Distressed equities asset manager Brookfield Special Situations Group, part of Canadian-based Brookfield Asset Management, has expressed interest in raising funds from Australian institutional investors on a recent visit to Sydney and Melbourne.
Brookfield senior managing partner Cyrus Madon described the manager as a deep value investor with primary platforms in property, infrastructure and private equity that focuses on distressed debt investments in North America.
“We’re an owner-operator first and 10 years ago we became an asset manager as a means to grow. What differentiates us from other organisations is that we are the largest investor in any of the funds that we launch and the predominant way for us to earn returns is to do so as an investor, and the fees are secondary.”
A firm such as an investment bank may be more focused on fees but as an owner-operator and prime investor the Special Situations Group is most interested in earning profits from its investments, he said.
So far the main external investors in the group’s projects have been pension funds, endowments and insurance companies, investing smaller sums from around $25 million up to hundreds of millions of dollars, Madon said.
As an example of the type of distressed investment the group targets, managing partner J. Peter Gordon described the investment in Concert Industries, which owned and operated two paper mills in Canada and Germany and made highly absorbent paper for sanitary products. Concert had raised about CAD$350 million and borrowed a further CAD$145 million from a Canadian bank.
The Canadian mill failed to start up successfully and was losing money from the outset. When Concert then had to file for bankruptcy in Canada the bank was looking for an exit, and Brookfield purchased the secured debt for CAD$100 million.
By adding its own operating specialists into the local teams, shutting down non-profitable lines in the Canadian operation and expanding the German operation, Brookfield Special Situations Group was able to turn the business around over a six-year period and then sell the business to US paper specialists Glatfelter for CAD$236 million.
“It’s typical that we would go in and run the company and assess what’s required to complete the turnaround. Most often it’s about shrinking the business before starting to rebuild,” Gordon said.
The insolvency laws in the US and Canada were developed to promote rehabilitation, which may help to provide Australian investors with opportunities they couldn’t get locally, Madon added.
These types of opportunities present themselves consistently in good and bad market times, so investors should be aware they have not missed the boat for distressed equity opportunities coming out of the global financial crisis, he said.
