Q4 2024 Brookfield Asset Management Ltd Earnings Call
Speaker Change: Hello, and welcome to Brookfield Asset Management's fourth quarter 2024 conference call and webcast.
At this time, all participants are in listen-only mode.
Speaker Change: After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. I would now like to hand the conference over to our first speaker, Mr. Jason Fooks, Managing Director, Investor Relations. Please go ahead.
Speaker Change: Thank you for joining us today for Brookfield Asset Management's earnings call. On the call today, we have Bruce Flatt, our Chief Executive Officer, Connor Teskey, our President, and Hadley Peer Marshall, our Chief Financial Officer.
Bruce Flatt: Bruce will start the call today with opening remarks on the tailwinds driving our business, followed by Connor who will highlight our success over the past year and how that positions us well for 2025. And finally Hadley will discuss our financial results and business operations.
Bruce Flatt: After our formal comments, we'll turn the call over to the operator and take analyst questions. In order to accommodate all those who want to ask questions, we ask that you refrain from asking more than two questions at one time.
Bruce Flatt: If you have additional questions, please rejoin the queue and we'll be happy to take additional questions at the end, if time permits.
Bruce Flatt: Before we begin, I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives in 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.
Bruce Flatt: 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.
Bruce Flatt: For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S., and the information available on our website. And with that, I'll turn the call over to Bruce.
Thank you and good morning to everyone on the call.
Bruce Flatt: We had a strong 2024 as both earnings and capital raising continued to gain momentum throughout the year.
and the increasingly positive sentiment in the market today.
Over the past year, we raised over $135 billion.
Bruce Flatt: including a record $29 billion of organic fundraising in the fourth quarter.
Bruce Flatt: and monetize $30 billion of investments, our strongest year across the board.
Bruce Flatt: We expect this to continue as improving sentiment and increased liquidity in the capital markets is significantly favoring high quality real assets.
Bruce Flatt: This has had and will continue to have an outsized impact on our portfolio, allowing us to finance our businesses at attractive levels, both increasing distributions and making assets easier to sell.
Bruce Flatt: The 18% annual growth of our fee-bearing capital base to $539 billion enabled us to generate $2.5 billion of fee-related earnings.
and $2.4 billion of distributable earnings for the year.
Bruce Flatt: This year we also benefit from the strategic investments we made to expand our credit origination capabilities and bolstering our fundraising organization across both institutional and private wealth channels as we look to expand and diversify our product offerings.
Bruce Flatt: In addition, we added new partner managers and increased our investment in Oak Tree.
Thanks for watching!
Bruce Flatt: We want to spend a few minutes today speaking about the secular trends that will propel our business over the next decade and beyond.
Bruce Flatt: First, the alternative asset industry is poised to more than double.
Bruce Flatt: Growth is being driven by institutional investors steadily increasing allocation to private funds.
Bruce Flatt: alongside high net worth financial advisors who are increasingly allocating to alternative strategies.
Bruce Flatt: At the same time, the rise of private credit introduces additional fundraising opportunities, whether from insurers seeking investment-grade solutions and the likely inclusion of alternatives in retirement accounts.
A second major trend is the ongoing consolidation of managers.
Bruce Flatt: Large clients are looking to streamline their relationships and want to allocate more to the largest managers with diversified global platforms and a proven track record.
This should benefit our flagship strategies.
Bruce Flatt: and also attract more SMAs where we can allocate client capital to both single strategies.
or across numerous businesses of ours.
Bruce Flatt: Finally, we are strategically aligned with the largest themes of our time.
Bruce Flatt: Digitalization and the associated infrastructure build-out, which is being further accelerated by artificial intelligence.
The increasing demand for power, especially low-cost, clean power.
and the continued growth of private credit across all sectors.
Starting first with digitalization.
Bruce Flatt: Artificial intelligence, which continues to expand at a remarkable pace, is further propelling digitalization, creating significant opportunities for us to invest in areas such as data centers, telecom towers, fiber, and semiconductor fabrication.
Bruce Flatt: At the same time, our operating businesses are using AI to drive more automation and productivity, supply chain optimization, and improved customer engagement, enhancing cash flows in order to support stronger investment returns.
will necessitate nearly doubling electricity generation.
Bruce Flatt: I'll repeat that again, doubling electricity generation, along with transmission and or battery capacity, which will continue to drive opportunities for our infrastructure and many of our other businesses.
Bruce Flatt: Renewables will be the biggest beneficiary of growing electricity demand because they are the cheapest option and offtakers will always absorb as much of the cheapest source power before turning to more expensive forms of power.
Bruce Flatt: Yet, digitalization is only part of the story driving unprecedented global clean energy needs.
as more countries are prioritizing energy security.
Development of renewables and nuclear power is the only path.
Speaker Change: With over $125 billion of AUM, deep operational expertise, and a reputation as a partner of choice.
We are well-placed to capture this accelerating demand.
Thank you for watching!
Lastly, on private credit.
Speaker Change: Private credit remains a very attractive and growing asset class spurred by desire among borrowers for flexible capital solutions.
Speaker Change: Alternative managers with specialized industry expertise like us are well positioned to provide a full suite of large-scale customized financing solutions.
are decades of experience in infrastructure real estate renewables.
Speaker Change: alongside our partner managers focus on corporate and asset-based lending enable us to sort proprietary opportunities and underwrite credit risk effectively.
Speaker Change: We see considerable potential for further growth in the years ahead.
Speaker Change: Adjacent to these, our real estate business is picking off some excellent properties at very attractive entry points. Similar to previous cycles, we are well positioned to capitalize on these dynamics and deliver exceptional returns.
Speaker Change: In recent months, we have seen interest growing meaningfully for our real estate strategies, indicating the first phase of a recovery.
Speaker Change: Together, these drivers are among the many that position Brookfield for long-term success, and we believe we are well-positioned to deliver on our long-term goal.
