The private equity arm of Brookfield Asset Management Ltd. BAM-T is launching its first fund in Canada with no fixed end date that is geared toward wealthy investors who are eyeing private assets as they hunt for higher returns.
The Brookfield Private Equity Fund (Canada), announced Wednesday, lets individual investors who meet the necessary threshold for wealth invest in a selection of the asset manager’s private equity buyout strategies.
Unlike traditional private equity funds, it has an open-ended structure that gives investors regular windows to buy in or cash out.
More leading companies are staying private for longer, rather than listing on public stock markets. And individual investors with significant wealth are eyeing private assets, hoping to capture higher returns that the largest global investors such as pension plans, endowments and sovereign wealth funds have reaped for years.
That has set off a rush to create products with exposure to private assets that are tailored to individual investors, who don’t want to be locked into the multiyear fundraising cycles that underpin the institutional market.
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Brookfield’s evergreen private equity fund is its latest attempt to secure a foothold in that race. The US$1-trillion asset manager is betting that it can attract a new wave of clients by highlighting its track record of buying essential businesses at low prices, overhauling their operations and boosting profit margins.
“Our strategy – value investing and driving operational transformation – is kind of built for this environment,” Anuj Ranjan, chief executive officer of Brookfield’s private equity business, said in an interview.
At launch, the fund has a high bar to entry. It is only available to accredited investors in Canada, who typically have higher incomes than average or significant assets. Investors will the U.S. will need to meet the qualified purchaser test – a threshold that usually requires an investor or family-owned business to have at least $5-million in investments.
The fund will be sold through advisers at banks and independent wealth managers and has a minimum investment of $25,000, Brookfield said. There are monthly chances to buy in at the fund’s net asset value, and investors can redeem up to 5 per cent of the fund’s net assets each quarter, as long as the fund has enough cash available to meet all requests.
The new fund is targeting double-digit percentage returns. It will mostly invest in traditional company buyouts, but it will also hold minority stakes in companies and keep cash on hand. As much as 20 per cent of the fund will be held in liquid assets that can be used to meet redemptions.
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Brookfield spent roughly two years designing the fund and seeded it with parts of nine private equity investments held on the company’s balance sheets before asking outside investors for money.
Those investments include stakes worth US$690-million in three of its portfolio companies: vehicle-parts maker DexKo Global Inc., auto dealer software company CDK Global LLC, and construction and civil engineering company BrandSafway.
“It’s not like we’re exiting these positions. They are still very much a part of the funds that we manage,” Mr. Ranjan said.
In time, Brookfield expects its evergreen fund will hold roughly 25 investments, functioning “like an umbrella that sits over the top of all of the private equity strategies,” David Nowak, president of Brookfield’s private equity arm, said in an interview.
The fund will have a right, but no obligation, to buy into any particular Brookfield strategy.
The initial portfolio of assets Brookfield put together was important to establish trust with prospective clients, “so that actual investors could touch it and feel it,” Mr. Nowak said. “It wasn’t just us talking about a strategy.”
Major asset managers around the world anticipate that opening up the gated world of private assets to a broad swath of investors, including individual retirement accounts, is the next big trend in investing.
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But regulators and skeptics have raised concerns about ordinary investors putting illiquid assets in their portfolios, especially as prominent private debt funds have halted client redemptions.
Some critics have questioned whether evergreen funds can deliver the higher returns investors expect, and justify the fees these funds often charge, especially after a sluggish stretch of deal making has hamstrung returns across the private equity sector.
To assuage those concerns, Brookfield is making a pitch that it has not relied on cheap debt and market tailwinds to boost returns the way some competitors have. Instead, Brookfield says it focused on running its portfolio companies better.
“People are wondering what the forward-looking performance looks like for the asset class, and we say to people, we’re not financial engineers,” Mr. Nowak said. “You can look at our historical track record.”
