Investor Day 2017

Sep 27, 2017

Slides

Good morning and thank you everyone for joining here in the room and online. We're thrilled to have you all. We do this as you know once a year. We try to make it we try to learn every year and make it a little bit better. So we've skinnied it down to one day and we're going to pack it all in, in one day and hopefully that accords to what people thought was best. But please give us your feedback afterwards if you have feedback for us. I'm going to spend a half hour and just tell you really about the asset management business and the overall company and where we're going and try to give you some information to where we're really going with the overall business. And there's 4 points that I'd like to leave you with today. The first one is, if we leave you with is that real asset allocations are increasing very substantially and that will continue to drive the growth in our business. That's, I guess the first point. 2nd is that how we invest the capital that we get from our investors yourselves and others is very key to the long term franchise we have. 3rd, our differentiation that we have is a big focus for us and a big differentiator in the market. And lastly, our people and the culture we have in the business are critical to the franchise and we'll try to tell you a little bit how we're trying to ensure that that grows along with the business as we grow. As all of you know, we're trying to build the business into a leading global manager of real assets and continue to focus all of our efforts and the capital we have on that. The business today, as most of you know, is about just over 250,000,000,000 of total assets under management. We're in 30 countries and I'm not sure we'll actually be in many more. Most of those are the large places where you would want to put large sums of capital. Many of our businesses can operate and have proper rule of law and culture and governance. And as a result of it, there may be countries added from here and there to a small extent, but I think really the fixed cost base that we have that's built today will accommodate most of the growth in the business we have, in particular in the countries. On the employee base side, on the differentiation from an operating perspective, we have about 70,000 people in the business. There's 465 institutional clients that we have, that we invest in our private funds and the fee bearing capital and you can see it in that chart has grown substantially and is about $120,000,000,000 of the total capital that we manage. As a result of the returns that we've delivered to both the partnerships on the listed side and the private funds that we have, are a number of things have happened in the business over the last 5 years. Firstly, as you will have observed, BAM stock has appreciated at a compound rate of around 15% over that 5 year period. That's partly because of the asset management business growing and also the distributions that come from the companies below. So we've received in that period about $5,000,000,000 of distributions from down below. And then lastly, all most if not all of the private funds we have, have achieved the targets we set for them or more. And as a result of that, that's enabled us to continue to grow the client relationships that we have in the business. So with that, just as a to get started on these iPads, and thankfully, I don't have to have one because we may not I may not be able to figure out how it works, but hopefully you can. But last year, we asked you when we were here this day, which is about a year ago, what you expected the S and P 500 to be at our next Investor Day. And we you responded, I'm sure you don't remember how you responded, but you responded higher by a lot 12%, higher by a little 42%, unchanged 8% and lower by a little. The actual result, what happened in that 1 year period was 15%. I think our stock appreciated a little more than that if I did over a 1 year period. So we're going to do the same thing this year. So you have to come back next year to get the results. But so I guess we'd like you to, on your iPad, if you could put in for us, and it will help influence how we think about our business because, of course, you all are market followers. Do you expect the S and P 500 by next year at this day to be higher by a lot, higher by a little, unchanged, lower by a little or lower by a lot. So if you can put that into your iPad that would be appreciated. I am quite confident something is going to come up here. Okay. Higher by a lot, we have a bunch of bears in the room, 9%, higher by a little 36%, that's good, unchanged 14%, lower by a little 28% and lower by a lot 13%. So that's good. I'd say it's probably what most people think. There's no the market is high, but I guess our view is the market's high. There are no indications out there from any of the businesses that we have that would say that it's going to change. Despite that, everyone always says the market's high, bonds are low. Bond rates are bond interest rates are low. But there's nothing really that indicates to us that that's going to change. So keying on that, there's really three things that are key to our growth, if you think about our growth. Number 1 is that investors continue to increase allocations to real assets. So total numbers, as I'll show you in a minute, are increasing, but the pie going to alternatives is continuing to increase. 2nd, our advantages as both an investor and an operator of assets, and that's a key differentiation that we have. And 3, to maintain that and build the business, our culture and people are very critical. So taking the first point, real assets allocations are increasing. If you look at this slide, the amount of capital controlled by institutional investors continues to grow. And here's just 2,008 to 2016. It combines both sovereign plans and institutional clients, and the number has gone from $23,000,000,000 to $43,000,000,000 That's an enormous increase of total quantum, which is in these funds. And it comes, as you know, from 2 things, compound growth over the period, 2,008 was probably unduly down because of the financial collapse, but it's the compounding of wealth within the funds. And in addition to that, many funds continue to get significant amounts of capital into the funds. And both of those things make these numbers grow. On top of that, what's happened is that institutional client funds, there are more seats down here if people don't have seats up there. What's happened is that the funded status has continued to come down, not in the sovereign plans because most of those are just savings plans, which are $8,000,000,000 $10,000,000,000,000 $8,000,000,000,000 $8,000,000,000,000 to $10,000,000,000,000 in size. But the funded status of plans, because bond rates keep coming down, interest rates keep coming down and because the returns aren't sufficient to fund the plans, the funded status has continued to come in the plans. And that's really the combination of those two things is important, which really leads institutional clients needing something else. And what we've found is that they're more and more learning that the diversification that comes from real assets is a very positive influence in their asset accounts, that these assets that we buy for them, the real asset category maintains their sell through cycles. And in addition to that, many of things we do, if not almost all, produce cash returns that are far in excess what they could earn in 1 year, 2 year, 3 year, 5 year, 7 year and 10 year, even U. S. Bonds, let alone Europe and Japan. And those are 2 very important points. The result is a continued shift in allocations to alternatives. And if you look at this slide, this is just assets allocated to alternatives within plans from 2,008 to 2016. And the quantum increase is $6,000,000,000,000 It's gone from 3,000,000,000,000 dollars to $9,000,000,000,000 That's an enormous increase of numbers. We didn't get all of it, but we got some of it. These allocation trends should continue. And interest rates, of course, should slowly move up as there's a global plan to try to get the base rates up of these countries by some percentage. But we think the real assets that we have will maintain their value in this cycle and we think we're lower for longer cycle and any increases in interest rates will be modest compared to the returns that we earn on