Bill Ackman, the chief executive officer at Pershing Square Capital Management shown speaking at a conference in 2017, says he believes Brookfield still flies under the radar in the U.S.RICHARD BRIAN/Reuters
Billionaire New York investor Bill Ackman has built a $2.6-billion stake in Toronto-based Brookfield Corp. BN-T that is now the second-largest position held by his hedge fund, Pershing Square Capital Management.
The fund started buying stock in Brookfield – the parent company of Brookfield Asset Management Ltd. BAM-T, which manages more than US$1-trillion of assets – in April this year. By the end of June, Pershing had acquired 6.8 million shares, and its stake then ballooned to 32.7 million shares – or nearly 2.2 per cent of the company – as of Sept. 30, according to public filings.
The new investment by Pershing Square is a bet on Brookfield as a major owner and operator of assets that can be considered critical infrastructure – what Brookfield chief executive officer Bruce Flatt likes to call “the backbone of the global economy,” which includes data centres that power artificial intelligence, renewable energy sources and the global shipping industry that underpins supply chains.
The Brookfield stake accounts for 10.6 per cent of Pershing Square’s holdings, and is now larger than its investments in household names such as hotel owner Hilton Worldwide Holdings Inc., fast-food chain Chipotle Mexican Grill Inc., Tim Hortons owner Restaurant Brands International Inc. and Google parent Alphabet Inc.
A Brookfield spokesperson declined to comment.
Mr. Ackman told investors on a Thursday conference call that his interest in Brookfield dates back more than a decade to work he did with the asset manager to restructure bankrupt shopping mall owner General Growth Properties, which was ultimately one of Pershing Square’s best investments. Mr. Ackman said he worked “very, very closely” with Mr. Flatt and Brookfield’s long-time private equity head, Cyrus Madon.
He and Mr. Flatt didn’t always see eye to eye. “There were times where our interests were entirely aligned, and there were times where our interests, I would say, were disparate,” Mr. Ackman said on the call.
“But it was one of the most satisfying and successful experiences I’ve had working with another management team of another investment firm,” he said. “And so that was really the beginning of, I would say, a relationship and respect for Brookfield.”
Pershing Square is also banking on Brookfield being a beneficiary of Donald Trump’s second term as U.S. president, which is expected to feature reduced regulation and a friendlier approach to large corporations. And Mr. Ackman predicts that Brookfield Asset Management’s fee-related earnings will nearly double by 2028, funnelling a steady stream of cash to parent Brookfield Corp., which he thinks is undervalued relative to large industry peers.
Brookfield Corp.’s stock is up more than 40 per cent since Pershing Square started buying its stake in April, and climbed by 1.3 per cent to close at $81.45 on Friday on the Toronto Stock Exchange. But Mr. Ackman is gambling that it still has plenty of room to rise.
“We anticipate shares are poised to more than double over the coming years,” Pershing Square partner Charles Korn said Thursday, and the comparison to Brookfield’s peers “would imply very significant valuation upside.”
Pershing Square estimates that Brookfield is trading at roughly 15 times earnings, while KKR & Co. Inc. trades at 27 times and Apollo Global Management Inc. at 22 times.
Pershing Square thinks Brookfield still flies below the radar with some U.S.-based institutional investors, despite its size, and “that this is an issue that Brookfield’s management team is taking steps to address,” Mr. Korn said.
Brookfield recently moved the head office of Brookfield Asset Management to New York as part of a revamp of its corporate structure. The asset manager’s chief financial officer, Hadley Peer Marshall, told investors at a September presentation that the company was responding to feedback from a number of shareholders who urged it to focus on increasing the liquidity of Brookfield Asset Management’s stock, and gaining inclusion in prominent U.S.-based and global stock indexes.
Mr. Ackman said that at a time when index funds often own 25 per cent of large companies, inclusion in the S&P 500 index – the two Brookfield companies still aren’t members – is “a critically important driver of valuation, for achieving sort of the upper band of valuation for U.S.-listed companies.”
By being ineligible, “I would say you’re kind of missing the boat, so to speak,” he said. “And Brookfield is certainly aware of this issue.”