Speaker Change: a 15% annual growth in cash flow on a per share basis.
Our deep operational expertise and relationships across our five businesses.
Speaker Change: will continue to enable us to identify compelling investments and generate excellent returns for our clients.
Speaker Change: At the same time, powerful secular trends in digitalization, clean energy, and private credit, as mentioned, will continue to drive growth, drawing more capital into markets where we have established a leadership position.
Thank you for your ongoing support.
Speaker Change: I will now hand it over to Connor who will talk about the past year and how that positions us for the future.
Connor Teskey: Thank you, Bruce, and good morning to everyone on the call.
Connor Teskey: As Bruce mentioned, 2024 was an excellent year for our business.
Connor Teskey: We delivered strong performance across our franchise, strategically expanded our capabilities, and surpassed $1 trillion of assets under management.
Connor Teskey: Looking at the past year, 2024 was one of our most active years ever.
Connor Teskey: We deployed approximately $50 billion, sourcing high-quality investments at very good values across each of our business groups.
Connor Teskey: Highlights included Neowen, our public-to-private acquisition of a leading global renewables developer.
Connor Teskey: GEMS Education, a prominent private education provider in the Middle East.
and First Energy.
a large-scale U.S. electrical distribution company.
We also executed on a number of important agreements.
Connor Teskey: For example, our landmark transaction with Microsoft, the largest of its kind, will supply over 10 gigawatts of renewable power over the next five years.
Connor Teskey: And earlier this week, in partnership with the French government, we announced a 20 billion euro infrastructure investment program to support the deployment of artificial intelligence in France.
Connor Teskey: All of the above is helpful in driving performance and adding to our strong track record of delivering for our clients.
Connor Teskey: Although the M&A market was slower in 2024, there was a strong demand for essential assets and businesses with robust cash flows.
Connor Teskey: Given the makeup of our portfolio, we were able to sell investments valued at nearly $40 billion, monetizing $30 billion of equity capital.
Connor Teskey: A good example of this was the partial sale of our ICD Brookfield Place, which was one of the highest value real estate transactions ever completed in the Middle East.
Connor Teskey: We also made significant strides in expanding our capabilities, advancing our leadership position across the fastest growing areas in the alternative space,
and laying the groundwork for our long-term growth.
Connor Teskey: It was this time last year that we formally launched our Credit Group, which brought together our long-standing credit capabilities across the firm with our growing portfolio of credit-focused partner managers.
Connor Teskey: The purpose was to coordinate our credit strategies across asset classes and to accelerate the growth of this business.
and we are already seeing meaningful benefits of these efforts.
We continue to scale our strategies.
build out new capabilities in key growth areas.
and expanded our platform with new clients and manager partnerships.
Connor Teskey: As a result, 60% of this year's organic capital raised came from our credit business.
Connor Teskey: Today, our credit group is our largest business by assets with nearly $250 billion of fee-bearing capital and is poised to help drive continued growth in 2025.
Our scale, strong relationships.
Connor Teskey: global footprint and deep expertise in real asset and corporate credit have given us a meaningful advantage in building out our credit platform.
These credit strategies benefit from proprietary deal flow.
Access to our specialized equity teams for underwriting.
Connor Teskey: and are operating capabilities to conduct thorough due diligence and enhance downside protection through asset management.
Connor Teskey: We also invested in and partnered with managers with leadership positions in key areas of growth, including within the private credit market.
Connor Teskey: This year we acquired a 51% stake in Castle Lake, adding aviation and asset-based finance capabilities to existing Brookfield expertise in corporate and opportunistic credit, equipment and consumer finance, music royalties, and NAV lending.
Connor Teskey: This extended our leadership position as one of the most comprehensive credit managers in the alternative space.
Connor Teskey: This is separate from our dominant franchises in infrastructure, renewables, real estate, and private equity.
Connor Teskey: Lastly, we scaled our investment grade credit team to support growing client demand.
Connor Teskey: By leveraging the Brookfield ecosystem, we are sourcing and underwriting proprietary opportunities for our insurance clients who want investment-grade private credit.
Connor Teskey: For example, our mandate with Brookfield Wealth Solutions continues to grow as their capital deployment needs expand.
Connor Teskey: and we have begun to offer these capabilities to other third-party insurers.
Going forward, we expect significant growth in this channel.
Connor Teskey: Our progress over the past year, and the investments we have made to expand our global footprint and fundraising channels, positions us well for an excellent year for fundraising, deployment, and monetizations in 2025.
Connor Teskey: Transaction volume is further picking up, enabling managers across the sector to return more capital to their clients.
Connor Teskey: This is in turn giving partners renewed liquidity, creating a more favourable backdrop for capital raising.
on the fundraising front.
Connor Teskey: We expect our latest flagship rounds to be over 15% larger than their previous vintages.
We are finishing raising two flagship funds.
Connor Teskey: the 5th Vintage of our Real Estate Flagship Fund, and the 2nd Vintage of our Global Transition Flagship Fund, both of which are slated for final close in the first half of 2025.
Connor Teskey: Our 12th opportunistic credit fund closed in January with a total strategy size of $16 billion.
Connor Teskey: As a reminder, our flagship franchises form the basis upon which we build our complementary strategies, which should contribute to much of our fundraising growth in 2025.
Connor Teskey: Across our complementary strategies, we are seeing strong momentum for a number of new products, such as our Catalytic Transition Fund, our Financial Infrastructure Fund, our Middle East Private Equity Fund, and our Infrastructure Structured Solutions Fund.
Connor Teskey: Other complementary strategies of note that are in the market are our second private equity special investments fund, the seventh vintage of our real estate debt fund, and the fourth vintage of our infrastructure debt fund, already the largest strategy of its kind and expected to be meaningfully bigger than the previous vintage.
