Image source: Oaktree Capital.

A falling stock market is tough for all investors, but for investment management companies like Oaktree Capital (OAK), it can be devastating. Because many investment managers get compensated based on assets under management and performance, a down market can slash earnings potential and scare investors away from investing their money. That's one reason why even giants like BlackRock (BLK -2.87%) have seen their stocks fall lately, and coming into Oaktree Capital's fourth-quarter financial report, investors expected a big decline in revenue and earnings. Oaktree's results reflected the tough market environment, but the company remains optimistic about its future prospects. Let's take a closer look at how Oaktree Capital has done over the past quarter and whether it can fight back against a harsh market.

Reading the leaves at Oaktree
Oaktree Capital's fourth-quarter results came in slightly weaker than most investors were expecting. When you use the calculation method for revenue that Oaktree utilizes to calculate adjusted net income, total segment revenue of $212 million was down more than 20% from year-ago levels, far worse than the 12% drop that those following the stock had thought they'd see. Adjusted net income for Oaktree Capital Group declined by almost half to $49.6 million, and Oaktree's earnings were $0.26 per Class A share. That met the consensus forecast but was down more than half from the year-ago quarter.

Looking more closely at the numbers, Oaktree saw signs of the pressure on the financial markets. Assets under management of $97.4 billion were up 7% since the end of 2014 but down 3% over the past three months. Distributable earnings fell by a dime to $0.55 per share, but Oaktree celebrated a record amount of gross capital raised for 2015, totaling $23.1 billion. Still, Oaktree's measure of its bottom line in economic terms worked out to an economic net loss of $29.1 million, or $0.27 per share.

Most of the declines in earnings came from three related headwinds. First, management fees fell more than $6 million during the quarter, and Oaktree said that liquidations of closed-end funds were the primary cause for the drop. Second, incentive income fell more than $20 million, because incentives tend to be tied to market performance, and the markets mostly performed badly during the quarter. Finally, investment income dropped $28 million as Oaktree did a poorer job in generating returns on its fund investments.

CEO Jay Wintrob took Oaktree's results in stride. "The volatile and challenging investment environment did not diminish our ability to raise a significant amount of capital in 2015," Wintrob said, and Oaktree noted that it has plenty of available funds to tap in order to find better investments in the future.

What's ahead for Oaktree Capital?
In particular, Oaktree sees the market drop as a chance to take advantage of some promising values. In Wintrob's words, "We are very well positioned to take advantage of the growing number of investment opportunities in our core areas of expertise across distressed debt, corporate debt, control investing, and real estate."

Times of distress in the markets have often turned out to be times of maximum opportunity for Oaktree. As co-founder and Chairman Howard Marks wrote in his January letter to Oaktree clients, "The market does not have above-average insight, but it is often above average in emotionality. ... [C]ontrarianism is built on the premise that we should generally do the opposite of what the crowd is doing, especially at the extremes, and I prefer it."

Oaktree also has an advantage over passive-ETF leader BlackRock and other companies that focus less on active investing, in that Oaktree has more of an opportunity to shine. BlackRock's ETF-tied assets will rise and fall with the market and with investor sentiment, and it has less opportunity to demonstrate an ability to outperform the markets because so much of BlackRock's assets are linked to passive indexes. By contrast, Oaktree can take periods like these to find ways to outperform, and if it does, it will set the stage for greater incentive and management fees in the future.

Oaktree Capital shareholders seemed satisfied with the results despite the sizable declines in profits, and the stock traded slightly higher following the announcement. If Oaktree can execute on its strategic plans for 2016, then things could look a lot brighter when the market starts to move higher again.

Editor's note: A previous version of this article incorrectly characterized segment net revenue and misstated overall adjusted net income. The author and the Fool regret the error.