Investing.com -- S&P Global Ratings has assigned an ’A-’ issuer credit rating to Brookfield Asset Management Ltd. (TSX: BAM ), a global alternative asset manager with around $539 billion in fee-bearing capital and over $1 trillion in assets under management (AUM) as of December 31, 2024. The rating reflects S&P’s expectation that BAM will increase debt to fund growth while keeping leverage minimal.

The outlook for BAM is stable, indicating S&P’s anticipation that the company’s earnings and fee-bearing capital will continue to expand and diversify, while maintaining leverage below 1.5x debt to EBITDA over the next two years. Along with the issuer credit rating, S&P also assigned an ’A-’ rating to BAM’s proposed senior unsecured notes due 2035. The size of this issuance will be determined by market conditions, but S&P estimates it will be approximately $500 million.

BAM’s earnings are bolstered by a significant portion of fee-bearing capital across a variety of long-term, perpetual, and permanent products that produce strong margins. The company’s diverse product offerings include renewable power and transition, infrastructure, private equity, real estate, and credit.

Despite the potential challenges in the commercial real estate sector, which accounts for about 17% of BAM’s fee-bearing AUM, strong fundraising and investment performance are expected to offset these challenges over the next two years. BAM’s position within the Brookfield Corp. ecosystem is strategically beneficial but also adds complexity compared to most alternative asset manager peers. BAM manages most of Brookfield Corp.’s assets, and Brookfield Corp. is currently the largest investor in BAM’s flagship funds.

BAM, which is publicly traded, was spun off from Brookfield Corp. to create a "pure play," balance-sheet-light asset manager. Brookfield Corp. still holds a 73% ownership stake in BAM. After the 2023 spin-out, BAM accounted for about 35% of Brookfield Corp.’s distributable earnings before realizations in 2024.

BAM’s earnings are expected to grow 15%-18% in 2025, with a significant portion of this growth stemming from the growth of Brookfield’s wealth solutions business. As this sector grows and repositions its portfolio, it is expected to invest in a variety of BAM’s investment strategies, with credit strategies being a primary beneficiary of growing insurance AUM.

S&P anticipates BAM’s AUM will see significant growth over the next two years due to a robust fundraising environment for key alternative strategies, including credit, infrastructure, and renewable power and transition. BAM’s investor base, which includes public and private institutional investors, sovereign wealth funds, and private wealth investors, is also expected to expand as the company launches new funds within newer strategies.

As of December 31, 2024, fee-bearing capital grew 18% year on year, to $539 billion. BAM had $129 billion of inflows over the 12 months ended December 31, 2024, across all of its strategies, but with particular strength in credit.

S&P expects BAM’s profitability metrics to remain strong, supported by a fee-bearing capital base that’s largely made up of long-term capital. Of BAM’s fee-bearing capital, 87% is long-term, permanent, or perpetual, which has contributed to very strong margins. S&P expects BAM to sustain margins well above the sector average.

S&P believes BAM will operate with leverage, measured by debt to adjusted EBITDA, below 1.5x during the next 18-24 months. Even after the debut senior unsecured notes offering, BAM’s leverage is expected to remain low. As it adds more debt in the future to fund growth, S&P expects it to maintain a conservative financial policy, with minimal leverage.

According to S&P, BAM is well positioned relative to its alternative asset manager peers, with business risk in line with that of peers such as Apollo Asset Management Inc., KKR & Co (NYSE: KKR ). Inc., The Carlyle Group (NASDAQ: CG ) Inc., and Ares Management (NYSE: ARES ) Corp. Over the next five years, BAM plans to double its fee-bearing capital, consistent with the plans of other large alternative asset managers like KKR and Apollo.

BAM is seen as strategically important to Brookfield Corp. under S&P’s group rating methodology. While Brookfield Corp. could reduce its current 73% ownership stake over time, S&P expects the stake to remain above 50% because of BAM’s strategic importance to Brookfield Corp.

S&P could lower the BAM ratings if BAM’s leverage increases and is sustained above 1.5x, or if business performance deteriorates significantly. An upgrade is considered highly unlikely in the next 18-24 months.

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