BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Brookfield Asset Management first quarter results conference call. At this time all participants are on a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questioning. (OPERATOR INSTRUCTIONS)

I would like to remind everyone that this conference is being recorded on May 2, 2007 at an 11:00 AM Eastern time. I would now like to turn the conference over to Mr. Bob Harding, Chairman of the Corporation. Please go ahead, Sir.

Thank you, Operator, and good morning, ladies and gentlemen. Thank you for joining us for our first quarter 2007 earnings announcement.

Joining me today on the call - Brian Lawson, our Chief Financial Officer, and Brian will discuss our financial results and provide an operating overview. Following Brian's remark, Bruce Flatt, our Chief Executive Officer, will discuss this morning's recent announcement.

At this time I would like to remind you that in responding to questions and in talking about our new initiatives and our financial and operator performance, we may make forward-looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information on known risks factors I would encourage you to review our annual information form or our annual report, which are available on our website.

With that done, I would like to turn the call over to Brian Lawson and following Brian and Bruce's remarks, we will look forward to your questions and comments. Brian?

Before I begin my remarks I would like to remind listeners that we held our Annual Shareholders meeting this morning and made a full presentation on the business at that time. This presentation was webcast and is available through our website for your review.

Well, as a result will keep our formal remarks on the call relatively brief and look forward to responding to any questions or comments that you may have.

In summary, we reported strong results for the first quarter of the year. Cash Flow From Operations was up significantly nearly -- up from the same period last year and nearly all of our operations contributed to this growth. Our net income increased at a more modest pace as the growth and operating cash flow was offset by increased depreciation recorded in respect to the assets acquired last year.

Some of the highlights for the quarter included the following. Our Property operations recorded $371 million of operating cash flow, up significantly from the $205 million recorded in the same period last year. New Properties contributed $139 million of the increase. $17 million came from a higher level of disposition gains and the balance came from higher returns on our existing properties which represented roughly a 6% -- 5 to 6% increase; and that is consistent with our expectations.

Leasing conditions have improved in most of our markets; our average in place net rents increased to $22 per square foot from $21 per square foot over the quarter. New York, London and Calgary are particularly strong. We leased 1.6 million square feet of space during the quarter within the North American portfolio. Occupancy across this portfolio stands at 95% and that over 97% of Canary Wharf in the United Kingdom.

Our Opportunity Fund completed dispositions in the quarter, realizing gains of $68 million in total. Our share was roughly $22 million as they continue to enhance the realized value within the $1 billion portfolio of properties that they have assembled over the past few years.

We did experience a long anticipated slowdown in our U.S. residential markets. However this was more than offset by very strong returns within our Alberta operations and continued good performance from our Brazilian operations.

Our Power Operations contributed $188 million of cash flow during the quarter, down slightly from the results for the same period last year. This decrease was due to lower realized prices. Our average realized price was $68 per megawatt hour compared with $74 in the same quarter last year. It is worth noting that we benefited from a particularly strong contribution from peak pricing during 2006.

Our generation level has increased by 8% over the last year due to the contribution from New Facilities including our recently commissioned Win Project and the 3800 gigawatt hours generated during the quarter were 9% higher than long-term average.

Approximately 82% of our power is under contract for the balance of the year at an average price of $64 per megawatt hour, although we expect to exceed this as we have typically done in the past in terms of the realized prices through ancillary revenues and our ability to capture peak pricing opportunities.

Our Timber Operations exceeded targets during the quarter. Favorable weather conditions enabled us to achieve higher harvest levels. We also benefited from a modest contribution from the modest of higher value lands within these operations. And importantly we closed the acquisition of Longview Fibre on April 20 which added nearly 600,000 acres of very high-quality timber in Washington State and Oregon. This brings us to 2.5 million acres of freehold timber and positions us as one of the top five owners and operators of private timberlands in North America.

Our Transmission Systems performance was on target and this includes the Chilean operations acquired last year, which contributed $50 million of cash flow during the quarter on their own and in terms of our Specialty Funds, we benefited from having a higher level of capital deployed particularly within our Bridge Funds and also within our restructuring activity. This increased the contribution significantly.

