Brookfield's Anuj Ranjan - "own the boring that makes exciting possible": AGM Live at SuperReturn

0:00We're going mainstream. Hi, everyone. I'm Michael Sijmore, founder of Altgo's Mainstream and co-founder of Broadhaven Ventures. I'm here with Anuj Ranjan, CEO of Brookfield's private equity business. We are here live from Super Return. There's a lot going on in private markets today. You have such an interesting purview as a firm at forefront of so many megatrends. You see it through a bunch of different lenses. You run the private equity business, which enables you to invest into interesting, maybe boring, but also cool industrial businesses, which we'll get into. And that is also intersecting with AI and everything the firm's doing with AI.

0:35So we'll get into all that. But first, I want to just start with your background. You joined Brookfield at quite an interesting time. It was 2006, I believe, right before the GFC. Walk us through the evolution of your career and how that's mirrored the evolution of private markets.

0:52Anuj Ranjan: Absolutely. Thank you for having me. It's a real pleasure to be here. I started at Brookfield 20 years ago, actually probably almost 20 to the day. And my background was a little bit non-traditional. I was a software developer. My background was computing science and engineering, actually oddly AI programming, which 20 years ago was not as interesting as it is today. So at the time, I was looking for opportunities in finance where guest experience in software development and computer engineering were useful. Six was a very strong environment for that industry. And I, in Canada, one of the emerging big businesses was Brookfield.

1:30Anuj Ranjan: So it was a group that I reached out to, managed to luckily get a job. I don't know if today I'd have the same opportunity, but I luckily got a job at that time. You and me both. Exactly. And look, the journey has been great since. The company was largely focused on Canada at the time, becoming international. We had just launched our first fund, actually, as an asset manager ever, where we accepted third-party capital. and that was our private equity fund, Vintage One. And the business was growing in the US and then other markets. And I moved around the world. It was in New York. I was in Mumbai.

2:00Anuj Ranjan: I was in Dubai and eventually found myself in London. But a big stint of my time was over 10 years in India, the Middle East, where I helped us enter those markets. We grew a big, incredible business there in very high growth markets, but also very cyclical markets. That kind of, I think, taught me a lot about investing. I think there's some interesting things in there. If you want to get into it around, like you were in markets that were growing, very dynamic, fast, but you're investing in industrial businesses, which are like these essential, maybe boring businesses, but everybody needs them.

2:34What was that like investing in more emerging markets, but investing in the basic industrial businesses?

2:42Anuj Ranjan: Well, it was really interesting in a way we sort of invented, I'd call it a more mature way of investing in those markets. So when I arrived as an example in Mumbai, at that time, even though the GFC had hit globally, India at the time thought it was immune. And people were signing term sheets in the lobbies of conferences. You'd come to a conference like this, like Super Return, and people would literally do deals, hundreds of millions of dollars in the lobby. Committed with no rights, no governance, no valuation work. Obviously, that story did not end well. A lot of people lost a lot of money in India.

3:15Anuj Ranjan: We came in and we watched. For five years, we didn't do a single transaction in India. We just watched the market. We learned. We brought our portfolio companies from abroad into the market to service the market. We learned even more. And then about between 2012 and 2014, we really started to make some real investments. And at the time, they were the first time anyone had done a buyout. They were the largest deals of their class in the market for real estate or infrastructure or industrial businesses. and after 2014 after sort of inventing it i'd say and creating the idea that you could buy companies out and run them yourselves and don't have to necessarily partner with an indian entrepreneur institutional capital can run assets and businesses fine in the country we scaled dramatically in those 2014 and 2020 period and continue to today so now we're 35 billion dollars in india invested more than the amount of money that we have invested in the country.

4:09Anuj Ranjan: We've made enormous profits for our partners and we've developed a great, great business with hundreds of team members. We're really proud of that. And we took that model and kind of used it around the rest of Asia and the Middle East and had similar success. And so I'd say those kinds of learnings and opportunities that I saw and experienced led to my current role overseeing private equity more globally, because for our private equity business, the real opportunity ahead of us is growth in a market that is otherwise facing headwinds. As an overall market, it's no surprise, and everyone's talking about it here at this conference, there are headwinds.

