One of the largest alternative investment managers is offering its first credit hedge fund to outside investors.
Brookfield Asset Management is beginning to take in outside capital for the Brookfield Credit Opportunities Fund, which invests in credit and equities. The fund was launched with internal money in September 2014 and now manages about $375 million. It was flat in its first stub year and lost 4 percent in 2015. However, last year it surged 26 percent, according to a person familiar with the fund and its strategy.
There is no specific target for assets under management for the fund. But given the overall size of Brookfield, it is unlikely the firm will want to keep it small. Brookfield declined to comment.
Toronto-based Brookfield, which is publicly traded, has more than $250 billion in assets and a $33 billion market capitalization. The firm specializes in real estate, power assets, and infrastructure.
The credit fund will be headed up by Robert Paine and Angelo Rufino. Paine has been investing in distressed and credit securities for more than 25 years. Most recently, he spent five years at Advent Capital Management, serving as managing director and portfolio manager specializing in distressed, credit, and event-driven opportunities, as well as group head of Advent’s high-yield strategies.
Rufino has more than 13 years of experience in distressed credit and special situations. Prior to joining Brookfield, he worked at Brigade Capital Management, where he was responsible for the firm’s investments in autos, industrials, transportation, and services, with a focus on distressed credit and special situations.
Altogether there are 11 people on Brookfield’s credit opportunities team. According to someone familiar with the launch, Brookfield believes the new group is a natural extension of its existing business, which has a private equity bent in industrial companies. It has worldwide assets and can provide a window into valuations of public and private companies.
The fund takes a bottom-up approach, specializing in long-short credit, distressed securities, and equities, depending on where we are in the credit cycle. For example, in 2014 and 2015, when default rates were low and spreads were narrow in high yield, the fund was more neutral in its credit allocation to long-short credit and had a low allocation to distressed securities.
However, 2016 was a peak default year, especially among commodities and energy companies. So the fund moved a lot of its allocation into distressed securities.
For 2017, three themes are driving the portfolio. The fund is maintaining its distressed allocation, which was a good performer in 2016. The portfolio managers also believe that with the new Trump administration in place, 2017 will be a good year for credit and stock picking. They are anticipating more dispersion in returns in companies and industries due to regulatory changes, taxes, and trade, to cite a few factors. So the managers think now is a good time to go long and short in credit and equities. Brookfield’s team is also anticipating a higher interest rate environment in general.
