Shares of Brookfield Asset Management (BN 3.04%) surged 46.3% in 2021, according to data provided by S&P Global Market Intelligence. That significantly outpaced the nearly 27% gain in the S&P 500. Driving that rally was the alternative asset manager's strong results in 2021.
Brookfield Asset Management had a great year in 2021. By the end of the third quarter, it had generated $6.6 billion of distributable earnings over the previous 12 months, nearly double its total in the prior-year period. The company benefited from rising fee-based income, higher carried interest realizations (its share of the profits as the funds it manages achieve and exceed their investment targets), and higher earnings from its investments.
Brookfield also had a great year for growing its fund business. It hauled in a record $34 billion of fund inflows in the third quarter alone as it closed its real estate and global transition flagship funds. These funds will generate higher fee-based income, with the potential to earn sizable carried interest.
The company continues to raise larger flagship funds as more investors pour capital into alternative investments like real estate, infrastructure, and renewable energy. That trend leads Brookfield to believe it can double the size and value of its business over the next five years.
Brookfield also completed two notable strategic moves last year. It privatized its real estate affiliate, Brookfield Property, in a $6.5 billion deal. That will give it complete control over its real estate, giving it more flexibility to sell and redevelop assets in the future. The company also spun off Brookfield Asset Management Reinsurance Partners (BNRE 2.74%). That move put the company in a better position to grow its reinsurance business while providing investors with more flexibility in how they hold their interests in Brookfield.
Brookfield Asset Management has benefited from the growing demand for access to alternative investment products by investors. High net worth individuals and institutions like pension funds are increasingly allocating capital to real assets to generate higher returns than bonds. That's enabling Brookfield to raise increasingly larger flagship funds.
The company believes that this trend, combined with its track record, can double the size and value of its business in five years. Because of that, Brookfield estimates that it can generate total annual returns above 15% during that timeframe. That upside potential makes Brookfield's stock look like a buy even after last year's rally.