Q3 2019 Earnings Call
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Fleming managing partner Ma'am you may begin.
Thank you operator, and good morning, welcome to Brookfield third quarter 2019 conference call.
On the call today, I, Bruce <unk>, our Chief Executive Officer, Brian loss, and our Chief Financial Officer, as well as a new drugs managing partner and CEO of our business in India in the Middle East.
Bristol first give an update on our business followed by Brian who will discuss the highlights of our financial and operating results for the quarter.
And finally, a neutral talk about our business in India.
After our formal comments, we'll turn the call over the operator and take analyst question.
I'd like to remind you that in responding to questions and you're talking about new initiatives and our financial and operating performance. We may make forward looking statements, including forward looking statements within the meaning of applicable Canadian in U.S. Securities law.
These statements reflect predictions of future events and trends and do not relate to start to them. They are subject to known and unknown risks and future events may differ materially from such statement.
Further information on these risks and their potential impacts on our company. Please see our filings with the securities regulators in Canada, and the U.S. any information available on our website. Thank you I'll now turn the call over different.
Thank you Suzanne and good morning, everyone. Since we last spoke to many of you at our Investor Day, We completed our previously announced partnership with Oak tree acquiring 61% of the business with the remainder continuing to be owned by the founders and the managed.
Women team, who are continuing to run the business a independently from Brookfield.
We're thrilled to be able to benefit from the oak tree a world class expertise as Oaktree has established itself as a premier credit franchise in the world and we intend to utilize.
Their knowledge to make.
Veteran investors and everything we do.
Today, we're working with them to selectively help them scale up some of their strategies.
And looking at where we can jointly provide products to our clients. Although it's still early days, we think we're getting some good momentum.
Looking longer term. This partnership also better prepares us to capture opportunities presented during periods of market disruption.
Our positioning ourselves to put our resources behind oaktree to allow it to excel more than ever inevitably when the market turns.
Turning to right now business fundamentals in most markets remain quite constructive.
With interest rates negative.
In both Japan, and Europe generally the Mark growth is slow, but we're still finding opportunity partly due to our ability to finance for long term at these low rates.
In Europe , we've recently completed term financings sub 100 basis points and this allows for very strong leverage returns.
India, today's under significant capital markets stress, which creates opportunity.
And that is one of the reasons, a new trend Jan arc head of the region I use on the call with US today provide to provide you with a more indepth update on that front.
In the United States. The economy is good. It also appears that we we will be an old low interest rate environment for longer than most of us would have imagined and what that means for asset values like real the real assets generally that we own is that.
Generate cash flow is that they are in that environment shouldn't be worth a worth more and then investing in real axis is a very attractive way to earn returns for institutional one other capital.
With that in mind, we continue to look for and had been finding opportunities to boy capital in the United States and this is increasingly in the form of special situations, given where the overall capital markets are.
If this low interest rate environment continues which at the moment it looks like it well, we think that capital will increasingly be allocated to alternatives as a means of meeting required return targets.
We think that many institutional investors will continue up question towards holding allocations of up to 60% in alternatives and as you know some of the leading groups are at that level, but more and more push towards increased allocations.
In this regard during the quarter and subsequent to quarter end, we held additional closes in our current flagship funds.
In the infrastructure fund, which today is.
At over $15 billion and it will be larger when it has its final close later this year.
And last week, we have nine now once the final close of our latest flagship fund for private equity at $9 billion.
Together with our latest real estate flagship fund that closed in January this year.
And co investment capital committed to date.
In 2019 were on pace to exceed our $50 billion of capital we targeted to raise in this round of funds. These funds in aggregate, our approximately 45% invested and therefore, we anticipate that we'll be back in the markets for our respective flag.
Ships in 2020 122 period.
As I mentioned at our Investor Day, We expect this next round of flagship fund raising together with Oak tree oak trees flagship distressed credit fund.
Could reach $100 billion.
Our newer strategies are also seeing significant capital inflows are special situations opportunity program continue to raise commitments during the quarter. Following its successful successful initial first close in the second quarter and we raise commitments across each of our real estate.
And infrastructure core perpetual strategies.
We have also been very active in deploying capital.
And our infrastructure business, we closed on the acquisition of data mobile business in New Zealand.
Within our private equity business, we signed an agreement to acquire controlling interest in the largest residential mortgage insurer in Canada and also acquired 45% of a global infrastructure services company largely focused in the U.S.
