Q3 2024 Ares Management Corp Earnings Call
Please standby your program is about to begin.
Speaker Change: If you need assistance during your conference today, Please press Star zero.
Speaker Change: Welcome to Ares Management Corporation's third quarter earnings Conference call.
Speaker Change: At this time all participants are in a listen only mode. As a reminder, this conference call is being recorded on Friday November 1st 'twenty 'twenty four I will now turn the call over to Greg Mason co head of public markets Investor Relations for Ares management.
Greg Mason: Good morning, and thank you for joining us today for our third quarter conference call speaking on the call today will be Michael <unk>, Our Chief Executive Officer, and Gerry Phillips, Our Chief Financial Officer. We also have several executives with us today, who will be available during the Q&A session.
Greg Mason: 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.
Greg Mason: 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 harry's or 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.
Greg Mason: Please refer to our third quarter earnings presentation available on the Investor resources section of our website for reconciliations of the majors to the most directly comparable GAAP measures.
Greg Mason: Note that we plan to file our Form 10-Q later this month.
Greg Mason: This morning, we announced that we declared our fourth quarter common dividend of 93 per share on the company's class a non voting common stock representing an increase of 21% over a dividend for the same quarter a year ago. The dividend will be paid on December 31st 2024 to holders of record on December <unk>.
Speaker Change: Now I'll turn the call over to Michael <unk>, who will start with some quarterly business and financial highlights. Thanks.
Michael: Thanks, Greg and good morning, everybody I hope, you're all doing well.
Michael: During the third quarter, the macroeconomic backdrop for our business remains constructive as we continued to see fund raising momentum modestly improving transaction activity and solid fundamental performance in our underlying investment portfolios.
Michael: Sure short term rates are starting to have a positive impact leading to higher valuations for rate sensitive assets and increasing real estate transaction activity.
Michael: A more supportive market tone is showing up in the strength of our pipelines across the firm and we're optimistic that we will see increasing transaction volumes over the coming year as the expected rate cutting cycle progresses.
Michael: During the third quarter, we generated strong year over year growth across our financial metrics, including 18% growth in management fees, 24% growth in fee related earnings and 28% growth in our realized income.
This growth was supported by global deployment of nearly $30 billion, which is our second highest quarter on record.
Michael: This brings year to date deployment to $74 6 billion and should set 2024 up to be a record year.
Michael: In addition, we raised nearly $21 billion of gross capital during the third quarter.
Michael: With over 64 billion raised year to date. We are also now tracking to have our best year ever for fundraising.
Michael: We are poised for strong future deployment do our record level of available capital and an expectation that an improving market will broaden out and strengthen our deployment across even more strategies over the next year.
Michael: Our fundraising success. This year is in part due to the heightened institutional and retail investor demand that we're seeing across our private credit strategies, including global direct lending alternative credit real estate debt and infrastructure debt as well as.
Michael: Strong interest in our liquid credit strategies.
While reported private credit fund raising in the market has declined for three year straight we believe that our differentiated experience is a testament to our market leading position and long dated performance through multiple cycles.
Michael: Investors continue to prioritize investments that can generate durable yield in excess return or within traded market equivalents, regardless of the absolute level of interest rates. We're also seeing strong interest in a variety of secondary strategies and improving interest in real assets.
Michael: In the third quarter, we raised $20 9 billion in gross new capital, including more than $13 5 billion across our private credit strategies over the past 12 months, we've raised more than 57 billion and our private credit strategies.
Michael: To touch on a few fund raising highlights in the credit business in the third quarter, we raised $2 8 billion of equity and debt commitments and a final close for STL three our third U S senior direct lending fund.
Michael: We expect STL III will have approximately $34 billion of investment capacity, including related vehicles and anticipated leverage.
This amount is nearly double the size of our second vintage and reflects our leading franchise in U S direct lending.
Michael: We're already well underway investing this third fund, which currently has 11 billion committed across 195 companies.
Michael: In the third quarter. We also closed on approximately 2 billion euros of equity investments and our sixth European direct lending fund, bringing total LP commitments to date to approximately $14 5 billion compared to 11 billion euros for the prior vintage we anticipate holding a final close for this fund in the fourth quarter and we believe that this will be the.
Michael: <unk> European direct lending fund ever raised in the market.
Michael: We have call it more than 3 billion euros of capital for the fund and are well on our way to building a well diversified portfolio.
In terms of New fund launches, we recently launched the third vintage of our special opportunities Fund and expect a first close beginning later in this fourth quarter.
We're also working on a number of new products around our sports media and entertainment strategy, including both open and closed end products for institutional and retail investors.
Michael: We're seeing significant demand from investors seeking access to the growing and differentiated value for various sports related franchises.
Michael: Our team was an early pioneer in this strategy and has become a trusted partner and a large addressable market, which we estimate is more than 750 billion as professional sports leagues around the globe continue to open up to institutional capital.
Michael: Fundraising for the third quarter totaled $2 9 billion, including a final close for our fourth U S real estate opportunity fund, which brought the fund and related vehicles to $3 $3 billion, a 50% increase over the previous vintage.
Michael: Our ability to meaningfully scale this latest vintage and a challenging real estate fundraising environment reflects our leading real estate franchise and the relative performance that we've delivered for investors.
Michael: During the quarter, we completed the first close for our fourth European value add real estate fund totaling $1 billion and we are on pace to exceed the previous vintage, which raised $1 5 billion.
Michael: And finally in real estate with less aggressive competition from the banks and increasingly attractive risk adjusted opportunities and that we continue to see strong demand across our real estate debt strategies.
Michael: Evidenced by the $1 2 billion that we raised in the quarter, including over $850 million and European real estate debt.
Michael: Yeah.
Michael: We're also seeing strong momentum across our secondaries group as we scale existing strategies and launched New fund series.
Michael: For example, we recently launched the secondary product focused on global structured solutions, which she seeks to provide financing directly to the general partners of private funds.
Michael: <unk> and related vehicles will soon hold its first close with approximately $700 million in equity commitments, which is already 70% of the funds initial $1 billion target.
Michael: We're also actively scaling the third vintage of our infrastructure Secondaries fund and we expect to raise nearly $400 million shortly which would bring the fund and related vehicles to approximately $1 4 billion and equity commitments, where more than 40% larger than the previous vintage.
Our new credit Secondaries business is also seeing significant momentum and the team recently completed areas as largest credit secondaries transaction to date of $500 million highly diversified portfolio of credit Secondaries Fund Stakes.
Michael: The secondaries market as a promising area for Aries when you match the growing need for liquidity with our more than 1000 sponsor and 'twenty 600, institutional investor relationships around the globe.
Michael: As many of you know we continue to be a leader in the wealth channel with accelerating momentum and expanding product suite.
