Q1 2022 Ares Management Corp Earnings Call
Class a non voting common stock. This represents an increase of 30% over a dividend for the same quarter a year ago.
The dividend will be paid on June 32020 to holders of record on June 16th.
Now I will turn the call over to Michael <unk>, who will start with some quarterly financial and business highlights.
You Carl and good morning, I hope everyone is doing well.
During 2021, and especially the fourth quarter the financing markets were incredibly active which led to record investment activity for us across most of our strategies.
During the first quarter of 'twenty two the fed stepped up its fight against inflation and we saw a sharp rise in interest rates at the beginning of a protracted bore in Ukraine and prolonged lockdowns in China added further uncertainty and volatility to the typically seasonally slow first quarter.
As a result across many markets general transaction activity slowed yet some financing activity that would typically have tapped the traded markets shifted to the private markets, where there is more certainty of execution and increasing scale to manage larger transactions.
At Ares is part of our DNA to navigate volatility and defined opportunities in transitioning markets.
To that point, despite the challenging backdrop, we continued our strong growth in the first quarter across all of our key financial metrics.
On a year over year basis, our management fees and fee related earnings increased 47% and 59%, respectively, and our realized income increased 62%.
Importantly, our fee related earnings accounted for 93% of our realized income for the first quarter and over 81% for the last 12 months.
Our core FRE growth of 59% is especially gratifying in the face of this volatility and we believe that our prospects remain bright for continued strong growth across all five of our business groups.
With a record 92 billion of available capital to invest a robust fundraising pipeline over the next 18 months and compelling fund performance. We believe that we have strong visibility for continued growth in earnings over the coming quarters and years.
Despite increasing interest rates the global search for reliable income continues unabated as investors are continuing to seek premium returns over the liquid market equivalent with less volatility.
During the first quarter, we raised $13 7 billion of gross capital as new and existing investors allocated funds across our broadening platform.
Existing investors accounted for more than 90% of our direct capital raised during the first quarter and we expect this general trend to continue as we remain largely underpenetrated with our existing investor base.
We believe our continued strong growth reflects our investment performance. The continued scaling of our existing strategies and our expanding offering of new investment strategies and solutions designed to serve our clients we continue.
To aggressively expand in all three of our distribution channels institutional retail and insurance to add investors and to capitalize on the long running growth trends in these markets.
Notable highlights for the first quarter included additional closings for several commingled funds in the market are.
A $1 $1 billion first close on our sixth European real estate opportunistic fund.
<unk> $900 million for our sixth Asian Special situations Fund $1 1 billion across our two landmark secondaries funds 600 million for our special opportunities fund and $400 million for our new APAC direct lending fund.
Our perpetual capital funds also continue to scale and in the aggregate were 63% higher year over year, reaching 83 billion or more than 25% of our AUM.
One notable first quarter highlight was the reopening of our core alternative credit open ended fund, where we raised an additional $1 1 billion.
Our former Black Creek non traded Reits now branded as areas rates also continue to scale and benefit from being part of the Ares platform.
For the first quarter, our two non traded Reits saw inflows totaling $900 million and performance continues to be strong or.
Our credit interval fund also continues to scale with more than half a billion dollars of new commitments and collectively our perpetual capital flows totaled $5 8 billion in the first quarter.
So looking out over the next 12 months, we expect to have more than 25 different co mingled funds in the market, including several of our largest flagship funds expected to launch toward year end.
We expect 2022 will be a solid year fundraising, but the timing of these large flagship fund raises will ultimately dictate the final tally for this year versus next year and in relation to last year's record fund raising levels.
We ended the first quarter with $325 billion.
AUM of 57% versus the same period a year ago.
The vast majority of our AUM growth continues to be organic but we have made strategic acquisitions in segments that we believe are experiencing significant investor demand and that present attractive growth opportunities.
A great example of this is the acquisition of our new infrastructure debt platform, which closed during the first quarter.
We believe that infrastructure needs globally will be significant in the coming decade, driven by population and economic growth increasing privatization of infrastructure assets, the global energy transition and the shift to sustainable and digital infrastructure.
The team is integrating well, we're having positive fund raising discussions and we expect to have more to report on this next quarter.
We believe that our infrastructure debt business is uniquely positioned to meet the need for capital in this space by offering a variety of credit solutions across industries and geographies.
We continue to expand our areas wealth management solutions business, which we believe is the second largest wealth distribution platform owned by any alternative manager.
The group now has over 105 professionals and we are seeking to expand our geographic reach into new overseas markets and to enhance our capabilities.
We continue to make progress increasing our distribution with wire houses and large private banks and we expect to see this begin to reflect in fundraising later this year.
