Q3 2024 Brookfield Asset Management Ltd Earnings Call
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Speaker Change: Hello, and welcome to Brookfield asset management's third quarter 2024 conference call and webcast.
At this time, all participants are in listen only mode.
After the speaker presentation there'll be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone.
Speaker Change: I would now like to hand, the conference over to our first speaker, Mr. Jason jokes managing director of Investor Relations. Please go ahead.
Jason Jokes: Thank you for joining us today for Brookfield asset management's earnings call on.
Jason Jokes: On the call today, we have Bruce Flatt, our Chief Executive Officer, Conor Tusky, our president.
Jason Jokes: And Hadley peer Marshall, our Chief Financial Officer.
Jason Jokes: Bruce will start the call today with opening remarks about the most important themes. We're focused on followed by Connor, who will discuss the market environment for both deploying and monetizing assets.
Finally, we will discuss our financial results.
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After our formal comments, we'll turn the call over to the operator and take analyst questions.
Jason Jokes: Order to accommodate all those who want to ask questions. We ask that you refrain from asking more than two questions at one time.
If you have additional questions. Please rejoin the queue and we'll be happy to take additional questions at the end.
Time permits.
Again, I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance. We may make forward looking statements, including forward looking statements within the meaning of applicable Canadian and U S Securities law.
These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks and future events and results may differ materially from such statements.
Jason Jokes: For further information on these risks and the potential impacts on our company. Please see our filings with the securities regulators in Canada, and the United States and the information available on our website.
Speaker Change: That I will turn the call over to Bruce.
Bruce Flatt: And good morning to everyone on the call.
Bruce: We are pleased to announce that we had a very active third quarter generating record results.
Bruce: Benefited from $135 billion of inflows over the past year.
Bruce: We acquired partnership Stakes in two leading partner managers and.
Bruce: And we made significant progress on asset monetization across the franchise.
Bruce: Be bearing capital D. C grew by nearly 100 billion over the past year to 539 billion.
Bruce: 23% increase.
Bruce: Fee related earnings for the third quarter were up 14% over the past year to a record 644 million or <unk> 39 per share and distributable earnings grew 9% to a record $619 million.
Bruce: Our 38 cents per share.
Bruce: Our franchise showed tremendous resiliency and fundraising and deployment friends.
Bruce: Higher market uncertainty over the past few years.
Bruce: Since then inflation has eased and central banks have begun to lower rates.
Liquidity has returned to the market as the direction of travel on rates is now clear.
This shift has generated greater confidence among market participants.
Bruce: This normalization is unlocking value across our business.
This has allowed transaction activity to pick up leading to both the buyers and sellers market.
Bruce: We see attractive investment opportunities, especially for large transactions or opportunities that need capital to grow.
Bruce: But we also see a robust bid for high quality cash generative assets, which serves us well given the makeup of our investments.
Bruce: In general across the industry, we anticipate a significant return of capital to limited partners.
And this recycle them.
Bruce: Recycling of capital will add further support to an increasingly constructive fundraising environment.
Bruce: Conor will speak more about how we are monetizing mature assets and realizing very attractive returns for our clients.
Bruce: In addition, lower interest rates are supporting recovery in our yield focused public stocks, which are now beginning to reflect their underlying strong performance.
Bruce: Including our infrastructure and renewable power publicly listed affiliates.
Bruce: The management fees, we earn from our list the affiliates are linked to their share prices strongly aligning our interests.
Bruce: As yield stocks continue to gain public favor combined with strong continued underlying fundamental business performance or earnings should increasingly benefit from this tailwind.
Bruce: With the market headwinds over the past couple of years turning into tail wins for our businesses. We expect strong earnings growth to continue for the foreseeable future.
Bruce: Turning to investments the same themes that super cycle and de Carbonization P. Globalization and digitalization that is reshaping the global economy continues to gain momentum.
Bruce: Tens of trillions of dollars will be required to fund these trends.
Governments are capital constrained.
Bruce: Private capital well positioned to play a leading role.
Bruce: We said at the epicenter of these themes, which will continue to drive growth across all of our businesses, especially.
Bruce: Especially in private credit.
Bruce: AI infrastructure renewable power and energy transition.
Bruce: Let me briefly address each of these areas.
Bruce: It's a large institutional credit investors, including insurance companies and pension funds.
Bruce: Look to allocate more of their portfolios to private credit to benefit from the premium returns and lower risk.
Bruce: <unk> continued to diversifying diversify from traditional funding sources.
Bruce: They are seeking lenders, who can provide certainty of funding.
Bruce: <unk> structures speed of execution and flexibility.
We continue to leverage our real asset investing expertise across real assets credit products and borrowers in these segments see Brookfield as a partner of choice.
Bruce: Private credit will also play an integral role in the build out of global AI infrastructure and enabling the energy transition.
Bruce: In fact, all of our businesses from renewable power infrastructure to real estate and private equity are playing critical roles in facilitating the transition to net zero.
Bruce: Helping me.
Bruce: Need for global clean reliable energy on an unprecedented scale, while at the same time supporting the exponential growth and need for other infrastructure demanded by AI.
Bruce: AI is accelerating further build out of the backbone of the global economy.
Bruce: It requires substantial amounts of capital.
Bruce: And our early investments in capabilities and renewable power data centers and semiconductor manufacturing have positioned us across the supply chain as a partner of choice for the largest and fastest growing tech companies in the world.
Each of our business groups are investing in the substantial infrastructure that underpin AI.
Bruce: Our $30 billion semiconductor fabrication plant, we are building with Intel in Arizona.
Our data center portfolio, which is among the largest in the world and fiber optic cables to circle the globe.
Bruce: I'll speak to our scale and capabilities that few others have.
Bruce: All of this is in addition to being the largest supplier of green power to the technology sector.
Bruce: AI depends on reliable.
Bruce: Cost efficient and clean energy sources, something we are uniquely positioned to provide at scale.
Bruce: Our 10, five gigawatt renewable power development agreement with Microsoft representing more than $10 billion of investment is to facilitate their data center build out on the backs of this revolution.
