Brookfield Corporation

be in line with our targets very helpful thank you guys thank you one moment for our next question and that will come from the line of sorab movahedi with bmo capital markets your line is open okay thank you sachin i i wanted to just stay with you um

If I can, what are the two or three KPIs you want BN shareholders to watch for to see how best you are capturing at BWS, compounding intrinsic value for BN?

I would say total return on invested capital is number one. That's our singular focus. We're We're building this business to compound capital at mid-teens or high-teens for a very long period without taking undue risk. So if I had to focus you on one thing, I would say that we're not a top-line business. This isn't about growth at all costs. It's nice that we grow and we see a long runway of growth and we don't think that that's going away, but really compounding capital is very important. To unpack that, we then look at total growth return over our cost of funds which is more of a per unit measure so what is i know in the market sometimes analysts and others look at spread but we add on top of spread you know unrealized gain on investments so we really look at total return on our invested capital and we look at it both on a gross business basis and on a per unit basis beyond that what i would say is we're trying to build and we are maybe the only ones who can do this, is we're trying to build a business where at the top of the house, we can move our capital around to geographies and products, and we can do that without any conflicts or clients or other invested capital partners sitting in any parts of the business. So if the UK is a great opportunity, we can move capital there. If the US presents a more compelling opportunity, we can go there. And we can be fungible in how we allocate capital with that singular goal that I described at the outset. Does that help?

Yeah, that's very helpful. And so maybe just as a bit of a follow-on to that, maybe it's a bit of a naive question to ask Brookfield, but is there a size at which or is there a scale or market position at which you would say we can put a mission accomplished kind of sign on BWS?

No, I think as long as you see a credible path to allocate capital in a business where you can continue to compound at mid-teens, you don't really put up a mission accomplished sign. For us, it just comes down to, does the next dollar of capital offer a compelling investment opportunity?

Thank you very much for taking the question.

Thank you. One moment for our next question. And that will come from the line of Jamie Gloin with National Bank. Your line is open.

Yeah, thanks. Good morning. I'll stay with the star of the show today, Sachin, and a question on retail flows, annuity flows. So I think you kind of addressed it a little bit a couple of questions ago, but I wanted to focus in on the outflow question. side of the equation, which increased materially from this quarter last year. Can you talk about the drivers of those outflows? Is there some lumpiness? Is it consistent? Maybe just to help on that front.

Yeah, part of it is just quarter over quarter comparisons are difficult. I would say on an annualized basis, we should be at somewhere between 10 to 12 billion of outflows, which is consistent with our duration profile that's sort of high single-digit. You know, for the most part, we are selling products in the 5, 7, and 10-year range. And so, if you blend out on an average liability duration of 8 to 9 years, and you divide that by the total assets we have, you can very quickly come down to what our annualized outflows should be. So, not a surprise. And I would say if you're for modeling purposes, if you're trying to plan, you should plan 12 billion a year as the business gets larger, naturally, you're going to have more outflows year over year.

Yeah. Okay. Understood. And then, um, you know, stepping up higher level on, uh, the breakdown of distributable earnings and, uh, just looking at cost of funds growing at a faster rate than the net investment income in, uh, in this quarter. anything to pull out from that result?

Yeah, so one thing that I think is cutting across us and all of our peers is that as the front end of the yield curves comes down and annuity rates continue to stay pegged to the back end of the curve, you're bringing in dollars on day one in cash that have just earned less money. And I think what you have to then be able to look at, so therefore your weighted average net investment yield is lower on day one than it would have been a year ago when the yield curve was higher, and yet your cost of funds is the same and has crept up a little bit as the back end has come up. With that steepening of the yield curve, I think what you guys have to look at is who's best positioned to capture that total return. And What we are really focused on is rotating that cash position into long duration assets, long duration equity and credit strategies where we can earn that high teens total return on a per unit basis. And if you look at our results, as I said, we're capturing market share. Our total return is still somewhere in the 225 basis points of spread. and we're still achieving mid-teens ROEs. So I'm not worried, but if you look at a point in time, that's what's driving your lower average net investment yield vis-a-vis your cost of funds.

Okay, makes sense. Thank you.

Thank you. One moment for our next question. And that will come from the line of Dean Wilkinson with CIBC. Your line is open.

Thank you. Morning, everyone. Nick, I just want to talk on the buybacks. It's been a tremendous use of capital over the past five years. But when you look at that relative to the value that, say, sits at the manager, has there been any thought as the gap closes at that ownership level, kind of saying, would you take that back to the historical 75, or are you just trying to match those buybacks with what the manager's doing?

Hi, Dean. Yeah, listen, thanks for the question. Listen, I... I would think of BN and BAM as two distinct companies with their own capital, and we're doing our own buybacks based on our own independently almost of each other. At the BN level, as you know, we have significant cash flow coming in every year. We have very attractive investment opportunities, and we look to opportunistically buy back shares where we see that discount persist between price and our view of intrinsic value. as we've executed this year's 475 million, 470 million year to date. That's a good pace and we're not even halfway through the year. And so for us, this is just a permanent consideration of allocation of capital. And it's a separate and distinct allocation to what the BAM management team is focused on. The independently of BN believe that, and maybe it comes back to the first question that Sherilyn asked, the volatility that's been created in the market by some of the negative perception around credit and software, which really was applied to every manager without distinguishing who had exposure and who didn't, caused some irrational behavior in the BAM share price, and they opportunistically bought back shares in size in that period of time. That was an independent capital allocation decision, but given our significant ownership in BAM, we benefit significantly from that. But I would say they're distinct from each other, but you should expect buybacks to continue to be a significant component of our capital allocation at the end.

Back at BN. Okay. I mean, it's very reminiscent of kind of, you know, everyone thought real estate was going to die a couple of years ago and, well, didn't really. Yeah. Okay. Thanks for that, Nick. Thanks.

Thanks, Dean.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Ms. Katie Battaglia for any closing remarks.

Thank you, everybody, for joining us today. And with that, we'll end the call.

This concludes today's program. Thank you all for participating. You may now disconnect.