Brookfield Asset Management’s chief executive Bruce Flatt expects the low interest rate environment to bode well for private market assets, particularly real estate and infrastructure.
In the firm’s second-quarter earnings call, Flatt said just in the past few weeks, he is starting to “see bids for real estate and infrastructure assets at higher multiples than pre-covid.”
In March, the US Federal Reserve cut interest rates to near zero to support the economy during the coronavirus pandemic. The target federal funds rate was kept unchanged in its July 29 meeting.
“With a zero-interest rate environment here and it increasingly looking like it will be here for five years plus, this will also have a meaningful impact in a positive way on the real assets that we already own,” Flatt said. “The majority of our assets today have long-term, fixed contracts, either long-leased property, contracted power or utility or utility-like assets. And with interest rates dropping, the value ascribed to these cash flow streams increases significantly.”
Alongside higher valuations, the benefits of low rates also extend to stronger fundraising momentum as institutional investors look to increase their non-fixed-income allocations to meet their return objectives.
“The floodgates have only started to open and the reason is that if you are trying to earn 5-8 percent within an institutional pool of money, there really is no hope to do that with traditional fixed income,” he explained. “And as a result of that, other than holding cash for liquidity purposes or short bonds for liquidity purposes or some form of long bonds just for safety, all other pools of former fixed income allocations are going to come to lower risk alternatives, and therefore that is going to enhance private credit opportunities. It is going to enhance real estate, infrastructure and all the products that we offer.”
Brookfield Asset Management raised $23 billion across various pools of capital, including $12 billion for its latest flagship distressed credit fund, making the second quarter the firm’s strongest-ever fundraising period. The fundraising momentum also included a €725 million first close for Brookfield Premier Real Estate Partners Europe, a European perpetual core-plus real estate fund. Brookfield’s total assets under management have increased to approximately $550 billion, up from $519 billion in Q1 2020.