Oaktree Second-Quarter Profit More Than Doubles on Fees
Oaktree Capital Group LLC (OAK), the world’s largest distressed-debt investor, said second-quarter profit more than doubled as it realized more gains on investments.
Net income rose to $56.6 million, or $1.71 a share, from $24.7 million, or 84 cents, a year earlier, Los Angeles-based Oaktree said in a statement today. Assets under management declined to $76.4 billion from $78.8 billion at the end of the first quarter as the firm distributed money to investors.
Oaktree is taking advantage of rising markets to realize profits and delaying purchases with money from its most recent distressed-debt fund, John Frank, the firm’s managing principal, said today. His comments echoed remarks from executives at Blackstone Group LP to Fortress Investment Group LLC (FIG), who have said now is a better time to sell holdings than to make new investments.
“Because the financing markets are open and generous, and because the economy is on an upward trend, it’s a pretty good time to be selling assets and realizing investments,” Frank said in a telephone interview today. “Generally speaking, the environment is good.”
Oaktree founder and Chairman Howard Marks said last year that his firm is aiming for returns of 15 percent before fees in distressed strategies, the lowest target it has ever had.
Oaktree rose 1.1 percent to $54.05 at the close of trading in New York, bringing gains this year to 19 percent. The stock has increased 26 percent since the company’s initial public offering last year, when it raised $380 million selling shares for $43 each.
Management fees, which Oaktree earns for overseeing assets, fell 3.4 percent to $182.5 million, while incentive income, which it earns for performance above certain thresholds, more than doubled to $338.1 million from $129 million a year earlier.
Adjusted net income, a measure of profit excluding some costs, rose to $297 million, or $1.75 a share, from $165.5 million, or 89 cents, a year ago, Oaktree said. Earnings per share beat the $1.62 average estimate of 5 analysts in a Bloomberg survey. Adjusted net income excludes some expenses, including noncash equity compensation and income taxes.
Earnings were better than expected because of “active harvesting activity, healthy cash-earnings generation and positive portfolio appreciation despite a more volatile market backdrop during the second half of the quarter,” said Howard Chen, a New York-based analyst at Credit Suisse Group AG who has a neutral rating on the stock.
Oaktree and Irving Place Capital Management LP last month agreed to sell Chesapeake, a U.K. packaging company, to Carlyle Group LP. (CG) The owners bought the London-based company out of bankruptcy in 2009 and grew it with three add-on acquisitions.
Oaktree is testing investor appetite for an initial public offering of Stock Spirits Group Ltd., the largest vodka maker in Poland and Italy, two people with knowledge of the matter said in June. JPMorgan Chase & Co. and Nomura Holdings Inc. are speaking to investors ahead of a possible IPO this year, said the people, who requested anonymity because the details aren’t yet public and no final decision has been made.
Because it’s a better time to sell investments than buy assets, Oaktree is delaying triggering the investment period on its newest $5 billion distressed-debt fund, Opportunities Fund IX, until next year, Frank said on a conference call with investors and analysts today. The firm will collect management fees on capital that has been drawn for deals, which Frank said is about 10 percent of the money committed to the pool.
“It’s rarely possible to make bargain purchases and eye-popping sales at the same time,” said Frank. “Today the generous financing markets that have facilitated so many of our realizations are making it harder for our distressed-oriented strategies to find attractive buying opportunities.”
Oaktree has raised more than $3 billion for new investment offerings since it went public last year. The firm started a fund dedicated to emerging-market distressed debt and sees opportunities in real estate, one of its fastest-growing businesses, according to Frank.
The firm said it will pay a record dividend of $1.51 a share on Aug. 20.
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