Earnings Call Transcript - BAM Q3 2023

Jason Fooks, Senior Vice President, Investor Relations

Thank you for joining us today for Brookfield Asset Management's earnings call. On the call today we have Bruce Flatt, our Chief Executive Officer; Connor Teskey, President and Bahir Manios, our Chief Financial Officer. Bruce will start the call today with opening remarks, followed by Connor who will talk about our private credit platform, and finally, Bahir will discuss our financial and operating results for the business. After our formal comments, we'll turn the call over to the operator and take analyst questions. In order to accommodate all those who want to ask questions, we ask that you refrain from asking more than two questions at one time. If you have additional questions, please rejoin the queue, and we'll be happy to take additional questions as time permits. Before we begin, I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. securities law. These statements reflect predictions of future events and trends and do not relate to historic events. They're subject to known and unknown risks, and future events may result in different materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. And with that, I'd like to turn the call over to Bruce.

Bruce Flatt, CEO

Thank you, Jason, and welcome, everyone, on the call. Our results were strong in the third quarter, and our capital-raising momentum is building. Our fee-related earnings grew to $565 million and distributed earnings to $568 million, each representing a year-over-year growth of 8%. The resiliency of our results in the current macroeconomic environment demonstrates the quality and diversity of our cash flow streams. This durability stems in large part from the fact that 86% of our capital is long-term or perpetual in nature, driving the overwhelming majority of our fee-related earnings. Today, essentially all of our distributable earnings come from these highly predictable fee-related earnings. Earnings stability is further bolstered by our ability to raise capital from institutional investors around the world and invest across our five diversified businesses that represent essential and growing parts of the global economy. Turning to overall markets, central banks have made significant progress in lowering headline inflation while trying to navigate a soft landing for the economy. Market participants increasingly believe the current rate-hiking cycle has crested. And while the move in rates has been historically sharp, the absolute level of interest rates is still relatively low as compared to historic levels and at a level where we have operated and grown successfully for many years, and for what we do does not impact the success of our business. On the contrary, the advantages we derive from the broader Brookfield ecosystem allow us to invest across all market cycles and in all economic environments. When markets are more uncertain, businesses must differentiate themselves by providing attractive returns, and investors like us who have capital put to work and that can underwrite with conviction find better opportunities than in most other markets. There has been no shortage of uncertainty and volatility this year, but we have continued to execute. We have committed to over $50 billion of new investments at very attractive value entry points, while also being very active on the monetization front, selling some of our de-risked and mature assets. We currently have over $100 billion of dry powder from uncalled fund commitments to invest into attractive opportunities across the business. Our fee-bearing capital stood at $440 billion at the end of the quarter, and assets under management are now $865 billion. This scale, partnered with the interconnectivity of our businesses, enables us to spot trends early, source proprietary deal opportunities, underwrite with accuracy, drive better operations and have best-in-class access to capital. At the same time, we continue to drive fundraising, with inflow of $61 billion year-to-date, including $26 billion in the third quarter, which represents our strongest fundraising quarter for the year. This sets us up nicely for what we expect to be a strong next few months towards our $150 billion capital-raising target. We expect to hold several meaningful fund closes and anticipate completing our contract to manage the assets of AEL within the coming months. We are fortunate that the businesses in which we have a leadership position remain very much in favor with global investors. In fact, our latest flagship infrastructure fund, our infrastructure debt fund, and our transition energy fund should represent the largest funds ever raised by any sponsor for each of these respective strategies. We are also very pleased that the sixth vintage of our flagship private equity strategy held its final close at $12 billion, making it the largest private equity strategy that we have ever raised. At the same time, we are raising significant capital across a number of private credit funds, seeing strong interest for our flagship real estate fund as opportunities are starting to surface in real estate. Our strong fundraising success this year should lead to strong revenue growth next year and at the same time, direct cost growth should slow as much of the necessary investments have been made in the platforms we have. The combination of faster revenue growth and slower expense growth should mean next year should be a very strong year for FRE and DE growth. Our ability to succeed at this time, in part due to our business being positioned around three global trends we have talked about before, decarbonization, deglobalization, and digitalization, is very important. Decarbonization is at the heart of global initiatives to reach a net-zero carbon economy. Of course, this work is taking place within our renewable, power, and transition businesses. The decarbonization goes beyond just cleaning our energy sources. We are also leveraging our expertise to actively reduce the carbon footprint of virtually every asset that Brookfield owns globally. Notably, some of our most ambitious decarbonization efforts are rooted within our infrastructure and our private equity businesses. Within deglobalization, international supply chains have started to decentralize and are turning to more regionally focused operations. We have the global footprint, expertise, relationships, and operational boots on the ground to understand local requirements and meet these logistical challenges wherever they may be. We have capabilities to meet supply chain needs from ports, toll roads, rails, logistical facilities, and now with the recent acquisition of Triton, we are also now the largest owner and lessor of intermodal shipping containers to move these goods globally. Lastly, there is a very large need for significant investment in digital infrastructure around the world. Said simply, this is what is behind your phone. Data is the fastest-growing commodity and like any commodity, it needs to be processed, transported, and stored. AI is also starting to have a dramatic impact on the usage of data centers and power and is only at its infancy. We are creating end-to-end capabilities from data tower transmission, fiber, and data center storage. The need to satisfy these three investment areas will inevitably require many trillions of capital investment. This should serve as a tailwind for our businesses for years to come. All of this is alongside the growing opportunity we see in private credit, which Connor will speak to shortly. These combined items are what allow us to confidently state our five-year targets of doubling distributed earnings to $5 billion and growing our fee-bearing capital to over a trillion dollars. Thank you for your continued support and interest in Brookfield Asset Management. With that, I'll turn the call over to Connor.

