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This Berkshire Clone is Backing Elon Musk’s Twitter Buyout

Barchart - Thu May 5, 10:59AM CDT
Stocks-Money-Rates - Banks in the Skyline

Twitter (TWTR) filed Amendment No. 6 to its Schedule 13D on May 4. Included in the filing was a list of 18 investment firms and wealthy individuals providing equity financing for Elon Musk’s $44 billion deal to take the social media platform private. 

The 18 investors have committed $5.2 billion in cash to support Musk. In addition,  Saudi Arabian investor Prince Alwaleed bin Talal will rollover his 35 million shares held in Twitter stock, valued at $1.89 billion based on Musk's $54.20 offer. The Tesla (TSLA) CEO is trying to get former CEO Jack Dorsey, who owns 2.4% of Twitter, to roll over his shares.

One of the investment firms committing equity to the deal happens to be one of my favorite capital allocators. I’m talking about Brookfield Asset Management (BAM), the Canadian alternative asset manager run by Bruce Flatt. 

Brookfield is slated to invest $250 million. That’s not the biggest check written of the 18 investors -- that honor goes to Larry Ellison, the Chairman and Chief Technology Officer of Oracle (ORCL), at $1 billion -- but it does demonstrate just how many pies Brookfield has its hands in.

If you like companies such as Berkshire Hathaway (BRK.B) that do the heavy lifting for you, I think you’ll like Brookfield. 

Here’s why. 

Brookfield Manages More Money Than Most

It’s come a long way since its founding as the São Paulo Tramway, Light and Power Company in 1899. After a couple of name changes, it became Brookfield Asset Management in 2005. 

Bruce Flatt has worked at Brookfield since 1990, becoming the CEO in 2002. He’s been in the top job ever since. He’ll likely remain in the top job as long as he wants to. That’s good news for shareholders. 

Since Flatt took over, BAM has gained almost 2,000% for shareholders. That’s a compound annual growth rate (CAGR) of 16.3%. The S&P 500’s CAGR is 6.6% over the same period. This doesn’t include dividends. If it did, the total return on BAM would be upward of 3,700%.    

Today, Brookfield manages almost $700 billion in assets for its capital and that of its limited partner investors. The company operates in five main areas: Renewable Power, Infrastructure, Private Equity, Real Estate, and Credit & Insurance. The $690 billion branches out from there into both private funds and public companies spun off from Brookfield. 

I can’t say with 100% certainty, but I would assume that the $250 million equity commitment to Musk’s privatization deal would fall under its private equity umbrella. It currently focuses on four sectors; Infrastructure Services, Business Services, Industrials, and Healthcare Services. It has approximately $103 billion in private equity assets under management, some of that within Brookfield Business Corporation (BBUC). 

It will likely take you months to fully comprehend the extent of Brookfield’s investments.

Avoid the Fees

Bloomberg recently published an interview one of its contributors did with Bruce Flatt. One of the questions was why someone should give Brookfield their hard-earned capital instead of a low-cost index fund or ETF -- something Warren Buffett recommends for the average investor -- Flatt had a brilliant response.

“If an individual has very little knowledge of investing, owning a passive index fund in equities is probably the right thing to do. Put their money in, don’t sell. Just keep it in and let it compound over a long period of time,” Flatt stated. 

“If you have any ability to meet people that can provide products to you and you trust them, money should go into products like ours.”

When you invest in Brookfield, you are getting top-flight asset management without the fees. Some might argue that the fees get extracted through the handsome compensation of Flatt and the rest of the company’s investment professionals. However, the last time I looked, there weren’t too many low-cost mutual funds or ETFs delivering a total return of 3,700% over 20 years. 

Still not convinced?

Brookfield’s distributable earnings have grown by 29% in the past five years, from $2.09 billion in 2017 to $6.28 billion in 2021. At the same time, its fee-related earnings rose 23% per year from $754 million five years ago to $1.74 billion this past year. 

Is it any wonder that the assets under management have grown to $688 billion at the end of 2021, from $283 billion in 2017? Patient investors know that excellent returns don’t happen without keeping your capital in play over the long haul.

With the excellent stewardship that Flatt and company provide, your capital is in very good hands. 

Should You Buy Now?

Brookfield’s shares are down almost 17% year-to-date. Over the past year, they’ve gained 15.5%, which is considerably higher than the 0.2% return for the index. It’s not very often that BAM underperforms the index. In 2022, it is. That provides investors with an opportunity to buy in at a reasonable price. 

For example, it currently trades at 1.93x its book value, the lowest valuation since 2018. Its enterprise value trades at 8.4x earnings before interest, taxes, depreciation and amortization (EBITDA), its lowest multiple since 2015.

Since 2020, there have been two corrections in BAM stock. There are bound to be more in the years ahead. However, if you believe, as I do, that reasonable capital allocation is an art rather than a science, Brookfield is one of the best places you can put your money so that you can sleep at night. 

And you’ll own a small piece of a privately-owned Twitter to boot.
 

       


 

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.