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Oaktree Capital Group, LLC (NYSE:OAK)

Q3 2013 Earnings Call

November 1, 2013 11:00 am ET

Executives

Andrea Williams - Head IR

John Frank - Managing Principal

David Kirchheimer - CFO

Analysts

Michael Carrier - Bank of America

Matt Kelley - Morgan Stanley

Howard Chen - Credit Suisse

Marc Irizarry - Goldman Sachs

Robert Lee - KBW

Michael Kim - Sandler O'Neill

Chris Harris - Wells Fargo

Patrick Davitt - Autonomous

Ken Worthington - JPMC

Operator

Welcome and thank you for joining the Oaktree Capital Group Third Quarter 2013 Conference Call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode, but will be prompted for a question-and-answer session following the prepared remarks.

Now, I would like to introduce Andrea Williams, Head of Investor Relations, who will host today's conference call. Ms. Williams, you may begin.

Andrea Williams

Thank you, Holly. Welcome to all of you who have joined us for today's call to discuss Oaktree's third quarter 2013 financial results. Our earnings release issued this morning detailing these results may be accessed through the Unitholders section of our website.

Our speakers today are Oaktree's Managing Principal, John Frank; and Chief Financial Officer, David Kirchheimer. We will be happy to take your questions following their prepared remarks.

Before we begin, I want to remind you that our comments today will include forward-looking statements reflecting our current views with respect to among other things, our operations and financial performance. Important factors could cause actual results to differ, possibly materially, from those indicated in these statements.

Please refer to our SEC filings for a discussion of these factors. We undertake no duty to update or revise any forward-looking statements.

I'd also like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any Oaktree fund.

During our call today, we will be making reference to certain non-GAAP financial measures, which exclude our consolidated funds. For a reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure, please refer to our earnings press release, which was furnished to the SEC today on Form 8-K, and may be accessed through the Unitholders section of our website at www.oaktreecapital.com.

Additionally, references to amounts per Class A unit are after taxes and other costs borne directly by Oaktree Capital Group. Today we announced a quarterly distribution of $0.74 per Class A unit, payable on November 15 to holders of record as of the close of business on November 13. Finally, we plan to issue our Form 10-Q for the third quarter next week.

With that, I would now like to turn the call over to John Frank.

John Frank

Thank you, Andrea. Hello everyone thanks for joining us. The third quarter marked another period of solid performance by our investment teams, a continuation of the record realization cycle and a particularly strong period for fund raising. We raised gross capital $3.7 billion in the quarter and $10.7 billion over the last 12 months. At the same time we distributed $15.5 billion from our closed-end funds over the past 12 months. Despite that record level of distributions, our AUM reached $80 billion at quarter end up 4% in the past three months and down only 1% from a year ago. Fee-generating AUM grew 4% in the quarter and 1% year-over-year.

Our financial results continue to reflect our ability to capitalize on rising markets in a favorable realization environment within our incentive creating funds. Combined our three sources of income, management fees, incentive income, and investment income produced third quarter adjusted net income of $180 million or a $1.16 per Class A unit and that was up 32% year-over-year.

Distributable earnings grew 29% year-over-year to $155 million or $0.91 per Class A unit that funded the upcoming Class A distribution of $0.74 a unit. Our distributions to unitholders for the trailing four quarters will aggregate $4.71 per Class A unit, a record for any four quarter period in our history. In fact, the $3.66 distribution per unit paid for this year's first three quarters is already higher than any prior full calendar year in our history and the same is true for a year-to-date segment revenues, adjusted net income, and distributable earnings.

As you know, the third quarter 2013 saw a continuation of the recovery in the U.S. economy and financial markets. Credit markets benefited from the U.S. Federal Reserve decision to delay tapering its bond buying program with U.S. high yield bonds finishing the quarter with a total return of 2.2%. Our closed-end funds generated an aggregate gross return of 3.4% for the third quarter bringing the return for the last 12 months to 20%.

Distressed debt produced a 4% gross return in Q3 and 23% over the last 12 months. Real estate generated a 3% gross return in Q3, 20% for the 12 months, global principal 2% gross in Q3 and 18% for the 12 months, and European principal returned 5% in Q3 and 12% for the last 12 months.

As of September 30, all 47 of our incentive creating closed-end funds more than a year old had positive gross IRR since inception. 39 of those funds were at or above the 8% net IRR level, which is generally the return threshold we must exceed to earn incentive allocations. In the third quarter, 76% of our incentive creating AUM created incentives at the fund level. This percentage has averaged 71% for the last three years.

Strong risk adjusted investment performance across our platform continue to drive fund raising success in the third quarter. Notably, we are well on our way to a seventh straight year of approximately $10 billion or more of gross capital raised even though we are not raising a new distressed debt fund this year. Many people tend to think of Oaktree in terms of distressed debt, but the truth is that there is a lot more. We've done a good job of developing step out strategies that take advantage of our existing expertise to help our clients navigate the current investment environment. Indeed more than a third of the $8.4 billion we've raised so far in 2013 is for strategies that didn't even exist two years ago. All of the new strategies and products that have debuted in that time have exceeded our initial fund raising expectations.

Let me touch on the highlights. First Strategic Credit, which is a step out from our distressed debt strategy targeting stress securities that are too risky or illiquid -- and illiquid for our high yield bond and senior loans strategies.

Today, we have attracted approximately $1.8 billion in committed capital and generated strong gross returns of 18% since inception. By year-end, we anticipate we'll close to $2.2 billion committed to the strategy.

Second, is emerging market opportunities in extension of the distressed debt strategy into emerging market debt. This is also met with a great response. We already have about $450 million in committed capital and we no longer marketing the fund to new GPs (inaudible). Given the interest already in hand, we expect total commitments of about $800 million by year-end for this first time effort.

Third is our emerging markets equity fund, which has continued a strong performance well over its benchmark and then has lead to some significant institutional mandates and new mutual funds of advisor relationships. We expect this open-end strategy to have over $500 million by year-end up from $117 million at September 30.

Fourth is real estate debt, which is a step up from a real state strategy and the successor to our PPIP mandate, that has total committed capital of approximately $450 million and we expect we will have total commitments of approximately $700 million by year-end.

Fifth is our European Private Debt Strategy, which is a step out from our European principal strategy, which targets non-control oriented investment opportunities in European private lending markets. That has committed capital in hand of about $750 million. Taken together, including the completed $2.5 billion enhanced income fund, all of our new strategies represent organic step outs or adjacencies from our existing strategies that rely on our existing expertise.

