markets

Brookfield Selling Assets to Build War Chest for Next Downturn

  • ‘Bitcoin mania,’ pricey Italian art making CEO Flatt cautious
  • Brookfield has $25 billion in core liquidity and dry powder
Bruce Flatt

Photographer: Kevin Van Paasen/Bloomberg

Brookfield Asset Management Inc., Canada’s largest alternative asset manager, said it’s selling off assets so that it will be ready to pounce in the next down market.

The Toronto-based firm sold about $12 billion in mature assets in 2017 and said it will continue to do so this year. Brookfield, which has $285 billion under management, said it has more than $25 billion in core liquidity and dry powder in its private funds.

“We see no signs of underlying economic issues, despite the U.S. economy being nine years into this expansion,” Bruce Flatt, Brookfield chief executive officer, said in a letter to shareholders. “While this economic cycle shows no immediate signs of ending, it is clearly in its mid- to later-stages of an elongated expansion, and so we are being cautious, preparing for less robust times.”

He said there was cause for caution with equity markets hitting record highs, government bonds historically expensive, corporate and high-yield spreads at record lows, and “bitcoin mania” taking hold, creating a market capitalization of $500 billion with “as far as we can tell, zero intrinsic value.”

"An Italian renaissance painting was recently purchased for over $500 million, an all-time high for the sale of a painting,” he said. “These all make us cautious, while still continuing to invest our capital.”

Liquidity Focus

Flatt said the firm is selling down mature assets and redeploying the proceeds to higher yielding investments. Outside of the U.S., economies are recovering and in general continue to offer greater value than is available in the U.S. Brexit, for example, is offering select opportunities for investment in the U.K., Europe more broadly is looking strong, as is Brazil, Australia, China and India, he said.

Brookfield’s size, global reach, and operating capabilities has allowed it to jump on opportunities like acquiring TerraForm Power Inc. and TerraForm Global Inc. from the bankrupt SunEdison Inc. last year. It also bought Westinghouse Electric Co. out of bankruptcy in January for $4.6 billion, he said.

“We continue to focus on our liquidity and funding profile to ensure we remain in excellent financial shape and are positioned to react to growth opportunities in the next down market as we have done in the past,” Flatt said. 

Brookfield reported net income of $2.08 billion, or $1.02 a share, for the three months ended Dec. 31, up from the $97 million net income it reported for the same quarter last year. Funds from operations rose 29 percent to $1.3 billion, or $1.28 a share, for the quarter compared to last year.

The firm increased its quarterly dividend by 7 percent year over year to 15 cents a share.

Brookfield also said it raised the initial capital for its third flagship real estate fund, which is expects to be meaningfully larger than its predecessor. It said it will begin fund raising for its new flagship private equity fund in the first half of 2018.

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