We formed our second Restructuring Fund at the beginning of the year with committed capital of nearly $700 million and continued to surface value within existing investments in our initial fund.

Our Real Estate Finance Group continued to source a high level of quality investment opportunities and we continue to expand the assets under management in our Public Securities operations through new client relationships and expanded product offerings.

We completed a number of important financings, both during and subsequent to the quarter, as we continued to access the favorable capital market to lower our cost of funds and extend the overall duration of our capital structure to match the long-term characteristics of our high-quality asset base.

We announced several shareholder initiatives this morning - a three-for-two share split that will be executed by way of the stock dividend. The dividend will be payable on or about June 1 to shareholders of record at the close of business on May 24. We are doing this to ensure that the shares remain accessible to individual shareholders and to enhance liquidity of the shares. The split will have no unfavorable tax consequences in Canada or the United States and will not dilute shareholders' equity.

We also announced our intention to seek a listing for our shares on the Euronext Exchange. This follows the merger of Euronext and the New York Stock Exchange on which we are already listed and by doing so we hope to provide the Company with greater access to European and global investors.

In addition, we declared our regular quarterly dividend of $0.18 per share on a pre-split basis, payable on August 31 to holders of record on August 1. Assuming that the stock split goes ahead as planned, the dividend will be adjusted to $0.12 per share on a post-split basis.

Finally, we announced the distribution of a direct interest in our infrastructure operations to shareholders which Bruce will collaborate on in a moment.

All in all, it was a busy quarter. We are pursuing a number of additional growth opportunities. We continue to see strong demand by institutional investors seeking to diversify their portfolios into long life infrastructure assets similar to our own. And as a result we believe we are well positioned to achieve continued growth in our cash flows and intrinsic value on a per share basis and to expand our asset management platform.

And on that note I will hand the call over to Bruce.

Thanks, Brian. Today, as Brian mentioned, we announced a number of shareholder initiatives and while - I guess the comment I would make is - while they are not directly related to creation of intrinsic value they are intended to ensure the value of the business trades properly in the marketplace.

And in conjunction with the operating performance that we've seen within the business over the last 12 months, it should continue to allow us to keep our cost of capital competitive as we fund the expansion of our activities throughout the world.

Brian spoke about the stock split and our Euronext listing so I'm going to focus my comments for a couple of minutes just on one item, which is the proposed spinoff of the infrastructure partnership, which was fully described in the press release to the extent we can at this point that we sent out this morning.

In addition, there's a more detailed information package which can be found on our website and, lastly, we expect to be in a position to file a prospectus in the next month or so and full details of the assets that will go into this entity and all the other details will be included in the prospectus.

Simply put, we intend to distribute units of an infrastructure partnership to our shareholders. We are doing this because I guess we have observed - and as we continue to operate in various capital markets for infrastructure funding - that in addition to the capital that we put to work on our balance sheet and on behalf of our private institutional investors, that we felt it was advantageous or it could be advantageous for us to have a focused entity which is publicly traded and that we can conduct our infrastructure activities.

We looked at and thought about and went through a lot of analysis on completing an IPO or Initial Public Offering of some of these assets. I guess I would have to say that, given the quality of a lot of the assets that we have that can be included in this, we thought that on the basis of doing it, essentially, we are selling them for our shareholders.

So what we should do is that the best idea was to give our shareholders the opportunity to benefit by owning an initial stake in the entity. And as a result what we are intending to do is to distribute a special dividend to all shareholders. It is approximately 1 new Brookfield Infrastructure Partners shares for every 25 shares of BAM that you own on a post-split basis.

And this unit will have an estimated intrinsic value of around $25 a share which is approximately $1 a share on a post-split BAM basis. Where that trades in the marketplace obviously will be dependent upon probably two things. One, which is the intrinsic value and people's perception of what that intrinsic value is; and, secondly, the perception of investors on our ability to grow the cash flows over the next 10 years.

