OVERVIEW (As of February 8, 2023)
While our asset management business has been 25 years in the making, and we have been investing our own capital for over a century, this is the first letter for the ‘new’ Brookfield Asset Management, which now trades under the symbol “BAM”. While new in the form of a standalone public company, our long track record and growth as an asset manager provides continuity for this next phase of growth.
We raised a record $93 billion of capital last year, with several factors increasingly playing out in our favor — including our primary focus on value investing, secular tailwinds that continue to contribute positively to our market-leading businesses, and our deep global relationships.
Our fundraising outlook remains strong. In 2023, we expect to have three flagship funds in the market, along with several complementary perpetual strategies and other long-term funds that will provide our clients with a full suite of investment alternatives.
Our financial results for 2022 were excellent. Our distributable earnings were $569 million for the quarter, or $0.35 per share and $2.1 billion for the full year. Our dividend was set at $0.32 per share per quarter, with the first payment to be paid at the end of March. Going forward, we expect our dividends to increase at a compound annual growth rate of 15-20%, in line with our expected growth in fee-related earnings.
It is worth noting that our franchise, while large, is growing faster today than ever before. We currently generate $4 billion of annualized fees and over $2 billion of distributable earnings, and we have significant momentum that should enable our earnings to at least double over the next five years.
Our long track record and growth as an asset manager provides continuity for this next phase of growth
WELCOME TO THE 'NEW' BAM – OUR PURE-PLAY ASSET MANAGER
Our asset management business is currently one of the largest and fastest growing alternative asset managers globally, with operations spanning more than 30 countries on five continents. We have more than 2,000 investment and asset management professionals who employ a disciplined investment approach to create value and deliver strong risk-adjusted returns to clients across a diverse set of public and private fund offerings.
The business has grown from its infancy 25 years ago to approximately $800 billion of assets under management today, and deep relationships with more than 2,000 clients. We are fortunate that this includes most of the largest global institutional investors.
Our Strategy Is Distinct
The outlook for our business remains very strong, due largely to the following components of our differentiated strategy:
- We invest in the backbone of the global economy.
- We leverage our deep operational expertise to create value.
- Our scale and track record over a long period of time means that we are a beneficiary of the capital that is increasingly gravitating to the largest, multi-asset class managers in a period of industry consolidation.
- Our business is positioned around the leading secular global drivers of capital across renewable power and transition, infrastructure, real estate, and credit.
- We are highly diversified. This enables the business to grow, and to deploy capital through economic cycles—with our credit, private equity, and real estate businesses each specializing in finding investment opportunities in markets like we are seeing today.
- We pride ourselves both on providing the highest level of service to our clients and constantly innovating to meet their needs.
- Across Brookfield, we have $175 billion of our own discretionary permanent capital to invest in, and with, our funds. This is one of the benefits of our structure and is unrivaled in the industry.
We leverage our deep operational expertise to create value
Our Asset Classes Are In Favor
Infrastructure is experiencing a multi-year secular shift towards increased demand for large-scale, long-term assets that serve as critical components of the built economy. Similarly, and more recently, burgeoning investor appetite for clean energy and transition investment mandates have powered the rapid rise of—and demand for—net-zero and energy transition investments. Within real estate, investors are starting to allocate capital to opportunistic strategies that are benefiting from value investments that are the result of liquidity issues created by market disruption. Within the credit space, flows remain strong and we are well positioned to benefit from the ongoing market volatility and uncertainty.
Given this backdrop, we are seeing increased demand for real assets, and particularly essential assets with low volatility, enhanced appreciation potential, and highly stable, contracted returns. A substantial portion of real assets benefit from inflation protection and pass-through contracts.
In addition, as market volatility and more challenging economic conditions continue, we expect the preeminence of Oaktree to come to the fore. Having one of the most sophisticated credit managers as part of the franchise diversifies our business, makes us better investors, and ensures that we can raise and successfully deploy capital at all points in an economic cycle.
Our asset management business is the beneficiary of synergies across the broader Brookfield Ecosystem. With the tightening of markets and scarcity of capital, we have the benefit of access to significant perpetual capital from Brookfield Corporation and large-scale, flexible capital from its insurance solutions business.
Listing From Strength Is Best
With a strong business backdrop, we designed the BAM security to provide investors with direct exposure to our asset management business. Our security has the following attributes:
- The cash flow stream is extremely resilient. Most of our $418 billion of fee-bearing capital is invested in long-term private funds that have perpetual, or 10+ year lives.
