Oaktree hands back $3bn from 2008 fund

Chairman Howard Marks told PEI Oaktree tends to return cash rather than seek fund extensions, particularly given changing market conditions for distressed investing.

Oaktree Capital Management’s record setting “OCM Opportunities Fund VIIb” has returned $3 billion to limited partners as its investment period neared an end.

The fund, which began investing in May 2008, had raised $10.9 billion and went on to invest the bulk of its capital in the period between the Lehman Brothers bankruptcy and the end of 2008.

Howard
Marks

While Fund VIIb’s extension period was due to end in January, market conditions and thus the firm’s returns expectations had also changed along with the cycle. Some of the reasons the distressed investment opportunity didn’t last for as long as some had expected – or materialise in quite the way many had predicted – were detailed previously by PEI.

Fund VIIb had been aiming for gross returns of 25-30 percent or more, but good distressed investment

We generally don't extend funds. We give people their money back and give them the choice whether to invest in the next fund.

Howard Marks

opportunities in today’s climate are more likely to produce gross returns of 13 to 15 percent. “We wouldn’t want to take the money from VIIb and reinvest in those conditions,” firm chairman Howard Marks told PEI. “We generally don’t extend funds. We give people their money back and give them the choice whether to invest in the next fund.”

Since raising Fund VIIb, Oaktree has raised successor funds VIII and VIIIb, communicating different returns expectations to LPs in light of changed conditions.

Oaktree declined to comment on fundraising activity.

Fund VIII was reportedly capped at $4 billion and Fund VIIIb, expected to close next month, was meant to serve as an “overflow” reservoir of capital, that would not be capped and would not incur management fees unless and until capital was drawn, according to public documents from Oaktree limited partner The Oregon Investment Council. The firm is believed to have invested around half of Fund VIII to date.