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MAY 16, 2017

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BROOKFIELD BOSS BRUCE FLATT HE’S BESTED BUFFETT’S RETURNS OVER 15 YEARS

WORLD BUILDER DONALD TRUMP WANTS AN INFRASTRUCTURE PLAN? THIS BILLIONAIRE ALREADY HAS $250 BILLION AT WORK. AND YOU CAN GET IN ON IT.

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FORBES MAY 16, 2017 The Toll Collector WHILE WALL WASN’T LOOKING, ACCOUNTANT BRUCE FLATT BECAME A BILLIONAIRE BY ASSEMBLING ONE OF THE WORLD’S LARGEST PORTFOLIOS OF , POWER PLANTS AND INFRASTRUCTURE PROJECTS—AND MAKING BROOKFIELD ASSET MANAGEMENT THEPRINTED SAFEST COPY GROWTH FOR PERSONAL STOCK READING ON THE PLANET.ONLY. NOT FOR DISTRIBUTION.

BY ANTOINE GARA

MAY 16, 2017 FORBES BRUCE FLATT

ust off a 14-hour commercial flight from Dubai, Brookἀeld Asset ManagementJ chief Bruce Flatt stares into a gaping hole in the ground that looks like open-heart surgery performed on an entire city block in Manhat- tan. Piles of beams, mazes of scaffolding and even active railroad tracks criss- cross each other endlessly. “The amount of steel here is enormous,” Flatt shouts over a systems in North and South America. In France, Brookἀeld cacophony of honking car horns, grinding cement mixers and has the largest independent owner of cell towers. In Chile its moving cranes at one end of the notoriously clogged Lincoln electric power lines serve 98% of the population. In Ireland Tunnel. More than 17.2 million pounds of steel, to be precise, it owns 20% of the country’s wind-farm capacity. It owns enough to anchor a 67-story glass officeower. t Two more 36 in the U.K., North America, Australia and , towers are also going up, along with a 30-floor boutique hotel and in India and South America it manages 3,600 kilome- and a 16-story trapezoidal glass officeuilding b with 26-foot- ters of toll roads. All told, Brookἀeld has 2,000 projects high ceilings and floors the size of football ἀelds—much of it across 30 countries on ἀve continents, encompassing $250 suspended over railroad yards. Dubbed Manhattan West, this billion in assets and 70,000 employees. President Trump 7-million-square-foot, $5 billion project encompasses two talks about an infrastructure plan—Bruce Flatt is actually square city blocks. executing one. And yet it’s completely invisible in the public conscious- And Wall Street loves it. Despite Brookἀeld’s low proἀle, ness—the vast majority of New Yorkers have never heard of its stock has returned 1,350% since Flatt took the helm in it. Most people assume it’s part of the adjacent Hudson Yards 2002, versus 183% for the S&P 500—that’s a Buffettesque 19% development, a $25 billion project from billionaire Stephen annual average, buoyed by assets that generated some $25 bil- Ross and his Related Companies that will feature 16 skyscrap- lion in revenues last year and net proἀts of $3.3 billion. With a ers and 18 million square feet. $36 billion market cap, Brookἀeld is the size of KKR, Apollo, That’s ἀtting. The high-proἀle Stephen Ross has an ocean- Carlyle Group and Colony Northstar combined. “Bruce is not front Palm Beach mansion, owns the Dolphins and afraid to make large bets when he sees an opportunity,” says travels in the same circles as Donald Trump. Bruce Flatt is Jonathan Gray, Blackstone’s real estate chief and a possible an accountant from Manitoba who lives in a quiet heir to Stephen Schwarzman. “He buys high-quality, long- neighborhood and often commutes by subway. duration assets—be they pipelines or electric grids or large But if you’re comparing their portfolios? It’s not even close. pieces of real estate. Between the combination of yield and Brookἀeld quietly owns entire city skylines in places like appreciation, they generate strong returns over time.” At 51, Toronto and Sydney. It’s the biggest office landlord in London Flatt just joined the Forbes Billionaires list, with a net worth of and downtown Los Angeles. In Berlin it owns Potsdamer $1.3 billion. Platz and, in London, Canary Wharf, two of the biggest real Flatt has been called Canada’s Warren Buffett not only be- estate developments in Europe. It has 14,200 hotel rooms, in- cause he’s a contrarian, long-term investor but also because his cluding Atlantis in the Bahamas and the Diplomat in Florida, investment strategy relies less on price than on patience and and scores of shopping malls courtesy of divisions like Rouse the power of compounding income streams. “We will pay more Properties and General Growth, and several high-end Brazil for quality because in the fullness of time, real assets will gener- shopping centers. In all, Brookἀeld owns some 400 million ally always go up in value,” Flatt says. “We’d rather earn a 12% square feet of commercial space. to 15% net return over 20 years than a 25% over three.” And that’s just the real estate. Flatt’s true passion is infra- In fact, if ever there were a collection of sleep-well-at-night structure, which he sees as a $35 trillion opportunity that, like investments that might one day rival the safe-haven status PRINTEDManhattan West, COPY is hiding inFOR plain sight.PERSONAL “Infrastructure READINGwill of U.S. ONLY. Treasury bondsNOT or FORgold, you DISTRIBUTION. could argue that it’s the be an enormous asset class for institutional investors in the well-diversiἀed trove of real assets in Brookἀeld’s $250 bil- coming 25 years,” Flatt insists. lion portfolio. It’s essentially a call on the future of civilization Brookἀeld owns 218 hydroelectric plants on 82 river itself. And it’s about to get far bigger.

