Q2 2021 Ares Management Corp Earnings Call
Welcome to Ares Management Corporation's second quarter earnings conference call at.
At this time, all participants are in listen only mode.
The reminder of this conference call is being recorded on Thursday July 29.2021.
I will now turn the call over to Carl Drake head of public.
The Investor Relations for Ares management.
Afternoon, and thank you for joining us today for our second quarter 2021 conference call.
I'm joined today by Michael are getting our Chief Executive Officer, and Michael Mcferran, Our Chief operating Officer, and Chief Financial Officer.
We also have the number of executives with us today.
Flow comes available during Q&A.
Before we begin I want to remind you. The comments made during this call will contain forward looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings, our actual results could differ materially and we undertake no obligation to update any such forward looking statements.
Please also note the past performance is not a guarantee of future results.
During this call we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles.
Please refer to our second quarter earnings presentation available on the Investor.
Resources section of our website for reconciliations of the measures for the most directly comparable GAAP measures.
Please note that nothing on this call constitutes an offer to sell or a solicitation of an off of the purchase an interest in any Ares fund.
This morning, we announced that we declared our third quarter common dividend of <unk> 47 per share which.
Consistent with our prior quarter dividend and represents an increase of 17, 5% over the prior year's quarterly dividend.
The dividend will be paid on September 32021 of the holders of record on September 16th.
Note that we redeemed our outstanding series a preferred stock on June 30.
<unk> thousand 21.
And we also pay the less dividend on the same day.
Now I'll turn the call over to Michael or Getty, who will start with some quarterly financial and business highlights.
Great. Thanks, Carl and good afternoon, everybody I hope you are doing well.
Our second quarter's results demonstrate we continue to hit on all cylinders in our core business.
With a record quarter of fund raising.
The metrics management fees fee related earnings FRE margin and realized income.
During the second quarter, our top line management fees increased 34%, our FRE increased by 52% and our realized income grew 80.
80% all on a year over year basis.
Our fee related earnings increased sequentially for the 17th consecutive quarter, which we believe speaks to the stability and consistency of behind the growth trajectory of our management fee centric business model.
We raised more than $20 billion of new capital across the.
Which puts us at more than $30 billion raised for the first half of the year the.
This compares to a record full year fund raising of $41 billion last year.
Our quarterly fund performance was also the strongest quarter of fund depreciation in our firm's history.
The second half of 2021 and beyond.
For them it looks promising for us is our transaction and fundraising pipelines both remain elevated and we believe that the market environment remains conducive for additional realization activity.
We've also added several new growth engines to the platform, which strengthens our confidence in our ability to drive continued shareholder value and long term.
Term growth of 20% or more in our FRE and dividends in the coming years.
During the second quarter, we executed on our strategic vision to scale and expand our product suite closing, our previously announced the acquisition of landmark partners on June 2nd and creating our new secondaries.
<unk> solutions group.
We believe that the secondaries industry as an inflection point and the combination of landmark's industry leadership, and our global sponsor of Investor relationships will provide us with meaningful growth opportunities.
We're focused on integrating this business and capitalizing on our range of revenue synergies and potential.
Index product expansions.
Just after quarter end, we meaningfully scaled our real estate group by closing on our acquisition of Blackberry Group, which had approximately $13.7 billion of AUM as of June 30.
Black Creek as a vertically integrated real estate manager predominantly offering core on core plus.
<unk> with a long and successful track record.
Adding of Premier core core plus manager fills of product gap for us within our real estate product offering and we can now offer a complete suite across the risk return spectrum to a real estate investors.
The company is also 1 of the 3 largest.
Industrial real estate investors in the U S, which is Ares is highest conviction global real estate sector, and 1 with favorable long term demand drivers.
<unk> 100 investment professionals with locations across the U S will also meaningfully enhance our scale and visibility on transactions and market coverage.
Strategy Importantly, Blackberry also operates 1 of the top non traded REIT fundraising platforms in the country, which we believe offers tremendous upside as we use our relationships to expand through global wealth platforms and add new retail oriented products across all of our business lines.
We're very excited about the opportunities.
For these growth engines as we leverage the power of our platform to enhance investor distribution and eventually expand their products into new business opportunities.
With these highly attractive and financially accretive acquisitions in place we are intensely focused on recognizing the many revenue synergy opportunities in front of us, which we expect will enhance.
Hence our earnings growth in future years.
We also continue to progress with our insurance initiative with.
