Reference Publications

Oaktree Capital Management, LLC

International Directory of Company Histories, Volume 71 (2000) by Jeffrey Covell

333 South Grand Avenue, 28th Floor Los Angeles, California 90071 U.S.A. Telephone: (213) 830-6300 Fax: (213) 830-6393 Web site: http://www.oaktreecapital.com

Private Company Incorporated: 1995 Employees: 290 Total Assets: $26.86 billion (2004) NAIC: 523920 Portfolio Management; 523930 Investment Advice; 523999 Miscellaneous Financial Investment Activities

Oaktree Capital Management, LLC is an investment firm specializing in acquiring the bad debt of financially ailing companies. Oaktree Capital, with nearly $27 billion in assets, has offices in Los Angeles, New York, Tokyo, London, Singapore, and Frankfurt.

Origins

Oaktree Capital was started by a financial analyst whom American Banker , in its April 26, 2002 issue, described as "a force in the graveyard of capitalism." Howard S. Marks, who helped pioneer a new angle of attack in the investment community, earned his reputation by pursuing what others retreated from, becoming one of the kings of high-risk, high-yield investments. Marks grew up in the New York borough of Queens in the middle-class neighborhood of Forest Hills. The son of an accountant, Marks followed in his father's footsteps, earning his degree in accounting from The Wharton School at the University of Pennsylvania. After earning an M.B.A. in accounting and marketing from the University of Chicago, Marks accepted a position as an equity analyst at Citibank, beginning his professional career in 1969.

Marks distinguished himself at Citibank, helping to steer the massive financial institution in a new direction. Within a decade, he rose from his entry position as an equity analyst to become the director of equity research. Marks had earned the promotion to director by 1978, a year that marked a turning point in his career. In an interview with American Banker on April 26, 2002, Marks explained what happened, describing the pivotal event that opened a new area of business for Citibank and determined the direction his career would take for decades to follow. "Around September," Marks said, "the bank was approached about running a high-yield bond mutual fund. Remember, this was twenty-four years ago and nobody had heard of the junk bond world—then only $2.5 billion of the total." Marks continued: "They said to me, 'There's something called high-yield bonds and the leading figure is some guy named Milken at a small brokerage firm in Los Angeles—would you take it on?' Of course I did," Marks responded. "And that was a lucky moment for me."

Michael Milken, through his exploitation of the junk bond market, became one of the dominant symbols of 1980s-style capitalism. Although Marks garnered less attention than Milken, he was involved in the earliest days of the junk bond market, registering considerable success alongside his Wharton alum, Milken. Marks headed Citibank's involvement in the junk bond market, leading the New York City-based operation even after Citibank allowed him to relocate to Los Angeles in 1980. He found the move to be beneficial from a professional standpoint, explaining in his interview with American Banker , "Many times we view New York as being preoccupied with what's going on in the financial markets at the moment, making it easy to not see the whole picture. In California, we're stepped back a bit, and I believe that gives us more perspective."

Marks found a lasting home in Southern California, but not as a Citibank executive. He left the company in 1985, frustrated that the amount of money he brought into Citibank from the junk bond market, which had developed into a $100 billion market the year he left, was not proportionate to his salary. He joined a Los Angeles institutional money manager named Trust Company of the West (TCW) Group, becoming the chief investment officer for the company's distressed debt and president of its subsidiary, TCW Asset Management Co. Marks continued to excel at TCW during the late 1980s and early 1990s—a period that saw his colleague Milken indicted and imprisoned—but he experienced the same sort of frustration at TCW as he had experienced at Citibank. In an April 26, 2002 interview with American Banker , one of Marks's colleagues explained what happened. "He (Marks) told me that for every dollar his group brought in, they were only allowed to keep 20 cents because they (TCW's senior management) were subsidizing the nonprofitable business at TCW. Howard was in line to be president of TCW, but he left and took everyone in his group with him because he wanted more control over his destiny."

Former TCW Executives Gathering in 1995

Marks left TCW in 1995 determined to end the problems associated with an employer-employee relationship. He founded Oaktree Capital in April, starting the company with six other executives, all of whom worked for TCW. Marks took the title of chairman at the newly formed Oaktree Capital, heading a distinguished investment team that produced a level of success that surprised Marks and the six other principal partners. Joining Marks from TCW was Bruce A. Karsh, who was appointed Oaktree Capital's president. Karsh, a graduate of the University of Virginia School of Law, was a managing director at TCW and the portfolio manager of the TCW Special Credits Funds. Karsh was credited with developing the investment approach and strategies used in TCW's distressed debt investments, possessing skills that made him the natural leader of Oaktree Capital's distressed debt effort. Oaktree Capital's investments in real estate were headed by Russell S. Bernard, a Cornell University graduate who attracted the attention of TCW executives in 1993. Bernard, who started his real estate career in 1983, managed a diversified portfolio of properties located in 40 states by the early 1990s, when he began working with members of TCW's distressed debt team to explore possible joint investments. The collaboration led to Bernard's move from Win Properties, where he served as a partner and vice-president, to TCW in 1994. In his brief stay at TCW, Bernard assembled a staff of real estate professionals, all of whom left with Bernard in 1995 to join Oaktree Capital.