Brookfield Asset Management Ltd. (BAM) Earnings Call Transcript & Summary

Mr. Chair, we are ready to commence the meeting.

Good afternoon, ladies and gentlemen. It's now 2:00 p.m. Eastern and time to begin the Annual Meeting of Shareholders of Brookfield Asset Management Limited. My name is Mark Carney and as Chair of the Board, it's my pleasure to chair today's meeting. On behalf of the Board and management, I'd like to extend a warm welcome to everyone joining us through our live webcast. Similar to our meeting last year, voting during the meeting will take place on our webcast platform. And I'll now explain this process. We will conduct the votes on the matters before us by a poll. On the poll, every shareholder entitled to vote on the matter has 1 vote in respect of each share entitled to be voted on the matter and held by that shareholder. The poll will be open for all resolutions at the same time and throughout the formal portion of the meeting. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. If you voted in advance of the meeting and do not wish to revoke your previously submitted proxies, then no action is needed. We will welcome questions from our shareholders. As described in our Management Information Circular for this meeting, participants can submit questions by clicking on the messaging icon on the top of the webcast and type in your question. Please indicate whether your question is of a general nature or if it relates to a motion being considered as part of the meeting's formal business. Questions relating to a particular motion will be answered at the appropriate time in the meeting. Note that we recommend that you submit questions relating to motions being tabled as soon as possible as there's a 30-second delay in the webcast. Questions of a general nature will be answered during a question-and-answer period following the formal business of the meeting. Please click the Submit button once you have finished typing your question. Our Corporate Secretary, who is also serving as moderator of management, will read out the question and a member of management or I will respond. If we receive similar questions, we will read one of them and note that it to be one of a number of similar questions. We are unable to receive questions from participants joining the meeting only by telephone. Further, if you are connected to this meeting as a guest, you will not be able to submit a question. We will endeavor to answer all questions submitted during the allotted time. Moving on, we wish to thank you for your participation in today's meeting. I now call the meeting to order and would ask TSX Trust Company by its representatives, Jennifer Andersen and Kareeshma Aliar, to act as scrutineers. I will also ask our Managing Director, Legal & Regulatory, Kathy Sarpash, to act as Secretary of today's meeting. In the unlikely event of technology issues disconnecting my audio, I've asked Kathy -- designated rather Kathy to step in as Chair of the meeting. It's now my pleasure to introduce the members of management with us today. Bruce Flatt, our Chief Executive Officer; Connor Teskey, our President and CEO, Renewable Power and Transition; and Hadley Peer Marshall, our Chief Financial Officer. Following the conclusion of the formal part of the meeting, there will be a presentation from management. As outlined in our Management Information Circular, there are 4 items of business to be considered today. First, to receive the consolidated financial statements of the corporation for the fiscal year ended December 31, 2023, including the external auditor's report; second, to elect directors who will serve until the next Annual Meeting of Shareholders; third, to appoint the external auditor and authorize the directors to set its remuneration; and fourth, to consider an advisory resolution on the corporation's approach to executive compensation. As mentioned, in connection with the business to be dealt with today, all voting will be conducted by online ballot through the live audio webcast platform. And voting is now open on all resolutions. In order to expedite the formal part of today's meeting, I've asked certain shareholders to move and second various resolutions. Although this procedure will assist in the handling of the formal matters, it is not intended to discourage anyone from submitting questions in reference to any resolution after it has been proposed and seconded. I am advised that the notice calling this meeting and the Management Information Circular were disseminated to voting shareholders in accordance with all applicable laws. I have asked the Corporate Secretary to keep a copy of the notice and proof of mailing with the minutes of this meeting. The minutes of last year's Annual Meeting of Shareholders held on June 9, 2023, are also available upon request should any shareholder wish to review them. Based upon the scrutineer's preliminary report on attendance, the Secretary has confirmed that there is a quorum. I, therefore, declare the meeting properly constituted for the transaction of business, for which it has been called. Turning to the first item of formal business, I will now table the corporation's 2023 annual report to shareholders, which includes the corporation's consolidated financial statements for the fiscal year ended December 31, 2023, together with the external auditor report. Our annual report has been mailed to shareholders who requested it and is available in the meeting materials for this live webcast as well as available on our website.

Mr. Chair, we have not received any questions or comments submitted in connection with the financial statements.

