Q4 2020 Brookfield Asset Management Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to today's program entitled Brookfield Asset Management 2020 year end results conference call and webcast.
At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero after.
After the presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one.
As a reminder, today's program is being recorded.
I would now like to introduce your host for today's program Suzanne Fleming managing partner Brookfield asset management. Please go ahead.
Thank you operator, and good morning, everyone welcome to Brookfield fourth quarter, and full year, 'twenty and 'twenty conference call on the call today are Bruce Flatt, Our Chief Executive Officer, Nick Goodman, Our Chief Financial Officer, and Adrian and Foley, President and C O Olive and North America development group within Brookfield properties.
Bruce will start off by giving a business update followed by NEC, who will discuss our financial and operating results and finally, Adrian will give an update on our residential single family business.
After our formal comments, we'll turn the call over to the operator and take analyst questions.
I'd like to remind you that and today's comments, including and responding to questions and 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 U S. Securities Law. These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to.
Known and unknown risks and future events and results may differ materially from materially from such statements for.
For further information on these risks and their potential impacts on our company. Please see our filings with the securities regulators and Canada, and the U S and the information available on our website.
And with that I'll turn it over interest rate.
Yeah.
Thank you Suzanne and good morning, everyone on the call.
Despite the extraordinary circumstances of 2020, we ended the year with our best quarter on record.
For the year, we earned a record level of F F L and cash available for distribution as well.
All of this was achieved despite roughly 20% of our business is being impacted during the economic shutdown.
I use this point to underscore for you.
One more time, the strength of our capital structure and the long term nature and resiliency of our asset management franchise.
And the businesses that we own.
The environment in 'twenty and 'twenty was unusual to say the least.
Just a few points.
We saw GDP drop and almost every country.
Unprecedented stimulus put any day economies dramatic increases and unemployment rates and interest rates dropping to effectively zero and almost every major market.
As we now look into 2021, we are seeing positive momentum and global markets.
Low borrowing costs.
The pharmaceutical companies have come through and amazing and amazing time, and the vaccines are now being rolled out.
We expect the economies will normalize at the as the at risk populations are vaccinated.
We are starting to see this happen now although unevenly and.
And as governments and people get comfortable enough to resume normal life, we expect to see a strong recovery and economic numbers, starting now and into next year.
We expect interest rates to remain low as there is no meaningful inflation on the horizon.
This low interest rate environment should continue to provide a very positive backdrop for our asset management business.
And the real assets that we own.
It is worth noting that while our business has been very resilient over the last 12 months. It is and it is built to perform at all points in the cycle.
In general our operations are more geared to economic recovery.
As a result, we should be able to grow the value of our businesses coming out of this recession even more.
One business that we own that has been very strong as our residential single family business in the United States.
We don't often profile this busy and business, but given what is going on in the residential markets.
We asked Adrian and fully to join our call today.
You will hear from him in a moment.
Looking back on 'twenty and 'twenty, we raised over $40 billion of capital across a number of diverse strategies.
Of note in the year, we saw strong growth and our perpetual private funds strategies.
We had a successful first close for the flagship distressed fund.
And we saw sizable inflows to other credit.
As we look to 2021 and beyond all indications are that this strong momentum is continuing.
We are in the early stages of our foundry raising super cycle and remain confident in our target laid out at our Investor day of $100 billion for this round of flagship fund of fund raising.
The size of our flagship fund off rate offerings differentiate us differentiate us in the scale of things that we do.
And this scale and itself creates opportunities. So this is additive to the franchise in many ways.
Specifically, we are now and the market fund raising for our fourth real estate flagship fund.
And with our private equity and infrastructure funds, almost 60% invested or committed and aggregate, we expect them to launch fund raising for their next vintages and the next 12 months.
We also recently laid out for you for new growth areas.
Each which we believe will be meaningful to our long term growth strategy.
These are reinsurance.
Energy transition.
Secondaries and technology investing.
Since then we've been working on two reinsurance transactions and are closing in on $15 billion of long dated annuities and that business.
And have made a number of investments and are raising capital for real estate secondaries.
Established a team focused on technology.
And recently launched fundraising for our global transition fund, which we hope to be over seven $5 billion.
We have committed $2 billion ourselves to this strategy.
This fund is focused on high quality sustainable investments that will accelerate the transition of the world to a net zero carbon economy.
As an organization more broadly we are committed to the movement to a net zero carbon economy, and our global transition and fund will be supportive of the school.
All around the world, we are seeing countries, making commitments to this effort and in some cases ones who have already done that are accelerating their targets.
As we come out of this health and economic crisis, we expect it to be a good time for companies to reset their strategies and focus on sustainable growth.
We are in and envious position of being carbon.
Zero across our entire $600 billion asset footprint.
As a result, we are well positioned to assist others with this transition.
To put it very simply all companies that want to be around for the long term, we will need a net zero strategy.
And this is no longer a choice.
Turning to transaction activity. It was obviously slow and the first half of 'twenty 'twenty.
But we saw pick up in the second half of the year and a very busy start to 2021, we.
We are very active today with close to $80 billion of capital for deployment.
