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My last couple of notes (here and here) laid out how I reorganise Plan Value and how Brookfield has performed against its investor day promises over the years.

This got me thinking about how the BN discount and the valuations of the underlying assets have changed. I discuss each below but in short:

1. The market trusts BN’s Plan Value more than it did: the discount is narrowing.

2. If BN is cheap today - and I think it is - then it is because the underlying assets are cheaper, not because the discount is at record levels.

In the next few weeks I’ll publish deep dives into what Distributable Earnings is, and into BN’s two most important businesses: the asset manager BAM, and the all-consuming (literally) insurer BWS.

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The discount to Plan Value

BN has reported Plan Value on a consistent basis since December 2022 when they spun out BAM. The graph below compares the share price to Plan Value on each balance sheet date, so it stops at 2a26 - it is not live. Interestingly the discount has trended down from the high 50% range to the high 30% range:

Valuations of the underlying

Part of the reason the market might be reducing the discount is that the valuations of the underlying assets have generally come down. BAM, which is the biggest listed asset in BN’s Plan Value, is roughly flat, having risen and then fallen. BBU, the smallest, is fairly flat vs earnings (but has declined fairly substantially against its infrequently-reported NAV). But BIPC and BEPC, in which BN holds about $20bn of stock, have seen their multiples of earnings decline fairly significantly. Unlike the one above, this graph is live - the last datapoint compares today’s price to 2q26 run rate earnings:

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

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Howard Hughes delivered significant news at its shareholder meeting yesterday. This note follows my review published in May and my valuation update a month ago.

My take is this is potentially very positive. I won’t redo my valuation until transactions are completed, but HHH is both accelerating the redeployment of capital into more highly-valued businesses and converting its real estate arm into a more capital-light and efficiently-funded operation.

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Key takeaways

• Howard Hughes are clearly getting more and more excited about the potential for Vantage, their recently-acquired insurer, under the guidance of Marc Grandisson, one of the industry’s titans.

• They are also frustrated about the cost of capital investors apply to the legacy real estate operations, which they think is too high and which depresses the share price.

• The obvious answer is to accelerate monetisation of real estate, and pump the capital into Vantage.

• They think they can raise $3-4bn from real estate by year end 2027. c.$1.6bn of this comes from Operating Assets; this will be a relatively straightforward transaction. The remainder comes from the master planned communities. This will be trickier but this is a perfect asset for low cost of capital investors seeking long term real estate exposure through a capable, established manager.

• Importantly, there is no plan to accelerate lot sales in the MPCs, which could damage value. However, they might raise third party capital to accelerate commercial and vertical development in the MPCs, which should enhance the value of the remaining land. These projects are currently not being done because insurance offers better returns.

• Proforma for these transactions Howard Hughes Corp, the real estate subholdco, will have two parts: a capital light asset manager which should command a premium multiple, and a residual stake in the real estate assets mostly funded by existing debt.

• The proceeds will be used to buy more of Vantage and to increase Vantage’s capitalisation, so that it can grow without excessive leverage. The short term effect is that real estate capital currently valued below NAV by the market will be moved to insurance, where is should be valued above NAV. The longer term effect is that more capital will be in the higher-return insurance arm, and the newly asset-light real estate arm should command a higher multiple.

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Detailed notes

• Vantage

  • Pershing have generally avoided banks and insurance companies in their portfolio; Vantage is different because they were able to do deep due diligence on the book and have control, so they can pick the team.

  • Purchase timing was lucky - sold the fixed income portfolio before rates spiked and bought equities at a low point.

  • It’s not a hard market but prices are still increasing in many markets and they are a small company. Plenty of opportunity to expand profitably. Vantage is small but broad - perfect for finding hard pricing pockets. Deep dive currently ongoing to find these.

  • Grandisson started at Berkshire under Ajit Jain and Pershing have been seducing him for a year and a half.

    • Have a lot of interest from people wanting to join Vantage under Marc; might lead to higher costs initially but the ROI on hiring great talent is very high.

    • With an (even) better team at Vantage they might be able to increase premiums/equity and raise ROE.

    • Ackman: insurance and investment are two businesses where the gap between tier 1 people and tier 2 people is 50-100x, not the 25-50% you normally see in business.

  • Vantage “does not have to generate a return by a certain quarter or growth rate by the end of the year…Pershing Square views [its] stake in the company as effectively a permanent one. Our goal is to compound the value over a very long period of time. The bulk of the profits from a well-run insurance company in this model will come from the asset side…so there really isn’t pressure on the insurance team to put capital at risk.”

• Real estate - moving towards asset-light

  • Market applies a high discount rate to land ownership and real estate development. So “we’re going to do what most real estate investors do. We’re going to become a much more asset capital-light real estate investor by bringing in partners.”

  • Can raise $3-4bn by yearend 2027 as follows.

    • Operating assets: will monetise 80% of the $2.2bn of equity. “A pretty straightforward transaction.”

    • MPCs: will form JVs, with partners taking 80%. This is more difficult but it’s an ideal real estate asset for family office/pension, with a multi-decade deal pipeline and excellent management and development capability. There is no plan to accelerate lot sales, which could impair long term value.

    • Condos: already asset-light and self-liquidating so no change. However they might raise 3rd party funds to accelerate vertical development opportunities in the MPCs, which are currently not getting done because it’s better to deploy capital into insurance.

  • HHC, the real estate subsidiary, becomes much capital lighter:

    • Asset management, which is capital light and should command a high multiple.

    • Ownership of residual stakes, mostly funded by the existing debt at HHC which pays between 4.1% and 6.1% and matures between 2029 and 2034. As an aside, I could see the HHC bonds selling off on this news; a lot of equity is about to be taken out above them.

• If the stock is so cheap do buybacks make sense? “Actually, in this case, I don’t think so. I think the highest return we can generate today is every marginal dollar of capital and put it into the insurance company”, where it goes from being valued at under book value to 1.5-2x, or buying more of Vantage by repaying the pref.

• Buying other businesses to build a diversified holding company will follow once the insurance company is “very well capitalised” but is not a near to intermediate term priority.

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Thanks for reading. If you have enjoyed this, please like and restack!

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

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IRSA is an Argentine real estate company. I reviewed it in January and results since then have been strong. In this note, I revisit the bull case valuation.

The bull case rests on the idea that Javier Milei’s reforms might normalise the Argentine economy. By normalise I mean, amongst other things, that GDP might grow at 4-5% in real terms and inflation might decline from 25% now to 5-10%. In other words, Argentina might look like a normal emerging market rather than a Peronist nightmare.

If that happens, I think IRSA could produce nearly 30% compounded returns to investors over the next 10 years. The figures below are in millions of dollars:

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Let’s walk through the assumptions. Remember, this is a 10-year forecast:

• Mall ebitda grows in-line with nominal dollar GDP, which I assume to be 7-8%. Argentina is emerging from a Peronist hyperinflation; its potential under sensible government is enormous, even before you consider that it is only just starting to monetise the enormous Vaca Muerta oil and gas field. 4-5% real GDP growth is very achievable. That should drive considerable wealth creation and consumption growth. Malls are underbuilt in Argentina and IRSA dominates the industry, so I am confident that it can convert nominal GDP growth into mall ebitda.

• The multiple IRSA uses to value its malls rises from 8.5x ebitda currently to 12x as the cost of capital in Argentina falls. For comparison, US mall companies trade at 20x ebitda, despite weaker competitive positions and slower growth.

• Ramblas del Plata (RdP), IRSA’s huge development project in prime Buenos Aires, produces $950m in cash. RdP is progressing strongly and IRSA is developing it in a capital light, low risk way.

• IRSA’s other net assets - its land bank, offices, and hotels, less its liabilities except for deferred tax and debt - produce a 2% cash yield and increase 5% per year in nominal dollars, less than GDP.

• IRSA issues additional debt worth 50% of the increase in mall valuations and pays 8% on its debt, similar to today.

• Banco Hipotecario, the mortgage lender in which IRSA has a 30% stake, compounds book value at 15% per year in dollars and trades at 2x book - reasonable considering that Argentine mortgage debt/GDP is currently 0.5%.

• IRSA pays $1bn in dividends, equal to an 8% yield on today’s share price, slightly lower than the annual dividend just announced.

• IRSA reinvests all its remaining cash flows into building new assets. It funds these with 100% equity, builds them at an 8% yield on cost, and values them at a 6% cap rate. It completes all of these assets in year 10 so they do not contribute to operating cash flow before then.

• Because the new assets are 100% equity funded, IRSA’s overall LTV does not rise (although it easily could).

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I don’t think the operating assumptions above are aggressive if the Argentine economy normalises. Two things do deserve highlighting, however:

• I exclude deferred tax from the NAV, because these are only payable on sale and IRSA does not intend to sell.

• I assume the stock rerates from 0.5x NAV to 1x NAV.

Taken together, these two assumptions could be aggressive: in effect, I’m assuming that the stock trades a bit above book value. However, both assumptions are perfectly justifiable economically, and in my experience stock valuations can change in exactly these sorts of ways in sustained bull markets.

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I think this exercise highlights the optionality embedded in IRSA at the current valuation. Remember, this is the bull case. It’s dependant on Milei’s reforms working and being sustained. I think there is a decent chance of that, but it is not guaranteed. However, as laid out in my original review, I do not see a lot of downside in IRSA unless the country returns to the worst of its Peronist past, which for its own case I very much hope it does not.

In short, I like the risk/reward in IRSA, and I am being paid 8-10% to wait.

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

About this blog: I have been investing for 25 years, professionally and personally. I look for stocks that have a high probability of compounding at 15% for at least 5 years with limited downside. I write these stocks up on my blog. You can find more about me, my philosophy, my mental models, and my portfolio structure on my site.

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I have had great feedback on my 3-part Microsoft review, published in May. But it was too long; I have now edited and tightened it somewhat.

In addition, I felt a summary and update would be useful. These are below, along with links to the edited originals.

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Thesis summary

Part 1 described the layers of the AI stack (silicon, infrastructure, LLMs, agents, and distribution) and argued that:

• In silicon, Microsoft is behind but catching up with Google and Amazon.

• Infrastructure is somewhat likely to commoditise eventually, especially behind the frontier, creating a new utility compute industry and allowing hyperscalers to return to more capital-light ways.

Part 2 argued that:

• In LLMs there is a rolling wave of commoditisation, with frontier models never more than a year or two ahead of cheaper models. As more and more use cases can be addressed using cheap models, Microsoft will be the distributor of increasingly powerful commoditised AI to enterprise.

• In agents Microsoft has a potential goldmine, with a deep cloud stack allowing customers to develop, orchestrate, monitor, and control agents, plus extremely valuable horizontal and vertical proprietary agents. TAM is every process in every enterprise.

Part 3 argued that:

• Distribution is Microsoft’s deepest moat. Microsoft will bundle increasingly powerful intelligence into existing products, wrapping it in trust and pricing it cheaply. It will be hard for IT departments not to buy it.

• Combining layers is powerful but Google’s full stack is not an insurmountable advantage.

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Thesis update

AI is a remarkably fast-moving space and a lot has happened since I published my review in May. Luckily I think just about all of it is thesis-confirming and Microsoft stock is up over 20%.

• AI is becoming much more useful and the debate over ROI on capex seems to be to be quieting down.

• More frontier models are appearing at the front of the race - Meta and Grok both seem to have made progress relative to the frontier. More competition is good for distributors like Microsoft.

• More importantly, open weight models are not falling behind the frontier. If anything, they are catching up. This is the rolling wave of commoditisation in action.

• Copilot is becoming phenomenally more capable. It doesn’t match the frontier, but doesn’t need to: it only needs to get better and better over time so that Microsoft can bundle more and more intelligence into packages that IT departments already buy and workers already use.

• Copilot adoption is absolutely humming - 30m paid seats as of June 2026 - and consumption-based charging is only just beginning, so the revenue impact is mostly in the future.

All of this supports the idea that Microsoft is the distributor of commoditised intelligence to enterprise, with a huge opportunity ahead of it as commoditised intelligence becomes more and more capable.

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Personal experience with Copilot

On a personal level I find Copilot fascinating. I subscribe to Claude and Copilot through M365. I don’t pretend to be an advanced AI user, but I use it more and more. Claude is definitely ahead of Copilot, but Copilot is improving rapidly in absolute terms (and that’s before the massive upgrade announced last week). As I learn more I use Claude for more and more things. But as Copilot gets better I shift things from Claude to Copilot. Copilot’s advantages are that everything - my data, my work, my bills - stay in one place, and I am not tied to one model provider. A natural outcome of this process is that when Copilot can do everything I need it to, I’ll switch off my Claude subscription. That’s bundling in action.

The main issue with Copilot is that it’s a fixed subscription, so Microsoft has to limit the context window (and therefore performance) in order to control margins. As a result, despite the fact that I have already upgraded my subscription, Copilot is the first product about which I ever remember thinking: I wish I could spend more on this. And lo and behold, Microsoft has just announced a new consumer tier, M365 Pro, at $99/month. That’s 12x M365 Personal and 6x M365 Premium. That’s TAM expansion, right there.

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

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For background on how I think about Brookfield, see my original review here and my investor day preview here, which laid out how I reorganise Plan Value and what needs to happen for the stock to work.

This note is about Brookfield Corp (BN). It has 4 parts:

1. Conclusions, for those who want to keep it short.

2. Performance vs. past plans: 2021 investor day lookback.

3. 2026 investor day takeaways.

4. Detailed investor day notes.

Future notes will cover the nature of Distributable Earnings, how BN is turning into an insurance company, and each of the major components of Plan Value.

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Conclusions

BN has a habit of setting aggressive targets - and missing them. Specifically, they have a track record of overestimating growth, overvaluing assets for Plan Value (their sum of the parts), and vastly overestimating carried interest. They are 20-25% behind both the Plan Value per share and distributable earnings before realisations (DEBR) targets set for 2026 at the 2021 investor day.

That said, the absolute performance of both metrics is respectable - DEBR has compounded at 16% and plan value per share at 11% - and there are several reasons to believe the next 5 years might be better than the last:

1. BN’s earnings mix has shifted dramatically towards its faster-growing and more capital-efficient segments. 5 years ago, DEBR was roughly 40% asset management, 60% operating businesses and investments. Today the split is 75% asset management (BAM) and insurance (BWS), and 25% operating businesses and investments.

2. Asset management is accelerating, driven by a huge tailwind from the energy/AI investment boom and operating leverage.

3. Monetisations are accelerating - currently running at 3x the 2021 level - which gives BN a better chance of finally realising significant carry.

4. The natural lag in real estate cash flows might be turning in BN’s favour.

In addition to these operating factors, the valuation is better than it was in 2021. BAM and the listed affiliates are in today’s sum of the parts at lower valuations than they were in 2021. On top of that, BN trades at a bigger discount: 40% today vs. 20% in 2021.

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Performance vs. past plans: 2021 investor day lookback.

This analysis is surprisingly difficult given the various splits, spins, movements of capital from one line to another, and presentational changes that BN have indulged in. What follows is roughly right, not perfect, but I think there is a fairly clear conclusion.

Let’s start with Distributable Earnings Before Realisations. After adjusting for the partial spin of BAM, DEBR has grown from $2.7bn in 2021 to $5.7bn in the 12 months to June 2026. That’s a 16% rate of compounding, so it is a respectable performance, and the target given in 2021 for 2026 was $5.6bn, so last week BN claimed to have met their guidance. However, the 2021 guidance excluded DEBR from BWS and free cash flow reinvested internally, while the 2026 actuals include both. Adjusting for this, I think BN actually missed their target by 20-25%. By segment:

• BAM missed very aggressive targets: 2026 fee-bearing capital was $672bn vs a target of $830bn. Some of the gap may be explained by an apparent change relating to which BWS assets are classified as fee-bearing, but there is a definite miss. Nonetheless, FBC compounded at 16%.

