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Aker detracted 77bps from returns in March. Both the shares and the NAV declined 9% in local currency terms, with the discount unchanged at 17%. The impact on AGT’s NAV was amplified by the depreciation of the NOK against Sterling, resulting in a 11% return over the month.

The principal cause of weakness was Aker BP (58% of NAV), shares in which declined 9% over the month as concerns about the health of the global economy weighed on the oil price. The collapse of Silicon Valley Bank has raised further questions about the fragility of the financial system, and the likely tightening of credit and dent to consumer confidence have increased the probability of a US recession as indicated by the deepest inversion of the yield curve since 1981. This led to a material set back in oil prices and in the share prices of oil related equities.

The OPEC+ group of oil producing nations have responded with a surprise production cut at the start of April, helping oil prices recover such that Brent is +5% month to date at the time of writing. Whilst this has resulted in ire from the White House, it highlights the extent to which power has shifted to OPEC+ and Saudi Arabia, who no longer fear losing market share to US Shale, the role of which as a meaningful swing producer is now seemingly but a feature of history. This so called “OPEC put” should act as a floor for prices and serves as a reminder of the inelastic nature of non OPEC supply.

All told we believe the thesis of insufficient capital investment and production growth remains intact, with events of the last year only serving to highlight the fundamental importance of energy sources, and the significant and elongated role of hydrocarbons.

We believe such an environment is conducive to a period of sustained higher prices and that Aker BP will benefit from this as they embark on a significant production growth plan. In turn, these cash flows can be returned to Aker through dividends (with Aker BP’s dividend growing +10% year on year) and invested in higher growth / higher terminal value businesses, such as Aker Horizons, Aker Asset Management, and Cognite. Aker’s history is one of tremendous value creation and business building, and this
is something we expect to continue.

Aker was the greatest detractor over the month, with both the shares and the NAV declining -10% in local currency terms (with the discount unchanged at 24%). The depreciation of the NOK against the Pound was a further headwind.

Having held Aker since 2008 we have written about the company extensively in previous newsletters and annual reports. In recent times much of this focus has been on Aker BP, which accounts for 60% of NAV, and the attractive long-term prospects for a well-managed low-cost- low-emission oil and gas company, with long-production growth runway in a world starved of capex.

We last wrote about this in May, since then Aker, Aker BP and the oil price have declined -21%, -22% and -23%, respectively. Fears of recessions in Europe and the US, and a slowing of the Chinse economy, have led to significant concerns about the demand outlook for oil. Meanwhile on the supply side Russian production has remained stubbornly high in the face of sanctions, and we have witnessed record drawings of US Strategic Petroleum Reserves. This led to a material set-back in oil prices. However, the long-term thesis of insufficient capital investment and production growth remain intact. It has been clear for some time that there is very limited spare capacity to absorb supply shocks, and that this would become more pronounced from October when US SPR draws were due to slow. In the past few days OPEC+ have announcement of a 2 million barrel production cut – an

unprecedented step in one of the tightest markets in history. A few days ago one strategist wrote “OPEC takes on the Fed”. Today the same strategic writes “OPEC+ takes on the West (very bullish)”. We concur.

A long and deep recession would obviously alter the equation, but the case for higher prices seems convincing. This bodes well for Aker BP. Meanwhile a refocusing on energy security in Europe, and the long-term role of renewables, is an important mega trend for Aker Horizons (9% of NAV). Combined with Aker’s 24% discount, the outlook appears attractive. We added to the position in Aker over the last month.

Aker was the most significant contributor to returns over the month, as the shares moved +16% higher on account of strong NAV growth (+18%). The key here was Aker BP, whose shares returned +21% as the oil price continued to rise (with Brent now $120 per barrel at the time of writing). Continued OPEC production misses, declining US Strategic Petroleum Reserves, and further steps toward the re-opening of the Chinese economy have all supported this last leg up. More fundamentally however it comes down to years of underinvestment and a structural imbalance between supply and demand. Earlier this year we wrote that “a pure play, low-cost low-emission producer, controlled by a thoughtful long-term orientated shareholder, would prosper in a world starved of oil capex and production growth”. We believe this remains true and that Aker BP and fossil fuels will continue to play an important and extended role in the energy transition. Meanwhile, as is typical of the best run family-controlled companies, Aker continues to focus on the even longer term, with initiatives at Aker Horizons, the renewable energy-focused holding company, positioning Aker to play an important role in renewable energy in the years ahead.

