Good day, ladies and gentlemen, and welcome to the Brookfield Asset Management Second Quarter 2019 Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.I would now like to introduce your host for today's conference, Ms. Suzanne Fleming, Managing Partner. Ma’am you may begin.

Thank you, operator, and good morning. Welcome everyone to Brookfield's second quarter 2019 conference call. On the call today are Bruce Flatt, our Chief Executive Officer; and Brian Lawson, our Chief Financial Officer; as well as Sachin Shah, Managing Partner and Head of our Renewable Business.Brian will start off by discussing the highlights of our financial and operating results for the quarter, followed by Bruce, who will give an update on our business. Finally, Sachin will give an update on our efforts to grow our solar power business. After our formal comments, we'll turn the call over to the operator and take analysts questions.In order to accommodate all those who want to ask questions, we ask that you refrain from asking multiple questions at one time, in order to provide an opportunity for others in the queue. We'll be happy to respond to additional questions later in the call.We’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. law. These statements reflect predictions of future events and trends and do not relate to historic events. They're subject to known and unknown risks, and future events 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 I'll now turn the call over to Brian.

Thank you, Suzanne, and good morning to all of you on the call. So, let me start off by saying that we are very pleased with the results for the quarter. Our asset management business reported particularly strong results, led by fundraising within our private funds. And this led to a 33% increase in fee-related earnings prior to performance income, as well acquisitions and organic growth contributed the strong operating performance within our underlying investments and our listed partnerships.Together funds from operations or FFO totalled $1.1 billion or $1.09 per share, and net income with $704 million or $0.36 per share attributable to shareholders. Cash available for distribution and reinvestment was $599 million for the quarter, $2.5 billion over the past 12 months.So first I will touch on the results of our asset management business. This as you know includes our fee-related earnings and carried interest. So the fee-related earnings were $263 million in the quarter before performance fees as I mentioned that's a 33% increase over the prior year quarter and that reflects a similar increase in the amount of fee bearing capital. We did record some significant performance fees last year, so this growth is not evident in the total FRE, but does represent very strong growth, and this is pronounced by the -- reinforced by the fact that our annualized fees and target carry have also increased by 33% from this time last year. So this positions us very well going forward.With -- a big part of driving that was we added $35 billion to fee bearing capital over the past 12 months. This includes $27 billion of net private fund inflows as we are in the midst of raising our current vintage of flagship funds. And as well we continue to build out newer product offerings.…

Thank you, Brian and good morning, everyone. As Brian noted in his remarks fundraising and deployment during the second quarter continued to build on the momentum that we saw at the start of 2019. And with interest rates globally heading lower over the last six months, we expect that this will continue to accelerate.This situation comes into our results in two ways. First, with the 10-year in the US now at 1.7% and negative out to 30 years in Europe and Japan -- I am going to say that one more time -- negative out to 30 years in Europe and Japan, the value of assets should be re-rated to higher values in that environment.Second, and in addition, our clients likely need our services even more. And if we have seen the high point in rates during this cycle, this should be very positive for our overall business.In May, we held the first close of our latest flagship infrastructure fund for $14.5 billion on the first close this fund is now larger than its predecessor and we expect to close some additional funds later this month with more closures through the remainder of the year.We are confident that this will be the largest funds we've completed to-date and one of the largest infrastructure funds globally raised. Our private equity flagship fund also closed on new commitments this quarter and today stands at over $8 billion twice the size of its predecessor.Together with our latest flagship Real Estate Fund that closed this past January and co-investment capital committed to-date this year, we have raised over $40 billion in this round of flagship fund raising and it will end up being plus or minus $50 billion by the time those funds are complete.In our non flagship fund strategies, we're also seeing significant…

Thank you, Bruce, and good morning everyone. Today I'd like to speak to you about the growth of our solar business, which started two years ago with the acquisition of the reform companies. And today represents approximately 9,000 megawatts of operating and development assets and over $5 billion of invested capital globally.Solar has undergone a significant transformation. A decade ago, we were at the start of the decarbonization of global power grids where environmental regulation was pushing out traditional forms of generation like coal in favor of new renewable technologies.However, during this time, solar and wind remained highly reliant on government subsidies to be economically viable. In turn, these subsidies drove an inflow of capital into the sector from financial investors who pushed valuations and corresponding leverage to excessive levels, as the asset class was viewed as a proxy to government bonds. During this period, we remained patient and looked for an entry point into the sector that could leverage our operating capabilities and the global presence rather than competing for low returns.In 2017, the bankruptcy of SunEdison at the time the largest developer of solar globally presented such an opportunity. By taking an active role in the restructuring of SunEdison. We were able to acquire for value two portfolios that included 1,500 megawatts of recently constructed contracted solar assets, as part of the restructuring, we privatize. The emerging markets portfolio, while keeping TerraForm Power publicly traded.At TerraForm Power, we have taken a number of steps to drive value from the existing portfolio. We stabilize the business by inserting our own operational teams, improved asset reliability, and have driven over $30 million in annualized cost savings. We've also been working to fix the balance sheet by reducing leverage, improving covenants, and increasing liquidity. As a result, since our acquisition TerraForm’s…

So operator, I think we will take questions now if you could do that.