Connor Teskey, President

Thank you, Bruce, and good morning, everyone. Today, we want to highlight our private credit business and capabilities. We believe that this segment is often overlooked in our overall narrative. Currently, we manage around $150 billion in fee-bearing capital across various credit funds. This includes strategies in infrastructure, real estate, and private equity, as well as our Oaktree and LCM platforms. Of this total, $60 billion is allocated to private credit within long-term funds, exclusive of Oaktree's liquid high-yield bonds and credit strategies, and factoring in the AEL transaction, this amount will rise to $140 billion when we include our insurance assets. This positions us as one of the largest private credit managers and gives us significant advantages in the market. In infrastructure, renewable power, transition, and real estate, we have substantial reach and extensive experience, which aids in sourcing proprietary deal flow and enhancing our underwriting insights. Our long-standing partnership with Oaktree, a leader in credit for over 30 years, offers us invaluable data and deal flow access. We are actively investing in our team and platform to position ourselves for the evolving role of private credit in capital markets. To seize the opportunities in this area, we have enhanced our investment capabilities, expanded our geographic footprint, and developed new product strategies. The results are evident in our fundraising, with over 40% of our year-to-date capital raised coming from private credit and insurance. Looking forward, we anticipate that credit and insurance will significantly contribute to our fee-bearing capital growth and fee revenue in the next five years. In this current climate, our limited partners are recognizing the potential for double-digit returns from credit investments. As credit returns have become more appealing, traditional fixed income investors are increasing their allocations to private credit, and we're also attracting interest from equity-focused investors. Shifting our focus to infrastructure and renewable power, traditional lenders are withdrawing at a time of critical capital needs for developing renewables and data centers. We recently completed a $6 billion closing for our third infrastructure debt strategy, more than doubling the size of the previous fund and setting a record for the largest infrastructure debt fund ever. Our scale, breadth, and credibility allow us to operate with less competition, enabling us to secure attractive risk premiums while being selective with covenant protections. This fund is already 50% deployed, and given the current pace, we could potentially launch the next vintage next year. In the real estate space, while commercial real estate securitization markets remain sluggish, we've noticed some issuance picking up in September and October. However, there will be a thinner pool of capital for refinancing as many commercial real estate loans mature in the next 12 to 24 months. Investors without solid connections to large institutional investors will seek solutions. Coupled with the reduction in traditional lenders, this scenario presents a favorable lending environment for well-capitalized sponsors like us. We have decades of experience in commercial real estate and have been offering credit solutions for over 20 years. Our next mezzanine debt fund, which will be our seventh, is expected to surpass the sixth fund's size of $4 billion, as our capacity to deploy capital greatly exceeds this amount. This year, we engaged in a $1 billion loan, sold off the senior mortgage, maintained a portion of the mezzanine debt, and used our strong connections to manage the remainder with co-investors. This marks just the beginning of our lending initiatives. Finally, regarding Oaktree and LCM, the deployment opportunities in our corporate lending and opportunistic debt strategies are becoming substantial and appealing, similar to conditions seen post-GFC and during the early pandemic. We expect this trend to persist as interest rates remain elevated. Oaktree has raised $23 billion this year with strong interest in both the Flagship Opportunity Fund and the inaugural Lending Partners Fund focused on large-scale direct origination. Our capacity to provide significant capital solutions in complex scenarios continues to position us advantageously. Oaktree's opportunistic pipeline stands at around $8 billion, with the performing pipeline approximately double that. Meanwhile, LCM's recent $4 billion Flagship Credit Opportunity Fund has achieved over 15% returns this year, anticipating a record deployment year. The team is planning to launch the next fund vintage in the latter half of next year, expected to be significantly larger than the current one. LCM's specialty finance strategy is also witnessing strong demand, and the team plans to introduce several complementary credit strategies over the coming 12 to 18 months. In conclusion, we are currently among the largest private credit investors and have various strong avenues that will accelerate this business segment in the next five to ten years. The platform we've built, along with a substantial pool of capital to deploy, represents significant advantages. Our team is broader than ever, and our capabilities are expanding. We aim to organically grow our credit platform fee-bearing capital from $150 billion to $300 billion in the next five years, alongside a projected $200 billion growth in our insurance solutions business, with much of this capital directed into private credit funds to further enhance our capabilities. Now, let’s transition to Bahir to review our financial results.