On the new product front, we leveraged our secondary solutions experienced to launch a new secondary private markets fund with more than $250 million, including the seed backing of several institutional investors.
In addition, we filed for a new non traded BDC, which is an area, where we have significant experience as one of the largest BDC managers in the country.
We continued our momentum in the first quarter raising over $2 billion in the retail channel and our retail AUM now stands at 56 billion at March 31, we expect retail fundraising will continue gaining momentum in the coming quarters and years.
Despite the seasonality and volatility that I discussed earlier, we were still active making investments across our strategies during the first quarter.
Certain markets were more impacted temporarily by volatility and this created trading in special situations opportunities for us, whereas other markets remained active and was driven by strong secular trends.
We demonstrated the flexibility scale and breadth of our investment capabilities as we invested more than $16 billion for the first quarter, which compares to just under $13 billion a year ago.
In credit, we experienced a 30% year over year increase in deployment activity.
We continue to focus on high quality franchise assets that we expect will continue to grow and perform well throughout market cycles.
To that point earlier this week, we entered into an agreement where our credit funds will purchase of $2 $4 billion middle market direct lending portfolio from annually capital management.
As a major player in the direct lending sector, we knew this portfolio quite well.
This portfolio acquisition will serve to accelerate our deployment.
Incumbency benefits on new portfolio names and further solidify our relationships with existing and new sponsors.
Deployment across real estate was also strong in the first quarter up 90% year over year, including the additional deployment, we're seeing in our recently acquired industrial funds.
In terms of fund performance rising inflation and interest rates had only a modest impact on certain segments of our portfolio for the first quarter.
Real estate continued its strong performance as the U S real estate equity composite generated gross returns in the first quarter of 10, 4% and 68, 1% for the last 12 month period, and our European Real estate equity composite had gross returns of 5% in the quarter and 32% for the last 12 months.
Our U S and European real estate portfolios continue to benefit from an over waiting to industrial and multifamily properties with significant underway in office retail and hospitality.
In our non traded Reits the performance remains excellent with AI REIT generating a first quarter net return of 17, 2% and a regenerating our first quarter net return of seven 5%.
The performance in our non traded Reits was driven by the strong trends in industrial and multifamily property types Submarket selection across our portfolios high rent growth in utilization rates and higher new rental rates on completion builds above our underwriting base cases.
All of these factors led to strong growth in net operating income across our assets.
Within credit or private credit strategies generated strong returns in the quarter.
Our flagship U S direct lending fund Ares Capital Corporation generated a net return of two 7% in the first quarter and 19, 1% for the last 12 months.
Our European direct lending strategy generated steady gross returns of two 3% for the quarter and 12, 7% for the last 12 months.
Our performance benefited from our asset selection with a focus on defensive industries, along with our predominantly senior secured floating rate portfolio.
In liquid credit, we outperformed our benchmarks in our high yield and global multi asset strategies for the first quarter and 12 month periods with slight underperformance in syndicated loans in the first quarter driven by the inclusion of high yield baskets in some of these portfolios.
And in Asia, Our special situations fund composite generated a gross return of 6% in the quarter and 18, 1% for the last 12 months.
Our private equity returns continue to outperform the volatile public equity markets are a cost composite generated gross returns of negative 1% in the first quarter and positive 30% for the 12 month period, while Arie special opportunities generated gross returns of two 4% in the first quarter and.
36% for the last 12 months.
Our secondary strategies also continued their strong performance with private equity generating gross returns of four 6% for the quarter and 43, 5% for the trailing 12 month period, while real estate generated gross returns of 12, 2% for the quarter and 54, 5% over the trailing 12 months.
And with that I will now turn the call over to Jarrett to walk through the first quarter financial results Garen.
Thank you Mike.
Hello, everyone and thank you for joining us as Mike stated despite the typical seasonal slowdown which was compounded by increased market volatility we achieved strong year over year growth in management fees fee related earnings realized income and ROI per share of class a stock or fund raising platform continued to drive strong organic growth of <unk>.
$13 7 billion when combined with the A&P acquisition, our AUM totaled 325 billion at quarter end up over 6% in the quarter.
Starting with our revenues, our quarterly management fees increased 47% year over year due to strong growth in fee paying AUM.
The stability of our management fees was evident as 94% of our management fees came from either perpetual capital for long dated funds, which allows us to manage our assets for the long term perspective.
We had a small amount of fee related performance revenues in the first quarter from our managed accounts and credit but as we've stated previously we expect 90% plus of Fr PR will come in the fourth quarter as our retail funds in perpetual managed accounts typically crystallize their fees at year end.
Other fee income increased to approximately $20 million in the quarter.
More than triple from the previous year with the increase driven predominantly by property development related fees from our non traded Reits. In addition to our typical capital structuring and origination fees and certain of our direct lending perpetual funds.
