ASM 2015

May 6, 2015

Slides

Ladies and gentlemen, it's now 11:30 and time to begin the Annual Meeting of Shareholders of Brookfield Asset Management Inc. My name is Frank McCannon. As Chair of the Corporation, it's my pleasure to chair today's meeting. On behalf of the Board and management, I'd like to extend a warm welcome to everyone here today, including those who are joining us through webcast. I will now call the meeting to order. I would ask CST Trust representatives, Vice Representatives Tony Tokunaga and Kay Harrison to act as scrutineers. I would also ask our Corporate Secretary, A. J. Silver, to act as Secretary of today's meeting. It's now my pleasure to introduce the members of management on the stage with me who will be participating in today's meeting: Bruce Flat, our President and Chief Executive Officer and Brian Lawson, our Chief Financial Officer. As outlined in our management information circular, there are 4 items of business to be considered today. First, to receive the consolidated financial statements of the corporation for the fiscal year ending December 31, 2014 secondly, to elect directors who will serve until the end of our next annual meeting of shareholders thirdly, to appoint the external auditor and authorize the directors to set their remuneration and fourthly, to consider an advisory resolution on the corporation's approach to executive compensation. In connection with the business to be dealt with today, unless a shareholder or proxy holder demands a ballot, all voting will be conducted by a show of hands. In order to expedite the formal part of today's meeting, I've asked certain shareholders to move and second various resolutions. Although this procedure will assist in the handling of the formal matters, it's not intended to discourage anyone from speaking in reference to any resolution after it has been proposed and seconded. I'm advised that the notice calling this meeting and the management information circular were disseminated to voting shareholders in accordance with all applicable laws. I've asked the secretary to keep a copy of the notice and proof of mailing with the minutes of this meeting. The minutes of last year's meeting of shareholders held on May 7, 2014 are also available should any shareholder wish to review them. Based upon the scrutineers preliminary report on attendance, the Secretary has confirmed that there is a quorum present. I therefore declare the meeting properly constituted for the transaction of the business for which it has been called. Turning to the first item of business, I will now table the corporation's 2014 annual report to shareholders, which includes the corporation's consolidated financial statements for the fiscal year ended December 31, 2014, together with the external auditors report. Copies of our annual report have been mailed to our shareholders who so requested the report and are also available here today. The second item of business at our meeting here today is to elect directors who will serve until the end of our next Annual Meeting of Shareholders. Before I introduce the nominees, I want to first note that we have 1 Director this year, Jimmy Pattison, who has decided to retire from our Board. Jimmy has been a huge part of our growth and success over the past decade and his wisdom and guidance will be greatly missed. We spoke about Jimmy at length last night at a meeting of the Board, and I think it's fair to say that all of us view him as an extraordinary human being, a great role model, both as a human being, but as a Corporate Director, one could never ask for anybody better. He's involved, interested, speaks with passion and with courage on issues that are important to the shareholders and has been a huge assistance to the company. So we're deeply grateful to Jimmy Pattison for all the time that he's given in guiding this great company over the years. Now my pleasure to introduce the 16 director nominees standing for election this year. To assist you in identifying our directors, their pictures will be shown on the screen as I read their names. The 8 proposed nominees for election by holders of the corporation's Class A Limited Voting Shares are Angela Braley, Marcel Coutu, Maureen Kempster D'arcs, Lance Liebman, Youssef Nasser, Siq Niewat, George Taylor and myself, Frank McKenna. The 8 nominees for election by the holders of the corporation's Class B limited voting shares are Jeff Plidner, Jack Cockwell, Bruce Slat, Robert Harding, David Kerr, Phil Linde, Lord Gus O'Donnell and Diana Taylor. 15 of the 16 proposed nominees were elected at our last annual meeting in May 2014 and are standing for reelection today. We're also delighted to have Angela Braley standing for election for the first time this year. Additional information on all 16 director nominees is set out in our management information circular, which was posted on our website for shareholder review and available from the company upon request. The meeting is now open to receive nominations for the election of the proposed directors. Mr. Chair, I nominate for election as directors the 8 nominees for the Class A limited voting shareholders and the 8 nominees for the Class B limited voting shareholders named in the management information circular dated March 24, 2015. Thank you, Amar. Mr. Chair, I second the motion. Thank you, Andy. Are there any further nominations? Are there any further nominations? If not, I declare the nominations closed. As there are 16 directors to be elected and the same number of nominees, I now declare that those nominated have been duly elected as directors of the corporation. Ladies and gentlemen, many of these directors are