Michael: Our solutions offer individual investors core private markets exposure, delivering durable income diversified equity and tax advantaged real assets to the wealth channel globally.
Michael: During the third quarter, we raised over $2 5 billion of equity commitments and nearly $4 billion in total AUM, including leveraging our semi liquid wealth products.
Michael: Through the third quarter, our year to date equity flows into wealth management products totaled over $7 billion, which is more than three times the fundraising pace over the same period last year.
Michael: Including leverage we've raised over $11 billion in wealth management AUM through September 30th and momentum has continued into the fourth quarter.
Michael: We recently launched our seventh wealth management product and tax efficient core infrastructure fund, which successfully raised an initial $400 million in equity commitments in September and October.
Michael: Lastly October was our largest fundraising month to date with approximately $1 2 billion in equity flows across our semi liquid wealth products.
Michael: Yeah.
Michael: We continue to make meaningful progress expanding our distribution partnerships, where now on 60 platforms up 50% in the past year and we continue to see our products gained traction across the U S wire houses private banks.
Michael: <unk> and other distribution platforms globally.
Michael: We're pleased with the international expansion of the wealth distribution is 37% of year to date inflows are from outside the U S and in total we have over $32 billion of.
Michael: AUM across our semi liquid wealth management products, which is a 57% increase from a year ago.
Michael: When combining AUM from our publicly traded vehicles and high net worth investors and our campaign funds. Our total AUM from the retail channel exceeded $88 billion.
Michael: For the full year, we now expect to end 2024 with total gross capital raised in the mid $80 billion range, well above our 2021 record of $77 billion.
Michael: Campaign funds or institutional closed end funds have accounted for approximately one third of fund raising year to date, while SMA is wealth management public funds and speed are accounted for over 50%.
Michael: We expect our fundraising activities for the remainder of the year and into 2025 to consist of more than 35 active funds, including 15 different campaign funds along with continued inflows into our perpetual funds N S N as CLO and <unk> are growing insurance affiliate.
Michael: Turning to our investing activities new issue activity has moderately improved from earlier this year.
Michael: This has driven a higher gross to net deployment ratio for our private credit strategies, which totaled 42% for the third quarter, an improvement over last quarter's 38% and up from 28% in the first quarter.
Michael: In U S and European direct lending, we invested nearly $16 billion of gross commitments in the quarter across more than 100 companies with net deployment totaling nearly $7 billion give.
Michael: Given the breadth of our origination capabilities, we invest across the spectrum of middle market companies, including an increased focus on our core and lower middle market opportunities due to the superior relative value currently available in those market segments.
Michael: We also leveraged our incumbency to extend and expand our relationships with many of our strongest borrowers.
Michael: During the third quarter, approximately 60% of our U S. Direct lending deployment was with existing borrowers and we roughly doubled our dollar commitments to these portfolio companies we.
Michael: We believe this illustrates the power of our incumbency and our ability to grow alongside our best performing portfolio of companies.
Michael: By focusing on the lower end core middle markets, we can generate higher risk adjusted returns with broader coverage and established relationships with companies earlier in their growth phases.
Michael: With an alternative credit we deployed nearly $3 $8 billion in the third quarter, an increase of more than 35% compared to the same quarter last year.
Michael: With over $40 billion in <unk>.
Michael: The team is 75 investment professionals, focusing on both the liquid and illiquid sectors. We believe that we are the largest manager in the higher returning illiquid asset based credit segment with approximately $22 billion of non rated AUM.
Michael: While our team has deep experience with over 30 asset classes in the U S and Europe.
Michael: We focus on investing in relative value, which enables us to hone in on certain asset classes in favor and we're scaled capital as required.
Michael: Most recently our team has been active across fund finance residential assets auto leases digital infrastructure and asset management.
Michael: A couple of Great. Examples include our $1 5 billion joint venture with Cal automotive for Prime auto leases and our role in leading a 755 million pound Sterling preferred equity commitment for Wembley Park, which is a mixed use neighborhood in London.
Michael: In addition, our alternative credit team continues to partner directly with banks on a bilateral basis to provide capital relief solutions, including the recent financing agreement that we announced with Investec Bank.
Michael: It is important to note that we're continuing to scale, our $19 billion of liquid investment grade rated AUM through partnerships with third party insurance companies NSP that.
Michael: We're seeing significant growth in our liquid investment grade asset backed segment, which has increased at a 36% CAGR over the past five years.
Michael: In addition, the speed of continues to generate strong organic growth with more than $2 billion in fixed annuity originations and reinsurance flows in the third quarter and we expect continuing strong flows in the fourth quarter.
Michael: Within the real asset markets, we are in a meaningful inflection point with rising transaction activity strong fundamental performance and promising supply demand dynamics on the horizon.
Michael: Across our real estate strategies, we invested more than $2 billion in the third quarter, which was up meaningfully versus the same period, a year ago with a continued emphasis on our highest conviction sectors, including industrial multifamily student housing and single family rental.
Michael: Within our infrastructure segment, we continue to focus on renewable energy and related digital infrastructure investments.
Michael: And before I provide an update on our recent transaction announcements I want to take a minute to highlight the long term growth opportunities that we see in the global industrial real estate digital infrastructure and clean energy sectors.
Michael: Over the past decade, we've been expanding our investment capabilities and capital base in the industrial and renewable energy markets to take advantage of rising demand in E. Commerce, the reorganization of global supply chains infrastructure for AI, the demand for clean energy and manufacturing re shoring, which is reversing.
Michael: And then for decades of Globalizing trade.
Michael: For instance, estimates suggest that the re shoring of manufacturing will require over 1 billion square feet of logistics support in the next decade.
Michael: And by 2030, the U S will need up to 250 terawatt hours of new energy production to support AI and the expanded manufacturing base.
Michael: As an example, Aries made a strategic investment in ex energy, which is developing and building fourth generation of small modular reactors or SMS.
Michael: Recently ex energy announced that several strategic partners led by Amazon invested approximately $500 million in a new financing round for the company.
Michael: Both Amazon and ex energy, along with an existing investors such as Dow and Aries are seeking to advance the largest deployment to date, a safe clean and reliable SLR nuclear power aimed at the growing digital and manufacturing economies in the U S.
Speaker Change: Now with that perspective, I'd like to reemphasize the strategic importance of our two recently announced acquisitions in real assets, which we believe will not only diversify our business mix, but also enhance our growth profile.
Speaker Change: The GCT international transaction enables us to expand into three critical areas of importance for our firm.
Speaker Change: First it expands our real assets presence in the strategically important APAC region, including in Japan, and Vietnam within many of our highest conviction sectors like industrial digital infrastructure and clean energy.
Speaker Change: Following our SSG acquisition in 2020, and Crescent point last year, we have been strategically evaluating inorganic growth opportunities in the region and GTP International scale asset positioning track record and team represented far and away. The most compelling opportunity of nearly 40 managers that we can.
