Brookfield Corporation (BN) Q3 2013 Earnings Report, Transcript and Summary

Welcome to the Brookfield Asset Management's 2013 Third Quarter Results Conference Call and Webcast. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Amar Dhotar, Investor Relations for Brookfield Asset Management. Please go ahead.

Thank you, Sachi, and good afternoon, ladies and gentlemen. Thank you for joining us for our third quarter webcast and conference call. On the call with me today are Bruce Flatt, our Chief Executive Officer; and Brian Lawson, our Chief Financial Officer. Brian will start this afternoon, discussing the highlights of our financial and operating results. Bruce will then discuss our views on the current investment and market environment, as well as a number of our major growth initiatives in the quarter. At the end of our formal comments, we will turn the call over to over to Sachi to open the call up for questions. [Operator Instructions] I would, at this time, remind you that in responding to questions and in talking about our new initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information for investors, I would encourage you to review our annual information form or our annual report, both of which are available on our website. Thank you, and I'd like to turn the call over to Brian.

Thanks, Amar, and good afternoon. Funds from operations for the third quarter of 2013 were $1.2 billion. That's nearly $1 billion higher than the 2012 quarter. Much of the increase was due to several large realization gains, including the sale of timberlands and several private equity investments, as well as the termination of a long-dated interest rate swap on favorable terms. It's worth noting that while gains such as these are often discounted as onetime events, in reality these are anything but. In fact, they are the culmination of value creation that has been going on for several years. FFO excluding the gains also increased meaningfully, reflecting continued improvement in the operating results across the organization. Asset management and services FFO increased by $30 million to $145 million. Fee-related earnings, an important measurement for us, increased by $47 million due to higher levels of fee-bearing capital, which stood at $80 billion on September 30, compared to $60 billion at the beginning of the year. Notable increases during the period included the formation of Brookfield Property Partners in April, which added approximately $10 billion to our listed entities; and capital raised for our 2 large global property and infrastructure private funds, which represented most of the remaining $10 billion increase. Our target annual fee base now stands at approximately $1 billion and that represents $562 million of annualized base fees and incentive distributions and $375 million of target carried interests. Our operating margin on base fees and IDR was 55% during the quarter, up from 45% last year. The current period margins benefited from catch-up in transaction fees, but nonetheless, and as expected, the early investment in our asset management capabilities has enabled us to increase fees at a faster rate than the associated costs, notwithstanding that this also resulted -- this investment resulted in lower margins in the prior years while we're building up the business. The amount of carried interests that we're entitled to receive based on fund performance to date increased to $812 million. Now we recently crystallized and collected in the fourth quarter $558 million of this on the reorganization of our GGP Consortium. This will be -- as I mentioned, this will be included in our fourth quarter results. We formed the consortium in 2009 to acquire our original stake in General Growth Properties when it emerged from bankruptcy. You may recall we initially invested $2.3 billion, and during the last 3 years, the increase in value for our clients and us has been just shy of $4 billion, resulting in a growth multiple of capital of 2.6x and a gross IRR of 38%. As the manager of the consortium, we received a portion of the gain earned by our clients, which gave rise to the carried interests and was earned by a lot of hard work from a lot of people over the past number of years. The transaction also enabled Brookfield Property Partners to invest a further $1.4 billion into GGP, and the result, it now owns 32% of the company on a fully diluted basis. Along with a select number of institutional clients who retained their GGP investment with us, we own 40% of this high-quality U.S. shopping mall portfolio, which we believe has significant unrealized potential. To finance the investment, we completed a $1.4 billion private placement in Brookfield Property Partners, which included $1 billion from ourselves, Brookfield Asset Management, and $435 million from 2 of our sovereign wealth fund clients. Turning now to the results from our invested capital in the underlying operating businesses. This represents the first full quarter of operations for Brookfield Property Partners, or BPY, through which we hold virtually all of our property operations. We reported $121 million of FFO from our interest in BPY, including the preferred share dividends. Our office portfolio benefited from a 1% increase in same-store rents, although results were lower on a quarter-over-quarter basis because the 2012 quarter included a $31 million dividend from our investment in Canary Wharf. We leased 1.2 million square feet during the quarter at rates that exceeded expiring rents by 9%, and we have reduced the percentage of leases that expire