June 2022 Monthly

Our note Capital Markets Day 2022 – let the sun shine reviewed OCI’s afternoon of presentations detailing how it has delivered 19% NAV CAGR growth 2017-21 (6% 1Q’22), and why this growth should be sustainable going forward. At its core, is an investment focus on structurally high-growth areas, combined with a unique proprietary network originating deals. Once a business has been acquired, value is added through business transformation (e.g. digitalisation), performance improvement, leadership development and buy-and-build strategies. Oakley Capital’s expertise incrementally improves investee companies. Investors are buying into this sustainable, long-term model, not just the current attractive portfolio.

• Current factors: The CM introduction addressed how OCI will fund its commitments (cash + near-term realisations vs. long-term commitments), its prudent approach to valuations (largely kept at, or near, acquisition ratings until close to exit) and the multiple approaches to addressing the discount.
• Sustained outperformance: In terms of sustaining outperformance, 75% of recent NAV growth is driven by EBITDA growth. Funds III and IV are in the top 5% on Preqin performance benchmark data for realised assets, with IRRs over 50%. €665m has been deployed in 2021/22, funding future growth.
• Valuation: Against the end-March NAV, OCI trades at a 30% discount, despite its strong absolute, and peer and market-beating, relative performance. OCI has delivered consistently, with especially robust performance through COVID-19, demonstrating its downside resilience. OCI yields 1.1%.
• Risks: While OCI’s costs are slightly above-average, post-expense returns are still market-beating. Sentiment towards economic cycles may be adverse, even though downside protection has been proved repeatedly. OCI’s portfolio is concentrated, and we believe its permanent capital is right for private assets.
• Investment summary: OCI provides investors with liquid access to the attractive PE market, enhanced by Oakley’s incremental origination and active management skills. Oakley Funds focus on mid-market, tech-enabled European companies that operate in the technology, consumer and education sectors. Accounting and governance appear conservative. There are risks – primarily sentiment-driven – around costs and cyclicality, as well as the liquidity and valuation of the underlying private assets. We believe buying long-term, compounding growth is the key attraction, with any further closing of the discount to NAV an added bonus. The current 30% discount is less than one-year’s average recent NAV total return.