with us here today and are wearing nametags. I hope you'll take the opportunity to meet and talk with them after the meeting over some refreshments. Now the 3rd item of formal business today is the appointment of the corporation's external auditor and authorizing the directors to set their remuneration. As stated in the management information circular, the audit committee of our Board of Directors has recommended to shareholders that Deloitte LLP be reappointed as the corporation's external auditors. It's now in order for someone to make this resolution. Mr. Chair, I move that Deloitte LLP be appointed the external auditor of the corporation until the next annual meeting and the directors be authorized to set their renewal. Thank you. Mr. Chair, I second the motion. Thank you. The resolution has been moved and seconded, and the motion is now before the meeting for discussion. Adoption of the motion requires the favorable vote of a majority of the votes cast at the meeting by the holders of each of the Class A limited voting shares and the Class B Limited Voting Shares voting as separate classes. Management has received proxies representing approximately 69% of the corporation's Class A Limited Voting Shares and 100% of the Class B voting shares. These proxies direct us to vote over 98% of the Class A limited voting shares and all of the Class B limited voting shares in favor of the resolution. I will now call for the vote on the motion by show of hands. All those in favor? Thank you. Against? I declare the motion carried. The next item of business is the approval of the advisory resolution on the corporation's approach to executive compensation, which is described in the management information circular. The corporation has put forth an advisory resolution at this meeting as part of its ongoing effort to both meet its corporate governance objectives and to ensure a high level of shareholder engagement. Because this is an advisory vote, the results will not be binding upon the Board. However, the Board and the compensation committee will take into account the results of the vote as appropriate when considering future compensation policies and decisions. The Board welcomes comments and questions on the corporation's executive compensation practices and you may contact the Board directly through the corporate secretary. So now in order for someone to move the resolution. Mr. Chair, I move that the advisory resolution accepting the approach to executive compensation described in the management information circular dated March 24, 2015 be approved. Thank you, Amar. Mr. Chair, I second the motion. And thank you, Andy. The adoption of the motion requires the favorable vote, I repeat again, of a majority of the Class A limited voting shares. Management has received proxies representing approximately 66% of the corporation's Class A Limited voting shares. These proxies direct me to vote over 96% of the Class A Limited voting shares in favor of the resolution. I will now call for the vote on the motion by a show of hands. All those in favor? Thank you. Against? Thank you. I declare the motion carried. Ladies and gentlemen, that completes the formal part of today's meeting, and we will now move to our management presentation. Bruce Slat and Brian Lawson will be presenting on behalf of the management team. At the end of the presentation, they will be available to respond to any questions or comments that you might have. Now please note that in responding to questions and in talking about our new initiatives in our financial and operating performances, we may make forward looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information on known risk factors, I would encourage you to review the Business, Environment and Risk section of management's discussion and analysis on our annual report, which is available today at the registration desk or on the website of the company. I would now invite Bruce Slat and Brian Lawson to make their presentation. Good morning and thank you everyone for attending. And there's 2 things Brian and I thought might be helpful to talk about today. The first one is just to give you an update on the business. And the second is to talk a little bit about the next phases of where we're going with the company. And to start off just to frame the conversation, I guess we continue to build Brookfield out as we have over the last 15 to 20 years into a global alternative asset manager and continue with that effort. So everything you'd see us do on a day to day basis is with this number one goal in mind. Today, we operate approximately $200,000,000,000 of assets across the world. We've discussed in past, it includes about 28,000 operating employees, 100 offices in 20 different countries and is focused around 4 specific businesses, which is our property business, our renewal power business, our infrastructure business and our private equity business. Included in the $200,000,000,000 of capital is approximately $93,000,000,000 which is managed for clients of ours in various formats. And $46,000,000,000 of that is in our listed partnerships, which originally started off by spinning them out of Brookfield. Dollars 28,000,000,000 is in our private funds, which are predominantly institutional clients and sovereign funds around the world. And just under $20,000,000,000 is public securities, which are listed managed real estate and infrastructure securities for institutional and other clients. Our targeted yield annualized fees and the carried interest out of this today, which started off at approximately 0, 10 or 12 years ago is $1,300,000,000 and continuing to grow and Brian will talk about that in a minute. Approximately $29,000,000,000 of capital from the balance sheet of the company is invested beside the clients and beside those funds we have and beside in the partnerships along with our other investors. And 80% of that is in our listed entities. And it distributes about $1,100,000,000 of annualized cash distributions to the parent company of Brookfield Asset Management and we continue to grow all of those. Quite simply and many of you have seen this slide before, but our business is very simple. We just do 4 things. Number 1 is we source equity from various sources and clients. 