Tesla Cybertruck Questions

Cybertruck drawingIt took me 24 hours to like it. First came the shock, then acceptance, then waking up to wanting one. When somebody does something different there’s usually a strong reaction to it. Trucks are trucks and truck lovers are one fanatic group. The Cybertruck is not for everyone. To me it’s the modern day version of a green Hummer. And if you haven’t seen, the truck launch was must-see TV. Great marketing coup.

A EV truck is a step in the right direction. Look aside, the Cybertruck has a lot of room. There is more room in EV because there is no internal combustion engine taking up space. The batteries in an EV are typically in the floor. That’s one positive for EVs that consumers might not typically consider. GM and Ford are coming out with a EV truck soon. Rivian, a EV truck maker, is one coming out too (I think they are 50% owned by Ford but not sure).

I would like one but I’m not there yet. There are some unanswered questions. You won’t find me put a $100 to be on the reserve list. I want to wait a while to see how things play out. I’m that way with everything. First generation of anything is usually buggy. Let the fanboys find imperfections. Look at Ford and GM, they have been making trucks for decades and they are far from perfect.

The analysis in me comes out and start to question everything. Why can’t I leave it alone and just enjoy the show? Here are some of my concerns.

  • Is the Cybertruck even road certified? It seems so far to be one of Musk’s pet projects. There are a few safety concerns.
  • Where are the mirrors? I though the law required mirrors.
  • Same thing with the door handles. I think you need handles on the outside in case people are trap inside. (I know this because one of my first cars didn’t have a handle on one of the back door and I needed to fix it to have it road certified.)
  • Same goes with the not so bulletproof windows.
  • Musk made much of the Cybertruck cold-rolled stainless steel body. The steel body that won’t bend is a cool feature but isn’t that more dangerous then soft body? Today’s cars are super soft but very safe. During an impact it’s the car that takes the damage, not the passengers. Back in the good old days, two cars made of steel would slam into each other and barely have a scratch but the people inside would be dead.
  • Stainless steel is heavier than aluminium and than carbon fibre. Don’t you want the vehicle to be lighter? You already have super heavy batteries.
  • Stainless steel requires a lot more care than a coat of paint. How do you repair it?
  • Tesla’s finance are shaky. Tesla is burning a lot of cash. It’s current financial position doesn’t radiate confidence. A whole post could be dedicated to Tesla’s financials. Some analysts believes the stock is a $0, others think will go up 10x.
  • Production is expected to start in late 2021. If we learned anything from Tesla, it will be delayed.
  • Towing is important for truck people. Tesla’s base warranty doesn’t cover deep water, presumably because of the battery packs. Many people with boats know launching the craft requires backing into water.
  • Maybe Tesla is not going after the hardcore truck people. Maybe the appeal is to “influencer crowd” like celebrities and the “look at me” crowd. The Cybertruck might be the Hummer for the green millennial generation, a virtue and vice signaling machine. Plus most truck owners don’t use their truck for trucking. The truck is on asphalt 99.9% of the time.
  • The Cybertruck lacks aerodynamics because stainless steel is hard to work with. This can’t be good for mileage.
  • The price points seem too low considering all the promises. The price points seems to be around the same as a Model 3. The stainless steel is expensive to produce. The amount of batteries it will take is not cheap. Is this going to be a profitable vehicle or a market share grabber?
  • How much is it going to cost to get this venture going? How many millions, or billions, will it cost to get this new and costly manufacturing processes? What’s the return on investment on this R&D, factories, and tooling equipment required for the truck? Are they going to build a new tent?
  • The stainless steel unibody limits the Cybertruck to a highly capable 6-seater pickup and nothing else.
  • The biggest disadvantage for a unibody design is customization. With a traditional body on frame design, a manufacturer can build anything that a customer wants. It can make it a single/double cab, or a long/medium/short bed. An F-Series can be a two-wheel drive F-150 that can only tow 7,500 lbs or a Super Duty F-450 that can tow north of 30,000 lbs. The Cybertruck can’t be customized in any such way without redesigning the entire chassis for each application.

I will wait. There are too many unknowns here. Musk has a history of over-promising or let’s just call it like it is — complete fabrication. On the other hand, it’s good to have a strong vision and to aim for the sky, or space in his case. After all this is a guy who started a EV car company from scratch and is sending rockets in spaces. But you also need to be careful. Let’s wait for the “finish” product.

