, no retrospective adjustment is required and prior periods presented in the financial statements have not been impacted. The guidance in ASU 2015-02 eliminates the presumption that a general partner should consolidate a limited partnership and also changes the consolidation model specific to limited partnerships. The amendments also clarify how to evaluate 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 VIE should be reported on an asset manager's balance sheet. These changes modify the analysis that KKR must perform to determine whether it should consolidate certain types of legal entities.

Upon adoption of ASU 2015-02, most of KKR’s investment funds were de-consolidated as of January 1, 2016 resulting in a reduction in consolidated assets, liabilities and noncontrolling interests of approximately $36.3 billion, $2.1 billion and $34.2 billion, respectively. Additionally, as a result of the de-consolidation of most of KKR’s investment funds, management fees and carried interest earned by KKR from investment funds that were previously consolidated will no longer be eliminated. Adoption of ASU 2015-02 had no impact on KKR's partners' capital and Net Income (Loss) Attributable to KKR & Co. L.P.

In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties under Common Control ("ASU 2016-17"). KKR has adopted this new guidance and has applied the guidance retrospectively

Notes to Consolidated Financial Statements (Continued)

beginning with the annual period in which the amendments in ASU 2015-02 were adopted, which was January 1, 2016. This guidance in ASU 2016-17 states that reporting entities deciding whether they are primary beneficiaries no longer have to consider indirect interests held through related parties that are under common control to be the equivalent of direct interests in their entirety. Reporting entities would include those indirect interests on a proportionate basis.

Consistent with the consolidation rules in effect prior to the adoption of ASU 2015-02, 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 the 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. However, under ASU 2015-02, limited partnerships and other similar entities where unaffiliated limited partners have not been granted i) substantive participatory rights or ii) substantive rights to either dissolve the partnership or remove the general partner (“kick-out rights”) are VIEs under condition (b) above. KKR’s investment funds that are not CFEs (i) are generally limited partnerships, (ii) generally provide KKR with operational discretion and control, and (iii) generally have fund investors with no substantive rights to impact ongoing governance and operating activities of the fund, including the ability to remove the general partner, and as such the limited partners do not hold kick-out rights. Accordingly, most of KKR’s investment funds are categorized as VIEs under ASU 2015-02.

KKR consolidates all VIEs in which it is the primary beneficiary. A reporting entity is determined to be the primary beneficiary if it holds a controlling financial interest in a VIE. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The consolidation guidance requires an analysis to determine (i) whether an entity in which KKR holds a variable interest is a VIE and (ii) whether KKR’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (for example, management and performance related fees), would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment. Pursuant to ASU 2015-02, fees earned by KKR that are customary and commensurate with the level of effort required to provide those services, and where KKR does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, would not be considered variable interests. KKR factors in all economic interests including interests held through related parties, to determine if it holds a variable interest. KKR determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion periodically.

For entities that are determined not to be VIEs, these entities are generally considered VOEs and are evaluated under the voting interest model. KKR consolidates VOEs it controls through a majority voting interest or through other means.

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 CLOs (which are generally VIEs), in its role as collateral manager, KKR generally has the power to direct the activities of the CLO that most significantly impact the economic performance of the entity. In some, but not all cases, KKR, through its residual interest in the CLO 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 the power to direct the activities of the CLO that most significantly impact the CLO's economic performance and 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 is deemed to be the primary beneficiary and consolidates the CLO.

With respect to CMBS vehicles (which are generally VIEs), 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 most significantly impact the economic performance of the CMBS. Additionally, as the holder of the most subordinate

Notes to Consolidated Financial Statements (Continued)

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.

Consolidation Policy Prior to the Adoption of ASU 2015-02 and 2016-17

As indicated above, KKR adopted ASU 2015-02 using the modified retrospective method and as such, the prior periods presented in the financial statements have not been impacted. The most significant changes to KKR’s consolidation policy as a result of the adoption of ASU 2015-02 pertained to its investment funds that are not CFEs. There were no significant changes to KKR's CFEs as a result of the adoption of ASU 2015-02.

With respect to KKR’s consolidated funds that are not CFEs, KKR generally has operational discretion and control, and fund investors have no substantive rights to impact ongoing governance and operating activities of the fund, and do not have kick-out rights. As a result, prior to the adoption of ASU 2015-02, a fund would be consolidated unless KKR had a nominal level of equity at risk. To the extent that KKR commits a nominal amount of equity to a given fund and had no obligation to fund any future losses, the equity at risk to KKR was not considered substantive and the fund was typically considered a VIE. KKR was 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 majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. In cases where there was minimal capital at risk, the fund investors were generally deemed to be the primary beneficiaries, and KKR did not consolidate the fund. In cases when KKR’s equity at risk was deemed to be substantive, the fund was generally considered to be a VOE and KKR generally consolidated the fund under the VOE model. As described above, subsequent to the adoption of ASU 2015-02, limited partnerships and other similar entities where unaffiliated limited partners have not been granted kick-out rights are deemed to be VIEs. Since substantially all of our investment funds are partnerships where limited partners are not granted kick-out rights, the adoption of ASU 2015-02 resulted in numerous entities that were previously classified as VOEs under the prior guidance becoming VIEs under the new consolidation guidance.

Under both the previous consolidation guidance and ASU 2015-02 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.

Redeemable Noncontrolling Interests

Redeemable Noncontrolling Interests represent noncontrolling interests of certain investment funds and vehicles 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.

Notes to Consolidated Financial Statements (Continued)

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;

(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 & Co. L.P. 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,
	2016				2015				2014
Balance at the beginning of the period	$	4,347,153			$	4,661,679			$	5,116,761
Net income (loss) attributable to noncontrolling interests held by KKR Holdings (a)	212,878				433,693				585,135
Other comprehensive income (loss), net of tax (b)	(10,514		)		(14,030		)		(15,202		)
Impact of the exchange of KKR Holdings units to KKR & Co. L.P. common units (c)	(89,182		)		(203,127		)		(357,551		)
Equity based compensation	66,572				59,114				129,012
Capital contributions	241,748				25,573				30,402
Capital distributions	(475,318		)		(615,749		)		(826,878		)
Balance at the end of the period	$	4,293,337			$	4,347,153			$	4,661,679

(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

Notes to Consolidated Financial Statements (Continued)

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.

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

	For the Years Ended December 31,
	2016				2015				2014
Net income (loss)	$	950,664			$	5,275,032			$	5,395,020
Net income (loss) attributable to Redeemable Noncontrolling Interests	(8,476		)		(4,512		)		(3,341		)
Net income (loss) attributable to Noncontrolling Interests in consolidated entities	436,955				4,357,369				4,335,615
Net income (loss) attributable to Series A and Series B Preferred Unitholders	22,235				—				—
Income tax / (benefit) attributable to KKR Management Holdings Corp.	(18,937		)		21,241				28,806
Net income (loss) attributable to KKR & Co. L.P. Common Unitholders and KKR Holdings	$	481,013			$	943,416			$	1,091,552
Net income (loss) attributable to noncontrolling interests held by KKR Holdings	$	212,878			$	433,693			$	585,135

Investments

Investments consist primarily of private equity, real assets, credit, investments of consolidated CFEs, equity method, carried interest and other investments. 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, including growth equity investments.

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.

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 originated, fixed-rate mortgage loans held directly by the consolidated CMBS vehicles.

Equity Method - Consists primarily of (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 GAAP.

Carried Interest - Consists of carried interest from unconsolidated investment funds that are allocated to KKR as the general partner of the investment fund based on cumulative fund performance to date, and where applicable, subject to a preferred return.

Other - Consists primarily of investments in common stock, preferred stock, warrants and options of companies that are not private equity, real assets, credit or investments of consolidated CFEs.

Investments held by Consolidated Investment Funds

Notes to Consolidated Financial Statements (Continued)

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

Certain energy investments are made through 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 consolidated 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 consolidated 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.

Energy Investments held directly by KKR

Certain energy investments are made by KKR directly in working and royalty interests in oil and natural gas producing properties and not through investment funds. 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 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 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. Any impairment in value is recognized when incurred and is recorded in General, Administrative, and Other expense in the consolidated statements of operations.

Fair Value Option

For certain investments and other financial instruments, KKR has elected the fair value option. Such election is irrevocable and is applied on a financial instrument by financial instrument basis at initial recognition. KKR has elected the fair value option for certain private equity, real assets, credit, investments of consolidated CFEs, equity method and other financial instruments not held through a consolidated investment fund with gains and losses recorded in net income. Accounting for these investments at fair value is consistent with how KKR accounts for its investments held through consolidated investment funds. Changes in the fair value of such instruments are recognized in Net Gains (Losses) from Investment Activities in the consolidated statements of operations. Interest income on interest bearing credit securities on which the fair value option has been elected is based on stated coupon rates adjusted for the accretion of purchase discounts and the amortization of purchase premiums. This interest income is recorded within Interest Income in the consolidated statements of operations.

Notes to Consolidated Financial Statements (Continued)

Equity Method

For certain investments in entities over which KKR exercises significant influence but which do not meet the requirements for consolidation and for which KKR has not elected the fair value option, KKR uses the equity method of accounting. KKR’s share of earnings (losses) from these investments is reflected as a component of Net Gains (Losses) from Investment Activities in the consolidated statements of operations. The carrying value of equity method investments in private equity funds, real assets funds and credit funds, which are not consolidated, approximate fair value, because the underlying investments of the unconsolidated investment funds are reported at fair value. The carrying value of equity method investments in certain operating companies, which KKR is determined to exert significant influence under GAAP and for which KKR has not elected the fair value option, 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. For equity method investments, KKR records its proportionate share of the investee's earnings or losses based on the most recently available financial information of the investee, which in certain cases may lag the date of KKR's financial statements by no more than three calendar months. KKR evaluates its equity method investments for which KKR has not elected the fair value option for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

Financial Instruments held by Consolidated CFEs

As of January 1, 2015, KKR 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 financial statements using the more observable of the fair value of the financial assets and the fair value of the financial liabilities.

For the consolidated CLO entities, KKR has determined that the fair value of the financial assets of the consolidated CLOs are more observable than the fair value of the financial liabilities of the consolidated CLOs. As a result, the financial assets of the consolidated CLOs are being measured at fair value and the financial liabilities are being measured 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 is more observable than the fair value of the financial assets of the consolidated CMBS vehicles. 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 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.

Fair Value Measurements

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. Except for certain of KKR's equity method investments (see "Equity Method" above in this Note 2 "Summary of Significant Accounting Policies") and debt obligations (as described in Note 10 "Debt Obligations"), KKR's investments and other financial instruments are recorded at fair value or at amounts whose carrying values approximate fair value. 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.

GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including

Notes to Consolidated Financial Statements (Continued)

the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:

Level I - Pricing inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date. The types of financial instruments included in this category are publicly-listed equities, credit investments and securities sold short.

Level II - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the measurement date, and fair value is determined through the use of models or other valuation methodologies. The types of financial instruments included in this category are credit investments, investments and debt obligations of consolidated CLO entities, 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 - Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. The types of financial instruments generally included in this category are private portfolio companies, real assets investments, credit investments, equity method investments for which the fair value option was elected and investments and debt obligations of consolidated CMBS entities.

