Q2 2024 Ares Management Corp Earnings Call

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Please standby we're about to begin.

Operator: Please stand by; we're about to begin. Good morning, everyone, and welcome to the Ares Management Corporation's second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad, and you may withdraw yourself from the queue by pressing star 2.

Speaker Change: Good morning, everyone and welcome to the Ares Management Corporation second quarter earnings Conference call. At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing star one on your telephone keypad and you may withdraw yourself.

The queue by pressing star too.

Operator: Also, today's call is being recorded. And if you should need any assistance during the call today, please press star zero. And now, at this time, I would like to turn things over to Mr. Greg Mason, Co-Head of Public Markets Investor Relations for Ares Management. Please go ahead.

Greg Mason: Also today's call is being recorded and if you should need any assistance during the call today. Please press star zero and now at this time I would like to turn things over to Mr. Greg Mason co head of public markets Investor Relations for Ares management. Please go ahead Sir.

Greg Mason: Good morning, and thank you for joining us today for our second quarter conference call. Speaking on the call today will be Michael Arougheti, our Chief Executive Officer, and Jarrod Phillips, our Chief Financial Officer. We also have several executives with us today who will be available during the Q&A session. Before we begin, I want to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filing.

Greg Mason: Good morning, and thank you for joining us today for our second quarter Conference call.

Speaker Change: On the call today will be Michael ever Getty, Our Chief Executive Officer, and Gary Phillips, Our Chief Financial Officer. We also have several executives with us today, who will be available during the Q&A session.

Greg Mason: Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statement. Please also note that past performance is not a guarantee of future results, and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Ares fund. 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.

Speaker Change: Before we begin I want to remind you that comments made during this call 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.

Also note that past performance is not a guarantee of future results and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Ares fund.

Greg Mason: 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 reconciliation of the majors to the most directly comparable GAAP measures and note that we plan to file our Form 10-Q later this month.

Greg Mason: Please refer to our second quarter earnings presentation available in the investor resources section of our website for reconciliations of the measures to the most directly comparable gap measure. Note that we plan to file our Form 10-Q later this month. This morning, we announced that we declared our third quarter common dividend of 93 cents per share on the company's Class A and non-voting common stock, representing an increase of 21% over our dividend for the same quarter a year ago. The dividend will be paid on September 30th, 2024, to holders of record on September 16th. Now, I'll turn the call over to Michael Arougheti, who will start with some quarterly business and financial highlights.

Greg Mason: This morning, we announced that we declared our third quarter common dividend of 93 per share on the company's class a nonvoting common stock representing an increase of 21% over our dividend for the same quarter a year ago. The dividend will be paid on September 30th 2024 to holders of record on set.

Speaker Change: Timber 16.

Michael Hara: Now I'll turn the call over to Michael Hara, Getty, who will start with some quarterly business and financial highlights.

Michael Arougheti: Thanks, Greg, and good morning, everyone. I hope everybody's doing well. The macroeconomic backdrop for our business improved in the second quarter, with a stronger transaction environment, solid and stable credit trends, and a recovering real estate market. The improving economic picture is driven by a combination of a better outlook for both inflation and interest rates. Continued labor market strength and increased confidence in a soft landing. Given the more constructive transaction environment, we were more active across many of our investment strategies.

Michael Hara: Thanks, Greg and good morning, everyone I hope everybody is doing well.

Michael Hara: The macroeconomic backdrop for our business improved in the second quarter with a stronger transaction environment solid and stable credit trends and a recovering real estate market.

Speaker Change: Improving economic picture is driven by a combination of a better outlook for both inflation and interest rates continued labor market strength and increased confidence in a soft landing.

Speaker Change: Given the more constructive transaction environment, we were more active across many of our investment strategies. In fact, we invested $26 billion in Q2, our second highest quarter on record and more than 70% higher than the same quarter a year ago.

Michael Arougheti: In fact, we invested $26 billion in Q2, our second highest quarter on record and more than 70% higher than the same quarter a year ago. As we highlighted at our Investor Day in May, we're continuing to see significant institutional and retail demand globally for alternative investment products, particularly within broad credit strategies, but also in opportunistic and value-add real estate, affiliated insurance, infrastructure, and a host of secondary strategies. Q2 was our single best quarter of fundraising in our history, with $26 billion in gross capital raised, bringing the total year-to-date funds raised to $43 billion.

Greg Mason: As we highlighted at our Investor day in May we're continuing to see significant institutional and retail demand globally for alternative investment products, particularly within broad credit strategies, but also an opportunistic and value add real estate.

<unk> insurance infrastructure and a host of secondary strategies.

Speaker Change: Q2 was our single best quarter fundraising and our history with $26 billion in gross capital raised bringing the total year to date funds raised at $43 billion.

Michael Arougheti: For the second quarter, our assets under management grew to a record $447 billion, up 18% versus a year ago. Our strong deployment and fundraising activities supported a 22% year-over-year growth in fee-related earnings for the quarter. We also had another strong quarter of operational performance, as Jarrod will highlight later.

Speaker Change: For the second quarter, our assets under management grew to a record 447 billion up 18% versus a year ago.

Speaker Change: Our strong deployment and fundraising activities supported a 22% year over year growth in fee related earnings for the quarter.

Greg Mason: We also had another strong quarter of fund performance as Jared will highlight later.

Michael Arougheti: Overall, we're pleased with our momentum, the firm's positioning, and the promising outlook for our business. As we've expected for some time, we are seeing a gradual improvement in transaction volume this year for a variety of reasons. The nearly $1 trillion in private equity dry powder that's aging, significant demand from LPs for a return of capital, a stable rate backdrop, and the improving prospects for interest rate cuts, and an economy that remains on solid footing. For Ares, looking across our seven private credit strategies in our credit and real asset groups. Activity was very strong in the second quarter, with gross deployment up over 58% year-over-year.

Overall, we're pleased with our momentum the firms positioning and the promising outlook for our business.

Jared: As we've expected for some time, we are seeing a gradual improvement in transaction volume. This year for a variety of reasons nearly one trillion dollars in private equity dry powder, that's aging significant demand from Lps for return of capital.

Greg Mason: Cable rate backdrop, and the improving prospects for interest rate cuts and an economy that remains on solid footing.

Speaker Change: For Aries looking across our seven private credit strategies, and our credit and real asset groups activity was very strong in the second quarter with gross deployment up over 58% year over year.

Michael Arougheti: In Q2, we deployed approximately $20 billion in our private credit strategies, with net deployment totaling $7.7 billion, more than double Q1 net deployment of $3.3 billion. Looking forward, our investment pipeline suggests continued solid activity, and we have every indication that the second half of the year will continue to be an active deployment environment. The credit quality across our corporate credit assets remains very strong, and recent trends indicate stability. As an example, our U.S. direct lending portfolio companies experienced their second straight quarter of improving organic EBITDA growth, reaching 11% year over year.

Greg Mason: In Q2, we deployed approximately $20 billion in our private credit strategies with net deployment totaling $7 7 billion more than double Q1, net deployment of $3 3 billion.

Greg Mason: Looking forward our investment pipeline suggest continued solid activity and we have every indication that the second half of the year, we will continue to be an active deployment environment.

Greg Mason: The credit quality across our corporate credit assets remains very strong and recent trends indicate stability.

Greg Mason: As an example, our U S direct lending portfolio companies experienced their second straight quarter of improving organic EBITDA growth, reaching 11% year over year.

Michael Arougheti: The portfolio's loan-to-value ratio remains in the low 40% range, which is meaningfully below historical average market levels, and portfolio company leverage multiples are a half turn lower than the prior year. For instance, on its earnings call, ARCC reported a decline in loans on non-accrual to 1.5% and a decline in underperforming loans.

Greg Mason: The portfolio's loan to value ratio remains in the low 40% range, which is meaningfully below historical average market levels and portfolio company leverage multiples or a half a turn lower than the prior year.

Greg Mason: For instance on its earnings call ARCC reported a decline in loans on non accrual to 1.5% and a decline in underperforming loans.

Michael Arougheti: Based on the fundamentals that we're seeing across our U.S. and European corporate credit book, our outlook is for continued solid economic growth in these markets and continued favorable credit performance. That said, we're intensely focused on executing our playbook in more active and, therefore, competitive markets by out-originating our competition, using our deep incumbency advantages, performing rigorous fundamental due diligence, negotiating tight documentation and structures, and staying highly selective. In our real estate strategies, we're seeing market valuations and transaction activity stabilize.

Speaker Change: Based on the fundamentals that we're seeing across our U S and European corporate credit book, our outlook is for continued solid economic growth in these markets and continued favorable credit performance.

Greg Mason: That said, we're intensely focused on executing our playbook and more active and therefore competitive markets by out originating our competition using our deep incumbency advantages performing rigorous fundamental due diligence negotiating tight documentation structures and staying highly selective.

Greg Mason: In our real estate strategies, we're seeing market valuations and transaction activity stabilize.

Michael Arougheti: Operating fundamentals such as rents and occupancy rates remain positive for our core focus areas of industrial and multifamily, which represent nearly three-quarters of our asset values. Within these segments, we continue to benefit from the growth in e-commerce, on-shoring, and positive longer-term supply-demand dynamics. Our deliberate strategy of extending the duration of our industrial lease terms is enabling us to effectively navigate the market as near-term peak levels of supply are being digested. We're also seeing positive trends in adjacent areas such as student housing, single-family rental, and self-storage.

Greg Mason: Operating fundamentals, such as rents and occupancy rates remain positive for our core focus areas of industrial and multifamily, which represented nearly three quarters of our asset value.

Greg Mason: Within these segments, we continue to benefit from the growth in E Commerce, onshoring and positive longer term supply demand dynamics.

Greg Mason: Our deliberate strategy of extending the duration of our industrial lease terms is enabling us to effectively navigate the market as near term peak levels of supply are being digested.

Greg Mason: We're also seeing positive trends in adjacent areas such as student housing single family rental and self storage.

Michael Arougheti: Based upon these improving market trends, our real estate team was significantly more active in the second quarter, with deployment more than doubling the year-ago period, and our pipeline for new transactions continues to build. We also see significant investment opportunities in data centers and the digital infrastructure needed to support the enormous demands of AI growth. We're investing in digital infrastructure across our various businesses, but particularly within infrastructure, alternative credit, and real estate.

Greg Mason: Based upon the improving market trends, our real estate team was significantly more active in the second quarter with deployment more than doubling the year ago period, and our pipeline for new transactions continues to build.

Greg Mason: We also see significant investment opportunities in data centers and the digital infrastructure needed to support the enormous demands of AI growth.

Greg Mason: We're investing in digital infrastructure across our various businesses, but particularly within infrastructure alternative credit and real estate.

Michael Arougheti: Collectively, we've committed nearly $5 billion in digital-related infrastructure, including data centers, towers, and new fiber broadband installations over the past five years. We're also focused on climate infrastructure opportunities and are actively investing in new clean energy projects, including solar, wind, and renewable natural gas. Over the past five years, we've committed approximately $3.2 billion in debt and equity investments in these sectors to meet the growing energy needs across the U.S. In our secondaries businesses, we continue to see opportunities for new investments across our range of liquidity solutions, including purchasing LP portfolios, working with GPs on continuation funds, and providing structured solutions for both GPs and LPs.

Greg Mason: Collectively we've committed nearly $5 billion in digital related infrastructure, including data centers towers, and new fiber broadband installations over the past five years.

Greg Mason: We're also focused on climate infrastructure opportunities and are actively investing in new clean energy projects, including solar wind and renewable natural gas.

Greg Mason: Over the past five years, we've committed approximately $3 $2 billion in debt and equity investments in these sectors to meet the growing energy needs across the U S.

Greg Mason: Within our secondaries businesses, we continue to see opportunities for new investments across our range of liquidity solutions, including purchasing L. P portfolios working with G. P on continuation funds and providing structured solutions for both G P's and L piece overall.

Michael Arougheti: Overall, the secondary market opportunity remains robust as managers and investors alike try to manage liquidity demands in what has been a transitioning valuation environment and a slower M&A and IPO market. Now, let me provide some color on our record fundraising quarter.

Greg Mason: Overall, the secondary market opportunity remains robust as managers and investors alike try to manage liquidity demands and what has been a transitioning valuation environment and a slower M&A and IPO market.

Greg Mason: Now, let me provide some color on our record fundraising quarter.

Michael Arougheti: Across our broad distribution channels, we continue to benefit from increased investor allocations to alternatives, a loyal and expanding client base, and our growing scale. All three of our primary fundraising channels, institutional, wealth, and insurance, are highly productive, and we're seeing a meaningful acceleration in fundraising across our wealth management channel, which has more than tripled so far this year compared to last year. Our broad offering of credit strategies continues to lead the way as our benefits of scale and track record are differentiating factors.

Greg Mason: Across our broad distribution channels, we continue to benefit from increased investor allocations to alternatives, a loyal and expanding client base and our growing scale.

Greg Mason: All three of our primary fund raising channels institutional wealth and insurance are highly productive and we're seeing a meaningful acceleration in fundraising across our wealth management channel, which has more than tripled so far this year compared to last year.