Bruce: More recently the conversation around energy has been shifting to include the need for nuclear.
Bruce: There is increasing appetite for nuclear energy.
Bruce: Meet the significant demand for electricity in the coming years.
Bruce: With an acceleration and more plans for nuclear power being built around the world driven by both governments and corporates.
Bruce: We're witnessing a significant shift in sentiment.
Bruce: We invested ahead of the curve with our acquisition five years ago, a Westinghouse the world's leading supplier of nuclear products technology and services to the industry.
We believe there is no credible path to clean energy grid without a large and increasing amount of nuclear energy.
Bruce: Today Westinghouse services approximately half the global fleet of nuclear power plants, and has design and engineering capability deliver micro.
Bruce: Small modular and utility scale nuclear reactor solutions.
Bruce: The world requires scalable low cost 24, seven power and the largest consumers of power are increasingly focused on a selected few trusted partners.
Bruce: Capable of delivering energy, where and when its needed.
Bruce: Adding nuclear to our broader renewable power capabilities positions us to offer unmatched clean energy solutions to the largest companies and other energy users.
Bruce: While the shift back toward nuclear is only beginning it is just one component of the significant investment necessary over the next several decades.
Bruce: We're the only western economy business that has access to nuclear technology and we are working on the next phase of our AI plans to match, our land entitlement property skills.
Bruce: Our power franchise, our data center capabilities, and our nucleolar seminar technology, which will soon power. The most advanced data centers in the world.
Bruce: This is very exciting.
Bruce: As I wrap up I'd like to underscore the importance of the key themes driving our business today private credit.
Bruce: Infrastructure and energy transition.
Bruce: They are not just areas of focus they represent the pillars of growth that are shaping the future of the backbone of global economy is a leader in renewable power infrastructure and real estate combined with our broad private equity and credit capabilities, we are well positioned to significantly grow our franchise in the years ahead.
Bruce: With that let me turn it over to Conor.
Conor Tusky: You Bruce and good morning to everyone on the call.
Conor: As Bruce mentioned the headwinds in the broader market over the past few years are now turning into positive tailwind for our business and will drive earnings growth for years to come.
Conor: We are seeing this play out today as market conditions have improved liquidity has returned and transaction activity across our business continues to gain momentum.
Conor: On the monetization front capital is returning and is favoring high quality assets with strong cash flows.
Conor: Given one our disciplined approach to investing and to our long term value oriented management strategy, we have a large portfolio of investment that meets buyers' needs.
Conor: As such we disproportionately benefit in the current environment and expect it to continue well into 2025.
Conor: We have had a very active quarter of monetization activity with over $17 billion signed or completed in the past four months alone.
Conor: Looking ahead based on the sales processes, we have ongoing the trends, we're seeing in the market and the number of assets that we expect will be ready for sale in the near term.
Conor: We expect monetization activity to further accelerate next year.
Conor: And while Bam does not directly benefit from any carried interest realized from the more mature fund vintages that existed prior to its formation in 2022.
Conor: Returning capital at attractive returns to clients facilitate some more constructive capital raising environment.
Conor: We will now highlight and more detailed the market conditions and a few examples of asset sales, we've recently completed or signed.
Conor: New supply remains low across most real estate sectors financing conditions have improved throughout the year and fundamentals are strong, creating an attractive market for high quality real estate assets.
Conor: Over the past few months, we sold over $5 billion of real estate assets, including our portfolio of shopping centers in the U K and manufactured home portfolio in the U S and the Conrad Hotel in Seoul Korea.
Conor: These three monetization has generated at 28% annualized return and a multiple of capital of two five times.
Conor: In renewable power, we continue to see significant demand for stabilized cash generative businesses, particularly those that have an ongoing growth angle.
Conor: With over four decades of experience in building developing and enhancing renewable power businesses. We have had number of seasoned assets that are highly sought after.
Conor: In the past few months, we have announced sales that generated nearly $2 billion of equity proceeds from renewable power assets.
Conor: The largest of which included site at a yield a leading independent developer owner and operator of renewable power assets in Spain and Portugal.
Conor: Our stake in first hydro a critical electricity generation and storage facility in the United Kingdom.
Conor: And the 50% stake and Shepherd flat one of the largest onshore wind farms in the United States.
Conor: These generated an aggregate IRR of 27% annualized and a multiple of capital of two five times.
Conor: We see this as just the beginning for what should be years of successful investment exits for mature investments in that space.
Conor: These themes are also playing out in private equity, where the current constructive economic backdrop that is driving demand for market leading businesses.
Conor: And in infrastructure as income yielding investments become more in favor we.
Conor: We expect to see sales announced in both of these areas in the coming months.
Conor: However, not only is it a seller's market, but it's also a buyer's market.
Speaker Change: But as Bruce mentioned it is only both if you have quality assets to sell and significant capital available to deploy.
Conor: We see more opportunities to deploy capital into attractive investments, where we can use our operational expertise scale and relationships to create value.
Conor: Over the past year, we deployed nearly $50 billion.
Conor: Including $20 billion deployed or committed in the third quarter alone and we still have over $100 billion of uncalled capital available for new opportunities.
Conor: Let us now highlight a few of the significant transactions that illustrate the types of opportunities. We are excited about.
Conor: In September we announced the strategic funding partnership of up to $1 $1 billion with Infineon.
Conor: Leading U S based developer of sustainable aviation fuel projects.
Conor: This investment through our global transaction fund marks our entry into this space and is backed by take or pay off takes with leading global airlines.
Conor: In October we reached a $2 3 billion agreement with <unk> to acquire a stake in three and a half gigawatt and a $3 five gigawatt portfolio of offshore wind assets in the in the U K.
Conor: While offshore wind Hasnt historically been a major focus for us.
Conor: Entering with <unk> presents an attractive opportunity to enter this space with a global market leader as market continue the conditions continue to shift in our favor.
Conor: Within our infrastructure group, we completed the acquisition of a portfolio of 76000 telecom sites in India from American Tower Corporation for $800 million of equity capital at an enterprise value of $2 2 billion.
