Brookfield’s new evergreen private equity fund is facing early scrutiny as two of its holdings risk falling into distressed territory, raising questions about related‑party dealings, valuation, and liquidity in a vehicle marketed to private wealth customers.
The fund, launched in October, acquired minority stakes in CDK, BrandSafway, and DexKo Global from Brookfield Business Partners, a listed fund also managed by Brookfield, which remains invested in all three.
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Within weeks of the fund’s launch, lenders to the three portfolio companies have expressed concern over the financial health of the assets.
Bloomberg reports that lenders to CDK and BrandSafway have held discussions with their respective legal teams to assess options. DexKo, an auto parts manufacturer, is fielding questions around its accounting and financing practices following the collapse of auto parts retailer First Brands Group last month.
Market pricing for CDK and BrandSafeway debt is now hovering near distressed territory.
CDK’s roughly $4 billion loan traded at about 82 cents on the dollar on Thursday and has not traded above 90 cents since March. The company has been dealing with the aftermath of a cyberattack last year, “which forced it to shut down all its systems.”
BrandSafway’s loan traded as low as 84.25 cents in August, and Moody’s Ratings cut its credit grade to Caa1 in June, citing “weak operating results, negative free cash flow, and weak credit metrics.”
DexKo’s debt has held near 98 cents, though Moody’s in June flagged very high financial leverage and volume declines in North America.
As debt holders lose confidence in the companies’ financial strength, the value of the equity held by Brookfield’s new evergreen fund could be in jeopardy if the businesses fail to recover.
The evergreen fund is positioned as an opportunity for individual investors to add exposure to private markets. The vehicle invests alongside other Brookfield funds and can acquire interests from them, while also offering lower capital requirements and periodic liquidity.
The portfolio’s situation has led to renewed focus on the related-party purchase of the stakes from one Brookfield-managed fund to another. For those already skeptical of opening private markets access to individual investors, the current optics hit on a primary criticism: that fund managers might shift underperforming assets from primary funds onto smaller investors.
The fund’s disclosures, however, do explicitly warn prospective investors that it intends to invest in distressed assets, including those “having substantial financial needs or negative net worth, facing special competitive or product obsolescence problems, or that are involved in bankruptcy or reorganization proceedings.”
Warnings also include an overview of certain situations in which investors’ newfound access to the wider Brookfield platform can expose them to “double fees” — another common point of contention for those critical of retail-oriented private markets offerings.
When investing alongside other Brookfield funds, explain the disclosures, investors will pay management fees to both the evergreen fund and the underlying fund. “Because of the fees and expenses payable by the Fund pursuant to such Investments, its returns on such Investments will be lower than the returns to a direct investor in the Target Funds,” warns the filing.