With the speed has recently closed global bankers insurance group transaction, we added the marketing technology and infrastructure that will provide the foundation for underwriting new life insurance and annuity products, which we.
Spect to begin next year. We also continued to add new flow reinsurance contracts and we're seeing a growing number of sub advisory management services for speed of this portfolio across the firm.
On the Investor front, we continue to benefit from the strong secular tailwind driving the demand for alternative.
Private assets and investors' thirst for durable yield.
As we scale more investors are coming onto our platform and then allocating additional funds to us.
Investors are finding that we can provide solutions to meet their desire for consistent and attractive risk adjusted investment returns throughout markets.
<unk> cycles.
Following our strong first quarter with $10.6 billion raised we raised more than $20 billion in organic capital during the second quarter with over 80% of the direct institutional capital coming from existing investors.
We saw contributions across all of our investment groups.
Turning with large closings in the U S and European direct lending liquid and alternative credit real estate private equity, including climate infrastructure secondary solutions in Asia and secured lending.
A perfect example of the strong demand that we're seeing is through our first closing of $5.1 billion.
For our second U S senior direct lending fund, which is already in excess of its for $5 billion target and 70% larger than our predecessor fund size.
On this first close we had very strong participation from existing investors with 43 out of the total 50 for investors as existing.
Ares clients.
Interestingly, our 2 largest investors in the first close our longtime Ares investors, making their first commitment to U S direct lending.
We also saw significant support from the predecessor fund investors with over 20 committing an upsizing by 20% on average.
Based on anticipated fund leverage the total fund capital. After the first close is expected to be more than 8.5 billion and we're continuing our fund raising efforts and expect the final size to grow from there.
Also within credit, we followed up with another meaningful close of $1.7 billion for our sector.
U S Junior capital direct lending fund.
Bringing total commitments of $3.6 billion also already ahead of our last fund.
We continue to fund raise and expect to exceed our $4 billion target in the near future.
During the second quarter and as we previously announced we also held our final close for a 5.
Second which added another $1.5 billion euros and LP commitments.
And by adding in a modest debt facility of <unk>..5 is now over 13 billion euros or $15.6 billion in size 8.5 is off to an excellent start with more than 20% of the fund already committed with new investments.
The strong and consistent performance within our real estate group and our ability to source and manage off market assets is translating into significant momentum in our real estate fund raising as well.
We held the first close of more than 600 million for our 10th U S value add real estate fund, which is nearly halfway to our target and.
And we added more than 600 million euros in our third European value add fund, including related co investments.
We expect both funds to meet or exceed their targets as well.
We also held the final closing of the SLR 3 Ares Ssg's third flagship fund and secure direct lending.
Our 3 closed on $1.6 billion in commitments, which was approximately double the size of the successor fund credit.
Predecessor Fund <unk>, 2 and above our target of 1.5 billion.
Ares SSG continues to see very strong demand for its products do is differentiated Pan Asian private markets footprint.
That's all of it we're seeing strong momentum in capital raising through certain perpetual life open ended vehicles.
During the second quarter Black Creek raised over $600 million of equity and additional $700 million of debt and its non traded REIT platform and just after quarter end, we held the $1.6 billion first close on.
On our new open end core alternative credit fund.
This complementary funds Pathfinder is also managed by our alternative credit team, where they focus on a broad range of core investments backed by assets with contractual cash flows.
Going forward, we continue to focus on launching more perpetual life an open ended.
The capital vehicles.
Looking forward, we have a strong pipeline of fund in the market across all of our businesses and we expect 2021 will exceed our 2020 record of $41 billion.
In terms of larger flagship funds, we expect additional closings on our 6 corporate.
Private equity fund, our second special opportunities fund our inaugural climate infrastructure Fund our 6 the Asian Special sits fund or to have for mentioned U S flagship direct lending fund our U S and European real estate funds, our 17th of private equity Fund Secondaries fund our ninth real estate.
Ended and Ares fund and our inaugural Sports Media and Entertainment Fund just to name several.
We also have several new strategies that we plan to launch over the next 12 months.
Our broader platform is clearly set us up for a deeper and more diverse fund raising pipeline as investor appetite for our private market alternatives is increasing.
States that the investing environment is very attractive, reflecting improving confidence on the part of businesses and investors.
In that context, we had a strong deployment quarter with over $10 billion invested with $8.1 billion in our drawdown funds versus $4.7 billion for the same period last year, an increase of 72%.