Connor Teskey: The continued build-out of our complementary strategies, including with our partner managers, will contribute more to our fundraising this year than ever before, while also serving to diversify both our business...
and our suite of products and strategies for our clients.
Another area of significant growth is our insurance fundraising channel.
Connor Teskey: Annual inflows from this channel are on track to grow in excess of $25 billion per year across retail annuities, pension risk transfer, and other initiatives.
Connor Teskey: We are also expanding this channel as we expect to sign additional SMAs with more insurance firms this year.
Connor Teskey: Lastly, our private wealth channel's growth over the past few years should continue.
Connor Teskey: Alongside our drawdown funds, we have four dedicated private wealth strategies, including infrastructure, real estate, and two credit strategies. We are very excited about what is to come on this front.
Transaction Volume
Connor Teskey: Picking up is good for fundraising, but it should also enable us to monetize investments in which our operating expertise has created value and our investments have been de-risked, positioning 2025 to be a strong environment for capital recycling.
Connor Teskey: Further, the year has started with a robust credit environment that is particularly favorable to our high-quality real asset focus.
Connor Teskey: Since the start of the year, we completed a $5 billion up-financing of Clarios.
Connor Teskey: our U.S.-based battery maker, which supported a $4.5 billion distribution to Brookfield and our partners, which compares to the $3 billion to acquire 100% of the business.
Connor Teskey: While the scale of such a transaction is significant, pricing was broadly in line with previously issued debt and the offering was multiple times oversubscribed.
Connor Teskey: Similarly, we recently executed a $6 billion refinancing of our Intel investment, terming out the maturities far ahead of schedule and at much tighter rates than underwriting.
Connor Teskey: While these examples are both specific and recent, we are seeing broad-based support for the financing of our high-quality portfolio, demonstrated by the more than $130 billion of financings we completed in 2024.
Bruce Flatt: At the same time, short-term dislocations alongside the long-term secular trends Bruce outlined are creating attractive entry points to deploy capital at compelling valuations.
Bruce Flatt: Trillions of dollars are needed to develop data centers, telecom towers, fiber, semiconductor manufacturing, automation assets, and of course power supply and transmission.
Bruce Flatt: all at a time while governments and traditional capital sources remain constrained.
Bruce Flatt: There are also select situations with near-term debt maturities that should create opportunities for us to acquire high-quality assets burdened by over-leveraged capital structures.
Bruce Flatt: Our global reach and operational expertise alongside our scale gives us the capabilities to pursue transactions that few others can.
We are entering 2025 with strong momentum across our business.
Bruce Flatt: Coupled with a more favorable market environment and our expanded suite of capabilities, we are optimistic about delivering strong results this year and beyond.
Bruce Flatt: With that, we will turn the call over to Hadley to cover our financial results.
Hadley: Thank you, Connor, and good morning to everyone. Today I have the pleasure of discussing our strong fourth quarter performance and announcing our 2025 dividend increase.
Hadley: We had record fee-related earnings, distributable earnings, and fundraising in the fourth quarter.
Hadley: Fee-related earnings, or FRE, was $677 million, or 42 cents per share, in the quarter, up 17% from the prior year period, bringing FRE over the last 12 months to $2.5 billion.
Hadley: Given the operating leverage in our business, this growth also benefited our margins, which were 59% in the quarter.
Hadley: Distributable earnings, or DE, were $649 million, or $0.40 per share, in the quarter, up 11% from the prior year period, bringing the last 12 months to $2.4 billion.
Hadley: The driver of growth in our earnings was related to our strong fundraising for the year that included $108 billion that became fee-bearing capital, or FBC, and our deployment of which $21 billion became FBC.
Hadley: This was offset by $18 billion of capital return to client and $9 billion of changes to mark-to-market valuations.
Hadley: All in, FBC grew by 18% over the past year or $82 billion to a total of $539 billion.
Hadley: For the fourth quarter, we had our strongest organic fundraising quarter ever, with $29 billion of capital raised across over 40 strategies.
Hadley: Breaking it down by group, in our Renewable Power and Transition business, we raised over $4 billion of capital in the quarter. This includes $3.5 billion for the second vintage of our Global Transition Flagship Strategy, which now stands at $14 billion.
Hadley: We expect to hold a final close to this fund in the first half of 2025.
Hadley: In our infrastructure business, we raised $2.5 billion of capital in the quarter, including $700 million for our super core infrastructure strategy, our strongest quarter in over two years.
Hadley: We also raised nearly $700 million for our Private Wealth Infrastructure Fund, a strategy that continues to see strong demand.
Hadley: And finally, we raised $20 billion of capital in our credit group. This includes over $10 billion raised across Oaktree and our other partner managers.
Hadley: We raised nearly $7 billion from insurance clients, including Brookfield Wealth Solutions.
Hadley: And to round out our credit group, we launched our fourth vintage of our Infrastructure Debt Fund. We're very pleased with the early momentum of this strategy that has seen growing client demand and expect it to be larger than its predecessor.
Hadley: Overall, our credit group raised over $100 billion in the year, the largest contributor to our fundraising in 2024.
Hadley: In summary, this quarter was a strong end to a year that brought in over $135 billion of capital. And this fundraising momentum across our diversified strategies is already carrying over to 2025.
Hadley: Another key strategic initiative we've laid out last year was to simplify our corporate structure, positioning our shares for inclusion in a broader range of indices.
Hadley: I'm pleased to report that last week, we closed on the transaction to swap Brookfield Corporation's 73% private ownership and our asset management business for an equivalent interest in public shares of Brookfield Asset Management.
Hadley: This transaction means that the full value of our asset management business, which is now approaching $100 billion, is now reflected in Brookfield Asset Management's market capitalization.
Hadley: This step, along with other initiatives we have undertaken, set the stage for broader index inclusion soon, particularly within U.S.-based indices, allowing us to diversify our shareholder base and access deeper pools of public capital.
Thank you.