Greg Mason: Our broad offering of credit strategies continues to lead the way as our benefits of scale and track record are differentiating factors.

Michael Arougheti: In Q2, we raised nearly $20 billion in funds, managed accounts, and CLOs within our credit group. As you may have seen from earlier this week, we announced the final closing for our U.S.-focused Senior Direct Lending Fund III, or SDL III, with $33.6 billion of investment capacity. This is the largest institutional private credit fund in the market and is roughly double the $14.9 billion of total investment capital that we raised in SDL 2.

Greg Mason: In Q2, we raised nearly $20 billion and funds managed accounts and cielo is within our credit group.

Greg Mason: As you may have seen from earlier this week, we announced the final closing for our U S focused senior direct lending fund three or STL free.

Greg Mason: With $33 $6 billion of investment capacity.

Greg Mason: This is the largest institutional private credit fund in the market and has roughly doubled to $14 9 billion of total investment capital that we raised in SDL too.

Michael Arougheti: SDL 3's investment capacity included $15.3 billion in fund equity commitments, along with related vehicles, closed leverage, and anticipated leverage of up to $8 billion that could be raised over the next 12 months. We raised $6.4 billion of capital in Q2 and another $1.8 billion in July for this fund. We're also well underway investing in SDL3, having already committed $9 billion of capital to more than 165 companies to date. With respect to our other large private credit institutional fund in the market, Ares' sixth European Direct Lending Fund, we raised another €750 million of equity commitments in the second quarter. This brings total equity commitments to 12.2 billion euros today, or over 18 billion euros of total investment capacity, including anticipated leverage.

Greg Mason: S T L. Three's investment capacity included $15 3 billion in fund equity commitments, along with related vehicles close leverage and anticipated leverage of up to $8 billion that could be raised over the next 12 months we.

Greg Mason: We raised $6 $4 billion of capital in Q2, and another $1 8 billion in July for this fund.

Greg Mason: We're also well underway investing STL three having already committed $9 billion of capital to more than 165 companies to date.

Greg Mason: With respect to our other large private credit institutional fund in the market areas as six European direct lending fund, we raised another 750 million euros of equity commitments in the second quarter.

Greg Mason: This brings total equity commitments to $12 2 billion euros today or over 18 billion euros of total investment capacity, including anticipated leverage.

Michael Arougheti: We expect to raise another one to one and a half billion euros in equity commitments in the third quarter, with additional commitments in the final close expected in Q4. During the quarter, we also continue to raise various funds within our liquid and illiquid credit strategies across our platform. One example is the launch of our Specialty Healthcare Fund, which focuses on direct loans to life sciences companies. We're currently holding our initial closings for this inaugural fund, and we expect to receive commitments totaling approximately $750 million in the coming weeks. We believe that this is a great start for a new product.

Greg Mason: We expect to raise another one to one and a half billion euros in equity commitments in the third quarter with additional commitments and the final close expected in Q4.

Greg Mason: During the quarter. We also continued to raise various funds within our liquid and illiquid credit strategies across our platform.

Greg Mason: One example is the launch of our specialty health care fund, which focuses on direct loans to life Sciences companies.

Greg Mason: We're currently holding our initial closings for this inaugural funds and we expect to receive commitments totaling approximately $750 million in the coming weeks.

Greg Mason: We believe that this is a great start for a new product.

Michael Arougheti: In addition, we priced five new CLOs in the quarter. Year to date, we've already priced seven CLOs, raising $3.6 billion, exceeding our full year record of seven CLOs for $3.3 billion in 2022. Overall, we've raised over $65 billion in the past 18 months across our direct lending strategies. When combined with our fundraising across our other private credit strategies in alternative credit, APAC credit, real estate debt, and infrastructure debt, we've raised approximately $85 billion in private credit AUM over the past 18 months.

Greg Mason: In addition, we've priced five new CLO in the quarter year to date, we've already priced seven CLO raising $3 $6 billion exceeding our full year record of seven C. L OS for $3 3 billion in 2022.

Greg Mason: Overall, we've raised over $65 billion in the past 18 months across our direct lending strategies.

Greg Mason: When combined with our fundraising across our other private credit strategies and alternative credit APAC credit real estate debt and infrastructure debt. We've raised approximately $85 billion in private credit AUM over the past 18 months.

Michael Arougheti: In our real assets group, we're aiming to hold a final close in the third quarter for our fourth U.S. opportunistic real estate fund, bringing total commitments to $2.7 billion. Based on this anticipated final close size, we expect the fund will exceed the commitments of its predecessor fund by 59 percent.

Greg Mason: In our real assets group, we're aiming to hold a final close in the third quarter for our fourth U S opportunistic real estate fund, bringing total commitments to $2 7 billion.

Greg Mason: Based on this anticipated final close size, we expect the fund will exceed the commitments of its predecessor fund by 59% and we believe that this demonstrates meaningful investor support for the strategy and the investment opportunity.

Michael Arougheti: And we believe that this demonstrates meaningful investor support for the strategy and the investment opportunity. We're also off to a great start with our recently launched fourth European value-add real estate fund raising approximately 600 million euros in the second quarter, including related vehicles, with additional capital expected for the first close in the third quarter. We also raised another $1.1 billion in our U.S. real estate debt strategy as we continue to see attractive values and compelling market dynamics with less competition in this sector.

Greg Mason: We're also off to a great start with our recently launched fourth European value add real estate fund raising approximately 600 million euros in the second quarter, including related vehicles with additional capital expected for the first close in the third quarter.

Greg Mason: We also raised another $1 1 billion in our U S real estate debt strategy as we continue to see attractive values and compelling market dynamics with less competition in this sector.

Michael Arougheti: In addition to significant fundraising in our commingled funds, we're also seeing meaningful demand for managed accounts across the platform. For the second quarter and year-to-date periods, we raised $5.4 billion and over $10 billion, respectively, in new commitments in these managed... As I stated earlier, our wealth management business continues to have significant momentum as we penetrate existing distribution, expand into new channels, market to new geographies, and broaden our product set. We are in the early phases of the largest generational wealth transfer in history. And importantly, we believe that we are seeing a very divergent trend in how baby boomers and the younger generations invest.

Greg Mason: In addition to significant fundraising and our commingled funds. We're also seeing meaningful demand for managed accounts across the platform.

Greg Mason: For the second quarter and year to date periods, we raised $5 $4 billion and over 10 billion, respectively in new commitments in these managed accounts.

Greg Mason: As I stated earlier, our wealth management business continues to have significant momentum as we penetrate existing distribution expand into new channels market to new geographies and broaden our product set.

Greg Mason: We're in the early phases of the largest generational wealth transfer in history and importantly, we believe that we are seeing a very divergent trend with how baby boomers and the younger generations invest.

Michael Arougheti: Baby boomers manage their investment wealth primarily in stocks and bonds, but younger investors are seeking to expand their investing toolkit by optimizing their portfolios with increased allocations to private market assets. This trend could have significant positive implications for growing wealth allocations, and we believe that we're beginning to see these trends play out in our current results. During the second quarter, we raised more than $2.5 billion in new equity commitments across our six non-traded products, and inclusive of leverage, we raised $4.5 billion.

Greg Mason: Baby Boomers manage their investment wealth, primarily in stocks and bonds, but younger investors are seeking to expand their investing toolkit by optimizing their portfolios with increased allocations to private market assets.

Greg Mason: This trend could have significant positive implications for growing wealth allocations and we believe that we're beginning to see these trends play out in our current results.

Speaker Change: During the second quarter, we raised more than two and a half billion dollars in new equity commitments across our six non traded products and inclusive of leverage we raised $4 5 billion.

Michael Arougheti: For the year-to-date period, new equity commitments totaled over $4.5 billion, which is over 3.5 times the capital raised in the same period a year ago. Since our last earnings call, we've launched certain non-traded solutions with three additional global distribution partners. Based on these expanded partnerships, we expect flows into our wealth-focused products to continue to gain momentum through the second half of the year. A speeder, Our minority-owned insurance affiliate is on a strong growth trajectory.

Greg Mason: For the year to date period, new equity commitments totaled over four and a half billion dollars, which is over three and a half times the capital raised in the same period a year ago.

Greg Mason: Since our last earnings call, we've launched certain non traded solutions with three additional global distribution partners.

Greg Mason: Based on these expanded partnerships, we expect flows into our wealth focused products to continue to gain momentum through the second half of the year.

Speaker Change: Our speed.

Speaker Change: Our minority owned insurance affiliate is on a strong growth trajectory.

Michael Arougheti: This quarter, ESPITA secured nearly $600 million in additional institutional equity from third-party investors. With more equity capital expected to be raised in Q3, ESPITA is well capitalized and poised for continued expansion. The annuity market is thriving, with sales exceeding a record $400 billion on an annualized run rate in the first half of 2024. ASPITA is benefiting from these industry tailwinds, experiencing robust flows from new retail annuity sales and increased flow reinsurance opportunities.

Greg Mason: This quarter, it's secured nearly $600 million in additional institutional equity from third party investors.

Greg Mason: With more equity capital expected to be raised in Q3 of speed. It is well capitalized and poised for continued expansion.

Greg Mason: The annuity market is thriving with sales exceeding a record 400 billion on an annualized run rate in the first half of 2024.

Greg Mason: Speed is benefiting from these industry tailwind experiencing robust flows from new retail annuity sales and increased flow reinsurance opportunities.

Jarrod Phillips: So overall, with $43 billion raised in the first six months, we're ahead of where we expected to be mid-year, and we believe that we are in a better position to match or potentially exceed the $74.5 billion that we raised in 2023. Our strong first half puts us in an excellent position with record amounts of available capital to deploy. Looking ahead to the next six months, our fundraising is likely to see contributions from a broader and more diverse set of funds.

Speaker Change: So overall with $43 billion raised in the first six months. We're ahead of where we expect it to be mid year, and we believe that we're in a better position to match or potentially exceed the $74 5 billion that we raised in 2023.

Greg Mason: Our strong first half puts us in an excellent position with record amounts of available capital to deploy.

Greg Mason: Looking ahead to the next six months, our fundraising is likely to see contributions from our broader and more diverse set of funds for the year. We expect to have 35 funds in the market across 17 strategies to take advantage of the expected growth in alternative asset allocations.

Jarrod Phillips: For the year, we expect to have 35 funds in the market across 17 strategies to take advantage of the expected growth in alternative asset allocation. And I will now turn the call over to Jarrod to discuss our financial results in more detail. Jarrod?

Greg Mason: And I will now turn the call over to Jared to discuss our financial results in more detail Jared.

Jarrod Phillips: Thank you, Mike, and good morning, everyone. As Mike stated, we continue to deliver strong results. Year-over-year growth of 22% in FRA, along with mid- to high-teens growth in AUM, management fees, and realized income. The record $26 billion we raised in the second quarter helped drive a 29% increase in our AUM not-yet-paying fees, ideally situating us to capitalize on growing activity levels as the markets return to a more normalized state of deployment and realizations in many sectors.

Jared: Thank you, Mike and good morning, everyone.

Jared: As Mike stated, we continued to deliver strong results in second quarter year over year growth of 22% in FRE, along with mid to high teens growth in AUM management fees and realized income.

Jared: The record $26 million, we raised in the second quarter helped drive a 29% increase in our AUM not yet paying fees.

Speaker Change: Daily Situating us capitalize on growing activity levels as the markets return to more normalized state of deployment realizations in many sectors.

Jarrod Phillips: When you combine this AUM not-yet-paying-fees with our FRE-rich earnings mix and future European waterfall realization potential, we believe we offer strong visibility for future earnings to our students. Taking a look at this quarter's earnings, starting with revenues, our management fees totaled over $726 million in the past year.

Speaker Change: When you combine this C U E.

Greg Mason: With our FRE rich earnings mix in future European waterfall realization potential we believe we offer strong visibility for future earnings to our stockholders.

Speaker Change: Taking a look at this quarter's earnings starting with revenues our management fees totaled over $726 million.

Jarrod Phillips: An increase of 17% compared to the same period last year, primarily driven by positive net deployment of our AUM not yet paying fees. Fee-related performance revenues totaled $21.6 million, primarily from our non-traded private equity secondaries product, APMS, along with select credit products at Crystallize. The $15.2 million of FRPR from APMS benefited from AUM growth, which recently reached approximately $1.6 billion in total assets, and was aided by a sizable portfolio purchase in the quarter.

Greg Mason: An increase of 17% compared to the same period last year, primarily driven by positive net deployment.

Speaker Change: P Pes.

Greg Mason: Fee related performance revenues totaled $21 $6 million in the second quarter, primarily from our non traded private equity secondaries product, a PFS along with select credit products that crystallized.

Greg Mason: The $15 $2 million of FRP or from APM FX benefited from AUM growth, which recently reached approximately $1 6 billion in total assets and was aided by a sizeable portfolio purchased in the quarter.

Jarrod Phillips: We would expect AUM growth and APMF to provide long-term tailwinds for additional FRPR generation. However, FRPR from APMF will be more episodic, and accordingly, it will be more difficult to project spikes in FRPR like the one that occurred in this slide.

