Brookfield pushes ahead with asset management business spin-off

Brookfield Asset Management, one of the world’s largest alternative investment groups, is moving forward with a spin-off of its asset management business into a separate public company, in what is poised to become one of the largest Wall Street listings of the year.

Brookfield will spin a 25 per cent stake in its asset management unit by the year-end in a manoeuvre aimed at simplifying the structure of the sprawling Toronto-based company and unlocking shareholder value.

The group’s asset management unit manages $379bn in fee-bearing assets across real estate, infrastructure, renewable energy, credit and private equity on behalf of institutional investors. Brookfield also has more than $40bn of directly owned net assets, including direct real estate holdings such as London’s Canary Wharf and large stakes in publicly traded partnerships it has spun off over the past decade.

Brookfield’s planned spin-off, which was disclosed in an earnings release on Thursday morning and first reported by the Financial Times in February, comes as large listed alternative asset managers review their structures in an effort to attract public stock investors.

In recent years, competitors including Blackstone, Apollo Global, KKR and Carlyle Group have converted from publicly traded partnerships to ordinary corporations in an effort to attract mutual fund and index fund investors.

Apollo Global and KKR have both acquired large insurance operations over the past 18 months, as they use large corporate balance sheets to support their growth.

Others, such as Blackstone and recently listed buyout group TPG hold virtually no direct investments on their balance sheets. Both firms are valued for their fee-based earnings instead of the sum of those earnings streams and corporate assets they own. Shareholders have given far higher valuation multiples to fee-based businesses.

Brookfield is moving in a direction closer to Blackstone by spinning off a piece of its asset management business. It hopes the move will give shareholders an independent valuation of its fee-based earnings divorced from their more complex holding of real estate and public market interests.

“The financial markets have evolved. What people like are asset-light models,” Bruce Flatt, chief executive of Brookfield, told the Financial Times in February. “It appears that there is an enormous amount of shareholder value to be unlocked.”

Some analysts have valued the entirety of Brookfield’s asset management business at more than $75bn.

In first-quarter earnings released on Thursday, Brookfield reported distributable earnings of $1.2bn, a 52 per cent decrease from the same quarter a year ago, as falling financial markets made it tougher to sell assets and realise investment profits.

The group’s fee-related earnings rose more than 20 per cent to $501mn for the quarter as $59bn in new investor money flowed into the group over the past year, including $5bn in assets to its perpetual private infrastructure and real estate funds since the beginning of 2022.