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 Yourself conference call.
Please be advised for today's conference is being recorded.
I would now like to hand, the conference over to your speaker today Mr.
James 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 ups and 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.
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 reflect the predictions of future events and trends and do not relate to historic of that they're subject to known and unknown risks and future events and results may differ materially from such statements.
For further information on these risks and their potential impacts on our company. Please see our filings with the securities regulators in Canada, and the U S 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 in most countries around the world.
Each progresses their vaccine rollouts and emerges from Lockdowns.
The snapback of recovery, it's 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.
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.
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 in.
In engineering.
GDP growth and unemployment increases.
Has already started.
That will mean, the global economies are doing well at the same time the.
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.
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 fund soon to have a first close.
And our global transition fund 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 predecessor, 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 the 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.
Probably both.
Economies will need to grow and generate increased taxes to service the debt.
And asset 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.
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 BP 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 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 close to of 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 in 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 the <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 fund 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 gross carried interest but of note close to half of the 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% to.
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 three fold 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 48 per share.
All of this resulted in income to shareholders in the quarter of $1 $2 billion or 77 cents 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.
Those fee related earnings increased to $413 million for the three months period and totaled $1 $5 billion over the last 12 months, an 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 bottom 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.
Did you get to that I'm going to talk about our Asia Pacific business, which currently includes investments and operations in Australia, New Zealand, China, Japan, and South Korea.
We will provide an overview of our scale in the region and update on the operations.
The entire growth of explorations in the region.
We have $57 billion of Bayou and across the region with over 100, the 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 focus on countries and markets that have the strong respect of capital supportive capital markets and a large market that will allow for significant scale to 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 of pump the R&R and construction company headquartered in Sydney.
This initial investment and we'll soon followed by the acquisition of Prime and construction. Both of these transactions laid the foundation for Australian unusual on business, which now has 31 billion of value and 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 living.
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 on.
The real estate assets with 5 million square feet of office space. The 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% over the next number of accounts.
The infrastructure and data assets are underpinned by long dated contracts and the strong commodity backdrop is giving rise to 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 with low interest rates and high levels of liquidity of resulted in increased levels of demand of valuations for the assets we own.
We recently sold on interest in two office buildings for a very compelling valuations.
Pathology business, the New Zealand and late last year, we took on a port terminal in Queensland public.
As we think about deployment, we remained focused on growth by development in the office and 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 build off 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 to see 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 of our capabilities in the country.
Our presence in China has grown to more than $4 billion of Bayou and 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.
This project consists of three office towers in the retail mall on the phone to run of shrunk in central Shanghai on.
Instruction and permitting risk remained with the seller to 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% leased luckily 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, eight and of.
Several new to China tenants to our retail offering as well.
The second example in 2017, we established of renewable energy joint venture with the China base. The callable logistics development that we have now on for years and we are leveraging the local presence and our best in class renewables operations. This investment focus is on the installation of distributed rooftop solar panels.
On the industrial sites in major markets.
This partnership 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 <unk>.
For the neutrality.
On 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 our 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 more 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 of the strategic sectors, including residential developers and this in itself is creating opportunity. We believe these <unk>.
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 all sectors of focus while remaining seated on a 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 the strength in Asia we.
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 managed retail malls.
Despite last year office occupancy now currently stand at 96% and we've replaced all of the half of the retail tenancies, including Ed is adding Korea's second flagship applesauce.
And in March of this year.
We also expanded our global logistics presence to career in 2020, we believe the secular tailwind associated with the e-commerce demand in Asia career in particular will prove to be highly compelling and the use of him at.
At the same time, we continued to build upon our investment on operational presence to expand out of investment vehicles.
<unk> 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 phones. We've had an established investment presence in Tokyo for several years and are pursuing many opportunities are.
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 from 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 have 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 markets and currently have over 130 institutional investors across 10 different countries in the region.
<unk> 5 billion in this region in the last year.
More importantly, we are regarded as a clear investment partner of choice among many Asia Pacific in basis, 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 infrastructure fund raising of the year Award for 2020 from PEGI.