Greg Mason: We would expect AUM growth in Atms to provide long term tailwind for additional FRP, our generation, however, FRP or from APM.

Greg Mason: We'll be more episodic and accordingly, more difficult to project spikes in PR.

Greg Mason: Correct.

Jarrod Phillips: As a reminder, we anticipate realizing 95% or more of our credit FRPR in the fourth quarter. I do want to point out two expenses running through our G&A in First, our Q2 GNA expenses were impacted by our first ever firm-wide AGM held in May. Typically, we hold multiple investor events resulting in costs spread throughout the year instead of being incurred in a single quarter. As a result of this quarterly spike in annual meeting costs, we expect G&A expenses in the second half of the year to benefit from fewer event expenses.

Greg Mason: As a reminder, we anticipate realizing 95% or more of our credit FRP.

Greg Mason: Sure.

Speaker Change: I do want to point out two expenses running through our G&A in the second.

Greg Mason: First our Q2 G&A expenses were impacted by our first ever firm wide E G.

Speaker Change: Typically we hold multiple investor, resulting cost spread throughout the year instead of being incurred in Singapore.

Greg Mason: As a result of this quarterly spike in annual meeting costs, we expect G&A expenses in the second half of the year, we benefit from fewer event expenses.

Jarrod Phillips: Second, as we continue to scale our wealth management distribution, we incur greater supplemental distribution fees. These fees totaled $15.3 million, an increase of $6.2 million compared to Q1. Importantly, these fees will be partially offset as we recoup a majority of these expenses over time by reducing employee compensation paid with respect to Part 1 fees or FRPR for the associated funds.

Greg Mason: Second as we continue to scale, our wealth management distribution, we incur greater supplemental distribution fees. These fees totaled $15 $3 million, an increase of $6 $2 million compared to Q1 importantly, these fees will be partially offset as we recoup a majority of these expenses over time by reducing employee compensation payment.

Speaker Change: Part one fees more F. Our PR for the associated bonds.

Jarrod Phillips: In the quarter, FRE totaled approximately $325 million, up 22% from the previous year, driven by higher management fees and a margin improvement of 130 basis points. 42.1 In the second quarter, we generated more than $40 million in net realized performance income, driven mainly by credit funds. European-style Realized income in the second quarter was $363 million in 16, After-tax realized income per share of Class A common stock was $0.99, up 10% from the second quarter of 2020. As of June 30, our AUM stood at $447 billion, up 18% from the year-ago period. Our fee-paying AUM reached $270,000 at the end of the quarter, up 14%.

Greg Mason: In the quarter FRE totaled approximately $325 million.

Greg Mason: Of 22% from the previous year, driven by higher management fees, and a margin improvement of 130 basis points, 42%.

Greg Mason: In the second quarter, we generated more than $40 million net realized performance income driven mainly by credit funds European style waterfalls realized income in the second quarter was $363 million, a 16% decrease over the previous year and after tax realized income per share of class a common stock was <unk> 99 of 10.

Greg Mason: From the second quarter of 2023.

Greg Mason: As of June 30, our AUM stood at $447 billion.

Greg Mason: 18% from the year ago period.

Greg Mason: Our fee paying AUM reached $276 million at the end of the up 14% from the previous year.

Jarrod Phillips: Following sustained fundraising momentum, our AUM not-yet-paying fees available for future deployment increased to approximately $71 billion, representing $675 million in potential annual management. Our incentive eligible AUM increased by 17% compared to the second quarter of 2020, reaching $259. Of this amount, over $86 billion is uninvested, representing significant performance income potential. In the second quarter, our net accrued performance income declined slightly to $919 million, primarily due to the reversal of carried interest in certain corporate private equity and opportunistic credit.

Greg Mason: Following sustained fundraising momentum our AUM not yet paying fees available for future deployment increased to approximately $71 billion at quarter end, representing $675 million in potential annual management fees.

Greg Mason: Our incentive eligible AUM increased by 17% compared to the second quarter of 2023, reaching $259 billion.

Greg Mason: Amount over $86 million Uninvested, representing significant performance income potential in.

Greg Mason: In the second quarter, our net accrued performance income declined slightly to $919 million, primarily due to reversal of carried interest in certain corporate private equity and opportunistic credit funds due to the change in stock price, our position and the savers value village.

Jarrod Phillips: Due to the change in the stock price, our position in SABR's value increased. However, this was partially offset by growth in our net accrued performance income and our credit strategies as the performance, driven by interest income, meaningfully exceeded the hurdle. Of the $919 million of net accrued performance income at Quarter End, $783 million, just over 85%, was in European-style warfare, with nearly $460 million from funds that are out of their re

Greg Mason: This was partially offset by growth in our net accrued performance income in our credit strategies as the performance driven by interest income meaningfully exceeded the current rates.

Greg Mason: On the $919 million of met accrued performance income quarter at $783 million just over 85% was in European style waterfalls.

Greg Mason: Nearly $460 million from funds that are out of their reinvestment periods.

Jarrod Phillips: For the second half of 2024, we're estimating an additional 60 to $70 million of net realized performance income from European style funds, with nearly all of that amount recognized. For 2025, we estimate our 2025 European style net realized performance income will be in a range of $225 to $275 million. The slight decrease in our 2025 estimate is primarily related to one fund where we currently anticipate our realization timing could shift from the end of 2025 into 2020.

Greg Mason: For the second half of 2024, we're estimating an additional $60 million to $70 million of net realized performance income from European style phones with nearly all of that amount recognized in the fourth quarter.

Greg Mason: For 2025, we estimate our 2025 European style net realized performance income will be in a range of $225 million to $275 million.

Greg Mason: The slight decrease in our 2025 estimate is primarily related to one fund where we currently anticipate our realization timing could shift from the end of 2025 into 2026.

Jarrod Phillips: However, the total net realized performance income expected over the life of this one fund is largely unchanged. For 2025, it's best to assume that 60% of our annual European-style performance income will be realized. 30% in the second quarter, and about 10% spread across the third and first quarters from this earlier. The current seasonality of our European-style LARP law realizations is primarily due to the early stage of our larger eligible credit funds that make tax deductions, which we realize is net performance income compared to older, smaller European-style funds, which are realizing the full net performance income payable near the end of their fund life. This seasonality will persist until several of our larger European funds start regularly realizing performance income toward the end of their fund lives, potentially beginning in 2020.

Greg Mason: However, the total net realized performance income expected over the life of this one fund is largely unchanged.

Greg Mason: For 2025, it's best to assume that 60% of our annual European style performance income will be realized in the third.

Greg Mason: 30% second quarter, and about 10% spread across the third and first quarters from scratch.

Greg Mason: The current seasonality of our European style waterfall realizations, primarily due to the early stage of our larger eligible credit funds.

Greg Mason: Sure.

Greg Mason: Which we realized net performance income compared to older smaller European style funds, which are realizing the full net performance income payable near the end of the.

Greg Mason: The seasonality will persist for several of our larger European funds start regularly realized performance income toward the end of their fund lives potentially beginning of 'twenty.

Jarrod Phillips: Finally, I'd like to discuss our recent fund performance, which is highlighted by broad outperformance within our private credit strategy. Across our credit group, our strategy composites all generated double-digit gross returns over the past 12 months. Our credit portfolios continue to see positive fundamental growth in default, and we believe we're very well positioned for a variety of economic scenarios, particularly as approximately 95% of our corporate credit assets are senior capital. Across real assets, we generated gross returns and infrastructure debt of 2.3% for the quarter and 9.7% in the last 12 months.

Speaker Change: Finally, I'd like to discuss our recent fund performance, which was highlighted by broad outperformance with our private credit strategies across our credit group our strategy composites all generated double digit gross returns over the past 12 months, our credit portfolios continue to see positive fundamental growth characteristics and we believe we're very well positioned.

Greg Mason: For a variety of economic scenarios, particularly as approximately 95% corporate credit assets are senior in the capital structure.

Jarrod Phillips: And as we highlighted in our investor day, our real estate equity strategies are delivering strong returns relative to comparable market equivalents. As Mike discussed, we continue to see positive fundamentals in our real estate portfolios, and we're beginning to see signs of a market recovery, including stable to slightly improving overall value. Our Corporate Private Equity Composite had a gross return of 0.4% in the quarter and 0.5% on an LPM basis. The returns in the second quarter were impacted by our large position in Savers Value Village in Acoff.

Greg Mason: Across real assets, we generated gross returns in infrastructure debt of two 3% for the quarter and nine 7% in the last 12 months as we highlighted at our Investor day, our real estate equity strategies are delivering strong returns relative to comparable marketing platforms.

Greg Mason: As Mike discussed we continue to see positive fundamentals in our real estate portfolios and we're beginning to see signs of a market.

Mike: Including stable to slightly improving overall values.

Mike: Our corporate private equity composite gross return was 4%.

Speaker Change: And <unk>, 5% LTV.

Speaker Change: The returns in the second quarter were impacted by our large possession in San Fran you village.

Jarrod Phillips: However, our most recent corporate private equity fund, ACOF-6, generated gross quarterly and 12-month returns of 7.2% and 22.2%, respectively, and has a since inception gross internal rate of return of 24.5%. Our corporate private equity portfolios continue to demonstrate strong fundamentals with year-over-year EBITDA growth showing acceleration into the mid-teens. Now, I'll send it back to Mike for closing comments.

Mike: However, our most recent corporate private equity fund a cough six generate gross quarterly and 12 month returns of seven 2% and 22, 2%, respectively and has since inception gross internal rate of return of 24, 5%.

Mike: Our corporate private equity portfolio has continued to demonstrate strong fundamentals with year over year EBITDA growth showing acceleration into the mid teens.

Greg Mason: Now I will send it back to Mike for closing comments.

Michael Arougheti: Thanks Jarrod. At our Investor Day in May, we highlighted the breadth of our platform, the depth of our management team, and our focus on generating consistent and high-quality growth with our balance sheet light model. We also highlighted the significant positive secular drivers influencing our business, including assets moving out of the banking system to private credit, the significant need for infrastructure investment, Consolidation of GP Relationships for institutional investors, Growing Wealth Management Allocations, and the Compelling Opportunities in Secondaries and Insurance.

Mike: Thanks, Jared at our Investor day in May we highlighted the breadth of our platform the depth of our management team and our focus on generating consistent and high quality growth with our balance sheet light model.

Mike: We also highlighted the significant positive secular drivers influencing our business, including assets moving out of the banking system to private credit the significant need for infrastructure investment.

Mike: Consolidation of GP relationships for institutional investors growing wealth management allocations and the compelling opportunities in secondaries and insurance. We believe that this quarter's results demonstrate the power of our platform and how we are benefiting from many of these compelling trends.

Michael Arougheti: We believe that this quarter's results demonstrate the power of our platform and how we're benefiting from many of these compelling trends. We remain optimistic about the future outlook. We have one of the largest pools of available investment capacity in the alternative investment industry in what we believe will be an improving transaction environment. Investment performance remains strong across our key investment strategies, and we continue to see significant investor demand for our products.

Speaker Change: We remain optimistic about the future outlook.

Mike: We have one of the largest pools of available investment capacity in the alternative investment industry and what we believe will be an improving transaction environment.

Greg Mason: <unk> performance remained strong across our key investment strategies, and we continue to see significant investor demand for our products.

Michael Arougheti: As always, our talented team, collaborating across the globe, drives the current and future success of our business, and I'm deeply grateful for their hard work and dedication. And I'm also deeply appreciative of our investors' ongoing support for our company. Operator, we can now open up the line for questions.

Greg Mason: As always our talented team collaborating across the globe drives the current and future success of our business and I'm deeply grateful for their hard work and dedication and I'm also deeply appreciative of our investors ongoing support for our company.

Speaker Change: And operator, we can now open up the line for questions.

Operator: Thank you, Mr. Arougheti. Ladies and gentlemen, at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that's star 1 for questions. We'll go first this morning to Craig Siegenthaler at Bank of America.

Speaker Change: Thank you Mr. Eric Yeti, ladies and gentlemen at this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star two.

Speaker Change: Once again Thats star one for questions. We'll go first this morning to Craig Siegenthaler at Bank of America.

Craig Siegenthaler: Thank you. Good morning, Mike, Jarrod. I hope everyone is doing well.

Mike: Thank you good morning, Mike Jared Hope everyone is doing well.

Craig Siegenthaler: We were looking for an update on the private wealth channel with net flows tripling year over year. So at your Investor Day, you laid out plans to launch two to four more product shortly so how's that going.

Speaker Change: Looks like infra secondaries, and maybe our retail Pathfinder E. B F type vehicles to give you the biggest gaps and then I know you're managing capacity pretty tightly with Ace F. When we ship join a second or third wire in the U S.

Speaker Change: So that's a lot that's a lot of questions.

Speaker Change: I'll see if I get to all of them and if we Miss one just.

Speaker Change: Let us know so momentum continues as we articulated in Q2, we had $4 $5 billion of capital raised across the platform. We're pleased with the scaling that we're seeing in the new products like Pms Acis and ASF.

Speaker Change: Our integral fund continues to see positive flows.

Speaker Change: And while we've seen slowing net flows in our two Reits I think unlike some of the peer products. We are still seeing positive net inflows into those two products as well we.

Craig Siegenthaler: We were looking for an update on the private wealth channel, with net flows tripling year over year. So at your investor day, you laid out plans to launch two to four more products shortly. So how's that going?

Speaker Change: We are in the process of introducing new products into the channel.

Craig Siegenthaler: It looks like infrasecondaries and maybe a retail pathfinder, ABF-type vehicles, maybe the biggest gaps. And then I know you're managing capacity pretty tightly with ASIF. When will ASIF join a second or third wire in the US?

Speaker Change: I would expect that.

Speaker Change: The next product that we would put in would be in and around our infrastructure business.

Speaker Change: And as you pointed out Craig given the breath of our private credit platform and the success that we're enjoying there there may be some opportunities to provide dedicated access to certain parts of that franchise as well.

Speaker Change:

Speaker Change: <unk> continues to broaden its distribution we have actually.

Speaker Change: <unk> been approved on another distribution platform there and so that is moving forward. According to plan.

Speaker Change: A bright spot also worth mentioning that we did not highlight in the prepared remarks is the international expansion of our wealth distribution continues to accelerate and 30% to 35% of our flows are now coming from outside of the U S market and so the investments that we're making there to broaden out the.

Speaker Change: <unk> are bearing fruit pretty early in.

Speaker Change: And the build out.

Michael Arougheti: So that's a lot. There are a lot of questions. I'll see if I can get to all of them.

Speaker Change: I think that was that did I Miss anything.

Michael Arougheti: And if we miss one, just let us know. As we articulated, momentum continues. In Q2, we had four and a half billion dollars of capital raised across the platform. We're pleased with the scaling that we're seeing in new products like PMF, ASIF, and ASIF. Our Interval Fund continues to see positive flows, and while we've seen slowing net flows in our two REITs, I think, unlike some of the peer products, we are still seeing positive net inflows into those two products as well.

Speaker Change: Now Mike you covered it.

Speaker Change: Just do I get a follow up I forget if it's a one question or one and a follow up you guys. Yes.

Michael Arougheti: We are in the process of introducing new products into the channel. I would expect that the next product that we would put in would be in and around our infrastructure business. And as you pointed out, Craig, given the breadth of our private credit platform and the success that we're enjoying there, there may be some opportunities to provide dedicated access to certain parts of that franchise as well. [inaudible] ACIF continues to broaden its distribution.

Speaker Change: Yes go ahead.

Michael Arougheti: We have actually been approved on another distribution platform there, and so that is moving forward according to plan. A bright spot also worth mentioning that we did not highlight in the prepared remarks is that the international expansion of our wealth distribution continues to accelerate, and 30 to 35 percent of our flows are now coming from outside of the U.S. market. And so the investments that we're making there to broaden out the distribution are bearing fruit pretty early on in the build out. I think that was it. Did I miss anything?

Craig Siegenthaler: No, Mike, you covered it. And just do I get a follow-up? I forget if it's one question or several in a follow-up.

Mike Jared: Okay. So my my follow up is on credit quality and so it's nice to see a positive inflection non accruals at ARCC.

Speaker Change: Good for Aries, but you guys have always outperformed the industry. So my question is a little more industry related is private corporate direct lending.

Craig Siegenthaler: Yes, go ahead. Okay, so my follow-up question is on credit quality. And so it's nice to see a positive inflection in non-accruals at ARCC. You know, that's good for Ares, but you guys have always outperformed the industry. So my question is a little more industry related. Is private corporate direct lending? Is the industry past the peak and non-accrual defaults and write-downs? Or do you expect the industry to continue to see some deterioration, even though your book is getting better? Yeah, look, I think...

Speaker Change: Is the industry passed the peak and non accruals defaults and write downs or do you expect the industry to continue to see some deterioration even though your book is getting better.

Michael Arougheti: Yeah, look, I think the longer you go into a cycle like the one that we're in, default rates should go up. And we've been pretty clear on that both in our calls here and at ARCC, but we do not see them going up to a level that we would, you know, classify as alarming or approaching what we've seen in COVID or GFC.

Speaker Change: Yes look I think the longer you go into <unk>.

Speaker Change: Cycle like the one that we're in.

Speaker Change: Default rates should go up and we've been pretty clear on that both in our.

Speaker Change: Calls here and at ARCC, but we do not see them going up to a level that we would.

Speaker Change: Classify as alarming or approaching what we've seen in COVID-19 or Dfc, we remind people that there are things called good old fashion credit cycles and.

Michael Arougheti: We remind people that there are things called good old-fashioned credit cycles and, you know, defaults happen, and the market moves on. Yes, we are outperforming the market, and you are beginning to see underperformance in certain portfolios. But I would highlight, given, you know, our prominence in the market and some of our other large competitors who are putting up similar types of performance, that I think, on an indexed basis, credit performance in the private credit space will, you know, continue to, you know, maybe outperform relative to people's expectations.

Speaker Change: Defaults happen in the market moves on.

Speaker Change: Yes, we are outperforming the market and you are beginning to see underperformance in certain portfolios, but I would highlight given our.

Speaker Change: Our prominence in the market and some of our other large competitors, who are putting up similar types of performance, but I think on an index basis the credit performance.

Speaker Change: And the private credit space will continue.

Speaker Change: Continue to.

Speaker Change: Maybe outperform relative to People's expectations, I'd remind folks and we've talked about this before that a lot of the stresses that we've seen coming through in this cycle has been liquidity driven as a result of the run up in rates and not necessarily due to the erosion in earnings and so now as we all expect that we're on the front.

Michael Arougheti: I'd remind folks, and we've talked about this before, that a lot of the stresses that we've seen coming through in this cycle have been liquidity-driven as a result of the run-up in rates and not necessarily due to the erosion in earnings. And so now, you know, as we all expect that we're on the front end of the cutting cycle, even if we see earnings can, you know, recede, you're going to get some relief back from the cut in rates.

Speaker Change: And of the cutting cycle, even if we see earnings.

Speaker Change: Recede youre going to get some relief back from the cutting rates, so that that will temper future defaults.

Michael Arougheti: So that that'll temper future defaults. And the setup from a capital structure standpoint, and this is probably the most important at this point in the cycle relative to past cycles, just significantly different. I highlighted where our portfolios sit from a loan to value basis in the low 40 percent range. I believe that the private credit market is comparable, and I would not undervalue how important the amount of equity in these structures is to mitigate future credit deterioration and credit risk.

Speaker Change: And the setup from a capital structure standpoint, and this is probably the most important at this point in the cycle relative to past cycles, just significantly different and I highlighted where our portfolio sit from a loan to value basis in the low 40% range I believe that the private credit market is comparable.

Speaker Change: And I would not undervalue, how important the amount of equity in these structures is to mitigate future credit deterioration in credit risk. It's just that the level of equity subordination that we havent seen in prior credit cycles, and I think when the story gets written on the other side of this that that will be a big part of the risk mitigation store.

Michael Arougheti: It's just a level of equity subordination that we haven't seen in prior credit cycles. And I think when the story gets written on the other side of this, that will be a big part of the risk mitigation story. So, yeah, yes, we're outperforming, but I don't read through that. There's broad-based underperformance right now.

Speaker Change: So, yes, we're outperforming but I I I don't read through that.

Speaker Change: There is a broad based underperformance right now.

Speaker Change: Thank you Mike.

Steven Chubak: Thank you. We go next to Steven Chubak at Wolf Research.

Speaker Change: Thank you. We'll go next now to Steven Chu back at Wolfe Research.

Speaker Change: Okay.

Steven Chubak: Hi, good morning, Mike. Good morning, Jarrod. Good morning.

Steven Chu: Hi, Good morning, Mike Good morning Jared.

Speaker Change: Okay.

Speaker Change: So good morning wanted to I wanted to start off with a question just on your M&A strategy, we saw the equity issuance during the quarter. It certainly has prompted more speculation on strategic M&A.

Steven Chubak: I wanted to start off with a question just on your M&A strategy. We saw the equity issuance during the quarter. It certainly has prompted more speculation on strategic M&A. Just thinking back to slide 36 at Investor Day, you listed a number of areas where you might look to grow organically: insurance, Asia real estate, global infra, and digital infra were the main four. How would you rank those areas in terms of priority? And with some of the macro indicators softening, and expectations for rate cuts, is there any improvement in valuations for potential M&A targets?

Speaker Change: I'm just thinking back to slide 36 that Investor Day, you listed a number of areas, where you might look to grow Inorganically insurance Asia real estate globally and for a digital enterprise, where the main four just how would you rank those areas in terms of priority and with some of the macro indicators softening or expect.

Speaker Change: Station for rate cuts is there any improvement in valuations for potential M&A targets.

Michael Arougheti: Sure. So, look, we highlighted on our investor day where we see, if not gaps in our product and capability set, large addressable markets where scale matters, and we may look to inorganically scale up to go after that growth. That view has not changed.

Speaker Change: Sure so.

Speaker Change: Look we have highlighted on our Investor day, where we see if not gaps in our product and capability set large addressable markets, where scale matters and we may look to inorganically scale up to go after that growth that view has not changed.

Michael Arougheti: The bar continues to be very high, as we've talked about. We want to see a really good strong cultural fit. We want to see strong financial accretion, and we want to be able to have a strategic roadmap to drive value into any acquired business similar to what we've demonstrated with the acquisition of Landmark and Black Creek and others that we also walked through on Investor Day. I do think that the prospect of rate cuts will obviously, you know, relieve some pressure and maybe catalyze some deal flow. I can't say for sure, but we are seeing that in the private markets business generally, so I would imagine that that could flow through into the asset management space.

Speaker Change: The bar continues to be very high as we've talked about we want to see a real good strong cultural fit we want to see strong financial accretion and we want to be able to have a strategic roadmap to drive value into any acquired business similar to what we've demonstrated.

Speaker Change: With the acquisition of landmark and Black Creek, and others that we also walked through on the Investor day.

Speaker Change:

Speaker Change: I do think that the prospect for rate cuts will obviously.

Speaker Change: Relieve some pressure and maybe catalyze.

Speaker Change: Some some deal flow I can't say for sure, but we are seeing that in the private markets business generally so I would I would imagine that that could flow through into the asset management space.

Michael Arougheti: But at the end of the day, when you look at where we've been able to do these deals, they tend to be bilateral, non-competitive, and, as we highlighted on Investor Day, when you look at the acquisition multiples, you know, they've been at pretty attractive levels, and I think we're going to stick to that type of discipline in buying high-quality businesses that we can make better at discounts to our... In terms of the equity raise, I wouldn't read too much into that.

Speaker Change: But at the end of the day when you look at where we've been able to do these deals they tend to be bilateral.

Speaker Change: Non competitive and as we highlighted on the Investor day, when you look at the acquisition multiples.

Speaker Change: They've been at pretty attractive levels, and I think we're going to stick to that type of discipline.

Speaker Change: Buying high quality businesses that we can make better at discounts to our.

Speaker Change: To our trading multiple in terms of the equity raise I wouldn't read read too much into that.

Michael Arougheti: We also talked about on investor day that we continue to invest in a lot of organic growth initiatives. We're launching new businesses, life sciences is one example. We're investing up and down our wealth product set. So when you look at the size of that raise relative to the market cap of the company, that was really just to de-lever a little bit and position ourselves to continue to invest in growth.

Speaker Change: We also talked about it on the Investor day that we continue to invest in a lot of organic growth initiatives. We are launching new businesses life Sciences. As one example, we're investing up and down.

Speaker Change: Our wealth product set so when you look at the size of that raise relative to the market cap of the company that was really just to.

Speaker Change: Delever, a little bit and position ourselves to continue to invest in growth.

Steven Chubak: Thanks for that color, Mike. And just for my follow-up on the gross versus net origination dynamic, so gross deployment clearly strong in the quarter, and it is also encouraging to see some improvement in that gross to net origination ratio, but still indicating continued elevated levels of refi activity. You noted deployment will likely remain strong in the back half, and I just wanted to get a sense as to how you expect that ratio will likely trend. Do you expect further improvement in the back half?

Speaker Change: Thanks for that color, Mike and just for my follow up on the gross versus net origination dynamic so gross deployment clearly strong in the quarter.

Speaker Change: Also encouraging to see some improvement in that gross to net origination ratio.

Speaker Change: But it's still indicating continued elevated levels of refi activity. You noted a deployment will likely remain strong in the back half and just wanted to get a sense as to how you expect that ratio will likely traject do you expect further improvement in the back half.

Michael Arougheti: I think we do. You know, we obviously have a three to six month forward view on our pipelines. And as Kort talked about on the ARCC call, you know, the backlog and pipeline just there alone was $3 billion. And when we look at the composition of the pipelines, it is definitely skewing towards new transaction activity. And away from, you know, the pure refi and kind of incumbent deal flow, we're beginning to see other parts of the platform, you know, thaw. Real estate is beginning to show increasing signs of activity, you know, after a pretty slow 12 to 18 months.

