Brookfield Asset Management Inc

NYSE:BAM

Earnings Call Transcript 2020-Q3

[Operator]

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

I would now like to hand the conference over to your speaker today, Ms. Suzanne Fleming. Ma'am you may begin.

[Suzanne Fleming, Managing Partner, Branding & Communications]

Thank you, operator, and good morning. Welcome to Brookfield's third quarter 2020 conference call. On the call today are Bruce Flatt, our Chief Executive Officer; Nick Goodman, our Chief Financial Officer; and Mark Murski, a managing partner in our Infrastructure Business and Chief Operating Officer of its North American operations.

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, Mark will talk about infrastructures and way of 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 morning everyone on the call. Starting with our operating performance in the third quarter, and Nick will get into it in detail but I'll just make a few comments. We earned record operating FFO during the quarter, in fact higher than any other quarter in our history. This demonstrated the strength and resiliency of our combined asset management franchise and the quality of our operating businesses today.

And I would also note that we're just starting our way out of this recession and not all of our businesses are performing where they should be. The strong operating performance across these businesses was driven by excellent results, in several of our private equity businesses, some of which benefited from strong demand and pricing from new housing starts which snapped back after the lockdowns in the spring.

Consistent with previous quarters, our infrastructure and renewable businesses continued to deliver very steady results back by a 100% availability of all of those assets. Those businesses that didn't see volume decreases in the first half of the year such as our ports and toll road businesses saw recoveries during the quarter as government eased restrictive measures.

Within our real estate business, office rent collections remained at normal collection levels and investment demand for this asset class is strong and soon to get stronger. Just this last month, we entered into an agreement to sell one of our London office properties at a 9% premium to the price we paid for half the property just 12 months ago.

For those of you familiar with real estate jargon, it was at a sub 4% cap rate. Across our retail mall portfolio, foot traffic is increasingly and more importantly, customer spending continues to increase as does rent collection each month. For the month of October, we were above 70% collection across our malls and a good portion of the differences from tenants that are open but we are still discussing arrears from the lockdown period.

We're also seeing a return of occupancy at most of our hospitality assets as we continue to open up across the portfolio. Of course, nothing is ever perfect and, in some spots, where we have taken a few steps back but bottom line is that the economies are on the mend and assets are coming back from their induced shutdowns.

Turning to our asset management franchise and fundraising, we raised $18 billion of private capital during the quarter including over $12 billion towards the previously announced first close of our latest distressed debt fund and $6 billion in commitments across a growing number of other strategies.

A few examples include our European core-plus real estate fund that closed during the quarter, raising just over a €1 billion and exceeding its initial target. And our second vintage private infrastructure debt fund, which has raised nearly $2 billion to-date, already double more than the previous fund.

The success of our recent fundraising reflects the investment team that we're seeing in the market today with investors moving capital out of government bonds in into asset classes with low volatility and proving income to supplement their portfolios. Today we have over $75 billion of liquidity or dry powder cross our private and public entities available for new investments. We see opportunities to deploy this capital beginning to pick up.

In March, when the shutdown started, governments were able to bridge bond and equity markets to get businesses through a period of time. But those who were in bad financial situations to begin with or blow too much money over the last nine months, will soon need equity. Many of them will have to be re-capitalized in some form and given our significant amount of capital to put into these opportunities, we are ready for it.

With the pipeline of deals that we are currently working on today, we expect to be back into the market soon with our next round of flagship fund starting with that real estate fund in early 2021. Turning briefly to our own corporate cash deployment, over the last few months we funded a number of new areas including reinsurance which I'll discuss in a moment.

We also allocated approximately a $1 billion to purchase of PPY, who's current trading price does not reflect anywhere near the value of the high-quality portfolio of real estate that it owns. This is similar to the current trading price of Brookfield Asset Management. And given the discount widened recently, due both to increases in value of our assets, and share price declines, we were repurchasing band shares in the last month and will continue to do so as long as the shares trade at meaningful discounts to our view of underlying values.

Lastly, and before I turn it over to Nick, at our Investor Day in September, I touched on a number of new strategies that we believe will be the next large areas for growth for us over the next decade. One of those strategies is reinsurance. As we looked at the Reinsurance space over the last five or 10 years, we were cautious with our approach, particularly in an environment of declining interest rates that heightened the risks of locking in long dated liabilities at relatively high interest rates.

But today, with interest rates globally, essentially zero, we believe that the risk of reinsuring long tail liabilities is the lowest it has been in our lifetime. And it's therefore an opportune time to provide capital to insurance platforms, and build our Reinsurance business.

Over the past few years, we have seated a few smaller insurance businesses on our own balance sheet as we built up expertise in the space but last month, we entered into a strategic partnership with American Equity to reinsure $10 billion of their fixed annuity policies. We believe our alternative asset strategies will deliver long-term value to this portfolio, and hopefully, other companies will consider similar partnerships with us going forward.

