Q2 2025 Ares Management Corp Earnings Call

Greg Mason: Please stand by. Your program is about to begin. Welcome to Ares Management Corporation's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Friday, August 1st, 2025. I will now turn the call over to Greg Mason, co-head of Public Markets Investor Relations for Ares Management.

Please stand by your program is about to begin.

Welcome to Aries management. Corporation's second quarter 2025 earnings conference call.

At this time, all participants are in a listen-only mode.

As a reminder, this conference call is being recorded on Friday, August 1st 2025.

I will now turn the call over to Greg Mason, co-head of Public Markets and Investor Relations for Ares Management.

Greg Mason: Good morning, and thank you for joining us today for our second quarter 2025 earnings call. I'm joined today by Michael Arougheti, our Chief Executive Officer, and Jarrod Phillips, our Chief Financial Officer. We also have a number of executives with us today who will be available during Q&A. Before we begin, I want to remind you that comments made during this call contain certain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. Please also note 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 Ares or any Ares fund.

Good morning, and thank you for joining us today for our second quarter 2025 earnings call.

I'm joined today by Michael Erie, our chief executive officer and Jarrod Phillips, our Chief Financial Officer

We also have a number of executives with us today. Who will be available during Q&A?

Before we begin, I want to remind you that comments made during this call contain certain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings.

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 reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. Note that we plan to file our Form 10-Q later this month. This morning, we announced that we declared a quarterly dividend of $1.12 per share on the company's Class A non-voting common stock, representing an increase of 20% over our dividend for the same quarter a year ago. The dividend will be paid on September 30, 2025, to holders of record as of September 16.

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 areas or any areas 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.

Queen preferred to our second quarter earnings presentation of available on the investment, resources, section of our website for reconciliations of these non-gaap measures to the most directly comparable gaap measures

Note that we plan to file our Form 10-Q later this month.

This morning, we announced that we declared a quarterly dividend of a $112 cents per share on the company's Class A and non-voting common stock.

Representing an increase of 20% over our dividend for the same quarter a year ago.

The dividend will be paid on September 30th 2025.

Greg Mason: Now, I'll turn the call over to Mike, who will start with some comments on the current market environment and our second quarter financial results.

Michael Arougheti: Thank you, Greg, and good morning. We appreciate you joining us. Before we begin today's earnings discussion, it's important that we take a moment to acknowledge the tragedy that occurred on Monday. Blocks from Ares' New York headquarters, our city experienced a senseless act of violence that has reverberated through our community. On behalf of every member of the Ares organization, we mourn the loss of our neighbors, offer our deepest condolences to their families, friends, and colleagues, and we thank those who have dedicated their lives to protecting our community members. Together, we will continue to care for one another with compassion and resilience. I'll now turn the discussion over to a discussion of our financial results. Ares reported strong second quarter results, demonstrating the strength and resiliency of our business during periods of market volatility and the breadth and diversification of our growing global platform.

To Holders of record as of September 16th. Now, I'll turn the call over to Mike who will start with some comments on the current market environment and our second quarter Financial results?

Thank you, Greg, and good morning. We appreciate you joining us.

Before we begin today's earnings discussion, it's important that we take a moment to acknowledge the tragedy that occurred on Monday.

Blocks from Aries is New York headquarters. Our city experienced a senseless act of violence that has reverberated through our community.

On behalf of every member of the Aries organization. We mourn, the loss of our neighbors, offer our deepest condolences to their families, friends, and colleagues.

And we thank those who have dedicated their lives to protecting our community members.

Together, we will continue to care for 1, another, with compassion and resilience.

I'll now turn the discussion over.

To a discussion of our financial results.

Michael Arougheti: Our quarterly AUM and fee-paying AUM grew significantly, driven by the continued success of our fundraising and investing efforts, along with continued strong investment performance and market appreciation in the portfolio. We logged our second-highest quarterly fundraising total on record of more than $26 billion raised with more than 20 strategies and 40 funds in market across three of our channels. With over $46 billion in gross commitments raised year to date, we believe that we're on pace to meet or exceed last year's record fundraising of $92.7 billion. As a result of our strong fundraising, AUM increased to $572 billion, which represents quarter-over-quarter organic growth of 19% on an annualized basis. While our fundraising was very strong despite the market volatility during the second quarter, the deployment environment was modestly impacted, particularly at the beginning of the quarter.

Are is reported strong second quarter results demonstrating the strengths and resiliency of our business during periods of Market, volatility and the breath and diversification of our growing Global platform.

Our quarterly AUM and fee paying AUM, grew significantly driven by the continued success of our fundraising, and investing efforts along with continued, strong investment, performance, and Market appreciation in the portfolio.

We logged our second highest quarterly fundraising total on record of more than 26 billion dollars raised with more than 20 strategies and 40 funds in market across 3 of our channels.

With over 46 billion dollars in Gross. Commitments raise year-to-date, we believe that we're on Pace to meet or exceed last year's record fundraising of 92.7 billion.

As a result of our strong fundraising AUM, increase to 572 billion, which represents quarter of a quarter, organic growth of 19% on an annualized basis.

While our fundraising was very strong, despite the market volatility, during the second quarter.

Michael Arougheti: In the US, our largest market, we saw a temporary slowdown in transaction activity in April, which bled into May, followed by a strong rebound in June as the markets adjusted for the impact of new tariff policies. Although US LBO activity moderated compared to the second quarter of last year, our $27 billion of second quarter deployment was slightly higher than the comparable year-ago period despite the market pause experienced in April. In part due to our strong perpetual fundraising efforts, deployment and drawdown funds, and market appreciation, our FTAUM increased to $350 billion, representing quarter-over-quarter organic growth of 17% on an annualized basis. We also delivered very strong year-over-year growth in management fees of 24%, total fee-related revenue growth of 29%, and FRE growth of 26%.

The deployment environment was modestly impacted, particularly at the beginning of the quarter.

In the US, our largest market, we saw a temporary slowdown in transaction activity in April, which bled into May followed by a strong Rebound in June as the markets adjusted for the impact of new tariff policies.

Although us lvo activity moderated, compared to the second quarter of last year, our 27 billion of second. Quarter deployment was slightly higher than the comparable year ago, period, despite the market pause experienced in April.

In part due to our strong, Perpetual fundraising efforts deployment and draw down funds and Market appreciation. Our FPA increased to 350 billion representing quarter over quarter, organic growth of 17% on an annualized basis.

Michael Arougheti: These strong levels of growth reflect the compelling trends that we're seeing across our seven private credit strategies, acceleration in our private wealth franchise, meaningful expansion in our secondaries business, and higher growth in our real assets business, including the benefit of our GCP international transaction that closed in the first quarter. In addition, our net accrued performance income balance increased 8.5% in the quarter to $1.1 billion as we experienced strong investment results across our business. As expected, GCP modestly compressed our overall FRE margin in the second quarter, but we believe that this is temporary, and we remain on track with our financial expectations for the business.

We also delivered very strong year-over-year growth in management. Fees of 24%, total fee, related Revenue growth of 29% and fr growth of 26%.

These strong levels of growth, reflect the compelling trends that we're seeing across our 7 private credit strategies acceleration, and our private wealth franchise, meaningful expansion in our secondary business and higher growth. In our real assets business including the benefit of our gcp International transaction that closed in the first quarter.

Customer results our business.

Michael Arougheti: We continue to expect significant further contributions in FRE from GCP in the next several years as we continue to scale our data center asset management business, our global industrial development business, and capitalize on the various synergy opportunities as Jarrod will discuss later. Now, let me turn to some of the operating highlights across our business units. We continue to see strong demand from institutional investors allocating into our comingled funds and bespoke managed accounts. During the quarter, approximately 55% of our fundraising was in institutional products, including 30% directly into comingled funds and 25% into SMAs or open-end institutional fund structures. Our third special opportunities fund is experiencing strong demand, raising an additional $2 billion of new commitments in the quarter, bringing total commitments to date to nearly $5 billion since launch last year.

As expected gcp modestly compressed, our overall frame margin in the second quarter but we believe that this is temporary and we remain on track with our financial expectations for the business.

We continue to expect significant further contributions in F from GCP in the next several years as we continue to scale our data center asset management business, our global industrial development business, and capitalize on the various synergy opportunities, as Jared will discuss later.

Now, let me turn to some of the operating highlights across our business units.

We continue to see strong demand from institutional investors allocating into our co-mingled funds and bespoke and managed accounts.

During the quarter approximately 55% of our fundraising was an Institutional products, including 30% directly into coming funds and 25% into smas or open-end institutional fund structures.

Michael Arougheti: We believe that we are in an excellent position to continue scaling our fundraise into year-end. In US direct lending, we raised over $10 billion, including $6.2 billion across our credit wealth products and ARCC, $2.5 billion in debt commitments to SCL3, and $1.6 billion from institutional FMAs. We're also seeing strong traction in our sports media and entertainment strategy. As many of you know, we were a pioneer in providing flexible private capital dedicated to this sector, and we just held the first close for our second sports media and entertainment fund, totaling more than $1.4 billion in equity commitments, representing over 70% of the fund's equity target. Similarly, our open-ended sports media and entertainment wealth product began taking monthly subscriptions in June, with strong early reception in the market. Our European direct lending strategy raised over $1.1 billion from new FMAs and $800 million in the wealth channel.

Our third special opportunities fund is experiencing strong demand, raising an additional 2 billion dollars of new commitments. In the quarter, bringing total commitments to date to nearly 5 billion since launched last year.

We believe that we are in an excellent position to continue scaling our fund and raise into year-end.

In U.S. direct lending, we raised over $10 billion, including $6.2 billion across our credit wealth products and ARCC.

$2.5 billion in debt commitments to SDL, and $1.6 billion from institutional SMAs.

We're also seeing strong Traction in our Sports media and entertainment strategy.

As many of you know, we were a pioneer in providing flexible private capital dedicated to this sector.

And we just held the first close for our second Sports Media and Entertainment Fund, totaling more than $1.4 billion in equity commitments, representing over 70% of the fund's equity targets.

Similarly, our open-ended sports media and entertainment wealth product began taking monthly subscriptions in June, with strong early reception in the market.

Michael Arougheti: The strategy has experienced robust growth since the beginning of the year, driven by fundraising in the wealth channel and strong net deployment in our institutional drawdown funds. Further, we priced our first European direct lending CLO at over £300 million, which we believe is the first reinvesting CLO in the European direct lending market. In liquid credit, we raised $2.8 billion, including over $1.4 billion in new CLOs. In real estate, we raised $2.4 billion of capital in the quarter, primarily from $880 million of debt and equity at our non-traded REITs and our US open-ended industrial real estate fund, as well as over $1.3 billion of debt commitments to our real estate debt strategies.

