OAK - Oaktree Cap Group LLC

[giofranchi]

The government bond spread versus junk or distress is important for different reasons. 

 

One, it impacts how other investors will look at distressed debt.  In the past they might be willing to do deals at 20% whereas today they would be willing to do a deal at 12.5%.  It crowds out investment for value investors looking for previous returns.

 

This is why central banks have been successful to prevent a distressed financial environment until now… But it doesn’t mean they will be able to do so indefinitely…

 

It is obviously still possible but I would say unlikely when you manage $40 billion.  There have been instances of this in the past year for Oaktree.  I can pull up links to different assets they were outbid on from the likes of Blackstone or other specialty players.  Even their venture into single family was much shorter than they expected due to the crowding out effect.

 

...

 

Three, this is not just a US story but rather a global issue of falling rates.  It is not like they can get around the problem by investing in other parts of the globe.  Or maybe they can in emerging markets.  But that goes with saying they will probably take on more risk.  I mean geez, one of their last big distressed deals was on MCP.  The stock was at $2.5 when they did the deal and it currently sits at $0.34 today.  When you have to do distressed deals on rare earth miners, I think the potential investment pool is drying up a tad.

 

Ok… but this imo proves more the fact the present environment is devoid of opportunities for a manager like OAK, than the fact in a distressed financial environment new opportunities won’t present themselves and won’t be seized by OAK… Blackstone was able to outbid OAK because we have been in a “buy the dip” environment since 2009… It might be very different if and when a true financial scare comes upon us once again.

 

And lastly I attached a overlay of the 30-year yield versus OAK.  I do not think it is coincidental that the stock peaked at the same time the 30-year was at 4%. It is more or less my bet that the two will play catch up.

 

I don’t see why: OAK’s stock price appreciated in 2012 and 2013 because they were still reaping the rewards of investments made in 2008-2009… The fact also 30yr-US gov. bonds yield went up might just be a coincidence… Logically I still think that makes more sense what’s happening now: that 30yr-US gov. bonds yield and OAK stock price diverge.

 

Gio

 

[Picasso]

The government bond spread versus junk or distress is important for different reasons. 

 

One, it impacts how other investors will look at distressed debt.  In the past they might be willing to do deals at 20% whereas today they would be willing to do a deal at 12.5%.  It crowds out investment for value investors looking for previous returns.  It is obviously still possible but I would say unlikely when you manage $40 billion.  There have been instances of this in the past year for Oaktree.  I can pull up links to different assets they were outbid on from the likes of Blackstone or other specialty players.  Even their venture into single family was much shorter than they expected due to the crowding out effect.

 

Two, it is very unusual to take on low levels of risk and get 12% excess returns over long periods of time.  That is where we are today.  For Oaktree to earn its historical performance figures, they need to earn over 12% above what the market says a long term risk-free rate is.

 

Three, this is not just a US story but rather a global issue of falling rates.  It is not like they can get around the problem by investing in other parts of the globe.  Or maybe they can in emerging markets.  But that goes with saying they will probably take on more risk.  I mean geez, one of their last big distressed deals was on MCP.  The stock was at $2.5 when they did the deal and it currently sits at $0.34 today.  When you have to do distressed deals on rare earth miners, I think the potential investment pool is drying up a tad.

 

And lastly I attached a overlay of the 30-year yield versus OAK.  I do not think it is coincidental that the stock peaked at the same time the 30-year was at 4%. It is more or less my bet that the two will play catch up.

 

Picasso, I agree with a lot of what you are saying, but I think it's tough to argue that 12-13X (7-8% yield) is the right multiple on the fee annuity stream, while also pointing out the general decline in rates of return for risk assets. Perpetual fee annuity streams (particularly those indexed to assets that generally go up with inflation and don't require capex to maintain) are high multiple, high duration assets. Can't you make an argument that

 

1) OAK's AUM and mgt fee annuity will keep up with inflation (2%-3%)

 

2) OAK's fee annuity is $350MM

 

If you pay 20X for the mgt fee (get a 5% return + 2% from growth over time) you make a reasonable equity return

 

This argument makes the mgt. fee alone worth $46 / share + $10 (Doubleline + Accrued incentives), gets you to the stock price.

