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Brookfield Business Partners Faces Investor Concerns Over Performance

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  //business-finance.news-articles.net/content/202 .. rs-faces-investor-concerns-over-performance.html
  Published in Business and Finance on Wednesday, December 31st 2025 at 18:43 GMT by Seeking Alpha

• 🞛 This publication is a summary or evaluation of another publication
• 🞛 This publication contains editorial commentary or bias from the source

Brookfield Business Partners: A Deep Dive into Performance Concerns & Investor Flight

Brookfield Asset Management is a behemoth in the alternative investment space, known for its diverse portfolio and generally perceived stability. However, one of its publicly traded affiliates, Brookfield Business Partners L.P. (BBU), has been facing increasing scrutiny and investor concern. A recent Seeking Alpha article by Kerris Investments ("Is This The Worst Brookfield Affiliate?") paints a critical picture of BBU's performance, raising serious questions about its management, investment strategy, and ultimately, its value proposition for investors. This analysis delves into the core arguments presented in that piece and explores why BBU has become a source of significant negative sentiment within the broader Brookfield ecosystem.

The Core Problem: Underperformance & Value Destruction

Kerris Investments’ central thesis is simple: BBU has consistently underperformed its peers and, crucially, destroyed shareholder value over an extended period. While the article acknowledges that BBU's early years (2015-2018) showed promise, fueled by aggressive acquisitions and a favorable interest rate environment, the performance since then has been demonstrably poor. The key metric highlighting this is Total Shareholder Return (TSR). Kerris argues that BBU’s TSR significantly lags behind not only its peers in the private equity space but also other Brookfield affiliates. This isn't a minor difference; it represents a substantial erosion of investor capital relative to alternative investment options.

The article meticulously details how BBU’s share price has struggled, often trading at a significant discount to its Net Asset Value (NAV). This is a red flag in itself – a company trading below its calculated asset value suggests investors don't believe the assets are worth what they appear to be on paper. This disconnect between market perception and underlying asset valuation points towards deeper issues than simply temporary market volatility.

The Acquisition Strategy: A Source of Concern?

A key element contributing to BBU’s underperformance, according to Kerris, is its aggressive acquisition strategy. BBU focuses on acquiring businesses in the industrial sector – often companies that are not high-growth, but rather stable cash flow generators. While this can be a sound strategy, Kerris argues that BBU has consistently overpaid for these acquisitions, leading to diminished returns and increased leverage.

The article highlights several specific examples of acquisitions where the purchase price seemed excessive relative to the acquired company's performance post-acquisition. These deals appear to have been financed with significant debt, adding further financial strain on the partnership. BBU’s reliance on “roll-up” strategies – consolidating smaller businesses into a larger entity – has also been questioned. While roll-ups can create synergies and efficiencies, Kerris suggests that BBU's execution in this area has been flawed, failing to realize the expected benefits.

The Role of Management & Fees

Kerris doesn’t shy away from criticizing BBU’s management team. The article points out that despite the poor performance, management compensation remains high, tied primarily to assets under management (AUM) rather than performance-based metrics. This creates a misalignment of incentives – managers are rewarded for growing AUM, even if those assets aren't generating attractive returns for investors.

The “carried interest” structure, common in private equity, also comes under scrutiny. Brookfield Business Partners pays Brookfield Asset Management a fee based on the capital deployed and managed, regardless of performance. This inherent conflict of interest, Kerris argues, incentivizes BBU to continue deploying capital even when opportunities are questionable, further benefiting Brookfield Asset Management at the expense of BBU’s shareholders. The article suggests that this arrangement effectively acts as a "tax" levied on BBU's investors.

The Impact of Rising Interest Rates & Inflation

While BBU’s issues predate them, rising interest rates and inflation have exacerbated the challenges. The article notes that many of BBU’s acquisitions were made when interest rates were low, making the debt burden more manageable. As rates rise, these companies face higher borrowing costs, squeezing margins and potentially impacting their ability to service debt. Furthermore, inflationary pressures can impact operating expenses, further eroding profitability.

Investor Flight & Future Outlook

The Seeking Alpha article highlights a noticeable trend of investors selling off their BBU holdings. This "flight to safety" suggests a loss of confidence in the partnership's management and its ability to turn things around. The widening discount to NAV reinforces this negative sentiment, making it difficult for BBU to attract new capital or regain investor trust.

Kerris concludes that a significant overhaul is needed at Brookfield Business Partners. This includes a re-evaluation of the acquisition strategy, a focus on improving operational efficiency within existing portfolio companies, and a restructuring of management compensation to align incentives with shareholder value creation. Without such changes, BBU risks continuing its downward trajectory and potentially becoming a drag on the broader Brookfield Asset Management performance. The article strongly suggests that investors should carefully reconsider their exposure to BBU and explore alternative investment opportunities.

Disclaimer: This summary is based solely on the Seeking Alpha article mentioned above and does not constitute financial advice. Investors should conduct their own thorough research before making any investment decisions.