prior to 2018 by 480 basis points. The second phase of our Bay Adelaide Centre in Toronto is under construction and 60% leased, and we have secured substantial pre-leasing on new projects in Calgary and Perth to allow us to begin the development of these properties. Our U.S. retail business posted very strong results with a 23% increase in FFO, resulting in -- resulting -- reflecting increases in both net rents and occupancy and lower financing costs. Initial rents for new leases increased by 12% on a comparable basis, and the mall occupancy was 96.6%, up 110 basis points from this time last year. In our renewable power operations, we recorded $61 million of FFO in the quarter compared to a negligible contribution last year. This reflects the return to more typical water levels following extremely dry conditions in 2012. This, alone, contributed $56 million to the increase, although we also benefited from improved pricing and the contribution from new facilities. Generation, overall, was 4% above long-term averages. Our Renewable Power group continues to find attractively priced growth opportunities, and we recently announced plans to acquire 10 hydroelectric facilities in Maine and in California. We have locked in pricing for 71% of expected fourth quarter generation and 66% of expected 2014 generation. As we've noted before, this is a lower level than in the past and reflects our conviction that there is more upside than downside in the current price levels. In addition, we have acquired several large portfolios with shorter-dated contracts at these lower prices that provide us with the opportunity to reprice contracts at higher levels that[ph] our convictions bear out. In our infrastructure segment, FFO increased to $216 million. That includes a gain of $163 million on the sale of North American timberlands. Excluding gains, FFO was $53 million and that reflects a 20% increase over the 2012 quarter, an increase was primarily driven by the completion of our rail expansion program and the contribution from recently acquired toll roads, both of which were not fully contributing to FFO in the prior period. We deployed capital during the quarter to expand our South American toll road network and acquired district energy business in Texas and Louisiana. We also expect our electrical transmissions network in Texas will be fully commissioned this quarter. Our infrastructure group continues to pursue a number of opportunities globally and is extremely well positioned to fund new acquisitions on an accretive basis with an elevated level of liquidity following the sale of lower-yielding assets and our new $7 billion private infrastructure fund. FFO from our private equity operations increased by $8 million prior to disposition gains as overall increases in revenues from strong volumes offset the reduction in FFO on a comparative basis from asset sales and reduced ownership levels as a result of a number of variable dispositions we've completed over the past 12 months. FFO in the current quarter also included $245 million of disposition gains on the sale of a pulp and paper operation in our private equity fund and the partial disposition of our investments in Western Forest Products. One of our themes in private equity is investing in the natural gas sector, and during the quarter we committed $210 million to an acquisition of coal bed methane properties. We've built a significant gas platform that is profitable in current prices and positioned to do extremely well when the price of that commodity increases. The third quarter also included the settlement of a long-dated interest rate swap that was subject to litigation for a gain of $525 million on a pretax basis. We had accrued a liability based on the original terms in the amount of $1.4 billion and settled the contract for $905 million, giving rise to the gain. While we were confident in our case, the outcome of a jury trial is always uncertain and so we negotiated the settlement. And also as a result, future interest costs that were accruing at over $100 million annually have been replaced with carried costs at 1/2 the previous rate, enhancing future FFO by more than $50 million annually. Consolidated net income increased to nearly $1.5 billion of which $830 million accrues to Brookfield shareholders. This, too, was up substantially over the 2012 quarter wherein we earned $334 million for shareholders. The increase in FFO from operating activities and the impact of disposition gains was partially offset by a lower level of fair value changes and a higher level of deferred tax provisions. Before handing the call over to Bruce, I would like to make some comments on our dividend policy. We modified our dividend payment schedule in order to begin payment -- paying dividends on the last day of each calendar quarter, commencing in the second quarter of 2014. The purpose of this change is to create a consistent quarterly dividend record date and payment date with our 3 flagship public entities and the payment dates for most of our preferred shares. So to achieve this, the Board of Directors today declared a quarterly dividend of $0.20 per share payable at the end of February 2014. It's important to note that this dividend does not represent an increase in the current annualized rate because it is intended to represent the 4-month period up to and including March 31, 2014. And the board anticipates the next quarterly dividend will be paid on June 30, 2014, representing the 3-month period then ended. So thank you, and with that, I will turn the call over to Bruce.