The recent rally in oil prices has been a positive for Aker, the Norwegian holding company. At the time of writing the share price and NAV are up +13% and +16% in a little more than two weeks, led by Aker BP, the Norwegian E&P company which accounts for 63% of NAV, which has returned +25%.

We added to the position last Autumn with a view that a pure play, low-cost low-emission producer, controlled by a thoughtful long-term orientated shareholder, would prosper in a world starved of oil capex and production growth. Clearly, this latest leg up in the oil price was not something we could have (or would want to have) predicted, but it does serve to highlight how dependent the world still is on fossil fuels. Whilst we believe the energy transition is a one-way street over the coming decades, it seems clear that oil will play an important and elongated role in this. Aker BP appear likely to benefit from this given their long-dated production growth schedule.

The current crisis has also exposed the importance of energy sovereignty and flaws in Europe’s energy policies. In turn this will likely lead to significant increased investment in renewables. Aker are well placed to benefit here too, having established Aker Horizons, a renewable energy-focussed holding company in 2020. By creating a separate holding company – as opposed to conducting such activities via Aker BP which remains pure play – Aker were able to take advantage of investor enthusiasm and build Aker Horizon’s foundations with a very low cost of capital.

That said, investor sentiment toward the sector has swung from euphoria to pessimism in recent months, and Aker Horizons share price now sits some -53% below its 52-week high (at the time of writing). Such booms and busts are painful, but they are not uncommon in new and emerging technologies where investors become overly optimistic, only to have their dreams crushed.

Aker have a history of going against the grain and investing through the down-cycle to create value in the long-run. We believe they will adopt a similar strategy, and that their industrial know-how and partnership model stands them in good stead to create value in the years ahead.

Aker also detracted from returns. The NAV was flat over the month however a widening of the discount from 15% to 22% saw the shares decline -7%.

Whilst the NAV was flat overall, under the surface there was divergence between Aker BP (which declined -5% shaving ~3% off NAV) and Aker Horizons (which returned +14% adding ~3% to NAV). Concerns about the spread of the Delta variant –and as such global growth – saw the oil price decline -5% over the month. As is often the case over short periods, AkerBP’s share price tracked this fall. In turn we attribute Aker’s discount widening to the misconception that Aker is an “oil holding company”, with investors doubly punishing the oil price weakness in the form of a wider discount.

We believe such a view is misguided and ignores the evolution of Aker’s NAV to a more diverse range of higher quality assets. Indeed, just in the last year Aker have: (1) listed krill company Aker Biomarine (6% of NAV); (2) built and listed a renewable energy holding company Aker Horizons (23% of NAV); and (3) demonstrated the value of industrial application software company Cognite (11% of NAV), following investments from Accel and TCV.

Since listing in 2004 Aker has compounded returns at +20% per annum. We remain excited about the prospect of continuing to align our capital with such skilled and active value creators.

Aker’s NAV rose +13% in January, and the discount tightened from 19% to 13%, giving total shareholder returns of +22%. NAV growth was primarily driven by Aker Horizons, which conducted a private placement and convertible bond issuance which added c. 11% to Aker’s NAV. We previously talked about Aker Horizons in our November newsletter. By way of reminder, Aker Horizons was set up in 2020 as the platform through which Aker would invest in clean tech and renewable energy. Initially comprised of listed stakes in Aker Carbon Capture and Aker Offshore wind, in Jan-21 Aker Horizons also acquired a 75% stake in Mainstream Renewable Power, a renewable energy company within the wind and solar energy markets. Combined with a series of other smaller assets, today Aker Horizons is a diverse renewable energy technology company. Subsequent to the month-end, Aker Horizons also listed on the Euronext Growth Exchange. While the creation of a new listed holding company within Aker could be seen as problematic, with potential discounts-on-discounts leading to an impairment of shareholder value, we believe that on balance the move to list Aker Horizons has merit. Investors have been showing increasing appetite for ESG-related assets in recent years, and as such the listed Aker Horizons will likely achieve a more favourable rating than it would if held within Aker, providing it with a more valuable currency with which to pursue renewable investments. The establishment of Aker Horizons should be seen in the context of active management across the Aker portfolio, with 2020 also being the year in which Aker Biomarine was listed and Cognite received a minority investment from Accel. The development of these businesses has helped reduce Aker’s exposure to cyclical energy markets, and increased the exposure to long-term global trends with higher growth rates. In our view, this sort of transformational activity is one of the key benefits of aligning our capital with a family shareholder who thinks in terms of generations rather than quarters.