these type of real assets. And the alternative for most of these plans to own assets is in equities to earn a higher return versus bonds. And we just provided diversification. We provide less volatility and people continue to put money within to these sectors because of that. If you look at this slide and this is probably the most important this is the compounding effect. The first effect is going back to the point number 1 is total numbers are increasing in pension plans. More importantly, if you look at 2,000 alternatives were and there's no exact science here, it's an estimate, but they were 5%. Today, we estimate across plans, they're 25% and it is clear to us they're going to 40%. And if you take the compounding of total increase in scale of the plans and go from 25 to 40, the numbers are very significant. So I'd ask you a question just to put a little perspective on that. What percentage of institutional investors are invested in 2 or more alternative classes? And when you think of that, there's hedge funds, real estate, infrastructure, private credit and other types of investments like timber, natural resource investments and other things. If you think of those, are they less than 30%, 30%, 40%, 50% or greater than 50%? So less than 30% got the biggest percentage. Well, I know the number because I saw the slides. So if we can go back to the slides, 62% are invested in more than 2%. And the point here and this is what's really important, 20 years ago when we started doing this for institutional clients, nobody had these in their funds. The first 10 years was trying to convince somebody, please, would you come into one of these asset classes with us? Today, that's it's a given. They're investing in these asset classes, 62% are already in more than 2% and that's a very significant chain from where it was before. So it isn't whether they are going to invest, whether they will invest, it's whether they'll invest with you. And we have to convince people that our franchises is good or better than others or that we can fit into their allocation numbers. So we're responding to that in a number of ways to that investor demand. Three ways we're doing it, we're expanding the funds that we have on the flagship side. We're making them bigger and broader. 2, we're launching new strategies to augment what we have. And a lot of that's related to people can't earn income within their accounts, and therefore, we're bringing income products for them. And 3, we're trying to expand the distribution we have globally to ensure we can grow the funds that we have on that side. Last year, when we spoke to you, we highlighted 3 funds that were in the market or had just closed, BSREP 2, which is our real estate flagship fund, which was $9,000,000,000 our infrastructure fund, which we closed at $14,000,000,000 and our private equity fund, which is 4. And we continue to deploy the money in those strategies. As you know, one of the great hallmarks of Brookfield is that we eat our own cooking at all levels of the organization. And in these funds, we're on average 27%, 28% of the capital we have from Brookfield money and that gives our institutional clients great comfort that we're invested beside them. And with all our partnerships, Brookfield is invested the same way. Over the past year, as important, we've been deploying that capital and almost 80% of the money of that real estate fund has been invested in what we think are a great array of investments and in the real estate session this afternoon, they'll indicate a number of those. 45% of our infrastructure fund has been invested and 60% of our private equity fund has been invested, which means that we will move to the next series of fundraising. 1 of those is already in its next phase of fundraising and the other 2 will come in 2018 probably. In addition to that, investors, as I mentioned, are seeking new products and strategies within the areas that we operate because what they're really trying to do is to figure out how do they both match extra return, which we're delivering them, but from the fixed income portfolios, how do they get income that they used to get? And we're responding to that in 2 ways. The first point is we've been, we started, we're going to raise and we will raise perpetual core funds, which own assets that we otherwise buy, but sometimes in an opportunistic fund, we would sell them. This is buying core assets for very long duration. And therefore, people will earn 7%, 8%, maybe 9% returns as opposed to 15% to 20% returns. And on the credit side, what's happening is that private credit is continuing to grow because the capital banks may not want that credit on their books or as much of that credit on their books, but these institutional clients can if they can earn 5 percent in credit or 7%, 8% in mezzanine credit, that gives them it augments the returns that they otherwise would have in bonds earning very low yields. So we launched our 1st perpetual core fund in 'sixteen and we're leveraging, I think the most important point here is, this could be a these core products can be very significant. The fees are lower than our opportunistic funds, of course, because the numbers are lower, but the quantum will be large. And the most important point is the fixed cost base that we have can be leveraged to run these businesses. And as a result of that, it is very profitable for us because we already have a huge fixed cost base within the within our organizational structure. On the credit side, we've been leveraging our investment expertise and our knowledge within the businesses and we've been building credit platforms and we have one for real estate, we have one for infrastructure and now we're building out a corporate credit business to be able to lend money directly to corporations that otherwise we have knowledge within. Lastly, we're growing the private wealth investor base and we continue to increase interest among these clients. We get as a result of that, we get access to new distribution channels, we diversify the funding sources and we brought on a dedicated team to look after this within our private fundraising group, which is started at 0 15 years ago and is about 150 people globally that are around the world looking after these institutional and other clients. The second point is that how we invest is key. And over the past 12 months, we put $17,000,000,000 to work. It's a broad array across all of our sectors. We did a number of major infrastructure transactions during that period. So there the infrastructure number is larger, but it was a very significant amount of money. Probably more important than the quantum we put to work is we think we haven't compromised the returns that we earn within that and because we largely have been able to put it use the competitive advantages we have to deploy that money. And mostly, we built the funds to be able to do that. And we have very broad mandates and we can therefore allocate capital to the most the best opportunities globally. And the big point here and these numbers are almost and they're estimates, when you get to $50,000,000,000,000 to $100,000,000,000,000 that's sort of an estimate. And I would just say the reason why we can do what we do globally and you can find the opportunities even because of the scale we have is the 2 largest businesses we have are very, very significant businesses. They're $50,000,000,000,000 to $100,000,000,000,000 in size. Our global presence also helps differentiate us. We're in 30 countries and as I said earlier, we have 700 investment people that manage the money. And one of the significant things we can bring to a transaction is we can do larger things than most, partly because of the size of our private funds, but also because we have the list of partnerships and Invest beside. We have co investors that we bring in with us. We have joint venture partners that we sometimes operate with. And if we need to, we'll use the BAM balance sheet to back a transaction. We don't ever intend to hold assets necessarily on the BAM balance sheet, but often we back transactions to make sure our partnerships can do things that they otherwise wouldn't be able to do without our support. Some of the transactions that we've done in the last while have been in more developing countries. And I would just say to you, we take a very measured approach to where we go internationally. We've been