Brookfield Asset Management Inc

NYSE:BAM

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Brookfield Asset Management Second Quarter 2020 Results Conference Call. At this time, all participants’ lines are in a listen-only-mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, that today’s conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Ms. Suzanne Fleming, Managing Partner. Thank you. Please go ahead, ma’am.

[Suzanne Fleming, Managing Partner, Branding & Communications]

Thank you, operator, and good morning. Welcome to Brookfield's second quarter 2020 Conference Call. On the call today are Bruce Flatt, our Chief Executive Officer; Nick Goodman, our Chief Financial Officer; and Bahir Manios, CFO of our Infrastructure Business. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results for the quarter. And finally, Bahir will give an update on our infrastructure business. After our formal comments, we'll turn the call over to the operator and take analyst questions.

I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. Securities law. These statements reflect the predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. Thank you.

And now, I'll turn the call over to Bruce.

[Bruce Flatt, CEO]

Thank you, Suzanne, and good day everyone. Our business performed well during the quarter and since we last spoke to you, we recorded our largest fundraising period ever. We raised $23 billion across various pools of capital, the highlight of which was the $12 billion of initial commitments for our latest flagship distress credit fund.

This was raised against the backdrop of the global economic shutdown, which impacted many businesses, including some of ours. But we are now seeing economies across the world slowly reopening. And while it could take well into 2021 for a full recovery, our impacted businesses are already showing signs of improvement.

The success of our fundraising in the period highlights the scale and diversity of our product offering. When we partnered with Oaktree last year, as well as refocused efforts on growing our perpetual private fund offerings, we did so to round out the product offering to ensure we had products that were attractive to our clients across all cycles.

This quarter exemplified the benefits of this strategy, as we were able to accelerate fundraising for flagship distressed debt fund and raised capital for a more fixed income like perpetual funds. A record level of fundraising means we now have $77 billion of capital available to deploy into investments. And we expect the pace of investment to increase over the next 12 months, as opportunities present themselves.

Overall, the increased levels of government debt that we have seen as a result of the economic shutdown will have long-term effects on many things, the most important of which is that many countries around the world will have to offload spending onto the private sector and sell assets. This should bode well for the scaling-up of our Infrastructure and our Renewable businesses. And we have Bahir Manios, our CFO of our Infrastructure business with us on the call today to give us an update on that business, and where we are seeing opportunity.

As government aid tapers, the private sector will also be increasingly in need of capital, and there should be many opportunities for us to invest across all of our pools of capital. This will include us putting funds to work in non-control investments in our recently created special investments program, distressed debt opportunities in our Oaktree funds, and control investments within our property, infrastructure, renewable and private equity flagship funds.

Our latest round of flagship funds is approximately 50% deployed in aggregate. And with the pipeline we see today we should be back in the market for all of them in 2021.

Turning to interest rates, we have discussed over the past 12 to 18 months about what a low interest rate environment means for our fundraising. And we are seeing that play out in real time today with the capital raised since May. But with a zero interest rate environment here and it increasingly looking like it will be here for 5 years plus, this will also have a meaningful impact in a positive way on the real assets that we already own.

The majority of our assets today have long- term, fixed contracts, either long leased property, contracted power or utility or utility-like assets. And with interest rates dropping the value ascribed to these cash flow streams increases significantly.

Just in the past few weeks, we have started to see bids for real estate and infrastructure assets at higher multiples than pre-COVID. While the majority of our investments are the long-term contracted assets, which I just mentioned, we do have some businesses that saw disruption from the shutdowns.

In our private equity business, we witnessed some businesses with sales down more than 50% with the shutdowns in April and May. But virtually all our operations are now experiencing increased activity, with some approaching comparable results to last year in July, August.

In our retail business, our US retail centers were shut down by government mandate for two months. All but one reopened by June 30th, with foot traffic now back to more than 50% of normal levels and improving every week. 85% of stores in the retail malls are now open. Rents are now being collected and our teams are focused on discussions about collections for the shutdown period with some tenants.

