Brookfield Corporation (TSX:BN)
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May 8, 2026, 2:10 PM EST
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Investor Update
Oct 7, 2015
Okay. So I think we'll get going. We have 2 hours and then a cocktail party. And I think it will we'll probably use almost to 2 hours. If not, we'll go down early.
But firstly, I'm Bruce Flat, and I just want to welcome everyone for coming. And I just say that we've done this. This is our 11th year. We figured out this morning, it was our 11th year of doing this. We're never too sure what we should do, how fast we should do it, how long we should do it, what we should actually put in.
So any suggestions you have for us, I'd say upfront, please send them to us because we'll try to incorporate them or in fact, if it's a totally useless day, then we'll just end it and we won't waste our time. But we'll try to make the 2 hours and tomorrow's activities with the other companies as useful as possible while we're doing it. And I'll just introduce the agenda. But before I do that and then do my presentation upfront, I'd just say that I'd maybe thank you for 3 things. 1, just your interest in Brookfield and each one of you in a different way, either as an investor or in some other capacity is involved with us and we appreciate that a lot.
Many of you supported the companies over the years, so we thank you for that. And often we get ideas and suggestions from people, either on how we disclose something, on how we're dealing with our shareholders, how we're doing something or a business opportunity and we really appreciate that. So I encourage any of you to speak to any of us about that because we're not great ideas are not exclusive to us. And so we really appreciate the thoughtful people who actually care about the franchise in bringing ideas to us. Since this time last year when we had the presentation, I'd say we had a pretty good time to execute our business plans.
The last 6 months have been more volatile. The 6 months prior to that were pretty good. Despite that, the underlying fundamentals of the business are, I'd say, very good, although spotty, anything related to commodities and anything related to emerging markets in the short term has been tougher. But that's presenting some amazing opportunities for those with capital and thankfully we fit into that group. So generally the markets are in pretty good shape and therefore we continue to execute the business plan that we'd laid out and Brian is going to talk about our past ones we showed you.
After my presentation, I'll take a couple of questions, not too many just because of time. And then each of the presenters will take a few questions and then I'll sum up a few at the end if we have time. Our agenda for the day is that I'll start off and make some presentations. Craig Noble, who runs our Public Markets Group, will then talk about that business. Leo, Ben and Tiller will talk about our private fundraising and we often get questions about this.
We don't have significant disclosure on it in our materials because we have to be very careful given the SEC regulations. But we'll try to shed as much light on that as possible. Cyrus Madden is going to talk about our private equity business and then Brian will sum it all up trying to pull it all together and in fact all of the presentations together that we'll do over these 2 days into our financial results. As you know, our information is available online. You have it here.
The 3 other partnerships are having their own days like BPY just did. So we're not going to spend a lot of time talking specifically about those partnerships and a more focus on the overall business Brookfield Management in the parent. So just as an overview, and this is pretty simple, but our goal is to be one of the leading global managers of real assets and we continue driving towards that goal and have been over the past 15 years. And this is a repetitive slide from past, but we always like to use it because the business we run is actually really, really simple. And number 1, we just source equity from people that are seeking exposure to property or infrastructure returns.
We use the access to the large amounts of capital that we have to invest that on behalf of the clients. We utilize our global reach to identify and acquire high quality real assets on a value We finance them as longest term as possible, especially in this rate interest rate environment, because largely it just isn't worth the risk in taking short term exposure on interest rates if you can put a permanent financing in place. And lastly, we try to use all the people that we have in the franchise and the platforms to be able to enhance the cash flows of the assets that we buy over time. And we leverage that to earn excess returns. Overriding all of that is that we throughout every one of our businesses, we try to be value investors and we keep this around most of our offices in the world to remind us that walking the sheep walking against the herd is always the way to go.
And we don't always act this way, but we try all the time to do this. And so most of our actions you will see in many different ways is trying to be act on a contrarian basis and be value investors. There are 3 types of categories that we to our clients, which leads to our fee bearing capital today being approximately $100,000,000,000 The 3 are $44,000,000,000 in our listed partnerships, just under that in our private funds and about $20,000,000,000 in our public market strategies, which for very specific purposes is us managing real estate and infrastructure securities that are actually listed in the stock market for clients, which gives us in our view, important benefits and there's really 4 that I'll focus on. Number 1, it diversifies the sources of capital that we have, such that at one time, the public markets will be right as people were talking about BPY earlier for those that were here. The public market isn't trading BPY at a premium to its multiple.
I'm positive someday it will. But while it is and what we're doing is we're liquidating assets with institutional clients and we're using that money to fund the business plan and buy back stock. And it just gives us a number of various sources of capital, whereas others, if you just have access to the public market or you just have access to the listed market or you just have access to private funds, it limits the opportunities during capital availability. And that's, I'd say the number one important thing that we've been trying to establish is maximum ability to source capital in any environment or any capital market area. 2, it provides options to our clients.
Some people want to have a listed securities. Some people are, in institutional funds and therefore they can buy a security that's listed. And some people actually need direct exposure real estate and they can't buy listed securities. So we have an offering to all of them. And increasingly, there are departments within the institutional clients, which as you know, do each of them.
And increasingly, for us, it's important to have an offering to all of them because we can then offer many products to the same institution and it just increases our touch points and Leo will talk about that in a bit. It provides certainty of capital through market turmoil for us and times when stock markets are volatile, our ability to access private capital and on our own balance sheets is extremely important. And lastly, it aligns the duration of capital with strategy. So often we can do things which others can't, largely because of the duration of our money that's in some of our strategies and that gives us an added benefit. Just to summarize on our portfolio, it's about $200,000,000,000 or just over CAD200 1,000,000,000 of assets.
It's global. It's global very selectively, I would say. We're in 25 countries, but there's most of them most of the assets are in some major ones, most of those are developed. The other ones, we're very specific about where we go. We really don't want to be in every country of the world and we probably never will be.
But we continue methodically to build out the platform where it makes sense over time. And in total, it's about 30,000 people, which gives us a great ability in the platform and allows us to do a few things. It allows us to enhance the return on capital we get out of the business. Often we can take assets as Rick Clark was describing earlier, and we can do things with them that otherwise people couldn't. And therefore, it's not that they couldn't see the fact that you could do that to an asset.
It's the fact that they had no ability to
actually execute on the transaction. And that's a very
important thing. 2nd, organic investment opportunities within the portfolio and those are very additive to the franchise. And 3rd and probably I'd say from even maybe even most important from my perspective and from our investment committee perspective is that it gives us a huge advantage in diligence because we can ask people whether something is the right number we should be buying at and what's going on in that asset. And that's an incredibly important thing when you have to make quick decisions from an investment perspective. We've used those competitive advantages we have essentially to enhance the returns for our clients, such that at the end of the day, people will continue to give us money.
And I guess I'm proud to say that our investment track record has been very good over time. I'm even more proud to say that this period of time includes the financial crisis of 2,000 and 82,009. And we went through that period largely because and I've often said this to people, but we didn't do anything really stupid in 2,006 and 2007. We made our share of mistakes, but these returns include all of those investments that were in those period in these funds and have generated returns. And probably the you can say that we're good at marketing or we have international franchise or we're nice people.
But the number one reason why people come to us and invest with us is because not the quantum of returns, it's because when they look back at our funds through 2,008 and 2009, we performed well and we therefore are prudent manage our capital through the cycle. And when I think of private fund people, I'd say that's probably the most important thing that we have to our credit. This has enabled us to increase our fee bearing capital, Brian will talk about it later, to just over $100,000,000,000 and we continue to successfully put that to work in many things. 5, I'll point out here because a number of them are very significant investments, but there's many other investments we've made in the different funds we have. Number 1, and I'm not sure it's possible to describe and I'm not sure when the real estate presentation was done, it's possible to describe what is at Canary Wharf today in words or in a picture and what it's going to be 10 years from today 20 years from today.
This is one of the most incredible groups of assets on the planet. It has an amazing group of office assets, but there's 2 other things that factor into it. And number 1 is that there's approvals for 4,000 units of residential density we're building in the highest value residential market in the world. And secondly, I think there will be probably many, many more apartments that we will be able to add into that portfolio over time. So the build out is very substantial of this residential portfolio in London and that's an extremely valuable asset to the company.
And second, the East End of London continues to get closer to the center of the city and with the Crossrail when it comes in, in the end of next year, it will bring the center of city even closer and that is going to increase values in the East End of London very dramatically. 2nd, we bought a big portfolio of wind assets in Portugal and we've integrated them into our business and they're extremely attractive group of assets. In France, we bought a telecom tower business for $4,000,000,000 And we'll talk a little later about just the markets, but this was a very attractive infrastructure asset. We bought a big business, a part of a big business in Brazil on the logistics side and the team at Brookfield Infrastructure Partners will talk about that later. And then we have a transaction in Australia, which is in the markets now and should hopefully will close in the next couple of months.
We continue to also invest in all of the businesses we have organically across the business is to enhance the values. And this is what I was talking about, just organic investments. And we continue to do, as was mentioned in the property presentation, build out a number of commercial property developments. We continue to build our renewable power portfolio, both wind and hydro. And many of the infrastructure assets we have, have organic developments within them, which has led to an expanding business that we have and has led to a pretty good returns for the common shareholder of Brookfield Asset Management.