2, we use our global REITs to acquire high quality real assets, hopefully on a value basis when we can find them. 3, we try to finance them on a low risk long term basis to leverage our returns on a prudent basis. And lastly, we try to use the operating people and the platforms we have in our values, so that we can increase the asset values of those businesses more than otherwise would have been. And over the past 12 months, we've added about $17,000,000,000 of fee bearing capital through various fundraising initiatives and market performance within our funds. And we've deployed approximately $15,000,000,000 into new investments across our business. So the scale is getting quite large. But it allows us to be involved in some incredible opportunities that without the scale of capital that we have wouldn't be available to us, our shareholders or any of our clients. And just a few examples of those to illustrate the type of assets that allows us to purchase. We closed on buying the 100% of Canary Wharf Group. We always had owned for a long period of time 22%. We closed on buying 100% of Canary Wharf Group, which is an incredible portfolio of assets in London, which are all freehold in nature and includes about just under 7,000,000 square feet of operating properties and almost 12,000,000 square feet of development density that will be built out as office, retail and residential over the next 15 years. And this is something that you just couldn't be involved in without the scale of our operation. Secondly, we purchased $3,000,000,000 of telecom towers, which are in our infrastructure business, but they're very real estate like. And they produce very long term cash flows with long term contracts to telecom users. And the growth that's coming is from the build out of mobile technology and all the use of these towers. And what we do is just own the towers and rent them to the telecom users that use the towers. 3rd, we put $1,000,000,000 into a wind energy portfolio in Ireland and more recently in Portugal and we continue to see that there will be some attractive opportunities in Europe to buy renewable energy because some of the programs that were put in place have disrupted the market. So we're buying secondhand assets at very attractive returns, which most of them are built. But our special advantage we have is that we're buying portfolios with development pipelines. So the ones in Ireland 70% of them were completed and we've completed we are completing or have completed the balance of the 30% of the portfolio. So it includes higher return assets for us to get the returns better because we're complete we're able to complete the portfolio of the assets. In Australia, we made the first investment in a large oil and gas company since the disruption of oil prices over the last 12 months. With a partner, we bought 100 percent of a U. S. Public company's interest in Western Australia that was exiting the market. Environment of oil that we're in, we'll earn very good returns. If we can see a bit higher prices and get lucky on a few other things in the portfolio, the returns could be excellent. And in Brazil, just to show you the scale, if you look at this picture, we bought an interest through our infrastructure company in an enormous logistics business, which includes ports, which you see here rail lines, which go inland and grain terminals which take commodities from the massive agricultural build out that's going on in Brazil. And this is core infrastructure. And probably the most exciting part of this is that the future build out in Brazil will be enormous to harvest all of the commodity and agricultural assets that are there. And the logistics are tremendously inefficient. So everything that you build out is better than what was there before. And therefore, the opportunities are very significant to enhance returns over time. And lastly, within all the businesses, we have a number of opportunities where we're actively developing our own organic growth within the portfolio. And a few of those are, for example, at Manhattan Westin, New York, we have a 7,000,000 square foot portfolio. We started a residential for rent tower with 800 units. We've just started into construction a 2,200,000 square foot office tower and there will be other towers that will come on eventually. We're building a number of renewable energy plants in our renewable energy business. We've been building transmission lines and continue to build out the toll roads and ports that we have in Brazil. This has enabled us to put significant client capital to work relatively quickly, but at least at the pace of the funds that we've raised. And the biggest issue that a manager like ourselves has with our clients is that if we take money for them, we need to put it to work in the time frames that we promised them and put it into good transactions. And we think we've been able to do that in this environment. And our flagship property and private equity funds are now fully invested. Our infrastructure fund is 70% invested. And what this means is it allows us to go out and