Oaktree ‘days’ from first close; ENI fell in 2014

Poor performance in its distressed strategies in 2014 has not put Oaktree off and the firm is days from the first close of its $10 billion new distressed funds, Opportunities X and Xb.

Distressed investment specialist and asset manager, Oaktree Capital, is “days away” from the first close if its Opportunities X and Xb, said the firm’s new and first ever chief executive, Jay Wintrob, during the firm’s fourth quarter and full year 2014 earnings call. Adjusted net income (ANI) fell to $98.4 million in the fourth quarter of last year, down from $268.4 million a year earlier.

Full year ANI stood at $575.1 million, falling by almost fifty percent from the $1.1 billion earned in 2013. Management said the fall was mainly due to lower incentive income attributable to comparatively large distributions a year earlier by OCM Opportunites Fund VIIb as well as reduced investment income.

Performance in Oaktree’s closed-end fund rebounded somewhat from the minus one percent recorded in the third quarter, to 1 percent in the final three months of 2014 bringing full-year gross return to 9 percent. That was well below the 22 percent recorded in 2013 and 20 percent IRR since inception. 

The firm’s founder, Howard Marks, was sanguine about the disappointing numbers, pointing out that the firm was gearing up for a period of richer opportunities in its core distressed market. The fall in energy prices, which contributed to poor returns, also presents opportunity, he said. In the final three months of last year, the firm invested $400 million in energy-related securities. 

In the same vein, the firm’s Power Opportunities Fund IV will have its first and possibly only close in the first quarter of 2015, said Wintrob. 

Real estate and Oaktree’s European investments were some of the strongest strategies for Oaktree last year, said Marks. Real estate boasted gross returns of 28 percent for 2014 while capital invested in European strategies produced gross returns of 20 percent for the twelve month period. 

Distressed strategies, where mark-to-market valuations on equity positions took their toll returned one percent over 2014. Though distressed has not performed well in recent buoyant markets, Oaktree anticipates another downturn where its Opportunity X and Xb funds, which are targeting $10 billion in total, with $3 billion in the initial fund and $7 billion in ‘dry powder’ ready to deploy when the timing is right, as reported. 

Marks added that in Europe, the firm continues to see very strong deal flow of loan pool offerings and does not feel that the pipeline of NPL opportunities is drying up.

Assets under management and management fee-generating assets under management totalled $90.8 billion and $78.1 billion, respectively, at the end of December, nine percent higher than a year earlier.

Closed-end funds that the firm has in market include Oaktree Mezzanine Fund IV, Oaktree Principal Fund VI, Oaktree Real Estate Opportunities Fund VII, Oaktree Power Opportunities Fund IV and Oaktree Opportunities Funds X and Xb.