doing it a long time. We've made our share of small mistakes, nothing major. And if there's 3 things we found that's important is number 1, have patience number 2, go to places with rule of law and number 3, most importantly, and important more important than the other 2 is go to a place that has a culture of respect of capital. And that's probably the 3 most important words that we try to focus on, even if a country has a rule of law, but if they don't respect capital, one shouldn't be there. And we spend a lot of time thinking about that. When we went to India, this slide just indicates, we spent 10 years before we made any major inroads into developing the business. And today, we've been able to establish the business quite significantly. We have $3,500,000,000 of equity invested into India. We own real estate, we own infrastructure, we own power and we own we have private equity businesses and so we continue to grow those businesses and we think now we're established in the country and can scale up the opportunities quite significantly. Thirdly, we think our real asset presence and operating presence makes a big difference in the organization. And this is hard work. Running the things we do is not simple. And that gives us a moat, it gives us a competitive advantage. And our 70,000 people have grown from 17,000 in 2,008 to over 70,000 today. That's a big differentiation when you think of the people that we have. Our operating expertise is clearly a differentiator for us. We try to leverage it in investments. We try to enhance returns with those people on a day to day basis. And often, we take people when we buy a business from the senior level of the company and embed them in the operations and that's a cross pollination of our people. In Colombia, just give you a few little examples, in Colombia, we put a long term we've been putting long term contracts into the power business. It was sold in the market. Once we've accomplished that, that will change the value of this business significantly. We bought a company called GrafTech, which is an industrial business, and we've been cutting costs significantly in the business, irrespective of prices. Prices have recovered very dramatically, which I know the private equity group will tell you about later, but our job was to make sure this thing worked even at low pricing. And in Manhattan West, if you have the chance, please go buy this building. It was, I'd like to say today, the worst building in Manhattan. Today, it attracts the highest rents of any one of our properties in the city. And it's merely because we found something that was special. We renovated, recladded the building. It's now the most attractive building in the city, both from a rent perspective and from it's a very attractive property and it's part of our Manhattan West project. All of that comes down to people and the culture we have and our people are spread around the world, so it's not as simple in operating. But we try to have 2 things within the organization. The first one is an operating philosophy that's long term focused, decentralized, and we promote from within. And secondly, on top of that, what we try to do is have an entrepreneurial focus of our people, a very strong team dynamic within the group and a very disciplined strategy on how we operate. And if you take those six things, and it's never simple to describe a culture, but that's how we think of our culture and how all of the people operate within the business. If you reflect back to passive investing, what's happened over the last 20 years is that returns have been good. They've actually been pretty decent, 7% return over 20 years isn't bad. But if you look at our numbers, I would say the people in the organization have made the difference and our returns have compounded 17% over the same period versus 7%. As you know, over a very long period of time, 1,000 basis points means a lot. And I'm going to end on 4 points, which I started off with and then I'm going to turn it over to Brian. The first is real asset allocations are increasing. They're increasing twofold. 1, they're increasing because the pie is getting bigger, But secondly, the pie of real assets is actually expanding. So it's this double compounding effect that's happening. And it's been happening for 10 years and it's actually increasing exponentially when you look at these organizations around the world. And part of that is because interest rates are low and they don't show any signs of being high for a long period of time. And as a result of it, people are now at the point where they know they have to increase the allocations to alternatives and real assets and that's happening. 2nd, we try to be extremely disciplined in how we invest and we care about your money a lot, we care about our clients' money a lot, we care about our partnerships' money a lot and we try to be very focused on that. 3rd, when we buy assets, we try to operate them differently. And that gives us a special advantage when we do things. And lastly, all of that doesn't work unless we have an organization and people and we spend a lot of time trying to make sure we hone that. It's more difficult all the time just because of the scale of the organization, but we've been doing it slowly and methodically for a long time and it seems I think we've been able to achieve what we want. So with that, I'm going to I'll take maybe 2 or 3 questions if anyone had one and then I'll turn it over to Brian. So I'm going to take one from the iPad this year and the question is just on interest rates. If interest rates rise, what are the implications of allocations within pension plans and the allocations and the effect on our assets? And I guess firstly, what I would say, I make 3 points. Point number 1 is that we think interest rates are in a low band. We think that the governments are going to struggle in the developed world to push interest rates up. The Fed wants to get interest rates up by 100 basis points more, which will get them to 2% and that may take the back end to 3% or 3.5%, if they're lucky. And I would say real assets that we invest into will perform extremely well in that environment. So I don't think there's taper tantrum issues that will occur as we push interest rates up. The second point is those returns within funds and real asset portfolios are not going to alter this switch to real assets and alternatives. We think it's unless you go back to 8% returns in interest rates in the United States, you're not going to switch that. And it's this inexorable movement towards real assets and it's continuing. So we don't really think it will be a big effect on those plans. And as to the asset values we have, I don't think those movements really change anything. But remember, we own real assets. These things, most of them adjust their cash flows every year and they generally increase. And if you have some form of inflation that comes with that, they'll continue to increase even at a faster pace. So we're not worried about that at the current time. Question down here in the front row. Thanks. With regards to your operations focus and the differentiation around that, could you please, if possible, quantify how much value you've added on average to the assets you've bought through that differentiation? And is there a standard kind of operating template that you apply, which would give us greater confidence in the repeatability of that? Yes, that's an excellent question. I don't think I can quantify what number it is. What I can tell you is when the most of the people that compete with us that are either at people like us, managers, other asset managers and they can do they have a different form. We have a very active, a very we own the businesses, we run them, they're our people. They have some other strategy. They hire guys, they bring it in, etcetera. I would say, let's just say for the point of reference, they can do exactly what we do. The difference is they or we can buy things, work the assets and get an extra return. Much of the capital that's out there that invests with us wants to do what we do, but some of them want to do it directly. The difference is they can largely only do things that aren't operational in nature. So I won't exactly give you a number on what you just asked, but what I'm going to say is, we sell them things which are completed and they can earn 5% to 7% returns or 8% returns. And