Duration Capital Partners has completed its spin-out from Oaktree Capital Management, taking with it an 18-member team of full-time employees, a client base of roughly 70 LPs, two transportation funds and roughly $3.7 billion in AUM.
The firm, in which Oaktree will retain a 25 percent stake, will be led by co-CEOs Emmett McCann and Josh Connor, who until recently were managing directors and co-portfolio managers, infrastructure, at the Los Angeles-based asset manager.
“I think Oaktree saw us as a strategy that had the potential to grow as an independent firm,” McCann, who was part of the Highstar Capital team when Oaktree acquired that firm in 2014, tells Infrastructure Investor. “They felt it was the right move for them and for us.
“The trend is clearly towards GP consolidation right now. But Oaktree’s leadership has always been very contrarian. But Oaktree’s leadership focused on what was best for our clients, Oaktree and our team,” McCann adds.
Across the transportation spectrum
Transportation also presents a big opportunity, according to McCann. Not only does the sector account for roughly 10 percent of US GDP and create jobs for more than 14 million people, “we are [also] at the bottom of the deepest freight recession since the global financial crisis”, he says.
“A lot of it is due to a huge boom during covid, and a lot of excess supply being worked off and that’s created a really interesting time to be deploying capital in the space,” he adds.
Duration Capital will continue its value-add approach, squarely focused on the mid-market with average equity tickets ranging between $100 million and $300 million. However, the team will occasionally invest in larger deals when the opportunity arises.
As for subsectors, “there’s a whole spectrum we focus on”, McCann says, noting the team tracks “north of 30” across air, land and sea.
“We look at everything from air cargo to airport food and beverage to airport P3s,” he says. “We look at clean energy transportation, ports, rail and logistics, amongst multiple subsectors.”
Currently, the firm’s portfolio comprises 10 assets, seven of which are through the Transportation Infrastructure Fund, a closed-end vehicle that raised $1.5 billion in 2017 and has been fully deployed, while the remainder is held in Oaktree Transportation Infrastructure Capital Partners, an evergreen fund launched in 2022 that to date has raised more than $550 million, as well as multiple co-investment vehicles aggregating more than $1 billion in capital.
Assets include Watco, the second-largest short-line railroad company in the US, according to McCann; as well as airport hospitality operator OTG Management, Ports America and Rand Logistics.
The benefit of investing in transportation through an evergreen fund is that without a defined holding period, the firm can weather the sector’s cyclical nature.
“If you look back over 100 years, transportation volumes have gone up and to the right as a function of GDP growth, consumer growth, consumption, and population growth,” McCann remarks. “There have been dips from time to time, but it’s always going up and to the right. And that’s the long trend we’re focused on without the maturity wall of a closed-end fund.”
Having said that, McCann does not rule out a closed-end fund down the line, but for the time being at least, Duration’s focus will be on deploying capital through TICP.
“Our goal is to be focused on transportation and to be a good partner to as many people as we can,” he says.
To that end, the firm has a roster of 19 industry experts serving as advisers. That is “a huge differentiator for Duration”, Connor, who was unavailable for the interview, said in an e-mailed message.
“This group of highly experienced experts, who we’ve built strong relationships with over decades of working and investing together, will support our core Duration team with sourcing, diligence, investing and managing our portfolio companies,” Connor added.
Connor and McCann will be based in Los Angeles and New York, respectively, the firm’s two headquarters.