I think the only comment I'd make is the returns for the past 20 years are pretty good. I don't know whether we can sustain those in the future. They may go down. But I can tell you that I think we have a franchise which is an incredibly more valuable today than it was before. And the transactions that come to us, the institutional clients that come to us and Leo will talk about that in a minute, The maturity of that franchise is vastly different than it was 10 years ago.
And I think that's important to long term growth of the business. Just turning generally to the markets, I guess we have a few comments and maybe the punch line is that volatility creates opportunities. But just generally, I'd say from our perspective, capital markets are fully functioning. We don't believe the investment cycle is over. We think that actually volatility is good because complacency is a terrible thing.
And we were possibly getting to the point where people were getting complacent. Those comments probably accept the fact that if you're in the commodities business or you're in an emerging market, it's not fun right now if you're in either of those. And there's our view is that interest rates, if they go up slowly and if we stay in a generally low interest rate environment, which I'd call 3% to 4.5%, 3% to 4% to 5%, real assets will perform extremely well. And our global reach we have continues to present us opportunities in North America. We're using that environment to recycle capital, sell out of mature assets, harvest capital to be able to put into our investment opportunities.
In Europe, the opportunity is not really growth. It's about cash on cash returns and unbelievably valuable leverage, where we can finance 10 year terms at under 2%. And the combination of relatively stable to growing a little bit growing cash flows and 2% leverage is a very powerful real asset return. In Asia, we're methodically building out the business. We're looking for value investments and we think there will be more to come.
And in Brazil and South America in general, we think that the good countries that we do invest in will continue to emerge. They're in a tough spot right now, but they will recover and it doesn't give us any pause that long term these countries are going to be powerful countries in the world. And there are incredible opportunities which are surfacing just given the markets. Leo is going to cover this in a bit, but we continue to at a high level, we continue to see flows of real asset investment capital at a very significant pace into all of our areas of investment. I think I would say that even greater than 2,007, we see more money coming into real assets today than we've seen ever.
And sometimes people worry about that, but in 'six and 'seven, most of the capital that drove the markets was driven by high leverage and structures that finance on finance. Most of this money today is from sovereign institutional funds, which is a much safer amount of money. Institutional fund capital continues to grow. We've shown you this slide today. We still believe that these funds are going to become enormous in the world and they continue to allocate a greater portion of their assets to the real asset space.
And I guess it's really simple why. And there's no there's nothing complicated about this, but you all know that bond yields are 2%. You might stay with your 2% or you might lose money if rates go up. Equity yields are volatile in many of these sovereign plans and they probably will earn 8%, maybe if you're good, you'll earn 15%, probably with all of you 20%. But real asset yields, we can earn 7% to 15%, sometimes upwards of 20 percent on a relatively low risk basis and very and not very volatile returns.
And as a result of that, people continue to put money into it. And we still believe that institutional allocations will go to 30%. They continue to increase. Some institutional clients are past 50% today, but we think on average they'll go 25% to 30%. And that's an enormous amount of money looking out.
The one question we often get is what happens when interest rates go up, because not only will values of assets possibly deteriorate, but also, there will be institutional clients who don't want to invest in real assets anymore. And I guess we'd say 4 things. Number 1, that interest rates will only rise if the economy is getting better. Global growth is slow and therefore our view is that it looks like we're going to continue in a relatively low interest rate environment. When I say that, we in our mindset, we think of a relatively low interest rate environment, which is probably 5 it a U.
S. Treasury. And real assets in that environment continue to retain all the characteristics that I mentioned on the last slide and in fact may even become more valuable, because what it means is that people will have will it's just longer into the duration of them expecting rates to go up. And if they every year, we continue to see more people coming to real assets because they've, I'll call it, capitulated to some degree that we're in a low for long interest rate environment. And it should what it should leave for us is larger well positioned to deploy the capital, well positioned to deploy the capital given our global reach, our operating capabilities, our market knowledge, the capital we have, the track records that we have and the execution capabilities within the franchise.
And we remain continue to remain focused on our value investment thesis because we think that's paramount. I guess, I'd say 5 things other than the punch line on the bottom there, which is nothing ever gets done without execution and it's incredibly important for us to continue executing within every business that we have. But we're focused always on acquiring great assets, paying a little more for them than others might pay, but owning the best in the world, investing that we may own those assets forever, But a minimum, it changed the mindset of what you do. Even if you don't own them forever, it makes you buy great things. 3rd, buying a replacement cost we've always found is one of the great ways to not make mistakes in the real asset business.
Making sure that we finance them properly is paramount. And generally what that means is that the greatest time to buy them is when capital is scarce. And it indicates to you that both the usually the currency is down in a country and when FDI isn't happening and the flows of capital are down and usually offers some incredible opportunities. And I'd end off with just a few comments and our major priorities are really fourfold, not these are the only things going on in our business, but are mainly fourfold. We have $20,000,000,000 of private funds in the market.
We need to complete all those funds to continue to grow the business and have the capital to deploy. We need to get that done. We need to support the list of partnerships we have, BPY, BREP and BIP and ensure that they are successful. And if they are successful, that we will be successful. And that means that the underlying fundamentals of the business are good and growing and that the stock prices eventually are reflected in the values of the business.
We need to launch Brookfield Property Partners, which Cyrus will talk to you about in a little bit and continue to harvest mature investments across strategies. There is a number of things that we're doing in our funds to expand the business and I'm not going to talk about these because some of them are going to be covered as we go on. And I guess I would say the probably the one thing that is often underlooked at in great businesses and it's something you can't really describe what can happen. And what we believe is that in our business, keeping access to enormous amounts of liquidity from both on our balance sheets, in our private funds and in our listed entities is a very valuable thing, not because I can describe to you what will happen with that excess capital. And in the short term, it probably costs the shareholders something to hold.
In fact, I know it costs the shareholders something to hold. But what's very important to us is that, that capital allows us to capitalize on those unknown transactions, which sometimes come available and if you're ready to capitalize them on it, it's very important for the franchise. So we continue to prepare ourselves and ensure that we're in a position to be able to do that. Bringing it all together, I would say, 5 things, just to end on my section is that 1, we should be able to compound our invested capital on our balance sheet at 12% to 15%. That's an amalgam of what's in the businesses plus some of the other capital that we have up at our parent level.
Number 2, our asset management business cash flows are increasing towards $3,500,000,000 of annualized cash flows as you look out. And we continue on that track and Brian will put some numbers to that later. In 10 years from now, Brian always does 5 year calculations. I as you as some of you know, I like to do 10 because nobody can really track it back. And if you just do the math and Brian will show you some of this later, but it should be $150 stock in 2025.
Who knows whether it will be, but as we do our mathematical models on what how we can build the company, that's the way we think about it. The biggest risks in that are 3 pools. Number 1, interest rates go up a lot. That's not going to be fun. It won't kill us, but it's not going to be fun.
Number 2, real asset allocations by institutional clients, if they reverse and go the other way, it's not going to be helpful to the franchise. And number 3, and maybe most importantly, if we mess up the execution of our business plans, that's a problem. And I'd say those are the 3 biggest risks we have. The biggest upside is what I just talked to you about. As we keep building the franchise, people bring us things.
And as our name and brand get known better, people bring us things. And that's a very valuable thing for the company. So that was my 28 minutes. I have 2 minutes left to take 1 or 2 questions. And then I think I have to turn it over to Craig or we're going to be behind schedule.
Andrew Kuske, Credit Suisse. Bruce, is one of the limiting factors in your model really just the amount of capital that Brookfield can put in as the funds get bigger and bigger on the private side? Because one of your calling cards is truly investing a lot of your own Brookfield money alongside your clients. But let's just get to the hypothetical where you've got 3 fundraisings each $10,000,000,000 plus. It's a good spot to be, but do you start to then change your model and maybe not have as much of Brookfield Capital in those funds?
Yes, it's a good question. We're not there yet. It's I think we can probably be 20% to 25 percent of the funds, any fund we have and be a legitimate owner of the business and beside every one of our clients, especially because the quantums get so big. And everyone understands 50% of $1,000,000,000 is 500,000,000 dollars and 30% of $10,000,000,000 is $3,000,000,000 They understand $3,000,000,000 is a lot of money. What's really important is $3,000,000,000 is larger than any client commits to any one fund.
And I think being much larger in our major flagship strategies than any one client, we've never had anyone commit more than I'm looking at Leo, dollars 600,000,000 to a flagship fund of ours as an one individual client to one fund. So I think as long as we're much larger than that, people treat us as legitimate. I think the limiting factor isn't going to be that. It's how prudent can we invest that amount of money in a period of time, because remember these are invested in 2, 3 years. And I think the franchise, the way we've built it, we'll be able to handle all of that and it won't be a limiting
factor, but we'll have to see.
Great. Thanks, Bruce. I'm going to go over 4 main topics today. First, give you a high level introduction into our public markets group, describe our investment strategies and how we fit into Brookfield, talk about our client base and our growth, both our historical growth and the outlook going forward. We are a leading investor in real asset securities globally.
We have $19,000,000,000 of assets under management. We invest in liquid securities, so stocks and bonds of real asset companies. We have both long only as well as hedge fund strategies, hedge funds having the opportunity for performance fees as well as the base fee. We've experienced strong growth over the last few years, primarily within our flagship investment strategies of real estate and infrastructure. We have about 130 employees globally located here in New York, Chicago and Toronto primarily.
