Loan Note: Oaktree looks at real estate opps; Dan Zwirn on preparing for the worst

Oaktree adds firepower for opportunistic real estate. Plus: Arena's Dan Zwirn talks about how he assesses opportunities and WhiteHorse grows its teams in London and Paris. Here's today's brief for our valued subscribers only.

They said it

“Highly motivated selling was short-lived – essentially limited to the month of March – and we never saw the full-throated panic… witnessed in prior crises.”

Howard Marks, co-founder and co-chairman of Oaktree Capital Management, in his latest memo, a review of 2020. See here.

First look

Oaktree grows its opportunistic firepower
According to John Brady, head of Oaktree Capital Management‘s global real estate group, the covid-19 pandemic has created a “compelling” set of credit-focused investment opportunities for the company’s latest fund, which includes Europe within its remit. It had intended to raise $3.5 billion for Oaktree Real Estate Opportunities Fund VIII. But last week, the firm announced a final close on $4.7 billion, demonstrating investor demand for exposure to high-yielding strategies.

About 40 percent of the capital has already been deployed or committed. Early in the pandemic, Oaktree purchased distressed real estate-related securities. However, more recently, it made investments in what it called “rescue” financings for public and private real estate lenders and owners experiencing problems with their leverage.

According to debt market sources, the European market has so far produced a limited volume of distressed real estate situations. However, managers such as Oaktree are ready when they arise.

This was first reported by our colleagues on Real Estate Capital.

The merits of preparing for the worst
“At Arena, we start by staying agnostic to the pessimism or exuberance of the day and in every situation ask ourselves: ‘What is the intrinsic value of this asset in the worst-case scenario?'” This is part of an interesting reflection on current market circumstances from Dan Zwirn, chief executive and chief investment officer at fund manager Arena Investors – you can find a collection of his insights here.

Zwirn thinks there are large numbers of companies, issuers and assets with liquidity but not solvency, contrasting with typical distress cycles where there is solvency but not liquidity. The beneficiaries of these circumstances are able to say they are facing only temporary issues and then “raise capital and hope for a sunnier day” while investors can sell on to the next buyer.

Zwirn proclaims the merits of underwriting to a worst-case scenario for the collateral being pledged and making sure that the company or asset can withstand the turbulence involved if the worst-case were to occur.

Essentials

New hires for WhiteHorse
HIG Capital, the US-based fund manager, has expanded its European WhiteHorse team with the addition of Laurent Vaille and Charles Bourgeois as principals. Vaille will be based in HIG’s London office, and Bourgeois in the Paris office.

Vaille has 13 years’ experience in direct lending and corporate finance. He was previously an executive director in the private debt division of Tikehau Capital in Paris. Prior to that, he worked for Ernst & Young and Deloitte Finance.

Bourgeois was also previously an executive director in the private debt division of Tikehau Capital in Paris. Before that, he was at GE Capital’s leveraged finance division, SG and LD&A Jupiter.

Drip feeding the trade finance market 
Drip Capital, a US-based fintech provider of cross-border trade finance, and EastWest Bank, have announced a $40 million committed credit facility for the expansion of Drip’s trade finance solutions to small and medium-sized businesses.

Drip Capital offers trade financing solutions in the US and developing markets such as India and Mexico by giving clients access to working capital quickly. Drip works with over 1,500 sellers and buyers spread across more than 80 countries. The firm has financed more than $1.2 billion of international trade since its inception in 2016.

Structured credit execs join Angelo Gordon 
New York-based fund manager Angelo Gordon has bolstered its structured credit team with the addition of two senior executives.

Nicholas Smith, former head of non-agency residential mortgage trading and asset-backed securities trading at Bank of America Securities, has joined as managing director to lead the firm’s whole loan business and expand the team’s capability across multiple asset classes.

Rodney Hutter, former managing director and head of originations in the structured lending group at Waterfall Asset Management, has joined as managing director responsible for private credit origination. Smith and Hutter will report to TJ Durkin, Angelo Gordon’s co-head of structured credit.

New Private Markets and the sustainability megatrend
“It doesn’t do any good to pay a teacher a pension in 2050 if the earth is scorched and their cost of living has gone through the roof because of climate change.” So said Chris Ailman, chief investment officer of the California State Teachers Retirement System, at a conference last week explaining why sustainability is integral to the pension’s investment activity. There is a spectrum of sustainability in private markets. At one end is sound management of environmental, social and governance issues; at the other is purpose-driven impact investment.

It is clear to us that capital is gravitating towards funds and investments all along that spectrum… and at scale. The momentum we see has given us conviction that this area needs its own information and intelligence source, with its own dedicated journalists and researchers. So please check out New Private Markets, a product that launches today from the PEI stable, and get in touch to share your thoughts.

LP watch

Institution: Alaska Retirement Management Board
Headquarters: Juneau, US
AUM: $27.98 billion
Allocation to alternatives: 24.37%

Alaska Retirement Management Board has agreed to commit $100 million to Crestline Specialty Lending III, a contact at the pension informed Private Debt Investor. This commitment is a re-up with an existing manager.

The $27.98 billion US public pension currently allocates 24.37 percent of its full investment portfolio to alternatives.

ARMB’s recent private debt fund commitments have targeted the corporate sector primarily in North America and Western Europe.


Today’s letter was prepared by Andy Thomson with John Bakie and Robin Blumenthal.

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