Bahir Manios, CFO

Great, thank you Connor, and good morning. I'll start off by covering our quarterly financial performance, touch on our continued strong fundraising efforts, and then wrap up with some quick remarks on our financial position. Let me first cover our financial performance in the third quarter. We reported fee-related earnings, or FRE, of $565 million in the quarter, or $0.35 per share, which brings our FRE to $2.2 billion for the last 12 months, representing growth of 13% over the prior 12-month period. Our distributable earnings, or DE, for the quarter was $568 million, or $0.35 per share. This brings our DE also to $2.2 billion for the last 12 months and represents a 12% increase over the comparative period once you exclude the impact of performance fees that were earned in the prior 12 months. Our results in the quarter benefited from capital raising done during the period predominantly coming from our infrastructure, real estate, and private equity flagship funds that contributed $23 million of incremental fee revenues in the quarter, and increased fee revenues from our various credit strategies where we're seeing opportunities to put capital to work at increasingly attractive risk-adjusted returns. In total, we deployed over $5 billion of capital during the period across a number of our credit strategies. Margins for the quarter were solid, coming in at 56%, which was in line with the previous two quarters of the year. Margins for the 12-month period were also in line with the prior year. Our results in the quarter were impacted by the market volatility that affected the share prices of our publicly listed affiliates, Brookfield Infrastructure Partners and Brookfield Renewable Partners, both of which traded down in sympathy with the broader infrastructure, utility, and renewable power sectors that traded lower recently, in large part due to the perceived effect of interest rates on these securities, and some discrete issues impacting certain market participants. While the Brookfield-listed entities were not directly impacted by these issues, their share prices were lower. In order to align our interests with our shareholders, we charge our listed entities a management fee based on their market capitalization, and as such, total fees charged to those entities were lower in the period. We have strong conviction about the business prospects of both BIP and BEP. These are exceptional businesses that have very strong underlying business fundamentals, solid balance sheets, and excellent multi-decade track records of growing cash flows and dividends, and both have attractive and achievable FFO and distribution growth targets. Both companies gave very strong guidance at their respective investor days in September and announced robust earnings this past week. We believe both companies' recent share prices will ultimately rebound as they continue to execute on their business plans. I'll now move on to speak about our fundraising efforts. As Bruce noted in his remarks, through the first 10 months of the year, we raised a total of $61 billion of capital, including $26 billion in the third quarter. Some of the highlights in the period include, within our infrastructure business, we closed on $3 billion of capital for our fifth flagship fund, bringing the fund size to more than $27 billion, making this the largest infrastructure drawdown fund ever raised. We anticipate holding the final close for this fund before the end of the year, and once all is said and done, we expect to get to our hard cap of $28 billion. Based on the current size of the fund, we have committed or invested over 40% of this fund. Also within our infrastructure business, we held the final close for the third vintage of our infrastructure debt fund last week, raising $1.3 billion of capital since the beginning of the third quarter and bringing the total capital raised for the strategy to $6 billion. This is the largest infrastructure debt fund ever raised, and it's double our previous vintage fund size of $2.7 billion. Also worth noting here that we've already deployed 50% of the commitments to this fund. In private equity, we held the final close for our sixth opportunistic private equity fund of a little over $700 million in September, bringing the total strategy size to $12 billion. This vintage represents the largest private equity fund we've ever raised, which is a testament to our strong track record and longstanding investment approach focused on high-quality cash-generative essential businesses. In real estate, we continue to see strong demand for our flagship fund in this current market environment, and we closed on an additional $2 billion in the quarter for the strategy. We continue to progress first-close commitments and expect to finalize the first close for this vintage during the fourth quarter. Within our credit business, we raised a total of $11 billion in capital since the beginning of the third period for a number of key credit strategies. Most notably, we raised over $3 billion for the 12th vintage of our opportunistic credit fund, bringing the size of that fund to over $6 billion. On to our outlook, I'd like to provide a few observations. Over the next few months, we expect our momentum on the capital-raising front to pick up significantly as we work towards achieving our stated goal of raising close to $150 billion of capital before we announce our results for the fourth quarter of the year and heading into 2024, this strong fundraising sets us up for strong earnings in 2024. We also expect our margins to expand, and these two items combined set us up very nicely to deliver an excellent year from an earnings and dividend growth perspective. Before I wrap up my remarks, I'd like to make a few comments on our balance sheet. Our balance sheet is debt-free, and we currently hold close to $3 billion of net cash and equivalents. This fortress balance sheet is a source of strength for our business, and by using it selectively and effectively, we should be able to drive growth in our asset management activities over and beyond our stated goals. We may utilize our balance sheet to launch new fund strategies and business lines or to make a strategic acquisition to bolster our existing capabilities, and in light of our strong financial position, I'm pleased to report that the board of directors has declared a dividend of $0.32 per share payable on December 29, 2023, to the shareholders of record as of the close of business on November 30. That wraps up our prepared remarks for this morning. Thank you for joining the call, and we'll now open it up for questions.

