BAM - Brookfield Asset Management

[no_free_lunch]

The valuation models I have seen already include the fees, so the 'float' is already considered.

[gokou3]

The 'float' to me generated by BAM's asset management arm (incentive fees and mgmt fee) is more attractive then Berkshire's 'insurance float' as it contains no liability risk on the back-end.  I realize this is a bit of a mute point given the differences in scale etc - but it is worth thinking about over the next 5yr - 10yr as a solid source of cash generation.

What do others think?

I am quite long in BAM (via PVF.UN) and its LPs, but I have always wondered if the reason for BAM's (and other asset managers like BX) low valuation is their tail risk of bad investment performance.  Specifically, we have seen in recent years of a multi-year performance slump of various asset managers, e.g. Legg Mason, Greenlight, Och-Ziff, etc. which followed by the collapse of their own stock prices and asset outflow.  BAM has been on fire for quite a long time but the market may have priced in the possiblity that they cannot adapt to a cliche black-swam event and things turn out bad for a couple of years.

That said, I think one difference between BAM and a typical mutual/hedge fund is that BAM mostly have control of its investees and have many more levers to pull.  As long as they don't put both feet into unfamiliar industries / geographies they should continue to do fine.

[vince]

The 'float' to me generated by BAM's asset management arm (incentive fees and mgmt fee) is more attractive then Berkshire's 'insurance float' as it contains no liability risk on the back-end.  I realize this is a bit of a mute point given the differences in scale etc - but it is worth thinking about over the next 5yr - 10yr as a solid source of cash generation.

What do others think?

I dont understand the comparison to float?  Float is a non interest bearing liability (ideally anyway), whereas mgmt fees and incentive fees are earnings from operations.

[Uccmal]

In two months BAM has bought 7 million shares of BPY: 140 M US in two months on a market cap of around 5 Billion.  Thats 2.8% of the company and they show no signs of slowing down. 

At the same time they are buying their own shares: prefs and common.  At a slower rate but still well above any dilution from issuances. 

I like a company that does what they say.  I also like a company that buys shares at a discount.  These guys certainly have a good handle on this process unlike 90% of the others out there. 

[vince]

In two months BAM has bought 7 million shares of BPY: 140 M US in two months on a market cap of around 5 Billion.  Thats 2.8% of the company and they show no signs of slowing down. 

At the same time they are buying their own shares: prefs and common.  At a slower rate but still well above any dilution from issuances. 

I like a company that does what they say.  I also like a company that buys shares at a discount.  These guys certainly have a good handle on this process unlike 90% of the others out there.

Dont you think they should be buying back more based on what they claim is their intrinsic value is now and over the next 5 years, in addition to the fact that they have lots of liquidity?

[John Hjorth]

vince,

The BAM group core liquidity is the main basis, the tool and the key to stay opportunistic [and to some extent contrarian] for BAM to do large deals in its space in general. If BAM goes heavy on buybacks, it might end up constrained, ending up just floating with the general torrent, unable to act, when the opportunities appear.

Easy to say, hard to execute.

[vince]

vince,

The BAM group core liquidity is the main basis, the tool and the key to stay opportunistic [and to some extent contrarian] for BAM to do large deals in its space in general. If BAM goes heavy on buybacks, it might end up constrained, ending up just floating with the general torrent, unable to act, when the opportunities appear.

Easy to say, hard to execute.

Hey John, I agree, the most important value driver going forward is their asset management business which depends in a huge way their ability to find decent places to put client capital which is enhanced by Bam capital going into the same deals.  It's just very hard from the outside when I can see how value creating those buybacks would be at these prices.  Another interesting point is the fact that they are buying Bpy....that shrinks the capitalization which (I think) reduces the base fees they collect from Bpy.  I don't believe you will see this type of behaviour from many other mgmts

[Shane]

vince,

The BAM group core liquidity is the main basis, the tool and the key to stay opportunistic [and to some extent contrarian] for BAM to do large deals in its space in general. If BAM goes heavy on buybacks, it might end up constrained, ending up just floating with the general torrent, unable to act, when the opportunities appear.

Easy to say, hard to execute.

Hey John, I agree, the most important value driver going forward is their asset management business which depends in a huge way their ability to find decent places to put client capital which is enhanced by Bam capital going into the same deals.  It's just very hard from the outside when I can see how value creating those buybacks would be at these prices.  Another interesting point is the fact that they are buying Bpy....that shrinks the capitalization which (I think) reduces the base fees they collect from Bpy.  I don't believe you will see this type of behaviour from many other mgmts

Why would BAM buying BPY reduce the market capitalization?

[vince]

vince,

The BAM group core liquidity is the main basis, the tool and the key to stay opportunistic [and to some extent contrarian] for BAM to do large deals in its space in general. If BAM goes heavy on buybacks, it might end up constrained, ending up just floating with the general torrent, unable to act, when the opportunities appear.

Easy to say, hard to execute.

Hey John, I agree, the most important value driver going forward is their asset management business which depends in a huge way their ability to find decent places to put client capital which is enhanced by Bam capital going into the same deals.  It's just very hard from the outside when I can see how value creating those buybacks would be at these prices.  Another interesting point is the fact that they are buying Bpy....that shrinks the capitalization which (I think) reduces the base fees they collect from Bpy.  I don't believe you will see this type of behaviour from many other mgmts

Why would BAM buying BPY reduce the market capitalization?

I just assumed that they wouldnt get mgmt fees on the part of capitalization that they owned but as I think about it more I'm starting to think its wrong

[John Hjorth]

Why would BAM buying BPY reduce the market capitalization?

Shane,

From the perspective of the BAM group balance sheet, BAM is using cash to buyout BPY minorities. So the BAM group balance sheet is shrinking by doing these buybacks.