The fundamentals of investing hasn't changed at all.
Buying great things or great businesses, holding for long periods of time, earning cash returns.
What's changed is the environment around it.
The whole backbone of the world is changing.
Behind your phone or your computer, you can have this podcast on your cell phone and go for a run in the morning.
How that gets delivered to you is data centers storing it, 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.
50 % in the backbone of what we own today did not exist as an asset class for investment 20 years ago.
Well, you have over a trillion dollars in management now.
It sounds like a lot of money.
It is a lot of money.
It's a trillion dollars.
But it's not that much when you do what we do.
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I'm your host, Shane Parrish.
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Most investors see markets as a race to outperform every quarter.
Our guest today, however, sees them as a marathon measured in decades.
As CEO of Brookfield Asset Management, he's quietly spent decades building a trillion dollar business investing patiently in the invisible machinery of the global economy while others chase short -term returns.
Flat positioned Brookfield to capitalize on massive global shifts from digitalization and low -carbon energy to a reshaped global supply chain years before they appeared on anyone else's radar in this rare public conversation it's only the second podcast he's ever done Flat reveals not just what he invests in but how he thinks, from spotting trends early to structuring deals for resilience across economic cycles to placing big, bold bets that can pound steadily over time, he offers a masterclass in patient disciplined investing.
Whether you're allocating capital, building a business, or simply navigating uncertainty, you'll learn how one of today's most influential but private investors sees around economic corners and why his ability to ignore short term noise might be his greatest competitive advantage of all.
It's time to listen and learn.
I want to start with how investing has changed over the past 23 years I think since you've been CEO. Look, on the first level, I'd say it hasn't changed at all.
What investing's about is to buying great things or great businesses, holding for long periods of time, earning cash returns.
And that hasn't changed at all.
So, the fundamentals of investing are exactly the way they were before.
What's changed is the environment around it.
And I mentioned a couple things.
First one is many businesses are publicly traded and the indexing of and passive investing has changed the publicly traded market for investments.
It's very different than the actual investments.
Investments are still the same and what we do is still the same.
And how they trade in the market, and whether they're included in indexes, has changed how they trade in the public markets.
So I think that is probably the fundamental, biggest thing.
The second thing, and this is, 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 % and we invest in the backbone of the global economy.
Like these are simple things we deliver your water in the morning, we tow the road you drive on in the afternoon.
We deliver your power to your house, we the data center that powers your phone we own.
Those are all really backbone things.
So what we do is backbone, this is not innovative venture capital that we're doing.
But 50 % of the backbone of what we own today did not exist as an asset class for investment 20 years ago.
What percentage of that would you say is new things versus governments maybe privatizing some of the services they used to deliver?
When we started in infrastructure 25 years ago, we were among the first, we thought it would be governments privatizing, and to some extent it is, and they're not privatizing because they have a hard time selling assets.
What they do is they're just not investing, therefore private enterprise takes it up.
But the biggest area of investment today is really just the whole backbone of the world is changing.
So the digitization of the whole world between, behind your phone or your computer.
As you know, laptops didn't exist before, the internet didn't exist before, cell phones didn't exist before.
Today, you can have this podcast on your cell phone and go for a run in the morning.
How that gets delivered to you is data centers storing it, 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.
Virtually all, in fact not virtually, all of that is delivered to you as an individual, and this is 8 billion people in the world, getting that delivered to them in various forms, it's all delivered by private money.
And that's what's changed.
Before historically that was built out by governments, today it's being built out by private enterprise.
To use an example, we own all of the telecom towers, not all, but we own a very substantial portion of the telecom towers in India.
They deliver all the phone and wireless infrastructure to many individuals in India.
And that was originally built by Reliance Industries GEO.
We bought it from them, and we support their and other telecom company's activities through those telecom towers.
and historically that would have been built by government, but it was that built by private enterprise.
Let's go back to the rise of passive, maybe versus historically more active investing.
What implications do you see?
What opportunities are created?
Look in every in everything when there's a, when I say there's a problem, there's always an opportunity.
And I think that's the Chinese symbol, right?
Problem and opportunity.
For some companies, smaller, mid -sized, don't -fit indexes, they will be lost within public markets investing.
Because active investors may not be investing in those sectors anymore.
And if you don't fit the indexes, you have no buyers.
Increasingly though, what it's doing is it's creating 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.
Back to you asked me first question, what has changed in the investing world?
And I said, nothing.
That's related to value.
What's changed is the price of some things trades up and down.
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.
But if you were something that didn't neatly fit the indexes, it traded at a low price, the opportunities are that we can take those companies private.
So we took a large container shipping company private.
It had one analyst and nobody following it.
It fit in no indexes.
It was a $6 billion company.
And we took it private, and it's been an exceptional investment.
So we continue to capitalize on opportunities where we understand the value and the price is not trading at that in the markets.
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What can you do with a private company that you can't do with a public company?
