Is Brookfield Asset Management (BAM) a Worthy Investment Choice?

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Aristotle Capital Management, an independent/employee-owned investment management organization, published its “Global Equity Fund” first quarter 2022 investor letter – a copy of which can be downloaded here. For the first quarter of 2022, Aristotle Capital’s Global Equity Composite posted a total U.S. dollar return of -9.19% gross of fees (-9.28% net of fees), compared to the MSCI World Index, which returned -5.15%, and the MSCI ACWI Index, which returned -5.36%. Try to spend some time looking at the fund’s top 5 holdings to be informed about their best picks for 2022.

In its Q1 2022 investor letter, Aristotle Capital Management Global Equity mentioned Brookfield Asset Management Inc. (NYSE:BAM) and explained its insights for the company. Founded in 1997, Brookfield Asset Management Inc. (NYSE:BAM) is a Toronto, Canada-based investment management company with a $79.2 billion market capitalization. Brookfield Asset Management Inc. (NYSE:BAM) delivered a -20.06% return since the beginning of the year, while its 12-month returns are down by -3.08%. The stock closed at $48.27 per share on May 26, 2022.

Here is what Aristotle Capital Management Global Equity has to say about Brookfield Asset Management Inc. (NYSE:BAM) in its Q1 2022 investor letter:

“Canada-based Brookfield Asset Management is one of the largest and most diversified private market investors in the world. With $690 billion in assets under management (AUM), Brookfield is an owner and operator of infrastructure (19% of fee-earning AUM), real estate (17%), renewable energy (15%), private equity (6%), public securities (4%) and, more recently, credit (39%) by acquiring a majority interest in Oaktree Capital Management. In addition to managing client assets, it invests capital from its own balance sheet alongside outside investors. And though Brookfield is a new purchase for our Global Equity portfolios, we have been owners of Brookfield in our International Equity portfolios for more than a decade.

Brookfield has a differentiated investing approach from many by taking on the challenge of improving operations at the companies it owns, with less of an emphasis on altering capital structures. The investments Brookfield targets are ones they consider to be high-quality assets under the surface but have otherwise run into significant operational headwinds, such as poor management or tough industry dynamics. This can allow Brookfield to purchase assets at attractive valuations and subsequently work to improve them operationally.

The foundation of Brookfield’s investing platform is traditional private drawdown funds from which it earns management and performance fees. In addition, Brookfield has partial ownership in four publicly traded investment vehicles from which it earns fees for managing the investments and pro-rata distributions of corporate profits.

High-Quality Business

Some of the quality characteristics we have identified for Brookfield include:

  • Strong positioning from its scale and brand power, being either a leader in its respective asset classes (real estate, infrastructure, renewable energy, distressed credit) or nimble enough in more competitive markets to meaningfully expand (private equity);
  • Skilled management with a long history of operating expertise, which we view as a competitive advantage in bidding for deals and generating superior investment returns; and
  • Demonstrated, stable cash flows from long-term fee streams, as more than half of its capital is locked up for more than 10 years.

Attractive Valuation

Shares of Brookfield are priced at a discount relative to our estimates of intrinsic value. On a normalized basis, it is our view that earnings will be greater than what is currently assumed by the market.

Compelling Catalysts

Catalysts we have identified for Brookfield, which we believe will cause its stock price to appreciate over our three- to five- year investment horizon, include:

  • Owing to its quality assets and efficiently run structure, Brookfield is well-situated to take advantage of the continued institutional shift toward real assets;
  • High demand for capital in renewable energy feeds into Brookfield’s competencies and market position. Very few competitors have both the scale and expertise to capitalize on this trend;
  • Brookfield’s recognized leadership and experience investing in infrastructure can provide a strong competitive advantage to bid and operate assets that are increasingly sold by governments to pay down debt; and
  • Improved penetration in retail channels, as Brookfield’s scale can provide a distinct advantage in this still largely untapped market for alternative managers.”

Investments, Finance

Our calculations show that Brookfield Asset Management Inc. (NYSE:BAM) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Brookfield Asset Management Inc. (NYSE:BAM) was in 35 hedge fund portfolios at the end of the first quarter of 2022, compared to 29 funds in the previous quarter. Brookfield Asset Management Inc. (NYSE:BAM) delivered a -9.44% return in the past 3 months.

In May 2022, we also shared another hedge fund’s views on Brookfield Asset Management Inc. (NYSE:BAM) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.

Disclosure: None. This article is originally published at Insider Monkey.