Brookfield

From Trams, Power Generation and Telephones and Back Again

Some business stories jump right off the page.

For example, consider the Brookfield Infrastructure Fund making  a 1.7 billion dollar investment in a Brazilian toll road.  The irony is that the roots of Brookfield include Brascan which was a successor to Brazilian Traction. Brazilian Traction evolved into a conglomerate in the 1900s, started by Canadian investors to build facilities  in Brazil. The company provided capital and expertise for power generation, transportation and communication systems. In today’s terms, infrastructure.

Brazilian Traction was successful,  generating a very satisfactory return on capital, and widely  followed on the Toronto Stock Exchange. Alas politics intervened as the Brazilians eventually wanted  control of what they considered businesses vital to their economy. The takeover was negotiated with at least one caveat. While the price was workable, one part of the deal was that some of the consideration  had to be reinvested in Brazil. The out flow of capital was thereby limited, providing monies for internal reinvestment, protecting the Brazilian currency and acceptable politically.

Nevertheless, after more than a century, the Brazilian economy warrants  Brookfield’s  investment in a business sector similar to Brazilian Tractions.

There is a world wide stampede into all manner of infrastructure investments. Pension plans love them, fund developers love them, the investment bankers love them and the individual investors love them. With all of this love there is bound to be over paying for good deals and an increasing number of bad projects. Acquiring businesses that are basic to a countries well being has proven to have political risks. Long memories are sometimes useful.

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