Oaktree’s Marks Says Share Sale Was Humbling Experience
“It was very challenging,” Marks said of the IPO, citing declining markets during the firm’s roadshow, a nine-day pitch to investors leading up to the offering. “We had to do a small deal at the bottom end of the range. You have to accept that you’re not a master of the universe, and that these things are not within your control.”
Oaktree raised $380 million selling 8.84 million shares for $43 each, the bottom of the proposed range. The firm and some of its stakeholders had offered to sell 11.3 million shares for as much as $46 apiece, according to regulatory filings.
Oaktree, which is based in Los Angeles, joins Blackstone Group LP (BX), Apollo Global Management LLC (APO) and Fortress Investment Group LLC (FIG) in losing value since their public offerings as investors show wariness in businesses that produce unpredictable earnings and use metrics that can be difficult to understand. Ultimately, Marks said, the stock price will reflect how successful the firm is in investing client money.
“My greatest priority for the years ahead is that there be no change in how we pursue our basic business,” Marks, Oaktree’s chairman and co-founder, said in an interview with Bloomberg Television’s Sheila Dharmarajan. “I believe that if we are successful in our business then the public market will take care of itself.”
Blackstone, based in New York, has declined 58 percent since its 2007 IPO. Fortress Investment Group LLC and Och-Ziff Capital Management Group LLC (OZM), which held their own U.S. IPOs that year, have since lost 81 percent and 74 percent. Apollo, whose shares were previously traded on a private exchange run by Goldman Sachs Group Inc., held a $565 million U.S. share sale in March 2011 and has lost 36 percent since then.
Marks, 66, founded Oaktree in 1995 with Bruce Karsh and five other partners from TCW Group Inc. He and Karsh, Oaktree’s president, had been set to get almost 40 percent of the proceeds from the share sale. Marks said he sold about 7 percent of the stock he owned in the IPO.
“I have a great incentive to make the stock successful,” he said. “It’s not at all reasonable to think that if you’re a stockholder, your interest and mine are divergent.”
Marks said he approaches deals with a caution that many other investors shun. He said there are too many “structural” problems in the U.S. -- the rising cost of health care, the budget deficit and education shortfalls -- that have worsened with the financial crisis, giving him reason to be concerned about the pace of the U.S. recovery.
“I believe that the main reason we got into the crisis is because these elements of risk management -- caution, skepticism, fear -- were in short supply,” said Marks. “The riskiest thing in the world is the belief that there is no risk.” Marks said he advocates a “gradual” combination of tax increases and spending reductions to address the rising deficit.
Oaktree oversees more than $70 billion for pension funds from Massachusetts to Florida and the world’s biggest sovereign- wealth funds, such as China Investment Corp. The firm finds buying opportunities “when there’s not money available to otherwise solve problems,” Marks said, which isn’t the case in the U.S. as much as it is in Europe.
‘Looking at Europe’
“We’re certainly looking hard at Europe,” said Marks, who spends a third of his year working from Oaktree’s London office. “If they have to sell in a rush into a non-accommodative market, if the amount for sale overwhelms the amount of willing buyers, then you could have some significant bargains there.”
Oaktree in March finished raising a 3 billion euro ($3.9 billion) fund, 20 percent more than it had sought, that will seek control of distressed European companies, two people familiar with the results said at the time. The European Principal Fund III is 76 percent bigger than Oaktree’s previous fund using the same strategy.
“Our mantra is to move forward but with caution,” Marks said of his firm’s investment philosophy. “Investing is an art form, not a science. I sleep very well with my confidence that I don’t know what the future holds.”
To contact the editor responsible for this story: Christian Baumgaertel at firstname.lastname@example.org