Brookfield Asset Management Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 4, 2024

Key Takeaways

  • Brookfield delivered record Q3 results with Fee Related Earnings up 14% year-over-year to $644 million, Distributable Earnings up 9% to $619 million, and Fee-Bearing Capital rising 23% to $539 billion.
  • Easing inflation and lower interest rates have restored market liquidity, creating both a buyer’s and a seller’s market that is accelerating asset monetizations and deployment of large-scale capital.
  • The firm is capitalizing on three super-cycles—decarbonization, deglobalization, and digitalization—by growing its private credit business, building AI infrastructure (e.g., a $30 billion Intel fab and a 10.5 GW Microsoft renewables deal), and leading the energy transition including nuclear via Westinghouse.
  • Brookfield has executed over $17 billion of monetizations in four months (generating ~28% IRR) and deployed or committed $20 billion in Q3 alone, with $100 billion of uncalled capital ready for new opportunities.
  • To simplify its structure and pursue broader U.S. index inclusion, Brookfield is moving its headquarters to New York and will exchange private shares so that BAM will own 100% of the asset management business, issuing 1.2 billion new shares without any operational change.
AI Generated. May Contain Errors.
Earnings Conference Call
Brookfield Asset Management Q3 2024
00:00 / 00:00

There are 12 speakers on the call.

Operator

Hello, and welcome to Brookfield Asset Management's Third Quarter 2024 Conference Call and Webcast. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I would now like to hand the conference over to our first speaker, Mr. Jason Fooks, Managing Director, Investor Relations. Please go ahead.

Speaker 1

Thank you for joining us today for Brookfield Asset Management's earnings call. On the call today, we have Bruce Flatt, our Chief Executive Officer Conor Teske, our President and Hadley Peer Marshall, our Chief Financial Officer. Bruce will start the call today with opening remarks about the most important themes we're focused on, followed by Conor, who will discuss the market environment for both deploying and monetizing assets. And finally, Hadley will discuss our financial results and business operations. After our formal comments, we'll turn the call over to the operator and take analyst questions.

Speaker 1

In order to accommodate all those who want to ask questions, we ask that you refrain from asking more than 2 questions at one time. If you have additional questions, please rejoin the queue and we'll be happy to take additional questions at the end if time permits. Before we begin, I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward looking statements, including forward looking statements within the meanings of applicable Canadian and U. S. Securities laws.

Speaker 1

These statements reflect predictions of future events and trends and do not relate to historic They're subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and the potential impacts on our company, please see our filings with the securities regulators in Canada and the United States and the information available on our website. And with that, I'll turn the call over to Bruce.

Speaker 2

Thank you, and good morning to everyone on the call. We are pleased to announce that we had a very active Q3 generating record results. We benefited from $135,000,000,000 of inflows over the past year. We acquired partnership stakes in 2 leading partner managers and we made significant progress on asset monetizations across the franchise. Fee bearing capital or FBC grew by nearly $100,000,000,000 over the past year to $539,000,000,000 a 23% increase.

Speaker 2

Fee related earnings for the Q3 were up 14% over the past year to a record $644,000,000 or $0.39 per share and distributable earnings grew 9% to a record 619,000,000 dollars or $0.38 per share. Our franchise showed tremendous resiliency on both the fundraising and deployment fronts, despite higher market uncertainty over the past few years. Since then, inflation has eased and central banks have begun to lower rates. Liquidity has returned to the markets as the direction of travel on rates is now clear. This shift has generated greater confidence among market participants and this normalization is unlocking value across our business.

Speaker 2

This has allowed transaction activity to pick up leading to both a buyer's and a seller's market. We see attractive investment opportunities, especially for large transactions or opportunities that need capital to grow. But we also see a robust bid for high quality cash generative assets, which serves us well given the makeup of our investments. In general, across the industry, we anticipate a significant return of capital to limited partners, and this recycling of capital will add further support to an increasingly constructive fundraising environment. Connor will speak more about how we are monetizing mature assets and realizing very attractive returns for our clients.

Speaker 2

In addition, lower interest rates are supporting recovery in our yield focused public stocks, which are now beginning to reflect their underlying strong performance, including our infrastructure and renewable power publicly listed affiliates. The management fees we earn from our listed affiliates are linked to their share prices, strongly aligning our interests. As yield stocks continue to regain public favor, combined with strong continued underlying fundamental business performance, our earnings should increasingly benefit from this tailwind. With the market headwinds of the past couple of years turning into tailwinds for our businesses, we expect strong earnings growth to continue for the foreseeable future. Turning to investment themes, the super cycle in decarbonization, deglobalization and digitalization that is reshaping the global economy continues to gain momentum.

Speaker 2

Tens of 1,000,000,000,000 of dollars will be required to fund these trends. Governments are capital constrained, leaving private capital well positioned to play a leading role. We sit at the epicenter of these themes, which will continue to drive growth across all of our businesses, especially in private credit, AI infrastructure, renewable power and energy transition. Let me briefly address each of these areas. As the large institutional credit investors, including insurance companies and pension funds, look to allocate more of their portfolios to private credit to benefit from the premium returns and lower risk.

Speaker 2

Borrowers continue to diversify from traditional funding sources. They are seeking lenders who can provide certainty of funding, creative structures, speed of execution and flexibility. We continue to leverage our real assets investing expertise across real asset credit products and borrowers in these segments see Brookfield as a partner of choice. Private credit will also play an integral role in the build out of global AI infrastructure and enabling the energy transition. In fact, all of our businesses from renewable power infrastructure to real estate and private equity are playing critical roles in facilitating the transition in net 0, helping meet the need for global clean, reliable energy on an unprecedented scale, while at the same time supporting the exponential growth in need for other infrastructure demanded by AI.

