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The fundamentals of investing hasn't changed at all.
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What's changed is the environment around it.
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50% of the things that we invest in today did not exist for investors like us 20 years ago.
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We're in a period of time where this is a major major buildout.
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It sounds like you think we're at an inflection point.
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The productivity advances we see over the next 20 years probably will be unprecedented.
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The winners that are unknown today are the Can you spend a few minutes walking me through the machinery of Brookfield?
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One of the criticisms is that it's super complicated.
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I'm not sure that's actually a true statement.
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Well, you have over a trillion dollars in management now.
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It sounds like a lot of money. It is a lot of money.
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It's a trillion dollars, but it's not that much when you do what we do.
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[Music] I want to start with how investing has changed over the past 23 years, I think, since you've been CEO.
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Uh, look, on the first level, I'd say it hasn't changed at all.
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What investing is about is to buying great things or great businesses, holding for long periods of time, earning cash returns, and uh, that hasn't changed at all.
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So the fundamentals of investing are exactly the way they were before.
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What's changed is the um environment around it.
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Uh and I mention a couple things.
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First one is um many uh businesses are publicly traded and the indexing of um and passive investing has changed the publicly traded market for investments.
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It's very different than the actual investments.
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the investments are still the same and what we do is still the same.
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How they trade in the market and whether they're uh included in indexes has changed how they trade in the public markets.
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So I think that um is pro probably the fundamental biggest thing.
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The the second thing and and this is um I I'd say maybe the most simple way to say it is 50% of the things that we invest in today did not exist as an investment asset class for investors like us 20 years ago 50%.
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And and we invest in the backbone of the global economy.
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Like these are simple things.
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We deliver your water in the morning.
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We sold the road you drive on in the afternoon.
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We deliver your power uh to your house.
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We um the data center that powers your phone.
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Um we own um those are all really backbone things.
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So what we do is backbone.
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This is not innovative venture capital that we're doing.
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But 50% of the backbone of what we own today did not exist as an asset class for investment 20 years ago.
2:48
What percentage of that would you say is a new um new things versus governments maybe um privatizing some of the services they used to deliver?
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When we started uh in infrastructure 25 years ago, we were among the first.
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Um we thought that it would be governments privatizing and to some extent it is and it's not they're not privatizing because they have a hard time selling assets.
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um what they do is they're just not investing.
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Therefore, private enterprise takes it up.
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But the biggest area of um investment today is really just the whole backbone of the world is changing.
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So um the digit digitization of um the whole world between behind your phone or your computer um as you know laptops didn't exist before, the internet didn't exist before.
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Cell phones didn't exist before.
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Today you can have this podcast on your cell phone and go for a run in the morning.
3:48
How that gets delivered to you is data center storing it uh fiber delivering it to you going to a tower and bringing it down to your phone wireless and all of that needs enormous amounts of infrastructure and all of that is built by private enterprise.
4:07
Virtually every all in fact not not virtually all of that is delivered to you as an individual and this is eight billion people in the world getting that delivered to them in various forms.
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It's all delivered by private money and uh and that's what's changed.
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It's um before historically that was built out by governments.
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Today it's being built out by um private enterprise.
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You know to use an example we own all of the telecom towers.
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not all but we own a very substantial portion of the telecom towers in India.
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Um they deliver all the phone and wireless infrastructure to uh many individuals in India and that was originally built by Reliance Industries Geo.
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um we bought it from them and we support their and other telecom companies activities through those telecom towers and um historically that would have been built by government um but it was that's built by private enterprise.
5:07
Let's go back to the rise of passive maybe versus historically more active investing.
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What implications do you see?
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What opportunities are created?
5:14
Look, in every uh in everything when there's a when I say there's a problem, there's always an opportunity.
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And I think that's the Chinese symbol, right? Problem and opportunity.
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For some companies, smaller, midsize, don't fit indexes, they will be lost within um public markets investing because active uh investors may not be investing in those sectors anymore.
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And if you don't fit the indexes, you have no buyers.
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Um, increasingly though, what it's doing is that it's creating a a large disparity in some securities at points in time between the price of them in the market and the value of the underlying assets.
5:57
Back to you asked me first question.
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What has changed in the investing world? And I said nothing.
6:04
That's related to value, right?
6:07
What's changed is the price of some things trades up and down.
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If over the last 18 24 months, if you've been one of the big technology stocks in the world, everyone needed or wanted to buy you in the indexes and therefore their multiples traded very high.
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But if you were something that um didn't neatly fit the indexes, um it traded at a low price, the opportunities are that we can take those companies private.
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So we took a large container shipping company private.
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It had one It had one analyst and nobody following it. It fit in no indexes.
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It was a $6 billion company.
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Uh and we took it private and it's been an exceptional investment.
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Um so we continue to I'd say capitalize on opportunities where the where we understand the value and the price is not trading at that in the markets.
7:07
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8:36
What can you do with a private company that you can't do with a public company?
8:40
Well, firstly, you don't have to look at what the price is versus the value.
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You just know what the value is, and you run it for what it is.
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But secondly, um we can operate differently, finance differently, invest for the future, and run a business like somebody should just run it.
8:57
If you and I owned a business privately, we wouldn't care about the markets.
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We wouldn't care about whether the stock went up or down tomorrow morning.
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We just run our business.
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Cash flow comes out, we decide, should we dividend it out to ourselves to use together or should we keep it in the business and invest?
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And um and that's really the the the difference is all you look at is the fundamentals of your business if you're private.
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And uh if you're public, people tend to get distracted by the trading price of the security when it's not really relevant.
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Um some businesses need access to capital and have to raise capital and therefore their price is uh important, but most businesses that are listed don't need access to capital.
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They're only listed because they're large um and they happen to be just they need owners and therefore they're in the public markets.
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they're never issuing equity and therefore the price of the security in the market really doesn't matter and in fact it's a distraction which is why when um people often ask me why what why what happened with the alternatives industry and why did it grow the extent
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that it grew over the last 25 years and it it's really grown that way because um private assets uh are the fundamentals are exactly perfectly matched to the fundamentals of what institutional investors want to have in their portfolios. And maybe even more importantly, by
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And maybe even more importantly, by owning them privately, they don't have to have the distraction of the public market.
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They don't have to get confused that you and I bought a telecom tower business. It generates a 6% yield.
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It grows at 4% every year.
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And um we don't have to invest much cash flow into it. So it's free cash flow.