Conor: Within our private equity group, we completed the acquisition of network International for $2 billion of equity capital.
Conor: Post acquisition the business intends to merge with Magneti, one of the largest payment processors in the UAE that we acquired in 2022.
Conor: Together, the two will form a combined payment processing platform across the middle East.
Conor: This joint business will have a total in total enterprise value of roughly $4 billion.
Conor: Significantly expanding our presence in the growing financial infrastructure space.
Conor: And within our real estate business.
Conor: We recently made an offer to acquire a publicly traded European logistics REIT for approximately $730 million of equity.
Conor: While we've been both deploying and monetizing we've also been expanding our capabilities through new partnerships to drive inorganic growth.
Conor: Let's touch on two recent transactions.
Conor: First Catholic.
Conor: Our market, leading $24 billion AUM.
Conor: AUM alternative asset manager that specializes in asset based private credit, including aviation and specialty finance.
Conor: We acquired a 51% stake in the manager and its fee related earnings as well as small as well as a small stake in its carried interest and principal investments.
Conor: Additionally, Brookfield plans to allocate over $1 billion of capital under management to castle Lake strategies, enabling them to scale their funds and expand their business.
Conor: The asset based finance market is one of the most attractive and fastest growing private credit sectors.
Conor: We expect our credit business to continue to grow its capabilities in this area, both organically and through partner managers.
Conor: And second.
Conor: We completed our acquisition of SVP capital through Prime growth venture partners, our venture investment platform formed with Sequoia Heritage.
Conor: The technology industry and growth capital are areas that we have historically had a smaller exposure to.
Conor: But at this moment in time, we see an excellent path to building a large business.
Conor: The combination of SBB capitals, 25 year track record in funds private credit and co investments alongside pine growth existing expertise and venture secondaries and liquidity solutions creates a cohesive and dynamic venture platform that is designed to deliver tailored solutions for fund managers.
Conor: <unk> founders and limited partners in the venture capital space.
Conor: Pine growth now manage of $10 billion in assets positioning it as a powerful venture investment platform for the innovation community.
Conor: These two acquisitions have added about $7 billion in fee bearing capital this quarter and will contribute approximately $40 million in annualized fee related earnings starting in the fourth quarter.
Conor: As part of the Brookfield ecosystem, we will help facilitate both firms' growth by leveraging our client relationships and access to capital.
Conor: However, sometimes we buy businesses, but sometimes we build them in house.
Conor: Another important accomplishment in the past quarter has been within our insurance solutions group.
Conor: Strategy and suite of capabilities, we have been building organically.
Conor: We managed nearly $90 billion of fee bearing capital on behalf of Brookfield wealth solutions, and we have been building our capabilities to manage and deploy this capital into strategies that meet their specific needs.
Conor: This quarter, we also raised $1 billion and our separately managed account from a large U S life insurer.
Conor: This capital can be invested across all of our platforms from corporate infrastructure real estate and asset based finance sectors targeting strong risk adjusted returns with a premium over comparable public credit investments.
Conor: This is just the beginning of managing third party insurance capital through our insurance solutions business and.
Conor: And we are targeting 50 billion of external partner capital from this strategy over the next five years.
Conor: To conclude.
Conor: The tailwind we are seeing today are setting us up for significant growth in the years ahead.
Conor: We are strategically positioned in the areas that matter most.
Conor: <unk> transition AI infrastructure and private credit.
Conor: And our ability to deploy large pools of capital operate those assets and businesses to enhance cash flows.
Conor: And return on capital by monetizing mature assets at attractive values creates a virtuous cycle that gives us confidence that we can double our business over the next five years.
Speaker Change: With that we will now turn the call over to our CFO Hadley peer Marshall Hadley.
Hadley Marshall: Thank you Conor this morning, I'll provide you more context around our strong third quarter earnings and highlight our financial performance.
Hadley Marshall: Changes to our balance sheet and liquidity now, especially now that we've closed on a $750 million revolver and our successful fundraising efforts.
Hadley Marshall: Lastly, I'll share an update on the initiatives, we introduced at Investor day to simplify our business and position us for broader index inclusion.
Hadley Marshall: First on financial performance fee related earnings or FRE were a record $644 million or <unk> 39 per share in the quarter up 14% from the prior year period, bringing FRE over the last 12 months Q4 billion.
Conor: Distributable earnings or de were a record $619 million or <unk> 38 per share in the quarter up 9% over the prior year and $2 3 billion over the last 12 months.
Conor: The growth in earnings over the past year has benefited significantly from a 23% increase in fee bearing capital our FPC to $539 billion when.
Conor: When breaking down our growth in fee bearing capital 101 billion came from a fund raising inflows and $25 billion from capital we deployed across our business. During the past year that was raised prior but now put to work if fee bearing.
Conor: Earnings also benefited from the strong rebound in market capitalization of our listed affiliates over the past year.
Conor: For full quarter of fees related to our mandate.
Conor: Continued discipline in managing our costs.
Conor: In fact, our margins improved to 58% highlighting the operating leverage inherent in our business.
Conor: Not only the fee bearing capital growing but it is increasingly becoming more long term in nature.
Conor: Today, 88% of our fee bearing capital classified as long term or permanent in nature up from 86% a year ago and that percentage should only grow.
Conor: As Conor mentioned, we closed a few strategic acquisitions this quarter that will expand our capability and augment our organic growth.
Conor: But even after closing these acquisitions, we continue to maintain significant capital availability and have further enhanced liquidity by closing a $750 million revolving credit facility, which is entirely undrawn.
Conor: At the end of the quarter, we had $2 1 billion of liquidity comprised of cash short term financial asset and undrawn capacity on our revolver.
Conor: As a reminder, we have no long term third party debt.
Conor: It was also strong fund raising quarter in which we raised 21 billion.
Conor: Credit accounted for more than half of the capital raise.
Conor: When we break it down $14 billion of capital raising credit.
Conor: More and more clients are attracted to credit and in particular, the credit strategies, we're focused on including real asset finance asset backed finance and outreach opportunistic strategies.
Conor: $6 4 billion with from OTC credit strategies, which includes one point.
