Near record levels of dry powder means the firm will be ready to deploy capital as opportunities arise, but caution was the key message from executives on Oaktree Capital Group’s third-quarter earnings call held last week.
Jay Wintrob, chief executive of Oaktree, said the firm is “well positioned should the opportunity set expand” as fellow executives cautioned against over-reaching for yield at this stage of the cycle. Bruce Karsh, chief investment officer, said: “As the cycle continues on, we tend to be quite realistic about the returns that we’ll accept and very, very importantly, we’ll not reach for a return and accept higher risk to obtain it.”
Karsh confirmed that the firm is anticipating a number of opportunities to invest on the distressed side in Asia and has begun positioning the firm to take advantage with appointments in Singapore and Hong Kong. Also, the firm has bolstered its Australian distressed team and expanded its emerging market debt strategy with the establishment of a joint venture with Virtus, a Brazilian investment bank.
Across the third quarter, the firm’s distressed debt strategy achieved a 4 percent gross return and its real estate debt strategy hit 11 percent. Closed-ended funds raised $1.2 billion in capital commitments, with a third of that raised through the firm’s second real estate debt platform. The firm is marketing the credit strategies Oaktree Opportunities Fund Xb and Oaktree Real Estate Debt Fund II.
On the personnel front, David Kirchheimer, chief financial officer at the firm, confirmed he will retire on 31 March and will be succeeded by Dan Levin, who will assume responsibility immediately afterwards. Director Steven Kaplan will retire from his position and take up an advisory role at the firm as of 31 December and Steven Gilbert, a founder of both Gilbert Global Equity Partners and Soros Capital, will join the board of directors.
Looking forward, the firm said that the purchase of assets and non-performing loan (NPL) books from European banks presents opportunities to find targeted returns. In June, the firm purchased two portfolios of real estate NPLs from Ireland’s National Asset Management Agency, jointly valued at €4.7 billion. The firm has also been rumoured to be the buyer of Deutsche Bank’s book of Spanish real estate NPLs for €430 million.
It also sees opportunities in the US energy market, a sector that has faced a number of problems this year. In August, the firm participated in the development of acreage in the Delaware Basin of west Texas and is expected to “obtain superior risk-adjusted returns by developing premier acreage without bearing significant commodity risk,” said Karsh.
“Our mantra remains: move forward, but with caution. It has set the right tone over the last five years, not shying away from investing, but insisting on a significant element of selectivity,” Karsh said.