In order to set up these growing operations in the most effective form, we also announced our intention to create a new listed entity, which will be named Brookfield Asset Management Reinsurance Partners, which will be distributed to you as a special dividend. This new entity will be designed to enjoy all the benefits of BAM as a parent security, and all the upside created in Reinsurance will be shared with all BAM, and BAM Reinsurance shareholders.

We expected this new share will replicate the success of pairing our - the success of the pairing of our Brookfield Renewable and Infrastructure Corporations that were created earlier this year. We hope to complete the spin-off of BAM Reinsurance Partners sometime in the first half of 2021, subject of course, to all the necessary regulatory approvals.

Sometime in the future, once Reinsurance is more mature, this cat pair could be turned into a separate entity, but for the time being, it will require the resources of Brookfield to grow. In the interim, it will be set up efficiently for the operating the business and will also enable you to choose which security of Brookfield Asset Management is best for you to own in your own capacity.

So, with those comments, I will turn it over to Nick Goodman, who will cover our results in more detail for the quarter.

[Nick Goodman, CFO]

Thank you, Bruce and good morning, everyone. As Bruce touched on earlier, our financial results were very strong in the third quarter. Funds from operations or total FFO were $1 billion for the quarter or $0.65 a share which was a 26% increase over the prior year quarter. Our operating FFO, which excludes the impact of disposition gains and realized carried interest, was a record $850 million in the quarter, or $0.53 per share. And this really reflects the resiliency of our operating businesses and the growth in our asset management franchise.

All of this resulted in income to shareholders of $172 million, or $0.10 on a per share basis. And while this is lower than usual, due to some lagging effects of the shutdown, we do expect the fourth quarter and 2021 to return to close to normal levels.

Within our asset management results, fee related earnings increased by 22% to $372 million for the three-month period and totaled $1.4 billion over the last 12-months. That's an increase of 36% from the same period in 2019. This growth is a reflection of the record fundraising and deployment across our long-term and perpetual private funds growth in our listed affiliates and a few years contribution from our credit business.

Today, our fee bearing capital totals $290 billion and our annual fee revenue stand at $3 billion. We also have approximately $30 billion of additional capital that will become fee bearing when invested, and that should generate approximately $300 million of incremental fee revenues annually when fully deployed. In the quarter, we generated $703 million of gross carried interest bringing our unrealized carried interest balance to $4 billion.

This is reflective of value enhancements within various operating businesses in our private funds, and value uplifts on publicly traded securities within our credit strategies. We recognize $42 million of carried interest during the quarter, and that's $482 million over the last 12-months. Transactions have slowed over the last six months as you would imagine. But we are now seeing the pipeline of deal activity for both private and public markets pick-up and we expect to realize an increasing amount of carried interest in the near future as we complete the monetization of assets within our more mature flagship funds.

Turning to investor capital, excluding disposition gains FFO for the quarter was $478 million, an increase of 34% from the prior period. The increase was driven by excellent performance within some of our private equity businesses, most notably Norbord and similar strong performance within our portfolio of financial assets.

We also saw a 50% increase in home sales compared to last year at our North American Residential Homebuilder and this should translate into increased FFO over the next few quarters as the home sales are delivered. Finally, our FFO benefited from the contribution of newly acquired assets and same store growth across a number of our segments.

Since we last reported, we successfully completed secondary offerings for a portion of our holdings in both Pepsi and Bepsi. These securities have seen tremendous demand since their spin-offs, and these transactions should further support liquidity in these shares by increasing the public float.

Our balance sheet remains a significant strength for us with many investments that can return to cash on a day's notice, though, are not counted in our liquidity numbers. Through these two transactions, we were able to unlock approximately $500 million of liquidity, which we can look to redeploy into other opportunities overtime. We do continue to maintain a very significant holdings in both of these companies, and continue to view each of those view each as outstanding businesses to invest in.

Our strong results like the $747 million of cash available for distribution, or what we call CAFDR during the quarter, as a 37% increase from the third quarter of 2019, when excluding the impact of carried interest. On the last 12-month basis, we generated a record $2.8 billion of CAFDR, which highlights the stable and predictable nature of our cash flows through all market cycles.

This cash flow continues to bolster our liquidity, which we look to reinvest in the business. For example, to start new investment strategies such as insurance or technology, or overtime will be returned to shareholders. Over the last 12-months, we've returned over $1.3 billion of capital to our shareholders through dividends, and share repurchases.

Today, our liquidity and capitalization remain very strong. In addition to $60 billion of uncalled fund commitments, we have approximately $16 billion of core liquidity across the group, including $6 billion directly at BAM. And that's it for a total of $76 billion of deployable capital.

