Q3 2021 Carlyle Group Inc Earnings Call
Thank you for standing by it won't come to the third quarter 2021, Carlyle Group earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone as a reminder, today's program may be recorded.
I would now like to introduce your host for today's program Daniel Harris head of Investor Relations. Please go ahead Sir.
Thank you Jonathan Good morning, and welcome to Carlyle's third quarter 2021 earnings call with me on the call. This morning is our Chief Executive Officer sung Lee and our Chief Financial Officer, Kurt <unk>.
This call is being webcast and a replay will be available on our website, we will refer to certain non-GAAP financial measures. During today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles.
We have provided reconciliations of these measures to GAAP in our earnings release any forward looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factors section of our annual report on Form 10-K.
That could cause actual results to differ materially from those indicated Carlyle assumes no obligation to update any forward looking statements at any time.
Earlier. This morning, we issued a press release and detailed earnings presentation, which is also available on our IR website and updates the progress we've made and the momentum we're building on our strategic plan to think bigger move faster and perform better that we announced at the beginning of the year for the third quarter, we generated $151 million in fee related earnings.
$731 million in distributable earnings with de per common share of $1 54, we declared a quarterly dividend of <unk> 25 per common share.
I know, it's a busy morning, so to ensure participation by all those on the call limit yourself to one question and one follow up and then return to the queue for any additional questions and with that let me turn the call over to our Chief Executive Officer Q sung Lee.
Thanks, Dan.
Hello, everyone and thank you for joining US today, we're excited to have another opportunity to update you on the great progress, we're making against our strategic plan and a record firm wide earnings performance, we delivered this quarter.
Our third quarter results are exceptional across all three of our businesses with continued and sustainable progress in FRE, the highest production of quarterly distributable earnings ever and strong fund raising momentum.
These results build upon a great first half of the year and illustrates the powerful upward long term growth trajectory our diversified platform can deliver.
As an update let me start with three important points first we're ahead of schedule on our strategic plan across all of our businesses.
Second our focus on FRE and investment performance is paying off for all stakeholders.
And finally, one critical factor in the success is that we have built an aligned diverse and experienced leadership team who are running a global firm.
Thinking bigger moving faster and performing better is our mantra is helping us deliver on our priorities. Our strategic plan is already leading to strong results right out of the gate and more importantly, we believe it positions us to deliver continued earnings growth and strong investment performance over the long term.
The second and third quarters were record breakers for us and we see continued growth from here.
Just this quarter, we achieved record AUM of $293 billion and year to date, we invested a record $20 billion.
And realized a record $29 billion.
What will describe to you today reflects our progress and we remain laser focused on continuing to execute our longer term goals.
We have line of sight into how our strategic plan will generate growth and believe we can continue our momentum to deliver attractive results for our stakeholders.
As we generate an increasing level of retained earnings from strong day over the next several quarters. We are actively assessing opportunities to invest in our platform to drive more sustainable FRE growth that expands on our strength.
We continue to build the team and infrastructure to ensure we are best positioned to pursue the right growth opportunities for Carlyle.
I am confident that we can grow both organically and through strategic acquisitions to diversify our businesses build new drivers for future growth and increase our sustainable level of FRE.
Today, as you listen and analyze our results and commentary please pay close attention to the accelerating activity across all three of our global businesses.
We are investing creating value returning capital through realizations and fund raising at levels that drive line of sight to accelerating growth in earnings.
In regards to our investing we see significant growth opportunities ahead.
The reason is this mass.
Massive changes impacting industries and asset classes around the world and generating exceptional investment opportunities for private markets, which is the backdrop for a record investment pace.
And our industry continues to deliver investment outperformance as demonstrated by Carlos carry fund appreciation of 33% year to date.
Furthermore, we are better competitively positioned than ever before.
As a global and diversified investment firm operating at scale, our platform approach enables us to capture opportunities by deploying capital to the sectors and regions of the global economy that are the most attractive.
Businesses in these sectors are benefiting from the acceleration of disruptive change and we are capturing these opportunities across all of our investment strategies and investing capital more efficiently.
