Brookfield moves reinsurance money for majority stake in private debt firm

Brookfield Asset Management has entered a partnership with Castlelake LP, securing a majority of the private debt firm’s fee-related earnings.

The deal, valued at approximately $1.5 billion, marks a significant step in the Canadian investment powerhouse’s strategic expansion of its credit operations.

As part of the investment, Brookfield’s reinsurance division (Brookfield Reinsurance) will also allocate funds into Castlelake’s strategies. That said, despite the new arrangement, Castlelake maintains its autonomy and continues to hold the majority of earnings linked to its performance.

Recently, the Toronto-headquartered Brookfield Asset Management established a credit division aimed at bolstering growth parallel to its existing real estate and infrastructure ventures.

The company explained that it is intensifying its management of credit assets, including those of its own insurance operations, often through strategic partnerships.

RBC Capital Markets analyst Geoffrey Kwan noted the transaction “helps to deploy some of its significant cash ($2.7 billion) on its balance sheet and we think there could be an opportunity to take a greater stake in Castlelake over time.”

Brookfield’s stock saw an increase of 1.2% on the New York Stock Exchange following the announcement.

The move into private credit comes at a time when rising interest rates have escalated borrowing costs, prompting alternative asset managers to venture beyond traditional buyouts.

This trend has stimulated a surge in private credit, stepping in to fill gaps left by conventional banks. Private equity firms are increasingly acquiring stakes in insurance companies to steer their investment strategies and expand their financial reserves.

Brookfield anticipates its credit business to be the fastest growing segment, expecting it to expand more than threefold within the next five years. The firm aims to leverage its credit and insurance operations to escalate its fee-bearing assets to $1 trillion by 2028, a significant rise from $457 billion recorded at the end of the previous year.

Brookfield’s credit division is also managing investment strategies that include insurance solutions like investment-grade debt, structured finance, and asset-backed financing. However, private credit and direct lending constituted 80% of its fee revenue last year.

Castlelake, established in 2005 by Rory O’Neill and Evan Carruthers, manages roughly $22 billion, specializing in asset-based private credit sectors such as aviation and specialty finance. The transaction is slated for completion in the third quarter.

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