Oaktree Diversified Income Fund
T
Oaktree Fund Advisors, LLC
10/24/23
$204M
N/A
Value
New York, NY
Non-Accredited
$2,500
8.37%
-0.16% Since Inception
Quarterly
None
1.38%
Permanent Capital
Oaktree Capital Group, LLC
Quasar Distributors, LLC
Deloitte & Touche LLP
Paul Hastings LLP Venable LLP
Strategy
Oaktree Diversified Income Fund (‘The Fund’) is geared toward generating current income and attractive total returns. The fund invests globally in bundles of debt, rather than originations, encompassing various fixed income assets. The Fund employs a relative value approach, leveraging the firm’s vast credit resources to minimize risk and provide diversification.
The Fund is designed for those seeking income and returns. It invests in bundled debt securities across a range of fixed income assets, such as high-yield bonds, senior loans (including covenant-lite loans), structured credit, emerging markets debt, and convertibles. Notably, it does not focus on originating these debts but rather acquires them as bundles in both public and private markets. Utilizing a relative value approach, the fund identifies the most promising income opportunities within these asset classes. Its distinct advantage lies in privileged access to the Oaktree Performance credit database, which informs its data-driven investment decisions. Additionally, the fund's diversified portfolio helps mitigate concentration risk, making it an appealing choice for those seeking stability and potential returns in the complex realm of fixed income investments.
Style
| Value | Core | Growth | |
| Large | |||
| Mid | |||
| Small |
Fit Check
Non-Accredited Investors. Individual investors can purchase shares in the fund through a broker dealer, preferably in consultation with a financial advisor.
This investment poses high risk as the majority of its investments are in pooled debts across the credit spectrum. Investors can get exposure to debt related investments in a highly diverse mix of industries.
Portfolio Snapshot
As of August 31, 2023
Vehicle
Geography
Investment-Type
Score Breakdown
BULLS SAY
Diversified Investment Approach: The fund employs a diversified strategy, investing in debt across various industry types and corporate credit forms, including structured credit and private credit. With holdings across 405 issuers, the fund effectively minimizes concentration risk.
High Floating Rate and Secured Exposure: The fund boasts a substantial 66% investment in floating rate securities, making it well-positioned to benefit when interest rates are on the rise. This high exposure to floating rate instruments can generate increased income for the fund in a high-interest-rate environment. Additionally, the fund holds a significant portion of its portfolio in secured assets, reducing overall risk.
Influx of Capital and Investor Confidence: The fund has seen a notable influx of capital, with proceeds from shares sold nearly doubling in the last six months reported. In the semi-annual report ending June 2023, shares sold reached $21 million, up from $12 million in the full year, which is indicative of investor confidence in the fund's portfolio managers and their investment strategies.
BEARS SAY
Limited Private Credit Exposure: Despite marketing itself as a "private credit" fund, the limited exposure (21%) to private credit, mainly invested in syndicated and structured credit, may not align with investor expectations for this fund.
Short Track Record: The fund's negative 0.16% return since its inception in November 2021, though the Fund is still in its infancy stage. While short-term performance is better, investors should exercise caution as the fund matures, as its historical performance raises questions about its ability to generate consistent returns.
Potential Over-diversification: While Oaktree is among the most experienced credit managers in the world, the portfolio holds almost 400 individual issues, adding to the overall complexity for investors to clearly understand risk exposures.
Fees
|
Fees & Expenses |
Class T |
Class D |
|
Minimum initial investment |
$2,500 |
$25,000 |
|
Availability |
Through Broker-Dealer |
Through Broker-Dealer or transfer agent |
|
3.00% |
None |
|
|
1.38% |
1.38% |
|
|
0.75% |
None |
|
|
Interest Expense |
0.95% |
0.95% |
|
Other Expenses |
0.58% |
0.58% |
|
0.14% |
0.14% |
|
|
Total Annual Fund Expenses |
6.80% |
3.05% |
To help you compare the cost of investing in this offering with other offerings, the fund has provided an example of the projected dollar amount of total expenses that would be incurred over various periods with respect to a hypothetical investment for each class of common stock assuming investors do not redeem any shares.