Our ability to continue to find attractive deployment opportunities across our businesses illustrates the breadth of our extensive sourcing platform, our incumbency advantages across our funds almost 3000 portfolio companies and the meaningful competitive advantages that we've created with scale and flexible capital.
In addition, we're seeing more companies and sponsors wanting to partner with us after seeing how many traditional source of capital we're less reliable during the pandemic.
Many of our investment teams are seeing record levels of activity with strong future pipelines, while at the same time, taking advantage of our significant incumbent relationships.
And shifts to provide capital in situations, where many of these transactions never come to the market for competition.
And lastly, I'll touch on investment performance.
As you can see throughout our earnings presentation, we had another very strong quarter of fund performance across our strategies, including quarterly gross returns.
<unk> of our corporate private equity and our special opportunities strategies of 15%.
In U S equity real estate returns of more than 14% for the quarter.
In our private equity group corporate private equity and special opportunities achieved gross returns over the last 12 months of 55%.
And 58% respectively.
Of note the group's largest fund a cough 5 fully crossed into the carried during this time with it since inception IRR in the mid teens as of quarter end.
We also saw strong direct lending returns with Ares capital generating net returns of over 6.
6% for the second quarter and more than 26% over the last 12 months.
Meaningfully outperforming the high yield indices, and our liquid credit loan and high yield composites also continued to outperform the relative benchmarks for the first half of the year.
Overall, our strong fund performance more than double.
Doubled our accrued net performance income as Mike will touch on in a moment.
And with that I'll now turn the call over to Mike Mcferran for his remarks on our business positioning and our financial results Mike.
Thanks, Mike Hello, everyone, I hope, everyone remains safe and well.
It's Mike.
In the second quarter, not only represented our 17th consecutive quarter of sequential FRE growth.
But on a record financial results and capital raising robust deployment and strong fund performance collectively continue to reflect the continued growth and durability of our uniquely differentiated and diverse.
<unk> business.
I'll start my comments with the review of AUM and fee paying AUM before turning to our quarterly results as these metrics provide the foundation of our current and future management of performance fees.
As of June 30th our AUM totaled 200 of 47.9 billion compared to 1.
<unk> 97 billion at year end of not more than 56% versus $158.4 billion at the end of the second quarter of 2020.
Our AUM growth for the quarter was driven by over $20 billion of capital raise that Mike described and the closing of our acquisition of landmark partners in June which added approximately.
Approximately $19.5 billion of AUM.
With over $30 billion of capital raised in the first half of the year, we are well on our way to exceeding the record 41 billion that we raised in 2020.
Our fee paying AUM totaled of $153.7 billion at the end of the second quarter, an increase of 46%.
<unk> hundred 90 per year, driven by continued strong deployment and our direct lending alternative credit at the special opportunity strategies as well as continued strong fundraising.
The closing of landmark partners added $16.8 billion of fee paying AUM during the quarter.
Our available capital sits at 76 billion.
From the end of the second quarter, hitting a new record high for the firm and up nearly 100% year over year. This balance represents a significant competitive advantage for deployment as markets continue to open up further across sectors.
Next I'll turn to our earnings for the quarter.
For the second quarter, we reported.
Billions of FRE of 100 of $46.9 million, an increase of 52% over prior year.
Our growth in FRE reflects both continued management fee growth and continued margin expansion.
Management and the other fees increased to $380.1 million for the second quarter, a 35% increase from prior.
Reported on our.
Our second quarter FRE margin of 39% is a new record and is 425 basis points higher than the second quarter of 2020.
As you see in our earnings presentation. We ended the second quarter with $42.6 billion of AUM, not yet paying fees of.
Oh for future deployment, a 70% increase from prior year.
The $42.6 billion translates into $400.9 million of incremental annual management fees, which is approximately 30% of our last 12 months management fees.
These management fees will come online at a higher margin.
Available that are currently reported margin as this revenue growth of following expenses that have already been incurred.
For example, as we raised the new fund that pays us on invested capital our cost to raise the capital the cost for distribution on our IR teams.
And our business operation teams are already largely reflected in our P&L.
This trend is not new and is why you witness continued and more recently accelerating margin expansion.
In addition to strong FRE growth, we experienced even higher realized income growth with realized income for the second quarter totaling $206.9 million, an 80% increase over prior year.
That was driven through a combination of the over 50% year over year FRE growth that I already referenced and an increase of more than 300% and net realized performance income from the prior year period.
After tax realized income per share of class a common stock.
