Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to today's program title Brookfield asset management 2019, your end results conference call and webcast. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone as a reminder to these pro.
<unk> is being recorded I would now like to introduce your host for todays program to dance managing partner field asset management. Please go ahead.
Thank you operator, and good morning, welcome to Brookfield 2019 yearend conference call.
On the call today every spot our Chief Executive Officer, Brian Lawson, Our Vice Chairman, Nick Goodman, Our Chief Financial Officer, as well, it's Craig no managing partner CEO alternative investment strategies.
Bruce will first give an update on their business followed by Brian that Nick will discuss the highlights of our financial and operating results for the year.
Finally, Craig will talk about our growing alternative investments.
After our formal comments, we'll turn the call Liberty, operator, and take analyst question.
I'd like to remind you that in responding to questions and then 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 and U.S. Securities law.
These statements reflect predictions of future events and trends and do not really trust or for that are subject to known and unknown risks and future events may differ materially from testing.
For further information on these risks and their potential impacts on our company. Please see our filings with the securities regulators in Canada in the U.S. any information of that information available on our website.
Thank you and that'll turn it over to Brian.
Thank you Suzanne and good morning, everyone. Thank you for joining a 2019 for Brookfield was a strong year for the business.
And while we're also pleased with the market performance of Brookfield shares.
I would note that our primary focus will always remain on growing the intrinsic value.
Field over the longer term.
Over the past year, we achieved many important milestones in that regard.
A few highlights.
First we now 61% of Oak tree, the Premier credit franchise.
Ah globally that deepens, our capabilities, we offer our clients and positions us even better across my market cycles.
It also means we have one of the most diversified offerings in alternative investments.
Offering clients a full suite of products.
Second just last week, we announced the final close up our flagship infrastructure fund.
The fund size total 20 billion and together with Coinvestment. This round of flagship funds raised $50 billion of capital.
Today. These funds are up about 45% deployed in aggregate, which means if were successful in deploying the remainder of the capital.
We expect to be in the market depending on pace with our next round up flagships potentially starting later this year.
And into 2021.
With these funds, we continue to diversify and stabilize our cash flows today, approximately 40% of our fee revenues come from perpetual vehicles.
45% of fee revenues from long term locked up committed capital.
And together they provide very growing and substantial stable streams of cash flow to Brookfield asset management.
Despite not being in the market now raising capital for any of our large flagship funds. We do expect to be a very active raising capital for other specialized core and perpetual strategies.
Today, we have Craig noble our CEO of alternative investments joining us on the call to discuss how we're growing our offering and distribution capabilities to meet the demands of clients.
Across each of the pools of capital that we access and what this can mean for fund raising it next 12 to 18 months.
Moving onto deployment of capital, we invested over $30 billion of capital across our businesses in 2019.
Most recently in the fourth quarter, we invested $14 billion a capital including.
Ah closing previously announced acquisitions within our infrastructure business, including transactions, which you would have read about genesee in Wyoming as well as a federally regulated group a pipeline assets in a carve out transaction.
In addition in our private equity group, we closed on the acquisition of 50% 57% of Genworth, Canada.
During 2019, we also sold $13 billion investments for average prices, 9% above their most recent I ever S values, which we had in our accounts.
Despite all this activity we are continuing to increase our capital available for deployment, which stands at approximately 65 billion across the business.
For deployment into opportunities that we're seeing globally.
Turning to markets and I'll be brief Europe is slower, but still quite resilient deny the kingdom seems to have pushed past Brexit.
Which should be positive for businesses, making long term commitments.
As an example office space in London is extremely tight on the leasing side no properties have been started for close to four years rents are going up.
Cap rates are starting to go down and hence values going up largely due to a inflows of capital starting to come back to UK.
Companies in India, and China are clearly under more stress and they've been four years with banks in India dealing with significant nonperforming loans and in China banks are pushing forward to sell assets.
Brazil looks to be back on track to continued to recovery, albeit slowly with interest rates now under 5%.
The developed economy markets are not showing any signs of stress at this point in time.
The United States, Canada, Ns and Australia in particular have strong economies, but assets are more fairly priced so we need to be selective with opportunities looking for transactions and out of favor sectors that play to our strengths.
An example of this was the car about clary else last year or the Genworth, Canada acquisition, which highlighted our ability to move quickly in access different pools of capital.