Aker added 87bps to returns over the month, making it the third-largest contributor. Returns were driven by NAV growth (+41%), tempered by a widening of the discount, leading to a share price total return of +36%. Aker’s listed holdings, comprising over 100% of NAV, returned a weighted average share price return of almost +40% as oil prices rallied +27% over the month. We have long viewed investing in family-controlled holding companies as an attractive proposition, as it gives us the chance to align shareholders’ capital with a family that has a long-term focus and an active approach to value creation. The CEO’s comments in the third quarter results reinforced this perception of Aker, as he addressed the challenges facing the energy sector and outlined Aker’s three-pronged plan for growth and adapting to the need for more and cleaner energy. Aker’s portfolio is dominated by oil & gas producer Aker BP (54% of NAV), and this investment forms the first prong of Aker’s strategy. Aker BP is one of the cleanest oil majors in operation, producing less than 5kg of CO2 per barrel of oil, compared to a global average of 18kg, helping to reduce the pollution associated with oil and gas production. It also has a production cost of $7 per barrel (compared to oil prices of close to $50 per barrel). As a cleaner, low-cost producer, Aker BP is a highly attractive investment proposition in its own right, with the ability to pay large dividends, which Aker can re-invest elsewhere in the portfolio. A large portion of this new investment will likely go towards funding Aker’s second prong: increased emphasis on renewable energies and low-carbon solutions. Over the past several months, Aker has founded a new company – Aker Horizons, which at present is principally composed of Aker Offshore Wind and Aker Carbon Capture, both of which were spun off from Aker Solutions. The group has other offshore wind interests, as well as ambitions in hydrogen. These new and spun-out companies will absorb the cash flows that Aker BP provides, and help create a new growth platform for Aker. The third and final prong is an investment in Cognite, an industrial application software company that helps asset-heavy industries optimise their use of data.

Aker’s share price rose strongly over the month (+28%), adding 44bps
to returns. Even stronger NAV growth however, at +38%, saw the
discount widen from 17% to 23%. Aker BP (71% of NAV) was the star
performer in the portfolio, after making a series of positive
announcements at its latest Capital Markets Day. To wit, Aker BP
announced a 67% increase in the 2019 dividend – for a yield of 7% on
the pre-announcement share price – and guided for a 45% reduction in
operating expenditure per barrel by 2023. The prospects of higher
dividends in the near future and a lower cost of production were
received positively by investors, while a +15% recovery in the price of
Brent crude oil – following sharp declines in the latter half of 2018 –
provided an additional strong tailwind to performance.

The main detractor was Aker, whose shares tumbled along with the oil
price with the 22% fall in Brent crude exacerbated by a widening discount
(out to 21% from 10%). Over the course of the year, we had sold 75% of
our holding in Aker at high single-digit/low double-digit discounts, but we
added to our position in November at these much wider levels. Another
oil-related holding, Riverstone Energy (RSE), was unsurprisingly also
amongst the largest detractors, although there were additional
idiosyncratic drivers at work in this case. RSE’s Dutch Auction tender
offer was oversubscribed at the lowest end of the range and the fears of
an overhang led to the discount widening out. We believe the tender offer
results demonstrate a need for further large-scale buybacks, which offer
compelling NAV accretion at current levels.

Aker BP’s share price climbed +16% over the month, helping
boost Aker’s NAV and share price, as the oil price continued to
push higher and amid growing excitement around the potential
hidden value in Aker’s 50%-owned Ghanaian oil venture, Aker
Energy. Aker Energy was assembled on the back of exploration
licences acquired from Hess Energy in early-2018 at what now
appears to be a bargain valuation, and sell-side analysts are
beginning to ascribe values to the holding at multiples of the
current carrying value.

