Brookfield Asset Management (BAM) Investor Day

posted in: Earnings Call, Notes | 0

Brookfield Asset Management (BAM) CEO Bruce Flatt said Asian insurance companies are shifting more of their portfolios into alternative asset classes

“Alternatives and foreign investments by Asian institutional investors continues to increase and some of those are just regulatory changes. China used to have a 5% cap, originally 3%, then 5%, now it’s 15% on foreign investments in insurance companies, and a lot of the amounts of money being driven out of Asia and out of China is really driven by these regulation changes that are happening in the funds and all of those things are shifting people towards more real assets and alternatives.  We think the trends will continue despite, irrespective of interest rates increasing and whether they put another 25 or 50 or 75 basis points on the short end.”

They believe that having boots on the ground is a competitive advantage

“One of the big advantages we have in real asset investing is that when we’re investing, developing a piece of real estate, building a toll road, running a power plant or running any one of our real asset type businesses, it’s hard work. It takes operating skills. It takes people. There are a tremendous amount of issues every day and that gives us a huge competitive advantage over a financial player or someone else that’s just going to do it on their own or someone that just starts up tomorrow morning. It gives us a big competitive advantage over them.”

They think the asset management and private equity market will grow to be $70 trillion in the next decade

“We think that industry that we’re marketing towards will continue to head towards around $70 trillion into the 2020s, and that we’ve put together the backbone to manage the growth and there’s really two things they want. They want investment performance but they want to be taken care of and we’ve invested the money to have the compliance, the governance and the servicing capabilities.”

All about relationships and good investment performance returns

“We have significant relationships that we’ve built with institutions to co-invest beside us and that allows us to do things which other people can’t and really it comes down to in an environment that we’ve been in. We’ve been able to generate the returns that are on this slide, which on the opportunistic side are in the 20s and in the core and value-add side are in the mid-teens, which are very good returns. These include the financial crisis vintages.”

They believe the Brazilian economy has likely bottomed out

“Interest rates look like they’re going to be low but commodities and emerging markets are definitely recovering and we think that Brazil has bottomed and I’d say we saw that based on the fundamentals of the businesses we have there in February or March of 2016, this year, and it’s going to be a slow way back but we think it’s slowly coming back.”

Doing large scale transactions which not many can compete with due to the size of the assets they’re going after

“If you think of the pipeline we just bought, it’s $5 billion; it’s in Brazil and it takes operating capabilities to underwrite and operate, and not many people could compete with that.  The fact is we just try to find spots where other people are not.”

Brookfield Asset Management (BAM) CEO Bruce Flatt wants a dividend policy which gives him flexilbility to buy assets during a market correction 

“We’ve had a view over time that we didn’t really want to have a high dividend policy, largely because we wanted to ensure that at the bottom of the market we could make unbelievable investments that allowed us to do things that others could never do.  It’s amazing what availability of capital does in the business. So you never want to have to go back and retrace your dividend with your investors because they really get mad at you.”