September 20, 2021
Brookfield Asset Management Inc.
Because You Loved FRE(e): Investor Day Highlights
Our view: While BAM was effective in outlining how it plans to deliver +17% 5-year CAGR in its Plan Value/NAV, one less obvious implication of its forecast is that the Plan Value/NAV would become significantly more “asset light” (i.e., Fee Related Earnings (FRE) and carried interest comprising a higher percentage of Plan Value/NAV relative to invested capital), which could be positive for BAM’s valuation, as we believe some investors prefer this. We think BAM’s growth targets are achievable and could potentially prove conservative given BAM’s track record, the multiple levers to drive growth, and an increasing trend of institutional investors consolidating their investment partners. We view BAM as a core holding and reiterate our Outperform rating and US$65 price target.
Key points:
Key takeaways (see pp. 2–5 for key exhibits from BAM’s presentation):
• BAM is targeting ~15% annualized returns. Other financial targets
include (2021 to BAM’s 2026 target): (1) Fee Bearing Capital (FBC) of US $830B vs. US$325B today (+21% CAGR); (2) FRE of US$3.7B vs. US$1.6B today (+18% CAGR); (3) invested capital of US$116B vs. US$64B today (13% CAGR); and (4) BAM estimates US$42B in realized carried interest over the next 10 years.
• NAV growth drivers: In addition to executing its strategy for existing capital in place, BAM expects that future NAV growth should largely be driven by: (1) larger fundraises for Flagship funds (US$57B last round, US$100B current round, and BAM estimates US$125B+ next round); (2) new verticals (Insurance, Transitions, Secondaries, Technology); and (3) scaling up new alternative strategy product launches.
• Flagship strategy targets (2026E are BAM’s): (1) Infrastructure (US $95B AUM today; 2026E: US$200B) growth drivers: government deficits, 5G rollout/digitations, infrastructure super-cycle. (2) Credit (US$156B AUM today; 2026E: US$300B) growth drivers: zero rates, immense flow of funds, established franchise. (3) Real Estate (US$219B AUM today; 2026E: US$400B) growth drivers: alternate sectors, size and scale of franchise, active development. (4) Renewables (US$59B AUM today; 2026E: US$150B) growth drivers: climate change, decarbonization, electrification of transport and industry. (5) Private Equity (US$77B AUM today; 2026E: US$150B) growth drivers: growing alternatives allocation, high-quality businesses, barriers to entry.
• New verticals update: (1) Technology (mature software): BAM views software as the new infrastructure and targets US$100B in AUM. The strategy is nascent and BAM is augmenting its platform to drive acquisitions in the next cycle (investments likely to be done via BBU). (2)Insurance: BAM estimates that there are >US$10T in life/annuity in-force blocks and that the US$45B in insurance AUM agreements signed to-date is ahead of its expectation, and it sees synergies with Infrastructure and Real Estate (e.g., invest Insurance assets into Infrastructure/Real Estate credit). BAM is targeting US$200B+ in AUM.