EFTA01452660.pdf

28 January 2014 Brokers. Asset Managers & Exchanges Alternative Asset Manager Initiation Rating Company Buy Oaktree Capital Research Analyst North C0 Group United States Price at 24 Jan 7014 58.98 (USD) Puce rarest 68.00 52-week range 60.95 - 46.75 Brokers, Asset CAKR OAK US Managers & Exchanges ,Price/pme .t' Conservative credit manager still under-appreciated; initiate at Buy Initiating coverage of OAK with a Buy Rating and $68 PT 012 10112 4/13 10/13 We see the following positive catalysts for OAK units over the next 12 months: —ceeteeCiereleetu 1) an acceleration in AuM growth after stagnant AuM over much of the past 3 9O21:001/10CCenetate years as the giant financial-crisis era Vllb fund nears the end of its distribution Performance 1%) 1m 3m 12m period, 2) strong organic growth across a variety products, from new and also Absolute 5.7 5.9 28.3 more-traditional strategies, 3) reasonable growth in DE after modest re-basing S&P 500 INDEX 0.0 4.7 22.3 drop in 2014 post Vllb realization cycle, helped by high accrued incentive Sow* nano. Bat balance, and 4) greater investor appreciation for OAK's lower risk profile 0. .20:inr, I .1. at. emanating from its conservative investment strategy (with a heavy mix of yield Market Cap (USO) 1.888 71 stabilizing investment returns). With OAK trading at a premium valuation to Shares outstanding (ml 150.86 peers (consistent with its more-asset-manger-like business mix), our thesis is Free float 1%) more reliant on earnings growth than revaluation, but we also see good Volume (23 Jan 2014) 47,449 risk/return w/OAK outperforming in a correction scenario. Option volume fund. shrs.. 1M avg.) Earnings outlook Jane DoelK:he Sent We believe DE, from which cash distributions are paid to unit holders, is the most important earnings metric to value the Alts. rather than economic net income (ENI) that forms Consensus estimates. We forecast OAK's DE per unit to drop from $5.70 in 2013 to $5.14 in 2014E and grow again to $5.40 in 2015E. Key drivers are: I) a re-basing of incentive fees (though still at a good pace) after Fund Vllb distributions wane, partially offset by 2) continued strong AuM organic growth bolstering longer-term DE capacity. \le-Mid ton & it;sls We think the catalysts outlined above will slightly improve OAK' PIE from 12.3x 2014E ENI to 12-13x 2015 DE 12 months from now, narrowing its discount to the S&P 500 PIE from -20% to -15%. This drives a $68 PT, which implies a total return of 22% over the next 12 months, inclusive of a 6.4% forecast distribution yield for 2014. Downside risks for OAK are: 1) a slowdown in US/global economy. 2) any emergence of a severe credit cycle that could temporarily depress OAK AuM, & 3) an inability to generate strong organic growth in 2014 that would jeopardize long-term growth in DE. Page 64 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0109831 CONFIDENTIAL SDNY_GM_00256015 EFTA01452660