Oaktree Capital Management

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Not to be confused with Oak Hill Capital Partners or Oak Investment Partners.
Oaktree Capital Management, Inc.
Public
Traded as NYSE: OAK
Industry Financial services
Founded April 1995 (1995-04)[1]
Founders Howard Marks, Bruce Karsh, Steve Kaplan, Larry Keele, Richard Masson, Sheldon Stone[1]
Headquarters Los Angeles, California, USA
Number of locations
 13[2]
Key people
 Howard Marks
(Co-Chairman)
Bruce Karsh
(Co-Chairman and CIO)
John Frank
(Vice Chairman)
Jay Wintrob
(CEO)
AUM US$99.9 billion (as of 31 March 2015)[3]
Website www.oaktreecapital.com

Oaktree Capital Management is a global asset management firm specializing in alternative investment strategies. Oaktree emphasizes an opportunistic, value-oriented, and risk-controlled approach to investments in distressed debt, corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. As of March 31, 2015, the company managed $99.9 billion, primarily on behalf of pension funds, foundations, endowments, and sovereign wealth funds. On April 12, 2012, Oaktree Capital Group LLC became listed on the NYSE: OAK.[3][4]

The firm was co-founded in 1995 by a group who had formerly worked together at the TCW Group starting in the 1980s. Oaktree quickly established a reputation in the high-yield and distressed-debt markets.[5] As of 2012 it has over 700 employees[6] and offices in Los Angeles, where it is headquartered, London, New York, Hong Kong, Stamford (Connecticut), Tokyo, Luxembourg, Paris, Frankfurt, Singapore, Seoul, Beijing and Amsterdam.[3]

Firm overview

Oaktree is headquartered in the Wells Fargo Tower in Los Angeles, seen here as the building on the left

With headquarters in Los Angeles,[7] the firm has over 700 employees[6] and offices in 13 cities worldwide (Los Angeles, London, New York, Hong Kong, Stamford (Connecticut), Tokyo, Luxembourg, Paris, Frankfurt, Singapore, Seoul, Beijing and Amsterdam).[3]

Investment philosophy

Oaktree has a value-oriented investment philosophy, emphasizing risk-control, consistency and specialization, with a focus on opportunities that offer a margin of safety.[3] On November 12, 2011, the Financial Times said of Oaktree’s approach: “the heart of risk management Oaktree-style, with its emphasis on living to fight another day, is simple. Oaktree doesn’t use leverage and eschews overly complicated hedging strategies.”[8] The firm specializes in off-the-beaten-path and contrarian investments,[9] and favors companies with tangible assets.[10] The firm's motto is “if we avoid the losers, the winners will take care of themselves.”[11]

Investment focus

Oaktree invests across the capital structure, with an emphasis on senior debt in companies and markets where it has what it calls a “knowledge advantage.” Distressed or otherwise ailing companies, according to Oaktree, provide such opportunities. The company’s chairman, Howard Marks, has been described as “one of the savviest investors in the world,”[8] and is known in the investment community for letters to investors called the "Oaktree memos”.[12]

Since its 1995 formation, Oaktree has become the largest distressed-debt investor in the world.[13][14] In 2008, it raised $10.9 billion for what was the largest-ever distressed debt fund, its Opportunities Fund VIIb.[15] As reported in The Washington Post on June 26, 2011, Oaktree’s 17 distressed-debt funds (which do not use leverage) have averaged annual gains of 19% after fees for the past 22 years.[16]

In addition to credit investments in distressed debt and high-yield bonds, Oaktree also invests in areas such as private equity, real estate and listed equities. In recent years, the company has expanded its real estate activities.[3]

Investor-base

Oaktree’s investor-base primarily includes pension plans (global and U.S.), endowments and foundations, and sovereign wealth funds. 100 of the 300 largest global pension plans, 75 of the 100 largest U.S. pension plans, 39 state pension plans, 312 endowments and foundations, and 10 sovereign wealth fund nations. According to the Wall Street Journal, Oaktree has “long been considered a stable repository for pension-fund and endowment money.”[17]

The company’s distressed-debt funds are often over-subscribed, and in 2010 Oaktree turned down potential investors due to self-imposed limits on fund size.[18] By law, clients are required to be so-called accredited investors, however, sub-advisory relationships with mutual funds such as The Vanguard Group and Russell Investment Group provide smaller investors access to Oaktree’s portfolio managers.

