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EXECUTIVE SUMMARY
The current market environment is leading investors across the globe to seek an
alternative to traditional equity and xed income investments. Following a multi-year
decline in interest rates and recent global nancial upheaval, the ability to invest for
yield has diminished and the outlook for growth has been generally subdued. With
interest rates beginning to rise and the potential for ination looming, investors are
seeking a New Essential portfolio investment to help navigate the market cycles
that lie ahead.
Brookeld believes this pursuit of a new alternative is creating a secular shift toward increased investment in Real Assets. Importantly, we
believe that Real Assets offer a relatively unique combination of yield, stability and growth that can provide downside protection as well as
upside value creation. Over the course of Brookelds experience as an owner and operator of these assets and based upon an analysis of
their historical performance, Real Assets have demonstrated a proven ability to enhance overall risk-adjusted returns across market cycles.
Looking ahead, as investors recognize the benets of Real Assets, we expect a meaningful shift in asset allocations to occur, which may rival
the historic transformation of institutional investment from xed income to equity securities. We expect this trend to accelerate materially
over the course of the next decade, with allocations to Real Assets reaching 20% to 30% of portfolios by 2030, with some institutional
investors allocating upwards of 50% to the asset class.
Based upon recent investment trends and fundraising activity, we believe this transformation is underway and expect that it will continue to
grow as investors recognize and appreciate the attractive, long-term benets of Real Asset investment. Within the constraints of the current
market environment and across future challenges, we believe Real Assets can generate compelling risk-adjusted returns, provide attractive
capital appreciation and deliver important diversication benets. Accordingly, as investors move beyond the New Normal, we expect Real
Assets to emerge as the New Essential.
In this piece, we provide an assessment of recent investment trends as well as an overview of the attractive characteristics of Real Assets.
Following this discussion, we offer a detailed introduction to the asset class.
Stability Steady cash ow streams supported by regulated or contractual revenues and attractive operating margins
Income Reliable current income with long-term capital appreciation potential
Upside Potential Meaningful leverage to economic growth
Visible Growth Drivers Positive growth momentum led by signicant fundamental trends
Attractive Performance Compelling absolute and relative returns
Low Volatility Attractive risk-adjusted returns
Ination Protection Cash ows tend to increase in an inationary environment
Investment Diversication Diversity of geography, currency and asset type
Portfolio Diversication Low correlation to traditional equity and xed income investments
Note: An investment in Real Assets involves signicant risks, including loss of the full amount invested.
1
U.S. Federal Reserve; Barclays
Brookeld.com | For Clients Only. Not for Redistribution.
Real Assets The New Essential 3
INCREASING DEMAND FOR ASSETS OFFERING STABLE INCOME THE PATH FORWARD
AND GROWTH POTENTIAL
As institutional investors seek to fund liabilities and navigate the
At the same time that yields have fallen and the outlook for growth has challenges of the current landscape, we believe Real Assets are
declined, demand for income-producing assets with upside potential emerging as a new alternative one that can provide attractive
has increased. Among both institutional and retail investors, liquidity yield, stability and growth irrespective of market cycles and
needs are on the rise. For instance, the aging U.S. Baby Boomer macroeconomic volatility. Accordingly, as investors move beyond the
population is nearing retirement and is seeking a stable source of New Normal, we believe the stage has been set for a strategic shift
income to weather the market cycles that lie ahead. in asset allocations, with Real Assets becoming the New Essential.
Exhibit 4: Aging U.S. Population Importantly, we believe this transformation of traditional portfolio
allocation has only just begun. Over the next decade, we expect this
trend to accelerate materially, as investors come to recognize Real
Assets as a fundamental component of portfolio investment. Indeed,
we expect that by 2030, allocations to Real Assets among institutional
investors will reach 20% to 30% of total portfolio value, with some
institutions allocating upwards of 50% to the asset class.
1
Center for Retirement Research at Boston College and Moodys Investors Services:
Adjusted Pension Liability Medians for US States, June 2013
For Clients Only. Not for Redistribution. | Brookeld.com
4 Real Assets The New Essential
Exhibit 5: Shifting Institutional Investor Asset Allocations Investors appear to be recognizing these attractive characteristics,
as demonstrated by recent trends in institutional allocations and
fundraising activity. For instance, over the last 10 years, real estate
allocations by public dened benet pension plans have increased
from just over 3.0% of portfolio value to nearly 8.0% (Exhibit 5).
More recently, fundraising activity has demonstrated a signicant
acceleration in demand for Real Assets. During the rst half of 2013,
18% of the nearly $210 billion raised globally by private equity funds
was targeted towards Real Asset investments (Exhibit 6).
Source: Pensions and Investments; data represents average asset mix of top
1,000 U.S. public dened benet pension plans since 1991 and average asset
mix of top 200 U.S. public dened benet pension plans from 1984-1991; data as
of September 30 of each respective year. Alternatives includes private equity
and hedge fund investments.