And we have a long term client base. It's historically been primarily institutional clients, but increasingly includes retail and retail platforms over the last several years. We've organized ourselves for future growth. So we've established the staff, the people, the technology, the infrastructure in order to run the business today, but to be scalable for the future. Given that the Public Markets Group may be newer to some people, I'll spend a minute just how we fit into the broader Brookfield.
An obvious focus is real assets, which is important. By offering real assets, but within a public securities liquid wrapper, we're broadening the overall product offering to our institutional clients. What we found is increasingly institutional clients are considering liquid real assets as a complement to their portfolio in order to get still access to the underlying cash flows and attributes of infrastructure in real estate and other real assets, but to do it in a liquid manner. This has led to a collaborative approach in terms of marketing, sales and servicing our clients. And lastly, there's benefits from employee development.
We've had lots of examples of people moving across platforms and that's helpful to us on a day to day basis in running our business and also a very helpful development tool over the long term. Loyal long term clients are one of the key reasons for our success. We work with over 100 clients globally. It includes sovereign wealth funds, public and private pension plans, foundations and endowments, financial retail platforms where we're selling on a financial institutional platform and also high net worth investors. Geographically, you can see about 70% of our AUM comes from the U.
S, which is not surprising given that's where we've spent most of our focus over the last several years. But increasingly, we're looking to grow our assets in international markets in Europe and Asia in particular. One of the strengths of our business is not only the diversity of a client base, but also the diversity of our investment funds or the investment vehicles that clients can access. We have 27 funds today that includes U. S.
Mutual funds here in the U. S, UCITS funds in Europe for more international and European investors, commingled pool vehicles, closed end funds and also hedge funds. We also have many institutional accounts. In fact, you can see 35% of our assets come in from institutional accounts, separate accounts rather. And lastly is a breakdown of our assets across our main investment strategies.
You can see our flagship strategies of real estate and infrastructure securities together represent about 2 thirds of our business. Real asset debt is about a quarter. And then the final segment, more multi product, multi asset income strategies is the smallest piece, but I do expect that to be higher growth going forward. One of the reasons we have solid client relationships is our strong investment performance over the long term. We have several portfolio management teams, teams of analysts and traders who are focused on this every day.
You can see the results here of our flagship products, which represents the vast majority of our assets. The track records go back 14 years for our initial U. S. REIT strategy and roughly 7 years for the others. There's a few different ways to think about performance.
One would be on a nominal or absolute basis. That's the middle column, which generally mid to high teen returns annualized since we launched these products, which is pretty good. The second way to think about performance is on a relative basis. Are we outperforming our relative benchmarks? Generally, if we can outperform the appropriate benchmark by 2% or 3 percentage points a year, then our clients are very, very happy.
As many of you may know, that's difficult to do over the long term. The far right column shows that relative performance where we've exceeded those targets over the long term. We really have a dual focus in our business of growing our existing products and focusing on those investment returns, but also secondly, developing newer real asset strategies that we have conviction in over the long term and which can drive profitability. Here are 5 of our newer investment strategies, 2 of which diversified real assets and real asset debt we've launched over the last 6 months and we're proactively marketing to clients. The other 3 are up and running also with dedicated investment teams but are earlier in their development and while we have ability to get capital, receive capital from early adopters, we're not yet aggressively marketing.
I'll come back to one of these to profile in a little bit, the diversified real assets. I'll spend the next few minutes talking about growth. Historically, looking forward and also mix as not every dollar of AUM is created equally. So we'll start with a snapshot of our growth over the last three and a half years. You can see pretty steady consistent growth over that period.
Most of it's come from our flagship real estate and infrastructure strategies. It's been both institutional clients, existing clients as well as new clients and also positive investment returns have helped. Net net, we've been growing just under $1,000,000,000 a quarter. Come from both institutional and retail clients and while institutions have been the earlier adopters of real assets, we raised over this time period about $4,000,000,000 from retail channels. Now when we talk about AUM and growth, we need to talk about mix and profitability.
We're very aware that different products and channels and geographies have different fee structures and bottom line profitability. So over the last 3 years, we've been very focused on growth, but profitable growth and higher margin products. This in some cases mean actually turning down business that doesn't meet our targets or exiting areas that don't fit our mission. So our higher margin business includes our hedge funds, our closed end funds and some of our proprietary vehicles. So while we've grown our assets over this time period from $7,000,000,000 to $19,000,000,000 over $4,000,000,000 of that growth has come from what we deem to be higher margin products.
The implication here is that we've dramatically grown our average base fee. In fact, our average base fee has grown by 55% over this time period. That's a direct result of focusing on higher margin and profitable growth. Importantly, this includes roughly $2,000,000,000 of hedge funds, which have a higher base fee, but also the potential for performance fees based on performance. Going forward, our growth will come from 2 sources.
One is our existing flagship investment products and secondly, the newer real asset strategies that I described. From a macro perspective, we continue to be very optimistic about capital flows into the asset class. We think that investors will continue to look for and seek income with growth potential and clients that we talk to and consultants continuously are focusing on the lower correlation, lower volatility and inflation hedge of the real asset asset class. We get a lot of questions about interest rates specifically, which Bruce touched upon. Interest rates are flat to declining in most parts of the world.
Here in the U. S, as fundamentals improve, no doubt interest rates will go up at some point, which I think will continue to be very supportive of real assets. It may add to the shorter term volatility and we certainly experienced some of that over the last couple of months. And lastly, we believe that we're in the early stages of this shift towards real assets and we're continuously hearing this from our clients and pension plans that we're talking to of looking for ways to get access to those real asset cash flows. Earlier, you heard about 5 of our newer strategies.
This is a profile of 1, diversified real assets. We launched this late last year in a U. S. Fund and European fund structure. It really evolved from client demand, where clients initially were asking us to manage one sleeve of real estate allocation, then an infrastructure allocation, then also real asset debt.
And eventually they were asking us to take over the asset allocation decision and to manage it as one commingled product. But consists of a strategic allocation to the 4 main real asset categories, real estate equities, infrastructure equities, real asset debt and natural resources, all in the public securities market. And we have the ability to tactically increase or decrease those allocations depending on valuations, relative attractiveness where we are in the business cycle. Still very early days for this product. Generally, it takes several years to get a new product up and off the ground.
And we've been very encouraged and excited about the type of reception we've got first from the existing clients and also some of the institutions that we're talking with. Given that we have a focused business model, it's important for us to concentrate on our top priorities. 1st and foremost is always strong investment returns over the long term. 2nd, we will continue to be thoughtful and develop new real asset investment strategies. And this growth will continue to come from North America, but an increasing focus on Asia and Europe in terms of growing our assets.
Our operating platform, the staffing, the systems, the technology is all in place to support that growth. So it's very scalable with a lot of operating leverage. And this is all underpinned by our specialization in real assets, where again, we think we're in the early days of the shift and the increased allocation of real assets. So with that, I think we've got some time. I'd be happy to invite some questions.
Adel, Cancil, BMO Capital Markets. I'm wanting to ask, how do you see the growth in fee bearing capital over the next couple of years in public markets? I mean, you've been successful in increasing it over time. And what kind of blended fee rate would you see this business running at moving forward? In
terms of assets growth, as I said before, we've been growing a little bit less than $1,000,000,000 a quarter. It will be lumpy, no doubt. The volatility that we've seen always impacts investor sentiment, but we've got a robust pipeline for existing flagship strategies as well as some of the newer investment strategies. It's difficult to predict exactly what that looks like quarter to quarter or year to year, but we're really optimistic that we can continue to grow the business over the long term. In terms of the type of fees that we have, we've really got a combined approach where some of our long only strategies, it's just a base fee, whether that's in a mutual fund or a separate account for an institution.
Those are our market fees, which depending on the exact mandate and how specialized it is, our fees, I would say, are high in terms of what you might look at in terms of some broad averages. So we're certainly not looking to be the cheapest. We're very, very specialized. It's going to be less than 1%, but a very healthy base fee. And then our more opportunistic strategies, which fall into a hedge fund structure, have an even higher base fee plus the opportunity for performance fees.
How much crossover is there between investors that are invested in your securities funds and the investors that are looking in the direct real assets? And then can you compare maybe how your fees stack up versus the fees that would be for direct investment in the real assets?
Sure. In terms of the crossover, I don't have the exact number. I'm not sure if Leo does. There is significant crossover and we have done this analysis in the past. We can maybe follow-up on that question to get you a more specific answer.
And the second part was on the fees and how Yes, it's a different investment strategy or a different investment structure. So the fees are, as I described on the long only side, something less than 1% and then on the hedge fund side, a higher base fee plus performance fee. The more opportunistic hedge funds, I would expect, would compare to be more similar to what the private funds are. Different structure though in terms of the calculation and when they're paid, but directionally.
Hi, it's Cherilyn Radbourne from TD Securities. I wonder if you could just address the resiliency of your AUM kind of over the last 6 months in the context of the volatility we've seen in the public markets?
Sure. Yes. We've seen some volatility certainly. I think we've got great clients and most of our clients are drawn to us because of our longer term investment approach. We're not traders, but we're thinking out looking for long term value, and at least thinking a 2 or 3 year investment horizon in the liquid investments that we're making.
So what we've seen with our institutional clients is that they've been very resilient. We're spending a lot of time talking to them about our observations in the market and the opportunities that we're seeing. Anecdotally, I'd say our clients have been more inclined to be adding exposure into increasing the assets as opposed to taking assets off the table. I'll maybe contrast that to some of the more retail platforms where that tends to be a little bit more subject to what's happening in the current capital markets. Maybe one more question.
