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No. of Recommendations: 5
As the board here knows, OAK doesn't have a consistent yield, and so any "yield" is an estimate. But, I think that the $2.97 OAK has paid out in the last 12 months is fairly representative. If true, that would put the yield at around 7% today. OAK, the company, should be counter-cyclical. At least in the month of October, the stock price has held up in the face of the market sell-off.

OAK has held up rather well compared both to other alternative asset managers and the overall SP500. As you note, it has a well-known countercyclical reputation.

Analysts on the call are very interested in when OAK is going to turn on Opps Xb and understandably so. It's a large fund with committed capital AUM fees so the fee revenue stream will be significant to OAK's profitability. The best guess is now late 2019 for Opps Fund Xb.

No one is asking, "But then what?"

As good as Howard Marks and Bruce Karsh and the OAK team are investing in distressed markets, the company has not played a leadership role developing other funds and products. There is a gigantic chasm in new product development between Oaktree and Blackstone. Apollo also innovates but in fewer areas than Blackstone.

Even if OAK gets the distressed market it wants the opportunity with be cyclical, natch, and therefore limited in time. I think we can agree that Howard Marks knows cycles.

Contrast that advantage to Blackstone's product innovation which can and will occur in a variety of markets and is now pivoting to permanent capital revenue products. I expect to see infrastructure, life sciences, insurance and China products grow in importance.

To be fair, Oaktree has the cash on its balance sheet to make opportunistic purchases of smaller existing products. Their BDC purchase is an example.

Yet even if OAK purchases some excellent fund products at superior prices, their caution - or inability - to grow them as quickly as Blackstone is another issue.

In my opinion, investors and analysts are looking to Fund Xb but they really should be considering the question, "What comes next? What is going to drive OAK ahead beyond a large fund or a well timed modest acquisition?"

One of the downsides of Marks, if I may be a bit bold, is that he thinks of value creation in terms of cycles. Now no one is disputing that more value and opportunity exist closer to the bottom of a cycle. But what about creating value for unitholders through the entire cycle or over various cycles? It's the difference between thinking about CAPTURING value versus CREATING value, which is what Blackstone's product development ability ably represents.

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