[Operator Instruction] Our first question comes from Cherilyn Radbourne with TD Securities. Your line is now open.

Thanks very much and good morning. So, obviously the flagship fund raising has been very strong over the last 12 months, but you've also raised I believe $3 billion for perpetual or long life strategy. So, I was wondering if you could comment on how much perpetual capital the company is currently managing. And if you look out how big do you think those long life strategies can become relative to the flagship strategies?

Yes, it's about $5 billion sitting here today Cherilyn.

And Cherilyn, I would add just on the future that these are ideal strategies for owning long term assets which may not otherwise have the upside to earn 15% or 20% returns, but can earn a solid 7%, 8%, 9%, 10%, 11% return over very long durations and not have a lot of risk with them. So I think these are -- we think these are ideal assets for institutional investors and therefore the long dated product is going to continue to grow significantly and I think we stated before that it could be $50 billion at each of our businesses, and I think that's probably an understatement in the longer term if we do our job right because, there are -- some of these are great assets which you should hold for long periods of time.

And maybe just as a quick follow up. Would you expect client appetite for those strategies to be particularly sensitive to the latest move in global interest rates?

Look, I think we've always stated that the strategies that we deploy are fine, the way we're running them today as long as global interest rates are not. The 10 year Treasury isn't it 5% or 6% -- if the global treasury, U.S. treasuries at 5% or 6%, people may look to differentiate and invest just into treasuries as opposed to some of the things they're doing with people like ourselves.I don't think people expected that interest rates were going to trend upwards from 2% and now that they've trended downwards and it looks like globally that's going to be going on for a while. I'm not sure that that's been factored into the marketplace yet, but I think it will come when if that -- if this phenomena is for real.

And then last one for me, just wonder if you could give us a bit more color on the new Special Opportunities Fund and where that fits in their risk return spectrum and how its investment mandate compares to those at the flagships?

So just for everyone to benefit, we created a program called Special Opportunities and it captures investments that lie outside the areas from which our funds invest into it. Most of our strategies are for example control investing. So there may be situations where it's not control, but we think it's an interesting opportunity and someone brought this in and therefore we may invest out of that. The funds could be deployed across the risk/reward spectrum so some returns could be in the low teens and some are opportunistic returns. They just don't fit the mandates of our flagship strategies.

Thank you. That's all for me

Thank you. And our next question comes from Bill Katz with Citigroup. Your line is now open.

Okay. Thank you very much for taking the questions this morning as well. Maybe, Brian, just start one with you. As you think about the base fee rate, I was wondering how that might look as you go out over the next three to 12 months. Maybe if you could breakdown your comments between the asset manager business and illicit partnerships.Sure. So I think a big part of it will depend on the mix of where the growth comes from.

Sure. So, I think a big part of it will depend on the mix of where the growth comes from. And as you know, each of the different strategies has a different fee rate associated with it. In general, there's not a huge difference between, overall, the fee rates that we earn on the private funds and the fees that we earn on the listed issuers, but the fees that we would earn for certain core credit products will be a little bit less than that. And so, really, it's going to evolve the mix of it and the overall weighted will depend on that.Having said that, I'd say that for the foreseeable future, the growth is going to be skewed more towards the private funds like the flagship funds and the listed issuers, because as you know we're building from a slightly smaller base on those core funds. We still see, as Bruce mentioned, a lot of growth in that over time. But the larger piece of it, right now, still is the listed issuers and the private funds. So it'd be very much mixed focus. So, hopefully, that’s somewhat helpful to you.

Okay. Thank you. And just as a follow up, I think you had mentioned in prior calls that you're on pace for this year for about $1 billion worth of gross realizations. I was just sort of wondering if you can give us an update. I think you'd mentioned in your prepared comments that you still expect to continue to see that in the second half of the year. But is it still expected to be about $1 billion or so this year?And then, appreciate you gave a little disclosure in terms of the array of timelines as you look over the next five years. But how do you think about the outlook for 2020 or even 2021 in terms of pace of realizations.

