Brookfield Asset Management is one of Canada’s largest investing firms, with over $285 billion under management. The company was formerly founded in 1899 as the Sao Paulo Railway, Light and Power Company, but over the course of over a century has turned itself into somewhat of a Berkshire Hathaway of Canada, with deep ties to investing in Brazil. Not unlike Berkshire Hathaway, Brookfield looks for deep value and distressed situations – exactly what it was able to find, and capitalize on, in Brazil over recent years.
The recent economic climate of corruption and recession in Brazil has meant that assets have been put up for sale at dirt cheap prices. Brookfield has been quietly and methodically scooping up these assets, using its experience in Brazil as a guided to navigate a volatile economy. Reuters reported:
In 2016, for example, Brookfield Infrastructure Partners LP (BIP.N) led a $5.2 billion acquisition of a pipeline operator from Petroleo Brasileiro SA (PETR4.SA), the state-controlled oil company at the heart of the Car Wash scandal. Recently, another Petrobras pipeline network with half the capacity fetched a top bid of around $8 billion from other investors. Bargain-hunting Brookfield gave that deal a pass.
The Canadians’ savvy is built on nearly 120 years of experience in South America’s largest economy. But the recent buying spree pushed the company to new extremes of due diligence and bulletproofing, according to interviews with six people involved in the deals.
Brookfield's CEO was tongue in cheek about the way he described buying distressed assets in the company's letter to its investors from February of this year, using the term "sellers in need of capital" instead of something less tasteful, like "desperate sellers":
Chief Executive Bruce Flatt, whom some call the Warren Buffett of Canada for his value-investing approach, called recent Brazil acquisitions “quality businesses from sellers in need of capital” in a February letter to investors.
Left wing politicians in Brazil have been notably against the scooping up of state assets by private companies. But Brookfield has been sharper, drawing up agreements that result in compensation if they are broken, and covering their bases when it comes to due diligence and potential legal liabilities:
Brookfield’s purchase of gas pipeline operator Nova Transportadora do Sudeste SA (NTS) from Petrobras was part of a controversial divestment program aimed at trimming the oil firm’s massive debt load.
Critics have decried the privatizations, and Ciro Gomes, a leading leftist presidential candidate, has pledged to reverse sales of state energy assets if elected this year.
Foreseeing the risk, Brookfield tasked dozens of lawyers with drafting an ironclad agreement. Brookfield has a right to compensation if Petrobras changes the contracts in a way that hurts the Canadians’ cash flow, according to three people with knowledge of the matter.