Warren Buffett is a masterful investor. He has an innate ability to allocate capital into investments that generate outsize returns for his shareholders. Over the last 30 years, his company, Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B), has delivered an average annualized return of 13%, beating the S&P 500's 11% average annualized total return.
As good as the Buffett-led Berkshire Hathaway is at growing shareholder value, Brookfield Corporation (NYSE: BN) has been even better. The Canadian investment manager has delivered an 18% annualized total return over the last three decades. Here's a closer look at this wealth-creating company, which shares many similarities with Buffett's Berkshire Hathaway.
Similar storylines
Berkshire Hathaway started as a textile manufacturing company. It traces its origins all the way back to 1839. Buffett took control of the company in 1965 and transformed it into a multinational conglomerate holding company. He's used it as an investment vehicle to acquire other operating companies and make investments in publicly traded companies, which have grown it into one of the most valuable companies in the world.
Brookfield Corporation has a similarly unique story. It traces its roots back to Brazil in 1899 to a company formed to manage the construction of electricity and transportation infrastructure. It has evolved over the years, becoming Brookfield in 2005, a few years after current CEO Bruce Flatt took over the helm of the company.
Today, Brookfield Corporation is a leading global investment firm with three core businesses:
Alternative asset management: Brookfield, through its subsidiary, Brookfield Asset Management, is one of the world's largest alternative investment managers, with over $1 trillion in assets under management (AUM). The company manages private equity and credit funds that invest capital on behalf of institutional investors (e.g., pension plans, endowments, foundations, sovereign wealth funds, and insurance companies).
Wealth solutions: The company provides retirement services and wealth protection products (insurance) to clients.
Operating Businesses: Brookfield controls operating businesses in the renewable power (Brookfield Renewable), infrastructure (Brookfield Infrastructure), business and industrial services (Brookfield Business), and real estate sectors.
In a sense, Brookfield is like a mini-Berkshire Hathaway. Berkshire owns operating businesses (e.g., BNSF, Pilot Travel Centers, and Fruit of the Loom) that generate earnings, which it retains to invest in additional operating businesses and its investment portfolio (which holds many notable public companies, like Apple, Coca-Cola, and American Express).
Berkshire also has insurance operations (e.g., GEICO and General Re). It uses the insurance float (i.e., insurance premiums paid to cover future claims) to invest in additional operating companies and publicly traded stocks. Brookfield has taken a similar approach by creating its wealth solutions platform.
The wealth creation appears poised to continue
While Brookfield has been around in one form or another for over a century, its best days lie ahead. The company believes it's in a better position than ever before to deliver 15%+ returns over the long term.
Several factors drive that view, including some notable tailwinds turning in its favor. It believes that lower borrowing costs, lower capitalization rates, and increased transaction activity should yield higher asset values, a greater return of capital to its investors, and carried interest generation (i.e., its share of the profits generated by the investment funds it manages). These and other catalysts drive Brookfield's view that it will grow its cash flow per share by more than 20% annually over the next five years.
That will supply it with a cumulative $47 billion (or $30 per share) to allocate into investments in its funds, growing its operating businesses, expanding its core operations, and returning cash to shareholders via dividends and repurchases. That should enable the company to increase its underlying value at a 16% compound annual rate over the next five years.
Brookfield currently estimates that the firm's intrinsic value is worth around $84 per share (well above the recent share price in the mid-$50s). Its plan values the firm at $176 per share by 2029. That is a more than 25% compound annual return from today's share price.
A worthy Berkshire compliment
Brookfield Corporation shares a lot of similarities with Berkshire Hathaway, including its ability to grow the wealth of its shareholders at an above-average rate. It believes it's in a stronger position than ever before to compound wealth for its investors over the next five years, thanks to the tailwinds benefiting the company. Because of that, it's a great stock to buy for the long term to complement your position in Berkshire Hathaway.
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American Express is an advertising partner of Motley Fool Money. Matt DiLallo has positions in Apple, Berkshire Hathaway, Brookfield Asset Management, Brookfield Corporation, Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Brookfield Renewable, Brookfield Renewable Partners, and Coca-Cola and has the following options: short February 2025 $275 calls on Apple and short January 2025 $60 calls on Brookfield Corporation. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Brookfield, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool recommends Brookfield Infrastructure Partners, Brookfield Renewable, and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
