Q3 2020 Brookfield Asset Management Inc Earnings Call
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I would now like to hand the topic.
So what's your speaker today Ms. Suzanne Fleming Ma'am you may begin.
Thank you operator, and good morning, everyone welcome to Brookfield third quarter 2020 conference call on the call today are Bruce flat, our Chief Executive Officer, Nick Goodman, Our Chief Financial Officer, and Mark Mirsky, a managing partner in our infrastructure business and chief.
Reading officer of its in our North American operations.
Bruce will start off by giving a business update followed by Nic, who will discuss our financial and operating results for the quarter and finally, Mark will talk about infrastructures and wave business.
After our formal comments, we'll turn the call over to the operator and take analyst questions I'd.
I'd like to remind you that in today's.
Comments, including in responding to questions and discussing 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 <unk> Securities.
These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks.
After events and results may differ materially from such statements.
For further information on these risks and their potential impact on our company. Please see our filings with this with the securities regulators in Canada, and the us and the information available on our website.
Thank you and now I will turn the call over to Bruce.
Thank you Suzanne and good morning, everyone on the call.
Starting with operating performance in the third quarter, Nick will get into it in detail, but I'll just make a few comments.
We earned a record operating FFO during the quarter in fact higher than any other core.
For in our history. This.
This demonstrated the strength and resiliency of our combined asset management franchise and the quality of our operating businesses today.
And I would also note that we are just starting our way out of this recession and not all of our businesses are performing.
Forming where they should be.
The strong operating performance across these businesses was driven by excellent results.
In several of several of our private equity business is somewhat benefited from strong demand and pricing from new housing starts which snap back after the lockdowns in.
In the spring.
Consistent with previous quarters, our infrastructure and renewable businesses continued to deliver very steady results backed by a 100% availability of all of those assets.
Those businesses that did see volume decreases in the first half of the year.
Year, such as our ports and toll road businesses saw recoveries during the quarter as governments east restrictive measures.
Within our real estate business office rent collections wrote remained at normal collection levels and investment demand for this asset class.
Is strong and soon to.
Get stronger.
Just this last month, we entered into an agreement to sell one of our London office properties at a 9% premium to the price we paid for half the property just 12 months ago.
For those of you familiar familiar with real estate jargon. It was at a sub 4% cap rate.
Across our retail mall portfolio foot traffic is increasingly and more importantly customers spending continues to increase as does rent collection each month.
For the month of October we were above 70% collection across our malls and a good portion of the differences from.
Tenants that are open, but we are still discussing arrears from the lockdown period.
We're also seeing a return of occupancy at most of our hospitality assets as we continue to open up across the portfolio.
Of course.
Nothing is ever perfect and in some spots.
Lots, where we have taken a few steps in some spots we've taken a few steps back but bottom line is that the economies are on the men and assets are coming back from their induced shutdowns.
Turning to our asset management franchise and fundraising.
We raised.
The $18 billion of private capital during the quarter, including over $12 billion towards the previously announced first close of our latest distressed debt fund.
And 6 billion of commitments across a growing number of other strategies.
A few examples include our European core plus real estate.
Estate fund that closed during the quarter, raising just over 1 billion euros and exceeding its initial target and our second vintage private infrastructure debt fund.
Which has raised nearly $2 billion today already double more than the previous fund.
The success of our recent.
In fund raising reflects the investment themes that we're seeing in the market today with investors moving capital out of government bonds and into asset classes with low volatility and proven income to supplement their portfolios.
Today.
We have over $75 billion of liquidity or dry powder across our private and public entities available for new investments.
We see opportunities to deploy this capital beginning to pick up.
In March when the shutdown started governments were able to bridge.
Bond and equity markets to get businesses through a period of time.
But those who who were in bad financial situations to begin with.
Or borrow too much money over the last nine months.
We will soon need equity.
Many of them.
We recapitalized in some form and given our significant amount of capital to put into these opportunities we are ready for it.
With the pipeline of deals that we are currently working on today, we expect to be back into the market soon with our next round of flagship funds, starting with a real estate fund.
Hi in early 2021.
Turning briefly to our own corporate cash deployment over the last few months, we funded a number of new areas, including reinsurance, which I'll discuss in a moment.
We also allocated proximately $1 billion to purchases of.
Why.
Current trading place does not reflect anywhere near the value of the high quality portfolio real estate that it owns.
This is similar to the current trading price of Brookfield asset management and given the discount widened recently due both to increases in value of our assets.
And share price declines we were repurchasing ban shares in the last month and we will continue to do so as long as the shares trade at meaningful discounts to our view of underlying value.
Lastly, and before I turn it over to Nick at our Investor Day in September.
Timber I touched on a number of new strategies that we believe will be the next large areas for growth for us over the next decade.