History

Early years (1995–1999)

Oaktree was founded in 1995 by a group of principals who first joined together at the TCW Group in the mid-1980s[19] to manage high yield bonds, convertible securities, distressed debt and principal investments.[20] Within three months of its founding in 1995, “more than 30 TCW clients transferred $1.5 billion in assets to Oaktree.”[9][21] Adding to the original asset classes, Oaktree’s investment activities currently include other complementary strategies.[22] What it refers to as its “synergistic” investment strategies include specializations in power infrastructure, mezzanine debt,[23] and senior loans.[20] As of March 31, 2012, its assets under management were $77.9 billion.

Oaktree has formed various sub-advisory relationships since 1995. In 1996, Oaktree was selected as the sub-advisor for the Vanguard Convertible Securities Fund.[20]

Since 1995, Oaktree has created what it refers to as “step-out” strategies, usually coincident with the opening of new offices around the world. Its growth in strategies has largely focused on expanding into European and Asian markets. Between 1998 and 1999, Oaktree created 3 new strategies: Emerging Markets Absolute Return in 1998, European High Yield Bonds in 1999, Power Opportunities in 1999. Oaktree was one of the first U.S.-headquartered alternative asset managers with dedicated European investment teams focused on credit.[20]

Expansion (2000–2010)

In 2001 Oaktree continued to introduce new "step-out" strategies, starting with Mezzanine Finance. Asia Principal Opportunities (2006) and Asia Special Situations (2007) followed, along with European Principal Opportunities (2006), European Senior Loans (2006), U.S. Senior Loans and Value Opportunities (2007), and Emerging Markets Equities in 2011.[20][24]

In 2005 the Securities And Exchange Commission ordered Oaktree to pay a fine, interest, and disgorge profits after the SEC ruled they had "sold securities short" before the five legal business days after a public offering pricing had gone public. Oaktree was required to put in place policies and procedures to prevent violations in the future.[25]

In 2008, the firm raised 11bn for their distressed debt fund.[15][26] In 2009, Oaktree was selected by the U.S. Treasury, along with eight other managers (BlackRock, Invesco, AllianceBernstein and others)[27] to participate in the government’s Public-Private Investment Program (PPIP).[28] At the time of Oaktree’s inclusion in the PPIP program, The New York Times reported: “Howard S. Marks is the sort of financier who Washington hopes will help fix the nation’s tumbledown banks.”[29] Partnering with Oaktree in PPIP are the Inupiat Eskimos of Alaska’s North Slope, whose Arctic Slope Regional Corporation invested some $10 million alongside Oaktree’s PPIP fund. As of December 31, 2011, the Oaktree PPIP Fund, L.P. had a gross return of 17.8%.[24][30]

Recent years (2010-present)

Relationship expansion

In recent years, the company has formed several strategic relationships. In 2009, Oaktree acquired a 22% stake in DoubleLine Capital, a Los Angeles-based investment firm specializing in mortgage-backed fixed income portfolios. In 2011 Oaktree partnered with Sabal Financial Group, a company focusing on the acquisition and valuation of portfolios of real estate loans.[31] Oaktree had been an investor in Sabal’s portfolios since 2009 prior to acquiring a non-controlling equity stake in the company.[32]

Its relationship with Vanguard was expanded in 2011, when Oaktree was selected as one of four firms to manage Vanguard’s Emerging Markets Select Stock Fund. In 2010, Oaktree was named one of three advisors to the Russell Global Opportunistic Credit Fund and was selected as a manager for the Credit Suisse (Lux) I Fund in 2011.[20]