We're especially focused on trends that are converging named.
Namely in key sectors of the economy like healthcare or technology continues to generate growth and societal advances.
We're also leaning into more traditional power alleys like industrials and consumer, but we are bringing a modern approach to incumbent businesses and enabling faster growth for newer disruptive companies.
Furthermore, secular trends like sustainability offer us the opportunity to invest in the future of renewables. While also taking part in the massive transition that is underway.
Demographic shifts like growing domestic consumption in China presents significant investment opportunities as do economies in transition like India and Japan.
And the potential for increased market volatility or higher interest rates is likely to create attractive investment opportunities across our global credit platform.
We have grown to a record AUM of 66 billion.
Which is more than two times larger than it was less than four years ago.
Now in regard to fundraising I want to underscore we are communicating and working with our limited partners better than ever before.
<unk> 40 billion to date in 2021.
An increase of 124% year to date over 2020.
We will seek to continue this momentum over the next few years and if we are successful this will provide substantial upside potential to our four year $130 billion plus fundraising target and drive results beyond our FRE targets.
We recently hosted our annual global Investor Conference with a thousand Lps joining around the world in a hybrid format.
It was great to spend time in person with people in New York City and Hong Kong.
We are encouraged by their feedback and the headline is this <unk>.
Investors clearly what the strategies and solutions, we have to offer across all three of our global businesses.
Our global credit segments, a broad spectrum of credit strategies positions it well to grow as the market continues to shift away from traditional fixed income private credit.
Our global investment solutions segment has the scale global reach and data to drive portfolio optimization strategies that are more important than ever in a world where private capital has become mainstream.
<unk> portion of our investors' portfolios.
And in global private equity, where a modern day builder of businesses with more value creation levers than ever before to drive performance, which is critical in a market where competition is fierce and valuations are high.
And the top of all of this we believe we are an industry leader in integrating ESG throughout our firm and our investment processes throughout our value creation processes for the benefit of all stakeholders.
This is all about making everything we touch better including putting as much focus into how we run Carlyle as we do our portfolio companies.
Ultimately, we are driving improvements and change across our entire business, resulting in better decisions outcomes and performance for all stakeholders.
Kurt will now walk you through the financial highlights for the quarter and provide more details on what drove our record results.
So I'll wrap up with this.
The firm is in great shape.
We are more global more diverse in the midst of a generational evolution at a new Carlisle, where our focus is on continuously improving how we drive value and generating attractive returns.
We are ahead of schedule on our strategic plan.
Our focus on FRE and investment performance is paying off and our platform is benefiting from the growth initiatives to diversify our earnings.
I am proud of our team who are doing a terrific job of executing and delivering on our priorities I. Appreciate the hard work as we accelerate our activity through the balance of this year and into 2022.
Thank you.
Over to you Kurt.
Q and good morning, everyone.
As Kew said this quarter sustained outperformance is the result of a clear focus on executing on our strategic plan.
To set the stage our strong momentum in fundraising.
Pace of capital deployment and string of successful realizations are driving a significant increase in the scale of our earnings.
These results are underpinned by attractive investment performance.
And our fortifying our balance sheet to help us deliver long term sustainable growth in our global platform and fee related earnings.
Now, let's dig deeper into our record third quarter earnings I want to underscore the broad based strength across all components of distributable earnings fee related earnings realized performance revenue and investment income.
We delivered record pre tax distributable earnings of $731 million this quarter.
To put that in perspective that is more than the entirety of the first half of 2021 and is more than 50% larger than any prior quarter. Our results are bigger faster and better than they have ever been.
Year to date distributable earnings of $1 $3 billion outpaces, our full year performance in any year since our IPO by nearly 40%.
And this is without even accounting for what is shaping up to be a strong fourth quarter.
On an after tax basis, we generated a record $1 54 and.
<unk> per share for the quarter.
