While Brookfield’s U.S. peers have won over investors by cutting out elements of their once cumbersome corporate structures, the Toronto-based group is following a different path.
The proposals announced this month by Chief Executive Bruce Flatt would take what is already one of the most complex organizational charts in the financial industry and top it off with another public company.
Flatt’s proposal would split Brookfield Asset Management, the listed company at the top of Brookfield’s corporate structure. A spin-off company comprising BAM’s fee-based asset management business would go public, where Lee believes his lucrative deals to manage $364 billion in fee-earning funds owned by outside clients could reach a valuation of more than $75. billions of dollars.
“When you have an asset management fee stream, it’s an income stream and it’s easy to assess whether it’s going up or not and assign a multiple to it,” Flatt said this month. .
The paying venture includes a fund that would help fund a proposed $3.6 billion takeover of Australian utility AGL Energy.
Brookfield is also raising new funds, including a $25 billion infrastructure fund and a $15 billion private equity fund, according to a person familiar with the matter.
BAM would become a custodian of the assets that Brookfield holds on its own books. Among the most notable are the office development at Canary Wharf in London, various office towers in Manhattan, and more than 100 shopping malls in the United States.
The umbrella company would also remain the largest shareholder in the newly separated asset management group, even after the shares are traded on the equity market.
The company owns shares in other publicly traded vehicles that house infrastructure, renewable energy and industrial private equity firms, holdings totaling approximately $24 billion.
A spin-off of the asset management business could give it an independent market price, making it easier to determine BAM’s value.
“Brookfield was once an opaque and difficult to value organization,” says George Taras, portfolio manager at Baron Capital, which owns about $150 million in Brookfield stock.
“Now you will have public market transparency for each of their companies and a public float.”
A deal would give investors the option to buy Brookfield’s asset management business without buying a share of the skyscrapers, wind farms and other assets the company buys on behalf of its clients.
Brookfield employees who work in the asset management division would receive shares in the breakaway company, according to two people briefed on the plans.
Separating Brookfield’s asset management business from its US$50 billion portfolio of directly owned investment assets would continue a metamorphosis that Flatt began in 2002, when he took control of a Canadian company. struggling named Brascan and set out to emulate the organizational form of Wall Street investment franchises, such as Blackstone and KKR.
He renamed the company Brookfield Asset Management in 2005. At the time, that seemed a bit more than ambitious for an old-line Canadian conglomerate whose holdings included hydroelectric dams, mining interests, a brewery and a team of baseball.
Brookfield did not manage any significant assets for outside investors until the mid-2000s. To attract them, Flatt first moved the company’s vast holdings into investment fund structures, opening the door to outside investors. who wanted to invest alongside the company.
Last year, Brookfield’s asset management business generated US$1.9 billion in fee-related revenue.
In 2019, Brookfield absorbed Oaktree Capital, the $166 billion distressed debt group founded by billionaires Howard Marks and Bruce Karsh.
Yet even though Flatt built an asset management franchise to rival those on Wall Street, Brookfield’s balance sheet remained a holdover from its conglomerate past.
Asset-rich and covering the full range of Brookfield’s diversified investments, it has baffled some investors’ efforts to figure out what it’s worth.
If the proposal to separate the asset management business comes to fruition, it will represent the most sweeping of a series of efforts to carve Brookfield’s sprawling balance sheet into smaller parcels.
“You can’t undo your story,” says Charles Kantor, senior portfolio manager at Neuberger Berman, one of Brookfield’s largest outside shareholders with more than US$500 million in stock.
“Brascan was…highly complex, and every step thereafter was to use that complexity to create more bespoke securities and allow investors to choose their preferences.”