Early results show Cybertruck might have wider appeal than many predicted. To be continued….

Aramco

Aramco, the state-owned oil giant is seeking to raise between $24B and $25.6B by selling a 1.5% stake.

Valuation is an art and not a science…how does a valuation estimate have a $1 trillion range! Bank of America put the valuation of Aramco at $1.22 trillion as a low case scenario and $2.27 trillion as a high case…a huge gap that’s more than enough to fit the combined market capitalizations of Exxon Mobil, Royal Dutch Shell and Chevron, the world’s three largest publicly listed energy companies. French bank BNP Paribas said it’s worth exactly $1.424394 trillion…

I see what’s going on here. Saudi Crown Prince Mohammed bin Salman strongly believes that it is worth $2 trillion and it’s generally not a good idea to disagree with him. You can without sacrificing too much of your integrity say “we think it is worth between $1.22 trillion and $2.27 trillion” or whatever. Then if it turns out to be worth $1.22 trillion you can say you were right (it was in your range!), while you can also tell the prince that you agreed with and supported his valuation (also in your range!).

I’m also wondering where is the upside? How do you go from $2 trillion to $4 trillion? I see a lot of risk in this investment. They are having a hard time getting foreign institutions on board. Aramco has struggled to attract a major cornerstone or anchor investor. It has been written they are getting local billionaires to back it. The fact that they are getting listed on the local stock exchange instead of New-York or London is not helping. I can list a laundry list of issues they have to address before submitting any paperwork in the U.S.

You can read the prospectus here.

WeWork – “If something can’t go on forever, it won’t.”

WeWork became the butt of jokes, a dramatic fall from grace for the company. In a matter of weeks WeWork went from a *$47 billion valuation to possible bankruptcy to being bailout. There was no lack of criticizing during the IPO process. All you need is one red flag to stop you from investing. WeWork’s S1 IPO document was printed on red flags. You know the rest of the story; the IPO never went through and Softbank came to the rescue. WeWork founder Adam Neumann received $1.7b payoff to leave company he tanked. How much do you hate the guy to pay him $1.7 billion to leave?

*$47 billion valuation: I disagree with that $47b valuation. Not because somebody paid the last price it is worth that price. There’s a difference between price and value.  I’m myself guilty of saying it’s was worth $47b but it wasn’t and never was. It was priced at $47b. What you had there is not price discovery. Price discovery is when you have a bunch of sophisticated investors knowing all the facts trade among themselves. WeWork’s price should have never been this high in the first place. WeWork is a testimony of our current investing climate.

Because investors have so much money to invest and because of past success stories of stocks of revolutionary technology companies doing so well, a lot of these unicorn companies don’t have to make profits. Investors are chasing dreams and throwing money at anything. The WeWork fiasco has shaken the industry. Some VCs are not asking for a clear plan to profitability. Eventually the tide will turn and people will see this emperor has no clothes.

Renaissance Medallion Fee Structure

I wrote a previous post on Renaissance Technology here. You can get the book The Man Who Solved the Market here.

“Today, Mr. Simons is considered the most successful money maker in the history of modern finance. Since 1988, his flagship Medallion fund has generated average annual returns of 66% before charging hefty investor fees—39% after fees—racking up trading gains of more than $100 billion. No one in the investment world comes close. Warren Buffett, George Soros, Peter Lynch, Steve Cohen, and Ray Dalio all fall short.”

Five and Thirty

5% management fee and 30% performance fee, that’s the fee structure of the Medallion fund.  Is that the world’s most expensive hedge fund? Relatively speaking, the standard fee structure is two and twenty and there’s a war on driving those fees down. We can safely say that Renaissance has earned their fees.

Of course the book doesn’t reveal the secret sauce. However we know that Renaissance is using very complex algorithms, fancy computers and a lot of leverage.

And no you can’t invest with Renaissance.

Amazon Quebec??

When Quebec PM Legault talked about a ‘Quebec Amazon’, I brushed it off as just another remark to please the Quebec nationalists listening. Most of these remarks are politician hyperbole that can easily be disregarded.  Then the news became headline in the ROC (Rest of Canada) and then I realized they are serious. Premier Legault is open to the creation of a Quebec version of Amazon, which his economy minister Fitzgibbon described as a way to serve nationalist customers. Fitzgibbon went further than the premier, saying the province could “absolutely” invest in a Quebec platform, as long as it was sustainable. So they definitely discuss it. It’s interesting to note that the announcement comes only a couple days after Amazon announced a new $1 billion investment in Montreal.

