Brookfield profit slumps 39% as interest rates rise; Carney heads the spin-off from Asset Management

Brookfield Asset Management Inc., CEO, says: , Bruce Flatt, CEO of BAM-AT, said the inflationary environment is boosting the value of its investments — but the company’s second-quarter results show it’s not entirely immune to current market conditions.

Brookfield also revealed on Thursday some additional details planned for its asset management business, including the appointment of former Bank of Canada Mark Carney as president of the new company, and the new name of the subsidiary: Brookfield Asset Management Ltd. Brookfield Asset Management Inc.’s name will be changed. To Brookfield Corp.

The company reported a 39 percent drop in net income to $1.48 billion, due in part to lower gains from the sale of assets and higher interest expenses that outpaced revenue gains.

The measure of company money from operations, which removes a number of non-cash items from the account, and “company distributable earnings,” which removes extra expense items and adds profits from Brookfield’s investments, has decreased by more modest amounts.

Brookfield reported $2.41 billion in interest expense in the quarter, up 31 percent from the second quarter of 2021. The amount of corporate loans on the balance sheet rose 11% to $12.05 billion.

Brookfield uses debt to finance many of the real estate and infrastructure purchases and entire businesses owned by the funds it manages. In addition to corporate loans, it has $187.6 billion in debt secured by real estate and other investments.

About two-thirds of Brookfield’s debt is at a fixed rate, with the rest floating upward as interest rates rise.

“Interest rate pressures caused significant market turmoil in the second quarter of 2022, but it is important to keep this in context,” Mr. Flatt wrote in his letter to shareholders addressing rising interest rates in the macroeconomic context.

Despite two US Federal Reserve rate increases and more to come, Mr. Flatt argues that “rates are expected to stabilize at historically ‘low’ levels, which should remain very favorable for business… Individual and corporate balance sheets are well-positioned to withstand this The shift, and before we know it, we expect to be on a rebound.”

Brookfield has billions of its money invested in giant portfolios of what it calls “alternative assets” — real estate, infrastructure, energy and distressed debt. Brookfield also attracts outside money, both institutional and wealthy investors, to invest along with it. The assets you buy are put into partnerships, some of which are traded on US and Canadian stock exchanges, and other private funds.

Mr. Flat said many of Brookfield’s infrastructure, renewables and real estate assets are poised to benefit from inflation and its cash and revenue and profit margins are increasing.

With stock markets down 20 percent to 30 percent from their peak and credit markets “turning on the side of many borrowers,” the investment environment for companies like ours continues to strengthen, he wrote. So we are investing capital with excellent returns – well above what we would have otherwise achieved under conditions like those we saw in late 2020 and 2021.”

In fact, Brookfield appears to have no problem attracting dollars from new and existing clients. Brookfield said it had record inflows of $56 billion since the end of the last quarter. Charged capital – the amount of outside investor money managed by Brookfield – was $392 billion as of June 30.

This quarter, Brookfield closed the Global Green Energy Transition Fund at $15 billion. Mr. Flatt said Brookfield is completing the first closing of its latest $20 billion infrastructure fund and $8 billion private equity fund. Brookfield has also raised about $14.5 billion for an opportunistic real estate fund.

Mr Flatt said the $16 billion opportunistic debt strategy fund will be mostly invested soon, paving the way for Brookfield to launch another fund.

Brookfield said in May it would separate from a new shareholder asset management business by the end of the year, creating a roughly $80 billion entity that will pay most of the profits its shareholders now receive. The company invests for itself, which requires it to raise billions of dollars in capital, but also manages money for others. Money managers who need less capital tend to get higher ratings from investors, an advantage Brookfield wasn’t receiving with the two companies tied together as one.

Mr. Flatt said in his letter that Mr. Carney, who joined Brookfield as vice president and as an advisor to its transition funds in 2020, will serve as chairman of the new fund manager’s board. Mr. Flatt will be the CEO of the asset manager while he will also remain CEO of the renamed Brookfield Corp.

Brookfield also said Conor Teske, CEO of its renewable and transitional energy group, will add the title of chief asset manager. Nicholas Goodman, the current Chief Financial Officer of Brookfield, will add the title of President of Brookfield Corp.

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