August 8, 2022

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Even the biggest stars of private capital have to confront the vagaries of public markets...

Even the biggest stars of private capital have to confront the vagaries of public markets if they are listed there. On Thursday, Brookfield Asset Management, the Canadian alternative assets titan, announced that it would consider splitting off the entity that collects its management and performance fees.
Many of Brookfield’s US peers — notably juggernaut Blackstone — have stuck to managing other people’s money. Brookfield is different. It has a money management operation that oversees $364bn in fee paying assets. But it has also ascribed $50bn of its own balance sheet firepower to investments in infrastructure, property and the like.
There is no particular reason for public market investors to discount Brookfield’s stock for its balance sheet investments. But alas, Brookfield believes it bears a stigma that a partial demerger of its asset-lite operations would expunge. Its overall market capitalisation is currently $98bn with one analyst saying its fee-receiving entity could be worth $75bn alone. Brookfield shares spiked nearly a tenth on Thursday as if to confirm that such smoke and mirrors may work.
Brookfield’s shares have risen 45 per cent in the last two years. That is a fine performance but well behind Blackstone and KKR, which have doubled in value. Notably, Apollo and KKR have balance sheet-focused strategies similar to Brookfield.
Utilising one’s balance sheet is a canny way to enhance returns. It shows executives are willing to put the company’s money where they are also allocating client funds. But it seems as if public investors would simply prefer for spare capital to be returned to them.
All alternative asset management firms have carefully sought to highlight their fee-generating capabilities. They have placed particular emphasis on the predictable management charges which public market investors treasure most.
Brookfield is already a complicated beast. It has several listed affiliates — Brookfield Infrastructure Partners, Brookfield Renewable Partners and the like. Its ownership and management structure is equally convoluted. Splitting off asset management would add another entity to the Brookfield industrial complex. But it would at least assign clearer missions to Brookfield’s two main components.
The Lex team is interested in hearing more from readers. Please tell us what you think of the Brookfield separation plan in the comments section below.

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