BROOKFIELD ASSET MANAGEMENT LTD Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Cherilyn Radbourne - TD Securities - Analyst : Thanks very much, and good morning. My first question is on AI infrastructure and the related power requirements, which continues to receive a lot of attention. And as you're not aware, at least one dedicated product has been announced out there. Do you think AI infrastructure makes sense as a discrete strategy for BAM at some point? And if so, could you give us some thoughts on how that would sit alongside your flagship infrastructure product? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Good morning, Cherilyn, thank you for the question. You're absolutely right that this topic is very, very top of mind to us today. It's very much plays to our existing leadership position within infrastructure and within renewable power and data centers that we already have. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 3:00PM, BAM.N - Q3 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call In addition to that, our current platforms, the demand we are seeing from our LP partners for greater exposure to this theme puts this very, very much near the top of our list, I would say, as we begin to think of new products and product development initiatives at scale. So, I would get your bang on. This is something that is a focus for us. And quite candidly, has been a focus for us for, I would say, probably 12 months. We simply want to ensure that when we do come to market with a new product of scale, we're thoughtful, we're refined and what it will invest in, and it's appropriately meeting the market opportunity. And I would say we've made great strides, and we're getting closer. In terms of where our focus would be, I think the important thing to recognize is we already are one of the largest, if not the largest investor in this theme around the world. And to date, we've been doing it through various pools of capital. But given, one, the size of the opportunity set, and two, the investor demand to get more exposure to this theme, you're right that it is increasingly lending itself to a dedicated product. And playing to our strengths and where we have the greatest experience and position. It would be certainly focused on leaning towards more of the infrastructure side of AI as opposed to the more private equity or growth side of it. It would absolutely be something more aligned with an infrastructure product in our mind. So I hope that gives you some clear thinking and it's something we'll continue to refine.

Question: Cherilyn Radbourne - TD Securities - Analyst : That's all for me. Thank you.

Question: Alex Blostein - Goldman Sachs - Analyst : Hi, good morning, thank you for the question. I was hoping we could start with a question on renewables business. It sounds like lots of activity in the space with a pretty rapid pace of deployment. I was wondering why the fundraising has been slower in transition to in particular. So if you look over the last couple of quarters, it's been a little muted. So just curious if you could expand on that and what you ultimately expect the third-party fundraising number to contribute from here? And then ultimately, when do you guys expect this fund to come back into the fee run rate I think you're pretty close in terms of where you are deploying, but just wanted to flesh that out? Thanks. Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Hi, Alex. Thanks for the question. I'll try and unpack a few different points there. First and foremost, BGTF II turned back on. It was in the latter part of Q3. So we certainly didn't get the benefit of it. We only got the benefit of it for a handful of weeks, I'd say, but it will be fully in the numbers back in the numbers for Q4. And I think, just in general, I would frame the comment around fundraising and transition as a little bit of a high-class problem. We obviously had the unique situation where we paused fees on BGTF II as we went to backfill one large investment in BGTF I. But in addition to doing that, we address the whole in BGTF I, and we've now deployed one quarter of BGTF II during the same time frame. I would say the pace of transaction activity on the deployment side has been as strong as ever. And as we mentioned in our shareholder letter, we're also seeing an incredible monetization environment with 3 or 4 significant monetizations in the 25% type IRR range. This business is performing exceptionally well. Aside from credit, it's the fastest-growing platform at Brookfield, and we think we're still just in the early days. And then maybe just the last point to directly hit on your fundraising number. This is where I will come back to it being a high-class problem. We have complete confidence we're going to hit the target in the fund. I don't think there's anyone at Brookfield who is concerned about that. The only reason why perhaps it isn't showing up in our rate numbers as quickly as we would have expected is in the time since BGTF II launched, we've launched CTF, and we've raised half that fund. And alongside BGTF II, we've raised $5 billion of co-invest into those strategies as well. So I don't think there's any slowdown in fundraising on our transition side. We'll get the rest of that flagship closed out in the coming quarters and in early 2025, we're very confident we'll hit our target there. And then the last point, just as a friendly reminder, due to the catch-up fees in those flagship funds, even if the timing slipped a quarter or two, it doesn't impact our economics at all.