Speaker Change: <unk>.
Speaker Change: Second the transaction expands our vertically integrated industrial real estate capabilities into Japan, Europe, Vietnam and Brazil.
Speaker Change: As one of the largest vertically integrated industrial players in the U S. We believe that expanding our vertical capabilities globally will enhance our value proposition to our Lps and other market participants, while enabling us to create new revenue streams as these businesses scale.
Speaker Change: Third we are gaining a global presence and a rapidly growing data center development and asset management business with a $7 billion near term development pipeline, which complements our existing climate infrastructure capabilities.
Speaker Change: And while I focus on just these three opportunities there are many more compelling growth and synergy opportunities that GGP International presents and we believe that we are buying at an opportune time in the real estate cycle with a manager that provides significant growth potential.
Speaker Change: You May have also seen that we signed an agreement to purchase Walton Street in Mexico, and industrial focused real estate manager with $2 1 billion in.
Speaker Change: AUM as of June 30.
Speaker Change: This transaction enables us to capitalize on the near shoring trends that we're seeing across supply chain and Walton Street, Mexico team is particularly well positioned to take advantage of this market opportunity.
Speaker Change: We believe that there are also intriguing synergies with their institutional client base for other areas products.
Speaker Change: In both of these cases, we had long standing relationships with certain principles of these firms and we believe that each team will be a great cultural fit.
Speaker Change: Clearly. The addition of these two firms will provide important scales, where our real assets group and makes US one of the leading players in private equity real estate across the globe.
Speaker Change: And I'll now turn the call over to Jared to discuss our financial results in more detail Gary.
Jared: Thanks, Mike Good morning, everyone in the third quarter, we continued to deliver strong results with <unk>.
Jared: Teens year over year growth in AUM and management fees and mid Twenty's growth in FRE and realized income with $64 billion already raised this year and more than $74 million of gross deployment.
Jared: Rocking toward a record year for both gross on raising and deployment.
Jared: A record amount of $85 billion in shadow AUM or AUM, not yet paying fees ideally positions us to capitalize on a return to a more normalized state of deployment realizations in many sectors. When you combine <unk> with our FRE rich earnings mix and future European waterfall realization potential we built.
Jared: We have strong visibility for future earnings for our stockholders.
Looking at this quarters earnings starting with revenues management fees totaled over $757 million in the quarter, an increase of 18% compared to the same period last year, primarily driven by positive net deployment of our <unk>.
Jared: Fee related performance revenues totaled $44 million, primarily from the third quarter consolidation are open ended core alternative credit funds, along with a smaller contribution from Atms, which typically will be earned quarter.
Jared: This represents our first significant full year realization from our open ended core alternative credit fund and we anticipate this will now be an annual crystallization occurring in the third quarter of each year.
Jared: We continue to expect the majority of our credit group of FRP already realized in the fourth quarter as most of our separately managed accounts crystallized annually at the end of the fiscal year.
Jared: At this point, we're forecasting a range of $160 million to $170 million in fee related performance revenues and $60 million to $70 million net FRP or for our credit group in the fourth quarter Smile remains subject to change as these performance fees are based on total return through December 31, and could be impacted by underlying changes in the value.
Jared: These loans from movements in credit spreads and foreign exchange rates.
Jared: Compensation expense, excluding <unk> compensation increased 13% over the year ago period, driven by additional head count along with higher part one fees related compensation.
Overall, our G&A expenses were essentially flat quarter over quarter as the benefit from lower event expenses was offset by higher consulting and professional fees, including about $3 5 million onetime.
Jared: We expect G&A expenses will move moderately.
Jared: Due to higher expected supplemental distribution fees related to a strong start in Q4, along with higher seasonal travel expenses.
Jared: Costs for our newly expanded New York Office lease and recent head count.
Jared: Now, let me spend a moment on the supplemental distribution fees are paid on certain wealth management funds raised.
Jared: Quarterly supplemental distribution fees totaled $13 million decline in the second quarter of $15 million, which reflects the fundraising mix shift from domestic warehouses to more international wealth management distribution partners, we were able to offset $4 million in supplemental distribution fees through a decrease in compensation expense associated with the part one fees.
Jared: And the FRP or do we have discussed previously.
Jared: During the quarter, the $9 million net supplemental distribution fees reduced FRE and lowered our FRE margin by 170 basis points on a year to date basis net supplemental distribution fees have reduced my salary by $24 million.
Jared: <unk> margin by 102 basis points, the supplemental distribution fees are more than triple the expense amount.
Jared: Same period last year.
Jared: Although these supplemental distribution fees initially put pressure on our fee related earnings and FRE margins as we scale in the channel. We believe that the addition of the associated perpetual life assets in the wealth channel, which pain management and incentive fees would be very.
Jared: Importantly, we expect to gain greater absorption of these onetime fees as we scale.
Jared: During the third quarter FRE totaled approximately 339 million, 24% increase from the previous year, primarily due to higher management fees and FRP.
Jared: Our FRE margin at 41, 1% remained essentially unchanged from the same quarter a year ago in part due to the aforementioned supplemental distributions.
Jared: For the fourth quarter, we expect a meaningful sequential increase in our total fee income along with our total FRE.
Sequentially lower overall FRE margin of approximately 40%.
Jared: This is due in part to the impact of the supplemental distribution fees, we discussed lower margins on the expected ramp in credit Fr PR.
Jared: And higher compensation costs, primarily from new hires.
Jared: For the full year, we do expect to show a moderately higher FRE margins in 2024 compared to 2023.
Jared: With interest rates beginning to decline, we anticipate an acceleration in FRE growth and an expansion in our <unk> margin in 2025, driven by a broadening out of deployment across a greater number of our investment strategies and improved operating leverage within our wealth channel.
Jared: As we flagged in the second quarter at this point in our funds lifecycle. The third quarter was lighter on European style waterfall realizations as a reminder, approximately 85% of our net performance income is European style and since we're not yet in the full harvest period for our funds, 60% to 70% of net realized.
Jared: Performance in our European style funds is generally recognized in our fourth quarter by 30% in Q2, and the remaining 10% split between the first quarters.
Jared: And our third quarter, we generated only $9 million net realized performance income driven mainly by real estate credit funds with European style waterfalls, and an absence of material sales from funds that have an American style waterfall.
Jared: For the fourth quarter of 2024, we are estimating 90% to $95 million in net realized performance income from both our European and American style funds.
For 25, we continue to have good visibility on the continued expected ramp in our European style realized performance income.
Jared: 2025, we estimate European style net realized performance income to be between $225 to $275 million and with a better macro environment backdrop, we would expect to potentially recognize more of our American style accrued performance income as well for.
Jared: For 2026, we continue to expect another significant year over year increase in our European style.
Jared: Realized performance income compared to our 2025 levels.
