Northleaf mobilizes dry powder for secondaries, infrastructure deals

Northleaf is expecting a range of “high-quality assets” to come to market once owners “react to their own short-term liquidity needs,” managing partner Stuart Waugh told Buyouts.

, a private equity, credit and infrastructure fund manager, is preparing to go on the offensive, mustering more than $2 billion of unspent capital to take advantage of dislocation opportunities spawned by the covid-19 pandemic.

“We expect to be active across all three strategies over the next six to 12 to 18 months, as the unprecedented economic shutdown creates both near-term and longer-term investment opportunities in mid-market companies and assets,” managing partner Stuart Waugh told Buyouts.

Northleaf will step cautiously in this environment, Waugh said, as prospects are likely to vary by type and depend on the shutdown’s duration and the recovery’s trajectory. The firm is nonetheless expecting a range of “high-quality assets” to come to market once owners “react to their own short-term liquidity needs,” he said.

Northleaf developed a short list of near- to mid-term opportunities of interest. These reflect attributes aligning with the firm’s niche mid-market criteria and specialization, Waugh said, as well as “pricing, terms and future outlook” that are “particularly promising.”

They include PE secondaries, such as structured and preferred equity investments at the fund and business level. Northleaf, a direct investor in the secondaries space since 2003, recently in partnership with institutions like Caisse de dépôt et placement du Québec, is targeting deal flow in North America and Europe.

Northleaf is also looking at add-ons to existing loans and opportunities in the private credit secondaries market. This activity, Waugh said, will be focused on enhancing exposure to US and European mid-market borrowers “we already know well.”

Along with secondaries assets, Northleaf is eyeing infrastructure assets owned and developed by industrial groups “highly motivated to seek out long-term capital partners,” Waugh said. A direct investor in OECD assets since 2012, the firm is especially interested in communications infrastructure and renewable-power deal flow in the US and Australia.

Waugh said Northleaf’s 20-year history in the global market indicates periods of dislocation generate “very attractive returns” for investors able to identify and execute on opportunities. This gives Northleaf confidence that businesses and assets backed will be well-positioned for growth when the economy recovers.

Northleaf recently completed a review of its PE, credit and infrastructure portfolios following the onset of the pandemic. The results, published last month on the firm’s website, suggest portfolios will withstand the impact of the health crisis, owing in part to a “conservative” strategy and approach to portfolio construction.

As part of its review, Northleaf examined the challenges of specific regions, sectors and types of companies across the portfolios and came up with a register of “watch-list” assets. This and subsequent stress tests helped determine short-term liquidity needs and other imperatives. The $2 billion-plus in dry powder will also be available to these existing investments as required.

Based in Toronto, Northleaf was spun out of TD in 2009 through a management buyout led by Waugh. It today manages almost $14 billion in commitments on behalf of 100-plus institutions, including endowments and foundations, financial institutions and pension funds, and 60-plus family offices and wealthy individuals.

Over 2018-2019, Northleaf secured more than $4 billion for its PE, credit and infrastructure programs, including separate accounts established for Canada Pension Plan Investment Board and CDPQ.

Action item: See Northleaf Capital Partners’ covid-19 update .