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.

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 methodologies and processes described below and may incorporate assumptions that are management’s best estimates after consideration of a variety of internal and external factors.

Level II Valuation Methodologies

Credit Investments: 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.

Notes to Consolidated Financial Statements (Continued)

Investments and Debt Obligations of Consolidated CLO Vehicles: Investments of consolidated CLO vehicles are reported within Investments of Consolidated CFEs and are valued using the same valuation methodology as described above for credit investments. Under ASU 2014-13, KKR measures CLO debt obligations on the basis of the fair value of the financial assets of the CLO.

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.

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. In addition, 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 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, an estimated 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.

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

Notes to Consolidated Financial Statements (Continued)

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.

In the case of growth equity investments, enterprise values may be determined using the market comparables analysis and discounted cash flow analysis described above. A scenario analysis may also be conducted to subject the estimated enterprise values to a downside, base and upside case, which involves significant assumptions and judgments. A milestone analysis may also be conducted to assess the current level of progress towards value drivers that we have determined to be important, which involves significant assumptions and judgments. The enterprise value in each case may then be allocated across the investment’s capital structure to reflect the terms of the security and subjected to probability weightings. In certain cases, the values of growth equity investments may be based on recent or expected financings.

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 can 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 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. 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 generally 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.

Investments and Debt Obligations of Consolidated CMBS Vehicles: Under ASU 2014-13, KKR measures CMBS investments, which are reported within Investments of Consolidated CFEs on the basis of the fair value of the financial liabilities of the CMBS. Debt obligations of consolidated CMBS vehicles are valued based on discounted cash flow analyses. The key input is the expected yield of each CMBS security using both observable and unobservable factors, which may include recently offered or completed trades and published yields of similar securities, security-specific characteristics (e.g. securities ratings issued by nationally recognized statistical rating organizations, credit support by other subordinate securities issued by the CMBS and coupon type) and other characteristics.

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.

Notes to Consolidated Financial Statements (Continued)

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.

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 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. The valuations of certain real asset investments are determined solely by an independent valuation firm without the preparation of preliminary valuations by our investment professionals, and instead such independent valuation firm relies principally on valuation information available to it as a broker or valuation firm. For credit investments and debt obligations of consolidated CMBS vehicles, an independent valuation firm is generally engaged by KKR with respect to most investments classified as Level III. The valuation firm either provides a valuation range from which KKR’s investment professionals select a point in the range to determine the preliminary valuation or performs certain procedures in order to assess the reasonableness and provide positive assurance of KKR’s valuations. After reflecting any input from the independent valuation firm, the valuation proposals are submitted to their respective valuation sub-committees.

KKR has a global valuation committee comprised of senior employees including investment professionals and professionals from business operations functions, and includes our Chief Financial Officer, General Counsel and Chief Compliance Officer. The global valuation committee is assisted by valuation sub-committees and investment professionals for each business strategy. All preliminary Level III valuations are reviewed and approved by the valuation sub-committees for private equity, real estate, energy and infrastructure and credit, as applicable. When Level III valuations are required to be performed on hedge fund investments, a valuation sub-committee for hedge funds reviews these valuations. The valuation sub-committees are responsible for the review and approval of valuations in their respective business lines on a quarterly basis. The members of the valuation sub-committees are comprised of investment professionals, including the heads of each respective strategy, and professionals from business operations functions such as legal, compliance and finance, who are not primarily responsible for the management of the investments.

The global valuation committee provides general oversight of the valuation sub-committees. The global valuation committee is responsible for coordinating and implementing the firm’s valuation process to ensure consistency in the application of valuation principles across portfolio investments and between periods. All valuations are subject to approval by the global valuation committee. When valuations are approved by the global valuation 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 the board of directors of the general partner of KKR & Co. L.P. and are then reported to the board of directors.

Fees and Other

As indicated above, on January 1, 2016, KKR adopted ASU 2015-02, which resulted in the de-consolidation of most of KKR's investment funds that had been consolidated prior to such date. Management fees, incentive fees, fee credits and carried interest earned from consolidated funds are eliminated in consolidation and as such are not recorded in Fees and Other. The economic impact of these management fees, incentive fees, fee credits and carried interests that are eliminated is reflected as an adjustment to noncontrolling interests and has no impact to Net Income Attributable to KKR & Co. L.P. As a result of the de-consolidation of most of our investment funds, the management fees, incentive fees, fee credits and carried interests associated with funds that had previously been consolidated are included in Fees and Other beginning on January 1, 2016 as such amounts are no longer eliminated.

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) carried interest allocations to general partners of unconsolidated funds, (v) revenue earned by oil and gas-producing entities that are consolidated and (vi) consulting fees earned by consolidated entities that employ non-employee operating consultants.

Notes to Consolidated Financial Statements (Continued)

For the years ended December 31, 2016, 2015 and 2014, respectively, fees and other consisted of the following:

	For the Years Ended December 31,
	2016				2015				2014
Management Fees	$	619,243			$	201,006			$	215,266
Transaction Fees	350,091				354,895				443,590
Monitoring Fees	146,967				336,159				190,584
Fee Credits	(128,707		)		(17,351		)		(18,571		)
Carried Interest	803,185				—				—
Incentive Fees	8,709				16,415				50,690
Oil and Gas Revenue	65,754				112,328				186,876
Consulting Fees	42,851				40,316				41,573
Total Fees and Other	$	1,908,093			$	1,043,768			$	1,110,008

All revenues presented in the table above, except for oil and gas revenue and certain transaction fees earned by KKR's Capital Markets business, are earned from KKR investment funds 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. These fees are separately negotiated with each company for which services are provided and are not shared with KKR.

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 funds 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 funds, CLOs, and separately managed accounts, management fees 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 is often shorter due to the earlier deployment of committed capital.

KKR’s older private equity funds, which do not have a preferred return, 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 Funds

Certain investment funds 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 fund's average net asset value, capital commitments, or invested capital.

Notes to Consolidated Financial Statements (Continued)

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 0.20% to 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.

Transaction Fees

Transaction fees are earned by KKR primarily in connection with successful investment transactions and capital markets activities. Transaction fees are recognized in the period when the transaction closes. 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 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.

Fee Credits

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% for older funds, or 100% for our newer funds, 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.

Carried Interest

For certain investment fund structures, carried interest is allocated to the general partner based on cumulative fund performance to date, and where applicable, subject to a preferred return to limited partners. At the end of each reporting period, KKR calculates the carried interest that would be due to KKR for each fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as carried interest to reflect either (a) positive performance resulting in an increase in the carried interest allocated to the general partner or (b) negative performance that would cause the amount due to KKR to be less than the amount previously recognized as revenue, resulting in a negative adjustment to carried interest allocated to the general partner. In each case, it is necessary to calculate the carried interest on cumulative results compared to the carried interest recorded to date and make the required positive or negative adjustments. KKR ceases to record negative carried interest allocations once previously recognized carried interest allocations for a fund have been fully reversed. KKR is not obligated to pay guaranteed returns or

Notes to Consolidated Financial Statements (Continued)

hurdles, and therefore, cannot have negative carried interest over the life of a fund. Accrued but unpaid carried interest as of the reporting date is reflected in Investments in the consolidated statements of financial condition.

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.

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.

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, carry pool allocations and other performance-based income compensation.

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 12 “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 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.

Notes to Consolidated Financial Statements (Continued)

Profit Sharing Plan

KKR provides certain profit sharing programs for KKR employees and other eligible personnel. In particular, KKR provides a 401(k) plan for eligible employees in the United States. For certain professionals who are participants in the 401(k) plan, KKR may, in its discretion, contribute an amount after the end of the plan year. For the years ended December 31, 2016, 2015 and 2014, KKR incurred expenses of $8.0 million, $7.9 million and $6.9 million, respectively, in connection with the 401(k) plan and other profit sharing programs.

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.

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 of a record date, on the date it is received.

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

(v)	Interest expense, which is recognized as incurred.

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.

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.

Notes to Consolidated Financial Statements (Continued)

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 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.

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.

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 for accounting purposes. 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.

Notes to Consolidated Financial Statements (Continued)

Freestanding Derivatives

Freestanding derivatives are instruments that KKR and certain of its consolidated funds have entered into as part of their overall risk management and investment strategies. These derivative contracts are not designated as hedging instruments for accounting purposes. Such contracts may include forward, swap and option contracts related to foreign currencies and interest rates to manage foreign exchange risk and interest rate 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 on a gross basis 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.

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. As of December 31, 2016, 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 in the third quarter of each fiscal year or more frequently if circumstances indicate impairment may have occurred. Goodwill is recorded in Other Assets in the accompanying consolidated statements of financial condition.

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.

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 financial statements, comprehensive income represents Net Income (Loss), as presented in the consolidated statements of operations and net foreign currency translation gains / (losses).

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

Notes to Consolidated Financial Statements (Continued)

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.

Recently Issued Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers Topic 606 (“ASU 2014-09”) which has subsequently been amended by ASU 2016-08, ASU 2016-10, and ASU 2016-12. These ASUs outline 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.

Going Concern

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASU 2014 - 15"). This guidance pertains to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new guidance requires that management evaluate each annual and interim reporting period whether conditions exist that give rise to substantial doubt about the entity’s ability to continue as a going concern within one year from the financial statement issuance date, and if so, provide related disclosures. Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the financial statement issuance date. The new guidance applies to all companies. The guidance is effective for annual reporting periods ending after December 15, 2016, and for annual and interim periods thereafter. This guidance has been adopted for the year ended December 31, 2016 and there was no impact on the financial statements.

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 changes 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. KKR adopted ASU 2015-02 on January 1, 2016. See "Principles of Consolidation" for a discussion of the impact that the adoption had on KKR's financial statements.

In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties under Common Control ("ASU 2016-17"). This guidance in ASU 2016-17 states that reporting entities deciding whether they are primary beneficiaries no longer have to consider indirect interests held through related parties that are under common control to be the equivalent of direct interests in their entirety. Decision makers would include those indirect interests on a proportionate basis. The guidance in the ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. KKR has chosen to early adopt ASU 2016-17 and has retrospectively applied the guidance in ASU 2016-17 beginning on January 1, 2016 which was the date ASU 2015-02 was initially adopted.

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 amended guidance requires 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 rather than a deferred charge within other assets, consistent with debt discounts. In August 2015, the FASB clarified that line-of-credit arrangements are outside the scope of ASU 2015-03. The amended guidance is effective for fiscal years beginning

Notes to Consolidated Financial Statements (Continued)

after December 15, 2015, and interim periods within those fiscal years. KKR adopted the guidance for debt arrangements that are not line-of-credit arrangements for the three months ended March 31, 2016 and applied a retrospective approach. As a result of the adoption, the December 31, 2015 statement of financial condition was impacted resulting in a reduction in deferred financing costs reported in other assets and a corresponding reduction in debt obligations of $15.4 million. Adoption of this guidance had no impact on KKR & Co. L.P. Partners’ Capital and Net Income (Loss) Attributable to KKR & Co. L.P.