Realized income in the third quarter to 339 million, 28% increase over the previous year and after tax realized income per share of class a common stock was <unk> 95 up 14%.
Jared: Quarter of 2023.
Jared: As of September 30, our AUM was $464 million.
Jared: Up 70%, 17% from the year ago period.
Our fee paying AUM reached $287 billion at the end of the quarter up 16% from the previous year.
Our AUM not yet paying fees available for future deployment increased to approximately $74 billion at quarter end, representing approximately $722 million in potential annual management fees, not including any part one fees or FRP.
Our incentive eligible AUM increased by 15% compared to the third quarter of 2023, reaching $267 billion.
Jared: Of this amount over 88 billion is uninvested, which represent significant potential for performance income.
Jared: In the third quarter, our net accrued performance income jumped nearly 10% quarter over quarter to $968 million.
Jared: Primarily from relatively strong capital appreciation and income compounding above our hurdle rates across our credit real assets and private equity funds.
Jared: Finally, I'd like to highlight our strong Q3 fund performance, which is underscored by broad outperformance within our private credit strategies.
Jared: Across our credit group, our strategy composites generated quarterly gross returns ranging from two 5% to six 5% with 12 months gross returns ranging from 8% to over 20%.
Our credit portfolios continue to see positive fundamental growth of any credit issues and we believe we are well positioned for a variety of economic scenarios, particularly approx.
Jared: Approximately 95% of our corporate credit assets are senior in the capital structure.
Jared: Notably ARCC reported quarterly improvements in non accruals the levels well below historical averages improved interest coverage and double digit portfolio company EBITDA growth.
Furthermore, the weighted average loan to value on our loan portfolio stood at 43% significantly lower than the market average of roughly 50% over the past 10 years.
Speaker Change: Across our real asset composites, we generated gross returns of infrastructure debt of two 6% for the quarter and 9% for the last 12 months our.
Speaker Change: Our real estate equity strategies are delivering strong returns relative to comparable market equivalents, we continue to see positive fundamentals and valuations and our real estate portfolios and in the third quarter. We saw appreciation in each of our real estate Fund composites. This includes positive quarterly returns in our two non traded Reits, which collectively.
Speaker Change: Brought in modest net inflows.
In General we believe we saw a bottoming in property values for most asset classes. During the spring and are now seeing more downward pressure on cap rates, while underlying property cash flows generally continued to rock.
Speaker Change: Our corporate private equity composite at a gross quarterly return of just under 2% as one fund was impacted by its public position than Sabre is valuable.
Speaker Change: Our most recent corporate private equity fund a cost six as generated gross quarterly and 12 month returns of four 8% and 22, 8% respectively.
That has since inception gross internal rate of return of 24, 2%.
Our corporate private equity portfolios continued to demonstrate strong fundamentals double digit year over year organic EBITDA growth now.
Speaker Change: Now I'll turn it back to Mike for closing comments.
Mike: Great. Thanks Jared.
Mike: I continue to believe that Ares is well positioned to succeed in an improving transaction environment.
Mike: Our management fee centric business and asset light balance sheet are critical elements of our strategy as we seek to capitalize on the growth of our platform and our industry.
Mike: There are many positive secular drivers influencing our business, including assets moving out of the global banking system to private credit the significant need for infrastructure investment in clean energy the growing penetration of alternatives in the wealth channel and a continued consolidation of GP relationships among institutional investors.
Mike: We also expect to see improving growth for our real asset strategies as rates begin to normalize. We believe that these growth engines will contribute more fully to our overall growth and associated operating efficiencies in 2025.
Mike: As always our talented team collaborating across the globe drives the current and future success of our business and I am deeply grateful for their hard work and dedication I'm also deeply appreciative of our investors ongoing support for our company and with that operator, I think that we can now open up the line for questions.
Speaker Change: At this time, if you would like to ask a question. Please press Star then one on your Touchtone phone.
Speaker Change: We'd like to withdraw your question. Please press Star then two.
Speaker Change: We'll take our first question from Craig Siegenthaler with Bank of America. Your line is open.
Craig Siegenthaler: Good morning, Mike Jared hope everyone's doing well.
Speaker Change: We're seeing some very big drawdown fund raises across the industry and the private credit semi liquid vehicles continue to lead in the private wealth channel.
Speaker Change: And just says no one of your big competitors, just closed a sizable dropdown in the institutional channel and any areas just raised to 34 billion senior direct lending fund three which is an industry record. So just given this ramp in industry AUM and dry powder can you see any challenges to deployment heading into next year, especially with the reopen.
The BSL market.
Speaker Change: Sure. Thanks, Craig.
Speaker Change: Things to highlight.
Speaker Change: As we said in the prepared remarks private credit fund raising is actually down sequentially for the last three years.
Speaker Change: So one of the things that Youre actually seeing and this has been a trend that's been in place for close to a decade that the dollar is getting raised and the dollar is getting deployed are actually becoming more concentrated in the hands of the larger managers.
Speaker Change: I think that has a lot to do with the ability for the larger matters to get deployed with significant diversification and just the benefits of scale as it relates to origination investment and portfolio management risk systems et cetera. So I don't think its a read across when you look at the size of the funds getting raised by the market leaders.
Speaker Change: <unk>.
Speaker Change: To say that there is too much capital in the market.
Speaker Change: When you look at the deployment numbers that would tell you something different which is the deployment is also concentrated and where each finding ways to continue to grow the business nicely in high quality assets.
Speaker Change: And what has been a fairly benign.
Speaker Change: Market.
Speaker Change: So I think we're in a good and a good place as we talked about in the prepared remarks. If you look at STL three on that $34 billion fund, we're already 30% invested at the final close so that'll.
Speaker Change: That will give you some perspective, just in terms of the pacing of the capital raising and the capital deployment.
Speaker Change: And without getting into all the detail, but we did talk about this again in the Investor day presentation. A couple of months back the Tam for private credit continues to grow and it's important that people. Appreciate that this is not just a sponsor lending business. This is a broad based private credit business across corporate.
Speaker Change: Real estate infrastructure alternative credit it's global.
Speaker Change: And there are secular trends in place you mentioned, obviously BSL market coming back, but there is a general deep banking trend that I think is outpacing whatever competition, we're seeing from the traded sub investment grade market. So long winded way of saying, we're obviously paying attention.
Speaker Change: To the competitive dynamic, but as we see it we actually still think that the private credit market is under capitalized relative to the opportunity.
Speaker Change: Yeah.
Speaker Change: Alright, thanks for the at the point there I think one thing driving that has been the lack of fund raising and the public BDC market. The last couple of years versus 2020 one.
Speaker Change: Do you think that changes next year with overall re roofing activity picking up and if it does do you think the consolidation trend has the potential to actually headed the other direction.
