Brookfield expected to go big in launch of fifth PE fund

The private equity group of Brookfield Asset Management will soon launch its biggest fund yet to support an intensified global strategy that is taking dealmaking into new territory.

Brookfield Capital Partners V will begin fundraising in the first half, a person with knowledge of the matter told PE Hub Canada. No decision about a target has been made, but it is expected to be larger than the previous one, the source said.

Brookfield Capital Partners IV closed in 2016 at its US$4 billion hard cap. It was the firm’s largest PE fund to date, backed by commitments from 65 limited partners, mostly pension funds and other institutions. Brookfield, a listed firm, committed US$1 billion.

Brookfield declined comment on its fundraising plans.

BCP IV, now 80 percent invested, was its first global flagship PE fund. Its scope was broader than in the past, moving beyond a focus on North American mid-market buyouts, turnarounds and other special situations. The fund also aimed to sponsor more deals at larger investment sizes.

Brookfield Senior Managing Partner Cyrus Madon, who heads the PE group, told PE Hub Canada his goal is to build on this strategy.

“We achieved what we set out to do since 2016,” Madon said. “We want to do more going forward because we see deal flow that is even more robust and a global opportunity set that gets larger every year.”

This is suggested in dealmaking over the past 12-plus months. BCP IV closed five investments in 2017 and announced two more in the first weeks of 2018, engaging companies in the Americas and Europe.

Three deals, including the proposed buy of nuclear-services business Westinghouse Electric, are especially big, each with an enterprise value of nearly US$5 billion.

Cyrus Madon, Senior Managing Partner and Head of Brookfield Asset Management's Private Equity Group
Cyrus Madon, senior managing partner and head of Brookfield Asset Management’s private equity group

New ground was broken in some key sectors. Last year’s acquisitions of Greenergy and BG Fuels (formerly Loblaw’s gas station unit), created a debut platform in the road fuels marketing and distribution space. BCP IV also entered the gaming industry with its buy of casino operations in partnership with Great Canadian Gaming.

Madon says Brookfield’s worldwide organization enabled the fund’s greater reach, “allowing us to see more opportunity and execute on more opportunity.”

He pointed to last year’s buy of Odebrecht Ambiental, now BRK Ambiental, a water treatment and distribution business in Brazil, where Brookfield has extensive holdings. The firm’s capabilities in real assets were also tapped in the deal. Madon says BRK’s “infrastructure-like qualities” will be leveraged, making it attractive to new types of investors.

Recent deals also show a continued Brookfield PE interest in out-of-favour businesses with strong cash-flow potential.

A good example is BCP IV’s proposed buy of Toshiba’s Westinghouse, which went bankrupt in 2017 after a foray into nuclear-plant-construction projects. But for the bankruptcy, Madon said, a company with Westinghouse’s attributes “would rarely become available for acquisition.” With the deal’s close later this year, Westinghouse’s focus on its “core services business” will be restored, he added.

Lots of liquidity

BCP IV deployed or committed US$3 billion last year with the help of institutional LPs and a potent new source of co-investment capital: Brookfield Business Partners.

BBP is the PE group’s listed vehicle. Spun out two years ago, it allows Brookfield’s shareholders to invest directly in the PE portfolio, creating a permanent source of syndicate resources to third-party funds.

Madon says BBP outperformed in 2017, its first full year of operation. It supplied BCP IV with more than one-quarter of total investment in new deals, facilitating the fund’s ability to pursue large caps. Since its launch, the vehicle has raised US$1 billion for this purpose.

Brookfield’s PE group today employs 75 investment pros, including Madon, who joined Brookfield in 1998, and Senior Managing Partner Joe Freedman, who came on board in 2002.

Brookfield is headquartered in Toronto. Its U.S. head office is in New York.

Photo of big dollar sign under construction courtesy of Peshkova/iStock/Getty Images

Photo of Cyrus Madon courtesy of Brookfield Asset Management