Brookfield Asset Management Voting Ord Shs Class A T.BN.PF.I

TD Upgrade

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Brookfield Asset Management Inc.

(BAM-N, BAM.A-T) US$56.71 | C$71.23

Increasing Target Price to US$70.00 on Higher FRE Multiple Event

We are increasing our target price to US$70.00 from US$63.00, largely driven by a higher valuation multiple on fee-related earnings (25x vs. 20x), based on the long duration of the underlying fee-bearing capital, and what we see as the very supportive fundraising backdrop underpinning the company's latest flagship fundraising cycle, which should result in another step-function increase in FBC/FRE.

Impact: POSITIVE

• Q2/21 Preview: BAM reports on August 12. We expect fee-related earnings to be up almost 50% y/y and >15% q/q, based on strong market capitalizations for the listed affiliates, net fundraising inflows, and the first incentive distribution from BBU since Q3/18 (~$80mm). BAM recently announced a $7bln initial closing for the inaugural Brookfield Global Transition Fund, and we anticipate a positive fundraising update on the latest flagship real estate fund in the near term (seeking $17bln). FFO from invested capital should benefit from the continued re-opening/ re-acceleration of the global economy, with even further evidence of those trends likely to emerge in H2/21 for the few businesses that were affected by COVID-19.

• Carried Interest: The current macro backdrop of robust economic growth, higher inflation (without runaway inflation), and historically low interest rates is favourable to BAM's investment performance, and the capital markets are highly supportive of capital recycling activity. Therefore, we anticipate healthy carried interest recognition and another sequential increase in the unrealized carried interest balance (a forward-looking indicator). Notable asset sales during Q2/21 included a Canadian district energy business, a U.K. smart meter portfolio, and a GrafTech secondary offering. BAM also sold more West Fraser shares.

• Capital Deployment: Competition for the types of businesses that BAM likes to own is high, but the company continues to unearth deals consistent with its risk-return parameters. The private equity franchise has been particularly active recently, committing over $3bln of equity to three transactions, which may position BAM to launch the fundraising for the next flagship private equity fund.

  TD Investment Conclusion

  We believe that an investment in BAM provides exposure to a high-quality portfolio of real assets, with the added leverage of a world-class asset management franchise.