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'The Only Thing I Collect Are Shares' - Put Your Money Where Brookfield's CEO Is

The Affluent Tortoise profile picture
The Affluent Tortoise


  • Brookfield has a proven track record of creating value for shareholders; since 1998, shares of BAM have grown at CAGR of 19%.
  • High quality, real assets provide Brookfield with steady and growing cash flow, expanding fee bearing capital and significant carried interest.
  • Brookfield will benefit from the tail winds of rising interest rates and the insatiable demand institutional investors have for real assets.
  • Brookfield is trading at a discount to its fair value offering investors substantial upside and a growing dividend.
  • CEO Bruce Flatt was named by Forbes as one of the best CEOs in the world in 2018. He and other insiders own 20%, giving management skin in the game.

Investment Thesis

Brookfield Asset Management (NYSE:BAM) combines industry-leading management, high quality assets and a great business model. BAM's model for growing cash flow comes from its expanding fee-related revenue derived from managing assets as well as from its tremendous exposure to accumulated carried interest. Brookfield has been creating value for investors by increasing its earnings profile as well as increasing the value of its invested capital. Its growing free cash flow and great asset base make it well positioned to benefit from a number of global trends, including rising in interest rates and institutional investor demand. With $33B in liquidity, Brookfield can acquire assets opportunistically creating great value for its shareholders. Its current discount to fair value, coupled with its long track record of out-performance, offers investors confidence and a margin of safety. With the recent turbulence in global markets, Brookfield's high quality assets and durable business model will add safety and growth to your portfolio.

Company Profile: Quality Assets

Brookfield manages 2,000 projects across 30+ countries on five continents, encompassing $330 billion in assets and 80,000 employees. Brookfield manages a massive portfolio of assets in private equity, real estate, infrastructure and renewable power. BAM acts as the parent company for a number of publicly listed sponsored vehicles, including Brookfield Property Partners (BPY), Brookfield Renewable Partners (BEP), Brookfield Infrastructure Partners (BIP), and Brookfield Business Partners (BBU). Brookfield uses these vehicles to organize its funds and businesses. The company holds some assets directly through BAM and others through its subsidiaries, in most of which BAM is the majority owner.


Source: Brookfield

Around the world Brookfield owns or manages: 400 million square feet of commercial space, 218 hydroelectric plants on 82 river systems, 36 ports, 3600 kilometers of toll roads and 14,200 hotel rooms. It owns some of the highest quality real estate assets in New

This article was written by

The Affluent Tortoise profile picture
I am a value-oriented investor who seeks out high-quality companies with long histories of dividend growth. I believe that patient investors who build a core portfolio of dividend paying equities can achieve their retirement goals without taking on unnecessary risk. Dividend growth profiles are the best indicators of management's commitment to returning cash to shareholders. Dividend growth investing involves identifying quality companies with competitive advantages that provide visibility towards future cash flow growth. Warren Buffet once wrote "If you don't find a way to make money while you rest, you will work until you die". Fundamental analysis and patience are the tools I use to build a portfolio of equities that will enable my very comfortable retirement. Join me in exploring value and growth-at-a-reasonable-price opportunities and in building your own income-producing portfolio of dividend stocks. I am an investor with over 20 year of experience in the market. I hold a B.Mgt and an MBA where I enjoyed studying both corporate and personal finance.

Analyst’s Disclosure: I am/we are long BAM, BIP, ENB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (48)

"Brookfield will benefit from the tail winds of rising interest rates" - Like for most if not all real assets and equity, only true for rising nominal rates and rising inflation, NOT for rising real rates.
Steve Brodrick: "Put Your Money Where Brookfield's CEO Is"

You want me to put my money in his office? bedroom, next to his wife? Where exactly do you want me to put the money?

Or, did you mean, "put Your Money Where Brookfield's CEO does?"
Cheese Head profile picture
I thought that Brookfield issue Distributions not Dividends, at least the LPs did when I looked at them in the past, for example BIP: bpy.brookfield.com/...

As I don’t understand that I’ve stayed clear.
HunterKiller89 profile picture
BAM is a C corp and has dividends. The LPs are all, well, LPs, and have distributions.
Cheese Head profile picture
Thanks, and the distributions are made up of interest, return of capital, dividend, and for Canadian Taxpayers, unspecified, in above link example.
Seve, thanks. Per Yahoo's 8 analysts BAM has a rating 1.8 (of 5), that is very bullish. However, if you use Fidelity's ranking system, rating is very, very bearish ablut 0.5 of 10 Same number of analysts, but probably different names. Any comment?
Llong BAM for long time!
The Affluent Tortoise profile picture
@jraskib that is odd that Fidelity gives such a different ranking. I found that the ones I looked at were all consistent give or take one analyst or so. I used RBC Direct Investing, Reuters and Yahoo Finance for my analyst views.
nsm0002 profile picture
Does BAM issue a K1?
No BAM does not issue K1
joeblow_pe profile picture
Go to FastGraphs and look at the share price of BAM vs it's PE + it cut its dividend in 2013. At a 1.7% current yield and not a good track record on dividends, I'm taking a pass on this one.
Then look at the share price versus Berkshire Hathaway since BAM ipoed and tell me what you think...
There was a stock split in 2012. Are you positive the dividend was cut? You might want to go back and check that again for yourself and see if you could have been wrong about that.

