Brookfield Place in Toronto. With its new evergreen fund, the company aims to tap into a trend of giving wealthy investors a chance to buy into private-equity deals alongside traditional funds that have typically been the domain of large institutions, with chances to cash out early.Fred Lum/The Globe and Mail
The private equity arm of Brookfield Asset Management Ltd. BAM-T has sold stakes worth US$690-million in three of its portfolio companies to a new fund the company plans to launch later this year, building the base for a new strategy to attract high net worth investors.
Brookfield Business Partners is selling a 12-per-cent stake in vehicle parts maker Dexko Global Inc. to the new fund, along with 7 per cent of dealer software and technology company CDK Global LLC and a 5-per-cent interest in construction and civil engineering company Brandsafway, the company announced Thursday.
The new fund will be an evergreen private equity strategy – an open-ended fund with no fixed end date that periodically allows investors to buy in or sell their holdings.
It will be run by Brookfield Asset Management and aims to tap into a trend of giving wealthy investors a chance to buy into private-equity deals alongside traditional funds that have typically been the domain of large institutions, with chances to cash out early.
Other major global investors have launched similar funds, such as Blackstone Group’s private equity strategies fund, known as BXPE. But Brookfield’s sale of the stakes in its portfolio companies allows it to seed the new fund with initial investments even before it raises money from new investors through wealth management channels.
The sale of the stakes also gives Brookfield a way to reap a windfall on its existing investments, raising cash that can be used to fund share buybacks, reinvest in the business or pay down debt.
Brookfield manages more than US$1-trillion in assets, including US$147-billion through its private equity arm, which invests in sectors such as industrial companies, business services, financial infrastructure and health care services.
Brookfield has launched four previous private wealth strategies by seeding funds that give wealthy investors exposure to infrastructure, real estate and credit investments.
Last September, Brookfield signalled to investors at a presentation that it was planning to launch a similar private equity product geared to attracting wealthy individuals through their investment advisers.
“We are tailoring our private equity capabilities for wealth,” David Levi, chief executive officer of Brookfield’s global client group, said at the time. “This is something we’re super, super excited about.”
Special committees made up of board members from Brookfield’s private equity entities hired Origin Merchant Partners as an independent financial advisor to give an opinion on the fairness of the deal, and retained Stikeman Elliott LLP as legal counsel. Based on that advice, the committees decided the transaction is fair, and Brookfield’s boards approved it.
Brookfield Business Partners will receive units of the new fund that have an initial redemption value of US$690-million, which the company says is an 8.6-per-cent discount to the net asset value (NAV) of the stakes it sold.
After the initial close for the new fund, which Brookfield expects later this year, the company expects to redeem the units for cash at the same 8.6-per-cent discount to the NAV at the time of redemption. Any units the private equity arm still holds after those 18 months will be redeemed at NAV.
“The transaction provides a strong outcome for Brookfield Business Partners’ unitholders and shareholders and provides the new evergreen private equity strategy with an immediate diversified seed portfolio prior to its launch,” Anuj Ranjan, chief executive officer of Brookfield Business Partners, said in a statement.
Brookfield expects to complete the sale of the stakes to the evergreen fund on July 4.
