Uncovered Potential of This Remarkable Wealth-Generating Share Amounts to Potentially $30 Billion, Remaining Concealed
Revamped Article:
Investment powerhouse Brookfield Corporation (BN, down 1.29%) has shone as a goldmine of wealth accumulation over the decades, yielding a jaw-dropping 19% compound annual growth rate over the past 30 years. This meteoric rise would have transformed a humble $10,000 investment into a whopping $1.8 million fortune.
With robust momentum on its side, Brookfield looks poised to continue enriching its shareholders in the foreseeable future. One critical factor fueling this promise is the 'goldmine within plain sight' known as carried interest, hidden within its asset management division. In his fourth-quarter shareholder letter, CEO Bruce Flatt identified this untapped resource.
Unveiling Carried Interest
"Our carried interest is a hidden treasure – and remains widely misunderstood by many investors," Flatt penned. He elucidated that the company's asset management arm gathers a substantial amount of financial backing from entities such as pension funds, sovereign wealth funds, and private investors. They expect Brookfield to invest this capital into profitable assets and ventures.
Brookfield aligns its interests with those investors through twin strategies. Initially, it invests substantially in its funds. Secondly, it shares a portion of the returns or revenues it generates for clients surpassing a predefined threshold. This reward-sharing component, known as carried interest, is explained by Flatt as:
In essence, carried interest represents our stake in each fund's profits, contingent on the fund surpassing a pre-set client return target. If we achieve these milestones, we accrue 20% of the profits – but draw nothing if our investors fail to profit.
Flatt then delved into the three-step procedure of an investment fund: capital raising, asset deployment, and monetization. In the first phase, the company collects capital from investors and leverages that to plunge into high-yield ventures. Brookfield has a proven track record of delivering exceptional returns for investors, with nearly all its funds outperforming their specified targets due to the company's operational prowess and deft execution of business strategies for its acquired assets.
In phase two, as funds realize profits from selling holdings or businesses, they return capital to investors. However, only after investors have received their initial capital allocation, plus a minimum rate of return, does Brookfield begin enjoying its share of the 'bonanza.'
The 'Hidden Treasure' Unveiled
Flatt emphasized that Bengfield's carried interest represents a 'priceless treasure' waiting to be discovered. He continued:
"We estimate its value to be around ±$30 billion, translating to around $21 per share. Despite the astounding figures, this resource often remains undervalued. Nevertheless, it serves as our concealed treasure in plain sight."
This vast sum is noteworthy considering the company's current stock price hovering around $60. While the majority of this value derives from other assets, the carried interest still amounts to a considerable addition to Brookfield's repertoire. To be specific, the company recognized around $400 million from carried interest in its earnings last year, representing a comparatively minor fraction of its $6.3 billion in distributable earnings.
Brookfield anticipates realizing $11.5 billion in carried interest, or $7 billion net of costs, over the subsequent five years. Meanwhile, it predicts tapping into $20 billion in carried interest earnings over the following decade. Flatt concluded, "This substantial overflow of proceeds will empower us to further maximize value for you by thoughtfully deploying these funds or strategically redeploying our shares."
Carried interest represents just one of the factors driving Brookfield's expectations of expanding its earnings per share by a staggering 25% annually over the next five years. This exponential growth, combined with a growing awareness of the embedded value in its carried interest, bolsters Brookfield's projection of enhancing the company's core value to more than $175 per share by 2029.
A Hidden Farmer's Yield
Brookfield views its carried interest as a 'priceless resource' waiting to yield substantial returns over the next decade as funds mature and disburse capital to investors. Concurrently, the company anticipates its carried interest valuation growing as it continually broadens its asset management platform by amassing larger funds. This strategic outlook naturalizes Brookfield's conviction in continuing its role as a wealth-creating machine in future years, firmly positioning it as an attractive long-term investment destination.
- With the potential value of their carried interest estimated to be around $30 billion, CEO Bruce Flatt believes Brookfield's carried interest is a "priceless treasure" that often remains undervalued by investors.
- In 2029, Brookfield Corporation projects to enhance its core value to more than $175 per share due to the exponential growth of its earnings per share, driven in part by the carried interest.
- In his fourth-quarter shareholder letter, Flatt highlighted that the carried interest is a significant component of Brookfield's financial success, representing a 20% stake in each fund's profits if the fund surpasses a pre-set target.
- Investing in Brookfield has traditionally proven to be financially rewarding, as seen in the 19% compound annual growth rate over the past 30 years that has transformed a $10,000 investment into a $1.8 million fortune.
