Brookfield Asset Management (NYSE: BAM) is already a leading global alternative asset manager focused on real estate, infrastructure, renewable power, private equity, and credit. The company currently has more than $600 billion of assets under management, including $210 billion of real estate spanning more than 500 million square feet of commercial space.
However, the company isn't resting on its laurels. It believes it can become an even bigger entity over the next few years, which should generate significant returns for shareholders. Here's a look at where Brookfield expects to be in the future.
Where Brookfield is today
Brookfield has a unique business model. The company not only invests capital in various private equity funds on behalf of its investors but also invests money from its balance sheet into its deals, giving it significant skin in the game.
It primarily does that through its publicly listed affiliates: Brookfield Renewable (NYSE: BEP) (NYSE: BEPC), Brookfield Infrastructure (NYSE: BIP)(NYSE: BIPC), Brookfield Business Partners (NYSE: BBU), and Brookfield Property (NASDAQ: BPY)(NASDAQ: BPYU), the latter of which it's taking private.
Brookfield's asset management business generates steady fee income while giving the company a share of the profits, known as a promote. Meanwhile, its investment in those listed entities provides it with dividend income, management fees, and upside as it grows those companies.
In 2020, Brookfield generated nearly $5.2 billion in funds from operations (FFO), including $1.4 billion of fee-related earnings, $1.9 billion from its invested capital, and $1.6 billion in gains from selling assets.
Where Brookfield is heading over the next several years
At its investor day last year, Brookfield laid out where it wanted to be by the end of 2025. One objective is to grow its fee-bearing capital from $277 billion in 2020 to more than $500 billion by 2025. It will do that by growing its long-term private equity fund business from $132 billion last year to more than $250 billion by 2025 as it raises bigger funds, launches new strategies, and expands its credit offerings.
Meanwhile, Brookfield expects to grow the fee-bearing capital from its perpetual strategies -- including its listed entities -- from $78 billion last year to more than $151 billion by 2025. Finally, the company sees other assets, such as open-end credit and public securities capital, growing to nearly $70 billion by 2025.
If Brookfield can achieve that goal of growing its fee-based capital to more than $500 billion, it would generate roughly $2.6 billion of annual fee-related earnings by 2025.
One factor driving that growth in Brookfield's fee-bearing capital is its plan to increase its invested capital significantly over the coming years. The company sees its invested capital rising from $45 billion in 2020 to $75 billion by 2025. Driving that growth will be distribution increases from its listed affiliates, value appreciation as they continue expanding, and reinvested cash flow into those listed entities and other investment opportunities.
Brookfield believes its growth plan will create significant value for its investors. In its view, the sum of its parts will push Brookfield's valuation to $174 billion, or $110 per share, by 2025. That implies a more than 100% gain from the current share price of less than $50 per share.
Further, Brookfield's plan will transform it into a cash-flow-generating machine as it anticipates producing more than $5 billion in annual free cash flow by 2025. That has it on track to collect more than $20 billion in free cash by 2025 and over $70 billion by 2030. The company can use that money to pay a growing dividend, repurchase shares, seed new investment strategies, fund the growth of its listed entities, and make acquisitions.
Expecting a much more valuable company in five years
Brookfield knows exactly where it's heading. The company plans to aggressively grow its asset management business to boost its fee-based income, giving it the cash flow to invest more capital into its funds and listed entities. That strategy should create significant value for investors, making Brookfield look like a compelling long-term investment.