 

I realize that 20X may be a lot to pay for that annuity stream  and I do not own this stock, but it just seems there are lower quality companies and business models to short on valuation. I think the Russell 2000 is a more compelling and easier short than OAK.

 

Sure, I think you can give this a 20x multiple if you want on a bull case.  But it ignores the two-step forward, one-step backward business model versus say BLK.  And BLK trades at 18x.  Lower rates will probably make people want to pay more for that management income stream so you are probably correct there.  Also DoubleLine is worth closer to $5 a share.  I picked 12x because 40% those management fees disappear at some point as capital is returned and need to be replaced.  I think OAK will replace them but they're not exactly perpetual in the sense of other asset managers.

 

There are also probably waaay better shorts out there.  But like I said earlier it takes a lot more time to find a good short than a good long.  I am shorting OAK more because of limitation on the upside, high expectations, and significant business headwinds.  It would be difficult to see this stock over $57, which I will define as my risk, and I get different ways to win on the downside while hedging out longs and deferring taxes on those positions.

 

I might end up losing very little or I might make multiples of my risk level while I reduce my total long exposure.  That's what I like in a short.  I know others on this board prefer to find those non-correlated event driven shorts.

[frommi]

From a valuation standpoint its a bid hard to defend this short, but from technical analysis it makes sense. He has a target that is 4-5x from his stoploss and the price is at the 61er fibonacci retracement of the last downmove. I can think of worse risk/reward setups for a short. And in the short term its a bit pointless to argue about valuations because anything can happen over 6-12 month.

[Picasso]

The government bond spread versus junk or distress is important for different reasons. 

 

One, it impacts how other investors will look at distressed debt.  In the past they might be willing to do deals at 20% whereas today they would be willing to do a deal at 12.5%.  It crowds out investment for value investors looking for previous returns.

 

This is why central banks have been successful to prevent a distressed financial environment until now… But it doesn’t mean they will be able to do so indefinitely…

 

It is obviously still possible but I would say unlikely when you manage $40 billion.  There have been instances of this in the past year for Oaktree.  I can pull up links to different assets they were outbid on from the likes of Blackstone or other specialty players.  Even their venture into single family was much shorter than they expected due to the crowding out effect.

 

...

 

Three, this is not just a US story but rather a global issue of falling rates.  It is not like they can get around the problem by investing in other parts of the globe.  Or maybe they can in emerging markets.  But that goes with saying they will probably take on more risk.  I mean geez, one of their last big distressed deals was on MCP.  The stock was at $2.5 when they did the deal and it currently sits at $0.34 today.  When you have to do distressed deals on rare earth miners, I think the potential investment pool is drying up a tad.

 

Ok… but this imo proves more the fact the present environment is devoid of opportunities for a manager like OAK, than the fact in a distressed financial environment new opportunities won’t present themselves and won’t be seized by OAK… Blackstone was able to outbid OAK because we have been in a “buy the dip” environment since 2009… It might be very different if and when a true financial scare comes upon us once again.

 

And lastly I attached a overlay of the 30-year yield versus OAK.  I do not think it is coincidental that the stock peaked at the same time the 30-year was at 4%. It is more or less my bet that the two will play catch up.

 

I don’t see why: OAK’s stock price appreciated in 2012 and 2013 because they were still reaping the rewards of investments made in 2008-2009… The fact also 30yr-US gov. bonds yield went up might just be a coincidence… Logically I still think that makes more sense what’s happening now: that 30yr-US gov. bonds yield and OAK stock price diverge.

 

Gio

 

They should get a lot of opportunities when the Fed experiment blows up.  But do you really think the price on OAK will be going up while that's happening?

 

They had a difficult time getting the "IPO" done in 2012 during the European crisis and the units fell from $43 to $33 despite the fact that their opportunity set increased.

[Picasso]

From a valuation standpoint its a bid hard to defend this short, but from technical analysis it makes sense. He has a target that is 4-5x from his stoploss and the price is at the 61er fibonacci retracement of the last downmove. I can think of worse risk/reward setups for a short. And in the short term its a bit pointless to argue about valuations because anything can happen over 6-12 month.

