Brookfield launches its own lending business
Brookfield has announced an investment in Castlelake’s lending business in the US. The deal is worth US$1.5 billion. It includes the purchase of a 51% stake in the company. Under the terms of the agreement, Castlelake will retain its current structure following the acquisition. In addition, the company will continue to operate independently of Brookfield.
The private credit sector is becoming an increasingly attractive option for capital investment. Its main advantage is a more loyal attitude from regulators. Private lending companies are subject to less stringent regulations than traditional lenders.
Brookfield’s Craig Noble believes the investment in Castlelake will help accelerate the company’s growth over the next ten years. The US company focuses on the fee-based income or FRE sector. The latter involves evaluating opportunities for an asset manager to generate returns. The deal has a high business potential:
1. It could generate about US$110 million in recurring management fees for the Canadian company.
2. This amount represented approximately 3% of Brookfield’s total revenues in 2023.
3. In this case, the management fee rate is 1%.
Given these expectations, the company is keen to acquire Castlelake. Moreover, the sector itself offers new opportunities for large companies.
Brookfield’s plans
Canada’s Brookfield recently launched a new division – the credit division. It operates alongside other businesses – real estate and infrastructure funds. Previously, the company used partners to manage credit assets.
Noble also notes that an increased stake in Castlelake is possible. At the moment, Brookfield plans to invest around US$2.7 billion in the US company.
In addition to the designated company, the company is already working with several lenders, including:
– Oaktree Capital, in which Brookfield acquired a majority stake in 2019;
– LCM Partners;
– Primary Wave;
– 17Capital.
The Canadian company is betting big on the lending business. According to its forecasts, this will be Brookfield’s fastest-growing area. According to analysts, the volume will triple over the next five years. The company expects fee-generating assets to reach US$1 trillion by 2028. In 2023, the figure was US$457 billion, including insurance.
To grow the credit business, Brookfield has implemented several investment strategies, such as:
– investment grade debt;
– structured finance;
– asset-backed financing.
However, retail and direct lending remains the company’s main focus. Together, they generate approximately 80% of the company’s fee income.