I table the annual report. The second item of business at our meeting today is to elect directors who will serve until our next Annual Meeting of Shareholders. To assist you in identifying our directors, their photos will be shown on slides of the webcast platform as I read their names. The 6 proposed nominees for election by shareholders of -- sorry, I will do it again. The 6 proposed nominees for election by holders of the corporation's Class A limited voting shares are: Marcel Coutu, Liv Garfield, Nili Gilbert, Allison Kirkby, Diana Noble and Satish Rai. The 6 nominees for election by the holders of the corporation's Class B limited voting shares are: myself, Bruce Flatt, Brian Kingston, Keith Johnson, Cyrus Madon and Samuel Pollock. The information on all 12 director nominees is set out in our Management Information Circular, which was posted on our website for shareholder review and is available from the company upon request.

Mr. Chair, we have not received any questions or comments with respect to the nomination of directors.

The meeting is now open to receive nominations for the election of the proposed directors. We invite shareholders and proxy holders to submit their vote online if they have not already done so. As a reminder, if you have already voted or sent in your proxy, there is no need to do anything, unless you wish to change your vote. [Voting]

Mr. Chair, I nominate for election as directors the 6 nominees for the Class A limited voting shareholders and the 6 nominees for the Class B limited voting shareholders named in the Management Information Circular dated April 25, 2024.

Thank you, Thomas.

Mr. Chair, I second the motion.

Thank you, Galan. Are there any further nominations? If not, I declare the nominations closed. As there are 12 directors to be elected and the same number of nominees, I now declare that those nominated have been duly elected as directors of the corporation. The third item of business today is the appointment of the corporation's external auditor and authorizing the directors to set their remuneration. As stated in the Management Information Circular, the Audit Committee of our Board of Directors has recommended to shareholders that Deloitte LLP be reappointed as the corporation's external auditor.

Mr. Chair, I move that Deloitte LLP be appointed as the external auditor of the corporation until the next annual meeting and that the directors be authorized to set their remuneration.

Thank you, Galan.

Mr. Chair, I second the motion.

Thank you, Thomas. The resolution has been moved and seconded, and the motion is now before the meeting for discussion.

Mr. Chair, we have not received any questions or comments submitted in connection with the appointment of auditors.

Adoption of this motion requires the favorable vote of a majority of the votes cast at the meeting by the holders of each of the Class A limited voting shares and the Class B limited voting shares voting as separate classes. Management has received proxies representing approximately 77% of the corporation's Class A limited voting shares and 100% of the Class B limited voting shares. These proxies direct me to vote over 99% of the Class A limited voting shares and all of the Class B limited voting shares in favor of the resolution. I will now call for shareholders and proxy holders to submit their vote if they have not already done so. [Voting]

The fourth item of business today is the approval of the advisory resolution on the corporation's approach to executive compensation, described in the Management Information Circular. The corporation has put forth an advisory resolution at this meeting as part of its ongoing efforts to both meet its corporate governance objectives and ensure a high level of shareholder engagement. Because this is an advisory vote, the results will not be binding on the Board. However, the Governance, Nominating and Compensation Committee and the Board will take the results of the vote into account as appropriate when considering future compensation policies and decisions. The Board welcomes comments and questions on the corporation's executive compensation practices.

Mr. Chair, I move that the advisory resolution accepting the approach to executive compensation described in the Management Information Circular dated April 25, 2024, be approved.

Thank you, Thomas.

Mr. Chair, I second the motion.

Thank you, Galan. The resolution has been moved and seconded, and the motion is now before the meeting for discussion.

Mr. Chair, we have not received any questions or comments submitted in connection with the corporation's approach to executive compensation.

Adoption of this motion requires the favorable vote of a majority of the Class A limited voting shares. Management has received proxies representing approximately 77% of the corporation's Class A limited voting shares. These proxies direct me to vote over 95% of the Class A limited voting shares in favor of the resolution. I will now call for shareholders and proxy holders to submit their vote if they have not already done so. [Voting]

Voting is now closed on all resolutions. I'm advised that our Corporate Secretary has the results of the vote based on the final tabulations of proxy votes received.

Thank you, Mr. Chair. I am pleased to report that there are 12 directors to be elected and the same number of nominees. I now declare that those nominated have been duly elected as directors of the corporation. On the appointment of the corporation's external auditor and authorization of Directors to set their remuneration, I declare the motion carried. On the approval of the advisory resolution on the corporation's approach to executive compensation, I declare the motion carried. The final voting results will be posted after the meeting and posted to SEDAR+ at www.sedarplus.ca.

