January 4, 2021
Brookfield Asset Management Inc.
Our Second-Best Idea for 2021
Our view: We view BAM as a core holding and believe the company is well positioned to benefit from increased demand for real asset/alternative investment strategies, particularly with interest rates being almost zero. Coupled with BAM’s strong investment track record, global reach, size/ scale, and diverse funds/strategies, we forecast this to translate into double-digit NAV growth over the next year. We view the shares as attractively valued, trading at a 12% discount to NAV (we think the shares should trade at or a slight premium to NAV).
Key points:
Please see our 2021 Outlook report also published today, “2020: “Aim for the bushes” type of year. 2021: “I'm a peacock. You gotta let me fly!”, for more details on BAM and our outlook for our sector coverage.
For a more in-depth analysis of BAM, please see our December 2020 report: “Takin’ Care of Business”.
Things we will be focusing on for 2021:
• Capital deployment and monetizations. With economic conditions gradually improving, this could see significant capital deployment (BAM has US$76B of dry powder) and monetization activity.
• Fundraising activity. BAM said it will likely be fundraising for its next series of flagship funds in 2021. Current flagship funds (including Credit) raised ~US$57B and BAM has suggested that the upcoming fundraising cycle could reach ~US$100B, which would benefit Fee Bearing Capital and future Fee Related Earnings.
• Expansion into three new verticals (Impact, Reinsurance, Secondary).
Including expanding into utility-like Technology investments, BAM estimates that these new verticals could become US$225–450B in AUM (and likely Fee Bearing Capital) over time. Attaining these levels will take many years, but 2021 could provide early signs on the pace of growth (e.g., Global Transition Fund, AEL reinsurance).
Raising 12-month price target to US$52/share (from $51) and maintaining Outperform rating. Our higher price target reflects increased price targets for Brookfield Business Partners and Norbord since our last report.