Since going public about a decade ago, Brookfield Infrastructure Partners (BIP -0.86%) has delivered almost 450% in total returns. Over the same period, Brookfield Asset Management (BN 0.11%) has rewarded investors with 160% in total returns. While both have lavished investors with market-beating returns over that period, Brookfield Asset has certainly made for the better investment. But over an even longer period, Brookfield Asset Management has done incredibly well by its investors. Since early 2004, it has generated an incredible 838% in total returns, more than threefold higher than the S&P 500.
Let's take a closer look at these two related investments. The differences between the two are significant, and that's what makes one a better investment.
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The asset manager or the assets?
Brookfield Asset Management is the company behind Brookfield Infrastructure Partners -- as well as Brookfield Renewable Partners (NYSE: BEP), Brookfield Property Partners (NASDAQ: BPY), Brookfield Business Partners (NYSE: BBU), and more recently Terraform Power (NASDAQ: TERP).
But this is only part of the Brookfield empire, as the company also manages multiple alternative asset funds, separately managed accounts (SMAs), closed-end funds, and other investment strategies for institutional investors and high-net-worth clients. It owns and invests in real estate, infrastructure, debt, renewable power production, and private equity opportunities to help investors reach various investing goals.
A substantial amount of Brookfield Asset Management's cash flows are from fees it receives from investors in its funds. In the second quarter, it reported $287 billion assets under management, with $129 billion in fee-bearing capital. Over the past 12 months, it has generated over $1 billion in fee-based earnings.
In short, buying shares of Brookfield Asset Management is an investment in its ability to continue growing fee-based income as an investment manager.
Brookfield Infrastructure, on the other hand, is much more straightforward: It's an investment in the cash flows generated by a specific set of assets this partnership owns and operates. It's also far more of an income investment than its corporate parent. At recent prices, Brookfield Infrastructure pays a 4.5% yield versus 1.4% from its parent, and has increased it at more than double the rate of Brookfield Asset Management.
BAM Dividend data by YCharts.
Dividend growth or capital appreciation?
Brookfield Asset Management and Brookfield Infrastructure are both reasonably valued today. The parent company trades for around 16 times trailing-12-month earnings, while Brookfield Infrastructure trades for 12.6 times trailing funds from operations -- a better measure of value for a limited partnership than GAAP earnings. So neither is particularly cheap or trades for an exorbitant valuation.
Furthermore, both have a solid track record of shareholder returns, though they have delivered it in different ways. Here are Brookfield Asset Management's returns since 2003, shortly after it IPO'd on the NYSE:
As you can see, it has trounced the wider market over this period, with the vast majority of its total returns a product of an increased stock price.
But Brookfield Infrastructure Partners has also smashed the market's total returns since its 2008 IPO. The difference is that well over half of its total returns have come from a bigger, faster-growing dividend:
Better buy: My money is on the asset play
Let's make one thing clear: Brookfield Infrastructure's success as an investment is entirely due to the culture and management it inherited from its parent company. It's also built to be an income growth machine, while Brookfield Asset Management is, at its heart, an investment management company.
And my expectation is that, from where we stand today, Brookfield Infrastructure should continue to be the better, more predictable generator of cash flows from which investors directly benefit. Brookfield Asset Management, on the other hand, must also deal with the relationship management aspect of being an asset manager with billions of dollars in assets -- that belong to others -- under its control. This can make for tremendous volatility when economic uncertainty is higher, putting its fee-based income under pressure.
Brookfield Infrastructure, on the other hand, would feel minimal impact to its cash flows during recessionary periods; people and businesses continue to need many of the basic utility-like services provided by its operations. Furthermore, infrastructure expansion is a major 21st-century need, and I expect Brookfield Infrastructure to win a substantial amount of new business over the next 20 years, affording it a lot of cash flow growth and rewarding long-term investors with more of the dividend growth that's already made it into a market-beating investment.
The parent company remains an excellent business with an nearly unmatched legacy as an alternative asset investment manager. But when it comes to getting the best returns going forward, my money is -- literally -- on Brookfield Infrastructure Partners.
