Oaktree shares details on $10bn distressed fundraising

The Los Angeles-based asset manager confirmed its plans to raise $10 billion for distressed investing and outlined the structure and timeline of these plans on its earnings call last week.

Oaktree is targeting a total of $10 billion for its two new distressed debt funds, Opportunities Fund X and Xb, said vice-chairman John Frank, speaking during the firm’s 3Q14 earnings call last week. In addition to the distressed funds, Oaktree is seeking to raise another $10 billion over four other closed-end funds; Principal Fund VI, Mezzanine Fund IV, Real Estate Opportunities Fund VII, Power Opportunities Fund IV and the firm’s first infrastructure fund via Highstar, said Frank.

The capital will be raised over the next 12 to 18 months and Frank added that Oaktree expects to hold first close on its initial distressed fund and real estate funds in early 2015.

Oaktree has split the $10 billion for its distressed funds in two with $3 billion ready to deploy immediately and $7 billion on standby in Fund Xb, to allow it greater flexibility, management said during the call. “This structure, which we call the ‘a/b fund structure’, allows us to better match our capital to the opportunity set and it has benefited our clients in the past, most notably in 2008 and 2009. We are fortunate to have so many significant clients that will pre-commit capital to us in this way and trust us to draw upon it only when appropriate,” said Frank.

When asked about the relative size of Funds X and Xb compared to Oaktree’s older distressed funds Opportunities Fund VII ($3.5 billion) and VIIb ($11 billion), Oaktree co-chairman, Howard Marks pointed out that XIIb grew over the course of the fundraising period.

“Remember that Opps VIIb did not have a goal. It merely took all the money it could get over the course of the year between March 2007 and March 2008, and over that time the amount we could raise grew and grew as people became more and more negative,” said Marks adding that if market conditions change and the outlook deteriorates again, Opportunities Fund Xb’s $7 billion target is not a hard cap and it could well increase in size.

Marks also said that the firm expects Opportunities Fund X to begin investing in the first half of 2015, roughly six months from now and that the opportunities it anticipates to focus on at the start of its investment period will be similar to Oaktree’s most recent investments which have included shipping, real estate and European loan pools.

Frank also noted during the call that the pace of deployment for capital in Europe has noticeably increased with Oaktree deploying around $7 billion in the continent over the past two years.

Oaktree reported assets under management of $93.2 billion and management fee-generating AUM of $79.1 billion, as of 30 September 2014, year-on-year increases of 17 percent and 18 percent, respectively.

It reported a year-on- year fall in GAAP net income from $42.9 million for the third quarter of 2013 to $18.9 million for the third quarter of this year. Nine month net income for 2014 fell to $101.9 million, from $157.1 million for the first nine months of 2013.