For the first quarter, we generated $205 $7 million of FRE and increase of 59% over the first quarter of 2021 and it accounted for over 90% of our realized income in the quarter or.
Our FRE margin for the first quarter totaled about 40%, which was up slightly over the fourth quarter.
And up 150 basis points versus the first quarter of 2021, we.
We believe we continue to be on track for our 20% compound annual growth in FRE in dividends per class a common stock through 2025, and our 45% plus target run rate FRE margin by the end of 2025.
Due to the market volatility in the first quarter realization activity was more modest with $15 $3 million of realized performance income.
However, our accrued net performance income increased five 3% in the quarter and is up 100% year over year to $858 million, reflecting the strong performance of the portfolio and the growth and future realization potential the.
The increase was led by returns on our credit group, which is largely based on cash yields from our portfolio.
We expect a limited impact to asset prices from rising rates at 90% of our debt assets and our credit group are in floating rate instruments, we expect to benefit from the floating rate nature of these assets as interest rates increase further.
Going forward, we believe the companies in our credit portfolio have built significant cushion to absorb the impact of rising inflation and interest rates. For example, our largest credit fund Ares capital, which we believe is generally representative of much of our senior direct lending portfolio reported that its average loan to value and its portfolio was historically low at 44.
Percent net interest coverage stood at two nine times, which is above the 10 year average of two six times.
In addition to strong performance in our non traded Reits in the first quarter drove an accrual on the REIT balance sheets of $95 $5 million of gross performance participation for areas. While this value is not included in our accrued net performance income or our fee related performance revenues since it remains subject to the fund's future returns it is a straw.
<unk> start to the year for these two funds.
At our Investor Day last year in August we outlined the potential for $1 5 billion.
Net realized performance income from European waterfall style funds based on the AUM, we had in such vehicles at that time since our Investor day, we've raised an additional $24 5 billion.
AUM in European style waterfall funds that were not included in that forecast.
Looking at our current accrued net performance income of $858 million $531 million or just over 60% is in European style waterfall phones. We believe a portion of this amount will be recognizable over the next few years and our second quarters realizations. In this area are already pacing ahead of our first quarter's levels.
Realized income for the first quarter totaled $222 million.
Up 62% from the first quarter of 2021 after tax or <unk> per share of class a common stock was <unk> 65 for the first quarter up from 46 cents in the first quarter of 2021.
Turning to AUM and related metrics are assets under management totaled 325 billion, an increase of more than 6% from the fourth quarter and up 57% from 207 billion in the first quarter of 2021, our AUM growth in the first quarter included $8 $2 billion from the acquisition of Anp's infrastructure that business.
Our fee paying AUM totaled $199 billion, a quarter and an increase of approximately 6% from the fourth quarter and up over 55% from the first quarter of 2021.
Our growth in fee paying AUM was primarily driven by a meaningful deployment in our direct lending alternative credit real estate debt and special opportunity strategies, which are paid on invested capital along with $5 billion and fee paying AUM from the infrastructure that acquisition.
With market volatility likely to be a constant theme through 2022.
Well prepared to take advantage of opportunities are available capital grew to a record $92 4 billion and.
An increase of over 62% year over year.
We ended the quarter with $58 2 billion of AUM, not yet paying fees, that's available for future deployment and if deployed corresponds to potential annual management fees totaling $557 million.
Which represents over 30% of our last 12 months total management fees.
Our incentive eligible AUM increased by 5% quarter over quarter, and 54% year over year to $191 8 billion.
Of this amount $71 4 billion was uninvested at quarter end, which represents a meaningful amount of potential future value creation opportunities for us.
Earlier in the first quarter, we opportunistically accessed the debt markets before the spike in interest rates and successfully issued $500 million of 30 year fixed rate senior notes with a coupon of 365%.
Following this issuance our rating agencies have affirmed our company's investment grade rating and we are well positioned with ample liquidity and balance sheet light business model.
We believe this business is well prepared for any market uncertainty ahead of us.
The combination of our management fee centric business model, the perpetual and long duration nature of our assets and a substantial portion of our AUM and credit related or inflation protected assets. We believe will serve to reduce the volatility in our core financial metrics when coupling our ample liquidity with our substantial amount of.
Available capital of 92 billion.
We believe we are well positioned to be opportunistic in a potentially more attractive investing environment.
I will now turn the call back over to Mike for his thoughts and concluding remarks.
Thanks, Jared over the past few months, we have received many questions from investors about how the business may be impacted by the uncertainties ahead of us.
Ares is purpose built to not just withstand but to excel during turbulent markets. We employ a management fee centric model and an asset light balance sheet, which helps drive stability.
