Original review: Brookfield
Tag for finding my other articles on this stock: BN
Key takeaways
Acceleration delivered as promised - BN DEBR grew 15%.
Bullish commentary on credit, real estate, AI buildout, batteries, and Westinghouse (nuclear).
Carry realisation accelerating on strong investment performance (at BAM, but not at BN).
BN’s transformation into an insurance company continues.
Thesis and valuation update
No major change, although the vision to use BN’s capital base to build an enormous insurance company is becoming clearer.
BAM is humming, with fee bearing capital and fee related earnings growing at 20%. Investment performance in recent funds is so strong that carry will be realised earlier than expected.
BWS, the annuity and pensions business, is growing even faster and once it is fully merged into BN, essentially all of BN’s capital base will be available as capital for underwriting insurance.
Judging by the performance of Oaktree’s BDC, concerns in credit have bypassed Brookfield. “We see credit markets as incredibly robust right now”.
Westinghouse is incredibly well positioned, with potentially explosive growth ahead in a market it dominates.
At a nearly 40% discount to the sum of the parts, and around 15x 12-month-forward distributable earnings before realisations (which are a significant part of long term returns), BN feels good value to me.
In the next few months, I will do a series of deeper dives into the various parts of the business.
Notes (please note these are call summaries. I don’t dive into the detailed reporting every quarter).
BN
DEBR +15%.
Nice acceleration from the single-digit LTM rate.
Quality rising as BAM (+15%) and BWS (+23%) outgrow Operating Businesses (+3%), with real estate actually negative as assets are sold/transferred to BWS.
Bought back $580m of shares at $42.
Bought out the minorities in Oaktree.
Raised $98bn, sold $40bn, deployed $100bn, financed $130bn.
See carry inflecting in 12-18 months as funds that have met target returns make additional sales. BAM carry is ahead of plan as some recent funds are outperforming but this isn’t material to BN.
“Digitalization, decarbonization and deglobalization, which we have been talking about for years, are now creating opportunities unlike anything we have ever seen. The opportunities are accelerating. Across AI infrastructure, energy addition, supply chain reorganization and data sovereignty, the opportunities are larger, more multifaceted and more capital intensive. Participating in these investments requires a broad range of capabilities and our advantage sits with our ability to deliver integrated solutions at scale. We have invested decades deliberately building and strengthening the capabilities needed to pursue opportunities of this scale…For us, this starts with relationships. Many of the opportunities we pursue are not broadly marketed. They come to us through bilateral discussions and strategic partnerships due to our scale or because certainty of execution matters.”
AI and the associated power and compute buildouts are in the very early stages.
Position, scale, relationships, and operating abilities mean they are able to only look at the best opportunities.
Recent NVIDIA MOU marks the start of financing racks and chips, not just shells.
“We’re building a real solid pipeline of investment opportunities [focused on] contractual cash flows, counterparty quality and generating attractive risk-adjusted returns that are ideal for our institutional clients and retail clients.”
These investments will largely be funded by the funds and coinvest, not the BN balance sheet directly. Institutions around the world “have very large appetite for these kinds of transactions”.
Westinghouse: “No business we own today is more directly positioned to benefit from the growing importance of energy addition and energy security.” DoE has announced new funding to help build up the nuclear supply chain and establish a repeatable model for large-scale nuclear construction.” Westinghouse is building 14 reactors today with another 140 “coming”.
BWS
“Very few platforms have the depth and capabilities we have to originate attractive capital and the investment franchise to deliver strong risk-adjusted returns” in this growing (retirement) market.
Investment yield 5.7% and a 99% combined ratio in P&C allow for 1.8% spreads on income and 2.2% including unrealised gains (this should rise as further gains accrue). “Despite a competitive market” they are writing business at spreads above 2% while the market is closer to 1%.
Currently duration matched - don’t want to take significant rate risk.