4:46Anuj Ranjan: But we are growing, and how do we keep accelerating, and how do we keep growing in that environment? It reminds me a lot in a different way of emerging markets investing, which I did earlier. So there's a lot to unpack in there. You've had some great quotes, like, it's now roll up your sleeves, private equity, which we'll get into, And I think that speaks to what you said is like, now, how do you grow now? 12 is the new five. It's going to take operational value creation to actually build businesses. I think that's somewhere where I want to go. But first, I just want to touch on a bit more about the Brookfield platform as it relates to what you shared about your experience working in these emerging markets.

5:21I think it's also foundational and emblematic of how you think about investing. So one thing jumped out, which is that you took five years to invest in India. You're patient. How much of Brookfield's DNA as an operating business, industrialists, and you have a lot of balance sheet capital. I think it's 25, 30 percent of of every fund is Brookfield's balance sheet. How is that informed how you think about investing?

5:52Anuj Ranjan: Look, it's made a huge difference. I'd say first and foremost, we are long-term investors and we think very long-term about any market, any business, any geography, any sector. We don't enter a sector to do it quickly or to do it because it's in fashion. We do it very thoughtfully. That approach worked really well for us in places like India. And I'd say while in probably any other firm, if you were the head of a market and you did no deals in five years, you'd probably be fired. and Brookfield I was promoted twice for avoiding the traps that would have sucked in a lot of capital and probably led to us losing a lot of capital impairing a lot of capital and that probably would have changed our entire trajectory in India it's because we were patient that we were able to make the right investments and have a business that was very successful same in the Middle East we entered the market in the Middle East in 1997 with a construction business we owned but we didn't put our first dollar to work in the Middle East until 2015 it's a much longer time that we waited and learned.

6:50Anuj Ranjan: And between 2015 and today, we've done$18 billion of deals in the UAE and Saudi in these markets. So it's been an incredible journey there. And so I'd say first is just patience and having a long-term horizon. That was a huge benefit. And second is we often enter businesses, we have the ability to use our balance sheet as a strength in a lot of these markets. And that's very helpful as well. When we started investing in technology as an area, We started just on our balance sheet. And even today, we still do a lot of technology investing on our balance sheet to not risk client capital until we know we are ready.

7:26Anuj Ranjan: And it might take us 10 years to know we are ready. And then we can provide that service for our clients. I think that's a great segue. You've owned what's last, but now you're looking to own what's next. What in your mind is owning what's next today? So it's really amazing. You know, the world's greatest technology companies, the world's largest technology companies today are all asset heavy. And that's a big shift from what we've been used to in the past. AI's main requirements, its main needs are land, power, chips, steel. And at Brookfield, we find ourselves kind of in the center of all that.

8:01Anuj Ranjan: And it's sort of a surprise for us that we are literally in the most important rooms and having the most important conversations because we represent the most critical resource to many of the world's large technology companies. And the way that we can help them with our global platform, the scale of what we do and the ways that we can actually partner with these groups, it's enormous. And so that has created an opportunity for us to be, I'd say, at the intersection of where technology is going and what its needs are today and to make some of these investments into the world's greatest growth companies at the same time.

8:36So I'd love to unpack that and bring it to life a little bit because you mentioned you're at the intersection of these mega trends. You have a large infrastructure business. You have a large real estate business. You have a large credit business for the acquisition of Oak Tree. And you have private equity business. And there's a lot of synergies between those platforms. And it's all manifesting itself in these megatrends that you call the fourth industrial revolution. How do you think about leveraging the broader platform as you continue to build the private equity business and invest in the types of companies that you want to own that are next?

9:09Anuj Ranjan: It's honestly part of our DNA. and it comes top down and it's just part of our culture that while we have these different groups we all work extremely collaboratively across the organization i'll give you an example even today at brickfield you walk into any brickfield office you won't know where the infrastructure department is or the real estate or private equity it's entirely open concept everybody sits at the same size desk in the same area and sits together and so when we want to talk to our colleagues or partners from other groups we just wave at them or we kind of stroll down the hall we're not booking an appointment.

