Q3 2023 BROOKFIELD ASSET MANAGEMENT LTD Earnings Call

Participants

Bahir Manios; Managing Partner & CFO; Brookfield Asset Management Ltd.

Connor David Teskey; President and CEO Renewable Power & Transition; Brookfield Asset Management Ltd.

James Bruce Flatt; CEO & Director; Brookfield Asset Management Ltd.

Jason Fooks

Alexander Blostein; Lead Capital Markets Analyst; Goldman Sachs Group, Inc., Research Division

Brian Bedell

Cherilyn Radbourne; Analyst; TD Securities Equity Research

Craig Siegenthaler,

Geoffrey Kwan; Analyst; RBC Capital Markets, Research Division

Kenneth Brooks Worthington; MD; JPMorgan Chase & Co, Research Division

Mario Saric; Analyst; Scotiabank Global Banking and Markets, Research Division

Nikolaus Priebe; Analyst; CIBC Capital Markets, Research Division

Sohrab Movahedi; MD of Financials Research; BMO Capital Markets Equity Research

Presentation

Operator

Hello, and welcome to Brookfield Asset Management's Third Quarter 2023 Conference Call and Webcast. (Operator Instructions) I would now like to hand the conference call over to our first speaker, Mr. Jason Fooks, Senior Vice President, Investor Relations. Please go ahead.

Jason Fooks

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, our 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 2 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, excluding the 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 results may differ 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.

James Bruce Flatt

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 distributable 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 invested across our 5 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 information while trying to navigate a soft landing for the economies. 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 derisk 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 inflows 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 EPR and DE growth. Our ability to succeed at this time, in part due to our businesses being positioned around 3 global trends that we've talked about before, decarbonization, deglobalization and digitalization is very important.
 
Decarbonization is at the heart of global initiatives to reach a net 0 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 regional-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're also now the largest owner and lesser of intermodal shipping containers to move these goods globally.
 
And last, there is a very large need for significant investment in digital infrastructure around the world. Said very 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 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 3 investment areas will inevitably require many trillions of capital investments. 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 5-year targets of doubling distributable earnings of $5 billion and growing our fee-bearing capital to over $1 trillion.
 
Thank you for your continued support and interest in Brookfield Asset Management. With that, I'll turn the call over to Connor.

Connor David Teskey

Thank you, Bruce, and good morning, everyone. We wanted to take some time today to spotlight our private credit business and capabilities. While we've talked about our private credit before on both our conference calls and at our Investor Day, we continue to believe that it is an underappreciated part of our story. Today, we have a total of approximately $150 billion of fee-bearing capital in credit funds across all of our businesses. This includes credit strategies within infrastructure, real estate and private equity as well as credit strategies within our Oaktree and LCM platforms. Of this figure, $60 billion represents private credit in long-term funds, which excludes any of the liquid high-yield bond or credit strategies that Oaktree manages. In pro forma, the AEL transaction, that $60 billion figure will increase to $140 billion, inclusive of our insurance assets under management. Together, this makes us one of the largest private credit managers today and gives us distinct and meaningful advantages in this space. In the areas of infrastructure, renewable power, transition and real estate, we have a vast footprint and extensive experience and relationships, enabling us to source proprietary deal flow and have better insights when underwriting.
 
In addition, our partnership with Oaktree, the premier name in credit for over 30 years, gives us extremely valuable access to data and deal flow. We have been aggressively investing in our team and platform to ensure that we are well-positioned to take advantage of what is a secular change in the role of private credit broadly within the capital markets. To capture this opportunity, to capture the opportunity we see in private credit, we have bolstered our investment capabilities to support increased origination activity. We have expanded our geographic reach to game local intelligence, and we have launched new product strategies. We are seeing the benefits of this in our fundraising figures. Over 40% of the capital we have raised year-to-date has been from private credit and insurance. And looking ahead, we expect that credit and insurance will be the biggest contributors to our fee-bearing capital and our fee revenue growth over the next 5 years. In the current environment, our LPs are realizing that they can earn double-digit returns investing in credit. In fact, as credit risk-return profiles have become more attractive, we have seen traditional fixed-income investors increase allocations to private credit, and we've even attracted interest from investors that have historically focused on equity investments.
 
