Brookfield Asset Management (BAM +6.99%) recently completed a unique stock split. It was announced as a 3-for-2 stock split. However, instead of receiving additional shares of the same company for those they owned, investors got one share of its asset manager for every four of the company they already owned.
Brookfield completed this split so that its investors would have direct exposure to its asset management business's dividend income and growth. CEO Bruce Flatt recently discussed the growth it has already locked up at a recent industry conference.
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Locked-in growth for the next few years
Brookfield believes it can grow its asset management business's fee-related earnings (FRE) at a 15% to 20% annual rate. It has high confidence in that view because most of that growth is already locked up. CEO Bruce Flatt pointed out:
Our FRE growth targets are already locked in for '23, '24, and almost '25. Like this business doesn't happen overnight. It's a very long-tail business. The funds are raised over periods of time and they're deployed over three or four years.
Brookfield's FRE has grown 20% over the past year to $531 million in the third quarter and $2.1 billion over the last 12 months.
Meanwhile, it ended the quarter with $39 billion of additional committed but uninvested capital across its strategies. That money will earn about $390 million of annual fees once Brookfield deploys it. The company also has $88 billion of uncalled fund commitments -- capital it will get to deploy in the coming years as it secures investment opportunities. Those funds will drive further FRE growth.
It just completed the first close on its fifth flagship infrastructure fund and sixth flagship private equity fund, raising $21 billion and $8.4 billion, respectively; it plans to hold additional closings. Brookfield also completed fundraising on its fourth flagship real estate fund, raising $17 billion. Finally, it's about 85% through raising money for its 11th flagship opportunistic credit fund, which it expects will exceed the prior fund's $16 billion capital raise.
Thanks to the visible FRE growth as it deploys all this capital, the company believes it can grow the dividend payment on the asset management shares it split off at a 15% to 20% annual rate. That will enable investors to collect a higher-yielding and fast-growing passive income stream.
Focus on the longer term
Because Brookfield's past fundraising has locked in its growth for the next few years, it's now focused on securing growth several years down the road. For the most part, that means doing more of the same. Institutional investors want core and "core plus" (higher-risk, higher-reward) products focused on real assets like real estate and infrastructure. They also want to invest in opportunistic products, especially in infrastructure.
In addition, Brookfield will continue to launch funds focused on new opportunities. A big emphasis will be on three megatrends. As Flatt noted, "trillions and trillions of capital has to go into digitization, deglobalization, and decarbonization." The company capitalized on that third theme earlier this year by launching its first energy transition fund with its listed renewable energy affiliate Brookfield Renewable (BEPC +0.00%) (BEP 0.96%). That fund quickly raised $15 billion of capital, half of which Brookfield Renewable has already committed to deploying across various transactions. The company had previously stated that it believes energy transition could be a $200 billion business in the future.
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Meanwhile, it's investing in the digitization and deglobalization themes via its infrastructure funds. For example, through its listed infrastructure affiliate, Brookfield Infrastructure (BIPC +0.00%) (BIP +1.49%), Brookfield agreed to fund half the $30 billion cost of two semiconductor fabrication facilities that Intel (INTC 3.26%) is building in the U.S. That deal will help Intel onshore more production capacity to further digitize the U.S. economy. Brookfield could eventually launch dedicated funds focused on those themes.
Big-time growth ahead
Brookfield Asset Management already has double-digit fee-related earnings growth lined up for the next few years, powered by investment funds it raised in the past. Because of that, its newly split-off asset management stock will be able to grow its dividend at a 15% to 20% annual clip. Meanwhile, the company is already working hard at locking in growth beyond that time frame. That seemingly unstoppable growth makes it a great option for investors seeking high total return potential.
