Weighing another spinout

In the Q4 shareholder letter issued today, BAM floated the possibility of spinning out part of its asset management business in order to capture the higher multiples Mr. Market is offering to asset-light managers.

The letter made it sound like a trial balloon intended to get investor and shareholder feedback:

As we consider these options (including possibly doing nothing), we will report in the quarters/years ahead—and will be pleased to hear any views that you have.

On the conference call, Bruce Flatt made it sound less speculative:

The bottom line is we think it’s a very executable plan. It’s now in the public, all of our owners can express their views to us and we are going to come up with the right plan based off of all that plus the information we have. So, we are heading down a path, and we are quite serious about it, or we wouldn’t have put it in the letter the way we did.

The nomenclature is a little confusing. How do you spin out the asset management part of a business called Brookfield Asset Management? The reasoning goes like this: For most of its history, Brookfield’s asset management business has largely been in service of assets financed with Brookfield’s own capital. They made money through operational revenues and capital appreciation. Those assets sit on the balance sheet and create an “asset-heavy” manager.

In recent years, charging custodial and performance fees for managing assets financed with outside capital – acting more like a traditional private equity house – has become the largest and fastest-growing part of the business.

Brookfield looks around at “asset-light” managers – private equity firms that return the lion’s share of profits to shareholders in dividends or share buybacks – and believe they enjoy more generous valuations in public markets. I’m not sure this is true across the board, but it is for Blackstone, the biggest player, whose current market cap represents about 24x trailing 12-month fee-related earnings.

When Brookfield attached a 25x multiple to fee-related earnings as part of its plan value calculation, the number was generally viewed as excessive and last year Brookfield abandoned the calculation.

In the midst of the massive transition now underway in institutional finance from fixed income to alternative assets, long-term growth rates are hard to estimate. Blackstone’s fee-related earnings were up 71% last year, about half of that performance fees. BAM’s actual FRE and net carried interest were up 47%, although the “annualized” increase, which includes a variety of adjustments, was lower.

It’s anybody’s guess whether an asset-light Brookfield ticker would enjoy the multiple that Blackstone gets, but it might well do better than the FRE multiple implied in BAM’s current valuation, which is less than 15x. Management believes the market has trouble valuing BAM because it is essentially two different businesses now – an asset-heavy investor and an asset-light manager.

Based on its analysis of multiples awarded to comparable asset-light managers, Brookfield thinks that part of its business would be valued at $70B-$100B, or $45-$60 a share, and the legacy balance sheet investments at around $50B, or roughly $30 a share.

That would not be the allocation between the tickers because the tentative plan is to spin out only part of the asset-light business, enough to derive a pure-play multiple for the new ticker, with BAM holding onto a significant stake, as it has with its other subs. If the asset-light ticker did earn a higher multiple of FRE, BAM’s retained share of that business might also be rendered more valuable.

BAM generally follows through on plans such as this once it goes public with them, so I would not be surprised to see this happen later this year or next.


It seems like, oh about 20 months ago, BAM was pretty asset light. Then they had to rescue Brookfield Property (BPY), so spinning out BAM leaves legacy BPY as the remaining part, meaning we have roundtripped to where things were about 20 months ago. I am hoping Chompin can explain this all to us


It seems like, oh about 20 months ago, BAM was pretty asset light. Then they had to rescue Brookfield
Property (BPY), so spinning out BAM leaves legacy BPY as the remaining part, meaning we have
roundtripped to where things were about 20 months ago. I am hoping Chompin can explain this all to us

How much do you want to wager that this restructuring will involve some restructuring upwards of the effective compensation for the management group?
And that it would take an infinite amount of digging to figure out how much it is.

Yet one more partially listed sub. Clearly, it’s a simplification, as the FT calls it : )



Most conglomerates these days trade at a discount to what many consider to be the fair value of their parts. Even BRK, which is transparent in its executive compensation disclosures, suffers from this discount.

BAM has a very byzantine structure of corporate entities, which many insinuate is deliberate, to obscure executive compensation and control. To many, BAM’s Partners Limited has similarities to Maurice Greenberg’s AIG and Starr International. While they may not be doing anything illegal, many investors shy away from it, further exacerbating the conglomerate discount. No wonder the share price trades at a steep discount to management’s plan value.