Turning to some of our platforms. Within infrastructure and renewable power, the pullback among traditional lenders is happening during a period of unprecedented capital need to build out renewables, data centers and fiber infrastructure capacity. Last week, we announced the closing of our third infrastructure debt strategy at $6 billion, making it more than twice as large as the predecessor fund and the largest infrastructure debt fund ever raised. A few others can operate at the scale, breadth and credibility we can within the broad investment scope of this fund. That means our capital has less competition, enabling us to generate attractive risk premiums while being highly selective and maintaining robust covenant protections. This fund is already 50% deployed as we've seen the cadence for deployment accelerate. Given this pace of deployment, we could be in a position to launch the next vintage as soon as next year.
 
Now turning to real estate. Within commercial real estate, securitization markets remained slow, though issuance has started to pick up in September and October. Nevertheless, the vast pools of commercial real estate loans that are maturing over the next 12 to 24 months will face a thinner pool of capital available for refinancing. Real estate investors who lack deep relationships with large institutional investors will be looking for solutions. Combined with the broader trends around the availability of traditional lenders, the deficit of liquidity will create a very attractive lending environment for sponsors with significant dry powder like us. We are not the only one -- we are not only one of the most experienced real estate investors in the world, but we also have one of the longest-running private debt platforms in commercial real estate as we have been providing credit solutions for more than 2 decades.
 
Our next CRE mezzanine debt fund, which will be our seventh vintage, should be larger than the sixth, which was $4 billion. But our ability to put capital to work at scale far exceeds the size of this fund. This year, we committed to a $1 billion loan sold off the senior mortgage retained a portion of the mezz and utilized our strong relationships to manage the rest on behalf of co-investors. This is only the start of where this and our other lending businesses are heading as a one-stop shop for credit. And lastly, turning to Oaktree and LCM. Within our corporate lending and opportunistic debt strategies, the magnitude, quality and breadth of deployment opportunities are approaching past periods like those immediately following the GSC and the start of the coronavirus pandemic. We expect this trend to continue as rates remain elevated from where they were. We have raised $23 billion at Oaktree this year and are seeing strong demand for both the flagship opportunity fund and also their inaugural lending partners fund, which focuses on large-scale direct origination. 5 matters and the ability to provide sizable capital solutions, particularly where complexity is high, favors investors like us and Oaktree, and we continue to see this across a wide set of opportunities.
 
Within private assets, Oaktree's opportunistic pipeline is approximately $8 billion and the performing pipeline is approximately double that. At the same time, at LCM, our European consumer lending business, our latest $4 billion flagship credit opportunity fund has earned over 15% returns this year, and it should also be a record year for deployment. The team is preparing to launch the next vintage of the fund in the latter half of next year and our initial estimate is expected to be meaningfully larger than the current vintage. LCM's specialty finance strategy is also seeing strong demand, and the team has plans to launch a number of complementary credit strategies over the next 12 to 18 months. We will conclude by saying that we are already one of the largest private credit investors today. And we have several powerful engines that will propel and accelerate this part of the business over the next 5 to 10 years. The platform we have developed, combined with a significant pool of fresh capital to put to work are significant advantages. Our team has never been broader, and our capabilities never bigger. We expect to organically grow our credit platform fee-bearing capital by more than $150 billion to $300 billion over the next 5 years. In addition, we expect to grow our Insurance Solutions business by $200 billion over the same period, and we will direct a large part of that capital into private credit funds, further expanding our capabilities.
 
With that, let us turn it over to Bahir to discuss our financial results.

Bahir Manios

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 off 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 in 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 2 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 impacted 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 interest with our shareholders, we charge our listed entities and 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, 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 raise 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 6 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 long-standing 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 make -- 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 2 items combined sets 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 quarterly 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?

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Cherilyn Radbourne of TD Cowen.

Cherilyn Radbourne

I was hoping you could start by giving us some color on what you're seeing in terms of consolidation amongst 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.