Speaker Change: I don't actually again, because I think that the consolidation trend is rooted in our view that we've held for a long time that scale drives performance. When you look at the public BDC market you are already beginning to see meaningful dispersion in performance across the manager landscape.
Speaker Change: And.
Speaker Change: I think that's an important thing to keep an eye on as we get into this broader conversation about quad.
Quality and size.
Speaker Change: So I think the public BDC market is an important part of the ecosystem, but obviously less important the other thing to keep in mind, the published numbers that.
Speaker Change: Most people referred to around the size of the private credit market do not include public Bdcs. So the <unk> data for example, it's published as is excluding the publicly traded BDC market.
Speaker Change: Alright, thank you.
Craig Siegenthaler: Great. Thanks, Greg.
Speaker Change: Thank you we'll take our next question from Alex Blaustein with Goldman Sachs. Your line is open.
Alex Blaustein: Hey, good morning, guys. Thank you first question around just asset backed finance opportunity and kind of private credit to point out in a way that we've talked about for the last couple of quarters lots.
Speaker Change: Lots of focus on origination being really kind of the driver of differentiated opportunities in this space. So curious if you can sort of update us on your origination capabilities are there additional partnerships you think you need to do there in order to kind of further accelerate that part of the market.
Speaker Change: I think the simple answer no obviously partnership is an important.
Speaker Change: Tenet of our culture and as we continue to grow that business, we will look to either own teams in house or have JV partnerships. So for example, we mentioned in the script, our recently signed joint venture with Cal automotive, which is a.
Speaker Change: Multi decade track record Prime auto.
Speaker Change: Lessor, and we set up a joint venture with them to effectively purchased an investment up to $1 billion $5 and prime new vehicle leases that they originate.
Speaker Change: So we've said this before there are some people that are talking about origination as owning platforms. That's great. They're certain folks like us. They are talking about opening teams that our employees are areas, where we see long term sustainable origination opportunities and then there are things in between where you may see.
Speaker Change: Something that's more tactical.
Speaker Change: And Youll do it through some kind of a joint venture partnership.
Speaker Change: Just to reiterate we have over 70 investment professionals that are focusing on this market. We cover 30 different asset classes, where we believe there is investable market and we have domain expertise.
Speaker Change: Certain markets come in and out of favor. So it's important that the origination in the asset class capabilities broad and diversified.
Speaker Change: But we have a lot of scale opportunity in that market and the team is currently situated.
Speaker Change: Continue to grow at the pace that has been growing.
Speaker Change: Got it alright that makes sense Jared one for you on FRE margins, so getting a little bit of a reset this year. So appreciate the color there.
Speaker Change: I guess not surprisingly like kind of given the dynamics in the retail distribution channel and just focus on topline growth. So we've talked about that in the past, but I guess, if you look out into 2025, and maybe if we could exclude been noise from fr PR.
Speaker Change: Tireless from kind of this discussion, but is it likely for areas to get back to more normal 100 basis points or so of <unk>.
Speaker Change: <unk> margin expansion into 2025, again kind of excluding FRP or noise. Thanks.
Speaker Change: Sure.
Speaker Change: Great to hear from you this morning.
Speaker Change: Go back to what we said at the Investor Day, and our primary focus is where are we investing in how can we continue to grow and sometimes that takes away from what our actual margin capability is.
Speaker Change: Because we could certainly increase the margin, but that would be at the cost and future investments and that's not that's not what we wanted to be doing however, we did say that as we deploy that margin will expand and as I mentioned in the prepared remarks, we do expect year over year that youll see a slight amount of margin expansion and that will continue into 2025 patient dipped.
Speaker Change: <unk> certainly helps with that and I think it will still be within that range of zero to 150 basis points that we laid out at Investor day.
Speaker Change: And that's not including anything from DCP.
Speaker Change: We don't have an exact close date or anything of that nature. So that's just.
Speaker Change: Standard what we have.
Speaker Change: Yes.
Speaker Change: Alright, I got you. Thank you guys.
Speaker Change: Alex just doing the simple math I think mentioning the distribution fees. If you excluded those which are kind of obviously positive variance to the to the base case given the growth in wealth, we would have scaled margin over 100 basis points. If you back those out.
No I totally get it it's a it's a timing thing and it's a worthwhile investment makes sense.
Speaker Change: Thank you we'll take our next question from Stephen <unk> with Wolfe Research. Your line is open.
Speaker Change: Good morning, This is Brendan O'brien filling in for Steven.
Brendan O'brien: I guess to start.
Theres been a lot of focus around the spread between private credit in the broadly syndicated market and how much that has narrowed over the past year. While you do part taken some of the larger club deals out there as you alluded to in the prepared remarks do you have a much bigger focus on the middle market relative to some of your competitors. So I just wanted to get a sense as to whether you see.
Brendan O'brien: Any differences in spread compression in the middle market relative to larger deal activity.
Brendan O'brien: The higher level do you view the spread compression as being a function of increased competition or simply a lack of new supply or some combination of both.
Speaker Change: And I would add a third which is really healthy economic backdrop and lower than expected defaults and losses in the market. So obviously credit spreads on an absolute basis theyre going to be a reflection of first and foremost of people's perception of risk in the asset class and when you look.
Speaker Change: At where the market stands both traded and private.
Speaker Change: The default rate is significantly below historical averages and when you look at some of the statistics that we're referencing in our portfolio around continued double digit EBITDA growth low loan to value improving interest coverage that theres, a general sentiment that despite the anxiety that people tried to put into the market two years ago.
Speaker Change: So the performance has actually improved and so there is a general narrowing of credit spreads. So I think it's important that people anchor on that as well and not just think about it in terms of supply demand kept at a really nice job I thought on the ARCC call talking about credit spread and there is a durable credit spread in our opinion between private.
Credit in the traded markets we've been doing this now for 30 years in that.
Speaker Change: Relative value moves around 150 to 400 basis points, depending on where you are in the credit cycle and where the liquidity in the market and so again I wouldn't read into it too much at this moment in time.
But we do think that it's important that if youre going to pursue the most attractive relative value or the most attractive excess spread in the market you have to be able to access every point of the market and Thats why we have been very focused in maintaining our leadership position in every part of the middle market lower core and upper because there arent.
Speaker Change: Be moments in time, where the BSL market is going to be more competitive with private credit unitranche executions, and you need to be able to move around the market and searches.
Speaker Change: Val and that that is a core differentiator for our platform.
Speaker Change: I do think youll start to see that spread if not gap out at least normalize once we start to see normal M&A transaction values come back into the market.
That's great color and for my follow up I wanted to touch on part one for US I know you gave the sensitivity.
Speaker Change: Your filings for ARCC and ASF, However, you've talked about in the past the impact of increased transaction activity.