Well, firstly, you don't have to look at what the price is versus the value.
You just know what the value is and you run it for what it is.
But secondly, we can operate differently, finance differently, invest for the future.
and run a business like somebody should just run it.
If you and I owned a business privately, we wouldn't care about the markets.
We wouldn't care about whether the stock went up or down tomorrow morning.
We just run our business.
Cashflow comes out.
We decide, should we divin it out to ourselves to use together, or should we keep it in the business and invest. And that's really the difference is all you look at is the fundamentals of your business if you're private.
And if you're public, people tend to get distracted by the trading price of the security when it's not really relevant.
Some businesses need access to capital and have to raise capital and therefore their price is important.
But most businesses that are listed don't need access to capital.
They're only listed because they're large, and they happen to be, just, they need owners, and therefore, they're in the public markets, they're never issuing equity, and therefore, the price of the security in the market really does matter.
And in fact, it's a distraction, which is why, when people often ask me, what happened with the alternatives industry, and why did it grow the extent that it grew over the last 25 years?
And it's really grown that way because private assets are, the fundamentals are exactly perfectly matched to the fundamentals of what institutional investors wanna have in their portfolios.
And maybe even more importantly, by owning them privately, they don't have to have the distraction of the public market.
They don't have to get confused that you and I bought a telecom tower business.
It generates a 6 % yield, it grows at 4 % every year, and we don't have to invest much cashflow into it, so it's free cashflow.
And if it's privately owned, we just watch the cashflow and keep growing and try to enhance the business and grow it.
And that's what we do privately.
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.
And that distraction is what causes people issues.
They sometimes make rash decisions.
And I'd say that's maybe the biggest enhancement to long -term investors by having private assets.
I take it you're not an efficient market hypothesis person?
You know, the answer is no. So the markets are never efficient.
In fact, very seldom do they ever trade at the actual value of securities.
Either most of the time, they trade above or below.
Very seldom do they trade at the value.
But yes, I guess there are many theories in life.
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 innings on.
So we generally have three sort of themes that we invest around, we have a few themes we invest around at all points in time today, we have three.
The first one is just the digitalization of everything and the amount of capital that's being invested behind that digitalization.
And really what it is, is there are many, many, many, many trillions of dollars going into the movement of information into the cloud, onto your phone, and just the digitalization of everything behind it.
And that has been enhanced, increased, enhanced, by artificial intelligence and the networks being set up now to harness artificial intelligence.
And maybe the most simplest way to explain it is everyone thinks of artificial intelligence as chat GPT.
I'm going to get it to write my cooking class memorandum.
But really where the money is going to be made is the application of artificial intelligence into business.
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 run those processes from models run on artificial intelligence.
And we're in the very, very early stages of that.
But from an infrastructure standpoint, the amount of money being put behind this is in amounts which have almost never been seen invested before.
So that's sort of the first theme we have of investment, and it both affects our operating businesses because we're now applying artificial intelligence in our business to make them better, and they'll be more productive.
And we're also investing in supporting many of the technology companies with their funding for the re -digitization of the world.
Let's spend a few minutes on digitalization before we move on in the sense of, there's vast data centers being created today.
I would love to hear your thinking on whether that investment is going to be where winners are accrued or we overinvesting, as we typically do in booms and boss?
And then walk me through sort of like how you see winners emerging in this from end to end, right?
You generate energy, you lease data centers, you walk me through how you see that.
So there's no straight line in investing to success.
And usually at points in time, people will lose money because they get overexcited.
But we're in a period of time where this is a major, major build out of what's going on.
The clear winners in this AI revolution are going to be the major technology companies.
That's sort of easy.
They're very sophisticated.
They have large balance sheets and capital to deploy.
They've already developed models.
And they're going to be very, very, they're going to win.
And they have the data.
And they have enormous amounts of data.
So they're gonna win.
That's easy. I'm not sure there's anything that's helpful to anyone listening to this if I tell you, oh, you should buy Google.
These are gonna be great companies and they're gonna continue to be great.
The winners that are unknown today are the companies that are going to figure out how to apply artificial intelligence into their businesses and make them better.
And there are many businesses today where you cannot get people to operate the businesses.
There just aren't enough people.
And if you can therefore deploy robotics into businesses and shrink the amount of labor you need, or there are plants that are being operated in Asia that had high dollar value, that's why they went there, but the high dollar value products, but they went there because there was high labor component.
If you can shrink the labor component, many of those plants can come back to where the demand is, specifically, I'd say the United States.
So the unknown winners are gonna be the companies that can apply artificial intelligence into their businesses and make them more efficient and more profitable.
And I think those that do it will win, those that don't, some will fall behind.
But the productivity advances we see over the next 20 years probably will be unprecedented for a period of time.
Certainly we haven't seen it for a long time in business across America.
Is there anybody you're tracking externally that you would never acquire?
that you admire how they're applying sort of technology?
We're in the early, early stages of this.