After the quarter end, we further enhance this liquidity through the issuance of a 60-year $400 million green subordinate note at 4.65%, proceeds of which will be used to fund eligible green projects. Including the new issuance, our balance sheet continues to be very conservatively capitalized with a corporate debt-to-market capitalization ratio of 14% and an average remaining term on our corporate debt 14-years. And we have no individual piece of debt maturing before 2023.

Finally, I am pleased to confirm that our Board of Directors has declared a $0.12 per share dividend payable at the end of December, and we look forward to giving you another special dividend next year as Bruce described.

With that, I will now turn the call over to Mark Murski.

[Mark Murski, Managing Partner, Infrastructure Business & COO]

Thank you, Nick and good morning, everyone. I'm pleased to join you today to tell you about our North American District Energy Utility called Enwave and the evolution and growth that we have achieved in this business.

Enwave which is held in our early vintage infrastructure flagship funds is a great case study on how we identified, acquired a leading and sustainable energy business for value and used our operating expertise, access to capital, knowledge and expertise within adjacent asset classes to grow the business and create significant amounts of value.

First, let me start with a quick overview of District Energy. District Energy refers to large scale networks of heating and cooling systems that generate, store and share different forms of energy through individual buildings in a district. Users benefit from the cost efficiency and full redundancy of a central energy system that's allowing them to redeploy their capital and space into higher and better uses.

Today, District Energy is a key driver of the sustainable growth of cities globally. This is because 70% of the world's energy is consumed in cities today, and 50% of that energy is used for heating and cooling. This creates a meaningful opportunity for District Energy systems to efficiently and effectively heat and cool our buildings, while contributing to sustainability goals by deploying a communal low carbon green energy technology across broad networks of pipes through major cities.

Speaking specifically to Enwave, in 2012, we had the opportunity to acquire the business which was and still is one of the most unique District Energy utilities in North America, if not the world. Enwave is the largest geothermal cooling district energy system in the world and offers the cleanest form of cooling to be harnessed, specifically deep lake water cooling from Lake Ontario at the foot of the city. This deep lake water cooling technology is about 2.5 times more efficient than conventional cooling, and leads to a 90% reduction in energy usage compared to conventional heating and cooling systems.

At the time, the business was serving a small subset of hospitals, data centers, offices and residential buildings in the Toronto downtown core. And the growth aspirations were modest, and limited to a local market. We acquired the business with a view that we were A, buying a great existing business with very strong in place cash flows and a strong organic growth potential. And B, we could leverage the economic, social and environmental qualities of the renewable energy to grow the footprint of the business by three to five times in accretive and sustainable manner.

What we learned in very short order was that the attributes of District Energy were even better than we had underwritten. In addition to the clear high barriers to entry, which is an important characteristic of all investments we make, the economics of District Energy delivered significant value to customers in the forms of reliability, capital allocation, lower operating costs and sustainability. And from an operations perspective, utilization can materially exceed a 100%.

Because of these distinct attributes, we were soon able to drive double digit organic growth in the initial portfolio of assets that we acquired and achieve renewal rates over 99%. This early experience gave us the conviction that district energy is a superior asset class in the infrastructure space and shapes our plans to accelerate growth of the business into new geographies, especially given the significant amount of market dislocation between price and value that we were seeing within the asset class at the time.

Over the past eight years, we've been active in acquiring some of the best District Energy systems in the fastest growing and most populated cities across North America, including Seattle, Los Angeles, Las Vegas, Chicago, Houston, and Toronto. From these acquisitions, we were also able to select the best talent and add some key positions to form a top tier management team, who in turn have been able to integrate and optimize our assets into one highly functioning entity, and drive best practices, efficiency, and grow the Brookfield operating culture across the Enwave platform.

Well we had an acquisition was a leading unregulated utility, but one that had unutilized capacity due to the lack of proactive sales culture. We applied structure to sales with targets and goals for organic growth and support supplemented the team where needed and rewarded achievements along the way. During our ownership, we have been able to connect over 135 new buildings and grow EBITDA from $26 million in 2012 to over $200 million today on a run rate basis.

This is a compound annual growth rate of 21%, 13% of that growth, or $150 million of annual EBITDA was driven organically. For those less familiar with infrastructure asset class, this level of growth for utility is unparalleled. And this was all completed while maintaining an investment grade rating. Overall, we believe we have generated approximately $3 billion of value.

It is our expectation we will generate a 20% to 30% IRR on this investment, materially outperforming the investment return targets of the funds it sits in. This should drive significant returns to our private fund clients and our BAM shareholders will benefit from the realization of carried interest as these funds wind down in the coming years.

Before we wrap-up, I would also like to touch on this investment from a sustainability standpoint. Today, Enwave's fleet of energy generation assets within the district energy space, are one of the most efficient and cleanest in the world. A few highlights of this include be North America's largest recycler of building waste energy, operating the world's largest commercial deep lake cooling system.