Speaker 2

AI is accelerating further build out of the backbone of the global economy. It requires substantial amounts of capital and our early investments in capabilities and renewable power, data centers and semiconductor manufacturing have positioned us across the supply chain as a partner of choice for the largest and fastest growing tech companies in the world. Each of our business groups are investing in the substantial infrastructure that underpin AI. Our $30,000,000,000 semiconductor fabrication plant we are building with Intel in Arizona, our data center portfolio, which is among the largest in the world and enough fiber optic cables to encircle the globe, all speak to our scale and capabilities that few others have. All of this is in addition to being the largest supplier of green power to the technology sector.

Speaker 2

AI depends on reliable, cost efficient and clean energy sources, something we are uniquely positioned to provide at scale. Our 10.5 Gigawatt Renewable Power Development Agreement with Microsoft, representing more than $10,000,000,000 of investment, is to facilitate their data center build out on the backs of this revolution. More recently, the conversation around energy has been shifting to include the need for nuclear. There is increasing appetite for nuclear energy to meet the significant demand for electricity in the coming years. With an acceleration in more plans for nuclear power being built around the world, driven by both governments and corporates, we are witnessing a significant shift in sentiment.

Speaker 2

We invested ahead of the curve with our acquisition 5 years ago of Westinghouse, the world's leading supplier of nuclear products, technology and services to the industry. We believe there is no credible path to clean energy grids without a large and increasing amount of nuclear energy. Today, Westinghouse services approximately half the global fleet of nuclear power plants and has design and engineering capability to deliver micro, small modular and utility scale nuclear reactor solutions. The world requires scalable low cost 20 fourseven power and the largest consumers of power are increasingly focused on a selected few trusted partners capable of delivering energy where and when it's needed. Adding nuclear to our broader renewable power capabilities positions us to offer unmatched clean energy solutions to the largest companies and other energy users.

Speaker 2

While the shift back toward nuclear is only beginning, it is just one component of the significant investment necessary over the next several decades. We're the only Western economy business that has access to nuclear technology, and we're working on the next phase of our AI plans to match our land entitlement property skills, our power franchise, our data center capabilities and our nuclear SMR technology, which will soon power the most advanced data centers in the world. This is very exciting. As I wrap up, I'd like to underscore the importance of the key themes driving our business today, private credit, AI infrastructure and energy transition. They are not just areas of focus, they represent the pillars of growth that are shaping the future of the backbone of the global economy.

Speaker 2

As a leader in renewable power, infrastructure and real estate, combined with our broad private equity and credit capabilities, we are well positioned to significantly grow our franchise in the years ahead. With that, let me turn it over to Conor.

Speaker 3

Thank you, Bruce, and good morning to everyone on the call. As Bruce mentioned, the headwinds in the broader market over the past few years are now turning into positive tailwinds for our business that will drive earnings growth for years to come. We are seeing this play out today as market conditions have improved. Liquidity has returned and transaction activity across our business continues to gain momentum. On the monetization front, capital is returning and is favoring high quality assets with strong cash flows.

Speaker 3

Given 1, our disciplined approach to investing and 2, our long term value oriented management strategy, we have a large portfolio of investment that meets buyers' needs. As such, we disproportionately benefit in the current environment and expect it to continue well into 2025. We have had a very active quarter of monetization activity with over $17,000,000,000 signed or completed in the past 4 months alone. Looking ahead, based on the sales processes we have ongoing, the trends we are seeing in the market and the number of assets that we expect will be ready for sale in the near term, we expect monetization activity to further accelerate next year. And while BAM does not directly benefit from any carried interest realized from the more mature fund vintages that existed prior to its formation in 2022, returning capital at attractive returns to clients facilitates a more constructive capital raising environment.

Speaker 3

We will now highlight in more detail the market conditions and a few examples of asset sales we've recently completed or signed. New supply remains low across most real estate sectors. Financing conditions have improved throughout the year and fundamentals are strong, creating an attractive market for high quality real estate assets. Over the past few months, we sold over $5,000,000,000 of real estate assets, including a portfolio of shopping centers in the UK, a manufactured home portfolio in the U. S.

Speaker 3

And the Conrad Hotel in Seoul, Korea. These three monetizations generated a 28% annualized return and a multiple of capital of 2.5 times. In Renewable Power, we continue to see significant demand for stabilized, cash generative businesses, particularly those that have an ongoing growth angle. With over 4 decades of experience in building, developing and enhancing renewable power businesses, we have a number of seasoned assets that are highly sought after. In the past few months, we have announced sales that generated nearly $2,000,000,000 of equity proceeds from renewable power assets.

Speaker 3

The largest of which included Saeta Yield, a leading independent developer, owner and operator of renewable power assets in Spain and Portugal our stake in First Hydro, a critical electricity generation and storage facility in the United Kingdom and the 50% stake in Shepherds Flat, one of the largest onshore wind farms in the United States. These generated an aggregate IRR of 27% annualized and a multiple of capital of 2.5 times. We see this as just the beginning for what should be years of successful investment exits for mature investments in this space. These themes are also playing out in private equity, where the current constructive economic backdrop is driving demand for market leading businesses and in infrastructure as income yielding investments become more in favor. We expect to see sales announced in both of these areas in the coming months.