FORBES MAY 16, 2017 BRUCE FLATT

THE WORLD IS FLATT’S WHEN IT COMES TO GLOBAL DIVERSIFICATION AND GROWTH, BROOKFIELD’S COLLECTION OF REAL ASSETS IS UNRIVALED. IN REAL ESTATE, BROOKFIELD OWNS ENTIRE SKYLINES IN CITIES LIKE TORONTO, SYDNEY AND BERLIN, PLUS MALLS, AND SELF-STORAGE. BUT INFRASTRUCTURE AND RENEWABLE ENERGY COULD BECOME EVEN BIGGER. GLOBALLY, THE COMPANY ALREADY HAS 36 PORTS, 218 HYDRO- ELECTRIC PLANTS, THOUSANDS OF KILOMETERS OF PIPELINES AND RAIL NETWORKS, PLUS CELL TOWERS, WIND FARMS AND TOLL ROADS.

ASIA/SOUTH AMERICA In India, Brazil, Chile and The city’s third-largest LONDON Peru, Brookfield con- commercial real estate Already London’s big- trols 3,600 kilometers owner, with 18.6 million gest office landlord, with of toll roads connecting square feet of com- 20 properties after taking to major cities. Recently mercial space, includ- control of 97-acre Canary struck deal for 29% stake ing Brookfield Place and Wharf in 2015, Brook- in portfolio of 40,000 AUSTRALIA Manhattan West. field also ownsPD Ports, wireless towers. Hay Point’s Dalrym- TORONTO a company that oper- ple Bay Coal Terminal Headquartered in To- ates 8 ports in the United accounts for rough- ronto, Brookfield is king NEW YORK Kingdom. ly 20% of metallurgical in its home market with 20 mil sq ft NEW DELHI coal exports. Brook- 8.5 million square feet of 12 properties 11.5 mil sq ft field operates ports office space and more LONDON 35 properties, in Sydney, , under development. 11.9 mil sq ft Brisbane and Perth, 20 properties and rails in Western SEOUL Australia. TORONTO 5.4 mil sq ft 11 mil sq ft 5 properties 11 properties BERLIN, GERMANY LOS ANGELES Recently acquired By far the biggest office Potsdamer Platz, an SYDNEY owner in downtown L.A., 5 mil sq ft OTTAWA iconic 2.9-million-square- with 8.3 million square foot-plus development of 11 properties feet of office space 2.5 mil sq ft 6 properties 16 properties across ten across seven towers. in the center of the city. SHANGHAI 2 mil sq ft BRISBANE LOS ANGELES 0.6 mil sq ft 13.6 mil sq ft DUBAI 1 3 properties 9 properties BERLIN 1 1.1 mil sq ft KOLKATA 1 3.6 mil sq ft 1 property 16 properties 28 mil sq ft 10 properties 1 1 4 PERTH 3 CALGARY 2 mil sq ft 1 5 properties 6.8 mil sq ft 11 1 6 8 properties MELBOURNE 1 1.4 mil sq ft 23 2 properties 1 2 SAO PAULO BOSTON 2.4 mil sq ft Utilities 1.15 mil sq ft 5 properties 2 properties 2 37 1 Transportation 1 2 RIO DE JANEIRO 1 8 1.8 mil sq ft Energy 2 149 3 properties 7 1 8 52 4 SAN FRANCISCO WASHINGTON, D.C. Communications Infrastructure 0.6 mil sq ft 8.7 mil sq ft NORTH AMERICA 2 properties 25 properties Brookfield’s big play in infrastructure and 1 Sustainable Resources renewable energy in- DENVER cludes 180 plants 3.7 mil sq ft MEDELLIN, generating 6,000 2 properties COLOMBIA Renewable Energy megawatts, ports in Isagen is Colom- Los Angeles and Oak- bia’s third-larg- SANTIAGO, land, and pipelines HOUSTON est power genera- CHILE supplying natural gas 8.1 mil sq ft tion company and Transelec’s 10,000 to . 6 properties accounts for about kilometers of 20% of Colombia’s power transmis- installed generating sion lines serve capacity. 98% of Chile’s population.