The corporate credit markets are also performing well, but we believe this is where great value will be found in the next downturn.
We have historically performed well counter cyclicality.
But now with the with Oaktree, we're even better position to capitalize on this situation.
While continuing to invest the same way, we always have with an emphasis on fundamental analysis and downside protection of capital.
As discussed our share price performed well in 2019 generating a total return over 50%.
Which was driven in part by growth in our asset management business as well as the strong performance of our listed partnerships.
Finally, before turning the call over I would like to know that Brian loss, and who has been our CFO since 2000 and too.
That's 18 years.
I will be assuming the role of Vice chairman and the board today appointed net Goodman as our new Chief Financial Officer.
I look forward to introducing you all to Nick.
Ryan has made a very very significant contribution to our business over many years and as Vice chair. He will continue to be involved in many things, we do including finance and risk management activities. While also continuing to sit on the ban board so to Brian. Thank you.
So while Brian continues to be very involved in the company on behalf of all the shareholders I wanted to thank him for that and with that actually I'll turn it over to him.
Great well, thanks, Bruce and thanks for those that comments good morning, everybody. So I do have the pleasure of handing the call over to Nick I'm very shortly as our new CFO or maybe you already know neck and I'm sure you'll agree that he is a perfect for the role for those of you who may not.
Our next been at Brookfield for around a decade, and it's held a number of senior finance roles across the organization during that time.
Including CFO of Brookfield renewable energy.
And more recently, Nick and I spent the past couple of years working closely together in all areas of BAMS Finance group, including corporate Finance Treasury operations and financial risk.
Management.
As for me is Bruce noted, it's been 18 years since my first earnings call as CFO. That's 72 calls for those of you who are accounting.
And while it might be tempted to make it and even 20 was also clear that Nick was fully ready to take on the rule.
I would like to see it I've really enjoyed my time as CFO, it's been a great experience and much of that has come from the opportunity to work with many of you on the line and I sincerely. Thank you for your support along the way I'm looking forward to continue with Brookfield as Bruce noted supporting Nikin, the team and helping other business wherever I can so with that.
I will hand, it over to Nick.
Thanks, Brian and good morning, everyone.
So I'm going under start off by saying that we're very pleased with the 2019 results and the underlying growth of both our asset management business on our invested capital drove strong operating performance.
Net income for 2019 was $5.4 billion or $2 60 per share.
It's from operations artificial totaled $4.2 billion for the year or $4.07 a share.
The decrease in net income for prior year is as a result with higher fair value gains and onetime recoveries recorded in 2018.
Turning to our asset management results first fee related earnings before performance fees increased by 41% to $1.2 billion during 2019 or 39% per share.
Growth in our fee related earnings is largely driven by what we see as a significant step change in the business over the past year with catalysts, including a successful rain to flagship fund raising his bridge touched on growth in our distribution channels on expanding private fund offerings as well as a strong performance of our listed partnerships. We also benefited from one quarter.
Contribution from will trees fee related earnings.
Today, we have combined fee bearing capital of $290 billion, an annual fee revenues our shares down to $2.7 billion.
During the year, we generated $1 billion of unrealized carried interest before costs and that reflects continued favorable investment performance across our funds trustees and accumulated unrealized carried interest now stands at $3.6 billion before costs.
We also realized $600 million are carried interest unrecorded the interest as well as its pastas risk of call, but this realized carried interest is more than double that of what we realized in the prior year and is the largest somebody that we've ever relies on a single year as expected to grow as our fund Vince just mature.
Now turning to invested capital.
Excluding disposition gains fs move for the year increased to $1.7 billion in particular, we benefited from the strong performance of the underlying businesses as wells acquisitions, which more than offset the impact of dispositions made throughout the year.
These increases were partially offset by the normalization of earnings with them one of our directly held private equity operations that recorded particularly strong results in 2018 as well there's lower results from our energy contracts regeneration was above long term average I'm pricing was below the prior year combined these factors contributed to overall modest growth in our.
Operating at the full from invested capital when compared to 2018.
We sold several investments across the business in 2019, including multiple portfolio companies, then or private equity group shows a number of core office properties within our real estate group.
These monetizations contributed towards approximately $900 million to realize disposition gains recorded unethical.
Disposition gains in a prior year were $1.5 billion and that is the main driver wide total at the full for the two year decreased compared to the prior year.
