Oaktree Capital Management’s distressed debt investments distributed the lion’s share of the firm’s realisations the first quarter, executives said on Thursday’s earnings call.
The firm showed a total of $2.6 billion in distribution earnings across its close-ended funds, earnings results show. Distressed debt accounted for two-thirds, or roughly $1.73 billion, of the quarter’s realisations to limited partners.
“We expect distressed debt will continue its favourable realisations over the next nine months,” Bruce Karsh, co-chairman and chief investment officer, said on the call.
The firm’s largest distressed debt fund, Oaktree Opportunities Fund Xb, raked in $500 million in capital commitments over the quarter, ending the three-month period with $8.9 billion in commitments, according to the earnings results.
Karsh said the investment period for Fund Xb is likely to start sometime in 2018. He added that the firm expects a relatively low market-default rate of 2 percent for the overall debt market this year. In such a “benign default environment,” the firm can “wait for a larger opportunity set”.
Jay Wintrob, chief executive officer, said this fund is their “relationship starter”, noting that 100 of the 330 limited partners that had committed to Fund Xb so far were new to Oaktree. Those LPs included public pension funds, sovereign wealth funds, and insurance companies, with 25 percent from outside the Americas, he added.
Across all the firm’s closed-ended funds, Oaktree raised $3.1 billion in capital last quarter. The firm raised its total assets under management to $100.3 billion, up $3.1 billion from the previous quarter and up $13 billion over the last 12 months.
The firm had “near record” level of dry powder, with $21.8 billion as of 31 March, earnings results show.
Wintrob said a spike in investor confidence in the US market, fueled by the new government in Washington, will continue to benefit his firm throughout 2017.
“The US market started strong in 2017, driven by investor optimism regarding the new administration’s stated desire to lower taxes, provide strong fiscal stimulus, and reduce regulations to stir growth,” he said.
Though “the animal spirits in the market have led to steadily higher valuations”, Oaktree will deploy capital across all its strategies in a “disciplined and cautious manner”, he added.