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Better Buy: Brookfield Business Partners Vs. Brookfield Asset Management


  • The top two growth vehicles at Brookfield today are BAM and BBU.
  • BAM gives you diversified exposure to the entire Brookfield empire, whereas BBU is a concentrated private equity fund that targets industrials, infrastructure services, and business services.
  • We compare the two and discuss which is the better buy at the moment.
  • Looking for a portfolio of ideas like this one? Members of High Yield Investor get exclusive access to our model portfolio. Learn More »

Fork in the road for major decision on wooden boardwalk in forest
Photo by BackyardProduction/iStock via Getty Images

Brookfield Asset Management (NYSE:BAM) and Brookfield Business Partners (NYSE:BBU) are the top two growth-oriented investments in the Brookfield franchise, whereas Brookfield Infrastructure Partners (BIP) (BIPC), Brookfield Renewable

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This article was written by

Samuel Smith profile picture

Samuel Smith is Vice President of Leonberg Capital, he has a diverse background that includes being lead analyst at several highly regarded dividend stock research firms. He is a Professional Engineer and Project Management Professional and holds a B.S. in Civil Engineering & Mathematics from the United States Military Academy at West Point and has a Masters in Engineering.

Samuel leads the investing group High Yield Investor investing group. Samuel teams up with Jussi Askola and Paul R. Drake where they focus on finding the right balance between safety, growth, yield, and value. High Yield Investor offers real-money core, retirement, and international portfolios. The services also features regular trade alert, educational content, and an active chat room of like minded investors. Learn more.

Analyst’s Disclosure: I am/we are long BAM. 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)

Samuel Smith,
It matters. If you are a USA based investor - one is better of holding Canadian securities in retirement accounts! Thanks
Samuel Smith profile picture
@kalu0003 except that BAM pays a very low dividend yield and you can get the withholding tax back as a tax credit.
07 Jul. 2021
@Samuel Smith Nice article. Thanks.
Is the tax credit recapture limited to each security or cumulative? I've seen mention of up to a $300 tax credit. But, I now own several positions that should qualify (all initializd this tax year). If it is capped at $300 total, I will exceed the cap by a significant amount.
Thanks in advance for your reply.
Samuel Smith profile picture
@rdsm I am not a tax professional so I would rather defer on this one.
ferjen profile picture
Better to own BAM in a Roth or cash account?
Samuel Smith
wrote "it really depends on the rest of your portfolio. BAM is real asset focused whereas BRK.B largely excludes real assets. I would pick whichever one better rounds out your portfolio from a diversification standpoint."

Assuming the portfolio is well diversified and putting valuations aside for the analysis: you are asked to pick one and only only one between BAM and BRK.B! In your view - which one would you pick as a long term investor? Thanks
@kalu0003 There are other important differences between BRK and BAM. BAM is global, the top management team is about 15 people in their 50's and 60's, they are establishing and entering new markets every year.

BRK is primarily in the US, the top management team is 2 people in their 90's and one person apparently ready to take the reins. They have not entered a new market in 20 years.

I personally have trouble seeing a decent future for BRK and have been selling my BRK in favor of BAM and the subs. I've held both stocks for more than 15 years.
Samuel Smith
if you were a long term investor. If your were to choose one and only among these two: BAM vs BRK.B. What would you choose (Please exclude own both in your views)? Thanks
Samuel Smith profile picture
@kalu0003 it really depends on the rest of your portfolio. BAM is real asset focused whereas BRK.B largely excludes real assets. I would pick whichever one better rounds out your portfolio from a diversification standpoint.
Bradley Guichard profile picture
Thank for this article. Clearly a lot of work/thought was put in. Personally I own both. From some of the comments it seems that many investors do not take advantage of the tax advantages of owning an MLP in a taxable account (brokerage). Many want to hold in an IRA to avoid the K-1. But a K-1 is really no big deal, especially if you use a CPA for your taxes. An MLP in a taxable account allows the investor to take advantage of the structure of a partnership, the income and expenses flow through, and distributions are just treated as a reduction in basis until the shares are sold. In addition, there is the QBI (qualified business income) deduction. When you hold this type of investment in an IRA you lose these advantages.
Carlos-Mendoza profile picture
Thanks Samuel for the article. I currently hold BPYU and continue to look at how to reinvest. Leaning toward BAM and this article helps.
Samuel Smith profile picture
@Chochheiser if you have a long-term time horizon, BAM is one of the best options out there! You can check out all of our long-term top picks with a free 2-week membership at HYI: seekingalpha.com/...
Thanks for this article. As someone who owns shares of both BEP and BIP, I would not pigeon-hole them as Brookfield's "dividend growth vehicles." They are, and have historically been, excellent total return plays (10 year CAGR of 19%+ for BEP and 20%+ for BIP). That compares to "only" around 14% for both BAM and BBU.
Samuel Smith profile picture
@toromi dividend growth does not imply lower total returns. In fact, historically dividend growth stocks have outperformed the broader market handily. It is simply to classify them as being dividend growth stocks as opposed to more focused growth vehicles in BAM and BBU.
@Samuel Smith I think some people see "dividend growth vehicle" and assume that's the main (and perhaps only) reason to buy the stock. I just wanted to point out that BEP and BIP are excellent growth vehicles overall.
It is interesting to compare BAM to BBU but they are very different companies. As the overall Brookfield model matures, BAM is more of a pure play on just the capital management. Their main business is actually attracting 3rd party capital and allocating it to their public and private investment funds. They do not directly hold many assets and instead just collect fees. They are indirectly diversified across multiple geographies and industries by virtue of collecting fees from many sources.