- Distributable earnings are almost entirely made up of our stable and annuity-like fee-related earnings, making our earnings simple to understand, stable, and easy to predict.
- We will return the vast majority of our cash flows to shareholders via dividends—and when it makes sense, stock buybacks.
- Our asset-light balance sheet is exceptionally strong, with no debt and cash and financial assets of $3 billion.
Overall, the combination of these characteristics generates an excellent long-term investment, which should provide us with added optionality for acquisitions, should the right opportunity present itself.
Fee-related earnings for the last twelve-month period increased by 26% to $2.1 billion, excluding the impact of performance fees recognized in the prior year. This was supported by 15% growth in fee-bearing capital, which reached $418 billion by the end of the year. Distributable earnings were $569 million in the quarter and $2.1 billion for the year. Our financial results benefited from our largest fundraising year ever, which included total capital raised of $93 billion—largely driven by significant flagship fund capital raises, along with our growing suite of complementary strategies.
We continue to see growth and activity across our flagship funds. During the quarter, we held additional closes for our fifth flagship infrastructure fund and our sixth flagship private equity fund, which to date have raised $22 billion and $9 billion, respectively. We continue to find investment opportunities for our transition fund and have now invested or committed over 50% of this $15 billion strategy. With a robust investment pipeline, we expect to launch the next vintage of this fund this year.
Our fourth real estate flagship fund is materially invested or committed, and we recently launched fundraising efforts for the next vintage. We believe we are entering a period of significant activity that will provide us opportunities to invest in some great assets and businesses for excellent value. We are also fundraising for the next vintage of our opportunistic credit fund; the momentum for this strategy is strong given the current macro environment. In our perpetual funds, we raised $12 billion for these strategies in 2022, with a number of new products coming to market.
This past year we invested $73 billion and monetized $34 billion of investments. We ended the year with over $90 billion of deployable capital and this should grow as we continue to raise capital across flagship funds and other strategies. For clarity, this excludes all the capital that Brookfield Corporation holds and could deploy with us.
Our Perpetual Capital Is Very Valuable
One of the most important attributes of our business is that 83% of our fee-bearing capital, which generates over 90% of our fee streams, is either very long-term or perpetual in nature. In addition to the strategic benefits that come with having this amount of perpetual capital backing the business, our cash flow profile is incredibly consistent, resilient and permanent as a result.
Our long-term capital is in the form of commitments to our private funds from predominantly institutional clients, which have a typical life of 10-12 years. We have a proven track record of growing these strategies that is backed by the returns we have been able to deliver to our clients. The revenues are stable and have grown at a 24% CAGR over the last 10 years.
Permanent capital vehicles and perpetual strategies make up close to 50% of our overall cash flows—and importantly, these are not subject to any potential pressure of redemptions or capital outflows.
Our cash flow profile is incredibly consistent, resilient and permanent
We believe the quality and nature of our perpetual capital is a true differentiator of our business, and falls into the following four categories:
- First, and arguably the most unique component, is the permanent capital we manage on behalf of the Brookfield listed entities (BIP, BEP and BBU). These entities, which have a combined capitalization of almost $60 billion, are all dual-listed NYSE and TSX companies, and are truly perpetual. They provide investors with daily liquidity, however our capital base is not subject to redemptions. The trend of value and capitalization is positive, with an annual growth rate of 12% over the last 10 years.
- Second, we manage a portfolio of real estate on behalf of Brookfield Corporation. This is a portfolio that is invested across a highly diversified, high-quality portfolio of assets in the best locations around the world.
- Third, we manage a pool of insurance capital that is backstopped by long-dated liabilities and an equity value invested by Brookfield Corporation of $8 billion. There is no maturity to this mandate, and as a core strategic business to Brookfield, we expect this capital to only increase over time.
- And lastly, we have perpetual core and core plus private funds predominantly in real estate and infrastructure for primarily institutional investors with longer-term investment horizons.
We remain committed to being a world-class asset manager, and to investing capital for you and the rest of our investment partners in high-quality assets that earn solid returns, while emphasizing downside protection. The primary objective of the company continues to be to generate increasing cash flows on a per-share basis, and to distribute that cash to you by dividend or share repurchases.
— Bruce Flatt, Chief Executive Officer & Connor Teskey, President