Moving onto the components of district learning, so, let's start with fee related earnings, which was $151 million in the quarter and $424 million year to date up 23% compared to 2020, excluding the impact of litigation cost recoveries in the first quarter of last year.
We expect management fees and fee related earnings to move higher next quarter as we activate fees on our latest generation U S Real estate fund and our new U S buyout and growth funds.
Overall, we expect strong FRE growth over the next several years.
We're on track to hit our 2020 for 800 million FRE goal earlier than previously anticipated.
The global investment solutions segment, nearly doubled year to date FRE to $64 million, a strong fund raising and deployment drove a 22% increase in year to date management fees with high incremental margin is year to date FRE margins expanded to 37%.
Nearly 13 percentage points higher year over year.
Global credit grew fee revenues by $13 million in FRE by $8 million just since last quarter.
A 30% sequential increase in FRE, driven by strong capital raising and active deployment across the platform, including record levels of direct lending origination and record levels of CLO issuance and Carlyle aviation, we completed the fly acquisition, our largest fleet acquisition.
<unk>.
Turning to global private equity, we expect FRE to accelerate next quarter and continue to grow throughout 2022, as we benefit from strong fund raising momentum by activating fees later in the fourth quarter on newly raised capital.
The positive impact from our capital market strategy is becoming increasingly visible as it further integrates with all our global investment teams net.
Net transaction and advisory revenue of almost $60 million year to date was nearly double last year, and we expect fourth quarter underwriting activity to again drive significant transaction fee generation.
Overall, our FRE margin of 33% year to date is up about 500 basis points over the past couple of years and is solidly on path towards our 40% target, which we are also likely to reach earlier than previously expected.
Net realized performance revenue of $534 million is far and away a record quarter and was driven by $14 billion in realized proceeds importantly, we continue to have $204 billion in remaining fair value across our portfolio, which positions us to generate a high volume of realization activity over the next.
Two years.
In the third quarter, we completed private sales across a variety of funds and geographies with realizations of large buyout investments like Nevada, and bountiful and growth strategies like net motion in Newport Healthcare, and then continued activity across our U S real estate platform.
We also took advantage of strong markets and exceptional investment performance with public secondaries, including zoom info ortho clinical and Spi card.
We have a significant backlog of realizations that should close over the next few quarters and we expect to generate at least $450 million and net realized performance revenue over the next two quarters just from already announced sales.
With potentially significant upside from further realizations from our $19 billion public equity portfolio.
We continue to have confidence in our ability to generate a high level of annual net realized performance revenues over the next several years.
Accrued performance revenue remains near a record level of $3 $9 billion down modestly compared to last quarter. Despite record realizations as our funds continue to perform and appreciate.
At this level the net accrual represents more than $11 per share and future pre tax earnings.
We continue to have strong fund performance in a complex environment, our global private equity portfolio appreciated, 5% in the quarter and 31% year to date.
This quarter, we saw the strongest performance in real estate, which increased 9% and a natural resources up 7%.
Our broad CPE portfolio was up 4% strong outperformance against the one 5% decline for the MSCI all country World Index.
Global investment solutions had a great quarter once again with 10% appreciation across their portfolio and is now up 39% year to date.
This quarter's strength was led by Secondaries and fund investments and in global credit. We continue to thrive provide an attractive risk reward across the investment spectrum, while our assets under management of $66 million.
We have more than doubled over the past several years.
Realized investment income of $71 million in the third quarter reflects the strong returns and growing size of our on balance sheet investments, which totaled $2 billion at the end of the quarter.
Year to date realized investment income of $139 million is nearly triple the same period in 2020, and we are on track to exceed our 2024 target this year.
Our strong earnings have fortified our balance sheet at a great time, as we see multiple opportunities to deploy our growing capital base to accelerate our FRE growth by investing in larger funds.
<unk>, new investment strategies, supporting new business activities, and taking advantage of accretive M&A over time.
Given exceptional earnings in our opportunistic debt issuance last quarter, we expect to prepay $250 million of the remaining 2023 bonds in the fourth quarter.
This will further improve leverage and boost our financial strength.
