Brookfield plans to spin off its asset management business

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The new venture could be valued at more than US$75 billion

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Brookfield Asset Management, one of the world’s largest alternative investment groups, is considering a spin-off of its asset management business into a separate public company which an analyst says could be valued at more than $75 billion Americans.

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The move would simplify the structure of the sprawling Toronto-based company, separating the division that manages US$364 billion in fee-earning assets in real estate, infrastructure, renewable energy, credit and private equity for the Brookfield’s US$50 billion institutional investor account. net assets held directly.

Financial markets have evolved. What people like are asset-light models,” Brookfield chief executive Bruce Flatt told the Financial Times. “It looks like there’s a huge amount of shareholder value to unlock.”

Brookfield’s plan to consider a spin-off was disclosed in a letter to shareholders attached to earnings released Thursday morning. “As we consider these options (including possibly doing nothing), we will report back in the coming quarters/years – and welcome your views,” Flatt said in the letter.

Brookfield shares rose 4.5% to settle at US$59.43 in premarket trading in New York.

Robert Lee, an analyst at investment bank Keefe, Bruyette & Woods, recently valued Brookfield’s asset management business at more than US$75 billion.

For Brookfield, severing the asset management business would be a radical shift in strategy.

There seems to be a huge amount of shareholder value to unlock

Bruce Flat

In addition to its fee-based asset management business, Brookfield also owns a portfolio of real estate, including Canary Wharf in London, two of New York’s largest office developments and more than 100 shopping centers in the United States. Brookfield tightened control over these assets by taking its real estate arm, Brookfield Property Partners, private last July.

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It also has more than US$30 billion in combined public equity stakes in infrastructure, renewable energy and industrial investment companies that it built internally and then spun off over the past decade. Brookfield’s combined interest net worth after accounting for its debt is about US$50 billion, according to its financial statements.

However, some investors and analysts question whether this empire obscures the value of asset management, which generated US$1.9 billion in fee-related revenue in 2021 and US$6.3 billion in distributable profits. , an indicator of the cash flow it can pay out to investors.

In its fourth quarter results released Thursday, Brookfield reported net income of US$1.1 billion for common shareholders, a 74% increase from a year earlier. The company also announced a quarterly dividend of 14 cents, an increase of 8%.

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If Brookfield proceeds with its proposed spin-off, it would further recognize shareholders’ increased interest in holding so-called “asset-light” investment expense streams compared to directly held assets such as office properties, which are more difficult to assess.

Blackstone Group, the world’s most valuable private equity group with a public market value of US$160 billion, has virtually no direct investments on its balance sheet, while a significant portion of the value of companies such that Brookfield, KKR and Apollo Global Management comes from their directly held assets. The latter groups have lagged Blackstone in recent years, trading at lower multiples.

“What’s been really valuable to us over the past 25 years is that we’ve retained capital and put that capital back into the business and continued to grow it,” Flatt said.

A potential separation comes as Brookfield’s asset management business has become standalone, he said. “That capital is not as important today to move the business forward as it was before.”

© 2022 Financial Times Ltd.

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