Connor David Teskey

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 refusal 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 towards 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 funds 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

Then with respect to insurance, I was looking for an update on how much of BAM 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

Cherilyn, it's Bahir. Maybe I'll take a stab at that one. So of the $28 billion of assets that we're managing on behalf of Brookfield's insurance business, we've deployed so far about $2 billion into a number of our private credit strategies. A further $7 billion has been committed and we'll probably start being deployed or invested and as such, contributing to our results over the next 24 months. And so maybe over the -- I think your question was over 12 months. So maybe half of that. And if you do the percentages that takes you to 30%, 32%, and we've got a path to get commitments up to our targeted range, which is 35% to 40%, which we're going to do in the next few months or so.

Operator

Our next question comes from the line of Alexander Blostein with Goldman Sachs.

Alexander Blostein

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 of, I guess, 150, including AL. Any thoughts on what '24 will look like in terms of fundraising once you're through some of these larger flagship funds?

Connor David Teskey

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 2 comments there. One, it's not unusual for fundraising to be tilted towards the back end of the year. That's a 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 funds and 2 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 range -- 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 2 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.

Alexander Blostein

Great. That's helpful. 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 AL 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 annuity sales have been pretty strong for the industry, but maybe help break down the channels where AI but as well as your other insurance subsidiary sell-through, just to kind of better give us a sense on any impact on gross sales there?

Connor David Teskey

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 past 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

Our next question comes from the line of Geoff Kwan with RBC Capital Markets.

Geoffrey Kwan

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

Connor David Teskey

Certainly. Thanks, Jeff. As has long been a probably 2 of our most enduring and most significant competitive advantages is, one, our access to capital and to our operating approach that allows us to be a great partner to high-quality counterparties across different avenues of business. And 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 our situations where we can not only bring our significant capital as a capital provider to address the situation. But there are also situations where both partner brings 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 2 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.

Geoffrey Kwan

Okay. 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 LP investments and seeding new funds, but you didn't reference investing in new equity of the affiliates or raising capital. Is that still the plan? Or are you guys not going to be doing that going forward?

Bahir Manios

Jeff, 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 they will put that $3 billion to work.

Operator

Our next question comes from the line of Sohrab Movahedi with BMO Capital Markets.

Sohrab Movahedi

Two questions. Maybe I'll just stick with Bahir. I hear you -- I mean, 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 a sense of how you expect this to kind of grow over the next number of years, I think 5 at the Investor Day. Can you give us a similar kind of set of numbers, I suppose, by strategy of where your FRE is coming from today versus where it would be 5 years from today based on the numbers you put up for us at the Investor Day?

Bahir Manios

At this point, I think it'll be difficult to do that. We don't -- from -- 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

I appreciate that. 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 back half of this year but next year as well. Curious as to how important is return of capital to existing funders as a kind of source of funding future commitments. As you think about, for example, '24 and beyond. I think you have on Page 6 of the supplemental, a bit of a flow as to the fee-bearing capital this year versus this year -- 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 like is that -- if you were going to raise $100 billion next year, does it entail returning 50 or thereabouts from existing funds? And so how important is it to actually realize on existing investments?

Connor David Teskey

So, 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 3 things. One, we are very fortunate that the vast majority of our clients and partners around the world continue to increase their allocation 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 leverage 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 3 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 monetization 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 a 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

Our next question comes from the line of Craig Siegenthaler with Bank of America.

Craig Siegenthaler,

So we have a follow-up on Alex's question on the 2024 fundraising backdrop. Do you expect to have an Infra V first close next year? Or 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 of '24?

Connor David Teskey

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 bus in terms of when will 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 2 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

Yes. Sure, Connor. Maybe I'll just, Craig, add a just a small remark on insurance. Now that we have the platform that we have in -- especially in the U.S. with American National and AEL in addition to a small business that we have in Canada, a business perhaps that we start in the U.K., et cetera, 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,

Great. Just as my follow-up on M&A, kind of 2-part question here. when did you change your strategy in terms of using BAM capital for M&A versus another source like BM? And the second point that is I heard you reference $3 billion of cash. I think if you look at your press release, Page 5, $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 and regulatory capital needs inside of '23?