BBU is essentially a leveraged private equity fund and is a payer of fees rather than a receiver of fees. They directly own assets and essentially strive to flip them successfully utilizing cyclicality, fixer-upper and improvements. BBU carries a much higher level of leverage than BAM, but they do so because they know they will be backstopped by BAM if necessary. They benefit enormously from the relationship with BAM because they get the deal flow, financial and management support from BAM so investing in BBU really means investing in the combination of BBU and BAM.
value_vulture profile picture
@UncleLongHair Do you think BBU will be taken private just like BPY?
@value_vulture Interesting question but I don't think so. Brookfield actually has a long history of taking its property businesses alternately public and private so in that sense the BPY deal didn't surprise me.

You could ask why any of Brookfield's subs are public. The stated reason is so that they can have access to the capital markets. The question would be if Brookfield were able to get a significantly higher price for BBU or its assets in the private market. I suppose that is not completely impossible.

It is interesting to see other relatively success investment companies like Pershing Square trade at a perpetual discount to NAV. There is a question of why they bother being public. Interesting thought.
Thanks for the writeup. I'm a big fan of Brookfield overall, and have positions in BAM, BIP, and BEP. BBU is certainly the less/least covered in the entire family, which is part of the reason I've not ever seriously considered a position in them. The rest of the reason is that I figure that I'll capture incremental gains just through owning BAM.

I have a lot of admiration/respect for Brookfield, and see them as "aggressive value investors" with an eye towards long term wealth generation. There's no denying their huge success for over a century, and it often comes out in comment sections of the news blurbs on their deals. They are superb in finding real assets selling at a discount, scooping them up, rehabbing them, and then either keeping them for the cash flow or selling them off at fair or better value and moving on. It often causes a lot of anger to the investors in whatever they are buying out, because those investors are (probably accurately) of the mind that the buyout was below fair value, but hey, that's Brookfield's mission, and their duty to me as a shareholder.

Don't hate on them for being good at business and capitalism, just buy a piece of them and let them make you money!
Samuel Smith profile picture
@Chalmus0 agreed. They are phenomenal capital allocators.
@Samuel Smith BAM is the puppet master for Brookfield, the Man behind the proverbial Brookfield empire.
@Chalmus0 Actually they are watching out for the executives and company not shareholders (see BPY). The executives do very well no matter how the stock plays out. I am very cautious about Brookfield.
When does new insurance focused option become available?
Samuel Smith profile picture
@integritycoatings I do not believe they have announced anything on that front yet. So far, the plan is just for private funds, but I'm sure they will issue a public one if opportunistic.
@integritycoatings I don't think they've given timing for it yet. They formally announced it in November. Based on comments they have made since then it sounds like it will be initially spun as a kind of tracking stock, like a company without its own balance sheet, which I guess will gradually be more completely spun. I would guess we'll see it in a quarter or two.
High Yielder Samuel,
Thanks for the Brookfield entity analysis of BAM and BBY, Currently a holder of BPYU units,
with options to sell now @ $17.85, convert BBYU units to BAM (ratio 1 to 0.1688 units), or take part cash and part BAM units/shares.
If sell BPYU prior to 3rd Qtr acquisition closing date without divys in remaining, midstream MLP’s or WPC/O to redeploy assets. Care to opine or comment on most favored options to BPYU unit holders?
Thanks from Baja Oklahoma,
Dividend Digging Armadillo
Samuel Smith profile picture
@Dividend Digging Armadillo thanks for reaching out! I think it comes down to your tax circumstances and secondly your investing goals. I am not a tax expert and do not know your personal circumstances, so unfortunately I can not answer beyond that other than to say that my approach would be to determine what will be the most advantageous in terms of taxes.
@Samuel Smith
Tax deferred account, so no tax issues. Thanks.
Samuel Smith profile picture
@Dividend Digging Armadillo "convert BBYU units to BAM (ratio 1 to 0.1688 units)" to make sure I'm getting what you are saying, how many BPYU units would you have to exchange to get a single BAM share?
Look deeper into BBU. They also have a 15% performance fee above a certain share price. It’s a glorified hedge fund.
Samuel Smith profile picture
@Haunted Beans yes, the fees are high. The bright side is that share prices have to go up for the incentive fee to kick in.
@Haunted Beans So is this a good thing or a bad thing? :)

I don't really disagree but it's a more of a private equity fund. The business is clearly transactional. BBU differs from the other Brookfield subs in that it has a small distribution and their incentives are primarily on unit price increases. So it seems to be more oriented towards NAV increases rather than distributions.
@Samuel Smith would have been good to mention in your article.
Quick question. Who assigned A- to BAM? Was it Fitch? I have them at BBB+.

Long BAM.
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