Though even if that were the case (dividend cut), that's the past. It might matter as to what the circumstance was and the reasoning--after all, there can be compelling reasons for a dividend cut that even build value (to finance some extraordinary transaction, etc.)--but otherwise all that will matter is in the future.
Steve as an owner of BAM I'll follow you if and only if you can form some concepts and options separate from simply spewing out the precise things Bruck Flatt tells us. We have enough young writers here who think they have discovered the Holy Grail by copy/pasting Flatt's commentary, let's do something else.
While all you poster focus on infrastructure and make Flatt/Buffett comparisons I'd suggest a pause to think. Buffett invests almost without fail within industries where capital is fleeing, not where there is cyclical capital allocation excess. Infrastructure and real estate is literally flooded with those desperate for yield today.
Ján Mazák profile picture
I guess it is not so everywhere. BAM e.g. invests a lot in Brazil. And buying stuff like Westinghouse from bankrupcty has never been Buffett's way, or at least not for the last 50 years. Also, "... Management in place (we can’t supply it)" --- from BRK acquisition criteria. Apparently BAM does think they can supply management if needed.

I would also argue that since 2015, pipelines have not exactly been a sector flooded with investor cash and excess capital. The multiples are still rather depressed for many such assets. And BAM invested billions there.
galicianova profile picture
Remind us what is the current dividend BAM pays
I am very bullish on infrastructure BIP and BAM as well. IMO BBU is the most likely to outperform in the near to medium term. Their cash flow is incredible. Yes there is debt at the operating company level. Yes lots of geo risks and currency risks. I will hold for the long term and add over time. The main question is will they grow FFO faster than a recession goes down? I think so and I think they’d be even stronger due to acquisitions in a distressed environment. Does that mean it will be profitable from an equity perspective? Maybe maybe not. But over 10 years I have no doubt it will outperform. Thing I like about BBU is that it is exposed to both infrastructure and basic human services. Long BIP, BAM. Overweight BBU
The Affluent Tortoise profile picture
@What Risk, Great question, this is one that I have asked myself and given lots of thought to. If you are a longterm investor, which it sounds like are based on the time horizon you have, I would suggest that BAM will be the better long term holding. I suspect that the EPS growth and eventually, dividend growth rate will out pace the LPs. There is noting to say you can't own both, but I would be aware of your overall diversification if you are buying multiple Brookfield names. The reason to buy an LP would be for the yield, if you wanted to prioritize income over growth and as you identified, if you can pick up one segment at a better entry point, such as perhaps BPY right now. The other reason I would add would be for BIP as BAM only has 30% of BIP , versus 50-60% of the other LPs. I am especially bullish on infrastructure, so I hold BIP as well as BAM to overweight my exposure to infrastructure. I actually really like all the Brookfield names, but I will continue to have a larger allocation in BAM than the LPs.
Thank you for the detailed answer, @Steve Brodrick.
So if I understand you correctly, you tried to answer the question, but didn't succeed on it. Now you go with LPs and BAM? :-P

Another risk or chance are projects BAM might proceed with outside of the LPs. If it is risk or chance certainly would depend on the nature and success rate.

I have not found an answer to this yet, will eventually build one position after the other. Those LP yields are quite mouth watering. :-)
teemacsj profile picture
The thing to understand is that the listed partnerships were formed each by moving existing assets from BAMs balance sheet to form each LP. They are primarily set up to distribute income to investors and they pay multiple fee streams up to BAM. Therefore, BAM has better compounding economics long term. And, all the LP CEOs are compensated with BAM equity incentives. In the end, I see the LPs really as accessible ways for retail investors to participate with Brookfield. But, their clients are mostly investing with Brookfield in their private funds.
The Affluent Tortoise profile picture
@What Risk Correct, I ended up buying them both. I built a position in BAM first then a smaller position in BIP
Hi Steve,
great and inspiring article! I'm following BIP and BEP so far. This week, your article on BAM and Dividend Sensei's article on BPY were quite interesting as well.

Let me ask you for your personal view; In which situation would you rather buy BAM than the individual LPs, or vice versa?
I'm relatively young (32), so the dividend growth of BAM looks nicer than the growth of the LPs. Also going with one position rather than three keeps transaction fees a bit lower.
On the other side, the individual LPs offer better yields as of today, so no need to wait for dividend growth. Also individual entry points can be chosen.