One of those strategies is reinsurance.
As we looked at the inch reinsurance space over the last five or 10 years, we were cautious with our approach.
Particularly in an environment of declining interest rates that heightened the risks of locking in long dated liabilities at relatively high interest rates.
But today with interest rates globally at essentially zero, we believe that the risk of Reinsuring long tail liabilities is.
Is the lowest it has been in our lifetime.
And is therefore, an opportune time to provide capital to insurance platforms.
And build our reinsurance business.
Over the past few years, we have seeded a few smaller insurance businesses on our own balance sheet as we built up expertise in this space.
Space, but last month, we entered into a strategic partnership with American equity to reinsure $10 billion of their fixed annuity policies.
We believe our alternative asset strategies will deliver long term value to this portfolio and hopefully other companies will consider similar partnership.
Ships with us going forward.
In order to set up these growing operations in the most effective form we also announced our intention to create a new listed entity, which will be named Brookfield asset management reinsurance partners, which will be distributed to you as a special dividend.
This new entity will be designed to enjoy all the benefits of Bam as a paired security and all the upside created in reinsurance will be shared with all Bam and Bam reinsurance shareholders.
We expect that this new share will replicate the success of pairing our.
The success of the pairing of our Brookfield renewable and infrastructure corporations.
That were created earlier this year.
We hope to complete the spinoff of Bam reinsurance partners sometime in the first half of 2021 subject of course to all the necessary necessary regulatory approvals.
Both.
Sometime in the future once reinsurance is more mature this cat pair could be turned into a separate entity, but for the time being it will require the resources of Brookfield to to grow.
In the interim it will be set up sufficiently for the operator.
Approve business and will also enable you to choose which security of Brookfield asset management is best for you to own in your own capacity.
So with those comments I will turn it over to Nick Goodman, who will cover our results in more detail for the quarter.
Thank you Bruce and good morning, everyone.
As Bruce touched on earlier, our financial results were very strong in the third quarter funds from operations or total asset pool was $1 billion for the quarter or 65 cents, a share which was a 26% increase over the prior year quarter our offer.
Interesting asset pool, which excludes the impact of disposition gains and realized carried interest was a record $850 million in the quarter or 53 cents per share and this really reflects the resiliency of our operating businesses and the growth in our asset management franchise.
All of this resulted in income to shareholders of 170.
Operating a million dollars or 10 cents on a pair share basis and while this is lower than usual due to some lagging effects of the shutdown. We do expect the fourth quarter on Twentytwenty, one to return to close to normal levels.
Within our asset management results fee related earnings increased by 22% to three.
$372 million for the three month period and totaled $1.4 billion over the last 12 months, that's an increase of 36% from the same period in 2019.
This growth is a reflection of the record fund raising and deployment across our long term perpetual private funds growth in our listed affiliates.
On a full years contribution from our credit business.
Today, our fee bearing capital totals $290 billion and our annual fee revenue stand at $3 billion.
We also have approximately $30 billion of additional capital that will become fee bearing when invested and that should generate approximately $300 million of.
Incremental fee revenues annually when fully deployed.
In the quarter, we generated $750 million of gross carried interest, bringing our unrealized carried interest balance to $4 billion.
This is reflective of value enhancements within various operating businesses in our private funds and value uplift.
Uplifts on publicly traded securities within our credit strategies.
We recognized $42 million of carried interest during the quarter and Thats $482 million over the last 12 months.
Transactions have slowed over the last six months as you would imagine, but we are seeing the pipeline of deal activity for both.
In public markets pick up and we expect to realize an increasing amount of carried interest in the near future as we complete the monetization of assets within our more mature flagship funds.
Turning to invested capital excluding disposition gains for the quarter was $478 million an increase of.
24% from the prior period the.
The increase was driven by excellent performance within some of our private equity businesses, most notably Norbord and several of strong performance within our portfolio of financial assets.
We also saw a 50% increase in home sales compared to last year at our North American residential homebuilder and this should trend.
Lastly into increased four over the next few quarters as the home sales are delivered.
Finally, our full benefited from the contribution of newly acquired assets on same store growth across a number of our segments.
Since we last reported we successfully completed secondary offerings for a portion of our holdings in both Pepsi and.
Let's see.
These securities have seen tremendous demand since the spin offs and these transactions should further support liquidity in these shares by increasing the public float.
Our balance sheet remains a significant strength for us with many investments that can be turned to cash on a days notice, though are not counted in our liquidity numbers.
With these two transactions, we were able to unlock approximately $500 million of liquidity, which we can look to redeploy into other opportunities overtime.
We do continue to maintain a very significant holdings in both of these companies and continue to view each host view each has outstanding businesses to invest in.
