No. of Recommendations: 8
Current BN price of 31.50 is a 29.49% discount to even the most conservative valuation method. Comparing to Plan Value results in an even more absurd gap. How can this be? What are we missing?I'm not sure we're missing anything. Companies in this space are being hammered across the board. The conventional wisdom today, as expressed in the financial press, is that private equity has been slow to write down the value of its investments, even as public equity quotes have fallen quite dramatically. From The Economist earlier this month:
It is those high-fee private investments that deserve scrutiny. The performance of private assets has been much vaunted. By one estimate private-equity funds globally marked up the value of the firms they own by 3.2%, even as the s&p 500 shed 22.3%.
This is largely a mirage. Because the assets of private funds are not traded, managers have wide discretion over the value they place on them. They are notoriously slow in marking these down, perhaps because their fees are based on the value of the portfolio. However, the falling value of listed firms will eventually be felt even in privately owned businesses. In time, investors in private assets who thought they had avoided the crash in public markets will face losses, too.https://www.economist.com/leaders/2022/12/08/inves... (subscription required)
I was recently reading the report of a state investment council that included a chart reflecting its rolling 10-year net internal rate of return from investments with a private equity manager. It grew from negative 0.5% in 2013 to positive 6.8% by 2019 in nearly a straight line upward. Since then, the line on the chart has rapidly descended the other side of the mountain, to a rolling 10-year IRR of 3.8% most recently.
It is worth noting that the terms 'private equity' and 'alternative assets' are used almost interchangeably in the financial press, which is like using 'butter' and 'dairy products' interchangeably. This helps to explain the disproportionate shellacking Brookfield is currently taking in the public markets. Traditional private equity deals are a small part of its business. Real estate, credit and infrastructure investments each play a larger role. In general, these are less volatile places to invest than the equity of public and private companies. It seems that Brookfield's range of dairy products is being treated as if it were all butter.
That just means we may be at the beginning of a propitious period to launch or add to a long-term investment for those with stomachs strong enough to do it.
