BAM - Brookfield Asset Management

[John Hjorth]

Maybe it's just me [disagreeing strongly] on the matter last discussed in this topic? -In that case I hope I'm up for some serious pushback here.

 

In short, I don't get it - at all.

 

Personally, I find it troubling that PVF.UN has bought more of TSU.TO. [PVF.UN owns about 9 percent of BAM, so it got about 9 percent of TSU.TO in the spin-off.]

 

Why will BAM even enter the debt space? That is, if it's not about distressed debt. It's a low margin business [basically no opportunity for material carried interest in this environment, if not distressed debt]. And BAM is a newbie in this space. Potential volume going forward - alone  - does not do the trick.

 

Why not just continue to focus on what is BAM's field of expertise [based on practical experience achieved during many years], which has huge upside, if done successfully [which is what BAM does now]?

 

I simply can't see anything but this not being the beginning of a walk in the park [pardon, I actually know, that asset management is not a walk in the park, but really hard work], but more like the beginning of a walk in a minefield, the mines being all sorts of conflicts of interest.

 

To me, it'll only be a matter of time, till BAM [or some sub of BAM, and thereby BAM] ends up in a situation where it'll have to make a choice between participating in giving an existing client [about 500+ as of now, spread out all over the world] a haircut, or forego an obvious opportunity to acquire some cheap assets that may be a perfect fit for one of the existing subs [bPY, BEP, BIP or BBU] - alone because of this debt initiative/startup.

 

To me, based on how BAM and subs operate as of now - this is just soo much a no-go to me. In best case - it'll "just" provide mean reversion, - thereby gradually morphing BAM into being "just another asset manager" - which it isen't right now. -It's actually very special!

 

I would really hate to see that happen going forward. ...

[Spekulatius]

TSU is simply too small to make a difference for BAM. BAM would need to increase the size of TSU multiple Times to make a difference for BAM and my guess is that BAM didn’t feel like running an insurance business was their core competency, so they spun it off to set it lose. As others mentioned, the performance of other captive insurance cos run by asset managers ist exactly inspiring either.

[Lance]

I wish BAM would buy Lancashire and hire Richard Brindle to run it. 

 

Thanks

Lance

[petec]

I wish BAM would buy Lancashire and hire Richard Brindle to run it. 

 

Thanks

Lance

 

:D

[petec]

Maybe it's just me [disagreeing strongly] on the matter last discussed in this topic? -In that case I hope I'm up for some serious pushback here.

 

In short, I don't get it - at all.

 

Personally, I find it troubling that PVF.UN has bought more of TSU.TO. [PVF.UN owns about 9 percent of BAM, so it got about 9 percent of TSU.TO in the spin-off.]

 

Why will BAM even enter the debt space? That is, if it's not about distressed debt. It's a low margin business [basically no opportunity for material carried interest in this environment, if not distressed debt]. And BAM is a newbie in this space. Potential volume going forward - alone  - does not do the trick.

 

Why not just continue to focus on what is BAM's field of expertise [based on practical experience achieved during many years], which has huge upside, if done successfully [which is what BAM does now]?

 

I simply can't see anything but this not being the beginning of a walk in the park [pardon, I actually know, that asset management is not a walk in the park, but really hard work], but more like the beginning of a walk in a minefield, the mines being all sorts of conflicts of interest.

 

To me, it'll only be a matter of time, till BAM [or some sub of BAM, and thereby BAM] ends up in a situation where it'll have to make a choice between participating in giving an existing client [about 500+ as of now, spread out all over the world] a haircut, or forego an obvious opportunity to acquire some cheap assets that may be a perfect fit for one of the existing subs [bPY, BEP, BIP or BBU] - alone because of this debt initiative/startup.

 

To me, based on how BAM and subs operate as of now - this is just soo much a no-go to me. In best case - it'll "just" provide mean reversion, - thereby gradually morphing BAM into being "just another asset manager" - which it isen't right now. -It's actually very special!

 

I would really hate to see that happen going forward. ...

 

John I'm not sure I follow. It seems you are worried about 3 unrelated issues:

a) PVF having a stake in Trisura, which is as I understand it 100% separate from BAM

b) BAM managing credit assets, which they are expanding

c) potential conflicts of interest between BAM's various funds and listed entities.

 

Am I right?

 

I should be clear that I don't expect the launch of "Brookfield Reinsurance" or whatever it might be called. By spinning Trisura they seem to have made a decision not to go that route. They will have a good reason for that, but I am not sure what it is.

