Brookfield Asset Management Shareholders, 3rd Quarter Results

Brookfield Asset Management Shareholders, 3rd Quarter Results

Overview

We delivered strong results, and our business performed extremely well, demonstrating its resilience and diversification. Private assets continue to show their advantage for investors with stability during these volatile markets. This is contributing to increasing allocations to alternatives. By contrast, the volatility of equities, and publicly-traded fixed income—traditionally considered a safe haven—has left many investors searching for these alternative areas of investment.

Our Fee-Related Earnings (FRE) and Distributable Earnings (DE) were solid. Distributable earnings were $568 million in the period, and we continue to project significant growth in our earnings in 2024.

We were very active in the third quarter and beginning of the fourth, with the breadth and scale of our franchise enabling us to complete several large transactions. We are on track to have our largest fundraising year ever, with inflows of $24 billion since our last earnings report which takes capital raised to date this year to $61 billion, and still heading towards $150 billion.

Interest Rates Are Peaking, and This Is Good for Transaction Activity

Central banks have made significant progress in lowering headline inflation. Economic activity has been resilient and labor markets have remained tight, particularly in the United States. This has led to a market expectation that interest rates have created. However, it is worth noting that rates are still low on an absolute basis by historic standards.

With this backdrop, the market has increased confidence in pricing risk, which has led to liquidity starting to come back to the capital markets. And with record levels of dry powder currently on the sidelines, we expect a very busy period of transaction activity through to the end of 2024. Geopolitics, as is often the case, is an unknown that could lead to heightened volatility in the near term, but we expect that in the fullness of time this will not impact the long-term outlook for the global economy.

Financial Results and Fundraising Momentum Continue to Be Strong

Last quarter, we increased our fundraising target to close to $150 billion for the year. We are fortunate to have leading platforms in sectors within alternative assets that continue to see the greatest demand among investors. We held multiple closes in the third quarter and, with the anticipation of additional closes for our flagships, several complementary funds, and the pending completion of a contract to manage the insurance assets of AEL, we continue to remain confident in achieving our target before we release our results for the fourth quarter. A strong year of fundraising this year sets us up for a strong year of earnings growth next year.

The most significant fundraising updates and deal activity since the beginning of the third quarter are:

Renewable Power and Transition— We are currently fundraising for the second vintage of our global transition fund and have seen very positive reaction from clients. We expect to hold our first close in the fourth quarter. We are very encouraged with the early level of investor engagement and demand for this second vintage and expect it to be larger than our record setting first strategy, which was $15 billion. Our strategy remains the market leader in transition energy investing.

Subsequent to the end of the quarter, in October, we signed two investments for our new fund – Banks Renewables Limited, a leading independent renewable energy development business in the UK, for approximately $650 million and a second joint venture with Axis Energy, with whom we have partnered since 2019, to establish CleanTech, a renewable energy development platform targeting growth in India with a commitment of up to $850 million.

Infrastructure—For the fifth vintage of our flagship infrastructure fund, we closed on $3 billion of capital bringing the fund size to more than $27 billion. We anticipate holding the final close for this fund by the end of the year. Subsequent to quarter end, we held a final close for our third infrastructure debt fund of $1.3 billion of capital, making this vintage more than double the size of its predecessor fund with over $6.0 billion of capital commitments.

At the end of September, we closed our acquisition of Triton International, the world’s largest lessor of intermodal freight containers. The acquisition was primarily done through our fifth flagship infrastructure fund and a co-investment from BIP, who issued approximately 21 million shares of BIPC, valued at a little over $750 million, to Triton shareholders as partial consideration for the transaction. The latest vintage of our flagship infrastructure fund is approximately 40% committed.

Private Equity—In our private equity franchise, we held a final close for our sixth opportunistic private equity fund of $715 million, bringing the total strategy to $12 billion. This vintage represents the largest private equity strategy we have ever raised.

In October, we agreed to the partial sale of Everise, a technology services investment in the fifth vintage of our flagship private equity fund, at a valuation of $1 billion, representing a 3.5x multiple on total invested capital, with the fund continuing to hold a 46% interest in the business. The deal is expected to close in the first quarter of 2024.

Real Estate—We continue to see strong demand for the fifth vintage of our opportunistic real estate fund, closing on an additional $2 billion during the quarter, and we expect to finalize our first close during the fourth quarter.

During the quarter, we deployed $2 billion of capital across our real estate funds, including $400 million for North American logistics. Transaction activity is picking up and 2024 should be one of the best years we have seen in a while for investment.

Credit & Insurance Solutions—Oaktree raised a total of $11 billion across all strategies during the third quarter to date. For the twelfth vintage of our opportunistic credit fund, we held a close of $3.2 billion, bringing the size of the fund to over $6 billion. For Oaktree’s strategic lending partners fund, we closed on $2.3 billion of capital bringing the size of the fund to $3.6 billion.

