Q1 2021 Brookfield Asset Management Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Brookfield asset management first quarter 2021 results conference call.
He's been thought of for today's conference is being recorded.
I would now like the hand, the conference over to your speaker today, Ms. Suzanne Fleming managing partner. Thank you. Please go ahead.
Thank you operator, and good morning, everyone welcome to Brookfield, the first quarter 2021 conference call on the call today are Bruce Flatt, Our Chief Executive Officer, Nick Goodman, Our Chief Financial Officer and Stuart.
The head of our business in Asia Pacific.
Bruce will start off by giving a business update followed by Nick who will discuss our financial and operating results for the quarter and finally Stuart will give an update on our business in APAC.
After our formal comments, we'll turn the call over to the operator and take analyst questions I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance. We may make forward looking statements, including forward looking statements within the meaning of the applicable Canadian and U S. Securities Law. These statements are for.
The 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 such statements.
For further information on these risks and the potential impact on our company. Please see our filings with the securities regulators in Canada, and the U S and the information available on our website and with that I'll turn the call over to Bruce.
Thank you Suzanne and Hello to everyone on the call.
We started the year with strong results.
We earned record levels of both <unk> and distributable earnings.
What are the different sometimes of your mix.
Results benefited from strong operating results across our businesses.
Supplemented by significant gains from asset sales and carry realized in the quarter.
We made progress in executing on our capital recycling initiatives and generated substantial gains for shareholders and clients.
Nick will touch on a number of these items in more detail in his remarks.
Looking at the market environment.
It is clear that we're in a recovery phase and most countries around the world as.
As each progresses their vaccine rollouts and emerges from Lockdowns.
The snapback of recovery is pleasing to observe.
Some countries are recovering faster than others.
I would note the United States, the U K, Australia, and many countries within Asia, which Stuart will talk about.
And we're encouraged to see these countries begin to return to normalcy.
I was personally in the number of cities last week across the United States and I can attest to travel starting back strong in retail demand recovery.
Today, we have Stuart epperson with us as Suzanne mentioned.
He's our managing partner and regional head of Asia Pacific.
Responsible for overseeing activities in that region.
He will provide an update on our operations in the region.
Opportunity set we're seeing today.
And insight into what we're seeing in each of those various economies.
Stuart stayed up most of the night to be able to speak to you as he's currently in Sydney.
So thank you Stuart and we hope all of you on the call will benefit in some way from his comments.
Yeah.
Capital markets today are very robust interest rates remain low and the demand for the type of assets we own is strong.
And getting stronger.
While we expect interest rates will rise slowly over the next few years. We also believe that combined with that central banks will be successful.
And engineering.
GDP growth and employment increases.
Which has already started.
That would mean the global economies are doing well at the same time.
This will be a very constructive environment for our asset management business and for the assets we own.
For a number of reasons.
In this low ish rate.
Environment investors will continue to look for fixed income alternatives to meet required returns.
This will drive inflows to alternative strategies, which will further benefit the scaling of our existing flagship strategies.
It will also be positive for our perpetual.
On the offerings.
This provides the stock strong backdrop backdrop for our flagship fundraising, including our fourth <unk>.
Real estate flagship funds soon to have a first close.
And our global transition funds soon thereafter.
More broadly investor interest for all of our funds is stronger than we have ever seen.
As a result, we expect these funds to be larger than predecessors, and therefore add significantly to fee bearing capital.
We also continue to deploy significant capital for our two other flagship funds infrastructure and private equity.
And we expect to begin fund raising for the next vintage of each.
Later in the year or early in 2022.
As all of you know global Central banks.
Have pushed an enormous amount of stimulus into developed economies to ensure markets recover from this recession.
This has led to substantial availability of capital in most markets.
This global stimulus has largely been funded through borrowed money.
And governments will need to consider ramifications of how to pay it back.
This will require one of two measures.
<unk> book.
Economies will need to grow and generate increased taxes to service the debt.
And assets will need to be sold.
For governments asset sales means the sale of where future of avoidance of infrastructure spending.
As a result, the shift of infrastructure spending is set to increase in a meaningful way.
And will create opportunities for infrastructure investors like ourselves for decades.
And while this is an extremely positive backdrop. The other side of the coin is that many asset valuations are high.
It does make it harder to find the investment.
But allows us to raise substantial cash with asset sales.
Through the last quarter of 'twenty, 'twenty and the first quarter of 2021, we.
We returned $19 billion to clients.
And $5 billion to our own balance sheet.
This generated in the first quarter, just just in the first quarter $6 $4 billion of realized gains.
And there's more to come in the second quarter, we are in.
This has put us in the strongest cash position the company has been in ever and also generated substantial realized carried interest.
Which are our our portion of client gains into income.
And it looks like 2021 will also be strong in this regard.
But as always we are active putting money to work using our global reach and access to capital to achieve success.
And of competitive environment, we need to even be more creative to find value.
Since we last spoke we have further progressed our efforts the spin out of our reinsurance business by filing our prospectus.
And expect that all regulatory requirements will be cleared in the near term.
Your new shares should be in your hands by the end of June or early in July.
