Brookfield Corporation has been reworking its business with the goal of becoming an investment-led insurance company.
Investors are likely well aware of the model, since it is the same one that Berkshire Hathaway uses.
Brookfield Corporation (NYSE: BN) has an over 125 year history of investing its own money and investing on behalf of others. While it may not be a business that many investors know about today, like Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), it is one that you will want to get to know. Here’s what I’m watching at Brookfield Corporation to see if it beats the market.
Brookfield Corporation isn’t hiding its aspirations. It wants to operate more like Berkshire Hathaway and Berkshire clone Markel (NYSE: MKL). Both of those businesses are insurance companies, but they have a unique focus on investing. Effectively, Berkshire and Markel use the premiums they collect to fund their investments. It has been a highly successful business model for both companies, with each of them handily outpacing the S&P 500 index over the long term. That’s why Brookfield wants to travel down this path, too.
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Becoming an investment led insurance company has been a process, but the foundation has been set at this point. The company’s goal is to grow distributable earnings by 20% or more a year over the next five years. That’s a tall order and one that investors should watch closely. If Brookfield Corporation can live up to that goal it is highly likely that it will be able to beat the market.
The company is focused on five investment categories: infrastructure, renewable power, real estate, private equity, and credit. These are all areas that Brookfield Corporation believes will be important for global growth for years to come. And it has a presence in over 50 countries around the world as it looks to invest in these areas. The foundation for growth is strong.
It won’t be hard to track the company’s results. Currently the company has around $180 billion in its own capital to invest, $135 billion in insurance assets, and $1 trillion in assets under management at investment firm Brookfield Asset Management (NYSE: BAM). While it isn’t reasonable to expect those numbers to rise every year, the company’s ability to meet its long-term goals requires its asset base to steadily grow. In fact, that is the proof that Brookfield Corporation is succeeding, since strong investment returns will likely be the primary driver of the growth of the company’s asset base.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Brookfield, Brookfield Asset Management, Brookfield Corporation, and Markel Group. The Motley Fool has a disclosure policy.
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