Net of preferred stock distributions.
<unk> of 64 per share for the second quarter up 64% from prior year.
We are on a period that provides a strong market backdrop for realizations on our model as diversified where we have the opportunity to realized performance income from realizations through the full or partial exits of positions and.
The strategies like private equity and real estate and our credit business enables us to earn performance income more consistently over the typical lifecycle of those funds.
The second quarter reflects this as all businesses contributed to our performance income for the quarter with 2 thirds of that income coming from our credit business. We.
We.
This trend to continue, especially as we get into the later part of 2022 into early 2023 as the money of our flagship credit funds are expected to be generating distributions from the European waterfall structures.
Sitting here today, we believe the outlook for performance income generation as strong as demonstrate.
Remonstrated through a record level of accrued net performance income balance of $615.6 million at quarter end, an increase of over 110% from a year ago.
In addition incentive eligible AUM also achieved a new record of $151.3 billion at quarter end, a 65% increase.
<unk> from prior year on.
Approximately 58% of our incentive eligible AUM is currently invested at quarter end, the 72% of that already incentive generating.
I do want to highlight that if you exclude arcc's part 2 incentive generating AUM, which we have discussed before has been episodic generating.
Incentives on a recurring basis, approximately 90% of our deployed incentive eligible AUM is currently incentive generating.
As Mike stated included in incentive generating AUM of quarter end was our fifth corporate private equity fund the cross into carry generation in the second quarter as strong performance pushed.
Generally the fund fully through the GP LP catch up and into full carry mode.
We were also very active in the capital markets in the second quarter.
In early April we completed a public equity offering and a concurrent private placement, which raised $828 million.
In late June when we took advantage of an attractive.
The freight environment, the issue 450 million of for.
For an 1.8% 30 year fixed rate resettable subordinated notes.
And lastly on June 30th we redeemed our previously outstanding $310 million of series, a 7% preferred stock issuance.
Our equity.
With the issuance of strengthen our liquidity position, which support of the acquisition of landmark partners in June and our acquisition of Black Creek, just after the quarter end on July 1.
Pro forma for these transactions, we remain on our strong liquidity position with the low net leverage and I'm confident that we wouldnt realistically consider returning.
Equity equity markets for capital in the foreseeable future.
Most importantly, we believe we of the cap, we believe that with the capital market activities and the acquisitions. We made this quarter are meaningfully accretive to our earnings and dividend going forward as many of you know in conjunction with the Black Creek announcement, we upped our long term financial.
Guidance on FRE growth from 15% plus to 20% plus inclusive of these 2 transactions and we included a target of 20, plus 20 plus percent growth rates on our dividends per common share.
This guidance illustrates the confidence we have both of our core business and the growth opportunity.
With these 2 strategic transactions.
With that on the hand this back over to Mike.
Great. Thanks, Mike.
As we've talked in the past our industry has been undergoing meaningful transformation and rapid growth is being driven by secular changes that we believer et.
Accelerating.
Institutional investors are increasing portfolio allocations to a broader range of strategies across the risk return spectrum.
We're seeing increased democratization of alternatives with meaningfully increased retail allocations through multiple channels and we're seeing industry.
And as investors consolidate relationships with larger scale managers, which is driving capital towards platforms like ours just to name a few.
We believe the areas that the leading edge of this evolution and that our business has never been better positioned to drive long term growth and corresponding value for all of our stakeholders.
I want to end by expressing my appreciation for all of the hard work and dedication of our team.
The amazing growth and investment performance that we've delivered as a direct result of our employees strong commitment to collaborate work as the team with a shared set of common values.
I am also deeply thankful for our investors continued support in our company.
And the confidence in us.
And thank you for your time today and operator, we'd now like to open up the line for questions.
At this time I would like to ask the question. Please press Star then 1 on your Touchtone phone.
If you would like to withdraw your question. Please press Star then 2.
Our first question today comes from Robert Lee with <unk>.
Yes.
Great. Good afternoon, thanks for taking my questions.
Maybe.
Mike and Mike.
Thank you start on just thinking about kind of your.
Sure.
<unk> is in the <unk>.
High net worth market.
You talked about Pathfinder, you've got Black Creek.
Now on board and I'm, just trying to get a sense of just kind of the size of.
The distribution resources.
I'm on deeply penetrate that market.
Combination of maybe what you acquired with frankly, plus we you've kind of built that will again for yourself.
To start there.
Sure Hey, Ron.
