One of the world's largest asset managers is set to get a lot bigger.
On Tuesday, Toronto-based Brookfield Asset Management said it would buy a 62% stake in Los Angeles-based Oaktree Capital Management, the alternatives manager founded by Howard Marks and Bruce Karsh in a $4.7 billion cash and stock deal. By 2029, Brookfield could own all of Oaktree.
The combined companies would have $475 billion of assets under management. Blackstone, the largest asset manager, had $474 billion as of year-end. A Blackstone spokesman said the numbers were not comparable because of differing methodologies.
"It’s one of those deals that doesn’t come along that often," Patrick Davitt, a research analyst at Autonomous Research, told Business Insider. "It would be a much more formidable entity with a much better developed credit arm and start to look a lot more like Blackstone. From the standpoint of becoming a one-stop shop for limited partners, they're probably going to be close to the second-best gig in town next to Blackstone."
While Oaktree manages a variety of alternatives strategies – private equity, real estate, and infrastructure – it's best known for its credit arm, which Brookfield chief executive Bruce Flatt praised as "second to none" and "one of the finest credit platforms in the world" in a statement. Brookfield, meanwhile, is best known for its real estate and infrastructure investing.
"It makes sense for two niche firms like that to expand on their operations, to combine their businesses to have stronger footing in the alternative asset management business," Tayfun Icten, a Morningstar analyst, said in an interview.
However, he cautioned that mergers, particularly those in asset management, "are tough."
"Your assets get into an elevator and go home every night – the people," Icten said. "Cultural fit is crucial in situations like this. It’ll never be perfect. It can work but it’s a painful process to mesh two teams together. The good news is it sounds like they’ll operate pretty independently, though it’s hard to say what Howard Marks’ long-term goals are here."
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The deal is expected to close in the third quarter. Once Oaktree is no longer public, Autonomous's Davitt noted that management can focus just on investing and expanding, not on the management of a public company.
"Brookfield has a lot more capital to help Oaktree grow to the extent it wants to, which is something it didn’t have before," he said.
Icten contrasted the deal with other asset management M&A, which has often involved one or more underperforming companies.
"This does not sound like a story of two weak players merging," he said. "This sounds like a story of these firms expanding on their platforms to become a stronger niche player in alternative investments."
