The most famous holding in the world is Berkshire Hathaway, managed by the well-known Warren Buffett and Charlie Munger, with a 52-year track record of 20.9% annualised return. However, there are some diversified companies with even better performance, although for a shorter period. One of these examples is Brookfield Asset Manager (BAM), an alternative asset manager with more than 100 years managing real assets.
BAM´s performance is outstanding, with a 20 years annualised total shareholder return of 17%, against 7% of the S&P 500, with almost $300Bn AuM. The main driver of this overperformance is the extraordinary capital allocation of the management, led by the CEO Bruce Flatt. The company describes itself as “a leading global alternative asset manager, focused on investing in long-life, high-quality assets”, with four operating segments: real estate, infrastructure, renewable power and private equity. Additionally, BAM says that they are “value investors with a contrarian point of view”. Hence, the company´s objective is “to identify and acquire high-quality assets at favorable valuations and finance them on a long-term, low-risk basis”.
One of the main characteristics of BAM is the organizational complexity, not only due to the holding nature but also to the different sources of revenues and the allocation of capital. The largest part of the invested capital is allocated to the listed company Brookfield Property Partners (BPY) (between 45% and 70%, depending on the methodology used to value it), followed by Brookfield Renewable Partners (BEP) (17% – 25%) and Brookfield Infrastructure Partners (BIP) (21% – 9%). Total invested capital is, depending on the methodology, $23.6Bn – $31Bn. Additionally, BAM manages $127Bn of fee bearing capital which provides profits with no capital invested. The segments in which the holding is split are the following:
The real estate business is mainly canalized through Brookfield Property Partners and owns one of the largest offices portfolio in the world, including some of the most important financial hubs such as Brookfield Places (New York), sometimes called the world financial center, or Canary Wharf (London), in which most of the international financial institutions have its European bases. Additionally, BAM owns a large portfolio of residential, retail (shopping centres), industrial and hospitality-related properties.
Brookfield Infrastructure Partners is the subsidiary in charge of the infrastructure business, consisting in the owning and operating assets in different sectors such as utilities, transport, energy, communications and sustainable resources (agricultural). These assets, by nature, are scarce and therefore have an intrinsic competitive advantage that makes out of them one of the best long-term investments.
BAM owns and manages different renewable energy-related assets through Brookfield Renewable Partners, being the leader in hydroelectric power, which accounts for the largest part of the renewable power assets portfolio. It includes, in addition, wind and solar plants, distributed generation and storage facilities.
Following the value investing approach to invest in tangible assets, BAM invests in private equity through Brookfield Business Partners. Although there is no restriction in terms of industries, every potential company must be a high-quality business focused on profitability, sustainable margins and cash flows. BAM not only invest in companies but also influences the management sharing expertise and making sure that the objectives are achieved.
Applying the same investment strategy and approach, BAM manages third-party funds through different vehicles such as private funds, open-ended and closed-ended mutual funds. These parallel vehicles to manage real assets generate fees for the manager, instead of providing the holding with the given share of profits coming from owned assets. However, BAM itself invest in the funds it manages, so interests between investors and the company are aligned.
Brookfield Asset Management has a market capitalisation of $41.5Bn, with a share price of $41.81. It is listed in the U.S. (New York Stock Exchange) and Canada (Toronto Stock Exchange), where the company is incorporated.