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The rules of investing haven’t changed, but half of today’s essential infrastructure (data centers, renewable energy, cell towers) didn’t exist as investments 20 years ago.
Bruce Flatt, CEO of Brookfield Asset Management, reveals how his firm built a trillion-dollar empire by buying real assets that society depends on. They focus on three unstoppable trends: digitalization, energy transition, and deglobalization.
While others chase quick returns, Brookfield waits for the right opportunities, structures deals to minimize risk, and steps in when public markets undervalue great companies, then takes them private.
The opinions shared on this podcast belong solely to those expressing them. Hosts and guests may hold positions in the securities discussed. This podcast is intended to provide general information only and should not be considered financial advice.
Key takeaways
- The fundamentals of investing remain unchanged: buy great businesses, hold them long-term, and earn cash returns. But passive indexing has created massive pricing dislocations between market price and underlying asset value.
- 50% of Brookfield’s current infrastructure investments didn’t exist as an asset class 20 years ago because governments stopped building, and private enterprise took over delivering the world’s digital backbone.
- Solar and wind are now the lowest-cost power sources globally, making the energy transition economically inevitable regardless of environmental concerns, as consumers will always choose cheaper power.
- Success in investing isn’t about exceptional short-term returns but earning reasonable returns over very long periods. Brookfield achieved 19% annualized returns for 30 years, turning $1,000 into $200,000.
- Investment committees should focus almost entirely on downside protection because upside takes care of itself; whether you earn 16%, 22%, or 29% matters less than avoiding permanent capital loss.
- The AI revolution’s clear winners are major tech companies, but the unknown winners will be industrial businesses that successfully apply AI to reduce labor needs by 30% or more.
- America has unprecedented advantages in energy, capital, and technology dominance. It’s the only country with leadership in oil, gas, solar, wind, nuclear, capital markets, and tech giants.
- Private ownership eliminates the distraction of daily price movements, allowing management to focus purely on business fundamentals rather than stock market volatility.
- Brookfield structures every deal with asset-level, non-recourse financing, so no single investment failure can threaten the parent company, enabling it to walk away from bad deals.
- The future of alternative investments lies in retail markets as 401(k)s open up to private assets, replicating the institutional shift from 0% to 50% alternatives over 25 years.
- Great organizations combine passionate young talent who understand new trends with wise older leaders who recognize cycle patterns. Brookfield promotes people to CEO roles in their 30s.
- When markets dislocate, the first priority is ensuring you were prepared during good times; the second is keeping everything intact to capitalize on distressed opportunities.
How Investing Has Changed Yet Stayed the Same
Flatt opens by addressing the paradox of modern investing: while fundamentals remain identical to decades ago, the investment landscape has transformed dramatically.
The core principles (buying great businesses and holding them for cash returns) haven’t changed. What’s different is that passive indexing now dominates public markets, creating massive disparities between price and value for companies that don’t fit neatly into indexes.
The most striking change is that half of Brookfield’s current investments in backbone infrastructure didn’t exist as an asset class 20 years ago. These aren’t venture capital moonshots but essential services: delivering water, tolling roads, powering homes, and running data centers. This shift occurred because governments stopped building infrastructure while private enterprise stepped up to digitize the world. Every piece of digital infrastructure, from data centers to fiber networks to telecom towers, is now built with private capital serving 8 billion people globally.
“50% of the backbone of what we own today did not exist as an asset class for investment 20 years ago.”
The Passive Investing Opportunity Machine
The rise of passive investing has created unprecedented opportunities for active managers like Brookfield. When companies don’t fit indexes, they can trade at massive discounts despite strong fundamentals. Brookfield capitalized on this by taking a $6 billion container shipping company private; it had one analyst covering it, fit no indexes, and traded far below intrinsic value.
Private ownership offers distinct advantages over public markets. Management can focus purely on business fundamentals without the distraction of daily price movements. Flatt emphasizes that most public companies don’t actually need capital markets access; they’re only public because they need ownership liquidity. The price volatility becomes a harmful distraction when nothing has changed in the underlying business. Private assets perfectly match institutional investors’ needs: predictable cash flows without market noise.
“Markets are never efficient. Very seldom do they ever trade at the actual value of securities.”
Three Megatrends Reshaping Global Infrastructure
Brookfield invests around three dominant themes that will define the next decades. First, digitalization and AI are driving trillions in infrastructure investment. While everyone focuses on ChatGPT, the real money will be made by applying AI to industrial processes through advanced robotics. Early results in Brookfield’s battery manufacturing business show productivity improvements of 30% possible across their 25,000-person, $9 billion cost structure.
Second, the global energy transition is economically inevitable because solar and wind are now the cheapest power sources in most countries. This isn’t about environmental ideology; it’s pure economics. Natural gas serves as the critical bridge fuel, especially for baseload power, and is replacing coal globally. The US has become an energy superpower across all five sources: oil, gas, solar, wind, and nuclear.
Third, deglobalization is driving manufacturing back to Western markets. COVID exposed supply chain vulnerabilities, geopolitical tensions accelerated the shift, and AI-powered robotics will eliminate the labor cost advantage that originally sent production to Asia. With potential tariffs, this repatriation will only accelerate.
The Coming Productivity Revolution Through AI
Flatt provides concrete examples of AI transformation across Brookfield’s portfolio. Their healthcare authorization business now provides agents with dramatically enhanced information when approving procedures. Their battery manufacturing process utilizes AI across 20 plants, employing 25,000 workers to perform repetitive tasks. The pattern recognition and optimization potential is enormous.