While a smaller part of our business, most of our hotels have now also began to reopen. The largest hospitality business we own is called Center Parks in the United Kingdom, which is experienced - experiencing higher forward bookings than at this time last year, largely as a result of it being a domestic offering when international offerings are hard to access.

As another anecdote, we have experienced significantly increase sales in our US single family housing operation. As an example, last year on average we sold 65 homes, to put that into perspective, in April it was close to zero, and today we're selling between 80 and 100 per week. That is 20% to 30% higher than last year. And I would note for you that virtually all single family builders of similar scale are experiencing this not just us.

This is further flowed to wood products, where prices have tripled since March. This bodes well for our investment in Norbord, which has similarly tripled its price in the stock market since March, and looks - the company looks like it has significant room to generate super profits this year.

As it relates to office buildings, our views are laid out in the shareholder letter. And in the next short while we will post a client white paper on the subject for you to review on our website. Simply stated, our view is that companies use their offices to foster culture, collaboration and development of talent. This cannot be replicated from a home office.

Further reinforcing these views, I would note a few facts. First, our sole office buildings, which were among the first shut down globally, are now back to 90% employee occupancy. And I would note for you that Korea is a very tech savvy place. Shanghai is back to almost the same.

In addition, we collect bad swipes on employees at our office property. This totals a million people who work in our properties globally. This is a very large sample of global office workers. The overall information is powerful, as we know who comes and goes, for how long, when and how they move around. What I can tell you is that virtually every day on average since May 1 the numbers in the office have increased. This gives us hard data to base our views on. Therefore, please consider those comments when you read news, which suggests that nobody will ever go back to the office.

Ironically, often provided by some of those who benefit from people staying at home. So please consider those views. Our views are based on hard data and very extensive discussions with large groups of corporations who we lease space to, not merely conjecture.

With those comments, I would gladly turn it over to Nick Goodman, who will cover our results for the quarter.

[Nicholas Goodman, CFO]

Thank you, Bruce. And good morning, everyone. So we had strong results during the second quarter, especially when considering the economic environment. Our asset management earnings continue to exhibit very strong growth, and most of our operating companies showed their resiliency.

We generated $605 million of cash available for distribution or what we call CAFD during the quarter, a 20% increase in the second quarter of 2019 when excluding the impact of carried interest. A strong cash generation, combined with corporate and third-party fundraising activities has increased our deployable capital to $77 billion. This positions us well to pursue growth opportunities in the coming months, quarters and years.

75% of our businesses are back by contractual cash flows from utilities, renewable power, offices, data infrastructure and critical service infrastructure, and we’re therefore unaffected by the economic shutdown. However, we did have some businesses that reported no income for the quarter and we recorded some non-cash revaluations and net income to reflect the current environment.

This resulted in a net loss attributable to shareholders for the second quarter of $656 million or $0.43 per share. But more relevant to the operating performance of the business is our funds from operations or FFO, which was $1.2 billion for the quarter or $0.73 per share.

Starting with our asset management results, fee-related earnings before performance fees increased by 23% to $324 million for the three month period and totaled $1.3 billion over the last 12 months, an increase of 41% from the same period in 2019.

The growth in our fee-related earnings is a reflection of the latest round of fundraising on our flagship funds, contribution from our partnership with Oaktree and the growth of our perpetual strategies. Today, our fee-bearing capital totals $277 billion and our annual fee revenue standard $2.8 billion. We also have a further $29 billion of capital that will become fee-bearing when invested. When fully deployed, this capital will generate approximately $350 million of incremental fee revenues annually.

Our unrealized carried interest balance stands at $2.9 billion, largely consistent with the first quarter. This is a reflection of the stability that our investments provide to our clients. Most of the assets that we manage are privately-owned and generate stable cash flows with strong downside protection of capital, making them resilient and protected from public market - remarks.

