The Asset Manager That No One Knows About
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Canada’s Brookfield Asset Management (NYSE: BAM) is one of the best-managed companies out there. Most of us in the states however have never heard of the company even though they own some of the more recognizable assets in the world. If you had heard about Brookfield and were to dig into the company you might be turned off by the apparent complexity. But before you toss them into the too hard to understand pile let me give you a quick overview as to why I think the shares offer a solid investment opportunity.
In one sense Brookfield takes a page from famed investor Warren Buffett of Berkshire Hathaway (NYSE: BRK-A) as they are value investors at heart. Instead of insurance peddling lizards or choo-choo trains, Brookfield’s attentions are turned toward hard or “real” assets. With global platforms in real estate, renewable power, infrastructure and special situations, Brookfield seeks best in class assets with high barriers to entry that deliver stable cash flow. They find bargains and will typically scoop up assets at the bottom of a cycle, looking for distressed sellers or bankruptcy situations where they can use their restructuring expertise and platform scale to generate exceptional returns on capital.
BAM manages over $150 billion dollars worth of some of the best assets in the world. About half of these assets under management are in real estate. Here is where the complexity comes in; Brookfield launched a publicly traded vehicle called Brookfield Office Properties (NYSE: BPO), which you might know from its flagship assets including the World Financial Center in Manhattan or due to the problems at Zuccotti Park thanks to Occupy Wall Street. Brookfield maintains an ownership interest the BPO among many other real estate assets including the recently restructured General Growth Properties (NYSE: GGP) stock that they own. They are planning to spin off these ownership interests into another publicly traded vehicle, which will be called Brookfield Property Partners. While it looks on the surface like Brookfield is just making things more complex, what they are doing is growing into the rest of their name; Brookfield Asset Management. Instead of being major asset owners, they are streamlining to become asset managers while putting the assets into publicly traded vehicles that are more shareholder friendly.
My favorite of the Brookfield platforms is their global infrastructure business which can be found in their publicly traded partnership, Brookfield Infrastructure Partners (NYSE: BIP). They do own assets in some private funds and own assets in the funds but the core of their infrastructure platform is found in BIP. They own some world class assets such as the Dalrymple Bay Coal Terminal which exports 21% of the global metallurgical seaborne coal, and Transelec which operates 98% of the high voltage transmission lines in Chile as well as a rail line in Austrailia. Now, those names probably mean nothing to you, but they are virtually irreplaceable assets that are vital for global trade and are just a sampling for BAM’s portfolio. Brookfield still owns 28% of BIP and they’ve used that platform to grow tremendously during the credit crisis as they were able to use their units to make an exceptionally accretive transaction.
As I’ve mentioned, they’ve spent much of the past few years spinning off assets into publicly traded pure play vehicles. They use these as platforms to consolidate their assets in order to pursue future growth. Last year they spun off Brookfield Renewable Energy Partners, which is listed only on the Toronto Exchange. BREP, as they are known at Brookfield, owns a portfolio of primarily hydroelectric power plants located in Canada, Brazil and the US. They produce enough renewable power to provide electricity to about two million homes. It’s a very stable business in which Brookfield owns directly owns 68% of.
With laser-like focus, Bruce Flatt and his team are dedicated to achieving 12% to 15% annualized growth in cash flows for shareholders over the long term. Why this dedication? With seventeen percent of outstanding shares owned by management and directors they are completely aligned with shareholders and they continue to align their interests with shareholders as they spill off assets while maintaining a meaningful stake in each new entity. As Brookfield becomes more of a pure play asset manager and less of an asset owner shareholders should begin to see the market give them the multiple they deserve.
BAM's management team conservatively values their shares at a minimum of $41 a share, meaning that at a current price of $31 and change, you are getting the company for about 25% below their tangible net assets and remember they own real assets with real market values. The market is failing to give them any credit for their asset management franchise which you can basically get for free at current prices. Brookfield remains misunderstood by the market but they have the potential to deliver solid returns to shareholders. Throw in a nice 2% dividend and an accretive buyback program and future distribution of Brookfield Property Partner shares and you have one very solid investment.
Motley Fool newsletter services recommend Brookfield Asset Management, Brookfield Infrastructure Partners and Berkshire Hathaway. The Motley Fool owns shares of Brookfield Infrastructure Partners and Berkshire Hathaway. latimerburned owns shares of Brookfield Asset Management and has a diagonal call on Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.