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

In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (“ASU 2015-07”). The amended guidance removes 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. This guidance was adopted by KKR on January 1, 2016 and did not 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 of this guidance on the financial statements.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance requires the recognition of lease assets and lease liabilities for those leases classified as operating leases under previous GAAP. The guidance retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases under previous GAAP. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not changed significantly from previous GAAP. For operating leases, a lessee is required to do the following: (a) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the Statement of Financial Condition, (b) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and (c) classify all cash payments within operating activities in the statement of cash flows. The guidance is effective for fiscal periods beginning after December 15, 2018. Early application is permitted. KKR is currently evaluating the impact of this guidance on the financial statements.

Investments

In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting ("ASU 2016-07"), which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. ASU 2016-07 is effective for all entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted for all entities. Entities are required to apply the guidance prospectively to increases in the level of ownership interest or degree of influence occurring after the ASU’s effective date. Additional transition disclosures are not required upon adoption. KKR is currently evaluating the impact of this guidance on the financial statements.

Notes to Consolidated Financial Statements (Continued)

Compensation

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Shared-Based Payment Accounting ("ASU 2016-09"), which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. KKR is currently evaluating the impact of this guidance on the financial statements.

Cash Flow Classification

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. The amended guidance adds or clarifies guidance on eight cash flow matters: (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions and (viii) separately identifiable cash flows and application of the predominance principle. The guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance must be applied retrospectively to all periods presented but may be applied prospectively from the earliest date practicable if retrospective application would be impracticable. KKR is currently evaluating the impact of this guidance on the financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-15”), which amends the guidance to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The amended guidance requires the following: (i) restricted cash and restricted cash equivalents should be included in the cash and cash-equivalents balances in the statement of cash flows; (ii) changes in restricted cash and restricted cash equivalents that result from transfers between cash, cash equivalents, and restricted cash and restricted cash equivalents should not be presented as cash flow activities in the statement of cash flows; (iii) a reconciliation between the statement of financial position and the statement of cash flows must be disclosed when the statement of financial position includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents; and (iv) the nature of the restrictions must be disclosed for material restricted cash and restricted cash equivalents amounts. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods therein. Early adoption is permitted. The guidance must be applied retrospectively to all periods presented. KKR is currently evaluating the impact of this guidance on the financial statements.

Income Taxes

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-entity Transfers of Assets Other Than Inventory ("ASU 2016-16"), which removed the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. KKR is currently evaluating the impact of this guidance on the financial statements.

Goodwill

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-4”). This guidance simplifies the accounting for goodwill impairments by eliminating the second step from the goodwill impairment test. The ASU requires goodwill impairments to be measured on the basis of the fair value of a reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. The ASU also (i) clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity’s testing of reporting units for goodwill impairment; and (ii) clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance is effective for fiscal periods beginning after December 15, 2019. Early adoption is allowed for entities as of January 1, 2017, for annual and any interim impairment tests occurring after January 1, 2017. KKR is currently evaluating the impact of this guidance 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, 2016, 2015 and 2014, respectively:

	For the Years Ended December 31,
	2016								2015								2014
	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)	$	306,180			$	(196,892	)		$	4,452,593			$	1,140,377			$	4,985,786			$	(399,593	)
Credit and Other (a)	(825,822		)		4,280				138,915				(800,027		)		323,676				(229,004		)
Investments of Consolidated CFEs (a)	(258,430		)		444,142				(54,367		)		(220,577		)		15,921				(237,199		)
Real Assets (a)	87,512				141,886				(2,035,727		)		1,591,541				225,497				(548,788		)
Foreign Exchange Forward Contracts and Options (b)	108,404				(7,986		)		415,370				87,482				(10,620		)		787,682
Securities Sold Short (b)	594,743				(90,607		)		(6,860		)		3,909				(59,071		)		21,057
Other Derivatives (b)	(49,712		)		70,534				17,694				2,449				(34,319		)		(15,384		)
Debt Obligations and Other (c)	384,222				(369,557		)		74,266				(134,411		)		(13,284		)		(34,125		)
Net Gains (Losses) From Investment Activities	$	347,097			$	(4,200	)		$	3,001,884			$	1,670,743			$	5,433,586			$	(655,354	)

(a) See Note 4 "Investments."

(b) See Note 8 "Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities."

(c) See Note 10 "Debt Obligations."

4. INVESTMENTS

Investments consist of the following:

	December 31, 2016				December 31, 2015
Private Equity	$	2,915,667			$	36,398,474
Credit	4,847,936				6,300,004
Investments of Consolidated CFEs	13,950,897				12,735,309
Real Assets	1,807,128				4,048,281
Equity Method	2,728,995				1,730,565
Carried Interest	2,384,177				245,066
Other	2,774,965				3,848,232
Total Investments	$	31,409,765			$	65,305,931

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, 2016, there were no investments which represented greater than 5% of total investments. In addition, as of December 31, 2016 and December 31, 2015, investments totaling $16.1 billion and $14.2 billion, respectively, were pledged as direct collateral against various financing arrangements. See Note 10 “Debt Obligations.” The majority of the securities underlying private equity investments represent equity securities.

Notes to Consolidated Financial Statements (Continued)

Carried Interest

Carried interest allocated to the general partner in respect of performance of investment funds that are not consolidated were as follows:

Balance at December 31, 2015		$	245,066
Deconsolidation of Funds on Adoption of ASU 2015-02		2,712,962
Carried Interest Allocated as a result of Changes in Fund Fair Value		803,185
Cash Proceeds Received		(1,377,036		)
Balance at December 31, 2016		$	2,384,177

Equity Method

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 generally 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 net income or loss associated with these investments predominantly represent fair value adjustments in the investments. Changes in estimated fair value are recorded in Net Gains (Losses) from Investment Activities in the consolidated statement of operations.

KKR evaluates each of its equity method investments to determine if any are significant as defined in the regulations promulgated by the United States Securities and Exchange Commission. As of and for the years ended December 31, 2016, 2015 and 2014, 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, 2016 and 2015:

	December 31, 2016			December 31, 2015
Total Assets	$	46,607,136		$	8,759,354
Total Liabilities	$	4,368,696		$	2,387,866
Total Equity	$	42,238,440		$	6,371,488

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, 2016, 2015, and 2014:

	For the Years Ended December 31,
	2016				2015				2014
Investment Related Revenues	$	1,195,404			$	240,877			$	175,343
Other Revenues	1,201,693				623,714				409,984
Investment Related Expenses	464,616				53,081				29,157
Other Expenses	801,342				675,293				448,096
Net Realized and Unrealized Gain/(Loss) from Investments	3,625,293				(307,301		)		350,248
Net Income (Loss)	$	4,756,432			$	(171,084	)		$	458,322

5. FAIR VALUE MEASUREMENTS

The following tables summarize the valuation of KKR's assets and liabilities by the fair value hierarchy. Carried Interest and 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, 2016
	Level I				Level II				Level III				Total
Private Equity	$	1,240,108			$	116,000			$	1,559,559			$	2,915,667
Credit	—				1,557,575				3,290,361				4,847,936
Investments of Consolidated CFEs	—				8,544,677				5,406,220				13,950,897
Real Assets	—				—				1,807,128				1,807,128
Equity Method	—				220,896				570,522				791,418
Other	994,677				12,715				1,767,573				2,774,965
Total	2,234,785				10,451,863				14,401,363				27,088,011
Foreign Exchange Contracts and Options	—				240,627				—				240,627
Other Derivatives	—				81,593				—				81,593
Total Assets	$	2,234,785			$	10,774,083			$	14,401,363			$	27,410,231

	December 31, 2015
	Level I				Level II				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
Equity Method	—				—				891,606				891,606
Other	817,328				449,716				2,581,188				3,848,232
Total	17,431,336				15,353,602				31,436,968				64,221,906
Foreign Exchange Contracts and Options	—				635,183				—				635,183
Other Derivatives	—				5,703				—				5,703
Total Assets	$	17,431,336			$	15,994,488			$	31,436,968			$	64,862,792

Notes to Consolidated Financial Statements (Continued)

Liabilities, at fair value:

	December 31, 2016
	Level I				Level II				Level III				Total
Securities Sold Short	$	644,196			$	3,038			$	—			$	647,234
Foreign Exchange Contracts and Options	—				75,218				—				75,218
Unfunded Revolver Commitments	—				9,023				—				9,023
Other Derivatives (1)	—				44,015				56,000				100,015
Debt Obligations of Consolidated CFEs	—				8,563,547				5,294,741				13,858,288
Total Liabilities	$	644,196			$	8,694,841			$	5,350,741			$	14,689,778

	December 31, 2015
	Level I				Level II				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

(1)

Includes options issued in connection with the acquisition of the 24.9% equity interest in Marshall Wace LLP and its affiliates to increase KKR's ownership interest to 39.9% in periodic increments from 2017 to 2019. The option is valued using a Monte-Carlo simulation valuation methodology. Key inputs used in this methodology that require estimates include Marshall Wace's dividend yield, assets under management volatility and equity volatility.

Notes to Consolidated Financial Statements (Continued)

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, 2016 and 2015, respectively:

	For the Year Ended December 31, 2016
	Level III Assets																												Level III Liabilities
	Private Equity				Credit				Investments of Consolidated CFEs				Real Assets				Equity Method				Other				Total Level III Assets				Debt Obligations of Consolidated CFEs
Balance, Beg. of Period	$	18,903,538			$	5,012,355			$	—			$	4,048,281			$	891,606			$	2,581,188			$	31,436,968			$	—
Transfers Out Due to Deconsolidation of Funds	(17,856,098		)		(2,354,181		)		—				(2,628,999		)		—				(984,813		)		(23,824,091		)		—
Transfers In	—				47,536				4,343,829				—				—				180,508				4,571,873				4,272,081
Transfers Out	(104,000		)		(7,482		)		—				—				(311,270		)		—				(422,752		)		—
Asset Purchases / Debt Issuances	591,459				1,589,920				1,026,801				535,210				101,524				364,180				4,209,094				990,450
Sales / Paydowns	(111,018		)		(973,370		)		(32,286		)		(387,593		)		(78,088		)		(162,989		)		(1,745,344		)		—
Settlements	—				128,299				—				—				—				—				128,299				(32,286		)
Net Realized Gains (Losses)	(219,407		)		(9,786		)		—				87,512				3,830				(16,456		)		(154,307		)		—
Net Unrealized Gains (Losses)	355,085				(138,496		)		67,876				152,717				(37,080		)		(194,045		)		206,057				64,496
Change in Other Comprehensive Income	—				(4,434		)		—				—				—				—				(4,434		)		—
Balance, End of Period	$	1,559,559			$	3,290,361			$	5,406,220			$	1,807,128			$	570,522			$	1,767,573			$	14,401,363			$	5,294,741
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	$	127,082			$	(138,335	)		$	67,876			$	180,543			$	(31,130	)		$	(217,771	)		$	(11,735	)		$	64,496

	For the Year Ended December 31, 2015
	Level III Assets																												Level III Liabilities
	Private Equity				Credit				Investments of Consolidated CFEs				Real Assets				Equity Method				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			$	898,206			$	1,234,795			$	35,824,623			$	7,615,340
Transfers In	—				45,461				108,340				—				—				1,187				154,988				—
Transfers Out	(6,775,013		)		(12,860		)		(153,656		)		—				—				(1,710		)		(6,943,239		)		—
Asset Purchases / Debt Issuances	1,822,388				2,641,247				1,308				1,489,967				148,283				1,467,015				7,570,208				—
Sales / Paydowns	(4,698,120		)		(1,601,897		)		(3,138		)		(127,906		)		(70,749		)		(280,095		)		(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				(84,134		)		91,407				1,529,233				—
Change in Accounting Principle (1)	—				—				—				—				—				—				—				(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			$	891,606			$	2,581,188			$	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	)		$	(28,642	)		$	55,634			$	803,292			$	—

Notes to Consolidated Financial Statements (Continued)

(1) 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.

