Washington State enters Oaktree ‘sidecar’

The $72bn pension is splitting its $250m commitment to the firm’s eighth fund, putting $125m into sidecar vehicle that is targeting $2bn.

The Washington State Investment Board has decided to transfer a portion of its $250 million commitment to Oaktree’s eighth fund into a sidecar that will hold capital until the supply of distressed debt opportunities picks up.

The pension, with $72 billion in assets, will move $125 million into the sidecar fund, a spokesperson said. The pension made the original commitment to Fund VIII, which is targeting between $4 billion and $6 billion, in September. The sidecar fund is targeting a total of $2 billion, according to a market source.

“[We have the opportunity] to move some of that money into Fund VIIIb due to uncertainty about the future distressed debt market opportunities,” the spokesperson said. “If debt supply picks up in the near term, Fund VIIIb will invest alongside Fund VIII.” If opportunities in the debt market do not improve, the sidecar will invest after Fund VIII is tapped, the spokesperson said.

Oaktree raised a sidecar to its seventh fund that turned out to be significantly larger than Fund VII, which closed on $3.5 billion in 2006. The sidecar, Fund VIIb, ultimately collected $10.9 billion in 2008, making it the largest ever distressed debt fund.

At the time, the firm said the two-fund structure gave the firm “sufficient flexibility to address the issues of fund size, supply in the distressed debt marketplace and other timing considerations

“By assembling capital commitments for Fund VIIb on an anticipatory basis, investors will have a guaranteed position in the fund and eliminate two separate committee approvals,” the firm said at the time.

In other news, the pension also committed $25 million to CDH Fund IV, which is a new relationship for Washington State. CDH wrapped up fundraising in January with subscriptions exceeding the fund’s $1.4 billion hard cap. The firm’s third fund closed on $1.6 billion.