Brookfield Asset Management Ltd. BAM-T is leaning on growth from its newer, fast-growing credit and insurance businesses to drive higher earnings over the coming year as it prepares to ramp up its deal-making.
A deal to buy a majority stake in credit manager Castlelake LP earlier this week underscores Brookfield’s ambition to be a major global player in credit markets, as demand for private credit has grown rapidly – from companies spurned by increasingly risk-averse banks, but also from investors who want to tap into the rapid growth in the asset class.
A newly formed credit group at Brookfield now manages US$300-billion, including US$50-billion of assets from the recent acquisition of U.S.-based insurer American Equity Investment Life Holding Co. Brookfield also bought an additional 5-per-cent stake in its Oaktree Capital Group LLC subsidiary, which has expertise in distressed debt and is expected to pounce on chances to buy struggling loans at discounts, bringing Brookfield’s ownership to 73 per cent.
Brookfield said its insurance business and the Castlelake deal have added US$75-billion to its assets under management since the first quarter ended, and the company now manages a total of US$929-billion.
Competition in credit markets has increased, “but we continue to find attractive opportunities,” Hadley Peer Marshall, who will take over as Brookfield Asset Management’s chief financial officer at the end of the month, said on a conference call with analysts Wednesday to discuss Brookfield’s first-quarter financial results.
Credit is “one of the parts of our franchise where we see significant growth ahead,” Ms. Peer Marshall said. Clients are telling Brookfield that “they want to meaningfully increase their allocation to credit, specifically private credit.”
Over all, Brookfield’s first-quarter net income was US$441-million, down from US$516-million in the same period a year earlier.
But the insurance and credit businesses have provided a welcome tailwind, adding new fee-bearing capital for Brookfield through a period when some of its traditional core businesses, such as real estate and private equity, have faced tougher conditions. Fee-bearing capital increased 6 per cent from a year ago to nearly US$460-billion.
The company’s fee-related earnings increased modestly to US$552-million in the quarter that ended March 31, up from US$547-million last year. On average, analysts had expected about US$600-million of earnings from fees, according to data from the London Stock Exchange Group.
Brookfield’s distributable earnings – a measure of cash profits it could pay out to investors – decreased to US$547-million, down from US$563-million in the same quarter last year.
Credit was also “the biggest driver of our fundraising in [the first quarter],” president Connor Teskey said. “That’s something we expect to see in the coming quarters as well.”
Brookfield raised US$20-billion in the quarter, and said it expects the pace at which new funds come in to pick up somewhat over the rest of the year, with three of its flagship funds expected to close in 2024.
In total, Brookfield said it has US$106-billion available to invest, and expects to be an active buyer and seller of assets, taking advantage of thawing markets. As interest rates have steadied, and apparently peaked, buyers and sellers are gradually starting to see eye to eye on price more often.
“Improving market sentiment has been growing, liquidity is returning to the capital markets and most major economies are performing better than expected,” chief executive officer Bruce Flatt said on Wednesday’s conference call. “This, in turn, has revived risk appetite among many investors and is fostering an increasingly stable and more constructive market.”