BAM - Brookfield Asset Management

[ValueMaven]

Yes I am. 

 

I believe I am right here, but I am open to different views.  Why even risk this UBTI issue with all of the subs?? Just own BAM and you are fine. 

 

 

 

 

... If I understand what your asking, research Brookfield Assets Property Reit.  https://bpy.brookfield.com/en/bpr ...

 

Mark,

 

That may be right with regard to BPY, which has BPR as "company/REIT mirror" - via a conversion option/peg - which I just happen to hate. [bPR = former GGP.] So ValueMaven's question still apply for [at least] BEP, BIP, BBU [& also PVF.UN, for that matter].

 

Supplementary question here for ValueMaven : Are you a US citizen?

[chrispy]

I believe that historically they have not triggered UBTI with the LPs

[ValueMaven]

understood - but its possible...why even risk owning them in a nontaxable??  Just own BAM, and you dont have to worry - and you get indirect ownership too...

 

 

[Spekulatius]

How can you own BIP in a non-taxable account like an IRA??  It’s a limited partnership…I thought distributions from an LP in a non-taxable account would trigger an unrelated business taxable income, or UBTI??

 

I believe you can own BAM in a non-taxable account, but if they start spinning stuff off again, you need to sell before you receive a cash-distribution.

 

I've not heard of any US based custodian that doesn't allow for purpose of a publicly traded partnership inside of an IRA, though I suppose it may be possible.  Though other types of plans (like a 401k) can definitely restrict such investments. 

 

It isn't the distributions that cause the UBTI, as the income from the PTP isn't the same as the cash received from it (as a distribution).  Instead, you have to wait until the K-1 is generated at year end to determine how much UBTI and income the PTP generated (as it depends on many factors, including your purchase price and date).  Though, it does seem like some custodians treat the ordinary gain on disposal of a PTP as income subject to UBTI, which is a much bigger issue (due to how taxation works for partnerships and the operations of most PTP).  Though to my knowledge, this is still a bit of a grey area due to the complexity of the tax code (though I've heard of various NFP examinations started by the IRS where they found this fact pattern and required the NFP to treat this ordinary income

as UBTI and assessed tax on it).

 

You can read a little bit more at https://content.rwbaird.com/RWB/Content/PDF/Help/Taxation-Master-Limited-Partnerships-FAQs.pdf

 

My understanding is that Interactive Brokers does not allow LP in IRA’s any more. This is an email that I received from them in 2016:

 

You are receiving this notice as your IRA account U**** currently holds positions in securities which must be closed or transferred prior to December 23, 2016.  As background, these securities represent publicly traded interests in limited partnerships, the holding of which IB will no longer support for retirement accounts.  A list of the securities in which you hold positions is provided in the table below.

[John Hjorth]

Thank you very much for contributing here, Spekulatius,

 

This was exactly my suspicion [what you just posted]. There is naturally a reason for this. [No need to go in detail with my local [Danish] tax law conditions here - not relevant for the majority of other CoBF members here.] I think I'll try to open a topic about it in the personal finance forum. I think that may be an issue for any some non-Canadian members & investors for these LPs.

 

I also take it as a given, that Al knows exactly how this is handled for a Canadian investor, by the way.

[ValueMaven]

Again, goes back to my point here... 

 

For US holders - in nontaxable accounts...you can really only own BAM

 

 

[Packer16]

You can hold BIP in an IRA I do at Vanguard.  Here is the info from BIPs website:

 

Brookfield Infrastructure Partners L.P. units qualify for IRA accounts. Brookfield Infrastructure Partners L.P. is a qualified investment for RRSPs, deferred profit sharing plans, RRIFs, registered education savings plans, registered disability savings plans and TFSAs.

 

https://bip.brookfield.com/en/stock-and-distribution/tax-information

 

They also describe the UBTI issue:

 

Brookfield Infrastructure Partners L.P.  has not and is not expected to generate UBTI, a concept relevant to U.S. tax exempt investors. All of Brookfield Infrastructure Partners L.P.'s operations are carried out through wholly-owned subsidiary corporations. Brookfield Infrastructure Partners L.P. currently has access to a revolving credit facility that if utilized, may generate UBTI. However, it is not anticipated that Brookfield Infrastructure Partners L.P. will use such credit facility. Brookfield Infrastructure Partners L.P. has not and is not expected to generate debt financed UBTI.

