Earnings Call Transcript - BN Q2 2022

Suzanne Fleming, Managing Partner

Thank you, operator, and good morning. Welcome to Brookfield's Second Quarter 2022 Conference Call. On the call today are Bruce Flatt, our Chief Executive Officer; and Nick Goodman, our Chief Financial Officer as well as Sachin Shah, CEO of our Insurance Solutions business. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results and finally, Sachin will give an update on our Insurance Solutions business. After our formal remarks, we'll turn the call over to the operator and take analyst questions. In order to accommodate those who want to ask questions, we ask that you refrain from asking more than two questions at one time. If you have additional questions, please rejoin the queue, and we’ll be happy to take any additional questions at the end, if time permits. I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. These statements reflect predictions of future events and trends and do not relate to historic events. They're subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. And with that, I'll turn the call over to Bruce.

Bruce Flatt, CEO

Thank you, Suzanne, and welcome everyone on the call. We had a very strong second quarter, reporting $1.5 billion of net income and $1.2 billion of distributable earnings for common shareholders, as well as record capital inflows. Earnings were underpinned by the essential and resilient nature of our underlying operations. The stability, diversity, and scale of our business show in markets like these. There was a significant amount of market volatility during the quarter, but even with the rate hikes we have seen, rates remain historically low, and we expect them to settle in a historically low range in the fullness of time. We remained well-positioned to take advantage of potential opportunities with a record level of investable capital of $111 billion. The investing opportunities for businesses like ours continue to strengthen. Our fundraising efforts remained strong with record inflows of $56 billion since the end of last quarter. Our flagship fundraising continues to progress well with institutions attracted to the type of assets we own. We are now planning for the next round of flagship fundraising. We also continue to raise and deploy capital across our perpetual strategies. Our non-traded REIT is now in 10 platforms and is well-positioned for investing. Nick will go into more detail on fundraising later. Our Insurance Solutions business closed on the acquisition of American National this quarter, adding $30 billion of assets to the business. This accelerates the growth of our Insurance Solutions business, and Sachin Shah, CEO of our insurance business, is here today to talk to you about that business. As a reminder, we own one of the largest portfolios of inflation-protected assets in the world. Our underlying businesses are essential in nature, and therefore continue to generate stable and growing cash flows throughout cycles. These assets are highly cash-generative with high margins and are largely inflation-protected, hence are very attractive to buyers through market cycles. We sold $21 billion of assets at premium valuations during the quarter. While not the reason we did this, it underlines the attractiveness of the type of assets we own. Half of these sales were in our real estate business, as an example. These assets generated exceptional returns and further added to our investable liquidity available to be deployed into new opportunities. As an update on the distribution listing of 25% of our asset management business, we are progressing well towards completing the distribution by the end of the year. As part of this and using this split as an opportunity to look to the future, our senior most team are focused on how we continue to move along our next generation of leaders. As you know, most of our senior partners remain at Brookfield to assist with business relationships and clients, but we believe in advancing younger executives as fast as we can. The Company today known as Brookfield Asset Management will be renamed Brookfield Corporation post the split. This is the Company that you currently own shares in, and it will retain most of the proprietary capital owned by Brookfield, as well as continue to own 75% of the Manager. I will remain CEO and Nick Goodman will be appointed President and CFO. His focus in the future will be on capital allocation among our operating businesses and new business initiatives. Brookfield Reinsurance will remain as a paired security to Brookfield Corporation, as it is today and holds our insurance business. Sachin Shah will remain CEO of the business, and we expect this business to become a significant operating business for Brookfield Corporation and Brookfield Reinsurance. We are excited at what has already been done and for the growth to come. Sachin will expand on that in a moment. Our Manager spinoff will be named Brookfield Asset Management Limited and will be the new entity for all of our asset management activities. You, as a shareholder, will receive new shares of this entity on the split. We refer to this entity in our materials as 'the Manager.' With respect to the management and the board of the Manager, Mark Carney will be appointed Chair of the Manager in addition to his other responsibilities at Brookfield. I will remain CEO of the business. Connor Teske will be appointed President of the Manager in addition to his responsibilities as CEO of our Renewable Power and Transition business, which for now will take up most of his time. Bahir Manios will be appointed CFO of the Manager, and Anuj Ranjan will be appointed President of the Private Equity Group in addition to his overall business development responsibilities in the Manager. Brian Kingston, Cyrus Madon, and Sam Pollock, who many of you know, will remain CEOs of their respective businesses and each will become directors of the Manager with Mark, myself, and seven independent directors. Oaktree will continue to be run by Howard Marks and Bruce Karsh. We are all excited for the future and believe these changes set us up to deliver continued long-term success for our clients and our shareholders. I will end these comments for this portion by saying that we believe succession is best when effected as an evolution. And we are thrilled at advancing our efforts in this regard. I will now pass it over to Nick to go over the financial results of the business, before I do that, thank you for your continued support and interest in Brookfield. We look forward to seeing many of you at our Investor Day, which is on September 12th in New York. Additional details on this are available on our website. Over to you, Nick.

