Mechanics of a Hedge Fund Manager IPO

On April 12, 2012, Oaktree Capital Group (Oaktree), one of the world’s largest managers of credit-focused hedge funds and private equity funds, conducted a public offering of Class A units (Public Offering).  The Rule 424(b) prospectus, filed April 12, 2012 (Prospectus), indicated that all of the proceeds from the Public Offering will be directed towards acquiring interests in Oaktree’s business from its principals, employees and investors, including Oaktree’s senior management.  In other words, the Public Offering represents an opportunity for such persons to monetize their firm holdings.  Principals and employees may wish to monetize their holdings for various reasons.  For instance, some principals and employees may wish to diversify their financial holdings.  Others may view monetization of their interests as a step in the succession planning process whereby economic ownership of the firm can be transferred to others.  See “Key Considerations for Hedge Fund Managers in Developing a Succession Plan (Part Two of Two),” Hedge Fund Law Report, Vol. 5, No. 8 (Feb. 23, 2012).  The Public Offering may portend a trend in public offerings by investment management firms, including a highly-anticipated public offering of approximately 10% of the interests in Carlyle Group LP that is expected to be consummated in the near future.  This article discusses the details of the Oaktree Public Offering and highlights some of the benefits and costs to a hedge fund manager going public in comparison to other monetization alternatives, such as pursuing a merger or acquisition of the firm.  See “Buying a Majority Interest in a Hedge Fund Manager: An Acquirer’s Primer on Key Structuring and Negotiating Issues,” Hedge Fund Law Report, Vol. 4, No. 17 (May 20, 2011).

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