The Exchanges

Q 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, ah, meritocracy rises and people can take big bets?

A So we've always had the view that, um, well, firstly, we're an extreme meritocracy. Uh, this is a partnership. It's a partnership of individuals. Uh, when, when we leave the partnership, our shares that, uh, if you're an owner or controller of the partnership, they go away, they go on to somebody else. So, um, nobody's family will ever, uh, will ever be part of this partnership. It's a meritocracy. Second, we've always had the view that, um, a cross between, uh, uh, wise, older people and smart, aggressive, young people 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. I'm positive our thirty-year-olds today in the business know more about technology than I do because they've grown up with it differently. Um, 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, um, and so I, look, we, uh, brought to the partners and to our senior people, uh, three years ago, we brought Connor Teske forward as the next person that will be the CEO of the asset management business. Um, that was internally Uh, vetted. It was an externally vetted, and today we're in the process of him, uh, continuing to meet clien…

AI assessment note: “we brought Connor Teske forward as the next person that will be the CEO”

Q Are the pension risks defined benefit or defined contribution?

A These are, uh, pension risk transfer means, which happens in the US, Canada, and the UK largely, those three places in the world. 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. So they, they have a ten billion dollar plan. There's ten billion assets, ten billion liabilities. They can commute that plan to us and we can, our insurance company can take it. So they're no longer on hook for the plan. They're no longer, uh, 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, the amount of money to pay all their pensioners. And if not, we're on the hook for it, not them.

AI assessment note: “corporation that has a defined benefit plan that wants to get it off their balance sheet”

Q Let's go back to the rise of passive, um, maybe versus historically more active investing. What implications do you see? What opportunities are created?

A Look, in every, ah, 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-size, don't fit indexes, they will be lost within, um, public markets investing. Because active, ah, investors may not be investing in those sectors anymore, and if you don't fit the indexes, you have no buyers. 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. 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 1824 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, um, didn't neatly fit the indexes, um, 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, it had one analyst and nobody following it. It fit in no indexes. It was a six billion dollar company. Uh, and we took it private and it's been an exceptional inv…

AI assessment note: “The opportunities are that we can take those companies private.”

Q Do you think you'll get out of annuity, well, stay in annuities, but expand into other businesses? I am imagining short duration stuff is probably, property and casualty is, is not, doesn't lend itself to that type of investing, but maybe reinsurance or?

A Yeah, look, I, I would say we wanted to start, this is a 25 year venture. Uh, we're five years in. Um, we wanted to start to make sure that we, uh, Uh, knew what we were doing. We met all our regulators. We, uh, earned their respect. Um, and we, um, we operate, we could operate and figure out what were all the risks. Um, we've been in it five years. We're very comfortable. 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. So first, we're expanding internationally, writing annuities, or pension risk transfer annuities, which are, both are very similar. 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, uh, That's just a different way to expand.

AI assessment note: “Over time, uh, we may branch out into other types of, uh, other products”

Q How do you think about the geopolitical risk?

A We, we invest in backbone infrastructure, largely, and even our 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, 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, et cetera, 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. Um, 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, um, you're gonna be fine.

AI assessment note: “Politics don't really matter to us. You know, they do in the margin”

Q What can you do with a private company that you can't do with a public company?

A 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, um, 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. 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? 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. And, uh, if you're public, people tend to get distracted By the trading price of the security, when it's not really relevant. Um, some businesses need access to capital and have to raise capital and therefore their price is, ah, important, but most businesses that are listed don't need access to capital. 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. They're never issuing equity and therefore the Price of the security in the market really doesn't matter. And, uh, in fact, it's a distraction, which is why when, um, people often ask me, what, what, what happened with the alternat…

AI assessment note: “we can operate differently, finance differently, invest for the future”

Q You mentioned real estate. How has that changed over the past, I would say, 10, but specifically five years?

A You know, again, I would say, uh, over the past, uh, 25, 30 years, 10 years, five 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. So industrial has changed, enormously changed as a business over the past 10 years. Retail Has changed because people used to do all their shopping, uh, 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. 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. 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. If you own commodity office, bad. If you own commodity retail, bad. You own commodity industrial, bad. In fact, if you own commodity hotels, bad. Um, if you, what's great today is all of those things in the top 25%. 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. Um, and we continue to, um, experience some, some great …

AI assessment note: “industrial has changed... Retail Has changed... over the last five years, because of COVID”

Q Why annuities? What appeals to you about that?