For our shareholders of BAM, in essence, you'll be able to read the prospectus, assess the materials before it trades and decide that either you can keep your unit and, as we position this entity in the infrastructure business, you can participate along with all shareholders. Or alternatively what we hope to be able to do is that there will be enough liquidity that you can sell that unit if you don't want to participate in that format and essentially get an extra $1.00 per post-split BAM share of a dividend this year.

We believe it should be a unique vehicle in the marketplace which will own and manage long life infrastructure assets. It will pay a solid dividend. It will be positioned as a total return vehicle and, therefore, have a significant - we hope and we believe - component of internal growth but also capital appreciation within the assets that we purchased and that are in there originally.

Following spinoff the entity will be fully invested and therefore it will pay a regular dividend. We intend to have it pay a regular dividend in the first quarter after spinoff and we intend to apply to list the units of the infrastructure entity on the New York Stock Exchange.

Brookfield or BAM will manage Brookfield Infrastructure Partners and what we intend to do is hold 40% of the entity upon spinoff. So in essence, the Company will own 40% and the shareholders will directly own 60% on day one. We intend to own our future infrastructure activity through this entity. And in addition to the initial operations and the electricity transmission business and timber business that we intend to put into the Company, future acquisitions could include other areas which we have been looking at and have targeted, being pipelined sea or airports or transmission or other types of infrastructure.

Two of our most senior managing partners - Sam Pollock and [Aaron Regent] are co heading this unit and we think with their leadership we will have a very positive future for this entity and hope to be able to go forward with it in that way.

With that and I guess, lastly, I would make the comment that the press release and the investor materials essentially form what we can say with respect to this initiative at this point in time. As fast as we can accomplish it we will have a prospectus in your hands, which will explain all the details which are really left out of the materials at this point.

So, unfortunately, other than what is contained in the materials or what I've just said, we probably can't answer too many more detailed questions at this point. Just legally it is hard for us to do.

So I would -- we would appreciate if people are patient with us until we get our prospectus out in that form but we will do it as fast as we can.

With those comments, I guess I would ask the - to turn it back to the operator and if anyone on the line has questions, Brian or I would be pleased to try to answer them.

(OPERATOR INSTRUCTIONS) Chris Haley of Wachovia.

(technical difficulties) structure investments will all run through this vehicle with the exclusion of Property and Power investment?

No, could you -- it's Bruce, we didn't -- maybe people on the line heard it. We didn't hear what the question was. Do you mind just repeating the question? We kind of started right at the end.

Yes, Bruce, this is Brendan Maiorana (multiple speakers).

Just with respect to the infrastructure LP I just wanted to be clear. Your future investment activities in infrastructure assets with the exclusion of Property and Power investments will all run through this vehicle?

The answer is, I guess firstly, maybe the simple answer to parts of it is that Property investments will not be included in this entity. Hydro-electric and wind assets in particular in North and South America will not be in this entity.

As to other infrastructure activities, I guess the advantage that BAM and this entity together will be able to do is continue to operate like we operate with our institutional clients in that, sometimes, like a Longview Fibre there are appropriate assets for institutional clients being the fiber and the trees that we purchased. But there are other ancillary assets that - I will call it Pure Play vehicles they're not appropriate for.

So we will work with the entity with this venture. Often we may buy things into BAM and they will go then -- parts of it will go to institutional clients or this entity acting as an institutional client -- and development activities that are not current returns will likely not be appropriate for this vehicle.

So there -- the answer is we intend to have this entity as our future public market vehicle to operate in the business. There may be some transactions that are too large in its infancy of been spun out that it cannot participate in in a full basis and therefore we may have to help it along and I think that's really what we will continue to bring to the table.

Ultimately, if we are successful with this entity and it becomes very large clearly it will be able to do things on its own on a very large scale.

That's helpful. Thanks. Then, Bruce, just in terms of your investment opportunity that you guys started or initiated the offices in Asia and then also looks like you are increasing in Europe. Can you give us your sense of the landscape in terms of investment opportunities maybe in North America, South America, Europe and Asia?

Well, not altogether, Bruce. Maybe to kind of prioritizing them or giving us your sense of have there been any material changes in rates of return that you might be looking at between those continents and those areas?

