Where Will Brookfield Asset Management Be in 5 Years?

Brookfield Asset Management (NYSE: BAM) has grown into one of the world's largest alternative asset managers. It has over $1 trillion in assets under management (AUM) across renewable power and transition, infrastructure, private equity, real estate, and credit.

The company sees significant growth ahead over the next several years. Here's a look at where it will be five years from now.

Cashing in on the growth in alternatives

Investors have been steadily shifting more of their portfolios into alternative investments over the years. In 2002, the global alternative market was about $2 trillion, or about 5% of the $40 trillion in global investment AUM. Fast forward to today, and there's an estimated $25 trillion in alternatives AUM, which is 15% of the more than $150 trillion global investment market. Forecasters see that number rising to $60 trillion by 2032, or about 20% of the anticipated $300 trillion global investment market by AUM.

Several factors are leading investors to allocate more of their portfolios to alternative investments, including:

• Excess returns: Top alternative asset managers have excellent track records of delivering above-average returns for their clients.
• Diversification: Private investments tend to be less correlated to the public stock and bond markets, providing investors with greater diversification.
• Less volatility: Private investments have also historically been much less volatile than public investments because they don't adjust values to the daily market price, limiting wild price swings.
• Predictable cash flow: Many private market investments, like infrastructure, real estate, and credit, produce stable cash flow, enabling investors to collect predictable cash distributions.

Given the growth ahead for alternatives and its leadership in the space, Brookfield Asset Management expects to double its AUM over the next five years to $2 trillion. That positions the company to generate rapidly rising fee-based income as it deploys the capital it has raised from investors into fee-bearing assets. Currently, about $539 billion of its AUM is fee-bearing capital. By 2029, that number should rise to over $1.1 trillion.

That has big implications for Brookfield's bottom line. The company expects its fee-related earnings per share to grow at a 17% compound annual rate during that period. Given its plan to return 95% of its profits to investors through dividends, Brookfield's plan supports at least 15% yearly dividend growth during that period.

Capitalizing on emerging growth opportunities

Brookfield Asset Management has built a $1 trillion business over the past quarter century, primarily relying on institutional investors and the public markets to grow its sources of capital. The company sees more growth ahead from those capital sources over the next five years.

On top of that, four new sources of capital represent tremendous growth potential for the company:

• Insurance solutions: Brookfield is increasingly managing capital for insurance companies, enabling them to earn excess returns on unpaid premiums.
• Private wealth: High-net-worth individual investors increasingly want greater access to alternative investments to boost returns, increase diversification, reduce volatility, and generate predictable cash flow.
• Manager acquisitions: Brookfield has the financial flexibility to buy other alternative asset managers to accelerate growth.
• Strategic partnerships: The company can partner with asset managers or other companies to help drive additional growth for both partners.

The company has entered into several new strategic partnerships in recent years. For example, it recently bought a majority stake in Angel Oak, a leading asset manager delivering innovative mortgage and consumer products. The deal aligns with Brookfield's strategy of partnering with best-in-class credit managers. It also completed a strategic partnership with Castlelake last year, buying a 51% interest in the global alternative investment manager specializing in asset-based credit solutions.

Brookfield has also launched several investment products geared toward the private wealth market. It raised nearly $700 million for its private wealth infrastructure fund during the fourth quarter and deployed over $900 million from its credit private wealth fund in the period. Brookfield also manages a non-traded REIT.

These new initiatives will help drive additional AUM and earnings growth while further diversifying Brookfield's businesses. They'll turn the company into an even bigger global powerhouse in the alternatives space in five years.

A much bigger Brookfield in five years

Brookfield Asset Management expects to double its AUM in five years by capitalizing on the growth of its existing and emerging capital sources. That positions the company to deliver robust earnings and dividend growth in the coming years. Add that to its already attractive payout level (3.3% recent yield), and Brookfield Asset Management could generate significant total returns for investors over the next five years.

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Matt DiLallo has positions in Brookfield Asset Management. The Motley Fool has positions in and recommends Brookfield Asset Management. The Motley Fool has a disclosure policy.