Our liquidity and capitalization remained very strong our balance sheet remains conservative conservatively capitalized with an implied corporate debt to market capitalization ratio of 9% and including Uncalled Fund capital commitments started fund commitments, we now have approximately $65 billion of deployable capital.
Our strong capital structure. It continues to be supplemented by our growing cash available for distribution and our reinvestment or cast ours, we call it which was $2.6 billion for the year, including $1.6 billion from our asset management franchise and $1.6 billion summer invested capital for calls.
Finally, I am pleased confirms our board of directors has declared an 18 cents per share dividend payable at the end of the month.
This equals an approximate 12% increase over the prior year and represents 12 cents per share on a full stock split basis.
I will hand, the call over to create to provide an update on or expanding alternative asset management business.
Thank you Nick and good morning, everyone. Today, our business has over 540 billion of assets under management, including 290 billion a fee bearing capital.
The ways in which our clients can choose to invest with us are numerous and growing and fall into four broad categories.
Our perpetual listed public vehicles or private funds.
Public securities offerings, and oak trees investment offerings.
Today, I'm going to spend some time talking about one of our four ways in which we worked with clients are private funds business focusing on how that business has evolved over the last 10 years and then looking at the growth potential for the next decade.
10 years ago, our private fund fee bearing capital totaled 15 billion Cross 42 clients and we were just about to embark on the fundraising for our first infrastructure fund that ended up being $2.7 billion.
Over the last 10 years, we've grown or private fund fee bearing capital to over 90 billion.
And we just completed the latest round of fundraising for our largest flagship funds across real estate private equity and infrastructure. The most recent of these being our infrastructure fund, which as Bruce mentioned had its final close last week.
Exceeding its initial target to reach 20 billion.
This is an increase of more than 40% from its predecessor infrastructure fund.
And our real estate and private equity funds have experienced similar growth rates.
Okay.
Today, we now have 1800 clients across the world's major pension plan sovereign wealth funds and insurance companies and we've built a private wealth distribution network that now accounts for about 10% of our annual fundraising.
We've grown the number of client facing relationship managers from seven to 58.
And we've built our fund infrastructure to ensure that we're able to cater to our clients needs and deliver first class service.
As we look forward, we expect to experienced continued strong growth in our family of flagship closed end funds in the drivers will be the same as the drivers that have supported our growth to date first as investment performance, which has been strong and we're very focused on continuing to generate strong investment returns through a combination of of our global platform.
Our operating expertise and our large scale.
Second investor demand for real assets and other alternatives is continuing to increase and we believe we're in the early innings of this trend.
Third we built a global business with many of the largest institutional investors around the world who in our experience are seeking to work even more closely with even fewer investment managers and we're very well positioned to capture an even larger share this market.
As we described at our Investor Day, we expect that our next vintage of flagship closed end funds will be in the range of $100 billion, including credit, which will continue our trend of growing with each vintage of funds.
These funds also are seeing an increasing demand for co investment capital opportunities, which increases our pool of capital for transactions. So in summary by continuing to execute in these established areas of our business. We expect to continue our growth trajectory across our flagship closed end funds for many years.
However, as we think about the growth of our asset management business. It's important that we provide a diverse range of products that fit our clients evolving needs.
We've made great strides in this area.
Over the last several years significantly broadening both our fund offerings and also the way that we work with clients and I'll take a few minutes to describe our approach to developing new investment strategies.
I will highlight some of the newer initiatives that we launched over the last couple of years also mentioned some of the more specialized investment strategies that were current developing and an update on oaktree.
As I mentioned over the past several years, we've built a complementary investment capability fund offerings, which fit very nicely alongside of our closed end funds. These investment offerings have been driven by a combination of being.
Reactive to Investor requests and also proactive to anticipate investor demand.
In all cases, we've got a set of principles that guide our development of new investment offerings.
And these principles really revolve around two core concepts first and foremost is that the proposed investment strategy offers a sound investment case, where we can have a differentiated view be an industry leader and which we would be happy to investor on capital into over the long term.
And secondly is a set of principles relating to the business case, which means our ability to leverage our existing sales and client service platform and to profitably grow the business to scale.
With that background I'll profile, a few of the newer initiatives underway.
Starting with our family of perpetual private fund strategies.