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And uh if it's privately owned, it's just we just watch the cash flow and keep growing and try to enhance the business and grow it.
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And that's what we do privately.
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If it trades in the public market and today it's worth $20 and tomorrow because of whatever happens in the markets it's worth 10, nothing changed in the business.
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And uh and that distraction is what causes people um issues.
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They sometimes make rash decisions and uh and I'd say that's maybe the biggest um enhancement to long-term investors uh by having private assets.
11:35
I take it you're not an efficient market hypothesis person.
11:37
I you know I I no the answer is no.
11:39
Um the uh the markets are never efficient.
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In fact, very seldom do they ever trade at the at the actual um value of securities.
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Either most of the most of the time they trade above or below.
11:55
Very seldom do they trade at the at the value.
12:00
But yes, I guess there are many theories in life.
12:04
Let's talk about some of the trends going on in the world today that you see from your aperture that you think have a long runway that we're maybe just beginning on or maybe in the middle endings on.
12:13
So we uh generally have three sort of themes that we invest around or we have a few themes we invest around at all points in time. Today we have three.
12:24
Um the first one is uh just the digitalization of everything and the amount of capital that's being invested um behind that digitalization.
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Uh and and and really what it is is there are many many many many many trillions of dollars going into um the uh movement of information into the cloud onto your phone and just the digitalization of everything behind it.
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And um that has been uh enhanced increased enhanced by artificial intelligence and the networks being set up now to harness artificial intelligence.
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And um may maybe the most simplest way to explain it is everyone thinks of artificial intelligence is chat GPT. Yeah.
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I'm going to get it to write my uh cooking class uh memorandum.
13:25
Uh but really what what the where the money is going to be made is the application of artificial intelligence into business.
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And simply stated, that's taking processes in service and industrial businesses and making them more efficient by using advanced robotics who have learned how to make how to run those processes from uh models run on artificial intelligence.
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And we're in the very very early stages of that.
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But um from an infrastructure standpoint, the amount of money being put behind this uh is uh in amounts which have almost never been seen invested before.
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So that's sort of the first theme we have in uh of investment and it both affects our operating businesses because we're we're now applying artificial intelligence in our businesses to make them better and they'll be more productive.
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uh and we're also investing and supporting many of the technology companies with their um funding for the the redigitalization of the world.
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Let let's spend a few minutes on digitalization before we move on in the sense of you there's vast data centers being created today.
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being created today. I would love to hear your thinking on whether that investment is going to be where winners are acred or are we overinvesting as we typically do in booms and busts and then walk me through sort of like how you see
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winners emerging in this um from end to end right you generate energy you lease data centers you walk me through how you see that so um there's no straight line in investing to success And usually at points in time, people will lose money because they get over excited. Um but uh there's we're in a
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Um but uh there's we're in a period of time where this is a major major buildout of what's going on.
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Um the clear winners uh in this um AI revolution are going to be the major uh technology companies.
15:38
That that's sort of easy.
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They're very sophisticated.
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They have large balance sheets and capital to deploy.
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um they they've already developed models and they're going to be very very u they're going to win. They're going to win.
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They have the data and they have enormous amounts of data.
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So all of they're going to they're going to win up that that's easy.
15:57
Like I'm not sure um there's anything that I would that that's helpful to you to anyone listening to this.
16:05
If I tell you, oh, you should buy Google.
16:07
Um these are going to be great companies and they're going to continue to be great.
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The winners that are unknown today, yeah, are the companies that are going to figure out how to apply artificial intelligence into their businesses and make them better.
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And um there are many businesses today where uh you cannot get people to operate the the businesses.
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There just aren't enough people.
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And if you can therefore deploy robotics into businesses and um shrink the amount of labor you need or there are plants that are being operated in Asia that um had high dollar value that's why they went there but the reason high dollar value products but they went there because there was high labor component.
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if you can shrink the labor component, um many of those plants can come back to where the demand is.
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Um specifically, I'd say the United States.
17:08
So, the the unknown winners are going to be the companies that can apply artificial intelligence um into their businesses and make them more efficient and more profitable.
17:19
And I and I I think um those that do it will win, those that don't, some will fall behind.
17:26
Um but the productivity advances we see over the next 20 years probably will be unprecedented for a period of time.
17:33
Um certainly one we haven't seen it for a long time uh in business uh across America.
17:39
Is there anybody you're tracking externally that that you would never acquire that you're you admire how they're applying sort of technology?
17:46
So you know we're in the early early stages of this and uh so we're we're trying to learn from everybody.
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trying to learn from everybody. um we're talking to many we of course given their scale we have access to um very significant resources uh and we can talk to most people so we talk to all the technology greats we deal with all of
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them um in our fundamentally in our business um in addition to that uh we're continuing to learn and apply these technologies within our business and what I can tell you is the early learnings of our business some of our industrial businesses are
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and why I have why I can why I say the things I just said to you is that the early learnings are that um the adv the advancement of productivity is very very significant and you see that in your battery like you guys make half the batteries in the world don't you
18:40
look our uh we make just under half of the car batteries so we we make the little car battery that starts your car you know when you uh get up in the morning it doesn't start you have to go get a new one So that normal time half of those in winter half of those will come from us. Yeah. Yeah.
18:55
Uh that are out there and uh it's an amazing business and we continue to re you know we're always trying to optimize businesses.
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Our job is to uh invest in businesses and make them better so that they will grow greater amounts of cash flow so we can continue invest in the businesses and and um provide dividends to our owners.
19:18
And so we're as we try to make these better, we're we're applying artificial intelligence into all our businesses including that battery business which is and why it's a perfect one for these type of applications is we have 25,000 people in 20 plants.
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We do very repetitive process and as a result and we have $9 billion of costs within the business.
19:41
If you can uh improve those by 30% that's a lot of money to the bottom line.
19:50
and um and it can be very significant for the company.
19:53
Is there another example that stands out about how you're applying AI to the businesses that you control?
19:58
You know, every single business we have um we have a healthc care uh business where we have um we approve your health care uh in the United States.
20:10
If you need a back surgery and you need to authorization from your insurance company to do it, we take the phone call.
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uh from you and we approve it online.
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Uh we approve your $150,000 operation uh or not.
20:26
And uh our agents do that and today the amount of information we can put up when you call in is incredible.
20:35
Uh even from two years ago is incredible.
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And that just helps us make better decisions quicker and serve our clients who are the the healthcare companies better.