Property NCREIF Property Index (data availability begins in 1Q 1978) Agrilands NCREIF Farmland Index (1Q 1991)
Infrastructure Dow Jones Brookeld Global Infrastructure Stocks MSCI World Index (1Q 1978)
Composite Index (4Q 2002) Bonds Barclays Global Aggregate Bond Index (1Q 1990)
Timberlands NCREIF Timberland Index (1Q 1987)
Of note, as private investment in infrastructure has only recently begun to accelerate, a private market infrastructure performance index with a meaningful
track record does not currently exist. Accordingly, the Dow Jones Brookeld Global Infrastructure Composite Index was utilized as the chosen proxy for
the asset class. Currently comprising more than 125 companies and with a market capitalization of over $1.0 trillion1, the Dow Jones Brookeld Global
Infrastructure Composite Index includes publicly-listed infrastructure companies traded on developed market exchanges with historical data dating
back to December31,2002.
A key measure for inclusion in the index is that 70% of cash ows must be derived from the ownership or operation of infrastructure assets. This
is a signicant differentiator from other indexes, which have a broader denition of infrastructure and are often dominated by infrastructure service
companies, such as energy utilities, construction companies and mining companies. In contrast, the Dow Jones Brookeld Global Infrastructure
Indexes focus on companies that are more likely to generate stable and predictable cash ow growth and are typically less cyclical in nature.
Additionally, to be eligible for inclusion in the Dow Jones Brookeld Infrastructure Indexes, a company must have a minimum oat-adjusted market
capitalization of $500 million as well as a minimum three-month average daily trading volume of $1 million. Securities also must be domiciled in a
country with a liquid market listing.
For more information on the Dow Jones Brookeld Global Infrastructure Indexes, please visit www.djindexes.com/infrastructure.
1
As of June 30, 2013
OPTIMIZING AN ALLOCATION TO REAL ASSETS While investor risk preferences and return needs may vary and asset
allocations may include a more diverse set of opportunities than
In considering the optimal allocation to Real Assets, modern portfolio
those included above, the Efficient Frontier conrms our belief in the
theory can serve as a guide. Using tools such as the Efficient Frontier,
attractiveness of Real Assets and the potential for meaningful growth
it is possible to create hypothetical portfolios which contain the
from current allocation levels.
optimal allocation to selected asset classes. The optimal allocation
is dened as that which maximizes the expected return for any given The Growth Potential of Real Assets
level of risk based upon historical performance results. Combining
each of these optimal portfolios across the spectrum of risk and While we expect investor allocations to Real Assets to accelerate
return creates the Efficient Frontier. in coming years, the global investible asset base is expected to
grow exponentially as well. Current estimates of total global assets
It is also possible to compare Efficient Frontiers, to determine if the managed by institutional investors stands at $71 trillion, of which
addition of a certain asset class provides higher or lower potential $45 trillion is invested to meet long-term nancial obligations1. We
returns for each level of risk. In doing so, the portfolio benets of expect this long-term invested asset base to increase in size to over $70
including a certain asset class, and the optimal allocation to that asset trillion within the 2020s, producing $25 trillion in new capital ows2.
class, become increasingly clear. Should investor allocations progress as we expect over the same time
horizon, 20% to 30% of these new capital ows may be targeted
Exhibit 7 presents such an analysis, comparing the Efficient Frontier towards Real Assets, leading to nearly $10 trillion of capital seeking Real
of a portfolio containing only bonds, equities and cash with that of a Asset investment opportunities over the next 15 years.
portfolio which also includes Real Assets.
Importantly, as demand for Real Assets continues to rise, the supply
Exhibit 7: Efficient Frontier Analysis of Real Asset investment opportunities is expected to expand as well.
Global population growth and increasing urbanization around the world
are leading to rising demand for new development. When combined
with the overdue refurbishment or modernization of existing assets
in many mature markets, a signicant need for capital has become
apparent. Recent estimates indicate that this need may total as much as
$55 trillion through 2030 in the infrastructure asset class alone3. Over
the same time period, an analysis of global property markets reveals
that over $15 trillion will need to be spent in order to simply maintain
existing ratios of property investment relative to Gross Domestic
Product (GDP)4. Given the current strain on government balance sheets
around the world, public nancing will not be able to subsidize this
$70 trillion price tag alone, creating a signicant opportunity for the
Source: U.S. Federal Reserve, Barclays, Bloomberg, NCREIF, S&P Dow Jones investment of private capital.
