“When it rains gold, put out the bucket”

Over 10 years, OCI has delivered a 156% total NAV return. Its investments in Oakley Capital’s (Oakley) private equity (PE) funds have delivered total realised returns of 3.5x money multiple and 48% gross IRR to date since inception. Oakley has unique advantages in origination, management and complex-deal structuring. Portfolio companies benefit from improved operational efficiency, strategic development, ratings and governance. OCI’s end-June cash was £261m (59% of market cap.) – well positioned to take market opportunities. The 1H’20 NAV total return was 4%, despite COVID-19. The 35% NAV discount appears anomalous with performance.

• COVID-19 experience: Oakley’s expertise/funding is assisting its companies through the crisis. Three quarters of investments benefit from having digital and subscription models, or both. 12 of 15 companies are expected to end the year at or near budget. The 1H’20 NAV total return was 4% (-1% constant currency).
• Strategy: Oakley’s sector-focused, technology-orientated portfolio of companies delivered 17.5% annual EBITDA growth to end-June (30% to December 2019). Oakley’s deep entrepreneur relationships give it unique origination advantages. Current cash of £261m means investment opportunities can now be taken.
• Valuation: Investors can take comfort that the NAV approach is realistic at the valuation date. Against the end-June NAV, OCI trades at a 35% discount, despite its absolute (10-year 156% total NAV return) and relative (Oakley Funds II & III top-quartile/5% by different measures) performance. OCI’s dividend yield is ca.2%.
• Risks: While OCI’s costs are slightly above-average, post-expense returns are still market-beating. Sentiment towards the turn in the economic cycle is likely to be adverse, even though outperformance has been delivered in downturns. OCI’s portfolio is concentrated. 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 management skills. The Oakley Funds are focused on mid-market, tech-enabled, Western European companies that operate in consumer, education and technology sectors. The 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. Previously large shareholder overhangs have now been sold down. It appears anomalous that a business with a consistent record of outperformance is trading at a material discount to NAV.