Oaktree enters direct lending

 The distressed debt behemoth is also seeking commitments for its most recent real estate debt vehicle.  

Oaktree Capital Management announced a new suite of products, which includes a closed-end mid-market direct lending fund, management of the Los Angeles-based alternative asset manager said during its fourth-quarter earnings call.

Chief executive officer Jay Wintrob said Oaktree has started marketing a mid-market investment vehicle and that it also hit the trail with an open-end Real Estate Income Fund, which will focus on value-add and some core-plus investments. Oaktree will also be launching a global credit strategy overseen by chief investment officer Bruce Karsh.

Wintrob said the mid-market direct lending fund grew out of its mezzanine team’s relationships and that $4.7 billion had been invested so far. There are levered and unlevered versions of the strategy.

“We see this as an attractive asset class where we can differentiate ourselves with strong credit analysis, competitive origination capabilities and disciplined risk management,” chief executive officer said.

Oaktree is also raising capital for its second real estate debt fund, Oaktree Real Estate Debt Fund II, which launched in the first quarter of 2016, sister publication PERE previously reported. The firm raised $400 million for the vehicle in an October close and had raised a total of $515 million as of 31 December. In 2013, the firm closed on a total of $1.1 billion for Oaktree Real Estate Debt Fund I, which produced a gross return of 25.9 percent and net return of 19 percent at the end of the fourth quarter.

Wintrob said the firm has seen significant international demand for its funds across strategies, with 60 percent of capital raised coming from ex-US investors. The firm also experienced increased interest from high-net-worth clients and advisory services firms working on behalf of such investors, which combined accounted for $4 billion of capital raised in 2017 across asset classes. 

On the capital deployment side, Oaktree, like its peers, has faced an investing environment with many buyers and few sellers across asset classes, co-founder Howard Marks said on the fourth-quarter earnings call.

“We still face some of the lowest prospective returns in history,” he said. Assets are priced “on the high side of fair or the beginning of rich.”

The firm’s total assets under management rose 3 percent year-on-year to $100.5 billion as of 31 December. Oaktree recorded $246.6 million in economic net income in the fourth quarter, compared with a $29.1 million loss in the same period in 2015.

Meghan Morris contributed to this reporting.