Hadley: Our strong balance sheet and our liquidity position gives us significant capacity to support growth initiatives.
Hadley: We ended the quarter with $1.8 billion of liquidity comprised of cash, short-term financial assets, and undrawn capacity on our $750 million revolving credit facility.
Hadley: And as a reminder, we continue to operate with no third-party debt on our balance sheet.
Hadley: who currently have capacity to issue up to $5 billion of debt at strong investment grade levels. A capacity that can be used to fund significant growth in our business and that will only grow as our distributable earnings grow.
Hadley: In conclusion, there is strong momentum for us to continue attracting scale capital from a diversified set of fundraising channels.
Hadley: We see strong opportunities to invest this money across all of our businesses and achieve capital recycling that will deliver attractive risk-adjusted returns for our investors.
Hadley: With our strong financial position and significant growth prospects ahead, I'm pleased to confirm that the Board of Directors of Brookfield Asset Management have declared a quarterly dividend increase of 15% to an annualized rate of $1.75, or $43.75 per share per quarter.
Hadley: The dividend will be payable on March 31, 2025 to shareholders of record as of the close of business on February 28, 2025.
Hadley: That wraps up our remarks for the morning. We'd like to thank you for joining the call and we'll now open up for questions. Operator?
Thank you.
Hadley: As a reminder, if you have a question, please press star 1 1 on your telephone. If your question has been answered or you want to remove yourself from the queue, please press star 1 1 again.
Our first question comes from Sherilyn Radborn with TD Securities.
Sherilyn Radborn: Thanks very much and good morning. You note in the letter to shareholders that we're in kind of an anomalous situation where conditions are favorable for both capital deployment and asset monetization.
Sherilyn Radborn: How long do you think that environment can persist, and I guess, how do you position the business to take maximum advantage of it?
Good morning, Sherrilyn.
Connor Teskey: The dynamic in the market that you're seeing is very, very beneficial for us. And what Sherilyn's referencing...
is on one side.
There's tremendous liquidity in markets right now.
All right.
Connor Teskey: sentiment, particularly in the asset classes where we have leadership positions and the most activity is very, very robust.
Connor Teskey: And then lastly, there's a very significant pipeline of sales processes and bilateral discussions.
Connor Teskey: ongoing. This creates a very attractive market for us to monetize our high quality businesses into.
Bruce Flatt: At the same time, the capital needs in the key themes that Bruce mentioned in his remarks
Bruce Flatt: are so significant that they really favor those investors with scale and operating expertise. That creates an opportunity for us on the deployment side. And then similarly,
Bruce Flatt: There are still a tale of situations of businesses that do not have appropriate capital structures in the current interest rate environment that create deep value buying opportunities for us across our core focuses.
Bruce Flatt: How long can this last? We very much expect it to last the duration of this year, which is why we're so bullish about the outlook for our business, and there is the potential it lasts longer than that.
Bruce Flatt: Great, and then separately you mentioned the potential for the 401k market to be open to alternative strategies. What do you see is the likely timeline for that and by how much would that increase the addressable market for alternative managers?
Bruce Flatt: The timing of that is no doubt uncertain, but it seems increasingly positive each day.
Bruce Flatt: If and when this is to happen, we feel we're exceedingly well-positioned.
Bruce Flatt: Our focus on long-duration inflation index asset classes and credit would really lend us well towards appealing to the school of capital and therefore it's something that we remain ready and focused on should the regulation change.
That's my cue. Thank you.
Our next question comes from Alexander Blostein with Goldman Sachs
Alexander Blostein: Hi, good morning, everybody. Thank you for the question. I was hoping we could start with a question around fundraising. In the shareholder letter, Bruce, I think you touched on your outlook for 2025, highlighting accelerating organic fundraising relative to 2024, which I think was about $87 billion. So could you expand, I guess, on your outlook for 2025 relative to what you saw organically last year? And what are some of the larger drivers that you expect to be contributing to this outlook?
Alexander Blostein: For sure. So, there's no doubt we're feeling very, very good about 2025 fundraising. And you're absolutely right, we do expect it to be better than 2024.
Alexander Blostein: And maybe just to go through the components of that, if we think about our flagships, first and foremost, we have two flagships that are in the market that we expect to finish during 2025.
and we expect to launch an additional flagship this year.
Alexander Blostein: Then turning to complementary strategies, we very much expect 2025 to be the largest year for fundraising ever for Brookfield in terms of complementary strategies, and that's a function of one, both bigger sizes and two, new additional products in the market.
And then lastly, if you look to our insurance...
Alexander Blostein: as well as our high net worth fundraising channels, we expect those as well to be bigger than last year. So if you look at each of the components of our fundraising, they are all neutral or up versus 2024, and that is why we expect 2025 to be better.
Great, that's really helpful.
Speaker Change: My second question is around opportunities in an investment grade private credit.
Speaker Change: lots of optimism in this part of the market. I think most folks would argue that origination capabilities is really kind of like the binding constraint in growing in this part of the space. So I was hoping you guys could spend a couple of minutes on that and in the past
Speaker Change: kind of do with the street or sort of the flow that touches BAM ecosystem.
Speaker Change: How much of that do you think could be ultimately internalized, right?
Speaker Change: through the insurance sub or through third-party capital. And as you think about building that further out, what are your thoughts about creating your own capital markets indication capabilities from an incremental way to sort of capitalize on this trend?
Speaker Change: Good morning, Alex. This is Hadley. I'll take that one. You're right. We do see that as a big opportunity, especially as we've grown our capability to procure capital in the insurance space.
and their needs around investment grade credit.
Speaker Change: We're very active in this space. If you think about our foundation around infrastructure and real estate, that is a good area for us to continue to ramp up our capabilities there, where we're already doing a lot in that space, including investment-grade.
and then a...
