Asset managers with a long-term approach – one focus is renewable energies (Photo: freepik)
Bill Ackman, Chuck Akre and Daniel Loeb – these are just a selection of star investors who significantly overweight Brookfield Corporation (WKN: A3D3EV). Josh Tarasoff from Greenlea Lane Capital even holds 17 percent at a price of $53. Bill Ackman increased his stake to 13.5 percent with Pershing Square Capital Management. Why is Brookfield so desirable? What do these star investors see?
Brookfield Corporation and its subsidiaries
The Brookfield Corporation consists of a complex structure that makes it possible to specifically target different industries and investment strategies. Their transformation from asset owner to asset manager has created further value over the past year and led to a 60 percent increase in share price. Brookfield generates sales, profits and cash flow through various subsidiaries and their activities in different industries.
The listed subsidiaries include:
- Brookfield Asset Management as the central asset manager responsible for managing alternative investments such as real estate, infrastructure and renewable energy
- Brookfield Infrastructure Partners with a focus on global infrastructure projects in the areas of utilities, transport and communications
- Brookfield Renewable Partners specializing in renewable energy (wind, solar, hydropower)
- Brookfield Business Partners with a focus on private equity investments
A resilient business model
Brookfield benefits from a diversified revenue mix of fees, operating income and investment gains. Recurring fees and dividends from the subsidiaries ensure stable cash flows, while sales and performance fees provide additional cash flow. This structure makes Brookfield a resilient company that delivers stable results even in different market phases.
Leadership under the Canadian “Warren Buffett”
Bruce Flatt joined Brookfield in 1990 and has been CEO of Brookfield Corporation since 2002. Flatt is known for its long-term approach to investing in real assets such as real estate, infrastructure and renewable energy. This approach has made Brookfield one of the world’s leading alternative asset managers.
Under Flatt’s leadership, Brookfield has expanded its presence to over 30 countries and has over $900 billion in assets under management. Because of his investment style and success, he is often referred to as the “Canadian Warren Buffett” designated. Flatt holds about 4.7 percent of Brookfield shares. Overall, around 19 percent of the shares are held by insiders.
Transformation from asset owner to asset manager
Brookfield was primarily an owner of physical assets (e.g. real estate and infrastructure). Today, the majority of the company’s value lies in fees from managing assets through Brookfield Asset Management.
Management is pushing ahead with simplifying the complex holding structure to increase the company’s valuation and attractiveness to investors. For example, in 2024, the private stake in Brookfield Asset Management was converted into a publicly traded stock. This measure makes it easier to evaluate individual companies. In addition, inclusion in the S&P 500 is also possible. This has additional potential for the share price (attention, index).
20 percent annual return still possible
Brookfield represents an outstanding investment that will deliver long-term returns. In the last few years alone, the average annual returns have been 20 percent. But now star investors are even assuming that the best returns are still to come. The efficient management and the quality of the investments deliver particularly high cash flows.
In addition, Brookfield Corporation is invested in industries that will experience significantly more demand in the future. The areas of renewable energy and infrastructure will significantly accelerate growth in the next few years. There is also the potential for higher assets due to falling interest rates.
Management emphasizes that it is making smart investments in the energy transition and data centers and is adapting excellently to the changing world. Brookfield currently sees itself undervalued by around 50 percent. Cash flow is expected to increase by 20 percent annually and an annual return of 20 percent by 2029 also seems realistic for management.
Brookfield represents a promising investment for value and long-term investors. There are risks due to excessive use of debt capital, rising interest rates and possible valuation adjustments.
Disclaimer:
Not investment advice. No call to buy or sell securities.