Lastly, we came to an agreement with the special Committee of Brookfield property partners and their advisers to privatize B P y.
We believe that this is this transaction is in the best interest of our BP Y partners and ourselves the.
The special Committee and their advisors agreed with us.
Of this offer gives BP Y shareholders a number of alternatives.
But for the band portion of what they receive we believe it will give them a greater chance to compound wealth as a part of overall Brookfield.
Then they would otherwise have been able to had we left V. P Y the way it is.
We have more than enough cash to fund the privatization and as opportunities arise to repurchase the Bam shares which are being issued to close the BP y transaction.
Thank you again for your continued support and I will now turn it over to Nick to.
To discuss the financial performance in the quarter.
Thank you Bruce and good morning, everyone.
So we've continued the momentum from Q4 of last year and started this year with very strong financial results. The results are supported by continued strength in our asset management business resiliency of our operations on realization from our capital recycling initiatives.
And the outlook for the business remains very positive without coming fundraising initiatives set to deliver step change growth in our asset management earnings the.
Reopening of the global economy poised to further enhance operating results and the current market backdrop expected to support ongoing capital recycling initiatives.
As we have discussed in the past many of the businesses and assets that we on our critical infrastructure assets are very annuity like and generate very stable predictable cash flows that are predominantly contracted or regulated.
And in the current environment economic environment of low interest rates and excess liquidity the demand the market valuations for these assets is very high.
During the first quarter, we sold approximately $13 billion of assets across the business on a significant premium to what we paid for them.
Of note for you also is that many were sold at substantial premiums to their <unk> carrying value.
As a result, we realized approximately $6 $4 billion of gains and that would be $4 $6 billion for our clients on $1 $8 billion for Brookfield and on the client games. This realized carried interest of $681 million for us.
Just as a reminder, we adopt a conservative approach to realizing carried interest in our financial statements. We only record carried interest into income when three criteria are met the funds has returned to all of the original capital declines. It is through the client's preferred return on the recognize the moment has minimal.
Risk of Clawback.
As our earlier vintage funds are now starting to mature and business plans of being completed our asset sales activity has increased significantly.
This is crystallizing significant gains on leading to increased levels of carried interest being realized into income.
In the last five years, we have recognized just over $2 5 billion of growth carried interest but of note close to half of that has been realized during the last six months.
Today, we of $5 billion of accrued, but unrealized carried interest that we expect to be recognized into income as we continued to execute asset sales.
And while this will transfer into income or new funds on our larger and if we do our jobs right, we expect to be adding greater amounts to the balance as our newer vintage funds continued to create value.
And our progress in this regard can be tracked in our quarterly supplemental.
In that vein, we recently announced the sale of our U K smart meter business realizing for seven times, our investment on an IRR of 58% the.
The sale of two wind portfolios in Ireland, and the U S. Realizing irr's of 12% together, we sold an interest in the U S pipeline business. We are realizing an IRR of 21% on a multiple on invested capital of two four times and we recently recently signed the agreement to sell sales group to sell several office towers in Australia.
On the basis of this activity and our future pipeline, we continue to feel our target of realizing a $1 billion of gross carried interest into income for the calendar year is achievable.
Turning to results total funds from operations or <unk> in the first quarter was $2 8 billion or $1 80 per share, which was more than a threefold increase compared to the prior year quarter.
Our operating <unk>, which excludes the impacts of disposition gains and realized carried interest.
With $777 million in the quarter of <unk> 48 per share.
All of this resulted in income to shareholders in the quarter of $1 2 billion or.
For <unk> 77 on the per share basis.
Fee bearing capital increased by $7 billion to $319 billion at quarter end and is up by $55 billion over the last 12 months, which led to strong growth in fee related earnings.
Fee related earnings increased to $413 million for the three months period and totaled $1 $5 billion over the last 12 months on increase of 18% from the prior period.
We have an additional of $33 billion of committed capital that will become fee bearing once invested translating to approximately $313 million of incremental fee revenue annually.
Turning to invested capital excluding disposition gains asset flow for the quarter was $364 million, which is the decrease of 8% from the prior period.
We continued to benefit from strong organic growth and capital deployment and most of our operations. However, this was offset by the impacts of temporary shutdowns of some of our hospitality and retail operations decreases and our ownership of our renewables and infrastructure businesses. Following secondary sales over the last 12 months.
On the sale of the majority of our interest in West Fraser, which triggered a change in accounting basis, meaning we no longer pick up our share of the underlying earnings of the company.
To align with methodology used within the alternative asset management industry, we've decided to rename our cash available for distribution performance measure is distributable earnings our day.
As a reminder, we provide day before realizations, which tracks and demonstrates the stability of our core operating results on removes the variability of realizations that are subject to timing and other factors.
And we provide we provide total day, which includes realization and incorporates realized carried interest and also now includes realized gains on principle investments.
Day before realizations increased 29% over the last 12 months period.
The increase was largely driven by continued growth of our asset management franchise as well as increased distributions across our listed affiliates.
Including realizations day was $6 $1 billion over the 12 months, an uplift of 130% over the prior year period.