Over the past five years, we've developed several perpetual investment offerings, which are attractive to investors looking for more of a core investment profile with more mature assets and higher income and attractive risk adjusted returns given that these vehicles are open ended meeting were able to accept new capital on a regular basis and redeem cap.
Capital as new investors come into the fund the vehicles are perpetual in nature.
To date, we've established these open ended perpetual funds for our infrastructure real estate and real estate debt investment strategies and investor demand has been strong.
Our expectation is that these strategies could grow to be tens of billions of dollars over the next several years, particularly as investors are increasingly seeking fixed income alternatives in today's low interest rate environment.
And there's also room to further expand this family a perpetual open ended private funds.
The second initiative is our development of several more specialized investment strategies targeting specific geographic regions or specific asset types.
Well our flagship funds have historically been global in nature and broad across asset classes. We've also seen investor demand in strategies that are more narrowly defined these more specialized investment strategies are very complementary to our existing business easily meeting our our guiding principles and will result in increase.
Sure fee bearing capital a few specific examples where we are launching new investment strategies include our opportunistic Asia real estate strategy, a dedicated renewable strategy infrastructure debt real estate debt and a real asset technology strategy, which invests in high growth technology focused companies.
That touch our ecosystems of real estate infrastructure and renewable power.
Another area of focus for US today is what we call alternative solutions, which entails working with investors to construct programs across the alternative spectrum.
As I mentioned, we continue to hear from our clients that they want to work more deeply with fewer managers and this lends itself to these more strategic relationships.
This is somewhat new to us and we've already have several investment vehicles and multi asset programs. The recent addition of oak trees investment capabilities was really the last piece of the puzzle to enable us to offer a full suite of alternative investment strategies to clients.
In addition to newer investment strategies were also having success in newer distribution channels.
For the past few years, we've entered the wealth channel, which currently represents approximately 7 billion of fee bearing capital within that Brookfield private funds alone at around 10% of new capital each year.
This is a rapidly growing channel for US is high net worth investors and wealth platforms are searching for alternatives to their traditional stock and bond portfolios and this channel has been a good fit for our traditional closed end funds, but we do expect to develop more investment vehicles, specifically for this channel.
As one example, this past year, we raised over $1 billion for our first private fund dedicated exclusively to the wealth channel, which was a closed and real estate fund focused on new development opportunities in core markets. So we're excited about the growth runway as we further build out this channel.
These are a few of the examples of this step out investment strategies and different initiatives that are already contributing to our growth and we expect this will accelerate going forward and we look forward to telling you more about them and others that are still in development overtime.
Lastly, I'll provide an update on oaktree.
As you know the transaction with Oak tree closed September Thirtyth of last year, but we did have the benefit of getting to know each other over the year or so leading up to that point. So few comments starting with we're very pleased with the partnership even in these early days as you know oak tree will continue to operate independently so while the investment teams and management.
It will be independent there's still many things we can do across the organization with the goal of of serving our clients better.
Many of these initiatives are already underway and there is a real excitement about what we can do together.
These initiatives generally fall into the category of working more holistically with our clients at Brookfield to bring them oak tree investment products and vice versa.
This can involve creating new funds using both Brookfield and Oaktree investment capabilities. Other times, it's within the multi asset solutions framework that it is that I described earlier.
An example of our collaboration with distribution is the recent launch of oak trees non traded REIT.
Where we've been able to involve the Brookfield high net worth distribution team to help raise capital for this strategy and we expect will be a growing number of similar opportunities over the coming years.
Hopefully this overview gives you a good sense of the breadth of our investment offerings, which represent a full suite of alternative investment strategies, and which will fuel our growth for many years.
We look forward to tell you more about these newer initiatives going forward.
With that I'll hand, it back to the operator for questions.
Certainly once again, ladies and gentlemen, if you have a question at this time. Please press Star then one our first question comes from the line of Sherlund born from TD Securities. Your question. Please.
Thanks, very much and good morning.
And in your letter you spend some time talking about sustainability in your carbon footprint, which is certainly top of mind lately. So I wondered if you can speak a little bit about how you incorporate SG in your investment process and weather and increasing emphasis on MSG by LP investors make some assets potentially.
On investable for you.
Yes, I mean, maybe I'll just start off and I think I I'll try to answer the question.
By saying this.
I guess, we've always.
Had a focus on sustainability merely because it's good for business.
