Brookfield Corporation · NYSE:BN
Brookfield — Brookfield Asset Management — Investor Day (September 2016)
94 slides from Brookfield's investor day presentation, Sep 28, 2016
Slide 1: Brookfield Asset Management 12th Annual Investor Meeting
Brookfield Asset Management 12th Annual Investor Meeting September 28, 2016
Slide 2: Cautionary Note Regarding Forward-Looking Statements
Cautionary Note Regarding Forward-Looking Statements Forward-Looking Statements and Information This presentation contains “forward-looking information” within the meaning of Canadian provincial securities laws and “forward-looking statements” within the meaning of Section 27A of the U.S. Securities
Slide 3: Agenda
Agenda Bruce Flatt 4 Chief Executive Officer Brian Lawson 45 Chief Financial Officer 3
Slide 4: Agenda
Agenda 1 Review of the past 12 months 2 The fundraising environment today 3 Our competitive advantages 4 The growth of our Funds 5 Where we are going from here 4
Slide 5: In the past months we've made considerable progress
In the past 12 months we’ve made considerable progress in building our business into a leading global manager of Real Assets 5
Slide 6: We completed fundraising for our recent flagship funds
We completed fundraising for our recent series of flagship funds, doubling the size of the predecessor funds Infrastructure $2.7 $7.0 $14 billion Real Estate $1.0 $4.4 $9 billion Private Equity $0.8 $1.0 $4 billion 6
Slide 7: ~150 new institutions invested in our funds
~150 new institutions invested in our funds, bringing the total to 425 – we believe we will achieve 1,000 in time +52% +52% 425 280 2014 2016 7
Slide 8: Further diversifying our investor base
…further diversifying our investor base 2016 Asia, 34% Europe & Other Middle East, 7% Australia 59% North America 1) As at June 30, 2016. Private fund capital by geography 8
Slide 9: We have deployed $16 billion of capital around the world
We have deployed $16 billion of capital around the world over the past 12 months Peru North South 29% America 49% America 10% 12% Germany India Asia & Europe Other 1) LTM as at June 30, 2016 9
Slide 10: We continue to increase total assets under management
We continue to increase total assets under management TOTAL ASSETS UNDER MANAGEMENT ($billions) 11% $243 $218 $192 $183 $158 2012 2013 2014 2015 2016 1) As at June 30 10
Slide 11: We completed the spin-off of Brookfield Business Partners
We completed the spin-off of Brookfield Business Partners Provides investors with the ability to invest directly in businesses within our private equity group Creates a permanent equity base for these businesses Establishes a currency to transact with 11
Slide 12: Favourable results for our other listed partnerships
And achieved favourable results for our other listed partnerships Distribution growth Price appreciation Capitalization growth 12
Slide 13: Meaningful growth in operating results
Which has all led to meaningful growth in operating results Fee bearing capital 15% Fee related earnings 50% Annualized fees and target carry 41% 1) One year return as at June 30, 2016 13
Slide 14: Our simple and repeatable business model
We have achieved this by executing our simple and repeatable business model 1 Source equity from clients seeking exposure to property and infrastructure returns 2 Use our access to large scale capital to invest on behalf of clients 3 Utilize our global reach to identify and acquire high-quality Real
Slide 15: Institutions continue to allocate increasing amounts of capital to Real Assets
Institutions continue to allocate increasing amounts of capital to Real Asset strategies 15
Slide 16: Traditional investments no longer provide sufficient total returns
Traditional equity and fixed income investments no longer provide sufficient total returns Negative interest rates in Japan and Europe continue to put downward pressure on the long U.S. rate Global growth is slow so it looks like we will continue in a low interest rate environment for a while Instit
Slide 17: Allocations of capital to Real Assets to grow substantially
We anticipate allocations of capital to Real Assets to grow substantially 2030 2016 40 2000 15 10 60 85 90 Real Assets Equity/Fixed Income 17
Slide 18: Shifts in portfolio allocations are being driven by
Shifts in portfolio allocations are being largely driven by… • Macroeconomic factors – continued slow growth and low interest rate environment • Continued acceptance of Real Assets as an asset class – with infrastructure investment growing at accelerated rates • Changes in regulation – increasing al
