The business performed strongly in Q1 2024, with robust fundraising, capital markets execution, and strategic transactions.
Raised $20 billion of capital during the first quarter, including first closes for two flagship funds.
Sold a 49% interest in ICD Brookfield Place in Dubai for approximately $1.5 billion.
Sold or under contract to sell about $35 billion of assets across all businesses in the past year.
Refinanced over $18 billion in borrowings, decreasing overall debt costs.
Announced three strategic transactions, including acquiring a majority stake in Castle Lake and expanding partnership with Oaktree.
Financial Results
Fee-related earnings (FRE) for Q1 were $552 million, with distributable earnings (DE) at $547 million.
Raised $20 billion of capital, increasing fee-bearing capital to almost $460 billion.
Declared a dividend of $0.38 per share for Q1 2024.
Fundraising and Investment Focus
Focused on infrastructure, renewable power, transition, and credit due to their demand among institutional investors.
Expanded capital raising across multiple channels, including institutional investors and private wealth platforms.
Managing nearly $90 billion of insurance fee-bearing capital, including $50 billion from AEL acquisition.
Brookfield Oaktree Wealth Solutions raised $7 billion in capital last year and aims to raise $12 billion to $15 billion annually over the medium term.
Strategic Transactions and Partnerships
Acquired additional 5% interest in Oaktree, bringing ownership to 73%.
Agreed to acquire a 51% interest in Castle Lake, enhancing credit capabilities.
Announced consolidation of credit businesses under a newly formed group totaling nearly $300 billion of assets under management.
Looking Forward
Expect to double distributable earnings and reach over $1 trillion of fee-bearing capital in the next four years.
Launched several new funds and strategies across private equity, real estate, and credit.
The credit group manages $180 billion of fee-bearing capital, generating annualized fee revenues of $1.2 billion.
Question and Answer
Fund Performance Track Records
Question
Can you provide more information on the flat to slightly down quarter-over-quarter fund performance track records and whether this is a transitory issue?
Answer
The temporary nature of the fund performance is attributed to the conservative marking of the portfolio due to market volatility in Q1.
The company anticipates a quick reversion to line or above-target marks as market conditions improve, with a strong bid coming from corporates, increased bank lending, and liquidity in the system.
Castle Lake Deal Structure
Question
How did the Castle Lake deal come together, and what is the structure of the deal between Brookfield Asset Management and Brookfield Reinsurance?
Answer
Brookfield Asset Management will invest approximately $500 million in the Castle Lake deal, with $350 million for a 51% ownership stake in the future revenue earnings (FRE) and $150 million to support the business and acquire a portion of the carry and manager’s GP stakes.
The majority of the $1.5 billion investment in Castle Lake will come from Brookfield Reinsurance, with BAM contributing $500 million upfront.
Fundraising Momentum and Flagship Funds
Question
Can you provide insights into the fundraising momentum, including expectations for the quarterly pace and demand for the four flagship funds currently in the market?
Answer
The company’s confidence in fundraising remains high, with a record Q1 and strong momentum expected to continue.
Fundraising is anticipated to be more balanced throughout the year compared to the back-end concentration in 2023, with acceleration expected in the later quarters.
The reception for the transition strategy and real estate flagship fund is positive, and credit remains a significant driver of fundraising.
Insurance Business Capital Allocation and Sub-advisory Capacity
Question
How does the company plan to allocate capital from the insurance business to BAM and Oaktree credit strategies, and what is the ultimate sub-advisory capacity for the $90 billion insurance platform?
Answer
The company expects to deploy approximately one-third of the insurance capital into long-term private funds, another third into investment-grade credit, and the remaining third into liquid credit.
The allocation process is anticipated to take 2-3 years, with the insurance franchise well-positioned to deploy capital following the AEL acquisition.
Credit Platform Competitive Environment
Question
Can you discuss the competitive environment for deploying capital within the credit platform, considering the platform’s growth and diverse product offerings?
Answer
The competitive environment remains strong, with liquidity in the market and attractive opportunities despite the absence of significant market disruptions.
The company’s competitive advantages in deploying capital include its long track record, strong asset knowledge, ability to provide more than just capital, expertise in various parts of the capital structure, and certainty and quick execution on large deals.
Areas of scarcity of capital, such as asset-based sectors, real estate, and infrastructure, provide further advantages for Oaktree and its credit platform.
Five-Year FBC Growth Outlook
Question
Given the first-quarter performance and potential improvements in monetization markets, do you anticipate FBC growth in 2024 to be above, in line with, or below the 18% CAGR target implied at Investor Day?
Answer
While the 18% CAGR target may fluctuate slightly year-to-year, there is nothing in the current market conditions that suggests a deviation from that long-term trend.
The company highlights the strong momentum across key growth drivers and growth initiatives that will contribute to significant growth in the latter part of the year.
Fee-bearing capital in private fund strategies, credit, and insurance was up 15% year-over-year, indicating positive fundamentals and growth outlook.
Refinancing Opportunities and Capital Deployment
Question
How is the company assessing the refinancing wall for portfolio companies and the opportunities within credit to deploy capital to address unsustainable capital structures?
Answer
The current market environment presents opportunities for both investment and monetization, with the company expecting to be a significant buyer and seller at scale.
Opportunities to deploy capital at scale are abundant due to factors like unsustainable capital structures and the acceleration of trends like digitalization, decarbonization, and deglobalization.
The company is actively pursuing both refinancing opportunities in stable, growing businesses with attractive rates and acquisitions of businesses with imperfect capital structures.
FRE Margin and Expense Growth Outlook
Question
Is the outlook for low double-digit expense growth in 2024 and an FRE margin expansion to around 58% still intact as the businesses scale sequentially throughout the year?
Answer
Compared to the prior year, delayed closing on the AEL mandate and temporary declines in permanent capital vehicle trading prices impacted the results.
Excluding these impacts and assuming flat share prices and earlier AEL closing, FRE per share would have increased in the low double digits despite no fundraising and significant capital deployment.
Expense growth has moderated, and the company anticipates improved margins in future quarters with more balanced fundraising and deployment opportunities.
Castle Lake Transaction Multiple and Oaktree Stake Acquisition
Question
The $40 million FRE figure for the Castle Lake deal implies a transaction multiple of about 9x. Is this figure on a 100% basis, and can you provide more details on the pricing nuance? Additionally, can you share the cost and multiple of acquiring the incremental 5% interest in Oaktree?
Answer
The $40 million FRE figure is on a 100% basis and represents the expected earnings over the next 12 months, which explains the lower multiple compared to an LTM basis.
The investment to acquire the incremental 5% stake in Oaktree was approximately $275 million with a multiple of 13.5x based on the formulaic calculation established at the time of the partnership.
Impact of Department of Labor Best Interest Rules on AEL Business
Question
Do you have any insights into the potential impact of the Department of Labor’s best interest rules on AEL’s business and whether they pose a risk or opportunity to the projected insurance sales?
Answer
The company’s enthusiasm and growth projections for insurance sales are primarily driven by the strength of its platform, which has been enhanced by the AEL acquisition, and favorable demographic trends supporting the annuities business.
Larger-scale companies like Brookfield are better equipped to handle new regulations, and the company does not anticipate significant disruptions to the insurance sales trend.