Our strong results relate to $747 million of cash available for distribution or what we call capstar during the quarter as a 37% increase from the third quarter of 2019, when excluding impact of carried interest.
On a last 12 month basis, we generated a record 2.8.
Billion dollars of catheter, which highlights the stable and predictable nature of our cash flows through all market cycles.
This cash flow continues to bolster our liquidity, which we look to reinvest in the business for example to start new investment strategies, such as insurance or technology or overtime will be returned to shareholders.
Overall.
Last 12 months, we've returned over $1.3 billion of capital to our shareholders through dividends and share repurchases.
Today, our liquidity and capitalization remained very strong in addition to $60 billion of Uncalled fund commitments, we have approximately $16 billion of core liquidity across the group includes.
Putting $6 billion directly a bomb and thats it for a total of $76 billion of deployable capital.
After the quarter end, we further further enhanced this liquidity through the issuance of a 60 year $400 million Green subordinate notes at 4.625% proceeds of which will be used.
Just to fund eligible green projects.
Including the new instruments, our balance sheet continues to be very conservatively capitalized with a corporate debt to market capitalization ratio of 14% and an average remaining term on our corporate debt 14 years, and we have no individual piece of debt maturing before 2023.
Finally, I am pleased to confirm that our board of directors has declared a 12 cents per share dividend payable at the end of December and we look forward to giving you. Another special dividend next year as Bruce described.
With that I will now turn the call over to Mark were seeing.
Thank you Nick and good morning, everyone.
One im pleased to join you today to tell you about our North American District energy utility called and wave and the evolution and growth that we have achieved in this business.
And wave, which is held in our early vintage infrastructure flagship funds is a great case study on how we identified acquired a leading and sustainable energy business.
For value and used our operating expertise access to capital knowledge and expertise within adjacent asset classes to grow the business and create significant amounts of value.
First let me start with a quick overview of district energy.
District energy refers to large scale networks of heating and cooling so.
Systems that generate store and share different forms of energy through individual buildings in a district you.
Users benefit from the cost efficiency and full redundancy of a central energy system, thus, allowing them to redeploy their capital and space into higher and better uses.
Today District energy is a key driver of the sustainable growth.
Stuff cities globally.
This is because 70% of the world energy is consumed in cities today, and 50% of that energy is used for heating and cooling.
This creates a meaningful opportunity for district energy systems to efficiently and effectively heat and cool our buildings, while contributing to sustainability goals by deploying a communal low carbon.
Urban Green energy technology across broad networks of pipes through major cities.
Speaking specifically to anyway in 2012, we had the opportunity to acquire the business, which was and still is one of the most unique district energy utilities in North America, if not the world.
And we have is the largest geothermal.
Cooling district energy system in the World and offers the cleanest form of cooling to be harnessed, specifically deep lake water cooling from Lake, Ontario at the foot of the city.
This deep lake water cooling technology is about two and a half times more efficient than conventional cooling and leads to a 90% reduction in energy usage compared to conventional Haiti.
Then cooling systems.
At the time the business was serving a small subset of hospitals datacenters offices in residential buildings in the Toronto downtown core and the growth aspirations were modest and limited to local market.
We acquired the business with a view that we were a buying a great existing business with very strong.
He didn't place cash flows and a strong organic growth.
Growth potential and B, we could leverage the economic social and environmental qualities of the renewable energy to grow the footprint of the business by three to five times in accretive and sustainable manner.
What we learned in very short order was that the attributes of district.
Energy or even better than we had underwritten in.
In addition to the clear high barriers to entry, which isn't porton characteristic of all investments, we make the economics of district energy deliver significant value to customers in the forms of reliability capital allocation lower operating costs and sustainability and from an operations perspective.
Innovation can materially exceed 100%.
Because of these distinct attributes we were soon able to drive double digit organic growth in the initial portfolio of assets that we acquired and achieved renewal rates over 99%.
This early experience gave us the conviction that district energy is a superior asset class.
Yes, and the infrastructure space and shape, our plans to accelerate growth of the business into new geographies, especially given the significant amount of market dislocation between price and value that we are seeing with in the asset class at the time.
Over the past eight years, we've been active in acquiring some of the best District energy.
These systems in the fastest growing and most populated cities across North America, including Seattle, Los Angeles, Las Vegas, Chicago, Houston and Toronto.
From these acquisitions, we were also able to select the best talent and add some key positions to form a top tier management team, who in turn have been able to integrate.
And optimize our assets into one highly functioning entity and drive best practices efficiencies and grow the Brookfield operating culture across the end wave platform.
Well, we had an acquisition was a leading unregulated utility.
But one that had unutilized capacity due to the lack.
[laughter] of proactive sales culture.
We applied structure to sales with targets and goals for organic growth and supplement supplement to the team where needed and rewarded achievements along the way.