Thank you for that clarification. I was going to say, that's a pretty broad question. Might take us a couple of days. You know I would say the fact is across the world, all asset classes leaving aside just infrastructure are competitive. It is a competitive world out there. There's a lot of capital in the markets. And I guess our view on -- all investment periods but in particular this one where capital is freely available is that we have to pick our spots where we have strategic advantages and try to invest where we have those advantages.

That's not to say that we aren't putting a lot of or laying a lot of seeds in the ground in places where we don't have significant platforms, such that when there are markets which will be better for us to invest in, we are ready and that we have the available resources and we can capitalize on the opportunity.

So our activities I guess today really in all the markets with the where we have maybe capsulated in the following where we have significant platforms we continue to build those out. But besides that we are adding geographic locations and other areas of interest, other asset classes that we can -- are comfortable investing in -- and we are adding management teams and sometimes small amounts of assets to be able to get to a point where when we are fully built out and the opportunities do come, that we are ready for it.

So I would say that is our sort of general investment thesis today.

As to returns, clearly infrastructure assets in general the returns have decreased. Meaning, the asset values have gone up so you are paying more money for the assets. A significant component of that increase has been absorbed by the debt financing markets and I guess for these types of assets a lot of capital -- you can put a lot more debt at lower interest rates at higher loan to values on a nonrecourse basis on these assets than you could five or seven years ago. And this is no different than Commercial Property assets that you have been well familiar with for many years.

The equity returns have not changed that much. But it is the financing markets that have changed significantly. So while the returns for the equity holders have been -- have decreased they have decreased far less that you would otherwise expect because of the available financing markets that are out there. And that is just a unique period that we have been in that has been able to do that.

My last question is when you put these two ghetto questions together one (inaudible) regarding the LP, the infrastructure LP and then the compression that has occurred in terms of, I guess, unlevered rate of returns are I guess ROEs may actually be holding it in for structure assets. Is the structural advantage, not necessarily competitive advantage, but the structural advantage for you to do to make these investments through a separate vehicle, which may have different return requirements then BAM corporate?

I guess the answer is that we think having multiple accesses to capital is a highly attractive way to operate a business. We have the luxury of having significant balance sheet capital that has been given to us by our shareholders and we appreciate that; and that is very helpful to us at sometimes for some transactions.

We want to build on the institutional relationships that we have with pension funds because it is highly attractive to some transactions. And we think that there are -- there is a dearth of entities out there which offer these types of characteristics to the capital markets and we think by creating a vehicle it can give us access to another group of investors, which can be highly attractive to our building the franchise.

So this isn't meant to say that we are not going to continue to build out the rest of our funding platform, but it just gives us other areas of access to capital.

Thank you. Very helpful. Congratulations on another good quarter.

Michael Goldberg with Desjardins Securities.

I have a couple of questions also on infrastructure and, hopefully, these won't cross what you can say or can't say right now.

But you said that you are fully invested once you start this thing out. So suppose there was an opportunity that came along, how would you fund it? And I guess that leads to a question of how you plan to -- do you plan to raise money at any time -- you know at the same time that you spin off the LP? Or soon after you spin it off?

And another question I have is you said that the -- on a post-split basis the value's about $1 per BAM share which looks like about $580 million. Could you explain how you derived that amount? Thank you.

Maybe I will try to answer a cup of those briefly and then I will ask Brian to answer the second or the last question.

Our intention -- and a number of infrastructure entities are these type of structures have been put into the capital markets. The indication that we will be "fully invested" is really meant to indicate that this is being spun out with assets in it, to allow us to pay distributions from day one, as opposed to being a blind [pool] with a bunch of cash in it and its out seeking opportunities. So it can start out and in fact, we believe it will be a very attractive vehicle with just the assets in it and over time they will grow and produce -- we hope they will produce greater distribution.

We will ensure and, again, the details will be in the prospectus and we haven't quite finalized this, but we will ensure that the Company is -- has enough capital when spun out to be able to operate and do business. And we are looking at that right now as to how to do that. So it won't be in a position where it can't fund acquisitions going forward within its balance sheet to the size of the entity that it is.