While we expect to crystallize the unrealized carried interest, the slowdown in economic activity did delay a number of our planned asset sales and therefore delayed carry realization. That led to a reduction in our realized carried interest this quarter, although we did recognize $76 million of carry in the quarter, and we have recognized $499 million over the last 12 months.

A number of the sales processes that were delayed are now restarting. And we retain our conviction in the fact that both the high quality nature of the assets and their cash flows, combined with the low interest rate environment makes these assets and our businesses very attractive to prospective buyers.

In the last two months, we've completed secondary offers for both BEP and BIPC, combined these two transactions allowed us to realize approximately $700 million of cash proceeds to further enhance our liquidity that we will look to redeploy into other opportunities over time.

We continue to maintain significant holdings in each of these companies and continue to view each as outstanding businesses to invest in and believe these transactions will further support their growth through increasing the public flow and liquidity of the underlying units and shares. And importantly, it also shows the vast liquidity that we hold a Brookfield Asset Management, as none of these investments which can in a day's notice be turned to cash should we wish are counted in our liquidity numbers.

Turning to our balance sheet investments. Excluding disposition gains, FFO for the quarter was $333 million. The decrease compared to the prior year was primarily caused by the disruption from the economic shutdown, which lowered earnings at our modest number of hospitality assets, and other investment properties, in particular our retail investments, as well as certain directly held investments. As mentioned, we believe earnings will return to normalize levels as the economy progresses on its path of recovery.

In the quarter, we recognized disposition gains of $473 million, primarily from the aforementioned secondary offering of BEP units. Today, our liquidity and capitalization remain very strong. In addition to $61 billion of uncalled fund commitments, we have approximately $16 billion of core liquidity across the group, including nearly $6 billion directly at BAM for a total of $77 billion of deployable capital. And if you were to include an estimate of our non-core holdings of our affiliates, it would bring that number closer to $90 billion.

And our balance sheet remains conservatively capitalized, with an implied corporate debt to market capitalization ratio of 13% at the end of the quarter, and average remaining term on our corporate debt of 11 years and we have no individual piece of debt maturing before 2023.

Finally, I'm pleased to confirm that our Board of Directors has declared a $0.12 per share dividend payable at the end of September.

With that, I will turn the call over to Bahir Manios.

[Bahir Manios, CFO, Infrastructure Business]

Thank you, Nick. And good morning, everyone. Many sectors were hard-hit following the shutdown of economies around the world. However, the infrastructure sector demonstrated one of its most coveted characteristics, being at highly resilient cash flows.

While it's too early to comment on learnings from this challenging period, our conviction regarding the attractiveness and sustainability of the infrastructure sector has been reinforced. It is with considerable pride that we can report that every operating business owned by Brookfield Infrastructure was deemed an essential service and thus has been operating throughout this period.

Our assets performed well on a local currency basis, and only a very small portion of our overall revenue was affected by this global economic shutdown. We currently estimate that the true economic impact of the shutdown represents less than 2% of the infrastructure group's overall cash flows.

Within the infrastructure platform, we have a tremendous amount of liquidity across Brookfield Infrastructure partners, our publicly listed vehicle and our private funds, which today sits at close to $20 billion that is available for deployment.

Before I touch on where we're seeing opportunities in the current environment, I thought I'd provide an update on two of our infrastructure private fund strategies that have had a great deal of success recently, both from a fundraising and investment perspective, thereby demonstrating the diversity of not only the sources of capital that are available to us, but also the types of transactions that we're taking part in.

These are super core, open-ended infrastructure fund and are closed-ended infrastructure debt funds. Our super core fund is focused on long term, very stable, almost bond-like cash flows and was established at the end of 2018. Since inception, we've raised over $2.6 billion, including through this recent market volatility and an economic uncertainty. We truly believe this business has great potential and could grow in the size of tens of billions of dollars over the next 5 to 10 years.

On the infrastructure debt side, we raised our first two debt funds being a global fund and a smaller European focused fund in 2016 and 2017, with the aim of investing in the mezzanine debt of infrastructure companies that have stable, regulated or contracted cash flows.