We've always focused on growing Oaktree in a measured prudent fashion with the interest to our clients foremost in our minds and we think our record evidences that commitment. Our success in raising large distressed debt funds on an opportunistic basis in response to market conditions sometimes obscures the consistent growth of our other strategies.

To illustrate the point, if you ignore the distressed debt opportunities funds that were raised in 2001/2002 and 2007/2008, ahead of the last two major financial crisis, you will see that our AUM has grown substantially almost every year of our existence and more than 20% in the last 24 months. But this growth has not come at the cost of performance. Our focus is always on generating superior risk adjusted returns for our clients and nothing is more important to us than sizing funds to the opportunity set that we perceive in the market.

We are particularly proud of the fact that our largest funds have tended to produce our best performance each cycle. For example, our biggest fund ever opportunity fund VIIB has a gross IRR of 24%. We believe our discipline in sizing our funds in our demonstrated investment performance are among the factors that give us the credibility with clients needed to successfully launch new strategies in the absence of an established track record.

In terms of our historic strategies, fundraising continues to go well for Real Estate Fund VI, which has reached $2.3 billion in committed capital. With concluded marketing for this fund and expect that it will reach approximately $2.8 billion in committed capital prior to year-end, really a significant accomplishment given the initial target of $1.5 billion.

The one area where we are behind our initial expectations is our newest control investing fund Principal Fund VI. As I mentioned last quarter we've pushed back our fundraising for PF VI because we still have over $650 million available to deploy from our existing fund Principal Fund V and actually have more capital available to deploy taken into account recycling.

Based on that significant dry powder we're seeking to extend the investment period of Principal Fund V for another year until February 2015. Assuming the extension is approved we don't expect to begin investing PF VI into well into 2014 at the earliest. Given that our Principal Group focuses on investments in companies affected by distress or other dislocation it's not surprising that investing PF V is taking longer than we anticipated initially.

Financing is readily available in this little corporate distress. Against this backdrop and in light of generally elevated asset prices we continued our harvesting of profitable investments across our strategies. Fund realizations drove third quarter distributions by our distressed debt and other closed-end funds to an aggregate $1.9 billion on top of the $7.9 billion for the first six months of 2013.

Gross investment realizations in our closed-end funds were approximately $3 billion in the third quarter of which almost half were realizations of equity holdings both public and private. Significant realizations included the sale of positions in Countrywide PLC, Charter Communications, and Clear Channel Communications, as well as our European ice cream business R&R Holdings, and the paperboard business of Chesapeake Corporation, leading European specialty packaging company.

Chesapeake is a great example of Oaktree's expertise in identifying the distressed opportunity, investing high up in the capital structure, restructuring our holdings in the equity and bankruptcy, and lending our portfolio enhancement expertise to create value for we what we like to call a good company with a bad balance sheet.

In 2007, then publicly traded Chesapeake suffered from a number of managerial operational challenges. These resulted in deteriorating financial performance, which together with leverage and integration issues following prior acquisitions caused its debt to trade at distressed levels.

Our Principal Funds took advantage of this opportunity purchasing the company's senior subordinated notes and senior revolver at a discount. These debt purchases gave us a blocking position that allowed us to lead Chesapeake restructuring when it filed for Chapter 11 bankruptcy protection. With the help of our in-house portfolio enhancement team, it took our revamped management team only a year to restore the company to its former profitability. Operational improvements, cost saving initiatives, and two complementary add-on acquisitions improved Chesapeake's trailing 12 month EBITDA approximately 70% during our ownership. Proceeds from the sale gave our Principal Funds 3.8 times our invested cost and a gross IRR of 41%.

As we look around the world, our investment opportunities remain strongest in Europe and in real estate globally.

For quite some time, many have been speculating about if and when the European banks will start to sell assets. And we're now starting to see a pickup in asset sales. So far the majority of the deal flow that we've seen today has been from banks in the United Kingdom and Ireland. However, we're starting to see more flow from banks in Continental Europe particularly Spain. While we have seen some selling of one-off loans, the majority of the flow has been in the form of shipping or real estate loan portfolios, which are areas regulators have identified as problem areas.

We are hopeful this flow will continue or increase as European banks make additional provisions ahead of the banks stress testing scheduled for the middle of next year. As Basel III is implemented and the banks provisioning levels start to intersect more and more with market bids. We feel ideally positioned for the opportunity in European credit. Our team in the region is comprised of approximately 130 professionals across six countries with significant experience in high yield, senior loans, distressed debt, private equity, and real estate. This experience is coupled with deep industry expertise and the ability to provide long-term capital in the wake of the banking crisis. While some have recently been acquiring capabilities as well as exporting teams from the U.S. to cover the European market, this month marks the 15th anniversary of our presence in Europe and we've committed significant capital in the region over that time.

Looking ahead, we are encouraged by the success of our newer strategies and our focus will remain on delivering the most important thing, superior risk adjusted investment performance for our clients.

With that, I would turn the call over to David.

David Kirchheimer

Thank you, John, and hello everybody. In the third quarter we continued to enjoy the cash flow harvest of recovery cycle realizations, while higher assets under management and higher management fees reflected the product development and fund raising success that John described. As a result, adjusted net income and distributable earnings both registered sizeable double-digit percentage gains for the quarter and year- to-date. Moreover, the quarter's solid returns bode well for future adjusted net income and cash flow.

As John previewed, third quarter adjusted net income was $1.16 per Class A unit, up 32% from $0.88 per unit a year ago. That boosted our year-to-date ANI to $4.76 per Class A unit up 78% from the corresponding 2012 period. Those gains were mirrored by distributable earnings, which for the quarter came in at $0.91 per Class A unit a 30% increase over the third quarter of 2012 driving 2013s year-to-date total to $4.51 a unit up 86% over last year's first nine months.

Likewise the third quarter unit distribution of $0.74 is 35% higher than the prior third quarter's distribution of $0.55. These ANI distributable earnings and distribution gains were driven primarily by higher incentive income net of compensation expense, which for the third quarter was up 147% over the prior year. A lower effective income tax rate also helped. Recall that tax rates fluctuate in response to the revenue mix with relatively more incentive income typically producing a lower effective rate.

The composition of the quarter's income and cash flow speaks to our diverse and growing mix of investment strategies and revenue streams. Management fees, incentive income, and investment income from both our funds and double line all made significant contributions to the quarter's income and cash flow.