Our liquidity remains very strong in addition to $62 billion of Uncalled fund commitments, we have approximately $18 billion of core liquidity, including close to $9 billion directly at the Bam level.
All of this adds to a total of $80 billion of deployable capital.
Our balance sheet continues to remain conservatively capitalized with 94% of our debt having no recourse to the corporation.
In April we issued an inaugural 10 year Green bond with a coupon of 274% the lowest coupon we've ever issued for a 10 year debt.
Proceeds will be used for green initiatives, but to keep our debt at similar levels. We also called approximately $500 million of 2023 bonds. The net result is the we will extend the duration of our debt on lower the interest rates.
Today, our corporate debt to market capitalization ratio is 11% and average remaining term of our corporate debt is 14 years and we have no individual piece of debt maturing before 2024.
When compared to our corporate balance sheet with $9 billion of cash financial assets in Undrawn capacity on our credit lines over $50 billion of investments and $9 billion of additional core liquidity and our listed affiliates. This makes us financially very strong.
Finally, I am pleased to confirm that our board of directors has declared of <unk> 13 per share dividend payable at the end of June.
With that I'll turn the call over to true ups.
Thank you Nick and good morning, everyone.
Because the guy today I'm going to talk about out of Asia Pacific APEC business, which currently includes investments and operations in Australia, New Zealand, China, Japan, and South Korea.
We'll provide an overview of our scale in the region and update on the operations and an insight into our growth of explorations in the region.
We have $57 billion of Bayou and across the region with over 100 of investment professionals and more than 30000 operating employees, which represents significant growth from when we first started investing in the region.
As with any new market, we have taken a long term patient approach to expanding our presence in the APAC region, we see the focus on countries and markets that have the strong respect of capital supportive capital markets and a large market that will allow for significant scouts be built over time.
As we potentially expand in the region to new markets, we will be focused on ensuring that any target market that we aim to meet all of these criteria.
If we go back to where it started for us in the region. It began in 2006 with the commitment to acquire a pump the INR and construction company headquartered in Sydney.
This initial investment and we'll soon followed by the acquisition of Prime infrastructure.
Both of these transactions laid the foundation for Australian unusual on business, which now has $31 billion of AUR across infrastructure real estate and private equity.
The portfolio today across these two countries consists of office buildings Railways ports got it infrastructure healthcare construction and retirement.
We have used the operating expertise to develop and construct new assets expanding existing asset signed new leases execute new long dated contracts for infrastructure assets and implement cost improvement plans to drive strong returns on.
All of our businesses are performing well.
Real estate assets with 5 million square feet of office space currently 94% leased the strong counterparties complemented by quickly improving leasing market as the.
Economies begin to reopen we have also seen office occupancy levels improved to close to 50% and this should be closer to 100% of over the next number of months.
All the infrastructure and data assets are underpinned by long dated contracts and the strong commodity backdrop.
Thank you Ross for potential expansion projects at our rail business.
Pivot equity investments are also performing well underlining the quality of the businesses that we own in the country.
Consistent with the comments from Bruce and Nick around monetization. We've also been selling select assets in Australia, and New Zealand, where low interest rates and high levels of liquidity of resulted in increased levels of demand the valuations for the assets we on.
We recently sold on interest in two office buildings at very compelling valuations.
Pathology business, the New Zealand and late last year, we took a poll Tim long Queensland public.
As we think about deployment, we remained focus on growth by of development and also from data businesses and targeted acquisitions warehouse scale operating expertise put us at an advantage for.
The capital rotation will also come from selective asset sales today on mature investments and we expect to be busy on all fronts in the coming months.
As we scaled up in Australia. We also started to focus on setting up the foundations for growth in the Asia Pacific Region. We've spent time of the last 10 years I think local offices in Shanghai.
And so on hiring local investment professionals and building conviction in these markets. We have remained patient in each of these markets, making sure that we understand the country's economic backdrop, how at all price and have developed key local relationships that have given us the confidence to start putting meaningful amounts of capital to work.
With regard to the China, we have operated in the country. Since 2012 initially focused on educating ourselves on how the country does business and reviewing many transactions to buildup of conviction on deploying capital.
We subsequently opened our Shanghai office in 2014 and in the same year, we completed our first transaction in the country within the investment until the portfolio of Prime office and retail asset.
Part of the investment we were able just upon several senior Brookfield team members into the company and although we have since exited this investment we generated attractive risk adjusted returns and leverage this experience to develop our capabilities in the country.
Our presence in China has grown to more than 4 billion of AUM across office retail and logistics properties as well as renewable power assets.
I would like to highlight a few of our more recent China of investments that are emblematic of this approach.
Cash in 2019, we acquired a large mixed use office and retail development, which we renamed one east from the Chinese developer.
Of this project consists of three office towers, and a retail mall from the <unk>.
The front and central Shanghai.
Construction and permitting risk remained with the seller, providing downside protection and allowing us to focus our efforts on creating value through the leasing of activation of this asset utilizing the expertise of our local operations team.
Despite the challenges faced last year office tells the now 55% least likely increasing to 70% plus shortly and fully leased by year end of <unk>.
Retail mall is now 75% committed with a soft opening occurring later in may.