There was little in the way of stock-specific news for Aker during the month
and its underlying holdings were only up a small amount, but positive
sentiment towards oil following an under-whelming increase in OPEC
production targets helped push Aker’s discount in materially (420bps to end
the month at 20.3%). We sold a portion of our holding in Aker at these
levels. Similarly, there was no news specific to Riverstone Energy, but the
significant increase in WTI pricing (more relevant than Brent for its portfolio)
helped push its discount in by over 200bps.

The most significant contribution came again from Aker, followed by
Pershing Square Holdings, Symphony International, and the newest addition
to the portfolio, Oakley Capital Investments. Wendel and Cosan were the
largest detractors.

While the WTI oil price benchmark drifted back over May (-2%), the increase
in Brent is more relevant for Aker and its +3% move to $78 per barrel by
month-end helped push Aker’s shares higher. While the commodity price
boosted Aker’s largest holding (Aker BP, up +13%), the latter’s Q1 results
also proved supportive with capex coming in below forecasts and
management reaffirming guidance for the year. In contrast to last month,
Aker’s share price growth overshot that of its NAV and we took advantage of
the tightening discount to sell a small part of our position. Aker ended the
month on a 22% discount to NAV.

Aker led the list of largest contributors, followed by Pargesa, Pershing
Square Holdings, EXOR, Tokyo Broadcasting System, the Japan Special
Situations Basket, Symphony International, and new addition Oakley Capital
Investments. The only detractor of any note was GP Investments, which fell
-14% on the last day of the month due to a clumsily executed trade only to
recover substantially all of that day’s losses in the next trading session.
Aker’s portfolio companies had a very strong month, with E&P-focussed
Aker BP (77% of Aker’s NAV) up +25%, and oil services provider Aker
Solutions (10% of NAV) up +30%. While the rising oil price was
unambiguously positive for both companies, specific good news arrived for
Aker Solutions with the announcement of a strong order intake that has seen
its backlog increase by 40% over the last six months. Aker’s share price (up
+14%) failed to keep pace with its NAV (+19%), and its discount expanded
to 26% as a result.

Aker’s holding in Aker BP (71% of its NAV) benefitted from continued
strength in the oil price as it moves ever closer to first oil at Johann
Sverdrup; Cosan Limited climbed very strongly (+18%) along with the rest of
the Brazilian market, although its discount and look-through discount remain
exceptionally wide at 32% and 53% respectively; Wendel benefitted from a
narrowing discount (in 310bps to 20.9%) on reports that advisors have been
hired to explore an IPO or sale of its stake in speciality chemicals
manufacturer Stahl; and the discount on Swire Pacific B shares narrowed
over the period, although the shares still trade on a negative stub value (i.e.,
stripping out the market value of their stake in Swire Properties).

Aker’s oil services and E&P holdings had a strong month, aided by a rising
oil price (+5%) and new contract wins at Aker Solutions whose share price
increased by +12%; Aker BP’s shares were up a more modest +3%. The
supportive backdrop saw Aker’s discount narrow by 400bps to end the
month at 28%. While a higher oil price is unambiguously good for Aker, our
investment case is predicated less on a directional view on the commodity
than on the attractive valuations and growth prospects of its underlying
businesses; the family’s proven track record at adding value through M&A
over the cycle; and the wide discount to NAV at which Aker trades.

For the second month running, Aker was a significant contributor to
returns. This was despite a widening discount (ending the month
130bps wider than where it began) and a weaker Norwegian Krone (-
1.8% vs GBP). Aker BP (68% of NAV) was the driving force, with its
share price up 22% in October following its $2bln acquisition of Hess’s
Norwegian division. This transaction includes Hess Norway’s 64%
share in the Valhall field, its 63% share of the Hod field, and a large
US$1.5bln tax loss carry forward. These are income producing assets
and will contribute to Aker BP’s ability to pay a higher dividend.
Indeed, Aker BP announced that it intends to increase its dividend next
year and this will boost its dividend yield from 3.2% to 4.5% post
completion (we suspect this may encourage Aker to increase its own
dividend). In addition, this ratcheting up of dividend income from Aker
BP comes ahead of phase I of its flagship Johan Sverdrup field coming
on line in 2019. To fund the transaction, Aker BP raised US$500m of
new equity underwritten by Aker who subscribed for 40% of the new
shares. The Hess transaction provides further evidence of Aker’s ability
to continue to create value by sourcing attractive M&A transactions
which are immediately accretive and by standing behind its portfolio
companies when capital is required.