As for the second component of issuing capital, we would like to get this out in the marketplace and dependent upon where it trades in the marketplace, opportunistic things that we can do and acquisition opportunities for it will have to -- the Board of this entity and us as the Company operating it will have to look at whether it's attractive to issue capital.

And, Michael, with respect to the last part of your question, I would say your numbers are pretty well bang on. We would be targeting the distribution to aggregate of approximately $600 million to shareholders so that is around $1 a share on a post-split basis; and that would reflect an approximate capitalization of the infrastructure partnership of roughly $1 billion.

So the 40% that we would retain would be in the realm of $400 million of the equity. That help?

Yes. Well I am just wondering you said that that's what you figured the interest -- the intrinsic value is. On what do you base that estimate?

That's just an assessment of what we think the initial balance sheet is going to look like from the Company. I can't really comment too much further on that.

Would it take into account the cash flow that these businesses are currently generating, you know, which look in the fourth quarter like it's about $94 million of FFO in Timber and Transmission. Is that the sort of thing we should be looking at?

Well, the value will, yes, be driven of course from the cash flows of the underlying assets. But I don't think you can at this stage try and and derive anything specifically from the cash flows in our supplemental information, because the initial details of the operations that this entity will own are as yet forthcoming.

Maybe just to clarify. We had to give -- we thought we felt it was, to announce it and to get moving forward we had to give just a range of value for it. So that's why the number is there and we intended to be in that range.

It will include some of the assets, but some of the assets that we have that's included in those numbers you quoted will not be included for various reasons; and that will be explained in the prospectus. But we just can't get into any more information until we get the prospectus out.

I have a couple of other questions but I will requeue.

Thank you.

Rossa O'Reilly with CIBC World Markets.

Just to clarify on that last point. So the intrinsic value is the book value or something different?

We expect that the value that would be attributed to the distribution which would be more of an approximation of where we would expect the market value of the distribution would be in the area of $600 million.

Then just on the Brazilian front where you did the IPO some time back, I wondered if you could just quantify for us the number of shares of the Brazilian real estate entity that Brookfield Asset Management owns and what the book value of those shares are?

In terms of the number of shares -- gosh I don't have that offhand. And in terms of we don't provide specifically what the book value of our investment is. We have roughly 60% of the entity.

I know it could crystallize to value. I'm just trying to quantify how much value has been crystallized and relative to your cost and hence my question.

Right and that's not a metric that we've made publicly available at this time.

And then the -- about three months ago, you had noted that you were discussing with Multiplex Limited some kind of an acquisition restructuring. And I wondered in the last three months that have passed where things stood on that Australian property initiative?

On Multiplex, we continue to be in discussions with the company and with the Roberts family who owns 26% of it. We own just under 5% of it and we hope to move forward on a transaction with the Company, but obviously it's public. It's a public company and a public process. So we can't make too many comments on it, but we continue to move forward.

Finally, if I may, just wondering why you drew the line between power generation and power transmission in deciding what would go into the Infrastructure Fund and what you would retain?

That's actually a good question, Rossa, and I would make the following comment. We view the two businesses -- in fact we view it in the Power business while most people might look at it as one business there are three very distinct businesses. Which is Generation, Transmission and Distribution. We really have no Distribution operations to any large degree.

In the Transmission business we have been investing and we think it's an asset class, which is very stable in nature and long term in nature whereas the Generation side is a little more volatile just because of the contracting nature they have put into it. In addition to that, the Transmission business we have is relatively small. It's large but it's relatively small to our balance sheet whereas the Power Generation business we have is a very significant business. And to start this entity out, we didn't believe it was the right thing to spin off that significant a group of assets for the shareholders.

So that's why we put the Transmission in and not the Distribution. Not the Generation.

Peter Sklar with BMO Capital Markets.

The partnership for your infrastructure, this Infrastructure Partnership. Bruce, one of the things you have been emphasizing over the last year or two is the ability of Brookfield Asset Management to align itself with institutional partners and earned fees. Is it contemplated that this new entity will also operate in conjunction with institutional investors and earned fees as well?