Speaker 3

However, not only is it a seller's market, but it's also a buyer's market. But as Bruce mentioned, it is only both if you have quality assets to sell and significant capital available to deploy. We see more opportunities to deploy capital into attractive investments where we can use our operational expertise, scale and relationships to create value. Over the past year, we deployed nearly $50,000,000,000 including $20,000,000,000 deployed or committed in the Q3 alone, And we still have over $100,000,000,000 of uncalled capital available for new opportunities. Let us now highlight a few of the significant transactions that illustrate the types of opportunities we are excited about.

Speaker 3

In September, we announced a strategic funding partnership of up to $1,100,000,000 with Infinium, a leading U. S.-based developer of sustainable aviation fuel projects. This investment through our Global Transition Fund marks our entry into this space and is backed by take or pay off takes with leading global airlines. In October, we reached a $2,300,000,000 agreement with Oersted to acquire a stake in a 3.5 gigawatt portfolio of offshore wind assets in the U. K.

Speaker 3

While offshore wind hasn't historically been a major focus for us, partnering with presents an attractive opportunity to enter the space with a global market leader as market conditions continue to shift in our favor. Within our infrastructure group, we completed the acquisition of a portfolio of 76,000 telecom sites in India from American Tower Corporation for $800,000,000 of equity capital at an enterprise value of $2,200,000,000 Within our Private Equity Group, we completed the acquisition of Network International for $2,000,000,000 of equity capital. Post acquisition, the business intends to merge with Magnati, one of the largest payment processors in the UAE that we acquired in 2022. Together, the 2 will form a combined payment processing platform across the Middle East. This joint business will have a total enterprise value of roughly $4,000,000,000 significantly expanding our presence in the growing financial infrastructure space.

Speaker 3

And within our Real Estate business, we recently made an offer to acquire a publicly traded European logistics REIT for approximately $730,000,000 of equity. While we've been both deploying and monetizing, we've also been expanding our capabilities through new partnerships to drive inorganic growth. Let's touch on 2 recent transactions. 1st, Castle Lake, a market leading $24,000,000,000 AUM alternative asset manager that specializes in asset based private credit, including aviation and specialty finance. We acquired a 51% stake in the manager and its fee related earnings as well as a small stake in its carried interest and principal investments.

Speaker 3

Additionally, Brookfield plans to allocate over $1,000,000,000 of capital under management to Castle Lake Strategies, enabling them to scale their funds and expand their business. The asset based finance market is one of the most attractive and fastest growing private credit sectors. We expect our credit business to continue to grow its capabilities in this area, both organically and through partner managers. And second, we completed our acquisition of SVP Capital through Prime Growth Venture Partners, our venture investment platform formed with Sequoia Heritage. The technology industry and growth capital are areas that we have historically had a smaller exposure to.

Speaker 3

But at this moment in time, we see an excellent path to building a large business. The combination of SVB Capital's 25 year track record in funds, private credit and co investments alongside Pine Grove's existing expertise in venture secondaries and liquidity solutions creates a cohesive and dynamic venture platform that is designed to deliver tailored solutions for fund managers, founders and limited partners in the venture capital space. Pine Grove now manages $10,000,000,000 in assets, positioning it as a powerful venture investment platform for the innovation community. These two acquisitions have added about $7,000,000,000 in fee bearing capital this quarter and will contribute approximately $40,000,000 in annualized fee related earnings starting in the Q4. As part of the Brookfield ecosystem, we will help facilitate both firms' growth by leveraging our client relationships and access to capital.

Speaker 3

However, sometimes we buy businesses, but sometimes we build them in house. Another important accomplishment in the past quarter has been within our Insurance Solutions Group, a strategy and suite of capabilities we have been building organically. We manage nearly $90,000,000,000 of fee bearing capital on behalf of Brookfield Wealth Solutions, and we have been building our capabilities to manage and deploy this capital into strategies that meet their specific needs. This quarter, we also raised $1,000,000,000 in a separately managed account from a large U. S.

Speaker 3

Life insurer. This capital can be invested across all of our platforms from corporate, infrastructure, real estate and asset based finance sectors targeting strong risk adjusted returns with a premium over comparable public credit investments. This is just the beginning of managing third party insurance capital through our Insurance Solutions business and we are targeting $50,000,000,000 of external partner capital from this strategy over the next 5 years. To conclude, the tailwinds we are seeing today are setting us up for significant growth in the years ahead. We are strategically positioned in the areas that matter most: energy transition, AI infrastructure and private credit.

Speaker 3

And our ability to deploy large pools of capital, operate those assets and businesses to enhance cash flows and return capital by monetizing mature assets at attractive values creates a virtuous cycle that gives us confidence that we can double our business over the next 5 years. With that, we will now turn the call over to our CFO, Hadley Peer Marshall. Hadley?

Speaker 4

Thank you, Conor. This morning, I'll provide you more context around our strong Q3 earnings and highlight our financial performance, the changes to our balance sheet and liquidity, especially now that we've closed on a $750,000,000 revolver and our successful fundraising efforts. Lastly, I'll share an update on the initiatives we introduced at Investor Day to simplify our business and position us for broader index inclusion. 1st, on financial performance. Fee related earnings or FRE were a record $644,000,000 or $0.39 per share in the quarter, up 14% from the prior year period, bringing FRE over the last 12 months to 2,400,000,000 Distributable earnings or DE were a record $619,000,000 or $0.38 per share in the quarter, up 9% over the prior year and $2,300,000,000 over the last 12 months.

