Brookfield moves headquarters to New York to chase US index inclusion

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Toronto-based investment management company Brookfield Asset Management Ltd. has moved its head office to New York in a bid to broaden its investor base to include passive institutional investors that collectively manage trillions of dollars.

The move was announced as part of a wider corporate restructuring, which is to be voted on at a special meeting of Brookfield Asset Management shareholders on Dec. 20. If approved, BAM will own 100 per cent of the asset management business, with Brookfield Corp.’s current 73 per cent interest held directly by owning approximately the same percentage of the publicly traded shares of BAM.

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The companies said the plan would not affect the operations or strategic plans of either and would have no effect on the tax treatment of their dividends. 

BAM invests globally through a number of funds and specializes in alternative assets such as infrastructure, real estate, energy and credit. It has approximately $1 trillion of assets under management.

Brookfield Corp. said the new arrangement, to be put in place early next year if approved, would simplify the corporate structure of the asset management business, “making it easier for investors to understand and value the security.”

Another reason for the manoeuvre is “broader index inclusion,” which would increase ownership of the class A shares by passive institutional investors.

“Further, inclusion in the most widely followed indexes is expected to increase BAM’s visibility among a much broader universe of active public investors who benchmark against these indexes,” the company said in a statement.

It also said BAM’s market capitalization would reflect the total value of the asset management business following the restructuring. 

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“Today, that would be approximately $85 billion based on the current stock price of the BAM class A shares, compared to BAM’s current market capitalization of approximately $23 billion, which reflects only 27 per cent of the asset management business,” the company said.

A fairness opinion by KPMG LLP said the fair market value range of the common shares of the asset management company was in the range of $46.35 to $51.67 as of Oct. 31, 2024, and the fair market value of the class A shares was in the range of $46.43 to $51.63. It concluded the arrangement was fair from a financial point of view to BAM’s public shareholders.

Peter Haynes, head of index and market structure research at TD Cowen, said it isn’t surprising that executives at some Canadian issuers and their shareholders want to “chase index inclusion in the U.S. for its large pot of gold … that is earned upon inclusion in primary U.S. indexes.”

He said that changing the location of a company’s headquarters to gain such access is much easier than changing where it is incorporated, which has caused organizations such as S&P Global Inc. to consider what criteria makes sense to use for index inclusion.

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An “HQ can change with the stroke of a pen, but changing incorporation is a much more involved and, in most cases, costly process,” Haynes said in a note on Sept. 30. “We think S&P and other important index providers should always preference incorporation.”

In a note on Sept. 11, shortly after Brookfield Asset Management executives at a company investor day said that moving their headquarters to the U.S. would have “no downside and only upside,” Haynes predicted it would likely trigger inclusion in some domestic benchmarks in the U.S., but the “prized” U.S. large-cap benchmark, the S&P 500, would elude the Canadian company.

“After all,” he said, “S&P is mulling new rules that prevent issuers incorporated in Canada from leaving Canada’s S&P/TSX composite and 60 indexes simply based on a change in headquarters from Canada to the U.S.”

• Email: bshecter@postmedia.com

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