At the same time selling activity or sales activity out of our funds stopped in 2020.
But started a gain in the summer and has accelerated into 2021.
Nick will discuss what is going on in more depth.
And his remarks and a moment.
So before I turn it over to him. Thank you for your ongoing support we look forward to reporting on the progress.
2021 over the year.
Thank you Bruce and good morning, everyone.
So we ended the year with very strong financial results and have and equally positive outlook for the year ahead, our asset management business continues to benefit from long dated predictable revenue streams.
As we execute on our next round of flagship fundraising are and.
Scale, our other strategies, we expect to see another step growth and fee revenue.
And in the current environment, we expect to be harvesting capital by selling mature assets and the last few months, we have advanced and closed a number of asset sales and we expect that momentum to continue in the coming months.
We also believe our operations are well positioned to deliver growth as we emerge from the current economic recession recession.
Before I get into the financial results for the quarter I want to highlight some of our recent and upcoming capital recycling initiatives.
Across our private funds and directly on our balance sheet, we have many investments where we have executed our business plans.
Created significant value and where and I was thinking about monetizing to realized profit return capital to our investors or reinvest the proceeds into the business.
As transaction activity ramped up in the third quarter of last year, we restarted several sales processes that had been per spawned from earlier in the year.
We have conviction that our assets, having performed well throughout the year would be very attractive to a broad pool of buyers.
Add to that the factor and a near zero interest rate environment globally, and every major economy has experienced significant stimulus and felt like a very constructive environment to be monetizing investments.
Since that point, we've sold more than $15 billion of assets across our private funds listed affiliate balance sheets and directly held investments crystallizing total gains of approximately $6 billion.
For one $5 billion our share.
Highlights from the fourth quarter include the sale of our real estate and self storage business sale of our Prime office building in Central London, We exited a fund investment and our Port terminal in Australia, so debt and interest and our graphite electrode business IP.
<unk>, the leading manufacturer of solar tracking solutions and completed the partial sales directly held real estate portfolio.
All of these sales were executed at values higher than their eye for us carrying values generate the disposition gains of $810 million and led to the recognition of $434 million of carried interest and the fourth quarter and taking the total for 2000 $20 million to $684 million.
Since the start of the year the pace of activity has accelerated we recently announced the sale of a district heating and cooling business called and wave crystallizing, a profit of nearly $2 billion, which represents a multiple of capital of six times and and IRR of over 30%.
We also recently sold the life Sciences portfolio at two seven times multiple of invested capital for 55% IRR successfully listed our Indian REIT, which was eight times oversubscribed and these values represents an IRR of over 30% and.
And multiple capital of roughly three times, we IPO with a technology provider to the solar and power storage industry took public one of our ventures investments called launch and iPhone and to enable locking system for apartments and also participated in a successful spot for merger with a multi specialty telehealth platform.
These sales have been executed at a premium to carrying values and if either crystallized carried interest or taken to fund within which they were held significantly closer to the point of carry realization.
Given our outlook on the macro environment and our current pipeline of non realization and we anticipate a very active first quarter and believe that 2021 will be a strong year for realized carried interest with up to $1 billion currently anticipated.
We also expect to be able to opportunistic bolt opportunistically bolster bombs liquidity by selling directly held investments into the strong markets for.
And we recently completed the merger of northward with West Fraser and now and 20% of the combined company. Our investment has doubled and the last six months and we currently own roughly one $5 billion worth of shares which are benefiting enormously from one of the hottest wood product markets ever.
Turning to results.
Total funds from operations or <unk> in the fourth quarter was $2 1 billion.
For $1 34 per share, which was a 74% increase over the prior year quarter.
Our operating and <unk>, which excludes the impact of disposition gains and realized carried interest was a record $1 billion and the quarter for 66 cents a share and reflected the growth of our asset management franchise and the resiliency of our underlying businesses.
All of this resulted in income to shareholders in the quarter for $643 million for.
For <unk> 40 on a per share basis.
Our asset management business also had a successful year fee bearing capital increased by $22 billion to $312 billion at year end, which when combined with a full year's contribution from our credit business led to strong growth and fee related earnings.
Our fee related earnings increased to $411 million for the three months period and totaled $1 $4 billion over the year and increase of 19% from 2019.
We also have a further $33 billion of capital that will become fee bearing when invested and when it does it will generate approximately $330 million of incremental fee revenues annually.
And the quarter, we generated $1 $2 billion of gross carried interest and bring your unrealized carried interest balance to $4 7 billion.
And this is reflective of value enhancement strategies, we have implemented within our various operating businesses and our credit business.
Turning to invested capital, including disposition gains assay for for the quarter was $644 million and increase of 45% from the prior period.
The increase was driven by excellent performance within some of our private equity businesses, most notably Norbert and similar strong performance within our portfolio and financial assets. We also saw contributions to <unk> from newly acquired businesses and same store growth across a number of our segments.
Our strong results in the quarter it led to $957 million of cash available for distribution for what we call cast are during the quarter, a 45% increase from the fourth quarter of 2019, when excluding the impact of carried interest.
