OAKTREE Capital Group continues to look for opportunities in China’s loan market, said co-chairman Howard Marks, even as global investors remain concerned about the country’s investability.
The US investment firm has been a “steady investor” in Chinese loans since 2015, Marks said during a financial summit hosted by the Hong Kong Monetary Authority on Tuesday (Nov 7). He described the results of those investments as “very satisfactory”.
With US$183 billion of assets under management globally, Oaktree continues to seek out such opportunities where it understands the risks and the yields are high enough to provide “a margin of safety” for the investments, he said.
“We are certainly willing to continue to apply those criteria in China,” Marks said, adding Oaktree does not rule out making more loans in the country’s beleaguered real estate space. “If we can make a loan which is secured by attractive property, and we feel that the value of the collateral gives us adequate margin of safety, then we are open to doing it.”
The remarks provide a stark contrast to the bleak picture in China’s credit market, where US dollar bonds remain deeply distressed during a property debt crisis that has shaken the world’s second-biggest economy. China’s offshore junk bonds have lost about US$168 billion in value since peaking, and distressed notes have reached US$60 billion.
To be sure, Marks said the company was not an investor in Chinese junk notes. Other major lenders, such as banks, have been setting aside more funds for possible losses on their exposure to the real estate sector. Oaktree moved to seize control of a land plot from China Evergrande Group after the developer defaulted on a secured loan, the Financial Times reported. It later reportedly sold the vast plot of seized land.
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Credit analysts have called out Chinese real estate credit for being “uninvestable” or “no longer analysable” following record offshore defaults. Some global money managers have said that the corporate governance standards, especially related to consistent communication with creditors, have been getting worse amid the mounting distress.
Most of Oaktree’s China investments consist of loans from its distressed debt strategy, known as Global Opportunities, which oversaw US$45 billion globally as at the end of September. In recent years, such exposure to China has averaged a little more than 5 per cent of the assets of the strategy, said Marks. Oaktree relocated Pedro Urquidi, who heads the Global Opportunities strategy’s investments outside of North America, to Hong Kong in 2019.
Separately, China accounts for 40 per cent of the company’s emerging markets equities strategy, Marks said. The team managed US$6.2 billion globally as at the end of the third quarter. BLOOMBERG
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