Author Topic: BAM - Brookfield Asset Management  (Read 243217 times)

premfan

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Re: BAM - Brookfield Asset Management
« Reply #20 on: February 22, 2013, 12:41:16 PM »
I'm liking how BAM is getting fixed LTD. Its sort of like a hedge against inflation. I should investigate BAM some more.


giofranchi

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Re: BAM - Brookfield Asset Management
« Reply #21 on: February 26, 2013, 08:00:25 AM »
A new article on Seeking Alpha about BAM:

http://seekingalpha.com/article/1224491-brookfield-a-wealth-creation-machine?source=email_rt_article_title

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

giofranchi

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Re: BAM - Brookfield Asset Management
« Reply #22 on: March 12, 2013, 01:12:42 AM »
Two worrisome articles on BAM.

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

WhoIsWarren

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Re: BAM - Brookfield Asset Management
« Reply #23 on: March 12, 2013, 08:53:46 AM »
Two worrisome articles on BAM.

giofranchi

Gio, thanks for posting these.

Worrisome is a good word to use in my opinion as, while I am inclined to temper the tone of both articles, nevertheless they raise a flag or two.

Regarding the "Second Wave" article, without knowing the full facts (which we'll probably never know), it would appear that the author is venting frustration at the poor share price over the last year or so.  Brookfield may have been fully justified in calling off a sale of the asset based on a "good faith" assessment by management of its long-term worth.  That the share price is (greatly) lower today could simply be a combination of changed facts in the intervening period plus a depressed Mr. Market, or perhaps just a mistake!  I would add too that Brookfield's Private Equity Group has an excellent long term track record and is motivated to generate long-term value for its investors.  Now if Brookfield was trying to engineer it so that Second Wave will ultimately be forced into bankruptcy (allowing Brookfield to pick up the pieces on the cheap), well that's a different story.  If anyone has evidence of the latter I would be very interested to hear about it.

As for the "Paper World" article, the author has obviously done a lot of work and has highlighted some "worrisome" issues.  However, I think it's a pity that he decided to take such a definite negative line of argument throughout the article, because it just looks like he's got an axe to grind (company said considering legal action would do that to you I suppose).  Anyone who's studied the Brookfield / Brascan / Edper story will know it has a history of wanting control for limited capital (Jack Cockwell, current board member and the driving force behind the group from the 70s through to the early 2000s, was the brains behind this strategy).  So the accusation of a pyramidal control structure, is well, about 40 years old.

The focus on the lack of cash flow relative to net profit, particularly in the last 3 years, is just too myopic in my opinion.  Net profit / total return is simply the amount that flows through the P&L to the balance sheet / intrinsic value of the company.  In assets such as real estate / infrastructure etc., cash flows do not typically reflect an increase or decrease in value.  If Brookfield buys a distressed asset on a 10% yield and a year later it's yielding 5%, with no change in cash flows, does this indicate a paper world in a sinister sense?  In my view, the pertinent questions are: can the company fund its obligations (mainly interest as capex tends to be minimal), how predictable are its cash flows and obligations and for how much could the company sell its assets, given a reasonable amount of time to find buyers.  As a reminder, management believes both book value and its estimate of intrinsic value are understated versus what it could achieve in an orderly wind-down of the company.

The author does however raise some interesting points about BIP and BREP, the infrastructure and renewable energy businesses, which I admit I haven't looked at in as fine a detail as BAM.  For instance, the renegotiation of the two power purchase contracts with related parties.  And they are playing silly games by suggesting that Trevor Eyton is independent, because he most certainly is not!

Neither do I much like that Brookfield decided to go down the legal route with the author.  Without knowing the specifics of this case, Brookfield has a history of secrecy and are prone to aggression when questioned about their integrity.  From Peter Bronfman to Jack Cockwell and then to Bruce Flatt, everything that I've read about them would support the view that Brookfield's culture is one of hard work and high integrity, although there's no denying that for many years they've pushed the "maximum control, limited capital" strategy aggressively, which a lot of people may not ever be comfortable with.

Bottom line: do you trust management to "do the right thing"?  I do.

Thoughts?

ShahKhezri

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Re: BAM - Brookfield Asset Management
« Reply #24 on: March 12, 2013, 09:30:21 AM »
Paperworld is the reason why I never got comfortable with BAM.  It was way too difficult for me to put my arms around it and just say "look at the P/B, look at the jockey, get comfortable"

So many entities, complicated org structure, lots of financial engineering. 

I'm not saying it's a fraud, just very difficult to invest for me not knowing all the moving parts.  MKL has family connections though, so they got comfortable.

giofranchi

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Re: BAM - Brookfield Asset Management
« Reply #25 on: March 12, 2013, 10:05:47 AM »
Two worrisome articles on BAM.

giofranchi

Gio, thanks for posting these.

Worrisome is a good word to use in my opinion as, while I am inclined to temper the tone of both articles, nevertheless they raise a flag or two.