Operator, Operator

Our first question comes from Cherilyn Radbourne from TD Cowen. Please go ahead with your question.

Cherilyn Radbourne, Analyst

Good morning. I was hoping you could start by giving us some color on what you're seeing in terms of consolidation among, excuse me, subscale alternative managers in this environment and whether that's something you continue to monitor with a view to possibly having an opportunity to round out your capabilities in select areas.

Bruce Flatt, CEO

Hi, Cherilyn. Thank you for the question. You're absolutely right. We continue to see a broad-based trend towards consolidation in the alternative asset management space and I think it's important to recognize that this is coming from both sides. First, on the client side, similar to what we've been seeing for years, increasingly clients are concentrating their capital with large-scale reputable managers that can offer them a full suite of products and solutions across the alternative space and no doubt, Brookfield Asset Management has been a beneficiary of that as we've broadened our product suite in recent years. But I think it's also important to recognize that the trends toward consolidation are also being driven by the managers themselves. Increasing requirements in compliance and the required level of customer service is much easier to do when you are part of a scale manager that can amortize the cost and requirements of those functions across a much broader business. Also increasingly, for smaller scale managers, having a large depth of talent, a large number of men and women to choose from, also helps with succession planning, and that's a driver of consolidation in the space as well. So in terms of the trends, we continue to see consolidation amongst the alternative asset managers and to the comment you made in your question, we are actively monitoring a number of situations, but similar to what we've said on previous calls, we are going to continue to be very, very selective. We have a great business that has a fantastic organic growth trajectory and while we are monitoring a number of situations, we will only pull the trigger on ones that are additive to our business, accretive to our cash flows, and really round out our product suite and give us something we don't already have within the business.

Cherilyn Radbourne, Analyst

Then with respect to insurance, we're looking for an update on how much of BAM's insurance AUM has been committed versus deployed to BAM and Oaktree strategies to date, and how you would expect that to evolve and impact FRE over the next 12 months?

Bahir Manios, CFO

Good morning, Cherilyn. It's Bahir. I'll address your question. Of the $28 billion in assets we manage for Brookfield Insurance Business, we have deployed approximately $2 billion into various private credit strategies. An additional $7 billion has been committed and is expected to start being deployed or invested soon, contributing to our results over the next 24 months. I understand your question was regarding the next 12 months, so perhaps we can consider half of that timeline. If you calculate the percentages, it would correspond to around 30% to 32%, and we have a plan to increase commitments to our target range of 35% to 40% in the upcoming months.

Operator, Operator

Our next question comes from the line of Alexander Blostein with Goldman Sachs. Your line is now open.

Alex Blostein, Analyst

Hi, good morning, everybody. Thanks for taking the question as well. I want to maybe start with an outlook of fundraising. 2023 was obviously a very strong year for you guys, and it's nice to see you reiterating the targets here, I guess, $150 billion, including AEL. Any thoughts on what '24 will look like in terms of fundraising once you're through some of these larger flagship funds?

Bruce Flatt, CEO

Certainly. Thanks for the question, Alex. When we think about the remainder of the year and walking into next year, it's a very constructive outlook from a fundraising perspective. We're at $61 billion year to date. We're going to pick up $55 billion when we complete the previously announced insurance transactions, and that obviously leaves approximately $35 billion for us to do over the remainder of the year. That compares versus $26 billion we did in the last quarter and we'd make two comments there. One, it's not unusual for fundraising to be tilted towards the back end of the year. That's pretty common practice for us and two, as we move into the back end of the year, we expect to have the first close of our transition fund, our flagship real estate fund, and two of Oaktree's flagships are really at the peak of their fundraising and, in addition to that, we get our typical co-invest and other complementary strategies as well. So most of the way to that $150 billion is very visible through insurance and flagship strategies. And then when we roll into next year, we've often communicated a run rate range of $70 billion to $100 billion of fundraising every year, and the great news as we roll into 2024 is we expect to not only have the full range of complementary strategies in fundraising, we will also have meaningful closes of those Global Transition Fund, Real Estate Fund, and the two Oaktree funds that will continue fundraising well through the midpoint of next year. So I would say, while it may not be the record year that we had in 2023, the outlook for fundraising in 2024 is very robust and we expect another extremely strong year.

Alex Blostein, Analyst

Great, that's helpful, thanks. My second question is around insurance and some of the regulatory dynamics coming out of DOL last week and I appreciate the fact that you guys obviously don't own AAL yet, but maybe just kind of help frame what the proposed rule, if it goes through as kind of written, what does it mean really for the business? Obviously, the new details have been pretty strong for the industry, but maybe help break down the channels where AL, but as well as your other insurance subsidiaries sell through, just to kind of better give us a sense of any impact on growth sales there, thanks.