Nick Goodman, CFO

Thank you, Bruce, and good morning, everyone. We delivered strong financial results during the second quarter supported by our resilient portfolio of inflation-protected assets and record levels of fundraising. Distributable earnings or DE were $1.2 billion for the quarter and $4.9 billion over the last 12 months, DE before realizations, a measure of our recurring annuity-like cash flows were at $1 billion for the quarter and $3.9 billion over the last 12 months as an increase of 26% compared to last year. FFO and net income totaled $1.4 billion and $1.5 billion, respectively for the quarter. Since we last reported, our asset management business had record inflows of $56 billion, of which $41 billion was raised in the quarter and $15 billion after quarter-end. We held a final close for our inaugural transition fund, raising $15 billion in total, and are finalizing the first closes of our sixth private equity fund and our fifth infrastructure fund for approximately $8 billion and $20 billion, respectively. We have raised $14.5 billion for our flagship real estate fund and expect to have the final close this fall. Our $16 billion flagship opportunistic credit fund is moving to 80% invested or committed, and we expect to start fundraising for the next vintage later this year. We ended the quarter with $392 billion of fee-bearing capital, that's not including the $15 billion raised after quarter end, which was up 21% compared to the prior year. Fee-related earnings were $525 million in the quarter and $2 billion over the last 12 months, representing increases of 30% and 22% from the prior periods, excluding the benefit of performance fees earned in the prior year. The higher fee-related earnings were a direct result of the aforementioned strong fundraising as well as capital deployment on existing fund strategies. In addition to the current fee-bearing capital, we have $36 billion of additional committed capital that when invested will translate to approximately $360 million of incremental annual fee revenues. This, plus the additional capital raised across our latest flagship series, will be a continued tailwind for growth in earnings. On the capital deployment front, we had an active quarter, committing and/or investing $36 billion of capital. This includes the $5.1 billion deployed to acquire American National and further expand our reinsurance business, $8.5 billion to acquire a car dealership software business, and $3 billion of real estate at a significant discount to intrinsic value. Following the quarter, we also announced a partnership to buy a majority interest in Deutsche Telekom's power business in Germany for €17.5 billion. Moving on to investment performance and monetization activity. Despite the market volatility during the second quarter, our capital recycling activities across our mature derisked investments continued to remain strong. Since the end of the first quarter, we monetized $21 billion of assets and recognized $5 billion of gains, including $10 billion of asset sales within our real estate business. Notable sales during the quarter included our UK student housing business for $4.3 billion and our ports business in Los Angeles for $1 billion. As we look forward, we have a number of sales processes underway, and our monetization pipeline remains very strong. Our investments continue to perform well, resulting in strong valuation uplifts. This is in contrast to many businesses today. We generated $553 million of carried interest during the quarter, increasing the total accumulated unrealized carried interest by 7% to $8.6 billion net of what has been realized into income. Lastly, our principal investments continue to be a steady and growing contributor to our earnings. During the quarter, our infrastructure portfolio’s organic growth remained robust at 10%, reflecting the benefit of inflation indexation and the returns on recently commissioned capital projects. In the real estate portfolio, we had very strong demand for hospitality assets and robust leasing activity across our core office and retail assets. Our renewable power assets performed well as a result of strong asset availability, higher power prices, and continued growth both through development and acquisitions. Our private equity portfolio benefited from strong operating performance and contributions from recently acquired assets. Operating FFO was $1.2 billion for the quarter, a 42% increase compared to the prior year period. The increase was largely as a result of the aforementioned strength across our principal investments and the continued growth of our asset management franchise. Total FFO was $1.4 billion for the quarter. Distributions from our investments were $612 million, 29% higher than the prior year. The increase was driven by distribution growth at BIP and BEP, and the increased ownership of our real estate business. Our liquidity remains very strong and provides us with significant financial flexibility to deploy capital opportunistically, seed new products, and return capital to shareholders. We continued the pace of our share buyback program, deploying $237 million of capital to share repurchases in the second quarter. Over the last 12 months, share buybacks totaled approximately $500 million. When combined with our regular dividends, we have returned over $1.3 billion of capital to our shareholders. We ended the quarter with $111 billion of capital to deploy into new investments, which includes $74 billion of uncalled fund commitments and approximately $37 billion of core liquidity. Growth in our Insurance Solutions business has added $23 billion of short-term cash and liquidity on liquid investments. Before turning the call over to Sachin, I am pleased to confirm that our Board of Directors has declared a quarterly dividend of $0.14 a share payable at the end of August. Sachin?

