Oaktree eyes Asia distressed, property
US alternatives manager Oaktree Capital is focused on boosting its exposure to distressed debt and property in Asia, but is not set up for substantial investment in private equity in the region, said chairman Howard Marks.
Ample bank financing means there are few opportunities in distressed debt, though that is likely to change given Asia's fast-growing corporate debt market, he noted yesterday during a visit to Hong Kong. That means there will be plenty of distressed debt in tougher times down the line, he predicted.
Emerging-market opportunities account for just $870 million of the manager’s $20.4 billion in distressed debt globally. China is an major area of focus for Oaktree as it seeks to boost that exposure. For example, the firm was a cornerstone investor in bad bank China Cinda Asset Management’s November 2013 initial public offering.
Marks said he was very pleased with the investment due to the exposure and experience it is giving the firm in Chinese distressed debt. He did not provide specifics about realised or hoped-for returns from the assets. Cinda’s share price closed at HK$3.67 on November 3, a 2.5% rise from its 12 December 2013 IPO price of HK$3.58.
So far, Oaktree has not made any investments as part of a separate 50-50 joint venture with Cinda to invest $1 billion in distressed debt in China. It is looking for “large situations”, said Marks, without specifying a figure.
Asked his priorities with regard to private equity in Asia and given the difficulty for Asian GPs to add value given the dynamics of minority investing, Marks said the firm is not really set up to invest in PE in the region.
“Oaktree is primarily characterised by three words: credit, value, opportunistic,” he noted. “To be a private equity investor, especially in Asia, you probably have to be equity, growth, strategic.”
“For us to make a big play in Asian private equity, we would probably have to retool, and that’s a serious decision,” added Marks. “When you make a transition it’s not always certain to work.”
In the US or Europe, most PE investing takes the form of buying whole companies, he noted, but there's a question as to whether that strategy can be applied in Asia.
“Can hostile takeovers be accomplished in emerging markets? When you attempt to transplant an investment strategy you have to be very conscious of the economic and cultural environment – it calls for a go-slow attitude.”
Property has been more of a focus. “Pound for pound we’ve been putting more money into [real estate] investment over the last few years than any other area," said Marks. He was referring to real estate outside of grade-A buildings in prime cities, where he saw limited opportunities.
On top of distressed debt, Oaktree’s total $93.2 billion portfolio at as at September 30, 2014 comprised $36.6 billion of corporate debt, $15.9 billion of control investments, $8.7 billion of convertible securities, $7.3 billion of real estate and $4.3 billion of listed equities (including $3.6 billion in EMs).