We're also actively adding capital in all areas across the business and while we're cautious about the overall market.
I would characterize it that we're still finding attractive opportunities to put capital to work with in each of our strategies.
With that I'll pass the call over to Brian and he's going to give you an update on the results that we had for the quarter.
Great. Thanks, Bruce and good morning to all of you on the call funds from operations or FFO totaled $826 million for the quarter. That's but he said that's 80 cents per share and net income was $1.8 billion or 91 cents per share attributable to.
I'm sorry holders.
Both EFO net income continued to benefit from the continued growth of our asset management franchise and strong performance across many of our businesses.
In particular, we achieved another step change in the level of fee related earnings and carry potential with the success of our recent vintage of flagship private funds, which Bruce just spoke to.
So first I'll touch on the results of our asset management activities.
Related earnings were $306 million in quarter, which before performance fees is a 35% increase from the prior year.
As an aside this does not include any fee related earnings from oak trees that transaction closed the final data the quarter.
The step up in fee related earnings is due to that $20 billion, a third party capital raised over the last 12 months across our flagship funds, but also includes grow a growth in the long like fund strategies in co investments.
It also reflects the increase in capitalization that are listed partnerships all of which benefited from unit price appreciation during the quarter.
And in addition, we began earning fees from the BP why NBP, our capital issued as part of the privatization of GGP in August of last year, which had been subject to a 12 month fee waiver.
So starting in Q4, we will see a full quarter contribution from these fees as well as the contribution from the Oaktree acquisition partnership that added a further $102 billion overall in fee bearing capital.
These will increase our annualized fee revenues to $2.8 billion and target carried interest to $2.6 billion for a total of $5.4 billion.
As a result of the continued strong fund raising momentum and are well rounded portfolio of long dated and perpetual product offerings.
Which has further strengthened by our partnership with Oaktree, we are raising the target multiple on our fee related earnings that we use in our business plan values from 20 times 25 times.
And that's to reflect to the increased strength of our franchise and are very favorable growth profile.
As you know we use the same framework for both internal and external reporting. So we wanted to share this change in thinking with you.
We think this is also in line with how the market is beginning to think about us and our peers and we will continue to provide you with all the math. So that you can assess the numbers as you see fit.
Now turning to carried interest we recorded $59 million a realized carry in the quarter, which arose primarily from our first real estate flagship fund and over the last 12 months, we've recognized $595 million of carry into income.
And we expect to recognize additional carry over the coming quarters as we complete the number of anticipated asset dispositions.
Total unrealized carried interest based on investment performance to date now stands at $3.6 billion and that includes carried interest related to the oaktree funds.
Turning to invest capital, excluding disposition gains FFO from investing capital in current quarter was $356 million.
FFO growth across the listed partnerships was quite good as we benefited from same store growth and development initiatives within our existing businesses.
As well as contributions from new investments.
This favorable performance was offset however by volatility within directly held investments, including larger than expected mark to markets within one of our seed portfolios and a retracement in results at one of our more cyclical businesses that have reported particularly strong earnings in 2018.
We expect to continue to invest some of our cash flow into value, creating investments on our balance sheet. In addition to our liquidity reserves. So these sorts of items may arise from time to time, but to be clear neither of these items give us any cause for concern.
Disposition gains totaled $125 million in the quarter and that represents our share gains on the sales several investments across our portfolios.
Dispositions included the sale of two office properties in Sydney, and leading supplier forest products in North America.
Over the last 12 months, we generated over $2.4 billion or free cash flows.
This cash flow supplements, our deployable capital, which today stands at nearly $65 billion.
That includes $14 billion, a core liquidity and $51 billion of Uncalled private fund commitments when combined with Oaktree.
And finally I'm pleased to confirm that our board of directors has declared at 16 cents quarterly dividend per share.
That's payable at the end of December .
With that I will pass the call over to news Ranjan news lead their middle East and South Asia regions and will speak about the opportunities. We're currently seeing coming from India.
Thank you.
Thank you, Brian and good morning, everybody today I want to talk about our journey in India, our outlook on the Union economy, and where we see investment opportunities emerging.
We have now been in India for more than a decade and have over $16 billion of assets under management with investment across all of our businesses real estate infrastructure power and private equity.