The following table summarizes the fair value transfers between fair value levels for the years ended December 31, 2016 and 2015:

		For the Years Ended December 31,
		2016				2015
Assets, at fair value:
Transfers from Level I to Level II 1		$	73,600			$	5,538,984
Transfers from Level II to Level I 3		$	—			$	467,766
Transfers from Level II to Level III 1		$	4,571,873			$	154,988
Transfers from Level III to Level II 2		$	318,752			$	168,226
Transfers from Level III to Level I 3		$	104,000			$	6,775,013
Liabilities, at fair value:
Transfers from Level II to Level III 4		$	4,272,081			$	—

(1)	Transfers out of Level I into Level II and Level II into Level III 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)	Transfers out of Level III and into Level II 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)	Transfers out of Level III and II into Level I are attributable to portfolio companies that are valued using their publicly traded market price.

(4)	Transfers out of Level II and into Level III are principally attributable to debt obligations of CMBS vehicles due to an insignificant level of market activity during the period and thus were valued in the absence of observable inputs.

Notes to Consolidated Financial Statements (Continued)

The following table presents additional information about valuation methodologies and significant unobservable inputs used for assets and liabilities that are measured at fair value and categorized within Level III as of December 31, 2016:

	Fair Value December 31, 2016				Valuation Methodologies		Unobservable Input(s) (1)		Weighted Average (2)		Range		Impact to Valuation from an Increase in Input (3)
Private Equity	$	1,559,559
Private Equity	$	587,053			Inputs to market comparables, discounted cash flow and transaction price		Illiquidity Discount		9.9%		5.0% - 15.0%		Decrease
						Weight Ascribed to Market Comparables		42.7%		0.0% - 50.0%		(4)
						Weight Ascribed to Discounted Cash Flow		45.4%		0.0% - 100.0%		(5)
						Weight Ascribed to Transaction Price		11.9%		0.0% - 100.0%		(6)
					Market comparables		Enterprise Value/LTM EBITDA Multiple		12.6x		7.6x - 20.9x		Increase
						Enterprise Value/Forward EBITDA Multiple		11.9x		7.1x - 21.9x		Increase
					Discounted cash flow		Weighted Average Cost of Capital		10.5%		7.9% - 14.6%		Decrease
						Enterprise Value/LTM EBITDA Exit Multiple		10.6x		8.4x - 14.2x		Increase
Growth Equity	$	972,506			Inputs to market comparables, discounted cash flow and milestones		Illiquidity Discount		14.0%		10.0% - 20.0%		Decrease
						Weight Ascribed to Market Comparables		47.1%		0.0% - 100.0%		(4)
						Weight Ascribed to Discounted Cash Flow		16.3%		0.0% - 75.0%		(5)
						Weight Ascribed to Milestones		36.6%		0.0% - 100.0%		(6)
					Scenario Weighting		Base		51.9%		30.0% - 80.0%		Increase
						Downside		24.2%		10.0% - 40.0%		Decrease
						Upside		23.9%		10.0% - 33.3%		Increase
Credit	$	3,290,361			Yield Analysis		Yield		10.5%		3.6% - 33.0%		Decrease
						Net Leverage		4.3x		0.5x - 21.1x		Decrease
						EBITDA Multiple		8.6x		0.1x - 24.9x		Increase
Investments of Consolidated CFEs	$	5,406,220		(9)
Debt Obligations of Consolidated CFEs	$	5,294,741			Discounted cash flow		Yield		5.6%		1.8% - 26.5%		Decrease
Real Assets	$	1,807,128		(10)
Energy	$	915,258			Discounted cash flow		Weighted Average Cost of Capital		10.5%		9.0% - 16.6%		Decrease
							Average Price Per BOE (8)		$42.19		$35.63 - $48.14		Increase
Real Estate	$	748,282			Inputs to direct income capitalization and discounted cash flow		Weight Ascribed to Direct Income Capitalization		28.4%		0.0% - 75.0%		(7)
						Weight Ascribed to Discounted Cash Flow		71.6%		25.0% - 100.0%		(5)
					Direct income capitalization		Current Capitalization Rate		6.2%		3.7% - 12.0%		Decrease
					Discounted cash flow		Unlevered Discount Rate		9.5%		5.5% - 20.0%		Decrease

(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 and debt obligations. 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

Notes to Consolidated Financial Statements (Continued)

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 or milestones 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)

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.

(8)

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 83% liquids and 17% natural gas.

(9)	Under ASU 2014-13, KKR measures CMBS investments on the basis of the fair value of the financial liabilities of the CMBS vehicle. See Note 2 "Summary of Significant Accounting Policies."

(10)	Includes one Infrastructure investment for $143.6 million that was valued using a discounted cash flow analysis. The significant inputs used included the weighted average cost of capital 7.7% and the enterprise value/LTM EBITDA Exit Multiple 11.0x.

The table above excludes equity method investments in the amount of $570.5 million, comprised primarily of interests in real estate joint ventures, which were valued using Level III value methodologies which are generally the same as those shown for real estate investments.

The table above excludes other investments in the amount of $1,767.6 million 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.

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 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. FAIR VALUE OPTION

The following table summarizes the financial instruments for which the fair value option has been elected:

	December 31, 2016				December 31, 2015
Assets
Private Equity	$	96,721			$	211,474
Credit	1,392,525				936,063
Investments of Consolidated CFEs	13,950,897				12,735,309
Real Assets	247,376				90,245
Equity Method	791,418				891,606
Other	240,343				374,185
Total	$	16,719,280			$	15,238,882
Liabilities
Debt Obligations of Consolidated CFEs	$	13,858,288			$	12,365,222
Total	$	13,858,288			$	12,365,222

The following table presents the realized and net change in unrealized gains (losses) on financial instruments on which the fair value option was elected:

	For the Years Ended December 31,
	2016								2015								2014
	Net Realized Gains (Losses)				Net Unrealized Gains (Losses)				Net Realized Gains (Losses)				Net Unrealized Gains (Losses)				Net Realized Gains (Losses)				Net Unrealized Gains (Losses)
Assets
Private Equity	$	(245,014	)		$	238,600			$	111,962			$	86,419			$	25,613			$	240,532
Credit	(144,854		)		48,922				(22,847		)		(68,053		)		1,591				(13,618		)
Investments of Consolidated CFEs	(258,430		)		444,142				(54,367		)		(220,577		)		15,921				(237,199		)
Real Assets	8,835				4,159				(200,394		)		213,171				(73		)		(58,154		)
Equity Method	3,830				(127,741		)		7,703				(80,587		)		3,478				(49,774		)
Other	(10,361		)		(19,386		)		9,984				(20,691		)		246				1,013
Total	$	(645,994	)		$	588,696			$	(147,959	)		$	(90,318	)		$	46,776			$	(117,200	)
Liabilities
Debt Obligations of Consolidated CFEs	325,548				(357,321		)		—				(11,257		)		—				26,956
Total	$	325,548			$	(357,321	)		$	—			$	(11,257	)		$	—			$	26,956

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

For the years ended December 31, 2016, 2015 and 2014, 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,
	2016				2015				2014
Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders	$	287,072			$	488,482			$	477,611

Basic Net Income (Loss) Per Common Unit
Weighted Average Common Units Outstanding - Basic	448,905,126				448,884,185				381,092,394
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit - Basic	$	0.64			$	1.09			$	1.25

Diluted Net Income (Loss) Per Common Unit
Weighted Average Common Units Outstanding - Basic	448,905,126				448,884,185				381,092,394
Weighted Average Unvested Common Units and Other Exchangeable Securities	34,525,922				33,815,009				30,956,881
Weighted Average Common Units Outstanding - Diluted	483,431,048				482,699,194				412,049,275
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit - Diluted	$	0.59			$	1.01			$	1.16

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,
	2016			2015			2014
Weighted Average KKR Holdings Units Outstanding	357,873,788			368,399,872			388,198,713

For the years ended December 31, 2016, 2015 and 2014, 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)

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

Other Assets consist of the following:

	December 31, 2016				December 31, 2015
Unsettled Investment Sales (a)	$	144,600			$	74,862
Receivables	49,279				78,297
Due from Broker (b)	1,084,602				365,678
Oil & Gas Assets, net (c)	276,694				355,537
Deferred Tax Assets, net	286,948				275,391
Interest, Dividend and Notes Receivable (d)	158,511				372,699
Fixed Assets, net (e)	283,262				226,340
Foreign Exchange Contracts and Options (f)	240,627				635,183
Intangible Assets, net (g)	135,024				176,987
Goodwill (g)	89,000				89,000
Derivative Assets	81,593				5,703
Deferred Transaction Related Expenses	17,688				35,422
Prepaid Taxes	46,996				24,326
Prepaid Expenses	17,761				13,697
Deferred Financing Costs	10,507				65,225
Other	73,773				14,790
Total	$	2,996,865			$	2,809,137

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

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

(c)

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 $38.9 million and $69.6 million for the years ended December 31, 2016 and 2015, 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, 2016 and 2015, KKR recorded impairment charges totaling approximately $6.2 million and $54.0 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.

(d)	Represents interest and dividend receivables and a promissory note due from a third party. The promissory note bears interest at 2.0% per annum and matures in January 2018.

(e)	Net of accumulated depreciation and amortization of $141,911 and $135,487 as of December 31, 2016 and December 31, 2015, respectively. Depreciation and amortization expense of $16,045, $15,418 and $15,923 for the years ended December 31, 2016, 2015 and 2014, respectively, is included in General, Administrative and Other in the accompanying consolidated statements of operations.

(f)

Represents derivative financial instruments used to manage foreign exchange risk arising from certain foreign currency 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. See Note 3 “Net Gains (Losses) from Investment Activities” for the net changes in fair value associated with these instruments.

(g)	See Note 17 “Goodwill and Intangible Assets.”

Notes to Consolidated Financial Statements (Continued)

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

	December 31, 2016				December 31, 2015
Amounts Payable to Carry Pool (a)	$	987,994			$	1,199,000
Unsettled Investment Purchases (b)	722,076				594,152
Securities Sold Short (c)	647,234				299,990
Derivative Liabilities	100,015				104,518
Accrued Compensation and Benefits	20,764				17,765
Interest Payable	114,894				102,195
Foreign Exchange Contracts and Options (d)	75,218				83,748
Accounts Payable and Accrued Expenses	114,854				112,007
Contingent Consideration Obligation (e)	—				46,600
Deferred Rent and Income	19,144				21,706
Taxes Payable	12,514				8,770
Redemptions Payable	4,021				—
Due to Broker (f)	83,206				27,121
Other Liabilities	79,326				97,778
Total	$	2,981,260			$	2,715,350

(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.