So we're trying to learn from everybody.
We're talking to many.
We've, of course, given our scale, we have access to very significant resources.
And we can talk to most people.
So we talk to all the technology greats.
We deal with all of them fundamentally in our business.
In addition to that, we're continuing 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, and why I say the things I just said to you, is that the early learnings are that 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?
Look, we make just under half of the car battery.
So I mean, we make the little car battery that starts your car, you know, when you get up in the morning, it doesn't start, you have to go get a new one.
So that normal - It happens all the time.
In winter. Half of those, half of those will come from us that are out there.
And it's an amazing business.
And we continue to re, we're always trying to optimize businesses.
Our job is to invest in businesses and make them better so that they will grow greater amounts of cash flow.
So we can continue to invest in the businesses and provide dividends to our owners.
And so as we try to make these better, 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 and 20 plants.
We do very repetitive process.
And as a result, we have $9 billion of costs within the business.
If you can improve those by 30%, that's a lot of money to the bottom line.
And it can be very significant for the company.
Is there another example that stands out about how you're applying AI to the businesses that you control?
Every single business we have. We have a health care business where we approve your healthcare in the United States.
If you need a back surgery and you need authorization from your insurance company to do it, we take the phone call from you and we approve it online.
We approve your $150 ,000 operation or not.
And our agents do that.
And today, the amount of information we can put up when you call in is incredible, even from two years ago is incredible.
And that just helps us make better decisions quicker and serve our clients who are the healthcare companies better.
And, but it's everywhere.
You know, the putting, we're, you know, we're applying these type of things in all the businesses, But we're in the first inning of this.
So anybody that has started should start.
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 low carbon energy.
And I say it that way because what's really important here is that we just have less carbon out there.
And what's even more important today is that solar and wind, which is what's filling the gap, are the lowest cost energy sources for power in the world in most countries today.
And why that's really important is, it doesn't matter whether you choose to have less carbon or don't care about less carbon.
What you do choose is to pay less for your power.
Yeah. And that, that's, the simple economics are today, if you go to somebody and say, do you want to pay more for your power?
They will say, no. I don't want to pay more for the power, I'd rather pay less.
And as a result of it, The lowest cost power in most countries of the world is solar and wind, therefore you're going to choose solar and wind.
So it's inexorable that we're going to build out most more solar and wind in the world.
In the United States today, there's no doubt we're drilling more oil, which is, remember, oil is not used in power, oil is used for basically cars, chemicals, and planes.
It goes into jet engine fuel, it goes into car engine fuel, and it goes into chemicals.
and that has nothing to do with power.
Oil's not used for power.
Natural gas is. And natural gas is one of the great assets the United States has.
It's gonna export it for a long time.
It's gonna use a lot of it in America.
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.
And where it's going to is needed for base load because they need that base load power, or it's replacing coal, which is hugely beneficial to the world.
So natural gas is an incredibly important bridge fuel in America and long -term fuel in many other places in the world.
So the LNG market in the United States is extremely important and very lucrative for a long period of time.
So let me make sure I understand this.
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?
You know, we have base load capacity in the US, which is nuclear.
That will continue to grow.
We can talk about nuclear if we have time later.
What's happening in grids is that you need something to stabilize the grids and to store when, because remember, The solar, the sun only shines during the day.
It's usually dark at night.
And wind actually usually only blows at night.
But you normally don't have, the incidents of both together are not always the case.
And you have to have something to bridge one of those.
And increasingly in past, nuclear's done that and gas has done that.
increasingly battery storage at scale distributed will help both with trends transmission bottlenecks but also with the the two offsetting amounts.
How do you see the trend with like data centers in terms of electrical use?
Do you see that continuing to be because these take a long time into permit to get into place?
Or do you see that reducing in time?
So the reason why one of your questions earlier, which I really didn't answer, was are data centers, 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.
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.
So we're at a point in time where 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 centre business, we're as skilled and as integrated as they are to entitle new sites, but it takes time.
And we've got some really exciting large sites coming.
But these most, the earliest big one, that's gonna come on, that's brand new that we're entitling, will, and even though it has enormous advantages, is because it already has power, it'll be years away.
And so, like, all your risk is your de -risk, because you're not doing it unless it's contracted out?
Is that? Generally, yes.
We're not, we've in past, we never have, and I don't think we need to take risk on that.
And therefore, it's like when we build an office building, you let it to a bunch of tenants, then you build it for them.
And you don't have to take the risk on that, in particular, in these because of the demand for it.
And what's the third trend that you see?
So the third trend that we identified a long time ago, and I'd say it's changed even more, but is more relevant today than ever, which is just the deglobalization of industry, or I'd call it the reindustrialization of countries because of what's going on in the world.
And that started with COVID, it started with the Asia West issues, which as you can imagine, that one has only, since we coined that four years ago, five years ago, so it's only increased given what's been going on.