Speaker Change: I think we I think we do.

Speaker Change: We're obviously, we have a three to six months forward view on our pipelines and then us.

Speaker Change: Cort talked about on the ARCC call the backlog and pipeline just there alone was $3 billion and when we look at the composition of the pipeline that is definitely scaling towards new transaction activity and away from the pure refi and kind of incumbent deal flow, we're beginning to see other parts of the <unk>.

Speaker Change: Platform.

Michael Arougheti: So I would expect that deployment will hold, and then we'll see the gross to net improve. Just as a data point, if you were to go back and look kind of at historical levels, our 2023 average gross to net was about 50%. And that's come down dramatically. And so I think that the trend line is in place, and I think it's going to continue.

Speaker Change: For real estate is beginning to show increasing signs of activity.

Speaker Change: After a pretty slow 12 to 18 months, so I would expect that deployment will hold.

Speaker Change: And then we'll see the gross to net improve just as a data point. If you were to go back and look kind of at historical levels. Our 2023 average gross to net was about 50%.

Speaker Change:

Steven Chubak: That's a great color. Thanks for taking my question.

Speaker Change: That's great color thanks for taking my questions.

Speaker Change: Sure.

Alexander Blostein: Thank you. We go next to Alex Blostein of Goldman Sachs.

Speaker Change: Thank you. We'll go next now to Alex Blaustein of Goldman Sachs.

Alexander Blostein: Hey guys, good morning.

Speaker Change: Hey, guys. Good morning, Thanks for the question.

Alex Blaustein: I wanted to start with a bit of a discussion on our wealth distribution fees and kind of how how those dynamics are evolving so really nice momentum obviously on gross sales and you have a couple of other products and platforms on the comp.

Alexander Blostein: Thank you for the question. I wanted to start with a bit of a discussion on wealth distribution fees and kind of how those dynamics are evolving. So really nice momentum, obviously, on growth sales, and you have a couple of other products and platforms on the horizon.

Alexander Blostein: What kind of changes are you seeing, if any, from how distributors charge for that? We've been hearing there's been maybe a little more kind of harmonization on the placement fee structure. So how does that play out? I know there's a little bit of a higher fee that Jarrod, that you highlighted on the call as well, $15 million. So was that a one-time placement fee from some of the closed-end funds, or should we expect just a generally higher run rate G&A expense from distribution?

Speaker Change: What kind of changes are you seeing if any from how distributor distributors charge for that we've been hearing there's been maybe a little more kind of harmonization on placement fee structure. So how does that play out I know, there's a little bit of a higher fee that Garrett that you highlighted on the call as well as $15 million. So was that a onetime placement fee from some of the closing.

Speaker Change: Funds or we should expect a just kind of generally higher run rate G&A expense from distribution.

Jarrod Phillips: Why don't you handle the second part? Yeah, yeah. Sounds great.

Speaker Change: Maybe Eric why don't you handle the second.

Eric Yeti: Yes, yes.

Speaker Change: It sounds great.

Jarrod Phillips: So Alex, that is actually kind of a run rate based on what we did on the Wealth Management Channel for the quarter. So, as we see more fundraising in that channel, we would expect to see more expense there. The one thing that I'll remind you, which I also add in my prepared remarks, is that as we calculate the Part 1 or the FRPR, depending on the product, we do recoup those amounts out of employee expenses first, so that it really is about a 40% impact of that overall cost that flows through in terms of a margin or G&A expense headwind, but I view that as much as you can view an expense as a positive, I generally view it as a positive expense because it means that we're continuing to fundraise and that we're continuing to build a base in those products, which we can scale off of, and the fact is we're still in the very early innings of these products, so as we build more scale there, these numbers will be smaller and smaller in relation to that.

Eric Yeti: So as we see more fundraising in that channel, we would expect to see more expense there. The one thing I'll remind you, which I also add in my prepared remarks is that as we calculate the PARP, one or the FRP or depending on the product.

Speaker Change: Do we.

Speaker Change: Recoup those amounts out of employee expenses first event.

Speaker Change: It really is about a.

Speaker Change: Margin of our G&A expense headwinds, but I view that as much as you can view and expense was a positive generally viewed as a positive expense because it means that we're continuing to fundraise.

Speaker Change: Each build base.

Speaker Change: Based on those products, which we can scale up and the fact is we're still very early.

Speaker Change: These products so as we build more scale. There. These these numbers will be smaller and smaller relationships.

Michael Arougheti: I think your question, in terms of harmonization, I think there's... The simple answer without going into all the nuances is, yes, directionally, I think there is more harmonization. There's a fair amount of nuance in that answer, just in terms of the different products and the different channels and geographies and investor share classes. But I think as the market matures and, you know, there's more product proliferation, you should expect to see more normalization of the structures.

Speaker Change: Got it and I think your question.

Speaker Change: In terms of harmonization I think there is.

Speaker Change: The simple answer without going into all the nuances is yes, directionally I think there is more harmonization. There is a fair amount of nuance in that answer just in terms of the different products in the different channels and geographies and investors share classes, but I think as the market matures in.

There's more product proliferation that you should expect to see more normalization of the of the structures.

Michael Arougheti: That makes sense. And then Mike, too, one of the things you said earlier, when it comes to deployment and your prepared remarks, you highlighted, I think, being a little bit more selective, maybe I'm paraphrasing a bit, but as you sort of think about the competitive dynamics, whether it's from syndicated markets, or from other direct lending players, I guess, how are you guys approaching sort of the major buckets of where you're deploying capital right now, either by sponsor based or, you know, direct to companies and sort of size where you find yourself still, you know, generating compelling enough excess returns, given the space has gotten more competitive. Thanks.

Mike Jared: And then Mike to one of the things you said earlier when it comes to deployment in your prepared remarks, you highlighted I think being a little bit more select us maybe I'm paraphrasing a bit but as you sort of think about the competitive dynamics, whether it's from syndicated markets or from other direct lending players I guess, how are you guys approaching sort of the major buckets of where you're deploying capital right now.

Mike Jared: Either by sponsor based or direct to companies and sort of size, where you find yourself still you know generating compelling enough excess returns given the space has gotten more competitive thanks.

Michael Arougheti: Yeah, we do. And I thought that Kipp and Kort did a nice job kind of talking about competitive positioning on the ARCC call, but it's probably worth reminding folks here. We have a very unique origination advantage. I think we've been doing it longer than anybody in the market. We do it at a scale that is difficult for people to rival. It is broad-based geographically, and it's broad-based by strategy. It is sponsored and un-sponsored.

Speaker Change: Yes, we do and I thought that chip in court did a nice job kind of talking about the competitive positioning on the ARCC call, but it's probably worth.

Speaker Change: Reminding folks here, we have a very unique origination advantage a I think we've been doing it longer than anybody in the market, we do it at a scale.

Speaker Change: That is difficult for people to rival it.

Speaker Change: It is broad based geographically, it's broad based by strategy.

Speaker Change: It is sponsored and non sponsored we had eight highly developed industry verticals that are originating direct to company.

Michael Arougheti: We have eight highly developed industry verticals that are originating direct to company. And I think most importantly, and most differentiated, is we have the ability to invest up and down the size spectrum of companies in the middle market, competing with certain folks in the lower middle market day to day, in what people would call the core market, and then the larger end of the market. Whereas, I think some of our peers are probably more focused on the upper end of the market.

Speaker Change: And I think most importantly, and most differentiated as we have the ability to invest up and down the size spectrum of company in the middle market competing with certain folks in the lower middle market day to day, and what people would call. The core market and then the larger end of the market, whereas I think some of our peers are.

Speaker Change: We're probably more focused on that upper end of the market. So when we're having this conversation about the reopening of the syndicated loan and high yield market. That's that's okay for us.

Michael Arougheti: So when we're having this conversation about the reopening of the syndicated loan and high yield market, that's okay for us. If you look at our CLO performance as one example, we've already achieved a record level of fundraising in our CLO franchise in the first six months of this year. So we're kind of on both sides of that opportunity.

Speaker Change: If you look at our CLO performance is one. One example, we've already achieved a record level of fundraising and our C. O franchise CLO franchise in the first six months of this year. So we're kind of on both sides of that opportunity and when the liquid markets open up we see meaningful growth and capital velocity in our liquor.

Michael Arougheti: And when the liquid markets open up, we see meaningful growth and capital velocity in our liquid business. And when they close, we take advantage of that, and we try to capture share at the upper end of our market. But what you saw in the deployment from ARCC, and I think it's showing up in the pipeline as well, the ability to pivot down market and capture excess return there is really, really unique. And I think that's a big driver of our ability to deploy in any market environment. And then lastly, and we talk about this a lot, is just incumbency.

Michael Arougheti: When you look at the size of the portfolios that we manage around the globe, 40 to 60% of the dollars that we're putting out are into incumbent relationships. And so you saw that through 2023, in what was a slow M&A and new issue market, we were still deploying at very healthy rates because of the value of that incumbency. So, probably a long-winded answer, but I think the deployment continues to be broad-based. We have a lot of flexibility to move around the markets, liquid to illiquid, up and down balance sheets, sponsored or non-sponsored, and we'll continue to do that. All right.

Alexander Blostein: Great. Very helpful.

Speaker Change: [noise] out our into incumbent relationships and so you saw that through 2023, and what was a slow <unk>.

Speaker Change: M&A and new issue market, we were still deploying at very healthy rates because of the value of that incumbency.

Speaker Change: So probably a long winded answer, but I think that the deployment continues to be broad based we have a lot of flexibility to move around the market liquid to illiquid up and down balance sheets sponsored or non sponsor and we'll continue to do that.

Speaker Change: Great Super helpful. Thanks.

Brennan Hawken: We'll go next to Brennan Hawken with UBS.

Speaker Change: We'll go next now to Brennan Hawken with UBS.

Brennan Hawken: Good morning, thanks for taking my questions. Well, we know that markets can sometimes overreact. But at least based upon what they're telling us this morning, we are increasingly likely to see rate cuts, and they're actually telling us we might see more than just 25 basis points in a meeting. Seems like long odds, at least initially, but whatever. So could you remind us about the sensitivity to a 25 basis point drop in short-term rates on FRPR and what the likely offsets would be to that impact? Sure.

Brennan Hawken: Good morning, Thanks for taking my questions.

Speaker Change: Well, we know that markets can sometimes overreact, but at least based upon what they're telling us. This morning, we are increasingly likely to see rate cuts.

Speaker Change: And there, they're actually telling us we might see more than just 25 basis points of the meeting which.

Speaker Change: It seems like long odds and at least initially but whatever so could you remind us about the sensitivity.

Speaker Change: Two a 25 basis point drop in short term rates on F. R. P are in and what the likely offsets would be to that impact.

Michael Arougheti: Sure, let's go a little bit deeper than just FRPR because I think it's important for people to understand how it rolls through the different components. But this again is where the structure of our P&L and the structure of our balance sheet, I think, are going to differ. And we talk a lot about the importance of balance sheet light versus balance sheet heavy to smooth out the volatility that you see from sharp changes in valuation and rate moves.

Speaker Change: Sure, let's go a little bit deeper than just FRP or because I think it's important for people to understand how it rolls through the different components, but this again is where the structure of our P&L and the structure of our balance sheet. I think is going to differentiate and we talk a lot about the importance of Bal.

Speaker Change: Once sheet light versus balance sheet heavy to smooth out the volatility that you see from sharp changes in valuation and rate moves. So if you were to look at the composition of the P&L first and foremost we've obviously been a beneficiary of.

Michael Arougheti: So if you were to look at the composition of the P&L, first and foremost, we've obviously been a beneficiary of, [inaudible] Just based on the structure of the compensation there, that would have roughly a $9 million impact on FRE. So cut that by four for your 25 basis point question, which is sub 1%. But importantly, when rates come down, we typically see transaction volumes pick up, and that decline in part one is typically offset by increased volumes and increased transaction fees. So our experience has been that in that part of the P&L, we've been net beneficiaries.

Speaker Change: Of rates staying high.

Speaker Change: The part one part.

Speaker Change: Part of the P&L.

Speaker Change: There are public disclosures in the ARCC 10-Q that.

Speaker Change: Walk people through what the sensitivities, but the good news is what Youll see there is if there is 100 basis point decline in rates.

Speaker Change: Just based on the structure of the compensation there that would have roughly $9 million impact on FRE, so cut that.

Speaker Change: For for your 25 basis point question, which is sub 1%, but importantly, when rates come down we typically see transaction volumes pick up and that decline in part one is typically offset by increased volumes and increased transaction fees. So our experience has been in that.

Speaker Change: Part of the P&L that.

Speaker Change: We've been net beneficiaries when it comes to FRP or it's also important to understand that theres a lag effect to your specific question. So typically when we see rate decline just based on the structure of our investments, there's usually a six month lag effect.

