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 --…

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…

[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.