that's great for what they're doing. But we probably bought that asset, reworked it, released it, re contracted it, built it, expanded it and earned ourselves 15% or 20% returns. So the difference isn't they just can't do it because they don't have the people. So the difference is we can buy a toll road on a 6% yield and expand it out the end. And that turns it into a 15% return investment, they just can't do it. So I think it's it isn't that we earn better because of it, we can just do things that are different. And that's I think the biggest difference in it. But since you operate across so many different types of assets, is there a standard approach that you apply as you seek to extract more? Yes. So that was second part of your question. Thanks for asking again. I would say the answer is yes. We have a very methodical plan. Every time we do X, the team goes in, they do this and they do that and they do this. And if it's some are different, but most of the businesses are similar. And so we have a 100 day plan, the operating thing, we change management, we put a new CEO in, we put a management team or our whole team goes into it or we adopt the management team that's there. There are slight differences in each strategy and each investment we make, but we after having bought 100 and 100 and 100 of businesses by mistake, you learn how to do it a little bit better each time. Thank you. So I think I should probably I'm looking at Brian Lawson. I think I should probably turn it over to him, because and then we'll do that, and I'll come back and take other questions if there are some at the end. So with that, I'll turn it over to Brian. Thanks, Bruce. Good morning. So I'm going to cover off an update on how we've done since we were here last year. I spent a bit of time talking about carried interest because that's becoming more relevant to the business. And then lastly, update you on our financial profile and what we see rolling out over the next 5 years as is our custom. In going through this, I want to focus on 4 major themes and hopefully you will take these with you at the end of it. The first one is that at its core, this is a pretty straightforward business. Yes, there are a number of moving parts and carry has its own challenges in thinking about valuation, but fundamentally, it's a very straightforward make some points on that going through. It's also very transparent, largely because a lot of the assets that we own are held through especially in our balance sheet are held through the listed entities. So there's a lot of visibility about that. It's a very resilient business and we've continued to grow the business at a very attractive clip. So how we think about value creation at Brookfield is break it down, there's 3 components, but there's really 2 that we focus on when we talk about revenues and the carried interests. And essentially, we create value there by helping our clients achieve their investment objectives. On the invested capital side, that's the capital that we have invested on our balance sheet into largely into the funds that we manage for our clients, principally in the listed issuers. And so there's great alignment of interest there to pick up on Bruce's expression, we truly do eat our own cooking. And then lastly, underpinning all of that, and sorry, and the value created through the invested capital is really the cash flow that comes is derived from those and the ability to have the capital appreciate. And then underpinning all of those would be the franchise value. And when we talk about franchise, what we're really getting at there is the flexibility that we have and the amount of capital that we've been entrusted with. And that enables us to drive more value creation in the asset manager and the invested capital. So some of the key drivers in all of this, and again coming back to the simplicity theme and the transparency, when we think about the listed issuers, what is core to that is compounding FFO growth, funds from operations, compounding that growth over an extended period of time. By increasing the FFO growth, that enables us to expand the distributions on a per unit basis. And then all things being equal, higher distributions should accord a higher unit price appreciation in the price. And then how that plays out for us is on the asset manager, those increased distributions, we participate in those through the IDRs, the incentive distribution rights. And then as an owner, we get more cash flow on our balance sheet because of our ownership in those same listed issuers. And then the unit price appreciation expands the capitalization of those issuers, which enables us to earn a higher level of base fees, 1.25% multiplied, it's very simple and also it increases the value that we have invested in off of our balance sheet. Turning to the private funds, there's really 2 steps there. The first part of it is critical is raising that capital and then putting it to work. That establishes base fees that we earn over the life of that fund. And again, it's a percentage contractual, they're typically 10 year funds. Also gives us the ability to deploy capital at attractive returns from our balance sheet. And then once we've gone through the whole value creation process, the operations and things like that that Bruce referenced, towards the end of the fund, then you get into monetizing and distributing the capital back to the investors in the fund. That then locks in for us the carried interest as a manager and then again enables us to earn investment gains and receive proceeds as an investor. So those are really the points that the key drivers in the business. I mentioned the resiliency and it really comes from these items here. The fee streams and I'll come back to this on a slide in more detail. Over 85% of the fee streams are either long term or perpetual in nature. They also create strong cash flow within the company on the BAM balance sheet itself. We have strong liquidity both in the form of core liquidity on our balance sheets as well as again to Bruce's point that access to multiple sources of capital. And then we follow an investment grade model pretty much across the entire organization. So it's a very stable capitalization. So here's the polling question for this section. And what we're looking for is some input guidance from you, what matters to you in terms of what we can report that would be helpful for you in terms of analyzing Brookfield. So we'll just pause on that and if you could use your iPads to give us some input that would be great. Dennis is watching this one with some trepidation to see what work he's got laid out for him. Fortunately, he put the question up, so, I won't take the heat for that. Susan, maybe some game show host music for next year. Dennis, you must have a lot of things coming in here. Okay. So lots of the prominence is obviously the proportion of responses. So FFO, good, that's one of the ones we focus on a lot today. ROIC NAV growth, NAV book value per unit. An interesting one because our book values, as you know, vary depending on how the different asset classes are valued, whether they're valued at book value or at NAV. Okay. Well, thank you. That's very helpful and we will take that away, duly noted and we'll see what we can do to help out in that regard. So if we can go back to the slides, there we go. So in terms of what's evolved since last year, we had good growth in a number of our key earning streams. Fee related earnings were up quite nicely. And that a lot of that was driven by 2 things. One is the fundraising that we had in those 3 flagship funds that Bruce highlighted earlier. The second is strong growth in the listed issuers. That a lot of that growth in the listed issuers came from distribution increases and so we participated in that through the distributions that we receive on an annualized basis for Brookfield. And then good growth in the realized carried interest, although that's a number that's still quite small relative to the potential carried interest that we should be earning as those larger funds go into distribution mode, which is coming increasingly on the horizon. So we're going to talk a bit about that in a moment or 2. And then once you back out the outflows at the Brookfield level, which is principally our corporate interest expense, preferred share dividends and some costs, you end up with about 1,800,000,000 