 

Packer

 

[Spekulatius]

Thank you very much for contributing here, Spekulatius,

 

This was exactly my suspicion [what you just posted]. There is naturally a reason for this. [No need to go in detail with my local [Danish] tax law conditions here - not relevant for the majority of other CoBF members here.] I think I'll try to open a topic about it in the personal finance forum. I think that may be an issue for any some non-Canadian members & investors for these LPs.

 

I also take it as a given, that Al knows exactly how this is handled for a Canadian investor, by the way.

 

I am in the US.

[chrispy]

I have owned BIP, and currently own BBU, in IRAs with fidelity and vanguard

[Spekulatius]

I have owned BIP, and currently own BBU, in IRAs with fidelity and vanguard

 

Every broker is different. I believe Interactive Brokers is concerned about dealing with UBTI, so they prevent this by prohibiting ownership in LP in IRA’s. I do know that Fidelity let’s you own LP’s in IRA’s.

[John Hjorth]

Reuters [February 8^th 2019] : Brookfield in talks with India's Reliance Industries to buy tower, fibre assets: report.

[cubsfan]

Reuters [February 8^th 2019] : Brookfield in talks with India's Reliance Industries to buy tower, fibre assets: report.

 

Nice, thanks for posting John - that would be a big one.

[chrispy]

All 4 LPs saw a boost in share price following their earnings release.  BAM is almost certain to have a nice press release on Monday.  I still havent been able to review BPY or BIP much, but this jumped out to me from BBU:

 

"

Supported by the generation of strong cash flow during the year and a significant liquidity at year-end, Westinghouse issued a $315 million distribution, approximately $140 million to Brookfield Business Partners in December last year.

 

The distribution was made from excess cash on hand at the company at the end of the year. This returns approximately one third of the capital we invested in the business just six months ago.

"

 

And later on with regards to the significant drop in share price:

 

"

Yes, we balance that opportunity against everything else that's available to us and we do have many, many opportunities available to us, both new opportunities and opportunities to invest in our existing portfolio. So we balance that against our unit repurchase and the price just got so ridiculously low that it was a no-brainer for us. We thought to start buying our units back and we'll keep doing that at those types of level.

"

 

Note that BBU trades significantly below the high water mark of ~$42 and therefore will be paying the lesser 1-2% fees to BAM until the average weighted unit price increases ~25%.

 

I really like that BBU has put its money where its mouth is (although only a couple of $million) and bought back its own shares instead of simply showing in presentations that share price is less then NAV.  BBU has much more flexibility then the other partnerships due to its negligible dividend and ability to invest in every type of instrument available.

[racemize]

Every single BAM subsidiary is buying back its shares.  Kind of amazing.

[villainx]

Every single BAM subsidiary is buying back its shares.  Kind of amazing.

 

BAM and sub always had buyback authorizations in placed, right? Just didn't execute much, if any, on them.

 

Was there any more comment on why a shift?  Always read of savvy capital allocation moves via buybacks, but it's been a long time since such moves has turned out to be great (outsider level) capital allocation decisions.

 

(Though with the creation of BPR, I kind of assumed BAM would eventually consolidate or buy it out somehow.)

[racemize]

Every single BAM subsidiary is buying back its shares.  Kind of amazing.

 

BAM and sub always had buyback authorizations in placed, right? Just didn't execute much, if any, on them.

 

Was there any more comment on why a shift?  Always read of savvy capital allocation moves via buybacks, but it's been a long time since such moves has turned out to be great (outsider level) capital allocation decisions.

 

(Though with the creation of BPR, I kind of assumed BAM would eventually consolidate or buy it out somehow.)

 

Yes, they are all buying.  Most of them have stop being capital constrained and have capital available, plus prices have been cheap.