Conor: $5 billion raised in the 12 vintage of our flagship opportunistic time.
Conor: We raised 1 billion across our other partner managers Catholic primary wave and LCM.
Conor: $4 five was related to our mandate with Brookfield, well fruition or BWXT, which continues to grow on the backs of their increased annuity writing following the completion of their acquisition of AAM.
Conor: I want to highlight again that we raised $1 billion of third party estimate capital from a large U S life insurance company.
Speaker Change: As Conor mentioned this is significant as it is the first third party capital raised for our insurance SMA strategy.
Speaker Change: Strategy, we covered at our Investor day that will leverage the capabilities, we're building to serve dws and which is targeting 50 billion over the next five years.
Speaker Change: Of the remaining in place for the quarter $2 2 billion with rates within our renewable power and transmission business.
Speaker Change: Specifically, we had initial close of our catalytic transition fund for $2 4 billion of which $1 4 billion with raised in the quarter.
Speaker Change: This new capital is in addition to the $1 billion anchor investment from Alterra announced previously at top 28 last year and marks a significant milestone towards our target of raising up to $5 billion to invest in emerging market clean energy and transition assets.
Speaker Change: Within our infrastructure business, we raised $1 4 billion of capital within the quarter of which 500 million with where our super core infrastructure strategy and.
Conor: And I mentioned that this was its biggest fund raising in more than two years we.
Speaker Change: We see momentum returning to the strategy due to lower interest rates and demand for cash yielding investments continue and continuing to grow.
Speaker Change: We also raised nearly 800 million for our private wealth infrastructure fund.
Speaker Change: <unk> continues to see robust demand and a popular strategy in private wealth.
Conor: Within our private equity business, we raised 2 billion associated with our acquisition of network International which was which was closed in the quarter.
Speaker Change: Subsequent to the ended the quarter, we received two size a sizable commitment for Middle East Partners Fund.
Speaker Change: And finally within our real estate business, we raised $1 6 billion, including $500 million for the vintage of our opportunistic real estate fund.
Speaker Change: Of the 21 billion raised in total 11 billion became fee bearing capital in the quarter and the remainder will become fee bearing upon deployment.
Speaker Change: As we look forward, we expect these levels of fundraising and deployment to continue.
Conor: In September we hosted our annual Investor day, and outlined outlined our five year plan to double our business.
Conor: We intend to do this the expansion of our fund raising both by skin flagships and growing our new complementary strategies and further growing our credit business.
Conor: In addition, we will continue to expand our fund offerings into new asset classes, which together should enable us to achieve one trillion of fee bearing capital.
Conor: In summary, after reviewing our Investor day materials, which are available for replay on our website youll get a better understanding of why we strongly believe that the best is yet to come.
Conor: One other topic I wanted to highlight is our effort to simplify our structure and position ourselves for broader index inclusion.
Conor: Our public listing of Bam back in December 2022, with a significant step towards simplifying our business, making it easier for investors to understand and ultimately invest in our leading pure play asset manager.
Conor: Since then we have received positive feedback from investors and seen a significant increase in our U S investor base.
Conor: Our business fundamentals include our stable predictable earnings and asset light balance sheet and strong growth prospects makes us an attractive investment.
Conor: We're pleased with their progress there's still more we can do.
Conor: To that end, we're implementing a few initiatives with the goal of positioning ourselves for broader index inclusion to be eligible for the most followed followed large cap U S entities.
Conor: First step we took was to change our head office to New York already our largest office. This makes sense for our business as we've been operating as a U S company for 20 years.
Conor: The largest share of our revenues assets under management employees are in the U S. <unk>.
Conor: The majority of our institution institutional shareholders are U S investors and the majority of our shares are traded on the New York Stock Exchange our primary exchange.
Conor: One note to make is that beginning with our 2024 annual report we will file our financial reports on Form 10-K, and 10-Q in line with those filed by other U S domestic issuers.
Conor: The second step is related to our corporate structure.
Conor: Last week, we announced plans to enhance enhance Bam structure, whereby band will now reflect 100% of asset management company.
Conor: The 100% of Bam will be publicly traded and our market cap will accurately reflect the total value of the asset management business versus the current 27%.
Conor: That would equate to over 85 billion based on the current stock price compared to our current market cap today of approximately 23 billion.
Conor: To do this Brookfield Corporation, our BN, what exchange at 73% private ownership and our asset management business for an equivalent number of shares of band public shares.
Conor: As a result being will own approximately 73% of the publicly traded shares the ban which is consistent with its current private ownership.
Conor: While this is simplify the corporate structure is important to note that this will not result in any changes to our operations our strategic plans and we will have no effect on the tax treatment of our dividend.
Conor: However, because we will be issuing $1 2 billion new shares of bands in exchange for the $1 2 billion private shares of the asset management business. We're acquiring we will seek shareholder approval at a special meeting on December 20th.
Conor: You'll be receiving proxy materials and voting instructions over the next few weeks.
Conor: We expect to close this transaction early in 2025 subject to shareholder and regulatory and other customary approvals.
Conor: We're excited about both these initiatives, which we believe will deliver a number of key benefits to our shareholders.
Conor: Simplifying the corporate structure of the asset management business will make it easier for investors to understand and accurately value the security.
Conor: Broader index inclusion should drive increased ownership among passive institutional investors and at the same time attract a broader base of active investors have benchmark against these indices.
Conor: Overall this increased recognition of market should ultimately lead to a broader shareholder base.
Conor: Before beginning of the Q&A portion of today's call I am pleased to confirm that the board of directors has declared a dividend of 38 per share for the third quarter payable on December 31, 2024 to shareholders of record as of the close of business on November 29 2024.
Conor: With that operator, we can open up to questions.
Conor: Thank you.
Speaker Change: As a reminder, if you have a question. Please press star one one on your telephone.
Speaker Change: <unk> has been answered or you want to remove yourself from the queue. Please press star one again.
Speaker Change: Our first question comes from Sharon Radbourne with TD Cowen.
Sharon Radbourne: Thanks, very much and good morning.