Let's start with management fees, where we saw slight increases on both sequential and year-over-year basis, despite strong realizations by Opportunities Fund VIIb and other funds in their liquidation period, as well as our decision to continue delaying the investment period start for Opportunities Fund IX. The new funds and investment strategies that John described certainly help drive those management fee gains and serve to further diversify our revenue base. Investment income proceeds build on this increasingly diversified foundation of management fees to create strong cash flow.

In the third quarter, profits for management fees plus investment income proceeds aggregated $89 million. That boosted the trailing four quarter total for non-incentive distributable earnings to $451 million.

The non-incentive component of distributable earnings demonstrates our business's profitability and its ability to prosper through the cycle. Coupling those attributes, with our consistency of producing incentive income, leads to powerful earnings and cash flow.

Opps VIIb accounted to the bulk of the third quarter's incentive income, which totaled $122 million or $73 million net of direct compensation. That fund made its first investment barely five years ago, but already it has returned its full $9.8 billion of drawn capital and distributed an additional $5.6 billion. Yet, even after that aggregate $15.4 billion of distributions it still managed to have an NAV of $3.6 billion as of September 30. Plus, as Opps VIIb has been paying out its incentives, other funds have come to the floor, almost fully replenishing total accrued incentives, our off balance sheet metric that tracks both potential future incentive income at the fund level on a mark-to-market basis.

Over the past 12 months, the portion of our total net accrued incentives fund level attributable to funds other than Opps VIIb grew 42% to $744 million. Now, if you add that $744 million to the remaining balance in Opps VIIb you get a total of $1.2 billion in net accrued incentives. This off balance sheet asset translates into nearly $8 per operating group unit.

The investment skills John described drive our funds' strong returns. Additionally, our portfolios enjoy a valuable head start thanks to what we call the power of the coupon. That refers to the interest income from our extensive credit holdings.

Notwithstanding the low yield environment, over the past 12 months, our incentive creating funds generated a yield from interest and dividends of about 4.6% with the credit holdings only at 6.9%. This helps explain why our funds have such a consistent record of not just profitability, but exceeding the 8% return threshold generally required to earn incentives.

The power of the coupon is just one of many elements of the power of credit, a distinguishing future of Oaktree. Thus it's not surprising that over the past four quarters, incentives have been created at the fund level by 31 different funds in 10 different strategies and from 16 different vintage years. The timing and levels of future incentive income are of course inherently unknowable. However, among the many favorable factors this one is key, over half of the $1.2 billion of net accrued incentives or about $4 per operating group unit is in funds that are currently paying incentives not merely creating them. Plus opportunities for further gains in accrued incentives are plentiful. For example, debt to equity restructurings have boosted the equity share of our incentive creating portfolios to well over 50% and of the portfolio's total holdings over 60% are in private level-III type securities for which marks have often been lower than ultimate realization.

Let's shift from that valuable off balance sheet asset to an update about our considerable on balance sheet value. Even as we continue our 18 year practice of paying out to unitholders a substantial portion of our cash flow each quarter, our financial position has become ever stronger. For example, cash and equivalence, net of debt have grown from $53 million to over $400 million over the past year. That level of corporate dry powder has enabled us to seek new products without impairing our equity distributions.

Now let's briefly look at the fourth quarter, which is underway. Based on known fund distributions so far in the fourth quarter, distributable earnings from net incentive income and investment income proceeds, total an estimated $100 million or about $0.65 per operating group unit. Of the estimated $100 million, $80 million represents incentive income net of compensation expense. Most of that incentive income is arising from a $500 million distribution by Opps VIIb and Principal Fund III's first distribution since having finished distributing its drawn capital and full preferred return last quarter.

As testament to our consistency of generating incentive distributions, the current fourth quarter would mark Oaktree's 40th consecutive quarter of positive incentive income with the cash flow to show for it, and never a subsequent clawback. Over that decade, the amount of incentive income has naturally varied, but net of compensation expense it never fell below $100 million per calendar year even during the financial crisis.

Looking slightly further ahead, we currently expect to begin the investment period for Opportunities Fund IX at the start of 2014, following significant changes in market conditions or other relevant factors. When Opps IX's three year investment period commences its management fees of approximately 1.6% per year will be based on the Fund's full $5 billion of limited partner committed capital. Today, its fees have been based on drawn capital, which at the start of this quarter grew from 15% to 25% of the total.

In summary, I trust you now see why all of us at Oaktree have never been so excited about our ability to deliver to investors, LPs, and unitholders alike. We've long benefited from our proven investment approach, our blue-chip clientele, the power of credit, our ability to grow organically, and the secular trends in favor of alternative assets. Building on that foundation, we're now strategically growing and diversifying the firm with new investment strategies and broader product distribution.

The result is an unprecedented degree of investment capabilities, product innovation, and market reach. Now we look forward to answering your questions. So Holly, please open up the lines.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we have one from Michael Carrier with Bank of America. Your line is open.

Michael Carrier - Bank of America

May be first a question just on the fundraising, and then how we think about it?

John Frank

Michael?

Andrea Williams

Operator?

Operator

I apologize Michael; you may ask your question.

John Frank

Hi, Michael?

Michael Carrier - Bank of America

Yes, can you hear me?

John Frank

Now we hear you, but we don't hear your question.

Michael Carrier - Bank of America

Okay. Got it. So, just on fundraising and the part of the cycle, I was just trying to gauge -- the $10 billion that you've been able to raise over the past so many years has been pretty consistent. Is that something, when you look at the pipeline of the new opportunities plus when we phase in successor funds, that we should still be thinking as a pretty good gauge? And then I think you guys mentioned a lot of these are step outs. So when we think about what it does, or what the impact is on the fee-related margin as you continue to gain scale in some of those strategies, just want to balance that. Because, on one hand, you'd think when distributions are strong, your fee-related earnings and your margin would compress. But on the other hand, the stronger, the more assets you get in these step outs, the more scale you get to see some benefit. So just want to gauge those two?

John Frank

Well, I'm going to defer to David here in a second. But here is how I would respond, Michael its John. As I said in my script we've done a really good job of getting past what we've referred to in other calls as the pig in the python notion of VIIb, which was, as you know a huge fund -- $11 billion of committed capital grew quickly to over $18 billion and is now down at September 30 to $3.6 billion. And yet the AUM has stayed pretty much steady across that, and why because we've done a terrific job of raising new strategies. We've raised about $3 billion this year for strategies that didn't exceed much more than a year ago about $6 billion since we did our IPO.

As you think and this will be the seventh year in a row that we've raised $10 billion large or more. As you think about how we sort of moved forward into the future, my anticipation is we will continue to expand some of these new strategies. These are still nascent efforts for us. At the same time, we continue to see both great performance and strong response to our existing strategy. So we see opportunities for a growth in both areas.