Now while we entered into in 2008, we did not close our first major transaction until 2014 since the deal was a new market for US then we would guided by our philosophy.
Patient and investing capital only where we saw value opportunities.
Initially when we arrived in India. The country was going through an economic boom that was reflected in valuations that we thought were too high so.
So we decided to spend the first five years really understanding the market and building out our operating capabilities on the ground. We did this by creating operating platforms that would provide services to domestic real estate and infrastructure companies by 2012, we saw signs of distress in the dislocation of capital emerging we spent two years, putting together what became our first significant trends.
The action in the market, which was a commercial office property owner.
This was a large and complex situation that involve privatizing an offshore public company.
Backing the local banks in the foreclosure of debt and ultimately taking over all operations of the business. We learned a lot in the process and this was truly the start of our journey in India.
Maintaining this investment and operating discipline Weve incrementally build what is now one of the largest foreign investment platforms in the country.
And our real estate business, we will more than 30 million square feet.
Quality office space across several key markets and more recently, we acquired a vertically integrated luxury hospitality group, which has 3000 owned and managed keys.
Our infrastructure business consists of our roads platform with five national highways.
Only cross country gas pipeline and more recently, we signed agreements to acquire the second largest telecom tower portfolio in the world to a large corporate carve out.
Renewable power business owns and operates over 500 megawatts capacity across solar and wind assets and our private equity group has created a financial services business, which provides credit to residential developers who are able to access traditional bank financing.
Through this growth we have built a strong investment and operating team.
Team is over 40 investment professionals and support staff across our operating businesses, though we also employ well over 6000 people. This gives us a unique competitive advantage when evaluating opportunities not only can you provide large amounts of capital where it's needed. We can more easily assessed the risks challenges and operating requirements of the asset or business.
We're also able to implement and execute our business plans on necessarily requiring a local partner. This is very useful, especially when you're using the opportunity to acquire businesses from banks, where the prior owners and subs distress.
Moving onto the economy, there's certainly some near term challenges in terms of slowdown being driven by tightening of credit availability. This led to multiple default.
However, we believe the long term fundamentals of the country needed to be quite strong and India remains one of the most attractive markets in the world.
More specifically over the last few years there've been some significant developments that are very encouraging for the country's long term growth.
First to set the context on the economy, it's hard to generalize the country as big as India, we'd like to think of it has three economies, which we will refer to as India. One two and three India. One includes the wealthiest 100 million people, which make up only 8% of the population that have very similar metrics to Mexico GDP per capita.
Spending habits and consumer behavior, almost exactly the same as Mexico, they contribute 40% of India's economy today and have largely historically driven consumption.
Next we haven't yet too which is another 100 billion people and could be described at the middle class is similar in economic make up to the Philippines in terms of GDP per capita spending and finally, we have India three with the population in excess of 1 billion people who are the GDP per capita of sub Saharan Africa. These are the poorest people largely in rural areas.
Who have not historically been apart of the formal economy for the first time ever were seeing a transformation, which India to in India. Three are becoming included in the formal economy and that is happening for three reasons data penetration reforms, which target inclusion and a strong government that's driving change.
Let's start with data he has risen from being 150 it to the first rank country in the world mobile data consumption and only last three years.
This explosive growth has been brought about by affordable data plans and falling smartphone prices.
And now has 600 million Internet users what a shocking is this is only 40% of the population implying a sustained and continued growth in the future. This digitization is contributed substantially to the inclusion of India's large population and is traveling the high growth across most businesses.
Excited about this trend and actively evaluating opportunities and data infrastructure, including the acquisition I earlier mentioned of the country's largest telecom portfolio.
Secondly, we witness landmark steps being taken to create an inclusive transparent and formal economy policies such as the creation of the other card, which is a unique biometric identifier for every Indian citizen.
And banking for all in which over 300 million Bank accounts were rolled out for the rural population have created integrated eco system that can form the backbone for delivering grassroot reforms in growth as one small example in a very short time. This has already led to an increase in bank deposits of $15 billion.
Thirdly, we're in a period of sustained political stability with strong government had to help the government has wants some breakthrough reforms, including insolvency in bankruptcy code goods and services tax at a 10% reduction in corporate rates.
While the processes are being streamlined and there's some teething issues, which remain as a result of these initiatives India has moved up 67 places in the global ease of being ease of doing business rankings in the past three years. This in turn led to record for an investment inflows.
