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Oaktree Capital Management, one of the oldest specialists in chasing companies for unpaid debts, has apologised to private equity firms Advent and Silver Lake for a “serious error in judgment” in appearing to blame them for its lossmaking investment in ecommerce start-up Thrasio.
The three firms had backed Thrasio, an Amazon aggregator that surged to a valuation of $6bn during the online shopping craze of the pandemic but went into bankruptcy in February after the boom faded.
Last week, the Financial Times reported that Oaktree had criticised Advent and Silver Lake over Thrasio’s bankruptcy, saying its trust in the two firms had been “misplaced”.
In a June investor letter, which reported that Oaktree’s 11th opportunities fund had written down the balance of its $114mn investment in Thrasio to zero, Oaktree said: “We believed that Advent and Silver Lake, experienced PE firms with whom we have partnered numerous times, would be steady hands at the helm and able to professionalise the business . . . this proved to be incorrect”.
This letter — a rare instance of a big investment manager criticising a peer in writing — was signed by chief investment officer Bruce Karsh, who co-founded Oaktree in 1995 with Howard Marks, and by two other portfolio managers.
On Thursday they sent a follow-up letter to clients.
“We regret that our letter appeared to deflect responsibility for our loss to Advent and Silver Lake,” it said. “We made a serious error in judgment in giving the impression that we blamed them for our loss. That was wrong, and we apologise to both firms and to [our investors] for citing them as we did.”
In the June letter Oaktree had said that it “didn’t have appropriate controls in place and instead relied on our alignment with the sponsors . . . This was clearly an error: we expected more judicious and cautious deployment of capital for growth, but our trust was misplaced.”
Thursday’s letter clarified that Oaktree invested in Thrasio after Advent but before Silver Lake. It said: “We made our investment decisions independently from those firms, not in reliance on them . . . we had an observer role on the Thrasio board, so all of our commentary should be taken in that context.”
Thrasio was launched in 2018 to roll up small Amazon marketplace sellers and expanded aggressively in the following years. At one point in 2021, it was buying two to three brands a week and that year secured a valuation of $6bn. It raised money from venture capital firms such as Western Technology Investment, Peak6 and Upper90.
When it filed for Chapter 11 bankruptcy in February, the company’s then chief financial officer Josh Burke said that the start-up had $3.4bn of equity and debt outstanding, with funds managed by Oaktree holding $739.4mn in preferred equity. Thrasio emerged from bankruptcy in June.
Oaktree’s latest investor letter ended: “At Oaktree, we emphasise admitting mistakes, and writing a letter that cited Advent and Silver Lake was certainly one. We’re sorry we did so. We want everyone to know we hold both firms in only the highest regard and we are hopeful for opportunities to partner with each of them in the future.”
In the three decades since it was founded, Los Angeles-based Oaktree has built a reputation for investing in distressed debt. It now manages $193bn of assets and has expanded beyond its roots into private equity, real estate and listed equities.
It lent to a troubled Chilean airline, helping it to emerge from bankruptcy and to the heavily indebted business empire of an Indian commodities tycoon. Two years ago, it seized a vast plot of land in Hong Kong — earmarked for a Versailles-style mansion — from Chinese property developer Evergrande. More recently in May, it took control of Inter Milan after the football club’s Chinese owners failed to repay a €400mn loan on time.
Oaktree, Advent and Silver Lake declined to comment.
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