All of this is the made possible by our in house team at Brookfield properties, who negotiated the second largest office lease in Shanghai from 2021 and of several new to China tenants to our retail offering as well.
The second example in 2017, we established our renewable energy joint venture with the China base. The callable logistics development that we have now on for years, we are leveraging the local presence and our best in class renewables operations.
This investment focuses on the installation of distributed rooftop solar panels on the industrial sites in major markets.
Ownership has proven to be very successful to date the installed capacity of close to 190 megawatts of further advanced pipeline of 220 megawatts and a rapidly growing partnership.
We expect this business to have an installed capacity of over 8000 megawatts by 2023 supporting China's long term goals of.
Carbon neutrality.
Of Shanghai Office continues to grow and we have around 100 people covering all of our major platforms, including 20 investment professionals to support the continued growth of all of that business.
China's successful control of the pandemic has led to a resurgent domestic economy and a rebound in consumer and corporate confidence as an indication of this we've seen this at our own community mall portfolio in Shanghai.
Retail sales and traffic and now above that is greater than 2019 levels. This domestic economic strength has allowed the Chinese government to focus on key macro initiatives, including the further deleveraging on strategic sectors, including residential developers and this in itself is creating opportunity we believe these.
Chinese government initiatives give rise to a need for operationally minded capital and a highly constructive to our ongoing growth plans in China as.
As we go for it and continue to build confidence we will further expand our sectors of focus for remaining centered on our global areas of strength.
Moving on to South Korea, we made our first investment in the country in 2016 with the acquisition of ISC Salt and landmark mixed use development, comprising $5 5 million square feet of office retail and the Conrad solid hotel for $2 2 billion.
This acquisition was large and needed creative structuring as well as operating strength.
This is where we excel and we are using these strengths in Asia.
We immediately put our teams to work on improving overall leasing and operations in an effort to increase office occupancy from the day and 60% range and to revitalize the tide externally manage retail mall.
Despite last year office occupancy now currently stand at 96% and we've replaced all of the half of the retail tenancies, including items, adding Korea's second flagship Apple.
Which opened in March of this year.
We also expanded our global logistics presence to career in 2020, we believe the secular tailwind associated with e-commerce demand in Asia career in particular will prove to be highly compelling and the use of him.
At the same time, we continued to build upon our investment on operational presence to expand out of investment verticals.
Tablets thing on infrastructure and private equity platforms in South Korea as we speak.
In Japan, we have had very significant financial and operating partnerships globally with many Japanese players.
We also raised substantial capital in the market for our funds. We've had an established investment presence and taking on for several years and pursuing many opportunities.
Our initial investment focus has been on logistics properties renewable power and carve outs from the industrial conglomerates, we expect the scale and scope of the opportunity to continue to widen and the use of Kid and on strength show well in Japan. This will increasingly be of larger market for us.
Today investments in the APAC region accounts for approximately 10% of Brookfield total IU in but we expect that to grow over the next 10 years.
Our scale is growing and Couldnt sometime range, 25% of capital deployed.
We're excited about the opportunities to continue to put meaningful capital to work across our core markets in the region.
I would like to end by commenting on our fund raising activities in the APAC region, we have a long and successful history of fund raising from each of the countries I mentioned and in many cases well in advance of when we began making investments in these markets.
We raised 20 per cent of institutional capital from these market and currently have over 130 institutional investors across 10 different countries in the region.
We've raised $5 billion in this region in the last year.
More importantly, we regard it as a clear investment partner of choice among many Asia Pacific investors, having been voted in 2020 by Korean investors and to the best of the best real estate and infrastructure manager and also receiving the APAC and construction of fundraising of the year Award for 2020 from PEGI.
Our journey in the APAC region to date recently culminated in the completion of Brookfield place, Sydney, which will be on your Asia Pacific headquarters.
We went to nine years acquiring developing and constructing the site.
Has been of great success for everyone.
Our workforce and anchor tenants, including the Sydney headquarters for NAV Bank will move in light of this month and a show of confidence for the office market in our region.
To conclude we.
We are excited by the opportunities in the APAC region, and our balance focus and on the continued strong operational performance of the assets alongside rising in deploying capital, where we see opportunity positions out of Asia Pacific business, well to drive the growth for many years to come.
With that I will turn the call back over to the operator for questions. Thank you.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Again that of Star then one if you'd like to ask the question at this time.
Our first question comes from Ken Worthington with Jpmorgan.
Hi, Good morning, Thank you for taking my questions.
As you go into the fund raising cycle, where your fund raising both flagship funds and funds focused on new strategies should.
Should we expect to see any increased costs from distribution.
To what extent does Brookfield utilized third party distributors, which could boost expense is temporarily.
Does Brookfield expect to utilize oak tree.
With the fund raising that is pursuing and as their compensation paid there and then do you pay your own people more if they hit or exceed fund raising targets that might drive cost even if temporarily.
Higher than what otherwise be the case.
Hey, Ken it's Nick.
Listen I think of lot of the cost associated with raising the next round of flagship funds you've probably seen.
Come through the numbers in the last six to 12 months as we've been.