(d)

Represents derivative financial instruments used to manage foreign exchange risk arising from certain foreign currency 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. See Note 3 “Net Gains (Losses) from Investment Activities” for the net changes in fair value associated with these instruments.

(e)

Represents potential contingent consideration related to the acquisition of Prisma. During the fourth quarter of 2016, KKR determined that it was no longer probable that the sellers (certain of whom are employees of KKR) of Prisma Capital Partners LP and its affiliates would be entitled to any future additional payment under the contingent consideration arrangement. Consequently, as of December 31, 2016, KKR has reduced the fair value of the contingent consideration liability to zero through General, Administrative and Other on the consolidated statements of operations. For the year ended December 31, 2016, $46.6 million of expense was reversed. The final contingent consideration payment would have been payable on July 1, 2017. The determination described above was based on the performance of Prisma Capital Partners LP and its affiliates' historical results and management's projections for 2017.

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

Notes to Consolidated Financial Statements (Continued)

9. VARIABLE INTEREST ENTITIES

As indicated in Note 2 "Summary of Significant Accounting Policies", on January 1, 2016, KKR adopted ASU 2015-02. Subsequent to the adoption of ASU 2015-02, limited partnerships and other similar entities where unaffiliated limited partners have not been granted substantive participatory or kick-out rights are deemed to be VIEs. Since substantially all of KKR's investment funds are partnerships where limited partners are not granted kick-out rights, the adoption of ASU 2015-02 resulted in numerous entities that were previously classified as VOEs under the prior consolidation guidance becoming VIEs under ASU 2015-02. Since most of KKR's investment funds were de-consolidated as a result of the adoption of ASU 2015-02, the number of unconsolidated VIEs has increased significantly from December 31, 2015.

Consolidated VIEs

KKR consolidates certain VIEs in which it is determined that KKR is the primary beneficiary as described in Note 2 "Summary of Significant Accounting Policies" and which are predominately CFEs and certain investment funds. The primary purpose of these VIEs is to provide strategy specific investment opportunities to earn capital gains, current income or both in exchange for management and performance based fees or carried interest. KKR’s investment strategies for these VIEs differ by product; however, the fundamental risks have similar characteristics, including loss of invested capital and loss of management fees and carried interests. KKR does not provide performance guarantees and has no other financial obligation to provide funding to these consolidated VIEs, beyond amounts previously committed, if any.

Unconsolidated VIEs

KKR holds variable interests in certain VIEs which are not consolidated as it has been determined that KKR is not the primary beneficiary. VIEs that are not consolidated include certain investment funds sponsored by KKR and certain CLO vehicles.

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, including KKR's capital interest and any unrealized carried interest, which was approximately $3.6 billion at December 31, 2016. 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, 2016, KKR's commitments to these unconsolidated investment funds was $1.7 billion. KKR has not provided any financial support other than its obligated amount as of December 31, 2016.

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. As of December 31, 2016, combined assets under management in the pools of unconsolidated CLO vehicles were $0.9 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 $1.0 million as of December 31, 2016. 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, 2016 and 2015, the maximum exposure to loss, before allocations to the carry pool and noncontrolling interests, 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, 2016				December 31, 2015
Investments	$	3,632,162			$	264,277
Due from (to) Affiliates, net	(60,604		)		4,315
Maximum Exposure to Loss	$	3,571,558			$	268,592

10. 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. 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 investment funds. When an investment fund borrows from the facility in which it participates, the proceeds from the borrowings are 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, certain consolidated CFE vehicles issue debt securities to third party investors which are collateralized by assets held by the CFE vehicle. 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. CFEs also may have warehouse facilities with banks to provide liquidity to the CFE. The CFE's debt obligations are non-recourse to KKR beyond the assets of the CFE.

KKR’s borrowings consisted of the following:

	December 31, 2016												December 31, 2015
	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				—				—				500,000				—				—
Notes Issued:
KKR Issued 6.375% Notes Due 2020 (a)	—				497,804				562,960			(j)	—				497,217				578,510			(j)
KKR Issued 5.500% Notes Due 2043 (b)	—				491,158				502,800			(j)	—				490,815				517,880			(j)
KKR Issued 5.125% Notes Due 2044 (c)	—				990,009				955,240			(j)	—				988,985				994,960			(j)
KFN Issued 8.375% Notes Due 2041 (d)	—				—				—				—				289,660				273,965			(k)
KFN Issued 7.500% Notes Due 2042 (e)	—				123,008				116,699			(k)	—				123,346				120,425			(k)
KFN Issued Junior Subordinated Notes (f)	—				250,154				210,084				—				248,498				216,757
Other Consolidated Debt Obligations:
Fund Financing Facilities and Other (g)	2,039,532				2,333,654				2,333,654			(l)	3,465,238				3,710,854				3,710,854			(l)
CLO Debt Obligations (h)	—				8,563,547				8,563,547				—				8,093,141				8,093,141
CMBS Debt Obligations (i)	—				5,294,741				5,294,741				—				4,272,081				4,272,081
	$	3,539,532			$	18,544,075			$	18,539,725			$	4,965,238			$	18,714,597			$	18,778,573

(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. On November 15, 2016, KFN redeemed all of its outstanding 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 3.3% and the weighted average years to maturity is 19.8 years as of December 31, 2016. 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 consolidated 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 2.4% and 2.3% as of December 31, 2016 and 2015, respectively. In addition, the weighted average years to maturity is 2.4 years and 2.5 years as of December 31, 2016 and 2015, 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 III within the fair value hierarchy. See Note 5 “Fair Value Measurements.”

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

(k)	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.

(l)	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, 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 (ABR), with the applicable margin (per annum in excess of LIBOR or the ABR) 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, 2016 and 2015, no amounts were borrowed under the credit facility.

KCM Credit Agreement

KKR Capital Markets maintains a revolving credit agreement with a major financial institution (the “KCM Credit Agreement”) for use in KKR’s capital markets business. The KCM Credit Agreement provides for revolving borrowings of up to $500 million with a $500 million sublimit for letters of credit.

On March 30, 2016, the KCM Credit Agreement was amended to extend the maturity date from March 30, 2017 to March 30, 2021. 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 LIBOR 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 KKR's capital markets business, and its liabilities are non-recourse to other parts of KKR's business.

For the year ended December 31, 2016, $848.0 million was borrowed and $848.0 million was repaid under the credit facility. For the year ended December 31, 2015, $97.0 million was borrowed and $124.0 million was repaid under the credit facility. Amounts borrowed under the KCM Credit Agreement are generally repaid in full within 3 months.

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.

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.

On March 18, 2015, KKR Group Finance Co. III LLC 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.

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 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.

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 traded under the ticker symbol “KFH” on the NYSE. Interest on the 8.375% Senior Notes was payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year. The KFN 2041 Senior Notes would have matured on November 15, 2041 unless previously redeemed or repurchased in accordance with their terms prior to such date.

On November 15, 2016, KFN redeemed all of the outstanding KFN 2041 Senior Notes for cash. The redemption price equaled 100% of the principal amount of the KFN 2041 Senior Notes plus unpaid interest accrued thereon to, but excluding, the redemption date, in accordance with the terms of the KFN 2041 Senior Notes.

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 also established six 30‑year trusts between 2006 and 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 on the junior subordinated notes quarterly and based on the associated trust ranges from between LIBOR plus 2.25% and LIBOR plus 2.65%. KFN may redeem the junior subordinated notes, in whole or in part, at any time, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. As of December 31, 2016, the aggregate outstanding principal amount of the junior subordinated notes was approximately $283.5 million.

Other Consolidated Debt Obligations

Fund Financing Facilities

Certain of KKR’s investment funds have entered into financing arrangements with financial institutions, generally to provide liquidity to such investment funds. These 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, 2016 and 2015, $3.4 billion was borrowed and $3.4 billion was repaid and $7.2 billion was borrowed and $3.6 billion was repaid, respectively.

Debt Obligations of Consolidated CFEs

As of December 31, 2016, 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	$	8,279,812			2.5	%		10.9
Subordinated Notes of Consolidated CLOs	283,735				(a)			10.0
Debt Obligations of Consolidated CMBS Vehicles	5,294,741				4.5	%		32.0
	$	13,858,288

(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, 2016, the fair value of the consolidated CFE assets was $15.3 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 in all material respects as of December 31, 2016.

Scheduled principal payments for debt obligations at December 31, 2016 are as follows:

	Revolving Credit Facilities				Notes Issued				Other Consolidated Debt Obligations				Total
2017	$	—			$	—			$	111,756			$	111,756
2018 ‑ 2019	—				—				1,967,711				1,967,711
2020 ‑ 2021	—				500,000				789,727				1,289,727
2022 and Thereafter	—				1,898,500				13,395,271				15,293,771
	$	—			$	2,398,500			$	16,264,465			$	18,662,965

Notes to Consolidated Financial Statements (Continued)

11. INCOME TAXES

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

	For the Years Ended December 31,
	2016				2015				2014
Current
Federal Income Tax	$	(3,440	)		$	27,978			$	29,388
State and Local Income Tax	(443		)		6,320				8,921
Foreign Income Tax	38,052			(1)	42,036				31,972
Subtotal	34,169				76,334				70,281
Deferred
Federal Income Tax	(15,032		)		(19,133		)		(6,327		)
State and Local Income Tax	1,348				8,264				344
Foreign Income Tax	4,076			(1)	1,171				(629		)
Subtotal	(9,608		)		(9,698		)		(6,612		)
Total Income Taxes	$	24,561			$	66,636			$	63,669

(1)	The foreign income tax provision was calculated on $102.1 million of pre-tax income generated in foreign jurisdictions.

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

	For the Years Ended December 31,
	2016			2015			2014
Statutory U.S. Federal Income Tax Rate	35.00	%		35.00	%		35.00	%
Income not attributable to KKR Management Holdings Corp. (1)	(42.68	)%		(36.04	)%		(36.36	)%
Foreign Income Taxes	4.32	%		0.81	%		0.58	%
State and Local Income Taxes	0.05	%		0.21	%		0.13	%
Compensation Charges Borne by KKR Holdings	8.20	%		1.92	%		2.08	%
Change in Valuation Allowance	(1.03	)%		0.29	%		0.08	%
Other	(1.34	)%		(0.94	)%		(0.34	)%
Effective Income Tax Rate	2.52	%		1.25	%		1.17	%

(1)	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,
	2016				2015
Deferred Tax Assets
Fund Management Fees	$	59,963			$	76,017
Equity Based Compensation	30,094				32,193
KKR Holdings Unit Exchanges (1)	156,624				156,202
Depreciation and Amortization	24,919				34,128
Federal Foreign Tax Credit	15,028				25,041
Interest Limitation Carryforward (2)	13,494				—
Net Operating Loss Carryforwards	33,867				—
Other	12,599				10,291
Total Deferred Tax Assets before Valuation Allowance	346,588				333,872
Valuation Allowance	(9,768		)		(19,781		)
Total Deferred Tax Assets	336,820				314,091
Deferred Tax Liabilities
Investment Basis Differences / Net Unrealized Gains	49,872				38,700
Total Deferred Tax Liabilities	49,872				38,700
Total Deferred Taxes, Net	$	286,948			$	275,391

(1)

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 is 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.