Slide 19: Allocation trends should continue irrespective of interest rates
Allocation trends should continue, irrespective of interest rates • Interest rates should slowly move up in the U.S. • Our business model works very well even if rates trend higher • We have found that Real Assets retain their value across the cycle • Interest rates should rise only if the economy i
Slide 20: Sovereign investors are leading the way
Sovereign investors are leading the way • Ability to commit large amounts of capital • Long-term, global mandates • Sophisticated and diverse strategies • Looking for partners to extend their reach And Real Assets have become well established as an asset class across most other institutions as well
Slide 21: Well positioned as a partner of choice
We are well positioned as a partner of choice for Real Asset strategies 21
Slide 22: We have a number of competitive strengths
We have a number of competitive strengths… • 115 years of operating experience – 55,000 employees • Multiple fund offerings – three ways to invest • Established governance and client service capabilities • Large scale capital – ~$250 billion of assets under management • Global presence – 30+ countri
Slide 23: Investing in Real Assets requires hard work
One big advantage we have is that investing in Real Assets requires hard work We have more than 55,000 employees and decades of experience 23
Slide 24: Three distinct offerings
We provide three distinct offerings, which appeal to a broad range of investors Listed Private Public Partnerships Funds Securities $49 billion $47 billion $12 billion $108 Billion Fee Bearing Capital Plus numerous co-investment and joint venture opportunities 1) As at June 30, 2016 24
Slide 25: Multiple channels to source capital
…which allows us to use multiple channels to source capital to fund transactions… quickly Co-investors Listed BAM Partnerships Private Transactions Joint Venture Funds Partners 25
Slide 26: Established the backbone to manage growth
In an industry headed towards +$70 trillion of flows by 2020s, we have already established the backbone to manage this growth Investors and regulators expect best-in-class governance and compliance We have invested in our client service capabilities 26
Slide 27: Our large scale capital is a distinct advantage
Our large scale capital is a distinct advantage • Real Asset transactions can require extremely large capital commitments • $108 billion of committed capital within funds – $18 billion of dry powder in private funds – Listed partnership liquidity and perpetual equity • Relationships with global inst
Slide 28: Private funds provide access to premium returns
Our private funds provide investors access to premium returns across the Real Asset investible universe Vintage Gross IRR1 Opportunistic Real Estate 2006 – 2015 23% Private Equity 2001 – 2015 23% Core and Value-add Real Estate 2004 – 2013 14% Infrastructure 2006 – 2016 15% Notes/Assumptions: 1) As a
Slide 29: Our investment approach focuses on two things
Our investment approach focuses on two things 1 2 Purchasing for Value Making Repeatable Investments • Acquiring when capital is • Where we already have scarce scale and knowledge • Value the business as if we • Assets where we can drive will hold forever more value …Our goal is to achieve both with
Slide 30: Colombian hydroelectric portfolio
Colombian hydroelectric portfolio Purchasing Repeatable for Value Investment Calderas, Colombia Sogamoso Hydro, Colombia 30
Slide 31: Self-storage business expansion
We recently acquired a self-storage business and have continued to expand its operations through development and acquisitions Repeatable Investment We plan to build it into one of the largest self-storage companies in North America 31
Slide 32: District energy business growth
We acquired a district energy business and have continued to grow the operations city by city Repeatable Investment Our goal is to be one of the largest district energy companies in North America 32
Slide 33: Three main competitive advantages
We have three main competitive advantages 1 2 3 Large Scale Global Operating Capital Reach Capabilities 33
Slide 34: Natural gas pipeline in southeast Brazil
Natural gas pipeline in southeast Brazil $5 billion LARGE SCALE CAPITAL Brazil GLOBAL REACH Pipeline Team OPERATING CAPABILITIES 34
Slide 35: Landmark mixed-use office complex in Berlin
Landmark mixed-use office complex in Berlin €1.3 billion LARGE SCALE CAPITAL Germany GLOBAL REACH Office/Retail/Hotel Teams OPERATING CAPABILITIES Potsdamer, Berlin 35
Slide 36: Hydroelectric facilities in northern U.S.