 

[John Hjorth]

Thanks for comments, gents,

 

Pete, yes that came out a bit messy. [lol] Yes, I'm confused the partners buying more of Trisura, ref. Johnny's post. What's the purpose?

 

But mostly your bullets b and c. Most of all: Is it even possible to make 12 - 15 percent on invested capital, under the assumption, that BAM [as usual] invests alongside clients in this area? I mean, if that's not possible, it'll just become a drag on BAM shareholders returns.

[petec]

Thanks for comments, gents,

 

Pete, yes that came out a bit messy. [lol] Yes, I'm confused the partners buying more of Trisura, ref. Johnny's post. What's the purpose?

 

But mostly your bullets b and c. Most of all: Is it even possible to make 12 - 15 percent on invested capital, under the assumption, that BAM [as usual] invests alongside clients in this area? I mean, if that's not possible, it'll just become a drag on BAM shareholders returns.

 

I would imagine they're buying more of Trisura because they think it'll do well. I'm not being facetious, but they have long had investments other than BAM in that vehicle. They spun it out of BAM to simplify BAM, but they like what they think Trisura can do standalone.

 

As for credit, why on earth would you *not* leverage your knowledge into credit? The value add 1) is being able to charge more fees on a relatively stable cost base and 2) being able to fund every part of the capital structure in assets you know well. I'm not sure whether BAM do invest alongside their clients in the credit funds but if they do I would expect it to be fairly small (this is credit, not levered equity, so clients are less likely to value the downside protection of knowing the manager has skin in the game) and low risk.

 

I agree on conflict of interest. I have no idea how BAM decide which assets go into which vehicle and therefore how clients get comfortable that one vehicle might do better than another. But surely that's common to all asset managers that run "vintage" style as opposed to perpetual funds?

[John Hjorth]

Thank you for taking the time to educate me, Pete,

 

Your second paragraph in your post explains it well. I had to look up the specification of private funds in the end of BAM 2018Q4 supplemental to get an overview of the whole private credit fund holly-go-molly. There are some credit funds already, and in a way - if clients have expressed demand for such a product, as long as it's providing capitalization for others, not the BAM subs, well, it must be OK, if it actually generate earnings. Furthermore, you are right about your considerations for BAM/BAM subs participations in these private funds - they are in general materially lower than for other private BAM funds, typically in area of ~17 percent.

 

If BAM uses this kind of funds financing assets with non-recourse to BAM & subs, there will be risk of recourse to the client relation, though.

[petec]

Thank you for taking the time to educate me, Pete,

 

Your second paragraph in your post explains it well. I had to look up the specification of private funds in the end of BAM 2018Q4 supplemental to get an overview of the whole private credit fund holly-go-molly. There are some credit funds already, and in a way - if clients have expressed demand for such a product, as long as it's providing capitalization for others, not the BAM subs, well, it must be OK, if it actually generate earnings. Furthermore, you are right about your considerations for BAM/BAM subs participations in these private funds - they are in general materially lower than for other private BAM funds, typically in area of ~17 percent.

 

If BAM uses this kind of funds financing assets with non-recourse to BAM & subs, there will be risk of recourse to the client relation, though.

 

I suspect that 17% figure will fall over time. Some of the credit products are young and BAM will have seeded them but I wouldn't expect them to contribute 17% of inflows over time.

 

You're right that if they use these funds to lend on a non-recourse basis to assets where BAM or its subs or funds hold equity, there is a potential conflict of interest. I imagine there's wording in the credit fund prospectuses around what they can and can't do.

[khturbo]

On the credit piece, I do remember hearing a story from one of the big PE guys where a utility came to them with a recapitalization plan that he liked but he couldn't do it because they didn't do credit. In the interview, he said that the company took it to Berkshire, where Buffett looked at it and decided to do it "in like 15 seconds." I unfortunately don't remember which company it was and couldn't find it after a cursory google search. But perhaps BAM thinks they can do some investments like this. Like petec says, if they have the expertise on the assets then they could possibly do some solid distressed deals through debt.

 

Separately, does anyone know if BAM directly holds stakes in any of the private funds on its own books? I saw that they're contributing money into the new real estate fund ($2.75bb at BAM's share if I remember correctly) and after thinking about it a bit I realized that I thought they don't do that. From how I understand it, the LPs have historically been the investors. When BAM says "we're the biggest investors in our funds" I always thought they meant that it was through their interest in the LPs which were the biggest investors.