• BWS came closest to meeting its goal but only because it was the beneficiary of significant capital allocation, both through retaining earnings and capital injections. We don’t know how much capital BN planned to put into BWS in 2021, so we can’t tell whether BWS has actually met expectations.

• DE from operating businesses has come in well below expectations, for at least 2 reasons. The first is that some holdings have been moved into BWS to support its growth, which is part of why it has met guidance. And the second is that Real Estate is generating essentially zero DEBR.

In addition to the DEBR miss, carry has been weak. According to the 2021 plan $7.9bn of net carry should have been realised over the last 5 years; in reality, $2.7bn has.

A quick look at the later investor day decks shows similar trends. BAM is compounding well but slower than planned, BWS is hitting targets but with the help of aggressive capital increases, and carry is a hockey-stick that keeps being pushed a year to the right.

Next, let’s look at Plan Value. At the 2021 investor day, BN’s Plan Value per share target for 2026 was $150-184. This needs a lot of adjusting. First, BN used a range because it valued asset management FRE at 25-40x. BAM now trades for 23x, so we will use the low end. Second, we need to adjust for the 3-for-2 share split, which brings $150 down to $100. Next, we need to adjust for the spin-out of BAM. On a split-adjusted basis, this reduces the Plan Value per share target by $11. (This isn’t perfect, because BN gets different carry economics on pre-spin and post-spin funds and the split is not disclosed - for these purposes, I have assumed 100% of 2021 carry value was retained and 25% of carry value expected to be created after 2021 was spun out.)

The adjusted 2026 target Plan Value per share is $89. The actual figure as of 2q26 was $67, for an 11% CAGR over the last 5 years and a 25% miss against the 2021 target. What drove the miss? Mainly:

• Carry. Less realised carry meant less capital to redeploy and less DE from capital allocation. The same applies to less cash flow from real estate, but to a lesser extent.

• Carrying value of listed affiliates. In 2021, BN assumed the share prices of BIP, BEP, and BBU would compound nicely. In fact, they’ve been flat to down.

• Slower FRE and target carry growth than planned on the back of slower growth in fee bearing and carry eligible capital.

In short, Plan Value is growing at a reasonable clip but is well below target. A significant part but by no means all of the miss is due to factors outwith management’s direct control: the stock prices of BAM and the listed affiliates. The good news is that these are represented in 2026 plan value at significantly cheaper valuations than they were in 2021.

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2026 investor day takeaways

As usual, BN are setting aggressive goals. They say DE can compound at 24% per annum through 2031. At the risk of mixing my farmyard metaphors, I’ll be as happy as a pig in the proverbial if this happens, but I’m not counting my chickens.

The 24% CAGR is made up of 17% in the core business (BAM, BWS, operating businesses, and investments), 3% from carry, and 4% from capital allocation. Note that this is total DE, not DEBR, but the difference between the two is not material today because not much carry is being generated; what is definitely material is whether the forecast is accurate.

History suggests that the carry and capital allocation goals, in particular, should be treated as upside optionality only. But core DE might be a different story. BAM, the capital light asset manager, is clearly accelerating. And BWS, with a 4% average cost of liabilities, is a far more efficient way to fund investments than keeping them on BN’s balance sheet. The pending BN/BNT merger puts all of BN’s capital at the insurer’s disposal for growth; BWS is targeting $375bn of assets by 2031 and would be overcapitalised at $1tn of assets. BWS DEBR grows faster than assets as they reposition its portfolio. As discussed above, these two capital-advantaged and faster-growing assets have grown from 40% of DEBR in 2021 to 75% now. I think this gives BN a decent shot at growing the core in the mid-teens.

I’m also moderately bullish that significant carried interest will start to be realised. Carry is the major step from DEBR to DE. The target for the next 3 years is $5bn, down from $6bn a year ago despite negligible realisation in that time. Carry is paid on returns over a compounding hurdle. Two things kill carry. One is poor returns; the other is delayed exits. Interest rates rose sharply from 2021-2023, depressing asset valuations and complicating exits for several years. I doubt rates will rise as much over the next few years, so that headwind is dissipating. 60% of the $5bn 3-year target is expected to come from funds that have already returned all investor capital. That means that any further monetisations drive carry. Monetisations are already accelerating - currently running at 3x 2021 levels. In addition:

• BAM have said they will realise carry earlier than expected on some funds launched since BAM was spun out from BN;

• Bloomberg reports that Brookfield are analysing a $50bn IPO of Westinghouse, which alone would drive $800m of carry to BN (and a total potential gain of $7bn, as laid out in an excellent tweet here);

• Perhaps most importantly, carry eligible capital is up from $144bn to $273bn over the last 5 years and is projected to double to $600bn over the next 5, giving BN many more shots on goal.

While none of these things guarantees the realisation of carry, I am cautiously optimistic about the combination.

DEBR from operating businesses has been falling for two reasons. One is optics: some of these investments are being moved into BWS as capital backing for insurance growth, so the earnings just show up in a different place. That’ll continue, juicing growth at BWS. But the other reason is real estate. BN has a large real estate operation on its own balance sheet. A big part of this (office) has suffered from a lag between interest rates (which rose sharply over the last few years) and rents (which rise over time, but only when leases expire, and they average 10 years). BN is starting to sign office leases at very large spreads over expiring leases. Assuming interest rates somewhat stabilise, as these leases come into force revenues should start rising faster than costs and cash flows from real estate should inflect upwards.

Finally, BN is converting from IFRS to US GAAP in 2027. This will be interesting. I think it might clean up some of the financial statements, since US GAAP will allow BN to carry investments in funds at NAV rather than consolidating them line by line. More importantly, the switch might enhance trust - in my experience US investors tend to think IFRS is a foreign conspiracy to defraud!

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Detailed BN investor day notes

• 30-year DE CAGR 13%.

• “We are in the very early innings of an investment cycle in technology, energy, industrials and real assets” that has 15 years to run.

• BN can grow Distributable Earnings 24% per year to $16.8bn in 2031:

  • Over the last 5 years they grew total DEBR at 16% from $2.7bn to $5.7bn (LTM actual), despite rising rates.

  • Core DEBR will grow at 17% from $5.3bn (30.6.26 annualised run rate) to $11.6bn. Within this:

    • BAM grows FBC and DEBR before debt costs at 18%.

    • BWS grows to $375bn of assets and compounds DEBR at 23% with a 15% ROE.

    • DEBR from Direct Investments, Operating Businesses, and Other falls from $1.4bn to $1bn as BN’s balance sheet investments shift over to BWS, the insurance company. In the process, Direct Investments releases $6bn of cash for BN to reinvest.

  • Carry adds another 3% to the DE CAGR

    • “Last year, we said that we felt carried interest was approaching an inflection point, and we absolutely believe that to be the case.” Monetisations have tripled over the last 5 years and the exit pipeline continues to grow.

    • Over the last 10 years they have realised $4bn of carry.

    • Over the next 10 they expect to realise $25bn:

      • Years 1-3 $5bn, 60% of which is from funds that have already returned 100% of investor capital, implying they just need to deliver the preferred return to start generating carry.

      • Years 4-5 $6bn.

      • Years 6-10 $14bn.

    • On funds launched before the BAM spin-out, BN earns 100% of the carry and pays 100% of the costs. On funds launched after the spin, it earns 33% of the carry with no cost. Carry may be unpredictable but this is a capital-light, fast-growing royalty: carry eligible capital has nearly doubled over the last 5 years to $273bn and they target $600bn in 5 years.

  • Capital allocation adds another 4% to the DE CAGR.

    • $54bn of FCF over the next 5 years, of which 75% is from asset management and BWS. This does not appear to include $16bn of net but nonrecurring realisations planned from Direct Investments and Real Estate, so the total capital available may be closer to $70bn.

    • Of this, BN will reinvest c.$24bn to grow existing businesses if the returns justify it, and spend $4bn on dividends.

    • That leaves $26bn of FCF and $16bn of realisations to be allocated.

    • “Our view is there is a fourth business out there [that has to] earn a high return on capital [and] be distinctly helpful to the other businesses” (being asset management, wealth solutions, and operating). “We’ll be patient. We’ll find the right one. It will have to be highly additive.”

    • “Growth for the sake of growth does not matter. Growth for the sake of franchise building and profitability matters a lot.”

  • That takes plan value per share from $67 today to $140 in 2031.

• BWS

  • Now generating $2bn of DE and $3.5bn of capital every year. I believe the difference is unrealised capital gains.

  • Each of their insurers is rated A by a number of agencies.

  • The average cost of funds is 4%.

  • The balance sheet is half cash & liquid assets, half BAM funds.

    • Have kept the liquid assets short; starting to lengthen duration as rates rise.

    • In the first part of the decade private credit spreads were fat so they concentrated fund investments there.

    • As spreads have tightened they have moved more to the equity funds. 20% of total assets is now in equity strategies.

  • Since 2020 credit spreads have tightened 300bps and annuity rates have risen 200bps; most peers saw spreads compress but Brookfield delivered consistent 180-220bps spreads from 2022-2026.

  • 5 year targets:

    • $375bn of assets, organically.

    • DE to $5.8bn.

    • Plan value per BN share to $29-37 at 12-15x.

    • Opportunistic M&A additional but not necessary.

  • Longer term, the growth potential is enormous.

    • The BAM spin and 5 years spent building the insureco have massively BN’s expanded access to capital.

    • After the pending merger of BN and BNT, BWS can absorb BN’s investment assets with a more efficient capital structure. In effect BN will have a permanent capital base of $175bn and insurance float of $170bn for a total capital base of $345bn. “That will allow us if we choose… to grow our insurance book to $1 trillion and be way overcapitalized.”

    • “The pairing of our permanent capital with our insurance float, we believe, gives us the capacity to sustain [historical] returns on equity…for the next 20, 30, 40, 50 years. It is a very powerful structure.”

• Real Estate

  • L5Y super core same-store NOI CAGR 4%. Next 5 year target also 4%. The difference is interest rates won’t rise as much so operating income growth will convert to cash flow growth.

  • “Today, we have pricing power in our real estate business. We are now in a market where there is a chronic shortage of supply of the highest quality real estate. There is an excess of demand and the movement in rents that we’re able to achieve is significantly greater than any impact that interest rates would have. So the real estate business is now moving from improving fundamentals to converting that into improving cash flows.”

  • Excluding real estate funds within Direct Investments, BN’s real estate exposure consists of:

    • $20bn supercore (10/10 retail/office);

    • $9bn core (6/3);

    • $4bn value add (substantially all retail);

    • $3bn resi;

    • less $8bn of debt and prefs at the real estate operation.

  • The $20bn in Supercore is gross equity after deducting property level debt at a low 46% LTV, and consists of:

    • $8.3bn in 10 office complexes with LTVs of 52%. These have a weighted average lease term of 10 years, which is why rent increases take time to flow through to cash flow. But “we’ve seen office construction really fall off of a cliff and future supply is really nonexistent” and it will be years before that changes. Leasing spreads are strong - e.g. Manhattan West is signing leases at 100-120% spreads over the 10 year old leases that are expiring.

    • $9.4bn in 18 “fortress” retail assets with LTVs of 37%, virtually fully occupied with high productivity tenants. “It is virtually impossible to recreate [a big shopping center] where 20 million people, 30 million people [walk through every year]”. Retail demand is strong while supply growth has collapsed: in the US, offline retail sales are up >30% since 2019 while retail construction completions are down from 55-60 million square feet per year in 2019 to 12msf now. Leases include percentages of sales which drive annual uplifts averaging 3%, so re-leasing spreads aren’t as big as in office, but recycling to higher quality tenants does drive positive leasing spreads.

    • $2bn in mixed use with urban retail, luxury resi, and hotels.

  • BN targets $10bn of asset sales from Core and especially Value Add over the next 5 years. Liquidity is returning: US market financings and transactions are up 25-30% y/y.

  • Although rates are rising, credit spreads are tightening, especially in retail - just refi’d a supercore retail asset at a 109bp spread, close to historic tights.

• Switch to US GAAP in 1q27

  • Enhances comparability with US peers.

  • Will be able to show investments in funds (direct or through listed affiliates) at NAV, not consolidated line by line. Impacts all 3 statements.

  • Unrealised carry, which does not appear on IFRS statements, is recognised under US GAAP.

• On AI: “we, as an industry, can’t build enough. We can’t even build a fraction of what everyone thinks they need…I don’t know if they actually needed all of it, but it’s not happening.”

• Venture. BN has $2.8bn in SpaceX, Figure, Anthropic, hark, The Boring Company, etc.

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All of that might add up to a very nice prospective return.Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

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Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

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Brookfield (BN) has its investor day on Thursday. This will be interesting, because the company’s preferred measure of earnings - distributable earnings, or DE - has grown significantly slower than expected recently. For example at the September 2025 Investor Day BN said they thought they could grow DE per share at 25% through 2030, but LTM growth has only been 6%. Granted some of DE is lumpy, making one-year measures less meaningful, but it is clear that either BN is not going to meet its guidance, or the next 4 years are going to be spectacular.

I have owned Brookfield almost continuously for 18 years, and in size for 8. My original review is here. I think the company has a slew of competitive advantages and some very attractive tailwinds for growth. I also think it is well managed by aligned people. I’m fairly settled on its being a permanent holding so long as the price is reasonable. Therefore, I don’t deep dive into every quarterly report.

However every now and again I do review it thoroughly, and over the next few months I hope to review each part of the empire. This is the first of those articles. It reframes BN’s Plan Value to help us understand what needs to happen for the stock to work.

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Plan Value

BN’s Plan Value is a sum of the parts. I like it because it’s easy to understand, the methodology is broadly sensible, and it feeds into management incentives.

The company’s goal is to grow Plan Value by 15% plus per year. The stock trades at a substantial discount to Plan Value, so if they achieve their goal it will be a very good investment.

Plan Value is published in the quarterly supplemental and looks like this:

Of these:

• BAM, BIP, BEP, and BBUC - the asset management, infrastructure, energy, and private equity companies, respectively - are separately quoted and are carried at market.

• Carried interest is the present value of the future carry that BN expects to earn on funds managed by BAM. It is calculated as unrealised carry + 10x target carry, where target carry is what BN would earn if each fund met its investment targets.

• Direct investments are investments that BN makes into funds managed by BAM, both to capture investment returns and to help BAM seed new funds.

• Wealth Solutions (aka BWS) is an insurance company selling annuities, pension risk transfer, etc. BN value it at 15x distributable earnings, which comes out at about 2.3x IFRS book value.

• Finally BPG is Brookfield Property Group, BN’s large on-balance sheet real estate operation which mainly owns offices and malls.

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Restated Plan Value

I restate Plan Value in two ways. First, I group BPG with the real estate direct investments to show total exposure to that sector. And second, I group the remaining direct investments and operating businesses into one line representing BN’s infrastructure, energy, and private equity holdings, which are individually fairly small.

I think this gives a clearer idea of where BN’s capital is actually allocated as of June 30, 2026:

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One way to think about the discount

Whichever way you split Plan Value, it’s clear BN stock trades at a fat discount. On June 30th the discount was 35%: Plan Value per share was $66 but the share price was $42.5. Does this make sense?

All of BAM and the majority of “other funds and operating businesses” are listed. Perhaps these assets deserve a conglomerate discount, but not a big one (especially considering BN has control). I assume 10%.

However, Real Estate, Carry, and BWS are all unlisted. It seems clear that the market doubts the value of these segments. This is significant, because they account for 55% of gross asset value.

If we value BWS at its IFRS book value of $13bn, not the 15x DE that Brookfield thinks it is worth, we can infer how much the market is paying for real estate and carry. The answer is that as of June 30th, all three assets were discounted by about 55%:

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But why?

It’s not hard to understand why the market discounts these assets:

• In real estate, the market still doubts the IFRS carrying value of office and mall assets in the face of work-from-home and online stopping trends. In addition, there is a lag built into the real estate P&L: during a period of rising inflation, interest rates (costs) rise first and rents (revenue) rise later as leases renew. BN’s real estate is not generating much cash as a result.

