Get Your Venture Capital Fix With These 2 Private Equity Companies

These companies help mitigate the risks of investing in smaller companies.

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The Motley Fool

Investing in smaller companies carries a certain amount of risk that more conservative investors are unwilling to bear, yet these types of companies are the ones that tend to offer higher returns if successful. So how about adding a middle man to mitigate the risk? That’s where these two companies come in. Think of them as a mutual-fund-style packaging of smaller up-and-coming companies all bundled together. This gives more conservative investors an option to add some alternative companies to their portfolio with a lower risk ratio.

Onex Corp

The first company I will be looking into today is Onex Corp (TSX: OCX), a private equity juggernaut with holdings including Allison Transmission, JELD-WEN, and Celestica. Onex invests in companies either through direct investment or through one of its four Onex Partner portfolios. Over its 30-year history, Onex has completed over 450 acquisitions worth $50 billion. In May, Onex completed $5.15 billion worth of funding to open its Onex Partners IV fund, of which $1.2 billion came from Onex.

Interesting days could be ahead for the company as the former chief of staff of the Office of the Prime Minister, Nigel Wright, has announced he will be returning to the company. Revenue in the past quarter came in at $6.5 billion, up from $6.3 billion in the same quarter last year, while net earnings came in at $99 million, a dramatic shift from last year’s quarterly loss of $271 million.

In terms of what the future holds for Onex, it has indicated that its targeted assets under management for 2017 has gone from $5 billion to $10 billion. The stock closed Thursday at $65.90, has a 52-week range of $47.16 to $68.43, and has an average price target of $67.90, with a high-end price of $70.

Brookfield Asset Management

Nipping at Onex’s heels is Brookfield Asset Management (TSX: BAM.A)(NYSE: BAM) a well-rounded company with a variety of assets. This century-old company has over $175 billion in assets in industries such as infrastructure, with 15,500 km of pipelines and 9,900 km of power transmission lines.

Its renewable power arm generates 6,000 megawatts of power at 217 generating facilities, while its property management division owns over 600 non-residential properties. Finally, its private equity division has $10 billion of capital deployed in companies such as Royal LePage, Ainsworth Lumber (TSX: ANS), Hudson’s Bay (TSX: HBC), and Vicwest (TSX: VIC). This type of portfolio balancing gives potential investors a plethora of industries combined in a single stock.

Brookfield posted revenue of $4.3 billion in its most recent quarter, down from $4.9 billion. However, while revenue fell, net income rose sharply to $843 million from $697 million during the same period last year. The stock closed Thursday at $46.43 and has a 52-week range of $35.35 to $48.79, just below its average price target of $43.60. Brookfield Asset Management currently offers an annual dividend of $0.69 with a yield of 1.4%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Cameron Conway does not own any shares in the companies mentioned.

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