Peter I think I got your question so of I don't answer it correctly please repeat part of it because I think we -- seemed to cut in after it you were talking. But I think what your question is will we essentially operate this -- will we still have institutional investors beside us?

In this new entity. That's the question.

The answer is Brookfield Asset Management is a manager of infrastructure assets and we invest off our own balance sheet. We invest on behalf of institutional clients and we intend this entity in the capital markets to be an instant -- to be a client to invest into infrastructure assets.

So we will own -- likely own 35 or 40% or 25% of a number of the funds that we have or most of the funds that we have. We intend to own -- starting off we will have 40% of this entity. We will operate and manage the entity and it will be, it will act like an institutional client if you want to call it that and it will pay us -- it will pay them for the services it provides.

So BAM could receive then management fees and carry fees from this new entity?

That's correct. Just like -- it would act just like an institutional investor in that regard.

But the fact that you are spinning off a certain amount of assets to establish that new entity, does that -- doesn't that then preclude you from ever earning private equity type fees? Meaning management fees and carry fees on the assets that you are wrapping into this entity?

No, we would still continue to earn fees for managing the operations of the assets that we currently have our capital deployed in and the capital of our co-investors. So with respect to this new entity, there is no reason why institutions could not co-invest in the same operations that the new entity owns. We would be managing the affairs of the Brookfield Infrastructure Partnership. We would be managing the affairs of the funds of the partnerships with the institutions as well.

So we would continue to be in those circumstances to be compensated by our co-investors in those operations and for -- to the extent they have capital invested and to the extent that this new partnership participates in the ownership of those assets, we would be compensated in the context of our management arrangements with that partnership as well.

Yes, but what I'm concerned about is as this new entity doesn't -- not with respect to investing in BAM assets, but rather as it goes out and acquires its own assets. You are, then, you don't have the opportunity to earn management fees and carry fees. It's not in the same asset management business that BAM is.

No, but it will be an entity that will be managed by BAM and we will be paid based on the contract that gets put in place and, obviously, will be disclosed in the prospectus. We will be paid as it grows and it expands its business.

Okay. The other thing I wanted to ask you about, you know as this business grows, as this new entity grows and becomes substantial and this new acquisition opportunities arise or assets, won't there be a conflict as to whether you put those assets within Brookfield Asset Management or within this new infrastructure entity?

Yes. Peter, I guess I'd make the comment that we deal with those conflicts every single day. We try to manage them the best we can. We are very attuned to those issues and we believe this is in the best interest of BAM and we think that we can manage those. It's just we have many, many institutional investors and lots of funds. We target them specifically to different things and we will have parameters around investments and to make sure that we manage all the conflicts that are involved.

But it's not unlike issues that we deal with every day with all of our partners.

Right. Okay. Thank you.

Louis Sapir with Oppenheimer & Co. Inc.

I have two questions. The first was any thought given to establishing this new entity as a real estate investment trust? The second part of the question is since you'd earn a great deal of money from capital gains is there a chance that the dividend will be split up between capital gain distribution and income distribution?

And the second question is where are you emphasizing the cash flow investments in the future? Europe, Asia, South America, etc.?

On the first question on whether we consider it being a REIT. We obviously have a lot of assets in the Company that do qualify as REIT-eligible. Some of the assets that we are putting in here could qualify but some could not and a lot of the assets in the future that we intend to buy in this structure will not. So we thought of it but it's not the -- a REIT structure in the United States is not the ideal structure for the type of assets that we are going to be buying globally in this entity.

On the second question, I can't really get in at this time until we send the prospectus out as to the details of what the distributions will be. What I can tell you at this time is we are trying to be cognizant of creating the most effective capital market structure to have an effective vehicle to operate in the future and all the things you said about taxation are a part of that thinking. And when we put the prospectus out, the fullness of all of our highly paid consultants and all of our thinking will be involved in that. And we are trying to come up with the best structure for shareholders.

And there was a third question and I -- .

Where are you emphasizing your cash flow investments, in what areas particularly?

