In the back
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[ WHAT I BOUGHT LAST ]
Oakley is not alone in identifying
that the fastest growth is now made
in the run-up to an IPO and that
flotation is often the endgame
Miton Global Opportunities’ Nick Greenwood and Charlotte
Cuthbertson say this private equity trust has evolved from
“corporate bad boy to a more professional operation”
Oakley Capital
T
he investment
trust universe
has become a
home for alternative
asset classes such
as property, forestry
and infrastructure in
recent years. As special
situations investors,
the opportunity here
for us is that the
methodology behind
calculating net asset
values of these trusts
does not always keep
up with the progress
being made in the
underlying portfolio.
This is especially true
with investments in
fast-growing private
companies and means
the discount can
be wider than the
published figure.
FE TRUSTNET
Life before listing
Oakley is not alone in
identifying that the
fastest growth is now
made in the run-up to
an IPO and that flotation
is often the endgame. In
previous generations,
companies would
float to raise capital to
expand the business.
Today, the growth of
alternative finance
means that promoters
have a wide range of
access to capital which
allows them to keep
their companies private
for longer. This is a
key reason behind the
steady reduction in
the number of listed
companies.
We had been reducing
our exposure to
generalist private equity
trusts even though these
have proved to be highly
successful investments
for us. While the sector
has been successful in
raising money, we are
less confident that it
will be able to invest
it profitably at this
point in the cycle given
the vast sums of dry
powder looking for a
home. Trusts such as
Oakley, which focus on
a concentrated portfolio
of smaller companies,
are better placed to
avoid costly auctions
through their networks.
In August, it backed the
founder of German gift-
card operation Seven
Miles with development
capital.
“Corporate bad boy”
Oakley used to be
on our “avoid” list
after some corporate
governance issues,
particularly issuing
stock at a discount,
an anathema to
investment trust
investors. In the past
few years, however,
it has evolved from
corporate bad boy
to a much more
professional operation.
The board has made
a commitment not
to issue stock at a
discount and the
managers have been
buying shares in order
to align themselves
with shareholders.
Over time, such
initiatives will lead to
Oakley’s rehabilitation,
but for now past
indiscretions still weigh
heavily on its valuation
and its shares can be
acquired on a real-
time discount in the
region of 30 per cent.
For now, the situation
represents an arbitrage
between perception and
reality. Oakley shares
have been particularly
weak recently as
Woodford IM’s sale of
its significant stake in
the company means
that all potential
backers have had ample
opportunity to buy
in. This represents a
great opportunity for
patient investors such
as ourselves.
Nick Greenwood and Charlotte Cuthbertson
work on the Miton Global Opportunities trust as
manager and analyst, respectively
trustnet.com