Oaktree Capital Management (OAK): In Control? asks report by UNITE HERE

While Oaktree Capital Management (NYSE: OAK) has a history of limiting downside risk for client principal, subpar performance across Principal Investments strategies raises questions about fees says new report by UNITE HERE

LOS ANGELES--()--A new report from UNITE HERE is available here, at www.PEcloserlook.org.

Key Points:

Oaktree Capital Management’s (OAK) Control Investing strategies combine more traditional private equity with distress-for-control investing. Within Control Investing, Oaktree (OAK) has deployed three Principal Investments strategies: Global Principal, European Principal and Asia Principal.

As of the end of 2013, the various Principal Investments strategies accounted for approximately 16% of Oaktree’s AUM.

The first Global Principal Investments fund was launched about 20 years ago as a stepout from Oaktree’s (OAK) core distressed debt strategies. Recently, Oaktree held its first close on Oaktree Principal Fund VI, its latest Global Principal Investments offering, and cut target size from $3 billion to about $1.8 billion.1

Over the 20 year history of Principal Investments strategies:

  • On average, the 10 closed funds trailed their benchmark IRR by 4.3 percentage points.2
  • Only 1 of the 10 closed funds within these strategies was a top quartile performer.
  • Only 3 of the 10 closed funds were above their benchmark IRR.
  • 4 of the 10 funds ranked in the 4th quartile.
  • For the 10 funds that have closed, the mean quartile ranking was 3.1.
  • On a committed capital weighted basis, the mean quartile ranking was 3.3.3

Questions for LPs:

Given that the Principal Investments’ funds have, on average, been 3rd quartile performers, can Oaktree (OAK) justify the fees it currently charges LPs?

Will Oaktree need to reduce the fees charged on the funds?

Did Oaktree reduce the fundraising target for Oaktree Principal Fund VI because of limited opportunities to deploy capital or because of limited demand driven by the subpar performance of previous Principal Opportunities Funds?

Were Principal Fund VI LPs offered fee breaks?

The full report from UNITE HERE is available here, at www.PEcloserlook.org.

Keywords: Oaktree Capital (OAK), Oaktree Opportunities Fund X, Oaktree Mezzanine Fund IV, Oaktree Principal Fund VI

1 Willmer, Sabrina. “Oaktree Said to Cut Fund as Distressed Deals Diminish.” Bloomberg. June 11, 2014. http://bloom.bg/SzeV4h (last viewed on September 26, 2014)
2 Calculated as (Net IRR – Preqin Benchmark IRR)/(Number of closed funds)
3 Quartile rankings from Preqin; committed capital weighted mean calculated as Σ((fund committed capital/total committed capital all closed Principal Investments funds) x Preqin quartile ranking)

Contacts

UNITE HERE
Jim Kane, 617-838-6099
jkane@unitehere.org

Release Summary

Oaktree Capital (OAK) recently cut the target size for Oaktree Principal Fund VI from $3 billion to about $1.8 billion. Oaktree's (OAK) Principal Investments' funds have been 3rd quartile performers.

Contacts

UNITE HERE
Jim Kane, 617-838-6099
jkane@unitehere.org