Speaker Change: of course, within Oaktree, that's another avenue for us on the investment grade side. And then more and more we are focused on the corporate side, the direct lending across our franchise, broadly within Brookfield and our partner managers. So the opportunity set is there for us and we continue to expand our capabilities and raise capital associated with that.
Speaker Change: And then when you think about, you know, capital markets and the capabilities there, we do have those capabilities, and that will be an additional lever not only to earn fees, but to find opportunities that fit the investment-grade landscape for our clients.
I gotcha. All right. Thank you, Adley. Thanks, everybody.
Our next question comes from Ben Rubin with UBS.
Ben Rubin: Hi, thanks for taking my questions. I was hoping to get a mark to market on your private wealth business. I believe at Investor Day, you mentioned that you expect that business to grow at a pretty decent clip, 30 to 50% over the coming years. So just curious what enhancements you're making, both from a product and distribution standpoint, to help take shelf space in a relatively crowded channel. Thank you.
Ben Rubin: Sure, so when it comes to our growth in the retail and high net worth channel, there's there's probably three things we'd highlight. One, we've already raised 20 billion dollars in this channel and we raise more each year through a function of both more products as well as being on more platforms as you mentioned. The second...
Ben Rubin: thing we would highlight is today, we're really doing the bulk of our fundraising through four retail-focused products.
Two in credit, one in infrastructure.
What is unique and cannot be understated?
Ben Rubin: is in a number of those products, we're actually turning down capital. That is how strong the demand is for these types of products.
Ben Rubin: And we're doing that to stay very disciplined around our deployment, and that's how we think the most appropriate way to scale these products are over an extended period of time.
Ben Rubin: which really brings us to our third point, which is just the forecast and the trajectory of this business. We mentioned 30 to 50% at Industry Day last year. I would say we feel very good about those numbers, if not more positive today.
Speaker Change: That's great. My second question is more about the new administration's approach to tariffs. Given your business spans across both regions, what type of operational risk or disruption would a potential U.S.-Canadian trade war present to your cross-border business? Thank you.
Speaker Change: For sure. So I think it's important to recognize our business is very domestically oriented. We own infrastructure and real assets that are integrated into the local communities that we operate in. And we're local in every market that we invest in around the world. And really only a small portion of our business focuses on goods and service that travel across borders.
The second thing we would highlight is
We invest in critical infrastructure assets.
Speaker Change: the backbone of the global economy. These tend to be assets that have very inelastic demand and are indexed to inflation. So the bulk of our business will be largely insulated from any price increases as a result of tariffs if they are to be implemented.
Speaker Change: And that probably brings us to our last point, which is whenever there are changes like this in regulation or administration around the world,
Speaker Change: We always find those changes lend themselves to the largest businesses with the greatest operating capability through which to manage through those changes. And in that category,
Speaker Change: we feel we're second to none. So it's something we're following closely, but we expect our business to be very largely insulated, and it's not going to change our strategies or our growth prospects.
Great, thank you for taking my questions.
Speaker Change: Our next question comes from a line of Michael Cypress with Morgan Stanley.
Speaker Change: Oh, hey, good morning. Thanks for taking the question. Just wanted to come back to your announcement in France.
Speaker Change: just around data centers, 20 billion euros, large announcement there. Can you just talk about your ambitions, the opportunity set that you see there, how you see this $20 billion coming together across the capital structure, across your funds, and then just more broadly, if you could talk about the deployment opportunity you see around AI and data centers over the next couple of years, particularly post the deep-seek development that suggests may require a bit less data centers and less power than previously thought, just given lower costs of computing. How are you thinking about all that? Thank you.
Speaker Change: Certainly, so a big topic. Let's break that down into buckets, maybe just as it pertains to the announcement in France.
Speaker Change: The key takeaways here is there's still very, very significant demand from sovereigns and corporates for capital to invest in the infrastructure that supports AI build out going forward.
Speaker Change: The reality of those large-scale opportunities is they are not available to everyone. They are available to those that have the real estate, the infrastructure, and the power capabilities to date, as well as the platforms and the capital and pipeline to capture this near-term opportunity.
Speaker Change: given the size of our power business, the size of our data center platform within our infrastructure business, and our long-standing real estate franchise, we do feel that we can be leading in this asset class by a significant margin.
to where we will deploy capital into this space.
Speaker Change: It is across the capital stack and across the value chain.
Speaker Change: So, it's into the equity, it's into the debt that supports the build-out, this is a huge opportunity for our credit franchise. But it's important to recognize this is not just funding the racks and the shelves, this is funding the chips, this is funding the power, this is funding the entire supply chain, and we certainly have the scale and pools of capital with which to do that.
Speaker Change: And then maybe to the last comment just around DeepSeek and some of the narratives around those headlines.
Speaker Change: There's really two important things in our minds to recognize. One is the demand forecast for AI infrastructure was so meaningfully higher and above what the market could reasonably supply from the supply side.
Speaker Change: And even if there were efficiencies that were to reduce demand a significant amount going forward,
Speaker Change: The supply-demand imbalance is still very much in favor of the supplier and the developer, which creates a strong opportunity for us. We don't build on specs in this space. We only build against long-term contracts with
Speaker Change: large hyperscalers, some of the greatest credit counterparties around the world. And therefore, the deep sea headlines are not changing our approach. The second point, and maybe to wrap up on this topic is
It would be...
um
Speaker Change: It would be crazy to assume that with a technology as large and as fast-growing as artificial intelligence that there would not be efficiency gains going forward.
Speaker Change: And those efficiency gains are very expected, and as they will bring down, or potentially bring down the cost of artificial intelligence,
Speaker Change: They're only going to make that product more available to a wide variety of users.
Speaker Change: and that will create more widespread demand going forward, which obviously increases demand for the AI infrastructure that we seek to finance. So, we're following these headlines closely, but we view it all as business as usual and still a huge opportunity for us going forward.
Speaker Change: Great. Thank you for that. And just a follow-up question sticking with the AI topic.
