Letter Carrier Calendar 2023 Brookfield
Letter Carrier Calendar 2023 Brookfield – I published a similar article last year when Brookfield Asset Management (NYSE: BAM ) was a good price at $34. The company has performed very well since then, but as I posted recently, the stock may be more efficient than trading. But Brookfield's Investor Day always gives food for thought. The following is not an analytical essay, but rather a quick and very thought-provoking message after seeing the incident.
It was the first time I saw Bruce Flatt almost detached from his great creation when he looked at Brookfield. The company has become too large and diverse for one person to know the details
Letter Carrier Calendar 2023 Brookfield
In his interview, Mr. Flatt emphasized themes familiar to all BAM investors: successful track record, transition to other investments, strong balance sheet, AUM growth due to existing and new young strategies. Their AUM targets are: Insurance ($200-300B), Growth (mainly Technology – $100B+), Migration (ie Comprehensive Decarbonisation – $200B) as well as New Strategies (Existing Real Estate, Infrastructure, Renewables, Private Equity, Credit) B+) , others ($100B+). All these businesses were mentioned last year, but this time the ball is rolling with some success without saying anything. I've never seen Brookfield admit to a serious mistake – Brookfield Property Partners (BPY) immediately comes to mind.
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Sachin Shah, who is now chief investment officer, has spent a lot of time on the new strategy. In my opinion, the most advanced and most promising of them is insurance. Mr. Shah also leads the work as CEO of Brookfield Asset Management Reinsurance (BAMR). The progress here has been impressive: almost a year ago, Brookfield signed 3 contracts to bring in $45 billion in insured sums. When they close, the insurer will begin contributing to BAM's business in two ways: interest on assets and liabilities for BAMR and the spread between fee-related income (FRE) for asset management and Oaktree.
Mr. Shah predicted that insurance AUM will exceed $200 billion in 5 years and indicated many ways to achieve this goal – reinsurance transactions (similar to AEL), risk transfer process for pensions (now used to a lesser extent in Canada) annuities, M&A , P & C. Operations, Structured Structures etc. The US and Europe currently have $10 trillion in lifetime and annual active AUM which is a measure of the total addressable market. This estimate does not include other locations, assets and risk carriers and fertilizer industry growth. By registering $45B in assets in its first year, Brookfield could well surpass its $200B target in five years. In the average show, Mr. Flatt described a target similar to $200-300B, which may be a good estimate. To get some perspective, Brookfield's current AUM is roughly $325B
So far we have considered asset management as a provider of AUM. But good investment management is also important for insurance operations. In his speech, CEO of Brookfield Business Partners (BBU) Cyrus Maddon cites an interesting image that helps measure this ability. BBU owns a mortgage insurance business in Canada (Sagen, formerly Genworth Canada) and here is a quote from Mr. Maddon:
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And in our home insurance business, we improved our profit margin from 12% when we bought it to 17%, and we think we can do better.
From previous BBU presentations, I know that Oaktree should control Sagen's assets after the acquisition and that the jump in ROE should be attributed to Oaktree's ability.
According to the existing order from the renewable resources, the change is not justified. However, the motivational slogans, quite broad, and Mr. Mark Carney as the owner of the signs will bring more AUM to Brookfield.
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It was interesting to hear Mr. Shah speak confidently about technology and software in particular. His declaration of "software is the new tools" is very cool and very "Brookfield". So far, the technology has been very small inside Brookfield, but the company has left the tools behind. It will take time before Brookfield is as effective as the software tools. two for business: one within BAM focuses more on business-like activities, while the other group, within BBU, deals with more mature opportunities.
The second is an area where Brookfield currently has all the necessary expertise, but the market it can handle may be smaller than other innovations.
To achieve this incredible growth in AUM and leverage the new strategy, Brookfield must find the right investors to contribute this significant AUM. Craig Noble, CEO of Alternative Investments, explains where these new investors will come from. Brookfield has a sales and marketing organization responsible for bringing in investors. These organizations are separate and distinct from investment organizations. They currently have 250 people in 18 offices around the world. It's just my guess, this organization was created only 5 years ago and was recognized as a special force and initially had about 30 people While Brookfield works with a small number of investors, large organizations with multiple policies, deployment was easy. The continued growth of funds, strategies, locations and types of investors must increase this effort. Along with its expanded participation of large clients, Brookfield plans to distribute funds to wealthy investors through broker-dealers, participation of insurance clients (including BAMR) and attract middle market institutions.
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Real Estate (and former BPY) CEO Brian Kingston answers another important question: How will Brookfield fund these new trends? A little background helps here Historically, real estate has been the biggest business in Brookfield run by Mr. Flatt himself. After the property crash, BAM had to take BPY private and ended up with too many assets on the balance sheet. Brookfield's model provides a better ROE when the company is able to attract good revenues that generate third-party fees without it. After the privatization of BPY, property sales stopped, for example. In the slide below, Mr. Kingston explains how BAM plans to reinvent the business:
Property assets are divided into three baskets based on how Brookfield will manage them. The best assets (the first, about 50 irreplaceable properties) will be held forever, but BAM will gradually sell a part of them, GP profit per management fee and finally about 25-30% of LP profit. For this curve, BAM intends to replace general investors in BPY with private investors in specific assets. But all important regulatory fees will be kept separately
Real estate sales with private funds (LP investment on the slide) do not require policy changes because third party funds generate fees there. After selling the assets, this portion of Brookfield's capital will be reinvested in new opportunistic assets with third party financing.
Vision, Mission, Values
What remains (of revolution and development) will be processed in every way and eventually sold, sometimes after (re)development. Most of the top 25 stores (I know about 90) are in this third basket.
In total, Brookfield plans to raise $25 billion from real estate deals to date. I see no problem with the first two baskets, the third will take time and effort, which may turn out to be far from many. However, the problem funds in the third basket ($7B share) seem more manageable in today's Brookfield plan.
Armen Panosian's Oaktree proposal was less interesting than my opinion. It does not mean that the company itself (62% of Brookfield) is not respectable because of the credit policy. But the presentation method used by Mr. Howard Marks and followed by other managers is not very attractive. If you read Mr. Marks' memo, you'll know what I mean: he deliberately avoided details and examples of investments that Oaktree managed. Imagine a business class with a famous professor who doesn't talk about specific business cases – good, informative, but probably fun.
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However, as expected, Oaktree has been very successful as part of the Brookfield family, it expects a lot of money and strategy and will play a big role in the insurance industry.
Nicholas Goodman, CFO of BAM, was the final speaker on the first day. In addition to analysis, he focused on predicting the value of BAM 5 years from now. In addition to many details, there were two main conclusions:
1. Depending on the growth of AUM and successful investment of the capital, BAM will increase its value for two years or more. This means an annual return of 15+% – an obstacle that BAM can reach and surpass as we know from the past. The important thing is that
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