Sachin Shah, CEO of Insurance Solutions

Thank you, Nick, and good morning, everyone. I'm pleased to be here today to provide an update on our Insurance Solutions platform. Over the course of 2020, we saw unprecedented economic shutdowns and stimulus programs across much of the world. Rates in the Western world already at very low levels were reduced to almost zero. It was amid this backdrop that we decided to pursue the build-out of an Insurance Solutions business for Brookfield. This would combine our investment capabilities with our access to capital and prudent risk management to help insurance companies in the U.S., Canada, and Europe manage capital efficiency, invest for higher yields, and transfer risk. In conjunction with this effort, we spun out Brookfield Reinsurance, acquired American National, a domestic U.S. insurer with operations that cover life, annuities, and P&C, and completed a strategic partnership with American Equity Life, while also entering into a number of reinsurance transactions along the way. In all, we deployed $4 billion of equity capital, while establishing ourselves as a key long-term partner to frontline insurers. These efforts have resulted in us now managing over $40 billion of insurance assets, coupled with long-duration, low-rate, annuity-based reserves. As major economies opened up over the last few years, we maintained our patient approach to capital allocation, purposely keeping our portfolio in a short-duration and highly liquid position, maintaining approximately $25 billion of assets in the form of cash and liquid securities with the balance invested in accretive Brookfield and Oaktree funds or into direct private credit opportunities. Accordingly, we are now in an excellent position to invest capital for value and drive outsized returns. Today, with a high degree of cash and liquid securities on our balance sheet, our business earns in excess of $400 million of distributable earnings on an annualized basis, of which approximately $50 million is in the form of investment management fees. Looking ahead, we are prioritizing the following. First, we are now investing our cash and liquid assets into excellent opportunities that are accretive to our franchise. We have seen spreads widen and liquidity tighten in the leveraged loan market. We are seeing term premium come back across the capital stack in both new public issuances and the secondary market. We continue to see numerous private credit opportunities at much better returns than just eight months ago. In this environment, we are leveraging the strengths of the Brookfield franchise to acquire credit across real estate, infrastructure, and private equity. Given our 2,000 investment professionals around the world, and the coverage of companies and assets our teams provide, we have unique insight into the risk profile of credit opportunities in the market today. As we deploy our excess capital into this market, we expect distributable earnings to increase to over $800 million annually. Second, we believe the rate environment is still very low and highly constructive. Accordingly, we are focused on growing our annuity writing capabilities. Part of the attraction to the American National acquisition was their history of writing circa $2 billion of annuities annually. The combination of our investment franchise and our commitment to build out American National means we see a credible path to growing annuity capabilities to $5 billion to $7 billion annually in the medium term, assuming this rate environment persists. We also continue to support our partner, American Equity Life, through our existing flow arrangements, where we recently increased the scope of the products we support. This should add another $5 billion