Brookfield Corp. BN-T executives are expecting to off-load more assets as economic conditions for deal-making continue to improve, after the Toronto-based asset manager sold about US$15-billion of its holdings in the first half of the year.
The parent company of Brookfield Asset Management Ltd. now oversees approximately US$1-trillion in assets, boosted in part by the rapid growth of its wealth and insurance business, which includes its recent acquisition of annuity provider American Equity Investment Life Holding Co.
With inflation “cooling down” and short-term interest rates starting to fall, investors’ appetite for taking risks has increased, helping break a prolonged logjam for deals, chief executive officer Bruce Flatt said on a quarterly conference call on Thursday. “With this constructive economic backdrop, albeit volatile over the last week, liquidity continues to return to the private markets.”
As deal-making picks up speed, Brookfield expects the pace at which it sells assets will also rise. In the second quarter, which ended June 30, Brookfield sold a luxury hotel in South Korea, an office building in Washington, D.C., and several renewable assets, according to president and chief financial officer Nick Goodman. That could add to earnings in the coming quarters and free up capital for new acquisitions.
In a letter to shareholders, Mr. Flatt also confirmed long-running speculation that Connor Teskey, a 36-year-old rising star who is president of Brookfield Asset Management and head of its renewable energy business, is tapped to be the asset manager’s next chief executive, anointing him as Mr. Flatt’s eventual successor.
Mr. Flatt, 59, who has been Brookfield’s CEO for 22 years, said “this change will happen when we feel the time is right for all our stakeholders,” but gave no clear sense of the timing. He also said other senior partners at the company will gradually hand over day-to-day responsibilities to chosen successors as part of a broader leadership transition, as happened recently when Brookfield named Anuj Ranjan as CEO of its private-equity business and long-time head Cyrus Madon became its executive chair.
“I intend to help the team out in any way I can and stay fully invested in Brookfield,” Mr. Flatt said.
In the second quarter, Brookfield Corp.’s distributable earnings before realizations were US$1.1-billion, or 71 US cents a share, up 10 per cent year-over-year. Total distributable earnings – which are a measure of cash profits the company could pay out to investors – including asset sales were US$2.1-billion, which was up nearly US$1-billion year-over-year.
Brookfield reported a quarterly loss of US$285-million, which Mr. Goodman attributed to the accounting treatment of certain acquisitions in the company’s infrastructure portfolio. In the same quarter last year, Brookfield’s net income was US$1.5-billion.
Brookfield separately released second-quarter results for its insurance business on Thursday, which is changing its name from Brookfield Reinsurance Ltd. to Brookfield Wealth Solutions in September. The unit reported distributable operating earnings of US$298-million in the second quarter, compared with US$160-million in the same quarter a year earlier.
Recent acquisitions roughly doubled the size of Brookfield’s insurance business to US$110-billion in assets under management. The company’s annuity business wrote US$3.5-billion of new products in the quarter, though the portfolio acquired through American Equity Life has historically earned smaller profit margins than Brookfield seeks.
As interest rates have started to creep lower, Brookfield has reacted by lowering the rates it offers to annuitants – by as much as half a percentage point in the last week alone, Mr. Goodman said. Even then, he said he expects Brookfield can sustain a rate of about US$15-billion of new inflows annually.
“We will offer [the annuity product] at a rate that we are comfortable we can earn a spread on it,” Mr. Goodman told analysts on Thursday’s conference call. “If that means for that quarter, then maybe our sales are a little bit lower, then we are willing to live with that.”