Thank you, Brian and good afternoon, everyone. I'll add a few comments, and then we'll take questions. First is that, during the quarter, we closed a number of funds during the quarter and immediately afterwards. The first was our $7 billion flagship infrastructure fund and we also closed $1 billion timber fund, which brings fundraising to about $16 billion and we continued to raise capital throughout our operations for our investing strategies. Our observation is that flows of capital into alternatives, but more specifically, real estate and infrastructure globally are very positive both, with respect to our private funds and our listed entities, which bodes well for fee income looking forward, as well as other things. With respect to these real asset allocations globally. We believe that, for many reasons, allocations by institutional clients to real assets are going to continue to increase. You can both see that emanate itself in the success of our global funds being marketed recently. But maybe more importantly, the discussions we've had and we continue to have with our global sovereign wealth and institutional clients is very positive, and based on these discussions, we believe that we're still only in the early stages of this shift of allocations to real assets. Our goal has been to continue to establish one of the global managers with clients trust relationships and maybe, most specifically, the scale to invest capital for these institutions in large sizes and to real assets across the world and we continue to build our organization to accomplish this in as many places as we feel comfortable with. Furthermore, with instability everywhere in the world, in particular, you saw it emanate itself, in many places in the most recent 3 to 5 months, there isn't many other places to hide with either low risk or with proper yield. And one place people used to go was the gold market, which also has been very volatile and in our view is just too small to be meaningful in any way given the size of the institutional capital that needs to get put to work and real assets. All of these trends, therefore, continue to fuel greater allocations to the type of assets we invest in and we continue with our efforts in this fashion. The third point I want to make was that during the quarter, we launched the merger of BPY, or Brookfield Property Partners, and our office company, which I'll refer to as BPO. The proposal is 1-for-1 share offer for any and all of BPO shares not owned by Brookfield Property Partners. And the aggregate value of fund launch was $5 billion of which BPY made available $1.7 billion of cash and $3.3 billion of shares at the announcement date to provide flexibility to BPO shareholders. We believe that the merger and a number of the other exciting initiatives going on in our property group will position BPY as a global real estate investment business. BPO shareholders were offered, firstly, a 15% premium to the trading price. Before the transaction, they're receiving an 18% increase to tangible IFRS value. Post transaction, the dividend based off of BPY's dividend will go up by 79% and I guess, most importantly, 11% of the public float committed to the transaction prior to announcement. And since then, we've -- the BPY management and Brian and I and others have met with a number of shareholders since that time and received very favorable feedback. Post transaction, BPY will be one of the premier office and retail businesses in the world and will have a growing multi-family and industrial business. In addition, with our client institutional relationships, the combined business will virtually have unparalleled access to capital. And as many of you know, this business now residing in BPY has been 20 years in the making by us -- or over 20 years in the making, and has earned us over 15% compound return during this period. We believe that BPY fully establishing in the market will be the next breakthrough for this business. Turning now to investments. We, as Brian alluded to, we generally invest along themes within our business that complement our overall strategy of acquiring high-quality assets at attractive value. And over the next year or 2, we anticipate one of those major themes will be the emerging markets. It's certainly not the popular strategy today as there's been a great deal of negative news from markets such as Brazil, India and China. And I guess, we think there's really 3 factors that we think are important to this. The first one is that we have found, based on our investment experience, that when capital becomes scarce in a sector of investment or a region of investment, it often produces opportunities to buy assets that you would not have otherwise available. This was the backdrop when we invested in U.S. shopping malls in 2009 in our infrastructure business in 2009 and '10. And I guess I contrast to the better past of the last decade when all of these countries had enormous access to capital and that's no longer the case. In the past year, as the economic growth slowed in these markets, currencies dropped as foreign reserve -- foreign capital left them. Again, both the dollar and the euro and a number of institutions have exited the markets. And as these institutions would re-trend, we think there are assets and portfolios that we would possibly be able to invest in at values not usually available in the marketplace. Second, we're focused on markets where we have considerable expertise and continue to build that expertise, and we like to invest like locals but have a very global outlook. And what that allows us to be is very selective, flexible and deliberate into which places we place capital and be opportunistic when transactions come up with a greater theme overriding it. And our local relationships, in addition to that, often translate into opportunities to buy assets in the U.S., Europe or other markets outside of the local business where we have people. And third, I guess, maybe just to comment on these markets. Our belief is that all of these countries are going to be very important places in the next 10, 20, 30, 50 years of the world. And we believe that Brazil, in particular, in our experience there had shown that countries with resources and improving rule of law, a well-educated middle class can create enormous wealth within a country. And while sometimes the growth can be uneven and politically changes can happen, we believe that buying assets at less than replacement cost at a time when current fees are favorable against your home base currency, are often great time to invest capital. And just 3 small examples, I guess, I'd note that in Brazil we continue to invest in virtually all of our businesses over the past 18 months. In India where we've been operating for 5 years, we've been -- with modest amount of capital, we're enthused about some of the opportunities that may come along. And in China, we recently committed to a strategic partnership with a company called Shui On Land with respects to its commercial portfolio in Shanghai. And we committed $750 million, $500 million which will be invested on closing and we have an option to put another $250 million in over time. And this investment will be made with a number of institutional clients. And in addition, we plan to invest a further $500 million in future opportunities with China Xintiandi. This portfolio that we're investing is truly one of the great portfolios of real estate in the world and we feel fortunate to have been involved -- to be involved with it. So with that comments, operator, we'll turn it back to you and see if there are any questions from people.