Would be interesting to hear your judgement on going with BAM or individual LPs.
Thank you! :-)
gla9 profile picture
07 Dec. 2018
Can someone give me a brief overview of these instruments - BIP, BEP, BAM, BPY? I'm going to research them all but where should I start?
Which one is most under-valued and/or mist likely to provide a great return over next decade?
Which one will be least affected by a recession?

gla9 profile picture
07 Dec. 2018
Also what about RA? how would you compare that Brookfield CEF to the equities above?
The Affluent Tortoise profile picture
@gla9 A great place to start for an overview of the Brookfield family is seekingalpha.com/...
gla9 profile picture
05 Dec. 2018
All these Brookfield equity securities have massive amounts of debt - 3x or 4X the market value of the equity depending on how you measure it.
If a an economic downturn comes equity holders will be in jeopardy. I have a hard time holding a company with this much debt.
HunterKiller89 profile picture
Almost none of it is recourse to BAM, or even the subsidiaries for that matter. Its all at the asset level. That, and BAM has a LOT of liquidity to see itself through any recession. They are likely to go on a shopping spree during the next down cycle.
teemacsj profile picture
@HunterKiller89 Exactly. The 'Brookfield has too much debt' is SUCH an uninformed view. Anyone who actually has spent any time researching Brookfield knows that they prey on situations where others have misfinanced their assets. Yes, they use conservative leverage. But, to say they are misfinanced clearly shows @gla9 that you don't understand the firm.
gla9 profile picture
07 Dec. 2018
I will admit i don't understand as I've screened it out because i try to avoid highly indebted/leveraged businesses. You have convinced me to take a closer look.
Do you think now is a good entry point to buy this security?
In the last recession BAM dropped by 70% in two years. I'm expecting a recession in the next 12 - 24 months and would not like to be holding something so volatile then.
The Affluent Tortoise profile picture
@cereba BAM has a beta of 0.97, so I don't expect it to be more volatile than the market.
HunterKiller89 profile picture
BAM back then had yet to spin off BPY, and it was viewed largely as an owner of real estate. Combine that with the fact that the '08 housing collapse caused real estate prices to fall apart, and investor sentiment was incredibly sour on Brookfield's portfolio of real estate.
The next recession is not likely to be triggered by real estate prices collapsing (though of course they will drop with everything else), nor do people view BAM primarily as a real estate play anymore. I wouldn't expect a comparable drop in BAM, even if the broader market were to drop by the same amount as the last cycle.
Just because other investors sold the stock in 2008 / 2008 doesn't mean anything is good nor bad -- it just means that investors panicked. Look at what the management DID in 2008 / 2009 -- read into the fantastic acquisitions that they made coming out of that period which is the reason why the company is where it is today. Babcock and Brown is a prime example of this.

Stock price and Company Value aren't necessarily the same.
I like the article but it doesn't address downside...What are the risks? How will it be impacted by a global recession. What are the currency risks? Tax treatment? Etc....
The Affluent Tortoise profile picture
@cereba I think that one of the key risks for Brookfield is that it is complex and hard to value. I think that this makes it somewhat vulnerable in a downturn as investors have a hard time appraising the value of the firm. Beyond that it has the risks you would expect for an international firm, political risk in the developing countries it operates in, market risk in its various business lines and some currency risk, although the firm makes an effort to use the $US dollar hedged currencies where possible.
I'd add that in a recession rates will likely decrease so the "tailwind" of rising rates reverses in a recession?

i also note that shares are currently priced at 20x FCF, (versus SBUX 8x , V 26x, MIC 20x, BBU 12.9x, BPY 14x P/FFO) P/E 16.7x how does that compare to historical avg? I own BIP , BEP, BPY but interested in also owning BAM and/or BBU for the long term

questionS: while BAM share price plummetted in last recession, how did its cash flow hold up? Whats your take on BBU?

thx for insightful article
The Affluent Tortoise profile picture
I took a look at BAM annual report for 2010 looking back at the cash flow for 2008-2010, Cash flow holds up well and grows from $1.423B in 2008 to $1.45 in 2009. bam.brookfield.com/...

I haven't done enough research on BBU to have an informed opinion at this time. Broad strokes, I like the sector and the management , but I need to give it a closer look. I will post back here if I research a piece on BBU.
KrazyCanuck profile picture
Probably the best article I have read on BAM. You’ve earned another follower Steve. Well done! Long BAM. KC
The Affluent Tortoise profile picture
@KrazyCanuck , Thank you, I am glad you liked it.
BAM is the place where Brookfield has put in place a model that greatly rewards management first, protects management from a downside second, and gives the business of BAM fees based first on the size and growth (profitably or not) of its subs, and second the success/profitability of the subs.

BAM is clearly the privileged one of the bunch and I have owned it for near almost 30 years.
Quite a few Brookfield (BAM, BEP, BIP, BPY/BPR) writeups on SA over the last few days...it all sounds pretty good, but the LPs seem much more risky unless you want current yield. That being said, still dipped my toes into a small BPR position with BAM themselves pounding the table for it. My gut still tells me that BAM is where you want to be for the long run vs. the LPs.
HunterKiller89 profile picture
Most of them are from the same 3 contributors. Just covering each LP one at a time. But I agree with your view
The Affluent Tortoise profile picture
I think each of the LPs have their merits, but I would agree that being where management has their money will be wise for long term investors.
Nice article.
The Affluent Tortoise profile picture
@Real Asset Investor , thank you very much, I am glad you liked it.
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