• On carry, the market has virtually no visibility. At the 2025 investor day, BN said they would realise $25bn of carry over 10 years and $6bn in 3; yet in the first year of that forecast, they only realised $0.5bn. What should we believe?

• BWS is a relatively new asset at Brookfield (they started building it in 2020) and hasn’t been seasoned through cycles. In addition, while 15x DE may make sense in theory (it’s a 7% earnings yield; add inflation and you get +/- a 10% total return assuming capital can’t be reinvested at attractive returns, which it probably can) it’s a unusual valuation methodology for an insurance company. A market that can’t really be bothered with conglomerates isn’t going to look much further than book value to value an insurance company inside a conglomerate.

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So what needs to happen for the stock to work?

First and most obvious: Plan Value needs to keep growing, ideally at or around BN’s 15% goal.

Second, for the discount to close, we need to see:

• Rising cash flows out of real estate as new rents, signed at significant spreads over current rents, kick in.

• Significant sales of real estate assets at or near IFRS carrying value, both in the funds and in BPG.

• Substantial cash generation from carry.

• Continued growth at BWS, ideally with a strong organic component, and additional disclosures to convince the market that it is worth more than 1x book value.

I think there is a decent chance that all of these things will happen, at least to some extent. If they do, the stock will perform strongly from the current price. I’ll explore all of them in future articles over the next few months.

But first, let’s see what management has to say at the Investor Day. I think they will have a lot to say on these topics.

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

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Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

Tag for finding my other articles on this stock: IRSA

About this blog: I have been investing for 25 years, professionally and personally. I look for stocks that have a high probability of compounding at 15% for at least 5 years with limited downside. I write these stocks up on my blog. You can find more about me, my philosophy, my mental models, and my portfolio structure on my site.

Key takeaways

Record rental ebitda and ongoing swaps at Ramblas del Plata, which begins monetising in earnest in 2028/9. Stock remains at a 40-50% discount to an NAV which I think is understated.

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Thesis and valuation update

No change to thesis. Still priced to compound at +/- 20% in a bull case. I plan to lay this out in more detail in a note soon.

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Notes

• Data are for FY26 rather than just the quarter. IRSA reported strong profits for the year The key components were:

  • $199m in rental ebitda, a record ($176m malls, rest office and hotels). This is largely cash.

  • A revaluation of investment properties under IFRS due to a c.70bps reduction in the discount rate to c.10% as the country risk premium falls. This is not cash but supports my belief that the NAV is understated.

• Malls

  • Dollar ebitda was up 3.8% to $176m, a new record.

  • Acquired 2 new malls and started development of a third. They will reach 432k square metres of gross leasable area in 2027, a 28% increase on 2024.

  • As a reminder IRSA is the dominant mall operator in Argentina and has 70% market share in Buenos Aires, which has 15m people and is 10x the size of the next biggest city. Mall penetration in Argentina remains very low “because nobody invested in Argentina during the last, I would say, 30 years or 20 years”.

  • Tenant sales were down 8.5%. Traffic and tickets are flat, but apparel pricing is lagging inflation as imports get easier and competitors enter the market. In other words, affordability is rising but tenant margins are falling.

  • The same liberalisation is attracting global retailers, so IRSA has rented space to Decathlon, Victoria’s Secret, Mango, D&G, and “many others” in FY26. “We do not have space for [such] high demand.”

  • I like this dynamic; in the short term IRSA is protected by strong tenant demand and inflation-linked rents, and in the longer term economic acceleration should feed into consumption.

• Ramblas del Plata

  • Closed 5 barter deals for a total of 20 to date with a value of $130m. As a reminder RdP is the development of a vast riverside plot in prime Buenos Aires and IRSA is selling plots to developers for a small up-front payment and 25-30% of final proceeds. So these deals lock in high margin cash flows in 2028 and 2029.

  • 6 plots remain in Phase 1, which is about 23% of the project.

  • “Strategic international partners [are] starting to get interested in the development.”

  • Phases 2 and 3 may include more developments on IRSA’s own balance sheet - more capital intensive but IRSA keeps more of the profit.

• Other assets

  • Barter deals are planned for other assets in IRSA’s extensive land bank - will drive future cash flow.

  • Launched an office expansion project which is largely leased to Mercadolibre.

  • 2 of IRSA’s hotels may be up for sale in the “near future”.

  • Banco Hipotecario had a tough year with margins and NPLs but still distributed dividends. The bank is shifting its retail clients to a digital-only model. IRSA owns 29%, accounting for approximately 7.5% of IRSA’s market cap. Hipotecario is well placed to benefit from a growing mortgage market as the economy normalises.

• Raised $230m in debt. IRSA is underlevered at 1.4x debt/ebitda and 11% LTV, and is borrowing to grow. The growth plan is now fully funded with cash on hand - a smart move with a presidential election on the horizon. 70% of gross debt is due 2033 or later.

• Given the share price, they are considering another buyback.

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

I reviewed Helios Fairfax Partners in June (link below). After a bit of chasing, I managed to get a call with management in July. It was a slightly frustrating call, because although they came across as honest and extremely competent, they were very careful not to say anything that isn’t already in the public domain. With this in mind they asked to see these notes before I published them, but did not ask for any substantive changes.

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Historic performance

• When Fairfax Africa bought Helios in 2020, significant carry was expected from Helios II and III and was capitalised onto the balance sheet in the form of Topco Class A. This carry never materialised, so Topco A suffered substantial writedowns over the next several years, driving a significant reduction in book value per share.

• Part of the reason was that covid delayed exits. Carry pays out on profits over an 8% compounding hurdle, so the mere passing of time reduces carry, all else equal. However, another part of the reason was that some investments failed to perform. Management did not state this explicitly, but I infer it from the fact that the investment strategy changed significantly between Helios III and IV. From Helios IV onward, they target specific sectors (fintech, non-discretionary consumer, data centres, software) and have added guardrails around fx and dependence on government.

• One output of this change in strategy is that they will no longer make hydrocarbon-related investments. There were a couple of oil and gas infrastructure investments in Helios II and III which I think went wrong, and probably contributed to the loss of carry. I believe these were also the assets that were meant to seed HETI, a potential permanent capital fund that Helios tried to launch a few years ago. Management confirmed that HETI won’t happen.

• Importantly, the NPV of expected carry from Helios II and III was written down to zero. In addition, now that HFP has consolidated Helios (the manager), its value is no longer marked to market. Changes in expected future carry therefore no longer affect tangible book value.

Key takeaway: the lack of carry from Helios II and III wasn’t just a matter of time - it was also performance. As a result the investment criteria have been updated. Early evidence suggests that the new strategy is working – as of December 2025 the IRR for Helios IV was 23%.

Incidentally, there is a nice slide on the new strategy in the latest deck:

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Fundraising and new fund launches

• Fundraising for Helios V is on target. This is key for reducing cash bleed at Helios - more below.

• CLEAR I, the climate fund, has closed at $250m and is now in deployment. This is a relatively small fund, which is normal for a first time fund, but if it works it becomes a second fund family with successively larger funds in the future: there is strong investor demand for sustainability in Africa. If standard timing applies, CLEAR II might launch 3-6y years after the final close of CLEAR I, meaning roughly 2029-2032.

• Helios Sport and Entertainment Group achieved its first close in 1q26. However this was tiny, so Helios’ manager economics for the scaled platform will be decided in negotiations with clients and are still uncertain. They are not likely to be comparable to fund family economics since this is a permanent capital vehicle.

• Helios Digital Ventures is also too young to disclose manager economics. However unlike HSEG it is a fund family structure, not permanent capital; I infer that if it scales, the economics might be comparable to the PE funds and CLEAR, which would be positive. Detailed performance information is not public but I note that HDV was marked up by a total of 8% in less than 4 months between the conversion of HFP’s loan into a partnership interest in March and the end of June.

• Seven Rivers is the hedge fund strategy that was closed in 1q26. The commentary here was more positive than I expected. Performance was superb and given macro uncertainties (the Iran war, etc.) HFP wanted to cash in. However I get the feeling the strategy is still on the table and can use the historic track record to attract third party capital. No guarantees, but good if it happens.

Key takeaway: on balance this is better than I expected. Fundraising for Helios V is going well. I thought they were still fundraising for CLEAR I with a target of $400m, which was wrong. But I had also thought that Seven Rivers was dead and HDV might be struggling. In fact both are alive, if currently tiny in terms of third-party AUM.

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Helios fee trends and getting to breakeven

• As a reminder, Helios is the asset manager embedded in HFP.

• The fee streams from Helios funds II and III were not material. This is important - these fee streams stopped in 1q26, so if they were material then getting to breakeven would have been harder.

• Obviously HFP does not know when Helios will breakeven because it is dependent on the timing of fundraising. By my maths, which management have not seen or confirmed, an additional c.$800m of AUM is needed for breakeven on management fees alone (i.e. before consultancy fees and carry). Helios V is the only major fund in the market at the moment and is aiming for another $400m. If I’m right, an on-target close for Helios V would reduce losses before consultancy fees and carry to de-minimis levels. That would be very good news.

• There is a caveat. When new money comes into a fund, fees are backdated to the fund close date. Catch-up fees are therefore recognised in the quarter when new money comes in. This will drive lumpiness in fee related earnings - some quarters may be profitable while others remain lossmaking.

Key takeaway: my work suggests that approximate breakeven for Helios is in sight, but growing it into a reliable profit generator might be a 3-5 year project.

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Disclosure and investor relations

• The intention is to continue to improve disclosure and communication. Obviously this takes time - figuring out what the market wants, and running proposed disclosures through legal, all while bedding in new employees and processes and actually running the business.

• What won’t change much is disclosure on the underlying holdings in the funds. Overdoing this can compromise exit negotiations. However, it may be possible to give additional fund-level information without disclosing too much about individual holdings. Management did emphasise that there is effectively a “triple audit” on the fund holdings: external investors, fund audits, and the HFP audit all keep an eye on the valuations.

Key takeaway: I think disclosure and communication will improve, which can only help the stock price given the large discount to book value.

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Co-investments

• I was interested in how HFP selects and sizes co-investments, because under HFP’s investment sizing rules each of these can be up to 20% of assets (25% in some circumstances). The core criteria are that co-investments must have the potential to compound for longer than the PE fund cycle and pay dividends. Otherwise, it makes more sense to hold them in the funds.

• Understandably management could not comment on the ongoing bid for CAB Payments, but I think it is interesting that they are prepared to commit significant capital (up to $75m) to a business that they have known well for years – CAB is a holding in Helios III. By my maths if the bid succeeds CAB will be around 15% of total assets.

Key takeaway: HFP is building two cash flow streams, not one; profits from Helios and dividends from co-investments. I think this increases the probability of HFP achieving its target of growing book value at 15% per annum and paying a dividend.

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Alignment

• I wondered why the SLP interest in Helios IV is so big on HFP’s balance sheet. Turns out it isn’t. The SLP interests are held through subsidiary companies which HFP consolidates. The Helios investment team also invest, sometimes with leverage which is recourse to the individuals. In the case of Helios IV these investments are significant, creating both an asset and a liability on HFP’s balance sheet, but the net exposure is in-line with a typical GP commitment.

Key takeaway: in at least some cases, Helios investment professionals have downside exposure to fund investments (as a result of the leverage) as well as upside exposure (via carry). I like that alignment.

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Conclusions

NB management have not seen or commented on this section - it is entirely my opinion.

This call, combined with the 2q results, made me incrementally bullish on Helios Fairfax. The stock trades at a huge discount to book, which is growing. The IPO of Trone at roughly 2x carrying value gives some comfort that valuations are conservative. I have a clearer understanding of the AUM buildup needed to get Helios to profitability: progress will be lumpy, but I think an on-target close for Helios V gets us most of the way there, and then larger funds and progress with HSEG and HDV complete the job. (In fact, if you include consulting fees and carry, I suspect an on-target close for Helios V does the job, but those fee streams are unpredictable and it won’t immediately be apparent.) Finally, I think that communication will continue to improve. I think that all adds up to significant return potential over my 5-year time horizon.

Thanks for reading. If you have enjoyed this, please like and restack!

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

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When I reviewed Howard Hughes in May I published a sum of the parts. Shortly after that, the company updated their own SOTP and provided some new metrics. I’ve therefore updated mine. Here it is:

Here’s the logic.

Vantage - the new insurance arm

Vantage’s book value is currently $1.8bn. I value it at 1x today because its underwriting capabilities are unproven and it is growing rapidly into a soft underwriting market - a combination that could potentially cause trouble. However, given the quality of the new senior leadership team I assume it will prove itself, compound book value at 15%, and command a 1.5x multiple in 2030.

In addition, by my maths, HHH could contribute up to $2.7bn of excess real estate cash flow into Vantage, and they have said this is their top capital allocation priority. Once in Vantage, I assume this cash is immediately valued at 1.5x because it will both be invested into common stocks and be used as the equity backing for insurance policies. This ought to generate a total ROE of >15% and justify a 1.5x valuation. This - converting $1 into $1.5 overnight - is valuation alchemy, and it depends on Vantage scaling a profitable insurance operation; but that alchemy is exactly why HHH wants to pour capital into Vantage.

The combination of compounding book value at 15%, adding capital, and a 1.5x valuation adds up to a $9.1bn valuation for Vantage in 2030.

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Master Planned Communities

This division gets a new metric: Residual Value. This is expected sales price per acres x available acres. I have mixed feelings about this. The whole point of MPCs is that to command strong prices, the acres need to be rationed. They can’t all be sold at once, so price x acres overstates liquidation value. Ideally, the land should be valued by discounting future profits. However, there is a strong argument that the likely growth in land prices, if the acres are appropriately rationed, is roughly equal to the appropriate discount rate: both are in the mid-to-high single digits. This means that discounting doesn’t make much difference.

For that reason, I am happy to use HHH’s published after-tax NAV. As of 1q26 this was $5.2bn. (Annoyingly, having introduced this metric in 1q26, they did not publish an updated figure again in 2q26 - instead they published the pre-tax version. This is a trend with HHH - they keep slicing and dicing the NAV in different ways, and can’t seem to consistently disclose the same metrics. I hope this changes.)

(Incidentally, disagrees that the Residual Value methodology is problematic. He argues that we use unit x price to value Buffet’s net worth, so why not MPC land? I disagree - Berkshire stock is far more liquid than MPC land, and its value does not depend on rationing to anything like the same extent. I think Buffett could dispose of his 15% stake over the course of, say, a year without moving the price much. HHH could not to do the same with its MPC land. Nonetheless, Alexander’s piece is well worth a read.)

Between now and 2030, the MPCs are going to produce a lot of cash. The company guides to $2.5-3bn of excess FCF from the real estate division after G&A and interest. I use the midpoint of this range, estimate cash flows from Operating Assets and Strategic Developments, and assume MPC produces the rest. This comes to $2.6bn - in effect the other real estate divisions cover G&A and interest.

Finally, for the 2030 valuation, I assume the Residual Value grows by 7% per year and deduct the cash produced.

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Operating Assets

This division, which leases owned offices, commercial real estate, and multifamily assets, also has a new metric: Adjusted Maintenance Free Cash Flow. Unlike the previously-disclosed NOI, this accounts for financing and maintenance costs and the company says it is a good proxy for cash they can actually extract. The 1q26 deck suggests AMFCF will be $110m in 2026 and that peers command a 20x multiple. As a cross-check, the implied cap rate on historic NOI is 5.75%. This seems broadly fair to me - these are durable inflation-linked assets, NOI is growing at 6%, AMFCF grows faster due to inherent leverage, and HHH owns the land on which potential competitors could be built.

Although AMFCF is a useful disclosure, I’m sticking with NOI/cap rate as my valuation methodology for three reasons. First, it’s the industry standard. Second, HHH have previously given guidance for NOI from existing assets once they are mature, but they haven’t done this for AMFCF, so it is easier to calculate future value with NOI. Third, I think these assets can take on more debt as they stabilise, and it’s easier to calculate this using an NOI-based EV valuation metric than an AMFCF-based equity one.