 

I went through the supplemental looking at the other assets category and didn't see anything resembling stakes in the funds, although it was somewhat vague. I know they seed some smaller / new strategies on their own BS but I'm not aware of investments in the main funds. Does anyone know the answer to this off the top of their head?

[walkie518]

q4 letter

 

https://bam.brookfield.com/~/media/Files/B/BrookField-BAM-IR-V2/letters-to-unitholders/2018/bam-q4-2018-ltr-to-shareholders.pdf

[khturbo]

I just spoke with IR re: the fund investments at BAM level. They confirmed that they have a bit of money in the funds, but small amounts related to when they seed strategies. They don't have anything in the main funds. Those investments are held in the LPs. They're funding part of the RE fund at BAM in order to provide excess capital at BPY as you'd imagine. When BAM makes investments into the RE fund they will be reflected in the "other investments" segment.

[John Hjorth]

.

[villainx]

.

 

Nice - and short - interview!  Thanks.

[EricSchleien]

The interview was fantastic. BAM has been one of my largest holdings for several years now. I actually have a meeting with the company tomorrow afternoon.

 

One of the competitive advantages of the business is sometimes overlooked is their amazing culture. I've spent about the past 11 years studying organizational culture (both in business and outside of business, principles are the same!) and it's been truly a mind-blowing journey.

 

I can't say the company by name, but I know one company that does organizational transformation work and when they go into an org, profits go up on average by about 600% within a year. I can't confirm that data, and it was prelim numbers I was given at a private lecture at NYU a few years ago. However, I would say that number is in the ballpark.

 

One of my colleagues, John King (he's been on my podcast twice now!), he spent about a decade studying doing research on this topic while also actively working with companies, and the work that we do, the average results when working with an org - profits go up by 300 - 500% within 24 months and results start to occur at around the 6 month mark.

 

There's an absolutely incredible book that John co-wrote about the work that we do called, Tribal Leadership. It was a New York Times Bestseller and is probably one of the best books that actually break down the nuts and bolts of how culture works. It blows my mind that even to this day (with all the data being out there), people still don't get it. You can read a book like Good To Great (great book) and still not actually understand how to re-create and build a great culture.

 

It's still a bit mysterious for many. Anyway, just wanted to share that the wisdom in that work is absolutely incredible. One of my goals is to start bringing an activist approach to this. It took me about 5 years before a well known and successful activist decided he wanted to partner with me on this project so at some point I'll have a few case studies to share in public markets. However, right now all the case studies are with private businesses.

 

Brookfield, is what you'd call a Stage 4 Culture. And while many businesses give lip service to things like "team", using "we" language, etc. Brookfield actually has it in where the language is a natural byproduct of the relationship structure within the business as opposed to say a sales org doing team building while everyone knows they aren't really on a team (and interesting side note, Harvard has shown that team building has been one of the largest corporate money drains for organizations overall - and it's not surprising!)

[Jerry Capital]

New ATH today.

[vince]

The interview was fantastic. BAM has been one of my largest holdings for several years now. I actually have a meeting with the company tomorrow afternoon.

 

One of the competitive advantages of the business is sometimes overlooked is their amazing culture. I've spent about the past 11 years studying organizational culture (both in business and outside of business, principles are the same!) and it's been truly a mind-blowing journey.

 

I can't say the company by name, but I know one company that does organizational transformation work and when they go into an org, profits go up on average by about 600% within a year. I can't confirm that data, and it was prelim numbers I was given at a private lecture at NYU a few years ago. However, I would say that number is in the ballpark.

 

One of my colleagues, John King (he's been on my podcast twice now!), he spent about a decade studying doing research on this topic while also actively working with companies, and the work that we do, the average results when working with an org - profits go up by 300 - 500% within 24 months and results start to occur at around the 6 month mark.

 

There's an absolutely incredible book that John co-wrote about the work that we do called, Tribal Leadership. It was a New York Times Bestseller and is probably one of the best books that actually break down the nuts and bolts of how culture works. It blows my mind that even to this day (with all the data being out there), people still don't get it. You can read a book like Good To Great (great book) and still not actually understand how to re-create and build a great culture.

 

It's still a bit mysterious for many. Anyway, just wanted to share that the wisdom in that work is absolutely incredible. One of my goals is to start bringing an activist approach to this. It took me about 5 years before a well known and successful activist decided he wanted to partner with me on this project so at some point I'll have a few case studies to share in public markets. However, right now all the case studies are with private businesses.