20:45
companies better. and uh but it's everywhere you know the the the putting we're we're you know we're applying these type of things in all the businesses but we're in the we're in the first inning of this so it's um anybody that hasn't started should start
21:04
uh be and it's not too late we're in the early innings of the application of this it's exciting to see where it's going so we have a trend of digitalization what other big trends do you see the second one is that there is a transition of the world to lowcarbon energy. And uh and I say it that way
21:21
And uh and I say it that way because what what's really important here is we just have less carbon out there.
21:28
And and but what's what's even more important today is that solar and wind, which is where we're um which is what's filling the gap, are the lowest cost energy sources for power in the world in most countries today.
21:45
And why that's really important is it doesn't matter whether you choose to have less carbon or no don't care about less carbon.
21:56
what you do choose is to pay less for your power. Yeah.
22:00
And uh and that that that's the the simple economics are today.
22:02
If you go to somebody and say, "Do you want to pay more for your power?"
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They will say they will say, "No, I don't want to pay more for the power. I'd rather pay less."
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And and as a result of it, the lowest cost power in most countries of the world is solar and wind.
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Therefore, you're going to choose solar and wind.
22:19
So, it's inexurable that we're going to build out most more solar and wind in the world.
22:25
Um, in the United States today, there's no doubt we're drilling more oil, which is, remember, oil is not used in power.
22:32
Oil is used for basically cars, chemicals, and um planes.
22:35
They It goes into jet engine fuel, goes into car engine fuel, and it goes into chemicals.
22:44
And that has nothing to do with power.
22:47
Uh oil is not used for power. Natural gas is.
22:49
And natural gas is one of the great assets the United States has.
22:52
Um, it's going to export it for a long time.
22:57
It's going to use a lot of it in America.
22:59
Eventually, batteries and nuclear will be the base load and it won't be natural gas, but it's being shipped elsewhere in the world.
23:10
And where it's going to is needed for base load because they they um they they need that that base load power or it's replacing coal which is hugely beneficial to the world.
23:21
So natural gas is an incredibly important bridge fuel in America and long-term fuel in many other places in the world.
23:32
So the LG market uh in the United States is extremely important and very lucrative for a long period of time.
23:39
So let me make sure I understand those.
23:40
So wind and solar low cost and then gas is sort of the base load when there's no wind or solar because we don't yet have the batteries to time shift.
23:47
You know we have we have base load capacity in the US which is nuclear.
23:52
Um that will continue to grow.
23:55
We can talk about nuclear if we have time later.
23:57
Um what's happening uh in in grids is that you need something to stabilize the grids and to store when because remember solar the sun only shines during the day.
24:10
It's usually dark at night and wind actually usually only blows at night, but you normally don't have the the um incidents of both together are not always the case.
24:25
And you have to have something to bridge one of those.
24:28
And uh increasingly in past, nuclear's done that and gas has done that.
24:36
Increasingly battery storage uh at scale distributed will help both with trans transmission bottlenecks but also with the um the two offsetting uh uh amounts.
24:51
How how do you see the trend with like data centers in terms of electrical use?
24:54
Do you see that continuing to be because these take a long time to permit to get into place or do you see that reducing uh in time?
25:03
So, so the reason why uh one of your questions earlier which I really didn't answer was um are data centers are we like are we going to get in trouble with the amount of money that's going into data centers and the answer is no and it's largely because it takes a long time to permit a data center.
25:19
You need to find power to power the data center and the needs of the technology companies are very significant and on top of that energy usage everywhere is going up and as a result of that it just takes time to bring sites on and most sites today that are available to be built are already contracted to somebody for the next 20 years.
25:46
So, um, we're in a we're at a a point in time where it's it's we're now trying to entitle new sites and we're because of our vast real estate business, our vast power business, our vast data center business, we're as skilled and as um integrated as they are to entitle new sites, but it takes time.
26:09
And um we've got some really exciting large sites coming, but these most the the earliest big one that's going to come on that's brand new that we're entitling will and even though it has enormous advantages because of it already has power, it'll be years away.
26:30
And so you're like all your risk is you're derisk because you're not doing it unless it's contracted out. Is that ju generally? Yes.
26:36
We're not uh we don't we've we've ne in past we never have and uh I don't think we um we need to take risk on that and therefore it's like when we build an office building you know you're you you let it to a bunch of tenants and then you build it for them and uh you don't have to take the risk on that in particular in these because of the um demand for it.
27:00
And what's the third trend that you see?
27:02
So, so the the third trend that we um identified a long time ago, and I'd say it's uh changed even more, but is more relevant today than ever, which is just the deglobalization of industry.
27:16
And I or I'd call it the re-industrialization of countries because of what's going on in the world.
27:26
And uh that started with COVID.
27:26
It started with um uh the Asia West issues which as you can imagine that one has only um the the uh since we coined that four years ago, 5 years ago, it's only increased given what's been going on.
27:45
Um but increasingly many companies are moving uh industrial capacity back to western markets where on balance they can um make sense of putting plants there.
28:02
Part of it for supply chain pharmaceuticals uh need now need to be next some of it needs to be next to customer um because they get caught during co that all of a sudden all my manufacturing is in China. How do I get it here?
28:18
It can't get out of China. What am I going to do?
28:21
So, increasingly those type of things.
28:23
Um but but also with tariffs and with other things um you're going to uh relocate manufacturing capacity back to to other markets and and be lo more local.
28:36
And um what I would say is things many things went to Asia and a lot of them will stay there and the Asian markets will be fine with this because they've they've now matured to the point where they are service economies in themselves but um many products that have been developed there will move back to America America because the labor components with robotics coming in are becoming less and less and less.
29:07
So the reason for them to be in Asia is um less there today than it's ever been.
29:14
And on top of that, if there happens to be a tariff long if there is a tariff longer term, then um then it's even going to quicken that process up.
29:27
What do you see as the second order either opportunities or challenges to that sort of call it repatriation of manufacturing?
29:36
Look, I think China, it's a it's an economy in itself today. It's 1. 5 billion people.
29:42
They're getting richer every day.
29:44
They're turning into a consumer service society.
29:46
There's not that much of manufacturing that's relevant to them.
29:50
I think they will they will do extremely well as a country uh on their own.
29:56
But there are some countries in the world where they haven't yet transformed themselves to be service economies and they're reliant on jobs that were from outsourced manufacturing.
