“The firewood had been stacked,” Oaktree Capital Management said in a recent presentation to investors. And the coronavirus pandemic was the igniter.
Companies had been levering up and it is time to take advantage of the situation, Oaktree said in its presentation, which was viewed by Bloomberg. Oaktree, which is majority-owned by Brookfield Asset Management, is looking to raise $15 billion to start a distressed-debt fund, the biggest of its kind.
Oaktree, which Brookfield paid $4.8 billion for a 61 percent stake last year in an effort to challenge Blackstone Group, believes that even more distressed deals are ripe for the picking than during the 2008 financial crisis. The bets will be spread across a variety of industries, but Oaktree has experience with real estate deals. In 2016, it teamed up with JPMorgan Chase to lend Ziel Feldman’s HFZ Capital Group $500 million to refinance four New York City condominium buildings.
Though Oaktree is making the largest bet on distressed debt, it’s far from the only player gearing up for action. Pacific Investment Management Co. (PIMCO), a subsidiary of European financial-services giant Allianz, is looking to raise at least $3 billion for a new distressed-assets fund, and Cerberus is looking to quadruple the size of its new stressed and distressed credit fund to $750 million, Bloomberg reported.
In July, Bain Capital teamed up with Manhattan-based SKW Funding to target $500 million in troubled real estate debt. At the time, the fundraising market for distressed debt was lackluster, totaling just $2.5 billion for the first five months of 2019, according to Preqin, and a far cry from the $45 billion raised in 2008. But the situation has certainly changed since then.
Howard Marks, the billionaire co-founder and co-chairman of Oaktree, penned one of his fabled memos to his investors on April 14, sharing his thoughts on the pandemic and the opportunities it has created, and criticized the government’s attempt to bail out troubled businesses by buying their debt.
“There’s an old saying — variously attributed — to the effect that ‘capitalism without bankruptcy is like Catholicism without Hell,’” Marks wrote. “It appeals to me strongly. Markets work best when participants have a healthy fear of loss. It shouldn’t be the role of the Fed or the government to eradicate it.”
Write to Hiten Samtani at [email protected]