Speaker 4

The growth in earnings over the past year has benefited significantly from a 23% increase in fee bearing capital or FBC to $539,000,000,000 When breaking down our growth in fee bearing capital, $101,000,000,000 came from our fundraising inflows and $25,000,000,000 from capital we deployed across our business during the past year that was raised prior, but now put to work is fee bearing. Earnings also benefited from the strong rebound and market capitalization of our listed affiliates over the past year, a full quarter of fees related to our AAL mandate and continued discipline in managing our costs. In fact, our margins improved to 58%, highlighting the operating leverage inherent in our business. Not only is our fee bearing capital growing, but it is increasingly becoming more long term in nature. Today, 88% of our fee bearing capital is classified as long term or permanent in nature, up from 86% a year ago, and that percentage should only grow.

Speaker 4

As Conor mentioned, we closed a few strategic acquisitions this quarter that will expand our capabilities and augment our organic growth. But even after closing these acquisitions, we continue to maintain significant capital availability and have further enhanced liquidity by closing a $750,000,000 revolving credit facility, which is entirely undrawn. At the end of the quarter, we had $2,100,000,000 of liquidity comprised of cash, short term financial assets and undrawn capacity on our revolver. As a reminder, we have no long term third party debt. It was also a strong fundraising quarter in which we raised 21,000,000,000 Credit accounted for more than half of the capital raised.

Speaker 4

When we break it down, dollars 14,000,000,000 of capital is raising credit. More and more clients are attracted to credit and in particular the credit strategies we're focused on including real asset finance, asset backed finance and Oaktree's opportunistic strategies. Dollars 6,400,000,000 was from Oaktree's credit strategies, which includes $1,500,000,000 raised in the 12th vintage of our flagship opportunistic fund. We raised $1,000,000,000 across our other partner managers, Castle Lake, Primary Wave and LCM. Dollars 4,500,000 was related to our mandate with Brookfield Wealth Solutions or BWS, which continues to grow on the backs of their increased annuity writing following the completion of their acquisition of AEL.

Speaker 4

I want to highlight again that we raised $1,000,000,000 of third party SMA capital from a large U. S. Life insurance company. As Conor mentioned, this is significant as it is the 1st third party capital raise for our insurance SMA strategy, a strategy we covered at our Investor Day that will leverage the capabilities we're building to serve BWS and which is targeting $50,000,000,000 over the next 5 years. Of the remaining inflows for the quarter, dollars 2,200,000,000 was raised within our Renewable Power and Transition business.

Speaker 4

Specifically, we had initial close of our catalytic transition fund for $2,400,000,000 of which $1,400,000,000 was raised in the quarter. This new capital is in addition to the $1,000,000,000 anchor investment from Alterra announced previously at COP28 last year and marks a significant milestone towards our target of raising up to $5,000,000,000 to invest in emerging market clean energy and transition assets. Within our infrastructure business, we raised $1,400,000,000 of capital within the quarter, of which $500,000,000 was for our super core infrastructure strategy. And I mentioned that this was its biggest fundraising in more than 2 years. We see momentum returning to the strategy due to lower interest rates and demand for cash yielding investments continuing to grow.

Speaker 4

We also raised nearly $800,000,000 for our Private Wealth Infrastructure Fund. This fund continues to see robust demand and a popular strategy in Private Wealth. Within our Private Equity business, we raised $2,000,000,000 associated with our acquisition of Network International, which was closed in the quarter. Subsequent to the end of the quarter, we received 2 sizable commitments for our Middle East Partners Fund. And finally, within our Real Estate business, we raised $1,600,000,000 including $500,000,000 for the 5th vintage of our opportunistic real estate fund.

Speaker 4

Of this $21,000,000,000 raised in total, dollars 11,000,000,000 became fee bearing capital in the quarter and the remainder will become fee bearing upon deployment. As we look forward, we expect these levels of fundraising and deployment to continue. In September, we hosted our annual Investor Day and outlined our 5 year plan to double our business. We intend to do this through expansion of our fundraising, both by scanning flagships and growing our new complementary strategies and further growing our credit business. In addition, we'll continue to expand our fund offerings into new asset classes, which together should enable us to achieve $1,000,000,000,000 of fee bearing capital.

Speaker 4

In summary, after reviewing our Investor Day materials, which are available for replay on our website, you'll get a better understanding of why we strongly believe that the best is yet to come. One other topic I want to highlight is our efforts to simplify our structure and position ourselves for broader index inclusion. Our public listing of BAM back in December 2022 was a significant step towards simplifying our business, making it easier for investors to understand and ultimately invest in our leading pure play asset manager. Since then, we have received positive feedback from investors and seen a significant increase in our U. S.

Speaker 4

Investor base. Our business fundamentals include our stable, predictable earnings and asset light balance sheet and strong growth prospects, makes us an attractive investment. While we're pleased with our progress, there's still more we can do. To that end, we're implementing a few initiatives with the goal of positioning ourselves for broader index inclusion to be eligible for the most followed large cap U. S.

Speaker 4

Indices. The first step we took was to change our head office to New York, already our largest office. This makes sense for our business as we've been operating as a U. S. Company for 20 years.

Speaker 4

The largest share of our revenues, assets under management and employees are in the U. S. The majority of our institutional shareholders are U. S. Investors and the majority of our shares are traded on the New York Stock Exchange, our primary exchange.

Speaker 4

One note to make is that beginning with our 2024 annual report, we will file our financial reports on Form 10 ks and 10 Q in line with those filed by other U. S. Domestic issuers. The second step is related to our corporate structure. Last week, we announced plans to enhance BAM's structure whereby BAM will now own and reflect 100% of the asset management company.