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In calculating the projections above, we made a few assumptions:
(1) A hypothetical 5.0% annual return, as required by regulation of the SEC and applicable to all registered investment companies. The assumed return is not a prediction of, and does not represent, the projected or actual performance of the Fund. Performance will vary and may result in a return greater or less than 5.0%
(2) Annual operating expenses and offering expenses remain at the levels set forth in the Price Tag table above.They should not be considered a representation of future expenses. Actual expenses may be greater or less than those shown.
(3) Net return after payment of fees and expenses is distributed to shareholders and reinvested at NAV.
Managers
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Industry Experience 30+ years.
Career highlights Mr. Karsh is Oaktree’s Co-Chairman and one of the firm’s co-founders. He also is Chief Investment Officer and serves as portfolio manager for Oaktree’s Opportunities, Value Opportunities and Multi-Strategy Credit strategies, including the Oaktree Diversified Income Fund. Prior to co-founding Oaktree, Mr. Karsh was a managing director of TCW Asset Management Company, and the portfolio manager of the Special Credits Funds from 1988 until 1995. Prior to joining TCW, Mr. Karsh worked as Assistant to the Chairman of SunAmerica, Inc. Prior to that, he was an attorney with the law firm of O’Melveny & Myers. Before working at O’Melveny & Myers, Mr. Karsh clerked for the Honorable Anthony M. Kennedy, then of the U.S. Court of Appeals for the Ninth Circuit and retired Associate Justice of the U.S. Supreme Court. Mr. Karsh serves on the boards of a number of privately held companies. He is a member of the investment committee of the Broad Foundations. Mr. Karsh is Trustee Emeritus of Duke University, having served as Trustee from 2003 to 2015, and as Chairman of the Board of DUMAC, LLC, the entity that managed Duke’s endowment, from 2005 to 2014.
Education A.B. degree in economics from Duke University and J.D. from the University of Virginia School of Law.
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Industry Experience 20+ years.
Career highlights Mr. Dahl is a managing director and Oaktree’s Investment Risk Officer. He also serves as an assistant portfolio manager for the Global Credit strategy, co-portfolio manager for the Oaktree Diversified IncomeFund and is a member of the Global Credit Investment Committee. Mr. Dahl joined Oaktree in 2016 from Prosiris Capital Management in New York, where he was the Chief Risk Officer. Prior thereto, Mr. Dahl was Head of Risk Management for Canyon Capital Advisors in Los Angeles for nine years where he developed, implemented and managed the firm’s risk measurement and reporting systems across all investment strategies. Mr. Dahl began his career atRumson Capital in quantitative research and development focused on the convertible arbitrage strategy.
Education B.A. degree in economics from Brigham Young University and M. S in Mathematics in Finance degree from NYU.
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Industry Experience 20+ years.
Career highlights Mr. Panossian is a managing director and Oaktree’s Head of Performing Credit, as well as a member of the investment committee for Oaktree’s Direct Lending strategy. He also serves as portfolio manager for the Strategic Credit strategy and co-portfolio manager for the Oaktree Diversified Income Fund. His responsibilities include oversight of the firm’s performing credit activities including the senior loan, high yield bond, private credit, convertibles, structured credit and emerging markets debt strategies.Mr. Panossian also serves as co-portfolio manager for Oaktree’s Life Sciences Lending platform, which focuses on investment opportunities across the healthcare spectrum from biotechnology and pharmaceuticals to medical devices and healthcare services. Mr. Panossian joined Oaktree in 2007 as a senior member of its Opportunities investment team. In January 2014, he joined theU.S. Senior Loan team to assume co-portfolio management responsibilities and lead the development of Oaktree’s CLO business. Mr. Panossian joined Oaktree from Pequot Capital Management, where he worked on their distressed debt strategy.Mr. Panossian serves on the Advisory Board of the Stanford Institute for Economic Policy Research. He is also a member of the State Bar of California.
Education B.A. degree in economics with honors and distinction from Stanford UniversityM.S. degree in health services research from Stanford Medical School and J.D. and M.B.A. degrees from Harvard Law School and Harvard Business School.
