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When RBC Dominion Securities looked for defensive stocks within the diversified financials sector, one company it found held up particularly well when the stock market tumbled: Onex Corp., the Toronto-based private-equity firm.

That is, when the S&P/TSX Composite Index fell at least 5 per cent – which has happened six times over the past five years – RBC found that Onex shares either rose or outperformed the index, which suggests the stock could do well if the good times end.

What’s going on here? Perhaps savvy investors expect that private-equity firms, which invest in privately held companies, will find better buying opportunities when the stock market is down and takeover targets are cheaper.

The Onex Corp. logo.The Globe and Mail

Onex, which was founded in 1984 and now has more than $32-billion in assets under management, has been prowling for acquisitions longer than most.

It invested in Beatrice Foods for four years starting in 1987, Alliance Atlantis for five years in the 1990s and Mister Car Wash for seven years starting in 2007, to name a few.

Today, the portfolio consists of companies such as IntraPac (a packaging company), Laces Group (a bath-accessories company) and Mavis Discount Tire.

Okay, this is not exactly exciting stuff for many investors, which may explain why Onex, despite its $9.2-billion market capitalization, doesn’t get a lot of publicity. Its charismatic chief executive, Gerry Schwartz, 76, is also less of a public force than he once was.

The company’s other challenge in appealing to investors: Private-equity companies are sized up based on the value of their investments, usually published only four times a year, which can be an opaque process. Investors who prefer, say, consistent quarterly profit won’t always find them here.

Despite these drawbacks, private equity is booming. Over the past five years, Ontario Teachers’ Pension Plan has doubled its exposure to what it calls “non-publicly traded equity” to more than 17 per cent of its investments.

You can see why. Private equity has generated OTPP’s top returns over the past five years, beating the returns from public equities by more than seven percentage points a year.

Bain & Co., the consultancy, noted in a recent report that, globally, there are now 7,775 private-equity firms, a record. Another record: These firms are sitting on US$1.7-trillion of cash.

“Investors have allocated more capital to private equity over the past five years than at any time in history, prompting some observers to wonder whether the market is in danger of overheating,” Bain said in its report.

It added that takeover deals are growing increasingly expensive, reflecting lofty valuations in the public market. The average purchase price in the third quarter of 2017 was 11.2 times EBITDA (earnings before interest, taxes, depreciation and amortization), up from just 8.8 times EBITDA in 2013.

In its quarterly call with analysts in February, Onex executives added some colour to these stats.

“We continue to see elevated valuations and record levels of dry powder chasing private-equity deals,” Bobby Le Blanc, senior managing director, said during the call.

He added: “Although we don’t know how long this will last, we remain disciplined.”

Perhaps that’s why an amazing 29 per cent of Onex’s capital is parked in cash – the “dry powder” Mr. LeBlanc was referring to. That’s US$2.8-billion available for private-equity investments, or US$9.6-billion if you include money from outside investors such as pension funds, endowments and sovereign-wealth funds.

So why invest in Onex?

If you can handle lumpy profit – a gain of US$2.4-billion in 2017; a loss of US$36-million in 2016 – the company is good at turning privately held companies into gems. The value of its private-equity investments increased by 18 per cent in 2017. Over the past 10 years, its share price has risen 190 per cent, next to a gain of just 12 per cent for the S&P/TSX Composite Index (before dividends).

Looping back to the RBC report, Onex’s defensive qualities add another dimension: If the private-equity market is plagued by too many players chasing expensive companies, a stock market correction should help. While unloading current investments might not be as profitable, the number of buying opportunities should rise.

That should make Onex a good holding for long-term investors who are nervous about today’s market volatility: Up or down, Onex wins.