Oaktree Capital Group LLC (NYSE:OAK), famous for its bets on distressed debt, is having a good time so far in 2013. The firm’s stock is up, and expectations are high.

Oaktree Logo

A Morgan Stanley (NYSE:MS) report on Oaktree Capital Group LLC (NYSE:OAK) reports some strong trends in the asset manager’s business. Three factors taken from a meeting with the firm’s management were particularly important.

The first of these is, obviously, the high distribution. Morgan Stanley (NYSE:MS) estimates 9% yield in 2013, and 7% in 2014 before hitting nearly 10% in 2015. The value oriented firm is also working on growth, particularly by expanding into new strategies.

Oaktree yield

The newer strategies include, Emerging Market Debt, strategic credit and real estate. The firm is also continuing to grow in key parts of its strategy including high net worth retail. The first two factors segue nicely into the third, Oaktree Capital Management LLC (NYSE:OAK)is setting itself up for the long term.

The analysts think that the company’s investors have good prospects assuming that investors continue to pay a premium for distribution yields in the sector. Morgan Stanley expects the  yield across the sector to be 6-7%.

The key attribute of Oaktree Capital Group LCC (NYSE:OAK) for the analysts is the fact that although AuM isn’t growing as fast as investors might like, the company is paying them a high yield in order to compensate them for their patience.

There are risks to the company’s performance according to the analysis. Global Macroeconomic turns weigh heavily on the returns of asset managers. If The world’s economy goes wrong, so too, more than likely, will Oaktree’s returns and its share price.

On the other hand, a pro-cyclical market could mean that Private Equity strategies outperform Oaktree’s own strategy.  A third risk factor is a change in the way the company is taxed, springing from ongoing budget debates in the United States.

This report puts a twelve month price target of $56 on Oaktree Capital Group LLC (NYSE:OAK) stock. The firm’s stock was trading at just over $52.50 on the market this morning. Overall the company gets an overweight rating from Morgan Stanley.

Oaktree Capital Group LLC (NYSE:OAK) stock has had a very good year. The equity has risen by more than 16% since the start of 2013, while the S&P 500 has risen by just under 9%. On today’s market the firm’s shares had risen by a fraction.

H/T Brendan Conway