Brookfield Asset Management Ltd. Q2 FY2025 earnings call

Bruce Flatt mentioned the company delivered strong results with fee-related earnings and distributable earnings growth, highlighted the constructive market environment and the three powerful themes of digitalization, decarbonization, and de-globalization. Connor Teskey discussed partnerships like the $10 billion public private investment program in Sweden and the renewable energy framework agreement with Google, increasing investment activity in infrastructure with major transactions, strong monetization activity with over $55 billion of asset sales year-to-date, and the growth opportunity in reaching individual investors through retirement and wealth channels. Hadley Peer Marshall walked through financial results with fee-bearing capital growth, strong fundraising highlights including $22 billion raised in the quarter, and discussed the balance sheet with $1.5 billion liquidity and plans for dividend.

Fee-related earnings were up 16% to $676 million. Distributable earnings were up 12% to $613 million. The company raised $22 billion of capital in the quarter and over the past 12 months, $97 billion, helping drive fee-bearing capital to $563 billion, which was 10% up year-over-year. Fee-related earnings contributed nearly all of distributable earnings, making earnings highly stable and predictable.

Bruce indicated the broader market environment is constructive and the company will continue focusing on long-term mission-critical investments. Connor stated the current pace of investment activity is not expected to slow down and AI infrastructure is a key frontier. Hadley mentioned the company will continue to be active on the deployment front with a robust pipeline and strong fundraising tailwinds in the coming months.

Forward-looking statements reflect predictions of future events and trends and are subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts on the company, please see its filings with securities regulators in Canada and the U.S. and the information available on its website.

Q: Want to ask about the fundraising backdrop, how you see that progressing into the second half of this year and into 2026? And what you see as some of the key contributors there? Also more broadly, how is the overall environment for raising capital evolving, given industry challenges around DPI?

A: Bruce Flatt characterized the fundraising environment as incredibly robust, with approximately 3/4 of the quarter's fundraising coming from complementary strategies, expecting fundraising this year to be bigger than last year.

Q: Connor, I wanted to pick on the prospect for alternatives to gain access to the broader retirement market. I think there's been a lot of emphasis placed on distribution and shelf space thus far. But in the letter, you commented that ultimately you think the product offering will be the key determinant of success. Can you elaborate on that a bit more and comment on timing as well?

A: Connor Teskey said success in the retirement market space is driven by brand, scale, track record and the right products in key asset classes like real assets with long duration inflation-protected cash flows, and the company will utilize its leadership in these sectors as the opportunity evolves.

Q: I was hoping we can spend a couple of minutes on insurance. Obviously, an important growth area for the firm. Two-part question there. I guess, number one, we've seen generally increased competition and tighter credit spreads in the U.S. retail channel. How are you guys thinking about both growth in the U.S. retail with respect to kind of that $20-ish billion target you've talked about in the past and the ability to ultimately pivot and rotate more assets into Brookfield strategies? And then secondly, I was hoping you could also hit on the Just acquisition and just kind of thinking what kind of footprint and the ambitions you might have in the U.K. market on the back of that deal?

A: Connor Teskey mentioned the Just Group transaction could add immediate high-quality fee-bearing capital, and the company is well positioned to capture growth in the U.S. retail market with leading platforms. Hadley Peer Marshall added on credit deployment, seeing significant growth in core competencies like asset-backed finance, real assets and opportunistic credit with attractive risk-adjusted returns.

Q: I wanted to follow up on the fundraising commentary. Just specifically diving into the evergreen private equity strategy. So given your position within the retail channel and the strength you called out there, how are you thinking about if we see success on the PE evergreen fund raise, what that could mean for BBU in terms of maybe going into an evergreen structure?

A: Connor Teskey said the semi-liquid private evergreen PE strategy is complementary and additive to the product suite, and the company views it as such.

Q: I wanted to follow up on the retirement question. You highlighted the 401(k) opportunity, specifically in your shareholder letter and the prepared remarks as part of that retirement opportunity. Is the 401 channel something specifically that Brookfield wants to pursue? And if so, what is your approach to pursuing this? There seems to be a lot of different angles that one could take, whether it's target date funds, adviser managed accounts, record keepers. So how are you thinking about it if, in fact, you are going to go after that channel? And if so, is partnership something that you feel is important to success here?

