BROOKFIELD ASSET MANAGEMENT LTD Q4 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. You note in the letter to shareholders that we're in kind of an anomalous situation where conditions are favorable for both capital deployment and asset monetization. How long do you think that environment can persist? And I guess, how do you position the business to take maximum advantage of it? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Good morning, Cherilyn. The dynamic in the market that you're seeing is very, very dependent, official for us. And what Cherilyn is referencing is, on one side, there is tremendous liquidity in markets right now. Sentiment, particularly in the asset classes where we have leadership positions and the most activity, is very, very robust. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 2:00PM, BAM.N - Q4 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call And then lastly, there's a very significant pipeline of sales processes and bilateral discussions ongoing. And this creates a very attractive market for us to monetize our high-quality businesses into. At the same time, the capital needs in the key themes that Bruce mentioned in his remarks are so significant that they really favor those investors with scale and operating expertise. That creates an opportunity for us on the deployment side. And then similarly, there are still a tail of situations of businesses that do not have appropriate capital structures in the current interest rate environment that create deep value buying opportunities for us across our core focuses. How long can this last? We very much expect it to last the duration of this year, which is why we're so bullish about the outlook for our business, and there is the potential it lasts longer than that.

Question: Cherilyn Radbourne - TD Securities - Analyst : That's my queue. Thank you.

Question: Alexander Blostein - Goldman Sachs & Co. - Analyst : Hi, good morning, everybody. Thank you for the question. I was hoping that we could start with a question around fundraising. In the shareholder letter, Bruce, I think you touched on your outlook for 2025, highlighting accelerating organic fundraising relative to 2024, which I think was about $87 billion. So could you expand, I guess, in your outlook for '25 relative to what you saw organically last year? And what are some of the larger drivers that you expect to be contributing to this outlook? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition For sure. So there's no doubt we're feeling very, very good about 2025 fundraising. And you're absolutely right. We do expect it to be better than 2024. And maybe just to go through the components of that. If we think about our flagships, first and foremost, we have two flagships that are in the market that we expect to finish during 2025. And we expect to launch an additional flagship this year. Then turning to complementary strategies. We very much expect 2025 to be the largest year for fundraising ever for Brookfield in terms of complementary strategies, and that's a function of one, both bigger sizes, and two, new additional products in the market. And then lastly, if you REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 2:00PM, BAM.N - Q4 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call look to our insurance as well as our high net worth fundraising channels, we expect those as well to be bigger than last year. So if you look at each of the components of our fundraising, they are all neutral or up versus 2024, and that is why we expect 2025 to be better.

Question: Alexander Blostein - Goldman Sachs & Co. - Analyst : I got you. All right, thank you. Thanks everybody.

Question: Ben Rubin - UBS Securities LLC - Analyst : Hi, thanks for taking my questions. I was hoping to get a mark-to-market on your private wealth business. I believe at Investor Day, you mentioned that you expect that business to grow at a pretty decent clip, 30% to 50% over the coming years. So just curious what enhancements you're making, both from a product and distribution standpoint, to help take shelf space in a relatively crowded channel? Thank you. Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Sure. So when it comes to our growth in the retail and high net worth channel, there's probably three things we'd highlight. One, we've already raised $20 billion in this channel, and we raise more each year through a function of both more products as well as being on more platforms, as REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 2:00PM, BAM.N - Q4 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call you mentioned. The second thing we would highlight is today, we're really doing the bulk of our fundraising through four retail-focused products, two in credit, one in infrastructure. And the -- what is unique and cannot be understated is in a number of those products, we're actually turning down capital. That is how strong the demand is for these types of products. And we're doing that to stay very disciplined around our deployment, and that's how we think the most appropriate way to scale these products are over an extended period of time. Which really brings us to our third point, which is just the forecast and the trajectory of this business. We mentioned 30% to 50% at Investor Day last year. I would say we feel very good about those numbers, if not more positive today.

Question: Ben Rubin - UBS Securities LLC - Analyst : Great, thank you for taking my questions.