During our ownership, we have been able to connect over 135, Newbuildings and grow EBITDA from $26 million in 2012 to over 200 million today on a run.
He says this is a compound annual growth rate of 21%.
13% of that.
Growth or $150 million of annual EBITDA was driven organically.
For those less familiar with infrastructure asset class this level of growth for utility is unparalleled and this was all.
Completed while maintaining an investment grade rating.
Overall, we believe we have generated approximately $3 billion of value.
It is our expectation, we will generate a 20% to 30% IR in this investment materially outperforming the investment returns return targets of the funds it fits and this should drive significant returns.
Great to our private fund clients and our Bam shareholders will benefit from the realization of carried interest as these funds wind down in the coming years.
Before I wrap up I would also like to touch on this investment from a sustainability standpoint today and waste fleet of energy generation assets within the district energy space are one of the most efficient and cleanest in the world.
Now a few highlights of this.
Include being North America's largest recycler of building waste energy offer.
Operating the world's largest commercial deep lake cooling system, and north Americas largest heating and cooling thermal batteries as well as north America's largest ice battery, which is used for making and storing ice at night when electricity prices.
Turning were at their lowest then distributing the chilled water during the day to cool buildings.
Together the energy savings of all these technologies in annual equivalent energy consumption of 15000 residential homes. The GHG savings is equivalent to 42 million car miles and the savings of 1100 Olympic sized pools of water.
So to wrap up I will just summarize this has been a very exciting high performing investment for us and a perfect example of Brookfield investment strategy of identifying high quality scalable businesses that have high barriers to entry and benefit from predictable inflation linked cash flows where we can also drive additional value creation.
Our strategy of identifying early acquiring and using our deep operating expertise across a number of adjacent asset classes to integrate sustainable district energy assets across North America allowed us to grow a small local utility into a highly desirable global leader in the district energy space.
To achieve.
That we essentially commercialized the utility by applying a leasing strategy and promoting the economic and environmental benefits of the sustainable energy. It provides.
We're very proud of the management team's success in growing and wave into a best in class operator, and a global leader in building and growing sustainable District energy, we look for.
Third to our clients and shareholders taking part in its continued success.
Thank you I'll now pass by.
Back over 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 please.
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And our first question comes from so Rob mobile heady from BMO capital markets. Your line is open.
Thank you.
Two questions and so.
First on the reinsurance programs, just just wanted to confirm that using the.
American equity life reinsurance.
He is a good template for sizing the prize if you will in the in the opportunity over the coming years both from a.
From a leverage and potential return perspective.
Did you ask Bruce to where are you going to ask the second question are you want you want me to take Thats why not I can also the second question Bruce said.
Unrelated would be just.
In pursuit of trying to.
Ensured that the value at the asset management franchise is fully come to appreciate it and realize I wonder if you would ever consider.
Distributing any upset bellcore bip shares too damn shareholders directly increase there.
As opportunity for management.
I'd ours and.
Chris concluded yet that's in that as well and.
So just those two questions. Please.
So.
So here's what I'd say on this on the second question, which I think is.
And if I don't get them exactly right, please follow up but but.
Yes. The question is would we consider distributing out to the shareholders of Bam shares of.
Our field infrastructure, our Brookfield renewable partners and.
Look from time to time, here's what I'd say from time to time, we consider many different alternatives.
In the company.
Which will create value for shareholders.
And and that we've considered in past we have not done it a because there are some of our shareholders like to own what they own.
On and we have a tendency to give spinoff the two people what we can't do too many of them all at once.
But.
But we'll continue to think about the opportunities we can create value and.
And that could be one of them in the future.
That fits into the plans, but but we have no intention at this point.
Just in time.
As to the size of the reinsurance program.
Here's the comment I would say is that given.
The industry.
For long tailed insurance has experience what they have over the past 10 years being interest rates coming down.
[music].
Many entities are requiring capital to continue to write policies and don't trade at proper net.
Net asset value prices in the marketplace. Therefore, they require capital and we think the confluence of us being interested in that.
Business and and the Counterparties requiring capital our capital can be a lot more efficient to them.
Than others.
Then what they would do in the market issuing stock or doing something like that so we think theres a number of opportunities to be able to continue to add onto the business like.
The transaction that we did recently.
And so just for abundance of clarity Bruce the half a billion of equity backing up $5 billion to $10 billion of reinsurance.
Liabilities that is is that kind of thing gearing ratio is what you would kind of contemplate when you're thinking about.
What you had talked about at the Investor day, where the insurance opportunity could be upwards of $200 billion of kind of a UN.
Hey, so Robert it's not I would say that that's broadly correct I mean, the amount of capital that you have to hold in reserve is really dictated by where you invest the assets, but you know based on.