Indexes; data as of June 30, 2013; the Real Asset category is comprised
of performance results (over the duration of available data) generated by
the previously dened indexes for Property, Infrastructure, Timberlands and
Furthermore, the ability to invest in existing Real Assets is expected to
Agrilands, weighted by the investible universe of each; the Stocks category is increase as well. In recent years, privatization of state-owned assets
represented by the S&P 500 Total Return Index, the Bonds category consists of including toll roads, airports and seaports has accelerated, as
the Barclays U.S. Aggregate Bond Index and the Cash category is comprised of
the 3-month U.S. Treasury bill.
governments across the globe seek to increase liquidity. Additionally,
diversied owners of Real Assets are increasingly selling their holdings
As demonstrated above, the Efficient Frontier for the portfolio in order to become more capital and cost efficient, such as mining
containing Real Assets is higher than that of the more traditional companies divesting their captive railroad systems. We expect these
portfolio, indicating that returns are greater across the spectrum of trends to continue to expand in the coming years, leading to a growing
risk. For example, assuming a standard deviation of 4.5%, the portfolio opportunity to invest in existing Real Assets.
of traditional investment options generates a return of 7.5% while the
portfolio including Real Assets produces a return of 9.5%. As such, This combination of population growth, strained public nances and
the portfolio including Real Assets generated 200 basis points of increasing monetization of in-service assets provides many options
incremental return for the same level of risk. While the value of this for investment. Whether investors seek opportunities for new
incremental return varies across the risk spectrum, it remains positive development or existing assets in mature markets or emerging growth
throughout, indicating that the addition of Real Assets to a mixed- economies, the Real Asset investible universe appears poised for
asset portfolio improved overall risk-adjusted returns throughout the meaningful growth.
time period of historical performance captured by this study. 1
OECD; Climate Policy Initiative, March 2013
2
Brookeld Asset Management estimates
3
Additionally, the Efficient Frontier suggests that the optimal 4
OECD: Strategic Transport Infrastructure Needs to 2030
EPRA, World Bank, PricewaterhouseCoopers, Brookeld Asset Management
allocation to Real Assets can be found along the upward slope of the
curve, highlighted in Exhibit 7. The target allocation to Real Assets
reected in this portion of the curve ranges from 25% to 80%.
REAL ASSETS AN ATTRACTIVE INVESTMENT Exhibit 9: Stability of U.S. Listed Property Cash Flow Streams
OPPORTUNITY
Our belief that Real Assets will emerge as the New Essential portfolio
investment is driven by the powerful combination of relative stability
and growth offered by the asset class. Importantly, Real Assets can
provide downside protection in a recessionary climate due to the
duration and generally predictable nature of their cash ow streams,
while also participating in the upside of a growth environment
through meaningful exposure to a recovering economy. As such,
we believe Real Assets are uniquely positioned to provide value
and enhance overall risk-adjusted returns across the current market
cycle and those that lie ahead.
Source: MSCI, Barclays, Bloomberg, NCREIF, S&P Dow Jones Indexes; data as
of June 30, 2013; represents average annual returns over the duration of data
available for each index.
EQUITY-LIKE UPSIDE
Agrilands
Ag
grilands
Although a signicant portion of Real Asset revenue streams are Global population growth and increasing consumption levels
subject to long-term, contractual agreements, the asset class also Growing demand for biofuels
retains exposure to an improving economic environment. Whether Slowing yield growth rates
it is realized in the form of improved leasing of vacant property space,
growing throughput on toll roads, rising volumes of energy demand, COMPELLING ABSOLUTE AND RELATIVE RETURNS
expanded harvesting of timber assets, or climbing food prices, Real
As evidenced in Exhibit 13, Real Assets have produced impressive
Assets reap the benets of a strong global economy. While Real Asset
absolute and relative returns over the last 10 years, outperforming
current income protects value on the downside, operational leverage
both the global equity and global bond markets.
enhances value on the upside.
Exhibit 13: Attractive Return Prole
Exhibit 11: Average Annual Returns during Periods of Economic
Recovery
Source: MSCI, Barclays, Bloomberg, NCREIF, S&P Dow Jones Indexes; data as of
Source: MSCI, Barclays, Bloomberg, NCREIF, S&P Dow Jones Indexes; data as June 30, 2013
of June 30, 2013; represents average annual returns during periods of economic
recovery, as dened by the National Bureau of Economic Research, over the
duration of data available for each index.
LOW VOLATILITY AND COMPARATIVELY HIGHER
GROWTH POTENTIAL RISK-ADJUSTED RETURNS
This relative outperformance becomes even more impressive when
In addition to meaningful leverage to an improving economic climate, viewed on a risk-adjusted basis, as the volatility of Real Asset returns
fundamental trends in each underlying asset class are leading to has historically been lower than that of equities, while returns have
attractive growth momentum. While several of these trends may been greater than that of bonds. Importantly, while Real Assets tend
require a longer time horizon to materialize, we believe they provide to retain value during economic downturns and participate in value
a clear and sustainable path upon which Real Assets can continue to creation during economic upturns, performance generally lacks sharp
produce compelling income and capital appreciation. movements in either direction. When combined with the stability
Exhibit 12: Growth Drivers for Real Assets of Real Asset cash ows, the resulting risk-adjusted returns have
meaningfully surpassed those achieved by either equities or bonds.
