Everyone wants to be unique. Elvis Costello made a career out of it. Costello’s biting sarcasm stood in stark contrast to the wave of conservatism that swept Britain in the late 1970’s and brought Margaret Thatcher to power. He might have been talking about the military, or he could have meant the anonymous office drones, or maybe he was thinking of the formulaic record company hit makers. Whomever it was – probably all the above – he knew he couldn’t be one of them.


You can be a non-conformist investor. The romantics believe that you will be paid quite handsomely like John Paulson or Michael Burry. Most of the time you end up underperforming. In the worst cases, you finish lonely and broke like Jesse Livermore.
I had aspirations of finding that iconoclastic piece of investing research when I sought to understand Brookfield Infrastructure Partners (BIP). Just as I was about to hit send, I found a major bust in my numbers. To quote the legendary bassist Mike Watt:

After correcting the error, my valuation exercise resulted in a number that was pretty close to the current market price. There’s nothing particularly wrong with this conclusion. Most of the time, markets are efficient. However, I was convinced that Brookfield Infrastructure Partners was wildly overvalued. Confirmation bias can be a hell of a drug, apparently. So, here’s my story. If you stick around until the end, you just might find some loose threads to pull that may yet prove to be BIP’s Achilles heel.
When most people discuss Brookfield, they are either referring to the giant Canadian asset fund known as Brookfield Corporation (BN), with a market cap of $91 billion, or its cousin Brookfield Asset Management (BAM), with a market cap of $22.8 billion. I’m writing about another head of the hydra: Brookfield Infrastructure Partners (BIP), the publicly traded limited partnership with a market capitalization of $13.64 billion at the recent price of $29.54 per unit.
Brookfield Infrastructure Partners posted consolidated revenues of $21 billion in 2024 among four segments: utilities, transport, midstream and data. Utilities include 2,900 km of transmission lines in Brazil and 3,900 km of natural gas pipelines in North America, Brazil, and India. There’s also smaller distribution and metering businesses in the UK and ANZ. Transport includes the Triton intermodal container business, minor railroads in North America, Europe and Western Autralia, and toll roads in Brazil. Midstream is largely focused on gas pipelines and gas liquids processing facilities in North America (primarily operated by Inter Pipeline of Canada). The data business includes fiber optic networks in North America, Brazil, and Australia, 300,000 cell towers in Europe and India, and 140 data centers. There are no synergies between these businesses. It is largely a collection of assets gathered by Brookfield Corporation (BN), and Brookfield Asset Management (BAM) which generate significant management fees.

Deciphering BIP requires a compass and flashlight. The company is structured as a limited partnership with the controlling general partner (GP) interests held by a variety of Brookfield entities. Many entities are based offshore. Certain GP interests are also owned by the publicly traded Brookfield infrastructure Corporation (BIPC). The limited partnership units trade with the ticker BIP.

Consolidated assets of the holding company amounted to nearly $104.6 billion at the end of 2024. Debt totaled $54 billion. Book equity summed to $29.85 billion. Yet, the publicly traded limited partnership units have balance sheet equity of little more than $4.7 billion. Over $20.5 billion of book equity is attributable to joint venture partners and the balance of $4.6 billion is held by general partners and preferred interests.

BIP is proud of its distributions to its limited partners. The dividend yield on offer for today’s unit purchasers is nearly 6%. According to BIP, this payout ratio is well-covered using the company’s preferred metric of distributions as a percentage of funds from operations (FFO), and as a percentage of adjusted funds from operations (AFFO). FFO is a proxy for operating cash flow. The measure adds non-cash items, mainly depreciation, back to net income. AFFO takes funds from operations and subtracts maintenance capital expenditures. According to BIP, 88% of AFFO is paid to partners. The dividend is a key component of BIPs investment appeal, and any doubt in the ability of the company to pay unitholders their quarterly stipend would surely send the share price plummeting.