Reasonable investment portfolio mix I would say that that's a fair starting point.
Thank you very much.
Thank you.
Next question comes from Cheryl and Rad Barnes from TD Securities. Your line is open.
Thanks, very much and good morning.
In terms of the inaugural impact fun was hoping that you could help us to differentiate between the types of renewable investments, but it would like to make or would look to make versus the types of renewable investments that you would normally undertaken a flagship infrastructure funds.
Yes, so our.
The transition fund will invest into.
Assets, which will move the economy towards.
Net zero so it could include renewables, but it could include other industrial businesses and.
And infrastructure.
Infrastructure assets and other.
Assets, which would fit that.
Mode, and they have to have to be able to fit the definitions.
That are out there they have to have additionality, meaning that we will develop and create more assets in the future.
Sure. So it will be much more focused on on deploying capital to.
Achieve the transition to net zero and we think that that universe is very very large.
Which will could include some assets that might otherwise fit into our.
[music].
Renewable program and and.
As you know in in.
All of our entities.
Our our listed entities partner with our private funds and therefore in this regard if it's appropriate some of those might be partnered with Brookfield renewable partners.
Okay Thats helpful different.
And Jason.
And then just picking up on the reinsurance discussion at the advantages that you bring to a partner like American equity is the crux of it your ability to generate higher returns on the assets or are there any other relevant advantages in areas like capital or tax.
You know look I would.
Got it down to we have significant access to capital that.
Many organizations don't have access to just because we spent the last 25 years.
Working with institutional investors and secondly, our skill set is investing into.
Put alternatives and alternatives.
And you've heard US say this many times before alternatives is really the only place for institutions to turn today to deploy capital to get a reasonable return and because.
The skills, we have in the investing.
Apparatus.
To set up.
Can create assets and deploy.
Money into alternatives much more efficiently than others.
That's really the advantage that we bring to the table.
Thank you that's my two.
Thank you.
Our next question comes from Bill Katz from Citigroup. Your line is open.
Okay. Thank you very much for taking the questions. This morning.
Just we should mention that you might be the marketing maybe early part of next year for the real estate fund so let's step back a little bit and walk us through the timing that you foresee for the three three class three segments. Some so.
Okay, and how you think about successor funds versus the predecessor funds now in terms of sizing.
Hey, Bill, it's Nick Am yes.
Yes, you're right I mean that obviously when we launched the next funds is dictated by the pace of deployment of the existing.
Flagship funds and real estate fund.
Well, obviously the first one of the three to be closed and therefore is the most advanced and deployment right now I am on we've said a few times, we expect it could be but given the market early next year and I think based on where it is today, that's a reasonable assumption and then you would expect private equity and infrastructure to follow after that still expecting them to be.
At some point next year as well based on deployment.
The size of our funds.
Theres really a few variables that go into the funds when we're sizing them one would be what we think the deployment opportunity set looks like and our ability to invest that capital whilst achieving our desired return.
Since the second would be what we think investor appetite will be for those funds.
Then, we obviously have a third variable which is how much the brookfield commitment will be to each of those funds, but I think based on our current expectations. We believe and we said this at Investor day that there is definite room for growth in those funds and expect them to still be in line with what we.
You would have laid out in investor day, and have conviction that we can raise that capital and put it to work for value.
Okay, and Bob Nick maybe I'll start with you just in terms of the four we margin.
Given the scaling of the oak tree footprint and some of the assets. They most recently raised how to think about maybe the flow through to your margin.
Target outlook as we look into 2021, obviously at the high end of your range in the in the quarter itself. Some maybe transact action activity, there, but how to think about maybe the incremental margin from here.
Yes, Bill I think our comments would be largely consistent with prior quarters overseas. These funds will get larger.
George and so that will see potentially an increase but theres offsets because the funds get larger we have to obviously raise more capital, which means reaching out to more client servicing more clients pursuing new channels of distribution. So there is obviously a cost buildup of that we are incubating and building new strategies on balance sheet.
And we have insurance technology transition those starts smaller, but we build the apparatus for investing in managing that capital up front as well. So I think that there is going to be growth and there is obviously positive momentum right now strong margins this quarter, but I still think of it being in the range. We previously talked about as we we build out.
The operations of supports it.
Okay. Thank you.
Thank you. Our next question comes from Robert Lee from KBW. Your line is open.
Great. Good morning. Thank you Susan Thank you for taking my question, maybe sticking with.
In reinsurance.
I guess, Frank I'm trying to understand you know in some of the.
The reasoning behind doing is in there now I mean I understand the other.
On the VIP, creating the impaired securities.
Core to reach attracting a broader investor base keeps clean been evidenced.
It's not an issue than anything and had and I understand you're trying to stand up the reinsurance business and invest in it kind.