Why don't we start with Black Creek, and how that changes our resource model and growth opportunity and then maybe I'll circle back on other ways that we are delivering.
Delivering product into the retail on high net worth channel, because I think theres a lot of attention.
Tension on non traded product, but maybe not as much attention on some of the in place.
The initiatives as well and fund structures.
<unk> Creek, obviously as I mentioned in the prepared remarks brings a very differentiated industrial real estate capability to us and core core plus product offerings.
But 1 of the biggest drivers of value is going to be pushing more Ares management product through what we believe is the best in class.
Retail platform.
As it exist today, largely servicing the U S.
Retail investor.
Or is an 80 person.
Distribution capability that came with Black Creek.
And if you look at the publicly available information Youll see that the sales of the Black Creek non traded REIT product is accelerating.
I think it is a function of good performance, but also just a.
A function of increased appetite from.
From the retail investor so.
That puts us in a very very.
The differentiator.
Differentiated competitive position in terms of the reach that we have.
The number of resources that we have against that market.
To remind.
Although we already have a significant amount of product that is touching the retail investor.
ARCC at the top of the list of publicly traded obviously has helped build our brand within the retail channel and within the wire houses in Ria's.
Hopefully you saw last night.
The in PTC continues to grow by accessing the retail market just through regular way equity capital markets activity same for our publicly traded mortgage REIT acre, which continues to grow and deliver great performance for their investors as well. So I think it's important when we're talking about retail that we do focus on the opportunity of non traded.
That is probably where a disproportionate amount of growth is but we already have a meaningful leadership position in traditional trade it unlisted retail product.
1 other thing I would highlight is at the upper end of the retail spectrum in terms of.
Of high net worth and ultra high net worth as a regular ordinary course business, where typically distributing our institutional fund product into that part of the market through our relationships with the private banks as well as direct through our institutional fundraising of resources as well.
So very.
Bullish Black Creek will transform our capability.
We believe we already have a leadership position, we think that this will accelerate it and look forward to keeping you guys updated on the progress there.
Great. Thanks, Mike.
Your next question comes from Alex Blaustein with Goldman Sachs.
Okay.
Hey, guys great good afternoon.
I was hoping to start with the question around direct lending market.
Mike study of comments were interesting with more sponsors looking to partner with Ares I guess on the back of some of the challenges.
On the face with syndicated markets amid the pandemic last year I.
I guess as you think about the market opportunity here, what do you see as the direct lending share of sort of sponsor backed low market today.
What do you think that could go realistically and kind of how does the <unk> market share within that market is evolving.
Yeah. It's a good question and I don't think I can give you a specific answer to the sponsor of share and part of that is because of the sponsor of share of the liquid markets moves around.
And obviously, the private markets, while they're getting a little bit more transparent in terms of.
Size and scope, we don't have perfect information.
I'll, let maybe kept for someone else correct me, if I'm wrong, but I would say if you look at historical averages sponsor backed issuance has probably been.
And the 25% to 30% of that addressable market range.
And we.
We are seeing disproportionate amount of sponsor activity coming out of the liquid markets into the private markets for all of the reasons that we talk about around certainty of closing speed of execution flexibility of capital and so on and so forth.
On.
Obviously, if you look at the current addressable market.
We're probably talking about of 1.5 trillion dollar Tam as we see it today in the U S alone and the European market is very quickly catching up to it. So 1 of the reasons Youre seeing such good continued and consistent growth in our direct lending franchise is the market is growing.
And we're taking share.
Net growing market, but our market share despite all of our growth in size and competitive advantage is still pretty pretty small.
You could cut it many different ways, but it's probably somewhere in the 3% to 5% range in our most mature direct lending franchises and in our most mature markets, which we think leaves us a lot of white.
White space for growth in our mature markets, but obviously significant growth in the markets that are still still evolving and developing.
I would expect the trend to continue.
Most sponsors are I think now convinced of the value proposition of private market execution.
There clearly there is a size of company or a type of company that will be able to get better price execution in the liquid market. So it's not going to be a.
Death knell for the liquid markets, but I think of the lower end of those markets in the upper end of the private markets Youll continue to see private market is taking share in the bigger platforms taking of share of that privately.
Private market share gain.
Great helpful context, thanks for that.
And then just my follow up question for the other.
The make maybe around a couple of a couple of numbers here. So 1 could you help us with black rigs revenue and expenses for the third quarter and I guess, how you plan to lead.
The incentive fees from that business.