A It's just because they're, they're low risk liabilities. We, we, we're not taking on high risk on the liability side. Our goal originally was in getting into this. Was don't take risk on the liabilities. Earn our money on the asset side. And, um, and we have this unique ability to earn excess returns on the asset side. And our goal was put very significant amounts of capital and overcapitalize 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. Like what? You know, we, we can own real estate, uh, to a greater extent. We can own alternatives to a greater extent. We can own infrastructure to a greater extent. Um, we can own high yield bonds as opposed to just, uh, fixed income on the market. Um, all the things that we do for our clients, um, we can put them in the insurance company and they may take more capital, but we've overcapitalized the company. So we started with, Four billion dollars. We've increased the capital, I think, to seven, 16, seventeen billion dollars of book equity, um, within the business. We continue to overcapitalize. But on top of that, we have another hundred billion, hundred and fifty 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,…

AI assessment note: “It's just because they're, they're low risk liabilities.”

Q Hypothetically, if you were to all put it under one umbrella, how would that change the opportunity set available to you?

A It would just mean dilution to some shareholder, and, and, and, for example, we spun off our asset management business, uh, 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. Um, they don't want to change, like our, 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, you need to trust us when we're changing. Brookfield Asset Management is a pure play as a 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, 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. 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. So I don't, we could do it.…

AI assessment note: “It would just mean dilution to some shareholder”

Q 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?

A You know, we have, we have base load capacity in the US, which is nuclear. Um, that will continue to grow. We can talk about nuclear if we have time later. 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. 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, and you have to have something to bridge one of those, and, uh, increasingly, in past, nuclear's done that, and gas has done that. Increasingly, battery storage, uh, at scale, distributed, will help both with trends, Transmission bottlenecks, but also with the, um, the two offsetting, uh, amounts.

AI assessment note: “nuclear's done that, and gas has done that. Increasingly, battery storage”

Q And what's the third trend that you see?

A 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 de-globalization of industry. And I, or I'd call it the re-industrialization of countries because of what's going on in the world. And, uh, that started with COVID. 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, five years ago, it's only increased given what's been going on. Um, but increasingly many companies are moving, uh, industrial capacity back to Western markets where, um, On balance, they can, um, make sense of putting plants there. Part of it's for supply chain. Pharmaceuticals, uh, now need to be next. Some of it needs to be next to customer, um, 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 going to do? So increasingly those type of things, 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 low, more local. 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…

AI assessment note: “the third trend... which is just the de-globalization of industry.”

Q Is there another example that stands out about how you're applying AI to the businesses that you control?

A You know, every single business we have, um, we have a healthcare, uh, business where we have, um, we approve your healthcare, uh, 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. Uh, from you and we approve it online. Uh, we approve your 150,000 dollar operation, uh, or not. And, uh, our agents do that. And today, the amount of information we can put up when you call in is incredible. Uh, even from two years ago is incredible. And that just helps us make better decisions quicker and serve our clients. Who are the, the healthcare companies? Better. And, um, 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 has started should start, uh, be, and it's not too late. We're in the early innings of the application of this.

AI assessment note: “we have a healthcare, uh, business where we have, um, we approve your healthcare”

Q 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?

A Our, uh, our investment process is we only invest in things that we deal with and know. 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. 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 How, what can go wrong? How bad could it get? And, um, and how do we deal with it if that happens? 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.

AI assessment note: “our investment committees are normally only focused on downside protection”

Q What do you see as the second order, either opportunities or challenges to that sort of, call it repatriation of manufacturing?

A Look, I think China, it's a, 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, they will do extremely well as a country, uh, 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, um, countries may have some issues. On balance for Western countries, I'll just take the U.S. 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, 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 U.S. today has, uh, Energy, capital, and technology dominance. Energy, capital, and technology dominance. There's nobody in the world that has a technology businesses that the U.S. has. There's nothing in the world that has the capital markets the U.S. has. And the U.S. 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 thing…

AI assessment note: “those, um, countries may have some issues. On balance for Western countries... you've actually added jobs”

Q You mentioned the investment committee. I just wonder, behind the scenes, are investment decisions signed off by, by one person, or is it a committee that signs off? And if it's a committee, how do you hold people accountable or responsible for those?

A So our, uh, usually what happens is some transaction came into the company some way, or we had an idea and we don't talk to somebody and a transaction came about, uh, it's then 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, 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, ah, and that approves everything really just to be a final governor over the entire organization.

AI assessment note: “we have an oversight committee that approves Everything that goes on in the organization”

Q 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?

A You know, we're in the early, early stages of this, and, ah, so we're, we're trying to learn from everybody. Um, we're talking to many. We, of course, given our 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 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, 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, the advancement of productivity is very, very significant.

AI assessment note: “we're trying to learn from everybody. Um, we're talking to many.”