9:41Anuj Ranjan: That's one. It's just ingrained in our culture that we are really one firm or one platform. That's number one. Second is it's actually part of our main investment philosophy. So even in non-technology, just traditional, boring industrial companies or infrastructure services businesses that we buy in private equity, we have almost always utilized the broader book field platform to identify the opportunity, to actually identify the key things to watch out for or the key opportunities in that business, sometimes even a source of the business. Often our infrastructure group is an end user of a product or service that maybe we're buying, or the energy group understands a certain part of the technology that we're using, or our real estate group will be able to give us certain inputs into what's required really in their supply chain and why this is an important component of any other industry that we might be selling to.

10:33Anuj Ranjan: So all of that data, all of that information from 400 portfolio companies around the world held by our few thousand people we have working across this is really gathered in one place and informs all of our decisions in the private equity world. Similarly, when you look at technology now investing, it's the same thing. what's something that may not be as obvious to those who are not on the inside every day, but you've found to be you're ahead of the curve or is an interesting insight from the broader platform that you have and what people in the infrastructure side of the real estate side are seeing.

11:10Anuj Ranjan: So I'll give you a couple of examples. One is we often buy businesses that service or provide critical components to infrastructure providers. We will utilize our broader group to actually understand the trends happening in that market. As an example, we bought Westinghouse, nuclear services provider, a very, very large company, great company. At the time we bought it, nuclear was a bad word. It was going through chapter 11 bankruptcy. This is in the world where private equity could do much easier deals. So why invest the time and effort to work through a complicated restructuring in a business where the headlines were not great.

11:52Anuj Ranjan: And for us, it was really understanding that the servicing, the maintaining, and the fueling of these nuclear plants was very valuable, and that nuclear wasn't going anywhere. Our energy colleagues, our energy platforming, the largest private owner of renewable energy in the world, was instrumental in us not only understanding the key trends affecting nuclear, and that nuclear was going to be around for a very long time, but also even underwriting those specific plants and their longevity and how much of a life these contracts would really have. It allowed us to make an acquisition that probably would have been difficult for anybody else.

12:29Anuj Ranjan: And thankfully was a great investment for us and continues to be. That's a business that just for context, people, I believe an$80 billion contract with the US government recently. Is that correct? Or is it maybe a little bit more? Yeah, yeah. In that ballpark. Okay. So to put that in context, SpaceX's IPO is$75 billion and Westinghouse just did a deal that's, or recently did a deal that's$80 billion. So just, I thought that's an interesting way to frame. No, look, it's at the center of energy security. It's at the center of energy transition and it's at the center of artificial intelligence. And all of these trends bode very well for nuclear technology and Westinghouse is the American leader in the world with the biggest market share.

13:12So another thing that is in what you just shared, where my mind goes, is you had to do a complex carve out. That's something that Brookfield's private equity business has a heritage in doing. Not easy to do. What makes a carve out so difficult and how do you underwrite a carve out well?

13:31Anuj Ranjan: Yeah, the biggest thing that people miss in a carve out is actually the people. Meaning when you're carving out a business from a conglomerate or another company, It's oftenly an unloved part of the business. That's why they're letting it go. It's underinvested. It's unloved. It's not core. Their best talent and best people may not even be involved in that business. They may not even have a formal management team. It may just be a bit of a lost division. And when you acquire it, it's easy to think, what does the business do? What is its revenues? What are its profit margins? What are its costs?

14:04Anuj Ranjan: But then people often ignore that actually a successful, any successful business is about the leadership of the management team. you buy an existing company that's running and it's been running well you're backing a great management team maybe you have to change one person two people if you think you want it to go in a slightly different direction but when you carve out you're standing up an entirely new management team from scratch and that i think is a lot more work than people realize you have to have had the experience of doing it again and again and again and making mistakes early we made mistakes 25 years ago, 20 years ago, we still make mistakes.

14:41Anuj Ranjan: We just try to make less mistakes and make them smaller every year than we did the prior year. And that's, I think, the main thing that people miss. What in a carve out, is it generally that the business was just unloved within a larger corporation and you're not able to necessarily see the value of, oh, if this was on its own as a standalone business, there's commercial viability. There are ways in which you're underwriting that and can tell and have an idea, okay, you know what, if this was a standalone business, we know that this could be commercially viable. Yeah, absolutely. I mean, it's a big part of our underwriting.