[Operator Instructions] The first question is from Bert Powell of BMO Capital Markets.

Bruce, a lot of focus on emerging markets. What happened with Europe? Was it just not fertile ground? Was it too competitive? Just not enough opportunity materialized out of Europe and what happened there?

Bert, I'd say the following, we focus -- just because -- in this letter and I focused my comments on that because I'd say that's been more of an increasing focus for us over the last -- well, that's not to say that we don't think there are more opportunities in Europe. In fact, I'd say the opposite. I would say that we've done a number of deals over the last 2 years in Europe and our experience right now is that the number of transactions that will occur in Europe over the next couple of years are going to increase in pace. And that's because the markets are settling, valuations are coming back from extremes, buyers now can take some of the risk off the table that they thought might have been there, and therefore, we think that a lot of transactions will occur and actually the valuations will allow people to transact. So I made those comments with respect to emerging markets, but I'd say that's not to take away the fact that we think there are a number of opportunities to continue to crystallize on in Europe.

Okay. Brian, just on the fee margins -- or the gross margin on the fee business, 55% in the quarter. At the Analyst Day, you delineated 50% to 60%. Are you finding better scalability in that business? Or are we going to hit a step function change in costs as that ramps?

No, we don't see any step change on the cost side, certainly not at this stage. And we definitely had a good pickup this quarter, but we also did have some nice transaction fees that came through in the quarter and also a catch-up fee. When you actually close these funds and you've been raising capital over a period of time, you collect the fees over that full period of time in 1 quarter. So we were about $5 million to the good on that as well, so that helped up -- so the margins were probably a little healthier than they might otherwise have been. But they're still trending very nicely.

