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Oaktree to exceed targets for RE funds

The Los Angeles-based private equity firm is on track to raise its largest property fund yet, with its latest vehicle close to surpassing the equity haul of its $1.3 billion predecessor. The investment manager expects to close both its real estate opportunity and debt funds above target by year’s end.

Oaktree Capital Management revealed yesterday that it anticipates exceeding its capital raising targets for both its real estate opportunity fund and its new real estate debt fund. In an earnings call with analysts, the firm said that it had closings for both vehicles during the second quarter, and anticipates completing fundraising for the two funds by the end of the year.

The alternative investment manager raised nearly $500 million in additional capital for its latest global real estate fund, Oaktree Real Estate Opportunities Fund VI, during the second quarter, after a third closing that brought its total capital raise to $750 million in March. The vehicle, which launched about a year ago, now has attracted more than $1.2 billion in commitments, following a fourth interim closing in June. Of that amount, the firm already had invested $843 million, according to its second-quarter earnings results.

Fund VI is close to overtaking the equity haul of Oaktree’s previous real estate opportunity fund, Fund V, for which the firm held a final close of $1.28 billion early last year.  The new vehicle is expected to surpass its $1.5 billion target at its final close, which is anticipated to occur by year’s end.

“We’re excited to see the growth of our real estate strategy,” said John Frank, managing principal at Oaktree, during the call. “We continue to feel that this will be an increasingly important part of our business going forward.”

Meanwhile, the firm held a first close of just under $100 million for its commingled real estate debt fund, Oaktree Real Estate Debt Fund. Frank first mentioned that the firm had begun marketing a real estate debt fund during its third-quarter 2012 earnings call last November. The fund will target performing commercial mortgage-backed securities, first mortgages, junior secured debt, unsecured debt and mezzanine debt.

Oaktree has now amassed a total of $300 million to date for its real estate debt strategy. In an earnings call in February, Frank subsequently revealed that the firm had collected $200 million in commitments for the strategy, but PERE understands that capital was raised through separate account vehicles. By the end of the year, Oaktree anticipates raising more than $500 million for its real estate debt strategy, both through the commingled fund and separate accounts.

During the first six months of the 2013, the firm raised gross capital of $4.8 billion, and “almost a third was raised from strategies that didn’t even exist 18 months ago,” noted Frank. “All of our newest products represent organic step-outs from our existing strategies and investment teams.”

Aside from the property debt fund, a “step-out” from the investment manager’s real estate business, Oaktree’s other new investment offerings include strategic credit, enhanced income, emerging markets opportunities and European dislocation funds. “We’ve been very focused over the last year or so on building new products, specifically intended to address our clients’ needs for risk-controlled strategies that can generate consistent, high single-digit or low double-digit net returns in this low interest rate environment,” said Frank.

The new real estate debt vehicle is considered the successor to Oaktree’s PPIP fund, which the firm launched in 2009 as part of the US Treasury’s Legacy Securities Public-Private Investment Program (PPIP) to buy toxic mortgage-backed securities from banks. The expertise and track record that the firm’s real estate team gained through the PPIP mandate “has jumpstarted the fundraising for our real estate debt fund,” noted Frank. The investment manager sold its remaining holdings in the PPIP fund during the second quarter.

Oaktree reported economic net income of $172.6 million in the second quarter, up from $103.6 million during the same year-ago period. The firm attributed the increase to higher incentives created and investment income on stronger fund returns generated during the quarter. Oaktree’s assets under management stood at $76.4 billion as of June 30, declining $2.3 billion from the second quarter of 2012, as a result of the manager’s high level of realizations and resulting distributions by its closed-end funds.