Speaker Change: And the offset lagged impact on part one fees and with ACF scaling very quickly I just wanted to get a sense as to how we should be thinking about you know the increased contribution from ASF going forward and the increased transaction activity relative to.
Speaker Change: The rate headwind on part one fees and whether it's possible. This could actually result in part one fees continuing to grow even as rates come in.
Yes, I do think that we expect part one fees to continue to grow because the growth in absolute dollars will outpace.
Speaker Change: The impact of spread compression.
Speaker Change: Again, as we've talked about it's important to think about the components of return in these private credit instruments that are driving a lot of the part one fees right you get upfront fees you have base rates you have your credit spread and so typically rates will be going down in response to a weakening economic environment, which then typically.
Speaker Change: Correlates with credit spreads that are widening.
Speaker Change: And if.
Speaker Change: A reduced rate.
Speaker Change: Catalyze increased transaction activity you tend to get more upfront fees. So it is not just linear that when rates go down.
Speaker Change: Part one fees go down because there are other components of return that actually come into play. So it's again, it's important to understand how that how that works. When you look at the sensitivity and again you can look at the ARCC disclosures in their queue, which represents a big chunk of our part one but 100 basis point decline.
Klein just linearly in interest rates.
Speaker Change: Would probably.
Speaker Change: The impact our FRE by $9 million per year, so all else being equal if you had 100 basis point decline, we would lose $9 million, but then you'd obviously pick up a significant portion of that based on the dynamic I just talked about so the rate picture is not really that much of a headwind to to part one and as you point.
Speaker Change: It out not just <unk>, but the growth in other non traded vehicles like our private markets fund and our European income Fund I think will outpace whatever headwinds we faced.
Speaker Change: Great. Thank you for taking my questions.
Speaker Change: Sure.
Speaker Change: Thank you we'll take our next question from Bill Katz with TD Cowen Your line is open.
Bill Katz: Okay. Thank you very much for taking the questions and the commentary.
Bill Katz: <unk> guided to have sort of a mid eighties, maybe cover a little bit of and I might've missed it mid eighties gross inflow number for the full year, which would suggest another strong fourth quarter in front of us.
Was just wondering if you can unpack, where youre seeing the strength and as you think through into next year. I'm wondering if you can maybe help us think through the building blocks.
Should I think about comps to this year. Thank you.
Bill Katz: Okay.
Speaker Change: Jerry do you want to take that one.
Jerry: Sure Hey, Bill how are you doing today.
Speaker Change: So next year in terms of our build out in the fund raise we will continue to have a number of different commingled products as well as the retail products one of the things that Mike and I have talked a lot about with all of us.
We continue to raise the floor of our fund raising capabilities and.
Speaker Change: A lot of that has come from the build out of that retail channel that we've talked a little bit about on this call, but we still have had large commingled fund raising this debt.
Speaker Change: But have had successive vintages above the prior vintage I would expect to see that continue to occur in the market next year, we will have a number of different funds from strategies like our special opportunity strategy.
Speaker Change: Continue to have our second climate infrastructure funds.
Speaker Change: We'll have various bonds out of our secondaries group.
Speaker Change: Few funds out of our retail our real estate group as well.
Speaker Change: I do expect that.
Speaker Change: The the.
Speaker Change: The real estate markets continue to return we will see improved flows into things like reach so it's really platform wide I think we'll have a total of about 35 funds, but it'll be in the market next year and it won't be one dominant funds like SDR 86, like we have over the last couple of years, but it will be a number of different funds from <unk>.
The platform really broadening out the platform.
Speaker Change: Coming from all different angles.
Speaker Change: Okay, and then just a follow up.
Speaker Change: Another three months into the wealth management opportunity and certainly early days in general and the very largest denominator.
Speaker Change: Are you hearing from your relationships on the distribution side. It does seem like the distribution economics sort of point of sale economics are deteriorating, but is there a concentration opportunity here of just the areas is emerging as a disproportionate winter are you actually seeing that in any of the conversations with the distributors on how they're allocating these.
Speaker Change: <unk> four channel access.
Speaker Change: We're not.
Speaker Change: If you look at the last call. It three to five years I think there was more concentration in the channel and so we've actually seen a broadening out of market share. We've obviously picked up considerable share, but it's actually been diversifying generally in the <unk>.
Speaker Change: Hans.
Hans: Top players.
Hans: The Tam here is everyone has talked about is quite significant.
Hans: And I think that there are certain folks ourselves being one of them that are emerging as leaders just based on the investment that we've made in our distribution and servicing capability. The breadth of the product suite the strength of the brand the track record of performance. So.
Hans: You will continue to see significant growth channel widen and similar to what I talked about an institutional private credit market I think youll continue to see concentration of market share in the hands of the.
Hans: The platforms that we're early and made the necessary investments to win.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you we'll take our next question from Brennan Hawken with UBS. Your line is open.
Brennan Hawken: Good morning, Thanks for taking my question sort of a follow up on that last question.
Brennan Hawken: And totally appreciate it might be a hard question to answer with precision.
Brennan Hawken: Are these increasing distribution costs.
Speaker Change: That's happening sort of uniformly across the different platforms or should we anticipate this headwind would sort of cascade across the different platforms and continue to put upward pressure beyond the impact that you laid out here today.
Speaker Change: So the distribution cost is fairly uniform across the industry and so it's not as though areas as having a different experience than than our peer set.
Speaker Change: And again I want to make sure that we don't really refer to this as a headwind because it's actually a pretty significant tailwind and it's where you begin to see economies of scale. So if we pay an upfront distribution fee to raise permanent or semi permanent permanent capital.
Speaker Change: Those funds turn on management fee. The day that the dollar has raised theres, a pretty quick absorption of that upfront fee. So as Jared said on the prepared remarks, while we're experiencing it now as a clinical headwind to our FRE margin as we continue to scale youll see faster and faster.
Speaker Change: <unk> of that is the management fees turn on for a broader number of prop.
Speaker Change: Products. So, we'll obviously have to keep highlighting this and talking about it so that people can kind of get their heads around it as we as we ramp.
Speaker Change: It is uniform.
Speaker Change: We're experiencing what our peers are experiencing.
Speaker Change: I don't expect that it will that we're going to see meaningful change.
Speaker Change: Yes, sorry, I was not clear I didn't mean, whether or not this is specific and not others.
Speaker Change: In terms of what I meant is.
Speaker Change: Are you seeing it at only some distribution partners and that it could spread to other distribution partners, meaning that we could continue to see this ramping as you can.
Speaker Change: Yes.
Speaker Change: Got it yes, no I don't think I think I think the landscape is fairly well set as we talked about a little bit on the prepared remarks, there was a different.
Speaker Change: The market structure for example in the domestic wire houses versus the.
Speaker Change: International Channel and some of that mitigates, obviously, what we had been doing is making sure that as we think about our.