To wrap up we are excited to be delivering on our plan and what that means for our shareholders. We are in fact outperforming our own expectations.
We are well positioned to do so for the next several years, our strong momentum is allowing us to grow our FRE in our day and invest in Carlisle is longer term growth.
And exceptional value for shareholders and we continue to deliver on this growth now.
Now, let me turn the call over to the operator, so we can take your questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.
First question comes from the line of Glenn Schorr from Evercore. Your question. Please.
Okay.
Alright, Thank you very much.
Got.
It's only been a few quarters.
But as you guys littered throughout the conversation a lot of you are.
A lot of your numbers or bumping up on the targets.
We are in the end of 'twenty one.
2024 targets so.
How do you how do we think about.
It's great that the markets and your performance has gotten there how do we think about it.
That means that we hoped for a little while or how do you think about the momentum going in and then going through 2004 targets in late 'twenty one 'twenty two.
Hey, Glenn Thanks for the question and nice to hear from you look we had a record quarter. We're well ahead of our strategic plan and I really do think this momentum is sustainable because we're seeing great activity, great energy across the entire firm across all of our businesses.
We're making a big deal of were thinking bigger our funds are growing organically, where our initiatives in global credit and our new <unk>.
Platforms for growth are really taking hold we're really moving faster not only our funnel, it's happening faster, but youre seeing the results come in faster and I think this quarter talks to the results. We're performing better it's not only at a corporate level with FRE, which hasnt with FRE, which has accelerated and I think we'll continue there.
That path, but all the hard work over the years of putting together. These are investments constructing our portfolios and working with our companies to create value is really paying off so yes. The markets are robust and strong right now, but really the realization activity is a testament to all the hard work that's gone into the ground to do great <unk>.
<unk> and I think all of that performance just continues so across the firm we see great energy great momentum.
And quite frankly, very confident that this momentum is sustainable.
Glenn It's Kurt and from my perspective, I don't think I've ever been in a place where I have greater confidence in what I'm seeing going forward and Thats really continued sustainable growth and let me just give you a few points of what I'm seeing so first.
Right now we're sitting on $30 billion of AUM that hasnt activated half to two thirds of that is going to turn on in the fourth quarter and then we'll take our $150 million of FRE, we just posted or run rate of $600 million higher into 'twenty. Two so that's a great place to be sitting in from my place second from a net.
Performance revenue standpoint, three $9 billion of net accrued carry plus $116 million to $116 billion of remaining fair value on the ground across our traditional carry funds really supports growth in net realized performance revenue and the sustainability that we have there.
And third you can't underscore the diversity of the platform. The strength that's occurred in global credit and investment solutions really gets the diversified business outgoing and last.
Sitting on a much better balance sheet than we ever had which really gives us the firepower to grow sustainable FRE over time and so the.
Place available on a look forward. This is a great position right now to be able to have confidence in what we can do going forward.
Okay.
Appreciate that maybe I could squeeze in a follow up on Josh.
Capital raising has been great you mentioned.
It targets can you talk about what Youre currently doing in the wealth management channels in what you would like that could be in the future.
Sure. So let me take that Glenn So first our fund raise we were on a record pace. So $40 billion year to date $50 billion over the last 12 months and on that $50 billion 14 billion in global credit, which has really just been clicking every quarter very nicely very diversified record.
CLO pace, but it's not just the CLO, it's across the platform second and investment solutions Global investment solutions $11 billion over the last 12 months you've seen the growth in that platform. If you go back in time, I mean global investment solutions was like a third of what it is today the growth that we've had there has really been.
And then obviously $25 billion in global private equity over the last 12 months really sudden that business also for further growth. So let me let me be clear in terms of what we are in terms of the retail channel and the LIFO. Our plan is really built on remaining focused on our institutional channel. It's Lee.
Long term capital, it's extremely attractive it's driving our top line growth if we execute our plan our FRE is going to grow rapidly over the next few years and we have plans to have that grow thereafter, and today, we largely target retail to our high net worth channel through feeder funds that's been.
Our success over time that channel has generally been very successful because of our strong brand drive 10% to 15% of our capital raising through those channels, but let's be clear our focus on FRE has really produced results. It's been growing 20% on a CAGR perspective over the last five years and remains so today.
And the fund raising momentum that we have will continue to allow us to grow our FRE in the business.
Thank you very much.
Thank you. Our next question comes from the line of Bill Katz from Citigroup. Your question. Please.
Okay. Thank you very much for taking the question. This morning in the prepared comments.
Just coming back to maybe capital deployment. It sounds like you might be gearing up to be a bit more acquisitive and you mentioned things like sustainable and further FRE growth. So that sounds to me like maybe some potential permanent capital opportunities I was wondering if you could talk a little bit about sort of where you see the opportunity and then related to curts last common.
Terry that Youre 24 plan is geared to institutional might be an opportunity here to expand the retail as well. Thank you.
Hey, Bill it's Kew.
Big picture.
We're going to be generating a lot of cash onto our balance sheet over the next several years as our realizations materialize.
We are going to take that cash and look for ways to invest in FRE generative businesses, So repurpose that balance sheet capital into sustainable growth businesses that drive FRE. So big picture, that's what we're looking to do.
I want to remind you that none of the targets that we've laid out in our strategic plan takes into account for any strategic activity.
So all of that would just be in addition to.
And finally, I think I've said this in the past the likely areas are more in the global credit areas or in solutions as opposed to private equity in terms of where we think the opportunities would be we're thinking about it very globally.
And we'll be in touch when something.
And with that I'll pass over to the second part of the question to occur.
On the capital markets piece, Phil our capital markets business is doing really well really underpinned by the greater balance sheet capacity that we have to support that business.
You can see in the transaction revenue about $60 million year to date double last year's number two thirds of that revenue is really come on out of the capital markets business, which is up from almost nothing a year ago. So that's really what's causing that growth there, it's working very nicely and again because of the balance sheet.
Strength allows us to continue to grow and so I'm very confident in our ability to get that up over $100 million in the next couple of years.
Okay. Thank you.
Okay.
Thank you. Our next question comes from the line of our clustering from Goldman Sachs. Your question. Please.
Great. Good morning, Thanks, everybody I'll try to squeeze a two parter and but all related to the same topic, which is fundraising.
So I guess big picture for you.
So we're seeing the credit opportunities fund come in stronger, we're seeing a real estate funds coming stronger the secondaries business within investment solutions coming in stronger. So all of that has led to the doubling of year to date fundraising with respect to specific funds that remain in fund raising.
Can't really comment on those.
And so with the rate with respect to U S buyout et cetera, I can't really go into detail other than our overall fundraising momentum is good we will be activating fees here in the fourth quarter that will have a pickup but things that remain in fund raising I can't give you all those specifics on the details, but again things are looking really well.
Yeah, Hey.
Alex look just a few high higher level commentary first the secular trends towards private markets just continues.
Offer September conference, but also recent road shows with Lps, the interest level and the desire to allocate into alternatives into private markets continues around the world across all strategies.
Second.
Lps are looking to deepen their relationships with their largest and most strategic GPS and that trend positions Carlyle exceptionally well.
Third we are seeing tremendous benefit in cross selling.
One strategy into another with our Lps and as our platform broadens and Diversifies, we're seeing more and more opportunity to do that.
Finally, let me just say with respect to credit and in solutions and credit there really is a shift happening.
Flows are moving away from traditional public fixed income securities where yields are virtually zero.
<unk> private credit solutions, and I think that is a secular trend with real tailwind that we're going to benefit from.
And in solutions as I said in my opening remarks in alternatives are not alternative anymore, they're mainstream.
Big portion of our Lps portfolios and they need portfolio optimization strategies as it relates to secondary solutions or co investment strategies to help with deployment and all of that.
Plays to our advantage with our very strong solution segment.
<unk>.
I'm seeing very good tailwind and secular forces, which are going to be a good.
Good momentum for our fund raising continuing.