 

Well I think I can defend the short okay.  thepupil gave a very optimistic multiple for the asset manager and doubled the value on DoubleLine and still barely got to the current share price. 

 

But yeah, the idea is the ratio of my downside to the upside.  I think I can get better clarity on my short when they announce earnings Feb 9th.

[giofranchi]

They should get a lot of opportunities when the Fed experiment blows up.  But do you really think the price on OAK will be going up while that's happening?

 

They had a difficult time getting the "IPO" done in 2012 during the European crisis and the units fell from $43 to $33 despite the fact that their opportunity set increased.

 

That’s precisely why I said I am well aware of the fact OAK might trade around $40 again! But my goal is to be well prepared and know exactly what to do if and when such an occurrence materializes: should I buy more, or simply wait and ride out the storm? ;)

 

Gio

 

 

[thepupil]

On Doubleline + Accrued of $10, I was just using your numbers. $800 + $800 =$1.6B / 153 shares = about $10 / share. So using your numbers, the market basically implies OAK mgt. fee is worth $44 / share. using your number of $2.28/share of mgt. fee  earnings, that's 19X. I understand your argument is that the chunkiness of raising and redeeming capital is worth less than something like BLK's multiple. I don't disagree.

 

I was just pointing out that the main delta between your view and the market view is "what is the mgt. fee worth" and that the same decline in interest rates that is a headwind to OAK's incentive fee is a tailwind to the valuation of that annuity (as long as you asusme they can maintain current AUM).

 

It is a valuation call and I think the general indices are a better valuation short than OAK. But I don't see why'd want to be long either, and I think projecting out 15% returns on 10's of biillions of dollars and thinking they are going to crank out incentive fees like crazy is aggressive too. So I don't think it's a terrible short either.

 

[Picasso]

They should get a lot of opportunities when the Fed experiment blows up.  But do you really think the price on OAK will be going up while that's happening?

 

They had a difficult time getting the "IPO" done in 2012 during the European crisis and the units fell from $43 to $33 despite the fact that their opportunity set increased.

 

That’s precisely why I said I am well aware of the fact OAK might trade around $40 again! But my goal is to be well prepared and know exactly what to do if and when such an occurrence materializes: should I buy more, or simply wait and ride out the storm? ;)

 

Gio

 

If OAK is back at $40 for whatever reason, will it be a better buy than some other stock?  If this massive 5-6 year bull market ends then maybe not.  There will probably be a lot of other stocks you will find more compelling.

 

If it went to $40 tomorrow and nothing else changed, then yeah you should probably buy more. 

 

Across my other holdings I would need OAK to trade around $30-35 before it would compete on potential returns against the risk.  But we all have our own discount rates so yours is probably different.

 

There is also something to be said for an asset which can compound for a long time.  I wouldn't want to hold a short in OAK for ten years. 

 

You might draw a comparison to Fairfax, but Fairfax was trading well below intrinsic value before things started to look better.  It was also a lackluster few years.  I am taking the view that it will be a lean few years for OAK if this environment continues.  If their opportunity set increases, so will mine.

[Picasso]

On Doubleline + Accrued of $10, I was just using your numbers. $800 + $800 =$1.6B / 153 shares = about $10 / share. So using your numbers, the market basically implies OAK mgt. fee is worth $44 / share. using your number of $2.28/share of mgt. fee  earnings, that's 19X. I understand your argument is that the chunkiness of raising and redeeming capital is worth less than something like BLK's multiple. I don't disagree.

 

I was just pointing out that the main delta between your view and the market view is "what is the mgt. fee worth" and that the same decline in interest rates that is a headwind to OAK's incentive fee is a tailwind to the valuation of that annuity (as long as you asusme they can maintain current AUM).

 

It is a valuation call and I think the general indices are a better valuation short than OAK. But I don't see why'd want to be long either, and I think projecting out 15% returns on 10's of biillions of dollars and thinking they are going to crank out incentive fees like crazy is aggressive too. So I don't think it's a terrible short either.

