Investing

Fidelity Just Gave Investors a $40 Billion Reason to Love Brookfield Asset Management

Will Ashworth

Published: July 14, 2023 2:20 pm

Fidelity Investments Canada ULC announced on July 12 that it had entered into an agreement with Brookfield Asset Management (BAM) that sees the alternative asset manager build a portfolio of Canadian real estate assets for Fidelity’s Canadian clients.

“Fidelity has a long history of harnessing our global resources and augmenting these with external expertise where it makes sense to bring innovative, actively managed strategies for clients,” said Andrew Wells, president and head of Fidelity Canada, in the company’s announcement.

“Brookfield is a respected global organization with an impressive track record in private real estate, and we are pleased to work collaboratively with them to add another tool to our toolbox, as we plan to expand our offerings and build a new private real estate market portfolio,” he said.

The portfolio Brookfield ultimately builds will be available to several of Fidelity’s Private Investment Pools. Other potential opportunities could be developed on top of the private investment pools.

Fidelity Canada has $202 billion (all figures are U.S. dollars unless noted otherwise) in assets under management from individual and institutional investors. The Brookfield real estate portfolio will be an important selling feature to gather further assets from investors.

Brookfield’s business was built for this type of situation. If you own Brookfield stock, it’s further evidence that the alternative asset manager is an excellent long-term investment. The shares got a bit of a bump from the announcement, bringing year-to-date gains to just above 16%.

If you don’t own BAM stock, it’s another reminder of why you should.

Brookfield’s Many Tentacles

If you’re familiar with Brookfield, you’ll know it has many tentacles. Its real estate assets are no different.

Starting with Brookfield Corp. (BN), it has perpetual capital of $135 billion — that is, assets with no fixed time horizon for their ownership — and an additional $40 billion in float through its insurance-related businesses. Like Warren Buffett, Brookfield could invest the $40 billion until it needed to pay claims.

Brookfield Corp. owns 75% of Brookfield Asset Management. It has $834 billion in assets under management (AUM). Approximately $432 billion of those AUM generate fees. Real estate accounts for $98 billion, or 23% of its fee-bearing capital.

Brookfield Corp. invests $45 billion across four operating businesses. One of those businesses is Brookfield Properties Group (BPG). Unlike the other three, BPG is 100% privately owned. It has $15 billion in existing office, retail, single, and multifamily real estate.

It also has $10 billion that it plans to recycle over the next decade, reinvesting the proceeds into possible future real estate developments generating above-average investment returns.

In addition to its $25 billion in capital, BPG also manages $270 billion in global real estate generating $769 million in distributable earnings.

While no numbers have been mentioned by either Fidelity or BAM, investors can be certain that it will be many billions, upping the distributable earnings.

In Brookfield Corp.’s Q1 2023 supplemental information publication, the company reminds investors that its real estate has a carried interest balance of $9.4 billion, with $500 million paid out in 2023 through asset sales. Carried interest is the fixed fees it receives from investment gains when funds are wound up and after investors are paid out. It’s a significant fee generator for any alternative asset manager. Real estate accounts for 37% of Brookfield’s carried interest outstanding.

The company owns 16 office complexes and 19 malls of the highest quality worldwide. The equity value of these properties is $20.1 billion. The average occupancy rate of these properties is a healthy 94.6%, with an average lease life of eight years.

You could spend days studying the nuances of its operating businesses, including real estate.

$40 Billion Boost

As mentioned earlier, Brookfield Asset Management’s fee-bearing assets are $98 billion. Fidelity’s Canadian AUM is $202 billion. Assuming it allocates 20% of those assets to the portfolio BAM is building, that would increase Brookfield’s fee-bearing assets by $40 billion or 41%.

While the actual numbers will probably be lower, the partnership has the potential to significantly grow its distributable earnings over the next three to five years.

Coincidentally, more than a half-dozen of Fidelity’s funds have been net sellers of BAM stock in the last month, according to data compiled by Fintel.

Any way you look at this announcement, it’s excellent news for both companies and especially BN and BAM shareholders.

It’s one more reason they’re both a buy.

This article originally appeared on Fintel