Our three or four areas of focus today have been in our Property -- our Property businesses, our Power business, our Transmission business and our Timber businesses. That is where our big focus is. Where the bulk of our assets are, are in North America, South America and in Europe. I would say that's where most of our time gets spent on transactions although we are laying the seeds down in a number of other areas like was mentioned earlier in Australia, in Asia and in other places.

So we continue to look to other areas but our biggest focus for the main amounts of our portions of our capital are in the ones I mentioned.

Andrew Kuske with Credit Suisse.

Bruce, I'm just curious as the scale and scope of your business increases really every quarter, how far do you push the asset management model? And really I guess the question is, how invested do you believe you need to be in any business plan especially in light of the infrastructure spend?

Just so I understand the question -- how much capital we have to have within each of the structures?

Yes.

I would say that we feel it's a strategic advantage to us to be able to put capital beside our co-investors if you want to call it; and if we are going to manage assets on behalf of people we feel that it is an important thing for us to have capital invested beside them.

I think it all depends on the scale and size of what you do and relative to what the size of the entity is. So a lot of the smaller things we do we end up owning just to make it meaningful for us closer to 50%. When they become larger I think we can be at 10, 10% or 20%, and be a very legitimate amount. Because it ends up being a lot of capital. And I guess, today, we balance back and forth the fact that we do have a significant amount of capital to enhance, to invest off of our balance sheet and, therefore, sometimes we put more capital into things that we might otherwise in the future as we build out the business. But that's not to say that it has to be that way because a lot of these LP interests that we own on our balance sheet are highly liquid and we could sell them to institutional investors if we needed the cash in circumstances.

So we have that flexibility within the balance sheet. And we will assess it as our financial profile is going forward.

Then just as a follow-up and it builds upon some of the previous questions. With the infrastructure spend you alluded to effectively management contract between BAM and the spend and, then, over time do you envision your percentage ownership of the spend decreasing, especially if that Infrastructure Fund has to go out and issue paper to do transactional activity in the marketplace itself?

Yes. I guess I would say the future we'll all be told as to what happens. I'm not sure we can predict the future. We will start off with 40% of it. We don't need to have 40% of it to the comments I just made to you and -- but that's not to say that we wouldn't subscribe for equity to have our interest the same as issuance has happened or we may not subscribe.

So I think it will all depend on the future and what transpires with the entity.

Then if I may, just one final question. As you [spin] this fund into the marketplace, I'm just assuming from a BAM whole (inaudible) perspective for greater capital deficiency you will take some leverage on just on a tax deductibility standpoint to really enhance your return on this asset?

You are referring to within the operations of the Infrastructure Partnership?

No especially from your holding as you spin it out of BAM. You would underpin this from a BAM [hold co] perspective if you take on a little bit of leverage. Say for example if it was akin to an income fund vehicle in Canada and you had to save 7% or an MLP in the U.S. A 7% yield if you could underpin it with say 5% debt from a hold co perspective. That would give you a 2% spread.

We typically don't specifically match up or secure funds at the parent company level. We do most of our match funding at the asset level and of course there would be, we would finance the operations owned by this partnership consistent with the matter that we approach it today.

Having said that we would continue to have natural leverage within (inaudible) management itself. And the ownership of the capital and the cash flows of our ownership in the Infrastructure Partnership would continue to underpin the leverage the same way the assets do today.

(OPERATOR INSTRUCTIONS) Michael Goldberg with Desjardins Securities.

A few questions that I had. First of all on the asset management side, I noticed that there's not much increase in percentage terms, at least in the core and core plus assets under management since year-end. And in fact opportunity in restructuring is down a little bit. Could you just give us an update on what's happening, sort of big picture with these funds?

Perhaps just to speak to the -- I'll call it the numbers side of it, Michael, and then Bruce can follow on to add some more color to it. Specifically with respect to the opportunity of restructuring you may have recalled that we -- and I mentioned earlier that we'd set up our second Restructuring Fund. So to a certain extent the decrease in capital, in our capital there is to the extent that investments that we acquired into that fund have been syndicated to our co-investors subsequent to year-end. So that is a decrease in our capital there.

