After a decade or more of being told that private market investing was a hot area, drawing in significant funds from wealth managers, family offices and others, the sector has been jolted by rising rates. But there are still plenty of ways to play the market. We talk to a UK specialist firm on how it achieves that.

The world of private equity and venture capital has had the equivalent of an ice bath. Rises to central bank interest rates last year clattered a sector that had been a toast of Wall Street and the City for its supposed ability to deliver superior returns to listed stocks, and bonds.

To keep composed in these conditions is important, and to find diamonds amidst the dross takes a practised eye. 

Over at London-listed Oakley Capital Investments, a closed-ended fund, practice and experience appears to be working. The performance of OCI is linked to that of funds managed by Oakley Capital, the investment advisor. It primarily holds unquoted, pan-European firms which the investment advisor thinks have the potential lead in their field, or have already achieved that status. It focuses on education, consumer, business services, technology sectors, and on opportunities where there are chances of buyouts and improvements in performance.

While some of the biggest-cap areas have turned more challenging, there are plenty of opportunities to be found in the mid-cap space, Steven Tredget, partner at Oakley Capital, told WealthBriefing in a call.

“We are focused on investing in lower-mid to mid-cap firms. Firms where there is a lot of opportunity for growth and for us to add value and which in time become targets of the larger cap focused private equity firms,” he said, citing actual transactions that Oakley has made with large private equity shops such as Silverlake and CVC, among others. By “mid-cap,” he means firms with an EV of circa €1 billion ($1.05 billion) plus. 

“In the lower to mid-market there is a lot of activity going on. Oakley Capital has had a record year of fundraising, closing almost €5 billion in new funds over the course of the year to date,” Tredget said. 

“Our portfolio companies have on average grown their EBITDA [earnings before interest, taxation, depreciation and amortisation] by 21 per cent organically year-on-year. They’re doing that with a relatively modest level of debt – four times net debt to EBITDA,” he continued. 

One of the key drivers of exit activity results from the fact that the large private equity houses have started to move beyond the mega-deal space in pursuit of more lucrative opportunities acquiring established mid-market platforms, he said.

Tredget argues that Oakley’s core philosophy is about the power of co-investing with business founders. Creators of firms can be touchy about the idea of an outsider coming into the business, so the fact that Oakley has been able to repeatedly reinvest alongside entrepreneurs speaks to the level of trust and credibility it has built up, he said. 

“Some 75 per cent of the transactions we do go on outside the usual auction process,” he said. 

Oakley, which is headquartered in London, runs a number of European-domiciled funds. The investment firm, which was founded in 2002 by Peter Dubens and David Till, launched Oakley Fund 1 in 2007. The business has raised a total of eight funds so far, its latest flagship fund, Fund V, hit a hard cap of €2.85 billion, the firm said. That fund was backed by more than 50 limited partners from Europe and the US. Oakley has chalked up gross realised returns of five times money multiple and an average internal rate of return of 73 per cent of all funds since they were launched.

The hard numbers
So how has OCI done? In its half-year report for results to end-June, the LSE-listed OCI fund made a total look-through investment of £96 million ($117 million) into areas such as £66 million of reinvestment into IU Group (Fund V), and £14 million into Thomas’s London Day Schools (Fund IV), and £7 million (Origin Fund) related to an acquisition of Fastcase, a US intelligence business, to form a large law firm subscriber base.

Over the last five years OCI has delivered an average annual net asset value (NAV) return of 22 per cent and total shareholder return of 135 per cent. Since the start of 2023, OCI has achieved a total NAV return per share, including dividends, of 0.5 per cent, and total shareholder return of 5.3 per cent.

When it announced its OCI results in mid-September, Caroline Foulger, chair of OCI, said: “OCI has delivered one of the sector's highest shareholder returns over the last 12 months.”

With results such as this, Oakley Capital is sure to attract more attention. As with all investing, keeping performance on track is the hard part. In this part of the private equity space, at any rate, opportunities continue to be there for the taking.