Hi. Just wondering about the capacity, particularly on the hedge fund side, as you're seeking to push growth in the higher margin products, the tension between that and then the capacity and the potential detriment to returns? And is there any reluctance from existing LPs pushing back against this continued growth in AUM?
Anytime somebody has a more specialized investment approach as we do, capacity is part of the discussion. And broadly speaking within the business, we do have capacity to be growing significantly over the next several years. However, there are pockets of the business, our real estate hedge fund, for example, in the past we have closed for that exact reason. We have a history of closing strategies when we feel we're reaching those capacity constraints, and we in order to grow, but still staying within the real assets concentration. Great.
With that, I'll hand it over to Leo.
Thanks, Craig.
Good afternoon, everyone. It's my pleasure to give you an update on our private funds business. I'm going to keep it fairly high level because I'm restricted in some cases to talk about our funds in the market, but I'll at the end try and answer some questions. We've experienced some significant growth in the last few years and I thought I'd highlight today what are the key drivers that I believe will continue our growth. Firstly, I believe we have a compelling range of products.
The cornerstone of our offerings are our 3 flagship funds investing in property, infrastructure and private equity. Secondly, we have a rapidly diversifying and expanding investor base. And as we talked about with Craig and Bruce, we are in an asset class where we're seeing significant demand from investors with increased allocations to real assets. We are targeting significant growth in our private funds business and have already laid the foundation to achieve our growth targets. Supporting our AUM growth are the funds we currently have in the market and additional funds we expect to launch.
Again, while I'm restricted to go into any particular detail on our funds, I can say that we have 5 funds in the market today targeting $23,000,000,000 of which we've raised $8,000,000,000 in the last 12 months and expect to raise another $4,000,000,000 in the next quarter or so. And in the next 12 months to 16 months, we expect to raise an additional $10,000,000,000 to $12,000,000,000 As well over the next 12 months we expect to launch an additional 3 funds targeting another $5,000,000,000 in aggregate. Our flagship funds are growing in size and scale and are considered leaders in their respective space. While for us it's not about just being the biggest, the fact is our size, our scale and the flexibility of our funds do give us a competitive advantage to be able to deploy capital on a global basis and invest in the most attractive opportunities. To put some of the size in context of our funds, our last infrastructure fund was one of the largest ever raised and we expect the successor fund to be even larger than the last and again one of the largest in the industry.
As an asset manager, we rank 2nd globally in terms of size. Much of the same can be said about our real estate business. Our last or our current infrastructure, our real estate fund I should say is what is going to be one of the largest in the industry and we again consistently rank in the top three real estate managers globally based on
size.
As Bruce mentioned, underpinning the growth of our flagship funds and our ability to raise capital is our consistency in returns and our ability to hit our performance targets. From time to time, a number of you have asked us what is it about our flagship funds that investors like. So I thought I would highlight a couple of things that I think resonate with investors. In the world of real asset investing, we distinguish ourselves by investing in high quality, best in class assets. We are particular about the assets we invest in and look for investments or assets that are critical, irreplaceable, long life with high barriers to entry and that produce predictable and growing cash flows.
This is also what investors are seeking, which puts us in strong alignment with them and makes us an ideal partner for them. I believe what is unique to Brookfield as an asset manager is that we are experts in the operations of the assets we buy. Due to our heritage, we think and act like an owner operator. We have teams that go in and operate the assets and we understand how to add value, where to grow cash flows. Importantly, we have also demonstrated that we are able to consistently deploy capital in great opportunities, while many others have struggled to put money to work.
This is evidenced by our flagship funds, which are returning to market in some cases 2 years sooner, allowing us to not only raise additional capital, but to raise larger sums of capital for these flagship funds. Finally, as I've mentioned and we've mentioned previously, we are consistently meeting our performance targets and our investors are very happy. As well in the last 12 months, we've added specialized funds that leverage our core competencies and invest in areas where we see opportunities and market demand and where we have conviction. We raised approximately $1,000,000,000 in the last 12 months on several specialized funds and in the next 12 months we expect to launch additional specialized products with an aggregate of $2,000,000,000 in aggregate capital. The part I'd like to talk about now, growing our investor base.
I can definitely say that today we are in more markets connecting with more investors. In fact, globally, we are contacting and speaking with over 2,000 investors, which is a hard number to believe, but given the size and scale of our team, we are able to do this. In the last few years, we've been developing new geographies and diversifying into various investor segments like corporate pension plans, smaller public plans, and high net worth channels. At the same time to support our growth, we continue to build out our customer support so that we can provide excellent customer service to our investors. Our investor base continues to grow and we now have over 320 investors in large critical mass.
In the last 12 months, we've added 40 new investors and in the next 12 months we expect to add at least 160 new investors. Interestingly, 40% of our investors have invested in either multiple successor funds or have invested with us across different platforms. As well, 81% of our investor commitments in the past 12 months have come from existing investors, showing that our investors continue to support us. In other words, we have sticky money. Not to be complacent, we continually push and look to diversify our investor base.
And today, I would say it's nicely diversified not only by type, but across geography. We never want to be dependent on 1 investor segment or 1 geography. Our investor base in North America continues to be solid and is performing well, but we're also seeing growth in other markets like Europe, Asia and the Middle East. In the last 12 months, we've had a 13% year on year growth and now in fact as an example in Asia we cover 110 institutional investors across 3 countries. We're also looking to push into new channels, like I mentioned, and are targeting high net worth investors, family offices and we're doing that both through our internal sales team but also partnering with private banking channels.
High net worth investors today represent roughly 5% of our asset base, but we expect that to double over the next 5 to 10 years. As well, we are targeting wealth managers who control large pools of capital and today they roughly allocate about 4% to alternatives. We expect that to double if not triple over the next 5 to 10 years as well. I wanted to also briefly touch on the consultant market. This has been a market that we've had a concerted effort in over the last few years, which is really paying off.
We are now consistently approved and are given by rating by many of the industry's leading consultants. As an example, in our last real estate fund raise, over 20 consultants endorsed our fund which led to over $1,500,000,000 of capital coming from 34 different investors. What's also important to point out about the consultant market is that they provide us access to a market that would otherwise be fairly inefficient to access, which is smaller corporate pension plans, DC plans. Through these consultants, we are deepening continue to we believe that investor allocations to real assets will continue to increase as investors seek portfolio diversification, stable predictable returns. Of the institutional investors that have invested in real assets in the last 3 years, 60% plan to increase their allocations over the next 18 months.
This chart also demonstrates the continued demand for the long term trend for investor allocations to real assets with 44% of infrastructure investors and 34% of real estate investors planning to increase their allocation. What's unique about Brookfield in the real asset space is that we are a dominant player both in real estate and in infrastructure. As the demand increases for real assets, we are taking advantage of our market position and able to accept that capital given the size and scale of our flagship funds. I wanted to conclude my presentation on the point that you can have confidence that our brand is only getting stronger in the real asset space which will enhance our fundraising efforts. Because of our reputation as a market leader, we are increasingly sought out by investors looking to deploy capital.
That concludes my presentation. Any questions?
Hi, it will cancel BMO Capital Markets. You mentioned earlier that you'd expect to raise $10,000,000,000 to $12,000,000,000 over the next 12 months. My question is what percentage of that would represent 3rd party capital? And historically you've been successful about you've been successful in raising similar amount of money on a year to year basis. Do you expect that to sustain over the next few years?
Sure. Well, 2 parts to that question. The first is roughly 20 percent will come from Brookfield, the balance from 3rd party. And the extent to which we believe that will continue really is driven by our flagship strategies. They are in themselves able to grow in size and therefore we're able to raise we think that capital because of our ability to raise capital, our brand and our continued strong performance.
So we're pretty excited about the next few years and at least growing our assets per year by at least 20%.
Andrew Kuske, Credit Suisse. Could you give us some insight into your Middle East client base? Sure. And in particular, ask the question, there's an interesting dynamic where there's a desire to diversify away from their existing economy, but you've also got a pullback in commodity prices, which creates a clear tension and less wealth than they had before. And then the other issue that they face is you have the Saudi government doing a bond offering but now there's domestic opportunities to invest capital
into? Well, we've been making efforts in the Middle East probably at least 6 or 7 years. So today we have a very strong position. These are not new investors to Brookfield. These are investors that we've had now 5, 6, 7 years and we probably of the major investors in that region, we are we have relationships with at least 80%, 85% of those.
So in hard times, they tend to stay with their proven managers. So we benefit from that. I'd also say in times of increased market volatility, they do look for sort of safe harbors and we're certainly seeing that today where they're looking for stable, you know, real assets, real buildings with real tenants generating real cash flow, owning essential assets that will endure difficult times that will continue to generate assets. So our flagship funds are truly a benefactor. I think certainly in this year, next year given the market volatility, we think we'll be recipients of that capital even in places like the Middle East where they are in some cases slowing down.
One last question.
Can you give us
a view on trends with fees given that real assets are becoming more and more accepted with institutional investors? Is there a push to reduce fees over the past few years or is are fee levels pretty stable?
The quick answer is our fee levels are very stable. We've been able to resist that. I would say that again it's because of our track record and that in fact investors are increasing their allocation. So we have not felt at all any kind of fee compression and we don't expect that at least in the next several vintages of funds we plan to launch. And I'd also add, we've been pushing into smaller investor segments where typically they pay higher fees as well.