Over the past few years, we've focused on debt investments across the transport, data, energy and renewable power sectors. And these continue to be areas of focus for us. We recently completed an initial or first close for the next vintage of this fund series, raising $1.8 billion of capital.

From a new investment perspective, we believe this is an attractive environment for Brookfield Infrastructure to source opportunities for the foreseeable future. The economic cost to the downturn will be that many industrial companies and all governments will be significantly more indebted. Once the immediate measures to stabilize economies and businesses have been implemented, governments and businesses alike will need to evaluate alternatives to source capital to repay excessively high debt levels.

You probably have heard a number of us speak about this in the past, about the secular trend of governments seeking investment from the private sector to acquire and build out infrastructure. With inflated deficits, along with the desire to stimulate economic activity, we expect the impetus for this to become even more pronounced. In addition, many corporations will be susceptible to tighter credit markets, and they will need to reduce debt levels through asset sales.

We're currently focused on executing several medium sized tuck-in acquisitions for various businesses in our energy, transport and data operations. As a result of the potential synergies, we believe that these acquisitions should be highly accretive if secured.

Furthermore, we're evaluating numerous new investment opportunities in all of our key regions. And ongoing area of focus for us is data infrastructure. We thought we'd spend some time today - on today's call discussing our progress and views on this exciting, high growth asset class.

We're currently witnessing a once in a 100 year investment upgrade cycle. Aging broadband copper infrastructure is no longer able to cope with the demands imposed by an increasingly interconnected and always online world. These networks are being replaced by new state-of-the art fiber infrastructure, which can support increases in data demand, lower latency and faster broadband speeds.

Concurrently, wireless networks are undergoing a transformation to support the enhanced connectivity expected from 5G. On a combined basis, these upgrades are estimated to require trillions of dollars of investment over the next five to seven years.

Historically, these investments were funded by telecom operators. Given the increasing demands on their capital, these operators are now seeking new funding partners. They're increasing their reliance on neutral host, shared infrastructure models to alleviate pressures on their balance sheets. As a result, the investable universe for data infrastructure is expanding in a very meaningful way.

Our original thesis for investing in data was based on the belief that data infrastructure assets have utility light characteristics, with favorable growth trajectories that play a central role in connecting people, places and objects. The importance of these networks was further reinforced during this recent shutdown, as access to robust and reliable connectivity became a basic need to perform routine activities, such as working from home, remote learning and telemedicine.

This was exemplified as an example on our UK fiber networks, where average data consumption increased by 40% compared to the same period last year. Over the past five years, we've established a leading global data infrastructure business. As we expand our current business, by either building and/or acquiring high quality data infrastructure assets, we're well positioned to leverage our expertise in two key areas.

First, we have investments that span the entire connectivity value chain, comprised of one of the largest power portfolios, with a contracted base of over 180,000 sites in six countries. We also own a growing global data center business with approximately 70 sites in 13 countries that are able to serve the scale and latency requirements of a diverse customer base. And finally, extensive fixed and wireless networks that serves over 2.5 million residential and enterprise customers.

There are very few investment managers that operate across the complete value chain that I just described. We on the other hand, have first-hand knowledge on deploying an operating networks such as 5G and fixed wireless access across several geographies. We can leverage this operational know-how and unique insights to capitalize on new trends as they emerge.

Second, there are a significant number of opportunities which are embedded across our broader Brookfield business. Continued adoption in cloud computing is expected to require an incremental proximately 30 gigawatts of data center capacity over the next 10 years.

At the same time, these operators are focused on achieving their stated carbon reduction targets over the next 10 years. We are very well positioned to help support these goals. We're exploring the potential to bundle data centers and renewable power to provide a turnkey green data center solution. This would differentiate us or our offering, relative to more traditional data center operators and could be a game changer for us.

