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Brookfield Asset Management (BAM)Stock (Asset Management Industry, Financial Services Industry)
 Brookfield invests capital on behalf of its institutional investors and itself. In most cases, institutions provide funds for BAM to manage. Over 2007, Brookfield added nearly $10 billion in capital, with the majority coming from institutional investors.[3] Brookfield, as a Canadian asset manager in physical capital, is affected by both traditional and unique market trends. Interest rates as well as foreign exchange rates affect BAM operations. Also, adverse weather conditions around the globe hurt BAM's timberland and hydroelectric power segments. Finally, the real estate bubble of 2007 negatively impacted BAM revenues.
[edit] Corporate Overview 2007 Data; $ in millions[4]  Note: $ in millions[5] In January of 2008, Brookfield began a series of timber and power asset spin-offs. A spin-off refers to the creation of a new firm with the assets of a parent company.[6] In this case, BAM denominated "Brookfield Infrastructure Partners LP" as an investment tool, giving shareholders 60 percent as a special dividend and keeping the remaining 40 percent for itself.[7] The partnership is headquartered in Bermuda, where it is exempt from Canadian taxes.[7] Brookfield Infrastructure began trading on the New York Stock Exchange on January 31, 2008. FY 2007 was a record year for BAM in terms of revenue, operating income, and cash flow of $1.9 billion, boosted by the acquisition of Multiplex, an Australian construction and property company, as well as strong performances from the property and specialty fund segments.[2] Also, assets under management grew by nearly 33%, bolstered by almost 50% growth in assets invested in their Commercial Properties segment.[8] Key places for the commercial property boost were Australia and New Zealand, where $7 billion of real estate assets were acquired.[9] Finally, revenue grew by a little over 35%, helped by 48% growth in investment income (other).[10] The increase in investment income can be attributed to $6 billion added to real estate and fixed-income equities to the Brookfield portfolio in 2007.[9]  Note: 2007 Data; $ in millions[11] BAM divides its business into the following segments.
In the longer term, from 2003-2007, Brookfield revenues and operating incomes have averaged 35% and 39% growth respectively. FY2007 saw Brookfield's net income slip for the second year in a row. However, excluding realization items, net income was $941 million compared to the $624 million of 2006.[2] Depreciation on newly acquired items also factored into the net income fall. Another key BAM achievement of 2007 included a $10 billion spike in committed capital to create new investment channels and expand established ones.[2] Finally, the Morningstar Report on Brookfield predicts 24% returns on equity and increases in operation cash flows of 12% annually.[19]  Historical BAM Financial Stats ($ in millions)[20] [edit] Key Trends and Forces[edit] Rising Interest rates and foreign exchange rate fluctuations are a mixed benefit for BAMAs a Canadian based global asset management firm, BAM often deals with foreign currency exchanges and interest rates. To start, the firm has $31 billion in debt and $7.5 billion in equity.[21] For instance, Brookfield cites that a 10 basis point increase in interest rates would result in a $16 million increase in their operating cash flow.[22] as Moreover, the firm's has $1.6 billion in fixed-rate liabilities[22], whose value moves opposite to that of interest rates. In fact, the same increase in rates would boost Brookfield income by $13 million before taxes.[22] Also, though unrealized foreign currency exchanges were a liability of $36 million in 2006, BAM turned a $410 million profit in FY2007 in this category.[23] Moreover, rising interest rates correspond with lower real estate prices, as consumer spending falls. Lower property prices offer Brookfield to benefit in accumulating cheaper real estate/timberland to exploit but prevent BAM from maximizing profit on land and building sales. [edit] Adverse weather conditions hurt Brookfield timberland and hydroelectric operationsBrookfield's Power Generation and Development segments are both at the mercy of global weather conditions. In FY2006, BAM saw reduced returns due to a prolonged fire season as well as worse than expected weather conditions on timberland properties for the latter half of the year.[24] Not only is Brookfield's Development segment affected by bad weather conditions, but its Power Generation operations are vulnerable as well. For instance, over FY2007, water levels dropped by 10% on average[25] at BAM hydroelectric power plant locations, causing hydroelectric power generation to fall 7%.[25] In general, Brookfield, more than most asset managers, is subject to adverse weather conditions around the globe. [edit] Credit crunch conditions hurt Brookfield's outstanding loansBrookfield has two key refinancings due by 2009: a $1.9 billion loan against timberlands in the Pacific NW as well as a $1.6 billion loan against Multiplex, which BAM acquired in 2007.[25] Also, a 4Q2007 conference call lists the firm's corporate debt at $2 billion.[2] The 2007 credit crunch aftermath hampers the company's ability to efficiently refinance the loan by March of 2009. If the firm is unable to rework the payments on the outstanding loans, Brookfield must reach into its own assets to repay the large debts. However, the firm reports earning anywhere between $1.5 and $2 billion each year[2], perhaps cushioning Brookfield from the full blunt of these debts. [edit] CompetitionThough no asset managers totally match the distribution of assets of Brookfield, a few do overlap BAM operations. Such companies include the Vornado Realty Trust (VNO), SL Green Realty (SLG), and Boston Properties (BXP). Below is a relevant chart of Operating Metrics for these companies. Note the effect of the 2007 Credit Crunch and the Housing bubble on the trailing twelve month (TTM) returns statistics of the firms.
 Brookfield Asset Management2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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