Property
Employment growth leading to increased leasing demand Exhibit 14: Comparison of Sharpe Ratios across Real Assets and
Low levels of new supply Investment Alternatives
Infrastructure
Global population growth
Existing infrastructure in need of repair or refurbishment
New infrastructure development in emerging markets from growing
wealth and urbanization
Acceleration of privatization activity leading to an expanded
investible universe
Declining availability of public capital to fund needed expenditures
Timberlands
Recovery of U.S. housing market
Asias increasing wood demand
Source: MSCI, Barclays,
l Bloomberg,
l b NCREIF, S&P Dow Jones Indexes;
d d
data as of
Reduced supply from Canada and Russia June 30, 2013; Sharpe Ratio based upon 10-year average annualized total returns
Supply constraints due to conservation, development and damage and standard deviations of performance; assumes a risk-free rate of 3.0%.
caused by the Mountain Pine Beetle
Demand for wood ber as an alternative energy source For Clients Only. Not for Redistribution. | Brookeld.com
8 Real Assets The New Essential
The Sharpe Ratio Dened Real Assets in a Rising Interest Rate Environment
The Sharpe Ratio is a measure of return per unit of risk. The gure is Recent developments in global capital markets have led to the potential
calculated by subtracting a risk-free rate, such as the yield of the 10-year for rising long-term interest rates, which has brought to the forefront the
U.S. Treasury bond, from the rate of return achieved from an investment. question of Real Asset performance in a rising rate environment. While
This net return is then divided by the standard deviation of performance we claim no unique insight on monetary policy, our views on the matter
results. The resulting ratio indicates whether investment returns have have been shaped by our deep experience as an owner and operator of
sufficiently rewarded investors for the level of risk assumed. The higher these assets and as an active participant within global capital markets.
the Sharpe ratio, the greater the level of risk-adjusted performance.
We rmly believe that Real Assets are uniquely positioned to generate
attractive performance across various market cycles, due to their
HEDGE AGAINST INFLATION generally stable, long-term, contractual revenue streams combined with
considerable leverage to economic growth. During periods of higher
With inationary concerns on the rise, we believe Real Assets represent nominal interest rates (whether from higher real rates in a more positive
an attractive investment in long-lived, physical resources that tend to growth
grow
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t),
increase in value as land and input costs rise. Additionally, Real Asset we believe the increased revenues from these assets will more than offset
revenue streams often respond favorably to higher ination, as shorter any potential valuation decline from rising discount rates.
term contractual revenues (i.e., one-year apartment leases) benet
from frequent resets while longer term lease structures (i.e., 30-year In gaining an appreciation for the performance of Real Assets across
airport concessions) often include regularly scheduled rent escalations varying cycles, it is essential to understand the impact of interest rates
linked to ination. Importantly, end-user demand tends to be relatively and ination on each of the main value components of an investment.
inelastic and often insulated from ination, due to the essential nature
of the goods and services provided by Real Assets. Indeed, demand First, Real Asset revenue streams are positively impacted by interest rates and
often increases during inationary periods, particularly when rising ination in several ways. Infrastructure and power assets tend to operate
prices are spurred by economic growth and improving levels of under regulated and contractual revenue agreements that span several
employment and consumption. As a result of these various drivers, decades. These agreements often contain either direct, explicit ination-
Real Asset returns tend to exhibit greater correlations with ination linked revenue increases or revenue growth formulas that are derived
than traditional investment alternatives. from interest rates and/or ination. The revenue streams derived from
in-place commercial property leases also tend to perform favorably in
Exhibit 15: Correlation of Asset Class Returns with Ination higher
an inationaryy environment, as lease rolls lead to high g er revenues while
rising replacement costs lead to higher asset valuations.
Secondly, interest rates remain very low and xed interest rate loans
enhance equity returns as revenues increase. The economic effect of debt
revaluations accrues to owners and can create meaningful embedded
value. Long-term, xed rate debt with a low coupon is benecial in a
rising interest rate and inationary environment, due to the stable nature
of the debt service payments relative to higher revenues.
Thirdly, Real Asset expenses tend to grow more slowly than revenues. While
the revenue implications of rising interest rates and ination tend to be
positive, the impact of expense growth is often more subdued or passed
on to end users. Additionally, Real Assets tend to require low sustaining
capital expenditures, which helps to minimize overall expense growth.
