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 has both increased over the last few years. It 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 58%, followed by real estate (15%), infrastructure (13%), renewable power (~6%), 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. Brookfield Asset Management invests in North America (84% of funds deployed), Europe (3%), South America (4%), and Asia (9%). 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. 

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, today Brookfield Asset Management has become a leading global asset manager with over $515 billion worth of assets under management (growing at ~16% CAGR in the last five years). Both its AUM and fee-bearing capital have grown by 42% and 76%, respectively from the prior year. Future growth of fee-bearing capital is expected to continue through 2024 at a rate of 12% CAGR, which should support strong growth in fee-related earnings. 

Brookfield Asset invests in businesses that form the backbone of the global economy and seek to give long-term returns. This enables the firm to generate steady cash flows and make operational improvements. Its permanent capital of $100 billion safeguards it from market volatility. BAM’s diversified businesses offer a powerful source of permanent capital. Its real estate, infrastructure, and private equity flagship funds are now 95%, 75%, and 90%, invested, or committed. The firm is looking at big opportunities to increase its private fund investor base in Europe and parts of Asia.

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. Alternative allocation is expected to increase to 60% by 2030 from 25% today. The firm’s fee income grew significantly during the first quarter of 2020 and its businesses continued to perform well during the quarter.

Dividends

Brookfield Asset Management is a dividend aristocrat with a sound track record of raising its dividend. It has compounded its dividend at 7.3% in the last five years. The firm recently raised its payout by 12.5 % and sports a decent yield of 1.3% and a payout ratio of 54%. 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 $1.4 billion of 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 annually and each of these partnerships target 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. Its fee-related earnings have also grown at a rate of 13% CAGR in the last five years. 

The firm’s cash available for distribution or reinvestment (CAFDR), which includes fee-related earnings and distributions from affiliates, was considerably higher than the same quarter last year reflecting the resiliency and stability of BAM’s business model. Its partnership with Oaktree last year has granted a full-scale operation to acquire debt in the secondary markets.

Brookfield Asset Management reported FFO of $884 million and cash available for distribution or reinvestment of $751 million for the quarter. 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. 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. 

Competition

Brookfield Asset management competes with various private equity firms, asset management and wealth management companies, and financial services companies. ONEX Corporation, CI Financial Corp, IGM Financial, Fiera Capital Corp., Fairfax Financial 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 Management0.4344.3050.51128.60128.600.340.01431.431.864040.480.078463Tollbooth - UnregulatedNONOYESNOCanada1
TSE:IGMIGMIGM FinancialFinancial ServicesAsset Management0.4731.857.5910.2810.283.100.07067.060.725842.250.070626Tollbooth - UnregulatedNONONONOCanada1
TSE:ONEXONEXONEX CorporationFinancial ServicesAsset Management0.3461.225.880.000.00-0.900.00650.651.000040.400.141554Consumable - DiscretionaryNONOYESNOCanada1
TSE:CIXCIXCI FinancialFinancial ServicesAsset Management0.4818.043.887.707.702.340.03993.990.307740.720.039915Tollbooth - UnregulatedNONONONOCanada1
TSE:BIPCBIPCBrookfield Infrastructure PartnersFinancial ServicesAsset Management0.5874.472.620.000.000.000.03813.811.000042.150.130286Tollbooth - UnregulatedYESYESNONOCanada1
TSE:FSZFSZFiera Capital CorpFinancial ServicesAsset Management0.5110.210.840.000.00-0.080.08238.231.000040.840.188876Tollbooth - UnregulatedNONOYESNOCanada1
TSE:AGF.BAGF.BAGF ManagementFinancial ServicesAsset Management0.525.200.417.837.830.660.06156.150.484840.320.061516Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Brookfield Asset Management’s financial results are supported by its stable and growing cash flows from asset management franchise and strong performance from its assets and portfolio companies. Real assets and alternatives provide an attractive solution to institutional and retail investors, and Brookfield as a leading alternative asset manager should benefit from this trend. The firm aims at delivering in excess of 12%-15% compound return over the long term. Contractual fee revenues and solid annual free cash flows should support stable future distributions. 

Dividend Adjusted Chart by StockRover.

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.

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