 

Sorry, I misread your post.  Well if someone wants to pay 19-20x those management fees plus given some discounted value to future carry then I'm going to lose on this short.  It just seems imprudent knowing the history of private equity stock valuations.

 

I haven't shorted the indices only because I do not know where I would lose.  I have a rule with short positions or hedges that I need to know the price where I am wrong and I get out, regardless if my short looks better or not.  Are you referring to the IWM?

[giofranchi]

But I don't see why'd want to be long either, and I think projecting out 15% returns on 10's of biillions of dollars and thinking they are going to crank out incentive fees like crazy is aggressive too. So I don't think it's a terrible short either.

 

Well, I want to be long because I think OAK is a predictable business run by two great entrepreneurs and investors, who are still young enough to be at the helm for the next two decades.

Reinvesting a 5% distribution, AUM have to grow at a CAGR of 12% to make ANI compound at 15% annual. This is in line with what they have achieved since 2000. And the 10’s of billions of dollars they manage must be compared to markets that are worth trillions of dollars and that will probably get larger and larger, especially in EM.

If they achieve a performance in line with their (I admit) exceedingly good past, your valuations are way too low.

 

Gio

 

[Picasso]

But I don't see why'd want to be long either, and I think projecting out 15% returns on 10's of biillions of dollars and thinking they are going to crank out incentive fees like crazy is aggressive too. So I don't think it's a terrible short either.

 

Well, I want to be long because I think OAK is a predictable business run by two great entrepreneurs and investors, who are still young enough to be at the helm for the next two decades.

Reinvesting a 5% distribution, AUM have to grow at a CAGR of 12% to make ANI compound at 15% annual. This is in line with what they have achieved since 2000. And the 10’s of billions of dollars they manage must be compared to markets that are worth trillions of dollars and that will probably get larger and larger, especially in EM.

If they achieve a performance in line with their (I admit) exceedingly good past, your valuations are way too low.

 

Gio

 

Are you referring to Bruce Karsh and Howard Marks?  Bruce is still CIO but Howard Marks is not involved in the business anymore.  He writes his letters that everyone loves but doesn't make investment decisions.  I'm sure they have a good team in place though.  Jay Wintrob looks promising.

 

According to your compounded rates, they should manage something like $400 billion in twelve years in distressed debt and convertibles?  Say goodbye to any alpha and incentive fees if that is true.

 

If those numbers are true then you are going to do very well.  I think it will be more on the muted side as good value investors know the limitations of chasing lots of AUM. 

 

At this point I am just playing devils advocate to your own thesis.  My view is on the short-term and it is entirely likely we both make lose money or make money or a combination of the two.  Time will tell!

[thepupil]

On Doubleline + Accrued of $10, I was just using your numbers. $800 + $800 =$1.6B / 153 shares = about $10 / share. So using your numbers, the market basically implies OAK mgt. fee is worth $44 / share. using your number of $2.28/share of mgt. fee  earnings, that's 19X. I understand your argument is that the chunkiness of raising and redeeming capital is worth less than something like BLK's multiple. I don't disagree.

 

I was just pointing out that the main delta between your view and the market view is "what is the mgt. fee worth" and that the same decline in interest rates that is a headwind to OAK's incentive fee is a tailwind to the valuation of that annuity (as long as you asusme they can maintain current AUM).

 

It is a valuation call and I think the general indices are a better valuation short than OAK. But I don't see why'd want to be long either, and I think projecting out 15% returns on 10's of biillions of dollars and thinking they are going to crank out incentive fees like crazy is aggressive too. So I don't think it's a terrible short either.

 

Sorry, I misread your post.  Well if someone wants to pay 19-20x those management fees plus given some discounted value to future carry then I'm going to lose on this short.  It just seems imprudent knowing the history of private equity stock valuations.

 

I haven't shorted the indices only because I do not know where I would lose.  I have a rule with short positions or hedges that I need to know the price where I am wrong and I get out, regardless if my short looks better or not.  Are you referring to the IWM?