This is all supported by the fact that the Central Bank has done an incredible job targeting inflation and get to get under control consumer price inflation would you should be as high as 10% is now under 4% and it's been in the target range for over five years. This gives India one of the highest spreads in the world into the current banquet inflation, leaving ample room to cut rates for.
Yes.
No well data inclusion and good government are creating a platform for India to one day become a five trillion dollar economy. There exists some immediate challenges at the country's grappling with India's banking system is saddled with close to $130 billion of nonperforming loans, which at roughly 10% is the highest ratio among the top 10 economies in the world.
This is compounded further by the crisis in the Shadow banking sector, which makes up over 20% of India as overall credit.
Like developed markets, where shadow banks to only specialty or high risk lending.
In India due to regulatory restrictions to non banking financial companies are also provide tried it where banks Catalent for example loans against property margin loans going to shareholder equity.
Most of the distressed debt isn't wholesale or corporate credit, which presents a sizable opportunity for us to acquire high quality businesses at a time when capital is needed.
To conclude we're excited about the opportunity India provides on the one had we have the fastest growing major economy in the world taking steps to accessed are enormous population by including them in the formal economy.
On the other had in the short term liquidity is scarce and the credit markets are in distress, creating a tremendous opportunity for private capital providers like us.
Challenges that while businesses or assets could it come at attractive valuations operating them under Indian conditions can be a challenge, which is where our 6000 person strong operating platforms give us a unique advantage to navigate India and this period. Our key investment themes are to focus on businesses that benefit from inclusion of that final billion people.
Acquiring assets or businesses from overlap with corporates, making stable bond like investments that generate a high cash yield and lastly, looking at private credit opportunities where banks cannot led.
Thank you that concludes my remarks, I will now turn the call back to the operator for questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound King once again to ask a question. Please press Star then one now.
And our first question comes from Cherilyn Radbourne from TD Securities. Your line is open.
Thanks, very much and good morning.
Start now that Youve closed oak tree deal I was hoping you could give us a little more color on the client overlap with the early feedback has been from clients and some of the early integration progress.
Yeah look Charlotte's Bruce I'll just.
I will try a couple of things and I'll, just say personally it's early days.
A second I'd say the reaction from.
Shareholders investors clients.
Employees has been virtually all positive very seldom does that occur but it.
Truly has been an extremely positive environment. So we're we're thrilled with that and ER and hope that we can continue to do that.
As you know, we're going to keep oak tree as an independent business, it's going to run its investment affairs. The way they always have and Howard marks and Bruce Karsh will continue continued to lead the business.
So it's not going to be integrated within Brookfield, having said that there are specific things that we're trying to.
Work with them on where we can.
We have some unique advantages or vice versa, where they have some things that they can help us with so.
I like to I guess I'd just characterize it that we're quite.
Please so far.
With all of the operations on the client side I think the maybe the only comment I'll make and I generally don't talk we generally don't talk too much about our clients, but I would say that are.
The Oaktree franchises is extremely strong in the United States in client relationships and it is much stronger in private.
On high net worth.
And our business has historically and is today much stronger in middle East and in Asia.
And.
So I think those are those will be added those two things will be additive to the equation in the longer term.
Okay. That's helpful.
And then just given the comments you meet in the letter regarding governance and stewardship just curious what your level of concern is around some of the anti private equity rich for exits emerged as the U.S. kind of gears that for 2020 election.
Yeah.
Not sure I want to be quoted on anything.
I would just say.
Look our our we're a long term investor.
Into.
Real assets globally, we operate in many many countries.
We respect all the rules of the countries and our businesses about long term investing and creating wealth for communities.
And owners of businesses.
So I don't really have any specific comment on it. It's just it's more of that.
Our business is often.
A little bit different.
Thank you that's my too.
Thank you. Our next question comes from Bill Katz from Citi. Your line is open.
Okay. Thank you very much for taking the questions first one also sticks with oak tree as a sort of wondering a booster Bryant yourself.
Thanks for the the sort of the topline contribution luxurious just wondering if you could help us understand what the sort of full year for FFO contribution might be assuming no growth in the platform and then from an accounting perspective.
Given that you sort of semi statistics had 100% inclusion of oak tree in some of the data points, how should we be thinking about the.