We invest primarily in floating rate credit assets and real assets that have some degree of inflation protection and we take a growth mindset and our private equity strategies, while using structural protections to protect downside risk.
We also had extensive restructuring and distressed investing capabilities embedded in a variety of our strategies.
We have a demonstrated track record during volatile markets and we've generated some of our fastest AUM and management fee growth through periods like the great financial crisis, and the recent Covid pandemic.
For these reasons that we remain confident in our growth trajectory, including our long term AUM forecast of $500 billion or more.
By year end 2025.
I want to end by expressing my appreciation for all the hard work and dedication of our employees around the globe I'm also deeply thankful to all of our investors for their continued support of our company.
For your time today, and operator with that we can open the line for questions.
We will now begin the question and answer session. At this time, if you would like to ask a question. Please press Star then one on your Touchtone phone.
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Pause momentarily to assemble the roster.
Okay.
And our first question comes from Craig Siegenthaler with Bank of America. Please go ahead.
Good morning, Michael I Hope you and the team are doing well.
Same hi, Craig.
So we heard Kemps commentary on the ARCC call bound about being more selective in building liquidity, but I wanted to get a sense on the overall credit quality migration of the portfolio. So I was wondering if you could comment on high level trends like restructuring activity early stage delinquencies non accrual inflows and not <unk>.
At ARCC, but across the global direct lending business.
Sure. Thanks, Greg I'm glad you opened with that.
Because I think there's maybe a little bit of a misunderstanding about the durability of the private credit asset class in this type of environment.
And what makes this so unique is we're going into this rate hike cycle with positioning.
At or near all time.
Hi in terms of the credit quality of the book anyway, you look at it so as Kipp talked about if you look at the year over year EBITDA growth within the ARCC portfolio, which is indicative of what we're seeing across the board we saw 20% year over year cash flow growth I don't think that we've seen that before.
That book is positioned with three times interest coverage.
Against prior cyclical averages in the low twos.
We had almost record low non accruals at one 2% at cost.
We are entering at very low loan to value and in that portfolio we were.
Catching at about 45% loan to value. So a significant amount of credit support below and so while I understand that there are folks who are used to expecting credit deterioration in rising rate environments. The reality is there is a long way to go before we would see a rise in rates <unk>.
Serialized as increased defaults and even loss given default in the book I think more importantly, given the floating rate positioning of all of these private credit assets. We would expect the next 100 or 200 basis points of rate increases to be significantly accretive not just to those portfolios, but to the P&L of Ares management, I think Kipp Arts.
<unk> on the ARCC call that if you were to look at the existing position of that book.
The first 100 basis points, we absorbed.
Based on the in place LIBOR floors.
But if you were to expect 200 basis point increase in short term rates that would increase their earnings in excess of 25% from where they are today and I think thats a pretty consistent positioning.
Across the board.
I would drill down a little bit too, whether we're talking about mortgage loans infrastructure loans corporate loans, we are the top of the capital structure in.
In most if not all of these situations with control and so I would not underestimate the value of that equity subordination, that's reflected in those loans to value as we work through the market transition.
So while theres a lot to be mindful of given everything that's happening in the economy.
As well as the rate.
Back drop these tend to be pretty pretty attractive markets for us and one last thing if folks want to look at public information. If you go back and look at the last two periods of rate hikes, what youll see both across the syndicated loan and high yield market, but also within the BDC space is that default performance through those periods of rate.
Relation were below historical averages and that's a combination of cash flow growth outpacing the rising rates and the benefit of some of this equity subordination and I talked about so.
I think we're in a pretty good spot.
Thank you Michael very helpful.
And just had a follow up on inorganic opportunities just seeing what you guys do with the annually accent earlier this week, which provided you an FRE accretive opportunity and just thinking back to the last big Bad Bear market. When you guys acquired the Allied business, but are you seeing other properties like that especially in the BDC space, which could be.
Accretive for Aries.
Yes, I would say.
It's an interesting distinction Craig because you look at an annually earn allied and those those are obviously inorganically those project much more like portfolio purchases in some of the platform acquisitions that we've made bolster accretive bolt both add value in different ways. We are seeing even in the early days of the market transit.
<unk> more opportunities in productive dialog around asset portfolios.
Today, and I think analog is a great example of that some of that is the liquidity position of other players in the market and some of it is in the case of our friends in not only kind of a repositioning and refocus on core strategies and I would expect we'll see more of them.
Thank you Michael.
Thanks, Craig.
The next question comes from Robert Lee with <unk>. Please go ahead.
Robert If you are speaking your line might be muted.
Sorry about that.
Yes, thanks for taking my questions I appreciate it.
Mike and everyone is doing well.
I wanted to talk a little bit about fund raising obviously you talked about.
