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Oaktree runs secondary on ‘esoteric’ European special situations portfolio

The deal is one of several run by established managers helping to drive secondaries volume to what several professionals believe will be record levels this year.

Oaktree Capital Group is running a process to expand its hold period over assets out of an older European special situations fund, three sources told Buyouts.

Oaktree is an established manager that has made use of the secondaries markets over the years, including moving assets out of a similarly focused special situations fund targeting North American investments.

The deal is one of several run by established managers helping to drive secondaries volume to what several professionals believe will be record levels this year. Others include TPG Capital, Kohlberg & Co. and Georgian Partners.

Oaktree European Principal Fund III, a 2010 vintage, which raised around €3.2 billion in 2012, is the focus of the secondaries process that would move assets out of the pool and into a continuation fund. Park Hill Group is working as adviser on the deal.

Existing Fund III LPs would have the ability to cash out of their interests in the fund, or roll their stakes into the continuation pool alongside the GP.

Details of the continuation fund are not clear. The Fund III portfolio is a mix of credit and equity stakes in companies, and was described as “esoteric” by one secondaries buyer.

An Oaktree spokesperson declined to comment.

Oaktree European Principal Fund III was generating a 162 percent total value-to paid-in percentage as of Dec. 21, 2020, according to performance information from the San Diego County Employees’ Retirement Association.

The fund was launched to take advantage of the dislocation roiling European markets after the financial crisis in 2008, particularly in its vintage year of 2010. European Principal Fund III was “positioned to take advantage of inevitable deleveraging in response to either broad-based capital market pressure or a more gradual company by company approach,” according to an investor presentation to SDCERA.

Fund III was set to buy debt from banks that would have to deleverage, develop solutions to restructure balance sheets and support or replace management teams or equity owners, the presentation said.

Oaktree’s European Principal funds business is led by portfolio manager Caleb Kramer, and co-portfolio managers Karim Khairallah, Nael Khatoun and Jim Van Steenkiste.

In 2019, AlpInvest Partners and HarbourVest Partners led a process to move assets out of Oaktree’s Principal Fund V, which closed on about $2.8 billion in 2009, Buyouts previously reported. Oaktree rebranded its (non-European) Principal funds business to Oaktree Special Situations in 2016. The platform is led by Jordon Kruse and Matt Wilson.

Oaktree is running its process in a busy secondaries market, with other managers like TPG Capital, GI Partners, CD&R and Clearlake Capital Group also using secondaries to sort out older funds and assets.

Update: This story was updated to include the names of the leaders of the European Principal funds business.