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The distressed-investing giant’s new fund makes private-equity and debt investments in midmarket businesses

Oaktree Capital Management has closed its third special-situations fund to invest in midmarket companies struggling with high debt or other financial challenges.

Oaktree wrapped up fundraising for its Special Situations Fund III with about $3 billion, including commitments to related vehicles, people familiar with the matter said. The sum exceeds the Los Angeles firm’s initial target of $2.5 billion and the $2.3 billion raised by a 2018-vintage predecessor fund, the people said.

Investors that committed to the new pool as limited partners include the Minnesota State Board of Investments and the Teachers’ Retirement System of Louisiana, according to public pension-fund documents.

Oaktree amassed the sum during a difficult time for raising capital for private-equity and private-debt vehicles aimed at backing companies under financial stress. Such funds surged in popularity in 2020 and early 2021, as the Covid pandemic spurred high rates of corporate defaults and created an abundance of investment opportunities, but they have since struggled to gain traction among investors.

Funds that invest in distressed debt raised just under $10 billion globally from the start of the year through Oct. 27, down from about $32 billion in 2022 and $37 billion in 2021, according to PitchBook Data, which collects information about private markets.

Oaktree’s fundraising effort may have been boosted by a strong performance so far by the credit specialist’s previous special-situations fund. It posted an internal rate of return of about 45% through June, according to data from the School Employees Retirement System of Ohio, which backed the vehicle.

Oaktree manages about $183 billion across debt, private equity, real assets and other strategies. Founded in 1995, Oaktree went public in 2012, and was taken private again in 2019 by Canadian asset-management firm Brookfield.

Oaktree’s special-situations funds are more like private-equity funds than distressed-debt vehicles, though they invest in both debt and equity. The funds are intended to thrive in good and bad financial conditions, targeting private equity-like returns by backing companies contending with temporary financial issues.

Oaktree’s special-situations funds typically invest around $125 million to $150 million per deal in North American midmarket companies broadly across industries and sectors. The funds aim for control or significant influence over the businesses they back. So far, the firm has invested about $1 billion from its new vehicle.

Companies backed by Oaktree’s special-situations strategy include MBS Group, which provides services to film and television studios, and barbecue grill maker Blackstone Products.

The sports brand is seeking a new trial over the designer's use of stripes due to some newly discovered emails.

It’s not important how Adidas discovered the “smoking gun” emails it unearthed regarding Thom Browne’s use of stripes. But the fact that they exist at all warrants a new trial.

That was the response of the attorneys for Adidas in its ongoing battle with the designer over the use of stripes in his athletic-inspired offering.

As reported, Judge Jed Rakoff of the Southern District of New York has scheduled a hearing between the two parties on Dec. 21 to hear arguments devoted to intent in the discovery of several emails that surfaced following a jury decision earlier this year.

Adidas sued Browne for using four stripes on some of the American designer’s active-inspired merchandise, saying it created confusion with the sports brand. The designer had been using stripes on his collections for many years to reference collegiate varsity sweaters, but, after being approached by Adidas in 2007, agreed to change the design to four parallel bars. Adidas has been using its three-stripe bar in the U.S. since the 1950s and spends $300 million a year in advertising the stripes, and products sporting the mark account for $3.1 billion in annual sales.

In January, an eight-person jury in Manhattan’s Southern District came back with a verdict that found Browne was not liable for damages or profits that it made selling products with four stripes or its trademark grosgrain ribbon.

Adidas in October discovered four emails that it characterized as “bad faith” from employees who cautioned the designer about using specific stripe designs in its collections because they could potentially create confusion with Adidas. The emails surfaced in August during a separate trademark dispute between the two companies in the U.K. but were not disclosed during the initial trial.

Browne’s legal team on Friday said “Adidas’ hands are not clean” — alleging the sports brand breached a U.K. confidentiality agreement by sharing the emails with the company’s U.S. counsel much earlier than it had originally disclosed.

In response, Adidas’s attorney wrote: “For Thom Browne, there is no escaping the fact that it withheld smoking-gun evidence and got caught.” The company’s argument about when Adidas found the emails is irrelevant, it claimed. “Thom Browne asks the court to ignore its own egregious misconduct and focus instead on how that egregious misconduct was brought to light. The court should deny that unjust request and reject Thom Browne’s meritless ‘unclean hands’ argument.”

The filing went on to say that while Adidas’ attorney admitted the company had seen the emails earlier than it originally acknowledged, that breach was “inadvertent and harmless,” opening the door for a new trial.

Economy weaker than forecast as every sector declines

The UK economy unexpectedly contracted in October, driven by falls in every sector and fuelling concerns that high interest rates could push the country into a downturn.

Gross domestic product fell 0.3 per cent between September and October, data published by the Office for National Statistics showed on Wednesday.

Economists had expected no change in GDP after a 0.2 per cent expansion the previous month.

Services output fell by 0.2 per cent in October, driven by a fall in information and communication, and was the main contributor to the decline in GDP.

Production and construction also fell sharply, by 0.8 per cent and 0.5 per cent, respectively.

The data comes ahead of Thursday’s Bank of England decision on monetary policy. The central bank is expected to keep interest rates unchanged at a 15-year high of 5.25 per cent.