Is that going to be part of the knot and then just maybe broadly given the number of moving pieces can you help us with a sort of pro forma jumping off point for FRE and margins into the third quarter.
And I know I think you said ultimately you expect FRE margins to go up from there. So maybe a comment on kind of how you see that.
On the margin evolving over the next 12 months. Thanks.
Ill.
Alex.
With respect to Blackrock.
Don't really want to have much more to say than we've already said because we got from you want to go through a full quarter of actually I mean part of the firm.
So I don't want to sit here on July 29th.
Given the estimate for a portion of our business for the full quarter is just a little early for that as we've said before in addition to the strategic accretion and how excited we are about Blackberry that Mike talked about.
I believe like for because we financially accretive.
But again, it's going to be 1 quarter of so as a percentage for the whole firm I don't think of.
Of this overly material for a given quarter.
When you think about the margin you saw progress of 39% this quarter I don't expect again, Blackberry to materially move it up or down and I think our trajectory as we've been showing continued margin expansion. Thanks for that to continue.
Thanks.
Yes. Our next question comes from Jerry O'hara with Jefferies.
Great. Thanks.
You know I guess, the the 2 most recently announced deals kind of coming through and my thanks from prior commentary.
Good morning about.
Filling filling some of the product gaps can you can you, perhaps give us a little sense of.
Where the M&A strategy might kind of progress from here, where there might be.
Additional opportunities to fill any other gaps or or just broadly how you're kind of thinking about.
Yeah.
Terry This is that sort of strategy on on a go forward basis. Thank you.
Sure Hey, Gerry.
So I'll just quickly reiterate what we've said in the past, which is the bar for M&A is getting higher both because of our product set and the capability set is getting deeper and more developed but as.
The scale of our ability to organically grow businesses is improving dramatically and so the buy versus build equation is is shifting towards building versus buying and so we buy typically when we see a large market opportunity that we believe.
We want to accelerate into.
As we have so using secondaries as an example of as I mentioned in the prepared remarks, we think that that market is going through transformational change and in order to really take advantage of that growth opportunity globally, you need to do with a scaled capital base.
History of of information advantages in technology and track record and so.
While we could build the secondaries business organically and have been investing in and around that market RV was in order to really have the meaningful position that we wanted to given our capability set we would buy it so the filter of financial accretion of strategic accretion and cultural fit is still there but maybe.
I would add we have to have conviction in our growth market, where we have a sense of urgency about acquiring capability or a position in that market Black Creek and landmark being 2 great examples of that.
And going back over a year SSG, providing us the beachhead into the growing Asia Pacific region would be another.
The other.
There are very few opportunities sets as I see them globally in alternatives, where I have that sense of urgency right now.
We have talked about historically the opportunity that we see in global infrastructure and.
And non energy infrastructure in the U S.
Obviously there is.
The potential for increased fiscal spend to support the growth of the U S market. That's also informing our view of what the business could be here.
We have a meaningful infrastructure equity and credit business and continue to scale of that quite nicely organically.
But as I've mentioned on prior calls I think.
That would be an example of maybe an area where with increased global growth from that market. We may do something.
Inorganic that would complement what our current capabilities that is.
So the list is getting shorter.
Have a lot of opportunity in front of us to continue to drive revenue synergies.
With the core business and the acquisitions that we've made.
I'd make 1 final comment which is I think just an important reminder, when we are growing businesses. The playbook is the same right. It's acquire retain and advance great talent at scale of our capital it's broadened out the product set.
It's globalized invest in origination all the things you've seen us do and that playbook is the same whether we're making an acquisition or building something organically. So I'd encourage you guys to think of.
The question of buy versus build is really what's my entry point, but from the point that something enters the firm.
Whether it was acquired or.
<unk> built we're executing on growth identically and that's why we've been so confident maker.
Making these tuck in acquisitions into these markets just because of the proven ability to build organically as well.
Alright.
Helpful. And then and then maybe just kind of.
Picking up on.
Some comments around the kind of landmark deal.
You mentioned a range of synergies and product extensions I know it's still.
It's probably too early but is there is there anything you might be able to elaborate on there perhaps the teaser as to what some of those product extensions might be or just any additional.
Pillar would be helpful. Thank you, yes sure happy to.
So landmark obviously has been in the secondaries business for 30 years of I think it's safe to say that they pioneered the industry. They have an incredible track record.
They are currently in the market with their 17th private.
Private equity fund just to give people a sense for the depth of experience there.