Speaker 4

So 100% of BAM will be publicly traded and our market cap will accurately reflect the total value of the asset management business versus the current 27%. That would equate to over $85,000,000,000 based on the current stock price compared to our current market cap today of approximately $23,000,000,000 To do this, Brookfield Corporation, or BN, will exchange its 73% private ownership in our asset management business for an equivalent number of shares of BAM's public shares. As a result, BN will own approximately 73% of the publicly traded shares of BAM, which is consistent with its current private ownership. While this should simplify the corporate structure, it's important to note that this will not result in any changes to our operations or strategic plans and will have no effect on the tax treatment of our dividend. However, because we'll be issuing 1,200,000,000 new shares of BAM in exchange for the 1,200,000,000 private shares of the asset management business we're acquiring, we will seek shareholder approval at a special meeting on December 20.

Speaker 4

You'll be receiving proxy materials and voting instructions over the next few weeks. We expect to close this transaction early in 2025 subject to shareholder and regulatory and other customary approval. We're excited about both these initiatives, which we believe will deliver a number of key benefits to our shareholders. Simplifying the corporate structure of the asset management business will make it easier for investors to understand and accurately value the security. Broader index inclusion should drive increased ownership among passive institutional investors and at the same time attract a broader base of active investors who benchmark against these indices.

Speaker 4

Overall, this increased recognition in the market should ultimately lead to a broader shareholder base. Before beginning of the Q and A portion of today's call, I'm pleased to confirm that the Board of Directors has declared a dividend of $0.38 per share for the Q3 payable on December 31, 2024 to shareholders of record as of the close of business on November 29, 2024. With that, operator, we can open up to questions.

Operator

Thank Our first question comes from Cherilyn Radbourne with TD Cowen.

Speaker 5

Thanks very much and good morning. My first question is on AI infrastructure and the related power requirements, which continues to receive a lot of attention. And as you're no doubt aware, at least one dedicated product has been announced out there. Do you think AI infrastructure makes sense as a discrete strategy for BAM at some point? And if so, could you give us some thoughts on how that would sit alongside your your flagship infrastructure product?

Speaker 3

Good morning, Sheryl, and thank you for the question. You're absolutely right that this topic is very, very top of mind to us today. It very much plays to our existing leadership position within infrastructure and within renewable power and data centers that we already have. In addition to that, our current platforms, the demand we are seeing from our LP partners for greater exposure to this theme puts this very, very much near the top of our list, I would say, as we begin to think of new products and product development initiatives at scale. So I would say you're bang on.

Speaker 3

This is something that is a focus for us and quite candidly, has been a focus for us for, I would say probably 12 months. We simply want to ensure that when we do come to market with a new product of scale, we're thoughtful, we're refined in what it will invest in and it's appropriately meeting the market opportunity. And I would say we've made great strides and we're getting closer. In terms of where our focus would be, I think the important thing to recognize is we already are one of the largest, if not the largest investor in this investor in this theme around the world. And to date, we've been doing it through various pools of capital.

Speaker 3

But given 1, the size of the opportunity set and 2, the investor demand to get more exposure to this theme, you're right that it is increasingly lending itself to a dedicated product and playing to our strengths and where we have the greatest experience and position, it would be certainly focused on leaning towards more the infrastructure side of AI as opposed to the more private equity or growth side of it. It would absolutely be something more aligned with an infrastructure product in our mind. So I hope that gives you some clarity on our latest thinking and it's something we will continue to refine.

Speaker 5

That's great color. Thank you. Second question is on margin. This is the 2nd quarter in a row of very strong credit inflows and we all know those attract lower fee rates, but it's also a question of scale. So I was hoping you could talk about what the credit business looks like on a margin basis versus the corporate average.

Speaker 4

So I'll take this and this is Hadley. In terms of the margins, I mean in general, we're very pleased to continue to see our margins improve and for you to see the operating leverage that's behind some of the growth initiatives, which gets us to credit because obviously we've been in build out mode, as we increase the amount of capital that we manage on credit, especially with the mandate with AL. When you think about those fees, though in general credit can be viewed as a lower margin business, the way that we have built our business is we obviously have the 25 basis points IMA with AL with BWS on the backs of AL. But in addition to that, about a little less than a quarter of that capital goes into our funds where we earned full fees there. So when you think about that, we're generating very attractive margins.

Speaker 4

Then add on to the fact that as you heard at our Investor Day over 5 year period, we will increase our 3rd party SMA business. We've now closed, as we discussed, dollars 1,000,000,000 mandate with the U. S. Life insurance and we continue to scale that up to about $50,000,000,000 over the next 5 years. And that will be additive because we've already built the infrastructure to deploy that capital.

Speaker 4

So that will also be additive. So we don't see a margin compression because of the build out of what we're doing on the credit side.

Speaker 5

That's all for me. Thank you.

Operator

Our next question comes from Alex Blostein with Goldman Sachs.

Speaker 6

Hi, good morning. Thank you for the question. I was hoping we could start with a question on renewables business. It sounds like lots of activity in the space with a pretty rapid pace of deployment. I was wondering why the fundraising has been slower in transition to in particular.

Speaker 6

So if you look over the last couple of quarters, it's been a little muted. So I was just curious if you could expand on that and what you ultimately expect the 3rd party fundraising number to contribute from here? And then ultimately, when do you guys expect this fund to come back into the fee run rate? I think you're pretty close in terms of where you're deploying, but just wanted to flush that out. Thanks.

Speaker 3

Hi, Alex. Thanks for the question. I'll try and unpack a few different points there. 1st and foremost, BGTF2 turned back on. It was in the latter part of Q3.

Speaker 3

So we certainly didn't get the benefit of it. We only got the benefit of it for a handful of weeks, I'd say, but it will be fully in the numbers back in the numbers for Q4. And I think just in general, I would frame the comment around fundraising and transition as a little bit of a high class problem. We obviously had the unique situation where we paused fees on BGTF-two as we went to backfill one large investment in BGTF-one. But in addition to doing that, we addressed the whole in BGTF-one and we've now deployed 1 quarter of BGTF-two during the same timeframe.

