Australia's Blue Sky confirms talks with Oaktree

Details of the potential investment by Oaktree have not been disclosed, though The Australian Financial Review reported that the firm has proposed to invest via a debt instrument rather than an equity transaction. In a statement, Blue Sky said it has considered proposals from several significant global investment managers that could strengthen its business model.

Blue Sky announced a review of its business model in May as it battled accusations that it had inflated its assets under management (AUM) and portfolio performance. The firm's share price has plunged by more than 80% since US-based Glaucus Research Group first made its allegations public in March, trading around A$1.78 as of midday July 27. The price had reached an all-time high of A$14.70 as recently as December 2017.

Blue Sky also engaged KPMG for an independent valuation review of all its 89 managed assets. As of earlier this month, the review has been completed except for a commercial property asset in the US that is being held at cost and for which the valuation is expected to be completed in August.

According to the review, Blue Sky's fee-earning assets under management (AUM) stood at A$3.4 billion ($2.5 billion) in June 2018, up from A$3.25 billion the previous year but below the A$3.9 billion reported as of December 2017. Of the total AUM, A$543.1 million was in private equity, with A$321 million in growth capital and A$222 million in VC investments. Blue Sky also holds $991 million in real assets, primarily agriculture and irrigation projects; A$1.3 billion in Australian real estate; $472 million in US real estate joint ventures; and A$64.4 million in hedge funds.

The review revealed that Blue Sky's cash position stood at A$40 million in June, down from A$62.2 million the previous year. The firm has not released financial results for 2018, but projected that the valuation adjustments would have a negative impact on net profit. The majority of this is due to write downs in its investments in retirement living and student accommodation platforms.

For the year ended June 2017, Blue Sky recorded A$69.1 million in operating revenue, up from A$68.8 million the previous year. Over the same period, net profit grew from A$10.5 million to A$20.7 million.

The firm has announced that it will close its domestic hedge fund business and exit its property management rights and regional real estate development verticals. This will leave private equity, real estate and real assets as the core business areas.

Oaktree opened its first office in Australia in 2016. The firm typically targets distressed and corporate debt, control investing, convertible securities, real estate, and listed equities. Its investment activity in the country includes the restructuring and listing of Nine Entertainment and a restructuring package for surfwear brand Quiksilver.

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• Topics
• Australasia
• GPs
• Australia
• Blue Sky Private Equity
• Oaktree Capital