The most important conclusion to draw from the financial reports is just how little is owned by the limited partners. Publicly traded units of BIP only have a claim on 15.76% of the balance sheet equity. Funds from operations tell a similar story. Consolidated revenues of $21 billion emerge as $5.67 billion of FFO. Approximately $3.2 billion of FFO is attributable to the joint venture partners, leaving $2.47 billion of funds from operations attributable to the partnership. Next, BIP deducts maintenance capital expenditures of $606 million. This leaves $1.86 billion of adjusted funds from operations (AFFO). Limited partners received 77.9% of the distributions in 2024 and general partner and preferred interests received 22.1%.
Valuation
As noted above, BIP limited partners have a claim on approximately 15.76% of the company’s equity, so I adjusted balance sheet items to reflect this percentage. AFFO for 2024 was $1.86 billion. I added the proportional interest expense attributable to the partnership to arrive at an “unlevered AFFO” of $2.4 billion. Distributions were split between general partners and limited partners, with the LP’s receiving about 78% of the total. Therefore, I assigned $1.87 billion to the limited partners. This “unlevered AFFO to limited partners” was capitalized with by dividing the amount by 8.22%, the weighted average cost of capital for BIP.

Where does that 8.22% discount rate come from? At $8.5 billion, debt accounted for 39% of capital. Interest as a percentage of total financial liabilities cost BIP 6.28% in 2024, or 4.96% after tax deductibility is factored in. Equity costs take into account the geographic diversity of BIP’s revenues. The breakdown follows: 67% North America, 11% India, 12% South America, and 10% “Other”. I used the 10-year US Treasury rate of 4.31% for the risk-free rate assumption across all regions, but I did adjust the equity risk premiums. Therefore, the North American cost of equity is approximately 8.6%, India is 14.5% and Brazil is 15.3% the balance was weighted to a cost of equity of 10.2%. The total cost of equity amounted to 10.23%.
The total capitalized value to limited partners is $22.77 billion. After subtracting $8.3 billion of proportional net debt, the net value to the limited partner unitholders is $14.5 billion, or $31.41 per share. Based on this calculation, BIP is fairly valued.
It didn’t start out this way. I thought I would crunch enough numbers to show that Brookfield Infrastructure Partners is significantly overvalued.

My run down the rabbit hole started with an article which appeared in the Financial Times on March 5th. The article questioned the opaque financials of Brookfield Corporation (BN). In a series of transactions, Brookfield appeared to utilize reserves from its insurance subsidiaries to disguise losses on Manhattan office buildings. Casting doubt upon the integrity of one of the world’s largest asset managers is a tall order, so it raised a few eyebrows when the name Dan McCrum appeared in the byline. McCrum famously exposed the $24 billion Wirecard fraud in 2018. I’ve not read McCrum’s book about “Europe’s Enron”, but I highly recommend the documentary Skandal! in which he features prominently.
The FT article from March 5 quotes a few sources who share their skepticism about the Canadian asset management behemoth and its various holding companies and subsidiaries. One, Keith Dalrymple, has written several comprehensive pieces about Brookfield Infrastructure Partners (BIP).
Dalrymple argues forcefully that the limited partnership units should trade for roughly net asset value. In his view, the market misunderstands the partnership to be a conglomerate with aggregated cash flows. In his view, BIP is merely an investment holding company which should be valued at the net value of its balance sheet. Dalrymple contends that BIP’s market value is overstated by as much as 300%.
There is no doubt that BIP’s use of consolidated financials allows the company to create the illusion of a unified conglomerate. Moreover, the liberal use of the non-GAAP accounting terms “FFO” and “AFFO” make the company sound like a real estate investment trust. The reality is far different. The web of joint ventures is a loose confederation of companies.