Speaker Change: you had mentioned earlier on the call just that you are using AI to drive automation and productivity to support investment teams across the organization. I hope you could elaborate on that a bit more. If you could speak to the use cases, how many you've identified, how many you have in production, what sort of impact you've seen, how do you see this evolving, and what steps are you looking to take here in 2025 to better capture the opportunity within your own business?
Michael, what we would say is it's exciting.
Speaker Change: We're still very early days in rolling this out within our platform, but already some of the opportunities, efficiency, and gains are quite meaningful. And really what we're doing is we're fortunate across both Brookfield Asset Management, but all of our portfolio companies.
Speaker Change: entire platform and the knowledge and increasing use cases across it to use those synergies across our ecosystem. I would say we're early days but the gains are meaningful.
Speaker Change: And it's really, I would say at this point, focused on cost and efficiency, and going forward it'll also be focused on revenue as well.
Okay, thank you.
Speaker Change: Our next question comes from a line of Ken Worthington with J.P. Morgan.
Great. Good morning. Thanks for taking the question.
Speaker Change: Maybe to follow up on Michael's question, the deployment opportunity and infrastructure would seem to be immense.
Speaker Change: But 4Q in 2024 witnessed, I would say, depressed deployment in infrastructure relative to your other asset classes.
Speaker Change: So, I guess the question is, do these big deals and these big opportunities just take a lot longer to get to the point of investment check writing?
Speaker Change: As we think about BIFV, does a four-year investment cycle seem to be right for this fund, or given size and complexity of the opportunity set, is it expected or obvious that it just might take longer to get those dollars out the door?
So...
Speaker Change: Given the breadth of our franchise, I would say, you know,
Speaker Change: a lack of significant deployment and infrastructure in Q4 of 2024.
Speaker Change: That's just timing, that's just coincidence. Our infrastructure pipeline is as robust today as it's ever been. The demand for capital is at an all-time high. And it's also perhaps important to recognize just some of our segregation.
Speaker Change: We've announced in Q4 some of our largest investments ever in the power space, and those investments are directly tied to supporting the build-out of AI. They just happen to sit within our power.
classification as opposed to our
So, and as it pertains to our fifth franchise,
Speaker Change: BIF 5 approximately 50% deployed at this point. It's traditionally had a track record of deploying those funds approximately over a three year timeline. There is nothing in the market today that suggests that won't continue to hold.
Great, thank you.
Speaker Change: I think, in Brookfield's history, but we also saw, I think, the biggest quarter of outflows and distributions, and fee-bearing capital ended roughly flat for the quarter, and I assume that higher rates in FX didn't help.
Speaker Change: Can you talk about the credit inflows and outflows for the quarter, maybe how insurance is driving the relationship between gross and net inflows, and ultimately I'm curious to, well, we'll just leave it there, can you talk about that?
Certainly, so
Speaker Change: Thank you for the question. And we know, we very much recognize that that Q4 credit outflow number looks a bit funny. Two things we would just highlight there. One of them is a reflection of something we very much expected to happen as we took on
more insurance capital under our IMA with Brookfield Wealth Solutions.
Speaker Change: Part of our intention with that portfolio was to optimize it and reallocate it over time.
Speaker Change: And one of the things that showed up in Q4 was the very much planned reallocation of
Speaker Change: some of their credit allocations to other platforms within Brookfield. So that inflated the number a little bit in Q4. That will continue to some extent going forward as we continue to optimize the allocation of that business. The other thing that was a little bit unique in Q4
Speaker Change: Our credit business is a little bit unique versus our other platforms.
Speaker Change: in that when we raise credit capital, it becomes feedbearing on deployment, not on commitment.
Speaker Change: However, when we monetize things, that obviously drops out of fee-bearing capital in real time. And with some of the robustness in credit markets in Q4, we did monetize some assets that therefore fall out of fee-bearing capital. And while we raise capital, it will only be inserted into fee-bearing capital upon deployment.
Speaker Change: I think the comments about the capital we've raised in credit
Speaker Change: demonstrate the market's enthusiasm and the opportunities in the space. And one of the big levers for our cash flows and FRE going forward is deploying the very significant amount of non, not yet.
Speaker Change: feed-bearing capital that we have available to us within our credit franchise.
Great, very helpful. Thank you very much.
Our next question comes from Mike Brown with Wells Fargo.
Good morning. Thanks for taking my questions.
Mike Brown: So, Connor, I wanted to ask on insurance, so I guess somewhat related question. Within the $6.6 billion of inflows this quarter, can you just break that down? How much was from...
Mike Brown: the Brookfields partners and how much was from third-party SMAs and then
Speaker Change: On a related note, when I look at slide 21 and the mix of investments there, can you just give us a view into what's the end game mix in terms of that liquid private and what's the difference in the fee rate there that we should think about?
Speaker Change: Certainly, so in terms of the inflows from insurance in Q4,
Speaker Change: Almost 100%. I would say for purpose of modeling, you can assume that all of it came from Brookfield Well Solutions.
Speaker Change: We obviously do have our SMAs. We did some in Q3. We expect to do more in Q1, but in Q4 it came almost entirely from Brookfield Wealth Solutions.
Speaker Change: In terms of how we optimize that portfolio, I would say we're increasingly moving product out of liquid into our funds and higher returning strategies. That's an ongoing process.
are
Speaker Change: maybe directionally, we would be expecting to move anywhere between I call it two to four two to five billion dollars of capital into those strategies on an annual basis.
Speaker Change: And did he call her on that kind of fee rate pickup?
Speaker Change: Yeah, sorry, I apologize. I glossed over that. With our IMA, with Brookfield Wealth Solutions, we get a 25 basis point fee on 100% of the capital we manage on their behalf. When we move a, when that product is invested into one of our private funds, we also get to charge the private funds fee. So it is meaningfully higher when we do allocate it to a private fund. Of course, we can only do that with.
with a minority portion of that available capital.