So you'll see our fees if not grow. Thank you.
So good afternoon. I wanted to cover 2 things off today. 1, I wanted to update you on our private equity activities generally over the last year. And then I want to talk to you about Brookfield Business Partners, which for those of you who didn't see it, we announced this morning. So just an overall reminder of our private equity group and our strategy.
1st and foremost, we are a value investor. You're probably getting sick of hearing that word today as I sit here listening to it. We look for situations where we can add value in often out of favor sectors, underperforming businesses or distressed situations. 2nd, we look for high quality businesses and to us that means companies that have low cost positions or very strong market positions. And third, we are heavily involved in the operations of our portfolio companies.
And in fact, we have an operations team that gets deeply involved in turnaround situations we invest in and typically that's when a company needs a change in strategy or better execution of their strategy. Our Private Equity Group is located alongside other Brookfield platforms around the world, North America, Brazil, UK, Australia and India. And our primary source of capital for new investments is private funds where as you've heard from Leo, we continue to have great success in sourcing capital. And I'm not going to spend much time on this because you just had an entire presentation on it. But I think all I wanted to say is we are finding an increasing number of LPs interested in our private equity strategy of value investing, particularly because of a high level of frothiness that existed in the markets until pretty recently.
But they also recognize that our distressed capabilities has been very successful in deploying capital during periods of dislocation. And our business strategy and our track record over a long period of time now has enabled us to pretty dramatically increase the size of each successive fund and we're hoping that will continue into the future. Our Private Equity Group manages a growing portfolio of businesses across services, industrials and residential development. And this page lists our primary business lines within these core sectors and each of them continues to grow. Those businesses today have very significant scale with more than $16,000,000,000 of assets under management, more than $9,000,000,000 of total combined revenue and $500,000,000 of FFO for Brookfield.
And many of these businesses are global. Over the last year, we've invested more than $2,000,000,000 in a variety of transaction types with different investment characteristics. Commodity related businesses are very much out of favor creating great opportunities in what we believe is an overlooked market. So we took advantage of this backdrop to complete a privatization and a corporate carve out. We recapitalized 2 companies that lost confidence of the capital markets and we had the conviction to do this because we knew we could source great management teams to run them.
And we had the opportunity to buy the other half of a business, a great business we already had a stake in completing a corporate carve out and providing valuable certainty to the seller. And we continue to build our platform companies where we could on a value basis. So pretty wide variety of transaction types. I did want to touch on one relatively new driver of transaction flow for us and that is the growth in activist investors and capital available to them. And about 15% of hedge fund flows today are moving to activist strategies.
Pardon me, and activists today have a record amount of capital at their disposal. A large part of their playbook is to agitate for companies to sell their non core assets, non core divisions or to focus on certain geographies. And this is becoming a great transaction catalyst for private equity in general. Over the last year, we acquired 3 businesses and 2 of them were the result of shareholder pressure that enabled us to act as a solution provider to management and boards and we're seeing a lot more of this. We acquired Apache Corporation's Western Australian Oil and Gas Assets.
We privatized GrafTech Corporation and we acquired 50% of Johnson Controls Facility Management Business in Canada and Australia. I'd like to give you a little more detail on each of these investments. The first one is Brookfield Global Integrated Solutions or BGIS. This is an integrated facilities management company with operations in Canada and Australia. It manages 250,000,000 square feet of facilities for its clients and more than $3,000,000,000 of spend on behalf of its clients.
The business has 4,000 employees operating more than 10,000 client sites. We like this business a lot. It has very high customer retention rates, strong historical growth. It requires very minimal capital. It is by far the leader in its geographies.
It has a terrific management team and strong free cash flow generation. So this was a proprietary transaction as a result of our joint venture with Johnson Controls and they sold us the business so they could simplify the sales process for the rest of their global business. We bought this business for $500,000,000 or about 8.5 times EBITDA. EBITDA today is about $60,000,000 And within the existing business, we plan to increase EBITDA over the next 3 to 5 years by $20,000,000 to achieve our targeted returns. We're going to do this by winning new business.
There is a continued trend to outsource, so we think we'll win new business. We can drive additional services through our existing client relationships and we can in source select services where we think we have a competitive advantage. Now our target returns for our investments in our private equity group are generally 20%. That return in this case does not include any expansion into other geographies like the U. S.
And we are pursuing that very aggressively or any Brookfield directed work through the 300,000,000 square feet of real estate we own. The next company I'd like to speak about is a company called Quadrant Energy. We acquired the Australian oil and gas business of Apache Corporation for an enterprise value of $2,100,000,000 and we did this in a joint venture with Macquarie. The business has 4 substantial operating offshore gas fields, 3 operating offshore oil fields and very significant associated infrastructure. It also has one of the largest exploration portfolios in Australia with more than 40,000 square kilometers of exploration area.
Quadrant is the largest supplier of gas into Western Australia with about 40% market share. It has approximately 250,000,000 barrel of oil equivalent 2P reserves, 80% of that is weighted toward gas and it's currently producing about 55,000 BOE per day. The reserves of this company are very low cost and very long life. We've got a 15 to 20 year reserve life. We have a very experienced management team and the business generates substantial cash flow.
This was an opportunistic acquisition from a very motivated seller in a very challenging environment. Now what made this transaction particularly interesting is that Alcoa needed to secure virtually all of Quadrant's natural gas output to run their aluminum business. So as part of the transaction, we were able to sell virtually all of our gas to them on a take or pay basis for 12 years at a fixed price inflating over time. And they were willing to pre fund $500,000,000 of this purchase. So that had an enormous impact on our returns.
We also hedged thankfully almost all of our oil output when we closed the transaction. So virtually none of our existing reserves are subject to any commodity price movements. We recently privatized a company, U. S.-based company called GrafTech Corporation. GrafTech had been locked in a proxy battle for the last 2 years and this created the opportunity for us to acquire it.
The company is struggling from operational underperformance and oversupply in the graphite electrode industry. Over the past decade, GrafTech lost focus on its core electrode business. They started investing a lot of money into new technologies. They dramatically overpaid for a strategic acquisition and they overbuilt their inventory across their platform. In addition to that, due to overcapacity in the industry, electrode pricing is at the lowest level since the last period of oversupply in 2,002.
And as a result, their stock price declined very dramatically over the last couple of years and started looking interesting to us. And we like this business because it is the global market leader, it is the low cost producer and it has a global production footprint. Graphite electrodes are a critical consumable in electric arc furnace steel production. Yet they only represent 2% of the production costs, but their performance has a very significant impact on operating performance of a furnace. So the incentive for steelmakers to switch core electrode suppliers is very limited.
We acquired this company for $1,250,000,000 and that's about half of its replacement cost. The current EBITDA is only $100,000,000 but trend EBITDA of a long period of time is $250,000,000 to $300,000,000 We have a business plan to refocus the company on its core operations and our operations team has identified operating cost savings which should increase earnings by $80,000,000 annually irrespective of what happens to pricing in the market. The electrode industry has become oversupplied multiple times over the past 30 years and in each of those prior downturns, the industry has rationalized, which has resulted in more normalized pricing and profitability and long term very strong long term trend EBITDA. I have one last investment to tell you about. It's smaller than the others, but it's interesting.
Once in a while, we find an opportunity to make a loan on a very compelling basis and we recently provided U. S. Steel's Canadian subsidiary with $150,000,000 loan.
Some of you
may know the steel industry is struggling with a lot of overcapacity and U. S. Steel put its subsidiary into bankruptcy, so it could reorganize itself under bankruptcy protection. Now our loan is a DIP loan, which is a debtor in possession loan and it is provided to fund its operations while it reorganizes its fares. We wrote this loan on the basis that we would get repaid in the worst even in the worst case where the company's working capital is liquidated.
And our loan is acknowledged by the court to be senior to virtually all other obligations of the company. We expect to earn about 25% on this loan over a year. So we thought a pretty neat risk return trade off. So I'm going to keep it brief because I do want to talk about Brookfield Business Partners. We are really excited about this.
And at the end of this, I'm happy to take questions in addition to the private equity funds we raise and it's going to be called Brookfield Business Partners or BBP. BBP's objective will be to generate strong long term capital appreciation and we will target returns of at least 15% on our capital invested. And BBP will be the primary vehicle through which Brookfield will operate its private equity business. BBP will use the same structure as our other public vehicles BIP, BREP and BPY and it will be a Bermuda listed limited partnership with Brookfield as the GP. BBP will acquire businesses alongside Brookfield's institutional partners, which are often LPs in our private funds and it will have control over the businesses it acquires.
We think it's the right time to launch BBP given the growth in our private equity business and there are several benefits for our business. BBP should enable us to broaden the spectrum of investments we can make as pure private equity investing limits us to investments we need to sell within a fund's life. And owning a great business perpetuity gives us the opportunity to compound returns over many, many years. BBP will also give us access to the public markets and having permanent capital in difficult times will be very valuable to our private equity franchise. For Brookfield, it provides a potential source of liquidity, provides transparency for its shareholders to our private equity business and it furthers our asset management strategy.
And shareholders will have the opportunity to participate in our private equity business directly. We will shortly issue a prospectus outlining the spin off to Brookfield shareholders. And in summary, BAM will spin off BBP in the same way it did for BIP and BPY. BAM shareholders will receive a dividend of about $500,000,000 or $0.50 per BAM share in the form of BBP units. This will leave BAM with about 65 percent of BBP at the outset.
