Oaktree Capital Group is preparing for the economic recovery to falter.
The world's biggest distressed debt investor is seeking $10 billion for a new fund with plans to sit on most of the capital until rising markets reverse course, three people with knowledge of the plans said. Oaktree plans to raise $3 billion that it can start investing immediately and $7 billion for a reserve pool to deploy when more distressed opportunities arise, said the people, who requested anonymity because the plans aren't public.
Distressed-focused funds have found difficulty investing money as the Federal Reserve holds interest rates near zero and global corporate defaults remain low. Such defaults fell to 66 last year from a peak of 266 in 2009, according to data from Moody's Investors Service. Oaktree this year cut the $3 billion goal on its control investing fund by about 40% as it struggled to find opportunities.
“Credit standards have dropped and non-investment-grade debt issuances reached record levels,” John Frank, Oaktree's managing principal, said July 31 on a conference call with investors and analysts. “Aggressive extensions of credit of the sort we're seeing today have always been a precursor to a substantial distressed-debt opportunity.”
Oaktree plans to waive management fees on the $7 billion pool until it's activated, said the people with knowledge of the plans. The $3 billion fund, Oaktree Opportunities Fund X, will take non-control positions in corporate debt and seek less than the $5 billion gathered for its predecessor pool in 2012.
Alyssa Linn, a spokeswoman for Oaktree, declined to comment on the plans.
In addition to corporate debt, the fund will invest in shipping, power plants and real estate, the people said. Oaktree's Opportunities Fund IX, which it started deploying this year, was producing a 14.6% net internal rate of return and a 1.1 multiple of invested capital as of June 30, according to the firm's second-quarter earnings statement.