Fifty billion dollars buys quite a lot of infrastructure. And apparently, Brookfield Asset Management (TSX: BAM) would like to find out exactly how much.
One of the biggest announcements from the Canada Investment Summit was the launch of the $50 billion Maple Fund, a partnership between Brookfield and CPP Investments targeting massive Canadian infrastructure projects and strategic industries.
Each organization could contribute up to $25 billion over an initial five-year period. The focus is particularly large, complicated investments requiring billions of dollars and the sort of expertise that doesn’t generally fit into a Tax-Free Savings Account (TFSA).
Brookfield Chief Executive Officer Connor Teskey called it a potential “generational investment program.”
For BAM shareholders, however, the more interesting story may be what the fund says about Brookfield itself.
Source: Getty Images
$50 billion isn’t revenue
The Maple Fund isn’t a conventional mutual fund with $50 billion already collected and ready to deploy. It’s a framework allowing Brookfield and CPP Investments to pursue up to $50 billion in equity investments together. Each opportunity still needs to pass both organizations’ investment processes. No specific projects have been announced.
There’s another important distinction for BAM investors. The announcement doesn’t state the entire $50 billion becomes fee-bearing capital generating traditional management fees for Brookfield. So please don’t multiply $50 billion by a management-fee percentage and start yacht shopping. Instead, I’d focus on why CPP Investments chose Brookfield as its partner.
Scale as an advantage
The Canada Investment Summit repeatedly returned to the same problem: plenty of global investors want Canadian assets, but enormous pools of capital need enormous investable projects.
Brookfield specializes in exactly that problem. It invests across infrastructure, energy, data centres, real estate, private equity and credit, while possessing the development and operating expertise needed to take complicated projects from idea to functioning asset.
CPP Investments Chief Executive Officer John Graham said the Maple Fund combines that capability with CPP’s capital to help move “ambitious projects from opportunity to investment.” Canada suddenly wants plenty of those.
AI infrastructure needs data centres and electricity. Mines need roads and power. LNG requires enormous export infrastructure. Nuclear, transportation, and defence all require billions in upfront capital. Brookfield doesn’t need to predict which theme wins. It can help finance several of them.
Why I’d buy BAM stock
The Maple Fund is more confirmation than transformation. Brookfield was already having a monster year. Second-quarter fee-related earnings climbed 20% year over year to US$808 million, while distributable earnings increased 15% to US$707 million.
More importantly, fee-bearing capital reached US$672 billion, up 19% year over year. Brookfield raised a record US$77 billion during the quarter and US$163 billion over the previous 12 months. That’s the BAM business model in action. Raise more capital. Invest it. Collect recurring fees. Repeat with increasingly stronger numbers.
At its September investor day, management targeted US$1.3 trillion in fee-bearing capital by 2031, almost double today’s level. It expects fee-related earnings could grow from US$3.2 billion to US$6.6 billion over the same period. Management also believes the plan can support 15% annual long-term dividend growth. Those are targets, not promises, but they’re the numbers I’d watch far more closely than the Maple Fund’s headline.
Bottom line
BAM recently traded around $64 on the TSX, roughly 27% below its 52-week high. At around 23 times forward earnings, it isn’t bargain-bin cheap. Yet the shares offer a dividend yield around 4.4%, giving investors some income while Brookfield attempts to deliver its ambitious growth plan.
The biggest risk is fundraising. If institutional investors pull back, fee-bearing capital and earnings growth can slow. The Maple Fund itself could also deploy much less than $50 billion if attractive Canadian projects don’t materialize.
Still, I’d buy BAM here. The Maple Fund isn’t valuable because Brookfield suddenly found $50 billion. It’s valuable because when some of the world’s largest pools of capital need someone capable of deploying billions at a time, Brookfield keeps getting the phone call.