Question: Alex Blostein - Goldman Sachs - Analyst : Thank you.

Question: Michael Brown - Wells Fargo - Analyst : Great. Thanks for taking my questions. On the expenses just to maybe follow up on the earlier question there. It looks like the margins that benefited from good discipline on the comp and other expenses as well. How can we think about the fourth quarter here compared to 3Q? Is there any seasonality to consider? And if the year ends up being kind of up in like the high single-digit range, in terms of year over year expense growth, how should we think about expense growth or margin expansion potential in 2025 compared to 2024? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Hi Mike, perhaps I'll take the first crack at that and if there's anything Hadley would like to add on, she can. There's three comments I would make. We expect our margins to continue to accelerate higher into Q4 and the beginning part of 2025. And I think it's quite well known at this point that we invested quite heavily in particular into our credit and insurance franchise. In order to be ready for the new capital we would be onboarding that we have onboarded throughout the year. And we made investments there. We were investing in our people, and that was showing up in the expense line prior to there was a revenue attached to it. So that is now run rating through our numbers, and that's going to continue right through until Q2 next year. The second thing I would just highlight around our expenses is, we continue to see a general plateauing of our overall expenses versus a couple of years ago. And as our revenue grows, that's really going to showcase the operating leverage in our business. Said another way, we do expect Q4 to be higher than Q3, and we do expect margins in 2025 to be higher than they have been in 2024.

Question: Michael Brown - Wells Fargo - Analyst : Great. Thank you, Connor.

Question: Craig Siegenthaler - Bank of America - Analyst : I have a follow-up to Alex's corporate structure question. So it's the first time we're kind of looking and digesting this. But I wanted to see if there's any changes to voting rights or any tax implications to shareholders and partners across all share classes for BAM and BN.

Question: Craig Siegenthaler - Bank of America - Analyst : Great. And then just a follow up here on insurance. I know you had $5.5 billion of inflows in insurance in SMAs. But one thing I'm looking for is an update on the public versus private mix inside the insurance company general account portfolio, especially post the American equity closing which increased it. And I want to think about what is the potential FRE lift or fee lift as you migrate public to private and reach your long-term targets. Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Certainly. So I would say we took over the [AEL] portfolio in the middle part of this year. And we're just in the early days of shaping that portfolio towards its long-term allocation. We'll split that between liquids and the front end, some duration and then obviously some investment in our own private funds. This is going to take time. This is something that is absolutely going to take probably at least 24 months, if not longer, and we'll be dependent on the opportunities we're seeing in the market as we remain disciplined of looking to source the most attractive risk-adjusted returns, not just blindly targeting some prescriptive asset mix. And therefore, I would say the uplift in fees that you will see as a result of increasingly allocating some of that capital to our private funds really isn't showing up in the numbers yet, in any material way, and we'll continue to accelerate for at least a couple of years from here.

Question: Mario Saric - Scotiabank - Analyst : Hi, good morning and thank you for taking the questions. I wanted to shift focus a little bit on the uncalled fund commitments and specifically thinking about the expiration schedule for those commitments of $106 billion and whether it's reasonable to assume that the $50 billion that is presently not earning fees today represents most of the closer near term expirations of the $106 billion. I'm just trying to understand what the potential fee risk is in terms of not deploying the capital. Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition It's a good question, Mario. Maybe let me -- the point I would make here is if the risk is incredibly modest. And maybe just taking a step back, in some of our funds, in particular, select credit products that we have, we generate fees on invested as opposed to a fees on committed capital, that makes up the bulk of the $50 billion that is not yet paying fees. And there -- and maybe just to add two points on that. Almost 90% of our uncalled commitments don't expire until after 2028. So the expiration risk in the next few years is incredibly modest. And then the second point I would add is because the bulk of the capital that is not generating fees today is in those credit products that we are very, very actively deploying in this market. We have a ton of confidence that we'll be able to deploy that before any fee expiration. In fact, I would position it as a positive rather than a risk of a fee expiration, we're excited to see that coming through in our fee-related revenues pretty quickly here. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 3:00PM, BAM.N - Q3 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call