of assets to our portfolio in the near term. In addition to annuity writing, the American National platform gives us a domestic U.S. presence across all 50 states to continue our reinsurance program. Accordingly, we can now partner domestically with U.S. insurers across life, annuities, and P&C products all supported by a 4,500-person team with deep claims and administration capabilities. Third, we continue to scale our Canadian pension risk transfer or PRT business. We have built this business over the last six years, growing to more than $3 billion in insurance assets. This is a $1 trillion market with circa $5 billion of PRT annuities coming to the market each year. In the last two years, we have been successful in closing more than $1 billion in PRT annuities each year, placing us as the top one or two in market share in this rate environment. This year's activity included closing on the single largest PRT transaction ever completed in the Canadian market for approximately $1 billion. We expect to further grow our PRT efforts through expanding into the U.S. and European markets. These are both well-established markets that offer significant scale, where we can leverage our corporate relationships and the broader Brookfield global presence. Growth in these markets will allow us to more than double annual PRT sales in the coming years. Lastly, we continue to pursue new M&A and reinsurance opportunities with domestic insurers in the U.S. and Europe across life annuities and P&C. We are seeing continued opportunities to acquire small tuck-in annuity and P&C platforms in the U.S. We are making inroads in Europe to provide both reinsurance and potentially acquire direct platforms. Although the market has slowed down recently, we remain an attractive partner for management teams looking for a well-capitalized partner with strong investment capabilities across the insurance spectrum. In conclusion, we believe the market to increase scale in this business is highly constructive and we remain focused on compounding our capital at mid- to high-teen returns while keeping our risk profile low. With that, I will pass the call back to the operator for any questions. Thank you.

Operator, Operator

Thank you. Our first question comes from the line of Rob Lee with KBW. Your line is now open.

Rob Lee, Analyst

Good morning. Thank you for taking my questions. I have two inquiries. First, with your strong fundraising, could you provide insight into how your LP base is evolving? Specifically, what percentage consists of re-ups versus new LPs? The second part is about your anticipated participation in the funds. Should we expect your involvement, which was 25% of the last infrastructure fund, to decrease to accommodate new LPs, and how should we consider that in your flagship plan?

Bruce Flatt, CEO

It's Bruce, and I want to emphasize that each fund is unique. We manage numerous funds throughout the business. Generally speaking, the early stages of our fundraising typically consist of re-ups, while the later stages involve new clients, and we see a combination of both today. I don’t believe today is any different from previous experiences. Regarding the amounts we invest from our balance sheets, as these funds grow larger, there is a limit to how much capital we can commit at any one time. We need to be mindful of that. It’s about finding a balance between having sufficient capital and making a substantial commitment from our balance sheets to these funds. Regardless, we are still investing significant amounts, even if we decrease from 25 to 20 or 15. These are still substantial sums of money.

Operator, Operator

Thank you. Our next question comes from the line of Ken Worthington with JP Morgan. Your line is now open.