raise the next series of funds for all of these. And lastly and I'll end and I'll turn it over to Brian is that in all of these situations, we found that the most important thing is to keep to the value investment philosophy that we've always had in the organization. And as an organization grows, that's probably the most important thing to adhere to your principles that you have in the business. And ours really are just 6 simple approaches. And number 1 is we continue to focus on great assets and we will pay more than others for something that has great quality because we believe that it will endure over time. We invest assuming we're going to own the assets forever and often we don't. We will sell partial interest or sell assets, but we assume that when we're going in we're not going to be able to get rid of them tomorrow morning. And that's a very critical thing to the underwriting of our thesis. We try to buy it less than replacement cost as this is critical. And usually that adheres to a market where there is a lack of capital. And one of those markets today is Brazil where there's an enormous lack of capital in the country similar to the United States in 2,009. And what that usually means is you can buy assets at much less than replacement cost. And when the market recovers, you will be able to and new assets need to get built. There's enormous value in that proposition. 4th, tremendously important is that we finance these assets so that we can always see our way through the downturn of a market. And in fact what we try to do is to have capital on the balance sheet to be able to not only endure a down market, but to be able to advantage the businesses we have in a down market. And Brian will talk a little bit about some of our fundraising initiatives including putting equity capital into Brookfield recently, which helps us ensure that over time. 5th, we always try to go to places where capital is scarce. And probably the most important and Brian will spend some time on this now, I'd say is execution, execution and execution. We have 30,000 people within the company and those people are tremendously valuable. We often show pictures of assets because if you just show a bunch of people we have 30,000 of them and take all day. And the pictures show tell a story, but really what's behind the company is 30,000 people that execute the business that we have. And that's one of the great valuable things we have in the organization. So with that, I'll turn it over to Brian to talk about the future. And I'd be happy to answer any questions along with him afterwards if there are any. Thank you, Bruce, and good morning. So the next phase is really focused on building on our strengths and what we think is on balance a pretty favorable environment for us. And if you look at what's happening and we've talked about this a bit in the past, we continue to see client assets growing exponentially. And as an asset manager, that's very good news. But perhaps what's more importantly for more important for us is that real assets continue to be in the sweet spot. And that of course is what our franchise our business is built around. And we continue to see clients devoting a larger amount of their portfolios towards these assets. We view them as yield enhanced fixed income real return alternatives that are increasingly seen as being a critical part of any portfolio construction. And that increases demand for our funds and that's obviously very important to us. And a lot of that's been borne out in the performance of real assets over the past while relative to other asset classes and we expect to see that continuing in the future. So that all bodes very well for us in terms of our ongoing ability to raise funds and increase our fee bearing capital. The flip side of that and Bruce alluded to this is our ability to put the capital to work. And we think we are very well positioned to do that. I'll repeat a couple of the themes. But one of them importantly for us is the geographic reach that we've established across the globe. And that enables us to go and pursue opportunities in the markets where assets are priced most attractively. If you think back in 2,009, 2,008, 2010, we were putting a lot of money to work in the U. S. Economy because that was very, very attractively priced. Today, we're looking and buying assets in Brazil, Europe and elsewhere. And that's where we're seeing the great value. And so our ability to do that is critical. Also the combination of having the operating capabilities and the industry expertise allows us to compete very effectively for assets. And we think in general create enhanced returns for the same amount of dollars, which enables us to acquire the assets and achieve those great returns for our clients and our shareholders. And then lastly, having the scale of capital, Bruce referenced a number of the key transactions we completed lately. Those are transactions we could not have pursued had we not established the scale of capital that we have between our private funds, between our listed entities and at the Brookfield Asset Management level itself. So what should you expect to see from us down the road? It's really three things: larger funds and expanded range of products and selectively widening the focus on regional areas. In terms of larger funds and this is how you see many asset managers evolve is and you've seen this with ourselves is as each successor fund tends to be significantly larger than the predecessor fund. And the logical reasons for that for starters you're working with an existing client base that are well positioned to invest in your successor fund. And secondly, we've been