Brookfield Asset Management Inc.
There’s Something About Carry: Solid Q3/21 as carried interest continues to increase
Our view: BAM reported another strong quarter with OFFO/share coming in slightly ahead of our forecast driven by higher-than-forecast Fee Related Earnings (FRE). BAM is in active fundraising mode, which should be a key driver of FRE growth in the coming years and continued strong investment performance is building carried interest potential. Bigger picture, we see the shares benefiting from the favourable fundraising environment and strong investment performance. We increase our target to US$70/share (was US$65) and maintain our Outperform rating.
Key points:
Q3/21 Operating FFO (OFFO) of US$934MM (US$0.56/share, +10% Y/Y) was slightly ahead of our US$888MM (US$0.54/share) forecast, driven by higher-than-forecast Fee Related Earnings (FRE), but partly offset by low OFFO from Invested Capital (mostly from Other segment).
Q3/21 consolidated Fee Bearing Capital (FBC) (incl. Oaktree at 100%) was US$341B, +5% vs. US$325B Q/Q and +18% vs. US$290B Y/Y. The change Q/Q was largely driven by Long-term private funds while the change Y/Y was due to Perpetual Strategies and Oaktree.
BAM generated +US$34B of inflows since last quarter (US$24B during quarter, US$10B in Q4) and is on track to raise US$100B for its latest vintage of flagship funds. Strong capital raising this past quester was driven by BSREP4 (>US$9B first close), Global Transitions (US$7B founders’ close, with first close in coming months), and capital raising activities from 25 other private funds. Brookfield began raising capital for BCP6 (private equity) and expects a first close in early 2022 and also anticipates fundraising for its next infrastructure fund early next year now that its current vintage is 70% committed/invested.
Other takeaways: (1) Subsequent to quarter-end, BAM launched a non- traded REIT for income-oriented real estate investors; (2) BAM has US$80B of total dry powder/liquidity, comprised of US$14B at the Group level and US$66B of 3rd-party uncalled private fund commitments; (3) BAM adjusted its disclosures this quarter, allocating capital and earnings into verticals (Real Estate, Renewable Power, Infrastructure, Private Equity, Credit and Other) vs. funding strategy (Long-term, Perpetual, etc.).
Increasing target to US$70/share (was US$65) and maintaining Outperform rating. The increased target primarily reflects a 10% premium to NAV (was 5%), as we believe positive fundamentals, a favourable fundraising environment and elevated monetization activity are likely to see the shares trade at a premium to NAV