Bruce Flatt, CEO

Certainly, so it's still early days on this, but I think the important thing to recognize is demand continues to grow for fixed index annuity products. That's really what our insurance business specializes in, and this is evidenced through the strong sales growth we've seen both this year and we expect in the coming years. I'd say the proposal is still pretty early in its review process, but the biggest takeaways of it is if passed in its call it written form, we would expect demand and sales to continue to be strong across the platform, but what we would really expect is the new regulatory environment to increasingly favor large players in the space, which is what we have become. It increasingly will favor those players with the scale and capital to easily comply with the new regulations while still capturing the significant demand growth. So while we do monitor the situation closely, we feel our business will be well-positioned.

Operator, Operator

Thank you. Our next question comes from the line of Geoff Kwan with RBC Capital Markets. Your line is now open.

Geoff Kwan, Analyst

Hi, good morning. My first question was just with some of the recent announcements on new funds in partnership with SocGen and Sequoia, can you talk about what kind of opportunity there is to partner with third parties to help create and distribute new strategies?

Bahir Manios, CFO

Certainly, thanks, Geoff. As have long been probably two of our most enduring and most significant competitive advantages is one, our access to capital and two, our operating approach that allows us to be a great partner to high-quality counterparties across different avenues of business. What's interesting in this past quarter is the partnerships we've announced with both Sequoia Heritage and with SocGen are very, very different, but what they both are illustrative of are situations where we can not only bring our significant capital as a capital provider to address a situation, but there are also situations where both partners bring something unique to create a platform that few others can replicate. As I'm sure you can imagine, we're not going to announce any new JVs here on the call today, but I would say we are increasingly seeing other opportunities like this and we're going to continue to be selective and look for situations where it's not just capital that we can bring, but it's also situations where both partners bring something unique and together the platform is better with two shareholders than with one. So I would say that the partnerships we have announced are very indicative of things that we will continue to contemplate in the future.

Geoff Kwan, Analyst

Okay, thanks. And just my second question was back at Investor Day, you talked about using the cash to make investments in LP commitments to the non-flagship, non-Oaktree funds, help seed new funds, but also invest if any of the affiliates were raising new equity. I think it was from the letter to shareholders, you talked about doing the BLP investments and seeding new funds, but you didn't reference investing in new equity if affiliates are raising capital. Is that still the plan or are you guys not going to be doing that going forward?

Bahir Manios, CFO

Morning, Geoff, it's Bahir. Look, I think what we're trying to highlight or what we tried to highlight in the letter is just some of the more near-term initiatives that we have going on. So you'll probably see us be using our cash much more so to do something strategic on the acquisitions front in addition to standing up new business lines and new strategies. So that's the focus of the management team for the next little while of how it believes it will put that $3 billion to work.

Operator, Operator

Thank you. Our next question comes from the line of S Sohrab Movahedi with BMO Capital Markets. Your line is now open.

Sohrab Movahedi, Analyst

Okay, thank you. Two questions, maybe I'll just stick with Bahir. Bahir, I think in the supplemental you've given us the breakdown of the $440 billion in fee-bearing capital between credit, real estate, the various strategies. You also gave us the sense of how you expect this to kind of grow over the next number of years, I think five at the Investor Day. Can you give us a similar kind of set of numbers, I suppose, by strategy of where your FREs coming from today versus where it would be five years from today based on the numbers you put up for us at the Investor Day?

Bruce Flatt, CEO

Morning, Sohrab. At this point, I think it'll be difficult to do that. We don't break out the FRE for the various business units for a number of reasons. I could share with you probably offline, I don't have it on me, what maybe the fee revenue projections will be by business unit and we can go from there, but I don't have that in front of me today.

Sohrab Movahedi, Analyst

I appreciate that. Thank you, I'll follow up. And then I guess just as a second question, I understand the message around fundraising and the outlook for it, not just for the backup of this year, but next year as well. Curious as to how important is the return of capital to existing fund bearers as a kind of source of funding for future commitments, as you think about, for example, '24 and beyond. Now, I think you have on page six of the supplemental a bit of a flow as to how the fee-bearing capital this year versus this quarter versus last year, this quarter, and I think you have inflows, but then you have return of capital and distributions, which are roughly about half of the inflow. So is that if you were going to raise a $100 billion next year, does it entail returning $50 billion or thereabouts from existing funds and so how important is it to actually realize on existing investments?

Connor Teskey, President

Hi, Sohrab, it's Connor here. Obviously returning capital to our LP partners around the world is a critical component of our business, but I would say that perhaps three things. One, we are very fortunate that the vast majority of our clients and partners around the world continue to increase their allocations to alternatives regardless of how much capital is being returned, and then we're also very fortunate that the areas where we raise the most capital are very much in favor with investors and it is viewed that the opportunity in these vintages of funds should be very, very attractive. The last point to make is the vast majority of our investment strategies aren't overly reliant on leveraged loans or leveraged capital markets in order to execute, and I would say all of that, it's always important to return capital to your clients. That's a big part of what we do, but I would say that all three of those dynamics have somewhat insulated us from some of the broader concerns in the space, but all that being said, we've had a very active period for monetizations thus far year to date and we continue to see that going forward, given that the areas where we are most active, there is still an intense bid for high quality assets. So long way to say returning capital is important, but I would say our franchise and our diversity of fundraising does somewhat insulate us from some of the headwinds that perhaps you're reading about in the headlines.