BAM will earn fees of 1.25% on BBPs market cap annually plus 20% of the increase in value of BBP units. Our peer group is going to be investment holding companies and other permanent capital companies. There are a number of them that have very strong reputations in capital allocation and as a result they've been able to raise substantial capital over many years. Some of them are externally managed like BVP will be. BVP will adopt the business strategy of our Private Equity Group and that is to make opportunistic acquisitions focusing on control situations primarily in the mid market, but from time to time we'll also pursue large scale transactions.
We'll operate our companies with a view to maximizing cash flow and value over the long term and we'll recycle capital when it makes sense. But unlike our private equity business, BBP can be a permanent home to companies and in particular for management teams that don't want to be public on a standalone basis. And we think this should lead to enhanced opportunities for our business. BBP's initial sector focus will be Business Services and Industrials. And BBP will own most of BAM's businesses in these sectors.
The single largest operation within BBP will be our global construction business operating under the brand Brookfield Multiplex And BBP will have an opening net asset value of about $2,000,000,000 and generate and it generated the companies were putting in generated FFO of about $200,000,000 last year. And we have a very strong pipeline of opportunities for BBP. So with that, I am happy to take any questions.
Is it reasonable to assume that the kinds of businesses you would want to own permanently, which would be something you can't do today and you will be able to do in the DBP structure, might graduate up the quality scale from kind of businesses that needed high levels of work and more turnaround situations?
Yes, I think it's safe to say that private equity is very competitive and we've made a lot of money by putting a lot of attention, giving a lot of attention to our company. So, I think you're spot on and I think we may focus on companies that have more durable cash flows over a longer period of time. Now they're going to be more expensive than a company that needs fixing. So I think we'll always do both, a little bit of both, but for sure we have the opportunity to buy a different type of asset compared to what we would within our private equity vehicles today.
Adel Kansl, BMO Capital Markets. Just a question on BBP. You say about €200,000,000 FFO. My question is, which business segment would you say represent the biggest percentage of that FFO?
So today it will be our services business. It's actually split pretty well fifty-fifty between the 2. We are going to issue a prospectus shortly and I think you'll get a pretty good idea when you go through the materials. It's all outlined in a fair bit of detail. I should mention one thing.
Craig Lohrey is going to be our CFO. Craig, you are here somewhere I think. There he is. You can ask him the real tough questions after this. No more questions.
One more.
Hi, it's Cherilyn Radbourne from TD Securities. Just in the context of some
of the turmoil that we're seeing in commodity markets, I'm curious whether you have any limits to your total exposure to commodities in general within your private equity business and to specific commodities? We don't have any limits within our documents, if that's what you mean. Our limited partners limit us typically the funds are limited to 20% of a fund per investment. Beyond that, we don't have any concentration limits. And as I said, our investors recognize that we are going to gravitate toward areas that are in trouble or struggling and need capital.
So I think they're quite comfortable with that.
You mentioned that the companies that don't want to be standalone public entities, that would be a good vehicle for this BBP. What will be the difference? Will we get disclosure at that level? Is the only difference the G and A expense related with being a public company? And then second, could we see infrastructure or real estate assets trade into the private equity portfolio?
And can we see assets that are held in the private equity BVP be sold to other Brookfield platforms?
So,
we're not going to buy real estate or infrastructure. And we're not going to be selling private equity assets to our infrastructure platforms or real estate platforms. There's sort of no motivation or reason to do that. I didn't quite understand your first question. I apologize.
Yes. No, I was just interested. You had said that the benefit of BBP with some companies that might not want to be for whatever reason might not want to be a public entity. So I'm wondering what's the difference because you're going to be a public company.
Right. So you're going to disclose everything anyway? I met in the last little while 2 CEOs. 1 of them has private equity investors and it's time to sell and they are giving him a real hard time and he doesn't want to go through it again and he doesn't want to be public. So we had a discussion with him.
Another one is a public company CEO. He just went through a real tough time with some activist investors over a 2 year period and the Board is tired of it and the management team is tired of it. So for a company that just wants to make money and operate and run their business and not have to deal with shareholders thinking about short term their own short term returns, this could be a great platform for them.
Alfredo Sharab, SVN Securities. In this new vehicle, do you plan to pay a distribution? Does the business model lend itself now or in the future to distribution? If not, why?
Look, I
think at this stage, what we'll probably do and we haven't completely landed on it, we'll probably do is pay a very modest dividend. And a lot of the business is we have our more private equity like. And as I said, we're going to focus more on capital appreciation. I think we're short on time. I'm getting the hook here.
We're happy to answer questions afterwards. So Brian, I'm going to turn it over to Brian.
Thanks. Good afternoon. So for those of you who were at the Brookfield Properties presentation earlier, I am the 3rd Brian. I'm also the last scheduled presenter before Bruce comes up to close things out and we head down for a reception. So recognizing that's a somewhat precarious position to be in, there were 3 things I wanted to cover.
One of which was just update you on the financial results and how things have gone since the last time we were here last year and we're quite pleased, very pleased with how that's played out. Also to talk about the growth profile that we see going forward and Bruce and Leo and Craig and others have focused on a number of areas here and there are a few other characteristics that I think are conducive to us achieving accelerated growth, continuing to expand the business at quite a good clip. And then just to share some thoughts with you on how we see potential future share values. So first of all, we did significantly expand the business over the past year and focusing on one of the key metrics for us, which is the fee bearing capital. As Bruce mentioned, we're now up at around $100,000,000,000 And what's particularly rewarding in that regard is you'll see we had good growth across all of the major categories, the listed partnerships, the private funds and the public markets.
And what that led to was a 29% increase in fee related earnings on an LTM basis and that's one of the key metrics that we use to really tell you about the profitability of the business. And I'll come back and just talk a little bit about how a 20% growth in fee bearing capital can translate into a 30% growth in fee related earnings. With that expansion of capital, this is another important metric that we share with you periodically, which is our annualized fee base and target carry, which really speaks to the kind of fees and carry opportunity that should be accruing to us on an annual basis based on the capital that we have in place at that point in time. So again, it's grown quite nicely as well. And all of that pulled together, if you take a pretty simple model as to how you might value an asset manager and what we think about based on the growth profile of our business is, let's say, a 20x multiple of that fee related earnings.
So that's now taken us up to close to $9,000,000,000 in that regard and 10x the net target carry, which is another $3,000,000,000 So about $12,000,000,000 And again, that's up from $9,000,000,000 this time last year and we're quite pleased with how that's rolled out and see that growing quite substantially down the road. So with that, on the growth side of it, I wanted to just talk about a few things that give us a lot of confidence on the growth side of the business. And one of the things that gives us a high degree of visibility on our fee streams and the amount of capital that we can manage within the business is the fact that over 80% of the capital is very permanent in nature or perpetual. It's either perpetual or long term. So to pick up on Leo's phrase, it's very sticky and which gives us a lot of stability in the fees and the capital, but also just want to share with you a couple of things about how we see that capital compounding at quite a good clip.
So one of the things that at the stage where we are launching, I'll say, larger and larger funds and that's fairly typical pattern that you see in a fund man in an asset manager. What happens is that you get this compounding up because these are 10 plus year funds. So you launch the 1, then 2 to 3 years later, you launch the next one and then the next one. And so what you see is this increasing amount capital under management, all of which is generating us fees, whether it's on the invested capital or the committed capital. So that's why you can see our fees growing and the capital on the private side growing at really almost an exponential rate.
On the listed side, we've got multiple opportunities to expand that capital as well. So part of it is as we continue to grow the FFO in the business based on our distribution policies that enables us to increase the distributions, higher distributions should translate based on the yield into a higher capitalization value of the business for all unitholders and that impacts us as well positively. We also periodically will issue equity on when we can do that on an accretive basis to fund investment activity. I'll come back to the various levers that we have to pull on with respect to sourcing capital for the business, really to reinforce the point that Bruce was making earlier. And then finally, it can be a very attractive currency for large scale M and A.
And so there have been a couple of examples for us, whether it's in BPY or BIP with Asciano, that again gives us a very good growth profile for this category of funds for us. So as a result, we continue to expect at least a 10% annualized growth in our fee bearing capital. It's pretty consistent with what we've shown you in previous years, but I think we'll also come back and show you how we've generally outperformed in that regard as well. So we feel pretty good about our ability to exceed that down the road. Now I mentioned before that we had 20% growth in fee bearing capital and you had 30% growth in fee related earnings.
And there's a couple of things that lead to that. And really it all comes back to the ability to increase the level of fees that we can earn on a dollar of capital. Lot of the A lot of the flagship private funds are more focused on value add or opportunistic type strategies and those yield higher fees than a core type strategy. 2nd, with respect to the listed partnerships, they generate 125 basis points on the incremental capital. And in a couple of the funds, we had a base fee, which was a lower fee on the initial capitalization.
So that is attractive for us as well. And then in terms of the growth rate and then as Craig mentioned, we are shifting the public securities business so that it's generally a larger fee, higher margin business as well in those equity strategies. The other thing, and we've talked about this a couple of times in the past, but the incentive distributions do have a very attractive growth profile as well based on our ability and it is all predicated on our ability to increase the FFO and increase the distributions to unitholders, which is obviously to their benefit. But that does lead to a very attractive growth profile for the IDR. So for example, even on the base case, that's about a 35% compound growth over the next 5 years.
