Oaktree Capital Group LLC co-founder Howard Marks is known as a shrewd investor. One of his best decisions was spending about $20 million in 2009 for a one-fifth stake in Jeffrey Gundlach’s upstart investment firm.
Gundlach’s DoubleLine Capital has paid out $158 million in income to Oaktree over the last five years, repaying that original investment almost eightfold. What’s more, the stake may now be worth as much as $900 million, according to estimates by analysts who follow Oaktree.
Marks, a 69-year-old billionaire, made his reputation in distressed debt, scooping up assets in troubled companies and holding them as they recovered their value. His investment in Gundlach, just after the star bond manager was fired by TCW Group, paid off for Oaktree as DoubleLine’s assets surged.
“Obviously it has been a home-run deal for them,” said Michael Kim, an analyst for Sandler O’Neill & Partners LP. “Gundlach has had a lot of success in a short time and that success has accrued to the benefit of Oaktree.”
On the strength of Gundlach’s investment performance, DoubleLine’s assets have grown to $85 billion six years after the firm was founded. Last year, the flagship DoubleLine Total Return Bond Fund reached $50 billion, the fastest an active stock or bond mutual fund ever hit that milestone. The fund, now at more than $55 billion, beat 99 percent of peers over the past five years, according to data compiled by Bloomberg.
Gundlach, 56, has attracted attention as both a prognosticator and money manager. In January 2015, he correctly predicted that interest rates wouldn’t change much during the year, that high-yield bonds would struggle and that oil would fail to rally amid a supply glut. This January, he said junk bonds would continue to lose ground and that gold would rally.
For Oaktree, the world’s largest distressed-debt manager, Gundlach’s success has translated into a growing stream of cash and its single biggest source of investment income last year. In 2011, Oaktree received $1.8 million from DoubleLine, according to Oaktree’s financial reports. By 2013, that number had risen to $31.4 million and in 2015 it was $55 million. The firm’s adjusted net income was $311.9 million.
The DoubleLine investment accounts for about $5.80, or 13 percent, of Oaktree’s stock value of $44.60 a share, Wells Fargo & Co. analysts Christopher Harris and Robert Ryan estimated in a Feb. 10 report. That translates to a value of $893 million for Oaktree’s stake in DoubleLine.
Morningstar Inc. analyst Stephen Ellis puts the value at $600 million to $700 million. Even at that range, Oaktree’s return on investment compares favorably with the best deals ever pulled off by a private equity firm, Ellis said in an e-mail response to questions.