Building off of our capabilities across different distribution channels, and obviously as we develop new products some of them might become more appealing to the the bank channels in the high net worth channels, where there is a associated cost upfront, but in return for that you kind of kind of earn full freight fees the cost of <unk>.
For the products. So I think on the net basis, it's no different to our usual fundraising.
So I don't think you should expect to see.
On the associated step change in cost associated with this round of fundraising any different than what you've seen in previous cycles.
Okay. Okay, great. Thank you.
Then maybe moving on to insurance.
Love to hear an update here.
You've got a.
Stronger cash flow.
Stronger.
Realized gains the pipeline looks great.
You do have.
The deployment opportunities in.
The P y that are pending.
But given just the the large amount of the increased cash balances that you have on balance sheet.
The better outlook for cash flow generation and your comments about really wanting to build up the insurance business.
What are you what are you seeing now what can you do.
And what are your aspirations as we sort of move through the rest of the year and continuing to grow that business.
So I'll just start off and then Nick can add anything but I would just say first off we're in the midst of closing the one transaction that we committed to wear pre.
Pre investing into assets.
We'll then be.
Formed into the insurance the reinsurance business.
On closing so we're.
With some of the excess cash we have we have been buying assets to be able to.
And sure we earn proper returns from day, one which is obviously a great advantage to our <unk>.
Business.
On top of that we are looking at other blocks of.
Of reinsurance and continue to.
The bid on look at blocks and I think over the longer term. This is going to be a very.
Additive business to Brookfield in many ways. Firstly, the just the reinsurance business itself should be highly profitable and additive to Brookfield, but in addition to that the.
Yes.
The capital will be able to be deployed in many of our assets both to the enhancement of our businesses, but also to the insurance company. So.
We're quite.
So far we're very excited about the business.
Okay, great. Thank you very much.
Our next question comes from Cherilyn Radbourne with TD Securities.
Thanks, very much and good morning.
I was hoping you could speak at a high level of that the global impact funds and really whether that requires an education process or whether clients are set up and really ready to allocate capital at scale for that type of product.
So look I just.
The start off by saying that.
There is no fund out there.
Like the funds that we have created.
This is we're in the early stages of.
Creating a new business for the alternative.
Our asset management industry, and it's an adjunct of other things we've done, but it's new for many of the investors.
So that takes some education to where we're going and what we're trying to accomplish.
For them.
On top of that.
I would say every investor in the world for <unk>.
Virtually every investor in the World is interested in figuring out how they deploy money into this sector smartly. So.
We hope to be able to report to you and as you know we can't talk about fundraising specifically until it's completed but we hope to be able to report to you that.
We've been able to attract a great number of investors into the strategies because the interest is very high and and I think we will be successful in that and and it will set a new.
Standard for transition of investing.
Globally. So we're we're.
We're very positive about it.
That's very helpful.
The second question the <unk>.
Make some interesting comments about opportunistically repurchasing the Bam shares being issued on the BP Y prioritization. So could you speak of that how much capital you envision reinvesting in the business over the next 12 months to support some of the emerging investment strategies and how much might be surplus for share repurchases.
<unk>.
Yeah, Hi, Shirley it's Nick listen are.
Bruce the Nypost touched on in our remarks, our liquidity levels are very strong right. Now obviously, we have the BP Y transaction closing.
Or on the middle of the year, which will oversee.
Use.
I don't know.
We're in the range of $3 billion of cash.
But even then we have a number of insurance transactions closing the the one Bruce talked about the on potential future growth.
I think we have reinvestment opportunities for growth, we have some new strategies that we're ceding on balance sheet that we've talked about in the past, which are going very well and so our presenting good investment opportunity.
Hard to put on exact number on how much will be left over.
For buybacks and I think we've talked about this in the past, but it is something we're very conscious of on.
Issuing.
The bomb shares we felt was a very important part of the consideration for the <unk> transaction on on a relative basis. It made sense, but the intention was weighted in the letter that we do intend to buy those back but it's hard to put an exact time frame on it.
Okay Fair enough that's all for me. Thank you.
Our next question comes from Bill Katz with Citigroup.
Okay. Thank you very much for taking the questions. This morning for.
First question is the Big picture question, and maybe feeds off of your last answer, but there seems to be a bifurcation of how investors are valuing the alternative managers, putting significant premium multiples on balance sheet light models versus.
Sort of balance sheet heavy models as you think about your business on a go forward basis is there any way to think through related party risk and how you might manage the business to maximize value.
I feel like the.
Related party risk.
Sure.
Are you were.
You mean, because we are invested in funds for their own capital alongside clients at times right the quality the.
The issue seems to be the quality of earnings coming from related parties, such as some of the limited partnerships to which you're of the manager.
So I think listen I think the first part of your question on around the balance sheet. It's just being the core element of our business since inception as you know we originate out of being an owner operator of assets for the long term perspective, and believe that those investments we will have on our balance sheet can compound very attractive.
Volume over a long term basis for our clients and gives us significant scale and operating expertise, which is very important to driving value creation for our clients and I think I don't see any conflict of related party interest issue I think where you're going is our responsibility on our focus is on driving value for our investors and for our clients.