Hydroelectric facilities in northern U.S. $1.5 billion LARGE SCALE CAPITAL U.S. GLOBAL REACH Renewable Team OPERATING CAPABILITIES Holtwood Hydro, Pennsylvania 36
Slide 37: Investing our flagship private funds capital
All of which has enabled us to invest our flagship private funds capital... BSREP II BIF III BCP IV >65% >30% >33% INVESTED1 INVESTED1 INVESTED1 …and be in a position to begin fundraising for our next series in 2017 1) As at September 23, 2016 – invested or committed 37
Slide 38: What does all this mean for Brookfield?
What does all this mean for Brookfield? 38
Slide 39: We have achieved the scale to compete globally
We have achieved the scale to compete at all levels on a global basis ~$250B $108B $30B assets under management fee bearing capital invested capital 30+ 700 55,000 countries investment professionals operating employees 1) As at June 30, 2016 39
Slide 40: Capacity to grow at an enhanced rate
We have the capacity to continue to grow at an enhanced rate 40
Slide 41: Our pipeline for Real Asset investment opportunities is strong
Our pipeline for Real Asset investment opportunities is strong Our competitive advantages offer us opportunities in all environments Interest rates look like they will be relatively low for a long time Commodities and emerging markets are slowly recovering We believe that Brazil bottomed in January
Slide 42: We are launching new products
We are launching new products • Expanded Real Estate and Infrastructure Finance Funds Private Private Funds • Core Plus Private Property Funds Funds • Geographic focused funds and sleeves of funds • Distress Hedge Fund added in 2015 Public • Additional long/short and long-only Infrastructure Funds S
Slide 43: Focused on five things
Looking ahead, we are focused on five things… 1 Enhancing returns and asset values 2 Maintain excellent client service and expanding our investor base 3 Sourcing deals and investing $18 billion of dry powder at or above target returns 4 Preparing for next series of flagship funds and launching new p
Slide 44: Bringing it all together
Bringing it all together… • The environment is favourable – Strong demand for Real Asset strategies – Attractive investment opportunities – Favourable financing conditions • We are well positioned – Large scale capital and established execution capabilities – Strong client base with room to grow • E
Slide 45: Financial Review – Brian Lawson
Financial Review – Brian Lawson 45
Slide 46: Themes
Themes Progress since last year Balance sheet and liquidity Growth potential 46
Slide 47: We achieved substantial growth over the past year
We achieved substantial growth over the past year… 47
Slide 48: We raised a record amount of private fund capital
We raised a record amount of private fund capital… IMPACT (Annualized) 2016 Base fees – private funds $ 160 M $16 B increase in Target carry 355 M Private Fund FBC Annualized fees & carry $ 515 M Notes/Assumptions: 1) Impact reflects annualized base fees and target carry, year-over-year change as at
Slide 49: Expanded our listed partnership capitalization
and expanded our listed partnership capitalization… Price IMPACT (Annualized) Appreciation & Capital Generation $ 60 M Base fees 32 M IDR’s $ 92 M Annualized fee revenues Launch of BBU Notes/Assumptions: 1) Impact reflects annualized base fees and incentive distributions, year-over-year change as at
Slide 50: 50% increase in fee related earnings
resulting in a 50% increase in fee related earnings… FEE RELATED EARNINGS (LTM) ($millions) $31 $49 $238 $660 $440 +50% Q2 2015 Base Fees & IDRs Transaction & Other Direct Costs Q2 2016 Fees Notes/Assumptions: 1) LTM fee related earnings as at June 30. Excludes net carried interest 50
Slide 51: Outperforming our previous projections
…outperforming our previous projections FEE RELATED EARNINGS ($millions) 2015 Investor Day 2016 Investor Day $1,480 $1,455 $1,220 $1,140 $960 $700 $660 $440 2015 2016 2017 2018 2019 2020 2021 Notes/Assumptions: 1) Excludes net carried interest 2) 2016 interpolated value from our 2015 Investor Day fi
