Side Letter: Brookfield arrives, PFA’s Japan complaint, LACERS speeds up

Brookfield is moving forward in its bid for private markets domination. Here’s today's brief, for our valued subscribers only.

Just happened

‘One of the finest credit platforms in the world’

What to think when the master of the market cycle decides it’s time to sell? Oaktree Capital, led by Howard Marks (pictured right), has agreed to offload a 62 percent stake in itself to Brookfield Asset Management for around $4.8 billion. The two firms will continue to operate independently, with co-chairmen Marks and Bruce Karsh having operational control of Oaktree for the “foreseeable future”. The deal should propel Toronto-based Brookfield to the top of the alternative assets food chain with combined assets under management of $475 billion, a smidge above Blackstone’s $472 billion.

  • Oaktree brings a little over $12 billion in private equity AUM and $66 billion of credit assets. Brookfield has $42 billion in PE assets and $296 billion across its real assets businesses.
  • Here’s a quick chart showing where the combined entity sits among the listed alternative management giants.
  • Brookfield’s breakdown of the deal is available in this presentation. CEO Bruce Flatt (pictured left) said: “This transaction enables us to broaden our product offering to include one of the finest credit platforms in the world, which has a value-driven, contrarian investment style consistent with ours.”
  • The price of the transaction represents a “modest” 12 percent premium, says the Financial Times’ Lex column (paywall), which notes that “by any measure, 2018 was a soft year for Oaktree. Its version of cash profits, called ‘distributable earnings’, fell by 15 per cent.”

Japan needs PE

The $107 billion Pension Fund Association of Japan wants much more private equity. Not for itself necessarily: it has been happily deploying between $600 million and $700 million annually to the asset class via fund commitments and co-investments for many years. No, growth is needed in the wider domestic market, which is still way too small for the world’s third largest economy, says PFA private equity head Shuzo Takahashi. “I don’t mean that bigger is better,” Takahashi-san tells PEI’s Carmela Mendoza, “But almost every general partner plays in the same stage and similar strategy so far, [and] I don’t think it’s that healthy.” The direction of travel suggests his wish will soon come true. Most global firms worth their salt are heading to Japan.

GPs and secondaries buyers, get thee to LA

Los Angeles City Employees’ Retirement System got approvals that will help it expand its private equity portfolio and bring it closer to its target allocation of 14 percent. The $16.93 billion LACERS’ increased its re-up capacity two-and-a-half fold and doubled its capacity to commit to new relationships. And for the first time, LACERS will be able to sell its partnership fund interests on the secondaries market.


College scam fallout. Manuel Henriquez has stepped aside from his duties at Hercules Capital (HTGC) after he and his wife were among the more than 30 parents charged for their alleged roles in a college admissions bribery and money laundering scam dubbed “Varsity Blues” by the FBI.

HOOPP dreams. Private equity helped Healthcare of Ontario Pension Plan navigate challenging market conditions last year. The pension system returned 2.17 percent, down from 10.88 percent in 2017, but strong realisations in PE contributed significantly to investment returns of C$1.7 billion ($1.3 billion; €1.1 billion), according to chief executive Jim Keohane. The pension system’s PE portfolio has changed significantly, with co-investments and direct investments now making up 40 percent of the portfolio.

Eyes on the prize. France’s Keensight Capital has closed its fifth pan-European “growth buyout” fund at its €1 billion hard-cap. Fund V is the firm’s second vehicle as an independent shop following its spin-out from Rothschild Group in 2013, and it has amassed more than double its €450 million predecessor.

Data. Mine

Want more data? There are more than 6,700 institutions in our database, including BrookfieldOaktreePFALACERS and Keensight from today’s Side Letter.

They said it

Miami private equity and real estate firm Dragon Global’s website, a day after allegations surfaced of their CEO’s involvement in a massive nationwide college admissions bribery scheme

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Today’s letter was prepared by Toby Mitchenall and Isobel Markham.