30:08
manufacturing. And if you can do that closer to consumer those um countries may have some issues on balance for western countries I'll just take the US as an example you're bringing some jobs back maybe not as many as left before to make the product
30:30
but if that product comes back you've actually added jobs and uh and that's very positive which sort of leads to the long-term story of America which is the long-term story of America is extremely strong because um the US today has uh energy capital and technology dominance. Energy capital and technology dominance.
30:54
Energy capital and technology dominance.
30:58
There's nobody in the world that has a technology businesses that the US has.
31:02
There's nothing in the world that has the capital markets the US has.
31:04
And the US just by nature has dominance nature and some hard work has dominance in oil, in gas, in solar and in wind and has dominance in nuclear.
31:21
And those five things together give it energy dominance in the world for a long long period of time.
31:28
And um so I think those three those three things are going to make on top of one of the greatest GDPs in the world an entrepreneurial class manufacturing moving back at least to some extent a lot or to some extent on balance it's going to be positive for for growth.
31:49
Um the US has a pretty good runway going forward.
31:54
It sounds like you think we're at an inflection point for productivity and some of the the job losses will be offset by sort of the remanufacturing uh coming back to the US.
32:04
H how do you where do you think we are in that trend like that game?
32:10
I guess there is no straight line in anything.
32:15
Everyone always thinks that uh somebody says something and it's going to happen tomorrow morning.
32:18
Usually, usually it happens uh in greater amounts, but it takes longer periods of time and takes slower than you think it would happen.
32:26
Um I I would say we're in the early stages of all of this.
32:31
Uh we're seeing going to see productivity advances and nobody just flips a switch.
32:36
Thing is, nobody ever flips a switch.
32:39
These are incremental changes over very long periods of time.
32:42
But it's what it means is that is that the application of greater intelligence into businesses is going to um make business better, more efficient, more productive and um and better better for the world frankly.
33:03
Um that that just makes us all uh smarter.
33:07
You mentioned real estate.
33:07
How has that changed over the past I would say 10 but specifically five years you know again I would say uh over the past uh 25 30 years 10 years 5 years um these things always just evolve and uh you know industrial capacity used to be just used for manufacturing storage of goods and today it's used for transportation of many goods that are delivered to homes.
33:35
So industrial has changed enormously changed as a business over the past 10 years.
33:41
Retail has changed because people used to do all their shopping uh uh in stores.
33:46
Today what they do is they do very bespoke shopping in stores and they want experiences in stores.
33:57
But if you want to buy paper towels, you usually don't go to the mall.
34:01
You just order it online.
34:01
And um but but if you want to have a meal and you want to go and try on a shirt or pair of pants or have some fun for the afternoon, you go to the mall.
34:11
And that's that's what's changed is that commodity goods, if you own commodity, if you own almost today commodity anything, it's bad.
34:20
If you own commodity office, bad.
34:22
If you own commodity retail, bad.
34:24
You own commodity industrial, bad.
34:25
In fact, if you own commodity hotels, bad. Yeah.
34:27
Um, if you what's great today is all of those things in the top 25%.
34:36
And our our view always has been buy the best, uh, own the best, buy the best, continue to reinvest into the best and so our real estate is among the best in the world.
34:46
Um, and we continue to, um, experience some some great numbers.
34:53
Uh look over the last 5 years because of COVID and because other things and because interest rates went up by 400 500 base points um all of that disrupted the real estate market.
35:04
But the the worst is uh behind us by far.
35:11
We're looking in the rear view mirror by by um uh what happened in real estate.
35:17
And in fact this time the fundamentals are actually pretty good in most things.
35:23
Um it's just there are some people that have uh capital structures that aren't built for these financing markets.
35:30
Uh and therefore they'll have to put capital in to be able to delever or whatever they have to do or or somebody else will take over the asset.
35:38
Um but that's not a a huge issue across the world.
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37:25
Maybe spend a few minutes and sort of like take me behind the scenes in how you think about risk and how you think about interest rates and how you think about debt when it comes to assets.
37:32
Our uh our fundamental thesis of investing is that you should put a prudent amount of debt on assets that can withstand markets.
37:43
Um if you can, then you should fix it because you know your cost and um and from time to time if you got it wrong, you put a little make sure you have a little more money around to put it in and and support your asset.
37:56
So, um, we've always conservatively financed our businesses and assets.
38:02
All of our financing is asset by asset by asset by asset or business by business by business by business.
38:10
So, any debt that we accumulate onto our consolidated balance sheet, it's just the accumulation of a whole bunch of single asset financings.
38:19
And um and it's not that we ever want to or think that we will give back assets or not live up.
38:26
In fact, our reputation is with our lenders is that we're one of the best sponsors in the world to borrow uh lend money to because we support our businesses.
38:37
But buying hav having asset by asset by asset financing allows you to just deal with the situation one by one by one and and it's duration mean they're spread over long long periods of time and um and with interest rates um I think the most important thing to remember is we don't borrow the treasury rate only the government borrows at treasury rates and uh what we borrow at is treasury rate plus spread. spread. Yeah.
39:10
And historically spreads were 200 basis points and interest rates were uh 300 basis points and therefore you borrowed at five.
39:18
And when co when COVID hit interest rate uh the Treasury rate went to zero. Yeah.
39:25
And what the borrow most of the lenders said to us is I'm not going to lend you at 200 over and give you three.
39:29
I'm widening that out to to uh 350.
39:32
So I'll give you five and or four and a half and uh therefore before we were boring at five and in CO we were boring at four and a half.
39:45
So when people say, "Oh, geez, you got all this financing in COVID."
39:49
Um, yes, maybe some people did and some people got very ex low rates because rates were zero and they might have borrowed at two at an extreme point in time, but not very much.
40:02
And most of it, lenders just widened the spread out.
40:04
Today, base rates are high. We're back to five. Guess what?
40:10
Spreads are the lowest they've ever been in history.
40:13
We just did a 30-year Brookfield Corporation financing.
40:20
So, we're borrowing money for 30 years fixed for that time period. And it's 125 over.
40:26
So spreads spreads basically all-in coupons are important and um and that's really important to remember about um investing in real assets, real estate, but also infrastructure, renewables, etc.
40:45
What distortions do you see by sort of like historically low interest rates?
40:50
And even by today's standards, you mentioned they went up.
40:52
They they have gone up quite a bit, but historically they're still well below average.
40:55
Yeah, look, I think the that's that that maybe is the most important point to note here is that um interest rates aren't that high.