Operator, Operator

Thank you. Our next question comes from the line of Craig Siegenthaler with Bank of America. Your line is now open.

Craig Siegenthaler, Analyst

Hey, good morning, everyone. So we have a follow up Alex's question on the 2024 fundraising backdrop. Do you expect to have an Infra 6 first close next year or do you plan to market it next year and probably have a first close in 2025? And also, are there any large insurance wins that are expected at this point in 2024?

Connor Teskey, President

Sure, so Craig, perhaps the way we would answer that is we are very fortunate that across a number of our flagship strategies, we are significantly invested. In particular, across the flagship infrastructure strategy we're approximately 40% deployed at this point. Where does that put us in terms of when we'll next be back into the market? That will depend on deployment the remainder of this year and early into next. I think it's probably too early to call what the specific timing of that will be and then in terms of insurance, the key things we're focused on is obviously our strong affiliate partner, Brookfield Reinsurance, is working on closing the two large transactions they've announced, Argo and AEL. Argo, we are hopeful will close imminently and AEL continues to make great progress and should hopefully get signed up relatively close to the end of the year. Bahir, anything to add?

Bahir Manios, CFO

Yeah, sure, Connor. Maybe I'll just, Craig, add just a small remark on insurance. Now that we have the platform that we have, especially in the US with American National and AEL, in addition to a small business that we have in Canada, a business perhaps that we start in the UK, etc., we expect to write just day in, day out, or deliver on organic growth of anywhere between $15 billion to $20 billion a year. So without doing any large-scale M&A, that could be the level of insurance assets that we get under management each year, just now that we have the platform that we have today.

Craig Siegenthaler, Analyst

Great, thanks, Bahir. Just as my follow up on M&A, two-part question here. When did you change your strategy in terms of using BAM capital for M&A versus another source like BN? And the second point of that is I heard you reference $3 billion of cash. I think if you look at your press release, page five, $3 billion is exactly what you have. So I'm just wondering, what's the level of base capital you have to leave in the company at all times for working in regulatory capital needs inside of F3?

Bruce Flatt, CEO

Sure, Craig. So I would say one of the motivations around the spinout almost a year ago now was to give Brookfield Asset Management a best-in-class currency to facilitate M&A when it was attractive to do so and looking back with the benefit of hindsight, almost 12 months later, the spinout of the manager into its own segregated entity has been great in terms of seeing opportunities and monitoring opportunities to pursue inorganic growth for the business. I would say we've been relatively active in pursuing and monitoring those opportunities, but being selective at the same time. And then in terms of just the capital and the capital available for growth, we obviously are a highly cash generative business and therefore we do have that capital on our balance sheet to grow our business either through seeding new strategies that we intend to grow ourselves or through strategic M&A, but the reality of it is our business is self-funding. I would say that the entirety of that $3 billion of capital is available to us, plus more given the debt capacity within the business should the right opportunity come along.

Operator, Operator

Our next question comes from the line of Brian Bedell with Deutsche Bank. Your line is now open.

Brian Bedell, Analyst

Great. Thanks, good morning folks. Thanks for taking my questions. Maybe the first one on Global Transition II. I think in the shareholder letter you said you've already got, I think it's $1.5 billion committed to deploy in that fund, if you could correct me if that's correct. And just more broadly speaking, how do you think about the deployment opportunities for transition versus, say, infrastructure, which is probably your second most rapidly deployable large scale flagship fund, just over the long term. And then the investor base that is allocating to transition, do you see that growing significantly in terms of the percentage allocation from LPs dedicating specifically to transition over the long term?

Bruce Flatt, CEO

Yeah, certainly. So a bit to unpack there. First and foremost, yes, you are correct. The second vintage of our transition fund has announced two transactions that will act as the first two investments in the seed portfolio for BGTF II. And those transactions do total about $1.5 billion. So all of that correct as you stated. In terms of the environment for transition investing, and I'll say equivalently the environment for infrastructure investing, it is very, very robust. Right now you are seeing one of the greatest capital needs in memory to build out data centers, to build out renewable power, and quite frankly, that is happening at a time where capital is becoming increasingly scarce for some market participants and some developers of those assets. So that creates a great opportunity for us both on the infrastructure side and on the transition side to be not only a capital provider, but an operating partner to those businesses and I would say on behalf of both our infrastructure and our transition platforms, the market opportunity set today is larger today than it's ever been before, while at the same time probably being as attractive as it's been in recent memory. Lastly, to your last point just around the investor base, as we begin to think about BGTF II, it's significantly larger this time and I would say there's really two things that have changed versus our first vintage, which we launched in 2021. I know 2021 is not that long ago, but the world has moved very, very quickly and since 2021, many more institutional investors around the world either have carved out a decarbonization or transition investing bucket, or at least at a minimum firmly decided where that investment strategy sits within their portfolio, and therefore they are much more willing and able to allocate capital to these strategies. The second thing that has happened in the last three years is the market opportunity set for these investments has significantly grown and all investors, regardless of their decarbonization objectives, are simply seeing one of the largest best of all universes at very attractive risk-adjusted returns and that's driving enhanced capital flows into the space versus what we saw two or three years ago. So I would say on the transition side, not only is the investor spectrum widening, it's growing in terms of size of commitment as well.