And if you can build sustainable businesses over the longer term.
Usually means you're doing good things within the business. So I'd say the first thing is it's been a big focus just because it's good for business.
We we second we focus specifically on renewables.
25 years ago, or more and we've had a big emphasis on that and that's I guess.
It has.
Informed us about a lot of things within the rest of our business as well as we've been able to build the largest renewables business in the world. So that informs us about a lot of things.
And because of that many the things that we do when we make other investments and we when we look at investments across the board.
We've always considered sustainability in that just because we were probably more aware of it because of the big renewables business, we have increasingly that's going to be more important everyday because globally investors.
And individuals are more focused on it so I think it'll be.
We're well set up for it obviously, we have to keep growing and.
And learning more but I think we're in a good places we sit today.
And then maybe on a related.
At least in the public market, we're starting to see certain businesses attract a bit of the sustainability premium and I'm curious, whether you're seeing that in the private market currently or expect Q into future.
Well, we'd like to get a premium for that if we could have one.
But look I think that.
As more and more focus is on this though there will be a split between those that are sustainable that many more people will be interested investing in and.
Those that are seen as not and that capital will shy away from those investments and and therefore the cat the returns on those investments as someone will buy them for going to be a lot less and they're just merely because there's less capital available.
And I don't think the private market is any different than the public market I think people across the in fact investments spectrum are all looking are seeing the same things.
Thank you that's my too.
Thank you. Our next question comes online Bill Katz from Citi. Your question. Please.
Okay and we thank you very much of taking the questions and Brian Nick Best look look forward to continuing in respect of relationships.
Maybe just coming back to the opportunity in terms of the next fundraising cycle. It does sound a little more optimistic maybe for where we were last quarter. This time.
Can you speak to two parts for the question first one being so where like the sequencing of what you see in terms of that opportunity within 100 billion and then secondly, you'd mentioned that sort of pickup in co investments how might the economics of the next hundred billion compared to the 50 billion that you brought on previously.
Hi, Bill its next I'm happy to start.
Great got anything if you want on the on the fundraising site I think on the sequencing of the funds Bill as you know we've just completed the latest round of flagship fundraising first there was flagship funds to complete the fundraising was the real estate vehicle.
So likely that could be the personal butter market, but I think we said that today were about 40, 45% invested across the funds. So we depend on the pace of deployment across the funds, but maybe starting 2021 early 21, we could be back in the market weight Twentytwenty nearly 21, you might see back in the market for those funds.
It really depends on when they get to that threshold for being able to go back home and raising new capital.
In terms of the fees for the next hundred billion for the action funds.
Based on what we see in the market today I would say, we don't expect to see a massive change for those flagship funds, we didnt see any extra pressure on fees through the running to fund raising we managed to sustain our through that period and so I would expect to be able to achieve similar rates as we look at the knicks trying to fluctuations.
Okay, and then just as my follow up just related to that perhaps if you look at your asset management margin. That's still among best in class around 57% I think in the fourth quarter, how do you sort of see that playing through over the next year or two counterbalancing allowed the growth opportunities in front of your versus maybe scaling up the platform.
Okay.
Yes, so yes, I think but we will use all over the last 12 months the that cost did increase in our business and we talked about really being the costs attributed to us scaling up the business ahead of the Knicks, writing to flagships eight from a fund raising perspective and be from a deployment perspective, and then in Q3 Q fuel for you started to three.
See the revenues come through as the flagship starts to close and we ended the fee holiday with the BP why transaction and we know we're at a good stay as you as you see from an engine industry perspective for margins and I think as we look about going forward you can expect more investment into the platforms and not just in being ready for the next trend to flagships, but.
I think as we diversify the channels from raising capital and maybe as we shipped product mix a bit and start to build out some of the strategies that create talked about you'll see more investment in the business, but I think are historically, we've kind of guided to 55% to 65% being the range for than margin of the business. I think we expect continued to be in them.
Good point about range.
Thank you.
Thank you. Our next question comes from the line Oh, sorry from Scotiabank. Your question. Please.
Hi, good morning.
I would just sticking to the fundraising fee and 100 doing or targets and Craig you are you wedo well enough kind of the or the drivers behind the confidence in terms of achieving that goal, including expanded capital deployment capabilities.
Strength from the organization and whatnot.