What the AMFCF disclosure does do is give me the confidence to use a lower 5.75% for today’s valuation (producing a similar equity valuation to the company’s AMFCF one) and to 5.5% in 2030 (because I think stabilised assets are worth more). This produces a $2.2bn valuation today and a $2.6bn valuation in 2030 after the extraction of $1.2bn in cash for a LTV at 60%. I also model Operating Assets producing $100m AMFCF per year, roughly the current level.

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Strategic Developments

This division, which mainly develops condos in Hawaii, gets another new metric: the after tax value of condos in construction and pre-development, all of which will be delivered by yearend 2030. Discounted at 10%, this value was $0.8bn as of 1q26 and approximately 10% of this was delivered in 2q26 so I value the residual at $720m today. Undiscounted, the value is $1bn; at 90% left to go, I think we can assume the division generates $900m of cash through 2030. And finally, I assume the company is able to permit future developments as previously disclosed, so that the remaining value in 2030 is $500 (the company leaves this out of their 2030 valuation).

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Other items

G&A. I capitalise ongoing G&A plus the Pershing Square base fee at 10x for a $900m value today and I grow this at 2% per year for $1bn in 2030 - the company has previously said G&A should stabilise as the MPCs mature. This doesn’t include restructuring and deal costs but these ought to be fairly low now that Vantage has closed.

Tax is minimal because most of the assets are valued after tax and the taxable cash flows are mostly shielded by G&A, the Pershing fee, and interest.

Debt, prefs, and cash. I keep holdco debt flat at $2.8bn. I assume the company repays the preferred shares it issued to buy Vantage over 3 years, with the balance compounding in line with Vantage’s book value at 15%, for a total cash outflow of $1.3bn. I assume HHH deploys $500m of its currently $700m in holdco cash, leaving it with $200m in 2030.

Performance fees. I assume HHH trades at an average share price of $100 through 2030. This drives a cash outflow of $165m: Pershing Square gets 1.5% of the share price less $66, multiplied by a fixed 59.4m share count.

The share price is currently below $66, so HHH is not paying a performance fee. But for the 2030 NAV, I also capitalise the after-tax performance fee at 10x, assuming the stock trades at 90% of the NAV before performance fees are deducted. This is a bit clunky but it avoids circular formulae and is “good enough”.

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How my valuation compares to the company’s

My 2030 valuation is very similar to the company’s despite several largely offsetting differences. Here are the major ones:

• I assume Vantage is valued at 1x book today and 1.5x in the future, not 2x.

• I assume that all excess cash flow is injected into Vantage rather than sitting on the holdco balance sheet. This includes $1.2bn of additional debt is taken on in the Operating Asset division, which the company does not model, with the result that their model shows the Operating Assets LTV declining to 42% vs. prior guidance of 60-65%.

• I capitalise the performance fee paid to Pershing Square. HHH does not capitalise this, which I think is a major error.

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Conclusion

This is not a particularly conservative valuation, and it is not meant to be. It does require things mostly to go right - but I have no particular reason to expect them not to. More importantly, my work shows a remarkable potential 26% CAGR through 2030 - in other words, the current price leaves room for imperfect execution.

A few things give me some comfort on the risks. Two key ones are:

• The majority of the value of the MPC business is in residential land, and nearly half the resi land the company had at its main assets in 2020 has already been sold. These are not immature MPCs: they are well into the monetisation phase.

• The incoming management at Vantage, Marc Grandisson and David Gansberg, appear to be excellent and have experience of scaling disciplined underwriting operations at Arch.

Thanks for reading. If you have enjoyed this, please like and restack!

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

This email is a summary of my activity this month.

A slow couple of months because I took time out with the kids. Some things are important. Back at the desk now, recharged.

Trades

• Bought a tracker in Hikari Tsushin.

• Added fairly significantly to Howard Hughes Holdings.

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Articles I wrote

• Microsoft results. Storming 4q26, and very promising for the future.

• Millrose results. Still picking up (quite a lot of) pennies in front of a possible steamroller.

• Cheniere results. Excellent execution evident.

• A note on the extraordinary ambition of the combined vision at Tesla/SpaceX.

• Helios Fairfax results. BVPS +12% y/y and strategic progress evident.

• Brookfield results. Acceleration starting?

What I found interesting this month

• on token optimisation and hyperscalers, and why most of the economy won’t run on the best model.

• on Pool Corp.

• on Aimia.

• on how to construct a portfolio to live off and how to benchmark it.

• Two interesting X posts on how Microsoft might accelerate and how compute is becoming an investable asset class for institutional capital - is this how hyperscalers go back to being more capital-light?

• on just how good OpenAI’s Jalapeno chip is, and just how bad Gemini has become. Makes me wonder (again) what sustainable advantages there are in AI, if any.

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Thanks for reading - and please get in touch if you have questions.

Pete

Tag for finding my other articles on this stock: HHH

Key takeaways

Vantage, the new insurance operation, has an exceptional new management team and is going to get every dollar HHH can throw at it, despite the fact that the legacy land business is performing very strongly.

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Thesis and valuation update

• When the “new” HHH was announced, the idea was that excess FCF from real estate would be deployed into buying private businesses. That’s still the plan, but it is now clear that for the first few years, all the cash will go into growing Vantage, the insurance operation, not buying additional private companies.

• Ackman and team are so excited about Vantage under its new leaders (David Gansberg and Marc Grandisson, both ex-Arch) that they want to accelerate monetisation in real estate to pump money into Vantage. To do this they will explore JVs and 3rd party investment capital.

• Vantage is growing rapidly into a softening insurance market. This is not necessarily a terrible idea - there are still pockets of good pricing - but it represents a risk. Underwriting indicators diverged in 2q. The calendar year combined ratio, which includes changes in reserve estimates for business written in prior years and catastrophe losses, deteriorated to 102%, meaning the company lost money underwriting insurance. However the accident year CR, which only covers policies written this year and excludes catastrophe losses, improved markedly to 91%. Time will tell which of these trends is reflective of reality, but I think it would be prudent to assume that Vantage has a few bad quarters as new management strengthens reserves. This might be no bad thing.

• Valuation at $64 remains appealing. My hurdle is a 15% CAGR (2x in 5 years) and I think there is a high probability HHH achieves that. If things go well it could 3x. I will publish an updated sum of the parts in the next week or so - apologies for the delay on this.

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Notes

• MPCs

  • EBT +32% on strong land sales driven by continued strong pricing and demand.

  • “Every acre we develop leaves fewer remaining. Every new neighborhood enhances the value of the next one.”

• Vantage

  • Acquisition closed in 2q.

  • Written premiums grew 29% and earned premiums grew 22%. Potentially risky given cycle (see below).

  • 2q combined ratio deteriorated to 101.6% from 94% a year ago. Of this, 10.2% was Iran war cat losses and adverse prior development in a discontinued line (transaction liabilities).

  • Accident year CR (excluding prior year developments and cat losses) was 91.4%, a 4pp improvement y/y and very strong if the reserving is accurate.

  • The portfolio has been quickly barbelled: what was a diverse fixed income portfolio with significant interest rate risk is now split between cash/near cash backing the insurance liabilities, and common stocks representing Vantage equity. The common stock portfolio mirrors Pershing’s investments elsewhere, with 12-15 high quality growth companies. “The public markets, particularly at this moment, it’s our view, are giving us an opportunity to buy some wonderful businesses at discounted prices.”

• Operating Assets.

  • Same Store NOI grew 2% for the q and 6% for TTM on healthy leasing momentum.

  • Adjusted maintenance FCF fell slightly in 2q on investments in leasing (to drive occupancy and growth) and higher interest expenses, but is up 16% over the TTM.

  • Sold Creekside Park and Creekside Park The Grove for $30m net proceeds and a 30% project life IRR.

• Condos.

  • Park Ward Village completed and generated $131m in gross profits and $227m in net proceeds.

  • This is exactly as planned, highlighting the low-risk nature of this business, but completions only happen every year or two so profits are lumpy.

  • “We contribute irreplaceable land. Buyer deposits and nonrecourse construction financing fund the majority of the development. We largely lock in our margins years before delivery. And today, we have more than $4 billion of future expected condominium revenue with roughly 78% already under contract.”

• Vantage leadership transition.

  • David Gansberg will become CEO - until recently in line to be CEO of Arch, but didn’t get it and left.

  • Marc Grandisson, who favoured Gansberg for Arch, becomes Executive Chair.

  • This creates the “dream team”: “our most successful investments have been finding a great business and then finding the best person in the world to run that company”.

  • It’s especially powerful when good people used to running big operations take over a small one.

• Capital allocation - continued shift in emphasis

  • “We need to do everything we can to… inject more and more capital into Vantage” to exploit the dream team.

  • “While we maintain and want to remain committed to the long-term oversight of our master planned communities, we’ve significantly expanded our toolkit for creating shareholder value. As assets mature, we’ll continually evaluate whether our shareholders are best served by continuing to own them outright or [pursuing] alternative structures…The objective isn’t monetization for its own sake, it’s disciplined capital allocation…When we believe capital can earn a higher return elsewhere, we’ll recycle it”.

  • Real estate will generate $2.5-3bn of FCF over the next 3-5 years before any accelerated monetisation activity. On top of this they are looking at raising ROI and freeing capital for insurance by:

    • selling noncore land; and

    • doing more JVs and/or raising pension fund capital to fund the real estate assets.

• Grandisson on Vantage’s priorities

  • Prioritize underwriting profit over volume, with proper alignment of incentives between shareholders and management.

  • Conservative reserving.

  • Long-term data-driven perspective on loss expectancy and profit margin.

  • Disciplined decision-making.

• Grandisson on the stages of a P&C market cycle; he thinks we are currently in stage 3, with some lines in stage 2 and some entering stage 4:

  1. capacity withdraws, hard market starts, rates rise sharply;

  2. rates rise more and reserves are replenished;

  3. rates moderate or decline, but hard market profits continue to flow, allowing disciplined underwriters to grow profitably;

  4. the industry abandons discipline and chases volume as rates fall further.

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

Tag for finding my other articles on this stock: BN

Key takeaways

• Acceleration delivered as promised - BN DEBR grew 15%.

• Bullish commentary on credit, real estate, AI buildout, batteries, and Westinghouse (nuclear).

• Carry realisation accelerating on strong investment performance (at BAM, but not at BN).

• BN’s transformation into an insurance company continues.

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Thesis and valuation update

No major change, although the vision to use BN’s capital base to build an enormous insurance company is becoming clearer.

• BAM is humming, with fee bearing capital and fee related earnings growing at 20%. Investment performance in recent funds is so strong that carry will be realised earlier than expected.

• BWS, the annuity and pensions business, is growing even faster and once it is fully merged into BN, essentially all of BN’s capital base will be available as capital for underwriting insurance.

• Judging by the performance of Oaktree’s BDC, concerns in credit have bypassed Brookfield. “We see credit markets as incredibly robust right now”.

• Westinghouse is incredibly well positioned, with potentially explosive growth ahead in a market it dominates.

• At a nearly 40% discount to the sum of the parts, and around 15x 12-month-forward distributable earnings before realisations (which are a significant part of long term returns), BN feels good value to me.

• In the next few months, I will do a series of deeper dives into the various parts of the business.

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Notes (please note these are call summaries. I don’t dive into the detailed reporting every quarter).

• BN

  • DEBR +15%.

    • Nice acceleration from the single-digit LTM rate.

    • Quality rising as BAM (+15%) and BWS (+23%) outgrow Operating Businesses (+3%), with real estate actually negative as assets are sold/transferred to BWS.

    • Bought back $580m of shares at $42.

    • Bought out the minorities in Oaktree.

    • Raised $98bn, sold $40bn, deployed $100bn, financed $130bn.

    • See carry inflecting in 12-18 months as funds that have met target returns make additional sales. BAM carry is ahead of plan as some recent funds are outperforming but this isn’t material to BN.

  • “Digitalization, decarbonization and deglobalization, which we have been talking about for years, are now creating opportunities unlike anything we have ever seen. The opportunities are accelerating. Across AI infrastructure, energy addition, supply chain reorganization and data sovereignty, the opportunities are larger, more multifaceted and more capital intensive. Participating in these investments requires a broad range of capabilities and our advantage sits with our ability to deliver integrated solutions at scale. We have invested decades deliberately building and strengthening the capabilities needed to pursue opportunities of this scale…For us, this starts with relationships. Many of the opportunities we pursue are not broadly marketed. They come to us through bilateral discussions and strategic partnerships due to our scale or because certainty of execution matters.”

  • AI and the associated power and compute buildouts are in the very early stages.

    • Position, scale, relationships, and operating abilities mean they are able to only look at the best opportunities.

    • Recent NVIDIA MOU marks the start of financing racks and chips, not just shells.

    • “We’re building a real solid pipeline of investment opportunities [focused on] contractual cash flows, counterparty quality and generating attractive risk-adjusted returns that are ideal for our institutional clients and retail clients.”

    • These investments will largely be funded by the funds and coinvest, not the BN balance sheet directly. Institutions around the world “have very large appetite for these kinds of transactions”.

    • Westinghouse: “No business we own today is more directly positioned to benefit from the growing importance of energy addition and energy security.” DoE has announced new funding to help build up the nuclear supply chain and establish a repeatable model for large-scale nuclear construction.” Westinghouse is building 14 reactors today with another 140 “coming”.

  • BWS

    • “Very few platforms have the depth and capabilities we have to originate attractive capital and the investment franchise to deliver strong risk-adjusted returns” in this growing (retirement) market.

    • Investment yield 5.7% and a 99% combined ratio in P&C allow for 1.8% spreads on income and 2.2% including unrealised gains (this should rise as further gains accrue). “Despite a competitive market” they are writing business at spreads above 2% while the market is closer to 1%.

    • Currently duration matched - don’t want to take significant rate risk.

    • Closed the Just acquisition, taking insurance assets to $190bn. Have already reduced costs, exited lines where Just does not have a competitive advantage, and started being invited into processes where Just would not have had access before - but the market is extremely competitive at the moment and they will bide their time before scaling. In the meantime, can start optimising investments. Going-in ROE is 12% and will rise: spreads were 80bps in the quarter, they can add 50bps by cost cutting, and get towards 200bps by optimising assets.

    • Existing annuities platform continues to develop new products and expand distribution. Currently do $12bn in annuity sales through independent marketing organisations and $200m through banks. In a few years’ time, expect this to be $12bn each, getting them to a total of $35bn in annual pension and annuity sales.

    • Moved additional BBU shares from BN into BWS. BN has a large pool of assets that can be moved into BWS over time.

    • The argument for private assets in retirement savings boils down to: institutions do this, why shouldn’t individuals? “A growing share of the world’s essential assets and value creation now sits outside the public markets. As a result, retirement savers…only participate once meaningful value has already been created.” This is starting to change, unlocking a huge market for BAM.

    • US P&C platform is called Clearbrook. Have derisked the liability profile and strengthened underwriting. “This has led to a stable and consistent underwriting income.” Expect to grow organically and via M&A as significant softening spreads across P&C pricing.

  • Real estate.

    • Super core and core continues to show high occupancy and significant positive spreads on new leases, which will drive cash flow growth as tenancies start.

    • There is very limited new supply.

• BAM

  • FBC + 19%, FRE +20%, DE +15%.

    • “We expect 2026 will be a record year for Brookfield and not by a small margin.” Fundraising will “far exceed the business’s previous high watermark both on an absolute basis”.

    • “We believe our shares are meaningfully undervalued” so bought back $200m of stock in the q, and $575m ytd.

    • Deployed $21bn and monetized $11bn. “This was particularly evident in real estate, where sentiment continues to improve.”

    • Issued $550m of 5-year senior secured notes at 4.83% and $450m of 10-year notes at 5.3%.