On a full year basis, we generated a record $3 billion of cash star, which is up 19% from the prior year and highlights our ability to continually generate strong cash returns across the whole market cycle.
This cash flow continues to bolster our liquidity, which is used to redeploy to higher growth opportunities or over time return to shareholders.
For the past year, we've returned over $1 $1 billion of capital to our shareholders through dividends and share repurchases.
Our liquidity remains very strong and addition to $61 billion of Uncalled fund commitments, we have approximately $16 billion of core liquidity across the group, including over $7 billion directly a bomb for.
For a total of $77 billion of deployable capital.
Our balance sheet continues to remain conservatively capitalized with 94% of our debt having no recourse to the corporation to day, our corporate debt to market capitalization ratio was 12% and average remaining term and our corporate debt and 14 years and we have no individual piece of debt maturing before 2023 for.
Furthermore, our investments continued to remain a source of significant additional flexibility with mature investments that can quickly be converted to cash and often a significant premium to book value and the last quarter alone we were able to unlock approximately $677 million.
Of added liquidity by Opportunistically selling investments.
And just this morning, we announced that we generated a further $750 million of liquidity from our secondary offering of Betsy shares.
Finally, I am pleased to confirm that our board of directors has declared a <unk> 13 cent.
Per share dividend payable at the end of March this represents an increase of 8% over the current quarterly dividend rate.
With that I will turn the call over to Adrian and fully to provide and update on our north American residential business.
Thank you Nick and good morning.
Today, I am going to talk to you about Brookfield residential wholly owned North American homebuilder and developer of residential lots.
Just so we're clear on nomenclature, we currently have three businesses.
First we buy new land and type of lift and.
And so lots to sell it and sell those lots for someone who builds a house.
Second we.
And sometimes by those losses ourselves and we build houses.
Third and.
And I credit business, we use the specialized knowledge, we have to lend on some lots when others want to control those lots, but not put up the capital.
Brookfield first invested in this business and 1987.
And since then and has delivered a gross IRR and invested capital of 22%.
On a compound basis for 35 years, that's an amazing multiple to capital.
Today, our business generates over $600 million and.
Operating and operating cash flow was annually.
The value of the land we currently own.
It was about $7 $5 billion at todays prices on an undisclosed day basis.
And the majority of these land positions will be converted to cash over the next 10 years.
The current equity value is approximately $3 billion.
And our outlook for the business is very positive.
We believe we are well placed to continue delivering very strong returns on equity.
We operate today and approximately 30 master planned communities and 100 and neighborhoods in 12 cities across North America.
Annually, we build on average 4000 homes and sell an additional 4000 lots to other builders.
That's one of the top five residential landowners and North America.
We control approximately 85000 lots, which equates to just over 10 years' worth of supply and the markets we operate.
We take a disciplined approach and.
And are proactively manage that land book to deliver consistent returns for Brookfield.
In addition to this we support our credit group.
And lends money to a homebuilder friends and producing good returns.
Loss.
At a lower risk as we truly understand the value of what we're lending them.
Our long term strong returns can be attributed to a few things.
One leveraging greater Brookfield knowledge, we use a strategic land investment lens to control assets and the right place at the right time.
Two.
Creating value through thoughtful planning and product segmentation.
And three having a homebuilding business to monetize that land value and third party builders pull as I'll step back.
The business of entitlement and land development of Master planning is time consuming and requires very specialized skills.
For a few who do it instead of small and number two.
And do it and also have the capital to do it well.
It requires a detailed technical knowledge of the entitlement process.
Knowledge that maximizes land values and capital management to invest and absorb land use as efficiently.
When properly executed generates excellent risk adjusted returns and significant cash flows over long periods of time.
Moving to the current situation, which I'm sure. Many of you are interested in for many reasons.
Over the past 12 months, we've seen and new home market respond positively to structural pent up demand.
The advent of sub 3% mortgage rates greatly increasing consumers buying power, coupled with a significant drop and the supply and the used car market has produced a strong demand for new homes.
Maybe the strongest I've seen and my 30 plus years doing this at least on par with 2005 2006.
The difference now on the <unk>.
Fundamentals are much much better.
The U S. New home industry saw the 800000, new single family sales in 2020 and.
And increase of approximately 20% from.
From 2019.
And the active inventory and the market. That's the used homes available for purchase down by 35% at the end of 2020.
Our own home sales grew six times from the low point and April through July August and September and this increased demand has continued.
We finished the year with over 3500 sales and 15% increase and year over year performance what are the 30% increase when you offset for eight weeks.
And of almost zero sales when the will totally shut down.
We enter 2021 with over 1900 homes and backlog, that's 50% higher than our 2020 number.
In addition, and strong sales, we've seen home pricing growth by approximately 10% and all of our U S markets and we forecast 2021, and 2022 to have a similar growth trajectory.
Assuming all pro forma costs remain the same about 70%.
The home price appreciation drops to the land.
And therefore, our margins will improve appreciably.
This generates enormous upward revaluations of land value.
And we look some some years ahead at full costs and demand have you is that the Atlanta and housing businesses and a strong position and non demographic shifts and driving heavy household formation and across many markets.