How do you any of 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 the 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 further 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 the start.
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 of Brookfield utilized third party distributors, which could boost expenses 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 costs associated with raising the next round of flagship funds you've probably seen.
Come through the numbers in the last six months to 12 months as we've been.
Building off of our capabilities across different distribution channels.
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 through free fees. The cost of life of the product. So I think on a net basis, it's no different to our usual fundraising.
So I don't think you should expect to see on this.
Associate the 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.
And then maybe moving on to insurance.
Love to hear an update here.
You've got a.
The stronger cash flow.
Stronger.
Realized gains of the pipeline looks great.
Do have.
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'd just say first off we're in the midst of closing the one transaction that we committed to were pre.
Pre investing into asset.
We'll then be.
Formed into the insurance the reinsurance business.
On closing so we're.
With with some of the excess cash we have we've been buying asset to be able to.
And sure we earn proper returns from day, one which is obviously a great advantage to our.
Business.
On top of that we are looking at other blocks oven of reinsurance and continue to.
Did 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.
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 are 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 for you mentioned good morning.
Sorry, 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 fund 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>.
Actually every investor in the World is interested in figuring out how they deploy money into the 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 very positive about it.
That's very helpful.
Second question. The letter makes an interesting comments about opportunistically repurchasing the Bam shares being issued just on the <unk> privatization. So could you speak about 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 sir.
Atlas for share repurchases.
Yeah, Hi, Sharon, 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 obviously.
Use.
I don't know somewhere in the range of $3 billion of cash.
But even on then we have a number of insurance transactions closing the the one Bruce talked about it on potential future growth. So I think we have reinvestment opportunities for growth. We have some new strategies that we're sitting 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 an 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.
The 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 last year 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 evaluating the alternative managers, putting significant premium multiples on balance sheet light models vs.
Sort of balance sheet heavy models as you think about your business on the go forward basis is there any way to think through related party risk and how you might manage the business to maximize value.
I'm Bill like the.
Related party risk.
<unk>.
Are you are.
You mean, because we are invested in funds for their own capital alongside clients at times right just the quality the.
Issue seems to be the quality of earnings coming from related parties, such as some of the limited partnerships to which of the manager.
Okay. So I think listen I think the first part of your question on around the balance sheet. It's just been 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.
Value 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 client.
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 is if.
The <unk>.
Stock markets come in Vogue and out of Vogue.
This business has gone pounded it.
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 achieve 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, we don't have any intention of.
Splitting the capital from the business because we think it allows us to accomplish things.
For our client is different than others and and that so that's where the sort of the answer to it.
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 in the commentary today.
It is sort of the real time outlook compare to.
Maybe your recent Investor day goals for 2025, I think you sort of laid out a pathway to 500 plus billion of fee bearing AUM and $2 6 billion of few later 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.
For the core business that we have being the flagship fund 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.
You are still in their infancy insurance secondaries technology.
On the transition fund, which is progressing well, but they were going to help contribute to that growth and drive growth in year six to 10, So I think what youre seeing right now is making.
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 of both questions.
Okay.
Our next question comes from Geoff Kwan with RBC capital markets.
Hi, good morning.
On the global transition fund.
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's 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.
Yeah.
Yes. So the fund is set up to do anything.
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 fun 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 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 for my second question was 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.
Investing in 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 assess and invest in new opportunities in search of new country.
Yes sure.
Look I would say al.
Our focus at present is on on those market as I mentioned, so China, Japan, Korea and bearing in mind that at all.
Very large market and we've got a lot of.
The room to grow on a hit on that.
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 things I mentioned early on which is.
We obviously want to look for countries that have goodwill of the more with respect for capital and they are large enough for us to to the meaningful for us and.
They have opportunities that fit our match well without strength. So those of the sort of the things we look for.
In terms of building up.
Again as I said.
We take a very cautious approach we go into these countries.
We can we can fit.
And 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 the cautious approach to learning all of that as we as we go on so we.
We tend to go in set up.
Have a mixture of.
Existing tenured Brookfield people on.