Now you talked about margin it won't be a surprise to you that although all of these products with a possible exception of emerging market opportunities or distressed debt effort at emerging markets are really organic efforts using primarily or existing staff. We have staffed up some of these areas and we are hiring new people. So we're not at scale in these new strategies and of course that will increase our compensation expense without a compensating revenue for a period of time. But we're delighted to make that investment to build strategies that we think are going to be terrific for us in the future. David?

David Kirchheimer

Yes, just to elaborate on that I'd use emerging market Opportunity Fund, the venture that we started last July 2012 hiring Julio Herrera is a good example of that, future benefit of scale, we've been investing and Julio building out his team and obviously having a great success in raising capital for him. But in fact through the third quarter, Julio had not drawn down any of that capital. So we haven't recorded a single dollar management fee in yet obviously recorded compensation and other expenses associated with it. And that's an example of the market that is quite sizeable as measured in the trillions of dollars. So we're quite excited about the potential for that.

I'd also use your question, Michael, as an opportunity to point out that while you're absolutely true or absolutely right about natural cyclicality of the margin in our fee-related earnings, as we make these big realizations and therefore distributions from the funds and reap the incentive and investment income from those realizations that compresses margins and fee-related earnings. But of course you can see the total firm-wide margin from all those revenue streams in distributable earnings. So that is one reason why we focus on that more holistic number.

Recall that at Oaktree we charge the entirety of the year's bonus expense to fee-related earnings even though of course a good portion of it is indirectly attributable to the incentive investment income. So looking just at fee-related earnings clearly doesn't give a complete picture.

Michael Carrier - Bank of America

And then may be two things that you hit on. One, when we look at the net accrued incentive, I think you mentioned 50% was in fee-paying funds. Out of the other 50%, just wanted to try to get a gauge -- are they newer funds? Or are they funds that are close to the hurdle? Just want to try to get a sense of when that number can creep up. And then just on the tax outlook, I know it's a moving target for everyone so it's tough to gauge. But when we think about next year, thinking about a similar mix that we're seeing may be in this quarter in terms of management fees versus incentive and investment -- any idea what we should be thinking whether it's on the fee-related side or the ANI side for tax rate?

David Kirchheimer

Sure. First on accrued incentives. About 90% of the balance is in funds that are in liquidation. That includes, by the way obviously, the part that you referenced. But I would highlight the couple of funds that you could see by the way in the fund table that aggregate about 15% altogether of the accrued incentives balance, which are not yet paying incentives. So that's not in that 50% or over 50% number I mentioned but they're getting very close because they have already returned their full amount of drawn capital and so now are going through the preferred return layer. And note also that Principal Fund III, which reached the crossover point in the third quarter is one of the funds that's already is paying incentives in the fourth quarter. So yes, we're quite excited about what may lie ahead in terms of the realizations from that off balance sheet asset.

On taxes, I would counsel against focusing too much on individual quarter tax rates as you get deeper into the year they are big truing-down effects -- truing up or truing down. This quarter happens to be the latter truing down in other words. Because the estimated full year tax rate, which I'd encourage you to look at Michael has been dropping during the year, why, because each quarter we've been recognizing more incentive and investment income than we had reason to expect earlier in the year and the vast majority of both of those revenue streams are not subject to taxation. So that tends to bring down the tax rate and then you true-down each quarter.

So look at the full year rate and as far as in the future, you can pass this prologue that rate fluctuates in response to a number of factors including importantly the revenue mix. So if you went back to 2011 for example when the third quarter of that year had been a drowndraft in the markets and so the income was lower on these unblocked sources, our annual tax rates were naturally higher. So it can fluctuate and that's all I would say on that topic.

Operator

Thank you. The next question comes from Matt Kelley with Morgan Stanley. Your line is open.

Matt Kelley - Morgan Stanley

So I wanted to dig a little deeper into the forward look for the distribution. You called out the Principal Opportunities III crossed into the paying, cash carry mode. And it looks like Opps VI had a nice move towards that point as well this quarter. And I can see that you've had an IPO and one other in the pipeline this quarter. So can you help us put the pieces together as to where those IPOs may be, from a fund perspective? And what's driving the Opps VI Fund closer to that hurdle rate, kind of above the appreciation levels of certain other funds?

John Frank

Well, yeah the general demographic of these funds in distressed debt, as long as you picked up VI Matt, is that it's the benefit of the restructurings for which that strategy of course is well known. And so those older funds have tended to move more towards the equity side of the profile. And so I don't have them committed to memory but they can go up to as much as 80% in equities and that makes it whether it's private or public and it certainly helps facilitate the ultimate exit from the fund and therefore distributions.

We don't comment on specific IPOs in process and which ones are held by which fund and we simply limit our forward-looking comment on distributions to what I've already mentioned in the script to the fourth quarter. And but I would also say in general that Opps VI is certainly one of those funds that's making good progress as you noted towards reaching the crossover point after which it will start paying incentives.

Matt Kelley - Morgan Stanley

And then, I guess -- I just -- to follow-up a little bit on Strategic Credit, you've obviously been pretty successful there. Can you comment on who -- may be this one is more for you, John, who the incremental investor is from here? What types of investors are really showing a lot of interest there, and if there's any kind of track record you can build in that strategy. If it's one year, three years, et cetera that that would help you step up even more the level of capital raising that you've done already?

John Frank

So the constraint, honestly Matt, the constraint thus far in the growth of Strategic Credit has really been our ability to deploy capital with the success that we want. There's really very, very significant demand. I've talked about this on the call before. So some of you may remember this. So far Strategic Credit we're only marketing it to very large institutional investors that can commit $100 million or more in a commitment which had really terrific response from major institutional investors around world to the product.

I think that if we felt comfortable about our ability to deploy more capital immediately we could readily raise more capital. We could create co-mingled funds, this might be a good product to do in some sort of distribution channel and we will do that eventually. I want to be sure nobody misconstrues to my remarks. I'm very, very optimistic about the potential growth for this product. I'm just saying we can't do it all in a day; you can't deploy millions of dollars overnight. But Edgar Lee, who is the portfolio manager has done a terrific job, has built the team, is continuing to build his team and we've got -- I don't believe that fundraising is a problem for the strategy. I think we will have a very, very successful product here.