Brian Bedell, Analyst

That's super helpful. And then just a follow-up, maybe if you can give us an update on democratized products, retail-focused products. We've obviously talked a lot about flagships and the very strong fundraising momentum there, but as you think about 2024 and developing these products, I guess just maybe sort of your thought on the timeline given the lag typically of getting them on platforms and also maybe some perspective on the risk appetite right now from the retail perspective.

Bruce Flatt, CEO

Certainly. So I would say in terms of growing our retail presence, we've spoken about this in the past. We do think it is a significant opportunity for us, but one that we are going to grow and tackle in a very prudent manner and today we have a number of products targeted more at high-net-worth or retail investors and while those are modest in terms of the scale of our business today, they are growing very rapidly. Our BOT franchise, Brookfield Oaktree Wealth Solutions, continues to expand meaningfully and the other one that we would highlight just drawing on the broader strength we've seen across infrastructure investing is our BII, Brookfield Infrastructure Income Fund platform has seen significant growth throughout this year and continues to get loaded on new platforms in different regions around the world. So we would expect that platform to continue to accelerate and probably really hit its stride in 2024.

Operator, Operator

Thank you. Our next question comes from the line of Ken Worthington with JP Morgan. Your line is now open.

Ken Worthington, Analyst

Hi, still good morning. Thanks for taking the question. In the letter this quarter, you commented that peaking interest rates bode well for transaction activity. Are there geographies or asset classes that you expect more robust activity levels as we look to 2024? And I assume that this means a better investing environment, but are there also parts of your business where you expect to see better realization opportunities as well?

Connor Teskey, President

Thanks, Ken. Apologies for being redundant, but a position that we've had for I think a number of quarters now is interest rates are higher than they've been in the past, but they are not exceptionally high by historical standards. They're very much in a range that is very constructive for our business, both for deployment through M&A, development of new assets, and for monetization activity. But what we really needed in order to facilitate a more constructive transaction environment is we needed rates to stop going up and that is certainly what's happening around the world today. As Bruce mentioned in his opening remarks, interest rates do seem to have crested. Governments around the world have done a great job in terms of taking the hard measures in order to get inflation under control and therefore, we do see a much more constructive environment for transactions going forward. In terms of where we're going to see that transaction activity, I would say it's very broad-based. This interest rate environment is incredibly constructive for, I would say our infrastructure renewables and our infrastructure renewables and transition platforms. But the three other points I would make are that the interest rates are elevated to where they have been in the past and that means there is going to be an incredible opportunity for our credit products to refinance the wall of maturities that are coming. Secondly, with the plateauing of interest rates, we expect the liquidity to return to the real estate market, both in terms of new investments at what is going to be very attractive value entry points, as well as creating the opportunity for monetization activity of best-in-class assets. Lastly, as markets continue to strengthen, we are going to see increasing liquidity in the leveraged loan market which should facilitate more transaction activity in our private equity platform. So I would broadly put it in those buckets, renewables and infrastructure, they work across all interest rates environments. We're going to see a tremendous opportunity in credit and real estate and as the leveraged loan market recovers, it's going to be a great opportunity for our private equity business.

Ken Worthington, Analyst

Great, thank you there. And in the prepared remarks, you commented that 2024 would be an excellent year for dividend growth. I think with the spin out of BAM, the goal was to distribute the majority of the cash flows. How are you approaching the right dividend level for next year?

Bahir Manios, CFO

Hi, it's Bahir, I'll take a stab at that one. So look, our stated target when we spun off the company is to return over 90% of the total distributable earnings that we generate in the business back to our owners, predominantly through dividends, but also through stock buybacks. Look, we've gone through the momentum that we have on the fundraising side with a path to getting somewhere close to $150 billion. I would note 80% of that is capital where we make fees on committed capital versus on deployment. So with a lot of visibility on that, in addition to the remarks I made earlier around margins and having that expand going into next year, we believe that 2024 could be a step change year with respect to growth from an FRE and distributable earnings perspective. Based on that, and you can deduce that the dividend growth for next year could be quite sizable, and we'll get that all approved at our February board meeting and announce it with our February results.

Operator, Operator

Thank you. Our next question comes from the line of Nik Priebe with CIBC World Markets. Your line is now open.

Nik Priebe, Analyst

Okay, thanks. Maybe as a follow-on to that last response on operating leverage, you've been essentially holding the line on expenses for a few quarters now. How would you guide us to think about expense growth looking out into 2024? I'm just trying to size the magnitude of the margin expansion opportunity with some of these chunkier fund closings starting to accrue fees toward the end of this year.

