Post by
retiredcf on Dec 16, 2022 9:22am
More CIBC (BAM specific)
This is a USD target. GLTA
EQUITY RESEARCH
December 15, 2022 Initiating Coverage
BROOKFIELD ASSET MANAGEMENT
Pure-play Exposure To A Secular Growth Industry
Our Conclusion
The “new” Brookfield Asset Management made its trading debut this week, reflecting the creation of a stand-alone pure-play alternative asset manager focused solely on the expansion of fee-bearing capital and fee-related earnings (FRE). We consider BAM a unique entity in the Canadian asset management landscape, with attributes that also distinguish it and make it a standout vs. global peers. We see a lot to like about the asset manager, which: 1) participates in a segment of the market experiencing long-term secular tailwinds; 2) is expected to produce a high-teens FRE growth trajectory; 3) generates very healthy margins; and, 4) is underpinned by a capital-light balance sheet. We consider BAM to be among the best earnings compounders in the Canadian financials universe and, as of December 15, initiate coverage with an Outperformer rating and $37 price target.
Key Points
Introducing The “New” Brookfield Asset Management: In February 2022,
Brookfield floated the idea of separating its asset management business from the investing capital and spinning it off as a publicly traded entity. Earlier this week, the company completed the spin-off and distributed a 25% interest in the Manager to existing Brookfield shareholders.
Alternatives: An Asset Class With Secular Growth Trends: Alternative
asset classes have achieved strong investment returns over time, and
allocators have gradually and steadily increased exposure in the context of a low interest rate environment. Accordingly, Brookfield expects to compound fee-bearing capital at 20% annually over the next five years. Despite some congestion in the fundraising markets, the company is demonstrating solid progress and is on track to achieve its largest fundraising year on record. We don’t believe that higher interest rates will derail the longer-term growth outlook or meaningfully dampen investor demand for alternatives.
Insulated From The Headwinds Of Traditional Public Strategies:
Alternatives are less commoditized in nature than many public market
strategies, and investor commitments often represent long-term, locked-up capital. Compared to the traditional asset managers, alternative managers tend to experience less fee compression, are less vulnerable to the rising popularity of passive investing, experience resilient flows, demonstrate better earnings stability and generate healthier margins overall.
A Unique Entity In The Alternatives Landscape: The carve-out and
spin-off of the asset manager helped facilitate the creation of a new entity
that: 1) is capital-light, but still benefits from access to capital and insurance- related upside; 2) has a clean balance sheet; 3) has a much more stable earnings profile with a higher proportion of FRE in distributable earnings (DE); and, 4) is less PE-centric. The company also earns high marks on the ESG fron