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Oaktree Capital Is Well Positioned To Go Through A Downturn

Feb. 07, 2019 9:59 AM ETOaktree Capital Group, LLC (OAK)APO, BAM, BX, CG, KKR, BN:CA25 Comments


  • Oaktree Capital held its quarterly conference call.
  • The firm came through Q4 2018 relatively unscathed.
  • In addition, it raised quite a lot of dry powder.
  • The firm is well positioned to capitalize on opportunities arising in a downturn.
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Oaktree Capital (NYSE:OAK) is one of the companies in the private equity space I really like (previous update here). Many companies in this space appear deeply undervalued. Drivers of the systemic undervaluation appear to be exclusion within the ETF universe (due to partnership structure), tax complications and unpredictable performance fees.

Actually asset managers as a group look very inexpensive. Both on an absolute basis and historically. The narrative continues to be that ETFs or Exchange Traded Funds are superior to active management. If ETFs will continue to dominate, asset managers may not turn out to have been all that inexpensive but that seems highly unlikely. At some point, an equilibrium between passively managed and actively managed funds will be established.

Finally, the cheapness of asset managers can be explained because we are nearing the end of the cycle and consequently this runaway bull market. Asset managers tend to do very well in bull markets. Asset flows are positive and assets increase in value as well. Of course, this dynamic works against them when the direction of the market is reversed. The market is pricing in some of that cyclicality by assigning low multiples.

The last couple of months have been very informative regarding Oaktree Capital's resilience. Part of the reason I like this investment a lot is because its specialization in distressed debt, track record in distressed and proven ability to raise capital during a downturn. Theoretically, this company is making money for you as we enter a recession or at least a bear market. That's when they are doing the intelligent buying and creating value that will bear out in the future. In the turmoil of Q4 2018, the stock held up really well:

ChartData by YCharts

There haven't been any real tests since the firm IPO'ed but this

ChartData by YCharts

Check out the Special Situation Investing report if you are interested in uncorrelated returns. We look at special situations like spin-offs, share repurchases, rights offerings, M&A events, etc. But we also have a keen interest in the commodity space. Especially in the current late stages of the economic cycle.

This article was written by

Bram de Haas profile picture
Special-Situation And Event-Driven Ideas To Improve Risk Adjusted Returns
15 years of investing and I feel like a rookie in his first year at the academy. My roots are in the value school but over time I've learned to respect different approaches. I'm interested in what quants do, options traders do, and even what WallStreetBets is doing (keep your friends close and...)

I gravitate towards special-situations. That means situations around companies or the market where the price can move in a certain direction based on a specific event or ongoing event. This eclectic and creative style of investing seems to suit my personality and interests most closely.

Since 2020 I host a podcast/videocast where I discuss (special-situation/event-driven) market events and investment ideas with top analysts, portfolio managers, hedge fund managers, experts, and other investment professionals. I highly recommend it (pick episodes around topics that interest you) for the amazing guests that come on with regularity.

I've been writing for Seeking Alpha since 2013 after playing p0ker professionally. In 2018 I founded Starshot Capital B.V. A Dutch AIF manager. Follow me on Twitter @Bramdehaas or email me Dehaas.Bram at Gmail

Analyst’s Disclosure: I am/we are long OAK, BX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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