Bahir Manios, CFO

Good morning, Nick. It's Bahir again. I believe our expenses so far this year have increased by approximately 13% to 14%, and since our fundraising this year has been more concentrated towards the end, the rise in our revenues has been comparatively smaller. I anticipate that 2024 will see a reversal in this trend. While I can't provide a specific percentage, we are optimistic that our expense growth next year will be significantly lower than in 2023, especially since many of our key investments in personnel have already been made, as I mentioned during our Investor Day in September. Consequently, expense growth will be more moderate. By then, a substantial portion of the fundraising will have already occurred, leading to increased revenue growth alongside slower expense growth, which could enhance our operating leverage next year.

Nik Priebe, Analyst

Okay, yeah, fair enough. And then just in light of some of the comments on the private credit franchise, I just wanted to get your thoughts on how the product lineup might evolve over time to accommodate a step change in the scale of the insurance business. Do you see potential for inorganic growth as a means to further broaden out that suite of capabilities? Just wondering if there are any obvious gaps in the product lineup that you might look to address in private credit specifically?

Bahir Manios, CFO

Certainly, so I would make two comments there. Today, our partners at Oaktree are the premier credit franchise around the world and while they have a 30-year history in opportunistic credit, they have a multi-decade history in other forms of credit, notably performing credit, loans, and other strategies as well. Perhaps what's most understated in that long history is their ability to develop and build new strategies when the market opportunity presents itself. So similar to us, if there is an opportunity where we can acquire a capability and it makes more sense to buy versus build, we will work with our partners at Oaktree and consider that, but I would say similar to what we see in our infrastructure or real estate franchises, when you have such a capable franchise as Oaktree, many times it's easier to build those capabilities organically, but both options do remain open to us and given the broadening of the credit space and the different products that are available, different forms of asset-backed lending, and other forms of credit products, we will continue to look to broaden our product set, but we would expect the majority of that growth to be organic.

Operator, Operator

Thank you. Our next question comes from the line of Mario Saric with Scotiabank. Your line is now open.

Mario Saric, Analyst

Hi, good afternoon. And two really quick ones for me, more of a clarification on both. Just coming back to Rob's question on private fund distributions, is there a kind of quantum range of expectations for '24 that you're comfortable providing, like taking into consideration the underlying market liquidity that you think will support the forecast deployment initiatives that you have? Or is it hard to say what that may be at this point in stage?

Connor Teskey, President

I would say it's probably, I'd perhaps answer that question two ways. It's probably hard to forecast exactly how much we expect to sell next year, but I would perhaps draw a slightly different conclusion. That is to say that I would say that we feel very confident about our fundraising projections, regardless of if we hit the high end or the low end of our expected monetization range. Trying to put a pin in exactly how much capital we will return, that's probably unrealistic at this point, but I would say we're comfortable returning a level of capital that will ensure that we're well positioned to deliver on both our fundraising and our deployment targets next year.

Mario Saric, Analyst

Okay, and then my second one, and I appreciate Connor, you mentioned it might be a little bit too early to talk about BIF 6. As you mentioned, BIF 5 is already 40% committed. I know that historically, you'll look to start fundraising for a successor fund once I think you've hit the 70% to 75% kind of deployed committed area, which if the thoughts on peak interest rates and transaction activity accelerating materialize, I guess we wouldn't be too far off of that level, presumably by the end of next year, kind of early to mid '25. So is that a very simplistic way of thinking of it? So when you hit 70% to 75%, you would push forward with the next fund pending client demand, or do you like to see a specific amount of time elapsed between the funds? For example, if I look at Slide 30 of the supplemental on the core plus and facade, the vintage years are about three years spread out apart. So is it more of a time thing or is it simply hitting 70% to 75% and for client demand, you'll start the next phase?

Bruce Flatt, CEO

Mario, your approach is not far off. I would say we take great pride in ensuring we do our jobs well and deploy the capital prudently, but take advantage, deploy the capital prudently, but capitalize on the opportunities that are available in the market during the investment period of a fund. So we do not get overly fussed if a fund comes back to market a little quicker because there were great opportunities to deploy the capital or similarly, we don't get too fussed if a fund comes back to market slightly slower because there weren't great opportunities to deploy the capital. It is much more predicated on the deployment levels in the previous vintage. The only thing I would say is your rough thresholds are bang on. They're very accurate, but they are not absolute guidelines. We take into account how much capital has been deployed as well as what is the ongoing pipeline for those funds such that we're only raising capital for the next vintage that can be readily deployed for those clients and those partners quickly after they've committed it. Your metrics are right, your thinking is bang on. The only thing I would add is we also take into account the pipeline of investments as well as in terms of deciding when to go with the next vintage.

Operator, Operator

Thank you. This concludes the question-and-answer session. I'd now like to turn the call over to Jason Fooks for closing remarks.

Jason Fooks, Senior Vice President, Investor Relations

Okay, great. We appreciate all of the interest and if you have any additional questions on today's release, please feel free to contact me directly. Thank you everyone for joining us.

Operator, Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect.