Brookfield Asset Management Ltd.

Ladies and gentlemen, thank you for standing by, and welcome to the Brookfield Asset Management 2020 First Quarter Results Call-In Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. If you need to ask a question during the session, please press star 1 on your telephone. If you require operator assistance during the program, please press star then 0. I would now like to do sales race conference call. Ms. Susan Fleming, Managing Partner, Brookfield, you may begin.

Thank you, Operator, and good morning, everyone. Welcome to Brookfield's first quarter 2020 conference call. On the call today are Bruce Flatt, our Chief Executive Officer, Nick Goodman, our Chief Financial Officer, as well as Brian Kingston, CEO of our real estate business. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results for the quarter. And finally, Brian will give an update on our retail business. After our formal comments, we'll turn the call over to the operator and take analyst questions. I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. securities law. These statements reflect the predictions of future events and trends and do not relate to historic events. They're subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. And with that, I'll turn the call over to Bruce.

Thank you, Suzanne, and good morning to everyone on the call. I will start today by expressing on behalf of myself and all of my partners at Brookfield that we hope you, your families, and your colleagues are all staying safe and healthy. The world looks very different today than when we last updated you three months ago. Many of our businesses have remained open and operational throughout this environment, and we are proud of the countless employees and stakeholders across our business and portfolio companies who remain working every day providing essential services and products around the world to aid those in need. In addition to the relief efforts that we're supporting financially across our organization, our people are contributing in many ways, which have included our hospitals being provided as providing beds to the governments requiring them, hotels that were providing rooms to frontline medical staff, and some of our real estate properties being used as relief centers. Before I get into the quarter, I thought I would just give a quick update on what we are seeing across our business in terms of reopening and how we are approaching it. Across our global operations, we are very encouraged by the accounts from our regions such as Asia that have begun reopening their economies and places of business. And we are leveraging their experiences today as we plan for our broader workforce to return to work. For regions that have already opened up, we are seeing trends of cautious but steadily increasing consumer confidence. Right now, our plans for reopening are guided by our ongoing discussions with local governments and in accordance with each region's plans for reopening. For example, within our real estate business as of today, and Brian may touch on this later, about one-third of our retail centers in the U.S. have reopened and significant more coming in the short while. Within our Actual offices for Brookfield Asset Management, we've opened numerous of them, including our Shanghai office and our Dubai office recently reopened. And starting a few weeks ago, most of our senior leadership have now returned to our offices, and we're preparing our spaces for the return of our people to it. But with the respecting social distancing protocols, and so the rest of the people can return to the office when the governments give the go ahead. Our long history of owning and operating assets, including the changes we went through after 9-11, have prepared us well to successfully handle business continuity planning and the adoption of new normals for our tenants, employees, and all other stakeholders. While no one could have predicted the catalyst for the environment that we currently find ourselves in, if you have been following us for the past few years, you know that we had been expecting and preparing for some kind of market turn for quite some time now. That preparation has meant that our business performed well in the quarter, and we believe the outlook for our businesses and our asset management franchise is very strong. The critical nature of many of our assets has ensured that they stayed open, providing essential services to the communities within which they operate, and they continue to earn strong cash flows, with most of it being contractual in nature. Our financial assets were and continue to be largely protected. As we had indexed hedge those assets, in the first quarter, and our asset management fee income, which has grown significantly because of very strong fundraising over the last 12 months, is perpetual or long-term in nature and largely not impacted by the market volatility. Our fundraising outlook for the remainder of 2020 is stronger than we would have initially inspected having just wrapped up the fundraising for our latest flagship funds in January. Already today, our oak tree business is in the market to raise its next flagship distressed debt fund, which we previously had planned would not be raised until 2021 at the earliest. We also anticipate that our special investment activities, which are focused on non-controlling equity investments, and not bound by asset class or geography restrictions, will attract greater amounts of interest both from clients and from the greater needs that businesses will have with their recapitalization efforts, which we expect to come in the second half of 2020. We also believe that many of our other fund offerings will also see increasing demand coming out of this current environment. such as our funds focused around contracted infrastructure-like assets that are proving to provide stability of return across these market cycles. Lost in much of the news of the last few months, it seems to have been forgotten that interest rates virtually everywhere in the world are zero. That is a simplification of but they are essentially zero. As a result, real assets are therefore highly attractive in this environment. While ensuring our business was prepared for an inevitable market downturn, we remained disciplined in our underwriting and investing over the last number of years. As you might have seen in some more publicized transactions, And I can assure you that there were many not publicized. This resulted in us losing out on a number of transactions over that period. Despite that discipline, we stuck to then is now paying off today. We have approximately $60 billion of capital available currently to deploy across our business. And from our experience over the past month, the capital markets continue to remain open for companies with strong balance sheets such as ours. We have been receiving both fund commitments for equity capital, but also debt markets since April. In the debt market since April, and Nick will talk about this a little bit, we added over $3 billion of liquidity by accessing the investment-grade debt markets and increasing the size of our bank lines to bolster our liquidities. As I mentioned in the update we sent out in March, our immediate focus for deployment was in the listed stock markets. Since the market turned in late February, we have deployed $2 billion of capital into these markets. A large portion of this deployment was into high-quality businesses that are trading at a significant discount to our view of intrinsic value. Over time... These positions could lead to privatizations or controlling positions, but today, at the very least, we expect they will provide excellent returns with large margins of safety as markets normalize. We also repurchased approximately $300 million of our own securities across the business within the parameters of our share repurchase programs, and we will continue to buy back shares as we see appropriate, while also balancing liquidity requirements of all of our companies. And lastly, to be expected in the current environment, the team at Oak Tree accelerated its pace of deployment in the public markets. During the quarter, and since then, they've invested approximately $8.5 billion across their funds. Today, their flagship distressed business, That fund is over 80% invested, and they have already started to line up capital, as mentioned, for their successor fund. We expect that fund will hold its first close within the next few months, and we anticipate that it will be larger than its predecessor upon close. So while there has been lots of opportunity in the public market, on the private side, for the most part, we have been just getting ready for more active times. One of these places we're already seeing opportunity to use our knowledge of the operating businesses is our retail business, and Brian Kingston is on the call with us today, and he'll provide some background on our plans for the revitalization program that we announced last week. Lastly, before I turn the call over to Nick to speak about financial results, included in our circular filed last night, as always, is a description of the partnership that of ours as individuals and its ownership of our 20% stake in Brookfield and the Class B shares. You may have noticed some new details about these arrangements, and I thought I'd make a few comments about those. First, nothing has changed for Brookfield. These were changes to refine how the partnership manages its ownership of the Class B shares. They are included in the Brookfield Circular as part of the disclosure around the ownership of the company's voting securities. Second, there's been no fundamental change in the control of the shares. It is the same group as before. What we merely did is simplify and clarify the ownership structure. Third, while the partnership is very important to ensuring the long-term stability of Brookfield, in our view, it does not play an active role in the day-to-day operations of the business. It does, however, allow us to operate in a Brookfield, to operate in an environment that facilitates long-term decision-making and we believe is very helpful in maintaining our culture. And none of that has changed. With those comments, I will turn the call over to Nick Goodman.

Thank you, Bruce, and good morning, everyone. Our business performed very well in the first quarter, even as the economy and markets faltered towards the end of March. Our asset management franchise and invested capital continued to generate significant amounts of free cash flow, highlighting the resiliency of our business. We generated $751 million of cash available for distribution and or reinvestment, or what we call CAFDAR, during the first quarter, a 43% increase from the first quarter of 2019. And we consider CAFDAR to be the best indicator of the long-term earnings power of our business, as it combines our stable fee-related earnings with the long-term sustainable distributions from our listed affiliates, which largely own contracted income streams. Notwithstanding the strong cash performance, the market turbulence at the end of March resulted in unrealized non-cash adjustments, including mark-to-market movements on liquid securities, which had a negative impact on net income. This resulted in a net loss for the first quarter of $157 million, or 20 cents per share on a post-split basis. It's worth noting that we expect these unrealized marks to recover over time as markets stabilize. Our funds from operations, or FFO, was $884 million for the quarter, or 55 cents per share on a post-split basis. Starting with our asset management results, fee-related earnings before performance fees increased by 35% to $321 million for a three-month period and totaled $1.3 billion over the last 12 months, an increase of 44% from the same period in 2019. The majority of our fee revenues are not impacted by market volatility as evidenced in the stability and growth of our FRE period over period, and the growth in our fee-related earnings is a reflection of the significant step change in the business over the past year, including the successful round of flagship fundraising that we completed in January, the growth in our distribution channels and our expanding private fund offerings, along with our partnership with Oaktree. Today, our fee-bearing capital totals $264 billion dollars, and our annual fee revenues stand at $2.8 billion. Our unrealized carried interest balance stands at $3.2 billion, as the investments in our funds are largely critical assets or assets that have long-term contracted cash flows and have largely not been impacted by recent events. We also benefit from having minimal exposure to public securities or energy investments. During the quarter, our unrealized carried interest decreased by $298 million before cost and the impact of foreign exchange. We realized $132 million of carried interest during the quarter and $613 million over the last 12 months as we continue to sell mature assets. We have realized approximately $1 billion of proceeds from asset sales during the quarter and $12 billion over the last 12 months. Looking forward, while the pace of asset realizations during 2020 is likely to be slower than we thought when we last spoke at the end of Q4. The long-term nature of our funds ensure that we can be patient when seeking to exit investments in order to maximize the value creation. Turning to our balance sheet investments, excluding disposition gains, FFO for the quarter was $397 million. The decrease compared to the prior year was a result of lower mark-to-market gains on our financial asset portfolio, lower earnings on our energy contracts, and the impacts on portfolio companies of the recent measures taken to combat COVID-19. We expect these impacts to continue into the second quarter, but we believe earnings will return to normalized levels as the economy gradually opens up and begins on the path to recovery. Finally, we sold several investments within our private equity, infrastructure, and real estate groups during the first quarter. These monetizations contributed towards approximately $107 million of realized disposition gains recorded in FFO. Today, our liquidity and capitalization remain very strong. In addition to $45 billion of uncalled fund commitments, we have $15 billion of core liquidity across the group, including $6 billion directly at BAM. Our balance sheet remains conservatively capitalized with an implied corporate debt to market capitalization ratio of 14% at the end of the quarter and an average remaining term in our corporate debt of 11 years and no individual piece of debt maturing before 2023. And we're seeing that credit markets continue to remain open today to credit-word the companies with strong balance sheets. In April, we completed the issuance of $750 million of medium-term notes and increased the size of both the BAM and BIP credit facilities, bolstering liquidity by a further $2 billion. Finally, I am pleased to confirm that our Board of Directors has declared a $0.12 per share dividend payable at the end of June. On a post-split basis, the dividend is consistent with the previous quarter. With that, I will turn the call over to Brian Kingston, the CEO of our real estate group, who will be providing us with an update on our retail operations as well as our recently announced retail revitalization program. Brian?

Thank you, Nick, and good morning, everyone. Today I'm going to talk about our retail real estate portfolio as well as offering some observations on what we're seeing on the ground and our outlook for the future. Retail makes up about one-third of our real estate assets under management. And while our business is global, the vast majority of our retail holdings are here in the United States. We currently have 170 properties comprising almost 150 million square feet of high-quality retail real estate located in 43 states, making us one of the largest owner-operators of enclosed shopping centers in the United States. Our properties are some of the most highly trafficked retail properties in the world, centers like Ala Moana Shopping Center in Honolulu that welcomes more than 50 million guests each year and Fashion Show in Las Vegas located in the heart of the Las Vegas Strip. This unique portfolio of properties would be impossible to replicate and provides us with a unique ability to leverage our scale and market presence. While today these properties are 100% owned by Brookfield Property Partners, they were acquired through a series of transactions starting with the recapitalization of General Growth Properties back in 2011. By taking advantage of past market dislocations, we've managed to acquire this unique portfolio at a substantial discount to the value of the underlying assets. Over the past five years, we've witnessed tremendous change in the retail operating environment. Retailers with weak balance sheets and or business models that haven't kept pace with changes in customer tastes and buying patterns are seeing their businesses steadily decline. At the same time, exciting new digitally native businesses have emerged and some old line retailers have reinvented their businesses to meet these new realities. And they've seen their sales and market share expanding dramatically as a result. While they come from a wide range of retail sectors and have managed to be successful for a variety of reasons, these retailers of the future all have one thing in common. They've been expanding their physical store accounts to help them interact with customers directly. and as a way to fulfill online orders more efficiently by locating their inventory closer to where customers live and work. When deciding on the location for their physical storefront, these retailers want to be in densely populated high growth markets. For owners of the best retail properties in the United States, like Brookfield, this has meant there was a waiting line of new tenants to take the place of old line retailers when they vacate our malls. We had initially expected this process to play out over an extended number of years, However, the sudden impact of the COVID-19 crisis has accelerated the demise of the weaker balance sheets and poor business models. We've also been investing in repositioning and densifying these high-quality locations into mixed-use entertainment destinations by adding residential, hotel, and entertainment uses to our 40-plus acre urban sites. These retail shopping centers often serve as the commercial hub for trade areas that they serve, and by adding these additional uses on-site, we're turning them into mini-cities, offering residents and tenants a dynamic live-work-play environment across the country. Much of the excess density to complete these redevelopments has come through the recapture and redevelopment of anchored department store boxes attached to or adjacent to our malls, and we expect our ability to recapture those boxes at good value will only accelerate in the future. While the impact of the COVID lockdown has been felt acutely in our retail portfolio due to the government-mandated closure of all of our malls last month, our places have always provided a safe and clean environment for people to shop and entertain themselves. We're now in the midst of reopening our centres with new measures that will enable them to be the safest place for people to send their families and meet their friends. As of today, around 75 of our retail centres have reopened under restricted capacity, and we expect the balance of them to open in the coming weeks. We're supporting these reopenings by concurrently launching curbside pickup programs at our properties, designed to seamlessly integrate online shopping with the inventory held in stores in our malls, effectively turning those stores into fulfillment centers located where our tenants' customers live and work. The feedback so far from our tenants has been very positive, with many of them reporting a significant proportion of their online sales being fulfilled through this channel. We believe this is more than a short-term stopgap measure during the retail shutdown and expect this to become a permanent feature in our tenant supply chain in the future. And this will further underpin the value of our premium assets, which are located in these densely populated urban areas throughout the country. Our 170 retail properties are located within a one-hour drive of 60% of the U.S. population. In the coming months, as our tenants continue the process of restarting their businesses, we will work closely with them to assist them getting back up and running as quickly as possible. At our properties, we are implementing comprehensive health and safety mitigation measures, including PPE worn by all employees and available for guests upon request, hand sanitizing stations at high touch locations, sanitizing wipes available in food courts, frequent signage with health and hygiene reminders, and strict enforcement of social distancing and density protocols. We're also working with our smaller regional tenants to provide them with financial accommodation, recognizing their ability to fund short-term operating losses is not the same as the larger national and international brands. We expect this will have some impact on our earnings over the balance of the year. However, it's expected to rebound quickly as the industry recovers. In addition to assistance to smaller retailers, we plan to utilize the position we have to make investments in retail companies as this industry consolidates. As we announced last week, Brookfield has established a $5 billion retail revitalization program to bring much-needed capital and operational assistance to support the stabilization and growth of retail businesses in all of the markets in which we operate. The program aligns with our approach as value-oriented investors, investing in high-quality businesses at favorable valuations at a time when capital is scarce in sectors that we know well, and the program will enable us to both support retail companies and deliver attractive returns to our investors. As you can imagine, since announcing this last week, our phone has been ringing off the hook with investment opportunities. We've also been active participants in supporting the industry's efforts to work with the U.S. federal government on its economic stimulus packages, specifically the CARES Act. We are taking a proactive role in working with our retail tenants to ensure that those who qualify for stimulus receive the subsidies that they're entitled to. Our dedicated tenant resource page and webinar devoted to the CARES Act has attracted over 23,000 visitors, providing valuable information on how to understand and determine the potential options available for our tenants. These subsidies, if applied and distributed correctly, could play an important role in easing the financial burden that retailers and restaurant operators are faced with. The hundreds of billions of dollars earmarked for small businesses to pay for their employees' wages, as well as cover operating expenses, including rent, should mitigate some of the financial and emotional hardship that they're facing. So in conclusion, while the retail operating environment was already highly dynamic prior to the onset of the COVID-19 crisis, The impact of the lockdown will be to accelerate many of the super trends that we already saw underway. While this may cause us some short-term pain, we own the highest quality portfolio of retail assets in the world and will ultimately be the beneficiaries of consolidation when this is finished. Physical retail real estate will change and evolve over the next decade, as it has for many years prior. However, the highest quality, best located real estate always increases in value over time, and we have no reason to believe otherwise in this case. So with that as my comments, I'll turn the call back over to the operator to see if there are any questions. Operator?

Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. If your question has been answered and you wish to move yourself from the queue, please press the pound key. Our first question comes from Sherri Lynn Radborn with TD Securities.

Thanks very much, and good morning. Starting with a question on the fundraising environment, I appreciate the comments that you made in a holistic sense. I was wondering if you could drill down and talk about how that looks for real estate more specifically.

So it's Bruce, and I'll make a high-level comment, and Brian may wish to add something afterwards. I'd just say first is that... the fundraising environment, it's kind of like everything that's going on in business today. If something wasn't in action before all of this occurred, not very many people have been doing a lot of new things over the past two months. There have been some, and selectly there are some, but if you don't know your manager or if you didn't already have a relationship, you probably didn't start one, so... I'd say that's a good news and bad news story. The bad news is if we were looking to close things or get new things, not much has started over the last couple months. The good news is we have many things in the pipeline and our relationships are very deep. So people will put money with managers they know. And I would just say in general, though, I think there's still money coming into all of the businesses we have, including... including real estate. Brian, I don't know if you want to specifically go further on that.

Yeah, no, I don't think there's any difference for real estate versus the other asset classes where we're typically raising money. I think we spend a lot of time and have spent a lot of time the last couple of months speaking to LPs. A lot of them have capital that they're seeing, as Bruce mentioned earlier, earning 0% in their fixed income portfolios and are looking at this as an opportunity to potentially put some of that money to work in high quality cash flow generating assets and real estate is part of that. So I think there's a lot of appetite out there and when things do free up, I do think you'll see a lot of capital coming into real estate. But it's the same as all the asset classes, I think.

Okay. In terms of your investment posture, do you think that the amount of dry powder that's been raised by BAM and others diminishes the opportunity set versus prior downturns or decreases Would you see that as proportionate relative to the scale of opportunities that may emerge here as other shoes start to drop?

Look, I'd just make the comment that our general view, and no one knows what the future brings, but our general view is that the economic ramifications on businesses that don't have substantial liquidity, once this fully plays out meaning the second quarter and the third quarter come and we may not open up exactly as fast as one might have hoped, will bring to us significant opportunities. And when I say us, just those with capital. So I think there are going to be lots of opportunities for us to put money to work would be the short answer.

That's my two. Thank you.

Our next question comes from Bill Katz with Citigroup.

Okay. Thank you very much for the extra discussion today as well. So maybe I could start there on the real estate side, Brian. So you mentioned the strategy of sort of being within an hour's drive and the densification and multi-use, et cetera. Does anything change post-COVID-19 just given the potential for any kind of structural shifts in commutation or work-from-home type patterns that might otherwise dilute that strategy?

No, you know, I think in the short term, clearly, the way we operate in our office buildings and in our shopping centers is going to be altered until we really get to a place where we have a vaccine and people are feeling more comfortable. But those trends that I was talking about have been playing out over 20 years, right, which is increasing urbanization. large businesses using their office premises as a way to build and grow and expand their culture and the importance of having that collaboration and people close by. And so I think it's interrupted at the moment because of the shutdown and people are finding ways to use Zoom calls and some other things to get by. But the reality is on a long-term basis, these office premises are an important part of business strategies. And we don't really see that changing. So I think operationally, you know, like with many things, you're going to see, you know, hand sanitizer and those sorts of things becoming a permanent fixture in the buildings. But I don't think the use of them or, frankly, the demand changes over the long term.

Okay, thank you. And then maybe just a two-parter for Nick, a little unrelated. Nick, just in terms of thinking about the FRE margin from here, how should we think about that? Was there anything sort of unique in this particular core that we need to be aware of? And as you think about hedging some of the invested capital exposure, where I think you had a nice benefit in the first quarter, how do we think about that with the markets rebounding in any way?

Yeah, Bill, listen, I don't think there was anything unique this quarter in terms of margins. The fee-related earnings continue to grow. They continue to be stable. And they're reflecting kind of the resiliency of our business model and the free cash flow generation at BAM. And we retain... you know, a positive outlook as we look forward. So we're going to continue to invest in the business so we can service our clients over the long term as the business grows. So I don't think you should read anything into like the margins were fairly consistent this quarter and they'll continue to be in those ranges as we diversify our product offering, as we do more of the core products, as we maybe raise more of the market-based strategies in Oaktree and the product mix grows, then maybe the margins change a bit. But I think overall, you know, you shouldn't, The results were fairly consistent this quarter with prior and what you should expect going forward. On the hedges, I think this is more about protecting BAM's liquidity. We have a large balance sheet. We have assets that we own that are in the public markets, and we have a large portfolio, which is a huge benefit and allows us a lot of flexibility. We just took the opportunity to hedge some of that and lay off some of the risk and effectively lock in values and hedge against volatility. So you might find as things recover, we don't benefit in the full recovery, but we locked in attractive values in prior quarters. So it might just remove some of the volatility from earnings going forward.

Okay. Thank you very much.

Our next question comes from Mark Rothschild with Canaccord.

Thanks, Hank. Good morning, everyone. Bruce, when you completed the Oaktree transaction acquisition, you spoke about how this acquisition would really shine during some times of distress when they could take advantage of that. And it appears that we're getting some of that at the very least right now. How do you see it playing out as far as the cash flow that you get from Oaktree over the next year? And is this something that, while it's a good opportunity for Oaktree to make money, it will just take a number of years for it to actually show in your results?

Look, I think all businesses are created over many, many years, and nothing ever plays out tomorrow morning. So the short answer is our earnings will not be affected by anything that Oak Tree does immediately. Having said that, the outlook for the Oak Tree franchise is, for the next three to five years, two, three, four, five years, is much better today than it looked 18 months ago than when we acquired the business. And that's why, as you know, and you stated it, that's why we acquired the business and partnered with the team there. And I think they will be able to put They'll be able to raise lots of money, and they'll be able to put very significant amounts of money to work through this period, and it is a very exciting time for them and us.

Okay, thanks. And in regards to the transactions you're doing now, there might be some distress, but as far as doing big acquisitions in the near term, it's going to take some time, whereas in the public markets, as you stated and shown, there's opportunities you could take advantage of quicker. To what extent – the funds you raise, whether it's in the private equity side or the property side, are you able to use those private funds to invest in public securities in a material way where there might be more dislocation today there than in larger transactions?

So just to be clear, all of our opportunistic funds are – we have entire discretion, total discretion to invest in – in public securities as long as they're a means to an end. And so most of the positions that we've purchased are within the funds we have with clients, private funds we have with clients.

Okay, great. Thank you so much.

Our next question comes from Andrew Kuski with Credit Suisse.

Thank you. Good morning. Questions either for Bruce or for Nick, and it just relates to the U.S. $2 billion of capital that you've invested. I think from the public disclosures what we've gotten was BBU is around $500 million, BIP around $450 million, Brookfield Renewable bought back some TransAlta, the $300 million of buybacks across the group. Is there any more granularity you can provide on really what's left of that $2 billion, on what buckets it was allocated towards?

Yeah, it's really just Andrew across the other groups. I think all of the groups in our business have been active. So you'd reference it's in infrastructure, it's in private equity disclosure, renewable, and in real estate. We have just been executing the same strategy, which is identifying high-quality businesses that we've seen traded at discount-intrinsic value where we think over the long term it could potentially be a catalyst for broader transactions. So it's fairly broad-based across the groups.

Okay, that's helpful. And then just I think this comes from page 12 in the supplemental on the expiry profile. So I think the number is about $6.5 billion of funds that's really skewed out of real estate and infrastructure as being the biggest areas for uncalled commitments expiring. So it's the natural conclusion to draw. We're going to see greater activity for value in the current market environment from those business groups.

Well, I think the dry powder you're referencing would be on the funds, and we're on to the next vintage of the funds. So new transactions would come from the latest vintage. That dry powder that has been left in those funds would be made available because we believe we would have follow-on opportunities, deployment opportunities in those funds where we have businesses with development pipeline or tuck-in and roll-up strategies. So their dry powder is really there that's being left available for follow-on transactions.

Okay. That's great. Thank you.

Thank you.

Next question comes from Brian with Deutsche Bank.

Great. Thanks. Good morning. Thanks for taking my questions. Just one, maybe back on the retail side for Brian, on the real estate side, just maybe more of a short-term question here, but, you know, if there is – I guess, a more problematic second wave in the pandemic, especially in the dense populations in the U.S.? Just what your thought would be on potential impact to FFO at BPY, say, if that happened over the next, you know, say, two to three quarters into 2021. I don't know if there's any way to frame the risk of that or not.

Well, the – Look, the primary risk from all of this really is with respect to bankruptcies. In the absence of a tenant going bankrupt, we have long-term leases in place with them and rents are due and we continue to collect the rent as part of that. So I think to the extent that shopping centres remain closed or close again or the potential office building usage is lower, neither of those on their own actually impact our FFO in the short term. It really is just sort of in the scenario where you have tenants going bankrupt and not being able to pay tenants. To answer your question, I think if we have a second wave, obviously that's going to have further-reaching economic impacts for the economy and putting us maybe deeper into a recession. But it's not a direct impact on FFO, and I don't think you're going to see a huge impact on our FFO over the course of this year anyway as a result.

That's a great color. Thank you. And then back to the deployment, maybe just if you guys could sort of frame – And, again, this might be difficult to answer, but, you know, with the lens, if there are more opportunities over the next six to 12 months given valuations proved even more attractive, maybe if you could sort of frame the pace of that $60 billion deployment in a timeframe sort of a range. And then if I can throw in the question on Oaktree, it sounds like a lot of their way through that is, you know, OPSA. 11, or option B, rather, any sense of the size of the next distressed fund? I know it's early, but, you know, could that actually be larger than the prior one at Oak Tree?

So it's Bruce. I'll answer the last question first. Because of fundraising constraints, we can't talk about fundraising.

Right.

So they're in the market. And we can't get into details on that, so I apologize for that. That's okay. But, look, what I can say is this is one of the great environments, possibly, by distressed debt that may have ever been in existence. And I think clients understand that, and I think, therefore – there is and there will be a lot of interest in the oak tree strategy. So we hope it will be a very significant fund. With respect to deployment of actual capital within all our other funds, you know, it always depends. We never know what happens. Our general view, though, is there will be more opportunities in three months from now and there will be a greater number in six months from now. and that's merely because our expectation is that the economic recovery will be slightly less than everyone hopes, because everyone hopes it goes back to exactly what it was, and it will take just a little more time, and therefore there will be more – as time goes on, the capital needs of companies will be – will be greater and we will be able to assist companies during those situations. So I think it'll happen, but you never know what the total numbers are.

Right.

That's great, Colin. Thank you.

You're welcome.

Our next question comes from Zachary McDermott with KBW.

Hi, everyone. Thanks for taking my call. So if I could just ask a more capital management-based question. I saw that about a year ago or so. You had mentioned that as cash available for distribution rises, you may look to repurchase stock. So given the current environment and how the stock has performed recently, do you feel differently about that sort of viewpoint?

Yeah, hey, it's Nick. Listen, I don't think it's changed at all. I think we said over the long term... our view of cash coming into the business, you know, our priority is to look to reinvest that into the business for internal growth opportunities to be able to see that cash continuing to compound and deliver long-term compounded returns. And we invest that by supporting the asset management business, you know, taking participating in equity assurances and listed issuers and other forms. And then when we've worked through those and we think about returning capital to shareholders, buybacks would be the best. And, you know, I don't think that's, Obviously, the share price where it's trading now is more attractive than where it was a few months ago, and we have been buying under NCIB, but we've balanced that with wanting to make sure we retain liquidity to be able to be opportunistic in this environment and just to be conservative through this period of time and have liquidity to support the franchise. So I think it's still a balanced approach. It's still a long-term strategy, so nothing in that regard has really changed.

Okay, thank you. Our next question comes from Saurabh Muveti with BMO Capital Markets. Thank you.

Bruce, maybe a bit of a strategic or philosophical type question. Obviously, this being an unparalleled type scenario the world's faced with, is it fair to say the only thing, well, maybe it's not, I don't know about the only thing, but is one thing that you're doing differently philosophically is looking at the public markets for investment opportunities, or what else are you doing differently, I guess, as a byproduct of this in the first instance? And then secondarily, can you just talk a little bit about what's the philosophy, what's the decision-making framework basically pursuing the public investment opportunities?

Yeah, look, I would just say during other periods of time, when environments like this existed. During the first three months of when that occurred, there were many opportunities privately to assist corporations deal with assets or buy businesses from them or provide capital to them. The difference today is that those opportunities aren't really in existence because no one can do diligence. But the one opportunity that has been available is that if you knew a business well, and because, remember, the things that we're buying in our funds for our clients and for ourselves are only things that we have extreme confidence in that we know very well and that we have a big margin of safety in doing it because we're buying public securities in large parts of the world. these are very concentrated positions in the companies. So that is available, and there's nothing else been available over the last while. That's a simplistic statement, but there's been nothing else available to do over the last while, so that's where we have been investing our money, and we think it's been an excellent place. Those will either be sold if the markets come back, or they will lead to stage two of this market, financial situation that we're in or economic or health situation that we're in. Stage two is going to be corporations reorganizing their balance sheets and other things being done. And some of those may lead to transactions with the companies to be able to assist them in addition to other things that we do out there. So I would just say it's not a strategy in itself. It's just an adaptation of how we do our business.

Okay. That's very helpful. And And so that adaptation doesn't necessarily mean you are thinking about returns differently. You're still pursuing the same sorts of hurdle returns and target returns that you were pursuing before.

Correct. We would be unhappy if the returns weren't at the very high end of our return numbers because we're taking greater risk today than you might take in other periods of time.

Perfect. And if I can just sneak in one more. When you talk about, and I'm not specifically talking about Oak Tree here because I know you're in the fundraising mode, but when you think about the next round of fundraising and against the backdrop or in the context of the zero rate world, do you think you will have to modify the promised returns or the targeted returns or the fee rates or anything like that materially from where you have been targeting and operating at previously?

Look, on the target returns of our businesses, we haven't changed them for a long time, and I don't think this environment makes a change. And that sounds counter to what you would think, but the type of things we do are not available to most investors, and therefore the returns should be – we target the same returns and we don't think we're going to have to change those. Now, if we earn a little bit less for our clients, if we don't earn 20 and we earn 19% or 18%, they're probably going to be happy. But I would say we haven't really changed our returns. And with respect to what our clients pay us for what we're doing. They seem to be very happy with what we're doing, and I don't think we expect any changes in those arrangements.