And North America's largest heating and cooling thermal batteries, as well as North America's largest ice battery, which is used for making and storing ice at night when electricity prices are at their lowest, then distributing the chilled water during the day to cool buildings. Together, the energy savings of all these technologies is an annual equivalent energy consumption of 15,000 residential homes. The GHG savings is equivalent to 42 million car miles, and the savings of 1100 Olympic sized pools of water.

So, to wrap up, I will just summarize, this has been a very exciting high performing investment for us. And a perfect example of Brookfield investment strategy of identifying high quality, scalable businesses that have high barriers to entry and benefit from predictable inflation linked cash flows, where we can also drive additional value creation.

Our strategy of identifying early acquiring, and using our deep operating expertise across a number of adjacent asset classes to integrate sustainable district energy assets across North America allowed us to grow a small local utility into a highly desirable global leader in the district energy space. To achieve that, we essentially commercialized the utility by applying a leasing strategy and promoting the economic and environmental benefits of the sustainable energy it provides.

We're very proud of the management team's success in growing Enwave into a best-in-class operator and a global leader in building and growing sustainable district energy. We look forward to our clients and shareholders taking part in its continued success.

Thank you. I'll now pass it back over to the operator for questions.

[Operator]

Thank you. [Operator instructions] And our first question comes from Sohrab Movahedi from BMO Capital Markets. Your line is open.

[Sohrab Movahedi, BMO Capital Markets.]

Thank you. Two questions, first on the Reinsurance program. Just wanted to confirm that using the American equity life reinsurance is a good template for sizing the price if you will in the opportunity over the coming years, both from a leverage and potential return perspective?

[Mark Murski, Managing Partner, Infrastructure Business & COO]

Did you want - Bruce - you're going to ask the second question or you want to do want me to take that first?

[Sohrab Movahedi, BMO Capital Markets.]

I can also ask the second question, Bruce, unrelated would be just in pursuit of trying to ensure that the value at the asset management franchises fully kind of appreciate it and realize I wonder if you would ever consider distributing any of that BAP or BIP shares to BAM shareholders directly, increase the opportunity for management ideas and increasing liquidity at BAP and BIP as well so, just those two questions, please.

[Bruce Flatt, CEO]

So, here's what I say on this on the second question, which I think is if I don't get them exactly right, please follow-up. But the question is, would we consider distributing out to the shareholders of BAM, shares of Brookfield Infrastructure or Brookfield Renewable Partners? And look from time-to-time, here's what I'd say from time-to-time we consider many different alternatives in the company, which will create value for shareholders. And that we considered in past.

We've not done it A, because there are some of our shareholders like to own what they own and we have a tendency to give spin-offs to people but we can't do too many of them all at once. But we'll continue to think about the opportunities we can get great value and that could be one of them in the future that fits into the plans. But we have no intention at this point in time.

As to the size of the Reinsurance program, here's the comment I would say, is that given the industry for long tailed insurance has experienced what they have over the past 10 years being interest rates coming down. Many entities are requiring capital to continue to write policies and don't trade at proper net asset value prices in the marketplace.

Therefore, they require capital and we think the confluence of us being interested in the business and the counterparties requiring capital, our capitals can be a lot more efficient to them than others than what they would do in the market issuing stock or doing something like that. So we think there's a number of opportunities to be able to continue to add on to the business, like the transaction that we did recently.

[Sohrab Movahedi, BMO Capital Markets.]

And so just for abundance of clarity, Bruce, the $0.5 billion of equity, backing up $5 billion to $10 billion of insurance liabilities, that is - that kind of gearing ratio is what you would kind of contemplate, when you're thinking about what you talked about at the Investor Day where the insurance opportunity could be upwards of $200 billion of AUM?

[Nick Goodman, CFO]

Thank you, Robert. It's Nick. I would say that that's probably correct. I mean, the amount of capital that you have to hold in reserve is really dictated by where you invest the assets. But based on a reasonable investment portfolio mix, I would say that that's a fair starting point.

[Sohrab Movahedi, BMO Capital Markets.]

Thank you very much.

[Operator]

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

[Cherilyn Radbourne, TD Securities]

Thanks very much, and good morning. In terms of the inaugural impact fund, I was hoping that you could help us differentiate between the types of renewable investments but it would like to make or would look to make versus the types of renewable investments that you would normally undertake in the flagship infrastructure funds?

[Nick Goodman, CFO]

Yeah, so, our - the transition fund will invest into assets, which will move the economy towards net zero. So it could include renewables, but it could include other industrial businesses and infrastructure assets and other assets, which fits that mode. And they have to have to be able to fit the definitions that are out there, they have to have additionality, meaning that we will develop and create more assets in the future. So it'll be much more focused on deploying capital to achieve the transition to net zero.