Ken Worthington, Analyst

As you think about Brookfield Corporation, after the spinoff of Brookfield Asset Management Limited, you're left with basically a private real estate portfolio, and as your strategy plays out, ownership of a number of publicly traded Brookfield affiliated companies. Can you talk about how Brookfield Corporation might invest its cash going forward and how the focus of your investing in the future might be different than it's been in the past, given the asset management spin? So, as I think about it with a public currency for Brookfield Asset Management Limited, I think we all expect it will trade at a premium valuation. I assume that the asset management business will sort of support its own investment. And since you're selling down BPG, these two suggest that your capital deployment may change going forward. So, again, the question is, how does the investment of Brookfield Corporation look over the next five years? And what are you going to be doing with all this cash that you're pulling in?

Bruce Flatt, CEO

I'll start off and then maybe Nick can add something if he feels there’s more to say. We’re excited about the separation of businesses because we’ll hold several key positions in Brookfield Corporation. One important aspect is our significant investment in the insurance sector since it’s a paired security. This will contribute positively to our efforts. In the future, our investments will come from our investment management business, which will either support our funds, involve co-investments, or potentially allow us to add businesses to the corporation that we wouldn’t have been able to otherwise. We’ll have to monitor how that develops. If we generate excess cash flow, we’ll either continue to buy back shares or distribute it to the owners of Brookfield Corporation. Essentially, the main responsibility of the corporation is to efficiently allocate our cash and excess resources into the businesses or return them to shareholders, and that’s our plan moving forward.

Ken Worthington, Analyst

Maybe as a follow-up, you mentioned dividends and buybacks. Is that just obviously a bigger part of capital management going forward? Is it obvious that like insurance becomes the logical place for investment, at least over the next couple of years? And maybe since you have so much cash, instead of selling down BIP and BEP and BPU opportunistically as you've done in the past, might you do more maybe increasing ownership opportunistically in those areas? Like, I guess, those are the ideas that I had.

Nick Goodman, CFO

Ken, it's Nick here, just following up for Bruce. I think our job will be to invest the capital strategically and where we believe we continue to compound value over the long term. We used our capital over the last 10, 15 years to support our businesses and grow and incubate a large manager. We're doing the same with our capital now at great returns with a reinsurance business. There may be some things, as Bruce said, in the future where we use our capital to incubate and grow and invest in the next business for the franchise, but it's going to be our job to take the excess capital and allocate it where we believe we can compound value over the long-term.

Bruce Flatt, CEO

The only other thing I'd add is the way you should think about the corporation is that we're the largest co-investor beside the funds that we have. And when we do acquisitions in infrastructure, renewable, private equity, or real estate, and the scale is needed, we go to our five or seven larger clients and try to bring them in to help us do larger transactions. The corporation is going to have significant capital to be able to support that and wants to put its money to work. So, that will be another thing that we'll be doing with the capital in the business.

Operator, Operator

Our next question comes from the line of Geoff Kwan with RBC Capital Markets.

Geoff Kwan, Analyst

I just have one question. There's been commentary within the industry about some private equity and alternatives managers just running into relatively greater fundraising challenges than before, whether or not it's just getting commitments or that LPs are fully committed for this year and cannot commit to new funds until next year. It doesn't seem like that's an issue for BAM. But I'm just wondering your thoughts on whether LPs may be consolidating, which managers they're investing with, whether it may be an asset allocation issue either within alternative strategies or alternatives versus other asset classes or whether or not there may be other factors at play?

Bruce Flatt, CEO

Yes. Tougher times usually lead to consolidation in every business, and the alternative business is no exception. During challenging periods, organizations tend to reduce their relationships, and typically, larger, more diverse, and well-established managers attract capital while others may not. Fortunately, we find ourselves on the positive side of this trend, which continues to expand. I want to emphasize that our businesses are generating cash flow, are highly diverse, scalable, and of high quality. Because of these attributes, they are the kinds of investments people are currently seeking. Two years ago, we were not the preferred option, but now there is renewed interest in these types of businesses. I believe many of the managers you may have heard about are engaging in acquisitions that differ from our focus. That’s perhaps the most relevant point I can make regarding your question.

Operator, Operator

Thank you. Our next question comes from the line of Alexander Blostein with Goldman Sachs. Your line is now open.