Question: Michael Cyprys - Morgan Stanley - Analyst : Oh hey, good morning. Thanks for taking the question. Just wanted to come back to your announcement in France, just around data centers, [EUR20 billion], large announcement there. Can you just talk about your ambitions, the opportunity set that you see there? How you see this $20 billion coming together across the capital structure across your funds? And then just more broadly, if you could talk about the deployment opportunity you see around AI and data centers over the next couple of years, particularly post the DeepSeek development that suggests we may require a bit less data centers and less power than previously thought? Just given lower cost of compute, how are you thinking about all that? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 2:00PM, BAM.N - Q4 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Certainly. So a big topic. Let's break that down into buckets. Maybe just as it pertains to the announcement in France, the key takeaways here is there are still very, very significant demand from sovereigns and corporates for capital to invest in the infrastructure that supports AI build-out going forward. And the reality of those large-scale opportunities is they're not available to everyone. They are available to those that have the real estate, the infrastructure and the power capabilities today, as well as the platforms and the capital and pipeline to capture this near-term opportunity. And given the size of our power business, the size of our data center platform within our infrastructure business and our long-standing real estate franchise, we do feel that we can be leading in this asset class by a significant margin. The -- and we think the announcement in France is representative of that and very much representative of other type things that we'll be able to do in the future. To where we will deploy capital into this space, it is across the capital stack and across the value chain. So it's into the equity, it's into the debt that supports the build-out. This is a huge opportunity for our credit franchise, but it's important to recognize this is not just funding the racks and the shelves. This is funding the chips. This is funding the power. This is funding the entire supply chain, and we certainly have the scale and pools of capital with which to do that. And then maybe to the last comment just around DeepSeek and some of the narratives around those headlines. There's really two important things in our minds to recognize. One is the demand forecast for AI infrastructure was so meaningfully higher and above what the market could reasonably supply from the supply side. And even if there were efficiencies that were to reduce demand a significant amount going forward, the supply-demand imbalance is still very much in favor of the supplier and the developer, which creates a strong opportunity for us. We don't build on spec in this space. We only build against long-term contracts with large hyperscalers, some of the greatest credit counterparties around the world. And therefore, the DeepSeek headlines are not changing our approach. The second point and maybe to wrap up on this topic is, it would be crazy to assume that with a technology as large and as fast-growing as artificial intelligence, that there would not be efficiency gains going forward. And those efficiency gains are very expected. And as they will bring down or potentially bring down the cost of artificial intelligence, they're only going to make that product more available to a wide variety of users. And that will create more widespread demand going forward, which obviously increases demand for the AI infrastructure that we seek to finance. So we're following these headlines closely, but we view it all as business as usual and still a huge opportunity for us going forward.

Question: Michael Cyprys - Morgan Stanley - Analyst : Okay, thank you.

Question: ken worthington - J.P. Morgan - Analyst : Great, good morning. Thanks for taking the question. Maybe to follow up on Michael's question. The deployment opportunity in infrastructure would seem to be immense, but 4Q in 2024 witnessed, I would say, depressed deployment in infrastructure relative to your other asset classes. So I guess the question is, do these big deals and these big opportunities just take a lot longer to get to the point of investment check writing? As we think about [the 5], does the 4-year investment cycle seem to be right for this fund or given size and complexity of the opportunity set? Is it expected or obvious that it just might take longer to get those dollars out the door? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition So given the breadth of our franchise, I would say a lack of significant deployment in infrastructure in Q4 of 2024, that's just timing, that's just coincidence. Our infrastructure pipeline is as robust today as it's ever been. The demand for capital is at an all-time high. And it's also perhaps important to recognize just some of our segregation. We've been out in Q4, some of our largest investments ever in the power space. And those investments are directly tied to supporting the build-out of AI. They just happened to sit within our power classification as opposed to our infrastructure classification. And as it pertains to of our BIP franchise. BIP 5 approximately 50% deployed at this point. It's traditionally had a track record of deploying those funds approximately over a three-year time line. There is nothing in the market today that suggests that will continue to hold.

Question: ken worthington - J.P. Morgan - Analyst : Great, very helpful. Thank you very much.

Question: Mike Brown - Wells Fargo - Analyst : Hey, good morning, thanks for taking my questions. Right. So Connor, I wanted to ask on insurance. So I guess somewhat related question. Within the $6.6 billion of inflows this quarter, can you just break that down? How much was from the Brookfield's Partners and how much is from third-party SMAs? And then on a related note, when I look at Slide 21 and the mix of investments there, can you just give us a view into what's the end game mix in terms of that liquid private? And what's the difference in the fee rate there that we should think about? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Certainly. So in terms of the inflows from insurance in Q4, almost 100%, I would say, for purpose of modeling, you can assume that all of it came from Brookfield Wealth Solutions. We obviously do have our SMAs. We did some in Q3. We expect it to be more in Q1. But in Q4, it came almost entirely from Brookfield Wealth Solutions. In terms of how we optimize that for portfolio. I would say we're increasingly moving product out of liquid into our funds and higher returning strategies. That's an ongoing process. In particular, our real asset credit strategies, in particular real estate debt, infrastructure debt, are a very, very strong fit for those insurance funds. And maybe directionally, we would be expecting to move anywhere between, call it, $2 billion to $4 billion, $2 billion to $5 billion of capital into those strategies on an annual basis.

Question: Mike Brown - Wells Fargo - Analyst : Okay. Great. Yes. And I appreciate the addition there. I know it was kind of a multiparter. I wanted to ask about Oaktree, just in light of the final close news for Oaktree Opportunities Fund VII at $16 billion of commitments. Just wanted to check in and hear about how the team is thinking about the investment opportunities there post election? Base rates are certainly higher than where the market thought six months ago, which certainly can impact certain industries. But spreads are tighter, capital markets are still open. So how are they thinking about deployment? I guess would it be more special sits versus distressed? And how could that kind of progress for deployment for them? Thank you.

Question: Mike Brown - Wells Fargo - Analyst : Okay, great, thank you very much.