Speaker 3

I would say the pace of transaction activity on the deployment side has been as strong as ever. And as we mentioned in our shareholder letter, we're also seeing an incredible monetization environment with 3 or 4 significant monetizations in the 25% type IRR range. This business is performing exceptionally well. Aside from credit, it's the fastest growing platform at Brookfield and we think we're still just in the early days. And then maybe just the last point to directly hit on your fundraising number.

Speaker 3

This is where I will come back to it being a high class problem. We have complete confidence we're going to hit the target in the fund. I don't think there's anyone at Brookfield who's we've launched C we've launched CTF and we've raised half that fund. And alongside BGTF 2, we've raised $5,000,000,000 of co invest into those strategies as well. So I don't think there's any slowdown in fundraising on our transition side.

Speaker 3

We'll get the rest of that flagship closed out in the coming quarters and in early 2025. We're very confident we'll hit our target there. And then the last point, just as a friendly reminder, due to the catch up fees in those flagship funds, even if the timing slipped a quarter or 2, it doesn't impact our economics at all.

Speaker 6

Yes. That's all very clear. Thank you for that. Then, Hadley, one for you on the just the corporate structure change, which is obviously very welcome. I think you guys will be eligible for a handful of indices kind of right out of the gate once these changes take place.

Speaker 6

So I think Chris, Russell, maybe a few others. What are your thoughts on the eligibility for the S and P 500? I know that could be a little murky at times, but knowing what you know and the structure that you guys will ultimately end up having, do you think that ultimately makes you eligible for the S and P 500 index as well? Thank you.

Speaker 4

Thanks, Alex. So in terms of what we've done in our structure and of course moving our head office, these were to create liquidity. So that's the main goal that we're trying to achieve for our shareholders. And the key from that perspective is that we've been able to increase U. S.

Speaker 4

Indices. So you've mentioned U. S. Russell 1,000, that's a good example. And that will continue, plus we're going to show a market cap of $85,000,000,000 plus.

Speaker 4

And so that's going to be beneficial, as well. In terms of what we see with the S and P 500, look, all these changes made sense regardless of the outcome around the S and P 500. And so if we enter into the S and P 500, that's a nice upside, but nothing about what we've done is something we wouldn't have done otherwise.

Speaker 2

Thank you.

Operator

Our next question comes from Mike Brown with Wells Fargo.

Speaker 7

Great. Thanks for taking my questions. On the expenses, just to maybe follow-up on the earlier question there, it looks like the margins really benefited from good discipline on the comp and other expenses as well. How can we think about the Q4 here compared to 3Q? Is there any seasonality to consider?

Speaker 7

And if the year ends up being kind of up in like the high single digit range, in terms of year over year expense growth, how should we think about expense growth or margin expansion potential in 2025 compared to 2024?

Speaker 3

Hi, Mike. Perhaps I'll take the first crack at that. And if there's anything Hadley would like to add on, she can. There's 3 comments I would make. We expect our margins to continue to accelerate higher into Q4 and the beginning part of 2025.

Speaker 3

I think it's quite well known at this point that we invested quite heavily, in particular into our credit and insurance franchise in order to be ready for the new capital we would be on boarding that we have on boarded throughout the year. And we made investments there. We were investing in our people and that was showing up in the expense line prior to there was a revenue attached to it. So that is now run rating through our numbers and that's going to continue right through until Q2 next year. The second thing I would just highlight around our expenses is we continue to see a general plateauing of our overall expenses versus a couple of years ago.

Speaker 3

And as our revenue grows, that's really going to showcase the operating leverage in our business. Said another way, we do expect Q4 to be higher than Q3 and we do expect margins in 2025 to be higher than they have been in 2024.

Speaker 7

Okay, great. And then could you just update us on the capital raising expectations for 2024 excluding AEL and the 2023 campaigns that finished early in 2024? I think you're around $50,000,000,000 So where can that land for the year? And then would you look out to 2025? What's maybe the right range to consider?

Speaker 7

Understanding it's you're probably still early in the planning process, but I guess based on what you know today, what could be the largest contributors next year?

Speaker 3

Yes, certainly. Thank you for the question. Maybe we'll just start with a general comment. The fundraising environment is better today than it's been at any point in the last 2 years. And we expect fundraising just with the liquidity in the system, the stability, if not the decline in interest rates, the increasing allocations we're seeing from LP partners around the world.

Speaker 3

And when you marry that with the nice product suite that we are bringing to market of both flagships and complementary products, the fundraising environment and certainly what we're seeing on the ground right now is stronger than what we've certainly seen in the last 18 to 24 months. So we feel very good and I would say our confidence is high. 2 maybe comments, We continue to see fundraising accelerate in Q4. This is largely going to be driven by our flagships, in particular, Bezrep and BGTF. Maybe a little bit of the fundraising in those tips into 2025.

Speaker 3

But again, that's not material to us because with the catch up fees, it doesn't impact our economics. And I would say the momentum we're seeing in fundraising for those products piggybacking on Alex's question is very, very high. So in terms of where we've expected fundraising to be earlier in the year, we continue to have a lot of confidence that we're going to land at or near that range and the environment continues to be very strong. As we look to 2025, I would say we're going to see that strength continue. Our end numbers will obviously be dependent on timing around when some of our larger products launch.

Speaker 3

But I would say in terms of sentiment, we expect the fundraising market to be more positive in 2025 than it was in 2024 and we're going to begin to see that acceleration in the last few months of this year.

