Strong demand for Oaktree distressed-debt fund

These are the worst of times for most investors — and potentially the best of times for Oaktree Capital Management.

The Los Angeles firm is a Goliath in the world of “distressed” investing, which entails buying the bonds of deeply troubled companies at beaten-down prices and waiting for values to rise as the companies and the economy stabilize.

Although many have run screaming from all kinds of risk this year, some contrarian investors are clamoring to get into distressed funds.

Benefiting from that demand, Oaktree raised about 1.8 billion euros, or more than $2.2 billion, for the OCM European Principal Opportunities Fund II, which, as the name implies, will focus on hard-hit European companies.

Oaktree had planned a year ago to raise only about 1.25 billion euros for the fund but boosted its size as investor interest grew, Howard Marks, Oaktree’s chairman, said in an interview.

The fund will seek to gain control of companies by swapping their debt for equity.

As long as the financial system and the economy don’t crumble, this point in time is shaping up to be a great moment for distressed investing, Marks said.

“Opportunities are rife in number, and [distressed bonds] seem cheap on their face,” he said. “But ironically the only negative is that there might almost be too much distress. We need a financial system that remains viable.”

-- Walter Hamilton