Sharon Radbourne: My first question is on AI infrastructure, and the related power requirements, which continues to receive a lot of attention and as you are no doubt aware at least one dedicated product, but announced out there.
Conor: Do you think AI infrastructure makes sense.
Conor: Greek tragedy for Bam at some point and if so could you give us some thoughts on how that would sit alongside your flagship infrastructure product.
Speaker Change: Good morning, Cheryl and thank you for the question.
Speaker Change: You're absolutely right that this topic is very very top of mind to us.
Speaker Change: Today.
Conor: Yeah.
Conor: It very much plays to our existing leadership position within infrastructure.
Conor: And within renewable power and data centers that we already have.
Conor: In addition to that our our current platforms. The demand we are seeing from our LP partners for greater exposure to this theme.
Conor: Yeah.
Conor: Puts this very very much near the top of our list I would say as we begin to think of new products and product development initiatives at scale. So I would say youre being on this is something that is a focus for us and <unk>.
Conor: Candidly.
Conor: It has been a focus for us for I would say probably 12 months.
Conor: Simply want to ensure that when we do come to market with a new product of scale.
Conor: We're thoughtful we're refined and what it will invest in and it's appropriately meeting the market opportunity and I would say, we've made great strides and we're getting closer.
Conor: In terms of where our focus would be I think the important thing to recognize is we already are one of the largest if not the largest investor in this theme around the world.
Conor: And to date, we've been doing it through various pools of capital, but given one the size of the opportunity set into the investor demand get more exposure to this theme.
Conor: Youre right that it is increasingly lending itself to a dedicated product and playing.
Conor: Playing to our strengths and where we have the greatest experience and position it would be certainly.
Conor: Focused on leaning towards more of the infrastructure side.
Conor: Of AI as opposed to.
Conor: The the more private equity or growth side of it it would absolutely be something more aligned with an infrastructure product and in our minds. So I hope that gives you some clarity on our latest thinking and it's.
Conor: Something we will continue to refine.
Conor: Yes.
Speaker Change: That's great color. Thank you.
Speaker Change: Second question is on margins.
Speaker Change: This is the second quarter in a row of very strong credit inflows and we all know those attract lower fee rate, but it's also a question of scale. So I was hoping you could talk about what the credit business. It looks like on a margin basis versus the corporate average.
Conor: Yes.
Hadley Marshall: I'll take this one this is hadley.
Hadley Marshall: And in terms of the margins I mean in general we're very pleased to continue to see our margins improve in for you to see the operating leverage sits behind some of the growth initiatives, which gets us to credit because obviously, we've been in buildout node as we increase the amount of capital that we manage on credit.
Conor: Especially with the mandate with a M.
Conor: When you think about those speeds.
Conor: Though in general credit can be viewed as a lower margin business. The way that we have built our business is we obviously have the 25 basis points.
Conor: With a L.
Conor: BWXT on the backs of a L. But then.
Conor: Listen to that about a little less than a quarter of that capital goes into our funds, where we are in full fees there.
Conor: So when you think about that we're generating very attractive margins then add on to the fact that as you heard at our Investor day over five year period, we will increase our third party SMA business.
Conor: Now closed as we discussed 1 billion mandate with a U S life insurance and we continue to scale that up to about $50 billion over the next five years and that will be additive because we've already built and built the infrastructure to deploy that capital.
Conor: So that will also be additive. So we don't see a margin compression because of the build out of what we're doing on the credit side.
Conor: That's all from me thank you.
Speaker Change: Our next question comes from Alex Blaustein with Goldman Sachs.
Alex Blaustein: Hey, good morning, and thank you for the question I was hoping we could start with a question on renewables business. It sounds like lots of activity in this space with a pretty rapid pace of deployment.
Conor: I was wondering why the fundraising has been slower and transition to in particular, so if you look over the last couple of quarters.
Conor: It's been a little muted. So I was just curious if you.
Conor: You could expand on that and what you ultimately expect the third party fundraising number to contribute from here.
Conor: And then ultimately when do you guys expect this fund to come back into the fee run rate I think you are pretty close in terms of where you are deploying but just wanted to flesh that out.
Conor:
Speaker Change: Hi, Alex Thanks for the question.
Speaker Change: I'll try and unpack a few different points there.
Speaker Change: First and foremost <unk> turned back on it was in the latter part of Q3, So we certainly didn't get the benefit of it.
Speaker Change: We only got the benefit of it for a handful of weeks I'd say, but.
Conor: It will be fully in the numbers back in the numbers for Q4.
Conor: And I think just in general.
Conor: I would frame.
Conor: The comment around <unk>.
Conor: <unk> and transition that as a little bit of a high class problem.
Conor: We obviously had the unique.
Conor: Situation, where where we paused fees on <unk> as we went to backfill one large investment in <unk> one.
Conor: But in addition to doing that.
Conor: We addressed the whole <unk> and we've now deployed one quarter of BG TF two during the same timeframe.
Conor: I would say the pace of transaction activity on the deployment side has been as strong as ever and as we mentioned in our shareholder letter. We're also seeing an incredible monetization environment.
Conor: With three or four significant monetization in the 25% type IRR range. This business is performing exceptionally well aside from credit it's the fastest growing platform at Brookfield and we think we're still just in the early days.
Conor: And then maybe just the last point to directly hit on your fundraising number. This is where I will I will come back to it being a high class problem.
Conor: We have complete confidence we're going to hit the target and the fund I don't think theres anyone at Brookfield, who is concerned about that the only reason why perhaps.
Conor: It isn't showing up in our reported numbers as quickly as we would've expected.
Conor: In the time since <unk> launched we have launched CTF and we've raised half that fund and alongside <unk>. Two we've raised $5 billion of co invest into those strategies as well.
Conor: So I don't think theres any slowdown in fundraising on our transmission side, we will get the rest of that flagship closed out in the coming quarters and then early 2025, well, we're very confident we'll hit our target there and then the last point just as a friendly reminder, due to the catch up fees.
Speaker Change: In those flagship funds.
Speaker Change: Even if the timing slipped a quarter or two it doesn't impact our economics at all.
