Oaktree calls out private equity partners #NewsMarket

One scoop to start: Schroders plans to appoint chief financial officer Richard Oldfield as its next chief executive, tasking the former Big Four accountant with restoring the fortunes of one of the UK’s best-known asset managers.

In today’s newsletter:

• Oaktree calls out Advent and Silver Lake over collapsed start-up

• UK needs capital market revamp to attract £1tn of investment

• Companies issue record level of US debt

Oaktree calls out private equity partners

Prominent investment managers’ criticisms of one another rarely appear in writing or spill into the public domain. However, here is a notable exception.

Oaktree Capital Managementone of the oldest specialists in chasing companies for unpaid debts, has reproached private equity groups Advent and Silver Lake over the bankruptcy this year of Thrasioan ecommerce start-up once valued at $6bn that all three had backed.

In a letter to investors seen by the Financial TimesOaktree rebuked the two firms for their oversight of the business, saying the group’s trust in them was “misplaced”.

The June letter was signed by Bruce Karshwho co-founded Oaktree in 1995 with Howard Marks and is its chief investment officer, and by two other portfolio managers. It also revealed that Oaktree’s 11th opportunities fund had written down the balance of its $114mn investment in Thrasio to zero.

“We believed that Advent and Silver Lake, experienced PE firms with whom we have partnered numerous times, would be steady hands at the helm and able to professionalise the business,” the trio wrote, adding that “this proved to be incorrect”.

“We didn’t have appropriate controls in place and instead relied on our alignment with the sponsors,” they continued. “This was clearly an error: we expected more judicious and cautious deployment of capital for growth, but our trust was misplaced.”

Thrasio was launched in 2018 to roll up small Amazon marketplace sellers and Oaktree invested the following year. The ecommerce start-up secured a $6bn valuation by 2021 as investors tried to cash in on the online shopping craze seen during the Covid-19 pandemic, but earnings faltered when shoppers went back to their old habits and it went into bankruptcy in February.

“Thrasio did extraordinarily well during the pandemic, and it mistakenly extrapolated consumers’ strong spending on goods well into the future and used these expectations to justify paying more for acquisitions,” Oaktree’s letter said. “In hindsight, we now realise that we should have replaced the management team earlier rather than waiting for the equity sponsors to act.”

One investor in Oaktree’s 11th opportunities fund was unimpressed with the firm’s explanation for the losses. “I appreciate their candour but on the other hand, that is not something one should be proud of,” they said. “Frankly, you are a $16bn fund, do you really need to learn not to outsource [oversight of the company] to other partners?”

UK needs capital market revamp to attract £1tn of investment

Last week Sir Nigel Wilsonchair of Canary Wharf Groupannounced his long-awaited report aimed at revitalising the UK investment landscape.

It found that the UK needs to overhaul its capital markets in order to attract £1tn of investment in the next decade to fund housebuilding, infrastructure and start-ups.

The “UK economy and its capital markets have fallen behind the US since the global financial crisis”, said the report.

Britain has suffered anaemic economic growth, uncharacteristic political instability and investor outflows from publicly listed companies — yet Wilson rejected any suggestion the country is stuck in a “doom loop”.

But the former chief executive of Legal & General said significant action was required, including in areas such as tax and regulation, as he urged ministers to press ahead with moves to encourage UK investors and pension funds to buy into domestic assets.

“Some of the changes will require a home bias and we’re unashamedly, unapologetic about that,” Wilson told my colleague Michael O’Dwyerarguing that other countries such as France, Sweden, Australia and the US use their tax and pension systems to promote domestic investment.

Last week the government launched a call for evidence as part of a review of the pensions sector. It came as fresh figures from think-tank New Financial showed that UK pension schemes have among the lowest proportion of funds held in domestic stocks and private assets of any significant global pension market, adding pressure on the government to revive investment in British industry.

Options identified by Wilson include using pension tax breaks to incentivise investment in UK companies and reducing stamp duty on share trading, which generated £3.8bn in tax revenue last year.

Another option identified by Wilson — a “UK Isa” to channel savers’ cash into London-listed stocks — is being scrapped by the new Labour government.

Meanwhile Emma Reynoldsthe new UK pensions minister, said on Friday that boosting the amount of retirement savings invested domestically and improving returns for retirees must come before any increase in the proportion of wages automatically put into pensions.

Chart of the week

Companies issued record volumes of US debt last week as they moved to head off possible volatility from closely watched economic data, a Federal Reserve meeting and a fast-approaching presidential election.

Twenty-nine US investment-grade bond deals hit the market on Tuesday alone following the Labor Day holiday, data from LSEG shows — the highest daily number on record, writes Harriet Clarfelt in New York.

Another burst of activity on Wednesday took issuance over those two days to just under $73bn, the largest figure in LSEG records going back 20 years. More blue-chip deals followed, taking total borrowing across 60 high-grade issuers to almost $82bn — marking the busiest week since May 2020.

“It’s definitely been much busier than we could have ever imagined,” said Teddy Hodgsonglobal co-head of fixed income capital markets at Morgan Stanley.

Recent borrowing has spanned various sectors, with a $2.5bn deal from Ford Motor Credita flurry of bond sales by banks, a $750mn deal from Target and a $4bn deal from Uberwhich marked its first such transaction as an investment-grade company after being upgraded last month.

Investment-grade borrowers typically rush to tap lenders in early September. But senior debt bankers said the record-breaking issuance this week also reflected a desire to get ahead of any potential volatility sparked by economic data or the US election in early November.

“Issuers [are] pulling forward issuance in an effort to de-risk ahead of potential event risks out there, including upcoming economic data reports, the Fed’s decision on rates, the election and ongoing geopolitical risk while navigating blackout periods,” said Dan Meadhead of Bank of America Securities’ investment-grade syndicate.

Five unmissable stories this week

Nick Moakeschief investment officer of the £36.8bn Wellcome Trustis retiring next year after 17 years. He will be replaced by the current managing directors of the investment team, Lisha Patel and Fabian Thehos.

Goldman Sachs’ Petershill Partners has completed the sale of its entire stake in hedge fund LMR Partners back to the firm’s leadership team, for a total nominal consideration of up to $258mn.

Rob Arnott and his Research Affiliates firm are making their first foray into the world of exchange traded funds with an ETF that will invest in companies dropped from big indices such as the S&P 500 and the Russell 1000.

BNY is buying Archera leading provider of managed account technology, as the global bank seeks to capitalise on the rush into personalised investing strategies. It plans to use Archer’s technology for its own investing arm as well as sell it to asset manager clients.

The West Yorkshire Pension Fund has made a 25 per cent seed investment in Rebalance Earththe first UK fund manager specialising in returns from cutting companies’ flooding and water-quality risks.

And finally

The Jacquemart-André Museum in Paris has reopened after a year’s refurbishment to host Masterpieces from the Borghese Gallery. In the latter collection, all were artists favoured by Cardinal Scipione Borghese in the early 17th century as he sought to adorn his Villa Pinciana, the “villa of delights” which became Rome’s Borghese Gallery. The collection was amassed with the notorious Borghese ruthlessness, writes our chief visual arts critic Jackie Wullschläger. He acquired the show’s seductive opening stunner, Caravaggio’s “Boy with Basket of Fruit”, by contriving criminal charges against its owner, painter-collector Joseph Caesarwho avoided jail by “donating” his works to the Borghese family.

September 6 to January 5, musee-jacquemart-andre.com