Okay, great. Yeah.
Speaker Change: I appreciate the addition there. I know it was a kind of multi-parter.
Speaker Change: I wanted to ask about Oaktree, just in light of the final closed news for Oaktree Opportunities Fund 7 at $16 billion of commitments.
Speaker Change: Spreads are tighter, capital markets are still open. So how are they thinking about deployment? I guess, would it be more special sets versus distressed? And, you know, how could that kind of progress for deployment for them? Thank you.
Speaker Change: I'll answer that one. You know, it's interesting because we are very excited about an opportunistic strategy and of course the fundraise dictates that our clients are as well and the opportunity when you look forward, first of all, it's probably worth noting that they've already deployed a lot of that capital probably, you know, close to 50 percent.
Speaker Change: So they've been able to find very interesting, attractive investment opportunities in this climate, with base rates higher, with capital structures
Speaker Change: dealing with the higher interest rate component, even with tighter spreads, with maturity walls. And so that will continue to create opportunities that going forward for them, both on the special assist side, finding interesting opportunities where their capital can be valuable, but then also on the distress side is that built to a certain extent.
Speaker Change: So overall, the Oak Tree team and ourselves feel very good about the opportunity set and the deployment options that they have at their fingertips.
Thank you for watching. Bye. Bye.
Okay, great. Thank you very much.
Speaker Change: Our next question comes from Nick Preep with CIBC Capital Markets.
Speaker Change: Following the Investor Day when the changes were first announced, I think S&P has subsequently announced some changes to its global domicile policy that places greater emphasis on country of incorporation. And I think at Investor Day, you indicated that the intent is to keep BAM incorporated in Canada. I recognize there's a much broader array of indices that you hope to qualify for, but is the country of incorporation a change that you could also contemplate from a longer-term standpoint to better position yourself for inclusion in the S&P 500 specifically?
Speaker Change: So, you know, in that vein, as you recall, two things that we've done all the way to make sure that we have access to additional U.S. indices. One is, of course, changing our headquarters to New York, which was a very simple change and had no impact in our business, but represented.
Speaker Change: the framework of our business now with our AUM, our revenues, our employees.
heavily based in the U.S.
Speaker Change: And the second change, of course, is what we closed last week, which is the exchange of BN shares for the private, the public, Brooklyn Asset Management.
Speaker Change: and so that's additive as well. So we're in a good position to add U.S. entities and already are seeing the impact of that. In terms of specifically the S&P 500, and the incorporation is a factor and we are incorporated in Canada and we don't think we need to change that in order to have access to other U.S. entities. So from our standpoint, given our U.S. focus business,
Speaker Change: and the other criteria that are applicable in those types of analysis, we feel we're well framed out for that.
Speaker Change: Okay, that's good color. And then just switching gears, the new Trump administration has made a bit of noise about the tax treatment of carried interest paid to investment professionals. And I was wondering, if the tax treatment of carried interest were to change,
Speaker Change: Would the compensation structure also change? For example, would employees be entitled to a higher percentage of the gross carry? And I'm also just wondering, is the debate around tax treatment of carry isolated to personal income tax treatment for the investment professionals, or would it also impact the corporate tax rate on carry as well?
Speaker Change: We obviously have a very global business and tax treatment of carry is different in every market around the world. So a change in US tax treatment, the US is obviously the biggest market and our biggest market.
Speaker Change: It does generate a lot of headlines, but I would say it's not going to change our local compensation approach. We manage through different tax treatments of carry in other regions, and we'll treat the U.S. as the same.
Speaker Change: Okay, all right, fair enough. Those are my two. Thanks very much.
Our next question comes from Dan Fannin with Jeffreys.
Dan Fannin: Thanks. Good morning. I wanted to talk about the outlook for base management fee growth, particularly within private equity and real estate, as we think about 25, given some of, I think, the fundraising you talked about, as well as the ins and outs around activity and deployment and exit. So, as we look at the next...
Speaker Change: You know, guys, at 2025, how are you thinking about base management fee growth in those two subsegments?
Speaker Change: Certainly. So real estate, we're seeing a lot of momentum, obviously, as they finish fundraising for the latest of the flagship BezRap series. And that will be completed in the first half of the year. And that will obviously be run right in through the numbers for an additional 12 months beyond that. So with real estate, it's very, I would say, obvious and on lock and that train is going well down.
on the path when it comes to private equity.
Speaker Change: Very much appreciate the question because we are seeing a ton of momentum in our private equity business right now We think our approach to private equity investing lends itself to this environment and the pipeline for our private equity Platform is very very robust and we do expect to be back in the market with the next vintage of our private equity vehicle earlier than expected Very much expected at some point this year
Speaker Change: and that will obviously lead to the next step change in revenues for that platform.
Speaker Change: Great, and then to follow up just on the margin outlook, given some of the momentum you've talked about in terms of fundraising and ultimately revenues, how are we thinking about margins as an investment into next year vis-a-vis where we've been?
So there's two things in terms of our margin.
One, our margin improvement is very much driven by revenues.
Speaker Change: during 2023 and the early part of 2024, we were very vocal that we were investing in our platforms ahead of step changes in revenues.
Speaker Change: As those step changes and revenues have come on through the latter half of the year and they'll continue to come on in the early part of 2025, that's been what's driven the margin improvement and we do expect it to continue for a number of quarters here to come.
Speaker Change: It should also be recognized that there are two things that
Speaker Change: also impact our margins. One is the mix of our business and two is we are seeing tons of opportunities for growth. Hadley mentioned in her remarks how we have a balance sheet that can fund new growth opportunities.
Speaker Change: Those new growth opportunities do tend to be slightly lower margin at the beginning and then escalate over time. But our core margins, our core business is seeing significant margin improvement as expected. That will continue and then really...