Our European direct lending strategy raised over 1.1 billion from new smas and 800 million in the wealth Channel.

The strategy has experienced robust growth since the beginning of the year, driven by fundraising in the wealth Channel, and Strong net deployment, and our institutional draw down funds.

Further, we priced our first European direct lending coo at over 300 million pounds, which we believe is the First reinvesting Co in the European direct lending Market.

in liquid credit, we raised 2.8 billion dollars including over 1.4 billion in new cos

Michael Arougheti: Our 11th US value-add real estate fund and our fourth value-add European real estate fund continue to be in the market and are well positioned for continued fundraising in the second half of the year. We currently anticipate both funds will meet or exceed the size of the predecessor fund. In infrastructure, we raised over $1.3 billion, including $850 million for the final close of our first Japan data center development fund. In total, we raised $2.4 billion for our inaugural data center fund focused on data centers in Tokyo. As we've highlighted previously, we have additional locations entitled, permitted, and powered in London, Tokyo, and Osaka, where we anticipate raising capital starting in the second half of this year and into next year.

In real estate, we raised 2.4 billion dollars of capital in the quarter primarily from 880 million of debt and Equity at our non-traded. REITs, and our Us open ended in industrial real estate funds as well as over 1.3 billion dollars of debt commitments, to our real estate debt strategies

Our 11th US value, add real estate fund, and our fourth value, add European real estate fund continue to be in the market and are well positioned for continued fundraising in the second half of the year.

We currently anticipate that both funds will meet or exceed the size of the predecessor fund.

In infrastructure, we raised over 1.3 billion dollars, including 850 million for the Final close of our first Japan data center Development Fund.

In total, we raised $2.4 billion for our inaugural data center fund focused on data centers in Tokyo.

Michael Arougheti: Our team continues to build a pipeline of future development opportunities across North America, South America, Europe, and Japan, and we're excited by the magnitude of our in-flight pipeline, which we expect to be a significant driver of growth for our real assets group. Our secondaries group remains one of our strongest growth vectors for the foreseeable future. We believe that we're a market leader in the industry with the ability to invest across multiple asset classes, and we have an exceptional network of relationships and capabilities that is enabling our growth. Since our acquisition of Landmark in June of 2021, our secondary segment FRE has nearly doubled, and over the past 12 months, our secondaries AUM has increased 29% to nearly $34 billion. During the quarter, we raised $2.5 billion, including another $1.2 billion in our inaugural credit secondaries fund.

As we've highlighted previously, we have additional locations entitled, permitted and powered in London, Tokyo and Osaka, where we anticipate raising Capital starting in the second half of this year and into next year.

Our team continues to build a pipeline of future development opportunities across North America, South America, Europe, and Japan. We’re excited by the magnitude of our in-flight pipeline, which we expect to be a significant driver of growth for our Real Assets Group.

Our secondary group remains one of our strongest growth factors for the foreseeable future.

We believe that we're a market leader in the industry, with the ability to invest across multiple asset classes. We have an exceptional network of relationships and capabilities that is enabling our growth.

Secondary is AUM, has increased 29% to nearly 34 billion.

Michael Arougheti: This brings equity commitments in the credit secondaries fund, plus related vehicles in the strategy, to over $3.5 billion. In private equity secondaries, we launched a new fund focused solely on GP-led transactions, a particular area of strength for our team, which requires a differentiated skill set and leverages the broader sponsor relationships at Ares. The fund and related vehicles have closed $800 million to date, and we anticipate continued strong demand for this first-time fund. We continue to grow and diversify the product set in private equity secondaries to meet the dynamic needs of our GP clients. Our third infrastructure secondaries fund and related vehicles raised nearly $250 million during the quarter, and as of last week, raised an additional $575 million, bringing current commitments to $2.8 billion.

During the quarter, we raised 2.5 billion including another 1.2 billion in our inaugural credit secondaries fund.

This brings Equity commitments in the credit secondary fund plus related vehicles and the strategy to over 3.5 billion dollars.

In private Equity. Secondaries we launched a new fund focused solely on GP lead, transactions, a particular area of strength through our team, which requires a differentiated skill set

And leverages the broader response relationships at areas.

The fund and related vehicles, have closed 800 million dollars to date, and we anticipate continued strong demand for this first time fund.

We continue to grow and diversify the product set in private Equity. Secondaries to meet the dynamic needs of our GP clients.

Michael Arougheti: Our infrastructure strategy is benefiting from very strong performance, and we anticipate our third infrastructure secondaries fund will hit its hard cap of $3 billion, which is more than triple the size of the previous fund vintage. Finally, in real estate secondaries, we are preparing for the launch of our 10th real estate secondaries fund in the fourth quarter. In corporate private equity, we anticipate that our seventh corporate opportunities fund will hold its final close in September. The fund currently has $2.8 billion in commitments, and we anticipate the final close by September will bring the fund to more than $3 billion total. In the wealth channel, we continue to benefit from our top five leadership position, with an estimated market share approaching 10%.

Our third infrastructure, secondary fund, and related vehicles raised nearly $250 million during the quarter. As of last week, we raised an additional $575 million, bringing current commitments to $2.8 billion.

Our infrastructure strategy is benefiting from very strong performance and we anticipate our third infrastructure. Secondary fund will hit its hard cap of 3 billion, which is more than triple the size of the previous fund vintage.

Finally, in real estate, secondaries we are preparing for the launch of our 10th. Real estate, secondary Fund in the fourth quarter.

In corporate private Equity, we anticipate that our 7 Corporate opportunities fund will hold, its final close in September.

the fund currently has 2.8 billion dollars in commitments and we anticipate the Final close by September will bring the fund to More Than 3 billion dollars total

Michael Arougheti: Our momentum remains strong with our fundraising for the first half of the year totaling $7 billion in equity commitments, a 54% increase over the first half of 2024. AUM across our eight semi-liquid products crossed $50 billion, and now seven of our eight products are over $1 billion, with our eighth product launched in June seeing early traction and well on its way. We believe that we have one of the broadest product sets in the market, with eight semi-liquid perpetual products spanning credit, private equity, real estate, infrastructure, and sports media and entertainment. Our intentional design across these asset classes plays a key role in driving broad product adoption within the channel. We've continued to expand our global wealth distribution network, now partnering with over 80 firms globally, a 33% increase year over year.

In the Wealth Channel, we continue to benefit from our top 5 leadership position, with an estimated market share approaching 10%.

Our momentum remains strong, with our fundraising for the first half of the year totaling $7 billion in equity commitments.

a 54% increase over the first half of 2024,

Mm, across our 8, semi liquid products across 50 billion dollars. And now 7 of our 8 products are over 1 billion with our 8 product launched in June seeing early traction and Well, on its way.

We believe that we have one of the broadest product sets in the market, with eight semi-liquid Perpetual products spanning credit, private equity, real estate, infrastructure, and sports media and entertainment.

Our intentional design across these asset classes plays, a key role in driving broad product adoption within the channel.

We've continued to expand our global wealth distribution network, now partnering with over 80 firms globally.

Michael Arougheti: Importantly, we conducted business with over 1,300 new financial advisors in the quarter, which is up over 200% from a year ago and illustrates our progress penetrating new financial advisors within existing channels as more investors adopt alternative investments. While we're deepening relationships with our top five distribution partners, these firms collectively only represent about half of our wealth capital raised year to date, demonstrating the significant breadth of our platform and the continued opportunity ahead. International demand remains robust, with more than one-third of our year-to-date flows coming from Europe and Asia. We are particularly excited to be partnering with leading banks in Japan and expect to see meaningful flows as a result over the next few quarters. Following the brief market dislocation in April, capital raising in the second quarter remained resilient and culminated in strong monthly capital raised in June.

33%, increase your overview.

Importantly, we conducted business with over 1,300 new financial advisors in the quarter, which is up over 200% from a year ago and illustrates our progress in penetrating new financial advisors through existing channels as more investors adopt alternative investments.

While we're deepening relationships with our top five distribution partners, these firms collectively only represented about half of our wealth capital raised year to date, demonstrating the significant breadth of our platform and the continued opportunity ahead.

International demand remains robust, with more than one-third of our year-to-date flows coming from Europe and Asia.

We are particularly excited to be partnering with leading banks in Japan and expect to see meaningful flows as a result over the next few quarters.

Michael Arougheti: In the second quarter, we raised $3.4 billion in new equity, resulting in a total capital raise of $6.3 billion, including leverage. As previously mentioned, we raised equity over $1 billion in ASIF and over $350 million in the total non-traded REITs. We experienced accelerated inflows from our leading open-ended European direct lending fund, raising over $800 million in the quarter, bringing total AUM in the fund to over $4.3 billion, which we believe makes it the largest fund of its kind in the market. APMF raised over $370 million in the quarter and has now surpassed $3 billion in total AUM. Our open-end core infrastructure fund raised nearly $250 million in the quarter, and with the July 1st inflows, now sits at more than $1.1 billion in total AUM.

Following the brief Market dislocation in April Capital. Raising in the second quarter, remain resilient and culminated in strong. Monthly Capital raised in June.

In the second quarter, we raised $3.4 billion in new equity, resulting in a total capital raise of $6.3 billion, including leverage.

As previously mentioned, we raised equity of over $1 billion in Asus and over $350 million in the total non-traded REITs.

We experienced accelerated inflows from our leading, open-ended European direct lending Fund. Raising over $800 million in the quarter, bringing total AUM in the fund to over 4.3 billion, which we believe makes it the largest fund of its kind in the market.

Apmf raised over $370 million in the quarter and has now surpassed 3 billion dollars in total AUM.

Michael Arougheti: Building off a record month in July and what is projected to be another record month in August, we expect the third quarter to be a record quarter of capital raised across our semi-liquid funds as investors continue to seek our solutions, global scale, and track record. Our balance sheet light insurance strategy is another area of compelling growth for us. During the second quarter, Askeda, our affiliated insurance portfolio company, generated over $1.9 billion in new premiums, driven by continued strong demand across both retail annuities and flow reinsurance business. Askeda has continued on a solid growth trajectory, ending the quarter with total balance sheet assets of $23 billion, $15 billion of which is sub-advised by Ares. In June, Askeda executed two new reinsurance transactions, one with a highly rated Japanese insurer and another with a highly rated US insurance writer, further expanding its reinsurance relationships.