The roll forward to the funds from operations will that be a anti adjustment or how should we be thinking about that.
Sure so.
Relative to give you more color in some of the specifics when we get into the into the full year results and reporting.
In essence, so to pick up on one of your comments about.
Presenting the information at 100% of the fee bearing capital in the revenues and things like that what we're really getting at there is what is the scale of the two organizations together because that's really what matters in terms of how our clients view us and our business activities and so we think thats an import.
Way to think about the business.
Having said that we also recognize the importance for people to be able to take that translated and what it means for up for a Bam stockholder as well in terms of of the underlying metrics. So what we will do is give you.
I think we've given you some of that to date in the perhaps in some of the details.
Is what it means on the 100% basis, but then taking it back to what it means for for a Bam.
Net result for for the stockholders.
By showing how much of the non controlling interest comes out.
On that so I think thats, a big part of it so.
If you wanted to for example think effect.
Well what might look like going forward. Some of that comes through in I think maybe the best metric to think about is what does it met from a.
An annualized fee related earnings.
Going going forward.
And.
So so I think thats.
I would see is on a net basis around $150 million of annualized fee related earnings at our share.
And then in terms of that target carried interest on the basis that we would look at it would be a little bit shy of $300 million on it on an annualized basis.
So hopefully that gives you a bit of context.
Thats very helpful and this as a follow up.
So wondering if you could sort of maybe dive down another layer. So on the realization opportunities you look out over the next several years quarter to quarter. It looks like the histogram has gotten a little better in terms of what sort of falls in the zero three buckets. So forth adds as have the dollars how should we thinking about maybe the pacing of the magnitude of realizations as.
Look into a yearend 19, and 22 anything get some general commentary as well and some of your prepared remarks earlier.
Sure.
So lets it's a little bit of a challenging one to two.
Talk to specifically build because.
For obvious reasons, you try and time these things are execute them.
The point in time, when it makes most sense and one of things. We obviously do is give ourselves.
As much latitude to hit the right spot.
On on that and so.
We are we do continue to see some strong potential for realizations over the next couple of quarters in some of that candidly is some of the stuff that we thought we might get done by the end of this year, but that we've chosen to push that.
Into into Q1 in Q2 in some of it into Q4 of this year.
Really just to ensure that we're maximizing value. So it's a bit of a tough one to get too.
Specific on though.
Okay I'll get back into queue. Thank you.
Thank you.
Our next question comes from Robert Lee from KBW. Your line is open.
Thanks to me Thanks for taking my question, so maybe going back to.
Three a bit.
Understanding it's early days.
There is kind of a lot of work to do but if I look at oak tree over the past.
Four or five years.
I mean, they've kind of struggle grow their own kind of fee bearing capital and obviously they've got opps funds 10, turning on to that will give you a short term boost but I mean, what does it do you think you can bring to the table to kind of help accelerate what's been kind of no.
Kind of modest growth at best the in their business for for Awhile.
Yeah, I'll say the following I think they would have and they will be able to maybe do a little bit better if.
In an environment, where we can help them.
If you're in a an economic environment that is all was positive.
But.
The real value will be created in this franchise when the market turns and they can put.
Sizeable capital into.
Stress and distress.
So the reason we purchased this wasn't too.
To be able to benefit from the positive times, the real value will come when.
When negative times calm and.
We're quite confident that.
Recessions have not been repealed and.
As a result of that there will be a point in time, so I think it'll be it'll be a.
Good, but not spectacular business until.
The market turns and at that point in time, it will be one of our great businesses to put money behind and and.
And will enhance our overall franchise because of it.
Okay, Great and maybe just.
As a follow up.
Thinking about the the next flagship fund raising cycle that may be starts up.
2021 or for so I mean, you.
Let me put out the kind of 100 billion number which considering the cycle was 50 billion and even if you kind of assume a 30% upsize or so in the funds.
And even if you upsides.
The flagship distressed funds or something from.
Oaktree kind of still feels like that.
Pretty big numbers. So can you maybe kind of help us how you're thinking about that development are you thinking GE next rounds, now that 30% upsize, it's some magnitude above that.
Yeah, I just say it a look I think the these funds and the co investment capital and the pools of money that we bring bus side.
Our flagship funds are getting bigger and bigger every year every time and.
There is the capital in the World.
Seems to be.