 

yep, a short position in IWM is easier to hedge than OAK with a very liquid options market, low margin requirements, "one click" liquidity, etc. OAK is a riskier short in my view. It is more susceptible to bullish guys like Gio who do want to pay 20X for management fee income and count on future incentives and you are short the option of them surprising to the upside in terms of AUM growth and returns. I don't think the market is actually pricing in too much of that optionality to attract me to short the stock.

 

I just think REITs and Russell or even the HY index and a bunch of other stuff is more expensive and not run by Bruce Karsh, so i don't really see the appeal of shorting. The math is that if they can keep AUM constant (which as Gio points out would be a big step down from their growth) then the equity can compound at 7-8%, which is fine and probably > than S&P and Russell for the next 5-10 years. I just don't see any crazy overvaluation in the context of the broader market. I'm not sure how you can "tell you're wrong" with OAK any more so than other stocks.

 

Gio, I'm not here to argue whether or not they can grow 12% or 0% or whatever. I've seen those arguments play out before; I see the world differently than you do. You have your process and it works for you, but I simply could never make a statement that a stock (particularly a limited capacity distressed debt focused asset manager) will compound at 15% for a long time. It's just not in my DNA to be so optimistic. 

 

Have you ever talked to anyone who manages $1B of distressed debt/high yield/real estate/whatever? Or $10B or $40B? It ain't easy to deploy that kind of money at big returns.

 

[giofranchi]

I see the world differently than you do.

 

thepupil,

I don’t think the way we look at the world has anything to do with this… We are simply talking about a business… Either you are right and I am wrong, or vice versa… Period.

 

Now, 20 years is a very long time… So let’s just focus on the next 5 years. Imo 2 things could happen:

a) We face another financial crisis,

b) We muddle through and debt levels all around the world start coming down.

There might be a third scenario: debt levels around the world keep increasing, but this would mean the whole world gets to resemble Japan… and I would attach a very low probability to such a scenario…

 

So, let’s stick to just a) and b). What will happen to OAK?

a) I think OAK might double AUM, just like FFH might double BV, actually I would be surprised if they failed to do so!

b) I think OAK might still be able to increase AUM… albeit at a much lower rate!

 

Do you think I am too optimist? If so, why? Alternatives AUM is $7 trillion today vs. $2 trillion a decade ago (13% CAGR), Asset management AUM is $64 trillion today vs. $38 trillion a decade ago (5% CAGR), Global Hedge Fund AUM is $2.1 trillion today vs. $0.3 trillion in 2000 (14% CAGR), Global Private Equity has grown at a CAGR of 20% since 1980. Yet, the Top 5 Manager only represent 32% of US Retail Alt’s, 27% of Infrastructure, 16% of Real Estate, 9% of Private Equity, and 8% of Hedge Funds… If a financial crisis comes our way, there will be lots of room for consolidation! And the strongest, like OAK imo, will benefit very much!

 

I like neither the optimist nor the pessimist, because they both tend to be wrong most of the times. Therefore, if I am too optimist about OAK, I really want to know why!

 

Will the market 5 years from now pay the same multiple for OAK it is paying today? Of course, I cannot tell… But, let’s look at The Carlyle Group: today it manages $203 billion and still boasts IRR in between 25% and 30%… Will OAK achieve the same success? I don’t think I am too optimist if I say I think it can.

 

So, all I see is a great opportunity should a) occur, and a mediocre investment should b) occur instead. But no way to lose money! You asked why I am long: whenever I find an investment in which I don’t see how I could lose money, I buy that business gladly.

 

Then, we could meet again 5 years from now, and start another discussion about what to do with OAK! ;)

 

Cheers,

 

Gio

 

[giofranchi]

Howard Marks is not involved in the business anymore. 

 

Well, just listen to their last conference call, or read its transcript, and you’d find Marks there to talk very much about OAK’s strategic vision and to answer to analysts’ questions… It doesn’t seem the behavior of a person no more involved in the business!

 

Gio

 

[giofranchi]

Their 8% hurdles are going to be an absolute killer to any future carry.

 

Another thing that should be pointed out is I don’t think the hurdle rate to earn incentives is carved in stone… Incentives should be paid to a manager, if he achieves better results than its peers, or if he/she does better than the index which he uses as his/her benchmark.

