Transcript
Host
Brookfield, a financial conglomerate, is looking to faster international growth in its insurance and wealth businesses. That division helped boost earnings in the company's latest quarter of distributable profit rising 27% to $1.5 billion U.S. Let's get more on the company's latest results from Christopher Ballard, managing director at Check Capital Management. Christopher, thanks very much. Always a complex set of results, Brookfield has all these public entities, complex relationships with them. What jumped out in the quarter for you please?
Chris Ballard
Hello, thanks for having me, Andrew. Yes, it is a complex company with a lot of different moving parts, but it can you can strip it down to be very simple about it. The 27% jump in distributable earnings is a very good number for us. We're very happy to see that was at $1.5 billion of distributable earnings. What we do and we're looking at the company and we break it down to look at Brookfield Asset Management, which represents typically about half of their distributable earnings. We also look at Wealth Solutions, which is about a quarter of their distributable earnings. And and then lastly, they're operating businesses, which is a conglomerate of infrastructure, real estate and like private equity. And that also ends up being about 25% of their distributable earnings and all of these segments grew considerably, just like we wanted it to. It's a very good flywheel that they have intact at this point in time. Brookfield Asset Management, which is a publicly traded separate entity, they own 75% of, reported two days ago and those numbers were they had $550 billion of assets under management that were fee bearing assets. They actually manage over a trillion dollars of assets. But $550 billion are in fact fee bearing. They have the ability to call other assets over $50 billion of assets on the sidelines right now. That's committed to them where they can end up putting a phone call out, getting another $50 plus billion under point in time when they feel the opportunity is right. And that automatically goes to the bottom line where Brookfield Asset Management, earns 1% roughly of those fee bearing assets. We're actually looking at that to grow to $1 trillion at some point, maybe in the next five years or so. They're, they're really on a really great trajectory at this point in time. We're also looking into Wealth Solutions aspect, which is very closely tied to Brookfield Asset Management, where they end up buying a lot of insurance products, north mainly like fixed annuities. When they made those purchases, they then redeploy the capital into Brookfield Asset Management at much higher rates of return. So all these numbers looked really good to us. What we expected and even better.
Host
And you touched on this, they raised another $25 billion U.S. across their strategy. So this is an enormous appetite among the institutions and pension funds, et cetera, that they team up with.
Chris Ballard
There is. Yes, they have great partnerships. You know, recently they partnered with France on building out Eurozone's infrastructure. As recently as last quarter, they they partnered with Barclays on building out their their payment platform. They also partnered with the likes of Deutsche Telekom, Microsoft and Intel. They have tons of partnerships across the board that they can partner with. And yes, because the returns on capital are so good, the endowments, pensions, sovereign wealth funds are interested in continuing to deploy capital into Brookfield. And when they deploy that capital, it gets a commitment of about 10 years or so. So it's money that you can depend on as an investor to continue to come to them. They're uniquely positioned in the global marketplace for a variety of like the energy demand that is happening globally at this point and AI infrastructure build out worldwide as well as, you know, private equity starting to build more and more build into the markets at this point. They continued to prove themselves across the board, which is why I think they can easily tap into another $25 billion.
Host
Absolutely. And you, you may have touched on this, but part of their growth story here is growth and to bound for artificial intelligence infrastructure. Is that true? Providing power electricity for those or actually building out those centers.
Chris Ballard
Both renewable energy and like with Microsoft’s partnership. Because Microsoft wanted to build out their own data centers and they want renewable energy. So they partnered with Brookfield for the renewable energy aspect, but they also end up helping with the build out of the actual infrastructure itself. They're definitely in, in both components of that.
Host
And are they in any, are they an interest rate sensitive story, I suppose that tends to increase their funding costs when rates go up.
Chris Ballard
For short-term investors, you consider it an interest rate story of sorts but Bruce Flatt and the team are very long-term oriented. So for them, they don't pay attention to the interest rates. At times there’s going to be headwinds and there’s going to be tailwinds when it comes to interest rates, but they have a long-term focus where they're looking to deploy the capital, regardless of where interest rates are, regardless of where tariffs are going to be and they take that volatility that’s happening in the marketplace. They can take advantage of that with all the capital that they have sitting on the sidelines if they’re willing and able to deploy. So in that sense, as a long-term shareholder, we're not worried about the short-term interest rate movements or inflation or the volatility in the market. We love how they end up approaching all this. They they continue to buy back stock in the quarter, by the way, which as a long-term shareholder is important to us. About $850 million of stock was purchased in the quarter. We love them to do even more of that but when they're not doing more of that we're assuming that they have other great investments to make, which we're pleased to see. And they also continue to pay out dividends. Like they raised the dividends last quarter, which are going to continue on throughout the quarter. So all of those aspects are reasons we're very happy and pleased to partner with Brookfield and on top of that we feel that they are undervalued. I mean, if you look at their publicly traded entities that they own, you can easily run the numbers on all of that. They’re trading for about 20% discount for what their net worth is. And we think they should be trading for a nice premium to what their net worth is with the company growing as fast as they are.
Host
Thank you very much indeed. Really appreciate you joining us.