The next question is from Brendan Maiorana of Wells Fargo.

Bruce, I just wanted to get your perspective on China. It seems like there's a little bit of a change there. I think your prior strategy was to get exposure to China indirectly through Australia and some of the South American economies. And now with the investment in Shui On Land, it's a direct investment. So one, why the change? And two, how did you get comfortable with the regulatory and local outlook there given that the typical BAM strategy is to hold assets for a very long time and accrue asset value growth and appreciation over time, and how do you get comfortable with the local regulations and government in China with that as your long-term strategy or typical long-term strategy?

So thanks for the question. I guess, just -- and I'll try to answer both. On Australia, I guess, -- or Asia and Australia, we started in Australia 8 years ago, 9 years ago and have made, as you know, an enormous number of investments in the country. Our intention always was to use that base as the place to grow into Asia. And we have had an office in Hong Kong for a long time with a number of people in it and haven't done very much other than monitor the market there and base some of our other activities out of that office in conjunction with Australia. I guess, the change that's happening now is that 5 years ago, there was tremendous access to money in those markets. And in more recent times, access the money is less robust. So it's really just we're value investors and we struggle when markets are very -- have substantial amounts of money. And as a result of that, the opportunities coming along today are just different than they were before. And we're probably more comfortable given we've been in the market for much, much longer. Which goes to your second question, which is how do we get comfortable with the regimes of ownership in the country. And I guess, what we're comfortable with is we've found a very reputable local partner who's Hong Kong-based but has been investing in China through this entity for 20 years. They've built up one of the finest portfolios of office retail assets in the country. Arguably, this is maybe one of the primest assets in all of China that we're buying into and we just feel, given the quality of the assets, the place it's in, the evolution of what's going on in the country and the partner that we have, that we -- that odds favor us making a good return with them. You can never be sure just like everything, but we feel pretty good about it.

Yes, that's helpful. Can you just maybe give us a sense of the return outlook there versus maybe where it would be in some of other -- is it comparable to the returns that you expect in other emerging markets?

Yes, I would just say that our thesis of investing generally in our opportunity funds is to earn on equity 20% returns. And where we try to protect our downside, but invest with people during those returns over a long period of time, we hope to achieve that with this.

The next question is from Michael Goldberg of Desjardins Securities.

A couple of questions. To what extent would the large third quarter realization gains and the fourth quarter crystallization add to your net asset value?

Well, let's see, I guess it depends on how you want to approach that. Certainly, if you're thinking about net asset value in terms of taking our IFRS values and adjusting them for a certain things, the carried interest gain will accumulate in our equity within our IFRS values. So I guess that's perhaps part of the question. Really, what it comes down to is to what extent some of those gains have been reflected either in net asset values that have accumulated to date or perhaps stock market values depending on how you want to approach it. Certainly, some of the gains on the private equity investments have not been reflected in any of our book values. So if you wanted to use that as a proxy then I'd say certainly 3 quarters -- 2/3 of the 3 quarters are going to be direct uplift to the book values.

Okay. Have another question also. What balance sheet assets and what amount of assets do you plan to monetize? And how much do you foresee using to actually buy back stock over the next 1 to 2 years?

Well, okay, so the comments that we make around that I would take as being directional and indicative of how we see the financial profile of the business evolving. And what's clear over the past period of time is that our balance sheet has become increasingly liquid I think we quoted the statistic of it being roughly 85% of our invested capital being in the form of listed securities. So we have the flexibility to monetize significant amounts of capital and really the decision to do that is going to be based on our investment objectives and return objectives and we'll take those as they go. So there are -- we've indicated an objective of an opportunity to realize some substantial gains within some of the business related to the U.S. house building. You've seen us do some of that. And then we have the other side of it is where do we put the money to work specifically in terms of share repurchases. We've certainly done more of that this year that we have in the past. And we have the ability, going forward over the next few years, to look at that in earnest, as well as putting money to work in growing the business. So there's a number of different opportunities. We're not really providing any specific guidance because we'll take each of them as they come.