Your outlook, but can you maybe talk a little bit about what youre seeing from the LP side I mean, obviously, there's been a lot of discussion about it.
Hey cycles may be getting drawn out, but maybe other share other asset classes, having more continued demand could you maybe speak a little bit to what you're seeing and then also remind us as you get to the end of this year into next year, which flagship funds.
Maybe coming back to market with.
Sure.
It's probably two or three things to <unk>.
<unk>, so I'll try to hit them in order, but maybe just as a quick reminder, because we talk about.
An overarching secular trend in our market, which is just the consolidation of share in the hands of the larger platforms across the <unk> landscape.
And that is continuing so I think that folks like areas are having a slightly different experience.
Then maybe smaller or a single asset managers and I think that's being reflected in in the fund raising.
I think what youre, referring to which is something that we are seeing.
But I would say, it's largely as we're experiencing it.
In the private equity side of the house, which is because of the active level of deployment.
That has occurred over the last couple of years, a number of private equity managers are coming back to the market sooner than expected.
The entrenched GP base is spending more time, what I would say re underwriting re ups.
And incumbent relationships versus new.
And so within the private equity.
Part of the market there are probably a number of managers, who are not getting shelf space. Because people are focused on re ups I think that will benefit again, the larger more entrenched managers, who have multiple products in the space, we are not experiencing that.
Other parts of the business.
And our private equity business. The good news is if that trend were to affect US. We just brought our second special ops fund out of the market at the hard cap.
And the cost of funds.
<unk> family is not in the market today that is a fund your latter question, Rob that we would expect.
We'll be coming sometime towards the end of the year or early next year, depending on deployment, that's about 50% deployed today.
But we are not seeing any slowdown in the demand for the real asset side of the business or the credit side of the business.
Uniquely and we talked a lot about just the fundraising backdrop coming into this year 2021 was a record year. We went in with similar commentary to what we told all of you at the beginning of this year, which is.
We've got great momentum and great diversity of strategies and some of this will be timing I think we had a really solid first quarter at 14 billion, but what's unique about the first quarter for the first time in a long time there is no flagship fund in there.
Of of <unk>.
Scale, so what Youll see when you go through the earnings presentation is just a broad distribution of capital gathering across a host of strategies as.
As well as that that higher floor that we're now getting from our perpetual capital vehicles retail vehicles in CLO franchise, and so youre beginning to see the benefit of that diversification and retail positioning.
The Delta as we get into the back half of this year is to kind of how big of a year will it be relative to last year and.
<unk>.
What we'll see next year is really a couple of big funds.
One will be our European direct lending funds.
Obviously, one of the larger fund families on the platform significant market leadership position deployment has been ahead of pace.
And that is one that I can see coming back to market.
A little bit earlier, similar with some of our flagship U S private credit funds.
Our climate infrastructure fund I mentioned a cough.
So there is a not insignificant number of the larger funds that were probably looking at 2023 that may get pulled forward based unemployment at that time.
We'll see as we get through the year, it's really going to be a function of what the investment environment looks like and how the deployment pace picks up.
Great that was helpful. Thanks for taking my questions.
Yes.
The next question comes from Alex Blaustein with Goldman Sachs. Please go ahead.
Hey, good morning.
And Mike just building on the last point you made around capital deployment I was hoping you could expand a little bit how youre seeing the deployment strategy within credit, especially in light of the fact that sponsor activity has been a little slower, albeit maybe maybe sort of temporarily so maybe kind of help us balance the dependency.
On the sponsor community for areas to deploy capital within credit.
Versus the ability to perhaps write larger checks we've seen a lot.
Quite sizable unit tranche deals and you and some of the others have participated in.
Versus maybe some of the opportunistic deployment that could come in the form of again more and more sort of distressed type of opportunities, but helping to kind of frame that a little bit more.
Sure.
I'm going to start with where you ended because we hinted at this in the prepared remarks because of the diversity of our strategies, we're deploying pretty consistently quarter to quarter.
Where that deployment comes from is a function of what the market environment and so if we're in an environment, where new M&A transaction volume is lower particularly within the private equity space that probably means that we're more actively deploying in our special sits opportunistic credit and all.
Turning to credit portfolios.
And so what's happening is we're broadening out the scale and flexibility of the strategies youre seeing more consistent deployment quarter over quarter and you look at what we did in Q1.
Across the entire platform both drawdown in non drawdown funds, we put at $16 $2 billion to work.
Which is 25% plus higher than the first quarter of 2021.
We will only know Alex as we get into the year because Q1 is seasonally slow if you look at the ramp in transaction volume last year, a lot of that volume showed up in Q3, and particularly Q4. So we're actually quite optimistic given the year over year trends the deployment pace will continue.
We're not quite sure exactly where it's going to where it's going to show up.
