What's up with Oaktree SS/Distressed?

Okay, I've always enjoyed a lot of what Howard Marks has to say but what's up with the returns of some of the Special Sits and Distressed funds? A lot of them seem like garbage when compared to the latitudes they have and inherent risk profile. I'm not talking about the Power Opps funds as those are their own animal.

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Comments (18)

  • Principal in PE - Other
Aug 25, 2021 - 10:26pm

I was looking at some of their pre 2008 funds that were still garbage.

It's amazing to me that they can continuously pitch their returns to investors as "a bit better than the rest" and that they "don't shoot for the moon and take logical small bets and focus on downside deviation" while they repeatedly underperform their peer group. Reminds me of Whitehorse Liquidity Partners' "gift of the gab" approach.

Most Helpful
Aug 25, 2021 - 10:39pm

I sat closely with some private debt secondaries guys and got an inside glimpse at many of oaktrees portfolios. Absolute garbage is all I have to say. Piss poor returns on most of them and very weird strategies too. One of their funds I saw made close to 80 tiny equity investments into many distressed companies. Seemed more like an index of distressed companies than an actual investing strategy. In addition, the debt secondaries market is flooded with their portfolios. The guys I talked to were overwhelmed by the sheer amount of broker calls pitching them oaktrees stuff. Pension & Endowment investors in particular were very unhappy and got rid of most of their distressed stuff once the dust settled during the Covid crash. All in all Oaktree is an incredible brand name with very smart professionals, but the distressed space is a hard industry to play in especially with this new monetary climate and the ten year bull market we have experienced.

  • Principal in PE - Other
Aug 25, 2021 - 10:44pm

I'm a secondary buyer and I've bought countless OCM funds for discounts between 30-70% of NAV. The dregs left in a 10 year old Oaktree portfolio are usually bankruptcy claims, escrows, or companies just about to be written off (again).Their Power Opps group is highly regarded but I'm still amazed at how much money they amassed for pretty underwhelming returns time and time again. Tbh, if you are an LP getting under a net 2x MoC and 18% net IRR in this strategy I'd be wondering where my money went - their returns on the good days are like a mediocre LBO fund and on the bad days like a lousy hybrid mezz/senior debt fund. There are Distressed managers that pull it off, but I think OCM just tried to raise too much money and were naturally forced to allocate to way too many companies to "diversify".

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  • Investment Analyst in RE - Comm
Nov 17, 2021 - 9:18pm

Oaktree just raised $16B for their distressed / opportunistic strategy. How are they able to if the returns / portfolios are as bad as people in this thread are making it out to be? There seems to be a disconnect...

  • Investment Analyst in RE - Comm
Nov 18, 2021 - 2:13pm

probably a function of ppl thinking a correction is coming, after which oaktree will feast...a correction that hasn't happened for 13 years...

Nov 25, 2021 - 4:43pm

was getting that impression after reading some of his recent memos

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  • Associate 2 in HF - Event
Nov 25, 2021 - 4:25pm

Past few funds have had pretty shit returns. The previous and current ~$16bn fund have stellar returns. Biproduct of them no longer chasing the very few distressed opps and instead shifting into a more flexible mandate (e.g. distressed, growth, buyout, venture, etc.). Probably one of the most opportunistic groups out there at this point.

Edit: this is referencing the "Global Opportunities" group, f/k/a Distressed Debt. Special sits is the separate, smaller fund focused on distressed control investments. 

Nov 26, 2021 - 10:43am

Isnt the global opportunities fund focused on distressed for control situations as well?

  • Associate 2 in HF - Event
Nov 28, 2021 - 11:34am

To my knowledge, it's something they can do, but not THE mandate (as opposed to SS, where it is THE mandate). Their bread and butter is non-control public distressed credit investments. 

  • Investment Analyst in RE - Comm
Dec 1, 2021 - 9:51pm

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