Michael Arougheti: When it comes to FRPR, it's also important to understand that there is a lag effect on your specific question. So typically, when we see rate decline, just based on the structure of our investments, there's usually a six month lag effect. But if you were to look at 2024 positioning, if we saw a 25 basis point rate cut in 2024, that would probably have a half a million dollar impact on our FRPR. So again, you could multiply that by whatever number you want. And then again, the future impact is going to be a function of what it means for earnings, performance, valuations, et cetera. But the 2024 impact is de minimis.

Speaker Change: But if you were to look at 2024.

Speaker Change: Positioning if we saw a 25 basis point rate cut in 2024 that would probably have a half a million dollar impact on our FRP or so again, you can multiply that by whatever whatever number you want and then again the future impact is going to be a function of what does it mean for earnings performance values.

Speaker Change: <unk> et cetera, but the 2024 impact is de Minimis.

Michael Arougheti: With regard to our disclosures on European Waterfall, I think it's important that people understand that when we're making those calculations and giving you the guidance that we're giving, we're already using the forward yield curve in that guidance, so no surprises there. But in terms of how we expect that to roll through the portfolios, the expectation for cuts is already baked in. From a balance sheet standpoint, obviously, balance sheet light, we don't expect any material impact.

Speaker Change: With regard to our disclosures on.

Speaker Change: European waterfall.

Speaker Change: I think it's important that people understand that when we're making those calculations and giving you the guidance that we're giving we're already using the forward yield curve in that guidance. So no surprises there but.

Speaker Change: In terms of how we expect that to roll through the portfolios are the expectation for cuts is already baked in.

Speaker Change: From a balance sheet standpoint, obviously balance sheet light, we don't expect any more.

Speaker Change: Material impact and in fact, obviously given that we borrow under a pretty sizable floating rate revolver, we should see a net benefit from.

Michael Arougheti: And in fact, obviously, given that we borrow under a pretty sizable floating rate revolver, we should see a net benefit from lower interest expenses. And then maybe just to wrap all of that together, like I said, we expect that the future decline in rates will spur increased capital markets and transaction activity and velocity of capital, which we think is a net add. So I feel really good about the rate positioning and, you know, to the extent that rate cuts start sooner than the market originally had underwritten based on today's jobs report, then...

Speaker Change: From lower interest expense.

Speaker Change: And then maybe just to wrap all that together like I said, we expect that the.

Speaker Change: Future decline in rates will spur increased capital markets and transaction activity and velocity of capital, which we think is a net net add.

Speaker Change: So I feel really good about the rate positioning and to the extent that rate cuts start sooner than the market. Originally it underwritten based on today's jobs report then.

Speaker Change: So be it.

Brennan Hawken: All right, thanks for that. That was very helpful, Michael.

Speaker Change: Alright, thanks for that that was very helpful. Michael.

Speaker Change: In your prepared remarks, you indicated a signs of recovery in real estate, which is certainly encouraging to hear.

Speaker Change: Could you maybe drill down a little bit into that what parts of the market are you beginning to see those signs how broad based is it and how much of that.

Speaker Change: Encouraging signs might have to do with the idea we should be getting some relief on the interest rate side, which has been a bit of a headwind for that business.

Michael Arougheti: In your prepared remarks, you indicated signs of recovery in real estate, which is certainly encouraging to hear. Could you maybe drill down a little bit into that? In what parts of the market are you beginning to see those signs? How broad-based is it? And how much of these encouraging signs might have to do with the idea we could be getting some relief on the interest rate side, which has been a bit of a headwind for that?

Speaker Change: Yeah, I think I think that's a big part of it obviously you know the real estate business is one of the more rate sensitive.

Speaker Change: Parts of the alternative landscape and so getting rate stability, if not rate reduction that that does have a flow through impact to transaction markets and so I think some of the falling that youre beginning to see even ahead of the rate cuts is anticipation of of rate reductions.

Michael Arougheti: Yeah, I think I think that's a big part of it. Obviously, you know, the real estate business is one of the more rate-sensitive parts of the alternative landscape. And so getting rate stability, if not, you know, rate reduction, that does have a flow-through impact on transaction markets. And so I think some of the following that you're beginning to see even ahead of the rate cuts is anticipation of rate reductions.

Speaker Change: The segments of the market that we focus on just to remind people in order, our industrial logistics and multifamily about 50% industrial 25% multis for three quarters of our book.

Michael Arougheti: The segments of the market that we focus on, just to remind people, in order, are industrial logistics and Multifamily, about 50% industrial, 25% multifamily for three quarters of our book. And as we've been talking about all through this rate hiking cycle, the fundamentals at the property level in those markets have continued to be quite strong, and the secular demand drivers are still intact. And so, you know, there is some fundamental strength that pushes through to transaction volume once you start to see the rates come down, and that's part of it as well.

Speaker Change: And as we've been talking about all through this rate hiking cycle the fundamentals at the property level.

Speaker Change: Those markets have continued to be quite strong and the secular demand drivers are still intact and so there is some fundamental strength that pushes through to.

Speaker Change: Transaction volume once you start to see the rates come down and that's that's part of it as well.

Michael Arougheti: The real estate debt business, I'd also say, has been a bright spot for us, obviously, as we've seen in other parts of the private credit landscape. As banks are de-risking, the private markets have been able to come in and be a pretty reliable capital provider at some pretty attractive rates. And we have seen a meaningful opportunity developing in our U.S. and European debt business as well, where we're seeing some pretty healthy deployment.

Speaker Change: The real estate debt business I would also say has been a bright spot for us obviously as we've seen in other parts of the private credit landscape.

As the banks are derisking.

Speaker Change: The private markets have been able to come in and be a pretty reliable.

Speaker Change: Capital provider at some pretty attractive rates and we have seen a meaningful opportunity developing in our U S and European debt.

That business as well, where we're seeing some pretty healthy deployment.

Brennan Hawken: That's great. Thanks for that color!

Speaker Change: That's great thanks for that color.

Speaker Change: Okay.

William Katz: We'll go next to Bill Katz at TD Cowen.

Speaker Change: We'll go next now to Bill Katz at TD Cowen.

William Katz: Thank you very much for taking the questions. Good morning, everybody. Michael, in your opening remarks, you sort of talked about the sort of the shifting demographics of investing with younger folks more interested in alternative investments. How are your conversations going with some of the retirement gatekeepers, particularly in the 401k slash target date fund area? Is there any building receptivity to opening up a sleeve to the alternatives?

Bill Katz: Thank you very much for taking the questions good morning, everybody.

Michael: So Michael in the.

Bill Katz: The opening remarks, you sort of talked about the sort of the shifting demographics of investing with younger folks are more interested in <unk>. How are your conversations going with some of the retiring gatekeepers, particularly the fallen K Slash target date fund area is there any building receptivity to opening up sleeve to the alternatives.

Michael: Yeah.

Michael Arougheti: So the answer is that we have dedicated teams and efforts underway here to make sure that our product is ready for that market when it opens. To your point, I think some of those logical channel partners are open and hoping to see the D.C. market open to privates and alternatives. You mentioned target date funds.

Speaker Change: So the answer is we have we have dedicated teams and efforts underway here to make sure that our product is ready for that market when it opens.

Speaker Change: To your point I think some of those logical channel partners are open and hoping to see the D. C market open to privates and alternatives you mentioned target date funds I do think that will be one way that that they find their way and there are obviously going to be some call it legal and regulatory.

Michael Arougheti: I do think that will be one way that they find their way in. There are obviously going to be some, call them legal and regulatory headwinds to those markets opening up as quickly as maybe we all would like them to. But when they do, we'll be ready, I guess that's the best that I can say. But it is going to be a slow path, but one that we're cautiously optimistic will open up in due time.

Speaker Change: <unk> headwinds to those markets opening up as quickly as maybe we all would like them to see them, but when they do we'll be ready I guess is the best best that I can say, but.

Speaker Change: It is going to be a slow path, but it's one that we're cautiously optimistic we'll open up in due time.

Jarrod Phillips: Okay, just one for Jarrod, hate to belabor it, can you go back to just the offset on the comp side, I wasn't particularly following that related to the distribution, and then, just stepping back, maybe give us an update on the flight path to the 45% margin for this year and then the sort of sequential rises look out to 28, thank you.

Speaker Change: Okay, and just one for Jerry I hate to belabor. It can you go back to just the offset on the comp side. It wasn't particularly following that related to the distribution and then just stepping back maybe give us an update on the flight path to the 45% margin for this year and then sort of sequential rise as you look out to 'twenty eight thank you.

Jarrod Phillips: Sure, and the first part of the question there: when you think about these distribution fees that we pay, what we make sure is that we don't pay out comp on Part 1 or our FRPR before we've recaptured those. So typically, what you've seen in Part 1 and FRPR is a 60-40 split, so a 40% margin there. You'll see that those ratios, we're actually having a better margin, and that's a result of us making sure that we're, quote unquote, repaid for those distribution costs prior to paying any employee expenses. So that means that the House is kind of sharing 60-40 the expense with the compensation pool.

Speaker Change: Sure.

Speaker Change: The first part of the question there.

Speaker Change: When you think about these distribution fees that we pay what we make sure that we don't pay out comp on our part one of our PR before we've recaptured those so typically what you've seen in part one and <unk> is a 60 40 split so a 40% margin.

Speaker Change: There youll see that those ratios were actually having a better margin and that is a result of us making sure of that.

Speaker Change: That were.

Speaker Change: Repaid for those distribution cost prior to paying any employee expenses. So that means that the houses kind of sharing 60 40 the expense.

Speaker Change: The compensation.

Jarrod Phillips: I'm happy to walk you through more on the mechanics there, but that's essentially what it works: if you just take the total amount that we would otherwise earn and reduce from it the expenses. In terms of margin, and we talked about this in the discussion, our focus is first and foremost on high-quality growth, and sometimes high-quality growth comes with a cost prior to us seeing revenues for it. In doing so, though, we know that because of the way that we're built, generally you'll see margin expand based on our deployment.

Speaker Change: So I'm happy to walk you through more on the mechanics, there, but that's essentially what it works if you just take the total.

Speaker Change: Total amount that we would otherwise earn and reduced from the <unk>.

Benches on in terms of margin and we talked about this in Investor day, our focus is first and foremost.

Speaker Change: High quality growth and sometimes high quality growth comes with a cost prior to we see seen revenues for it.

Speaker Change: In doing so, though we know that because of the way we built generally youll see margin expand based on our deployment. So we walked through in our walk through it at Investor day is that we'd be somewhere in the zero to 150 basis points in any given year I mean, if you look at where we're at now with people about 130 basis points up over last year. So as we.

Jarrod Phillips: So we walked through, and I walked through it at Investor Day, that we'd be somewhere in the 0 to 150 basis points in any given year. If you look at where we are now, I think we're about 130 basis points up over last year. So as we continue to see deployment, we'll continue to see expansion of that margin, but it's going to be at the speed of what deployment is. So you'll have some times where it'll spike, and you'll have some times where it'll be more flat.

Speaker Change: Turning to see deployment will continue to see expansion of that margin.

Speaker Change: B B.

Speed of deployment.

Speaker Change: So youll have some times, where it will spike and Youll have some times, where it would be more flat certainly off a little bit of these distribution fees coming on is somewhat of a tailwind.

Jarrod Phillips: Finally, a little bit of these distribution fees coming in is somewhat of a headwind to it. And as I mentioned earlier in my response, as we build scale in those products, these are one-time fees as you raise them, so they don't recur annually. So there will be a smaller percentage of the overall management fees that we earn from these products going into future periods. So that's another way that margin will expand moving forward.

Speaker Change: And as I mentioned.

Speaker Change: Earlier in my response.

Speaker Change: As we build scale in those products I mean, these are onetime fees as you raise them. So they don't recur annually. So there will be a smaller percentage of the overall management fees that we're earning from these products going into future periods. So that's another way that margin will expand.

Speaker Change: Thank you very much.

Speaker Change: Thank you.

Benjamin Budish: We'll go next to Ben Budish at Barclays.

Speaker Change: We'll go next now to Ben British at Barclays.

Benjamin Budish: Hi, good morning, and thanks for taking the questions. Maybe first on the state of competition and credit, Mike, you talked about some of the areas in which you're leaning into some of your advantages. Some of the media headlines would indicate that, you know, loan documentation is either becoming looser or more flexible in response to competition. I was wondering if you could talk about the degree to which you're seeing things like increasing inclusion of, you know, pick optionality, things like that. To what degree are you seeing that sort of increase in the deals you're doing?

Ben British: Hi, good morning, and thanks for taking the questions.

Ben British: Maybe first on the state of competition in credit Mike you talked about some of the areas in which youre leaning into some of your advantages some of the media headlines would indicate that loan documentation is either becoming looser or more flexible in response to competition. I was wondering if you could talk to the degree to which you are seeing that things like increasing inclusion of.

Speaker Change: Pick optionality things like that to what degree are you seeing that.

Speaker Change: Sort of increase in the deals Youre doing.

Michael Arougheti: I'll try to give a simple answer to a, you know, a not really a simple question, because it goes back to some of my earlier comments just about the structure of the market. So, if, in my oversimplified view, you have the lower middle market, the traditional middle market, and the upper middle market, I think it's safe to say that, generally, in the lower middle market and the traditional middle market, you have seen very little, if any, of the large market structural deterioration find its way into those markets.

