Q3/24 DE A 2%-3% BEAT; MACRO TAILWINDS JUST STARTING TO KICK IN
THE TD COWEN INSIGHT
BN's franchise has been resilient over the past 2 years, despite headwinds that are now becoming tailwinds. Q3/24 DE before realizations was a record $0.80/share, up 19% y/y, as wealth solutions earnings doubled. Distributions from BN's LP investments have inflected higher, which should continue with a stronger macro backdrop. Realized carry will probably lag a bit but should also reaccelerate.
Event
BN reported Q3/24.
Impact: SLIGHTLY POSITIVE
Q3/24 DE of $0.84/share was a 2%-3% beat vs. the Street at $0.82. Realizations of $66mm fell short of our $100mm estimate, which we knew might be optimistic. DE before realizations was a record $0.80, up 19% y/y. The slight increase in our 2025/2026 DE estimates largely reflects upward revisions in wealth solutions.
Fee-related earnings increased 14% y/y, and BN expects strong fundraising in Q4/24 and into 2025, with anticipated closes on several flagship funds, which should result in further earnings growth, including operating leverage. BAM is undertaking enhancements to its corporate structure that should improve its eligibility for U.S. index inclusion. These changes could be complete by year-end, and BN seems highly confident that BAM will eventually be included in all major U.S. indices, based on its size and the location of its business, which is predominantly in the U.S.
Wealth solutions earnings doubled y/y to $364mm, reflecting the acquisition of AEL, increased annuity sales and strong investment performance. The average spread on BN's insurance portfolio was 180bps, as the company makes progress on repositioning the AEL float and returning to its target of ~200bps. The business is earning ~$1.5bln currently and BN is targeting to hit ~$2bln in the near term. Including annuities/retail products targeting the private wealth market, BN is raising ~$2bln of retail inflows/ month and has only just started to access this new layer of scale capital.
BN's franchise has been very resilient, and now the headwinds of the past 2 years are becoming tailwinds. BN closed/advanced $17bln+ of monetizations across the business at very attractive returns during Q3/24. The larger deals were executed in second/third vintage funds in real estate/infrastructure, advancing those funds further towards carried interest realization, which should occur over the next 6-18 months. The accumulated but unrealized carried interest balance increased to ~$4.50/share in Q3/24, up 17% y/y and 6% q/q.
BN has repurchased ~$1bln of shares over the TTM and intends to continue allocating capital to share buybacks.
BN has a long track record of being a strong compounder of earnings/value, in our view. BN owns 73% of Brookfield Asset Management (BAM), which is targeting to compound DE at an ~18% CAGR during 2024-2029 and is a global leader in renewables/transition/infrastructure investing, all areas where we see high growth and strong LP interest. BN's wealth solutions business has grown to $115bln+ of AUM in just 2-3 years and is targeting ~$300bln by 2029. Investor sentiment with respect to the on-balance-sheet real estate portfolio has bottomed and is on the upswing. Carried interest should be poised to inflect meaningfully higher in 2025+, as deal velocity reaccelerates following a quiet two-year period. In our view, there is substantial unrecognized value in BN's share price.