    • Completed full acquisition of Oaktree. Will lower margins next quarter given mix, but longer term see significant revenue synergies and back office leverage.

    • “Due to significant investment outperformance in some of our strategies…we expect to begin generating and realizing carry earlier than we previously forecasted”, starting in 2026 and pulling forward carry originally projected for the end of the decade into 2027/8.

  • “We see credit markets as incredibly robust right now”. Their unlisted credit BDC is diversified, under-levered, and under 1% of AUM, and redemptions are tracking under 5%. “Oaktree’s product clearly has significantly outperformed the market.”

  • Wealth remains a significant growth driver.

    • Good inflows, especially infrastructure.

    • Platform can grow 30-50% pa. as they add products and distribution partners.

    • 401k is one of the largest long term growth opportunities and they have partnered with AllianceBernstein to bring private market real assets into their target date funds. This is a new product - AllianceBernstein will provide the credit, Brookfield will provide the real assets, and Carlyle will provide the private equity - and begins distributing in 2027.

  • Rapidly growing in AI where the totality of their relationships across government, corporate, real estate, power, and infrastructure is powerful.

    • Dedicated AI infrastructure strategy had its first close in 2q. “Leadership in this market is not about deploying most capital or moving the fastest. It is about originating the best opportunities.”

    • The flagship fund is the focus for now, targeting $10bn, but eventually there will be a range of Brookfield AI funds targeting a broader $100bn opportunity set including co-investments and asset-level financing.

    • Bubble concerns are reasonable but Brookfield “don’t build on spec. We only build against long-term revenue constructs that are already secured. [We build] the best projects in the best markets with the best revenue constructs backstopped by the best credit counterparties.”

  • Bloom - expanded deal 5x in 9 months on strong customer demand in an area where returns appear particularly attractive.

• BIP

  • FFOPU +10%, with strong contribution from midstream and data.

  • Combining BIP and BIPC.

  • Public markets becoming an increasingly effective exit channel. E.g. recently IPO’d their US colocation business. Since acquisition in 2018 they have 4x’d ebitda; the IPO raised $1.2bn and Brookfield still own 64%. The business can still 3x capacity through equipment optimisation and under-roof expansion.

  • Several other partial exits including 2 in India and another contracted container portfolio.

  • 4 areas of deployment in AI

    • AI factories - gaining momentum with sovereign compute project wins in the US and South Korea.

    • Compute - Radiant is their in-house neocloud.

    • Behind-the-meter power - e.g. Bloom Energy partnership, now expanded from $5bn to $25bn of total capex.

    • AI adjacencies - opportunities trickling in across the whole business.

  • AI project development yields are slightly higher, and annual escalators also, with higher interest rates. Customers are increasingly open to longer lease terms - 20 years vs 15 before. Only commit capital once appropriate commercial arrangements are secured and risk-adjusted return objectives are met.

  • AI capex is driving Chinese exports and with it demand for BIP’s transport division - ports, containers etc.

• BEP

  • FFOPU +11% for the q and LTM.

  • Combining BEP and BEPC, subject to shareholder votes.

  • Agreed sales worth $2.2bn, $630m net to BEP at or above target returns.

  • Completed $12bn of financings, including a $1.2bn hydro financing against last year’s a 20y contract with Google ($700m up-financing, $200m net to BEP) with more to come from a planned recontracting of their Ontario hydro portfolio.

  • Deployed and committed $5bn into growth, $760m net to BEP.

  • Global electricity demand accelerating; “there is simply not enough capacity coming” and nor is there enough investment in grids. Customers need partners who can deliver across multiple geographies.

    • Westinghouse FFO +60% - “one of the most differentiated businesses in the global power sector”. DOE has committed up to $17.5bn in loans for long-lead equipment for up to 10 Westinghouse AP1000 reactors. Next focus is advancing individual projects. As the next step in deploying AP1000 reactors, we are actively engaged with 7 utility partners that have identified project sites and are working with them towards executing long-lead equipment orders.

    • Batteries are a huge opportunity. Now one of the largest developers globally and leveraging size in supply chain relationships. LCOE has come down dramatically over the last 24 months and the industry is still in the “very early days of the supply chain scaling up and technology improving”. Bought Aypa, the largest stand-alone battery storage platform in North America with a strong position in many of the fastest-growing markets, for $3bn or approximately $420m net to BEP. 3Gw operating/under construction, 3.5Gw contracted, and 20Gw pipeline, taking the total to 6Gw operating and 80Gw pipeline. Opportunities to accelerate, optimise capital structure and commercial strategy, recycle assets, and provide comprehensive power solutions alongside renewables (both new renewables and retroactively on old ones - huge opportunity set).

  • Have added a second partner to their programmatic asset recycling operation: record sales consistently at or above target returns.

• BBU

  • Ebitda $587m, flat y/y, or +5% excluding M&A.

    • EFO $289m, up strongly on the receipt of a holdback from a prior sale.

    • Have compounded NAVPS at mid-teens rate since IPO 10 years ago.

    • $300m bought back over last 18 months at a 50% discount to NAV, and additional $150m announced. “At the current stock price, buybacks make a ton of sense.”

  • Sold $1.2bn ytd including $650m for Multiplex, one of the last significant assets they had when they spun out, with proceeds reinvested into “larger, higher-quality businesses that are more closely aligned with our long term strategy of compounding capital”. Strong carve-out pipeline as corporates simplify.

  • £300m deployed this quarter into 2 businesses with recurring demand and optimisation potential, both in the 9-11x ebitda range:

    • World Freight Company, the world’s largest general sales and service agent for the air freight industry, selling capacity for 300 airlines in 70 countries. Potential to standardise processes, apply AI to high-volume workflows, and accelerate consolidation of a fragmented market.

    • Gregg Distributors is a leading maintenance, repair and operations distributor in Western Canada, supplying 150k SKUs to 25k customers across a wide range of industries on a same-day or next-day basis.

  • DeployCo is the JV with OpenAI to deploy AI into businesses alongside Brookfield’s change management skillset. Brookfield invested $100m - target was $150m with a preferred return but had strong demand and syndicated some of it.

  • Clarios remains strong - accelerating US investment and repaid $500m of debt in the q. AI has helped with preventive maintenance and uptime, as well as tailoring inventory to likely demand.

  • Sagen loss ratios normalising from very low levels as house prices come down.

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

Tag for finding my other articles on this stock: HFP

Key takeaways

• Book value per share up 12% y/y to $4.44 and TBVPS +13% to $3.45.

• Strategic moves offer confirmation of underlying valuations.

• Manager economics becoming slightly clearer.

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Thesis and valuation update

• This remains extremely cheap at 45% of book value and 59% of tangible book. As a reminder, tangible book is made up of investments and cash, while the intangibles represent Helios, the asset manager.

• We have two new pieces of evidence that HFP’s carrying values can be trusted: Trone IPO’d at approximately 2x carrying value and I infer that African Specialty Risks was sold at or around carrying value.

• Manager economics are slightly worse than I assumed in my review because other income (effectively consulting fees) did not recur. However, if Helios V reaches its $750m fundraising target (it is already halfway there), I think the manager will be approximately breakeven after other income and profitable after carry. That would be a major milestone.

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Notes

• BVPS +4% q/q and +12% y/y to $4.44.

  • TBVPS +6% q/q and 13% y/y to $3.45. TBVPS is growing faster than BVPS, as you would expect given intangibles are now fixed or amortising rather than marked to market. TBVPS is made up of investments and cash.

  • At the current share price around $2, p/bv is 46% and p/tbv is 59%.

• Helios profitability

  • Recall Helios is the fund manager. If this can become profitable, HFP can grow book value faster and/or pay dividends. But Helios was only consolidated on Jan 1 so we only have 1q26 as a comparison base.

  • Management fees $6m, flat q/q; other income (consulting fees) $0, vs $3m last q; G&A $10m, also flat q/q.

  • Based on 1h26, management fees less G&A nets to -$16m. Helios V is targeting another $400m in AUM. That will effectively eliminate losses assuming 2% fees and some other income. But to get to sustained profitability before carry, Helios probably needs fee paying AUM in the $1.5-2bn range (from approx. $1bn today).

• Portfolio moves - significant liquidity realised

  • Liquidation of Seven Rivers fund after a lifetime IRR of 31%; $47m in cash realised.

  • Trone IPO’d after the end of the quarter. During the quarter, Trone was revalued as the IPO process provided new pricing evidence. Even so, the IPO was well above the 2q mark and roughly 2x the 1q mark. As of today I estimate the share price is higher than the 2q mark by about 17c per HFP share. $18m in realised.

  • Helios IV announced the sale of Africa Specialty Risks, an insurance firm they cofounded in 2020. I believe this was a top-3 holding in the fund and it was mentioned as a positive driver of performance in both 2024 and 2025, and I think it was sold at carrying value because by my estimates the increase in HFP’s carrying value for Helios IV was almost exactly what you’d expect given the increase in value for Trone, which Helios IV also owns.

• Fundraising

  • Helios CLEAR final close at $257m.

  • Helios IV continues to fundraise as expected, targeting $750m.

  • 73% of Helios IV investors have reinvested into Helios V to date, providing 38% of the capital, with 62% coming from new investors - evidence that investors are loyal and that Helios’ investment in marketing is paying off with new clients.

• Other

  • Another markup in HDV, the Ventures fund. Not big, but promising - this could be a source of big wins and/or become another recurring fund family.

  • Relocating support functions from Canada to London, where the manager is based.

  • IR is already better - now doing decks for each quarter, and commentary in press release is more aligned with industry standard metrics.

  • New $10m debt facility designed to fund HFP’s LP interest in Helios V. The lender gets 8% plus 30% of the residual value of the investment after the principal has been repaid. HFP gets 70% of the residual value. In effect HFP swaps some of the equity upside for a lower and fixed interest rate. (The marginal rate on HFP’s other debt facility with the same lender is SOFR +5.75%, or about 9.4% today.)

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

Tag for finding my other articles on this stock: LNG

Key takeaways

FY EBITDA and DCF guide increased again; execution excellent as usual with capacity expansions ahead of schedule; bought back 1% of the company at $250/share.

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Thesis and valuation update

No substantive thesis change, but yet more excellent execution.

My basic DCF suggests a 15% IRR through 2030 at a share price of $240. This assumes buybacks are at the current share price but the tool has worked well for me. I continue to own a tracker having, annoyingly, missed the opportunity to add below $230.

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Notes

• Ebitda $1.8bn, DCF $1.2bn.

• FY guide up to $7.9-8.4bn of ebitda (+$650m), $5.3-5.8bn DCF (+$550m). Most of the increase is extra production from a variety of resiliency and debottlenecking initiatives, being sold into a disrupted market with high spot prices.

• Bought back 2.2m shares (1% of co) for $550m = $250/share.

• Corpus Christi Stage 3 is almost complete well ahead of schedule: Train 6 substantial completion was in June and T7 commissioning has started.

• Midscale Trains 8/9 is also ahead of schedule.

• Signed a lump sum EPC contract with Bechtel for Sabine Expansion Phase 1. This is a 5mtpa train (same as the first 6 at SP) plus 1mtpa of debottlenecking for $4.7bn. Expect regulatory approvals later this year and FID in early 2027.

• Market conditions:

  • Flexible portfolios, destination optionality and demand-side adjustments have allowed the market to absorb a meaningful supply shock, but higher prices, Europe’s slower storage rebuild, and continued geopolitical uncertainty all point to a market that remains precariously balanced.

  • Chinese flexibility has mostly buffered the Iran war shock but they are likely close to their limit - they won’t let themselves develop the inventory problem that Europe has.

• Issued $1bn of 2036 notes and $750m of 2056 notes at CQP and redeemed $1.5bn of senior secured notes, further reducing secured liabilities.

• Long term contracting - negotiations have to balance energy security concerns, Cheniere’s exceptional reliability record, and the fact that 10mtpa of newly FID’d capacity is trying to find a home.

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

Tag for finding my other articles on this stock: MRP

Key takeaways

Strong customer demand but still no answer to fundamental questions around business model and returns. Current discount to book value is 18% which feels about right to me.

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Thesis and valuation update

No change to thesis. The risk is that this works until it doesn’t.

• Millrose clearly have strong customer demand, but I worry the business model is flawed.

• The first problem is that if homebuilders refuse to exercise options, Millrose’s cash flow stops abruptly. So far every option contract has been honoured, but I worry what happens in a recession.

• The second problem is that Millrose cannot retain profits but it does retain losses. Mathematically, I think book value has to fall over time.

• The third problem, and the biggest one for now, is that Millrose cannot grow without either lifting the debt ceiling, issuing shares, or coming up with a funky new capital structure. If Millrose can trade above book value it could issue shares and grow, but why would it? The ROE does not justify a p/bv >1x. Commentary this quarter suggests they will lift the debt ceiling, which will drive growth but also increase risk.

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Notes

• Net income 0.76/share.

  • AFFO/share $0.77. Run rate AFFO $0.80/share => $1.60 per year.

  • Dividend up to $0.77 - 100% AFFO payout.

  • BVPS $35.24, down 2c.

  • Invested capital now $8.8bn.

  • Now have 19 counterparties.

  • 32% of invested capital is not with Lennar and new issuances in this bucket yielded 10.6% in the q.

  • Received $1bn in the q as builders drew down lots, and reinvested $1.1bn, with the balance funded with debt.

  • No change in underwriting conditions. They mentioned that deposits have come down from 20-25% to 10% but that their credit policy is agnostic between bigger deposits and better terms. Need to understand this trade-off better.

• Zero option terminations since inception.

  • Every counterparty has honoured every option, at a time when several public builders have recorded walkaway charges on abandoned parcels.

  • But “because it hasn’t happened, doesn’t mean it won’t happen”.

  • Part of their underwriting is: who else could take this if the counterparty walks?

  • Emphasis throughout the call on scale, datasets, and disciplined underwriting as competitive advantages.

• “Demand for what we do has never been higher….We believe this is more than a cyclical response to today’s market. It reflects a structural evolution in how builders think about capital allocation.”

• Commentary suggests they are considering raising the leverage cap based on the strong performance of the operating platform.

  • “We know that if we pause our purchases, we’ll be able to generate cash rather quickly to pay down debt.”

  • Believe they are in a good position to be able to argue for investment grade ratings from the agencies.

• Industry inventory is normalising which is good news, cyclically.

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

Tag for finding my other articles on this stock: MSFT

Key takeaways

• 17% constant currency revenue growth, with operating leverage despite pressure on gross margins from the infrastructure buildout. Ebit grew 18%.

• Cloud and Azure grew 31% and 43% respectively, and they’re now roughly two-thirds and one-third of Microsoft’s overall revenue, so overall revenue may accelerate as they increasingly dominate the mix.

• Copilot paid seats now 30m, up 50% q/q. This is perhaps the simplest single measure of whether Microsoft is succeeding as the distributor of commoditised intelligence to enterprise.

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Additional thoughts

• Excellent results, especially given the More Personal Computing segment is struggling on weak PC sales and Xbox results.

• In Part 2 of Can Microsoft Compete? (see links above) I discuss my view that intelligence will commoditise, with multiple models competing for workloads behind the frontier. I think the evidence for this is hardening. Microsoft is building a model-agnostic harness that will automatically route demand to the cheapest model for each particular use case, and will protect an enterprise’s knowledge and data in the process. That’s obviously more appealing for a customer than being locked into one frontier LLM provider that might not remain at the frontier, will always want higher pricing, and might use customer data for its own ends.