Alexander Blostein, Analyst

Thank you. Good morning. Thanks for taking the question. So, I have a quick follow-up to Ken's question, actually, along similar lines, but from an asset manager's perspective. I believe, at the time of the announcement, you guys talked about the asset manager paying out 90-plus percent of distributive earnings and generally having a pretty light balance sheet. So, should we continue to think that as the asset manager grows, the corporation will fund all of the GP commitments to the asset manager as they kind of grow the business and perhaps expand into new products, as well as M&A? So, if they’re a deal that you’d like to do on the pure asset management side of things, would the funding for that come from the corporation and kind of how would that work against the public ownership of 25 percent?

Nick Goodman, CFO

Hi Alex. It's Nick. So, I think on the first part, the short answer is yes. You should continue to expect the fundraising to come from our invested capital side of the balance sheet, which is going to be from BAM or through the listed issuers, but no change to that. And as Bruce said, also bringing the balance sheet there to support, co-invest or strategic growth. As it relates to growth within the manager, there would be capital available, but the intention would also be that the manager assuming trades well would have a currency in its stock to use towards consideration for growth. So, it's not just necessarily the cash. But yes, the corporation would be there to support the growth of the business.

Alexander Blostein, Analyst

Great, thanks. And then, my follow-up maybe around insurance. Apologies for a two-parter here. But I guess, as we think about the $40 million of investment management fees that the asset manager is currently earning rather from the ownership structure. Can you talk a little bit about how you expect that to evolve? Obviously, the underlying base at the insurance company will grow and the IMA will sort of grow with it. But as you think about the ultimate size of how much you could sub-advise across different products, the fee rates on that, and kind of how that infrastructure will evolve in timeframe in which it will develop. And then, from a structure perspective, any updated thoughts on sort of putting third-party capital alongside the insurance ownership because right now obviously BAM owns the one hundred percent on its balance sheet? Thanks.

Sachin Shah, CEO of Insurance Solutions

Sure. It's Sachin here. First, on fees, we have $40 billion of insurance assets, and I think we're at the stage where we're generating about $50 million in aggregate fees by deploying into our various funds. Based on the pace of activity we’ve had in the last year and a half to two years, we feel pretty good that path towards $200 billion to $300 billion of insurance assets over the next three to five years is achievable. Obviously, if the current market persists, we think it's very achievable. You can then take the current fees today and extrapolate where they could grow in light of the fact that you could take a third of that portfolio of general account assets and put them back into high-quality credit products that are originated by Brookfield and Oaktree. So, if you're looking to put a little bit of math around it and do some modeling, I would look at it as a third goes into that on $200 billion, and you can build up your analysis of how long it would take us to get there. On LPs and would we bring third-party capital into the business? Look, it's not out of the question. We would consider it. Today, we've decided to build this out. Like many of the business that Brookfield historically, we've incubated this. It's going well, and it's early days. We want to take advantage of the current environment to drive value. We'll always keep an open mind, if clients express an interest in being a part of this business. A number of our competitors do bring clients into this strategy. Therefore, it's not a novel idea, and we would be absolutely open-minded to it.

Alexander Blostein, Analyst

Great. Thanks so much.

Operator, Operator

Thank you. Our next question comes from the line of Andrew Kuske with Credit Suisse. Your line is now open.

Andrew Kuske, Analyst

Thank you. Good morning. I guess, the question that originates from page 19 of the supplemental. And I guess if I think about the capital you've invested that's longer than three years in duration, $41 billion-ish, under three years at $76 billion. And we just look at the fundraising you just announced, it seems like the velocity of the capital that you're raising and deploying is accelerating. So, if you could maybe just give us context on the tipping point that you see on returns amplifying, carrying generation being greater, and then just overall FRE?