When you when you sit back and you look at the broader environment. What do you consider viewed kind of a bigger risks to achieving our goal over next couple of years.
It's Bruce and I, maybe I'll take that as just to start.
I think the biggest risk to alternative managers broadly.
Is that the environment that we have.
The environment, we've enjoyed over the past 10 years has been a interest rates came down now they are there at the bottom.
And they're low.
They could be higher.
They could probably be 50% higher.
But if interest rates went to the 10 years today, one and a half or just above one and Uh huh.
If it went to 6% I think that changes the.
Look of investors and what they need to do with their portfolios.
We don't expect that to curve occur for the next.
357.
10 years or maybe ever.
I think thats the one.
Risks that we can't control that.
That changes the outlook on the business and all that means is that it will be different we'll just figure something else out, but it would change the outlook of many institutions pushing into alternatives.
And how would you I guess, how would you are so the risk of a significant global contraction.
And economic activity towards the appetite.
Uh huh.
Relax investors to allocate incremental capital.
To the mandates.
So here's what I would say.
In past what we've seen is there's all investors if an economic.
Decline comes all investors.
They slow in all investments into something for a very short period of time.
But then the opportunities are significant and.
I think at that point in time, our private equity funds will have Ics.
Very positive investments into.
Opportunities are the Oaktree franchise will have very significant opportunities and I think that track if we can position ourselves.
To come out and what we're we're working for it today is underwrite every investment we make like we're going to hit a recession.
And if we can come out of the bottom of the market, having our reputations intact in our investments intact.
And grow out of that recession will be able to take very very significant amounts of money from people.
With the caveat that if interest rates happen too in that recession go to 8%, which I suspect is not going to happen.
Then that might change that but if it doesn't than I think more probably more a greater amounts of money will be allocated at that point in time.
Great. Thank you for the color.
My second question just relates to the alternative solutions, Craig was discussing well through we days worth of yield pre transaction can you just maybe talk about what penetration rates look like today and what target penetration roots may look like.
Or one or three 510 years.
I would say.
So it is early days and there are several examples of us working together with clients and I described a few of them.
The the overlap of our clients is pretty modest so it leaves a lot of a lot of opportunity and a lot of space for us to work together on things.
Just a.
Given that we're just several months into it theres not any statistics in terms of penetration that.
That our trackable.
But theres a lot of white space and opportunity for us in terms of collaborating on.
Different investment strategies.
But also maybe even more so of working more holistically with some of our larger.
Clients in particular.
Okay. Thank you.
Thank you. Our next question comes from the line of Andrew Tesco from Credit Suisse. Your question. Please.
Thank you good morning, I think it's a question for credit to start off with then I think you mentioned the 1800 client relationships.
If you could provide maybe a better color just free oak tree close on the Brookfield relationships out of the 200 versus the Ocwens and then what was the overlap and where are we now.
Yeah sure. The so that 1800 is our institutional.
Relationships across Brookfield and Oak tree.
The if we segment that into the two different components I think Nick has the specific numbers.
In traffic driver just at the so pre and re the transaction we had about 750 institutional clients on the Brookfield site and the balance would come and from Oaktree. There was an as Craig said there was a small amount of crossover no significant by the incremental and there was no crossover we've taken some 50 up to the 100.
Okay. That's very helpful. And then just maybe a follow up to correct also it's just on the co investment capital and this has been a long term hallmark of the entire Brookfield franchise.
But as you grow the size and scale of the offerings you have does that co investment capital effectively help certain clients buildup the capability to eventually internalized some of the strategies in cells does that create a bit of attention.
No what you what we found is that the co investment capital is.
Is a great way for us to have access to larger pools of capital.
Which is very helpful for some of our transactions in particular, the largest transactions that we pursue and also gives an opportunity for our large lps to deploy more capital alongside of us.
And I Wouldnt say that we've seen a trend of that.
Moving towards the internal capabilities.
Been more the more the a larger access to larger pools of capital, which is helpful and also deploying more from our Lps.
And then the follow up to that would be as the flagship funds get larger and you're already at the 20 billion on before but as we get larger.
Does the co investment capability also got larger for some of your core clients.
Yes, I would say, maybe just add to craig's comments to two things. The first is some of our most sophisticated and largest clients in the world do a lot of investing themselves, but also invest with us and that's because we do different types of transactions and what they invest.
