Brookfield Asset Management Ltd. BAM-T is taking advantage of an improving market for dealmaking to sell billions of dollars of assets, promising a significant windfall to investors who have endured a longer wait to get their cash back from private investments.
Brookfield signed or closed US$17-billion of asset sales in recent months, including US$5.4-billion of investments in the troubled real estate sector, as easing inflation and falling interest rates have reinvigorated the market for deals. That will be welcome news to impatient limited-partner (LP) investors – such as pension funds, sovereign wealth funds and family offices – that have been waiting for fund managers to return some money invested years ago before making new commitments to more recent funds.
Over the past quarter, which ended Sept. 30, Brookfield sold shopping centres as well as an electricity generation and storage facility in Britain, a manufactured-home portfolio in the United States and a hotel in South Korea. It also sold its stake in a renewable-power provider in Spain and Portugal, and two Mexican natural gas transmission pipelines.
In the renewable-power sector in particular, Brookfield sees “an incredible monetization environment,” especially for assets that are already operating and generating cash but have room to continue to grow, Brookfield Asset Management president Connor Teskey said on a Monday conference call announcing the company’s third-quarter results.
Looking ahead, “we expect monetization activity to further accelerate next year,” he said. “We are thrilled to crystallize some fantastic returns and send capital back to our LP partners. That’s why we do this.”
Brookfield expects that an accelerating pace of asset sales will also help boost its fundraising, after the asset manager raised US$21-billion of new capital in the quarter.
“If we do a good job and return capital at strong returns to LPs, we see that capital come right back to us in new fund commitments, often in greater quantities,” Mr. Teskey said.
At the same time Brookfield was selling assets, the company also deployed or committed US$20-billion to new investments during the third quarter. Top executives see particular opportunity to invest in the infrastructure behind artificial intelligence, and Brookfield has been working toward building a dedicated product to give investors specific exposure to the deals it has been making in sophisticated data centres and renewable power. “We’ve made great strides and we’re getting closer,” Mr. Teskey said.
Brookfield reported higher third-quarter profits as its growing credit and insurance businesses brought in billions of dollars of new capital that generates fees.
The asset manager’s fee-related earnings were US$644-million in the three months that ended Sept. 30, up 14 per cent from a year earlier. Its distributable earnings rose 9 per cent to US$619-million, or 38 US cents a share, beating analysts’ consensus estimate of 36 US cents a share.
Third-quarter net income was US$544-million or 33 US cents a share, compared with US$494-million or 30 US cents in the same quarter last year.
Out of Brookfield’s US$21-billion in new funds raised in the quarter, US$14-billion came from its credit group – a business underpinned by its majority stake in Oaktree Management LP. That business is being fed by assets collected through Brookfield’s burgeoning insurance arm, Brookfield Wealth Solutions, which focuses on annuities and insurance for retirees. And in September, Brookfield also bought a 51-per-cent stake in private credit lender Castlelake LP.
Those investments helped boost Brookfield’s fee-bearing capital to US$539-billion, up 5 per cent or US$25-billion from the prior quarter, and an increase of US$100-billion or 23 per cent over the past year.
That underscores Brookfield’s increasing expansion into new business lines such as credit and insurance that generate steady streams of fees for the asset manager, with credit expected to be the fastest-growing business line over the next five years.