Kip I think did a good job articulating some of the benefits of our market position in terms of deployment.
We've articulated every quarter the value of these incumbent relationships we have.
Both within the existing portfolio and within the existing equity community, but Q1 is a good example, two thirds of the deployment of the BDC came from within the portfolio.
And that opportunity to continue to deliver capital into the names that we know is they either delever or scale reduces reliance on the new issue and M&A market for for deployment and Thats, a pretty meaningful differentiator for for us given the way that our business is positioned versus someone who is more.
More focused on new volumes.
In other parts of our business is we're just actually seeing share gains in share growth.
Europe , obviously, we have a different market share position there the Asian markets are showing us slightly different opportunities, but everyone's deploying pretty well right now.
And I want to just.
Deemphasize, what reliance on sponsor activity, because I think the businesses kind of outgrown that.
That said in Q2.
And here if you think it would be disagrees that the pipeline is actually starting to build on the PE side, we talked about this on the Q4 earnings call I think kipp appropriately articulated.
Caution in terms of Q1 deployment relative to Q4, but.
But we did say that mitigate to that is once you get through a re pricing we're re rating of the market given the amount of dry powder.
On the sidelines, we would expect transaction activity pick up and at least as I am sitting here today and looking at the shadow pipeline of deals building.
The private equity community is actually starting to pick up activity now that we're getting a better look at what the new valuation environment.
Sure.
Great Super helpful. Thanks.
The next question comes from Kenneth Lee with RBC capital markets. Please go ahead.
Hi, Thanks for taking my question.
I'm wondering if you could just share with us some.
Some thoughts around implications of higher interest rates across the rest of your businesses you talked about credit, but wonder if you could talk about private equity real estate and some of your other businesses.
Yes, we cover direct lending so I won't I won't.
Beat that dead horse, but I do think it's an important takeaway for folks when you look at the amount of our exposures across the private credit landscape. They are all for the most part short duration floating rate assets better through their floors.
And that is going to be a pretty meaningful tailwind for us if.
If you look then at the real assets book, there are inherent inflation hedges in that.
The portfolio on the credit side. They are similarly positioned on short duration.
Loading rate assets and on the equity side I think there is always a debate about the relationship between cap rates and interest rates, but I will tell you based on everything that we're seeing in the portfolios and I think this has to do a little bit with our emphasis on industrial and multifamily property types and being in the right sub.
Markets, even against the backdrop of rising rates, we're seeing utilization rent increases reflected in NOI increases all up into the right.
And we have not seen any kind of corollary to get back on the value side.
And Thats generally what the experience has been historically in these asset classes. I think we are now uniquely positioned to benefit even more than we have in the past given the industrial.
Exposures, there and so it really comes down to P/e and as I've said in the <unk>.
Prepared remarks, we do have an orientation towards growth, but I would say, it's more growth at a reasonable price and so in theory as the discount rate resets one would expect.
To see some.
<unk> application in the portfolio you saw that a little bit in our public exposures this quarter, but our experience has been historically given that we tend to be a little bit less levered than the peer set and given the rate of growth in those portfolios that the growth outpaces.
The value you get back and that's been our experience.
So far.
And given the deployment.
<unk> there to the extent that there is a reset we will have ample opportunity to put capital to work in.
Into that market and I would clarify that is really just the corporate opportunities funds because our special opportunities funds are more credit oriented and there is similarly benefiting from the floating rate positioning of those assets. So very few places in the existing exposures, where interest rates and of themselves are going to have a meaningful impact on.
On the portfolio to the negative.
Gotcha Alright helpful.
One follow up.
If I may.
Wealth management solution as a distribution channel.
Talked about potentially seeing some impact on fundraising later this year I'm just wondering if you could just expand upon that and just give a little bit more color around that thanks.
Sure as we've talked about.
In terms of how we are building out that business, we are expanding the distribution of our existing product in the channel and I'm going to talk just about the non trade, it's putting aside the opportunity to grow the listed vehicles, but three existing funds being our two non traded Reits and our credit interval fund their show.
Nice sequential month over month quarter over quarter and year over year growth.
That's by getting deeper into the platforms that were already on and it also comes with adding new platforms.
And so depending on which fund we're talking about are either going deeper or we're going broader part of the industrial logic to the Black Creek acquisition was the ability to leverage the relationships that we have in areas with the larger platforms to broaden out the distribution of the non traded Reits and Thats, what I am really.
Referring to specifically when we look at it is showing up in the back half of the year, it's really getting those rights.
So a number of new platforms and then there's a secondary growth engine, which is the launch of new product.
And as I mentioned in this quarter, we've launched a new private markets fund.