(2) Represents interest expense limitations under IRC Section 163 (j), which has an indefinite carryforward.

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, 2016, KKR has a federal net operating loss (“NOL”) carryforward of $85.7 million and a cumulative state and local NOL carryforward of $54.4 million that will begin to expire in 2036. In addition, KKR has federal foreign tax credit (“FTC”) carryforwards of $15.0 million as of December 31, 2016. The FTC carryforwards 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 carryforwards will not ultimately be realized due to federal limitations on FTC utilization. Therefore, KKR has established a valuation allowance of $9.8 million as of December 31, 2016 against the deferred tax asset. For all other deferred tax assets, including net operating loss carryforwards, 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, 2016.

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, 2016, the U.S. federal, state and local tax returns of KKR and its predecessor entities for the years 2010 through 2015 are open under general statute of limitations provisions and therefore subject to examination.

Notes to Consolidated Financial Statements (Continued)

At December 31, 2016, 2015 and 2014, KKR’s unrecognized tax benefits, excluding related interest and penalties, were:

	For the Years Ended December 31,
	2016				2015				2014
Unrecognized Tax Benefits, beginning of period	$	22,792			$	7,180			$	6,028
Gross increases in tax positions in prior periods	—				—				44
Gross decreases in tax positions in prior periods	(1,351		)		(116		)		—
Gross increases in tax positions in current period	22,810				15,959				1,369
Lapse of statute of limitations	(255		)		(231		)		(261		)
Unrecognized Tax Benefits, end of period	$	43,996			$	22,792			$	7,180

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 benefits as income tax expense. Related to the unrecognized tax benefits, KKR accrued penalties of $0.6 million and interest of $1.2 million during 2016 and in total, as of December 31, 2016, recognized a liability for penalties of $2.3 million and interest of $5.7 million. During 2015, penalties of $0.7 million and interest of $2.1 million were accrued and in total, as of December 31, 2015, recognized a liability for penalties of $1.7 million and interest of $4.5 million. During 2014, KKR accrued penalties of $0.2 million and interest of $1.0 million.

Notes to Consolidated Financial Statements (Continued)

12. EQUITY BASED COMPENSATION

The following table summarizes the expense associated with equity based compensation for the years ended December 31, 2016, 2015 and 2014 respectively.

	For the Years Ended December 31,
	2016				2015				2014
Equity Incentive Plan Units	$	186,227			$	186,346			$	158,927
KKR Holdings Principal Awards	44,837				6,726				29,838
Other Exchangeable Securities	12,091				16,119				22,464
KKR Holdings Restricted Equity Units	—				132				887
Discretionary Compensation	21,735				52,256				98,287
Total	$	264,890			$	261,579			$	310,403

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 awards are also subject to minimum retained ownership rules requiring the award recipient to continuously hold common unit equivalents equal to at least 15% of their cumulatively vested awards that have the minimum retained ownership requirement.

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.

KKR has made equal quarterly distributions to holders of its common units in an amount of $0.16 per common unit per quarter ($0.64 per year) in respect of the first quarter of 2016 through the fourth quarter of 2016. Accordingly, for grants under the Equity Incentive Plan made subsequent to December 31, 2015 but before January 1, 2017, the discount for the lack of participation rights in the expected distributions on unvested units was based on the $0.64 expected annual distribution. Beginning with the financial results for the first quarter of 2017, KKR intends to increase its quarterly distribution to common unitholders to $0.17 per common unit per quarter or $0.68 per year.

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, 2016, there was approximately $211.2 million of estimated unrecognized expense related to unvested awards. That cost is expected to be recognized as follows:

Year		Unrecognized Expense (in millions)
2017		125.8
2018		69.4
2019		15.7
2020		0.3
Total		$	211.2

A summary of the status of unvested awards granted under the Equity Incentive Plan from January 1, 2016 through December 31, 2016 is presented below:

	Units			Weighted Average Grant Date Fair Value
Balance, January 1, 2016	23,128,228			$	14.61
Granted	28,634,387			13.88
Vested	(12,245,083	)		15.26
Forfeited	(2,019,199	)		14.38
Balance, December 31, 2016	37,498,333			$	13.85

The weighted average remaining vesting period over which unvested awards are expected to vest is 1.5 years.

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

Vesting Date		Units
April 1, 2017		8,286,713
October 1, 2017		3,598,292
April 1, 2018		10,153,182
October 1, 2018		2,984,883
April 1, 2019		6,825,834
October 1, 2019		1,519,263
April 1, 2020		3,485,143
October 1, 2020		245,023
April 1, 2021		400,000
		37,498,333

KKR Holdings Awards

KKR Holdings units are exchangeable for KKR Group Partnership Units and allow for their exchange into common units of KKR & Co. L.P. on a one-for one basis. As of December 31, 2016 and 2015, KKR Holdings owned approximately 43.9% or 353,757,398 and 44.1%, or 361,346,588 units respectively, of outstanding KKR Group Partnership Units. Awards for KKR Holdings units that have been granted are generally subject to service based vesting, typically over a three to five year period from the date of grant. They are also subject to transfer restrictions which last 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, the recipients are also subject to minimum retained ownership rules requiring them to continuously hold 25% of their vested interests. Upon separation from KKR, award recipients are subject to the terms of a confidentiality and restrictive covenants agreement that would require the forfeiture of certain vested and unvested units should the terms of the agreement be violated. Holders of KKR Holdings units are not entitled to participate in distributions made on KKR Group Partnership Units underlying their KKR Holdings units until such units are vested.

Notes to Consolidated Financial Statements (Continued)

Because KKR Holdings is a partnership, all of the 353,757,398 KKR Holdings units have been legally allocated, but the allocation of 7,480,325 of these units has not been communicated to each respective principal and the final allocation and terms of vesting for these units are subject to change and the exercise of judgment by the general partner of KKR Holdings. It was therefore determined that the grant date and service inception date had not occurred and these units do not yet meet the criteria for recognition of compensation expense.

The fair value of awards granted out of KKR Holdings 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, a KKR Holdings unit is an instrument with terms and conditions similar to those of a KKR & Co. L.P. common unit. Specifically, units in both KKR Holdings and KKR & Co. L.P. represent ownership interests in KKR Group Partnership Units and, subject to any vesting, minimum retained ownership requirements and transfer restrictions, each KKR Holdings unit is exchangeable into a KKR Group Partnership Unit and then into a KKR & Co. L.P. common unit on a one-for-one basis.

KKR Holdings Awards give rise to equity-based compensation in the consolidated statements of operations based on the grant-date fair value of the award. KKR has made equal quarterly distributions to holders of its common units in an amount of $0.16 per common unit per quarter ($0.64 per year) in respect of the first quarter of 2016 through the fourth quarter of 2016. Accordingly, for grants of KKR Holdings Awards made subsequent to December 31, 2015 but before January 1, 2017, the discount for the lack of participation rights in the expected distributions on unvested units was based on the $0.64 expected annual distribution. Beginning with the financial results for the first quarter of 2017, KKR intends to increase its quarterly distribution to common unitholders to $0.17 per common unit per quarter or $0.68 per year.

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 on expected turnover by class of recipient.

Modification

On February 25, 2016, certain senior KKR employees and non-employee operating consultants were granted approximately 28.9 million KKR Holdings units subject to price and service-based vesting requirements (“Original Market Condition Awards”). The Original Market Condition Awards were eligible to vest periodically on four annual vesting dates beginning on January 1, 2018, upon satisfaction of a service-based vesting condition and market condition vesting requirement based on the price of KKR common units reaching and maintaining certain specified price thresholds for a specified period of time. These price thresholds ranged from $23.65 to $33.78 per common unit. None of these Original Market Condition Awards were eligible to vest prior to January 1, 2018 and if applicable price targets were not achieved by the close of business on January 1, 2021, any unvested Original Market Condition Awards would have been automatically canceled and forfeited. On November 2, 2016 the Original Market Conditions Awards were modified to eliminate the market condition vesting requirement (“Modified Holdings Awards”). Instead, these Modified Holdings Awards from KKR Holdings have service based vesting in equal annual installments over a five year period beginning on May 1, 2017 and ending on May 1, 2021, subject to the grantee’s continued employment through the applicable service vesting dates.

The awards described above were granted from outstanding but previously unallocated units of KKR Holdings, and consequently these grants did not increase the number of KKR Holdings units outstanding or outstanding KKR common units on a fully-diluted basis. If and when vested, these awards will not dilute KKR's respective ownership interests in the KKR Group Partnerships.

This modification resulted in incremental value to the recipients of $286.9 million, before consideration of estimated forfeitures, and is calculated as follows:

Description		Amounts (in millions)
Estimated fair value of Modified Awards at modification date1		$360.3
Estimated fair value of Original Awards at modification date2		73.4
Incremental Value		$286.9

1 Value was estimated based on the fair value of a KKR Common Unit as described above at the date of modification.

2 Value was estimated based on a Monte-Carlo simulation valuation model due the existence of the market condition. Key assumptions on the date of the modification were: (i) the price of a KKR Common unit ($14.08), the risk free rate (1.14%), volatility (30%) and dividend yield (4.55%).

Notes to Consolidated Financial Statements (Continued)

This incremental value will result in compensation expense of $266.1 million, after consideration of estimated forfeitures. The sum of the incremental expense and the remaining $54.8 million of grant date fair value expense associated with the Original Market Condition Awards, or $320.9 million, will be recognized over the remaining vesting period of the Modified Holdings Awards, which begins in the fourth quarter of 2016 and concludes on May 1, 2021.

As of December 31, 2016, there was approximately $271.0 million of estimated unrecognized expense related to unvested KKR Holdings awards. That cost is expected to be recognized as follows:

Year		Unrecognized Expense (in millions)
2017		84.1
2018		59.3
2019		56.2
2020		53.4
2021		18.0
Total		$	271.0

A summary of the status of unvested awards granted under the KKR Holdings Plan from January 1, 2016 through December 31, 2016 is presented below:

	Units			Weighted Average Grant Date Fair Value
Balance, January 1, 2016	1,409,116			$	7.47
Original Market Condition Awards granted and modified	28,875,000			12.12
Granted	499,571			13.25
Vested	(1,038,804	)		7.63
Forfeited	(1,498,997	)		11.55
Balance, December 31, 2016	28,245,886			$	12.10

The weighted average remaining vesting period over which unvested awards are expected to vest is 2.2 years.

