Thank you for standing by. This is the conference operator. Welcome to the Brookfield Asset Management Q3 2016 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Suzanne Fleming, Senior Vice President, Communications. Please go ahead.

Thank you, operator and good morning. Welcome to Brookfield's Third Quarter Conference Call. On the call today are Bruce Flatt, our Chief Executive Officer and Brian Lawson, our Chief Financial Officer. Brian will start off by discussing the highlights of our financial and operating results for the quarter and Bruce will then give an overview of market outlook and Brookfield's approach to investing. After our formal comments, we'll turn the call over to the operator and take your questions. I'd like to remind you that in responding to questions and in talking about 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 predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks and future events that 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 security regulators in Canada and the U.S. and the information available on our Web site. Thank you, and now I'll turn the call over to Brian.

Thanks, Suzanne and good morning. We had a good quarter across all of our major businesses. Funds from operation or FFO for the third quarter in 2016 was $883 million or $0.87 per share; and that compares with $501 million in the prior year quarter. This included $491 million of FFO from operating activities, an increase of 23%, which in turn was due to a 37% increase in fee-related earnings and the 17% increase in FFO from invested capitals, so a good pickup on both trust. FFO for the quarter also included $392 million of realized disposition gains, compared with $88 million for the 2015 quarter, as we continue to be active in selling stabilized assets and redeployment capital of higher yield elsewhere or returning it to investors. Some of the highlights in our asset management operations, fee-related earnings was worth $173 million in the quarter and that's 37% pick up that I've referenced earlier largely due to the increase in our fee-bearing capital which now stands at $111 billion, and that's up 23% over the last 12 months. And importantly, this also gives rise to a higher level of steadily recurring base management fees going forward. As a result, our annualized run rate, our recurring asset management revenue now stands at approximately $1.2 billion. In terms of carried interest, we increased the amount of deferred carry on existing funds to roughly $1 billion based on performance to date. And furthermore, the continued growth in private funds, fee-bearing capital in the last 12 months increased the amount of capital on which we are entitled to earn carried interest to $38 billion, and that translates into roughly $830 million of annualized target carry over the likes of the fund annually, straight line based on targeted investment returns. Taken together, the annualized…

Thank you, Brian, and good day, everyone. First, I will speak about real assets and interest rates. This is always a topic of conversation, it seems for us, but I know it is of particular interest to many of you because of the recent U.S. election and the increase in the rates since the election. To sum up, firstly I'd say our view is quite simple. We are hoping that short and long rates go up as they have been unduly low for too long. We do not so believe that the paradigm of lower rates have changed and as a result, we strongly believe that we're still going to be in a relatively low interest rate environment for this business cycle and that our business model will work very well. Stepping back from that, the U.S. Federal Reserve has been attempting to increase short rates to among other things, ensure that they have room to cut them when the U.S. economy needs extra stimulus in the future. If they accomplish this over the next while, that will be positive for the global economy and for all businesses. It is however very important to note that real asset values are affected by long rates, not short rates and while real assets are gently affected by short rates, they're virtually all if compared to what can be earned on a long bond. So while we believe that both the short rates and the long rates will rise and under this administration, maybe even a little more and faster than was previously expected if they are successful with this discussed program, we do believe that long rates will stay relatively new during the cycle due to a number of factors. As a result, we're not concerned about real asset values during the…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Cherilyn Radbourne of TD Securities. Please go ahead.

Thanks very much and good morning. I wanted to start by asking you something from your letter to shareholders, which talked about the value of cash. And I guess on the surface that seems maybe a little contradictory at first because on the one hand you're making good progress investing your latest trend of flagship funds and on the other hand it sounds like you're starting to accumulate cash at the margin. Maybe you can just expand on that thought?

I could say on the markets, on our own balance sheet and as you know, most of our capitals used either invest beside our fund clients or secondly, to assist our funds or our listed entities do things that they otherwise can't do. From time to time, we use the balance sheet to support or make investments because we think that things are extremely undervalued across the world and I go back to 2008-2009. There were so many opportunities and we stretched our balance sheet as much as we could to ensure that we could capitalize on as many of those as were available to us. At this point in time, I guess our view is that the world is in a good place and valuations -- while we continue to find things for our fund to do. There's no reason to have that on our own balance sheet, so we continue to monetize assets and on the margin, under-invested, just to be more conservative on the balance sheet. While that in the short-term probably affects our cash flow returns than we otherwise would have, we think it's a good thing to have especially when you're farther into a business cycle.

