In line with that approach, Brookfield will send people from all of its skillsets into a business for a full year at least. For many of these people, who have come up through the right schools and into ideally run operations, the relative messiness of an operating business can come as a challenge. Those seconded staff are tasked with reconciling ideals of management with the reality of operations. The end result of that task, Nowak says, tends to be improved profitability and improved operations.
“That’s who we are, and that’s how we drive our returns,” Nowak says. “But there’s also another point to it, we pride ourselves on being responsible participants in the capital markets, okay, like we are not a one and done shop. We are franchise building enduring place, and we’re a trillion dollars in AUM.”
Much of that growth, Nowak says, has been in striving to hit ‘singles and doubles’ with Brookfield’s investments. By setting achievable growth goals, generating free cash flow, and seeking asymmetrical returns, the company has been able to grow consistently while capturing the opportunity for home runs when they arise.
One such opportunity arose in a company called GrafTech, a manufacturer of graphite electrodes which are essential components in electric arc furnances. Those furnaces — common in steelmaking — burn through a graphite electrode every seven hours. While the electrodes have to be replaced, they also represent two per cent of operators’ overall costs. It’s a recurring business that customers don’t overpay for. From an investment standpoint, GrafTech is a single, maybe a double.
The company turned into a homerun as the electrification theme took hold in markets. Graphite electrodes, Nowak explains, need an input called needle coke. The other use for needle coke is in building electric car batteries. As demand for needle coke skyrocketed, the Brookfield associates seconded in GrafTech saw customers making orders a year earlier than they normally would. Customers were worried that GrafTech wouldn’t be able to keep up with the demand for Needle Coke. Rather than just bump prices up on GrafTech’s electrode capacity, the Brookfield associates decided to hold an auction for multi-year commitments. EBITDA went from $100 million to $1 billion in a year.