More than $1.1 billion in total AUM.

Building off a record month in July and what is projected to be another record month in August, we expect the third quarter to be a record quarter of capital raised across our semi-liquid funds, as investors continue to seek our solutions, global scale, and track record.

Our balance sheet, light Insurance strategy is another area of compelling growth for us.

During the second quarter, our affiliated insurance portfolio generated over $1.9 billion in new premiums, driven by continued strong demand across both retail annuities and flow reinsurance business.

Spida has continued on a solid growth trajectory, ending the quarter with total balance sheet assets of $23 billion, $15 billion of which is sub-advised by Aries.

Michael Arougheti: Askeda remains on track to meet its 2025 target for new premiums of approximately $7 billion while maintaining discipline on liability costs and positioning new business to achieve its target returns. The strong growth that we're seeing across our wealth and insurance businesses, combined with the GCP acquisition and growth in other open-end institutional funds, has resulted in a $50 billion increase in our perpetual capital over the past 12 months. Our perpetual capital AUM now stands at $167 billion and represents nearly half of our total fee-paying AUM. We believe this capital, which does not contractually repay at the end of an investment period but instead can be continually reinvested, provides a stickier base of AUM with consistent management fees and often includes regular payments of fees through Part 1 and FRPR.

In June, a speed of executed two new reinsurance transactions: one with a highly rated Japanese insurer and another with a highly rated U.S. insurance writer, further expanding its reinsurance relationships.

A speeder remains on track to meet its 2025 Target for new premiums of approximately 7 billion dollars while maintaining discipline on liability costs and positioning new business to achieve its Target returns.

The strong growth that we're seeing across our wealth and insurance businesses combined, with the gcp acquisition and growth. In other open-end, institutional funds has resulted in a $50 billion. Increase in our Perpetual Capital over the past 12 months,

Our Perpetual Capital AUM now stands at $167 billion and represents nearly half of our total fee-paying AUM.

We believe this Capital which does not contractually repay at the end of an investment period.

Michael Arougheti: We anticipate perpetual capital from both the wealth and institutional channels will continue to represent a significant percentage of our AUM growth going forward and should provide even greater visibility in revenue growth and profitability across the business. We believe the underlying health and performance of our portfolios remains very strong, supported by solid economic fundamentals and our intentional positioning in non-cyclical growth-oriented sectors and markets. In our largest strategy, US direct lending, we experienced year-over-year comparable EBITDA growth of 13%, with an average loan-to-value of 43%. When combining this fundamental performance with low LTVs and minimal impacts from tariffs, our non-accrual rates remain well below historical industry averages and our own historical averages.

But instead can be continually, reinvested provides a stickier base of AUM with consistent management fees, and often includes regular payments of fees through part 1 and FRP

We anticipate Perpetual capital from both the wealth and institutional channels will continue to represent a significant percentage of our AUM growth going forward. And should provide even greater visibility and revenue growth and profitability across the business.

We believe the underlying health and performance of our portfolio is remains very strong supported by solid economic fundamentals and our intentional positioning in non-cyclical growth oriented sectors and markets.

In our largest strategy us direct lending, we experienced year-over-year comparable IBA dog, growth of 13% with an average loan to value of 43%.

Michael Arougheti: Interestingly, new market data highlights equity contributions from private equity sponsors in new middle-market M&A transactions are at a 13-year high in 2025, which we believe meaningfully reduces the risk of loss in the direct lending market. In European private credit, we're seeing similar strong performance trends in our portfolios with low loans to value. Of note, favorable interest rates and higher domestic investment are driving a resurgence of investment activity across Europe. With our leading pan-European direct lending platform, we're well positioned to take advantage of these trends. Our alternative credit, opportunistic credit, and liquid credit portfolios are also enjoying strong performance and very low delinquencies. Our real estate portfolio continues to experience improving fundamentals as well. Leasing trends are strong, rent growth continues to increase, and cap rates remain generally steady across our focus areas of industrial, multifamily, and adjacent sectors.

When combining this fundamental performance with low LTVs and minimal impacts from tariffs, non-accrual rates remain well below historical industry averages and our own historical averages.

Interestingly, new market data highlights equity contributions from private equity sponsors in new middle market M&A. Transactions are at a 13-year high in 2025, which we believe meaningfully reduces the risk of loss in the direct lending market.

in European private credit we're seeing similar strong performance Trends in our portfolios with low loans to value

Of note, favorable interest rates and higher domestic investment are driving a resurgence of investment activity across Europe.

With our leading Pioneer European direct lending platform. We're well positioned to take advantage of these trends.

Our alternative credit, opportunistic credit, and liquid credit portfolios are also enjoying strong performance and very low delinquencies.

Our real estate portfolio continues to experience improving fundamentals as well.

Michael Arougheti: This is leading to steady to modestly improving valuations and growing investment opportunities for the group. In infrastructure, we believe that there continues to be a compelling global opportunity to partner with major hyperscalers on data center campus buildouts. Now, with our acquisition of GCP, we can source and develop new projects from the ground up, provide equity and debt financing throughout the investment lifecycle, and potentially develop power sources alongside our data center projects. Looking forward, we're once again seeing a strengthening transaction market environment into the third quarter. With the potential for lower short-term rates in the US and lower rates already reflected in Europe, coupled with record amounts of private equity dry powder, we're optimistic that transaction activity could accelerate further in the second half of the year.

Leasing Trends are strong. Rent growth continues to increase and cap rates, remain generally steady across our Focus areas of industrial multi-family and adjacent sectors.

This is leading to steady to modestly improving valuations, and growing investment opportunities for the group.

In infrastructure, we believe that there continues to be a compelling global opportunity to partner with major hyperscalers on data center campus buildups.

Now, with our acquisition of gcp, we can source and develop new projects from the ground up, provide equity and debt financing throughout the investment life cycle and potentially develop power sources. Alongside our data center projects,

looking forward. We're once again seeing a transaction Market environment into the third quarter.

Michael Arougheti: For example, our global pipeline of investment opportunities across all of our investment groups and strategies is at the highest level in over a year. With a record amount of dry powder of $151 billion, including $105 billion of AUM not yet paying fees, we believe that we're very well positioned to take advantage of higher levels of market activity. And finally, before I turn the call over to Jarrod, as I reflect on the first full quarter with our new colleagues from the GCP transaction, I'm very pleased with how well the integration is going. Strong platform collaboration is already occurring across the investment teams. The fundraising teams are fully integrated, and we are actively in the market with new funds and accelerating the development of new products. Our investment committees are appropriately aligned, and we're seeing a high level of interaction across the global real estate platform.

In Europe, coupled with record amounts of private Equity, dry powder. We're optimistic that transaction activity. Could accelerate further in the second half of the year.

For example, our Global pipeline of investment opportunities across all of our investment groups and strategies is at the highest level in over a year.

With a record amount of dry powder of 151 billion including 105 billion of AUM. Not yet, paying fees. We believe that we're very well positioned to take advantage of higher levels of Market activity.

And finally, before I turn the call over to Jared, as I reflect on the first full quarter with our new colleagues from the GCP transaction, I'm very pleased with how well the integration is going.

Strong platform collaboration is already occurring across the investment teams.

The fundraising teams are fully integrated, and we are actively in the market with new funds, accelerating the development of new products.

Michael Arougheti: As I mentioned earlier, the data center business is poised for growth with a large pipeline of projects at various stages of progress, which we believe can drive AUM growth and profitability in the business. With nearly $130 billion in AUM and over 880 investment and operating professionals, our real assets group is one of the largest managers of real estate and infrastructure assets across the globe, and we believe is very well positioned for greater scale and long-term growth. And with that, I will turn the call over to Jarrod to provide additional details on our financial results. Jarrod.

Our investment committees are appropriately aligned, and we're seeing a high level of interaction across the global real estate platform.

They mentioned earlier that the data center business is poised for growth, with a large pipeline of projects at various stages of progress, which we believe can drive AUM growth and profitability in the business.

With nearly $130 billion in AUM and over 880 investment and operating professionals, our Real Assets Group is one of the largest managers of real estate and infrastructure assets across the globe. We believe we are very well positioned for greater scale and long-term growth.

Jarrod Phillips: Thanks, Mike. Good morning, everyone. As Mike stated, our business accelerated into the second quarter, driven by strong fundraising, higher year-over-year net deployment, and a record quarter of market appreciation. We believe our forward-looking metrics, including our strong investment pipeline and record available capital, have us well positioned for continued strong growth. The second quarter reflected our first full quarter of financials, including our GCP acquisition, which contributed $103 million in revenues and $34 million in FRE for a 33% FRE margin. With the closing of our first data center funds totaling $2.4 billion, we expect to generate an additional $40 million in management, leasing, and development fees through the end of Q1 '26. This quarter included approximately $10 million of integration costs, of which we expect about $6 to $7 million per quarter will eventually be non-recurring and will run off gradually over the next 12 months.

And with that, I will turn the call over to Jared to provide additional details on our financial results. Jerry.

thanks Mike.

Good morning, everyone.

It's Mike stating our business accelerated into the second quarter, driven by strong fundraising, higher year-over-year net deployment, and a record quarter of market appreciation.

We believe our forward-looking metrics including our strong investment Pipeline and record available Capital have as well, positioned for continued, strong growth.

The second quarter reflected, our first full quarter of financials, including our gcp acquisition, which contributed 103 million in revenues and 34 million in fra for a 33%, F margin.

With the closing of our First Data Center fund totaling $2.4 billion, we expect to generate an additional.

Jarrod Phillips: We view this positively since, despite slightly higher initial integration costs, we're identifying more costs than we originally expected. When you add in the profitability from the new data center fund and the improving cost structure from synergies, we remain on track with the $200 million in FRE that we outlined for the first 12 months from GCP. When combined with additional fundraising from other data center funds and industrial development funds in Japan, along with the deployment of our existing dry powder, we remain excited about the future growth of the business. Now, let me walk through a high-level summary of our quarterly results. Management fees were a record $900 million, representing a 24% year-over-year increase.

This quarter included approximately $10 million of integration costs, of which we expect about $6 to $7 million per quarter will eventually be non-recurring and will run off gradually over the next 12 months.

We view this positively since, despite slightly higher initial integration costs, we are identifying more cost savings than we originally expected.

When you add in the profitability, from the new data center fund and the improving cost structure from synergies, we remain on track with the 200 million in Fr that we outlined for the first 12 months from gcp.

