Brookfield builds out deal portfolio to advance long-duration strategy

Brookfield Asset Management is taking further steps toward launching an inaugural long-dated product by underwriting a handful of deals.

The alternative assets firm is using a large balance sheet and “some of our best relationships” in the institutional LP community to do “a few club deals,” David Aiken, managing partner and head of long-term equities, told Buyouts.

The goal, he said, is to further develop the strategy and “build out a track record” prior to contemplating a potential debut offering.

Two years ago, Brookfield said it had begun designing an approach that would leverage its experience “as long-term owners and operators of businesses.” In common with peers like Blackstone, Carlyle and KKR, it sought to create a program for investing beyond private equity’s traditional three-to-five-year horizon to achieve “compounding returns over a longer timeframe.”

Since then, Brookfield has worked out some of the contours of the strategy, Aiken said. Target assets are “durable, high-quality companies with secular tailwinds,” bought at “a fair price” and which give evidence of “continuous improvement potential” over the long haul.

Targets are also well-run and consistently profitable market leaders, providing essential products and services and generating steady cash flow, he said. In addition, they have “low exogenous risk factors,” such as “stable industry dynamics, with no big changes in supply and demand” and an ability to navigate ups and downs in market cycles.

By acquiring such businesses and holding them for roughly 10 to 15 years, “amazing things can happen,” Aiken said. And because assets are cash-flow-generative, underwriting them allows for a dividend yield component that gives LPs “some income along the way.” That, he said, amounts to “a meaningful part of the return.”

Deal activity

Recent investing by Brookfield has greatly informed its plans for a long-duration strategy. The first club deal was Genworth (now Sagen), a default mortgage insurance provider and “a compounding machine,” Aiken said. After buying a controlling interest in 2019 for C$2.4 billion ($1.8 billion), the firm and its institutional partners took Sagen private in 2021 for C$1.6 billion.

A second transaction followed last year. Brookfield and its institutional partners acquired Cupa, a slate-roofing products manufacturer, from Carlyle for $860 million.

Cupa was a clear choice for Brookfield, in part because of “recurring replacement demand” linked to the erosion of postwar roofing stock, Aiken said. “We look for things like that.”

Brookfield is now exploring similar club deals “outside of a fund structure,” he said. The scope of opportunities is considerable and growing, as recent trends have helped to fill the pipeline, among them “the profile of public markets, which has changed dramatically.”

Over time, the number of publicly listed companies has declined, with “those left getting bigger,” Aiken said. This has resulted in “smaller listed businesses having limited access to capital.”

Traditional private equity is not equipped to address this gap, a March 2023 report by Brookfield said, at least for a subset of these companies. That is because the secular tailwinds behind both public and private candidates for long-dated investing “tend to be more difficult to time correctly” within a conventional hold period.

Tighter focus

Aiken oversees a long-term equities team of four professionals under the banner of Brookfield’s private equity platform.

The team utilizes the global resources of the platform to tap into deal flow. However, due to the “tighter focus” of the long-duration strategy, Aiken said, it emphasizes a narrower band of opportunities, mostly in business services, infrastructure services and industrial sectors in North America, Western Europe and Australia.

Brookfield’s use of its balance sheet in long-term deals is comparable to the unique approach taken by KKR.

KKR combines balance sheet capital with third-party capital raised from LPs for its core private equity funds. For this reason, core investments make up a hefty 31 percent of all balance sheet investments, the firm reported earlier this year.

KKR is presently raising KKR Core Platform II, which if closed at its $16 billion target would be the largest long-dated vehicle on record.