Speaker 7

Great. Thank you, Conor.

Operator

Our next question comes from Craig Siegenthaler with Bank of America.

Speaker 8

Thanks. Good morning, everyone. So I have a follow-up to Alex's corporate structure question. So, it's the first time we're kind of looking and digesting this, but I wanted to see if there's any changes to voting rights or any tax implications to shareholders and partners across all share classes for BAM and BN?

Speaker 4

Thanks, Greg. I can take that one. So that's a very good question. And we've tried to be very clear that the changes we're making should have no impact to our BAM shareholders or BN shareholders. So we've tried to make this as clean as possible from that perspective.

Speaker 4

And, for that, there is still a required, shareholder approval because of the exchange of shares. But beyond that, there should be no other impact.

Speaker 8

Great. And then just a follow-up here on insurance. I know you had $5,500,000,000 of inflows in insurance and SMAs. But one thing I'm looking for is an update on the public versus private mix inside the insurance company general account portfolio, especially post the American Equity closing, which increased it. And I want to think about what is the potential FRE lift or fee lift as you migrate public to private and reach your long term targets?

Speaker 3

Certainly. So, I would say we took over the AEL I would say we took over the AEL portfolio in the middle part of this year and we're just in the early days of shaping that portfolio towards its long term allocation. We'll split that between liquids in the front end, some duration and then obviously some investment in our own private funds. This is going to take time. This is something that is absolutely going to take, probably at least 24 months, if not longer and will be dependent on the opportunities we're seeing in the market as we remain disciplined of looking to source the most attractive risk adjusted returns, not just blindly targeting some prescriptive asset mix.

Speaker 3

And therefore, I would say the uplift in fees that you will see as a result of increasingly allocating some of that capital to our private funds really isn't showing up in the numbers yet in any material way and will continue to accelerate for at least a couple of years from here.

Speaker 8

Thank you, Conor.

Operator

Our next question comes from Mario Saric with Scotiabank.

Speaker 9

Hi, good morning and thank you for taking the questions. I wanted to shift focus a little bit on the uncalled fund commitments and specifically thinking about the expiration schedule for those commitments of $106,000,000,000 and whether it's reasonable to assume that the $50,000,000,000 that is presently not earning fees today represents most of the closer near term expirations of the $106,000,000,000 I'm just trying to understand what the potential fee risk is in terms of not deploying the capital.

Speaker 3

It's a good question, Mario. Maybe let me the point I would make here is the fee risk is incredibly modest. And maybe just taking a step back in some of our funds in particular select credit products that we have, we generate fees on invested as opposed to fees on committed capital. That makes up the bulk of the $50,000,000,000 that is not yet paying fees. And maybe just to add 2 points on that.

Speaker 3

Almost 90% of our uncalled commitments don't expire until after 2028. So the expiration risk in the next few years is incredibly modest. And then the second point I would add is because the bulk of the capital that is not generating fees today is in those credit products that we are very, very actively deploying in this market. We have a ton of We're excited to see We're excited to see that coming through in our fee related revenues pretty quickly here.

Speaker 9

Okay. That's helpful color. And then just maybe as an associated question, just in terms of outflows, they've been $8,000,000,000 give or take this quarter, prior quarter as well. When we think about the accelerated expected monetization plans in 2025 versus 2024, like I know it's very transaction specific, but how should we think about outflows in relation to clearly potentially positive and strong inflows coming in 2025?

Speaker 3

It's a very fair question and it's a great question. The market environment is fantastic. And this is what Bruce highlighted in his comments. It is a buyer's market and a seller's market. We are thrilled to crystallize some fantastic returns and send capital back to our LP partners.

Speaker 3

That's why we do this. Therefore, we're excited about delivering these monetizations and distributing capital back. Yes, that means we stop earning fees on that capital. But if we do a good job and return capital at strong returns to our LPs, we see that capital come right back to us in new fund commitments, often in greater quantities. So yes, maybe it leads to a tiny bit of quarter to quarter noise, but it's a fantastic thing for our franchise to see this monetization activity pickup.

Speaker 3

It's only a net positive.

Speaker 9

Got it. So would it be fair to say your prior comment on 2025, you're expecting to be more positive than 2024 from a fundraising standpoint. Would it be fair to say that's both on a gross and net basis?

Speaker 3

Yes, I think that's fair.

Speaker 10

Okay. Thank you.

Operator

Our next question comes from Sohrab Movahedi with BMO Capital Markets.

Speaker 11

Hey, thanks for taking the question. Maybe just a quickie for Hadley. I mean, you had in the Investor Day, you had a nice chart showing the 5 different drivers of fee bearing capital growth you expect over the next 5 years between renewable infrastructure, private real estate and credit going from $500,000,000,000 to $1,000,000,000,000 Would you be able to provide that same table showing the buildup for both fee related revenues and fee related earnings? So we have a sense of what's happening to fee rates and earnings on those fee rates over time?

Speaker 4

So you've highlighted our businesses where we see the drivers to achieve that doubling of our business and that will be on the backs of the flagship, the complementary strategies and then the build out of credit. So we can take your question offline and provide a little bit more detail behind that. But that is really the big drivers of what will get us to doubling, our business. And as Connor has really outlined further, we're entering into an environment that's going to show even further upside from what we showed at Investor Day. So there's definitely additional levers that can be pulled to achieve that and more.

Speaker 11

Okay. And maybe we'll take that offline. And then Connor, I mean, it's not every day that we say it's both a good seller's market and a buyer's market. I mean, usually if it's a good seller's market, it's probably not a good buyer's market. What makes it both this good seller and a buyer market?