• The change in depreciation schedules is noise. Microsoft have extended useful lives for data centre and office buildings from 15 years to 25 years. They mostly lease these buildings. When a lease accounts for a large portion of an asset’s life it is a finance life. When it does not, it is an operating lease. This change therefore shifts building leases from finance to operating. This does not change actual cash flows one iota, but operating costs will rise marginally and financing costs will fall marginally. In addition, finance leases are considered capex and operating leases are not, the logic being that if you lease a building for most of its useful life you are effectively borrowing money to buy the asset. Therefore, as buildings shift from finance to operating leases, reported capex will fall. Some analysts are suggesting this is a red flag, implying that Microsoft chose to change depreciation schedules in order to massage its capex number down. I disagree. A 15 year asset life is too short for buildings and I have never understood it. 25 years is more reasonable, especially in light of Andy Jassy’s disclosure that Amazon expect to be monetise their data centre buildings over “30 plus” years. If anything, the implication is that Microsoft has overstated past capex.

• ROI on capex. I see a lot of negative commentary on this. Many investors seem to have a huge issue with the fact that we do not know that the ROI will be strong. But when do you ever know? All growth projects involve risk. I think the risks here are manageable for a number of reasons. AI is a transformational technology and I think underestimating long term demand is easier than overestimating it. Certainly demand is well ahead of supply today - this is clear from the comments of all the hyperscalers, the fact that Azure revenue accelerates whenever Microsoft has capacity to meet it, and spot pricing being well ahead of contract pricing. There are also big braking factors on supply, including power and the capacity to manufacture chips. As with all major buildouts, capacity may exceed demand occasionally, and when it does the bears will dance a little jig, but it is fairly easy to slow capex and I expect demand to keep growing, so I would not expect those periods to last long. There are concerns over the asset lives of GPUs and CPUs, but these are mainly driven by obsolescence risk, and chip depreciation schedules are far shorter than time until burnout, so significant obsolescence risk is already baked into the accounting. (In fact the real risk may be to the upside, if chip lives can be extended by disaggregating prefill and inference - Gavin Baker discusses this on a recent Invest Like the Best podcast.) Finally, as I discuss in my review, the hyperscalers are effectively building a new capex-heavy business alongside their existing and growing capital light one. If infrastructure commoditises and there is no ROI, then they don’t need to own it - they will have created a new, separate, and huge utility industry focused on delivering cheap compute. That’s not a bad outcome for the capital-light orchestration and agentic layers, which will enjoy massive TAM expansion as intelligence gets cheaper.

• In short I think this was a strongly thesis-confirming quarter and Microsoft remains good value, trading at 23-24x P/E for a company likely to grow in the teens with deep moats.

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Notes

• FY revenue $331bn, +18%, with cloud $214bn + 27% and Azure $100bn +41%. Ebit +21%.

• 4q revenue +17% c/c, ebit +18%. EPS +23% - this excludes the mark-to-market for OpenAI, but EBIT better represents underlying growth.

  • CFOPS +30% to $55bn.

  • $41bn capex split 1/3 long term and 2/3 short term.

  • $20bn FCF on a cash basis i.e. excluding finance leases from capex.

  • Commercial RPO +84%, with all q/q growth coming from non-frontier customers.

• Extending useful life of data center and office buildings from 15 to 25 years, “reflecting our operating history and expected use of these assets”. This has a minimal impact on 2027 ebit but reduces reported capex by $15bn from $190bn to $175bn without actually impacting money spent.

• Productivity and Business Processes revenue +14%, ebit +14%, with margins depressed by investments in Copilot.

  • Paid M365 Commercial seats grew 6% year-over-year, with ARPU growth from Copilot and premium tiers.

  • M365 consumer cloud +22%, 7% seats and rest ARPU.

  • LinkedIn +10% in constant currency.

  • >30m paid Copilot seats, with net seat adds more than doubling q/q and the number of customers with >50k seats up 7x y/y.

  • Copilot Cowork is now generally available and they have introduced Autopilots: autonomous, long-running agents with full enterprise compliance.

  • A Copilot superapp is coming, bringing chat, Cowork, Autopilot, and Code into one place, alongside skills for the other applications in the enterprise like the CRM and ERP, giving an enterprise-wide AI tool that is pre-wired into existing IT Ops and Security setups - this will “change what people think of M365 capabilities” and massively expand the TAM.

  • Copilot performance is improving, with satisfaction rates 2x over 3 quarters, conversations per user up 2x y/y, weekly engagement on par with Outlook and Teams, and the time from deployment 80% MAU across a customers’ user base down from months to days.

  • New E7 suite brings together Copilot, E5, Entra, and Agent 365 and has sold millions of seats in 2 months since launch.

  • Seat + consumption models expand TAM and are driving “significant revenue”.

• Intelligent Cloud revenue +31% (Azure +43%), ebit +31%, with gross margins down on the mix shift to Azure, the infrastructure buildout, and higher Copilot usage, partially offset by strong operating leverage.

  • Revenue acceleration driven by efficiency gains across the CPU and GPU fleet, earlier delivery of new capacity which was quickly monetized, and GitHub Copilot’s shift to consumption-based pricing (which also started improving gross margin on this product).

  • Azure has “an incredibly diverse book of business by geo, by segment, by industry” plus a big first party app business which allows them to manage a slowdown in demand.

  • Customers building with multiple model providers up 5x y/y. Microsoft is building “a new model system where the harness, context, memory, and action space are separate from any one model family”, reducing cost per outcome and improving business continuity and resilience because every model is substitutable.

  • “Every firm is going to evaluate who are the providers who are helping them with their outcomes and their knowledge creation… This is not going to be about come in and take all my knowledge and benefit yourself…[so] you’ve got to keep your harness separate from the model…the harness will ensure that your memory, your context, all of that is external. That means any given model at any given time is swappable… We ourselves are using [this architecture]. Copilot is built that way. GitHub Copilot is built that way. Our Security Copilot is built that way. And we want to democratize that design pattern so that every enterprise can use it.”

  • >12 new proprietary models this year across image, voice, transcription, coding, security, and reasoning all targeting cost-efficient inference for enterprise use cases and all designed for proprietary silicon, giving 40% better performance per watt when running MAI models on Maia 200. E.g. in Excel, MAI-Code-1-Flash is delivering comparable quality to GPT-5.6 for the most common task while operating at significantly lower costs and in security, MAI-Cyber-1-Flash achieves better performance than Mythos at half the cost.

  • “The data estate is evolving from primarily supporting apps used by people to supporting agents”. AI-optimized databases like Cosmos DB and PostgreSQL give agents fast, secure access to real-time data and context. PostgreSQL revenue +55% and accelerating, paid Fabric customers +60%, Foundry revenue more than doubled.

  • Azure demand continues to exceed supply. If this changes they can slow the purchases of shorter-lived assets like GPUs and CPUs immediately. These are now the majority of capex and the driver of COGs.

  • On track to 2x compute in 2 years, and efficiency rising, with Copilot throughput up 4x. Maia 200 scaling and delivers 30% better performance per dollar than the latest generation hardware in the fleet. Cobalt CPUs also scaling.

  • Component pricing is spiking, hurting capex, but efficiency helps offset this and on-prem pricing is rising even faster, so cloud is more competitive. Contract pricing reflects input pricing, so there is a direct transfer to revenue growth, and I infer that when component pricing comes back down there might be margin and FCF improvements.

• More Personal Computing revenue -5% on lower PC market demand on rising component and device prices against a high prior-year comp for Windows, and weak revenue for XBox, offset by growth in Search.

  • Ebit decreased 15% including impairment charges in Xbox.

  • Xbox and gaming: aim to return to growth in 2027.

  • Windows: making it the best place to run secure edge AI. “We see significant opportunity for Windows to become the offload for unmetered intelligence, combining powerful on-device compute with enterprise-grade security.”

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

This email is a summary of my activity this month.

June was quieter than May! I advise startups as a sideline, and was busy with that this month. Highlight for me was my review of Helios Fairfax, which I loved researching.

Trades

• I struggle to admit this, but I bought a tiny tracker in SpaceX. I can’t stand the valuation, but it is a number of companies pursuing transformational technologies that I think it is important to track and understand.

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Articles I wrote

• Helios Fairfax Partners review: African growth companies at a 50% discount with a free option on top.

What I found interesting this month

• on Microsoft’s valuation.

• on Hikari Tsushin.

• on insurance brokers.

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Thanks for reading - and please get in touch if you have questions.

Pete

What it does: invests and manages third party investments in Africa.

Elevator pitch: HFP trades at a 50% discount to tangible book value. This is too cheap for a diversified collection of interesting African opportunities plus exposure to the fee streams from managing third party capital. Exposure to the emerging markets fundraising cycle, which is at a 10-year low, is an added bonus.

Mental model: value, potential scaler (read about my mental models here).

Valuation and potential returns: 50% of TBV allows for potential returns of 15-30%.

Exchange and ticker: TSX, HFPC.U

Stock price and market cap: $1.70, $190m.

Do I own it? Yes.

IR website: here.

Tag for finding my other articles on this stock: HFP

About this blog: I have been investing for 25 years, professionally and personally. I look for stocks that have a high probability of compounding at 15% for at least 5 years with limited downside. I write these stocks up on my blog. You can find more about me, my philosophy, my mental models, and my portfolio structure on my site.

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.

Introduction

Helios Fairfax Partners (HFP) is the product of the merger of Helios and Fairfax Africa Holdings - one a leading alternative asset manager, the other a permanent capital vehicle, both focused on Africa. The company combines alternative asset manager fee earnings and carry with permanent capital for investing in some of the youngest, fastest-growing, and capital-constrained economies on earth. As a result of liquidating legacy investments and a downcycle in emerging market fundraising, the stock screens poorly and trades at less than half of book value. But book value has now grown for 5 quarters in a row, newer investments seem to be performing, and the asset manager fee stream may be turning a corner. The company aims to compound book value at 15% and pay asset management profits out as dividends. If it can do this, the returns from today’s discounted price will be excellent.

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History

In 2004, Tope Lawani and Babatunde Soyoye founded Helios as an African private equity fund manager. Helios raised its first African PE fund in 2006, and followed this with larger funds in 2009 and 2015.

In 2017, Fairfax Financial Holdings (FFH) launched a permanent capital vehicle for investing in Africa called Fairfax Africa Holdings (FAH). It didn’t work and by 2020 FAH was looking for strategic alternatives. They landed on the idea of merging with Helios. Helios got a permanent capital vehicle and FAH got a share of Helios’ economics.

This looked great on paper but the period from 2020-2024 was a nightmare. Helios liquidated the old FAH portfolio as best they could, but took losses along the way. In addition, covid and its consequences (inflation and rising rates) made it hard to exit investments in legacy Helios funds and raise funds for new ones, meaning significant amounts of carry was lost and management fees went down. Book value per share (BVPS) fell for 7 years in a row, so HFP screens horribly.

However, under the surface, progress was made. By 2024/5 pretty much all of the legacy portfolio had been sold and reinvested in much more promising businesses. And while emerging markets fundraising is still in a downcycle, that cycle will turn, and investments in the fundraising team and in diversifying the product offering show early signs of bearing fruit.

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Alignment

FFH owns 30m multiple voting shares and 7.3m subordinate voting shares. That gives them a 35% economic interest and a 53% voting interest. Principal Holdco, which is owned by Lawani and Soyoye, owns 25.5m multiple voters and 24.6m subordinate voters representing a 46% voting and economic interest. The remaining subordinate voters trade on the TSX. These are what we can buy; they represent 19% of the economic interest and virtually no voting power.

Some will view the lack of voting power as a red flag. I don’t, for at least three reasons.

1. Having controlling shareholders focused on the long term prevents shareholders doing something value-destructive for short term gains (such as winding up the company when it trades at a big discount).

2. I think having management with skin in the game is more important than having voting control - especially in alternative asset management. Lawani and Soyoye both have the substantial majority of their net worth in HFP stock, per AGM Q&A.

3. Fairfax has voting control, which creates a balance of power.

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Why Africa

Africa has incredible potential, and a reputation for squandering it. This reputation is deserved, but progress is being made. African countries account for 12 of the 20 fastest growing countries in the world in 2025-6. Over the next few decades Africa should be transformed. The investment case is underpinned by robust growth, a rising working-age population, rapid urbanisation, and improving business environments, despite enduring infrastructure and governance gaps.

HFP targets two megatrends. The first is demographics and urbanisation. Africa is staggeringly young, with a median age of about 20. Its working-age population is growing around 3% a year: by 2035 it will be bigger than China’s; by 2050 it will have doubled; and in 2100 Africa will be the only region on earth that has a bigger working-age population than today. In addition, Africa is urbanising. In 2009 Africa had 52 cities with 1m people or more; today, it has over 100; by 2050 it will have 160. The total urban population will double by 2050. This matters economically: urban populations are dramatically more productive than rural ones. Every urban resident needs housing, transport, healthcare, education, food retail, financial services, and connectivity. Urban consumption is also fundamentally different from rural subsistence: it is monetised, formal, and financeable. Africa is creating a large consumer class in economies that remain extraordinarily underserved.

HFP’s second megatrend is technology and innovation. Africa is poor and suffers chronic infrastructure deficits. As a result, customer value is low and the cost to serve is high. In addition Africa has cheap labour but a very high cost of production when you take skills gaps and logistics costs into account. Technology and innovation help solve these problems. Africa is leapfrogging expensive legacy technologies - mobile phones and internet rather than landlines and broadband, household solar rather than vast power generation and transmission networks, e-banking rather than inefficient branches, online skills development rather than poor government schools. Mobile money, pioneered in Kenya with M-PESA and now ubiquitous across East and West Africa, has given hundreds of millions of African adults access to formal financial services for the first time with just a basic mobile phone. And if exports are increasingly digital, Africa’s lack of physical infrastructure will be less important. Helios: “the good thing is that [in just the last 7-10 years] more and more young people are getting into technology and building platforms and coming up with great ideas.” Technology is both driving growth by solving inefficiencies and creating great investment opportunities.

The pushback is governance. Africa is poorly governed. Institutions are weak, economies are overregulated, currencies are unstable. But remember:

1. Africa is diverse. There are 54 countries, and some are much better than others.

2. Helios invest in companies, not countries. Companies with reliable counterparties, hard currency revenues, and exposure to multiple countries are more resilient than others.

3. Things are improving. This is important: money is made when things go from bad to ok. What are the signs of progress? Here are two: a growing number of countries in Africa have regular elections and peaceful transitions of power, and the World Bank says that Sub-Saharan Africa undertook more business environment reforms than any other region from 2010-2020. (Rwanda rose from near the bottom of the Ease of Doing Business ranking to the top 30 over 15 years via a systematic programme of regulatory simplification, e-government, and anti-corruption enforcement, and a landmark long term initiative is the African Continental Free Trade Area, which aims to eliminate intra-Africa tariffs on most goods and services and eventually create a $3.4tn African single market.)

4. One of Helios’ most successful investments was a telecom tower business in one of Africa’s worst-governed countries, the Democratic Republic of the Congo.

I do not count Africa’s abundance of natural resources as an advantage. In areas with poor governance, natural resources are a curse, encouraging corruption and driving boom-bust cycles. One possible exception is agriculture, which is labour intensive and hard to monopolise, so compared with (say) mining it is better for people and less tempting for corrupt politicians. Africa is blessed with an abundance of farmland and cheap labour. Slowly, slowly it will build the infrastructure to exploit these advantages.

Because Africa’s GDP is tiny and its governance is poor, it receives very little investment. Even compared to other emerging markets there are massive funding gaps for venture capital and private equity. As a result, valuations are low. This will slowly change. As GDP rises, inflation comes under control, currencies stabilise, and local savings grow, financial markets will deepen. This trend has been clear in Latin America over the last 40 years and I think it will happen in Africa over the next 40.

The point of this section is not to persuade you that Africa is the next China. It isn’t. But it has compounded GDP at 4-5% since the late 1990s and I see no reason why it cannot keep that up. If it can, then the living conditions of 2 billion people will be absolutely transformed. Africa’s GDP per capita is $2,000, or $7,000 in purchasing power parity terms. That is roughly the threshold between subsistence and the emerging middle class. In other words, the next decade or two of growth will see more and more Africans able to buy aspirational goods, pay for healthcare, save for the future, and spend on experiences. Nascent markets will become vast and significant companies will be built.

