In 2015, Oaktree Capital (OAK) will embark on the most ambitious year of fundraising in the firm’s 25-year history, seeking nearly $20 billion from limited partners.
Limited partners in Oaktree (OAK) funds will likely try to ensure that Oaktree’s interests are aligned with theirs by insisting that Oaktree Capital (OAK) and/or Oaktree principals make meaningful commitments to those funds alongside limited partners.
In 2013, Oaktree’s investments in its own funds have accounted for just 1.6% of the firm’s AUM, versus 3.3% at Carlyle Group and 5.3% at KKR.
Like executives at other alternatives managers, Oaktree Capital executives have become extremely wealthy over the last several years. In 2013, Oaktree Capital’s five named executive officers earned an average of $31.6 million each.
Scott Graves, Managing Director and Head of Credit Strategies (formerly Co-Portfolio Manager of Oaktree’s distressed debt investments), received the largest payout ($47.0 million) in 2013, yet was not listed among the Oaktree executives and directors who invested in Oaktree (OAK) funds in 2013.
Stephen Kaplan, an Oaktree principal and former head of Oaktree’s Global Principal Group, received a total of $63 million in payouts between 2010 and 2012, yet invested less than $1 million (around 1.5%) in Oaktree Capital (OAK) funds between 2010 and 2013.
Caleb Kramer, Managing Director and the portfolio manager of Oaktree’s European Principal Group, was Oaktree’s highest-paid ($83 million) named executive officer over the past four years (2010-2013), but only invested around over $6 million (7.0%) in Oaktree (OAK) funds between 2010 and 2013.
Oaktree principals have emphasized the firm’s culture of risk control and decentralized decision-making structure. On a February 2014 analyst conference call, for example, Oaktree Capital chairman Howard Marks noted:
“Each fund group is headed by a highly professional and highly experienced individual, or duo, that run their own fund with considerable latitude. We do not have a central investment committee that has to look at all the investments, and by definition then, is getting further from any one of them. Everybody makes their own investments.
We're decentralized. We have a delegation of responsibility.”
Given Oaktree’s emphasis on decentralized decision-making, is it appropriate that some Oaktree (OAK) executives who clearly have capital available did not make significant investments in the funds they oversee, or in any of Oaktree’s funds?
For a firm so focused on risk control, why do some Oaktree executives seem so hesitant to put their own capital at risk in the firm’s own funds?
Will Oaktree executives who are key decision makers for the funds Oaktree is raising in 2015 be expected to make significant commitments to the funds they oversee?