No. of Recommendations: 14
Thanks Baybrooke. I have taken real-time notes from the conference below, at times paraphrasing, at times literal, relatively little missed however.
McKay: About Macro, rates, raising funds, etc?
Flatt: Out view different to most, longer term. Most of the things that we do are positively disposed to inflation. Infrastructure has rate-based increases straight away, and similar with real estate. The good news with rates is that all the medicine has been dealt. The debate today is marginal - main increase is over. At some point, people will be predicting rates coming down. Still in lowish environment. About raising funds, everyone is stressed about volatility in the market, but the way we look at it the entry point for most investments right now is good. So as relating to raising funds, we'll get good results from new money in - in a much more normal environment now compared to 18 months ago. We're positive on the investment environment. Capital as freely available - especially in infrastructure. In tech, things are tough, and that is where the vocabulary of a tough environment comes from.
McKay: About the BAM spinoff? Real estate?
Flatt: Done this 7 times before. Sometimes a public listen extra-hyper-focuses the team. Even our private business are decentralised but being public makes it more so. Also, our investors are split between wanting our capital allocation, and investors who want something less complex (for example just the fee business without our capital allocation), so now they have the choice. Today we are in a depressed psychology regarding real estate - but think the following: All the past things that happened in the past few years, they all increased the phenomeon that quality wins. Rents are very high and very sought after in central locations, and all around the world. 50% more than pre-covid in some places. So if you have good real estate, it is really good; if you have bad real estate, it's *bad* [accents word in voice], and that makes the headlines. But we're overwhelmingly in good real estate.
McKay: Transition fund $15B first round. About this?
Flatt: This is about transition to less carbon. What we do in this fund is take carbon out of the system. We get a double-whammy by reasonable investment in medium term but also high multiple much further down the track from turning businesses green. The deals so far are excellent, but need to think 15-20 years with this fund. CEOs around the world have deciding carbon is coming out of the system - 5 years they were in denial but now they are agreeing it is going to happen. This area didn't exist before, even 3 years ago.
McKay: I noticed this pivot in our business - what is the reason?
Flatt: I don't know, but something happened 2 years ago - the switch happened. We are building renewables for Amazon in many countries around the world. We are in the early stages. The western world is re-industrialising also, especially with semi-conductors and pharma, and so our infrastructure business has powerful trends behind it. Some of our manufacturing businesses are asking us to relocate, such as moving from Asia into Europe or USA, also into India. They need partners, which we can provide, and they need it to be more green, which we can provide, so getting a double whammy.
McKay: Reinsurance?
Flatt: Always thought insurance was an interesting sector, both taking insurance risk and also the investing side. For life insurance and annuities, real estate and infrastructure are the most suitable. The entry point really important though, and if you make big mistakes going in you end up quitting.. The reason we started in 2020 is that we had little else to do during covid, but also liabilities were the lowest cost they have ever been - so odds favoured we could out-earn the liabilities - we took them at 3.5% and can easily earn more than that now. We are took in $50B of assets, put it into cash, and now replying it into real estate and infrastructure and returns huge.
McKay: You started managing your own money, later managed outside money. How do you manage all he complex decisions?
Flatt: We always break down the pieces and run them separately. We allow each CEO to make independent decisions and keep accountability separated. For example, the BAM split gives more freedom to the BAM management. We try look strategically where we want to go - lately we started the transition business, added reinsurance, and there will be one or two more coming. We have grown step by step - it took us 30 years, and we do it at whatever pace makes sense and we don't make any really big mistakes, lots of small mistakes are okay. The last 6 months we partnered with Deutsch Telecom, and with Intel for half their Arizona plant. That is what you get when you have our scale. The scale is so important, and counter-intuitively you get better quality as you get bigger.
McKay: Biggest mistake investors make?
Flatt: We try to stay nimble whilst still having scale. As for mistakes, need to be careful with quitting, and also avoid losing money up-front and avoid big mistakes. You end up quitting if you lose money early on, and long-term compounding needs consistency. So need to be careful with entry points, and from there stay super long-term. Most of the things we do, we take money, and we invest in the backbone of the economy of a country - we have local investments (power to an office, own the business, have a toll road, etc, everything internal to each country), not cross-trading between countries, so what we need are good countries with a respect of capital where odds are good of reasonable economic return in the country itself - and think about assets as 30, 40, 50 years, or even perpetual.
- Manlobbi