Speaker Change: I'll try to give a simple answer to.

Speaker Change: In my over simplified view of your lower middle market traditional middle market and upper middle market I think it's safe to say that generally in the lower middle market and traditional middle market you have seen very little if any of the large market structural deterioration find its way into those markets.

Michael Arougheti: When you start to get into the upper end of the middle market in competition with both the liquid markets and the larger credit providers, you will see some, but not nearly to the same extent as the traded markets, some deterioration in structure, which I would argue in many cases could be said to be appropriate because they're higher quality, you know, sometimes larger borrowers that can command that type of structure. Kipp and Kort, again, on the ARCC call addressed this as well by saying that when you look at where we're turning transactions down, it's largely going to be over documents.

Speaker Change: When you start to get into the upper end of the middle market in competition with both the liquid markets and the larger credit providers you will see some.

Speaker Change: But not nearly to the same extent as the traded markets. Some deterioration in structure, which I would argue in many cases could be said to be appropriate because they are higher quality.

Speaker Change: Sometimes larger borrowers it can command that type of structure.

Speaker Change: But most of the things that people should be concerned about in terms of the liability management loopholes in and things that the media tends to focus on those are really not present in the middle market. I think there has been an extraordinary amount of discipline. Despite the perception of increased competition on documents.

Speaker Change: <unk>.

Speaker Change: Kipp and court again on the ARCC call address this as well in.

Speaker Change: In saying that when you look at where we're turning transaction down.

Speaker Change: It's largely going to be over documents and it could be some fairly simple or seemingly simple things that we will pass on if we don't feel that we have the ability.

Michael Arougheti: And it could be some fairly simple or seemingly simple things that we will pass on if we don't feel that we have the ability to exercise our creditor rights when we need to in the way that we need to.

Speaker Change: To exercise our creditor rights when we need to the way that we need to.

Benjamin Budish: So I do think the media is probably exaggerating it relative to the broad middle market. And even at the upper end in relation to the liquid market, it's really not that pervasive. I think PIC is a different question. And again, not to go down a PIC rabbit hole, PIC in today's market is not necessarily an indicator of structural deterioration. I would encourage people to think about it as a way for private credit managers to capture excess returns at a time when base rates are high.

Speaker Change: So I do think the media is probably over blowing it relative to the broad middle market.

And even at the upper end in relation to the liquid market. It's really not that pervasive I think pick is a different question and again not to go down a pick rabbit hole.

Speaker Change: In todays market is not necessarily a an indicator of structural deterioration I would encourage people to think about it as a way for private credit managers to capture excess return at a time when base rates are high and so if you are thinking about prudently structuring your leverage and managing.

Benjamin Budish: And so, if you are thinking about prudently structuring your leverage and managing to a sustainable interest coverage ratio and not constraining the cash flow of a company and constraining their ability to execute their business and growth plan, then PIC is the way that you are going to capture excess return and support your borrowers. So you have to differentiate between PIC that is intentional at the outset versus, maybe, PIC that is used to control the cash flow.

Speaker Change: To a sustainable interest coverage ratio and not constraining the cash flow of another company and constraining their ability to execute their business and growth plan. Then pick is the way that you're going to capture excess return and support your borrowers. So you have to differentiate between.

Speaker Change: <unk> pick that is intentional.

Speaker Change: At the outset versus maybe pick that is used to.

Speaker Change: No.

Benjamin Budish: You know, reduce default, etc, etc. But again, that's not really the same as some of the other structural deteriorations that people like to think about. And again, when you look at our approach to picking in the corporate credit book, it's more of the former than the latter.

Speaker Change: Reduced default et cetera, et cetera, but again thats not really the same as some of the other structural deterioration is that people like to think about and again when you look at our approach to pick in.

Speaker Change: Corporate credit book, it's more of the former than the latter.

Michael Arougheti: Got it. Very helpful. And maybe just a quick follow-up. Just given the size of the latest SDL fund, how do you think about the future of the fund structure there? You know, does it make sense to continue to scale up these drawdown funds, or to what degree will you continue to maybe raise or, you know, to an outsized degree from more perpetual strategies that could potentially be more scalable? Thank you. Yeah, I think so.

Speaker Change: From an outsized degree from more perpetual strategies that could potentially be more scalable. Thank you.

Michael Arougheti: Yeah, I think this is a place that we've been quite vocal. You know, Craig brought it up earlier, as we said that we were kind of tempering growth despite the high growth in places like ASIF. You've seen us raising equity and scaling ARCC. And now you're seeing, you know, an SDL 3.

Speaker Change: Yes, I think this is a this is a place that we've been quite vocal.

Speaker Change: Craig brought it up earlier as we said that we were kind of tempering growth. Despite the high growth in places like ASF.

Speaker Change: You've seen us raising equity and scaling ARCC and now you are seeing in <unk>.

Speaker Change: L. Three we have learned over the 30 years that we've been doing this that it is critically important that you are diversified and your distribution and funding sources.

Michael Arougheti: We have learned over the 30 years that we've been doing this that it is critically important that you are diversified in your distribution and funding sources. We have a pretty good handle going into any year or years as to what we think our deployment capacity is. And we structure our capital to meet that deployment capacity. So SDL has already been investing, and as we've raised, we're about $9 billion in the ground on that fund.

Speaker Change: We have a pretty good handle going into any.

Speaker Change: Year or years as to what we think our deployment capacity is and we structure our capital to meet that deployment capacity.

Michael Arougheti: So it is deploying at the expected pace, but we never want to be beholden to one fund or one channel because at different points in the cycle, those will open or close. So if the non-traded market sees a slowdown in appetite, we want to make sure that, you know, we have other forms of capital that can actually meet the deployment demand. Similarly, as we get closer to the end of fund life on some of our commingled funds, you may see us turn on managed accounts or public entities.

Speaker Change: So STL has been investing already as we've raised were about $9 billion in the ground on that funds. So it is deploying at the expected pace, but we never want to be beholden to one fund or one channel.

Speaker Change: Because in different parts of the cycle those will open or close so if the non traded market sees a slowdown in appetite we want to make sure that.

Speaker Change: We have other forms of capital that can actually meet the deployment demand. Similarly, as we get closer to end of fund life on some of our Commingled you may see us turn on managed accounts or the public entities. It just it's critically important that people understand that that diversity of funding is a big driver of how we actually create value here and we will.

Michael Arougheti: It's just critically important that people understand that that diversity of funding is a big driver of how we actually create value here, and we'll continue to do it. So I don't think we'll ever give up on, you know, this complement of funds that we have open-ended, closed-ended, perpetual offer campaign, traded, and non-traded. It's a big part of how we run the business. Thank you. So next now to Ken Worthington at, "Hi, thanks for squeezing me in at the end here." We're almost 18 months beyond the regional bank crisis.

Speaker Change: To do it so I don't think we will ever give up on.

Speaker Change: This complement of funds that we have open ended closed ended perpetual offer campaign traded non traded its a big part of.

Speaker Change: How we run the business.

Speaker Change: Understood. Thank you.

Sure.

Kenneth Worthington: We'll go next now to Ken Worthington at J.P. Hi, thanks for squeezing me in at the end.

Speaker Change: We'll go next now to Ken Worthington at JP Morgan.

Ken Worthington: Hi, Thanks for squeezing me in at the end here, we're almost 18 months beyond the regional Bank crisis, I think areas considered the opportunity to come in various different phases for areas over time, what fees would you consider us to be in now and what do you see as the opportunity.

Speaker Change: For areas kind of going forward and does a more benign interest rate environment alter the opportunity set that you see going forward.

Michael Arougheti: Yeah, I wouldn't say that it alters the opportunity set. I mean, just to reiterate, I think what you're referring to, we've talked about the different phases, one was obviously an early phase where there was just certain portfolios that were distressed or certain balance sheets that were distressed that needed resolution, either through asset sales or risk transfer transactions. And, you know, there's still some of that going on. But, you know, given the Transitioning into the next phase, which we've talked about, which is a much more sustained opportunity is that in the wake of that crisis, in the wake of increased regulatory capital pressure, you will begin to see more of these assets finding their way into the private markets, and you know I that's actually a more consistent opportunity set for places like our alternative credit business and our real estate lending business to name a few so I think that transition is underway we're seeing it in the composition of our pipelines but even with rates coming down just given some of the you know acute stresses on certain bank balance sheets I wouldn't rule out that you'll continue to see you know a decent amount of portfolio trades and then continued risk transfer deals as well, Okay, great.

Speaker Change: Yes, I wouldn't say that alters the opportunity set I mean, just to reiterate I think what youre, referring to we've talked about the different phases. One was obviously an early phase where there is just certain portfolios that were distressed or certain balance sheets that were distressed that needed resolution either through <unk>.

Speaker Change: Asset sales or risk transfer transactions.

Speaker Change: Yes, there is still some of that going on but.

Speaker Change: Given the.

Speaker Change: Continued strength in the economy now the prospect for rates you may see less of that.

Speaker Change: There still is a pretty significant amount of.

Speaker Change: Asset sitting on bank balance sheets that will need to get resolved.

Speaker Change: Either for credit reasons or regulatory capital reasons and so.

Speaker Change: I don't think that that means that the types of deals that we're seeing are not going to happen. They just may not be happening.

Speaker Change: At the same velocity, we are now I think transitioning to the next phase which.

Speaker Change: Which we've talked about.

Speaker Change: Which is a much more sustained opportunity is that in the wake of that crisis in the wake of increased regulatory capital pressure you will begin to see.

Speaker Change: More of these assets finding their way into the private markets.

Speaker Change: And that's actually a.

Speaker Change: More consistent opportunity set for places like our alternative credit business and our real estate lending business to name a few.

Speaker Change: So I think that transition is underway.

We're seeing it in the composition of our pipelines.

Speaker Change: But even with rates coming down just given some of the <unk>.

Speaker Change: Cute stresses on certain bank balance sheets, I wouldn't rule out that youll continue to see.

Speaker Change: Okay, great. Thank you very much.

Speaker Change: And well go next now to Patrick Davitt Autonomous research.

Patrick Davitt: And we'll go next now to Patrick Davitt at Autonomous. Oh, hey, thanks.

Patrick Davitt: Thank you very much. We'll go next now to Patrick Davitt. Hey, thanks. Good afternoon now, everyone. This still might have been asked, but maybe a broader...

Patrick Davitt: Hi, Thanks, good afternoon, everyone.

Speaker Change: Might have been asked but.

Patrick Davitt: Maybe a broader macro one.

Patrick Davitt: It strikes me that everything you are saying today is a pretty dramatic contrast, with what the market thinks is happening today.

Speaker Change: From what you can see across your borrowers P companies et cetera.

Speaker Change: <unk> reported today do you see this is an overreaction or do you think there's a real potential evolution towards seeing a path to slower economic growth and thus more cuts than maybe you and your competitors have been talking about just a couple of months ago. Thanks.

Michael Arougheti: Yeah, we've talked about this a lot. I mean, the best we can do, we don't have a crystal ball, but we have data that we see in our private market portfolios that is telling us something different. And we've been consistent on that. So two years ago, when the markets were calling for a recession, we weren't. And so we try not to get worked up as long-term investors in any one singular headline.

Speaker Change: Yes, we've talked about this a lot I mean, the best we can do we don't have a crystal ball, but we have data that we see in our private market portfolios that is telling us something different.

Speaker Change: And we've been consistent on that so two years ago, when the markets were calling for a recession recession, we werent.

Speaker Change: And so we try not to get worked up as long term investors in any one singular headline.

Michael Arougheti: We obviously already talked about that if rate cuts get pulled forward, both in terms of timing and magnitude, I think the business is very well positioned for that transition. But we are not seeing anything in our private portfolios that would argue for what we're seeing in the market today.

Speaker Change: We obviously already talked about that if rate cuts get pulled forward. Both in terms of timing and magnitude I think the business is very well positioned.

Speaker Change: For that transition, but we are not seeing anything.

In our private portfolio is that that would.

Speaker Change: Argue for what we're seeing in the market today.

Speaker Change:

Michael Arougheti: You know, it's interesting because, as a private market practitioner that runs a public company, I'm often struck by just the volatility and schizophrenia that you can see in the interpretation of data that comes out of the public markets. And month to month, good news is bad news, and bad news is good news. And today, I guess, Okay, news is bad news. We just try to look at the facts as we see them and make sure that we're, we're well positioned. But I personally feel, you know, I feel like it's an overreaction, but we'll keep collecting data and react accordingly.

It's interesting because as a private market practitioner that runs a public company I am often struck at just the volatility.

Speaker Change: And schizophrenia that you can see in the interpretation of data that comes out of the public markets and month to month. Good News Bad News and Bad News is good news and today I guess.

Speaker Change: Okay News is bad news.

Speaker Change: We just try to look at the facts as we see them and make sure that we're well positioned.

Speaker Change: But I personally feel.

Speaker Change: Like it's an overreaction, but we will keep collecting data in and react accordingly.