But increasingly, many companies are moving industrial capacity back to Western markets where on balance, they can make sense of putting plants there.
Part of it's for supply chain.
Pharmaceuticals now need to be next.
Some of it needs to be next to customer because they get caught during COVID, that all of a sudden all my manufacturing's in China, how do I get it here?
It can't get out of China, what am I gonna do?
So increasingly those type of things, but also with tariffs and with other things, you're going to relocate manufacturing capacity back to two other markets and be more local.
And 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 many products that have been developed there will move back to America because the labor components with robotics coming in are becoming less and less and less.
So the reason for them to be in Asia is less there today than it's ever been.
And on top of that, if there happens to be a tariff long, if there is a tariff longer term, then it's even gonna quicken that process up.
What do you see as the second order, either opportunities or challenges to that sort of, call it a repatriation of manufacturing?
Look, I think China, it's an economy in itself today.
It's 1 .5 billion people, they're getting richer every day.
They're turning into a consumer service society.
There's not that much of manufacturing that's relevant to them.
I think they will do extremely well as a country on their own, 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 outsource manufacturing, and if you can do that closer to consumer, those 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, but if that product comes back, you've actually added jobs, 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 the US today has energy, capital, and technology dominance, energy, capital, and technology dominance.
There's nobody in the world that has the technology businesses that the US has.
There's nothing in the world that has the capital markets the US has.
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 it has dominance in nuclear.
And those five things together give it energy dominance in the world for a long, long period of time.
And so I think 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 growth.
The US has a pretty good runway going forward. It sounds like you think we're at an inflection point for productivity.
And some of the job losses will be offset by sort of the remanufacturing coming back to the US.
Where do you think we are in that game, I guess?
There is no straight line in anything.
Everyone always thinks that somebody said something and it's going to happen tomorrow morning.
Usually, it happens in greater amounts, but it takes longer periods of time and take slower than you think it would happen.
I would say we're in the early stages of all of this.
We're going to see productivity advances and nobody just flips a switch. thing is nobody ever flips a switch. These are incremental changes over very long periods of time but what it means is that the application of greater intelligence into businesses is going to make business better, more efficient, more productive and better for the world, frankly.
That just makes us all smarter.
You mentioned real estate.
How has that changed over the past, I would say 10, but specifically five years?
You know, again, I would say over the past 25, 25, 30 years, 10 years, five years, these things always just evolve.
And 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.
So industrial has enormously changed as a business over the past 10 years.
retail has changed because people used to do all their shopping in stores.
Today what they do is they do very bespoke shopping in stores, and they want experiences in stores.
But if you want to buy paper towels, you usually don't go to the mall.
You just order it online.
But if you want to have a meal and you want to go and try on a shirt or a pair of pants or have some fun for the afternoon, you go to the mall.
And that's what's changed is that commodity goods, if you own commodity, if you want almost today commodity anything, it's bad.
If you own commodity office, bad.
If you own commodity retail, bad.
If you own commodity industrial, bad.
In fact, if you own commodity hotels, bad.
If you what's great today, is all of those things in the top 25%.
And our view always has been buy the best, own the best, buy the best, continue to reinvest into the best. And so our real estate is among the best in the world.
And we continue to experience some great numbers.
Look, over the last five years because of COVID and because of other things and because interest rates went up by 400, 500 base points, all of that disrupted the real estate market.
but the worst is behind us by far.
We're looking in the rear view mirror by what happened in real estate.
And in fact, this time the fundamentals are actually pretty good in most things.
There are some people that have capital structures that aren't built for these financing markets, and therefore they'll have to put capital in to be able to deleverage or whatever they have to do, or somebody else who'll take over the asset.
But that's not a huge issue across the world.
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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.
Our fundamental thesis of investing is that you should put a prudent amount of debt on assets that can withstand markets.
If you can, then you should fix it because you know your cost. And from time to time, if you got it wrong, you put a little more, make sure you have a little more money around to put it in and support your asset.
So we've always conservatively financed our businesses and assets.
All of our financing is asset by asset by asset by asset or business by business by business by business.
So any debt that we accumulate onto our consolidated balance sheet is just the accumulation of a whole bunch of single asset financings.
And it's not that we ever want to or think that we will give back assets or not live up.
In fact, our reputation is with our lenders is that we're one of the best sponsors in the world to borrow, lend money to, because we support our businesses.
But having asset by asset by asset financing allows you to just deal with the situation one by one by one and it's duration.
I mean, they're spread over long, long periods of time.
And with interest rates, I think the most important thing to remember is we don't borrow the treasury rate.
Only the government borrows the treasury rates.
And what we borrow at is treasury rate plus spread.
And historically spreads were 200 basis points and interest rates were 300 basis points and therefore you bore it at five.
And when COVID hit, interest rate, the treasury rate went to zero.
And what the... Most of the lenders said to us is, yeah, I'm not going to lend to it at 200 over and give you three.
I'm widening that out to 350.