And we believe there is a strong need for housing and is located and price correctly.
For the for sale and for rent.
The past 10 years has seen an average of just over $1 million multifamily and single family housing starts.
Annually, that's well below those demographic drivers.
We believe we will see continued demand and the next decade.
With a lot supply industry, largely unable to keep pace with the formation of households.
The top 10 public builders have grown their market share for approximately 40% of total housing starts.
And they desire to control lots through landlocked structures.
Balance sheet.
This is where it gets exciting as we both sell lots of these homebuilders and sometimes finance net loss there are a few others that compete with us.
And we anticipate increasing our land manufacturing to become a supplier of a greater number of lots for public builders.
And also looking to grow our own housing business under a line growth umbrella.
This demonstrates the power of the Brookfield business model.
Finding alternative avenues to invest capital, while always being focused on earning excellent returns.
The pandemic has accelerated a series of innovations and the way homebuilders find housing.
Access it for viewing purposes conduct their own evaluation of pricing and ultimately touches homes.
We have spent operationally and the past 12 months.
A series of times repositioning, our digital sales operation and the Mandarin and which we speak to our customer.
Our sales environments are open and virtually almost every hour of the day and you can physically access our homes at your leisure from seven to nine PM seven days, a week often without meeting another person.
We provide you with transparency and our pricing and offer our services virtually or in person to bring you closer to the home buying purchase.
You will shortly be able to view design and purchase for a home online with a purchase now option.
And if you have a home to sell we will provide you with an avenue to monetize that value.
All while sitting on your sofa at home.
A remarkable step forward and reducing unnecessary friction and the home buying and homeownership process.
We believe the advent of new technologies like this will produce lower cost of sale moving forward and these advances and operating efficiency will drive increased slot value as a reduction in costs will also flow to the landlord pricing.
And closing the industry has enjoyed considerable tailwind and the last 12 months and we see this continuing during 2021.
We remain excited about the long term prospects of our growth and both are controlled land.
And position and.
Housing operations.
Thank you and I'd like to hand, the call back to the operator.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press the star and the number one key on your Touchtone telephone to.
To withdraw your question press the pound key.
Again that is star then one if you'd like to ask a question.
Our first question comes from the line of Sohrab <unk> with BMO capital markets.
Thank you just had debt suite hopefully quick questions.
For clarification.
On the transition and I think you mentioned about seven and a half a billion dollars.
Is that something that would have been contemplated as part of the.
Figure of 100 billion dollar number that was talked about or would that be additive.
The second question.
Is around.
And what what AGM and we're just talking about I wanted to clarify Adrian did you say the portfolio has about $3 billion and equity for generates about 600 million and.
Operating cash flow is annually.
And then the third question.
I guess Sam.
Since I got is that it's a very good market for dispositions and realization.
And I wanted to see Nick or Bruce if you could handicap how that.
Toggles with.
With you being able to deploy debt $33 billion of capital, which can become fee bearing.
When committed so as we look to 2021 is it going to be more.
Europe, and the realizations and dispositions or is it going to be.
Or for acquisitions and capital deployment or how should we think about that thank you.
Okay. Thanks tore up so maybe I can go with the first and the third and then the question for age and clarification, we can.
You can jump in at the and so on the transition from when you. When we leased 100, I assumed 100, youre, referring to the Knicks range of flagship fundraising.
Yeah listen when I think when we laid out that target we would have envisaged that renewable investing would become a larger component and either it would be a part of the next flagship infrastructure fund or we could go up by raising.
And new strategy. So I would just think about this we we used to have before this we would have had for flagship funds being and infrastructure private equity real estate and our distressed credit fund I think almost a five flagship funds and then this is just an evolution and complementary to the strategy. So it largely think of it as being helpful towards reached.
And that target of 100 billion and the Knicks range of flagships, and but then it will probably give us more scale for growth and the future.
And if that's helpful and then on your third question.
And.
<unk> of dispositions and putting capital to work obviously, we're in a market right now as we touched on.
And the public markets are obviously very strong right now and the private markets are very strong given the abundance of capital and low rates and search for yield and growth and so.
And so I think given the quality of our assets is obviously very logical for us to be looking to monetize the value. We've created and we do have a number of funds.
Earlier vintage funds or funds with assets of crystallized or delivered a lot of value and makes sense to leave to crystallize in the short term and.
And that doesn't mean that we're not going to be able to put capital to work. We will look for ways to find transactions that will probably be away from the mainstream where there is maybe a scarcity of capital and we can still put money to work for value and.
Although I would say that this period of time, we are probably being more patient the pace might be a little bit slower given what's going on and the market, but I think we feel good and the pipeline is a strong enough that we have conviction, we will be able to put and the money to work and we'll just do it and a disciplined manner.
And Thats for the question on cash flows and our equity.
Equity invested yes, 3 billion and that's an average of forecast and five year cash flows.
On line and housing.
Thank you.
Our next.
<unk> comes from Cherilyn Radbourne with TD Securities.
Thanks, very much and good morning and my.