And we think that universe is very, very large, which could include some assets that might otherwise fit into our renewable program and, as you know, in all of our entities or our listed entities partner with our private funds. And therefore, in this regard, if it's appropriate, some of those might be partnered with Brookfield renewable partners.

[Cherilyn Radbourne, TD Securities]

Okay. That's helpful differentiation. And then just picking up on the Reinsurance discussion and the advantages that you bring to a partner like American equity, is the crux of it your ability to generate higher returns on the assets? Or are there any other relevant advantages in areas like capital or tax?

[Bruce Flatt, CEO]

Look, I would put it down to we have significant access to capital that many organizations don't have access to just, because we've spent the last 25 years working with institutional investors. And secondly, our skill set is investing into alternatives and alternatives and you've heard us say this many times before alternatives are really the only place for institutions to turn today to deploy capital to get a reasonable return.

And because the skills we have and the investing apparatus we've set up, can create assets and deploy money into alternatives much more efficiently than others. That's really the advantage that we bring to the table.

[Cherilyn Radbourne, TD Securities]

Thank you. That's my two.

[Operator]

Thank you. Our next question comes from Bill Katz from Citigroup. Your line is open.

[Bill Katz, Citigroup]

Okay. Thank you very much for taking the questions this morning. Just we should mention that you might be the market in the early part of next year for the real estate fund. So step back a little bit and walk us through the time that you foresee for the three class three segments themselves and how you think about successor funds versus the predecessor funds now in terms of sizing?

[Nick Goodman, CFO]

Hey Bill, it's Nick. Yeah, you're right. I mean, obviously, when we launched the next funds, as dictated by the pace of deployment of the existing bunch of funds, and their real estate fund was obviously the first one of the three to be closed, and therefore is the most advanced in deployment right now. And we said a few times we expect it to be back out in the market early next year.

And I think based on where it is today, that's a reasonable assumption. And then you would expect private equity and infrastructure to follow after that, still expecting them to be at some point next year as well, based on deployment. And the size of our funds, there's really a few variables that go into the funds when we're sizing them. One would be what we think that deployment opportunity set looks like and our ability to invest that capital whilst achieving our desired returns.

The second would be what we think investor appetite will be for those funds. And then we obviously have a third variable, which is how much the Brookfield commitment will be to each of those funds. But I think, based on our current expectations, we believe and we said this at our Investor Day that there is definite room for growth in those funds and expect them still be in line with what we would have laid out at Investor Day and how conviction that we can raise that capital and put it to work for value.

[Bill Katz, Citigroup]

Okay, and just Nick gave us a review, just in terms of the FOE margin, given the scaling of the Oak Tree footprint and some of the assets they've most recently raised, how to think about maybe the flow through to your margin outlook, as we look into 2021, obviously, at the high end of your range in the quarter itself, and maybe transaction activity there, but how to think about maybe the incremental margin from here?

[Nick Goodman, CFO]

Yeah, so I think our comments will be largely consistent with prior quarters, obviously, these funds will get larger, and so that we'll see potentially an increase, but there's offsets. Because the funds get larger, we have to obviously raise more capital, which means reaching out to more clients servicing more clients pursuing new channels of distribution.

So, there is obviously a cost buildup of that we are incubating and building new strategies on balance sheet, and we have insurance technology transition, those start smaller, but we build the apparatus for investing in managing that capital up front as well. So, I think that there is going to be growth, and there's obviously positive momentum right now strong margins this quarter, but I still think of it being in the range we previously talked about as we - we build out the operations that supports it.

[Bill Katz, Citigroup]

Okay, thank you.

[Operator]

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

[Robert Lee, KBW]

Great. Good morning. Thank you. Thank you for taking my questions. Now, maybe sticking with BAM Reinsurance I guess frankly, I'm trying to understand, some of the reasoning behind doing this an hour now I mean, I understand the other on BEP and BIP, creating the parents securities and see corpse reads attracted a broader investor base, which has been evidence.

That's not an issue that I think BAM had, and understanding you're trying to stand-up the Reinsurance business and invest in it kind of feels why now, certainly, since it's just going to be a reflection of BAMs earnings. And I guess the second part of that would be to extend you raise future capital for Reinsurance is it all going to be through that vehicle. So, therefore its results will start to deviate from BAMs, is that the way to think there?

[Bruce Flatt, CEO]

So, I'll take the first one and then and then Nick can add to it. If I don't hit the answers, I guess it's important for us to set up this entity from the beginning in a proper way in a proper place, so that it can compete with all the global insurance - Reinsurance businesses that are in existence.