Splitting down the middle there are small knee strategies and there is a very large.
Strategies, we fortunately fit into the latter and we just think the scalability of the franchise just gets better and better.
Great and if I could this one maybe one last question could you maybe.
How do you think a fund raising kind of in between now and the bridge to the next Big fund raising cycle I mean, how do you. What do you think it's kind of your kind of I'll call. It normal course kind of fund raising capability over the next 12 months or so and.
Maybe to follow on I know perpetual capital's part of that could you kind of size.
Pools of capital are now.
Yeah. So.
Brian May have some other specifics, but I'll just say that.
While we often talk about our flagships, we have many other funds.
Which.
Our out in the market and we're fundraising fundraising all the time and those funds.
Probably are.
Upwards of 10 strategies at any one time and these are 1234 or $5 billion strategy. So.
We are continuously fundraising for many of those strategies and those will end up accumulating up the pretty large numbers, even when we're not.
Raising a flagship.
Fund specifically in addition to that we're all those.
Raising.
Co investment capital for deals and sometimes direct investment.
With partners that we are investing beside our partnerships.
The last thing just to comment on your question on open ended or perpetual strategies.
I think.
If we're in we think if we're in an environment of low interest rates. These.
Perpetual strategies are ideal.
Fixed income alternatives, and they're going to get continue to get bigger and bigger and bigger and ER and our infrastructure in real estate funds should continue to grow and they just continuously bring in capital and as they get larger.
More and more institutions are able to invest into them because some of them have size restrictions and therefore you need.
In size for them to be invested into it so they get more attractive as they get bigger.
Great. Thank you.
Thank you. Our next question comes from Dean Wilkinson from CNBC. Your line is open.
Thanks, Good morning.
On the Oak tree acquisition. It looks like you picked up about a net 824 million or so in unrealized carry.
With the expectation that that turns into generated in line with your existing.
We will have on carry or is it a little shorter dated longer dated how should we be thinking of that potentially coming in and are there any clause in that that that may be different from your existing funds.
Yes.
So.
Those funds are or what I'll say more of that carry relates to.
Funds have been in existence relatively longer than the comparable amount for us. So yes. It should that carry should have a shorter term to fruition and a than ours on average.
And yes.
Follows up pretty similar approach in terms of how they.
Determine and quantify carriers as we do.
Okay great.
Bruce in your letter you rightfully pointed out the big discount on on BP y and and.
Being sort of at a historic and perhaps unprecedented level.
Is there to upper ownership limit that Brookfield asset management.
Has when its thinking about their stake in BP, why either individually or perhaps with a joint player.
Not look I would say were and we flow we floated BP why because we thought it was an attractive way to finance the business and.
And that we would own mistaken overtime dilute ourselves down.
We have diluted ourselves down from I guess, where we started out.
5% down to 50%.
We are we just to be clear, we have no intentions of selling shares at this point in time. So we're not going can be selling shares to decrease our interest.
As we've repurchased shares in the company our interest goes higher but the market cap is pretty big so it takes a lot of capital to do that.
Within as they repurchase or if we.
Purchase shares.
So we don't really have any we've.
Companies that have larger.
Usually trade at better prices.
But.
We'll respond opportunities as it goes along and so.
So our goal would be to have a proper float but.
Also we are in the business and making money for the owners of the company and that will.
Probably.
Override anything else.
Okay, great that's it I'll hand, it back thanks, guys.
Thank you Sir our next question comes from Andrew Coskey from Credit Suisse. Your line is open.
Good morning, I think it's been almost three years since we saw the insolvency code come into force in India, and Theres been a number challenges on the legislation since that period of time. So I guess the question is.
To what degree of confidence just on the court process and the predictability of outcomes with the RBC.
Sure its nature I'll take that you're right. It's been about three years. It's a it's a very good code, but the jurisprudence is still being worked out. So we are seeing a lot of the judgments being challenging court. The some of the key cases that happened about three years of or now finally in Supreme Court and getting a final judgments we should be used in the.
Sure to speed up any future cases that go to the IVC. So we're quite confident that the jurisprudence is coming along and things should get better.
However, we're also happy about is the government has been taking steps to make it easier for companies prior to ending up in the state where they need to go insolvent to get have a resolution put in place. So prior what would happen is a company that was in distress wouldn't have many options other than going into one solvency, where it would get stuck in these court processes.