 

Brookfield, is what you'd call a Stage 4 Culture. And while many businesses give lip service to things like "team", using "we" language, etc. Brookfield actually has it in where the language is a natural byproduct of the relationship structure within the business as opposed to say a sales org doing team building while everyone knows they aren't really on a team (and interesting side note, Harvard has shown that team building has been one of the largest corporate money drains for organizations overall - and it's not surprising!)

 

Interesting post....would you mind briefly explaining what stage 4 means and where it fits relative to the other stages?  Thx

[EricSchleien]

The interview was fantastic. BAM has been one of my largest holdings for several years now. I actually have a meeting with the company tomorrow afternoon.

 

One of the competitive advantages of the business is sometimes overlooked is their amazing culture. I've spent about the past 11 years studying organizational culture (both in business and outside of business, principles are the same!) and it's been truly a mind-blowing journey.

 

I can't say the company by name, but I know one company that does organizational transformation work and when they go into an org, profits go up on average by about 600% within a year. I can't confirm that data, and it was prelim numbers I was given at a private lecture at NYU a few years ago. However, I would say that number is in the ballpark.

 

One of my colleagues, John King (he's been on my podcast twice now!), he spent about a decade studying doing research on this topic while also actively working with companies, and the work that we do, the average results when working with an org - profits go up by 300 - 500% within 24 months and results start to occur at around the 6 month mark.

 

There's an absolutely incredible book that John co-wrote about the work that we do called, Tribal Leadership. It was a New York Times Bestseller and is probably one of the best books that actually break down the nuts and bolts of how culture works. It blows my mind that even to this day (with all the data being out there), people still don't get it. You can read a book like Good To Great (great book) and still not actually understand how to re-create and build a great culture.

 

It's still a bit mysterious for many. Anyway, just wanted to share that the wisdom in that work is absolutely incredible. One of my goals is to start bringing an activist approach to this. It took me about 5 years before a well known and successful activist decided he wanted to partner with me on this project so at some point I'll have a few case studies to share in public markets. However, right now all the case studies are with private businesses.

 

Brookfield, is what you'd call a Stage 4 Culture. And while many businesses give lip service to things like "team", using "we" language, etc. Brookfield actually has it in where the language is a natural byproduct of the relationship structure within the business as opposed to say a sales org doing team building while everyone knows they aren't really on a team (and interesting side note, Harvard has shown that team building has been one of the largest corporate money drains for organizations overall - and it's not surprising!)

 

Interesting post....would you mind briefly explaining what stage 4 means and where it fits relative to the other stages?  Thx

 

 

Yes, but with a disclaimer which is that sharing with you something online is very different than being coached in it and actually getting it into your bones. This is something that often goes missing in the value investing community in that there are many kinds of learning that have to "get in" with someone, not just intellectualized. It's like reading a book on sailing, won't actually give you any access to being able to gain mastery in sailing. You can read every book on sailing until your blue in the face and it still won't give you access to being a world-class sailor. So there's that.

 

So with that being said, here's a video I found on John doing a keynote and introducing the Cultural Map. Again, the actual program to learn this stuff takes much longer than that so this is just an intro. No different than having basic financial ratios explained to you won't make you some wonderful investor overnight.

 

Here's the link:

 

John comes in at about the 17:35 mark.

 

 

[chrispy]

Enjoyable interview. She gets Bruce to talk in a different light then when he is interviewed by Bloomberg

[vince]

The interview was fantastic. BAM has been one of my largest holdings for several years now. I actually have a meeting with the company tomorrow afternoon.

 

One of the competitive advantages of the business is sometimes overlooked is their amazing culture. I've spent about the past 11 years studying organizational culture (both in business and outside of business, principles are the same!) and it's been truly a mind-blowing journey.

 

I can't say the company by name, but I know one company that does organizational transformation work and when they go into an org, profits go up on average by about 600% within a year. I can't confirm that data, and it was prelim numbers I was given at a private lecture at NYU a few years ago. However, I would say that number is in the ballpark.

 

One of my colleagues, John King (he's been on my podcast twice now!), he spent about a decade studying doing research on this topic while also actively working with companies, and the work that we do, the average results when working with an org - profits go up by 300 - 500% within 24 months and results start to occur at around the 6 month mark.

 

There's an absolutely incredible book that John co-wrote about the work that we do called, Tribal Leadership. It was a New York Times Bestseller and is probably one of the best books that actually break down the nuts and bolts of how culture works. It blows my mind that even to this day (with all the data being out there), people still don't get it. You can read a book like Good To Great (great book) and still not actually understand how to re-create and build a great culture.