In the earnings call Flatt left the option of spinning out a portion of the asset management fee business, while the BAM parent holds a major stake and control. I doubt this will boost the parent BAM’s valuation very much. In spite of talking repeatedly about the true value of their properties and how they realize more than book value on disposals, Mr. Market didn’t find them credible. And they had to take the property business private. It might require a complete spin-off the asset management fee business with independent BODs and management (like United Technologies did with Otis), for them to realize their true sum of the parts valuation.


Yet what exactly Brookfield is, and how it operates, is maddeningly difficult to ascertain.

To unpack the Canadian group’s accounts is to discover not so much a company as a giant, triangular jigsaw board that spreads across the world and covers assets worth $500bn. The pieces are hundreds of corporate entities, all locked together by elaborate contracts, which give 40 people at the top the right to rule huge sections of the puzzle almost as if it were their own.

Those insiders wield such power that the companies below them could face risks similar to those of “pyramid control companies”, according to a draft investor disclosure that Brookfield filed with the Securities and Exchange Commission in 2013.


The American International Group, the insurance giant engulfed in an accounting scandal, released details of an unusual compensation plan that gave ousted chief executive Maurice Greenberg and other top executives millions of dollars in previously undisclosed stock awards, according to a report Tuesday.

The New York Times reports that an AIG regulatory filing late Tuesday outlines payments made to Greenberg and 10 other senior executives through two private and related companies, Starr International and C.V. Starr.


I have owned BAM for over a decade. If it traded at its management calculated plan value it would be a top 5 position.

I am impressed with their track record of growing their property, hard assets and asset management businesses over the last two decades. There aren’t too many single ticker alternatives to BAM, and most are less shareholder aligned than BAM, or less skilled. I plan to hold it unless management is proven by regulators to have done something illegal, which I don’t expect to happen. I also don’t plan on adding on dips, because it trades at 20% discount to plan value.

I was merely pointing out how their complex organization structure and the use of Partners Ltd in executive ownership and compensation, attracts a lot of unfavorable press, which prevents it from getting full valuation. Another spin off of a BAM subsidiary, isn’t going to make Mr. Market suddenly change its mind, if the complex and opaque structure is retained.

I follow Erik Sprague on seeking alpha. I think his analysis of BAM is clear and easy to understand.



You don’t understand the benefit of breaking BAM into different parts so that investors can choose
exactly what they want to own? It’s what they do for their customers. Why not do it for their
shareholders? I want to own the asset manager … you can have the shopping malls.
I support the spin.

Sure I understand it. And I agree with it. It makes good sense from a financial engineering point of view–arguably Brookfield’s main business : )
It matches the two-part way I’ve been valuing the firm for years.
I just thought it was funny calling it a simplification of their corporate structure.

It’s only the partial listing of a division, not a spin-off.
Listed subs don’t produce simplicity, especially with so many overlaps of funding, management, and compensation, many of which are more than a bit opaque.
Rather, the interconnected network has one more node.
The statements will be harder to follow, especially for who’s covering all the compensation. And perhaps the debt guarantees.
Maybe even trying to assess how many hard assets and how much debt are proportionally owned by a holder of a common share in the asset side.

They already make the Samsung graph look simple.
As an aside, Samsung is noted for their low market multiples because of the complexity and intertwined unassailable management,
not for high multiples because the individual units are pure plays.
I think that effect, rather than the bundling of assets and asset management in BAM, is likely the bigger issue with BAM’s modest valuation multiples.



Mungo has a history of smearing execs when he’s short the company.

Sure, but as a way to explain why one would want to short the company, not because I’m talking my book or trying to get the stock price to fall.
(it would be great if my words affected stock prices, but it seems unlikely in the extreme)

For example, I don’t think anyone could rationally dispute the observation that Mr Musk has plainly broken several securities laws.
But some people will argue that up is down if the alternative is questioning their hero figures, so the messenger must be the enemy.




I want to own the asset manager … you can have the shopping malls. I support the spin.

It seems like a fine structure, and that literally WAS the structure about 10 months ago!

BAM (Asset Mgmt) absorbed BPY (property)


This was completed April 1, 2021. Meet the new boss, same as the old boss…