15:16Anuj Ranjan: It's a big part of what makes us focus on some carve outs and not on others. We want undeservingly unloved businesses. We want businesses that are actually quite good, but have just not gotten the attention within their organization. And it's not always because of for bad reasons. Sometimes it's that they have, it's just not core to what the company does. Sometimes companies have to invest in CapEx, whether it's tech CapEx, whether it's manufacturing CapEx, and they have to prioritize some businesses over others. And sometimes it's easy to ignore a business that's otherwise fine, pays a dividend, doesn't have any problems, but it's not a squeaky wheel.

15:53Anuj Ranjan: It's okay, but you're not necessarily investing in it. So then that leads to, okay, that organization might be willing to sell that division or that subsidiary. For us though, how do we pick? And we look at 400 companies a year, we only buy four. How do we pick which ones that we're actually going to invest in? It comes down to the ones where we think we have the most transformational opportunity within them. And often what we're looking for is a company where the hard work of making its product critical or appealing to its customers has been done. So it's already a market leader. It's already a price setter.

16:24Anuj Ranjan: It's already gotten nice margins. that's got a big market share, but they're not executing on it well, meaning they're leaving money on the table. The perfect example is pricing. Pricing is often a tremendous opportunity for these businesses, and they don't often think of it. You know, if you think about a cup of coffee, we all know that$1 ,000 is too much and 10 cents is too little. You roughly know what a cup of coffee should cost, and you know the boundaries of what you're willing to pay. No one knows what a corrugator machine that produces cardboard should cost because only two companies on earth make it.

16:59Anuj Ranjan: We own one of them. Now, how do they price today? They sort of cost plus, you know, I don't know, this is just what we priced last year. Let's increase it by inflation. The price should be whatever the customer is willing to pay for it. And if it's that critical to a box plant, and without it, the box plant shuts down and more and more cardboard is needed, suddenly this 50 % market share business might actually have pricing power. It didn't even realize it had. And there are these kinds of opportunities. There's a footprint rationalization of their manufacturing plants. Can you do more in less factories?

17:31Anuj Ranjan: There's all of these low-hanging fruit that we look for. And it's just the experience of we've done this 300 times. We sort of know what to look for in every company. 80 % is exactly the same. 20 % is new. And we spend a lot of time honing that to figure out which of the year's investments we're looking at are the best ones to do. So I think that's a great tie-in to a quote that I really like and that you've said in the past, which is, it's now the era of roll up your sleeves, private equity. I'm going to ask this in a slightly different way and from a different angle. So you've said, just roll up your sleeves, private equity.

18:08In a world where operational value creation is going to be required to actually create value? Do carve outs, do they require even more work to create value? Because if 12 is the new five, you need more EBITDA growth to generate the same return because you have different interest rate regime. You have a more challenging environment, broadly geopolitically challenging. Do you now need to roll up your sleeves even more? Because you've been rolling up your sleeves for a long time. Like when I hear you talk about carve outs, You've already been doing roll up your sleeves private equity. It's just this is an era of roll up your sleeves private equity maybe today that requires a little bit more operational value creation.

18:51So do you have to do an even better job with carve outs or are you able to buy at such a price that it's really no different than what you do in the past?

18:59Anuj Ranjan: Look, I'd say actually when you focus on something like carve-outs, that's where you find it easier to go from 5 to 12. Because that is usually where you naturally find the opportunities to increase productivity or make the business better. And they are often not doing things. And they have under-invested in CapEx, they have under-invested in technology. They haven't thought about pricing. All of these things that I was referring to are more often found in those kinds of businesses. So I actually find one part of it is the reason we focus on that area is the low hanging fruit that gives you that alpha is more easily recognizable.

19:34Anuj Ranjan: But that being said, you have to have done it a bunch of times before to know how to spot those opportunities and to pick the right carve outs because a carve out by nature is more work. So to then be less work after a perfectly gift wrapped business that isn't a carve out that's just presented on a platter in an auction where the highest bidder wins. I struggle to see how, I think it's going to be an enormous amount of work to get from that 5 to 12. But in a carve-out, there's usually a lot more opportunities to do so if you know what you're doing. So I think great segue to another aspect of fusing doing what you've done in the past to the here and the now of today, which is AI.

20:15How can you infuse AI into, or maybe I should say diffuse. How can you diffuse AI into these industrial businesses to make them more efficient and better?