fostering a lot of situations where our clients will invest across with us in multiple funds. In Obviously, that is predicated on having good performance. Unfortunately, we do have very good performance, so that assists in that. The second thing we mentioned was expanding the range of products. And if you look at the list, these are all building off our core competencies. There's no big departures here. But what it does allow us to do is to offer a broader range of products to our clients and be responsive to their needs. And then on the regional side, this is capitalizing on that expanded geographic footprint to be able to put capital to work in targeted areas where the value is best and again allow our clients to be able to invest in these areas. So if you pull that together into what this means for shareholders, what we're really focused on are 2 primary goals. One is to accelerate growth in the asset management side and build those cash flows. They receive a very attractive multiple in the market. They're very valuable as a stable source of cash flow for the business. And secondly, as Bruce mentioned, we have that $29,000,000,000 $30,000,000,000 of capital on our balance sheet and it's generating attractive returns on that invested capital rotating it. And those two things together we believe will continue to provide a very attractive return for our common shareholders. And so how we've been doing in that regard? Just in terms of looking back over the last 5 years on an LTM basis, we continue to expand the fee bearing capital. And so obviously, as you grow the fee bearing capital, that allows you to generate a higher level of fee revenues. Our fee base is now up to $1,300,000,000 on an annualized basis as Bruce mentioned including the target carry. And then that also leads to the cash flow that the fee revenues generate that falls to our bottom line and to the shareholders. And that again you've seen has grown significantly over the past number of years. And that is in a large way is responsible for the type of returns that we've generated over the past 1, 5, 10, 20 years for Brookfield shareholders. And the great thing about that as well is that it's reflective of the returns for our clients, which have also been excellent. So looking forward, here are a couple of things. We would expect to be fundraising for over $20,000,000,000 of new private funds by the end of the year. We have $11,000,000,000 that are currently in the market right now. We hope to be in a position to launch another $10,000,000 by the end of the year. Those that won't all come on the books this year, but this gives you an idea of the pipeline that we do expect to be creating in terms of new funds over the next 1 or 2 years. The listed funds, Brookfield Infrastructure, Property Partners, Renewable Energy Partners are all very well positioned for growth both in terms of the capitalization and the distributions. Each of those 3 entities have announced distribution increases over the past little while and continue to grow the cash flows and we believe we'll continue to be able to generate increased distributions over the next period of time and have good access to capital. Brookfield Infrastructure was in the market to raise $1,000,000,000 in the past within the past month. And again, that enables us to pursue this wide range of attractive investment opportunities that Bruce mentioned that we continue to see in front of us. And so that really fits towards the last couple of points, which is in terms of liquidity, we have continued to operate with high levels of liquidity exactly for that reason because of the types of opportunities that we see and to ensure that we're always in a position of strength to do that. So the last point I wanted to touch on which is just the question of us issuing equity which we do not do very often. And really it came down to 2 simple things. We were able to issue the equity at what we would describe as a reasonable cost in terms of dilution, but being very confident in our ability to put that money to work to earn very attractive returns on this new capital, which will be accretive to all shareholders. And that's really what we're in business to do. So in conclusion, we do believe that we're very well positioned for continued growth. And it's important to note that none of this would be possible without the support of the many clients and shareholders and business partners. And a number of you are in the room today. And so on behalf of my business colleagues, we would like to thank you. And with that, I'll hand the proceedings back over to Bruce and Frank, and we'll respond to any questions you might have. Thank you. If there are any questions, Brian or I or Frank would be happy to answer them. So the question relates to when we talk about a fund is that the infrastructure we'll take use infrastructure as the example because each one of them is exactly identical. How the infrastructure private fund operates along with the public entity called Brookfield Infrastructure Partners. And I guess I'd just say we spent 15 years coming up with the structure to make sure that we never had a client issue and we never had an issue of conflict with our public investors. And the way it works is that we have Brookfield Asset Management raise is out of our commitment is out of Brookfield Infrastructure Partners. So the to the extent a transaction is goes into the private fund and it's appropriate for the private fund, it's bought in the fund and Brookfield Infrastructure Partners participates in that transaction through the fund. And for example, on the most recent fund of $7,000,000,000 it owns approximately 40 percent of