When combined with additional fundraising from other data center funds and Industrial Development funds in Japan, along with the deployment of our existing dry powder, we remain excited about the future growth of the business.

Now, let me walk through a high-level summary of our quarterly results.

Jarrod Phillips: As we discussed last quarter, GCP enhances our vertically integrated capabilities in real estate, enabling us to develop and operate high-quality assets with the opportunity for enhanced fund performance while generating additional leasing, development, and property management fees, which are included in other fee revenues. As a result, other fees more than tripled year over year. While there may be some variability in other fees from quarter to quarter, as long as we have development funds that are investing in building new properties, we generally expect to see fairly consistent levels of other fees on an annual basis. Second quarter fee-related performance revenues totaled $17 million, which was almost entirely from APMF. Looking at normal seasonality, we typically see FRPR realizations in the third quarter related to our open-end core alternative credit fund, and a majority of our credit group FRPR is realized in the fourth quarter.

Management fees were a record. 900 million. Representing a 24% year-over-year, increase.

As we discussed last quarter, GCP enhances our vertically integrated capabilities in real estate, enabling us to develop and operate high-quality assets with the opportunity for enhanced fund performance, while generating additional leasing, development, and property management fees, which are included in other fee revenues.

As a result, other fees more than tripled year-over-year.

While there may be some variability in other fees from quarter to quarter, as long as we have development funds that are investing in building new properties, we generally expect to see fairly consistent levels of other fees on an annual basis.

Second-quarter fee-related performance revenues totaled $17 million, which was almost entirely from APMF.

Jarrod Phillips: We currently have $20 billion of AUM in the credit group that is eligible to generate FRPR, which is up 10% from the second quarter of last year. As a result, we expect fourth quarter FRPR from the credit group to grow a similar percentage year over year, assuming continued price stability in the markets between now and year-end. Within real estate, we're not expecting FRPR in the fourth quarter. However, each of our non-traded REITs continues to show positive performance and could be in a position to generate FRPR next year. Fee-related earnings of $409 million for the quarter increased 26% year over year. FRE margins totaled 41.2% in the second quarter, and as expected, the integration of GCP temporarily compressed margins by 90 basis points. Excluding the impact of GCP, we expect FRE margins would have expanded in 2025.

Looking at normal seasonality, we typically see FRP realizations in the third quarter related to our open-end core alternative, credit fund, and a majority of our credit group. FRP is really honest in the fourth quarter.

We currently have $20 billion of AUM and credit. The credit group that is eligible to generate FRP is up 10% from the second quarter of last year.

As a result, we expect fourth quarter FRP from the credit group to grow a similar percentage year-over-year, assuming continued price stability in the markets between now and year-end.

However, each of our non-traded, REITs continues to show positive performance and could be in a position to generate FRP our next year.

Be related earnings of 409 million for the quarter. Increased 26% year-over-year. FR margins totaled 41.2% in the second quarter and as expected the integration of gcp temporarily compressed margins by 90 basis points.

Jarrod Phillips: However, with initial lower margins at GCP, we still expect full-year FRE margins for 2025 to be consistent with the prior year. As Mike mentioned, our net accrued performance income on an unconsolidated basis increased 8.5% in the second quarter to $1.1 billion at quarter-end, of which nearly $950 million is in European-style waterfall funds. Our net realized performance income for the quarter was $16 million. As we discussed on our first quarter call, our European waterfall tax distributions, which had been typically realized in the second quarter, were recognized in the first quarter of this year, and we expect our third quarter net realized performance income will be comparatively similar to our second quarter level. With respect to our European-style funds, we're anticipating over $500 million of net realized performance income to be recognized in total between 2025 and 2026.

Excluding the impact of gcp. We expect FR margins would have expanded in 2025, however, with initial lower margins at gcp. We still expect full year FR. Margins for 2025 to be consistent with the prior year.

As Mike mentioned, our net AC crew performance income on an unconsolidated basis increased 8.5% in the second quarter to $1.1 billion, the quarter end of which nearly $950 million is in European-style waterfall funds.

Our net realized performance income for the quarter was 16 million.

As we discussed on our first quarter, call our European waterfall tax distributions, which had been typically realized in the second quarter were recognized in the first quarter of this year and we expect our third quarter, net realized performance income will be comparatively similar to our second quarter level.

Jarrod Phillips: It is possible that the split between years will be roughly 50/50. However, following the market fluctuations we experienced in the second quarter, that may push out the timing of certain realizations. We could possibly see roughly one-third recognized for the full year 2025, with two-thirds in 2026. If this is the case, we would expect some higher realizations to occur in the first half of 2026. Regarding our American-style net performance income, several modest realization opportunities remain possible heading into the fourth quarter of this year and early 2026, but they're dependent on conditions remaining on their current trajectory. Overall, realized income totaled $398 million for the quarter, a 10% year-over-year increase. During the quarter, our effective tax rate on realized income was 9.5%, which is in line with our range of 8% to 12% for the remainder of the year.

With respect to our European style funds, we're anticipating over million dollars of net realized performance income to be recognized in total between 2025 and 2026.

It is possible that the split between years will be roughly 50/50. However, following the market fluctuations, we experience in the second quarter that may push out the timing of certain realizations. We could possibly see roughly one-third recognized for the full year 2025, with two-thirds in 2026.

If this is the case, we would expect some higher realizations to occur in the first half of 2026.

Regarding our American style net performance income, several modest realization opportunities remain possible heading into the fourth quarter of this year and early 2026, but they're dependent on conditions remaining on their current trajectory.

Overall realized income was $398 million for the quarter, a 10% year-over-year increase.

Jarrod Phillips: As you can see in the earnings presentation, we had strong performance across our strategies, with nearly every composite generating solid quarterly returns. In credit, we had quarterly gross returns of 5.5% for junior direct lending, 5.1% for opportunistic credit, 4.4% for our APAC credit strategy, 3% for alternative credit, 3% for US senior direct lending, and 2.2% for European direct lending. Over the last 12 months, all these strategies generated double-digit returns ranging from 10% to 23%. Credit quality underlying our US and European direct lending portfolios remains strong and stable, as Mike discussed. In real estate, we continue to see improvements in rent growth and property values. Our America's real estate equity composite increased 3.4% on a gross basis. Our diversified non-traded REIT has generated a net return of 4.5% for the first six months of the year and is now approaching its high water performance mark.

During the quarter, our effective tax rate on realizing income was 9.5%, which is in line with our range of 8% to 12% for the remainder of the year.

As you can see, in the earnings presentation, we had strong performance across our strategies, with nearly every composite generating solid quarterly returns in credit. We had quarterly gross returns of 5.5% for Junior Direct Lending, 5.1% for Opportunistic Credit, 4.4% for our APAC Credit strategy, and 3%.

For alternative credit, 3% for us senior direct lending and 2.2% for European direct lending.

Over the last 12 months, all these strategies generated double-digit returns ranging from 10% to 23%.

Credit quality, underlying our us and European direct lending, portfolios, remain strong and stable as Mike discussed.

In real estate, we continue to see improvements in rent, growth and property values. Our America's real estate Equity composite increased 3.4% on a growth basis.

Jarrod Phillips: While our diversified non-traded REIT would need to generate an additional 5% return above the high water mark by year-end to generate any FRPR this year, recovering to a new high water mark this year positions this REIT well heading into 2026. Our corporate private equity composite rose 3.3% on a gross basis during the quarter, and our private equity secondaries strategy generated net returns of 3.1% in APMF and gross returns of 3.1% in our PE secondaries composite. I'll now turn the call back over to Mike for his concluding remarks.

Our Diversified non-traded, Reit has generated a net return of 4.5% for the first 6 months of the year and is now approaching its high water performance mark.

While our Diversified non-traded, Reit would need to generate an additional 5% return above the high water mark by year, end to generate any fpr this year recovering to a new high water. Mark, this year positions this week, well heading into 2026.

Our corporate private equity composite rose 3.3% on a growth basis during the quarter, and our private equity secondary strategy generated net returns of 3.1% in APMF and gross returns of 3.1% in our PE secondaries composite.

Michael Arougheti: Great. Thanks, Jarrod. We're experiencing positive results from several growth initiatives that we've been developing over the past several years. Our secondaries business is undergoing a meaningful inflection in growth driven by secular tailwinds, creative new structured solutions, and a robust platform that's generating attractive investment opportunities. Our wealth strategy has the people, products, partnerships, and educational content to continue to grow AUM at high rate. We believe that we have solidified our position as one of the top alternative managers of private market assets for individual investors and are poised to benefit as the wealth channel continues to allocate more capital into the asset class. Our insurance platform is expanding both through Askeda and our third-party insurance partners.

I'll now turn the call back over to Mike for his conclusion, remarks.

Great. Thanks. Jared.

We're experiencing positive results from several growth initiatives that we've been developing over the past several years.

Our secondary business is undergoing a meaningful inflection and growth driven by secular Tailwinds, creative new structured Solutions, and a robust platform that's generating attractive investment opportunities.

Our wealth strategy has the people, products, partnerships, and educational content to continue to grow AUM at high rates.

We believe that we have solidified our position as one of the top alternative managers of private market assets for individual investors and are poised to benefit as the wealth channel continues to allocate more capital into the asset class.

Michael Arougheti: With over $79 billion in insurance AUM across the platform, we have a demonstrated track record of capabilities and performance to enhance returns for Askeda and our third-party insurance clients, and we anticipate further growth in this business in the coming years. We also continue to lay the foundation for future growth opportunities such as data centers and digital infrastructure and the recent announcement of our global capital solutions team to enhance our capital markets business. Our alternative credit and opportunistic credit franchises remain well positioned as solutions providers in large global addressable markets, and our real assets business is positioned for much greater growth as the cycle plays out. Going forward, as always, we will continue to look for ways to invest in our business in an effort to enhance investor returns and drive strong earnings results.

Platform is expanding, both through a spa and our third party Insurance Partners.

With over 79 billion dollars in Insurance AUM, across the platform. We have a demonstrated track record of capabilities and performance to enhance returns for a spida and our third party Insurance clients and we anticipate further growth in this business in the coming years.

We also continue to lay the foundation for future growth opportunities, such as data centers and digital infrastructure and the recent amounts of our Global Capital Solutions team to enhance our Capital markets business.

Our alternative credit and opportunistic credit franchises remain well positioned at Solutions, providing access to large global addressable markets.

