Oaktree in private share offering
Oaktree Capital Management, one of the Southland’s most successful investment firms, sold shares in itself Tuesday to an elite group of investors, in the latest move by the burgeoning private equity industry to raise money for expansion.
Los Angeles-based Oaktree and its principals took in more than $800 million selling a stake of about 14% to fewer than 50 other large investors.
The deal is another sign of the growing financial clout of private equity firms -- investment partnerships that have been buying businesses outright or acquiring significant stakes in companies at an accelerating pace. They are hungry for more and are reaching out to investors who are eager to help them finance their purchases in the hope of earning high returns.
Another major private equity firm, New York-based Blackstone Group, last weekend signed a deal for a $3-billion capital infusion from the Chinese government. Blackstone also is planning to sell shares to the public, raising as much as $4.75 billion in additional funds.
Oaktree, which manages about $40 billion in assets, specifically decided not to offer shares to the public at large. Instead, its stock offering is the first on an exclusive market created by brokerage Goldman Sachs Group Inc.
The idea behind the market is to allow private firms to raise money -- and create a way for their executives and employees to cash out some of their wealth in the business -- without taking the cumbersome route of going public.
In a memo to clients Tuesday, Oaktree partners Howard Marks and Bruce Karsh indicated that they were happy with the results as the first firm to try Goldman’s market.
They said Oaktree’s shares, or units, were priced at $44 apiece late Monday and began trading at $50 on Tuesday. Only institutional investors can trade the shares; the general public isn’t allowed in.
“In time, we expect to see this [market] employed by a number of premier companies in other industries that wish to access liquidity and outside capital but also to remain private,” Marks and Karsh said in the memo. “It makes sense that there be a way for leading companies to accomplish these dual goals.”
Oaktree declined to comment further on the deal. A Goldman spokesman couldn’t be reached for comment.
One key advantage of limiting a stock sale to well-heeled, sophisticated investors is that Oaktree can avoid sharing detailed information about its operations with the rest of the world. Private equity firms consider secrecy a crucial advantage as they wheel and deal for attractive investments.
If Goldman’s market becomes popular, it could present more competition for the New York Stock Exchange and the Nasdaq market as they seek to entice public stock offerings.
“I think it’s quite appealing,” said David Brophy, a finance professor at the University of Michigan. The greater federal regulatory burdens imposed on public companies since the corporate scandals of a few years ago have raised the cost and hassle of being publicly traded, he said.
“A lot of companies now say, ‘What’s the point of being public?’ ” Brophy said.
Although some analysts said Oaktree could have raised more money selling a minority stake in the public market, Marks and Karsh said in their memo to clients that that issue “meant little to us in comparison to the advantages” of staying private.
Oaktree, formed in 1995 by Marks, Karsh and other investment managers who split from L.A.-based Trust Co. of the West, has generally been publicity-shy. It is best known as a big player in high-yield bonds and in “distressed” assets, including securities of struggling companies.
“They are probably the best in class in the distressed” sector, said Stephen Nesbitt, a principal at investment advisory firm Cliffwater in Marina del Rey. “They look for opportunities where others are leaving.”
Among some of its recent company purchases, Oaktree bought the Czech Republic’s biggest spirits producer, Stock Plzen. It also has agreed to buy Taiwan-based Fu Sheng Industrial Co., the world’s biggest maker of golf-club heads.
Oaktree also is involved in real estate. It’s the master developer of Vellano, a 600-acre community nearly completed in Chino Hills in San Bernardino County.
Having a tradable stock will allow Oaktree to finance larger investments in its funds and offer new investment strategies to clients, Marks and Karsh said in their memo.
The shares also will help the firm lure talent and keep current fund managers aboard, the executives said. A tradable stock allows employees to know what their stakes are worth at any moment, and provides an easy way to turn those stakes into cash.
“We expect that many of our most significant competitors will soon become public or otherwise access the public markets,” Marks and Karsh said. “Choosing not to do likewise could have put us at a major disadvantage in the highly competitive market for top investment professionals.”