Thanks for the writeup Matt, a good opportunity to look at!
I checked the company’s Management Information Circular file concerning this distribution, seems like it’s the “asset management business” that’s going to retain 2/3 of future carried interest, not the new BAM.
Does this mean the corporation is actually going to retain 83% of look-through future carried interest?(33%+66.7%*75%)
Correct me if I’m wrong, or I misunderstood your words.
Hey, BN owns 73% of BAM however I know after a few years the carry split between BN and BAM changes. My question is (you seem to know a lot about this), does BN get 73% of whatever carry BAM gets? In that case BN would in total get well over 73% of all carry. Or does BN just get the agreed upon carry (I can't find what the split is after 5 years). Thanks
BN will receive 73% of BAM's carry on a look-through basis. BN won't see the carry directly. BAM will likely return the vast majority of its carry to investors as dividends, which BN will receive.
BAM is an interesting business to unpack. I sold my starter position after a run up. Wish I had built it to a bigger position. Will take a look again. Thanks for the write up!
It's my lucky day! An article on my favorite company on my favorite investing blog! Brookfield entering the insurance business makes me a little nervous since it's not clear to me if many of these private credit investments being made by private equity firms aren't more risky than more traditional investment grade bonds and not just based on simply capturing an illiquidity premium and leveraging niche underwriting expertise to provide customized credit solutions, etc.
I'm not sure we will know until we go through another major downturn or recession. That being said they seem to have a competent team in place and it's definitely a promising avenue for additional growth. It also seems they've structured it in a way that would limit the blowback on the parent entity if the reinsurance business were to implode.
I agree. The insurance business could be lucrative, or a disaster. If anyone can do it, it is Brookfield, but that doesn't guarantee success. Like you said, it will take time to play out over the coming years and will certainly be something to watch. Thanks for reading!
Hey, BN owns 73% of BAM however I know after a few years the carry split between BN and BAM changes. My question is (you seem to know a lot about this), does BN get 73% of whatever carry BAM gets? In that case BN would in total get well over 73% of all carry. Or does BN just get the agreed upon carry (I can't find what the split is after 5 years). Thanks
Re-cheking this idea as I think the asset management business is considerably undervalued given no debt, asset light and mostly locked-in fees. 4% (dividend) yield with 15% growth is a no brainer everyday in my opinion.
BN is quite a challenge to value as the market seems to be directly eliminating all the real state out of the balance. To the point where it seems a bit ridiculous. ¿Curious about your opinion on the spread between the value given a multiple of (possibly depressed future) earnings and liquidation value?
Hi Jaime, thanks for reading and for the question. I agree that the discount seems severe and likely due to the property group. The PE business is out of favor also. I don't know the precise intrinsic value of those assets but I'd bet its closer to where BN's marking them than market prices. These are long-lived assets and market is pessimistic about the near term climate. Office buildings are temporarily out of favor, but far from obsolete.
Agree with you that BN is extremely cheap. Any thoughts on what would compress the 50%+ NAV discount in the near to intermediate term?
My worry is that there's no real logical shareholder for BN now. It's just a holding company for various public entities + a private REIT. Anyone who wants exposure to those entities can buy those individually. I don't want this to turn into a Malone-style tracking stock with a huge NAV discount that never compresses. Thoughts?
I don't know why BN has gotten so cheap, but I do think that its cheapness was one of the rationales for the spinoff. Post spin, BN has more capital allocation options to monetize the discount.
If I had to guess, the market is primarily discounting BN's real estate. Check out the section of my article on the Brookfield Property Group for more on that.
BN has assets beyond the public LPs and BAM, such as Oaktree and the insurance business.
One main advantage BN has over Liberty is the ability to move capital frictionlessly between asset classes and geographies. There are very few companies in the world that can reinvest profits from Manhattan real estate into South American pipelines, for instance. BN has a uniquely global investment opportunity set, which increases the odds they'll be able to allocate capital somewhere where it will earn attractive returns.
Berkshire's ability to move capital between insurance, the railroad, utilities, and the stock market is one of its major advantages and makes Berkshire a better analogy for BN than Liberty, in my opinion.
Thanks for the tip Matt. I’m trying to dig deeper into the SEC filings but I'm struggling to find the details--any search for BAM or BN brings up filings pertaining to all of the Brookfield subsidiaries. Can you please point out some of the SEC filings that are related to the spinoff? Thanks in advance.
The company's primary listing is in Canada so they file 20-Fs with the SEC. I'd recommend browsing through their Investor Relations website - https://bam.brookfield.com/. Their annual report, investor day, and Q3 supplement will be helpful.
Thanks for the writeup Matt, a good opportunity to look at!
I checked the company’s Management Information Circular file concerning this distribution, seems like it’s the “asset management business” that’s going to retain 2/3 of future carried interest, not the new BAM.