And that is the priority.
So I don't think that are on often we're very aligned in those intentions and you've seen net with the capital recycling that we've done recently, so I think our we're very aligned with our clients and we are under no illusions to what the expectations are to drive value and to crystallize that value and return on capital I don't think there's any conflict in our structure.
And you're spot on.
I'm sorry, the only thing I might add to that just for your benefit as if.
The <unk>.
Stock markets come in vogan out of book.
This business has compounded at.
The 18% for 20 years and one of the great.
<unk>. It has that is because the capital we have has been in line with our clients and we can do.
Different things for them.
And achieved different things for our clients and our shareholders because of the capital that we have.
And it's an enormous strategic advantage in the short term that may or may not.
Be seen in the stock market, but in the longer term, we believe having the capital on the balance sheet and it's been proven in past.
Allow us to achieve greater returns in that longer term so I.
But we don't have any intention of.
Splitting the capital from the business because we think it allows us to accomplish things.
For our clients different than others, and and that so that's where the sort of the answer to it.
Okay. Thank you for both of you for that just a follow up question for you. It certainly seems like the momentum of the business is accelerating based on what you've written and push the commentary today.
How does sort of the real time outlook compare to.
I mean, your recent Investor day goals for 2025, I think you sort of laid out pathway to 500 of plus billion of fee bearing AUM and $2 6 billion of few late earnings.
Where do you sit today do you think versus those trajectories. Thank you.
Bill I think we're still in line with that I think we laid out at Investor day the core.
For business that we have being the flagship funds strategies on the perpetual strategies on our list of affiliates were going to drive that growth between now and 2025 and then we would have on your strategies.
Which are still in their infancy insurance secondaries technology.
On the transition funds, which is progressing well, but they were going to help contribute to that growth and drive growth in year, 6% to 10. So I think what youre seeing right now is making great progress in regard to the the targets that we set ourselves over the next five years I remember also starting to lay the was really strong foundations for the longer term component of growth.
Okay. Thank you for taking those questions.
Okay.
Our next question comes from Geoff Kwan with RBC capital markets.
Hi, Good morning, just a question on the global transition fund.
Aside from the typical renewable deals, let's say Brookfield renewable would typically participate in just wondering how active have you been in terms of seeking out and what has been the receptivity. So far of the other types of deals I think the fund is April to pursue like I'm thinking of partnering with companies that are transitioning to a low carbon or of carbon neutral.
Target.
Yes, So the fund is set up to do.
Anything that's additional in renewables so the.
The infrastructure investments that were renewables that are already built arent additional meaning they're not creating new.
Carbon neutral carbon neutrality.
But so those will be in our former funds, but in new Greenfield developments that will be in the transition funds.
And capital provided the second bucket is capital provided to.
Companies or otherwise.
Two.
Transition to net zero and so we're now speaking to a number of groups.
And I.
I think that Theres a lot of opportunity in that.
In that sector as well so we havent yet closed on our first transaction for the fund.
But in the next short while we probably will.
Okay. Thanks, and then just my second question was of Stuart you you were talking about the criteria for expanding into new countries. The nation, just wondering if you're able to say which countries appear to meet the criteria.
And what we might see Ben.
Starting on investing it at some point in the near to medium term and then also separately.
Just the typical timing and process on becoming experts and being able to invest.
And invest in new opportunities in search of new country.
Yes sure.
Look I would say al.
Our focus at present is on all of those markets I mentioned, so China, Japan Korea and bearing in mind.
The very large market and we've got a lot of.
The room to grow on a hit on us.
At this stage I would say the run no current intentions to go into other markets.
If and when we feel comfortable and we've got the resources to allocate.
Same thing as I mentioned early on which is.
We obviously want to look for countries that have goodwill the more food with respect for capital and they are large enough for us to to the meaningful for us and.
To have opportunities that fit our match well with our strength. So those of the sort of the things we look for.
In terms of building up.
Again as I said.
We've taken a very cautious approach we go into these countries.
We can we can sit.
In Australia or in North America, and talk about Asia as if it's one price, but it's a lot of very diverse.
Countries, they all have their own systems and approaches and.
We take a cautious approach to learning all of that as we as we go on so we.
We tend to go in set up.
I have a mixture of.
No existing tenured Brookfield people on the ground on myself actually went to went to China and sprint the number of years the.
As an example than hiring of local team that we.
We built into our culture and our approach to investing.
And then slowly build up now and all the investment capabilities and start to get runs on the board I'm sorry.
Very much where we're at in China, right now and as hopefully you heard.
We've really got momentum behind us.
We're partway there on career and in the.
The building out in Japan.
We expect we're really going to start to two.
To move on that growth in the coming year on too.
Okay, great. Thank you.
Our next question comes from Robert Lee with <unk>.
Great. Thanks for taking my questions morning, Inc.
Go back to the BP y for for.
So.
The state of the obvious obviously buying it in because you see a lot of value there that can be unlocked.
That's not being appreciated.
As we think forward over the next.
The 12 to 24 months.
Are there some things that we should be looking for the you feel like you can kind of unlocks value for really quickly.
Once you get full control of BP y kind of get it outside the public realm.