Around our private equity and secondary capability, which we hope will scale and we have filed but not yet launched our non traded BDC and obviously when that gets through the registration process, we have pretty high hopes just given our brand and position in the private credit space that will show some meaningful momentum in the back half of the year.
The third thing we're working on is the globalization of the wealth management franchise up until today, it's been largely focused on north American distribution and we've been building out our teams and capabilities across the eurozone and APAC region to start globalizing the distribution as well.
Great very helpful. Thanks again.
Thank you.
The next question comes from Finian O'shea with Wells Fargo Securities. Please go ahead.
Hi, everyone. Good morning.
On the question on direct lending.
Sure.
Asset manager peers are increasingly providing these rate structures to insurers.
Is the underlying originated paper overlapping with with typical direct lending now.
And thereby becoming a major competitor.
So the answer is.
It does but I wouldn't say that it's becoming a major competitor I think you just have to think about people access direct lending assets through different mechanisms you can access it through traded Bdcs you can access it through non traded Bdcs you can access it through co mingled fund struck.
<unk> and if you're an insurance company you can access it efficiently through rated notes structures, but the structure in and of itself as we're experiencing is not changing that.
The competitive dynamic in the market, it's really just.
Structural opportunity for folks to access the market in a more effective way for them, but yes, the exposures would be very similar.
Okay. That's helpful and then the <unk>.
Follow on ARCC.
It was a little more active in and follow on equity offering or at the market.
Offering this quarter can you talk about the outlook or if we should think about a certain.
Cadence for growth there in the public BDC.
Jeff do you want to take that one.
Yes, Im happy too.
Can you hear me.
Look I mean issuing equity at the BDC is something that we.
I believe it's good for the long term health of that company.
We continue to believe that emerging from Covid, we've gained a lot of competitive traction and are better positioned.
Most would recall, we haven't raised equity in a material.
Seven years until we did.
A couple of follow on transactions over the last 18 months, but ATM instruments is pretty common I think for our company and for most of the other bdcs along with a whole lot of reasons. We think it allows us to add a little bit of scale as we continue to grow and what's been amazing growth opportunity for that company. So.
A cadence yeah. There are limitations in terms of what you can do obviously you followed the Bdcs you havent been sense for that.
Okay.
Overall, our QC, it's relatively small it's just a way for us to continue to build capital scale, there over time and to do it accretively.
Thank you Kip and Mike.
Thanks Vin.
The next question comes from Adam Beatty with UBS. Please go ahead.
Thank you and good morning, you mentioned being Underpenetrated with your existing client base and so I'm interested in maybe a little bit more detail around your thinking there and what youre seeing particularly I guess in the institutional channel I sort of assume maybe you'll correct me on this.
The retail and the newer insurance channel.
Underpenetrated that makes sense, but in the institutional channel a lot of investors think of that in terms of <unk>.
Mature being very penetrated so just wondering whether in your mind, it's a question of kind of.
More of an allocation to alternatives or more of that allocation going to aries and what might drive the penetration to upward toward the potential for aerie. Thank you.
Sure Hey, Adam It's Jared I, just figured I'd take this one.
Overall, when we talk about penetration we're talking about a lot of it is the number of funds that our investors are invested in right now about 60% of the platform is.
One fund for the Investor and the other 40% about 35% of that is 235.
We're really seeking to broaden the number of funds that our Lps participate in so we feel like we can really grow that greater than five from the 6% or two.
To a much higher number which will allow us further penetration across their wallet gain.
Gain wallet share and Thats really driven things like the recent acquisitions, we've made and the number of platforms that we have that allow our Lps to come in and have a lot of different choices, so that and to Mike's point earlier that it is not one co mingled fund that we're really dependent on in our fund raising but a number of different funds and a number of different.
Offerings that we're able to penetrate our investor base into having a number of products with Aries and you would see a similar breakdown. If you looked at it by strategy. So we're cross selling people across.
Fund families and then across different parts of the business.
The way you see this playing through in the math just to understand it is if you look at number of investors.
In any given year to recently running it's roughly 50 50.
Institutional fundraising so roughly half of the investors that come onto the platform, our new but as I mentioned, 80% to 90% of the dollars.
From these miss things and so we're taking greater share and then as people stay on the platform. They are investing more with us.
Got it thank you for the context and pointing out those numbers I appreciate it.
The next question comes from Michael Cyprus with Morgan Stanley . Please go ahead.
Hey, good morning, Thanks for taking the question I was hoping you could talk a little bit about how your underwriting criteria has evolved in the current environment and how that looks today versus say a year ago.
It's a general question and obviously, we do a lot of.
Things here, Mike, but I'm going to give you a general answer which is our underwriting is the same through market cycles, because if we're doing our jobs well and we're looking at the different scenarios going in we've accounted for all of the things that people are worried about now.