Directly on their own and therefore, we are additive to them.
And one of our.
I think one of our great.
Strengths and offerings that we've been able to bring to our clients has to offer them co investments, we're going to continue to do that and is the transactions.
Scale up.
Having capital available, but also those partners with US is extremely important from many different perspectives.
Okay. That's great. Thank you.
Welcome.
Thank you. Our next question comes from the line of Zachary Mcdonald from KBW. Your question. Please.
Hi, Thanks for taking my question.
Just a quick question about capital management, I think previously talked about stock buybacks and cash generation increases a few years ago. So.
Now these inquiries oaktree, how should we feel about capital priorities moving forward.
The possibility of future stock buybacks.
Yes, Hi, Zachary, it's Nick and I don't think you'll see a significant change to what we've communicated in the past I think it with the themes. We remain the same you know we are generating 2.7 billion of cash available for distribution or reinvestment night, and we'll continue to pay the distribution in diabetes.
Roughly 30% of that and then the remainder of the cash we have a priority for that to reinvest back into the business to support our asset management franchise to seek new strategies and to support the listed issuers in their growth.
And then after that we look to approach on opportunistic use of that capsule based on a relative capital allocation of values and if you look at last year most of that residual cash we invested into the oaktree transaction and going forward. We would look to obviously maintain cash maintain liquidity to be opportunistic to whether any eventual and dislocation and.
The capital markets and then once we feel that we have and no use internally then we would look to to look to return capital to shareholders via buybacks and now that will start to happen, especially as you see a ramp up in our cash over the next five years as Carey really starts to step up but I don't think you'll see any change in strategy and know that oaktrees part of it the.
Yeah.
Thank you.
Thank you as a reminder, ladies and gentlemen, if you have a question at this time. Please press Star then one our next question comes from align those sort of movies, but from BMO capital markets. Your question. Please.
Thank you lot of questions have been asked and answered I just wanted to clarify a couple of things.
Around the next kind of.
Phase of fund raising Nick you said that say doesn't look like you'll have to make any concessions around the fee rates deal are you seeing any need to adjust hurdle rates were targeted return rate at target returns.
No I think syrups, we're not having to adjusted target returns and I think as we've discussed in the past the great thing, we get as and when we quite and fundraise and we've just raised fund raising for these you do get that opportunity every time you go to potentially reset the target returns, but we in this claim that we haven't felt the need to change it and for this.
Shifts and we'll reassess when we come to the next rent.
Okay, and then I mean, maybe it's a bit of.
Maybe it's a bit of.
Nave question, but is.
Hi, the larger sizes of funded necessitating you pursuing larger transactions is this becoming a bit of the kind of.
Self fulfilling thing or or or.
They are independent of each other.
Yes, I would say that there's no doubt our as our funds sizes got bigger our transaction sizes are bigger and we don't do a lot of things today, where it's a 50 million dollar investment.
The point I would make and I think I've, we've tried to make this.
Before is what we've found is that it's not.
We actually lowered the risk as we buy larger things because what we generally get our better businesses, when we acquire them and they're more professional there. There later stage there more mature and we're buying and have a different stage in their formation and.
And generally when you do a carve out from a fortune 500 company. It had really great systems. It was run by an FCC compliant business and and that is a highly attractive thing for.
For us so I'd say the risk.
Inverse to what one might think is the risk as size gets bigger actually goes down.
And Bruce just to clarify.
Just as him as a as I guess I guess, how the mechanical perspective are there.
Are there a single name limits on a per fund basis in other words, how large Kenneth particular investment be in any given fund.
Yes, so so.
We we generally don't we have some limits in some funds as to concentration.
But generally I would say, we would never expose one fund more than 10 or 15% of any one specific type of investment and.
And the way that we can accomplish that and this is going back to Craig's comments on.
Partners, our partners and our and co investments is that the way that we can diversify the risk for each fund we have is to allocate portions of that capitalize transactions get bigger to our.
Either our partnerships.
As a co investor or our clients as a co investor and those are extremely important to us as we scale up the investment decisions.
That's very helpful. Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to have the program back to Suzanne Fleming for any further remarks.
Thank you operator, and thank you everyone for joining us today with that we will conclude conclude the call.
Thank you ladies and gentlemen few participation in today's conference. This does conclude the program you may now disconnect good day.
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Okay.