Brookfield Asset Management – Excellent management generating ROI with assets under management

Brookfield Asset Management is a leading global alternative asset management company focusing on real estate, infrastructure, renewable energy as well as private equity.

The firm operates through diversified and sustainable businesses like Brookfield Property Partners, Brookfield Infrastructure Partners, Brookfield Renewable Partners, and Brookfield Business Partners. BAM serves institutional and retail clients through its four partnerships.

The number of average client commitments and their size have both increased over the last few years. Brookfield also holds a significant investment in Oaktree Capital Management which is a leading global alternative investment management firm.

Private equity accounts for the largest portion of revenues at ~62%, followed by real estate (15%), infrastructure (10%), renewable power (~5%), and asset management, residential development, corporate (accounting for the balance 8%) segments.

Brookfield Asset Management has a large global presence in over 30 countries which grants it a competitive edge for proprietary deal flow. Its revenue by geographies – the US (~24%), Canada (9%), the UK (32%), Europe (9%), Australia (8%), and Brazil, Colombia, Asia, and other (18%).

The firm invests in large asset classes i.e. businesses worth $50-$100 trillion and focuses on investing in long-life, high-quality assets at favorable valuations and financing them through low-cost, long-term capital.

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Investment Data

 


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Revenue Growth & Market Exposure

Brookfield Asset Management earns base management fees from private funds which provide stable fee revenues. The majority of its fee revenues are contracted and predictable.

With a long experience of 120 years of owning and operating real estate, Brookfield Asset Management has become a leading global asset manager with over $575 billion worth of AUM today. Both its AUM and fee-related earnings have grown by 25% and 20% CAGR, respectively in the last five years.

The fee-bearing capital is expected to surpass $500 billion in the next five years. It also has ~$30 billion of additional capital that will begin to earn fees of ~$300 million once deployed.

Brookfield Asset invests in businesses that form the backbone of the global economy and seek to give long-term returns. As a result, 80%-90% of its operating businesses fared well through the economic shutdown. This enabled the firm to generate steady cash flows. BAM’s diversified businesses offer a powerful source of permanent capital.

As a leading alternative asset manager, Brookfield Asset Management is favorably positioned to benefit from the growth of global capital inflow into alternative assets and huge institutional investment in real assets. The firm is looking at big opportunities to increase its private fund investor base in Europe and parts of Asia.

BAM’s latest quarter was marked by record fundraising of $18 billion and deployment across its long-term and perpetual private funds, growth in listed affiliates, and growing fee-related earnings (36%). Its fee-bearing capital increased $12 billion during the quarter to $290 billion at the end of September 2020. It launched the European core-plus real estate fund during the quarter with the next flagship real estate fund expected in early 2021.

Brookfield Asset Management witnessed strong momentum in its renewables business and this trend is expected to continue over the long-term. Alternative allocation is expected to increase to 60% by 2030 from 25% today. BAM is expecting to raise ~$100 billion for its next round of flagship funds and focus on growing perpetual and other strategies.

Dividends

Brookfield Asset Management is a Canadian dividend aristocrat with a sound track record of raising its dividend. It has compounded its dividend at more than 7% CAGR in the last five years. The firm last raised its payout by 12.5 % and sports a decent yield of 1.24% but a high payout ratio. It pays out nearly 30% of its cash as dividends to shareholders.

Brookfield Asset’s cash flow is secure with high-quality assets and strong downside protection offered by its four businesses. These account for stable and predictable annual free cash flows in the form of distributions to Brookfield Asset Management. These cash distributions have a historical track record of growing at ~10% annually and each of these partnerships targets annual distribution growth rates within a range of 5%-9%.

The company has a good history of generating strong cash flow, which should continue to increase with the growing fee bearing capital. Brookfield is expecting margins in the 55%-65% range with future diversification and growth plans. Its acquisition of Oaktree further diversifies fee streams and expands product offerings.

Brookfield Asset Management reported a record FFO of $1 billion in the latest quarter and $2.8 billion in cash for distribution or reinvestment in the last twelve months. Its substantial capital for investment and broad relationships enables it to source further capital conveniently. The firm also has access to multiple sources of capital. It ended the quarter with $75 billion of capital for deployment. The size and liquidity of its balance sheet further grant financial flexibility to pursue future transactions. 

Brookfield Asset is in a good position to leverage its expertise and generate attractive total returns over the long term. Worldwide presence, a highly liquid balance sheet, strong investment expertise across asset classes, and ownership of diversified assets are added advantages for the firm. Its dividends should grow as its operations and asset management business continues to expand in the future.

Brookfield Asset management historical yield
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On a side note, BAM.A pays their dividend in US dollars which means the dividend is converted to Canadian when it pays. If you prefer to keep the dividend in USD, you can do so by holding BAM on the NYSE since it is a dual listed stock. It also means the yield fluctuates bases on the currency exchange when you hold it on the TSX.

Competition

Brookfield Asset management competes with various private equity firms, asset management and wealth management companies, and financial services companies. Onex Corp, CI Financial Corp, IGM Financial, Fiera Capital, Fairfax India Holdings are a few of its competitors. Brookfield’s large scale capital provides it a huge competitive advantage over its peers.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:BAM.ABAM.ABrookfield Asset ManagementFinancial ServicesAsset Management0.4760.5596.1259.3359.331.020.01071.070.633740.520.086575Tollbooth - UnregulatedNONOYESNOCanada1
TSE:IGMIGMIGM FinancialFinancial ServicesAsset Management0.3444.0110.6613.0213.023.380.05115.110.665542.250.051114Consumable - DiscretionaryNONONONOCanada1
TSE:ONEXONEXONEX CorporationFinancial ServicesAsset Management0.2886.618.003.063.060.000.00460.460.013440.400.163420Consumable - DiscretionaryNONOYESNOCanada1
TSE:CIXCIXCI FinancialFinancial ServicesAsset Management0.3921.764.539.649.642.610.03313.310.316640.720.033113Consumable - DiscretionaryNONONONOCanada1
TSE:BIPCBIPCBrookfield Infrastructure PartnersFinancial ServicesAsset Management0.2489.263.990.000.000.000.02842.840.418242.040.028413Tollbooth - UnregulatedNONONONOCanada1
TSE:UNCUNCUnited CorporationFinancial ServicesAsset Management0.29110.201.333.163.1634.880.01091.090.034441.200.010904Consumable - DiscretionaryNONONONOCanada1
TSE:SIISIISprottFinancial ServicesAsset Management0.2948.751.2734.5634.561.480.02552.550.789941.000.025502Consumable - DiscretionaryNONONONOCanada1
TSE:FSZFSZFiera Capital CorpFinancial ServicesAsset Management0.3810.450.86133.73133.731.520.08048.047.936540.840.143053Consumable - DiscretionaryNONOYESNOCanada1
TSE:AGF.BAGF.BAGF ManagementFinancial ServicesAsset Management0.397.640.543.453.450.530.04194.190.143640.320.041913Consumable - DiscretionaryNONONONOCanada1

Bottom Line

Brookfield Asset Management’s financial results are supported by its stable and growing cash flows from the asset management franchise and strong performance from its assets and portfolio companies.

Fundraising for real assets and alternatives should benefit from a prolonged zero interest rate environment and an increase in fee-bearing capital should generate strong growth in fee-related earnings. Contractual fee revenues and solid annual free cash flows should support BAM’s stable future distributions. 

BAM.A vs TSX vs SP500
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Brookfield Asset management historical PE
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DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.