Following the acquisition of Marathon Oil Norge in 2014, BP Norge in
2016, and now Hess Norge, Aker BP has become one of Europe’s
largest independent E&P companies. We continue to view Aker’s
shares as undervalued on a 31% discount to NAV.

Aker was our largest contributor, adding 32bps to BTEM’s NAV despite
the FX headwinds. Underlying holdings Aker BP (Oil & Gas E&P), Aker
Solutions (Oil Services), and Akastor (drilling, rigs) all appreciated in
excess of or in-line with a rising oil price, driving Aker’s NAV higher.
Our return was further buoyed by Aker’s narrowing discount which
contracted by 490bps over the month. Aker is a great example of how
market sentiment can create opportunities. Over calendar year 2016,
we had increased our position in Aker at discounts in excess of 40% at
a time when many were very bearish on the oil price and oil-related
equities. Our view was that Aker’s strong balance sheet meant it was
better-placed to ride out a depressed backdrop than the market was
giving it credit for. It became our largest holding and subsequently
went on to perform very strongly, and we reduced our position
significantly in late-16 and throughout H1-17 at discounts in the low-
20%s. A widening discount in July of this year allowed us to increase
our holding at a 32% discount to NAV at prices 23% lower than the
peak at which we sold. Following the re-rating in September, Aker
shares ended the month at a 29% discount to NAV. Largest holding
Aker BP accounts for 61% of NAV and first oil at its flagship asset,
Johann Sverdrup (break-even of $25 p/barrel), is scheduled for 2019.

Improved sentiment towards oil boosted Aker over the month, with its
holding in AkerBP (61% of NAV) rising +20%. We had reduced our holding
in Aker in late-2016 on discounts in the low-20%s after a run of very strong
performance, but added recently deeming the 30%+ discount it has
widened out to attractive again

Aker was the largest contributor over the year, adding 596bps to NAV,
followed by AP Alternative Assets (+466bps), JPEL Private Equity (+245bps),
Riverstone Energy (+224bps), Symphony International (+205bps), NB Private
Equity Partners (+200bps), Vietnam Phoenix (+177bps), conwert Immoblien
(+161bps), Investor (+159bps), Wendel (+159bps), and Better Capital
(+143bps). Detractors were few in number and relatively small in magnitude,
with Dolphin Capital detracting by far the most (-55bps) from returns. The
key driver of our strong outperformance this year was events across our key
holdings.

While we engage constructively with management and boards of our
portfolio companies to help narrow discounts, particularly in the closed-end
fund holdings where we are often the largest shareholder, our investment in
Aker demonstrates a type of activist investing found in our portfolio that is
often under-appreciated – that being activism on the part of the controlling
family shareholders of our holding company investments. As an oilfocussed
holding company with investments in both the E&P and Services
sectors, Aker unsurprisingly suffered from the collapse in oil price. There
was much speculation that Det Norske, Aker’s E&P holding whose key lowcost
Johan Sverdrup asset (all-in break-even cost of less than $25 per
barrel) was years away from first oil, would be unable to fund its share of
development costs. Our view was that Det Norske was sufficiently wellcapitalised
and, perhaps more importantly, had the backing of its 50%
shareholder Aker to draw down on if required. We added significantly to our
position in Aker at an average 36% discount at the beginning of the year.

Times of dislocation and uncertainty create opportunities on which longterm
owners can capitalise, and this is exactly what Aker’s management did
in June when they drove through the merger of Det Norske with BP Norway
to form Aker BP. The transformational deal doubled production, brought
forward by several years the commencement of dividend payments,
strengthened the balance sheet and ensured the funding of Johan Sverdrup.
Aker BP almost trebled in value over the year, up +183% in local currency
(247% in GBP), while our position in Aker increased by 101% in local
currency (147% in GBP). At the end of 2016, oil (Brent) stood at $57 per
barrel having hit a peak of $115 before the late-2014 collapse. On the same day oil peaked, Aker’s share price was NOK240. It ended 2016 at NOK323,
a clear demonstration of the value engaged long-term owners can add at
the bottom of cycles. Our position size in Aker was reduced towards the
end of the year with sales taking place at discounts in the low-20%s.

