Yes, it’s true! Probably only of a few bricks, but I’m proud nevertheless! Let’s find out more about an amazing company that is indirectly helping me to achieve financial freedom. Brookfield Asset Management.
Business model of Brookfield Asset Management (ticker: BAM)
Brookfield Asset Management is a leading global alternative asset manager, focused on investing in long-life, high-quality assets across real estate, renewable powers, infrastructure and private equity.
The business model of BAM is relatively simple. Invest in high quality real assets that generate generous cash flows. A great example is Canary Wharf in London which is owned by Brookfield.
Brookfield invests in real assets with their own money and with money from investors through their asset management funds.
Every investor should wonder whether the interests of an investment manager are aligned with yours. With BAM it’s safe to say that’s true. The reason for this is that BAM invests a large part of their own capital in their own funds. So they are putting their money where their mouth is!
Brookfield derives their financial returns from fees earned as an asset manager as well as capital appreciation and cash flows from investments in real assets.
Because of BAM’s global reach and size, BAM can act quickly when an opportunity arises. BAM’s track-record makes them an investor with a solid reputation.
Due to the highly specialized nature of investing in real estate, renewables and infrastructure, the market is less transparent with relatively high barriers of entry. That’s exactly the specialized skills and knowledge that BAM has compared to its competitors.
Quality management team
To determine the soundness of an investment in a company, according to Warren Buffett, determining the quality of management is essential. Accomplished executives can make a significant difference to the success of a company.
Let’s take a closer look at the CEO of Brookfield. His name is Bruce Flatt.
Bruce has been the CEO of Brookfield for over 19 years now. He has a contrarian view on investing. He looks for opportunities where others are not. When everyone is overly excited about a certain region of type of asset, Brookfield will look elsewhere.
This is a great interview with Bruce Flatt that gives a view on BAM’s business model and Flatt’s view on investing in real assets. As he mentions in the interview, Bruce likes to buy things with a margin of safety. He prefers to buy high quality assets at a fair price in which BAM really has an edge.
Bruce Flatt’s view on investing in real assets really resonate with Warren Buffett’s view on investing in the stock market. His track-record and long-term view on investing gives me confidence that BAM will perform well under his leadership.
Brookfield’s performance has grown significantly over the years. Both fee bearing capital and fee related earnings show an enormous increase.
Unrealized carried interest relate to interest that BAM has earned but not yet realized. The reason for this is, for example, that certain holding periods or other thresholds are not yet met. When Brookfield meets these requirements the unrealized carried interest becomes realized.
Carried interest relates to the performance of the asset manager (BAM). You can call it a performance fee. The better BAM performs (the higher the returns for the investors), the higher the carried interest.
The carried interest balance and the increase over time shows that Brookfield knows what they are doing. Investors often link performance fees to ambitious targets, so by over delivering on these targets BAM is doing a superb job.
Why I invested in Brookfield Asset Management
- It provides exposure to high-quality real estate, renewable powers, infrastructure and private equity
- It has quality leadership with a view on investing similar to Warren Buffett. With their contrarian approach leadership does not follow the herd.
- BAM is a real estate investment that retains the majority of earnings to support growth and not on high dividend distribution. As a young investor I do not yet need a monthly income to live off.
- BAM has a solid balance sheet and financial performance.