Ladies and gentlemen, that completes the formal business of today's meeting. There being no other business, I declare the meeting terminated. Now that the meeting has been concluded, Hadley Peer Marshall will be leading a presentation on behalf of our management team. At the end of the presentation, we will be available to respond to any questions or comments you may have submitted. Please note that in responding to questions and in talking about our new initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, you are encouraged to review the Business Environment and Risk section of management's discussion and analysis in our annual report. Finally, we would like to ensure that all shareholders who are interested in asking a question have the opportunity to do so. We will make every effort on our part to address questions during the allotted question-and-answer period. With that, I invite Hadley to commence management's presentation.

Thank you, Mark. Good afternoon. Today, I'll provide an update on our results over the past year, highlight the strength of our franchise and our healthy financial profile and finish up with our road map of the next 5 years that will showcase the areas of significant growth in our business. First, let me start off by saying we're very pleased with the performance of Brookfield Asset Management in its first full year as a separate public company. We delivered strong financial results, and we continue to operate with industry-leading metrics based on a healthy balance sheet with significant cash and robust available investable capital. We've executed several strategic transactions that will further drive our growth and see additional expansion opportunities, which will be additive. And lastly, our franchise is well positioned to benefit from the large global tailwinds of deglobalization, decarbonization and digitalization that not only will continue to attract significant capital into our business but will also enable us to capture exceptional investment opportunities for our clients. These tailwinds combined with the fact that alternatives as an asset class continues to grow, which altogether will help us achieve our target of doubling our fee-bearing capital to more than $1 trillion by 2028. I'll spend a few minutes breaking it down to numbers that will further highlight our strong performance over the past year. BAM raised $143 billion of capital across our businesses, inclusive of $50 billion of incremental capital that we're managing on behalf of Brookfield Reinsurance after the recent acquisition of American Equity Life. Though 2023 was a less robust fundraising environment, we continue to attract capital from our clients, given our strong track record, diversified strategies that corresponded to the most important themes we saw in the market and clients' focus on consolidating their manager relationships. We deployed nearly $60 billion of capital, including into large-scale deals like FirstEnergy transmission, Data4 within our Infrastructure group, Westinghouse and X-ELIO within our renewable power and transition franchise, Network International in our private equity business and into countless investments within our credit funds totaling over $20 billion, including within Oaktree. And in spite of a more challenging M&A environment, we monetized over $30 billion of total gross proceeds across the business at attractive returns. From an earnings perspective, we generated $4.4 billion in fee revenues at a 50% margin and earned $2.2 billion in both fee-related earnings and distributable earnings. On the back of strong growth expectation, our Board increased our quarterly dividend by 19% to $0.38 per share. Last, and pivoting to our future growth outlook, we currently sit on over $100 billion of available investable capital. Access to capital at this size is the significant competitive advantage, especially given, one, it was a difficult environment for many in the industry last year; two, we see strong development opportunities in our pipeline across all of our verticals, which we can execute on using our extensive sector knowledge and operating capabilities; and three, it allows us the flexibility to invest in large-scale acquisitions. Scale is also one of our competitive advantages. In fact, we've used our scale to execute a number of investments over the past year, like Triton, a $13 billion take-private of the largest global container business that plays a critical component of the supply chain and FirstEnergy transmission and electric transmission utility in the U.S. with a $7 billion regulated asset base that operates under an attractive regulatory framework and finally, Network International, which is a leading provider of technology-enabled payment solutions. At the same time, we've also signed a number of important partnerships that complement our business and will support our growth. Most recently, we acquired a 51% stake in Castlelake, which is a leading manager in aviation and asset-backed finance. Similar to our approach with Oaktree, LCM and Primary Wave, this is a great example of how we are expanding our franchise by identifying a growth area in private credit that has a large addressable and growing market and then partnering with a leading manager in that space. Another example is our partnership with Sequoia Heritage, where we launched Pinegrove Capital, a new independent asset management business focused on secondary and structured capital solutions in the technology and venture capital space. Within our renewable power business, we recently announced an exciting landmark partnership with Microsoft to supply over 10.5 gigawatts of new renewable energy capacity through development projects in the U.S. and Europe. We also monetized a number of assets, returning capital to our LPs at attractive returns. Recent monetizations include within our real estate business the sale of 150 Champs Elysees and ICD Brookfield Place, a premier office and mixed-use property in Dubai, both