[chrispy]

Agree with racemize. Additionally, it seems that they are trying to signal the new phase of Brookfield where it is more self funding and allocating funds to buybacks is more feasible

[walkie518]

Agree with racemize. Additionally, it seems that they are trying to signal the new phase of Brookfield where it is more self funding and allocating funds to buybacks is more feasible

regardless of that particular direction, raising more money than ever for new funds is only a good sign

 

I suppose the concern will be can they continue to deploy effectively...perhaps the market doesn't have a sense for how effective BAM will be deploying the fresh capital b/c surely the increase in mgmt fees have not been baked into the current market pricing...

[walkie518]

does anyone know why after beating consensus, BAM is trading lower?

 

Brookfield Asset Management Reports Record 2018 Net Income and FFO

Net Income of $7.5 billion or $3.40 per share

FFO of $4.4 billion or $4.36 per share

Brookfield, February 14, 2019 – Brookfield Asset Management Inc. (NYSE: BAM, TSX: BAM.A, Euronext:

BAMA), a leading global alternative asset manager, today announced financial results for the year ended

December 31, 2018.

Bruce Flatt, CEO of Brookfield, stated, "We had a record year, generating $7.5 billion of net income. Fundraising

has been strong and included the recent closing of our largest flagship real estate fund to date at $15 billion, as well

as a $7 billion first close for our flagship private equity fund. We invested or committed $35 billion into new

transactions during the year, and ended the year with $34 billion of capital for deployment globally."

[racemize]

does anyone know why after beating consensus, BAM is trading lower?

 

Brookfield Asset Management Reports Record 2018 Net Income and FFO

Net Income of $7.5 billion or $3.40 per share

FFO of $4.4 billion or $4.36 per share

Brookfield, February 14, 2019 – Brookfield Asset Management Inc. (NYSE: BAM, TSX: BAM.A, Euronext:

BAMA), a leading global alternative asset manager, today announced financial results for the year ended

December 31, 2018.

Bruce Flatt, CEO of Brookfield, stated, "We had a record year, generating $7.5 billion of net income. Fundraising

has been strong and included the recent closing of our largest flagship real estate fund to date at $15 billion, as well

as a $7 billion first close for our flagship private equity fund. We invested or committed $35 billion into new

transactions during the year, and ended the year with $34 billion of capital for deployment globally."

 

Their reported growth wasn't as strong on a valuation basis 2017-2018, but I think a good amount of that was invested capital being depressed YE 2018.

[snowball82]

We just started a new subject with a BAM's spinoff, Trisura (TSU.to). The company is very small, a $ 178 M microcap.

 

What is the current relation with BAM ? I don't think they have now. That said maybe you will find interesting to know than Trisura's largest shareholder is Partners Value Investments LP (PVF.un). They own more than 18 % of issued outstanding shares.

 

So you are more than welcome to help us to do some due diligence about TSU !

[petec]

Just posted this on the TSU page but it might fit better here:

 

I'm intrigued that BAM spun this. One thing missing from the BAM universe seems to me to be an equivalent of TPRE and GLRE - a big insurer that invests float in the various BAM credit and equity funds. Could add billions to fee-paying AUM for the mother ship. I wonder why they haven't gone this route - they must have considered it, and Trisura could have been the seed.

[johnny]

Maybe they paid attention the the past decade of results for TPRE and GLRE and decided they could do without the reputational damage.

[snowball82]

Maybe they paid attention the the past decade of results for TPRE and GLRE and decided they could do without the reputational damage.

 

Or maybe fronting wasn't a complementary business for BAM as for Markel. Markel paid $ 919 M for State National.

 

Or they saw an independant TSU's structure is better for specifics insurance solutions and get the rating. This is 100 % speculation here. That said, I found this video from Markel / State National about fronting. It is well done. It explains there's many partners involved.

 

http://www.statenational.com/fronting/fronting-explainer/

 

 

 

 

 

 

[petec]

Maybe they paid attention the the past decade of results for TPRE and GLRE and decided they could do without the reputational damage.

 

Those results are largely driven by the investment results aren’t they? In which case there’s no greater reputational damage from “Brookfield Re” than there is from the existing subs and funds.