So I'll give you five or four and a half.
And therefore, before we were boring at five and in COVID, we were boring at four and a half.
So when people say, oh, geez, you've got all this financing and COVID.
Yes, maybe some people did, and some people got very low rates because the rates were zero and they might have borrowed it too at a extreme point in time, but not very much. And most of it, lenders just widened the spread out.
Today, base rates are high.
We're back to five.
Guess what? Spreads are the lowest they've ever been in history.
we just bid a 30 year Brookfield Corporation financing.
So we're borrowing money for 30 years, fixed for that time period and it's 125 over.
So spreads basically all in coupons are important and that's really important to remember about investing in real assets.
Real estate, but also infrastructure, renewables, et cetera.
What distortions do you see by sort of like historically low interest rates and even by today's standards?
You mentioned they went up.
They have gone up quite a bit, but historically they're still well below average.
Yeah, look, I think that maybe is the most important point to note here is that interest rates aren't that high.
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 now they're actually in a normal - a relatively normal range.
I'm sure we're going to see another few - a few, another 50, 100 base points off of the short rates.
And we're going to settle into just a regular range of rates.
But these rates are actually pretty normal, and for our business, very constructive and the things that we can do and we're refinancing at, because the coupons aren't that much different than what they were before.
People, 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, but also take advantage of dislocations in the market.
So, the first thing one has to do when there are dislocations in the market is make sure that you were prepared for it.
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.
The ones that don't usually aren't successful in the fullness of time.
But if you are prepared, the first order of business is, let's double down and make sure that we're fully prepared.
But then secondly, and I'd say coming out of recessions or cycles, coming out of the bottom, what's most important is just have everything you have intact.
Do not lose anything.
Do not lose too much and keep going because there'll be many people who have lost stuff.
What's even better to enhance the business is at that point in time, as the market's and once you're comfortable, we've taken care of all the things within our business that you can then invest capital into new businesses at that point in time and add to your entity.
And if you can, that's the difference between the great winners and long -term investing and those that are just in the middle.
You have almost, well, you have over a trillion dollars in management now, how do you fend off the pressure to deploy that money?
It sounds like a lot of money.
It is a lot of money.
It sounds like a lot of money.
It's a trillion dollars.
But it's not that much when you do what we do.
A couple of years ago we bought Deutsche Telekom, so half a Deutsche Telekom to our business in Germany, and Austria's $20 billion transaction.
We're building for Microsoft $13 billion, of power plants.
We're building with Intel a $32 billion fabrication plant in Arizona.
You know, I can go through the list. These are large transactions that consume significant amounts of capital that earn excellent long -term returns.
And I've just used that to say, we're We've been doing this a long time.
What we promise our investors and our clients is that we will take moderate amounts of risk.
Not no risk, but moderate amounts of risk and earn good returns over long periods of time.
We won't shoot the lights out.
You're not going to get 45 % returns every year, and we're not trying for that.
But average returns over an above average period of time equal outstanding returns.
Yeah, and that's the point.
The point is we've earned, our parent companies earn 19 % annualized returns for 30 years when you compound up, which doesn't sound like very much, 19 % returns annualized for 30 years.
Like it's 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 a thousand dollars became $200 ,000.
It's a lot. And 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 look, that's Berkshire Hathaway.
Berkshire Hathaway is successful because they have been able to deploy capital at reasonable rounds of turn over very long periods of time.
And that's the success of long -term investing.
Is that a company you look up to?
Look, they've done an incredible job in their business over a very long period of time.
Maybe you mentioned over 30 years.
Walk me through a little bit of the history of Brookfield and then the future, where we're going.
So we started as an operating business.
We just invested for ourselves.
We had the businesses that we basically have today.
Infrastructure, real estate, renewables and industrial service.
We call it private equity today businesses and credit lending.
Those were our five businesses.
We did it for ourselves and we lent money.
And 25 years ago, we decided that we could take those skills we had, and turn them into a business to be able to manage some of our money, and some of our institutional or other clients' money, and offer alternatives into those funds.
When it started, nobody wanted to invest with us because they didn't really understand alternatives.
And today that's turned into a trillion dollar business.
It's been extremely successful, largely because these products are ideal for institutional and retail clients to invest into.
And the past 25 years has been about institutional and this comment is not meant to say that they won't be investing.
But their increase from going from zero to some of them are at 30, 40, 50 % alternatives.
Because when you go from 0 to 50, you can't go to 100.
So a lot of them are at their numbers.
But what's happening today, and to your question of the future, is that the same phenomena is now happening in retail, retail being individuals.
401Ks in the US are going to open up to alternatives.
I think plans around the world will open up to alternatives.
Alternatives are ideal products for retail as well.
In fact, they're almost more ideal because you're saving for your retirement and what better to have in there than a product that earns a reasonable return over a very long period of time and can compound.
And so the future of our asset management business is really about the opening up of retail and continued growth of retail wealth with our products.