IF FLATT IS TRYING to cultivate the Buffett comparisons, his His break came early. His father was an executive at a Toronto digs certainly encourage it. Modest home? He lives mutual fund company in Manitoba, and Flatt, numerically in a two-story brick townhouse barely set back from the side- inclined, joined an accounting ἀrm in Toronto out of college. walk. Humble office? A drab gray cubicle, positioned against In 1990, at 25, he was hired at Brascan, a conglomerate a window looking onto a of an office complex that controlled by Peter and Edward Bronfman, two heirs to the BrookἀeldPRINTED owns. ContrarianCOPY FOR outloo k?PERSONAL The only piece of artREADING Seagram ONLY. fortune. HeNOT eventually FOR rose DISTRIBUTION. to become vice president visible from Flatt’s desk is a framed cartoon depicting a herd of its merchant bank and gained a seat in the engine room of of white sheep moving toward a cliff as a single black sheep one of Canada’s largest companies, with holdings like Labatt heads in the opposite direction. Beer, the and millions of acres of timber- FORBES PETER AND MARIA HOEY FOR

FORBES MAY 16, 2017 BRUCE FLATT land. Then came trouble. Brascan’s interests were built by by Brascan’s partnership, capping a dramatic ascent for the Peter Bronfman and a South African investor named Jack 36-year-old. Cockwell, who ἀnanced its ambition through a web of inter- Once in charge, Flatt streamlined Brascan’s sprawling mingled corporate holdings. The structure faltered during the operations into three lines: real estate, renewable energy and early 1990s downturn, and troubled Brascan was forced to sell infrastructure. On top of these divisions would sit an asset- its beer, baseball and forestry interests. management unit to invest outside funds—including coin- Flatt and a number of young partners—mostly accoun- vestments from sovereign wealth funds—designed to generate tants—began to rebuild Brascan. Its stock was deeply de- fees and have capital ready for market dislocations. pressed, and by the mid-1990s Bronfman had stepped aside, And those dislocations kept coming. After the Enron selling his shares to a partnership that distributed stock to debacle, for example, Flatt’s renewable-energy business the company’s upper ranks. For Flatt, it was a billion-dollar acquired hundreds of hydroelectric plants. By 2005, Flatt opportunity: By borrowing, he was ultimately able to gain decided to rebrand the whole Brascan operation under the control of a large number of shares with a chance for im- Brookἀeld name. mense wealth if he and his partners could devise a better strategy. ON THE EVE OF THE ἀnancial crisis in 2007, hundreds of Having seen the hazards of corporate overreach, Flatt skeptical investors gathered at the New-York Historical forged an investing style to capitalize on the miscalculations Society for a one-day conference on the fragile state of the of others. “We were young in our careers and watched very global economy. Pollyannaish Merrill Lynch economist difficult markets in the late 1980s and early 1990s,” he says. David Rosenberg warned that a severe recession was immi- “That was quite impressionable on us to how we run the nent. Hedge fund manager Bill Ackman railed against a new business today—never put yourself in a situation where you Wall Street creation called CDOs, which he predicted would have to sell something in an environment where you should soon implode. be buying.” But when the young chief executive of Canada’s Brook- ἀeld Asset Management got up to speak, he turned the topic to infrastructure—a $35 trillion op- PIPELINES, WIRELESS TOWERS, portunity hiding in plain sight. POWER PLANTS, PORTS AND TOLL Forget the gloom. Pipelines, wireless towers, power genera- ROADS WILL BE A HOLY GRAIL tion, ports and toll roads—the backbone of the global econo- INVESTMENT PRODUCT FOR TRILLIONS my—would soon become the STAGNATING IN PENSION FUNDS. holy grail investment product for trillions of dollars stagnating in pension funds and savings. The opportunity came quickly. Another humbled Cana- “David [Rosenberg’s] presentation is probably about the next dian giant, Olympia & York, ἀled for bankruptcy in 1992 six months,” Flatt told the doomsday-obsessed audience. “Mine after heavy losses in developing London’s Canary Wharf. is more relevant to the next 25 to 60 years.” Flatt scooped up O&Y senior debt and organized a plan with Recession or not, this market could be bigger than real creditors, including Hong Kong billionaire Li Ka-shing, beat- estate—and Flatt was ready once again to exercise his pen- ing out Apollo and Tishman Speyer. When the dust settled, chant for buying during desperate times, only now on a Flatt controlled the World Financial Center—and a block massive scale. on the West Side of Manhattan that he would sit on. Flatt First up: Australian and real estate giant listed the real estate trove on public markets in 1997 under Multiplex, on the verge of collapse after massive cost over- the name Brookἀeld Properties. He then proceeded to buy runs in London’s Wembley Stadium. Brookἀeld out his minority partners. The stock quickly soared, reviving acquired it for a bargain $3.8 billion, gaining a global con- parent Brascan. struction business, $6.6 billion in real estate and an operat- History repeated ahead of the next downturn. On 9/11, ing toehold in Australia. Next, in 2009, Brookἀeld spent $1.1 Flatt sprang into action, ἀrst reassuring investors that the billion acquiring a major stake in the bankrupt infrastruc- World Financial Center had been mangled but not toppled. ture giant Babcock & Brown, control of Britain’s third-largest Then he hopped in a limousine and traveled from Toronto operator and a 50% interest in the world’s largest coal- toPRINTED Lower Manhattan COPY to check FOR on his PERSONALworkers and buildings. READING export ONLY. terminal inNOT Queensland, FOR Australia, DISTRIBUTION. adding $8 billion Alongside executives like John Zuccotti, a former deputy in infrastructure assets. mayor of New York, Flatt and his team organized a months- A year later, Brookἀeld, in partnership with Ackman, long cleanup. When the crisis passed, he was anointed CEO led the recapitalization of bankrupt mall operator General

