Please ensure Javascript is enabled for purposes of website accessibility

Oaktree Capital Group Posts Strong Q2 Growth

By Keith Speights – Jul 28, 2016 at 12:42PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The global investment manager sees year-over-year improvement in nearly every category in Q2, although assets under management fell slightly.

Image source: Getty Images.

Shareholders of Oaktree Capital Group (OAK) haven't enjoyed a great 2016 so far. The investment management company's stock returns have been in negative territory for much of the year. However, Oaktree announced its second-quarter financial results before the market opened on Thursday. Did those results make a difference? Here are the highlights.

Oaktree results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Total segment revenue

$332.8 million

$274.7 million

21.2%

Adjusted net income

$142.6 million

$85.3 million

67.2%

Adjusted net income per Class A unit 

$0.79

$0.44

79.5%

YOY = year over year. Data source: Yahoo! Finance. 

What happened with Oaktree this quarter

The numbers don't lie. Oaktree's performance improved versus the prior-year period across the board and topped the expectations of many investors. Examining the details of the company's second-quarter results showed further strength.

Distributable earnings increased to $127.5 million, a 14.8% jump from the same period last year. Oaktree attributed this improvement to higher incentive income and fee-related earnings.

Oaktree's internal metric, economic net income (ENI), also reflected large increases from the prior year. ENI measures incentive income based on the market values of the funds' holdings. Oaktree uses ENI to allow for more meaningful comparisons with other alternative asset managers that use a similar metric. For the second quarter of 2016, the company reported ENI of $166.2 million, or $0.96 per Class A unit. That's up from $17.6 million, or a loss of $0.02 per Class A unit, recorded in the same quarter last year.

There was one negative figure among all the positives for Oaktree. Assets under management in the quarter fell 5% to $98.1 billion, from $103.1 billion in the second quarter of 2015. However, this figure did reflect an uptick from the $96.9 billion under management at the end of the first quarter of 2016.

Oaktree reported $22.8 billion of uncalled capital commitments, sometimes referred to as "dry powder." That reflects a record-high level. Of those commitments, $13.1 billion were "shadow" assets under management (i.e., assets not yet generating management fees).

What management had to say

In response to his company's second-quarter results, Oaktree CEO Jay Wintrob said:

Despite some significant market volatility at quarter-end following the Brexit vote, we delivered positive performance across virtually all of our investment strategies. Low interest rates, ample liquidity and a search for yield continue to sustain the credit markets and buoy equity markets, creating a somewhat challenging investment environment for our counter-cyclical investment strategies. However, with our record level of dry powder, experience in navigating market cycles and patient, opportunistic approach to deployment, we are well positioned to continue to serve our clients' needs.

Looking forward

Several positive factors could help Oaktree going into the rest of 2016. For example, a rebound in energy benefits Oaktree, especially after the company had to take significant impairment charges in the first quarter related to some collateralized loan obligations.

As Wintrob mentioned in his comments, low interest rates make Oaktree's countercyclical investing strategy more challenging. Although the Federal Reserve didn't hike interest rates this week, its comments indicated that a rate increase could come later this year.

Oaktree's shares traded a little lower in the first hours after the company announced its results. This probably wasn't a reaction to the second-quarter results but could reflect the uncertainty lingering from the Fed's latest announcement. Long-term investors don't have to fret over how the Federal Reserve's actions affect Oaktree. Instead, they can focus more on the company's track record and execution in maximizing its performance for future returns.

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Oaktree Capital. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Oaktree Capital Group Stock Quote
Oaktree Capital Group
OAK

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
360%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.