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

TD Upgrade

[retiredcf]

Raise their target by US$7 to US$57.00. GLTA

Brookfield Asset Management Inc.

(BAM-N, BAM.A-T) US$41.56 | C$54.06

Summary of Investor Meetings Event

We have increased our target price after hosting the company for a series of virtual investor meetings in western Canada. The increase is largely based on an increase in the multiple that we use to value fee-related earnings to 20x from 15x, which we believe is supported by a pivot in investor focus away from concern regarding BPY's mall portfolio and back to BAM's five-year growth prospects.

Impact: POSITIVE

• Fee-bearing Capital: BAM continues to target $100bln from its next round of flagship fundraising, which is already underway, with $12bln raised to-date for the latest distressed debt fund. The balance of the flagship funds are 60% invested/ committed, and the company expects to start raising the successors in 2021.

• New Investment Strategies: BAM has outlined four new investment strategies, which should become more significant to the growth of fee-bearing capital towards the latter half of the decade: reinsurance, transition/impact funds, secondary funds, and technology funds. We believe that the transition/impact funds and the reinsurance business are the most well-advanced among these strategies, and our sense is that BAM intends to scale the reinsurance business gradually over time by reinsuring blocks of relatively low-risk, long-dated liabilities.

• Carried Interest: BAM has realized $252mm of carried interest (net) over the last 12 months ($0.16/share) vs. $396mm in 2019 ($0.26/share). With the business environment normalizing, the company has restarted certain previously deferred asset-sales processes, and we would expect 2021 realized carried interest to return to 2019 levels and build from there.

• Liquidity/Capital Deployment: BAM has $76bln of liquidity, and is confident that there will be lots of opportunities to invest for value as economic stimulus measures wind down. One of the more interesting scenarios that could emerge would be an increase in government privatization of infrastructure as a way to deleverage.

  TD Investment Conclusion

  We see a prolonged period of near-zero interest rates as a favourable backdrop for BAM, as it should only increase investor appetite for alternative investment products as fixed-income substitutes. Furthermore, we anticipate that BAM will capitalize on market dislocation resulting from the pandemic to enhance its franchise, as it has done in previous cycles.