dollars of free cash flow coming on to the Brookfield balance sheet each year. So it's and this has changed a lot over the last 5 years and really speaks to the whole liquidity and strength and resiliency of Brookfield itself. And we would see that number doubling over the next 5 years even before any increase in the carried interest. So we expect to see strong cash flow growth in the business going forward. The other key point, looking at things since last year that we measure, is how we've grown the annualized earning base. And so what we're talking about there is the annualized fees that are generated by the capital that we have in place at that point in time. It's a very simple mathematical calculation. It's just the capital multiplied by the fee rate applicable to it. So just going through these, the listed partnerships has increased nicely again similar reasons that grew the year over year. And that is perpetual capital and so that's a perpetual fee stream. Private funds, as I mentioned, typically 10 years, sometimes we'll distribute them a little sooner. But again, a very long life fee stream and again, it's contractually driven mathematical equation. And the IDRs, that's our opportunity to participate in increases in distributions. Again, that's a perpetual fee stream. So that's that 85%. So over 85% of that $1,300,000,000 is either perpetual or long term, it's all contractually driven. So it's a very solid objective number. And then on the balance sheet on that invested capital, we achieved an 18% total return, 5% of that was the distribution yield cash on that capital and 13% was compounding the value the appreciation in the value of that capital. So a good outcome there as well. So I mentioned I want to talk a bit about carried interest because that is something that we see becoming much more important to the organization, much more apparent in our financial results as we approach the stage in the various funds, particularly the larger funds that were raised more recently when they get into distribution mode. And just to set the stage a little bit there, this is how we talk about and communicate carried interest. The first one, target carried interest, that's a pretty blunt measure. It's simply the amount of carry that we expect to earn over the life of a fund, assuming we hit the target returns, straight line over the fund, over the life of the fund. The second one there unrealized carried interest, that's based on the performance of the fund, the actual investment performance of the fund up to a given date and assuming we wind up the fund, how much carry would we be entitled to at that point in time. And that's not dissimilar to what a number of our peers would report in their financial statements. The third is how we actually treat it on our financial statements and we don't book carry until we're past any clawback periods. So it's arguably pretty conservative, but it does push recognition of any carry past the point in time of when it's been actually generated and into the later life of a fund. So this is what it would look like for a typical fund. And again, it's just a mathematical calculation. We take the target return. We assume we invest it over the 1st 3 years and monetize it over the last 3 years. And what that looks like is that first line, the gray line, the target carry, as I mentioned, that's straight line buildup over the life of a fund. The second line, the blue line, generated carry, that's how the investment returns we would expect to see manifest themselves in the form of carry. Obviously, you can't earn carry until you invest the funds and start to generate returns that happens over the 1st 3 years. So that's why there's a lag there. And then because we don't book our carry until there's no risk of clawback and that really means that you've not just created the value but you've actually sold the assets and distributed the capital, that's why that orange line is so backdated or so back ended. Now, our profile in terms of the existing funds looks more like this. And so what we're really trying to illustrate here is that over the life of the existing funds, we will generate, based on target returns, dollars 8,000,000,000 over the next 10 years. And but it's going to come in, it's going to build up over time. This is what it looks like on an annual basis. I think the takeaway from this is really over the next little while, you're not going to see a whole bunch of it show up in hard numbers either in our MD and A. We do report our realized carrier T sorry, our generated carrier TU in our MD and A. So we do give you a progress update on that. But it really isn't going to kick in for a couple of years, but then you'll see a lot of it in the next 5 years. And of course, it's not going to show up in the financial statements until later on. So there is a lag, it's building up, you'll see that with the blue bars, but the orange bars is when we actually collect it and book it for accounting purposes. And then of course we'll be adding more funds and so we would expect to have a good continued growth rate on the amount of carry that we are generating with the organization going forward. And that's roughly a 20% clip. So just talking about the real asset strategies and how they relate with carried interest. And we think that there's something about the investment strategies that we have that lead to a more reliable form of carried interest. And 2 characteristics particular, unlike some asset classes that might be within carry structures, there is a current cash yield on a lot of this and typically a lower volatility. So we think that lends itself to a more reliable source of carry. And importantly, we're not overly reliant on the IPO structure to for an exit purpose. We can use it in a lot of cases, but we also have a number of other avenues. And so the IPO market comes and goes, we're not unduly I'm going to leave Carrie now. So I'm going to leave Carrie now. I think I would accept that or expect that we'll be able to provide you with increasing information about this going forward. It is an area of the business that is challenging to get your mind around, our mind around from a valuation perspective. I think it's a bit of a challenge for the entire alternatives industry and I know a number of our peers are working at it as well, but we'll continue to work away at getting at it because $8,000,000,000 coming over the next 10 years and then 20% growth in that going forward is a very meaningful driver of value in the business. So it's good for us to get our minds around that. So in terms of the financial profile and how we see things going forward. So since last year, we revisited things and there are 2 major assumptions, I'll say, that we've changed or milestones. And one of the comments we made last year was that when the business grows, it's not that you're necessarily taking growth away from future years. What you're really doing is establishing a higher base to grow from and thereby create even extra additional growth going forward. And we've seen that with how the business has evolved over the last 5 or 10 years. So in thinking about what we might see in terms of fundraising, Bruce talked about this, we're getting at the flagship funds, so the private equity, the infrastructure and the real estate. So instead of $20,000,000,000 $26,000,000,000 and we pushed out the timing by a year on that. And then the other is the funds get larger, we would expect that we would retain a larger amount of the carried interest and so with a higher margin there. So those are really the 2 major changes that we've updated since we sat here stood here with you last year. And that's roughly the impact on fee related earnings. And so we've continued to see that growth expand. Now in terms of what this actually means, just to get a little bit more into the detail here, for the private fund capital, that growth in fee bearing capital, which because of the relationship between fee bearing capital and fees, it's again simply a mechanical calculation, most of it comes out of those 2 major fundraisings. But then we also have some other things going on in terms of additional fundraising strategies. That's and then lastly, these are long dated funds, so we're not really looking at much at all in terms of outflows over that 5 year period. So we see a strong buildup of growth in the expansion in the fee bearing