Aker was yet again our largest contributor. A combination of solid NAV
growth (+4%), a narrowing discount (from 31% to 27%), and a strong Krone
(+2.4% vs GBP) combined for a 14% return in Sterling over the month. On
the last day of the month, Aker BP (which accounts for 57% of Aker’s NAV)
announced its maiden dividend. Aker BP was formed earlier this year
through the merger of Aker’s DetNorske business with BP Norway’s assets,
a transaction that has left the merged entity with not only exceptional growth
prospects but substantial current cash-flows. The minimum dividend to be
paid until first oil in 2019 at Aker BP’s flagship Johan Sverdrup asset
equates to an annual yield of 4.6%. The company also announced a lower
than expected net debt figure, leaving a sizable $1.5bn war-chest through
which to exploit potential M&A opportunities.

Aker, comfortably our best performer over the last year, was also our top
contributor over the month despite its discount widening slightly (by 50bps).
Aker’s holding in DetNor – 58% of NAV – jumped 12% in NOK (18% in GBP),
buoyed by a 4% rise in the oil price on tentative signs of an OPEC
agreement to curtail production. DetNor completed its transformational
merger with BP Norway during September and has now been renamed
AkerBP. The formal closing of the deal was accompanied by a relaxation of
the company’s debt covenants allowing it to pay dividends beginning in Q4-
16, an increase in its Reserve Based Lending facility, and comments from
the company’s CEO re-iterating their strategy to take advantage of M&A
opportunities arising from the downturn.

Ocean Yield (22% of Aker’s NAV) conducted a capital raise of $100m to fund
further acquisitions of vessels and diversify their current portfolio. Aker
committed to underwrite 50% of the issuance with an agreement to scale
back based on demand. The issuance was strongly oversubscribed and
thus Aker did not participate allowing them to be diluted to improve the free
float. We are encouraged that Ocean Yield is still able to find attractive deals
and the continuing diversification of the portfolio should help to reduce the
overly high risk premium on its shares implied by the market.

Aker was once again our largest contributor with another month of
strong share price performance – up 18% in local currency terms. This
was driven by a combination of both NAV growth and discount
contraction, although the current level of discount (32%) remains far
too wide in our view. Whilst no major news was out, the market is still
rewarding the company for the DetNor- BP Norway transaction
announced last month, the latest in a series of value enhancing
transactions the company has carried out.

NAV growth of +17%, a moderately tighter discount, and a +9%
translation effect from the Norwegian Krone combined to again
make oil-focussed Norwegian holding company Aker our largest
contributor. Over the last 3 months, the shares are up +66% in
GBP (+56% in local currency). The activity at Aker is a textbook
example of the value that engaged long-term owners can create
throughout market cycles. The latest and most significant in a
series of pro-active transactions came in the second week of June
when portfolio E&P company DetNor announced a merger with BP
Norway to form Aker BP (now 54% of Aker’s NAV). The transaction
is truly transformational and positions the combined company as a
major producer on the Norwegian Continental Shelf. The deal
doubles production, brings forward by several years the
commencement of dividend payments, strengthens the balance
sheet, and provides full funding to first oil for their major low cost
asset, Johan Sverdrup (all-in breakeven cost of less than $30 per
barrel). We continue to believe Aker’s shares are very much
undervalued on a 35% discount to NAV.

Aker’s discount narrowed from 41% to 35% over the month to
make it our largest contributor for a second month running. This
contribution came despite headwinds from the weak Norwegian
Kroner and a fall in its NAV with strong performance from E&P
player DetNor insufficient to offset weakness in the other
underlying listed holdings. We have been pleased to see this NAV
weakness reverse in early June to continue Aker’s good run. A
number of transactions took place at the beginning of June. The
divestment of Aker’s 20 year holding in Havfisk which has
appreciated in value by 371% over the past 5 years in favour of a
new investment in Solstad Offshore (down 88% over the same
period) highlights Aker’s disciplined and opportunistic approach to
capital allocation in a sector in which they have great experience.
Aker’s strong family holding structure allows it to capitalise on
these opportunities. We believe the current 35% discount does not
reflect management’s history of strong value creation, the 5.3%
dividend yield, nor its high quality portfolio.