Speaker Change: That will be counterbalanced by investment in new products that will add significant fee revenues in the future.
Great, thank you.
Our next question comes from Mario Sarek with Scotiabank.
Speaker Change: Good morning. Just dovetailing on the last question with respect to margins and being a bit more specific, the total compensation and benefits line item fell $15 million versus Q3 about 4% to $386 million. In Q4, how sustainable is that Q4 figure going forward?
Speaker Change: and I'll be at a little bit less so from 23 into 24. We do very much expect to see those costs on a much lower growth rate than our revenue, which will continue to drive margins in 2025. We're a growing business. Our costs will continue to grow up.
Speaker Change: but we continue to expect to see the trajectory of costs continue to plateau.
Speaker Change: Okay, my second question just relates to potential external growth that's been cited a couple of times now.
Speaker Change: You've mentioned the unique opportunity in terms of buying assets really well and selling assets really well in the broader market. How would you characterize the market for add-on GP expertise today, and how important do you think it is?
Speaker Change: VAM's node depth structure as it stands today is to differentiating field versus some of the TLS layers.
Speaker Change: So two parts to that. We will continue to be very opportunistic as it pertains to GP acquisitions and GP M&A. The consolidation in in this industry at large continues and we therefore continue to monitor it and remain active in that space but we're only going to do things that are highly accretive, strategic and are additive to our business.
Speaker Change: Are there a number of opportunities being reviewed? Yes, but we'll continue to be very selective. In terms of the comments in and around our balance sheet, I'll start, but Hadley, feel free to jump in.
Speaker Change: We see a real opportunity given the growth we are seeing, particularly in our key themes and focuses, to launch new products.
Speaker Change: that can scale very quickly and be big revenue drivers for our business.
Speaker Change: in years to come, and that will take some investment, and therefore we do expect to use our balance sheet.
Speaker Change: more meaningfully in 2025 in order to catalyze some of that growth.
Speaker Change: And we certainly think that's the most effective use of both our existing balance sheet as well as some of the credit capacity we have available. We will use that to drive organic FRE growth within our business.
Speaker Change: Yeah, and just as a reminder, I mean, we have $1.8 billion in liquidity, a $750 million revolver that is undrawn.
Speaker Change: and $5 billion today of capacity at very attractive, high investment-grade ratings. And so as we grow, that capacity will grow with it. So we do have an opportunistic liquidity position to support that growth.
Speaker Change: Got it. Okay, just to summarize in terms of using the balance sheet, it sounds like it's more likely to fund co-investments as opposed to a substantial external M&A in 2025.
Speaker Change: If I could perhaps characterize that differently, it'll be used to fund two things. One is GPM&A on the
Okay, thank you.
Thanks for watching!
Speaker Change: Our next question comes from Robert Kwon with RBC Capital Markets.
Speaker Change: between your digital infrastructure, renewable power and nuclear, you've got these platform businesses in all the facets of the AI infrastructure side of things. And so how do you see this playing out? Do you see this just being more transactions than your peers because of your broader reach or could we see more deals along the lines of the French announcement where you're bringing multiple solutions?
Speaker Change: as part of a single transaction and then do deals like that where your competitors can't do it. Does that lead to stronger returns?
Thank you. Bye.
To the first part of your question,
Speaker Change: I don't mean to sound like we're hedging, but the answer is both.
Speaker Change: We certainly will look to do more large-scale transactions that bring multiple facets of the organization together, where there are few that can compete and obviously where there's less competition, there's a better chance of outsized returns.
Speaker Change: But maybe going back to some of the comments earlier in the call, the supply demand imbalance today is very much in favor of those that can build new projects that have either ready-to-build projects or advanced pipelines.
Speaker Change: The scarcity value of those projects is higher today than ever before. That bodes very well for our significant investments in data centers and renewable powers in recent years, but we'll look to continue.
Speaker Change: continue to add advanced pipeline and ready to build projects to meet the needs of our biggest counterparties around the world.
Speaker Change: maybe to sum it up, the scale and the multi-faceted solutions we can bring across data centers, fiber, telecom, nuclear power, renewables, they're unmatched in the space and therefore that's why that's what we think the French announcement is representative of and we think there'll be more to come along those lines.
Speaker Change: That's great, thank you. And if I can just finish with...
Speaker Change: a question on the transaction environment and just the notion that it's a good environment to be both an acquirer and a seller.
Speaker Change: Are you seeing that broadly across all of your core strategies, or are there some mismatches out there, you know, between the strategies where there's a much more significant tilt to being a buyer versus a seller or vice versa?
Speaker Change: and which one of those mismatches might be, if there are.
Speaker Change: Yeah, there definitely are individual mismatches within different sub-segments, but perhaps the more prevailing comment we are seeing around the world, we could probably make two comments that are pretty widespread across all of our asset classes.
One is...
Speaker Change: High-quality assets, whether it's high-quality real estate, high-quality infrastructure, those are seeing incredibly robust bids around the world today, where lower-quality assets are still seeing more tepid market demand. And that certainly favours our portfolio, given our broad-based focus on highest-quality assets in most strategic and core markets.
Speaker Change: The other comment we would generally see that we're seeing across asset classes is
Speaker Change: operating cash-generative high-quality assets, particularly ones that still have a bit of a growth angle. Very, very robust bid, lots of liquidity, lots of capital, good market to sell into.
Speaker Change: where we are seeing a scarcity of capital is opportunities to fund the build-out, the growth of new platforms that are going to need significant capital and equity injections to build themselves out over time. And that's where you're seeing us deploy more capital in the infrastructure, renewable power, and even the real estate space to some extent.
That's great, thank you.
Speaker Change: That concludes today's question and answer session. I'd like to turn the call back to Jason Fooks for closing remarks.
Speaker Change: Okay, great. If you should have any additional questions on today's release, please feel free to contact me directly. Thank you, everyone, for joining us.
Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.