Brookfield Asset Management Voting Ord Shs Class A T.BAM

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Brookfield Asset Management Inc.

(BAM-N, BAM.A-T) US$51.33 | C$66.66

Investor Day Outlines Substantial Runway for Growth

Event

Yesterday, BAM hosted an Investor Day.

Impact: POSITIVE

• Macro Tailwinds: The macro environment favours BAM's heavy weighting to real assets, which offer significant inflation protection (~55% of FBC). The company is a global leader in real estate, is dominant in infrastructure/renewables, and is a first-mover in transition investing. Alternatives have become mainstream among institutions and the industry has just begun to tap the retail wealth channel (~ $80tln opportunity).

• Asset Manager: BAM expects FBC to reach $1tln over the next five years (~20% CAGR) by: 1) deepening existing relationships (~65% of clients invest in only one strategy); 2) originating new relationships; 3) expanding distribution channels (15 new banking relationships in wealth); and 4) developing complementary investment strategies (non-traded REIT, etc.)

• Insurance Solutions: BAM has deployed ~$4bln of equity to insurance to-date, which generates ~$400mm+ of DE and should earn returns of 15–20% over time, as the high levels of cash/liquid financial assets are redeployed to higher-yielding strategies. The company has $40bln of insurance AUM and sees the potential to reach $225bln over the next five years and $400bln over time.

• Capital: The corporation will own 75% of the manager and 100% of insurance and will be responsible for allocating BAM's proprietary capital/free-cash-flow. DE of $3.7bln (pro forma) is expected to reach $9.3bln in 2027 (~20% CAGR). FCF will be used to sponsor continuity vehicles, participate in co-investments, complete scale transactions, incubate new businesses, etc. Excess capital will be returned to shareholders (H1/22 share repurchases of $450mm).

• Five-year Outlook: BAM outlined potential upside to $175-$198/share across three pillars of growth (asset manager/insurance/balance-sheet capital), which represent a total annualized return of ~30%+ vs. the current share-price. The partial distribution of a pure-play asset manager should attract a higher valuation for the manager, while preserving the synergies of the "Brookfield ecosystem". Insurance solutions propel growth in funds/fees and the corporation's access to capital provides scale to the manager.

• Valuation: Assigning no value to carried interest, using current share prices for BAM/the perpetual affiliates, and valuing real estate at an ~30% discount to IFRS, the asset management stub is trading at only 15.7x 2023E FRE.