Just to clarify, though, when you talk a bit about your balance sheet having become increasingly liquid as a result of the formations of the BIP, BEP and the BPY. I want to clarify, that's not what you intend to monetize. It would be other assets that still reside on your balance sheet, is that a fair way to look at it?

We certainly have the ability to monetize the listed issuers, and as you would know, we've have done that twice with Brookfield Renewable Energy Partners. So we certainly have the ability to do that. And again, this is all about allocating capital to -- reallocating capital and rotating capital to increase returns. So it doesn't rule those out either.

Next question is from Andrew Kuske of Credit Suisse.

I guess my question just relates to the timber side of your business and you had great success in raising a $1 billion fund, which in that world is fairly sizable. But at the same time, you also monetized a significant amount of assets. And just wondering in the process of trying to attract clients into the $1 billion fund, how that sales pitch go essentially with selling large-scale assets, was that really the validation of your business model in timber and really helpful in raising the funds?

Yes, Andrew, I'd make a comment that our business increasingly is putting money to work for clients, and over time, monetizing their returns out of them for them. And they our clients want to see that. And the good news for us is that our business is about the 600 investment people we have and the 25,000 operating employees and we can sell assets from time to time and still can carry on with the business. So during this year, we monetized 2 major assets, but we're buying others in the timber business. And it's not to say we're out of the timber business. In fact, we're actually back. We're just recycling money into other assets from our own behalf. So it's not -- it doesn't indicate anything other than it was the right time to monetize assets in those 2 funds that we had assets in, but we're still out buying others. And I think it helps -- in fact, if there's anything, it's the opposite with us. People -- often people think we keep assets forever, and from time to time, we're always looking at opportunities to take capital out of things.

That's helpful. And just as a follow-up, is the timber universe just globally a little too small and maybe a bit esoteric that you look to have maybe a larger agri land funds or the optionality of a timber and ag fund all in one in the feature?

So it's a good question. What I'd say about timber is they'll never be the size of real estate or infrastructure. It's just not as big of a universe of properties in the world to invest into. Having said that, many institutional clients have gotten very comfortable with timber as an asset class. So we think there's, being one of the few people that can put money to work in timber properly, we think there's a business that can be highly profitable for us and good for our clients, and therefore, it's a good business to run. I don't know whether we can ever mix -- in addition, as you know, we have a private agricultural fund in Brazil and it's been very successful over the years. And that, and with respect to agri lands and timber, I think they're probably different investors and different universes of investors even though they're similar. And I don't know whether they can be put together, but it's possible and we'll have -- from time to time, we talk to our clients to see if that's what they'd like.

The next question is from Cherilyn Radbourne of TD Securities.

The first question I wanted to ask was just around some of the changes you made to your disclosure in property, power and infrastructure this quarter. Can you just talk us through your thought process a little bit and what you were hoping to achieve there with the new format?

Sure. Thank, Cherilyn. It's Brian. So following on the launch of Brookfield Property Partners and establishing those 3 platforms with the -- having the flagship listed issuer in each of them. What we wanted to do was to really to try and simplify the disclosure, was to allow people to have good visibility on the how the results of those 3 entities track up into Brookfield Asset Management through our ownership interest. And really, in its most simplest form is these entities they're in X amount of FFO and our share of it is Y. And that's really where we're trying to get to. I'd say this quarter is a bit of a bridge into that where we give some transparency into the composition of those numbers at the BPY level and then we show our share and that may evolve over time. The numbers aren't exactly the same because there are slightly different bases[ph] of presentation, but fundamentally that's what we're trying to get at, just an effort to simplify the whole thing.

