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  5. BN: Why does Brookfield spin out subsidiaries rather than keep 100% of their businesses within the parent company like Berkshire? [Brookfield Corporation Class A Limited Voting Shares]
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Q: Why does Brookfield spin out subsidiaries rather than keep 100% of their businesses within the parent company like Berkshire? How does the BN approach create greater shareholder value compared to having just one company with all of its bits under one roof?
Asked by Joel on September 29, 2023
5i Research Answer:

Some spin outs were specifically designed for investors to benefit from the dividend tax credit. A limited partnership structure does not qualify, but a corporation does. So BEPC, BIPC etc. were created for this purpose, and it worked in that these entities typically get a higher valuation. Also, limited parnterships are typically not included in some indices, and some institutions cannot buy LPs. So creating corporations allows them to do so. The BAM spin out was specifically designed to enhance value. US asset management companies were trading at big premiums to BAM.A, and segmenting out this division allows for a higher valuation on the asset management side, which translates to BN, which owns 75% of BAM. Typically, investors do not like 'holding companies' so much (other than BRK.B, usually) and creating a separate companies can (not always) allow hidden value of subsidiaries to be better recognized.