One of the most enlightening parts of Dalrymple’s research was his reference to Edper, a Canadian holding company that collapsed in 1995 under mountains of debt. At one point, Edper held assets of over $100 billion and employed over 100,000 Canadiens in its many subsidiaries. Its market capitalization once amounted to 15% of the Toronto Stock Exchange. Edper was the brainchild of Edward and Peter Bronfman. Exiled from the main Seagram’s Bronfman clan, Peter and Edward formed Edper in 1959. They controlled Trizec-Hahn, one of north America’s largest real estate developers, Brascan, the huge Canadian metals and mining giant, and Labatt Brewing. Control reached dozens of companies.
The brothers perfected the art of acquiring a business with borrowed money, taking most of it public while maintaining control, and using leverage to repeat the process over and over through a vast web of subsidiaries. Ultimately, excessive debt caused the empire to collapse. But the professional management at Edper didn’t disappear. In fact, EdperBrascan emerged from the ashes and changed its name to Brascan in 2000. It transformed itself into none other than Brookfield Asset Management in 2005.

Dalrymple contends that the modern Brookfield companies are using the same playbook. Looking at Brookfield Infrastructure Partners through the Edper lens changes one’s understanding of the limited partners: Although they are technically participants in the equity structure of the business, they have no voting authority. As long as BIP can pay the distributions, the units trade for a price that is three times as high as the value of its underlying assets. This expensive currency a useful tool for adding future joint ventures to the BIP umbrella.
In a sense, Brookfield is borrowing money at 6% interest under the guise of “equity”. It’s an especially good deal to be the general partner in this structure. After all, thanks to incentive payouts, general partners collected 22% of the distributions despite having a claim on less than 1% of book equity. Then there are the management fees. Brookfield earns 1.25% of the market value of all classes of partnership units plus recourse debt at the holding company level. Management fees were nearly $400 million in 2024. Add the $363 million of general partner distributions and you have proceeds to the parent companies that exceed 4% of revenues. This is a lucrative arrangement for BAM.

The area that bears further scrutiny is the use of maintenance capital expenditures to manage adjusted funds from operations. BIP reports that AFFO taken as a percentage of invested capital results in a return on capital between 14% and 15% over the past two years. I wanted to know if the overall company had equally stellar returns on capital. I decided to reverse engineer an FFO for the entire company. I took FFO attributable to the limited partnership and added back the FFO attributable to non-controlling interests. Let’s call this “global FFO”. Next, I took the percentage of limited partner FFO to global FFO for each year. Then I divided the maintenance capital expenditures attributed to the partnership by this percentage to come up with a “global maintenance capital expenditure” amount. Finally, I subtracted the global maintenance capital expenditures from the company wide consolidated FFO amount to calculate a “global AFFO” number. The return on capital was less than 10% on this company-wide basis.
I may be way out over my skis on this hypothesis, but one can envision a scenario where BIP maintains the illusion of strong performance by adjusting the maintenance capital expenditures in such a way to increase AFFO to the LP’s. The maintenance capital expenditure gray area could be rather fuzzy. How many accountants are questioning the useful life of a toll road in Minas Gerais, a cell tower in Kolkata, or a pipeline valve in Thunder Bay?

Finally, I would also highlight the growing weight of debt at the company. Leverage now exceeds 180% of book equity. Interest coverage defined as FFO-to-interest expense has steadily declined from over 5x in 2017 and 2018 to 2.75x last year. There’s plenty of coverage, but the margins are shrinking. Once again, the Edper playbook is at work. Not only is non-recourse debt present at the joint venture level, BIP has added $4.5 billion of corporate debt with no assets to back it up.
So where do we stand? Capitalizing unlevered AFFO gets you to a valuation in line with the current market price. This is reasonable, but its also the game that BIP management wants you to play. They want you to value the steady dividend and take their estimation of cash flows attributable to limited partners. A more cynical view is that the holding company is an illusion. The unified financial statements are possible because of intricate partnership control mechanisms. The company exists only on paper. The confederation of assets pay lucrative management fees, and as long as the dividend remains intact, few will question whether the company deserves to trade for three times its net book value.
Until next time.
DISCLAIMER
The information provided in this article is based on the opinions of the author after reviewing publicly available press reports and SEC filings. The author makes no representations or warranties as to accuracy of the content provided. This is not investment advice. You should perform your own due diligence before making any investments.