A summary of the remaining vesting tranches of awards granted under the KKR Holdings Plan is presented below:

Vesting Date		Units
April 1, 2017		768,939
May 1, 2017		5,200,000
October 1, 2017		111,293
April 1, 2018		824,999
May 1, 2018		5,200,000
April 1, 2019		349,143
May 1, 2019		5,200,000
April 1, 2020		191,512
May 1, 2020		5,200,000
May 1, 2021		5,200,000
		28,245,886

Notes to Consolidated Financial Statements (Continued)

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 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% 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 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. 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 October 1, 2016, all Other Exchangeable Securities have either vested or forfeited and there is no material unrecognized expense associated with Other Exchangeable Securities as of December 31, 2016.

Discretionary Compensation

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 on the consolidated statements of operations. 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)

13. RELATED PARTY TRANSACTIONS

Due from Affiliates consists of:

	December 31, 2016				December 31, 2015
Amounts due from portfolio companies	$	66,940			$	46,716
Amounts due from unconsolidated investment funds	170,219				74,409
Amounts due from related entities	13,293				18,658
Due from Affiliates	$	250,452			$	139,783

Due to Affiliates consists of:

	December 31, 2016				December 31, 2015
Amounts due to KKR Holdings in connection with the tax receivable agreement	$	128,091			$	127,962
Amounts due to unconsolidated investment funds	230,823				—
Amounts due to related entities	565				16,845
Due to Affiliates	$	359,479			$	144,807

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, 2016, 2015 and 2014, cash payments that have been made under the tax receivable agreement were $5.0 million, $5.7 million and $5.7 million, respectively. KKR expects its intermediate holding companies to

Notes to Consolidated Financial Statements (Continued)

benefit from the remaining 15% of cash savings, if any, in income tax that they realize. As of December 31, 2016, $4.2 million of cumulative income tax savings have been realized.

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 KKR's investment funds, portfolio companies and in its strategic partnerships with other hedge fund managers. Side-by-side investments are made on the same terms and conditions as those acquired by the applicable investment fund, except that the side-by-side investments do not subject the investor to management fees, incentive fees or a carried interest. The cash contributed by these individuals aggregated $328.3 million, $434.9 million and $398.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Aircraft and Other Services

Certain of the senior employees own aircraft that KKR uses for business purposes in the ordinary course of its operations. These senior employees 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 $5.1 million, $4.4 million and $3.4 million for the use of these aircraft for the years ended December 31, 2016, 2015 and 2014, respectively.

Facilities

Certain trusts, whose beneficiaries include children of Mr. Kravis and Mr. Roberts, and certain other senior employees 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 $7.4 million, $7.3 million and $7.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Notes to Consolidated Financial Statements (Continued)

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

Private Markets

Through KKR’s Private Markets segment, KKR manages and sponsors a group of private equity funds and co-investment vehicles, including growth equity funds, which invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. KKR also manages and sponsors investment funds and co-investment vehicles that invest capital in real assets, such as infrastructure, energy and real estate.

Public Markets

KKR operates and reports its combined credit and hedge funds businesses through the Public Markets segment. KKR’s credit business invests capital in leveraged credit strategies, such as leveraged loans and high yield bonds, and alternative credit strategies such as special situations, mezzanine or corporate credit opportunities, direct lending, and revolving credit. KKR’s Public Markets segment also includes its hedge funds business, which includes customized hedge fund portfolios, hedge fund-of-fund solutions and strategic partnerships consisting of minority stakes in other hedge fund managers.

Capital Markets

KKR’s global 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.

Principal Activities

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

KKR's Principal Activities segment uses its balance sheet 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 uses its balance sheet to acquire investments 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 other segments.

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

Notes to Consolidated Financial Statements (Continued)

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.

Modification of Segment Information

As of December 31, 2015, KKR’s management reevaluated the manner in which it made operational and resource deployment decisions and assessed the overall performance of each of KKR’s operating segments. As a result, as of December 31, 2015, KKR modified the presentation of its segment financial information relative to the presentation in prior periods. In addition, since becoming a public company, KKR's Principal Activities segment has grown in significance and is 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 the Principal Activities segment. Prior to December 31, 2015, 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 with hedge fund managers have been reported in our other segments.

Expense Allocations

As of December 31, 2015 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

As of December 31, 2015, 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 operating segments, over the preceding four calendar years. 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

As of December 31, 2015, 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

Notes to Consolidated Financial Statements (Continued)

calendar years. In KKR's segment presentation reported prior to December 31, 2015, all corporate expenses were allocated to the Private Markets segment.

In connection with these modifications, segment information for the year ended December 31, 2014 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, 2016
	Private Markets				Public Markets				Capital Markets				Principal Activities				Total Reportable Segments
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Management Fees	$	466,422			$	331,440			$	—			$	—			$	797,862
Monitoring Fees	64,354				—				—				—				64,354
Transaction Fees	132,602				30,155				181,517				—				344,274
Fee Credits	(103,579		)		(28,049		)		—				—				(131,628		)
Total Management, Monitoring and Transaction Fees, Net	559,799				333,546				181,517				—				1,074,862
Performance Income (Loss)
Realized Incentive Fees	—				33,346				—				—				33,346
Realized Carried Interest	1,252,370				3,838				—				—				1,256,208
Unrealized Carried Interest	(416,060		)		(4,312		)		—				—				(420,372		)
Total Performance Income (Loss)	836,310				32,872				—				—				869,182
Investment Income (Loss)
Net Realized Gains (Losses)	—				—				—				371,563				371,563
Net Unrealized Gains (Losses)	—				—				—				(584,423		)		(584,423		)
Total Realized and Unrealized	—				—				—				(212,860		)		(212,860		)
Interest Income and Dividends	—				—				—				322,857				322,857
Interest Expense	—				—				—				(188,761		)		(188,761		)
Net Interest and Dividends	—				—				—				134,096				134,096
Total Investment Income (Loss)	—				—				—				(78,764		)		(78,764		)
Total Segment Revenues	1,396,109				366,418				181,517				(78,764		)		1,865,280
Segment Expenses
Compensation and Benefits
Cash Compensation and Benefits	194,240				77,017				29,552				94,207				395,016
Realized Performance Income Compensation	523,448				14,873				—				—				538,321
Unrealized Performance Income Compensation	(159,786		)		(1,724		)		—				—				(161,510		)
Total Compensation and Benefits	557,902				90,166				29,552				94,207				771,827
Occupancy and Related Charges	35,785				9,517				2,474				14,624				62,400
Other Operating Expenses	135,425				38,439				14,994				45,490				234,348
Total Segment Expenses	729,112				138,122				47,020				154,321				1,068,575
Income (Loss) attributable to noncontrolling interests	—				—				2,336				—				2,336
Economic Net Income (Loss)	$	666,997			$	228,296			$	132,161			$	(233,085	)		$	794,369
Total Assets	$	1,645,364			$	1,123,103			$	354,187			$	10,210,487			$	13,333,141

Notes to Consolidated Financial Statements (Continued)

	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	(195,025		)		(24,595		)		—				—				(219,620		)
Total Management, Monitoring and Transaction Fees, Net	679,845				270,735				191,470				—				1,142,050
Performance Income (Loss)
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 (Loss)	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

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	(198,680		)		(23,357		)		—				—				(222,037		)
Total Management, Monitoring and Transaction Fees, Net	604,302				276,621				217,920				—				1,098,843
Performance Income (Loss)
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 (Loss)	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

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,
	2016				2015				2014
Total Segment Revenues	$	1,865,280			$	2,505,908			$	2,955,597
Management fees relating to consolidated funds and placement fees	(178,619		)		(531,027		)		(510,777		)
Fee credits relating to consolidated funds	2,921				202,269				203,466
Net realized and unrealized carried interest - consolidated funds	(32,651		)		(1,190,699		)		(1,303,794		)
Total investment income (loss)	78,764				(153,512		)		(505,153		)
Revenue earned by oil & gas producing entities	65,754				112,328				186,876
Reimbursable expenses	81,549				66,144				55,424
Other	25,095				32,357				28,369
Fees and Other	$	1,908,093			$	1,043,768			$	1,110,008

Expenses

	For the Years Ended December 31,
	2016				2015				2014
Total Segment Expenses	$	1,068,575			$	1,191,912			$	1,213,485
Equity based compensation	264,890				261,579				310,403
Reimbursable expenses and placement fees	148,483				103,307				92,366
Operating expenses relating to consolidated funds, CFEs and other entities	104,339				65,012				93,182
Expenses incurred by oil & gas producing entities	70,312				153,611				333,123
Intangible amortization, acquisition and litigation	6,647				49,766				102,877
Other	32,228				46,038				50,631
Total Expenses	$	1,695,474			$	1,871,225			$	2,196,067

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

	For the Years Ended December 31,
	2016				2015				2014
Economic net income (loss)	$	794,369			$	1,297,989			$	1,727,166
Income tax	(24,561		)		(66,636		)		(63,669		)
Amortization of intangibles, placement fees and other, net (1)	17,267				(47,599		)		(290,348		)
Equity based compensation	(264,890		)		(261,579		)		(310,403		)
Net income (loss) attributable to noncontrolling interests held by KKR Holdings	(212,878		)		(433,693		)		(585,135		)
Preferred Unit Distributions	(22,235		)		—				—
Net income (loss) Attributable to KKR & Co. L.P. Common Unitholders	$	287,072			$	488,482			$	477,611

(1) Other primarily represents the statement of operations impact of the accounting convention differences for (i) direct interests in oil & natural gas properties outside of investment funds and (ii) certain interests in consolidated CLOs and other entities. On a segment basis, direct interests in oil & natural gas properties outside of investment funds are carried at fair value with changes in fair value recorded in Economic Net Income (Loss) and certain interests in consolidated CLOs and other entities are carried at cost. See Note 2 "Summary of Significant Accounting Policies" for the GAAP accounting for these direct interests in oil and natural gas producing properties outside investment funds and interests in consolidated CLOs and other entities.

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 are primarily attributable to the impact of KKR Holdings L.P., KKR's consolidated funds and certain other entities.

Notes to Consolidated Financial Statements (Continued)

Assets

	December 31, 2016				December 31, 2015
Total Segment Assets	$	13,333,141			$	13,429,298
Impact of Consolidation of Investment Vehicles and Other Entities (1)	24,367,570				56,139,412
Carry Pool Reclassification to Liabilities	987,994				1,199,000
Impact of KKR Management Holdings Corp.	314,192				274,629
Total Assets	$	39,002,897			$	71,042,339
(1) Includes accounting basis difference for oil & natural gas properties of $15,242 and $47,005 as of December 31, 2016 and December 31, 2015, respectively.

Notes to Consolidated Financial Statements (Continued)

15. ACQUISITIONS

Acquisition of KFN

On April 30, 2014, KKR completed its acquisition of KFN by an agreement and plan of merger, 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.

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.

Notes to Consolidated Financial Statements (Continued)

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, now renamed KKR Credit Advisors (Ireland), was an independent 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.

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.

Notes to Consolidated Financial Statements (Continued)

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).

	For the Years 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

16. 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. On February 9, 2017, KKR announced an incremental $250 million has been authorized to repurchase common units. This $250 million amount is in addition to the $41.2 million remaining as of February 9, 2017 under the repurchase program. Under this common unit repurchase program, common 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. See Consolidated Statements of Changes in Equity for the amount of common units repurchased during the years ended December 31, 2016 and 2015.

