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Brookfield considers spinning off its asset management business

Brookfield Asset Management, one of the world’s largest alternative investment groups, is weighing a spin-off of its asset management business into a separate public company that one analyst said could be valued at more than $ 75bn.

The manoeuvre would simplify the structure of the sprawling Toronto-based company, separating the division that manages $ 364bn in fee-bearing assets across real estate, infrastructure, renewable energy, credit and private equity on behalf of institutional investors from Brookfield’s $ 50bn of directly -owned net assets.

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

Brookfield’s plan to consider a spin-off was disclosed in a shareholder letter attached to earnings results released on Thursday morning. “As we consider these options (including possibly doing nothing), we will report in the quarters / years ahead – and will be pleased to hear any views that you have,” Flatt said in the letter.

Robert Lee, an analyst at investment bank Keefe, Bruyette & Woods, recently valued Brookfield’s asset management business at more than $ 75bn.

For Brookfield, breaking off the asset management business would be a dramatic shift in strategy.

In addition to its fee-based asset management business, Brookfield also owns a portfolio of real estate including London’s Canary Wharf, two of New York City’s largest office developments and more than 100 US malls. Brookfield built greater control of these assets by privatising its real estate arm, Brookfield Property Partners, last July.

It also owns more than $ 30bn in combined public equity stakes in infrastructure, renewable energy and industrial investment businesses that it seeded internally and then spun off over the past decade. The net value of Brookfield’s combined interests after accounting for its debt is about $ 50bn, according to its financial statements.

However, some investors and analysts question whether this empire obscures the value of asset management, which generated fee-related earnings of $ 1.9bn in 2021 and $ 6.3bn in distributable earnings, a proxy of cash flows it can pay to investors.

In the fourth-quarter earnings released on Thursday, Brookfield reported a $ 1.1bn net profit for common shareholders, a 74 per cent increase from the prior year. The firm also announced a 14-cent quarterly dividend, an increase of 8 per cent.

If Brookfield follows through on its spin-off proposal, it would further acknowledge stockholders’ greater interest in owning so-called “asset-light” investment fee streams versus directly owned assets such as office properties which are harder to value.

Blackstone Group, the world’s most valuable private equity group with a $ 160bn public market value, holds virtually no direct investments on its balance sheet, whereas a significant portion of the value of firms such as Brookfield, KKR and Apollo Global Management come from their directly held assets. The latter groups have lagged behind Blackstone in recent years, trading at lower multiples.

“What was really valuable to us for the past 25 years has been that we retained capital and reinvested that capital into the business and kept building it,” Flatt said.

A potential separation comes as Brookfield’s asset management business has become self-sustaining, he said. “That capital today isn’t as important in driving the business as it was before.”

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