Whether thats ability to service debt.
Our ability to pass through prices.
The cost input increases.
Underwriting framework has not changed nor would I expect it to and that's what's led us to be so successful over our 25 years investing through these different markets that being said, obviously you will over index the analysis and in an environment like this in terms of what risks you are willing to take and when youre willing to take them.
But I'll give you the simple answer that I don't think that good investors changed the way that they approach investing.
I think they change maybe the way that they're thinking about where they are in the cycle, but thats a slightly different.
Perspective.
I guess, maybe the re frac.
Are you moving more senior in the cap structure or are you shifting to more covenant type from covenant light.
Curious, how youre thinking about kind of the credit book.
And again.
Yes, it depends on it depends on which part of the business that you're you're in.
When you get into a market, where there is uncertainty a lot of our strategies will do exactly what you just said, which is de risk either through moving up the capital structure or putting more structural protections in place each of the different strategies is going to express that view differently.
But the answer is yes, and some of that is what you are willing to do and some of that is where you are in the market transition. So one of the reasons that transaction activity slows very early in this type of the market shift is.
Folks like us will have a different view on the structural protections that we would require for a certain return and then we have to price discover and structure discover in the market to see where where things will clear. Once you then reset you'll begin to see the activity pick back up again.
Yes.
So I would say generally people are cautious in their positioning.
As is appropriate, but again not really a fundamental shift in.
And underwriting.
Great if I could just ask a follow up question on the non traded BDC.
Retail private market secondary fund those two retail products that you guys are bringing to the marketplace. I was hoping you could just maybe talk a little bit about how those products are going to be structured it on the non traded BDC side, how that sort of investment strategy differs from your existing BDC.
Yes, so the private markets fund as a ric structure.
That will be largely at least in the early scaling of that fund b, leveraging our secondaries capability, maybe stating the obvious in order for the retail investor to access P/e the way that they want to secondaries works just because it gets rid of the J curve in the administrative difficulties of.
Capital calls and the like that you would need in a larger institutional wrapper.
And that will be a nice complement to our flagship fund families not just in the secondaries business, but also within our <unk> business as it grows.
The non traded BDC, it's interesting because.
To.
The earlier question around fund raising ARCC as a very large pool of capital roughly $20 billion, but it is not accessing equity the way that the non traded peer set is.
Pretty interesting phenomenon, just thinking about how public listed bdcs access equity and grow versus public non listed bdcs.
So we do think that from a capital formation standpoint, it will be complementary to our private credit.
Fund offerings.
In terms of how it will look relative to the public BDC really too early to tell because we have actually launched the fund, but what I will tell you is the required return in the non traded market is fundamentally different than the required return in the public market.
By definition, we would expect the asset mix in the non traded BDC to look meaningfully different than.
What would be in the listed vehicle.
I think we're in a unique position relative to the peer set to bring something unique into that market. As an example, if you look at our integral fund which continues to scale nicely that has very broad based exposures across the entirety of our liquid and illiquid credit platform.
All in one one line item and so I would expect to see a broader diversification across the platform and in the non traded side of the house versus listed if I had to guess.
Great. Thank you.
Again, if you'd like to ask a question press Star then one to join the queue. The next question is a follow up from Robert Lee with <unk>. Please go ahead.
Thanks for taking my thanks for taking my follow up John I, just had a couple of quick really kind of more modeling questions but.
I didn't notice in the quarter seemed like.
The fee rate kind of came down a little bit I don't know if there were just some timing issues there or anything we should be thinking about and also.
I know, sometimes seasonally <unk> could be a low tax rate around may be restricted stock grant vesting or whatnot, but tax rate also seemed a little low can you, maybe just kind of update us on expectations there.
Sure I'd say on the fee rate its really a result of new products coming on to the portfolio.
Mike.
Speed.
Management fee at the 30 bps is lower than our standard 1% fee rate and then you also have some of the impact of the part one fees as that fluctuates up and down that really adds a little bit to your fee rate, but in general when you think about our standard product and our current launches the fees have been consistent so it's really just a timing quarter over quarter.
On the on the tax rate I think it's a pretty consistent rate.
I think we guided to and it's pretty consistent to our total year to date rate from prior year, we expect to be in that let's call it 10% to 15% range on current taxes.
And so I think that there are things to your point that move quarter over quarter that a little bit harder to predict but in general we feel pretty good about that that range.
Alright that was it thank you.
Thanks, Rob.
We have no further questions. So this concludes our question and answer session and I will turn the conference back over to Michael <unk> for any closing remarks.
No. We just as always I appreciate everybody's support for taking the time to spend with us today and look forward to giving people another update next quarter.
Thanks for the time.
Ladies and gentlemen, this concludes our conference call for today.
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