Distressed equity opportunities with Brookfield

Canadian distressed equity asset manager, Brookfield Special Situations Group, has expressed its interest in raising funds from Australian investors on a recent visit to Sydney and Melbourne.

The Special Situations Group is part of Brookfield Asset Management, which also owns Brookfield Multiplex in Australia. The group focuses on distressed debt investments in North America.

Brookfield senior managing partner Cyrus Madon describes the manager as a deep value investor with primary platforms in property, infrastructure and private equity.

“We generally make investments in periods of distress or volatility across all three of those platforms,” he said.

“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.

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 had a failed start-up and was losing money, and when Concert had to file for bankruptcy in Canada the bank was looking for an exit. Brookfield purchased the secured debt for CAD$100 million to turn into secured equity and after the transaction owned Concert outright.

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 sold 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.

He stressed that these types of opportunities presented themselves consistently in good and bad market times, and the group had been acquiring these types of investments every year or two over the past two decades, so Australian investors who felt they might have missed the boat for distressed equity opportunities coming out of the global financial crisis could still invest at any time with Brookfield.