FORBES MAY 16, 2017 BRUCE FLATT

FIVE WAYS TO BUY INTO BROOKFIELD BROOKFIELD’S LAYERED STRUCTURE GUSHES FEES TO PARENT BROOKFIELD ASSET MANAGEMENT AND PROVIDES INVESTORS WITH MULTIPLE OPTIONS, SUCH AS BROOKFIELD PROPERTY PARTNERS, BROOKFIELD INFRASTRUCTURE PARTNERS, BROOKFIELD RENEWABLE ENERGY AND RECENTLY LAUNCHED PRIVATE EQUITY ARM BROOKFIELD BUSINESS PARTNERS. WITH 18% AVERAGE ANNUAL RETURNS SINCE 2008, INFRASTRUCTURE LEADS THE PACK.

High Falls Hydro Station,

Brookfield Place, New York

PD Ports, Teesport, U.K.

VLI Rail, Brazil

Growth, ponying up $2.5 billion for a 26% stake, one of the Infrastructure Partners), then renewable energy (Brookἀeld seminal investment scores of the crisis. So far it has yielded Renewable Partners), then the private equity arm (Brook- Brookἀeld and its investors $10 billion in proἀt. Flatt re- ἀeld Business Partners). All this in addition to the holding mains chairman of General Growth, and Brookἀeld is a 35% company itself, Brookἀeld Asset Management. Collectively, ­shareholder. Brookἀeld’s ἀve public entities carry more than $70 billion in “We didn’t get in trouble before the crisis, so we were able public market value. to continue to grow and we were running fast coming out,” The holding company’s stakes in the four derivative Flatt says. “We could move money where money was needed.” companies range from 30% to 75%, forming a byzantine PRINTEDAs brilliant as COPYFlatt’s purchases FOR were PERSONAL his exits. Beginning READING in structure ONLY. that feeds NOT the parent FOR with DISTRIBUTION. a perpetual and growing 2008, he took each of his divisions public on the NYSE (sepa- stream of cash, since it gets ἀxed fees plus a 1.25% annual rate from the already public real estate arm, now known as management fee based on the value of its listed partnerships Brookἀeld Property Partners). First, infrastructure (Brookἀeld and performance fees of 15% to 25% based on the level of BRUCE FLATT the dividends. Fold in its dozens of private funds, and Flatt’s $1.4 billion. Now Brookἀeld is helping Macy’s come up with flagship found itself generating $1.1 billion in fee revenues, a plan to extract value from its vast real estate, as its CEO de- up 31% year-over-year and a 160%-plus gain from 2012. parts amid plummeting shares and a battle with a hedge fund Brookἀeld predicts it will generate $2.4 billion in annual fees activist. In March, Brookἀeld struck a deal to take control of by 2021. TerraForm Power and TerraForm Global, the crown jewel Besides the annuity of charging people to manage their solar and wind assets of bankrupt SunEdison. money, this structure also carries a big tactical advantage. All told, Brookἀeld is on a 100-transaction-a-year pace, Because permanent capital is built into its public vehicles, fed by 700 global deal scouts. Flatt presides over small teams roughly half of Brookἀeld’s funding never has to be returned that review each deal. He boasts that he hardly ever turns to investors, allowing it to compound investments and build down a pitch because the ἀrm’s strict underwriting standards more muscle and flexibility than almost any investment ἀrm have been institutionalized over many decades. on earth. “These are lifelong entities,” Neuberger Berman’s These executives forgo the kind of immense overnight Charles Kantor says. “I think that was brilliant.” riches that partners sometimes get at private equity ἀrms and take the slow-but-steady path, gained by appreciation ONE DISTINCT DIFFERENCE between Brookἀeld and Berk- of its stock. In this model, Flatt and his team, unlike at so shire Hathaway: While Buffett’s annual shareholder meeting is many funds, are largely aligned with their investors. Insiders