A: Connor Teskey said the company absolutely expects to go after the 401 channel, focused on having the right products, and believes it will be an opportunity created over an extended period with the best products and leadership position.

Q: Can you share your latest thoughts in real estate -- been a tougher area for recent -- in recent years, but seems to be getting better. So curious what you're seeing with regard to investor appetite, deployment and then also realization opportunities and what areas you're most interested in today across real estate?

A: Connor Teskey said real estate deployment year-to-date is up 2x, monetizations up 4x, with high leases in major markets, robust capital markets supporting real estate, and the company sees a robust recovery with opportunities to deploy and monetize.

Q: Maybe one for Hadley. Just switch gears a little bit to the expense outlook. Good to see the expense control and margin improving. If you can comment on whether you think this -- I think we're about a 10% year-over-year expense growth pace, if that's -- if you also see that continuing in the back half of the year? And then how you see the FRE margin expanding into next year? Whether we can get to a 60% level at some point. I know that might be a little bit futuristic. And then also on the acquiring the additional stakes in the partnerships, I think there was about a $250 million FRE upside potential that you outlined in the Investor Day last year. Where are we on that path? And I think Angel Oak is incremental to that $250 million, if you can confirm that?

A: Hadley Peer Marshall said expenses are around the 10% level with operating leverage paying off, sees expenses continuing at that level in the back half, and the company is in the early part of the $250 million FRE upside potential path with Angel Oak not included initially.

Q: I wanted to follow up on the fundraising commentary. Just specifically diving into the evergreen private equity strategy. So given your position within the retail channel and the strength you called out there, how are you thinking about if we see success on the PE evergreen fund raise, what that could mean for BBU in terms of maybe going into an evergreen structure?

A: Connor Teskey said the company absolutely expects to go after the 401 channel, focused on having the right products, and believes it will be an opportunity created over an extended period with the best products and leadership position.

Q: I want to come back to the individual allocation, seeing the amortization of alternatives that you put it. How do you see the ramp-up in that demand relative to the ramp-up that you saw with respect to institutional allocations rising to alts over the past 5, 10, 15 years in terms of timing? And then the second part of the question would be how much of this opportunity would you say is already embedded in your 5- year Investor Day forecast as it pertains to the 16% to 17% fee-bearing capital and fee-related revenue CAGR that you laid out last September.

A: Connor Teskey said the opportunity for increased allocation to alternatives from individual investors will grow incrementally over years and decades, with institutional allocations to alternatives still increasing, and it's tough to compare individual and institutional at this point but retail will grow incrementally and then scale rapidly.

Q: Just wanted to get a sense with the Just acquisition and more broadly what are the requirements and then time lines to be able to shift some of these large fee rate assets that are managed currently in-house by Just or others into the BAM private funds to enhance yields above the standard IMA fee rates?

A: Connor Teskey said the transaction needs to be closed and get regulatory approval, with the process expected to take place in 2026 and shifts becoming an incremental process over time.

Q: Just a quick question around the base shelf that was filed last night. Given your current financial positioning and liquidity, could we perhaps read into that document that there are acquisition opportunities that may come to the forefront over the next 12 months or so that could be additive to your fee-bearing capital that perhaps we haven't considered at this point?

A: Hadley Peer Marshall said the focus is on generating liquidity to support the business, with the shelf being for opportunistic plays and nothing required in terms of acquisitions.

Q: I've got a two-parter, perhaps starting with the changes incorporated in the Big Beautiful Bill. I wondered if you could share your thoughts on how these changes around tax breaks for renewable projects could possibly maybe back your deployment and exits in that area?

A: Connor Teskey said the company can safe harbor or secure legacy tax credit treatment for the advanced stage U.S. renewables pipeline, the changes leave a window for projects under construction or starting construction in the next 12 months to receive legacy tax treatment, and the company is a big beneficiary across multiple investments.

Q: The other one, if I may, was on a comment made at the Financial Times, Global Insurance Summit by the BWS CEO suggesting the private credit trade was kind of overcrowded. Just curious if you could provide some context around that comment and where do BAM and BWS. Where are the 2 companies thinking about the asset allocation on incremental AUM, especially once the Just Group deal is concluded?

A: Hadley Peer Marshall said the company's core competencies are in real assets, asset-backed finance and opportunistic credit with competitive advantage, and it's less inclined to spend time on sponsor direct lending which is more commoditized, and the company is active in its core competencies with growing opportunities.