On the ground on myself actually went to went to China on 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 the investment capabilities and start to get runs on the board and so that's very much where we're at in China, right now and as hopefully you heard.
We're really got momentum behind us.
We're partway there on career and in the building out in Japan.
We expect we're really going to start to two.
To move on that gross 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 good morning.
Go back to the <unk> for.
So I mean.
The original stating the obvious obviously buying it in PC Aladdin value there that can be unlocked.
It'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.
The 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 you're 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.
A private for maybe allows us the flexibility to do more with the portfolio around.
The 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 debt of public company is focused on so Joe a lot of that with at the implants that we may of heart for the business that we were sequencing. We can maybe accelerate some of those funds and when I do expect that.
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 of a fund 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 these are.
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 for me, if I think back to Ben.
Best of the day.
Nine months of doors, so one of the new business initiatives laid out several new business new business opportunities initiatives over time most.
One of them I believe.
Building.
The secondaries capability and I think you've kind of hinted at maybe doing that or again, the could you update us on that and whether that's the.
<unk> on the.
Yes.
The one or two of those patients that have traded vs.
So your thoughts there on kind of an organic sales.
Essentially you're acquiring something in the secondary space, which.
The space that seems to be growing as rapidly as for the industry if not more so.
Yes Bruce.
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.
Is a very attractive area.
If 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>.
Added to the 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.
Our next question comes from Alex <unk> with Goldman Sachs.
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 so.
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.
On the road this quarter.
The et cetera. So how are you guys feeling about 100 billion as kind of the near term target how are you thinking about.
Oakfield participation within that.
Think of 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're actually quite far along and 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 of what's the next one couple of quick so I'll give you an answer to the first couple of things and then maybe 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.
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 funds as we're starting by.
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's possible going forward that the number goes down on a percentage basis, but a low always be a very absolute.
Absolute absolute committed amount, which is large.
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 have not had the final close yet that will happen in the coming months of they 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, so 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 disclosed the carrying past kind of the vast majority.
Majority of Kari. Thank you talk about realizing that over the next kind of three years. So that's sort of a similar path for that the embedded gains within the unless the partnership balance on the balance sheet.
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, and 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 in.
Some of the most would be more strategic to 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 in gains realized in the short term for some of it will come in overtime to to your question somewhat of a core of what we've been doing recently and that wouldn't include the on the listed investments the things like the list of the affiliates those would not be in those numbers that would be completely different.
And as you know in this quarter the.
The West Fraser of shares which was a very very long term investment that we've held.
And it was obviously very attractive in the markets. Following the 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 Betsey share has strategic value to Betsy as well. So some of these things are arguably opportunistic.
But also of strategic.
So it really depends on the nature of the investment.
Got it that makes sense. Thank you very much.
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 I've got a question for Stuart on it.
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 your business and primarily places like Japan and South Korea.
It could maybe just give us some context on.
How do you have the outlook on a near term basis on the acceleration of activities there.
Sure.
And 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 true.
China is a huge country and so we'd be very careful in taking a very narrow our approach to the sectors that we focus on.
That obviously, we can go deep and so now.
In the in those kind of tier one prime real estate markets.
We are doing larger and larger transactions and hopefully in the very near term we will have another one.
Three of the buildup of that portfolio and similarly in renewable power.
At the same time, we are building out our investment team across.
Across 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.
The further accelerate.
In Korea.
And Japan Similarly.
We've got we've done a number of real estate transactions of scale in Currie already and we have great momentum.
We are right now building out all the.
Private equity and.
And infrastructure teams.
And as a result of that we expect that we.
We go into 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.
On a sort of bought up everything in those markets and now that's starting to rich.
The retreat, a little bit and focus back to the calls and there are a lot of.
The opportunities as a result in 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 because it seems like back to PPI on that deal that clearly accelerated the group's knowledge of things like rail and ports.
So do you see of collateral benefit of allocating capital in places the Asia Pac of that could actually <unk>.
Hence 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.
The part of our Florida.
Approaches 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.
You know it was a 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 hours.
The previous bias local domestic buys at the sellers.
And.
Some of the foreign as well.
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.
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.
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And the more.
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