Does this mean the corporation is actually going to retain 83% of look-through future carried interest?(33%+66.7%*75%)
Correct me if I’m wrong, or I misunderstood your words.
https://bn.brookfield.com/sites/brookfield-ir/files/2022-10/brookfield-final-circular-sedar-filing-version.pdf
Actually the new BAM is that asset Management Business that will get ⅔ of that.
Hey, BN owns 73% of BAM however I know after a few years the carry split between BN and BAM changes. My question is (you seem to know a lot about this), does BN get 73% of whatever carry BAM gets? In that case BN would in total get well over 73% of all carry. Or does BN just get the agreed upon carry (I can't find what the split is after 5 years). Thanks
BN will receive 73% of BAM's carry on a look-through basis. BN won't see the carry directly. BAM will likely return the vast majority of its carry to investors as dividends, which BN will receive.
BAM is an interesting business to unpack. I sold my starter position after a run up. Wish I had built it to a bigger position. Will take a look again. Thanks for the write up!
Great job on this.
Great write-up focusing on what's important of the business and very well synthesized. Thanks for sharing Matt.
It's my lucky day! An article on my favorite company on my favorite investing blog! Brookfield entering the insurance business makes me a little nervous since it's not clear to me if many of these private credit investments being made by private equity firms aren't more risky than more traditional investment grade bonds and not just based on simply capturing an illiquidity premium and leveraging niche underwriting expertise to provide customized credit solutions, etc.
I'm not sure we will know until we go through another major downturn or recession. That being said they seem to have a competent team in place and it's definitely a promising avenue for additional growth. It also seems they've structured it in a way that would limit the blowback on the parent entity if the reinsurance business were to implode.
I agree. The insurance business could be lucrative, or a disaster. If anyone can do it, it is Brookfield, but that doesn't guarantee success. Like you said, it will take time to play out over the coming years and will certainly be something to watch. Thanks for reading!
Hey, BN owns 73% of BAM however I know after a few years the carry split between BN and BAM changes. My question is (you seem to know a lot about this), does BN get 73% of whatever carry BAM gets? In that case BN would in total get well over 73% of all carry. Or does BN just get the agreed upon carry (I can't find what the split is after 5 years). Thanks
Hi Matt,
Re-cheking this idea as I think the asset management business is considerably undervalued given no debt, asset light and mostly locked-in fees. 4% (dividend) yield with 15% growth is a no brainer everyday in my opinion.
BN is quite a challenge to value as the market seems to be directly eliminating all the real state out of the balance. To the point where it seems a bit ridiculous. ¿Curious about your opinion on the spread between the value given a multiple of (possibly depressed future) earnings and liquidation value?
Thanks for your post and all your letters!
Hi Jaime, thanks for reading and for the question. I agree that the discount seems severe and likely due to the property group. The PE business is out of favor also. I don't know the precise intrinsic value of those assets but I'd bet its closer to where BN's marking them than market prices. These are long-lived assets and market is pessimistic about the near term climate. Office buildings are temporarily out of favor, but far from obsolete.
Agree with you that BN is extremely cheap. Any thoughts on what would compress the 50%+ NAV discount in the near to intermediate term?
My worry is that there's no real logical shareholder for BN now. It's just a holding company for various public entities + a private REIT. Anyone who wants exposure to those entities can buy those individually. I don't want this to turn into a Malone-style tracking stock with a huge NAV discount that never compresses. Thoughts?
I don't know why BN has gotten so cheap, but I do think that its cheapness was one of the rationales for the spinoff. Post spin, BN has more capital allocation options to monetize the discount.
If I had to guess, the market is primarily discounting BN's real estate. Check out the section of my article on the Brookfield Property Group for more on that.
BN has assets beyond the public LPs and BAM, such as Oaktree and the insurance business.
One main advantage BN has over Liberty is the ability to move capital frictionlessly between asset classes and geographies. There are very few companies in the world that can reinvest profits from Manhattan real estate into South American pipelines, for instance. BN has a uniquely global investment opportunity set, which increases the odds they'll be able to allocate capital somewhere where it will earn attractive returns.
Berkshire's ability to move capital between insurance, the railroad, utilities, and the stock market is one of its major advantages and makes Berkshire a better analogy for BN than Liberty, in my opinion.
Thanks for the tip Matt. I’m trying to dig deeper into the SEC filings but I'm struggling to find the details--any search for BAM or BN brings up filings pertaining to all of the Brookfield subsidiaries. Can you please point out some of the SEC filings that are related to the spinoff? Thanks in advance.
The company's primary listing is in Canada so they file 20-Fs with the SEC. I'd recommend browsing through their Investor Relations website - https://bam.brookfield.com/. Their annual report, investor day, and Q3 supplement will be helpful.