Slide 52: Annualized target carried interest of $830 million
We have increased annualized target carried interest to $830 million Carry Annualized Eligible Target Capital Carry ($billions) ($millions) Core & Value Add $ 22 $ 350 Opportunistic 17 480 $ 39 830 Direct costs (35%) (290) $ 540 52
Slide 53: Increasing the value of our asset management business
… increasing the value of our asset management business well ahead of our expected pace 2015 Investor Day 2016 ($millions) 2015A 2016P Actual 20x Fee related earnings $ 8,800 $ 10,650 $ 13,200 10x Target carried interest, net 3,090 3,490 5,400 $ 11,890 $ 14,140 $ 18,600 +19% +56% Notes/Assumptions:
Slide 54: In addition…
In addition… Brookfield Business Partners spin-off – $0.50 special distribution to shareholders – ~85% of our balance sheet is now invested in listed securities Deployed or committed to invest $16 billion of capital (LTM) 11% total return on IFRS portfolio values 8% dividend growth on BAM shares Str
Slide 55: Our balance sheet contributes meaningfully to our growth
Our balance sheet contributes meaningfully to our growth… 55
Slide 56: Balance sheet provides several competitive advantages
…and provides us with several competitive advantages 1 2 3 Strength and Facilitates Value creation liquidity execution opportunities 56
Slide 57: ~85% of our balance sheet is held through listed securities
1 ~85% of our balance sheet is held through listed securities, the majority invested in our four listed partnerships INVESTED CAPITAL – $30 BILLION Unlisted Other Listed BBU BPY BIP BEP Provides liquidity and increases transparency Notes/Assumptions: 1) As at June 30, 2016 57
Slide 58: Conservatively financed with important liquidity
1 Which is conservatively financed and provides important liquidity Average Capitalization Maturity Total ($billions) Corporate borrowings 8 years $ 4 Preferred shares Perp. 4 Common shares + 35 $ 43 Total Liquidity Total Core Liquidity $ 6 Uncalled fund commitments 18 $ 24 Notes/Assumptions: 1) Com
Slide 59: Our balance sheet benefits our asset management operations
2 Our balance sheet benefits our asset management operations Co-invest Expedite Seed new transaction products execution And provides alignment of interest with our fund investors 59
Slide 60: Opportunities to enhance the balance sheet values
3 We have multiple opportunities to enhance the balance sheet values Build intrinsic value and narrow discounts Redeploy / reallocate existing capital Share buy-backs for value 60
Slide 61: Invested capital will continue to increase
Invested capital will continue to increase, benefitting from capital appreciation and retained cash flow INVESTED CAPITAL ($billions) 2016 $ 30 CAGR Capital appreciation Distribution increases (mid-point) 12 7.0% Eliminate BPY discount 5 2.7% 17 9.7% +13.4% Retained free cash flow Invested capital 8
Slide 62: Eliminating BPY's discount increases quoted value
Eliminating BPY’s discount significantly increases quoted value of our invested capital ($millions, except per share amounts) Quoted1 IFRS1 Discount BPY NAV per share $ 23 $ 31 $ 8 Units held by BAM 485 485 485 Invested Capital $ 10,890 $ 14,780 $ 3,890 +36% …which compounds to $5 billion of intrins
Slide 63: Operations generate $1.4 billion of free cash flow
Our operations currently generate $1.4 billion of free cash flow, excluding carried interest and recurring investment gains 2016 2016 Free Cash ($millions) LTM FFO Flow Asset Manager Fee related earnings $ 660 $ 660 Carried interest, net 15 – 675 660 Invested Capital Invested capital 1,659 1,251 Dis
Slide 64: Free cash flow should increase strongly
Our free cash flow should increase strongly… even before carried interest FREE CASH FLOW ($millions) 2016 2021 Fee related earnings $ 660 $ 1,455 Invested capital 1,251 2,150 Financing and corporate costs (489) (500) Total $ 1,422 $ 3,105 17% Notes/Assumptions: 1) As at June 30. 2016 LTM and 2021 pr
Slide 65: We continue to consistently increase our dividend