Patrick Davitt: Okay, that's all I have. Thank you. Michael Cyprys at, Great morning. Thanks for choosing me to be here. Just wanted to ask about the non-sponsor.

Speaker Change: Okay. That's all I have thank you.

Speaker Change: Okay.

Speaker Change: Okay.

Michael Cyprys: We'll go next now to Michael Cyprys at. Great morning. Thanks for choosing me.

Speaker Change: We'll go next now to Michael Cyprus at Morgan Stanley.

Great. Good morning, Thanks for squeezing me in here just wanted to ask on the non sponsor business that you guys have just hoping you could share an update on that just in terms of non sponsored direct lending remind us of the size of that platform and some of the initiatives that you have for broadening that out, particularly as banks are looking to run with more capital efficient balance sheets and then just curious how you would expect the <unk>.

Speaker Change: Peace of activity, there and non sponsor to evolve over the next 12 months as compared to your larger sponsor direct lending business. Thank you.

Michael Arougheti: Sure, as I said, we have right now about eight industry teams that we deploy across the private credit business. They are originated directly to corporate.

Speaker Change: Sure as I said, we have right now about eight industry teams that we deploy across the private credit business.

Speaker Change: They are originating direct to corporate.

Speaker Change: And they are supporting our sponsor led originators and deal teams when a sponsor is actually investing in.

Speaker Change: Yes.

Michael Arougheti: And they are supporting our sponsor-led originators and deal teams when a sponsor is actually investing in you know, a company in that industry, so it's kind of a double benefit of that we're actually able to increase our non-sponsored origination but also, I think, do a better job underwriting in some of these some of these markets. The non-sponsored business, just given the size of the markets and the importance of sponsors, will continue to grow on an aggregate dollar basis, but I'm not sure that we'll, you know, we'll get it to a place where it's kind of going to overwhelm the sponsor-backed opportunity.

Speaker Change: And a company in that industry, so it's kind of a.

Speaker Change: A double benefit of that we're actually able to increase our non sponsored origination, but also I think do a better job of underwriting and some of these.

Speaker Change: Some of these markets.

Speaker Change: The non sponsored business just given the size of the markets and the importance of sponsor will continue to grow on an aggregate dollar basis, but im not sure that will.

Speaker Change: Get it to a place where it's kind of going to overwhelm.

Michael Arougheti: But order of magnitude, just to give you a sense if you were to look at our non-sponsored origination, just in our direct lending business, and there's a pull-through effect to other parts of the business, it's probably somewhere between five and 10%. So it's meaningful aggregate dollars, but it's not going to, you know, move the needle, you know, in any given period. It's highly differentiated, particularly in some of these core verticals, like sports media and entertainment or life sciences, where we've been early both in adding people and capital. So, you know, we'll keep making those investments.

Speaker Change: The sponsor backed opportunity.

But order of magnitude just to give you a sense. If you were to look at.

Speaker Change: Our non sponsored origination just in our direct lending business and there is a pull through effect to other parts of the business, it's probably somewhere between five and 10%.

Speaker Change: So it's meaningful aggregate dollars, but it's not going to it's not going to.

Speaker Change: Move the needle.

Speaker Change: On any given in any given period its highly differentiated particularly in some of these core verticals like sports media and entertainment or life Sciences, where we've been early bulk and adding people and capital.

Speaker Change: Okay.

Speaker Change: So, we'll keep making those keep making those investments.

Speaker Change: Great. Thanks, so much.

Speaker Change: Sure.

Brian Vidal: And we'll go next to Brian Vidal at Deutsche Bank. Great.

Speaker Change: And we'll go next now to Bryan Padel at Deutsche Bank.

Michael Arougheti: Great, thanks for excluding me. And also, Mike, just to follow on the last couple of questions on, maybe on deployment as we sort of move into the back half of this year and come into 2025, just in this, I guess, only a couple of days here, but a very recent environment, obviously, where sentiment is shifting negative. To the extent that we have more market volatility and at least temporary financial stress in the system, how could that impact your deployment plans for the second half? Would that actually help you because, potentially, bank sponsors would pull back, or would it freeze up deployment temporarily, potentially?

Hey, Mike just to follow on the last couple of questions on.

Bryan Padel: Maybe on deployment as we sort of move into the back half of this year and come into 2025, just in this I guess only a couple of days in here, but a very recent environment. Obviously, we're percent demand is shifting negative.

Speaker Change #100: To the extent that we have more market volatility in them.

Speaker Change #100: At least temporary financial stress in the system how could that.

Speaker Change #101: Impact your deployment.

Speaker Change #102: Plans for the second half where would that actually help you because it potentially bank sponsors.

Speaker Change #103: It would pull back or would it frees up the appointment temporarily potentially.

Speaker Change #104: Yes, so the.

Michael Arougheti: The way I think people need to begin to understand the deployment is that the deployment geography will change, right? So if you go back and you look at, you know, 2023, where new transaction volume was constrained, you would have seen increased deal activity within the incumbent portfolios and in places like opportunistic credit, alternative credit, and secondaries, because they're going to be that liquidity provider into the dislocated market. Then you transition to a healthy market, and you'll see volumes ramp up in the liquid side of the business and new issue volumes increase in the direct lending market. And if we go into a more volatile market and banks pull back, etc. Then you'll shift it again.

Speaker Change #104: The way I think people need to begin to understand the deployment is the deployment geography will change right. So if you go back and you look at 2023, where new transaction volume was constrained you would've seen increased deal activity within.

Speaker Change #104: The incumbent portfolios and in places like opportunistic credit alternative credit and secondaries, because theyre going to be that liquidity provider into the dislocated market. Then you transition to a healthy market youll see volumes ramp up and the liquid side of the business and new issue volumes increasing in.

Speaker Change #104: The direct lending market.

Speaker Change #104: And if we go into a more volatile market and banks pull back.

Michael Arougheti: So because of the diversity of strategies that we manage and the diversity of geographies that we manage them in, the volatility of deployment is reducing over time. And so, yes, I continue to believe that just based on the weight of capital, the aging of the installed base of private equity, rate cuts having a corollary impact on valuations and the cost of capital, I still think that we're going to see pretty healthy deployment into the back half of the year.

Speaker Change #104: Et cetera is there then youll shifted again, so because of the diversity of strategies that we manage and the diversity of geographies that we manage them in the volatility of deployment is reducing over time.

Speaker Change #104:

Michael Arougheti: Today's market move notwithstanding, but if, for whatever reason, the markets get, you know, get too nervous, then we're going to find other parts where our capital is going to be more relevant, and we'd kind of be deploying there as well. So I think we're in a really good spot.

So yes, I continue to believe that just based on the weight of capital the aging of the installed base of private equity rate cuts, having a corollary impact on valuations and the cost of capital I still think that we're going to see pretty healthy deployment into the back half of the year today's.

Speaker Change #104: Market move notwithstanding but if for whatever reason the market Scott.

Speaker Change #104: Got too nervous then we're going to find other parts, where our capital is going to be more relevant and we'd kind of be deploying there as well. So I think we're in a really good spot.

Brian Vidal: That's helpful. Maybe just one on retail. Any interest in doing a deal like, you know, what we saw with obviously KKR and Capital in terms of a hybrid structure with retail products for a much wider distribution, or do you like your strategy as it is now?

Speaker Change #105: That's helpful and maybe just one on retail.

Speaker Change #106: Any interest in doing a deal like what we saw with obviously kick here on capital in terms of a hybrid structure with with retail products to a much wider.

Speaker Change #107: Your strategy as it is now.

Michael Arougheti: Well, as of now, that's just a headline. I don't know if anybody really knows what that deal actually looks like. So I can't comment as to whether or not we would do something like that or not. We have partnered with more traditional asset management platforms over the years through various sub advisory agreements and partnerships to bring private markets into some of those portfolios. And that's been a part of our diversification of distribution historically, so I would expect that type of thing would continue, and we would be open to it.

Speaker Change #107: Well.

Speaker Change #108: As of now that's just a headline I don't know if anybody really knows what that deal actually looks like so I can't opine as to whether or not we would do something like that or not.

Speaker Change #109: We have partnered with more traditional asset management platforms over the years through various sub advisory agreements and partnerships to bring private market into some of those portfolios and thats been a.

Speaker Change #109: A part of our diversification of distribution.

Speaker Change #109: Historically, so I would expect that type of thing would would continue.

Michael Arougheti: I think I would just go back to some of our comments around our investor day, which is that we are very focused on what I would call high quality growth. And what I mean by that is sustainable growth at a high fee rate and a high margin where we are maximizing the value of our origination. Because at the end of the day, the binding constraint to growth and profitability for anybody in our business is going to be our ability to source unique assets, and how we then deliver those assets to our clients, whether they're institutional or retail, you know, is another side of the equation.

Speaker Change #109: We would be open to it I think I would just go back to some of our comments around our Investor day is that we are very focused on what I would call high quality growth and what I mean by that is sustainable growth at high fee rate high margin.

Speaker Change #109: Where we are maximizing the value of our origination because at the end of the day the binding constraint to growth and profitability for anybody in our business is going to be our ability to source unique assets and how we then deliver those assets to our clients whether they're institutional retail.

Speaker Change #109: As another side of the equation, but from the Ares management shareholder perspective, our goal is to make sure that we maximize the profitability of that origination.

Michael Arougheti: But from the Ares management shareholder perspective, our goal is to make sure that we maximize the profitability of that origination. And so again, not knowing what those partnerships look like, you know, it is very expensive to originate and portfolio manage the type of assets that we do. They do require a high fee rate, which is why our average fee rate is 1.1%. And so we have to be very careful that when we start talking about private markets within traditional portfolios, people don't, you know, go down the rabbit hole of thinking they can access difficult to access, non-correlated, unique private outcomes, you know, at public market rates.

Speaker Change #110: And so I don't again, not knowing what those partnerships look like.

Speaker Change #111: It is very expensive.

Speaker Change #111: To originate and portfolio manage the type of assets that we do.

Speaker Change #111: They do require a high fee rate, which is why our average fee rate is one 1%.

Speaker Change #111: And so we have to be very careful that when we start talking about private markets within traditional portfolios that people don't go down the rabbit hole of of thinking that they can access difficult to access non correlated unique private outcomes.

Michael Arougheti: So we think a lot about it. We have very deep relationships with many of the traditional managers at the highest levels of the firm. You know, but the calculus as to whether or not to enter into any partnership like that is going to, you know, really go back to what I said earlier, "what's our capacity to deploy and is there a benefit in diversifying the distribution into that channel against that deployment?" And so I think that's TBD. Great, that's really helpful.

Speaker Change #111: We have very deep relationships with many of the traditional managers at the highest levels of the firms.

Speaker Change #111: But.

Speaker Change #111: The calculus as to whether or not to enter into any partnership like that is going to really go back to what I said earlier is what's our capacity to deploy and is there a benefit and diversifying the distribution into that channel against that deployment and so I think thats a TBD.

Brian Vidal: Great, that's really helpful. Thank you very much.

Speaker Change #112: Great. That's really helpful. Thank you very much.

Speaker Change #112: Sure.

Operator: Gentlemen, it appears we have no further questions today. Mr. Arougheti, I'll turn things back to you, sir, for any closing comments.

Speaker Change #113: And gentlemen, it appears we have no further questions today, Mr. Eric Eddie I'll turn things back to user for any closing comments.

Michael Arougheti: Great, we appreciate it. Thank you for the great questions and the time today. And we look forward to speaking to you again next quarter. Enjoy the rest of the summer.

Speaker Change #112: Great.

Appreciate it thank you for the great questions and the time today and we look forward to speaking to you again next quarter enjoy the rest of the summer.

Operator: Thank you, Mr. Arougheti. Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of the call will be available through September 2nd, 2024 for domestic callers by dialing 800-839-4012 and to international callers by dialing 402-220-2981. An archived replay will also be available through September 2nd, 2024 on a webcast link located on the homepage of the investor resources section of our website. Again, thanks so much for joining us, everyone, and we wish you all a great weekend. Goodbye.

Speaker Change #114: Thank you Mr. Eric Yeti, ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call an archived replay of the call will be available through September <unk> 2024 to domestic callers by dialing 808, 39, 4012, and two international callers by dialing four zero to 220.

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Speaker Change #112: 298, one.

Speaker Change #115: An archived replay will also be available through September <unk> 2024 on a webcast link located on the homepage of the Investor resources section of our website again. Thanks, so much for joining US everyone and we wish you all a great weekend goodbye.

Speaker Change #112: Goodbye.

Speaker Change #112: [music].

Speaker Change #112: Okay.

Speaker Change #112: Okay.

Speaker Change #112: Okay.

Speaker Change #112: [music].

Speaker Change #112: Okay.

Speaker Change #112: [music].

Speaker Change #112: Okay.

Speaker Change #112: Hum.

Speaker Change #112: Sure.

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Speaker Change #112: Okay.

Speaker Change #112: [music].

Speaker Change #112: Oh.

Speaker Change #112: [music].

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Speaker Change #112: Okay.

Speaker Change #112: Yeah.

Speaker Change #112: Okay.