Brookfield Corp. BN-T executives expect to sell more assets as economic conditions for deal-making continue to improve after the Toronto-based asset manager sold about $15 billion worth of holdings in the first half of the year.
Brookfield Asset Management Ltd.’s parent company now manages about $1 trillion in assets, an increase driven in part by rapid growth in its wealth and insurance businesses, which include the recent acquisition of pension provider American Equity Investment Life Holding Co.
As inflation “cools” and short-term interest rates begin to fall, investors’ appetite for risk has increased, helping to end a prolonged deadlock in transactions, Chief Executive Bruce Flatt said on a quarterly conference call on Thursday. “Against this constructive economic backdrop, albeit volatile over the last week, liquidity continues to return to private markets.”
As the number of deal closings increases, Brookfield expects the pace of asset disposals to increase as well. In the second quarter ended June 30, Brookfield sold a luxury hotel in South Korea, an office building in Washington, DC, and several renewable assets, according to President and Chief Financial Officer Nick Goodman. This could boost earnings in coming quarters and free up capital for new acquisitions.
In a letter to shareholders, Flatt also confirmed long-standing speculation that Connor Teskey, a 36-year-old rising star who is president of Brookfield Asset Management and head of its renewable energy business, would be considered as the asset manager’s next CEO, naming him Flatt’s final successor.
Flatt, 59, Brookfield’s CEO for 22 years, said “this transition will occur when we feel the time is right for all of our stakeholders,” but gave no clear timing. He also said other senior partners at the firm will gradually hand over day-to-day duties to selected successors as part of a broader leadership transition, as happened recently when Brookfield named Anuj Ranjan CEO of its private equity business and elevated longtime chief Cyrus Madon to executive chair.
“I intend to help the team in any way I can and be fully committed to Brookfield,” said Mr. Flatt.
In the second quarter, Brookfield Corp.’s distributable earnings before realizations were $1.1 billion, or 71 cents per share, up 10 percent from a year earlier. Total distributable earnings — a measure of the cash profit the company can pay out to investors — including asset sales was $2.1 billion, up nearly $1 billion from a year earlier.
Brookfield reported a quarterly loss of $285 million, which Goodman attributed to the accounting treatment of certain acquisitions in the company’s infrastructure portfolio. In the same quarter a year ago, Brookfield had posted net income of $1.5 billion.
Brookfield also released second-quarter results Thursday from its insurance business, which is changing its name from Brookfield Reinsurance Ltd. to Brookfield Wealth Solutions in September. The division reported distributable operating income of $298 million in the second quarter, compared with $160 million in the year-ago quarter.
The recent acquisitions doubled Brookfield’s insurance business to $110 billion in assets under management. The company’s pension business sold $3.5 billion in new products in the quarter, although the portfolio acquired through American Equity Life has historically produced lower profit margins than Brookfield aimed for.
As interest rates began to slowly decline, Brookfield responded by cutting interest rates for annuitants – by as much as half a percentage point in the last week alone, Goodman said. Even then, he expects Brookfield to be able to sustain about $15 billion in new inflows annually.
“We will offer (the annuity product) at a rate where we are confident we can earn a margin on it,” Goodman told analysts on Thursday’s conference call. “If that means our revenues might be a little lower this quarter, then we are willing to live with that.”
