Oaktree seeks up to €3bn for European distressed deals

Oaktree Capital Management is targeting €2.5 billion to €3 billion for its third “European Principal Fund” to focus on distressed debt investments in mid-market European companies.

The fund has no hard cap. Oaktree raised €1.8 billion for its second European Principal Fund in 2008.

Last week, the San Diego County Employees’ Retirement Association committed €60 million to the fund. Fund III held an initial close in December 2010 just after it launched, though it’s not clear how much the fund raised by the first close.

The fund will target investments in equity and debt obligations of mid-market companies in Europe that are “undervalued” because of financial distress, dislocation, owners who are forced to sell or similar situations, according to documents from San Diego County.

Fund III will invest in control situations, or situations in which the firm can have “significant influence” over restructurings. That could mean investing in some of the assets expected to be divested by European banks this year.

Oaktree will charge a 1.75 percent management fee during the five year investment period. After, the firm will charge 1.75 percent of the lesser of funded capital commitments and cost basis of held investments.

The firm will use 100 percent of transaction and similar fees to offset the management fee for limited partners, according to pension documents.

The European Principal team is headed by Caleb Kramer, managing director, who joined Oaktree in 2000 from Seneca Capital Partners. Other managing directors on the team include Karim Khairallah, Oren Peleg and Justin Bickle.