Brookfield Asset Management (BN -0.74%) and Brookfield Infrastructure Partners (BIP -1.33%) don't just share the Brookfield name. They also share a management team. However, they don't do the same things, and the differences between them are very important for anyone looking to invest in the infrastructure space. Here's a primer to help you decide which is a better fit for your stock portfolio.
How the Brookfield structure works
Brookfield Asset Management is a giant Canadian asset manager with an over-100-year-long history of investing in infrastructure and other assets on a global scale. For most of its existence it was private and invested its own money and the money of wealthy clients. The company has a huge amount of experience in the infrastructure space, but it is not directly an infrastructure company. It is an asset manager, collecting fees for managing other people's money. That just happens to include getting paid to run infrastructure businesses, among other things -- for example, it recently broadened its reach via the acquisition of fixed-income focused Oaktree Capital Management.
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Brookfield Infrastructure Partners, meanwhile, is a master limited partnership controlled by Brookfield Asset Management (more on this in a second). It directly owns and operates a massive collection of infrastructure assets spread across the world. The list includes utilities, toll roads, ports, midstream pipelines, railroads, and data infrastructure, among other things, with exposure to North America, South America, Asia, and Europe. If you are looking for a one-stop shop for infrastructure exposure, Brookfield Infrastructure Partners is a solid option.
The difference between the two businesses is material. Brookfield Infrastructure Partners, with a large collection of necessity-focused operating assets, can focus on running its businesses well. Brookfield Asset Management has to take a broader perspective, as it has interests beyond infrastructure and gets its revenue based on its management performance.
The benefits of permanent capital
It wouldn't be fair to suggest that Brookfield Infrastructure Partners is immune to the vagaries of the world around it. It needs to raise capital for investment at times, and that means selling units and debt, which involves Wall Street. And economic ups and downs can impact the businesses it runs. However, the capital it has invested has already been used to buy cash-producing assets.
This is actually why Brookfield Asset Management created Brookfield Infrastructure Partners, which it considers permanent capital. If Brookfield Infrastructure Partners runs the infrastructure it owns well, it will continue to provide a steady flow of income to unitholders. If it wants to grow, it has to buy more assets to operate. The model is pretty simple.
Brookfield Asset Management has a collection of controlled limited partnerships, all of which provide a steady core of fees for the parent. However, its business is larger than this and it changes things dramatically. For example, the company's controlled partnerships accounted for roughly a quarter of its fee-bearing capital at the end of the first quarter. It will keep getting fees for running these businesses, and there's little risk that this will be materially impacted by market forces.
The rest of its fee-bearing capital, however, isn't quite as secure. That list includes assets managed for others (including those in the infrastructure space), the recently acquired Oaktree asset management business (which is now about 40% of its fee-bearing capital), and the company's own investments. All are likely to see fees rise and fall with the market. That's because fees in the asset management space are tied to the value of the assets being run, which fluctuates with the ups and downs of the market. There's also the possibility that investors will consider pulling assets from the company should its performance not live up to expectations. So there's likely to be more variability in Brookfield Asset Management's business over time.
BAM Revenue (Quarterly) data by YCharts
What all of this means is that Brookfield Infrastructure Partners is basically a slow-growth income investment. The roughly-4.6% yield, for reference, is over three times as high as what's on offer from Brookfield Asset Management. This will be a better pick for dividend investors looking to live off of the reliable income stream that infrastructure assets tend to produce. Brookfield Asset Management is more of a growth investment, building a fee-based business that happens to include a lot of infrastructure in the portfolios and businesses it manages. However, the real growth here comes through increasing its assets under management. It's definitely an infrastructure-related name, but it's not really a direct infrastructure play.
What's right for you?
When you step back and look at Brookfield Asset Management and Brookfield Infrastructure Partners, they are clearly closely related entities. But they are also very different. Which one is right for your portfolio will depend on what you are looking to achieve. Growth investors, noting the fee-related risks here, will prefer Brookfield Asset Management. Income investors looking for a material and steady quarterly check will prefer Brookfield Infrastructure Partners. Only after you've made this choice can you really dig in for a deeper dive into either name.