Within our insurance solutions business, we raised $2.1 billion of net new capital during the quarter from Brookfield Corporation and its affiliates. We also announced a strategic partnership with Société Générale to originate and distribute high-quality private credit investments through a new private investment grade debt fund. The initial fund is targeting a total of €10 billion of deployment and will launch with €2.5 billion of seed funding at inception, provided by Société Générale and Brookfield Corporation.

Listed Perpetual Entities

Publicly traded utility, infrastructure and renewable power sectors have traded lower recently, in large part due to the perceived effect of interest rates on these securities, and some discrete issues impacting certain market participants. While the Brookfield listed entities were not directly impacted by these issues, they traded down in sympathy. In order to align our interests, we charge our listed entities a management fee based on their market capitalization, so our results this quarter were partially impacted by the share price performance of Brookfield Infrastructure Partners (BIP) and Brookfield Renewable Partners (BEP).

BIP and BEP both have very strong underlying business fundamentals and strong balance sheets, with attractive and achievable FFO and distribution growth targets. Both companies gave strong guidance at their Investor Days last month and announced robust earnings results last week. We believe the recent share prices are largely the result of negative public market sentiment and their share prices will ultimately rebound.

Investor Day

We hosted our first Investor Day as a stand-alone alternative asset manager in September in New York. For those who were unable to attend, the webcast and materials are posted on our website.

Our goal was to highlight the factors that have contributed to our success over the past 20+ years and what will fuel our continued growth over the next five years and beyond. We summarise the key takeaways from the day with four key points:

The Brookfield Ecosystem Provides Significant Competitive Advantages

The Brookfield Ecosystem is the collaborative interplay between our assets, businesses, counterparties, clients, and the capital flows we manage and oversee daily. These collectively play a critical role in the backbone of the global economy, and the interconnectedness across the over $850 billion of assets we have under management allows us to gain unique insights across global geographies, identify investment trends, and seize attractive opportunities. We leverage strategies, knowledge, and perspectives from various parts of our business to invest confidently throughout economic cycles and in diverse market conditions, enabling us to seek out the best deep-value opportunities. Our ecosystem proves particularly vital as global trends like deglobalization, decarbonization, and digitalization take center stage. This ecosystem has enabled our success to date and should continue to be a large and increasing differentiator for us going forward.

We Are Well Positioned to Capture Meaningful Opportunities in Private Credit

Along with our partners in credit at Oaktree, we have been preparing for a direct lending market like the one we are currently in. With banks reducing their private lending, and traditional capital sources becoming more scarce, alternative managers like us can fill the market demand for these products. Private credit is expected to be the fastest growing asset class within alternatives, driven by a shortage of liquidity and an increase in demand for capital as significant debt maturities need to be refinanced. Our ability to fund entire deals and facilitate better financing terms for prospective borrowers further aligns with our promise of being a best-in-class partner in business.

We Have a Strong Five-Year Organic Growth Plan

At each Investor Day, we set forth our five-year growth plan for fee-bearing capital, revenues, and earnings metrics. This year, we put forth the goal of surpassing $1 trillion in fee-bearing capital by 2028. This 18% compounded annual growth will come from all of our businesses, with particular emphasis on the accelerated growth within our private credit and insurance platforms, which are expected to grow to over $500 billion combined. Further growth is driven by fundraising efforts across our flagships and complementary strategies, which will propel our fee-related earnings to approximately $5 billion by 2028 – almost all of which will still be stable and resilient fee earnings.

We are also eligible to earn carried interest on new funds launched since the spin out, and this pool of carry-eligible capital will grow larger with each year. Over the next five years, our realized carry will be small, but it is expected to provide a significant catalyst for distributable earnings growth in the years thereafter. To give you a sense of the magnitude, in 2029 BAM is expected to realize approximately $2 billion of gross carried interest, which should grow to approximately $7 billion of annual gross carried interest realized by 2033. This gives us good line of sight on earnings growth for the next 10 years.

We Will Be Selective and Use Our Balance Sheet Strategically

Our balance sheet is debt free, and we currently hold close to $3 billion of net cash and equivalents. This fortress balance sheet is a source of strength for our business and by using it selectively and effectively, we will drive growth in our asset management activities over and beyond our stated goals. We may utilize our balance sheet to launch new fund strategies and business lines, or to make strategic acquisitions to bolster our existing capabilities.

Closing

We remain committed to being a world-class asset manager and strive to invest our capital in high-quality assets that earn solid returns, while emphasizing downside protection. The primary objective of the company continues to be to generate increasing cash flows on a per-share basis, and to distribute that cash to you by dividend or share repurchases.

Thank you for your interest in Brookfield, and please do not hesitate to contact any of us should you have suggestions, questions, comments, or ideas you wish to share.

Sincerely,

Bruce Flatt
Chief Executive Officer

Connor Teskey
President

November 6, 2023