The $77.9 billion alternative investment firm Oaktree Capital Group has hired former Fintech and Lehman Brothers executive Julio Herrera to run a new emerging-markets opportunities business.
The Santa Monica, California–based firm expects to start raising money for an emerging-markets credit opportunities fund shortly and will also use Herrera’s expertise, and that of the team he is building, to advise on investments across the firm.
Founded in 1995 by Howard Marks and Bruce Karsh, Oaktree today sees a huge opportunity in emerging markets to expand into what is commonly referred to as special situations — that is, specialty or atypical credits, which usually require a long-duration investment.
There are significant reasons why special situations investments make sense right now. Foremost among them is the ongoing global credit crisis — especially acute in Europe — which is forcing banks to sell some of their assets to fulfill regulatory capital-ratio requirements.
At the same time the so-called Volker Rule in the United States, part of the Dodd-Frank financial reform bill, is expected to place strict limits on how much proprietary trading banks can do. A major source of investment capital for these types of assets were the prop trading desks at banks — the most well known being Goldman Sachs’ Special Situations Group. As firms like Goldman are forced to dial back or unwind these businesses, it creates investment opportunities for firms like Oaktree.
Additionally, as Herrera points out, there is an increasing need for corporate credit in emerging-markets countries — particularly those in emerging Latin American and Asian countries — which have not in the past used the high-yield markets as much as U.S. corporations. The make-up of the emerging-markets credit market is changing. “Issuance in emerging markets used to be mostly sovereign” debt: Increasingly, it is corporate debt, says Herrera.
Prior to joining Oaktree, Herrera spent 15 years at Fintech Advisors, a New York–based firm that specializes in emerging-markets debt, and is largely the capital of one wealthy Mexican family. Before Fintech, Herrera worked for Lehman Brothers and ING Capital Holdings. He is one among a group of investors who cut their teeth investing through the restructurings that happened after the financial crisis in Latin America, Russia and Asia in the late 1990s — restructurings that have parallels with what is happening today.
Recently, Herrera says, he has been looking at opportunities in Europe. “I spent a lot of times over the past two years working on transactions in peripheral Europe” countries such as Ireland, Portugal, Greece and Spain. Joining Oaktree affords Herrera the opportunity to build a business and raise outside capital. Something he is keen to do. At Oaktree, Herrera says, “I can really build out a business that will outlast me.”
