Are Brookfield Private Infrastructure Fund Returns Inflated?

High levels of unrealized gains suggest that reported returns may be inflated. Will poor realizations and increasing competition dethrone the star of Brookfield's fund-raising show?

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Comparing Brookfield’s private infrastructure fund return statistics with those from competitors suggests the firm’s reported returns may be inflated.

We obtained the Santa Barbara County Retirement System’s report on private market investments. Santa Barbara owns numerous infrastructure funds, including two Brookfield funds. The pension fund’s consultant, Hamilton Lane, provided a table with statistics for all the funds. We filtered for infrastructure funds and ordered by vintage, which is shown below. The exception is the first fund – Brookfield Infrastructure Fund II, which is not owned by Santa Barbara – the system owns funds from other providers around that vintage. We inserted Brookfield data from BAM for comparative purposes.

We then created comparative statistics to compare realized vs unrealized gains and returns. The information is illuminating and shown in the table below.

For the 2013-2014 vintages, Brookfield’s 11% IRR is between competing funds’ 8.5% and 16.3%. However, Brookfield’s 47% realized gains are quite low compared to 98% and 82%, respectively, for the alternatives.

Brookfield’s comparison with other 2016 and 2017 fund vintages are also lackluster. Brookfield’s returns are somewhat comparable, but realized gains of only 37% are below the average of 63% and 85% for the other funds.

Only Brookfield’s relatively young 2019 vintage reports both returns and realizations inline with peers.

Allocators from the Santa Barbara County Retirement System would likely look at these statistics and conclude that Brookfield’s realized gains are low because returns are inflated. Further, returns may deflate with realizations.

The returns from Santa Barbara were from the year end 2023. Return data taken from BAM’s supplemental shows that realizing returns continues to be a problem

Even Brookfield’s 15-year old fund from 2009, which purchased assets at low post-GFC valuations is not fully realized. Note that BIF I’s 88% realized gains are comparable to two non-Brookfield 2016 and 2017 vintage funds from the Santa Barbara report. They are 7-8 years younger than BIF I, almost an entire vintage. This is a significant red flag, in our opinion.

Both the 2013 and 2016 funds should be well into the liquidation phase, but realizations look slow.

We believe that if Brookfield could have realized gains to solidify IRRs within the typical 10-year private fund time frame, they would have. The logical explanation is that they cannot exit positions at marked valuations.

Brookfield was a relatively early mover in the infrastructure investing space. Over the last decade, as infrastructure has gone mainstream, large asset managers, such as Blackstone, Blackrock and KKR have become increasingly competitive in the space.

Although Brookfield was best known as an owner and manager of real estate, we estimate that since 4Q19, infrastructure has raised more private funds that real estate and private equity combined.

We cannot be the only ones to have noticed Brookfield’s poor relative records realizing gains reported to investors. Will investors take notice and opt for the brand-name alternatives with better realization track records, effectively dethroning the king of Brookfield’s capital raising show?