Yahoo Finance Oaktree Cuts Fees on Private Credit Fund After Earnings Decline
(Bloomberg) -- Oaktree Capital Management cut management fees on a private credit fund aimed at individual investors by a third, following an increase in problem loans and disappointing earnings.
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The Los Angeles-based asset manager said this week it has permanently lowered the base management fee it charges on its business development company Oaktree Specialty Lending Corp. to 1% of gross assets from 1.5% previously.
The fee reduction comes on the heels of disappointing performance for the investment vehicle, whose earnings per share missed analyst estimates for five quarters in a row, according to data compiled by Bloomberg. The cut is expected to boost returns for investors after three consecutive quarters of declining investment income, a key performance metric for BDCs.
“We believe this permanent change to our fee structure demonstrates Oaktree’s strong commitment to aligning its interests with shareholders,” Oaktree’s co-chief executive Armen Panossian said in a statement on Tuesday. “This reduction in fees means that a larger portion of our investment income will flow to our shareholders.”
Lowering fees is one way that managers can make up for weak performance in their portfolio or encourage investors to deploy more capital into their funds. Golub Capital and BlackRock Inc. cut management fees on some of their BDCs from 1.375% to 1% and from 1.5% of assets to 1.25%, respectively, last year.
Read More: Private Credit Offers No Extra Gains After Fees, New Study Finds
BDCs are investment vehicles that allow investors to gain exposure to a portfolio of corporate loans typically extended to small or mid-size companies. In recent years, they’ve become one of the main avenues for individual investors to access the booming $1.7 trillion private credit market.
Oaktree’s vehicle, which is publicly traded under the OCSL ticker, was among a handful of such funds that suffered downward revisions to their credit outlook by Moody’s Ratings last month. That’s due to an increase in loans with non-accrual status, or loans on which investors are at risk of losing money.
Read More: Private Credit Funds Get Moody’s Warning on Problem Loans
Last quarter, Wells Fargo & Co. analyst Finian O’Shea described OCSL’s recent credit experience as “concerning” and suggested the credit performance in the quarter may spark a debate over the BDC’s fee structure.
The fee reduction did little to assuage investors, with OCSL declining about 4% on Tuesday — the biggest one-day drop since February — following the release of its quarterly earnings. Shares rose 0.9% as of 9:34 a.m. New York time on Wednesday.
--With assistance from Carmen Arroyo.
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