What does a Quebec Amazon even mean? Whatever they are thinking it kind of sort of exists and it’s absolutely brutal: it’s called shooopping.ca and it’s really bad. I will spare you the link and your time. Shoooping.ca was founded by tech columnists François Charron, his version of David taking on Goliath. I can’t help to notice that it’s full of made in China goods.

I don’t know where to start on how ridiculous the idea of Amazon Quebec is.  I get it; you want to help Quebec retailers against the online threat. Wrapping yourself in a flag might be a noble thing to do, but if the widget you are selling is $50 more than on Amazon, you are not helping yourself or anybody. What will help Quebec retailers is reviewing their business model, their brandings, marketing, their performance and strategy. Online shopping shouldn’t be a threat but a tool to thrive. Maybe the government can offer assistance on helping them make the transition online. There are things the government can do but creating a Quebec Amazon is ludicrous.

Amazon is a behemoth. It’s the global leader in online retail. It has infinite amount of things to sell at great prices and they deliver really fast. All of this cost billions to create and Amazon is not that profitable. You can’t just create a new “Amazon”. How do you create a nationalist website for a few million people? Retail is extremely tough, competitive, and the margins are low. If you end up with good margins, a competitor will take them from you. Amazon spends billions each year in new warehouses, enhancing delivery and customer experience. It’s very difficult. The Canadian retail landscape hasn’t adapted well to online shopping. To play the “Canadian nationalist” card, we have the Canadian Tire stores. Canadian Tire only recently started shipping at home but with a catch. It will cost you a lot in shipping and it will take a while to get your stuff. As a test, buying a snow blower on Canadian Tire would have cost me $100 in shipping while Amazon ships for me with Prime.  The reality is that the cost in distributing, IT, and logistics is massive for such a small population to serve. Amazon can scale.

The premier told reporters he is concerned about the lack of Quebec-made products available on Amazon and wants to make sure the company isn’t just selling American products to Quebecers. Amazon is also a platform that invites third-party brands to sell their own products on its website. Quebec retailers can participate on Amazon “marketplace” and have access to the millions of Amazon clients. Walmart also operate marketplaces including third-party sellers. In Canada Loblaw is launching its own third-party marketplace which is an indication of the growing competition.

If it was that that easy everybody would just have their own Amazon, iPhone, and Google search engine.

Disney+

Being a parent just cost $8.99CDN more per month.  Disney is joining the streaming wars. Netflix used to be the only game in town. Now everybody is going over the top. AppleTV, HBO Max, NBC’s Peacock etc…How many streaming services do you need? I’m not sure if cutting the cord makes financial sense anymore. You end up spending $200/month to save $100/month.

Is going direct to consumer the right decision for Disney? I think so but this is a multi-year plan. We will know in five years. Disney+ signed 10 million users the first day. Some analysts estimated that it would have taken a year to get there. They aim for 90m in by 2024. Netflix has 150m users. By entering the streaming war, Disney is giving up on a lot of easy licensing money. Companies are paying the big bucks for content.  With 90m users, Disney+ will rack in ~$630m (90m*$7) a month, ~$7.5 billion a year.  I wonder what the margins are on that and the multiples the market would warrant.  By ending the studio’s output deal with Netflix, Disney forgone $150m annual income (easy licensing money). That deal was signed a long time ago and would have to be substantially renegotiated upward.

Disney is now they are entering the tech war arena. Amazon, Google, Apple spends a lot on capital expenditure (CAPEX). Disney spends around $5 billion annually on CAPEX. Compared to Amazon $15b, Google $25b, and Apple$10b. This year, Netflix content budget is expected to reach $15b.

This is a different game for Disney.  Disney spends large sums of money on studios and rides that last decades. By entering the streaming services war, it will require constant spending just to stay in the game. The Mandalorian reportedly costs $15 million per episode, while The Falcon and the Winter Soldier, WandaVision and Hawkeye could run as much as $25 million per episode. Disney is now on “technology treadmill”. Companies on the tech treadmill have to run harder and harder just to stay in place. It is a treadmill that is difficult to get off of. If new content helps gain subscribers, then logically cutting spending, and content, risks losing them too. There’s a saying in the investment business: “Never invest in anything that eats or needs repainting.” The question is does your potential investment have the margin structure to afford the yearly cost? Technology can provide a competitive advantage, but you have to have the right margin structure to maintain that advantage – to afford the food and paint.