And our real access business is positioned for much greater growth as the cycle plays out.

Michael Arougheti: As always, I'm proud and grateful for the hard work and dedication of our employees around the globe, and I'm also deeply appreciative of our investors' continuing support for our company. Operator, I think we can now open the line for questions.

Going forward as always, we will continue to look for ways to invest in our business in an e, to enhance investor returns and drive strong earnings results.

As always, I'm proud and grateful for the hard work and dedication of our employees around the globe and I'm also deeply appreciative of our investors continuing support for our company.

Operator. I think we can now open the line for questions.

Operator: At this time, if you would like to ask a question, please press star, then one on your touch-tone phone. We ask that you limit yourself to one question to allow as many callers to join the queue as possible. Our first question comes from Alex Blowstein with Goldman Sachs. Your line is open. Please go ahead.

At this time, if you would like to ask a question, please press star, then 1 on your touchtone phone.

We ask that you limit yourself to 1 question to allow as many callers to join the queue as possible.

Alex Blostein: Hey, guys. Good morning. Thank you for the question. I was hoping to start with a discussion around private credit institutional demands, and really a two-party here. But one, I was hoping you could comment on how compression in US direct lending spreads impacting institutional demands and fee rates, understanding that it's all probably relative to liquid markets, but I'm curious how they think about the products more in absolute terms and whether or not that's having any sort of fee implications. And then on the second part, a similar line of questions for your alt business, alt credit business, that feels like a much larger addressable market. So curious how you're thinking about forward dynamics there. Thanks.

Our first question comes from Alex Blowin, with Goldman Sachs, your line is open, please go ahead.

Hey guys. Good morning. Thank you for the question. Um, I was hoping to start uh, with with a discussion around private credit um institutional demands and and really a 2-party here, but 1 was hoping you could comment on how uh, compression in US. Direct lending spreads impacting, institutional demands, and fear rates, um, understanding that, you know, it's all probably relative to liquid markets, but I'm curious how they think about the products more in an absolute terms and whether or not that's having any sort of fee implications. And then on the second part, uh, similar line of questions for your alt business, uh, all credit business, um, that feels like a much larger addressable market. So, curious, how you were thinking about, uh, forward Dynamics there. Thanks.

Michael Arougheti: Thanks for the question, Alex. It's interesting. There's a lot of conversation in the market and the media just about the rapid growth in private credit, and I think we've been trying to point out to folks that if you look at the market broadly, private credit fundraising institutionally is actually down sequentially for the last three years. And when you look at the growth, it has not actually outpaced the growth of other alternative asset classes. It's actually just kept pace with the growth of private equity. That being said, and we've talked about this before, the private credit market is consolidated and probably consolidating further. And so our experience, both institutionally and in the wealth channel, has been continued growth.

For the question Alex. Um,

It's interesting. There's a lot of conversation in the market and the media just about the rapid growth in private credit. I think we've been trying to point out to folks that if you look at the market broadly, private credit fundraising institutionally is actually down sequentially for the last three years. And when you look at the growth, it has not actually added.

Outpace the growth of other alternative asset classes. It's actually just kept pace with the growth of private equity.

Michael Arougheti: You saw that this quarter that we were able to continue to see institutional appetite for the private credit asset class in the form of SMAs and some smaller funds, even in a year when we didn't have our large flagships in the market. I think that's a commentary on our track record, the length of the track record, the consistency of the return, the value of our incumbency in the portfolios. And as Jarrod talked about, on a relative basis, private credit is still delivering an incredible risk-adjusted return to folks. I think with the maturation of any asset class, there's always a risk that you see fee pressure. Candidly, we have not really seen it, and when people ask for it, we push back pretty hard.

That being said, we've talked about this before the private credit Market is Consolidated and probably consolidating further. Uh and so our experience both institutionally and in the wealth channel has been continued growth. Uh you saw that this quarter that we were able to, you know, continue to see institutional appetite for the private credit asset class in the form of smas and some smaller funds. Even in a year when we didn't have our large flagships in the market,

um,

I think that's a commentary on our track record, the length of the track record, the consistency of the return, uh, the value of our incumbency in the portfolios. And as Jarrod talked about.

On a relative basis, private credit is still delivering an incredible risk-adjusted return to folks.

Um, I think with the maturation of any asset class, there's always a risk that you see fee pressure.

Michael Arougheti: The ability for us to originate the types of assets we do with the scale that we do, we think is quite unique. Candidly, we have seen some of our peers who are trying to get into this market, given the attractiveness, have cut fee to try to attract capital. I just don't think that's a long-term viable way to build a business, and so we've been really resistant to that. I also think with the growth in wealth demand, obviously, it creates an appropriate tension in the market just around general compensation and fee structures. We're now getting to a point in our own deployment where I could see some of those large funds coming back as early as next year, and I think we'll once again show that the institutional demand at the current fee rates is still well in hand.

You know, candidly, we have not really seen it and when people ask for it, uh, we push back pretty hard. Um, the ability for us to originate the types of assets, we do with the scale that we do, we think is quite unique, um, candidly. We have seen some of our peers who are trying to get into this Market, given the attractiveness have cut fee uh to try to attract.

Track capital. I just don't think that's a long-term viable way to build a business. And so, we've been really resistant to that.

Michael Arougheti: Alternative credit or asset-based and asset-backed is obviously a big growth market. We are continuing to attack it with open-ended and closed-ended institutional product, as well as partnering with third-party insurance companies and driving deployment into Askeda. And you asked about spreads. I'd say in both of those markets, the attractiveness obviously is the ability to generate excess return relative to the traded benchmark. And while spreads have tightened in both markets, there is still a generous premium available to the liquid loan market and the ABS market. Currently, if you look at private credit on the direct lending side, you're probably 100 to 200 basis points wide, and on our high-grade book, you're probably 60 to 90 basis points wide. So tight, but still excess. So I think that that will continue to attract capital as well.

Um I also think with the growth in wealth demand obviously it creates an appropriate attention in the market just around, you know, General compensation and fee structures. Um we're now getting to a point in our own deployment where I could see some of those large funds coming back as early as next year. And I think we'll once again, show that the institutional demand at the current fee rates is is still well in hand, uh, alternative credit or asset based. And asset backed is obviously a big uh, growth Market.

um,

Open-ended and closed-ended, institutional product, uh, as well as uh partnering with third-party insurance companies and driving deployment, into a spa.

And you asked about spreads, I'd say in both of those markets, the attractiveness obviously is the ability to generate excess return relative to the traded Benchmark. And while spreads have tightened in both markets, there is still a generous premium available to, uh,

To the liquid loan market and the ABS Market currently. If you look at private credit on the direct lending side, you're probably 100 to 200 basis points, why? And on our high-grade book you're probably 60 to 90 basis points wide so tight but but still excess. So I think that that will continue to attract Capital as well.

Operator: Our next question comes from Bill Katz with TD Cowan. Your line is open. Please go ahead.

Bill Katz: Great. Thank you very much for taking the question. I know we've asked this in the past, and I know you said it's going to take a bit of time to get there, but it does seem like the backdrop for the 401(k) market is starting to sort of allow itself for potentially inclusion for alts. I was wondering how your conversations are going with some potential partners and how you sort of see the opportunity set for Ares, particularly since your non-qualified positioning continues to strengthen. Thank you.

Our next question comes from Bill Cats with TD Cowen. Your line is open, please go ahead.

Michael Arougheti: Yeah, it's obviously a hot topic, and I've said consistently that we are big believers in the democratization of alternatives and increasing access to alternatives for the individual investor. That's not new. People have been able to access alternative exposures through our BDC for the last 21 years. We have been offering access to our alternative product through our growth in wealth. Insurance provides indirect exposure. So I think this is an evolution on an already pretty significant in-place trend. We do feel like we are closer than ever. Obviously, we are waiting to see an executive order that would continue to advance the process. To the extent that that happens, we would then need to hopefully see rulemaking that allows plan sponsors to feel like they can take the risk of increasing fee in an effort to drive increasing net returns to their constituents.

Great, thank you very much for taking the question. Um, I know we've asked this in the past and I know you said it's going to take a bit of time to get there, but, uh, seem like the backdrop for the 401K Market is starting to, uh, sort of Alliance itself for potentially, uh, inclusion for alts. I was wondering how your conversations are going with some potential partners and how you sort of see the opportunity set. Um for for Aries, particularly since you're non-qualified positioning continues to strengthen, thank you.

Yeah, it's obviously a Hot Topic. Um,

And I've said, consistently that we are big Believers in the democratization of Alternatives and and increasing access to alternatives for the individual investor. Uh, that's not new. People have been able to access alternative exposures through our BDC for the last 21 years. Uh, we have been offering access to our, you know, alternative products through our growth in in wealth Insurance provides indirect exposure. So, you know, I think this is an evolution on an already pretty significant in place trend.

Um,

we do feel like we are closer than ever, obviously, we are waiting to see an executive order that would, you know, continue to advance, uh, the process, uh, to the extent that that happens, we would then need to, to, hopefully see rulemaking. Um,

Michael Arougheti: I don't know that that is going to be a perfectly linear or quick process as plan sponsors work through the economics and fee agreements get renegotiated and you defend against certain litigation risks. So I think we're excited. We're enthusiastic about it. We already have a product that is ready to go. We have been having conversations with various retirement services partners, and so to the extent that that market cracks open, I think we'll be ready to offer product into it. I always, though, try to temper people's enthusiasm for this opportunity the way that I do on the wealth side as well, which is just simply to say what we're doing here is diversifying our fundraising opportunity and our growth opportunity, but we're not necessarily creating a new cost of capital or a new asset structure that will allow us to do something different in the market.

That allows plan sponsors to you know, feel like they can take the risk of increasing fee in an effort to to drive increasing, net returns to their constituents. Uh, I don't know that that is going to be a perfectly linear or quick process. Uh, as planned sponsors work through the economics and fee. Agreements get renegotiated and you defend against certain, you know, litigation risks. So I I think uh we're

Excited, we're enthusiastic about it. Uh, we already have a product that is ready to go. We have been having conversations, uh, with various return, Retirement Services partners. And so, to the extent that that market cracks open, you know, I think we'll we'll, we'll be ready to, you know, offer product into it.