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Balance sheet

HFP’s balance sheet splits into 3 broad categories:

• Investments in the Helios funds.

• Co-investments alongside the Helios funds.

• Helios, the asset manager, which is now consolidated on the balance sheet (appearing in various line items) but appears in the investment list as TopCo.

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Investments in funds

Before we dive in, a word on valuations. The funds are carried at NAV. There isn’t much disclosure on the valuation of the assets inside the funds, which is irritating. We do know that several assets are valued using comparable market multiples, which is arguably less open to manipulation than a DCF but introduces some volatility. Two things give me some confidence: several of the funds (or their successors) are raising capital, which suggests third party investors find the valuations palatable; and where valuations are disclosed, which is mainly for the co-investments, they seem reasonable.

Helios IV and V are Helios’ latest private equity funds. The LP (Limited Partner) interests arise because HFP seeds the funds to help attract third party capital. The SLP (Special Limited Partner) interests arise because, like most managers, Helios makes a GP commitment to its funds which it calls the Management Team Commitment. HFP funds 50% of this commitment in return for 50% of any carry earned. Unless FFH agrees an exception, HFP’s SLP contributions are capped at the lesser of $7.5m per fund or 2% of aggregate fund. Neither the LP nor SLP Interests incur management fees or carry.

Substantially all of HFP’s PE exposure ($142m) is to Helios IV, which will mature over the next few years. Its IRR through December 2025 was 23%. That is unrealised, but promising: HFP’s investment has doubled on the back of strong investee company performance. HFP lists 7 private companies held by Helios IV in payments, insurance, discount grocery retail, healthcare, and data centres.

Helios CLEAR (Climate, Energy Access & Resilience) targets climate adaptation and mitigation investments in Africa. It has raised $250m and is seeking more. It made its first investment in 2025. HFP’s investment in CLEAR is small, but CLEAR is significant because it represents a new fund family.

Helios Sport and Entertainment Group (HSEG) is a private permanent capital vehicle which HFP seeded by contributing cash, loans, and its NBA Africa stake. HFP’s current exposure is $18m in loans and $111m equity, which is up from $87m at cost. In 1q26 HSEG achieved a first $30m close on a $75m Series B round, of which $28m was third party capital. Africa has vast talent and global success in sport, music, and content generally. HSEG invests in sports rights, content, and ecosystem enablers like NBA Africa, venue management companies, and talent agencies. All of these attract large scale, blue-chip capital in other geographies - but not in Africa, where HSEG has something of a first mover advantage.

HSEG’s marquee asset is its holding in NBA Africa. Africa has exported players to the NBA for decades, and as a result basketball is the second most popular sport on the continent (after football) despite approximately zero investment. Interestingly, and in contrast to football, in some countries 40% of the fan base is female. Historically sport was difficult to monetise in Africa, where most people can’t access or afford all-you-can eat cable subscriptions. However with smartphones content can be monetised in new ways - for example pay per view, highlights only, or with discounts for watching a day late. I really like the fact that HFP can make potentially multi-decade investments like this because it has permanent capital. NBA Africa was not prepared to transact with a time-limited fund.

HSEG’s other investments are the African part of the Professional Fighters League, which is the second largest MMA business globally after UFC; Zaria, which was cofounded by Masai Ujiri and builds marquee sports and entertainment arenas in mixed use developments such as Zaria Court in Kigali and Nairobi’s Railway City (overview at 16:30 but the whole video is interesting); and The Malachite Group, which organises music festivals and events and manages African talent. Several of these investments are loans with equity-like upside.

Helios Digital Ventures (HDV) targets early stage tech companies with potentially exponential outcomes. HDV aims to invest $5-20m in rounds of $20-50m to build pan-African tech businesses of the kind that have emerged in Asia and Latam. It has invested in payments, fintech, biotech, and SAAS. HFP’s stake started as an accruing loan. At yearend 2025 this was converted into an LP interest and in 1q26, its first quarter as equity, the stake was marked up 4% to $47m.

Seven Rivers was a hedge fund investing in public equity and credit in Africa. Its performance seemed strong - 50% in 2025 and another 30% in 1q26 - but the decision was taken to close it in April 2026. The $48m stake will therefore be liquidated and added to the $14m in cash on hand.

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Co-investments

HFP invests in individual companies when the holding period is likely to be very long and/or when it wants additional exposure to a specific idea. Current direct holdings are:

• $37m in Trone, which distributes and maintains medical imaging and diagnostic equipment and produces and distributes contrast pharmaceuticals for imaging in Morocco and Francophone Africa. HFP has additional indirect exposure through Helios IV - between them, Helios entities and the management team own the whole company. HFP is up 140% on its investment, which is carried at 9.4x ebitda.

• $14m in Taj Holdings, which owns HFP’s direct stake in M2P, an Indian infrastructure API and Banking-as-a-Service provider rapidly expanding across Africa. HFP has additional indirect exposure through Helios IV. The stake is valued at 6.8x revenue and has been marked down from $16m at cost on lower market multiples and lower forecast revenue. HFP has a liquidation preference.

• $9m in Conduit, which is building stablecoin-based B2B cross-border payment infrastructure for emerging markets in Latin America and Africa. HFP has additional exposure though HDV, which invested in 2023, 2024, and again in May 2025 when it participated in a $36m Series A led by Dragonfly and Altos Ventures. HFP then added its direct stake in November 2025 (although NB I think there are multiple share classes with different exposures). The latest operating data I have is that transaction volumes grew 16x in 2024 to an annualised rate of $10bn.

• Pending: up to $75m in CAB Payments. Over the last few months there has been a tussle for control of this company, a London-listed cross-border payments and banking provider. Helios IV has owned 45% since before the IPO. Following share price weakness HFP and Helios V have jointly offered to buy the remainder. StoneX have bid a similar price, which goes some way to validating the valuation, but abandoned their offer because Helios IV did not support it. The bid has over 50% voting support, but the board has rejected it as too cheap. If it closes, it will obviously be significant for HFP.

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Helios

Asset management is a great business model - at scale. The infrastructure required to gather and invest capital, once built, can generally support growth without too much additional cost. This operating leverage drives high margins and economies of scale. Unfortunately Helios is subscale - but that’s why you don’t have to pay for it. It is, in effect, an option.

Helios raises capital, invests it, and charges management and carry (performance fees). For its core funds, the management fee is typically 1.5-2% and the carry is 20% of profits over an 8% compounded hurdle. HFP, through TopCo, gets:

• Any excess of management fee revenues over operating costs - i.e., any profits (although Helios is currently lossmaking).

• 50% of any carry (the remaining 50% goes to the Helios team, which encourages long term thinking and employee retention since it usually takes years to earn carry).

On paper HFP pays Helios a fee for investing its balance sheet, but this is eliminated on consolidation. What shows up on the HFP income statement is just third party fees less the cost of running Helios. This is actually a good representation of the real economics: the fee is irrelevant; what matters is that HFP subsidises Helios’ current losses in return for Helios’ possible future profits. HFP’s subsidy covers both the cost of sourcing investments for the balance sheet and the cost of maintaining the equity option in Helios. Based on the 1q26 P&L, the annual cost is 2.3% of HFP’s tangible book value (TBV). Given the value of the option I think this is a good deal: Helios will be very valuable if it can raise more third party capital and turn consistently profitable.

Can it?

Helios was founded in 2004 and raised a succession of funds in its core PE strategy: Helios I at $300m in 2006, Helios II at $900m in 2009, and Helios III at $1.1bn in 2014. Performance was decent, and by 2019 Helios anticipated receiving significant amounts of carry. However after 2015 the emerging markets fundraising cycle turned down, and then covid hit, depressing business activity, hurting valuations, and slowing exits. This impacted Helios in two ways. First, the anticipated carry evaporated as valuations came down, time dragged on, and the 8% hurdle compounded. And second, the fundraising environment became almost impossible so Helios IV, raised in 2020 at $355m, was only one-third the size of Helios III. What looked like a steady fee grower with carry on top hit a nasty bump in the road.

That bump may now be in the rear-view mirror. Helios IV’s performance has been excellent so far. That’s good for carry and great for fundraising. Helios V’s first close was $338m, almost as big as the whole of Helios IV. Its target is $750m, which would be a significant step back towards the scale of funds II and III. In addition Helios has attracted third party capital into two new strategies: CLEAR is hopefully the first of a new fund family and has raised $250m out of a targeted $400m, while HSEG is a permanent capital vehicle which has raised $30m out of a targeted initial $70m. This is all positive for fee-paying assets. What does it mean for profits?

In 1q26, HFP consolidated Helios. Previously, it carried Helios (TopCo) on the balance sheet at DCF fair value and changes in fair value went through the P&L. There was almost no disclosure of Helios’ actual economics. Now, Helios’ fee streams and costs are reported on the P&L, making analysis much easier. We only have figures for 1q26 when management fees were £5.9m, consulting fees $2.9m, and G&A $10.8m. This nets to fee-related earnings of -$2m in the quarter and -$8m annualised. I think these losses will improve over time, but not necessarily in a straight line. Helios funds earn fees over committed capital. This means each fund generates flat fees for several years and then declining fees as investments get sold. Helios II and III stopped paying fees in 1q26, which could lead to a drop in fees in 2q26. Helios IV, V and CLEAR are generating fees, but IV will start selling investments over the next few years so V and CLEAR are the growth engines. In short, timing differences could drive quarterly volatility in fee related earnings but continued fundraisings at V and CLEAR should drive growth.

Helios’ other important profit stream is carry. The outlook here is also promising. Helios’ performance record is respectable. In total, funds I, II, and III raised $2.3bn. They have so far generated $4.7bn via exits (2026 AGM transcript) but little carry - carry is calculated over an 8% compounding hurdle so it is very sensitive to exit timing, and covid caused delays. Helios IV, however, has produced an unrealised IRR of 23% so far, and HFP’s share of unrealised carry stood at $22m as of yearend 2025.

(While we are on the topic of performance, two points are worthy of note. First, Helios uses less leverage than US PE: in 2023, >20% of all US PE deals had >10x debt-to-EBITDA and ~60% had >6x. For Helios, leverage is typically less than 30% of the capital in a deal. Second, Helios’ exits are high quality. Most of the $4.7bn of exits from Helios I, II and III to date were IPOs or sales to strategic buyers, not pass-the-parcel amongst financial owners.)

There are two other things that could help Helios grow:

• A turn in the emerging markets fundraising cycle. EM was “hot” through the late 2000’s and early 2010s, on the back of rapid GDP growth, strong currencies, and high commodity prices, all of which tend to be correlated in EM, plus a lack of investor enthusiasm for investing in the developed world after the GFC and the Eurozone crisis. This dynamic aggressively reversed after 2015 and EM funds have found it extraordinarily hard to raise money for a decade. But this is a cycle, and it will turn. I actively seek exposure to this.

• Successfully launching a fourth major strategy (after PE, CLEAR, and HSEG). Seven Rivers had good performance but did not attract third party capital and has been closed. Helios Energy Transition Infrastructure (HETI) was going to be a public vehicle investing in long dated, dollar + inflation infrastructure assets, but was shelved in 2024. Either could be resurrected if conditions change. Digital Ventures is nascent but ongoing. Helios DataSphere is in development as a pan-African data-centre development and operating platform. HFP’s balance sheet is an advantage here because Helios can seed funds without third party capital. It is far too early to ascribe value to the fees new strategies might generate, but it is positive that Helios is trying to diversify its fee streams.

Putting this together, it is quite possible that by around 2030 Helios could have:

1. Two recurring fund families (PE and CLEAR) capable of raising funds in the +/- $1bn range.

2. A growing permanent capital vehicle in HSEG which I guess might have $2-300m of third party capital.

3. Small but growing third party assets in a fourth major strategy.

4. Realised carry income from Helios IV.

5. Unrealised carry building up from Helios V and CLEAR I.

6. An EM fundraising cycle turning in its favour.

Almost any combination of these things would make Helios a very different animal - bigger, more profitable, and more diversified than it has ever been.

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Other balance sheet notes

• Total liabilities are 23% of tangible assets and borrowings are 7% of tangible assets.

• HFP has $33m in debt including a small amount of fund level leverage which is secured on fund assets but ultimately is recourse to HFP.

• HFP has drawn $10m of a $100m facility maturing Feb 2031, at SOFR + 6%. Including $14m in cash and $48m in Seven Rivers which is being liquidated, HFP has significant liquidity.

• Borrowings would be 22% of tangible assets if HFP maxed out its loan facility and invested the proceeds in tangible assets.

• HFP has unrecognised deferred tax assets ($41 million at year-end 2025), mostly from net capital losses and investment differences.

• Limited partner distributions payable is money owed to fund II and III LPs as they wind down.

• 100% of the SLP Interests is consolidated onto balance sheet and the 50% that is funded by management appears as an offsetting liability (amounts attributable to other limited partners).

• Until 1q26, HFP carried its interest in Helios at fair value using a DCF. In 1q26, HFP determined that it should consolidate Helios. No consideration was exchanged but for accounting purposes HFP “bought” Helios at the yearend 2025 carrying value. The DCF inputs for this were disclosed. For management fees, they were 9% growth for 7 years, 4.5% thereafter, 34% pretax profit margins, and a 17% discount rate. For carry, they were exit multiples of 1.5-3.7x, exit dates from 2026-2031, and discount rates of 24-28%. This transaction created $52m of identified intangibles (the present value of expected profits from existing management contracts, of which $2m was amortised in 1q26) and $60m of goodwill (the present value of expected profits from future management contracts, which is subject to impairment testing).

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Valuation and expected returns

The share price is bouncing around $1.70. This is a 50% discount to TBVPS of $3.26. TBV is made up of holdings in the Helios funds, direct holdings in African companies, and cash. It does not include anything for Helios, the asset manager. What little disclosure we have suggests carrying values are reasonable, as does third party investor validation. HFP’s balance sheet is only lightly levered, limiting downside. On a balance of probabilities, I am prepared to trust that HFP could realise tangible book value in an orderly liquidation and that TBV will grow as the investments perform.

The discount to BVPS ($4.27) is even greater at 60%. The difference between TBV and BV is the intangibles and goodwill created when HFP consolidated Helios (see above). While I think the assumptions underlying the “acquisition price” are aggressive, they are not insane, and it is interesting that $0.46 per share of identified intangibles represent the expected profits from existing contracts. If you include this the “adjusted TBVPS” is $3.72 and the discount is 54%.

With such large discounts, you don’t need heroic assumptions:

• If TBVPS can compound at 10% and the discount moves to 30% over 5 years, the stock could return 17% per year. This requires the underlying investments to do ok, but does not require Helios to work.

• If BVPS can compound at 15% and HFP can pay a dividend from Helios profits (which are the goals stated at the 2026 AGM), I would expect the stock to trade at 1x book value in 5 years and it could return 38% per year plus dividends.

Obviously worse scenarios are imaginable. Worse scenarios are always imaginable. But HFP is a diverse collection of carefully-chosen assets in a fast growing, capital starved part of the world. I think an outcome within the range of returns shown above is realistic.

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Conclusion

HFP is a diverse collection of seemingly decent investments trading at an extreme discount. It has optionality in Helios, which appears to be heading in the right direction, and also in the underlying investments, some of which could be home runs. It is run by motivated, experienced, and aligned managers. It offers exposure to a turn in the EM fundraising cycle, which I actively seek. It is illiquid, so if interest picks up the stock could move quickly. It is starting to screen better - book value has grown for the last 5 quarters, and its recent consolidation of Helios opens the door to industry-standard valuation metrics. It is one of the more speculative holdings in my portfolio, and one of the smaller ones. But I think it has the potential to deliver excellent returns.

Links to previous Reviews

1. IRSA

2. Brookfield

3. Cheniere

4. Uber

5. Howard Hughes Holdings

6. Millrose Properties

7. Microsoft Part 1, Part 2, Part 3.

8. My notes

Thanks for reading - if you enjoyed reading this please subscribe, like, and restack, and do get in touch if you have questions.