Closed the Just acquisition, taking insurance assets to $190bn. Have already reduced costs, exited lines where Just does not have a competitive advantage, and started being invited into processes where Just would not have had access before - but the market is extremely competitive at the moment and they will bide their time before scaling. In the meantime, can start optimising investments. Going-in ROE is 12% and will rise: spreads were 80bps in the quarter, they can add 50bps by cost cutting, and get towards 200bps by optimising assets.
Existing annuities platform continues to develop new products and expand distribution. Currently do $12bn in annuity sales through independent marketing organisations and $200m through banks. In a few years’ time, expect this to be $12bn each, getting them to a total of $35bn in annual pension and annuity sales.
Moved additional BBU shares from BN into BWS. BN has a large pool of assets that can be moved into BWS over time.
The argument for private assets in retirement savings boils down to: institutions do this, why shouldn’t individuals? “A growing share of the world’s essential assets and value creation now sits outside the public markets. As a result, retirement savers…only participate once meaningful value has already been created.” This is starting to change, unlocking a huge market for BAM.
US P&C platform is called Clearbrook. Have derisked the liability profile and strengthened underwriting. “This has led to a stable and consistent underwriting income.” Expect to grow organically and via M&A as significant softening spreads across P&C pricing.
Real estate.
Super core and core continues to show high occupancy and significant positive spreads on new leases, which will drive cash flow growth as tenancies start.
There is very limited new supply.
BAM
FBC + 19%, FRE +20%, DE +15%.
“We expect 2026 will be a record year for Brookfield and not by a small margin.” Fundraising will “far exceed the business’s previous high watermark both on an absolute basis”.
“We believe our shares are meaningfully undervalued” so bought back $200m of stock in the q, and $575m ytd.
Deployed $21bn and monetized $11bn. “This was particularly evident in real estate, where sentiment continues to improve.”
Issued $550m of 5-year senior secured notes at 4.83% and $450m of 10-year notes at 5.3%.
Completed full acquisition of Oaktree. Will lower margins next quarter given mix, but longer term see significant revenue synergies and back office leverage.
“Due to significant investment outperformance in some of our strategies…we expect to begin generating and realizing carry earlier than we previously forecasted”, starting in 2026 and pulling forward carry originally projected for the end of the decade into 2027/8.
“We see credit markets as incredibly robust right now”. Their unlisted credit BDC is diversified, under-levered, and under 1% of AUM, and redemptions are tracking under 5%. “Oaktree’s product clearly has significantly outperformed the market.”
Wealth remains a significant growth driver.
Good inflows, especially infrastructure.
Platform can grow 30-50% pa. as they add products and distribution partners.
401k is one of the largest long term growth opportunities and they have partnered with AllianceBernstein to bring private market real assets into their target date funds. This is a new product - AllianceBernstein will provide the credit, Brookfield will provide the real assets, and Carlyle will provide the private equity - and begins distributing in 2027.
Rapidly growing in AI where the totality of their relationships across government, corporate, real estate, power, and infrastructure is powerful.
Dedicated AI infrastructure strategy had its first close in 2q. “Leadership in this market is not about deploying most capital or moving the fastest. It is about originating the best opportunities.”
The flagship fund is the focus for now, targeting $10bn, but eventually there will be a range of Brookfield AI funds targeting a broader $100bn opportunity set including co-investments and asset-level financing.
Bubble concerns are reasonable but Brookfield “don’t build on spec. We only build against long-term revenue constructs that are already secured. [We build] the best projects in the best markets with the best revenue constructs backstopped by the best credit counterparties.”
Bloom - expanded deal 5x in 9 months on strong customer demand in an area where returns appear particularly attractive.
BIP
FFOPU +10%, with strong contribution from midstream and data.
Combining BIP and BIPC.
Public markets becoming an increasingly effective exit channel. E.g. recently IPO’d their US colocation business. Since acquisition in 2018 they have 4x’d ebitda; the IPO raised $1.2bn and Brookfield still own 64%. The business can still 3x capacity through equipment optimisation and under-roof expansion.
Several other partial exits including 2 in India and another contracted container portfolio.
