Brookfield Corporation Has Become the Next Berkshire Hathaway

Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) has built a record that is nothing short of impressive, with the stock dramatically outperforming the S&P 500 index (SNPINDEX: ^GSPC) over the long term. A key part of the industrial conglomerate's success is its business model. Brookfield Corporation (NYSE: BN) is trying to use that same model. Here's what you need to know about this Canadian investment giant.

The next Berkshire Hathaway

Berkshire Hathaway is often classified as an insurance company. That makes sense, since it does operate a number of large insurance businesses. However, the insurance operations are really the foundation on which it has built itself into a massive conglomerate. When you step back and look at the big picture, Berkshire Hathaway was really Warren Buffett's investment vehicle.

Image source: The Motley Fool.

The secret to Buffett's success was his decision to use the float from insurance premiums to invest in companies, either directly buying them or simply buying large amounts of their stock. This is the basic approach that Brookfield Corporation is taking after making several changes to its business.

Those changes included spinning off its asset management business (it continues to own a stake in Brookfield Asset Management (NYSE: BAM)) and building an insurance operation. Notably, Brookfield Corporation already oversees a number of publicly traded companies that invest in key focus areas, including renewable power, infrastructure, and private equity. It also operates private investment vehicles in real estate and credit.

Brookfield Corporation is similar, but different

Basically, Brookfield Corporation has already turned itself into the next Berkshire Hathaway, with a slightly different twist. At its core, the company is using the same investment-led insurance model that has been so successful for Berkshire Hathaway. However, in practice, it is making investments using a much broader collection of controlled investment vehicles. And it might be an even better approach.

Berkshire Hathaway is a complicated company to understand because of the massive conglomeration of very different businesses it owns. Brookfield Corporation is perhaps even more difficult to understand because it applies its investment approach across a range of public and private companies. That said, the use of public companies makes it easier to track what Brookfield Corporation is doing and how its investment decisions are performing, since you can simply look at each of the publicly traded companies it oversees if you want to keep tabs on what is going on. Berkshire Hathaway's investment decisions and results are a lot more opaque, with the company often lumping the results of its controlled businesses into groups when reporting earnings.

For many, Brookfield Corporation could be a better option than Berkshire Hathaway. That said, Brookfield Corporation's business shift is relatively new, so it still needs to prove it can successfully use Berkshire Hathaway's investment-led insurance model. But, given Brookfield Corporation's over 125 year history of growth, it seems like a worthwhile risk for those hoping to find the next Berkshire Hathaway.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Brookfield, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool has a disclosure policy.