 

If we live in a low return world, I think also the hurdle rate could come down.

 

Gio

 

[thepupil]

I see the world differently than you do.

 

thepupil,

I don’t think the way we look at the world has anything to do with this… We are simply talking about a business… Either you are right and I am wrong, or vice versa… Period.

 

Now, 20 years is a very long time… So let’s just focus on the next 5 years. Imo 2 things could happen:

a) We face another financial crisis,

b) We muddle through and debt levels all around the world start coming down.

There might be a third scenario: debt levels around the world keep increasing, but this would mean the whole world gets to resemble Japan… and I would attach a very low probability to such a scenario…

 

So, let’s stick to just a) and b). What will happen to OAK?

a) I think OAK might double AUM, just like FFH might double BV, actually I would be surprised if they failed to do so!

b) I think OAK might still be able to increase AUM… albeit at a much lower rate!

 

Do you think I am too optimist? If so, why? Alternatives AUM is $7 trillion today vs. $2 trillion a decade ago (13% CAGR), Asset management AUM is $64 trillion today vs. $38 trillion a decade ago (5% CAGR), Global Hedge Fund AUM is $2.1 trillion today vs. $0.3 trillion in 2000 (14% CAGR), Global Private Equity has grown at a CAGR of 20% since 1980. Yet, the Top 5 Manager only represent 32% of US Retail Alt’s, 27% of Infrastructure, 16% of Real Estate, 9% of Private Equity, and 8% of Hedge Funds… If a financial crisis comes our way, there will be lots of room for consolidation! And the strongest, like OAK imo, will benefit very much!

 

I like neither the optimist nor the pessimist, because they both tend to be wrong most of the times. Therefore, if I am too optimist about OAK, I really want to know why!

 

Will the market 5 years from now pay the same multiple for OAK it is paying today? Of course, I cannot tell… But, let’s look at The Carlyle Group: today it manages $203 billion and still boasts IRR in between 25% and 30%… Will OAK achieve the same success? I don’t think I am too optimist if I say I think it can.

 

So, all I see is a great opportunity should a) occur, and a mediocre investment should b) occur instead. But no way to lose money! You asked why I am long: whenever I find an investment in which I don’t see how I could lose money, I buy that business gladly.

 

Then, we could meet again 5 years from now, and start another discussion about what to do with OAK! ;)

 

Cheers,

 

Gio

 

Gio, I don't really have a strong opinion on OAK's growth rate. I just have seen you say things like "I expect X stock to compound 15% for the next decade or two or as long as X is alive". I just can't have that confidence in any company or person. We see the world differently. Happiness = Reality - Expectations, so I try to minimize the thing i can control the most easily (expectations)

 

Even if it doesn't meet your lofty expectations, the stock looks like it will do fine.

[giofranchi]

I just have seen you say things like "I expect X stock to compound 15% for the next decade or two or as long as X is alive". I just can't have that confidence in any company or person. We see the world differently.

 

Well, I say that because it is what I always look for before deploying my capital in any investment… But then I also keep the door open to changes that might occur… And actually I change my mind often and often sell… Think about Buffett, instead, who buys and then never sells… He is the one who truly sees the world differently from both you and me! ;)

 

Cheers,

 

Gio

 

[giofranchi]

I already know I will be much criticized for this, but I don’t mind good criticism… I cannot stand only impolite criticism! ;)

 

Yesterday I sold my investment in OAK for an healthy profit, and redeployed the proceedings in US Treasuries, both short term and long term.

 

Why?

 

I still believe in my 5 years thesis about OAK. But Picasso pointed-out one thing that is true:

 

They should get a lot of opportunities when the Fed experiment blows up.  But do you really think the price on OAK will be going up while that's happening?

 

They had a difficult time getting the "IPO" done in 2012 during the European crisis and the units fell from $43 to $33 despite the fact that their opportunity set increased.

 

Therefore, if a market correction is needed to make an investment in OAK a truly enticing proposition, there is a great chance that first of all OAK’s stock price might decline together with the general market, and at the same time OAK might be able to increase AUM… That will be a truly great entry point! An opportunity brought by the almost simultaneous decline in OAK’s stock price and an increase in AUM!