My first question I think sort of picks up on that last discussion there around capital deployment. It sounds like maybe there's been some change in your thinking regarding the timing of investment opportunities that will.
Arise as a result of the pandemic, maybe you could just sort of revisit your thinking on for the scale of the investment opportunities that you are expecting.
So look I'll make a couple of comments and then Nick may make some more specific ones but.
And I'll, just say that Jeff.
Generally the market changes, we have to change with it and when we started 2020. It was a good market and we are investing broadly across the world.
What's changed in March and we started putting a lot of capital and of the public markets.
And come May June that ended and so.
The first point I'd make is we have to be flexible with our business strategies, and where we invest because the world changes and we have to change with it. So we're always attuned to that the strength of our organization I think is that we have broad global mandate.
And therefore, we can pick our spots and and the second point I'd make and just as a broad comment.
Is that is that the markets are very strong and many things and therefore, we're selling or monetizing in this environment because they may go higher but it's just a good time to monetize and number of things.
Irrespective of that there still are many countries. Many places many businesses and many things that aren't trading or not trading properly and therefore, we can put capital to work. So we do not worry that we have a lack of places to put money to work on balance, though I would say.
And.
This is not a period, where we're in March you could put.
Enormous amounts of money to work into the public markets at distressed valuations.
Great that's helpful.
And then thank you for the update on the residential business and I apologize if I missed this but can you comment on how that business is carried within your invested capital under I for us and how that carrying value would compare Q intrinsic value for land holdings and also just the timing of when the strong market dynamics.
For reference should start to flow into SFO.
Yeah, Hey, Cherilyn and snacks, so I think on our line and housing business on the balance sheets and are directly held unlisted roughly about $3 billion combined there are some projects within that debt are more like investment properties for a fair value, but most of it is just.
Inventory held that depreciated cost for that value uplift comes through as we look to sell those parcels overtime.
So there could be an uplift on monetization over time from there and.
On the realization into our financial statements of the strong and all.
Creating performance and backlog that we have and youll start to see that come through.
And the early part of this year the first half of this year as we deliver on those laws and and then crystallize the profit and the earnings into the P&L, we take a more conservative approach that as we deliver the houses or the look and then youll start to see that income flow through so you should see a strong pickup and the and the contribution in 2021.
With you. Thank you for the time.
Our next question comes from Ken Worthington with JP Morgan.
Hi, good morning, and thank you for taking my questions.
Assuming the <unk> deal closes as as expected what do you see as the right balance of selling <unk> real estate assets outright versus the sale of these investments to new and existing Brookfield funds.
And then there seems to be a trade up between how quickly Brookfield could sell b py assets into new Brookfield funds and the price that Brookfield might get by holding onto these properties for a more lengthy period of time. So this concept of of time versus price.
Do you think there is a right balance when maximizing brookfield shareholder values between time and price or is it obviously sort of one versus the other.
It's a good it's a good question, Ken I think the outright versus going into funds.
And we'll have to see how it evolves. We have we have a view that we have a portfolio of very very high quality assets that should be attractive to clients and over time, we should be able to create products around these assets that will be attractive, but as you see that will be balanced with some assets that it makes sense just to sell out right. The exact breakdown of that it's hard to say.
And will be case by case, but I think to the second part of your question that we will be disciplined and we will look to do it for value. There are certain parts of the portfolio that even in today's climate, they still attract and strong.
Strong valuations, we sold and office building in Central London, and the fourth quarter and a very strong valuation and there are other markets that are active and then there are markets that right now are not as active and and where you could sell assets would not be attractive so.
I think it will be a balance and I think over time, we hope we can.
Communicated.
And to reduce our exposure to real estate over time, and it will be a combination of outright sales and creating new products and.
And I think it will just be disciplined and.
And price versus time.
Is it good question and I think the overwriting principle was to be disciplined and crystallize. What we think is a fair value for the assets.
Okay. Thank you and then we just had elections here in the U S and infrastructure.
Infrastructure is a priority for the Democrats here and the states can you talk.
And if so how a meaningful increase in U S infrastructure investment could offer Brookfield, both infrastructure and investment and infrastructure realization opportunities or maybe it's neither.
Yes, so look I.
I would say and maybe as a further backdrop I'll, even make it more broad than that and then specifically comment on the U S. But.
Governments around the world haven't spent slash invested enormous amounts of money to deal with the COVID-19 situation more than they ever expected to spend.
There's only two ways out tax for sell assets and when they say when I say sell assets what that means is sell infrastructure cell infrastructure or fund infrastructure infrastructure.
Through doing it and a private method.
And.
Our belief is that globally.
Governments will need to do both and they will need to tax and they will need to sell infrastructure and that sets a very constructive backdrop for both things you said, which is there will be.
Other institutions that will want to buy.
Fully completed infrastructure with long tailed cash flows and that weekend and therefore have a good market to sell into.
And there will be.
Assets, which are less perfect for larger in size or more.
Diverse in nature that we can participate in and turn them into the first category and so I think it's there is nothing.
But good news on the supply for infrastructure coming over the next 10 years.
And that specifically is in the United States, but also and many other countries and the world.