Yeah. So, I'm not sure we've really said that much publicly about 2020 and 2021. Although, I think, you can glean from our supplemental where we do breakout, in terms of the carrier that we've got a crude up to date and when the lifespan of those funds take place and there's -- of the $2.5 billion, there's a billion or so that's over the next three years and then $1 billion in years four to seven.So in terms of going back to the opening of your question in terms of the -- what we originally mentioned earlier in the year, which is up to $1 billion this year, we've achieved a fair bit of that and we still expect to see more carry coming in over the balance of the year.Again, we're going to be disciplined and opportunistic in terms of -- because it's driven by monetization events. And ideally we'll get it done before the end of the year. If circumstances demand, it will shift it into the first quarter, if we think that will get a better outcome overall.

Thank you.

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

Good morning. Thanks for taking my questions. Maybe just following up on Bill's with -- thinking about incentives and carrier realization. When you look at the accrued carrier balance, I mean obviously you've had a bunch of realizations, so that pulls out. But it feels like it's been kind of roughly flat to last year or so, even though a sense of underlying performance has been pretty good. So, is it really just the phenomena that the realizations is more or less offsetting, kind of what's flowing in from performance or is there anything else we should be thinking about, because the balance has been pretty flat. Considering all the capital you have at work and the underlying performance.

Yeah. So, I’ll make a couple of comments on that, Robert. So just in terms of your comment that it was sort of flat, I mean rough numbers. We were saying about $2.5 billion. We took $500 million there. So, say, relatively the same. That's about 20% growth, if you factoring the draw down there. The last quarter, in terms of the actual amount generated, was pretty flat as we mentioned and we had some good progress in a couple areas. And that was offset with a little softness in it. Overall, we still see ourselves on track in terms of hitting or exceeding the target returns across the board.The other comment I would say, and you can see this with how we lay out Kerry evolving over the next eight or 10 years, both in terms of how it's generated and how it's realized. As you know, there is a bit of a -- J curve, for lack of a better word, and given that a lot of the capital was raised quite recently, it does take time to put it to work. And to get yourself into the upward slope of the J curve where it really starts to build in a meaningful way, and that does tend to be back end. And even on the generation side, level on the realization side. So again, we still see everything tracking really nicely. And I'd say what you pointed out is not to be unexpected given the growth cycle in the stacking of the funds with the more recent raises.

Okay, great. And then maybe going back to fund raising question, and I apologize if you touched on this earlier, but the come towards the end of this robust fund raising cycle, infrastructure nearing its end; PE pretty much at its end. How do you think of the fund raising capacity of the business when you're not out-raising flagship funds? I mean do you think if it where we're setup to currently -- current generation funds raised 10 billion annually, 15. And how do you think it's kind of the ongoing fund raising capacity outside of fund flagship products.

So it's Bruce, and I would just make two comments and Brian, may add something. But the first one is that our real estate fund is 50% invested in our infrastructure fund. Well, we're just closing. It is coming on 50% invested. It's -- by the time you end, your large way through. So, firstly that the follow on funds come relatively quickly afterwards. That's the first comment I would make. The second one is we have a lot of other products, which we offer our clients and the perpetual products, which are ideal in this rate environment, continue to be raised all the time.So we're always talking to our clients with some form of product to be able to offer them, but there's no doubt during some years when a few of these funds all hit at once fundraising is greater -- in greater amounts than other years.

Great. And then if I could just one last quick question, more of a reporting question. When you started to have been more focus on cash available for distribution why not -- if I look at the U.S. peers who have all moved to a DE number, really essentially cash available for distribution. Why not make that kind of more of the central focus for BAM and kind of align you with -- at least with some of the public alternative manager peers are doing.

That's a great question Robert. We're spending a whole lot of time thinking about given the shifts in how a number of our peers have moved their disclosure away from the E&I and more towards DE. We started to talk about the cash -- the cash available for distribution a while back at our last Investor Day and beforehand and a lot of that goes to what Bruce was talking about because what that means for us is the amount of cash that's building up in BAM, that's getting generated each year at the BAM level, that's available for reinvestment or for distribution as determined suggest. So, it's a really key metric for us.Having said that, we do also want to make sure that we're positioning ourselves well so that people can assess our performance in the broader context of our of our peers but also make sure that it is the right metric that reflects our business as well. And we are a little bit different with the size of our balance sheet and so we want to be mindful of that.Anyway to wrap that up, sorry for bit longwinded there, but it's something we're spending a lot of time on and we'll be thinking about our reporting metrics going forward probably after thinking about that more in Q4 and maybe into the New Year.

