Side Letter: Brookfield digs distress; Tokyo Uni’s PE push; Baird’s APAC relocation

Monday is a public holiday in the UK, so we'll return to your inbox on Tuesday. In the meantime, we take a look at why Brookfield is bullish on a difficult macroeconomic environment; and Tokyo University of Science wants even more private equity. Here's today's brief, for our valued subscribers only.

Just happened

Brookfield’s Madon: Spying opportunities in a difficult deal environment (Source: Brookfield)

Bullish Brookfield
A difficult macroeconomic environment need not be bad news for private equity buyers. That’s according to Cyrus Madon, managing partner and head of Brookfield Asset Management‘s PE group, who tells Side Letter the firm is bullish on near- to mid-term investment opportunities. “We’ve been in an environment for some years now where there’s so much cheap money that debt investors were never really paid to take risk on lower quality companies compared to great companies,” he said. “That is going to change, and it will create opportunities – particularly where companies are overleveraged.”

Companies in distress (in other words, those no longer able to delay credit problems) may prove an appealing prospect for those with the requisite risk appetite, particularly if the market enters another difficult period. “Our experience shows that’s a great time to put capital to work,” Madon added.

If such an environment does materialise, Brookfield should have the firepower to capitalise on it: the firm is nearing an $8 billion initial close on its sixth flagship, according to a recent second-quarter earnings call. You’ll be able to read Private Equity International‘s full interview with Madon on the website later today.

More number crunching?
The US Securities and Exchange Commission and the Commodity Futures Trading Commission have come together to propose onerous new regulations on private fund managers, our colleagues at Regulatory Compliance Watch report (registration required). If you’re thinking, “didn’t the SEC already put out a Form PF proposal?” You’re right. It did, in January. That proposal would amend the SEC-only sections of the form; the new joint proposal would bring even more changes.

Under the reforms to Form PF, the main reporting document for private fund managers, “trading vehicles” would be treated as separate vehicles that each require their own form. A trading vehicle is defined as one that “holds assets, incurs leverage, or conducts trading or other activities on behalf of more than one reporting fund”.

Advisers would also, with some exceptions, be obliged “to report separately each component fund of a master-feeder arrangement and parallel fund structure” and report the gross and net asset value at the end of each month in the quarter, not just at the end of the quarter. The regulators justify the proposed changes by noting Form PF data came up short in the early days of the pandemic. Sponsors have 60 days to comment; if passed, they should brace for a whole load more number crunching than before.


Tokyo uni ups the ante
Endowments’ love of alternatives isn’t exclusive to the Harvards and Yales of this world. Case in point: Tokyo University of Science, already one of Japan’s most enthusiastic PE investors by proportion of its AUM, is hungry for even more. The ¥36 billion ($263 million; €265 million) investor has upped its allocation to the asset class from 20 percent currently to 25 percent in its fiscal-year 2022 portfolio plan, a contact there informed PEI this week. Its allocation to alternatives now stands at 45 percent, which, though small in real yen terms, is similar to the proportion expected of Japan’s mammoth new university endowment fund.

The Japan Science and Technology Agency fund has been tasked with targeting 4.38 percent each year, a goal that “seems not easy to achieve considering the current market environment,” PE head Yasuyuki Tomita told PEI in April. “Therefore, we will have to allocate a sizeable portion to alternatives,” he said. University endowments have pedigree when it comes to alternative assets, representing 12 of the 100 largest PE investors globally, according to PEI’s Global Investor 100.

While we’re in APAC…
Baird Capital, the PE investment arm of investment bank Baird, has opened a new Singapore office as it migrates from Shanghai, per a statement. The office will be led by partner Andy Tse, who joined the global PE team in 2017, and supported by vice-president Milord Yip and associate Anjan Krishna. Its move “offers Baird Capital a location better aligned with its Asia strategy”, the statement said. Milwaukee-headquartered Baird Capital has 14 active portfolio companies in Asia, of which only three are headquartered in the region – two in Malaysia and one in Hong Kong, according to its website.

Today’s letter was prepared by Alex Lynn with Rod James and Carmela Mendoza