Brookfield Asset Management (BN 0.34%) says it had been "expecting a recession and market washout for some time," but it didn't know a COVID-19 coronavirus outbreak would cause it. That's what the asset management company with more than $540 billion of assets under management told shareholders in its latest update, dated March 23. In other words, Brookfield Asset Management might just have called the ongoing global and stock market meltdown a full-fledged recession -- a word many continue to shy away from.
What this company says can't be ignored, simply because Brookfield Asset Management (hereafter in this article referred to as Brookfield for simplicity) runs a multitude of businesses across key sectors and industries through its four publicly listed partnerships: Brookfield Property Partners, Brookfield Infrastructure Partners, Brookfield Renewable Partners, and Brookfield Business Partners.
While confirming the markets have turned for the worse in the last month, Brookfield said it believes it's in "very good shape". Below are some of the reasons it cited:
- Access to undrawn credit lines worth $12 billion.
- $5 billion worth of non-core assets that can be liquidated to raise funds if required.
- A strong balance sheet, with corporate debt of around $7 billion only with long-term maturity.
- No "hung purchases," meaning the company didn't purchase any business at what would appear to be an expensive price.
- $50 billion of latest funding and co-investments, of which only 40% has been invested.
- Resilient partnerships. While the coronavirus pandemic will affect its entire portfolio, its businesses are diversified and its financing structure "time-tested."
- A major chunk of business in critical infrastructure like utilities, power, and telecom that continue to remain in operation.
How Brookfield plans to navigate the downturn
Comparing the current mayhem to the 2008 market meltdown, Brookfield feels this current "uncertainty and volatility" is comparatively manageable as the banking system is still in good shape. Here are some of the company's plans during these tough times:
- Maintaining capital for a worse-case scenario.
- From an investment standpoint, focusing on stocks of listed companies and working in the debt market through Oaktree Capital, in which Brookfield acquired majority stake last year.
- Repurchasing its own stock at depressed prices as management is certain prices will recover.
Brookfield further stressed that while values of some businesses are declining, there's been no substantial change in the long-term values of many yet. Brookfield highlighted how much of its cash flows come from long-term property leases and contracts, such as in utilities, which are stable and sustainable.
Brookfield preaches value investing
Aside from updating shareholders about its financial position and plans to tackle the down turn, Brookfield also reiterated the concept of value investing to shareholders.
"It is very easy to invest in the markets when times are good, but it is in times of market decline that following the tenets of value investing matters most. We encourage you to follow them. We know this is a very stressful time for everyone. Please know that we are watching out for your capital," Brookfield said in its statement.
Now that's some advice you'd want to consider given where the stock markets are right now.