They are in the market with their ninth our real estate fund.
Again, just to demonstrate the depth of experience there.
The recently they closed on the second infrastructure fund so as we talked about when we were.
We're making the acquisition the transformational growth that we're seeing in secondaries is in a couple of areas..1 theres a shift from what I would call LP led to GP led meaning we used to provide secondary solution solutions to institutional Lps that were looking for liquidity within their alternatives portfolios.
Now, we're looking at providing liquidity solutions GPS within their portfolios either to 1 of great asset longer fund the strategic initiatives within the holding company and so on and so forth.
That shift.
Obviously plays into our strength given our market leading.
C P coverage network through our private credit business and our real estate businesses.
It also plays to our strength as a direct of investor.
Where as this market evolves, we will be making much more.
Single asset multi asset buys versus big portfolio of bus.
<unk>.
2 the growth is being driven by a shift away from private equity into places like real estate and infra and now credit.
And 3 it's being driven by what I would call just generally of globalization of the business, whereas the start but you've seen a lot of volume in the U S market and the European market, we're seeing Europe.
The rate in Asia.
The accelerate as well and then for back to the question on Black Creek I think that as you think about the retailers nation of private equity.
Particularly some of the questions or some of the opportunities that are being talked about to allow for private equity ownership within 401.
<unk>.
And defined contribution plans the best way to access that exposure will be through secondaries portfolios and so we think that that should create an opportunity as well so long winded answer, but with that as a backdrop I think the big growth areas are continue to grow the core which they which they are doing.
K add credit because we have a market leading credit business and should be able to add value there.
Free globalize, the product offering and maybe for Levered.
Leverage our capabilities and our growing retail distribution capability to start to think about how we deliver that product into the retail channel.
Our next question comes from Kenneth Lee with RBC capital markets.
Hi, Thanks for taking my question just 1 on the speed of business wondering if you could just talk about how you kind of we see the opportunity.
For potential.
Since we sizeable reinsurance transactions of this environment.
Yes.
I'm glad you asked it.
We are thrilled with where we are on the speed of business billed.
As folks have heard us say before we have chosen to take a.
For the modest inorganic start to the business, but are really focused on.
Growing that business organically through our distribution of fixed index and fixed annuity product as well as the growth of the reinsurance business to remind people of the basis or the foundation for that busy.
The build is coming through to acquisitions that have.
The closed 1 is the acquisition of <unk>.
Which has been rebranded our speed of re.
Hopefully you've seen we've been adding a significant amount of talent.
Into that business not the least of which is John Stefan who just joined as the.
<unk> given the speed of re.
Previously with the Athene.
We continue to add new reinsurance treaties, we are adding new flow agreements and I'd say.
Both the growth in flow agreements and the pipeline of inorganic opportunity there is probably better than we.
We expected it to be and I think that's a reflection of the market.
Backdrop, but also of the quality of the people that we're putting around around that business.
With regard to the life.
<unk> hopefully folks saw we finally.
Which I'll look better late than never but finally completed the acquisition of global bankers or G. Big.
As we call it we're surrounding.
Surrounding that.
Servicing of distribution capability.
With a 48 state life insurance business, and we think that we will be actively writing new business early in 2022.
At the end of Q2.
We had close to 3 billion about $2.7 billion.
Of AUM.
On the platform and growing.
And that's obviously before we were tackling the organic build.
So really happy with the progress it's doing everything we hoped it would be we're attracting top flight talent.
<unk>.
And I think the market backdrop is.
As great both for the organic into your to your question. The reinsurance acquisition pipeline is pretty robust right now both both for small deals and some larger things as well.
Great. That's very helpful and just 1 follow up if I may just in terms of the.
The change of FRE growth.
We look to that 20% plus range.
Was that mainly due to the benefit from landmark and black week or were there any other factors that I wish you the cognizant of thanks.
No I mean.
We obviously did including Black Creek of landmark.
But as you've seen we've been running obviously, well north of 15% growth.
So we thought it was the right inflection point.
Announcing the acquisition of landmark of Sydney of Black week to to update that.
Outlook, but I'd say, it's a combination of adding those businesses and what <unk>.
<unk> seen as our strong organic growth.
Those businesses.
Great very helpful. Thanks again.
Thank you.
Our next question comes from Michael Cyprus with Morgan Stanley.
Hey, good afternoon, thanks for taking the question.
You guys mentioned the opportunities set in the private REIT space, but just curious to hear your perspective on potential for a private BDC you manage the leading.