Distribution Policy

Beginning with the results for the quarter ending March 31, 2017, KKR intends to increase its regular quarterly distribution to holders of its common units from $0.16 to $0.17 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.

Preferred Units

On March 17, 2016, KKR & Co. L.P. issued 13,800,000 units of 6.75% Series A Preferred Units, and on June 20, 2016, KKR issued 6,200,000 units of 6.50% Series B Preferred Units, in each case, in an underwritten public offering. The Series A Preferred Units and Series B Preferred Units trade on the NYSE under the symbols "KKR PR A" and "KKR PRA B", respectively. The terms of the preferred units are set forth in the limited partnership agreement of KKR & Co. L.P.

If declared, distributions on the preferred units are payable quarterly on March 15, June 15, September 15 and December 15 of each year, at a rate per annum equal to 6.75%, in the case of the Series A Preferred Units and 6.50% in the case of the Series B Preferred Units. Distributions on the preferred units are discretionary and non-cumulative. Holders of preferred units will only receive distributions on such units when, as and if declared by the board of directors of the general partner of KKR & Co. L.P. We have no obligation to declare or pay any distribution for any distribution period, whether or not distributions on any series of preferred units are declared or paid for any other distribution period.

Unless distributions have been declared and paid (or declared and set apart for payment) on the preferred units for a quarterly distribution period, we may not declare or pay distributions on, or repurchase, any units of KKR & Co. L.P. that are

Notes to Consolidated Financial Statements (Continued)

junior to the preferred units, including our common units, during such distribution period. A distribution period begins on a distribution payment date and extends to, but excludes, the next distribution payment date.

If KKR & Co. L.P. dissolves, then the holders of the Series A Preferred Units and Series B Preferred Units are entitled to receive payment of a $25.00 liquidation preference per preferred unit, plus declared and unpaid distributions, if any, to the extent that we have sufficient gross income (excluding any gross income attributable to the sale or exchange of capital assets) such that holders of such preferred units have capital account balances equal to such liquidation preference, plus declared and unpaid distributions, if any.

The Series A and Series B Preferred Units do not have a maturity date. However, the Series A Preferred Units may be redeemed at our option, in whole or in part, at any time on or after June 15, 2021, at a price of $25.00 per Series A Preferred Unit, plus declared and unpaid distributions, if any. The Series B Preferred Units may be redeemed at our option, in whole or in part, at any time on or after September 15, 2021, at a price of $25.00 per Series B Preferred Unit, plus declared and unpaid distributions, if any. Holders of preferred units have no right to require the redemption of such units.

If a certain change of control event with a ratings downgrade occurs prior to June 15, 2021, the Series A Preferred Units may be redeemed at our option, in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such change of control event, at a price of $25.25 per Series A Preferred Unit, plus declared and unpaid distributions, if any. If a certain change of control event with a ratings downgrade occurs prior to September 15, 2021, the Series B Preferred Units may be redeemed at our option, in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such change of control event, at a price of $25.25 per Series B Preferred Unit, plus declared and unpaid distributions, if any. If such a change of control event occurs (whether before, on or after June 15, 2021, in the case of the Series A Preferred Units and September 15, 2021, in the case of the Series B Preferred Units) and we do not give such notice, the distribution rate per annum on the applicable series of preferred units will increase by 5.00%, beginning on the 31st day following such change of control event.

The Series A and Series B Preferred Units are not convertible into common units of KKR & Co. L.P. and have no voting rights, except that holders of preferred units have certain voting rights in limited circumstances relating to the election of directors following the failure to declare and pay distributions, certain amendments to the terms of the preferred units, and the creation of preferred units that are senior to the Series A Preferred Units and Series B Preferred Units.

In connection with the issuance of the preferred units, the KKR Group Partnerships issued for the benefit of KKR & Co. L.P. two series of preferred units with economic terms that mirror those of each series of preferred units.

17. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill from the acquisition of Prisma Capital Partners LP and its affiliates 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. As of December 31, 2016 and 2015, the carrying value of goodwill was $89.0 million. Goodwill is recorded in Other Assets in the consolidated statements of financial condition. The carrying values of goodwill allocated to the Public Markets and Principal Activities segments were $59.0 million and $30.0 million, respectively. All of the goodwill is currently expected to be deductible for tax purposes. See Note 8 “Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities.”

Intangible Assets

Intangible Assets, Net consists of the following:

	December 31, 2016				December 31, 2015
Finite-Lived Intangible Assets	$	253,747			$	284,766
Accumulated Amortization (includes foreign exchange)	(118,723		)		(107,779		)
Intangible Assets, Net	$	135,024			$	176,987

Notes to Consolidated Financial Statements (Continued)

Changes in Intangible Assets, Net consists of the following:

	For the Years Ended
	December 31, 2016				December 31, 2015
Balance, Beginning of Period	$	176,987			$	209,202
Amortization Expense	(26,387		)		(27,004		)
Write-Offs (1)	(15,416		)		—
Foreign Exchange	(160		)		(5,211		)
Balance, End of Period	$	135,024			$	176,987
(1) Represents the write-off of intangible assets in connection with the termination of certain management contracts.

Amortization expense including foreign exchange relating to intangible assets held at December 31, 2016 is expected to be as follows:

2017		$	24,751
2018		18,403
2019		15,515
2020		15,368
2021		14,867
2022 and thereafter		46,120
		$	135,024

The intangible assets as of December 31, 2016 are expected to amortize over a weighted‑average period of 8.1 years.

18. 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, 2016.

Investment Commitments

As of December 31, 2016, KKR had unfunded commitments consisting of (i) $2,584.9 million to its active private equity and other investment vehicles, (ii) $610.2 million in connection with commitments by KKR’s capital markets business and (iii) other investment commitments of $70.5 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.

Notes to Consolidated Financial Statements (Continued)

As of December 31, 2016, the approximate aggregate minimum future lease payments, net of sublease income, required on the operating leases are as follows:

2017	$	52,484
2018	50,453
2019	46,846
2020	42,586
2021 and thereafter	23,870
Total minimum payments required	$	216,239

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, 2016, no carried interest was subject to this clawback obligation, assuming that all applicable carry paying funds were liquidated at their December 31, 2016 fair values. Had the investments in such funds been liquidated at zero value, the clawback obligation would have been $2,204.9 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.

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, the principals' potential exposure has been reduced to $98.9 million as of December 31, 2016. Using valuations as of December 31, 2016, 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. In addition, guarantees of or similar arrangements relating to clawback 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 and Other Guarantees

KKR may incur contingent liabilities for claims that may be made against it in the future. KKR enters into contracts that contain a variety of representations, warranties and covenants, including indemnifications. For example, certain of KKR’s investment funds and KFN have provided certain indemnities relating to environmental and other matters and have 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. In addition, KKR has also provided credit support to certain of its subsidiaries’ obligations in connection with a limited number of investment vehicles that KKR manages. For example, KKR has guaranteed the obligations of a general partner to post collateral on behalf of its investment vehicle in connection with such vehicle’s derivative transactions, and KKR has also agreed to be liable for certain investment losses and/or for providing liquidity in the events specified in the governing documents of another investment vehicle. KKR’s maximum exposure under

Notes to Consolidated Financial Statements (Continued)

these arrangements is currently unknown and KKR's liabilities for these matters would require a claim to be made against KKR in the future.

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.

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 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.

Notes to Consolidated Financial Statements (Continued)

19. REGULATORY CAPITAL REQUIREMENTS

KKR has registered broker-dealer subsidiaries which are 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, 2016, approximately $89.2 million of cash at KKR’s registered broker-dealer entities may be restricted as to the payment of cash dividends and advances to KKR.

20. QUARTERLY FINANCIAL DATA (UNAUDITED)

	For the Three Months Ended,
	March 31, 2016				June 30, 2016				September 30, 2016				December 31, 2016
Statement of Operations Data:
Fees and Other	$	162,805			$	576,757			$	687,056			$	481,475
Less: Total Expenses	308,323				423,218				511,117				452,816
Total Investment Income (Loss)	(612,928		)		125,737				809,649				440,148
Income (Loss) Before Taxes	(758,446		)		279,276				985,588				468,807
Income Tax / (Benefit)	1,890				6,045				10,826				5,800
Net Income (Loss)	(760,336		)		273,231				974,762				463,007
Less: Net Income (Loss) Attributable to Redeemable Noncontrolling Interests	(38		)		1,533				3,121				(13,092		)
Less: Net Income (Loss) Attributable to Noncontrolling Interests	(430,359		)		172,115				611,288				296,789
Net Income (Loss) Attributable to KKR & Co. L.P.	(329,939		)		99,583				360,353				179,310
Less: Net Income Attributable to Series A Preferred Unitholders	—				5,693				5,822				5,822
Less: Net Income Attributable to Series B Preferred Unitholders	—				—				2,379				2,519
Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders	$	(329,939	)		$	93,890			$	352,152			$	170,969
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic	$	(0.73	)		$	0.21			$	0.79			$	0.38
Diluted	$	(0.73	)		$	0.19			$	0.73			$	0.35
Weighted Average Common Units Outstanding
Basic	450,262,143				448,221,538				445,989,300				451,154,845
Diluted	450,262,143				481,809,612				479,975,675				484,312,804

	For the 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	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
Less: Net Income Attributable to Series A Preferred Unitholders	—				—				—				—
Less: Net Income Attributable to Series B Preferred Unitholders	—				—				—				—
Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders	$	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

21. SUBSEQUENT EVENTS

Common Unit Distribution

A distribution of $0.16 per KKR & Co. L.P. common unit was announced on February 9, 2017, and will be paid on March 7, 2017 to common unitholders of record as of the close of business on February 21, 2017. KKR Holdings will receive its pro rata share of the distribution from the KKR Group Partnerships.

Beginning with the results for the quarter ending March 31, 2017, KKR intends to increase its regular quarterly distribution to holders of its common units from $0.16 to $0.17 per common unit per quarter.

Preferred Unit Distributions

A distribution of $0.421875 per Series A Preferred Unit has been declared and set aside for payment on March 15, 2017 to holders of record of Series A Preferred Units as of the close of business on March 1, 2017.

A distribution of $0.406250 per Series B Preferred Unit has been declared and set aside for payment on March 15, 2017 to holders of record of Series B Preferred Units as of the close of business on March 1, 2017.

Unit Repurchase Program

An incremental $250 million has been authorized to repurchase common units. This amount is in addition to the $41.2 million remaining as of February 9, 2017 under the current common unit repurchase program, which was originally announced on October 27, 2015. Common units may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise.

PAAMCO Prisma

On February 6, 2017, KKR and Pacific Alternative Asset Management Company, LLC (“PAAMCO”) announced that they entered into a strategic transaction to create a new liquid alternatives investment firm by combining PAAMCO and KKR

Prisma. Under the terms of the agreement, the entire businesses of both PAAMCO and KKR Prisma will be contributed to a newly formed company that will operate independently from KKR, and KKR will retain a 39.9% stake as a long-term strategic partner. This transaction is subject to the satisfaction of customary closing conditions, including the receipt of requisite regulatory approvals.