Okay. And second question is a lot more general. Obviously, you've just made your first investments of some meaningful size in India and China and there's often a debate about democracy versus state control. I wonder if you could just speak a little bit about how you view the relative scale of opportunities in both of those places and the relative risk profile.

So those are good points and I am not -- I'm far from an expert and we're all still learning. But I would have to say that all of our experience over the years in Asia, and specifically in China, is that there's just a lot of entrepreneurs trying to make a lot of money. And well they're overriding, I guess, it's a state-controlled country, it's a very entrepreneurial environment. And business at the grassroots level is very entrepreneurial. So I'd just say that we're -- and the good thing about real estate is it's not a asset that gets mixed up in a whole pile of political bureaucracy or other things. So it's a very -- you buy discrete assets and they're not important to any state or country. So our observation is that, specifically in China, that the real estate business is a pretty entrepreneurial business. India is different because it isn't as large of a place. And even though it's a big country, there's a lot of people, its infrastructure is lesser built out, and therefore, there's a lot less opportunity than -- and in addition to that, a lot of the real estate and infrastructure is strata titled and owned in odd ways. And as a result of that, the opportunity set is lower, but also over time, maybe interesting for us. But we're still learning and making small investments to continue to grow the business.

Next question is from Mario Saric of Scotiabank.

Brian, I'm just looking at your base management kind of FFO and it was up substantially quarter-over-quarter, $27 million, $293 million from $66 million. I suppose a vast majority or a big chunk of that relates to the second infrastructure fund, but is there anything else that's really driving that on a quarter-over-quarter basis?

Yes. Really, the 3 components are the 3 large funds that were raised or established. So Brookfield Property Partners definitely contributes to that as does the infrastructure fund, as does the real estate opportunity fund. So those are the 3 big ones. And then as I'd mentioned, there was a catch-up fee involved there as well on the real estate opportunity fund.

And with the fees associated with the $2.8 billion of capital that's going to be committed from -- by BEP and BIP to the infrastructure fund, would those be included?

No, those are -- we actually don't because that capital goes in from BIP. There are no fees associated with that. They get recognized at the BAM level.

Okay. And then maybe second question, just on capital deployment. We're all kind of wondering how big the emerging markets may become for you. Your dry powder is up almost $1 billion to close to $10 billion, and I know you're generally an opportunistic investor. But out of that $10 billion, looking out, can you give us a sense as to what percentage of that may be invested in markets like Brazil, China and India going forward?

So I guess, the comment I have to that is one should recognize that we have an enormous business in United States, Australia, Canada and other developed markets in Europe. And therefore, a lot of our capital will continue to be deployed within those markets, both organically and on acquisitions, because we're just in those markets. You're not going to see a major shift in capital because it takes a long period of time to do it and we're just -- we try to grow organically and prudently as we build our business. So you're not going to see a huge shift in that, although you're definitely going to see more transactions than you've seen in the past.

Your next question is from Michael Smith of Macquarie Capital.

For your $7 billion global infrastructure fund, I think that you have -- Brookfield's commitment is going to come from BIP and BREP. I know it's early on, but what proportion do you anticipate will be coming from each?

Oh gosh, I think there was some -- this all is dependent on opportunities, obviously, Michael. But I think the general sense of it was around 25% to 40% could be on the Power side and the balance on the Infrastructure side and so that would drag the funding. But again, it really is dependent on the opportunities.

Yes, so Michael, just for everyone's benefit, we have Renewable Energy Partners, the Infrastructure Partners that are publicly traded. The private infrastructure fund, we have the 2 investment strategies mixed in 1 private fund and it's discretionary as to where that capital in the private fund goes. We can put it in anything so it's possible 100% of it was Infrastructure. It's possible 100% of it was Renewable Power. But it's all, as Brian said, opportunistic. So the capital is drawable as a side-by-side investment by either one of those listed entities.

But given the universe for the Infrastructure is much bigger, you think it might be more leaning towards there?