capital there. On the listed issuer side, again coming back to the key drivers there, the bulk of it comes from us continuing to grow the FFO and expand the distribution growth at that 7% clip. There is some on market valuation as well and that would be more for a BBU, which is less distribution and more capital appreciation. And then in terms of issuances, we did do a couple of issues since June 30th, that's included in that $11,000,000,000 And then we're looking at doing additional debt and preferred share issuance over the next 5 years, really to keep a stable capitalization with the entities that does not factor in any future equity issuances. So again, strong growth there. And pulling that together in terms of the impact on the fee related earnings, that increase in capital drives a doubling of the base fees. The increases in the distributions drives an increase in the IDRs. And after you take out costs, we've kept the 60% margin in place. That's $1,700,000,000 of fee related earnings that if all that came to pass, that's what the number ought to be. So I just ask you to hold that because we'll come back to that when we wrap it up. So 1,700,000,000 of fee related earnings in the blue box there. In terms of carried interest, we also expand the amount of carry eligible capital that we have and hence the opportunity for us to earn carry if we hit our target returns. And again that increases significantly in terms of the amount of generated carry and the target from the target carry today and then roughly $1,000,000,000 net that we would retain 5 years hence that should be the annual amount of generated carry. And so hold that 1, the $1,000,000,000 of net carry. And then on the balance sheet, this is what the balance sheet looks like today. And again, as I mentioned, the transparency and the visibility and the simplicity at the beginning. So if we have 31,000,000,000 at IFRS of capital invested, 38,000,000,000 invested at base case, the bulk of it is in the form of those 4 listed issuers. So 4 public stocks and then some other listed issuers as well, Norbord for example. And so the total amount of listed is over 80% the total amount of invested capital. So high degree of visibility and transparency there. How we come up with the base values? All the listed issues there is simply at recent market prices with the exception of BPY which we put in at their IFRS value. It equates to IFRS based on the fair value accounting. And then in terms of the unlisted, that's all that IFRS values with the exception of the resi business, which we took private a few years ago, it's the business is marked at a very old historical cost on the books, so we used to take private value there. So that's how we come up with those and you'll see the amount of distributions and this is the cash generation that's ongoing of $1,400,000,000 on an annualized basis. And how we see that growing over the next 5 years, it's really 2 components to it. 1 is capital appreciation, again largely the compounding of the distribution increases and the impact on the unit values there. Some value appreciation for the lower payout entities, but a big chunk of it is actually the cash flow that we retain on the balance sheet that spun off every quarter. And that's $10,000,000,000 of it after we pay out our dividends. So we would see that $38,000,000,000 plus capital appreciation, plus the retained cash flow coming up to $65,000,000,000 over the next 5 years. So pulling these things together, I'll just work through this one. So that's the $1,700,000,000 of fee related earnings on the top line, put a 20 times multiple on it, $34,000,000,000 generated carry. Historically, you may recall we use target carry because of the maturity of the of maturing of the business and getting into the latter years of those funds, we're moving to, I would say, much more of an industry standard there. And so that's the net generated carried interest, $1,000,000,000 $10,000,000,000 accumulated carry is just what's been accumulated over the period of time but not collected. It's another $5,000,000,000 So that's up to $49,000,000,000 for the value of the asset management side of the business. For us as an owner, as an investor, that's $65,000,000,000 that showed the build up to, less $10,000,000,000 of leverage, dollars 55,000,000 add those 2 together, dollars 104,000,000,000 we have roughly a 1,000,000,000 shares outstanding, this makes all the math really simple, doesn't it? And that's around $104 a share. So that's where we're thinking of if all these things come to pass and all those mathematical equations hold in the model, how we think about the opportunity to create value here. Now that's the base case and as we usually do, there are a few avenues that we are pursuing or could pursue that could create additional value above and beyond that. Bruce mentioned the large global mandates. There may well be opportunities to focus more regionally that could be attractive to our clients. We would have also the opportunity to expand some of the product growth through M and A. And lastly, opportunities to expand the amount of client capital with some of our larger relationships on a strategic basis. So just in wrapping up, these are the three things that we think are critical to having achieving those objectives. 1 is obviously raising the capital and deploying it wisely. So if you go back to those targets, the drivers that we talked about at the beginning. 2nd is hitting those target returns, hitting that annual distribution growth, getting the target returns in our private funds. And then lastly is the opportunity to expand our fund strategies really responding to the needs of our clients and their objectives and how can we work with them to come up with investment strategies that allow them to meet their objectives. So with that, I will finish and hand it back over to Bruce for any further q and a that you might have. So, thank you. So I'm going to take one question from the iPad and if anyone has one in the crowd, maybe you could get a microphone if there's one near you and then I'll take a question from the room. One of the questions here is how Brexit has impacted our business. And I would just say a couple of I'd make a couple of points. Point number 1 is we have a significant business in the U. K. Across all of our sectors. Business has continued in a very good fashion since Brexit. And in fact, we've seen no real signs of deterioration of any of the businesses since then. Despite that, there's uncertainty in the markets. What that hasn't resulted in is a lack of foreign direct investment into the country. In fact, it's the opposite. The buyers of real estate, for example, and the buyers of infrastructure, but in particular in real estate, the prices are up on average probably 30% to 40% since Brexit in the City of London for real estate. Many of those are international buyers. Some of them consider it probably part of it is the fact that they're buying with U. S. Dollar money and they're buying pounds cheaper. But it's also seen as a very attractive place in the world to invest where foreign money is welcomed. So we haven't I guess the point I'd make is we haven't really seen any shoes to drop. We actually on balance and I'll just make an anecdote. We just built Amazon's headquarters in the City of London. We recently moved in 8,000 people into the building. These are technology, logistics, it's their head office in Europe. And I am quite positive there will not be 8,000 jobs lost from Brexit in the financial services industry over the next 10 years. More than 8,000 jobs moved into that one building that we built just now. And there were 0 employees by Amazon in the City of London 10 years ago. The point being the financial business is very important, but the job moves are going to be, we think, relatively modest. The technology, media and other businesses are significantly growing in London, and that's going to offset those numbers. And I think it makes it will continue to make London a great city. Are there any questions from the crowd? Hi, Bruce. It's Cherilyn Radbourne from TD Securities. Wanted to ask you, you've been talking for some time about how we're late in the cycle. The equity markets are at or near all time highs and both of those are reasons to be somewhat cautious. And yet, on the other hand, across all of your various businesses, you see no signs of