the fund. So its commitment was $2,800,000,000 So every transaction we do in the fund it takes 40% interest in that transaction in essence by being in the fund. To the extent there are and this is the important part. To the extent there are co investment opportunities, it takes 40% of them and they go directly on the balance sheet of Brookfield Infrastructure Partners. To the extent there's something that's not appropriate for the fund, meaning the returns aren't low enough or it's in a place where it's not appropriate for the fund, it could go directly on the balance sheet of Brookfield Infrastructure Partners. And very rarely would we ever do a transaction on the balance sheet of Brookfield Asset Management in the infrastructure area outside of Brookfield Infrastructure Partners. It essentially has the franchise for doing everything in infrastructure. And our goal of our capital at the top is really to invest in that entity, sponsor other funds and to assist those companies achieve the results the best they can. And so sometimes we're either lending money to those entities or guaranteeing a transaction if they need it and a number of different things. So that's how they it participates in a very linear fashion and therefore there's never a conflict in those transactions. Yes, I would just say that our firstly, we wanted to and I'd maybe just step back for everyone. We did we split the stock. We increased the dividend slightly and we issued equity. And splitting the stock was because the stock kept going up and it is higher than we'd normally have it in a range. In fact, I don't think it's ever traded over $50 before. We always split it at $50 And so when we split it, we could have either cut the distribution back to have around cents or increased it. So really the dividend increase was just about going from $0.11 to $0.12 So there was a 6% increase. We usually do the dividend increase every February. Everyone got a slightly enhanced dividend increase this year on a share because we rounded it to 0 point 12 as opposed to go back to $0.11 because what that would have meant is we cut the dividend on the split, which I'm not sure. I know there's some shareholders here. I'm looking at one of them a couple of them in the front row that would have not been happy if we cut the distribution and moved it back. So that was really what the enhancement in the distribution was about. It's not really in consistent with issuing equity later. And the reason for that is, is that our distribution policy is that we pay a small amount of the cash flow out of the corporation. We've chosen just to keep it in the business. And it's not the it's really just to ensure that we have a dividend distribution on the stock of the company. The equity issue is a was a significant amount of money into the treasury. And we believe we can put it to work at very attractive yields within our partnerships and it doubles up given the things it does for us within the business. So I'd say they weren't inconsistent although on the face of it I can understand why you would think that. Yes. So I think the question, if I got it if I heard it correctly, is at the bottom one of the slides, it said an Asian listed business. And what the slide referred to is on Brian's presentation is there are some other areas of business, which eventually we're thinking of adding into the array of products we have for our clients. We've continued to move into Asia in a more significant way, but methodically and very carefully over the past 10 years. We have a pretty significant Indian business today with a couple of 100 people in our office in Bombay And we've continued to build that out. We have a number of people in Shanghai today and we bought a big real estate portfolio there. And one thing we've identified is, as we build out that business, there's a number of our clients who don't want as much exposure to Asia. And there's some clients that want more exposure to Asia. And therefore, two things. The first one is we may create we don't have them today and we're not planning on doing any right now. But in the future, we may create sister entities to the funds we have, which are focused on Asia and would be predominantly Asian investments as opposed to ones in North America. And they'd be offered to our clients interested in Asia, often Asian related clients and some institutions in North America that want to be invested in that region. So that's the first thing. The second one is on the listed side, our listed business manages real estate and infrastructure securities globally. We think that there is a tremendous growth in the listed business in the future and specifically in China. And so we think a small investment over time in building our capabilities to manage public securities or listed securities in Asia is a good investment. And over time, we may offer those products to our public security in our public securities business. So that's what that reference was. Okay. Well, if nothing else, thank you for coming. And Frank, we'll end our meeting. Ladies and gentlemen, if there are no further questions or comments, I sincerely want to thank you for your participation in coming here today. We know there are many other things you could be doing and it means a lot to us that you would come and share this time with us. We appreciate your comments and I hope that you found the meeting informative. That brings us to the end of today's meeting unless there are any other items of business that shareholders would like to raise? Anything else that shareholders would like to raise? If not, and since there is no other business, I declare the meeting terminated. Thank you.