We can start seeing if you can maybe share with some of those things may be over the next 12 months 24 months.
Sure.
Yes.
Rob It's Nick listen I think what youre going to see over the next 12 to 24 months is one just the recovery in the into some of the areas of the business that were impacted by the shutdown and we expect that to be a fairly strong recovery, especially in retail with the rebound in spending on I think that we've said any.
The private for maybe allows us the flexibility to do more with the portfolio around.
Development.
Creating potentially new products for our clients and be more focused on value creation of maybe less focused on that quarter to quarter earnings and the.
Net of public company is focused on so Joe a lot of that would it be implying that we may of heart for the business and we were sequencing. We can maybe accelerate some of those funds and when I do expect the.
Over the coming months once we affect the transaction close the transaction and look forward. Then we can start to think of it what that looks like and set out of funds for you, but I think it would be a lot of what we've done in the past, but maybe we can just accelerate some of those plans and our view on the portfolio really hasnt changed of what we've stated in the past of these.
For some very very high quality asset that should deliver strong value creation over the long term.
Okay. Thank you maybe just a quick follow up I mean, if I think back to the.
Yesterday, the nine months of the or so one of the new business initiatives laid out several new new business opportunities initiatives over time.
So one of them I believe.
Building.
Secondaries capability.
On the hinted at maybe doing that or again, the could you update us on that on <unk>.
And on the guidance.
Ben the one or two of those items that have traded recently.
So your thoughts there on kind of an organic build.
The.
Essentially you're acquiring something in the secondary space, which.
The space it seems to be growing as rapidly as for the industry if not more so.
Yes, Bruce look I'll, just say that the <unk>.
Secondary.
<unk> in particular of assisting.
Mid or smaller size.
General partners.
<unk> reorganized asset they have or do you feel with funds they have with clients.
Ah is a very attractive area.
It's possible.
The.
We do something outside but we've decided to grow it organically we've hired teams in real estate and we now have funds we've raised.
Initially for the secondary investments and done the number.
We're building out infrastructure and.
We're going to turn to the private equity next so we think it's a very.
We think we can easily do it ourselves and the reason for that is is all we're doing is dealing with the same asset.
The types of asset that we deal with every day, so we have the knowledge and.
And our clients.
Are looking for solutions in place of to put money to work. So we think it's of highly <unk>.
<unk> of business to us and easily.
<unk> for us to scale up so we don't really need to buy a business to do it.
But one should never say never I guess.
That was it thanks for taking my questions.
<unk>.
Our next question comes from Alex <unk> with Goldman Sachs.
Yeah.
Hey, good morning, everyone. Thanks for taking the question as well.
I'm wondering if you go back to the fund raising dynamics that are maybe a little bit more near term sort of Bruce your comments sounded pretty bullish on the appetite from investors you are seeing in the current inflection of obviously with the next real estate fund.
Hitting the road this quarter.
Et cetera. So how are you guys feeling about 100 billion as kind of of the near term target. How are you thinking about Brookfield.
Brookfield participation within that I think 25% of something we used to sort of thinking about but if theres enough substantial LP demand.
As the challenge could that percentage will be lower and then maybe just a quick update on Oaktree 11.
It sounds like they are actually quite far along in deployment on commitment.
Based on their deployment activity in the quarter.
So just kind of let it maybe maybe give us a quick update on where the fad.
As a percentage of committed to deploy capital within the latest fund and I guess that will kind of dictate what is the next one couple of quick so on.
I'll give you an answer to the first couple of things and then maybe net.
Nick can talk about Oaktree, but.
Look I would say we have.
Every expectation of meeting all of the targets, we laid out nine months ago, the 100 billion.
It is possible it is greater than that the the fundraising environment is extremely constructive today because interest rates are very low and people have learned that alternatives are.
A very good way to earn a decent return with low risk in their portfolio. So.
That Ah I think I'd say, we have no issues with any of that the second question.
Towards percentage of commitments on where we come in at and I guess, what I'd say is we've now started in our funds and we started years ago, but we're being more definitive with it when we raise.
On says we're starting by <unk>.
Doing absolute numbers into a fund.
Because as you know as the funds get larger when they go to 2000 $30 billion.
They an absolute amount of $2 $3 billion is a lot of money for us, but and in every fund we do.
Therefore, we were not really thinking of 25% there just absolute dollar amounts we put in and of our clients feel obviously, a very that's a very large commitment from us so it's.
It is possible going forward that the number goes down on a percentage basis, but will always be a very absolute.
Absolute absolute committed amount, which is large.
Yeah.
Yes, maybe.
Alex I can just jumping on oak tree listen their fund raising for fund of living as you know has been ongoing.
I think in previous quarters, we disclosed they were up to $13 billion are now up to $14 7 billion. Following recent clauses and they've not had the final close yet that will happen in the coming months, we expect to increase that funded the more from there and there are about 50% invested or committed in the fund today. So the deployment has been going very well.
For the fund, they're seeing lots of attractive opportunities both in the in the public and private market. So the continues to be strong momentum on the Oaktree site.
Got it that's great. Thanks, so much for all of that.