And finally I just want to say one last thing you cannot do this.
Great investment performance.
And we've got great investment performance, our portfolios are in great shape, there well constructed our teams are working very hard and I suspect when you marry that great performance with the types of trends I've just mentioned it bodes well over the longer term for our fund raising momentum to continue.
Thank you.
Thank you. Our next question comes from the line of Chris Kotowski from Oppenheimer. Your question. Please.
Yes. Good morning, Thanks for taking my question I guess I wanted to go back to.
A comment about how as you realize.
These gains.
<unk>.
The gains in the portfolio cash is going to build up on Carlisle with balance sheet than historically.
Carlyle paid that all out too.
Shareholders.
And obviously you've been retaining it all in.
Yes.
Pointed to the fact that you wanted to do acquisitions I guess, how do you weigh that against the kind of easier.
How do you weigh making acquisitions against the easier and more certain path of.
Doing share buybacks and really shrinking your float.
My back of the math suggested that this quarter is the overage versus your dividend would've retired would have been enough to retire about 2% of your stock and that would be.
2% FRE growth with 100% certainty forever.
So how do you weigh.
Acquiring other people's companies versus acquiring your own.
Chris This is Kurt let me start and thank you for that insightful question look.
It's really great in terms of where we are today.
The balance sheet.
Much much stronger than where it had been before and so the growth in a very short period of time has really been remarkable which allows questions like you're asking to really even be.
On the table. So let me start with a few basics of kind of where we are first you saw we just increased our authorization to buy back shares. So on January one there'll be a $400 million authorization in place to buy back shares to be clear. We are planning to use that to make sure that our dilution does not exceed one <unk>.
<unk> per year, and we will be aggressive where that makes sense in terms of buying back shares.
Second we are going to with the exceptional earnings that we have are going to pay some taxes.
And so we're going to pay a little bit of taxes, we're going to pay back some debt, but that's kind of just cleaning up and just kind of leaving us really still on a really great financial place, but how we compare it's really about driving value for shareholders.
And growth.
Really being rewarded very significantly in the marketplace. So I want to use capital to drive growth. So that we're driving value and how do we do that well, we're raising larger funds and so that requires more capital off the balance sheet to cover our share to raise larger funds. We're looking at newer strategies initially the stuff.
Aligned with kind of what we're doing so our capital markets business, the insurance business all of that needs more capital as well and so we need to have that to be able to to grow their newer strategies like infrastructure that while we have we think can really take advantage and grow that much larger that will require some capital and then there is <unk>.
<unk> opportunities that <unk> already spoke about.
But in the end all of this is about driving sustainable FRE growth and I believe that that gets rewarded in the marketplace.
Hey, Chris It's a great question.
Uh huh.
How we repurpose that cash and invested to grow strategically to drive FRE and drive growth is absolutely the bigger picture for what we need to do.
Obviously, while investing well in running the firm well.
Let me just add to what Curt said, it's all about being incredibly strategic and incredibly thoughtful with these acquisitions.
And what we're looking to do but I'll just point you to fortitude.
Carlyle aviation.
Our CLO business ALP invest these are all examples of really good uses of our balance sheet money to develop businesses, which are scaling and growing so what are the types of things that we're looking for go back to our strategic plan, we've been very clear from the beginning we're looking for big markets.
That are scalable that <unk>.
Generate recurring and sustainable FRE that we can grow.
And Thats my criteria and as our balance sheet gets stronger.
A very purposeful.
And thoughtful way, we do intend to look for strategic Adjacencies that will extend our platform.
Okay. That's it for me thank you.
Thanks, Chris.
Thank you. Our next question comes from the line of Michael Cyprus from Morgan Stanley. Your question. Please.
Hey, Good morning. This is Peter <unk> standing in for Mike Cyprus, just on comp restructuring, we've seen some peers make changes to their comp accruals shifting more comp to carry and reducing the content comes from FRE. Just curious on what kind of scenario environment would it make sense for call. It has to do this.
Maybe some challenges are drawbacks from making those sort of changes. Thank you.
