Memorandum to: State Investment Council
From: Corey Amon, Acting Director
Subject: Proposed Investment in Brookfield Capital Partners V, L.P.
The Division of Investment (the “Division”) is proposing an investment of up to $100 million in Brookfield Capital Partners V, L.P. (the “Fund” or “Fund V”). This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.
The Fund will target real asset and real asset-related businesses with a focus on value-add and contrarian investments with limited competition in which Brookfield Asset Management (the “Firm”) can capitalize on its experience owning and managing real asset investments.
The Division is recommending this investment based on the following factors:
- Strong Track Record: The Firm has over 20 years of private equity experience starting with executing investments for the Firm’s balance sheet. Since its first commingled fund was formed in 2001, the Firm has generated net returns of 25% IRR and 1.9x MOIC across its fund series.
- Experienced and Stable Investment Team: The investment team is led by a 20-year veteran of the Firm, and the team is comprised of professionals with an average of 25 years of investment experience and 14 years with the Firm. The members of the investment committee are even longer tenured with an average of 27 years of investment experience and 23 years with the Firm.
- Differentiated Strategy: Brookfield executes an owner-operator approach to drive operational improvement and growth. It heavily utilizes its operating professionals starting with conducting due diligence through developing and executing business plans. Often the Firm takes a contrarian approach and looks to differentiate itself as a strategic partner rather than a purely financial investor. The investment team’s restructuring expertise provides the Firm with the ability to pursue opportunities during periods of capital market dislocation or when alternative sources of capital are not available to a sector or particular business.
- Ability to Lever the Broader Brookfield Platform: A core advantage to transaction sourcing is the Firm’s ability to lever the scale and brand of the Brookfield platform across a range of industries and geographies. The Firm’s scope and reputation provide access to transactions with limited competition or that are proprietary in nature. Often, the Firm has a first-mover advantage.
- Environmental, Social and Governance (ESG) Policy: As one of the largest private sector infrastructure investors, renewable power investors, and owner/developers of real estate, Brookfield has a formal ESG policy which it integrates into each stage of the investment process to build sustainable, long-term value. The Firm applies this policy globally to all of its assets throughout the investment life cycle. Pre-acquisition, Brookfield taps its operating expertise to identify any material ESG risks and opportunities. Deeper due diligence is conducted by internal experts and third-party consultants. Post-acquisition, the identified risks and mitigation plan are converted into an integration plan with implementation time frames. Priorities are not static, but regularly updated. ESG matters are actively managed by the portfolio companies with guidance from Brookfield’s in-house teams in order to execute best practices across the Firm.
A report of the Investment Policy Committee (“IPC”) summarizing the details of the proposed investment is attached.
Division Staff and its real asset consultant, TorreyCove Capital Partners, undertook extensive due diligence on the proposed investment in accordance with the Division’s Alternative Investment Due Diligence Procedures.
As part of its due diligence process, staff determined that the Fund has engaged a third-party solicitor (“placement agent”) in the fundraising of the Fund but no placement agent was engaged or paid in connection with the Pension Fund’s potential investment.
Staff will work with representatives of the Division of Law and outside counsel to review and negotiate specific terms of the legal documents to govern the investment. A preliminary Disclosure Report of Political Contributions has been obtained in accordance with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4) and no political contributions have been disclosed. An updated Disclosure Report will be obtained at the time of closing.
Note that the investment is authorized pursuant to Articles 69 and 71 of the Council’s regulations. Brookfield Capital Partners V, L.P. is considered a real asset investment, as defined under N.J.A.C. 17:16-71.1.
A formal written due diligence report for the proposed investment was sent to each member of the IPC and a meeting of the Committee was held on January 22, 2019. In addition to the formal written due diligence report, all other information obtained by the Division on the investment was made available to the IPC.
We look forward to discussing the proposed investment at the Council’s January 30, 2019 meeting.
Source: State of New Jersey State Investment Council