Oaktree Capital Management is planning a new distressed debt fund, OCM Opportunities Fund V, and will likely start marketing the fund within the next two months. Howard Marks, chairman of Oaktree, said the size of the fund will range from $750 million to $1 billion and will be offered to existing clients. Oaktree has a $50 million commitment from the Illinois State Teachers Retirement System waiting for when the fund launches.
Marks noted that the size of the planned fund is considerably smaller than OCM Opportunities IV, which was $2.15 billion, and OCM Opportunities IVb, which just wrapped up at $1.3 billion. He chalked up the smaller size to dwindling opportunities in the distressed debt market. "The opportunities are good, but they're less rife than they were a year ago," he said. Last year, record default rates, corporate scandals and an overall depressed market mentality combined to make the distressed arena a buyer's market. Now, the default rates are lower and there is more demand for assets, Marks said.
Still, investors are interested. The $50 million from Illinois State Teachers, part of its private equity allocation, represents a move back into the distressed arena for the $21 billion fund. Angelo Gordon managed a distressed allocation for Illinois Teachers up until about three years ago, but the fund made the strategic decision to sell its stake in the fund to another limited partner, according to John Day, assistant executive director and interim cio. The plan has not had a distressed debt commitment since that investment was sold.
Day said the fund plans to increase its allocation to distressed debt as its commitment to private equity grows. The fund's private equity allocation is about $638 million, or roughly 3% of the $21 billion fund. In the coming years, the plan intends to increase its allocation to private equity to 6% of the total fund. The target for the distressed debt sub-class is set at about 5% of that private equity goal. "We definitely plan to further augment distressed debt in the coming years, but there's no set timetable," Day said. He added that an additional bump up is not expected in the coming months. "We have some room to grow, but I would not foresee anything else for the balance of this fiscal year, which ends in June." He said it was premature to discuss whether Oaktree would get any additional distressed debt allocation or if there would be a search for other managers. The money for the new allocation will come from cash, Day said.