And to be able to do that, then the most efficient way for us to do it is to set up the entity the way we're setting it up. We considered whether we should actually have it as a spin-off to shareholders but it's not mature enough yet and it needs the resources of all of Brookfield to be able to grow for the next two, three, four, five years, possibly forever.

And only at some point in the future when it's more mature, would we consider splitting it apart and actually making it a separate security like the Infrastructure Company or renewable company or property company. For the time being, it'll have the benefits, but it'll be set up in a way such that that could happen. And that's quite important to us for the future.

So that's the answer to the first part of your question. And the second, maybe I'll turn it over to Nick, to just answer that part.

[Nick Goodman, CFO]

Yes, Rob, I think in its current form, and given it's appeared security transferable back to BAM, and the excess value accrues to BAM any performance or strong performance in there, accrues to all shareholders. So the business and the unit will perform well, but the BAM shareholders will benefit from that strong performance in this current structure.

[Robert Lee, KBW]

Okay. Thanks. And maybe if I just one quick follow up going back to the fundraising as, and I apologize if you may have responded to this already in Bill's question. But how can we think of your future commitments through the next round of flagship funds? I mean, if we want to make an assumption that maybe they grow in size that given strong third-party demand. How are you thinking about that?

[Bruce Flatt, CEO]

Yeah, so I touched on it briefly in the question. It's one of the variables that goes into our decision making when we launched a fund. And I think, we're going to be a significant investor in the funds, as they get larger, the absolute investment will be sizable, but the percentage may come down.

And I think we don't have a pre-determined level in our minds, but we know that it's going to be part of the decision-making process when we size the fund, again, based on the investment opportunity set and client demand. And Brookfield commitment will be up just one of the variables that go into but I think you can assume we will continue to be significant investor that maybe expect their percentage to come down whilst the nominal dollars remain material.

[Robert Lee, KBW]

Great. And if I'm allowed one last question, it seemed kind of hinted in the release that maybe the outlook for carry generation is improving and can maybe dig into that a little bit, kind of what you're seeing, and maybe how we should be thinking of that development, as we look ahead to 2021. And which businesses maybe you would expect to be the leaders in that?

[Bruce Flatt, CEO]

Yes, I think it's just premised and again, consistent with prior remarks in this low interest rate environment that we are in an owning a number of businesses that have performed very strongly through the shutdown. And really, it's only enhanced the perspective of their resiliency and their performance, as we come out with this results, a lot of capital in this environment, working for inflation protected cash flow like that.

So we have many businesses that we would have been thinking of taking to market earlier in the year that we paused and now we're returning to those. And we had one transaction, we previously an entity, a real estate business, and a storage business. And we would have others obviously don't want to pay what they are because there are processes.

But I think you can start to see more monetization and obviously the public markets are also very supportive right now. So we just believe that there will be renewed momentum around add dispositions end of this year and coming into next year. And that will obviously result in some increased realized carry compared to the last six months.

[Robert Lee, KBW]

Great. Thank you for your patience with my questions.

[Bruce Flatt, CEO]

Thank you.

[Operator]

Thank you. And our next question comes from Mark Rothschild from Canaccord. Your line is open.

[Mark Rothschild, Canaccord]

Thanks. Good morning. You've got a little bit active in the buyback subsequent to the quarter. And I'm just curious how much of that was taking advantage of a normal drop in the share price versus a thought that you have excess capital that maybe you want to put into buying back shares more aggressively over the next year?

[Nick Goodman, CFO]

It's a combination, I would say mainly driven by as we have excess capital, we looked to redeploy into the business. But when we saw the disconnect really widen as Bruce said, our value in our view at increased intrinsic value and share price dropped and that disconnect go wider that drove the decision in last sort of period last month, specifically and as we look forward, if something like that persists, and that deep value pertains then we'll invest more capital but we do also have a number of other investment opportunities in the business, where we can put capital to work.

So I would say it's just an ongoing decision and we haven't got any predetermined views for what will happen in the next six to 12 months.

[Mark Rothschild, Canaccord]

Okay, great. Great. Thanks. And maybe just one more question. And this was kind of asked earlier, just want to clarify make sure I understand for the impact funds, there clearly could be a lot of overlap with your existing course, subsidiaries. So, let's say in a property, could BPY, or your real estate funds the co-investor in an impact - fund in an impact investment? Or do you expect that this would be totally separate, then perhaps the impact funds as being another public subsidiary at some point?

[Bruce Flatt, CEO]

Yes, so at this point in time to start from the end and go back at this point in time, we have no intention of having a listed entity for transition. But as with all of our private funds, one of our listed entities of invest the Brookfield Capital into that investment. So, some investments for the transition fund may be appropriate for infrastructure or renewables or property, or our BBU entity, it may be and they would invest our portion of the capital.

