I look at the stats on my blogs at the end of the working week. This week’s were strange; the two blogs on Brookfield taking over Just had twice the reads of any other. I thought it might be of some interest, PIC being bought by Apollo was of some interest, but nothing like this.

I am an ignoramus on investment conglomerates. I profess to knowing nothing about Brookfield, but this interest in the story seemed more than just about Just, clearly Brookfield is of interest to a certain type of reader and a very high number of reads have come from overseas, suggesting that Just is not the sole focus!

A quick search on FT brought up a Big Read – one of the FT’s long reports and you can read it free on this link (contact me at Henry@agewage.com) if it has run out.

From reading the Big Read twice, I am none the wiser to what Brookfield is really about and that is a worry.

Here is the transaction that triggered the article

Liberty Plaza, the ageing former US Steel building that looms over a park once occupied by anti-Wall Street activists, was quietly purchased by a Texas life insurer.

A rare transaction in a moribund market for office towers, it received little publicity because the building’s ultimate owner, Canada’s Brookfield Corporation, was both the buyer and the seller.

One of the world’s largest and most complex financial conglomerates, Brookfield sold property to itself like this dozens of times in 2024, using $1.4bn from its insurance arm to finance transactions that supported its “distributable earnings” — a non-standard measure of profit that underpins the corporation’s $90bn stock market valuation.

The Bermuda based insurance arm of Brookfield. A Bermuda based company that is arousing some worry from those who know  a little about tax.

But this only touches on the concerns expressed in the FT

These earnings were then recycled back into the portfolio in a circular flow of cash that is attracting scrutiny of both the relative opacity of Brookfield’s accounting practices and how it juggles its vast global portfolio of real estate.

These “recyclable earnings” are very much using insurance companies and very much involving annuities, the very things that Just are about.

Dimitry Khmelnitsky, head of accounting at Veritas Investment Research, is critical of both the financing and the accounting.

“Brookfield is using their own related party insurance companies as a vehicle to offload assets, during what seem to be challenging markets, and at relatively high valuations,”

he says. Such trades support an expansive but lossmaking portfolio of more than 200 malls and offices dotting skylines around the world, including London’s Canary Wharf, One Manhattan West and the Las Vegas Fashion Show mall.

The transactions pose questions about the quality of Brookfield Corporation’s earnings, and the valuation of assets held to pay annuity policies at the Brookfield-owned insurance businesses that trade with other parts of the conglomerate.

Is this why the purchase of Just by Brookfield is getting so much attention both in UK and abroad, why even my blog is getting attention?

Viewed from one perspective, Brookfield is given a big tick for its governance and the FT points out that it has to engender trust

Such trust matters because Brookfield is a fiduciary that manages assets and money for public sector and union pension funds, annuity holders and investment funds.

It runs critical infrastructure, is responsible for huge sums in long-term liabilities, and operates regulated businesses in many jurisdictions. Viewed through the lens of disclosures by the corporation, that property empire is in robust health.

But that is not the only lens that Brookfield can and is being looked at by the FT

Yet regulatory filings from Brookfield Property Partners, the Bermuda-based subsidiary that consolidates the lion’s share of Brookfield Corporation’s real estate, paint a different picture.

The partnership lost $2bn in the first nine months of 2024. Its net operating income did not cover its interest costs and the group has ceased payments on 4 per cent of non-recourse mortgages attached to buildings while it negotiates with lenders.

During this challenging period, it raised funds by selling real estate to Brookfield’s insurance arm.

Bermuda filings also show the circular flow of cash. Brookfield Corporation injected another $1.4bn into the partnership as new equity, more than it reported as distributable earnings from its overall real estate operations in the same period.

BWS. the part of the empire that is buying Just is the Bermuda Insurance Company in question. The picture explains how intertwined it is with property.

And – if you’ve followed this blog this far, you will be pleased we come to the concerns in the USA and elsewhere about just what is happening, not just with Brookfield but with Apollo +++

Private capital giants like Brookfield and its rivals Apollo, Blackstone and KKR have made managing insurance assets the trade of the decade, shifting their reserves away from conservative investment-grade bonds into private loans and asset-backed debts that earn higher returns and attract more premiums. Billionaire investor Bill Ackman’s Pershing Square last year bet nearly $2bn on Brookfield, in part because of his excitement about the growth of the company’s insurance business.

But Thomas Gober, a former insurance examiner and prominent critic of private equity in the industry, says

“a life and annuity company, with its very long-term promises, should be prudent . . . with its clients’ money”.

He and others question whether savings held on behalf of American widows, orphans and retirees should be turbocharging growth at asset managers.

I am sure it is not just the FT journalists who will be asking questions about the proposed Just takeover. There should be concern at the PRA – the Bank of England and the Treasury. Last but not least, the DWP should be asking about the security this move is bringing to workplace pensions, who Brookfield make clear are a big reason to buy Just.

This blog is opposed to the takeover of pensions by annuities, whether defined benefit pensions in payment or DC “pensions” that are currently in drawdown. Moving workplace pensions into annuities is not what should be countenanced by DC trustees, especially if the annuities are backed by the kind of promises outlined by the FT in March.

If you have time to see what has happened within American insurance companies owned by Brookfield and BWS, the FT article goes to many pages examining them

It concludes

Critics have a less benign view of the flexibility, and Brookfield’s power to set its own narrative. Dalrymple says for stakeholders to decide for themselves they need to know the full facts, which requires more than saying “we sent a billion dollars somewhere”. The question for investors, regulators and policyholders then is perhaps what they value more — managed stability or greater clarity?

For those who are interested in  the Treasury’s interest in this proposed transaction, here is its principal minister.

What do you manage more – managed stability or greater clarity?