A global money manager with more than $175 billion under management, Brookfield Asset Management wrapped up Brookfield Capital Partners III LP at $1 billion a few months ago, according to Joe Freedman, one of two senior managing partners in the private equity and finance group along with Cyrus Madon. It’s largely an institutional set of backers, and for the first time includes European public pensions and insurance companies, Freedman said. Brookfield Asset Management itself accounted for about a quarter of the tally; the New Mexico State Investment Council said publicly earlier this year it had approved a $25 million commitment.
Over the last decade, Brookfield Asset Management has gradually transitioned from managing its own money to managing money both for itself and for outside investors, who now account for some $50 billion in assets under management. The private equity group led the way, Freedman said, raising limited partnerships in 2001—the C$417 million ($408 million) Brookfield Capital Partners I LP—and again in 2006—the C$1 billion Brookfield Capital Partners II LP. The group’s history of private-equity investing and bridge financing stretches back 30 years and encompasses more than $10 billion deployed in more than 100 deals.
Needless to say, you can’t raise sums like that from institutional investors without a solid track record. Freedman pegs the gross returns of the fully realized first fund at a 2x and 30 percent IRR. The second pool has so far returned “substantially all” investor capital, largely through two realizations and cash-flow dividends, according to a spokeswoman. It still holds about seven portfolio companies. As of Sept. 30, backer CPP Investment Board puts the investment multiple of Fund I at 1.57x, and the investment multiple of Fund II at 1.40x; the firm said it has since reported higher return numbers to the investor.
The private equity and finance group invests in buyouts, restructurings, recapitalizations, consolidations and operational turnarounds of asset-rich but often cash flow-negative companies, mainly in the United States and Canada; industries of interest include industrial products, building materials, mining, homebuilding, oil and gas, paper and packaging, manufacturing and forest products. Portfolio companies listed on its Web site include Ainsworth Lumber Co., CWC Well Services and Longview Fibre Paper & Packaging Inc., which Freedman described as a particularly successful corporate carve-out.
The firm, which has about 26 investment professionals, including seven with extensive operational expertise, tends to invest $100 million to $300 million at a time, although with co-investment capital it can sponsor deals far larger. The latest fund has a four-year investment period, suggesting a pace of two to three deals per year. Its holding periods tend to run three to five years.
While the firm plans no dramatic changes in strategy, it does plan to place more emphasis with its newest fund on consolidations of companies in industries that are out of favor, according to Freedman. A good recent example is Ember Resources, which the firm took private about a year and a half ago after credit had dried up for natural gas producers and key shareholders wanted to cash out. The company, which is in the coal-bed methane business, produces natural gas at a relatively low cost compared to other drilling methods, Freedman said. On top of its original $50 million equity investment, Brookfield Asset Management has invested another $20 million to help finance a couple of small add-on acquisitions; over time the firm is likely to invest up to $100 million in the consolidation. As always, Freedman said, the firm is targeting gross returns of at least 2.5x equity multiple and an IRR of 20 percent.
Natural gas and power-generation, up and down the supply chain, are areas that Freedman says are ripe for similar investments in the months ahead. He also pointed to mining and building materials. Such markets often find themselves on the short end of investor sentiment. A lot of “quick sources” of capital, like high-yield, can quickly become unavailable, said Freedman.
All told Brookfield Asset Management, which is more than 100 years old, employs more than 500 investment professionals. Along with private equity it has groups focused on investments in real estate, infrastructure, and renewable power generation. The firm has investment professionals working in offices in Canada, the United States, Europe, India, Australia and South America.
Kirk Falconer, director of research at Thomson Reuters, contributed to this column.