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Industry Experience 15+ years.
Career highlights Mr. Rosenberg serves as the co-portfolio manager for Oaktree’s U.S. High Yield Bond, Global High Yield Bond and Global Credit strategies, as well as co-portfolio manager for the Oaktree Diversified Income Fund. He joined Oaktree in 2004 following graduation.Before attending graduate school, Mr. Rosenberg served as an associate in the Franchise Systems Finance Group at J.P. Morgan. Mr. Rosenberg holds an M.P.A. in professional accounting with a concentration in finance and is Certified Public Accountant (inactive).
Education B.A. in business administration
from the University of Texas at Austin and M.B.A in business administration from USC.
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Industry Experience 20+ years.
Career highlights Danielle Poli is a managing director and co-portfolio manager for the Oaktree Diversified Income Fund. Since joining Oaktree in 2014, she has led the expansion of the firm’s multi-strategy credit offerings including the firm’s flagship Global Credit strategy for which she is a senior specialist and member of the Investment Committee. In addition, Ms. Poli oversees product management activities globally across Credit, Private Equity, Real Assets and Listed Equities, in her role as Head of Oaktree’s Product Specialist Group.
Prior experience includes four years at PAAMCO KKR Prisma (formerly PAAMCO) where Ms. Poli helped manage hedge fund portfolios for institutional clients.
Education B.S in Business Administration from USC and CAIA Charterholder.
Full Review
BELOW AVERAGE
Upfront Fees (Sales Charge of 3% for Class T) - Class T shares change a 3% upfront, one-time sales charge. While common in many private market investment products, the fee can significantly impact an investor's initial capital. It's important for investors to be aware of this cost upfront and consider whether the potential returns justify the fee.
Management Fees - The management fee is 1.38% per annum which is relatively moderate compared to industry standards. It represents the annual cost that investors will bear for fund management and administration. A lower management fee can be seen as favorable for investors as it helps preserve a larger portion of their returns.
Incentive Fee: (None) - The absence of an incentive fee means that the fund's managers are not entitled to a percentage of the fund's profits, regardless of performance. This can be viewed positively, as it aligns the interests of the managers more closely with those of the investors, who benefit solely from the fund's performance.
Lack of Skin in the Game: The portfolio managers and officers/directors have no ownership in the fund which means they do not have a personal financial stake in the funds success. Without ownership, there may be less incentive for these individuals to make decisions that prioritize investors' best interests.
AVERAGE
Class D performance as of 9/30/2023:
| YTD | 1- Year | Inception (Nov ‘21) | Distribution Yield |
|---|---|---|---|
| 7.74% | 12.12% | -0.16% | 8.37% |
The fund's recent performance, as of September 30, 2023, has delivered solid returns over the year-to-date (YTD) and one-year periods, with 7.74% and 12.12%, respectively. This performance over the near-term can likely be attributed to the fund's substantial exposure (66%) to floating interest rates, which can benefit from rising interest rates. This is especially relevant in an environment where interest rates have been increasing. The distribution yield of 8.37% is also attractive for income-seeking investors. The limited operating history further emphasizes the need for caution, as it can be challenging to assess the fund's ability to sustain its recent performance over the long term.
Regarding the fund's investment strategy of holding bundles of debt from 405 issuers in diversified industries, it's crucial for investors to understand that these are not necessarily originations. This means the fund may acquire existing debt securities rather than financing new issuances. This approach can offer diversification benefits but may also carry risks associated with the credit quality of the underlying debt.
AVERAGE
The fund's short average portfolio duration of 1.04 years indicates that it has a relatively low sensitivity to interest rate changes. This is primarily due to its significant investments in floating rate instruments, which tend to perform well in a high-interest-rate environment. However, this setup can be disadvantageous in a low-interest-rate environment, as floating rate instruments may not provide as much income or capital appreciation.
Given the prevailing economic stance of "Higher for longer" interest rates, the fund's strategy of investing in floating rate instruments aligns with the expectation of a prolonged period of elevated interest rates. In such an environment, the fund may benefit from higher coupon payments and could be attractive to income-seeking investors.
