Private equity (PE) is one of the hottest industries in the world right now. “Exits” (PE business sales) are at a three-year high, while the S&P PE Index is outperforming, having risen at a compounded annual rate of 13.9% over the last 10 years. Many other sectors have done well over the same timeframe, but PE stands out as one of the top performers, along with technology.
Seeing all of this growth, you might be wondering how you, the investor, can get in on PE.
Here’s where the picture gets a little dimmer. Unless you’re a high-net-worth investor, you can’t invest in much of the private equity space directly. Private equity funds are largely illiquid and available only to accredited investors, who in almost all cases are rich. Although some publicly traded PE index funds exist, there are large swaths of the PE world that these indexes don’t capture. So, if you’re just beginning in investing with relatively little money, many PE deals are unavailable to you.
What you can invest in is shares of the companies doing these deals! PE companies’ shares have been growing just as much as their underlying deals have. On top of that, they collect PE fund fees rather than paying them. In this article, I’ll explore one Canadian stock that lets you get PE exposure on the stock market.
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Brookfield
Brookfield Corp (TSX: BN) is a Canadian financial services company that is involved in asset management, real estate, insurance and private equity. The company’s private equity arm — Brookfield Business Partners (TSX: BBUC) — is a listed company in its own right. If you wanted to invest in Brookfield’s PE assets in the strictest sense of the term “private equity,” then you could invest in Brookfield Business Partners directly. However, “PE” in a broad sense applies to many parts of Brookfield’s business beyond just BBUC, so I will focus primarily on the parent company in this article.
High growth
Brookfield Corp has been doing a lot of growth this year. In the most recent 12-month period, Brookfield’s operating income increased 19%. In its most recent quarter, the company’s distributable earnings increased 12.5%, following similar growth in the previous quarter. Although Brookfield’s revenue declined last quarter, that was mainly due to selling businesses, which hadn’t been contributing so much to BN’s bottom line. The sales provided a one-time cash influx and improved profitability.
Big deals
A big driver of Brookfield’s success in recent years has been the big private equity deals that some of its companies have been doing. Brookfield Renewable Partners recently inked deals to supply billions of dollars’ worth of clean power to Alphabet and Microsoft. Brookfield and a partner also scored a deal to buy out First National Financial at a price significantly lower than that company’s all-time high stock price. Despite this, Brookfield companies still have over $177 billion worth of capital to deploy! So, there is potential for considerable future growth here.
Competent management
Last but not least, we need to look at the driving force behind all of Brookfield’s recent successes: its management. CEO Bruce Flatt is an accounting whiz who is also a great spokesman for Brookfield funds. Conor Teskey, one of Flatt’s top lieutenants, is also a passionate supporter of the company. Many other Brookfield people are among the most respected dealmakers in their respective niches. All this bodes well for Brookfield’s future in a world where money tends to accrue to talent.
Foolish takeaway on private equity and Brookfield
There are few Canadian companies more distinguished in private equity than Brookfield Corp. Its long-term compounding track record speaks for itself. And, with the many deals it’s been doing lately, it’s reasonable to think the track record will continue. Overall, I’m happy being long Brookfield.