So all of that, if you just run the math, and it's really a pretty simple model, capital scales out at about 10% over the next 5 years, which should drive fee related earnings up to in excess of $1,000,000,000 which is about a 20% growth rate. And we thought we'd share this one with you, which we're quite pleased with. So going back to really the first time when we put a, I'll call it, illustrative model out there for Pete for us just to try and explain the business unit and then the various dynamics of it. We have managed to outperform in each year and I you sort of say this with dread that you're jinxing it, I don't think I am, but because it all is pretty much as I said, it's a very stable growing business, but we're quite pleased with our ability to outperform the previous projections in that regard. One of the parts of the business from a financial perspective that's a little bit more challenging to draw out from the financial results.
And also just at this stage, given the recent vintages of some of our larger funds is the carried interest potential that we have in the business. A number of you would recall, we had a quite a substantial quarter the year and a bit ago where we pulled where it was a $500,000,000 carry. By the way, it's been generally pretty small in the financial results. I just wanted to talk a bit about that and why we use a couple of different metrics to talk about it, Kerry, which hopefully will enable you to better understand the relationship between the financial statements and reported results and the value that we see ourselves creating in the business. So first of all, I should almost start at the bottom and go up, which I so I will.
The realized carry is that's what we report in our financial statements. And so for us to be able to report in our financial statements because we follow a pretty conservative methodology in that regard, it has to be earned and there could be no clawback. So what that means is you're generally looking at booking the carry pretty close to the end of the fund. So when you're dealing with a 10 year fund, that's a long way out there. So for us, that really doesn't sound like a very good way to convey the performance of the business, but we're kind of stuck with it.
So what we do, do is tell you in our MD and A every quarter, we tell you how much carry we generated. And what that is, it's based on if you wound up all the funds at that time based on the actual performance to date, how much carry we would be entitled to earn. And so that I think today it's around $700,000,000 of accrued carry that would be payable to us pre expenses. And then the number that I've referred to previously is what we call target carried interest. And the reason why we think that's important is again in the early life of the fund, not going to get into the J curve or anything like that, but it does the carry does tend to just build up towards the mid cycle to the end of a fund.
And so what we wanted to do was to give investors some insight into the value opportunity that we achieve by getting a fund out there that we can then go and invest in the returns and earn that carry. So what target carried interest is, is if you take the carry that we should earn on a fund over the life of the fund and just straight line it, just really simple. And that's what we refer to as target carry. It's generally around 200 and some odd basis points annualized in terms of return. So that's really the 3 metrics that we use.
So having dove into the weeds a bit on that, but I think it's important because this is a part of the business that I think is harder for people to grasp and we're it's a bit of a challenge sometimes to explain it. But a little bit of context in history over the past 5 years, we've generated about $1,200,000,000 of carry and we paid out about $600,000,000 to date. So it's starting to come and it's starting to become more visible. But as we grow the private fund capital, then that opportunity to earn the carry increase So if today it's around $475,000,000 on an annual basis based on the private funds in place, we would see that based on the 10% growth rate that we're talking about increasing to about $875,000,000 in 5 years hence and net of expenses around $570,000,000 That's about 13% growth rate in that regard. Now when you come down to how it's actually going to hit the statements, when so with this slide, the dark blue is based on the existing funds, assuming we hit those kind of performance metrics that we posted earlier.
This is how we would expect it to actually show up. This is why it's important for us to talk about, Kerry, and try and explain that to you because if you just went on the financial statements, you really wouldn't see much come in over the next 3 or 4 years. But that value is being created in the business. And so we think it's really important to convey that to you. And then of course, if we are successful in holding to those returns, then we will see a lot of carry coming in down the road.
So we think there's enormous potential in this regard that can be sometimes tough to work into a model, let's say. So just trying to pull it together, as Bruce mentioned, I was going to do and translate that into what we call our base case value based on this illustrative model, I'll call it. So first of all, if you take the growth in capital and fee related earnings and Target Care that we talked about and apply those same multiples to it, we would see the value of the manager going from $12,000,000,000 to $27,000,000,000 over the next 5 years, about 18% compound return. There's about 1,000,000,000 shares outstanding. So that's going to so that's if it's $12 a share there today, dollars 27 a share down the road, just to put that into context.
But we shouldn't lose sight of the fact that we also have $28,000,000,000 of capital invested in our various funds, mostly in the listed funds, but also into the private equity. And Cyrus talked a bit about what's happening in that regard as well. So those investments contribute to growth as well. And there's a couple of ways that they do that. I'll come back to just rate of return, but one of the things that we feel has been very important in the development of the business and our competitive advantages in working with clients and in pursuing transactions and creating value is the scale of capital and liquidity that we have across the business.
So just focusing on a couple of metrics that we talk about periodically, There's core group liquidity of $6,000,000,000 that's financial assets and undrawn available credit facilities. But we also have just shy of $10,000,000,000 of committed capital from our clients to our private funds that's available as well. And so that's there to deploy in very short order. Now the other area that we can draw from as well is really twofold. So off of out of our capitalization, we can be accessing the debt capital markets or the equity capital markets.
But I think the point has been made a couple of times here today that what's also important for us is that we have the ability to access capital that already exists on our balance sheets in the form of investments in mature and very well valued assets. So we have that ability to rotate capital from one part of the balance sheet into from a mature investment into a new opportunity and step up the yield, capture compete for new transactions and scale up the returns. Plus, if the circumstances are favorable, then we can go and access the capital markets as well. But the important thing is we don't have to do that. We can do that.
We can pick our spots when it is really nice and accretive for everybody. So that's an important point for us to be able to conduct the business with a lot of confidence. Also, bronze those range of opportunities. We've talked about expanding our business, let's say, directly on our own balance sheet, stock buybacks, but I think a big part of it is that ability to execute those strategic transactions as well. So it's a very important part of it.
And we also think we've got quite an attractive growth profile with the existing capital. And historically, we've targeted a 12% to 15 percent return. I think historically, you've seen us exceed that. We don't scale our return expectations up and down with what the government bond is trading at. We do this on a long term basis, which is how we do just about everything.
But that would scale up that capital quite nicely from $28,000,000,000 to $52,000,000,000 I'll just post these numbers because I'm going to come back and add them up on this slide. And what that would lead us to in our annual base case value would be $27,000,000,000 for the manager. You've got that $52,000,000,000 in terms of invested capital. There's a little bit of carry that's accrued by then and some leverage, but that takes us to about $75,000,000,000 for the capitalization business, about $74 a share. So that's a 20% compound annual growth rate on the current stock price.
Now as we pointed out in prior years and so we will point out again, we think there are a number of pretty modest assumption changes that we can make to expand the fee bearing capital and the value substantially. So first of all, fee bearing capital, if we increase the growth rate there from the 10% to 15%, we expand the margins, that can lead in a nice pickup in the potential value of the manager. 2nd, we have a history of outperforming on the investment return side. So that then would step up those returns there nicely. And so if you pull it all together, while there is the $74 20% return, we do think that there are scenarios where we could significantly outperform those metrics.
So really just in closing, just a couple of points that give us a lot of conviction in our ability continue to grow the business and enhance the values. On the asset management side, it's really the diversified long term duration of the funds, that accelerated growth profile, the ability to increase fee rates at an attractive clip and the future carry potential, which is that we think is significant. Plus, there's a balance sheet flexibility that should enable us to really capture some great transactions and build towards that outperformance. So with that, I'd be happy to take maybe a couple of questions on the financial side, but also I'll hand it back to Bruce for some closing comments and perhaps last few Q and A. Bruce, I think perhaps you're up.
So I had I'll take questions for anyone. I had 3 additions that I was just going to add to the question list that was asked throughout the day and just additional nuances to a couple of things. And firstly, just on the question on the public entities and what we can do for the businesses down below. And I think what the subtle point that's really important here is that many management teams and midsize businesses spend their whole life worrying about who's going to take them over and bother their business plan and they can't invest for the future because they think they're going to take it out in the opportune time. We've had the luxury to in our business to be able to think about this for 25 years.
And I think the results speak for themselves, partly due to that. By folding a business underneath us, they might have to report the results in our structure, but what they don't have to do is worry about ever having to sell the business when we or they together don't want to sell the business. And that's one amazing thing that we offer to our management teams all across our teams all across our businesses, whether it be infrastructure, property, renewable power or our private equity businesses. We offer them an incredible opportunity to come to us and we and you will decide when we sell this business, if ever. And that's a very, very valuable thing.
And I think that's what we can do in the private equity spin out. 2nd, just on the fundraising, I was going to add just one thing that either Leo or I didn't say. The real payoff that we're seeing and it's only starting now and we it'll even increase over the next 5, 10 years is that many institutional clients are coming to us and saying to us and Craig partly hit on this and Leo partly hit on it, but it crosses across now all of the businesses. What they're saying to us is, we're not we only have 20 people in our investment department. We want to put $5,000,000,000 into real assets.
Why don't we give you $2,000,000,000 of it? And will you allocate it to a bunch of your private funds, do co investments for us, do direct investments for us and put this money to work properly. And you can only do that once you've invested money for people and the people at the organization trust you. And I guess what's increasingly important to us is having that trust of those organizations. And as we do it, because of the broad spectrum we have, you only offer 1 fund in 1 area, in 1 country or one product, you can't do it.
