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Brookfield Asset Management – Shareholders Are Highly Likely To Be Well Rewarded Over the Long-Term

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On November 8, 2018 Brookfield Asset Management (BAM) released Q3 and YTD2018 results.

$1.1B of Funds from Operations (FFO) were generated during Q3 versus $0.8B in Q3 2017.

It has raised $12B of capital since the end of Q2 and it is now in the midst of raising capital across all three flagship funds. It has either committed or invested $25B into new investments.

The BAM companies are attractive long-term investments for investors seeking to have exposure to Alternative Assets.

 

I recently had lunch with a friend and former roommate during my university days (going back to the days when Jimmy Carter was the US President). He has recently become a subscriber to this blog and given his extensive background in the bond underwriting business at a major Canadian financial institution I was really interested to hear his take on how he manages his investments.

During our conversation he made a comment which really resonated with me. He indicated that he holds shares in Brookfield Asset Management (NYSE: BAM TSX: BAM-A) so as to provide him with diversification in the area of Alternative Assets; his reasons for investing in the BAM family companies are much the same as what I indicated in my May 11, 2018 article.

BAM, for those unfamiliar with the company, is a leading global alternative asset manager, focused on investing in long-life, high-quality assets across real estate, renewable power, infrastructure and private equity. It provides a wide variety of investment products to its investors including private funds, listed issuers, and public securities.

If you access the Archives section of this blog and perform a ‘Brookfield’ search you will find various BAM articles; there are additional BAM related articles in which access is restricted and will only appear if you are a subscriber. In addition, I referenced BAM in my January 18, 2017 Low or No Dividend Yield Companies Belong in Your Portfolio.

In my February 18, 2018 article I indicated BAM manages its business so as to generate 12% - 15% compound returns over the long-term. When I first took a position in the BAM group of companies I approached my investment with the thought that if sophisticated investors are prepared to entrust billions of dollars to BAM so as to generate above average returns on their behalf then BAM is likely to be an extremely lucrative investment for me over the long-term.

Now that I have been a BAM investor for quite some time I truly appreciate that the BAM team has the expertise required to generate generous investment returns.

If you are currently not a BAM investor but are contemplating on becoming one, I highly recommend being a patient investor. The reason for this is that BAM’s area of expertise is to acquire companies in need of a turnaround. Significant resources and several years are often required in order to evidence a significant improvement in the acquired businesses. Do not expect the issues surrounding a ‘challenged business’ to be rectified within the very short term.

The fact considerable time is often required in order to reap the benefit from BAM’s expertise is all the more reason why investors should approach a position in the BAM companies from a business ownership perspective. Jumping in and out of an investment in the BAM companies will most likely not produce the same level of reward as could be achieved by simply buying and holding.

Another factor to take into consideration before initiating a position in the BAM companies is that there is typically little volatility in share price. If you look at each of the BAM entities you will notice that BAM’s beta is 1.06 and the beta of the Limited Partnerships is less than 1.

For readers unfamiliar with the term ‘Beta’, it is a measure of a stock's volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0.

The low volatility of these shares/units makes these companies less appealing to those who like to actively trade.

I fully recognize that my investment goals and objectives, risk tolerance, long-term outlook, and any other factor you can think of may differ from the factors that affect you. As a result, it is entirely possible you will have absolutely no interest in ever initiating a position in BAM or one of its four flagship publicly listed partnerships:

  • Brookfield Property Partners L.P. (NYSE: BPY);
  • Brookfield Renewable Partners L.P. (NYSE: BEP);
  • Brookfield Infrastructure Partners L.P. (NYSE: BIP);
  • Brookfield Business Partners L.P. (NYSE: BBU).

Before completely eliminating BAM as a possible investment, however, I strongly encourage you to read the November 8, 2018 Q3 Letter to Shareholders and to review the Q3 2018 Supplemental Information presentation for the 3 months ending September 30, 2018. I also strongly encourage you to access the Reports and Filings section of BAM’s website. Under the FY2017 Annual Report section you will find links to multiple documents which are well worth reading.

I hope you enjoyed this brief post and I wish you much success on your journey to financial freedom.

Thanks for reading!

Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to charles@financialfreedomisajourney.com.

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

Disclosure: I am long TSX: BAM.a, BPY, BEP, and BIP. Shares/units are held in multiple accounts including several accounts for which I do not disclose details. In 2018 I have increased my exposure to the BAM entities when prices pulled back in February, April, July, September, and October.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.

By |November 8th, 2018|General Investing|Comments Off on Brookfield Asset Management – Shareholders Are Highly Likely To Be Well Rewarded Over the Long-Term

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