Okay, that's helpful. My second question is very different and I think probably more for Brian. Just wondering if you could talk about how you present the FFO from realized carry in your results. This quarter is included as part of realized disposition gains and I'm just curious if that's your intention as realized carry begins to make a more regular and larger contribution to your results, or does it then become part of core FFO?

Yes. I think we included alongside realized disposition gains in the quarter. So we wouldn't propose to be having the two included together. We did have a small disposition. True disposition came within our asset management results this year because we sold a small business within our public securities business. I'm not sure if that might have made a difference. But going forward, I think we do see the fee-related earnings, being one important stream and then carry which obviously as you suggested is accumulating and will start to work its way into our reported FFO a little bit further down the road, would be a second very important and growing stream of earnings as well -- and those two together would make up the bulk of the asset management return and then we'll always have realized disposition gains representing our share of disposition activity throughout the business.

Great. Thank you. That's my two.

The next question is from Alex Avery of CIBC.

Thank you. Bruce, just on the discussion in your letter to shareholders about QE and I guess fiscal stimulus, perhaps appointing that as the tool to stimulate the economy. Are you seeing opportunities to participate as private capital in greenfield infrastructure projects? Have you had any discussions on this front and are there any geographies in particular where you think governments might be more amendable to private participation and fiscal stimulus?

As you know in most of our businesses -- in fact in all of our businesses -- what we generally do is buy assets and then the greenfield 'are used expansions' of projects we have, our new greenfield project alongside other businesses or other projects that we have. I guess the most important thing to note is that where we have operations, those are usually the best ways to find opportunities, putting money to work in new projects. I would say the second thing I'd say and to answer the question is that the world today, everyone is talking about infrastructure. In the developed economies, there is not that much that has been done. In the developing economies, there are significant infrastructure spending going on. There has been for many years and there will be for many years going forward. So the toll roads that we're building in Brazil, and transmission lines we're building in Brazil, and toll roads we're building in Peru, and a number of places and in India, and what's going on in China, so there are significant greenfield and brownfield and expansions going on in those countries both by others. You haven't seen a lot in the developed economies, both Canada has started to talk about it and the United States obviously is now talking about it. The only [indiscernible] I'd say is they're neither very long duration projects and they take long periods of time to bring into fruition, so I wouldn't expect a lot of infrastructure project to affect the economies within a very short period of time.

And would you expect any change in terms of the likelihood or I guess the regulatory hurdles in terms of moving forward with projects that you might have in terms of expansions? Any change there?

Are you asking about the United States or...

More broadly; you got lots of expansion potential in Australia and other markets.

Yes. I think the world as we believe both there's more money coming to private infrastructure and that money being available is going to push significant amount to infrastructure in the private hands and I think it's everywhere in the world -- given the debt loans that are in countries -- private infrastructure will be pushed into private hands. So we believe every country in the world will eventually privatize most of the infrastructure that has on its own balance sheets and will also push the new greenfield project into private hands. When that occurs and how it occurs, every country is different, but eventually I think that the 20-year story for infrastructure is this will become one of the biggest businesses in the world because this infrastructure is going to get pushed into private hands because it has to. That's one way for the government to fund themselves and that's going to happen. On the regulatory side, some countries are doing better than others, but I think everyone is going to have to get there and they're getting there at their own pace.

Okay. And then in your remarks, you also talked about cash being particularly valuable when financial accidents happen. Beyond being eight years into an expansion, are you seeing anything else in the public or private markets that is causing you concern?

Actually not. We see credit markets fully open and available to good corporations globally with some of the countries that have had financial stress, but generally available everywhere. I see no real reason that there's any accidents coming. It's when those times are available and you're eight years into the cycle and markets are higher than when they were before, one should just be a little more conservative. That's the time you'd be a little more conservative than at the bottom of the market.

Okay, that's great. Thank you.

The next question is from Ann Dai of KBW. Please go ahead.

Hi. Good morning. Thank you. I had a question for you around the recently announced partnership with Macy's. Hoping you could give some color on that. Is it a partnership solely with them, or does it potentially involve some of the other listed partnerships? And is it more of an advisory relationship? Are you putting capital into redevelopment?