Then also we have had some dispositions within the Opportunity Fund that gave rise to those gains that I referenced earlier in my comments. And so that would also give rise to a decrease in the actual amount of capital deployed in aggregate in the case of the Opportunity Fund and by ourselves in particular with respect to the Restructuring Fund. And then, obviously, we are looking to redeploy that capital quite actively.

Then with respect to the core and core plus there really has not been a substantial change, in either the assets owned by the funds or to the fact that we haven't established any new funds during the quarter in that regard. But we look to do that obviously throughout the balance of the year.

Okay and one other question I have about the infrastructure LP. Is it the intent that this would be set up as a flowthrough vehicle for the U.S.? And do you think it would end up as a flowthrough for Canadian investors as well?

I think, Michael, that goes back to the response Bruce gave to a question earlier in the call and it is not something we can speak to in any particular detail at this stage. Having said that, we are mindful of ensuring that this Company that this partnership has the most attractive cost of capital that we can establish for it and, obviously, that is an important part of the overall returns.

Okay, thanks a lot.

Neil Downey with RBC Capital Markets.

Just a follow-up on the Infrastructure Partnership. Because this is to be distributed via special dividend, will that result in a gain to BAM and will the new entity assets and liabilities effectively be mark-to-market or would they be carried at BAM's historic values?

From BAM's perspective because it is a distribution to shareholders, Neil, for accounting purposes we would not -- I guess our initial expectations at this time there would not be any recorded disposition gains on Brookfield Asset Management. The carrying values within the Partnership will be determined both on the -- with reference to the percentage ownership of any of those particular operations. But to a large degree they will reflect a carryover of our book values.

And in terms of future accounting for this vehicle, again from BAM's perspective, you are going to have a 40% equity stake, but of course presumably a longer term management contract that results from some additional degree of influence, I guess you might argue. Will this entity be equity-accounted or might it be consolidated on to BAM's balance sheet?

Our expectation again at this time is that we would consolidate the partnership. So from a Brookfield perspective, you wouldn't see a whole heck of a lot happening with respect to our consolidated balance sheet from an asset prospective. It would establish a minority interest.

[Harry LaSont] with [NCON Trust Research].

I was just wondering about the selection of perhaps the U.S., the exchange may be contracted with the Australian Stock Exchange in Canada as the exchange can proceed with an LP structure. I just wondering if there is any background on that as the rationale? And also why an LP structure was chosen?

With respect to the first part of the question we are already listed on the New York Stock Exchange. So to the extent that we are distributing these -- the partnership interests out to our existing shareholders the New York Stock Exchange is a -- would be a logical exchange to seek to have this listed on. Whereas, the Australian stock exchange we frankly have no presence on today.

Having said that, and this leads into your second question in terms of why it is an LP. That goes or why -- what form we would actually take to structure this in. That comes back to the questions with respect to the tax. We would be looking to have this partnership be constructed in the most effective way and achieve the best cost of capital. So that will be driven by where we ultimately end up having it -- seeking to have it listed over time and also the structure, specific structure with which it is formed in at the outset.

Thank you kindly for that and I wondered if you might if possible provide any comment, relative to Great Lakes Hydropower and the ownership -- sort of indirect ownership structure through Brookfield?

I might just add firstly to the last question and then I will answer that one. And I would make the comment that this partnership we are setting out is a global investor in infrastructure. It will have typically a few assets in Canada and some assets in the U.S., but it will have assets in other places in the world; and over time we intend to have it to be a significant global investor.

So we are actually seeking it -- the jurisdiction to operate most effectively to be a global investor in infrastructure. So those are the things that we have been taking into account.

On your question on Great Lakes, specifically, this has nothing to do with Great Lakes Income Fund. It is actually a Generation Partnership and it really is a separate and distinct vehicle and this has nothing to do with it.

Mr. Harding, there are no further questions at this time. I will turn the call back over to you. Please continue with your presentation or closing remarks.

Thank you very much, Operator, and thank you, ladies and gentlemen, for joining us this morning and for your patience with regards to the information contained in our press release. As Bruce and Brian indicated we will endeavor to get the prospectus out as quickly as we possibly can and we look forward to joining it again at our next conference call. Enjoy your day. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line at this time.