Canada-based Brookfield Asset Management (BN -0.20%) does exactly what its name implies, which includes running Brookfield Infrastructure Partners (BIP 0.41%). While these companies are tied at the hip, they are not interchangeable investment options -- and that's getting increasingly obvious as each looks to grow. Here's a quick rundown to help you decide which one is the better buy for you.
1. The big picture
Brookfield Asset Management has an over-100-year history of running money for other people and itself. For much of that history the focus was on infrastructure-type assets. One of the ways it has looked to grow is by creating master limited partnerships like Brookfield Infrastructure Partners. There are a number of these entities, which allow individual investors to "partner" with Brookfield Asset Management, which both manages and invests in these vehicles. Brookfield Asset Management calls its controlled partnerships "permanent capital", and collects fees for running the businesses. That all fits with the asset management business model.
Brookfield Asset Management, however, has been looking to expand its reach into other areas. Notably, the company recently acquired a controlling stake in bond specialist Oaktree Capital Management. Oaktree, and thus bonds, now account for 40% of Brookfield Asset Management's fee-generating business. Brookfield Asset Management's business is shifting in a different direction as it expands, making it less and less similar to the infrastructure entities it controls, like Brookfield Infrastructure Partners.
For its part, Brookfield Infrastructure Partners owns and operates a globally diversified collection of infrastructure assets. That's unlikely to change anytime soon. Moreover, because its assets span various categories, including transportation, energy, and data infrastructure, it's something of a one-stop-shop for investors looking to add an infrastructure investment to their portfolios.
Long-term dividend investors will find Brookfield Infrastructure Partners' model of owning infrastructure appealing. These are generally unique assets (like toll roads, pipelines, power plants, or seaports) that can't be easily replaced and generate fairly regular cash flows that can generally be increased slowly over time. That allows Brookfield Infrastructure Partners to pass a growing income stream on to shareholders at a fairly high rate -- the distribution yield is currently a generous 4.1%. Add that to management's efforts to improve the assets it operates and make new acquisitions (often funded by dispositions of appreciated assets) and Brookfield Infrastructure partners has also amassed an impressive record of annual distribution increases, having hiked the disbursement in each of the last 13 years. The compound annual rate of increase over the past decade was an impressive 11%. Dividend investors should really like the history here.
Brookfield Asset Management has an impressive dividend history of its own, having increased its payment every year for nine years running. It falls shy of the partnership it runs on two fronts, though. First, the yield is a far more miserly 1.5% or so today. Second, the annualized increase over the past decade was 8%. Neither is a number to be ashamed of, but yield-seeking investors will likely find Brookfield Infrastructure Partners far more appealing.
There's one caveat to highlight: Brookfield Infrastructure partners increased its distribution in the first quarter, and then, as the chart above shows, it looks like it cut the disbursement about 10% in the second quarter. That's not the case, however. What happened was that it made a stock distribution to unitholders as it looked to create an alternative way to invest in the company that avoided the master limited partnership structure. The full amount that existing investors receive is unchanged, with each unitholder getting roughly 0.11 new shares of stock for each unit held, or roughly 10%. While the distribution decline may get interpreted as a cut by some, investors didn't actually see a decline in what they collected.
Thinking about the long term is important for this entwined pair. Brookfield Infrastructure Partners' growth comes from buying infrastructure assets and operating them well. That allows it to increase its income and sell assets that have appreciated so it can buy assets that management believes are trading at a discount. (Brookfield Infrastructure has a long history of opportunistically buying out-of-favor assets.) It's a pretty simple model to understand.
Brookfield Asset Management, on the other hand, grows by increasing the amount of money it manages. The acquisition of bond-focused Oaktree was driven by two things: the assets at the company, and the fact that it expanded Brookfield Asset Management's business into a new area, broadly speaking. So it got an instant, and sizable, boost in its fee-generating assets (up nearly 70% year-over-year as of June) and the ability to sell existing clients Oaktree's services, as well as Oaktree clients Brookfield Asset Management's services. That's not better or worse than Brookfield Infrastructure Partners' model, just different.
Note that once a unit of Brookfield Infrastructure Partners is issued, it remains outstanding until it is bought back and canceled. This is why Brookfield Asset Management considers its controlled partnerships permanent capital. However, a Brookfield Asset Management customer can choose to withdraw their cash at any time they like. If enough customers left, Brookfield Asset Management's results would feel the hit. In addition, the value of the assets it controls are subject to market swings, so a material bear market could reduce its fee-earning business, too. That's a lot different than operating a toll road or data center.
Which to buy?
Both Brookfield Asset Management and Brookfield Infrastructure Partners are well-run entities, and you probably wouldn't be making a mistake with either one. However, they are not interchangeable. Income investors looking for a diversified infrastructure play would obviously gravitate to Brookfield Infrastructure Partners. Investors focusing on growth over income, meanwhile, will probably be better served by Brookfield Asset Management over the long term. That said, Brookfield Infrastructure Partners is likely to be the more conservative option, which would justifiably give it the final edge for many investors.