20:26Anuj Ranjan: You know, it's amazing that people often forget to think about how the application of AI should be to the world. And there are certain industries that seem very natural, but traditional boring industrial companies, manufacturing businesses, that's where some of the biggest opportunities are. Those businesses on their own are not being disrupted by AI, so that's nice, but they actually are usually, they've invested the least in technology of all the sectors. And so if you think about it, these companies, forget about AI, they've barely, they've just been using Excel. They haven't even often rolled out an ERP.

21:01Anuj Ranjan: They don't have a CRM. When they say they don't know pricing, they've literally not actually done the programmatic or dynamic pricing. But even stepping back, they haven't even collected the data. and data, real-time data collected, IoT devices, edge computing, getting all this data, creating a data lake, then marrying that with data you've collected across 400 companies you own, using customized AI tools or developing AI tools to mine it. There's no way these companies have ever done that. So, you know, it's interesting to think about what can AI do and or broader value creation do to really optimize these businesses that you might invest in.

21:40Some of them may have significant market share, 70, 80, 90%. How do you optimize those businesses even further?

21:49Anuj Ranjan: Yeah, it would shock you to know how much opportunity there is with these companies. Let's say you're a business and you create a critical component and you have 90 % market share of whatever industry you're in. And so it doesn't feel like there's much to do, but you have a manufacturing process. You probably run plants. you probably have to manufacture x number of products per day in order to meet demand maybe you could even sell more if you could produce more i'll give you an example that affects both the cost of the revenue line first is your plants are big living breathing things they have maintenance issues things break down you often don't know why they break down you sometimes have to take a line offline you have to replace parts you have to replace some of those entire machines you have to put stuff back on there's a whole bunch of things that can go wrong within a manufacturing plant.

22:34Anuj Ranjan: In the past, preventative maintenance wasn't really a thing. You hope to have good people who were been around long enough to know that, okay, I think we have to replace that machine. Today, you can have AI tools that tell you, I think that machine, machine 18 on line 12 and plant 46 seems to be vibrating more than usual, or than it should be compared to other ones, you should check it. There may be a bolt loose and lo and behold, there was a bolt loose. You tighten the bolt. Now, did that save you from a total machine breakdown? Maybe. And maybe that would have cost you months. Maybe it just delayed some capex you would need to spend on for six months.

23:16Anuj Ranjan: Maybe it meant that something bigger was going to happen and you avoided it entirely because it could have led to some other issue. But you have saved a lot of money and you've kept your uptime on longer to produce more of your goods, that's an improvement to that business. I want to connect some dots that I think you've probably seen the future on already, but kind of going even over the horizon to the next phase of AI, physical AI. So when I hear that example, talking about a factory or manufacturing plan, the ability to determine when something needs to be fixed. You've invested in the robotics space, figure AI.

23:52They're most likely going to have humanoid robotics. They already don't. I think they do. I've seen videos of them walking around. If we connect some dots and tie those two things together, so that example of leveraging AI to make better decisions, but then connecting that with the physical world of AI, paint us a picture for what that looks like.

24:12Anuj Ranjan: I'd say the opportunity is enormous. I think it's going to transform these industries. So you're absolutely right. If you think about humanoid robotics or just robotics in general, smart machines that can actually do some of the stuff on the ground in actual factories, they can make the people working on those factories far more efficient. Often these are the jobs that are the hardest to find and they're the jobs with the biggest turnover where you have to reskill and retrain on a regular basis. You have an ability to do that all autonomously. And I think it's going to increase productivity. Do we have robots walking around factories able to do it today like humans?

24:50Anuj Ranjan: We don't. It's not there yet. First is you have to literally digitize the entire physical world. How things look, how things feel. Things that we all take for granted as humans, but that have not been digitized because it's not on YouTube. It's not on Google. It's not an LLM, which has got access to the internet. This is stuff that we have to digitize from scratch. So we have people in our factories today wearing the goggles, wearing the gloves, training these models so that they can apply to physical AI. But it's coming. How far away are we from both where AI reaches a point where it's ready to be able to be infused into the physical AI world and robots being in a place where they're able to actually be used at scale?

25:33I think we're still some time away.