Speaker Change: Compensation framework around these funds that were effectively recapturing the distribution expense before we're sharing the upside with the team. So theres a lot that we do to make sure that we're.
Speaker Change: Focused on that absorption, but the international market functions differently, but in the U S market again, it's pretty broad based and I wouldn't expect it to to.
To bleed into other segments of the market.
Speaker Change: Okay. Thanks for that I appreciate that Mike.
Speaker Change: And then when we think about the <unk>.
Speaker Change: Sarah Smith at 90% to $95 million, a waterfall that you laid out.
Speaker Change: How does that compare to your prior expectations of 60 to 70 just from the Europeans.
Speaker Change: Is the is increase just purely from adding the American waterfall or did the European outlook improved as well.
Speaker Change: No.
Speaker Change: If a combos and Brendan.
Brendan O'brien: Pretty consistent European waterfall.
Brendan O'brien: Along with the out of incentive fees that we receive at the end of the year that don't qualify as fr PR and marketing of American waterfall. So all of those all of those things going into the fourth quarter.
Speaker Change: Great. Thank you for taking my questions.
Brendan O'brien: Okay.
Thank you we'll take our next question from Michael Cyprus with Morgan Stanley. Your line is open.
Michael Cyprus: Great. Thanks. Good morning, just a question on the private wealth channel, hoping you could maybe elaborate a bit on the Newark, new core infrastructure, how do you see the opportunity set with that product in the channel and maybe you can elaborate a bit on the flow strength in October I think you mentioned thats the largest month of in place to date and the channel maybe just unpack the strength there what youre seeing and how you see it.
Michael Cyprus: The cadence of expanding your presence on platforms into 'twenty five.
Michael Cyprus: Sure.
Speaker Change: Yes October was our was a very very strong month, we did $1 2 billion in equity in the months. It was across multiple products led by Acs, but also really strong performance in E systems, the new core infrastructure fund and continued growth in <unk>.
Speaker Change: Private market so that it was broad based.
Speaker Change: The core infrastructure fund, we're happy because it was launched quickly.
Speaker Change: And seeded quickly with $400 million and is now in the market and building and we have a pretty unique tax advantaged structure, there, where we actually just through the structure of that fund and the nature of the assets that we intend to invest and believe that we could produce a five to 700 basis points.
Speaker Change: Premium to what you would typically get just in a non tax advantaged core infrastructure. So.
It's a nice core infrastructure exposure. It has some really unique tax attributes that we think will be quite attractive to the to the platform.
Speaker Change: Look we continue to build the product suite as we talked about in the prepared remarks, we're working on a non traded product around our sports media and entertainment practice.
Speaker Change: Continue to systematically rollout products, where we can meet.
Speaker Change: The needs of our platform partners and as the product set develops we're obviously, increasing and expanding our distribution relationships. So as we talked about we're now on 60 distribution platforms, which is up 50% year over year and that will I would expect continued to grow and diversify so it's build the product.
Speaker Change: <unk> <unk>.
Speaker Change: Expand your distribution and that's been the playbook, but it's been pretty.
Speaker Change: Okay great.
Speaker Change: With Nick and then sequential in a way that we're doing it.
Speaker Change: Great and then just a follow up question on real estate I think you've mentioned that.
Speaker Change: That you expect to see transactional activity approve across the real estate marketplace as well as potentially flows to improve on the non traded REIT space. Maybe you could just unpack that a bit maybe just elaborate where you expect to see the improvement here, what do you see driving that and maybe speak to.
Some of the areas are leading into on the deployment side. Thank you.
Speaker Change: Sure I think we have bill and Julian I don't know if they want to give some some of their perspectives.
Speaker Change: Sure happy to.
Speaker Change: We are seeing quarterly.
Speaker Change: Over the year.
Speaker Change: Pick up in activity, both in debt and equity.
Our highest conviction themes have been for quite some time industrial both in the U S and in Europe and multifamily in those geographies and we are seeing pick ups in there too.
Speaker Change: <unk> done some large hotel transactions in the U K.
Speaker Change: And blending is pretty broad based.
Speaker Change: Across product types.
Speaker Change: So other than offices and we're nibbling at some offices in London.
Speaker Change: It remains to be industrial.
Speaker Change: Residential students single family did our first retail deal in the U S. In many many years very attractive shopping center near Cape Cod. So.
Speaker Change: That's a flavor of what we're seeing.
Okay.
Speaker Change: Great. Thanks.
Speaker Change: Thank you will.
Speaker Change: We will take our next question from Brian Bedell with Deutsche Bank. Your line is open.
Brian Bedell: Great. Thanks, Good morning folks thanks for taking my questions, maybe I'll put two together for my two questions. Both in the retail segment.
Brian Bedell: One on the distribution channel.
Brian Bedell: I think the Investor day, you were still at something like 5% or so of your addressable market. So as you look to expand that and potentially can expand in channels that don't don't have is a heavier supplemental distribution fees.
Brian Bedell: But how do you think about that.
Brian Bedell: Growth into that addressable market just from getting more.
Brian Bedell: Yeah.
Brian Bedell: <unk> selling your product that's one and then dovetailing with that as the product launch pipeline.
Brian Bedell: Pipeline I think you also said at Investor Day, I'm looking at about eight to 10 semi liquid perpetual products by 28 Youre already at seven now.
Brian Bedell: And I would.
Brian Bedell: Seemingly you Scott more ideas.
You know with the sports products and then potentially.
Brian Bedell: Maybe comment on products, you could even do with GCT.
Speaker Change: Yes, yes, sure should we be seeing more than 10 products may be right.
It is possible and I'm glad you mentioned <unk> I think given their capability and our ability to now offer more global product around.
Speaker Change: Industrial real estate and digital infrastructure, I think that our product capability is clearly going to grow and diversify so that acquisition may get us to a point, where we can be outside that range of eight to 10.
Speaker Change: At our Investor Day, we were at six we're now at 7% and as you said, we've got a couple in the pipeline. So we're kind of already there.
Speaker Change: That said with the current product and the products in the pipeline.
Speaker Change: It does project a portfolio of products. It gives the investor access to pretty much everything that we do here. So we may not be as.
Speaker Change: Active in bringing new product I can't.
Speaker Change: I can't quite comment on that until we get to the point, where we've kind of got these products in the market and we know what we know what that looks like.
Speaker Change: In terms of the first part again I don't think that our view has changed we are we are growing in line with the commentary that we made at the Investor day, if not slightly ahead.
Speaker Change: And it's important that you are covering every part of the market domestic and international in order to achieve those objectives. So obviously the largest part of the market is in the wire house platforms, but the fastest growing part of the market is in the Iras and so you have to be thinking about it in terms of where do you see rapid growth, but then where.
Speaker Change: Or do you also see scale and I think you have to go after both of them.