This listed index is currently comprised of more than 125 asset- Exhibit 18: Typical Characteristics of Real Asset Investment Options
rich infrastructure companies, with a total market capitalization Private
of over $1.0 trillion1 and historical data dating back to December Publicly Fund
Private, Unlisted Listed Exchange- Traded Invested in
31, 2002. While we believe this index provides an effective Direct Asset Managed Unlisted Fund of Mutual Traded Equity Debt
Investment Account Funds Funds Funds Funds Securities Investments
representation of the infrastructure asset class, it does reect the Ease of
performance of publicly traded equity securities. The listed nature Invesment
STRONG LIMITED
1
As of June 30, 2013
For Clients Only. Not for Redistribution. | Brookeld.com
10 Real Assets The New Essential
Example A
Canadian National Pension Plan | C$183.5 billion | As of June 30, 2013
Asset Allocation in 20
2000
000 Asset Allocation in 2013
20
013
3
1
The examples included herein are based on Brookelds internal research of certain company annual reports and have been chosen and presented to illustrate the change
in asset allocations of certain investors. The examples presented herein are not intended in any way to be exhaustive of the investors investing or not investing in real
assets. An investment in real assets involves signicant risk, including loss of the full amount of the investment.
Brookeld.com | For Clients Only. Not for Redistribution.
Real Assets The New Essential 11
Example B
U.S. University Endowment | $32.7 billion | As of June 30, 2013
Asset Allocation in 1995 Asset Allocation in 2013
Example C
U.S. State Dened Benet Pension Plan | $117.5 billion | As of April 17, 2013
Asset Allocation in 2000 Asset Allocation in 2012
Example D
Australian Superannuation Fund | A$89.0 billion | As of June 30, 2013
We expect this trend to accelerate over the next decade, as investors of yield, stability, and growth, Real Assets offer the potential to protect
come to view Real Assets as an attractive alternative to traditional investment value on the downside while maintaining exposure to the
equity and xed income investments. The early movers proled in upside. Indeed, based upon our own 100-year history of owning and
Exhibit 21 have set the foundation for this important shift in asset mix operating these assets, we believe they combine the most appealing
and have demonstrated the potential for Real Asset allocations to attributes of traditional equity and xed income investments.
increase meaningfully over a relatively short period of time. Accordingly, we believe Real Assets provide a unique opportunity to
generate compelling risk-adjusted returns across market cycles.
CONCLUSION PART I
The current economic environment is presenting numerous challenges Investors across the globe are recognizing the attractive, long-term
for investors to navigate. At a time when liability requirements are benets of investment in Real Assets. As this trend continues to
increasing, the opportunity to invest for yield has been diminished accelerate, we expect institutional allocations to the asset class to
and the outlook for growth has been subdued. With rising interest grow materially over the next decade. We believe the foundation for
rates and the potential for higher ination on the horizon, investors are this shift has been established and the investible universe is poised to
looking beyond the traditional array of investment options in search of expand to meet this rising demand. As the "New Normal" gives way to
a more attractive alternative. the market cycles that lie ahead, we believe the stage has been set for
a new alternative to emerge and for Real Assets to become the New
Amid the constraints of the current environment, we believe Real Essential.
Assets can provide the path forward. With an attractive combination
Brookeld's Real Asset Expertise
Brookeld Asset Management is a global alternative asset manager with over $175 billion in assets under management. We have over a 100-year history
of owning and operating Real Assets, including property, infrastructure, timberlands and agrilands.
On behalf of our clients and shareholders, we own and manage one of the worlds largest portfolios of Real Assets. We offer a range of public and private
investment strategies that leverage our expertise and experience in markets across the globe. Given our deep history in the ownership and operation
of Real Assets and our belief in their future growth potential, we actively invest a very substantial amount of our own capital alongside our clients and
partners, ensuring a signicant alignment of interests. We are proud of our track record for success in achieving strong risk-adjusted returns across
market cycles.
Our focus is on high quality, long-lived, cash ow generating Real Assets that are well-positioned to appreciate in value over time.
AGRILANDS $1 billion 580,000 acres of agricultural land in Brazil, which includes sugarcane for ethanol,
soya and corn, pineapple and rubber and a premium cattle operation
1
As of June 30, 2013. Excludes Private Equity assets under management of $22 billion and Asset Management and Services, Cash and Financial Assets and Other Assets
of $5 billion.
2
On July 23, 2013, Brookeld sold 100% of Longview Timber for $2.65 billion. Longview Timber consists of approximately 645,000 acres of high quality timberlands in the
U.S. Pacic Northwest. Brookeld continues to invest in timberlands and believes this is an attractive asset class for institutional investors.
3
Total acres does not include management services provided on 1.3 million acres of Crown licensed timberlands in New Brunswick.
1
EPRA, Monthly Statistical Bulletin, June 2013
For Clients Only. Not for Redistribution. | Brookeld.com
14 Real Assets The New Essential
Hydroelectric power generation facilities are long-lived assets that The signicant growth forecasted for the renewable power asset
generate stable, sustainable cash ows and require minimal ongoing class is expected to be driven by efforts to ensure the sustainability
capital expenditures. Furthermore, these assets benet from scarcity of the global economy and environment. More specically,
value and high barriers to entry. As the requirements for permitting, several key trends are expected to lead to accelerating demand for
building and operating hydroelectric power plants have grown more renewable energy.
complex, these barriers have only increased.
Declining competition from coal and nuclear generation coal
Hydro power cash ow streams are generally derived from long-term, plants are increasingly facing legislative pressures to undertake
ination-linked power purchase agreements with durations of 15 years signicant environmental compliance expenditures, leading to
or longer. Additionally, power generating capacity tends to be highly an accelerating trend towards the retirement of coal generation
predictable over time, with historical water ow data for many river facilities. Additionally, following the recent Fukushima nuclear
systems typically ranging from 50 to 60 years. Importantly, these disaster in Japan, public concern over the safety of nuclear power
assets can also provide meaningful upside potential through the generation has delayed or halted new development activities in the
storage of excess water ow in reservoirs. This exibility allows for U.S. and has caused other nations to legislate the early retirement of
incremental power generation during periods of peak demand and existing nuclear capacity.
premium pricing.
Increasing global acceptance of climate change in recent years,
increasing concern over global warming has become a signicant
The technology and systems underlying hydro power assets have been
catalyst for environmental policy action around the world, including
utilized for over a century and are both well-proven and economically
new legislation mandating renewable power procurement targets
viable. Indeed, hydroelectricity is a cost-competitive source of
and implementation of feed-in-tariffs that offer cost-based
production, as there are no associated fuel costs or input commodity
compensation to renewable energy producers.
risks, while the source of energy is readily available and sustainable.
As the need to replace aging electricity systems or develop new Improving cost competitiveness of new technologies technological
sources of power continues to increase, particularly in a manner that developments over the last decade continue to reduce the costs
is both environmentally-friendly and cost-effective, renewable power of newer renewable power generation technologies such as wind,
is poised for meaningful growth. solar and geothermal, enhancing the competitiveness of renewable
resources and providing an attractive means to meet increasingly
Renewable power currently represents 26% of global electricity stringent environmental standards.
generating capacity and over 21% of actual generation. With a current
installed base of 1,300 gigawatts worldwide, the renewable power Government policies at least 64 countries, including all 27 European
industry is adding in the range of 100 gigawatts of new supply each Union member nations, have national targets for renewable energy
year, which corresponds to approximately $200 billion of annual supply. Additionally, 37 U.S. states and nine Canadian provinces
investment. As a result, industry projections indicate that renewable have established Renewable Portfolio Standards requiring electricity
energy, particularly hydro and wind power, will be the fastest growing distributors to obtain a minimum percentage of their power from
source of electricity generation over the next 30 years1. renewable energy resources by specied target dates and/or have
initiated policy goals that require utilities to offer long-term power
Exhibit 23: Growth in Electricity Generation by Energy Source purchase contracts for new renewable supply.
2010-2040
Forecasted Generation as a Percent of Actual 2010 Levels
ENERGY
The Energy subsector encompasses oil and gas pipelines,
processing plants, storage facilities and district energy systems.
Energy infrastructure assets are generally owned on a free-hold
basis, resulting in indenite cash ow streams. Many assets have
long-term (30 years or longer) contracts with energy exploration
and development companies, which source oil and natural gas,
and utility companies, which consume these resources. Similarly,
district energy systems provide heating and cooling to central
business districts under long-term contract arrangements. These
contractual commitments provide attractive cash ow stability.
TIMBERLANDS
The Benets of Investing in Timberlands
Timberlands provide essential products for the global economy on
a sustainable basis. Across the globe, timberlands produce the raw With an attractive combination of biological growth during periods of
materials utilized in a variety of industries, including lumber and economic strain and harvesting potential during periods of economic
plywood for use in construction, furniture and ooring and pulpwood prosperity, we believe timberlands represent a compelling investment
for use in the manufacture of paper, packaging and wood panels opportunity. Recent experience during the 2009-2010 market downturn
such as oriented strand board and particleboard and in bioenergy provides a valuable illustration of these characteristics.
generation. Importantly, while demand for these products tends
to be correlated to the economic growth cycle, timberlands also Over the course of several years, the combination of the global nancial
experience biological growth irrespective of market cycles. This crisis and the collapse of the U.S. housing market led to a signicant
biological growth can lead to capital appreciation during periods reduction in demand for lumber and wood products. Accordingly,
of slowing economic fundamentals, which may then be harvested timberland harvesting and production volumes were substantially
when the economy once again improves. reduced. However, this diminished production did not harm the underlying
value of the asset; rather, this period of time allowed timberlands to
The global investible universe of private timberlands is estimated continue to grow and become more valuable. As the global economy
at approximately $160 billion, with a majority of this opportunity began to recover and the U.S. housing market rebounded, demand for
located in the U.S. Of this amount, institutional investors currently the products and materials produced by timberlands returned, leading
own approximately $40 billion, with the remainder held by private to a re-acceleration of harvesting and production levels. Importantly, the
owners and/or publicly traded timber REITs ($32 billion) and biological growth that occurred during the economic downturn was able
corporations having integrated manufacturing and timberlands to be realized once the economy improved.
operations.
