Oaktree Capital raises over $10 bln for fire sales

By Alison Tudor, Asia Private Equity correspondent

HONG KONG, Nov 13 (Reuters) - Investment firm Oaktree Capital Management L.P. is armed with over $10 billion to pick up assets during fire sales as the credit crisis continues to roil financial markets, said chairman Howard Marks on Tuesday.

The additional $10 billion has been raised over the past 12 months and is spread across an array of funds, boosting Oaktree's swelling coffers to about $51 billion.

"Cash is king ... we're ready for the future," said Marks during a media briefing in Hong Kong.

Marks blamed the credit crisis on investors' excessive use of short-term debt to maximise returns in potentially very illiquid assets. A crisis, he says, that may continue to reverberate through markets.

"An enormous part of what lies ahead depends on confidence ... I think it unwise to take actions today on the assumption the worst is over." With three to five years of aggressive investing behind us, it's unrealistic to expect the last four months to have unwound all of that, he said.

Los Angeles-headquartered Oaktree has used very little leverage in its deals and earlier this year had virtually nothing invested in U.S. mortgages -- where rising defaults precipitated the global credit squeeze.

Bumper years for distressed investing were 1990 and 2002 when corporate default rates spiked to about 10 and 13 percent respectively. "We think such an opportunity may lie ahead," said Marks.

However he noted defaults have been at record lows in recent years and need to jump to above 4 percent before distressed debt investing will become rife.

REEPING REWARDS

This year Oaktree has raised two funds that could invest in leveraged buyout debt that has been marked down because of the credit crisis.

One is Oaktree's $3.5 billion Opportunities Fund VII which is expected to pick up a chunk of LBO debt and the other the $4 billion Oaktree Loan Fund which is primarily for the purpose of buying bridge loans related to LBOs.

Both of the these funds have made significant progress investing. Oaktree expects to put this money to work mostly in the United States and Europe, which have witnessed the largest LBOs. Asia will not feature prominently for this fund as there have been relatively few mega-buyouts in the region.

Investment banks have about $400 billion of buyout debt sitting on their books according to some estimates, much of which may have to be marked down because of the credit crisis.

There have been some high-profile casualties of to the crisis. On November 4 Charles Prince resigned as chief executive of Citigroup (C.N), as the bank said it may write off $11 billion of subprime mortgage losses, on top of a $6.5 billion write-down last quarter.