Brookfield CEO Says Cash Is King After 8-Year Bull Marketby
Canadian asset manager prepares for bargain hunting ahead
Brookfield seeks $4.6 billion in additional fundraising
Brookfield Asset Management Inc. is selling off assets and paying down bank lines after an eight-year bull run in stocks and bonds near highs, joining investors such as Warren Buffett and Canada’s Prem Watsa in accumulating cash.
“Cash becomes extremely valuable in one circumstance in particular: when financial accidents happen,” Bruce Flatt, chief executive officer of Canada’s largest alternative-asset manager, said in a letter to shareholders Friday. “It certainly feels like we are closer to the place where cash will be more valuable than we have been for eight years. Because of all this, we have continued to liquefy our balance sheets.”
Brookfield’s cash and cash equivalents have increased almost 58 percent this year to $4.37 billion at the end of September, the company said. As a result, Brookfield, which has about $250 billion under management, might experience some lower growth in its operating results in the short-term than if it were putting cash to work, he said. Over the longer term, the advantage of having liquid assets when the market turns will outweigh any short-term drag, he said.
Brookfield’s shares fell 3 percent to $33.05 at 1:06 p.m. in New York, and have gained about 7 percent this year.
Brookfield joins other big investors bolstering cash positions. Buffett’s Berkshire Hathaway Inc. had a record of almost $85 billion in cash on its books as of Sept. 30, while Watsa’s Fairfax Financial Holdings Inc. said last week it had exited about 90 percent of its long-dated U.S. Treasuries amid global uncertainty, including this week’s U.S. election.
Flatt said on a conference call that there wasn’t anything specific that was concerning him, noting credit markets are open for good companies outside of a few regions experiencing extreme turmoil.
"We see no real reason that there’s any accidents coming," he said, but this far into the cycle a more cautious approach is warranted. "That’s the time to be a little bit more conservative than at the bottom of the market," he added.
In past periods of turmoil, Brookfield was able to make some of its greatest investments, including its Olympia & York New York office portfolio, General Growth U.S. mall portfolio, and its stake in London’s Canary Wharf business district, Flatt noted.
“That we are now one of the largest asset managers globally is largely the result of our patience and staying power. Having liquidity at the right times is a big part of this,” Flatt said. "Cash only matters when it matters. And when it matters, it really, really matters."
Brookfield isn’t sitting on the sidelines entirely.
After deploying nearly $20 billion over the past 12 months, including $10 billion in the last quarter, the company continues to fund raise. It plans to raise capital for four additional funds, including an open-ended real estate fund, a real-estate finance fund and two niche funds, targeting $4.6 billion of third-party commitments, the company said in its third-quarter report. It has about $19 billion in dry powder.
Management said they also may start marketing the next vintage of some of its flagship funds next year. The $9 billion flagship real estate fund, for example, which closed in April, is about 67 percent deployed, it said. Management said they expected the next generation of funds to be larger than the previous ones.
"Real assets continue to be the asset class of choice for institutional investors and as a result, we are seeing strong inflows across our strategies," Flatt said. "We continue to see opportunities to put capital to work in high-quality businesses across our real asset strategies."
The company reported third quarter net income of $2.02 billion, or $1.03 share, up almost 140 percent from the same period a year ago on several factors, including earnings from new investments, tax tailwinds, and operational improvements.
Fees-related earnings were up 37 percent during the quarter to $173 million, as a result of a 23 percent increase in fee-bearing capital over the past 12 months, the company said.