Real Talk with Craig Noble of Brookfield

Oct 27 2017 | 9:33am ET

This morning, we sit down with Craig Noble, a Senior Managing Partner at Brookfield, and Chief Executive Officer and Chief Investment Officer of Brookfield’s Public Securities Group.
 
Noble is also Portfolio Manager of the infrastructure securities team and oversees portfolio management and business development across all real asset strategies. 
 
In 2004, Noble joined Brookfield in Capital Markets, and since then has held many roles, including helping to launch the Public Securities Group's listed infrastructure business. He was named CEO of the Public Securities Group in 2013. Before Brookfield, Mr. Noble worked in the corporate lending group at Bank of Montreal.
 
In our conversation, we discuss Noble’s outlook for brick-and-mortar retailers, the factors that his team explores when evaluating assets, and why he likes Renewable Power infrastructure, and much more.
 
Let’s jump into it.
 
 
FIN: First, a little background. Tell us about Brookfield Asset Management’s Public Securities Group and how it fits into the broader Brookfield platform.
 
Craig Noble (CN): The Public Securities Group, which is part of Brookfield Asset Management, has been investing in listed real assets for more than 30 years. Today, we manage nearly $16 billion of assets spread across a global universe of real estate equities, infrastructure equities, multi-strategy real asset solutions and real asset debt. 
 
All of our strategies take a high-conviction, value-oriented approach to managing concentrated portfolios of securities, which can be accessed through separate accounts, registered funds, and opportunistic investment vehicles.
 
We serve a global base of clients including financial institutions, public and private pension plans, insurance companies, foundations and endowments, sovereign wealth funds and individual investors. 
 
 
FIN: Tell us about the acquisitions recently announced and how you see these businesses benefitting Brookfield in the future.
 
CN: We are excited about the acquisition of Center Coast Capital Advisors (CCC), along with certain assets of Liberty Street Advisors and its affiliate HRC Portfolio Solutions (HRC). In brief, CCC is an industry-leading, Houston-based investment adviser focused on energy infrastructure. 
 
We consider the combination of CCC's resources with our own to be a complementary fit, based on our shared investment philosophies and owner-operator mentality. Through Liberty Street and HRC, we gain an experienced and well-heeled sales organization, which serves financial advisors and wealth managers at major wirehouses, independently registered investment advisers and independent broker-dealers. This team will form the foundation of our new wealth management distribution platform.
 
 
FIN: What will Center Coast Capital, Liberty Street, and HRC bring to Brookfield, and how do these businesses diversify the Public Securities Group?
 
CN: Center Coast Capital brings a talented team of investment professionals, which will add depth and breadth to our investment and research capabilities while diversifying our core lineup of offerings at what we believe to be an attractive point in the investment cycle.
 
The new team members joining Brookfield from Liberty Street and HRC will meaningfully broaden our national distribution capabilities in wealth management platforms. We are confident that they will serve our clients well for many years to come, by maintaining the quality and continuity of relationships they established at Center Coast Capital.  
 
FIN: What is your current outlook for the energy infrastructure markets right now? Do you prefer any segment over another?
 
CN: We continue to see attractive opportunities in energy infrastructure. North American oil and natural gas volumes are growing as production and development costs have shifted materially lower.
 
Producers rely on energy infrastructure to transport increased production, and pipeline economics are generally tied to fixed fees per volume transported, rather than to commodity prices. 
 
As such, volume growth is a positive earnings driver for the sector. Investors may be ignoring the positive fundamentals of the energy infrastructure space recently. However, we are encouraged by the strong fundamentals, improved balance sheets, and attractive yields. We think there is room for investor sentiment to catch up with fundamentals.
 
 
FIN: What other segments of the real assets markets are attractive now? What considerations do you apply when evaluating infrastructure assets?
 
CN: Two other real asset sectors where we see opportunity are Renewable Power within infrastructure and the Retail sector of U.S. Real Estate. I’ll address the opportunities and investment considerations for infrastructure first, and then move on to real estate.
 
Within infrastructure, we see global renewables as a rising investment opportunity, as power generation evolves to promote a cleaner global footprint. Renewable power is becoming much more cost competitive with conventional power generation, and its market share continues to rise.
 
In fact, nearly 70% of the capital investment in new power generation last year was represented by renewables, and we expect this trend to continue. We see a long runway for new development opportunities in this area, with the expectation for incremental capital to flow into the sector. 
 
We conduct three distinct analyses when evaluating infrastructure assets. First, at the asset level, we evaluate factors like the business model, growth prospects, and regulatory environments. Second, at the company level, we evaluate the quality of management, corporate governance, and capital structures.
 
Lastly, we analyze a security’s absolute and relative valuation based on metrics like internal rate of return, cash-flow and earnings multiples and yields. This approach helps us to hone in on the risks and opportunities of each investment. We also gain insights into the cash-flow generation of these long-lived assets, which provide essential services to the global economy.
 
Moving on to real estate, another area of real assets where we see deep value opportunity is in the Retail sector of U.S. real estate. Here, negative headlines on mall traffic trends and the impact on "brick and mortar" retailers has led to downward pressure on equity values.
 
Our view is less pessimistic, as we believe many of the store closures to date, and those expected over the next year or so, are in low-productivity properties where publicly traded REITs have limited exposure.
 
In fact, we have generally found public REITs to be strong operators, with both the capital structure and management expertise to redevelop shuttered stores with more appealing concepts, upgrade their tenant base and increase rents. 
 
 
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This interview was completed by Tim Melvin, a community bank expert and author of The Community Bank Investor Monthly.

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