Great. I appreciate you taking my questions. Thank you.

Thanks.

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

Hi. Good morning. Just dovetailing on I guess Bruce's -- your comments on to the flex of funds being 50% deployed already, one in particularly before I believe you started fund raising in October of last year, so it's been a very, very quick pickup. How would the pace of deployment in those two funds compare to expectations kind of going into the fund raising and would anything change the historical target of commencing another fund when the previous one is close 75%, 80% committed.

Answering that question first I'd say that the documents -- our documents like most funds allow for us to start fundraising when you're 75% invested and we would have all -- we would expect to do that. I guess our pace of how we invest sometimes is just because we find opportunities that come along and meet our thresholds and partly we're watching what the environment is.And I'd say the last six to 12 months even despite the environment that's been out there where a lot of people would say and probably is true is that the valuations are high in many places. There seem to be misvaluation in other places if you have the right capabilities. And so we've been able to find a number of opportunities to put money to work.

Okay. And my second question is somewhat related. It's a bigger picture one, we've talked about, I'd say it's safe to say for the past couple years, Brookfield talked about why rising interest rates are good for business, which I've interpreted to mean that a good economy is good for your underlying FFO or cash flow in the business that you operate with a 10-year down almost 100 basis points year-to-date and the Fed potentially embarking on an easing cycle for the first time in a very long time. How does that shift in monetary policy if at all impact your near to medium term capital deployment an operational focus and strategies within the organization?

Look I would just say the following. Interest rates being low are very good for long-term streams of cash flow, especially ones that continue to adjust going forward with some form of GDP sensitivity or some rate increase over time and generally that's what we own. The only caveat to that is if a recession comes along, because of that -- and that's why rates are going down. And if that changes the cash flows significantly, then you have capital destruction along with lower interest rates. And I would say, we've always focused on high-quality assets with long-term streams of cash. And therefore, I would say we should outpace that environment going forward and have higher quality streams of cash flow. But your point is very valid in this situation.

Okay. Thank you.

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

Thank you, good morning. I think in the supplemental disclosures, you highlighted your client base is 700 institutional investors and I think that's up from 630 in the prior quarter. How do you think about your client penetration right now? And then when you think about closing off Oaktree very shortly, how much overlap do you have with their client base versus how much is unique and distinct?

So first thing I'd say is given the competition issues that we're under with the Oaktree transaction, we don't have access to their client relationships. So I won't make any specific reference to their actual relationships that they have. What I would say broadly is of course because they are a large global manager and we're a large global manager, I'm sure there are many relationships that are similar. I would note though, our Middle Eastern in Asian franchise has always been very large we for a long time been quite global and they've had a much -- I believe a much broader U.S. business.I think the real benefit of that we should see out of the -- being together is that we can offer multiple products to our clients and have one tailored opportunity and there's very little overlap between the products. So that's really the benefit out of it. And even if they are some institutions that we both deal with.

Okay. That’s helpful. And just as a follow-up. Could you provide any incremental color on just your high net worth channels. I think one of the last comments was made public who is probably around 2 billion or so of AUM. Where are you now? And how has that grown over the last few years?

Yeah. We're still continuing -- if the target was to have about 10% of the funds flows coming out of those channels. We are still tracking along that. Gosh! I'm trying to recall what the exact or roughly what the number would be, in terms of the total that we're at now. I think it's probably around, 3 billion.And again, remember this is through a couple of different channels. Some of it is where we would kind of place I'll say a block with a, with a large institution that would then distribute that within their high net worth channels. And that's probably where we're more advanced.And then, the other side is working more through individual RIAs and that's a little bit of a slower build, because it takes time to get those channels up. And fully operating, there's a bit of technology involved there as well. But it's still progressing quite nicely overall.

Okay. Thank you. One final question for me and Brian this is for you. Just on the carried interest in the pitch 21 of the supplemental. There is a comment about a revised valuation assumption on the second real estate flagship fund. Is there any color you can provide on that, what was the revised valuation assumption?

Yeah. I wouldn't say it's not really a whole lot to reason to that. As you know we did there was a bit of a step back and some of the retail valuations, really across the board I'll say. And some of that would sit within the fund. It's nothing that, we think should impede the overall performance of the funds or the business for that matter.

Okay that's great. Thank you.

Thank you. And I am not showing any further questions, at this time. I'd now like to turn the call back over to, Suzanne Fleming for any closing remark.

Thank you, Operator. And with that, we will end the call. Thank you all for participating.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. And you may all disconnect. Everyone, have a wonderful day.