I always though, try to temper people's enthusiasm for for this opportunity, the way that I do on the wealth side as well, which is just simply to say

Michael Arougheti: And so when we think about the growth in our business, we remain very focused on our ability to generate unique investment opportunities for our investors and then match them with the right capital. We do not focus on just the capital side. I think there's a disproportionate amount of attention these days in our market on AUM and AUM growth as opposed to quality deployment and quality growth. And so anytime you're opening a new market, it's exciting, but it also comes with risk if you don't maintain the right tension between your addressable market opportunity and capital. But I think we're closer than ever. When the market opens, I think consistent with the way that we've behaved in the past, we'll be there, and we'll take it from there.

What we're doing here is diversifying our fundraising opportunity, um and our growth opportunity, but we're not necessarily creating a new cost of capital or a new asset structure that will allow us to do something different in the market.

And so, when we think about the growth in our business, we we remain very focused on our ability to generate unique investment opportunities for our investors and then match them with the right Capital. We do not focus on just the capital side. I think there's a disproportionate amount of attention, uh, these days in our Market on AUM and AUM growth as opposed to Quality deployment and quality growth. And so, anytime you're opening a new market, it's exciting. Uh, but it also comes with risk. If you don't maintain the right tension, uh, between your addressable Market opportunity and capital. Um, but I think we're closer than ever. Uh, when the Market opens, I think consistent with the way that we've behaved, uh, in the past, we, we'll be there and

You know, we'll we'll take it from there.

Operator: Our next question comes from Patrick DeVitt with Autonomous Research. Your line is open. Please go ahead.

Our next question comes from Patrick Dvit with Autonomous Research. Your line is open, please go ahead.

Bill Katz: Hey, good morning, everyone. Thanks. Appreciate the helpful comments on how pipelines, deployment pipelines are tracking so far in 3Q. But there's been a lot of news flow about some chunky refinancings out of DL back into the broadly syndicated market in July. So could you also update us on how you see the growth to net tracking in the second half after a positive surprise there in 2Q? Thank you.

Market in July. So, could you also update us on how you see the gross-to-net tracking in the second half after a positive surprise there in Q2? Thank you.

Michael Arougheti: Yeah, I think it was well covered on the ARCC call, and we've kind of added some context for the other parts of the business. I'd say with regard to the specific BSL refi of direct lending, as we've talked about before, we're kind of on both sides of that. Obviously, to the extent that there's something in our portfolio that finds its way back into the broadly syndicated loan market, we will typically follow it back into that market in our liquid credit business and sometimes even participate as an underwriter or a large anchor investor in that transition.

Yeah, I think it was well covered on the arcc call and and you know, we've kind of added some context for the other parts of the business. Um,

Michael Arougheti: Two, as we've talked about, I think one of the big differentiators in our direct lending business is our ability to originate and deploy across the entire middle market spectrum from lower middle market to upper middle market, and we are much less reliant than many others in the market on that upper middle market sponsor flow that tends to trade back and forth between the broadly syndicated loan and direct lending market. So everything that we're seeing now has us continuing to have confidence that the pipelines are building into Q3, not just in direct lending, but in other parts of the business like secondaries, opportunistic credit, real estate, et cetera. So nothing that we're seeing that would change that view right now.

I'd say with regard to the specific, you know, BSL refi of direct lending. Uh, as we've talked about before, we're we're kind of on both sides of that, obviously, to the extent that there's something in our portfolio that Finds Its way back into the broadly, syndicated loan Market, we will typically follow it back into that market in our liquid credit business. Um, you know, and sometimes even participate as an underwriter uh or a large anchor investor in that in that transition to is, we've talked about, I think 1 of the big differentiators in our direct lending. Business is our ability to originate and deploy across the entire Middle Market. Spectrum from lower Middle Market to Upper Middle Market, and we are much less Reliant than many others. In the market on that upper, uh, Middle Market, sponsor flow, that tends to trade back and forth between the broadly, syndicated loan, and direct lending market. So everything that we're seeing now has us continuing, you know,

To have confidence that the pipelines are building, uh, into Q3 not just in direct lending, but in other parts of the business like secondaries, uh, opportunistic credit, real estate, Etc. So nothing the worst thing that would would change that view right now.

Operator: And we'll go next to Ken Worthington with JP Morgan. Your line is open. Please go ahead.

Bill Katz: Hi. Good morning. Still morning here. There's been a number of headlines in recent months about the growing attractiveness of the European market for private assets, especially in the back of Trump tariffs. How does the health of the European direct lending market compare to the US when thinking about this from both a deployment perspective and a credit quality perspective? And as we look beyond direct lending to Assetback Finance, how does the opportunity to grow there in Europe look from a fundraising perspective and maybe deployment as well?

And we'll go next to Ken Worthington with JP Morgan. Your line is open; please go ahead.

Hi. Uh, good morning. Still morning here. Um,

there's been a number of headlines in recent months about the growing attractiveness of the European market for private assets. Uh, especially in the back of uh, Trump tariffs. Um, how does the health of the European direct lending Market compared to the US? When thinking about this, from both the deployment perspective and a credit quality perspective. And as we look Beyond direct lending to aspect Finance, how does the opportunity to grow their um, in Europe. Look from a

Fundraising perspective and maybe deployment as well.

Michael Arougheti: Yeah, look, I think that it's interesting because I think coming into the year, European positioning relative to the US market was much different. We now have a different rate trajectory and different fiscal stance that is actually making Europe much more attractive. We're seeing increased investment, and we're seeing increased investor appetite. You can see that in the deployment numbers when you look through the different businesses. You could also see it in the fundraising numbers. As an example, we saw a meaningful increase in fund demand at ESIF relative to ASIF, as I think certain investors have been shifting allocations from the US market to the European market.

Yeah, look, I think that it it's it's interesting because I think coming into the year. Um

European positioning relative to the U.S. market was much different. We now have a different rate trajectory and, uh,

Michael Arougheti: While I think many continue to have long-term concerns about structural growth in Europe, I think for the foreseeable future, the increased spend and rate positioning should, in fact, increase transaction activity, and that is what our pipelines are telling us, both in direct lending, real estate, real estate credit, and asset-backed. In terms of credit quality, the performance within the private credit books are kind of right on top of each other. Loans to value in US direct lending is about 43% loan to value. European direct lending, about 49%. Interest coverage in the US book is two times interest coverage, and the European book is about 2.3 times. When you look at non-accruals, kind of on top of each other, Europe's probably a little bit better than the US market.

Different fiscal stands are actually making Europe much more attractive. We're seeing increased investment, and we're seeing increased investor appetite. You can see that in the deployment numbers when you look through the different businesses. You could also see it in the fundraising numbers. As an example, we saw a meaningful increase in fund demand at ESF relative to ASF, as I think certain investors have been shifting allocations from the U.S. market to the European market.

While I think many continue to have long-term concerns about, you know, structural growth in Europe. I think for the foreseeable future, uh, the increased spend and rate, positioning should in fact, increase transaction activity. And, and that is what our pipelines are. Telling us both in direct lending, real estate real estate, credit and asset backed. Um, in terms of credit quality, uh, the performance within the private credit books are kind of right on top of each other. Um, loans to value in US direct lending is about 43% loan to value European. Direct lending, uh, about 49 interest coverage in the US book is 2 times interest coverage in the European book is about 2.3 times. Uh,

Michael Arougheti: So there's nothing that we're seeing in the portfolios that would indicate that credit quality is deteriorating in Europe at a different rate than the US.

When you look at non-accruals, um, kind of on top of each other Europe's, probably a little bit better than the US markets. It's, there's nothing that we're seeing in the portfolios. We would indicate that credit quality is deteriorating in Europe at a, at a different rate than, than the US.

Operator: We'll go next to Kyle Voit with KBW. Your line is open. Please go ahead.

We'll go next to Kyle. Voight with KBW. Your line is open. Please go ahead.

Kyle Voigt: Hi. Good morning, everyone. So, Mike, you spoke a bit about your retail distribution with a number of firms you're partnering with up over 30% year on year, and it sounds like the source of your inflows continues to broaden as well. Can you just talk a bit about the investment you've been making in distribution to drive that, and how much more do you think there is to go there in terms of adding more partnerships and further broadening distribution over the next couple of years? And you also mentioned a third of your retail flow is coming from international, which already seems really healthy.But

Operator: you're still adding partners there as well. So do you think there's room for that proportion to even move higher as we look out over the next coming years?

Operator: The simple answer to all of your questions is yes. We continue to be incredibly excited about the progress we're making. The types of investments you need to make are, first of all, in product. And I think that we have innovated from a structural standpoint in places like our infrastructure fund, sports media and entertainment, our European credit fund, our private markets fund. So it starts with good product, with a good track record. And then, obviously, you need to support the distribution effort with a meaningful investment in people around the globe. So we have roughly 175 people, I believe, in our global wealth business. The reason, or one of the reasons for the increase in international flows, is that we've been adding people in Europe and the Asia-Pacific markets to help support those distribution efforts.

Of your retail flows coming from international, which already seems really healthy, but you're still adding partners there as well. So, do you think there's room for that proportion to even move higher as we look out over the next coming years?

Operator: And then you need to make a meaningful investment in continuing education and content to support the advisor community as you continue to put product into that sector. So there's kind of ongoing investment in that as well as you deepen these partnerships. So if you look at what we're able to do, in Q2, we raised about $3.4 billion of equity. As you point out, that was about 30% plus higher than it was a year ago. July was a record month for us. We took in about $1.4 billion in equity in July. And August, I think, will be significantly in excess of that as well, close to $2 billion. And so we're seeing continued momentum as Q3 moves forward. We're encouraged by that because I think there was an anxiety that maybe this channel would not exhibit durability when markets got volatile.

The simple answer all of your questions is yes. Um, we continue to be incredibly excited about the progress. We're making, uh, the types of Investments you need to make are first of all, in in product. And I think that we have innovated from a structural standpoint in place, like our infrastructure fund Sports media and entertainment our European credit fund, uh, our private markets fund. So it, it starts with good product, with good, good track record. Uh, and then obviously, you need to support the distribution effort with a meaningful investment in people around the globe. So, we, we have roughly 175 people. I believe in our Global wealth business. Um, the reason or 1 of the reasons for the increase in international flows is that we've been adding people in Europe and the asia-pacific markets to help support those distribution efforts.

And then you need to make a meaningful investment in continuing education, uh, and content to support the advisor Community, as you continue to put product into that into that sector. So there's kind of ongoing investment uh, in that as well as you deepen, these Partnerships. Um, so if you look at what we're able to do um, you know, in Q2, we raised about 3

3.4 billion dollars of equity. As you point out that was about 30% plus higher than it was a year ago. Um, July was a record month for us. Uh, we took in about 1.4 billion in equity in July and August, I think will be significantly in excess of that as well, close to 2 billion. And so we're, we're we're seeing continued momentum.