We believe this ability to generate value over time, smoothing out the
Exhibit 25: Estimated Value of Investible Global Private Timberlands effects of market cycles, is both meaningful and attractive. When
combined with a declining supply of available timberlands, we believe
the asset class epitomizes the benets of Real Asset investment.
AGRILANDS
Agricultural lands source the worlds food supply, producing
commodities that experience generally inelastic demand. The
global farmland universe consists of close to 1 billion harvested
hectares, of which approximately two-thirds are concentrated
in the top 15 countries. However, the investible portion of
this universe is more limited, due to restrictions on corporate
or institutional ownership in developed economies as well
Source: Bloomberg, Brookeld estimates; data as of June 30, 2011.
as insufficient infrastructure or scale limitations in emerging
markets.
TIMBERLANDS GROWTH OUTLOOK
The global timber supply and demand outlook is projected to be Exhibit 26: Top Net Exporters of Agricultural Products
very positive in the next decade onward due to several signicant
macroeconomic, geopolitical and industry-specic trends. Soy Corn Cotton Beef Sugar Wheat Rice
Brazil U.S. U.S. India Brazil U.S. India
Recovery of the U.S. housing market
U.S. Argentina India Australia Thailand Australia Vietnam
Asias increasing demand for wood and Chinas signicant wood
Argentina Ukraine Brazil Brazil Australia Russia Thailand
decit
Paraguay Brazil Australia U.S. India Canada Pakistan
Reduced economic wood supply from Canada due to a reduction
in public land Annual Allowable Cut
Source: USDA; data as of 2012.
Challenges facing the Russian forest industry, including a lack of
adequate infrastructure to access forested areas, a degradation
in forest quality due to selective harvesting, labor shortages and,
most importantly, signicant cost increases
Reduced supply of timber due to the Mountain Pine Beetle
epidemic in Western Canada and U.S. inland, which is affecting
select pine species
Increased demand for wood ber as an alternative energy source
Conservation efforts
Exhibit 27: Inventory and Price of Major Food Crops As Brazilian agriculture advances further and local infrastructure
improves, we expect the market to continue to offer attractive investment
opportunities.
1
Companhia Nacional de Abastecimento (CONAB)
2
U.S. Department of Agriculture
3
Empresa Brasileira de Pesquisa Agropecuria (EMBRAPA)
4
AGRA FNP
SUMMARY
As indicated by this introduction and overview, Real Assets represent
a diversied set of investment opportunities, with exposure to a
wide variety of geographies and underlying assets. However, these
opportunities are united by common characteristics of investment
Source: IMF and USDA; data as of 2011
and a shared ability to generate relatively attractive yield, stability and
growth. Accordingly, we believe these assets are collectively poised to
An Illustrative Example of the Agrilands Investment Opportunity benet as Real Assets gain recognition as the New Essential portfolio
The evolution of Brazilian agriculture over the last 30 years has provided investment.
an impressive example of realized and potential future growth. In the last
three decades, Brazil has been transformed from a food importer into
one of the world's great breadbaskets by increasing its productive land
area by 37%1 and raising agricultural production by 249%1. Today, Brazil
supplies approximately 40% of the world's soybean trade2 using just 9%
of the country's potential arable land3.
DEFINITIONS
The MSCI World Index is a free oat-adjusted market capitalization
The NCREIF Property Index is a quarterly time series composite total
weighted index that is designed to measure the equity market performance
rate of return measure of investment performance of a very large pool of
of developed markets.
individual commercial real estate properties acquired in the private market
for investment purposes only. All properties in the NPI have been acquired,
The Barclays Global Aggregate Bond Index is a market capitalization-
at least in part, on behalf of tax-exempt institutional investors - the great
weighted index, comprising globally traded investment grade bonds. The
majority being pension funds. As such, all properties are held in a duciary
index includes government securities, mortgage-backed securities, asset-
environment.
backed securities and corporate securities to simulate the universe of bonds
in the market. The maturities of the bonds in the index are more than one
The Dow Jones Brookeld Global Infrastructure Composite Index is
year.
calculated and maintained by S&P Dow Jones Indexes and comprises
infrastructure companies with at least 70% of its annual cash ows derived
The S&P 500 Total Return Index is the total return version of the S&P 500
from owning and operating infrastructure assets, including master limited
Index. Dividends are reinvested on a daily basis and the base date for the
partnerships. Any comparisons, assertions and conclusions regarding the
index is January 1, 1988. All regular cash dividends are assumed reinvested
performance of the Dow Jones Brookeld Global Infrastructure Composite
in the S&P 500 Index on the ex-date. Special cash dividends trigger a price
Index during the time period prior to its initial calculation on July 14, 2008
adjustment in the price return index.
is based on back-testing (i.e., calculations of how the index might have
performed during that time period if the index had existed). Back-tested
The Barclays U.S. Aggregate Bond Index is a market capitalization-weighted
performance information is hypothetical and based on index methodology
index, comprising investment grade bonds traded on U.S. exchanges. The
applied and calculated by S&P Dow Jones Indexes and is provided solely for
index includes government securities, mortgage-backed securities, asset-
information purposes.
backed securities and corporate securities to simulate the universe of bonds
in the market. The maturities of the bonds in the index are more than one
The NCREIF Timberland Index is a quarterly time series composite return
year.
measure of investment performance of a large pool of individual timber
properties acquired in the private market for investment purposes only.