41:08
They're they're higher than they were because interest rates went to zero and for a number of years after the financial crisis, they were close to zero and uh now they're actually in a normal a relatively normal range.
41:20
I'm sure we're going to see another few hund few few another 50 100 basis points off of the short rates and we're going to settle into just a regular range of rates.
41:34
But these rates are actually pretty normal and for our business very um constructive and the things that we can do and we're refinancing it because the coupons aren't that much different than what they were before. people.
41:49
We talked about sort of dislocations providing opportunities and you know maybe spend a few minutes walking me through how you think of positioning to manage the recycle but not only maintain your assets uh but also take advantage of dislocations in the market.
42:08
So the first thing one has to do when there are dislocations in the market is make sure that you have been you were prepared for it.
42:17
So the one thing you should do always when times are really good is ensure that you're preparing for the down market that's coming uh the ones that don't uh usually aren't successful in the fullness of time.
42:30
But if you are prepared the first order of business is let's double down and make sure that we're fully prepared.
42:37
But then secondly and and and and um I'd say coming out of recessions or cycles coming out of the bottom what's most importantly is just have everything you have intact. Do not lose anything.
42:51
Do not lose too much and keep going because there'll be many people who will have lost stuff.
43:00
What's even better to enhance the business is at that point in time as the market's starting to recover and once you're comfortable, we've taken care of all the things within our business that you can then invest capital um into new businesses at that point in time and add to your entity.
43:24
And if you can, that's the difference between the great winners and long-term investing and the um and those that are just in the middle.
43:34
You have almost well, you have over a trillion dollars in management now.
43:36
How do you fend off the pressure to deploy that money?
43:44
It sounds like a lot of money. It is a lot of money.
43:47
It sounds like a lot of money.
43:47
It's a trillion dollars, but it's not that much when you do what we do.
43:53
A couple years ago, we bought Deutsche Telecom's half a Delich Telecom's telecom tower business in Germany.
44:00
Uh, and Austria is $20 billion transaction.
44:02
We're building for Microsoft $13 billion of power plants.
44:06
Um, we're building with Intel a $ 32 billion uh fabrication plant in Arizona.
44:12
Um, you know, I can go through the list.
44:16
These are large transactions that consume significant amounts of capital that earn excellent long-term returns.
44:24
And um I just use that to say we're we're we've been doing this a long time.
44:34
Um what we promise our investors and our clients is that we will take moderate amounts of risk.
44:40
um not no risk, but moderate amounts of risk and earn um good good returns over long periods of time.
44:49
We won't shoot the lights out.
44:51
You're not going to get 45% returns every year.
44:53
Um and we're not trying for that.
44:57
But average returns over an above average period of time equal outstanding returns. Yeah. And that's the point.
45:03
The point is we've earned our parent companies earned 19% return annualized returns for 30 years.
45:12
uh when you compound up which doesn't sound like very much 19% returns annualized for 30 years like it just when you say that in that line doesn't sound like that much but I think that's a million dollars became almost $200 million over that period of time or
45:27
$1,000 became $200,000 it's a lot and uh so so the point is success in investing isn't about making a lot of money in a short period of time what it's really about is earning reasonable returns over very long periods of time. And and look look
45:46
And and look look that's Berkshire Hathaway.
45:48
Bergkshire Hathaway is successful because um uh they have been able to deploy capital at reasonable amounts of turn over very long periods of time and uh and that's the success of long-term investing.
46:04
Is that a company you look up to?
46:04
Look, they've done an incredible job in uh in their business over a very long period of time.
46:11
Maybe you mentioned over 30 years.
46:11
Walk me through a little bit of the history of Brookfield and then the future where we're going.
46:19
So, we started as an operating business.
46:22
We just invested for ourselves.
46:26
Um we had the businesses that we basically have today.
46:30
uh infrastructure, real estate, renewables, and industrial service, we call private equity today.
46:37
Businesses and credit lending.
46:37
Those were our five businesses.
46:39
We did it for ourselves and we lent money.
46:41
And um 25 years ago, we decided that we could take those skills we had and turn them into a business to be able to um manage some of our money and some of our institutional or other clients money.
47:01
and um and offer alternatives into those funds.
47:04
When it started, nobody wanted to invest with us because they didn't really understand alternatives.
47:09
And today um that's turned into a trillion dollar business.
47:14
Um it's been extremely successful largely because um these products are ideal for institutional and retail clients to invest into.
47:26
in the the past 25 years has been about institutional and and this comment is not meant to say that they won't be investing but their their increase from going from zero to some of them are at 30 40 50% alternatives.
47:46
Um when you go from zero to 50 you can't go to 100.
47:48
So a lot of them are at their numbers.
47:52
But what's happening today and and to your question of the future is that the same phenomena is now happening in retail.
47:59
Uh retail being individuals 401ks in the US are going to open up to alternatives.
48:05
I think plans around the world will open up to alternatives.
48:11
Uh alternatives are ideal products for retail as well.
48:14
In fact, they're almost more ideal because you're saving for your retirement and uh what better to have in there than a product that earns a reasonable return over a very long term long period of time and can compound.
48:31
And so the the future of our asset management business is really about um that um the opening up of retail and continued growth of retail wealth uh with our products.
48:44
Doing the same things that we do for institutions, exact same, but now just opening up in different types of products that are suited or tailored for um individuals. What does that mean?
49:00
Maybe walk me through it because, you know, I've always thought you've had these available to people.
49:04
I could go buy Brookfield Infrastructure on the public market.
49:08
You you can buy it in the public market that fits in a stock portfolio, but you to date we haven't offered you a product for your 401k in the private market. Okay.
49:21
that was open to you to say, do you want to buy um infrastructure with us and just own a bunch of data centers and different things like that?
49:29
Um we happen to have a couple of listed ones that are very unique, but but the what people want is private assets within their portfolios and that's going to increase I'd say exponentially over the next 20 years.
49:47
So retail is sort of the future, but another big area that you're investing in is insurance.
49:51
Maybe walk me through some of the opportunities you see over the next 20 or 30 years in insurance.
49:58
Yeah, so outside of our asset management business, uh we decided to um take a portion of our capital and um put it into insurance 5 years ago.
50:07
It was a fertuitous time because we bought some um excellent insurance companies uh at a point in time where they weren't doing very well because interest rates were extremely low and they weren't earning very high returns on their capital.