at attractive returns. Now I'll touch on our strong financial profile. BAM continues to operate with industry-leading metrics. Nearly 100% of our distributable earnings comes from our fee-related earnings. We operate with a capital base that is over 85% long-term or perpetual in nature. We have some of the strongest margins in the alternatives space, currently around 56% to 57%, with plans to further enhance margins by 200 to 300 basis points over the next 5 years. We aim to achieve double-digit growth targets for earnings metrics, and we strive for a 90-plus percent dividend payout ratio. Lastly, but certainly not least, we currently operate with no debt. In addition to no debt, we maintained $2.6 billion of cash on hand and, as I mentioned before, over $100 billion of investable capital available to deploy. Both allows flexibility and optionality to invest in our business strategically and to execute on a robust development pipeline. Now the transition to what's driving BAM's growth over the next 5 years. BAM is well positioned to benefit from the themes we're seeing in the marketplace. First, allocation to alternative asset managers from institutional investors is still growing. Second, investors are consolidating the exposure amongst alternative asset managers to the largest and most diversified in the space. And third, the market is increasingly investing in those who can support the 3 Ds, decarbonization, deglobalization and digitalization. We foresee these trends increasingly benefit BAM over the coming years, and we're positioned to make the most of this opportunity set. Specifically, over the next 5 years, we expect to capitalize on these trends to fuel our growth through 3 primary drivers: one, our global fundraising capabilities across flagship funds and complementary strategies; two, our growing credit group; and three, strategic initiatives that will create inorganic growth opportunities. First, our flagship funds are currently one of the largest growth drivers and will continue to be so. With each subsequent round of fundraising, we forecast over 10% growth over the next 5 years, which translates into over $150 billion of fee-bearing capital from flagships. In addition to the flagship funds, we have a record number of complementary funds in the market today, currently around 50 additional strategies. These serve to either fulfill an investable need, create a dominant position in a select attractive market or potentially target specific investor base. Middle Eastern Partners fund is a good example of us expanding our regional offerings. Our financial infrastructure fund within our private equity group is expanding our presence in the fast-growing digital payment space. And our Catalytic Transition Fund is a good example of our support of the global transition to a net-zero economy in developing countries. We have also seen a significant increase in our insurance assets under management. And insurance solutions remain one of the fastest-growing fundraising channels for our business. With the closing of AEL by Brookfield Reinsurance in May, we now manage nearly $90 billion, a fee-bearing capital on their behalf, and we expect to grow our insurance capital under management to $250 billion by 2028. This growth will partly come from Brookfield Reinsurance's ability to scale the platform to organically writing an additional $15 billion to $20 billion of annuities annually. At the same time, we expect to expand this business to third-party insurance companies and other institutional investors. Our insurance capital is largely deployed into our broader credit group, which today manages nearly $300 billion in assets, including AEL capital. That leads us to our second area of growth, credit. To better highlight our credit capabilities across the firm, we recently announced the formation of our credit group, combining our private credit, opportunistic credit, structured credit and liquid credit across infrastructure, real estate, corporate, as well as our partnership with Oaktree, LCM, Primary Wave, 17Capital and soon to be Castlelake. This is our fastest-growing vertical. And by 2028, we forecast it will grow to over $500 billion or half of our forecasted $1 trillion of fee-bearing capital. Putting all these pieces together, there are growing flagship fund series, complementary strategies, insurance solutions platform and credit group. We're on the path to double fee-bearing capital and fee-related earnings by 2028. In addition to our organic earnings growth opportunities, we expect to continue to execute on strategic initiatives that should expand our capabilities and further accelerate growth. BAM is actively assessing opportunities that would fuel internal growth or acquisitions that could be complementary to our current business. This could include regional-focused opportunities like within Asia or Middle East, with European clients or even within asset classes like technology, health care or consumer brands as examples. To sum up, BAM continues to perform well. We currently operate as a high-quality asset manager with industry-leading fundamentals. We're actively expanding our growth drivers of credit, insurance, infrastructure, renewables, all of which sit at the epicenter of large global trends. Our strong flagship fund franchise and growing complementary fund offerings will fuel growth over the next 5 years. With these pieces, we're on track to double fee-bearing capital and fee-related earnings by 2028. And any strategic initiative or acquisition would be additive to this growth plan. Thank you, and that concludes our prepared remarks. We would now be pleased to answer any questions.

Thank you, Hadley. Mr. Chair, there are no questions to be addressed.

Thank you very much, Kathy. Thank you, Hadley. Thank you, everyone. Ladies and gentlemen, I'd like to thank you all for taking the time to join us today. I hope you found the meeting and management presentation informative. We appreciate your participation.