 

It's still a bit mysterious for many. Anyway, just wanted to share that the wisdom in that work is absolutely incredible. One of my goals is to start bringing an activist approach to this. It took me about 5 years before a well known and successful activist decided he wanted to partner with me on this project so at some point I'll have a few case studies to share in public markets. However, right now all the case studies are with private businesses.

 

Brookfield, is what you'd call a Stage 4 Culture. And while many businesses give lip service to things like "team", using "we" language, etc. Brookfield actually has it in where the language is a natural byproduct of the relationship structure within the business as opposed to say a sales org doing team building while everyone knows they aren't really on a team (and interesting side note, Harvard has shown that team building has been one of the largest corporate money drains for organizations overall - and it's not surprising!)

 

Interesting post....would you mind briefly explaining what stage 4 means and where it fits relative to the other stages?  Thx

 

 

Yes, but with a disclaimer which is that sharing with you something online is very different than being coached in it and actually getting it into your bones. This is something that often goes missing in the value investing community in that there are many kinds of learning that have to "get in" with someone, not just intellectualized. It's like reading a book on sailing, won't actually give you any access to being able to gain mastery in sailing. You can read every book on sailing until your blue in the face and it still won't give you access to being a world-class sailor. So there's that.

 

So with that being said, here's a video I found on John doing a keynote and introducing the Cultural Map. Again, the actual program to learn this stuff takes much longer than that so this is just an intro. No different than having basic financial ratios explained to you won't make you some wonderful investor overnight.

 

Here's the link:

 

John comes in at about the 17:35 mark.

 

Thanks

[roundball100]

The interview was fantastic. BAM has been one of my largest holdings for several years now. I actually have a meeting with the company tomorrow afternoon.

 

One of the competitive advantages of the business is sometimes overlooked is their amazing culture. I've spent about the past 11 years studying organizational culture (both in business and outside of business, principles are the same!) and it's been truly a mind-blowing journey.

 

I can't say the company by name, but I know one company that does organizational transformation work and when they go into an org, profits go up on average by about 600% within a year. I can't confirm that data, and it was prelim numbers I was given at a private lecture at NYU a few years ago. However, I would say that number is in the ballpark.

 

One of my colleagues, John King (he's been on my podcast twice now!), he spent about a decade studying doing research on this topic while also actively working with companies, and the work that we do, the average results when working with an org - profits go up by 300 - 500% within 24 months and results start to occur at around the 6 month mark.

 

There's an absolutely incredible book that John co-wrote about the work that we do called, Tribal Leadership. It was a New York Times Bestseller and is probably one of the best books that actually break down the nuts and bolts of how culture works. It blows my mind that even to this day (with all the data being out there), people still don't get it. You can read a book like Good To Great (great book) and still not actually understand how to re-create and build a great culture.

 

It's still a bit mysterious for many. Anyway, just wanted to share that the wisdom in that work is absolutely incredible. One of my goals is to start bringing an activist approach to this. It took me about 5 years before a well known and successful activist decided he wanted to partner with me on this project so at some point I'll have a few case studies to share in public markets. However, right now all the case studies are with private businesses.

 

Brookfield, is what you'd call a Stage 4 Culture. And while many businesses give lip service to things like "team", using "we" language, etc. Brookfield actually has it in where the language is a natural byproduct of the relationship structure within the business as opposed to say a sales org doing team building while everyone knows they aren't really on a team (and interesting side note, Harvard has shown that team building has been one of the largest corporate money drains for organizations overall - and it's not surprising!)

 

I appreciate the valuable comments on BAM, but most of your post sounds like you are trying to sell something. Is it a product, or a service you are promoting?

[EricSchleien]

Nope.

[John Hjorth]

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.

 

Yes, Mike,

 

I have my personal concerns, though. I haven't been adding to BAM for quite some time now.

[jfan]

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.

 

Yes, Mike,

 

I have my personal concerns, though. I haven't been adding to BAM for quite some time now.

 

In the spirit of better decision making, what are the your personal concerns about Brookfield?

 

[villainx]

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.

 

Yes, Mike,

 

I have my personal concerns, though. I haven't been adding to BAM for quite some time now.

 

In the spirit of better decision making, what are the your personal concerns about Brookfield?

 

JH had previously (I assume still) been big supporter of BAM.  Recently upthread, I think he expressed concern with expanding to credit (and the conflict of interest) which is less likely to sustain the return profile BAM has historically touted. 

 

That's my quick summary after wondering what/why he hasn't been adding.