Okay, great. Thank you.
Our next question comes from Geoff Kwan with RBC capital markets.
Hi, good morning, Bruce.
Do you actually.
And I answered a little bit of the question and that was gonna and asking and just going back to <unk>.
And with governments kind.
Kind of spending.
And I and deal with the pandemic and and how you're kind of fixed debt.
My question is I guess and little bit more.
And <unk>.
Have you.
Have you done much work in terms of trying to figure out kind of targeting preferred assets that you might want to try to invest from various governments globally.
Have you had any discussions or governments kind of receptor right now are they still kind of and I'm just trying to deal with the pandemic mode and kind of thinking about how to finance that a bit further down the road.
The answer it's I'd say, it's still early in the game and these things don't happen overnight and it's not like there.
And there isn't going to be a switch one day happened and everyone's going to sell assets, but but every month.
Increasingly for many for a long for a long time more infrastructure has been going into private hands and no. One no one really sees it and knows about it but every day that is happening. So I think just increasingly more cities more states more countries.
It's going to be facilitating more private funding coming into infrastructure and the follow on and continue So I think it's just.
It is happening every day and and you just don't really see it and.
And actually I think.
Our comment would be.
The less drama.
It is.
With respect to it the better it is because when there are big plans often.
Nothing happens and therefore, adjusted the slow and steady.
Monetization of infrastructure is the best way.
The countries can get it done.
Okay. Thank you.
Our next question comes from Bill Katz with Citigroup.
Okay. Thank you very much for the perspectives and taking my questions today, just kind of come back maybe a little more tactical in terms of the FRE margin.
It was a very strong number for the fourth quarter and as I looked through the disclosure doesn't nothing jumps off the pages unusual of size. So perhaps you could sort of think through just given the scaling of the flagship funds versus reinvestment versus maybe anything that's sort of.
Running below trend cause of Covid and how to think through the FRE margin.
To the new year.
Yes.
Sure Bill.
But I don't think the messaging has really changed I think we saw continued strong margins across the business and.
And.
I think on a blended basis is strong and we break it out for you by Brookfield and Oaktree and the Oak tree margin was strong.
This quarter as they switched on more fee revenue during the year.
And listen to the perspective is the same and that we are broadening our product offering.
We are launch.
Launching new strategies, which will require investment professionals and.
The ability to service the clients and service them to the highest standard and all.
Obviously, there will be leverage as we scale up and.
I don't think anything has significantly changed to what we would have guided to the possible based on the growth. We have in front of US maybe we outperformed that slightly but nothing materially has changed as we look forward.
Okay.
Two part follow up and I apologize a bit unrelated and it seems to be a little bit of back and forth with investors, we speak to in terms of the economic flow through of BP y.
And the add on of what you're purchasing and ones. If you can maybe just sort of summarize sort of how you sort of see the interplay between the invested capital versus the FRE give and take and then just sort of stepping back and I'm sort of intrigued by your commentary on the residential mortgage side, maybe just an update strategically you've had it for the tap into the U S retail market.
Similar to some of your peers. Thank you.
Yeah sure the economic flow through on BP y.
I think we've discussed and we will have to update and just as we work through the process.
See there is a fee paid out of the business today and.
When we announced we announced that we would have partners in the transaction with US as we work this through with our partners. We will from an outfit to slow we expect that the <unk> entity continues to pay fees like it does today.
And as that evolves, we will confirm but that's our expectation and I and as the return on invested capital. We expect <unk> to continue to pay a cash distribution to Brookfield consistent with what it does today. So that's the basic working assumption.
And for now and obviously the business is performing well cash flow is strong and have no reason to change that outlook.
As we look forward.
The second part to remind me the second part of the question yes.
Yes, sorry for such an asset set of questions just sort of curious.
So translating some of this great performance, great products into potentially tapping a little bit deeper into the U S retail market.
Yes, yes, and I think what we're doing on that is probably consistent with our peers I think when the partnership.
And that we have with all true we now have a really diverse range of products that are appealing to that broader market and we've been leveraging what we have on the Brookfield site and our distribution capabilities and to really try and growth I think about 7% to 8% of our fee bearing capital to capital to day comes from.
That high net worth retail channel and we will be looking to grow that over time, and we've been developing and thinking about new products that could cater to that market. So I think it will be an important component of future fundraising.
Thank you.
Our next question comes from Andrew Kuske with Credit Suisse.
Thank you. Good morning, the question really relates to the velocity of capital flowing through your business and this is.
Private asset management business, and it's really on the raise deploy and monetization cycles and if you could.
Give us maybe a quick snapshot on organizationally and just the evolution you've seen from where you were 10 years ago and.
And where do you think youll be five years from now where do you need work is it on the distribution side is it on the investment professional side, just give us a bit of color on that that would be helpful.
Yeah, and look Andrew I'd say.
And we need help everywhere to make specific no one's ever perfect.
But the good news is we.
We've grown the business methodically over 25 years.
And I and I guess I would just say.
Well we need.
To be able to be pay attention to all we're doing I think.
We keep growing methodically each one of the businesses and adding.