Question: Mario Saric - Scotiabank - Analyst : Got it. So would it be fair to say your prior comment on you expect them to be more positive than '24 from a fundraising standpoint. Would it be fair to say that both on a gross and net basis. Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Yeah, I think that's fair.

Question: Sohrab Movahedi - BMO Capital Market - Analyst : Hey, thanks for taking the question. Maybe just to quickly for Hadley. I mean, you had in the Investor Day, you had a nice chart showing the five different drivers of fee bearing capital growth you expect over the next five years between renewable infrastructure, private real estate and credit going from $0.5 trillion to $1 trillion. And would you be able to provide that same table showing the buildup for both fee related revenues and fee related earnings? So we have a sense of what's happening to fee rates and the earnings on those fee rates over time. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 3:00PM, BAM.N - Q3 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call

Question: Sohrab Movahedi - BMO Capital Market - Analyst : Okay. And maybe we'll take that off-line. And then, Connor, I mean, it's not every day that we say it's both a good seller's market and a buyer's market. I mean, usually, if it's a good seller's market, it's probably not a good buyer's market. What makes it both this good seller and a buyer market? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Yes, it's a great question. And I'll use an example, and again, maybe just pivoting back to one of the previous questions on this call. I'll just use the renewable powering transition franchise. In one year, we're going to have the highest year for deployment, the highest year for monetization and the highest year for fundraising in the same 12-month stretch, those things don't typically cycle together. But one, I would say, it's what we're seeing in terms of growth in these sectors and different investors wanting to get exposure to these sectors at different risk return points. An example of what's driving that, again, perhaps using renewable power and transition is we are seeing an incredibly

Question: Sohrab Movahedi - BMO Capital Market - Analyst : Thank you.

Question: Kenneth Worthington - J.P. Morgan - Analyst : Hi, good morning. Maybe first, your Wealth Infrastructure fund generated $800 million of sales this quarter. And if our calculations are correct, it suggests that things picked up throughout the quarter with a particularly strong September. Did you get on a new platform or what drove the acceleration in sales there and given the success here, what's sort of next in terms of the buildout of the wealth franchise? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 3:00PM, BAM.N - Q3 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Sure. So we'll say something that we've said about our BII product before. The growth of this product is not limited by demand. It is entirely limited by our disciplined approach to deploying the capital. And we could be raising even more capital than we did in Q3. We just want to continue to be prudent in how we build out the asset portfolio and ensure that we're delivering fantastic returns as more capital comes into that fund. But what I would say about that $800 million is we're still just scratching the service and it's purely driven by investor demand, which actually far exceeds the dollars we raised in Q3. And then secondly, in terms of new products for the wealth platform, I would really say -- there -- in this piggybacks on some of the things we mentioned at Investor Day, we're very focused on over the next 12 months potentially launching wealth products in both the private equity segment, as well as potentially additional wealth products in certain credit subsegments. And some of the recent transactions we've done with some of our two partner managers is going to be very additive to those initiatives as we bring new products onto our wealth platform.

Question: Kenneth Worthington - J.P. Morgan - Analyst : All right, great. Thank you.

Question: Dan Fannon - Jefferies - Analyst : Thanks. Good morning. I guess just to follow up on that question. So is the $54 million, from BPG a good run rate perspectively within the real estate segment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 3:00PM, BAM.N - Q3 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Yeah, absolutely. And if anything, I think we're going to continue to see that that number creep up a bit over time.

Question: Dan Fannon - Jefferies - Analyst : Great. Thank you.