Oaktree 2Q15 Earnings Call Notes

Continue to take advantage of opportunities in Europe

“This month, we began fundraising for the European Capital Solutions Fund, a successor to the first European Private Debt fund we raised just two years ago. The fund will primarily target proprietary direct loans to middle market companies requiring a customized financing solution. We continue to take advantage of opportunities arising from the prolonged dislocation in the European lending markets stemming from the global financial crisis and an evolving regulatory and legislative framework that has restricted bank lending to the middle market. And just this morning, we formally launched fundraising for European Principal Fund IV, which will target control investing opportunities where dislocation or distress creates attractive investment propositions.”

commodity related sectors are another area of focus

“additional areas of focus for our distressed debt funds are energy and other commodity related sectors such as metals and mining. With the recent uptick in U.S. high yield bond defaults in these sectors and with their fortunes tied to weakening commodity prices, these areas will likely remain stressed. Importantly, heightened regulatory pressures on leveraged loan issuance have eliminated a crucial liquidity avenue for overleveraged commodity producers.

We expect dislocations in the energy and commodity markets to continue, providing further opportunities for attractive risk adjusted returns in credit.”

High yield market fundamentals remain sound outside of commodity sectors

“apart from the weakening commodity and energy sectors, the credit fundamentals of the high yield bond market remain sound. Issuers of the bonds held in our funds in that strategy continue to post top line growth and solid EBITDA gains. However, this relative tranquility belies the fact that there’s still plenty to worry about.”

Tranquility belies that there is plenty to worry about though

“However, this relative tranquility belies the fact that there’s still plenty to worry about. The U.S. economic recovery remains tepid. Interest rates are poised to rise sometime in the coming year, and the global economic environment is quite unsettled with the overhang of the Greek debt crisis and a slowing Chinese economy.”

Oil psychology turning negative but not diving in yet

“in the last quarterly call, I mentioned the psychology that there wasn’t outsized opportunities because the psychology was not really that negative. The psychology is starting to turn negative, but it’s just beginning and we haven’t dived in yet by any means. We have a lot of dry powder and we are right now accessing opportunities that again are structured to basically minimize the risk. But also want to take advantage of now happens to be in retrospect the right time to step in for part of the opportunity. So our instinct is that it’s not time to dive into the water completely, but it is time to take advantage of low oil prices and gas prices.”