I believe Disney is successfully transforming its business to deal with the ongoing evolution within the

media industry. I think Disney has the muscles to grind their way for market share but not everybody in the space is going to be a winner. They have terrific content, a great global brand, and technology with Disney streaming (ex BamTech).

While on the topic of subscription, how many is worth subscribing to? Everybody is switching to a subscription model. Everybody wants $5 from you. $5 is a good number. There’s no psychological pain is losing $5. Everybody has $5. Mario Kart Tour is $5 a month. Apple Arcade is $5 a month. Even Burger King has a $5 a month coffee service. If you are not careful eventually those things add up.

The Intelligent Investing Podcast – Brookfield Asset Management & Cultural Activism

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The Intelligent Investing Podcast – Eric Schleien

I had the pleasure to be back on the The Intelligent Investing Podcast with Eric Schleien.  Full show notes below.  If you are listening in a car or simply taking a walk, try these links:

After many weeks of back and forth, we finally got this episode done and it’s a big one. We mainly talked about the Brookfield Asset Management 2019 Investor Day that they held in New-York. We both attended the event as first timers and we share our take ways from the meeting. We also branched off and talked about cultural activism, Facebook/Instagram, Sears and malls, investing in India and China..and we could have talk a lot more. If you are interested, the whole event has been recorded is available with presentations here.

Brookfield (BAM) is a very interesting company. Only of few companies can do what they do. It has been one of my most successful investment and my bullish stance on it has been reinforced. Their business is only going to get bigger and more profitable over time. I’ve written and talked about BAM in the past if you are looking for a primer. If I ever get to it I plan on writing an article with my about the Investor Day. For now we have the podcast.

Show notes, links and summary by Eric: Continue reading “The Intelligent Investing Podcast – Brookfield Asset Management & Cultural Activism”

Terra Incognita

Fall is around the corner and I hope everyone had a great summer. I’m taking this opportunity to re-connect and share with you a short missive.

If you are trying to make sense of this economic environment and you can’t, welcome to the club. I don’t have forty year plus of experience behind the belt and when I talk to people who do, they are clueless. The environment we are in is terra incognita. Sure we can go back in history to study the cause and effect of certain specific policy, but any attempts feel useless when applied to today’s climate. I don’t remember being tested on negative interest rate in university. We never lived in a time with so much global central bank intervention. Their collective action is distorting the “normal” course of action, if we assume there’s any meaning left to the word normal. We have over $16 trillion in negative interest rate bonds. I’m not a macroeconomics expert, but common sense dictates that when things are so out of whack, it’s not going to end well.

The dreaded over-used expression “this time is different” comes to mind. Basically we claim that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. There’s the sentiment that the important lessons from history to show us how much–or how little–we have learned don’t apply anymore. Throughout history, rich and poor countries alike have been lending, borrowing, crashing–and recovering–their way through an extraordinary range of financial crises. We just had a major generational financial crash just ten years ago. Yet, that harsh lesson seems like distant history. Total global debt levels have reached a whopping $246 trillion as of Q1-2019 – up from $164 trillion in January 2009, the time of the last financial crisis. This level of debt represents almost 320% of global GDP. The “time” might be different, but the outcome might be similar.

Here are some economic and financial topics that are just mind numbing. Feel free to reach out to discuss any.