Our now coming up with the new policies and procedures to allow us to or groups like us to work with these companies in advance of that actually happening when the business in better shape, So where we remain quite confident.
So I guess a follow up would be when you. When you look at the Npls that sit on a lot of the Indian banks and just some of the issues in the economy and then the case law and the legislative frameworks effectively improving.
Do you see an ability to put more capital to work in India in a much greater fashion than your have already.
I'd say the answer is yes today in India, we and when the last 12 months, we really have put a lot more capital to work. So we probably more than doubled the size of our assets in the last 12 months on the back of this current situation.
If this.
Environment continues I think we would continue to put outsize capital to work in the country.
Given the fact that we can find pretty attractive opportunities and we are up it is a tricky situation, where there are great valuations a great opportunities available, but they need a heavy operating had in order to drive the businesses once acquired and so that's what we're spending a lot of our time.
Okay. That's great. Thank you.
Thank you. Our next question comes from Sohrab Movahedi from BMO capital markets. Your line is open.
Thank you I just wanted to.
Let me ask a bit of for longer term question I mean, you've obviously made the case and I think we see it that there is.
Great interest in the alternative asset management space.
And funds flows coming again.
I just want to get a sense do you think you'll have to make any concessions on your return hurdles.
Given that first theres lots of liquidity and then secondarily, we are just in a.
Prolonged low rate environment does a 15% hurdle return still makes sense will that have to be.
Kind of Ratcheted down do you think.
So one never knows what the future brings but I would say that our experience to date.
Has been that.
If you have scale. If you are a global investor and if you have operating capabilities that the opportunities available.
Our not investable by most of the people that have capital.
What into investments so I think in we think in this and and even in this environment and in where where.
Continued large amounts of capital get allocated to alternatives.
There are not too many people that have the.
Operating.
Capabilities and the scale that we have to be able to compete and there are some and no one should ever think there isn't competition.
But but in general I would say, we don't really see it compressing returns.
In a substantial base.
And just briefly on that then you and you don't see you don't see any pressure to give any concessions in fund raising either whether it's through.
I don't know promising high returns or.
I don't know discounting or anything like that.
I would.
Then one never knows the future but to date.
Are the alternative managers skills are.
Very specific skill that not that many people have and we spent a long time building up the skills and people.
Seemed to be willing to.
Compensate us for running essentially an outsourced.
Investment management organization for them and alternatives because it's tough for most people to do what we do.
Understood and just one last question I I understand the focus on India.
But when situations like the one in Chile half transpired, let's say over the last month or so do does present opportunities or do you really need.
To see that ripple into an economic downturns before before you would look to cut up to put capital.
So I guess I'd characterize it answer the question by just saying our our business.
As.
One of our competitive advantages is putting people in countries understanding the markets understanding the people understanding the businesses and.
Having capital available to be flexible to move to places when the opportunities present themselves.
So to the extent that we believe a country hasn't been irreparably harmed and hasn't changed and we're already there than if theres disruption in the market and opportunities present themselves.
We can be an investor and.
And I'd say the number one.
Country in the world today that fits that is India, which is why we talked about it today.
Because it is a good as a new described it's a very good country longer term that has lot of wins behind his back but its undergoing significant stressed today and capital.
And lack of capital.
And as a result, theres opportunity that could and we'll apply in other countries around the world three years ago that was in Brazil.
Eight nine years ago that was in the United States.
So it changes from time to time.
Thank you very much.
Thank you.
Next question comes from Mario Saric from Scotiabank. Your line is open.
Thank you good morning.
Just more of a broader question in terms of balancing the opportunity in the risks so from a macro perspective.
As you mentioned interest rates are in the plus or minus 2% range.
Diluted earnings are growing up 35%.
Driven by these rising allocations to alternatives, so it's sort of 25%.
I would go to 60%.
Over time, supporting 100 billion dollar foundries and goals for the next refunds. So both the near term and the Mark grew in the longer term Mark Rupe pure positive about the moment.
How are you thinking about the primary risk the franchise today in light of that environment relative to.
The primary risks to the franchise that you would have identified three years ago and what are you doing differently today to assess those were to address those risks relative to the storms you three years ago. So I'll make a couple of comments I hope it.
There's at least part of your question and I guess, what I would say is we.
Every year that goes by.
In the last.
