Oaktree refunds fees to US Treasury

The Los Angeles-based investment management firm has retroactively cut fees charged to the Treasury under the $29.4 billion Public-Private Investment Program after investing just 16 percent of the capital committed to its fund.

Oaktree Capital Management has agreed to refund more than $2 million in fees received under the US Treasury's plan to provide liquidity for toxic assets on banks' balance sheets. 

According to a report by Bloomberg, the Los Angeles-based investment management firm has retroactively cut fees charged to the Treasury under the $29.4 billion Public-Private Investment Program (PPIP) after investing just 16 percent of the capital committed to its PPIP fund. All the other managers in the programme had put at least 68 percent of their capital to work, according to a July report by the Treasury.

Initially, Oaktree had charged the Treasury an annual management fee based on the amount of money the agency had pledged, rather than the actual capital invested. The Treasury set the fee at 20 basis points of committed capital, compared with the 100 to 200 basis points that institutional investors typically pay private equity funds.

In the second quarter, Oaktree’s $4.6 billion fund “changed the basis” on which it charges the Treasury from committed capital to the amount actually drawn and invested, prompted by its plans for an initial public offering. Indeed, the firm said in an amended IPO filing on 2 September that it will voluntarily reduce management fees and limit a fund’s size when necessary “to demonstrate to our clients that we are not financially incentivised to raise more capital than appropriate.”

Sources familiar with the situation told PERE that, as a result of that change in policy, Oaktree disclosed a $2.1 million reduction in management fees for the “retroactive application” of the new arrangement, cutting the firm’s second quarter fee revenue by 4 percent to $31.4 million, according to the filing. Oaktree declined to comment, and the Treasury could be reached for comment by press time.

Announced in March 2009, PPIP is one of the initiatives under the Troubled Asset Relief Program (TARP), as spearheaded by Treasury Secretary Timothy Geithner. Using $75 billion to $100 billion in TARP capital and capital from private investors, the programme intended to generate $500 billion in purchasing power to buy legacy assets, with the potential to expand to $1 trillion over time. 

Led by Howard Marks, Oaktree has $79.5 billion in asset under management as of 30 June. Oaktree’s PPIP fund, the only one investing solely in commercial mortgage-backed securities, generated a 19 percent IRR through 30 June, ranking it sixth among PPIP managers.