  • We are apparently living in a period of “strong” economic growth, though it has been slowing down a little bit lately. Still we are at full employment and wages are rising. Normally during good economic times the government might call for a budgetary surplus. This is, basically, standard Keynesianism. But instead governments are running major deficits like they are trying to get out of a major recession. This situation raised three important questions that I don’t see anybody talk about:
    1. What will governments do to stimulate the economy when a real recession hits? The classic economic 101 textbook response is more stimulus/deficit/debt.
    2. This led to question #2: How are we going to pay for these deficits? Of course we can’t raise taxes of 1) it won’t help the economy and 2) Good luck getting re-elected. So it has to be more money printing and monetary stimulus.
    3. I don’t see any politicians, or financial media being alarmed with the ever growing deficit. There are long term consequences to this type of action. The deficit problem is not urgent right now but if we don’t address the problem, the problem will eventually address us and that’s not good. We are perpetually “kicking the can down road” until the can becomes a massive iron wrecking ball that is stuck in the middle of the road. Any attempt to kick it will break your foot. Worse, it might roll back and crush us.
    4. I asked a leading economist in Canada these questions and his answer was: “Good questions”.
  • If the economy is so “strong”, why can’t it handle interest rates north of 2.5%. Really, 2.5%, it’s not much. To be relative, the rates were at 19.5% in 1981. Imagine buying your house on a credit card. To be fair, homes were a fraction of today’s cost (a prolong period of low rates led to very expensive housing). Now the Fed has lowered its rate in July and has indicated that it might go lower. Actually they have clearly indicated that they don’t know what they are doing to do. Read: Fed’s George: It’s ‘too soon’ to judge next move on rates.
  • Then there’s M.M.T. that is gaining a lot of traction. Politicians on the left and economists are talking about M.M.T., which sounds like the street name of a new drug. M.M.T. actually stands for Modern Monetary Theory, which is pushed by Bernie Sanders adviser Stephanie Kelton. Mrs. Kelton, the face of M.M.T., believes the government should just print more money. When asked “How will we pay for it?” she says that it shouldn’t be a central question in American politics. Simply printing more money is always the answer. When I first heard of M.M.T. it sounded like a joke an economist would tell. But economists are not known for their sense of humour and the joke got picked up by politicians and the media and M.M.T. is now a real “serious” discussion topic. How does it pass the common sense test? But the problem is by asking that question we are assuming there’s common sense left out there. M.M.T. is a polarizing idea. Kelton has been described as an economist with an idea “that will either solve the world’s problems or send it into ruin!” Didn’t Zimbabwe and Germany, among many others, went down that road in the past? Historically speaking, printing too much money led to hyperinflation. But I guess this time is different. Kelton is working on a book, “The Deficit Myth” which will come out next year. It will be in the accounting & finance section, not fiction.
  • The puzzle of negative interest rates. Imagine lending money to someone and having to pay for the privilege of doing so. Or being asked to invest and informed of how much money you’ll lose. What if I said I wanted to borrow $100 from you and pay you back $98 five years later? Would you do it? Sounds absurd, but increasingly that’s the global bond market these days. There are currently more than $16 trillion (30%, and counting, of the global tradable bond universe, according to JPMorgan) in negative yielding debt around the world as central banks try to ease monetary conditions to sustain the global economy. This is possible because Denmark, as well as Sweden and Switzerland, has seen rates in money markets drop to levels that turn banking upside-down. Swiss banks in particular, where interest rates are negative at -0.75 per cent, have been passing on these rates to clients with high cash balances. Credit Suisse and UBS had held fire, but recently said they would have to start passing them on, too. Jyske Bank will effectively pay borrowers 0.5% a year to take out a loan. How? Jyske Bank is able to go into money markets and borrow from institutional investors at a negative rate, and is simply passing this on to its customers. Negative rates are counterintuitive, unprecedented — and to my mind — mind-bendingly insane and downright scary. They are like a parallel universe where everything you’ve ever learned about finance and human behavior is turned upside down. Worse, negative rates are being normalized by economists, bankers, and commentators. Worse, I have a funny feeling this will end badly. Negative interest rates have all the hallmarks of serious trouble for the financial markets; an anomaly growing in scale which seemingly came out of nowhere that is under-recognized, poorly understood and dismissed as not consequential. I’m not sure what form the ugliness will take or, more vexing, what we should do about it.
  • A lot of people think cash is the safest bet in a world of negative interest rates….there’s a cost: inflation and referring to investors who have stayed on the sidelines and missed out on the great bull run in equities. Yet perception of risk is an emotional thing. If people feel comfortable paying extra money in the form of negative rates for the known loss they will suffer on cash versus the unknown and potentially larger loss on riskier assets, it can be hard for wealth managers to talk them out of it.
  • Brexit is a full-on terra incognita. That’s a storm nobody has figured out how to navigate. The Americans and English have a thing for turning politics into awesome theatrics performance. How is this the real world?
  • The WeWork IPO is being sold as the holy grail of investments…The mission of WeWork is to elevate the world’s consciousness. That’s very nobel for an office space rental business. The company disclosed last month of net losses of more than $900 million for the first six months of 2019 on revenues of $1.54 billion. It will achieve 5-star status when the losses are higher than the revenues. WeWork has long-term lease obligations at $17.9 billion that is financed by short-term assets, a recipe of disaster when the next downturn comes. Basically the short-term assets melts and you are stuck with the debt. This stock screams “buy” when the CEO and co-founder cashed out of more than $700 million from his company ahead of its IPO. But at least he returned around $5.9 million worth of stock to the company, which he had originally received in exchange for the “We” trademarks. I’m not making this stuff up. Maybe the trademark “I” is my ticket into the sun. Yet, despite the tons of red flags in their S1, WeWork is expected to be valued around $47 billion because WeWork consider themselves as a “platform tech” in the “space as a service” segment instead of where it should be: real estate. Who is buying this stuff? What I noticed is that stocks listed on the stock market are either trading at 10x P/E or 100x P/E.