But because of our broad spectrum, we can offer that to institutions and it's becoming increasingly important, especially as these funds grow in size. Many of them have people only in one part of the world and many of them are small organizations and that's a really important thing and increasingly that's becoming important to us. The only third thing I was going to add and it was just on some of the questions I heard on BPY and Brookfield Property Partners earlier. And I guess I'd just add from a Brookfield Asset Management perspective, this is an incredibly valuable business. I'm positive it's the best real estate business in the world.
We have 3 amazing franchises inside this company. One way or the other, it's going to trade at proper value, whether we liquidate over time the assets in the company and we use the money to buy back all the shares and we're just left standing owning all the shares from the inside that may happen. I doubt it. But this is an amazing valuable franchise. We have $15,000,000,000 invested into it.
It will trade at the proper value. What the great thing about and sometimes the nuances get lost is that we have 3 amazing businesses or maybe more, but 3 in particular, BPO, Canary Wharf and GGP. And the fundamentals of those businesses are really good today. And secondly, there is enormous amounts of capital in the world that wants to own these type of assets. So fundamentals of the business, both on the business side and on the capital availability side is really, really strong.
And that is way better than having a stock price that's overvalued in a bad business. So it I guess we continue to think that way about the business and are very, very it's one of our top priorities. So with that, I'll take any questions. If that was your 3 questions, I just answered them.
Bruce, there have been a lot of changes in currencies in the last X number of months. Most of them have gone down versus the U. S. Dollar. The Canadian dollar is way down.
Could you tell us how Brookfield is dealing with currencies and if it's affecting your profits and values?
So currencies, I guess I'd say we pay a lot of attention to currencies, not because we think we're currency traders, but because as a global investor in 25 countries, it's really important to get currencies at least partially right, because you can make a great investment. And if currency goes down 30%, it's really hard to retrace your steps. So we spend a lot of time working on currencies. A couple of things I'd say. 1, we try to go to countries on a value basis and what that usually means is that the FDI is low, that the people aren't going to the country, foreign direct investment isn't going into the country, which usually means currencies are low, which often means we can buy assets at a time when they're cheap on a replacement cost in the country.
And if you look at the currency in global terms, it's relatively cheap compared to whatever you measure yourself in, I'll call it the U. S. Dollar. And therefore, we try to use that to our advantage when we're making investments and we don't always get it right, but we try. Second thing I'd say, we had a strong view that the U.
S. Dollar was going to be very positive over the last number of years. And therefore, a lot of the currencies we've hedged and we were hedged in Canadian dollars, meaning back to U. S, hedged in Australian dollars largely back to U. S, hedged in pounds back to U.
S, hedged in euros back to U. S, so which would be our 4 biggest exposures. So most of the assets outside of the country for the last 18 months to 24 months had been hedged to U. S. Dollars.
Our view is that a lot of the strength of the U. S. Dollar has run its course. That's not to say it's going to go down, but there's not a lot of there's not as much upside to keep large hedge positions. So we have been scaling those hedge positions back.
The one that we didn't get right is the Brazilian currency, and it's really hard to hedge because of the cost of it. And so that's hurt us a bit. The good news about Brazil is it's a country where many or most of the assets the assets in the country have inflation based escalators and contracts. So over a relatively short period of time, the cash flows
escalate very rapidly to get
your currency declines back. And
benefited by it over the decades and therefore think we'll get most of it back. But we could have picked that one a little better possibly. Hopefully that answers your question. Andy? Good question right there, but I'll take this one over here.
Pat Dorsey, Dorsey Asset. A couple of years ago at one of these sessions, you mentioned that one of the things that keeps you up at night is as Brookfield moves around the globe, especially in the new geographies, maintaining the Brookfield culture and maintaining the central attitude of the employees there to do the right thing every day, especially when you might be seeding at the time you use the example of India, seeding that with a small number of long time employees and then building it out. If you can talk a little bit about how that's changed or evolved as Brookfield has continued to expand geographically?
Yes. So I'd say, look, bottom line, it is people and compensate people and their compensation are the toughest thing to do in business. I'm sure all of you will agree. They're the toughest thing. And if you not only the toughest thing, if you get them wrong, they can really, really mess up a business.
So we spend a lot of time on it. I guess I'd say I'm pleased and we're pleased that we've been able to while we have a broad business, we've been able to grow the business with the culture and I think keep it on pretty well where it is. Hopefully, the slides, Saris, joked that everybody put up here and had value investing in their slides. The fact is, I'm really happy about that. And that culture is that way.
And I think it's just what I think is really important is that most of the people have been here a very long period of time. Most of the people that we hire in think that they're going to be here a very long period of time and therefore the culture maintains itself through the evolution of those people through the organization. I can't tell you it's never easy. And as you go to more foreign places that don't speak English and don't have the same upbringing of culture, it's more difficult all the time. But I think just doing it I think just doing it slowly and methodically has been a good thing.
And we where we've made mistakes, we just had to retransfer a while and try it over again. And I can tell you, in Europe, we tried 3 times with management teams, and I think we've got it very we've got it right today and we learn each time we do it in a different place. Thank you.
Bruce, back a few months ago, you raised a substantial amount of capital through common share issuance of Brookfield at a higher price. The price has unfortunately gone down since. And if I follow insider trading, you've the corporation has bought back and canceled over 1,000,000 shares in the last few weeks. Am I right? And is there a comment?
So you are right. You do follow your insider filings. And I just say we did the equity offering as I think we explained to most people who asked us at the time because we for really two reasons. 1, we thought the relative to the world at large, it would be good to have more capital versus less on the balance sheet because we thought, a, we had a number of transactions in front of you And the infrastructure group shortly thereafter announced the Asciano transaction. And we at that time, we didn't know how much capital we needed to support that transaction.
We do now, but we just felt we needed more money around to do that and a number of other things in the business. Secondly, we felt that the price, while it will if you look at the numbers Brian showed you, it will be very stupid to have issued those shares in hindsight 20 years from now. Having said that, having our view is having capital available is always good. So we just felt it was a reasonable time to issue stock and we had reason to sort of do it to have extra capital around in particular. We did issue we didn't the offering was for $1,000,000,000 and we did 1,250,000,000 dollars And so it was they exercised the green shoe, etcetera.
And I guess with the weakness in the stock, we just felt that, look, at the extra money we raised, we may as well be buying back stock. It's cheaper and it's a good deal and we could buy back. There's I guess we're just we're in the business of making investments just like all of you. And some of the short term things went out of the way. And secondly, we just think it's a good investment.
So I don't have any other great comment other than that.
Bruce, I had two questions. One is related to the share issuance, not specifically about the shares that were issued earlier in the year, but just the growth of the business and the outlook and kind of what Brian had in his slides. As you think about how the business can grow and how BAM wants to retain 20% or 25% ownership funds and investments. Does that mean that issuance of capital is a more regular event for BAM over the next 5 or 10 years than it was the past 10 years or so. And then related to that, you've mentioned in the past, you want to be a good corporate sponsor of the listed entities.
Is there a
cost to BAM shareholders for doing that? Or is it positive returns, but it just happens to be that it's also beneficial to the subs?
So on the first question of share issuance, I don't want to be held to this, but I think the exactly held to the words, but our business, if you look at it today and look at the funding model and how much capital we have and how the business grows and with the entity set up down below, there shouldn't ever
be a need in the
foreseeable future, meaning 5, 10 years to issue equity. That's not to say we won't, because there may be opportunities where we find something else or we do a merger or something happens, we may issue equity. But if you look at the business plans, there is no real need for capital in the business. Therefore, on a standalone basis, it's possible we never issue a share. And I guess we've found over 25 years of the current management team running this business that the best thing to do was never issue a share in the business and buy back as many at an undervaluation as possible and that was the best thing to drive value in the company.
There are sometimes things that come up that add incredible value to the business and having capital available is a good thing. And therefore, I can't say that we won't do it. But generally, I think the business as we lay it out and it's certainly as Brian laid it out in his business plans and gave you the 5 year numbers, there's no issuance of stock and there won't be issuance of stock in that model. The second question on corporate sponsorship, I guess we have said and I'll say it again is that we believe that these entities that we have that we're that we own part of and we manage are incredibly important to the franchise. We set them up specifically to build the business with.
And as a result of that, we think that we can use our capital to support them. And by doing so, we will earn greater returns out of the capital we have invested and out of the fees we generate from them. We do get paid for them and therefore we deliver many things to those entities to be able to help them do things which other entities of similar scale or size could never do. And does that cost the shareholder a BAM something? I would say, if you did the sheer mathematics, there's no doubt it costs fulfilled asset management something to hold capital available for them to put money in at prices, which we supported the transaction to do Asciano for BEP invested at a price at the market, knowing that probably the stock price is going to go down.
In the short term, it doesn't. In the short term, nobody else might have done that, but we can because we think of it long term. So in the short term, it may cost the Brookfield Asset Management shareholders something. In the long term, it will be I see no other questions. It's 5.17.
We were supposed to be done by 5.15. So that is fantastic. Thank you. So I have the last thing I'd just say is, A, thank you for coming. B, on a housekeeping matter, any of you that are staying for the cocktail reception, it's in the Winter Garden downstairs.
People out here will show you where to go. Keep your badges, because those badges will get you into the cocktail party, with your name tag, otherwise you may not be able to get in. Thank
you.