Nick Goodman, CFO

Hi Andrew. It's Nick. I believe the outlook and our current achievements in fundraising indicate that this year is crucial for the next stage of growth in FRE, and that is indeed happening. This year is significant for attracting excess fee-bearing capital, and you're observing strong performance from several of our complementary strategies, which, as Bruce mentioned, are proving to be very appealing in this environment due to our investment focus. I anticipate continued growth this year as those complementary strategies persist in fundraising while we navigate through flagship cycles. Regarding carried interest, the more fee-bearing capital we have, the more carry eligible capital will increase, and this is progressing according to our plan. Our funds are generating excellent returns, generally exceeding their targets. We are noticing an uptick in monetization activity. Last year was successful for carried interest realizations from our early vintage funds, and we expect to see similar results again this year from those funds. We're beginning to divest assets from the second and third vintages. As we advance in returning capital and achieving preferred returns, carried interest realization will continue to rise over the next few years. This is a natural evolution of the business. As fee-bearing capital increases and fundraising performs well, the entire business will experience significant growth.

Andrew Kuske, Analyst

I appreciate the insights shared. Considering the context of pricing and value, which has been a consistent topic among many of you, how do you view the current ability to deploy the capital you've raised, including client capital, in the market at attractive levels in specific areas? With the increasing scale of the funds, are you experiencing reduced competition for certain assets, and does this contribute to better returns?

Bruce Flatt, CEO

I'll address the second question first. The scale of our business allows us to stand out in the transactions we undertake because there are few competitors with the capital to challenge us. As a result, we continue to position our franchise with large transactions as a key characteristic of our operations. While we are not the only player in the field, there are not many others. Ultimately, this situation is very beneficial for our business.

Andrew Kuske, Analyst

Thank you very much.

Operator, Operator

Thank you. Our next question comes from the line of Brian Bedell with Deutsche Bank. Your line is now open.

Brian Bedell, Analyst

Great. Thanks, good morning. Thanks for taking my question. Maybe just on the infrastructure and energy transition. Bruce, I appreciated the comments you had in the shareholder letter talking a little bit more deeply about energy transition and the rewiring of European energy in terms of the scaling the vast need for global infrastructure investment and scaling that. Can you talk a little bit about, as we think about these platforms developing for you in the future on the renewable and transition side, as well as the infrastructure side, whether these themes fit into both of those strategies? As you think about obviously the vast amount of investment opportunities there are for these funds, do you foresee the LP demand following that potentially create different adjacencies of these funds that may have some different return profiles? I know you're targeting still like the low to mid-teens for extending the investments and then maybe targeting lower returns, such as in core strategies, for example?

Bruce Flatt, CEO

Yes. Nick can discuss some of the perpetual funds shortly. I want to mention the global trends in infrastructure, including renewables and transition, which I consider part of a larger category. There is a significant amount of capital needed worldwide, and governments cannot provide it. The positive aspect is that institutions can. To directly address the question, the returns are favorable, the risks are manageable, and this availability of capital supports many institutional funds globally. There are trillions of dollars in funds that need to be deployed. There is a considerable demand for investment in infrastructure, as highlighted in our letter, including the internet and mobile development, the energy transition, critical infrastructure reshoring, and energy initiatives in Europe. These represent substantial business opportunities, and we aim to direct capital across all areas for our clients.

Nick Goodman, CFO

Brian, I would just add, I guess, the success of the fundraising that we had for the transition fund and the first close that we're in the process of executing for the infrastructure fund shows the client demand, and the position that we have in this space with our expertise, knowledge, operating presence, and ability to put capital to work in good returns. All of that leaves us very well positioned. On the perpetual strategies, we look at our infrastructure perpetual strategy, which we started maybe a couple of years ago. It's already in excess of $7 billion now of that recurring perpetual fee-bearing capital and demand is still proving to be very strong. Fundraising is very strong since the last quarter. We raised about another $1 billion. There's probably about another $1 billion in the queue, and fundraising is going very well. So, that strategy is resonating really well with investors. Again, the one exposure to inflation protected recurring cash flow assets, and we are very well positioned to be able to deliver that product to clients with our presence. We can replicate that, to your point, broaden our infrastructure transition, and we're seeing similar demand for infrastructure debt strategy as well. This is an enormous growth area, and we're very well positioned in this space.