Speaker 3

Yes, it's a great question. And I'll use an example and again, maybe just pivoting back to one of the previous questions on this call. I'll just use the renewable power and transition franchise. In 1 year, we're going to have the highest year for deployment, the highest year for monetizations and the highest year for fundraising in the same 12 month stretch. Those things don't typically cycle together.

Speaker 3

But one I would say is what we're seeing in terms of growth in these sectors and different investors wanting to get exposure to these sectors at different risk return points. An example of what's driving that again perhaps using renewable power in transition is we are seeing an incredibly robust bid for high quality cash generative operating assets, particularly those that still have a growth angle. That's seeing a very, very robust bid from market participants and that's the type of thing we're monetizing into. In the exact same environment, we are seeing a shortage of capital chasing an abundance of opportunities to construct and build out new assets and new platforms in this space. And while there is more capital being allocated to these themes, that capital just pills in comparison to the capital requirements and the growth opportunities that are in these huge global trends.

Speaker 3

So I would say that's what we're seeing in renewables. But in general, we're seeing the same thing in real estate and infrastructure as well. That's how you get the market bifurcation that's allowing us to be a great buyer and a great seller at the same time.

Speaker 11

Thank you.

Operator

Our next question comes from Ken Worthington with JPMorgan.

Speaker 10

Hi, good morning. Maybe first, your wealth infrastructure fund generated $800,000,000 of sales this quarter. And if our calculations are correct, it suggests that things picked up throughout the quarter with a particularly strong September. Did you get on a new platform or what drove the acceleration in sales there? And given the success here, what's sort of next in terms of the build out of the wealth franchise?

Speaker 3

Sure. So, we'll say something that we've said about our BII product before. The growth of this product is not limited by demand. It is entirely limited by our disciplined approach to deploying the capital. And we could be raising even more capital than we did in Q3.

Speaker 3

We just want to continue to be prudent in how we build out that asset portfolio and ensure that we're delivering fantastic returns. And portfolio and ensure that we're delivering fantastic returns as more capital comes into that fund. But what I would say about that $800,000,000 is we're still just scratching the service and it's purely driven by investor demand, which actually far exceeds the dollars we raised in Q3. And then secondly, in terms of new products for the wealth platform, I would really say there and this piggybacks on some of the things we mentioned at Investor Day. We're very focused on over the next 12 months potentially launching wealth products in both the private equity segment as well as potentially additional wealth products in certain credit sub segments.

Speaker 3

And some of the recent transactions we've done with some of our 2 partner managers is going to be very additive to those initiatives as we bring new products onto our wealth platform.

Speaker 10

Perfect. Thank you. And then just a simple one. BPG saw a 20% increase in management fees this quarter after what I think is like 9 consecutive quarters of filing fees. What drove the reversal this quarter and the magnitude of the sequential jump in 3Q?

Speaker 3

Yes, sure. So I'll take that one. In terms of what drove it, there's a couple of things. Some of our funds raised some money. And in particular, in the flagships, if you bring capital on, you get some catch up fees.

Speaker 3

So that would have driven part of the jump and that's the one that jumps to mind most readily for me. I expect that's the bulk of it. But Hadley, is there anything you would add to that?

Speaker 4

No. I mean, I think you've captured it really is around the fact that we've been buying more equity base in our BBG strategy and then moving assets over to BWS and earning fees there. So that's probably the 2 main components there.

Speaker 10

Okay, great. Thank you.

Operator

We have time for one more question. Our last question will come from Dan Fannon with Jefferies.

Speaker 2

Thanks. Good morning. I guess just to follow-up on that question. So is the $54,000,000 from BBG a good run rate prospectively within the Real Estate segment?

Speaker 3

Yes, absolutely. And if anything, I think we're going to continue to see that number creep up a bit over time.

Speaker 2

Okay, great. And then just as a follow-up within the context of insurance, one SMA for $1,000,000,000 scaling to I think $50,000,000 you've talked about. I guess just talking about the cadence of that and the backlog and conversations and how that the momentum in that business as we think about the near term versus that longer term goal, how that should progress?

Speaker 3

Certainly. And maybe to share how we are thinking about this. We created our insurance capability and developed it, 1st and foremost to service our own related party insurance company, Brookfield Wealth Solutions. And that is our largest insurance client, if you will. And we put an incredible amount of effort into building out the team and the franchise and the capabilities to be sure that we could service that client at the standard that we would expect.

Speaker 3

Therefore, the ability to bring on other clients and other partners at this point is relatively easy. And that is not to say that the job is easy and every one of those clients doesn't get a tailored solution to meet those needs, but the platform is built. And therefore, there's incredible capacity to bring on more of those types of clients. And while we got the first one done this quarter, I would say we have a number of ongoing conversations to add to that. And maybe just to finish on this point and maybe tie it back to I think what was one of the very first questions on this call.

Speaker 3

As we build out our insurance and our credit platform, there is this question around fees versus margins. And the important thing to recognize is lower fee does not necessarily mean lower margin. And the joy of having built this platform is it's a tremendous platform that allows us to raise scale capital and deploy that capital at scale on behalf of a small number of very large insurance partners. And therefore, while the fee rate might not be as high as in some of our other products, there's no reason it can't be given the scale a very attractive margin business for us where we should see good operating leverage.

Speaker 10

Great. Thank you.

Operator

That concludes our question and answer session. I'd like to turn the call back to Jason Fooks for closing remarks.

Speaker 1

Okay, great. Thank you for everyone's participation and interest. If you should have additional questions on today's release, please feel free to contact me directly. Thanks again.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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