Kind of deals why now.
Particularly since it's just going to be.
Reflection and ban earnings and I guess.
The second part of that would be the extent you raise future.
Capital reinsurance is it all going to be through that vehicle. So therefore, its results will start to deviate from bands that the way to think of it.
So.
I'll take the first one and then and then Nick can add add to it.
Sure if I don't hit the answers.
I guess, it's important for us to set up this entity from the beginning in a proper way in a proper place. So that it can compete with all the global insurance reinsurance businesses that are.
In existence.
And to be able to do that.
The most efficient way for us to do it is to set up the entity the way were.
Setting it up.
We considered whether we should actually.
I have it as a spin off to shareholders, but its not mature enough yet and it needs.
The resources of all of Brookfield to be able to grow for the next 2345 years, possibly forever.
And only at some point in the future when it's more mature would we consider splitting it apart and actually making it a separate security like like the infrastructure company.
Our renewable company or property company.
For the time being it will have the benefit but it will be set up in a way such that that could happen.
And thats quite important to us for the future. So.
Thats the answer to the first part of your question and the second maybe I'll turn it over to Nick.
To just answer that partner.
Yes, Rob I think in its current form.
And given that its appeared security transferable, but to bomb on the excess value accrues to bomb any performance our strong performance in their accrues to all shareholders. So that the business than the unit will perform well.
Well, but the bomb shareholders will benefit from that strong performance in this current structure.
Okay.
Okay. Thanks, maybe if I could just one quick follow up going back to the fund raising.
And I apologize if you if you may have responded to this already in Bill's question, but.
How should we think of your future commitments to the next round of flagship funds, meaning if we want to make an assumption that maybe they grow in size that.
Give him a strong third party demand how are you thinking about them.
Yes, so I touched on it briefly in the earlier question, it's one of the variable.
What was that goes into our decision, making when we launch a fund.
And I think.
We're going to be a significant investor into funds as they get larger the absolute investment will be sizable but the percentage may come down and I think we don't have a pre determined.
Our mid level and our minds, but we know that it's going to be part of the decision making process. When we size. The fund again based on the investment opportunity set client demand on Brookfield commitment will be up just one of the variables that go into it but I think you can assume we will continue to be significant investor, but maybe expect that percentage to come down while the nominal dollars remained.
Mean material.
Yes.
Great and.
Im allowed one last question it seem a comment hinted in the release that maybe the outlook for carry generation, improving and can maybe dig into that a little bit kind of what you're seeing.
Maybe how we should be thinking about that develop.
And as we look ahead to 2021, and which businesses may be you would expect to be leaders in that.
Yes, I think it's just premised on again consistent with prior remarks in this low interest rate environment that we are in owning a number of businesses that have.
Arent very strongly through the shutdown and really it's only enhance the perspective of their resiliency and their performance as we come out with this is obviously a lot of capital in this environment looking for inflation protected cash that was like that so we have many businesses that we would have been thinking all taking to market earlier in the.
Prefer that we paused I know, we're returning to those.
We had one transaction, we previously announced the real estate business.
And the storage business, we would have others side, obviously don't want to say what they are because they are their processes, but I think you can start to see more monetizations and obviously the public markets are also very supportive.
Year notes. So we just believe that there will be renewed momentum around AD dispositions at end of this year and coming into next year and that will obviously and resulted in some increased realized carry compared to last six months.
Great. Thank you for your patience my question. Thanks.
Thank you.
Thank you and our next question comes from Mark Rothschild from Canaccord. Your line is open.
Thanks, Thanks, good morning.
You got a little bit active in the buyback subsequent to the quarter and I'm I'm just curious how much of that was taking advantage of.
Normal drop in the share price versus.
I thought that you have excess capital that maybe you want to put into buying back shares more aggressively over the next year.
It's a combination it's a combination I would see mainly driven by as you know we have excess capital, we look to redeploy into the business, but when we saw that disconnect.
Really widen as Bruce said our value in our view at increased intrinsic value on share price dropped and that disconnect a white or that drove that decision.
In the last sort appeared in the last month, specifically and as we look forward, if something like that persist and not deep value add pertains, then, we'll we'll invest more capital but.
We do also have a number of other investment opportunities in the business, where we can put capital to work. So I would say, it's just an ongoing decision and we haven't got any pre determined views for what will happen in the next six to 12 months.
Okay, great great. Thanks, and maybe just one more question and this is kind of asked earlier just want to clarify make sure I understand for the impact funds.
They are clearly could be a lot of overlap with your existing course subsidiaries. So let's say in the property.
BP y or your real estate funds be a co investor in an impact fund and an impact investment or do you expect that this would be totally separate and perhaps the impact funds into being another public subsidiary at some.