Operator, Operator

Thank you. Our next question is a follow-up from Rob Lee with KBW.

Rob Lee, Analyst

I’m curious about your strong monetization pipeline. You seem more optimistic in the near term compared to some of your peers. Given your different business mix, which is less PE-centric, could you elaborate on why you feel more optimistic than others and what you're observing regarding monetization potential? That would be my first question.

Bruce Flatt, CEO

I can't provide too many details about the competition since I'm not familiar with their portfolios. However, I believe there are two main factors that differentiate us. First, we operate globally in numerous countries, and these countries are not all influenced by the same federal reserve policies. Many managers tend to focus primarily on the U.S. market, while our business has a more global perspective, which sets us apart to some extent. For instance, a significant portion of what we sold in the first quarter was outside the United States. Second, our business model is notably diverse and characterized by cash-flowing enterprises. In our private equity sector, we focus on service and industrial businesses rather than high-tech companies. It's not a matter of being better or worse; it's simply a different approach. Currently, we find ourselves in a favorable position compared to others that were doing well about two years ago.

Rob Lee, Analyst

Thank you. I appreciate it. As a quick follow-up, it's evident that you're experiencing success with your latest real estate fund. Your commitments seem to be nearing those of the previous fund, if I recall correctly. Have you noticed any shifts in limited partner interest since you began promoting the fund until now? With the recent market downturn, is there increased interest from limited partners? Should we anticipate that the final closing could be particularly significant? This context is relevant considering that Blackstone raised their most recent fund quite successfully and swiftly. Has anything changed in the investment environment over the past couple of months that might lead to a larger than expected final close?

Bruce Flatt, CEO

I would say that investment strategies in infrastructure and renewables, which are highly sensitive to inflation and generate strong cash flow, are currently the most appealing for investors. Real estate falls somewhere in between; it also provides strong cash flow and is sensitive to inflation, but there is some uncertainty regarding certain asset classes. This creates excellent acquisition opportunities, though cautious feelings persist. Private equity, when considered as a whole, seems to be facing the most challenges in fundraising, based on what I've heard. Overall, I would describe the current landscape this way, with real estate positioned in the middle, but for us, I don’t think there has been any significant change recently; it remains consistent with previous trends.

Operator, Operator

Thank you. Our next question comes from the line of Alexander Blostein with Goldman Sachs. Your line is now open.

Alexander Blostein, Analyst

Awesome. Thanks. Thanks for the follow-up. I wanted to circle back to the transition fund specifically. You guys raised considerable amounts of capital fairly quickly. With the Climate Bill passing here or likely to pass, as you think about the opportunities for deployment that that creates to an extent, it accelerates anything for the transition franchise for you guys? And as you think about just bigger picture, how this platform could evolve over the next couple of years, as seen, how there's likely to be more incentives and more government spending in this area?

Nick Goodman, CFO

Alex. Hi. It's Nick. Listen, it's all around the edges positive for what we're looking to achieve. As you know, there are two objectives to our transition fund. The incentives are available for the build-out of renewable energy. That is one of our focus areas. We’ve been delivering in that area for a long period of time. This might create even more opportunity, but even today, we're seeing lots of opportunities to deploy capital into this space. Obviously, there is a broader investment set around just the transition of broader business. But I think all of it is net positive to the franchise. Yes, it definitely is a tailwind for scaling up even further that opportunity set.

Alexander Blostein, Analyst

Okay. Fair enough. Thanks.

Operator, Operator

Thank you. Ladies and gentlemen, thank you for participating in today's question-and-answer session. I would now like to turn the call back over to Ms. Suzanne Fleming for any closing remarks.

Suzanne Fleming, Managing Partner

Thank you, operator. Thank you for joining us, and we look forward to seeing you at Investor Day in September.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.