Brookfield Asset Management Inc. is selling off assets and paying down bank lines after an eight-year bull run in stocks and with bonds near highs, joining investors like 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 per cent 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 1.7 per cent to $33.48 at 9:51 a.m. in New York, and have gained 8 per cent this year.
Brookfield joins other big investors bolstering cash positions. Mr. Buffett's Berkshire Hathaway Inc. had a record of almost $85-billion in cash on its books as of Sept. 30, while Mr. Watsa's Fairfax Financial Holdings Inc. said last week it had exited about 90 per cent of its long-dated U.S. Treasuries amid global uncertainty, including this week's U.S. election.
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, Mr. 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," Mr. 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.
"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 per cent 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 per cent during the quarter to $173 million, as a result of a 23-per-cent increase in fee-bearing capital over the past 12 months, the company said.