To conclude, governments and central banks are acting like they are in a recession with big budget deficit and excessive monetary stimulus policy. Any attempt to normalize the situation has encountered hiccups, like the tamper tantrum (a bout of panic selling after Federal Reserve hinted at a reduction in stimulus) and the December 2018 mini-correction.

For investors, attempting to figure out how to play these developments is a crazy game. Just don’t. Add in a dose of trade war, political circus, political uncertainty, Twitter and you have an instant aging formula.

Happy fall,

Brian

The Story of a Great Monopoly

I found this great read while doing some research. It’s from The Atlantic’s archive. It was published by H.D. Lloyd on March 1881. The article grabs the climate of the time on railroads, Standard Oil, Rockefeller, the Vanderbilt, corruption and politics.  The article address the “railroad problem” of the time and the power of monopolies. It’s a big article and it will take a while to read. If you read the book Titan, you will like this article.

Currier & Ives - Library of Congress
Currier & Ives – Library of Congress

The Story of a Great Monopoly

Repost from The Atlantic
By H.D. Lloyd

”These incidents in railroad history show most of the points where we fail … to maintain the equities of ‘government’—and employment—‘of the people, by the people, for the people.’”

Continue reading “The Story of a Great Monopoly”

The Oaktree Capital and Brookfield Marriage

I had the pleasure to be back on The Intelligent Investing Podcast with Eric Schleien to discuss the Brookfield-Oaktree transaction. Below are some notes on the transaction.

Bruce Flatt from Brookfield Asset Management and Howard Marks from Oaktree Capital Management are getting tie up. Two of the brightest investment mind are coming together. This is a deal where best in class meets best in class. It’s a win-win situation for both Oaktree and Brookfield.

Howard Marks doesn’t need an introduction. Marks built a reputation for making sharp bets on undervalued assets and in the process becoming one of the most famous figures in investing. Marks is frequently seen sharing his wisdom on financial TV and is active on the public speaking circuit. His memos, full of insights, are must read material. His first book, The Most Important Thing, is outstanding and has been endorsed by Warren Buffett. Read it. Marks has a new book out, Mastering the Market Cycle, but I haven’t read it yet. As for Bruce Flatt, I’ve covered him in the past here, here, and here. Flatt might not be as well known as  Marks, but his investment record speaks for itself. You can read the latest shareholder letter here. Here are BAM’s performance:

BAM Performance
Brookfield Asset Management Performance. Source: BAM 2018 Shareholder Letter

The Deal

  • Here’s the press release.
  • BAM is buying 62% of OAK for $4.7b.
  • 38% will remain with current management
  • Brookfield will acquire all of Oaktree’s publicly traded A shares for either $49 per share or 1.077 Brookfield shares. This is a 16% premium over the 30-day value weighted average price. Or a 12.4% premium over the closing price before the announcement.
  • It is also buying 20% of the privately held B shares for a total of 62 per cent of the business.
  • Total consideration paid by BAM will be 50% and 50% shares.
  • BAM can be a total owner at the earliest in 2029, pursuant to a liquidation plan that starts in 2022.
  • OAK employees has 92% voting power.
  • The combined entity will have $475 billion in assets (BAM $355b + OAK $120b). The deal will put it in the same region as Stephen Schwarzman’s Blackstone (BX).
  • BAM is expected to earn $2.5b in fee related earnings.
  • Both firms are expected to stay independent.
  • BAM will have 2 board seats on OAK.
  • Howard Marks will have a board seat on BAM.
  • The entities can’t be fully integrated because they want it that way, but also for regulatory reasons.
  • OAK will keep their brand, management, and investment teams.

Why?

Continue reading “The Oaktree Capital and Brookfield Marriage”