10, gentle businesses onto it at a pace, where we can handle it and.
And both from a capital perspective, and also from a management perspective.
So look I think we have one of the we have a very.
And I made two specific comments, we have a very honed.
And refined investment process.
And we've only been and that's been there many many many years.
Then refining that on the.
Our asset management distribution side, where 20 years young and we can still grow and become more effective at that so I'd say, if we had one spot where we can be probably do a lot better even though I'd say, we're pretty good.
Is on that side.
Okay. Thank you for the comments.
And for me ask a follow up and it's different but also a little bit related obviously your homebuilding business. What's your profile per day has evolved over the years and.
What's the next iteration of that homebuilding business is in the past few pads and other public entities, DHS and ERP B's and might be.
And one but I think those are the three majors.
How do you think about that business is off the balance sheet at some point, either and the public company or a private company and or co investors what are the options for business.
Yeah look it's a good question and and the point I'd make is that we.
Over the years, we found that some businesses are good and the public markets and some not so good and and the housing.
We have a housing business, but the real business. We have is land development and where you make all the money is land development.
And it's highly profitable, but it is highly irregular and because of that it doesn't according to the public markets and therefore, it will either be private on our own balance sheet or at some point in time, we may introduce institutional clients into it because they're private and they can understand what I just.
They are they are willing to deal with what I just described as opposed to the public markets. So you will not you will likely not see for us.
Never say never but you will likely not see from us and public.
Entity and land development.
Okay. That's great. Thank you very much.
Our next question comes from Alex <unk> with Goldman Sachs.
Hey, good morning, Thanks, guys for taking the question I was hoping we will get spent a couple of minutes on the path for management fee growth. This year it sounds like the fund raising momentum.
And is going quite quite well we've seen the same for many of your peers. So as you work toward the flagship Super cycle, maybe kind of walk us through your management fee thoughts for this year and perhaps next year.
Yes, so I think Alex as we look forward to it can be it can be lumpy right like it's going to be step changes with each fund that comes in which is why we kind of like to look at over over a cycle and over a longer period of time and so I think what we're working towards is consistent with what we would have laid out at Investor day, which.
Kind of had our FRE.
And if we are able to achieve the fundraising targets that we've laid out without path would lead towards doubling of that for real for the next five years and those step changes will largely come in line with the closings of those flagship funds and as we said.
Our opportunity the debt opportunity fund and <unk>.
And at first closes should have a final close in the coming months, we've launched the next real estate fund and.
Transition from just launched and infrastructure and private equity and I.
I would say within the next 12 months.
Conservatively, so I think that's going to be what's going to lead to the step change and the revenue and when you think about it and a five year period, that's what leads to kind of thinking about doubling.
While at the same time, we continue to grow the other strategies and our perpetual close to and vehicles.
Got it alright.
Net interest Youre right.
Got it okay.
And my follow up is around <unk> and I think.
You, partially answered that question a little bit earlier, but just thinking through the dialogues you guys are having with third party all piece today and now the deal has been out there for a little while what sort of the appetite may be and the expectation you have for third party capital to participate in the transaction and if you could remind us again your expectations and how.
<unk>.
And these deal will ultimately impact FRE for Bam I know Theres, a couple of moving pieces, there, but I think you talked about that being general and neutral and the past I'm just curious to get your updated thoughts. Thanks.
Sure I mean listen the.
I think we've what we've laid out Alex is that we have a plan to privatize deep business and I believe the off right. There is a fair offer but that will work its way through the process and.
And believe that we can deliver significant value and.
For that business and the private for them and we kind of late and the letter.
This quarter.
And so I think what you have.
And we're careful is there.
We have clients that are interested in this portfolio day recognize its value and its attributes and we'd like to invest and we're having those discussions.
We'll give updates on them as they evolve, but we're balancing that against wanting the flexibility to be able to execute our plans. So we have to strike the balance between raising capital and still having the flexibility to execute the business plan. So as that evolves. We will we will keep you posted all I can see us for for some of our.
Strongest clients this transaction has definitely.
Piqued, our interest and we will see how those discussions evolve.
And on the FRE.
Impact and development again, it's going to be influenced by how much third party capital, we raise now, but I think overtime.
We expect to see new fund form creation around some of these assets new strategies and that will bring back some of the FRE and through and probably and higher for them and private form where fees are based off of NAV and lessor any public price and.
And that has been trading at a discount to NAV. So we think we create.
As higher quality revenue stream over time and that will be very long dated and.
Or potentially perpetual and but one that's based off and true market value, but the exact numbers again will evolve over time and for now we've just been kind of thinking about maintaining the existing fee streams with BP y maintaining its current form for some clients investing into the corporate entity.
Great. Thanks, so much.
Our next question comes from Robert Lee with <unk>.
Okay.
Great. Thanks, and good morning, Thanks for taking my questions maybe.
Maybe first one Nick.
And thinking about from the <unk>.
A couple of years ago, a year or two.
You guys and laid out that.
And kind of expected them and put that would pretty much double over a five year timeframe. So.
For the year cash flow strong out looks pretty good.