Pete

This email is a summary of my activity this month.

First, a big thank you. Building Arks has tripled its subscribers this month. Quite incredible, and very pleasing.

Trades

• Added to Exor, which is at a silly discount (as usual).

• Bought a tracker in Derwent London. There is value in the UK.

• Added a little to my largest position, Fairfax Financial. First time I have added since June, 2020.

• Added a little IRSA when it sold off.

• Bought a tracker in The Hong Kong Shanghai Hotel.

• Several reductions to Ensign Energy Services, Borr Drilling, and Transocean to add to Howard Hughes. Notes and reasoning here, here, here, here, and here. As you can tell I tend to average in and out!

• Reduced Grupo Aval and Grupo Cibest into the Colombian election. Not a smart move so far but I had good gains I wanted to protect.

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Articles I wrote

• Brookfield results. Going through a slow patch.

• Millrose results. Fine…for now.

• Microsoft results. Copilot becoming a growth engine.

• Howard Hughes results. Strong MPC cash flows.

• IRSA results. Very promising as Argentina changes.

• Uber results. Thesis developing nicely.

• Cheniere results - strong, and a masterclass in how to execute a buyback.

• Can Microsoft Compete? Part 1, Part 2, Part 3. Tl;dr: yes, it has an exciting future as the distributor of commoditised intelligence to enterprise.

What I found interesting this month

• on Hokkaido Electric Power.

• on why SAAS companies have time to respond.

• on Kingsway, which I have my eye on.

• on AI harnesses as moats. Interesting, but I had a question.

• on Anthropic business adoption.

• on YPF. Highly relevant to Argentina and therefore IRSA.

• on Derwent London.

• on Apollo’s strong results and Howard Hughes.

• on Amazon’s robotics growth.

• on deep value in The Hong Kong Shanghai Hotel.

• on Japan’s collapsing car industry.

• on moats in the codebase.

• on Uber Freight. Is this an emerging growth driver?

• on Hermes. Persuasive piece on moats.

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Thanks for reading - and please get in touch if you have questions.

Pete

Tag for finding my other articles on this stock: BN

Key takeaways

A slower growth quarter with acceleration expected through the year. Private credit worries are not systemic and Brookfield’s areas of exposure are fine. Momentum is accelerating in real estate. Merging BNT (insurance) back into BN gives the insurance operation a huge capital base. Both BN and BAM have bought back significant amounts of stock recently.

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Thesis and valuation update

No major change.

• Probably the single thing that stood out to me is that office construction costs have risen so significantly that the rents required to justify newbuilds are sometimes double current market rents, and demand is growing.

• 2026 will be a record year for fundraising.

• There is useful discussion of insurance capital and use of Bermuda reinsurers in the BN call.

• Most of Brookfield’s insurance business is life/annuity, but they have a small P&C insurer which they are increasingly talking about scaling.

• BEP have commented for several quarters now that battery costs have come down so much that they are economic for balancing grids an evening out renewable generation.

• I recommend reading letter too - good discussion about how little macro matters, and how they observe, test, and perfect businesses before scaling them.

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Notes (please note these are call summaries. I don’t dive into the detailed reporting every quarter).

BN

• DE $1.6bn, $6bn LTM, and will strengthen through the year. DEBR $0.59/share, up 7%, LTM $2.32/share.

  • Advanced $17bn of sales “substantially all” at or above marks.

  • Realised $157 of carry into income and have $11.8bn unrealised.

  • Think carry inflects in 2h as sales accelerate.

  • Partially monetised a tech investment at a gain. Growing relationships with tech companies are leading to interesting investment opportunities for the BN balance sheet and clients - they have $2bn in tech of which $1bn is SpaceX at its pre-IPO mark.

  • YTD have bought back $470m of BN shares plus $575m at BAM.

• Macro developments “often receive far, far more attention than their long-term impact warrants. Bottom line, we largely try to ignore them when building our business…Our role as investors is to capitalize on attractive entry points to acquire good businesses for value, operate them well and allow compounding to work over time…We take the time to watch an industry, learn how it works, invest in a measured way, refine a business model and only then scale a platform. This allows us to make small mistakes while avoiding large ones. In our experience, successful businesses are not built quickly. They are built deliberately.”

• Private credit: “there are issues that are grabbing a lot of headlines, but in the scale of the broader investment markets, their materiality is low [and] as it relates to Brookfield, these are very immaterial asset classes to us based on our deliberate posture…our credit portfolio is performing incredibly well.”

• Real estate.

  • Sentiment is now catching up with fundamentals. “Buyers looking for solid assets are moving back from software to real assets like these.”

  • In office, signed 2.6m ft2 of leases, 15% above the expiring levels.

  • Office replacement costs have risen significantly. Rents required to justify new construction are double current market rents in many markets. This makes new supply very difficult to deliver.

  • Manhattan West was started in 2020. It cost $1000/ft2; would be $2,500/ft2 now. Most recent lease was signed at nearly 3x the rent of the first lease, and is still not high enough to justify new construction. Recently refinanced this: $1.9bn 10-year nonrecourse mortgage, including $400m cash extracted, at 5.5% - a 107bp spread to treasury.

  • One Leadenhall was fully leased within 6 months of completion and achieved the highest rents ever in the city of London.

  • In retail, tenant consolidation into top-tier malls continues to drive demand. Commenced 1.6m ft2 of leases, 11% above prior levels.

• Brookfield Wealth Solutions

  • Insurance has $180bn in assets, $20bn of regulatory capital, and over $2bn of annualised earnings.

  • Origination

    • “Our priority is not maximizing volume but generating high-quality, durable earnings.” Goal is to compound equity capital at 15% with low risk and generate stable earnings.

    • Aging and the decline of defined benefit pensions creates a long runway for growth.

    • Annuity demand in the US is down 9-10% y/y but Brookfield has picked up 4pp of share.

    • Recently launched on 2 major bank platforms with more to come. Brookfield sell 1/3 of annuities through the bank channel vs. peers at 2/3.

    • Will write $25bn of new policies in 2026.

    • Outflows will be $10-12bn - average liability duration is 8-9 years.

    • Asia - early stages of building a presence in a very significant market, with growing interest from counterparties.

  • Spreads

    • LTM deployed $15bn into Brookfield strategies at an average total return exceeding 10%.

    • Spreads compressed slightly this q. Annuity rates peg to the back end of the curve but cash from newly sold annuities earns the short end until it can be deployed. When the yield curve steepens, therefore, spreads compress slightly. What matters in the long run, however, is the total return over the life of the annuity.

    • Brookfield are well positioned to invest globally for best total return. “We’re trying to build a business where at the top of the house, we can move our capital around to geographies and products, and we can do that without any conflicts or clients or other invested capital partners sitting in any parts of the business.”

  • Capital

    • Each policy-writing company is rated A or A- by the 3 major agencies, and 2 have received upgrades over the last few years.

    • Brookfield generally operate at about 4x the regulatory minimum capital requirement, not including the excess capital at BN.

    • UK is moving against use of Bermudan companies to reinsure pension risk transfer deals. No impact: Just doesn’t use Bermuda as a reinsurance jurisdiction, and anyway Bermudan capital rules align with the UK and Europe so repatriating reinsurance won’t affect competitors either. (My notes: the Bermuda regulatory regime is Solvency II equivalent and for US purposes Bermuda is a NAIC reciprocal jurisdiction. In 2024 Bermuda overhauled its rules to remain Solvency II equivalent, specifically targeting the life reinsurance and annuity block transfer markets where PE-backed reinsurers were taking advantage of Bermuda’s more lenient capital eligibility rules for private credit. Bermuda’s approach to assumed default and downgrade costs on private assets now reportedly results in higher costs than those applied to a reinsurer authorised by the UK PRA, so the competitive advantage of Bermuda domicile now rests primarily on the Pillar Two corporate tax rate of 15%).

    • The planned merger of BN and BWS creates a fully integrated insurance/investment operation and gives insurance a vast permanent capital base.

  • Closed acquisition of Just Group.

    • Leading pension risk transfer and individual annuity provider in the UK. Serves 700k UK pensioners, has $40m of assets. Going-in valuation gives a 10-12% return.

    • Brookfield can improve Just’s investing so that it can grow its £5bn of annual originations.

    • Just is very good at operating small pension schemes, where there is not much competition.

    • With BN’s capital and asset origination, they can also move into large deals, where there is also not much competition. (Competition is in the middle.)

  • Clearbrook (P&C) achieved a 99% CR. Important diversifier into specialist insurance. Have worked hard to exit some lines, derisk liabilities, and grow profitably. Expect opportunities to grow organically and via M&A as the P&C market softens.

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BAM

• FRE +11%, DE 7%.

  • FBC +12%.

  • LTM FRE 18%.

  • Sold $8bn, invested $34bn,

  • Will exceed long term growth targets in 2026.

  • Have bought back $800m over the last 7 months.

  • After the q, they issued $550m of 5y notes at 4.83% and $450m of 10y notes at 5.3%.

• 2026 will be a record fundraising year by a significant amount.

  • Including Just Group and flagship PE, YTD fundraising is $67bn, over half of total 2025 fundraising.

  • Each of Primary Wave, 17Capital and Pinegrove recently recently closed funds that were their largest ever and the largest of their kind.

• Oaktree closes in 2q. Benefits: easier to create customised solutions combining both companies’ products, and potential to optimise 2 balance sheets.

• “One of the clearest ways our platform is evolving is in how we engage with our largest clients.”

  • Investors are consolidating more of their business with fewer managers that can invest at scale across asset classes and geographies and up and down the capital structure.

  • Conversations are leading to broad strategic relationships and customized solutions using insights from across the Brookfield ecosystem.

• Real estate recovery is accelerating.

  • “What we’re seeing on the ground is far ahead of what you’re reading in the headlines”.

  • Significant increases in transaction activity and valuations. Primarily hospitality, logistics, housing, so far - less in office and retail but that will follow - “the fundamentals for office are absolutely flying…in Tier 1 markets, we’re seeing [rents] 50%, 70%, 80% higher than they were 5 years ago”.

• Credit

  • Spreads post-covid were excellent. That attracted capital and spreads compressed. They didn’t maximise growth in this period and “it’s important to separate the fundamentals of private credit from the excesses in select parts of direct lending.”

  • “We have always preferred areas where underwriting matters, where structure matters and where there is real downside protection, notably real asset credit, asset-backed finance and opportunistic credit”.

  • If there is a broader dislocation, Oaktree benefits.

    • “When liquidity becomes scarce and capital is repriced, that is when disciplined investors with flexible capital and deep experience have historically generated some of their best returns.”

    • “We are already tracking dozens of emerging opportunities in real time”.

    • Could deploy tens of billions in a proper credit dislocation but “today, we don’t see a broad-based macro condition that would result in meaningfully higher deployment patterns than what we’ve seen over the last 5 years. But we always see sector-specific distress. Today, we see distress in software, building products, chemicals, autos, packaging.”

• AI: “While there is a significant amount of capital flowing into the sector, the investment opportunity set is incredibly vast. And as a result of that, we can be incredibly selective. We can focus on the best assets in the best markets with the best revenue constructs and the best corporate credit counterparties.”

• Penetration of the individual wealth market is accelerating fast. With respect to 401ks, they are in advanced discussions with some of the largest target date fund providers to put real asset products into default portfolios.

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BIP

• FFOPU $0.90, up 10%.

  • Sold or agreed $1bn in sales.

  • Refinanced $1.5bn of nonrecourse debt.

  • Will exceed 10% FFOPU long term growth target this year.

• Assessing merging BIPC and BIP to form a single entity.

• New framework with a leading global OEM - exclusive long term leasing platform for industrial equipment, including for data centres, without residual value interest rate or refinancing risk. $375m (BIP share) over 24 months.

• Intel JV on schedule with first earnings in 3q26.

• Canadian midstream business seeing strong demand - completed $400m of growth projects over the last few months that are now ramping, and have $8bn of bite sized, straightforward, low-multiple growth projects ahead.

• Looking at an IPO for Csquare.

• Tremendous demand across datacentres, compute, fibre, grid stabilisation, behind-the-meter power.

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BBU

• Ebitda $582m, down on sales. LFL ebitda was up 5%. EFO $279m.

• Completed corporate simplification.

• Clarios is $15 per share in NAV at 9-10x ebitda and can 2x in 5y driven by advanced batteries (higher market share and higher margins), cash generation, and tax credits. Clarios received $1bn of tax credit cash this quarter, or $1.50 per share. Expect similar amounts annually through the decade.

• Sold 27% of La Trobe, an Australian asset manager and lender, at an implied 3x MM in 4y.

• Committed to lead a $500m investment ($150m BBU share) alongside OpenAI into the new OpenAI Deployment Company.

  • Primarily an advisory/services business which they know is needed from their own work.

  • Investment is a preferred with >15% upside CAGR but low downside.

  • Also gives the Brookfield ecosystem access to leading technology early.

• Sagen (Canadian residential mortgage insurer) has grown share, reduced expense ratio, and optimised capital efficiency under Brookfield.

  • ROE has gone from low double digits to over 20% and the business can distribute $400m per year over the cycle.

  • House prices are down 20% since early 2022.

  • 80% of the portfolio is fixed rate and most of the remainder have constant payments (so only the mix between interest and variable changes with rates).

  • Loans have full recourse, all insured borrowers in Canada are subject to a stress test that builds in a cushion for affordability in a rising rate environment, and insured borrowers facing financial hardship can extend amortizations.

  • Losses are therefore driven by unemployment (frequency) and home prices (severity). Both are manageable with resilient employment and significant homeowner equity.

  • Loss ratio has risen from 5% to 12% on severity, mainly on 2022/23 vintages with less equity. They price for long run loss ratios of 15-20%. Will be below that this year, but the last few years have been abnormal with strong employment and house price appreciation.

• BRK won a new concession in north east Brazil. Meaningful but will take time to ramp. Interest rates falling which may open an IPO window.

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BEP

• FFOPU +15% to $0.55. LTM FFOPU $2.08, up 12%.

  • Deployed or committed $2.2bn/$550m net.

  • Sold/agreed sale of $2.8bn/$800m net.

  • Closed $4bn of financing including CAD500m of 30-year notes at tightest spread ever.

  • Corporate level debt maturity now 14y.

  • Brought 1.8Gw online (LTM: 9Gw, up 2x in 2y) and contracted 1.7Gw from pipeline.

• Between strong demand and strong bids for mature assets, feel they can grow medium term FFOPU ahead of the 10% long term target.

  • Capital recycling is driven by value - if recycling mature assets generates more value than holding them, they sell. Bids are currently strong. Created Northview Energy in partnership with BCI, Norges Bank, and a Brookfield fund. BEP will sell mature, derisked renewables assets to Northview.

  • “Demand continues to go up. It is higher today than it was last quarter. It’s higher today than it was last year.”

• Good progress on the Westinghouse / US Govt deal including ordering long lead time items.

• Continue to see opportunities in the public markets where companies have projects but not capital. Bought Boralex in partnership with La Caisse. $6.5bn EV. Accretive on close, and can accelerate growth.

• Batteries

  • “Undoubtedly the fastest-growing technology across Brookfield Renewable today is batteries and energy storage. We are seeing that within all of our existing development platforms. We are increasingly looking at stand-alone energy storage opportunities. And the rationale for this is very simple. They remove grid congestion…and they are very quick to deploy.”

  • CapEx for batteries and energy storage has come down 65% over the last 2 years, “making these investments very economic”.

  • It is “absolutely, in no uncertain terms” economic to add batteries to existing renewables generation and offtakers are willing to pay a premium to firm up their power.

• Issued 2.8m BEPC shares to buy 2.8m BEP LP units for a net cash gain of $27m. Continue to explore whether a single structure is better.

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Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.

Pete

Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.