basically a carnival of capitalism, Brookἀeld’s annual investor own roughly 20% of Brookἀeld Asset Management; Flatt’s meeting is a sober gathering of suits. There are no members of $1.2 billion in holdings is the largest stake, while others, like the press or doe-eyed fans, just ἀnancial analysts and money former CEO Jack Cockwell, hold interests in the hundreds managers with sharpened pencils ready to absorb head-spin- of millions. ning ἀnancial math that is both Brookἀeld’s strength and its Despite its long-term call on global productivity and Achilles’ heel. growth, Brookἀeld carries risk. During the crisis in 2008 and At the start of his presentation, Flatt strolls to a podium: 2009, as Flatt was doubling down, Brookἀeld’s stock plunged “There’s really nothing different that we’re doing or we’re proposing to do with this company, and essentially nothing has changed.” But this humility is a ruse. HALF OF BROOKFIELD’S FUNDING Brookἀeld had a banner 2016, and he’s NEVER HAS TO BE RETURNED brimming. “The numbers are bigger, money TO INVESTORS, ALLOWING IT TO has been raised faster, and therefore COMPOUND INVESTMENTS AND the returns should be higher and come quicker,” he says. BUILD MUSCLE AND FLEXIBILITY. First the money: Infrastructure has become Wall Street’s hottest product—in 2016, $62.5 billion was raised at 59 infrastructure funds— more than 70%. Bribery and corruption remain an issue for a and Brookἀeld has ἀrst-mover advantage. Over the past company running so many arteries in so many countries. In year, Brookἀeld closed $27 billion in private funds, one of 2012, for example, Brookἀeld was hit with a civil lawsuit in the biggest gatherings of cash in the history of Wall Street, Brazil, as well as an SEC and Department of Justice investiga- led by $14 billion for infrastructure investments and driven tion for alleged bribery by some of its employees. The SEC by Brookἀeld’s network of 450 sovereign wealth investors, and DOJ investigations closed with no charges. pension funds and endowments. There are also geopolitical risks. The $5.2 billion pipeline There were also more deals: $18 billion was spent mostly deal was suspended in February by a Brazilian court; a pha- in markets where investors see calamity but Brookἀeld’s lanx of lawyers challenged the injunction and had it over- flexibility allows it to buy. Brazil, roiled by a recession and a turned. And unexpected events like Brexit roil projects like corruption scandal, has been a key Brookἀeld target. So far, Canary Wharf, which Flatt ἀnally took control of in 2015. Petrobras sold it NTS, the country’s pipeline giant, for $5.2 But Flatt ἀgures to have a solid two-decade time line to billion—Brookἀeld’s ability to close without ἀnancing condi- see his projects through (or much longer if he continues to tions was the key to the deal. Then it agreed to buy a 70% emulate Buffett) and a corporate mandate that matches such stake in the nation’s largest private water and sewage com- patience. “Brexit may happen over the next ten years. But pany, Odebrecht Ambiental, whose holding company CEO London is still going to be one of the great cities of com- wasPRINTED carted off to jailCOPY in 2016. FOR Some $6.9 PERSONAL billion was spent READINGmerce,” ONLY. Flatt says, NOTnoting thatFOR a high-speed DISTRIBUTION. railway will alongside partners to buy Australia’s biggest rail-freight and soon connect Heathrow to Canary Wharf in 40 minutes. container-port operator. Berlin’s Potsdamer Platz, once a no “Over the next 20 years, we are going to make an enormous man’s land by the Berlin Wall, was acquired for a reported amount of money.” F

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