 

After all, OAK is different from FFH: OAK’s increase in AUM and its increase in earnings might not happen at the same time, precisely OAK must increase AUM first and then wait for its investments to pay out (another thing that Picasso underlined correctly imo), while FFH’s increase in BV comes directly from its earnings.

 

I have also been much criticized, because I have let you know January has been an extremely good month and my firm’s equity is up more than 11% since the beginning of the year… Of course, I was the first one to point out such a result doesn’t mean a thing!… But, given my goal of compounding at 15% annual, such a good start of the year might not be so meaningless after all: at least, if nothing else, it surely has bought me some time… The operating results of my firm will contribute for another 10% this year (more or less): if I do nothing else but cash in the 11% achieved in January and add to that the 10% from operating earnings, and just watch the financial markets from the sidelines, at year end I would have achieved a result far better than my original goal!

 

Of course I won’t refrain from investing my firm’s capital in the stock market for the rest of 2015… But the choice of selling a large position like OAK and buying US Treasuries until something more convincing (in the short term) comes along, was made easier (at least imo!) by the good start of the year I have luckily enjoyed!

 

Cheers,

 

Gio

 

[peter1234]

Kudos. Refreshing to see you change your mind for good reasons.

[Packer16]

I am sorry but I think your reasoning has a big flaw, namely that you can time when you can get back in.  I think Picasso is incorrect that OAK will decline due to a decline in fees if the market knows that OAK can and will raise funds.  This assumes that the market ignores this fact which I think is unlikely given the size of OAK and the pool of potential buyers. 

 

Then there is the likely possibility of the muddle along scenario where a decline does not happen for awhile.  For a real decline to occur you need euphoria which I do not see with Treasuries hitting an all time low interest rates.  In my mind OAK is a compounder and will find other asset classes to manage using the same approach like equities which it does today and infrastructure.  If this happens then the question is are you better off missing the upside before the decline as the stock may decline in the future but only to a point higher than today. Thanks.

 

Packer

[giofranchi]

Packer,

I knew my decision would have drawn criticism, and I like yours very much, because it is polite and very well-reasoned!

Your objection essentially is that my decision was based on the short term, while I obviously cannot foresee what might happen in a 1 to 2 year timeframe… And I agree with you 100%!

 

As I have said, my view about OAK for the next 5 years hasn’t changed at all… But I have always thought that some kind of crisis caused by a large number of debt defaults has to occur, for OAK to be able to find again high-return investment opportunities, and therefore to increase AUM significantly. In a muddle through scenario like the one we have today, with financial assets that keep performing quite well, I just don’t see how their set of investment opportunities could get any larger than it is now.

 

On the other hand, should defaults actually occur and should financial assets get hit by those defaults, I think that also OAK’s stock price is likely to suffer… at least for a while… even if probably far less than the general market and for a shorter period of time.

 

I have always watched OAK very closely and I will keep watching it. If:

1) No crisis ensues, but they are able to keep increasing AUM at an healthy rate nonetheless, I’ll then admit I was wrong and get back in again;

2) If a crisis ensues and OAK’s stock price doesn’t follow the general market down, I’ll then admit I was wrong and get back in again.

In both cases I will have lost some value creation. But again I think I can afford it, without compromising my goal of compounding capital at 15% this year.

 

Gio

 

[giofranchi]

Packer,

I still hold an almost 6% investment in OAK anyway… It is much reduced from what it was two days ago… But probably OAK still weighs more in my portfolio than in yours! ;)

 

Can you tell us which percentage of your portfolio is invested in OAK?

 

Thank you very much!

 

Gio

 

[gfp]

Article on DoubleLine inflows -

 

http://www.cnbc.com/id/102389891

[giofranchi]

Oaktree announces Q4 and whole year 2014 results

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjY5NTQ0fENoaWxkSUQ9LTF8VHlwZT0z&t=1

 

 

Gio

[fareastwarriors]

Oaktree Invests $400 Million in Energy Seeing Distress

 

 

http://www.bloomberg.com/news/articles/2015-02-09/oaktree-invests-400-million-in-energy-during-hunt-for-distress