danger ahead. So can you talk a little bit about how those somewhat competing thoughts feed into your underwriting process? Yes. So just for everyone's benefit, I guess our view is interest rate bond rates are as low as they're going to get. They're 0 in Japan and 50 basis points in Europe and they're 2% in the United States and a 10 year or a little over 2. And so bond rates are low, they're not going to get any better, you can't make any money in bonds. Stock markets are relatively high. They're a lot higher than they were at 9,000 or 6,666 when it hits low. And therefore, I guess, we don't despite all that, we don't really see most of our businesses across world are actually performing really well, in particular in the United States. So that's the reason why stock markets are the way they are, despite all of the everything that's going on in the world. And so we don't really see anything. I guess the only point I would make, the counterpoint I would make to that is our business is about investing money, being prudent and making sure that we that is our business is about investing money, being prudent and making sure that we are here to always be very strong when a market turns down. So it just doesn't matter for us. We want to be liquid in case something happens, and it will at some point in time. Like the fact is, stock markets can't go up like this forever. We don't know when it will be, it could be 2 years from now, it could be 5 years from now, it could be 7 years from now. But on the margin, we always want to be liquid and keep and so we're building cash on the balance sheet and want to be very liquid. Our investing strategy, though, has shifted. And it always shifts. And that's why we have global funds. This our investment strategy has shifted outside of North America because that's where lots of money has been recently. And therefore, you've seen us do a lot more transactions in South America, you've seen us do a lot more transactions in India, we started doing things in China. And that has so it's just because of that fact. There's less money in those places, less FDI currencies are lower compared to the U. S. Dollar. So odds favor better returns over the longer term would be, I'd say, the just to try to answer the question. To which I mentioned China and one of the questions on the iPad is just about China and our expansion strategy for Asia. And we now have 50 people in Shanghai. We have a number of businesses in Asia, in Korea, Japan and China. I'd say we've made the we've made great strides over the last 5 years in building out the business slowly, methodically, and so we don't make any major mistakes. Because what happens when you make a major mistake is you just quit. And the whole organization decides, you know what, we don't want to be there, that's just a bad idea. So we try to do it very methodically. And the answer to the question is, I think and we think 10 years from now, we'll have a very meaningful business in Asia. But it's going to be slowly and methodically when we can find opportunities to do it with a relatively modest risk and not without any major harm that can come to any one of our funds or the organization entirely. So we continue to build that out. Are there any other questions from the crowd? There's one here in the middle. Hi, Bruce. Thank you. Given the firm's history in investing in Brazil, I'm just curious if you could rank today's opportunity in Brazil from a deployment perspective, perhaps versus its own history and the cycles you've seen and then also versus the other ex U. S. Geographies that are competing for your capital? And just as a quick follow-up, if you could perhaps link the opportunity to the funds you see that have the biggest deployment opportunity there? Thanks. So I'd say the question is really just Brazil and what we think of the opportunities and how it affects our funds. I'll paraphrase, for everyone. And I would just say the last 18 months was one of those opportunities, which many did not have the capability to take advantage of. Because remember, what you need to have when you do what we do is you need to have people on the ground with the confidence of the senior people that run the organization to be able to actually take participate in opportunities in scale with money and the confidence of investors that will put that capital with you. Very few people had those 6 characteristics to be able to deploy money into Brazil over the past 24 months. Because of that simple point that not many others had those six things, we bought 5 businesses in one of them in every area that we operate in. And it's highly possible that in hindsight, we will look back just like what we were buying in the United States in 2,009, United States in 19 90 3 and in Australia in 2007 and go through the list. These are amazing value opportunities. I would say that has passed. Brazil has bottomed by and it's coming back. GDP growth is up this year, it was negative 6 percent last year, it's going to be positive this year. Interest rates were 14.25%, they're now 8.25%. I was there 2 weeks ago and spoke to many, many people. Some say 7%, some say interest rates will be at 6% within a year. And so the opportunities have changed. What we bought was, it was a it's not once in a lifetime, these are once in a around the world economies have accidents and if you can buy if you're set up to be able to buy and action things, so you can often buy great opportunities. And we were able to put large scale amounts of money to work in risk averse opportunities with incredible growth opportunities and they should be very good for our funds. There still are some opportunities, they're less. The great, great value was 2 years ago it was the last 18 months, but there's still a number of opportunities and really what's going to happen now is we have add on opportunities in every one of these businesses. Cyrus can tell you about water business we bought. It serves 20 15,000,000, 20,000,000 people, it could be 50,000,000. They all need water and sewage taken away. And so we'll just grow that business. Our total business will expand the business. Our office building business will expand. So the businesses we have, we were just able to fatten up the operations very significantly. And I think the real point I'd leave you with is there's still opportunities, not that many people are going, but a lot more are. And that's changed in the last 6 months. Question over here. Andrew Kuske, Credit Suisse. Bruce, maybe just give us a bit more color on your thoughts on the high net worth channels. And really, I think it's probably a 2 part question. Firstly, how much AUM can you really generate through that channel? And then secondly, the cost of that channel? And the cost is really twofold just from an internal standpoint of how you interface with it. And then the second part, how much do you have to pay effectively the bank conduits to tap into those networks? Thank you. And I'm going to answer there's another there's a question on the iPad here, just the number of LPs in our private funds and how are we trying to grow them and how big could that be? And I'd answer try to answer the question by saying the high net worth channel really is 2 types of channels. Well, there's 3, one of them we're not participating in today. One is, we speak directly to very high net worth people and they come into our funds and usually come in directly and we deal with them directly in their family offices. The second way we do it is we access the bank's high net worth channels. So when you have your money in your accounts, hopefully you'll buy a Brookfield fund when it gets offered to you. But those get sold through the investment management accounts of the banks and delivered to high net worth people. We've done some of that in past. We are doing more of it. We'll probably have in our next real estate fund, we'll probably have 3, maybe 4 of the investment dealers doing it. The issue is, to your second question, is that it's expensive money. It's more expensive than what it costs us to find money from institutional clients. But it's sticky, it's another avenue to diversify and we think there'll be a big growth area for us. So it does cost us more to do it on a net basis, but we think it's still worthwhile in diversifying the numbers. To the numbers of institutional clients, but what's happening in the world is that there's we have 500 approximately clients, it's probably it could be 1,000 of what about the LPs that are out there doing it directly and competing with you? I would say twofold. 