If people didn't see it, what's being referred to is that Macy's announced yesterday that they created a partnership with us to work on their real estate within Macy's. Maybe I'll step back and just make a couple of comments first and then I'll try to specifically answer your questions. The reason for the partnership is that Macy's, they're a great retailer, but due to their remaking the business, today they have a substantial amount of excess real estate in the company. We've created a partnership where we will work with them to repurpose some of the real estate and redevelop that real estate. This is a situation where I would say -- and not always you can say I a circumstance -- but I would say one plus one should equal three because for us, what it does is it creates a pipeline of opportunities where we can go to work and see whether we can create value out of these real estates that's just land today or some other use. For Macy's, they're on the retail business and they're not in the real estate business, so we should be able to make them more money out of their real estate than they would otherwise receive. Specifically answering your questions, the transaction and the agreement in partnership we've signed with Brookfield's asset management and with our real estate teams, and the manager we'll be working on this effort with them. When the opportunities are identified and capital will go into them, then we will identify whichever entity that is most appropriate for that. They possibly go into a fund, they possibly go into one of our partnerships and at the time it will define each piece of real estate as we go along as to where it's most appropriate as always. If it doesn't fit one of them, it would be done within Brookfield asset management, but that does not often occur. But the expectation is that we will bring the significant amount of the capital to the table to be able to do these redevelopments with them.

I appreciate the color. For my second question, I just wanted to go back to comment around the real asset products that you're creating, targeted more towards the mid-sized clients. Could you elaborate on some of those?

Probably the most interesting thing that we found in the last while and what we're working towards is that the real asset space for many of our private clients, these are large transactions and large amounts of money that we put to work and often people want to have exposure to a number of the areas and in private market, there hasn't been a product that gives people exposure to all of the things that we do. We've been working on creating products that we can offer to our smaller to mid-sized clients that would have all of the things that we do available to them. So it may have multi-product, it may have multi-fund investments in its -- real estate infrastructure power private equity -- or it may have listed and unlisted securities in it and it may have co-investments or other direct investments in it that are outside the fund. So what we're trying to do is become a one-stop shop for both large institutional clients that can do investments with us, but also tailor the products for smaller institutions who don't have the resources that some of the larger ones do.

Are you relatively early days into this type of product or have you already had some mandates in that space?

We're just starting into a couple today.

Okay, thanks so much.

The next question is from Andrew Kuske of Credit Suisse. Please go ahead. Pardon me. [Operator Instructions] And now the next question is from Andrew Kuske.

Thank you. Good morning. Bruce, I think you mentioned that the pace of deployment was really going to have a schedule. Could you maybe give us a little bit insight as to when you foresee the tipping point happening on your current funds hitting that mark when you'll be able to start to raise the successor funds?

Sure. It's Brian here. It generally depends. Each part is a little bit different in terms of the terms, but it's typically 70% to 75%. So if you think about the real estate funding 67%, we are obviously very close to be able to get into marketing the next fund there. And then the other two flagship funds are a bit behind that, but if the pace continues, arguably we could be getting into those ones next year as well. All in all I think what it speaks to is that -- being able to maintain quite a rapid pace of raising the funds and given the breath of opportunities to redeploy that and move on the next one.

That's helpful. And then related, we've seen the trend of the funds just getting bigger and bigger and we've seen the growth of the funds. As the funds and maybe future funds get bigger, do you see great opportunities for co-invests? Meaning a larger number of clients will help co-invest opportunities. And then the final question is do you expect to see ongoing margin expansion as the funds also get bigger? We did see quite good margin expansion on a year-over-year basis.

Sure. I'll start on that one, and its Brian again. I guess going in order there, yes, we would expect that the funds will continue to increase in size and we just look at the market with some of the other alternative asset managers, have it turning to the size of their funds and there is just that natural progression of the funds being larger particularly as you return in capital and then clients choosing to redeploy it with you. So we would expect to see the next vintage being again, higher. You'll probably get a larger step up in terms of the smaller funds than you would in perhaps the largest ones. That should give the right size, notwithstanding the size of the funds, given the size of the transactions we're seeing, we expect there will still be a lot of good co-invest opportunities. That's something that is important to clients and I think that it comes down to really providing that range of alternative that Bruce mentioned. And then lastly -- I've got the various components of the question. On the margin question, we do see those continuing to format at that through 60% level and I do believe there are some room for further growth there, but there's no doubt there are some efficiencies in an end scale of the business when it comes down to the nature of the resources that we're required to put the work to do this successfully.

Okay. That's very helpful. Thank you.

This concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Flatt for closing remarks.

Hi. It's Suzanne and with that we'll end the call. Thank you all for participating.

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