50:22
Fast forward four years later, the companies are doing extremely well.
50:26
We're making $2 billion a year of cash flow within the business.
50:28
And um and insurance for us is is um I I'd say the following.
50:36
Firstly, uh, and maybe just to go back, our goal was get in the insurance business, not not because we wanted to be in insurance.
50:46
What our goal is is our clients come to us because they um they want our investment skills.
50:54
What we have is a very unique offering is a bunch of investment skills that can create products um for long-term investors.
51:07
uh our insurance company now being $120 billion of assets is a perfect long-term uh investor into all of the things we do from our asset management business.
51:16
So we have a special um a special expertise to be able to offer because we have access to our investment products or great we have greater access or greater comfort with all the investment products to be able to put into the insurance companies than most other uh uh groups out there.
51:36
Maybe there's a few other others like us but not very many and um therefore we have a special benefit for that.
51:45
So we we've chosen annuities um in the United States largely so far.
51:51
We've now just got licensed in the uh United Kingdom. Um but why annuities?
51:56
What appeals to you about that?
51:59
It's just because they're they're lowrisk liabilities.
52:00
We we were not taking on high risk on the liabilities side.
52:05
Our goal originally was in getting into this was don't take risk on the liabilities, earn our money on the asset side.
52:11
And um and we have this unique ability to earn excess returns on the asset side.
52:18
And our goal was put very significant amounts of capital and overc capitalize the businesses which allows us to do things in the on the asset side of the balance sheet which is very um different than many insurance companies.
52:35
And what you know we we can own real estate uh to a greater extent.
52:38
We can own alternatives to a greater extent.
52:40
We can own infrastructure to a greater extent.
52:44
Um we can own high yield bonds as opposed to just uh fixed income on the market.
52:49
Um all the things that we do for our clients um we can put them into the insurance company and they may take more capital but we've over capitalized the company.
53:00
So we started with $4 billion.
53:00
We've increased the capital I think to seven 161 17 billion of book equity um within the business.
53:08
we continue to over capitalize, but on top of that, we have another hundred billion $150 billion of capital up top that if we need more money, we'll put it into the insurance companies to ensure they're healthy and better than any that are out there.
53:21
And um and we have an excellent relationship with the regulators um and explain all these things to them and are very transparent with all the transactions we do with them.
53:32
Um, and we happen to have some very unique things that we can do because, you know, for example, if we own an office building and somebody owns the other half and they want to sell and we know that's a really cheap uh price they're going to sell at, um, that's a great real estate investment for our in for our insurance company.
53:55
Very seldom do people have that opportunity with our knowledge and access to opportunities.
54:00
So, it's a pretty unique um offering and and that's what we what we bring to the table.
54:08
Do you think you'll get out of annuity?
54:10
Well, stay in annuities but expand into other businesses.
54:12
I'm imagining short duration stuff is probably the property and casualty is is not doesn't lend itself to that type of investing, but maybe reinsurance or Yeah, look, I I would say we wanted to start this is a 25-y year venture. Uh we're 5 years in.
54:29
Um, we wanted to start to make sure that we uh uh knew what we were doing.
54:35
We met all our regulators.
54:38
We uh earned their respect.
54:38
Um, and we um we operate we could operate and figure out what were all the risks.
54:45
Um, we've been in it 5 years. We're very comfortable.
54:49
over time uh we may branch out into other types of uh other products that we can understand that fit our skill set and um and that's really what's important to us.
55:03
So first we're expanding internationally writing annuities or pension risk transfer annuities which are both are very similar.
55:12
Uh so instead of instead of going out of our uh comfort zone on the type of liability what we're doing today is we're expanding to the UK and which is a big uh pension risk transfer market and that that's just a different way to expand.
55:31
Are the pension risk defined benefit or define contribution?
55:33
These are uh p pension risk transfer means which happens in the US, Canada and the UK largely those three places in the world.
55:45
Um what it means is that if there's a corporation that has a defined benefit plan that wants to get it off their balance sheet.
55:53
So they they have a $10 billion plan.
55:56
There's 10 billion assets, 10 billion liabilities.
55:59
They can commute that plan to us and we can our insurance company can take it.
56:03
So they're no longer on the hook for the plan.
56:05
They're no longer uh at risk on the assets or the liabilities. We've assumed that risk.
56:10
We will now pay their pensioners and they gave us the assets to earn over time hopefully the the amount of money to pay all their pensioners.
56:20
And if not, we're on the hook for it, not them.
56:22
Can you spend a few minutes walking me through the machinery of Brookfield and why you've structured it the way you have?
56:28
Look, I I would just say um like one I'll preface this with like one of the criticisms from the outside in is that it's super complicated.
56:35
There's a lot of different entities and moving parts.
56:38
How do you think through that?
56:41
So, I would just say that uh yes, there are probably more pieces of Brookfield.
56:48
First Sam, I I I I I might disagree first by saying there there are many companies in the world that are large like us and they have as many many pieces as we do. That's first point.
57:00
So I'm not sure that's actually a true statement, but I'll take your uh I'll take your uh points at at face value.
57:11
And I would just say each one of the pieces we've set up has been highly thought through and contributes a lot to the business.
57:18
These are not random things we've done.
57:21
They're very specific and they contribute enormous value in the long term to the company and because of that um we have to explain them more to maybe sometimes have to explain them more to investors.
57:37
But for our uh friends, they understand exactly why those pieces are there and what they do for us and um and what each accomplishes.
57:50
In the short term, I could we could wave a wand and get rid of all those uh as you denote complicated parts.
57:57
We could wave a wand, get rid of them all.
58:00
In the in the long term, it would be bad for shareholders.
58:05
less less returns would be earned.
58:08
We would be more at um financial risk.
58:12
We would have we we have the maximum amount of flexibility within our structure to be able to go through deal with opportunities, risks, and everything that's out there.
58:24
So I I just I I uh I look we can always do better on explaining the pieces and and we try all the time and it's incredibly our our reputation is incredibly important to us.
58:39
Um so when people criticize us about our structure, our different things that are there, um we try to double down and make sure we explain it all to people.
58:50
Um, but what I I would just say that each of those pieces is really important and uh and contribute a lot to the business.
58:57
Hypothetically, if you were to all put it under one umbrella, how would that change the opportunity set available to you?
59:05
It would just mean dilution to some shareholder and and and for example, we spun off our asset management business uh two years ago.
59:16
There's a whole group of US investors largely that buy asset management businesses that only want to be invested in asset management.