1, there's not too many that can do what we There's a few, but it's hard work what we do when we have 70,000 people and 700 investment people, not many people are set up with the governance to be able to accomplish that. But secondly, the greater success the large plans have, the medium plans want to do what they do and the small plans want to do what the medium plans do. So every day there's this upshifting of people into real assets once they see the returns and the success of the other institutions. And I think that's probably the most important point. So I think it can be 1,000, maybe it's 2,000 over time, these are what's happening in the world is all institutional clients are moving into alternatives. There's just as most of you know, if you talk to people in around the business or in the business yourself, it's impossible to have an institutional fund and not have alternatives in it because interest rates are so low and equity returns can only be so much of a portfolio. And where they were in credit before, they're earning treasuries before, they can't earn anything else. And that's what is happening. So there's a question here about how do we think about the utilization of Brookfield Asset Management's balance sheet to co invest over the next 5 years versus the previous 5 years will be higher, lower, the same? And what do we think of putting that capital to work and what returns will it earn? And I guess what I would answer by just saying the following. Our balance sheet is there to facilitate our partnerships and our funds, doing things which they otherwise couldn't do. And in addition to that, it's there to invest beside them, so they understand that every decision we make is equal and the same as theirs. We're doing it with exactly the same thing in mind. There is nothing because of the capital we have in those and because of we put that amount of money into every private fund, every public every listed partnership, because of that, there's no fee that we can earn that can ever be meaningful to the overall organization that we would do something for a fee. And that is very meaningful to the organization, it changes the culture in the place. And so we continue to use the capital. The real question is, do you get too much capital at some point in time and what should you do with it? And I would just say to you, money, We continue to see more opportunities to put money to work at the returns that are good then we have capital. So our balance sheet is continuously stretched, meaning we're always thinking of, we never think we have too much money, because we're always trying to grow the businesses, our partnerships want to do larger transactions, we're supporting them to do those things and maybe someday that will change, but it doesn't look it hasn't been in last 10 years and it doesn't look like it's going to be in the next 5. And because the business just continues to grow and scale up And as a result of that, the numbers just keep getting stronger. There's a question up in the middle of the room up there, if we could get a mic over to it. And then I think we'll take one more question after that and then I'm going to have to get cut off. Hi, thanks so much. Bill Katz from Citi. It's been very helpful. In your sort of go forward expectations, you lay out a very related earnings. What's any underlying assumptions for pricing pressure? You see that in the U. S, particularly in terms of the attritional asset management business and the passive business, there's a bit of a downward pricing pressure. How are you thinking about the economics of the business against that growth? Thank you. Yes. So just to make sure everyone heard the question, it's really pricing. Is there pricing pressure in real asset and alternative asset management, like there is in equities and fixed income. And I would just say, thankfully, what we do has a huge moat around it. And it's really hard. And because of that, that's a competitive advantage. And as a result of that, not too many people can do what we do. And institutional clients, by and large, can't do it themselves. They can do some of it. They can earn they can buy an office building and they can earn a 6% yield. But when but I don't there's not many in the world that can strip the concrete off the side of an office building, totally revamp a building, end up with another building at the end of it and lease it out to a bunch of new tenants, including some of the best tenants in the world. It's just hard work. And therefore, we've seen, to make the point, we've seen no pressure on margins, nor do we think there will be going forward for the foreseeable future. If some time somebody creates an ETF to do what I just explained, Maybe it's possible that there will be, but I don't we just don't see it happening. I guess the only thing and why we continue to think it's important for us to expand the number of LPs we have downward and outward is that the only, I call it pressure, if you want to call it, is some of our very large limited partners want us to bring them other things other than just an investment as an LP in a fund. And so we don't get paid for or as much or sometimes anything for the LP capital for the capital they put beside us in transactions. We view that, it's a that's just the cost of bringing their other money to us and it gives us an enormous advantage to have them as clients beside us to do larger things. And so that's how they get a fee break. But on balance, there just really isn't a lot of pressure in the industry across the board from many institutional clients. So there's one more question. There's a question right here. Bruce, are you able to compare returns from your public entity versus your funds backwards and what you would project going forward? Sorry, the question is, do we compare them or Are you able to do that? Yes, the question is, do are we able to compare funds backwards for the partnerships and for the private funds? And the answer is yes. We have we look at all of these all the funds and we go back and forward. And I would say, most of the funds we've created, in fact, every fund we've created, maybe other than 1 or 2 small niche funds have met or exceeded their return thresholds, both on a multiple basis and an IRR basis. The private funds versus the public investments. I think they're similar. Each business is similar to the others for the type of product. And it all depends like our listed entity is for real estate, for example, has a lot of core product in it, which are stable, long term producing cash flow things and it has an opportunistic business. Our private fund is just the opportunistic business. So the they do just often the partnerships are doing different things to produce cash flow to pay distributions than what the opportunistic fund might do. So they're kind of different because the partnerships are generally a amalgamation of a number of things we do versus just the private funds, which may do one specific area. The only other thing I'm going to end on the last question here, which is what do you feel is the biggest thing the market is under appreciating about Brookfield? And I would use that just to close and say that we think that the business has grown over the past 15, 20 years to where it is. But the situation we're in today is one where there aren't too many people that can do what we do. And therefore, we do have a global franchise, which is one of the asset management franchises in the world to be able to take capital from investors and deploy it prudently for reasonable returns, given the risk we take. And I think what always gets underestimated in any great business, And when we look at other businesses to buy, what always gets underestimated and every one of our people does the exact same thing, including myself, is that you underestimate, you look at the business, say what it's worth today, but you underestimate the fact that if it's growing and it's a good business, it's going to be worth so much more 5, 10, 15, 20 years from today. And I think the company is has that capability and the franchise value is significant and can't really be arithmetically calculated in Brian's calculations. But that's really the value of what the franchise