With Distress Out of Style, Oaktree Closes $15.9B Opportunities Fund

Opportunity, indeed. Oaktree Capital Management announced that it closed its $15.9 billion Oaktree Opportunities Fund XI, exceeding the $15 billion target and becoming the company’s largest fund to date.

The fund is focused on “an attractive mix of opportunities that are diversified across geographies, sectors and asset classes,” as the company’s press release states. The investment charter allows the fund to consider “the most attractive public and private investments worldwide,” with “private opportunities offer a compelling risk/reward profile.”

The company has also made an interesting linguistic adjustment. “Opportunistic credit has been a core investment focus for Oaktree since its inception over 25 years ago, when the firm was a pioneer in distressed debt investing,” the press release states. “Formerly known as ‘Distressed Opportunities,’ the Global Opportunities strategy officially changed its name to better reflect how its investment style has evolved and expanded over almost three decades.”

What Happened to Distress? 

At one point, long ago, investors were eagerly awaiting the distress opportunities that would be available because of the pandemic-led downturn. These never materialized, for the most part. 

Did pandemic help drive distress out because too few properties that fit the traditional description were available? Is there really a new style of investing? Or is opportunistic investing, by any other name, still distressed?

“The truth is, most CRE assets today are well capitalized and able to withstand a downturn in the market,” Jeffrey Rogers, president of Briggs Development, tells GlobeSt.com. “For that reason, opportunistic buyers are finding few distressed assets to buy.”

To Chad Knibbe, president and director of investment sales at Foresite Commercial Real Estate, it’s more a question about “investor confidence.”

“In a down market, a property is considered distressed when it is at risk meeting its financial obligations,” Knibbe says. “This typically happens from lost income due to higher than usual vacancy, and the assumption that more tenant and financial losses are coming. In a strong market or economic cycle, when tenant demand is high, that same property with the same vacancy is assumed to have opportunistic upside due to investor belief that the current vacancy will be short lived and the property can be purchased at a ‘good value’ in comparison to its value when stabilized.”

Isaac Marcushamer, founder and partner with DGIM Law, agrees that it’s a matter of “perception” in the market, which may be another way of saying marketing, although speaking in general and not referring to Oaktree specifically. “I think people are trying to have not as sharp edges. Instead of calling yourself a vulture fund, you’re an opportunity fund.”