Management fees fall as Oaktree holds back on new investments

  • Management fees declined 4 pct year-over-year
  • Firm not expecting fees to rise in “non-default environment,” says Levin
  • Firm is a net seller, with Oaktree Opportunities Fund X 44 pct drawn

Management fees collected by Oaktree Capital Group funds are falling steadily and that’s OK, the firm’s leadership said on a third-quarter earnings call.

Oaktree collected $186.6 million as management fees in Q3, down 4 percent from a year earlier. The firm attributed the bulk of that decline to funds offloading older assets, though it was partly offset by the start of Oaktree European Principal Fund IV’s investment period.

“We’re looking at increased opportunities to sell assets out of our closed-end funds,” CEO Jay Wintrob said on a call with analysts Oct. 26. Wintrob attributed the decline in Oaktree’s management fees year-over-year to the firm being a “prudent seller” of fee-earning assets out of those funds.

Oaktree’s closed-end investment funds distributed almost $2.2 billion during the third quarter, continuing the trend of the firm being a net seller in aggregate, according to its earnings release.

The firm has also been slow to activate some of its larger investment funds, particularly those focused on distressed assets, given the relatively stable economic environment and low default rate. Just three corporate issuers defaulted in Q3, the largest of which was toy retailer Toys “R” Us, Wintrob said.

The firm has $21.2 billion of uncalled capital ready for new investments, just $12.4 billion of which was not yet generating management fees.

Oaktree raised its most recent flagship fund across two vehicles: Oaktree Opportunities Fund X and Oaktree Opportunities Fund Xb. The larger of the two, the $8.9 billion Fund Xb, won’t be activated until the market for distressed assets expands.

The $3.6 billion Fund X began investing in early 2016 and was 44 percent drawn through the end of the third quarter, according to the earnings report.

“We do not believe this is a time in the cycle to be reaching for returns, and so [we] continue to be cautious and patient” in deploying capital, said CFO Dan Levin in a call with analysts on Thursday.

The firm is not projecting its management fee revenue to rise “in the benign default environment we are currently experiencing,” he added.

Oaktree closed Q3 with $99.5 billion under management. The firm is co-chaired by Howard Marks and Bruce Karsh.

Action Item: More information on Oaktree: www.oaktreecapital.com

Visitors check out the sights around the Angel Oak tree in Charleston, South Carolina, on Sept. 24, 2013.  Photo courtesy Reuters/Randall Hill  

Correction: The sixth paragraph was corrected to note that the $12.4 billion was not yet generating management fees. The story was also updated to reflect the call’s official transcript.