Speaker Change: Yes, that's all very clear. Thank you for that and then one for you on the just the corporate structure change, which is obviously very welcome.
Speaker Change: I think you guys will be eligible for a handful of indices kind of right out of the gate. Once these changes take place. So I think Chris Russell, maybe a few others.
Speaker Change: What are your thoughts on the eligibility for the S&P 500, I know that can be a little murky at times, but knowing what you know and the structure that you guys will ultimately end up having do you think that ultimately makes you're eligible for the S&P 500 index as well. Thank you.
Speaker Change: And thanks, Alex So in terms of what we've done in our structure and then of course, moving our head office and these were to create liquidity. So that's the main goal that we're trying to achieve for our shareholders and the key from that perspective is that we've been able to increase U S. N C thing you've mentioned yet.
Speaker Change: Russell 1000, and Thats a good example.
Speaker Change: We'll continue plus we're going to show a market cap of 85 billion plus and so that can be beneficial as well in terms of what we see with the S&P 500.
Speaker Change: Look all of these changes made since regardless of the outcome around the S&P 500, and so if we enter into the S&P 500.
Speaker Change: Nice upside, but nothing about what we've done.
Speaker Change: Is it something we wouldnt have done otherwise.
Speaker Change: Alright, thank you.
Speaker Change: Our next question comes from Mike Brown with Wells Fargo.
Mike Brown: Great. Thanks for taking my question.
Mike Brown: On the expenses just to maybe follow up on the earlier question. There it looks like the margins that benefited from good discipline on the comp and other expenses as well how can we think about the fourth quarter here compared to <unk> is there any seasonality to consider.
Speaker Change: And if the year ends up being kind of up in the high single digit range.
Speaker Change: In terms of year over year expense growth, how should we think about expense growth or margin expansion potential in 2025 compared to 2024.
Speaker Change: Hi, Mike, perhaps I'll take the first crack at that and if Theres anything Hadley, we'd like to add on she can.
Hadley Marshall: There are three comments I would make.
Speaker Change: We expect our margins.
Speaker Change: <unk> continued to accelerate higher into Q4, and the beginning part of 2025.
Speaker Change: I think it's quite well known at this point that we.
Speaker Change: We invested quite heavily in particular into our credit and insurance franchise in order to be ready for the new capital we would be on boarding that we have on boarded throughout the year and we we made.
Speaker Change: <unk> there we were investing in our people and that was showing that showing showing up in the expense line.
Speaker Change: Prior to or there was a revenue attached to it. So that has now run rating through our numbers and that's going to continue right through until Q2.
Speaker Change: Next year.
Speaker Change: The second thing I would just highlight around our our expenses is.
Speaker Change: We continue to tick.
Speaker Change: See a general plateauing of our overall expenses versus a couple years ago and as our revenue grows that's really going to showcase the operating leverage in our business.
Speaker Change: Said another way, we do expect Q4 to be higher than Q3, and we do expect margins in 2025 to be higher than they have been in 2024.
Speaker Change: Okay great.
Speaker Change: And then could you just update us on the capital raising expectations for 2024, excluding <unk>.
Speaker Change: And the 2023 campaigns that finished early in 2024, I think you're around $50 billion, so where can that land for the year and then when you look out to 2025 whats maybe the right range to consider understanding it's probably still early in the planning process, but I guess based on what you know today what could.
Speaker Change: The largest contributors next year.
Speaker Change: Yes, certainly thank you for the question.
Speaker Change: Maybe we'll just start with a general comment the fundraising environment is better today than it's been at any point in the last two years and we expect fund raising.
Speaker Change: Just with the liquidity in the system the stability if not the decline in interest rates, the increasing allocations where were seeing from LP partners around the world and when you marry that with the nice product suite that we are bringing to market are both flagships and complementary.
Speaker Change: Products, the fundraising environment and certainly what we're seeing on the ground right now is stronger than what we've certainly seen.
Speaker Change: In the last 18 to 24 months. So we feel very good and I would say our confidence is high.
Speaker Change: Two maybe comment.
Speaker Change: We continue to see fundraising accelerate.
Speaker Change: In Q4, this is largely going to be driven by our flagships in particular best Rep and be GTS.
Speaker Change: Maybe a little bit of the fund raising and those chips into 'twenty five.
Speaker Change: But again, that's not material to us because with the catch up fees. It doesn't impact our economics and I would say the momentum we're seeing in fundraising for those products piggybacking on on Alex's question is very very high so.
Speaker Change: In terms of.
Speaker Change: <unk>.
Speaker Change: Where we've expected fund raising to be earlier in the year. We continue to have a lot of confidence that we're going to land.
Speaker Change: Either or near that range and the environment continues to be very strong as we look to 2025 I would say, we're going to see that strength continue.
Speaker Change: Our end numbers will obviously be dependent on timing around when some of our larger products launch, but I would say in terms of sentiment. We expect the fundraising market to be more positive in 2025 than it was in 2024, and we're going to begin to see that acceleration in the lab.
Speaker Change: A few months of this year.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Great. Thank you Cotter.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Craig Siegenthaler with Bank of America.
Speaker Change: Okay.
Craig Siegenthaler: Thanks, Good morning, everyone. So I have a follow up to Alex's corporate structure question. So.
Speaker Change: It's the first time, we're kind of looking and digesting this but I wanted to see if there's any changes to voting rights or any tax implications to shareholders and partners across all share classes for Bam and BN.
Speaker Change: Thanks, Craig I can take that one and so that's a very good question and we've tried to be very clear that the changes, we're making should have no impact to our bam shareholders or b and shareholders.
Speaker Change: So we've tried to make this as clean as possible from that perspective and for that there is still a required shareholder approval because of the exchange of shares but beyond that there should be no other impact.
Speaker Change: Great.
Speaker Change: Then just a follow up here on insurance.
Speaker Change: I know you had $5 5 billion of inflows in insurance in SMA, but.
Speaker Change: One thing I'm looking for is an update on the public versus private mix inside the insurance company General account portfolio, especially post the American equity.