We're also pursuing several other initiatives, including leveraging our existing rights of way to deploy fiber and our existing real estate portfolio to deploy in building wireless solutions. We're very excited by this asset class and believe that there'll be significant opportunity to at least double the size of our existing business, given that we're still in the very early stages of this massive investment cycle that I touched on earlier.

In general, we would describe our current investment posture, especially with respect to larger size new investments, as optimistically patient. We believe that a large scale value opportunity will arise over the next 12 months. We're reminded of our experience during the global financial crisis in 2009, 2010, when the transformative Babcock and Brown investment or BBI that we made did not present itself to us until almost nine months after the Lehman bankruptcy. We passed on many opportunities before the right one came along.

We'll also be focused in the second half of 2020 and into 2021 on executing our capital recycling programming. As both Bruce and Nick alluded to earlier, we're confident that the merits of investing in mature derisked cash flow producing infrastructure assets will be more appealing to prospective buyers than ever before, particularly with expectation for low interest rates for the foreseeable future.

Lastly, before I conclude my remarks, we’re very pleased with the market's response thus far to Brookfield Infrastructure Corporation or BIPC, which was listed on the Toronto and New York Stock Exchange on March 31 of this year. BIPC was recently added to the Russell 2000 US Index. We intend to support the growth of BIPCs public float over time to improve the company's trading liquidity. And the first initiative in this regard was recently undertaken, that Nick touched on in his remarks earlier.

And so with that, thanks for your time this morning and I'll turn the call over to the operator to open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from Bill Katz with Citigroup. Your line is now open.

[Bill Katz, Citigroup]

Okay. Thank you very much for the added disclosure this morning discussion. Bruce, maybe one for you, just as you mentioned that sort of bringing forward the flagship opportunity, in the past you've commented on sort of incremental sizing. I am sort of wondering just given all the ins and outs over the last six months, seven months of the year. What's going on with sort of virtual roadshows, what have you. How are you feeling about allocations and maybe the sizing of the successor funds? And then when you say ‘21, it was just the beginning of the year or second half the year, how you sort of figuring it against the pace of deployment? Thank you.

[Bruce Flatt, CEO]

So it's Bruce. I'll answer and Nick can add some things if he thinks of something else. But I just - first I may be going from back to front. On timing during the year, there are three funds, the deployment will you never know what the deployment is. So we said ’21, I suspect it could be anywhere from late - later this year, for one of the funds through to the end of next year, depending on deployment within each of the different fund. So it all depends on our deployment of capital and opportunities. So the greater number of opportunities we find obviously [ph] deployment will be quicker.

As to sizing, our view is that the platform - our platform gets larger, the opportunities that come to us are bigger. And therefore the capital that we can deploy with a competitive advantage in scale continues to increase. So I think you'll see our funds will be larger at some point in time, after 10 years or 15 years of increasing the scale of these funds, at some point in time they may taper off in the quantums of increase, but at the current time, we don't see that and continue to see large places, large opportunities to put money to work.

[Bill Katz, Citigroup]

Okay, great. Thank you very much.

[Operator]

Thank you. Our next question comes from Cherilyn Radbourne with TD Securities. Your line is now open.

[Cherilyn Radbourne, TD Securities]

Thanks very much, and good morning. In terms of the zero interest rate environment and the pressure that's likely to put on pools of capital that need to earn, call it high single digit return. Clearly your recent fundraising would suggest that some clients have reacted already. But how long would you expect it to take for portfolio allocations to adjust more broadly, such that we see a larger migration at a traditional fixed income and into alternatives?

[Bruce Flatt, CEO]

So I would just say, I think the floodgates have only started to open and the reason is, is that if, if you're trying to earn 5%, 6%, 7%, 8% within a institutional pool of money, there really is no hope to do that with traditional fixed income. And as a result of that, other than holding cash for liquidity purposes or for short bonds for liquidity purposes or some form of long bonds just for safety, all other pools of former fixed income allocations are going to come to lower risk alternatives, and therefore that's going to enhance private credit opportunities. It's going to enhance real estate, infrastructure and all the products that we offer.