Question: Nik Priebe - CIBC Capital Markets - Analyst : Okay, thanks. I wanted to ask a question on the initiative to better position BAM for inclusion in US indices. Following the Investor Day when the changes were first announced, I think S&P has subsequently announced some changes to its global domicile policy that places greater emphasis on country of incorporation. And I think at Investor Day, you indicated that the intent is to keep BAM incorporated in Canada. I recognize there's a much broader array of indices that you hope to qualify for, but is the country of incorporation a change that you could also contemplate from a longer-term standpoint to better position yourself for inclusion in the S&P 500 specifically?

Question: Nik Priebe - CIBC Capital Markets - Analyst : Okay. That's good color. And then just switching gears, the new Trump administration has made a bit of noise about the tax treatment of carried interest paid to investment professionals. And I was wondering if the tax treatment of carried interest were to change, would the compensation structure also change? For example, would employees be entitled to a higher percentage of the gross carry? And I'm also just wondering, is the debate around tax treatment of carry isolated to personal income tax treatment for the investment professionals, or would it also impact the corporate tax rate on carry as well? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition We obviously have a very global business and tax treatment of carry is different in every market around the world. So a change in US tax treatment, the US is obviously the biggest market and our biggest market. So it does generate a lot of headlines. But I would say it's not going to change our global compensation approach. We manage through different tax treatments of carry in other regions, and we'll treat the US as the same.

Question: Dan Fannon - Jefferies & Company Inc. - Analyst : Thanks. Good morning. I wanted to talk about the outlook for base management fee growth, particularly within private equity and real estate. As we think about '25, given some of, I think, the fundraising you talked about as well as the ins and outs around activity and deployment and exit? So as we look at the next at 2025, how are you thinking about base management fee growth in those two subsegments? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Certainly. So real estate, we're seeing a lot of momentum, obviously, as they finish fundraising for the latest of the flagship [Bez wrap] series and that will be completed in the first half of the year, and that will obviously be run rating through the numbers for an additional 12 months beyond that. So with real estate, it's very, I would say, obvious and on lock that train is going well down the path. When it comes to private equity, very much appreciate the question because we are seeing a ton of momentum in our private equity business right now. We think our approach to private equity investing lends itself to this environment. And the pipeline for our private equity platform is very, very robust. And we do expect to be back in the market with the next vintage of our private equity vehicle earlier than expected, very much expected at some point this year. And that will obviously lead to the next step change in revenues for that platform. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 2:00PM, BAM.N - Q4 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call

Question: Dan Fannon - Jefferies & Company Inc. - Analyst : Great, thank you.

Question: Mario Saric - Scotiabank - Analyst : Hi, good morning. Just dovetailing on the last question with respect to margins and being a bit more specific. The total compensation and benefits line item fell $15 million versus Q3, about 4% to $386 million in Q4. How sustainable is that Q4 figure going forward? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition Yes. So I would say when we look at our Q4 figure and just in general, our 2024 figure, we have significant step changes in terms of our compensation into '23 and albeit a little bit less so from '23 into '24. We do very much expect to see those costs on a much lower growth rate than our revenue, which will continue to drive margins in 2025. We're a growing business. Our costs will continue to grow up, but we continue to expect to see the trajectory of costs continue to plateau.

Question: Mario Saric - Scotiabank - Analyst : Got it. Okay. Just to summarize in terms of using the balance sheet, it sounds like it's more likely to fund co-investments as opposed to a substantial external M&A in '25? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition If I could perhaps characterize that differently, it will be used to fund two things. One is GP M&A on the programmatic buyout of some of our partner managers, that would be Bucket 1. And then Bucket two is to be seed capital for new strategies. I think that's probably the easiest way to think about it.

Question: Robert Kwan - RBC Capital Markets - Analyst : Great. Thank you good morning. Maybe come back to the data AI infrastructure. And just -- between your digital infrastructure renewable power and nuclear, you've got these platform businesses in all the facets of the AI infrastructure side of things. And so how do you see this playing out? Do you see this as being more transactions than your peers because of your broader reach? Or could we see more deals along the lines of the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 2:00PM, BAM.N - Q4 2024 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call French announcement where you're bringing multiple solutions as part of a single transaction? And then do deals like that where your competitors can't do it, does that lead to stronger returns? Connor Teskey - BROOKFIELD ASSET MANAGEMENT LTD - President of the Manager and Chief Executive Officer - Renewable Power & Transition To the first part of your question, I don't mean to sound like we're hedging, but the answer is both. We certainly will look to do more large-scale transactions that bring multiple facets of the organization together where there are a few that can compete. And obviously, where there's less competition, there's a better chance of outsized returns. But maybe going back to some of the comments earlier in the call, the supply-demand imbalance today is very much in favor of those that can build new projects that have either ready to build projects or advanced pipeline. And as the scarcity value of those projects is higher today than ever before, that bodes very well for our significant investments in data centers and renewable powers in recent years. But we'll look to continue to add advanced pipeline and ready to build projects to meet the needs of our biggest counterparties around the world. Maybe to sum it up. The scale and the multifaceted solutions we can bring across data centers, fiber, telecom, nuclear power, renewables, they're unmatched in the space. And therefore, that's why -- that's what we think the French announcement is representative of, and we think there'll be more to come along those lines.

Question: Robert Kwan - RBC Capital Markets - Analyst : That's great thank you.