Operator: And we're actually seeing the opposite. So the investment thesis that people want, the lack of volatility that these products offer, I think, is shining through in the distribution numbers. We did not see any elevation in redemptions throughout the entirety of the tariff volatility. In fact, we saw redemptions in Q2 were less than 1% of total AUM. So you're getting good gross flows and really strong net flows. We are continuing to broaden the partnerships. As we mentioned, the number of partnerships is increasing. We are underpenetrated, I think, on a lot of these products with some of the large wealth platforms. So the way I've described it is we're effectively on, we have one product on every one of the major platforms, but are not on every platform with every product. And so I think there's a lot of room for growth there.

Uh, as Q3 moves forward, we're encouraged by that because I think there was a uh, anxiety that maybe, you know, the this channel would not exist durability when markets got volatile and we're actually seeing the opposite. So the investment thesis that people want the lack of volatility that these products offer I think is, is shining through in the, in the distribution numbers. Uh, we did not see any elevation in redemptions throughout the entirety of the, you know, the Tariff volatility. In fact, we saw redemptions in Q2 were less than 1% of total AUM. Um, so you're getting good gross flows and really strong, net flows. Um,

We are continuing to broaden the Partnerships. Um as we mentioned the number of Partnerships is increasing um

Operator: And with regard to Asia, as we mentioned in the prepared remarks, we've been making significant investment and headway there. In the Japanese market in particular, we would expect that in Q3 that we're going to see a meaningful uptick in flows out of that market as we continue to have some important milestones on the partnership side there as well. So everything is kind of up and to the right on wealth. And the momentum right now in Q3 is as good as we've seen it.

We are under penetrated, I think, on a lot of these products with some of the large wealth platforms. So, you know, the way I've described it is, we're effectively on, we have 1 product on every 1 of the major platforms, but, um, are not on every platform with every product. And so, I think there's a lot of room for for growth there. And with regard to Asia, as we mentioned in the prepared remarks, uh, we've been making significant investment in Headway there. Uh, in the Japanese Market in particular. We, we would expect that in Q3 that we're going to see a meaningful uptick in, in flows out of that market, as we continue to, you know, have some important Milestones on the partnership side, uh, there as well. So everything is kind of up and to the right on wealth and and the momentum right now in Q3 is as good as we've seen it

Jarrod Phillips: And we'll go next to Benjamin Badesh with Barclays. Your line is open. Please go ahead.

Operator: Hi. Good morning. And thank you for taking the question. Jarrod, you mentioned that FRA margins should be kind of flat year over year with the impact of GCP. I wonder if you could talk about what are the sort of swing factors, thinking in particular about net credit FEAUM growth. If the environment shakes out a little bit better or maybe stays a little bit more stagnant, how does that impact the near-term margin outlook? What's kind of embedded in that guidance? Thank you.

And we'll go next to Benjamin Besh with Barclays. Your line is open, please go ahead.

Greg Mason: Sure. Thanks, Ben. Nice to hear from you. Really, whenever we give that type of guidance, and we talked about this at our investor day, and I'll bring it up again here, is we try to give what I'd call more all-weather guidance, so just in a normalized market. So you're exactly right on your puts and takes there. If we see a gangbuster back half of the year deployment-wise, that will certainly be a boon to the margins. Likewise, if we saw an environment where there was not as much deployment, it's a little bit harder maybe to see what that environment might look like because we've shown that we've been able to deploy in both dislocated markets and robust transaction markets. But certainly, deployment is a key factor on it.

Hi, good morning, and thank you for taking the question. Um, Jarrod, you mentioned that FR margins should be kind of flat year over year with the impact of GCP. I wonder if you could talk about what the sort of swing factors are, thinking in particular about, you know, net credit FEA growth. Um, you know, if the environment shakes out a little bit better or maybe stays a little bit more stagnant, how does that impact the near-term margin outlook? What kind of guidance is embedded in that? Thank you.

Greg Mason: And then now, as Mike's been talking about on the call and in the prepared remarks, fundraising, as it comes in from our non-traded products, has an impact to our margins as well. For those products that have a distribution fee, you're probably net neutral for the back half of the year. And for those that come in, like the international flows that were mentioned in the last question, those are a benefit to our margin because they come without that distribution fee. So there's a bit of a mix of all things.

Greg Mason: In terms of what we think we'll do here in the back half, I believe that the strength that we're leading from in terms of our ability to deploy here in the back half of the year, our fundraising strength, and GCP's gradual synergies coming into play, as I talked in my prepared remarks, all will help us absorb that drag from GCP for this year and really set us in a good position for next year.

Prepared remarks fundraising. As it comes in, from our non-traded, products has a impact to our margins, as well, for those products that have a distribution fee, you're probably net neutral, uh, for the back half of the year. And for those that come in like the international flows that we were mentioned in the last question, those are a benefit to our margin because they come without that distribution fee. So there's a bit of mix of all things. In terms of what we think we'll do here in the back half. I believe that the, the, the strength that we're leading from, in terms of our ability to deploy here in the back, half of the Year, our fundraising strength and gcps uh, gradual synergies. Coming into play, as I talked in my prepared remarks all will help us absorb that dragged from gcp for this year and really set us uh in a good position for next year.

Jarrod Phillips: And we'll take our next question from Michael Cypress with Morgan Stanley. Your line is open. Please go ahead.

Operator: Hey, good morning. Thanks for taking the question. I just wanted to ask about alternative credit or ABF. I'm just curious if you could maybe provide a bit of an update on some of the progress expanding your sourcing funnel, including partnerships and flow arrangements, how that's contributing today, how you see that evolving over the next 12 to 18 months. And then just more broadly on ABF, I believe historically you guys have played more in the sub-investment grade space. So just curious just around opportunity scope, appetite around extending more meaningfully into the fixed income replacement investment grade part of the marketplace. Curious in what scenario might you have more appetite and interest for that becoming a bigger part of the business.

And we'll take our next question from Michael Cyprus with Morgan Stanley. Your line is open, please go ahead.

Hey, good morning. Thanks for taking the question. I just wanted to ask about alternative credit or ABF. I'm just curious if you could maybe provide a bit of an update on some of the progress expanding your sourcing funnel, including partnerships and floor arrangements. How that's contributing today, how you see that evolving over the next 12 to 18 months, and then just more broadly on ABF. I believe, historically, you guys have played more in the sub-investment grade space, so just curious around opportunity, scope, and appetite.

Operator: Sure. Look, it's already a meaningful part of the business. I'll start from the back end of your question and kind of work my way back. We have been in the ABF business now for close to 20 years. And I think we're early in building capability and capacity. I think we have one of the largest teams globally, 80 plus professionals that are captive areas professionals that are specialists across 40 different types of assets. We have executed in a number of different markets around the globe on both the rated and non-rated side. And as you see in the numbers, it continues to be one of our fastest growing parts of the business.

Extending more meaningfully into the, uh, fixed income replacement investment grade, uh, Mark, part of the marketplace. Curious in what scenario might you have more appetite, interest, uh, for that becoming a bigger part of the business.

Sure. Um,

Look, it's already a meaningful part of the business. I'll start from the back end of your question, kind of work my way back. Um,

You know, we have been in the ABF business now for close to 20 years, and I think we're early in building capability and capacity. I think we have one of the largest teams globally.

Operator: When we differentiate between kind of non-rated and rated or sub-equity versus high grade, a lot of that is just driven by the profitability and differentiated capability that you need in order to succeed at that business. And so obviously, when you are gearing more towards the high grade part of the market, whether it's on behalf of your own insurance affiliate or third-party clients, it comes at a significantly lower fee rate, typically without incentive fees. And when you're scaling the non-rated part of the business, it's coming obviously with a significantly higher return expectation and a typical 2 in 20 type fee arrangement. So the dollars are just not the same. And back to my comment earlier, we're just not getting focused on AUM growth. We're getting focused on FRE growth and profitability. And so there's a balance.

80 plus professionals that are CAP, you know, captive areas professionals that are specialists across 40 different types of assets. We have executed in a number of different markets around the globe on both the rated and non-rated side. And as you see in the numbers, it continues to be one of our fastest growing parts of the business.

Uh, it's when we differentiate between kind of non-rated and rated, uh, or sub Equity versus high-grade, you know, a lot of that is just driven by the, you know, profitability, um, and differentiated capability that you need in order to succeed at that business. And so, uh, obviously when you are gearing more towards the high-grade part of the market, whether it's on behalf of your own Insurance affiliate or third-party clients. It comes at a

Significantly lower fee rate, typically without incentive fees, and when you're scaling the non-rated part of the business, it's coming, you know, obviously with significantly higher return expectation, you know, and a typical, you know, 2 and 20 type.

Fee arrangement. So the dollars are just not the same, and back to my comment earlier, we're just not getting, uh,

Operator: Today, if you look at the positioning of the business, about half is what we would call non-rated and half is in the rated high grade tranches. I think they will continue to grow in proportion to each other. There is real value, as we and our peers have demonstrated, in having the high grade piece. I think it meets a real need in the market for corporates. I actually think that it, used appropriately, can enhance the origination capacity on the non-rated side by offering full solutions into the market. And so we are focused on growing both pieces. But just given that we're not as insurance heavy, I think when you look at it from an AUM standpoint, we're just not as deeply focused in that market. But we're obviously meaningful participants.

Focused on AUM growth. We're getting focused on FR growth and profitability. And so, there's a balance.

Um, today, if you look at the positioning of the business, about half,

It is what we would call non-rated, and half is in the rated, uh, high-grade trenches. I think they will continue to grow in proportion to each other. Um, there is real value, as we and our peers have demonstrated, in having, uh, the high-grade piece. I think it meets a real need in the market for corporates. Um,

I actually think that it used appropriately. You can enhance the origination, uh, capacity on the non-rated side by offering full Solutions, uh, into the market. And so we are focused on growing both pieces but just given that we're not as insurance heavy. Uh I think when you look at it from an AUM standpoint we're just not as as you know deeply focused in that market but we're we're obviously meaningful, participants.

Jarrod Phillips: And our next question comes from Brian McKenna with Citizens. Your line is open. Please go ahead.