4 areas of deployment in AI
AI factories - gaining momentum with sovereign compute project wins in the US and South Korea.
Compute - Radiant is their in-house neocloud.
Behind-the-meter power - e.g. Bloom Energy partnership, now expanded from $5bn to $25bn of total capex.
AI adjacencies - opportunities trickling in across the whole business.
AI project development yields are slightly higher, and annual escalators also, with higher interest rates. Customers are increasingly open to longer lease terms - 20 years vs 15 before. Only commit capital once appropriate commercial arrangements are secured and risk-adjusted return objectives are met.
AI capex is driving Chinese exports and with it demand for BIP’s transport division - ports, containers etc.
BEP
FFOPU +11% for the q and LTM.
Combining BEP and BEPC, subject to shareholder votes.
Agreed sales worth $2.2bn, $630m net to BEP at or above target returns.
Completed $12bn of financings, including a $1.2bn hydro financing against last year’s a 20y contract with Google ($700m up-financing, $200m net to BEP) with more to come from a planned recontracting of their Ontario hydro portfolio.
Deployed and committed $5bn into growth, $760m net to BEP.
Global electricity demand accelerating; “there is simply not enough capacity coming” and nor is there enough investment in grids. Customers need partners who can deliver across multiple geographies.
Westinghouse FFO +60% - “one of the most differentiated businesses in the global power sector”. DOE has committed up to $17.5bn in loans for long-lead equipment for up to 10 Westinghouse AP1000 reactors. Next focus is advancing individual projects. As the next step in deploying AP1000 reactors, we are actively engaged with 7 utility partners that have identified project sites and are working with them towards executing long-lead equipment orders.
Batteries are a huge opportunity. Now one of the largest developers globally and leveraging size in supply chain relationships. LCOE has come down dramatically over the last 24 months and the industry is still in the “very early days of the supply chain scaling up and technology improving”. Bought Aypa, the largest stand-alone battery storage platform in North America with a strong position in many of the fastest-growing markets, for $3bn or approximately $420m net to BEP. 3Gw operating/under construction, 3.5Gw contracted, and 20Gw pipeline, taking the total to 6Gw operating and 80Gw pipeline. Opportunities to accelerate, optimise capital structure and commercial strategy, recycle assets, and provide comprehensive power solutions alongside renewables (both new renewables and retroactively on old ones - huge opportunity set).
Have added a second partner to their programmatic asset recycling operation: record sales consistently at or above target returns.
BBU
Ebitda $587m, flat y/y, or +5% excluding M&A.
EFO $289m, up strongly on the receipt of a holdback from a prior sale.
Have compounded NAVPS at mid-teens rate since IPO 10 years ago.
$300m bought back over last 18 months at a 50% discount to NAV, and additional $150m announced. “At the current stock price, buybacks make a ton of sense.”
Sold $1.2bn ytd including $650m for Multiplex, one of the last significant assets they had when they spun out, with proceeds reinvested into “larger, higher-quality businesses that are more closely aligned with our long term strategy of compounding capital”. Strong carve-out pipeline as corporates simplify.
£300m deployed this quarter into 2 businesses with recurring demand and optimisation potential, both in the 9-11x ebitda range:
World Freight Company, the world’s largest general sales and service agent for the air freight industry, selling capacity for 300 airlines in 70 countries. Potential to standardise processes, apply AI to high-volume workflows, and accelerate consolidation of a fragmented market.
Gregg Distributors is a leading maintenance, repair and operations distributor in Western Canada, supplying 150k SKUs to 25k customers across a wide range of industries on a same-day or next-day basis.
DeployCo is the JV with OpenAI to deploy AI into businesses alongside Brookfield’s change management skillset. Brookfield invested $100m - target was $150m with a preferred return but had strong demand and syndicated some of it.
Clarios remains strong - accelerating US investment and repaid $500m of debt in the q. AI has helped with preventive maintenance and uptime, as well as tailoring inventory to likely demand.
Sagen loss ratios normalising from very low levels as house prices come down.
Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.
Pete
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