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 individuals.
What does that mean?
and maybe walk me through it because you know, I've always thought you've had these available to people.
I could go buy a Brookfield infrastructure on the public market.
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. That was open to you to say, do you wanna buy infrastructure with us and just own a bunch of data centers and different things like that.
We happen to have a couple of listed ones that are very unique, but what people want are private assets within their portfolios, and that's going to increase, I'd say, exponentially over the next 20 years.
So retail is sort of the future, but another big area that you're investing in is insurance.
Maybe walk me through some of the opportunities you see over the next 20 or 30 years in insurance.
Yes, so outside of our, as a management business, we decided to take a portion of our capital and put it into insurance five years ago.
It was a fortuitous time because we bought some excellent insurance companies 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.
Fast -forward four years later, the companies are doing extremely well.
we're making $2 billion a year of cash flow within the business.
And insurance for us is, I'd say the following.
Firstly, and maybe just go back, our goal was get in the insurance business not because we wanted to be in insurance.
What our goal is is our clients come to us because they they want our investment skills.
What we have is a very unique offering, is a bunch of investment skills that can create products for long term investors.
Our insurance company now being $120 billion of assets is a perfect long term investor into all of the things we do from our asset management business.
So we have a special expertise to be able to offer, because we have access to our investment products.
We have greater access or greater comfort with all the investment products to be able to put into the insurance companies than most other groups out there.
Maybe there's a few others like us, but not very many.
And therefore, we have a special benefit for that.
So we've chosen annuities in the United States largely.
Basically, so far, we've now just got licensed in the United Kingdom.
But we chose... Why annuities?
What appeals to you about that?
It's just because they're low -risk liabilities.
We're not taking on high -risk on the liability side.
Our goal originally in getting into this was, don't take risk on the liabilities, earn money on the asset side, and we have this unique ability to earn excess returns on the asset side.
And our goal was to put very significant amounts of capital and overcapitalized the businesses, which allows us to do things on the asset side of the balance sheet, which is very different than many insurance companies.
Like what? You know, we can own real estate to a greater extent.
We can own alternatives to a greater extent.
We can own infrastructure to a greater extent.
We can own high yield bonds as opposed to just fixed income on the market.
All the things that we do for our clients, we can put them into the insurance company and they may take more capital, but we've overcapitalized the company.
So, we've started with $4 billion.
We've increased the capital.
I think that's $16, $17 billion of book equity.
within the business we continue to over -capitalize.
But on top of that we have another $150 billion dollars 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.
And we have an excellent relationship with the regulators and explain all these things to them and are very transparent with all the transactions we do with them.
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 price they're going to sell at, that's a great real estate investment for our insurance company.
Very seldom do people have that opportunity with our knowledge and access to opportunities.
So it's a pretty unique offering and that's what we bring to the table.
Do you think you'll get out of annuity, well stay in annuities, but expand into other businesses?
I'm imagining short duration stuff as probably the property and casualties is not doesn't lend itself to that type of investing, but maybe reinsurance or?
Yeah, I would say we wanted to start, this is a 25 year venture.
We're five years in.
Uh, we wanted to start to make sure that we knew what we were doing.
We met all our regulators.
We earned their respect.
And we could operate and figure out what were all the risks.
We've been in it five years.
We're very comfortable.
Over time, we may branch out into other types of other products that we can understand that fit our skillset.
And that's really what's important to us.
So first we're expanding internationally writing annuities or pension risk transfer annuities, which both are very similar.
So instead of going out of our comfort zone on the type of liability, what we're doing today is we're expanding to the UK and which is a big pension risk transfer market.
and that's just a different way to expand.
Are the pension risks defined benefit or defined contribution?
These are pension risk transfer means, which happens in the US, Canada, and the UK largely, those three places in the world.
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.
So they have a $10 billion plan, and there's 10 billion assets, 10 billion liabilities, they can commute that plan to us and we can, our insurance company can take it.
So they're no longer on the hook for the plan.
They're no longer at risk on the assets or the liabilities.
We've assumed that risk, we will now pay their pensioners and they gave us the assets to earn over time.
Hopefully, the amount of money to pay all their pensioners and if not, we're on the hook for it, not them.
Can you spend a few minutes walking me through through the machinery of Brookfield and why you've structured it the way you have. Look, I would just say - Like I'll preface this with like one of the criticisms from the outside in, is that it's super complicated.
There's a lot of different entities and moving parts.
How do you think through that?
So I would just say that yes, there are probably more pieces of Brookfield.
First I might disagree first by saying There are many companies in the world that are large like us.
And they have as many pieces as we do.
That's the first point.
So I'm not sure that's actually a true statement.
But I'll take your points at face value.
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.
These are not random things we've done.
They're very specific and they contribute enormous value in the longterm to the company.
And because of that, we have to explain them more to maybe, sometimes have to explain them more to investors.
But for our friends, they understand exactly why those pieces are there and what they do for us, and what each accomplishes.
