Oaktree calls out Advent and Silver Lake over collapsed start-up

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Oaktree Capital Management, one of the oldest specialists in chasing companies for unpaid debts, has reproached private equity groups Advent and Silver Lake over the bankruptcy this year of Thrasio, an ecommerce start-up once valued at $6bn that all three had backed.

In a letter to investors seen by the Financial Times, Oaktree rebuked the two firms for their oversight of the business, saying the group’s trust in them was “misplaced”.

The June letter was signed by Bruce Karsh, who co-founded Oaktree in 1995 with Howard Marks and is its chief investment officer, and by two other portfolio managers. It also revealed that Oaktree’s 11th opportunities fund had written down the balance of its $114mn investment in Thrasio to zero.

Prominent investment managers’ criticisms of one another rarely appear in writing or spill into the public domain. Private equity firms often invest together across a range of companies and need to maintain cordial relations, while lenders such as private credit firms are reliant on private equity for repeat business.

Oaktree has long-standing relationships with Advent and Silver Lake. 

“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,” the trio wrote, adding that “this proved to be incorrect”.

“We didn’t have appropriate controls in place and instead relied on our alignment with the sponsors,” they continued. “This was clearly an error: we expected more judicious and cautious deployment of capital for growth, but our trust was misplaced.”

Thrasio was launched in 2018 to roll up small Amazon marketplace sellers. Fuelled with venture capital money from firms such as Western Technology Investment, Peak6 and Upper90, and backed by private equity, it went on a buying spree, at one point in 2021 acquiring two to three brands a week.

It secured a $6bn valuation that year as investors tried to cash in on the online shopping craze seen during the Covid-19 pandemic, but earnings faltered when shoppers went back to their old habits and it went into bankruptcy in February.

“Thrasio did extraordinarily well during the pandemic, and it mistakenly extrapolated consumers’ strong spending on goods well into the future and used these expectations to justify paying more for acquisitions,” the letter said.

“In hindsight, we now realise that we should have replaced the management team earlier rather than waiting for the equity sponsors to act.”

Oaktree first invested in Thrasio in 2019, according to PitchBook. Advent first backed the company in 2020 and Silver Lake joined them in October 2021. Thrasio’s chief executive was replaced six months later.

According to a statement by Thrasio chief financial officer Josh Burke to a US bankruptcy court in New Jersey, the start-up had $3.4bn worth of equity and debt outstanding, with Oaktree’s funds holding $739.4mn in preferred equity, a type of investment that afforded the firm annual dividends of 14.6 per cent.

Oaktree specialises in distressed debt investments, and over its lifespan has moved aggressively to seize assets from borrowers that fail to repay loans on time, including the owner of Italian football club Inter Milan and a vast plot of land in Hong Kong from Chinese property developer Evergrande.

More recently, the Los Angeles-based firm has expanded beyond its roots into private equity, real estate and listed equities, managing $193bn in assets.

Advent is known for its investments in cyber security company Wiz and UK delivery group Evri, while tech-focused Silver Lake has backed fintechs Stripe and Klarna. The private equity houses each manage about $100bn in assets.

One investor in Oaktree’s 11th opportunities fund was unimpressed with the firm’s explanation for the losses.

“I appreciate their candour but on the other hand, that is not something one should be proud of,” they said. “Frankly, you are a $16bn fund, do you really need to learn not to outsource [oversight of the company] to other partners?”

Thrasio emerged from bankruptcy on June 18, with new chief executive Stephanie Fox proclaiming it had a “clean balance sheet, fresh capital and a renewed focus on our core business of building brands”.

But a June 26 report from S&P Global Ratings said the company’s capital structure was “unsustainable” and that it saw a “possible default scenario in the next 12 months due to its tight liquidity and covenant headroom”.

Oaktree, Advent and Silver Lake declined to comment. Thrasio did not respond to a request for comment.