European sovereign-debt crisis

Seeking investment opportunities created by the European sovereign-debt crisis,[33][34] Oaktree started its European Principal Fund III in November 2011 with committed capital of some €3 billion.[35]

Other recent funds

According to the company’s published financial results, during the quarter ended March 31, 2012, Oaktree held a first closing for Oaktree Opportunities Fund IX, LP with $1.2 billion.[36] Like its other Opportunities funds, Fund IX will focus on “market pricing inefficiencies resulting from company reorganizations and restructurings, and the senior and secured debt of operationally sound, overleveraged companies in the United States and Western Europe.”[37]

NYSE listing

On April 12, 2012, Oaktree became a publicly traded partnership with shares listed on the NYSE.[4] The company was previously listed on GSTrUE, a private over-the-counter exchange run by Goldman Sachs[38] which officially ceased operations[22] in 2012 after Oaktree, along with Apollo Global Management (in 2011), de-listed and moved to the NYSE.[39]

2015 onwards

In June 2015, Oaktree Capital and Pimco finalised a deal to jointly acquire a 41.6 percent stake in Polish company Echo Investment.[40]

Investment funds

Oaktree’s current investment activities are divided across six main asset classes: distressed debt,[41] corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. Fund structures within each asset class vary, and are organized into closed-end, open-end, or so-called “evergreen” fund types.

Oaktree’s fund offerings are organized into three broad categories based on liquidity and lock-up period:

  • Closed-End Funds: Closed-end funds are structured as limited partnerships that have a 10- or 11-year term and have a specified period during which clients can subscribe for limited partnership interests in the fund. Closed-end funds have a three-, four- or five-year investment period.
  • Open-End Funds: Commingled open-end funds are structured as limited partnerships that admit clients as new limited partners on an ongoing basis. Unlike close-end funds, these funds do not have an investment period. Capital may be committed to new investments at any time during the fund’s life.
  • Evergreen Funds: “Evergreen funds” invest in marketable securities on a long and short basis. Like open-end funds, Oaktree’s evergreen funds accept new capital on an ongoing basis. Clients in evergreen funds are generally subject to a lock-up period of between one and three years.[24]

The following tables list the company’s strategies and funds since inception (including TCW funds directed by Oaktree managers before they left TCW to found Oaktree in 1995):

