There are few companies that I like quite as much as Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM). Unlike other businesses that invest in one area, Brookfield Asset Management takes money from its investors, invests it in a wide range of assets, and then generates fees and profits. And for years it has been doing an amazing job helping investors diversify and build their portfolios.
Here’s an amazing statistic … If, 20 years ago, you had bought $10,000 worth of Brookfield Asset Management and held it until today, you’d be worth $320,000. Every year, the stock returned 19% on average. On the other hand, if you had just purchased an S&P tracking ETF, that $10,000 would have gone up six times.
A big part of that success has to do with its investment strategy. It acquires assets in a particular sector, and then, when it has grown to a certain size, it spins those assets into a new company. It now holds large stakes in Brookfield Renewable Energy Partners LP, Brookfield Infrastructure Partners, and Brookfield Property Partners L.P, along with its large holdings in private equity.
The main business, though, has to do with it buying distressed assets. For example, Brookfield Asset Management recently offered US$13 per share to acquire TerraForm Power Inc. (NASDAQ:TERP), valued at US$1.8 billion.
TerraForm is currently looking to get out from under its bankrupt parent company, SunEdison Inc. Because of the precipitous position TerraForm is in, Brookfield can buy a bulk of the company and then give it the resources it needs to turn around. Whether this deal actually goes through, no one really knows because shares rose to US$13.71 on the news–much higher than the offer.
So how is the business doing?
Brookfield Asset Management’s Q3 net income grew to over US$2 billion from US$845 million year over year, or $1.03 per share. And its funds from operations grew to US$883 million from US$501 million in the same period last year. There are many reasons for this increase in net income and funds from operations.
First, its fee-bearing capital increased by 23% to US$111 billion. Because of this strong capital inflow, its annualized fee revenues grew to US$1.2 billion, or 27%, over the past 12 months. Thus, its annualized combined run rate of fee revenues and target carry is up to US$2 billion–up from US$1.4 billion from a year ago. And it continues to raise funds, targeting US$4.6 billion in two niche funds: a real estate finance fund and an open-ended real estate fund.
From an investment perspective, the third quarter was very aggressive. Over the past 12 months, it invested US$20 billion of capital with half of that coming in the third quarter. Its property group continues to invest in self-storage, manufactured housing, and student-housing operations throughout the U.S.
Brookfield Asset Management’s renewable business completed the “take-private” transaction for the 3,000 megawatt Colombian hydroelectric portfolio. Its infrastructure group is buying 90% of a network of natural gas transmission assets in Brazil for more than US$5 billion. And its private equity firm acquired a 70% stake the largest private water distribution, collection, and treatment business in Brazil.
What’s very obvious is Brookfield Asset Management continues to make smart moves and acquire assets that are going to grow and provide ample cash flow to the operation. And it still sits on US$19 billion in its private funds that it can invest.
So if you’re looking for a company that is diversified from both an industry and geographic perspective, there are few companies as great as Brookfield Asset Management Inc. I highly recommend it.