And if not, then Brookfield Asset Management would take up that portion. So, if we were 25% of the money, the 25%, may come from any one of those and that that's the way all of our funds are. Today, we're one of the entities does it just so happens that in property, there's only one listed entity that makes the investments beside our private investors.

[Mark Rothschild, Canaccord]

Okay, Thanks for clarifying. I appreciate it.

[Bruce Flatt, CEO]

Welcome.

[Operator]

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

[Mario Saric, Scotiabank]

Hi, thank you. Just getting back to BAM Reinsurance partners I think Bruce, you mentioned there's a possibility it could be a separate entity down the road when you have it up to five years, in terms of timing maybe forever.

Should we look at historical precedent with respect to your other listed subs in terms of size as a good proxy for when you think that may occur? So, if I go back and take a look a bit, the EBITDA was roughly about a billion, the U.S. book too approx. was about 2 and so on. So, how should we think about kind of the factors that drive that decision and timing in terms of creating [Indiscernible]?

[Bruce Flatt, CEO]

I don't know. The answer is we're never too sure until we get into it. I think this entity could be far greater and need more access to our - it needs more access to our resources than the other entities because of all the investments it needs to make. So, for the time being it needs to be paired to Brookfield.

But the real determination will be if very, very significant amounts of capital are required. And we don't have enough capital on the balance sheet of Brookfield and we'll need to look for one of two places to invest new capital into that and they'll either be private clients of ours to invest in the entity and share that entity with us or we'd love to spin it off from Brookfield and that maybe at some point in the future.

[Mario Saric, Scotiabank]

Okay, thank you for that. And then my second question just pertain to the transition from thinking about letter it stated intention for the first private fund in terms of size will be comparable to other private funds. So just want to clarify, if you were referring to your existing flagship funds, the size of your inaugural flagship funds in each of the verticals or to private funds?

[Bruce Flatt, CEO]

We were referring to our flagship funds. And we hope to that, but I don't think I can get into specific numbers just because of the regulatory requirements.

[Mario Saric, Scotiabank]

Okay, thank you.

[Operator]

Thank you. Our next question comes from Andrew Kuske from Credit Suisse. Your line is open.

[Andrew Kuske, Credit Suisse]

Thank you. Good morning, clearly your structure is different than most of the others that are on the market. And it's giving you a lot of flexibility from a funding standpoint, but also from an investing of BAM capital, and you really reallocated capital through the corporate family with some of the buybacks and offering activity in the quarter.

How do you think about that embedded optionality that you have from a BAM standpoint, given the array of vehicles that you've got, and then combining that with the private capital and your flagship funds?

[Bruce Flatt, CEO]

Yeah. Look I might start off and then Nick can add to it. And just say that our job as Brookfield Asset Management is to do two things. One, we're running a large-scale asset management business, and second, we're in the business of allocating our capital effectively so that our shareholders can maximize the value of what they own.

And that really involves two things, using there could be capital we have to support our investment management business and invest to site our clients and make sure that we can access opportunities for them that they wouldn't otherwise get because of the capital that we have.

But secondly, it's making investment decisions when securities and risk priced and if we understand them possibly better than others or has a view different than others utilize them as pricing to enhance the value long-term of the business. And I do think that there is one of the reasons why our returns over 20-30 years have been better than some comparable entities is because of the capital allocation and rotation from investment to investment.

[Andrew Kuske, Credit Suisse]

Okay. Thank you for that. And obviously you have the set up the Reinsurance business. So you do have a sizable chunk of the BAM balance sheet still sitting in residential, and you've had vehicles in the past in a few different jurisdictions in the resi space. When do you anticipate or when are the market conditions appropriate to really spin that off of your balance sheet?

[Nick Goodman, CFO]

Homebuilders today or the flavor of the last six months, they've been highly successful, they've all doubled, tripled, quadrupled in value. Of course, ours has done really well it you don't see that necessarily, because it's private. And it's on our balance sheet and not listed.

I would say that our experience over a 25-year period, or more of owning homebuilders or land developers and home builders is they don't exactly trade in the public market perfectly most of the time. They happen to be doing that today, and so for that reason, I'm not sure we have any intention of doing it. And it may be better for us if we want to have less capital invest in the business over time just to reallocate capital, because this is a depleting business if you don't reinvest into it.

So from time to time, I think we'll just do it that way versus listing it.

[Andrew Kuske, Credit Suisse]

That's great. Thank you.

[Operator]

Thank you. And our next question comes from Ken Worthington, from JP Morgan. Your line is open.

[Ken Worthington, JP Morgan]

Hi, thank you. Most of the questions have been asked, but maybe just to follow up on the flavor of the day, which is Reinsurance. Maybe talk about the assets or contracts that are included in the new Reinsurance entity when it's spun off to shareholders? I don't think you went through that maybe I missed it.

