Lessons from a lifetime of investing and outperforming | Bruce Flatt

KEYPOINTS

• 01

  Investing fundamentals haven’t changed; the environment around them has.

  Flatt’s definition is unchanged after more than two decades as CEO: buy great businesses, hold them a long time, earn cash returns. What has changed are two things. First, indexing and passive investing now drive how public securities trade. Second, about 50% of what Brookfield owns today—the backbone of the economy, like water, roads, power and data centers—didn’t exist as an investable asset class for investors like them 20 years ago.

• 02

  Private money now builds the backbone governments used to build.

  Governments aren’t so much privatizing as simply not investing, so private capital fills the gap. A podcast streamed on a morning run touches a data center, fiber, a tower and wireless—delivered to 8 billion people, almost entirely by private enterprise. Brookfield, for example, bought a large share of India’s telecom towers originally built by Reliance Jio.

• 03

  Passive investing creates gaps between price and value that private buyers can exploit.

  Every problem is an opportunity. Big tech stocks that every index must own trade at high multiples, while small and mid-size companies that don’t fit indexes may have no buyers. Brookfield took private a $6 billion container shipping company that had one analyst and fit no index, and it ‘has been an exceptional investment.’ Flatt rejects market efficiency: securities very seldom trade at their actual value.

• 04

  Private ownership removes the distraction of the share price.

  Most listed businesses never issue equity, so their trading price is irrelevant and often a distraction. Picture a tower business yielding 6% and growing 4% a year with little reinvestment: privately, you watch cash flow and improve it. Publicly, it can go from $20 to $10 overnight with nothing changed, prompting rash decisions. Flatt says that is why alternatives grew over 25 years—they match what institutions want, minus the noise.

• 05

  AI’s known winners are big tech; the unknown winners will apply it to operations.

  Telling you to buy Google isn’t helpful, Flatt says. The real money will be made applying AI and AI-trained robotics to service and industrial processes, especially where companies can’t find enough workers. Shrinking labor content could bring high-value plants back from Asia to where demand is. He expects productivity gains over the next 20 years to be ‘probably unprecedented,’ though incremental—‘nobody ever flips a switch.’

• 06

  Low-carbon energy wins on cost, not ideology.

  Solar and wind are now the cheapest power in most countries, so even people who don’t care about carbon will choose them because nobody wants to pay more for power. Oil goes to cars, planes and chemicals, not power. U.S. natural gas is a bridge fuel at home, a long-term fuel abroad replacing coal, and a lucrative LNG export. Batteries and nuclear will increasingly provide base load and smooth the day-night mismatch of solar and wind.

• 07

  Data centers aren’t overbuilt because permitting and power take years.

  Most buildable sites are already contracted for 20 years, and even a new site that already has power will be years away. Brookfield doesn’t build data centers speculatively; like a pre-let office tower, it builds against contracts.

• 08

  Deglobalization is re-industrializing Western countries.

  COVID exposed firms whose manufacturing was stuck in China; Asia–West tensions and tariffs accelerate the shift. China, with 1.5 billion people becoming a consumer service economy, will be fine, but countries still reliant on outsourced manufacturing may struggle. Flatt sees the U.S. with dominance in energy, capital and technology—across oil, gas, solar, wind and nuclear—giving it a strong runway.

• 09

  Finance asset by asset, fix rates, and remember you borrow at treasury plus spread.

  All debt is non-recourse single-asset financing spread over long durations, so problems are handled one at a time. When treasuries went to zero in COVID, lenders widened spreads from about 200 to 350 basis points, so all-in coupons barely fell—from about 5% to 4.5%. Today base rates are higher but spreads are at record lows: Brookfield just did 30-year fixed debt at 125 over. Flatt calls current rates ‘pretty normal.’

• 10

  Investment committees focus almost entirely on downside.

  Whether a deal targets 16%, 22% or 29% doesn’t matter—‘upside will always take care of itself.’ The questions are what can go wrong, how bad it could get, and how to respond. Make small mistakes, never big ones. A top committee of six to eight allocates across the firm so everyone isn’t making a massive bet on the same cycle unknowingly. The worst mistakes are flawed decisions in adjacent areas they didn’t understand; mistiming the market is forgivable.