Speaker Change: Closing, which increased it and I wanted to think about what is the potential FRE left where fee lift as you migrate public to private and reach your long term targets.
Speaker Change: Certainly so.
Speaker Change: I would say.
Speaker Change: We took over the <unk> portfolio in the middle part of this year and we're just in the early days of <unk>.
Speaker Change: Shaping that portfolio towards its long term allocation will split that between liquids and the front end.
Speaker Change: Some duration and then obviously some investment in our own private funds.
Speaker Change: This is going to take time this.
Speaker Change: This is something that is absolutely going to take.
Speaker Change: Probably at least 24 months, if not longer and will be dependent upon the opportunities we're seeing in the market as we remain disciplined of.
Speaker Change: Looking to source the most attractive risk adjusted returns not just.
Speaker Change: Blindly targeting some some prescriptive asset mix.
Speaker Change: And therefore, I would say the uplift in fees that you will see as a result, as a result of increasingly allocating some of that capital to.
Speaker Change: <unk>, our private funds really isn't showing up in the numbers yet in any material way and we will continue to accelerate for at least a couple of years from here.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: Thank you Connor.
Speaker Change: Yes.
Speaker Change: Our next question comes from Mario <unk> with Scotiabank.
Mario <unk>: Hey, good morning, and thank you for taking the questions.
Mario <unk>: I wanted to shift focus a little bit on the uncalled commitments, specifically thinking about exploration schedule for those commitments of 106 billion.
Speaker Change: It's reasonable to assume.
Speaker Change: <unk> billion that is presently not earning fees today represents close to be closer near term explorations.
Speaker Change: So clearly.
Speaker Change: I'm just trying to understand what the potential fee risk is in terms of multiplying the cow.
Speaker Change: Yes.
Speaker Change: It's a good question Mario maybe let me.
Speaker Change: The point I would make here is is the fee risk is incredibly modest and maybe just taking a step back in some of our funds in particular select credit products that we have we generate fees on invested as opposed to.
Speaker Change: Fees on committed capital that makes up the bulk of the $50 billion that is not yet paying fees.
Speaker Change: And they are in.
Speaker Change: And maybe just to add two points on that.
Speaker Change: Most 90% of our uncalled commitments don't expire until after 2028, so the exploration risk in the next few years is incredibly modest and then the second point I would add is.
Speaker Change: Because the bulk of that.
Speaker Change: <unk>.
Speaker Change: Capital that is not generating fees today is in those credit products that we are very very actively deploying in this market.
Speaker Change: We have a ton of confidence that we'll be able to deploy that before any exploration in fact, I would position it as a positive rather than a risk of a fee exploration. We're excited to see that coming through in our fee related revenues pretty quickly here.
Speaker Change: Okay.
Speaker Change: It's helpful color and then just maybe as an associated question just in terms of outflows.
Speaker Change: There have been 8 billion give or take of this quarter prior quarter as well when we think about the accelerated expected quantification plans in 'twenty five versus 24.
Speaker Change: Like I know, it's very transaction specific but.
Speaker Change: How should we think about outflows in relation to clearly potentially positive.
Speaker Change: Inflows coming in.
Speaker Change: In 2012.
Speaker Change: It's a very fair question and it's a great question the market environment is fantastic.
Speaker Change: And this is what Bruce highlighted in his comments.
Speaker Change: It is a buyers' market and a seller's market, we are thrilled to crystallize.
Speaker Change: Some fantastic returns and capital back to our LP partners.
Speaker Change: That's why we do this.
Speaker Change: Therefore.
Speaker Change: We're excited about delivering these monetization and distributing capital back yeah that means we start earning fees on that capital, but if we do a good job and return capital at strong returns to our Lps, we see that capital come right back to us in New fund commitments on.
Speaker Change: Often in greater quantities so yeah.
Speaker Change: Maybe it leads to a tiny bit of quarter to quarter noise, but it is a fantastic thing for our franchise to see this monetization activity pick up.
Speaker Change: It's only a net positive.
Speaker Change: Got it so would it be fair to say Youre required comment on 25.
Speaker Change: More positive in 'twenty four for fundraising standpoint would it be fair to say that it's both gross and net basis.
Speaker Change: Yes, I think Thats fair.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Sohrab, <unk> with BMO capital markets.
Speaker Change: Okay.
Sohrab: Thanks for taking the question, maybe just a quickie for Hadley you had.
Speaker Change: In the Investor day.
Speaker Change: Got it nice chart showing that.
Speaker Change: The five different drivers fee bearing capital growth do you expect over the next five years between renewables and infrastructure.
Speaker Change: Private real estate and credits going from half a trillion to <unk> trillion.
Speaker Change: I.
Speaker Change: Would you be able to provide that same table showing the buildup for both fee related revenues.
Speaker Change: And fee related earnings.
Speaker Change: So we have a sense of what's happening to fee rates.
Speaker Change: And earnings on those fee rates.
Speaker Change: Overtime.
Speaker Change: Sure.
Speaker Change: And you've highlighted our businesses, where we see the drivers.
Speaker Change: To achieve that doubling of our business and that will be on the backs of the flagship.
Speaker Change: The complementary strategies and the build out of credit. So we can take your question offline and provide a little bit more detail behind that but that is really the big drivers of what will get us to doubling.
Speaker Change: <unk>, our business and as Conor is really outlined further you know we're entering into a environment that's going to show even further upside from what we what we showed at Investor day. So there's definitely additional.
Speaker Change: <unk> that can be pulled to to keep that.
Speaker Change: And more.
Speaker Change: Okay.
Speaker Change: Maybe it will just take that offline and then Conor I mean, it's not every day that are.
Speaker Change: We say, it's both a good sellers market than a buyer's market.
Speaker Change: I mean, usually if it's a good sellers market is probably not a good buyer's market what makes it look as good seller and a buyer market yes.
Conor Tusky: Yes, it's a great question and I'll use an example, and again, maybe just pivoting back to one of the previous.
Speaker Change: Questions on this call.
Speaker Change: I will just use the renewable power in transition franchise in this in one year, we're going to have the highest year for deployment the highest year for monetization and the highest year for fundraising in the same 12 months stretch those things don't typically cycle together.