Yes. So at this point in time to start from the end and go back at this point in time, we have no intention of having a listed NT entity for transition.
But as with all of our private funds one of our listed entities are.
Off invest the Brookfield capital into that.
Investment so some investments for the transition fund may may be appropriate for info.
Infrastructure or renewables or or a property or our BBU entity.
It may be and they would invest our portion of the capital and have not been Brookfield asset management would.
Take up that portion so if we were at 25% of the money the 25% may come from any one of those and Thats the way all of our funds are.
Today, we are one of the entities does it.
So happens that in property, there's only one listed entity that makes the investments beside the our private investors.
Okay. Thanks for clarifying I appreciate it.
Welcome.
Thank you.
Our next question comes from Mario Saric from Scotiabank Your line.
It is open.
Hi, Thank you just.
Going back to Bam reinsurance partners I think Bruce you mentioned you.
There is a possibility you could be a separate entity down the road when you have the kind of to four years.
In terms of timing maybe forever.
Should should we look at a historical precedent with respect to your other list.
Jobs in terms of size as a good proxy cooling you should think about.
Got me occurs so if I go back replicable, but neither Don was roughly 1 billion.
We used to box was about two and so on so.
How should we think about kind of the stock there is a driver.
The decision on in terms of.
So.
I don't know the answer is we're never too sure until we get into it.
I think this entity could be far greater and need.
More access to our it needs more access to our resources and the other entities.
Because of all the investments it needs.
Needs to make.
So for the time being it needs to be.
Paired to Brookfield.
But the real determination will be if very very significant amounts of capital are required.
And we don't have enough capital on the balance sheet of Brookfield, then we'll need to look for one of two places.
To it to invest new capital into that in a lie there be private clients of ours to invest in the entity in share that entity with us or we'd look to spin it off from Brookfield and that May maybe at some point in the future.
Okay. Thank.
Thank you for that and then my second.
So she can give for.
The team to contribute.
From transition from making the letter intention first probably from.
Sorry.
Two other part of the funds so just wanted to clarify.
Page 12, if you were referring to.
Flagship phones.
Sorry.
The remodel collection from each of the verticals or.
Okay.
Do you know we were referring to our flagship funds.
And we hope to that but I don't think I can get into specific numbers just because of.
The regulatory requirements.
Okay. Thank you.
Thank you.
Our next question comes from Andrew Pesky from Credit Suisse. Your line is open.
Thank you good morning, clearly your structure is different than.
Most of the overlaps that are on the market.
Give me a lot flexible.
From a funding standpoint, but.
Also from an investing or Bam capital and you really reallocate capital through the corporate family with some of the buybacks and offering activity.
In the quarter, how do you think about that embedded optionality that you have.
Bam standpoint, given the array of vehicles that you've got.
Going then combining that with the private capital and your flagship funds.
Yes look I might start off and then Nick can add to it but and just say that our.
Our job as Brookfield asset management is to do two things one we're running a.
Large scale asset management business and second we're in the business of allocating our capital effectively so that our shareholders.
Can maximize the value out of what they own and.
That really involves two things using the capital we have to support our.
Investment management business and invest beside our clients and give it make sure that we can access opportunities for them that they wouldn't otherwise get because of the capital that we have.
But secondly, it it's it's making investment decisions when securities are mispriced.
And if we understand them, possibly better than others or have a view different than others.
Utilize them mispricing to enhance the value in the long term of the business and.
I do think that there's one of the reasons why our returns over time.
2030 years have been better than.
In some comparable entities is because of the capital allocation in rotation from.
Investment to investment.
Thank you for that and you obviously today you have the spread of the reinsurance business.
We do have a sizable chunk of the Bam balance sheet still.
Sitting and residential and you've had vehicles in the past in different jurisdictions.
In the resi space when when do you.
Anticipate or whatever the market conditions are appropriate to really spend not off of your balance sheet.
Homebuilders today.
They are the flavor of the last six months they've been highly successful they've all doubled tripled or quadrupled in value of course ours has done really well if you don't see that necessarily because its private and it's.
On our balance sheet and not listed.
I would say that our experience over two.
25 year period or more of owning homebuilders are land developers and homebuilders is they don't exactly trade in the public market perfectly most of the time they happen to be doing that today and so for that reason I'm not sure we have any intention of doing it.
And it may be better for us.
If we if we want to have less capital invest in the business over time, just to reallocate capital. Because this is a depleting business. If you don't reinvest into it so from time to time I think we'll just do it that way versus listing it.
Yes, that's great. Thank you.
Thank you.
And our next question comes from Ken Worthington from JP minus.
The line is open.
Hi, Thank you add most questions have been asked but maybe just to follow up on the the flavor of the day, which is reinsurance on maybe talk about the assets are contracts that are included in the new reinsurance entity when it spun off to shareholders.