All right. Very much appreciate the time.

Thank you. You're welcome. Our next question comes from Mario Sark with Scotiabank.

Hi. Thank you. Just on the – Fundraising side, it was noted in your prepared remarks that the outlook for 2020 remains pretty positive. Was that specifically referencing the earlier than anticipated launch of the next Oak Tree Distress Fund? And I guess the follow-on question to that would be, is it too early in the crisis to be able to confidently reiterate your $100 billion flagship fundraising target that you identified at your investor day last year?

Yeah, look, I'll leave Nick to the second one. because I'm not sure I have the specifics for you, but what I would say is that the returns that we target within our funds, once we clear through the first part of these issues, are highly attractive to our clients, and they're more attractive than they were before. And therefore, I guess even on our open-ended strategies, which are fixed income supplements, I think they're going to be more attractive for our clients than they were before. And therefore, that plus our Oak Tree franchise, plus the fact that we think money will go to work quicker than we might otherwise expect it and we'll be back out fundraising quicker than we would have otherwise thought. All of those things taken in mean we have a much better more positive backdrop to fundraising and deployment than we had 12 months ago.

Yeah, Mario, I think that's right. I think so. I think to Bruce's point on the, your question is right. The Oak Tree fundraising is probably happening sooner than we would have expected. So that's just a timing shift in that $100 billion we would have presented. And then for the balance, I think we remain very optimistic that it's that is achievable over the timeline we laid out at Investor Day last year.

Perfect. Okay, thank you. And my second question, just with respect to the recovery, there's been a lot of discussion in the media about Vs, Us, Sushis, and kind of characterizing the recovery. There's also been some articles about a potential kind of stagflationary environment coming out of this. So I'd just be interested to hear Bookfield's base case thoughts on what a recovery could look like coming out of here and kind of the structural implications for long-term global employment and inflation?

Look, and I just say we don't, as you know, we don't profess to have any great insights on economic developments globally. What we do is buy assets which are contracted in nature or can be turned into contracted in nature assets and earn cash flow returns over the long term, we try to buy them with a margin of safety, as simple as I can state it. And we think those are highly attractive in whatever environment we're in. There's no doubt the environment we're going to be in is, for a while, and we've been saying this for a long time, but it is more attractive evident today is we're going to be in a low interest rate environment for a while. It's possible at some point in time that in the future, way out in the future, that interest rates go up because of inflationary things. But I think the type of assets we have for the next five to ten years are a very attractive asset class to be in.

Okay. Thank you for that.

You're welcome. Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your touch-tone telephone. Our next question comes from Bill Cash with Citigroup.

Okay, thanks just for the follow-up. And just big picture, Bruce, perhaps for yourself, going back to your investor day as well, the other interesting data point you sort of offered was allocations rising to about 60-some-odd percent in certain cases, perhaps too fluid just given the immediacy of what's been happening with the COVID-19 pandemic. But how do you sort of see the slope of that? Is that something that gets pushed out a little bit? Is that something that gets accelerated somewhat? I appreciate that the asset rotation from fixed income to real assets makes a lot of sense, but more structurally, would you be a net beneficiary of these changes, or is it a push?

Look, I think what the question is, and if I don't answer it correctly, please ask again, but I think that our... Our view has been, and based off of our discussions with clients and our interactions with them, is that institutions have been and will be pushing towards alternatives very significantly. They have been doing it for 10, 15 years, and they will be doing it for the next 10 years, and that allocations push from 0 to 5 to 10 to 15 to 20 They were originally, we said, going to 40, and then we said they'd eventually get to 60. I think today, where interest rates are, it's possible they get to that 60 quicker. It's possible that some institutions take them far higher than 60. Remember, if you're trying to earn 8%, you can't do it owning a Treasury bill at zero. And all Treasury bills in the United States out to 20 or 30 years are zero in every country in the world. other than a few emerging economies. So it's not possible to earn your returns that you need without these type of products within the fund, and therefore increasingly that will be happening. And what I would say is leave aside the short-term effects of what's going on right now. If we stay in this low interest rate environment, which I think we will, the allocations are going higher.

Great. That did answer my question. Thank you very much.

You're welcome.

And I'm not showing any further questions at this time. I'll turn the call back over to Suzanne.

Thank you, Operator. And with that, we will end today's call. Thank you, everyone, for joining.

Well, ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.