Leading listed BDC, but could there be an opportunity on the non listed BDC or is that of conflict to have both and if you. Even if it's not on if you were to go down that path, how might that sort of structure.
True differ just in terms of economics at an investment strategy. If you were to have a private non listed BDC.
Yes, it's a good question I mean in terms of our BDC structure used to do what we currently do there is really no strategic rationale to do that we've got to.
Close to $18 billion publicly traded balance sheet with a high investment grade rating.
Insistent access for the debt and equity markets lots of diversification 17 year track record of outperformance, there's really there's no rationale.
For a private BDC that would mimic things that we're doing elsewhere.
Where are today.
I would remind folks that we do already have a growing integral fund product that has a diversified credit product that is investing across the broad spectrum of what we do at Ares in the liquid and illiquid credit markets and Thats a good example of how.
Now, we're using the non traded markets to diversify and differentiate them.
The capital, but not really cannibalize or compete with the core business.
I could imagine there may be certain industry specific strategies.
Or specific corners.
<unk> of the market, where a private BDC would be the most efficient.
The place to grow them.
And so I wouldn't rule that out as of as an avenue for growth, but it would be for a product that is kind of of non ARCC type product. If we did it I of high conviction in our ability to access that market just given.
Of our our listed BDC as well as the private market.
Wealth relationships that we have but I don't think that we have the same urgency to hit that market. The way some of our peers are doing to your question about economics, it's hopefully not lost on people too that the economics in that market at least from the management.
The 6 point you have a lot of people who are discounting fees in an effort to try to raise capital.
In that market and while we obviously youre always thinking about the balance between our private investors on our public investors, we're not really in the business of of of doing that.
And nor do we think of we have to.
Great. Thanks, and just maybe a follow up question if I could on the U S. Direct lending fund I think you mentioned your you've already raised about over $5 billion can you just talk a bit about the outlook for putting that capital to work. The types of transactions. You may anticipate deploying that into is that is that all of sponsor finance is there anything outside of sponsor finance on how you see the opportunities.
Standard evolving.
Sure. So there, we specifically referenced 2 funds and maybe.
Kind of mentioned the third but let's let's hit each of them. So these are both flagship funds for the second fund in their families. The first 1 is what we call.
<unk> SDL senior direct lending.
It is a senior secured lending product focus on the U S market. It is not exclusively sponsor finance, but again back to the earlier commentary a large percentage of that market is sponsor driven our first fund.
<unk> was about $4.5 billion, maybe $4 billion, we put for 5 billion target for our second fund.
We've already had our first closing well in excess of $5 billion.
And that fund will take on leverage so.
A lot of demand for the Prada.
Of Great performance in fund, 1 and just people wanting to access.
Our U S direct lending franchise.
Sorry of fund 1 was $3 billion.
Sure.
So we don't know where that will land will have an update for you all next quarter and as we get into the end of the year, but clearly will be a.
A sizable fund well in excess of the target.
Already actively deploying into that market and.
No real change in strategy there. The second fund is what we call our private capital solutions fund or credit solutions funded.
<unk> of Junior capital Fund.
Our.
First fund there.
Again, I think was about.
$3.4 billion.
We've already raised $3.6 billion and to fund 2 against the $4 billion target and my expectations.
<unk> will meet or exceed that target.
As we head into the end of the year as well. So those are 2 institutional U S direct lending funds 1 senior secured 1 junior.
And they obviously complement the BDC and our SMA.
Portfolios as we think about just different.
A different investor base of different types of capital on that flexibility and scale benefit.
I talk about so often the.
Third fund, which which is not in that core of direct lending, but it is effectively of direct lending fund as our sports media and Entertainment fund.
As I mentioned is off to a great start both in terms of fund raising and.
And capital deployment.
And I think I mentioned that only because it is a good example of the type of step out strategies that we can scale organically in industry verticals off of the core franchise.
Great. Thanks, so much sure.
At this time Im showing no.
No further questions. So I'd like to hand, the call back to Michael <unk> for any closing remarks.
Great. Thank you and again I just want to reiterate our gratitude for your continued support of the company and I. Appreciate your time today I do want to remind folks that we will be hosting our.
Our annual Investor day.
Day on August 12, so please save the date.
And we will be.
Coming back with more details in the near future on that and so look forward to speaking to many of you on.
On the 12th.
Have a great week.
Ladies and gentlemen, this concludes our conference.
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