The Preqin Infrastructure Quarterly Index is calculated on a quarterly basis
All properties in the Timberland Index have been acquired, at least in part,
using data from Preqin's Infrastructure Online product. The models use
on behalf of tax-exempt institutional investors - the great majority being
quarterly cash ow transactions and NAVs reported for over 130 individual
pension funds. As such, all properties are held in a duciary environment.
unlisted infrastructure partnerships.
The NCREIF Farmland Index is a quarterly time series composite return
Standard Deviation measures the degree to which an investments return
measure of investment performance of a large pool of individual agricultural
varies from its mean return.
properties acquired in the private market for investment purposes only.
All properties in the Farmland Index have been acquired, at least in part,
on behalf of tax-exempt institutional investors - the great majority being
pension funds. As such, all properties are held in a duciary environment.
DISCLOSURE
This document is condential and is intended solely for the information of The information in this publication may contain projections, estimates or
the persons to whom it has been delivered. It may not be reproduced or other forward-looking statements regarding future events, targets, forecasts
transmitted, in whole or in part, to third parties except as agreed in writing by or expectations regarding the asset classes described herein, and is only
Brookeld Asset Management Inc. (BAM and together with its affiliates, current as of the date indicated. There is no assurance that such events
Brookeld). The views and opinions expressed in this presentation are or targets will be achieved. The information in this document, including
the views of Brookeld generally and do not necessarily reect the views statements concerning nancial market trends, is based on current market
of every individual or entity within Brookeld. These views and opinions conditions and assumptions, which will uctuate and may be superseded
should not be construed as research, investment advice and/or trade by subsequent market events or for other reasons. Performance of all cited
recommendations. These views and opinions should not form the basis indexes is calculated on a total return basis with dividends reinvested. The
for any investment decisions. This document is not intended to, and does indexes do not include any expenses, fees or charges and are unmanaged
not, relate specically to any investment strategy or product that Brookeld and should not be considered investments.
offers. It is being provided only for informational purposes to provide a
framework to assist in the implementation of an investors own analysis and Investment concepts mentioned in this publication may be unsuitable for
an investors own views on the topics discussed herein. investors depending on their specic investment objectives and nancial
position. Where a referenced investment is denominated in a currency
The views expressed reect the current views of Brookeld as of the date other than the investors currency, changes in rates of exchange may
indicated and Brookeld does not undertake to advise you of any changes have an adverse effect on the value, price of or income derived from the
in the views expressed herein. In addition, the views expressed do not investment. Please note that changes in the rate of exchange of a currency
necessarily reect the opinions of any specic investment professional at may affect the value, price or income of an investment adversely.
Brookeld, and may not be reected in the strategies and products that
Brookeld offers. Brookeld does not assume any duty to, nor undertakes to update
forward-looking statements or any other information contained herein.
The information contained herein is only as current as of the date indicated, No representation or warranty, express or implied, is made or given
and may be superseded by subsequent market events or for other reasons. by or on behalf of Brookeld or any other person as to the accuracy and
Charts and graphs provided herein are for illustrative and informational completeness or fairness of the information contained in this publication
purposes only. Certain of the information contained herein is based on or and no responsibility or liability is accepted for any such information. By
derived from information produced by independent third party sources. accepting this document, the recipient acknowledges its understanding and
While Brookeld believes that such information is accurate as of the date it acceptance of the foregoing statement.
was produced and that the sources from which such information has been
obtained are reliable, Brookeld does not guarantee the accuracy, adequacy This document has not been approved by the United States Securities and
or completeness of such information, and such information, and the Exchange Commission or by any regulatory or supervisory authority of any
assumptions on which they are based, has not been independently veried. state or other jurisdiction, including Canada and the United Kingdom, nor
has any such authority or commission passed on the accuracy or adequacy
There can be no assurance that an investment in Real Assets will be of this document. The information contained herein is subject to correction,
successful. Historic market trends are not reliable indicators of actual future completion, verication and amendment. Any representation to the contrary
market behavior or future performance of any particular investment which is unlawful.
may differ materially, and should not be relied upon as such. This publication
2013. Brookeld Asset Management Inc.
is not, and should not be viewed as, a current or past recommendation or a
solicitation of an offer to buy or sell any securities or to adopt any investment
strategy. Investments in alternative assets, including real assets, involve
signicant risks, including loss of the entire investment. Nothing contained
herein constitutes investment, legal, tax or other advice nor is it to be relied
on in making an investment or other decision.