Oaktree income falls from lower fees

The distressed specialist posted growing assets, but falling profit in its fourth quarter earnings report.  

Oaktree Capital Management saw profits fall in 2015, despite growing assets.

The firm reported adjusted net income (ANI) of $49.6 million in the fourth quarter of 2015 and $311.9 million for the full-year, compared with $98.7 million and $573.1 million for the same periods in 2014.

In its earnings report, Oaktree said the declines “were primarily attributable to lower incentive income, lower fee-related earnings and, in the case of ANI, lower investment income”.

Management fees for some of Oaktree’s newer funds have not yet “turned on” as the firm has been waiting to deploy capital in more favourable conditions for its investment strategy.

The latest distressed fund, the Oaktree Opportunities Fund IX, showed a net IRR of minus 4 percent since inception. Gross returns across all of Oaktree’s funds were minus 0.1 percent for the full-year in 2015.

The firm has now raised $10.5 billion for its Oaktree Opportunities Fund X and Xb pool of distressed capital. It plans to keep it open for more LPs to make commitments as market headwinds have increased investors’ interest in distressed products, management said.

Oaktree raised $23.1 billion in 2015 and $2.8 billion in the fourth quarter, bringing its total assets to $97.4 billion, a 7 percent rise year on year.

The firm has multiple fundraising initiatives underway, including the distressed opportunities funds, European distressed and direct lending funds, real estate value-add and a second real estate debt fund. It also has $22 billion in dry powder, which puts it in a good position to capitalise on investment opportunities globally, management said.

Speaking about investment performance, chief executive Jay Wintrob said: “The dispersion of our investment performance continued in Q4 as global real estate and some of our European-based asset classes outperformed the more challenged arenas of distressed debt and the control-oriented global principal strategy.”

Turmoil in the energy and high-yield markets in 2015 drove some of the poor performance in Oaktree’s strategies, though this will also lead to greater distressed opportunities in the future, management said.

“[Last year] was generally challenging for the credit markets,” said chairman Howard Marks. “The carnage in commodities, coupled with macroeconomic concerns about possible slowing growth worldwide, particularly in China, led to broad market volatility, which emerged in the end of the second quarter and persisted through year-end.”

He added that Oaktree’s credit selection and underweight position to energy led to superior relative performance to its peers.

Answering questions from analysts, Marks said that even though high-yield spreads were high (at about 800 basis points currently), the lack of other indicators meant he did not think we were in a recession year.

“My feeling is that we’ve been limping along for several years now with an anemic recovery,” he said.