We continue to consistently increase our dividend 7% average annual increase over past five years Strong coverage with current and projected free cash flow Expect no policy change in the short term but will reassess on an ongoing basis Plus, periodically, we give you a special distribution!! 65
Slide 66: Looking ahead…
Looking ahead... Brookfield jos
Slide 67: Rapid expansion has accelerated our five year growth plans
Rapid expansion over the past year has accelerated our five year growth plans 67
Slide 68: Three key drivers to our growth
Overall there are three key drivers to our growth 1 2 3 Raising Fund Distribution Capital Performance Increases Establishes fee base Carried interests IDR’s grow These also enhance our invested capital 68
Slide 69: Our private funds business cycle
Our private funds business cycle… 7-12 YEARS 69
Slide 70: Multiple points of value creation
…has multiple points of value creation Establish base fee RAISE DEPLOY Lock in capital/fees for remainder of fund term (YEARS 1-4) ENHANCE VALUE Generate IRR/MoC and carry (YEARS 4-12) HARVEST Return capital to clients and realize carry (YEARS 7-12) 70
Slide 71: Private capital is long term; 87% extends beyond 2021
Our private capital is long term in nature; 87% extends beyond 2021 PRIVATE FUND FEE BEARING CAPITAL $91B $47B 87% 2016 2021 MATURITY CURRENT NEW FLAGSHIP FUNDS NEW CORE+ FUNDS NEW NICHE FUNDS 71
Slide 72: Shortened cycle to launch and deploy new funds
We have shortened our cycle to launch and deploy new funds… PREVIOUS SERIES CURRENT SERIES Raise / Deploy Raise / Deploy Infrastructure $7B $14B 11 mths / 28 mths 10 mths / >30% in 5 mths Real Estate $4.4B $9B 23 mths / 22 mths 19 mths / >65% in 18 mths Private Equity $1B $4B 24 mths / 35 mths 20 mt
Slide 73: Raising two additional series of funds over five years
…which gives us confidence that we should be able to raise two additional series of funds over the next five years PRIVATE FUNDS & PUBLIC SECURITIES ($millions) FBC Base Fees 2016 $ 59,545 $ 560 Less: Fund maturities (6,000) Add: Flagship funds 2017/2019 20,000 2020/2021 20,000 Core+ funds 5,000 Nic
Slide 74: Listed partnerships' fee bearing capital growth
Our listed partnerships’ fee bearing capital should continue to grow and in five years could look like this… LISTED PARTNERSHIPS ($millions) FBC Base Fees 2016 $ 48,767 $ 425 Market appreciation Shrink valuation gaps 5,500 Distribution growth 16,500 Issuances 10,000 Increase 32,000 400 2021 $ 80,767
Slide 75: Incentive distributions will grow
... and incentive distributions will grow as increased distributions are paid to unitholders in our listed partnerships ($ millions) INCENTIVE DISTRIBUTIONS 450 400 High ($400 mm) 350 Base Case ($340 mm) 300 Low ($270 mm) 250 200 150 100 50 - 2016 2017 2018 2019 2020 2021 High end of target distribu
Slide 76: Strong growth in fee related earnings
…leading to strong growth in fee related earnings; increasing intrinsic value ($millions) 2016 Increase 2021 Base fees $ 912 $ 1,063 $ 1,985 IDR’s 86 254 340 Other fees 107 (7) 100 Fee revenues 1,105 1,310 2,425 Direct costs (445) (520) (970) Fee related earnings $ 660 $ 790 $ 1,455 20 x Fee related
Slide 77: We expect to generate substantial carried interest
In addition, we expect to generate substantial carried interest 77
Slide 78: How we measure carried interest
How we measure carried interest… 1 2 3 Target Carried Unrealized Realized Interest Carried Interest Carry The carry we would Carry generated and Carry earned, excluding generate on third-party based on fund amounts subject capital, assuming the fund performance to date to clawback. achieves the targ
Slide 79: Accumulated carried interest is almost $1 billion
Accumulated carried interest is almost $1 billion, which will be realized as we wind up our funds ~60% Accumulated ($millions) Unrealized Carry Vintage Maturity1 BCP II $ 115 2006 2016 BIF I 150 2009 2022 BSREP I 275 2012 2023 Other funds 385 Various Various $ 925 Notes/Assumptions: 1) Maturity excl
Slide 80: Growth in carry eligible capital and target carried interest
