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Brookfield billionaire flat reveals the secret behind 3,700% return

(Bloomberg) — Bruce Flatt, the head of one of the world’s largest alternative-investment companies, encourages his employees to make small mistakes every day.

“That means we’re testing the limits of where we should go,” the CEO of Brookfield Asset Management Inc. said in an episode of “Bloomberg Wealth with David Rubenstein.” “Just don’t make a huge mistake.”

The 56-year-old flat has headed Toronto-based Brookfield since 2002, increasing its assets under management to nearly $700 billion. He says the company’s share price reflects the mantra of taking chances but avoiding major errors: The firm’s shares, including dividends, have returned flat more than 3,700% since taking over. This compares with about 500% for the S&P 500 Index.

Brookfield focuses on infrastructure investments such as toll roads, utilities and real estate. Unlike many private equity firms, it uses its own balance sheet to make investments with clients. He hired former Bank of England governor Mark Carney last year to bolster his environmental, social and governance business and has raised nearly $15 billion in funding to help companies and utilities decarbonise.

The company is also adding more wealth products for individual investors. Last year it launched its own private real estate investment trust after handling a portfolio of properties overseen by a subsidiary of Oaktree Capital Management. Flatt said the firm plans to build similar vehicles for infrastructure and renewable energy.

Global inflation isn’t necessarily true for Brookfield because its business and real assets can adjust revenue higher over time, Flatt said.

“Inflation is really a positive for most of the things we do,” Flatt told Carlyle Group Inc. co-founder Rubenstein on Bloomberg TV. But “if interest rates get out of control and rise too much, that changes the paradigm.” It is an outcome he fears but does not expect to happen.

A Winnipeg native, Flatt grew up playing hockey before studying accounting at the University of Manitoba. He took a job at Brookfield in 1990 and later moved into real estate after the company bought Olympia & York, the developer that built London’s Canary Wharf and the World Financial Center in New York before it went bankrupt.

At age 29, Flatt was named head of real estate in Brookfield and became CEO nearly seven years later. According to data compiled by Bloomberg, he has a stake of about $3.5 billion in the company.

Flatt divides his time between London, where he lives, and New York when he does not travel to visit clients or other offices. He spoke with Rubenstein about why Brookfield has avoided direct investments in Russia and Ukraine, where he has invested $100,000 today, the best investment advice he has ever received, and he is a fan and regular of the London Underground. How are the users.

The interview has been edited and condensed.

For more information from the biggest names in investing, see “Bloomberg Wealth with David Rubenstein.” Flatt’s interview airs April 5 at 9 p.m. ET.

Let’s talk about the current investment climate. Russia has invaded Ukraine. Are you involved in Russia or Ukraine?

Even though we are global, we do not have to be everywhere. We generally do not sell consumer products. Maybe some businesses do, but we don’t.

We need the rule of law in a country, a culture of respect for capital, a place big enough to invest in and we can operate with standards in America, for example. And those two countries, for whatever reason, weren’t suited to either of those things. And so we don’t have direct investment.

But every business around the world is going to be affected in some way or the other, so no good news is coming out of it.

In the US, inflation is roaring at a relatively high rate compared to the past 30 years or more. Is inflation a big concern for you?

We invest in alternative investments. We have businesses or assets that adjust their revenue over time. We do not have fixed income instruments.

So inflation is really positive for most of the things that we do. If it cost X to build this office building today and come inflation, it would cost X plus something, meaning the rent is high enough to justify a new building.

The real issue is interest rates. If interest rates get out of control and rise too high, it changes the paradigm of businesses. We don’t think that is going to happen.

What does Mark Carney bring to your firm? Why do you need a central banker in Brookfield?

We have known Mark for a long time. He is a special person. In addition to being a macroeconomist and central banker, he is passionate about transitioning to reducing carbon in the world. And we brought him in to help put together a strategy and a fund.

