No. of Recommendations: 7
We can't conclude much from just one metric. Nevertheless, FWIW, at least in this set of numbers, I don't see clockwork or Madoff!They have trained the analysts, not unreasonably, to focus on DE before realizations because dispositions vary widely from year to year based on market conditions, as the bouncing DE numbers reflect. DE before realizations represents the picture they paint of profits from ongoing operations:
2018 2133
2019 2197 3%
2020 2687 22%
2021 3467 29%
2022 4314 24%
2023 1958*
*first half of the year, roughly equivalent to comparable 2022 number
I recommend watching the Madoff series on Netflix.To offer a dissenting view, I would say these dramatizations, including the movie with Robert DeNiro and Michelle Pfeiffer, are heavy on the elements that make for general entertainment and light on the details someone trying to understand the anatomy of the fraud needs. The best source material I found is the book the movie is (very loosely) based on: The Wizard of Lies by Diana B. Henriques. It is understandable, I suppose, if you sign and pay big stars like DeNiro and Pfeiffer to be in your movie that you would make it a soap opera all about them, but it's unfortunate they took the name of the book, which is the most thorough journalistic deconstruction available. The Netflix "doc" is full of shadowy pictures of an actor pretending to be Madoff, in the current style of reconstructed crime stories, but I didn't find it very helpful in exploring the key turning points of the saga.
While we're reviewing skeptical angles on Brookfield, another thought: One prism through which BN might be comparable to Enron is the quality of earnings issue. Although most analysts went along with Enron's accounting "innovations" in order to get along, as analysts do, over time a few began to highlight quality of earnings issues based on the off-balance-sheet vehicles. Near the end, management was still contriving decent numbers, but the market wasn't buying them and the stock price, upon which so much of the fancy accounting relied, began to fall.
The rather dramatic undervaluation of BN, especially since the BAM spinout, can be attributed to many factors, among them the large real estate portfolio, a complexity discount or a conglomerate discount. Another possibility is a quality of earnings discount. In the Southern Investigative Reporting Foundation investigation published 10 years ago, the main thesis was a low or undeterminable quality of earnings owing to related-party transactions, non-cash earnings and difficulty confirming stated values of private assets. Most of the other alt managers are pretty near their 52-week highs. BN is not. Again, lots of potential explanations, and if it is back to its highs when the real estate cycle turns, the heavy CRE balance sheet exposure will probably be the best explanation. But if the market is skeptical of BN's quality of earnings, that could explain the divergence from the rest of the sector too.