Looking forward, growth in private fund capital will increase Carry Eligible Capital and Target Carried Interest… CARRY ELIGIBLE CAPITAL TARGET CARRIED INTEREST ($billions) ($millions) +17% +17% $83 $1,790 $39 $830 2016 2021 2016 2021 Notes/Assumptions: 1) 2021 projected annualized results. As at Ju
Slide 81: Realized carried interest as funds mature
Which we expect to realize as existing funds mature and we harvest investments ($millions) REALIZED CARRIED INTEREST $8B CUMULATIVE 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 - 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Notes/Assumptions: Existing Funds Target Funds 1) 20
Slide 82: Multiple opportunities to increase share value
Pulling it together… we have multiple opportunities to increase share value 82
Slide 83: Base case leads to $92 per share intrinsic value
Our base case leads to a $92 per share intrinsic value over the next 5 years 2021 Base 2021 Multiple Value ($millions) ($billions, except per share amounts) Asset Manager Fee related earnings $ 1,455 20x $ 29.1 Target carried interest, net 1,165 10x 11.7 Accumulated carried interest, net 5.0 45.8 In
Slide 84: Potential to outperform our base case
We have the potential to outperform our base case 84
Slide 85: Additional capital raised and distribution growth
Additional capital raised and distribution growth expands fee related earnings and target carry Fee Bearing Target ($millions) Capital FRE Carry Add: Enhanced values Larger flagship funds 2017/2019 $ 5,000 $ 60 $ 105 2020/2021 10,000 130 215 Listed Partnership Equity issuances 10,000 230 – Distribut
Slide 86: Upside scenarios increase share value further
Our upside scenarios increase share value further 2021 Enhanced ($billions, except per share amounts) Increase Values Asset Manager Fee related earnings $ 8.3 $ 37.4 Target carried interest, net 2.1 13.8 Accumulated carried interest 5.5 56.7 Invested Capital Invested capital (16.5% growth) 10.0 65.0
Slide 87: Our earnings and cash flows have favourable characteristics
Our earnings and cash flows have favourable characteristics 87
Slide 88: Fee related earnings are stable and highly visible
Fee related earnings are stable and highly visible Base fees are fixed rate contractual arrangements Capital is “sticky” – Private fund life of ~10 years – Listed partnership equity is perpetual IDR’s determined by visible distribution policies Costs are largely controllable 88
Slide 89: Carried interest will become a source of recurring cash flow
Carried interest will become a source of recurring cash flow and earnings Based on relatively lower volatility asset classes Supported by growth in tangible asset values Realization less dependent on IPO market value 89
Slide 90: Invested capital produces relatively low volatility returns
Invested capital produces relatively low volatility returns Underpinned largely by high-quality core/core+ type assets Cash flows consist mostly of visible and predictable distributions from listed partnerships 90
Slide 91: In closing: three priorities
In closing… Across Brookfield we are focused on three priorities throughout our business Best-in-class investment performance Designing innovative funds for our clients Service excellence These are the key determinants of our long-term success 91
Slide 92: Q&A
Q&A Brookfield poz
Slide 93: Notes, Definitions and Assumptions
NOTES, DEFINITIONS AND ASSUMPTIONS This Investor Meeting material contains key operating and performance measures that we employ in analyzing and discussing our results. These measures include non-IFRS measures. We describe our key financial measures below and include a complete list of our operatin
Slide 94: Notes, Definitions and Assumptions (cont'd)
NOTES, DEFINITIONS AND ASSUMPTIONS (CONT’D) • Base Case Value or Invested Capital refers to the value ascribed to our company’s investments on a deconsolidated basis utilizing the following valuation methodologies, which primarily utilize public pricing or reading available external valuation inputs
Brookfield Asset Management — Investor Day (September 2016) on 6ix