In the short term, we could wave a wand and get rid of all those, as you denote, complicated parts.
We could wave a wand and get rid of them all.
In the long term, it would be bad for shareholders.
Less returns would be earned, we would be more at financial risk.
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.
So I just look, we can always do better on explaining the pieces and we try all the time and it's incredibly, our reputation's incredibly important to us.
So when people criticize us about our structure, our different things that are there, we try to double down and make sure we explain it all to people.
But I would just say that each of those pieces is really important and contribute a lot to the business.
Hypothetically, if you were to all put it under one umbrella, how would that change the opportunity set available to you?
It would just mean dilution to some shareholder.
And for example, we spun off our asset management business two years ago, there's a whole group of US investors largely, that buy asset management businesses that only want to be invested in asset management.
They don't want to own assets that we own.
They don't want to be invested in insurance.
They don't want to do all the other things we do.
they don't wanna change, like our parent company, Brookfield Corporation, it has changed in 35 years in many different ways in many different times for the benefit of all of us.
But you need to trust us when we're changing.
Brookfield asset management is a pure play asset management business, that's asset light that will probably never be anything different.
You can trust us for that.
And that's what it is.
So they're just different audiences.
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 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. Well, what about your insurance business?
Or what about your investments?
Or what are you gonna do next?
And it just allows us to do that.
So I don't, like we could do it, it just would take away a lot of the great benefits we have in the organization.
If you put your investor Bruce hat on, which of the businesses do you think is the best -positioned for the next 15 years?
And I'm not asking returns, I just mean which business do you think is the best competitively positioned?
I just think they're all different.
They're all totally different.
Everything we invest into has enormous opportunity going forward, as long as we execute properly.
But they're, each one of them is different.
I get excited, I could get excited about having all of my net worth in every single one of them.
And they're all pretty exciting going forward. Maybe spend a few minutes on talent and people, Brookfield is known to take really big bets with what from the outside looking in would be young people.
What do you see in people that gives you the confidence to take bets in them?
How do you build a culture where meritocracy rises and people can take big bets?
So we've always had the view that, well, firstly, we're an extreme meritocracy.
This is a partnership, it's a partnership of individuals.
when we leave the partnership, our sharers that, if you're an owner or controller of the partnership, they go away, they go on to somebody else.
So nobody's family will ever be part of this partnership.
It's a meritocracy.
Second, we've always had the view that a cross between wise older people, and smart, aggressive young people both give you the gravitas to deal with situations which you need a little history, but also allow you to be, allow you to know more about what's going on today.
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.
It allows us to be faster, better, quicker to every new trend in the world and what's going on out there.
And it also, I'd say, creates a culture where people want to be here and get ahead because they know they can.
And so I look, we brought to the partners and to our senior people three years ago, we brought Connor Teske forward as the next person that will be the CEO of the asset management business that was internally vetted, it was an externally vetted.
And today we're in the process of him continuing to meet clients and investors and all those kind of things.
And I think he's 37 years old today.
He's incredibly passionate, talented, 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.
Walk me through some of those meetings where you're making a big investment decision.
What goes on behind the scenes?
How do you quantify risk?
Where do you spend your time on deals?
Our investment process is we only invest in things that we deal with and know.
We have people on the ground and our knowledge of the business.
And our investment committees are normally only focused on downside protection.
Upside will always take care of itself.
And whether you shoot for 16%, 22%, 29%, 18%, none of those matter.
They're all great. What's really important is what are the risks?
What can go wrong? How bad could it get?
And how do we deal with it if that happens?
And so we spend virtually all of our time on downside protection at our investment committees.
And that's all that's important to us.
when you're wrong, where are you typically wrong?
And you haven't been wrong a lot.
No, no. Look, we make mistakes.
We try to make small mistakes.
I'd say that's it. When we're wrong, where we're wrong?
We're wrong in increments, in small ways, which aren't, have, 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 irreparably harmful.
And that's because the things we do are small, incremental, and when we make mistakes, we make them along the way.
And we encourage people to keep learning 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 to impress across the organization.
You mentioned the investment committee.
I just wonder, behind the scenes, are investment decisions signed off by one person or is it committee that signs off?
And if it's a committee, how do you hold people accountable or responsible for those?
So our, usually what happens is some transaction came into the company some way, or we had an idea then we don't talk to somebody, and a transaction came about.
It's been approved by, today because we have these vast businesses, it's approved in the business, 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, we want to know how many transactions are happening at any one point in time.
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, what we're probably betting on is a cycle.
And you may not want that.
And if you do, you better knowingly do it.
And so in addition to all the deals being approved down below where accountability comes from, we have an oversight committee that approves everything that goes on in the organization, which includes six or eight of us.
and that approves everything really just to have be a final governor over the entire organization.
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?
What are the signs that you look for?
I would just say that cycles are never the same, but they sort of rhyme and they look similar.
