Hedge Against Inflation With Brookfield Asset Management

The company has $726 billion in assets

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Jun 14, 2022
Summary
  • Brookfield is one of the world’s largest alternative asset managers with $726 billion in assets under management. 
  • Its real estate portfolio is in prime locations.
  • Real estate has historically performed well during high inflation environments. 
  • McKinsey reports AUM for the private equity industry reached an all-time high of $9.8 trillion. 
  • Guru investors Ron Baron and Joel Greenblatt were buying shares of Brookfield in the first quarter of 2022. 
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The private markets had a tremendous year in 2020 and 2021, with record performance and fund inflows. McKinsey & Co. reported fundraising increased by approximately 20% year over year to reach a new record of $1.2 trillion. Assets under management grew to an all-time high of $9.8 trillion for the industry.

Brookfield Asset Management Inc. (

BAM, Financial) is poised to ride these trends. The company already holds a staggering $726 billion in assets under management and is on the road to $1 trillion in assets over the next several years.

Renowned investors

Ron Baron (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) were both buying shares in the first quarter at an average price of $55 each, which is about 18% higher than where the stock trades today.

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Let’s dive into the Business Model, Financials and Valuation for this alternative asset titan.

Solid business model

One of the world’s largest alternative asset managers, Brookfield has $726 billion in assets under management, which is segmented across five main investment strategies:

  • Renewable Power & Transition
  • Infrastructure
  • Private Equity
  • Real Estate
  • Credit and Insurance Solutions

Renewable Energy is a major strategy for alternative asset managers. According to McKinsey, over 50% of total fundraising flowed to companies with formal environmental, social and governance policies. Private market investors can create value by transforming fossil fuel-focused business models into “green” ones. In addition, they can invest directly into companies that are developing decarbonization technologies.

Infrastructure is also a major focus of alternative asset managers, with infrastructure and natural resources at an all-time high for fundraising of $137 billion for the industry as a whole. We even saw the U.S. Senate pass the Biden administration’s bold $1 brillion infrastructure bill to rebuild American roads, ports and bridges.

Brookfield’s private equity strategies have performed tremendously over the past several years, with an internal rate of return of around 28%, which is incredible given the average public market return is about 10%. The company's credit strategies have also done exceptionally well with an 11% IRR.

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Source: Brookfield presentation.

Brookfield’s real estate funds have produced an incredible 24% IRR. Real estate has historically performed well in high inflation environments and, therefore, I expect this trend to continue. Its strategy focuses on "hold, recycle and monetize.” Hold refers to maintaining a portfolio of mixed use property in global “gateway” cities. Recycle refers to reinvesting proceeds and monetize refers to real estate develop or buy-fix-sell strategies. The company has 50 core properties, covering 40 million square feet and bringing in $1.2 billion in net operating income.

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Brookfield has also partnered with Oaktree Capital Management (founded by the legendary

Howard Marks (Trades, Portfolio)) to create Brookfield Oaktree Wealth Solutions. This offers a new distribution channel focusing on private wealth and financial advisors.

Growing financials

As of full-year 2021, Brookfield generated a staggering $75 billion in revenue, up a rapid 20% year over year. While operating income jumped by 23% to $11.6 billion.

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The gross and operating margins maintained an upward trend and are around 15%.

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In terms of valuation, Brookfield is currently fairly valued according to the GF Value Line, which analyzes historic multiples, past financial performance and future earnings projections.

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Final thoughts

Brookfield is a solid company that generates exceptional internal returns and is poised to ride many secular tailwinds. A mix of growth and value investors have invested in the company, which is a testament to its quality.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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