Regarding the "Second Wave" article, without knowing the full facts (which we'll probably never know), it would appear that the author is venting frustration at the poor share price over the last year or so.  Brookfield may have been fully justified in calling off a sale of the asset based on a "good faith" assessment by management of its long-term worth.  That the share price is (greatly) lower today could simply be a combination of changed facts in the intervening period plus a depressed Mr. Market, or perhaps just a mistake!  I would add too that Brookfield's Private Equity Group has an excellent long term track record and is motivated to generate long-term value for its investors.  Now if Brookfield was trying to engineer it so that Second Wave will ultimately be forced into bankruptcy (allowing Brookfield to pick up the pieces on the cheap), well that's a different story.  If anyone has evidence of the latter I would be very interested to hear about it.

As for the "Paper World" article, the author has obviously done a lot of work and has highlighted some "worrisome" issues.  However, I think it's a pity that he decided to take such a definite negative line of argument throughout the article, because it just looks like he's got an axe to grind (company said considering legal action would do that to you I suppose).  Anyone who's studied the Brookfield / Brascan / Edper story will know it has a history of wanting control for limited capital (Jack Cockwell, current board member and the driving force behind the group from the 70s through to the early 2000s, was the brains behind this strategy).  So the accusation of a pyramidal control structure, is well, about 40 years old.

The focus on the lack of cash flow relative to net profit, particularly in the last 3 years, is just too myopic in my opinion.  Net profit / total return is simply the amount that flows through the P&L to the balance sheet / intrinsic value of the company.  In assets such as real estate / infrastructure etc., cash flows do not typically reflect an increase or decrease in value.  If Brookfield buys a distressed asset on a 10% yield and a year later it's yielding 5%, with no change in cash flows, does this indicate a paper world in a sinister sense?  In my view, the pertinent questions are: can the company fund its obligations (mainly interest as capex tends to be minimal), how predictable are its cash flows and obligations and for how much could the company sell its assets, given a reasonable amount of time to find buyers.  As a reminder, management believes both book value and its estimate of intrinsic value are understated versus what it could achieve in an orderly wind-down of the company.

The author does however raise some interesting points about BIP and BREP, the infrastructure and renewable energy businesses, which I admit I haven't looked at in as fine a detail as BAM.  For instance, the renegotiation of the two power purchase contracts with related parties.  And they are playing silly games by suggesting that Trevor Eyton is independent, because he most certainly is not!

Neither do I much like that Brookfield decided to go down the legal route with the author.  Without knowing the specifics of this case, Brookfield has a history of secrecy and are prone to aggression when questioned about their integrity.  From Peter Bronfman to Jack Cockwell and then to Bruce Flatt, everything that I've read about them would support the view that Brookfield's culture is one of hard work and high integrity, although there's no denying that for many years they've pushed the "maximum control, limited capital" strategy aggressively, which a lot of people may not ever be comfortable with.

Bottom line: do you trust management to "do the right thing"?  I do.

Thoughts?

WhoIsWarren,
I like your analysis very much (as always!! :) ) and I definitely agree with it.

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

WhoIsWarren

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Re: BAM - Brookfield Asset Management
« Reply #26 on: March 12, 2013, 10:16:21 AM »
Paperworld is the reason why I never got comfortable with BAM.  It was way too difficult for me to put my arms around it and just say "look at the P/B, look at the jockey, get comfortable"

So many entities, complicated org structure, lots of financial engineering. 

I'm not saying it's a fraud, just very difficult to invest for me not knowing all the moving parts.  MKL has family connections though, so they got comfortable.

Yep ShahKhezri, I get what you're saying.

However, I believe most investors suffer from an illusion that they understand more than they really do.  Most companies are highly complex and we just don't understand the minutiae of what makes the company really special or indeed those at risk.

For example, take Coke.  A great brand right?  But how much is the brand and how much is distribution and other factors that we can't quite put our finger on?  Neville Isdell headed up Coke's Philippines operations in the early 1980s.  At the time, Pepsi dominated the Philippines and looked to have an unassailable lead.  Within a couple of years Isdell had turned the situation on its head and it is certain that his success had a lot to do with figuring out Coke's distribution (which I think involved poaching a few of Pepsi's larger distributors).  A more current example is how Pepsi looks to have lost its dominant position in Thailand because its distributor Serm Suk has stopped distributing its products and has instead launched a new cola brand Est.  Of course, it remains to be seen how Est fares in the long run, but my point is that companies are generally complex and our "System 1" (from Daniel Khaneman) is prone to jumping to overly-simplified analysis.

Brookfield Asset Management is in-your-face complex, but in reality perhaps not any more so than your average company.  And given how much stock that management owns, I judge that this complexity is for my benefit as a shareholder alongside them.

This is more than you can say for most companies!

WhoIsWarren

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Re: BAM - Brookfield Asset Management
« Reply #27 on: March 12, 2013, 10:17:26 AM »

WhoIsWarren,
I like your analysis very much (as always!! :) ) and I definitely agree with it.

giofranchi


Thanks Gio, kind words!

Yours Truly

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Re: BAM - Brookfield Asset Management
« Reply #28 on: March 12, 2013, 10:50:59 AM »
I'm patiently waiting on their upcoming commercial REIT spin-off :)

blainehodder

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Re: BAM - Brookfield Asset Management
« Reply #29 on: March 12, 2013, 11:07:57 AM »
Yes.  I am interested in examining the spinoff. Does anyone know any details on the spin?