Greg Mason: Great. Thanks. So I have a question on direct lending, credit quality, and performance. Your portfolios have performed incredibly well in really all parts of the cycle. And even for the industry, many portfolios continue to perform well despite the significant increase in base rates the last few years. Mike, it would be great just to get your perspective on why performance and credit quality continues to be so resilient across the industry. And then bigger picture, we haven't really seen a true credit cycle in some time now. So why is that? Could it be a function of the staying power of private credit, the sector's ability to provide capital in all parts of the cycle, and the underlying structures of these vehicles? Or are there some other drivers there?

And our next question comes from Brian McKenna with Citizens. Your line is open. Please go ahead.

Uh, and then, bigger picture, we haven't really seen a true credit cycle in some time now. So, why is that? Could it be a function of the staying power of private credit, the sector's ability to provide capital in all parts of the cycle, and the underlying structures of these vehicles? Or are there some other drivers there?

Operator: Yeah, it's a really good question. Again, back to something I kind of alluded to earlier, I just feel like the market, there's a narrative that has been in the market as long as we've been doing this, which is now 30 years, that somehow private credit is risky and public credit isn't, and that there's always going to be this kind of wave of credit loss in the private markets. And we've just never seen that. And you can look at our public track record through the GFC and COVID and rate volatility that it's just not there. If you look at the annualized loss rates in our direct lending portfolios, they inflect around 10 basis points. And it's been like that for a very long time. So there's this idea that direct lending hasn't been cycle tested. And I take real issue with that.

Yes, it's a really good question. Again, I go back to something I kind of alluded to earlier. I just feel like the market—there's a narrative that has been in the market as long as we've been doing this, which is now 30 years—that somehow private credit is risky and public credit isn't. And that there's always going to be this kind of...

Wave of credit loss in the private markets and and we've just never seen that and you can look at our public track records, you know, through the GFC and Co and, you know, rate volatility that that it's just not, it's just not there. Um,

Operator: Obviously, the last couple of years, given the elevated base rate environment, have been really good for the asset. If you look at the LTM returns, our senior direct lending delivered a 14% return. Our European direct lending 11, our opportunistic credit funds close to 16. And so not surprisingly, that is attracting capital away from traditional fixed income. And I think that the returns are durable there. The reason that the performance is improving right now, I think, is the quality of companies that are finding their way into the private markets continues to improve over time as people become aware of it as a solution. Number two, we're coming off of a vintage where equity contributions to levered capital structures are near record highs. And so the loan to value is a huge mitigant to potential loss.

you know, if you look at the annualized, uh, loss rates, in our direct lending portfolios, they they inflect around 10 basis points, um, and it's been like that for a very long time. Um, so there's this idea that direct lending hasn't been cycle tested and I, I take real issue with that. Um, obviously the last couple of years given the elevated base rate, environment have been really good for the asset. Uh, if you look at the LTM returns are, you know, senior direct lending, uh, delivered a 14% return, our European direct lending 11, our, uh, opportunistic credit funds.

Close to 16. Um, and so, not surprisingly, that is a, you know, attracting.

Operator: And so even if we begin to see deterioration in earnings, there's just so much equity subordination in these markets that I think it will dampen losses going forward. And so this expectation of increased credit loss, I just don't expect. And the other thing I think people are beginning to appreciate, which is why people borrow privately, they come to the private market because they want to have a bilateral relationship with their lender so that if times are good and they're executing in a business plan, they can very quickly invest behind the business plan. And importantly, when times aren't good, they can sit with their lender and resolve any issue, whether that's amendments, waivers, capital contributions, loan modifications.

Capital, um, away from traditional fixed income, uh, and I think that the, you know, the returns are durable there. Uh, the reason that the performance is improving right now, I think is the quality of companies that are finding their way into the private markets continues to improve over time as people become aware of it, as a as a solution. Uh, number 2, we're coming off of a a vintage where Equity contributions to levered. Uh, Capital structures are, you know, near record highs. And so the loan to value is a huge mitigant to potential loss. And so, even if we begin to see deterioration in earnings, um, there's just so much Equity subordination in these markets that I think it will, dampen, dampen losses going forward. And so, I, this expectation of of increased credit loss. I just don't, don't expect. Uh, and the other thing I think people,

I think people are beginning to appreciate the value of private borrowing. They come to the private market because they want to have a bilateral relationship with their lender.

So that if times are good and they're executing in a business plan, they can very quickly, uh, invest behind the business plan. And importantly, when times aren't good, they can sit with their lender and, you know, resolve any issues. Whether that's, uh, amendments, waivers, or capital contributions.

Operator: And when you're in the public market, what typically happens is somebody comes in and accumulates loans or bonds at a discounted par and then tries to take your company away from you. So there has been a structural shift in the market where borrowers want to be in the private market, and they want to stay in that market. And I think that's been a big part of the performance as well because you just have a lot more levers to pull to mitigate loss when you're in a bilateral situation. I do think that the duration of private credit capital, the fact that most private credit funds are unlevered or low levered, has actually dampened volatility in the market generally. And so having gone through a fair amount of rate volatility, you just haven't seen the big drawdowns in the liquid markets either.

Loan modifications and when you're in the public market.

Operator: And I think that's because of the private markets. There's also obviously the intervention of government balance sheets that's kind of helped stabilize the markets as well. But I do think that private credit is a big part of it. So look, I'm frankly, I don't want to say looking forward to a good old-fashioned credit cycle, but I think that if we do get one, that's probably what we'll get. I think it'll be an opportunity to demonstrate yet again that the asset class is durable and that we, at kind of the top of the leaderboard, can outperform when markets are tough. And so you never hope for it. But if it comes, I do think it's going to look like a good old-fashioned credit cycle that we haven't seen in a while.

That's because of the, you know, the private markets. There's also obviously the, uh...

The intervention of uh, government balance sheets. That's kind of helped stabilize the markets as well, but I do think the private credit is is a big part of it. Um, so look, I I'm I'm frankly, I don't want to say looking forward to it. A good old-fashioned uh credit cycle but I think that if we do get 1, that's probably what we'll get. I think it'll be an opportunity. You know to demonstrate yet again that the asset classes is durable and that we you know, it kind of the

Operator: And I think that'll start to show some dispersion in return and create an opportunity for further share gains and outperformance like we've demonstrated time and time again through other pockets of volatility.

Top of the leaderboard can outperform when markets are tough, and so you never hope for it. But if it comes, I do think it's going to look like a good old-fashioned credit cycle that we haven't seen in a while. And, um, I think that'll start to show some dispersion in return and create an opportunity for further share gains and outperformance. Like we've demonstrated time and time again through other pockets of volatility.

Jarrod Phillips: And as a reminder, if you'd like to ask a question today, you may do so by pressing star one. We'll go next to Brian Patel with Deutsche Bank. Your line is open. Please go ahead.

And as a reminder, if you'd like to ask a question today, you may do so by pressing star 1.

Operator: Oh, great. Thanks so much. Most of the questions have been asked and answered. Maybe just one on deployment in terms of AUM not yet paying fees. That continues to build up nicely. Just in terms of timeline, I think typically it takes, you kind of say it's like one to two years, more like 18 months or so, to deploy that. Has given the potential for deployment to improve in the second half, does that accelerate that timeline or do you still think this is that kind of window on the credit side this is?

We'll go next to Brian Bell with Deutsche Bank. Your line is open; please go ahead.

Operator: Yeah, it's really interesting. If you go back and look historically at dry powder versus deployment, it's almost been a one-to-one relationship. And so as we grow our capital base, we're able to grow our deployment. This goes back to the comment I made earlier that you want to have that tension between dry powder on the platform and the ability to invest. So I think we've always kind of said it could be 18 to 24 months, but the reality is the deployment has been roughly a year on dry powder. So if you look, for example, at AUM not yet earning fees of $105 billion right now, and you look at kind of the LTM deployment, it's been in and around that range. And that correlation has been pretty strong over the last five years.

Oh great, thanks so much. Um, most of the questions have been asked and answered maybe just 1 on uh, deployment in terms of uh, AUM, not yet paying fees, you know, that continues to build up nicely. Um, just in terms of timeline, I think. Typically it takes, um, you kind of say it's like 1 to 2 years, you know, in more like 18 months or so, uh, to deploy that has, uh, you know, given the potential for deployment to improve in the second half. Is that accelerate that time line or is it? Um, you know, do you still think this is the is that um, you know, that kind of window on the credit side? This is

Yeah, it it's it's really interesting. We we if you go back and look historically at dry powder versus deployment, it's almost been a 1 to 1 related. As we grow our Capital base, we're able to grow our deployment, this goes back to the comment. I made earlier that you want to have that tension between dry powder on the, on the platform and the ability to invest. So I think we've always kind of said it's it's could be 18 to 24 months, but the reality is the deployment has been roughly a year on dry powder. So if you look, for example, at uh, AUM, not yet earning fees of 105 billion right now. And you look at kind of the LTM deployment. It's been in and around that.

Operator: So I think given the way that we're deploying, if you look at the deployment through the first half of the year, we're definitely on pace for that kind of number. And then obviously the AUM will follow. But I think it's probably closer to a year than the typical 18 to 24 months that we've talked about in the past.

That range and and that correlation has been pretty strong over the last 5 years. So, you know, I think given the way that we're deploying, if you look at the deployment through the first half of the Year, we're definitely on Pace you know for that kind of number and then obviously the AUM will will will follow. But I think it's probably you know, closer to a year than the typical, you know, 18 to 24 months that we've talked about in the past.

Jarrod Phillips: Thank you. I'm showing no further questions at this time. This will conclude our question and answer session. And I will now turn the call over to Mr. Arougheti for final remarks.

Thank you. I'm showing no further questions at this time. This will conclude our question and answer session, and I will now turn the call over to Mr. Eric Getty for final remarks.

Operator: Great. Thank you. We don't have any other than to wish everybody a great end to the summer and look forward to catching up again next quarter. Thank you.

Great. Thank you. We don't have any other than to wish everybody a a great end to the summer and look forward to catching up again next quarter. Thank you.

Jarrod Phillips: Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available through September 1st, 2025, to domestic callers by dialing 1-800-727-1367 and to international callers by dialing 1-402-220-2669. An archived replay will also be available on the webcast link located on the homepage of the investor resources section of our website. Goodbye.

Ladies and gentlemen, this concludes our conference call for today.

If you missed any part of today's call an archived replay of this conference call will be available through September 1st 2025 to domestic callers by dialing 1, 800.

7271367.

And to international callers by dialing 1-402-220-2669.

An archived replay will also be available on the webcast link located on the homepage of the Investor Resources section of our website.

Goodbye.