So I think you know, you started to see - what I would say is we've been seeing it for 15 years, it's accelerated over the past five years, and it's even going to accelerate more now, if we've gone from 2% to 3% interest rate to zero, and zero and when I say zero, it's zero almost every country in the world and even in some of the emerging markets, we're down to 2% to 3% interest rates, which is even sending their stock markets and other alternative products they have up in value.

[Cherilyn Radbourne, TD Securities]

Okay. And then in light of recent news flow, maybe you could comment just generally, on the extent to which you think that logistics may play a larger role in how some of the space in your mall portfolio gets repurposed?

[Bruce Flatt, CEO]

Yeah, look, I just say our view has been and still is that online retailers and store retailers are going to mesh together and there's going to be one delivery system of products to customers. And that will include both deliveries to the door, picking up in locations and stores where people shop and it will depend on the type of product that's being offered.

And increasingly, that will include many other offerings and we're at the forefront of conversions of portions of the real estate to both back and also to other uses within the centers. So it's - I think there's a lot of change going forward. And for great real estate, it will be a very a positive fact.

[Cherilyn Radbourne, TD Securities]

Thank you. That's my two.

[Operator]

Thank you. Our next question comes from Robert Lee with KBW. Your line is now open.

[Robert Lee, KBW]

Great. Thank you for taking my questions this morning. I'm just, you know, curious, maybe the first question is on CAFDAR I guess is what you call it. I mean, few, I guess a year or so ago, you kind of talked about that doubling over a five year period and as that grows, and particularly as the asset management business transforms with more third party capital that would, I believe, free up more capital whether to redeploying share repurchase or whatnot and obviously, that weighs out.

But could you maybe update us on your thoughts around the pace of cash flow growth and deployment of capital over time. You know, is that still part of the goal plan or do you just see that being set aside for a while?

[Nicholas Goodman, CFO]

Hey, Rob, it's Nick. I don't think our outlook for CAFDAR has really changed. I think our growth projections that we laid out were really aligned to step changes in the growth of the business and we had you know, big step change with the last round of flagship fundraising. And I think as we embark on the next round of flagships with this latest distress, debt fund being the first of the four if you will, that'll be the next sort of step change growth. And then in the meantime, we continue to grow the perpetual offerings, and that will contribute along the way.

So I don't think anything has really changed from that outlook. And we knew this year was going to be maybe smaller growth than last year, just given that path we're on, but nothing has changed. And I think the use of the cash has not changed significantly. We're generating as you know, significant free cash flow from a combination of the asset management business and our invested capital and we plan to use that to reinvest in the business to opportunistically grow the business, like last year, most of that cash would have gone towards the Oaktree transaction, which you know, retaining cash allows us have that flexibility and will support the franchise. And then as we start to step through this and carry starts to pick up and realization picks up, then we will have excess cash that we will look to return to shareholders over time. So, nothing has changed, I would say.

[Robert Lee, KBW]

Okay. Great. And then maybe my follow up, many of the your US peers have focused a lot of attention and resources on growing their insurance businesses or I shouldn't say growing theirs or acquiring insurance businesses, you know, Athene, Global Atlantic, they've all done it something to different degrees, it seems. And now that you own majority stake in Oaktree, which would seem to have a lot of the requisite credit skills. Do you have any ambitions or thoughts about that as in the future area for growth, expanding your insurance activities?

[Bruce Flatt, CEO]

So I think your last point - its Bruce, I think you last point is actually the most relevant one, is that an insurance business is about putting credit to work, small amounts can be put into more traditional alternatives that our franchise is largely been about.

But credit is the biggest portion of it and historically our credit franchise was not that big. So if we bought a big insurer, we would have a tough time putting the credit to work.

With Oaktree, we can now - that opens up other opportunities for us. So it's something we may and could look at and we do have the requisite skills to open up that opportunity. So I think it expands our universe of things we can look at to broaden the franchise if we so choose.