59:24
They don't want to own assets that we own.
59:26
They don't want to be invested in insurance.
59:28
They don't want to do all the other things we do.
59:32
Um they don't want to change like our our parent company Brookfield Corporation.
59:39
It has changed in 35 years in many different ways and many different times for the benefit of all of us.
59:44
But you need to you need to trust us when we're changing.
59:52
Brookfield asset management is a pure play asset management business that's asset light that will probably never be anything different.
1:00:03
You can trust us for that and that's what it is.
1:00:05
So they're just they're just different audiences and um and it just allows us to have a security which is tailored to that audience and if we want to offer it to somebody in the public markets or to an or to another alternative manager we want to merge in or something it gives us the opportunity to do that and not have to deal with all the other issues that we have.
1:00:28
what about your insurance business or what about your investments or what what are you going to do next and uh and it just allows us to do that.
1:00:37
So I don't like we could do it.
1:00:40
It just would take away a lot of the great benefits we have in the organization.
1:00:45
If you put your investor Bruce hat on, which of the businesses do you think is the best positioned for the next 15 years?
1:00:52
And I'm not asking returns.
1:00:52
I just mean which business do you think is the best competitively positioned?
1:00:56
I just think they're all different.
1:01:00
They're they're all totally different.
1:01:02
Everything we invest into has enormous opportunity going forward as long as we execute properly.
1:01:08
Um but they're each one of them's different.
1:01:12
Uh I I get excited I could I could get excited about having all of my net worth in every single one of them.
1:01:20
And uh and they're all pretty exciting going forward.
1:01:25
Maybe spend a few minutes on talent and people.
1:01:27
Brookfield is known to take really big bets with what from the outside looking in would be young people.
1:01:35
What do you see in people that gives you the confidence to take bets in them?
1:01:39
How do you build a culture where uh meritocracy rises and people can take big bets?
1:01:46
So, we've always had the view that um well, firstly, we're an extreme meritocracy.
1:01:52
Uh this is a partnership.
1:01:52
It's partnership of individuals.
1:01:54
Uh when when we leave the partnership are sharers that if you're an owner or controller of the partnership, they go away.
1:02:03
They go on to somebody else.
1:02:05
So um nobody's family will ever uh will ever be part of this partnership. It's a meritocracy.
1:02:14
Second, we've always had the view that um a cross between uh uh wise older people and smart, aggressive young people.
1:02:26
both um give you the gravitas to deal with situations which you need a little history but also allow you to be um allow you to know more about what's going on today.
1:02:42
I'm positive our 30-year-olds today in the business know more about technology than I do because they've grown up with it differently.
1:02:51
Um, it allows us to be faster, better, quicker to every new trend in the world and what's going on out there.
1:03:02
And it also, I'd say, creates a culture where people want to be here and get ahead because they know they can.
1:03:11
And um and so I look we uh brought to the partners and to our senior people uh three years ago we brought Connor Tesy forward as the next person that will be the CEO of the asset management business.
1:03:29
Um that was internally uh vetted.
1:03:32
It was then externally vetted.
1:03:36
And today we're in the process of him uh continuing to meet clients and investors and all those kind of things.
1:03:44
And I think he's 37 years old today.
1:03:48
Um he's incredibly passionate, talented, and uh and he'll bring through a whole new group of people within the company and re-energizing businesses is what makes them better and different.
1:04:01
Walk me through some of those meetings where you're making a big investment decision.
1:04:07
What goes on behind the scenes?
1:04:07
How do you quantify risk?
1:04:09
Where do you spend your time on deals?
1:04:12
Our uh our investment process is we only invest in things that we deal with and know.
1:04:18
Um we have people on the ground and our knowledge of the business and um and we're our investment committees are normally only focused on downside protection.
1:04:33
upside will always take care of itself.
1:04:36
And whether you shoot for 16%, 22, 29, 18, none of those matter. They're all great.
1:04:43
What's really important is what are the risks, how what can go wrong, how bad could it get, and um and how do we deal with it if that happens?
1:04:55
And so we spend virtually all of our time on townside protection at our investment committees and that's all that's important to us.
1:05:05
When you're wrong, where are you typically wrong?
1:05:06
And you haven't been wrong a lot. No. No. Look, we make mistakes.
1:05:09
We try to make small mistakes. I'd say that's it.
1:05:13
When we're wrong, where are we wrong?
1:05:16
were wrong in increment in small ways.
1:05:21
um which aren't have you you don't know about them very much because in the last 35 years we've been right generally on the large things and nothing has been uh irreparably harm uh harmful and um and that's because the things we do are small incremental and when we
1:05:47
make mistakes we we we make them along the way and we encourage people to keep learning and and growing because if you don't make some mistakes you never advance but do not make big mistakes and that's I'd say that's the biggest thing we try um to impress across the organization. You mentioned the investment committee.
1:06:08
You mentioned the investment committee.
1:06:09
I just wonder behind the scenes are investment decisions signed off by by one person or is a committee that signs off and if it's a committee how do you hold people accountable or responsible for those?
1:06:22
So our uh usually what happens is some transaction came into the company some way or we had an idea and we went out and talked to somebody and a transaction came about.
1:06:32
Uh it's then approved by today because we have these vast businesses.
1:06:38
it's approved in the business.
1:06:39
But then we have one committee that it's almost like an allocation committee up top because we want to know how many across the organization.
1:06:44
We want to know how many transactions are happening at any one point in time.
1:06:48
So we're not compromising like you said, how could you make a mistake if everybody made a massive transaction at the same point in time?
1:06:59
What we're probably betting on is a cycle.
1:07:04
And you may not want that.
1:07:04
And if you do, you better knowingly do it.
1:07:08
And um so uh in addition to all the deals being approved down below where accountability comes from uh we have an oversight committee that approves everything that goes on in the organization which includes six or eight of us and uh and that approves everything really just to have be a final governor over the entire organization.
1:07:36
Are there patterns to cycles that you notice in advance of them happening where you're like, we're at the first inning or we're at the late stages?
1:07:42
What are the signs that you look for?
1:07:45
I I would just say that uh cycles are never the same, but they sort of rhyme and they look similar.
1:07:59
So, um, the one thing of having wise older guys around, I'll consider myself that today.
1:08:06
Uh, uh, I used to be a young unwise individual.
1:08:10
Uh, I'll try to consider I know I'm old, just not sure I'm wise.