<unk>.
You care to venture like.
Should we be thinking that.
And you pretty much set up and kind of.
And that mid teens plus.
Cash flow growth over the next five years.
And your reason that type of debt.
And the trajectory.
No I think Rob that would still be the trajectory again, consistent and I think we laid out in September but that would still be.
The consistent outlook.
Okay, Great and then maybe a little bit of a housekeeping question just update us on where things stand with the.
Bam our stock and.
And it's been that.
And the shareholders.
Yes.
Listen we're working through the through the process from filing their requisite documentation and working with the regulators so I I expect.
And the finger right. The first half of this year as the original timeline that we laid out would still be the rough expectations on us.
Okay.
And then maybe one last question and I. Appreciate this is just on the core perpetual core real estate products I think you mentioned and the.
And the letter that maybe this rub 12 billion and committed capital and those hubs.
It's a small piece of the puzzle, but growing and important.
And so kind of what the.
The flows had been and new commitments to that kind of a steady pace quarter to quarter and.
Just trying to get a feel for how much that's maybe growth in the past.
And of course.
So.
It's Bruce.
The perpetual infrastructure and real estate products are income replacements for institutions.
And.
I would say these are these type of products.
Being cash.
High cash return relative to other fixed income and some appreciation, but very low risk are highly attractive and the world that we are in today and I think theyre going to keep growing for us.
For a while.
We have significant money coming into our infrastructure business at the current time real estate just because of the sentiment that's out there we have less capital coming in but I think youre going to see that change.
The market resolves itself over 2021.
But these are these are both highly attractive.
Products for people and and I think youll continue to see money flow into them.
Okay. Thank you very much for taking my questions I appreciate it.
Our next question comes from Dean Wilkinson with CIBC.
Thanks, Good morning, everyone.
Nick if I could just circle back on line.
And the BP y conceptually.
If you were to look at.
Doing away with the dividend and and not sort of rolling that up to the parent company and keeping it at that op co level is there is some tax savings and it may be too early to answer that and would that then naturally accrete to the planned value as opposed to and earnings stream and and and how would you think about that going forward.
D and I don't think theres anything material and that I think BP Y is going to continue to generate strong cash flow. It has reinvestment opportunities consistent with today, but in excess of that I think you should expect to see continued distributions and I don't think there is.
Any material and tax analysis really can be done to be done around debt that would change our thinking.
Okay, great. That's it from me thanks, guys.
As a reminder, ladies and gentlemen, if you'd like to ask a question at this time. Please press the star and the number one key.
Our next question comes from Brian Bedell with Deutsche Bank.
Great. Thanks, good morning folks.
My questions have been asked and answered, but maybe just a couple more.
Maybe just.
And one more on the cadence of the of the fee revenue growth, maybe just some perspective on obviously, we'll get the step step function growth in and.
Fees from the New fund launches.
But also on the deployment it sounds like Youre being more patient of that so just wanted to get a sense of debt $330 million of committed capital that.
Work, its way and to see paying.
And if you think that sort of is going to move up or maybe roughly around the same pace as the fund raises or would it be.
Sooner or later.
Yes, I think Thats, Brian US divorced from fund raising debt would be capital that is raised and committed.
Today.
Large part of it would be things like the latest distressed debt funds, where capitals paced on invested.
And as opposed to committed for that capital and <unk>.
Tree.
That fund, we're seeing very good investment opportunities I believe for over 40% invested or committed and not fund and.
Despite the broader strength and the public markets are still seeing strong private lending opportunities. So I think we expect to see a decent continued.
Cadence of investing of capital there and the balance would be stuff and in.
And our funds, where we hold capital back because we have a follow on investment opportunities so not necessarily thinking about new opportunities, but it is about follow on investment opportunities and to assets, we already on our development and we've already committed to so you should expect to see that capital being as steadily invested over the next couple of years.
Okay. That's helpful. And then maybe just one on the global transition fund, maybe just longer term.
And what do you view as the addressable market for this obviously there is a lot of momentum and moving towards net neutrality, where net.
And.
Clearly a large market for for more assets to be invested but.
Obviously, $7 5 billion and is a nice.
The large funds and start with.
If you can maybe just give us your thoughts on what do you think the longer term addressable market is.
And for these types of investments and whether you think you might be able to actually.
Create more funds without going through the investment period on this one.
On the last point I don't know.
I have to see when we create a fund will invest that capital and then we'll move on to another one how quickly we invest the money will have to see as to the addressable market.
We think it's very large and we think that given our.
Position and given what we've done with our business over the years.
As you May know, we were very carbon intensive business 25 years ago and today were net zero so it.
Having that pedigree, we think we can assist companies we have the operational.
Ability to do it and what we have is capital.
We have capital to provide two businesses to assist them do this and so we'll have to see how big it is but there is we think theres going to be a lot of opportunity and this transition and it could be it could become a very very large business for us.
And that's great perspective, thank you.
That concludes today's question and answer session I would like to turn the call back to Suzanne Fleming for closing remarks.
Thank you everybody for joining us today and with that we will end the call.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you for part you may now disconnect.
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