So the one thing of having wise older guys around, I'll consider myself that today.
I used to be a young, unwise individual.
I'll try to consider myself.
I know I'm old just not sure I'm wise, but some of the reason for having the same voice the wiser individuals around is having the elongated knowledge of what goes on in cycles and what goes on in periods, and we've seen this before, is helpful.
Sometimes it's a hindrance, but sometimes it's very helpful for context.
And therefore, that's what makes great organizations, I think, in our view, is that you you have the combination of the tenacity and passion to make investments and be successful, tempered by the knowledge and skills of past and what's gone wrong to be able to bring together risk management and drive to succeed.
And 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 me if you were to sort of hear the things I look for, don't look for or...
You know, I would say in general we don't do training.
How interesting. Quote, unquote.
But every day, every single person in this organization is learning.
And it's a learned by osmosis process.
We have open plan in the place, including myself.
Never had an office.
And people talk to one another and it's very interactive.
And therefore, well, I started off by saying, we don't train anybody.
We train them every single day.
And it's just different than sending people to school.
Do you do like postmortems after an investment?
and what's the key?
Oh yeah, especially the bad ones.
What goes into those?
Like walk me through that.
Take me behind the scenes and.
We try to look at, look the successful ones, you can usually identify and know what happened.
The unsuccessful ones are harder to identify what happened, but often there are reasons why.
And it either comes down to execution.
and you didn't execute properly, you mistimed the market, or you just made a bad, bad, flawed investment decision.
And those are the worst. You mistimed the market.
Yeah, it's OK. But making flawed investment decisions is really bad.
Is that where you've got the business strength wrong, the competitive dynamics wrong?
You don't understand?
I just, sometimes, we're pushing out into areas which are adjunct to what we do and we probably shouldn't have. We really didn't know what we were doing.
And not often does it happen, but once in a while.
How much of your investment decision, you focus on the downside, but how much of it is we're modeling it the next five years and then we're tracking to that model, or?
The only thing I'd tell you about a model that's produced in an investment committee is it will never be exactly what happens.
But I'd say if you get the...we're trying to get the trends right is really what it is.
In investing, it's can you get the trend right?
And I would say most of our investing is we're trying to get the price right for value, and And therefore, often we're buying at a discount to what we think is the value of something.
And therefore, that's an important thing to note.
How do you think about the geopolitical risk?
We invest in backbone infrastructure, largely.
And even in private equity businesses, are backbone infrastructure -type businesses.
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. We don't really sell over borders.
So in the United States, where we are, we own data centers and telecom towers and real estate and industrial facilities and all of the things that we own in the U .S. and we make batteries, and we et cetera.
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.
So politics don't really matter to us.
You know, they do in the margin.
But on balance, as long as you invest in a good country, you're going to be fine.
And by good, I'm assuming you mean stable rule of law.
How do you think you're good?
Good means for us it has to be large enough to be able to invest. We can't have small countries, just not because they're not good place to invest, it's just not meaningful to us.
When you have a trillion dollars things, the benefit or the...
Drawback. The drawback is that, you can't go to a little country.
Like we just say we can't invest that $100 million.
It's not relevant to us.
So we need large places.
We'd like them to have, we need to operate with a standard so we operate globally with, we'd like to have large GDP.
We'd like to have it growing.
And we'd like to have a currency that's relatively, it doesn't have to grow better than everyone else, just has to stay consistent.
If it's highly volatile, not good.
If it goes down over the long periods of time, bad.
So we'd rather pick countries with those factors.
But it all comes down to price.
Some have all that, and then you invest when you can.
But for us, we have to have people on the ground.
So we pick those countries very methodically.
We put people on the ground.
we invest from time to time, new investments, when we find the opportunities, but we don't randomly go to countries.
Like this is not a random business.
This is hard work. Therefore, we have to be in country, be able to action an opportunity when it comes.
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, no can do.
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?
You know, like I would say we have a large amount of capital ourself.
We've always invested ourself.
We want to make mistakes with our own money first, not with others.
Our reputation with our clients is the only thing we have. And that's really important to us.
And we try to incrementally grow to prices.
is, for example, we have a massive platform in the United States.
So we started insurance in the United States.
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.
But we now have all the experience we have from the United States.
We probably couldn't have started there because we just didn't have the same present there as we had here.
And we always end these interviews with the same question, which is what is success for you?
Brookfield is one of the great investment management groups in the world today, and 20 years from today, success is that it is bigger, broader, more relevant to clients and continues to do exactly what it does today for everybody and earn reasonable returns with downside risk protected.
And if we can do that, we'll have felt success of all of this.
Thanks for listening and learning with us.
The Fernham Street blog is where you can learn more about my new book, Clear Thinking, turning ordinary moments into extraordinary results.
It's a transformative guide that hands you the tools to master your fate, sharpen your decision making, and set yourself up for unparalleled success.
Learn more at fs .blog slash clear, until next time.
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