Hey, Thanks for your question look.
We have a really good plan in place we're comfortable with our plan we are executing against the plan. The plans resulted in growing FRE and growing earnings.
<unk> seems to be clicking just right.
What I also like us our financial reporting is clear transparent easy to understand.
We continue to obviously look at different ways to improve FRE and take advantage of different opportunities, but there's no. There's nothing in our plans to do a major comp restructure as you're suggesting and.
We would only be interested in one that's really substantive in nature as opposed to just changing geography on the P&L. So.
When and if theres ever something for us to do well, obviously report that to you but at the present time every into Q&A are saying is it's kind of running.
Going to our existing strategies.
Thanks for taking my question.
Thank you and as a reminder, ladies and gentlemen, if you ask a question at this time. Please press Star then one our next question comes from the line of roof is from bank of Montreal. Your question. Please.
Great. Good morning, Thanks for taking my question.
I was hoping you could touch on asset origination and the opportunity you see in private credit I know you already have some established origination channels, but we're seeing some of your peers really double down on this and start to acquire platforms and initiate asset sourcing partnerships should we expect to see more of this from Tal Island. When you go down the acquisition path.
Route.
Thanks.
Hey, Thanks for the question first the credit business has been doing really well the growth. There has been significant we've doubled AUM over the past couple of years the annual rate of growth in Aon has generally been around 20%. If you look at the fund raising very consistent we're coming off of.
Our record setting pace in terms of CLO issuance. The demand there has been fantastic, but we continue to look really at kind of other areas to continue to build out our platform and let me be clear are two things that are a couple of things that are clear one taken a platform approach in terms of how we're building the business to very much focused at the present time on.
Investment grade credit and three were looking at cash yield for our investors and generally been successful in all of those levels. So just to remind people our credit opportunities business is going very well raising its next fund it's been deployment great.
<unk>.
And the performance there has been very strong CLO business already talked about aviation great business, just at a very large transaction again performing exceptionally well.
Expanding in both infrastructure credit real estate credit that provides further opportunities and let's not forget the direct lending business that just had a record origination here in the quarter. So again platform approach to deliver the results.
Thank you.
Our next question comes from the line of Gerry O'hara from Jefferies. Your question. Please.
Great. Thanks.
Maybe just one on on kind of the trajectory of FRE margin from here.
Clearly heard.
Continued focus to build teams and infrastructure as well as.
Obviously, some very strong.
I guess forward looking fee.
Fee related earnings coming online.
Can you help us kind of balance the two.
<unk>.
I'd assume some level of.
Sort of increased spend as we as we move kind of into a post pandemic world, but how we should think about the pace between here and.
You mentioned the.
Ahead of schedule as it relates to the 40% target.
Yes.
Jerry Thanks look.
As I've said before our care much more about FRE and.
On FRE margin and so we're going to first and foremost chase increase in FRE margin as a way to get there, but it's not the end all by itself. The call comes down the dollars in the door. So that's <unk>.
Our number one goal from a margin perspective, we've been growing very nicely. So 34% here in the quarter, 33% year to date, you can see in the global investment solutions business already up to 37%.
A lot of things are really coming together nicely, probably my lowest margin business right now is it still in credit that's because we've been investing in building that platform that should be our leading piece just as we said at the beginning of the year, that's going to grow and really drive a lot of FRE margin expansion as we go forward.
And so look I think we're on track to hit the 40% earlier than 2024 and the exact when we added I don't know, but its going to be sooner than 2024, and we're going to have nice growth coming in next year for all the reasons that I've already said and the business is shaping up real nicely. We're focused obviously on <unk>.
Cost, but more importantly on growing topline revenue.
That's it for me thanks for taking the questions. This morning.
Thanks, Gerry Gerry.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Daniel Harris for any further.
Thank you very much for your time today, we know it's a busy period, we'll look forward to speaking with you on next quarter's call and we'll be at several conferences during the fourth quarter. So.
We'll look forward to that as well have a great day.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Yes.
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