It's worth noting that only 16% of the fund's investments are in high-yield (riskier) credit instruments, while the majority are in investment-grade rated instruments. This suggests a relatively conservative credit risk profile. However, the possibility of a recession could introduce stress to the fund's distributions. Economic downturns often lead to rising defaults, which can impact the overall performance of the fund, especially for the high-yield portion of the portfolio.
In terms of market risk, the fund appears to have a moderate level of risk. Investors should carefully assess their risk tolerance and investment objectives when considering this fund.
HIGH
Private Credit Allocation: Despite being marketed as a private credit fund, there is relatively low allocation (21.1%) to private credit investments which may not align with the fund's intended strategy. This suggests a potential disconnect between the fund's marketing and its actual investment focus. This mismatch could expose the fund to business risk if investors have different expectations about the fund's primary focus.The fact that the majority of the portfolio is invested in syndicated loans and structured credit, which may not fully align with the private credit strategy, could contribute to business risk. If these investments do not perform as expected or if there are market shifts that affect the value of syndicated loans and structured credit, it could impact the fund's performance and reputation.
High Diversification: On the positive side, the fund's high level of diversification with respect to industry exposure (none greater than 10%) and its significant investment in secured and securitized assets (86.3%) help mitigate business risk. Diversification can reduce the impact of poor performance in any single industry or asset class, enhancing overall stability.
Outstanding Commitments: The fund's outstanding commitments of $7,461,820 as of June 30, 2023, being less than 10% of the fund's NAV, is a positive sign. It suggests that the fund is not overcommitted, which can help manage liquidity risk and reduce the potential for business disruptions due to excessive capital calls.
Debt Risk: The low leverage ratio of 11.19% compared to the target LTV of 33 ⅓% is a favorable indicator. This lower leverage reduces the fund's debt risk and makes it less vulnerable to financial distress or insolvency.
AVERAGE
The fund has a mechanism in place for shareholders to request share repurchases on a quarterly basis after a one-year lock-up period. Shareholders can request to repurchase between 5% and 25% of their shares at the fund's Net Asset Value (NAV), subject to certain conditions.
The repurchase activity during the six months ended June 30, 2023, indicates that there has been demand from shareholders to exit their positions or reduce their holdings in the fund. The fund has repurchased shares, totaling 89,947 shares with a dollar amount of $801,432 during the August 2023 repurchase date. This suggests that shareholders are actively utilizing this redemption feature even though the fund has been in operation for only 2 years.
On the other hand, the fund's policy of reinvesting dividends by default may contribute to liquidity risk. When dividends are reinvested, it increases the fund's exposure to illiquid assets, potentially reducing the available cash reserves. The decrease in reinvestment of distributions from $10M to $4M in the six months ending June 2023 might be an indicator that some shareholders are choosing to take cash rather than reinvesting.
BELOW AVERAGE
The fund's transparency is somewhat mixed. Its website displays essential performance information and updates key documents regularly, which is positive. However, the Investor Relations department's lack of support in providing additional data which could be a concern. Transparency is crucial for investors, and a responsive IR department is vital for addressing inquiries and enhancing transparency.
Peer Group
 |
 |
 |
|
|---|---|---|---|
| Vehicle name | Oaktree Diversified Income Fund | PIMCO Flexible Credit Income Fund | Apollo Debt Solutions BDC |
| Minimum investment | $2,500 | $2,500 | $2,500 |
| Holding period | Permanent | Permanent | Permanent |
| Annual management fee | 1.38% | 2.10% | 1.25% |
| Distribution and Servicing Fee | 0.75% (Class T | None | 0.85% |
| Sales Load | 3.00% ( class T) | 0% | 3.5% |
| Inception Date | November, 2021 | February, 2017 | February, 2022 |
| 1-Year Net Returns | 12.12% | 0.18% | 6.35% |
| Net Returns Since Inception (Annualized) | -0.16% | 3.16% | 8.30% |
| Annualized Distribution Rate | 8.37% | 9.00% | 8.86% |
| NOYACK® Score |
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