Q3 2024 Earnings Summary
- Strong growth expected in the Wealth Solutions business, aiming to achieve $2 billion in annualized distributable earnings and reaching the 200 basis point spread target in the next 12 months. Management is confident in comfortably hitting this target, which will drive earnings growth.
- Significant optimism in the renewable energy business, with management stating that renewable energy, solar, and wind are the lowest cost producers of power and that there is significant underlying demand from technology companies and corporates for clean and green power. They believe this is a long-term trend that will support their renewables business both in the U.S. and internationally, remaining as optimistic about that business as they've ever been.
- Active share repurchase program, with the company having repurchased close to $1 billion worth of shares in the last 12 months due to a perceived disconnect between management's view of value and where the shares have traded. Management plans to continue to allocate capital to share buybacks, indicating confidence in the company's valuation and commitment to returning capital to shareholders.
- Potential regulatory and political risks could negatively impact Brookfield's energy transition business, especially with the potential for changes in U.S. government policies following the recent election results.
- Brookfield's Wealth Solutions business is currently underperforming its target spread of 200 basis points, achieving only 180 basis points, which may impact its ability to reach the $2 billion annualized distributable earnings target in the near term.
- Rising interest rates may not be fully reflected in Brookfield's real estate asset valuations due to potentially outdated discount rates, posing a risk of overvaluation and impacting future earnings.
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Realized Carried Interest
Q: What are your expectations for realized carried interest next 12 months?
A: Management explained that as they monetize assets and return capital to shareholders, carried interest is collected on the fund as a whole, not on individual investments. They are returning initial capital at excellent returns, and as they progress, carried interest realization will increase. They expect a small step-up next year, with significant increases in 2026 and beyond. -
Share Repurchases and Capital Allocation
Q: Should we expect more share repurchases in capital return?
A: Management highlighted that they repurchased close to $1 billion of shares in the last 12 months due to the disconnect between their view of value and the share price. While they will allocate capital to buybacks if this disconnect persists, there is no substantial change in policy, and they advised not to read too much into disclosure changes. -
Wealth Solutions Spread and DE Target
Q: When will you achieve the 200 bps spread in Wealth Solutions?
A: Management conservatively expects to reach the 200 basis point spread target in the next 12 months. Though it takes time to redeploy assets into higher-yielding opportunities, they are confident in hitting the $2 billion annualized DE target in the short term. -
Real Estate Valuation and Monetization Plans
Q: What are your plans for T&D real estate and discount rates?
A: Management is executing plans to monetize T&D assets and recycle capital when market conditions are right. Regarding discount rates, they haven't significantly changed them despite interest rate movements, focusing on a long-term view of asset values. -
Asset Transaction Opportunities
Q: Which segments offer best opportunities for transactions?
A: Management sees attractive buying and selling opportunities across all business groups. They are targeting undervalued assets with high-quality operations to generate attractive returns, leveraging their capital and expertise to drive value. -
BAM Index Inclusion and Liquidity
Q: How can you improve BAM's liquidity and float?
A: Management is focused on positioning BAM for broad U.S. index inclusion, which they believe will be highly beneficial. Their ownership is down to 73%, and while they plan to remain significant owners, they have flexibility around ownership levels. -
Insurance Business Expansion
Q: Can you detail your insurance expansion into U.K. and Asia?
A: Management aims to establish a global footprint in insurance to allocate capital where investment opportunities are best. They see the U.K. and Asia as competitive markets where they can drive strong returns, citing a recent U.K. transaction as an example. -
Impact of Weather Events on Insurance
Q: Were there negative impacts from hurricanes on P&C results?
A: There was a small but not material impact in Q3. For Q4, they don't expect anything significant as they've derisked exposure in Florida through reinsurance. -
U.S. Election's Impact on Energy Business
Q: Will U.S. election affect your energy business opportunities?
A: Management remains optimistic about their energy transition business, focusing on underlying demand and fundamentals. Renewable energy remains the lowest-cost power producer, and demand from corporates is significant. They believe long-term trends will support their business both in the U.S. and internationally. -
Reallocation of BAM Shares Impact
Q: Does reallocating BAM shares have tax or accounting impacts?
A: Management stated there is no impact from the reallocation. They will own liquid Class A shares instead of privately held shares, with no change to IFRS book value. -
Market's Misunderstanding of Value Components
Q: Which plan value components does the market misunderstand?
A: Management believes all business segments are highly valuable and will be recognized over time as they execute. They focus on delivering returns and proving out their business models, acknowledging they can't influence market perceptions.