We are in the middle of closing a $15 billion fund. It’s exciting for him to be able to adapt his strategy and invest from it. But I think it is good for the global economy as well.

What kind of companies are you looking for, which will be transferred through this fund?

These will be our traditional renewable businesses: solar, wind. More importantly, many companies, especially power companies, need to replace fossil fuel production with renewable energy. We’re going to help companies and their balance sheets, because they can’t just raise money, to be able to shut down coal.

You’re trying to get great rates of return out of it, aren’t you?

Yes, we should earn excellent rates of return. The good news about this is that we are going to be able to do great things for the world and earn excellent returns on capital.

Do people come to cocktail parties and say, “I want to invest with you, but I don’t know whether I should invest in your stocks or one of your funds?”

Yes, that’s what people often ask me. And I tell them: “Anything that has a B in front of it. Anything that has Brookfield in front of you, you should invest in that. We’re going to take care of you if you do.”

What are the biggest challenges in running a company like yours? What do you worry about the most?

Everyone always thinks about geopolitical events, and one needs to be careful in everything one does. But in the fullness of time, all geopolitical events pass. Wars, explosions, recessions – all these things, they come and go. And they’re really important at that point, but in the fullness of time, if you have good businesses in great places and continue to compound returns, you’ll earn excellent long-term returns.

You seem like a low key person. What if you lose money on something? Do you yell and yell at people? Do you fire them, or do you have someone else who does?

I’d say the culture of our place is to try to make as little mistakes as possible, which means you’re testing windows every day, but don’t really make a big mistake. People are encouraged to make small mistakes. And that’s a good thing. This means we are testing the limits of where we should go.

Have you ever made a big mistake that really hurt this company?

We’ve made a lot of small mistakes, but you can’t compound at 17% for 30 years or 20% p.a. for 20 years, and make any big mistakes. It’s impossible.

What’s the logic of giving money to someone like you as opposed to an index fund?

If one has very little knowledge of investing, then owning a passive index fund in equities is probably the right thing to do. Put your money in, don’t sell. Just put it in and let it mix for a long time. If you have the ability to meet people who can provide you products and you trust them, the money should go to products like ours.

What is the biggest concern to you with the private investment business? Anything keeping you up at night?

There are two things: inflation like 1970, which I don’t think we will have, or interest rates in the United States at 8%, which I don’t think we will have.

Those two things are macro things we can’t control. But if those two things happen, it changes the paradigm of what you should do with your capital.

What is the best investment advice you have ever been given?

compound interest. The combination of returns is an incredible marvel of business, finance and human existence. Everything you learn every day is additive. And if you keep at it and don’t give up, that’s an incredible miracle.

What do you think is the biggest mistake the average investor makes?

Selling at the wrong time. Just keep on Put your money in the market. Do not sell.

What would you tell the average investor who says, “I have $100,000 to invest?”

If you want to stay in the markets, buy shares of Brookfield. If you want less risk and more reasonable returns, put it in one of the products we offer across Wealth Channels. Or we have an NTR (Non-Trading REIT). They can keep it there, and it will earn a fair return over time. It owns large real estate.

Many people know the CEO of Apollo, Carlyle or KKR, but you are not that famous. Is this a conscious strategy?

It stems from how the business operates and who you are. And it’s not better or worse. It’s just a little different. The focus is always on business.

If you go to a restaurant and they say, “We don’t know who you are. You’re standing in line,” doesn’t it bother you?

I book on OpenTable.

Someone told me that you actually take the metro system. Most CEOs are not in the metro.

The most efficient way to get around London in particular is the Underground, so I take it all the time. In New York, it is efficient in some form, but not that much.

Does someone recognize you on the Underground and say: “Hey, you’re the CEO of Brookfield. You shouldn’t be doing that. You must have a car and a driver?”

These days when you have a mask, it’s a big advantage that no one recognizes anyone.

To contact the author of this story:
Steven Crabill in New York [email protected]

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