Why did distributable earnings decline while fee-related earnings grew?

FRE rose modestly to $552 million from $547 million, but DE fell to $547 million from $563 million. The release does not give a full bridge for the gap. The reconciliation shows that cash taxes increased to $53 million from $37 million, which reduced DE, and this was partly offset by a smaller add-back for equity-based compensation and other items ($48 million versus $53 million). Management also cited lower transaction fees and lower permanent capital vehicle fees as drags on fee revenues.

What does the AEL mandate mean for BAM's insurance business?

BAM, through Brookfield Reinsurance, completed the acquisition of AEL and now manages AEL's $50 billion of capital. This is a major contributor to insurance fee-bearing capital, which management says is nearly $90 billion. The mandate closed after quarter end, so it is not reflected in the reported Q1 fee-bearing capital of $459 billion. Management expects the mandate to support long-term growth in its insurance solutions business.

When will the $50 billion of uncalled capital not currently earning fees start contributing to earnings?

The release says this $50 billion of uncalled commitments is not currently earning fees but will generate approximately $500 million of annual fees once deployed. It does not give a specific timeline. Earnings contribution depends on the pace of deployment, which was $11 billion in Q1 2024.

Why did net income attributable to BAM fall year over year?

Net income for BAM, the publicly traded entity, was $102 million versus $125 million in the prior year period. BAM holds 25% of the asset management business, and the release also shows lower net income attributable to Brookfield Asset Management on a 100% basis, at $441 million versus $516 million. The release does not provide a detailed explanation for the decline. Investors should consider that GAAP net income is affected by items such as carried interest allocations and other fair value changes that are excluded from FRE and DE.

BAM 8-K SEC Disclosure

01—Abstract

Summary

Summary of the 6-K filed May 8, 2024. Cited figures are marked; the original filing is the authoritative source.

Brookfield Asset Management Ltd. (BAM) reported first-quarter 2024 results in a Form 6-K furnished May 8, 2024.

The request described it as an 8-K, but the filing is a 6-K with a press release attached as Exhibit 99.1. Fee-related earnings (FRE) were $552 million^a, up about 1% from $547 million, and distributable earnings (DE) were $547 million, down about 3% from $563 million. On a per-share basis, FRE rose to $0.34 from $0.33 and DE was flat at $0.34.

Net income attributable to BAM, the publicly traded entity, was $102 million^b, versus $125 million a year earlier. Management attributed the 15% growth in fee revenues from flagship, private credit and insurance strategies over the last twelve months to fee-bearing capital growth, partly offset by lower transaction fees and lower permanent capital vehicle fees. Fee-bearing capital reached $459 billion, up 6% year over year.

BAM raised $20 billion^c of capital in the quarter and deployed $11 billion. Uncalled fund commitments (dry powder) totaled $106 billion, including $50 billion that does not yet earn fees but will generate roughly $500 million of annual fees once deployed. Subsequent to quarter end, BAM completed the $50 billion AEL asset management mandate through Brookfield Reinsurance, which pushed insurance fee-bearing capital to nearly $90 billion.

BAM also agreed to acquire a majority stake in Castlelake, an asset-backed credit manager with $22 billion^d of AUM, and increased its Oaktree ownership to 73%. The board declared a quarterly dividend of $0.38 per share, payable June 28, 2024, to holders of record on May 31, 2024. The financial statements are unaudited, and the release relies on non-GAAP measures (FRE and DE), so investors should review the reconciliations and the supplemental materials.

02—Key points

Key Highlights

FRE of $552 million (up about 1% YoY) and $0.34 per share; LTM FRE of $2.25 billion, up 4%
DE of $547 million, down about 3% YoY from $563 million, but flat at $0.34 per share
Fee-bearing capital of $459 billion, up 6% year over year, with fee revenues from flagship, private credit and insurance strategies up 15% over the last twelve months
Capital raised of $20 billion in Q1 2024, including nearly $10 billion in credit strategies and $2.0 billion in insurance solutions; deployment of $11 billion
Dry powder of $106 billion, including $50 billion of uncalled commitments that will earn about $500 million of annual fees once deployed
Completed the $50 billion AEL mandate, bringing insurance fee-bearing capital to nearly $90 billion; agreed to acquire a majority stake in Castlelake ($22 billion AUM); raised Oaktree ownership to 73%
Quarterly dividend of $0.38 per share, payable June 28, 2024, to holders of record as of May 31, 2024

03—Questions

Frequently Asked Questions

Why did distributable earnings decline while fee-related earnings grew?
FRE rose modestly to $552 million from $547 million, but DE fell to $547 million from $563 million. The release does not give a full bridge for the gap. The reconciliation shows that cash taxes increased to $53 million from $37 million, which reduced DE, and this was partly offset by a smaller add-back for equity-based compensation and other items ($48 million versus $53 million). Management also cited lower transaction fees and lower permanent capital vehicle fees as drags on fee revenues.
What does the AEL mandate mean for BAM's insurance business?
BAM, through Brookfield Reinsurance, completed the acquisition of AEL and now manages AEL's $50 billion of capital. This is a major contributor to insurance fee-bearing capital, which management says is nearly $90 billion. The mandate closed after quarter end, so it is not reflected in the reported Q1 fee-bearing capital of $459 billion. Management expects the mandate to support long-term growth in its insurance solutions business.
When will the $50 billion of uncalled capital not currently earning fees start contributing to earnings?
The release says this $50 billion of uncalled commitments is not currently earning fees but will generate approximately $500 million of annual fees once deployed. It does not give a specific timeline. Earnings contribution depends on the pace of deployment, which was $11 billion in Q1 2024.
Why did net income attributable to BAM fall year over year?
Net income for BAM, the publicly traded entity, was $102 million versus $125 million in the prior year period. BAM holds 25% of the asset management business, and the release also shows lower net income attributable to Brookfield Asset Management on a 100% basis, at $441 million versus $516 million. The release does not provide a detailed explanation for the decline. Investors should consider that GAAP net income is affected by items such as carried interest allocations and other fair value changes that are excluded from FRE and DE.

04—Continue

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