Matt Kelley - Morgan Stanley

And then I guess last one for me is an area we don't talk as much about on these calls, are the open-end funds. And I'd just be curious to get your perspective on which of those funds are -- if you're seeing increased demand for any of the specific funds there. I'd also, within that question, I'd ask about your emerging markets equities, because obviously that's been a tough asset class to be in. But your relative outperformance has been pretty notable, so I'd be curious in getting your perspective on whether you could see an increase there too?

David Kirchheimer

Yes. I will start and then turnover to John especially to address the -- your absolutely correct observation about emerging market long equity, which is very exciting for us. I would direct your attention, Matt; to the table in the release that shows the flows and turning nicely positive in the open end category. Despite the fact that we really had to keep one of the areas convertibles pretty much close to new money just because of the lack of sustained growth in the new issue market, but far more than picking up the slack among several strategies are high yield bonds, which in fact saw a nice positive flows in both U.S. and Europe. And our recent global high yield offering in that category has enjoyed great success. John, you want to talk about the emerging market long equity?

John Frank

Yes, I just want to say and truthfully the flows are even better than they look because your prior question asked a little bit about who is the natural buyer in for strategic credit which I did not fully respond to. I mean to say they're institutional clients who are looking for an attractive return in this low interest rate environment. What I didn't say is some of the money flowing in the strategic credit has come out of our high yield bond funds and into a higher fee product at strategic credits. That has been a flow that has been very favorable to us.

David already talked about positive flows overall. Talking about emerging market equities, that's a strategic where truthfully we managed very little money to day. But I think we're going to see a very significant lift in that very shortly. We've entered into a couple of sub-advisory relationships, I think I mentioned that in my script, with one very recent -- excuse my voice, with one very recently, a couple of significant institutional mandates. So we could easily see that strategy being more than $500 million by year end and significantly more next year. I mean, Matt, as you said, it is a very, very large market and when the flow start they could be significant.

Operator

Howard Chen with Credit Suisse, your line is open.

Howard Chen - Credit Suisse

John, I appreciate all your comments on how the European landscape was evolving. I was hoping you could talk a bit about how competition is evolving there. It sounds like you are seeing more pitches, but are you seeing more from your competitors as you try to put money to work? Thanks.

John Frank

There is more competition, Matt, and also there is more financing available for people -- I'm sorry, Howard. There is -- Howard, there is more competition, there is more financing available for people to leverage purchases. So while we do see a little bit of an increase in flow and we do anticipate that there may be an increase in flow, the truth is I think one of the great benefits of our having the very large team we have in London and, as most of you know, London is our second largest office in the world. Howard now spends a substantial portion of his time in the London office. I think the strength is we have an ability to generate our own deal flow there as well. So we're trying to exploit the advantages of our very large team and the fact that we have 15-year record and we have the contacts that come with that presence.

So yes, there is more competition for deal flow. We have done a number of significant portfolio transactions. Obviously, we would love to continue to do so. But I think we'll be able to find opportunities whether we have to rely on one-off transactions, proprietary transactions or whether there is a flow that everyone anticipates in fact eventually.

Howard Chen - Credit Suisse

And is the increased use sort of joint venture structure kind of an output of that competition or is there something else that's driving that, John?

John Frank

Well, I think what you mean -- Howard, to make sure I've got your question right is in our global -- our European principal strategy, which is our control or even strategy we've entered into a number of sort of what we call platform investments where we're providing capital to partners who have an expertise in a particular area whether it be shipping or student housing or development or others, where we're supplying capital to industries that have been capital deprived by the banking retrenchment in Europe. And yes, what we're trying to do is to create a flow, to create -- to take advantage of proprietary opportunities, because we're all about buying or investing at an attractive price. And our preferred route is not to invest in an auction where the highest bidder is the winner.

Howard Chen - Credit Suisse

And then, John, can you also talk about your view on how performance has progressed across the newer step-out strategies, what is going well and what if anything has needed to be tweaked a bit?

John Frank

These are very new strategies, so I -- as proud as I'm of the fact we'd raised $6 billion for strategies that didn't exist at the time of the IPO, that was only year and a half ago, so it is a little early to be making judgments. But I got to say -- and you know what our emerging market opportunities fund has only made one investment at this point. So we cannot really comment on what is going well or poorly but I got to say strategic credit which is in some ways the most mature although still nascent of our new strategies has posted extraordinary results. So we're very, very happy.

Howard Chen - Credit Suisse

And then, final question for me. Just an update on what you are seeing all kind of on non-organic growth initiatives and the landscape out there? Thanks.

John Frank

Well, Howard, there is always -- I don't think perhaps a day goes by, I doubt a week goes by, when people don't approach us. We got a very attractive business, we have got a wonderfully diversified portfolio of strategies and there are any number of managers who were folks, who don't have a ready path liquidity through their own business and would be interested in associating themselves with us. And we looked at those opportunities and undoubtedly some day we will take advantage of some of those opportunities. We have a very strong balance sheet that nobody has asked to David about yet but I'm sure they will. So we have the opportunity to exploit the right opportunity when it comes, one day it will, we look at it. I don't have anything more to say about it than that.

Operator

Next question is from Marc Irizarry with Goldman Sachs. Your line is open.

John Frank

Hey, Marc?

Marc Irizarry - Goldman Sachs

Hi, John. How are you? And hi everybody. John, can you talk a little bit about the -- you obviously, have been able to diversify your strategies in your products. Can you talk a little bit about the capital that you've raised, I guess since the IPO or more recently the mix of clients and how much of the capital is coming from new versus existing clients?

John Frank

So we now have well over 1900 clients. As you know, the main stay of our clients is very, very significant institutional investors. In terms of -- in all of our fund raisers, we always have a mix of existing clients and new clients. We're proud of the fact that well over 70% of our AUM is represented by clients that are in multiple strategies. And we think there is ability to cross sell, we're proud of it, we think it is a great competitive advantage. At the same time, we certainly recognize that it is important to continue to develop new clients, new regions, new strategies.

If you look at our business, today we're deploying more resources to Asia, to the Middle East to South America. In terms of fund raising, roughly a third of our funds come from overseas that would have been the case five, six years ago.

In terms of the mix between new and old. I don't have an exact percentage; David may know one exact percentage on the top of his head. But it is always mix with new and old and more focused on that. There has been nothing about the new strategies in terms of the composition investors that's markedly different from the past. I have talked them as calls in the past, but I didn't really today about our interest in developing further distribution channels through various high net worth systems. We're starting that with our real estate bond where we did the -- distribute that through a high net worth channel. We've done that in the past with various banks; we're trying to do it in more formal way. I told you that we have supplemented our marketing group with people who have expertise in that area, so that's an effort we will continue over next few years. But I don't think there is anything markedly different between the new strategies and what we have done in the past.

David has been looking at some data well up in talking. Do you have anything interesting to say?

David Kirchheimer

Well, not particularly value add but I will observe that each of these new strategies whether it is real estate debt fund or enhanced income, emerging market opportunity, they each have attracted new investors either new to Oaktree or new to the general strategy. So it is just -- that's a finer point on John's observation that we continue to grow the LP base. I think that over 1900 compared to something like 1200 about five years ago or so. And most importantly, I mean the quality, the breadth of it geographically by other metrics I think has been quite gratifying.

Marc Irizarry – Goldman Sachs

Okay. And then, just along those lines one of the themes that we have been hearing a lot about on our earnings calls. And just generally, the industry has been saw the growth in liquid retail, liquid alternatives and distribution to retail. Can you just remind us I guess specifically on some of your sub-advisory relationships? Are you likely to go deeper with the existing relationships or do you expect I guess that you will -- over time you would sort of broaden that out? And is there something that retail, liquid alternative is sort of -- and John, when you think about the future distribution channels, is it sort of plan for the strategy there?

John Frank

Yes, it is, that's something we're focused on. We have today as I think you know, we have got about 11% -- 11% to 12% of our AUM is "what people refer to as retail" already. So we already have a substantial business, we're already engaged in some substantial distribution arrangements. Most of people on the call know that were a sub-advisor to Vanguard, we're now a sub-advisor to Russell, to Harbor funds, to -- I'm missing somebody.

Andrea Williams

River.

John Frank

River North. We have a river north closed in fund Russell. So we have a number of existing sub-advisory relationships, we will do more. We're making efforts to make our products -- particularly our liquid product, as you said, more accessible through more distribution channels. So that's definitely going to be a focus for the future.

David Kirchheimer

The other to aspects of that are the SICAV, these European vehicles that accommodate not just institutional investors but also retail high net worth and we have been quite aggressive on establishing those quite successfully marking those. And John, can you provide --

John Frank

What the SICAV do is make it easier, just for the people in the call; they make it easier for high net worth systems and various private banks around the world to market our products. Go ahead.

David Kirchheimer

And well, the other think I was going to mention is something you usually mention, so I'm taking a quote of your past call just to remind Marc about our indirect exposure to retails been doubling, where --

John Frank

Good point.

David Kirchheimer

Their AUM remains above $50 billion, despite why they reported migration what not, they held up quite well on their flows but continue to perform strikingly well --

John Frank

In their performance has been excellent, superb.

David Kirchheimer

Well, yes. I think top 5% or something I remember reading year-to-date among their very large universal of peers. Anyway, so we also have them the bank for giving us a indirect retail exposure.

Marc Irizarry – Goldman Sachs

And then just -- actually my next question is on DoubleLine, but I'll move on. In the distress business in the Opps business, like it feels like the pace of capital deployment and sort of the amount in capital that's been formed relative to the opportunity that maybe there is not as much to do in distressed. Would there be a point where -- if capital deployment and distress was in -- up the street, would you guys consider returning or cutting back on some of the capital commitments to fund on?

John Frank

Well, I think your premise is -- the answer to your question is yes but it is -- it has got a mistake in premise. Marc, you have been listening to me -- I pity you, for five years now, six years. So you know that doing what is right by the client is absolutely fundamental to our culture and that we figure that deal other day it will be good for our business as well.

So if we really thought we have too much capital, for sure we would release it or return it, but I don't think we do have too much capital for distress. It's not a great environment for distressed investing, that's not a secret to anybody. However, the fact is of our -- we've already deployed a $1 billion or so, don't bank on that number from Opps IX, out of the $5 billion fund reasonably quickly, more quickly than we would have anticipated. So while there is not a lot of distress generally, there is in fact pockets of opportunity that our team which is terrific, the best in the business in my opinion has found a way to exploit. So I don't believe there is too much capital, I don't anticipate as returning capital.

David Kirchheimer

Also recall, Marc, we size our funds the opportunity set, and so that fund was a lot smaller than it could have been. Because of the environment that fund also has been able to participate in the plentiful real estate investment opportunities and aboard as well and there are so enough of the capital deployed already. I think roughly half is outside the United States. So it is just another example of how that -- the global platform we build is really paying off at this phase in the cycle.

Operator

Our next question comes from Robert Lee from KBW. Your line is open.

Robert Lee - KBW

David, I'm going to actually take John up and his suggestion and ask you about the balance sheet.

David Kirchheimer

Thank you.

Robert Lee - KBW

Sure. So along those lines liquidity in a very strong seems to build and I guess -- well there are a couple of questions in there. Number one, when you think of the balance sheet, is there certain -- a certain minimum amount of -- I guess I'll call it liquidity that you as being kind of essential to run the business or have on hand and to the extent you have excess over that and understanding your seeding new strategies and committing capital to the strategies. But excluding that, what are your thoughts about either with so much liquidity out there increasing may be the distribution payout ratio little bit or even returning some of the excess in a one-time distribution?

David Kirchheimer

Sure. Yes to the first part of question, we absolutely mange to minimum levels of cash to handle all of the known or possible commitments be that a undrawn general partner commitment that service or the like. Keep in mind too that we have a $0.5 billion revolving credit facility. It's been undrawn since 2001 but it always stands ready to come in handy for whatever working capital need might exist.

And yes, we absolutely are always quite willing to make distributions or as we did in the -- because of past, I think four, five times opportunistically repurchased stock if the price should have dip below what we think is the appropriate level which that should commence. In terms of making a special distribution we've never done that. And I certainly wouldn’t preclude it. But to your certain question about the payout ratio, we've been hovering around 80% I guess for last couple of years. That's a percent, as you know, expressed as a percent of distributable earnings at the operating group level.

I think historically if you look back over the breadth of Oaktree, we've actually paid a little bit higher things like 82%, 83%. So we certainly have been building a nice cash balance for the seeding investments and other strategic opportunities that John cataloged and that is certainly the primary purpose of building the cash balance so that we can be opportunistic in that regard, but yes, if we don’t find good investment opportunities we won't be bashful about hiking our payout ratio some point.

Robert Lee - KBW

All right. And my last question since most of the others were asked, just a clarification the 65 when you detailed so far in Q4 between incentive and investment income generations $0.65 was that de or is that the actual amount that you would expect for distribution?

John Frank

It's the former meaning that's the amount at the operating group level of distributable earnings. So that is four application of a pay off ratio. So yes, that’s a higher amount, in other words, than the amount that would be paid out by distribution. So thank you for asking that.

Operator

Michael Kim with Sandler O’Neill, your line is open.

Michael Kim - Sandler O'Neill

First, just wanted to come back to the outlook for realizations and incentive income. So obviously Opps VIIb has distributed a big chunk of the funds capital at this point and maybe the pace of exiting the remaining investment or investments slows a bit from here. But at the same time you pointed earlier that the underlying maturity and liquidity of the accrued incentive base which still seems to suggest that a pretty constructive near term outlook for distribution. So just wondering how you might see that dynamic playing out as you think about the level of distributions going forward?

David Kirchheimer

Well, it's a knowable as I said earlier in your question sort of alluded to Michael. And you're also absolutely correct that a fund such as VIIb gets further into its liquidation period for all the factors I think we've discussed on prior calls, it's absolutely typical and you should expect that the amount in case of realizations and therefore fund distribution would slow down and shrink just because what you're left with typically are the more either the holdings that need a little more work to realize what our investment teams believe is the appropriate value or other factors.

However, Opps VIIb is going through that phase, we do have the other funds which are Principal Fund III and Opps VI and Opps VII that are behind that fund in terms of approaching but not yet at the point of crossover. We also have the evergreen funds most importantly value opportunities which pays its annual incentive fee as of the end of the calendar year. So you can see that amount of accruing incentives gross in the fund table with that fund. So that's another fund that is not included in the number that I mentioned, but which subject to the performance of next couple of months would be expected to pay a fee that would be accrued in the fourth quarter of this year.

Michael Kim - Sandler O'Neill

Okay. And then just coming back to fund raising it does sound like LP demand maybe taking out at least on the private equity side, so just being curious to get your take on what you're saying in terms of the fund raising environment broadly and how that sort of boxes with your earlier comments about being bit behind on the timeline for Principal Fund VI?

John Frank

So, Michael, it's John. The fund raising environment generally speaking is challenging. I mean, it's always challenging, LPs are more aggressive to look at pricing. There's lot of people out there looking for money. It's sort of challenging just generally.

On the other hand, obviously we've had enormous success and we continue to have significant success. So there were a lot of folks out my understand -- I don't have a perfect understanding of the marketplace but to the degree I do, my understanding is that there are a lot of people out looking for private equity money this year. As you can tell lot of our strategy is that we're raising money, we're not particularly private equity, there were other credit oriented or other strategies.

In terms of our newest principal fund our issue and the reason we're pushing back to fund raising is we've got significant capital up to deploy. So my assumption is that we will obtain the extension that we seek to extend the investment period and that we will put our back into the fund raising for that fund next year in 2014 so, and I presume we'll do bonds, so we'll see.

Operator

Chris Harris with Wells Fargo, your line is open.

Chris Harris - Wells Fargo

A follow up question on DoubleLine. In the past on these calls, we've talked about how higher interest rates might not necessarily be a bad thing for you guys, but just wondering how you think that might affect DoubleLine's business? I'm not sure if they are a little bit more interest rate exposed? And then if that could be a negative for them, does that factor into thoughts about whether to monetize some or all of that position?

John Frank

It doesn’t honestly factor into our thinking about monetizing about that position. We think our 20% first in DoubleLine it's a terrific long term asset of Oaktree. And I am extraordinarily optimistic about the long term success and growth at DoubleLine, and the fact that we have the opportunity to make that investment was really fabulous. Jeffrey Gundlach, his partner Phil and others up there have been great partners and we're delighted to be in business with them.

In terms of the effective interest rates on their business, I don't think there is any question but with the rise in interest rates over the summer had an impact on their business. They did see some net out. They did see some flows. They saw substantial flows out, they saw substantial flows in. On the net, overall, I think was a little negative, but they' still are very, very powerful business. Their relative performance remains very, very strong. And they're actively engaged in building their business and help developing products that are less interest rate sensitive. They have introduced an equity product, they're introducing a low duration product, they have other products, emerging market products. So I think their future is very, very strong.

David actually meets with their management team once a month. So David, you may want to supplement anything I've not said.

David Kirchheimer

Nothing to add other than -- actually year-to-date I think the posted slightly positive despite all the interest rate gyrations and what not. And I mean, all I would add is that when Jeffrey and the team ended at TCW almost what is it four years ago there were managing far more assets than they are now managing. I would also observe that the Total Return Fund which still represents the bulk of their assets is a five star Morningstar rated fund. And so I think it's well recognized is what it is which is a leading fund and so --

John Frank

And I just confirmed you right there net flows were positive for the year -- are positive.

Chris Harris - Wells Fargo

Okay, great. So it definitely sounds like it's more of a strategic investment and not something you guys are worried about whilst a year from now if things look a little volatile, you're really going to think about reallocating --

John Frank

Chris, they're just getting started, okay? I mean, they just took first dollar passes in April, 2010. So they were just able to get the Morningstar rating, for example, earlier this year. I mean, this is still a very early chapter in DoubleLine's development and way, way too early to --

David Kirchheimer

The only reason it seems mature is because they've got over $50 billion in assets and they accomplished it so quickly.

Chris Harris - Wells Fargo

Yes.

David Kirchheimer

But there's more to it to come.

Chris Harris - Wells Fargo

And then on the European bank opportunity, Howard asked a question on this earlier, but with the banks kind of opening up maybe a little bit more on some of the things you guys have seen already what kind of discounts to fair value are you seeing on some of those opportunities?

John Frank

Well, we did a couple -- and I don't have the exact date in front of me, but I think may have announced it on a prior call. We did a couple of portfolio transaction last year roughly 45% of principal loan value, if I remember correctly, so anybody remember that, it was at a very substantial discount. I may have the statistic wrong but that was about a year ago. I think the discounts from what I understand from our folks in Europe have decreased and so, in other words, you can't get as good a deal right now.

So you said -- when you in your question said the banks are opening up, the notion is perhaps the banks are opening up in terms of divesting their problem loans. What they aren’t opening up is in terms of lending. And that's part of the opportunity we're trying to take advantage of is to step in where the banks can't blend anymore or won't to take advantage of those opportunities.

David Kirchheimer

Yes, they're pivoting from being the line of the secondary market to being more of the primary is one way we're achieving that.

Operator

Next question comes from Patrick Davitt with Autonomous. Your line is open.

Patrick Davitt - Autonomous

Back on the European opportunity fund you mentioned upcoming regulatory changes, capital changes. What inning do you think you're in that kind of direct lending opportunity for guys and how many years do you think this plays out just in terms of growth of kind of private equity taking the place of banks in high risk lending?

John Frank

Well, in terms of our own efforts we're probably in the second inning. We've done some of that through the avenue of our existing control oriented funds. We only raised our European lending fund, the dedicated lending fund just within the last couple of months. Our strategic credit product and our distressed product, we have a very, very strong distress team in Europe that does some of this as well. So we have a number of pockets where these opportunities can go into, our dedicated European fund, our European op strategy which has got a terrific team in Europe and also our strategic credit pockets. So we've got a number of different places that we can put these investments. Our folks work well together.

So we're -- as I say we're in the first or second inning for our efforts. For where we are more generally what the future is we always say on these calls we don't have a great crystal ball, we're not much into the prediction business. To the degree I would make a prediction, I don't foresee, but I'm not the world's expert on this, any substantial change that will cause me to think we're not going to be able to get into the fifth, sixth or seventh innings in our efforts.

David Kirchheimer

Well, just in terms of dimensioning the other aspect of the -- the related aspect to this which is how much is still hung up on the bank's balance sheet --

John Frank

Oh, it's trillions.

David Kirchheimer

Well, I saw within a recent study earlier this week I think from some firm said that there is over €2 trillion of troubled assets still sitting on the European bank balance sheets. And that dwarfs whatever they've been sitting up --

John Frank

€2.4 trillion.

David Kirchheimer

€2.4 trillion, dwarfs whatever they've been selling to-date. So yes, maybe in the top of the second inning?

John Frank

But that's not the -- but not that's not the --

David Kirchheimer

No, no --

John Frank

He was asking about primary lending.

David Kirchheimer

Right, right, but that goes to their ability to get back into the market. By the way, I mean, the other related aspect to that is that I think European high yield bond issuance is like up two times over the prior year which also helps us why that helps grow very strong performing strategy based in London. So a line of indirect growth is accruing to us from this whole situation over Europe.

Operator

Thank you. Next is from Ken Worthington with JPMC. Your line is open.

Ken Worthington - JPMC

I know I'm kind of cleaning up the end, so I'd ask kind of like a pie in the sky higher level question that may flop or may be insightful; we'll take a shot at it. But one aspect --

John Frank

Do we get to assess them?

Ken Worthington - JPMC

I'm sorry?

John Frank

Do we get to judge?

Ken Worthington - JPMC

You get your old pine. Just to keep at the management of Oaktree, where are you dedicating kind of your time and resources right now as you kind of think about the business over the next couple of years and the opportunities? It seems like the business is operating very smoothly right now at least from the outsider's perspective. I don't know it may have freed up some of your management capacity to do things that are a little bit different, but are you focused more on some areas or others based on kind of unusual opportunities or threat from an Oaktree perspective as opposed to just like a investment management perspective I guess?

John Frank

I think we'll assess that as sublime.

Ken Worthington - JPMC

Okay.

John Frank

Oaktree thankfully does manage pretty smoothly. We always have exactly the same focus. And I know I would sound like a broken record, but it's really true. Our focus is always on what do we have an opportunity to do unusually well for the benefit of our clients. And so when we think about new products, when we think where we want to devote our attention, we try to think about areas where we have a natural advantage that we can bring to bear on behalf of our clients.

We are always concerned about continuing to expand our footprint with clients although we have an extraordinary client base already; we're not going to be satisfied until money for every major client in the world. And we're not quite there yet but we're close or at least we're getting closer.

So one of things we're also focused on, I'm focused on, is it's not a secret that the generational transition is a challenge for investment management businesses. These are people businesses, and our most important resources are people. So one of things I think about a lot and work on a lot, as does Bruce and Howard, is how do we continue the transition of responsibility down to our new generations where we have terrificly strong people, stronger than we've ever had in our history. And so that's a process that's underway. We've seen it in a number of our investment strategies where we have new people taking up reins as co-portfolio managers.

One of the things that I think we've done really extraordinarily well is bring in new portfolio managers from within, and I don't mean bring in but promote new portfolio managers at the same time as retaining our old portfolio managers. We've seen that in any number of our strategies particularly in our private equity strategy and others where bringing in the new does not mean we have kick out the old, so we have the benefits of both the old and the new.

So we're doing that on both the private side. Bruce Karsh recently appointed three co-portfolio managers to help him manage our distress group. These are long term members of the distress group, Rajath Shourie, Bob O'Leary, Pedro Urquidi, and we've done that in other strategies. At the same time at the corporate level, all and every principal has over the last year or two devolve certain of their responsibilities to other members of the next generations, if you will.

So what is our focus? Our focus is on serving the clients, our focus is on developing new strategies, taking advantage of new opportunities to serve the clients, to expand our business, to expand our business both in terms of strategy and in terms of geography into new regions with new clients and to continue to transition responsibility both on the investment side and on the corporate side to new generation so that we have a strong and thriving institution not just today but in the years ahead. So that's our goal.

Ken Worthington – JPMorgan

Okay, great. And then just bottoms up, on Europe, are you more enthusiastic about that opportunity today than you were say three months ago when you spoke on the call? You kind of highlighted as a top two, maybe top one opportunity and I couldn’t tell whether it's increased enthusiasm or not. And if it has increased is it increased because of a new view on the size of the opportunity or the timing of the opportunity?

John Frank

I wouldn’t draw too much from whatever little body language signals of (inaudible). I think there is some sense that there may be flow in Europe at the same time there is also as I think Marc Irizarry said in his question or implied in his question more compensation and there's more financing available.

What I think the key to our success is going to be what I said in answer to Marc's question, the key for us is to some degree less the macro picture and more our ability to exploit our position, our contacts, our history, the bulk of folks that we have in Europe to take advantage of the opportunity that do present themselves. And I really think that's where we have an advantage to a degree that a bank puts out a portfolio with requests for bids and we're competing them in auction, we can do valuation work and decide whether or not its attractive but to the degree we can find opportunities that there are more proprietary, more off the beaten path and with less compensation, that sort of a move we prefer in our course and I think we're as well as better positioned than anybody to do that.

Operator

Thank you. We have no further questions. Ms. Williams.

Andrea Williams

Thank you again for joining us for our third quarter 2013 earnings conference call. A reply of this conference call will be available for 30 days on Oaktree’s website in the Unitholders section or by dialing (800) 627-0199 in the U.S. or 1(203) 369-3299 outside of the U.S. That replay will begin approximately one hour after this broadcast.

Operator

Thank you. This does conclude the conference call. You may disconnect at this time. Have a great day.

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