Over the past decade, Brookfield Asset Management (BN 0.65%) has done remarkably well with its investments. In this video clip from "The Rank" on Motley Fool Live, recorded on June 6, Fool.com contributor Jason Hall outlines how the company will soon be undergoing a major transformation that is expected to add more shareholder value and bring in new investors.
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Jason Hall: So, there's two parts of the business. There's the actual asset management where they run these funds and private capital comes to them and they invest it in alternatives to stocks and bonds. A lot of real estate, a lot of infrastructure, renewable energy projects. Basically, whatever your goal is, they have a fund to help you get that so they get that two in 20. That hedge fund, that private equity return, that's part of the business, that's the one that the name is there.
The other part of the business is all of the capital the Brookfield Asset Management, that is corporate capital that's invested in either the funds are in the subsidiaries like Brookfield Renewable, Brookfield Infrastructure, Brookfield Business, which is their industrials business, and here's what I want to explain. Here's my quick reason why and I know it's surprising to a lot of people that I haven't owned this one before, but I've mainly just focused on those subsidiaries with their high yields, dividend yields and their wonderful stellar dividend growth records that have made them market-crushing investments over the past decade.
The thing with Brookfield Asset Management that I've got to come back to is something is No. 1, the valuation continued to get better and better over the past six or eight months and now the management's looking to do something because they are really focused on delivering shareholder value and I'm a big believer in their CEO as being very focused on shareholder return and creating value.
They are actually going to split the business and spin off the asset management business. Yes, Brookfield Asset Management is spinning off its asset management business so what are they going to do? They're going to take it and they're going to split it off as a separate company. They're going to send 25% of the shares to investors, to shareholders. They're going to reward that as a tax-free dividend of those shares and then corporate is going to retain the other 75% for now.
What's going to be left over is about $30 a share of those subsidiaries and the funds that are in it. Here's the thing. Brookfield says the asset management business is worth $45 to $60 a share. Right now the whole thing trades for $46. You're talking about a $85-$90 business today as of May, I haven't looked today, but trading for less than $50 a share. It's a wonderful cash-flowing business.
The other thing is by spinning it off creating this asset light management business, they're going to increase the payout ratio and the dividend from Brookfield Asset Management's business will move up, so it's really compelling to me, particularly right now. Then a year from now, investors are going to be able to decide, do you want to own the hard assets or do you want to focus on the asset management business? I think it's a really, really compelling value and a wonderful business right now.