The quick follow up for you guys on the balance sheet.
And that's really related to the unlisted investments you carry on balance sheet I think it was a little bit over $9 billion.
Is it possible to disclose the embedded gain within those investments.
I'm not sure if I missed it somewhere and how are you thinking about the timing of those realizations now I know, it's difficult to pinpoint in the quarter, but should we be thinking of that kind of in the similar fashion. The way you disclose your carrying past kind of the vast majority of carriers talk about realizing that over the next kind of three years. So that's sort of a similar path.
<unk> for the MB.
Out of gains within the unless the partnership balance on the balance sheet. Thanks.
Yes, so Alex but there are a couple of different concepts in there of the unlisted investments would cover things like our residential homebuilding business in North America.
In Brazil, which would be direct investments for us it would be some direct real estate that we own. So a lot of it wouldn't be in funds and some of them would be more strategic the brookfield over the long terms of not necessarily things, we'd monetize in the short term.
There are some unlisted things that show up there like our commitment to the third best Rep funds, so that would be aligned to monetization, but it's kind of of mix. It is broken out later in the in the supplemental we do provide a bit of a breakdown of our unlisted investments, but we can we can walk you through that.
So I wouldn't think of that necessarily is.
The things that will be disposed of and gains realized on the short term for some of that will come in overtime to to your question. Some of them are core of what we've been doing recently.
Didn't include the on the listed investments the things like the list of affiliates those would not be in those numbers that would be completely different.
And as you know in this quarter.
The West Fraser of shares which was a very very long term investment that we've held on it.
It's obviously very attractive in the markets. Following the truth of the transaction with West Fraser. It was a very attractive opportunity to monetize and bring capital into Treasury and support what we're looking to do in the business on the Pepsi share has strategic value to Betsy as well. So some of these things are arguably opportunistic.
But also of strategic.
It really depends on the nature of the investment.
Got it that makes sense. Thank you very much.
Yeah.
As a reminder, if you'd like to ask the question at this time. Please press. The Star then the number one key on your Touchtone telephone.
Our next question comes from Andrew Coffee with credit Suisse.
Thanks, Good morning, I guess as we're approaching two of them in Sydney and I've got a question for Stuart.
And it really is around your APAC business broadly and it seems like the duration you've been on in APAC.
Maybe one transaction away from hitting a tipping point to accelerate here on your business and primarily of places like Japan and South Korea.
Maybe just give some context on.
How do you have the outlook on a near term basis on the acceleration of activities there.
Sure.
And look I think you characterized that well.
Again, we do into these market cautiously and make sure that we are.
We learned the well before we do accelerate.
We are at that point.
In the sectors that we've got experience in China, and I would say.
China is a huge country and so we've been very careful in taking a very narrow our approach to the sectors that we focus on.
That obviously, we can guide to eight and so now.
And those kind of tier one prime real estate markets.
We are doing larger and larger transactions and the hopefully the very near term we will have another one.
Coming through the build up that portfolio and similarly in renewable power.
But at the same time, we are building out our investment team.
The infrastructure and private equity and we expect.
In the next little while that we will we will start to invest in those.
The business groups as well.
And further accelerate.
In Korea.
And Japan Similarly.
Got.
We've done a number of real estate transactions of <unk>.
Scale and career already and we have great momentum.
Right now building out the.
Private equity and.
On an infrastructure teams.
And as a result of that we expect that we.
We kind of the out of capitalize on the many opportunities we now see in the market is for those markets.
It's got to transition a little bit where.
To date <unk> had conglomerates that have.
Sort of bought up everything in those markets and now starting to rich.
Opportunities as a result from the market that where we're looking to capitalize on the site.
We expect a lot of growth.
Coming out of the next few years from the market and a lot of exciting opportunities.
Then maybe just a follow up on that and probably close to your heart is back to <unk> on that deal that clearly accelerated the group's knowledge of things like rail and ports.
So did you say of collateral benefit of allocating capital in places the Asia Pac of that could actually enhance our activities globally.
By learning of certain area of expertise of just having more hands on capital.
Yeah, absolutely look I think one of the big advantages is just.
Part of our Florida.
Our approach is that we have global capital.
And the more places we have to deploy that capital of the more opportunistic we can be and there's always markets that are in and out of favor and and you know I would say right now when we first entered China as an example.
It was the highly competitive market and they were very aggressive domestic players in a number of foreign is sort of.
With interest in the market and to date.
Right now that's kind of swung around a bit and.
With the deleveraging process locally in the market there are a number of those.
The previous bias local domestic buyers have become sellers.
And.
Some of the foreign is with.
With the various noise internationally some of the foreigners have become more cautious as well so that supply demand dynamic there is really kind of swung in our favor on we're seeing a lot of.
Great opportunity. So I think that's that's kind of the big.
We get benefit to having more markets available to us.
That's great. Thank you.
Yes.
That concludes today's question and answer session I would like to turn the call back to Suzanne Fleming for closing remarks.
Thank you operator, and with that we'll end the call. Thank you for joining us.
This concludes today's conference. Thank you for participating you may.
Now disconnect.
Okay.
Yes.
And the more.
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