September 24, 2020
Brookfield Asset Management Inc. 2020 investor day: Reinforcing our views
Our view: Earlier today Brookfield Asset Management ("BAM") and its flagship listed LP's hosted their 2020 virtual investor day. Notwithstanding the effects of a global healthcare crisis turning into an economic event, the 5 key themes/trends (outlined below) from the 2019 investor day remain the same today, or they have become more pervasive. We believe the shares offer an attractive short- and long-term investment opportunity. We reiterate our US$40 Price Target and Outperform rating on BAM's shares.
Key points:
BAM’s business is stronger and more diversified than ever – Examples in this regard include the 10-year evolution of a broader product suite, including perpetual funds, credit funds and specialty funds, a 20-fold increase in the number of investor clients (to ~2,000), and a broadening of fund distribution channels.
Globally low interest rates should be positive for the franchise – Interest rates are at/close to 0% across all major capital markets. This is very positive for the valuations of many of the types of assets that BAM owns and manages. Moreover, the notion that we may be in a prolonged period of ultra-low rates should provide a favorable backdrop for fundraising efforts with institutional allocations to alternatives continuing to increase.
COVID-19 is not BAM’s first walk through a crisis – Senior leadership has successfully navigated BAM through many prior crises, including the likes of the early 1990’s recession/ commercial real estate crisis, the Asian and Russian financial crises, the bursting of dot-com bubble, the GFC, and this-year’s global COVID-19 pandemic turned economic crisis. Each had its unique challenges, but BAM persevered and over time successfully grew.
Still a huge opportunity to continue to scale investment offerings – With $234B of FBC (at share) at Q2/20, up from $50B in 2010, BAM sees what it describes as an opportunity to continue to scale its offerings via: 1) the next round (2020E-2022E) of flagship private funds totaling ~$100B; and, 2) a trebling of perpetual fund FBC, to ~$60B over the “mid-term”. BAM also sees significant potential to evolve new investment offerings/ verticals, including the likes of: 1) a $25-$50B secondary funds/trading business; 2) impact funds (a $50-$100B FBC objective); 3) technology funds (a $50-$100B objective), with certain software and other services becoming more “utility-like”; and, 4) insurance (a $100B-$200B business) now that interest rates have reached 0%.
Strong operating expertise and financial strength – Spanning $550B of AUM across 30 countries with 150,000 operating employees and 1,000 investment professionals, the scope and operating expertise have never been greater. At the corporate level annual cash generation ($2.4B) and retention after dividends $1.7B is significant, capitalization is strong (only $8B of debt) and corporate liquidity ($6B) is significant.