[Robert Lee, KBW]

Okay, great. Thanks for taking my questions.

[Operator]

Thank you. Our next question comes from Mario Saric with Scotiabank. Your line is now open.

[Mario Saric, Scotiabank]

Thank you. Good morning. Just two quick questions. One on successor fund - sorry, one on real asset evaluation in a zero interest rate environment. So just on the successor funds, in the past sizing has been driven, in part based on the depth of the potential acquisition pipelines. So you have noted government expectations to sell assets, given the unprecedented spending, but also a fairly quick recovery in public market valuations.

So I guess my question is just how the size of that acquisition pipeline changed post the start of the COVID pandemic and how has that impacts your confidence level in terms of achieving your $100 billion fundraising target?

[Bruce Flatt, CEO]

Look, I'd say it's highly probable that the opportunity for us to, a, raise capital and b, put money to work is greater today than it was 12 months ago. And that's largely because our customers on hand need our services more and governments who - governments or corporations are more indebted today, and therefore they need our services more.

And as a result of it, I'd say the combination of the two is a much more positive macro backdrop to what we do, despite short term disruptions over the last six months and maybe another six months, but the certainly the global backdrop is very positive to our business.

[Mario Saric, Scotiabank]

Understood. Okay. And then, secondly, just in terms of higher real asset valuations in the letter to shareholders, you kind of referenced an office building example, involving long term good covenant cash flow. So inherently the expected rise in value implies a lower discount rate or cap rate. I think Bruce, in your prepared remarks, you noted that you're starting to see higher multiples being paid in the private market relative to pre COVID levels.

But generally speaking, what do you think is the big catalyst for more broad-based, discount rate or cap rate compression to occur in the private market, assuming investors are comfortable with in-place cash flows for those real assets?

[Bruce Flatt, CEO]

Look, I - the comment I just made in the remarks and I’ll just add to it, is that we're starting to see that occur. But most or many investors today haven't decided that it's time to put money to work. And as the comfortability of the fact that we're going to come through this situation that we've been in gets greater and the interest rates are low, you will start to see more money being put to work and higher valuations pay for assets that fit that category.

And you're already seeing it in the stock markets. But you'll start seeing in the private markets, it's just the - in the private markets logistically, it was difficult for most people to do things over the past three months.

[Mario Saric, Scotiabank]

Okay, thank you.

[Operator]

Thank you. [Operator Instructions] Our next question comes from Andrew Kuske with Credit Suisse. Your line is now open.

[Andrew Kuske, Credit Suisse]

Thank you, good morning. If you could maybe give us a bit of perspective about how your clients think about your super core product and also your perpetual product. And are they thinking it more in the lines of an allocation towards, let's call it fixed income plus, or is it a real asset allocation to them?

[Bahir Manios, CFO, Infrastructure Business]

Good morning, Andrew. Maybe I'll pick that one on just - on behalf of the infrastructure group, given the recent success we've had with our super core launch, which we've been doing now for about two plus years. As I alluded to, in my remarks, we've raised about $2.6 billion from clients, and invested thus far $1.6 billion and have a pretty active pipeline.

And here are clients, and as I mentioned, we're targeting mature derisk infrastructure with minimum volume risks, you know, located predominantly, or exclusively in developed markets. We're targeting high single digit type returns, with most of that coming from current yield. So that's a very important characteristic for our investors.

If you look at the pool of cap, where we've been raising this from, we have about 50 LPs thus far in the fund, most of that is coming from smaller pensions and insurance companies, average ticket size is around €50 million or so. And so it doesn't really overlap with our other Brookfield Infrastructure core series of funds, as well.

So from an infrastructure perspective, that's sort of the game plan for us. And, you know, as I mentioned in my remarks, we expect this strategy to grow materially in the next few years.