1:08:16
But uh I um some of the reason for having the the wiser individuals around is is having the um elongated knowledge of what goes on in cycles and what goes on in periods and and we've seen this before is helpful.
1:08:37
Sometimes it's a hindrance, but sometimes it's very helpful for context.
1:08:42
And uh and therefore that's that that's what makes great organizations I think in our view is that you have um the combination of the tenacity and passion to make investments and be successful tempered by um the uh knowledge and skills of past and what's gone wrong to be able to bring together risk management and drive to succeed.
1:09:19
I I'm curious like how you would teach me to that knowledge of cycles like how would you pass that on to somebody in your organization or or me if you were to sort of here are the things I look for or don't look for or you know I I would say uh in general we don't do training quote unquote but every day every single person in this organization is learning and it's a it's a learn by osmosis this process.
1:09:47
We have open plan uh in the place including myself never had an office and uh and people talk to one another and it's very interactive and therefore well I started off by saying we don't train anybody uh we train them every single day and uh it's just different than sending people to school.
1:10:11
Do you do like postmortems after an investment and what's the key?
1:10:15
Oh yeah, especially the bad ones. What goes into those?
1:10:17
Like walk me through that.
1:10:19
Take me behind the scenes.
1:10:19
And we try to look at look the the uh successful ones you can usually identify and know what happened.
1:10:28
The unsuccessful ones are harder to identify what happened.
1:10:34
Um but often there are there are reasons why and it either comes down to execution.
1:10:41
Uh you didn't you didn't execute properly.
1:10:46
um you had um you mistimed the market or you just made a bad bad flawed investment decision and those are the worst.
1:10:57
You mist time the market n you know it's okay.
1:10:59
Um but uh uh making flawed investment decisions is really bad.
1:11:08
Is that where you you've got the business strength wrong, the competitive dynamics wrong? You don't understand? Yeah.
1:11:14
I I just sometimes it's we're sometimes we're pushing out into areas which are adjunct to what we do and we probably shouldn't have.
1:11:23
We really didn't know what we're doing and um not often does it happen but once in a while.
1:11:29
How how much of your investment decision you you focus on the downside, but how much of it is like we're modeling out the next five years and then we're tracking to that model or the the only thing I tell you about a model is produced in an investment committee is it will never be exactly what happens.
1:11:47
Um, but uh I'd say if you get the we're trying to get the trends right is is really what it is is in investing it's can you get the trend right and and I would say most of our investing is uh we're trying to get the price right for value and therefore often we're buying at a discount to what we think is the value of something and um and therefore that's an an important uh thing to note.
1:12:17
How do you think about the geopolitical risk?
1:12:23
We we invest in backbone infrastructure largely and even our private equity businesses are backbone infrastructure type businesses.
1:12:32
Therefore, what's important for us is to go to good countries with good people that you can operate with the standards we operate with and that those countries respect rule of law and will over time be good places to invest.
1:12:50
We don't really sell over borders.
1:12:50
So in the United States where we are um we own data centers and telecom towers and real estate and industrial facilities and all of the things that we own in the US and we make batteries and we etc.
1:13:05
All all of those are consumed by individuals or companies in the United States. They're not shipped. We make power. It's used within state.
1:13:16
Um, so politics don't really matter to us.
1:13:21
You know, they do in the margin, but on balance, as long as you invested in a good country, um, you're going to be fine.
1:13:31
And by good, I'm assuming you mean stable rule of law, how do you think you're good?
1:13:36
I good means um, for us, it has to be large enough to be able to invest.
1:13:39
Like we can't have small countries just not because they're not good.
1:13:43
They're not good place to invest.
1:13:44
It's just not meaningful to us.
1:13:46
When you have a trillion dollars things, the benefit or the um uh or the drawback Yeah.
1:13:54
the drawback is that uh is that you can't go to a little country like we just we can't invest the uh $100 million.
1:14:03
It's not relevant to us, right?
1:14:06
Um so we need large places.
1:14:09
We'd like them to have uh we need to operate with the standards that we operate globally with.
1:14:16
Um, we need to be we we'd like to have large GDP.
1:14:19
We'd like to have it growing.
1:14:22
Uh, and we'd like to have a currency that's relatively it doesn't have to doesn't have to grow better than everyone else.
1:14:28
It just has to stay consistent.
1:14:29
If it's highly volatile, not good.
1:14:31
If it goes down over the long periods of time, bad.
1:14:34
Um, so we we'd rather pick countries with those um those factors and but it all comes down to price.
1:14:45
It's like some some have all that and then you you you invest uh when you can but but for us we have to have people on the ground.
1:14:54
So we pick those countries very methodically.
1:14:55
We put people on the ground.
1:14:57
We invest from time to time new investments when we find the opportunities.
1:15:04
But we don't randomly go to countries like this is not a random business. This is hard work.
1:15:09
Therefore, we have to be in country, be able to action, an opportunity when it comes.
1:15:14
And therefore, if we're not in a country and somebody calls us with an opportunity, we just say, "Sorry, we're not set up to do that. Can't no can do."
1:15:24
It seems like part of your secret sauce is not only doing that in advance, but also you seem to prove the model before you take outside investors into it.
1:15:34
You know, like I would say we have a large amount of capital ourself.
1:15:36
We've always invested ourself.
1:15:39
We want to make mistakes with our own money first, not with others.
1:15:44
Our reputation with our clients is the only thing we have.
1:15:46
And uh and that's really important to us.
1:15:53
And and we try to incrementally go to places.
1:15:55
For example, we we have a massive platform in the United States.
1:16:00
So, we started insurance in the United States.
1:16:04
Now we're going to the UK to do the same thing we did in the United States and we just got licensed to do that.
1:16:10
But it um we now have all the experience we have from the United States.
1:16:16
We probably couldn't have started there, right?
1:16:21
Because we just didn't have the same presence there as we had here.
1:16:25
And we always end these interviews with the same question, which is what is success for you?
1:16:29
Brookfield uh is one of the great investment uh management groups in the world today and 20 years from today.
1:16:41
success is that it is um bigger, broader, um more relevant to clients uh and continues to do exactly what it does today for everybody and earn reason earn reasonable returns with with downside risk protected.
1:16:59
And if we can do that, we'll have felt success uh of all of this.
1:17:13
Thanks for listening and learning with us.
1:17:15
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1:17:21
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1:17:26
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1:17:30
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1:18:05
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