Despite the numerous headwinds in the economy today – inflation, labor shortage, geopolitics, rising interest rates – Bruce Flatt isn't too worried about his more than $725 billion worth of assets.
For the last two decades, Flatt has been the CEO of Brookfield, growing it from a small Canadian industrial conglomerate to the second-largest alternatives firm in the world, behind Blackstone. And with a diverse portfolio that includes real estate, private equity, infrastructure, energy transition and credit and insurance, Flatt has a unique vantage point that spans a large swath of the economy.
He's not too concerned about the broader macro risks.
"If we have a recession, it's going to be a light recession," Flatt said in a rare and exclusive interview for this special edition of the Delivering Alpha Newsletter.
"We need to get inflation down around the world, and it's either going to come down naturally, over time, or the central banks are going to cause it to come down," he said. "What's important for us is that inflation is very impactful in a positive way for real assets."
He said that in buying real assets, the firm puts up a lot of capital upfront, so when inflation pops up, it impacts expenses to a smaller extent.
And he's not too concerned about interest rates rising and the impact on leverage in the system.
"All of these assets work really well at low-ish interest rates," he said. "We're going to have low-ish interest rates, we're not going to have as low as they were, but we're going to have low-ish rates, whether it's 3 percent on the Treasury, 4 percent on the Treasury, 5 percent on the Treasury – these assets that we own do really, really well."
Brookfield has been branching out from its more-industrial roots lately. The firm just raised a $15 billion energy-transition fund." Flatt said this doesn't mean the firm will be out of carbon-intensive businesses: "somebody has to do the hard work."
"What our job is, is to take the operating people we have, the capital we have and help companies transition from here to here," Flatt said. "Remember, we can't all be here, it can't all be renewables. So we need to help people transition their balance sheets across assets."
Brookfield is also being opportunistic in growth investing – a business it's been building, especially as valuations become cheaper.
The firm's venture fund intends to write its largest-ever equity check – $250 million – alongside Elon Musk to help finance his signed takeover of Twitter. Flatt declined to comment on the transaction, but said that the firm has had a "long relationship with a number of investments with Tesla and Elon, and therefore it emanated from that." He added that Brookfield's growth team "thinks [Twitter is] a good business."
Flatt is engaging in some large transactions of his own. The firm announced last week that it plans to spin off its asset-management business by publicly distributing 25 percent of it to shareholders. The move will divide Brookfield's business that manages assets on behalf of outside investors from those that are holdings from Brookfield's own investment capital. The spinoff will value Brookfield's asset management business around $80 billion.
Flatt said the transaction will help investors choose a more-focused security or they can buy both. And it also affords Brookfield a currency to pursue more asset-management-related acquisitions, he said.
"Having a security that is the exact same as what we would be purchasing could be additive in the future," he said.
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