There is I don't think you went through that maybe I missed it does that include the insurance contracts. The reinsurance assets does it include the 20% interest in April and then do Brookfield insurance shareholders get voting rights in the new entity or is that.
The vote sort of retained by Brooke.
Field and then then lastly, I think this follows up on another question earlier.
We'll be in the reinsurance entity I need to raise equity to support the initial growth or is Brookfield is going to capitalize it well enough to support.
Sort of its growth over the.
The whole next couple of years or so thank you.
Yes, so Ken there was a lot of parts to that question, let me if I don't get them all.
Ben Please prompt me, but I think we're still working through what.
It will be there, but the intention is it will how does all of the inch.
The current assets that we have so the initial stake any only also as Bruce said, we also have some other insurance and fees that we've seeded on balance sheet. The way. We see this working is obviously that it will have.
Have those investments and we will have reinsurance trades on its balance sheet as we touched on earlier question.
Sure in the way that we're looking to differentiate and earn strong returns is by putting that capital to work.
Our investment.
Investment strategies predominantly credit, but that means when those when that capital is invested into our strategies to the resulting fee bearing capital in fee related earnings would flow through our asset management business and they would be.
Am investing alongside other clients that we have in those strategies paying the same fees and rates as those and but I would say not specific and refocus. The primary focus is that when we do these reinsurance transactions, we want to make sure.
That we are investing capital for value in this business. So that we are comfortable with the net return that we can narrow.
Should any reinsurance transaction and an obviously a consequence of that will be that when we put the capital to work that will be a resulting growth in fee bearing capital in fee related earnings and overtime.
I don't know if answered all parts of your question.
Most I the voting rights do.
Pill reinsurance shareholders actually get a vote here in the new entity or is that just sort of delayed until.
The paring is is it the stock is unpaired.
And then your equity issuance is is this the vehicle that's going to raise equity or.
No equity raised through them and sort of transfer to the insurance vehicle, how does the capital raising actually work here.
So the study start Ali I'll answer those in reverse order starting off.
The capital will be seeded into the entity in 500 will.
Or is that 500 million will be spun out to shareholders the balance of the equity.
We will be provided by Bam and.
To the extent it needs more money, we can damn well put more money into the entity and there will be no further shares of that entity issued other than if we choose to but remember even if we do issue shares out of that.
That they're really just the Bam share so while we're buying shares back in Brookfield asset management I suspect, we're never going to issue a share.
In Brookfield reinsurance because there there are paired share so it would be yes.
You'd be doing the same you'd be issuing in one place.
We'll be buying back in another so the.
The equity will be provided by Brookfield.
As a first step secondly to answer your second first question.
On the voting rights the structure will be the exact same as it is in Brookfield asset management, So all shareholders will get vote.
Voting rights like they do today they'll have the same rights they have in Brookfield asset management they'll have the same rights they have in Brookfield reinsurance.
Okay, great. Thank you very much.
Thank you and again, ladies and gentlemen to ask a question. Please press star and then one now.
And.
The next question comes from Bill Katz with Citigroup. Your line is open.
Okay. Thank you for taking the follow up questions.
Just going back to the transition fund for a moment.
Bruce in your letter you mentioned that you could foresee this being a 550 to 100 billion dollar opportunity over time.
Your expectations for the scaling of that and how you can.
So the fund like this compare to let's say your flagship funds.
Hi, I think it will be.
The second question first it will be similar to our flagship funds and we think that this business can be very large as.
As we create a new asset class for institutional investors and the reason why we're coming out with it and the reason why Mark joined US is we think that there is a very large group of investors, who want to put money into the transition of the economy and there's not very many alternative.
And it is for them to do that and as a result of that if we can create.
Fund offering from them with all the discipline and.
Access to what we have within Brookfield.
We will have a number of people that will want to add.
Invest with us and there is not many other alternate.
And it is at this point in time.
Okay, and then just one last one just going back to reinsurance and again, thanks to all those questions.
Is there an opportunity here as you scale the business to maybe broaden out the fee related earnings stream to an advisory opportunity beyond simply just picking up some incremental spread and then the corresponding.
For re associated with it.
Uh huh.
I will see overtime, but thats not where our heads are at right now the focus right now is about investing the capital.
We will be raising.
Earning strong returns on invested capital and as I said, the direct consequence of that will be fee bearing capital in fee related earnings we.
Havent turned on mines to two advisory fees.
Okay. Thanks for taking all the questions.
Thank you.
Im showing no further questions from our phone lines I would like to.
I would now like to turn the conference back over to Suzanne Fleming for any closing remarks.
Thank you operator, and thank you everyone for.
Joining us today with that we will end the call.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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