No. of Recommendations: 19
Most participants on this board are familiar with the origin stories of Berkshire Hathaway and Brookfield. They're pretty different -- a failing New England textile operation that pivoted to insurance, growing into the biggest, most successful conglomerate in the world, and an owner/operator of hydroelectric power plants on two continents that grew into one of the world's largest alternative asset managers.
But the sheer size of their capital reservoirs -- in Berkshire's case its own cash, in Brookfield's assets under management -- has brought an interesting convergence reflected in Berkshire's announcement today that subsidiary Berkshire Hathaway Energy bought out Dominion Energy's 50% stake in a Maryland natural gas liquefaction plant for $3.3 billion.
The purchase leaves BHE and Brookfield's infrastructure subsidiary the only remaining partners in the Cove Point pipeline, liquefaction plant and associated export terminal. BHE owns 75%, BIP 25%. A BHE sub was already the general partner and operator of the facility.
https://www.brkenergy.com/news/article/brknews_cov...Cove Point is one of just seven liquid natural gas export facilities in the U.S., which has only recently gone from a net importer to net exporter of LNG. The war in Ukraine and sharp curtailment of natural gas sales from Russia to Europe has created a surge in demand for U.S. liquid natural gas exports. Reuters reports Euro commitments to buy have U.S. banks ready to finance construction of three new LNG export terminals.
Berkshire and Brookfield are now among a relatively small set of investors with operational expertise in the changing energy business, enthusiasm for investing in it, and the ability to write 10- and 11-figure checks in Berkshire's case, and the ability to pool investor capital to generate similar sums in Brookfield's. It would not be surprising if they find themselves partners in or competitors for other energy infrastructure assets in the future.
They arrived in the space by rather different routes.
In Berkshire's case, the resort to energy infrastructure and railroads stemmed from an inability to find other places to invest its prodigious cash flows at attractive rates of return. For years, Warren Buffett described his job as elephant hunting, seeking to add multi-billion-dollar companies to the Berkshire stable. He found one in Burlington Northern, Berkshire's big splash into the railroad business. But subsequent attempts -- Lubrizol, Precision Castparts -- have not moved the needle the way BNSF did.
By contrast, the relatively modest acquisition of a Midwestern utility, in heir apparent Greg Abel's hands, has grown rapidly into a major player in the energy infrastructure space, able to deploy almost unlimited capital at predictable rates of return. BHE now has large capital deployment plans decades into the future.
Brookfield came at the energy infrastructure space from two directions. Its original hydropower business served as the basis of a renewable power subsidiary, which expanded into wind and solar. Its infrastructure business moved into more traditional energy investments like pipelines and transmission networks.
Both companies have found a need to deploy very large sums -- Berkshire from the cash flows of dozens of wholly-owned businesses, Brookfield from assets under management that soared toward $1 trillion during a decade of near-zero interest rates following the great financial crisis.
Another area of convergence is insurance, Berkshire's bread and butter and a new venture for Brookfield. Brookfield is growing its nascent insurance business rapidly through acquisition, in much the way Berkshire is growing its energy infrastructure business.
Being awash in capital seems like a nice problem to have, especially at a time in when public debt has swelled. What used to be public investments are increasingly shifting to private hands.
There is some skepticism in the market about the future growth of alternative asset managers in world of normalized interest rates, so it will be interesting to see if this convergence continues.