Yes, I think if you had to guess, you'd say, as Brian said, 60% to 75% will be Infrastructure and 25% to 40% will be Power.

Next is a follow-up question from Brendan Maiorana of Wells Fargo.

So Brian, the third-party committed capital, $9.8 billion, if you look at what BAM's commitments would be to those strategies, direct BAM, not, say, the BREP or BIP, how much is there BAM commitments into raised funds that haven't been deployed yet?

That figure will be less than $1 billion because most of those would be funded out of the 3 listed issuers. It's really the private equity fund, the Brookfield Capital Partner funds and the timber and ag funds that would get funded directly out of Brookfield Asset Management at this stage.

Yes, so if I think about that and I think about your ownership in both -- in BPY and BREP, that's probably above the long-term target levels, meaning you probably sell those entities down, I think you indicated earlier in the call. And BIP is probably -- I think, you're around 30% of BIP today so that's maybe more of a long-term target. So I guess, the question is, it doesn't seem that there's much in terms of capital commitment or even likely to be direct capital deployment at the BAM level over the next few years if I'm sort of thinking about the investment landscape correctly. Is that a fair statement?

That is fair and that's a -- that is a very good way to think about it. And it is one of the things that is influencing our thinking about capital deployment and the opportunities -- the ability to pursue opportunities at the BAM level is because of the important role that the listed issuers play as cornerstone investors in those funds.

So I mean, outside of share repurchases, where would you be likely to take the free cash flow that's generated at the BAM level? Would you do direct private equity investments? Or is there something else that we're not seeing because I would think the 3 main strategies would all happen at the publicly listed level.

Yes, so our capital at the top will either be returned to shareholders in one way or the other. Or secondly, the big business, which doesn't have a listed entity, that is on our -- we fund off of our balance sheet is our private equity business and we do intend to scale up that business significantly over the next 2 to 3 years. So some of that capital will be devoted to those efforts.

[Operator Instructions] The next question is from Michael Goldberg of Desjardins Securities.

Now that you crystallize the GGP related to carried interests, does that change the $375 million target carried interest that you show in your annualized fees?

No, it doesn't, Michael. That's more of an average rate at which it should increase -- that we should be accumulating, carry on the funds that we have under management. And as much as we've returned some of that capital to our investors, we've also raised more capital.

Because it would -- you had it at $375 million level in the second quarter also...

Yes.

So I'm just trying to get a better idea on how you come up with that number and how it either includes or wouldn't have included the carried interest associated with GGP?

Right. So I'll try and keep this simple and maybe we can follow up off-line. But there's 2 separate concepts here. One is, and the number that we report each quarter as the accumulated carried that we've, I'll say, entitled ourselves to based on the performance of the funds, and we give a very specific number of that, that builds up and then every once in a while, and increasingly so, it gets crystallized and we collect it in cash and that draws it down. So that's kind of the one comment and that's on a bit more of a real-time concrete accrual and collection basis based on actual performance as of that date. The $375 million number that we disclosed is, I'll say, -- what that's really supposed to point to is the value -- the potential value to us in raising capital because it gives us the opportunity should we hit our target investment returns to earn carried interests. Now the reality is those tend to accumulate later in life and get collected later in life, so it's actually on a -- I'll say it's on a different -- quite a different basis than the numbers that I was talking about at the beginning there. And in essence, what it is, a very simple example is if you've got a fund and you're supposed to be earning a 20% return and you have a 20% carried then you should be, if you hit your target return, earning 4% over the life of the fund should be building up in the form of carried interests. But it tends to be more back-ended. But what we wanted to do is get the point out there that as we increase our capital under management, that we are increasing the opportunity to earn these carried interests. That's why we call it target carried interests.

There are no more questions at this time. I will now hand the call back over to Mr. Dhotar.

Thank you for all of you joining us today. We look forward to updating you in the new year. Thank you.

This concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.