We work hard to add value to the companies in which we invest through our industry contacts and market insights, by ensuring that our companies have access to capital and other resources to take advantage of attractive market opportunities, and through facilitating collaboration among our portfolio companies. We realize that we are not management, and we seek to play a supporting and oversight role in our interactions with the leadership of our companies.
We provide the equity investments used to acquire a controlling or significant interest in private companies or business units of public companies. We provide the financing and transactional expertise to facilitate acquisitions that expand product offerings, strengthen sales channels, add complementary technology, or otherwise help make a portfolio company into an industry leader. Working together, our portfolio companies enjoy benefits of scale, market strength, and market reach not otherwise available to them in such areas as procurement, banking, surety and other insurance coverage, cross selling and channel management, product development, R&D, strategic supplier relationships, and the like.
Because we invest exclusively in the energy industry, we understand the true value and potential of businesses in our sector and can make investment decisions more quickly and confidently than other investors who are less familiar with this industry. Our managing directors and advisors have held leading positions in these industries for many years, serving as senior officers and advisors to regulated companies, equipment suppliers, and important energy end-users in the United States and beyond. Our exclusive industry focus and long-standing experience provide us with strategic insights, key industry relationships, and a perspective which help guide our portfolio companies.
We are firm believers in the value of strong, independent minded directors who are able and willing to challenge the Board and management, provide access to key customers, suppliers, and other constituencies, and help shape the strategic direction of our portfolio companies. We generally favor boards of 5 to 7 members comprised of one or two board members from Oaktree, the CEO of the company, and 3 to 4 independent members specifically selected based upon their ability to have meaningful impact in creating shareholder value. Our process for creating the board starts with a systematic determination of the company’s key strategic challenges and opportunities where board guidance would be especially valuable and/or where assistance from experienced and well-connected individuals could be most helpful. We then engage in a rigorous process to recruit the best possible candidates.
Working in collaboration with management, we craft business strategies based on market opportunities and seek to monetize our investments when we deem that the business has reached a level of development and maturity where optimal value can be realized. We understand that the pace of value creation is related to the timing of changes in the industry as a whole. Our flexibility and patience as investors allow us to invest in the growth of our businesses and pursue a sale when market and business conditions are attractive, not in response to arbitrary liquidity deadlines.
We view the management of acquired companies as our partners. We believe strongly in programs in which management gains a significant equity position in the companies for which they are responsible. We utilize a number of approaches for achieving this value sharing, including options, share grants, profit sharing arrangements, and co-investment opportunities. In addition, while not possible in all situations, we strive to invest in the same class of equity as management. In this same spirit of partnership with our management teams, we do not charge our portfolio companies management or banking fees in the belief that we should only benefit in the value we help to create, rather than achieve financial returns through the receipt of fees. These approaches serve all parties by assuring interests are well aligned and that good results for the investors benefit all contributing parties.
Many of our investments involve the transition of majority ownership from the company’s founder or long-time owner to ownership by an outside investor. This type of transition creates significant risk for the owner, management team and employees, as well as the investor. We have significant experience in working with all constituencies involved to ensure a smooth, successful transition. We also encourage the retention of a meaningful level of ownership by the selling founders/owners, who often continue with the business in capacities as executives and directors and continue to share in the value created following our investment.
We believe strongly in establishing and maintaining a capital structure that facilitates long-term growth rather than one that seeks to realize returns primarily by maximizing short-term leverage or financial engineering. We do not want our management teams to be unduly distracted by having to manage restrictive loan covenants, and we have found that excessive levels of debt obliges our companies to operate in a manner inconsistent with their need to be flexible, agile, and responsive to the growth opportunities upon which they seek to capitalize. Therefore, many of our investments will employ very conservative levels of debt, if at all.
