Oaktree floating new mezzanine fund in rising tide

Oaktree disclosed no fundraising target or amount raised in a Form D filing for Oaktree Mezzanine Fund IV. Oaktree said in the filing that the first sale on the fund has yet to occur and that it expects the offering to last more than one year.

Oaktree Chairman Howard Marks is listed on the document, along with Chief Investment Officer Brush Karsh and directors Sheldon Stone, Lawrence Keele, Stephen Kaplan, David Kirchheimer, John Frank and Kevin Clayton.

After branching out into mezzanine investing as a separate strategy in 2001, Oaktree raised about $1.6 billion for Oaktree Mezzanine Fund III in 2010 but fell short of its $2.5 billion target for the fund. 

Fund III’s investment objective is to “earn a high current return and achieve long-term capital appreciation” by building a diversified portfolio of mezzanine debt and other junior securities, with the investments in a single issuer typically between $20 million and $50 million.  

“Fund III’s strategy includes targeting companies with one or more of the following characteristics: sustainable cash flow, a proven management team, strong relative position in its market, and/or a well developed business strategy,” according to a filing.

Fund III’s investment period is scheduled to end on Dec. 15, 2014, according to the filing.

Oaktree declined to comment.

While mezzanine financing has been under pressure in the face of competition from cheaper sources of loans, fundraising and dry powder have been on the rise.

With investors searching for yield in a low interest rate environment, dry powder for mezzanine funds increased by about 19 percent in 2013, according to estimates from Bain & Co and Preqin. The amount of money raised by mezzanine funds climbed by 6 percent in 2013.

Among big fundraises, Crescent Capital last August closed Crescent Mezzanine Partners VI with more than $3.4 billion in commitments.

Looking ahead, the mezz market may pick up as the Federal Reserve moves ahead with its tapering program and interest rates rise.