Marks’s Oaktree Files to Raise Up to $517.5 Million in IPO

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Oaktree Capital Group LLC, the world’s largest distressed-debt investor, filed to raise as much as $517.5 million in an initial public offering. Co-founders Howard Marks and Bruce Karsh are set to get about 40 percent of the proceeds from the sale.

The firm plans to sell 10.3 million shares at $43 to $46 each, Los Angeles-based Oaktree said today in a filing with the U.S. Securities and Exchange Commission. Some of its existing shareholders, including Clipper Fund Inc., will sell nearly 1 million shares.

Oaktree’s planned share sale could offer a glimpse at investor appetite for IPOs by larger asset managers. Carlyle Group LP, the Washington-based private-equity firm that manages $147 billion, is set to go public this year after weighing an IPO since at least 2007.

“Ultimately, I think public investors are going to view both Carlyle and Oaktree in a similar fashion,” Douglas Kelly, a Santa Monica, California-based analyst at IBISWorld Inc., said in a telephone interview. “The difficulty in understanding alternative asset companies -- as far as their business, the transparency around the valuations they’re reporting and the returns they’re advertising -- is about the same.”

Oaktree expects to receive about $426 million from the sale if the shares are priced in the middle of the range. All of the proceeds the firm receives will be used to buy interests from the firm’s principals, employees and investors, it said in the filing.

Purchase Option

Underwriters of the IPO have the option to purchase an additional 15 percent of the total shares being offered by Oaktree and the selling shareholders, the filing shows, which would bring the total raised to $595 million.

The firm was started in 1995 by Marks and six partners from Los Angeles-based investment firm TCW Group Inc. Marks, 65, is a billionaire who owns about one-sixth of Oaktree. He named the firm for the English translation of his Santa Barbara, California, weekend home, Las Encinitas.

Marks and Karsh, the firm’s president, will each be paid about $101.9 million from the IPO’s proceeds, according to the filing. John Frank, a managing principal, will receive about $4.8 million; Caleb Kramer, a managing director, will get about $4.3 million; and Stephen Kaplan, a principal, will be paid about $3.7 million, the firm said.

‘Orderly Succession’

Oaktree is already transferring some responsibility from its principals to the firm’s next generation of managers “as part of an orderly succession process,” it said in the filing. The firm will no longer pay Kaplan a direct share of management fees, it said, and will instead pay him fixed quarterly payments that represent about 75 percent of the amount he would otherwise have received.

“We have no plans to depart -- either voluntarily or involuntarily -- but I guess it will prove inevitable,” Marks wrote in a March 2 letter to clients. “As part of a gradual, ongoing process, each of our principals is transitioning some of their responsibilities to our next generation.”

Scott Graves, Bob O’Leary and Rajath Shourie were named co-portfolio managers last year for the ninth distressed debt fund the firm is raising, according to the letter. Graves will also be involved in corporate strategy and development.

Other IPOs

Oaktree, which managed about $75 billion as of Dec. 31, is selling shares in the wake of mixed results from leveraged-buyout firms Blackstone Group LP, Apollo Global Management LLC and KKR & Co. since they went public. Oaktree raised about $1 billion in May 2007 when it sold a 15 percent stake on the private exchange run by Goldman Sachs Group Inc., a transaction valuing the company at $6.3 billion.

Blackstone, the world’s largest private-equity firm, raised $4.1 billion in its 2007 IPO, a year before the collapses of Bear Stearns Cos. and Lehman Brothers Holdings Inc. The shares have fallen 50 percent since. Apollo has declined 24 percent from its offering a year ago, while KKR has risen 40 percent in New York trading since its July 2010 share sale.

Goldman Sachs and Morgan Stanley are among underwriters for the offering, according to the filing. The shares will trade on the New York Stock Exchange under the ticker symbol OAK.

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