In terms of contribution, Better Capital was second largest after
Aker as its discount tightened ahead of its results update due in
late June, while Ecofin Water & Power Opportunities was not far
behind as its discount reduced in the run up to its continuation vote
also scheduled for late June. Our three German real estate plays
added to returns, with DIC, Adler, and Conwert all contributing
meaningfully despite a weaker Euro. All three still trade on wide
discounts and could be beneficiaries of M&A activity.

Aker was our largest contributor, benefitting from the sustained
rally in oil which rose 20% over the month and from maintaining its
dividend at last year’s level when many sell-side commenters were
expecting a cut. Aker’s performance was all the more creditable
given no change in its very wide discount (41%) which represents
an attractive store of future outperformance. Pargesa was a strong
performer, with its exposures to oil (Total) and European
construction (LafargeHolcim) boosting returns, while its relatively
new holding in Adidas continued a run of stellar share price
performance. Its robust NAV growth was accompanied by a
260bps narrowing of the discount.

We met with Aker’s management in Oslo in late-November, as well as
with management of most of their portfolio companies. We returned
even more confident in the company’s prospects. Aker is a Norwegian
holding company with (mainly listed) exposure to Oil Services, Oil
Exploration & Production, Shipping, Real Estate, and Fishing. Aker’s
exposure to oil has hurt the shares over the last eighteen months and
the shares now trade on a 43% discount to our estimated NAV. We
believe the market is failing to appreciate the strong balance sheets at
Aker’s oil-related holdings and, crucially, that approximately half of
Aker’s exposure is in fact to non-oil sectors.
Aker has a key ingredient we look for in family-controlled holding
companies: a strong alignment of interest with superb capital allocators
focussed on making decisions to maximise long-term shareholder value.
A common criticism of investing in family-controlled companies is the
lack of explicit catalysts. But such a view fails to realise that we already
have an activist in place when we hold an investment like Aker: a
highly-motivated family with substantial and often controlling stakes in
the public companies in which they invest.

Aker, which has been a very poor performer in recent months on the
back of the falling oil price, staged a small comeback during December
despite the continued weakness in oil. The discount on this holding
company has widened and the prospective dividend yield is relatively
high. We anticipate a strong recovery in the shares once oil stabilises.

The main detractor from performance was Aker, whose shares fell a
further 7.3% during November, further compounding the sharp falls
suffered by the company since the oil price started to fall in June. With
a portfolio of assets dominated by oil related businesses it is unlikely
that Aker’s share price will move in a different direction to that of the
oil price in the near term. However, with a prospective dividend yield
of over 9%, a discount of over 40% and financially sound assets there is
a strong case to be made that Aker’s shares will at some point bounce
very sharply from these very depressed levels.

One particularly painful investment over the month was Aker ASA, which fell by 22% as
its NAV was hit by the rapidly falling oil price. With investments in oil
exploration company Det Norske and in oil services company Aker
Solutions, its value has been hit hard. The company’s policy of paying
out a relatively high dividend and of actively managing its investments
in order to maximise value, is a source of confidence in the long term
potential of Aker. On a discount of almost 40% and with such a swift
fall in value over the month, we believe there will be a bounce in the
share price. However, in the very near term sentiment will continue to
be driven by moves in the oil price.

Aker ASA, the Norwegian listed holding company was the largest
contributor to performance as its shares rose 10% over the month. The
driver of this performance was the announcement by Aker Solutions, a
company in which Aker holds a stake of 40%, that it would split itself
into two separately listed companies in order to improve efficiency and
drive shareholder returns. The discount on Aker remains wide at 31%
which is narrower than its widest levels of 42% that we have seen in
recent years but leaves plenty of scope for further narrowing. With a
dividend yield of almost 6% and clear evidence of management
attempting to improve the rating of the company – both at the holding
company level and at the underlying portfolio level – the case for
further discount contraction is compelling.