Brookfield Says Distressed Debt Will Be ‘Highly Attractive’

(Bloomberg) -- Brookfield Asset Management Inc., the Canadian money manager, is holding more cash and sees distressed debt as “highly attractive” as it girds for the next recession, said Chief Executive Officer Bruce Flatt.

“We have more dry powder in funds, more cash on our balance sheet,” Flatt said in an interview with BNN Bloomberg Friday in Toronto. The investment firm is “getting ready for the point where we can capitalize on situations if the markets turn. If they don't, we'll be fine, we'll just keep investing.”

Earlier this month, Brookfield said its assets swelled to more than half a trillion dollars at the end of the third quarter and it had over $65 billion in capital available to continue its spending spree. Holdings ballooned to almost $511 billion after the Toronto-based alternative asset manager closed its purchase of a 61.2% stake in Oaktree Capital Group at the end of the quarter.

“We added the Oaktree credit franchise to our business because we think that distressed credit at some point in time will be highly attractive, it will give us another arrow in our quiver when the market turns down,” he added.

Flatt said Brookfield, whose stock traded at a record high Friday in New York, is “probably better set up today than we've ever been, we have more access to capital than we've ever had.”

Though Flatt doesn't see anything to suggest a recession is imminent, he said the firm is more cautious today than it was in the 2009 financial crisis.

“In 2009, every dollar we possibly had other than the ones we were keeping just in case the market went down a little more, we knew if we invested it would be fine because you knew you were buying at 50 cents on the dollar,” Flatt said.

India Stress

The firm is looking to make more investments in places like India, which is facing financial stress much like the U.S. in 2008-2009. Brookfield already has 6,000 people employed in operating companies in India, along with 100 investment professionals.

“India, for example, has a financial crisis situation going on which is similar to what happened in the United States in 2009, probably not quite as bad, but the banks are not in great shape and non-bank financials are in trouble,” he said. “And what that means is that entrepreneurs don't have access to capital and therefore they're selling assets.”

Flatt played down concerns about too much money chasing alternative assets and that the global shift of assets from public to private markets could trigger steeper sell-offs and exacerbate a crisis.

“We're highly diversified, we're in all these products, we've added credit recently,” he said. “If many people are bidding up infrastructure in a certain country, we just don't participate. We have 29 other countries we can go to, we have three other businesses, so we can ebb and flow our capital. The worst thing anyone can do is have too much money in one sector and need to put it to work.”

He's also not very concerned about fee compression in the areas in which it operates.

“I don't think you can commoditize most forms of alternative management,” he said. “We buy businesses and we operate them. It's hard work to build a building, you need lots of people. We don't think that there will be a commoditization of the alternatives business soon and maybe never.”

To contact the reporter on this story: Paula Sambo in Toronto at psambo@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, David Scanlan, Jacqueline Thorpe

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