Speaker Change: But one I would say, it's what we're seeing in terms of growth in these sectors and different investors wanting to get exposure to these sectors at different risk return points.
Speaker Change: An example of what's driving that again, perhaps using renewable power and transition is we are seeing an incredibly robust bid for high quality cash generative operating assets, particularly those that still have a growth angle that seeing a very very robust bid from market.
Speaker Change: Participants.
Speaker Change: That's the type of thing where monetizing into in the exact same environment.
Speaker Change: We are seeing a shortage of capital chasing an abundance of opportunities to construct and build out new assets and new platforms. In this space and while there is more capital being allocated to these themes that capital just pales in comparison to the capital rich.
Speaker Change: <unk> and the growth opportunities that are in these huge global trends. So I would say that's what we're seeing in renewables, but in general we're seeing the same thing in real estate and infrastructure as well.
Speaker Change: How you get the market bifurcation, that's allowing us to be a great buyer and a great seller at the same time.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ken Worthington with Jpmorgan.
Ken Worthington: Hi, good morning.
Ken Worthington: Maybe first your wealth infrastructure fund generated $800 million of sales this quarter.
Speaker Change: If our calculations are correct. It suggests that things picked up throughout the quarter with a particularly strong September.
Speaker Change: Did you get on a new platform or what what drove the acceleration in sales there and given the success here, what's sort of next in terms of the build out of the wealth franchise.
Speaker Change: Sure so.
Speaker Change: We will say something that we've said about our VII product before.
Speaker Change: The growth of this product is not limited by demand. It is entirely limited by our disciplined approach to deploying the capital.
Speaker Change: And we could be raising even more.
Speaker Change: Capital than we did in Q3.
Speaker Change: We just want to continue to be prudent in how we build out that asset portfolio and ensure that we're delivering fantastic returns as more capital comes into that fund, but what I would say about that that $800 million is we're still just scratching the service and it's purely driven by investor demand, which.
Speaker Change: Actually far exceeds.
Speaker Change: The dollars we raised in Q3.
Speaker Change: And then secondly in terms of new products for the wealth platform I would really say.
Speaker Change: And this piggyback on some of the things we mentioned at Investor Day, We're very focused on over the next 12 months potentially launching wealth products in both the private equity segment as well as potentially additional wealth products in.
Speaker Change: Certain credit sub segments and some of the recent.
Speaker Change: <unk> transactions we've done.
Speaker Change: With some of our two partner managers is going to be very additive to those initiatives as we bring new products onto our wealth platform.
Speaker Change: Perfect. Thank you and then just a simple one.
Speaker Change: <unk> saw a 20% increase in management fees this quarter.
Speaker Change: What I think is like nine so quite for nine consecutive quarters of falling fees, what drove the reversal this quarter and the magnitude of the sequential jump.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Yeah sure. So I'll take that one in terms of what drove it theres a couple of things some of our.
Speaker Change: Funds raised some money and in particular in the flagships. If you bring capital on you get some catch up fees. So that would have driven part of the jump and thats. The one that jumps to mind most readily for me I expect that's the bulk of it but hardly is there anything you would add to that.
Speaker Change: No I mean, I think you've captured it really is around the fact that we've been and you are buying more equity base and in our BBT.
Speaker Change: Our strategy and then and then moving assets ever to BWXT, earning fees. There. So that's probably the two main components there.
Speaker Change: Alright, great. Thank you.
Speaker Change: Yeah.
Speaker Change: We have time for one more question.
Speaker Change: Our last question will come from Dan Fannon with Jefferies.
Dan Fannon: Hi, Thanks, Good morning, I guess just to follow up on that question. So is the $54 million for BG, a good run rate prospectively within the real estate segment.
Speaker Change: Yeah, absolutely and if anything I think we're going to continue to see that that number creep up a bit overtime.
Speaker Change: Okay, Great and then just as a follow up within the context of insurance one SMA for 1 billion scaling to I think 50, you've talked about I guess, just talking about the cadence of that in the backlog in conversations and how that the momentum in that business as we think about the near term versus that longer term goal how that should progress.
Speaker Change: It's certainly an end.
Speaker Change: Maybe to share how we are thinking about this.
Speaker Change: We created our insurance capability and develop that.
Speaker Change: First and foremost to service our own related party insurance company Brookfield wealth solutions and that is our largest.
Speaker Change: Insurance clients, if you will and we put an incredible amount of effort into building out the team and the franchise and the capabilities to in order to be sure that we could service that client.
Speaker Change: At the standard that we would expect therefore, the ability to bring on other clients.
Speaker Change: And other partners at this point is is.
Speaker Change:
Speaker Change: Relatively easy and that is not to say that the job is easy and every one of those clients doesn't get a tailored solution to meet those needs, but the platform is built and therefore there is there is.
Speaker Change: Incredible capacity to bring on more of those types of clients and while we got the first one done this quarter I would say, we have a number of ongoing conversations too to add to that.
Speaker Change: And maybe just to finish on this point and maybe tie it back to I think what was one of the very first questions on this call.
Speaker Change: As we build out our insurance and our credit.
Speaker Change: Platform. There is this question around.
Speaker Change: Fees versus margins and the important thing to recognize is lower fee does not necessarily mean lower margin.
Speaker Change: And the Joy of having built this platform is it's a tremendous platform that allows us to.
Speaker Change: Reyes.
Speaker Change: <unk> scale capital and deploy that capital at scale on behalf of a small number of very large.
Speaker Change: Insurance partners and therefore, while the fee rate might not be as as high as in some of our other products. There is no reason it can't be given the scale.
Speaker Change: Very attractive margin business for us, where we should see good operating leverage.
Speaker Change: Great. Thank you.
Speaker Change: That concludes our question and answer session I would like to turn the call back to Jason <unk> for closing remarks.
Jason Jokes: Okay, great. Thank you for everyone's participation interest if you should have additional questions on today's release, please feel free to contact me directly thanks again.
Speaker Change: This concludes today's conference call. Thank you for participating.
Speaker Change: You may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].