Closed-End Funds

Fund Inception Date Committed
Capital ($m)
Distressed Debt
TCW Special Credits Fund I, L.P. Oct-1988 $97
TCW Special Credits Fund II, L.P. Jul-1990 $261
TCW Special Credits Fund IIb, L.P. Dec-1990 $153
TCW Special Credits Fund III, L.P. Nov-1991 $329
TCW Special Credits Fund IIIb, L.P. Apr-1992 $6447
TCW Special Credits Fund IV, L.P. Jun-1993 $394
OCM Opportunities Fund, L.P. Oct-1995 $771
OCM Opportunities Fund II, L.P. Oct-1997 $1,550
OCM Opportunities Fund III, L.P. Sep-1999 $2,077
OCM Opportunities Fund IV, L.P. Sep-2001 $2,125
OCM Opportunities Fund IVb, L.P. May-2002 $1,339
OCM Opportunities Fund V, L.P. Jun-2004 $1,179
OCM Opportunities Fund VI, L.P. Jul-2005 $1,773
OCM Opportunities Fund VII, L.P. Mar-2007 $3,598
OCM Opportunities Fund VIIb, L.P. May-2008 $10,940
Special Account A Nov-2008 $253
Oaktree Capital Management Opportunities Fund VIII, L.P. Oct-2009 $4,507
Special Account B Nov-2009 $1,031
Oaktree Capital Opportunities Fund VIIIb, L.P. Aug-2011 $2,692
Global Principal Investments
TCW Special Credits Fund V, L.P. Apr-1994 $401
OCM Principal Opportunities Fund, L.P. Jul-1996 $625
OCM Principal Opportunities Fund II, L.P. Dec-2000 $1,275
OCM Principal Opportunities Fund III, L.P. Nov-2003 $1,400
OCM Principal Opportunities Fund IV, L.P. Oct-2006 $3,328
Special Account C Dec-2008 $505
Oaktree Capital Principal Fund V, L.P. Feb-2009 $2,827
Asia Principal Investments
OCM Asia Principal Opportunities Fund, L.P. May-2006 $578
European Principal Investments
OCM European Principal Opportunities Fund, L.P. Mar-2006 $495
OCM European Principal Opportunities Fund II, L.P. Dec-2007 €1,759
Oaktree Capital European Principal Fund III, L.P. Nov-2011 €3,168
Power Opportunities
OCM/GFI Power Opportunities Fund, L.P. Nov-1999 $449
OCM/GFI Power Opportunities Fund II, L.P. Nov-2004 $1,021
Oaktree Capital Power Opportunities Fund III, L.P. Apr-2010 $1,062
Real Estate
TCW Special Credits Fund VI, L.P. Aug-1994 $506
OCM Real Estate Opportunities Fund A, L.P. Feb-1996 $379
OCM Real Estate Opportunities Fund B, L.P. Mar-1997 $285
OCM Real Estate Opportunities Fund II, L.P. Dec-1998 $464
OCM Real Estate Opportunities Fund III, L.P. Sep-2002 $707
OCM Real Estate Opportunities Fund IV, L.P. Dec-2007 $450
Special Account D Nov-2009 $256
Oaktree Capital Real Estate Opportunities Fund V, L.P. Mar-2011 $1,025
Asia Real Estate
Oaktree Capital Asia Special Situations Fund, L.P. May-2008 $19
PPIP
Oaktree Capital PPIP Fund, L.P. Dec-2009 $2,322
Mezzanine Finance
OCM Mezzanine Fund I, L.P. Oct-2001 $808
OCM Mezzanine Fund II, L.P. Jun-2005 $1,251
Oaktree Capital Mezzanine Fund III, L.P. Dec-2009 $1,592

Open-End Funds

Fund Inception Date AUM ($m)
Open End Fund
U.S. High Yield Bonds Jan-1986 $14,265
U.S. Convertibles Apr-1987 $4,286
High Income Convertibles Aug-1989 $978
Non-U.S. Convertibles Oct-1994 $2,205
European High Yield Bonds May-1999 $1,670
U.S. Senior Loans Sep-2008 $7,800
European Senior Loans May-2009 $782

Evergreen Funds

Fund Inception Date AUM ($m)
Evergreen Fund
Emerging Markets Absolute Return Apr-1997 $577
Value Opportunities Sep-2007 $1,561

Assets

Current as of December 31, 2012: (Capitalcapital.com/about/ source)

Assets by client type
Client type  % US$
(millions)
Public Funds 30 22,985
Corporate Pensions 19 14,784
Corporate 8 6,458
Sovereign Wealth Funds 9 6,574
Endowments and Foundations 8 5,874
Insurance companies 9 6,575
Private - HNW/Family Office 6 4,849
Sub-Advisory - Mutual Funds 4 2,835
Fund of Funds 3 2,453
Unions 1 954
Oaktree Capital and Other 3 2,293
TOTAL 100 77,051
Assets by asset class
Type  % US$
(millions)
Corporate Debt - 24,509
Convertible Securities - 7,566
Distressed Debt - 24,919
Control Investing - 15,999
Real Estate - 3,577
TOTAL 100 77,051

Current investments

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See also

References

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  3. ↑ 3.0 3.1 3.2 3.3 3.4 3.5 Lua error in package.lua at line 80: module 'strict' not found. Financial figures as of 31 March 2010.
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  7. ↑ Vincent, Roger (November 14, 2014) "Oaktree Capital agrees to expand offices in downtown Los Angeles" Los Angeles Times
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  44. ↑ Campofrío Food Group[better source needed]
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Further reading

External links

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