Speaker Change: Yes.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Take our next question from Ken Worthington with Jpmorgan. Your line is open.
Ken Worthington: Hi, Good morning, Thanks for your question.
Speaker Change: Our distribution costs, something you consider when focusing your resources in wealth management.
Speaker Change: Or is it something that you might expect.
Speaker Change: Reasonably consider in the future and you get the sense that distribution is getting more sophisticated when allocating their access to their platforms are we still in this all you can eat buffet environment.
Speaker Change: Yes, I think it is getting more sophisticated and as I mentioned I think it is getting more concentrated.
Speaker Change: In the handful of a number of brands that can support.
Speaker Change: The continuing education.
Speaker Change: The large platforms and so I don't think it is all you can eat I think it's been very intentional in building out the outcomes around durable yield and diversified equity and tax.
Speaker Change: So there is an intentionality as to the products that we're creating.
Speaker Change: As a push and pull in collaboration with the platforms and I think youre seeing a reduced number of managers that are getting the access points.
Speaker Change: And again I would expect that to continue.
Speaker Change: In terms of the.
Speaker Change: The distribution the cost of distribution again, I want to highlight the cost of distribution on a per dollar basis for us is actually going down in the channel as we scale. So there is meaningful economies of scale in our distribution platform just based on.
Speaker Change: The number of people, we have and what the capability and capacity is and so while we're all here focusing on absolute dollar is if you think about cost per dollars raise we're actually seeing meaningful decreases in the cost per dollar raised in terms of our own lift experienced relative to what it was a year ago.
Speaker Change: Okay. Thank you there.
Secondaries returns negative this quarter or a negative over the last 12 months.
Speaker Change: No performance lags.
Speaker Change: But it still seems like that that area is underperforming demand still is quite good for Aries secondary products. So maybe what's going on here from from a return perspective.
Speaker Change: Yes.
Okay.
Speaker Change: It does lag. So you first have to think about at least in the private equity there is a lag effect. So when we're talking about Q3 Q3 returns in secondaries.
Speaker Change: You are really talking about Q2 numbers and then maybe without getting into all of the nuances of how secondary returns Roe.
Speaker Change: Through funds.
Speaker Change: Oftentimes if youre buying discounted portfolios you pull return forward and then give returned back over the life of the fund. So it's always more relevant to look at inception to date return as opposed to quarter over quarter return when you're when you're looking at secondaries.
Speaker Change: And so when you look at the inception to date returns broadly speaking across that family of funds Theyre doing what theyre supposed to do.
Okay, great. Thanks.
Speaker Change: Thank you we'll take our last question from Mike Brown with Wells Fargo Securities. Your line is open.
Speaker Change: Yeah.
Mike Brown: Great. Thanks for squeezing me in here.
Mike Brown: I guess, maybe another follow up on the wealth market. We've seen some interval fund filings from some peers you guys have a large successful interval fund with a partner and that just crossed the $6 billion AUM level.
Just wanted to hear what's your outlook here for this fund structure can you iterate on that product structure, and then even expand the distribution their total wider spectrum.
Speaker Change: I think the simple answer at least with regard to <unk>, which is our diversified credit fund.
Speaker Change: That is it is already scaled with a five year track record and it offers diversified credit exposure, both liquid and illiquid.
Speaker Change: And so I do think that we have a running head start there and we can continue to expand distribution.
Speaker Change: With regard to a lot of the announced partnerships and we're beginning to obviously see some detail on what the product set is and we've talked about this on the last call you have to really think about those products from the angle of will it enhanced distribution.
Speaker Change: Number one and number two will enhance the client experience in terms of the product that they can.
Speaker Change: Invest in <unk> the returns that they can get and so I think.
Speaker Change: If we were to look at partnerships like the ones that others have announced we would have to be convinced that we're getting access to points of distribution that are accretive and additive to what we currently have and that it will meaningfully change the investment performance or the customer experience relative to what they have now.
Speaker Change: And.
Speaker Change: At least.
Speaker Change: Today, and we've had discussions with many potential partners, given our product set and our capability in liquid and illiquid credit right. We have a very large liquid credit business, where we're able to offer access to that broadly syndicated loan market the high yield market the rated ABS market. So.
Speaker Change: Okay.
Speaker Change: Until we convince ourselves that there is a portion of the fixed income market that we can't deliver to the client ourselves or that the client absolutely wants to access that part of the market.
Speaker Change: Packaged with private credit, we're probably going to be a little bit slower to move there, but obviously, it's noteworthy but I appreciate you, bringing up our fund because while there is a lot of talk about how novel.
Speaker Change: This product is we've been running this product at scale for quite some time, and obviously have a pretty significant track record of performance there.
Speaker Change: Yeah, great. Thank you for all those thoughts Mike.
Speaker Change: Just a quick follow up on <unk>, if I heard the guide correctly I think it was for 160 to $1 70 for <unk>. So I guess the midpoint there would be got it.
Speaker Change: In line with where it was in the fourth quarter last year.
Speaker Change: And I guess, the comp ratio would imply a bit of a high.
Speaker Change: Level for <unk> and it was it was quite elevated in the third quarter. So can you just maybe unpack the right way to think about the.
Speaker Change: The comp ratio for FRP or as we think about call. It 25 to 26.
Sure.
Speaker Change: This quarter here the alternative credit products to open ended that we had that has a little bit different comp ratio at 70 30.
Speaker Change: So thats why you saw that this quarter, but I would remind you that.
Speaker Change: That fund also has a charitable tie in so 5% of that overall amount has donated to various charities.
Speaker Change: It's pretty positive influence.
Speaker Change: On what we're doing and it is pretty innovative for that team to do that as well because part of it is coming out of their allocation.
Looking forward at Q4, one of the reasons of that comp ratio is a little bit different is that you.
Speaker Change: European funds that are in there as well in the European funds.
Speaker Change: A different tax structure in terms of how those are types of theres different employer taxes that are born as a result, so thats whats throws off your comp ratio is a little bit we typically guide that it's going to be somewhere in the mid <unk>.
Speaker Change: Okay, great. Thank you Jerry I appreciate the extra color about that.
Speaker Change: Okay.
Speaker Change: Thank you and it appears we have no further questions at this time I will now turn the program back over to our presenters for any additional or closing remarks.
Speaker Change: Nope, we have none we appreciate everybody spending so much time with us today and all the great questions and continued support and we look forward to speaking to everybody next quarter. Thank you.
Speaker Change: Ladies and gentlemen, this concludes our conference call for today.
You missed any part of today's call an archived replay of the call will be available through December one 2024 to domestic callers by dialing one 800 <unk>.
Speaker Change: 395241 and to international callers by dialing 140 to 220.
Speaker Change: 698, an archived replay will also be available through December one 2024.
Speaker Change: Webcast link located on the house page of the Investor Resources section of our website.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music] Goodbye.