Five years were one year further into an economic recovery and at some point in time.
We will have economic retracement and that will cause.
Stress and distress in particular in developed economies, which are our.
Get affected the most by these type of events.
And at that point in time, we need to be prepared so every year, we get more cautious on our balance sheet on our financing on the underwriting we're doing on businesses, we continue to buy.
And and the Oaktree acquisition was part of us preparing for it. So I guess, we we continue to be more cautious as we get further into this cycle.
Okay and then.
That's helpful and then just.
So oaktree kind of deals with the GP portion.
In terms of.
How you believe.
Subs.
Today relative to.
Did you see GFC.
Nine strategically.
How are you position your underlying subs from an operational fundamental prospectus for that eventual downturn, how would you compare and contrast sit today versus.
And are we going on.
So.
Look I would say they were in their infancy 10 years ago today, they're all mature.
Well established businesses that have been finance.
With all of the thought that I just described in mind and.
Have enormous resources within each of the on.
Each of the companies so I think there.
Dramatically different than they were then and were in much much better shape.
To withstand a economic.
Situation than we were before given the Undrawn bank lines, we have the commitments we have a capital from other sources all the partners we have the financial institutions that we deal with.
Et cetera, So I'd say, we're in a much much better shape.
Okay. Thank you.
Thank you and again, ladies and gentlemen to ask a question. Please press Star then one now.
And our next question comes from L. Katz from Citi. Your line is open.
Okay. Thanks for taking the follow ups. So just one big picture in a couple of minutes on Big picture perspective, what if you could refresh us on your thinking around capital management from here I guess, the Oaktree dealers now I guess a couple of weeks behind you in terms of the deployment of capital you, obviously get their run rate earnings power or your own debts.
With the capitalization is pretty conservative cashless pretty strong overall.
You've mentioned previously about potentially stepping in and buying back some stocking obviously have a low growth in front of use how to counterbalance all those variables and then maybe think about.
Capital return to investors.
So I'll, Oh, I'll start off and just say that.
This business.
If it achieves what we think it can achieve is highly cash generative.
Without that many uses of capital within it other than if we choose to do things.
And those are choices and the choice that one management team should always consider as whether they should use that capital to buy back stock.
I think.
I guess our view generally is is that over the next 10 years, there will be points in time, where we should return substantial capital to owners and there probably will be.
Periods of time, where we do.
Whether that be in the share repurchases dividends spin offs or other things.
We will return capital to owners, but it never cease to amaze me that we.
Find opportunities that come along to also put capital work, sometimes at more attractive.
As attractive.
Possibly or possibly more attractive ways because it both enhances the internal business that we have so.
In the I guess the the last comment is in the absence of better opportunities all of the cash we generate will be returned to the owners of the business over the next 10 15 20 years.
But sometimes from time to time, there will be great opportunity, but that money to work.
Okay and just some this year I apologize, but just I was wondering as Brian perhaps we could just maybe a couple of senses on three different line items that were particularly variable I think quarter to quarter at least relative to I think most expectations maybe just.
The underlying sort of quarterly change on a BBU.
Maybe peel back the other listen investments dynamic and then maybe on the energy marketing is there a more favorable inflation coming up on that line item.
Sure so.
DVU private equity that's really getting at the.
We had a couple of one operation particular.
In the panel board side that did extremely at very very robust earnings last year and it's the depth the product that they sell does have.
Some cyclical.
Price variances in that and so that one was really a question of retracement of earnings to a lower level today based on on what we saw but the fundamentals of business. We think longer term is still good.
The other one you mentioned within the I probably covers BBU on that and that other category because we some of its own within.
Within the other category and then and then on the the energy marketing that was largely a reflection of the fact that we did have some higher generation in.
The in the one region where that.
We're aware that energy marketing business applies to and so while the good news was that we had a lot higher generation levels, which benefits.
Staff and in turn benefits us through our ownership and bet, having said that.
We do have a negative price variance today on that contract and so when the volumes go up the aggregate hit to us increases as well now that differentiate that differential.
We see moderating overtime and turning into a positive.
But in the current environment it is the drag.
Thank you.
Thank you and I am showing no further questions from our phone lines I don't like to turn the conference back over to Suzanne funding for any closing remarks.
Thank you operator, and with that we will wrap up the call today. Thank you everyone for joining us.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.