The more than 50% drop in the price of crude oil over the last nine months has wreaked havoc on many balance sheets in the energy sector, and distressed debt firms such as Howard Marks’ Oaktree Capital Management are looking at a raft of new opportunities.
According to a Wall Street Journal article published on Friday of last week, Oaktree has just about finished raising more than $10 billion in capital for two new distressed debt funds.
The LF Brook Absolute Return Fund lost -2.52% in the second quarter of 2021, compared to a positive performance of 7.59% for its benchmark, the MSCI Daily TR Net World Index. Year-to-date the fund has returned 4.6% compared to 11.9% for its benchmark. Q2 2021 hedge fund letters, conferences and more According to a copy Read More
More on the two new Oaktree Capital funds
The WSJ sources say the firm is looking at a final close of $10 – $11 billion on May 12 for Oaktree Opportunities Fund X LP and a companion fund.
Private-equity funds are often raised with a series of closings so investments can start prior to the final closing. After the final closing, they no longer take new investors into the fund.
The two new Oaktree funds add up to almost twice the size of an earlier fund, which closed with $5.07 billion back in 2013.
The prospectus notes that the last time Oaktree raised a fund of this size (the $10.9 billion OCM Opportunities Fund VIIb LP) was almost seven years ago.
Of note, the Opportunities funds are intended to invest in senior or secured debt of distressed companies, to either acquire an equity stake through a reorganization, or see profits when the debt eventually recovers value.
The two new funds can also invest in distressed assets including real estate and shipping, or in portfolios of nonperforming loans or even equities in “dislocated industries.”
Oaktree always looking for new opportunities
Analysts note that Oaktree has been focused on Europe for some time now, and also has taken stakes in several firms in the troubled shipping industry as well as the real-estate market.
According to the investor presentation, the firm is in the process of a “building inventory of low quality debt” from both Europe and the U.S. as interest rates have remained “unnaturally low” for an extended period of time
Some analysts have also pointed that Oaktree being able to raise this huge amount of money seems to be a hint that institutional investors are starting to look for hedges as volatility returns to the U.S. markets and the EU continues to struggle with low growth and significant political problems.