[Andrew Kuske, Credit Suisse]

Okay, that's great. Appreciate that extra color. And then maybe the follow up. You do see the two markets is being very distinct, the lower returns stabilized, long term contracted cash flows for super core and then more opportunistic in your traditional flagship infrastructure fund. The first part about it, but is there a potential interplay in the future of some of the assets that you have stabilized in the flagship funds that eventually maybe transitioned over time to super core common product?

[Nicholas Goodman, CFO]

Hey, Andrew, it's Nick. Listen, I think, you know, what we look to do in the flagship fund as we buy assets and where we believe we can bring our operating expertise to drive outsized returns, and I would say often, when we stabilize them and sell them, sometimes we would then go for returns that would be tighter than our super core funds. So - and that doesn't always work.

The obvious answer is we're obligated to strive best value from our flagship funds. We will look to do that. And there are some synergies potentially with using the super core capital when looking at acquisitions and carving up portfolios, and – but the game plan is not to sort of buy assets and one pool of capital to sell to another, we look to manage them independently of each other.

[Andrew Kuske, Credit Suisse]

That's great. Thank you.

[Operator]

Thank you. Our next question comes from Sohrab Movahedi with the BMO Capital Markets. Your line is now open.

[Sohrab Movahedi, BMO Capital Markets]

Okay, thank you. I just wanted to see if you could provide a bit more color just around the fundraising environment. I don't know if you could, there obviously there wasn't an overlap between your existing funders and the Oaktree, new geographies, there's been a little bit of kind of noise around capital flows and restrictions maybe in certain jurisdictions and oil prices and the like.

So I'm just curious if you could give us a bit more color as to why it was so successful, if you will, and what sort of optimism you have towards that success continuing? Beyond the zero rate environment, obviously.

[Bruce Flatt, CEO]

Yeah, look, I would just say you couple comments. First one is that those that have established franchises in periods of time where there is disruption get all money and I guess the corollary is if you had a new funder, we're going - we're going to go try to raise a new fund. It was virtually impossible for someone to do that, meaning a new strategy or a new manager.

And the reason is, is because you couldn't visit somebody's office, talk to them, explain your situation and try to coax them into your fund, if you didn't know them already. So the established brands are being one of them, I’ll call it Brookfield, Oaktree, being one of them is going to get it and the other established brands got all the money who was probably allocated in the last four months. So the first point is, these type of situations money has gone to established brands versus new types of situations.

Secondly, the products that we happen to have today that are on offer are exactly what our clients want, their fixed income alternatives that are being – are supplement to their portfolios, which they're now looking at zero return - zero percent returns. And secondly, it's distressed credit which is, appears like it should be over the next 12 months, one of the great places to invest capital into. And therefore that was attractive to institutions.

So I just say that, in the short while we had the right products for the market, and I think when we come with our next flagships, like always, we should - these are strategies that we've deployed for many years and we should be able to attract capital for those. So I think we have - I think the success in the last three months is just the fact that we had good products in this period of time.

[Sohrab Movahedi, BMO Capital Markets]

That's helpful, Bruce. Thanks very much. And if I can just have a quick follow up on that, when you do come back with or when you do return for flagship fundraising, is there any reason to believe that you may have to alter hurdle returns or fee rates or any of that kind of stuff, as far as the structure of those are concerned and to cash - future cash flows, whether it's management fees, or performance fees, or carried interest or whatever for the Brookfield Asset Management?

[Bruce Flatt, CEO]

I would just say that, that to date, we have not experienced any of that. No one can know the future, but our services are attractive to our clients and we haven't had that issue at the current time, and we don't expect it in the future.

[Sohrab Movahedi, BMO Capital Markets]

Thank you very much.

[Operator]

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Suzanne Fleming for any closing remarks.

[Suzanne Fleming, Managing Partner, Branding & Communications]

Thank you, operator. And with that, we'll end the call. Thank you for joining us today. And we look forward to seeing you at our Investor Day in September. We expect will be there in person in New York. And we'll have room for some of you who wish to join us in person. As we did last year, we'll be live streaming today for those who aren't able to join us in person. We look forward to seeing you then. Thanks.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.