Does that include the insurance contracts, the Reinsurance assets? Does it include the 20% interest in AEL? And then do Brookfield Insurance shareholders get voting rights in the new entity? Or is that the votes sort of retained by Brookfield? And then lastly, I think this follows up on another question earlier.

Will the Reinsurance entity need to raise equity to support the initial growth or is Brookfield going to capitalize it well enough to support sort of its growth over the next couple of years or so? Thank you.

[Nick Goodman, CFO]

Yeah so Ken, there have a lot of parts to that question. Let me if I don't get them all, then please prompt me. But I think we're still working through what will be there. But the intention is it will we have as all of the insurance assets that we have. So the initial stake in AEL also, as Bruce said, we also have some other insurance entities that we've did it on balance sheet.

The way we see this working is obviously that it will have those investments, it will have Reinsurance trades on its balance sheet. As we touched on the earlier question, the way that we're looking to differentiate and earn strong returns is by putting that capital to work in our investment strategies predominantly credit.

But that means when that capital is invested into our strategies, the resulting fee bearing capital and fee related earnings would fall through our asset management business. And they would be and investing alongside other clients that we have in those strategies paying the same fees and rates as those. But I would say that's the secondary focus.

The primary focus is that when we do these Reinsurance transactions, we want to make sure that we are investing capital for value in this business so that we're comfortable with the net return that we can earn on any Reinsurance transaction. And then obviously, a consequence of that will be that when we put the capital to work, there'll be a resulting growth in fee bearing capital and fee related earnings overtime. I don't know if I answered all parts of your question.

[Ken Worthington, JP Morgan]

Most, the voting rates do Brookfield Reinsurance shareholders actually get a vote here in the new entity or are that just sort of delayed until the pairing is - if the stock is unpaired? And then equity issuance is, is this the vehicle that's going to raise equity or is equity raised through BAM and sort of transferred to the insurance vehicle. How does the capital raising actually work here?

[Bruce Flatt, CEO]

So the start, I'll answer, those in reverse order. Starting off, the capital will be seeded into the entity and $500 million will be spun out to shareholders. The balance of the equity will be provided by BAM. And to the extent it needs more money, we can - BAM will put more money into the entity and there'll be no further shares of that entity issued. Other than if we choose too, but remember even if we do issue shares out of that, they're really just a BAM share.

So while we're buying shares back in Brookfield Asset Management, I suspect we're never going to issue a share in Brookfield Reinsurance, because they're a paired share. So it would be - you'd be doing the same, you'd be issuing in one place and buying back in another. So the equity will be provided by Brookfield as a first step.

Secondly, to answer you first question. On the voting rights, the structure will be the exact same as it is in Brookfield asset management. So, all shareholders will get voting rights like they do today, they'll have the same rights they have in Brookfield asset management, they'll have the same rights they have in Brookfield Reinsurance.

[Ken Worthington, JP Morgan]

Great, thank you very much.

[Operator]

[Operator Instructions]. And our next question comes from Bill Katz with Citigroup. Your line is open.

[Bill Katz, Citigroup]

Okay, thank you for taking the follow-up questions. Just going back to the transition fund for a moment. Bruce, in your letter, you mentioned that you could see this being a $50 billion to $100 billion opportunity over time. What are your expectations for the scaling of that and how would the economics of a fund like this compared to let's say, your flagship funds?

[Bruce Flatt, CEO]

I think it'll be the second question first, it'll be similar to our flagship funds. And we think that this business can be very large as we create a new asset class for institutional investors, and the reason why we're coming out with it and the reason why Mark joined us is, we think that there is a very large group of investors who want to put money into the transition of the economy, and there's not very many alternatives for them to do that.

And as a result of that, if we can create a fund offering from them with all the discipline and access to what we have within Brookfield, we'll have a number of people that will want to invest with us. And there's not many other alternatives at this point in time.

[Bill Katz, Citigroup]

Okay, and then just one last one, just going back to Reinsurance again, thanks for taking those questions. Is there an opportunity here as you scale the business to maybe broaden out the fee related earnings stream to an advisory opportunity beyond simply just picking up some incremental spread and then the corresponding effort, we associated with it?

[Bruce Flatt, CEO]

We'll see overtime, but that's not where our heads are at right now. The focus right now is about investing the capital that we'll be raising and earning strong returns on that investor capital. And as I said, the direct consequence of that will be fee bearing capital and fee related earnings, we haven't turned our minds to advisory fees.

[Bill Katz, Citigroup]

Okay, thanks for taking all the questions.

[Operator]

Thank you. And I am showing no further questions from our phone lines. I would now like to turn the conference back over to Suzanne Fleming for any closing remarks.

[Suzanne Fleming, Managing Partner, Branding & Communications]

Thank you, operator and thank you everyone for joining us today. With that we will end the call.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, you may now disconnect. Everyone, have a wonderful day.