Connor David Teskey

Sure, Craig. So I would say one of the motivations around the spin out 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 spin-out 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. And 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. So 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

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Brian Bedell

Great. Maybe the first one on Global transition to. 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 the broader -- more broadly speaking, how do you think about the deployment opportunities for transition versus, say, infrastructure, which is probably your second most rapid 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?

Connor David Teskey

Yes, certainly. So a bit to unpack there. First and foremost, yes, you are correct. The second vintage of our transition fund has announced 2 transactions that will act as the first 2 investments in the seed portfolio for BGTF2. 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.
 
And then lastly, to your last point just around the investor base, as we begin to think about BGTF2, it's significantly larger this time. And I would say there's really 2 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 fits 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, call it, the last 3 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 festival universes at very attractive risk-adjusted returns, and that's driving enhanced capital flows into the space versus what we saw 2 or 3 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

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 a 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 time line given the lag typically of getting them on platforms and also maybe some perspective on the risk appetite right now from the retail perspective.

Connor David Teskey

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. Both franchises, 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

Our next question comes from the line of Ken Worthington with JPMorgan.

Kenneth Brooks Worthington

In the letter of 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 see -- where you expect to see better realization opportunities as well?

Connor David Teskey

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 through -- 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 3 other points I would make is 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. And then 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 rate 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.

Kenneth Brooks Worthington

Great. 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

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 90% plus 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 the 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. And so based on that, and you can deduce that the dividend growth for next year could be quite sizable. But -- and we'll get that all approved at our February Board meeting and announced it with our February results.

Operator

Our next question comes from the line of Nick Priebe with CIBC World Markets.

Nikolaus Priebe

Okay. 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 towards the end of this year.

Bahir Manios

Nick, it's Bahir again. So I think our expenses year-to-date are up somewhere, I think, around 13% to 14%. And because our fundraising this year was more -- as you know, more back-end loaded, our revenue increase has been much smaller than that. I think 2024 is going to be the exact flip. First, while I don't have a certain percentage to guide you to, I can -- we feel pretty good that our growth in expenses next year should be much lower than what it was in 2023. Now that a lot of the material investment on the people side is already behind us. And as I highlighted at our Investor Day back in September. So the expense growth is going to be much lower a lot of the fundraising would have been done already. So you're going to have that revenue growth pick up with a much slower expense growth. And so there should be -- the impact on operating leverage next year could be quite sizable.

Nikolaus Priebe

Okay. 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 line 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?

Connor David Teskey

Certainly. So I would make 2 comments there. Today, our partners at Oaktree are the premier credit franchise around the world. And while they are -- have a 30-year history in opportunistic credit, they have a multi-decade history in other forms of credit, notably performing credit, loans other strategies as well. And 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 assets, asset-backed lending, 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

Our next question comes from the line of Mario Saric with Scotiabank.

Mario Saric

And 2 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 stage.

Connor David Teskey

I would say it's probably -- I'd perhaps answer that question 2 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

Okay. And then my second one, and I appreciate carry mentioned it may be a little bit too early to talk about BIF 6. As you mentioned, the 5 is already 40% committed. I know that historically, you'll look to start fundraising for a successor fund once I think you put 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%. Is that a very simplistic way of thinking of it? So when you hit some of 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? So for example, if I look at Slide 30, the supplemental on the core plus infra side, the vintages are about 3 years spread of the part. So is it more of a time thing? Or is it simply hitting 775%. If there's client demand, you'll start the next series.

Connor David Teskey

Mario, your approach is not far off. I would say we take great pride in ensuring we do our jobs well and deploy that 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 fast. If a fund comes back to market slightly slower because there weren't great opportunities to deploy the capital. So 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 that can -- for the next vintage that can be readily deployed for those clients and those partners quickly after they've committed it. So your metrics are right, your thinking as being 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

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

Jason Fooks

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

Operator

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