Brookfield executives say private equity business could double

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After Anuj Ranjan took over as chief executive officer of Brookfield Asset Management Ltd.’s BAM-T private equity business earlier this month, he said the leadership transition was the culmination of a gradual process that has played out over nearly five years.

Now, from the CEO’s office, he has an ambitious goal for the next five years: To at least double the size of Brookfield’s US$130-billion private equity portfolio.

Mr. Ranjan, 45, has been groomed for the task through a long apprenticeship under Cyrus Madon, the veteran Brookfield executive who co-founded the asset manager’s private equity arm in 2001 and has led it since 2006. Mr. Madon, 58, is now executive chair of private equity and leads the division’s board of directors, staying closely involved in dealmaking.

Brookfield is already a major player in private equity. The company pools together billions of dollars from some of the world’s biggest investors to buy private companies, turn them around over a period of years and sell them to generate investment returns. But that business, which is at the core of some of its largest U.S. rivals, is smaller at Brookfield when compared with the asset manager’s real estate, infrastructure and credit portfolios, which manage a combined US$684-billion of assets.

The plan Mr. Ranjan and Mr. Madon have to grow private equity’s share of Brookfield’s empire includes a push into the Middle East with a dedicated fund, making targeted investments in India and grabbing a larger share of the global pool of funds committed to private equity managers by large investors.

“I’d be thrilled if we could double the business over the next five years,” Mr. Ranjan said in an interview at Brookfield’s Toronto offices.

Mr. Madon went further: “I was going to say we will at least double the business in the next five years. I’d be disappointed if it’s not a double.”

The executives’ predictions follow a tough year for private equity. High interest rates drove up borrowing costs, and many lenders – particularly banks in the United States – were less willing to make leveraged loans, which provide private equity buyers with large amounts of debt to help acquire companies and invest in their turnaround. A gulf between buyers and sellers over the right prices made it hard to do new deals or sell assets to return cash to investors. And fundraising was a slog as many large institutional funds were overcommitted to private assets.

Even so, Brookfield recently raised its largest private equity fund, raking in US$12-billion from investors. And as the market for deals begins to thaw, it is preparing some of the larger companies in its private equity portfolio to put them up. Executives recently told analysts that they may pursue an initial public offering of up to US$1-billion in shares of car battery manufacturer Clarios International Inc. this year.

Analysts who follow Brookfield are eagerly awaiting the results should those sales materialize, and in the meantime expect that lower borrowing costs will improve cash flows from the company’s portfolio.

Mr. Ranjan expects the asset manager’s access to new investment capital will give it an edge over some rivals as prominent institutional investors, including pension and sovereign wealth funds, start to shrink the number of relationships they have with private equity firms.

“They’re kind of consolidating them into fewer that they want to work with, and put more money to work with,” he said. “And I think we’re on the right side of that trend.”

Some of that money is sure to come from the Middle East, where capital is readily available to investors willing to look past political tensions and human-rights concerns. Brookfield is launching a dedicated private equity fund in the region, initially aiming to raise a sum in the low billions of U.S. dollars to invest in sectors such as services, technology and health care, where Brookfield already has experience.

Some of Brookfield’s clients have been asking for ways to boost their exposure to the Middle East, Mr. Ranjan said, but he and Mr. Madon declined to discuss fundraising plans for the region.

Brookfield also plans to make further investments in India, where it has significant assets in areas such as infrastructure but only modest private-equity exposure, most notably through its stake in lender IndoStar Capital Finance Ltd.

“The way I characterize India is it’s hard work, but it’s worth it,” Mr. Ranjan said.

The CEO has the experience to help lead this expansion, Mr. Madon said. Mr. Ranjan spent time based at Brookfield’s offices in Mumbai and in Dubai, where he built the asset manager’s operations “from a standing start.”

Brookfield’s private-equity business is also targeting new investments in financial infrastructure, such as payments systems and exchanges. It’s an investment idea that Mr. Ranjan said came from Mark Carney, the former governor of the Bank of Canada and Bank of England who leads Brookfield’s transition investing activities. Mr. Carney urged his colleagues to buy into the backbone of the financial system in anticipation of a rise in deals, as proliferating digital payments move money around the world at greater speed, Mr. Ranjan said.

To lead the push, Brookfield hired Sir Ron Kalifa, who formerly ran British payments company Worldpay Group PLC. And last year, it paid US$2.8-billion to acquire Dubai-based payments processor Network International Holdings.

Increasing the private equity assets Brookfield manages is one thing, but generating the returns its investors expect promises to be hard work. The low interest rates that buoyed markets and drove up company valuations a few years ago are gone, and old-school private equity investing strategies that streamline a company’s products, strip out costs and layers of management and work to expand sales are back in vogue.

Brookfield looks to buy companies that have high market share and good cash flow at attractive prices, then sends in its operating teams to boost margins, Mr. Ranjan said.

“That playbook, I’d say, is more relevant in this environment than maybe it even was in the past,” he said. “You can’t really bet on just multiple expansion, revenue growth to make returns. You really have to work it.”

Responsibility for those day-to-day decisions now falls more squarely on Mr. Ranjan, as he sets his sights abroad to expand the international reach of Brookfield’s private equity arm – working hand in hand with Mr. Madon.

“He has lots of energy, lots of fresh ideas today,” Mr. Madon said of Mr. Ranjan. “And the business is big enough that we can easily have two leaders and run the business together.”