The chief executive of Toronto-based Brookfield Asset Management, one of the world's largest alternative investors, said interest rates will head lower in the next two years and the company expects to be very active in deal-making this year.
In his quarterly letter to unitholders, Bruce Flatt played down world conflicts and said investors' confidence is increasing, noting the company's latest real estate fund is expected to raise its targeted US$8 billion.
"It appears that central banks have been successful in dealing with inflation and that interest rates will be going lower around the world in 2024 and 2025," said Flatt. "If this occurs, capital market activity and stock markets should be strong. Geopolitics can always lead to heightened volatility, but this seems to have become the new normal."
Brookfield Asset Management's board authorized a 19% increase in its quarterly dividend with the earnings release for its first year as a standalone asset manager. Brookfield Corp. spun out a 25% interest in its asset management business into the separately traded Brookfield Asset Management in December 2022. Brookfield Corp. owns the other 75% of the asset management business and expects to report earnings Thursday.
For the quarter that ended Dec. 31, Brookfield Asset Management had net income attributable to the company of US$374 million, and US$1.839 billion for the full year. The company has US$900 billion in assets under management.
On the real estate side, Brookfield Asset Management noted in its quarterly report that it is finalizing the first close of the fifth vintage of its flagship real estate opportunistic fund. Brookfield Asset Management said that US$8 billion fund, along with a US$10 billion transition fund, met or exceeded goals.
Real Estate Capital
The company deployed US$1.8 billion in the fourth quarter across its real estate portfolio into logistic, office and multifamily properties, primarily within its opportunistic real estate funds in North America and Europe.
Flatt noted Brookfield sold its majority interest in 150 Champs Elysees, a landmark mixed-use asset in Paris, during the quarter for US$1 billion, calling it "an excellent return." In December, Brookfield sold an office asset in São Paulo, Brazil, for US$300 million, representing a 17% internal rate of return.
"These transactions highlight our belief that high-quality office and retail in great locations continue to see significant demand and, while transaction volumes have been reduced, values remain strong," said Flatt in the letter.
The chief executive said there is "growing importance" in private credit continuing to play in capital markets. Late in 2024, Brookfield expects to launch the seventh vintage of its real estate credit fund.
"We expect our private credit funds to raise and deploy increasingly larger sums of capital," said Flatt.
However, Brookfield experienced a slowing in demand last year for its core infrastructure and real estate open-ended funds, something Flatt said was likely because of the uncertain and rising interest rate environment's impact on investor preferences.
"These funds comprise high-quality, stable assets with consistent cash flows, appealing to yield-focused investors. With interest rates now stabilized and anticipated to decrease, we expect renewed interest in these funds. Furthermore, as our funds are medium sized and have no legacy issues with asset values or redemption lines, we should be among the first beneficiaries of fund flows as the market turns," said Flatt.
Market participants' confidence in pricing in risk has increased, and that has improved liquidity in the capital markets, Flatt said. The company has $107 billion of dry powder available to deploy, according to the quarterly earnings filing.
"With record levels of dry powder currently on the sidelines, we expect a very busy period of transaction activity in the next few years, and valuations for real assets should respond accordingly," said Flatt.