Oaktree Capital Group LLC has more than recovered from its disappointing IPO. Its recent secondary offering was oversubscribed, raising $431 million, compared with the undersubscribed IPO, which raised $380 million. Its stock is now trading at more than a 20% premium over its initial public offering price.
The transformation for the Los Angeles money manager to a public company has added to the riches of Howard Marks and Bruce Karsh, two key Oaktree founders who each made more than $155 million selling shares of their Oaktree stock in the IPO in April 2012 and secondary sale in late May.
Although Oaktree had been in business for 17 years before the IPO, consultants were worried that Oaktree officials might be forced by the pressures of Wall Street to grow fees and profits, sacrificing the firm's conservative investment philosophy that in the past has limited fundraising, the size of its funds and capital deployment until suitable investment opportunities were found.
When money managers go public, there sometimes is a push to offer a constant stream of new strategies even when its unclear they will be successful, said Michael Rosen, principal and chief investment officer of institutional consultant Angeles Investment Advisors LLC in Santa Monica, Calif.
“Oaktree is a case where it is true that things have stayed the same; it is a testament to Howard and Bruce,” Mr. Rosen said.
But the pressure by Wall Street to see Oaktree's assets under management grow has not disappeared.
While Oaktree saw its second-quarter profit soar to $56.6 million, double from a year earlier, assets under management declined 3% to $76.4 billion at the end of the second quarter. Distressed debt strategies, on which Oaktree made its reputation, account for $21.8 billion, more than a quarter of its AUM.
“There is certainly concern about the trajectory, the outlook for AUM growth,” said Robert Lee, an analyst with Keefe, Bruyette & Woods in New York.
Oaktree officials attribute the decline in AUM to the firm's making almost $5 billion in distributions of profits back to investors from closed-end funds in the second quarter and almost $8 billion since the start of the year.
At the same time, company leadership has been cautious in starting new funds.
Mr. Marks, Oaktree's chairman, said in an interview that while the macro outlook on the economy is decent, especially in the U.S., asset prices are elevated and prospective returns are unusually low. “With many investors behaving in a pro-risk manner to access the higher returns they want or need, it's essential that we not forget to incorporate prudence in our investment approach,” he said. “Thus, for the last couple of years, Oaktree's mantra has been, "move forward, but with caution.'”
Mr. Marks said Oaktree raised a new $5 billion distressed debt fund in 2012, but so far has invested only around 10% of the capital because it has not found suitable investments at the right price.
“We have started to deploy it, but there's not that much to buy,” he said. “There is just not that much distressed debt around.”