The early winners in AI are already clear: major tech companies have the data, models, and capital to dominate. The unknown winners will be industrial companies that successfully integrate AI to slash labor requirements. Plants that relocated to Asia for cheap labor can return to demand markets as robotics shrink the workforce needs. Flatt emphasizes they’re only in the first inning of this transformation, and any company not starting now should begin immediately.
“The productivity advances we see over the next 20 years probably will be unprecedented.”
Real Estate’s Flight to Quality
The real estate market has fundamentally bifurcated between commodity properties and premium assets. Industrial real estate transformed from simple storage to complex logistics supporting home delivery. Retail evolved from pure shopping to experiential destinations. People order paper towels online but visit malls for dining and entertainment.
The key insight: own only the top 25% of any property class. Commodity office, retail, industrial, and hotel properties all struggle while premium properties thrive. COVID and the 400-500 basis point rate increase disrupted markets, but Flatt sees the worst as clearly behind them. The fundamental issue isn’t property quality but overleveraged capital structures that can’t handle current financing markets.
Nuclear Power and the Data Center Bottleneck
Data center demand is insatiable but constrained by power availability and permitting timelines. Brookfield only builds pre-leased facilities, typically contracted for 20 years before breaking ground. Their competitive advantage comes from integrating vast real estate holdings with power generation capabilities and existing data center operations.
Nuclear will grow as baseload power while batteries increasingly handle grid stabilization and time-shifting between solar (daytime) and wind (nighttime) generation. The permitting process ensures disciplined buildout—even sites with existing power access won’t come online for years. This natural throttle prevents the overbuilding that typically plagues infrastructure booms.
Risk Management Through Asset-Level Financing
Brookfield’s approach to leverage is methodical: apply prudent, fixed-rate debt at the asset level with no recourse to the parent. Every property and business has standalone financing, creating natural firewalls between investments. If a deal fails, they can walk away without endangering the broader organization.
Flatt emphasizes a crucial distinction: they don’t borrow at treasury rates—only governments do. What matters is the all-in coupon (treasury plus spread). During COVID, when rates hit zero, lenders simply widened spreads to maintain returns. Today, with higher base rates, spreads have compressed to historic lows. Their recent 30-year corporate bond was priced at just 125 basis points over treasuries.
“Our reputation with lenders is that we’re one of the best sponsors because we support our businesses.”
America’s Unprecedented Triple Dominance
The United States has achieved something no other nation possesses: simultaneous dominance in energy, capital markets, and technology. No country matches America’s tech giants, capital market depth, or energy resources across oil, gas, solar, wind, and nuclear. This triple advantage, combined with entrepreneurial culture and massive GDP, gives America an exceptional growth runway.
Manufacturing will return as robotics eliminates labor arbitrage. The combination of these factors, along with potential tariffs, accelerates industrial repatriation. China will thrive independently as a 1.5 billion-person consumer economy, but countries dependent on outsourced manufacturing may struggle as production moves closer to consumption.
The Insurance Company as Investment Vehicle
Brookfield entered the insurance sector five years ago, not to become an insurer, but to access permanent capital for their investment expertise. They focus on low-risk annuities, massively overcapitalizing the business with $17 billion in equity supporting $120 billion in assets. This overcapitalization allows them to own alternatives, real estate, and high-yield bonds that typical insurers can’t hold.
Their unique advantage: when Brookfield owns half a building and the other owner sells cheaply, their insurance arm can buy at that distressed price with perfect information. They’re expanding from US annuities to UK pension risk transfers—taking over corporate defined benefit plans entirely. This 25-year venture is only five years old.
Building a Meritocracy That Takes Big Bets on Youth
Brookfield operates as a pure meritocracy where ownership stakes disappear when partners leave—no family legacies allowed. They deliberately combine wise older leaders who recognize patterns with aggressive young talent who understand emerging trends. Connor Teskey, named the next CEO of asset management at 37, exemplifies their willingness to bet on youth.
The culture emphasizes learning through osmosis in an open floor plan where even Flatt has no office. Investment committees focus entirely on downside protection because “upside takes care of itself.” They encourage small mistakes for learning but have avoided major errors through disciplined, incremental decision-making. Post-mortems on failures identify whether issues stemmed from execution, timing, or a flawed investment thesis.
“A cross between wise older people and smart young people gives you gravitas and speed.”
Complexity as Competitive Advantage
Critics call Brookfield’s structure overly complex, but Flatt argues each piece serves a specific purpose that enhances long-term value. Spinning off Brookfield Asset Management created a pure-play vehicle for investors wanting only asset management exposure. The parent company can evolve and change while specialized vehicles remain stable.
Could they simplify? Yes, but it would reduce returns and increase financial risk. The current structure provides maximum flexibility to navigate opportunities and challenges. Each entity exists for deliberate reasons that contribute enormous long-term value, even if requiring more explanation to investors.
The Trillion Dollar Perspective
When asked about deploying a trillion dollars, Flatt almost dismisses the magnitude. Recent deals include $20 billion for Deutsche Telekom towers, $13 billion in Microsoft power plants, and $32 billion for an Intel semiconductor fab. These backbone infrastructure investments consume massive capital while earning steady, long-term returns.
The philosophy is deliberate: promise moderate risk with good returns over long periods. They won’t shoot for 45% annual returns because success comes from reasonable returns compounded over decades. Berkshire Hathaway exemplifies this—deploying capital at reasonable returns for extended periods creates extraordinary wealth. The key isn’t making quick money but earning consistently over very long timeframes.
Resources
- The Snowball (Book)