25:37Anuj Ranjan: We're not there yet. but it accelerates very quickly when it comes. And I just think back to OpenAI has been around a long time. ChatGPT has been around a long time. We all sort of only heard of it at GPT 3.5, but there was a lot of versions before that that none of us ever used. Most of us never used. And if you look at the acceleration from 3.5, where it was kind of like a toddler to within a year, it was like talking to a teacher to then another year, it was like a PhD expert. and today where it's kind of going, it continues to go beyond, I think where most people thought it could go, that acceleration has just been in a few years.

26:14Anuj Ranjan: So I think the same, that moment, that GPT 3.5 moment for humanoid robotics has not happened yet. But when it does happen, when it clicks, I think the acceleration will be incredible. I want to also talk about another aspect of AI. You were recently in the news for helping form and be part of the consortium that's building Deployco with OpenAI. So a services company to diffuse AI into the portfolio companies of you and your consortium peers, leveraging AI and LLMs. Why do that? And what does that mean for your portfolio companies? I'd say AI has moved from innovation to execution. And the real focus now is on not the best technology or the best LM, but how can you deploy it at scale?

27:09Anuj Ranjan: And I think that's going to define the real winners or losers. Not who has the best model, but who's able to get enterprise or true industry to utilize their models the fastest. That gap is only what we're trying to fill on our side of operating companies, where we're trying to continuously fill that gap and utilize AI. It's where we think the best investments will be made in AI. And that's the reason we chose to partner with OpenAI in the deployment company, was we thought it was an incredible way to accelerate that adoption, not only in our companies, more broadly for the world. That's what we think the opportunity is.

27:43So I think it's fascinating you say we've gone from, we're now at the execution phase of AI. What in your mind is the most non-obvious, but most interesting way to invest in AI today?

27:59Anuj Ranjan: I think the best way to invest in AI today is to buy a boring industrial businesses. I think the opportunity that they have ahead of them, if they are managed well to embrace AI and embrace technology, I think it's going to be transformational. I don't think it's that you just, these companies invest in AI, adopt AI, and they have alpha and they grow, and the other ones stay flat. I think the ones who don't get left behind. So you have to pick the partners who run those businesses or the companies that are actively investing in technology. But for me personally, I'd rather buy a business at eight times or nine times EBITDA with a management team that know how to deploy AI in the business that they're not the bottleneck and know how to embrace the technology and utilize it to improve productivity dramatically.

28:48Anuj Ranjan: And I think those businesses are going to have a tremendous amount of upside and opportunity. What's the right skill set and team to build a business that is retrofitted with AI infused in it as an industrials business? Well, first, generally speaking, and this is through all cycles, all periods, and the period we're in now, the period we're in 20 years ago, the period we might be in 20 years. I think a great leader and a great CEO, one of the best talents they can have is knowing what they're not great at and hiring the best people around them and motivating them to, but you need an individual who has always hired and retained the best talent, better than them, everything else, so that they can get the most out of their businesses.

29:30Anuj Ranjan: And today, suddenly your chief technology officer or chief information officer or innovation officer should no longer be the IT person who got promoted. It's a totally different skill set. It should be someone, if you are a great CEO, you are hiring someone light years ahead of you in technology to play that role, to really partner with you and implementing it in the organization. I think that makes a great CEO and just not resting on your laurels and presuming that business will be fine because it's always has been this way the example i always like to think about is you know in uh it's a very north american example i think but the blockbuster netflix sort of uh divide right and you had two companies with a different approach to getting movies in our homes and one was you went to the store and you rented the movie and you got some popcorn or whatever and you went home and watched it and it was a social experience with it the other was you got it delivered you got a dvd and you watched it and you returned it and one embraced shifts in technology and said we're going to get ahead of what's coming, invested in it, and one didn't.

30:32Anuj Ranjan: And we saw what happened. So it's sort of similar across all the businesses. And I think the best CEOs are the ones that are thinking ahead, but then also retaining and motivating the right talent to ensure they get to the right outcome. I think that's such a great way to encapsulate our entire discussion. The last two answers you gave around Blockbuster, Netflix, the way that a company can infuse the future with the past. If you think about Brookfield, you're owning what's next, but you're also owning things to last. And that's kind of the history of Brookfield when you think about it, been around for a long time, but also thinking about what's next.

31:09It's such a great conversation news. Thanks so much. Thank you so much for having me.