Where Will Brookfield Asset Management Be in 10 Years?

Key Points

• Brookfield Asset Management is a top-tier alternative asset management company.

• The alternative asset management industry is projected to grow rapidly.

• Brookfield has a lot of opportunities to deploy capital and attract new assets.

• 10 stocks we like better than Brookfield Asset Management ›

Brookfield Asset Management (NYSE: BAM) is a leading alternative asset manager with about $550 billion in fee-bearing capital under management. This might sound like a lot (and it is), but it's a small percentage of the alternative asset management industry.

Brookfield focuses on investment opportunities in real estate, renewable power, infrastructure, private equity, and more. With investor interest in alternative investments surging, what does the future hold for Brookfield Asset Management?

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Brookfield Asset Management's massive opportunity

The alternative asset management industry itself has grown tremendously over the past couple of decades. To say there is growing investor demand for things like private equity investing, private real estate deals, infrastructure investments, and other nonstock market assets would be an understatement. In fact, since the early 2000s, the amount of alternative assets under management globally has grown by 10X.

Brookfield estimates that there is a total of about $150 trillion in global assets under management (all types), and that $25 trillion of it is alternative assets. However, by 2032, this is expected to more than double to $60 trillion, so this translates to roughly $35 trillion in growth opportunities over the next seven years alone.

In other words, if Brookfield even maintains its current market share, it should have little problem reaching $1 trillion in fee-bearing assets within the next five years. And because of Brookfield's massive reach and incredible track record of performance, it wouldn't be at all surprising for Brookfield's share of the alternative asset management industry to grow even further.

Beyond the projections for the asset management industry itself, there are some major opportunities specifically for Brookfield's asset management strategies. For example, Brookfield is a major investor in infrastructure, and it is estimated that over $8 trillion in artificial intelligence (AI)-related infrastructure investment will take place over the next five years alone. There are also major opportunities in renewable energy (another major Brookfield focus), and a falling-interest rate environment could be a major tailwind for real estate, which is one of Brookfield's largest asset categories.

Capital allocation plans

A couple of years ago, Brookfield Asset Management was spun off from its parent company, Brookfield Corporation (NYSE: BN). If you aren't familiar with Brookfield's somewhat complex structure, Brookfield Corp. still owns three-fourths of Brookfield Asset Management, as well as stakes in its publicly traded investment partnerships, the Brookfield real estate business, and more.

However, since Brookfield Corp. still owns 75% of Brookfield Asset Management, it best the question of why the spinoff was completed at all. And a big part of the answer is capital allocation priorities.

Specifically, Brookfield Corp. is means to be a compounder. It pays a modest dividend, but the goal is to reinvest substantially all of its earnings back into the business.

On the other hand, Brookfield Asset Management aims to be an excellent dividend stock. It has a 3.1% yield as of this writing, compared with less than 0.6% for Brookfield Corp. In fact, management's stated goal is to return 90% of Brookfield Asset Management's earnings to investors through both dividends and buybacks. This, combined with the growth of the asset management business, could help produce excellent total returns over time.

So what does the next decade hold for Brookfield Asset Management?

The bottom line is that nobody knowns for sure where Brookfield Asset Management will be in 10 years. But if the company can keep producing double-digit returns for investors, returns 90% of its earnings through buybacks and dividends, and grows its fee-bearing capital under management at a pace equal to or greater than the growth of the overall market, it could be a big winner for patient investors.

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Matt Frankel has positions in Brookfield Asset Management and Brookfield Corporation. The Motley Fool has positions in and recommends Brookfield and Brookfield Corporation. The Motley Fool recommends Brookfield Asset Management. The Motley Fool has a disclosure policy.